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Taxes are among the most complicated things an entrepreneur has to deal with. With various types of taxes and a myriad of forms to fill navigating the tax system can be a Herculean task. Due to their perceived complexity the filing and preparation of taxes are usually left to accountants. But even so it pays to have a working knowledge of the tax system.

 

Here are some of the more common types of taxes:

 

The most basic tax to be encountered by most people is the Value Added Tax (VAT). The VAT is a business tax imposed and collected from the seller in the course of trade or business on all transactions whether sales, services, or leases. It is an indirect tax, thus, it can be passed on to the buyer. Anyone who sells, imports, leases goods or services are required to file VAT returns either monthly or quarterly. Professional Practitioners are also required to pay the VAT if their fees exceed 1,500,000. Professional practitioners include certified public accountants, insurance agents, and anyone required to pass the government examinations.

 

Another commonly encountered tax is the income tax. Income Tax is a tax on a person's income, profits arising from property, practice of profession, conduct of trade or business less the deductions and/or personal and additional exemptions, authorized by the Tax Code or other special laws. Those required to file for income tax are individuals whether residents or non residents who derive income in the country. Corporations whether domestic or foreign who derive income in the Philippines as well as estates and trusts engaged in trade. The income tax is paid every year on or before April 15.

 

Documentary taxes are another common tax that businesses need to be aware of. Documentary Stamp Tax is a tax on documents, instruments, loan agreements and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property. It is also needed for any paperwork that is to be used in official business. This tax is normally misunderstood as a trivial tax but is actually very important because documents that don't have stamp cant be used as evidence in courts and cant also be notarized.

 

Another frequently encountered tax by entrepreneurs is the withholding taxes. This refers to a whole family of taxes. The withholding taxes refer to various taxes withheld at source from individuals or corporations from their passive income. Passive income refers to the income derived from interest from bank accounts, time deposits, sales of stocks and real estate. The withholding taxes are Withholding Tax on Compensation, Expanded Withholding Tax, Final Withholding Tax, and Withholding Tax on Government Money Payments. Depending on the type of withholding tax the amount remitted can or cannot be creditable with the income tax.

 

The Withholding Tax on Compensation refers to the tax withheld from individuals receiving purely compensation income. The Expanded Withholding Tax is a kind of withholding tax prescribed for certain payors and is creditable against the income tax due for the taxable quarter year. Final Withholding Tax is a kind of withholding tax which is prescribed for certain payors and is not creditable against the income tax due of the payee for the taxable year. Finally, the Withholding Tax on Government Money Payments is the withholding tax withheld by government offices, including government-owned /controlled corporations before making any payments to private individuals, corporations, partnerships and associations.

 

Other taxes are more specialized and would appeal to particular businesses and individuals only. One such tax is the percentage tax. Percentage tax is a business tax imposed on persons or entities that sell or lease goods, properties or services whose gross annual sales and/or receipts do not exceed P750, 000 and who are not VAT-registered. Other people who need to file this tax are utilities franchisees, those who maintain garages and domestic carriers, those who sell communications equipment banks and other financial institutions like insurance companies, and operators of gambling or sports institutions, and stock brokers.

 

Another specialized tax is the capital gains tax which is a tax imposed on the gains presumed to have been realized by the seller from the sale, exchange of capital assets located in the Philippines. This tax is primarily applicable to those engaged in the real estate business. Those considered to be in the real estate business are real estate dealers, real estate developers and/or real estate lessors. Other transactions that involve the capital gains tax are sales of stocks not listed in the local stock exchange.

Another tax entrepreneurs have to deal with are excise taxes. Excise taxes are taxes levied on the producer of certain goods, commodities and activities. It is a separate tax from VAT, and is different from it in that VAT solely affects the consumer. It is normally levied on producers of "sin goods" or tobacco, alcohol, petroleum and related products, mineral products, cars, and other luxury goods. Entrepreneurs also have to pay certain municipal taxes that are applicable on businesses in particular cities or municipalities.

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