Butad, Hazel Anne

Cabrera,Dafhny

Taxation in the Philippines

The word ‘tax’ first appeared in the English language only in the 14th century. It derives from the
Latin taxarewhich means ‘to assess’. Before that, English used the related word ‘task’, derived from Old
French. For a while, ‘task’ and ‘tax’ were both in common use, the first requiring labour, the second money.
‘Tax’ then developed its meaning to imply something wearisome or challenging. So words like ‘duty’ were
used to suggest a more appealing purpose. Political spin has just as long a history as taxation, and neither
has been detained unduly by the meaning of words.

INTRO: (PHILIPPINES)
Long before the arrival of the Spaniards, ancient Filipinos were living in scattered barangays and
ruled by different chiefs. Although, they were living in separately, they were similar in many ways, their
religion, mode of dressing, houses and system of government and economic activities.

PRE COLONIAL PERIOD

Ancient Filipinos started the practice of paying taxes. The purpose of paying taxes was simple, it was
for the protection they received from the datu. The collected tax was called buwis. The chief’s family
members were exempted of paying taxes. Non-payment of taxes was already punishable during this period.
The tribute (buwis) Is the tax or rent given to the landlord a resident is under. It may be in cash or in kind
(tobacco, chicken, gold, blankets, cotton, etc). Also collected was the bandala, an annual enforced sale and
requisitioning of goods such as rice. Custom duties and income tax were also collected.

SPANISH PERIOD
On April 27, 1565, Spanish troops invaded archipelago and attacked the defiant Tupas,son of
Humabon. And he was defeated by the Spanish troops. After his defeat and effectively placing the
Philippines uder Spain.
The Spaniards implemented economic programs which are mainly about land ownership and taxes.
The programs are encomienda, hacienda, imposition of different kinds of taxes, galleon trade, monopoly
and polo y servicios.

ENCOMIENDA – Is a land ownership system with the use of titulo as proof of ownership. These are the
lands given by the King of Spain to its soldier who joined the military expeditions. The landlords called
Encomendero. They are the ones who collect the taxes or rent from the residents of their land. It his
obligation to protect the residents from any danger or threat like bandits and invaders.

POLO Y SERVICIO (FORCED LABOR) – is the forced labor of men ranging from 16 to 60 years of age who were
obligated to give personal services to community projects
GALLEON TRADE – was the source of income for the colony during its early years. Brought silver from New
Spain and silk from China by way of Manila. This way, the Phils. earned its income through buy and sell.
By 1884, the tribute was replaced by the Cedula personal, wherein colonists were required to pay
personal identification. The local gobernadorcillo had been responsible for collection of the tribute.
However, taxpayers were individually responsible to Spanish authorities for payment of the tax, and were
subject to summary arrest for failure to show a cedula receipt.

CEDULA
The cedulas were issued on the basis of a padrdn prepared by the cabezas de Barangay and drawn
up in practically the same manner as the padr6n for the tribute, the required information being collected on
schedules (hojas, literally, "1 leaflets ") filled out by the heads of households, giving the name and income of
every person over eighteen years of age in the household. The padrdn was made in triplicate: one copy for
the cabeza, one for the gobernadorcillo and one for the treasury department (administraci6n de hacienda
publica). The heads of all institu- tions - monasteries, convents, prisons, etc. - who had persons entitled to
c6dulas gratis under their charge prepared a special padr6n; but any person not entered in the padrdn
might pur- chase a cldula, if he so desired

AMERICAN PERIOD
Insert pages 3-11

PRESENT PERIOD
Income of residents in Philippines is taxed progressively up to 32%. Resident citizens are taxed on all
their net income derived from sources within and without the Philippines. For nonresident, whether an
individual or not of the Philippines, is taxable only on income derived from sources within the Philippines.

The above rates apply to individuals who derive income from business (including capital gains from
the sale transfer or exchange of shares in a foreign corporation) or from the practice of a profession.

Income in Philippines is divided into the following three categories which are taxed separately, as
summarized below.

1. Compensation employment income: This income is taxed at progressive rates on gross income after
deduction of personal and additional exemptions but without deductions for expenses.

2. Passive income: This income, including dividends and interest, is subject to tax at 7.5%.

3. Business income and professional income: This income is taxed at progressive rates on net business
income after deduction of certain specified expenses.

https://www.slideshare.net/Kate_JRG/pre-spanish-period-in-the-philippines
 American Period (1898 – 1946)
-The payment of this tax would merit the issue of a residence certificate.
-Corporations were also subject to the residence tax.
-However, persons who are ineligible to pay the residence tax may be issued a certificate
for twenty centavos.
-“Residence Certificate”, is a legal identity document in the Philippines.
-Issued by cities and municipalities to all persons that have reached the age of majority
and upon payment of a community tax,
-It is one of the closest single documents the Philippines has to a national system of
identification.
-A person is required to present a cedula when he or she acknowledges a document
before a notary public
-Takes an oath of office upon election or appointment to a government position; receives a
license, certificate or permit from a public authority; pays a tax or fee; receives money from
a public fund; transacts official business; or receives salary from a person or corporation.
American Period (1898 – 1946)
-During 1973, significant amendments were put into effect following the enactment of the
Local Tax Code, with amendments on the allocation of the residence tax and on who are
covered under it, as well as payment provisions.
-During 1991,Local Tax Code were later subsumed into the Local Government Code. The
residence tax and residence certificate were renamed into the current community tax and
community tax certificate.
American Period (1898 – 1901)

-1902, the first civil government was established under William H. Taft.
-However, it was only during the term of second civil governor Luke E. Wright that the
Bureau of Internal Revenue (BIR) was created through the passage of Reorganization Act
No. 1189 dated July 2, 1904.
-August 1, 1904, the BIR was formally organized and made operational under the
Secretary of Finance, Henry Ide, with John S. Hord as the first Collector (Commissioner).
-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.
-Following the tenure of John S. Hord were three (3) more American collectors, namely:
Ellis Cromwell (1909-1912), William T. Holting (1912-1214) and James J. Rafferty (1914-
1918). They were all appointed by the Governor-General with the approval of the Philippine
Commission and the US President.
-During the term of Collector Holting, the Bureau had its first reorganization on January 1,
1913 with the creation of eight (8) divisions, namely: 1) Accounting, 2) Cash, 3) Clerical, 4)
Inspection, 5) Law, 6) Real Estate, 7) License and 8) Records. Collections by the Real
Estate and License Divisions were confined to revenue accruing to the City of Manila.
-In line with the Filipinization policy of then US President McKinley, Filipino Collectors were
appointed. The first three (3) BIR Collectors were: Wenceslao Trinidad (1918-1922); Juan
Posadas, Jr. (1922-1934) and Alfredo Yatao (1934-1938).
-May 1921, by virtue of Act No. 299, the Real Estate, License and Cash Divisions were
abolished and their functions were transferred to the City of Manila. As a result of this
transfer, the Bureau was left with five (5) divisions, namely:
1) Administrative
2) Law
3) Accounting
4) Income Tax
5) Inspection.
-Thereafter, the Bureau established the following:
1) the Examiner's Division, formerly the Income Tax Examiner's Section which was later
merged with the Income Tax Division and 2) the Secret Service Section, which handled the
detection and surveillance activities but was later abolished on January 1, 1951. Except for
minor changes and the creation of the Miscellaneous Tax Division in 1939, the Bureau's
organization remained the same from 1921 to 1941.
-In 1937, the Secretary of Finance promulgated Regulation No. 95, reorganizing the
Provincial Inspection Districts and maintaining in each province an Internal Revenue Office
supervised by a Provincial Agent.

Japanese regime (1942-1945)

-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.
-1942,The first issue in consisted of denominations of 1, 5, 10 and 50 centavos and 1, 5,
and 10 Pesos.
-1943, The next year brought "replacement notes" of the 1, 5 and 10 Pesos.
-1944, ushered in a 100 Peso note and soon after an inflationary 500 Pesos note. a box of
matches cost more than 100 Mickey Mouse pesos. During January, Inflation plagued the
country with the devaluation of the Japanese money, evidenced by a 60% inflation.
-1945, the Japanese issued a 1,000 Pesos note. This set of new money, which was printed
even before the war, became known in the Philippines as “Mickey Mouse Money” due to its
very low value caused by severe inflation. A kilogram of camote cost around 1000 Mickey
Mouse Money.

CONSTITUTION OF THE REPUBLIC OF THE

PHIL. (Effective During the Japanese
Occupation)
-[CHAN ROBLES VIRTUAL LAW LIBRARY]
under Article 3 : The Legislative
Section 11.
(1) All money collected on any tax levied for a special purpose shall be treated as a special
fund and paid out for such purpose only. If the purpose for which a special fund was
created has been fulfilled or abandoned, the balance, if any, shall be transferred to the
general funds of the government.(Chan R.)
(2) No money shall be paid out of the Treasury except in pursuance of an appropriation
made by law.(Chan R.)
(3) No public money or property shall be appropriated, applied, or used, directly or
indirectly, for the use, benefit, or support of any sect, church, denomination, sectarian
institution, or system of religion, or for the use, benefit, or support of any priest, preacher,
minister, or other religious teacher or dignitary as such, except when such priest, preacher,
minister, or dignitary is assigned to the armed forces or to any penal institution, orphanage,
or leprosarium.(Chan R.)
Section 12.
(1) The rule of taxation shall be uniform.
(2) The National Assembly may, by law, authorize the President, subject to such limitations
and restrictions as it may impose, to fix, within specified limits, tariff rates, import or export
quotas, and tonnage and wharfage duties.
(3) Cemeteries, churches and parsonages or convents appurtenant thereto, and all lands,
buildings and improvements used exclusively for religious, charitable or educational
purposes, shall be exempt from taxation.

Section 13.
In times of war or other national emergency, the National Assembly may by law authorize
the President, for a limited period and subject to such restrictions as it may prescribe, to
promulgate rules and regulations to carry out a declared national policy.
Section 14.
When the National Assembly is not in session, the President may, in cases of urgent
necessity, promulgate rules and ordinances which shall have the force and effect of law
until disapproved by resolution before the end of the next regular session of the National
Assembly.

-During July 23, 1943, The Japanese occupation administration in the Philippine Islands
has imposed a special “war tax” on all Jews, according to a report appearing in the
“Deutsche Beobachter in Asian,” a copy of which was received here today.
-The German report states that “wealthy” Jews, who own real estate and big business
concerns will be forced to surrender (50%)fifty percent of their holdings. Other Jews will be
obliged to pay a tax equivalent to one-third the value of all their possessions.
-The Jews have been given until the end of the year to pay, the publication discloses,
adding that those unable to pay the levy by then will have their possessions sold at auction
to satisfy the tax. (According to the most recent statistics available, there are only about
1,500 Jews in the Philippine Islands, 500 of whom are long-time residents and the other
1,000 refugees who settled there since the Nazis came to power.)
-It was reported that the Japanese had established a ghetto for the Philippine Jews at
Manila, because, they charged, the Jews were aiding the guerrillas.

Post War Era

-July 4, 1946, when the Philippines gained its independence from the United States, the
Bureau was eventually re-established separately.
-October 1, 1947,This led to a reorganization, by virtue of Executive Order No. 94, wherein
the following were undertaken:
1) the Accounting Unit and the Revenue Accounts and Statistical Division were merged
into one;
2) all records in the Records Section under the Administrative Division were consolidated;
3) all legal work were centralized in the Law Division.

-October 23, 1947, Revenue Regulations No. V-2 dated divided the country into 31
inspection units, each of which was under a Provincial Revenue Agent (except in certain
special units which were headed by a City Revenue Agent or supervisors for distilleries
and tobacco factories).
-January 1, 1951, The second major reorganization of the Bureau took place on through
the passage of Executive Order No. 392. Three (3) new departments were created,
namely:
1) Legal,
2) Assessment
3) Collection.
-On the latter part of January of the same year, Memorandum Order No. V-188 created the
Withholding Tax Unit, which was placed under the Income Tax Division of the Assessment
Department. Simultaneously, the implementation of the withholding tax system was
adopted by virtue of Republic Act (RA) 690. This method of collecting income tax upon
receipt of the income resulted to the collection of approximately 25% of the total income tax
collected during the said period.
-March 1, 1954 ,The third major reorganization of the Bureau took effect, through Revenue
Memorandum Order (RMO) No. 41. This led to the creation of the following offices:
1) Specific Tax Division
2) Litigation Section,
3) Processing Section
4) Office of the City Revenue Examiner

-September 1, 1954, a Training Unit was created through RMO No. V-4-47.
-January 1957, the position title of the head of the Bureau was changed from Collector to
Commissioner. The last Collector and the first Commissioner of the BIR was “Jose
Aranas”.
-1958,A significant step undertaken by the Bureau. The establishment of the Tax Census
Division and the corresponding Tax Census Unit for each Regional Office. This was done
to consolidate all statements of assets, incomes and liabilities of all individual and resident
corporations in the Philippines into a National Tax Census.
-June 19, 1959 ,To strictly enforce the payment of taxes and to further discourage tax
evasion, RA No. 233 or the Rewards Law was passed, whereby informers were rewarded
the 25% equivalent of the revenue collected from the tax evader.
-1964, the Philippines was re-divided anew into 15 regions and 72 inspection districts. The
Tobacco Inspection Board and Accountable Forms Committee were also created directly
under the Office of the Commissioner.

Marcos Administration (1965-1986)

-1965,The appointment of Misael Vera as Commissioner led the Bureau. The most notable
programs implemented were the "Blue Master Program" adopted to curb the abuses of
both the taxpayers and BIR personnel and the "Voluntary Tax Compliance Program“ was
designed to encourage professionals in the private and government sectors to report their
true income and to pay the correct amount of taxes
-It was also during Commissioner Vera's administration that the country was further
subdivided into 20 Regional Offices and 90 Revenue District Offices, in addition to the
creation of various offices which included the Internal Audit Department (replacing the
Inspection Department), Administrative Service Department, International Tax Affairs Staff
and Specific Tax Department.
-1976, under Commissioner Efren Plana's administration, the Bureau's National Office
transferred from the Finance Building in Manila to its own 12- storey building in Quezon
City, inaugurated on June 3, 1977.
-Year 1977 that President Marcos promulgated the National Internal Revenue Code of
1977, which updated the 1934 Tax Code.
-August 1, 1980, the Bureau was further reorganized under the administration of
Commissioner Ruben Ancheta. New offices were created and some organizational units
were relocated for the purpose of making the Bureau more responsive to the needs of the
taxpaying public.

Corazon Aquino Administration (1986 – 1992)

-February 1986, After the People's Revolution, a renewed thrust towards an effective tax
administration was pursued by the Bureau. "Operation: Walang Lagay" was launched to
promote the efficient and honest collection of taxes.
-On January 30, 1987, the Bureau was reorganized under the administration of
Commissioner Bienvenido Tan, Jr. pursuant to Executive Order (EO) No. 127. Under the
said EO, two (2) major functional groups headed and supervised by a Deputy
Commissioner were created, and these were: 1) the Assessment and Collection Group; 2)
the Legal and Internal Administration Group.
-1988 , the advent of the value-added tax (VAT) in, a massive campaign program aimed to
promote and encourage compliance with the requirements of the VAT was launched.
-The adoption of the VAT system was one of the structural reforms provided for in the 1986
Tax Reform Program, which was designed to simplify tax administration and make the tax
system more equitable.
-The entry of Commissioner Jose Ong in 1989 saw the advent of the "Tax Administration
Program" which is the embodiment of the Bureau's mission to improve tax collection and
simplify tax administration. The Program contained several tax reform and enhancement
measures, which included the use of the Taxpayer Identification Number (TIN) and the
adoption of the New Payment Control System and Simplified Net Income Taxation
Scheme.

Ramos Administration (1992 – 1998)

-The year 1993 marked the entry into the Bureau of its first lady Commissioner, Liwayway
Vinzons-Chato. In order to attain the Bureau's vision of transformation, a comprehensive
and integrated program known as the ACTS or Action-Centered Transformation Program
was undertaken to realign and direct the entire organization towards the fulfillment of its
vision and mission.
- It was during Commissioner Chato's term that a five-year Tax Computerization Project
(TCP) was undertaken in 1994. This involved the establishment of a modern and
computerized Integrated Tax System and Internal Administration System.
-Further streamlining of the BIR was approved on July 1997 through the passage of EO
No.430, in order to support the implementation of the computerized Integrated Tax System.
Highlights of the said EO included the:
1) creation of a fourth Revenue Group in the BIR, which is the Legal and Enforcement
Group (headed by a Deputy Commissioner)
2) creation of the Internal Affairs Service, Taxpayers Assistance Service, Information
Planning and Quality Service and the Revenue Data Centers.

Estrada Administration (1998 – 2001)

-With the advent of President Estrada's administration, a Deputy Commissioner of the BIR,
Beethoven Rualo, was appointed as Commissioner of Internal Revenue. One of the most
significant reform measures was the implementation of the Economic Recovery Assistance
Payment (ERAP) Program, which granted immunity from audit and investigation to
taxpayers who have paid 20% more than the tax paid in 1997 for income tax, VAT and/or
percentage taxes.
-1999 ,In order to encourage and educate consumers/taxpayers to demand sales invoices
and receipts, the raffle promo "Humingi ng Resibo, Manalo ng Libo-Libo" was
institutionalized. The Large Taxpayers Monitoring System was also established under
Commissioner Rualo's administration to closely monitor the tax compliance of the country's
large taxpayers.
-September 1, 2000, the Large Taxpayers Service (LTS) and the Excise Taxpayers
Service (ETS) were established under EO No. 175 to reinforce the tax administration and
enforcement capabilities of the BIR. Shortly after the establishment of said revenue
services, a new organizational structure was approved on October 31, 2001 under EO No.
306 which resulted in the integration of the functions of the ETS and the LTS.
-In line with the passage of the Electronic Commerce Act of 2000 on June 14, the Bureau
implemented a Full Integrated Tax System (ITS) Rollout Acceleration Program to facilitate
the full utilization of tax computerization in the Bureau's operations. Under the Program,
seven (7) ITS back-end systems were released in stages in RR 8 - Makati City and the
Large Taxpayers Service.

Arroyo Administration (2001 – 2010)

-Following the momentous events of EDSA II in January 2001, newly-installed President
Gloria Macapagal-Arroyo appointed a former Deputy Commissioner, Atty. René G. Bañez,
as the new Commissioner of Internal Revenue.
-Under Commissioner Bañez's administration, the BIR’s thrust was to transform the agency
to make it taxpayer-focused. This was undertaken through the implementation of change
initiatives that were directed to:
1) reform the tax system to make it simpler and suit the Philippine culture
2) reengineer the tax processes to make them simpler, more efficient and transparent
3) restructure the BIR to give it financial and administrative flexibility
4) redesign the human resource policies, systems and procedures to transform the
workforce to be more responsive to taxpayers' needs.
- The conduct of special operations on high profile tax evaders, which resulted to the filing
of tax cases under the Run After Tax Evaders (RATE) Program marked Commissioner
Parayno’s administration as well as the conduct of Tax Compliance Verification Drives and
accreditation and registration of cash register machines and point-of-sale machines. To
improve taxpayer service, the Bureau also established a BIR Contact Center in the
National Office and eLounges in Regional Offices.
-On October 28, 2006, Deputy Commissioner for Legal and Inspection Group, Jose Mario
C. Buñag was appointed as full-fledged Commissioner of Internal Revenue. Under his
administration, the Bureau attained success in a number of key undertakings, which
included the expansion of the RATE Program to the Regional Offices; inclusion of new
payment gateways.

Benigno Aquino III Administration (2010 – 2016)

-Following the highly-acclaimed inauguration of President Benigno C. Aquino III on June
30, 2010, a former BIR Deputy Commissioner, Atty. Kim S. Jacinto Henares, was
appointed as the new Commissioner of Internal Revenue.
-During her first few months in the BIR, Commissioner Henares focused on the filing of tax
evasion cases under the RATE Program, in compliance with the SONA pronouncements of
President Aquino.
Philippine Taxing System
I.1987 Philippine Constitution sets limitations on the exercise of the power to tax. The rule
of taxation shall be uniform and equitable. The Congress shall evolve a progressive system
of taxation. (Article VI, Section 28, paragraph 1)
-All money collected on any tax levied for a special purpose shall be treated as a special
fund and paid out for such purpose only. If the purpose for which a special fund was
created has been fulfilled or abandoned, the balance, if any, shall be transferred to the
general funds of the Government. (Article VI,Section 29, paragraph 3)
-The Congress may, by law, authorize the President to fix within specified limits, and
subject to such limitations and restriction as it may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts within the framework of
the national development program of the Government (Article VI, Section 28, paragraph 2)
-The President shall have the power to veto any particular item or items in an
appropriation, revenue or tariff bill, but the veto shall not affect the item or items to which
he does not object. (Article VI, Section 27, second paragraph)
-The Supreme Court shall have the power to review, revise, reverse, modify or affirm on
appeal or certiorari, as the law or the Rules of Court may provide, final judgments and
orders of lower courts in all cases involving the legality of any tax, impost, assessment, or
toll or any penalty imposed in relation thereto. (Article VIII, Section 5, paragraph)
Sources:
-http://www.bir.gov.ph/index.php/rulings-and-legal-matters/guide-tophilippines-tax-law-
research.html
-http://www.bir.gov.ph/index.php/transparency/bir-history.html
-Barangay (pre-colonial). (n.d.) . In Wikipedia. Retrieved June 5, 2015, from
https://en.wikipedia.org/wiki/Barangay_(pre-colonial)
-Magpoc, K. (2013, May 28). Pre Spanish Period in the Philippines. Retrieved from
http://www.slideshare.net/Kate_JRG/pre-spanish-period-in-the-philippines
-Esteria, P. (2011, November 4). Social Structure of the Lowland Filipinos during Pre-
Hispanic Era and the Maharlika. Retrieved from
-http://kahimyang.info/kauswagan/general-blogs/726/social-structure-of-thelowland-
filipinos-during-prehispanic-era-and-the-maharlika
-Santos, H. (1999, July 28). Literacy in Pre-Hispanic Philippines in A Philippine Leaf.
Retrieved from http://www.bibingka.com/dahon/literacy/literacy.htm
-Japanese Reported to Have Imposed Special “war Taxes” on Jews in Philippines, [1943],
Zurich, The Global Jewish News Source
-http://www.slideshare.net/JRLopezGonzales/taxation-101-basic-rules-andprinciples-in-
philippine-taxation-by-jr-lopez-gonzales-for-msu-iit-politicalscience-seminar

According to most political philosophies, taxes are justified as they fund activities that are necessary and
beneficial to society.