Chapter 3 (Business Taxation) gross sales or receipts not exceeding P100,000 in any 12-

month period.
NATURE OF BUSINESS TAXATION
EXAMPLES:
1. Relative consumption tax - tax on the consumption
 subsistential farmers or fisherman
of Goods or services and is imposable only when the
 small sari-sari stores
seller is a business.
 small carenderias or “turo-turos”
2. Indirect tax - tax is collected from the seller rather  drivers or operators of a single unit tricycle
than the buyer.  other similarly situation
3. Privilege tax – privilege to business ENGAGED IN BUSINESS
4. National tax - tax is imposed by the national A. Consultants
government. b. Sales agents of insurance or real estate including
brokers.
BUSINESS - refers to a habitual engagement in a c. Television or movie talents and artists
commercial activity involving the sale of Goods or Services d. Cooking instructors
for a profit. e. Martial art instructors
ELEMENTS OF BUSINESS:
BUSINESS TAXPAYERS - the taxable person in business
HABITUAL ENGAGEMENT - There must be regularity in taxation includes any individual , trust estate, partnership,
transactions to construe the presence of a business. corporation, joint venture, cooperative or association.
Isolated or Casual Sales are not regular activities; hence RULES:
these are presumed not made in the ordinary 1. Each person natural or juridical is a taxable person for
course of business. purposes of
COMMERCIAL ACTIVITY - Means engagement in the sale of business taxation.
goods or services for a profit. The goods must be 2. Husband and wife are separate taxpayers.
offered to public with a motive to earn 3. A parent company is a separate taxable person with its
unrestricted amounts of pecuniary gains. subsidiary company and each subsidiary company is a
taxable person.
Privilege store - most commonly known as “tiangge”, stall 4. Home office and branch offices of the same business are
or outlet not permanently fixed to the ground which are not separate taxable person.
put up during special events such as festivals or fiestas. 5. Proprietorship is not a Juridical entity.
Conditions:
Income Tax Exemption does not equate to Business Tax
1. To be considered privilege store, the store should
Exemption
engage in business activity for a cumulative period or not
more than 15 days.
PERSONS EXEMPT FROM INCOME TAX
Exempt from business tax but is subject to income tax.
BUT ARE SUBJECT TO BUSINESS TAX:
NOT BUSINESSESS: 1. General professional partnership (GPP)
2. Joint venture engaged in construction or oil
 Government agencies and instrumentalities
exploration
 Non-profit organizations or associations
3. Local water districts
 Employment
4. Barangay micro-business enterprise (BMBE)
 Directorship in a corporation
 Business for mere subsistence
TYPES OF BUSINESS TAXPAYERS
BUSINESS PRINCIPALLY FOR SUBSISTENCE OR LIVELIHOOD - a. VAT TAXPAYERS
refers to businesses with gross sales or receipts not b. NON-VAT TAXPAYERS
exceeding P100,000 per year.
TYPES OF BUSINESS ACTIVITIES
MARGINAL INCOME EARNERS- refers to individuals not a. Sale or exchange of Goods or Receipts
deriving compensation income under an employer- b. Sale or exchange of Services or Lease Properties
employee relationship but who are self-employed deriving
EXEMPT SALES OR RECEIPTS
1. SALE OF CERTAIN BASIC NECESSITIES
2. SALE EXEMPT BY LAW, TREATY OR CONTRACTS
3. CASUAL SALES OR SALES BY NON-BUSINESS
SELLERS
4. EXPORT SALES OF NON-VAT REGISTERED PERSONS
RECEIPTS FROM SERVICES SPECIFICALLY SUBJECT TO A
PERCENTAGE TAX
1. Banks and non-banks financial intermediaries
perfoming quasi banking functions
2. International carriers on their outgoing transport
of cargoes, baggage or mails.
3. Domestic common carriers on their transport of
passengers n land and keepers of garage
4. certain amusement places
5. Philippine stock exchange on the sale or exchange
of shares by investors or corporations conducting
IPO.
6. Franchise grantees of television or radio or gas or
water.
7. Life insurance
8. Franchise grantees of telephone or telegraph on
overseas dispatch, message or conversation originating
from the philippines.
9. Winnings from jai-alai and race track.
MNEMONICS: BICAP FLOW
VATABLE SALES OR RECEIPTS are subject to the following:
1. 3% General Percentage Tax – if the taxpayer is
NON-VAT registered taxpayer.
2. Value Added tax – if the taxpayer is VAT
taxpayer.
TYPES OF PERCENTAGE TAX
i. SPECIFIC % TAX- those imposed for BICAP FLOW and
apply to any taxpayer, whether VAT or NON-VAT
registered.
ii. GENERAL % TAX- For vatable sales or receipts of Non-
VAT taxpayers
MANDATORY REGISTRATION AS VAT TAXPAYER
I. If his gross sales or receipts for the past 12 months
have exceeded P3,000,000.
II. There are reasonable grounds to believe that his
gross sales or receipts for the next 12 months will
exceed P3,000,000.
III. Special Threshold: P10,000,000
Business Tax Accounting Period- the length of accounting
period for business taxes is one quarter. This is referred to
as a taxable quarter.
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 before the end of the month following the month
the threshold is exceeded.
3. Franchise grantees of radio and television broadcasting
whose gross annual receipt for the preceeding calendar
year exceeded 10,000,000 shall register as vat taxpayer
within 30 days from the end of the calendar year.
4. Persons who are below the threshold but opt to be
registered as vat taxpayer shall register not later than 10
days before the beginning of the taxable quarter.
Revocability of vat registration
1. The vat registration, whether voluntary or mandatory, of
franchise grantees of radio or television is perpetually
irrevocable. Thus, they continue to be vat taxpayers until
the dissolution of their business
2. Any person, other than franchise grantees of radio or
television, who voluntarily registered as vat taxpayers shall
not be allowed to cancel their vat registration for the next
3 years. This is referred to as the 3 year lock-in period
3. Any person who registered as vat taxpayers with an
expectation to exceed tha vat threshold but failed to
exceed the same within 12 months of operations may
apply for cancellation of vat registration. The three-year
lock-in period does not apply in this case
PENALTY OF REGISTRABLE PERSONS
As previously pointed out, failure to register as vat
taxpayer is not an excuse. Registrable persons are still
liable to vat but without the benefit of the input tax credit
in the periods in which they are not properly registered.