MODULE 14

IN

GEC 2
READINGS IN PHILIPPINE HISTORY
(RPH)
Module 14 (3 hours)
Title: Taxation

Introduction:

The very reason why does government exists is because of taxes. We can finance our
governmental activities though revenues and for this reason, it is incumbent on our part to know
the origin and nature of our taxing system in the Philippines.
Learning Outcomes:
1. To have an in-depth knowledge relating to issues in Philippine taxation through history.
2. To propose recommendations or solutions to present-day problems.
3. To understand the root causes and how we anticipate future scenarios in Philippine
setting.

Content:
What is Taxation?
Taxation refers to compulsory or coercive money collection by levying authority, usually
a government. The term “taxation” applies to all types of involuntary levies, from income to
capital gains to estate taxes. Though taxation can be a noun or verb, it is usually referred to as an
act; the resulting revenue is usually called “tax.”
Taxation is a means by which government finance their expenditure by imposing charges
on citizens and corporate entities.
Taxation refers to the practice of a government collecting money from its citizens to pay
for public services. Without taxation, there would be no public libraries or parks, bridges
government building or schools, etc.
Taxation is different from other forms of payment, like payment for purchase of goods
and services, because taxation does not require consent from the payor and the payment is not
directly tied to goods bought or services rendered.
What are taxes?
Taxes are mandatory contributions of everyone to raise revenue for nation-building. The
revenue is used to pay for our doctors, teachers, soldiers, and other government personnel and
officials, as well as for building schools, hospitals, roads, and other infrastructure.
Legal Bases of Philippine Taxation
1. 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.
 1. National Law

a. National Internal Revenue Code - enacted as Republic Act No. 8424 or the Tax
Reform Act of 1997.
b. Republic Act No. 10963 or the Tax Reform for Acceleration and inclusion Act of
2017.
c. Republic Act No. 7160 or the Local Government Code of 1991, and those sourced
from proceeds collected by virtue of a local ordinance.
Taxes imposed by the national level are collected by the Bureau of Internal Revenue
(BIR), while those imposed at the local level are collected by a local treasurer’s office.
The Powers and Duties of the Bureau of Internal revenue (BIR)
1. Reduction and collection of all internal revenue taxes, fees and charges.
2. Enforcement of all forfeitures, penalties, and fines connected therein, including the
execution of judgments in all cases decided in its favor by the Court of Tax Appeals
and the ordinary courts.
3. It shall also give effect to the administer supervisory and police powers conferred to
it by the National Internal Revenue Code and special laws.
Kinds of Taxes:
Taxes can either be direct or indirect.
Direct taxes are those that are paid from income and properties. Examples include
personal and corporate income taxes, property and capital taxes.
Indirect taxes are collected based on consumption. Example include excise taxes,
VAT, percentage tax, and documentary stamp tax (DST).
a. Direct Taxes
Income tax- is a direct tax paid by an individual or organization imposed on:
 Compensation Income - Salaries, wages, taxable bonuses, fringe –
 Business Income - Practice of profession, trades, gains from sale and assets,
and other income not covered by compensation
 Passive Income – Tax on deposits, royalties, and dividend
b. Indirect Taxes

1. Value–Added Tax is a type of indirect tax imposed on goods and services. The VAT
rate since 2006 is 12%. Both imported and domestic goods and services are covered
by VAT, but there are many exemptions. Imposed on persons or entities/transactions:
 who sell or lease goods, properties or services in the course of trade or business and
are the list of exemption can be found in Section 109 of the Tax Code.
2. Percentage Tax is a business tax imposed on persons or entities/transactions: who
sell or lease goods, properties or services in the course of trade or business and are
exempt from VAT under Section 109 of the National Internal Revenue Code, as
amended, whose gross annual sales and/or receipts do not exceed Php 1,919,500 and
who are not VAT-registered; and, engaged in business specified in Title V of the
National Internal Revenue.

3. Excise Tax is an indirect tax on selected goods that have negative externalities and
are non-essentials. Excise tax can be either specific or ad valorem.
 Specific is based on weight, volume capacity, or any other physical unit of
measurement.
 Ad valorem (literally meaning “according to value’) is based on selling price
or other specified value. This is a measure to discourage too much
consumption of scarce resources and limit the bad effects of some products.
These are the commodities subject to excise taxes: Sin products (alcohol and
tobacco), petroleum, miscellaneous articles (automobiles, jewelry, perfume,
and toilet waters, yachts, and other vessels intended for pleasure or sports),
and mineral products.
Brief History of Philippine Taxation
Taxation in Spanish Philippines
The mark of the start of the initial existence of taxation in the Philippines started with the
imposition of tributes. There were problems faced by government officials in its collection due to
the nature of settlements in the Philippines. This calls for the creation of pueblos where Filipinos
were gathered and awarded plots to till. Later on, these settlements were placed under the
management of encomenderos.
To meet the demands of the payment of tributes, Filipinos increased their production.
They were able to pay the tribute partly in cash and partly with their produce. Out of this
transaction, the conquest of the Philippines was financed.
The economy of the Philippines was improved through the Galeon Trade. On the other
hand, tax collection was still poor and to subsidize the finances in the Philippines, different
goods were delivered in the Philippines through the galleon trade.
In 1884, the payment of tribute was stopped and a poll tax through cedula personal was
collected. The payment of cedula was progressive, thus making it cumbersome on the part of
peasants to pay. Through the payment of cedula, tax collection greatly increased and was
considered to be the main source of income.
Direct and indirect taxes were also imposed. Another source of income by the
government is monopoly. This made it possible for the colony to create a surplus of income that
made it self-sufficient without the need for the situado real and even contributed to the Treasury
of Spain. (Candelaria, 2018)
Income tax is also present in the form of forced labor. However, in the end of 17 th
century, the collection of income taxes became lighter because of increase in death rate and flight
to mountains. By the end of 19th century, this tax was reduced to a personal service that lessen
the burden of what is to be paid. This will give us a notion that taxation system during this period
can be summed up to a situation where peasants are heavily burdened by it and the co-elites as
principals being less burdened by it.
It is mindful to include in our discussion a primary source, particularly the account of
Mariano Herbosa when he wrote to Rizal about taxes.
Taxation under the Americans
The Americans who acquired the Philippines aimed to make the economy self-sufficient
by running the government with the smallest possible sum of revenue and create surplus in the
budget. (Candelaria, 2018)
Few changes were incorporated like the introduction of real estate tax which has been
considered as land taxes. This faced a lot of criticisms especially on the part of landed elite who
took means to evade their taxes. To solve the problem relating to the collection of land taxes, the
Internal Revenue Law of 1904 was introduced. Accordingly, it prescribed ten major sources of
revenue, like SIN taxes, income tax imposed to corporations like banks, and the like.
The cedula went through a lot of changes with the new law. other taxes were also
introduced such as industria tax for transactions or activities. Underwood-Simmons Tariff Act
was passed but this reduces the revenue derived from export taxes. To cope up with this, tax
receipts were increased. With all of the succeeding introduction of other sources of revenue, the
same problem remains, that is, we cannot still support the expenditures of the government.
Taxation during the Commonwealth
Under this, surtax rate was added to income taxes. Cedula taxes were actually abolished
and later a residence tax was imposed. The drafting of the National Internal Revenue Code took
place. However, despite several efforts to solve the issues regarding the tax burden shouldered by
the peasant, the same remains and at the outbreak of World War II, economic development is
still far-fetched.
Fiscal Policy from 1946 to Present
After the war, rehabilitation funds is needed to cope up with the result of it. Despite the fact that
independence of the country has been declared, dependency towards the Americans is imminent
since we need to rehabilitate what has been destroyed. The regressive nature of tax system was
still present even up to the time of Marcos administration despite numerous efforts to cater
economic development. However, during the time of Corazon Aquino, tax reform programs were
initiated. Hence, VAT is introduced. This was signed in 1986 and was put into effect in 1988.
Economic growth was somehow seen during the time of Ramos administration. The short-lived
administration of Estrada did not constitute any change in the tax system. Large deficits were felt
during Arroyo administration due to the fact that large expenditure was allowed without
increasing tax collection. Hence, this prompted the government to devise new source of revenue,
thus, the E-VAT. Under the time of Benigno Aquino III, excise taxes were the main focus
thereby strengthening the cause for SIN taxes. Now, with the present administration promising
for tax reform, it is hoped that the same will result in the much-desired economic development.
Suggested Readings:
Source: Mariano Herbosa to Jose Rizal, Calamba, 29 August 1886, Letters Between Rizal and
Family Members (Manila: National Heroes Commission, 1964), 239-241.
Brief History of Taxation in the Philippines, [Link] UffHo_g
Learning Activities:
Exercise 1
Direction. (Essay)
1. Evaluate the law relating to taxation that governs banking institution or corporations. Are you
favorable or not to the economic progress of the country? Justify your answer

Scoring Rubrics for Essay

Category Exemplary Superior Satisfactory Unsatisfactory

Knowledge/ Demonstrates Demonstrates Demonstrates Demonstrates
Comprehension thorough considerable understanding limited
understanding understanding of the topic understanding
of topic. of the topic. of topic
Content Response Response Response lacks Response is
indicates depth indicates focus or unclear, illogical or
& complexity of simplistic or demonstrates incoherent.
thought in
repetitive confused or
answering the
thoughts in conflicting
essay. answering the thinking.
essay question.
Quality of Response was Response was Response had Response had no
Writing written in an written in an a little style or style or voice.
extraordinary interesting style. voice
style & voice.
Somewhat
informative Gives some Gives no new
Very information & organized. new information & very
& well information poorly organized.
organized. but poorly
organized.
Grammar, Almost no Few spelling & A number of So many spelling,
 Punctuation & spelling, punctuation spelling, punctuation &
Spelling punctuation or errors, minor punctuation or grammatical errors
grammatical grammatical grammatical that it interferes
errors. errors. errors. with the meaning.
Sub Totals

Over-all-Score

Exercise 2
Show the similarities and differences of the taxation system from the Spanish period to
American period.

Spanish Period American Period

Similarity Difference Similarity Difference
References:
Candelaria, John Lee, [Link].,2018. Readings in Philippine History. Rex Bookstore, Inc.
Manapat, Carlos, [Link].,2010. Economics, Taxation and Agrarian Reform. C&E Publishing Inc.
Solminero, Ernesto Thaddeus, [Link].,2016. Readings in Philippine History.