Importance of

Basic RulesTaxation
and Principles in Philippine
Taxation

Sir Arman S. Pascual

11 Feb. 2017
Dont be anxious, smile.
 What is Taxation?
It is the inherent power by which
the sovereign state imposes
financial burden upon persons
and property as a means of
raising revenues in order to
defray the necessary expenses
of the government (Tax Digest
by Crescencio Co Untian, 2002).

Taxation is the imposition of

financial charges or other levies,
upon a taxpayer (an individual
or legal entity) by a state such
What is Taxation?
It is a mode by which government make
exactions for revenue in order to support
their existence and carry out their
legitimate objectives (Tax Law and
Jurisprudence by Justice Vitug, 2000).

It is the most pervasive and the strongest

of all the powers of the government.
Taxes are the lifeblood of the
government, without which, it cannot
subsist.
History of Taxation

The first known system of taxation

was in Ancient Egypt around 3000
BC - 2800 BC in the first dynasty of
the Old Kingdom.

In Biblical times, tax is already

prevalent. According to Genesis
47:24:
"But when the crop comes in, give a fifth of
it to Pharaoh. The other four-fifths you
may keep as seed for the fields and as
food for yourselves and your households
History of Taxation

Earliest taxes in Rome are called as

portoria were customs duties on
imports and exports
Augustus Caesar introduced the
inheritance tax to provide retirement
funds for the military. The tax was five
percent on all inheritances except
gifts to children and spouses .

In England, taxes were first used as

emergency measures.
History of Taxation in the
Philippines
The pre-colonial society, being
communitarian, did not have taxes.
History of Taxation in the
Philippines
During the Spanish Period, new income-
generating means were introduced by
the government such as the :

Manila-Acapulco Galleon Trade

Polo Y Servicio (Forced Labor)
Bandala
Encomienda System
Tribute
History of Taxation in the Philippines

Manila-Acapulco Galleon
Trade was the main source
of income for the colony
during its early years.

The Galleon trade brought

silver from Nueva Castilla
and silk from China by way
of Manila.
History of Taxation in the Philippines

Polo Y Servicio is the forced labor for 40

days, of men ranging from 16 to 60 years
of age who were obligated to give
personal services to community projects.
One could be exempted from the polo by
paying a fee called falla (which was worth
one and a half real).

Bandala is one of the taxes collected

from the Filipinos. It comes from the
Tagalog word mandala, which is a round
stock of rice stalks to be threshed.
History of Taxation in the Philippines

Encomienda are large tracts of land given

to a person as reward for a meritorious act.
The encomenderos were given full authority
to manage the encomienda by collecting
tribute from the inhabitants and govern
people living on it.

Tribute was the residence tax during the

Spanish times. It may be paid in cash or
kind, partly, or wholly.

But in 1884, the tribute was replaced by the

cedula personal or personal identity paper,
 Did you know?
That in the 19th century, the
cedula served as an identification
card that had to be carried at all
times. A person who could not
present his or her cedula to a
guardia civil could then be detained
for being indocumentado.
Andres Bonifacio and other
Katipuneros tore their cedulas in
August 1896, signaling the start of
the Philippine Revolution.
The Development of the Community
Tax
The cdula was imposed by the
Americans on January 1, 1940,
when Commonwealth Act No. 465
went into effect, mandating the
imposition of a base residence
tax of fifty centavos and an
additional tax of one peso based
on factors such as income and
real estate holdings.

The payment of this tax would

merit the issue of a residence
certificate. Corporations were
A sample cedula in the
1920s.
What is a cedula?
Also known as a 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 considered as a
primary form of identification in the
Philippines and is one of the closest
single documents the Philippines has
to a national system of identification,
Why is cedula important?
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
 The Four Rs of Taxation
Taxation has four main purposes
or effects:

1. Revenue
2. Redistribution
3. Repricing
4. Representation
he Four Rs of Taxation

Revenue
The taxes raise
money to spend on
armies, roads,
schools and
hospitals, and on
more indirect
government
functions like
market regulation
or legal systems.
 The Four Rs of Taxation
Redistribution
This refers to the
transferring wealth from
the richer sections of
society to poorer sections.

Repricing
Taxes are levied to
address externalities; for
example, tobacco is taxed
to discourage smoking,
and a carbon tax
discourages use of
What is a cedula?
Representation
As what goes with
the slogan "no
taxation without
representation" , it
implies that: rulers
tax citizens, and
citizens demand
accountability from
their rulers as the
other part of this
 Why Tax?
The main purpose of taxation is to
accumulate funds for the functioning of the
government machineries. No government in
the world can run its administrative office
without funds and it has no such system
incorporated in itself to generate profit from
its functioning.

The governments ability to serve the people

depends upon the taxes that are collected.
Taxes are indispensable in the government
operation and without it, the government will
be paralyzed.
The Philippine Tax System
Tax law in the Philippines covers
national and local taxes. National
taxes refer to national internal revenue
taxes imposed and collected by the
national government through the
Bureau of Internal Revenue (BIR) and
local taxes refer to those imposed and
collected by the local government. The
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
 What is Tax
TaxEvasion?
evasion happens when
there is fraud through
pretension and the use of other
illegal devices to lessen ones
taxes, there is tax evasion,
under-declaration of income,
and non-declaration of income
and other items subject to tax,
Under-appraisal of goods
subject to tariff , and over-
declaration of deductions
The Branches of Government vis--
vis the Tax Law
The Congress may, by law, authorize
the President to fix within specified
limits, and subject to such limitations
and restrictions 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 Branches vis--vis the Tax Law
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, Paragraph
2).

The Supreme Court has 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 Forms of Taxes Imposed on Persons
and Property
A) Personal, capitation or poll taxes
These are taxes of fixed
amount upon residents or persons of
a certain class without regard to
their property or business
B) Property taxes
1. Real Property Tax - an annual tax
that may be imposed by a province
or city or a municipality on real
property such as land, building,
machinery and other improvements
The Forms of Taxes Imposed on Persons
and Property
2. Estate Tax (Inheritance Tax) - a tax
on the right of transmitting property
at the time of death and on the
privilege that a person is given in
controlling to a certain extent the
disposition of his property to take
effect upon death.
3. Gift or Donors Tax - a tax on the
privilege of transmitting ones
property or property rights to
another or others without adequate
The Forms of Taxes Imposed on Persons
and Property
4. Capital Gains Tax - tax
imposed on the sale or
exchange of property .
Those imposed are
presumed to have been
realized by the seller for the
sale, exchange or other
disposition of real property
located in the Philippines,
classified as capital assets.
C. Income Taxes - Taxes
imposed on the income of
the taxpayers from
 The Forms of Taxes Imposed on
Persons and Property
D. Excise or License Taxes -
Taxes imposed on the privilege,
occupation or business not
falling within the classification
of poll taxes or property taxes.
These are imposed on alcohol
products; on tobacco products;
on petroleum products like
lubricating oils, grease,
processed gas etc; on mineral
products such as coal and coke
and quarry resources; on
miscellaneous articles such as
The Branches of Government vis--
vis the Tax Law
Under these lies two other taxes:
1.Documentary Stamp Tax - a tax
imposed upon documents, instruments,
loan agreements and papers and upon
acceptance of assignments, sales and
transfers of obligation and etc.
2. Value added tax- is imposed on any
person who, in the course of trade or
business sells, barters, exchanges,
leases, goods or properties, renders
services, or engages in similar
Products like Papawash have value-added
taxes, too.
 Who Should Pay Taxes?
1. Individuals
a. Resident Citizen
b. Non-resident Citizen
c. Resident Aliens
d. Non-resident Aliens
2. Corporations
a. Domestic Corporations
b. Foreign Corporations
3. Estate under judicial
settlement
4. Trusts irrevocable both as to
the trust property and as to
Who (or What) are those
exempted in paying taxes?
The Constitution expressly
grants tax exemption on certain
entities/institutions such as:

1. Charitable institutions,
churches, parsonages or
convents appurtenant thereto,
mosques, and nonprofit
cemeteries and all lands,
buildings and improvements
actually, directly and exclusively
used for religious, charitable or
Who (or What) are those exempted in
paying taxes?
2. Non-stock non-profit educational institutions
used actually, directly, and exclusively for
educational purposes. (Article XVI, Section 4 (3)).

Exempted to tax as stated in the Article 283 of

Rules and Regulations Implementing Local
Government Code of 1991 (RA 7160):

Local water districts

Cooperatives duly registered under RA 6938,
otherwise known as the Cooperative Code of the
Philippines
Non-stock and non-profit hospitals and
educational institutions
Printer and/or publisher of books or other reading
materials prescribed by DECS (now DepEd) as
school texts or references, insofar as receipts from
Top Celebrity Taxpayers in
2010
Maraming Salamat Po!