Understanding the Capital Gains Tax in the Philippines

Real Estate Property Tax or Amilyar Philippines

Taxation has been viewed in different perspectives. Some look at it as an act of charity where they do it voluntarily to contribute to social well being while others call it as a means of theft by the authorities for them to enjoy personal gains. These views somewhat deviate from the true and innate nature of taxation which is the process of shifting money from the citizens in their private capacities as laborers, producers, and consumers to their public responsibilities and capacities as citizens and government in achieving a common social goal.

In the Philippines, the government has various means to impose levies on its citizens – business related or individual taxes. Taxes collected by the government serve as the main source of its income that should be used to provide basic services to its citizens like affordable house and lot,  quality and at times, low cost to free education and health care, efficient public transport and connectivity, and security and order, among others. And these levies are collected from the income of its citizens and entities like the corporations and from the end consumers of business’ goods as added value. As such, these taxes are often income earned from salaries, payments made for goods and services, dividends or interest, and even capital gains from the investment appreciation.

Capital Gains Tax

If you are the kind of person who ventures into investing in real properties, you should be mindful of filling on time of your Capital Gains Tax. According to the Philippines’ Bureau of Internal Revenue (BIR), Capital Gains Tax is a tax imposed on the gains presumed to have been realized by the seller from the sale, exchange, or other disposition of capital assets located in the Philippines, including pacto de retro sales and other forms of conditional sale. Basically, this type of tax is imposed on the profit the investor gained from selling the investment. Capital gains tax in the Philippines is imposed on non-business assets or properties not used in the trade or business or in the practice of profession.

These assets are often referred to as “capital assets”. However, despite having a broad definition of capital assets in the National Internal Revenue Code, capital gains tax in the Philippines is only imposed on to two types of assets: profit from the sale of real properties located within the Philippines and shares or stocks of a domestic corporation sold not in a local stock exchange like the Philippines Stocks Exchange (PSE).

Capital Gains from Sale of Real Property

According to section 24C of the National Internal Revenue Code of the Philippines (NIRC), the capital gains tax rate of six percent (6%) is based on the gross selling price or current fair market value as determined in 24 accordance with Section 6(E) of this Code, whichever is higher, is hereby imposed upon capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the Philippines, classified as capital assets, including pacto de retro sales and other forms of conditional sales, by individuals, including estates and trusts.

There are three bases on which you would compute your capital gains tax. As mentioned in section 24D of the NIRC, section 6E of the Code provides the first two which are either fair market value identified by the Commissioner of the BIR or the fair market value as shown in the schedule of values of the Provincial and City Assessors– oftentimes referred to as Zonal Value. The third basis is the gross selling price of the real property.

Read Also: Zonal Value of A Property, What is it?

To calculate the capital gains tax, you check the value of the property identified by the Commissioner or Provincial or City Assessors or its current fair market value, whichever is higher, and multiply that by 6%. For example, if the property is valued at Php 1,000,000 – you multiply that by 6% and the total sum of capital gains tax the seller pays is Php 60,000.

Php 1,000,000 x 6% = Php 60,000

In short, the computation formula is:

Property value or current fair market value (whichever is higher) x 6% = capital gains tax amount

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Read Also: How to Maintain and Increase Your Home’s Value?

Capital Gains from Sale of Shares of Stock not Traded in the Stock Exchange

On the other hand, capital gains tax on sales of shares of stock not in a local stock exchange is elaborated in section 24C of the NIRC. According to it, The provisions of Section 39(B) notwithstanding, a final tax at the rate of fifteen percent (15%) [16] is hereby imposed upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation, except shares sold, or disposed of through the stock exchange.

In short, the capital gains tax of a sold share of stock with appreciation value of not over P100,000 is 5%. Meanwhile, if the appreciation value is more than the earlier value, additional 10% on any amount in excess of the latter.

Procedures in Filing your Capital Gains Tax

  • When and Where to File and Pay

As directly lifted from the BIR Website, The Capital Gains Tax Return (BIR Form No. 1706) shall be filed and paid within thirty (30) days following the sale, exchange or disposition of real property, with any Authorized Agent Bank (AAB) or Revenue Collection Officer (RCO) of the Revenue District Office (RDO) having jurisdiction over the place where the property being transferred is located.

When the return is filed with an AAB, the taxpayer must accomplish and submit a BIR-prescribed deposit slip, which the bank teller shall machine validate as evidence that payment was received by the AAB. The AAB receiving the tax return shall stamp mark the word “Received” on the return and also machine validate the return as proof of filing the return and payment of the tax by the taxpayer, respectively. The machine validation shall reflect the date of payment, amount paid and transactions code, the name of the bank, branch code, teller’s code and teller’s initial. Bank debit memo number and date should be indicated in the return for taxpayers paying under the bank debit system.

Filing and payment may also be made using the electronic filing and payment facilities of the BIR (i.e., EFPS/eBIRForms and G-cash, credit, debit card/prepaid card)

Read Also: A Beginner’s Guide to Filing Taxes in the Philippines

Penalties for Violations

Failure to file and pay, late payment of capital gains tax in the Philippines, and underpayment is subject to compromise penalty of P200 – P50,000, 25% surcharge (or 50% if fraudulent), and 20% interest. Transfer of title by the Register of Deeds or the Corporate Secretary without the Certificate Authorizing Registration is also subject to penalty.