Philippine Tax System

I. Introduction to tax system in the Philippines

The laws governing taxation in the Philippines are contained within the National Internal
Revenue Code. This code underwent substantial revision with passage of the Tax Reform Act of
1997. This law took effect on January 1, 1998.
 
Taxation is administered through the Bureau of Internal Revenue which comes under the
Department of Finance. 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.
 
II. Primary tax incentives
 
A. Tax holiday
 
The Omnibus Investments Code grants to enterprises that have registered with the Board of
Investments and that qualify under the annual Investments Priority Plan entitlements to tax
holidays of either four or six years. In addition, they are granted tax credits for purchase of
Philippine-made capital equipment and raw materials.
 
B. Special Economic Zones
 
There are over thirty special economic zones throughout the Philippines where export
manufacturing firms are encouraged to start operations.  Under the Philippine Export Zone
Authority Law, a special economic zone registered enterprise can, in lieu of all other national
and local taxes, pay a tax of 5% of its gross income.
 
A firm that has registered under the Omnibus Investments Code that is located and registered
to do business within a special economic zone can have a tax holiday for the first four or six
years of its operations, followed by  a 5% tax thereafter.  The exemption from national taxes
covers all internal revenue taxes, including the Value Added Tax.
 
III. Tax treaty with other Foreign Countries
 
The Philippines has tax treaties with many countries, including the United States, in order to
minimize the effects of double taxation. The business profits of a resident of another country
with whom the Philippines has a tax treaty are taxable in the Philippines only if the resident has
a permanent establishment in the Philippines to which the profits are attributable.
Patterns of Philippine Revenue
Public revenues are funds used not to keep the government machinery going but also to enable
the government carry out its various fiscal functions of allocation, distribution and stabilization.

Objective of Government Finance and the Revenue System

 To protect the territory and its inhabitants

 To create a stable macroeconomic foundation
 To improve the quality of life of the people

Income Sources

 Tax Revenues
 Capital Revenues
 Extra-Ordinary Income
 Public Borrowings
 Grants

Tax Revenues
 Property Taxes – levied on the use or ownership of wealth or immovable property.
 Income Taxes – imposed on incomes of individuals, corporations and partnerships; and
all fines and penalties charged.
 Amnesty Taxes – imposed by special laws as in the series of Presidential Decrees on
delinquent taxpayers.
 Estate & Gift Taxes – an estate tax is a tax on the privilege of the decedent to transmit
property at death. Gift tax may be in the form of donor’s or donee’s taxes. The
Philippine jurisdiction imposes only the donor’s tax.
 Community Tax - a poll tax charged from individuals, partnerships and corporations.
 Immigration Tax – includes taxes and charges imposed upon immigrants.
 Excise Tax – all taxes and fees covering imports and exports.
 License and Business Taxes – include privilege taxes, fixed percentage and similar taxes
on practice of profession.
 Import Duties – cover all taxes on foreign goods levied in accordance with the tariff laws
and regulations except wharfage.
 Documentary Stamps Taxes – levied upon documents, instruments, papers, acceptance
etc.
 Charges on Forest Products – imposed on timber and firewood cut in public forest or
from private lands, & on forest products.
 Wharfage Fees – charges for wharfage relative trade.
  Franchise Taxes – imposed for any special right or privilege granted by a
government.
 Import Tax - levied on imported materials to control their entry into the local
market.
 Miscellaneous Taxes – covers all other taxes not mentioned above.

Capital Revenues
 Capital revenues cover proceeds from sales of fixed capital assets or scrap thereof
and public domain and gains on such sales like sale of public lands, buildings and
other structures, equipment and other properties recorded as fixed asset.

Extra-Ordinary Income
 Extra-Ordinary incomes include repayments of loans and advances made by
government corporations and local governments and the receipts and shares in
income of the Central Bank of the Philippines, and other receipts.

Public Borrowings
 Public Borrowings cover proceeds of repayable obligations and generally with
interest from domestic and foreign creditors of the government in general including
the national government and its political subdivisions.

Grants
 Grants cover voluntary contributions and aids given to the government for its
operation on specific purposes. It does not require any monetary commitment on
the part of the recipient. It can be in the form of money or materials.

Report By:

ARAM R MIRANDA