What is taxation and how important it is for the Philippine economy? How does government collect taxes? Why is there a need to resort to borrowings if needed there are taxes being collected? Give at least (3) reasons. Elucidate your answer by giving examples.
Taxation, is the imposition of compulsory levies [imposed taxes] on individuals or entities by governments. Taxes are levied in almost every country of the world, primarily to raise revenue for government expenditures, although they serve other purposes as well.
In modern economies including the Philippines; taxes are the most important source of governmental revenue. Taxes differ from other sources of revenue in that they are compulsory levies and are unrequited— [i.e., they are generally not paid in exchange for some specific thing, such as a particular public service, the sale of public property, or the issuance of public debt]. While taxes are presumably collected for the welfare of taxpayers as a whole, the individual taxpayer’s liability is independent of any specific benefit received.
There are, however, important exceptions: payroll taxes, for example, are commonly levied on labor income in order to finance retirement benefits like in the AFP [Armed Forces of the Philippines] and other uniformed personnel, medical payments, and other social security programs—all of which are likely to benefit the taxpayer. Because of the likely link between taxes paid and benefits received, payroll taxes are sometimes called “contributions” (as in the United States). Nevertheless, the payments are commonly compulsory, and the link to benefits is sometimes quite weak.
It is important to the Philippines in achieving its goal of a national tax system, its sole purpose is to generate revenues to pay for the expenditures of government at all levels. Because public expenditures tend to grow at least as fast as the national product, taxes, as the main vehicle of government finance, should produce revenues that grow correspondingly. Income, sales, and value-added taxes generally meet this criterion; property taxes and taxes on nonessential articles of mass consumption such as tobacco products and alcoholic beverages do not.
In addition to producing revenue, tax policy may be used to promote economic stability. Changes in tax liabilities not matched by changes in expenditures fluctuations in prices, employment, and production. Most notably income taxes, respond strongly to changes in economic conditions.
The Philippines proposed tax policies to promote economic growth that’s why our country is experiencing an inflation due to the fact that taxes are increased in line with the increase in the wages of its people. Contrary to the previous statement, an economy like the Philippines tend to be in an inflation status because it manifest a good and developing country, unlike an economy that is idle which signifies an idle and no progress economy.
This approach may imply a qualitative restructuring of the tax system (for example, the substitution of taxes on consumption for taxes on income) or special tax advantages to stimulate saving, labor mobility, research and development which I believed that we are venturing now in space exploration, and so on. There is, however, a limit to what tax incentives can accomplish, especially in promoting economic development of specific industries or regions. An emphasis on economic growth implies the need to avoid high marginal tax rates and the tax-induced diversion of resources into relatively unproductive activities likewise in other circumstance may result in a civil revolt.
Most taxes are collected at the time a transfer is being made -whether it is withholding from a pay check, added to the purchase price of goods at the point of sale, or when a license or permit is issued.
In addition, information and tax returns are filed with the government – such as income, and estate tax returns. Tax returns are required to be filed according to the procedural law governing taxes. There are stiff penalties for failure to file information and tax returns as well as penalties plus interest for failure to pay the tax on time. In addition, it is a crime to fail to pay taxes or file information/tax returns when due.
However, despite the efforts of the government to attain a certain revenue from taxes they still resort in borrowing through domestic and foreign borrowings. Domestic borrowings are funds obtained from sources within the country. Domestic borrowings of the national government are usually made through the auction of treasury bills, notes and bonds to the public.
Foreign borrowings, on the other hand, are funds obtained from sources outside the country, such as Asian Development Bank (ADB), International Bank for Reconstruction Development (IBRD), Overseas Economic Cooperation Fund (OECF), etc. Foreign borrowings can be obtained through loans secured from foreign financial institutions or through the flotation of government securities in the international market.
The government borrows from any of the following reasons; to finance national government deficits, at some point issues and concerns despite the elimination from budget preparation still requires a lot of money which result to shortage of funds against the requirement of the country.
For example, during tough economic times like the Great Recession, many types of government spending automatically increase because more people become eligible for need-based programs like food stamps and unemployment benefits. At the same time, tax revenues tend to decrease for a couple of reasons: people are working less, and paying less in taxes; and corporations also earn less profit, and they too pay less in taxes. What’s more, lawmakers may intentionally increase government spending during a recession in order to stimulate the economy, even though they know that one short-term result will be a deficit.
Another reason why government resorts in borrowing is the Spending commitments. The government is committed to providing certain benefits, such as pensions and health care spending. With an ageing population, this puts upward pressure on government spending to rise; therefore, governments may start to run a structural deficit.
Just like what PRRD imposed to the Uniformed Personnel; he dictates that there should be an increase in the pay and allowances of all uniformed military personnel. These statement of the incumbent president marked in the ears and hearts of the uniformed personnel for so many reasons like ease in the expenditures and bills in households, failure to accomplish such commitment will resort to chaos and in worse scenario may a coup may occur. In which enemies of the government will take advantage of the situation due to the failure of PRRD to commit with his promise.
And finally one of the reasons why a country borrows money is the funding in an unforeseen war. During a war, government spending is stretched leading to higher borrowing. The highest rates of borrowing occurred during the two world wars. Also, during wars, it may be easier to sell bonds as you can play the patriotic card to encourage people to finance government borrowing.
Likewise regardless there is really a war or not, War is also considered a business and it is among the two most profitable means of revenue.
For example, if we are to launch an Oto Melara 70mm by a Philippine Warship, a single bullet costs more or less 350,000 in Philippine Peso, during the duration of war armament are spent and liquidated.
Some of them declared 50 bullets for example, yet they only fired 20. So how and where would the 30 x 350,000.00 would go? Basically these type of expenditures will definitely resort to domestic or foreign borrowings of the government.