Learning Business Taxation
What is business taxation?
Entrepreneurs usually leave tax matters to their accountants. It all seems so complicated and unexciting, especially if you are busy running your business. Unfortunately when trouble comes, it is you and not your accountants that will bear the penalties. The penalties range from small fines to imprisonment, so it is not a trivial matter.
There are many different kinds of taxes and while you do not need to be as proficient as your accountant, it is essential to understand what is going on. Being knowledgeable enables you to anticipate the effects of your decisions on your tax situation and to plan accordingly.
What are the things you need to know? The most important thing to know is the difference between tax evasion and tax avoidance. The first is illegal, while the second is knowing how to legally minimize your tax obligations.
You must be familiar with the taxes you are obligated to pay to be able to cost and price your products correctly. Know, too, when they must be paid in order to avoid penalties. To give you an overview, below are some of the most common taxes that must be paid:
1. Municipal taxes. These are taxes that you must pay the local government. Fortunately, they are usually lesser than the taxes of the national government.
2. Value Added Tax or VAT. This is the tax paid to the national government regardless of income. You may be able to avoid paying this tax if your projected sales are considered small enough to be classified as a non-VAT entity. There are also items that are considered VAT exempt like books and unprocessed agricultural products. Even if you are non-VAT, your business will still be liable for sales taxes instead. VAT is paid monthly.
3. Percentage tax. This is usually based on a percentage of the gross sales regardless of your expenses.
4. Excise tax. It is a tax on specific products. An example of this is the excise tax on cigarettes.
5. Income tax. This is the tax you pay from your profit. Note that even if you are losing money you may still be liable for the minimum tax that will be based on your gross profit. Income tax is usually paid every three months.
6. Withholding taxes. These are the taxes you withheld from your employees and suppliers. The amounts deducted are considered advanced payments for income taxes.
7. Registration fee. Every start of the year or start of your business, do not forget to pay your registration fee.
8. Final taxes. These are the taxes that are automatically deducted from your interest earnings in bank deposits and some other types of investments. They are final taxes because no more taxes will be deducted from the earnings afterwards.
Taxes are an unavoidable fact of business and they comprise a very substantial portion of your income. Due to their significance, it is only proper that you give them commensurate attention.
BusinessCoach, Inc., a leading business seminar provider, conducts seminars on Business Taxation Made Easy. Call 727-5628 / 727-8860 / 0915-205-0133, email firstname.lastname@example.org, or visit their website www.businesscoachphil.com for details.
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*Originally published by the Manila Bulletin. 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.