Philippines - Taxation
The individual income tax consists of taxes on compensation income (from employment), business income, and passive income (interests, dividends, royalties, and prizes). In 1998 compensation income tax rates were restructured into 6 bands with marginal rates ranging from 5% to 35%. Exemption levels are 20,000 pesos (about $400) for individuals, and 32,000 pesos (about $640) for married couples. In 2000, the business income tax rate was lowered from 33% to 32%. The tax rate on passive income is 30%. For resident foreign corporations, after-tax profits remitted abroad are subject to a 15% tax, except for corporations registered with the Philippine Economic Zone Authority (PEZA), the Board of Investment (BOI), the Bases Conversion Development Authority, or operating in independent special economic zones (ecozones), all of which are eligible for special tax and customs incentives, exemptions and reductions designed to attract foreign, new, necessary and/or export-oriented foreign investment. The Omnibus Investment Code of 1987 lays out tax incentives administered by the BOI of the Department of Taxation and Development, and the annual Investment Priorities Plan (IPP) sets out the investment areas, national and regional, to which these incentives currently pertain. In 2002 the national list included export activities, industrial development and mining, agricultural/fishery production and processing, logistics, drugs and medicine, engineered products, environmental projects, IT services, Infrastructure, mass housing projects, R and D activities, social service, tourism, patriotic and documentary motion pictures and new projects with a minimum cost of $2 million. Special economic zones (SEZs) can be designated as export processing, free trade and/or information technology (IT) parks, each designation providing a schedule of tax holidays, exemptions from import duties on capital goods and raw material, and preferential income tax rates with more favorable treatment accorded pioneer industries over nonpioneer or expanding companies.
Taxes on transactions include a value-added tax (VAT) of 10%. For smaller businesses not registered with the VAT a percentage sales tax of 3% to 5% is applied, although higher for activities involving issues of public morality: cockpits are taxed 18%, caberets, 18% and jai-lai and racetracks, 30%.
Excise taxes are imposed on selected commodities such as alcoholic beverages, tobacco products, jewelry and petroleum products. In addition, the government levies a variety of other taxes, including mining and petroleum taxes, residence taxes, a head tax on immigrants above a certain age and staying beyond a certain period, document stamp taxes, donor (gift) taxes, estate taxes, and capital gains taxes. A document stamp tax is charged on stock certificates, proofs of indebtedness, proofs of ownership, etc, and normally amount to .75% to 1% of the par or face value of the certificate. A progressive schedule of donor taxes begins with gifts above P 100,000 (about $18,500), and lays out seven bands (2%, 4%, 6%, 8%, 10%, 12%, and 15%) with the top marginal rate applying to gifts above P 10,000,000 (about $186,520). The progressive estate tax begins at P 200,000 (about $37,000) and lays out five bands (5%, 8%, 11%, 15% and 20%) up to P 10,000,000 (about $186,520). The capital gains tax is 6% on real property; 5% on gains of P 100,000 or less from the sale of stock not listed on the stock exchange, and 10% on gains over P 100,000. Some cities, such as Manila, levy their own wholesale and retail sales taxes.
Government revenues in 2001 amounted to 14.8% of GDP, short of total expenditures and net lending for the year, which came to 19.1% of GDP, leaving a deficit of over 4% of GDP. The US State Department reports that the main factor underlying the deficit is inadequate revenue collections due to widespread tax evasion. Attempts by the Bureau of Internal Revenue to increase compliance have met with strong resistance.