The Philippine tax landscape: types of taxes, rates, payment options
The Philippines has one of the most complex tax systems in the world. The World Bank reported that it takes about 185.6 hours to file a tax return 28 times a year, ranking the country 99th out of 190 countries (in the 2017 Doing Business report).
Because taxes are an integral part of running a country that helps provide social services to citizens, a balance is needed to satisfy both taxpayers’ welfare and the country’s revenues, and that’s not easy.
Let’s talk about taxes in the Philippines: what the tax system consists of, what types of taxes there are, how they are paid, etc.
An important source of budget revenue
Taxes and the national budget are closely related because a significant portion of the national budget is generated by taxes. A tax is a revenue contribution, forcibly collected from individuals, property, or businesses, that will serve the citizens of the country. The taxes collected are needed by the government to use these funds to govern cities, provinces, and the country as a whole. The Bureau of Internal Revenue, or BIR, is the government agency that oversees the collection of taxes.
National taxes
The state tax is a tax paid directly by citizens through the BIR, and it is as follows:
Capital gains tax
It is a tax paid by anyone who makes a profit from the sale or exchange of securities and valuable assets, such as stocks, jewelry and other high-value goods sold.
Documentary stamp duty
It is a tax levied on documents, agreements and papers evidencing the sale or transfer of an obligation or property.
Donor tax
This is a tax that anyone who makes a donation, contribution or gift pays. According to TRAIN, donations or gifts of no more than £250,000 (per year) are tax-free. If it exceeds that amount, a 6 percent tax is levied.
Property tax
If a citizen dies and leaves an inheritance, the heir or beneficiary will pay inheritance tax to transfer the inheritance and the rights to the property left by the deceased to his or her name.
Excise
This is a tax on products sold. If the excise tax on a product is high, its market price may also increase.
Income tax
It is a tax paid by an individual according to his or her income from property, employment, business or any trade. With TRAIN an individual earning no more than £250,000 a year will not be taxed.
Percentage tax
This is a tax levied on businesses or entrepreneurs who sell or rent out property or services.
Value Added Tax (VAT)
This is a tax levied on products that can be added to their price when sold. Consumers are directly affected by VAT.
Withholding Tax.
Like income tax, it is levied on an employee according to his or her income. The only difference is that the employer itself withholds the tax and pays it directly to the BIR.
Local taxes
In the Philippines, there is also a type of tax administered by the local government as a local tax, namely:
Professional Tax
This is imposed on professional persons who pass state examinations, such as doctors, lawyers, and engineers.
Barangay Tax
Small entrepreneurs, such as small store owners who earn no more than £50,000 a year, are subject to the barangay tax.
Barangay
It serves to request a legal permit for which an individual, host or company wishing to conduct a program or build a business in barangay must pay. (Barangay is the smallest unit in the administrative division in the Philippines. Every city, town, or village is made up of barangays).
What other taxes exist in the Philippines
Capital Gains Tax is a tax imposed on gains presumptively realized by a seller from the sale, exchange or other disposition of capital assets located in the Philippines, including pacto de retros and other forms of contingent sales. The tax rate is 15%.
Documentary stamp duty is a tax on documents, instruments, loan agreements and documents evidencing the assumption, assignment, sale or transfer of an obligation, right or property in connection therewith.
A gift tax is a gift or gift tax imposed on the gratuitous transfer of property between two or more persons residing at the time of the transfer. It applies whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible. The donor’s tax for each calendar year is 6%, based on total gifts in excess of 250,000 pesos.
The inheritance tax is a tax on a deceased person’s right to transfer his or her property to his or her legal heirs and beneficiaries at the time of death and on certain transfers that are made under the law as the equivalent of a testamentary disposition. It is not an estate tax. It is a tax levied on the privilege of transferring property after the owner’s death. The tax rate is 6%, calculated based on the value of such NEUTRAL PROPERTY as determined at the time of the decedent’s death, consisting of all property, real or personal, tangible or intangible, less allowable deductions.
Income tax is a tax on all annual income derived from property, occupation, trade or office, or a tax on income, gratuity, profits and the like.
| Amount of net taxable income | Rate | |
| Until | But no more. | |
| – | 250 000 pesos | 0% |
| 250 000 pesos | 400 000 pesos | 20% of the amount exceeding 250,000 p. |
| 400 000 pesos | 800 000 pesos | 30,000 pesos + 25% of the excess of 400,000 pesos |
| 800 000 pesos | 2 000 000 pesos | 130,000 pesos + 30% of the excess of 800,000 pesos |
| 2 000 000 pesos | 8 000 000 pesos | 490,000 pesos + 32% of the excess of 2,000,000 pesos |
| 8 000 000 pesos | 2,410,000 pesos + 35% excess over 8,000,000 pesos |
Percentage tax is a business tax levied on individuals or legal entities who sell or rent goods, real estate or services in the course of trade or business, whose gross annual sales or revenues do not exceed 550,000 pesos and are not registered as VAT payers.
Value Added Tax is a business tax levied on the seller in the course of a trade or business for each sale of property (real or personal), rental of goods or property (real or personal), or service providers. It is an indirect tax, so it can be passed on to the buyer.
Who is obliged to file a VAT return?
- Any person or entity that in the course of its trade or business sells, exchanges, exchanges, leases goods or property and renders services subject to VAT, if the aggregate amount of actual gross sales or receipts exceeds three million pesos (3,000,000.00 Philippine pesos).
- A person was required to register as a VAT payer but failed to do so.
- Any person, whether established in the course of his trade or business, who imports goods.
Compensation withholding tax is a tax withheld from individuals receiving solely compensation income.
Extended income tax is a type of withholding tax that is assigned only to certain payers and is credited against the income tax owed to the payee for the taxable quarter.
Final withholding tax is a type of withholding tax that is assigned only to certain payers and does not count against the income tax owed by the payee for the taxable year. Withholding income tax is the full and final payment of income tax due from the payee on specified income.
Withholding Tax on Government Cash Payments is withholding tax withheld at source by governmental agencies and institutions, including corporations owned or controlled by the State and units of local government, prior to making any payments to individuals, corporations, partnerships and/or associations.
An excise tax is a tax on the production, sale or consumption of goods in a country. It applies to goods manufactured or produced in the Philippines for sale or consumption within the country or for any other use and to imported goods.
Useful resources for taxpayers
| Electronic services | The essence of the service |
| eREG | The electronic registration system is a web-based application of various taxpayer registration services, including issuing TINs, paying the registration fee, and creating a certificate of registration. |
| eFPS Login | The electronic filing and payment system is the electronic processing and transmission of tax return information, including attachments, and the taxes due on them, to the government, transmitted to the Internet through the BIR website. |
| eBIRForms | The Electronic Tax Return Office (eBIRForms) was developed primarily to provide taxpayers with a simpler and more convenient alternative way to prepare and file tax returns. |
| eAFS | Electronic Audited Financial Statements (eAFS) is a web-based application system that allows taxpayers to file their completed income tax returns (ITR), audited financial statements (AFS) and other required applications online in PDF format. |
| ePay | Provides a link to AAB electronic payment channels that taxpayers can access to electronically pay their tax levies and obligations. The electronic payment channels accept tax payments using online, credit/debit/pre-paid cards and mobile payments. |
| eONETT | The eONETT system is a web-based application that will allow taxpayers to make their One-Time Transactions (ONETT) related to taxable sales of property classified as capital or ordinary (Form 1706 CGT-BIR, Form 1606 CWT-BIR and DST- BIR Form 2000OT). |
| eTSPCert | The Electronic Tax Software Vendor Certification System (eTSPCert) is a web-based system that enables tax software vendors (TSPs) to apply and process tax solution certification for filing and/or payment of an electronic tax return. To ensure that the software used by these TSPs meets BIR data structure requirements. |
| ORUS | The Online Registration and Update System (ORUS) is a web-based system that provides an end-to-end process for registering taxpayers and updating their registration information.Pilot coverage:(1) RDO No. 39 – Issuance of TINs to foreign individuals and non-resident foreign corporations;(2) All RDOs numbered 6, 7A, 7B, 8A, 8B, 13, and 19 RR: Application for Business Registration and Printing Permit;(3) Employer services and books of account: all RDOs under RMC No. 153-2022. |
| eTCBP-TCVC | The eTCBP-TCVC is an online system where an applicant taxpayer can apply for the eTCBP/TCVC by email. |
| RegBizSearch | The Registered Business Status Search Tool is an online search tool that allows taxpayers to check the existence and business status of a taxpayer, and to verify whether a business is registered with the BIR and/or cannot be located, before they decide to transact with it. |
| NewBizReg | The New Business Registration Portal (NewBizReg) is an alternative option to applying for business (head office and branch office) registration with the BIR. Taxpayer-applicants must prepare all scanned copies of required documents to be attached and emailed through this portal to the appropriate BIR Revenue District Office (RDO). |
Which banks in the Philippines can pay taxes online
Taxpayers/owners of a BancNet ATM Card must register their BancNet account in order to use the bank’s online payment system.
Taxpayers who have an account with the following BancNet member banks can use their ATM card to pay taxes online using the LBP Link.Biz portal and DBP online tax payment:
| Asia United Bank BPI Direct BanKo CTBC Bank Citystate Savings Bank Development Bank of Philippines Enterprise Bank Entrepreneur Bank Equicom Savings Bank | MASS SPECC Philippine Bank of Communications Phil. Postal Savings Bank Philippine Veterans Bank Philtrust Bank Sterling Bank of Asia Sun Savings Bank Tiaong Bank |
Electronic registration and payment system
Taxpayers are required to voluntarily register with eFPS, must file a return electronically, and must pay the applicable taxes owed to them through the eFPSAAB in which they are registered. Taxpayers registered with eFPS can register and maintain their account with any of the following eFPS-AABs:
| Bank of CommerceBank of the Philippine Islands (BPI)China Banking Corporation (CBC)Citibank, N.A. CTBC Bank (Formerly Chinatrust Bank)Deutsche BankDevelopment Bank of the Philippines (DBP)Eastwest Banking Corporation Hongkong and Shanghai Banking Corporation (HSBC)Land Bank of the Philippines (LBP) Metropolitan Bank and Trust Company (Metrobank) | MUFG Bank (Formerly Bank of Tokyo-Mitsubishi UFJ. Ltd.)Philippine Bank of Communications (PBCom)Philippine National Bank (PNB)Philippine Veterans BankPhilippine Trust Company (Philtrust Bank)Rizal Commercial Banking Corporation (RCBC) Security Bank Corporation StandardChartered BankUnionBank of the PhilippinesUnited Coconut Planters Bank (UCPB) |
If electronic tax payment is not available
Generally, taxpayers who are required to file electronically but file and pay by hand are liable for a violation amounting to an incorrect venue under section 248(A)(2) of the 1997 NIRC.
If eFPS is not available, taxpayers must file electronically through eBIRForms and pay the applicable tax through any available payment system.
However, if both eFPS and eBIRForms facilities are unavailable, taxpayers must follow manual filing and payment procedures.
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