Overview of the Philippine Tax System

Taxation
• 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 individuals and organizational income by a
government under the authority of the law
Distinction of Tax
Tax distinguished from Toll
• - a tax is demand of sovereignty, while toll is demand for proprietorship
• - A tax is paid for the use of government’s property, while a toll is paid for the
use of another’s property
• - a tax may be imposed by the government only, while a toll is enforced by a
government or a private individual or entity
Tax distinguished from Penalty
• A tax is intended to raise revenue, while penalty is designed to regulate
conduct
• A tax may be imposed by the government only while a penalty maybe
imposed by government, or a private individual or entity.
Tax distinguished from Debt
• A tax is based on law, while debt is based on contract
• A tax may not be assignable, while debt is assignable
• A tax is generally payable in cash, while debt is payable in cash or in kind
• A person may be imprisoned for non-payment of taxes, but any person may
not be imprisoned for non-payment of debt.

The Internal Revenue Taxes

 The primary source of the government’s revenues
 Based on several theories, doctrines, and principles
 Grounded with inherent and constitutional limitations
Principles of Taxation
These are the fundamental or basic truths on which our tax laws must be based upon:
 Fiscal Adequacy
Funds generated must be sufficient to meet government expenditures
  Equality or Theoretical Justice
Taxes must be based on the taxpayer’s ability to pay
 Administrative Feasibility
Tax laws must be capable of being effectively enforced
 Necessity Theory (Theory of Taxation)
The power to tax is an attribute of sovereignty emanating from necessity
 Lifeblood Theory (Importance of Taxation)
Without taxes, the government would be paralyzed for lack of the motive
power to activate and operate it
 Benefits – Protection Theory/Reciprocal Duties Theory (Basis of Taxation)
There is a symbiotic relationship between the State and the citizens

National
Internal
Revenue Taxes

Income Taxes
Transfer Taxes

Graduated Tax
Gratuitous Onerous
and 8%

Value A
Corporate Taxes Mortis Causa
Ta

Final Taxes on
Percen
Certain Passive Inter Vivos
Tax
Incomes

Capital Gains
Excise
Taxes

Documentary Stamp Tax

Different Tax Types

 National Tax
 Local Tax
National Tax
 National taxes are the ones paid to the government through the Bureau of Internal
Revenue (BIR). Our national taxation system is based on the National Internal
Revenue Code of 1997 or the Republic Act No. 8424 also known as the Tax
Reform Act of 1997, as amended.
Local Tax
 Local taxes are based on Republic Act 7160, otherwise known as the Local
Government Code of 1991, as amended. These taxes and fees are imposed by the
local government units in every province, city, municipality, and barangay, which
are given the power to levy such taxes by the code.

NATIONAL TAX
1. Income Tax
 imposed on all compensation and income received or earned from practice of
profession, conduct of trade in business, and from properties.
 Graduated Tax and 8%
  Corporate Taxes
 Domestic Corporation
A domestic corporation is subject to tax on its worldwide income. On
the other hand, a foreign corporation is subject to tax only on income from
Philippine sources.
 Resident Foreign Corporation
Resident foreign corporations (i.e. foreign corporations engaged in
trade or business in the Philippines through a branch office) are taxed in the
same manner as domestic corporations (except on capital gains on the sale of
buildings not used in business, which are taxable as ordinary income), but only
on Philippine-source income.
 Nonresident Foreign Corporation
Non-resident foreign corporations are generally taxed on gross
income received from sources within the Philippines.
 Final Tax on Certain Passive Income
 Capital Gains Tax
 Capital gains are generally subject to the ordinary income tax rates.
 Capital gains arising from the sale of unlisted shares are subject to a
withholding tax of 15% (for foreign corporations, a rate of 5% applies
on the first PHP 100,000 of gains, and 10% on gains in excess of
PHP 100,000) while those resulting from the sale of listed shares are
taxed at a rate of 0.6% of the gross selling price (conditions apply).
 Capital gains from the sale of bonds, debentures, or other certificates
of indebtedness with a maturity of more than five years are exempt
from tax.
 Capital gains from the sale of real estate used for non-commercial
purposes are subject to a final withholding tax of 6% of the highest of
the sale price or fair value.

2. Transfer Tax
 Estate Tax is required to be paid before an estate is transferred to the rightful
beneficiary or heir of a deceased person. This is based on a graduated schedule of
tax rate.
3. Business Tax
 Value Added Tax or VAT is another kind of indirect tax that is passed on to the end
consumer. It is a form of consumption tax making it the most common tax type because all
final sales are almost always charged this tax.
 Percentage tax is a business tax imposed on businesses not covered by Value Added Tax
and where gross annual receipts for sale of good and services do not exceed Php750,000.
 Excise tax is tax on goods produced for sale and subsequently sold within the
country. It is considered an indirect tax which means the manufacturer is supposed
to recover it by adding the amount to the selling price. Sin tax on tobacco and
alcohol is an example of excise tax.
4. Documentary Stamp Tax
  This is a tax imposed upon documents, instruments, loan agreements and papers,
upon acceptances, assignments, sales and transfers or the obligation, right or
property incident thereto.

LOCAL TAX
 Basic Real Property Tax is tax on real properties classed as follows: agricultural,
commercial, industrial, residential, timberland, and mineral.

 Franchise Tax is imposed by LGUs on business franchises at a rate not more than
50% of 1% of the gross annual receipts of the previous taxable year.

 Business of Printing and Publication Tax is collected from any business that does
printing or publication of printed materials such as books, cards, pamphlets,
posters, or tarpaulins.

 Professional Tax is collected from doctors, lawyers, engineers, and other

professionals engaged in the exercise or practice of professions that require
government examination or acquisition of license to practice.

 Amusement Tax is tax on all forms of entertainment such as movies, concerts, and
plays. This tax is usually already included in the ticket price.

 Community Tax, more commonly called Cedula, is required from individuals from a
base fee of Php5.00 and additional Php1.00 for every Php1,000 incomes.

 Annual Fixed Tax for Delivery Trucks and Vans amounting to Php500 is collected
by the LGU from trucks and vans which deliver goods such as beer, soda, and/or
cigarettes.

 Barangay Tax is subjected on sari-sari stores and retailers whose annual gross
sales do not exceed Php50,000 and is accrued on the first day of January of each
year.

 Barangay Clearance is paid as a legal permission for particular individuals, hosts,

or companies to conduct an event or start a business in a barangay.

 Donor’s Tax - This is a tax levied, assessed collected and paid upon the transfer
by any person, resident or nonresident of the property (whether real or personal,
tangible or intangible) by gift- direct or indirect.
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Taxation
● 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 individuals and organizational income by a government under the
authority of the law
Tax can be
distinguished
from:

TOLL
● demand for proprietorship
● paid for the use of another’s property
● enforced by a government or a private individual or entity
PENALTY
● designed to regulate conduct
● imposed by government, or a private individual or entity
● DEBT
● based on contract
● payable in cash or in kind
● any person may not be imprisoned for non-payment of debt
The Internal Revenue Taxes
 - The primary source of the government’s revenues
 - Based on several theories, doctrines, and principles
 - Grounded with inherent and constitutional limitations
Principles of Taxation
● Fiscal Adequacy
Funds generated must be sufficient to meet government expenditures
● Equality or Theoretical Justice
Taxes must be based on the taxpayer’s ability to pay
● Administrative Feasibility
Tax laws must be capable of being effectively enforced
● Necessity Theory (Theory of Taxation)
The power to tax is an attribute of sovereignty emanating from necessity
● Lifeblood Theory (Importance of Taxation)
Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it
● Benefits – Protection Theory/Reciprocal Duties Theory (Basis of Taxation)
There is a symbiotic relationship between the State and the citizens

Different Tax Types

● National Tax
National taxes are the ones paid to the government through the Bureau of Internal Revenue (BIR). Our
national taxation system is based on the National Internal Revenue Code of 1997 or the Republic Act No.
8424 also known as the Tax Reform Act of 1997, as amended.
● Local Tax
Local taxes are based on Republic Act 7160, otherwise known as the Local Government Code of 1991, as
amended. These taxes and fees are imposed by the local government units in every province, city,
municipality, and barangay, which are given the power to levy such taxes by the code
National Taxes
● Income Tax
imposed on all compensation and income received or earned from practice of profession, conduct of trade
in business, and from properties.
● Capital Gains Tax
Capital gains are generally subject to the ordinary income tax rates

National Taxes
● Transfer Tax
Estate Tax is required to be paid before an estate is transferred to the rightful beneficiary or heir of a
deceased person. This is based on a graduated schedule of tax rate.
● Donor’s Tax
This is a tax levied, assessed collected and paid upon the transfer by any person, resident or non resident
of the property (whether real or personal, tangible or intangible) by gift- direct or indirect
● Documentary Stamp tax
This is a tax imposed upon documents, instruments, loan agreements and papers, upon acceptances,
assignments, sales and transfers or the obligation, right or property incident thereto.
● Excise tax
 This tax apply to certain goods manufactured or produced in the Philippines for domestic sales or
consumption or for any other disposition and things imported.
 This is imposed in addition to the value added tax.
Ex: sin taxes imposed on cigars, cigarettes and alcoholic products.
Corporate Taxes
● Domestic Corporation
A domestic corporation is subject to tax on its worldwide income. On the other hand, a foreign corporation
is subject to tax only on income from Philippine sources
● Resident Foreign Corporation
Resident foreign corporations (i.e. foreign corporations engaged in trade or business in the Philippines
through a branch office) are taxed in the same manner as domestic corporations (except on capital gains
on the sale of buildings not used in business, which are taxable as ordinary income), but only on Philippine-
source income
● Nonresident Foreign Corporation
Non-resident foreign corporations are generally taxed on gross income received from sources within the
Philippines.
Business Taxes
● Value Added Tax or VAT is another kind of indirect tax that is passed on to the end consumer. It is
a form of consumption tax making it the most common tax type because all final sales are almost
always charged this tax
● Percentage tax is a business tax imposed on businesses not covered by Value Added Tax and
where gross annual receipts for sale of good and services do not exceed Php3,000,000.
● Excise tax is tax on goods produced for sale and subsequently sold within the country. It is
considered an indirect tax which means the manufacturer is supposed to recover it by adding the
amount to the selling price. Sin tax on tobacco and alcohol is an example of excise tax.
Local Taxes
● Basic Real Property Tax is tax on real properties classed as follows: agricultural, commercial,
industrial, residential, timberland, and mineral
● Franchise Tax is imposed by LGUs on business franchises at a rate not more than 50% of 1% of the
gross annual receipts of the previous taxable year.
● Business of Printing and Publication Tax is collected from any business that does printing or
publication of printed materials such as books, cards, pamphlets, posters, or tarpaulins.
 ● Professional Tax is collected from doctors, lawyers, engineers, and other professionals engaged in
the exercise or practice of professions that require government examination or acquisition of
license to practice.
● Amusement Tax is tax on all forms of entertainment such as movies, concerts, and plays. This tax
is usually already included in the ticket price.
● Community Tax, more commonly called Cedula, is required from individuals from a base fee of
Php5.00 and additional Php1.00 for every Php1,000 incomes.
● Annual Fixed Tax for Delivery Trucks and Vans amounting to Php500 is collected by the LGU from
trucks and vans which deliver goods such as beer, soda, and/or cigarettes
● Barangay Tax is subjected on sari-sari stores and retailers whose annual gross sales do not exceed
Php50,000 and is accrued on the first day of January of each year.
● Barangay Clearance is paid as a legal permission for particular individuals, hosts, or companies to
conduct an event or start a business in a barangay.
EXPORTS AND PROMOTION OF EXPORTS

Definition of export

• Export refers to a product or service produced in one country but sold to a buyer
abroad.

• Exports, along with imports, make up international trade.

• Exports facilitate international trade and stimulate domestic economic activity by

creating employment, production, and revenues.

Importance of Exportation

1. Employment
 Growth in exports can create employment.
 Exports increase jobs, bring in higher wages, and raise the standard of living
for residents.
 Traditionally export jobs have been in manufacturing industries – an important
source of full-time employment, especially in industrial regions.
2. Current Account Deficit
 trade measurement that says a country imported more goods, services, and
capital than it exported. It encompasses the trade deficit plus capital like net
income and transfer payments.
 The strength of exports has a large role in determining the current account
deficit.

3. Economic Growth
 Continuous growth of the final output that can be measured through the Gross
National Product (GNP) of the country.
 Exports are a component of aggregate demand (AD).
 Aggregate Demand (AD) - the total amount of money exchanged for those goods
and services at a specific price level and point in time.
 Rising exports will help increase AD and cause higher economic growth. Growth
 in exports can also have a knock-on effect to related ‘service industries.
4. Foreign Exchange
 Exports enable a nation to earn valuable foreign exchange to the exporting
country
 The foreign exchange can be utilized for imports of
 consumer goods,
 raw materials
  spare parts and components
 capital goods and technology

5. Utilization of Resources
 Exportation allows the optimum use of available resources. This happens when
the excess production is exported
 For example, the supply of minerals and agricultural products in excess of
internal demand enable the country to export
 In case of seasonal products, when the demand for products falls dramatically in-
home country, utilization of resources is still possible. Exportation enable firms
to maintain their sales and production stability into foreign market
6. International Relations
 Exports help to develop international ties with importing countries due to
 The international trade brings together the exporters and importers of
various countries
 Trade talks take place between nations at international forum like
WTO
 All countries want to prosper in a peaceful environment thus, exportation also
helps in maintaining good political relations among countries
 A country which is foremost in the field of exports gains a lot of respect

Export Promotion

- can be defined as measures taken by government to increase the quantity and variety
of goods and services that are exported.

Reasons for Having Export Promotion

1. to eventually achieve significant export – driven economic growth.

2. exports improve the productive capacity of the country because more industries will be
established
3. exports markets are much bigger than local markets, so production on large scale needs
to take place. this will also increase job creation.
4. exports also lead to lower prices, because mass production leads to lower unit costs.
this improves the international competitiveness of South African producers.
5. the first step towards export – driven growth is to implement policies that encourage
the establishment of new industries.
6. improving the performance of the manufacturing and service industries.
7. ensuring the optimal use of resources, especially the refining and processing of natural
resources.
Advantages of Export Promotions

 Larger Demand for Labor. By increasing domestic output in order to increase

exports, more factors of production will be employed.
 Increased Competition and Efficiency. With the expansion of existing industries
and the establishment of new businesses, competition in the industry will increase.
 Compensate for Seasonal Demands. Companies whose products or services are
only used at certain seasons domestically may be able to sell their products or services
in foreign markets during different seasons.
 Increased Sales and Profits. Selling goods and services to a market the company
never had before boost sales and increases profit.
 Improved Balance of Payments. Increase in export means more money will
flow into the country.

Disadvantages of Export Promotion

 Real cost of production – subsidies and incentives reduce the cost of production.
 Lack of competition – low prices can force competitors out of the market.
 Increased tariffs and quotas – overseas competitors may retaliate.
 Protection of labor- intensive industries.
 Dumping
Definition
• Export refers to a product or service produced in one country but sold to a
buyer abroad.
• Exports, along with imports, make up international trade.
• Exports facilitate international trade and stimulate domestic economic
activity by creating employment, production, and revenues.

FOREIGN EXCHANGE
• Exports enable a nation to earn valuable foreign exchange to the exporting
country
• The foreign exchange can be utilized for imports of
 consumer goods,
 raw materials
 spare parts and components
 capital goods and technology
• UTILIZATION OF RESOURCES
• Exportation allows the optimum use of available resources. This happens
when the excess production is exported
 For example, the supply of minerals and agricultural products in
excess of internal demand enable the country to export
 In case of seasonal products, when the demand for products falls
dramatically in home country, utilization of resources is still possible.
Exportation enable firms to maintain their sales and production
 stability into foreign market
• INTERNATIONAL RELATIONS
• Exports help to develop international ties with importing countries due to
 The international trade brings together the exporters and importers
of various countries
 Trade talks take place between nations at international forum like
WTO
• All countries want to prosper in a peaceful environment thus, exportation
also helps in maintaining good political relations among countries
• A country which is foremost in the field of exports gains a lot of respect