Rivera, Abegael Joyce B.

N3BAM5A Tax 101 Activity #1

1. Discuss the history of taxation in the Philippines

History of Taxation in the Philippines

Pre colonial
Ancient Filipinos practice paying taxes for the protection from their “datu”. The
collected tax or tribute was called “buwis” or “handug”.
Spanish Era
Taxation in the Philippines was imposed during the Spanish period. Taxes was
compulsory under the Spanish government. Spanish colonies in America and the
Philippines were required to pay taxes. The Spanish had a very complicated tax system
back then. There are two reasons why Spanish colonies needs to pay taxes. First is, as
recognition of Spain’s sovereignty over the colonies. Second, to defray or to cover the
expenses of pacification (eliminating a population considered to be hostile) inside the
government, the threat within the colonies.
American Era
From the period of 1898 to 1901 in the early American regime the country was
ruled by American military governors. In 1902 first civil government was established
under William Howard Taft. In 1904, the BUREAU OF INTERNAL REVENUE was
created through the passage of Reorganization Act No. 1189 dated July 2, 1904 during
the term of second civil governor Luke Edward Wright.
August 1, 1904 – BIR was formally organized and made operational under the
secretary of Finance, Henry Ide (Author of the Internal Revenue Law of 1904), with John
S. Hord as the first collector (Commissioner).

Japanese Era
Under the Japanese Regime (1942-1945) the Bureau was combined with the
Customs Office and was headed by a director of Customs and Internal Revenue.
 2. Define taxation and discuss the nature, basis and objectives of taxation.

Taxation
Taxation refers to the practice of a government collecting money from its citizens to pay
for public services. Without taxation, there would be no public libraries or parks. Taxation is
the practice of collecting taxes (money) from citizens based on their earnings and property.
Nature of Taxation
Legislative – only the lawmaking body (Congress) can exercise this power, subject to
limitation provided by the Law.
Inherent in the sovereignty – it is an incidental power of the state and is also significant
to the existence of the government
Basis of Taxation
Taxation is based on the reciprocal duties of protection and support between the
government and it’s people.
Objectives of Taxation
The primary purpose of taxation is to raise revenue to meet huge public expenditure.
Most governmental activities must be financed by taxation. But it is not the only goal. In other
words, taxation policy has some non-revenue objectives.
1. Economic Development:
One of the important objectives of taxation is economic development. Economic
development of any country is largely conditioned by the growth of capital formation.
2. Full Employment:
Second objective is the full employment. Since the level of employment depends on
effective demand, a country desirous of achieving the goal of full employment must cut down the
rate of taxes.
3. Price Stability
Thirdly, taxation can be used to ensure price stability—a short run objective of taxation.
Taxes are regarded as an effective means of controlling inflation. By raising the rate of direct
taxes, private spending can be controlled.
4. Control of Cyclical Fluctuations:
Fourthly, control of cyclical fluctuations—periods of boom and depression—is
considered to be another objective of taxation. During depression, taxes are lowered down while
during boom taxes are increased so that cyclical fluctuations are tamed.
 5. Reduction of BOP Difficulties:
Fifthly, taxes like custom duties are also used to control imports of certain goods
with the objective of reducing the intensity of balance of payments difficulties and
encouraging domestic production of import substitutes.
6. Non-Revenue Objective

Finally, another extra-revenue or non-revenue objective of taxation is the

reduction of inequalities in income and wealth. This can be done by taxing the rich at
higher rate than the poor or by introducing a system of progressive taxation.

3. Discuss the principles of a sound taxation system

All Tax Foundation research is guided by the principles of sound tax policy—simplicity,
transparency, neutrality, and stability—which should serve as touchstones for policymakers
and taxpayers everywhere.
Simplicity
Tax codes should be easy for taxpayers to comply with and for governments to
administer and enforce.
Transparency
Tax policies should clearly and plainly define what taxpayers must pay and when they
must pay it. Hiding tax burdens in complex structures should be avoided. Additionally, any
changes to the tax code should be made with careful consideration, input, and open hearings.
Neutrality
Taxes should neither encourage nor discourage personal or business decisions. The
purpose of taxes is to raise needed revenue, not to favor or punish specific industries,
activities, and products. Minimizing tax preferences broadens the tax base, so that the
government can raise sufficient revenue with lower rates.
Stability
Taxpayers deserve consistency and predictability in the tax code. Governments should
avoid enacting temporary tax laws, including tax holidays, amnesties, and retroactive
changes, and strive to establish stable revenue sources.
4. Discuss the limitation on the power of taxation.

Limitation on territorial jurisdiction - The power of taxation is limited only within the
boundary or territory of the state. The state cannot exercise its power of taxation outside its
territory. If the subject of taxation is found abroad, then, the state could not anymore tax that.

5. Describe the various sources of taxation laws.

The basic source of Philippine tax law is the National Internal Revenue Law, which
codifies all tax provisions, the latest of which is embodied in Republic Act No. 8424 (“The Tax
Reform Act of 1997”). It amended previous national internal revenue codes, which was approved
on December 11, 1997.

Sources of Taxation and Kinds of Taxes

 Wages (selling labor)
 Interest, dividends, and gains from investment (selling capital)
 Self-employment (operating a business or selling a good or service)
 Property rental
 Royalties (rental of intellectual property)
 “Other” income such as alimony, gambling winnings, or prizes

A sales tax or consumption tax taxes the consumption financed by income.

The value-added tax (VAT) or goods and services tax (GST) the value added to the product is
taxed at each stage of production. Governments use a VAT or GST instead of a sales tax to
spread the tax burden among producers and consumers, and thus to reduce incentive to evade the
tax.
Excise taxes are taxes on specific consumption items such as alcohol, cigarettes, motor vehicles,
fuel, or highway use.
Estate taxes are taxes on the transfer of wealth from the deceased to the living. Estate taxes are
usually imposed on the very wealthiest based on their unusual ability to pay.