TAX

What is tax?
Tax is a compulsory contribution to state revenue, levied by the government on workers’ income
and business profits, or added to the cost of some goods, services, and transactions.

Direct Tax
Direct tax is a tax which is levied on the income or profits of the person who pays it, rather than
on goods or services.

Indirect tax is levied on goods and services rather than on income or profits.

National Taxes in the Philippines

 Capital Gains Tax – is a tax imposed on the gains presumed to have been realized by the seller
from the sale, exchange, or other disposition of capital assets located in the Philippines, including
pacto de retro sales and other forms of conditional sale.
 Documentary Stamp Tax – is a tax on documents, instruments, loan agreements and papers
evidencing the acceptance, assignment, sale or transfer of an obligation, rights, or property
incident thereto. Examples of documentary stamp tax are those that are charged on bank
promissory notes, deed of sale, and deed of assignment on transfer of shares of corporate stock
ownership.
 Donor’s Tax – is a tax on a donation or gift, and is imposed on the gratuitous transfer of property
between two or more persons who are living at the time of the transfer. Donor’s tax is based on a
graduated schedule of tax rate.
 Estate Tax – is a 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 which are made by law
as equivalent to testamentary disposition. Estate tax is also based on a graduated schedule of tax
rate.
 Income Tax – is a tax on all yearly profits arising from property, profession, trades or offices or as
a tax on a person’s income, emoluments, profits and the like. Self-employed individuals and
corporate taxpayers pay quarterly income taxes from 1st quarter to 3rd quarter. And instead of
filing quarterly income tax on the fourth quarter, they file and pay their annual income tax return
for the taxable year. Individual income tax is based on graduated schedule of tax rate, while
corporate income tax in based on a fixed rate prescribe by the tax law or special law.
 Percentage Tax – is a business tax imposed on persons or entities who sell or lease goods,
properties or services in the course of trade or business whose gross annual sales or receipts do
not exceed the amount required to register as VAT-registered taxpayers. Percentage taxes are
usually based on a fixed rate. They are usually paid monthly by businesses or professionals.
However, some special industries and transactions pay percentage tax on a quarterly basis.
 Value Added Tax – is a business tax imposed and collected from the seller in the course of trade
or business on every sale of properties (real or personal) lease of goods or properties (real or
personal) or vendors of services. It is an indirect tax, thus, it can be passed on to the buyer,
causing this to increase the prices of most goods and services bought and paid by consumers.
VAT returns are usually filed and paid monthly and quarterly.
 Excise Tax – is a tax imposed on goods manufactured or produced in the Philippines for
domestic sale or consumption or any other disposition. It is also imposed on things that are
imported.
 Withholding Tax on Compensation – is the tax withheld from individuals receiving purely
compensation income. This tax is what employers withheld in their employees’ compensation
income and remit to the government through the BIR or authorized accrediting agent.
 Expanded Withholding Tax – is a kind of withholding tax which is prescribed only for certain
payors and is creditable against the income tax due of the payee for the taxable quarter year.
Examples of the expanded withholding taxes are those that are withheld on rental income and
professional income.
 Final Withholding Tax – is a kind of withholding tax which is prescribed only for certain payors
and is not creditable against the income tax due of the payee for the taxable year. Income Tax
 withheld constitutes the full and final payment of the Income Tax due from the payee on the said
income. An example of final withholding tax is the tax withheld by banks on the interest income
earned on bank deposits.
 Withholding Tax on Government Money Payments – is the withholding tax withheld by
government offices and instrumentalities, including government-owned or -controlled corporations
and local government units, before making any payments to private individuals, corporations,
partnerships and/or associations.

Local Taxes in the Philippines

 Tax on Transfer of Real Property Ownership – tax imposed on the sale, donation, barter, or on
any other mode of transferring ownership or title of real property.
 Tax on Business of Printing and Publication – tax on the business of persons engaged in the
printing and/or publication of books, cards, posters, leaflets, handbills, certificates, receipts,
pamphlets, and others of similar nature.
 Franchise Tax – tax on businesses enjoying a franchise, at the rate not exceeding fifty percent
(50%) of one percent (1%) of the gross annual receipts for the preceding calendar year based on
the incoming receipt, or realized, within its territorial jurisdiction.
 Tax on Sand, Gravel and Other Quarry Resources – tax imposed on ordinary stones, sand,
gravel, earth, and other quarry resources, as defined under the National Internal Revenue Code,
as amended, extracted from public lands or from the beds of seas, lakes, rivers, streams, creeks,
and other public waters within its territorial jurisdiction.
 Professional Tax – an annual professional tax on each person engaged in the exercise or
practice of his profession requiring government examination.
 Amusement Tax– tax collected from the proprietors, lessees, or operators of theaters, cinemas,
concert halls, circuses, boxing stadia, and other places of amusement.
 Service Fees or Charges – fees or charges that may be collected by the barangays for services
rendered in connection with the regulations or the use of barangay-owned properties or service
facilities, such as palay, copra, or tobacco dryers.
 Barangay Clearance – a reasonable fee collected by barangays upon issuance of barangay
clearance – a document required for many government transactions, such as when applying for
business permit with the city or municipality.

What is a tax adviser?

Tax advisers/consultants are the experts in providing commercially-focused tax advice and tax
services to a wide range of clients who operate in all sectors of the economy. This involves devising
tax-efficient strategies for multinational and domestic based clients in diverse business situations,
including mergers, takeovers and corporate reconstructions. Tax consultants work continually to help
ensure that their clients make the best business decisions in the light of fiscal change and
development. They monitor and anticipate changes to tax legislation and respond quickly with advice
specific to their clients’ particular commercial requirements.

Why pay taxes?

Taxes are the lifeblood of the country. Without tax, the country will collapse and paralyze.

PENALTIES FOR LATE FILING OF TAX RETURNS

A. For late filing of Tax Returns with Tax Due to be paid, the following penalties will be imposed upon
filing, in addition to the tax due:
1. Surcharge
 NIRC SEC. 248. - Civil Penalties.
(A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to
twenty-five percent (25%) of the amount due, in the following cases:
1. (1) Failure to file any return and pay the tax due thereon as required under the provisions of this
Code or rules and regulations on the date prescribed; or
2. (2) Unless otherwise authorized by the Commissioner, filing a return with an internal revenue
officer other than those with whom the return is required to be filed; or
 3. (3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of
assessment; or
4. (4) Failure to pay the full or part of the amount of tax shown on any return required to be filed
under the provisions of this Code or rules and regulations, or the full amount of tax due for which
no return is required to be filed, on or before the date prescribed for its payment.
2.Interest

NIRC SEC. 249. Interest. -

(A) In General. - There shall be assessed and collected on any unpaid amount of tax, interest at the rate
of twenty percent (20%) per annum, or such higher rate as may be prescribed by rules and regulations,
from the date prescribed for payment until the amount is fully paid.

3.Compromise

NIRC SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax Withhold
and Remit Tax and Refund Excess Taxes Withheld on Compensation. - Any person required under
this Code or by rules and regulations promulgated thereunder to pay any tax make a return, keep any
record, or supply correct the accurate information, who willfully fails to pay such tax, make such return,
keep such record, or supply correct and accurate information, or withhold or remit taxes withheld, or
refund excess taxes withheld on compensation, at the time or times required by law or rules and
regulations shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a
fine of not less than Ten Thousand Pesos (P 10,000) and suffer imprisonment of not less than one (1)
year but not more than ten (10) years.

Any person who attempts to make it appear for any reason that he or another has in fact filed a return or
statement, or actually files a return or statement and subsequently withdraws the same return or
statement after securing the official receiving seal or stamp of receipt of internal revenue office wherein
the same was actually filed shall, upon conviction therefor, be punished by a fine of not less than Ten
Thousand Pesos (P10,000) but not more than Twenty Thousand Pesos (P 20,000) and suffer
imprisonment of not less than one (1) year but not more than three (3) years.