Overview of taxation Taxation in the Philippines is administered through the Bureau of Internal Revenue which comes under the

Department of Finance. The laws governing taxation are contained within the National Internal Revenue Code (NIRC). The chief executive of the Bureau of Internal Revenue is the Commissioner who has exclusive and original jurisdiction to interpret the provisions of the code and other tax laws. The commissioner also has the powers to decide disputed assessments, grant refunds of taxes, fees and other charges and penalties, modify payment of any internal revenue tax and abate or cancel a tax liability. Taxpayers can appeal decisions by the Commissioner directly to the Court of Tax Appeals. Primary types of taxation A. Individual Income Tax

Residents engaged in trade or business are taxed upon their net income (gross income less allowable deductions and personal exemptions) according to a schedule of rates ranging from 3% to 32%. Residency tests are used to determine resident alien status where the resident alien falls under the Individual Income Tax schedule of rates. Personal exemptions of the following amounts are allowed on the individual income tax return: Single

50,000 pesos

Head of family

50,000 pesos

Married individuals

50,000 pesos

An additional 25,000 pesos exemption is given for each of the first four additional dependents. B. Passive income

1.

Interest

A final tax of 20% is imposed on interest income. This tax is withheld at the source. Exceptions to this are: i. Interest income from a depositary bank with a Foreign Currency Deposit Unit is subject to a final tax rate of 7.5%. ii. Philippine long term investments of over five years are exempt from tax. 2. Dividends

A final tax of 10% is imposed on cash or property dividends from domestic corporations, joint stock companies, insurance or mutual funds, or regional operating headquarters of multinational corporations. The distributable net income, after tax, of a partnership is subject to the same final tax as dividends. 3. Capital gains

The tax code imposes a final tax of 5% on net capital gains from the sale of stock in a domestic corporation up to 100,000 pesos. The tax is 10% for any income over 100,000 pesos. If the stock is stock exchange listed, a transfer tax of 0.5% is also imposed. The tax code also imposes a final tax of 6% on the sale of real properties. The base for the 6% is the selling price or the zonal value of the real properties whichever is higher. 4. Fringe benefits

Fringe benefits, such as housing, expense accounts, vehicles, household personnel, membership fees and educational fees are taxable under the fringe benefits tax and are payable by the employer, who is responsible for withholding it and remitting it to the government. The fringe benefits tax is

32% of the grossed-up monetary value of the fringe benefits given to the employee. C. Corporation tax

Resident foreign corporations engaged in trade or business in the Philippines are taxed at the same rates as domestic corporations. The rate of 32% is applied to the taxable income (Gross Income less Allowable Deductions) of the corporation. Businesses under partnership, except the General Professional Partnership (GPP), are taxable with the same rate for corporation. D. Value Added Tax (VAT)

The VAT is equivalent to 12% of the gross selling price or gross value in money of goods or properties sold, bartered or exchanged. Any excise tax on these goods is also part of the gross selling price. In the case of imported goods, VAT is based on the total value of the goods as determined by the Bureau of Customs plus customs duties, excise taxes and incidental charges. The VAT is an indirect tax. While the obligation to collect and remit rests with the seller, the cost of the tax may be passed on to the buyer, transferee or lessee of the goods, properties or services. A VAT registered entity may credit the VAT paid on purchases of other goods and services against the tax on its current period sales of goods or services. If the amount of input tax is greater than the amount of output tax, the excess may be credited against succeeding period output VAT. VAT registered entities are required to issue an invoice or receipt for every sale and, in addition to regularly required accounting records, they must maintain subsidiary sales and purchase journals exclusively for VAT purposes. VAT reports must be submitted on a quarterly basis, twenty-five days after the end of the quarter. VAT payments must be made on a monthly basis.