TAXATION AND THE PHILIPPINES

An Analysis Paper

Presented to

Prof. Christine Joyce Colon

In Partial Fulfillment

Of the Requirements in the Subject

Readings in Philippine History

Brainard Abunyawan

Nathaniel Belarmino

Harris Bornales

Thea Cataquiz

Dharlen Caloyloy

Jessamine Degala

Paula Em

Kyle Lencioco

Val Mioten

Yeadda Panes

Jenisa Pilaspilas

Dynli Potato

A.B. Political Science 1A

 The classical principles of taxation are nearly as old as human society—
the history of taxes stretches thousands of years into the past. A popular perspective of
this reflects much of Western literature. Several ancient civilizations, including the
Greeks and Romans, levied taxes on their citizens to pay for military expenses and
other public services. Taxation evolved significantly as empires expanded and
civilizations become more structured. The earliest and solid societies of the Greeks,
Egyptians and Romans also enforced tax regulations that their government used to fund
their highly centralized form of governance. The Greeks utilized several types of taxes
that are still enforced in many developed countries, including taxes on property and
goods. Unlike early Greek taxation, the Roman policies began to weigh heavily on its
citizens as the power and corruption of the empire’s central government grew which is
a very dominant theme of the social class struggles present in almost all kinds of
human societies regardless of what geographical context it is set in. These taxes often
funded military operations for wars and territorial security and the fiscal machineries of
governments and monarchies to sustain their rule and their sovereignty which is very
much similar to our presently embraced practice on tax levying.

Early taxation was not limited to European and Mediterranean civilizations,

ancient Chinese societies also levied taxes on their citizens. The Chinese instituted a
form of property tax around 600 B.C. that required 10 percent of cultivated land to be
dedicated to the central government. All produce generated from the dedicated portion
of land was taken as a tax. With this perspective, it is ideal for more researches and
studies on taxations of the many lesser civilizations especially in Asia and Africa for the
academe to avoid an extreme “Western-leaning” view on the earliest origins of taxation.
Although it can be safe to say that the western countries of the world in North America
and Europe have very much set the benchmark for such, it should not always function
that way across all the natures of the sciences – especially global history. With that in
mind, the grand narrative of taxation in world history should be adjusted to the more
specific local histories of each country to assert which one should be the safest and
most reputable origin of taxation. We assert the possibility of the existence of taxation
without the existence of a government that levies it on the grounds given that taxation
is not always contextualized as a fee across the many cultures of the world. Although
the basic purpose of taxation in the current time is an obligatory due by the citizens for
the generation of internal revenue by their respective states, it signifies an unwritten
moral duty of a member of society to contribute to its growth and development.

Taxation in the Philippines has also had its growth and radical spur over the
course of its history. During the pre-colonial period estimated from 900 BC to 1521, our
ancestors were already civilized. They had their formal structure of government suited
to the local practices. The datus acted as the executive, legislative, and judicial
branches of the government. The natives offered taxes in exchange of protection by the
datus. The Timawas, neither datus or slaves, were the primary taxpayers during this
time. Slaves or oripuns did not likely pay taxes as they had no right to own properties.
These taxes were often recorded and authenticated by local elders and scribes to
ensure that the negligence of paying tax was properly punished by the datu.

During the Spanish occupation, the colonial government imposed the Polo Y
Servicio, Bandala system, and the Encomienda System. The Polo Y Servicio, or
translated in english as forced labor speaks for itself. It is a service of 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). The Bandala system required local farmers to
sell their crops and raw materials to the government at a much cheaper price and were
often unpaid. This policy also pushed for monocropping in many cities and towns in the
country and as a result, damaged the fertile land and constrained the citizens in
accessing various crops and products they needed. Also collected were the “mandala” ,
a round stack of rice stalks to be threshed), an annual enforced sale and requisitioning
of goods such as rice. The Encomienda system was introduced in compliance with the
decree issued by King Philip II in 1558, distributed lands in Cebu to loyal Spanish
subjects. The encomienda was not actually a land grant but was a favor from the kind
under which the Spaniard receiving his favor was given the right to collect tributes–or
taxes–from the inhabitants of the area assigned to him. The man who received this
favor was called an encomendero. The encomienda was, therefore, a public office and
was tasked in protecting the natives in their area. By 1884, the tribute was replaced by
the Cedula personal, wherein colonists were required to pay for personal identification.
Everyone over the age of 18 was obliged to pay. During the 17th and 18th centuries,
The Spanish imposed taxes that were collected from the inhabitants varied from tribute
or head tax of one gold maiz annually; tax on value of jewelries and gold trinkets;
indirect taxes on tobacco, wine, cockpits, burlas and powder. From 1521 to 1821, the
Spanish treasury had to subsidize the Philippines in the amount of P 250,000.00 per
annum due to the poor financial condition of the country, which can be primarily
attributed to the poor revenue collection system. The nature of these tax policies could
be a quintessential perspective in coining the Philippine revolution of 1896 as an
agricultural revolution of the Filipino peasants against the oppressive and exploitive rule
of the Spanish colonial government.
 Upon the arrival of the Americans, they reimposed the cedula when
Commonwealth Act No. 465 went into effect. This resulted in the mandate that 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. Corporations were also subject to the
residence tax. During the term of second civil governor Luke E. Wrigh, the Bureau of
Internal Revenue (BIR) was created through the passage of Reorganization Act No.
1189 dated July 2, 1904. The first organization started with 69 employees, which
consisted of a Collector, Vice-Collector, one Chief Clerk, one Law Clerk, one Records
Clerk and three (3) Division Chiefs. At the outbreak of World War II, the Bureau was
combined with the Customs Office and was headed by a Director of Customs and
Internal Revenue.

Through many changes occurred with tax laws in the Philippines during the
second half of the 20th century, the taxation in the country became more accustomed to
the radical and political challenges it was facing. Tax research was introduced to further
rationalize the fiscal policies on taxation policies. Tax research in the Philippines was
institutionalized with the enactment of Republic Act (RA) No. 2211 (May 15, 1959)
creating the Joint Legislative Executive Tax Commission (JLETC). Providing technical
support to the Commission Proper was a Technical Staff which was formally organized
on April 1, 1960. When martial law was declared in 1972, the commission proper of the
JLETC was dissolved. Recognizing, however, the vital role of a tax research institution in
the overall economic development thrust of the New Society, then President Ferdinand
E. Marcos, through the recommendation of the Presidential Reorganization Committee,
decreed the conversion of the JLETC’s Technical Staff to the National Tax Research
Center (NTRC). On December 6, 1972, by virtue of Presidential Decree 74, the NTRC
was organized as a purely single-headed agency under the administrative supervision of
the National Economic and Development Authority (NEDA). More than a decade after,
in another wave of government reorganization brought by the ascendancy of Ms.
Corazon Aquino to the presidency in 1986, the NTRC was made an attached agency of
the Department of Finance (DOF) by virtue of Executive Order No. 127 (January 30,
1987).

In the present acceptable context, taxation in the Philippines means laying a tax
through which the government generates income to defray its expenses. It is a means
by the government in generating internal revenue to finance its resources and services
for the continuous and efficient growth of the state and its people through the projects
it would initiate. Economic investments and businesses in the Philippines have created
several definitions of taxation enforced by national and local laws for income collection
and development of the nation. It may be an enforced contribution, but it is always
proportionate to the citizen’s ability to pay. For example, those of the lowest income
bracket, they can request for a certificate of indigency from their barangay or local
government unit that can be submitted to the BIR for a certificate of tax exemption.
This document may allow them to seek special services from government agencies that
could lead to employment and skills development.

Article VI, Section 28 of the 1986 Constitution states that “the rule of taxation
shall be uniform and equitable” and that “Congress shall evolve a progressive system of
taxation. With thus, the present Philippine taxation is divided into two: national and
local. The provisions of these taxes are respectively based on Republic Act 8424 or the
National Internal Revenue Code of 1997 for national taxes and the Republic Act 7160 or
the Local Government Code of 1991 for local taxes. The taxes imposed by the national
government of the Philippines include, but are not limited to: income tax, estate tax, donor’s
tax, value-added tax, percentage tax, excise tax, and documentary stamp tax. Local
taxes are enforced by local government units such as provinces, cities, municipalities,
and barangays. These include but are not limited to: professional tax, amusement tax,
business tax, tax on transfer of real property ownership, tax on printing and publication,
franchise tax, and community tax.

An emergent topic for discussion on the context of Philippine taxation has

manifested in the controversial Tax Reform for Acceleration and Inclusion (TRAIN) law.
The first package of the Tax Reform for Acceleration and Inclusion (“TRAIN”), or
Republic Act No. 10963, was enacted into law in December 2017 and became effective
on January 1, 2018. It is the first part of the comprehensive tax reform program (CTRP)
envisioned by President Duterte’s administration, which seeks to to correct a number of
deficiencies in the tax system to make it simpler, fairer, and more efficient. It also
includes mitigating measures that are designed to redistribute some of the gains to the
poor. Through TRAIN, every Filipino contributes in funding more infrastructure and
social services to eradicate extreme poverty and reduce inequality towards prosperity
for all. TRAIN addresses several weaknesses of the current tax system by lowering and
simplifying personal income taxes, simplifying estate and donor’s taxes, expanding the
value-added tax (VAT) base, adjusting oil and automobile excise taxes, and introducing
excise tax on sugar-sweetened beverages. A tax amnesty is also being proposed and is
expected to accompany the tax reform program, with a view to further enhancing
revenue collection. The current tax amnesty bill proposed by the Department of Finance
covers both estate tax and a general tax amnesty. It also proposes a tax amnesty on
delinquencies or final assessments.
 With the emergence of these issues and the estimated implementation the
TRAIN 2 fast approaching, many Filipinos have come to criticize and correlate the
TRAIN law with the unusual abnormality of the rise of inflation rates during the course
of 2018. The TRAIN introduced amendments to personal income taxation, transfer
taxes, value-added tax, excise tax, taxation of sale of shares of stocks, and
documentary stamp tax, among others. We can speculate that the sudden adjustments
to taxation may have adversely affected the economic stability of the Philippines by its
suggestive and radical integration. As a known fact to everyone, the debt of the country
still exceeds its annual capacity to pay and that may be associated to the inflation
afflicting us up until now as a potential factor when cornered with the TRAIN law.

Another popular scapegoat for the current inflation is the implementation of the
K-12 Curriculum and the Free Tertiary Education. These have adjusted the fiscal
management of the annual appropriations act in the recent years and have been the
center of many heated debates. Up until now, many question the effectiveness and the
“long-term investment” the mentioned educational policies have on the economy of the
Philippines. All these and many more are just a few of the issues that show how
taxation by and of itself can shape society and public opinion. The rich and the poor
react differently towards these policies and it is within that perspective where the rift
between the elites and the marginalized are widened. Through our simple yet
meaningful analysis and synthesis on taxation, the group strongly wishes to continue
observing closely how taxation and the public opinion towards the government and
future administrations contribute to the growth and development of the Republic of the
Philippines.