by Dorelene V. Dimaunahan, MScM, CFE, CMA, CHRP
The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation (Article VI, Section 28, Philippine Constitution)
April 2020 is fast approaching! Thus, individuals and companies have started or are already on the verge of preparing their Income Tax Returns, more commonly known as the ITR. Although the income tax is the most popular among all taxes, this is not the only tax in the Philippines.
But first, what are taxes?
Taxes are collected by the government as its “inherent” power, serve as revenues and act as the “lifeblood of the government.” In the Philippines, tax law covers both national and local taxes. National taxes are taxes imposed and collected by the national government through the Bureau of Internal Revenue or BIR, while local taxes are taxes imposed and collected by the local governments for various purposes.
When were taxes first imposed?
It was in the 19th century when the cedula, a form of personal tax, was first introduced. During that time, the cedula also represented a person’s “identification card” and therefore, had to be carried by each individual. The cedula is also an example of a basic residence tax, issued by cities and municipalities to all persons that reach 18, the age of majority.
What are the different forms of taxes?
There are different types of taxes that are imposed on persons, property and business entities.
Taxes imposed on persons and property are:
Personal or poll taxes, which are usually fixed amounts imposed upon residents or persons of a certain class. The cedula is an example of a personal or poll tax.
Property taxes are taxes imposed on real property (Real Property Tax), on the transmission of property at the time of death (Estate or Inheritance Tax), on the transmission of property or rights to a property within his lifetime (Gift or Donor’s Tax) or on the sale or exchange of property particularly known as “capital assets” (Capital Gains Tax).
Excise taxes are imposed on certain types of products such as cigarettes, alcohol and gasoline, which increases the prices of these goods indirectly. Excise taxes are also known as “sin taxes.”
License taxes are fees imposed by cities and municipalities upon persons engaged in occupation or business.
Income taxes are taxes imposed all compensation and income received, earned from the practice of profession, conduct of business and from properties.
The different types of businesses in the Philippines are sole proprietorships, partnerships and corporations. Taxes imposed on these businesses are:
Percentage taxes, which are business taxes imposed on businesses whose gross revenues do not exceed 3 Million Pesos, not mandatory-VAT registered and are exempt from VAT under Section 109 (BB) of the National Internal Revenue Code (NIRC). Percentage taxes may be imposed monthly at 3% or quarterly at 8%, the latter, being an option under RA 10963 or the Income Tax Reform Law, popularly known as the TRAIN Law.
Value Added Tax or VAT is a consumption tax added to a product’s selling price, thereby the name “value added.” The amount of VAT added in the Philippines is 12%. It is “indirect” in the sense that it is passed onto the end consumer, thereby also being a popular type of tax.
Withholding taxes are income tax liabilities deducted by a withholding agents or businesses, either from their employees or other business entities. Depending on the applicable type of tax already identified by the BIR, a particular percentage applies. The computed amount is immediately deducted from the income earned and reported or remitted to the BIR. The most common examples of withholding taxes are withholding tax on compensation, deducted from salaries of employees. Other withholding taxes are expanded withholding tax, final withholding tax and withholding tax on government money payments.
Documentary stamp taxes are taxes imposed on documents, loan agreements and promissory notes, as evidence of acceptance, assignment, sale or transfer of obligations.
Who should pay taxes?
Individuals, corporations, estates and trusts are those who should be paying taxes. The BIR expressly grants tax exemptions on individual compensation income earners, whose annual taxable income falls less than P250,000. Certain entities are also given exemptions by the BIR, such as charitable institutions, churches, non-stock, non-profit educational institutions, cooperatives, subject to parameters provided in BIR’s Revenue Memorandum Circulars (RMCs).
The current administration under President Duterte, has already introduced many beneficial features of the TRAIN Law, aimed to generate revenue for the government, offer equal opportunities and make the tax system simpler, fairer and more efficient for all taxpayers.
What happens if taxes are left unpaid?
When taxes are not fully paid, penalties such as fines or even forfeiture may be imposed on the non-paying individual or entity. Therefore, it is the duty of each individual or business to be responsible for paying taxes.
For individuals, the best way is to start keeping track of all receipts. As productive members of society, it is the duty of each individual to contribute by paying taxes that are due. For all taxpayers in general, a lot of organizations have already developed seminars such as “accounting for non-accountants,” to increase knowledge and awareness on the intricacies of filing and paying taxes. It is also highly suggested to hire an accountant, who can help organize your receipts better and keep important books of account. Lastly, the good news is that with the advent of technology, there are a number of online tax tools and tax calculators that can help ease your e-journey in taxation.
About the Writer:
Dorelene V. Dimaunahan, MScM, CFE, CMA, CHRP has been handling various business portfolios for 12 years, some of which she is a Director of and has held an Executive Position. She is also an author, a host/anchor and a faculty member of Ateneo De Manila University (John Gokongwei School of Management - Leadership and Strategy), De La Salle University (College of Business - Decision Sciences and Innovation Department), University of Asia and the Pacific School of Management (School of Management)
and Center for Culinary Arts.
As a consultant and mentor, Dorelene specializes in various entrepreneurship and management areas for small and medium-scale enterprises and social enterprises, such as but not limited to, business startup, setup and expansion, strategic planning, internal audit, and corporate governance, franchise management, organizational development, events/project/portfolio management, contract negotiations, human resources development, management accounting and financial analysis, market research, paralegal and government compliance work, systems documentation and process improvement, to name a few.