PHILIPPINE

TAXATION
 Learning Objectives:
Students should be able to meet the following intended learning outcomes:
• Analyze the historical source given
• Provide concrete supporting details regarding their claims
• Develop critical and analytical skills with exposure to historical sources
• Compare and contrast the status of taxation in the following period: Spanish, American and
Post-war Period
• Proposed solutions regarding to the issue of improper management of taxes in our country
• Conduct a good and reliable research about the TRAIN Law
 What are taxes and why do we pay them?
• Taxes is the inherent power of the state, acting through the legislature to impose
and collect revenues to support the government and are funds used by the
government to finance basic social services that are vital to the lives of citizens and
economic growth.
• Every year, individuals and corporations pay government taxes, which are used to
fund expenditures.
• When government spending exceeds revenue collected, a budget deficit occurs.
The government borrows money to cover this gap. The loans are later on added as
additional expenses for the country
 Who pays?
• The Tax Reform Act of 1997 says that the following have the duty to pay taxes in
the country:
• Citizens: a citizen of the Philippines residing in the country is taxable on all income
derived from sources within and outside the Philippines
• Nonresident citizens: a nonresident citizen is taxed on income derived from
sources within the Philippines
• Overseas contract workers: a citizen who is working and deriving income from
abroad as an overseas contract worker is taxed only on income derived from the
Philippines
Alien individuals: resident and nonresident alien individuals are taxed only on income
derived from sources in the Philippines
• Domestic corporation: a domestic corporation is taxable on all income derived
from sources within and outside the Philippines
• Foreign corporation: whether or not engaged in trade or business in the
Philippines, a foreign corporation is taxable only on income derived from sources
within the Philippines
However, the BIR exempts some individuals from filing income tax returns, such as
minimum wage earners and those who are subject to "substituted filing".
 Taxation under the Spanish Period
• The Spaniards imposed the payment of tributos from the Filipinos. The purpose is to
generate resources to finance the maintenance of the islands, such as salaries of government
officials and expenses of the clergy. Exempted from payment of tributos were the
principales: alcaldes, gobernadores, cabezas de barangay, soldiers, members of the civil
guard, government officials and vagrants.
• In 1884, the payment of tribute was put to a stop and was replaced by a poll tax collected
through certificate of identification called cedula personal. This is required from every
resident and must be carried while traveling. Unlike the tribute, the payment of cedula is by
person, not by family. Payment of the cedula is according to income categories. Revenue
collection greatly increased and became the main source of government income. The
Chinese in the Philippines were also made to pay their discriminatory cedula which was
bigger than what the Filipinos paid.
 Taxation under the American Period
• The Internal Revenue of Law of 1904 was passed as a reaction to the problems of
collecting land tax. It prescribed ten major sources of revenue: (1) licensed taxes on
firms dealing in alcoholic beverages and tobacco (2) excise taxes on alcoholic
beverages and tobacco products (3) taxes on banks and bankers (4) document stamp
taxes (5) the cedula (6) taxes on insurance and insurance companies (7) taxes on
forest products (8) mining concessions (9) taxes on business and manufacturing, and
(10) occupational licenses.
• The cedula went through changes in the new law as the rate was fixed per adult
male, which resulted in a great decline in revenues. In 1907, some provinces were
authorized to double the fee for the cedula to support the construction and
maintenance of roads.
 Post-war Period
• During President Elpidio Quirino’s term, new tax measures were also passed, which included
higher corporate tax rates that increased government revenues- tax revenue in 1953 increased
twofold compared to 1948, the year when Quirino first assumed Presidency. During the latter
part of the Marcos’ years (1981-1985), the tax system was still heavily dependent on indirect
taxes, which made up 70% of total tax collection. The tax system also remained unresponsive.
Taxes grew at an average annual rate of 15% and generated a low tax yield.
• President Gloria Macapagal-Arroyo, as president, she undertook increased government spending
without adjusting tax collections. This resulted in large deficits from 2002 to 2004. The
government had to look for additional sources of revenue, and in 2005, the Expanded Value-
Added Tax (E-VAT) was signed into law as Republic Act 9337. This expanded the VAT base,
subjecting to VAT energy products such as coal and petroleum products and electricity
generation, transmission, and distribution. In February 2006, the VAT tax rate was also increased
from 10% to 12%.
• As President Benigno Aquino III succeeded President Arroyo in 2010, the
administration ventured into the adjustment of excise tax on liquor and
cigarettes or the Sin Tax Reform.
• Republic Act 10351 was passed, and government revenues from alcohol and
tobacco excise taxes increased. The Sin Tax Reform was an exemplar on how
tax reform could impact social services as it allowed for the increase of the
Department of Health Budget (triple in 2015) and free health insurance
premiums for the poor people enrolled in PhilHealth increased (from 55.2
million in 2012 to 515,4 million in 2015).
 Kind of taxes under existing laws
• Taxes takes on different forms, depending on several factors (De Leonm
1994 as cited by Omas-as, 2008)
• As to who bears the burden
1. Direct taxes these are paid and shouldered directly by the taxpayer. These
include personal income taxes and estate tax.
2. Indirect taxes these are paid by the taxpayer but which he can shift or pass
on to others, particularly those who avail of his goods and services.
Example, Value added tax (VAT).
 As to subject matter or object
1. Personal, Poll or Capitation refers to tax of fixed amount imposed on an
individual residing within a specified territory, whether a citizen or not, and
regardless of property or the occupation, they engaged in.
2. Property tax refers to the amount imposed on property, whether real or
personal, in proportion either to its value or by some other reasonable
method or appointment
3. Excise tax refers to any tax which does not fall within the classification of
a poll tax or a property tax.
 Classification of taxes As to purpose
1. General, Fiscal or Revenue Tax imposed for the general purpose of the
government to raise funds for its needs
2. Individual or Regulatory Tax imposed for a particular purpose to achieve some
social or economic ends, irrespective of whether revenue raised or not.
As to scope or authority imposing the tax
1. National Tax
2. Local Tax
National taxes are those we pay to the government through the Bureau of Internal
Revenue (BIR), while local taxes are the ones levied by local government units (LGUs).
 As to the determination of account
1. Specific tax refers to the fixed amount imposed by the head or number, or
by some standard or weight or measurement which requires assessment
other than a listing or classification of the subjects to be taxed
2. Ad Valorem Tax is a fixed proportion of the value of the property
concerning which the tax is assessed and determines the amount due to
each taxpayer. Example, excise tax on cigarettes.
 NATIONAL TAXES- imposed by the
national government
Capital Gains Tax
• This is the tax an individual or business pays for when they sell an asset for profit. Capital gains are
usually realized from the sale of stocks, jewelry, property and other high-value goods.
Documentary Stamp Tax
• This refers to tax on documents, loan agreements and papers evidencing the sale or transfer of an
obligation or ownership of a property.
Donor's Tax
• Yes, even gifts and donations are taxed. Relief goods sent during calamities are an example.
Typhoon Yolanda was a different case, however. BIR scrapped taxes on goods delivered to Yolanda-
ravaged areas as long as they were coursed through the proper government agencies.
Estate Tax
• 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. It is not a tax on property. It is a tax imposed on the privilege of transmitting
property upon the death of the owner. The Estate Tax is based on the laws in force at the time of death
notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary
Excise Tax
• This is the tax imposed on goods produced for sale, and sold, in the country. An excise is considered an
indirect tax, meaning the producer or seller is expected to recover the tax by raising prices of his or her
product. For instance, taxes imposed on "sin" products tobacco and alcohol are called excise taxes.
Income Tax
• This is tax on a person's income or profit arising from property, practice of profession, or conduct of trade or
business.
Percentage Tax
• This is a business tax. It is imposed on persons who sell or lease goods, properties or services in the course
of their business, are not VAT-registered, and whose gross annual sales and/or receipts do not exceed
P750,000.
Value-Added Tax or VAT
• A form of consumption tax that is imposed on a product whenever value is added at a stage of
production and at final sale. It is an indirect tax; it is passed on to consumers.
Withholding Tax
• Income tax that employers withhold from employees' salaries, and pay directly to
government.
 LOCAL TAXES- imposed by the municipal or public
corporations

Basic Real Property Tax

• This is tax on real properties that covers 6 classes: agricultural, commercial, industrial, residential,
timberland and mineral.
Franchise Tax
• LGUs may impose tax on a business franchise at a rate not exceeding 50% of 1% of the gross annual
receipts for the preceding calendar year.
Business of Printing and Publication Tax
• LGUs may collect tax from printing or publication of books, cards, posters, tarpaulins, pamphlets,
and other published or printed materials.
Sand, Gravel and other Quarry Resources Tax
• LGUs may collect not more than 10% of fair market value in the locality per cubic meter of ordinary
stones, sand, gravel, earth, and other quarry resources extracted from public lands or from the beds of
seas, lakes, rivers, streams, creeks, and other public waters.

Professional Tax
• This tax is imposed on persons engaged in the exercise or practice of their professions requiring
government examination. Doctors, lawyers, engineers, and other professionals are covered by this tax.
Amusement Tax
• All forms of entertainment such as movies, plays and concerts are taxed. The tax is usually included in
the admission price.
Community Tax
• This tax, which is also called buwis pampamayanan, requires one to pay a base fee of P5 and an
additional increase of P1 for every P1,000 of income.
Annual Fixed Tax for Delivery Trucks and Vans
• Trucks and vans delivering goods such as soft drinks, cigarettes, beer, etc. pay LGUs roughly P500
annually.
Barangay Tax
• Sari-sari stores and retailers whose annual gross sales or receipts are not greater than P50,000 are
subject to barangay tax. This tax shall accrue on the first day of January of each year.
Barangay Clearance
• This clearance serves as legal permission for a particular individual/host/company to conduct an
event or start a business in a barangay.
 References:
• Candelaria, J., & Alporha, V. (2018). Readings in Philippine History. Manila: Rex Book Store,
Inc.
• Delos Santos R. Readings in Philippine History.
• https://rappler.com/newsbreak/iq/fast-facts-taxes-philippines
• https://r3.rappler.com/business/52571-philippine-taxes-types