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PHILIPPINES TAX SYSTEMS

I. Introduction to the tax system

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 1!. This law too" effect on #anuar$ 1% 1&.

Taxation is administered through the 'ureau of Internal Revenue which comes

under the (epartment of )inance. The chief executive of the 'ureau of Internal

Revenue is the Commissioner who has exclusive and original *urisdiction 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% modif$ pa$ment of an$ internal revenue tax and abate or

cancel a tax liabilit$. Taxpa$ers can appeal decisions b$ the Commissioner directl$

to the Court of Tax Appeals.

II. Primary tax incentives

A. Tax holiday

The +mnibus Investments Code grants to enterprises that have registered

with the 'oard of Investments and that ,ualif$ under the annual

Investments Priorit$ Plan entitlements to tax holida$s of either four or

six $ears. In addition% the$ are granted tax credits for purchase of

Philippine-made capital e,uipment and raw materials.

. S!ecial Economic "ones

There are over thirt$ special economic ones throughout the Philippines

where export manufacturing firms are encouraged to start operations.

/nder the Philippine 0xport one Authorit$ 2aw% a special economicone registered enterprise can% in lieu of all other national and local

taxes% pa$ a tax of 34 of its gross income.

A firm that has registered under the +mnibus Investments Code that is

located and registered to do business within a special economic one

can have a tax holida$ for the first four or six $ears of its operations%

followed b$ a 34 tax thereafter. The exemption from national taxes

covers all internal revenue taxes% including the 5alue Added Tax.

III. Tax treaty #ith the $nited States

The Philippines has tax treaties with man$ countries% including the /nited

6tates% in order to minimie the effects of double taxation. The business

profits of a resident of another countr$ with whom the Philippines has a tax

treat$ are taxable in the Philippines onl$ if the resident has a permanent

establishment in the Philippines to which the profits are attributable.

I%. Primary ty!es o& taxation

A. Individual Income Tax

Residents engaged in trade or business are taxed upon their net income

7gross income less allowable deductions and personal exemptions8

according to a schedule of rates ranging from 94 to 994. The

maximum rate will be reduced to 9:4 on #anuar$ 1% :;;;. Residenc$

tests are used to determine resident alien status where the resident alien

falls under the Individual Income Tax schedule of rates.

Personal exemptions of the following amounts are allowed on the

individual income tax returnarried

individuals 3;%;;; pesos

An additional :3%;;; pesos exemption is given for each of the first four additional

dependents.

. Passive income

'. Interest

A ?final@ tax of :;4 is imposed on interest income. This tax is

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withheld at the source. 0xceptions to this areanufacturers% wholesalers% exporters and contractors are sub*ect to gradua

amounts of salesFgross receipts and percentage taxes at maximum rates rangi

on the amounts not sub*ect to graduated taxes% depending on the place where

)or essential commodities% the rates are 3;4 lower. Retailers are sub*ect to :

receipts are PhPD;;%;;; or less and to 14 tax if in excess of PhPD;;%;;;.

:. 'an"s and other financial institutions- percentage tax at maximum rates

ranging from .3;4 to .!34 depending on the localit$ of the business.

9. +thers - var$ing rates

Aside from the above business taxes% there are other taxes

levied in the Philippines such as