Course Code and Title: GEHS – Readings in Philippine History

Lesson Number: 14

Topic: Social, Political, Economic, and Cultural

Issues in Philippine History

THE TAX SYSTEM AND THE PHILIPPINE

DEVELOPMENT EXPERIENCE

This module analyzes the different social, political, economic, and cultural
issues that the Philippines encountered in the course of obtaining its independence and
developing self-governance. These issues are products of the demands made by
Filipinos throughout history which were given attention by each administration with
hopes of achieving progress and maintaining order. Such issues include the
Constitutions of the Philippines and their implications to development, the Agrarian
Reform Policy and its role in Philippine development, and the tax system and the
Philippine development experience.

Learning Objectives:
At the end of this lesson, you should be able to:
 Analyze economic, political, social, and cultural issues in the Philippines
using the lens of history.
 Identify the nature and importance of taxation to the state.
 Analyze the evolution of Philippine taxation.
 Appreciate the importance of the issues in the Philippine tax system to the
understanding of the grand narrative of Philippine history.
 Manage one’s knowledge, skills, and values for responsible and
productive living.
Pre-Assessment:
Instructions: Choose the letter of the correct/best answer.
___ 1. It is also known as the certificate of subjection.
A. Cedula C. Polo y Servicio
B. Falla D. Tributes
___ 2. Tax on the annual rental value of an urban real estate.
A. Industria C. Urbana
B. Tributes D. Cedula
___ 3. Tax levied on the business community and became a highly complex system
that assigned a certain tax to an industrial or commercial activity according to
their profitability.
A. Industria C. Urbana
B. Tributes D. Cedula
____ 4. The enforced proportional and pecuniary contributions from persons and
property levied by the law-making body of the state having jurisdiction over the
subject of the burden for the support of the government for public needs.
A. Taxes C. Income tax
B. Taxation D. Revenue
____ 5. The power of the State to take private property for public use upon payment of
just compensation.
A. Police Power C. Power of Taxation
B. Power of Eminent Domain D. Martial Law Power

LESSON PRESENTATION:

This module explains the nature of taxation and its basis. It also presents
the evolution of Philippine Taxation, taxation in Spanish Philippines, taxation under the
Americans, and taxation during the Commonwealth period.
 The Tax System and the Philippine
Development Experience.

What is Taxation?

TAXATION is the inherent power of the sovereign

exercised through the legislature to impose
burdens upon subjects and objects within its
jurisdiction for the purpose of raising revenues to
carry out the legitimate objects of government.

TAXATION is the power vested in the legislature to

impose burdens or charges upon persons and
property for the purpose of raising revenue for
public purposes.

Evolution of Philippine Taxation

Taxation, as a government mechanism to raise funds, developed and
evolved through time, and in the context of the Philippines, we must understand that it
came with our colonial experience. Taxation is a reality that all citizens must contend
with for the primary reason that governments raise revenue from the people they govern
to be able to function fully. In exchange for the taxes that people pay, the government
promises to improve the citizens’ lives through good governance.

Taxation in Spanish Philippines

The Philippines may have abundant natural resources even before the
encroachment of the Spaniards, but our ancestors were mainly involved in a
subsistence economy, and while the payment of tribute or taxes (buhis/buwis/handug)
or the obligation to provide labor services to the
datus in some early Filipino communities in the
Philippines may resemble taxation.
 The arrival of the Spaniards altered this subsistence system because they
imposed the payment of tributos (tributes) from the Filipinos, similar to what had been
practices in all colonies in America. The difficulty faced by the Spaniards in revenue
collection through the tribute was the dispersed nature of the settlements, which they
solved by introducing the system of reduccion by creating pueblos, where Filipinos
were gathered and awarded plots of land to till. Later on, the settlements will be handled
by encomenderos who received rewards from the Spanish crown for their services.
Exempted from payment of tributos were the principals, alcaldes, gobernadores,
cabezas de barangay, soldiers, members of the civil guard, government officials,
and vagrants.
  Towards the end of the sixteenth century,
the Manila-Acapulco trade was established
through the galleons. This improved the economy
of the Philippines and reinforced the control of the
Spaniards all over the country. Tax collection was
still very poor and subsidy from Spain would be
needed through the situado real delivered from the
Mexican treasury to the Philippines through the
galleons. This subsidy stopped as Mexico became
independent in 1820.
  In 1884, the payment of tribute was
put to a stop and was replaces by a poll tax collected
through a certificate of identification called
the cedula personal. This is required from every
resident and must be carried while traveling. Unlike
the tribute, the payment of cedulas is by a person,
not by family. The payment of the cedula is
progressive and according to income categories.
This system, however, was a heavy burden for the
peasants and was easy for the wealthy. But because
of this, revenue collection greatly increased and became the main source of
government income.  
              Two direct taxes were added in 1887 and imposed on urban income. Urbana is
a tax on the annual rental value of an urban real estate and industria is a tax on
salaries, dividends, and profits. These taxes were universal and affected all kinds of
economic activity except agriculture, which was exempt to encourage growth. Indirect
taxes such as customs duties were imposed on exports and imports to further raise
revenue. There were no excise taxes collected by the Spaniards throughout the years of
colonialism.
 The colonial government also
gained income from monopolies, such as the
sale of stamped paper, manufacture and sale of
liquor, cockpits, and opium. Forced labor was a
character of Spanish colonial taxation in the
Philippines and was required from the Filipinos.
This changed later on, as polos and
servicios became lighter, and was organized at
the municipal level. Labor provided was used in
public works, such as the building of roads and
bridges. Males were required to provide labor for 40 days a year (reduced to 15 days a
year in 1884). They may opt-out by paying the fallas of three pesos per annum, which
was usually lost to corruption because it was collected at the municipal level and were
known as caidas or droppings. 
              Taxation in the Philippines during the Spanish colonial period was
characterized by the heavy burden placed on the Filipinos, and the corruption of the
principals, or the former datus and local elites who were co-opted by the Spaniards to
subjugate and control the natives on their behalf.

Taxation under the Americans

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 the coinage of money. Later on, Urbana would be replaced
by a tax on real estate, which became known as the land tax. The land tax was levied
on both urban and rural estates. The problem with land tax was that 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) licensed 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) taxes on business and
manufacturing, and (10) occupational licenses. 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 the business community and became a highly complex system that assigned
a certain tax to an industrial or commercial activity according to their profitability.
In 1913, the Underwood-Simmons Tariff
Act was passed, resulting in a reduction in the
revenue of the government as export taxes levied
on sugar, tobacco, hemp, and copra were lifted.
New sources of taxes were introduced later on. In
1914, an income tax was introduced; in 1919, an
inheritance was created; and in 1932, a national lottery was established to create more
revenue for the government.

Taxation during the Commonwealth period

New measures and legislation were
introduced to make the taxation system appear
more equitable during the Commonwealth. Income
tax rates were increased in 1936, adding a surtax
rate on individual net incomes over10,000. Pesos.
Income tax rates of corporations were also
increased. In 1937, the cedula tax was abolished,
which appeared to be a progressive move; but in
1940, a residence tax was imposed 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 in the new tax system, as follows:
 The normal tax of three percent and the surtax on income was replaced by a
single tax at a progressive rate.
 Personal exemptions were reduced.
 Corporation income tax was slightly increased by introducing taxes on inherited
estates or gifts.
 The cumulative sales tax was replaced by a single turnover tax of 10% on
luxuries.
 Taxes on liquors, cigarettes, forestry products, and mining were increased.
 Dividends were made taxable.
The introduced tax structure was an improvement of the earlier system introduced by
the Americans but remained inequitable. Finally, a common character of taxation during
the American occupation in the Philippines 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 11 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 11 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.

SUMMARY:
Before the arrival of the Spaniards in the Philippines and the
establishment of formal communities, taxation has been considered among the primary
purposes of leadership and governance. The datu or the local chieftain imposed tributes
to his subordinates in return for protection to be accorded by his men.
During the Spanish colonial period, the system of collecting taxes
became more institutionalized because the natives were regarded as conquered people
and were required to pay tributes to enrich the royal exchequer and the officers who
accomplished the conquest. Authority to collect taxes was vested on the Cabeza de
barangay. Tax rates were fixed or based on percentages to ensure that a certain potion
would go to the Spanish crown. This gave the Cabeza de barangay power to charge
more than what was needed.
The Americans followed the Spanish system of taxation with some
modifications, they passed the Internal Revenue Law of 1904 as a reaction to the
problems of collecting land tax. In 1939, the Commonwealth government drafted the
National Internal Revenue Code, introducing major changes in the tax system.
Online Supplementary Materials (Video Clip)
Brief History of Taxation in the Philippines
https://www.youtube.com/watch?v=g9SMUffH0_g

ACTIVITY/EVALUATION:
Activity 14. 1a
Instructions: Graphic Organizer: Compare and contrast taxation under Spanish and
taxation under Americans. (10 points)
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ASSIGNMENT: 14
Instructions: The Philippines was once considered “the sick man of Asia,” as it lagged
behind its neighbors which previously comprised its trail. Using the provided readings as
background, submit a synthesis paper analyzing the root cause of the
underdevelopment of the Philippines as a nation. Make sure to consider the
relationships between the issues of agrarian reform and taxation.

GRADING RUBRIC:
For a ten-point essay:
9 –10 Used many details thoroughly and expertly; applied integrated concepts;
made connections between facts and ideas.
7–8 Used many details to illustrate the topic; clearly understood the topic well.
5–6 Used some details to illustrate the topic; understood topic
3–4 Used one or two details, alluded to details vaguely; followed directions, had a
basic knowledge of the topic.
1–2 Used no historical details, made factual errors; thinking not justified, no evidence
that knowledge was acquired.
0– No attempt to answer the question was made.

References
Candelaria, J., & Alporha V. (2018). Readings in Philippine History. Manila: Rex Book
Store, Inc.
Asuncion, N. et al. ((2019). Readings in Philippine History. Quezon City: C & E
Publishing, Inc.