Module 6

Evolution of Taxation in the Philippines

Learning Objectives:
At the end of the lesson, the students should be able to:
1. construct a timeline to show the evolution of taxation in the
Philippines;
2. identify the significant features of the laws concerning
taxation; and
3. evaluate the impact of RA 10963 (TRAIN Law) to the prices
of goods and services and the lives of Filipino people.
Pre-Colonial Period
Social
stratification – Nobles include
2,000 1) nobles, rulers addressed
people 2) freemen & as Lakan, Gat or
3) slaves Datu
& families
Sugbu (Cebu) Balangays
Maktan (Mactan) Ruled by Datu or Rajah
Bigan (Vigan) 30 to 100 families Freemen –
Maynila (Manila) working
class/
Tax – Aliping taxpayers
buwis or sagigilid &
handog aliping
namamahay
 Spanish Period (1521-1898)
• The practice of tax collection was in accordance with
the First Filipino Spanish Treaty signed between
Miguel Lopez de Legaspi and King Tupaz of Cebu
• Collected taxes were for office construction, build
roads & bridges, buildings, ports, markets, schools,
finance the operations of the churches, pay the
salaries of government officials, improve the
transportation and communication
• Natives were compelled to pay taxes to Spain
• Common taxes include tributos (tributes), cedula,
sanctorum, donativo de Zamboanga, vinta, falla,
encomienda, excise taxes, industrial taxes, royalties
on foreign products, documentary stamp tax and
postal tax
• Can be paid in cash or in kind, in full or installment
• Tributes were to support government and church
operations, by 16 & up, between 8-10 reales.
• Cedula served as identification card
• Sanctorum, 3 reales, for church purposes
•
•
Donativo de Zamboanga, to crush Moro raids
Vinta, 1.5 reales or 1 ganta of rice for every year, to
finance coastal patrols
• Falla, seven pesos, paid to be exempted from
forced personal services.
• Diezmos pediales or tithes, 1/10th of the products of
the land
• Excise taxes for jewelry and ornaments
• Encomienda, the special right bestowed upon a
person by the King to possess all the fruits of a
piece of land including the power to impose and
collect taxes; only a grant of possession but not
ownership
• Polo, forced personal services on the natives.
Polos or polistas are involved in the work of wood
cutting for naval construction, smelting of
weapons, cleaning the building, watching over the
prisoners, fixing street gates, cleaning the rivers
and building ships including churches. It is
compulsory taxation. Polo can be free or semi-free
labor; had monthly stipend for food taken from the
small amount contributed by the natives.
Malolos Republic(1899)
• When Malolos Republic was inaugurated on
Jan. 23, 1899, various taxes were imposed.
• Chinese poll tax
• Railway & freight tax
• Fees collected in state courts by state
representatives
• Rental of post office boxes
• Sale of printed books particularly Heraldo
Filipino, official newspaper of the government
• To discourage people from engaging in vices, a tax
• Tax for unclaimed property
on sale of lottery and opium was imposed.
• Property tax
• Properties of religious orders were taxed
• Tax on mines
• For merchant vessels, tonnage were imposed.
• Tax on forest products
• 5% tax on the market value of all merchandise
• Coining of money
transported
• Sale of stamped paper (documentary stamp)
• 1% tax on the value of real property
• Signature fees
• Registry and notarial fees
• Tas\x and fees from labor works of prisoners
 American Period (1898-
1946)
A. Internal Revenue Law of
1904
B. Internal Revenue Law of tax
1914 laws
C. Commonwealth Act No.Law
Internal Revenue 466of 1904
• Repealed all old Spanish laws
• Collected maximum revenue from manufacture,
sale and consumption of luxurious or optional use
and minimum revenue from other sources
• Internal revenue taxes that were collected were
from manufacturers of alcohol and tobacco
products, licenses and dealers in alcohol and
tobacco products, merchants, manufacturers and
common carriers, occupations, trade 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 Law of 1914
• Broadened the scope of internal revenue
taxes
• Cedula tax
• Documentary stamp tax
• Privilege taxes on business and occupation
• Specific taxes on manufactured products
• Taxes on resource banks, receipts of
insurance companies, and receipts of
corporations paying a franchise tax
• Charges for foreign products
• Fees for testing and sealing weights and
measures
• Income taxes
• Taxes on signs, signboards and billboards
Commonwealth Act No. 466
Tax to Pay Total Net Income
1% per annum Total net income does not exceed P2,000

2% per annum Total net income exceeds 2,000 but does not exceed 4,000

3% per annum Total income exceeds 4,000 but does not exceed 6,000

4% per annum Total income exceeds 6,000 but does not exceed 10,000

5% per annum Total income exceeds 10,000 but does not exceed 20,000

6 % per annum Total income exceeds 20,000 but does not exceed 30,000 Personal Exemptions:
1. For single individuals or married persons
7 % per annum Total income exceeds 30,000 but does not exceed 40,000
legally separated from his or her spouse –
8% per annum Total income exceeds 40,000 but does not exceed 50,000
1,000
2. For married persons or heads of family –
9% per annum Total income exceeds 50,000 but does not exceed 60,000 P2,500
3. Additional exemptions for dependents –
10% per annum Total income exceeds 60,000 but does not exceed 70,000
500.00 for each legitimate child who are
44% per annum Total income exceeds 1,500,000 but does not exceed 2,000,000 below 21 years of age
Post-Colonial to the Present

A. Presidential Decree No. 1158 or The

National Internal Revenue Code of 1977
B. Republic Act No. 8424 or the Tax
Reform Act of 1997
C. Republic Act 9504
D. Republic Act 10963 or the Tax Reform
for Acceleration and Inclusion (TRAIN
Law)
Republic Act No. 8424 or the Tax Reform Act of 1997
• For married individuals, income is
The tax shall be computed in accordance with and at the rates computed separately on their respective
established in the following schedule:
total taxable income. If, however, they
have income that could be identified as
exclusively earned by either of the spouse,
the same shall be divided equally between
spouses for the purpose of determining
their taxable income.
• PERSONAL EXEMPTIONS
 Single with no qualified dependents –
20,000
 For head of family – 25,000
 For married individuals - 32,000
 For additional dependents that shall be
claimed by one spouse - 8,000 per
dependent below 21 yrs old and for
children, regardless of age, is incapable of
self-support because of mental or physical
defect
Republic Act No. 9504
This law was enacted in
June 2008 to provide
additional tax
exemption to all the
minimum wage earners
including their holiday
pay, overtime, night
shift differential pay
and hazard pay. In
addition, it increases the
personal exemption for
all individuals to a fixed
amount of 50,000 and
additional exemption to
25,000 per dependent
not exceeding four.
Republic Act 10963 or the Tax Reform for
Acceleration and Inclusion (TRAIN Law)
 Positive Effect
The law generates more revenues for the government which will
fund priority projects and programs of the government like the
free tuition in SUCs, conditional cash transfers, health care, the
Build, Build, Build Program and rehabilitation for Marawi City
Those earning below P250,000 are not required to pay income tax.
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% on gross sales in lieu of income and percentage taxes.
Donor’s tax and estate tax were reduced.
It modified the VAT and made if fairer after it repealed 54 special laws
that provide non-essential VAT exemptions.
Negative Effect
Tax reduction is 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 ITRs or those belonging to informal sector such as
drivers, sidewalk vendors and self-employed.
The labor sector will surely demand increase in wages which will
also add to the cost of manufacturing goods and the delivery of
services.
It increased the price 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% tax based on the gross receipts derived from the
performance of service, net of excise tax, and VAT on the invasive
cosmetic procedures, surgeries and body enhancements.
Documentary stamp tax 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, prizes and other winnings. Winnings from PCSO are
not tax-exempt.