I have noticed lately that lots of comments were about their income tax. With this I would like to dedicate a post concerning individual income tax while the stock market has been diving to the lowest lows lately.
First of all let’s clarify income tax here in the Philippines. If you noticed(specially if you are a balikbayan or a tourist in our beloved Pilipinas) the taxes you pay the BIR(Bureau of Internal Revenue) and/or BOC(Bureau of Customs) are a lot. Just check out your purchase receipt and you get VAT(equivalent to GRT or GST), withholding tax, percentage tax, excise tax, city tax, and other tax. So to make things easier and clearer we are only dealing with incomes tax particularly income tax on salary of an employee.
Why do you pay income tax?
Yes why are you paying the government income tax? Have you not thought of that amidst the various scandals the government is into like the Napoles Pork Barrel Scam, Malampaya Funds Scam, and other scams about the misuse and stealing of public funds that should have benefited the Filipino people.
The sad truth is as a citizen of the Philippines it is mandatory that you support the government for it to do its function. Yes you the so called “BOSS” should contribute to the government under the power of taxation of the state. I know it is unfair for those earning if not all is ask to pay tax like the so called “poor” who not only not contribute but also rely on the government for their day to day living. It is a sad fact but I guess such would have to be address by someone else and that would be beyond the scope of this post.
Also you should pay your taxes or else you would incur additional fees for non-payment like late payment fee and interest which often times even bigger than the original tax. If you are familiar with the sensationalized tax case of the “Pambasang Kamao” that might happen to you if you ignore to pay the right amount of tax on time.
How is your income tax paid?
This is where lots of employee are confused. If you are employed your employer is empowered to collect the tax for the government that is why such is already deducted to your paycheck. This is called withholding tax. Withholding tax is not actually a tax but it is the income tax withheld(taken) in advance before actually determining the amount of tax that you should be paying. It is a sure way for the government to have the funds so that in case you don’t pay.
As mentioned the income tax that you should pay is determine after the year that you received income. That is why on or before April 15(or as adjusted) you should be filling your ITR(Income tax return). Your ITR will detail the income you earned, the allowable deductions you can claim, and the tax you still have to pay(or overpaid) after considering the total withholding tax that was already collected from you previous paychecks.
There are lots of rules and regulation that you should follow but let me just focused on the employee level. If you are employed with only one employer for the whole tax year the filling of your ITR is actually made by your employer by the so called Substituted filling. Your employer prepares a report to the government about the total tax they have withheld to each employee and in turn gives the employee BIR form 2316 as proof of such payment. Normally the employer makes sure that the total tax withheld is equal to the total tax to be paid thus at the end of the year adjustment is made to your last paycheck to make sure you have not underpaid or overpaid your tax.
For the case of employees who have several employers or have different employers at the same time(meaning they have to jobs) they will have to file an ITR using either BIR form 1700 or 1701. The employers will still issue you 2316 which in turn should be attached to your ITR as proof of the figures you indicated in your ITR.
What should be your attitude about this income tax?
Again at times it is disheartening to pay or to see that part of what you work hard for is going to the government knowing that it might be stolen or someone else will be enrich by it due to illegal actions. Keep in mind that paying your taxes is your contribution to the nations economy.
Thus you should be vigilant about where your taxes are going.
About the blogger
Louis Delos Angeles is a Certified Public Accountant, blogger behind Investing in Philippines, and author of Investing in Stocks: Preparing for the future small amount at a time. Learn more about Louis and his financial freedom advocacy here.