Nature

Scope
Supporting tax theory

The seller is
Non-resident
Resident

Income tax
Tax upon receipt of income
A tax to the capable
Ability to pay theory

Consumption tax
Tax upon usage of income or capital
A tax to all
Benefit received theory

Domestic consumption
Taxable
Taxable

Buyer

Sellers of goods
Domestic business
- VAT registered business
- Non-VAT-registered business
Foreigners

Resident

Non-resident

12% VAT on gross sales

3% Percentage tax on gross sales
12% VAT on landed cost of importation

0% VAT on gross selling price

Exempt
Exempt

Buyer

Sellers of services
Domestic business
- VAT registered business
- Non-VAT-registered business
Foreigners

Foreign consumption
No tax
Effectively no tax

Resident

Non-resident

12% VAT on gross receipts

3% Percentage tax on gross receipts
12% final withholding VAT

0% VAT on gross receipts

Exempt
Exempt

Consumption Tax a tax upon the utilization of goods or services; tax on the purchase or consumption
of the buyer and not on the sale of the seller.
Rationale of Consumption Tax
1 It promotes savings formation.
2 It helps in wealth redistribution to society.
3 It supports the Benefit Received Theory.
Types of Consumption
1 Domestic consumption consumption or purchase of Philippine residents.
2 Foreign consumption consumption or purchase of non-residents.

Destination principle goods and services destined for the use in the Philippines are subject to
consumption tax.
Cross-border doctrine goods that cross the border which are destined towards foreign territories are
charge with consumption tax.

Types of taxable domestic consumption

1
2

Importation purchase of residents of goods or services from non-residents abroad.

Sale - purchase of residents of goods, properties or services from resident sellers.

CONSUMPTION TAX ON IMPORTATION

VAT on importation every importer of goods shall pay consumption tax on his importation. 12% of the
total import cost of the goods prior to the withdrawal of the goods from the warehouse of the Bureau of
Customs.
Withholding VAT every purchaser of service from non-residents shall likewise pay VAT on importation
of the service. This Withholding VAT is computed as 12% of the contract price of the service.

Statutory taxpayers the sellers are the ones named by law to pay the tax.
Economic taxpayers the buyers are the ones who actually shoulder the tax burden; the real taxpayers.

Basis of Business Taxes

1. Sales for businesses which sells goods or properties. / total amount as consideration for the sale
2. Receipts for businesses that sells services. / collections from the sale of service

Types of Business Taxes

1. VAT on sales a consumption tax imposed upon the sale of goods, properties or services.
2. Percentage Tax
3. Excise Tax an addition to either VAT or Percentage tax, if the taxpayer produces certain
excisable goods such as alcohol or cigarettes.

Types of Business Taxpayers

1. VAT taxpayers those required to pay VAT
2. Non-VAT taxpayers those who pay the percentage tax

Characteristics of the VAT on sales

1.
2.
3.
4.
5.

Tax on value added

Top-up on sales
Tax credit method
An explicit consumption tax
Quarterly tax

Methods of computing VAT

1. Direct method is computed by applying the VAT rate to the difference of the selling price and
the purchase.
2. Tax credit method is imposed upon the sales and then reduced by the Output VAT paid by the
business on its purchases.