What taxes do Philippines impose?

Tax types are those specific tax classification imposed by the Philippine’s taxing authorities to taxpayers under specific instances. As to the taxing authority implementing and administering them, they can broadly be classified as follows: (a) national internal revenue taxes, and (b) local taxes.

National internal revenue taxes – those implemented by the Bureau of Internal Revenue (BIR) for the national government and local government, through the sharing scheme with respect to some taxes collected within their jurisdiction. These taxes are compiled in the National Internal Revenue Code otherwise known as the Tax reform Act of 1997 or Republic Act No. 8424, as amended by subsequent legislation, and applicable throughout the taxing jurisdiction of the Philippine archipelago.

1. Income tax – imposed upon the privilege to earn income in the Philippines from whatever source such as compensation or salaries, trade or business, practice of profession, and other sources. This applies to persons earning taxable income, regardless of whether the person is on trade or business or not and whether or not the income is from legal sources. In the application of this tax type, comes the withholding tax system for the following: (a) expanded or creditable withholding tax (CWT); (b) final withholding tax (FWT); and, (c) withholding tax on compensation (WC).

2. Estate tax – imposed upon the privilege to gratuitously transmit properties called “estate” from the decedent to the heirs upon death of the former. It is upon death that this tax accrues.

3. Donor’s tax – imposed upon the privilege to gratuitously transfer properties from one person called the “donor” during its lifetime to another person called the “donee” who accepts it.

4. Value added tax (VAT) imposed upon the sale of goods and services within the Philippines of specific taxable entity. This is a business and consumption tax, which liability is upon those engaged in trade or business, in the practice of profession of residents and citizens. Generally, services of non-residents performed in the Philippines are likewise subject to VAT.

5. Other percentage tax (OPT) – is a business tax like VAT. It is imposed on certain types of transactions and activities, and those, though subject to VAT, the required gross receipts were not achieved and that the taxpayer is non-VAT. Example of OPT are common carriers tax, franchise tax, overseas communication tax, gross receipts tax on banks and non-bank financial intermediaries. VAT and OPT, however, cannot be imposed on the same transaction as they are imposed alternatively.

6. Documentary stamp tax (DST) – is one imposed upon certain transactions, agreements and instruments for the privilege to enter into the same transaction or document evidencing the transaction. Example is DST on transfer of shares of stocks of domestic corporations, real property transfers located in the Philippines, loan agreements executed in the Philippines or when proceeds are intended to be used in the country, insurance policies, and more.

7. Excise tax – is imposed on certain goods produced or manufactured in the Philippines for domestic sale or consumption. VAT is likewise imposed on most of these goods. Sin tax on tobacco and alcoholic beverages is an example along with excise tax on precious minerals, petroleum products and on non-essential goods like automobiles.

Local Taxes – those imposed by the respective local government units (LGU’s), through their local legislative body pursuant to their fiscal autonomy under the Local Government Code of 1991. These taxes are of local application within the jurisdiction of the LGU.

1. Real property tax – is one imposed upon the ownership of real properties located in a particular jurisdiction of a local government unit (LGU). It is based on the value of the property in accordance with the table of values prescribed.

2. Business tax – is one imposed upon the privilege to conduct or operate a particular trade or business in the LGU in accordance with the Local Tax Code of the LGU.

3. Professional tax – is one imposed by the LGU for those professionals engaged in the active practice of profession in the LGU. Amount is normally P300 for the entire year.

4. Community tax certificate or “sedula” – is imposed upon persons residing in a particular LGU. Residence is the major criteria in these tax but the amount of tax maybe affected by the amount of income earned and the amount of properties owned.

5. Sand and gravel tax – imposed on the extraction of sand and gravel located in the particular LGU.

6. Other taxes imposed by the LGU.

It should be noted that the administration of the Philippines is subdivided into smaller units like province, municipality or city, and barangay and each is referred to as an LGU. Under the Local Government Code, each LGU is empowered to impose a particular tax entrusted to it, and even create such sources of revenue, whether in the form of tax or not.

Finally, a local tax is applied separately and independently from the national internal revenue tax. One or more local and/or national internal revenue taxes may apply to a particular person or entity depending upon the industry and activity it undertakes.

Tags: Phils. tax types