Today I Learned: In the Philippines, Taxes Began as Colonial Plunder

I strongly disagree with the whole death-and-taxes schtick. Benjamin Franklin wrote in 1789 that “in this world, nothing is certain except death and taxes” (Franklin, 1789). But that is not quite right. Tax evasion is lucrative, depending on the jurisdiction. Death, you cannot negotiate with. Taxes, on the other hand, are more suggestion than inevitability—for those with the means to evade them, at least. For the rest of us, they are considerably less optional. 

And that asymmetry—who pays, who doesn’t, and who decides who pays what—is, in the Philippine context, the entire story. 

For Filipinos, taxation began as colonial plunder. The encomienda system, transplanted from its Reconquista origins in the Iberian Peninsula and formalized in the Philippines under Miguel López de Legazpi in 1570, granted Spanish subjects the right to collect tribute and demand forced labor from indigenous communities (Anderson, 1976; Cushner, 1971). The tributo, initially set at eight reales per head, could be paid in cash, gold, fabric, cotton, or rice. The encomendero was theoretically obligated to provide religious instruction and protection in return. In practice, conditions often resembled slavery, and the system became the economic foundation of Spanish colonial administration in the archipelago. 

Layered on top of the tributo were additional impositions: the polo y servicios, a system of forced labor requiring Filipino males to work on government projects under often brutal conditions; the bandala, a compulsory sale of goods to the colonial government at suppressed prices; the vinta, a coastal defense tax; and the sanctorum, paid to the local parish (Go, n.d.; Phelan, 1967). 

The legacy matters because it embedded in the Filipino political imagination an understanding of taxation as something done to people, not something agreed upon by people. 

When the Katipunan rose against Spain in August 1896, one of the first symbolic acts of the revolution was the mass tearing of cedulas—the community tax certificates that served as both identification and proof of tribute payment. Andres Bonifacio and his Katipuneros gathered at what history remembers as the Cry of Pugad Lawin and ripped apart their cedulas as a declaration of war against colonial taxation itself (National Commission for Culture and the Arts [NCCA], 2015; Agoncillo, 1956). In that moment, the tax receipt became the symbol of oppression, and its destruction became the first revolutionary act. 

Yet the revolutionary government that followed, the Republic established first at Biak-na-Bato and later reconstituted at Malolos, quickly discovered something every state eventually learns: you cannot govern without revenue. The Malolos Republic imposed its own taxes (poll taxes, sales taxes, levies on transporting and selling goods) to finance the war against Spain and later the United States. The Republic’s heavy-handed revenue efforts produced economic disaster in the provinces: able-bodied men were removed from their fields for military service, and no one remained to plant and harvest crops (Rafael, 2015).  

The New People’s Army (NPA), which has waged Asia’s longest-running communist insurgency since 1969, sustains itself in part through “revolutionary taxes” collected from businesses and residents in guerrilla zones. The International Crisis Group (2011; 2024) has documented how these levies discourage investment and allow insurgents to extract profits from resource-rich but impoverished areas. Whether you call it tribute, revolutionary tax, or extortion, the mechanism is identical: an armed authority demands payment by its subject. 

Given this history, Filipinos are relative newcomers to the idea that taxation might be an agreement rather than an imposition. The modern fiscal contract, such as it exists, rests on an uneasy negotiation between three parties who do not entirely trust each other. 

The taxpayer says: Don’t set the rate too high, or I will cheat. 

The government responds: I can’t set it too low, either, or I cannot finance what I need to do. 

And the citizen adds: Fine. But it has to benefit me somehow. 

Economists have a term for this last condition: the fiscal (or economic) multiplier. The concept, rooted in Keynesian macroeconomics, holds that a peso spent by the government on public goods generates more than a peso’s worth of economic activity. The deeper theoretical framework comes from Richard Musgrave’s The Theory of Public Finance (1959), which remains the foundational text in the field. Musgrave identified three essential functions of government fiscal activity: the allocation of resources for public goods that markets will not efficiently provide, the distribution of income toward greater equity, and the stabilization of the macroeconomy (Musgrave, 1959; Musgrave & Musgrave, 1973). The entire edifice of modern public finance rests on these pillars. 

The bargain, then, depends on at least two assumptions. First, that there are goods – national defense, public health infrastructure, roads, education – that the private sector has no incentive to provide but that are nonetheless essential. Second, that public provision of these goods yields greater collective benefit than if individuals spent the equivalent amount privately. These are the assumptions underlying what Samuelson (1954) formalized as the theory of public expenditure, built upon by Musgrave’s distinction between private goods and what he called “social wants” (Desmarais-Tremblay, 2014). 

And if either assumption breaks down—if citizens see their taxes funding a bureaucracy that delivers nothing, or enriching officials rather than building classrooms—then the entire premise of taxation in the modern democratic sense collapses. 

This is why there is an abundance of proposals these days to abolish all sorts of taxes: the travel tax and estate tax chief among them. When the fiscal multiplier turns negative in the public imagination—when citizens believe that every peso remitted to the state yields less than a peso’s worth of public good—the logical response is not reform but abolition. The call to scrap the travel tax, for instance, is not really an argument about the economics of a P1,620 fee. It is a verdict on what government does with the revenue. Likewise, proposals to abolish the estate tax rest less on any Laffer Curve argument about capital flight than on the visceral sense that the state has no legitimate claim on wealth it did nothing to help create, protect, or grow.  

There is a persistent discourse among the Philippine middle class that taxation confers certain privileges—that paying taxes is a form of shareholding in the state, entitling the taxpayer to a louder voice, a stronger claim on government services, or at least moral superiority over those who do not pay. This sense is often deployed in arguments against subsidies for the poor, or “ayuda.” This is a seductive idea. 

The rights and privileges conferred by citizenship, however, are not conditioned on tax payments. The Constitution of the Philippines guarantees equal protection of the laws regardless of income or tax bracket. A jeepney driver who pays no income tax because he falls below the threshold possesses the same constitutional rights as the CEO who funds a meaningful share of government revenue. To argue otherwise is to confuse a civic obligation with a membership fee, and to risk endorsing its extreme conclusion: a plutocratic vision of the state in which political voice scales with economic contribution. 

And yet one understands the impulse. When you watch your withholding taxes deducted from your payslip every month, without the ability to negotiate, while knowing that others with greater resources have the means to minimize their obligations through legal arbitrage—well, the desire to at least claim something for it is entirely human. 

Here is the thing that policymakers will rarely admit publicly: taxation can often be quite arbitrary. The design of a tax system is often far less an exercise in optimal social welfare maximization than it is a pragmatic answer to a simple question: what is the tax that is easiest to administer to arrive at the necessary revenue target? 

The Laffer Curve, made famous when economist Arthur Laffer reportedly sketched it on a napkin during a 1974 dinner with Dick Cheney and Donald Rumsfeld, illustrates the basic problem: tax rates that are too high produce diminishing returns because taxpayers change their behavior to avoid the burden (Wanniski, 1978; Laffer, 2004). There exists some theoretical rate that maximizes revenue. But as Laffer himself acknowledged, the concept was not new—the 14th-century Islamic scholar Ibn Khaldun observed in The Muqaddimah that at the beginning of a dynasty, small assessments yield large revenue, while at the end, large assessments yield small revenue (Laffer, 2004). 

In the Philippines, this arbitrariness manifests in a system with an unmistakable incentive structure: aggressive collection by any means necessary. Republic Act No. 9335, the Attrition Act of 2005, created a rewards-and-sanctions framework for the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC). Officials who exceed revenue targets receive incentives drawn from excess collections. Those who fall short by 7.5 percent or more face termination (Republic Act No. 9335, 2005). The incentives are clear: collect more, get rewarded. 

The consequence is predictable. A compliance-based system—one that encourages voluntary participation and builds trust between state and citizen—is displaced by an enforcement-based one. And in an enforcement-based system, those who pay and have no means to evade are the ones who get squeezed the most. 

In 1819, Chief Justice John Marshall of the United States Supreme Court wrote in McCulloch v. Maryland that “the power to tax involves the power to destroy” (McCulloch v. Maryland, 17 U.S. 316, 1819). Marshall was addressing state interference with federal institutions, but the principle has broader application. If taxation has the power to destroy, then the question becomes: what do we choose to destroy first? 

This is the logic behind Pigouvian taxation, named after the economist Arthur Pigou, which holds that taxes should be levied on activities that produce negative externalities—pollution, tobacco consumption, sugary drinks, carbon emissions—to internalize costs that markets alone fail to account for (Pigou, 1920). The Philippines’ sin taxes on tobacco and sweetened beverages, enacted through Republic Act No. 10351 (2012) and Republic Act No. 11467 (2020), follow this logic. Tax what you want less of, and use the proceeds to fund what you want more of—in this case, universal health care. 

But the principle also works in reverse. When we tax labor income at high marginal rates while leaving wealth and property comparatively untouched, we are making a choice about what we are willing to destroy: the incentive to work, rather than the incentive to hoard. When we impose value-added taxes on consumption, we place the heaviest relative burden on those who spend the largest share of their income on basic goods—which is to say, the poor. And every new VAT exemption, no matter how well-intentioned, makes it much harder to lower the VAT rate that everybody else must shoulder. Every tax design is an expression of priorities, whether or not those priorities are made explicit. 

To reimagine taxation is to reimagine the relationship between the state and the citizen. This instinct is among the oldest in political theory. 

When the English barons forced King John to seal the Magna Carta at Runnymede in 1215, the document’s most enduring contribution was Chapter 12, which established that no scutage or aid could be levied without the common counsel of the kingdom (Library of Congress, n.d.; McKechnie, 1914). Modern historians warn against reading contemporary democratic ideals back into a medieval feudal negotiation between a king and his barons (McKechnie, 1914). But the trajectory is unmistakable: from Runnymede in 1215, to the English Bill of Rights in 1689, which forbade taxation without parliamentary consent, to the American colonial cry of “no taxation without representation” in 1768 (American Battlefield Trust, n.d.)—the arc bends toward the same principle: those who pay should have a say. 

In the Philippines, we obtain the means of popular consent through the elected representatives of the people, the Congress. The Bureau of Internal Revenue administers taxation, and courts adjudicate disputes. Clean, classic separation-of-powers framework that the thinkers of the Enlightenment imagined. But the lived experience of taxation for most Filipinos remains closer to the colonial model than the Magna Carta ideal. Taxes are something that “happens” to you, deducted before you see your paycheck, embedded in the price of goods, collected at ports. 

What would a genuine reimagining look like? It would start by asking what we want to destroy: poverty, vice, pollution, speculation, rent-seeking? And what we want to preserve: labor, entrepreneurship, savings, productive investment? The answers to those questions should determine the tax base, not the other way around. 

It would mean shifting from a system where revenue targets drive collection behavior to one where compliance is the goal, where the state makes it easy to pay, is transparent about where the money goes, and is accountable for the results. It would mean acknowledging that the economic multiplier is not a constant but a variable that depends on quality of government and quality of government officials: a peso spent on a well-designed school feeding program yields different returns than a peso that disappears into some official’s bank account. 

And it would mean confronting the deepest problem: that for the social contract on taxation to hold, both parties must believe the other will keep its end. The taxpayer must believe the government will spend wisely. The government must believe the taxpayer will pay honestly. In the Philippines, after four centuries of broken promises, where death might be the only certainty, that mutual trust may be the most uncertain commodity.

References 

Agoncillo, T. A. (1956). The revolt of the masses: The story of Bonifacio and the Katipunan. University of the Philippines Press. 

American Battlefield Trust. (n.d.). “No taxation without representation.” https://www.battlefields.org/learn/articles/no-taxation-without-representation 

Anderson, E. A. (1976). The encomienda in early Philippine colonial history. Asian Studies Journal, 14(2). University of the Philippines. https://www.asj.upd.edu.ph/mediabox/archive/ASJ-14-2-1976/anderson-encomienda-philippine-history.pdf 

Cushner, N. P. (1971). Spain in the Philippines: From conquest to revolution. Quezon City: Ateneo de Manila University Press. 

Desmarais-Tremblay, M. (2014). On the definition of public goods: Assessing Richard A. Musgrave’s contribution. Documents de travail du Centre d’Economie de la Sorbonne, No. 2014.04. https://shs.hal.science/halshs-00951577/document 

Franklin, B. (1789). Letter to Jean-Baptiste Le Roy, November 13, 1789. In A. H. Smyth (Ed.), The writings of Benjamin Franklin (Vol. 10). Macmillan. 

Go, F. M. L. (n.d.). History of taxation in the Philippines. Philippine Commission on Higher Education. https://phlconnect.ched.gov.ph/admin/uploads/da4902cb0bc38210839714ebdcf0efc3/04-Handout-2_2.pdf 

International Crisis Group. (2011, February 14). The communist insurgency in the Philippines: Tactics and talks (Asia Report No. 202). https://www.crisisgroup.org/asia/south-east-asia/philippines/communist-insurgency-philippines-tactics-and-talks 

International Crisis Group. (2024, April 19). Calming the long war in the Philippine countryside (Report No. 338). https://www.crisisgroup.org/rpt/asia/south-east-asia/philippines/338-calming-long-war-philippine-countryside 

Laffer, A. B. (2004, June 1). The Laffer Curve: Past, present, and future. The Heritage Foundation, Backgrounder No. 1765. https://www.heritage.org/taxes/report/the-laffer-curve-past-present-and-future 

Library of Congress. (n.d.). No taxation without representation. In Magna Carta: Muse and mentor. https://www.loc.gov/exhibits/magna-carta-muse-and-mentor/no-taxation-without-representation.html 

McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819). National Archives. https://www.archives.gov/milestone-documents/mcculloch-v-maryland 

McKechnie, W. S. (1914). Magna Carta: A commentary on the Great Charter of King John (2nd ed.). James Maclehose and Sons. 

Musgrave, R. A. (1939). The voluntary exchange theory of public economy. Quarterly Journal of Economics, 53(2), 213–237. 

Musgrave, R. A. (1959). The theory of public finance: A study in public economy. McGraw-Hill. 

Musgrave, R. A., & Musgrave, P. B. (1973). Public finance in theory and practice. McGraw-Hill. 

National Commission for Culture and the Arts. (2015). History of the Philippine Revolution. https://ncca.gov.ph/about-ncca-3/subcommissions/subcommission-on-cultural-heritagesch/historical-research/history-of-the-philippine-revolution/ 

Phelan, J. L. (1967). The Hispanization of the Philippines: Spanish aims and Filipino responses, 1565–1700. University of Wisconsin Press. 

Pigou, A. C. (1920). The economics of welfare. Macmillan. 

Rafael, V. L. (2015). How revolutionary was the Philippine Revolution? Rappler. https://www.rappler.com/voices/thought-leaders/94548-how-revolutionary-philippine-revolution/ 

Republic Act No. 9335 [Attrition Act of 2005]. (2005). Official Gazette of the Republic of the Philippines. https://www.officialgazette.gov.ph/2005/01/25/republic-act-no-9335/ 

Samuelson, P. A. (1954). The pure theory of public expenditure. Review of Economics and Statistics, 36(4), 387–389. 

Wanniski, J. (1978). Taxes, revenues, and the “Laffer Curve.” The Public Interest, 50(Winter), 3–16. 

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