JHOMEL L.

ALCANTARA

BSMA 3-1

TYPES OF TAXES

1. Income Tax: This is imposed on all individuals, including foreigners who earn income within the
Philippines. Income tax rates are progressive, meaning the more you earn, the higher percentage you
pay. The tax rates are determined by the Tax Code of the Philippines.

[Link] Added Tax (VAT): VAT is a tax on consumption levied on the sale of goods, properties, and
services in the Philippines. The current VAT rate is 12% of the gross selling price or gross value of the
goods or services rendered.

[Link] Tax: This is a business tax imposed on persons or entities who sell or lease goods,
properties, or services in the course of trade or business. It is a percentage of gross sales/receipts.

4. Excise Tax: This is a tax imposed on the sale, production, or consumption of goods such as alcohol,
tobacco, petroleum products, and vehicles.

[Link] Stamp Tax: This tax is imposed on documents, instruments, loan agreements, and
papers evidencing the acceptance, assignment, sale, or transfer of an obligation, rights, or property.

6. Estate Tax: This is imposed on the transfer of the net estate of a deceased person to his lawful heirs
and beneficiaries at the time of death.

[Link]'s Tax: Donor's tax is imposed on the transfer of property by gift during the lifetime of the
donor.

8. Capital Gains Tax: This tax is 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 shares of
stock in domestic corporations.

9. Local Business Taxes: Cities and municipalities in the Philippines also impose various local business
taxes, such as the Mayor's Permit Fee, Real Property Tax, and Community Tax (Cedula).

SOURCE OF TAXES

The primary source of taxes in the Philippines comes from the following:

1. Bureau of Internal Revenue (BIR): The BIR is the main government agency responsible for collecting
national internal revenue taxes. It is under the Department of Finance and is tasked with assessing and
collecting income taxes, value-added tax (VAT), excise taxes, documentary stamp taxes, and other
national internal revenue taxes.

2. Local Government Units (LGUs): Local governments, such as cities, municipalities, and provinces, also
have the authority to impose and collect certain taxes within their jurisdictions. These include real
property taxes, local business taxes, community taxes (cedula), and other fees and charges.
Here's a breakdown of the sources of taxes in the Philippines:

National Taxes (Collected by BIR):

Income Tax: Tax on the income of individuals, corporations, and other entities.

Value-Added Tax (VAT): A tax on the sale of goods and services.

Excise Tax: Tax on specific goods such as petroleum, alcohol, tobacco, and automobiles.

Documentary Stamp Tax: Tax on certain documents, instruments, and transactions.

Percentage Tax: A business tax imposed on certain businesses.

Capital Gains Tax: Tax on the sale of real property and shares of stock.

Donor's Tax: Tax on gifts and donations.

Estate Tax: Tax on the transfer of the net estate of a deceased person.

Local Taxes (Collected by LGUs)

Real Property Tax: Tax on real properties such as land, buildings, and other improvements.

Local Business Taxes: Business taxes imposed by cities and municipalities.

Community Tax (Cedula): An annual tax on individuals, often referred to as the "residence tax."

Other Fees and Charges: LGUs may also impose fees and charges for services and permits.

The funds collected from these taxes are used by the government to finance public services and
infrastructure, education, healthcare, social services, defense, and other government expenditures.

SOURCE OF TAX LAWS

The primary source of tax laws in the Philippines is the National Internal Revenue Code (NIRC) of 1997,
as amended. The NIRC is the main statute governing the imposition, assessment, and collection of
national internal revenue taxes in the Philippines. It provides the framework for various types of taxes,
including income tax, value-added tax (VAT), excise tax, documentary stamp tax, percentage tax, and
others.

The National Internal Revenue Code of 1997, as amended, is supplemented by various regulations and
issuances from the Bureau of Internal Revenue (BIR). These include Revenue Regulations, Revenue
Memorandum Circulars, Revenue Memorandum Orders, and other administrative issuances. These BIR
issuances provide detailed guidelines, interpretations, and procedures for the implementation of tax
laws.

Aside from the National Internal Revenue Code and BIR issuances, other laws and regulations also affect
taxation in the Philippines, such as:
[Link] Acts (RAs): These are laws passed by the Philippine Congress that may introduce changes to
tax laws. For example, Republic Act No. 10963, known as the Tax Reform for Acceleration and Inclusion
(TRAIN) Law, introduced significant changes to the income tax rates and brackets.

[Link] Decrees (PDs): These are decrees issued by the President of the Philippines with the force
of law. PDs related to taxation may still be in effect unless repealed or amended.

[Link] Orders (EOs): EOs are orders issued by the President to manage the operations of the
government. Some EOs may have implications for taxation.

[Link] Tax Ordinance: Local government units (LGUs), such as cities and municipalities, have the
authority to impose and collect local taxes, fees, and charges within their jurisdictions. These are often
specified in local tax ordinances.

[Link] Court Decisions: Court decisions, especially those from the Supreme Court, can also
influence tax laws through interpretations and clarifications of existing statutes.

For individuals and businesses seeking information on tax laws and regulations, the Bureau of Internal
Revenue (BIR) website provides access to the National Internal Revenue Code, Revenue Regulations,
Revenue Memorandum Circulars, and other relevant issuances. Additionally, professional tax advisors
and legal counsel can provide guidance on specific tax matters based on the latest laws and regulations.

IMPORTANCE PRINCIPLE OF TAX LAWS

Tax laws are based on several important principles that guide their formulation and implementation.
These principles help ensure fairness, efficiency, and effectiveness in the tax system. Here are some of
the key principles of tax laws:

[Link]: Tax laws should be fair and equitable, ensuring that individuals and businesses contribute to
government revenue according to their ability to pay. Equity can be achieved through progressive
taxation, where higher-income earners pay a higher percentage of their income in taxes.

[Link]: Tax laws should be clear and predictable, providing taxpayers with a reasonable
understanding of their obligations. Certainty helps taxpayers plan and make informed decisions
regarding their finances.

3. Efficiency: Tax laws should aim to raise revenue with minimal disruption to economic activities.
Efficient tax laws minimize administrative burdens and compliance costs for taxpayers and tax
authorities alike.

[Link]: Tax laws should be simple and easy to understand. Complexity in tax laws can lead to
confusion, errors, and loopholes. Simplicity reduces compliance costs and enhances voluntary
compliance.
5. Neutrality: Tax laws should not unduly influence economic decisions. They should be neutral with
respect to different economic activities, industries, or individuals. Neutrality promotes market efficiency
and fair competition.

6. Economic Growth: Tax laws should support economic growth and development. They should
encourage investment, entrepreneurship, and innovation while balancing the need for government
revenue.

7. Stability: Tax laws should provide stability and predictability to taxpayers and businesses. Frequent
changes to tax laws can create uncertainty and hinder long-term planning.

[Link]: Tax laws should be transparent, with clear explanations of tax rates, bases, and
deductions. Transparency builds trust in the tax system and helps prevent tax evasion and avoidance.

9. Enforceability: Tax laws should be enforceable, with mechanisms in place to ensure compliance and
deter tax evasion. Penalties for non-compliance should be sufficient to discourage tax evasion while
being fair and proportionate.

[Link] Adequacy: Tax laws should generate enough revenue to fund government programs and
services effectively. Adequate revenue is necessary to maintain public infrastructure, provide public
services, and invest in the country's development.

These principles are fundamental to the design and application of tax laws in any jurisdiction, including
the Philippines. They help ensure that the tax system is fair, efficient, and conducive to economic growth
while meeting the revenue needs of the government.

INDIVIDUAL TAX PAYER

For individual taxpayers in the Philippines, the tax system is progressive, meaning the tax rates increase
as the taxable income increases. Here is an overview of how individual income tax works in the
Philippines:

### Taxable Income Categories:

Individual taxpayers are categorized into different brackets based on their annual taxable income. As of
2022, here are the tax brackets for individuals:

1. **Income up to ₱250,000**: Exempt from income tax

2. **Income over ₱250,000 up to ₱400,000**: Taxed at 20%

3. **Income over ₱400,000 up to ₱800,000**: Taxed at 25%

4. **Income over ₱800,000 up to ₱2,000,000**: Taxed at 30%

5. **Income over ₱2,000,000 up to ₱8,000,000**: Taxed at 32%

### Deductions and Exemptions:

- **Personal Exemption**: As of 2022, the personal exemption for individual taxpayers is ₱30,000.

- **Additional Exemptions**: There are additional exemptions for qualified dependents (children,
siblings, parents).

- **Itemized Deductions**: Taxpayers can deduct certain expenses such as health premiums,
contributions, and other allowable deductions.

### How to Compute Individual Income Tax:

1. **Compute Gross Annual Income**: This includes all taxable income from salaries, wages, bonuses,
business income, etc.

2. **Deduct Exemptions**: Subtract the personal and additional exemptions from the gross income.

3. **Compute Taxable Income**: Subtract allowable deductions from the adjusted gross income.

4. **Apply Tax Rates**: Use the appropriate tax rate based on the taxable income bracket.

5. **Compute Tax Due**: Multiply the taxable income by the applicable tax rate.

6. **Minus Tax Credits and Withholding**: Subtract tax credits and any taxes already withheld.

7. **Payable or Refundable Tax**: The result is the amount of tax payable. If more tax was withheld
than necessary, it results in a refund.

### Withholding Tax:

Employers in the Philippines are required to withhold taxes from employee salaries based on the tax
tables provided by the Bureau of Internal Revenue (BIR). These withholdings are remitted to the BIR on
behalf of employees.

### Filing:

Individual taxpayers are required to file their annual income tax returns (ITR) on or before the deadline
set by the BIR. This includes submitting necessary documents and forms to the BIR office or
electronically through the BIR eFPS (Electronic Filing and Payment System) or eBIRForms.

### Penalties for Non-Compliance:

This overview provides a simplified explanation of how individual income tax works in the Philippines.
For specific calculations and advice, it's best to consult with a tax professional or use the BIR's official tax
calculator.