What is Public Finance?

Public finance is the management (process of dealing) of a country’s revenue (income of the
government, revenues collected from taxes on income, contributions, transfer of property and other
taxes) expenditures (is a Government spending includes all government consumption, investment and
transfer payments), and debt load (MANILA, Philippines, 5 May 2022 – The National Government's (NG)
total outstanding debt was registered at P12. 68 trillion as of end-March 2022. For the month, P586. 29
billion, or 4.8% of the total debt portfolio was added primarily due to the net issuance of government
securities to both local and external lenders.) through various government and quasi-government
institutions. This guide provides an overview of how public finances are managed, what the various
components of public finance are, and how to easily understand what all the numbers mean. A
country’s financial position can be evaluated in much the same way as a business’ financial statements.
Components of Public Finance

The main components of public finance include activities related to collecting revenue – in

revenues we have the so called TAX which is the main revenue source of governments. (which
means ginakuhaan ug pundo sa governo) AND WE HAVE TWO CLASSES OF REVENUES ONE IS
TAX AND NON-TAX , Tax revenue is charged on income earned by an individual or an entity (direct
tax) and on the value of transaction of goods and services (indirect tax). On the other hand, non-
tax revenue is charged against services provided by the government. (BEFORE WE PROCEED IN
DIFFERENCIATING THE TAX AND NON-TAX LET ME ASK YOU, WHAT IS THE PURPOSE OF
TAXES?)

WHAT IS THE PURPOSE OF TAXATION?- 1. THE PURPOSE OF TAXATION IS TO RAISE REVENUES, INCOME NGA
NAGASULOD SA ATONG GOBYERNO. PARA ANG GOBYERNO NAAY INCOME, KUMITA. (EXAMPLE: SALES TAX,
VAT (VALUE ADDED TAX)
2. REGULATORY O SPECIAL TAX - is imposed primarily for the regulation of useful or non-useful occupation or
enterprises and secondarily only for the purpose of raising public funds. (GINA IMPOSE NI NGA TAX
BECAUSE PARA MAAYO ANG PAGGAMIT SA MGA PRODUCTS (EXAMPLE: TARIPA SA GINAANGKAT NGA
PRODUCTS

AYON KUNG SINO ANG NAGBAYAYAD NG BUWIS – EXAMPLE: INCOME TAX (DIRECT TAX) GINA IMPOSE NG
ATAX SA KADA TAO NGA NATRABAHO O COMPANY. 2.) DONOS GIFT TAX IS ABOUT TRASNFER OF RIGHT SA
IMONG MGA ARI-ARIAN. 3.) REAL PROPERTY TAX – EX:TAX SA IMONG YUTA, GUSALI, MAKINARYA (LTO)SA
IMONG SAKYANAN. 4.) TAX WINNING (PREMYO) EX: 10% NA BUWIS SA TANANG MGA DULA NGA NAAY
PREMYO LOTTERY, RAFFLE ETC. 5) BUSINESS TAX – TAX NGA GINA ADD SA PRESYO NG PRODUKTO, GINA
IMPOSE NI NGA TAX DIDTO SA NAGABALIGYA SA ILANG PRODUCTS. EX: VALUE ADDED TAX (VAT), SALEZ
TAX. 6) EXPANDED VALUE ADDED TAX (E-VAT) EX: SERVICES NG RESTAURANT, HOTELS, RESORTS,
CLUNS, RENT, CAR COMPANIES, IMPORTED GOODS, SHIPPING TRUCKINH, TELEBESYON, 7) EXCISE TAX-
MGA PRODUCTS NGA GINA PRODUCE SA PILIPINAS OR ANGKAT SA LAING NASUD 8) SPECIFIC TAX –
BULTO OR BIGAT NG PRODUCTS, EX: ALAK, FUEL, SIGARILYO 9) AD VOLOREM TAX

THE TWO AGENCIES HAS THE POWER TO COLLECT AND CHARGE TAX RATE OR KNOW THE PERCENTAGE
OF A TAX:
BIR (BUREAU OF INTERNAL REVENUE)
BUREAU OF CUSTOMS
THIS TWO AGENCIES HAS THE AUTHORITY OR POWER TO COLLECT TAXES.

LOCAL TAXES – EX. RESIDENTIAL TAX OR SEDULA- KADA TUIG ANG PAG BAYAD ANI SA TANANG CITIZENS
SA PILIPINAS EDAD 18 PATAAS. 2.) REAL PROPERT TAX 3.) DOCUMENTARY STAMP TAX – EXCISE TAX PARA
SA MGA DOCUMENTS, LOAN, AGREEMENTS COMMERCIAL PAPERS, SALE AND TRASNFER OF OBLIGATION
AT RIGHT OR PROPERTY INCIDENT.
Government expenditure is defined as all government spending in an economy. Government expenditure consists
of two parts, current government expenditure and capital government expenditure: Current expenditure - government
spending on the day-to-day operations of government, for example the costs of running a hospital

making expenditures to support society, and implementing a financing strategy (such as issuing government
debt). The main components include:

WHAT IS REVENUE?
Government revenue refers to all the income of the government from taxes and non-tax sources. These funds
are used for government expenditure. Government revenues and spending are an important part of fiscal policy
of the government.
 
Revenue refers to all the receipts of the government from taxes, custom duties, revenue from state-owned
enterprises, capital revenues and foreign aid.
 
Ex: SG18 – tax 7,000.00

Government Revenue - refers to the revenue of the government finance by means of participating in the distribution
of the social products, which is the financial resources for ensuring the government to function. The contents of
government revenue have been changed several times. Now it includes the following main items:

(1) Various tax revenues, including value added tax, business tax, consumption tax, land value added tax, tax on city
maintenance and construction, resources tax, tax on use of urban land, enterprise income tax, personal income tax,
tariff, stamp tax on security transactions, tax on purchase of motor vehicles, tax on agriculture and animal husbandry
and tax on occupancy of cultivated land, etc.

(2) Special revenues, including revenues from the fee on sewage treatment, fee on urban water resources, fee for the
compensation of mineral resources and extra-charges for education, etc.

(3) Other revenues, including revenue from interest, revenue from the repayment of capital construction loan, revenue
from capital construction projects, and donations and grants.

(4) Subsidies for the losses of the state-owned enterprises. This is an item of negative revenue, consisting of subsidies
to industrial, commercial and grain purchasing and supply enterprises.

Government Expenditure- refers to the distribution and use of the funds the government finance has raised, so as to
meet the needs of economic construction and various causes. It includes the following main items:

(1) Expenditure for capital construction: It refers to the non-gratuitous use and appropriation of funds for capital
construction in the range of capital construction, outlay of capital as well as the loans on capital construction approved
by the government for special purpose or policy purpose and the expenditure with discount paid in an overall way
within the amount of the funds appropriated to the departments for capital construction.

(2) Innovation funds of the enterprises: They refer to the funds appropriated from the government budget for the
enterprises to tap the latent power, upgrade the technology and carry out innovation, including the innovation fund of
the departments, loan of the enterprises for innovation, subsidies on the innovation of the small fertilizer plant, small
cement plant, small coal mines, small machinery plant and small steel plant, the expenditure of interest for the loan for
innovation.

(3) Geological prospecting expenses: They refer to the expenses appropriated from the government budget to the
geological prospecting units for the expenditure of the prospecting work, including the expenditures of the
administrative agencies for geological prospecting and their institutional units as well as the geological prospecting
expenditure.

 (4) expenditures for science and technology promotion: They refer to the expenses appropriated from the government
budget for the scientific and technological expenditure, including new products development expenditure, expenditure
for intermediate trial and subsidies on important scientific researches.

(5) Expenditure for supporting rural production: It refers to the expenditures appropriated from the government budget
for supporting the various expenditures of the rural collective units or households for production, including the
subsidies to the small water conservancy projects and well drilling, sprinkling irrigation projects run by the villages;
subsidies on the rural water and soil conserving measures; subsidies to the small power stations run by the villages;
subsidies to the expenditure for fighting against particularly severe draughts; subsidies on the rural waste land
exclamation; fund for supporting the township enterprises; fund for supporting rural cooperative production
organizations, subsidies to the expenditure for popularization of the agricultural technologies and plant protection in
the rural areas; subsidies to the expenditure for the protection of grasslands and cattle and fowls; subsidies
on afforestation and forest protection in rural areas; subsidies on the rural aquatic products industry; special fund for
developing grain production.
(6) Operating expenses of the departments of farming, forestry, water conservancy and meteorology etc.: They refer to
the expenses appropriated from the government budget for the expenditures of agricultural exclamation, farms,
agriculture, animal husbandry, agricultural machinery, forestry, timber industry, water conservancy, aquatic products
industry, meteorology, technology popularization in township enterprises, popularization (demonstration) of improved
varieties, plant (cattle and fowls, forest) protection, water quality monitoring, prospecting and designing, resources
investigation, cadres training, subsidies to horticulture gardens, expenditure of specialized secondary schools, subsidies
on the experiments of sowing herbage seeds by flights, expenditures of afforestation agencies and meteorology
agencies, expenses for fishery administration and operating expenses for agricultural administration, etc.

(7) Operating expenses of the departments of industry, transport and commerce: They refer to the expenses
appropriated from the government budget to cover the expenditure on salaries and operational expenditure of the
departments of industry, transport and commerce for the expenditure of business development, including expenses for
prospecting and designing, expenditures of specialized secondary schools, expenditures of the technical training
schools and expenditures for cadres training, etc.

 (8) Operating expenses of the departments of culture, education, science and public health: They refer to the expenses
appropriated from the government budget for the expenditures on salaries and operational expenditure of the causes of
culture, publication, cultural relics, education, public health, traditional Chinese medical science, free medical services,
sports, archives, earthquake, ocean, communications, broadcasting, film and television, family planning; expenditure
for training of cadres of government, party and mass organization; expenditures for natural sciences, social sciences,
associations for science and technology and the special expenditure for the high-tech researches. They include mainly
wages, extra wages, welfare funds, pension for the retirees, stipend, expenses for official business, expenses for
equipment purchases, expenses for repairs, business expenses and subsidies to the units which are unable to support
their expenditures by their own earnings.

(9) Pension for the disabled or for the families of the bereaved and relief funds for social welfare: They refer to the
funds appropriated from the government budget for the expenditures of pension for the disabled or for the families of
the bereaved and relief funds for social welfare, including the lump-sum or regular pension paid by the departments of
civil affairs to the members of martyrs families and families of those who died for the public interest, pension to the
revolutionary disabled, subsidies for permanent disability of various kinds, subsidies to the military martyrs dependents
and the demobilized servicemen, expenditure for settling down the demobilized servicemen, operating expenses of the
consoling institutions, expenses for management and repair of the commemorative buildings for the martyrs, the
expenses managed by the departments of civil affairs for the retirees and those who have quitted their work, expenses
for social relief in rural and urban areas, operating expenses for providing relief to the areas of natural calamity and
subsidies on the reconstruction after the particularly severe natural calamities, etc.

(10) Expenditure on retirees: It refers to the expenditure on retirees of government agencies and institutions that are
covered by the state budget.

(11) Expenses on subsidies to social security system: It refers to expenditure from the state budget for subsidies to
social security system, including subsidies to the social insurance fund, subsidies to promoting employment, subsidies
to laid-off workers of state-owned enterprises, supplement to national social security funds, etc.

(12) Expenditures for national defence: They refer to the funds appropriated from the government budget for the
expenditures for building up national defence and safeguarding national security, including expenses of
national defence, expenses of scientific researches on national defence, expenses for building up peoples militia and
expenditure for special projects, etc.

(13) Administrative expenses: They include expenditure for administration, subsidies to the parties and mass
organizations, diplomatic expenditure, expenditure for public security, judicial expenditure, law court
expenditure, procuratorial expenditure and subsidies to the expenses for treating the cases by the public security
departments, procuratorial organs and law courts.

(14) Expenditure on policy-related subsidies: It refers to the expenditure appropriated, with the approval of the
government, from the state budget for price subsidies on such products as grain, cotton and edible oil. More
specifically, it includes subsidies to the difference between the selling prices and purchasing prices of grains, cotton
and edible oil, subsidies for curtaining prices and for sugar reserve, subsidies to the difference between the selling
prices and purchasing prices of means pf agricultural production, risk fund for grains, risk fund for non-staple food,
risk fund for local production of coal, etc.

(15) Expenditure on interest of debts: It refers to expenses from the state budget on paying interest of domestic and
foreign debts.

Revenue of the central government and revenue of the local governments:  refers to the revenue of the central
government and that of the local governments as defined by the decentralized taxation system starting from 1994. In
accordance with this system, the revenue of the central government includes tariff, consumption tax and value added
tax levied by the customs, consumption tax, income tax of the enterprises subordinate to the central government,
income taxes of the local banks, foreign-funded banks and non-bank financial institutions, business tax and profits of
railways, head offices of banks, head office of insurance company , which are handed over to the government in a
centralized way, tax on city maintenance and construction, tax on purchasing motor vehicles, tonnage tax of ships, 75%
of the value added tax, 94% of the tax on stock dealing (stamp tax), interest income tax in the personal income tax,
proportion of the personal income tax (other that interest income tax) to be shared by the central government, and tax
on ocean petroleum resources,. The revenue of the local governments includes business tax, income tax of the
enterprises subordinate to the local government, proportion of the personal income tax (other that interest income tax)
to be shared by the central government, tax on the use of urban land, tax on the adjustment of the investment in fixed
assets, tax on town maintenance and construction, tax on real estates, tax on the use of vehicles and ships, stamp tax,
slaughter tax, tax on agriculture and animal husbandry, tax on special agricultural products, tax on the occupancy of
cultivated land, contract tax, value-added tax on land, income from charges on use of state-owned land, 25% of the
value added tax, 6% of the tax on stock dealing (stamp tax) and tax on resources other than the ocean petroleum
resources.

Expenditure of the central government and expenditure of the local governments:  according to the different
functions of the central government and local governments in the economic and social activities, the rights of affairs
administration are classified between the central government and local governments; and the classification of the
expenditure between the central government and local governments are made on the basis of the classification of the
rights of affairs administration between them. The expenditure of the central government includes the expenditure for
national defence, expenditure for armed police forces, the administrative expenses and various operating expenses at
the level of central government, expenditure for key projects and the expenditure of the central government for
adjusting the national economic structure, coordinating the development among different regions and exercising the
macro-economic regulation and control. The expenditure of the local governments includes mainly the administrative
expenses and various operating expenses at the level of local governments, the expenditure for capital construction and
technological innovation with the funds raised by the local government, expenditure for supporting rural production,
expenditure for city maintenance and construction and expenditure for price subsidies, etc.

Extra-budgetary revenue and expenditure  Extra-budgetary fund refers to financial fund of various types not
covered by the regular government budgetary management, which is collected, allocated or arranged by government
agencies, institutions and social organizations while performing duties delegated to them or on behalf of the
government in accordance with laws, rules and regulations. It mainly covers following items: administrative and
institutional fees, governmental funds and extra charges that are stipulated by laws and regulations; administrative and
institutional fees approved by the State Council and provincial governments and their financial and planning (price
management) departments; governmental funds and extra charges established by the State Council and the Ministry of
Finance; funds turned over to competent departments by their subordinate institutions; self-raised and collected funds
by township governments for their own expenditure; and other financial funds that are not covered in budgetary
management. Social security funds are treated as extra-budget fund and managed for its exclusive use, given the
circumstance that separate government budgetary system for social security is yet to be designed. Special accounts are
opened by the financial departments in banks for the management of revenue and expenditure of extra-budgetary fund.
Extra-budgetary revenue and expenditure is managed separately, namely, revenue of institutions and departments must
enter into the special accounts of the financial departments at the same administrative level, and their extra-budgetary
expenditure is arranged in line with the extra-budget plans and appropriated from these accounts.
       Revenue from debts  refers to fund raised by the state in credit forms, including various domestic government
bonds issued by the Ministry of Finance to commercial banks and other investors, bonds in foreign currencies issued
by the Ministry of Finance at the international capital market, and other foreign debts borrowed and to be repaid
centrally by the government finance.
       Expenditure on repayment of principal of debts  refers to the expenditure from government finance on the
repayment of principal of domestic and foreign debts.
       Deficit of central government finance  refers to the difference between the total expenditure and the total revenue
of the central government.