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Module 1 - Introduction To Consumption Taxes
Module 1 - Introduction To Consumption Taxes
KONSUMISYON TAX
Consumption of either goods or services is subjected to Consumption taxes. For tax purposes,
consumption refers to the initial purchase or acquisition of goods or services. Consumption is either
domestic or foreign, be reminded that taxation is inherently territorial so our government can only impose
tax upon domestic consumption.
Destination Principle – states that domestic consumptions only are subjected to consumption taxes
Types of Domestic consumption subjected to consumption taxes
1. Domestic sale – purchases from resident sellers (Business tax is the consumption tax applied to
domestic purchases only if the seller is engaged in business)
Elements of Business
1. Habitual Engagement
2. Commercial Activity
Note: There are exempt consumptions provided by law to mitigate the effect of this rationale
especially for the benefit of the poor (Human necessity)
- False (Business tax is only a type of consumption tax which is applied to resident
sellers which are engaged in business. VAT on importation is also a consumption tax
which is applied on domestic consumption from foreign sellers regardless whether
they are engaged in business or not)
3. A tax on consumption will effectively causes all residents of the state to pay tax
- True (As stated in one of the rationales of consumption taxes, that the state in
general is indirectly benefiting from the services to the government and in return
consumption taxes is coined as a tax to all)
5. Income tax is based on the taxpayer’s capacity to sacrifice for the support of the
government
- True (Comparing income and business tax, Income tax is based on Ability to pay
theory while business tax is under the Benefit Received theory)
6. Consumption tax is more consistent with “ability to pay” theory rather than the Benefit
Received theory
- False (Income tax is the one which is based on the Ability to pay theory)
7. A tax on consumption would support savings initiative
- True (Initially consumption taxes are additional burden on part of the buyer which
limits consumption, that is why promotes savings formation)
8. Consumption taxes should not apply would not apply to basic necessities
- True (As consumption tax is coined as anti-poor, the government exempted
consumption of basic necessities as well as those which are outside the scope of tax
as taxation is inherently territorial, and finally those which are granted
exemption/incentives by agreement/treaty.