Taxation in the Philippines

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The policy of taxation in the Philippines is governed chiefly by the Constitution of the Philippines and three Republic Acts.

Taxes imposed at the national level are collected by the Bureau of Internal Revenue (BIR), while those imposed at the local level (i.e., provincial, city, municipal, barangay) are collected by a local treasurer's office.

National taxes[edit]

The taxes imposed by the national government of the Philippines include, but are not limited to:

Income tax[edit]

Income tax for individuals[edit]

Citizens of the Philippines and resident aliens must pay taxes for all income they have derived from various sources, which include, but are not limited to:

Compensation and self-employment income[edit]

Individuals, including nonresident aliens, earning compensation income are taxed based only on the income tax schedule for individuals. On the other hand, self-employed individuals and professionals are taxed based on the income tax schedule for individuals, applicable percentage taxes, and value-added tax (VAT). However, if their gross sales (or gross receipts plus other non-operating income) does not exceed the VAT threshold, they have the option to be taxed either on the basis of the income tax schedule for individuals and the applicable percentage taxes, or just with a flat tax rate of 8% on their gross sales (or gross receipts plus other non-operating income).[3]

Interests, royalties, prizes and other winnings[edit]

Interest income from bank deposits, deposit substitutes, trust funds, and other similar products (except for its long-term variants) is taxed at the rate of 20%.[2]

Royalties, except on books, literary works and musical compositions, are taxed at the rate of 10%.[2]

Prizes and winnings from Philippine Charity Sweepstakes Office (PCSO) Lotto in excess of P10,000 (upon which individual prizes and winnings P10,000 or below are taxed on the basis of the income tax schedule for individuals) are taxed at the rate of 20%.[3]

Interest income from a depository bank under the expanded foreign currency deposit system is taxed at the rate of 15%.[3]

Income from long-term deposits and investments, when pre-terminated in less than three years after making such deposit or investment, is taxed at the rate of 20%; less than four years, 12%; and, less than five years, 5%.[2]

Dividends[edit]

Cash and property dividends are taxed at the rate of 10%.[2]

Capital gains[edit]

Capital gains from the sale of shares of stock not traded in stock exchange are taxed at the rate of 15%.[3]

Capital gains from the sale of real property are taxed at the rate of 6%, except when such proceeds would be used to construct a new principal residence within eighteen months after the sale of a previous principal residence had occurred.[2]

Income tax for corporations[edit]

In general, the income tax rate for corporations is 30%.[2] However, nonprofit educational institutions and hospitals enjoy a much lower rate of 10%.

Estate tax[edit]

The transfer of the net estate is taxed at a flat rate of 6%. There is a standard deduction amounting to P5,000,000.

Donor's tax[edit]

The total value of gifts made in a calendar year shall be taxed at a flat rate of 6%. There is a standard deduction amounting to P250,000.

Value-added tax[edit]

The value-added tax (VAT) rate since 2006 is 12%.[2][5]

Exempt transactions[edit]

The following goods, services and transactions are exempted from the VAT:

Percentage tax[edit]

Percentage tax is a business tax imposed on persons or entities/transactions:

  • who sell or lease goods, properties or services in the course of trade or business and are exempt from value-added tax (VAT) under Section 109 (w) of the National Internal Revenue Code, as amended, whose gross annual sales and/or receipts do not exceed Php 1,919,500 and who are not VAT-registered; and,
  • engaged in businesses specified in Title V of the National Internal Revenue Code.[2]

Excise taxes[edit]

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.[2][3]

Local taxes[edit]

Real property tax[edit]

One of main sources of revenues of the local government units is the real property tax, which is a tax imposed on all types of real properties including lands, buildings, improvements, and machinery.[4]

References[edit]

  1. ^ "The Constitution of the Republic of the Philippines". Official Gazette. Retrieved 8 January 2018. 
  2. ^ a b c d e f g h i j k l "Republic Act 8424—Tax Reform Act of 1997". The Lawphil Project. Retrieved 8 January 2018. 
  3. ^ a b c d e f g h "Republic Act 10963—Tax Reform for Acceleration and Inclusion Act of 2017" (PDF). Official Gazette. Retrieved 8 January 2018. 
  4. ^ a b "Republic Act 7160—Local Government Code of 1991". The Lawphil Project. Retrieved 8 January 2018. 
  5. ^ "12% VAT now in effect". GMA News. 1 February 2006. Retrieved 8 January 2018.