You can’t win. If you earn anything, it’s minus taxes. If you buy anything it’s plus taxes.”

― Boo Chanco, Business Columnist at the Philippine Star

 


 

By Ernesto C. Perez II


 

With the recent campaign of the Bureau of Internal Revenue (BIR) for the early filing and payment of correct taxes, every professional should now know that April 15 is the deadline for filing our Income Tax Return (ITR) for the taxable income covering the calendar year 2012. 

We congratulate all those Real Estate Service Practitioners (RESP) who already filed their ITRs and paid their income tax. But for those who haven’t, we hope that this serves as an ample guide in preparing your ITRs as you scramble to finish your ITR this week and pay income tax before the deadline this coming Monday.

File Tax ReturnAs you prepare your ITRs, make sure to check and keep accurate these five things you’ll indicate in BIR Form No. 1701.

First, be accurate when you write your Taxpayer Identification Number (TIN). In your haste, you may interchange numbers in the 9-digit TIN. So be careful.

Second, know the RDO Code of the Revenue District Office that you are registered in. If you are registered in Muntinlupa City, you must file your ITR in that city and nowhere else.

Third, make sure you know the basic exemptions allowed under our Tax Code. For example, an individual taxpayer, whether single or married, is allowed a basic personal exemption of Fifty Thousand Pesos (PhP 50,000.00).

Moreover, an individual – whether single or married, is allowed an additional exemption of Twenty Five Thousand Pesos (PhP 25,000.00) for each qualified dependent child, not exceeding four (4).

For married professionals who are jointly filing their ITR, the additional exemption for dependents shall be claimed by the husband, who is deemed the proper claimant unless he explicitly waives his right in favor of his wife.

Also for married professionals with children, it is important that you inform the BIR on the number of dependent children you have to be able to claim the additional exemption.

If you have not informed BIR of the exact number of dependent then you have to fill up BIR Form No. 1905 to update your registration information on the number of dependents you will claim, as additional exemption.

You will also use Form No. 1905 if you changed your status last year, i.e. if you got married in 2012.

Fourth, determine what type of deductions you will choose for the computation of your taxable income. The Tax Code provides two (2) methods of allowable deductions for the taxpayer – the Optional Standard Deduction (OSD) or the Regular Itemized Deduction.

Personally, we opt for the OSD in lieu of the itemized deductions. The OSD represents the maximum deduction of 40% of the gross income, in lieu of the itemized deduction, of the RESP.

But, if you do choose to use the Itemized Deductions then your books of account must be in order and up to date. You should also organize and file accordingly, the receipts of purchases of goods and services for the previous year.

According to the Tax Code, the allowable deductions from gross income are all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on or which are attributable to the development, management, operation and/or exercise of profession.

Some of the examples of itemized deductions allowed by the Tax Code are Salaries, Wages and Other Employee’s Benefits [SSS, PAG-IBIG and PhilHealth contributions], Insurance, Repairs and Maintenance, Representation and Entertainment, Transportation and Travel, Fuel and Oil, Supplies, Communication, Light and Power, and Taxes and Licenses to name a few.

For a comprehensive list, visit the BIR website or inquire with a certified public account (CPA) who is an accredited practitioner with the BIR.

Fifth, remember to include and append the necessary attachments to your ITR as proof of the right computation of your taxable income. What are the examples of such attachments?

The attachment required are: (1) Account Information Form and the Certificate of the Independent CPA duly accredited by the BIR for taxpayers who opted for the itemized deduction; (2) Certificate of Income Tax Withheld on Compensation [BIR Form No. 2316]; and (3) Certificate of Creditable Tax Withheld at Source [BIR Form No. 2307] to name a few.

We encourage all RESPs to pay the correct amount of taxes this year because the BIR already has the capacity and capability to cross check records with different government agencies and private businesses to determine if one is paying the correct taxes or not.

In the recent column of Boo Chanco in the Philippine Star last Monday, he had the chance write about the current efforts of Sec. Purisima in flushing out tax evaders. Here is an excerpt of what he wrote last April 8, 2013:

Sec. Purisima seems to be brimming with a sense of mission. Our tax effort is at 12.8 percent, he pointed out to me, and he wants to bring this up to 16 percent.

To do this, he said he must focus on three key items.

One is income tax from self-employed individuals. It is sad, he told me that between 2011 and 2012, the share of this sector to total individual income taxes paid decreased to about 6.5 percent, from over eight percent the previous year. This is unbelievable, he said, because we can all see this sector has never had it so good.

There were over 404,000 professionals/self employed who filed an average income tax payment of P33,000 last year. ‘I want to increase that to 1.8 million filers and we’re basing this on data from the Professional Regulation Commission that there are over 2 million practicing professions in its database.

‘The NSO says there are over three million of them and the SSS has over 600,000 voluntary registrants who declare themselves as self-employed. We want to increase the average annual tax payment from P33,000 to P200,000 minimum which is reasonable as this means a monthly income of just around P50,000. If we’re able to increase the 400,000 tax filers to 1.5 million and the average payment to P200,000, that’s P300 billion pesos. At our current GDP, that’s three percent of GDP.’”

The present ability of the BIR to crunch the numbers and cross-check data from other government agencies and private business is the key to its efforts to run after tax evaders with the filing of tax evasion charges at unbelievable regularity during this present administration.

It was even mentioned in the column that the Professional Regulation Commission (PRC) will make the income tax return a requirement for the renewal of license. For professionals who have not been filing their ITRs or have not been paying the correct amount of taxes, take heed because the tax man is coming to seek you out and it has the help of PRC to boot.

Finally, the sixth thing you must check and remember when preparing your ITR is to keep in hand your current Community Tax Certificate Number or commonly known as the sedula, and be sure to sign and date your return.

We hope that through this guide everyone will file their ITRs on time and pay the correct amount of taxes. Paying taxes is not an enjoyable thing to do but it is an obligation that all income-earning Filipinos must perform.

What do you think? Do you agree with us?