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An easy guide to taxation for startup entrepreneurs

Wanting to put up your own business but still confused how to get registered with the BIR? Are you still lost and confused about tax filing? Now, it is made easier for you.
By Christele J. Amoyan |
An easy guide to taxation for startup entrepreneurs

“Taxation works as easy as RFP,” says Rhea Alamodin from the Bureau of Internal Revenue (BIR) during a recent entrepreneurship seminar facilitated by the Department of Trade and Industry--Bureau of Micro and Small Medium Enterprise Development (DTI-BSMED).  She explained tax processing from registration to filing, down to actual payment of tax return rates.

‘Register-File-Pay’ or RFP is BIR’s latest campaign that provides better awareness to taxpayers on their responsibility to pay taxes. Moreover, this unified drive targets a P1.4 trillion-tax collection by the end of this year.

Register

If you are an individual who wishes to establish your own business or a self-employed professional, it is a must go to your Revenue District Office (RDO) to register.

To register, you should have to first accomplish the following important documentary requirements: 1) Birth Certificate issued by the National Statistics Office (NSO); 2) Mayor’s Permit; 3) DTI Certificate of Business Name; 4) Professional Regulation Commission (PRC) ID; and 5) Payment of Professional Tax Receipt (PTR).

Having all these document files at hand, submit them together with a filled up BIR Form 1901 or the Tax Treaty Relief Application to the RDO of your town or city that has jurisdiction over your business’ location.

There is a registration fee of P 500.00 to the Authorized Agent Bank (AAB). Use the BIR Form 0605 payment form for this transaction. You should also attend the taxpayer’s briefing at the RDO.BIR_FINAL.png

A Certificate of Registration will be issued to you. This is your access if you have to file tax return and pay. Do not forget to ask for a receipt and then fill up BIR Form 1906 (Authority to Print). Register books of accounts. Have your journal/ledger/subsidiary books of accounts stamped by your registered RDO.

File

Tax return filing should be made even if there is no payment to be made. There are three types of tax returns, so don’t get confused, especially, on the deadlines.

Percentage tax. Percentage tax return is filed every 20th of the month with an accomplished BIR Form No. 2551Q.

Income tax. This is due monthly, on the 20th day, and quarterly, on the 15th of April, August, and November. Income tax is required for self-employed individuals, real estate, and trusts, including those with both business and compensation income. For the quarterly filing, you are required to fill up BIR Form No. 1701Q. For annual income tax filing, you are required to have BIR Form No. 1701.

Value added tax. You need to file for a value added tax return on or before the 20th day of every following month. For a quarterly basis, filing is due on the 25th of the months of April, August, and November.

Pay

Here is where the computation comes in for your tax payables.

Income tax. The rates may range from 5% to 32%. However, this is not yet fixed so it may vary depending on your net taxable income. The income tax table is provided at the back of your ITR.

Allowable deductions. The method of allowable deduction allows taxpayers (businesses or individuals in professional practices) to choose between optional and itemized deductions. For the optional standard deduction (OSD), trimming of an amount not exceeding 40% of gross sales or receipts is allowed. BIR_FINAL_2.png

On the other hand, for the itemized deduction, all the ordinary and necessary expenses paid or incurred during the taxable year are deducted from the gross income. It includes employees’ benefits (salary and wages), employers’ share (for SSS, Medicare, HDMF, and other contributions), rentals, insurance expenses, and other expenses stated in the Tax Code.

Personal exemptions. Personal, living, or family expenses are items not deductible. This means that there is no deduction from your gross income, unless otherwise proven with substantiated evidence.

Expanded Withholding Tax (EWT). The Expanded Withholding Tax (EWT) serves as an advance payment of the income tax of the income recipient. It can be credited against income tax due. In other words, this is only partial and NOT the full payment of the income tax.

To get more details, visit BIR’s official website at www.bir.gov.ph/.

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