DAVAO CENTRAL COLLEGE,
INC.
Juan dela Cruz Street, Toril, Davao City
Landline No. (082) 291 1882
Accredited by ACSCU-ACI
GE Hist 1: Readings in Philippine History
Week 14
UNIT 5: Social, Political, Economic and Cultural Issues In
The Philippines
Learning Outcomes:
1. Make a document analysis social, political, economic
and cultural issues in the Philippines using the lens
of history.
2. Show through a graphic organizer the evolution of
taxation in the Philippine.
3. Explain the implications of the TRAIN law in the lives
of the common people.
Concept Digest
Evolution of Taxation
In today’s world, taxation is a reality that all citizens
must contend with, for the primary reason that governments
raise revenue from the people they govern to be able to
function fully. In exchange for the taxes that people pay,
the government promises to improve the citizens’ lives
through good governance. Taxation, as a government mechanism
to raise funds, developed and evolved through time, and in
the context of the Philippines, we must understand that it
came with our colonial experience.
Taxation in Spanish Government
The Spaniards imposed the payment of tributos (tributes) or
the obligation to provide labor services to the datus in
some early Filipino communities in the Philippines may
resemble taxation, it is different from the contemporary
meaning of the concept. The arrival of the Spaniards altered
this subsistence system because they imposed the payment of
tributos (tributes) from the Filipinos, similar to what has
been practiced in all colonies in America. The purpose is to
generate resources to finance the maintenance of the
islands, such as salaries of government officials and
expenses of the clergy. The difficulty faced by the
Spaniards in revenue collection through the tribute was the
disperse nature of the settlements, which they solved by
introducing the system of reduccion by creating pueblos,
where Filipinos were gathered and awarded plots of lands to
till. Later on, the settlements will be handled by
econmederos who received rewards from the Spanish crown for
their services. Exempted from payment of tributes were the
principales: alcaldes, gobernadores, cabezas de barangay,
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DAVAO CENTRAL COLLEGE,
INC.
Juan dela Cruz Street, Toril, Davao City
Landline No. (082) 291 1882
Accredited by ACSCU-ACI
soldiers, members of the civil guard, government officials,
and vagrants.
Toward the end of the 16th century, the Manila-Acapulco
trade was established through the galleons, a way by which
the Spaniards could make sure that European presence would
be sustained. Once a year the galleon will be loafed up with
merchandise from Asia and sent to New Spain (Mexico) and
back. This improved the economy of the Philippines and
reinforced the control of the Spaniards all over the
country. Tax collection was still very poor, and subsidy
form the Spain will be needed through the situado real
delivered form the Mexican treasury to the Philippines
through the galleon. This subsidy stopped as Mexico became
independent in 1820.
In 1884, the payment of tribute was put to a stop and was
replace by a poll txt collected through a certificate of
identification called cédula personal. This is required form
every resident and must be carried while traveling. The
payment of cedilla is by person and by family. Payment of
cedilla is progressive ad according to income categories.
This system, however was head burden for the peasants and
was easy for the wealth. But because of this, the revenue
collection greatly increase and became the main source of
government income.
In 1878, two direct taxes were added. Urbana, is a tax on
the annual rental value of an urban real estate and
industria is a tax on salaries, dividends and profits. These
taxes were universal and affected all kinds of economic
activity except agriculture, which was exempt to encourage
growth. Indirect taxes such as customs duties were imposed
on exports and imports to further raise revenues.
The colonial government also gains income from monopolies,
such as the sale of stamped paper, sale of liquor, cockpits
and opium, but the biggest of the state monopolies was
tobacco, which began in1781 and halted in 1882. This
monopoly 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 contributes to the treasury of
Spain.
Forced labor was a character of Spanish colonial taxation in
the Philippines, and was require from the Filipinos. Through
the polo system, male Filipinos were obliged to serve, which
resulted to an increase in death rate that led to a decrease
in population in the 17th century. This changed later on, as
polos and servicos became lighter. The polos will be called
prestacíon personal (personal services) by the second half
of the 19th century.
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DAVAO CENTRAL COLLEGE,
INC.
Juan dela Cruz Street, Toril, Davao City
Landline No. (082) 291 1882
Accredited by ACSCU-ACI
Taxation in the Philippines during the Spanish colonial
period was characterized by the heavy burden placed on the
Filipinos, and the corruption of the principales and local
elites. Taxation appeared progressive but the disparity
between the less taxed principales and the heavily taxed
peasants made the rich richer and the poor poorer.
Primary Source: Mariano Herbosa Writes to Rizal About Taxes
Source: Mariano Herbosa to Jose Rizal, Calamba, 29 August
1886. Letter Between Rizal and Fmily Member (Manila:
National Heroes Commission, 1946), 239-241.
“The tax! With regard to your question on this, the answer
is very long as it is the cause of the prevailing misery
here. What I can write you will be only one-half of the
story and even Dumas, senior, cannot exhaust the subject,
Nevertheless, I’ll tr to write what I can, though I may not
be able to give a complete story, you may atlas know half
of it.
“Here, there are many kinds of taxes. What they call
irrigated rice land, even if it has no water, must pay a
tax pf 50 cavanes of palay and land with six canaves of
seed pay 5 pesos in cash. The land they call dry land that
is planted to sugar cane, maize, and others pay different
rates. Even if the agreed amount is 30 pesos for land which
six cavanes of seed, if they see that the harvest is goof,
the increase the tax, but they don’t decrease it, if the
harvest is poor. There is land whose tax is 25 pesos or 20
pesos, according to custom.
“The most troublesome are the residential lots in the town.
There is no fixed rile that is followed, only their whim.
Hence, even if it is only one spa in size, of a stone wall
is added, 50 pesos must be paid, the lowest being 20 pesos.
But a nipa or corn house pays only one peso for an area of
ten fathoms square. Another feature of this system is that
on the day you accept the conditions, the contract will be
written which cannot be changed for four years, but the tax
is increased very year. For these reasons, for two years
now the payment of tax is confused and little by little the
fear of the residents here of the word “vacant” is being
dispelled, which our ancestors had feared so much. The
result is bargaining, like they do in buying fish. It is
advisable to offer a low figure and payment can be
postponed, unlike before when people were very much afraid
to pay after May.
“I’m looking for a recipe to send you, but I cannot find
any, because we don’t get a receipt overtime we pay. Anyway
it is value0less as it does not state the amount paid; it
only says that the tax for that year was paid, without
stating whether it is five centavos, twenty-five centavos,
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DAVAO CENTRAL COLLEGE,
INC.
Juan dela Cruz Street, Toril, Davao City
Landline No. (082) 291 1882
Accredited by ACSCU-ACI
one hundred, or one thousand pesos. The resident who ask or
get the said receipt accept it with closed eyes. The
receipt has no signature in the place where the amount paid
ought to be, although it bears their name. Until now I
cannot comprehend why some are signed and others are not.
This is more or less what is happening here in the payment
of the land tax and it has been so for many years since I
can remember.
“Besides this, the rates on the plants in the fields that
are far from the town, like the land in Pansol, are
various. The tax on the palay is separate from the tax on
maize, mongo, or garlic. There is no limit to this tax, for
they fix it themselves. Since July no one buys sugar and
since June locusts are all over the town and they are
destroying palay and sugar cane, which is what we regret
here. The governor gave 50 pesos to pay the catchers of
locusts, but when they look them to the town hall they were
paid only 25 cents a cavan and a half; and it seems that
the locusts are not decreasing. According to the guess of
the residents here only 300 cavanes of locusts have been
caught in this town. Many still remain. Though the governor
has not sent any more money, he people have not stopped
catching them.
Taxation under Americans
The Americans followed the Spanish system of taxation form
1898 to 1903, with modifications, noting that the system
introduced by the Spaniards were outdated and regressive.
The military government suspended the contracts for the sale
of opium, lottery and mint charged for coinage of money.
Later on the urbana will be replaced by tax on real estate,
which became known as the land tax. The land tax was levied
on both urban and rural real estates.
Land titling in the rural area was very disorderly because
the appraising of land value was influence by political and
familial factors. Tax evasion was prevalent, especially
among elites.
The Internal Revenue Law of 1904 was passed. It prescribed
ten major sources of revenue: (1) license taxes on firms
dealing in alcoholic beverages and tobacco, (2) excise taxes
on alcohol beverages and tobacco products, (3) taxes on bank
and banks, (4) document stamp taxes, (5) the cedula, (6)
taxes on insurance and insurance companies, (7) taxes on
forest products, (8) mining concessions, (9) tax on business
and manufacturing, and (10) occupational licenses.
The rate of cedula was fixed per adult male, which resulted
to a great decline in revenues. In 1907, some provinces
doubled the fee for the cedula to support the construction
and maintenance of roads. The industria tax was levied on
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DAVAO CENTRAL COLLEGE,
INC.
Juan dela Cruz Street, Toril, Davao City
Landline No. (082) 291 1882
Accredited by ACSCU-ACI
the business community and became highly complex system that
assigned certain tax to an industrial or commercial activity
according to their profitability. The new Act also imposes a
percentage tax on sales payable quarterly.
In 1913, the Underwood-Simmons Tariff Act was passed
resulting to a reduction in the revenue of the government as
export taxes levied on sugar, tobacco, hemp and copra were
lifted. Minor changes were made to the 1904 Internal Revenue
Act such as the imposition of taxes on mines, petroleum
products, and dealers of petroleum products and tobacco.
In 1814, an income tax was introduce, in 1919, an
inheritance tax was create, and in 1932, a national lottery
was established to create more revenue for the government.
However, these new creations were not enough to increase
government revenues.
Taxation during the Commonwealth Period
New measure and legislation were introduced during the
Commonwealth. Income tax rates were increased in 1936,
adding a surtax rate on individual net incomes in excess of
10,000 pesos. Income tax rates of corporations were also
increased.
In 1937, the cedula tax was abolished, but in 1940 a
residence tax was imposed on every citizen after 18 years
old and on ever corporation.
In 1939, the Commonwealth government drafted the National
Internal Revenue Code, introducing major changes of the new
tax system, as follows:
1. The normal tax of three percent and the surtax on income
was replaced by a single tax at progressive rate.
2. Personal exemptions were reduce.
3. Corporation income tax was slightly increased by
introducing taxes on inherited estates or gifts donated in
the name of dead persons.
4. The cumulative sales tax was replace by a single turnover
tax of 10% on luxuries.
5. Taxes on liquors, cigarettes, forestry products and
mining were increased.
6. Dividends were made taxable.
The introduced tax structure remained inequitable. The lower
class still felt the burden of taxation, while the upper
class, were able to maneuver the situation that will benefit
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DAVAO CENTRAL COLLEGE,
INC.
Juan dela Cruz Street, Toril, Davao City
Landline No. (082) 291 1882
Accredited by ACSCU-ACI
them more. The agriculture sector was still taxed low to
promote growth, but there was no incentive for industrial
investment to take the root and develop.
As World War II reached the Philippine shores, economic
activity was stopped as there was a new set of
administrators, Japanese. The Japanese military
administration continued the system of tax collection
introduced during the Commonwealth, but exempted the
articles belonging to the Japanese armed forces. Foreign
trade fell, and the main sources of taxation came from
amusements, manufacturers, professions, and business
licenses. As the war raged tax collection was a difficult
task, and additional incomes of the government were derived
from the sales of the National Sweepstakes and sales of
government bonds.
Fiscal Policy from 1946 to Present
The United States may have declared the Philippines
independent, but, as the country needed rehabilitation funds
from the United States, the dependency of the Philippines to
Americans was opportunity to be taken advantage by the
former colonial administrators. By 1949, there was a severe
lack of funds in many aspects of governance, such as the
military and education sectors. No efforts were made to
improve tax collection, and the United Stated advised the
adoption of direct taxation but President Manuel Roxas
declined the proposal because it did not want to alienate
its allies in Congress.
During the time of President Elpidio Quirico through the
implementation of imports and exchange controls, economic
growth came. This policy allowed for the expansion of a
viable manufacturing sector that reduced the dependence on
imports. Further, higher corporate tax rates were also
passes. Tax revenues in 1953 increased twofold compared to
1948, the year when Quirico first assumed presidency.
The period of the post-war republic also saw a rise in in
corruption. From1959-1968, Congress did not pass any tax
legislations despite important changes in the economy, and
the vested interests of Filipino businessmen in Congress
will manifest in many instances such as the rejection of
taxes on imports.
Collection of taxes remained poor, tax structure is still
problematic, and much of public funds were lost to
corruption, which left the government incapable of funding
projects geared toward development.
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DAVAO CENTRAL COLLEGE,
INC.
Juan dela Cruz Street, Toril, Davao City
Landline No. (082) 291 1882
Accredited by ACSCU-ACI
Under Marcos authoritarian regime, the tax remained
regressive. As Corazon Aquino took the helm of the
government after EDSA Revolution, she reformed the tax
system through the 1986 Tax Reform Program. The aim was to
improve the responsiveness of the tax system, promote
equity, and improve tax administration by simplifying the
tax system and promoting tax compliance.
Under the term of Aquino, value-added tax (VAT) was
introduced, with the following features;
a. uniform rate of 10% on sale of domestic and imported
goods and services and zero percent on exports and foreign-
currency denominated sales;
b. ten (10) percent in lieu of varied rates applicable to
fixed taxes (60 nominal rates), advance sales tax, tax on
original sale, subsequent sales tax, compensating tax,
miller’s tax, contractor’s tac, broker’s tax, film lessors
and distributor’s tax, excise tax on solvent and matches,
and excise tax on processed videotapes;
c. two percent tax on entities with annual sales or receipts
of less than 200,000 pesos;
d. adoption of tax credit method of calculating tax by
subtracting tax on inputs from tax on gross sales;
e. exemption of the sale of basic commodities such as
agriculture and marine food products in their original sate,
price-regulated petroleum products, and fertilizers; and
f. additional 20% tax on non-essential articles such
jewelry, perfumes, toilet waters, yacht and other vessels
for pleasure and sports.
The Ramos administration in 1997, ventured into its own tax
reform program through the Comprehensive Tax Reform Program
which was implemented to;
(1) make the tax system broad-based, simple and with
reasonable tax rates;
(2) minimized tax avoidance allowed by existing flaws and
loopholes in the system;
(3) encourage payments by increasing tax exemptions levels,
lowering the highest tax rates and simplifying procedure;
(4) rationalize the grant of tax incentives.
The VAT bases was also broadened in 1997 to include
services, through Republic Act 7716. The feature of the
improved VAT law were as follows:
a. Restored the VAT exemptions for all cooperatives
(agricultural, electric, credit or multi-purpose and others
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DAVAO CENTRAL COLLEGE,
INC.
Juan dela Cruz Street, Toril, Davao City
Landline No. (082) 291 1882
Accredited by ACSCU-ACI
provided that the share capital of each member does not
exceed 15,000 pesos.
b. Expanded the coverage of the term “simple processes” by
including broiling and roasting, effectively narrowing the
tax base for food products.
c. Expanded the coverage of the “original state” by
including molasses.
d. Exempted from the VAT are the following:
-Importation of meat
-Sale or importation of coal and natural gas in whatever
form or state
-Educational services rendered by private education
institutions duly accredited by the Commission on Higher
education (CHED)
-House and lot and other residential dwellings valued at
1 million pesos and below, subject to adjustment using
the Consumer Price Index (CPI)
-Lease of residential units with mostly rental per unit
of not more than 8,000 pesos, subject to adjustment using
CPI
-Sale, importation, printing or publication of books and
any newspaper
President Joseph Estrada’s term in 1998 was too short to
effect change in the tax system. Gloria Macapagal-Arroyo who
swept power through another EDSA Revolution undertook
increased government spending without adjusting tax
collections, which, resulted to deficits form 2002-2004. In
2005, Expanded Value Added Tax (E-VAT) was signed into law
as Republic Act 9337. This extended VAT bases, subjecting to
VAT energy products such as coal and petroleum products and
electricity generation, transmission and distribution.
Select professional services were also taxed.
President Benigno Aquino III succeeded President Arroyo in
2010. 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.
Tax Reform for Acceleration and Inclusion (TRAIN LAW) under
President Rodrigo Duterte Administration
On December 19, 2017, the President signed into law Package
1 of the Comprehensive Tax Reform Program also known as the
Tax Reform for Acceleration and Inclusion (TRAIN) as
Republic Act (RA) No. 109631. The law provides for the
amendments to several provisions of the National Internal
Revenue Code of 1997 (NIRC of 1997) on personal income
taxation, passive income for both individuals and
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DAVAO CENTRAL COLLEGE,
INC.
Juan dela Cruz Street, Toril, Davao City
Landline No. (082) 291 1882
Accredited by ACSCU-ACI
corporations, estate tax, donor’s tax, value-added tax
(VAT), excise tax, documentary stamp tax (DST), and tax
administration, among others. It likewise introduced new
taxes such as the excise tax on cosmetic surgery and sugar-
sweetened beverages.
The additional revenues that will be generated in the
implementation of the Act shall be used to fund the
President’s priority infrastructure and social programs that
will ultimately benefit the poor.
Highlights of the Reforms Under RA 109632
The following are the highlights of the reforms introduced
by RA 10963 to the NIRC of 1997.
Personal Income Tax
The most popular part of the Train law is the reduction of
personal income tax of a majority of individual taxpayers.
Prior to the enactment of the new law, an individual
employee or self-employed taxpayer would normally have to
pay income tax at the rate of 5% to 32%, depending on one's
bracket.
Under Train, an individual with a taxable income of P250,000
or less will now be exempt from income tax. Those with a
taxable income of above P250,000 will be subject to the rate
of 20% to 35% effective 2018, and 15% to 35% effective 2023.
Moreover, the deductible 13th month pay and other benefits
are now higher at P90,000 compared to P82,000 under the old
law.
Another innovation under Train is the option of self-
employed individuals and/or professionals whose gross sales
or receipts do not exceed P3,000,000 to avail of an 8% tax
on gross sales or gross receipts in excess of P250,000, in
lieu of the graduated income tax rates.
It is not being highlighted, however, that some items that
were previously deducted to arrive at taxable income had
been removed under Train. These are the personal exemption
of P50,000, additional exemption of P25,000 per dependent
child, and the premium for health and hospitalization
insurance of P2,400 per year.
Estate Tax
The estate tax rate was also changed from 5% to 32% of the
net estate to a flat rate of 6%. Additionally, the following
deductions allowed in computing the net estate (to be
subjected to estate tax) were increased:
Donor’s tax
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DAVAO CENTRAL COLLEGE,
INC.
Juan dela Cruz Street, Toril, Davao City
Landline No. (082) 291 1882
Accredited by ACSCU-ACI
The donor’s tax rate was also amended to a single rate of 6%
regardless of the relationship between the donor and the
donee. In the old law, the rates of donor’s tax were 2% to
15% if the donor and donee are related, and 30% if
otherwise. However, the donation of real property is now
subject to Documentary Stamp Tax of P15 for every P1,000.
Value Added Tax
There are also amendments to VAT which lessen the burden of
taxpayers:
1. Increase of VAT threshold from P1,919,500 to P3,000,000
2. Starting 2019, the sale of drugs and medicines for
diabetes, high cholesterol, and hypertension will be exempt
from VAT
3. Increase of VAT exemption for lease of a residential unit
from P12,800 to P15,000
4. Association dues, membership fees, and other assessments
and charges collected by homeowners associations and
condominium corporations are now expressly VAT exempt.
Increased taxes
Passive Income
Train imposes higher taxes on some passive incomes,
including interest income from dollar and other foreign
currency deposits.
Excise Tax
Train imposes higher excise taxes on cigarettes,
manufactured oils (petroleum products), mineral products and
automobiles.
Non-essential services
Invasive cosmetic procedures directed solely towards
improving, altering, or enhancing the patient’s appearance
is now subject to excise tax of 5%.
PCSO winnings
Previously, PCSO winnings, regardless of amount, were exempt
from tax. Train subjects PCSO winnings to a 20% final
withholding tax if the amount is more than P10,000.
Simplified tax compliance
Apparently, the Philippine tax system is a very complicated
one. This was certainly considered by Congress when it
enacted the Train law. Consequently, Train introduces
amendments which are geared towards simpler tax compliance.
Some of these amendments are:
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DAVAO CENTRAL COLLEGE,
INC.
Juan dela Cruz Street, Toril, Davao City
Landline No. (082) 291 1882
Accredited by ACSCU-ACI
1. The Income Tax Returns shall not be more than 4 pages
2. The Tax Return for final and creditable withholding taxes
shall be filed quarterly instead of monthly
3. With regard to estate tax, the following measures were
adopted to simplify its computation and payment:
o In lieu of actual funeral expenses (up to P200,000) and
medical expenses (up to P500,000), Train increases the
standard deduction (wherein no substantiation is
required) from P1,000,000 to P5,000,000
o Notice of death is no longer required
o CPA certification is now required only if the gross
estate is above P5,000,000 (up from P2,000,000)
o The deadline for filing of estate tax return is now one
year from death (before, 6 months from death)
o Bank deposits left by the decedent may be withdrawn by
the heirs subject only to 6% withholding tax. Before a
certification from the BIR that estate tax has been paid
was required.
4. Beginning January 1, 2023, the filing of VAT Return and
payment of tax shall be done quarterly instead of monthly
5. The BIR is required to act on application for VAT refund
within 90 days. Otherwise, the BIR official, agent or
employee will be criminally liable.
6. The Financial Statements of a taxpayer should be audited
if the gross annual sales, earnings, receipts or output
exceed P3,000,000 (up from P150,000).
With the enactment of the Train law, the government expects
to generate more revenues to fund its "Build, Build, Build”
projects and other programs. At the same time, the labor
sector is expected to be freed from the burden of outdated
and inequitable personal income tax. Hopefully, this benefit
for the workers can still be achieved despite the increase
in prices of some goods that they consume.
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