Aside from filing and paying taxes, it’s crucial to understand what taxes you must pay in the Philippines, why you must pay them, and where the money goes.
In the Philippines, tax is a fee paid by people and entities and is the primary source of income for the government, which is used for funding infrastructure, social services, and other public expenditures.
The tax system in the Philippines is composed of several types of taxes, and each tax serves a specific purpose in generating government revenue.
Rules for taxation in the Philippines are outlined in the National Internal Revenue Code (Tax Code). It specifies who is responsible for paying taxes as well as the types of taxes that should be remitted by taxpayers.
There have been various changes made to the Philippine tax code. The Republic Act 10963, often known as the Tax Reform for Acceleration and Inclusion (TRAIN) Act, which took effect in 2018, is the most recent one.
In this article, we will discuss the different types of taxes in the Philippines, their definitions, and their roles in the economy.
National tax in the Philippines refers to the taxes imposed and collected by the national government through its agencies, such as the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC).
These taxes are imposed on a wide range of activities, including income earned by individuals and corporations, sale of goods and services, importation of goods, transfer of property by gift, and sale of capital assets.
The national taxes collected by the government are used to fund its programs and services, such as infrastructure development, education, healthcare, and social services, among others.
List of National Taxes:
Income Tax- This is a tax on the income earned by individuals and corporations in the Philippines.
Value-Added Tax (VAT)- This is a tax on the value added to goods and services at each stage of production and distribution.
Excise Tax- This is a tax on specific goods such as petroleum products, tobacco, and alcohol.
Documentary Stamp Tax (DST)- This is a tax on documents, instruments, loan agreements, and other transactions.
Percentage Tax- This is a tax on businesses engaged in certain activities, such as the sale of goods, services, or leases of properties.
Customs Duties- This is a tax imposed on imported goods.
Estate Tax- This is a tax on the net estate of a deceased person.
Donor’s Tax- This is a tax on the transfer of property by gift, either during the lifetime or at death.
Final Withholding Tax- This is a tax on income payments made to certain individuals and corporations.
Capital Gains Tax- This is a tax on the profit earned from the sale of capital assets, such as real estate or stocks.
Local taxes in the Philippines are taxes imposed by local government units (LGUs) on certain goods, services, and activities within their respective jurisdictions. These taxes are authorized under the Local Government Code of 1991 and are an important source of revenue for LGUs to fund their various projects and programs.
List of Local Taxes:
Real Property Tax- A tax levied on real properties such as land, buildings, and other structures located within the jurisdiction of the local government. This tax is based on the assessed value of the property.
Business Tax- A tax imposed on businesses operating within the jurisdiction of the local government. The rate of this tax may vary depending on the nature and size of the business.
Professional Tax- A tax imposed on professionals who practice their profession within the jurisdiction of the local government. This includes doctors, lawyers, accountants, and engineers, among others.
Franchise Tax- A tax imposed on businesses that hold a franchise from the national government to operate within the jurisdiction of the local government.
Amusement Tax- A tax imposed on the admission fees charged by establishments that provide amusement and entertainment such as theaters, cinemas, and amusement parks.
Community Tax- Also known as Cedula, this is a tax imposed on individuals residing or working within the jurisdiction of the local government. This tax is usually a fixed amount.
Environmental Tax- A tax imposed on businesses that generate waste or engage in activities that are harmful to the environment. This tax is meant to encourage businesses to adopt more environmentally-friendly practices.
Transfer Tax- A tax imposed on the transfer of real property ownership or other kinds of property within the jurisdiction of the local government.
Special Education Fund Tax- A tax imposed on all real property owners within the jurisdiction of the local government. The proceeds of this tax are used to fund education-related projects and programs.
Note that paying taxes is essential to support the development of the Philippines, and ensures that the government can provide essential services and programs to its citizens, while promoting economic growth and social equity.