Taxation in the

Philippines
 What is a tax?

Tax is an amount of money that a government requires

people to pay according to their income, the value of
their property, etc., and that is used to pay for the things
done by the government.

Taxation
 Importance of Taxes

● to fund operations and finance government

development projects.
● help promote economic stability and growth
● to redistribute income and wealth in the society.

Taxation
 3 Types of Tax Structure System

● Proportional - it requires all taxpayers to pay the same fraction

of their income, regardless of how much money they earn.

● Regressive - requires high income earners to pay a smaller

fraction of their income than those with a lower income.

● Progressive - requires high income earners to pay a larger

fraction of their income than taxpayers with a lower income.

Taxation
 3 Types of Tax Structure System
50,000 100,000 200,000

Proportional at 5%
2,500 5,000 10,000

Regressive at a price 200,000 with 5% interest rate

All of them will pay 10,000

20% 10% 5%

5% 10% 15%
2,500 10,000 30,000
47,400 90,000 170,000
Taxation
 3 general classifications of taxes in
the Philippines

● National Taxes

● Local Taxes

● Special Taxes

Taxation
 National Taxes
● Capital gains tax – Tax on profits from selling an asset
(property, jewelry, stocks, etc.)

● Documentary stamp tax (DST) – Tax on documents, loan

contracts, and papers that serve as proof of sale or transfer of
ownership of a property

● Donor’s tax – Tax on a gift or donation, in which both the

sender and recipient are living when the gift is given

Taxation
 National Taxes
● Estate tax – Tax paid by the legal heir before the estate[6] from
a deceased person is transferred to their name

● Excise tax – Tax on the production, sale, or consumption of

goods in the Philippines

● Income tax – Tax on a person’s or business’ income or profit

Taxation
Taxation
 Local Taxes
● Basic real property tax – Tax on the value of real properties
such as houses, lands, buildings, etc.

● Business of printing and publication tax – Tax imposed on

businesses that involve printing and publication

● Franchise tax – Tax imposed on a franchise business

Taxation
 Local Taxes
● Sand, gravel and other quarry resources tax – Tax on the
fair market value of ordinary stones, sand, gravel, earth, and
other quarry resources extracted from public lands or public
waters within the province

● Professional tax – Tax imposed on professionals such as

lawyers, doctors, and engineers

● Amusement tax – Tax imposed on cinemas, theaters, concert

halls, circuses, and other amusement venues
Taxation
 Local Taxes
● Annual fixed tax for delivery trucks and vans – ₱500 fee for every
truck or van used to deliver soft drinks, liquors, or cigarettes within the
province

● Local business tax – Tax imposed by municipalities on different types

of businesses within their jurisdiction

● Barangay tax – Tax imposed on stores or retailers with annual gross

sales of up to ₱50,000 in cities or up to ₱30,000 in municipalities

● Community tax – Tax imposed on individuals and corporations within

the jurisdiction of a city or municipality
Taxation
 Special Taxes
● Motor Vehicle User’s Charge (MVUC) – An annual fee charged on
every application for vehicle registration

● Travel tax – An airport fee imposed on Filipino citizens, foreign

residents, and non-resident foreigners (who have stayed in the country
for more than a year) who are leaving the Philippines

● Head tax – Tax imposed on foreigners staying in the Philippines for at

least 60 days, with permanent residency status in the country, and
applying for Re-entry Permit and paid to the immigration officer when
entering the country

Taxation
 Special Taxes

● Charges on forest products – Tax on the privilege of exploiting the

forest resources in the Philippines

● Energy consumption tax – Tax on electric power consumption over

650 kWh of each residential customer

Taxation
Taxation
Taxation
Taxation
Taxation
 Proposed Tax Reform for 2023

● Excise tax on pick-ups, motorcycles, single-use plastics, and luxury

goods
● 12% VAT on digital services, including streaming services and
cryptocurrency transactions
● Reform on motor vehicle users’ charge (MVUC)
● Postponing personal income tax reductions for three years
● Repealing VAT exemptions
Taxation
 Government Agencies that collect
taxes in the Philippines

● Bureau of Internal Revenue (BIR)

● LGUs (province, municipalities, cities, barangays)

● Bureau of Customs

Taxation
 Who Pays Taxes in the Philippines?

Under the Tax Code, the following individuals and corporations are required to
pay taxes in the Philippines:

● Filipino citizens living in the Philippines and earning income from

sources within and outside the country
● OFWs, Filipino immigrants, and other non-resident citizens with income
from sources within the Philippines
● Resident and non-resident foreigners earning income from sources
within the Philippines
● Domestic corporations earning income from sources within and outside
the Philippines
● Foreign corporations with income from sources within the Philippines

Taxation
 Tax Exemption

A tax exemption in the Philippines is an exclusion from the

payment of taxes on certain types of income, property, or
transactions. Tax exemptions are typically granted to individuals,
businesses, or organizations that meet certain requirements
specified by the law.

Taxation
 Who is Exempted from Taxes?

Under the TRAIN Law signed in 2018, there are exemptions for
paying taxes. Self-employed and professional taxpayers (SEPS)
whose annual taxable income is ₱250,000 or below are
exempted from paying Personal Income Tax (PIT).

Taxation
 Who is Exempted from Taxes?

Filipino immigrants or residents in other countries whose source

of earnings is outside of the Philippines are also exempted,
including land-based and sea-based Overseas Filipino Workers.

Taxation
 Who is Exempted from Taxes?

Minimum wage earners from both public and private sectors are
also exempted from paying income taxes, including their holiday
pay, hazard pay, overtime pay, and night-shift differential.

Employees whose 13th-month pay, separation fees, and other

benefits amounting to ₱90,000 are also exempted.

Taxation
 Allowable Deductible Expenses

Charitable contributions – 100% deductible if the donations

are for BIR-accredited donee.
Fuel and oil – As long as they aren’t personal expenses
Communication, light, and water
Office supplies
Repairs and maintenance – labor, materials, and supplies

Taxation
 Tax Avoidance

Tax avoidance is any legal method used by a taxpayer to

minimize the amount of income tax owed. Individual taxpayers
and corporations can use forms of tax avoidance to lower their
tax bills. Tax credits, deductions, income exclusion, and
loopholes are forms of tax avoidance.

Taxation
 Legal ways to reduce taxes

Track and claim all kinds of deductions

File receipts from operating and overhead expenses. These
must relate to your business and comply with withholding tax
requirements. You can claim them as allowable deductions to
lower tax legally.

Taxation
 Legal ways to reduce taxes

Give your employees a medical insurance

Investing in medical insurance will help you and your employees
with a fall back during emergencies. Since it’s considered as a
type of expense, it reduces tax payments at the same time.

Taxation
 Legal ways to reduce taxes

Donate to a charity
Similar to medical insurance, donating to charity can bring your
taxes down, plus you get to help others!

Taxation
 Legal ways to reduce taxes

Bookkeeping Deligently

To avoid incurring penalties or missing important steps, take

your accounting seriously and hire a professional who can do
this well.

Taxation
 Tax Evasion

Tax evasion is the illegal non-payment or under-payment of

taxes, usually by deliberately making a false declaration or no
declaration to tax authorities – such as by declaring less
income, profits or gains than the amounts actually earned, or by
overstating deductions.

Taxation
 I’m a Filipino citizen living in the
Philippines. Should I pay income tax even
if I earn my income from abroad?

Taxation
 My husband is an OFW. How much is the
income tax that he should pay in the
Philippines?

Taxation
 My father is a minimum wage earner. How
much tax should he pay?

Taxation
Basic Income Tax
 Types of Individual Income Taxpayers

● Compensation Income Earners

● Self - Employed
● Professional
● Mixed Income Earner

Taxation
 Compensation Income Earners

● Individuals whose source of income is purely derived from an

employer-employee relations.
● Employer and employee relationship exists when a person
for whom services were performed (employer) has a right to
control and direct an individual who performs the services
(employees)

Taxation
 Self-Employed

● A sole proprietor or an independent contractor who reports

income earned from self-employment.

Taxation
 Professionals

● a person formally certified by a professional body to a

specific profession by virtue of having completed a required
examination or course of studies or practice, whose
competence can usually be measured against an established
set of standards.

Taxation
 Mixed Income Earner

● An individual earning compensation income from

employment, and income from business, practice of
profession and or other sources aside from employment….

Taxation
 Lance, a marketing manager of SMC Tax 101,
earned Php650,000 annual compensation in
2021, inclusive of 13th month and other
benefits in the amount of Php120,000

Compute for the taxable income and income

tax due of Lance.

Taxation
 Tax Formula:
Gross Compensation Income XXX
Less:Allowable Deductions XXX
___________________________________
Taxable Income XXX

Lance, a marketing
manager of SMC Tax 101, Gross Compensation Income Php 650,000
earned annual Less: Allowable Deductions 90,000
compensation in 2019 PhP _______________________________________
650,000, inclusive of 13th Taxable Income Php 560,000
month and other benefits in
the amount of Php120,000 Income Tax Due:
On Php 400,000K 30,000
Compute for the taxable (560,000 - 400,000) X 25% 40,000
income and income tax due ________________________________________
of Lance. Total Income Tax Due 70,000

Taxation
 Ella is a government employee and is earning
a gross monthly income of 70,000 and she
received 13th month pay of 140,000 on June,
10,000 food allowance in August and
Employee Appreciation bonus of 15,000 on
October.

Compute for the taxable income and income

tax due of Ella.
Taxation
 Tax Formula:
Gross Compensation Income XXX
Less:Allowable Deductions XXX
___________________________________
Taxable Income XXX

Ella is a government
employee and is earning
a gross monthly income
Gross Compensation Income Php 1,005,000
of 70,000 and she
Less: Allowable Deductions 90,000
received 13th month pay
_________________________________________
of 140,000 on June,
Taxable Income Php 915,000
10,000 food allowance in
August and Employee
Income Tax Due:
Appreciation bonus of
On Php 800,000 130,000
15,000 on October.
(915,000-800,000) X 30% 34,500
________________________________________
Compute for the taxable
Total Income Tax Due 164,500
income and income tax
due of Ella.
Taxation
 Mr. Juan Tax, a minimum wage earner, works for
BTS, Inc. He is not engaged in business nor has
any other source of income other than his
employment.
For 2021, Mr. Juan tax earned a compensation
income of Php135,000, overtime pay of Php 80,00,
night shift differential of Php30,000, hazard pay of
Php15,000 and holiday pay of Php15,000. His
statutory contributions amounting to Php5,000 and
has received a 13th month pay of Php11,000.

How much is his income tax due?

Compute for the taxable income and income tax

due of Lance.
Taxation
 Minimum wage earner is exempted from paying
taxes including:

1. holiday pay
2. overtime pay
3. night shift differential pay
4. hazard pay

Taxation
 Total compensation income Php135,000
Add:
Overtime pay Php 80,000
Night Shift Diff 30,000
Hazard Pay 15,000
Holiday Pay 15,000 140,000
_______________________________________
Total Income Php275,000
Less:
13th month pay (11,000)
Mandatory Contri (5,000) (16,000)
_______________________________________
Net Taxable Income Php259,000
_______________________________________
Tax Due EXEMPT
Taxation
 Self Employed (Individual/Professional)

8% income tax
Less than 3M rate in excess of
Php 250,000

Graduated Tax +
Greater than 3M
Value Added Tax

Taxation
 Fathma operates a grocery store while she offers
consultancy services to her clients. In 2019, her
gross sales amounted to Php 800,000,in addition to
her receipts from consultancy services of
Php300,000. She already signified her intention to
be taxed at 8% income tax rate in her 1st quarter
return.

How much is her income tax liability?

Taxation
 Gross Sales - Grocery Store 800,000
Fathma operates a grocery Gross Receipts - Consultancy 300,000
store while she offers _____________________________________
consultancy services to her Total Sales / Receipts 1,100,000
clients. In 2019, her gross Less:
sales amounted to Php Amount allowed as deduction
800,000,in addition to her Under Sec. 24 (A)(2)(b) 250,000
receipts from consultancy _____________________________________
services of Php300,000. She Taxable Income 850,000
already signified her intention
to be taxed at 8% income tax Tax Due:
rate in her 1st quarter return. 8% of Php850,000 68,000

How much is her income tax

liability?

Taxation
 Fathma, failed to signify her intention to be taxed at
8% income tax rate on gross sales in her initial
Quarterly income tax return, and she incurred cost
of sales and operating expenses amounting to
600,000 and 200,000 respectively or a totalof
Php800,000.

How much is her income tax due?

Taxation
 Fathma, failed to signify her intention to be taxed at
8% income tax rate on gross sales in her initial
Quarterly income tax return, and she incurred cost
of sales and operating expenses amounting to
600,000 and 200,000 respectively or a totalof
Php800,000.

How much is her income tax due?

Taxation
 Gross Sales / Receipts Php 1,100,000
Fathma, failed to signify Less: Cost of Sales 600,000
her intention to be ______________________________________
taxed at 8% income tax Gross Income 500,000
rate on gross sales in Less: Operating Expenses 200,000
her initial Quarterly _____________________________________
income tax return, and Taxable Income 300,000
she incurred cost of
sales and operating Tax Due:
expenses amounting to
600,000 and 200,000 On Php250,000 0
respectively or a totalof On excess of 250,000
Php800,000. (300,000-250,000)x20% 10,000
_____________________________________
How much is her Total Income Tax Due is 10,000
income tax due?

Taxation