Taxation in the Philippines PDF

TAXATION Learning Outcomes At the end of this lesson, you should be able to: Explain the nature and purpose of taxation Identify the types of national and local taxes Argue for or against a current taxation issue Taxation means lay...

TAXATION Learning Outcomes At the end of this lesson, you should be able to: Explain the nature and purpose of taxation Identify the types of national and local taxes Argue for or against a current taxation issue Taxation means laying a tax through which the government generates income to defray its expenses. It is a way to raise funds for government programs and services that benefit Filipino citizens. Economic investments and businesses in the Philippines have created several definitions of taxation enforced by national or local laws for income collection and development of the government. A tax is enforced as a contribution but it is proportionate to the citizen's ability to pay. It is levied on persons (who actually pay with money) and property as well as on business transactions, privileges, and benefits. The imposition of taxes is done by law through the Bureau of Internal Revenue. Types of Taxes There are two types of taxes: national and local. National taxes are the ones paid to the government through the Bureau of Internal Revenue. The national taxation system 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 types of national taxes are as follows: 1. Capital Gains Tax is a tax imposed on gains that may have been realized by a seller from the sale, exchange, or other disposition of capital assets located in the Philippines, including pacto de retro sales (a sale with a condition for repurchase) and other forms of conditional sale. 2. 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. Documentary stamp taxes are evident on documents like bank promissory notes, deed of sale, and deed of assignment on transfer of shares of corporate stock ownership. 3. Donor's Tax is a tax on a donation or gift. It is also a tax imposed on the gratuitous transfer of property between two or more persons who are living at the time of the transfer. It shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. A donor's tax is based on a graduated schedule of tax rate. 4. Estate Tax is a tax on the right of the deceased person to transmit his/her estate to lawful heirs and beneficiaries at the time of death and on certain transfers which are made by law as equivalent to testamentary disposition. It is not a tax on property. It is a tax imposed on the privilege of transmitting property upon the death of the owner. The estate tax is based on the laws in force at the time of death notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary. Estate tax is also based on a graduated schedule of tax rate. 5. Income Tax is a tax on all annual profits made from property ownership, profession, trades or offices. It is also a tax on a person's income, emoluments, profits and the like. Self-employed individuals and corporate taxpayers pay quarterly income taxes from the first quarter to the third 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 prescribed by the tax law or special law. 6. 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. 7. 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 the increase of prices of most goods and services bought and paid by consumers, VAT returns are usually filed and paid monthly and quarterly. The latest law on Taxation is RA 9337 signed on May 24, 2005 by President Gloria Arroyo is known as the "expanded value- added tax" or the "E-VAT" law. 8. 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. 9. Withholding Tax on Compensation is the tax withheld from individuals receiving purely compensation income arising from an employer-employee relationship. This tax is what employers withheld in their employees' compensation income and remit to the government through the BIR or authorized accrediting agent. 10. Expanded Withholding Tax is prescribed only for certain payors like those withheld on rental income and professional income. It is creditable against the income tax due of the payee for the taxable quarter year. 11. 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. An example of final withholding tax is the tax withheld by banks on the interest income earned on bank deposits. 12. Withholding Tax on Government Money Payments is the withholding tax withheld by government offices including government-owned or controlled corporations and local government units, before making any payments to private individuals, corporations, partnerships and/or associations.  Local taxes, on the other hand, is based on the local government taxation in the Philippines as stated in Republic Act 7160 or 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. Local taxes, on the other hand, include: 1. Tax on Transfer of Real Property Ownership is imposed on the sale, donation, barter, or on any other mode of transferring ownership of real property. 2. Tax on Business of Printing and Publication is imposed on printing and publication businesses like that of books, cards, posters, leaflets, handbills, certificates, receipts, pamphlets, and others of similar nature. 3. Franchise Tax is a tax on franchised businesses, at the rate not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts of the preceding calendar year based on the incoming receipt (the annual earning) within the territorial jurisdiction where the franchise is selling in. 4. Tax on Sand, Gravel, and Other Quarry Resources is imposed on ordinary stones, sand, gravel, earth, and other quarry resources, as defined under the National Internal Revenue Code, as amended. This refers to the above materials that are extracted from public lands or from the beds of seas, lakes, rivers, streams, creeks, and other public waters within its territorial jurisdiction. 5. Professional Tax is an annual tax on each person engaged in the exercise or practice of his or her profession that requires government examination, like licensure examinations. 6. Amusement Tax is a tax collected from the proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia, and other places of amusement. 7. Annual Fixed Tax for Every Delivery Truck or Van of Manufacturers or Producers, Wholesalers of, Dealers, or Retailers in, Certain Products is 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 to sales outlets, or consumers, whether directly or indirectly, within the province. This type of tax is usually imposed as determined by the local provincial councils through which the truck or trucks pass through or deliver their cargo. 8. Tax on Business is imposed by cities or 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. Businessmen pay this tax if they apply for a Mayor's Permit to conduct their business in the local government unit. Rates of these taxes vary among cities and municipalities. 9. Fees for Sealing and Licensing of Weights and Measures are imposed for the sealing and licensing of weights and measures. This is to impose regulations with regards to such weights and measures as prescribed by the city, provincial or municipal council. 10. Fishery Rentals, Fees, and Charges are imposed by the municipality/city to grantees of fishery privileges in the municipal/city waters especially the privilege to build fish corrals, oysters, mussels, or other aquatic beds or bangus fry areas and others as specified in the Local Government Code. 11. Community Tax is the tax levied by cities or municipalities to every Filipino or alien living in 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. 12. Taxes levied by the barangays on stores or retailers with fixed business establishments with gross sales of receipts of the preceding calendar year amounting to fifty thousand pesos (P50,000.00) or less, (for city barangays) and thirty thousand pesos (P30,000.00) or less, (for municipal barangays), at a rate not exceeding one percent (1%) on such gross sales or receipts. 13. Service Fees or Charges are fees or charges collected by the barangays for services rendered in connection with the regulation or the use of barangay-owned properties or service facilities, such as palay, copra, or tobacco dryers. 14. Barangay Clearance is a fee collected by barangays upon issuance of barangay clearance, a document required for many government transactions, such as when getting a business permit from a city or municipal government or applying for a job in a government office or a private company.