Business taxes in the Philippines can either be Value Added Taxes (VAT) or Percentage Taxes. Furthermore, an Excise Tax can also be imposed on certain taxpayers who are in the course of trade or business as an addition to VAT. Unlike an income tax, which is based on the taxpayer’s net taxable income, business taxes (VAT and percentage taxes) are generally based on gross sales or receipts. This means that you will only pay an income tax if you earn a taxable income. But whether you gain taxable income or incur business losses, as long as you have sales or receipts that are subject to VAT or percentage tax, you may still need to pay for business taxes.
In the course of trade or business
The phrase “in the course of trade or business” means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity (Section 105, NIRC).
Employees and workers who are earning purely from compensation income are not subjected to business taxes. However, employees who are earning mixed income (income from compensation and from business or practice of profession can be subjected to business taxes i.e., VAT or percentage tax.
What are the types of business taxes in the Philippines?
The following are considered business taxes in the Philippines:
Value Added Tax
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.
Please read our article “How to Compute VAT Payable in the Philippines” for more detailed information about the computation of VAT payable and filing of the VAT return.
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 P1,500,000 and are not VAT-registered.
Please read our article “How to Compute Percentage Tax Payable in Philippines” to learn more about the computation of percentage tax payable and filing of Percentage tax returns.
Excise taxes apply to goods manufactured or produced in the Philippines for domestic sales or consumption or for any other disposition and to things imported. The excise tax imposed shall be in addition to the value-added tax.
National Internal Revenue Code (NIRC) – Republic Act 8424
BIR tax information