SOURCES OF FUNDS for SOURCES OF FUNDS for the National Governmentthe National Government

Sources of Funds:Sources of Funds:

1. Tax Revenues

2. Non-Tax Revenues such as fees to be collected

2) borrowings from both domestic and foreign sources; and

3) withdrawals from available cash balances

TaXTaXA tax is a compulsory

contribution mandated by law and exacted by the government for a public purpose.

The major tax collecting agencies of the national government are the Bureau of Internal Revenue and the Bureau of Customs.

Tax revenues include the following:Tax revenues include the following: Income taxes -IndividualsCorporationsMiscellaneous Property taxes -Real propertyProperty transfersSpecial assessmentsSpecial education taxStock transfersMiscellaneous Taxes on goods and services -Excises on importsExcises on domestic articlesBusiness taxes and licensesFranchise taxMotor vehicle taxesMiscellaneous

Taxes on international trade and transactions -

Import dutiesExport and premium dutiesForeign exchangeMiscellaneous Other taxes -Documentary stamp taxesCharges on forest productsWharfage fees and chargesImmigration taxMining taxCommunity taxMiscellaneous - Local Government Shares onon Internal Revenue CollectionsMiscellaneous - Local Government Shares in the

Proceeds from the Development and Utilization of the National Wealth Miscellaneous

non-tax revenues are the following:non-tax revenues are the following:

Operating and service income -

Government services

Government business operations

Interests

Commissions

Insurance/fiduciary bond premiums

Rents

Trading/production

Miscellaneous

Income from public enterprises/investments -

Interest on loansDividends on stocksInterest on bondsInterest on treasury notes/billsInterest on promissory notesInterest on receivables, acceptances and

discounted notesGain on sale of acquired assets/stocks/bondsRoyaltiesGovernment share from toll fees and casino

earningsMiscellaneous

Miscellaneous income -Sale of goods/merchandise confiscatedSale of scrap construction materialsGain on foreign exchangeContributionsInventory adjustmentsSweepstakesSale of waste materialsMiscellaneous

Sale of Assets -Public domainFixed assetsGain on sale of fixed assetsScrap of fixed assetsIntangible assetsInvestments/stocks/bondsGain on sale of investments/stocks/bondsGrants and aids -From foreign countriesFrom other levels of governmentsDomestic

What are the desirable What are the desirable features of a tax system?features of a tax system?

A tax system should be revenue-productive;

simple and easy to administer,equitable, and progressive.

What are the government's current What are the government's current efforts to improve tax collections?efforts to improve tax collections?The national government has continuously

expended an all-out effort to strengthen its revenue-generating capability through legislative and administrative reforms.

Recently, the government came up with a comprehensive measure to overhaul the tax system to bring in badly needed revenues for the government.

Called the Comprehensive Tax Reform Program (CTRP), the new tax measure has three principal components, namely, a) income tax reform; b) excise tax reform; and, c) fiscal incentives reform.

The CTRP aims to widen the tax base, simplify the tax structure to minimize leakages, undeclared revenues, overstated deductions and corruption to make the system more elastic and easier to administer.

BorrowingsBorrowingsBorrowings refer to funds obtained from

repayable sources, such as loans secured by the government from financial institutions and other sources, both domestic and foreign, to finance various government projects and activities.

The government borrows to provide for the requirements of capital projects and to support priority programs and projects. Relying solely on domestic resources will limit government’s capability to provide the needed support. Domestic resources is insufficient to finance priority programs and projects.

domestic borrowings & domestic borrowings & foreign borrowingsforeign 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.

Why does the government Why does the government borrow?borrow?The government borrows from any of

the following reasons:to finance national government deficits;to obtain foreign exchange;to secure financing at more favorable

terms than the opportunity cost of revenues;

to take advantage of benefits attached to the funds, e.g. technology; and,

to balance the timing of resources with the project gestation and repayment of benefit

What are constructive cash What are constructive cash receipts?receipts?

Constructive cash receipts are foreign loan proceeds in the form of goods and services for which no cash is remitted to the national treasury. Such goods or services have been paid directly by the lender to the supplier.

DIMENSIONS OF THE DIMENSIONS OF THE BUDGETBUDGET

The budget possesses various dimensions. It can be classified according to the following: By Sector, By Cost Structure, By Expense Class and By Object, By Region, By Type of Appropriation.

A. By SectorA. By Sector

The budget contains various type of expenditures. They are for:

1. Social Services Expenditure;2. Economic Services Expenditure;3. Defense Expenditure;4. General Public Services; and5. Debt Burden

B. By Cost StructureB. By Cost Structure

1. For General Administration & Support Services or Overhead Expenses

2. As Support to Operations for the facilitative functions and services, staff and technical support

3. For Operations of regular activities addressing agency mandateExample: Production of goods, delivery of pubic services, and regulation, etc.

4. For Projects such as homogenous group of activities that result in the accomplishment of identifiable output within a designated period, whether foreign or locally funded

C. By Expense Class & By C. By Expense Class & By ObjectObject

1. Current Operating Expenditures for personal services, maintenance and other operative expenses (MOOE)

2. Capital Outlays for investments, loans, livestock and crops, land/land improvements, buildings/structures, furniture/fixtures

D. By Major Recipient of D. By Major Recipient of GovernmentGovernment

The major recipients of the budget are:

1. The NGAs (National Government Agencies) – they include all agencies with the Executive, Legislative and Judicial Branches of government

2. The LGUs (Local Government Units) – funding is released in the form of IRAs (Internal Revenue Allotments), special shares in national proceeds, credit thru the MDF (municipal development fund), and premium subsidies for local insurance

3. The GOCCs (Government Owned and Controlled Corporations) – funding is through subsidies, equity and net lending

E. By Regional AllocationE. By Regional Allocation

The Budget is apportioned for each of the various regions of the country.

F. By Type of AppropriationF. By Type of Appropriation

The budget is further classified into different types, namely:

1. General Appropriations2. Supplemental Appropriations

3. Continuing Appropriations◦ refer to appropriations available to support obligations for

a specified purpose or project, such as multi-year construction projects which require the incurrence of obligations even beyond the budget year. Examples of continuing appropriations are those from existing laws such as : RA 8150, otherwise known as the Public Works Act of 1995; and Republic Act No. 6657 and Republic Act 8532 which set funds specifically for the Agrarian Reform Program (ARP). Currently, appropriations for capital outlays and maintenance and other operating expenses are considered as continuing appropriations but only for a period of 2 years.

4. Automatic Appropriations◦ debt service-interest payments, the Internal Revenue

Allotment or IRA which is the share of local government units (LGUs) from national government revenue and the Retirement and Life Insurance Premiums (RLIP) which is the share of the national government in the premium payments to GSIS for the life insurance and retirement benefit fund of government employees.

The budget may increase or decrease depending on the government’s policy of how much it will infuse into the economy. Maturing of a country’s debt determines the size of the budget.

Obligations Budget vs. Cash Obligations Budget vs. Cash BudgetBudgetObligations budget are for expenditures

incurred for the year and is to be paid in said year. This can also be for expenditures incurred for the year to be paid next year. Aside from this, it is also allocated for interest payments.Cash budgets are for expenditures incurred for next year. It can also be allocated for expenditures in previous years, and is also allocated for interest payments.

Priority Development Priority Development Assistance Fund (PDAFAssistance Fund (PDAF))

PDAFPDAF

The Priority Development Assistance Fund is a lump-sum appropriation in the annual General Appropriations Act to fund the priority development programs and projects of the government.

PDAFPDAFis used to finance priority

development programs and projects identified by the Members of Congress

For the LGU, the amount is released to the Department of Budget and Management as the fund administrator, which in turn releases the corresponding amount to the LGU beneficiary of the programs and projects chosen by the legislator

How Pork Barrel is createdHow Pork Barrel is created

How Pork Barrel is createdHow Pork Barrel is createdStep 1: PREPARATION

Budget Call Out

◦ The Executive calls out all government agencies and departments to submit a budget for the next year

◦ Departments and their line agencies submits their budget

◦ Setting of overall budget policy◦ Agency-level budget formulation◦ Executive review, deliberation and approval◦ Preparation of budget documents and

submission to Congress

Step 2: Authorization:◦Prepared budget is transmitted to

Legislative Department for review and approval

◦A Bicameral Committee Conference will be held

At this point, Members of the House of Representatives insert some PDAF line items and intelligence funds to some departments and agencies

Approval of the Budget (General Appropriations Act)

Step 3: BUDGET EXECUTION◦The GAA serves as the legal basis which

allows for the use of funds from the national treasury for specified expenditure items provided therein. However, the existence of a GAA alone does not imply that agencies can start utilizing and drawing funds to finance their programs and activities. Agencies need to secure an allotment to be able to obligate amounts specified in their budgets; cash allocation should also be secured before disbursements can be made to settle these obligations. The budget execution phase is concerned with these operational aspects of budgeting which facilitates the translation of appropriations to disbursements, or more specifically the release of funds through allotments and Notice of Cash Allocation (NCA).