 It does not represent the will of the people because it was written by During President Elpidio Quirino’s term,
’s term, new tax measures were also passed, which
framers appointed by President Corazon Aquino and not elected by
the people.
TOPIC 10: PHILIPPINE TAXATION
History of Philippine Taxation
Taxation under the Spanish Period
The Spaniards imposed the payment of tributos from the Filipinos. The purpose is
to generate resources to finance the maintenance of the islands, such as salaries of
government officials and expenses of the clergy. Exempted from payment of
tributos were the principales: alcaldes, gobernadores, cabezas de barangay,
soldiers, members of the civil guard, government officials and vagrants. In 1884,
the payment of tribute was put to a stop and was replaced by a poll tax collected
through certificate of identification called cedula personal. This is required from
every resident and must be carried while traveling. Unlike the tribute, the payment
of cedulas is by person, not by family. Payment of cedula is by person, not by family.
Payment of the cedula is according to income categories. Revenue collection
greatly increased and became the main source of government income. The Chinese
in the Philippines were also made to pay their discriminatory cedula which was
bigger than what the Filipinos paid. Taxation in the Philippines during the Spanish
colonial period was characterized by the heavy burden placed on the Filipinos, and
the corruption of the principals, or the fomer datus and local elites who were co-
opted by the Spaniards. The principals who were given positions such as Cabezas de
Barangay or Alcaldes in the local government were able to enrich themselves by
pocketing tributos and/or fallas, while the peasants were left to be abused.
Taxation under the American Period
The Internal Revenue of Law of 1904 was passed as a reaction to the problems of
collecting land tax. It prescribed ten major sources of revenue: (1) licensed taxes
on firms dealing in alcoholic beverages and tobacco (2) excise taxes on alcoholic
beverages and tobacco products (3) taxes on banks and bankers (4) document
stamp taxes (5) the cedula (6) taxes on insurance and insurance companies (7)
taxes on forest products (8) mining concessions (9) taxes on business and
manufacturing, and (10) occupational licenses. The cedula went through changes
in the new law as the rate was fixed per adult male, which resulted in a great
decline in revenues. In 1907, some provinces were authorized to double the fee for
the cedula to support the construction and maintenance of roads.
Post-war Period
included higher corporate tax rates that increased government revenues- tax
revenue in 1953 increased twofold compared to 1948, the year when Quirino first
assumed Presidency. The period of the post-war republic also saw a rise in
corruption. From 1959 to 1968, Congress did not pass any tax legislation despite
important changes in the economy and the vested interests of Filipino businessmen
in Congress would manifest in many instances such as the rejection of taxes on
imports. Collection of taxes remained poor; 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.
During the latter part of the Marcos’ years (1981-1985), the tax system was still
heavily dependent on indirect taxes, which made up 70% of total tax collection.
The tax system also remained unresponsive. Taxes grew at an average annual rate of
15% and generated a low tax yield. Vice President Gloria Macapagal-Arroyo was
swept to power through another EDSA Revolution. As president, she undertook
increased government spending without adjusting tax collections. This resulted in
large deficits from 2002 to 2004. The government had to look for additional sources
of revenue, and in 2005, the Expanded Value-Added Tax (E-VAT) was signed into
law as Republic Act 9337. This expanded the VAT base, subjecting to VAT energy
products such as coal and petroleum products and electricity generation,
transmission, and distribution. In February 2006, the VAT tax rate was also
increased from 10% to 12%. As President Benigno Aquino III succeeded President
Arroyo in 2010, he promised that no new taxes would be imposed and additional
revenue would have to come from adjusting existing taxes. The administration
ventured into the adjustment of excise tax on liquor and cigarettes or the Sin Tax
Reform. Republic Act 10351 was passed, and government revenues from alcohol
and tobacco excise taxes increased. The Sin Tax Reform was an exemplar on how
tax reform could impact social services as it allowed for the increase of the
Department of Health Budget (triple in 2015) and free health insurance premiums
for the poor people enrolled in PhilHealth increased (from 55.2 million in 2012 to
515,4 million in 2015).
What are taxes and why do we pay them?
Taxes are funds used by the government to finance basic social services that are
vital to the lives of citizens and economic growth. Every year, individuals and
corporations pay government taxes, which are used to fund expenditures. When
government spending exceeds revenue collected, a budget deficit occurs. The
government borrows money to cover this gap. The loans are later on added as
additional expenses for the country. According to the National Tax Research Center,
taxes collected have not been enough to cover total government expenditures since
1998. The Tax Reform Act of 1997 identifies whose duty it is to pay taxes. It also
states the types of taxes that individuals and corporations have to pay.
Who pays?
The Tax Reform Act of 1997 says that the following have the duty to pay taxes in the
country:
 Citizens: a citizen of the Philippines residing in the country is taxable on all
income derived from sources within and outside the Philippines
 Nonresident citizens: a nonresident citizen is taxed on income derived
from sources within the Philippines
 Overseas contract workers: a citizen who is working and deriving income
from abroad as an overseas contract worker is taxed only on income
derived from the Philippines
 Alien individuals: resident and nonresident alien individuals are taxed only
on income derived from sources in the Philippines
 Domestic corporation: a domestic corporation is taxable on all income
derived from sources within and outside the Philippines
 Foreign corporation: whether or not engaged in trade or business in the
Philippines, a foreign corporation is taxable only on income derived from
sources within the Philippines
However, the BIR exempts some individuals from filing income tax returns, such as
minimum wage earners and those who are subject to "substituted filing".
According to the law, there are two basic types of taxes: national and local.
National taxes are those we pay to the government through the Bureau of Internal
Revenue (BIR), while local taxes are the ones levied by local government units
(LGUs).
National Taxes
A. Capital Gains Tax - This is the tax an individual or business pays for when
they sell an asset for profit. Capital gains are usually realized from the sale
of stocks, jewelry, property and other high-value goods.
B. Documentary Stamp Tax - This refers to tax on documents, loan
agreements and papers evidencing the sale or transfer of an obligation or
ownership of a property.
C. Donor's Tax - Yes, even gifts and donations are taxed. Relief goods sent
during calamities are an example. Typhoon Yolanda was a different case,
however. BIR scrapped taxes on goods delivered to Yolanda-ravaged areas
as long as they were coursed through the proper government agencies.
D. Estate Tax - When a loved one passes away, the rightful beneficiary or heir
of his or her estate should pay this tax before the estate is transferred to
the heir's name.
E. Excise Tax - This is the tax imposed on goods produced for sale, and sold, in
the country. An excise is considered an indirect tax, meaning the producer
or seller is expected to recover the tax by raising prices of his or her
product. For instance, taxes imposed on "sin" products tobacco and
alcohol are called excise taxes.
F. Income Tax - This is tax on a person's income or profit arising from
property, practice of profession, or conduct of trade or business.
G. Percentage Tax - This is a business tax. It is imposed on persons who sell or
lease goods, properties or services in the course of their business, are not
VAT-registered, and whose gross annual sales and/or receipts do not
exceed P750,000.
H. Value-Added Tax or VAT - A form of consumption tax that is imposed on a
product whenever value is added at a stage of production and at final sale.
It is an indirect tax; it is passed on to consumers.
I. Withholding Tax - Income tax that employers withhold from employees'
salaries, and pay directly to government.
Local taxes
A. Basic Real Property Tax - This is tax on real properties that covers 6 classes:
agricultural, commercial, industrial, residential, timberland and mineral.
B. Franchise Tax - LGUs may impose tax on a business franchise at a rate not
exceeding 50% of 1% of the gross annual receipts for the preceding
calendar year.
C. Business of Printing and Publication Tax - LGUs may collect tax from
printing or publication of books, cards, posters, tarpaulins, pamphlets,
and other published or printed materials.
D. Sand, Gravel and other Quarry Resources Tax - LGUs may collect not more
than 10% of fair market value in the locality per cubic meter of ordinary
stones, sand, gravel, earth, and other quarry resources extracted from
public lands or from the beds of seas, lakes, rivers, streams, creeks, and
other public waters.
E. Professional Tax - This tax is imposed on persons engaged in the exercise or
practice of their professions requiring government examination. Doctors,
lawyers, engineers, and other professionals are covered by this tax.
F. Amusement Tax - All forms of entertainment such as movies, plays and
concerts are taxed. The tax is usually included in the admission price.