Philippine Taxation

1. What is Taxation?
Taxation is the inherent power of the state to impose monetary burdens on its
citizens to raise revenues/income for the whole nation. It also involves
levying/increasing tax rates and apportioning the costs incurred by the government to
its citizens.

The purposes of taxation are primarily fiscal or regulatory. The former enables the
government to fund all its activities, and the latter controls the flow of resources to
protect local industries (tariffs), reduce inequality (progressive taxation), and prevent
inflation/depression (increase or decrease of taxes imposed).

2. Kinds of Taxes in the Philippines

There are two types of taxes: national and local. Federal taxes are 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 1054No. 8424, otherwise
known as the Tax Reform Act of 1997, as amended.

National Taxes
• Capital Gains Tax = imposed on gains presumed to have been realized by the
seller from the sale, exchange, or disposition of capital assets located in the
Philippines, including pacto de retro sales and other forms of conditional sale

• Documentary Stamp Tax = imposed on documents, instruments, loan

agreements, and papers evidencing the acceptance, sale, or transfer of
obligation, rights, or property

• Donor's Tax = imposed on a donation, gift, or gratuitous transfer of property

between two or more persons

• Estate Tax = tax on the right of the deceased person to transmit his/her estate to
his/her lawful heirs and beneficiaries at the time of death and on certain
transfers equivalent to testamentary disposition

• Income Tax = tax imposed on yearly profits arising from property, profession,
trades, or offices. The income of Filipinos is taxed progressively from 5% up to
32%, based on their net income.

• Percentage Tax = business tax imposed on persons or entities who sell or lease
goods, properties, or services whose annual sales or receipts do not exceed
Php550,000.00 and are not VAT-registered
 • Value-Added Tax = business tax imposed and collected from the seller on every
sale or lease of properties (real or personal) or vendors of services. It is an
indirect tax amounting to 12%, thus, it can be passed on to the buyer.

• Withholding Tax = tax withheld from individuals receiving purely compensation

income. It can be classified into the following:
o Expanded: prescribed only for certain payors and is creditable against
the income tax;
o Final: prescribed only for certain payors and is not creditable against
income tax; and
o Withholding Tax on Government Money Payments: withheld by
government offices and instrumentalities before making any payments to
private individuals, corporations, partnerships, and/or associations.

• Excise Tax = tax on the production, sale, or consumption of a commodity in a

country. It applies to goods manufactured or produced in the Philippines for
domestic sale, and to imported goods.

On the other hand, local taxes are based on 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

1. Tax on Transfer of Real Property Ownership is imposed on the sale, donation,

barter, or any other mode of transferring ownership of real property.
2. Tax on the 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.
3. Franchise Tax is a tax on franchised business, 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
extracted from public lands or 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 their 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 stadiums, and other
amusement places.
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 sale outlets, or
consumers, whether directly or indirectly, within the province. This tax is usually
imposed by the local and provincial councils through which the truck trucks pass
or deliver their cargo.
8. Cities or municipalities impose a tax 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. Businesspeople pay this
tax if they apply for a Mayor’s Permit to conduct 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 sealing
and licensing of weights and measures. This is to set regulations regarding such
weights and measures as prescribed by the city, provincial, or municipal council.
10. Fishery Rentals, the municipality/city imposes fees to grantees of fishery
privileges in the municipal/city waters, especially the right 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 (₱1,000.00) 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 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 (₱50,000.00) or less (for city barangays) and
thirty thousand pesos (₱30,000.00) 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.