If you are a hired employee in the Philippines whose monthly salary or compensation is taxed by your company or employer, then you may have to sit down and read on income tax returns and VAT refunds and how you may benefit from them, especially under the newly passed tax system of Tax Reform for Acceleration and Inclusion (TRAIN) law.
First, what is income tax? Your income tax refers to the mandatory monthly contribution you surrender to the Bureau of Internal Revenues (BIR), in this case, through your employer, which serves a withholding agent. Taxes are the revenue collected by the government, which it uses to pay doctors, soldiers, teachers, and other government employees and officials, and to build roads, hospitals, schools, and other public infrastructures. The two most obvious sources are the Value-Added Tax (VAT) they impose on products you purchase from stores and a portion of the income you make from your jobs.
A tax refund (specifically, an annual tax refund) is defined as the “excess of tax withheld over the tax due on their annual gross income.” Simply put, it is whatever excess tax your employer collected from you for the current year, if there is any.
Before the TRAIN law, it comes as a result of any of these two things happening:
1. You’re a new hire who has spent less than a year with your current company, hence leaving you with a little bit too much tax collected by your employer.
2. You’ve changed your tax status (i.e. added a dependent, whether child or eligible family member) within the calendar year and have filed for a change of tax status with your employer.
But since under the newly-passed TRAIN Law, individual taxpayers earning an annual salary of P250,000 will fall into the lowest tax bracket and their income will be subject to 0 percent income tax rate, all your taxes are automatically added to your take-home pay or salary. There may be cons with the additional taxes on products and services that lead to price hike, but with wise consumerism, the added income is generally good news for you!
Now let’s focus on how you can better maximize your assets through VAT refunds. You are eligible to file for VAT refunds given the following classifications:
1. Any person or entity who, in the course of his trade or business, sells, barters, exchanges, leases goods or properties and renders services subject to VAT, if the aggregate amount of actual gross sales or receipts exceed one million nine hundred nineteen thousand five hundred Pesos (P1,919,500.00) (RR 16-2011, RR 3 -2012), as amended.
2. A person required to register as VAT taxpayer but failed to register.
3. Any person, whether or not made in the course of his trade or business, who imports goods.
Services and sales in the Philippines are subject to VAT at the rate of either 0% or 12%. You already know that sellers or providers pass on this VAT to consumers like you.
You are then entitled to claim the VAT paid as input tax credit against your output tax liabilities. As a VAT-registered taxpayer, you shall only pay the difference between the VAT on your own sales (output tax) and the VAT from your purchases (input tax). In the case that your input VAT credits exceed your output VAT liabilities, the Philippine Tax Code allows you to carry over such excess to the succeeding quarters, or apply for a refund or issuance of a tax credit certificate (TCC).
Under the TRAIN law, several amendments to make input VAT refund applications more efficient are made, such as the reduction of BIR’s decision from 120 days to 90 days and a stricter accountability for BIR officials in processing your application. VAT refunds are a long-standing source of headache for taxpayers due to its tedious processing. It keeps assets of businesses and companies on paper instead of being an actual investable amount. With the TRAIN law, it is advisable to be in the know of the how-tos and to maximize your rights as amended in the new law.
For more information on filing procedure and required documents, you may visit BIR’s website https://www.bir.gov.ph/
