MAJOR DEVELOPMENTS
The National Internal Revenue Code, which governs the imposition by the national government of taxes on transactions and activities of persons in the Philippines, is undergoing the process of amendment under the so-called Comprehensive Tax Reform Program of the government. As stated in the explanatory note to the bill introducing the amendments, the program is not composed of new
laws; it is made up of measures that will generate additional revenues by:
q Broadening the tax base by capturing undeclared revenues and hidden?taxpayers;
q Removing areas of discretion that provide avenues for tax avoidance and the use of discretion by taxpayers and tax examiners;
q Simplifying the tax system to encourage greater compliance by taxpayers, including those in the underground economy;
q Improving the taxation of hard-to-tax income, such as fringe benefits;
q Lowering the tax rates to encourage productivity and
investments.
The proposed amendments will cover (1) income taxation of individuals and corporations, (2) estate and donor gift tax, (3) value-added tax, (4) other percentage tax, (5) excise tax, and (6) documentary stamp tax. Deliberations on the proposed amendments are ongoing and are at their final stages. If the bill is enacted into law this year, it will take effect January 1, 1998.
INCOME TAXES ON CORPORATIONS
1.Rates
For domestic corporations the rate is 35% on net taxable income from all sources. Domestic corporations are those that are established under the
laws of the Philippines.
2.Local Income Taxes
Local government units (provinces, cities, and municipalities) may not impose any income tax except when levied on banks and other financial institutions.
Municipalities may impose taxes on banks and other financial institutions at a rate not exceeding 50% of 1% on the gross receipts of the preceding calendar year, derived from interest, financial leasing, dividends, rentals on property and profit from exchange or sale of property, and insurance premiums. All other income and receipts of banks and financial institutions not otherwise enumerated above are excluded from the taxing authority of the local government unit concerned.
Cities also may levy and collect the tax. The rates of taxes
that cities may levy may not exceed the maximum rates allowed for the municipality by more than 50%.
These taxes imposed by cities and municipalities are
established through ordinances passed by their respective local
legislative bodies.
3.Capital Gains Taxes
Capital gains are generally treated as ordinary income. However, gains from the sale of shares of stock that are not listed on and traded through a stock exchange are taxed at 10% on gains not over P100,000 and at 20% on the excess. The sale of shares listed on and traded through a stock exchange is taxed at 1/2 of 1% of the gross selling price. These rates also apply to individuals.
4.Branch Profits Taxes
Branches of foreign corporations (resident foreign corporations) are taxed at the same rates as domestic corporations but only on their net taxable income from Philippine sources. However, certain foreign corporations are taxed at special rates, as follows:
q International carriers are taxed at 21/2% of gross Philippine billings;
q Offshore banking units are subject only to a 10% final withholding tax on interest income derived from foreign currency loans to residents other than offshore banking units or local commercial banks;
q Foreign mutual life insurance companies are subject to a 10% tax on their gross investment income.
In addition, any after-tax branch profits remitted to the head office abroad are subject to a 15% tax, except for profits of a branch (1) registered with the Philippine Economic Zone Authority (PEZA), which are exempt, or (2) engaged in petroleum operations in the Philippines, which are subject to a 7.5% rate.
5.Foreign Tax Reliefs
The Philippine taxation system provides for comprehensive double taxation relief for taxes incurred in territories outside the Philippines both under unilateral provisions of Philippine tax
laws and under double taxation agreements. Under the Philippine Tax Code, a taxpayer may elect to take a credit or deduction for foreign income tax. The amount of foreign tax credit is subject to the per country and overall limitations.
INCOME TAXES ON INDIVIDUALS
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