Unit II

Revenue Management

Revenue management is a strategic approach to maximizing income while considering factors like cost and
customer satisfaction. It involves using data and analytics to make informed decisions about pricing, inventory,
and marketing.

Private Sector Revenue Management (e.g., Hotels):

 Focuses on maximizing profits by selling the right product (hotel room) to the right customer (business
traveler vs. family) at the right price (higher prices during peak season) at the right time (through
targeted advertising).
 Uses data to predict demand, understand customer behavior, and develop dynamic pricing strategies.

Government Revenue Management:

 Goal: Balance revenue generation with fairness, transparency, and public good.
 Uses similar strategies as the private sector, but with a focus on social impact and public service
delivery.

Key Government Revenue Management Strategies:

 Taxation Strategies: Optimizing tax policies and collection methods (e.g., evaluating tax rates, closing
loopholes, reducing tax evasion).
 Fee and Fine Optimization: Setting fees and fines for services based on cost, compliance impact, and
fairness (e.g., analyzing the cost of providing a permit before setting the fee).
 Asset Management: Optimizing revenue from government-owned assets (e.g., leasing public land,
strategically selling utilities).
 Public-Private Partnerships (PPPs): Partnering with private companies to develop infrastructure
projects, often with revenue-sharing agreements.
 Grant and Aid Management: Strategically allocating grant funds to projects aligned with policy goals
(e.g., negotiating favorable terms, leveraging matching funds).
 Data-Driven Decision-Making: Using data (e.g., demographics, economic indicators) to inform
revenue collection and resource allocation strategies.
 Economic Development Incentives: Offering tax breaks or subsidies to attract businesses and
stimulate economic growth (with the expectation of increased tax revenue in the long run).
 Public Finance Innovations: Exploring new ways to generate revenue (e.g., issuing bonds,
congestion pricing for urban services).
 User Charges and Cost Recovery: Setting fair user charges for government services (e.g.,
healthcare, utilities) to recover costs.
 Compliance and Enforcement: Ensuring tax compliance, collecting outstanding fees, and
implementing penalties for non-compliance.

Tax Policy and Administration

 Tax Policy: The principles used to design a tax system. It sets:
o Types of taxes (income, sales, etc.)
o Tax rates (percentage of income paid as tax)
o Exemptions (income not taxed)
o Incentives (tax breaks to encourage certain activities)
 Goal: Balance between:
o Revenue Generation: Funding government operations.
o Economic Growth: Encouraging business activity and investment.
o Social Equity: Fair distribution of tax burden. (Progressive vs. Regressive taxes)
 Tax Administration: Practical aspects of collecting taxes efficiently.
o Streamlined collection processes.
o Technology for reporting and payment.
o Audits and penalties to enforce compliance.

International Tax Considerations

 Challenge: Coordinating tax policies and enforcement across countries.
 Goals:
o Prevent double taxation (paying tax twice on the same income).
o Combat tax avoidance (shifting profits to low-tax countries).
o Address transfer pricing (manipulating prices within a company).
 Tools:
o International tax agreements and treaties.
o Information exchange between tax authorities.

Philippine Tax Administration Details

 Taxable Period: Accounting period (usually 12 months) may or may not follow the calendar year. (e.g.,
fiscal year ending in December).
 Tax Returns: Corporations file self-assessed tax returns based on their accounting period. Electronic
filing and payment are available (eFPS).
 Who Must Use eBIRForms?
o Tax agents filing for clients.
o Printers of receipts/invoices.
 o One-time transaction taxpayers (except seniors/persons with disabilities filing for themselves,
some employees).
o Government-owned corporations.
o Local government units (except barangays).
o Specific cooperatives.
o Taxpayers who fail to use eFPS. (Penalties apply)
 Corporate Tax Payments:
o Quarterly reports: Filed within 60 days of each quarter-end, showing gross income and
deductions to date.
o Annual return: Filed by the 15th day of the 4th month after the tax year-end.
o Different tax return forms depending on the corporate tax regime.

Payment of Tax
 Pay-as-you-file system: Quarterly and annual income tax payments are required on filing deadlines
(mentioned previously).
 Excess payment:
o Credited against future liabilities.
o Cannot be refunded as cash or tax credit certificate (TCC) after choosing this option.
 Payment methods:
o Online via Electronic Payment Service Provider (EPSP) at accredited Authorized Agent Banks
(AABs).
o Credit, debit, and prepaid cards (recently introduced).

Annual Statutory Audit

 Required for corporations with:
o Approved capital stock or paid-up capital exceeding PhP 50,000 (including overseas branches).
o Gross annual sales or earnings exceeding PhP 3,000,000.

Statute of Limitations
 Assessment: Generally, within 3 years after filing deadline (whichever is later). Can be extended by
written agreement between taxpayer and BIR.
 False or fraudulent return/no return: Tax assessment or collection can occur anytime within 10 years
of discovering the untruth/omission.
 Tax recovery: Through distraint, levy, or court action within 5 years of assessment.
 Suspension of prescription period: In specific cases, like taxpayer absence or BIR-granted
reinvestigation.

Tax Refund
 Claim for overpaid taxes within 2 years of erroneous payment.
 Appeal process for disallowed claims:
o Court of Tax Appeals (CTA) within 2 years.
o 30 days for refund refusal.

Focus of Tax Authorities during Audits

 All applicable internal revenue taxes.
 Recent focus: Independent VAT audits for increased collection.
 Increased scrutiny on cross-border transactions (VAT & withholding tax).

Social Taxes
 Taxes to support social welfare programs and benefits (e.g., unemployment, pension, healthcare).
 Paid on earned income (wages, salaries) for social security programs.
 Goal: Consistent funding for government-sponsored social services (financial security during
need/retirement).
 Collection: From both employees and employers.
 Examples in the Philippines:
o Social Security System (SSS)
o Philippine Health Insurance Corporation (PhilHealth)
o Home Development Mutual Fund (HDMF) or Pag-IBIG Fund

PhilHealth Contribution Update (as of January 6, 2023)

 PhilHealth premium rate remains at 4.0% for 2023.
 Income ceiling for PhilHealth contribution remains at PhP 80,000 for 2023. (Increase to 4.5% and PhP
90,000 suspended).

Business Tax
 For businesses exempt from VAT (not VAT-registered):
o 1% of gross sales or receipts (July 1, 2020 - June 30, 2023).
o 3% of gross sales or receipts (effective July 1, 2023 onwards). (Based on RA 11534 or
CREATE Act)

Individual Income Tax

 Residents taxed on worldwide income.
  Non-residents taxed on income earned within the Philippines.
 Tax rates for aliens' income vary based on income type.

Compensation Tax Rates

 Percentages applied to income to determine tax owed.
 Examples: income tax, payroll taxes, taxes on bonuses/stock options.

Progressive Income Tax System

 Higher income earners pay a higher percentage of their income in tax.
 Aims for fairer distribution of tax burden.

Payroll Taxes
 Taxes on wages/salaries to fund social programs (pensions, healthcare).
 Often shared by employers and employees.
 Rates and thresholds subject to change.

Importance of Understanding Rates

 Individuals and businesses: calculate tax liabilities, comply with regulations, plan finances.
 Policymakers: assess impact on economic activity, labor participation, income distribution.

Fringe Benefits Tax (FBT)

 Tax on certain employer-provided benefits for managers and supervisors (35% generally).
o Managerial staff: authorize and enforce management policies (hiring, firing, etc.).
o Supervisory staff: recommend such actions, requiring independent judgment.
 Paid by employer quarterly, deductible as an expense.
 Benefits excluded from employee's taxable income.

Final Income Tax Rates

 20% maximum for residents/non-residents engaged in trade or business (investments).
 25% flat rate for non-residents not in trade or business.

Business Income Tax Rates

 Graduated income tax rates apply to self-employed individuals and professionals.
 Option for businesses below the VAT threshold (currently PhP 3 million):
o 8% tax on gross sales/receipts exceeding PhP 250,000 (instead of income tax and business
tax).
 Business income is also subject to business tax (12% VAT or 1% percentage tax).
o 1% percentage tax rate only applies from July 1, 2020 to June 30, 2023 (increases to 3%
afterward).

Individual Residency
 Resident Alien: Lives in the Philippines with no definite intention of leaving.
 Non-Resident Alien: Lives in the Philippines for a limited period (e.g., contract workers).
 Expatriates: Often classified as non-residents unless their contract is indefinite.
o Over 180 days in the Philippines per year: non-resident engaged in trade or business.
o Less than 180 days: non-resident not engaged in trade or business.

Consumption Taxes
 Value-Added Tax (VAT): 12% tax on services rendered by professionals (e.g., entertainers, athletes,
brokers).
 Calculated on gross receipts, including service fees, rent, royalties, materials supplied, deposits, and
advanced payments.

Income Determination
 Employment Income:
o Taxed for residents/non-residents on income earned in the Philippines.
o Excludes employees' social security contributions (up to maximum level) and union dues.

 Fringe Benefits: Taxed for managerial/supervisory employees (FBT paid by employer, excluded from
employee's taxable income). Examples include:
o Housing expense account
o Vehicles
o Household staff
o Interest-free/low-interest loans
o Club memberships
o Foreign travel
o Educational assistance
o Insurance premiums (beyond legal limits)
o Housing/vehicle benefit (50% of lease/depreciation value, unless for business or near
workplace)

Tax-Exempt Fringe Benefits

 Necessary for the employer's business or convenience.
  Provided by law (e.g., employer contributions to retirement/insurance plans).
 For rank-and-file employees (may be subject to withholding tax on compensation).
 De minimis benefits (minimal value).

Valuation of Fringe Benefits

 Cash benefit: amount granted/paid by employer.
 Furnished property (ownership not transferred): depreciation value.
 Furnished property (ownership transferred): fair market value.

Capital Gains and Investment Income (for Non-Resident Aliens)

 Capital Gains Tax:
o 0.6% for listed stocks.
o 15% for unlisted stocks (including those not meeting minimum public ownership).
o 6% for real property (withheld at sale).
o Capital losses only deductible from capital gains.
o Gain/loss percentage for other assets:
 50% if held for more than 1 year.
 100% if held for 1 year or less.
 Investment Income Tax:
o 20% (engaged in trade or business).
o 25% (not engaged in trade or business).
o Withheld at source, not subject to progressive rates.

Resident Alien Income Taxes

 Graduated income tax on income earned in the Philippines.
 Interest and royalties from the Philippines: 20% tax.
 Resident deposit interest:
o 15% for expanded foreign currency deposit system (FCDU) accounts.
o Tax-free for long-term deposits/investments under certain conditions.
 Non-resident FCDU account interest: tax-exempt.
 Royalties on literary/musical works: 10% final tax.
 Dividends from domestic corporations: 10% tax.
 Capital gains taxed similarly to non-resident aliens.

Individual Deductions
 Purpose: Reduce taxable income by subtracting specific expenses.
 Examples (generally not applicable in the Philippines):
o Mortgage interest.
o Medical expenses.
o Educational expenses.
o Charitable contributions.
 Philippines: Only social security contributions (up to a limit) are excluded from gross income.

Business Deductions (if taxed under regular income tax rates)

 Applicable to individuals running businesses or practicing professions.
 Expenses deductible from gross income:
o Business-related expenses (materials, labor, etc.) paid in the tax year.
o Salaries, benefits, and travel expenses for employees.
o Business rent.
o Business interest (minus some taxable interest income).
o Entertainment/amusement (limited amounts based on sales/revenue).
o Taxes.
o Losses.
o Bad debts.
o Depreciation.
o Charitable contributions (limited).
o Research and development expenses.
 Option for Businesses: Instead of itemized deductions, claim an optional standard deduction (OSD)
of up to 40% of gross business/professional income.
 Documentation: Individuals claiming itemized deductions must attach supporting documents to their
tax returns.

Foreign Tax Relief and Tax Treaties

 Challenges: Double taxation (paying tax on the same income in two countries).
 Foreign Tax Relief (Philippines): Not available. Individuals cannot offset taxes paid abroad against
their Philippine tax liability.
 Tax Treaties (Double Taxation Agreements - DTAs): Agreements between the Philippines and other
countries to avoid double taxation.
o Establish rules for allocating taxing rights between countries.
o May include provisions on:
 Taxing different income types (business profits, dividends, etc.).
 Individual residence status and income treatment.
  Benefits:
o Prevent double taxation.
o Promote international economic activity.
o Foster cooperation between countries.
o Provide clarity and fairness for individuals operating internationally.

Innovative Revenue Generation

 Innovative revenue generation involves finding new ways for the government to make money beyond
traditional taxes and fees.
 It's about being creative and adaptable to changing economic conditions.

Key Strategies
Partnerships and Asset Utilization
 Public-Private Partnerships (PPPs): Collaborations between government and private entities to
develop and manage public projects. Revenue is shared.
 Asset Monetization and Leasing: Using government-owned assets like land or buildings to generate
income through leasing or sale.

Technology and Data

 Data Monetization and Smart Cities: Using data collected from sensors and devices to create
valuable services or information products.
 Digital Services and E-Government Platforms: Offering online services and charging fees for
premium or expedited access.

Sustainability and Environment

 Green and Sustainable Revenue Initiatives: Implementing environmentally friendly policies like
carbon taxes to generate revenue while protecting the environment.
 Tourism and Cultural Heritage: Promoting tourism and cultural sites to attract visitors and generate
income through fees and related businesses.

Financing and Investment

 Naming Rights and Sponsorships: Selling naming rights to public spaces or events for advertising
purposes.
 Impact Investment and Social Finance: Attracting private investment for projects that benefit society
and generate financial returns.
 Municipal Bonds and Financing Instruments: Issuing bonds to raise money for public projects.

Modern Economic Concepts

 Innovative Taxation Models: Exploring new ways to tax, like congestion pricing or land value taxes.
 Space Economy and Satellite Services: Leveraging space-related activities for revenue generation.
 Civic Crowdfunding and Community Engagement: Raising funds for public projects through
community contributions.
 Subscription-Based Services: Offering government services on a subscription basis.
 Blockchain and Tokenization: Using blockchain technology for secure transactions and asset
management.

Health and Wellness

 Health and Wellness Initiatives: Generating revenue through partnerships in healthcare, wellness
programs, or licensing health-related services.

Key Considerations
 Balance: Find a balance between generating revenue and serving the public interest.
 Ethics: Ensure all strategies are ethical and transparent.
 Technology: Embrace technology to improve efficiency and effectiveness.
 Partnerships: Collaborate with private sector and communities.