THE TAX SYSTEM

What is Tax?
• Taxation is defined in many ways.Commonly heard definitions include:
• It is the process by which the sovereign,through its law making
body,races revenues use to defray expenses of government.
• It is a means of government in increasing its revenue under the
authority of the law, purposely used to promote welfare and
protection of its citizenry.
• It is the collection of the share of individual and organizational income
by a government under the authority of the Law.
• The Philippines Taxation System is made up of Direct and
Indirect taxes. These are regulated by several laws, among
which:

-          the National Internal Revenue Code, which was enabled in

1997 also known as R.A No. 10963 and it is the most important
law regulating taxation here;
-          the Income Tax Law;
-          the Value Added Tax Code;
-          the Excise Taxes Code.
 WHAT ARE THE TAXES TO BE PAID IN THE PHILIPPINES?

• As mentioned above there are two types of taxes levied in the

Philippines:thedirect and indirect ones.

Direct taxes apply to the citizens and residents of

the Philippines, individuals and companies and are levied
directly on the incomes generated by them. These are the
personal income and the corporate tax. With respect to indirect
taxes, the value added tax (VAT) or the goods and services tax
(GST) is the most important one.
TAXES IN THE PHILIPPINES ARE CLASSIFIED
INTO TWO BASIC TYPES: 

• The National Taxes and Local Taxes. National taxes are

paid to the national government through the BIR.
Meanwhile, local taxes are paid to the Treasury Office of
the city hall, municipal hall, or provincial capitol of the
taxpayer’s home, office, or business location.
 NATIONAL TAXES
I. CAPITAL GAIN TAX VII.PERCENTAGE TAX
II. DOCUMENTARY STAMP VIII.VALUE ADDED TAX
TAX (VAT)
III. DONOR’S TAX IX. WITHHOLDING TAX
IV. ESTATE TAX
V. EXCISE TAX
VI. INCOME TAX
 CAPITAL TAX
• A 6% Capital Gains Tax is imposed on the presumed gain from
the sale of real property located in the Philippines which is
classified as a capital asset, based on the gross selling price,
the BIR zonal valuation or the assessed value of the property,
whichever is the highest.
 DOCUMENTARY STAMP TAX
• The documentary stamp tax (DST) is a tax on loan agreements/contracts,
promissory notes, powers of attorney, deeds of sale of real property, life
insurance policies, and other documents that prove the sale, acceptance,
assignment, or transfer of a property, rights, or obligation.
• This tax is paid by the person who makes, issues, signs, or accepts the
document. DST rates vary per document or transaction and are either fixed or
based on the value of the document.
• For example, getting approved for a bank loan means you’ll be paying a DST of
Php 1.50 per Php 200 of the loan amount. The lender deducts the DST
payment from your loan proceeds. You won’t be charged this tax, though, if the
value of your loan is Php 250,000 or less1.
 DONOR’S TAX

• Gifts and donations worth over Php 250,000 are taxed in the
Philippines. Taxable gifts include cash, relief goods, and real and
personal properties.
• Paid by the donor (not by the donation recipient or donee), the
donor’s tax is 6% of the fair market value (FMV) of total net gifts in
excess of the Php 250,000 threshold for tax-exempt gifts during the
calendar year.
• The donor’s tax rate applies regardless of the donor’s relationship
with the donee, whether the donee is a relative or a stranger.
 ESTATE TAX

• 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.
• It is not a tax on property. It is a tax imposed on the privilege
of transmitting property upon the death of the owner.
• The Estate Tax is based on the laws in force at the time of
death notwithstanding the postponement of the actual
possession or enjoyment of the estate by the beneficiary.
 EXCISE TAX
• The excise tax applies to goods produced, imported,
or sold in the Philippines. Manufacturers, producers,
importers, and sellers file and pay the excise tax.
But because it’s an indirect tax, the excise tax is
passed on to consumers as part of the selling
price.
 INCOME TAX
• The income tax is the most familiar tax among employees who get
deductions every payday and businesses that file taxes on their
earnings with the BIR. Essentially, it’s a tax on a person’s income or
profit earned from his/her job, business, or property.
 PERCENTAGE TAX

• Percentage tax is a business tax imposed on persons, entities,

or transactions specified under Sections 116 to 127 of the
National Internal Revenue Code of 1997 (also known as Tax
Code), as amended, and as required under special laws.
• Percentage Tax in the Philippines is a form of sales tax.
• Percentage Tax is a direct tax – the seller is the one who shoulders
the tax and files it with the BIR.
• The Percentage Tax computation is based on gross sales, receipts or
earnings (except for insurance companies which is based on the
total premium collected/paid) within the Philippines.
 VALUE-ADDED TAX(VAT)
• A VAT is a tax on consumption imposed on the sale, barter,
exchange, or lease of goods, properties, and services in the
Philippines.
• VAT is an indirect tax which means the end consumer is being charged
for the tax. In the Philippines, the rate of VAT is at 12% except for
export sales and other zero-rated sales which is at 0%.
 WITHHOLDING TAX
• is a set amount of income tax that an employeer withholds from an
employee’s paycheck and pays directly to the government in the
employee’s name
 LOCAL TAXES
I. REAL PROPERTY TAX VII. ANNUAL FIXED TAX FOR
II. TAX ON THE BUSINESS OF DELIVERY TRUCKS OR VANS
PRINTING AND PUBLICATION VIII.BUSINESS TAXES
III. FRANCHISE TAX IX. BARANGAY TAX
IV. TAX ON SAND GRAVEL AND X. COMMUNITY TAX
OTHER QUARRY RESOURCES
V. PROFESSIONAL TAX
VI. AMUSENT TAX
 REAL PROPERTY TAX
• Real Property Tax this is when you own a house and lot a condo unit,
building or a piece of land you are entitle to pay Real property Tax every
quarter or year.
• The RPT, locally known as amilyar, covers the following types of real
properties:
1. Residential
2. Commercial
3. Agricultural
4. Industrial
5. Timberland
6. Mineral.
 REAL PROPERTY TAX

• RPT rates vary per city or municipality in the Philippines. In Metro

Manila, property owners pay up to 2% of the assessed property
value. In the provinces, the maximum real property tax rate is 1%.
• The assessed value is based on a certain percentage of the real
property’s fair market value (20% for residential/timberland, 40%
for agricultural, and 50% for commercial/industrial/mineral
properties).
TAX ON THE BUSINESS OF PRINTING AND PUBLICATION

• The Local Government Code of the Philippines authorizes LGUs to

collect taxes from printing or publication businesses that produce
books, cards, posters, tarpaulins, pamphlets, leaflets, and other similar
materials.
• The maximum rate for this local tax is 50% of 1% of the gross annual
receipts for the previous calendar year. For newly opened
printing/publication businesses, the maximum tax rate is 1/20 of 1% of
the capital investment.
 FRANCHISE TAX

• If you run a franchise business, your LGU may require you to pay the
franchise tax, with the same maximum rates as the tax on the business
of printing and publication.
 TAX ON SAND, GRAVEL, AND OTHER QUARRY RESOURCES

• This is a tax you may need to pay when you get a permit at
the Sangguniang Panlalawigan to extract sand, ordinary stones,
gravel, earth, and other quarry resources from public lands or waters in
your province.
• The maximum rate for this local tax is 10% of the fair market value
per cubic meter of the quarry resources you’ll extract.
  PROFESSIONAL TAX

• Professionals who passed the bar exams or board exams—

including Lawyers, Doctors, Engineers,Teachers and CPAs—pay a
professional tax of up to Php 300 every year to the city or province
where they practice their profession or hold their main office.
• If you practice two professions at the same time (CPA and a Lawyer),
you should pay both the professional tax imposed on lawyers and
CPAs.
• Once you pay the professional tax, you can practice your profession
anywhere in the Philippines.
 AMUSEMENT TAX

• Owners, operators, or lessees of amusement places such as cinemas,

theaters, concert halls, and circuses may be required to pay the
amusement tax up to 10% of the gross receipts from admission fees.
• The amusement tax is passed on to customers by including it in the
admission or ticket price.
ANNUAL FIXED TAX FOR DELIVERY TRUCKS OR VANS

• A tax of up to Php 500 applies to every truck, van, or any vehicle that
manufacturers, producers, dealers, and retailers use to deliver goods such
as soft drinks, cigarettes, and alcohol products to consumers and sales
outlets within the province.
 BUSINESS TAXES

• Municipalities may require businesses within their area (including

manufacturers, wholesalers, distributors, exporters, contractors,
retailers, and banks) to pay graduated-fixed taxes, percentage taxes, or
both.
• Business taxes on the local level are paid in addition to the excise tax,
percentage tax, or VAT paid to the BIR.
 BARANGAY TAX

• The barangay tax covers small retailers(sari-sari store) with fixed

business establishments (meaning peddlers or mobile vendors are
exempted) and with annual gross sales or receipts not exceeding Php
50,000 (for those located in cities) or Php 30,000 (for those located in
municipalities).
 COMMUNITY TAX

• Each time you get a community tax certificate, better known as cedula, you’re
required to pay a basic community tax of Php 5 plus Php 1 per Php 1,000 of
your income.
• For example, if your monthly income is Php 20,000, your community tax due is
Php 25.
• Corporations are also mandated to pay the community tax at a rate of Php 500
(basic fee) plus Php 2 per Php 5,000 worth of gross sales/receipts from business
and Php 2 per Php 5,000 worth of real property owned.
• Individuals should pay no more than Php 5,000 for the community tax.
The maximum community tax for corporations is Php 10,000.
 TAXES UNDER SPECIAL LAWS

• ENERGY CONSUMPTION TAX

• FOREST CHARGES
• HEAD TAX
• MOTOR VEHICLE USER’S CHARGE
• TRAVEL TAX
 ENERGY CONSUMPTION TAX

• You’re probably paying for the energy consumption tax every month—but
you might not be aware of it unless you take a look at your Electric Bill.
• Batas Pambansa Blg. 36 (yes, it’s an old law enacted in 1979) imposes an
energy tax on the monthly electric power consumption of residential users
to encourage energy conservation in the country.
• The energy consumption tax rate is Php 0.10 per kilowatt-hour (KWH) for
households with more than 650 KWH consumption. If your monthly
consumption is lower than 650 KWH, you’re exempted from this tax.
 FOREST CHARGES

• Forest charges are the tax you pay for the privilege of cutting and harvesting
forest products that are used as raw materials for manufacturing furniture and
other wood products.
• This tax is mandated by the Republic Act 7161, the law that amends the Revised
Forestry Code of the Philippines. Forest charges apply to forest products
gathered in public forestlands and areas covered by tax declarations.
• Exempted from forest charges are forest products collected in private 
lands covered by existing land titles and approved land applications, as well
as those from industrial tree plantation areas.
• Rates of forest charges vary per species group and are charged per cubic
meter (for mahogany, yakal, pulpwood, firewood, etc.), per linear meter (for
unsplit rattan), per kilogram (for split rattan), or per piece (for bamboo).
• Note, however, that the law bans the cutting of all mangrove species in the
Philippines.
 HEAD TAX
• Under the Philippine Immigration Law, a head tax of Php 250 should be paid,
among other immigration fees, by the following foreigners:
• Over 16 years old staying in the Philippines for more than 59 days
• Those with permanent residence status in the Philippines upon their return from
an overseas trip and retrieval of their Alien Certificate of Registration
(ACR)/Immigration Certificate of Residence (ICR)
• Those applying for re-entry permit and Special Return Certificate
• If you’re one of the foreigners described above, pay the head tax to the
immigration officer during your arrival at the airport in the Philippines
 MOTOR VEHICLE USER’S CHARGE
• When you register your vehicle and renew your car registration every year,
you’re required to pay the motor vehicle user’s charge (MVUC) to the Land
Transportation Office (LTO).
• The MVUC is a combination of tax for road usage and registration fee under
the Republic Act 8794 (Motor Vehicle User’s Charge Law). It’s charged to
compensate for the potential damage a vehicle may cause to the road,
which is why MVUC rates are based on the vehicle type and weight.
• MVUC rates are Php 1,400 to Php 8,000 for passenger cars, at least Php 2,000
for utility vehicles, and at least Php 2,300 for SUVs. The MVUC for
motorcycles without a sidecar is Php 240, while the fee for those with a
sidecar is Php 300.
 TRAVEL TAX
• Up to this day, the travel tax is still charged. Under the Republic Act 9593
(Tourism Act of 2009), 50% of the travel tax collections go to the Tourism
Infrastructure and Enterprise Zone Authority (TIEZA)’s projects and expenses.
• CHED gets a 40% allocation for tourism-related educational programs and
courses. The remaining 10% of the collected travel tax goes to the National
Commission for Culture and Arts.
• The travel tax covers Filipinos, foreign permanent residents, and
foreigners who have stayed in the Philippines for longer than one year.
• Travel tax rates are Php 1,620 for travelers on economy flights and Php 2,700
for travelers flying first-class. The travel tax is discounted for dependents of
OFWs and children aged two to 12.
• OFWs, Filipino permanent residents abroad, and infants aged two and
below are exempted from the travel tax payment.
 TAX RATES IN THE PHILIPPINES

• The following tax rates apply to individuals and 

companies in the Philippines:

-  the personal income tax, which is levied at rates between 5% and

32%;
- the corporate tax which is levied at a 30% rate;
- the VAT which has a standard rate of 12%.
Purposes and Significance of Taxes
• Primary Purpose- To generate funds or revenues used to defray
expenses incurred by the government in promoting the general
welfare of its citizenry.

• Other Purpose -To equitably contribute to the wealth of the nation

Taxation During Commonwealth Period
• New measures and legislation
• Income tax rates were increased in 1936
• -Surtax rate on individual net income in excess of 10,000 pesos
• -Income tax rates of corporation were also increased
• Cedula tax was abolished
• Residence tax was imposed on every citizen aged 18 yrs old and on
every corporation
In 1939, the Commonweathgovernment drafted National Internal Revenue Code

• 1)Normal tax of 3 percent and the surtax on income was replaced by a single tax
at progressive rate.
• 2)Personal exeptions were introduced
• 3)Corporation income tax was slightly increased by introducing taxes on inherited
estates or gifts donated in the name of dead persons.
• 4)The cumulative sales tax was replaced by a single turnover tax of 10% on
luxuries
• 5)Taxes on liquors,cigarettes,forestry products, and mining were increased
• 6)Dividends were made taxable
World War II
• Japanese military administration continued the system of tax
collection
• Foreign trade fell
Fiscal Policy from 1946 to Present
•The United States advised the adoption
of direct taxation,but the administration
of President Manuel Roxas declined the
proposal because it did not want to
alienate its allies in Congress.
President Elpido Quirino
• Implementation of import and exchange controls
• It reduced economic dependence on imports
• New tax measures were passed
• Tax revenues increase twohold
• The succeeding presidencies of magsaysay,Garcia and Macapagal
promised to study the tax structure and policy in our country.
(Through the creation of tax commision by means of Rep Act No.
2211)
• Congress did not pass any tax legislation
• Indirect Taxation
• Omnibus Tax Law
• Rise in corruption
Fiscal Policy from Ferdinand
Marcos to Fidel Ramos
Ferdinand Marcos
• Tax system was dependent on indirect taxes
• Taxes remained regressive and unresponsive
• Taxes grew at an average annual rate of 15%
• Tax effort was at a low 10.7%
Corazon Aquino
• Introduction of VAT
• Restructuring of department of finance and its agency
• Computerization was introduced
• Corruption was relatively reduced
• Both tax and revenue effort rise
• Featuring;
• 10 % uniform rate and 0% on exports
• 10% in lieu of varied rates
• 2% tax on entities
• Exemption of the sale of basic commodities
• Additional 20% tax on non essential articles
Fidel Ramos
• VAT base was broadened in 1997
• CTRP was implemented

Features of the Improved VAT;

-Restored the VAT exemptions for all cooperatives
-Expanded the coverage of the term “simple processes”
-Expanded the coverage of the term “original state”
• Exemptions from the VAT;

• Importation of meat
• Sale or importation of Coal and natural gas
• Educational services
• House and lot and other residential dwellings
• Lease of residential units
• Sale, Importation,printing, or publication
FISCAL POLICY
• President Gloria Macapagal Arroyo
• President Benigno Aquino III
• President Rodrigo Duterte
President Gloria Macapagal -Arroyo
• Expanded Value Added Tax (E-VAT) was signed into Law as Rep. Act
9337

• Subject to:
• - Vat energy products such as coal and petroleum products and
electricity generation transmission and distribution
• Professional services were also taxed
• VAT tax rate was also increased from 10% to 12%
• E-VAT -expanded value added tax is a form of
sales tax that is imposed on the sale of goods into
the philippines

• It is a consumption tax (those who consume

more are taxed more) and an inndirect tax,which
can be passed on to the buyers
• During the administration of President Arroyo, the EVAT law was
enacted
• The national debt to GDP ratio peaked and underspending on public
infrastructure and other capital expenditures was observed

• In 2008-A republic Act No. 9504 passed by Arroyo

• - Exempted minimum wage earners from paying income taxes
• The Current EVAT rate is 12% of transactions. Some items which are subject to
EVAT include:

• Petroleum
• Indigenous fuels
• Medical services
• Legal Services\
• Electricity
• Non basic commodities
• Clothing
• Non food agricultural products
• Domestic travel by land and sea
• Natural gasses
President Benigno Aquino
• Promised that new taxes would imposed
• Adjustment of excise tax on liqour and cigarettess or Sin tax Reform
• -Increase of Department of Health Budget \\
• -Increased of free health insurance for the poor people enrolled in
philhealth
• During the first Aquino Administration Inherited a large fiscal deficit
from the previous Administration ,but managed to reduce fiscal
imbalance and improve tax collection through the introduction of the
1986 tax reform program and the value added tax
• The Republic Act no. 10351 or the sin tax reform law is one of the
landmark legislation under the aquino administration

• It is primarily a health measure with revenue implications , But more

fundamentally it is a governance measure
• Sin Tax Law helps finance the Universal Health Care Program of the
government,simplified the current excise tax system on alcohol and
tobacco products and fixed long standing structural weaknesses and
adresses public health issue relating to alcohol and tobacco
consumption.
• Aquino imposes law higher taxes on tabacco and alcohol products,
overcoming a strong industry lobby that kept prices in the philippines
among the cheapest in the world .
-He signed the sin tax bill into law, ending a grueling battle to reform the
philippines excise tax system
President Rodrigo Duterte
• Promised tax reform
• - law tax rates shouldered by working filipinos
• - Limit VAT exemptions and increase excise taxes on petroleum
products and automobiles
• Duterte signed into law the Tax Reform for Acceleration and
Inclusion(TRAIN)bill which is expected to generate P130 billion in
revenues
• He also signed The Rep Act 10963 or the Train Law -a priority measure
of the Duterte Administration.
• Revenues from the tex reform measure are meant to fund the Duterte
government’s “Build, Build, Build” infrastructure program and socio
economic programs .
• Income taxpayers with an annuakl salary of 250,000 or those earning
approximately 22,000 monthly and below are now exempt from
income tax payment
• The Law also exempts from the tax payment the first P90,000 of the
13th month pay and other bonuses