Taxation has always been a mystery among Filipino freelancers, yet it’s a necessary step if you want to be considered as a legitimate freelancing business.
While there is a significant lack of clear tax laws applicable to freelancers and online workers, it is still a freelancer’s responsibility to learn about tax laws applicable to his or her situation and to abide by these laws at all times when operating one’s freelancing business.
When I made the decision to register myself as a tax payer, I did receive a handful of negative reactions from members of my family. With the BIR running after the family business and monitoring its income reports, the fact that I can earn without needing to register myself as a tax payer is a dream come true for them.
But I knew that there is still some good in paying taxes, so I did a bit of research to see what resources were out there regarding taxes and freelancing in the Philippines.
You can have a look at these articles:
- Freelancer’s Guide to Paying Taxes and Securing Social Benefits by Al Sabado
- Do I Have to Pay Taxes On My Online Income? by PinoyMoneyTalk.com
- The Pinoy Tax Yahoo! Group
As you can see, it’s an issue that’s already been discussed, debated, and argued upon. The fact of the matter is that according to Philippine tax laws, we must pay our taxes if we are located physically within the Philippines and regardless whether the sources of income are coming from within or outside of the Philippines.
Quoting again from PinoyMoneyTalk.com’s article:
A Filipino citizen is taxed based on his taxable income derived within and without the Philippines, which includes part-time works as an offshore, outsourced writer for a US-based website (see page 157 Annex A1 of Philippine Taxation Handbook: A Simplified Course September 2006 Edition).
Again, no matter where the source of income is coming from, it is still taxable by law. If you received your funds from an online MLM scheme, an outsourced project, work from a fellow professional, etc., it is still taxable income.
5 Reasons Why Freelancers Should Pay Taxes
Convinced, I sought the help of a certified public accountant to talk about the process further and to help me with my own taxes. We discussed many things regarding taxation, especially the benefits and consequences of paying and evading taxes.
Here are 5 good reasons why Pinoy freelancers should pay taxes:
- You need to think long-term. Buying a house or a car is a lifetime investment that securing a loan to buy one will mean presenting actual proof that you have the earning capacity to pay for it. Unless you plan on buying your next Honda Civic or Toyota Lexus in cold cash, you need to show your income tax returns to the company or organization.
- You are required by Philippine law to pay taxes. Not paying means breaking the law, and if you get caught breaking the law, you will be penalized heavily by the BIR without question. That’s 25% to 50% of your income per year plus up to 20% interest. Read Section 232 of the National Internal Revenue Code.
- You’re in control of your taxes. Registering as a tax-paying self-employed professional gives you the opportunity to declare your taxable income without the BIR dictating how much you have to declare every year. According to an article by About.me Tax Guide William Perez, “Being self-employed is quite possibly one of the best tax strategies available today…you are in full control of your tax situation, and you can reduce current income by any losses you have from freelancing, renting out property, or investing.“
- You save yourself from a lot of inconvenience. You may think that you can live without a credit card or a particular service, but as your business grows and your ideas encourage you to go forth and be risky, you will need other payment methods besides cash. Applying for a credit card, a phone line, an internet connection, etc. will definitely be easy if you have ITRs, SSS, and other income-related documents on hand.
- You’re doing your part as a citizen of the Philippines. It’s certainly difficult knowing that your taxes are pocketed by greedy people in the government, but at least you did your part as a citizen of this country. Even though you have the opportunity to evade and live life tax-free, it’s always good to know that you lived up to your responsibility by diligently calculating and paying your taxes.