Tax in the Philippines is quite a complicated matter. But you don’t have to be a CPA or math whiz to know what it entails. Apart from filing and paying taxes, it’s also important to know what taxes you must pay, why you have to pay taxes, and where your taxes go.
Don’t be confused. Inform yourself today. Here are the basics of tax in the Philippines for beginners.
What is Tax in the Philippines?
Tax is a fee that people and entities are required to pay to the government to fund various social services and infrastructures that are crucial for nation-building and economic growth.
In the Philippines, the National Internal Revenue Code states the rules on taxation. Also known as the Tax Code, it identifies who should pay taxes and the types of taxes that should be collected from taxpayers.
The Philippine tax law has undergone several reforms, the most recent of which is the Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Act that took effect starting in 2018.
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
Annual fixed tax for delivery trucks and vans – PHP 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 PHP 50,000 in cities or up to PHP 30,000 in municipalities
Community tax – Tax imposed on individuals and corporations within a city’s or municipality’s jurisdiction
3. Special Taxes
In addition to national taxes and local taxes, there are special taxes that must be paid during certain transactions or purchases.
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
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
Who Pays Taxes in the Philippines?
Taxpayer Classification 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 nonresident citizens with income from sources within the Philippines
Resident and nonresident 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
Why Do We Need to Pay Taxes in the Philippines?
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1. Contribute to the Country’s Development
Lofty as it may sound, paying taxes means helping in the government’s nation-building efforts. Your money goes to building roads, bridges, airports, mass transport systems, classrooms, public hospitals, and other structures that will allow Filipinos (including you and your family) to travel, study, do business, and get healthcare services more efficiently.
Taxes collected by the government are also used to finance basic social welfare services, disaster response, and other essential government services.
Salaries of public school teachers, government healthcare professionals, and other government employees also come from taxes.
Taxes fund many other public expenditures in the Philippines. But the most important thing to point out here is that you—the taxpayer—will ultimately benefit from the different government programs financially supported by the taxes you pay.
2. Secure Income Documents
For credit card and loan applications, banks and other institutions require an income tax return (ITR) that serves as the borrower’s proof of income. Having this all-important financial document raises your chance for a credit card or loan approval.
An ITR is also a requirement for visa applications. So if you plan to travel to any country that requires a visa for Filipinos, you should keep a copy of your ITR.
To get an ITR, you need to file and pay your taxes to the BIR. For employees, their employer takes care of filing and paying taxes for them. For freelancers and employers, tax filing and payment must be done on their own.
Failure to pay tax in the Philippines is against the law and results in serious and costly consequences. Punishments for tax evaders include a penalty fee with annual interest on unpaid tax, imprisonment, fines, and temporary closure (for business taxpayers).
Being a responsible citizen of this country, it’s both your right and responsibility to learn about taxes and how to pay them right. Part of becoming a financially independent adult is understanding the basics of tax in the Philippines. After all, it’s your hard-earned money that we’re talking about.
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