COMPONENTS OF FISCAL POLICY

Fiscal policy refers to the actions governments take in relation to taxation and
government spending. Governments use fiscal policy to try and manage the wider
economy. By increasing or reducing taxes and spending, governments look to increase
or decrease the velocity of money, which can have an effect on inflation and consumer
spending.
Fiscal policy is important as it affects the income consumers take home. This is
because taxation is a key part of fiscal policy, so if the government decides to increase
taxes, it reduces the disposable income of households. With lower levels of income,
households are unable to spend as much as previous – thereby affecting demand and
hence jobs in the wider economy.
Government receipts are the amount of money received by the government from
various sources1. They can be classified into revenue receipts and capital receipts234.
Revenue receipts are the income of the government that does not create any liability or
reduce any assets23. They include taxes, profits of public enterprises, grants, etc.354.
Capital receipts are the income of the government that either creates a liability or
reduces an asset4. They include loans, disinvestment, etc.
Government expenditure refers to the money the government spends on goods and
services or other items. Examples of government expenditures include operational
activities and investments in public services such as defense, education, social
protection, and health care1. Government expenditures are used by the government
sector to undertake key functions, such as national defense and education.
Public debt is the total outstanding debt of a country’s government1. It is the fund
borrowed by the government from various sources, such as people, banks,
organizations, and other countries23. Public debt is different from private debt, which is
the obligations of individuals and non-governmental entities4. Public debt is usually
expressed as a ratio of Gross Domestic Product (GDP)1. Public debt has to be repaid
with interest, so it does not constitute income

GOVERNMENT REVENUE TAXES, FEES AND OTHER SOURCES

What are Taxes in the Philippines?
Tax is a fee that people and entities need to pay to the government to fund various social
services and infrastructure crucial for nation-building and economic growth.
The National Internal Revenue Code (Tax Code)[2] lays down the rules on taxation in the
Philippines. It identifies who should pay taxes and the types of taxes that should be collected
from taxpayers.

The Philippine tax law has undergone several reforms. The most recent one is the Republic Act
10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Act,[3] which took effect in
2018.

The Importance of Different Types of Taxes in the Philippines

What is the purpose of taxation? The Philippine government relies on tax revenue to fund its
operations and finance its development projects. Being the lifeblood of the government, tax
revenue is a critical part of the country's economic and fiscal policy.

What are the Types of Taxes in the Philippines?

Generally, taxes in the Philippines can be classified into three types: national, local, and special
taxes.

📌 National Taxes

National taxes in the Philippines[5] are fees that the BIR collects from taxpayers all over the
Philippines. Here are the national taxes imposed on different incomes and transactions in the
Philippines, as defined by the BIR:
Capital gains tax – Tax imposed on the gains presumed to have been realized by the seller from
the sale, exchange, or other disposition of capital assets in the Philippines, including pacto de
retro sales and other forms of conditional sale
Documentary stamp tax (DST) – Tax on documents, instruments, loan agreements, and papers
evidencing the acceptance, assignment, sale, or transfer of an obligation, right, or property
incident to it
Donor’s tax – Tax on a gift or donation in which both the sender and recipient are alive at the
time of the transfer
Estate tax – Tax on the right of the deceased person to transmit estate[6] to lawful heirs and
beneficiaries at the time of death. It is imposed on the privilege of transmitting property upon the
death of the owner
Excise tax – Tax on the production, sale, or consumption of goods in the Philippines
Income tax – Tax on a person’s or business’ income or profit, less deductions authorized by law
Percentage tax – A business tax imposed on the following taxpayers:
Non-VAT-registered individuals or corporations that sell or lease goods and services with gross
annual sales or receipts not exceeding ₱3 million
Persons who lease residential units where the monthly rental per unit exceeds ₱15,000.00 but
the total rental during the year does not exceed ₱3 million
Persons engaged in the industries/transactions listed in the Tax Code
Value-added tax (VAT) – A sales tax on consumption imposed on the sale, lease, or importation
of goods, properties, and services in the Philippines, which may be passed on to the buyer or
consumer
Withholding tax – Tax withheld from an individual’s income to promote tax compliance and
prevent tax evasion
Other taxes that the BIR imposes and collects

📌 Local Taxes

Local taxes in the Philippines[7] are involuntary fees that local government units (LGUs) collect
from their constituents to finance activities and projects for their city or municipality.
Here are the local taxes that people and businesses pay in the Philippines:
Basic real property tax – Tax on the value of real properties such as houses, lands, buildings,
etc.
Business of printing and publication tax – Tax imposed on businesses that involve printing and
publication
Franchise tax – Tax imposed on a franchise business
Sand, gravel and other quarry resources tax – Tax on the fair market value of ordinary stones,
sand, gravel, earth, and other quarry resources extracted from public lands or public waters
within the province
Professional tax – Tax imposed on professionals such as lawyers, doctors, and engineers
Amusement tax – Tax imposed on cinemas, theaters, concert halls, circuses, and other
amusement venues
Annual fixed tax for delivery trucks and vans – ₱500 fee for every truck or van used to deliver
soft drinks, liquors, or cigarettes within the province
Local business tax – Tax imposed by municipalities on different types of businesses within their
jurisdiction
Barangay tax – Tax imposed on stores or retailers with annual gross sales of up to ₱50,000 in
cities or up to ₱30,000 in municipalities
Community tax – Tax imposed on individuals and corporations within the jurisdiction of a city or
municipality
📌 Special Taxes

In addition to national taxes and local taxes, there are special taxes[8] that must be paid during
certain transactions or purchases:
Motor Vehicle User’s Charge (MVUC) – An annual fee charged on every application for vehicle
registration
Travel tax – An airport fee imposed on Filipino citizens, foreign residents, and non-resident
foreigners (who have stayed in the country for more than a year) who are leaving the Philippines
Head tax – Tax imposed on foreigners staying in the Philippines for at least 60 days, with
permanent residency status in the country, and applying for Re-entry Permit and paid to the
immigration officer when entering the country
Charges on forest products – Tax on the privilege of exploiting the forest resources in the
Philippines
Energy consumption tax – Tax on electric power consumption over 650 kWh of each residential
customer

Aside from the revenue that taxes generate, they also help promote economic stability and
growth. By imposing taxes on goods and services, the government can discourage unnecessary
consumption and production and ensure that resources are used more efficiently.

The Philippines uses taxes to redistribute income and wealth in society. Progressive taxation
systems, for instance, tax higher incomes at higher rates to reduce inequality.

Similarly, taxes on luxury goods or "sin" products like tobacco and alcohol help raise revenue
while also discouraging their consumption

GOVERNMENT EXPENDITURE: CATEGORIES AND PRIORITIES

The 2024 Budget Priorities Framework outlines the expenditure priorities of the Philippine
government for the year 2024. The framework is aligned with the government’s 8-Point
Socioeconomic Agenda and the Philippine Development Plan 2023-2028. The government
continues to prioritize expenditure items that will steer the economy back on a high growth
path1. The following are the expenditure categories and priorities:

Infrastructure Development: The government aims to continue infrastructure development

through the Build, Better, More program. It also aims to improve transportation and logistics
networks through intermodal transport facilities and last mile connectivity. The government will
address the universal access to safe, affordable, and sustainable water supply and sanitation. It
will prioritize the completion of reforms under the Electric Power Industry Reform Act and the
fast-tracking of the implementation of the Retail Competition and Open Access and the Green
Energy Option Program. The government will develop alternative and renewable energy
industries, including natural gas and electric vehicle manufacturing.

Digital Transformation of the Government: The government aims to expedite e-governance

projects implementation to create an interconnected, integrated, and interoperable network for
public services. It will build better data systems to aid in program creation and implementation.
The government will adopt digital filing and payment systems to increase regulatory compliance.

Food Security: The government aims to strengthen local supply chains through the
enhancement of agricultural productivity and expansion of access of farmers and fisherfolk to
markets. It will reduce production costs through improved access to land, irrigation, energy, and
fertilizer. The government will improve land distribution through the adoption of digital
technologies for faster titling of collectively owned land. It will retrofit existing irrigation and
drainage systems to meet climate needs and incorporate climate-smart technologies in new
ones. The government will promote local farm and non-farm wastes and biological materials as
alternative energy and fertilizer sources.

Enterprise Development: The government aims to prioritize digitalization and e-commerce

adoption for Micro, Small, and Medium Enterprises through digital literacy programs and
awareness campaigns. It will enhance investment promotion with the private sector and social
partners.

Human Capital Development: The government aims to promote reforms in nutrition and health
aligned with health sector reforms such as the Universal Health Care (UHC) Act and the First
1,000 Days Law. It will strengthen the implementation of the Mental Health Act. The government
will manage the endemic phase of COVID-19 through improved healthcare system and
intensive health promotion. It will enhance national and local capacities for health system
management and resilience to public health emergencies. The government will address
inequitable distribution of national investments in health through support in the establishment of
regional specialty centers and development of an interoperable health information system.

Social Protection: The government aims to strengthen the digitalization of services and
facilities in the delivery of social protection assistance. It will promote the use of digital wallets
and other innovative financial platforms for efficient and effective distribution of social protection
programs1.

BUDGETARY PROCESS FORMULATION, APPROVAL AND EXECUTION

The 1987 Philippine Constitution outlines the government’s framework for the budget process.

As elaborated by the Department of Budget and Management (DBM), the budget process
involves distinct phases:

While distinctly separate, these processes overlap in the implementation during a budget year.
Budget preparation for the next budget year proceeds while government agencies are executing
the budget for the current year and at the same time engaged in budget accountability and
review of the past year’s budget.
Budget preparation
Budget preparation: This stage involves the creation of a budget proposal by the relevant
departments or teams. The budget proposal outlines the expected expenses and
revenues for the upcoming period.
The Philippine Constitution requires the submission of the President’s budget 30 days from the
opening of each regular session of Congress.
The first steps of the annual budget preparation begins with the determination of the overall
economic targets, expenditure levels, revenue projection, and the financing plan by the
Development Budget Coordinating Committee (DBCC).
Following this, the DBM will issue a Budget Call, which defines the budget framework; sets
economic and fiscal targets; prescribes the priority thrusts and budget levels; and spells out the
guidelines and procedures, technical instructions, and the timetable for budget preparation.
The various government agencies will then prepare their respective detailed budget estimates
that rank programs, projects, and activities using the capital budgeting approach and submit
these to the DBM. Budget hearings are then conducted, where agencies justify their proposed
budgets before the DBM technical panels.
After the submission of proposed expenditure programs by the respective agencies, and the
subsequent approval by the DBCC, the proposed budget is reviewed and approved by the
President and the Cabinet. Finally, the President submits the proposed budget to Congress.

The primary sources of budget data presented in this report were obtained from the following
documents:
The budget approval process is a series of steps that an organization follows to approve and
implement its budget. The process typically involves the following stages:

Budget review: The budget proposal is reviewed by the management team to ensure that it
aligns with the organization’s goals and objectives. The management team may request
changes to the budget proposal at this stage.

Budget approval: Once the budget proposal has been reviewed and revised, it is submitted to
the relevant authority for approval. The approval process may involve multiple levels of review
and approval, depending on the size and complexity of the organization.

Budget implementation: After the budget has been approved, it is implemented by the relevant
departments or teams. This stage involves the allocation of resources and the monitoring of
expenses to ensure that they remain within the approved budget.

Budget evaluation: The final stage of the budget approval process involves the evaluation of
the budget’s effectiveness. This stage helps the organization to identify areas for improvement
and to make changes to the budgeting process for the next period.