BUSINESS

TAXATION
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REX B.Basic---
BANGGAWAN, CPA,
MBA
 BUSINESS TAXATION
• TOPIC OUTLINE:
– The Theory of Consumption Tax
– Exempt Consumption
– The VAT on Importation
– Business Taxation
• The Business Concept
• Percentage Taxes
• The VAT Threshold
• VAT on Sales
THE THEORY OF CONSUMPTION
TAX
• What is consumption?
• It is the purchase or utilization of
goods and services

• Nature of consumption tax

• Consumption tax is a tax upon the
buyer and is not a tax upon the
seller.
 The Rational of
Consumption Tax
• Income – Consumption = Savings

• Benefit of Savings: Capital

Formation

• Benefits of Tax on Consumption:

– Capital formation
– Wealth redistribution
– Benefit received theory
 Types of Consumption
Philippine Foreign
buyers buyers
(Domestic (Foreign
Sellers Consumptio consumpti
n) on)
Philippin Purchase to Export
e the buyer/
residents Sales to the
seller
Foreign Import -
 Because of territorial
consideration…
ONLY DOMESTIC
CONSUMPTION IS SUBJECT
TO TAXATION!
 Treatment of Foreign
Consumption (Export Sales)
TYPES OF PHILIPPINE TAX
SELLERS TREATMENT
VAT Taxpayers 0% VAT
Non-VAT Taxpayers Exempt
 TYPES OF DOMETIC
CONSUMPTION
• Consumption from abroad –
subject to VAT on Importation
• Consumption from Philippine
sellers – subject to Business Tax
Types of Consumption Taxes

VAT ON BUSINESS TAX

IMPORTATION
VAT on import of Value Added Tax
goods – on sales
VAT on import of Percentage
services –(Final taxes
withholding VAT)
Excise taxes
 VAT on Importation vs.
Business Tax
VAT on
Importation Business Tax
Basis Purchase Sales or
Receipts
Scope All Consumption
consumption from
businesses
only
Nature of Pure form Relative form
consumption
tax
Statutory Buyer Seller
taxpayer
 Overview of
Consumption taxes
• VAT on Importation
– For goods: 12% of the landed cost
– For services: 12% of the contract
price of service
 Business Taxation
• Value Added Tax on sales
– Output VAT (12% of sales) XXX
– Less: Input VAT (VAT paid on purchases)
XXX
– VAT Payable XXX
• Percentage tax – a tax of generally 3%
(1/2 of 1% to 30%) on sales or receipts
• Excise tax – (various specific or ad
valorem rates based on sales value)
 Exempt Consumptions
• Agricultural or marine food products
in original state
• Hospital Health services
• Employment
• Regional Area Headquarter (RHQ) of
Multinational Companies
• Educational services
 Exempt consumption…
• Real properties
• International or domestic sea and air
carrier
• International transport of passengers
• Cooperative services
• Safety devices
• Quasi-importation
• Sales/importations exempt under
TREATY
 In short…
Exempt consumptions are:

“A/M HERE RIC QT”

 Exempt consumptions: a
detailed look
• A/M food products –
– “In original state” means unprocessed
foods for human consumption
– Food of things for ultimate human
consumption
– Agricultural contract growers/millers
• Hospital services – within hospital,
except:
– Sales of medicine
– Services of professionals
• Employment – this is not a business
• Regional Area Headquarter of
Multinational company – this is
not business
• Educational services – schools
accredited by CHED, TESDA and or
Dep-Ed
• Real Properties
– Sale of real properties
• by non-dealers (casual sale)
• By dealers of:
– low-cost housing units (P180,000 and P450,000)
– socialized housing units (P750,000)
– residential lots (P1,919,500)
– residential dwellings (P3,199,200)
– Lease of residence – rental per unit per
month do not exceed P12,800
• International/Domestic sea or air
carriers
– Sale/importation/lease – aircraft, sea
vessels, machineries, equipments and
spare parts (EXPIRED!)
• Cooperatives – all cooperatives of
any forms so long as with a CGS,
except electric cooperatives
• Quasi-Importation
– Importation of personal, household
effects and professional instruments
belonging to non-residents coming to
settle in the Philippines
– Importation of fuel or supplies by
persons engaged in international
transport operations
 THE VAT ON
IMPORTATION
Scope of VAT on Importation
• All importations not falling under
exempt importation under A/M HERE
RIC QT are subject to 12% VAT on
landed cost
 Meaning of landed cost
• All cost of importation from abroad to
the Philippines prior to the
withdrawal of the goods from the
Bureau of Customs
BUSINESS TAXATION
 The Business Concept

“HABITUAL ENGAGEMENT
IN A COMMERCIAL
ACTIVITY”
 Not considered business
• Business for mere subsistence
• Privilege stores (RR16-2013)
 Scope of Each Type of
Business Tax
• List of services/entities specifically
subject to percentage taxes (BICAP
FLOW)
• Other sellers of goods or services are
VATABLE
Mnemonics: BICAP FLOW
– Banks
– International carriers
– Common carriers
– Certain amusement places
– PSE sales
– Franchises
– Life Insurance
– Overseas Communication
– Winnings
 What is VATABLE?
• “Vatable” means subject to the VAT
on sales if the person is VAT-
registered or VAT-registrable.

• A VAT-registrable person is a
person who exceeded the VAT
threshold
 The VAT Threshold
• Franchisees of TV or radio – P10M sales
or receipt during a year (special threshold)
• All other businesses – P1,919,500 sales
or receipts in any 12-month period
(general threshold)
NOTE: For purposes of the VAT threshold,
only vatable sales/receipts are considered
(i.e. sales or receipts other than from A/M HERE
RIC QT and BICAP FLOWS)
Services subject to
Percentage Taxes
 Banks
• Interest income
– From short-term loans – 5%
– From long-term loans* – 1%
• Other items of gross income (except
dividends) – 7%

*Long-term = more than 5 year remaining

maturity
 International carriers
• Pertains to airlines or shipping
carriers owned by foreign
corporations – 3% on Gross Philippine
Billings

• Rules on transshipment:
– Domestic transshipment
– Foreign transshipment
 Common Carriers and Keepers of
Garage
• Carriers by land on their transport of
passengers only – 3%
• Includes jeepneys, public utility
buses, taxis and car for hire

• Note: RR9-2007 on new presumptive

quarterly gross receipts
 Certain Amusement Places
• Places of boxing exhibitions – 10%
• Places of professional basketball
games – 15%
• Cockpits, cabarets, night club or day
clubs – 18%
• Jai-alai and race tracks – 30%

Note: Exemption on boxing

 PSE sales of stock
• Types of sales:
– Sale by an investor: ½ of 1% of the
gross selling price
– Sale in an IPO – depends on volume of
block sale
• Primary Offering – volume % computed after
IPO
• Secondary Offering – volume % computed
before IPO
 Certain Franchises
• Franchise of Gas and TV – 3%
(Up to P10M annual gross receitps)

• Franchise of Water – 2%
 Life Insurance
• On proceeds of direct life insurance
which includes evidence of
indebtedness – 2% (RA 10001)
• The term “life insurance” also
includes group insurance, health and
accident insurance policies
 Overseas Communication
• 10% on gross payment of the
service

• Exception: Calls made by

– Diplomats
– International organizations
– News services
– Government
 Winnings
• On jai-alai and race track – 10% on
winnings net of any cost of ticket

• Exception: combination bets on race

tracks – 5%
– Double forecast/Daily double
– Trifecta
– Quinella
 NOTE!

Other sales of services and

sales of goods other than
those under BICAP FLOW
and A/M HERE RIC QT are
VATABLE!
THE VALUE ADDED TAX
 Topic Outline: VAT
• Sources of Output VAT
• Sources of Input VAT
• Determination of VAT payable
 Sources of Output VAT
• Regular Output VAT – 12%
– Sale of goods
– Sale of services
– Sale of real properties
– Transactions deemed sales
• Zero-rated VAT – 0%
List of transactions deemed
sales
• Consignment if not withdrawn in 60
days
• Usage not in the course of business
– Withdrawal of goods for personal use
– Dacion en pago
– Property dividend
• Retirement from or cessation of
business
• Change of status as VAT taxpayer to
a non-VAT taxpayer
 Basis and Timing of Recognition:
Output VAT
Basis Timing
Sales of Selling price Month of
goods sale
Sales of Gross Month of
services receipts collection
Sale of real Gross selling Month of
properties price (SP or sale or
FMV w/e is amortized
higher)
Transaction Fair market Month
deemed value deemed
 ZERO-RATED SALES OF
GOODS
• Direct Exports
• Indirect Exports
• Sale to an export-oriented enterprise
• Sale of Gold to the BSP
• Considered Export Sales under EO
226
• Sale of goods, supplies, equipment to
persons engaged in international
shipping or transport
 Considered Export Sales under
EO226
• Sales between export traders
• Sale to bonded manufacturing warehouses
of export-oriented enterprises
• Sales to export processing zones
• Sales to diplomatic missions and other
agencies or instrumentalities granted with
tax immunities
• Sales to BOI-registered
manufacturers/producers
 ZERO-RATED SALES OF
SERVICES
• Sales of services to non-residents
• Effectively zero-rated sales of
services
• Transport of passengers by Domestic
air or sea carriers from Philippines to
a foreign country
• Sale of power or fuel generated
through renewable sources of energy
 Effectively zero-rates sales of
services
• Sales to persons exempt under
special laws or international
agreements
• Services rendered to persons
engaged in international shipping or
air transport operations
• Services performed by sub-
contractor and or contractors of
export-oriented enterprises
 Input VAT
• Input VAT – the VAT paid on
purchases including incentives
allowed by the law as credit against
Output VAT

• Not all input VAT payments are

creditable
 Requirement for creditable input
VAT
• It must be paid in the course of
business
• It must be billed by a VAT supplier
• Evidenced by an VAT invoice or VAT
receipt
 Sources of Input VAT
• Transitional input VAT
• Regular input VAT
– Purchase of goods
– Purchase of services
• Deferred input VAT
• Presumptive input VAT
• Standard input VAT
• Input VAT carry-over
 Payment of advanced
VAT
• Applicable to only:
– Manufacturers of:
• refined sugar
• Flour
– Owners/Transporters of timber
 Determination of VAT
payable
• Output VAT XXX
• Less: Creditable Input VAT XXX
• VAT Payable XXX
• Less: Advanced VAT /tax credit XXX
• Tax Still due XXX
 Thank you!
God bless and more
power!