Business taxation is usually a task most businessmen just leave for their accountants to sort out. However, knowing basic taxes is critical since mistakes in filing can lead to penalties and unnecessary legal liabilities. Knowing the basics will also help businessmen asses if the bookkeeper and/or accountant are doing their job correctly.
At the national level, taxes are imposed and collected pursuant to several special laws including the National Internal Revenue Code and the Tariff and Customs Code. There are several types of national internal revenue taxes such as income taxes, indirect taxes, excise taxes, and documentary stamp taxes, all of which are administered by the Bureau of Internal Revenue (BIR). But, if you’re a businessman, here are some of the taxes that you need to be familiarized with.
Corporate Income Tax
Corporate income tax is basically a tax on the profits of a corporation. This tax is paid based on the corporation’s taxable income which includes revenue minus cost of goods sold (COGS), selling and marketing, general and administrative expenses, depreciation, research and development, and other operating costs.
In the Philippines, the regular corporate income tax (RCIT) is 30% of net taxable income. There is also a minimum corporate income tax (MCIT) equivalent to 2% of gross income which applies at the beginning of the fourth year of commercial operation.
Value-added tax (VAT) is a tax on services and goods that is levied per stage of the supply chain where value is added, from the initial production up to the point of sale. The amount of VAT is based on the cost of the product minus any costs of materials in the product that may have already been taxed at a previous stage.
In the Philippines, this tax is paid monthly. Companies whose projected sales are expected to be below a certain amount will be exempted from paying value-added tax, but they are still required to pay percentage tax on their sales.
Percentage tax is a business tax imposed on entities or transactions specified under Sections 116 to 127 of the National Internal Revenue Code of 1997. This is also paid monthly to an authorized bank within the area covered by the BIR revenue district office (RDO).
Who is required to file?
Entities that are not VAT-registered but sell goods, properties, or services whose annual gross sales and/or receipts do not exceed 3 million pesos and are exempt from VAT.
Entities who lease residential units where the monthly rental per unit exceeds 15,000 pesos but the aggregate of such rentals of the lessor during the year does not exceed 3 million pesos.
Entities engaged in the following industries/transactions:
Cars for rent or hire, transportation contractors, and other domestic carriers by land for the transport of passengers and keepers of garages.
International air/shipping carriers operating in the Philippines.
Franchise grantees of radio and/or television broadcasting companies, gas, and water utilities.
Overseas dispatch, message, or conversation transmitted from the Philippines.
Banks and other non-financial intermediaries performing quasi-banking functions.
Other non-financial intermediaries such as pawnshops.
Life insurance corporations operating in the Philippines.
Fire, marine, or miscellaneous agents of foreign insurance companies.
Proprietors of cockpits, cabarets, nightclubs, boxing exhibitions, professional basketball games, racetracks, videoke bars, karaoke bars, and music lounges.
Winnings or dividends in horse races.
Capital Gains Tax
Capital gains tax is the levy on the profit from an investment that is incurred when the investment is sold. This is a type of transaction tax a business pays if it sells a real property classified as a capital asset.
Income tax refers to a type of tax that the government imposes on the net income generated by businesses within their jurisdiction. By law, businesses must file an income tax return annually to determine their tax obligations.
This tax is paid quarterly and at the beginning of the 4th taxable year immediately following the year in which a corporation commenced operations, there will be a minimum 2% tax on gross income.
A local tax is an assessment by a municipality to fund public services ranging from education to garbage collection and sewer maintenance. Local taxes can come in many forms, from property taxes and payroll taxes to sales taxes and licensing fees. They can vary widely from one jurisdiction to the next.
If you’ve come this far, you surely understand why taxes are usually left to the accountants. However, learning about the basic percentages or even just what a tax is for is a good step towards managing your business finances well and steering your business towards success.