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KPMG Personalization

• A Look Back on Changes to the Philippine Individual Tax Landscape

by: Karen Jane S. Vergara-Manese and Vichellene L. Gandecila-Viernesto

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With vaccines and boosters being continuously administered, borders are slowly re-opening and airports are starting to be filled with travelers again. In many cases, companies now allow their employees to work from home or from wherever they want. With remote working comes changes to the Philippine individual tax landscape as well.

As vigilant taxpayers, we look back at how the regulators responded to the various circumstances of the past three income tax filing seasons, all of which are unique from one another.

Year 2019 (The customary)

This was the year after the implementation of Republic Act (RA) No. 10963 also known as the Tax Reform for Acceleration and Inclusion (TRAIN) Law.  While we were adjusting to the changes brought about by TRAIN, we were also waiting for the Bureau of Internal Revenue (BIR) to issue implementing guidelines and revised BIR Forms.  TRAIN provided individuals with a restructured personal income tax table. The changes included the option to avail of the 8% flat income tax rate and the use of the enhanced BIR Firm No. 1701 or the annual income tax return for mixed income earners, estates and trusts. 

The BIR was also gradually expanding its digital platforms.  They provided online web and mobile applications as additional channels of payment for internal revenue taxes.

However, one of the highlights during TRAIN implementation was the issuance of Revenue Memorandum Circular (RMC) No. 116-2019 which removed the preferential tax rate for alien individuals employed in the Philippines by Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies, Offshore Banking Units and Petroleum Service Contractors and Subcontractors. The RMC also provided additional requirements such as labeling the Certificate of Compensation Payment / Tax Withheld for Compensation Payment With or Without Tax Withheld (BIR Form No. 2316) of secondees with “seconded employees.”  The additional administrative work was suggestive of how the BIR looked to increase its efforts in securing taxpayer information through additional disclosures.

Year 2020 (The turning point)

With a promise of a more prosperous new year, 2020 was an upset.  Many struggled with the detrimental impact of COVID-19 on businesses and employment. Republic Act (RA) No. 11469 also known as the Bayanihan to Heal as One Act (Bayanihan One) was enacted to contain local transmission and mobilize assistance to affected sectors. 

Bayanihan One did not forget about the taxpayers.  It addressed the difficulties in filing returns and paying taxes due to lockdowns by issuing RR No. 11-2020.  The tax filing and payment deadline for 2019 annual income tax returns was extended to 14 June 2020 (initially extended to 15 May 2020) without imposition of penalties to taxpayers.  Early retirees were also given leniency as to the taxability of their retirement benefits subject to conditions.

The BIR also allowed the use of electronic signatures and reiterated the availability of the eAFS Facility as an option in submitting hard copies of electronically filed AITR and its attachments.  The BIR’s technology was helpful to taxpayers, except when systems were down.

RMC No. 83-2020 attempted to address mobility and cross-border issues, providing guidelines on the application of the relevant treaty provisions and allocation of taxing rights between treaty partners in relation to international tax issues affecting stranded individuals in the country and their foreign employers.  These issues include double taxation and the unintended creation of a permanent establishment (PE). While the RMC provided some answers to address treaty issues, questions on taxation of non-treaty country residents and applicability of domestic tax rules remained.    

Year 2021 (The resurgence)

Unlike the previous year, there was no extension for tax filing for 2020.  The government needed funds to sustain its programs and there may have been a conclusion that people have adjusted to the situation. RMC No. 46-2021 however, provided an allowance for filed returns to be amended on or before 15 May 2021 without imposition of penalties. Taxpayers whose amended returns will result in overpayment of taxes can opt to file for refund or carry over the overpaid tax as credit against the tax due for the same tax type in the succeeding period.

As no further guidelines were provided in relation to cross-border individuals, questions on the tax impact of work from home and work from anywhere continue to grow. The BIR issued Revenue Memorandum Order (RMO) No. 14-2021 to streamline the procedures and documents for the availment of treaty benefits. Lesser administrative requirements would have been welcomed as a relief. Moreover, clarification on how the rules apply to foreign nationals who have no constituted Philippine withholding agents would have been helpful. 

More recently, the BIR issued RR No. 20-2021 providing guidelines on the taxation of foreign employees of Philippine Offshore Gaming Operations (POGO).  The regulations require them to secure a Tax Identification Number (TIN) and pay 25% final withholding tax on gross income subject to certain provisions.

To digitize taxpayer services, the BIR also released the Mobile TIN Verifier App. The app is a service channel for taxpayers to send online TIN validation and inquiry and receive real-time response from BIR Offices. However, limitations on the extent of support provided and insufficient live agents make the use of the app less effective.

Year-end payroll activities are the final challenge to tackle.  Changes to the year-end payroll reporting requirements include RMC No. 111-2021 that provides for the latest Offline Electronic Bureau of Internal Revenue Forms (eBIRForms) Package Version 7.9.2, and RMC No. 117-2021 which clarifies the manner of submission of BIR Form Nos. 2307 (Certificate of Creditable Tax Withheld at Source) and 2316 (Certificate of Compensation Payment/Tax Withheld for Compensation Payment With or Without Tax Withheld) under RR No. 16-2021. A tax advisory was issued as well to inform taxpayers that the BIR shall accept submission of the BIR Form No. 2316 without the employee’s signature provided that the same is signed by the authorized representative of the employer. Given the spike in Omicron cases, the BIR has directed its offices and agent banks to accept out of district submissions in areas under Alert Level 3.

Taxpayers are filled with questions for the future - will the BIR allow the continued use of electronic signatures? Will there be more digital payment facilities available? Will there be improvements to increase the reliability of the current tax filing system? In your experience, how many of these questions and scenarios match yours from a payroll and tax perspective?

We can expect the BIR to stick with the tax filing and payment deadlines as movement restrictions continue to ease up. The BIR does try to make it easier for taxpayers to file their income tax returns as it results in more collection. It is also active in attempting to address gray areas through consultations with the private and public sectors and issuance of RMCs.  However, we find that at times, the circulars themselves cause further confusion requiring taxpayers to come up with their own interpretations.

Companies nowadays are undergoing a lot of transformations – reviewing compensation benefits and policies, addressing the workforce needs and considering remote or hybrid work arrangements.  Other factors such as environment, social and governance (ESG) issues, health and safety, are also emerging as agents of change. The policies and programs therefore need to be agile with the eccentricities of these factors particularly in the changes in the income tax rules. 

Theodore Roosevelt once said, “The more you know about the past, the better prepared you are for the future.”  2022 is here and it would do us good to prepare based on the facts of what has already transpired the past couple of years. We can’t ignore the massive changes in the income tax rules and they are becoming certainly more complex. It is important for us to look back and understand where we succeeded or went wrong in terms of compliance and of course, how to resolve these problems in the future. There are still a lot of things that the BIR should look at to adapt fully to the new reality of income tax reporting, domestic and international tax regulations, and technological advancements, gradually but hopefully, soon, these can be implemented.

Karen Jane S. Vergara-Manese is a Partner, the Global Mobility Services Country Lead and the Immigration Practice Head and Vichellene L. Gandecila-Viernesto a Director from the Tax Group of KPMG R.G. Manabat & Co. (RGM&Co.), the Philippine member firm of KPMG International. The firm has been recognized in 2021 as a Tier 1 in Transfer Pricing Practice and in General Corporate Tax Practice by the International Tax Review.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. The views and opinions expressed herein are those of the author and do not necessarily represent KPMG International or KPMG RGM&Co.

For questions and inquiries, feel free to send a message through social media or [email protected] .

Tax reform and demands for accountability in the philippines

• School of Political Science and Economics

Research output : Contribution to journal › Article › peer-review

In January 2018, soon after he was elected President of the Philippines, Rodrigo Duterte signed a comprehensive tax reform bill. In this paper, a nationwide survey and embedded experiment are used to investigate how ordinary Filipino citizens responded to different possible changes in tax incidence originating in the reform. The survey was conducted a few days prior to the enactment of the legislation. Our survey experiment yielded two noteworthy findings. First, Filipino citizens' interest in gathering information about the government budget and its usage increased when they were explicitly reminded of the possibility that the reform would change their tax burden; importantly, this occurred whether they expected their taxes to increase or decrease. Second, lower class citizens were more motivated than upper class citizens to monitor government when faced with the prospect of major tax burden changes. These findings not only shed light on how ordinary citizens in the Philippines reacted to the impending historic tax reform, but also reveal limits of the conventional fiscal contract conception of the link between taxation and accountability.

• Accountability
• Experiments
• Fiscal contract
• Public opinion
• The Philippines

ASJC Scopus subject areas

• Economics and Econometrics
• Political Science and International Relations

Access to Document

• 10.1355/ae38-1a

Other files and links

• Link to publication in Scopus
• Link to the citations in Scopus

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• Tax Reform Social Sciences 100%
• Government Budget Social Sciences 33%
• Upper Class Social Sciences 33%
• Tax Incidence Keyphrases 33%
• Rodrigo Duterte Keyphrases 33%
• Fiscal Contract Keyphrases 33%
• Embedded Experiments Keyphrases 33%

T1 - Tax reform and demands for accountability in the philippines

AU - Montinola, Gabriella R.

AU - Winters, Matthew S.

AU - Kohno, Masaru

AU - Holmes, Ronald D.

N1 - Funding Information: We thank the anonymous JSEAE reviewers for their valuable comments. This work was supported by a grant from the Global Affairs Office at the University of California, Davis, and a grant from the Japan Society for Promotion of Science (Grants-in-Aid for Scientific Research, Project Number 20K01456). Publisher Copyright: © 2021 ISEAS.

PY - 2021/4

Y1 - 2021/4

N2 - In January 2018, soon after he was elected President of the Philippines, Rodrigo Duterte signed a comprehensive tax reform bill. In this paper, a nationwide survey and embedded experiment are used to investigate how ordinary Filipino citizens responded to different possible changes in tax incidence originating in the reform. The survey was conducted a few days prior to the enactment of the legislation. Our survey experiment yielded two noteworthy findings. First, Filipino citizens' interest in gathering information about the government budget and its usage increased when they were explicitly reminded of the possibility that the reform would change their tax burden; importantly, this occurred whether they expected their taxes to increase or decrease. Second, lower class citizens were more motivated than upper class citizens to monitor government when faced with the prospect of major tax burden changes. These findings not only shed light on how ordinary citizens in the Philippines reacted to the impending historic tax reform, but also reveal limits of the conventional fiscal contract conception of the link between taxation and accountability.

AB - In January 2018, soon after he was elected President of the Philippines, Rodrigo Duterte signed a comprehensive tax reform bill. In this paper, a nationwide survey and embedded experiment are used to investigate how ordinary Filipino citizens responded to different possible changes in tax incidence originating in the reform. The survey was conducted a few days prior to the enactment of the legislation. Our survey experiment yielded two noteworthy findings. First, Filipino citizens' interest in gathering information about the government budget and its usage increased when they were explicitly reminded of the possibility that the reform would change their tax burden; importantly, this occurred whether they expected their taxes to increase or decrease. Second, lower class citizens were more motivated than upper class citizens to monitor government when faced with the prospect of major tax burden changes. These findings not only shed light on how ordinary citizens in the Philippines reacted to the impending historic tax reform, but also reveal limits of the conventional fiscal contract conception of the link between taxation and accountability.

KW - Accountability

KW - Experiments

KW - Fiscal contract

KW - Public opinion

KW - The Philippines

UR - http://www.scopus.com/inward/record.url?scp=85111317475&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85111317475&partnerID=8YFLogxK

U2 - 10.1355/ae38-1a

DO - 10.1355/ae38-1a

M3 - Article

AN - SCOPUS:85111317475

SN - 2339-5095

JO - Journal of Southeast Asian Economies

JF - Journal of Southeast Asian Economies

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Philippines Taxation Sector Research Highlights

The report: philippines 2021 obg plus.

The Philippines posted average economic growth of 6.4% over 2010-19. While the Covid-19 pandemic tested the country’s resilience during 2020, the response measures contained within the two national stimulus packages, Bayanihan 1 and 2, provided support to vulnerable industries. Meanwhile, the rollout of the imminent Corporate Recovery and Tax Incentives for Enterprises bill is expected to create

What business opportunities are arising from the disruption of the pandemic in the Philippines?

Although the Philippines has experienced some of Asia’s most stringent coronavirus containment measures and registered one of the highest case counts in the region, it has also maintained a fatality rate below the global average. As policymakers cautiously ease restrictions in an effort to boost economic activity, this report looks at the opportunities for digitalisation and outsourcing that are…

The Report: Philippines 2021: Tax OBG plus

This chapter examines the tax system of the Philippines, focusing primarily on the tax implications of Bayanihan 1 and 2, introduced during 2020 in an effort to mitigate the impact of the Covid-19 pandemic, as well as transfer pricing, the arm’s length principle and audit guidelines. The chapter also includes an analysis of tax compliance efforts in light of the pandemic, and commentary on the…

Protacio T Tacandong, COO, Reyes Tacandong & Co: Interview OBG plus

Interview:Protacio T Tacandong To what extent will the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill facilitate economic recovery from the Covid-19 pandemic? PROTACIO T TACANDONG: It originally intended to provide incentives to qualified investors who contribute to job generation; however, subsequent amendments provided businesses relief. Notably, the bill will help micro-,…

Which tax tools were deployed to support the Philippines' recovery? OBG plus

The Covid-19 pandemic impacted countries and businesses around the world. In the Philippines lockdown measures in the form of community quarantines were imposed and many workers became unemployed. The Bayanihan to Heal as One Act (Bayanihan 1) was enacted on March 25, 2020 in response to the crisis. Included in the law’s measures were tax deferments, the non-payment of documentary stamp tax…

The tax measures funding the Philippines' Covid-19 response OBG plus

The government implemented various programmes to help alleviate the economic impact of the Covid-19 pandemic. To sustain these measures, the Department of Finance issued Revenue Regulation (RR) No. 21-2020 in September 2020, which outlines the guidelines for the implementation of the Voluntary Assessment and Payment Programme (VAPP) for the 2018 taxable year. Compliance To limit contact with…

Report: What business opportunities are arising from the disruption of the pandemic in the Philippines?

A comprehensive look at the philippines' recent changes to tax legislation applicable to businesses and individuals obg plus.

The Philippines continues to be one of the most attractive investment destinations in Asia. This is unsurprising given its high literacy rate; English proficiency; abundant natural resources; and efficient, productive and competitive workforce. The first three years of the administration of President Rodrigo Duterte brought rapid changes in the business climate, tax regulatory framework and…

The Report: Philippines 2019: Tax OBG plus

This chapter examines the tax system of the Philippines, focusing primarily on those stemming from AmBisyon Natin 2040. This includes: The Tax Reform for Acceleration and Inclusion bill; The Tax Reform for Attracting Better and High-Quality Opportunities bill; the Green Jobs Act; The Tax Amnesties Act; and The Tax Amnesty of Delinquencies. This chapter also outlines which processes can now be completed…

Protacio T. Tacandong, COO, Reyes Tacandong & Co.: Interview OBG plus

Interview:Protacio T. Tacandong In what ways do you expect artificial intelligence (AI) and other digital tools to disrupt tax administration? PROTACIO T. TACANDONG: In the age of digital disruption, every company must be able to respond to three major concerns: how to survive in this new environment, how to retool a labour force with the appropriate skills and how to capitalise on changes…

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50+ Focused Taxation Research Topics For Your Dissertation

Published by Ellie Cross at December 29th, 2022 , Revised On May 2, 2024

A thorough understanding of taxation involves drawing from multiple sources to understand its goals, strategies, techniques, standards, applications, and many types. Tax dissertations require extensive research across a variety of areas and sources to reach a conclusive result. It is important to understand and present tax dissertation themes well since they deal with technical matters.

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• The effects of tax evasion and avoidance on and the supporting data
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• Workers of the tax department’s role in facilitating tax evasion through corruption
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• A critical analysis of how the administration of higher institutions is impacted by small business budgeting
• Recognising the importance of foreign currency in a nation’s economy. How can foreign exchange and remittances help a nation’s finances?
• An exploration of the best ways tax professionals may persuade customers to pay their taxes on time
• An investigation of the potential impact of tax and accounting education on the achievement of the nation’s leaders
• How the state might expand its revenue base by focusing on new taxing areas. Gaining knowledge of the digital content creation and freelance industries
• An evaluation of the negative impacts of income tax reduction. Will it prompt more people to begin paying taxes?
• A critical examination of the state’s use of tax revenue for human rights spending. A UK case study
• A review of the impact of income tax on new and small enterprises. Weighing the benefits and drawbacks
• A comprehensive study of managing costs so that money may flow into the national budget without interruption. A study of Norway as an example
• An overview of how effective taxes may contribute to a nation’s development of a welfare state. A study of Denmark as an example
• What are the existing problems that prevent the government systems from using the tax money they receive effectively and completely?
• What are people’s opinions of those who frequently avoid paying taxes?
• Explain the part tax officials play in facilitating tax fraud by accepting small bribes
• How do taxes finance the growth and financial assistance of the underprivileged in the UK?
• Is it appropriate to criticise the government for not providing adequate services when people and businesses fail to pay their taxes?
• A comprehensive comparison of current taxes and the Islamic zakat system is presented. Which one is more beneficial and effective for reducing poverty?
• A critical evaluation of the regulatory organisations was conducted to determine the tax percentage on different income groups in the UK.
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• An assessment of the available research on the most effective ways to manage and maintain an uninterrupted flow of funds for a better economy.
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Understanding taxation in the Philippines: Principles, theories, and consequences of evasion

In the Philippines, tax evasion results in fines up to 10M PHP and imprisonment of 6-10 years , with the BIR's Oplan Kandado enforcing strict penalties for VAT non-compliance and sales under-declaration, emphasizing the critical role of taxation as the government's lifeblood and the necessity for compliance to ensure mutual benefits.

Principles and theories of taxation

• Symbiotic relationship : The benefits-protection theory suggests a mutual exchange where the government provides services in return for taxes, rationalizing compliance with cases like CIR vs. CA highlighting this exchange.
• Necessity of taxation : Described as the lifeblood & sovereignty theories , taxation is deemed critical for state operations, with landmark cases such as CIR vs. Penelo and Commissioner vs. Algue emphasizing its mandatory nature.
• Government's role : It's responsible for providing both tangible and intangible benefits in return for taxes, enriching lives and reinforcing accountability, as seen in the CIR vs. CA case.
• Compliance enhancement : Understanding taxation theories is crucial for better compliance, as education on legal obligations can significantly reduce evasion.

Consequences of tax evasion

• Tax evasion fines : Individuals found guilty of tax evasion face fines up to 10M PHP , with imprisonment ranging from 6 to 10 years for offenses involving unauthorized documents or double invoicing.
• BIR 'Oplan Kandado' : Businesses can be closed for VAT non-filing, invoice/receipt failures, or a 30%+ sales under-declaration , showcasing the strict enforcement against evasion.
• Late filing surcharge : A 25% surcharge is applied for late filing, and 50% for deliberate non-filing or falsification, significantly increasing the tax burden on the evader.
• Public listing : Convicted tax evaders' names are announced publicly, damaging personal and business reputations and affecting brand credibility.

Taxation compliance and reform

• GTP framework : The World Bank's guide supports developing nations like the Philippines in crafting evidence-based tax reforms, enhancing both global and domestic revenue.
• Reform strategies : An integrated framework emphasizes trust-building, political navigation, and tailoring reforms to specific national contexts, reducing resistance to changes.
• ICTD role : Founded in 2010, ICTD plays a pivotal role in generating knowledge for developing countries, fostering efficient and equitable tax systems that enable pro-poor economic growth.
• Tax administration enhancement : More effective than amnesties, enhancing tax administration is key to addressing evasion and delinquency, with a focus on improving enforcement capacity.

Theory and Basis of Taxation

TAXATION: DEFINITION, PURPOSE AND THEORIES

[TOPIC 3] GENERAL PRINCIPLES OF TAXATION | Doctrines, Theories, and Limitations (Philippines) Part 3

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Tax Incentives in the Philippines: A Regional Perspective

IMF Working Paper No. 01/181

38 Pages Posted: 1 Feb 2006

Nigel Chalk

International Monetary Fund (IMF)

Date Written: November 2001

The Philippines is faced with a policy dilemma in the area of corporate taxation. On the one hand, the country has, over the past few years, witnessed a decline in revenue as a share of output. On the other, it is operating in an increasingly competitive regional market for foreign direct investment. In order to remain competitive, the Philippines offers a broad array of fiscal incentives to entice inward investment and pursue the country`s development goals. This paper looks at the fiscal incentives available in the Philippines, compares them with those available in the ASEAN region, and with the evidence on the efficacy of tax incentives in a global context. The paper provides some broad conclusions on the use of the various forms of tax incentives in the Philippines and on their administration.

Keywords: corporate tax incentives, ASEAN

Suggested Citation: Suggested Citation

Nigel Chalk (Contact Author)

International monetary fund (imf) ( email ).

700 19th Street NW Washington, DC 20431 United States

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Unveiling the Salient Features and Development of Taxation in Philippine History..pdf

Imperial Journal of interdisciplinary research(IJIR)

This paper aims to understand the importance and necessity of tax imposition traced from its historical background to present situations. The unveiling of the salient features of taxation is a matter of necessity. The requirement of utmost transparency and accountability must be the primordial consideration in promoting sound administrative system. The unending practice of graft and corruption must be dispensed with. This is present by reason of lack of discipline and love for the country. The campaign for theoretical justice, equality and uniformity principle must be taken cognizance in the imposition of taxes. A qualitative interview through the utilization and application of a semi-structured survey questionnaires was employed for a better result and profound understanding about the vital concepts and important parameters of taxation. Taxes represent the financial skeletal system of the government. It also serves as the backbone and fundamental key to economic stability. This research clearly shows the indispensability character of taxation. That taxes are the life-force of the government. In the absence of taxes, the government cannot really exist nor survive without financial resources to support its legitimate and necessary expenses. The realization and materialization of this study will greatly benefit the general public to have a deeper understanding on the importance and necessity of the historical and developmental concept of taxation in Philippine history. Keywords: Taxation, History, Imposition, Necessity, Importance and Development.

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Taxes in the Philippines [Taxation Guide for 2024]

Last Updated – Oct 23, 2023 @ 1:35 pm

Every year, millions of people in the Philippines face the same annual task – staying on top of their taxes. After all, only two things are certain in life: death and taxes.

Whether you’re an employee or running your own business , missing tax deadlines can lead to detrimental consequences.

As we step into a new year (in a couple of months!), we’ll let you in on some tax planning strategies to help you avoid any potential issues with the Bureau of Internal Revenue.

The goal of this guide is to help you understand the basics of taxation, provide practical advice to ensure compliance, and help you minimize any tax-related headaches. 

But before you start learning about the tax landscape in the country, you must first be aware of the key republic acts governing taxation policies in the Philippines. This includes:

• The Corporate Recovery and Tax Incentives for Enterprises Act ( CREATE Act )
• Tax Reform for Acceleration and Inclusion ( TRAIN ) Law
• Article VI, Section 28 of the Constitution
• The National Internal Revenue Code of 1997 ( Republic Act No. 8424 ), also known as the Tax Reform Act of 1997, as amended
• Republic Act No. 1937 , the Tariff and Customs Code of the Philippines (as amended)
• Republic Act 7160 , also known as the Local Government Code of 1991, as amended

These serve as the foundation of our tax system, encompassing both national and local taxes.

National taxes are those we pay to the government through the Bureau of Internal Revenue, while local government taxation is based on the powers granted to local government units under the Local Government Code of 1991.

Tax Structure in the Philippines

The Philippines follows a territorial tax system. This means that only income generated within the Philippines or from Philippine sources is subject to taxes.

Income earned from foreign sources is generally not taxed in the Philippines, with some exceptions for certain types of income.

The Role of BIR

The Bureau of Internal Revenue or BIR is the primary agency responsible for the assessment, collection, and enforcement of internal revenue taxes and other related charges within the Philippines.

Here’s a more detailed breakdown of the BIR’s key functions:

Tax Assessment

The BIR has the power to assess taxes on individuals and businesses based on their income, transactions, financial activities, or other taxable transactions.

The assessment process involves reviewing the taxpayer’s records and financial statements to determine the amount of tax owed.

Tax collection

This involves sending notices to taxpayers informing them of their tax obligations.

The BIR also has the authority to impose penalties for late or non-payment of taxes, as well as to seize assets or initiate legal action against delinquent taxpayers.

Assistance and education

To help ensure everyone is in the loop about taxes, BIR offers information on tax filing procedures and tax regulations. The agency also provides guidance on how to avoid common tax-related issues.

Auditing and investigation

If there are suspicions of tax evasion, fraud, or non-compliance, the BIR may conduct an audit or investigation into the taxpayer’s financial activities .

This includes reviewing their accounts and gathering evidence to determine if any violations have been committed. 

If violations are found, the BIR may impose penalties, fines, or even criminal charges.

Tax clearance and certificate issuance

The BIR also provides tax clearance and certificate issuance services to individuals and businesses. A tax clearance certificate is a document that certifies that a taxpayer has no outstanding tax liabilities or has paid all taxes due and is up to date with their tax obligations.

This certificate is required for various transactions such as registering a new business , renewing business permits, applying for travel visas , and more.

Policy and regulation

The agency has a key role in developing tax policies and regulations. They also work with other government agencies to make sure that tax laws and regulations are clear, consistent, and fair.

Enforcement and legal action

When necessary, the BIR has the power to enforce tax laws and regulations by taking legal action against individuals and businesses who do not comply with tax requirements.

This can include imposing fines, penalties, and even imprisonment in extreme cases of tax evasion or fraud.

What is Taxable Income?

Taxable income refers to the portion of your total income that is subject to taxation by the government. In simpler terms, it’s the money you earn on which you have to pay taxes.

This income can come from various sources, such as your job , business , investments , or any other financial activities.

Types of Taxes in the Philippines

To understand taxation, it’s essential to know the different types of taxes imposed by the government.

Direct taxes

This type of tax is directly levied on an individual or business, and the burden of paying it falls on the same person or entity. Here are the different types of direct taxes.

Income tax is imposed on the yearly profits or earnings that individuals and businesses generate from various sources, such as property, professions, trades, or offices.

Individual or personal income tax rates

Individual income tax follows a progressive tax rate structure, where the tax rate increases as income levels rise.

Corporate income tax

Corporate income tax is a tax imposed on the net income or profits of corporations, partnerships, and other entities engaged in trade or business within the Philippines. It is based on a fixed rate.

Philippine corporations are taxed on their total global income. However, non-resident corporations are only taxed on income they generate in the Philippines.

Meanwhile, a foreign corporation with a branch in the Philippines is subject to taxation on the income generated in the country. Branch taxable income is calculated in the same way as subsidiary taxable income.

Effective from July 1, 2020, Philippine corporations are taxed at a rate of 25% (from 30%). This doesn’t include corporations who have a net taxable revenue of less than PHP5 million and total assets of less than PHP100 million, which is taxed at a rate of 20%. 

Withholding tax

The following are the different withholding taxes you should know.

When a resident company distributes dividends, they are liable to the following taxes. 

For individuals:

For corporations:

For interest payments made to non-residents, a 20% withholding tax applies, unless a tax treaty specifies otherwise.

In the case of royalty payments, domestic or resident companies are subject to a final withholding tax of 20%. However, a 25% withholding tax rate is applied to royalty payments made to non-residents.

Fringe Benefit Tax

The FBT rate is set at 35% of the grossed-up monetary value of the fringe benefit.

This tax is imposed on non-wage benefits that employees receive as part of their basic compensation package. This includes goods, services, or other benefits granted in cash or in kind.

The benefits include, but are not limited to the following:

• Expense accounts
• Household personnel
• Interest on loans at below market rate
• Club membership fees
• Expenses for foreign travel
• Holiday and vacation expenses
• Education assistance
• Life or health insurance and other non-life insurance premiums

Keep in mind that this tax is not imposed when the fringe benefits are considered necessary to the nature of your business.

Capital Gains Tax

This is levied on the profit (capital gains) earned from the sale or disposal of certain types of assets, such as real estate , stocks , bonds , mutual funds , and other investments.

It is typically imposed when an individual or entity realizes a gain by selling an asset for a higher price than the original purchase price.

This is levied on the right of a deceased person to transfer their estate to their lawful heirs and beneficiaries upon their death.

It is imposed on the total value of the assets and properties left behind by the deceased individual, and it is calculated based on a graduated schedule of tax rates.

This tax is also applicable to certain transfers that are considered equivalent to testamentary dispositions, such as certain gifts made shortly before the individual’s death.

Related: How to Write a Last Will and Testament

Donor’s Tax

Donor’s tax in the Philippines is a tax imposed on the act of giving property as a gift while the giver (also called donor) is still alive.

This tax applies when someone transfers property to another person or entity out of generosity, without expecting much in return, and without being legally obligated to do so. 

Whether the donor is a resident or non-resident of the Philippines, this tax is imposed on the privilege of making such a gift.

Keep in mind that this is different from estate tax, which is levied on the transfer of property upon a person’s death.

Indirect taxes

The opposite of direct taxes, this tax is imposed on goods and services at the point of consumption.

Value Added Tax

Also called VAT, this tax is imposed on the sale of goods and services. It is levied on the value added to a product or service at each stage in its production or distribution and ultimately passed on to the final consumer.

Excise tax is a type of indirect tax that is levied on specific goods, such as alcohol, tobacco products, petroleum products, and automobiles.

This tax is imposed on the manufacturer or importer of these goods, but the cost is ultimately passed on to the end consumer.

Check out this page for the updated table.

Documentary Stamp Tax

This is for a variety of legal and commercial documents. These include deeds, contracts, and other instruments that relate to the transfer or conveyance of property rights or financial obligations.

Local Taxes

Here are some additional local taxes you should account for.

Real Property Tax

This tax is for immovable properties such as land, buildings, machinery, and other improvements that are permanently attached to the land.

This tax is imposed on the privilege of owning or holding real estate within the jurisdiction of a local government unit (LGU), such as a city or municipality.

It is a significant source of revenue for LGUs and is used to fund local public services and infrastructure development.

Business Tax

This is enforced by LGUs on businesses operating within their jurisdiction. It is based on the gross sales or gross receipts of a business for the previous fiscal year.

The rate varies depending on the location of the business but should not exceed 3% of the gross sales or gross receipts.

Tax on Transfer of Real Property Ownership

This tax is imposed when real property is sold, donated, bartered, or transferred to another owner.

Tax on Business of Printing and Publication

This is for businesses engaged in printing and publishing materials like books, posters, pamphlets, and the like that are subject to this tax.

Franchise Tax

Businesses with franchises are taxed at a rate not exceeding 50% of 1% of their gross annual receipts from the previous year within their jurisdiction.

Tax on Sand, Gravel, and Quarry Resources

This tax applies to resources like stones, sand, gravel, and earth extracted from public lands, waters, or riverbeds within the local government’s jurisdiction.

Professional Tax

Professionals who are required to pass government exams are obligated to pay an annual professional tax.

Amusement Tax

The proprietors of entertainment venues, including theaters and concert halls, are required to collect this tax from patrons.

Annual Fixed Tax for Delivery Vehicles

Manufacturers, wholesalers, dealers, or retailers using delivery vehicles for products like liquors, soft drinks, and tobacco pay this annual fixed tax.

Tax on Business

Businesses must pay this tax to secure a business license or permit to start operations. This is what businesses pay to get a Business Mayor’s Permit. Rates may vary among cities and municipalities.

Fees for Sealing and Licensing of Weights and Measures

Charges for certifying and licensing weighing and measuring equipment are determined by the local government.

Fishery Rentals, Fees, and Charges

Fees are imposed on individuals granted fishery privileges in municipal or city waters.

Community Tax

Levied on individuals 18 years and older engaged in work, business, or owning property with a certain assessed value.

Corporations doing business in the Philippines are also subject to this tax.

Barangay Taxes on Stores or Retailers

This is for businesses with gross sales of receipts of the preceding calendar year of P50,000.00 or less for cities, and P30,000.00 or less for municipalities.

The rate should not exceed 1% on such gross sales or receipts.

Service Fees or Charges

Barangays can collect fees for services related to the use of barangay-owned properties or facilities.

Barangay Clearance

A reasonable fee is collected for issuing a barangay clearance. This is usually required for various government transactions.

Tax Incentives and Exemptions in the Philippines

The government offers many tax incentives and exemptions to help promote economic growth, attract investments, and support various sectors. 

1. Special Economic Zones and their tax benefits

Special Economic Zones (SEZs) are designated areas in the Philippines that enjoy unique tax privileges and incentives to encourage investments and economic activities.

These zones are typically established in strategic locations to spur development and job creation.

Some of the tax benefits associated with SEZs include income tax holidays, as well as duty-free importation to decrease production costs.

2. Tax holidays and other incentives for businesses

Export-focused businesses can enjoy a tax break called the Income Tax Holiday or ITH for 4 to 7 years and choose between a low Special Corporate Income Tax (SCIT) rate of 5% or extra tax deductions for 10 years.

Meanwhile, companies targeting the local market can also get an ITH for 4 to 7 years and opt for enhanced deductions for 5 years.

3. Exemptions for certain individuals and entities

The Philippine tax system also provides exemptions for specific individuals and entities such as:

Senior Citizen and Persons with Disabilities (PWD) Exemptions

Senior citizens and PWDs may be eligible for income tax exemptions, as well as VAT exemptions or discounts on specific goods and services.

Exemptions for Cooperatives

Cooperatives engaged in certain activities may benefit from exemptions on income tax, as well as VAT privileges.

Nonprofit and Charitable Organizations

Non-profit entities engaged in charitable, religious, cultural, or educational activities may enjoy tax exemptions and incentives.

Tips for Effective Tax Planning in the Philippines

Take a look at some of the best practices for effective tax planning in the Philippines:

1. Income Splitting

As stated above, the Philippines has a progressive tax system which means higher incomes are subject to higher tax rates.

By distributing income among family members, you can potentially reduce the overall tax liability on that income.

Furthermore, some individuals or entities may be eligible for tax credits to offset their tax liability. Income splitting allows you to allocate income to individuals with available tax credits, therefore reducing the overall tax burden.

Income splitting can also be a strategy for those with huge estates who want to actualize an estate planning strategy.

By transferring income or assets, the size of your estate can be reduced. This helps facilitate the smooth transfer of wealth to the next generation.

2. Timing of income and expenses

This tip involves the deliberate deferral or acceleration of income and deductions to optimize an individual or business tax situation.

Managing capital gains, utilizing carryovers, meeting income thresholds, and aligning with business planning are all part of the possibilities with this strategy.

By following this tip, you can manage your tax rate effectively by choosing when to recognize income or incur expenses.

Smoothing your tax liability over multiple years is also possible if you want to avoid sudden spikes in tax payments.

Moreover, you can reduce your taxable income for the current year by deferring income and accelerating deductions to lower your tax liability.

This strategy also maximizes the utilization of available deductions and exemptions.

Keep in mind that timing should always adhere to tax laws and be based on legitimate financial and business decisions.

3. Utilizing tax credits and deductions

It is recommended to take full advantage of available tax credits and deductions to reduce your overall tax liability.

Tax credits are direct reductions in the amount of tax you owe. Ensure that you claim all eligible tax credits you qualify for.

For example, if you donate to a BIR-accredited charity, you can claim a tax credit for the donated amount.

4. Investing in Tax-Advantages accounts

Utilizing the following tax-advantaged and tax-efficient accounts can help you grow your wealth and secure your financial future while minimizing the impact of taxes.

Pag-IBIG HDMF (Home Development Mutual Fund) – MP2

Consider investing in this tax-free savings account, offering attractive dividend rates (usually 5-7%) and a 5-year maturity period.

The earnings from MP2 are tax-free, allowing your savings to grow faster.

SSS ( Social Security System ) Flexi and Peso Funds

For Overseas Filipino Workers (OFWs), the Flexi Fund is an option that invests in 91-day T-bills, while the Peso Fund is invested in 5-year T-bonds and 365 T-bills.

Contributions and interest in these funds are not subject to tax.

PERA (Personal Equity Retirement Account)

With PERA , you can enjoy a 5% tax credit on annual contributions. Moreover, the income and withdrawals after retirement (usually at age 55) are tax-exempt.

This account offers a tax-efficient way to save for retirement.

Tax-Efficient Investment Accounts

Consider low-cost index funds under ETFs and Mutual Funds , as they minimize trading activity and offer lower taxation.

ETFs in particular are very tax-efficient since you will be only taxed when you sell your shares. This helps you enjoy tax deferral.

Tax-Managed Fund

Some mutual funds are specifically designed to minimize tax burdens for investors.

While they may come with higher costs due to specialized services, they can be worthwhile if you have a higher income and are in a higher tax bracket.

Real Estate Investment Trusts ( REITs ) and REIT-ETFs

These investment options provide tax-efficient exposure to the real estate market.

Non-Taxable Income Sources

Certain income sources and services are exempt from taxation, such as insurance proceeds (in most cases), riders for disability and critical illness, employer-provided insurance (life/health), municipal bonds (with tax-free interest earnings), tax-exempt money market funds (for parking cash), and Health Savings Accounts (HSAs) for medical expenses with tax-free compounding.

5. Tax incentives and exemptions

Most tax incentives and exemptions provide opportunities to minimize tax liabilities and promote economic growth at the same time.

As stated above, availing Special Economic Zone (SEZ) Benefits gives you substantial tax benefits if you operate in these designated zones.

For example, your business will be exempt from paying income tax for a specific period. You may even enjoy duty-free importation of essential equipment and streamlined customs procedures.

The Philippine government even offers various tax holidays and incentives designed to stimulate business growth.

Meanwhile, Research and Development tax incentives provide deductions and exemptions for R&D-related expenses to encourage innovation. Export-oriented businesses can also benefit from VAT zero-rating and exemptions on export earnings.

Also, the Alternative Modes of Compliance (AMoC) allow businesses to choose the most tax-efficient treatment applicable to their industry.

Finally, exemptions are available for specific individuals and entities. By understanding and capitalizing on these incentives, businesses can optimize their tax positions.

6. Considerations for Business Owners

For business owners in the Philippines, there are several strategies that can help minimize taxes.

One crucial decision is choosing the right business structure , such as a sole proprietorship, partnership, or corporation.

Each structure has its own tax implications, and selecting the one that aligns with your business goals and financial circumstances is essential for tax efficiency.

Proper documentation and record-keeping are also equally important. It should be your priority to have accurate records of income, expenses, and transactions that allow you to claim legitimate deductions and credits while staying compliant with tax regulations.

This practice not only minimizes the risk of audits and penalties but also ensures you’re making the most of available tax benefits.

Deducting business expenses and capital allowances is another vital strategy. Business owners can deduct various expenses related to their operations, such as rent, salaries, utilities, and interest on business loans .

Additionally, capital allowances can be claimed for asset depreciation.

Lastly, regularly assess your business activities for opportunities to optimize tax efficiency. This step includes identifying tax credits and incentives.

7. Real estate and capital gains

When selling real estate or other capital assets, you may incur significant capital gains tax. To minimize this tax, consider the following tips:

Hold for the long term

Holding your property for at least one year before selling it can result in lower capital gains tax rates. The longer you hold, the lower the tax rate becomes.

Utilize the Family Home Exemption

Individuals who sell real property in the Philippines are subject to a tax rate of 6% based on either the property’s selling price or its fair market value, whichever amount is higher.

However, there is an exception to this rule when the property being sold is the individual’s principal residence and the proceeds from the sale are used to purchase or build a new principal residence.

This exemption can be used once every 10 years.

Offset Gains with Losses

If you have incurred capital losses from other investments, you can offset these against your capital gains to reduce your overall tax liability.

Understand your property tax implications

Taxpayers in the Philippines should also have a thorough understanding of real property tax implications.

This is imposed on land, buildings, and improvements in the Philippines. To navigate this tax efficiently, keep these tips in mind:

• Know Your Property Classification: Properties are classified into different categories, each with its own tax rates. Ensure that your property is correctly classified to avoid overpaying.
• Keep Updated Records: Keeping accurate records of payments and deadlines can help you manage your tax obligations effectively.
• Check for Exemptions: Certain properties may qualify for exemptions or reduced tax rates, such as agricultural land or properties used for low-cost housing.
• Consider Tax Amnesty Programs: The Philippine government periodically offers tax amnesty programs that allow property owners to settle arrears at reduced rates. Participating in such programs can provide relief from overdue taxes.
• Review Property Valuations: Real property tax is based on assessed property values. Regularly review the valuation of your property to ensure it accurately reflects its market value and avoid over assessment.

8. Estate Planning and Donor’s Tax

Take a look at the following tips to help you reduce estate tax liability through strategic gifting:

Exempt Gift

Certain gifts are entirely exempt from donor’s tax, including those made to the government or charitable institutions. By directing your gifts toward these exemptions, you can minimize tax liability.

Gradual Wealth Transfer

Plan to gradually transfer assets to heirs over time rather than waiting until later stages of life to spread out potential tax liabilities.

Setting Up Trusts and Other Estate Planning Tools

Trusts and estate planning tools can be effective in minimizing estate tax liability and ensuring the smooth transfer of assets:

• Irrevocable Trusts: Transferring assets into an irrevocable trust can remove them from your taxable estate.
• Life Insurance: Consider using life insurance policies to provide tax-free benefits to beneficiaries. The proceeds are typically not subject to estate tax, making it a useful tool for wealth transfer.
• Family Corporations: Some families opt to establish family corporations to manage assets and facilitate their transfer to heirs more efficiently.

9. Seeking professional advice

Tax professionals and accountants are experts in taxes. Their deep knowledge and experience allow them to uncover deductions, credits, and exemptions you might overlook.

Remember that Philippine tax laws change frequently and it is the job of these professionals to stay up-to-date with these shifts and understand how they impact taxpayers.

Furthermore, they are helpful in assessing your financial situation, business activities, and goals to create customized tax strategies that consider factors like income sources, investments, deductions, and exemptions.

Related: Top Accounting Firms in the Philippines

When it comes to audit or tax disputes, tax professionals also provide valuable assistance and can represent you before tax authorities, address questions, and ensure your tax records are well-prepared and compliant with laws.

This decreases the stress and potential financial impact of audits.

10. Using digital tools and software

Using digital tools and software can greatly simplify the tax filing process and help you stay organized.

For example, tax software will take the bulk of the hassle out of tax planning and filing. This not only saves you time but also reduces the chances of errors in your tax returns.

In many ways, going digital with record-keeping can also be a game-changer. This involves storing your financial documents, receipts, and transaction records electronically. They’re also less likely to get lost or damaged.

A tax software will also do the math for you, therefore reducing manual data entry and keeping you informed about tax changes in real-time.

Most tax software providers also come with strong security features to protect your financial data, plus they are compliant with government regulations and guidelines.

Lastly, digital tools let you manage your taxes from anywhere with an internet connection. This flexibility is particularly useful for professionals who are always on the go or have multiple businesses to manage.

Check out our in-depth guide on finance apps to know the best personal finance online tools for taxes in the Philippines.

About MJ de Castro

MJ de Castro is the lead personal finance columnist at Grit PH.

MJ started her career as a writer for her local government’s City Information Office. Later on, she became a news anchor on PTV Davao del Norte.

Wanting to break free from the shackles of her 9-to-5 career to live by the beach, she pursued remote work. Over the years, she has developed a wide specialization on health, financial literacy, entrepreneurship, branding, and travel.

Now, she juggles writing professionally, her business centering on women’s menstrual health, and surfing.

Education: Ateneo de Davao University (AB Mass Communication) Focus: Personal Finance, Personal Development, Entrepreneurship, & Marketing

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Tax Incidence Anomalies

This paper reviews the literature on the incidence of consumption and labor taxes and focuses on the empirical results that show stark departures from the canonical model of tax incidence, which I refer to as anomalies. In particular, there is mounting evidence questioning three fundamental implications of the canonical model: (1) that statutory incidence is irrelevant for economic incidence, (2) that the relative magnitude of the demand and supply elasticities is a sufficient statistic for tax incidence, and (3) that incidence is symmetric for increases and decreases. I review this empirical evidence and draw implications for the canonical model’s relevance.

The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.

MARC RIS BibTeΧ

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Italy doubles flat tax for wealthy new residents

What’s happened?

Yesterday, Italy’s Prime Minister Meloni's announced plans to double the country’s flat tax on worldwide income from €100,000 to €200,000 with immediate effect.

Ultra-high-net-worth individuals (UHNWIs) already resident in Italy will continue to pay the €100,000 annual levy, the €200,000 charge will only apply to new applicants.

The move underscores a broader European trend of tightening fiscal policies while trying to attract foreign investment.

Despite the increase, Italy is likely to remain appealing to ultra-high-net-worth individuals (UHNWIs), who value the country's lifestyle, security, and culture as much as its tax advantages.

How does Italy’s flat tax work?

Italy's flat tax refers to a simplified tax regime introduced by the Italian government primarily aimed at attracting wealthy foreigners, retirees, and high-net-worth individuals to move to Italy. There are two main types of flat tax regimes in Italy:

1. Flat Tax for New Residents

• Target Audience : High-net-worth individuals who have not been tax residents in Italy for at least 9 of the previous 10 years.
• Tax Rate : A fixed annual tax of €200,000 on worldwide income regardless of the actual amount of income earned, prior to 7th August 2024 this figure was €100,000 .
• Family Members : Additional family members can also benefit from the regime for an extra €25,000 per person annually.
• Duration : This regime can be applied for up to 15 years.
• No need to declare worldwide income in Italy
• Exemption from wealth and inheritance taxes.
• Does not impact the taxpayer's global assets.

2. Flat Tax for Pensioners

• Target Audience : Foreign retirees who transfer their tax residency to specific municipalities in southern Italy, particularly those with fewer than 20,000 inhabitants.
• Tax Rate : A flat tax rate of 7% on all foreign income.
• Duration : Applicable for up to 10 years.
• Requirements :
• Must not have been an Italian tax resident in the last 5 years.
• Must transfer tax residency to eligible municipalities in regions like Sicily, Calabria, Sardinia, or Campania.
• Simplified tax reporting and a significantly reduced tax burden.

When and why was it introduced?

The flat tax regimes are part of Italy's broader strategy to attract affluent individuals and foreign investments, thereby boosting the local economy, especially in underpopulated and economically challenged regions.

Italy’s budget deficit sits at 7.4% of GDP in 2023, more than twice the limit set by the European Union.

How popular has the initiative been?

According to the Italian Ministry of Finance, 2,730 individuals signed up for Italy's flat tax between 2017 and 2022. Italian tax lawyers from Maisto e Associati estimate a further 1,200 UHNWIs took advantage of the initiative in 2023 taking the total to close to 4,000.

The flat tax saves money for those with large amounts of foreign income, though anything they earn in Italy is subject to the same tax regulations as everyone else.

There are a further 90,000 people, mainly Italians, benefitting from an expat scheme that gives a 50% to 90% reduction on taxable Italian income for those moving back to Italy, depending on the location they move to.

For more information download our Italian Homes 2024 report or the Prime Italy Report

Alternatively, contact Andrew Blandford-Newson and Issy Foster to discuss current conditions in Italy’s prime residential markets.

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