Small business owners face a common struggle in business operations: tax compliance. In the Philippines, the Bureau of Internal Revenue offers the “Register, File, Pay” approach to help small business owners comply with business taxation.
Say you’re an individual with a business dream in mind, cash on hand, and a burning desire to make it happen. Without the government’s approval of your operations, you are doomed for closure. The first thing you should do when you plan to operate a business is to head over your Revenue District Office and register.
Be prepared by accomplishing the following documents before lining up to register.
- Birth Certificate issued by the Philippine Statistics Authority
- Mayor’s Permit issued by the Local Government Unit where you intend to have your business operations
- Department of Trade and Industry (DTI) Certificate of Business Name
- Professional Regulation Commission (PRC) ID for self-employed professionals
- Payment of Professional Tax Receipt
A BIR officer would hand you a BIR Form 1901, otherwise known as the Tax Treaty Relief Application Form. Fill out this form and prepare a registration fee of Php 500.00 that you will pay at an Authorized Agent Bank (AAB). Don’t forget to bring your BIR form 0605 upon payment of the charge.
You'll receive a Certificate of Registration once done with the steps above. This will serve as your admission or access for filing tax returns and making payments. While you’re at it, always ask for your receipts and ask for BIR form 1906 for your “Authority to Print” official receipts. Do not forget to register your book of accounts and have your ledger/ journal/ subsidiary books stamped. You're also required to attend a taxpayer’s briefing at your respective Revenue District Office.
Tax filings are mandatory. Even if you don't pay for the intended period, you’ll have to file your returns. There are three tax filing returns that confuse entrepreneurs everywhere. It is essential to know the deadlines so that you won’t rush and get penalized.
- Percentage Tax - percentage taxes are filed every 20th of the month together with a duly accomplished BIR form No. 2551Q. Under the National Internal Revenue Code of 1997, sections 116 to 127, the percentage tax is imposed on entities, persons, or transactions.
- Income Tax – you need to file for income tax every 20th of the month. Aside from that, you need to submit it quarterly, which is on the 15th of April, August and November. This is required for self-employed individuals, trusts, real estate and for individuals with both compensation income and business income. For annual filing, fill-up a BIR Form No. 1701. For quarterly filing, fill up a BIR Form No. 1701Q.
- Value Added Tax – filing for value-added tax returns are done every 20th of the following month. For its quarterly filing, you’ll have to remember that it is done every 25th of April, August, and November.
Now that you have filed your tax returns, the last step is to pay for it.
- Income Tax – rates for income taxes range from 5% to 32%. Although the actual amount that you need to pay is not fixed and will depend on an individual’s net taxable income, if you take a look at the back of your ITR, there is a table that will guide you.
- Allowable deductions – individuals or entities can choose between itemized or optional deductions. The optimal standard deduction (OSD) trims 40% of the total amount of gross receipts and sales. Meanwhile, itemized deduction lists all of the expenses paid and incurred during the taxable year and is deducted from the gross income.
Tips and Tricks
- It wouldn’t hurt to invest in learning materials like books about basic taxation or spending for a helpful seminar about BIR tax compliances. Although the RDO offers a free and mandatory one, it would benefit you to seek more knowledge about this.
- Consider hiring a bookkeeper or a certified accountant if you can't keep up with this task. It's a good idea to hire somebody that knows the ins and outs of taxation so you can focus your energy on more important things.
- Preparedness beats the long line at the BIR office. Better file all of your tax returns before its due date so that you won’t get frantic at the last minute.
- If you’re the one computing your tax payments, better do it ahead of time. This will give you enough time to check for errors and prepare for financial expenditures.
- Attachments are always necessary. Before heading out to your designated RDO, bring everything with you. It would also help to check the back page of every BIR form for the complete list of the attachments you need for payment and filing.
- Always declare your income honestly and accurately. The BIR conducts several investigations whether you record sales and report it in your books. Declaring incorrect income information can lead to criminal charges.
- It's important to issue official receipts every time. All receipts or invoices should reflect tax computation. Make sure to have them ready at all times as the RDO may ask for a sample during tax mapping activities.
- Keep your account books updated. Record every transaction every day. Not only this is a fundamental mantra for bookkeeping, it will also help you keep track of business growth.