Different Kinds of Taxes in the Philippines

Nov 9, 2012 by at Taxation

Different Kinds of Taxes in the Philippines

There are many different kinds of taxes in the Philippines. But we can group them into two basic types, namely, national taxes and local taxes. National taxes are those that we pay to the government through the Bureau of Internal Revenue. Our national taxation is based on the National Internal Revenue Code of 1997 or the Republic Act No. 8424 otherwise known as the Tax Reform Act of 1997, as amended. The import and export tariffs levied by the Bureau of Customs under Republic Act No. 1937 otherwise known as the Tariff and Customs Code of the Philippines (as amended) can also be considered as national government taxes or duties.

On the other hand, the local government taxation in the Philippines are based on Republic Act 7160 or otherwise known as the Local Government Code of 1991, as amended. These taxes, fees or charges are imposed by the local government units, such as provinces, cities, municipalities, and barangays, who have been given the power to levy such taxes by the code.

Business owners, professionals, employees, consumers, and every taxpayer should be aware of the different kinds of taxes in the Philippines. The following are some of the common national and local taxes in the Philippines:

 

National Taxes in the Philippines

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. Examples of documentary stamp tax are those that are charged on bank promissory notes, deed of sale, and deed of assignment on transfer of shares of corporate stock ownership.

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. Donor’s tax is based on a graduated schedule of tax rate.

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. Estate tax is also based on a graduated schedule of tax rate.

Income Tax - is a tax on all yearly profits arising from property, profession, trades or offices or as a tax on a person’s income, emoluments, profits and the like. Self-employed individuals and corporate taxpayers pay quarterly income taxes from 1st quarter to 3rd quarter. And instead of filing quarterly income tax on the fourth quarter, they file and pay their annual income tax return for the taxable year. Individual income tax is based on graduated schedule of tax rate, while corporate income tax in based on a fixed rate prescribe by the tax law or special law.

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 the amount required to register as VAT-registered taxpayers. Percentage taxes are usually based on a fixed rate. They are usually paid monthly by businesses or professionals. However, some special industries and transactions pay percentage tax on a quarterly basis.

Value Added Tax - 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, causing this to increase the prices of most goods and services bought and paid by consumers. VAT returns are usually filed and paid monthly and quarterly.

Excise Tax – is a tax imposed on goods manufactured or produced in the Philippines for domestic sale or consumption or any other disposition. It is also imposed on things that are imported.

Withholding Tax on Compensation – is the tax withheld from individuals receiving purely compensation income. This tax is what employers withheld in their employees’ compensation income and remit to the government through the BIR or authorized accrediting agent.

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. Examples of the expanded withholding taxes are those that are withheld on rental income and professional income.

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. An example of final withholding tax is the tax withheld by banks on the interest income earned on bank deposits.

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

 

Local Taxes in the Philippines

Tax on Transfer of Real Property Ownership – tax imposed on the sale, donation, barter, or on any other mode of transferring ownership or title of real property.

Tax on Business of Printing and Publication – tax on the business of persons engaged in the printing and/or publication of books, cards, posters, leaflets, handbills, certificates, receipts, pamphlets, and others of similar nature.

Franchise Tax – tax on businesses enjoying a franchise, at the rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on the incoming receipt, or realized, within its territorial jurisdiction.

Tax on Sand, Gravel and Other Quarry Resources – tax imposed on ordinary stones, sand, gravel, earth, and other quarry resources, as defined under the National Internal Revenue Code, as amended, extracted from public lands or from the beds of seas, lakes, rivers, streams, creeks, and other public waters within its territorial jurisdiction.

Professional Tax – an annual professional tax on each person engaged in the exercise or practice of his profession requiring government examination.

Amusement Tax – tax collected from the proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement.

Annual Fixed Tax For Every Delivery Truck or Van of Manufacturers or Producers, Wholesalers of, Dealers, or Retailers in, Certain Products – an annual fixed tax for every truck, van or any vehicle used by manufacturers, producers, wholesalers, dealers or retailers in the delivery or distribution of distilled spirits, fermented liquors, soft drinks, cigars and cigarettes, and other products as may be determined by the sangguniang panlalawigan, to sales outlets, or consumers, whether directly or indirectly, within the province.

Tax on Business – taxes imposed by cities, municipalities on businesses before they will be issued a business license or permit to start operations based on the schedule of rates prescribed by the local government code, as amended. Take note that the rates may vary among cities and municipalities. This is usually what businesses pay to get their Business Mayor’s Permit.

Fees for Sealing and Licensing of Weights and Measures – fees for the sealing and licensing of weights and measures at such reasonable rates as shall be prescribed by the sangguniang bayan of the municipality or city.

Fishery Rentals, Fees and Charges – rentals, fees or charges imposed by the municipality/city to grantees of fishery privileges in the municipal/city waters, e.g., fishery privileges to erect fish corrals, oysters, mussels or other aquatic beds or bangus fry areas and others as mentioned in the local government code, as amended.

Community Tax – tax levied by cities or municipalities to every inhabitant of the Philippines eighteen (18) years of age or over who has been regularly employed on a wage or salary basis for at least thirty (30) consecutive working days during any calendar year, or who is engaged in business or occupation, or who owns real property with an aggregate assessed value of One thousand pesos (P1,000.00) or more, or who is required by law to file an income tax return. Community tax is also imposed on every corporation no matter how created or organized, whether domestic or resident foreign, engaged in or doing business in the Philippines.

Taxes that may be levied by the barangays on stores or retailers with fixed business establishments with gross sales of receipts of the preceding calendar year of Fifty thousand pesos (P50,000.00) or less, in the case of cities and Thirty thousand pesos (P30,000.00) or less, in the case of municipalities, at a rate not exceeding one percent (1%) on such gross sales or receipts.

Service Fees or Charges – fees or charges that may be collected by the barangays for services rendered in connection with the regulations or the use of barangay-owned properties or service facilities, such as palay, copra, or tobacco dryers.

Barangay Clearance – a reasonable fee collected by barangays upon issuance of barangay clearance – a document required for many government transactions, such as when applying for business permit with the city or municipality.

 

Reference:

Bureau of Internal Revenue, Department of Republic Act No. 8424 (as amended), and Republic Act 7160 (as amended), Republic Act No. 1937 (as amended).

Disclaimer: The information published on this page is for general information only. New and subsequent laws and regulations may render the whole or part of the article incorrect or obsolete. This post doesn’t also constitute professional advice. 

Victorino Abrugar is the founder and chief writer of BusinessTips.Ph. Vic is a social media enthusiast who loves to share his knowledge and insights through blogging. He provides business coaching to aspiring small business owners and entrepreneurs to help them reach their business and life's goals. Follow him on Twitter at @viclogic or interact with him on Facebook.

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