TAXATION

 TAXATION – is the act of levying a tax, i.e., the process or means by which the
sovereign, through its law-making body, raises income to defray the
necessary expenses of Government.
- In its broadest and most general sense, taxation includes every imposition of
charge or burden by the sovereign power upon persons, property, or property
rights for the use and support of the government and to enable it to discharge
its appropriate functions.
- It is merely a way of apportioning the cost of government among those who is
some measure are privileged to enjoy its benefits and therefore, must bear its
burdens. ( 71 Am. Jur. 2nd 342; 1 Cooley 72-73.) taxation is the imposition of
financial charges or other levies, upon a taxpayer (an individual or legal entity)
by a state such that failure to pay is punishable by law.
 When taxes are not fully paid, civil penalties (such as fines or forfeiture) or criminal penalties
(such as incarceration) may be imposed on the non-paying entity or individual.It is a mode by
which government make exactions for revenue in order to support their existence and carry
out their legitimate objectives (Tax Law and Jurisprudence by Justice Vitug,2000).It is the
inherent power by which the sovereign state imposes financial burden upon persons and
property as a means of raising revenues in order to defray the necessary expenses of the
government (Tax Digest by Crescencio Co Untian 2002 ed).Nonetheless, it is the most
pervasive and the strongest of all the powers of the government. Taxes are the lifeblood of the
government, without which, it cannot subsist.
-
 PURPOSE AND SCOPE OF TAXATION
- To primary purpose is to provide funds or property with which to promote the
general welfare and protection of its citizens.
- It may also be exercised to attain various social and economic (non-revenue)
objectives.
 TAXES – are the enforced proportional and pecuniary contributions from persons and
property levied by the law-making body of the state having jurisdiction over the subject of the
burden for the support of the government and all public needs.

History of Taxation

The first known system of taxation was in Ancient Egypt around 3000 BC - 2800 BC inthe first
dynasty of the Old Kingdom.In Biblical times, tax is already prevalent. According to Genesis 47:24:

³But when the crop comes in, give a fifth of it to Pharaoh. The other four-fifths you may keep as seed for the fields and
as food for yourselves and your households and your children´.

Earliest taxes in Rome are called as portoria were customs duties on imports and exports. Augustus
Caesar introduced the inheritance tax to provide retirement funds for the military. The tax was five
percent on all inheritances except gifts to children and spouse .
In England, taxes were first used as emergency measures.

History of Taxation in the Philippines

The pre-colonial society, being communitarian, did not have taxes. But this radically changed upon
the coming of the Spanish colonizers in 1521.
  During the Spanish Period, revolutionary income-generating means were introduced by the
government.

 Polo Y Servicio (Forced Labor)

It 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 projects. One could be exempted from the polo by paying a fee
called falla (which was worth one and a half real). Falla is a corruption of the Spanish word falta which
means “absence”.

 Manila-Acapulco Galleon Trade

The Manila-Acapulco Galleon Trade was the main source of income for the colony during its early
years. Service was inaugurated in 1565 and continued into the early 19thcentury. The Galleon trade
brought silver from New Spain and silk from China by way of Manila. This way, the Philippines
earned its income through buy and sell - that is, they bought silk from China for resale to New Spain
and then bought American silver for resale to China .However, it resulted in cultural and commercial
exchanges between Asia and the Americas that led to the introduction of new crops and animals to the
Philippines notably tobacco that gave the colony its first real income which benefit extended to the
common Indio. The trade lasted for over two hundred years, and ceased in 1821 with the secession
of  American colonies from Spain.

 Encomienda
 
The Encomienda system was introduced in 1570. It was introduced by the Spaniards to facilitate the
conquest and pacification of the Philippines. It comes from the word,
encomendar  which means “to take charge of´ or “to entrust”. The
encomenderos were given full authority to manage the encomienda by collecting tribute from the
inhabitants and govern people living on it. In 1591, there were 267 Encomiendas in the Philippines.

 Tribute

Tribute was the residence tax during the Spanish times. It may be paid in cash or kind, partly, or
wholly. The rate was originally set as eight reales but was raised to ten in 1602 then to twelve reales in
1851 and 14 in 1874. In 1884, the tribute was replaced by the cedula personal or personal identity
paper, equivalent to the present residence tax or community tax certificate (CTC).

What is a “cedula”?

In the 19th century, it was an identification card that had to be carried at all times. A person who
could not present his or her cedula to a guardia civil could then be detained for being ³indocumentado
´. Andres Bonifacio and other Katipuneros tore their cedulas in August1896, signaling the start of the
Philippine Revolution. On its present usage, a
Cedula or community tax certificate is a legal identity document in the Philippines. Issued by cities and
municipalities to all persons that have reached the age of majority and upon payment of a community
tax, it is considered as a primary form of identification in the Philippines and is one of the closest
single documents the Philippines has to a national system of identification, akin to a driver's license
and a passport.

The residence tax, and in turn, the cédula, were abolished with the coming of American rule. No such
tax would be imposed again until January 1, 1940, when Commonwealth Act No. 465 went into
effect, mandating the imposition of a base residence tax of fifty centavos and an additional tax of one
peso based on factors such as income and real estate holdings. The payment of this tax would merit
the issue of a residence certificate. However, persons who are ineligible to pay the residence tax may
be issued a certificate for twenty centavos. Corporations were also subject to the residence tax.
Significant amendments to the residence tax law were put into effect first in 1973, following the
enactment of the Local Tax Code, with amendments on the allocation of the residence tax and on who
are covered under it, as well as payment provisions. The cedula has evolved into the community tax
certificate under the Local Government Code of 1991. The code authorizes cities and municipalities to
collect annual community tax from corporations, and from residents aged 18 and above who have
been employed on a wage basis for at least 30 consecutive days, or who are engaged in business, or
who are required by law to file an income tax return.

Why is the cedula important?

 A person is required to present a cedula when he or she acknowledges a document before a notary
public; takes an oath of office upon election or appointment to a government position; receives a
license, certificate or permit from a public authority; pays a tax or fee ;receives money from a public
fund; transacts official business; or receives salary from a person or corporation.

Why Tax?
The theory underlying basis of taxation is governmental necessity because without it, government can
neither exist nor endure. The government’s ability to serve the people depends upon the taxes that are
collected. Taxes are indispensable in the government operation and without it, the government will be
paralyzed. The main purpose of taxation is to accumulate funds for the functioning of thegovernment
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 power of taxation may be used as an implement of the police power of the state through the
imposition of taxes with the end view of regulating a particular activity. For example, the imposition
of taxes to the video industry as a regulatory measure considering the rampant unfair competition
posed by rampant film piracy; the erosion of the moral fiber of the viewing public brought about by
the availability of unclassified and unreviewed video tapes containing pornographic films and films
with brutally violent sequences and; losses in government due to the drop in the theatrical attendance.

The Philippine Tax System

Tax law in the Philippines covers national and local taxes. National taxes refer to national internal
revenue taxes imposed and collected by the national government through the Bureau of Internal
Revenue (BIR) and local taxes refer to those imposed and collected by the local government

 National Tax Law

 The 1987 Philippine Constitution sets limitations on the exercise of the power to tax. The rule of
taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation.
(Article VI, Section 28, Paragraph 1). All money collected on any tax levied for a special purpose
shall be treated as a special fund and paid out for such purpose only. If the purpose for which a special
fund was created has been fulfilled or abandoned, the balance, if any, shall be transferred to the
general funds of the Government. (Article VI, Section 29, Paragraph 3)

National Taxes in the Philippines

Capital Gains Tax – is a tax imposed on the gains presumed to have been realized by the seller from
the sale, exchange, or other disposition of capital assets located in the Philippines, including pacto de
retro sales and other forms of conditional sale.

Documentary Stamp Tax – is a tax on documents, instruments, loan agreements and papers
evidencing the acceptance, assignment, sale or transfer of an obligation, rights, or property incident
thereto. Examples of documentary stamp tax are those that are charged on bank promissory notes,
deed of sale, and deed of assignment on transfer of shares of corporate stock ownership.

Donor’s Tax – is a tax on a donation or gift, and is imposed on the gratuitous transfer of property
between two or more persons who are living at the time of the transfer. Donor’s tax is based on a
graduated schedule of tax rate.

Estate Tax – is a tax on the right of the deceased person to transmit his/her estate to his/her lawful
heirs and beneficiaries at the time of death and on certain transfers which are made by law as
equivalent to testamentary disposition. Estate tax is also based on a graduated schedule of tax rate.

Income Tax – is a tax on all yearly profits arising from property, profession, trades or offices or as a
tax on a person’s income, emoluments, profits and the like. Self-employed individuals and corporate
taxpayers pay quarterly income taxes from 1st quarter to 3rd quarter. And instead of filing quarterly
income tax on the fourth quarter, they file and pay their annual income tax return for the taxable year.
Individual income tax is based on graduated schedule of tax rate, while corporate income tax in based
on a fixed rate prescribe by the tax law or special law.

Percentage Tax – is a business tax imposed on persons or entities who sell or lease goods, properties
or services in the course of trade or business whose gross annual sales or receipts do not exceed the
amount required to register as VAT-registered taxpayers. Percentage taxes are usually based on a
fixed rate. They are usually paid monthly by businesses or professionals. However, some special
industries and transactions pay percentage tax on a quarterly basis.

Value Added Tax – is a business tax imposed and collected from the seller in the course of trade or
business on every sale of properties (real or personal) lease of goods or properties (real or personal) or
vendors of services. It is an indirect tax, thus, it can be passed on to the buyer, causing this to increase
the prices of most goods and services bought and paid by consumers. VAT returns are usually filed
and paid monthly and quarterly.

Excise Tax – is a tax imposed on goods manufactured or produced in the Philippines for domestic
sale or consumption or any other disposition. It is also imposed on things that are imported.

Withholding Tax on Compensation – is the tax withheld from individuals receiving purely
compensation income. This tax is what employers withheld in their employees’ compensation income
and remit to the government through the BIR or authorized accrediting agent.

Expanded Withholding Tax – is a kind of withholding tax which is prescribed only for certain
payors and is creditable against the income tax due of the payee for the taxable quarter year.
Examples of the expanded withholding taxes are those that are withheld on rental income and
professional income.

Final Withholding Tax – is a kind of withholding tax which is prescribed only for certain payors and
is not creditable against the income tax due of the payee for the taxable year. Income Tax withheld
constitutes the full and final payment of the Income Tax due from the payee on the said income. An
example of final withholding tax is the tax withheld by banks on the interest income earned on bank
deposits.

Withholding Tax on Government Money Payments – is the withholding tax withheld by

government offices and instrumentalities, including government-owned or -controlled corporations
and local government units, before making any payments to private individuals, corporations,
partnerships and/or associations.
Local Taxes in the Philippines

 Tax on Transfer of Real Property Ownership – tax imposed on the sale, donation, barter,
or on any other mode of transferring ownership or title of real property.

 Tax on Business of Printing and Publication – tax on the business of persons engaged in
the printing and/or publication of books, cards, posters, leaflets, handbills, certificates,
receipts, pamphlets, and others of similar nature.

 Franchise Tax – tax on businesses enjoying a franchise, at the rate not exceeding fifty
percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar
year based on the incoming receipt, or realized, within its territorial jurisdiction.

 Tax on Sand, Gravel and Other Quarry Resources – tax imposed on ordinary stones, sand,
gravel, earth, and other quarry resources, as defined under the National Internal Revenue
Code, as amended, extracted from public lands or from the beds of seas, lakes, rivers, streams,
creeks, and other public waters within its territorial jurisdiction.

 Professional Tax – an annual professional tax on each person engaged in the exercise or
practice of his profession requiring government examination.

 Amusement Tax – tax collected from the proprietors, lessees, or operators of theaters,
cinemas, concert halls, circuses, boxing stadia, and other places of amusement.

 Annual Fixed Tax For Every Delivery Truck or Van of Manufacturers or Producers,
Wholesalers of, Dealers, or Retailers in, Certain Products – an annual fixed tax for every
truck, van or any vehicle used by manufacturers, producers, wholesalers, dealers or retailers
in the delivery or distribution of distilled spirits, fermented liquors, soft drinks, cigars and
cigarettes, and other products as may be determined by the sangguniang panlalawigan, to
sales outlets, or consumers, whether directly or indirectly, within the province.

 Tax on Business – taxes imposed by cities, municipalities on businesses before they will be
issued a business license or permit to start operations based on the schedule of rates
prescribed by the local government code, as amended. Take note that the rates may vary
among cities and municipalities. This is usually what businesses pay to get their Business
Mayor’s Permit.

 Fees for Sealing and Licensing of Weights and Measures – fees for the sealing and
licensing of weights and measures at such reasonable rates as shall be prescribed by the
sangguniang bayan of the municipality or city.

 Fishery Rentals, Fees and Charges – rentals, fees or charges imposed by the
municipality/city to grantees of fishery privileges in the municipal/city waters, e.g., fishery
privileges to erect fish corrals, oysters, mussels or other aquatic beds or bangus fry areas and
others as mentioned in the local government code, as amended.

 Community Tax – tax levied by cities or municipalities to every inhabitant of the Philippines
eighteen (18) years of age or over who has been regularly employed on a wage or salary basis
for at least thirty (30) consecutive working days during any calendar year, or who is engaged
in business or occupation, or who owns real property with an aggregate assessed value of One
thousand pesos (P1,000.00) or more, or who is required by law to file an income tax return.
Community tax is also imposed on every corporation no matter how created or organized,
whether domestic or resident foreign, engaged in or doing business in the Philippines.
  Taxes that may be levied by the barangays on stores or retailers with fixed business
establishments with gross sales of receipts of the preceding calendar year of Fifty thousand
pesos (P50,000.00) or less, in the case of cities and Thirty thousand pesos (P30,000.00) or
less, in the case of municipalities, at a rate not exceeding one percent (1%) on such gross sales
or receipts.

 Service Fees or Charges – fees or charges that may be collected by the barangays for
services rendered in connection with the regulations or the use of barangay-owned properties
or service facilities, such as palay, copra, or tobacco dryers.

 Barangay Clearance – a reasonable fee collected by barangays upon issuance of barangay

clearance – a document required for many government transactions, such as when applying
for business permit with the city or municipality.

The 3 Types of Taxes

1. Proportional Tax-This type if tax has a similar amount on people of every income. This tax
is levied regardless if income being earned by a person. So if income goes up, tax amount
does not change.

2. Progressive Tax-This tax is levied on basis of income. A higher tax is imposed on higher
income earners.  This kind of tax increases as the income rises.

3. Regressive Tax-This type of tax imposes higher percentage rate of taxation on low incomes
than on high incomes.

 The most fundamental classification of taxes is based on who collects the taxes from
the tax payer.

1. Direct Taxes, as the name suggests, are taxes that are directly paid to the government
by the taxpayer. It is a tax applied on individuals and organizations directly by the
government e.g. income tax, corporation tax, wealth tax etc.

2. Indirect Taxes are applied on the manufacture or sale of goods and services. These
are initially paid to the government by an intermediary, who then adds the amount of
the tax paid to the value of the goods / services and passes on the total amount to the
end user.Examples of these are sales tax, service tax, excise duty etc.

Essential characteristics of tax

(1) It is an enforced contribution. – A tax is not a voluntary payment or donation (84 C.J.S. 32.) and
its imposition is in no way dependent upon the will or assent, open or implied, of the person taxed.
(71 Am. Jur. 2d 344.) To be sure, taxation without representation, or without the consent in some
form of those who are to be taxed, is contrary to the fundamental principles of good government. The
principle of representation, however, applies only to political communities, as such, and not to
individuals. It is satisfied by their adequate representation in the legislative body which votes the tax.
(83 C.J.S. 48.)

(2) It is generally payable in money. – Unless qualified by law (e.g., backpay certificates under Sec.
2, R.A No. 304, as amended.), the term “taxes” or “tax” is usually understood to be a pecuniary
burden – an exaction to be discharged alone in the form of money which must be in legal tender.

(3) It is proportionate in character. – A tax is laid by some rule of apportionment according which
persons share the public burden. It is ordinarily based on ability to pay. Thus, in practice, some people
pay very high taxes; others, very small amounts or none at all.

(4) It is levied on persons or property. – A tax may also be imposed on acts, transactions, rights or
privileges. In each case, however, it is only a person who pays the tax. The property is resorted to for
the purpose of ascertaining the amount of tax that must be paid and of enforcing payment in case
default of the taxpayer. (84 C.J.S. 36.) But not all who pay a tax shoulder the burden of the tax.

(5) It is levied by the state which has jurisdiction over the person or property. – The object to be
taxed must be subject to the jurisdiction of the taxing state. (infra.) This is necessary in order that the
tax can be enforced. Although a state can tax all persons subject to its jurisdiction for all their property
left by them within its jurisdiction to seize upon person or property for purposes of taxation.

(6) It is levied by the law-making body of the state. – The power to tax is a legislative power which
under the Constitution only Congress can exercise through the enactment of tax statutes. Accordingly,
the obligation of a tax is statutory liability.

(a) The power to tax is granted by the Constitution to local government subject to such guidelines and
limitations as may be provided by law.

(b) During the period of martial law, (Sept. 21, 1972 to Jan. 17, 1981), the then incumbent President
exercised the executive powers vested under the 1973 Constitution in the Prime Minister (who was
the Chief Executive before its amendment in  1981) as well legislative powers through the issuance of
“presidential decrees”.

(c) By virtue of Amendment No. 6 to the 1973 Constitution, the President was given concurrent
legislative authority under certain conditions, which he exercised even after the lifting of martial law.

(d) Pending the ratification of a new Constitution and in the absence of a legislative body in the
Provisional Government installed on February 25,1986, the President exercised legislative power
through the issuance of executive orders under the convening of Congress on July 27, 1987.

(7) It is levied for public purpose or purposes. – Taxation involves, and a tax constitutes, s charge
or burden imposed to government, the administration of the law, or the payment of public expenses.
Revenues derived from taxes cannot be used for purely private purposes or for the exclusive benefit of
private persons. (Gaston vs. Republic Planters Bank, 158 SCRA 626, Mar. 15 1988.) The “public
purpose or purposes” of the imposition is implied in the levy of tax.

It is also an important characteristic of most taxes that they are commonly required to be paid at
regular periods or intervals every year.

BASIC PRINCIPLES OF A SOUND TAX SYSTEM

1. Fiscal Adequacy- The sources (proceeds) of tax revenue should coincide with and approximate
needs of government expenditures. The sources of revenue should be sufficient and elastic to meet the
demands of public expenditures;

2. Theoretical Justice- The tax system should be fair to the average taxpayer and based upon his
ability to pay.

3. Administrative Feasibility- The tax system should be capable of being properly and efficiently
administered by the government and enforced with the least inconvenience to the taxpayer.

The Branches of Government vis-à-vis the Tax Law

  The Congress may, by law, authorize the President to fix within specified limits, and subject to
such limitations and restrictions as it may impose, tariff rates, import and export quotas,
tonnage and wharfage dues, and other duties or imposts within the framework of the national
development program of the Government (Article VI, Section 28, Paragraph 2).
 The President shall have the power to veto any particular item or items in an appropriation,
revenue, or tariff bill, but the veto shall not affect the item or items to which he does not
object (Article VI, Section 27, Paragraph 2)
 The Supreme Court has the power to: review, revise, reverse, modify, or affirm on appeal or
certiorari, as the law or the Rules of Court may provide, final judgments and orders of lower
courts in ³all cases involving the legality of any tax, impost, sassessment, or toll, or any
penalty imposed in relation thereto´ (Article VIII, Section 5, Paragraph 2b).

The Forms of Taxes Imposed on Persons and Property

 A) Personal, capitation or poll taxes.These are taxes of fixed amount upon residents or persons of a
certain class without regard to their property or business.
B) Property taxes. -Taxes assessed on things or property of a certain class. Under this are the following:
a. Real property Taxes
- an annual tax that may be imposed by a province or city or amunicipality on real property such as
land, building, machinery and other improvements affixed or attached to real property.
b. Estate Tax (Inheritance tax)
- a tax on the right of transmitting property at the timeof death and on the privilege that a person is
given in controlling to a certain extent thedisposition of his property to take effect upon death.
c. Gift or Donor’s Tax
- a tax on the privilege of transmitting one’s property or property rights to another or others without
adequate and full valuable consideration. Taxable gifts may either be real, personal, tangible or
intangible. Tax imposed on donations inter-vivos or those made between living persons to take effect
during the lifetime of the donor.
d. Capital gains tax (sale of capital assets)
- tax imposed on the sale or exchange of property . Tax imposed on the gains presumed to have been
realized by the seller for the sale,exchange or other disposition of real property located in the
Philippines, classified as capitalassets
C) Income Taxes
- Taxes imposed on the income of the taxpayers from whatever sources it isderived. Tax on all yearly
profits arising form property, possessions, trades or offices. These aretaxes on a person¶s income,
emoluments and profits.
D) Excise or License taxes
- Taxes imposed on the privilege, occupation or business not falling within the classification of poll
taxes or property taxes. These are imposed on alcohol products (except tuba,basi ,tapuy  and similar
domestic fermented liquor; On tobacco products;on petroleum products like lubricating oils, grease,
processed gas etc; on mineral products suchas coal and coke and quarry resources; on miscellaneous
articles such as automobiles.

Under these, we have the following:

1. Documentary stamp tax
- a tax imposed upon documents, instruments, loanagreements and papers and upon acceptance of
assignments, sales and transfers of obligation, rights or property incident thereto.

2. Value Added Tax (VAT)

- is imposed on any person who, in the course of trade or business sells, barters, exchanges, leases,
goods or properties, renders services, or engages in similar transactions. It is an indirect tax and the
amount of the tax may be shifted or passed on to the buyer, transferee or lessee of the goods,
properties or services. Tax imposed and collected on every sale, barter, exchange or transaction
deemed sale of taxable goods, properties, lease of goods, services or properties in the course of trade
as they pass along the production and distribution chain. The present value-added tax inclusive in
these sales is in twelve percent (12%).

 Who should Pay Taxes?

A. Individuals
a. Resident citizens.
- Resident citizens are taxed on their compensation business and other sources derived from sources
within and without the Philippines.

b. Non-resident citizens.
- A non-resident citizen is one who establishes to the satisfaction of the Commissioner the fact of his
physical presence abroad with a definite intention to reside therein. He is a citizen of the Philippines
who leaves the Philippines during the taxable year to reside abroad, either as an immigrant of for
employment on a permanent basis. Non-resident citizens are taxed on their income derived from
sources within the Philippines. Their income derived from Philippine sources is subject to tax exactly
in the same manner as such income would have been subjected to tax if received by resident citizens.
Income derived from foreign sources is tax exempt.

c. Resident aliens.
Resident aliens are taxed on their net income derived from sources within the Philippines. Their
income derived from Philippine sources is subject to tax exactly in the same manner as such income
would have been subjected to tax if received by non-resident citizens.

d. Non-resident aliens who may either be:

a) Engaged in trade or business (the term denotes habituality or sustained activity) and he is
deemed to be engaged in business if his aggregate stay in the Philippines exceeds 180days for each
calendar year. They are taxed on their income from sources within the Philippines and not from
without the Philippines.
b) Not engaged in trade or business. Non-resident aliens not engaged in trade or business in
the Philippines is subject to tax on their gross income at 25%. They are not entitled to any personal or
additional exemptions.

B. Corporations
 Also including partnerships, no matter how created, joint stock companies, joint accounts,
associations or insurance companies. For income tax purposes, these corporations may be grouped
into:
a. Domestic corporations or corporations organized and existing under the laws of the
Philippines. Domestic corporations are taxed on their income derived from source within
the Philippines and without the Philippines.  

b. Foreign corporations which may either be:

a) Resident foreign corporation (engaged in trade or business). Resident foreign corporations are
liable to pay taxes for profits, including interests, dividends, rents, royalties, profits or income
remitted abroad to its mother company is subject to 15% remittance tax computed on the actual
amount remitted.
b). Non-resident foreign corporations
(not engaged in trade or business). Non-resident foreign corporations are taxed on their income
derived from sources within (not without) from the Philippines at the rate of 32%.

C. Estate under judicial settlement

is subject to income tax in the same manner as individuals. Its own status is dependent on the status of
the decedent immediately prior to his death. Thus, where the decedent was a resident citizen then the
income taxability of his estate would be that applicable to resident citizens.
D. Trusts
irrevocable both as to the trust property and as to the income. It is taxed exactly in the same way as
estates under judicial settlement and its status as an individual is that of the trustor.

What is Tax Evasion?

-Tax evasion happens when there is fraud through pretension and the use of other illegal devices to
lessen one’s taxes. Under-declaration of income, non-declaration of income and other items subject to
tax, under-appraisal of goods subject to tariff, and over-declaration of deductions are some of the
ways on how tax evaders operate.

Tax  avoidance, on the other hand, involves the legal rearrangements of one's economic activities in
order to lower the tax liability. This is done by moving capital or labor to areas, geographical or
otherwise, where tax rates are lower and/or by manipulating the tax parameters through the legal
means to spread or defer the tax liability over time thereby effectively reducing the tax rate. Tax
evasion is done by a taxpayer either singly or in collusion with some tax collection functionary, while
tax avoidance is done singly or with the help of some tax expert like a lawyer and an accountant.

Who are Exempted to Pay Taxes?

The Omnibus Investment Code of 1987 lays out tax incentives administered by the BOI of the
Department of Taxation and Development, and the annual Investment Priorities Plan(IPP) sets out the
investment areas, national and regional, to which these incentives currently pertain. In 2002 the
national list included export activities, industrial development and mining ,agricultural/fishery
production and processing, logistics, drugs and medicine, engineered products, environmental
projects, IT services, Infrastructure, mass housing projects, R and D activities, social service, tourism,
patriotic and documentary motion pictures and new projects with a minimum cost of $2 million.
Special economic zones (SEZs) can be designated as export processing, free trade and/or information
technology (IT) parks, each designation providing as schedule of tax holidays, exemptions from
import duties on capital goods and raw material, and preferential income tax rates with more
favorable treatment accorded pioneer industries over non pioneer or expanding companies activities,
social service, tourism, patriotic and documentary motion pictures and new projects with a minimum
cost of $2 million. Special economic zones (SEZs) can be designated as export processing, free trade
and/or information technology (IT) parks, each designation providing a schedule of tax holidays,
exemptions from import duties on capital goods and raw material, and preferential income tax rates
with more favorable treatment accorded pioneer industries over non pioneer or expanding companies.

 Tax exemptions are limited to those granted by law. However, no law granting any tax exemption
shall be passed without the concurrence of a majority of all the members of the Congress. (Article VI,
Section 28, Paragraph 4).The Constitution expressly grants tax exemption on certain
entities/institutions such as1. Charitable institutions, churches, parsonages or convents appurtenant
thereto, mosques, and nonprofit cemeteries and all lands, buildings and improvements actually,
directly and exclusively used for religious, charitable or educational purposes (Article VI, Section
28,Paragraph 3).2. Non-stock non-profit educational institutions used actually, directly, and
exclusively for educational purposes. (Article XVI, Section 4 (3)).

On the other hand, exempted to tax as stated in the Article 283 of Rules and Regulations
Implementing Local Government Code of 1991 (RA 7160):

 Local water districts

 Cooperatives duly registered under RA 6938, otherwise known as the Cooperative Code of
the Philippines

 Non-stock and non-profit hospitals and educational institutions

  Business enterprise certified by the Board of Investments (BOI) as pioneer or non-pioneer
for a period of six and four years, respectively, from the date of registration

 Business entity, association, or cooperative registered under RA 6810

 Printer and/or publisher of books or other reading materials prescribed by DECS (now
DepEd) as school texts or references, insofar as receipts from the printing and / or publishing
thereof are concerned.

This document is uploaded by PoliTikalon Blog:http://www.politikalon.blogspot.com.The reading of this note is advised to be

coupled with the downloadable PowerPoint presentation at:http://www.slideshare.net/JRLopezGonzales/taxation-101-basic-
rules-and-principles-in-philippine-taxation-by-jr-lopez-gonzales-for-msu-iit-political-science-seminar .
Taxation 101: Basic Rules and Principles in Philippine Taxationby: JR Lopez GonzalesFaculty, Political Science Department,
MSU-IIT

Salient Features of the TRAIN (Tax Reform for Acceleration and Inclusion) / RA 10963

Background
On December 19, 2017, the President signed into law Package I of the Tax Reform for Acceleration
and Inclusion (“TRAIN”) bill otherwise known as Republic Act No. 10963.

The law contains amendments to several provisions of the National Internal Revenue Code of 1997. 
It shall take effect on January 1, 2018, following its complete publication in the Official Gazette or in
at least one newspaper of general circulation.  The law was published in the Official Gazette on
December 27, 2017.

1. Tax Schedule

Effective January 1, 2018 until December 31, 2022

 RANGE OF TAXABLE
TAX DUE = a + (b x c)
INCOME
BASIC ADDITIONAL OF OVER
OVER NOT OVER
(a) (b) (C)
- 250,000.00 - -
250,000.00 400,000.00 - 20% 250,000.00
400,000.00 800,000.00 30,000.00 25% 400,000.00
800,000.00 2,000,000.00 130,000.00 30% 800,000.00
2,000,000.00 8,000.000.00 490,000.00 32% 2,000,000.00
8,000,000.00 2,410,000.00 35% 8,000,000.00

2. Minimum Wage Earner

 statutory minimum wage rates are EXEMPTED from income tax.

 Also exempted are the holiday pay, overtime pay, night shift differential pay and hazard pay
earned by MWEs

3. 13th Month Pay and Other Benefits

 Maximum of P90,000

4. Personal and Additional Exemptions

 NONE – already included in the P250,000 exempt from icome tax

 repeals Sec. 33(A) of the Magna Carta for Persons with Disability, Sec.22(B) of the Foster
Care Act of 2012

5. VAT Threshold

 Three Million Pesos (P3,000,000)

 Any person whose sales or receipts are exempt under Section 109(B) of the Code from the
payment of VAT and who is not a VAT-registered person shall pay a tax equivalent to 3% of
his gross quarterly sales or receipts.

VAT Deadline

 Every 25th following the close of each taxable quarter

 Provided, however, that VAT-registered persons shall pay the value-added tax on a monthly
basis.
 Provided, finally, that BEGINNING JANUARY 1, 2023, the filing and payment required under
this Subsection shall be done within twenty-five (25) days following the close of each taxable
quarter.

6. Self-Employed Individuals

PURELY SELF-EMPOYED/PRACTICE OF PROFESSION

OPTIONS:
The graduated rates under Section24(A)(2)(a) of the Tax Code as amended;

ORThe 8% tax on gross sales or receipts and other non-operating income in excess of P250,000 in
lieu of the graduated income tax rates under Section 24(A)(2)(a) and the percentage tax under
Section 116.

 Taxpayer shall be considered as having availed of the graduated income tax rates, unless
the taxpayer signifies in the 1st Quarter income tax return or the initial quarter of the
taxable year after the commencement of a new business/practice of profession and such
election shall be irrevocable and no amendment of option shall be made for the said
taxable year.

7. Taxpayers Who Cannot Avail of the 8% Income Tax Rate

 Those subject to Other Percentage Taxes under Title V of the Tax Code, as amended, except
those subject under Section 116 of the same Title
 Partners of a General Professional Partnership (GPP) since their distributive share from GPP
is already net of cost and expenses.

8.  Mixed Income Earners

1. The compensation income shall be subject to the graduated income tax rates prescribed
under Section 24(A)(2)(a) of the Tax Code, as amended; AND
2. The income from business or practice of profession shall be subject to:

a.  If the gross sales/receipts and other non-operating income do not exceed the VAT threshold,
option to be                     taxed  at:

The graduated rates under Section24(A)(2)(a) of the Tax Code as amended;

OR

        The 8% tax on gross sales or receipts and other non-operating income in excess of P250,000 in
lieu of the graduated income tax rates under Section 24(A)(2)(a) and the percentage tax under
Section 116.

         b.  If the gross sales/receipts and other non-operating income exceeds the VAT threshold, the
individual shall be subject to the graduated income tax rates prescribed under Section 24(A)(2)(a).

9. Tax Filing Deadlines

Tax Return Frequency Deadline

ITR - First Quarter Quarterly May 15
ITR - Second Quarter Quarterly August 15
ITR - Third Quarter Quarterly November 15
Annual Income Tax Return Annual April 15
Every 20th of the month after the end of the
Percentage Tax Quarterly
quarter
1601-C Monthly Every 10th of he month
1601-E/1601-F - First Quarter Quarterly Apil 30
 Tax Return Frequency Deadline
1601-E/1601-F - Second Quarter Quarterly July 31
1601-E/1601-F - Third Quarter Quarterly October 31
1601-E/1601-F - Fourth Quarter Quarterly January 31

10. Installment Payment – Income Tax for Individual Taxpayers

 Income Tax Payable : P2,000 or more

 First Installment – On or Before April 15
 Second Installment – On or Before October 15

11. Deductions from Gross Income

1. Itemized Deductions
2. Optional Standard Deduction (OSD)

* 40% of Gross Sales/Receipts during the taxable year

* Taxpayers not required to submit with the tax return such Financial Statements otherwise required
under the Tax Code, as amended

* General Professional Partnership (GPP) may avail of the OSD only once, either by the GPP or the
partners comprising the partnership

* The election to claim either the itemized deductions or the OSD for the taxable year:

– must be signified by checking the appropriate box in the income tax return filed for the first
quarter of the taxable year adopted by the taxpayer.

– the same type of deduction must be consistently applied for all the succeeding quarterly returns
and in the final income tax return for the taxable year.

12. Documentary Stamp Tax

Document ATC Amount

Sec 174 - Original Issue of Share of Stock DS101 P2.00/200
Sec 175 - Sales, Agreements to Sell, Memoranda
of Sales, Deliveries or Transfer of Shares or DS102 P1.50/200
Certificates of Stock with par value
Sec 175 - Sales, Agreements to Sell, Memoranda
of Sales, Deliveries or Transfer of Shares or DS102 50% of DST paid on original issue
Certificates of Stock without par value
P1.50/200.00 of FV or a fraction of 365 days
Sec 179 - All Debt Instruments DS106
for instrument with term of less than 1 year
Sec 188 - Certificates Issued DS114 P30.00/Certificate
Sec 189 - Warehouse Receipts DS115 Above P200.00=P30.00
Sec 193 - Powers of Attorney DS119 Above P200.00 = P30.00
1st P2,000 = P6.00
Sec 194 - Leases and Agreements DS120
Over P2,000 = P2.00/P1,000.00
 Document ATC Amount
1st P5,000=P40.00
Sec 195 - Mortgages, Pledges and Deeds of Trust DS121
Over P5,000=P20.00/P5,000.00
On first P1,000.00 = P15.00
Sec 196 - Deeds of Sale, Conveyances and
DS122 In excess of P1,000 or fractional part thereof
Donations of Real Property
= P15.00/P1,000.00

 Transfers exempt from Donor’s Tax under Section 101(a) and (b) of the Tax Code shall be
exempt from Documentary Stamp Tax.

13. Estate Tax

 Whether decedent is resident or non-resident of the Philippines:

  RA 10963 (TRAIN
Rate 6% based on the net value of the estate
Deductions:
Family Home 10M
Standard 5M
Funeral Expenses None
Judicial Expenses None
Medical Expenses None
Time of Filing 1 year from date of death
2 years in case of insufficient cash without civil penalty and
Payment by Installments
interest
CPA certification 5M
Withdrawal on deposits of decedent 6% Final Tax
Notice of death Repealed

14. Donor’s Tax

 Gift inter vivos

  RA 10963 (TRAIN
RATE
6%
Relative
First P250,000.00 - Exempt
Stranger 6%
Exemption
None
Dowries or gifts on account of marriage

 Documentary Stamp Tax on Donation of Real Property

Not to exceed P1,000.00                      P15.00

For each additional P1,000.00           P15.00

* Transfers exempt from donor’s tax shall be exempt from DST

  Transfer for less than adequate and full consideration:

Where property, other than property referred to in Section 24(D) is transferred for less than an
adequate and full consideration in money or money’s worth, then the amount by which the fair
market value of the property exceeded the value of the consideration shall, for the purpose of the
tax imposed, be deemed a gift, and shall be included in computing the amount of gifts made during
the calendar year:  Provided, however,  that a sale, exchange, or other transfer of property made in
the ordinary course of business (a transaction which is a bona fide, at arm’s length, and free from
any donative intent) will be considered as made for an adequate and full consideration in money or
money’s worth.

15. Excise Tax

R.A. NO.
PRODUCT TYPE 2017
10963
On all non-metallic mineral and quarry resources
1. Locally extracted or produced, based on actual market value 2% 4%
2. In the case of importation based on value used by Bureau of Customs in
2% 4%
determining tariff and customs duties, net of excise tax and VAT
3. Locally-extracted natural gas and liquefied natural gas P0.00 Exempt

Excise Tax – on Non-Essential Services

 Rate = five percent (5%)

 Tax Base = Gross Receipts, net of excise tax and VAT
 Coverage = invasive cosmetic procedures, surgeries, and body enhancements directed
solely towards improving, altering, or enhancing the patient’s appearance and do not
meaningfully promote the proper function of the body or prevent or treat illness or disease.

Manner of Remittance of Excise Tax

Under existing rules on goods subject to excise taxes, the excise tax return is required to be filed and
the excise tax paid by the manufacturer or producer of the goods before removal from the place of
production.

 In cases where no service subject to excise tax is performed and there are no payments
received, the Monthly Remittance Return of Final Withholding of Excise Tax shall be filed
with Excise Large Taxpayers Field Operations Division (ELTFOD) for Large Taxpayers/Revenue
District Office for taxpayers in the National Capital Region (NCR)/Excise Tax Area (EXTA) in
Regional Offices for taxpayers outside NCR.
 Taxpayers filing via EFPS shall comply with the provisions of the EFPS Regulations.

Invoicing Requirements

Every person subject to excise tax herein imposed shall issue:

1. An Official Receipt for services performed whether invasive/non-invasive.

2. The following information shall be indicated in the Official Receipt:
a. The total amount which the patient/client pays or is obligated to pay to the service provider
including the excise tax and the value-added tax:

Provided, that:

* The amount of excise tax shall be shown as a separate item in the O.R.;

                * Discounts given shall be indicated in the O.R., otherwise, the same shall not be allowed as
deduction from gross receipts

* If the procedure performed is non-invasive and considered exempt from excise tax, the term
Exempt from Excise Tax shall be shown on the O.R.

* If the services performed involved both invasive (excisable) and non-invasive (exempt from excise
tax) procedures, the receipt shall clearly indicate the breakdown of the amount received between its
taxable and exempt components and the calculation of excise tax on each portion of the procedure
performed shall be shown on the receipt:

* Provided, that the service provider may issue separate ORs for the excisable and exempt
components of the services rendered.

16. Keeping of Books of Accounts

 Corporations, companies, partnerships, or persons whose gross annual sales, earnings,

receipts or output exceed Three Million Pesos (P3,000,000), shall have their books of
accounts audited and examined yearly by independent Certified Public Accountants and
their Income Tax Returns.

17. Issuance of Receipts or Sales or Commercial Invoices

 Threshold increased from P25 to P100

18. Keeping and Preservation of Receipts and Invoices

 In the place of business for a period of three (3) years from the close of the taxable year in
which the invoice or receipt was issued;
 Includes digital records for electronic receipts or sales or commercial invoices;
 Original – to be kept by the purchaser, customer, or client;
 Duplicate – kept by the issuer

19. Attempt to Evade or Defeat Tax

1. Fine

* Not less than P500,000 but not more than P10,000,000.

2. Imprisonment

*Not less than 6 years but not more than 10 years

20. Failure or Refusal to Issue Receipts

 NIRC 1997 RA 10963 (TRAIN)
(a) Any person, who, being required under Section 237 to issue receipts or
sales or commercial invoices, fails or refuses to issue such receipts or
invoices, issues receipts or invoices that do not truly reflect and/or contain
all the information required to be known therein, or uses multiple or
(a) same
double receipts or invoices, shall, upon conviction for each act or omission,
to be punished by a fine of not less than One thousand pesos (P1,000) but
not more than Fifty thousand pesos (P50,000) and suffer imprisonment of
not less than two (2) years but not more than four (4) years.
(b) Any person who commits any of the acts enumerated hereunder shall Penalties for Acts
be penalized in the same manner and to the same extent as provided for in Enumerated Under Sec
this Section: 264(B)
*Fine - not less than
P500,000.00 but not
more than
(1) Printing of receipts or sales or commercial invoices without authority
P10,000,000.00
from the Bureau of Internal Revenue; or
*Imprisonment - not less
than 6 years but not more
than 10 years
(2) Printing of double or multiple sets of invoices or receipts; or
Fourth item is added to
Sec. 264(B)
(3) Printing of unnumbered receipts or sales or commercial invoices, not
"(4) Printing of other
bearing he name, business style, Taxpayer Identification Number, and
fraudulent receipts or
business address of the person or entity.
sales or commercial
invoices

21. Failure to Transmit Sales Data (CRM/POS)

Monthly e-Sales Reporting

Any taxpayer required to transmit sales data to the Bureau’s electronic sales reporting system but
fails to do so shall pay, for each day of violation, a penalty amounting to one-tenth of one percent
(1/10 of 1%) of the annual net income as reflected in the taxpayer’s audited financial statement for
the second year preceding the current taxable year for each day of violation or Ten Thousand Pesos
(P10,000), whichever is higher Provided, That should the aggregate number of the days of violation
exceed one hundred eighty (180) days within a taxable year, an additional penalty of permanent
closure of the taxpayer shall be imposed: Provided, further, That if the failure to transmit is due to
force majeure or any causes beyond the control of the taxpayer, the penalty shall not apply.

22. Sales Suppression Devices

Sec. 264-B Purchase, Use, Possession, Sale or Offer to Sell, Installment, Transfer, Update, Upgrade,
Keeping or Maintaining of Sales Suppression Devices. – Any person who shall purchase, use,
possess, sell or offer to sell, install, transfer, update, upgrade, keep or maintain any software or
device assigned for, is capable of: (A) suppressing the creation of electronic records of sale
transactions that a taxpayer is required to keep under existing tax laws and/or regulations; or (B)
modifying, hiding, or deleting electronic records of sales transactions and providing a ready means of
access to them, shall be punished by a fine of not less than Five Hundred Thousand Pesos (P500,000)
but not more than Ten Million Pesos (P10,000,000); and suffer imprisonment of not less than two (2)
years but not more than four (4) ears; Provided, That a cumulative suppression of electronic sales
record in excess of the amount of Fifty Million Pesos (P50,000,000) shall be considered as economic
sabotage and shall be punished in the maximum penalty provided for under this provision.

Comprehensive Agrarian Reform Program

The Comprehensive Agrarian Reform Program, more commonly known as CARP, is an agrarian
reform law of the Philippines whose legal basis is the Republic Act No. 6657, [1] otherwise known as
the Comprehensive Agrarian Reform Law (CARL). [2] It is the redistribution of private and public
agricultural lands to help the beneficiaries survive as small independent farmers, regardless of the
“tenurial” arrangement. Its goals are to provide landowners equality in terms of income and
opportunities, empower land owner beneficiaries to have an equitable land ownership, enhance the
agricultural production and productivity, provide employment to more agricultural workers, and put
an end to conflicts regarding land ownership.

Background

The agrarian reform is part of the long history of attempts of land reform in the Philippines. [3] The
law was outlined by former President Corazon C. Aquino through Presidential Proclamation 131 and
Executive Order 229 on June 22, 1987,[4] and it was enacted by the 8th Congress of the Philippines
and signed by Aquino on June 10, 1988. In 1998, which was the year that it was scheduled to be
completed, the Congress enacted Republic Act No. 8532 [5] to allocate additional funds for the
program and extending the automatic appropriation of ill-gotten wealth recovered by the
Presidential Commission on Good Governance (PCGG) for CARP until the year 2008.[6]

An amendatory law, CARPER or the Comprehensive Agrarian Reform Program Extension with
Reforms or the Republic Act. 9700 was passed. It extended the deadline of distributing agricultural
lands to the farmers for an additional five years. This law also amends other provisions and
regulations formerly stated in the CARP. It was signed into law on August 7, 2009 and was set to be
accomplished by the year 2014.[7]

Key components

The implementation of the Comprehensive Agrarian Reform Program relies heavily on the
Department of Agrarian Reform (DAR). As the lead implementing agency, the DAR has the
responsibility in carrying out the principal aspects of the program, which are Land Tenure
Improvement (LTI), Program Beneficiary Development (PBD), and the Agrarian Justice Delivery (AJD).

The Land Tenure Improvement is highly recognized as the most integral aspect of the program. This
component seeks to secure the tenurial status of the farmers and farmworkers. The DAR
implements this component through Land Acquisition and Distribution (LAD) or Non-land Transfer
Schemes.
The Land Acquisition and Distribution involves the redistribution of private and government-owned
land to landless farmers and farm workers. Under Section 6 of RA 9700 ( Section 16 of RA 6657 as
amended) regarding Land Acquisition, the DAR identifies lands that are eligible for distribution under
the CARP with accordance to the law, acquires the land by delivering a notice containing the offer
with its corresponding value to the owner should he choose to accept the payment. Following the
acquisition of lands under Section 11 of RA 9700(Section 26 of RA 6657 as amended) the DAR
distributes these to the qualified beneficiaries, who then pay for the land through the Land Bank of
the Philippines or directly to their former owners. [8]

Under the CARP, a total target of 10.3 million hectares of land was programmed to be distributed
over a span of ten years. Out of the total land, 6.5 million hectares of public disposal lands and
Integrated Social Forestry areas are to be distributed by the Department of Environment and Natural
Resources (DENR) while 3.8 million hectares of private agricultural lands are to be distributed by the
DAR. From July 1987 to June 1992, the DAR was able to distribute 1.77 million hectares benefiting .
933 million beneficiaries, while the DENR has distributed 1.88 million hectares to .760 million
farmers.[9]

Leasehold Operations is the alternative non-land transfer scheme that covers all tenanted
agricultural lands in retained areas and in yet to be acquired or distributed lands. Under this
component, the DAR mediates between the landowners and tenants so that their share tenancy
arrangement could be turned into a leasehold agreement, whereby the beneficiaries will pay a fixed
fee based on their own historical production records instead of paying a large percentage share of
their produce to the landowner.[10]

The Program Beneficiaries Development is a support service delivery component of CARP. It aims to
aid the agrarian reform beneficiaries by providing them necessary support services to make their
lands more productive, and enable them to venture in income generating livelihood projects in
accordance to Section 14 of RA 9700(Section 37 of RA 6657 as amended) . [11] Under the support
service delivery programs, the Presidential Agrarian Reform Council(PARC) ensures that agrarian
reform beneficiaries are provided with support services such as land surveys and tilting, construction
of infrastructures, marketing and production assistance, credit and training. [8]

Agrarian Justice Delivery provides agrarian legal assistance and oversees the adjudication of cases.
Under Section 19 of RA 97600 (Section 50 of RA 6657 as amended), the DAR is hereby vested with
the primary jurisdiction to determine and adjudicate agrarian reform matters and shall have
exclusive original jurisdiction over all matters involving the implementation of agrarian reform
except those falling under the exclusive jurisdiction of the Department of Agriculture (DA) and the
Department of Environment and Natural Resources (DENR). [2]

The Agrarian Legal Assistance is under the Bureau of Legal Assistance (BALA). The BALA provides
legal assistance to the beneficiaries affected by agrarian cases, particularly those whose legal rights
as ARB’s are challenged by landowners.

The Adjudication of Cases involves the adjudication of cases by the Department of Agrarian Reform
Adjudication Board (DARAB). The adjudication of cases deals with disputes pertaining to tenancy
relations; valuation of lands acquired by DAR under compulsory acquisition mode; rights and
obligations of persons, whether natural or juridical, engaged in the management cultivation and use
of all agricultural lands; ejectment and dispossession of tenants/leaseholders; review of leasehold
rentals; and other similar disputes.[10]

Development
At the end of the 20th century, the population of the Philippines increased rapidly to 75.32 million in
a country of 297,410 square kilometers, with an average family size of six, making the Philippines
known for high population density. In addition to this, with a population growth of 2.02 per year, the
Philippine population is expected to double in the span of 25 years. 60 percent of the Philippine
population is rural, and over 12 million Filipinos make a living directly from agricultural cultivation.
Around 9.5 million hectares of land across the Philippines are used to plan various crops. In terms of
landlessness, the number of landless agricultural families rose up from 5 million to 11.32 million
families. Out of these 11.32 families, 4.6 million make a living from lands they don’t own. 0.70
million are rented, 2 million are laborers, while 1.9 million are farming as tenants. [9]

Land reform under Aquino administration (1986–1992)

During the start of President Corazon Aquino’s term in 1986, the Constitutional Commission
approved Section 21 under Article II, which states that “The State shall promote comprehensive rural
development and agrarian reform.” This led to the drafting of CARP, which took the Congress a year
to make. On June 10, 1988, Republic Act No. 6657, also known as the Comprehensive Agrarian
Reform Law (CARL), was passed to promote social justice and industrialization. Although it was still a
product of adherence to democratic principles, this law was found to have many flaws. Because of
much dissatisfaction with the agrarian reform law, proposals from peasant groups and non-
government organizations grew in order to implement an alternative program that was more
advantageous to them. However, this did not succeed.

CARP recognizes not only farmers but all landless workers as beneficiaries with the condition that
they cultivate the land. The two main departments in charge of this program are Department of
Agrarian Reform (DAR) and Department of Environment and Natural Resources (DENR). Aside from
the land distribution, it also provides the delivery of support services and security to the farmers.

Under the Aquino administration, a total of 898,420 landless tenants and farmers became recipients
of land titles and support services. Even with this, it can be considered unsuccessful because it only
accomplished 22.5 percent of land distribution in 6 years. This was due to the fact that Aquino
assigned 4 different DAR secretaries. The major setback for CARP was Aquino’s Hacienda Luisita’s
Stock Distribution Option, which says that she was the first landlord to evade CARP on a grand scale.

Land reform under Ramos administration (1992–1998)

The policies on agrarian reform under the Ramos administration focused on accelerating the direct
land transfer and non-land transfer through adopting more rational, fair and inexpensive
settlements. It encouraged landowners to invest in rural-based industries that are connected to
agriculture. It made an amendment to Section 63 of CARL to increase the fund of this project to 100
billion. Salaries of workers and members of DAR board were increased to motivate them for more
successful results as well.

The target land to be given to farmer beneficiaries under this Administration was 3.4 million
hectares, 4.7 million or 60 percent of which was successfully distributed. It achieved more than
double the output of the Aquino administration. It focused on “less contentious landholdings and
acquisition modes,” where they chose to work with autonomous NGOs and peasant organizations.
However, controversies were unavoidable as they encountered landlords openly harassing peasants
with guns and forcing them out of the lands.

Land reform under Estrada administration (1998–2001)

This administration focused on fast tracking land acquisition and distribution. It wanted to reduce
uncertainties in land market in rural places to help farmers’ efficiency and private investment to
grow. It encouraged joint ventures, corporative, contact farming and other marketing arrangements
to protect the status of stakeholders and promotion of agri-industrialization. They also improved the
databases of the implementing agencies of DAR and DENR to fully record and update the lands
covered. Estrada highlighted that there was a need to conceptualize new approaches in doing things
to build a new social agreement where producers, government and private sectors work with a
common goal.

The program encountered some problems such as strong landowners' resistance. Tenants also
complained on the limited amount of fund allocation provided by the government for the project. It
aimed to complete 7.8 million hectares by 2004. Since President Estrada lasted only 2.5 years as
president, the total beneficiaries of CARP was only 0.18 million or 10 percent. [12]

Comprehensive Agrarian Reform Program Extension with Reforms (CARPER)

Comprehensive Agrarian Reform Program Extension with Reforms, known also as CALPER or
CARPer, (Republic Act 9700)[13] is the amendatory law that extends again the deadline of distributing
agricultural lands to farmers for five years. It also amends other provisions stated in CARP.

In December 2008, the budget for CARP expired and there remained 1.2 million hectares of
agricultural land waiting to be acquired and distributed to farmers. CARPER was signed into law on
August 7, 2009 by Gloria Macapagal Arroyo and was set to expire on June 30, 2014. [14] However the
program of distributing lands to farmer-beneficiaries continued even after June 2014. Section 30 of
RA 9700 or CARPER law states that cases on the matter which are still pending “shall be allowed to
proceed to its finality and be executed even beyond such date.” [15]

Beneficiaries

Beneficiaries of CARPER are landless farmers, including agricultural lessees, tenants, as well as
regular, seasonal and other farmworkers. In a certain landholding the qualified beneficiaries who are
tenants and regular farmworkers will receive 3 hectares each before distributing the remaining land
to the other qualified beneficiaries like seasonal farmworks and other farmworkers (Section 22 of
CARL). The Department of Agrarian Reform (DAR) identifies and screens potential beneficiaries and
validates their qualifications. Beneficiaries must be least 15 years old, be a resident of the barangay
where the land holding is located, and own no more than 3 hectares of agricultural land. [16]

The CARPER law has bias for organized farmers to be beneficiaries because the Congress believes
that the success rate of organized farmers is high and can make their awarded lands productive.
[citation needed]

Significant provisions

 Gender-Sensitive Agrarian Reform – Section 1 of the CARPER law states that "The State
shall recognize and enforce, consistent with existing laws, the rights of rural women to own
and control land, taking into consideration the substantive equality between men and
women as qualified beneficiaries, to receive a just share of the fruits thereof, and to be
represented in advisory or appropriate decision-making bodies. These rights shall be
independent of their male relatives and of their civil status." Rural women will have a
representative in the highest policy making body of DAR – the Presidential Agrarian Reform
Council (PARC).
  Budget – Section 21 amending Section 63 for CARL state that the budget allocated for the 5-
year extension is 150 Billion pesos which will be sourced from three funds: Agrarian Reform
Fund, General Appropriations Acts (GAA) and other sources of funding like privatization of
government asset, foreign donors, etc. This budget is the largest per year in the history of
CARP.
 Creation of a Congressional Oversight Committee – Section 26 of the CARPER law created a
joint Congressional Oversight Committee to oversee and monitor the implementation of the
act, which will be composed of the Chairpersons of the Committee on Agrarian Reform of
both Houses of Congress, three Members of the House of Representatives, and three
Members of the Senate of the Philippines, to be designated respectively by the Speaker of
the House of Representatives and the President of the Senate of the Philippines. The
chairpersons of the COCAR are the Chairpersons of the Committees on Agrarian Reform of
the House of Representatives and of the Senate of the Philippines. The term of the COCAR
will end six months after the expiration of the extended period of five years. The COCAR is
provided with twenty-five million pesos (P25,000,000.00) every year.
 CARPER as a Continuing Program – Section 30 of the CARPER law mandates that “any case
and/or proceeding involving the implementation of the provisions of Republic Act No. 6657,
as amended, which may remain pending on June 30, 2014 shall be allowed to proceed to its
finality and be executed even beyond such date". Section 30 of CARPER law provides a way
to legally continue the implementation of pending CARP cases after the 5-year extension by
filling the initiatory process of CARP.
 Policies in Converting Agricultural Lands – Section 73 of the CARPER law: "Any conversion
by any landowner of his/her agricultural land into any non-agricultural use with intent to
avoid the application of this Act to his/her landholdings and to dispossess his/her bonafide
tenant farmers." Failure to comply will result in an imprisonment of 6 to 12 years and/or a
penalty of 200,000 pesos to 1 million pesos. The CARPER law prohibits any conversion of
irrigated and irrigable lands and mandates the National Irrigation Administration to identify
these. CARPER law also states that non-implementation of the conversion plan will result to
automatic coverage of the subject by CARP.

Q and A: The Comprehensive Agrarian Reform Program

1. What is CARP? What is CARPER?

CARP stands for the Comprehensive Agrarian Reform Program, a government initiative that aims to
grant landless farmers and farmworkers ownership of agricultural lands. It was signed into law by
President Corazon C. Aquino on June 10, 1988, and was scheduled to have been completed in 1998.
On the year of its deadline, Congress enacted a law (Republic Act No. 8532) appropriating additional
funds for the program and extending the automatic appropriation of  ill-gotten wealth recovered by
the Presidential Commission on Good Governance (PCGG) for CARP until 2008.

CARPER, or the Comprehensive Agrarian Reform Program Extension with Reforms, is the
amendatory law that extends yet again the deadline of distributing agricultural lands to farmers for
five years. It also amends other provisions stated in CARP. CARPER was signed into  law on August 7,
2009.

2. Who are the beneficiaries of CARP?

Landless farmers, including agricultural lessees, tenants, as well as regular, seasonal and other
farmworkers. The Department of Agrarian Reform (DAR) identifies and screens potential
beneficiaries and validates their qualifications. For example, to qualify, you must be at least 15 years
old, be a resident of the barangay where the land holding is located, and own no more than 3
hectares of agricultural land.

3. What are the government offices involved in the program?

Many agencies are involved in the implementation of CARP. The lead agencies are the Department
of Agrarian Reform (DAR), and the Department of Environment and Natural Resources (DENR). They
are in charge of the identification and distribution of covered land, and is commonly refererred to as
CARPable land.

4. How much land is subject to land reform?

An estimated 7.8 million hectares of land is covered by CARP.

5. How much land has been acquired and distributed so far?

As of December 31, 2013, the government has acquired and distributed 6.9 million hectares of land,
equivalent to 88% of the total land subject to CARP.

6. How much land was distributed to beneficiaries under this administration?

From July 2010 to December 2013, the administration has distributed a total of 751,514 hectares, or
45% of the total landholdings to be distributed to the farmer beneficiaries left under this
administration.

From this, DAR has distributed 412,782 hectares and DENR has already distributed 338,732 hectares.

7. How much land does the government still need to acquire for distribution from 2014 to 2016?

DAR still needs to acquire 771,795 hectares, while the DENR still needs to acquire 134,857 hectares
—a total of 906,652 hectares.

8. How will the government acquire the landholdings?

There are different modes of acquiring and distributing public and private agricultural lands. For
private lands under compulsory acquisition, the DAR will issue Notices of Coverage to the original
owners of the landholdings. Notices of Coverage will be issued to most of the landholdings by June
30, 2014.

9. What is a notice of coverage?

A Notice of Coverage (NOC) is a letter informing a landowner that his/her land is covered by CARP,
and is subject to acquisition and distribution to beneficiaries. It likewise informs the landowner of
his/her rights under the law, including the right to retain 5 hectares.

10. After the period of time allotted for CARPER by law is passed (August 7, 2009 to June 30, 2014),
how will the remaining landholdings, which are subject to compulsory acquisition, be distributed
to the beneficiaries?

As long as Notices of Coverage are issued on or before June 30, 2014, land distribution to
beneficiaries shall continue until completion, according to Section 30 of CARPER (R.A. No. 9700).
Meaning, even after CARPER’s deadline, the law itself mandates the concerned agencies to finish
distributing lands to the beneficiaries up to the very last hectare. This assures to the farmers that the
process for receiving their land will continue (e.g., beneficiary identification, survey, generation, and
registration of land titles to beneficiaries).

11. How does DAR intend to deal with the remaining landholdings (771,795 hectares) to be
distributed?

DAR projects that it will be distributing 187,686 hectares in 2014; 198,631 hectares in 2015; and
385,478 hectares in 2016.

Of the remaining CARPable landholdings to be distributed, 551,275 hectares are considered

workable, while 220,520 hectares are tagged as problematic. Solutions for problematic landholdings
will be worked out.

12. What were the challenges encountered in the course of acquiring and distributing private
lands?

There were numerous problems in implementing the land reform program:

In some cases, technical descriptions in the land titles (which determine the boundaries of the land)
were found to be erroneous and had to be corrected. Some titles were destroyed, and therefore,
had to be reissued by undergoing a court process, similar to filing a case. Potential beneficiaries
argued among themselves on who should or should not be qualified as beneficiaries; these disputes
had to be mediated or resolved by the government. In other cases, landowners may petition that
their lands be exempted or excluded from CARP coverage, and some of these petitions have gone up
to the Supreme Court.

Smaller parcels of land (5 hectares to 10 hectares) were only processed in the last year of
implementation of CARPER (July 1, 2013 to June 30, 2014). Past efforts focused on bigger parcels of
land, which involved more paperwork to process. Now that efforts are focused on smaller but more
numerous cuts of land, there are more claim folders to process and distribute.

From the Presidential Communications Development and Strategic Planning Office and the
Department of Agrarian Reform