CHAPTER 3
What are the EXCEPTIONS TO THE
1. It is a consumption tax payable by persons
engaged in business.
Answer: Business tax
Business is a habitual engagement in a
commercial activity involving the sale of goods or
services to customers or client.
2. What are the ESSENTIAL REQUITES
OF A BUSINESS
1. Habitual Engagement
2. Commercial Activity
3. There must be regularity in transactions to
construe the presence of a business.
Answer: Habitual Engagement
Habitual engagement is normally manifested
by registration as a dealer, a service provider or a
practitioner in a particular trade or profession.
4. What are the Application of the Regularity
Rule
1. Sale by non-dealers
2. Privilege stores
5. This are people who make casual sale of goods
or properties, also who sells properties which
they are not regularly engage.
Answer:Sale by non-dealers
Sales of non-dealers are not subject to
business tax.
6. Most commonly known as “tiangge” are stalls
or outlets not permanently fixed to the ground
which are put up during special events such as
festivals or fiesta (RR16-2013)
Answer: Privilege Stores
Privilege store operators shall not be
considered habitually engaged in business, he is
exempt from business tax but subject to income
tax
7. How many days to be considered a privilege
store in a business activity for a cumulative
period. Otherwise, they shall be considered
regular taxpayers subject to business taxes
and income tax.
Answer: 15 days
8.
REGULARITY RULE
1. Business principally for subsistence or
livelihood
2. Sales by non-residents are presumed made
in the course of business.
9. A business with a gross sales or receipt not
exceeding P 100,000 per year
Answer: Business principally for subsistence
or livelihood
10. Individuals not deriving compensation income
under an employer-employee relationship but
self-employed deriving gross sales or receipts
not exceeding P 100,000 in any 12-month
period.
Answer: Marginal Income Earner
11. What are the examples of Marginal Income
Earners?
a. Agricultural growers or products
(farmers/fisherman)
b. Small sari-sari stores
c. Small carenderias or “turo-turo”
d. Drivers or operators of a single unit
tricycle
e. Others similarly situated
The term marginal income earners do not
include licensed professional consultants, artist,
sales agents brokers including all others whose
income have been subjected to withholding tax
(RMC 7-2014). It is exempt from business tax,
but are subject to income tax (RR7-2012)
12. Under current tax regulations, it is presumed
made in the course of business without regard
as to whether the sale is regular or isolated, it
is subject to “business tax” (e.g VAT)
Answer: Sales of non-resident person
In reality, the sale is not the object of
taxation but the purchaser of the resident
buyer. Since import purchase is a form of
domestic consumption, it must be subject to
consumption tax.
13. An engagement in the sale of goods or services
for a profit, the goods and services must be
offered to the public with a motive to earn
unrestricted amount of pecuniary gains.
Answer: Commercial Activity
 However, the actual existence of a profit during
period is not a pre-condition to business taxation.
Even if the business operations results to loss,
business tax still applies.
14. What are the businesses that are not under
the rule of Commercial Activity?
a. Government agencies and
instrumentalities- their primary motive is to
provide essential public service
b. Non-profit organization or associations-
they provide eleemosynary services not aimed
at generating income.
c. Employment- employees renders services to
their employers in exchange for a periodic
compensation
d. Directorship in a corporation- although not
considered as a n employment, it does not
involve offering of services to the public for a
profit.
15. What are other persons considered engaged
in business?
a. Consultants
b. Sales agents or brokers
c. Television or movie talents and artist
d. Cooking instructors
e. Martial art instructors
16. What are the nature of business taxes?
a. Consumption tax- business is a tax on
consumption, utilization or purchase of goods,
properties or services
b. Indirect tax- it is imposed to the seller rather
than to the buyer
c. Privilege tax- to secure and enforce
compliance, the law made business taxes appear as
a tax on privilege to do business.
17. What are the types of business taxes?
a. Value Added Tax
b. Percentage tax
c. Excise Tax
18. What is a taxable person in business
taxation?
Answer: the term “person” refers to any individual,
trust, estate, partnership, corporation, joint venture,
cooperative or association.
Note: The concept of a taxable unit in income
taxation applies as well in business taxation except
that a taxable unit in business taxation is called a
taxable “person”
General professional partnership is exempt
from income tax but subject to business tax.
19. How to Register the business.
a. Register with the appropriate Revenue
District Office (RDO) using the appropriate BIR
form
b. Pay annual registration fee of P 500.00 using
BIR Form No.0605 for every separate or distinct
establishment where sales transactions occur.
In case of storage places, application shall be
filed within 30 days from the date the aforesaid
premises have been used for storage.
Note: registration fee shall be paid before the start
of such business and every year thereafter on or
before the 31st day of January.
20. Who will issued REGISTRATION
CERTIFICATE
Answer: It shall be issued to the applicant by
the concerned BIR OFFICE upon compliance with
all the requirements for registration.
21. What are the Types of business as to
registration?
a. Vat-registered taxpayers- they pay 12% VAT
b. Non-VAT registered taxpayers- they pay the
3% percentage tax
22. What are the business classification as to
activities?
a. Sales or exchange of goods or properties
b. Sales or exchange of service or lease
properties
Note: for purposes of business tax, business
registered as VAT or non-VAT taxpayers are
classified according to activities.
23. What is Sale of Goods or Properties?
Answer: the term “Goods or Properties” refers to
all tangible and intangible objects which are
capable pf pecuniary estimation and shall include
among others.
a. Real properties held primarily for sale to
customers, held for lease or use in ordinary course
of business.
b. The right or privilege to use a patent,
copyright, design or model, plan, secrret formula or
process, goodwill, trademark, trade brand or other
properties or rights
 c. The privilege or right to use in the
Philippines any industrial, commercial or scientific
equipment
d. The right or privilege to use motion picture
films, tapes, films, disc
e. Radio, televesion, satellite transmission and
cable television time.
24. What is Sale or Exchange Service?
Answer: the term “Sale or Exchange of
Service” shall mean the performance of all kind of
service in the Philippines for others for a fee,
renumeration or consideration, whether in kind or
in cash, including those performed or rendered by
the following
a. Construction and service contractors
b. Stock, real estate, commercial, customs and
immigration brokers
c. Lessors of property, whether personal or real
d. Persons engaged in warehousing services
e. Lessor or distributors of cinematographic
films
f. Proprietors, operators or keepers of hotel,
motels, rest house, pension houses, inns, resorts,
theaters and movie houses
g. Persons engaged in milling, processing,
manufacturing or repacking goods for others
h. Proprietors or operators of restaurants,
refreshment parlors, cafes and other eating places,
including clubs and caterers
i. Dealers in securities
j. Lending investors
k. Transportation contractors in their transport
passengers, goods or cargoes for hire and other
domestic common carriers y land relative to their
transport of goods or cargoes
l. Common carriers by air and sea relative to
their transport of passengers, goods or cargoes for
hire and other domestic common carriers by land
relative to their transport of goods or cargoes
m. Sales of electricity by generation,
transmission, and or distribution companies
n. Franchise grantees of electric utilities,
telephone and telegraph, radio and or television
broadcasting and all other franchise grantees
o. Non-life insurance including surety,
indemnity and bonding companies
p. Similar services regardless of whether or not
the performance thereof calls for the exercise or use
of the physical or mental faculties
q. The lease of, use of, or the right or provilege
to use any copyright, patent, design or model, plan,
secret formula or process, goodwill, trademark,
trade brand or other like property or right
r. The lease or use of, or the right of use any
industrial, commercial or scientific equipment
s. The supply of scientific, technical, industrial
or commercial knowledge or information
t. The supply of any assistance that is ancillary
and subsidiary to and is furnished as a means of
enabling the application or enjoyment of any such
property, or right or any such knowledge or
information
u. The supply of services by a non-resident
person or employee in connection with the use of
property or rights belonging to, or the installation or
operation of any brand, machinery or other
apparatus purchased from such non-residents
person
v. The supply of technical advice, assistance, or
service rendered in connection with technical or
commercial undertaking, venture, project or scheme
w. The lease motion pictures, films, tapes, and
discs
x. The lease or the use of or right to use radio,
television, satellite, transmission and cable
television time.
25. What are the types of tax bases of business
taxes?
a. Sellers of goods or properties- taxable on
gross selling price
b. Sellers of service or lessors of properties-
taxable on gross receipts
Note: Gross Selling Price refers to the total
amount of money or its equivalent which the
purcahser pays or is obligated to pay to the seller in
consideration of the sale, barter or exchange of
goods or properties. It includes sales made in cash,
on credit and on installment basis except only on
the treatment of contigent discounts.
26. What are the allowable deductions from
gross selling price?
a. Discounts determined and granted at the
time of sale, to be deductible, discounts must not be
dependent upon the happening of a future event
b. Sales returns and allowances for which a
proper credit or refund was made during the month
or quarter to the buyer on taxable sales.
Note: only trade discounts is determinable at
the date of sale. Cash discounts should not
be deducted since these are contigent upon
the buyer paying at an early date in the
future.
27. What is gross receipt? 34. What is Intra-quarter business tax
Answer: refers to the total amounts of money reporting?
or its equivalent representing the contract price, Answer: to minimize the burden of one-time
compensation, service fee, rental or royalty, payment of the quarterly business tax, payment of
including the amount charged for materials supplied business tax is spread over the months of the
with the service and advanced payments actually quarter
or constructively received during the taxable
period for the services performed or to be 35. What are the 2 types of business tax
performed for another person, excluding VAT. reporting?
1. Business tax reporting of VAT taxpayers
28. What is Constructive receipt? 2. Business tax reporting of non-VAT taxpayers
Answer: occurs when the money consideration (percentage taxpayers)
or its equivalent is placed at the control of the
person who renders the services without restriction VAT NON-VAT
by the payor, this is added as part of gross TAXPAYER TAXPAYER
receipts. MONTHLY BIR FORM BIR FORM
2550 M 2551 M
29. What is an Agency monies? QUARTERLY BIR FORM BIR FORM
Answer: amounts earmarked for payment to an 2550 Q 2551 Q
unrelated third party or received as Note: ALL VAT Taxpayers file monthly VAT
reimbursement for advanced payment on behalf of returns and a quarterly VAT return in every taxable
another which do not redound to the benefit of quarter. A percentage taxpayer files either Form
the payor ar not part of gross receipt. 2551M or Form 2551Q

30. What is Insurance proceeds on damaged

assets?
Answer: the receipts of insurance proceeds
from the destruction of a company’s business asset
is not viewed as sales or receipts for purposes of
business taxation. The compulsory or involuntary
conversion of property into money such as in the
case of incurance reimbursement is not viewec as a DEADLINE OF BUSINESS TAX RETURNS
sale in the ordinary course of business. VAT Non-VAT
Taxpayers Taxpayers
31. What is Withholding taxes? MONTHLY Within 20 days Within 20 days
Answer: amounts withheld form part of gross Tax Return from the end of from the end of
receipts because these are in constructive month the month
possession and not subject to any reservation, QUARTERL Within 25 days Within 20 days
withholding agent being merely a conduit in the Y Tax Return from the end of from the end of
collection process. the quarter the quarter

32. Difference of the concept of Gross receipts 36. What is short period return?
and Sales bewtween VAT and Non-VAT Answer: any person who retires from business
Taxpayers with due notice to the BIR office where the
33. What is the business tax accounting period? NON-VAT Amount billed to the
Answer: the length of accounting period for TAXPAYERS customer or client on the
business taxes is one quarter, this is referred to as a sale of goods or services
taxable quarter. It compose of 3 months which is is respectively the sales
synchronized with the taxable year of the taxpayer or gross receipts
for income tax purpose. VAT TAXPAYERS Amount billed to the
customer or client
Note: In income taxation, corporate taxpayers (invoice price) on the
may opt fo either the calendar year or fiscal year. sale of goods or services
includes the sale or
gross receipts plus 12%
output VAT
taxpayer 9head office0 is registered or whose VAT
registration has been cancelled shall file a final
quarterly return and pay the tax due thereon within
25 days from the end of the month when the
business ceased to operate or when the VAT
registration had been officially cancelled.
Note: that subsequent monthly
declarations/quarterly returns are still required to
befiled if the results of the winding up of the
affairs/business of the taxpayer reveak taxable
transactions.
37. What are the categories of Business Sales?
a. Exempt sales
b. Sales of services specifically subject to
percentage taxes
c. Vatable sales
38. What is Exempt sales?
Answer: there are certain consumptions or
purcahses that are exempted from taxation by the
law. Those purchases made from abroad are
called importation while those purchases made
from domestic are sales or receipts from the
seller’s perspective.
39. What are the two types of exempt
consumptions under the NIRC?
1. VAT exempt importation- exempt consumption
from abroad
2. VAT exempt sales- exempt consumption from
domestic sellers.
Note: VAT exempt sales are exempt from
business taxes, they are not only exempt from
VAT but also from percentage tax imposition.
40. Examples of Exempt Sales
1. Sales of basic necessities
a) Agricultural or marine food products
b) Health services of hospitals
c) Educational services of schools
d) Housing or residential properties within
price limits
2. Sales of exempt by law, treaty or contracts
a) Sales by cooperatives to members
b) Sales or lease of aircraft or vessels
c) Sales or printing of books, magazines and
newspaper
3. Casual sales or sales by non-business sellers
a) Sale of persons not regularly engaged in
trade or business
b) Services rendered under an empolyer-
employee relationship
c) Services rendered by a Regional Area
Headquarter of a multinational company
4. Export sales of Non-VAT registered persons
Note: Business tax is a form of consumption
tax and that consumption taxes apply only to
domestic consumption. Export sale is a foreign
consumption which is exempt from business
taxes. It is subject to 0% VAT
50. What is sales of services specifically subject
to percentage tax?
Answer: there are services which are
specifically designated by the law to be subject to
percentage tax
51. What are the services providers specifically
subject to percentage tax?
1. Domestic common carriers on their transport
of passengers on land and keepers of garage
2. International carriers on their outgoing
transport of cargoes, baggage or mails
3. Franchise grantees of television or radio and
gas or water
4. Franchise grantees of telephone or telegraph
on overseas dispatch, message or conversation
originating from the Philippines
5. Banks and non-banks financial
intermediaries performing quasi-banking functions
6. Other non-bank financial inntermediaries
without quasi-banking functions
7. Life insurance companies
8. Agents of foreign insurance companies
9. Certain amusements places
10. Operators of jai-alai and race tracks
11. Philippine Stock Exchange (PSE) on the
sale, barter or exchange of shares by investors or
corporations conducting initial public offering.
Note: the sales of specified services by these
entities are subject to percentage tax on gross
receipts without regard to whether or not the entity
is a VAT or non-VAT registered taxpayer.
41. What is the Percentage tax rates?
Answer: 1/2 of 1% to 30%
42. What is vatable sales?
Answer: other sales of goods, properties,
services or lease of properties, other than those
exempt and specifically subject to percentage tax
are “vatable”.
43. What are the vatable sales subject to VAT?
1. VAT-registered
2. VAT-registrable
 Note: if the taxpayer is neither VAT- shall register as VAT taxpayer within 30 days
registered nor VAT-registrable, vatable sales are from the end of the calendar year (RR16-2005)
subject to the general 3% percentage tax. 4. Persons who are below the threshold but
opt to be registered as VAT taxpayer shall
IN SUMMARY: SCOPE of VAT and Percentage register not later than 10 days before the
Tax beginning of the taxable quarter
VAT-registered Non-VAT
business business 47. What are the Revocability of VAT
Exempt sales of NO TAX NO TAX registration?
goods and 1. The VAT registration, whether voluntary or
services mandatory , of franchise grantees of radio or
television is perpetually irrevocable. Thus, they
Sales of services Percentage tax Percentage continue to be VAT taxpayers until the
specifically of various tax tax of various dissolution of their business
subject to rates tax rates 2. Any person, other than franchise grantees of
percentage tax radio or television, who voluntarily registered
as VAT taxpayers shall not be allowed to
Vatable sales of 12% VAT 3% cancel their VAT registration for the next 3
goods or Percentage years. This is referred to as the 3 year lock-in
services tax period.
3. Any person who registered as VAT
44. What is VAT Threshold? taxpayers with an expectation to exceed the
Answer: Mandatory registration as VAT VAT threshold but failed to exceed the same
taxpayer within 12 months of operations may apply
1. His gross sales or receipts for the past 12 for cancellation of VAT registration. The 3
months have exceeded P1,919,500. year lock-in period does not apply in this
2. There are reasonable grounds to believe case.
that gross sales or receipts for the next 12
months will exceed P1,919,500 Note: Businesses whose VAT registration has
been cancelled will be registered or reverted back
Note: The P1,919,500 level of sales or recipts as non-VAT taxpayers. They will be subject to the
in any 12-months period referred to as the general percentage tax on sales or receipts.
“VAT Threshold”

45. What is optional Registration?

Answer: a person who is below the VAT
threshold may, at his option, register as VAT
taxpayer.

46. What are the timing of VAT registration?

1. Persons commencing business with an
expectation to exceed the VAT threshold within
12-months shall simultaneously register as VAT
taxpayer with the registration of their new business
or trade with the BIR.
2. Persons exceeding the VAT threshold shall
register as VAT taxpayer within 10 days from
the end of the month when the sales or receiprs
exceeded P1,919,500 (RR7--1995)
3. Franchise grantees of radio and television
broadcasting, whose gross annual receipt for the
preceding calendar year exceeded P 10,000,000,