In 1889, all rates, except the minimum of P1.50 were increased by fifty percent. As thus amended, the per4sonal cedula tax ranged from a minimum P1.50 to a maximum of P37.50 per year. For reasons best known to the framers of the Internal Revenue Law of 1904, the graduated personal cedula tax was repealed and replaced by a fixed annual personal cedula tax levied upon each male resident between the ages of 18 and 60 years. This tax was subsequently increased to P2.00 and remained at that figure until the end of 1937. Apparently as a gesture of good will toward the large class of laborers with small income, the personal cedula tax was abolished on January 1, 1938. A considerable loss of revenue resulted. Furthermore, it was felt that it was a mistake to abolish the certificate of identification which had been issued as a receipt for the payment of the personal cedula tax. These considerations resulted in the re-establishment on January 1, 1940, of an annual poll tax which was called a residence tax. A minimum annual poll tax of P0.50 ($0.25 US currency) was levied upon every adult resident, male or female, between the ages of 16 and 60 years, who during the preceding year has been employed for not less than thirty consecutive working days at a wage of not less than fifty centavos per day, or who is engaged in business or occupation, or who owns real property with a total assessed value of one thousand pesos or more. A certificate of identification called a “Residence Certificate” was issued as a receipt for the payment of this tax. Persons not subject to the minimum residence tax may obtain a Residence Certificate by payment of twenty centavos. An additional tax is levied; one peso for each five thousand pesos (assessed value) worth of real property in excess of one thousand pesos; one peso for every five thousand pesos of gross receipts from the exercise of any profession or from the pursuit of any occupation in the Philippines during the preceding year. It is provided, however, that the maximum tax for any individual shall not exceed five hundred pesos. A separate receipt is issued for the additional tax, if any. Corporations doing business in the Philippines are also subject to the residence tax. The minimum tax for which a Residence Certificate is issued to a corporation is five pesos and maximum tax is one thousand pesos. The rate for additional tax on real property and on gross receipts or earnings from business is the same as in the case of individuals.

The largest single source of internal revenue for many years was the “sales tax” and this tax proved to be the most controversial feature of the Internal Revenue Law. On every occasion that it was proposed to increase this tax, the businessmen alleged that the sales tax was fundamentally wrong and should be abolished. The principal objection to the sales tax was that every importer, manufacturer, wholesaler and retailer paid the tax on very article sold. Hence, the tax might be, and frequently was, paid several times on the same article before that article reached the ultimate consumer. Businessmen held that some other tax should be substituted for the sales tax, but for many years no one offered an acceptable substitute which would equally be productive of revenue. Hence, instead of being abolished, the sales tax was increased from time to time. The persistent campaign against the sales tax finally bore fruit, however.

Commonwealth Act No. 466, “To Revise, Amend and Codify the Internal Revenue Laws of the Philippines” became effective on July 1, 1939. This Act abolished the sales tax which had been in force since 1904, and created percentage taxes to replace the sales tax. The percentage tax is paid once only on the original sale of goods subject thereto by the manufacturer, producer or importer. This eliminated the principal  objection to the old sales tax – that it was paid several times on the same article. A “compensating tax” equal to the percentage tax paid by importers on their original sales of imported goods of the same class, was levied at the customs house or at the post office on goods imported by individuals for their personal use when the value of such goods exceeds fifty pesos for any single shipment. This was done to protect the importers from “unfair” competition and to prevent loss of revenue to the government. For the purpose of assessing the percentage tax, merchandise is divided into three classes. A percentage tax of 10 percent of the gross sales value is collected on merchandise of the first class sold in the Philippines, consisting of jewelry, precious and semiprecious stones, perfumes, cosmetics and certain other articles. A percentage tax of 5 percent was collected on the second class, consisting of automobiles, watches and clocks exceeding P20 each in value, field glasses, cameras, certain sporting goods, beauty parlor equipment, household type refrigerators operated by electricity, gas, kerosene or other means, musical instruments, phonographs and records, ammunition, and certain other specified articles. A percentage tax of 3-1/2 percent was collected on the third class, consisting of all merchandise not included in the first two classes and not specifically exempted from the percentage tax. Goods which are exempt from the percentage tax are: those subject to specific taxes, agricultural products and ordinary salt when sold in the Philippines; articles imported into the Philippines and re-exported in their original state by the importer. 

A percentage tax of 1-1/2 percent was levied upon the value of the output of rope factories, raw sugar factories and sugar refineries, rice mills, coconut oil mills, corn mills and desiccated coconut factories, whether such output is sold locally or abroad; provided that if the raw sugar is sold to a Philippine refinery such raw sugar is exempt from the percentage tax which is paid by the refinery upon the refined products thereof. A percentage tax of 1-1/2 percent was levied upon the gross receipts of contractors engaged in the construction of roads, buildings, irrigation works, artisan wells, waterworks, and other construction work; upon the gross receipts of the proprietors or operators of dockyards, laundries, hotels, engraving plants, foundries, repair shops and other specified business enterprises whose service or product is usually sold direct to the ultimate consumer; upon the gross receipts of carriers and keepers of garages; and upon merchandise sold abroad by the manufacturer or producer thereof.

Commonwealth Act No. 466 constituted a complete codification of all Internal Revenue Laws, with the exception of the Residence Tax law. The source of internal revenue of the Philippine Government are listed in Section 18 of Act No. 466, as follows:
 

To the above list should be added the residence tax which, for reasons which are not apparent, was embodied in Commonwealth Act No. 465 instead of being included ion the Internal Revenue Code (Act No. 466).

It would be beyond the scope of this book to give details concerning all of the taxes included in the Internal Revenue Code, but the reader who desires such information may refer to the Internal Revenue Code itself. A bound volume containing this code may be purchased from the Bureau of Printing, Manila, for P0.75 (US$0.375) plus the postage.