Lesson 3

Evolution of Philippine Taxation

Objectives:
At the end of this lesson, the students should be able to:

1. Identify the taxation issues experienced by the Filipinos since Spanish

Era;
2. Explain the fiscal policies after the American occupation;
3. Discuss the recent TRAIN law; and
4. Verify the transparency of a recent government project under TRAIN Law.

Introduction

The history of Philippine taxation will be discussed in this lesson. You will explore how it
has evolved and affected our economy in the past decades. Let us continue!

Activity

LIFEBLOOD OF THE GOVERNMENT. Try to observe the pictures below. Where do you
think does our government get their funds to build or acquire these?
 Analysis

As we are about to start our lesson on Philippine taxation, here are some questions
that will be relevant to our discussion later on:
1. Where does the government get its budget to fund its projects and assets?

2. How does the government implement taxation?

3. How vital is taxation in the economy of a country?

 Abstraction

Aside from what is in this lesson, you may also check the PDF file attached in your Google
Classroom Material under Module 3 – Lesson 7 – Evolution of Philippine Taxation

Evolution of Philippine Taxation

Taxation is the lifeblood of the country’s economy. Therefore, we must thoroughly

understand how our nation can progress and develop a sustainable future as Filipino
citizens. It is the government’s mechanism to gather funds to provide the necessary social
services to the Filipino people. Moreover, we must also realize that the history of our
taxation traces back to our colonial experiences.

Taxation in the Spanish Era

● In the pre-colonial times, the payment of tribute (buhis/buwis/handug) or
obligation to provide labor services to the Datus may resemble taxation
● The Spaniards introduced the cost of tributos (tributes) from the Filipinos
to finance the maintenance of the Philippine Islands
● The implementation of reduccion and pueblos system solved the
problematic collection of taxes from dispersed settlements
● The principals, alcaldes, gobernadores, cabezas de barangay, soldiers,
civil guard, government officials, and vagrants are exempted from paying
the tributos
● the payment of tribute was
stopped, and it was replaced by a
poll tax collect through a certificate
of identification called the cedula
personal in 1884
● This tax is required from every
resident and must be carried while
traveling
● This system was a heavy burden
for ordinary Filipinos and peasants
but not for the elites, but it increased Spain’s revenue collection
● Two direct taxes were added in 1878 A sample of cedula personal during the and
imposed on urban incomes. Urbana: late Spanish Colonial Period

annual rental of a real estate, Industria: tax on salaries, dividends, and

profits
● Forced labor was also a character of Spanish colonial taxation in the
country and was required for the Filipinos.
During this period, taxation in the Philippines was characterized by the heavy burden on
the Filipinos and the corruption of Spanish officials and Filipino elites.
Taxation under the Americans
● From 1898 to 1903, the Americans continued to follow the Spanish
system of taxation with some modifications
● The Urbana tax was replaced by a tax on real estate, which became
known as Land Tax
● The Internal Revenue of 1904 was passed as a reaction to the problems
of collecting land tax
● The cedula underwent changes in the new law as the rate was fixed per
adult male
● The industria tax was imposed on the business communities
● In 1913, the Underwood-Simmons Tariff Act was passed by the
Americans
● This resulted in a reduction in the revenue of the government
● To address this, Gov. Gen. Harrison urged that tax receipts be increased
to make up for the loss
● In 1914, an income tax was introduced
● In 1919, an inheritance tax was created
In 1932, a national lottery was established by the government to provide more income
for projects
Taxation during the Commonwealth Period

● Income tax rates were increased in 1936

● In 1937, the cedula was abolished, which appeared to be a progressive
move
● A residence tax was implemented on every citizen with the age of 18 and
up in the year 1940
● In 1939, the Commonwealth government drafted the National Internal
Revenue Code
● Even though the tax structure was an improvement of the earlier system
by the Americans, the Filipino lower class still carried the burden of
taxation in the country
● As World War II reached the country, the economic activity was put to a
stop, and the Japanese continued the tax collection of the
Commonwealth Government
The primary sources of taxation during the war were amusements, manufacturers,
professions, and business licenses
Fiscal Policy from 1946 to Present

● The impact of the war was effectively disparate

● In 1949, there was a severe lack of funds in many aspects of the
government
● The country started to bounce back during the time of Pres. Elpidio
Quirino through the implementation of import and exchange controls that
led to import substitution development
● New tax measures were also passed, and the tax revenue in 1953
increased twofold compared to 1948, Quirino’s first year of presidency.
● The administrations of Magsaysay, Garcia, and Macapagal promised to
look into the study of the structure and policies of our national taxation
through the creation of a Tax Commission in 1959
● The period of the post-war also saw the rise in corruption
● From 1959 to 1968, Congress did not pass any tax legislation despite
important changes in the economy
● Collection of taxes remained poor, the tax structure was still problematic,
and much of public funds were lost to corruption, which left the
government incapable of funding projects
geared toward development
● Under the Marcos regime, the tax system
remained regressive
● In 1981-1985, the tax system was still heavily
dependently on indirect taxes, and the tax
system also remained unresponsive
● As Corazon Aquino became president, she
reformed the tax system through the 1986 Tax
Reform Program
● The program aimed to improve the responsiveness of the tax system,
promote equity by ensuring that similarly
situated individuals and firms bear the same Some basic food products priced with
Value-Added Tax or VAT
tax burden

● A major reform in the tax system introduced under the term of Aquino was
the introduction of the Value-Added Tax (VAT)
● Along with the tax reform are the restructuring of the Department of
Finance and its attached agency Bureau of Internal Revenue, wherein tax
collection and tax audits were intensified

● Greater political stability during the Ramos administration in 1992 allowed

the continued economic growth. They ventured into its tax reform
program in 1997 through the Comprehensive Tax Reform Program
● The VAT base also broadened in 1997 to include services
 ● Greater political stability during the Ramos administration in 1992 allowed
the continued economic growth. They ventured into its tax reform
program in 1997 through the Comprehensive Tax Reform Program
● The VAT base also broadened in 1997 to include services
● The succeeding term of President Joseph Estrada was too short of
constituting any change in the tax system
● Pres. Gloria Macapagal-Arroyo increased government spending without
adjusting tax collections which resulted in large deficits in 2002 – 2004
● In 2005, the Expanded Value Added Tax (E-VAT) was signed into law
● This expanded VAT implemented VAT on energy products such as coal
and petroleum products
● In 2006, the VAT tax rate was increased from 10% to 12%
● Pres. Benigno Aquino promised there were no new taxes that would be
imposed, and additional revenue
would have to come from adjusting
existing taxes
● The administration ventured into the
Sin Tax Reform, which put an excise
tax on liquor and cigarettes

The administration of President Duterte promised tax reform through the

implementation of the TRAIN Law.
Tagum City flyover under the Build Build
Build Program funded by the TRAIN LAW

To learn more details and information about the history of our taxation, click on this video link:
https://www.youtube.com/watch?v=3gocV9xeE9Q.
In addition, you can also check this link to learn more about the TRAIN Law:
https://www.youtube.com/watch?v=Ay1bONUB5w8

Enjoy watching!
 Closure

Congratulations! You have successfully finished Module 3 - Social, Political, Economic

and Cultural Issues in Philippine History. More exciting topics in the last Module. Keep
your focus!

MODULE SUMMARY

The Philippines’ rich history has also been included with different struggles and hardships
experienced by common Filipinos ever since the Spanish Colonization. Issues in
establishing governments alongside its constitutions had shaped the life of every Filipino
throughout the century, from Aguinaldo’s 1899 Constitution to Aquino’s 1987 constitution.
In addition, Filipinos had suffered from a dark beginning in agrarian issues, emerging from
the Spanish landlords to the current situation of land reform in the current administration.
The landlord-tenant relationship problems still exist up to the present day. Moreover,
taxation in the country also had a rough start since it started with the colonizers. Still,
because of the efforts of the previous administrations since the post-war era, the taxation
situation of our country has improved gradually. These issues happening in our country
are only a part of a bigger picture that affects every Filipino regardless of age, gender,
ethnicity, and standard of living in their day-to-day lives