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Who pays tax?

By Riva Khristine Maala |

All “persons” living in the Philippines must pay tax. The National Internal Revenue Code defines "person" as an individual, a trust, an estate, or a corporation. The term corporation includes partnerships, joint stock companies, and associations registered or unregistered with the Securities and Exchange Commission.


[related|post]The partners in general professional partnerships (lawyers, doctors, etc.) are liable for taxes only in their individual capacities. In an individual proprietorship, where the owner is at the same time the worker, the owner himself pays the taxes due from his business. The people comprising a corporation or a partnership are taxed separately from the corporation or partnership for the income they receive from it.


The taxes to be paid by a person, a single proprietorship, a partnership, or a corporation vary depending on their business or the goods they deal in. Some businesses pay value-added tax while others pay percentage taxes. Also, some goods are subject to excise taxes while others—such as petroleum products—are subject to VAT. As a rule, all income earned in a taxable year is subject to tax.



Income means all wealth flowing into the taxpayer, and it includes cash receipts, inventories, accounts receivable, interest on bank deposits and deposit substitutes, royalties, dividends, and the proceeds from the sale of property or shares of stock.


A domestic or resident foreign corporation pays the minimum corporate income tax—or 2 percent of its gross income—starting on the fourth taxable year immediately following the taxable year in which it started business operations. This means a corporation registered with the Bureau of Internal Revenue in 2000 pays the minimum corporate income tax in 2004, but if its regular income is higher than the minimum corporate income tax, then it does not pay the tax.


Philippine citizens living here and corporations doing business here pay tax on all income they earn within and outside the Philippines. Aliens doing business in the Philippines pay tax like ordinary Philippine citizens, but Philippine citizens working and earning income abroad—including aliens and foreign corporations based here or abroad—pay tax only on income they earn within the Philippines.


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