EVOLUTION

OF
PHILIPPINE
TAXATION
READINGS IN PHILIPPINE
HISTORY
Table of contents
01 02
Introduction TAXATION IN SPANISH
WHAT IS TAX? PHILIPPINE
SPANISH ERA

03 04
Primary Source: Mariano
TAXATION UNDER THE AMERICANS
Herbosa Writes to Rizal
AMERICAN ERA
About Taxes
PRIMARY SOURCE

05 06
TAXATION DURING THE FISCAL POLICY FROM 1946 TO
COMMONWEALTH PERIOD PRESENT
FISCAL POLICY
COMMONWEALTH
PERIOD
 01
Introduction
WHAT IS TAX?
TAXATION
defined in many ways. Commonly heard
definitions include:
 It is the process by which the
sovereign, through its law-making body, races
revenues use to defray expenses of
government.
 It is a means of government in
increasing its revenue under the authority of
the law, purposely used to promote welfare
and protection of its citizenry.
 It is the collection of the share of
individual and organizational income by a
 Purpose & Significance of Tax

Primary Sources: generates funds or

revenues use to defray expenses incurred
by the government in promoting the
general welfare of its citizenry. Public
expenditure.

Other purposes: to equitably contribute

to the wealth of the nation.
What is the history of tax?

to support the colony, several taxes and monopolies

were established. The “buwis” (tribute), which could
be paid in cash or kind, with tobacco, chickens,
produce, gold, blankets, cotton, rice, or other products
depending on the region of the country.

Also there was a “bandala” (from the Tagalog word

“mandala” , a round stack of rice stalks to be
threshed), an annual forced sale and requisitioning of
goods such as rice.
 TAXATION
Taxation is a reality that all the citizens must contend
with for the primary reason that the government 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, 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.
02
TAXATION IN SPANISH
PHILIPPINE
SPANISH ERA
 The Spanish colonial period introduced
significant changes to the economic
and taxation systems in the Philippines.
Before Spanish colonization, Filipino
communities primarily operated in a
subsistence economy, where buhis
(tribute) or labor services were given
to local leaders, such as datus, as a
form of respect or obligation. However,
Spanish colonization dramatically
altered this system by imposing a
formal taxation structure designed to
support colonial governance and the
clergy.
 TRIBUTE (TRIBUTOS)
• After the arrival of the Spaniards, Filipinos were required to
pay tributes to generate funds for maintaining the colonial
government and financing the clergy.
• Reducción: To solve the problem of scattered Filipino
settlements, the Spaniards introduced the system of reducción,
gathering people into centralized towns (pueblos) where they could
be taxed more easily. Each family was assigned plots of land to farm.
• Encomienda System: Encomenderos, individuals rewarded
by the Spanish Crown for services, were tasked with overseeing the
collection of taxes and the administration of these pueblos. Exempt
from paying tribute were elites, called the principales—including
alcaldes, cabezas de barangay, and other local officials—creating a
stark divide between the elite and ordinary Filipinos.
 Shift from Subsistence to Market
• Economy
Prior to Spanish colonization,
Filipinos produced only what they needed
for survival. Under the colonial system,
they had to increase production to
meet the growing demands of taxes.
• Initially, the tribute could be paid in
agricultural produce, but later, half
had to be paid in cash, prompting the
rise of a more intensive farming system
to generate income.
 Manila-Acapulco Galleon Trade and
Economic Impact
• The Manila-Acapulco Galleon Trade
(1565-1815) strengthened Spain’s control over the
Philippines. The galleons carried goods from Asia
to New Spain (Mexico) and back, generating
revenue for the colony.
• However, tax collection in the Philippines
remained inefficient, and Spain had to send
subsidies (situado real) from Mexico to support
the colonial government. This continued until
1820, when Mexico gained independence, cutting
 Cédula Personal (1884)
• By 1884, the tribute system was abolished and
replaced by the cédula personal, a poll tax that
served as a form of identification.
• Unlike the tribute, which was paid per family,
the cédula was paid per individual and was
progressive, meaning the amount varied according
to income. Wealthier Filipinos paid higher amounts,
while the poor struggled to meet even the lower rates.
 Additional Direct Taxes
• In 1878, two new taxes were introduced:
o Urbana: A tax on the annual rental value of urban real
estate.
o Industria: A tax on income from salaries, dividends,
and profits.

• These taxes applied universally to all urban economic

activities except agriculture, which remained untaxed to
encourage growth.
 Indirect Taxes and Monopolies
• Customs duties were imposed on imports and exports to
further increase revenue, especially in the 19th century as trade
expanded.
• The Spanish colonial government also operated several
monopolies:
o Tobacco Monopoly (1781-1882): One of the largest
monopolies, the government controlled tobacco production and
dictated prices. This was highly profitable and even allowed the
Philippines to contribute surplus income to Spain’s treasury.
o Other monopolies included liquor, cockpits, opium, and
the sale of stamped paper.
 Forced Labor (Polo y Servicios)

• Polo y Servicios was another form of

taxation, requiring Filipino males to provide 40
days of labor annually (reduced to 15 days in
1884). This system was instrumental in public works
projects and defense-related activities like
shipbuilding.
• Men could avoid forced labor by paying a fee
(falla), usually 3 pesos per year, but this system
was rife with corruption as the money often ended
up in the pockets of local officials.
• By the 19th century, prestación personal
(personal services) had replaced the traditional
polo, with labor directed toward municipal projects
 Corruption and Social Inequality

• The principales (local elites, often former datus),

who were given roles like cabezas de barangay and
alcaldes, benefited greatly from the system. They were
exempt from paying tribute and often enriched
themselves by pocketing taxes or misappropriating the
fallas paid by peasants.
• This created a widening gap between the elite
and the common people. While the taxation system
appeared progressive (with higher taxes for the rich), in
practice, the burden fell disproportionately on the
peasants and commoners, driving them deeper into
 The taxation system during the Spanish
colonial period in the Philippines was
marked by a combination of forced labor,
arbitrary taxes, and state monopolies,
all of which placed a heavy burden on the
Filipino population. Corruption among the
principales and local officials worsened
the situation, as they enriched themselves
at the expense of the ordinary people.
While some taxes were designed to be
progressive, the reality was that the
system favored the elite and Spaniards,
widening the gap between rich and poor,
and leaving the common Filipinos
03
Primary Source: Mariano Herbosa
Writes to Rizal About Taxes
Source: Mariano Herbosa to Jose Rizal, Calamba, 29 August 1886, Letters
Between Rizal and Family Members (Manila: National Heroes Commission,
1964), 239-241.
 Mariano Herbosa's letter to José Rizal
in 1886 provides an in-depth look at
the harsh and arbitrary tax system in
Calamba, which severely affected the
lives of the local population. In this
letter, Herbosa explains the types of
taxes, their unjust implementation, and
the widespread frustration and
suffering caused by the system.
 Types of Taxes and Their
Impact
• Irrigated Rice Land:
o Even if the land has no access to water, farmers are
still required to pay a tax of 50 cavanes of palay (unhusked
rice) per year.
o Additionally, land that uses six cavanes of seed is
taxed 5 pesos in cash annually.
• Dry Land (for Sugar Cane, Maize, and Other
Crops):
o The tax rate for dry land is inconsistent. For example,
land that can be planted with six cavanes of seed is supposed
to be taxed 30 pesos.
o However, if the authorities believe the harvest is
abundant, they increase the tax arbitrarily. There is no
reduction if the harvest is poor.
• Residential Lots:
o The most arbitrary taxes are on residential lots
in town. There is no standard rule or consistent
basis for the tax rates.
o If a stone wall is added to the property, the tax
can increase to as much as 50 pesos, while the
lowest rate is 20 pesos.
o A nipa or cogon house on a ten-fathom square
plot pays only one peso.
Arbitrary and Corrupt Practices in Tax
Collection
• Changing Tax Rates Over Time:
o Once a tax agreement is made, it cannot
be changed for four years, but the tax itself
increases yearly, adding more financial
strain on residents.
• Lack of Receipts or Records:
o Many residents do not receive receipts
after paying their taxes. If a receipt is
issued, it does not state the amount paid
but simply confirms that taxes were paid
•oThe receipts often lack signatures, adding to
the confusion and distrust among the
residents. Some are signed, while others are
not, and no one knows why.
• Fear of the Word "Vacant":
o In the past, people were extremely afraid of
being labeled "vacant" (meaning they did not
own any property or failed to pay taxes).
However, this fear has lessened over time,
and people have started negotiating their
payments or delaying them without the same
 Taxes on Crops in Distant Lands
• Herbosa mentions that crops grown on lands far
from town, like Pansol, are subject to different taxes:

o The tax on palay is separate from that on maize,

mongo, or garlic.
o There is no fixed rate for these taxes; the
authorities set them as they please, which causes
additional uncertainty and burden on the farmers.
• In addition to the unfair tax system, natural
disastersNatural Calamities
such as locust and
infestations Government
worsened the
situation: Response

o Since June, locusts had ravaged the town,

destroying crops such as palay and sugar cane, leading to
economic distress.
o The local government, in an attempt to mitigate
the damage, allocated 50 pesos to pay those who caught
locusts.
o However, the payments were extremely low—only
25 cents for a cavan and a half of locusts—leaving
residents underpaid for their efforts. The locust infestation
persisted, and the government did not send additional
funds.
o It was estimated that only 300 cavanes of locusts
had been caught in the town, while many more remained,
 Bargaining and Resistance Among
Residents
●• Due to the heavy tax burden and the
inconsistent enforcement, residents began to push
back against the system:

●o They started bargaining with tax collectors,

offering lower amounts and delaying payments, which
was not possible in the past when taxes had to be paid
strictly on time.
●o This shift in attitude reflected the growing
dissatisfaction and defiance among the people, who
were increasingly unwilling to comply with the arbitrary
and excessive taxation.
Mariano Herbosa’s letter provides a vivid
account of the oppressive tax system in colonial
Calamba, marked by arbitrary rules, corruption,
and unfair treatment of the local population.
The taxes on land and crops were imposed
without regard to fairness or consistency, and
residents were left to suffer the consequences,
often resorting to bargaining and resistance to
cope with the financial strain. Combined with
natural disasters like the locust infestation, the
people of Calamba were pushed deeper into
poverty, with little support from the authorities.
04
TAXATION UNDER THE AMERICANS
AMERICAN PERIOD
 Continuation of Spanish System (1898-
1903)
 The Americans retained many elements of the Spanish
taxation system but made some adjustments, such as
suspending contracts related to the sale of opium,
lotteries, and mint charges for coinage.
 Urbana, a tax on real estate, was replaced by a land tax
on both urban and rural properties. However, the land tax
faced many issues:

 Land titling in rural areas was disorganized, with

appraisals often influenced by political and familial
biases.
 Landed elites strongly objected to the taxation of
agricultural land, leading to widespread tax evasion.
 Internal Revenue Law of
To address 1904
the challenges in collecting land tax and to create more
reliable revenue sources, the Internal Revenue Law of 1904 was
introduced. It outlined ten major sources of revenue:

1. Licensing 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 cédula (poll tax).
6. Insurance and insurance company taxes.
7. Taxes on forest products.
8. Mining concessions taxes.
9. Taxes on business and manufacturing activities.
10. Occupational licenses.
The law aimed to streamline revenue
collection, especially in areas like
business and manufacturing, by
levying percentage taxes on sales
payable quarterly. Additionally, in
1907, some provinces were allowed to
double the cédula fee to finance the
construction and maintenance of
roads.
Underwood-Simmons Tariff Act
(1913)
This act removed export taxes on key Filipino goods like
sugar, tobacco, hemp, and copra, leading to a
significant reduction in government revenue.

To address the revenue loss, Governor General

Francis Burton Harrison urged the government to
increase tax receipts through minor revisions to the
1904 Internal Revenue Act. These revisions
introduced taxes on:

  Mines.
  Petroleum products.
  Dealers of petroleum and tobacco
products.
 New Revenue
Sources
In 1914, the government
introduced an income tax.
In 1919, an inheritance tax
was created.
In 1932, a national lottery
was established to raise
additional funds.
Despite these new taxes, they were not sufficient to
significantly boost government revenues, as issues of tax
evasion and the inequity of the system persisted. The
business elite and wealthy landowners continued to evade
taxes or manipulate the system to their advantage, while the
broader population, especially rural peasants, bore the heaviest
burden.

The American colonial government attempted to reform the

Philippine taxation system, building upon the outdated Spanish
system. Although they introduced progressive changes, such as
land taxes and income taxes, they faced major challenges,
including tax evasion, resistance from elites, and the economic
consequences of losing export revenue. The system continued
to place a disproportionate burden on the lower class while the
wealthy found ways to benefit, ultimately limiting the
05
TAXATION DURING THE COMMONWEALTH PERIOD

COMMONWEALTH PERIOD
The Commonwealth era (1935-1946)
brought significant changes to the
Philippine taxation system. Though
efforts were made to reform the tax
system to be more equitable, the
lower class still bore much of the
burden, while the landed elites and
those in political positions found ways
to benefit from loopholes.
 Increased Income Tax Rates
 (1936)
Income tax rates for individuals were
raised, and a surtax was applied to
individual net incomes exceeding
10,000 pesos.

 Corporate income taxes were also

increased.
 Abolition of Cédula Tax
(1937)
The cédula tax, which had been a regressive
poll tax on individuals, was abolished.
However, in 1940, the government
introduced a residence tax that applied
to all citizens aged 18 and above, as well
as corporations.
 National Internal Revenue Code
(1939)
This code introduced several major reforms:

1. Single Progressive Income Tax: The earlier system of a normal

tax plus a surtax was replaced by a single progressive income
tax.
2. Reduction of Personal Exemptions: Tax exemptions for
individuals were reduced, increasing the effective tax
burden.
3. Corporate Income Tax: Taxes on corporations were slightly
raised, particularly through the introduction of taxes on inherited
estates and donated gifts in the name of deceased persons.
4. Turnover Tax on Luxuries: The previous cumulative sales tax
was replaced by a 10% turnover tax on luxury goods.
5. Higher Taxes on Specific Goods: Increased taxes were imposed
on liquors, cigarettes, forestry products, and mining
 Continued Inequity

Despite these changes, the tax system remained inequitable:

• The lower class continued to feel the brunt of the tax

burden, as most taxes were consumption-based or applied
to essential goods.
• Wealthy elites and political figures often found ways to
manipulate the system to their advantage, avoiding taxes
or benefiting from loopholes.
• Agricultural sector taxes were kept low to encourage
growth, but there were no incentives for industrial
investment, limiting the potential for broader economic
development.
 Japanese Occupation and
Taxation
During World War II, when Japan occupied the Philippines
(1942-1945), the Japanese military continued the tax
system of the Commonwealth government but exempted
goods belonging to their armed forces. With trade and
economic activities at a near standstill, the main sources
of revenue came from amusement taxes, licenses for
businesses and professions, and the sale of
National Sweepstakes tickets and government
bonds.

As the war intensified, tax collection became increasingly

difficult. To finance war expenditures, the Japanese
military government issued military notes, further
The taxation system during the Commonwealth
period introduced some progressive changes, but
it still placed a disproportionate burden on the
lower classes. The wealthy elite, who held political
power, managed to benefit from the system, while
limited incentives for industrial development
stunted economic growth. The onset of World War
II and the Japanese occupation only worsened the
situation, leading to economic hardship and
disarray in tax collection efforts.
06
FISCAL POLICY FROM 1946 TO PRESENT

FISCAL POLICY
 Post-War Period (1946–1953)

After World War II, the Philippine economy was devastated,

particularly in Manila, while much of the countryside remained
relatively unscathed. The economy, still heavily based on
agriculture, was disrupted, and by 1949, the government faced
severe funding shortages, especially in critical sectors like
education and the military. The United States suggested that the
Philippines adopt direct taxation to improve revenue collection,
but President Manuel Roxas rejected this, fearing it would
alienate congressional allies.

Under President Elpidio Quirino, the government pursued

import substitution through import and exchange controls,
which fostered the development of the manufacturing sector and
reduced dependence on imports. This policy helped boost tax
 Regressive Taxation and Corruption
(1953–1968)
The succeeding administrations of Ramon
Magsaysay, Carlos P. Garcia, and
Diosdado Macapagal promised reforms
but largely failed to address the
regressive tax system that burdened the
lower classes. The wealthy elite, many of
whom held influential political positions,
ensured that tax policies did not
significantly affect their interests.
A Tax Commission was established in 1959
under Republic Act No. 2211 to improve tax
collection, but significant reforms did not follow.
From 1959 to 1968, Congress passed no major
tax legislation despite changes in the economy.
Indirect taxation—such as customs duties and
sales taxes—continued to dominate, contributing
to three-quarters of government revenues.
The Omnibus Tax Law of 1969 did little to
improve income tax collection, and poor tax
collection, along with widespread corruption,
prevented the government from funding
development projects effectively.
 Marcos Regime (1965–1986)
During Ferdinand Marcos’ presidency, the tax
system remained regressive. The regime
depended heavily on indirect taxes, such as
customs duties and sales taxes, which made up
70% of total tax revenue by 1981–1985. This
reliance on indirect taxation placed a greater
burden on the lower-income population, as these
taxes applied mainly to consumer goods and
services. The tax system was largely
unresponsive to the changing economic
landscape, and widespread corruption further
Post-Marcos Era and Reforms (1986–Present)
After the People Power Revolution in 1986, Corazon
Aquino's administration introduced several fiscal
reforms, including the value-added tax (VAT), aimed at
improving revenue collection. These reforms marked the
start of a more progressive taxation system, but
challenges persisted, such as inefficient tax administration
and continued reliance on indirect taxes.

Subsequent administrations, including those of Fidel Ramos,

Joseph Estrada, Gloria Macapagal-Arroyo, and
Benigno Aquino III, implemented various reforms to
address budget deficits and boost economic growth. These
included adjusting VAT rates, introducing sin taxes (taxes
on alcohol and tobacco), and using modern technology to
In 2017, under President Rodrigo Duterte, the
Tax Reform for Acceleration and Inclusion
(TRAIN) Law was passed. This law lowered
personal income tax rates for most Filipinos
while raising excise taxes on fuel, sugary
drinks, and automobiles. While the TRAIN Law
was designed to make the tax system more
equitable and raise revenues for infrastructure
projects, it led to inflationary pressures that
disproportionately affected the poor.
From 1946 to the present, fiscal policies in the
Philippines have evolved significantly, but issues of
regressive taxation and corruption have
remained persistent. While recent reforms, such as
the TRAIN Law, aimed to create a more equitable
system, challenges such as weak enforcement,
inefficiency in tax collection, and reliance on
indirect taxes continue to affect the country’s fiscal
health.