Updated: 7 January 2014
31 August 2013
Yes, Filipino freelancers pay income tax. Hooray!
by Al Sabado
I sure hope that answer doesn't spoil your day, dear friend. But answering the question is crucial, because you know why? Not many freelancers (a.k.a. independent professional income earners) pay income tax--not because they (those who skip paying income tax) don't know they should, but simply because they don't want to. Period.
How much do freelancers earn? The stable ones earn from zero to 20K, 30K, 40K, 50K, and up per month. A Filipina freelancer was even reported to earn 1.5M in a year. Question--do they issue an official receipt for every payment received?
Some freelancers earn more while they function as intermediaries between direct clients and fellow freelancers. Question--do these freelancer-intermediaries declare with the BIR the true nature of their work as freelancer-intermediaries? Do they issue official receipts for payments received? Do they pay withholding tax apart from their taxable income? Or have they registered their freelance business with the BIR at all? And in terms of observing the highest ethical standards in conducting freelance work, do they disclose/discuss with the fellow freelancers they hire the commission they cut from the professional fee paid by the client/s? Do they issue an official receipt for the amount of commission they receive?
May ganun? See BIR Memorandum Circular 55-2013: Reiterating taxpayers’ obligations in relation to online business transactions for details.
On working with intermediaries. If you wish to work with freelancer-intermediaries with the hope that--other than earning money while working from home--they'll introduce you to direct clients, be sure you've clarified that area of interest with them. Because in most cases, they don't introduce freelancers to direct clients and they prevent that from happening.
For a start, do try instead other intermediaries such as bidding sites (e.g., Elance, Freelancer, and People per Hour, among others--you may skip Craigslist) where you meet direct clients and get referrals! Tiyagain mo lang. You'll find work and reputable clients from there. Research also on your industry rate to avoid accepting just any job that comes your way.
The tax-evader freelancers. Who would want to be called a tax evader? Sad to say, some independent service providers intentionally evade paying taxes even after many years working as freelancers. Some of them halfheartedly register with the BIR so that they can apply for a loan with a bank or other financial institutions.
Some have already registered with the BIR. But issuing an official receipt is like a difficult chore--they don't want to do it. And they don't declare-file-pay the correct/proper taxes! Surprisingly, some so-called God-fearing, Bible-believing Christians practice similar dishonesty! (Ma-convict po nawa kayo.)
Untruthful ways can be in the form of (1) unscrupulously diminishing payable taxes--e.g., gathering official receipts that are not even theirs and using them to compute applicable tax deductions--or (2) asking their CPAs to fix their BIR documents so that they don't pay for any taxable income at all.
Some independent service providers don't register with the inland revenue bureau because they say that their work isn't regular. Logical? Probably, from a lame viewpoint. But take note--that's the nature of a freelance business: irregular work and pay.
Some freelancers who don't register with the BIR cite that we don't see good results out of the taxes we pay or we have a corrupt government anyway.
Those reasons irk us so much--true. But we can't fight the law or we'll be in chaos as a nation. And if we skip paying our taxes as freelancers, then we're no different from the government agencies or government officials who exercise corruption from a smorgasbord of virtual pork barrel projects while in (public) service. We just see another corrupt service provider when we look at ourselves in the mirror. Are you a corrupt service provider, dear friend? I certainly hope not!
"Do freelancers pay income tax?" Some freelancers are surprisingly unaware--if not totally naive--of their obligation to pay taxes for the income they receive as professional service providers. And so they ask that question.
Defining income tax answers that question. Income tax, as defined in the National Internal Revenue Code (NIRC), "is a tax on all yearly profits arising from property, profession, trades or offices or as a tax on a person’s income, emoluments, profits and the like."
By that definition alone, we know that every one who receives payment for the services or products he delivers is required by law to pay income tax. This means that paying taxes is not an option but an obligation that a citizen complies with, unless his country is among those that do not impose income tax on their constituents.
Do you want to migrate to countries that do not impose income tax? Before you consider doing so, please be reminded that there's no place like home. These countries include (1) United Arab Emirates, (2) Qatar, (3) Oman, (4) Kuwait, (5) Cayman Islands, (6) Bahrain, (7) Bermuda, (8) The Bahamas, (9) Saudi Arabia, and (10) Brunei Darussalam.
I salute my fellow Filipino freelancers who have willfully registered with the BIR and pay every time the right taxes in full and on time. May God richly bless you for keeping your integrity intact!
And what is integrity? Integrity--as I've also witnessed it in decades among brave men and women of deep-rooted integrity--is doing the right thing even when no one is looking. Indeed, may we always choose to do the right thing in the sight of God and man.
A good name is rather to be chosen
than great riches,
and loving favour
rather than silver and gold.