1. What is business?

-means the regular conduct or pursuit of a commercial or economic activity.

Requisites:

1. Activity must be a commercial or economic activity

2. There must be regularity in the activity (except non-resident foreign person)

1. Major business taxes:

1. VAT
2. Percentage tax
3. Excise Tax

INTRODUCTION TO VALUE-ADDED TAX

1. What is Value-added Tax?

- VAT is a tax on the value added to the purchase price or cost in the sale or lease of
goods, property or services in the course of trade or business.

1. Who are the persons subject to VAT?

1. Seller of goods
2. Seller of services
3. Importer

1. What are the features of VAT?

1. A privilege tax
2. An indirect tax
3. Creditable
4. An Additional Cost

1. VAT- Registration
Comparison with VAT and Non-VAT

VAT-registered Non-VAT Registered

1.  Allowed to collect output VAT from
customers. The output VAT is a current liability No output VAT allowed.
to be remitted to the BIR
2. Allowed to claim creditable input VAT on
No input VAT allowed
purchases from VAT-registered suppliers.

Cancellation of VAT Registration

The registration of any person as a VAT taxpayer may be cancelled if:

1. He makes written application and can demonstrate to the Commissioner’s

satisfaction that his gross sales or receipts for the following 12 months will not
exceed P3,000,000.
2. He has ceased to carry on his trade or business and does not expect to
recommence any trade or business within the next 12 months.

1. Nature and Characteristic

 VAT is a tax on consumption levied on the sale, barter, exchange or lease of

goods or properties and services in the Philippines and on importation of goods
into the Philippines
 Seller is the one statutorily liable for the payment of the tax but the amount of the
tax may be shifted or passed on to the buyer, transferee or lessee of the goods,
properties or services. In the case of importation, the importer is the one liable for
the VAT

Nature

1. Form of sale tax

2. Indirect Tax- burden can be shifted by the seller to the buyer
3. Imposed on the
4. Gross Selling Price- If sale, barter, or exchange of goods, properties or
5. Gross receipts- if sale of services, or in the lease or use of properties in the
course of trade or business
6. Total Value or Landed cost- if importation of goods, whether or not in the course
of business.
 

Formula:

Output tax (output VAT)                                    xx,xxx

Less: Input VAT                                                      xx,xxx

VAT payable                                                          xx,xxx

GIVEN AMOUNT GIVEN AMOUNT

Sales before VAT Sales, gross of VAT
Gross Receipts before VAT Gross Receipts, gross of VAT
Purchases from VAT person, Purchases from VAT person, gross of
before VAT VAT
Sales, net of VAT Sales, gross of VAT
Purchases from VAT person, net
Sales, inclusive of VAT
VAT
Sales/Purchases from VAT person, Purchases from VAT person, inclusive
exclusive of VAT
X 12% X 12/112

1. VAT-subject Transactions

Transactions Tax Base

a. Sale of good properties in the course of trade
Gross Selling price
or business
b. Sale of services and lease of properties in the
Gross Receipts
course of trade or business
c. Importation Total landed cost

 
 1. “In the course of trade or business” (Rule of Regularity) defined

 The regular conduct or pursuit of a commercial or an economic activity, including

transactions incidental thereto, by any person regardless of whether or not the
person engaged therein is a non-stock, nonprofit private organization or
government entity
 Non-resident persons who perform services in the Philippines are deemed to be
making sales in the course of trade or business, even if the performance of
services is not regular

1. Goods or properties

The term “goods or properties” refers to all tangible and intangible objects which are
capable of pecuniary estimation and shall include, among others:

 Real properties held primarily for sale to customers or held for lease in the
ordinary course of business
o the right or the privilege to use patent, copyright, design or model, plan,
secret formula or process, goodwill, trademark, trade brand or other like
property or right
o the right or the privilege to use in the Philippines of any industrial,
commercial or scientific equipment
o the right or the privilege to use motion picture films, film tapes and disc
o radio, television, satellite transmission and cable television time

1. Sale or Exchange of Services

Sale or exchange or services means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration, whether in kind or in
cash, including those performed or rendered by.

1. Construction and service contractors

2. Stock, real estate, commercial, customs and immigration brokers;
3. Lessors of property, whether personal or real
4. Persons engaged in warehousing services;
5. Lessors or distributors of cinematographic films;
 6. Persons engaged in milling, processing, manufacturing or repacking goods for
others;
7. Proprietors, operators or keepers of hotels, motels, resthouses, pension houses,
inns, resorts, theatres and movie houses;
8. Proprietors, operators of restaurants, refreshment parlors, cafes and other eating
places, including clubs and caterers;
9. Dealers of securities
10. Lending investors;
11. Transportation contractors on their transport of goods or cargoes including
persons who transport goods or cargoes for hire and other domestic common
carriers by land, relative to their transport of goods or cargoes;
12. Common carriers by air and sea relative to their transport of passengers, goods
or cargoes from one place in the Philippines to another place in the Philippines.
13. Sales of electricity by generation, transmission, and/or distribution companies
14. Franchise grantees of electric utilities, telep hone and telegraph, raid and/or
television broadcasting and all other franchise grantees, except franchise
grantees of radio and/or television broadcasting whose annual gross receipts of
the preceding year do not exceed P10,000,000, and franchise grantees of gas
and water utilities;
15. Non-life insurance companies (except their crop insurance), including surety,
fidelity, indemnity and bonding companies;
16. Similar services regardless of whether or not the performance thereof calls for
the exercise or use of the physical or mental faculties.

1. Computation of VAT payable (Excess Input Tax)

2. Output tax exceeds input tax at the end of any taxable quarter

Output tax xxx

Less: Input Tax xxx
VAT payable xxx

1. Input tax inclusive of input tax carried over from the previous quarter exceeds
output tax

Output tax xxx

Less: Input tax xxx
Excess Input tax xxx

1. Computation of the Tax Base and the Applicable Tax Rates

 2. Sale of goods

Gross Selling Price

Gross Sales xxx

Less: Sales Returns and
xxx
allowances
           Sales discount xxx
net Sales xxx
Add: Excise tax, if any xxx
Tax base xxx

1. Sale of real properties on installment plan (initial payments do not exceed 25% of
the gross selling price)

1. Sale of real properties on cash basis or deferred payment plan (initial payments
exceed 25% of the gross selling price)

 Selling price stated in the sales documents or fair market value, whichever is
higher

1. Sale of services

              Gross receipts computed as follows:

Cash received (actually and constructively) Xxx

Advance payments for future projects Xxx
Materials charged with the services xxx
Gross receipts xxx

Note: Receivables, although earned, are not included.

 
 1. Gross receipt for dealer in securities

              Gross receipts computed as follows:

Gross selling price xxx

Less: Acquisition cost of securities sold for the
xxx
month or quarter
Total xxx
Add: Other or incidental income xxx
Gross receipts xxx

1. Gross receipts on the sale of electricity by generation, transmission and

distribution companies

              Gross receipts shall refer to the following:

 Total amounts charged by generation companies for the sale of electricity and
related ancillary services;
 Total amount charged by transmission companies for transmission of electricity
and related ancillary services
 Total amount charged by distribution companies and electric cooperatives for
distribution and supply of electricity and related electric service. The universal
charge passed on and collected by distribution companies and electric
cooperatives shall be excluded from the computation of the gross receipts

Percentage Tax on Common Carriers

VAT or percentage tax of domestic carriers?

Common carrier by land:  

    Transporting goods or cargoes 12% VAT
     Transporting passengers 3% Common Carriers Tax
Common carrier by air or sea:  
From one point in the Philippines to another point in the Philippines  
      Transporting goods or cargoes 12% VAT
      Transporting passengers 12% VAT
From one point in the Philippines to a point outside the Philippines  
       Transporting goods or cargoes 0% VAT
       Transporting passengers 0% VAT