MODULE 14

THE EVOLUTION OF

PHILIPPINE TAXATION

GEC 102 - Readings in Philippine History

 At the end of the lesson, students
should be able to:
Discuss the timeline of evolution
of Philippine Taxation from one
period to another

Determine why it is important to

study the history of taxation
OBJECTIVES

Be knowledgeable with the

timeline of evolution of Philippine
taxation

Be able to make a synthesis

regarding to what they learned
from the subject matter
WHAT IS TAX?

TAXATION is defined
in many ways.
Commonly heard
definitions include:
It is the process by which the sovereign, through its
law-making body, races revenues use to defray
expenses of government

It is a means of government in increasing its revenue

under the authority of the law, purposely use to
promote welfare and protection of of citizenry.

It is the collection of the share of individual and

organizational income by a government under the
authority of he law.
 PURPOSE OF TAXATION

The main purpose of

taxation is to accumulate
funds for the functioning of
the government
sectors/machineries. No
government in the world
can run its administrative
office without funds and it
has no such system
incorporated in itself to
generate profit from its
functioning.
The Four R’s of Taxation

Revenue Repricing

Redistribution Representation


1. Revenue

Revenue: taxes raises money to spend on roads,

schools and hospitals and other government
infrastructures. It also includes indirect
government functions like market regulation or
justice systems

- This is the most widely function

2. Redistribution

Redistribution: Normally, this means transferring

funds/wealth from the richer sections of the
society to the lower/poorer ones. This function is
widely accepted in most governments, although
the extent to which this should happen is always
controversial due to the involvement of money
and influence.


3. Repricing

Reprising: Taxes are levied/imposed to address the

specific areas.
For example, Tobbacco or cigarettes are taxed to
discourage people from smoking due to its
dangerous effects to a person’s health and the
environment.

Also, there are other provisions like sin tax and

carbon tax which is discussed by the
senate/congress.


4. Representation

Representation: The fourth consequential effect of

taxation is its historical setting has been the
representation. The American Revolution slogan
“No taxation without Representation” implied this:

Rulers Tax Citizens, and Citizens demand

accountability from their Rulers as part of this
bargain
 Other purpose of taxation:

the productivity of the
✔ Increase effectiveness and
nation
✔ Increase the country’s national Revenue
✔ Improvement of government services
✔ Improvement of employment at all industry
levels
✔ Induction of modern technology into the
government system
✔ Rationalization of employment terms and
conditions
 TAXATION DURING PRE-

COLONIAL PERIOD (900-1521)

- Government were called “Barangays”

- There was no “datu” strong enough to

unite the archipelago into one nation.

- Head of Barangay is called "Datu" or "Raja"



- Ancient Filipinos practice paying taxes for

the protection from their “datu”.

- The collected tax or tribute was called

“buwis” or “handug”.

- The chieftain’s family members were

enjoying exemption from paying taxes

Non-payment of taxes was already punishable

during this period


Judicial process was influenced by religion

and by waiting the intervention of the
deities. Wherein Datu served as the chief
judge who was assisted by group of elders
in the barangay that acted as members of
the jury
Three (3) classification of the society.

1. Tumao - These men are considered noble with

full royal blood. People who are related to
Datu/Raja and as well as their family members.

2. Timawa – They are considered as the free men.

Most of them are from the warrior class or the
military officials and personnel of the reigning
Datu. Neither of them are chiefs or slaves and they
have rights to pick any job they want, acquire land,
pick wives, and acquire slaves.


3. Oripun – They are considered as the

slaves or commoners. They render services
either Tumao or Timawa classes. They
cannot marry, or acquire property not
unless they are freed by their masters. They
don’t make money that is why they are not
required to pay taxes.
 TAXATION DURING THE

SPANISH PERIOD (1521-1898)

The Philippines have abundant natural
resources even before the Spaniards
conquered us. We already had an
existing concept of taxation but the
arrival of the Spaniards altered it.

They imposed Tributos after

conquering us, similar to what they did
to other colonies they conquered. Their
purpose was:

 1. To generate resources and to

finance the infrastructure and
maintenance of the island.
2. Salary purposes
3. Clergy expenses

They faced difficulties in the revenue

collection at first, but found a way
when they introduced the Encomienda
system.

THE FOLLOWING WERE EXEMPTED

FROM THE PAYMENT OF TRIBUTOS:

1. Alcaldes
2. Gobernadores
3. Cabeza the baranggay
4. Soldiers/Guardia Civil
5. Government Officials
6. Vagrants (Beggar/Slaves)
At the end of the sixteenth century, Manila-
Acapulco trade was established through
galleons, a way by which the Spaniards
could make sure that European presence
would be sustained.

There are outings once a year when a

galleon would be loaded up of
merchandise from Asia and sent to Spain
(back and forth). This improved the
economy of the Philippines and also helped
the Spaniards to enforce control over the
country.
Tax collections was still very poor and
subsidy from Spain would be needed to be
delivered from the Mexican treasury to the
Philippines through the Galleons. But it
was stopped in 1820 due to Mexico’s
independence.

This was replaced by another system where

everyone has to get their own Cedula
Personal. This is required since this will
serve as their personal identification and
must be carried at all times.
Unlike the old system, where the taxes were
collected per family, the payment on the new
system is per person.
The payment of cedula depends on your
category. (it depends on your income)

Tributo – 10 reales
Diezmos prediales – 1 real (or 10% of tributo)
Treasury fees – 1 real
Sanctorum tax (church tax) – 3 reales

All in all, an average Filipino pays 15 reales during

this period.
TAX INDIRECT

Also collected was the bandalâ, an annual enforced

sale and requisitioning of goods such as rice.
Custom duties and income tax were also collected.

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. The local gobernadorcillos had
been responsible for collection of the tribute. Under
the cedula system, however, taxpayers were
individually responsible to Spanish authorities for
payment of the tax, and were subject to summary
arrest for failure to show a cedula receipt.
FORCED LABOR/WORK (POLO Y SERVICIO)

Polo y servicio is the forced labor for 40

days of men ranging from 16 to 60 years of
age who were obligated to give personal
services to community projectsA. One
could be exempted from polo by paying
the falla, a daily fine of one and a half real.
In 1884, labor was reduced to 15 days. The
polo system was patterned after the
Mexican repartimento, selection for forced
labor
In general, Spanish authorities did not show any sign
of fairness towards the Filipinos especially in the
division of responsibilities in polo y servicio. Because
of this irresponsibility, Filipinos still work apart from
their allotted time for work.

Filipinos who were working in the Galleon Trade

experienced misfortune because of the heavy
loads Spanish authorities were asking of them. As
a result, many workers died and later on
separated families because of poverty being
experienced.
It’s also gave the Filipinos a big burden in terms
of corruption led by the Principales, former
datus or rajas and elites who agreed with the
Spaniards to control on their behalf.

Those members of the Principales who were

given positions like cabeza the barangay or
alcaldes in the local government were able to
enrich themselves by pocketing tributos and
fallas, while the peasants were left to be
abused. The heavily taxed Free men made the
rich richer, and the poor poorer.
Other Example of taxes:
A. Taxes for irrigated B. Taxes for residential
rice land. lands.

Even without water, they

will pay a minimum tax 50 pesos must be paid
of 50 cavans of rice, 6 regardless if your house
cavans of rice seeds and and lot is small, the
5 pesos in cash.
lowest would be at least
20 pesos per year. The tax
If your harvest turns out still increases every year.
well, it would increase
more than the agreed
amount.
 TAXATION DURING THE

AMERICAN PERIOD (1898-

1903)
When the Americans acquired the Philippines,
they still followed the Spanish system of
taxation, along with a few modifications since it
was quite outdated and to improve the old
system. The military suspended the contracts
for the sale of some goods, especially opium.
Lottery was introduced. Minting and coinage of
money was also produced.

There was a disorderly problem with the

appraisal of land value because of political and
familial factors brought by the Spanish
influences.

Tax evasion was prevalent especially among the

upper class.
The internal revenue Law of 1904 was passed as a

reaction to the problems in the collection of land

taxes.

1. Licensed taxes on firms on alcohol and

tobacco
2. More taxes on banks and bankers
3. Document stamp taxes
4. Cedula(additional tax)
5. Added taxes on insurance
6. Taxes on farm/forest products
7. Additional tax in mining operations
8. Added taxes for business
9. Occupational licenses
The cedula went through changes in the new
law as the rate was fixed.

In 1907, some provinces were authorized to

double the fee for the cedula to support
infrastructure and maintenance of roads.

The industria tax was imposed. It gives additional

taxes to the business community where the elite
class was affected. The new act allowed people to
pay the percentage of the sales tax quarterly.
In 1913, the Underwood-Simmons Tariff act was
passed, resulting in a reduction on revenue of the
government as export taxes was imposed on sugar,
tabacco, hemp and copra, which was the main
product of the country.

New sources of taxes were introduced later on. In 1914,

an income tax was introduced. In 1919, an inheritance
tax was created, 1932, a national lottery was
established to create more revenue for the
government.
Still, it was not enough to sustain the government
expenditures at that time.

TAXATION DURING THE

COMMONWEALTH PERIOD
New measures and legislation were introduced to make
the taxation system appear more equitable during the
Commonwealth. Income tax rates were increased in 1936.
In 1937, the cedula tax was abolished, but in 1940, a
residence tax was imposed on every citizen aged 18 years
old above.

The lower class still felt the burden of taxation, while the
upper class, the landed elite, the people who had
government positions, were able to maneuver effortless in
this setting because it benefits them more. The
agriculture sector was still taxed low to promote growth,
but there was no incentive for the industrial investment to
take root and develop.
As world war II reached the Philippine shores,
economic activity was put to stop and the
Philippines bowed to a new set of administrators,
The Japanese.

The Japanese administration continued the tax

collection of the Commonwealth era, but exempted
the things that belonged to the Japanese armed
forces.
Mickey Mouse Currency

During World War II in the Philippines, the

occupying Japanese government-issued fiat
currency in several denominations; this is known as
the Japanese government-issued Philippine fiat
peso.

The Second Philippine Republic under José P.

Laurel outlawed possession of guerrilla currency,
and declared a monopoly on the issuance of money,
so that anyone found to possess guerrilla notes
could be arrested.

Some Filipinos called the fiat peso "Mickey Mouse

money". Many survivors of the war tell stories of going to
the market laden with suitcases or "bayóng" overflowing
with the Japanese-issued bills.

According to one witness, 75 "Mickey Mouse" pesos, or

about 35 U.S. dollars at that time, could buy one duck
egg.

In 1944, a box of matches cost more than 100 Mickey

Mouse pesos.

Fiscal Policy from 1946 to Present

After the World War II, the economic aftershock pay its
toll to the Republic of the Philippines. Manila, its capital,
was annihilated to its core while the rest were almost
untouched. The agriculture assets were also destroyed
and the economy experienced its down time.

The United States may have declared the country’s

independence, but it needed a lot of resources for
rehabilitation. The funds needed were very small to what
the Philippines received, that’s why its dependency to
the United States was an opportunity to be taken
advantage of other colonial administrators.
The economy was so bad in 1949, that the country
lack funds in many aspects of the government such
as military, agricultural and education sectors. No
efforts were made to improve tax collection and the
United States advised the leaders to adopt the direct
taxation patterned to their country.

President Manuel Roxas declined the proposal in

order to not alienate his allies in Congress.
The drive for economic growth came during the time of
President Quirino through the implementation of
import and exchange controls led to development.

New tax measures were also passed, which included

the higher corporate tax rates that increased the
government’s revenues.

While the succeeding presidents of Magsaysay and

Macapagal and Garcia promised to study the tax
structure and policy of the Philippines, the Congress
made sure that the taxes would be imposed to everyone
and to be fair to the lower and higher class of the society.
The period of the post-war republic also saw a rise of
corruption in the government.

From 1959 to 1968, Congress did not pass any tax

legislation despite the important changes in the
economy.

The businesses of the business men were protected by

the congress men who were related to them.

Under the Marcos dictatorship, tax system remained

regressive. During the latter part of his term, tax system
was heavily dependent on indirect taxes.
As Corazon Aquino took the helm of the
government after EDSA Revolution, she
reformed the tax system through the 1986 Tax
Reform Program. Their aim was to improve the
unresponsiveness of the tax system to promote
the same tax burden to every walks of life,
promote growth by withdrawing or modifying
taxes that reduce incentives to work or produce
and tax administration by simplifying the tax
system and promoting tax compliance.
A major reform in the tax system was introduced under
Aquino was the introduction of Value Added Tax (VAT) with
the following measures:

1. Uniform rate of 10% sale of domestic and imported goods

and services and zero percent on export and foreign-
currency denominated sales
2. Tax on millers, contractors, brokers and films.
3. Two percent tax on entities with annual sales or receipts
less than 5,200,000
4. Tax exemption on the basic commodities such as
agriculture and marine food products in their original
state, price regulated petroleum products and fertilizers
5. Additional 20% tax on non-essential products such as
jewelry, perfumes, toilet waters, yatch and other vessels
for pleasure and sports.

The VAT law was signed in 1986 and took full effect in
1988. It became a reliable source of revenue for the
government and new tax laws would reduce its reliability
as legislated exemptions grew.

Along with the tax reforms, the Bureau of Internal

Revenue replaced the Department of Finance as the
administrator of tax through the executive Order 127.
Tax collections and audits were intensified, along with
the introduction of its computerization.

Corruption and tax evasion were relatively reduced,

resulting a rise on tax revenue from 10.7% in 1985 to
15.4% in 1992.
Greater political stability during the administration
of Fidel V. Ramos in 1992 allowed the country for
continued economic growth. The Ramos
administration ventured into its own tax reform
program in 1997. It implemented the following:

1. Make tax system broad and simple

2. Minimize tax avoidance created by flaws and
loopholes by the government.
3. Encourage tax payers and lowering tax rates
4. Rationalize the grant of tax incentives, which
estimated to be worth 531 billion pesos in 1994.
The succeeding President Joseph Estrada
was in position too short to constitute
any change in the tax system since the
Vice President Gloria Macapagal-Arroyo.
was swept into power driven by another
People Power Revolution to oust ex
President Estrada.
As a president, GMA undertook increase
government spending without adjusting the tax
collections. This resulted in large deficits from
2002 to 2004. The government look for another
source of revenue and in 2005, the Expanded
Value Added Tax (E-VAT) was signed into law as
Republic Act 9337.

This expanded the VAT based, subjecting to VAT

energy products such as coal and petroleum
products and electricity generation, transmission
and distribution. In February 2006, VAT tax rate
was 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 be imposed. But in 2015, he imposed the Sin
Tax Reform to encourage people to minimize the
use of alcohol and cigarettes. This move helped the
Domestic growth by 1.1% and increased the budget
of the Department of Health by 300%.

The administration of the new President Rodrigo

Duterte, promised tax reform particularly in income
taxes as it vowed to lower income tax rates
shouldered by working Filipinos.
 What is TRAIN?

TRAIN or the Tax Reform for

Acceleration and Inclusion is the first
package of the comprehensive tax
reform program (CTRP) envisioned by
President Rodrigo Roa Duterte’s
administration.

TRAIN aims to make the current tax system

simpler, fairer, and more efficient.

It also aims the following:

A. Reduce the poverty rate from 26% to 17%

uplifting about 10 million Filipinos from poverty by
2020
B. Achieve middle – income status for the majority
of Filipinos
C. Eradicate extreme poverty, provide equal
opportunities through inclusive economic and
political institutions and achieve high income status
by 2040

Starting 1 January 2018, compensation earners, self-

employed and professional taxpayers (SEP) whose annual
taxable incomes are P250, 000 and below or less than
P21,000 a month is exempted from the personal income
tax (PIT).

SEPs whose gross receipts or sales are below P3 million

have the option to choose from the 8% flat tax rate or the
TRAIN’s new personal income tax table.

SEPs whose annual salaries are P500,000 and below are

exempt from 3% percentage tax.

The 13th month pay and other bonuses amounting to

P90, 000.00 are likewise tax-exempt.
THANK YOU!!!

PRESENTED BY:
MICAELLA D. LIRIO
MA. FRANCES GEA V. TROVELA
SHYLA A. UNSON