Taxation in the Philippines

Taxation
An aspect of fiscal policy
Policies Government revenue Property tax equalization Tax revenue Non-tax revenue Tax law Tax bracket Tax threshold Exemption Credit Deduction Tax shift Tax cut Tax holiday Tax advantage Tax incentive Tax reform Tax harmonization Tax competition Double taxation Representation Unions Medical savings account Tax, tariff and trade
Economics General Theory Price effect Excess burden Tax incidence Laffer curve Optimal tax Theory Optimal capital income taxation Distribution of Tax Tax rate Flat Progressive Regressive Proportional
Collection Revenue service Revenue stamp Tax assessment Taxable income Tax lien Tax refund Tax shield Tax residence Tax preparation Tax investigation Tax shelter Private tax collection Tax farming
Noncompliance General Tax avoidance Tax evasion Tax resistance Tax shelter Smuggling Black market Unreported employment Corporate Tax inversion Transfer mispricing Base erosion and profit shifting (BEPS) Double Irish Dutch Sandwich Single Malt CAIA/Green Jersey Locations Tax havens Corporate tax havens Offshore financial centres (OFCs) Offshore magic circle Conduit and Sink OFCs Financial centres Financial Secrecy Index Major examples Apple €13 billion fine Ireland as a tax haven Leprechaun economics Liechtenstein tax affair Luxembourg Leaks Offshore Leaks Paradise Papers Panama Papers Swiss Leaks United States as a tax haven Panama as a tax haven
Types Direct Indirect Per unit Ad valorem In rem Capital gains Carbon Consumption Dividend Ecotax Excise Fuel Georgist Gift Gross receipts Income Inheritance (estate) Land value Payroll Pigovian Property Sales Sin Single Stamp Steering Turnover Value-added (VAT) Corporate profit Excess profits Windfall profits Negative (income) Wealth
International Financial transaction tax Currency transaction tax European Union Common Consolidated Corporate Tax Base (CCCTB) Tobin tax Spahn tax Tax equalization Tax treaty Permanent establishment Transfer pricing European Union FTT Foreign revenue rule
Trade Custom Duty Tariff Import Export Tariff war Free trade Free trade zone Trade agreement ATA Carnet
Research Academic Mihir A. Desai Dhammika Dharmapala James R. Hines Jr. Ronen Palan Joel Slemrod Gabriel Zucman Advocacy groups Tax Justice Network (TJN) Institute on Taxation and Economic Policy (ITEP) Oxfam (UK) Tax Foundation (US) Tax Policy Center (US)
Religious Church tax Eight per thousand Teind Tithe Fiscus Judaicus Leibzoll Temple tax Tolerance tax Jizya Kharaj Khums Nisab Zakat
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The policy of taxation in the Philippines is governed chiefly by the Constitution of the Philippines and three Republic Acts.

• Constitution: Article VI, Section 28 of the Constitution states that "the rule of taxation shall be uniform and equitable" and that "Congress shall evolve a progressive system of taxation".
• national law: National Internal Revenue Code—enacted as Republic Act No. 8424 or the Tax Reform Act of 1997 and subsequent laws amending it; the law was most recently amended by Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion Act; and,
• local laws: major sources of revenue for the local government units (LGUs) are the taxes collected by virtue of Republic Act No. 7160 or the Local Government Code of 1991, and those sourced from the proceeds collected by virtue of a local ordinance.

Taxes imposed at the national level are collected by the Bureau of Internal Revenue (BIR), while those imposed at the local level (i.e., provincial, city, municipal, barangay) are collected by a local treasurer’s office.

National taxes

The taxes imposed by the national government of the Philippines include, but are not limited to:

• income tax;
• estate tax;
• donor’s tax;
• value-added tax;

• percentage tax;
• excise tax; and
• documentary stamp tax.

Income tax

Income tax for individuals

Citizens of the Philippines and resident aliens must pay taxes for all income they have derived from various sources, which include, but are not limited to:

• compensation income (e.g., salary and wages);
• income of self-employed individuals and/or professionals;

• capital gains;
• interests;
• rents;

• royalties;
• dividends;
• annuities;

• prizes and winnings;
• pensions; and,
• partner’s share from the profits of partnership.

Compensation and self-employment income

Individuals, including nonresident aliens, earning compensation income are taxed based only on the income tax schedule for individuals. On the other hand, self-employed individuals and professionals are taxed based on the income tax schedule for individuals, applicable percentage taxes, and value-added tax (VAT). However, if their gross sales (or gross receipts plus other non-operating income) does not exceed the VAT threshold, they have the option to be taxed either on the basis of the income tax schedule for individuals and the applicable percentage taxes, or just with a flat tax rate of 8% on their gross sales (or gross receipts plus other non-operating income).

Income tax schedule for individuals effective FY 2018 until FY 2022

Annual taxable income	Tax to pay
Over	But not over
P0	P250,000	0%
P250,000	P400,000	20% of the excess over P250,000
P400,000	P800,000	P30,000 + 25% of the excess over P400,000
P800,000	P2,000,000	P130,000 + 30% of the excess over P800,000
P2,000,000	P8,000,000	P490,000 + 32% of the excess over P2,000,000
P8,000,000		P2,410,000 + 35% of the excess over P8,000,000

Income tax schedule for individuals effective FY 2023 and onwards

Annual taxable income	Tax to pay
Over	But not over
P0	P250,000	0%
P250,000	P400,000	15% of the excess over P250,000
P400,000	P800,000	P22,500 + 20% of the excess over P400,000
P800,000	P2,000,000	P102,500 + 25% of the excess over P800,000
P2,000,000	P8,000,000	P402,500 + 30% of the excess over P2,000,000
P8,000,000		P2,202,500 + 35% of the excess over P8,000,000

Interests, royalties, prizes and other winnings

Interest income from bank deposits, deposit substitutes, trust funds, and other similar products (except for its long-term variants) is taxed at the rate of 20%.

Royalties, except on books, literary works and musical compositions, are taxed at the rate of 10%.

Prizes and winnings from Philippine Charity Sweepstakes Office (PCSO) Lotto in excess of P10,000 (upon which individual prizes and winnings P10,000 or below are taxed on the basis of the income tax schedule for individuals) are taxed at the rate of 20%.

Interest income from a depository bank under the expanded foreign currency deposit system is taxed at the rate of 15%.

Income from long-term deposits and investments, when pre-terminated in less than three years after making such deposit or investment, is taxed at the rate of 20%; less than four years, 12%; and, less than five years, 5%.

Dividends

Cash and property dividends are taxed at the rate of 10%.

Capital gains

Capital gains from the sale of shares of stock not traded in stock exchange are taxed at the rate of 15%.

Capital gains from the sale of real property are taxed at the rate of 6%, except when such proceeds would be used to construct a new principal residence within eighteen months after the sale of a previous principal residence had occurred.

Income tax for corporations

In general, the income tax rate for corporations is 30%. However, nonprofit educational institutions and hospitals enjoy a much lower rate of 10%.

Estate tax

The transfer of the net estate is taxed at a flat rate of 6%. There is a standard deduction amounting to P5,000,000.

Donor’s tax

The total value of gifts made in a calendar year shall be taxed at a flat rate of 6%. There is a standard deduction amounting to P250,000.

Value-added tax

The value-added tax (VAT) rate since 2006 is 12%.

The new VAT threshold was changed from Php 1,919,500 to Php 3,000,000 as a result of the passage of the Tax Reform for Inclusion and Acceleration (TRAIN) Law.

Exempt transactions

The following goods, services and transactions are exempted from the VAT:

• agricultural and marine food products in their original state;
• fertilizers, seeds, seedlings, fingerlings, and feeds and feed ingredients;
• importation of personal and household effects of persons resettling in the Philippines;
• importation of professional instruments, wearing apparel, and domestic animals;
• services subject to percentage tax;
• agricultural contract growers and millers;
• health care services;
• educational services;
• agricultural cooperatives, and cooperatives that are non-agricultural and non-electric in nature;

• residential lots worth at most P1,500,000, or house and lots worth at most P2,500,000
• monthly lease of residential units at most P15,000;
• books and mass media publications (e.g. newspaper and magazine);
• transport services by non-Philippine carriers;
• cargo vessels and aircraft;
• financial services;
• sales to senior citizens and persons with disability;
• from 2019, drugs prescribed for diabetes, high cholesterol and hypertension; and,
• annual sales of any other goods or services not exceeding P3,000,000.

Percentage tax

Percentage tax is a business tax imposed on persons or entities/transactions:

• who sell or lease goods, properties or services in the course of trade or business and are exempt from value-added tax (VAT) under Section 109 (w) of the National Internal Revenue Code, as amended, whose gross annual sales and/or receipts do not exceed Php 3,000,000 and who are not VAT-registered; and,

• engaged in businesses specified in Title V of the National Internal Revenue Code.

Excise taxes

Excise taxes apply to goods manufactured or produced in the Philippines for domestic sales or consumption or for any other disposition and to things imported.

Local taxes

Real property tax

One of main sources of revenues of the local government units is the real property tax, which is a tax imposed on all types of real properties including lands, buildings, improvements, and machinery.