If you’re a business owner in the Philippines, it’s important to know how to compute your taxable income. Whether you’re a VAT-registered or non-VAT registered business, you’ll need to follow specific steps to ensure compliance with the country’s tax laws. The steps below is as of February 2023.
For VAT-registered businesses, the process of computing taxable income involves determining VAT-able sales, output VAT, input VAT, and taxable income. First, compute your gross sales, then determine the VAT-able sales by subtracting VAT-exempt and zero-rated sales from the gross sales. Next, compute the output VAT by multiplying the VAT-able sales by the current VAT rate of 12%. Deduct input VAT from the output VAT, which is the amount of VAT paid on purchases and expenses related to the business. Finally, subtract the input VAT from the output VAT to compute your taxable income.
If you’re a non-VAT registered business, the process is simpler. First, compute your gross sales, then deduct allowable deductions, such as the cost of goods sold, salaries, wages, rentals, utilities, and other operating expenses. Finally, subtract the allowable deductions from the gross sales to compute your taxable income.
While computing taxable income may seem like a daunting task, there are tools available to help make it easier. Taxumo, for instance, is an online tax filing and payment platform that automates tax computations for businesses in the Philippines. With Taxumo, you no longer have to worry about computing your tax dues manually as the system automatically computes tax dues for you. Plus, it can also file and pay your taxes on your behalf, saving you time and effort.
In summary, knowing how to compute taxable income is crucial for businesses in the Philippines. By following the steps outlined above or using tools like Taxumo, you can stay compliant with tax laws and avoid any penalties or fines.