Republic of the Philippines

DAVAO DEL SUR STATE COLLEGE

Matti, Digos City, Davao del Sur
ESSC 123 TEACHING SOCIAL STUDIES IN ELEMENTARY GRADE
TAXATION
Prepared by: Prof. Ariel C. Balio Jr., LPT

I. What is “Taxation”?
- Refers to compulsory or conceive money collection by a levying
authority, usually a government.
- Is a means by which government finance their expenditure by
imposing charges on citizens and corporate entities.
- Refers to the practice of a government collecting money from
its citizens to pay for public services.

II. Philippine Taxation

- According to the Department of finance, Republic of the Philippines,
taxes are mandatory contributions of everyone to raise
revenue for nation-building.
- The government collects taxes to provide basic services such as
education, health, infrastructure, and other social services.
- Taxes are used to pay for our doctors, teachers, soldiers and
other government personnel and officials. These are also used
to build schools, hospitals, roads and industrial and
agricultural facilities. Part of taxes get directly transferred to the
poorest such as 4Ps, pension to qualified senior citizens,
allowance for PWDs, PhilHealth and etc.
- We all pay taxes, either directly or indirectly. We pay taxes
according to our income and level of consumption.

III. Legal Basis of Taxation

a. Constitution
- Article VI, Section 28 of the Constitution states that “the rule of
taxation shall be uniform and equitable” and that “Congress
shall involve a progressive system of taxation”

b. National Law
1. National Internal Revenue Code – enacted as Republic Act.
No 8424 or the Tax Reform Act of 1997
 2. Subsequently amended by Republic by Republic Act No.
10963 or the Tax Reform for Acceleration and Inclusion Act
of 2017
3. Republic Act No. 7160 or the Local Government Code of
1991, and those sourced from the proceeds collected by virtue
of a local ordinance.

Taxes imposed at the national level are collected by the Bureau

of Internal Revenue (BIR), while those imposed at the local level like
provincial, city, municipal, barangay are collected by a local
treasurer’s office.

The power and duties of Bureau of Internal Revenues are:

1. Reduction and collection of all internal revenue taxes, fees and

charges; and
2. Enforcement of all forfeitures, penalties and fines connected
therewith, including the execution of judgements in all cases
decided in its favor by the Court of Tax Appeals and the ordinary
courts;
3. It shall also give effect to the administer supervisory and police
powers conferred to it by the National Internal Revenue Code
and special laws.

IV. Classification of Tax System

1. Progressive Income Tax – the higher the income the higher the
tax rate. (Philippines)
2. Proportional Tax – the tax rate is constant and unaffected by the
level of income.
3. Regressive Tax – the higher the income the lower the tax.

V. Characteristics of a Sound Tax System

1. Adequacy – the taxes should be just enough to generate
revenue required for provision of essential public services like
health, education and national defense and police protection.
2. Efficiency – must generated revenue greater than the amount of
money the government must spend to collect taxes.
3. Equity – individual and groups belonging to the same bracket
must be taxed equally while belonging to different income
groups must be taxed differently.
4. Convenience – to set up measures and procedures that will make
it more convenient for taxpayers to pay.
 5. Neutrality – taxes should not favor any one group or sector over
another, and should not be designed to interfere with or
influence individual decision making.

VI.Kinds of Taxes

1. Direct Taxes – those that are paid from your income and
properties. Example; personal and corporate income taxes,
property and capital taxes.
2. Indirect Taxes – collected based on consumption. Example;
excise taxes, VAT, percentage tax, and documentary stamp tax
(DST)

A. Direct Taxes
1. Income Tax – based on the ability-to-pay principle wherein people
with higher income should pay more.
1.1 Compensation Income – salaries, wages, taxable bonuses,
fringe benefits, and other allowances
1.2 Business Income – practice of profession, trades, gains
from sale of assets and other income not covered by
compensation.
1.3 Passive Income – Tax on deposits, royalties, and dividends

Compensation and self-employment income

- Individuals earning compensation income are taxed based only on
the income tax schedule for individuals. On the other hand, self-
employed individuals and professionals are taxed based on the
income tax.

Income Tax Schedule for Individuals effective SY 2018 until SY

2022
Annual taxable income Tax to pay
Over But not Over
P0 P250,000 0%
P250,000 P400,000 20% of the excess over
P250,000
P400,000 P800,000 P30,000 + 25% of the excess
over P400,000
P800,000 P2,000,000 P130,000 + 30% of the excess
over P800,000
P2,000,000 P8,000,000 P490,000 + 32% of the excess
over P2,000,000
P8,000,000 P2,410,000 + 35% of the
excess over P8,000,000
Interest, royalties, prizes and other winnings
- Interest income from bank deposits, deposit substitutes, trust
funds, and other similar products (except for its long-term variants)
is taxed at the rate of 20%.
- Royalties excepts books, literacy works and musical compositions,
are taxed at the rate of 10%.
- Prizes and winnings from Philippine Charity Sweepstakes
Office (PCSO) Lotto in the excess of 10,000 are taxed the rate of
20%.
- Interest Income from a depository bank under the expanded
foreign currency deposit system is taxed at the rate of 15%.
- Income from long-term deposits and investment , when pre-
terminated in less than three years after making such deposit or
investment is taxed at the rate of 20%; less than four years, 12%;
and less than five years, 5%.

Dividends
- Cash and property dividends are taxed at the rate of 10%.

Capital Gains
- Capital gains from the sale or shared of stock not traded in
stock exchange are taxed at the rate of 15%.
- Capital gains from the sale or real property are taxed at the rate
of 6%, except when such proceeds would be used to construct a
new property within eighteen months after the sale had occurred.

Income tax for corporations

- The income tax rate for corporations is 30%.

B. Indirect Taxes
1. Consumption Taxes – based on the amount of goods and
services utilized such that the more you consume, the higher
the tax you pay.
1.1 Value- Added Tax – a type of indirect tax imposed on goods
and services. The VAT rate since 2006 is 12%.
1.2 Percentage Tax – a business tax imposed on persons or
entities/transaction; who sell or lease goods, properties or
services in the course of trade or business.
1.3 Excise Tax – an indirect tax on selected goods that have
negative externalities and are non-essentials. Example; Sin
products (alcohol and tobacco), petroleum, miscellaneous
articles (automobile, jewelry, perfume, and toilet waters, yachts,
 and other vessels intended for pleasure or sports), and mineral
products.

Excise tax can be;

a. Specific – based on weight, volume capacity, or any
physical unit of measurement.
b. Ad valorem (literally meaning “according to the value”) is
based on selling price or other specified value. This is a
measure to discourage too much consumption of scarce
resources and limit the bad effects of some products.

C. National Taxes
- Taxes are imposed by the national government of the
Philippines like Income tax (compensation, business, passive),
Estate tax, Donor’s tax, Value Added Tax, Percentage tax, Excise
Tax, Documentary Stamp Tax.

D. Local Taxes
- One of the main sources of revenues of the local government
units is the real property tax, which is a tax imposed on all
imposed on all types of real properties including lands,
buildings, improvements, and machinery. Another source of
revenue is local ordinance such as parking fees.

Brief History of Philippine Taxation

Spanish Era
17th and 18th centuries
 - The Contador de’ Resultas served as the Chief Royal Accountant
whose functions were similar to the Commissioner of Internal
Revenue today.
- 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

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. (Wikipedia, 2018)

American Era
1898 to 1901
- The country was ruled by American military governors.

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 in July 2, 1904.

August 1, 1904
- The BIR was formally organized and made operational under the
Secretary of Finance, Henry Ide (author of Internal Revenue Law
of 1904), with John S. Hord as the first collector.
- The second American Collector was Ellis Cromwell (1909-1912)
- The third American collector was William T. Holting (1909-
1912). During his term, collections by the Real Estate and
License Divisions were confined to revenue accruing to the City
of Manila.
- The fourth American collector was James J. Rafferty (1914-
1918)
- 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).

1937
 - The Secretary of Finance reorganized the Provincial Inspection
Districts and maintained in each province an Internal Revenue
office supervised by a Provincial Agent. (Wikipedia, 2018)

Japanese Era
1942-1945
- The Bureau was combined with the Customs Office and was
headed by a Director of Customs and Internal Revenue.

Post-war Era
July 04, 1946
- when the Philippines gained its independence from the United
State, the Bureau was eventually re-established separately. The
country was divided into 31 inspection units, each of which was
under a Provincial Revenue Agent and City Revenue Agent in
distilleries and tobacco factories.

1951
- the withholding tax system was adopted by 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.

1954 to 1957
- major reorganizations took place in the Bureau which created
various offices, including the setting up of regional offices in Cebu
and Davao in 1955.

January 1957
- the position title of the head of the Bureau was changed from
Collector to Commissioner. The last Collector and the
Commissioner of the BIR was Jose Aranas.

1958
- Tax Census Division was established 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

- The Reward Law (RA No. 233) was passed to strictly enforce the
payment of taxes and to further discourage tax evasion,
whereby informers were rewarded the 25% equivalent of the
revenue collected from the tax evader.
 1964
- The Philippines was sub-divided again 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
- Commissioner Misael Vera implemented the “Blue Master
Program” to curb the abuses of both the taxpayers and BIR
personnel; and the “Voluntary Tax Compliance Program” to
encourage professionals in the private and government
sectors to report their income and to pay the correct amount of
taxes.

1970
- Each taxpayer was provided with a permanent Tax Account
Number (TAN) which resulted into faster verification of tax records.
- During Martial Law years, several tax amnesty decrees were
issued by the President to enable erring taxpayers to start anew.

1976
- The Bureau’s National Office was transferred from the Finance
Building in Manila to its own building in Quezon City.

1977
- President Marcos promulgated the National Internal Revenue
Code of 1977, which updated the 1934 Tax Code.

1980
- Commissioner Ruben Achenta further reorganized the Bureau.

Aquino Administration
February 1986
- After the EDSA Revolution, “Operation: Walang Lagay” was
launched to promote the efficient and honest collection of
taxes.

January 30, 1987

- Commissioner Beinvenido Tan, Jr reorganized the Bureau.

1988
 - The value-added tax (VAT) was introduced.
- The adoption of the VAT system was one of the structural reforms
provided for in the 1986 Tax Reform Program.

1989
- Commissioner Jose Ong improved tax collection and simplified
tax administration.
- The Tax Account Number (TAN) was replaced by the Taxpayer
Identification Number (TIN) and adopted the New Payment
Control System and Simplified Net Income Taxation Scheme.

Ramos Administration
1993
- Commissioner Liwayway Vinzons-Chato implemented the
Action- Centered Transformation Program (ACTS) to realign and
direct the entire organization towards the fulfillment of its vision and
mission.

1994
- A five-year Tax Computerization Project (TCP) was undertaken
which involved the establishment of a modern and computerized
Integrated Tax System and Internal Administration System.

July 1997
- The BIR was further streamlined to support the implementation of
the computerized Integrated Tax System.

Estrada Administration
- Commissioner Beethoven Rualo enhanced the voluntary
compliance and implemented the Economic Recovery Assistance
Payment (ERAP) Program.

1999
- The raffle promo “Humingi ng Resibo, Mananlo ng Libo-Libo”
was institutionalized to encourage consumers to demand sales
invoice and receipts.

2000
- Commissioner Dakila Fonacier implemented the full utilization of
tax computerization in the Bureau’s operations
Arroyo Administration
2001
- Commissioner, Atty. Rene G. Bañez implemented changes that
made the tax system simpler and suited to the Philippine culture,
more efficient and transparent.
- He also implemented the Voluntary Assessment Program and
Compromise Settlement Program and expansion of coverage
of the creditable withholding tax system. A technology-based
system that promotes the paperless filing of tax returns and
payment of taxes was also adopted through the Electronic Filing
and Payment System (eFPS)

2002
- Commissioner Guillermo L. Parayno, Jr. offered a Voluntary
Assessment and Abatement Program (VAAP) to taxpayers with
under-declared sales/receipts/income.
- He adopted the Reconciliation of Listings for Enforcement or
RELIEF System to detect under-declarations of taxable income by
taxpayers and the electronic broadcasting system to enhance the
security of tax payments.

2006
- Commissioner Jose Mario C. Buñag expanded the RATE
Program to the Regional Offices; inclusion of new payment
gateways, such as the Efficient Service Machines and the G-Cash
and SMART Money facilities; implementation of the Benchmarking
Method and installation of the Bureau’s e-Complaint System, a new
e-Service that allows taxpayer to log their complaints against erring
revenues through the BIR website.

2007
- The National Program Support for Tax Administration Reforms
(NPSTAR), a program funded by various international development
agencies, was launched to improve BIR efficiency in various areas
tax administration like taxpayer compliance, tax enforcement and
control)
- Commissioner Lilian B. Hefti embarked on data matching on
income payments of withholding agents the reported income of the
concerned recipients.

2008
- Commissioner Sixto S. Esquivas IV closed erring business
establishments under the “Oplan Kandado” Program.
 2009
- Commissioner Joel L. Tan-Torres pursued a high visibility public
awareness campaign on the Bureau’s enforcement and taxpayers’
service programs. He institutionalized several programs to improve
revenue collections.

Aquino Administration
- Under Commissioner Kim S. Jacinto-Henares, the BIR focused
on the filing of tax evasion cases. The BIR was able to collect more
than one-half of the total revenues of the government.

Duterte Administration
- Rodrigo Duterte signed the Republic Act 10963 or the Tax
Reform FOR Inclusion and Acceleration Act of 2017, which
lowered personal income tax rates but increased taxes on certain
goods, leading to a net increase in revenue. This excess revenue
will be used to fund the major expansion in public infrastructure in
the country.
 Activity
How Much Taxes Do you pay the Government?
As a student, you may not be earning your own income yet, and hence not being
taxed; but as consumers, you are paying your taxes to the government of the Philippines.
Compute how much taxes you are paying in the Philippine Government daily, weekly,
monthly and annually by computing your everyday consumption. Get the tax percentages of
Value- Added Tax, Percentage Tax and Excise Tax of the items that you consume or
purchase.

ITEMS DAILY WEEKLY MONTHLY YEARLY`

FOOD
(Meals, Snacks,
etc. including
those taken in
fast food or
restaurant, etc.)
DRINKS
(Soft drinks,
juices, bottled,
drinks, etc.)
CLOTHING
(Shirts, Dress,
Pants, shoes,
rubber shoes,
jackets, etc.)
SCHOOL
SUPPLIES
(pens, papers,
notebooks,
 cartolina,
cardboards,
etc.)
ACCESSORIES
AND
GADGETS
(smartphones,
wristwatches,
jewelries, etc.)
TANSPORT
(gas, fares, etc.)

LIESURE AND
LIFESTYLE
(Movies,
Outing, Haircut,
Hair rebond,
Hair Color,
Massage, etc.)
TOILETERS
(soup,
shampoo,
conditioners,
toothpaste, etc.)
WATER
(Get a VAT
reflected on the
bill and divide
by the members
of your
household)
ELECTRICITY
(Get a VAT
reflected on the
bill and divide
by the members
of your
 household)
TOTAL TAXES