Types of Taxes in the Philippines

Capital Gains Tax is a tax imposed on the gains presumed to have been realized by the seller
from the sale, exchange, or other disposition of capital assets located in the Philippines,
including pacto de retro sales and other forms of conditional sale.

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.

Donor's Tax is a tax on a donation or gift, and is imposed on the gratuitous transfer of property
between two or more persons who are living at the time of the transfer.

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

Income Tax is a tax on all yearly profits arising from property, profession, trades or offices or as a
tax on a person’s income, emoluments, profits and the like.

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 P550,000 and are not VAT-registered.

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. It is an indirect tax, thus, it can be passed on to the buyer.

Withholding Tax on Compensation is the tax withheld from individuals receiving purely
compensation income.

Expanded Withholding Tax is a kind of withholding tax which is prescribed only for certain
payors and is creditable against the income tax due of the payee for the taxable quarter year.

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. Income Tax
withheld constitutes the full and final payment of the Income Tax due from the payee on the
said income.

Withholding Tax on Government Money Payments is the withholding tax withheld by

government offices and instrumentalities, including government-owned or -controlled
corporations and local government units, before making any payments to private individuals,
corporations, partnerships and/or associations.
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Tax Planning
Definition
Tax Planning can be understood as the activity undertaken by the assesse to reduce the tax
liability by making optimum use of all permissible allowances, deductions, concessions,
exemptions, rebates, exclusions and so forth, available under the statute.
Concept
Tax Planning is an arrangement of an assesse’s business or financial dealings, in such a way that
complete tax benefit can be availed by legitimate means, i.e. making use of all beneficial
provisions and relaxations provided in the tax law, so that the incidence of the tax is minimum.
This ensures savings of taxes along with conformity to the legal obligations and requirements.
Therefore, it is permitted by law.
Objectives
 Reduction of Tax Liability: An assessee can save the maximum amount of tax, by
properly arranging his/her operations as per the requirements of the law, within the
framework of the statute.
 Minimization of Litigation: There is a war-like situation between the taxpayers and tax
collectors as the former wants the tax liability to be minimum while the latter attempts to
extract the maximum. So, a proper tax planning aims at conforming to the provisions of the
tax law, in such a way that incidence of litigation is minimized.
 Productive Investment: One of the major objective of tax planning is channelization of
taxable income to different investment plans. It aims at the optimum utilization of resources
for productive causes and relieving the assesse from tax liability.
 Healthy Growth of Economy: The growth and development of the economy greatly
depend on the growth of its citizens. Tax planning measures involve generating white money
that flows freely and results in the sound progress of the economy.
 Economic Stability: Proper tax planning brings economic stability by various techniques
such as mobilizing resources for national projects or availing ways for investments which are
productive in nature.
Types of Tax Planning
1. Short-range and long-range Tax Planning: The tax planning which is made every year to
arrive at specific or limited objectives, is called short-range tax planning. Conversely,
long-range tax planning alludes to such practices undertaken by the assessee which are
not paid off immediately.
 2. Permissive Tax Planning: Tax planning, wherein the planning is made as per expressed
provision of the taxation laws is termed as permissive tax planning.
3. Purposive Tax Planning: Purposive tax planning refers to the tax planning method which
misleads the law. Under this type, there is no expressed provision of the statute.

Factors to be consider in tax planning

1. Status and citizenship of the assesse: Every assesse should consider the residential status as
the tax rates may differ from one county to another.
2. Heads of income/assets to be included in computing net wealth: Though total income
includes all income from whatever source derived, the scope of tax planning is not similar in
respect of all sources of income. The assesse can avail the benefits of exemption and deductions
under each head of income. Further he can avail the benefit of rebate and relief under the Act.
3. Latest legal position: It is the foremost duty of a tax-planner to keep him fully conversant
with the latest position of the taxation laws along with the allied laws and also the judicial
pronouncements in respect thereof. For this purpose he must have a thorough and up-to-date
understanding of the Taxation Laws Amendments such as TRAIN Law , in which the assesse can
seek a professional to clarify the legal position in so far as the Revenue is concerned.
4. Form vs Substance: A tax planner has to bear in mind the following principles enunciated by
the courts on the question whether form or substance of a transaction should prevail in Income-
tax matters.
(a) Form of transaction: When a transaction is arranged in one form known to law, it will attract
tax liability while, if it is entered into another form which is equally lawful, it may not.
(b) Genuineness of transaction: It is important to observe whether the transaction is a genuine
or not. If in case it is not then in such a situation depiction of truth is needed and it is not the
question of form and substance. It will be open to the authorities to pierce the corporate veil
and look behind the legal façade, at the reality of the transaction.
(c) Expenditure: In the case of expenditure, the mere fact that the payment is made under an
agreement does not preclude the department from enquiring into the actual nature of the
payment.

Tax Evasion
Tax evasion is an illegal action in which a person or entity deliberately avoids paying a true tax liability.
Those caught evading taxes are generally subject to criminal charges and substantial penalties.

Forms of Tax Evasion

A. Failure to file tax return/s
B. Failure to pay taxes
C. Deliberate underdeclaration of income or overdeclaration of expenses by more than 30
percent of that declared per return
D. Hiding or transferring of assets or income
E. Keeping more than one set of books of accounts

Tax Avoidance
Tax avoidance is the use of legal methods to modify an individual's financial situation to lower the
amount of income tax owed. This is generally accomplished by claiming the
permissible deductions and credits. This practice differs from tax evasion, which uses illegal methods,
such as underreporting income to avoid paying taxes.

Difference between Tax Avoidance and Tax Evasion

Tax avoidance is encouraged and legal as the provisions are stated in the tax code, despite the negative
image it may conjure up. Tax evasion, on the other hand, is illegal. It happens when people underreport,
or don't report at all, any income or revenue earned to a taxing authority. You can also evade taxes by
not paying your taxes at all. Tax evading individuals can serve jail time, pay a fine or both.

TRAIN Law for Business

As the Philippines amended the National Internal Revenue Code of 1997, The new Tax Reform for
Acceleration and Inclusion (TRAIN) Law has an impact on the take-home pay of Individuals, prices of goods
and services, and spending and consumption patterns.

1. Price hike in oil prices

A P2.50 excise tax will be charged per liter of diesel while the duty on gasoline will be raised to P7
from the current P2.35 this year. The Department of Energy said new taxes should reflect on pump
prices by Jan. 16, when old inventory would have been used up.

2. Increase in product prices

DTI Secretary Ramon Lopez assured the public that TRAIN will have minimal effect on prime
commodities such as canned goods, rice, milk, and bread. But there will still be an increase on
cars, sugar-sweetened products like soft drinks, and tobacco. Beverages with caloric and non-
caloric sweeteners will be taxed P6 per liter while those using high-fructose corn syrup, a cheap
sugar substitute, will be charged P12 per liter.
3. Decrease in certain product stocks
As an effect to the increased taxes on items like sugar-sweetened products, soft drinks and such
or tobacco, since there is an increase in their price buyers and even owners will think twice
about buying such items regularly.
4. VAT Exemption from Small Businesses
The previous P1.9 million threshold has increase to P3 million, making small businesses earn
and save more. This will also encourage interested entrepreneurs to create and transform their
business ventures even more. The challenge to businesses and companies will step up as the
competitions will increase due to the increased threshold. It is also imperative to upgrade their
current services and offer and their digital presence to be able to convert leads into actual
clients.