PART 1:

BUSINESS
TAXATION
University of the Visayas College of Business Administration
 CONSUMPTION TAXES

CONSUMPTION

Acquisition or utilization of goods or services by any

person through purchase, exchange or other means.

CONSUMPTION TAX
 Rationale Of Consumption Tax

• Income – Consumption = Savings

• Savings is a capital that is useful in funding
Savings Formation
projects crucial to economic activities

• Proposes that those who receive more

Rationalization of the
benefit from the government should pay
Benefit Received Theory
more taxes.

• With bigger and wealth, the rich can afford

expensive lifestyles.
Wealth redistribution to
• A tax on consumption will effectively make
society
the rich pay more taxes.
 TYPES OF CONSUMPTION PURCHASER STATUS
1. Domestic Consumption Resident Taxable
2. Foreign Consumption Non-resident Exempt/Effectively non-taxable

Consumption Tax • Subject to a consumption tax

on Domestic Sales called abusiness tax

Consumption tax • Subject to a consumption tax

on Importation calledVAT on importation

VAT on importation Business Tax

Scope of Tax Imports from business or Purchases from
non-business businesses only
Type of consumption Tax Pure form Relative form
Statutory taxpayer Buyer Seller
The economic Taxpayer Buyer Buyer
Nature of imposition Direct Indirect
Basis of Tax Total Purchase Cost Sales or receipts
Business tax rules on domestic sales:
The Seller is The Buyer is Subject to Business tax?
Business Business Yes
Business Not Business Yes
Not Business Business No
Not Business Not Business No

Value-added Tax rules on importation

The Seller is The Buyer is Subject to VAT on importation?

Business Business Yes

Business Not Business Yes
Not business Business Yes
Not business Not Business Yes
TYPES OF CONSUMPTION TAXES

Percentage • Tax of various rates from 0.60% to 30%

Tax

Value-Added • A consumption tax of 12%

Tax
• An ad valorem or specific tax, which is
imposed in addition to VAT or
Excise Tax percentage tax, only on certain goods or
services
 TYPES OF DOMESTIC
CONSUMPTION AS TO TAXABILITY
• These are consumption of goods or
Exempt services that are not subject to
Consumptions consumption taxes.

Consumption • Includes consumption of services that

specifically are not subject to VAT but are
subject to imposed with a specific percentage
percentage tax tax.

• Includes all other consumption that

Vatable are neither exempted nor subject to
Consumption percentage tax.
The Structure of the VAT on Importation
VAT on Importation
Imports of Service Import of Goods
Exempt Exempt Exempt
% Tax Percentage Tax -
VAT Final Withholding VAT VAT on Importation

The Structure of the Business Tax

Business Tax
Sales of Service Sales of Goods
Exempt Exempt Receipt Exempt
% Tax Receipts specifically subject -
to Percentage Tax
VAT Vatable Receipts Vatable Sales
 VALUE ADDED TAX ON IMPORTATION

Refers to the purchase of goods or

IMPORTATION services by Philippine residents from
non-resident sellers.

VAT on importation Final Withholding VAT

Object Consumption Import of goods Purchase of services
Imposed upon Importers/buyers Foreign service providers
Statutory taxpayer Importers/buyers Resident purchaser of the
service
Nature Direct consumption tax Indirect business tax
Tax Basis Landed cost Contract price
Collecting Agency Bureau of Customs Bureau of Internal Revenue
Timing of Payment Before withdrawal of goods After the month of payment
IMPORT OF GOODS

Exempt Vatable
Importation Importation
●
Importation of Exempt Goods ●
Importer is engaged or not
●
Importation by VAT Exempt engaged in trade or business.
●
Importer is a VAT or non-VAT
Persons
business
●
Quasi-Importation ●
Importation is for business or
●
Importation which are exempt personal use
under special laws and ●
Non-resident seller is engaged or
international agreement not engaged in business
IMPORTATION OF EXEMPT GOODS

• Original State
• Simple Processing
Basic human food • acts of preparation for the market
and related goods • acts of preservation
• acts of packaging including advanced
technological means of packaging

Books, • Must appear at regular intervals with fixed

prices for subscription
newspapers and • The sale must not be devoted principally to the
magazines publication of paid advertisements

• Subject to the requirement on restriction of the

Passengers or Marina Industry Authority
cargo vessels and • passenger/cargo vessels- 15 years
• tankers- 10 years
aircrafts • high speed passenger crafts- 5 years
IMPORTATION OF VAT-EXEMPT PERSONS

International Limited to importation of fuel, goods,

●

shipping or air and supplies because they are not

transport operators intended to be consumed herein.

Agricultural Limited to importation of direct farm

●

inputs, machineries and equipment,

Cooperatives including their spare parts

Eco-zone Considered foreign countries and are

●

deemed outside Customs territory hence,

Locators they are also exempt from customs duties.
IMPORTATION EXEMPT UNDER SPECIAL LAWS
OR TREATIES

Import that are exempt by these to which the Philippine

government is a signatory is NOT subject to VAT on importation.

Other importation of goods is subject to VAT regardless of whether the:

• Importer is engaged or not engaged in trade or business

• Importer is a VAT or non-VAT business
• Importation is for business or personal use
• Non-resident seller is engaged or not engaged in business.
 BUSINESS TAXATION
Refers

B to a
habitu
al

u engag
ement
in a

si comm
ercial
activit

ELEMENTS
n
y
involvi
ng the
sale of

Habitual
e goods
or
Commercial Activity servic
Engagement ss e for a
profit
• Engagement in the sale
• Regularly in of goods or services for a
transactions profit.
• Manifested by • Must be offered to the
registration with the public with a motive to
appropriate earn unrestricted
government agencies amount of pecuniary
gains.
 TYPES OF BUSINESS TAXES
Point of Differences VAT % TAX EXCISE TAX

Timing of Disposition Sale Sale Production/ Import

Nature Primary Tax Primary Tax Additional Tax

Subject businesses Any, business, Any, business, in Only Producers or

in general general importers of
excisable products
or services

Taxpayers Business only Business only Business or non-

business
Usual Taxpayers Big businesses Small Businesses Big/Small businesses

Accounting Department Liability Expense Asset or Liability

PROCEDURES OF BUSINESS TAXATION

Evaluate if the sales activity qualifies as a business.

Identify the taxable person: individual/juridical

Determine the activity type: sales of goods/services

Classify the sales or receipts whether they are exempt or not.

Determine the taxpayer registration type.

Determine if the goods or service offered is excisable.

BUSINESS TAXPAYERS

1. Each person, natural or juridical, is a taxable person for purposes of

business taxation

2. Husband and wife are separate taxpayers.

3. A parent company is a separate taxable person with its subsidiary

company and each subsidiary company is a taxable person.

4. Home office and branch offices of the same business are one, not
separate, taxable person.

5. Proprietorship is not a juridical entity. Its sales and receipts is subject to

business tax to the individual proprietor. Multiple proprietorship businesses
of the same individual are all taxable to that individual as the taxpayer.
TYPES OF BUSINESS TAXPAYERS

VAT taxpayers ●
Pay 12% VAT

Non-VAT ●
Pay 3% general percentage tax
Taxpayers

BUSINESS ACTIVITIES

Sales or exchange of goods or properties

Sales of exchange of services or lease of properties.
 EXEMPT SALES OF GOODS , PROPERTIES AND SERVICES

Exempt Sales

Not subject to VAT and % tax.

VAT taxpayers making exempt sales A non-VAT person making exempt

of goods, properties or services shall sales shall not be subject to the 3 %
not bill any output VAT to their percentage tax on the sales or
customers receipt.
 EXEMPT Sales of GOODS or PROPERTIES

Sales Sales of Sales of Export Treaty- Tax- Sale of

sales by Exemp free gold to
of goods residen the
non- exchan
exemp by tial
VAT
t sales ge of
Bangko
cooper proper persons Sentral
t of propert ng
goods. atives. ties. . goods. y Pilipinas.
 EXEMPT Sales of SERVICES

Home Lease
Agricu owner’ Senior
passe Treat Regi
ltural Resi Coop s Inter Print citizen
nger - onal
contra denti erati associa natio ers s and
or
ct Hosp tion or exe Area perso
growe
al ve condo
Cargo nal or ns
itals Vessel mpt Head
rs and leasi Servi miniu Carri publi with
m s and servi quar
miller ng ces ers shers disabi
s.
cooper aircra ces ters lity
atives fts
SALES OF GOODS OR SERVICE COVERED BY
SPECIAL LAWS

Sales by eco-zone Receipts of properties

locators of theaters or cinemas

●
Local government has the
●
Subject to a special 5 %
exclusive power to
gross income tax, in lieu
impose business tax on
of all taxes national or
gross receipts of cinemas
local.
or theaters
●
Will not be subject to VAT ●
Will not be subject to VAT
or percentage tax.
or percentage tax
 PERCENTAGE TAX

Is a national tax measured by a certain percentage of the gross

selling price or gross value in money of goods sold or bartered; or
of the gross receipts or earnings derived by any person engaged in
the sale or services.
SCOPE OF THE PERCENTAGE TAX
Coverage Type of % tax Tax rates
Services specifically subject to Specific % tax Various
percentage tax. tax rates
Sales of goods or other services General % tax 3% percentage tax
not exempted
Who pays percentage tax?
Type of percentage tax VAT registered taxpayers Non-VAT Taxpayers
Specific percentage tax / /
General percentage tax X /
SERVICES SPECIFICALLY SUBJECT TO PERCENATAGE TAX
Banks and non-bank financial intermediaries.

International carriers on their transport of cargoes, excess baggage and mails only.

Common carriers on their transport of passengers by land and keepers of garage.

Certain amusement places.

Brokers in effecting sales of stocks through the Philippine Stock Exchange and corporations
or shareholders on initial public offering

Certain franchise grantees.

Life insurance companies and agents of foreign insurance

Telephone companies and overseas communication

Jai-alai and cockpit operators on winnings

 SUMMARY OF SPECIFIC PERCENTAGE TAXES

Business or Activity Percentage Tax Tax Rates

Banks and financial intermediaries Gross receipts tax 5%, 1%; 7%
International Carriers International carrier’s tax 3 %
Common Carriers Common carrier’s tax 3%
Amusement places Amusement tax 10%, 15%, 18%;
30%
Sales of stocks during an initial IPO tax 4%, 2%; 1%
public offering (IPO)
Franchise Franchise tax 3%
Life Insurance Premiums tax 2%, 4%; 5%
Overseas calls Overseas communication 10%
tax
Amusement betting Winnings tax 10%; 4%
 WITHHOLDING
The OF agencies,
sale to government GOVERNMENT TAX AT SOURCE
and instrumentalities,
including government-owned and controlled corporation is
subject to withholding tax of 3% at source.

The taxpayer shall attach BIR FORM 2307 in filing his monthly
percentage tax return.

EXEMPTION FROM PERCENTAGE TAX

VAT Taxpayers ●
Subject to 12% VAT

Self-employed and or ●
Taxed to the 8% income tax which is a bundled tax
professional who opted to the
8% income tax
that covers both income tax and the percentage tax

●
Not absolute- sales/receipts outside their registered
Cooperatives activities are still subject to business tax
 VALUE ADDED TAX

Covers all vatable sales of goods, properties, services, or lease of

properties by VAT taxpayers

Vatable sales or receipts are from sources other than :

exempt sales or
receipts from services specifically subject to percentage tax

VAT Taxpayers: VAT-registered persons

and VAT- registrable persons
OPTIONAL VAT REGISTRATION
 Taxpayers BELOW the threshold can voluntarily register as
VAT taxpayers.
 Subject to 3-year lock-in period.
 The taxpayer is precluded to have his VAT registration revoked
until the lapse of 3 years.

VAT TAXPAYERS WITH MIXED TRANSACTION

 NOTE:
• VAT shall apply only to vatable sales or receipts.
• The exempt sales will remain to be exempt while the receipts
specifically subject to percentage tax are subject to specific
percentage tax.
EXCEPTION:
• When the taxpayer opted to have the VAT apply to this non-
vatable sales or receipts.
THE VALUE-ADDED TAX MODEL
●
is the VAT on the vatable sales or receipts.
●
presumed passed on by the seller on his sales or receipts.
Output ●
TYPES of output VAT:
VAT ●
Regular Output VAT- 12% VAT imposed on domestic sales or receipts
●
Zero Output VAT- 0% VAT imposed on export and other zero-rated
sales

●
VAT paid by the taxpayer on the domestic purchases on the domestic purchases
from VAT suppliers or on the importation of goods or services in the course of
business.
Input VAT ●
Allowed to be deductible against output VAT is called
●
Claimable input VAT
●
Allowable input VAT
●
Creditable input VAT

The VAT payable of a VAT taxpayer is computed as:

Output VAT
Less: Input VAT
VAT due
Less: Tax Credits
VAT still due
SUMMARY OF VAT RULES FOR EACH TYPE OF SALES
Types of sales Output VAT Claimable input VAT due
VAT
Exempt Sales none none none

Zero-rated Sales zero Actual if not claimed negative

as credit or refund
Sales to government 12% of sales or 7% of sales or receipts none
receipts
Regular sale 12% of sales or Actual input VAT paid Positive or
receipts negative

Other Sales to subject to VAT

Sales of registrable persons
Sales of non-VAT taxpayers who issues VAT invoice or receipt.
Exempt sales billed by VAT taxpayers as regular sales
 REGULAR OUTPUT VAT

Sources of Regular
Output VAT
Sale of Vatable
goods
Sale of vatable
services
Sale of vatable
properties
Transaction deemed
sales
 Sale of Sale of
Transaction
Vatable Vatable
Deemed Sales
Services Properties

●
Higher of
●
Acquisition
●
Subject to 12%
VAT ●
Subject to the transaction
Unreasonable consideratio involving
12% VAT
●

lower price=Fair goods or

value of the
●
Reported in n or selling
properties
goods sold the month of price and
which are
●
Reported on the collection fair value of consumption
month of sale the property in nature
 TRANSACTION OF DEEMED SALES
1. Transfer, use or consumption not in the ordinary course of business.
 Vatable ordinary assets are used for purposes other than their intended
purpose
• Goods or properties held for sale are no longer sold but are transferred
or disposed of by other means other than sale.
• Properties originally intended for use are no longer used but are
transferred, disposed of or exchanged with other properties.
2. Distribution or transfer to a shareholders or investors share in the profits of VAT
registered persons; creditors in payment of debt or obligation

3. Consignment of goods not withdrawn in 60 days following such goods

were consigned
• Not an actual consumption
• Intended to prevent taxpayers from deferring recognition of output VAT
by non-reporting or delayed reporting of the sales on consignment
4. Retirement or cessation of business
• Result in the transfer of all goods or properties of the business use or
account of the business owner or owners.
5. Cessation of status as VAT-registered person
• Any approval of a request for cancellation of registration or changes of
business activity of goods or properties originally intended for sale or
use in the business.

OUTPUT TAX ON TRANSACTION DEEMED SALES

• The output tax on deemed sales transactions shall be based on
the market value of the goods sold as of the occurrence of the
deemed sale transaction.
• In the case of retirement or cessation of business, it shall be
based on the acquisition costs or the current market price of the
goods or properties, whichever is lower.
General RULE: Business Dissolution is Deemed Sale

When there is a business

dissolution, there is a
deemed sale, such as the
following cases:

Change of Ownership of the

Business
a. Incorporation of a sole
proprietorship
b. Sale by a proprietor of his
entire business.

Dissolution of a partnership
a. and creation of a new
partnership which takes over the
business
b. by incorporation into a
partnership
Exception to the Business Dissolution Rule:

Merger or ●
There is a business dissolution but not a deemed
Consolidation sale under the law

Cessation of Status as ●
There is no business dissolution but is treated as
VAT registered person a deemed sale.

Billing Requirements for Output VAT

 The output VAT must be specifically indicated in the VAT

invoice or receipt.
 It must be billed separately in the case of properties where the
fair value exceeds the selling price.
 OUTPUT VAT-ZERO RATED SALES
Zero-rated sales are basically foreign consumptions or equivalents of
foreign consumptions and sales conferred with an export sale treatment
by special laws and international agreements to which the Philippine is
a signatory.

Benefit:
-will have a zero output VAT but with a deductible input VAT
-the taxpayer will fully recover the VAT he paid on his domestic
purchases and on importation
VAT Exempt Sales Zero-rated Sales
Output VAT No Output VAT No Output VAT
Input VAT treatment Deductible against gross Creditable or refundable
income
Exempt of tax relief Partial relief Full relief
ZERO-RATED SALES OF GOODS

Effectively zero-rated
Export Sales sales

●
Direct export Sales to persons or entities
●

●
Sale to economic zones and whose exemption under
tourism enterprise zones. special laws or international
●
Sale of goods or properties,
supplies, equipment and fuel to
agreements to which the
persons engaged in international Philippines is a effectively
shipping or international air subjects such sales to zero-
transport operations. rate.
ZERO-RATED SALES OF SERVICES

1. Sale of services to non-residents.

2. Effectively zero-rated sales of services.
3. Services rendered to persons engaged in international
shipping or international air transport operations
4. Transport of passengers and cargoes by domestic air or
sea carriers from the Philippines to a foreign country.
5. Sale of power or fuel generated from renewable sources
of energy
6. Services rendered to ecozones or tourism enterprise
zones
 INPUT VAT

Input tax or Input VAT refers to the VAT due or paid by a VAT-registered
person on importation or local purchases of goods, properties, or
services.

Determination:
-the VAT on purchase is usually reflected as a separate item in the VAT
invoice or VAT official receipt issued by the VAT-registered supplier

If NOT separated:
- The selling price stated in the sales of document shall be deemed to be
inclusive of VAT.
TYPES OF INPUT VAT

Transitional Input VAT

●
VAT registered person who becomes liable shall be given an initial input tax credit equivalent to 2% of the beginning
inventory of goods, materials, or supplies or the actual VAT paid thereon whichever is higher.

Regular Input VAT

●
12% VAT paid on domestic purchase of goods, service or properties or importation of goods or service.

Amortization of Deferred Input VAT

●
Presumptive tax equivalent to 4% of the gross value in money of their purchases of primary agricultural products
which are used in their productions.

Presumptive Input VAT

Standard Input VAT

●
Due to the 5% final withholding VAT that is deemed the actual VAT payable of
the seller to the government, instrumentalities or agencies including GOCCs
can effectively claim only 7% of sales as input VAT.

Input VAT Carry-over

●
the excess of the input VAT over the output VAT in a particular month or quarter.
●
Rules:
●
The input VAT carry-over of the prior quarter is deductible in the first month of the current quarter.
●
The input VAT carry-over in the first month of the quarter is deductible in the second month of the quarter.
●
The input VAT carry-over in the second month of a quarter is not deductible to the third month of the quarter.
●
The input VAT carry-over of the prior quarter is deductible in the third month of the quarterly balance of the present quarter.
WHAT ARE EXCLUDED FROM INPUT VAT CARRY-OVER?
1. Advanced VAT which have been applied for a tax credit certificate?
2. Input VAT attributable to zero-rated claim which have been applied for
a tax refund or tax credit certificate.
3. Input VAT attributable to zero-rated sales that expired after the two-year
prescriptive period.

WHAT ARE THE RULES IN CLAIMING FOR CREDIT OF

INPUT VAT?

1. Specific • Particular sales transaction

Identification • Credited against the output VAT of such sales
2. Pro-rata • Directly and entirely attributed to the sales of
Allocation transactions
• Allocated proportionately on the basis of sales
 DETERMINATION OF VAT STILL DUE
The VAT still due of taxpayers is computed as:
Output VAT
Less: Creditable Input VAT
Net VAT payable
Less: Tax Credits/Payments
Tax still due/ (Overpayments)

TAX CREDITS/ PAYMENTS

1. VAT paid in the previous two months-for quarterly VAT returns.
2. VAT paid in return previously filed, in the case of amended return.
3. Advanced payments made to the BIR
4. Final withholding VAT on sales to the government
5. Advanced VAT on certain goods.
 ● Applies only to quarterly
VAT payments in the
monthly returns
VAT return not in the
monthly VAT return

●5% of sales withheld by government

Final Withholding agencies
●Apply if the goods or services purchased
VAT
from VAT suppliers were vatable

● Required to pay advanced VAT before their

withdrawal at the point of production:
Advanced VAT ● Refined sugar
● Flour
● Naturally grown and planted timber products
TAX STILL DUE
Tax still payable in the VAT return is paid to the government :
1st month of the quarter Within 20 days from the end of the month
2nd month of the quarter Within 20 days from the end of the month
3rd month of the quarter Within 25 days from the end of the quarter

OVERPAYMENTS
The resultant overpayment or negative net amount in the VAT return
may be treated as INPUT VAT CARRY-OVER to the succeeding period
Alternative Overpayments arising Unutilized input VAT:
Treatment from input VAT on zero- - Claimed as a
rated sales - Tax refund
- Tax credit against other internal
revenue taxes

Overpayments arising Unutilized advanced VAT:

from advanced input VAT Available for the issuance of a tax
credit certificate
INPUT VAT ON ZERO-RATED SALES

The Unutilized input VAT arising from zero-rated sales or

effectively zero-rated sales may be claimed as:
●
Tax refund
●
Tax credit against other internal revenue taxes
When and Where to Claim for VAT refund or Tax Credit
Certificate
COMPLIANCE REQUIREMENTS

Invoicing Requirement

●
A VAT registered person shall issue:
●
A VAT invoice for every sale, barter or exchange of goods or properties;
●
A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services

Accounting Department

●
All persons subject to VAT shall maintain:
●
Regular accounting records
●
Subsidiary sales journal
●
Subsidiary purchase journal

Filing of VAT Return

●
Any person or entity engaged in trade or business whose the actual gross sales or
receipts exceeds 3,000,000
Filing of Quarterly Summary Lists

●
Quarterly summary list of sales to regular buyers or customers, casual buyers or customers and output tax
●
Quarterly summary list of local purchases and input tax
●
Quarterly summary list of importation

Government Withholding

●
Exception:
●
Lease or use of proprietary rights of non-residents- subject to 12% final VAT
●
Purchase of goods or services arising from projects funded by the Official Development Assistance
 Prepared By:

Atillo, Lyle C. Bachelor of Science in Accountancy 2

Canete, Mailyn B. Bachelor of Science in Management Accounting 2
Dejan, Rejane Mae M. Bachelor of Science in Management Accounting 2
Hortellano, Sherrie Ann Bachelor of Science in Management Accounting 2
Manlimos, Kyla L. Bachelor of Science in Management Accounting 2

TRANSFER and BUSINESS TAXATION

MW/ 10:30 am- 12:00 nn

February 19, 2020

Reymar Englis Dico, CPA, JD