Readings in Philippine History

Module

Section

Introduction

Taxation is the lifeblood of any government or country in order to exist. Taxation in

the Philippines has been exercised by the Filipinos even before the Spanish came to the
country. The Datus imposed tributes to its people within its jurisdiction in return for his
protection to them. With the coming of the Spaniards, the tax system has been
institutionalized with the introduction of systematic way of collection taxes. The country has
undergone several taxation systems and the latest we have is the Tax Reform for
Acceleration and Inclusion (TRAIN) law. Many claimed that the poor are the ones
religiously paying their taxes while those rich and powerful elite people are evading their
obligations to pay the right dues to the government.
This module is the last part of the three series concerning the Social, Political,
Economic and Cultural Issues in Philippine History.

Topics
 Taxation
 Importance of Taxes in Society
 The Philippine Tax System
 Four R’s of Taxation
 Category of taxes in the Philippines
 Brief history of taxation in the Philippines
 Tax Reform for Acceleration and Inclusion (TRAIN)
 Tax Reform for Attracting Better and High-quality Opportunities or TRABAHO
Bill.

Learning Objectives

After studying this lesson, the student should be able to:

1. Identify the nature and importance of taxation to the state

2. Determine the effects of recent changes in the tax laws of the Philippines
3. Identify the significance of the issues in the Philippine tax system to the
understanding of the grand narrative of Philippine history.

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Taxation

A tax (from the Latin taxo) is a compulsory financial charge or some other type of levy
imposed upon a taxpayer (an individual or legal entity) by a governmental organization in
order to fund various public expenditures. A failure to pay, along with evasion of or
resistance to taxation, is punishable by law. Taxes consist of direct or indirect taxes and may
be paid in money or as its labour equivalent. The first known taxation took place in Ancient
Egypt around 3000–2800 BC.

Taxation is a term for when a taxing authority, usually a government, levies or imposes a
tax. The term "taxation" applies to all types of involuntary levies, from income to capital
gains to estate taxes.

Taxation is the lifeblood of the government, without which no government can succeed.

Importance of Taxes in Society

The chief intent of revenue enhancement is to roll up finances for the operation of the
authorities machineries. No authorities in the universe can run its administrative office
without finances and it has no such system incorporated in itself to bring forth net income
from its operation. The government’s ability to function the people depends upon the
revenue enhancements that are collected. Taxes are indispensable in the authorities
operation and without it. the authorities will be paralyzed.
Without taxes, governments would be unable to meet the demands of their societies.
Taxes are crucial because governments collect this money and use it to finance social
projects.

Some of these projects include:

 Health
o Without taxes, government contributions to the health sector would be
impossible. Taxes go to funding health services such as social healthcare,
medical research, social security, etc.
 Education
o Education could be one of the most deserving recipients of tax money.
Governments put a lot of importance in development of human capital and
education is central in this development. Money from taxes is channeled to
funding, furnishing, and maintaining the public education system.
 Governance
o Governance is a crucial component in the smooth running of country affairs.
Poor governance would have far reaching ramifications on the entire country
with a heavy toll on its economic growth. Good governance ensures that the
money collected is utilized in a manner that benefits citizens of the country.
This money also goes to pay public servants, police officers, members of

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parliaments, the postal system, and others. Indeed, with a proper and
functioning form of government, there will be no effective protection of
public interest.

Other important sectors are infrastructure development, transport, housing, etc.

 Apart from social projects, governments also use money collected from taxes to fund
sectors that are crucial for the wellbeing of their citizens such as security, scientific
research, environmental protection, etc.
 Some of the money is also channeled to fund projects such as pensions,
unemployment benefits, childcare, etc. Without taxes it would be impossible for
governments to raise money to fund these types of projects.
 Furthermore, taxes can affect the state of economic growth of a country. Taxes
generally contribute to the gross domestic product (GDP) of a country. Because of
this contribution, taxes help spur economic growth which in turn has a ripple effect
on the country’s economy; raising the standard of living, increasing job creation, etc.
 Governments also use taxes as a deterrent for undesirable activities such as the
consumption of liquor, tobacco smoking, etc. To achieve this, governments impose
high excise levies on these products and as a result, raise the cost of these products to
discourage people from buying or selling them.

Importance of Tax to Businesses

 For business to flourish in the country, there has to be good infrastructure such as
roads, telephones, electricity, etc. This infrastructure is developed by governments or
through close involvement of the government. When governments collect money
from taxes, it ploughs this money into development of this infrastructure and in turn
promotes economic activity throughout the country.
 The concept of taxation is also important to businesses because governments can
fund this money back into the economy in the form of loans or other funding forms.
 Taxes help raise the standard of living in a country. The higher the standard of
living, the stronger and higher the level of consumption most likely is. Businesses
flourish when there is a market for their product and services. With a higher
standard of living, businesses would be assured of a higher domestic consumption as
well. Taxes are essential and every citizen is meant to reap benefits of these taxes.
This is why it is important that citizens endeavor to pay taxes and understand that it
is meant to be more than just a “money grab” from the government.

The Philippine Tax System

Tax jurisprudence in the Philippines screens national and local revenue

enhancements. National revenue enhancements refer to national internal gross revenue
enhancements imposed and collected by the national authorities through the Bureau of
Internal Revenue (BIR) and local revenue enhancements refer to those imposed and
collected by the local authorities. The 1987 Philippine Constitution sets restrictions on the

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exercising of the power to revenue enhancement. The regulation of revenue enhancement

shall be unvarying and just. The Congress shall germinate a progressive system of revenue
enhancement.

Taxation in the Philippines is governed chiefly by the;

 Constitution of the Philippines and

 Three Republic Acts.

Constitution: Article VI, Section 28 of the Constitution states that “the rule of taxation shall
be uniform and equitable” and that “Congress shall evolve a progressive system of
taxation.”

National law:

 Republic Act No. 8424 or the ‘’Tax Reform Act of 1997’’ and subsequent laws
amending it; the law was most recently amended by
 Republic Act No. 10963 or the ‘’Tax Reform for Acceleration and Inclusion Act‘’;
 Republic Act No. 7160 - local laws: major sources of revenue for the local
government units (LGUs) are the taxes collected by virtue of or the ‘’Local
Government Code of 1991’’,
 Those sourced from the proceeds collected by virtue of a local ordinance.
 Taxes imposed at the national level are collected by the Bureau of Internal Revenue
(BIR), while those imposed at the local level (i.e., provincial, city, municipal,
barangay) are collected by a local treasurer’s office.

Four R’s of Taxation

1. Revenue – The revenue enhancements raise money to pass on ground forces. roads.
schools and infirmaries. and on more indirect authorities maps like market ordinance
or legal systems.
2. Redistribution – This refers to the reassigning wealth from the richer subdivisions of
society to poorer subdivisions.
3. Repricing – Taxes are levied to turn to outwardness ; for illustration. baccy is taxed
to deter smoke. and a C revenue enhancement discourages usage of carbon-based
fuels.
4. Representation – As what goes with the slogan “no revenue enhancement without
representation”. It implies that: sawyer’s revenue enhancement citizens. and citizens
demand answerability from their sawyers as the other portion of this deal.

Category of taxes in the Philippines

1. As to the subject matter

 Poll, personal or capitation tax- one imposed on residence
 Property tax- imposed on property

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 Excise tax- imposed on privilege or right

2. As to the purpose
 Revenue- to raise money for the government
 Regulatory- to regulate an act or practice
3. As to the scope
 Local/Municipal- based on certain locality
 National- national in nature
4. As to the determination of the amount of tax to be paid
 Ad valorem tax- based on value of the object taxed determined by the
appraiser
 Specific tax- based on weight or measurement
5. As to who bears the burden
 Direct tax- imposed to a person directly involved
 Indirect tax- forms part of the purchase price of the commodity and passed
on consumers
6. As to the graduation or rate
 Proportional tax- based on a fixed percentage
 Progressive tax- based on certain tax bases
 Regressive tax- the tax rate decreases as the base increases

Brief history of taxation in the Philippines

Pre-colonial period

 Datu imposed tributes to his subordinates in return for protection to be accorded by

his men
 Part of the harvest is given to the Datu

Spanish Period (1521 to 1898)

 People are required to pay tributes to the cabeza

 Encomienda System (1570)
o A Compliance with the decree issued by King Philip II in 1558, distributed lands
in Cebu to loyal Spanish subjects. The encomienda was not actually a land grant
but was a favor from the kind under which the Spaniard receiving his favor was
given the right to collect tributes–or taxes–from the inhabitants of the area
assigned to him. The man who received this favor was called an encomendero. The
encomienda was, therefore, a public office.
o The encomenderos were required by law to perform the following duties:
 to give protection to the natives
 to help the missionaries convert the natives to Christianity
 to promote education
 Tribute “Buwis”, which could be paid in cash or kind, was initially fixed at 8 reales
(one real= 12.5 centavos) and later increased to 15reals, apportioned as follows:

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o 10 reals buwis, one real diezmos prediales(tithes)

o 1 real to the town community chest
o 1 real sanctorum tax
o 3 reales for church support
 Tax rates are fixed or based on percentages
 Category of taxes (1867)
o Direct taxes (personal and income taxes)
o Indirect taxes or the custom duties
o Monopolies that included the stamp tax, sale of quick silver, salt, playing cards,
gun powder, liquors, tobacco and opium
o Lotteries
o Public domain
o miscellaneous
 By 1884, the tribute was replaced by the Cedula personal, wherein colonists were
required to pay for personal identification. Everyone over the age of 18 was obliged
to pay.

American Period (1898 – 1901)

 1902, the first civil government was established under William H. Taft. However, it
was only during the term of second civil governor Luke E. Wright that the Bureau of
Internal Revenue (BIR) was created through the passage of Reorganization Act No.
1189 dated July 2, 1904.
 August 1, 1904, the BIR was formally organized and made operational under the
Secretary of Finance, Henry Ide, with John S. Hord as the first Collector
(Commissioner). The first organization started with 69 employees, which consisted of
a Collector, Vice-Collector, one Chief Clerk, one Law Clerk, one Records Clerk and
three (3) Division Chiefs.

Japanese regime (1942-1945)

 During July 23, 1943, The Japanese occupation administration in the Philippine
Islands has imposed a special “war tax” on all Jews, according to a report appearing
in the “Deutsche Beobachter in Asian,” a copy of which was received here today.
 The German report states that “wealthy” Jews, who own real estate and big
business concerns will be forced to surrender (50%)fifty percent of their holdings.
Other Jews will be obliged to pay a tax equivalent to one-third the value of all their
possessions.
 The Jews have been given until the end of the year to pay, the publication discloses,
adding that those unable to pay the levy by then will have their possessions sold at
auction to satisfy the tax. (According to the most recent statistics available, there are
only about 1,500 Jews in the Philippine Islands, 500 of whom are long-time residents
and the other 1,000 refugees who settled there since the Nazis came to power.)
 It was reported that the Japanese had established a ghetto for the Philippine Jews at
Manila, because, they charged, the Jews were aiding the guerrillas.

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Post War Era

 July 4, 1946, when the Philippines gained its independence from the United States,
the Bureau was eventually re-established separately.
 Year 1977 that President Marcos promulgated the National Internal Revenue Code
of 1977, which updated the 1934 Tax Code
 1988 , the advent of the value-added tax (VAT) in, a massive campaign program
aimed to promote and encourage compliance with the requirements of the VAT was
launched.
 The adoption of the VAT system was one of the structural reforms provided for in
the 1986 Tax Reform Program, which was designed to simplify tax administration
and make the tax system more equitable.
 The basic source of Philippine tax law is the National Internal Revenue Law, which
codifies all tax provisions, the latest of which is embodied in Republic Act No. 8424
(“The Tax Reform Act of 1997”).  It amended previous national internal revenue
codes, which was approved on December 11, 1997.

Tax Reform for Acceleration and Inclusion (TRAIN)

The Tax Reform for Acceleration and Inclusion (TRAIN) Act, officially cited as
Republic Act No. 10963, is the initial package of the Comprehensive Tax Reform Program
(CTRP) signed into law by President Rodrigo Duterte on December 19, 2017. The TRAIN Act
is the first of four packages of tax reforms to the National Internal Revenue Code of 1997, or
the Tax Code, as amended.This package introduced changes in personal income tax (PIT),
estate tax, donor's tax, value added tax (VAT), documentary stamp tax (DST) and the excise
tax of tobacco products, petroleum products, mineral products, automobiles, sweetened
beverages, and cosmetic procedures.
The prominent features of the tax reform are lower personal income tax and higher
consumption tax. Individual taxpayers with taxable income not exceeding ₱250,000 annually
are exempted from income tax. The exemption for minimum wage earners is retained in the
revised tax system. Tax rates for individual taxpayers still follow the progressive tax system
with the maximum rate of 35%, and minimum rates of 20% (taxable years 2018 to 2022) and
15% (2023 onwards). On the other hand, consumption taxes, in the form of higher excise tax
on tobacco products, petroleum products, automobiles, tobacco, and additional excise tax on
sweetened beverages and non-essential, invasive cosmetic procedures were introduced. It
also expanded the VAT base by repealing exemption provisions in numerous special laws.
The TRAIN Act is aimed to generate revenue to achieve the 2022 and 2040 vision of
the Duterte administration, namely, to eradicate extreme poverty, to create inclusive
institutions that will offer equal opportunities to all, and to achieve higher income country
status. It is also aimed at making the tax system simpler, fairer and more efficient.
Regardless, contentions about the passing of this law has been present since the beginning

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and the subsequent reception by the people since its ratification has been controversial. In
the first quarter of 2018, both positive and negative outcomes have been observed. The
economy saw an increase in tax revenues, government expenditure and an incremental
growth in GDP. On the other hand, unprecedented inflation rates that exceeded projected
calculations, has been the cause for much uproar and objections. There have been petitions
to suspend and amend the law, so as to safeguard particular sectors from soaring prices.

Tax Reform for Attracting Better and High-quality Opportunities or TRABAHO Bill.

The House Committee on Ways and Means approved House Bill 176, also known as
Tax Reform for Attracting Better and High-quality Opportunities or TRABAHO Bill.
The measure proposes to slash the country's corporate income tax (CIT) rate from 30
percent to 20 percent, and make up for the lost revenues by restructuring the tax perks given
to certain companies.
Under the measure, the corporate tax rate will be cut by 2 percent every 2 years
starting January 2021, until it reaches 20 percent by January 2029.

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Exercise 6.4
.
Enumeration:

1. The four (4) Rs of Taxation

2. Six (6) Categories of Taxation
3. Three (3) Republic Acts governing taxation

Exercise 6.5.

1. What is the importance of Taxation?

2. How do you assess the taxation system in the Philippines?

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References

Agoncillo, T. 1990. History of the Filipino people. Garotech Publishing, Philippines.

Asuncion, N. and G. R. Cruz. 2019. Readings in Philippine history. C and E Publishing.

Quezon City, Philippines.243 p.

Candelaria, J.P and V.C. Alporha. 2018. Readings in Philippine history. Rex Book Store.
Manila, Philippines. 144 p.

Constantino, R. 2010. A history of the Philippines. Monthly Press Review. Quezon City,
Philippines.

De Leon. 2009. Fundamentals of taxation. Manila Philippines. Rex BookStore, Inc.

Tan, S. 2009. A history of the Philippines. University of the Philippinbes Press. . Quezon
City, Philippines.

Torres, J.V. 2018. Batis. Sources in Philippine history. C and E Publishing. Quezon City,
Philippines.682 p.

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