Historically, the Philippine economy has been characterized by cycles of boom and bust, based on import substitution rather than export-led growth. The current government is implementing aggressive policies to reform and modernize the economic system, thereby making its economy more internationalized and market-oriented.
The basic law governing taxation in the Philippines is the National Internal Revenue Code, the Tax Reform Act of 1997 (RA No. 8424), and its amendment, RA No. 9337, which took effect on November 1, 2005. The primary types of taxes include corporate income tax, individual income tax, value-added tax, excise tax, and customs duties.
Domestic corporations are taxed based on all net income derived from within and outside the Philippines; resident foreign corporations (staying for more than 180 days) are taxed on net income derived from within the Philippines; while non-resident foreign corporations are taxed on their gross income derived from within the Philippines.
The current corporate income tax rate is 35% of the taxable amount, which was reduced to 30% effective January 1, 2009. If a company's taxable income is zero or negative, or if the Minimum Corporate Income Tax (MCIT) exceeds its regular corporate income tax, a 2% MCIT may be imposed starting from the company's fourth year of operation. Proprietary educational institutions and non-profit hospitals are taxed at a rate of 10% on their net taxable income.
