Philippine Taxation and History of the Bureau of Internal Revenue PDF

GE1712 Philippine Taxation and the History of the system, which is land ownership granted by the Crown to worthy Bureau of Internal Revenue peninsulares, was yet another form of tax income from the...

GE1712 Philippine Taxation and the History of the system, which is land ownership granted by the Crown to worthy Bureau of Internal Revenue peninsulares, was yet another form of tax income from the Filipinos. The diezmos prediales is 1/10 of the produce of the I. Pre-colonial Era encomienda to be paid to the viceregal government, and the During the time before the Spaniards came, the country had sanctorum was the tax paid to the local church. Other local taxes various kingdoms, called barangays, which was ruled by the datus were the vinta, tax paid by people in the provinces along the coast (or rajahs in some areas) who offered protection to all its of Western Luzon to defend the area against Muslim pirates subordinates. Since barter was the leading form of trade back common at the time, and the donativo de Zamboanga, was taxed then, tax (called buwis or handug, with the variant handog) came specifically used for the conquest of Jolo. in forms of crops or goods, which the people living under the datu share a portion of their harvest or property, in exchange for Listed below is a sample of a Filipino’s tax during the Spanish security and protection. occupation: Only the timawa (free men) pay taxes, since the maharlikas Tributo (encomienda tax) : 10 reales (nobility) and the datu offer the protection, while the oripun or Diezmos prediales (government tax) : 1 real uripon (slaves) couldn’t offer anything since they lived to serve; Commission on Internal Revenue : 1 real thus the highest and the lowest of the castes were exempted from Sanctorum : 3 reales tax payment. III. American Era II. Spanish Era In the early American regime from the period 1898 to 1901, the During the 17th and 18th centuries, the Contador de Resultas country was ruled by American military governors. In 1902, the served as the Chief Royal Accountant whose functions were first civil government was established under William H. Taft. similar to the Commissioner of Internal Revenue. He was the However, it was only during the term of second civil governor Luke Chief Arbitrator whose decisions on financial matters were final E. Wright that the Bureau of Internal Revenue (BIR) was created except when revoked by the Council of Indies. through the passage of Reorganization Act No. 1189 dated July 2, 1904. During these times, taxes that were collected from the inhabitants varied from tribute or head tax of one gold maiz annually; tax on On August 1, 1904, the BIR was formally organized and made the value of jewelry and gold trinkets; indirect taxes on tobacco, operational under the Secretary of Finance, Henry Ide (author of wine, cockpits, burlas, and powder. From 1521 to 1821, the the Internal Revenue Law of 1904), with John S. Hord as the first Spanish treasury had to subsidize the Philippines in the amount Collector (Commissioner). The first organization started with 69 of P 250,000.00 per annum due to the poor financial condition of employees, which consisted of a Collector, Vice-Collector, one the country, which can be primarily attributed to the poor revenue Chief Clerk, one Law Clerk, one Records Clerk and three (3) collection system. Division Chiefs. Other forms of taxes from the Spanish Era is the tributo, which Following the tenure of John S. Hord were three (3) more was originally between 8 to 10 reales. Forced labor, or polo y American collectors, namely Ellis Cromwell (1909-1912; William servicio, was also a network for tax payment. Eventually, with the T. Holting (1912-1214); and James J. Rafferty (1914-1918). They cedula, Spain replaced tributo with cedula, which allowed them to were all appointed by the Governor-General with the approval of keep track of the people who could pay taxes. The encomienda the Philippine Commission and the US President. 04 Handout 2 *Property of STI Page 1 of 7  GE1712 During the term of Collector Holting, the Bureau had its first January 1, 1951. reorganization on January 1, 1913 with the creation of eight (8) divisions, namely: Except for minor changes and the creation of the Miscellaneous Tax Division in 1939, the Bureau's organization remained the 1) Accounting; same from 1921 to 1941. 2) Cash; 3) Clerical; In 1937, the Secretary of Finance promulgated Regulation No. 95, 4) Inspection; reorganizing the Provincial Inspection Districts and maintaining in 5) Law; each province an Internal Revenue Office supervised by a 6) Real Estate; Provincial Agent. 7) License; and 8) Records IV. Japanese Era At the outbreak of World War II, under the Japanese regime Collections by the Real Estate and License Divisions were (1942-1945), the Bureau was combined with the Customs Office confined to revenue accruing to the City of Manila. and was headed by a Director of Customs and Internal Revenue. In line with the Filipinization policy of then US President William V. Post-War Era McKinley, Filipino Collectors were appointed. The first three (3) On July 4, 1946, when the Philippines gained its independence BIR Collectors were Wenceslao Trinidad (1918-1922); Juan from the United States, the Bureau was eventually re-established Posadas, Jr. (1922-1934); and Alfredo Yatao (1934-1938). separately. This led to a reorganization on October 1, 1947 by virtue of Executive Order No. 94, wherein the following were On May 1921, by virtue of Act No. 299, the Real Estate, License undertaken: and Cash Divisions were abolished and their functions were transferred to the City of Manila. As a result of this transfer, the 1) The Accounting Unit and the Revenue Accounts and Bureau was left with five (5) divisions, namely: Statistical Division were merged into one; 1) Administrative; 2) All records in the Records Section under the 2) Law; Administrative Division were consolidated; and 3) Accounting; 4) Income Tax; and 3) All legal work were centralized in the Law Division. 5) Inspection Revenue Regulations No. V-2 dated October 23, 1947, divided Thereafter, the Bureau established the following: the country into 31 inspection units, each of which was under a Provincial Revenue Agent (except in certain special units which 1) The Examiner's Division, formerly the Income Tax were headed by a City Revenue Agent or supervisors for Examiner's Section which was later merged with the distilleries and tobacco factories). Income Tax Division; and The second major reorganization of the Bureau took place on 2) The Secret Service Section, which handled the detection January 1, 1951 through the passage of Executive Order No. 392. and surveillance activities but was later abolished on Three (3) new departments were created, namely: 04 Handout 2 *Property of STI Page 2 of 7  GE1712 1) Legal; line with the regionalization scheme of the government. 2) Assessment; and Consequently, the Bureau's Regional Offices increased to (8) 3) Collection. eight and later into ten (10) in 1957. The Accounting Machine Branch was also created in each Regional Office. On the latter part of January of the same year, Memorandum Order No. V-188 created the Withholding Tax Unit, which was In January 1957, the position title of the head of the Bureau was placed under the Income Tax Division of the Assessment changed from Collector to Commissioner. The last Collector and Department. Simultaneously, the implementation of the the first Commissioner of the BIR was Jose Aranas. withholding tax system was adopted by virtue of Republic Act (RA) 690. This method of collecting income tax upon receipt of the A significant step undertaken by the Bureau in 1958 was the income resulted in the collection of approximately 25% of the total establishment of the Tax Census Division and the corresponding income tax collected during the said period. Tax Census Unit for each Regional Office. This was done to consolidate all statements of assets, incomes, and liabilities of all The third major reorganization of the Bureau took effect on March individual and resident corporations in the Philippines into a 1, 1954 through Revenue Memorandum Order (RMO) No. 41. National Tax Census. This led to the creation of the following offices: To strictly enforce the payment of taxes and to further discourage 1) Specific Tax Division; tax evasion, RA No. 233 or the Rewards Law was passed on June 2) Litigation Section; 19, 1959 whereby informers were rewarded the 25% equivalent of 3) Processing Section; and the the revenue collected from the tax evader. 4) Office of the City Revenue Examiner In 1964, the Philippines was re-divided anew into 15 regions and By September 1, 1954, a Training Unit was created through RMO 72 inspection districts. The Tobacco Inspection Board and No. V-4-47. Accountable Forms Committee were also created directly under the Office of the Commissioner. As an initial step towards decentralization, the Bureau created its first 2 Regional Offices in Cebu and in Davao on July 20, 1955 per Marcos Administration RMO No. V-536. Each Regional Office was headed by a Regional Director, assisted by Chiefs of five (5) Branches, namely: The appointment of Misael Vera as Commissioner in 1965 led the Bureau to a "new direction" in tax administration. The most 1) Tax Audit; notable programs implemented were the "Blue Master Program" 2) Collection; and the "Voluntary Tax Compliance Program". The first program 3) Investigation; was adopted to curb the abuses of both the taxpayers and BIR 4) Legal; and personnel, while the second program was designed to encourage 5) Administrative. professionals in the private and government sectors to report their true income and to pay the correct amount of taxes. The creation of the Regional Offices marked the division of the Philippine islands into three (3) revenue regions. It was also during Commissioner Vera's administration that the country was further subdivided into 20 Regional Offices and 90 The Bureau's organizational set-up expanded beginning 1956 in Revenue District Offices, in addition to the creation of various 04 Handout 2 *Property of STI Page 3 of 7  GE1712 offices which included the Internal Audit Department (replacing On January 30, 1987, the Bureau was reorganized under the the Inspection Department), Administrative Service Department, administration of Commissioner Bienvenido Tan, Jr. pursuant to International Tax Affairs Staff and Specific Tax Department. Executive Order (EO) No. 127. Under the said EO, two (2) major functional groups headed and supervised by a Deputy Providing each taxpayer with a permanent Tax Account Number Commissioner were created, and these were: (TAN) in 1970 not only facilitated the identification of taxpayers but also resulted to faster verification of tax records. Similarly, the 1) the Assessment and Collection Group; and payment of taxes through banks (per Executive Order No. 206), as well as the implementation of the package audit investigation 2) the Legal and Internal Administration Group. by industry are considered to be important measures which contributed significantly to the improved collection performance of With the advent of the value-added tax (VAT) in 1988, a massive the Bureau. campaign program aimed to promote and encourage compliance with the requirements of the VAT was launched. The adoption of The proclamation of Martial Law on September 21, 1972 marked the VAT system was one of the structural reforms provided for in the advent of the New Society and ushered in a new approach to the 1986 Tax Reform Program, which was designed to simplify tax the developmental efforts of the government. Several tax amnesty administration and make the tax system more equitable. It was decrees issued by the President were promulgated to enable also in 1988 that the Revenue Information Systems Services Inc. erring taxpayers to start anew. Organization-wise, the Bureau had (RISSI) was abolished and transferred back to the BIR by virtue also undergone several changes during the Martial Law period of a Memorandum Order from the Office of the President dated (1972-1980). May 24, 1988. This transfer had implications on the delivery of the computerization requirements of the Bureau in relation to its In 1976, under Commissioner Efren Plana's administration, the functions of tax assessment and collection. Bureau's National Office transferred from the Finance Building in Manila to its own 12-story building in Quezon City, which was The entry of Commissioner Jose Ong in 1989 saw the advent of inaugurated on June 3, 1977. It was also in the same year that the "Tax Administration Program" which is the embodiment of the President Marcos promulgated the National Internal Revenue Bureau's mission to improve tax collection and simplify tax Code of 1977, which updated the 1934 Tax Code. administration. The Program contained several tax reform and enhancement measures, which included the use of the Taxpayer On August 1, 1980, the Bureau was further reorganized under the Identification Number (TIN) and the adoption of the New Payment administration of Commissioner Ruben Ancheta. New offices Control System and Simplified Net Income Taxation Scheme. were created and some organizational units were relocated for the purpose of making the Bureau more responsive to the needs of Ramos Administration the taxpaying public. The year 1993 marked the entry into the Bureau of its first lady Cory Aquino Administration Commissioner, Liwayway Vinzons-Chato. In order to attain the Bureau's vision of transformation, a comprehensive and After the People's Revolution in February 1986, a renewed thrust integrated program known as the ACTS or Action-Centered towards an effective tax administration was pursued by the Transformation Program was undertaken to realign and direct the Bureau. "Operation: Walang Lagay" was launched to promote the entire organization towards the fulfillment of its vision and mission. efficient and honest collection of taxes. 04 Handout 2 *Property of STI Page 4 of 7  GE1712 It was during Commissioner Chato's term that a five-year Tax new Commissioner of Internal Revenue. Under his administration, Computerization Project (TCP) was undertaken in 1994. This measures that would enhance taxpayer compliance and deter tax involved the establishment of a modern and computerized violations were prioritized. The most significant of these measures Integrated Tax System and Internal Administration System. include: Further streamlining of the BIR was approved on July 1997  Full utilization of tax computerization in the Bureau's through the passage of EO No.430, in order to support the operations; implementation of the computerized Integrated Tax System. Highlights of the said EO included the:  Expansion of the use of electronic Documentary Stamp Tax metering machine and establishment of tie-up with 1) Creation of a fourth Revenue Group in the BIR, which is the the national government agencies and local government Legal and Enforcement Group (headed by a Deputy units for the prompt remittance of withholding taxes; and Commissioner); and  Implementation of Compromise Settlement Program for 2) Creation of the Internal Affairs Service, Taxpayers taxpayers with outstanding accounts receivable and Assistance Service, Information Planning and Quality disputed assessments with the BIR. Service and the Revenue Data Centers. Memoranda of Agreement were also forged with the league of Estrada Administration local government units and several private sectors and professional organizations (i.e. MAP, TMAP, PCCI, FFCCCI, etc.) With the advent of President Estrada's administration, a Deputy to help the BIR implement tax campaign initiatives. Commissioner of the BIR, Beethoven Rualo, was appointed as Commissioner of Internal Revenue. Under his leadership, priority On September 1, 2000, the Large Taxpayers Service (LTS) and reform measures were undertaken to enhance voluntary the Excise Taxpayers Service (ETS) were established under EO compliance and improve the Bureau's productivity. One of the No. 175 to reinforce the tax administration and enforcement most significant reform measures was the implementation of the capabilities of the BIR. Shortly after the establishment of said Economic Recovery Assistance Payment (ERAP) Program, which revenue services, a new organizational structure was approved granted immunity from audit and investigation to taxpayers who on October 31, 2001 under EO No. 306 which resulted in the have paid 20% more than the tax paid in 1997 for income tax, VAT integration of the functions of the ETS and the LTS. and/or percentage taxes. In line with the passage of the Electronic Commerce Act of 2000 In order to encourage and educate consumers/taxpayers to on June 14, the Bureau implemented a Full Integrated Tax System demand sales invoices and receipts, the raffle promo "Humingi ng (ITS) Rollout Acceleration Program to facilitate the full utilization Resibo, Manalo ng Libo-Libo" was institutionalized in 1999. The of tax computerization in the Bureau's operations. Under the Large Taxpayers Monitoring System was also established under Program, seven (7) ITS back-end systems were released in Commissioner Rualo's administration to closely monitor the tax stages in RR 8 - Makati City and the Large Taxpayers Service. compliance of the country's large taxpayers. The coming of the new millennium ushered in the changing of the guard in the BIR with the appointment of Dakila Fonacier as the 04 Handout 2 *Property of STI Page 5 of 7  GE1712 Arroyo Administration Barely a month since his assumption to duty as the new CIR, Commissioner Parayno offered a Voluntary Assessment and Following the momentous events of EDSA II in January 2001, Abatement Program (VAAP) to taxpayers with under-declared newly-installed President Gloria Macapagal-Arroyo appointed a sales/receipts/income. To enhance the collection performance of former Deputy Commissioner, Atty. René G. Bañez, as the new the BIR, Commissioner Parayno adopted the use of new systems Commissioner of Internal Revenue. such as the Reconciliation of Listings for Enforcement or RELIEF System to detect under-declarations of taxable income by Under Commissioner Bañez's administration, the BIR’s thrust was taxpayers and the electronic broadcasting system to enhance the to transform the agency to make it taxpayer-focused. This was security of tax payments. It was also under Commissioner undertaken through the implementation of change initiatives that Parayno’s administration that the BIR expanded its electronic were directed to: services to include the web-based TIN application and processing; an electronic raffle of invoices/receipts; provision of e-payment 1) Reform the tax system to make it simpler and suit the gateways; e-substituted filing of tax returns and electronic Philippine culture; submission of sales reports. The conduct of special operations on high profile tax evaders, which resulted to the filing of tax cases 2) Reengineer the tax processes to make them simpler, more under the Run After Tax Evaders (RATE) Program marked efficient and transparent; Commissioner Parayno’s administration as well as the conduct of Tax Compliance Verification Drives and accreditation and 3) Restructure the BIR to give it financial and administrative registration of cash register machines and point-of-sale machines. flexibility; and To improve taxpayer service, the Bureau also established a BIR Contact Center in the National Office and eLounges in Regional 4) Redesign the human resource policies, systems, and Offices. procedures to transform the workforce to be more responsive to taxpayers' needs. On October 28, 2006, Deputy Commissioner for Legal and Inspection Group, Jose Mario C. Buñag was appointed as full- Measures to enhance the Bureau's revenue-generating capability fledged Commissioner of Internal Revenue. Under his were also implemented, the most notable of which were the administration, the Bureau attained success in a number of key implementation of the Voluntary Assessment Program and undertakings, which included the expansion of the RATE Program Compromise Settlement Program and expansion of coverage of to the Regional Offices; inclusion of new payment gateways, such the creditable withholding tax system. A technology-based system as the Efficient Service Machines and the G-Cash and SMART that promotes the paperless filing of tax returns and payment of Money facilities; implementation of the Benchmarking Method and taxes was also adopted through the Electronic Filing and Payment installation of the Bureau’s e-Complaint System, a new e-Service System (eFPS). that allows taxpayers to log their complaints against erring revenuers through the BIR website. The Nationwide Rollout of With the resignation of Commissioner Bañez on August 19, 2002, Computerized Systems (NRCS) was also undertaken to extend Finance Undersecretary Cornelio C. Gison was designated as the use of the Bureau’s Integrated Tax System across its non- interim BIR Commissioner. Eight days later (on August 27, 2002), computerized Revenue District Offices. In 2007, the National former Customs Commissioner, Guillermo L. Parayno, Jr. was Program Support for Tax Administration Reform (NPSTAR), a appointed as the new Commissioner of Internal Revenue (CIR). program funded by various international development agencies, was launched to improve the BIR efficiency in various areas of tax 04 Handout 2 *Property of STI Page 6 of 7  GE1712 administration (i.e. taxpayer compliance, tax enforcement and of Taxpayers Lifestyle Check and development of Industry control, etc.). Champions. Linkages with various agencies (i.e. LTO, SEC, etc.) were also established through the signing of several Memoranda On June 29, 2007, Commissioner Buñag relinquished the top post of Agreement to improve specific areas of tax administration. of the BIR and was replaced by Deputy Commissioner for Operations Group, Lilian B. Hefti, making her the second lady P-Noy Aquino Administration Commissioner of the BIR. Commissioner Hefti focused on the strengthening of the use of business intelligence by embarking on Following the highly-acclaimed inauguration of President Benigno data matching of income payments of withholding agents against C. Aquino III on June 30, 2010, a former BIR Deputy the reported income of the concerned recipients. Information Commissioner, Atty. Kim S. Jacinto-Henares, was appointed as sharing between the BIR and the Local Government Units (LGUs) the new Commissioner of Internal Revenue. During her first few was also intensified through the LGU Revenue Assurance months in the BIR, Commissioner Henares focused on the filing System, which aims to uncover fraud and non-payment of taxes. of tax evasion cases under the RATE Program, in compliance with To enhance the Bureau’s audit capabilities, the use of Computer- the SONA pronouncements of President Aquino. Assisted Audit Tools and Techniques (CAATTs) was also introduced in the BIR under her term. Duterte Administration With the resignation of Commissioner Hefti in October 2008, On December 19, 2017, President Rodrigo Duterte signed the Tax former BIR Deputy Commissioner for Legal and Enforcement Reform for Acceleration and Inclusion (TRAIN) Law, wherein it Group, Sixto S. Esquivias IV was appointed as the new exempts all taxpayers, whose annual income is less than or equal Commissioner of Internal Revenue. Commissioner Esquivias’ to Php 250, 000, to pay their taxes. As compensation, petroleum administration was marked with the conduct of nationwide closure products and consumer goods with either natural, artificial, or of erring business establishments under the “Oplan Kandado” high-fructose syrup sweeteners will get an increase in its prices, Program. A Taxpayer Feedback Mechanism (through the with natural fruit juices and milk being exempted from these eComplaint facility accessible via the BIR Website) was also increase. established under his term where complaints on erring BIR employees and taxpayers who do not pay taxes and do not issue Reference/s: Alvarez, L. A. [author], & Regala, T. O. [translator] (n.d.). The Spanish taxation system and the ORs/invoices can be reported. In 2009, the Bureau revived its Manila food market: Indications of an early commercialized economy. Retrieved from “Handang Maglingkod” Project where the best frontline offices ovcrd.upd.edu.ph/kasarinlan/article/view/1398/1355 Badongen, S. M. (2011). Philippine economy under the Spanish occupation. Retrieved from were recognized for rendering effective taxpayer service. https://www.slideshare.net/shielambb/spanish-8824883 Bureau of Internal Revenue (n.d.). BIR history. Lifted and modified from https://www.bir.gov.ph/index.php/transparency/bir-history.html When Commissioner Esquivias resigned in November 2009, Bureau of Internal Revenue (n.d.). Tax reform for acceleration and inclusion (TRAIN). Lifted and Senior Deputy Commissioner, Joel L. Tan-Torres assumed the modified from https://www.bir.gov.ph/index.php/train.html position of Commissioner of Internal Revenue. Under his Canete-Trinidad, M. (2013). Spanish colonial government part iii. Lifted and modified from https://www.slideshare.net/MarcyTrinidad/spanish-colonial-government-part-iii administration, Commissioner Tan-Torres pursued a high visibility Go, F. M. L. (n.d.). History of taxation in the Philippines. Lifted and modified from public awareness campaign on the Bureau’s enforcement and https://www.scribd.com/document/289579370/History-of-Taxation-in-the-Philippines Hisona, H. (2010). The forced labor and tribute of the Filipinos during Spanish period. Lifted and taxpayers’ service programs. He institutionalized several modified from http://ezinearticles.com/?The-Forced-Labor-and-Tribute-of-the-Filipinos- programs/projects to improve revenue collections, and these During-Spanish-Period&id=5620267 Sevilla, K. (2013). Pre Spanish period in the Philippines. Lifted and modified from include Project R.I.P (Rest in Peace); intensified filing of tax https://www.slideshare.net/Kate_JRG/pre-spanish-period-in-the-philippines evasion cases under the re-invigorated RATE Program; conduct 04 Handout 2 *Property of STI Page 7 of 7