Philippine Taxation from Pre-Colonial to Malolos Republic

Pre-Colonial Period

Centuries before the Spaniards came to the Philippines, the early Filipinos lived to separate and
independent village-states called barangays. Each barangay had its own government headed by a ruler
called datu or raja. Each barangay was consisted of 30 to 100 families. Some barangays were big, such as
Sugbo (Cebu), Maktan (Mactan) Bigan (Vigan), and Maynila (Manila). Each of these big barangays had a
population of more than 2,000. There was no national government in ancient Philippines. Some
barangays, however, united to form a confederation.

Like other states, where there is a social stratification, pre-Spanish Filipinos were also divided into social
classes. These were:

(a) the nobles,

(b) the freemen, and
(c) the slaves.

The “NOBLES” composed of rulers and their families occupied the highest class. They were usually
addressed as “Gat, Lakan, Raja or Datu”.

Next to them were the middle class called “FREEMEN”. Freemen were the working class.

The lowest class were the “SLAVES”.

Slaves were classified into two; these were:

 (a) The Aliping Namamahay, and
(b) The Aliping Sagigilid.

The “Aliping Namamahay” were not a full-pledged slave. They have their own respective families and
their own houses. They were required to their masters only during planting and harvesting period.

The “Aliping Sagigilid” were the real slaves, they were homeless, forbidden to form their own families,
required to stay with their master’s dwelling and may be used as a payment of debt.

During this period, natives started paying taxes but only freemen were required. The tax collected was
called—'BUWIS’ or ‘HANDOG’; it was for the protection they received from the datu. The Chieftain’s
family members were enjoying exemption from paying taxes. Non-payment of taxes was already
punishable during this period.

SPANISH PERIOD
The practice of the collection was in accordance with the first Filipino Spanish Treaty signed between
Miguel Lopez de Legazpi and King Tupaz of Cebu on June 4, 1565. This was intended to support the
construction of government offices, build roads and bridges, buildings, ports, markets, schools, finance
the operation of the churches, pay the salaries of the government officials, improve the transportation
and communication and effectively administer the colony. Spanish had to compel the natives to pay
taxes but as early as 1501 that Pope Alexander V1 granted Ferdinand and Isabella, and to their
successors, the right to collect and retain the ‘TITHES’ (diezmos prediales) and other church dues in all
their possessions beyond the seas. This grant was made in return for a promise—afterwards most
liberally fulfilled, so far in the Philippines were concerned—that the crown should pay the expenses of
the church in Christianizing the colonized people. The earliest recorded excise taxation proper in the
Philippine Islands was during the administration of Cervantes Gonzalo Ronquillo in 1589—1583.

Under Spanish occupation, common taxes collected include ‘TRIBUTOS’ (tributes), ‘CEDULA’,
‘SANCTORIUM’ ‘DONATIVO de ZAMBOANGA’, ‘VINTA’, ‘FALLA’, ‘ENCOMIENDA’ excise taxes on certain
products, documentary stamp tax and postal tax. These taxes were paid either in cash or in kind, in full
or in installment basis. Most taxpayers preferred to pay in cash. Taxes were both imposed to both
natives and citizens of another country on both occupation and businesses.
‘Tributos’ were collected to support government and church operations. Those individuals above sixteen
years old and below were required to tribute amounting between eight and ten ‘reales’. For Spain,
paying tribute was a sign of loyalty to the king of Spain. The Filipino tributes were the lowest in the
Empire. In Mexico, taxes were as high as 14 reales per head in some provinces, and in the vice-realty of
Peru, between 40 to 48 ‘reales’. The 8 to 10 ‘reales’ was slightly higher than one peso. According to Blair
and Robertson, the fiscal income of the islands under the Spanish administration amounted to 33,000
pesos in 1584. From this amount, 22,000 pesos came from the tributes collected. In 1598, tribute was
increased and because of widespread resistance and abuses in the collection, the king abolished it in
1884, cedula was introduced as its replacement.

‘CEDULA (or community tax certificate)’ served as an identification card when has to be carried by the
person at all times.

‘SANCTORIUM’ is another form of tax included in tribute with an amount of three ‘reales’ that is used for
church purposes.

‘DONATIVO de ZAMBOANGA’ which was imposed between 1635 up to the middle of the 19 th century
was collected to crush the Moro raids.

‘VINTA’, on the other hand, amounts to one-half real or one ganta of rice for every year used in
financing coastal patrols around Metro-Manila and in the western coast of Luzon.

‘FALLA’, is a sum of money amounting to seven pesos, in order to be exempted from ‘POLO’ (forced
personal services). Lastly,

‘DIEZMOS PREDIALES’ or tithes consisting of one-tenth of the products of one’s land is collected while
goods covered by excise taxes include jewelries, trinkets, burlas and powder.

‘ENCOMIENDA’ refers to a special right bestowed upon a person by the King to possess and enjoy all the
fruits of a piece of land in a particular place including the power to impose and collect tax upon
inhabitants thereof, in recognition to his deeds and contributions for the country, for the King or for
Spain. Hence, it was only a grant of possession and not ownership over a piece of land.
There were two kinds of encomienda such as:

(1) ROYAL ENCOMIENDA, that which is owned by the Crown like, lands in Bagumbayan, Tondo,
Navotas, Malabon, etc., and—
(2) PRIVATE ENCOMIENDA, that which is owned by distinguished individuals like lands to Batangas,
Bataan, Pampanga which is managed by encomiendas like Francisco Rodriguez, Juan Esguerra,
and Francisco Liwag.

‘POLO’ (force personal services of the natives) existed during the period. Natives involved in polo were
called ‘polos’ or ‘polistas’. Their job included wood cutting for naval construction and smelting of
weapons and cannons, cleaning the building, watching over the prisoners in the Royal Houses of the
capital of the province, night rounds of the towns, fixing street-gates, cleaning of rivers and building
ships including churches. Actually, these personal services likewise constituted a mechanism of
compulsory taxation, similar to tribute, in so far as a type of sharing went to the colonial administration
from the difference between the amount paid to the polistas and the amount existing in a true labor
market. Polo provided the colonial government opportunity to obtain free or semi-free labor because
the salary was beyond the standard. Every polistas had a monthly stipend for food consisting of rice at 4
pesos, taken from small amount contributed annually by all the natives.

MALOLOS REPUBLIC (1899)

WHEN THE First Philippine Republic or Malolos Republic was inaugurated on January 23, 1899, various
taxes were imposed. These included Chinese poll tax; railway and freight tax; fees collected in state
courts by state representatives; rentals of post office boxes; and the sale of printed books & materials,
particularly the Heraldo Filipino (official newspaper of the government). There was also tax for
unclaimed property, property tax, tax on mines (10 %) going to the government, tax on forest products,
coining of money; sale of stamped paper or adhesive draft tax and fees from labor works of prisoners.

To discourage people from engaging in vices, a tax on sale of lottery and opium was imposed. Properties
of religious orders were also taxed. For merchant vessels, tonnage dues were imposed. Other taxes
imposed include 5% tax on the market value of all merchandise transported and 1% tax on the value of
real property.

TAXATION DURING THE AMERICAN PERIOD

INTERNAL REVENUE LAW OF 1904

The “Internal Revenue Law of Nineteen hundred and Four”, exacted all old Spanish Laws, then
remaining in force and imposing internal taxes. It substituted in lieu of such taxes a system of internal
taxation based largely on the American policy of obtaining a maximum of revenue from the
manufacture, sale and consumption of articles of luxurious or optional use and minimum of revenue
from either source. The Internal revenue taxes that were collected were as follows: manufacturers of
alcohol and tobacco products, licenses and dealers in alcohol and tobacco products licenses, merchants,
manufacturers and common carriers, licenses, occupations, trades and professions, mines and mining
concessions, banks and bankers, insurance companies, documentary stamp taxes, cedula personal, and
taxes on forest products. The law also created the Bureau of Internal Revenue.

INTERNAL REVENUE OF NINETEEN HUNDRED AND FOURTEEN (ACT NO. 2339)

The Internal Revenue Law of Nineteen Hundred and Fourteen only broadened the scope of internal
revenue taxes.
These were:
(1) Cedula taxes
(2) Documentary tax
(3) Privilege taxes on business and occupation
(4) Specific taxes on manufactured products
(5) Taxes on resources of banks, receipts of insurance companies, and receipts of corporations
paying a franchise tax
(6) Charges for forest products
(7) Fees for testing and sealing weights and measures
(8) Internal Revenue, including the income tax collected in the Philippine Islands under laws
enacted by the Congress of the United States, and
(9) Taxes on signs, sign boards and billboards.
 COMMONWEALTH ACT NO 466
On June 15, 1939, commonwealth Act No. 466 or the “National Internal Revenue Code of 1939” was
enacted. The Act was promulgated to revise, amend and codify the internal revenue laws of the
Philippines. The sources of internal revenue taxes included:
(1) Income tax
(2) Estate, inheritance and gift taxes
(3) Specific taxes on articles
(4) Privilege taxes on business or occupation
(5) Documentary stamp taxes
(6) Mining taxes
(7) Miscellaneous taxes, fees and charges, namely, taxes on on banks, and insurance companies,
franchise taxes, taxes on amusements, charges on forest products, fees for sealing weights and
measures, firearms license fees, radio registration fees, tobacco inspection fees and water
rentals.

Commonwealth Act No. 466 provides clear provision on income taxes. Under the Act, there shall be
levied, assessed, collected, and paid annually upon the entire net income received in the preceding
taxable year from all sources by every individual, a citizen or resident of the Philippines, a tax equal to
the sum of the following:

Tax to Pay Total Net Income
1% per annum Total net income does not exceed
₱2,000
2% per annum Total net income exceeds ₱2,000 &
does not exceed ₱4,000
3% per annum Total net income exceeds ₱4,000 &
does not exceed ₱6, 000
4% per annum Total net income exceeds ₱6, 000 &
does not exceed ₱10, 000
5% per annum Total net income exceeds ₱10, 000
& does not exceed ₱20, 000
6% per annum Total net income exceeds ₱20, 000
& does not exceed ₱30, 000
7% per annum Total net income exceeds ₱30, 000
& does not exceed ₱40, 000
8% per annum Total net income exceeds ₱40,000
& does not exceed ₱50, 000
9% per annum Total net income exceeds ₱50, 000
& does not exceed ₱60, 000
10% per annum Total net income exceeds ₱60, 000
& does not exceed ₱70, 000
11% per annum Total income exceeds ₱70, 000 &
does not exceed ₱80, 000
12% per annum Total net income exceeds ₱80, 000
& does not exceed ₱90, 000
13% per annum Total net income exceeds ₱90, 000
& does not exceed ₱100, 000
14% per annum Total net income exceeds ₱100, 000
& does not exceed ₱120, 000
15% per annum Total net income exceeds ₱120, 000
& does not exceed ₱140, 000
17% per annum Total net income exceeds ₱140, 000
& does not exceed ₱180,000
Tax to Pay Total Net Income
19% per annum Total net income ₱160, 000 & does
not exceed ₱180, 000
21% per annum Total net income exceeds ₱180,000
& does not exceed ₱200,000
23% per annum Total net income exceeds ₱200,000
& does not exceed ₱225, 000
25% per annum Total net income exceeds ₱225, 000
& does not exceed ₱250, 000
27% per annum Total net oncome of ₱250, 000 &
does not exceed ₱275, 000
29% per annum Total net income of ₱275, 000 &
does not exceed ₱300, 000
31% per annum Total net income exceeds ₱300, 000
& does not exceed ₱350, 000
33& per annum Total net income exceeds ₱350, 000
& does not exceed ₱400, 000
35% per annum Total net income exceeds ₱400, 000
& does not exceed ₱450, 000
37% per annum Total net income exceeds ₱450, 000
& does not exceed ₱500, 000
39% per annum Total net income exceeds ₱500, 000
& does not exceed ₱600, 000
40% per annum Total net income exceeds ₱600, 000
& does not exceed ₱700, 000
41% per annum Total net income exceeds ₱700, 000
& does not exceed ₱800, 000
42% per annum Total net income exceeds ₱800,000
& does not exceed ₱1, 000, 000
43% per annum Total net income exceeds ₱1, 000,
000 & does not exceed ₱1, 500, 000
44% per annum Total net income exceeds ₱1, 500,
000 & does not exceed ₱2, 000, 000

The Act provides for Presidential Exemptions allowable to individuals such as:
(a) FOR SINGLE INDIVIDUALS—The sum of ₱1, 000, if the person making the return is a single
person or a married person legally separated from hie/her spouse.
(b) FOR MARRIED PERSONS OR HEADS OF FAMILY—The sum of ₱2,500, if the person making the
return is a married man with a wife not legally separated from him,, or a married woman with a
husband not legally separated from her, or the head of the family: PROVIDED, That only one
exemption of ₱2, 500 shall be made from the aggregate income of both husband and wife when
not legally separated. For the purpose of this section, the term “Head of the Family” includes an
 unmarried man or woman with one or both parents, or one or more brothers or sisters, or one
more legitimate,, recognized natural, or adopted children dependent upon him or her for their
chief support where such brothers, sisters, or children are less than 21 years of age.
(c) ADDITIONAL EXEMPTION FOR DEPENDENTS—The sum of ₱500 for each legitimate, recognized
natural or adopted child wholly dependent upon the taxpayer, if such dependents are under 21
years of age, or incapable of self support because mentally or physically defective. The
additional exemption under this subsection shall be allowed only if the person making the
return is the head of the family.

Taxes on corporation was also fixed by the Act. The Act provides that every corporation organized in, or
existing under the laws of the Philippines, no matter how created or organized, but not including duly
registered general co-partnerships (compañas colectivas), a tax of eight per centum upon such income,
and a like tax shall be levied, assessed, collected, and paid annually upon the total net income received
in the preceding taxable year from all sources within the Philippines by every corporation organized,
authorized, or existing under the laws of any foreign country.

The Act also provides for the determination of net income, specifies the items scheduled in the gross
income and allowable deductions.

NET INCOME
“Net Income” means the gross income computed under Section 29, less the deductions allowed by
Section 30.

GROSS INCOME
“Gross Income” includes gains, profits, and income derived from salaries, wages, or compensation for
personal service of whatever kind and in whatever form paid, or from professions, vocations, trade,
businesses, commerce, sales, or dealings in property, whether real or personal, growing out of the
ownership or use of or interest in such property; also from interests, rents, dividends, securities or the
transactions of any business carried on for gain or profit, or gains, profits and income derived from any
source whatever. It also includes income derived from any public-utility or from exercise of any essential
governmental function accruing to the Government of the Philippines or to any political subdivision
thereof.

EXCLUSIONS FROM GROSS INCOME

The following items shall not be included in gross income and shall be exempt from taxation under this
Title:
1. LIFE INSURANCE—The proceeds of the insurance policies paid to beneficiaries upon the death of
the insured, whether in a single sum or otherwise, but if such amounts are held by the insurer
under an agreement to pay interest thereon, the interest payments shall be included in gross
income.
2. AMOUNTS RECEIVED BY INSURED AS RETURN OF PREMIUM —The amount received by the
insured, as a return of premium paid by him under life insurance, endowments, or annuity
contracts, either during the term or at the maturity of the term mentioned in the contract or
upon surrender of the contract.
3. GIFTS, BEQUESTS, AND DEVISES—The value of property acquired by gift, bequest, devise or
descent, but the income from such property shall be included in gross income.
4. INTEREST ON GOVERNMENT SECURITIES—Interest upon the obligation of the United States to
the extent provided in the act authorizing the issue thereof; interest upon the obligations of the
Government of the Philippines or any political subdivision thereof, but in the case of such
obligations issued after the approval of this Code, only to the extent provided in the act
authorizing the issue thereof.
5. COMPENSATIONFOR INJURIES OR SICKNESS—Amounts received, through Accident or Health
Insurance or under Workmen’s Compensation Acts, as compensation for personal injuries or
sickness, plus the amount of any damages received whether by suit or agreement on account of
such injuries or sickness.
6. INCOME EXEMPT UNDER TREATY—Incomeof any kind to the extent required by any treaty
obligation binding upon the Government of the Philippines.
7. MISCELLANEOUS ITEMS—(A) Income of foreign governments received from their investments in
the Philippines in stocks, bongs, or other domestic securities, or from interest deposits in banks
in the Philippines

DEDUCTIONS FROM GROSS INCOME

In computing net income, there shall be allowed as deductions:
 a. Expenses
b. Interest
c. Taxes
d. Losses
e. Bad debts
f. Depreciation
g. Depletion of oil of gas wells and mines
h. Charitable and other contributions
i. Conditions under which a non-resident alien individual may receive benefit of deductions
j. Pension trusts

INCOME FROM SOURCES WITHIN THE PHILIPPINES

Gross Income from Sources within the Philippines

The following items of gross income shall be treated as gross income from sources within the
Philippines.
1. INTEREST—Interest derived from sources within the Philippines, and interest on bonds, notes or
other interest-bearing-obligations of residents, corporate or otherwise.;
2. DIVIDENDS—Thee amount received as dividends—
a. From a domestic corporation
b. From a foreign corporation unless less than 50% of the gross income of such foreign
corporation for the three-year period ending with the close of its taxable year preceding the
declaration of such dividends (or for such period as the corporation has been in existence)
was derived from sources within the Philippines as determined under the provisions of this
section; but only in an amount which bears the same ratio to such dividends as the gross
income of the corporation for such period derived from sources within the Philippines bears
to its gross income from all sources.
3. SERVICES— Compensation for labor or personal services performed in the Philippines
4. RENTALS AND ROYALTIES—Rentals and Royalties from property located in the Philippines or
from any interest in such property, including rentals or royalties for the use of or for the
privilege of using in the Philippines patents, copyrights,, secret processes and formulas,
goodwill, trademarks, trade brands, franchise, and other like property.
5. SALE OF REAL PROPERTY—Gains, profits, and income from the sale of real property located in
the Philippines; and
6. SALE OF PERSONAL PROPERTY—Gains, profits, and income from the sale of personal property,
as determined in the subsection (e) of this section.

NET INCOME FROM SOURCES IN THE PHILIPPINES

From the items of gross income specified in subsection (a) of this section there shall be deducted the
expenses, losses, and other education properly apportioned or allocated thereto and a ratable part of
any expenses, losses, or other deductions which cannot definitely be allocated to some item or class of
gross income, the remainder, if any, shall be included in full as net income from sources within the
Philippines.

GROSS INCOME FROM SOURCES WITHOUT THE PHILIPPINES

The following items of gross income shall be treated as income from sources without the Philippines:
1. Interest other than the derived from sources within the Philippines as provided in paragraph (1)
of subsection (a) of this section.
2. Dividends other than those derived from sources within the Philippines as provided in paragraph
(2) of subsection (a)of this section;
3. Compensation for labor or personal services performed without the Philippines;
4. Rentals or royalties from property located without the Philippines or from any interest in such
property, including rentals or royalties for the useof or for the privilege of using without the
Philippines, patents, copyrights, secret processes and formulas, goodwill, trademarks, trade
brands, franchises, and other like properties; and
5. Gains, profits and income from the sale of real property located without the Philippines.

NET INCOME FROM SOURCES WITHOUT THE PHILIPPINES

From the items of gross income specified in subsection (c) of this section there shall be deducted the
expenses, losses, and other deductions properly apportioned or allocated thereto, and a ratable of any
expenses, losses, or other deductions which cannot definitely be allocated to some item or class of gross
income. The remainder, if any, shall be treated in full as net income from sources without the
Philippines.
INCOME FROM SOURCES PARTLY WITHIN AND PARTLY WITHOUT THE PHILIPPINES
Items of gross income, expenses, losses and deductions, other than those specified in subsection (a) and
(c) of this section shall be allocated or apportioned to sources within or without the Philippines, under
rules and regulations prescribed by the Secretary of Finance. Where items of gross income are
separately allocated to source within the Philippines, there shall be deducted (for the purpose of
computing the net income therefrom) the expenses, losses, and other deductions properly apportioned
or allocated thereto and a ratable part of other expenses, losses or deductions which cannot be
definitely be allocated to some item or class of gross income. The remainder, if any, shall be included in
full as net income from sources within the Philippines.

In the case of gross income derived from sources partly within the Philippines, the net income may first
be computed by deducting the expenses, losses, or other deductions apportioned or allocated thereto
and a ratable part of any expenses, losses, or other deductions which cannot definitely be allocated to
some items or class of gross income and the portion of such net income attributable to sources within
the Philippines may be determined by processes or formulas of general apportionment prescribed by
the Secretary of Finance.

Gains, profits, and income from

(1) transportation or other services rendered partly within and partly without the Philippines, or
(2) from the sale of personal property produced (in whole or in part) by the taxpayer within and
sold without the Philippines, or produced (in whole or in part) by the taxpayer without and sold
within the Philippines, shall be treated as derived partly from sources within and partly from
sources without the Philippines. Gains, profits, and income derived from the purchase of
personal property within and its sale without the Philippines or from the purchase of personal
property without and its sale within the Philippines, shall be treated as derived entirely from
sources within the country in which sold.

TAXATION FROM POST COLONIAL TO THE PRESENT

PRESIDENTIAL DECREE NO. 1158 OR THE NATIONAL INTERNAL REVENUE CODE OF 1977.
Presidential Decree No. 1158 or the National Internal Revenue Code of 1977 was enacted to consolidate
and codify all the internal revenue laws of the Philippines. The code as the result of the codification of all
tax laws dating back in the year 1939 because a substantial number of provisions were rendered
obsolete by recent amendments as a product of enacted laws and decrees. This is to ensure proper
guidance of the taxpayers and for the efficient administration on the part of the government.

REPUBLIC ACT NO. 8424 OR THE TAX REFORM ACT OF 1997

Prior to Republic Act No. 10963 or the TRAIN LAW, the current tax system is basically outlined by the Tax
Reform Act of 1977 or Republic Act No. 8424. The law amended Presidential Decree No. 1994 and
Executive Order No. 273, otherwise known as National Internal Revenue Code. The code provides for
the organization and function of Bureau of Internal Revenue (BIR). It sets out the powers and duties of
BIR and the poers and authorities of its commissioners, regional directors, and revenue officers. The
remaining provisions pertain to the income tax: definition of terms, general principles, tax rates and
computations of income taxon individual taxpayers, corporations, estates and trusts. It also prescribes
the accounting periods,, methods of accounting, and other income tax requirements that taxpayers
should comply.

Perhaps the most significant features is the Income Tax Rates, which is provided below:

The tax shall be computed in accordance with and at the rates established in the following schedule:

Not over ₱10, 000 5%

Over ₱10,000 but not over ₱30, 000
Over ₱30,000 but not over ₱70, 000
Over ₱70, 000 but not over ₱140, 000
Over ₱140, 000 but not over ₱250, 000
Over ₱250, 000 but not over ₱500, 000
Over ₱500, 000
₱500 + 10% of the excess over ₱10,000
₱2,500 + 15% of the excess over ₱30, 000
₱8, 000 + 20% of the excess over ₱70, 000
₱22,500 + 25% of the excess over ₱140, 000
₱50, 000 + 30% of the excess over ₱250, 000
₱125, 000 + 34% of the excess over ₱500, 000
(in 1998)

Provided, That—effective January 1, 1999, the top marginal rate shall be thirty three percent (33%) and
effective January 1, 2000, the said rate shall be thirty-two percent (32%).
For married individuals, the husband and wife, subject to the provision of Section 51 (D) hereof, shall
compute separately their individual income tax based on their respective total taxable income:

Provided, That— if any income cannot be definitely attributed to or identified as income exclusively
earned or realized by either of the spouses, the same shall be divided equally between the spouses for
the purpose of determining their respective taxable income.

PERSONAL EXEMPTION FOR INDIVIDUAL TAXPAYER

FOR PURPOSES OF DETERMINING THE TAX PROVIDED IN Section 24 (A ) of this Title, there shall be
allowed a basic personal exemption as follows:

For single individual or married individual judicially

decreed as legally separated with
no qualified dependents …………………………………………………………………………………………………… ₱ 20, 000

For head of family …………………………………………………………………………………………………………….. ₱ 25, 000

For married individual ………………………………………………………………………………………………………. ₱ 32, 000

In this case of married individuals where only one of the spouses is deriving gross income, only such
spouses shall be allowed the personal exemption.

For purposes of this paragraph, the term ‘Head of the Family’ means an unmarried or legally separated
man or woman with one or both parents, or with one or more brothers and sisters, or with one or more
legitimate , recognized natural or legally adopted children living with and dependent upon him for their
chief support, where such brothers or sisters or children are not more than twenty-one (21) years of age,
unmarried and not gainfully employed or where such children,, brothers or sisters,, regardless of age are
incapable of self-support because of mental or physical defect .

ADDITIONAL EXEMPTION FOR DEPENDENTS

There shall be allowed an additional exemption of eight thousand pesos (₱8, 000) for each dependent
not exceeding four (4). The additional exemption for dependent shall be claimed by only one of the
spouses in the case of married individuals. In the case of legally separated spouses, additional
exemptions may be claimed only by the spouse who has custody of the child or children.

Provided, That— the total amount of additional exemptions that may be claimed by both shall not
exceed the maximum additional exemptions herein allowed.

For purposes of this Subsection, a dependent means a legitimate, illegitimate or legally dependent upon
and living with the taxpayer if such dependent is not more than twenty-one (21) years of age, unmarried
and not gainfully employed or if such dependents, regardless of age, is incapable of self-support because
of mental or physical defect.

REPUBLIC ACT NO. 9504

Republic Act No. 9504 was enacted in June 2008 to amend certain provisions of the Republic Act No.
8424 or the National Internal Revenue Code of 1997. Specifically, it provides for the income tax
exemption on their taxable income all the minimum wage earners including their holiday pay, overtime,
night shift differential pay and hazard pay. In addition, the law also increases the personal exemption for
all individuals to a fixed amount of ₱50, 000 and the additional exemption to ₱25, 000 for each
dependent not exceeding four (4).

MINIMUM WAGE EARNER

‘Minimum wage earner’ shall refer to a worker in the private sector paid the statutory minimum wage,
or to an employee in the public sector with compensation income of not more than the statutory
minimum wage in the non-agricultural sector where he/she is assigned.

ALLOWANCE OF PERSONAL EXEMPTION FOR INDIVIDUAL TAXPAYER

(A) IN GENERAL—For purposes of determining the tax provided in Section 24 (A) of this title, there
shall be allowed a basic personal exemption amounting to fifty thousand pesos (₱50,000) for
each individual taxpayer.
“In the case of married individual where only one of the spouses is deriving gross income, only
such spouse shall be allowed the personal exemption.”
 (B) ADDITIONAL EXEMPTION FOR DEPENDENTS—There shall be allowed an additional exemption of
twenty-five thousand pesos (₱25, 000) for each dependent not exceeding four (4).

“The additional exemption for dependents shall be claimed by only one of the spouses in the
case of married individuals.

“in the case of legally separated spouses, additional exemptions may be claimed only by the
spouse who has custody of the child or children.

Provided, That—the total amount of additional exemptions that may be claimed by both shall
not exceed the maximum additional exemptions herein allowed.

“For purposes of this Subsection,, a “DEPENDENT” means a legitimate, illegitimate or legally

adopted child chiefly dependent upon and living with the taxpayer if such dependent is not
more than twenty-one (21) years of age, unmarried and not gainfully employed or if such
dependent, regardless of age is incapable of self-support because of mental or physical defect.

REPUBLIC ACT NO. 10963 OR THE TAX REFORM FOR ACCELERATION AND INCLUSION (TRAIN LAW)

On December 19, 2017, President Duterte signed Republic Act No. 10963 or the Tax Reform for
Acceleration and Inclusion (TRAIN) Law. The tax program overhauls the country’s 20-year-old tax regime
to make the tax system fairer and simpler. This is the first package of the Comprehensive Tax Reform
Program (CTRP) of the government. The law will provide hefty income tax cuts for the majority of the
taxpayers and at the same time raise additional funds to support the infrastructure project of the
government. It also imposes higher taxes on cars, fuel, tobacco, cosmetic surgery, tobacco, and some
sweetened beverages. However, personal and additional exemptions enjoyed under previous tax laws
were also taken away by the TRAIN Law.

INCOME TAX RATES

Tax Schedule Effective January 1, 2018 until December 31, 2022:

Not over ₱250, 000
Over ₱250, 000 but not over ₱400, 000
Over ₱400, 000 but not over ₱800, 000
Over ₱800, 000 but not over ₱2, 000, 000
Over ₱2, 000, 000 but not over ₱5, 000, 000
Over ₱8, 000, 000
0%
20 % of the excess over ₱250, 000
₱30, 000 + 25% of the excess over ₱400, 000
₱130, 000 + 30% of the excess over ₱800, 000
₱490, 000 + 32% of the excess over ₱2, 000, 000
₱2, 400, 000 + 38% of the excess over ₱8, 000, 000

Tax Schedule Effective January 1, 2023 and onwards:

Not over ₱250, 000
Over ₱250, 000 but not over ₱400, 000
Over ₱400, 000 but not over ₱800, 000
Over ₱800, 000 but not over ₱2, 000, 000
Over ₱2, 000, 000 but not over ₱5, 000, 000
Over ₱8, 000, 000
0%
20% of the excess over ₱250, 000
₱30, 000 + 25% of the excess over ₱400, 000
₱130, 000 +30% of the excess over ₱800, 000
₱400, 000 + 32% of the excess over ₱2, 000, 000
₱2, 410, 000 + 35% of the excess over ₱8, 000, 000

For married individuals, the husband and wife, subject to the provision of Section 51 (D) hereof, shall
compute separately their individual income tax based on their respective total taxable income.

Provided, That, if any income cannot be definitely attributed to or identified as income exclusively
earned or realized by either of the spouses, the same shall be divided equally divided between the
spouses for the purpose of determining their respective taxable income.

Provided, That, minimum wage earners as defined in Section 22 (HH) of this Code shall be exempt from
the payment of income tax on their taxable income.
Provided, further, That the holiday pay, pay received by such minimum wage earners shall likewise be
exempt from income tax.

POSITIVE AND NEGATIVE EFFECTS OF TRAIN LAW

The table below show the positive and negative effects of TRAIN LAW:
POSITIVE EFFECTS
The law generates more revenues for the
government which will fund priority projects and
programs of the government like the tuition in
state universities and colleges, conditional cash
transfers, health care, the “Build, Build, Build
Programs” and rehabilitation for Marawi City.
Those earning below ₱250, 000 were enjoying tax
exemption and are not required to file income
tax returns.
Reduction in income tax leads to more money to
spend on basic commodities.
The law also exempts medicines for diabetes,
high cholesterol and hypertension from VAT.
The law simplified taxes for small and micro
taxpayers with the payment of flat tax of 8
percent on gross sales in lieu of income and
percentage taxes.
Donor’s tax and estate tax were reduced.
It modified the value added tax (VAT) and made it
fairer after it repealed 54 special laws that
provide non-essential VAT exemptions.
NEGATIVE EFFECTS
Tax reduction is rendered useless by the
enormous increase in the taxes imposed on
goods, basic commodities, medicines, electricity
and fuel. The increase in fuel will have domino
effect to prices of goods and services including
fare hike. The law will have little impact to
workers who are not filing their income tax
returns (ITR’s) or those belonging to the informal
sector such as drivers, sidewalk vendors, and self-
employed people.
The labor sector will surely demand increase in
wage which will also add to the cost of
manufacturing goods and the delivery of services.
It increased the prices of of sweetened
beverages, caloric sweetener, high fructose corn
syrup and non-caloric sweetener.
It increased the price of vehicles due to increase
in automobile excise tax.
It imposed 5% on the gross receipts derived from
the performance of services, net of excise tax,
and VAT on invasive cosmetic procedures,
surgeries and body enhancements.
Documentary stamp tax (DST) was increased
except for property, savings, and non-life
insurance.
Excise tax on mineral products and tobacco was
increased.
It increased tax rate on passive income such as
interests, foreign currency deposits, royalties,
prices and other winnings. Winnings from the
PCSO are not tax exempt.