| Business Tax for Pinoy Entrepreneurs |
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We received this email from Dennis through the Contact Us section of this site: "Hi, this is such an informative site and I do learn a lot from your articles due to its simple and easy to understand explanation. Hope you can discuss sometime about the tax amount to be paid in business, from single prop to corp., from those earning 50k a year to those earning 1M a year."
Tax matters are never easy to understand. It's a very specialized filed and nuances are too diverse and complex to discuss in one post. Volumes of books have been written about taxes, yet it still baffles everyone. Perhaps it would be very helpful to Pinoy Entrepreneurs if the Bureau of Internal Revenue (BIR) would come out with detailed discussions on tax matters, in plain language, which would make it easily understandable by the ordinary taxpayer. The tax concerns of a Pinoy Entrepreneur could vary depending on so many factors, but we'll have to start somewhere. Let's begin with the basics. A "business" is defined as a "trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit." Business taxes are "paid for the privilege of carrying on a business in the year the tax was paid. It is paid at the beginning of the year as a fee to allow the business to operate for the rest of the year. It is deemed a prerequisite to the conduct of business." The fixed annual taxes could depend on the rates and provisions in the tax code/ordinance of the locality where the business is located (even "location" itself could become the subject of a complex discussion). This is the reason why there could be no single answer as to what rates are applicable. Business tax is a more limited concept that "taxes on business." According to Vitug and Acosta (Tax Law and Jurisprudence), there are generally two categories of taxes on business -- fixed annual taxes and value added/percentage taxes on sales. If the question of Dennis refers to all taxes on business, then that would definitely involve a wider scope of discussion. Business tax is also different from income tax. Income tax is a "tax on all yearly profits arising from property, professions, trades or offices, or as a tax on a person’s income, emoluments, profits and the like. It is tax on income, whether net or gross realized in one taxable year. It is due on or before the 15th day of the 4th month following the close of the taxpayer’s taxable year and is generally regarded as an excise tax, levied upon the right of a person or entity to receive income or profits." The Pinoy Entrepreneurs' business could be the subject of both income and business taxes. This is just the initial discussion on business taxes (or taxes on business). There will be more discussions in the days to come because, as stated above, the complexity of taxation means that it could not be the subject of a single post (or even a single book). (Source: Mobil Philippines, Inc. vs. City Treasurer of Makati, G.R. No. 154092, 14 July 2005.)
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