-Taxation under the Americans-

The Americans who acquired the Philippines aimed to make the economy self-sufficient by running the
government with the smallest possible sum of revenue and create surplus in the budget. From 1898 to
1903. the Americans followed the Spanish system of taxation with some modifications, noting that the
system introduced by the Spaniards were outdated and regressive. The military government suspended
the contracts for the sale of opium, lottery, and mint charges for coinage of money. Later on, the urbana
will be replaced by tax on real estate, which became known as the land tax. The land tax was levied on
both urban and rural real estates.

The problem with land tax was that land titling in the rural area was very disorderly, the appraising of
land value was influenced by political and familial factors, and the introduction of a taxation system on
agricultural land faced objections from the landed elite. Tax evasion was prevalent, especially among the
elites. The Internal Revenue Law of 1904 was passed as a reaction to the problems of collecting land tax.
It prescribed ten major sources of revenue: (1) license 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) tax 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 to 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. The industria tax was levied on
business community and became a highly complex system that assigned a certain tax to an industrial or
commercial activity according to their profitability. The new Act also imposed a percentage tax on sales
payable quarterly.

In 1913, the Underwood-Simmons Tariff Act was passed, resulting to a reduction in the revenue
of the government as export taxes levied on sugar, tobacco, hemp, and copra were lifted. To make up
for the loss. then Governor General Francis Burton Harrison urged that tax receipts be mere to make up
for the loss. Minor changes were made to the 1904 Internal Revenue Act such as the imposition of taxes
on mines, petroleum products, and dealers of petroleum products and tobacco.

New sources of taxes were introduced later on. In 1914, an income tax was introduced, in 1919,
an inheritance tax was created, and in 1932 a national lottery was established to create more revenue
for the government However, these new creations were not enough to increase government revenues.

-Taxation during the Commonwealth Period-

New measure and legislation were introduced to make the taxation system appear more
equitable during the Commonwealth. Income taw rates were increased in 1936, adding a surtax rate of
individuals net incomes in excess of 10 000 pesos. Income tax rates of corporation were also increased.
In 1937, the cedula tax was abolished, which appeared to be a progressive move; by in 1940 a residence
tax was impose on every citizen aged 18 years old and on every corporation.
 In 1939, the Commonwealth Government drafted the National Internal Revenue Code,
introducing major changes of the new tax system, as follows:

1. The normal tax of three percent and the surtax on oncome was preplaced by a single tax at a
progressive rate.
2. Personal exemptions were reduced.
3. Corporation income tax was slightly increased by introducing taxes on inherited estates or gifts
donated in the name of dead persons.
4. The cumulative sales tax was replaced by a single turnover tax of 10% on luxuries.
5. Taxes on liquors, cigarettes, forestry products and mining were increased.
6. Dividends were made taxable.

The introduced tax structure was an improvement of the earlier system introduced by the
Americans, but still remained inequitable. The lower class still felt the bulk of the burden of taxation,
while the upper class, the landed elite, the people in political positions, were able to maneuver the
situation that will benefit them more. The agriculture sector was still taxed low to promote growth, but
there was no incentive for industrial investment to take root and develop.

Finally, a common character of taxation during the American occupation in the Philippines was that
it was not used to diversify the economy or direct economic development, as some sectors still carried
the disproportionate share of the tax burden.

As World War II reached the Philippine shores, economic activity was put to a stop. and the
Philippines bowed to a new set of administrators, the Japanese. The Japanese military administration in
the Philippines during World War II immediately continued the system of tax collection introduced
during the Commonwealth, but exempted the articles belonging to the Japanese armed forces. Foreign
trade fell, and the main sources of taxation came from amusements, manufactures, professions, and
business licenses. As the war raged, tax collection was a difficult task, and additional incomes of the
government were derived from the sales of the National Sweepstakes and sale of government bonds.
The expenditure of the Japanese military government grew greatly, and they issued military notes in
order to cover the costs of the war.

-Fiscal Policy from 1946 to present -

The impact of the war on the Philippine economy was effectively disparate, as Manila, the
capital, was razed to the ground while the rest of the Philippines was relatively untouched. But the
highly agriculture-based economy was disrupted. The United States may have declared the Philippines
independent, but, as the country needed rehabilitation funds from the United States, the dependency of
the Philippines to the Americans was an opportunity to be taken advantage by the former colonial
administrators. The economic situation was so problematic that by 1949, there was a severe lack of
funds in many aspects were made to improve tax collection, and the United States advised the adoption
of direct taxation. The administration of President Manuel Roxas declined the proposal because it did
not want to alienate its allies in Congress.
 The impetus for economic growth came during the time of President Elpidio Quirino through the
implementation of import and exchange controls that led to import substitution development. This
policy allowed for the expansion of a viable manufacturing sector that reduced economic dependence
on imports. 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.

While the succeeding presidency of Magsaysay, Garcia, and Macapagal promised o study the tax
structure and policy of the country (through the creation of a Tax Commission in 1959 by means of
Republic Act 2211) to make way for a more robust and efficient tax collection scheme, post-war fiscal
policy remained regressive, characterized by the overburdening of the lowest classes while the landed
elite who held business interest were in Congress to ensure that taxes will not be levied to them who
belong to the higher classes of society. The period of the post-war republic also saw a rise in corruption.
From 1959 to 1968. Congress did not pass any tax legislation despite important changes in the economy,
and the vested interest of Filipino businessmen in Congress will manifest in many instances such as the
rejection of taxes on imports. Indirect taxation still contributes to three-quarters of tax revenues, and
the Omnibus Tax Law of 1969 did not increase the ratio of income tax to general tax revenue. Collection
of taxes remained poor, tax structure is still problematic, and much of public funds were lost to
corruption, which left the government incapable of funding projects geared towards development.

Under the Marcos authoritarian regime, the tax system remained regressive. 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. Tax effort, defined as the ratio between the
share of the actual tax collection in gross domestic product and predictable taxable capacity, was at a
low 10.7%. As Corazon Aquino took the helm of the government after the EDSA Revolution, she
reformed the tax system through the 1986 Tax Reform Program. The aim was to improve the
responsiveness of the tax system, promote equity by ensuring that similarly situated individuals and
firms bear the same tax burden, promote growth by withdrawing or modifying taxes that reduce
incentives to work or produce, and improve tax administration by simplifying the tax system and
promoting tax compliance. A major reform in the tax system introduced under the term of Aquino was
the introduction of the value-added tax (VAT), with the following features:

a. uniform rate of 10% on sale of domestic and imported goods and services and zero percent on
exports and foreign-currency denominated sales;

b. ten (10) percent in lieu of varied rates applicable to fixed taxes (60 nominal rates), advance sales tax,
tax on original sale, subsequent sales tax, compensating tax, miller's tax, contractor's tax, broker's tax,
film lessors and distributor's tax. excise tax on solvents and matches, and excise tax on processed
videotapes:

c. two percent tax on entities with annual sales or receipts of less than P200,000;

d. adoption of tax credit method of calculating tax by subtracting tax on inputs from tax on gross sales;
e. exemption of the sale of basic commodities such as agriculture and marine food products in their
original state, price-regulated petroleum products. and fertilizers; and

f. additional 20% tax on non-essential articles such jewelry, perfumes, toilet waters, yacht and other
vessels for pleasure and sports.

The VAT law was signed in 1986 and put to effect in 1988. While it was a reliable source of
revenue for the government, new tax laws would reduce its reliability, as legislated exemptions grew.

• Lease of residential units with monthly rental per unit of not more than P8,000, subject to
adjustment using CPI

• Sale, importation, printing, or publication of books and any newspaper

The succeeding term of President Joseph Estrada in 1998 was too short to effect any change in
the tax system. His vice president Gloria Macapagal-Arroyo was swept to power through another EDSA
Revolution. As president, she undertook increased government spending without adjusting tax
collections. This resulted to 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. Select professional services were
also taxed. In February 2006, the VAT tax rate was also increased from 10% to 12%.

As President Benign Aquino III succeeded President Arroyo in 2010, he promised that no new
taxes will be imposed, and additional revenue would have to come from adjusting existing taxes. The
administration ventured into the adjustment of excise tax on liquor and cigarettes or the Sin Tax Reform,
motivations for which was primarily fiscal, public health, and social order related considerations.
Republic Act 10351 was passed, and government revenues from alcohol and tobacco excise taxes
increased. Collections from tobacco and alcohol in 2015 made up 1.1% of the Gross Domestic Product,
and the improvement in tax collection resulted to the Philippines receiving a credit rating upgrade into
investment grade status. 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 P5.2 million in
2012 to P15.4 million in 2015).

The administration of the new president Rodrigo Duterte promised tax reform, particularly in
income taxes, as it vowed to lower income tax rates shouldered by working Filipinos. The present
income tax scheme of the country is the second highest in Southeast Asia, and the current laws on
income taxes were outdated, as they were drafted two decades ago. The proposed tax reform also seeks
to limit VAT exemptions and increase excise taxes on petroleum products and automobiles. It is hoped
that reform in the country’s tax policy will result into the much-desired economic development that will
be felt even by the lowest classes in society.

Along with tax reform came the administrative reforms, such as the restructuring of the
Department if Finance and its attached agency, the Bureau of Internal Revenue (BIR) through Executive
Order 127. Tax collection and tax audits were intensified, computation was introducing and corruption
relatively reduced, which improved the trust in the BIR in general. As a result of the tax reform of the
Aquino administration, both tax and revenue effort rose, increasing from 10.7% in 1985 to 15.4% in
1992.

Greater political stability during the administration of Fidel Ramos in 1992 allowed for continued
economic growth. The Ramos administration ventured into its own tax reform program in 1997 through
the Comprehensive Tax Reform Program, which was implemented to (1) make the tax system broad-
based, simple, and with reasonable tax rates; (2) minimize tax avoidance allowed by existing flaws and
loopholes in the system; (3) encourage payments by increasing tax exemptions levels, lowering the high
tax rates, and simplifying procedure; and (4) rationalize the granted tax incentives, which was estimated
to be worth P31.7 billion in 1994.

The VAT base was also broadened in 1997 to include services, through Republic Act 7716. The
features of the improved VAT law were as follows:

a. Restored the VAT exemptions for all cooperatives (agricultural, electric, credit or multi-
purpose, and others provided that the share capital of each member does not exceed P15,
000.
b. Expanded the coverage of the term “simple processes” by including broiling and roasting
effectively narrowing the tax base for focused products.
c. Expanded the coverage of the term “original state” by including molasses
d. Exempted from the VAT are the following:
a. Important of meat
b. Sale or importation of coal and natural gas in whatever form or state
c. Educational services rendered by private educational institutes duly accredited by
the Commission on Higher Education (CHED)
d. House and lot and other residential dwellings valued at Peso **** Million and
below, subject to adjustment using the Consumer Price Index (CPI)
Summary.

Certainly, here are more detailed explanations for 1st-year college students:

**Taxation under the Americans**

- The United States, when it acquired the Philippines, aimed to make the country financially self-
sufficient. They initially followed a tax system inherited from Spanish colonial rule, making some
adjustments.

- They stopped revenue sources like opium sales, lotteries, and mint charges, which were seen as
outdated and regressive.

- The primary source of revenue became a land tax, which applied to both urban and rural real estate.
However, land ownership records in rural areas were disorganized, and political and family influences
affected land valuation.

- Tax evasion was common, particularly among the wealthy elites. To address these issues, the Internal
Revenue Law of 1904 introduced ten significant revenue sources, including taxes on alcohol, tobacco,
and banks.

**Taxation during the Commonwealth Period**

- During the Commonwealth Period, there were efforts to make the tax system fairer. For instance,
income tax rates were increased, and an additional surtax was introduced for high-income individuals.

- The cedula tax, which was a personal tax, was abolished but later replaced by a residence tax.

- In 1939, the National Internal Revenue Code was drafted, which brought significant changes:

1. Replacing the previous income tax structure with a single, progressive tax rate.

2. Reducing personal exemptions.

3. Introducing taxes on inherited estates or gifts related to deceased individuals.

4. Replacing the cumulative sales tax with a 10% turnover tax on luxury goods.

5. Increasing taxes on liquor, cigarettes, forestry products, and mining.

6. Taxing dividends.

- These changes improved the tax structure but didn't completely eliminate inequalities. The lower-
income groups still bore most of the tax burden, while the wealthy and politically connected individuals
found ways to avoid taxes.

- The tax system didn't actively contribute to economic diversification.

- After World War II, the Philippines faced economic disparities, with significant destruction in Manila
and disruptions to its agriculture-based economy.

- Despite the declaration of independence, the Philippines still relied on the United States for financial
assistance.

- Suggestions to reform tax collection methods were made, but political considerations often prevented
their implementation.

- President Quirino introduced import substitution development, which aimed to reduce dependence on
foreign imports by promoting local manufacturing.

- New tax measures, including higher corporate tax rates, led to a significant increase in government
revenues.

- In the post-war years, the Philippines faced issues like regressive taxation, corruption, and poor tax
collection.

- The Marcos regime maintained a regressive tax system, primarily relying on indirect taxes.

- Corazon Aquino introduced the value-added tax (VAT) in 1986 to make the tax system more
responsive, equitable, and efficient. The VAT law underwent changes, leading to both increased revenue
and the introduction of exemptions.

- Subsequent administrations made adjustments to tax laws, with the Sin Tax Reform having a positive
impact on social services.

- President Duterte's administration promised tax reform, particularly in income taxes, as the current
system was outdated and had one of the highest tax rates in Southeast Asia.

- Administrative reforms improved tax collection and reduced corruption, resulting in higher tax and
revenue efforts.
PPT
Certainly, here are some key points and summaries suitable for a PowerPoint presentation on the
history of taxation in the Philippines:

**Title: Evolution of Taxation in the Philippines**

**Slide 1: Introduction**

- Briefly introduce the topic of the evolution of taxation in the Philippines.

- Mention that we'll explore key developments from the American colonial period to the present.

**Slide 2: Taxation under American Colonial Rule (1898-1903)**

- Americans aimed to make the economy self-sufficient.

- They adopted the Spanish tax system with modifications.

- Introduced the land tax but faced challenges due to disorderly land titling.

- Tax evasion was prevalent among the elite.

- Internal Revenue Law of 1904 introduced ten major revenue sources.

**Slide 3: Taxation during the Commonwealth Period (1936-1946)**

- Income tax rates increased with surtax on high incomes.

- The cedula tax was abolished and replaced with a residence tax.

- The National Internal Revenue Code of 1939 introduced significant changes, aiming for a fairer tax
structure.

- Despite improvements, inequalities persisted, and the tax system didn't support economic
diversification.

**Slide 4: Fiscal Policy from 1946 to Present**

- After World War II, the Philippines faced economic disparities.

- Tax collection issues and dependency on the U.S. persisted.

- Import substitution development under President Quirino boosted local manufacturing.

- New tax measures, including higher corporate tax rates, increased government revenues.
- Post-war administrations struggled with regressive taxation and corruption.

**Slide 5: Fiscal Policy from 1946 to Present (Continued)**

- Marcos' regime maintained regressive taxation, primarily relying on indirect taxes.

- President Aquino introduced the value-added tax (VAT) in 1986 for a more responsive and equitable
tax system.

- Subsequent administrations made changes, including the Sin Tax Reform.

- Recent efforts, including President Duterte's tax reform, aim for equity and economic development.

**Slide 6: Summary**

- Summarize the main takeaways from the presentation:

- Taxation in the Philippines has evolved significantly over time.

- Challenges include tax evasion, inequalities, and the need for a more equitable and efficient tax
system.

- Reforms have been introduced to improve tax collection and support economic growth.

**Slide 7: Conclusion**

- Conclude by highlighting the importance of understanding the historical context of taxation in the
Philippines.

- Mention that ongoing tax reforms aim to address current challenges and promote economic
development.

**Slide 8: Questions & Discussion**

- Open the floor for questions and discussion from the audience.

These key points and summaries should form the basis of your PowerPoint presentation, providing a
clear and concise overview of the evolution of taxation in the Philippines for your audience.

Certainly! Here are the meanings of the terms:

- *Meaning:* Refers to a tax system where the tax rate decreases as the amount subject to taxation
increases. In other words, individuals with lower incomes pay a higher percentage of their income in
taxes compared to those with higher incomes.

2. **Urbana:**

- *Meaning:* In the context provided, "urbana" likely refers to a specific type of tax or revenue system
used during the American administration in the Philippines from 1898 to 1903. It was later replaced by a
land tax.

3. **Land Tax:**

- *Meaning:* A tax levied on the value of land. In the historical context, it was introduced in the
Philippines during the American administration as a replacement for the "urbana" tax.

4. **Cedula:**

- *Meaning:* Historically, it referred to a community tax or personal tax imposed on individuals. In the
context of the Philippines, it was subject to changes, such as alterations in rates and modifications to its
application over time.

5. **Underwood-Simmons Tariff Act:**

- *Meaning:* Enacted in 1913, this was a United States federal law that significantly reduced tariffs on
imported goods. In the context of the Philippines, its impact is mentioned in relation to a reduction in
government revenue due to the lifting of export taxes on certain products.

6. **Inheritance Tax:**

- *Meaning:* A tax imposed on the transfer of the estate of a deceased person. In the context
provided, it was introduced in the Philippines in 1919 as part of the tax system during the American
administration.

7. **Inequitable:**
 - *Meaning:* Refers to a lack of fairness or justice in the distribution of resources, opportunities, or
burdens. In the context of taxation, it suggests that the tax system did not distribute the tax burden
fairly among different income groups or economic classes.