Taxation in the Philippines
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 Law; and,
- Local laws: major sources of revenue for the local government units 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.
Taxation laws
- National Internal Revenue Code
- National Internal Revenue Code of 1977
- National Internal Revenue Code of 1997
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 ;
- 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
Interests, royalties, prizes and other winnings
Interest income from bank deposits, deposit substitutes, trust funds, and other similar products 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 Lotto in excess of ₱10,000 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
With the introduction of Republic Act No. 11534 also known as the CREATE Act, since July 1, 2020 the rate of corporate income tax has been reduced from 30% to 25% for domestic corporations, or 20% if the corporation's net taxable income for the year does not exceed ₱5 million and their total assets do not exceed ₱100 million. The rate of minimum corporate income tax for domestic and resident foreign corporations was reduced to 1% that took place between July 1, 2020 and June 30, 2023, after which it has since been reverted to 2% based on the gross income of the corporations; while the rate of regular corporate income tax for non-profit proprietary educational institutions and hospitals was reduced to 1% during this period, after which it has since been reverted to 10%.Estate tax
The transfer of the net estate is taxed at a flat rate of 6%. There is a standard deduction amounting to ₱5,000,000.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 ₱250,000.Value-added tax
The standard value-added tax rate since 2006 is 12%, when Republic Act No. 9337 came into effect; previously, it had been 10% when it was first introduced by president Corazon Aquino in 1988 upon issuing Executive Order No. 273.In 2018, the VAT threshold of annual sales was changed from ₱1,919,500 to ₱3,000,000 as a result of the passage of the Tax Reform for Inclusion and Acceleration 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 ₱1,500,000, or house and lots worth at most ₱2,500,000
- monthly lease of residential units at most ₱15,000;
- books and mass media publications ;
- 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 ₱3,000,000.
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 under Section 109 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.