Colonial Legacy and Taxation (Philippines) PDF

Colonial Legacy and Taxation (Philippines) - Spanish and American shaped the current system Spanish Colonial Period (1565-1898) - Under Spanish rule, the Philippine tax system primarily relied on taxing agricultural products and trade. - **Bandala System**: farmers were required to sell t...

Colonial Legacy and Taxation (Philippines) - Spanish and American shaped the current system Spanish Colonial Period (1565-1898) - Under Spanish rule, the Philippine tax system primarily relied on taxing agricultural products and trade. - **Bandala System**: farmers were required to sell their goods to the government at fixed, often below-market prices. This practice was highly unpopular and led to resentment and uprisings, such as the Revolt of the Filipino Farmers. American Colonial Period (1898-1946) - The American administration introduced a more structured and modern tax system. This included the introduction of income taxes and property taxes - Revenue Law of 1904: This law was pivotal in formalizing the tax system. It established the **Bureau of** **Internal Revenue (BIR)** Post-Independence Era - Country still refines the tax system, Introduction of the **National Internal Revenue Code** (NIRC) laid the foundation for modern taxation laws - **TRAIN Law (Tax Reform for Acceleration and Inclusion)** modernize and improve the tax system, focusing on simplifying tax rates, increasing revenue collection, and broadening the tax base. Direct Taxes - are taxes paid directly to the government by individuals or entities. Income Tax - This tax is based on the income earned by an individual or a business. Indirect taxes - taxes are included in the price of goods or services and are collected by intermediaries (e.g., businesses) who pass the tax onto consumers Import Duty - paid by importers when goods are brought into the country. Value Added Tax (VAT) - value added at each stage of production or distribution. Spanish Colonization - From 1521 to 1898, Spanish rule in the Philippines introduced taxation systems to fund the colonial government, support the Catholic Church, and maintain population control. Economic Foundation - During the Spanish period, taxes were primarily financed by the Spanish crown and the Catholic Church, with economic activities like galleon trade and agricultural requisitions playing significant roles. New Income-Generating Systems - These included the Manila-Acapulco Galleon Trade, Polo y Servicio (forced labor), and Bandala (agricultural requisitions). Manila-Acapulco Galleon Trade (1565-1815) - trans-Pacific trading route between Manila in the Philippines and Acapulco in Mexico. Economic Impact: - central hub for international trade. - The taxes where source of revenue for the Spanish government. Polo y Servicio (Forced Labor) - system of forced labor that required Filipino men aged 16 to 60 to provide personal service for public works or community projects. - Each individual was obligated to work for 40 days each year on government projects. - Wealthier individuals could avoid forced labor by paying a fee called falla(1 & a half reales).. - System highly unpopular and led to many protests and uprisings among the Filipino population. \"mandala\" - referred to a round stack of rice stalks to be threshed. Encomienda System (1570) - Spanish encomenderos, who acquired land in the Philippines, were granted tributes or taxes from the local population in exchange for protection and religious instruction. Duties of Encomenderos: - Protection of Natives - Religious Conversion - Promotion of Education Tribute \"Buwis\" - form of tax that Filipinos were required to pay. The Role of the Contador de Resultas (17th and 18th Centuries) - chief royal accountant of the Spanish, his role was similar to that of the Commissioner of Internal Revenue in modern times. The Contador de Resultas - chief arbiter on financial matters and had the authority to make final decisions on tax co lection and revenue issues Tax Co lection: During this period, taxes co lected from the population varied widely and included: - Tribute or head tax - Taxes on goods Spanish Treasury and Financial Struggles - Spanish crown largely subsidized the Philippines during the colonial period. - From 1521 to 1821, the Spanish treasury subsidized PHP 250,000 per year to the Philippines due to its weak financial condition and poor revenue co lection systems. **American Tax History** **Early Beginnings:** The American Revolution was triggered by protests against British taxation policies in the 1760s, which shaped the country\'s taxation system. **Major Reforms:** Over time, significant tax reforms, including the introduction of the income tax, the establishment of the federal income tax system, and the implementation of Social Security and estate taxes. **The Colonial Era and Early Taxation (1600s-1776)** **Taxes Under British Rule:** Before independence, the American colonies were heavily taxed by the British government to fund military and administrative costs. Notable taxes included: - Stamp Act (1765): Tax on printed materials such as newspapers and legal documents. - Townshend Acts (1767): Imposed taxes on goods like glass, paper, and tea. **Post-Revolutionary Period and Early Federal Taxes (1776-1800)** Challenges of the New Government: - The United States faced financial challenges after independence due to limited taxing power under the Articles of Confederation, leading to ineffective state contributions Constitutional Changes: - The U.S. Constitution (1787) granted Congress the power to levy taxes, marking a significant shift in the taxation system. First Federal Tax - Whiskey Tax (1791): - Under Treasury Secretary Alexander Hamilton, the Whiskey Tax was introduced to pay off national debt, leading to the Whiskey Rebellion (1794), a protest suppressed by federal troops. **The 16th Amendment and the Modern Income Tax (1913)** - The 16th Amendment granted Congress the power to impose an income tax without distributing it among states, marking a significant shift in American taxation. **Revenue Act of 1913:** - The Revenue Act of 1913, following the 16th Amendment, established the modern federal income tax system, with rates ranging from 1% to 7% on incomes over \$3,000 (equivalent to \$85,000 today). **Political Context:** - Income taxes were implemented to reduce tariff reliance and address economic inequality, while also funding the growing federal government. **The Great Depression and New Deal Taxes (1930s)** - The Great Depression significantly impacted the American economy, prompting President Franklin D. Roosevelt\'s New Deal programs, which necessitated substantial funding and altered the tax structure. Revenue Act of 1935: - The act introduced a progressive income tax with a top tax rate of 75% for incomes over \$5 million (about \$100 million today). - This tax policy aimed to reduce wealth inequality and fund social programs such as Social Security. New Tax Policies: - The Social Security Act of 1935 also introduced payroll taxes to fund the new Social Security system for retired workers. **World War II and Post-War Taxation (1940s-1950s)** - The US involvement in World War II led to a significant increase in government spending, necessitating a significant expansion of the federal income tax base. Revenue Act of 1942: - The act expanded the number of people required to file income taxes and increased tax rates. - By 1944, the top marginal tax rate reached a staggering 94% for the highest income earners. Post-War Period: - During the 1950s, high tax rates were maintained to fund post-war reconstruction and government commitments, with corporate taxes also contributing significantly to revenue. **Tax Reforms of the 1980s and 1990s** 1986 Tax Reform: - Under President Ronald Reagan, the Tax Reform Act of 1986 simplified the tax code, reducing the number of tax brackets and lowering the top tax rate from 70% to 28%. - The goal of the reform was to stimulate economic growth and investment by creating a simpler and fairer tax system. 1990s Changes: - The Earned Income Tax Credit (EITC) was expanded, providing benefits to low-income families. - The Clinton administration also introduced new tax policies to fund government programs and reduce the budget deficit. **Tax Rates Today (2000s-Present)** Current Tax Brackets (2023): - The U.S. income tax system now operates with seven tax brackets, ranging from 10% to 37% depending on income. - The highest rate of 37% applies to individuals earning over \$578,100 (or \$693,750 for married couples filing jointly). Other Taxes: - The U.S. government also collects payroll taxes for Social Security and Medicare, as we l as corporate taxes and other excise taxes. Tax System Complexity: - The current tax system is highly complex, with ongoing debates about tax fairness, efficiency, and the appropriate balance between income, corporate, and payroll taxes. **Philippine Taxation under the American Period (1898-1935)** 1904 -- Internal Revenue Law: - The Bureau of Internal Revenue (BIR) was formally organized in 1904 to assess and collect national taxes, including taxes on banks, insurance companies, and excise duties. 1913 -- Underwood-Simmons Tariff Act: - The Underwood-Simmons Tariff Act, enacted in the United States, aimed to decrease tariffs on manufactured and semi-manufactured goods and eliminate duties on most raw materials. Purpose of Taxation Laws - Tax laws in the Philippines ensure fair, efficient revenue generation for the government, supporting public services, economic growth, and addressing inequalities through infrastructure projects and social programs. **The Corporate Recovery and Tax Incentives for Enterprises Act (CREATE Act) \[Republic Act No. 11534\]:** - signed into law on March 26, 2021 by then-President Rodrigo Duterte. Some of the provisions, like tax reductions, took effect earlier, on July 1, 2020. - The CREATE Act is a tax reform in the Philippines aimed at improving the business climate, fostering investment, job creation, and economic stability, by cutting taxes for businesses and enhancing the local economy\'s global competitiveness. Reduction in Corporate Income Tax (CIT) - The government reduced corporate income tax rates from 30% to 25%, with a further 20% reduction for small businesses under PHP 5 million, aiming to ease tax burdens and encourage local business expansion. Lower Minimum Corporate Income Tax (MCIT) - The MCIT, typically imposed on corporations with zero or negative taxable income, was reduced from 2% to 1% from July 1, 2020, to June 30, 2023. To help businesses Revised Tax Incentives System - The CREATE Act revamped tax incentives for manufacturing, technology, and regional development, focusing on performance-based incentives to attract long-term investments, requiring job creation and sustainable development. **Why was it implemented?** - The CREATE Act aimed to accelerate recovery and improve fiscal competitiveness in the Philippines by cutting taxes and reforming the incentive system, aiming to attract FDIs, stimulate domestic businesses, and enhance productivity in key sectors. **The Tax Reforms for Acceleration and Inclusion (TRAIN) Act (Republic Act No. 10963)** Implementation Date: - signed into law on December 19, 2017, and became effective starting January 1, 2018 What is the TRAIN Act? - The TRAIN Act, part of the Duterte administration\'s Comprehensive Tax Reform Program, aimed to make the Philippines\' tax system more equitable by lowering personal income taxes for low- and middle-income Filipinos and increasing taxes on luxury goods. Personal Income Tax Cuts: - The government reduced personal income taxes for those earning below PHP 5 million annually, aiming to improve disposable income and reduce poverty in the Philippines. Higher Excise Taxes: - Excise taxes on consumption goods like fuel, tobacco, alcohol, and sugary drinks were introduced to fund infrastructure projects, curb harmful consumption, and promote environmental sustainability by discouraging fossil fuel use. Cash Transfer Program: - The government introduced a cash transfer program to help the poorest 10 million households in the Philippines cope with increased living costs due to higher excise taxes. Why was it implemented? - The TRAIN Act aimed to address the fiscal deficit, fund infrastructure and social services, and stimulate the economy by raising consumption and personal income taxes, while improving the quality of life for ordinary Filipinos.