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Taxes in the Philippines: Ultimate Sign of Adulting

16 September 2022
Taxes in the Philippines Ultimate Sign of Adulting

How do you know if you’re a certified adult? It’s when you start to ‘feel’ the phrase: “This is where your taxes go.” If you can relate, then congratulations! You are now part of the paying population. Kidding aside, there are various taxes in existence that you encounter regularly. If you want to become aware of the taxes you pay, then look no further! Here’s a primer on the complete list of taxes in the Philippines. 

 

What are Taxes? A Layman’s Definition

Before you get to know the different types of taxes, it’s important to define them first. According to the Britannica dictionary, a tax is any amount of money that a government sets that their constituents are required to pay according to their capability (income and resources) to pay for the things the government does. 

 

This definition could be a mouthful, so here’s an attempt to make it layman: Taxes are money paid by the people for the services given by the government. 

 

Hence, taxes are not just the money enjoyed by a few individuals, but the funds of every constituent belonging to a particular government. In this case, the Philippines. That’s why the term “this is where your taxes go” is often seen in government projects. You paid for it. 

 

Hopefully, you now have a clearer viewpoint on why should you pay your taxes, the next question that comes to mind, perhaps–what taxes exactly am I paying for?

 

Types of Taxes: National and Local Taxes in the Philippines

As the title suggests. There are two types of taxes in the Philippines, the national taxes, and the local ones. These have two different government authorities who govern the collection and appropriation of the said funds. Here’s a quick preview of their similarities and differences:

 

National Taxes

These are taxes paid directly to the national government, and as collected by the Bureau of Internal Revenue, familiarly known as the BIR. National Taxes are mandatory contributions of eligible Filipinos as directed by the National Internal Revenue Code of 1997 or Republic Act 8424.

 

Local Taxes

In contrast, local taxes are contributions made directly to the local government units a citizen wishes to transact with, and are imposed by the local government if office, as per the Local Government Code of 1991. 

 

With these two tax types, the government appropriate your funds to cater services needed by their constituents. However, taxes are not a one-size-fits-all concept. It depends on a citizen’s income sources and valuables such as property. In case you don’t know taxes are everywhere; even when you just want to buy for the primary needs. There is tax when you buy food and drink, when you shop for clothes, and even when you’re on the look out for the most affordable hous and lot in the Philippines. Yes, taxes goes hand in hand in almost all transactions of the land. To give you an idea in which specific instances you will encounter taxes, here are some of the common taxes you will meet in your journey to adulting. Take a deep breath, let’s discover the taxes in the Philippines. 

 

1. Income Tax

All working Filipinos are required to pay their  income tax. Income tax refers to a specific amount of tax that came from your yearly profits from any property, profession, trades, or offices where you generate an income or source of living. Your income tax withheld constitutes the full and final payment of the income tax. It also differs from person to person depending on their income bracket. It also differs from year to year as there can be no guarantees how much an taxable income an individual earns in a specific year. Want to know how much would you pay this year? Check out BIR's Income Tax Calculator.

 

2. Withholding Tax

Investopedia explains that Withholding tax refers to the mon ey your employer deducts from your wages as the employee that needs to be remitted to the government. This income tax witheld constitutes the full and final payment of the income tax due to the payee and is It is credited against your total income tax.

 

This is a tax system set by the government to ensure timely payment of taxes to the government by business owners. As proof of withholding taxes, they need to provide a form called BIR Form 2307. There is even a term called Final Withholding tax which only certain payors need to fulfill which are not credited to their income tax.

 

An example of fund received by a person which a withholding tax can be applied is passive income such as interest from bank accounts, trust funds, and even winnings. Even foreign nationals who work in the Philippines are not exempted having their income tax withheld. If they have a compensation income, it is also taxable. The BIR Withholding Tax Calculator can be a guide to let you know how much withholding tax is due to you for a particular fiscal year.

 

3. Business Tax

Similar with employees, employers also have their own tax responsibilities. However, instead of getting the amount due is not from salaries or passive income, they are taxed through their business in the Philippines or any regular conduct or pursuit of economic activity. Are you an employee with side businesses? You also have a business tax imposed because you are considered to have a mixed income.

 

The following are the different business taxes in the Philippines:

 

a. Value Added Tax (VAT)

This is a business tax imposed to a seller during every transaction, may it be an importation, a sale or a lease of properties (real or personal), goods, or offer of services. Considered an indirect tax, a seller can pass this tax to the buyer.

 

b. Percentage Tax

Business Taxes of this kind is given to persons or entities who are engaged in selling or leasing properties, goods, or services who are not VAT-registered and its total yearly gross sales or receipts do not exceed P550,000.

 

c. Excise Tax

This business tax imposed to all goods manufactured in the Philippines for domestic sales, may it be consumed, used in any way or even imported. The excise tax is applied on top of Value-Added Tax. Examples of goods where excise taxes are imposed are lifestyle products such as alcohol, tobacco and automobiles, essential items such as petroleum products, mineral products, and non-essential goods such as jewellery and precious stones, perfumes, yachts and other sport vessels.

 

4. Printing and publication tax

Can be considered a business income tax, private individuals who own printing establishments and publishing house receive an added tax responsibility whenever their business produce books, posters, pamphlets, or either printed items such as cards, tarps and other printed items.

 

5. Franchise Tax

Foreign corporations and local businesses are always in the quest to expand their business in the Philippines. Hence, with the promising franchise businesses in the country, the government imposed their next taxable income called franchise tax. For every business franchise to be opened, there is a corresponding franchise tax imposed by the government.

6. Barangay Tax

Have you heard of a barangay tax before? Not to be confused with a barangay clearance, sari-sari stores and other small businesses who earn a gross of Php 50,000 annually have to pay this said local tax.

7. Real Property Tax

Better known in the Philippines as amilyar, a real property tax is a tax imposed on any agricultural, commercial, industrial, mineral, and residential properties owned in the Philippines. The prescribed real property tax in most municipalities and cities are at 2% while it is only at 1% for those within Metro Manila and outside Metro Manila. However, it should be appraised based on its current and fair market value by the local government.

 

Hence, buying an affordable house and lot in the Philippines do not entail just the price you pay for the property itself, but you also need to prepare for the taxes that correspond with owning your own home.

 

8. Estate Tax

All house and lot in the Philippines are subject to estate tax once they are passed on from a deceased person to their lawful heirs. Hence, when the heirs have to legally transfer the ownership of these inheritance, they need to pay estate taxes before transferring the title and to make the transaction official.

 

9. Documentary stamp tax

A documentary stamp tax used to be an afterthought tax especially when real property transactions are made. However, it is a tax imposed on documents, instruments,agreements and papers that signify an acceptance, assignment, sale, or transfer of rights, obligation and property in the Philippines. Simply put, to make a transaction between two parties document official, it entails a p[articular tax which comes in the form of a documentary stamp tax. This may seem unimportant, but documents wihout bearing DST will not be recognized by most agencies of the government. 

 

By virtue of TRAIN Law as implemented last 2018, tax reforms are implemented that affects how much the documentary stamp tax will be. Originally for real property donations, a minimum of 1.5% of  PHP 15.00 for every PHP 1,000.00 will be charged to the individuals concerned. Loan agreements and debt instruments will also increase their rate from Php 1.00 to Php 1.50 for every Php 200.00 of the issue price of the document.

 

Final Tax Talks: Get Ready for Tax Season

Just like any government, the Philippine government never fails to remind its constituents, us fellow Filipinos, when the tax season is near. There are a number of professionals that can help you figure out the right amount of taxes that you need to pay. There are accountants, friends and family with experience in paying taxes, and even your local officers. However, if you are keen in buying affordable house and lot in the Philippines, you don't need to look further. Lumina Homes' official authorized sellers can help you figure out the best course of action in purchasing your dream home–your investment, without forgetting the tax responsibilities you need to consider, with documentary stamp tax and real property tax to name a few. Hence, don't hesitate to set an appointment with us so you can check on our affordable house and lot for sale and know how your dream home can turn into a real property you can call your own.

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