GROUP 3

Income Redistribution

• Presenter: Third Presenter

Table of Contents

1. Introduction to Taxation

2. Reducing Income Inequality

3. Role of Progressive Taxation

4. Importance of Taxation

5. Economic Rationale in Income Distribution Policies

Taxation

• Definition: Taxation is a fundamental tool for governments to generate revenue, promote economic stability, and achieve social and economic goals.

Types of Taxation Systems

• Territorial Taxation: Taxes income generated within a country's borders, regardless of the taxpayer's residency.

• Residence-Based Taxation: Taxes all income of residents, regardless of where it is earned.

Importance of Taxation

• Funds Essential Services:

  • Healthcare

  • Education

  • Infrastructure

• Economic Development: Supports investments in public goods that drive economic growth.

• National Security: Funds defense and law enforcement.

• Social Programs: Provides financial assistance to vulnerable populations through welfare and pensions.

Key Principles of Taxation

• Fairness: Taxes should be based on the taxpayer's ability to pay, often achieved through progressive taxation.

• Certainty: Tax laws should be clear and predictable.

• Equity: Taxation should be fair among different income groups.

• Efficiency: The cost of tax collection should be minimal compared to revenue generated.

• Convenience: The process of paying taxes should be easy for taxpayers.

Taxation in the Philippines

• Crucial for financing public services, infrastructure, and social programs.

• Bureau of Internal Revenue (BIR): Primary tax collection agency.

• Bureau of Customs (BOC): Handles taxes on imports and exports.

• Governed by the National Internal Revenue Code (NIRC) of 1997.

Types of Taxes in the Philippines

1. National Tax:

   • Income Tax: Imposed on income of individuals and corporations; progressive rates for individuals (0% to 35%) as per TRAIN Law.

   • Withholding Tax: Method to collect income tax in advance by BIR.

     • Types include:

       • Withholding Tax on Compensation (WTC): Deducted from salaries.

       • Expanded Withholding Tax (EWT): Deducted from payments to suppliers or contractors.

       • Final Withholding Tax (FWT): For passive incomes like interest and dividends.

2. Value-Added Tax (VAT): A consumption tax at 12% on goods and services.

   • Exemptions or zero-rates available for specific transactions.

3. Excise Tax: Levied on specific goods like alcohol, tobacco, and petroleum.

4. Percentage Tax: 3% on gross sales for entities not subject to VAT.

5. Documentary Stamp Tax (DST): Levied on various documents and transactions.

6. Estate Tax: 6% on the transfer of a deceased person's estate.

7. Donor's Tax: 6% on gifts or donations.

8. Customs Duties: Tax on imports, varying by type, value, or trade agreements.

Local Taxes in the Philippines

• Levied by local government units (LGUs) under the Local Government Code of 1991.

  • Real Property Tax (RPT): 1% to 2% of assessed value.

  • Business Tax: Based on business type and location.

  • Community Tax: Paid annually for community tax certificates (CTCs).

  • Professional Tax: For professionals practicing in the LGU.

  • Amusement Tax: Based on admission fees to entertainment venues.

  • Franchise Tax: For businesses operating under a franchise.

  • Other Fees: Registration, user, and permit fees.

Recent Tax Reforms

• TRAIN Law: Reduced personal income tax rates while increasing specific taxes (fuel, vehicles).

• CREATE Law: Reduced corporate tax rates from 30% to 25%.

• Ease of Paying Taxes (EOPT) Act: Aims to modernize tax administration; taxpayers are classified by gross sales.

Challenges in Philippine Taxation

• Tax Evasion and Avoidance: Informal economy leads to revenue losses.

• Complexity: Tax system perceived as complicated.

• Corruption: Issues in administration persist.

• Inequity: Tax system burdens low- and middle-income earners disproportionately.

Economic Rationale in Income Distribution Policies

• Promotes Economic Growth: Reducing income inequality increases social stability and consumer base, addressing poverty levels.

• Social and Political Stability: High inequality can lead to unrest and hinder development.

• Aggregate Demand: Higher disposable incomes stimulate economic growth.

• Human Capital Development: Investments in education and healthcare improve productivity and earning potential.

Policy Tools for Addressing Income Inequality

• Progressive Taxation: Higher taxes on the wealthy to fund social programs.

• Social Safety Nets: Cash transfers/subsidies for low-income households.

• Labor Market Reforms: Promote fair wages and equal opportunities.

• Land Reform: Improve access to land for small farmers.

• Investing in Education and Healthcare: Enhancing access in rural areas.

Challenges in Implementing Income Distribution Policies

• Political Resistance: Powerful groups oppose wealth redistribution.

• Administrative Complexities: Effective program design is challenging.

• Economic Constraints: Balancing social equity with growth.

Progressive Taxation

• Tax rates increase with taxable income; higher-income individuals pay a higher percentage.

• Role in Income Distribution:

  • Wealth Redistribution: Funds public services for lower-income individuals.

  • Economic Stabilization: Adjusts tax burdens based on economic conditions.

  • Promotes Social Mobility: Reduces economic disparities.

Effectiveness of Transfer Program

• Pantawid Pamilyang Pilipino Program (4Ps): Conditional cash transfers for impoverished families to improve health and education.

  • Goals: Reduce poverty, improve child health/nutrition, enhance school attendance.

4Ps Program Components

• Cash grants conditioned on:

  • Prenatal check-ups

  • Child immunization

  • School attendance

  • Early childhood development programs

Targeting Beneficiaries

• Household Targeting System: Identifies poorest households using socio-economic factors.

  • Eligibility Criteria: Income below poverty line, pregnant women, and children under 18.

Program Implementation

• Registration and Assessment: Verification of household eligibility.

• Payment Method: Cash payouts via Land Bank or ATMs.

• Monitoring and Evaluation: Regular compliance checks.

Impact of 4Ps

• Positive Impacts: Increased school enrollment, improved health outcomes, poverty reduction, women's empowerment.

Challenges and Considerations

• Leakage and Corruption: Potential misuse of funds.

• Accessibility: Reaching remote and vulnerable populations.

• Sustainability: Ensuring long-term funding and effective program design.

Redistribution Tools for Reducing Income Inequality

• Three Main Tools:

  • The Ladder of Opportunity: Varied proposals for disadvantaged groups.

  • Inheritance Taxes: Limit wealth passed on to heirs.

Policies for Reducing Income Inequality

1. Increase Minimum Wage

2. Expand the Earned Income Tax

3. Build Assets for Working Families

4. Invest in Education

5. Make Tax Code More Progressive

6. End Residential Segregation

Conclusion

• Thank you!