Readings in the Philippine History
TAXATION IN THE PHILIPPINES
Definition of Taxation
Taxation is the process where the government collects compulsory contributions (taxes) from citizens, businesses, and organizations.
Purpose: To finance public expenditures.
Legal Basis: Derived from the 1987 Constitution, allowing the government to collect taxes for the welfare of the people.
Historical Context of Taxation
Ancient Filipinos
Taxes were paid to local chiefs (datus) in exchange for protection.
The term used was "buwis."
Exemption: Datu/Chieftain’s household did not need to pay taxes.
Spanish Colonial Era (1521-1898)
Introduction of modern taxation concepts by the Spanish.
Ages 16 to 60 were required to pay tributos (tributes) to the Spanish king via Colonial Government.
Amount: Worth 8 reales or 1 peso per year.
Other forms of payment included gold, chickens, textiles, rice, and forced labor (Polo y Servicio).
Purpose of Colonial Taxation
Generate resources for the maintenance of the Philippine Islands, such as salaries for government officials and clergy.
Exemptions included:
Alcaldes (local government officials)
Gobernadores (governors)
Cabezas de barangay (heads of villages)
Soldiers
Members of the civil guard
CEDULA PERSONAL
In 1884, the tribute tax was abolished and replaced by the cedula.
Requirement: All residents were mandated to carry their cedula while traveling.
Mode of Payment: Unlike the tribute, payment was made per person, not by family.
Discriminatory practices existed: Chinese residents paid a larger cedula than Filipinos.
Features of Cedula
The cedula was a residence and tax certificate issued after paying a community tax.
Function: Served as proof of tax payments to the Spanish government.
Penalties for Not Carrying Cedula:
Fines
Arrest
May be perceived as a rebel or criminal
Symbol of Resistance
The cedula became a symbol of resistance against Spanish oppression, highlighted during the "Cry of Pugad Lawin" in 1896, where revolutionaries led by Andrés Bonifacio tore their cedulas, representing defiance against authority and taxation.
Economic Taxation During Colonial Times
Indirect Taxes in 19th Century
Customs duties on exports and imports were imposed to increase revenue.
Government income sources included:
Monopolies (sale of stamped papers, liquor, cockpits, opium)
Largest monopoly: Tobacco.
Forced Labor Requirements:
Males had to provide 40 days of labor per year; an exemption could be paid by 3 pesos per annum.
By the second half of the 19th century, this was termed prestacion personal.
Characteristics and Corruption
The taxation system was a heavy burden on Filipinos, marked by corruption among local elites co-opted by the Spaniards.
Taxation under American Rule (1898-1903)
Adaptations of the Spanish taxation system occurred, deeming it outdated.
Changes included:
Suspension of opium, lottery, and money minting contracts.
Introduction of land tax (property tax).
Land Tax Issues:
Disorganized land titling; appraisals influenced by political/familial ties; met with objections from landed elites.
Sources of Revenue (1901)
Defined ten major sources:
Licensed taxes on businesses dealing in alcoholic beverages and tobacco.
Excise taxes on alcoholic products.
Taxes on banks.
Document stamp taxes.
Cedula tax.
Insurance taxes.
Taxes on forest products.
Mining concession taxes.
Taxes on manufacturing and businesses.
Occupational licenses.
The Internal Revenue Law of 1904
Internal revenue law established in 1901, evolving over years; foundation current tax system managed by the Bureau of Internal Revenue (BIR).
Taxation during Commonwealth Period (1935-1946)
Key Features
Crucial era as the Philippines approached independence from the U.S. Taxation funded various programs and infrastructure.
Changes in 1939
A new tax system was introduced with several changes:
Normal tax switched to a single progressive rate.
Personal exemptions reduced.
Corporation income tax slightly increased; inheritance taxes were introduced.
Cumulative sales tax replaced by a 10% turnover tax on luxuries.
Increased taxes on liquor, cigarettes, forestry products, and mining.
Taxation of dividends instituted.
While improvements were noted, inequities remained; tax used less for economic diversification.
World War II impacted operations, with Japan maintaining the Commonwealth tax collection but exempting military-related entities.
Purpose of Taxes During Commonwealth
Funding for:
Public Infrastructure: roads, bridges, schools, government buildings.
Defense and Security: preparations against impending World War II.
Social Services: Education and health; enhancing population well-being.
Challenges in Taxation
Tax evasion reduced revenue; economic disparities existed where wealthier individuals influenced tax policies disproportionately.
World War II disruptions hindered the tax collection processes.
Definitions of Tax
Common definitions include:
A process where the sovereign, through legislative authority, raises revenues to cover governmental expenses.
A government means to increase revenue to promote citizen welfare and protection.
Collection of an individual's or organization's share of income legally mandated by the government.
The "Lifeblood Theory"
Analogy: Taxes function as blood to support and enable government operations.
Taxes are essential for the existence of a civilized society; they fund governmental activity.
Citizens contribute their fair share for the government's functioning and, in return, expect benefits that improve their lives.
Taxation should be reasonable and procedurally lawful; taxpayers have the right to contest undue taxation.
Concept of Tax
Taxation represents a state’s inherent authority to impose and demand contributions from persons, properties, or rights to generate revenue for public purposes.
Distinction of Tax
Tax vs. Toll: Taxes are mandated by the government; tolls are paid for using someone else's property.
Tax vs. Penalty: Taxes raise revenue; penalties regulate behavior.
Tax vs. Debt: Taxes are legally defined, non-assignable, typically payable in cash, and non-payment may lead to imprisonment. Debts are contracts, can be assigned, and may not result in imprisonment for non-payment.
Purpose and Significance of Tax
Primary Purpose: Generate funds for government expenses and promote citizen welfare.
Other Purposes: Contribute equitably to national wealth distribution.
Characteristics of Tax
Enforcement: Not voluntary; imposed regardless of individual will.
Payment Form: Generally paid in cash; other forms like checks are unacceptable.
Proportionality: Based on ability to pay; higher incomes result in higher taxes.
Levied by State: Jurisdictionally imposed on persons or properties.
Legislation Required: Established through state law; follows constitutional provisions.
Public Purpose: Funds governmental projects and programs.
Classification of Taxes
By Subject Matter
Personal, Poll or Capitation Tax (e.g., Residence Tax)
Property Tax (e.g., Real Estate Tax)
By Incidence of Burden
Direct Tax (e.g., Income Tax)
Indirect Tax (e.g., Sales/RVAT)
By Purpose
General Tax (e.g., Almost all taxes)
Special Tax
By Scope
National Tax (e.g., National Revenue Taxes)
Local Tax
Tax Exemptions
Exempt entities include:
Religious Institutions
Charitable Institutions
Non-profit, Non-Stock Educational Institutions
Non-profit Cemeteries
Government Institutions
Foreign Diplomats
How to Pay Tax?
Computing Income Tax in the Philippines
Corporations: Fixed income tax rates apply.
Self-employed/Single Proprietorship: Use a graduated tax rate (progressive tax) which increases as the taxable amount rises.
Government Budget and Expenditures
Government spending includes consumption and investment to satisfy community needs.
Categories of Expenditures:
Government Final Consumption Expenditure (GFCE): Goods/services acquired directly for current use.
Gross Fixed Capital Formation (Government Investment): Investments aimed at future benefits, e.g., infrastructure and research spending, comprising majority of government investments.