Business Tax In The Philippines
Mistakes in tax payment can result in large penalties or even imprisonment. Unfortunately, most businessmen do not understand business taxation and prefer to leave the matter to their accountants. While you are not expected to be an expert, it is critical that you know at least enough to be able to check if your accountant and/ or bookkeeper are doing their job correctly. After all, it is you who will be primarily liable if problems are allowed to occur.
There are basically two kinds of taxes: local taxes and national taxes. These taxes are governed by the National Internal Revenue Code and the amendments to that law. You will usually pay more taxes to the national government through the Bureau of Internal Revenue than the local taxes you pay to the city or municipality. If you will be importing from abroad, the payment of duties (which are considered a form of tax) will be through the Bureau of Customs, but we will be discussing only internal taxes here.
Here is a brief description of some of the major taxes you will encounter while in business:
• Value Added Tax (VAT). Paid monthly using BIR form 2550M, this is the tax charged on the difference between your acquisition cost (including direct material expenses) and your selling price. The key point here is that the basis will be only on the “value” you added to your product cost. If you have a large profit margin, you will be paying more value added tax even if you do not earn any net profit. Companies whose projected sales are expected to be below a certain amount are exempted from paying value added tax, but they are still required to pay percentage tax on their sales. There are also certain transactions that are Vat -exempt or vat zero-rated.
• Percentage tax. Paid monthly using BIR form 2551M, this is the tax you pay if you are not a VAT registered company. The amount payable is computed as a percentage of your sales. Normally this tax is paid at an authorized bank within the area covered by the BIR revenue district office (RDO).
• Capital gains tax. This is the tax paid if you sell real property classified as a capital asset. The name of this tax is a little confusing since the term capital that is used here has a special legal meaning that is different from what laymen usually understand. Also, you must pay the tax even if there is no gain in value; in effect, this is a type of transaction tax. Note that people prefer paying capital gains tax, as the tax is normally higher if the asset is not classified as a capital asset.
• Income tax. Paid quarterly using BIR form 1702Q and 1702, this is the tax paid on your net earnings. For corporations, however, note that beginning on the fourth taxable year immediately following the year in which a corporation commenced operations, there is a minimum two percent tax on gross income.
• Withholding taxes. The taxes here will come from the amounts you deduct from your payments to vendors and employees. In effect, you are serving as an advanced collecting agent for the government.
There are many other taxes not listed here that you must know about. With the large impact of taxes on our finances, it is indeed essential that you have at least a basic understanding of business taxation.
To know more about this topic, BusinessCoach, Inc., a leading business seminar provider, conducts an excellent seminar on this entitled Business Taxation Made Easy. You may contact them at (02)727-5628, (02)727-8860, (0915)205-0133 or visit their website www.businesscoachphil.com for details
Click here to view details of the seminar: Business Taxation Made Easy »
*Originally published by the Manila Bulletin. C-4, Sunday, October 21, 2012. Written by Ruben Anlacan, Jr. (President, BusinessCoach, Inc.) All rights reserved. May not be reproduced or copied without express written permission of the copyright holders.