Types of Taxes

There are two types of taxes: national and local. National taxes are the ones paid to the
government through the Bureau of Internal Revenue. The national taxation system is based on
the National Internal Revenue Code of 1997 or the Republic Act No. 8424 otherwise known as
the Tax Reform Act of 1997, as amended.

The types of national taxes are as follows:

1. Capital Gains Tax is a tax imposed on gains that may have been realized by a seller
from the sale, exchange, or other disposition of capital assets located in the Philippines.

2. Documentary Stamp Tax is a tax on documents, instruments, loan agreements, and

papers evidencing the acceptance, assignment, sale, or transfer of an obligation, rights, or
property incident thereto.

3. Donor’s Tax is a tax on a donation or gift. It is also a tax imposed on the gratuitous
transfer of property between two or more persons who are living at the time of the
transfer.

4. Estate Tax is a tax on the right of the deceased person to transmit his/her estate to lawful
heirs and beneficiaries at the time of death and on certain transfers which are made by
law as equivalent to testamentary disposition.

5. Income Tax is a tax on all annual profits made from property ownership, profession,
trades or offices. It is also a tax on a person’s income, emoluments, profits and the like.
Self-employed individuals and corporate taxpayers pay quarterly income taxes from the
first quarter to the third quarter.

6. Percentage Tax is a business tax imposed on persons or entities who sell or lease goods,
properties, or services in the course of trade or business whose gross annual sales or
receipts do not exceed the amount required to register as VAT-registered taxpayers.

7. Value-Added Tax is a business tax imposed and collected from the seller in the course
of trade or business on every sale of properties (real or personal), lease of goods or
properties (real or personal), or vendors of services.

8. Excise Tax is a tax imposed on goods manufactured or produced in the Philippines for
domestic sale or consumption or any other disposition. It is also imposed on things that
are imported.
9. Withholding Tax on Compensation is the tax withheld from individuals receiving purely
compensation income arising from an employer-employee relationship. This tax is what
employers withheld in their employees’ compensation income and remit to the
government through the BIR or authorized accrediting agent.

10. Expanded Withholding Tax is prescribed only for certain payors like those withheld on
rental income and professional income. It is creditable against the income tax due of the
payee for the taxable quarter year.

11. Final Withholding Tax is a kind of withholding tax which is prescribed only for certain
payors and is not creditable against the income tax due of the payee for the taxable year.
An example of final withholding tax is the tax withheld by banks on the interest income
earned on bank deposits.

12. Withholding Tax on Government Money Payments is the withholding tax withheld by
government offices including government-owned or controlled corporations and local
government units, before making any payments to private individuals, corporations,
partnerships and/or associations.