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Economics, Taxation and Agrarian Reform

MIDTERM LECTURE Mrs. Ching M. Ortega

Economics - science which studies human behaviour as a relationship between ends and scarce means which have alternative uses. - the study of how societies use scarce resources to produce valuable commodities and distribute them among different people.

It comes from the Greek word oikonomia, which literary means household management. The familiar setting of the household, the holder of the purse evaluates the need and even the whims of the household members

Is Economics a science or an art?

Confined to the notion of household management, certainly art is involved in engaging in such an activity Economics as it has grown today, however, is much more than management As a discipline, it attempts to explain economic phenomena via set of systematic relations As a social science, it seeks to explain the why of things in the world of economic behaviour- production, consumption and distribution.

There are two main branches of economic inquiry: Microeconomics seeks to understand and explain the behaviour of the individuals- the consumer, the producer, the worker, the owner of the capital asset among others- as they respond to changes in their economic environment. E.g.. In the relative scarcity of things involved in their choice field

Macroeconomics deals with the behaviour of the aggregates of economic activity as a whole e.g.. The countrys gross national product (GNP), consumption spending, investments, unemployment, inflation, imports and exports, the exchange rate, the demand for and supply of money, the interest rate, the countrys foreign debt and the like.

Positive Economics
Positive economics dwells mainly on making statements about what is or predictions about what will happen when a certain action that has implications on the allocation of scarce resources is proposed. It states that what is expected to happen when the current conditions are changed either by domestic consumers or producers, by the international market at large, or by government intervention or policy.

Normative Economics
Normative economics is concerned with what should be Normative statements are often identified with policy prescriptions Normative economics- is concerned with what should be Normative statements are often identified with policy prescriptions

Normative prescriptions are essentially coated with their own value judgments They reveal the bias of the people who prescribe policy action on particular issues The intent of normative prescription differs from the bland description of positive conclusions

In a sense, positive economics has no heart, no fear, no favour on which particular segments of the society would be favourably or adversely affected. On the other, normative prescriptions choose which sectors of the society favour, protect, or give consideration.

Normative economics has its important place in our societal life


It put flesh in the conclusions arrived at by positive economic analyses and makes them relevant to the societal goals of efficiently allocating our scarce resources and, to the extent possible, coming up with the distribution of resources that is generally acceptable to the values of the society at large.

Types of Needs: Basic needs Man has needs which he cannot do without. They have to be satisfied for him to live minimally as a human beingthese are called basic needs- food clothing and shelter.

Some of his needs may go beyond the basic ones. These are needs whose satisfaction is not basic to mere subsistence but is essential to decent and comfortable living. For decent living, man would need such good and services as fuel, light, water, household furnishing and equipments, personal care, medical care, education and even recreation and leisure

A third set of needs would be those satisfied by so-called luxury goods It is difficult to categorize goods and services into basic and luxury or into essential and non-essential What is luxurious to one maybe basic to another Other less basic needs also change with income

Created wants: Not all needs and wants are felt by man from the very beginning. Some needs can be created Needs and wants can arise from the socalled demonstration effect

Varying needs and wants

Needs and wants can vary among groups of people Needs can also vary according to the climate and temperature of a given place. Public wants- those which are more desired by larger groups or communities in common, in that no one person would spend for them because of its large expense and yet many others will benefit from them. Private wants- those that are clearly specific to individuals.

How Wants are Satisfied

Because man has needs and wants, he seeks the goods and services which can satisfy them Goods are material objects or things which satisfy needs The needs for shelter can be satisfied by house or apartment Some needs can also be satisfied by services

Product comes from resources:

Goods and services have to be produced Raw materials have to be gathered, processed and prepared for final satisfaction of needs and wants Resources also called factors of production, some or all of which are indispensable elements to produce goods and services.

These can be classified into:

Land consists of all natural resources, including land, everything beneath and above it, minerals, waters, air, trees and other forms of raw materials used in the production or the sources of these raw materials or they provide for our food

Labor comprises all human beings who extract raw materials, process these raw materials into finished consumption or investment of goods, transport and sell raw materials or finished products or are engaged in services (e.g.. Household help, barbers, etc.) and profession (e.g.. Lawyers, doctors, teachers etc.)

Factors of Production
Capital materials such as tools, machinery and equipment which man uses to extract and process raw materials into finished goods, as well as buildings, roads and other infrastructures.

Entrepreneur a person who puts together or organizes the other factors of production (land, capital and labor) to make the needed goods and services. He may also be the manager of a business establishment or any of its divisions seeing to it that the resources are well organized into productive units, and leaving little for waste.

Another factor of production:

foreign exchange (dollars, yen, euro etc), which is not wanted for its own sake but it is sought because it enables us to import raw materials, machinery and many other goods and services not available in the Philippines

While our needs and wants are unlimited, it is also next to obvious that we cannot satisfy all of them at the same time There appears to be a shortage of goods or money to satisfy them This is the concept of scarcity. The scarcity in goods reflects the scarcity in resources

Scarcity, in one form or another knows no territorial, political, racial, social and religious barriers It affects the rich and the poor alike. Scarcity is a relative concept

The Need to Choose

If the society does not have enough resources to produce all goods and services it needs to satisfy human wants at any given time, the problem of choice exists. There are fundamentally four choices that every society has to make as a result of scarcity: what to produce how much to produce how to produce for whom to produce

A society may adopt any or a combination of the following types of economic systems of decision-making:

tradition an economy run by tradition is one whose economic choices are decided by the past experience
a product is produced this way because it has always been produced this way

command or planned economy makes its fundamental economic choices through a sort of economic commander-in-chief or a group of men whose wishes are the commands of the producers
what, how much, how and for whom to produce are planned and dictated from above to those involved in the production below.

Market- is another way of deciding on the four fundamental economic questions In a market economy where competition reigns, the price of a commodity determines what and how much of it will be actually produced, how, and for whom Through the price system, consumers express their votes on a certain product

Opportunity cost
Every time you have to make a choice between two or more alternative, you are incurring a cost- or making a sacrifice- which consists in what you give up to get what you have chosen it is the benefits forgone by resource-owner in making a choice

Trade off Trade off

to get more of one kind of goods we must give up or sacrifice some of the other kind ( road) and vice versaprecisely because resources are limited

Law of diminishing return

the return from adding a resource to a given product decreases as the amount of rechanneled resources increases given all other inputs constant.

What to produce?
The economic society must discover the desires of the people it serves. People tend to desire what is readily available Their wants are conditioned by their physical environment Our wants is also affected by customs and historical circumstances

How much to produce?

Knowing what to produce is not enough The system must also determine how much of these goods should be produced This will depend substantially on how much people want, it will not be always sufficient to rely on how much was consumed in the past. yA knowledge of our peoples tastes and desires is important

How to produce?
The question refers to the different ways and techniques of allocating limited resources in the production of all three. Better ways of doing things- you are interested in doing things at the shortest possible time with least negative side effects possible. The problem of choosing how to produce a certain commodity or service arises because there are technically many ways of doing them

For whom to produce

Identifying the sectors of the consuming public -Once these sectors are identified we could also ask, how much for each? -These questions have to be asked because the goods, once produced, are also scarce relative to the publics preferences for them. -Which goods would be produced for export, and to whom should the corresponding imported goods be destined.

Overcoming Scarcity:

Full employment
In the short term, society should use all the resources available to it Surprising as it may sound, some amount of existing resources remain idle When this happens, society is giving up the enjoyment of products which these idle resources can produce. Thus one of societys goal is full employment- maximum use of all its resources

That means that economy is operating along societys production- possibility frontier or maximum production possible, although in the context of the national economic analysis, full employment refers only to labor Over the long term, the economys efforts to overcome the consequences of scarcity are geared towards: increasing productivity and achieving growth.

Economic growth refers to expanding production, or output Since production is inevitably translates to income, it also refers to the increase income. Economist have traditionally identified two sources of growth: an increase in the available resources causes growth

the discovery of more land to cultivate, the expansion of the labor force and the addition of capital raise the economys capacity to produce and therefore raise future capacity to produce even with the same resources, more output could be produced with higher productivity

Increase in Resources
Increase in available resources allows the economy to move up to the production of more resources.

This means raising the economys capability to produce more from the same resources This means greater efficiency, and often refers to labor

Higher productivity may mean reallocating the same resources to produce more of at least one good without correspondingly producing less of another and / or from the distribution side, redistributing what are being produced to increase the share of at least one user without correspondingly decreasing the share of another

Higher productivity can be attained in production by training and education, improved technology, or by a good system of infrastructure etc.

refers to the amounts of good and/ or service that consumers are both willing and able to purchase. Consumers show their desire for goods and services by purchasing them

Law of Demand
Asserts that the quantity demanded of a good and/or service is negatively or inversely related to its own price Ex. If the price of the movie ticket goes up people will purchase fewer tickets

Two reasons why price and quantity demanded are inversely related: Price is an obstacle to consumption - The higher the price of a good, the greater is its opportunity cost in terms of other goods that must be given up, and therefore the less consumers would want to but of the item.

Second reason- budget of the consumers -Paying a higher price for some amount of a commodity effectively reduces our income; -It takes more pesos to buy a given quantity at a higher price. -Therefore, at higher prices, consumer are forced to purchase less of all commodities they usually buy.

Supply- refers to the amounts of a good and/or service a firm or producer is willing and able to offer for sale.

Law of Supply
States that quantity supplied is positively related to price. Ex. Firms offer larger amounts at higher prices and smaller amounts at lower prices. In this case price is the reward for production so that higher market prices bring forth larger quantities. Higher prices provide firms with extra funds to purchase more resources or inputs to increase production. Higher price also acts as a signal to producers that consumers value their goods highly and desire more of them.

Changes in quantity Demanded

If there is an increase in price, consumers respond by decreasing the quantity they want to buy of the good.

Changes in quantity Supplied

A decrease in price will decrease quantity supplied because suppliers respond by producing less at lower prices.

Shifts in the Demand and Supply curves

Factors which can cause demand to increase or decrease: 1)Income 2)Prices of related commodities 3)Consumer tastes and preferences 4)Consumer expectation 5)Number of consumers

Higher income level generally translates into greater ability to buy goods and services and hence, higher demand for most goods Thus, when consumer income increases, the demand curves shifts to the right At the same price, demand for the good has increased Similarly, a fall in income reduces demand, causing the demand curve to shift to the left.

Normal goods - goods for which demand increases as income increases and for which demand decreases as income decreases. However it is possible for demand to actually decrease when the consumers income increases. Ex. A sufficiently large increase in income might lead to a fall in the demand for movie tickets because they were able to buy their own home entertainment system

Inferior goods an increase in income results in decrease in demand for goods As in the example of the movie tickets

Prices of related commodities in consumption

Our demand for an item is also influenced by the prices of related goods and services. Goods may either be substitutes or complements for each other Ex. Ballpen and pencils are examples of substitute goods Both are tools for writing, when the price of ballpens increases, the demand for pencils will increase, causing the demand curve to shift to the right.

Related goods may also be complementary in consumption Complementary goods are always consumed together. Ex. A CD player and a CD are complementary goods The demand for CDs would fall if the price of the CD player were to double When the price of a complementary good falls, demand for the related good increases.

Consumer tastes and preferences

Greater amounts of a good are demanded at every possible price when consumer tastes shift towards a particular good For instance, if consumers decided that drinking brewed coffee is the in thing, demand for brewed coffee will increase. After the change in consumer preference, consumer will demand more brewed coffee than before the change in tastes.

Demand for a good will decrease if consumer preferences change in the opposite direction, making the good less desirable than before. At every possible price, less of the good is demanded than before.

Consumer expectations
Expectations about future prices and income affect our current demand for many goods and services Ex. We might expect prices of dried fish to increase with the onslaught of the rainy season As we act on our expectation, current demand for the commodity will either increase or decrease.

Expectations about future income also affect current demand. When we look forward to our Christmas bonus, current demand for goods and services increases. On the other hand, those who expect to lose their jobs due to bad economic conditions, will reduced their demands for a variety of goods in the current period

Number of Consumers
The number of consumers affect the market demand for a good Since the market demand for a good is the horizontal summation of the separate demand schedules of individual consumers, an increase in the number of consumers shifts the market demand to the right curve. Ex. Market demand for mass housing and mass transportation inevitably increases with the increase in population

On the other hand, less consumers will cause the market demand to decrease resulting in the shift to the left of the entire demand curve.

Other factors that affect the supply schedule

1) Resource prices 2) Prices of related goods in production 3) Technology 4) Expectations 5) Number of sellers.

Resource prices
When prices of inputs to production increase, the supply of the firms product decreases With higher production cost, firms cannot produce and offer the same quantity as before the increase in costs Decreases in resource prices, translate to an increase in supply Ex. Falling raw materials costs, will reduce the production costs of firms allowing them to expand output levels.

Prices of related goods in production

Resources or factor inputs can be employed to produce not just one but several alternative goods and services. When the price of any of these goods changes, the supply of a good related in production can also changes. Ex. Farmers may shift to planting sugarcane if the cost of the vegetables decreases.

A change in production techniques can lower or raise production costs and affect supply. A cost-saving invention will enable firms to produce and sell more goods than before at any given price. Changes in technology that raise production cost can decrease the supply Improvements in technology can increase the supply.

Producer expectations
When producer expect the price of their products to rise in the future, they may hoard their output and store it for later sale, effectively reducing supply in the present period. The reverse is true if producer expect the price of their product to fall in the near future. Supply may increase in the current period as firms try to increase production as well as dispose of their inventory at the current price.

Number of sellers
Market supply is the horizontal summation of supply schedules of individual producers. When firms are enticed to enter the market, larger quantities are produced at all possible prices. Similarly the supply decrease when firm exit the market.

Market equilibrium
State in which both price and quantity are at levels at which the amount firms want to supply matches exactly the amount consumers want to buy. Market equilibrium is obtained when supply equals demand. equilibrium price the price that prevails equilibrium quantity the quantity observed.

The market is said to be at rest since the equilibrium price and equilibrium quantity will stay at those levels until either demand or supply changes

Temporary surplus
at prices above the equilibrium price, quantity supplied is greater than quantity demanded. To get rid of the surplus, producer will reduce price enticing consumers to buy more. Actions by both producers and the public will wipe out the temporary surplus Price falls until the equilibrium price and quantity respectively are attained.

Temporary shortage
At prices below the equilibrium price, the buying public demands more than what is available. Since products are sold out quickly, consumers push up the price. As prices rise, firms increase their production while some consumers drop out of market. The temporary shortage is eliminated by actions of both buyers and sellers, once again enabling the market reach equilibrium

Elasticity concepts
A measure of how much quantity demanded of a certain good changes as a result of changes in its own price. In absolute terms, elasticity values can range from zero to infinity; each with definite interpretations Since price elasticity is always negative in value due to the negative relationship between the price and quantity demanded, interpreting elasticity in terms of their absolute values will not alter the interpretation.

Price elastic demand- when the percentage change in quantity demanded is greater than the percentage change in price Price inelastic demand if the percentage change in quantity demanded is less than the percentage change in price. Unit elastic demand- if the percentage change in quantity demanded is exactly equal to the percentage change in price.

Perfectly inelastic demand- if the quantity demanded does not change as price changes (vertical). Perfectly elastic demandwhen consumers are prepared to buy all they can at some price and none at all at any other price (horizontal)

Determinants of price elasticity of demand

1) The availability of good substitutes for the commodity 2) The number of uses the good can be put into 3) The price of the good relative to the consumers purchasing power 4) The time frame under consideration 5) Location along the demand curve

Availability of good substitutes for the commodity

Demand will tend to be elastic if good substitute is available.

The number of uses the good can be put into

The wider the range of uses for the good, the more elastic demand will tend to be. The greater the number of uses in which product can be put, the greater the possibility for variation in quantity demanded as its price varies. Ex. Wood can be used for furniture, construction etc.

The price of the good relative to the consumers purchasing power

Demand for goods that take a large amount of a buyers budget is more likely to be elastic. Ex. The demand for designer shoes is more elastic than the demand for iodized salt.

The time frame under consideration

The longer the time period being considered, the more price elastic in demand Most consumers are creature of habit Therefore it takes time to find or experiment with other products when the price of an item changes. It takes time for consumers to develop taste for most product.

Location along the demand curve

The location of the price-quantity combination on the demand curve will determine whether demand is price elastic, inelastic or unit elastic.

Income Elasticity of Demand

Measures the responsiveness of quantity demanded to changes in income. when the income elasticity demand assumes a positive value, quantity demanded of the good increases and the good is called normal good. If the quantity of a good falls as income increases, the income elasticity takes a negative value and the good is called inferior good.

Cross Price Elasticity of Demand

It measures the percentage change in quantity demanded of one good following a percentage change in the price of another good. Price increases of a substitute good leads to an increase in the quantity demanded of the other good; Hence when the cross price elasticity is positive the two goods are substitute goods.

On the other hand, when the cross price elasticity has a negative value, the goods are complementary goods. A price increase of a complement good leads to a decrease in the quantity demanded of the other good Ex. Ballpens & sign pens = substitute goods Ex. CD & CD player = complementary goods

Utility Concepts and Measurement

Utility the amount of consumption derived from the consumption of commodity. Cardinal utility this implies the that the consumer is capable of assigning to every good or a combination of goods a number representing the amount or degree of utility associated with it. Ordinal utility- to rank bundles of commodities according to the order of preferences.

Total Utility
Refers to the overall level of satisfaction derived from consuming a good or service. It increases as the amount of a commodity consumed increases but only up to a certain maximum level which is called saturation point. Beyond this total utility will tend to decline (too much of anything is bad)

Marginal Utility
The additional satisfaction that an individual derives from consuming an additional unit of a good or service. It is also the change in total utility per unit change in good or service consumed. As satisfaction approaches saturation, this incremental utility decreases as one consumes more and more of commodity.

Diminishing Marginal Utility

As more and more of a good are consumed, the process of consumption will at some point yield smaller and smaller additions to utility. If additional units of a good will

Consumer Equilibrium
Consumer items are tagged with their respective prices, so we have to consider the amount of money on hand and determine if they add up enough to match the price tags attached to the goods whose consumption whose consumption will give us some level of satisfaction.

Therefore, the question to ask now is, in a given time period, how much of the goods available will you consume if you have to pay for them? If you have a given income, how much are you going to allocate among the goods that you want?

Substitution effect
The impact of a pure price change on the quantity demanded of a certain commodity When the price of one good increases, as the income and price of other goods remain the

Income Effect
The impact on quantity demanded of a change in purchasing power. By purchasing power- it means the quantity of goods that can be bought with a given income level and prices for the commodities. When the price of a good increases, with the consumers income remaining constant, the purchasing power or real income decreases. Income effect reinforces the substitution effect.

A system where buyer and seller exchange goods or service. The market is a logical mechanism that helps answer the basic economic questions of what, how much and for whom to

Every commodity bought and sold in the market has an attached price. Aside from being a reflection of value, the price also serves as a signal to market participants If there is a shortage for a certain commodity, buyers will bid for higher prices to obtain the commodity. The increase in price will signal sellers to produce more as well as to ration out limited supply.

On the other hand, if there is a surplus, the opposite will occur To entice consumers to buy more, producers will lower the price to get rid of excess stock. There is a market for almost every commodity. Each market may have a different structure Differences may occur in terms of number of sellers or buyers, demand for commodity and even control in the market.

Perfectly Competitive Market

The perfectly competitive market is generally characterized by the following features: 1.Smallness of buyers and sellers relative to the market 2.Homogenous product

Smallness of buyers and sellers relative to the market

This means that there are numerous buyers and sellers in the market that each will be too small to affect the market price of the good. In essence none of the economic

Ex. If there are 100 sellers and one will sell his products for lesser price, he will not make any difference for he cannot cater to all the buyers and besides he will earn less for he sells less and all the other sellers are selling their products at the equilibrium price and the buyers will buy from them.

Homogenous product
This means that from the consumers point of view, there is no perceived distinct difference among the products being sold in the market. It implies that there would be no reason for consumers to patronize one sellers products over another particularly with respect to quality or non-price attributes. It also renders an attempt at advertising ones product useless and baseless since buyers will not be able to tell the difference

Absence of artificial restraints or controls

This has particular reference to allowing the forces of demand and supply to work freely toward the determination of equilibrium price and equilibrium quantity. As such, artificial controls like government- imposed price ceilings

Perfect mobility of goods and resources

This particular feature presupposes free entry and exit of goods and resources both in the geographical and business sense, i.e., for firms, this implies that they can bring their product to

This is also to say that factors are mobile between industries, even for those specific required by specific industries. Potential firms can easily enter an industry or leave the industry without much difficulty should their business acumen signal them to do so.

Perfect information
This assumes the consumers have absolute knowledge of what commodities are offered for sale (inclusive of qualities and characteristics), where they can get them, and what price is being

Imperfect competition
A market situation where individual firms have a measure of control over the price of the commodity in an industry. A firm that can affect the market price of its output can be classified

Imperfect competition does not imply that a firm can arbitrarily put any price on its commodity An imperfect competitor does not have absolute power over the price of its commodity but it at least has some discretion over its price decisions. The degree of discretion over price differs among firms and among market systems.

Aside from firms having some discretion over their own prices, imperfect competitors may or may not have product differentiation, discernable differences among commodities sold by firms. Product variation gives rise to deviations in the prices of commodities. Ex. Chickens sold in the fast foods- it can vary in flavoring and side dishes

Types of imperfect market

1. Monopoly 2. Oligopoly 3. Monopolistic competition

A market situation where a single seller exists and has complete control over industry. In the Philippines, there are only few monopolies remaining. Ex. Electric power company,

Pure monopoly- refers to a market for a good which has no good substitute. There are several misconceptions about monopolies that must be rectified: 1.Being a monopolist does not ensure the firm instant profit. 2.It is not true that firms can impose any price it wants 3.A monopolist cannot maximize profit at an inelastic region of the market demand curve.

Market structure with few sellers. There are two types of oligopolies depending on the nature of commodity they Oligopoly sell: Pure oligopolies- firm sell a practically homogenous product, the same kind of commodity Ex. Cement industry there is little perceived difference between the products of one cement company and anothers.

Differentiated oligopolies- firms sell products that vary in quality. Ex. Automobile industry- each sellers commodity has distinguishing characteristics like size, speed, accessories etc.

Can also be classified according to the marketing strategies employed : 1.Collude - firms act as one, like a monopoly, by setting a price level that maximizes profit for the

Maybe perfect or imperfect: Imperfect collusion- firms have no formal arrangements under which they set the level of price or output, although they adhere to some informal agreements.

Perfect collusion
Has two forms: a.Centralized cartels have a committee composed of members from representative firms who determine the level of price, output and revenue of the firms

2. Independent action if firms do not collaborate in any way in the market. the outcome on the profit of each firm are dependent on the strategies of all other firms. a firm can engage in price competition known as price war undercutting prices to capture consumer demand towards ones own market.

However, consequences of such strategy may be very costly to the firms profit position Hence, the alternative which employs non price like promotions, billboards, radio and television advertisement.

Occurs when there are many sellers producing differentiated products. Similar to a perfectly competitive market Monopolistic competition structure, there are a large number of sellers that can enter and exit the market without any barriers The difference between this market type and perfect competition is that sellers in monopolistic competition can vary product characteristics

The major sources of differentiation among firms arise from location, quality of the product, trademark or brand of commodity Ex. Sari-sari stores sell products that can also be found in supermarkets, since people want to economized on time they would buy a slightly higher priced good at a more accessible store than go to the supermarket to buy the same good.

National Income

Government and Foreign Agents

a. Government purchases of goods and services b. Government payment for factor services c. Transfer payments between different agents

Government purchases of goods and services

Government buys goods and services for its day to day operations and projects These represents the transactions for which government makes payments to firms

Government payments for factor services

Government hire workers, rents privately owned buildings etc. These represent payments of government to owners of factors of production Ex. The salary of a public school

Transfer payments between different agents

Transfer payments are transactions wherein one party is not obliged to deliver a good or service in return for the payment Ex. Retirement benefits, unemployment benefits,

Transactions with the foreign sector

Transactions between foreign and domestic agents include sales of goods and services, assets, and transfers Sales of domestically produced goods to other countries are called exports In the circular flow diagram, this will be

Firms and household pay taxes to government

These include the taxes paid on income, property, goods and services In the circular flow diagram, these will be reflected as payments from the households and firms to the

Payments for goods and services goods and services



Factors services Factor payments

(wages, interest,rent,profit)

Gross domestic product

Measures the market value of all final goods and services produced within an economy in a given period. Generally measured for a year or quarter.

GDP only measures current production. Transfer payments and transactions involving goods produced in other periods are not included in the calculation of GDP. It is not included because no current production takes place in return for the payment. Ex. Unemployment benefits are not included because the recipient does not render a service.

GDP is usually expressed in the currency of a particular country. It therefore indicates the market value of goods and services that are produced in the economy.

The Market Value

The market value of a good is calculated by taking the product of its per unit price and the quantities that we produced. In order to calculate the GDP, we simply take the sum of the market

Why use the market value?

The use of the market value is due to the fact that we cannot directly add different goods and services The use of market values allows us to add the quantities of

GDP measures only final goods Final goods- goods and services that are not purchased for the purpose of producing other goods and services or resale. Ex. Buying of buko and eating it- final good Buying of buko to produce buko pie for the purpose of selling it to the marketintermediate goods In this case purchase of buko is not included in calculation of GDP

Intermediate goods- the value is already embodied in the price of the final goods Ex. Flour for the dough of the buko pie Buko pie is a final good because it was not purchased for the purpose of producing other good The price of the flour on the other hand is incorporated in the price of the buko pie.

Approaches to GDP Measurement

Expenditure approach
goods Ice cream Price per unit Quantity sold expenditure s 10 1000.00 Involves 100.00 calculating the sum of all expenditures on final goods. Buko pie 50.00 5 250.00 Ex. (hypothetical) GDP 1,250.00

Income approach
Calculates GDP by taking the sum of the payment for the different factors of production It is the total of all incomes from wages, interests, profits, and rent GDP = wages + profits + interest + rent Value added measures the contribution of the different factors of production to the value of the good. It is calculated by taking the difference between a firms sales and its purchases from other firms

item sales Cost of production wages interest rent Purchases from other firms profits

Amount in pesos 1,000.00a statement of

Income hypothetical firm

100.00 100.00 100.00 300.00 400.00

Overview of the national Accounts in the Philippines

Expenditure approach
Personal consumption expenditure- represents the spending of households and private non-profit institutions on goods and services This includes the spending of the household sector on food, clothing, entertainment etc. The expenditure in this item is generally classified into durables and non-durables

Are those that last for a longer period of time This list includes goods like furnitures and appliances

Non durables
Goods and services that are consumed rapidly Ex. Food, beverages and services

Represents the investment spending of domestic agents Its major components are changes in fixed capital and changes in stocks TheGross domestic capital to bulk of expenditures on fixed capital go construction and the purchases of durable equipment formationadditions to or Changes in stocks represent the reductions in firm inventories This item is actually an adjustment for the fact that not all goods are bought in the period in which they are produced. It is included to ensure that GDP measures the economys current output

Government consumption expenditures

Represents the governments payments for the salaries of its workforce as well as purchases of goods and services Such expenditures are used for the governments day to day operations

Represent the spending of the rest of the world on goods and non-factor services produce in the Philippines Exports are added to the expenditures on GDP to account for the fact that not all of the goods produced in the

Represents the countrys purchases of goods and non-factor services from the rest of the world. We subtract imports because these do not represent domestic production Imports appear as a separate item in the national accounts because personal

Income Approach
Compensation of employees represents the salaries and wages of workers in the economy On the other hand, net operating surplus is an item that lumps together all sources of income other than labor

Two adjustments in the equation of income and expenditure

Depreciation- represents the consumption of existing capital stock Ex. Computer is worth 40,000 and has a working life of 5 years Over a period of 1 year supposed 1/5 or 8,000 worth of the working life of the computer was used.

Depreciation is treated as a business cost In calculating the firms profits, it is among the many items that are subtracted from the revenues To ensure that the income and expenditure account yield the same value of GDP, w need to add depreciation to income side of the national accounts

Value added or industrial origin approach

In its most aggregated format, GDP is broken down into three sectors: Agriculture, fishery and forestry sector represents the value added of three subsectors. Agriculture captures the value added from the production of agricultural crops (ex. Rice, corn etc.), ornamental plants and livestock

Industry sector represents the value added of firms engaged in mining and quarrying, manufacturing, construction and utilities The bulk of the value added for this sector comes from manufacturing

Service sector is the largest component of GDP it is made up of the following sub-sectors 1.Transportation 2.Trade 3.Finance 4.Ownership of dwellings and real estate 5.Private services and government services


Land Reform
Reform implies the existence of a defect that something is deformed or malformed and does not suit existing conditions. Land reform- refers to the full

It has also been defined as an integrated set of measures designed to eliminate obstacles to economic and social development arising out of defects in the agrarian structure. Land reform thus involves the transformation of agrarian structure or what are sometimes called structural reforms.

Agrarian Structure
It is defined as the complex set of relationships within the agricultural sector among tenure structure, production structure, and the structure of supporting services. A comprehensive land reform

Land Tenure Structure

A concept which refers to one or more types of land tenure systems regulating the rights to ownership and control and usage of land and the duties accompanying such rights. Agricultural tenancy as a manner of holding and agricultural lands, is only one of several forms of land tenure or rights in land. It involves the question of whether share tenancy or leasehold tenancy is adopted.

(1) Under share tenancy, tillers work on the land as sharecroppers entitled to share in the produce of the land. (2) One of the main defects of our agrarian structure was the high proportion of share tenancy in out country. In this regard, our Code of Agrarian Reforms automatically converts share tenants to lessees. The next stage is the conversion of the lessee to amortizing owner; and finally, to owner-cultivator. Pursuant to Presidential Decree No. 27, tenantfarmers were deemed amortizing owners of rice and / or corn lands they were tilling.

1. Redistribution of private lands (through expropriation or purchase) Examples of Land Tenure 2. Distribution of lands in the public domain, Measures sometimes also referred to as resettlement or colonization 3. Regulation of tenancy (e.g. Provision of penalties for wrongful eviction of tenants, prohibition of subletting by tenants, etc.)

4. Regulation of agricultural labor contracts and wages. 5. Elimination of absentee landlordism and transfer of land ownership to the actual tillers.

Production Structure
A concept which relates to the nature, type and modus operandi as well as the actual process of production or farm operation. It is also directly related to the size, location and shape of the production unit or holding, which may be operated singly or with assistance from others. Such unit or holding includes individual tenant farms, family farms, cooperative or collective farms, and company farms or plantations managed with hired labor.

Examples of Production Reform Measures

1. Consolidation of small, uneconomic holdings to insure optimum utilization; 2. Imposition of a floor on holdings of uneconomic size beyond which subdivision is to be prevented ( also a tenure reform measure) 3. Promotion of cooperative or compact farming among sub marginal farmers; 4. Imposition of a ceiling on holdings of noncultivating owners (also a tenure reform measure) 5. Organization of crop rotation system.

The land tenure structure must be distinguished from the production structure Landnecessary and Production tenure to make a distinction as it is structure distinguished between the concept of rights in land (referring to ownership, lease, etc.) and the concept of production and use of land. Essentially this implies a clear distinction between the ownership holding and the operation holding.

The first is a concept referring to the rights over land, whether in terms of full ownership or as circumscribed by law, irrespective of the manner in which the holding is operated or managed. The second is a concept referring to the actual management of holding or the manner in which the land is cultivated or operated irrespective of ownership.

Structure of Supporting Services

A concept which involves matters like credit, marketing, the supplying of agricultural requisites ( such as seeds, fertilizer and insecticides), processing, storage, etc., and other technical

These services are provided mainly by the Department of Agrarian Reform, the Land Bank, and the Bureau of Agricultural Extension (under the Department of Agriculture), and they are designed to insure the success of the farmer who has acquired a new tenure status as lessee, amortizing owner-cultivator or owner-cultivator. They prepare the lessee for landownership and assist the owner-cultivator to use the land more productively and thus increase his income.

Agrarian Reform
Agrarian reform is considered wider than land reform: 1. The term comprises not only land reform (i.e., the reform of tenure, production, and supporting services structures) but also the reform and development of complementary institutional framework such as administrative agencies of the national government, rural, educational and social welfare institutions, cooperatives, etc. and not limited simply to the question of the relationships of the farmers to the land.

a) It encompasses all programs designed to bring about improvement in all institutions surrounding farm life, as well as companion measures necessary to make the work of the tenant, farmworker and owner-cultivator successful. b) It means remedying not only the defect in the distribution and use of land but also and especially, the accompanying human relations regarding land, including economic, social and political relations. c) ) It is concerned not only with the farmer and the land he tills but also with the community he lives in.

2. In the Comprehensive Agrarian Reform Law of

1988 (R.A. No. 6657), agrarian reform is defined to mean the redistribution of lands, regardless of crops or fruits produced, to farmers and regular farm workers who are landless, irrespective of tenurial arrangement, to include the totality of factors and support services designed to lift the economic status of the beneficiaries and all other arrangements alternative to the physical redistribution of lands, such as production or profitsharing, labor administration, and the distribution of shares of stock, which will allow beneficiaries to receive a just share of the fruits of the lands they work.

3. Agrarian reform means solving the agrarian problem and thereby elevate the quality of life of the rural populace and make them active participants in the economic, social and political affairs of their locality.

Example of Agrarian Reform Measures

1. Public health programs 2. Family planning 3. Application of labor laws to agricultural workers 4. Reorganization of agrarian reform agencies

7. Organization of various types of voluntary associations (i.e., farmers associations, cooperatives, youth organizations, etc.) as a means of insuring popular support or overcoming opposition to the reform; 8. Providing employment opportunities underemployed or surplus rural labor (e.g. through the development of cottage and small and medium-scale industries) 9. Other services of a community development nature.


Economic Aspect
(1)Vital position of agriculture in national economy Economic development had been the concern of most nations ever since the termination of the second world war.

a) Agriculture forms the predominant industry in the Philippines. A large proportion of the total working population is employed in agriculture and a large percentage contribution to the gross domestic product comes from agriculture. Exports of agricultural products and their derivatives constitutes a major source of valuable foreign exchange. Agriculture can thus claim priority as most important component of economic structure.

b) The strategic position of agriculture in the

national economy is such as to stress the urgent need for increased agricultural productivity to accelerate general economic development. The achievement of increased efficiency in the agricultural sector will mean : -more and better food for the rapidly growing population, -a greater supply of indigenous raw materials for the expanded manufacturing industry, -larger amount of foreign exchange for development,

release of excess manpower on the farms into industries producing goods and services that make for higher standard of living, and increased income of rural families that will provide the necessary purchasing power with which to acquire consumer goods and farm supplies and equipment. (2) Obstacles to agricultural productivity Agricultural productivity, however, does not occur by chance. It has to be worked out.

Low agricultural productivity in less developed countries results from the interplay of many factors, including small size farms and lack of capital; hence, poor technology and primitive methods of production, economic ignorance, a value system and social structure that minimize the incentives for economic change, inefficient marketing system and lack of entrepreneurship. It is clear that reforms are needed to remove the barriers to increased agricultural productivity so that agriculture can contribute its maximum share to overall growth and economic development.

(3) Agrarian reform, an instrument for increasing agricultural productivity The economic reason for agrarian reform in the Philippines is its potentialities for raising agricultural productivity. a)The Philippines is one of those developing countries with a very low level of agricultural productivity. As a result, development is being hampered. It is only man who possesses the powers to be productive.

But having the powers alone without fully utilizing them would lead man nowhere. Therefore, incentives are called for. b) One method of motivating farmers to increase their output is to make them own the land they till to free them from the bondage of the landlords, not necessarily from the soil. Agrarian reform has always been undertaken to give incentives to the farmers. It seeks to create an economic environment that will encourage farmers to produce more and market more of what they produce, to the

It seeks to create an economic environment that will encourage farmers to produce more and market more of what they produce, to the end that an improvement of the level of living of the rural population can be achieved at the earliest possible time and thus help to hasten the pace of national development.

Socio-cultural Aspect
(1) Agrarian reform, a multifaceted program a) It could be political, social or economic, depending upon the nature and the immensity of the problems posed and the ideological orientations with which these problems are concerned. b) Agrarian reform, taken in its broad sense and as a government sponsored program, implies socio-cultural transformation.

Furthermore, regardless of whether agrarian reform attains its programmed objectives or not, so long as it is being undertaken, it would undoubted create a far-reaching effects upon the life of the people concerned. (2) Assumptions about Filipino tenant farmers. When Republic Act No. 3844, otherwise known as the Agricultural Land Reform Code, was enacted in 1963, there were a numbers of assumptions to justify the formulation of the contents of the code.

To mention only the relevant ones, these are: a) The tenancy problem has its roots in preSpanish and Spanish past. It is therefore, a centuries-old problem. b) Deeply rooted in history, the tenancy system created a kind of tenants who are strongly traditional and highly dependent minded c) There are only three kinds of landlords: The benevolent who acts like a father to the tenant the malevolent one who oppresses The one with the combined characteristics of the first two.

In any case, the landlord is considered to possess tremendous influence and / or power over the tenant, and uses it to preserve his prestige and status in the society. (3) Socio-cultural changes from the agrarian reform. According to the general experience in countries (particularly Taiwan and Japan) which have achieved success in their agrarian reform programs, agrarian reform had resulted to favourable socio-cultural changes which may be summarized as follows:

a) A change from self-subsistent outlook on surplus. The farmers began putting all their energies in the farm; b) A sound social order in the farming villages was enhanced significantly. The farmers became more conscious of the need to maintain peace and stability in the community so that they could continuously enjoy the increased benefits in the farm;

c) Farmers initiative and active participation in leadership roles were promoted. Before, such roles were the monopoly of landowning class. After land reform, farmers began forming associations and stood in equal footing with their erstwhile landlords in social gatherings and club meetings They, too, began to take active participation in local and national elections

d) As land reform enhanced agricultural productivity and consequently; increased net family incomes, the farmers were able to send their children to school. They widened their contacts with the outside world through frequent trips to market and other places or through communication facilities (radio, TV) which they acquired.

These promoted cosmopolitan outlook among farm villages which include receptiveness to, say, modern family planning programs, and also awareness of the economic alternatives in the urban and industrial sectors. The resulting migration of semi-skilled labor from the farming sector reduced the labor surplus and population density in these sectors.

Religious Aspect
1) Biblical background.
Basic in biblical teachings is that God is the owner of the earth and that He made it all for His children. a) Food was not made for a few; all possess the God-given right to use and enjoy the fruits the earth for the advancement of their lives. One sees in the account that God did not immediately create man. He first saw to it that man has an abundance of goods wherewith to feed himself.

It would thus be contrary to Gods will if the land He made to provide for the enjoyment and perfection of all his children should now be appropriated and controlled by a few. b) When the Israelites settled in Palestine, the lands were equally divided among the people. The social ideal in Israel was that each man should live under his vine and under his Fig tree. Family-size farms thus became the rule, and strict regulations were written in the law of Moses prohibiting anyone to change or alter their boundaries. This land-to-the-tillers provision of the law of Moses was important for an agricultural country.

A people whose existence depends principally from the produce of the land, would soon be poor, if lands and their products were controlled and possessed by only few elites. c) Christs wish is that there be no injustice and oppression of His people. He is the enemy of want and deprivation. His command has always been feed the hungry, give drink to the thirsty.

2. Papal teachings. The Vatican II decree Pastoral on the Church in the Modern World says: man should regard the external things that he legitimately possesses not only as his own but also as common in the sense that they should be able to benefit not only him but also others. On the other hand, the right to having a share of earthly goods sufficient for oneself and ones family belongs to everyone.

According to St. Ambrose, the Papal Encyclical On the Development of People, has to say: You are not making a gift of your possessions to the poor person. You are handing over to him what is his. For what has been given in common for the use of all, you have arrogated to yourself. The world is given to all, not only to the rich.

3) Church estates The masses of poor Filipinos have always longed for the possession of land. Immersed in the chains of poverty, they yearned for the freedom and well-being that often go with ownership. These desires were so strong that on several occasions, they erupted into revolts and revolutions. Sad to say, in these aspirations for land, the people rarely found help and understanding in the leaders of the church.

On the contrary, some revolts directly involved lands owned by the hierarchical church. The church was generally considered an enemy of reform. It is heartening to note that in these modern times, more and more priests and bishops are involving themselves with the poors aspirations for ownership. The church is a divine-human institution, and in so far as it is a human institution, it is liable to commit mistakes One such mistake, it has been opined, concerns the issue of land.

Moral Aspect
The teaching of philosophy also shows how important is agrarian reform to a country. Not only the Bible, but also human reason, sees the need for a just distribution of lands to the people.

(1) One reason concerns the peace and internal stability of a country. Thinkers of old had already noted that without a good division of land, there will be no peace among the people. There will only be unrest and agitation And this has been proven only too well not only in the past but in modern times as well. How many revolutions indeed have modern times seen due to the land problem.

(2) Another reason for agrarian reform is the fact that the land-owner has been more than compensated for his investment on land, while the tenant who made the landlords profits possible is still immersed in poverty. An owners investment for a hectare of land may have been P10,000 but after years, or even decades, of possession, the landowner has received incalculable amount in return.

(3) There is also the question of injustice involved in landlordism. Share tenancy, legislators say, is an unjust system and consequently has to give way to new laws on agrarian reform. It is for this reason that land reformers demand expropriation of lands with minimum compensation to the landlord, because, they say, the tenants have more than paid for the amount from what the land owner has been getting every harvest.

(4) Another consideration concerns the innate tendency of every man to own land. Instinct tells him that the land he tills should be his. He has imparted on it his labors, his joys, his sorrows, his hopes so that in a way, the land becomes one with him.

(5) A final consideration concerns the economy. It is contended that the expropriation of lands and their equitable redistribution to the people are the clues to national progress. If the lands were owned by the farmers themselves, all the income goes to them, enabling them to have the extra money with which to buy products of industry Industrial progress has agrarian reform for foundation.

Legal Aspect
(1) Two vantage points the legal aspects of agrarian reform may be considered from two vantage points. the first is strictly legal and the second, sociological. a) There was a time when the province of law was limited to the regulation of conduct between individuals. It was then a separate and distinct rule wholly, unrelated to other disciplines, such as economics, sociology, medicine, engineering or agriculture.

b) The complexities and complications of social, economic and political growth, however, required revision of this view. Law was gradually utilized as an instrument to achieve socio-economic political goals. Labor laws, particularly, are not enacted merely to regulate the relations between economic goods which the wealth and resources of nature, technical science and corporate organization of social affairs can give.

In the generic sense, agrarian reform legislations are labor laws. They are not undertaken for the narrow purpose of regulating tenant-landlord relationship. They are directed towards the attainment of larger social goals (e.g. industrialization, alleviation of rural poverty, creation of employment opportunities, etc) to put an end to the ills long associated with land tenure in our country.

(2) Agrarian reform legislations to conform with constitution- in republican state like ours, no law or statute may; be enacted and put into effect without passing the test of constitutionality, that is, the law or statute should be in conformity with the express provision spirit, or intent of the constitution. It is from the constitution that the State derives its power to regulate and even limit the scope of human behavior vis--vis his property. And in law, property means not only tangible assets but also rights. Law, however, are presumed valid and constitution until declared otherwise by the courts.

(3) Constitutional mandates with particular reference to our laws on agrarian reform, these statutes, like all other laws, draw life from the Constitution which expressly obliges the state to promote social justice, regulate the acquisition, ownership, use and disposition of property and its increments, to afford full protection to labor and promote full employment and equal work opportunities, and to undertake an agrarian reform as well as a housing program for homeless citizens.

The provisions of the Constitution on agrarian reform including those relevant thereto (infra.) provide sufficiently broad authority for the State to vigorously pursue an intensive and extensive reform program which could drastically change our economic, social and political structures. In any discussion of legal aspects of agrarian reform, it is essential to keep in mind, the norms and objectives embodied in our Constitution and our laws and the pertinent decisions promulgated by our courts, particularly the Supreme Court.

(4) Policy development concerning agrarian reform since the beginning of the century; the Philippine government under various regimes (American Autonomous Government, the Commonwealth and finally the Republic) has always concerned: First- with the improvement of land tenure in the Philippines, particularly the level of productivity and the condition of the tiller as regards his tenure and the income he gets from the tillage of the soil; and Second- with the distribution of land to the tiller. these are two basic aspects on which the legislation of the past eighty years have centered

(5) Change of Emphasis in policy when we consider the beginning up to the present, we notice a definite change of emphasis in public policy concerning agrarian reform. While formerly the legislature has been content with the amelioration of the terms and conditions under which the tiller operated in terms of reward and security of tenure, there has been an accelerated movement towards distribution of land to the tiller under the landto the-tiller program

a) The acme of this effort PD no. 27 which decreed the transfer of rice and corn lands under tenancy to the tiller thereof, that is to say, that they were deemed owner of rice and corn lands by operation and force of law. b) This was followed years later by proclamation no. 131 which instituted CARP covering all public and private agricultural lands. The mechanisms needed initially to implement the program, particularly the land acquisition and distribution aspect, are set forth in executive order no. 229

Both were promulgated by the President in the exercise of her legislative power under the provisional constitution, then in force, in the absence of a legislative body then. c) The program is now being implemented under the Comprehensive Agrarian Reform Law (CARL) of 1988 (R.A. No. 6657)

Political Aspect
(1) Agrarian reform, a top-priority goal of the government there is doubt about the view that up to this day, agrarian reforms continues to be a priority of government programs. a)On Sept. 26, 1972 five days after the institution of martial law, the President issued P.D. No. 2 declaring the entire country as land reform area. This was followed on Oct. 21, 1972 by P.D.

b) With the signing of P.D. No. 131 and its companion measure, E.O. No. 229, on July 22, 1987, four (4) days before the convening of the First Congress under the Constitution, the government put the up the mechanism to start implementation of CARP, for the nation can no more afford its failure than its lack. the implementation, however, is subject to such priorities and reasonable retention limits as the Congress may under the Constitution prescribed.

c) The implementation of the program is now governed

by the CARL of 1988 (R.A. no. 6657) which prescribes, among others, the scope of the program, schedule of implementation, priorities and retention limits. (2) Agrarian reform as a political process first and foremost, agrarian reform is ultimately the product of the more deliberate political decisions. The brief historical survey that follows of the agrarian problem in our country and past attempts in solving this problem clearly confirm this fact.

The changing of land tenure structure brings about not only a redistribution of income and wealth but also a basic modification in the position of the existing social strata and consequently, a redistribution of power. The peasant masses become their own, that is, independent of the former owners of land as a consequence of the change in its ownership or in the legal relations concerning tenancy

Implementation of Agrarian Reform

Ways of effecting changes in Agrarian Structure

Changes in the agrarian structure can be achieved in practice by revolutionary means, by an authoritarian regime, or by revolutionary means through the democratic process. (1) Revolutionary situation It is accomplished as a result of a shift of

(2) Authoritarian regime Already in power as a means of broadening its political base, and of accomplishing certain desired economic and social changes. In both of these cases, policy decisions on land reform are enforced by suspension of normal legal processes if necessary. Opposition either from vested landlords interest or from within the administration itself can thus be easily overcome. This is true in the case of P.D. no. 27 and E.O. no.229

(3) Politically democratic framework Unlike countries with revolutionary and authoritarian form of government, the diffusion of political power (by virtue of the separation of powers among the executive, legislative and judicial branch of the government) makes it difficult to overcome the opposition of vested interests or reorganize or change the existing institutions which impede the reform. The implementation of land reform is not, therefore, purely a function of the administrative process.

Nor it can be studied in isolation of the political, economic and social structure of which the agrarian structure forms a part. To be sure, a favorable political climate is the precondition of a sound reform and its implementation This is so because any reform that transfers property and privilege from one group to another can neither be properly initiated nor carried out unless the controlling political forces of a country are willing to support the revolutionary changes and ready to use all instruments of government to attain their goals.

1. Agrarian reform is a complex and often Requirements for successful controversial program which usually meets with opposition from vested interests. implementation of agrarian It is, therefore, necessary that any organization for reform its implementation should provide for a line of command from the center to field levels in order to insure that policy is enforced and supported at all levels

2. In view of the fact that all support (such as agricultural credit) is usually withdrawn by landlord on the introduction of the program, it is essential that the beneficiaries are provided with the necessary supporting services 3. Since the prevailing political, economic, social and administrative systems are usually weighed against the would-be beneficiaries, it is necessary that the administrative organization and procedures as well as the judicial system by which the newly conferred rights are to be enforced, are refashioned in such a manner as to enable the attainment of the objectives of the program

4. Since the existing administrators are often not adequately oriented or sympathetic towards the reforms and such a program is often obstructed by vested interests at all levels, it is desirable to involve the beneficiaries in the implementation of the program.

Comprehensive Agrarian Reform Program

Agrarian reform programs classified

1. Rearrangement of tenancy relations This procedure allows for the retention of all private property in land though measures are adopted where the terms and conditions of the tenancy relations are defined. A common feature of this program is to

2. Redistribution of land to the peasants by: a) Distribution of land in the public domain, sometimes also referred to as settlement or colonization The historical evidence on the success of this method as a program of agrarian reform tends to indicate that, such method succeeds if there is an accompanying support extended by the government. Unfortunately, the cost of colonization and resettlement is very expensive Conservative estimate on the cost of resetting a single family in virgin areas of public domain with a good chances of success is about P100,000.00 Also there is no complete assurance that families who are resettled will succeed in maintaining a stable agricultural life.

b) The distribution of private lands and landed estates and parceling them to the tenants, accompanied by a massive program of technical and financial assistance by the government The concept is to leave a certain ceiling to the original owner while the rest of the lands and estates are parceled into smaller family-size farms and granted to qualified farmers. This is a measure which has universally been adopted.

c) Consolidation Under this alternative program, the state replots the lands into uniform sized farm lots and reparcels them to the tillers involved to attain efficient farm management and increased production. Just compensation is given for its readjustment or corresponding land rights and ownership.

d) Confiscation of private lands In socialist countries like China, the former Soviet Union, and Israel, all lands belong to the state. They are parceled into smaller subdivisions and leased to individual farmers, or to cooperative farms, or operated under a system of hired agricultural labor and are called state farms They were never bothered by such questions as the retention ceiling that should be allowed the original landowners, the valuation of lands transferred to tenants and the mode of paying the landowners.

The Philippine Agrarian Problem

(1) Two important dimensions The agrarian problem has two important dimensions: the land and the people the agricultural and the social

Of the two dimensions of the problem, the second is the more fundamental than the first. It consists in this: that the person who tills the land does not own it and the person who owns the land does not till it. In the course of time, the non-tilling owner gets more income while the non-owning tiller gets relatively poorer and poorer. This imbalance or gap, starting at the economic sphere, permeates the cultural, the social, and the political spheres and each sphere reinforces the others, thus creating a vicious circle of poverty and injustice.

(2) A basic problem of Philippine society Because of the agrarian problem, the farmer is poor. Because the farmer is poor, he cannot afford to pay more taxes and thus, government cannot raise sufficient revenue with which to support its operations Because of the agrarian problem, the farmer is poor and less and less people want to be farmers. They flock to the cities to try their luck. There is overcrowding and urban squatting, unemployment and crime

3. Basically a question of land distribution and utilization The agrarian problem rests at the base of all our national problems. The national structure has become an inverted pyramid, a position which stunts economic development and puts the nation in a precarious socio-political situation. Since the most fundamental dimension of the agrarian problem is that which concerns people and their mutual relations about land, the agrarian problem is basically a question of the use of land by man and its distribution to man as private property.

Right to own property, universal but limited: 1) A derivative of the right to use Land is a basic and primary necessity for human survival and development. Considering this fact that land is necessary for the survival of every human being, by the very fact of birth, has the right to use land for his survival. It is inherent right to use matter in general and land in particular, that the right to own property is derived. We have the right to own things because we have the right to use things in order to live

2. Corollary Since the right to property is a derivative of the right to use, it has become limited. Firstly, because the right to use is given to all individuals and the matter to be used is limited and the number of users seemingly unlimited, the right of one individual, becomes relative to the right of others. Secondly, the word property comes from or is related to the word proper. While the right to own is derived from the right to use, the right own is further qualified by its proper use.

Executive order no. 228

Declaring full land ownership to qualified farmer beneficiaries covered by P.D. 27; determining the value of the remaining unvalued rice and corn lands and providing for the manner of payment by the farmer beneficiary and mode of compensation to the landowner.

Entitled Instituting a Comprehensive Agrarian Reform Program. Executive order it in 131 Pres. Aquino promulgated no. compliance with the constitutional mandate. It explained the principles behind the program which may be summarized as follows: 1. It is necessary to revive and develop the full potential of Philippine agriculture

2. It is necessary to make our new democracy meaningful by increasing the productivity of the farming sector 3. The essential element in any policy of agricultural revival and development is a comprehensive and realistic agrarian reform program 4. It is essential that all should address the agrarian reform in the spirit of cooperation, harmony and understanding for national unity

5. That reform requires the participation of all concerned in the planning, organization and management of the program. 6. The entire Filipino people must extend support and full cooperation to implement the program effectively. 7. The program should be realistic and flexible to take into account differences from place to place and from community to community. 8. The program will require definite funding as to source and timing.

9. The president recognizes as a partner to this continuing undertaking, the co-equal branch of the Congress... Whose senate is elected at large and therefore speaks for the nation and whose house of Representatives articulates the needs and problems of the constituencies and sectors in the land.  These were the bases by which Pres. Aquino certified CARP as a priority program of her administration.

Executive order no. 131 stated that available funding is definite as to source and timing. The President is aware and highly concerned that the failure of the agrarian program of the different administration in the past was partly due to lack of logistics, so she made sure that funding should be available which she made explicit in this order. It provided an initial funding of fifty billion pesos to cover the estimated cost of the program.

A companion measure to executive order 131 establishing the CARP. Executive order no. 229 Providing the mechanisms for the implementation of the CARP. The coverage included all public and private agricultural lands regardless of what crops were planted and produced including all other public lands suitable for agriculture.

In its implementation, land acquisition and distribution of all lands covered by this order should be subject to certain priorities and reasonable retention as Congress may prescribed, taking into account ecological development or equity considerations and subject to the payment of just compensation. exemptions are available. Sites for national defense, schools and campuses, sites for religious purposes and penal colonies are exempted from the implementation of Agrarian Reform Compulsory Registration.

Executive order no. 229 created the Presidential Agrarian Reform Council (PARC) to ensure the effective and timely delivery of support services to its beneficiaries. The PARC is empowered to assign any of its members to policies, rules and regulations regarding certain aspects of agrarian reform which may fall within the scope or area of this responsibility such as: 1. To recommend small farm economy areas which shall be specific by crop and based on thorough technical study and evaluation;

2. To determine the schedule of acquisition and distribution of certain areas when the requirements are completed including the first down payment to landowners; 3. To determine control mechanisms for evaluating owners declaration of fair market value depending on consideration of certain factors involved.

Executive order no. 228

Contained general provisions which are of great importance: 1.Ancestral lands. The rights of indigenous cultural communities to their ancestral land are protected to ensure their economic, social and cultural well-being. 2.Immunity of government agencies from undue interference. No injunction, restraining order, prohibition or mandamus shall be issued by the lower courts against the DAR, DA, DENR and the Dept. Of Justice in their implementation of the CARP.

3. Assistance of other government entities.  The PARC is authorized to call upon the assistance and support of other government agencies, bureaus, and offices including government owned or controlled corporation whenever it is necessary. 4. Applications of existing legislation.  P.D. 27 as amended shall continue to operate with respect to rice and corn lands.  The provisions of Republic Act no. 3844 and other agrarian laws not inconsistent with this order shall have supplementary effect.

5. Free registration of patents and titles.  All register of deeds should register free from payment of fees, patents, titles and documents required in the implementation of CARP. 6. Repeating clause.  All laws, issuances, decrees or any part thereof inconsistent with this order shall be deemed repealed or amended accordingly. 7. If for any reason, any section or provision of this order is held unconstitutional or invalid, all the other sections shall not be affected.

Executive order no. 129-A

Better known as the reorganization act of the department of agrarian reform. To identify, detail explain and provide understanding and guidance to both landowners and beneficiaries, DAR issued administrative orders implementing rules, regulations and procedures. Modifying executive order no. 129 reorganizing and strengthening department of agrarian reform and other purposes.


1. The government ha always been in the hands of powerful oligarchs who still win elections and are the peoples Reasons for agrarian unrest representatives in Congress.  Although, in principle, the governing power, specially in the legislative branch, is still in the hands of landlords who naturally protect their own interest.

2. Poor implementation of the law  In the past and even today high government officials were reluctant and lukewarm in implementing the law because, more often than not, the government had to choose between the interests of the poor and the interests of landlords.  The program itself was handicapped by contradiction between theory and practice.

3. The ignorant of the peasant population  Today this is no longer true.  The masses are highly politicalized.  They are no longer ignorant of their rights.  Sometimes they even demand that the government furnish them land, free of charge, etc., as their inherent right. 4. Lack of logistic support.  Not enough funds were allocated to carry out agrarian reform; there was no integrated program of government agencies for agrarian improvement; there was no complementary industrialization that would absorb some of the rural population; there were not enough development incentives in sectors other than agriculture.

The new law otherwise known as the Comprehensive Agrarian Reform Law of 1988 conceives of agrarian reform as redistribution of all public and private agricultural lands, regardless of crop or tenurial arrangement, to landless farmers and regular farm workers, to include all the necessary support services designed to improve the economic status of beneficiaries and increase land productivity, and all other arrangement which will provide the beneficiaries a just share of the fruits of the land they work.

1. Retention limit  Not more than (5) five hectares may be Salient and most important kept by the landlord. provision of CARL  he can choose the area so that in most cases the land may be contiguous.  On top of the 5 hectares, each child of the landlord may be awarded 3 hectares provided he is 15 years old or older and is actually tilling or managing the farm.

2. Effectivity of P.D. 27  Landowners whose rice and corn lands have been previously covered by P.D. 27 can keep the area originally retained by them. 3. Land exempted from the coverage of CARL.  The following lands are exempted:  Those actually, directly and exclusively used and necessary for parks, wildlife, forest reserves, reforestation, sanctuaries and breeding grounds, watersheds and mangroves, national defense sites and schools sites and campuses including

school-operated experimental farm stations, seeds and seedlings research and pilot production centers, communal burial grounds and cemeteries, penal colonies and penal farms actually worked by inmates, research centers, quarantine centers, and all lands with 18 percent slope and over, except those already developed. 4.Are ancestral lands affected by CARP? Ancestral lands refer to the areas occupied by our indigenous cultural minorites like those of Negritoes, the mountain peoples as the Ifugaos,

the Igorots and indigenous minorities of Mindanao and Sulu, CARL protects these lands to ensure their economic, social and cultural welfare. The system of land ownership, land use and the manner of settling disputes is left to the autonomous government in the area. 5.Identification of lands covered by CARL All natural and juridical persons including government entities, owning or claiming to own agricultural lands are required to register their properties with the Assessors Office in the municipality where their lands are located within 180 days from the effectivity of the CARL.

6. What is just compensation for landlords whose lands were placed under CARL?  The cost of acquisition of the land, its nature, actual use of income, the current value of the property as seen by the owner, the sworn valuation, tax declaration and assessed value will all be considered. There are other factors to be considered like the social and economic benefits made by the farmer and the government as well as loans, mortgages and non-payment of taxes.

7. Forms of payment a.Cash under the following conditions: 25% cash for lands above 50 hectares 30% cash for lands above 24 hectares 35% cash for lands below 24 hectares All balances to be paid in government financial instruments negotiable at any time b.Shares of stocks in government-owned corporations. Land bank preferred shares. c.Tax credits which can be used against any tax liability d.Land bank bonds

Imperatives of Agrarian Reform

Necessity of Agrarian Reform in the Philippines

1. The Philippines has some of the most fertile lands in the world, yet agricultural production is one of the lowest and the small farmers who constitute the bulk of the population, are among the most impoverished.

By replacing share tenancy with owner-cultivator and setting up farmers as independent landowners, land reform would increase their production, set them free from poverty and debt, and make them dignified participants in nationbuilding. It is estimated that two-thirds of the Filipino poor live in the rural areas, and majority of them are engaged in agriculture.

2. The Philippines must industrialize but industrialization requires tremendous amount of capital most of which is frozen in land tilled by tenants. Agrarian reform would liberate the capital for investment in new industries. This would increase production and provide employment to our expanding population and, of course, raise general standard of living.

3. land reform is the answer to the communist challenge, for it will bring both industrialization and the end of the tenancy system, the principal breeder of communism. No industrial country with agricultural-population of prosperous free farmers has ever come under communist rule.

4) An overall program to abolish tenancy, as well as to assist farm laborers and wage earners, the free settlers of public lands and farmers owning private lands of less than family-size, will bring about an overdue readjustment of our social structure; it will correct the present imbalance in our society where there are enormous concentrations of land, wealth and political power in the hands of the few.

5) Not at least, the land reform program will make democracy truly meaningful to our people and provide the impetus for the creation of a stable society as against an unstable one marked by violence and internal upheavals, as it is a program designed to uplift our masses from poverty and ignorance. Even the landowner has a stake in the success of agrarian reform in our country. His very survival may well depend on it.

Objection to Agrarian Reform

1) Fragmentation of farm-holding There is the impression that agrarian reform, particularly, its land redistribution aspect, means the wholesale reduction in the size of the farm units.

The purpose of land reform is to increase them to economic family-sized farms. However in some cases where the farm unit is big, like landed estates, the aim of agrarian reform is to break down to family-size farms. On the other hand, the farmers family has grown at a rapid pace. Hence, it is claimed, the fragmentation of farms become ridiculously small The law, however, prohibits further fragmentation of the family-size farms as well as the re-accumulation of land in the hands of non-tilling owners.

Moreover, the claim is based on a static view of agrarian reform, whereas agrarian reform is dynamic. A successful agrarian reform program increases agricultural production tremendously. This in turn will stimulate purchasing power of the masses and the abundance of agricultural raw materials. The rapid expansion of industry absorbs the excess and otherwise idle manpower in rural areas In the end farm units will tend to increase in size because there are relatively less people left in the rural areas and farm machinery produced by the industry will enable less people to cultivate bigger farms.

2) Small farms uneconomic It is likewise claimed that family-size farms are, at least initially, small farms and farms are most productive and economical only when operated on a big scale. This is not necessarily true with rice and corn and other crops which are labor-intensive. At any rate, small-scale ownership can be combined with big scale operations through the organization of producers cooperatives.

3) Small landholdings included The other prevalent objection to agrarian reform is : why include the small landholdings? Most small landowners are professionals or people who have other sources of income apart from the income they get from the land. In many cases, their income from the land is used to complement their main sources of income in order to provide for the needs of their families outside the basic needs ( food, housing, household needs)

Belonging to this type of needs would be: education for their children or close relatives, better clothing, recreation, medical needs etc. While recognizing these realities and problems, the agrarian reform program will still have to insist that these needs can be cared for through other device or mechanism and not from the continued exploitation of the tenant-farmers. It insists that social services will have to answer for social needs in a complex and modernizing society.

These needs should be met by new social devices like insurance, Medicare, free universal education, housing program etc. The next question asked is: can the government provide for these social services? The answer is no, unless agrarian reform is implemented. For agrarian reform is precisely the answer to the governments inability to provide for these badly needed social services For when the farmers begin to be more productive and start generating income, they would now be in the position to pay taxes to the government.

4) Agrarian reform failed in the past The third most prevalent objection to agrarian reform is this: it has failed in the past. Farmers who were given lands in the past have either sold their lands or not have been able to pay the lands given to them. In fact, because of agrarian reform, agricultural production has gone down. So why go on? Although some of these statements are true and some of these things did happen, these are not the general results of past agrarian reform programs. Although many of the past programs were defective, generally they will still be able to improve the lives of the farmers who benefited from these programs.

Some of these programs failed in the past because: a) The program stopped at land redistribution and failed to provide for other companion measure necessary for success b) The farmers were not prepared to take on the responsibilities given to them because they were not organized and did not have the proper orientation needed for such undertaking c) There was haphazard planning on the part of the government officials who were initiating the program. The only way to understand the reasons for the failures, to learn from past mistakes and to carry out the reform program before its too late.

Component of Agrarian Reform

1) Land distribution The most important component of agrarian reform The most effective way of providing security of tenure to tillers of the soil.

2) Companion measures It is not enough that the tillers become the owners of the land they till They must also become successful owners of the land. In other words, after the proper re-distribution of the land and after transferring ownership to the users of the land, the problem must now be tackled and solved, namely: the increased, maximized and modernized utilization of the land for the benefit of not only the new owner but that of the society this would mean the creation and development of new social institutions that could effectively carry out the other companion measures of agrarian reform. The farmers need to be provided with the necessary skills and know-how to enhance their productivity.

Argument for the land to the tiller program

The central aim of the agrarian reform program is to make as many tillers as possible owners of the land they farm. The argument for the discussion of ownership among the tenants are strong. Thus..

2) Financial institutions even if they are public make a distinction between owned land and leased land in making loans 3) It is often assumed that the land ownership stimulates investment and greater productivity, for men always work harder when they work on that which is their own 4) Ownership attaches a man to his community. It makes him more responsible for it accorded him the means of living a tolerable and happy life.

5) finally, ownership makes a man self-reliant. It gives him a badge of dignity and the means of independent action free from institutional restraints and practices as he is not at the mercy of others. There is much less opportunity for exploitation which used to exist under landordism. In this sense, ownership gives reality to the individuals freedom.

Companion Measures to Land Distribution

1. Credit 2. Modern and better methods of production 3. Marketing facilities, equitable pricing, infrastructure 4. Cooperatives

The first companion measure required for a successful land redistribution program is the extension of credit to the tiller-owners on easy terms When the farmer becomes the owner of the land he tills, he has to shoulder the whole capitalization of his farming operations. He has to provide for the seeds, the transplanting, the fertilizers, his familys subsistence till the crop is harvested etc.

In the past, the farmer used to borrow from his land lord and/ or from loan sharks for his credit needs. In either case, he had to pay dearly, either in terms of usurious interests or increased domination by his landlord. Agrarian reform seeks to liberate the farmer from this type of bondage. Thus, the need for government to provide the necessary credit to the new owner-tillers in order to insure the success of the program.

Modern and better methods of production

This is the second most needed companion measure for a successful land redistribution program. There is a need for improved soil fertility etc.

The principle applies in the case of agricultural production The agricultural scientist or technician will have to depend not only on the information to be given by the farmers with respect to their farms and the results of the agricultural methods in them, but also on the free acts of the farmers themselves which are essential for the implementation of many agricultural projects for mass benefit. Therefore, the cooperation of the farmers is essential They should participate in every process of experimentation and formulation of new methods.

Marketing facilities, equitable pricing, infrastructure

Another important companion measure for a successful land redistribution is the provision for marketing facilities and equitable prices for the farmers produce and the accompanying

He is easily victimized because he lacks marketing facilities, because he is usually isolated from the market by bad roads and very inadequate means of transportation and communication, and because of his weak bargaining position come harvest time due to his low or almost zero position.

It is evident that all these companion measures cannot be done without the organized and conscious efforts of the farmers themselves Thus, the necessity for cooperatives and other forms of social organizations. On the other hand, these cooperatives can be the most effective channels for proper agricultural planning for both the micro and macro levels that will ensure food sufficiency in terms of adequate supply and proper distribution. Cooperatives and other forms of social organization can also serve as a vehicle for information and the effective moulding of a responsive public opinion.

The Code of Agrarian Reform

Beneficiaries under the Code

The code of Agrarian reforms in the Philippines was enacted specifically to reach (4) four underprivileged groups making up the majority of the agricultural population, each of which represents a corresponding group of problems. (1)tenant-farmers The share crop or kasama system, a carry-over from the Spanish colonizers, which deprives the farmers of a just share of the produce, makes his tenure insecure; exposes him to usurious practices and to perpetual indebtedness; and forces him to be idle after a few months spent on the farm.

Under the code, share tenancy is automatically converted to leasehold and landless farmers are given a chance to own the lands they till.

(2)Agricultural wage earners on farm workers The helpless position of these workers, unorganized and unprotected by laws on labor standards Under the code, they are given, all rights and opportunities now enjoyed by industrial workers

(3) Settlers including the migrant workers The ineffective and haphazard settlement system which prevented those who moved from highly tenanted areas from taking up productive lives in public agricultural lands. Under the code, they are given help in acquiring titles to public lands and solving their problems.

(4)owner-cultivators of less than family size farms The lack of credit, irrigation, marketing and information facilities among them, aggravated their lack of organization. Under the code, they are to be given opportunities purchase additional lands.

Land covered by the Code

1) Tenanted areas They are areas worked on by the tenant-farmer either under the share-cropping or leasehold systems. Under P.D. 27, only private agricultural lands primarily devoted to rice or corn are covered

2) Landed estates They are private agricultural lands acquired by the Department of Agrarian Reform through the Land Bank for redistribution to the tenant tillers both under the Code and previous laws, under the scheme of family size farms 3)Old settlement They are the settlement projects developed by the Department of Agrarian Reform from the public domain and are still under its administration and management.

4) Proposed settlements They are areas of the public domain either earmarked for settlement purposes or have potentials for such purposes. Landless farmers and former dissidents who have not acquired lands from tenanted agricultural lands are allocated farm lots in resettlement projects. In these areas, farm families are resettled in an orderly manner and their agricultural activities are initially supported by the government.

(1)Owner-Cultivator; landlord capital To establish cooperative-cultivator among those who live and work the land as Policy- objectives ofon the Code tillers, owner-cultivator and economic family-size farm as the basis of Philippine agriculture and as consequence, divert landlord capital in agriculture to industrial development

(2) Dignified existence To achieve a dignified existence for the small farmers free from pernicious institutional restraints and practices; (3) Viable social and economic structure To create a truly viable social and economic structure in agriculture conducive to greater productivity and higher farm incomes through a cooperative system of production, processing, marketing, distribution, credit and services;

(4) Labor laws To apply all labor laws equally and without discrimination to both industrial and agricultural wage earners; (5) Land resettlement and distribution To provide a more vigorous and systematic land settlement program and public land distribution; (6) self-reliant and responsible citizens To make the small farmers more independent, self reliant and responsible citizens and a source of genuine strength in

(7) Financing of Agrarian Reform Program To give first priority to measures for the adequate and timely financing of the Agrarian Reform Program pursuant to the House joint resolution # 2, otherwise known as the Magna Carta of Social Justice and Economic Freedom, existing laws, executive and administrative orders and rules and regulations to the contrary notwithstanding;

(8) Local government To involve the local governments in the implementation of Agrarian Reform Program (9) Land use and classification Evolvement of system of land use and classification. (Sec. 2)

Policy Objectives Classified

Section 2 of the Code declares the principal objectives of the agrarian reform policy of the government. In broad terms, these objectives may be categorized as social,

them more independent, self-reliant and responsible citizens, and source of all genuine strength in our democratic society. (2)The economic objective is to promote industrial development, raise the levels of living, and increase the income of the newly emancipated tillers of the soil by improving their effectivity and productivity. (3)The political objective of our agrarian reform program is remove the deep-seated grievances and bitter recriminations which in the past spawned violent conflicts, between landowners

and at the same time, transform our farmers who constitute the bulk of our population into a strong, free-thinking, and informed citizenry that will have a real stake in our democracy. It is expected that a certain amount of political stability will be attained as the social and economic conditions of the small farmers are improved through the implementation of agrarian reforms.

Composition of the Code

1. An agricultural leasehold system to replace all existing share tenancy systems in agriculture 2. A system of crediting rental as amortization payment on

5. An institution to finance the acquisition and distribution of agricultural land 6. A machinery to extend credit and similar assistance to agricultural lessees, amortizing owner-cultivators and cooperatives 7. A machinery to provide marketing, management and other technical assistance and / or services to agricultural lessees, amortizing owner-cultivators, owner-cultivators and cooperatives 8. A machinery for cooperative development 9. A department for formulating and implementing projects of agrarian reform

10. An expanded program of land capability survey, classification and registration. 11.A judicial system to decide issues arising under the Code and other related laws and regulations 12.A machinery to provide legal assistance to agricultural lessees, amortizing ownercultivators and owner-cultivators

Compulsory Arbitration by the Regional Trial Court

The regional trial courts (formerly Courts of Agrarian Relations) are authorized to conduct compulsory arbitration between agricultural labor and agricultural management, agricultural share tenants and agricultural landlords and agricultural lessees on conflict arising out of, and in connection with, their agrarian relations upon certification of the Secretary of Justice.

Under the CARL of 1988, the Supreme Court may designate one or more branches of Regional Trial Courts in a province as Special Agrarian Courts with special jurisdiction over all petitions for the determination of just compensation to landowners and the prosecution of all criminal offenses under the act. Their jurisdiction is limited to the two cases mentioned.

Meaning and Kind of Arbitration

Arbitration is a mode of settling differences through the investigation and determination by one or more unofficial persons selected as a domestic tribunal for the purpose of some disputed

It is voluntary if it takes place in pursuance of an agreement, and compulsory, when the consent of one party is enforced by statutory provisions.

Rights of Indigent Litigant

Where the litigant is a tenant-farmer, agricultural lessee, or tiller, settler, or amortizing owner-cultivator, he is given the rights of a pauper litigant under the Rules of Court and the privileges of an indigent litigant under Republic Act No. 6035 without further proof thereof. He shall continue enjoy such status as pauper and / or indigent litigant in that appeal at courts and until the case is finally disposed of.

Said act requires stenographers to give free transcript of notes taken at a hearing before the trial judge or hearing officer to indigents and low income litigants and provides a penalty for the violation thereof. An indigent or low income litigant includes anyone who has no visible means of support or whose income does not exceed a specified amount a month or whose income, even in excess of said amount a month is insufficient for the subsistence of his family taking into account the number of the members of his family depending upon him for subsistence.

Right to Representation
(1) In case tenants, agricultural lessees, agricultural farm workers and agricultural owner-cultivators or members of their immediate farm household are not represented by a lawyer of their choice in cases before the Regional Trial Court, the duly authorized leaders of their duly registeredfarmers organizations may enter their appearances a counsel for their respective member and / or organization However, the court must fully convinced that the said leader could completely protect the interest of his client subject to the basic duties and obligations as officer of the court.

(2) They may also be represented by duly authorized attorney of the Bureau of Agrarian Legal Assistance in proceedings before the Regional Trial Courts and courts of appellate jurisdiction. One disability arising from normal judicial process is its cost. This always works against the interest of the poor litigants. It is therefore necessary, aside from creating special tribunals that will deal with cases under agrarian reform law, to reduce the cost of litigation for the benefit of the weaker sections- the farmers.

There are two aspects of the policy of transferring or distributing land to the landless. Two Aspects of Land Distribution The first is the determination of what lands are to be Policy transferred. The second is the problem of financing the compensation to be paid to the former owners. These two problems had been the focal points of policy conflict over the past two decades.

1. Determination of what lands to be transferred Under the Code of Agrarian Reforms, the government has to resort to piece-meal acquisition of lands either on the basis of voluntary negotiations or on case-to-case exercise of the rights of pre-emption and redemption, or in extremis, through the expropriation of large landholdings upon petition of tenants. The coverage of scope of P.D. No. 27 is limited only to certain types of lands

If the experiment worked here, it was expected to work in other areas Rice and corn areas were selected for another reason. These were areas of urgent reforms because of the endemic social unrest associated with rice tenancy especially in Central Luzon, in some areas in iloilo, in the Bicol region and also some areas in the north. 2. The decree solves the problem of financing by fixing the value of the land at a relatively modest rate and directing compensation be paid by the tiller directly to the landowner.

Definition of Terms
1. tenant-farmers those who actually till the land whether under share tenancy or lease tenancy. In case the share tenant or lessee employs sub-tenants or sub-lessees who actually till the land, the latter shall be considered the tenant-farmers. 2. Private agricultural lands primarily devoted to rice and corn refers to the land planted with rice/ or corn as the principal crops as of October 21, 1972, and which not being a part of the public domain, are under the effective control and disposition of natural or juridical persons.

3. Irrigated lands refers to a land which, at the time of the promulgation of Decree, is provided with water to increase agricultural production by double cropping through the use of gravity flow system, power pump system, or other methods of irrigation. 4. Upland refers to elevated land which is not irrigated. 5. Normal crop year means a period of twelve (12) months in which nor force majeure or natural calamities such as typhoon, flood pest and disease infestations have subsequently reduced crop production.

1. The family-size farm has been fixed at three (3) hectares for irrigated land and a maximum of five (5) hectares for nonAcquisition of economic familyirrigated land size farms 2. In instances where bona fide independent tenants cultivate areas less than family size, the government is supposed to assist them in acquiring additional areas to complete their landholdings to family size farm. 3. Tenants farming more than family-size farms will have to relinquish possession of those areas in excess of family-size units for themselves, so that farmers requiring additional areas may acquire them.

1. Retention area the requisites for the exercise by the landowner of his right of retention the following: ExercisemustRetentionrice or cornby of be devoted to Right crops a) the land b) Owners ofsystem of share-crop or lease-tendency there must be a Rice or Corn Lands obtaining therein c) the size of land-holding must not exceed 24 hectares, or it could be more than 24 hectares provided that at least seven (7) hectares thereof are covered lands and more than seven (7) hectares of it consist of other agricultural lands.

In all cases, the landowners may retain an area of not more than seven (7) hectares on condition that such landowner is cultivating such area or would cultivate it. 2. Exercise of right by landowners heir a landowner who has died must have manifested during his lifetime, his intention to exercise his right of retention prior to August 23, 1990. Said heirs must show proof of the original landowners intention. The heirs may also exercise the original landowners right of retention if they can prove that the descendant had no knowledge of OLT coverage over the subject property.

3. Waiver of right of retention a landowner is deemed to have waived his right of retention over a parcel of land by the performance of any of the following acts: a. Signing of the Landowner-Tenant Production Agreement and Farmers undertaking (LTPA-FU) covering the subject property b. Entering into a direct-payment scheme agreement as evidenced by the Deed of Transfer over the subject property c. Signing/ submission of other documents indicating consent to have the subject property covered, such as the form letter of the Land Bank of the Philippines on the disposition of the cash and bond portions of the land transfer claim for payment and the deed of assignment, warranties and undertaking executed in favor of the LBP.

4. Selection of area a landowner who owns lands other than rice and corn shall be persuaded to select the area he will retain from these other lands to prevent or minimize the possible dislocation of farmer-beneficiaries who have been issued Certificates of Land Transfers or Emancipation Patents. 5. Rights of Affected Tenants where there are Certificates of Land transfer (CLT) or Emancipation Patent (EP) holders in the area to be retained, the DAR shall immediately inform the tenants concerned and provide them the opportunity to dispute or contest landowners claim.


The act of laying a tax, i.e., the process or means by which the sovereign, through its law making body, raises revenues to defray the necessary expenses of the government It is a method of apportioning the cost of the government among those who in some measure are privileged to enjoy its benefits and must, therefore, bear its burden.

Purpose and importance of taxation

The purpose of taxation on the part of the government is to provide funds with which to promote the general welfare and protection of its citizens and to enable it to finance its multifarious activities. Almost all revenues of the government are derived from the taxes raised through taxation. Clearly, no government can perform its functions nor continue to exist without funds. Revenue is the lifeblood of a nation It is therefore important that people pay taxes promptly and willingly Evasion or non-payment of taxes lessens the opportunity of the people to receive and enjoy essential government services.

Principles of taxation
Economic efficiency A tax is said to have an income effect and a substitution effect. Since tax reduces a taxpayers disposable income, it may make him work for longer hours to restore in parts his post-tax income. This is the income effect of the tax and does not cause economic efficiencies. If the reduction in income makes the taxpayer prefer leisure to work, then the tax has produced a substitution

If the reduction in income makes the taxpayer prefer leisure to work, then the tax has produced a substitution effect and has caused economic inefficiencies. Hence if taxes must perform their allocative role efficiently, they should not contribute to distortions in economic decisions.

Equity in taxation Equity is one of the cannons of taxation which was developed by Adam Smith. A tax can affect income and wealth distribution even if it is only a matter of deciding who should bear the burden of taxes. It is common to judge the fairness of the tax using the concepts of vertical and horizontal equity.

Vertical equity connotes a difference in the tax treatment between those who are financially well-off and those who are relatively less. A particular society may decide that heavier taxes on the rich are consistent with tenets of equity. Horizontal equity on the other hand, implies that those who are similarly situated in life should be similarly taxed too.

Simplicity A simple tax structure is easy to administer and to comply with. Simplicity requires certainty, economy and convenience. These, along with equity, are the canons of taxation propounded by Adam Smith.

Certainty Requires that people know what is and what is not taxable, including the amount of tax which should be paid for each taxable object. The people should also understand the purpose for the imposition of the tax

Economy A good tax should not be too costly for the taxing authority to administer. At the same time, a tax should not be a hindrance to production or the initiation of the taxpayer to invest. Thus if to collect a peso of tax, the government would have to spend twice or more than the amount, then the requirement of economy is not followed.

Also if the application of a tax is going to prevent the growth of industries, especially those vital to the development of the economy, then such tax violates the criterion of economy.

Compliance cost Tax are part of the concept of economy. The cost incurred by a taxpayer in complying with his tax obligations should also be considered and minimized.

Convenience Appropriately refers to the ease or facility involved in discharging tax obligations. Thus the tax offices should be located where they are readily accessible to the taxpayer so that the condition of convenience is satisfied. This also includes the use of simple forms to facilitate the preparation of tax returns. The designation of the person, entities, such as banks, other than the collection offices, to accept tax payment is also meant to enhance the development of a convenient tax system.

Approaches to taxation
Benefit Approach Under this approach, tax payment should be based on the benefits received by a taxpayer from public services. Thus, persons who receive more benefits are expected to pay more taxes. As in the case of the tolls collected from the users of the roads and bridges (SLEX & NLEX)

The case of special assessments in property taxation is another application of the benefit approach. Ex. The construction of a street were to increase the value of the real properties close to it, then a special assessment would be accordingly made on the property owners directly benefitting from the government expenditures made thereon. The implementation of the benefit approach lies in the measurement or determination of the benefits that accrue to different persons. The problem is the identification of the beneficiaries of public services.

Ability-to-pay approach Tax payment are made on the basis of relative ability (usually measured in terms of the amount of income earned or received) to bear the tax burden. The tax burden is distributed according to the economic status of the taxpayers. The problem likely to encountered in this approach is the determination of the proper indicator of ability-to-pay.

The enforce proportional contributions from person and property levied by law-making body of the state by virtue of its sovereignty for the support of the government and all public needs.

Essential characteristics of tax

1. It is an enforced contribution a tax is not a voluntary payment or donation and its imposition is in no way dependent upon the will or assent of the persons taxed. 2. It is generally payable in money- unless qualified by law, the terms taxes or tax is usually understood to be a pecuniary burden- an exaction to be discharged alone in money which must be in legal tender.




It is proportionate in character- a tax is laid by some rule of apportionment according to which the persons or property share the burden. It is ordinarily based on the ability to pay. It is levied on persons or property a tax may also be imposed on acts or transactions or contracts. In each case, however, it is only a person who pays the tax. It is levied by the state which has jurisdiction over the person or property the persons or property must be subject to the jurisdiction of the taxing state. This is necessary in order that the tax can be enforced. The taxing power of a state necessarily stops at its boundary limes.

6. It is levied by the law-making body of the state the power to tax is a legislative power which only the legislative body (national or local) can exercise through the enactment of statutes or ordinances. The power to tax is also granted by the constitution and by law to local government units but the power of the latter is subject to such limitations as may be provided by law. 7. It is levied for public purposes- taxation involves and a tax constitutes, a change or burden imposed to provide income for public purposes- the support of the government, the administration of the law, or the payment of public expenses.

Theory and basis of taxation

1. The power of taxation proceeds upon the theory that the existence of government is a necessity; that it cannot continue without means to pay its expenses and that for these means, it has a right to compel all its citizens and property within its limits to contribute. 2. The basis of taxation is found in the reciprocal duties of protection and support between the state and its inhabitants. In return for his contribution, the taxpayer receives benefits and protection from the government. This is so-called benefits received principle.

It does not mean, however, that only those who pay taxes can enjoy the privileges and protection given to a citizen by the government. Both are enjoyed as well by those who do not, because they are not able to pay taxes. The reason is that protection in the enjoyment of his right is a duty owed by the state to every citizen.

Nature of power of taxation

1. It is inherent in sovereignty The power of taxation is inherent in sovereignty being essential to the existence of every government. The state can still exercise the power, even if the Constitution had not mentioned anything about taxation. 2. It is legislative in character the power to tax is legislative. It cannot be exercised by the executive or judicial branch of the government. Under the Constitution, only the legislative body can impose taxes.

The power to tax is also granted by the constitution to the local governments subject to such guidelines and limitations as may be provided by law. 3. It is subject to constitutional and inherent limitations The power of taxation is subject to certain limitations. Most of these limitations are specifically provided in the fundamental law or implied therefrom while the rest spring from the nature of the taxing power itself.

Aspects of taxation
1. 2. Levying or imposition of the tax is a legislative act taxation Collection of tax levied which is essentially administrative in character tax administration

1. Fiscal adequacy the source of revenue should be sufficient to meet the demands of the public expendituresound tax Basic principle of a 2. Equality or theoretical justice the tax burden should be proportionate to the taxpayers ability to pay. This is the so-called ability to pay principle; 3. Administrative feasibility the tax laws should be capable of convenient, just and effective administration


As to subject matter or object:

(a) personal, poll or capitation tax of a fixed amount imposed on individuals, residing within specified territory, whether citizen or not, without regard to their property or the occupation in which they may be engaged. Ex. Community tax

(b) Property tax imposed on property, whether real or personal, in proportion either to its value, or in accordance with some other reasonable method of apportionment. Ex. Real estate tax (c) Excise any tax which does not fall within the classification of a poll tax or property tax. It is a charge imposed upon the performance of an act, the enjoyment of a privilege or the engaging in an occupation. The term privilege tax is often employed Ex. Estate, donors and income taxes; value added tax and practically all business taxes

(a) General, fiscal or revenue tax imposed for the general purposes of Asgovernment, i.e., to raise revenue for the to purpose governmental needs Ex. Income tax and almost all taxes (b) Special or regulatory tax imposed for a special purpose i.e., to achieve some social or economic ends irrespective of whether revenue is actually raised or not. Ex. Protective tariffs or customs duties on imports, to protect local industries against foreign competition

As to scope (or authority imposing the tax)

(a) National tax imposed by the national government ex. National internal revenue taxes, customs duties, and national taxes imposed by special laws. (b) Municipal or local tax imposed by municipal or public corporations (local governments) ex. Real estate taxes

As to determination of account
(a) Specific tax of a fixed amount imposed by the head or number, or by some standard of weight or measurement; it requires no assessment (valuation) other than a listing or classification of the subjects to be taxed. It is imposed on certain articles specified by law. Ex. Excise taxes on distilled wines, cigars and cigarettes, gasoline and others. (b) Ad valorem (according to value) tax of a fixed proportion of the value of the property with respect to which the tax is assessed; it requires the intervention of assessors or appraisers to estimate the value of the property before the amount due from each taxpayer can be determined.

Ex. Real estate tax, value added tax, percentage taxes, excise taxes on automobiles, non-essential goods (e,g. jewelry) and others. Excise tax as tax on property, may be ad valorem but an ad valorem tax (e.g. real estate tax) is not necessarily an excise tax.

(a) Direct tax which is demanded from the person who also shoulders the burden of the tax; or tax which the taxpayer cannot shift to another. Ex. Community tax, corporate and individual income taxes. As to who bears the burden (b) Indirect tax which is demanded from one person in the expectation and intention that he should indemnify himself at the expense of another; or tax imposed on goods before they reach the customer who ultimately pays for them, not as a tax but as a part of the purchase price to which it is added. Ex. All business taxes, such as value-added tax, percentage taxes and others, custom duties

As to graduation or rate
(a) proportional- tax based on a fixed percentage of the amount of the property, income or other basis to be taxed. ex. Real property tax, all percentage taxes (b) Progressive or graduated tax based on the rate which increases as the tax base or bracket increases. Ex. Income tax; estate tax; donors tax (c ) regressive- tax based on the rate of which decreases as the tax base or bracket increases We have no regressive tax

Taxes distinguished from other terms

Revenue refers to all the funds or income derived by the government, whether from tax or any other source. In another sense, it refers to the amount collected, while tax refers to the amount imposed. Internal revenue it refers to taxes imposed by the legislature other than duties on imports and exports. Customs duties (or simply duties) they are taxes imposed on goods exported from or imported into a country.

Debt a tax is not a debt and the two are distinguished as follows: a)A debt is generally based on contract, while a tax is based on law. b)A debt is assignable, while a tax cannot be assigned c)A debt may be paid in kind, while a tax is generally payable in money. d)A person cannot be imprisoned for nonpayment of debt while imprisonment is a sanction for non-payment of tax (except poll tax). A tax, however, like a debt is an obligation.

Penalty it is any sanction imposed as a punishment for violation of law or acts deemed injurious. thus the violation of tax laws may give rise to imposition of penalty. a)A penalty is designed to regulate conduct, while tax is primarily aimed at raising revenue b)A penalty may be imposed by either the government or private entities, while tax may be imposed only by the government.

Tax evasion
The use of taxpayer of illegal or fraudulent means to defeat or reduce the payment of a tax. It is punishable by law. Ex. Deliberate failure to report taxable income or property; deliberate reduction of income that has been received.

Tax avoidance
The use of the tax payer of illegally permissible means or methods in order to avoid or reduced tax liability. It is not punishable by law. Ex. The term may be extended to include situations where a person refrains from engaging in some activity or enjoying some privileges in order to avoid incidental taxation or lower his tax bracket for a taxable year to avoid higher arte of tax. A man may change the form of his property by putting his money into non-taxable securities.

Distinction between tax evasion and tax avoidance

Tax evasion should be applied to the escape from taxation accomplished by breaking the letter of tax law-deliberate omission to report a taxable item for example.

Kinds of taxes
National taxes those imposed by the national government under the national internal revenue code and other laws particularly the tariff and custom codes Local taxes those imposed by

(1)The following are deemed to be national internal revenue taxes: Kinds of national internal a. Income tax revenue taxes Income - means all wealth which flows into the tax payer or other than a mere return on capital. Not all receipts of a person are income. Income tax a tax on a persons income, profits and the like, realized in one taxable year. It is imposed at progressive or graduated rates,

there being one set of schedule rates for compensation or employment income, and for business, professional and other types of non-compensation income. Nature and purpose of Income Tax: It is generally regarded as a privilege tax and not a tax on property. It is a tax on the privilege to earn income. Its purpose is to raise revenue

Gross income is all income but not including exempt income and income subject to final income tax. Examples of gross income are salaries or wages for services including fees, commissions and similar items and those derived from business or profession, sale of and other dealings in property, interests, rents, dividends and securities. All kinds of income of whatever kind and derived from whatever source including those derived from gambling and illegal transactions are taxable.

Income to subject final income tax

Certain incomes (referred to as passive incomes) are subject to final tax which shall be withheld by the payor and paid by him to the BIR. They are to be reported by the withholding agent (payor) and paid by him to the BIR. Examples of such incomes and their corresponding final tax rates are: 1. Royalties (except from books, literary works and musical compositions - 10%) - prizes, other winnings, interest from bank deposits

yield or other monetary benefit from deposit substitutes ( interest on money market placements); and yield or other monetary benefit from trust funds and similar arrangements 20% -Prizes amounting to 10,000 or less are to be included in taxable income and taxable accordingly -- winnings from PCSO and lotto are exempt from income tax.

2. Cash and / or property dividends received from a corporation 6%, 8% and 10% effective 1998, 1999, and 2000 respectively 3. Net capital gains from sale of shares of stock not traded through the stock exchange 5% on the amount not exceeding P100,000 and 10% on any amount in excess of P100,000; so if the net capital gains is P120,000, the final income tax is 7,000 (P5,000 + 2,000) 4. Capital gains from the sale of real property 6% based on the gross selling price or current fair market value, whichever is higher.

Exclusions from gross income

They are incomes that are exempt from tax, e.g., life insurance proceeds paid to beneficiaries upon the death of the insured as they are considered more as an indemnity rather than as gains or profits and payments for injuries or sickness as they are compensatory in nature. Other examples of exempt income are retirement benefits (under certain conditions) received from private firms, social security and GSIS benefits, prizes and awards granted in recognition of religious,

charitable, scientific, educational, artistic literary or civic achievement, or in sports competition. -Exclusions are not considered in determining gross income. -Deductions, on the other hand, are subtracted from gross income to arrive at taxable (net) income. Deductions from gross income: -Deductions are item or amounts which the law allows to the deducted from gross income to arrive at taxable income.

1. For corporations and business (i.e., not professional) partnerships, the itemized deductions are: a. Ordinary and necessary trade, business or professional expenses b. Interests on indebtedness c. Taxes d. Losses e. Bad debts f. Depreciation g. Depletion h. Charitable and other contributions i. Research and development expenditures j. Pension trust contributions of employees

There is no limit in the amount allowed but the deductions must be duly paid and incurred and supported by receipts. 2. For compensation earners, no deductions are allowed except only personal and additional exemptions and the amount of premiums not to exceed P 2,400 per family or P 200 a month on health and / or hospitalization insurance of the individual taxpayer, provided that the said family has a gross income of not more than P250,000 for the taxable year.

There is also allowed in the nature of a deduction from the amount ofpersonal andwhether Amount of taxable income, compensation or not, the following basic personal additional exemptions allowable exemptions: to individuals: 1. P20,000 for single individual or married individual judicially decreed as legally separated with no qualified dependents; 2. P32,000 for each married individual (husband or wife); or total of P64,000 in case both spouses earn income

3. P25,000 for an unmarried individual who is the head of the family depending upon him or her for support. The additional exemption of P8,000 for every child but not exceeding (4) four dependents may be claimed by one of the spouses in the case of married individuals. Note: the husband and wife shall compute their individual income tax separately based on their respective total taxable income. The resulting tax due from both spouses shall be added and the tax payable shall be the sum thereof.

Head of the family is an individual who actually supports and maintains in one household, one or more individuals, who are closely connected with him by blood relationship, relationship by marriage, or by adoption. A head of a family includes an unmarried or legally separated man or woman with: 1. One or both parents or 2. One or more brothers or sisters or 3. One or more legitimate, recognized natural, or legally adopted children living with and dependent upon him or her for their chief support.

The brothers or sister, or children must be (a) not more than 21 years of age (b) not married and (c) not gainfully employed except in the case of children, even if more than 21 years of age when they are incapable of self-support because of mental or physical defect. A recognized natural child is one born outside of wedlock between who, at the time of conception of the child, were legally free to marry each other and is recognized by one or both parents.

Introduction to the tax system

The laws governing taxation in the Philippines are contained within the National Internal Revenue Code. This code underwent substantial revision with passage of the Tax Reform Act of 1997.

Taxation is administered through the Bureau of Internal Revenue which comes under the Department of Finance. The chief executive of the Bureau of Internal Revenue is the Commissioner who has exclusive and original jurisdiction to interpret the provisions of the code and other tax laws. The commissioner also has the powers to decide disputed assessments, grant refunds of taxes, fees and other charges and penalties, modify payment of any internal revenue tax and abate or cancel a tax liability. Taxpayers can appeal decisions by the Commissioner directly to the Court of Tax Appeals.

Primary tax incentives

Tax holiday The Omnibus Investments Code grants to enterprises that have registered with the Board of Investments and that qualify under the annual Investments Priority Plan entitlements to tax holidays of

There are over thirty special economic zones throughout the Philippines where export manufacturing firms are encouraged to start operation. Under the Philippine Export Special Economic Zones Zone Authority Law, a special economic zone registered enterprise can, in lieu of all other national and local taxes, pay a tax of 5% of its gross income. A firm that has registered under the Omnibus Investments Code that is located and registered to do business within a special economic zone can have a tax holiday for the first four or six years of its operations, followed by a 5% tax thereafter. The exemption from national taxes covers all internal revenue taxes, including the Value Added Tax.

Tax treaty with the United States

The Philippines has tax treaties with many countries, including the United States, in order to minimize the effects of double taxation. The business profits of a resident of another country with whom the Philippines

Primary types of taxation

Individual Income Tax

Residents engaged in trade or business are taxed upon their net income (gross income less allowable deductions and personal exemptions) according to a schedule of rates ranging from 3% to 33%. The maximum rate will be

Personal exemptions of the following amounts are allowed on the individual income tax return: Single 50,000 pesos Head of family 50,000 pesos Married individuals 50,000 pesos An additional 25,000 pesos exemption is given for each of the first four additional dependents.

Passive income


A final tax of 20% is imposed on interest income. This tax is withheld at the source. Exceptions to this are: i. Interest income from a depositary bank with a Foreign Currency Deposit Unit is subject to a final tax rate of

A final tax of 10% is imposed on cash or property dividends from domestic corporations, joint stock companies, insurance or mutual funds, or regional operating headquarters of multinational corporations.

Capital gains
The tax code imposes a final tax of 5% on net capital gains from the sale of stock in a domestic corporation up to 100,000 pesos. The tax is 10% for any income over 100,000 pesos. If the stock is stock exchange listed, a

Fringe benefits
Fringe benefits, such as housing, expense accounts, vehicles, household personnel, membership fees and educational fees are taxable under the fringe benefits tax and are payable by the employer, who is responsible for withholding it and remitting it to the

Corporation tax
Resident foreign corporations engaged in trade or business in the Philippines are taxed at the same rates as domestic corporations. The corporation income tax rate is currently 30%. Effective January 1, 2000, the tax code includes an option for corporations to be taxed at a rate of 15% of gross income if the President of the Philippines chooses to enact this option. If the option is granted by the President, only firms whose proportion of the cost of sales or receipts from all sources does not exceed 55% may exercise the option. This method of taxation, once elected, shall be irrevocable for three consecutive years.

Under the Tax Reform Act, the Philippines has also established a Minimum Corporate Income Tax. Subsequent to the fourth taxable year after a corporation has started its business, a minimum corporate income tax of 2% of the gross income is imposed if this amount is greater than the regularly computed tax. This amount can be carried forward and credited against the normal income tax for the three immediately succeeding taxable years.

Value Added Tax (VAT)

The VAT is equivalent to 12% of the gross selling price or gross value in money of goods or properties sold, bartered or exchanged. Any excise tax on these goods is also part of the gross selling price. In the case of imported goods, VAT is based on the total value of the goods as determined by the Bureau of Customs plus customs duties, excise taxes and incidental

A VAT registered entity may credit the VAT paid on purchases of other goods and services against the tax on its current period sales of goods or services. If the amount of input tax is greater than the amount of output tax, the excess may be credited against succeeding period output VAT. VAT registered entities are required to issue an invoice or receipt for every sale and, in addition to regularly required accounting records, they must maintain subsidiary sales and purchase journals exclusively for VAT purposes. VAT reports must be submitted on a quarterly basis, twenty-five days after the end of the quarter. VAT payments must be made on a monthly basis.

Percentage tax (primarily for nonVAT registered entities

Excise tax Documentary stamp tax Estate and donors (gift) tax

Corporate Taxpayers
1. Domestic corporations are taxed at 30% of annual taxable income from worldwide sources with option for 15% tax on gross income subject to certain conditions. Domestic corporations are those established

2. A foreign corporation, whether engaged or not in trade or business in the Philippines, is taxable on Philippine-sourced income at the same rates as domestic corporations. Such foreign corporation engaged in trade or business in the Philippines (also called resident foreign corporation) is taxed based on net income with the same option to pay 15% tax on gross income. On the other hand, a foreign corporation not engaged in business or trade in the Philippines (also known as a nonresident foreign corporation) is taxed based on gross income received.

3. Profits remitted by a branch of a foreign corporation to its home office are taxed at the rate of 15%. However, this tax does not apply to a Philippine branch registered with PEZA. Dividends declared by a domestic corporation to its foreign parent are generally taxed at 30%. However, if the home country of the recipient corporation allows an additional credit of 17% as tax deemed paid in the Philippines, the tax is reduced to 15%. Dividends remitted to countries that do not impose a tax on offshore dividends qualify for this rate. Under the Philippine tax treaties with Netherlands, Japan, Germany, Korea and Austria, a preferential tax of 10% on branch profit remittances is granted. Furthermore, under the tax treaties with these countries, dividends paid are subject to 10% tax if the payor-subsidiary is registered with the BOI or if the beneficial owner of the dividends is a company which holds a certain percentage of the capital of the payor subsidiary. Otherwise, the tax on dividends is 15%.

4. All corporations, whether domestic or foreign, are subject to capital gains tax on the sale of shares of stock, in the same manner as individual taxpayers. Other income items such as interest and royalties are taxed at various rates. Dividends received by a domestic or resident foreign corporation from a domestic corporation are exempt from tax.

All corporations, whether domestic or foreign, are subject to capital gains tax on the sale of shares of stock, in the same manner as individual taxpayers. Other income items such as interest and royalties are taxed at various rates. Dividends received by a domestic or resident foreign corporation from a domestic corporation are exempt from tax. A minimum corporate income tax of 2% of the gross income as of the end of the taxable year is imposed on a corporation which is subject to normal income tax of 30% beginning on the fourth taxable year immediately following the year in which such corporation was registered with the Bureau of Internal Revenue, when the minimum income tax is greater than the normal income tax for the taxable year.

Any excess of the minimum corporate income tax over the normal income tax as computed shall be carried forward and credited against the normal income tax for the three immediately succeeding taxable years. Every corporation formed or availed for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of any other corporation by permitting earnings and profits to accumulate instead of being divided or distributed, is taxed at the rate of 10% for each taxable year on the improperly accumulated taxable income.

6. In general, an employer (individual or corporation) shall pay a final tax of 30% on the grossed-up monetary value of fringe benefit furnished or granted to the employee (except rank and file) unless the fringe benefit is required by nature of, or necessary to the trade, business or profession of the employer.

1. Manufacturers, wholesalers, exporters and contractors are subject to graduated taxes on certain amounts of sales/gross receipts and percentage taxes at maximum Local tax .375% to .75% on the amounts not rates ranging fromon certain businesses subject to graduated taxes, depending on the place where business is conducted. For essential commodities, the rates are 50% lower. Retailers are subject to 2% tax if their gross receipts are PhP400,000 or less and to 1% tax if in excess of PhP400,000.

Banks and other financial institutions- percentage tax at maximum rates ranging from .50% to .75% depending on the locality of the business. 3. Others - varying rates Aside from the above business taxes, there are other taxes levied in the Philippines such as: a. Real estate tax b. Stamp tax on certain documents, instruments and related transactions such as issuance of shares of stock, evidence of indebtedness, transfer of real property, lease contracts, insurance policies, etc.. c. Community tax d. Overseas communications tax

VALUE ADDED TAX 1. Twelve percent (12%) VAT is imposed on importation of goods and sale, barter, exchange or lease of goods, properties National Taxes and services in the Philippines, subject to certain exceptions. Goods or properties mean all tangible and intangible objects, including real property, patents, trademarks and similar rights and movable and personal goods. Services cover performance of all kinds of services in the Philippines for a fee. Exports are generally subject to 0% VAT. VAT exempt goods include such items as books, fertilizers, livestock and poultry feeds and agricultural and marine food products in their original state.

2. Gross receipts tax on certain businesses:. a. Bank and other non-bank financial intermediaries 0% to 5% b. Life insurance companies 5% c. Common passenger carriers 3% d. Electric, gas and water utilities 2% e. Others ranging from 3% to 30% 3. Excise tax on alcohol, tobacco, petroleum and mineral products, cinematographic films, automobiles, jewelry, etc. at varying rates.

Individual Income Tax

Taxable income from employment, business, trade and exercise of profession including casual gains, profits, and prizes of PhP10,000 or less; except items of income subject to final tax and special treatment, e.g. capital gains and passive income mentioned in items 4 and 5 below, derived by resident citizens from all sources within and without the Philippines are subject to the graduated tax rates of 5% to 32%. The top rate of 32% applies to taxable income in excess of PhP500,000. Resident aliens and non-resident citizens are subject to the same graduated tax rates but only for income derived from all sources within the Philippines.

2. Non-resident aliens are taxed at 25% of gross income from sources within the Philippines if their stay within the country does not exceed 180 days in the calendar year. Otherwise, they are taxed on the basis of graduated rates as in (1) above. 3. Aliens who are employed by regional or area or regional operating headquarters of multinational corporations, representative offices, offshore banking units, petroleum service contractors and subcontractors are subject to income tax at 15% of their gross income from such employers (e.g. salaries, annuities, honoraria and allowances).

4. Net capital gains realized during each taxable year from the sales of shares of domestic stocks not traded in the Philippine Stock Exchange (PSE) are taxed at the rate of 5% on the first PhP100,000 gains and 10% on the excess over PhP100,000. For domestic shares listed and traded in the PSE, the tax is 1/2 of 1% of the gross selling price or gross value in money of the shares of stock sold. Likewise, there is a tax on shares of stock sold, exchanged or otherwise disposed through initial public offering at the rates of 1%, 2% and 4%, depending on the proportion of the shares sold, exchanged or otherwise disposed to the total outstanding shares after listing of the shares of closely held corporations. Capital gains on sale of real property are taxed at 6% of gross selling price or fair market value, whichever is higher.

5. Passive income items like interest, dividends, royalties, prizes and other winnings are also taxed at different rates. For instance, dividends received by citizens and residents from a domestic corporation and the share of an individual partner in a taxable partnership are taxed at 10%. However, the tax on such dividends shall apply only on income earned on or after January 1, 1998. If the dividends are paid to non-residents, the tax is 20% for those engaged in trade or business and 25% for the others.

Capital Gains Tax is a tax imposed on the gains presumed to have been realized by the seller from the sale, exchange, or other disposition of capital assets located in the Philippines, including pacto de retro sales and other forms of conditional sale. Documentary Stamp Tax is a tax on documents, instruments, loan agreements and papers evidencing the acceptance, assignment, sale or transfer of an obligation, rights, or property incident thereto.

Donor's Tax is a tax on a donation or gift, and is imposed on the gratuitous transfer of property between two or more persons who are living at the time of the transfer. Estate Tax is a tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death and on certain transfers which are made by law as equivalent to testamentary disposition.

Income Tax - Philippines Income Tax is a tax on all yearly profits arising from property, profession, trades or offices or as a tax on a persons income, emoluments, profits and the like. Percentage Tax - Philippines Percentage Tax is a business tax imposed on persons or entities who sell or lease goods, properties or services in the course of trade or business whose gross annual sales or receipts do not exceed P550,000 and are not VAT-registered.

Value Added Tax (VAT) - Philippines Value Added Tax (VAT) is a business tax imposed and collected from the seller in the course of trade or business on every sale of properties (real or personal) lease of goods or properties (real or personal) or vendors of services. It is an indirect tax, thus, it can be passed on to the buyer. Withholding Tax on Compensation - Philippines Withholding Tax on Compensation is the tax withheld from individuals receiving purely compensation income.

Expanded Withholding Tax - Philippines Expanded Withholding Tax is a kind of withholding tax which is prescribed only for certain payors and is creditable against the income tax due of the payee for the taxable quarter year. Final Withholding Tax - Philippines Final Withholding Tax is a kind of withholding tax which is prescribed only for certain payors and is not creditable against the income tax due of the payee for the taxable year. Income Tax withheld constitutes the full and final payment of the Income Tax due from the payee on the said income.

Withholding Tax on Government Money Payments - Philippines Withholding Tax on Government Money Payments is the withholding tax withheld by government offices and instrumentalities, including governmentowned or -controlled corporations and local government units, before making any payments to private individuals, corporations, partnerships and/or associations.

Income Tax is a tax on a person's income, Description emoluments, profits arising from property, practice of profession, conduct of trade or business or on the pertinent items of gross income specified in the Tax Code of 1997 less the deductions and/or personal and additional exemptions, if any, authorized for such types of income, by the Tax Code or other special laws.

Who Are Required To File Income Tax Returns

Resident citizens receiving income from sources within or outside the Philippines
individuals deriving compensation income from 2 or more Individuals employers, concurrently or successively at anytime during the taxable year employees deriving compensation income regardless of the amount, whether from a single or several employers during the calendar year, the income tax of which has not been withheld correctly (i.e. tax due is not equal to the tax withheld) resulting to collectible or refundable return

employees whose monthly gross compensation income does not exceed P5,000 or the statutory minimum wage, whichever is higher, and opted for non-withholding of tax on said income individuals deriving other non-business, non-professional related income in addition to compensation income not otherwise subject to a final tax individuals receiving purely compensation income from a single employer, although the income of which has been correctly withheld, but whose spouse is not entitled to substituted filing

Non-resident citizens receiving income from sources within the Philippines Citizens working abroad receiving income from sources within the Philippines Aliens, whether resident or not, receiving income from sources within the Philippines

Corporations no matter how created or organized including general professional partnerships domestic corporations receiving income from sources within and outside the Philippines foreign corporations receiving income from sources within the Philippines Estates and trusts engaged in trade or business Annual Income Tax For Individuals Earning Purely Compensation Income (Including Non-Business/NonProfession Related Income)

Tax Form BIR Form 1700 - Annual Income Tax Return (For Individual Earning Purely Compensation Income Including NonBusiness/Non-Profession Related Income) Documentary Requirements 1. Certificate of Income Tax Withheld on Compensation (BIR Form 2316) 2. Waiver of the Husbands right to claim additional exemption, if applicable 3. Duly approved Tax Debit Memo, if applicable 4. Proof of Foreign Tax Credits, if applicable 5. Return previously filed return and proof of payment, if amended return

Fill-up BIR Form 1700 in triplicate. 2. If there is payment:
Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office where you are registered and present the duly accomplished BIR Form 1700, together with the required attachments and your payment. In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or Municipal Treasurer located within the Revenue District Office where you are registered and present the duly accomplished BIR Form 1700, together with the required attachments and your payment. Receive your copy of the duly stamped and validated form from the teller of the AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.

3. For Refundable Returns and for tax returns with second installment:
Proceed to the Revenue District Office where you are registered or to any Tax Filing Center established by the BIR and present the duly accomplished BIR Form 1700, together with the required attachments. Receive your copy of the duly stamped and validated form from the RDO/Tax Filing Center representative.

Deadline On or before the 15th day of April of each year covering income for the preceding taxable year

Annual Income Tax For Self-Employed Individuals, Estates And Trusts (Including Those With Business And Compensation Income) Tax Form BIR Form 1701 - Annual Income Tax Return (For Self-Employed Individuals, Estates and Trusts Including Those With Business and Compensation Income

Documentary Requirements
Documentary Requirements 1. Certificate of Income Tax Withheld on Compensation (BIR Form 2316), if applicable 2. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304) if applicable 3. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable 4. Waiver of the Husbands right to claim additional exemption, if applicable 5. Duly approved Tax Debit Memo, if applicable

6. Proof of Foreign Tax Credits, if applicable 7. Return previously filed return and proof of payment, if amended return 8. Account Information Form (AIF) and the Certificate of the independent CPA or Audited Financial Statements except for taxpayers who opted for the Optional Standard Deduction (The CPA Certificate is required if the gross quarterly sales, earnings, receipts or output exceed P 150,000.00) 9. Proof of prior years excess tax credits, if applicable

1. Fill-up BIR Form 1701 in triplicate copies. 2. If there is payment:
Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office where you are registered and present the duly accomplished BIR Form 1701, together with the required attachments and your payment. In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or Municipal Treasurer located within the Revenue District Office where you are registered and present the duly accomplished BIR Form 1701, together with the required attachments and your payment.

Receive your copy of the duly stamped and validated form from the teller of the AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer

3. For Refundable Returns and for those returns with second installment:
Proceed to the Revenue District Office where you are registered or to any established Tax Filing Centers established by the BIR and present the duly accomplished BIR Form 1701, together with the required attachments. Receive your copy of the duly stamped and validated form from the RDO/Tax Filing Center representative.

Deadline Final Adjustment Return - On or before the 15th day of April of each year covering income for the preceding year

Account Information Form For Self-Employed Individuals, Estates And Trusts (Including Those With Mixed Income , I.E., Business And Compensation Income)

Tax Form BIR Form 1701 AIF - Account Information Form For Self-Employed Individuals, Estates and Trusts (Including those with Mixed Income, i.e., Business and Compensation Income) NOTE: Pursuant to Revenue Memorandum Circular No. 6 2001, corporations, companies or persons whose gross quarterly sales, earnings, receipts or output exceed P 150,000.00 may not accomplish this form. In lieu thereof, they may file their annual income tax returns accompanied by balance sheets, profit and loss statement, schedules listing incomeproducing properties and the corresponding income therefrom, and other relevant statements duly certified by an independent CPA.

Documentary Requirements None Procedures 1. Accomplish BIR Form 1701 AIF in triplicate. 2. Attach the same to BIR Form 1701. Deadline Same deadline as BIR Form 1701 - On or before the 15th day of April of each year covering income for the preceding year

Quarterly Income Tax For Self-Employed Individuals, Estates And Trusts (Including Those With Mixed Income, I.E., Business And Compensation Income) Tax Form BIR Form 1701Q - Quarterly Income Tax Return For SelfEmployed Individuals, Estates and Trusts (Including those with Mixed Income, i.e., Business and Compensation Income) Documentary Requirements 1. Certificate of Income Tax Withheld at Source (BIR Form 2307), if applicable 2. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304) if applicable 3. Duly approved Tax Debit Memo, if applicable

Procedures 1. Fill-up BIR Form 1701Q in triplicate. 2. If there is payment:

Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office where you registered and present the duly accomplished BIR Form 1701 Q, together with the required attachments and your payment. In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or Municipal Treasurer located within the Revenue District Office where you are registered and present the duly accomplished BIR Form 1701Q, together with the required attachments and your payment.

Receive your copy of the duly stamped and validated form from the teller of the AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.

3. For Refundable Returns and for those returns with second installment:
Proceed to the Revenue District Office where you are registered or to any Tax Filing Center established by the BIR and present the duly accomplished BIR Form 1701Q, together with the required attachments. Receive your copy of the duly stamped and validated form from the RDO/Tax Filing Center representative.

Deadlines April 15 for the first quarter August 15 for the second quarter November 15 for the third quarter

Annual Income Tax For Corporations And Partnerships

Tax Form BIR Form 1702 - Annual Income Tax Return (For Corporations and Partnerships)

Documentary Requirements 1. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304) if applicable 2. Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if applicable 3. Duly approved Tax Debit Memo, if applicable 4. Proof of Foreign Tax Credits, if applicable 5. Return previously filed return and proof of payment, if amended return 6. Account Information Form (AIF) and the Certificate of the independent CPA /or Audited Financial Statements except for taxpayers who opted for the Optional Standard Deduction. (The CPA Certificate is required if the gross quarterly sales, earnings, receipts or output exceed P150,000.00) 7. Proof of prior years excess tax credits, if applicable

Procedures 1. Fill-up BIR Form 1702 in triplicate. 2. If there is payment:

Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office where you are registered and present the duly accomplished BIR Form 1702, together with the required attachments and your payment. In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or Municipal Treasurer located within the Revenue District Office where you are registered and present the duly accomplished BIR Form 1702 with the required attachments and your payments.

Receive your copy of the duly stamped and validated form from the teller of the AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer. 3. For No Payment Returns and Refundable Returns: Proceed to the Revenue District Office where you are registered or to any Tax Filing Center established by BIR and present the duly accomplished BIR Form 1702, together with the required attachments. Receive your copy of the duly stamped and validated form from the RDO/Tax Filing Center representative Deadline Final Adjustment Return - On or before the 15th day of the fourth month following the close of the taxpayers taxable year

Account Information Form For Corporations And Partnerships Tax Form BIR Form 1702 AIF - Account Information Form (For Corporations and Partnerships) NOTE: Pursuant to Revenue Memorandum Circular No. 6 2001, corporations, companies or persons whose gross quarterly sales, earnings, receipts or output exceed P 150,000.00 may not accomplish this form. In lieu thereof, they may file their annual income tax returns accompanied by balance sheets, profit and loss statement, schedules listing income-producing properties and the corresponding income therefrom, and other relevant statements duly certified by an independent CPA.

Documentary Requirements None Procedures 1. Accomplish BIR Form 1702 AIF in triplicate. 2. Attach the same to BIR Form 1702. Deadline Same deadline as BIR Form 1702 - On or before the 15th day of the fourth month following the close of the taxpayers taxable year

Quarterly Income Tax For Corporations And Partnerships Tax Form BIR Form 1702 Q - Quarterly Income Tax Return (For Corporations and Partnerships) Documentary Requirements 1. Certificate of Income Tax Withheld at Source (BIR Form 2307), if applicable 2. Certificate of Income Payments not Subjected to Withholding Tax (BIR Form 2304) if applicable 3. Duly approved Tax Debit Memo, if applicable

Procedures 1. Fill-up BIR Form 1702 Q in triplicate. 2. If there is payment:

Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office where you are registered and present the duly accomplished BIR Form 1702 Q, together with the required attachments and your payment. In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or Municipal Treasurer located within the Revenue District Office where you are registered and present the duly accomplished BIR Form 1702 Q.

Receive your copy of the duly stamped and validated form from the teller of the AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.

3. For Refundable Returns and for those returns with second installment:
Proceed to the Revenue District Office where you are registered and present the duly accomplished BIR Form 1702 Q, together with the required attachments. Receive your copy of the duly stamped and validated form from the RDO representative.

Deadline Corporate Quarterly Declaration - On or before the 60th day following the close of each of the quarters of the taxable year

Improperly Accumulated Earnings Tax For Corporations Tax Form BIR Form 1704 - Improperly Accumulated Earnings Tax Return (For Corporations) Documentary Requirements 1. Photocopy of Annual Income Tax Return (BIR Form 1702) and Audited Financial Statements or Account Information Form of the covered taxable year duly received by the BIR; and 2. Sworn declaration as to dividends declared taken from the covered year's earnings and the corresponding tax withheld, if any

Procedures 1. Fill-up BIR Form 1704 in triplicate. 2. If there is payment:

Proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office where you are registered and present the duly accomplished BIR Form 1704, together with the required attachments and your payment. In places where there are no AABs, proceed to the Revenue Collection Officer or duly Authorized City or Municipal Treasurer located within the Revenue District Office where you are registered and present the duly accomplished BIR Form 1704

Receive your copy of the duly stamped and validated form from the teller of the AABs/Revenue Collection Officer/duly Authorized City or Municipal Treasurer.

3. If there is no payment:
Proceed to the Revenue District Office where you are registered and present the duly accomplished BIR Form 1704, together with the required attachments. Receive your copy of the duly stamped and validated form from the RDO representative

Deadline Within fifteen (15) days after the close of the year

Tax Rate

For Individuals Earning Purely Compensation Income and Individuals Engaged in Business and Practice of Profession Over But Not OverRate P10,000 5% P10,000 P30,000 P500 + 10% of the Excess over P10,000 P30,000 P70,000 P2,500 + 15% of the Excess over P30,000 P70,000 P140,000 P8,500 + 20% of the Excess over P70,000

P140,000 P250,000

P22,500 + 25% of the Excess over P140,000 P250,000 P500,000 P50,000 + 30% of the Excess over P250,000 P500,000 P125,000 + 34% of the Excess over P500,000 in 1998 Note: Effective January 1, 1999, the maximum rate shall be thirty-three percent (33%) and thirty-two percent (32%) on January 1, 2000. Note: When the tax due exceeds P2,000.00, the taxpayer may elect to pay in two equal installments, the first installment to be paid at the time the return is filed and the second installment on or before July 15 of the same year at the Authorized Agent Bank (AAB) within the jurisdiction of the Revenue District Office (RDO) where the taxpayer is registered.

Passive Income 1. Interest on any peso bank deposit - 20% 2. Royalties (except on books as well as literary & musical composition - 10%)- 20% 3. Prizes (except prizes amounting to P10,000 or less 5%)20% 4. Winnings (except from PCSO and lotto)-20% 5. Interest Income of Foreign Currency Deposit-7.5%

6. Interest from long-term deposit Holding PeriodFour (4) years to less than five (5) years- 5%Three (3) years to less than four (4) years- 12%Less than three (3) years - 20% 7. Cash and/or Property DividendsBeginning January 1, 1998..6% Beginning January 1, 1999..8% Beginning January 1, 2000 & thereafter10%

8. On capital gains presumed to have been realized from sale, exchange or other disposition of real property (capital asset).6% 9. On capital gains for shares of stock not traded in the stock exchangeNot over P100,000..5%Any amount in excess of P100,000..10%

Frequently asked questions

1) What is income? Income means all wealth, which flows into the taxpayer other than as a mere return of capital. 2) What is Taxable Income? Taxable income means the pertinent items of gross income specified in the Tax Code less the deductions and/or personal and additional exemptions, if any, authorized for such types of income, by the Tax Code or other special laws. 3) What is Gross Income? Gross income means all income derived from whatever source.

4) What comprises gross income? Gross income includes, but is not limited to the following: Compensation for services, in whatever form paid, including but not limited to fees, salaries, wages, commissions and similar item Gross income derived from the conduct of trade or business or the exercise of profession Gains derived from dealings in property Interest Rents Royalties Dividends Annuities Prizes and winnings Pensions Partner's distributive share from the net income of the general professional partnerships

5) What are some of the exclusions from gross income? Life insurance Amount received by insured as return of premium Gifts, bequests and devises Compensation for injuries or sickness Income exempt under treaty Retirement benefits, pensions, gratuities, etc. Miscellaneous items income derived by foreign government income derived by the government or its political subdivision prizes and awards in sport competition prizes and awards which met the conditions set in the Tax Code 13th month pay and other benefits GSIS, SSS, Medicare and other contributions gain from the sale of bonds, debentures or other certificate of indebtedness gain from redemption of shares in mutual fund

6) What are the allowable deductions from gross income? Except for taxpayers earning compensation income arising from personal services rendered under an employer-employee relationships where the only deduction up to a maximum limit of P 2,400 per year per family is the premium payment on health and/or hospitalization insurance, a taxpayer may opt to avail any of the following allowable deductions from gross income: Optional Standard Deduction - an amount not exceeding 10% of the gross income; or Itemized Deductions which include the following: Expenses Interest Taxes Losses Bad Debts Depreciation Depletion of Oil and Gas Wells and Mines Charitable Contributions and Other Contributions Research and Development Pension Trusts

In addition, individuals who are either earning compensation income, engaged in business or deriving income from the practice of profession are entitled to personal and additional exemptions as follows: Personal Exemptions: For single individual or married individual judicially decreed as legally separated with no qualified dependents...P 20,000.00 For head of family.....P 25,000.00 For each married individual *... .P 32,000.00 Note: In case of married individuals where only one of the spouses is deriving gross income, only such spouse will be allowed to claim the personal exemption.

Additional Exemptions For each qualified dependent, an P 8,000 additional exemption can be claimed but only up to 4 qualified dependents The additional exemption can be claimed by the following: The husband who is deemed the head of the family unless he explicitly waives his right in favor of his wife The spouse who has custody of the child or children in case of legally separated spouses. Provided, that the total amount of additional exemptions that may be claimed by both shall not exceed the maximum additional exemptions allowed by the Tax Code.

The individuals considered as Head of the Family supporting a qualified dependent The maximum amount of P 2,400 premium payments on health and/or hospitalization insurance can be claimed if: Family gross income yearly should not be more than P 250,000 For married individuals, the spouse claiming the additional exemptions for the qualified dependents shall be entitled to this deduction

7) Who are required to file the Income Tax returns? Individuals

resident citizens receiving income from sources within or outside the Philippines individuals deriving compensation income from 2 or more employers, concurrently or successively at anytime during the taxable year employees deriving compensation income regardless of the amount, whether from a single or several employers during the calendar year, the income tax of which has not been withheld correctly (i.e. tax due is not equal to the tax withheld) resulting to collectible or refundable return employees whose monthly gross compensation income does not exceed P5,000 or the statutory minimum wage, whichever is higher, and opted for non-withholding of tax on said income

individuals deriving pother non-business, non-professional related income in addition to compensation income not otherwise subject to a final tax individuals receiving purely compensation income from a single employer, although the income of which has been correctly withheld, but whose spouse is not entitled to substituted filing non-resident citizens receiving income from sources within the Philippines citizens working abroad receiving income from sources within the Philippines aliens, whether resident or not, receiving income from sources within the Philippines

Corporations no matter how created or organized including general professional partnerships

domestic corporations receiving income from sources within and outside the Philippines foreign corporations receiving income from sources within the Philippines

Estates and trusts engaged in trade or business

8) Who are not required to file Income Tax returns? An individual whose gross income does not exceed his total personal and additional exemptions An individual whose compensation income derived from one employer does not exceed P 60,000 and the income tax on which has been correctly withheld An individual whose income has been subjected to final withholding tax (alien employee as well as Filipino employee occupying the same position as that of the alien employee of regional headquarters and regional operating headquarters of multinational companies, petroleum service contractors and sub-contractors and offshore-banking units, non-resident aliens not engaged in trade or business)

Those who are qualified under substituted filing. However, substituted filing applies only if all of the following requirements are present the employee received purely compensation income (regardless of amount) during the taxable year the employee received the income from only one employer in the Philippines during the taxable year the amount of tax due from the employee at the end of the year equals the amount of tax withheld by the employer the employees spouse also complies with all 3 conditions stated above the employer files the annual information return (BIR Form No. 1604-CF) the employer issues BIR Form No. 2316 (Oct 2002 ENCS version ) to each employee.

9) Who are exempt from Income Tax? Non-resident citizen who is: a) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein b) A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on a permanent basis c) A citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year

d) A citizen who has been previously considered as a non-resident citizen and who arrives in the Philippines at any time during the year to reside permanently in the Philippines will likewise be treated as a non-resident citizen during the taxable year in which he arrives in the Philippines, with respect to his income derived from sources abroad until the date of his arrival in the Philippines. Overseas Contract Worker, including overseas seaman An individual citizen of the Philippines who is working and deriving income from abroad as an overseas contract worker is taxable only on income from sources within the Philippines; Provided, that a seaman who is a citizen of the Philippines and who receives compensation for services rendered abroad as a member of the complement of a vessel engaged exclusively in international trade will be treated as an overseas contract worker. NOTE: A Filipino employed as Philippine Embassy/Consulate service personnel of the Philippine Embassy/consulate is not treated as a nonresident citizen, hence his income is taxable.

10) What are the procedures in filing Income Tax returns (ITRs)? For with payment ITRs (BIR Form Nos. 1700 / 1701 / 1701Q / 1702 / 1702Q / 1704) File the return in triplicate (two copies for the BIR and one copy for the taxpayer) with the Authorized Agent Bank (AAB) of the place where taxpayer is registered or required to be registered. In places where there are no AABs, the return will be filed directly with the Revenue Collection Officer or duly Authorized Treasurer of the city or municipality in which such person has his legal residence or principal place of business in the Philippines, or if there is none, filing of the return will be at the Office of the Commissioner.

For no payment ITRs -- refundable, breakeven, exempt and no operation/transaction, including returns to be paid on 2nd installment, withholding tax returns (WTRs) covered by Tax Remittance Advice (TRA) and returns paid through a Tax Debit Memo(TDM)/Credit Memo (CM) File the return with the concerned Revenue District Office (RDO) where the taxpayer is registered. However, no payment returns filed late shall not be accepted by the RDO but instead shall be filed with an Authorized Agent Bank (AAB) or Collection Officer/Deputized Municipal Treasurer (in places where there are no AABs), for payment of necessary penalties.

11) How is Income Tax computed? Gross Income P ___________ Less: Allowable Deductions ___________ Net Income P ___________ Less: Personal & Additional Exemptions ___________ Taxable Income P ___________ Multiply by Tax Rate (5 to 32%) Income Tax Due P ___________