REVIEWER
FISCAL ADMINISTRATION
LESSON 1
Fiscal administration - is the aggregate of those activities and operations of the government to
generate income, make these available, and ensure that funds are wisely, lawfully, effectively,
and efficiently spent.
Public finance - the branch of economics which deals with the revenues and expenditures of
governments and their impact on the economy
Levels Fiscal activity in the organization
top management - most concerned about it
middle management - intensely involved in it
rank and file- very much affected by whatever results of it
the lead agencies tasked with fiscal functions
Congress - Enactment of revenue and expenditure policies to support projected government
expenses every fiscal year
Department of Finance- Revenue generation and collection
Department of Budget and Management- Review of the estimates on budget and expenditure
Commission on Audit (COA) -Conducts financial, compliance, and performance audits to
ensure that expenditures are in strict accordance to the Appropriations Law
Revenue Sources of the Government
Tax Revenue- This covers compulsory contributions to finance government operations. It is the
primary and traditional source of income.
taxation -is among the inherent powers of the state along with eminent domain and police
powers
Direct taxes- are those which payment is absorbed by the person to whom the taxes are
imposed (income, real property)
Indirect taxes - are those charges paid by a person other than one on whom they are legally
imposed (license, business and occupation taxes, import and export duties, sales)
Non-Tax Revenue- These are earned or realized from regular operations and services
rendered, government business or proprietary operations, sales of assets, and grants/aids,
whether actually collected in cash or accrued resulting in addition to or increases in the net
assets of the government
a. Operating and service income
b. Income from public enterprises and investments
c. Capital Revenues
d. Miscellaneous income
e. Grants and aids
f. Borrowings
The Fundamental Principles of Fiscal Operations
1. no money shall be paid out of the public treasury except in pursuance of an appropriations
made by law or other specific statutory activities;
2. government funds or property shall be spent or used exclusively for public purposes;
3. trust funds shall be available and may be spent solely for the special purpose for which it was
created;
4. fiscal responsibility shall to a greatest extent be shared to all those exercising authority over
the financial affairs, transactions, and operations of the government;
5. disbursement or disposition of government funds or property shall consistently bear the
approval of proper officials;
6. claims against government funds shall be supported with complete documentation;
7. all laws and regulations applicable to fiscal transactions shall be faithfully adhered to; and 8.
universally accepted principles and practices of accounting as well as sound management and
fiscal administration shall be observed provided they do not break existing laws and regulations.
Fiscal Control Mechanisms
budget – financial plan
1. To prevent misappropriation of funds
2. Control to implement prospective policy.
3. Ensure the judiciousness and decency of expenditure.
4. To prevent deficits
LESSON 2
A. Monetary and Fiscal Policy
Monetary and fiscal policies constitute the major arsenal of tools at the disposal of
policymakers to achieve high levels of economic growth consistent with stability, full
employment, and an acceptable pattern of income distribution
Monetary Policy- Monetary policy is the process a government, central bank, or monetary
authority of a country uses to control
(i) the supply of money,
(ii) availability of money, and
(iii) cost of money or rate of interest to attain a set of objectives oriented towards the
growth and stability of the economy.
Types of Monetary Policies
Bank Reserve Requirements -Through reserve requirements, the central bank requires banks
and other depository institutions to hold a certain amount of funds in reserve to meet outflows of
money, such as customer withdrawals.
Open Market Operations- open market operations involve the purchase and sale of
government securities on the open market by central banks.
Federal Interest Rate- When inflationary pressures appear in the economy, the Federal
Reserve often increases the federal funds rate, making it more expensive to borrow reserves
and thus reducing the money supply. Lowering the federal funds rate expands the money
supply.
Federal funds rate- is an interest rate that banks charge each other for short-term
loans.
Discount Rate- is the interest rate that the Federal Reserve and other countries' central
banking authorities charge banks and other depository institutions for borrowing reserves.
The Role of Monetary Policy
1. Regulate the quantity of money and its rate of turnover
2. further enhance the development process by helping bring about the institutionalization
of saving and investment.
3. it is an economic stimulus
Disadvantage of developing countries
(1) vulnerability to economic fluctuations occurring in their industrially advanced partners;
(2) low income elasticity of demand for primary products;
(3) discovery and development of substitutes for primary products;
(4) high propensity to import; and
(5) vulnerability of primary production to adverse weather conditions.
The Role of Contractionary and Expansionary Monetary Policy
Expansionary Monetary Policy- (DURING RECESSION) periods of low economic growth or
recession, a national bank can help its country's economy by supplying it with extra money. It
lowers the basic interest rate at which it lends money to other banks in the country.
Contractionary Monetary Policy- (DURING INFLATION) are applied when it is necessary to
reduce the money supply and curb spending in a country. Reduce money supply by raising the
basic interest rate, which makes borrowing more expensive.
Advantages of Monetary Policy
1. It can bring out the possibility of more investments coming in and consumers
spending more.
2. It allows for the imposition of quantitative easing by the Central Bank.
3. It can lead to lower rates of mortgage payments
4. It can promote low inflation rates.
5. It promotes transparency and predictability
6. It promotes political freedom.
1.
2.
3.
4.
5.
Weaknesses of Monetary Policy
Blunt Instrument
Long impact lags
It does not guarantee economy recovery
It is not that useful during global recessions
Its ability to cut interest rates is not a guarantee.
Fiscal Policy- the mix of laws, rules, and regulations on taxation and revenue administration,
government budgeting, public expenditure management, public borrowing and debt
management, government accounting, and auditing formulated, implemented, and regularly
evaluated for the achievement of government objectives or A government policy for dealing
with the budget (especially with taxation and borrowing).
The Role of Fiscal Policy
1. Mobilization of resources
2. Acceleration of economic growth
3. Minimization of the inequalities of income and wealth
4. Increasing employment opportunities
5. Price stability
Reflationary/Expansionary Fiscal Policy- used to boost economic activity during periods of
recession or deceleration in economic activity. This is done by lowering taxes or increasing
government expenditure.
Deflationary/Contractionary Fiscal Policy- when the economy is growing beyond its capacity,
inflation and balance of payment problems might result. This can be achieved by increasing
taxes or by reducing government expenditure.
three major functions of fiscal policy
1. Allocation function- total resource use is divided between private and social goods
2. Distribution function- Re-distribution of income and wealth
3. Stabilization function-maintaining high employment rate, a reasonable degree of price
stability
development function - the most important function of fiscal policy in
developing countries must be added.
Advantages of Fiscal Policy
1. Unemployment Reduction
2. Budget Deficit Reduction
3. Economic Growth Increase
The limitations of Fiscal Policy
1. A sizeable portion of most developing economies is non-monetized, rendering fiscal
measures of the government ineffective and self-defeating.
2. Lack of statistical information as regards the income, expenditure, savings, investment,
employment etc. makes it difficult for the public authorities to formulate a rational and effective
fiscal policy.
3. Fiscal policy cannot succeed unless people understand its implications and cooperate with
the government in its implication. This is due to the fact that, in developing countries, a majority
of the people is illiterate.
4. Large-scale tax evasion, by people who are not conscious of their roles in development, has
an impact on fiscal policy.
5. Fiscal policy requires efficient administrative machinery to be successful. Most developing
economies have corrupt and inefficient administrations that fail to implement the requisite
measures vis-à-vis the implementation of fiscal policy.
Major limitations of fiscal policy
1. Policy Lags
(а) Recognition Lag - the interval between the time when action is needed and when
it is recognized that action is needed.
(b) Administrative Lag- the interval between the time when need of an action is
recognized and the time when the action is actually taken
(c) Operational Lag - time interval between when action is taken and when it has its
impact on income and employment is known as the operational or the outside lag
2. Forecasting- the practical difficulty of observing the coming events of economic instability
3. Correct Size and Nature of Fiscal Policy- fiscal policy will depend is the ability of public
authority to frame the correct size and nature of fiscal policy on the one hand and to foresee the
correct timing of its application on the other
4. Fiscal Selectivity- encroaches directly upon the market mechanism and gives rise to an
allocation of resources which may be construed as good or bad depending upon one’s value
judgements.
5. Inadequacy of Fiscal Measures-In case the injections or withdrawals from the circular flow
are more or less than what are required, the system will fail to move in the desired direction.
This results in exaggeration of instability in the economy.
6. Adverse Effect on Redistribution of Income- the fiscal action will be contractionary if
larger part of the additional income goes to people having higher marginal propensity to save.
7. Self-offsetting Effect-.The expansion of public spending may be associated with a
curtailment of private spending. Consequently, the fiscal measures may be self-offsetting.
8. Reduction in National Income- it becomes smaller than the taxpayers, the fiscal
programmes under balanced budget will bring about reduction in the national income.
9. Solution for Unemployment- purpose of fiscal policy will be defeated if the policy cannot
maintain a rising supply level of work effort.
10. Adverse Effect on Debt Management- if the process of recovery from depression is long,
the creation of budget deficit year after year will create a huge problem of debt repayment and
debt management
11. Adverse Psychological Reaction- Large deficit programs financed by borrowings bring
about adverse psychological reactions.
12. Hardships in U.D.Cs-e a stagnating agricultural sector dominates the largest part of their
economy where marginal propensity to consume is so high that most of the additional income is
consumed and the marketable surplus is the least
13. Administrative Problems in Democratic Countries- time-consuming process/
administrative tasks and the executive process are often delayed
balance of payments- is a measure of the payments that flow from one country to another.It is
determined by a country's exports and imports of goods, services, and financial capital, as well
financial transfers.
positive balance of payments-more money flows in than out
negative balance-more flows out than in,
LESSON 3
TAXATION PRINCIPLES AND POLICIES
Taxation-e main revenue generating mechanism of the government. Inherent in every state
along with police powers and eminent domain ( exclusively legislative)
A. Sources of Taxation
1. The Constitution- fundamental law of the land to which all laws must conform. also viewed
as a contract where the people surrender the exercise of some of their sovereign powers to the
government
2. Laws are Congressional enactments- called Republic Acts (RA’s). These include
Presidential Decrees (PD’s) promulgated by former president Ferdinand Marcos, in the exercise
of lawmaking powers under the 1973 Constitution; the Batas Pambansa (BP) enacted by the
abolished Batasan; and the Executive Orders issued by president Aquino pursuant to the
Freedom Constitution. The primary tax laws of the Philippines
•
•
•
•
National Internal Revenue Code (NIRC) PD 1158 as amended;
Tariff and Customs Code (TCC) – PD 1464 as amended;
Local Government Code of 1991; and
The Act creating the Court on Tax Appeals (RA 1125).
3. Administrative rules and regulations-those promulgated by or under the authority of the
secretary of the Department of Finance.
4. Administrative rulings and opinions-are interpretations that are issued by implementing
agencies involved like the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC)
5. Judiciary decisions-promulgated by the Supreme Court and the Court of Tax Appeals
(CTA) in interpreting tax laws
•
Article VIII, Section 5 (2b) The decisions of the CTA are still appealable to the Supreme
Court
B. Limitations on Power of Taxation
1. Inherent Limitations- These limitations are by nature of taxation.Aren’t provided in the
Constitution or in any legislative enactments
A.
Public purpose-Taxation shall be levied solely for the support of the State
B. Non-Delegation of Taxing Power- based on the principle that “what has already been
delegated can further be delegated”.
This rule has recognized exceptions:
• Delegation to the President.
• Delegation to Local Government Units (LGUs)
• Delegation to Autonomous Regions.
• Delegation to Administrative Agencies.
C. Exemption of government agencies-Government imposition of taxes on its entities is
absurd for it is just like transferring money from the right pocket to the left
D. Limitations of territorial jurisdiction- Any State is supreme only within its territory
E. International Comity- It applies to agreements and interactions between and among
nations or the informal and nonmandatory courtesy.
2. The Constitutional Limitations- mandated by the Constitution including the Bill of Rights
a. Due process of law- “no person shall be deprived of life, liberty, and property without
due process of law
b. Equal protection of law- all persons subject to legislation shall be treated equal
under the same circumstances and conditions both in the privileges conferred and
liabilities imposed
c. Uniformity and Equality- taxation shall be uniform and equitable and that the
Congress shall evolve a progressive tax system is related to the equal protection
guarantee.
• Uniformity of operation throughout the tax unit
• Equality in burden
d. Non-imprisonment for Debt- No person shall be imprisoned for debt or for nonpayment of poll tax
e. Non-impairment of contractual obligations. The provision on obligation and
contract means that the law cannot alter the relationship that results from a contract
without the consent of the parties.
f. Non-Infringement of Religious Freedom- It is provided that no law shall be made on
establishment of religion or prohibiting the free exercise of – the free exercise of
religion and worship shall forever be allowed
g. Non-appropriation for religious purposes- no public money or property shall ever
be appropriated or used directly or indirectly for any religious and private purposes
H. Non-taxation of religious or charitable entities and properties - This is based on
the provision that exempts charitable institutions.
i. Non-Taxation of Non-stock, Non-profit Educational Institutions- applicable only to
revenues and assets used actually, directly, and exclusively for educational
purposes.
j. Other Constitutional limitations- “no law granting any tax exemption shall be
passed without the concurrence of the majority of the members of the Congress.
C. Legal Process of Taxation- In local governments, taxes are levied by the respective
Sanggunians of the provinces, cities, municipalities, and barangays pursuant to RA 7160
otherwise known as the Local Government Code of 1991.
Sangguniang Panlalawigan for provinces
Sangguniang Panlungsod for cities
Sangguniang Bayan for municipalities
Sangguniang Barangay for barangays
Key idea
the LGC of 1991 provides for review by the concerned Sangguniang Panlalawigan of the
ordinances of the component cities and municipalities;
while that of the barangays must be reviewed by the concern Sangguniang Panlungsod or
Sangguniang Bayan.
TAXATION THEORY AND PURPOSE
Smith’s principle of an ideal tax system
Equity- This principle stipulates that taxes must be based on taxpayer’s capacity as
measured by one’s size of income.
Certainty- This principle prescribes that taxpayers should know what taxes are imposed,
how much amount to pay, and the mode of payment.
Convenience -This refers to the convenience of the place, time, and the manner of
payment. Thus, collection offices must be located at places easily and conveniently
accessible to the taxpaying public.
Economy- According to this principle, tax administration should not involve too much
expense on the government.
Classification of Taxes
1.As to purpose. The purpose of taxation could either be fiscal – to generate income, and/or
regulatory – intended to achieve either social and/or economic goals
regardless of whether revenue is raised or not at all. 2.
2.As to incidence. This refers to the point at which the burden of tax is
actually put on – who carries the burden.
3. As to rate. Tax can be proportional, progressive, or regressive. It’s
proportional when it has a fixed percentage, regardless of the size of
income or value of a property. Thus, a single rate is being applied to
different objects with different values.
4. As to authority. A tax can be imposed and collected by either the
national government (e.g. income tax) or the local government units (e.g.
real property tax).
5. As to object. A tax may be charged on the personal occupation the
taxpayer is engaged into, upon property, and on transactions.
6. As to scope. Taxes may be general or specific. General taxes are those
imposed throughout the State for the purpose of financing the affairs of the
government (e.g. income tax, real property tax). Meanwhile, special taxes
are those levied for a special purpose, and for the benefit of only of some
(e.g. road users tax, flood control tax, anti-TB stamp tax).
7. As to amount to be paid. An example of this classification is the specific
tax which is paid in exact amount as appraised by the head or number, or by
some standard weight or measurement.
QUIZES Lesson 1
1.The aggregate of those activities and operations of the government to generate income, make
these available, and ensure that funds are wisely, lawfully, effectively, and efficiently spent.
• Fiscal Administration
2.Which job is reviewing the estimates of the budget of expenditure?
• Department of Budget and Management
3.These are those for which payment is absorbed by the person to whom the taxes are imposed
• direct taxes
4.Which level is very much affected by fiscal administration by whatever its results are?
•
rank and file
5.Which job is to conduct financial, compliance, and performance audits to ensure that
expenditures are in strict accordance with the Appropriations Law?
• Commission on Audit
6.Which level is intensely involved in fiscal administration?
• middle management
7.These are non-repayable transfers, whether in cash or kind, received from other levels of
government, the private sector, and domestic and international foundations or institutions.
• grants and aids
8.These are earned or realized from regular operations and services rendered, government
business or proprietary operations, and sales of assets among others.
• non-tax revenue
9.These are those tax charges paid by a person other than the one on whom they are legally
imposed.
• indirect taxes
10.The branch of economics deals with governments' revenues and expenditures and their
impact on the economy.
• public finance
11.A financial plan or the financial plan of the government.
• Budget
12.It is the primary and traditional source of income for the government. This covers compulsory
contributions from the citizens to the government.
• tax revenue
13.Which job is the enactment of revenue and expenditure policies to support projected
government expenses every fiscal year?
• Congress
14.Which job is revenue collection?
• Department of Finance
15.Which management level is most concerned about fiscal administration?
• top management
Briefly discuss the difference between grants and aids.
LESSON 3 ( Guide Questionnaire )
These limitations means all persons subject to legislations shall be treated equal under
the same circumstances and conditions both in the privileges conferred and liabilities
impose.
Answer: Equal Protection of law
These limitations are by nature of taxation. These are not provided in the Constitutions or
in any legislative enactments.
Answer: Inherent limitations
No person shall be imprisoned for dept or for non-payment of poll tax - what is this
limitation?
Answer: non-imprisonment for debt
The provision of obligation and contracts means the law cannot alter the relationship that
results from a contract without the consent of the parties. What is this limitations?
Answer: Non-Impairment of Contractual Obligations
This tax is assessed on real properties located within the territory of a local government
unit in proportion to its value or in accordance with some other reasonable method of
appointment. Real properties cover lands and buildings. In the Philippines, it is not
necessarily levied on the registered owner of the property but on the one who actually
uses it, like the renter.
Answer: Real Property Tax
The limitations which provides that, taxations shall be levied solely for the support of the
state -its operations, or for some recognized objects government, and to promote the
welfare of its citizenry.
Answer: public purpose
Any state is supreme only within its territory. This limitation is specifically called?
Answer: Limitation of territorial jurisdiction
The rationale behind this limitation is that government imposition of taxes on its entities
is absurd for it is just like transferring money from the right pocket to the left.
Answer: Exemption of government agencies.
This limitation applies to agreement and interactions between and among nations or the
informal and non-mandatory courtesy oftentimes referred to as a set of rules to which the
courts of one states often defer in detrmining questions where the laws or interest of
another staes are involved.
Answer: International Comity
A poll tax charged from individuals, partnership, and corporations residing in the
Philippines.
Answer: Community Tax or "Cedula
Sangguniang barangay is of Barangay, Sangguniang panglungsod is of Cities,
Sanggunian Panlalawigan is of?
Answer: province
The province, cities and municipalities are responsible for the proper, efficient and
effective, administration of tax on real property.
Answer: True
The tax is in fix percentage is called?
Answer: poll tax
The veto power of the president is absolute; while the veto power of local chief executive
is not.
Answer: False
It has always been the main and traditional source of government revenues. It is an
inherent power of every independent state.
Answer: Taxation
The secretary of finance recommends tax policy measures to the president which will be
submitted to congress, then once becomes laws shall be implemented by the DOF.
Therefore, the executive branch has an important role in the policy-making process.
Answer: True
The tax ordinances of a barangay has to pass reviewed by the Sangguniang panlalawigan
concern.
Answer: False
In local government, taxes are levied by the
Answer: Sanggunian of the provinces, cities, municipalities and barangays