To file or not to file? April 15 deadline for paying taxes looms

(Updated 6:45 p.m.) It's that time of year again when taxpayers must brave the long lines in banks to file their income tax returns (ITR) despite the tropical summer's searing heat. The Bureau of Internal Revenue (BIR)—the government's largest revenue-generating agency—renewed calls for taxpayers to submit their ITRs on time, no later than April 15. Income tax is a portion of the gross income that is taxed by the government. The ITR breaks down the respective deductions from the gross income to arrive at the income tax that must be paid. Nelson Aspe, BIR deputy commissioner for Operations Group, said the bureau's policy is to advise taxpayers to file their ITRs with banks and not the BIR to avoid corruption in the revenue-generating agency. "Very practical answer dyan is kung taga-BIR ang isisingil, baka maibulsa. They will take the money and run... Kung sa bangko, e 'di wala sa amin," he said. "And banks are a lot more efficient and, shall we say, orderly. Pag hinulog mo sa bangko 'yan, diretso ang account niyan ay treasury of the Philippines," Aspe added. Citizens' duty Aspe said citizens—a generic term for tax payers that include employees, the self-employed and big business—have a duty to settle their tax obligations, which account for the bulk of government revenues. In 2012, the agency collected P1.057 trillion, P9 billion short of its P1.066-trillion target for the year. Taxes accounted for 96 percent of the total revenues at P1.017 trillion and non-tax revenues accounted for P41 billion. “The basic obligation of everyone is to pay taxes. And the orderly way of paying taxes is through the filing of tax returns, kagaya ng income tax returns,” Aspe told GMA News Online in an interview Wednesday. “Para sa amin, para ma-measure up natin kung tama ang kanilang kwentada, tama ang i-dineclare nila,” he added. Aspe said the bureau is now stricter in enforcing its legal mandate, with an eye on its target this year of P1.253 trillion. “Dynamic ang taxation, kagaya ng ibang subjects. So every now and then, we introduce reforms... All along, mahigpit kami. We are a law-enforcing agency,” Aspe said in a separate interview Wednesday on GMA News' “News to Go.” The tax collections, Aspe noted, are transferred to the Bureau of the Treasury, which secures the revenues. Then the Department of Budget and Management proposes the revenue allocations that Congress will have to approve. Taxation FAQs On the complicated issue of income tax, GMA News Online tries to answer frequently asked questions: 1. What constitutes taxable income?

According to the amended Tax Code, or the National Internal Revenue Code, taxable income refers to the items of gross income without the personal exemptions and other forms of deductions. (See No. 2)

Gross income includes compensation for services, such as fees, salaries and commissions; income   from business, trade or exercise of profession; interests; rent; royalties; and prizes.

Not included in gross income are life insurance, compensation for illness or sickness, and retirement benefits.

The basic categories of taxable income are compensation income (payments for  employer-employee relationship in the form of wages and salaries), business, trade and professional income (outside the employer-employee relationship), and passive income (interests from foreign and local currency bank deposits, royalties, prizes, dividends, and capital gains from shares of stock.)

Aspe clarified that incentives—such as 13th month pay, bonuses, and other benefits—are not taxed separately from the gross income. “Kung ang empleyado ba ay tumatanggap ng incentives kagaya ng 13-month pay o extra bonus o kung ano man, kung taxable 'yan naka-combine na 'yan sa basic salary. Hindi mo i-hihiwalay na... Bottom figure na lang tinitingnan natin,” said Aspe. 2. What are gross income deductions?

Only premium payments for health and hospitalization are excluded from the gross compensation income of individuals.

Deducted from the gross business and professional income are expenses paid for business or trade, including wages, salaries, and benefits of employees. Also deducted are interest on debt, taxes paid—except income tax—losses from transactions in shares of stock, depreciation or wear and tear of property, and charitable contributions.

No deductions are made under passive income.

By law employees, businesses and professionals are entitled to personal and additional exemptions.

Singles and married couples as well as those who are single or legally separated but supporting others under 21 years old or those physically or mentally challenged are entitled to a personal exemption valued at P50,000.

Individuals may also get a P25,000 additional exemption for each legitimate, illegitimate or legally adopted child as long as number of dependents do not exceed four.

3. Where can employees get a refund for excess payment of income tax?

Aspe said tax refunds must be coordinated with employers and not with the BIR. “Kasi ho kung nangangamuhan at sobra ang nasingit at kinaltas ng employer, hindi BIR ang magsasauli ng sobra. 'Yung employer mismo. I-set off niyo na lang sa mga susunod na remittances,” he said.

He added that they see excess income tax as an “honest mistake” of the employers.

“Kasi kapag makikita naming sinasadya pag taon-taon palaging ganun, or medyo negligent sila,” Aspe noted.

The BIR official said taxpayers may use that refund to pay their next income tax, or they may not pursue the refund so it could be used as additional government fund. 4. Who may file their income tax returns?

Resident or non-resident citizens as well as expatriates who receive income from sources in the Philippines are required to submit their ITR.

Domestic corporations which generate income within and outside the Philippines, as well as foreign firms earning within the country, are also required by law to file an ITR.

5.  Who are not required to file their ITRs?

Exempted from filing ITRs are minimum wage earners, an individual whose gross income is not more than his or her total personal and additional exemptions, those whose income has been subjected to a final withholding tax, and those qualified under “substituted filing.”

Aspe said substituted filing refer to employers filing the ITRs on behalf of employees.

A withholding tax is “prescribed on certain income payments and is not creditable against the income tax due of the payee on other income subject to regular rates of tax for the taxable year,” according to the bureau.

Overseas Filipino workers do not earn their income within the country and are thus exempted from filing an ITR, the BIR official said.

“Maliban na lang kung meron silang income na kinita nila dito sa Pilipinas, halimbawa kung may paupahan sila, kailangan pa ring i-declare nila 'yun at i-pagbayad ng buwis dito sa Pilipinas,” he said.

“Pero 'yung income from sources sa labas ng Pilipinas ay wala na po. Exempt 'yun,” Aspe added.

6. What are the rates for income tax of individuals, professionals and businesses? References: Bureau of Internal Revenue, National Task Research Center, Department of Finance.