CHAP.

1 - INTRODUCTION TO TAXATION

What is Taxation?

TAXATION – is a State power, a legislative process, and a mode of government cost

distribution.

1. As a State power - Taxation is an inherent power of the State to enforce a proportional

contribution from its subjects for public purpose;

2. As a Legislative Process - Taxation is a process of levying taxes by the legislature of the

State to raise revenue from its subjects to pay the necessary expenses of the govt.;

3. As a mode/means of Cost Distribution - Taxation is a mode by which the State through its
law making body demands for revenue in order to support its existence and carry out its
legitimate objectives.

What are Government’s Public Services?

These include health, education, defense, public order and safety, infrastructures
(buildings/bridges), social protection, etc.

A govt. cannot exist without a system of funding. The gov’t. provides benefits to the people in
the form of public service and the people provide the funds that finance the govt. This mutuality
of support between the people and the govt. Is referred to as the basis of taxation.

The receipt of benefits is conclusively presumed. Every citizen and resident of the State directly
or indirectly benefits from the public services rendered by the government. While most public
services are received indirectly, their realization by every citizen and resident is undeniable. The
direct receipt or actual availment of government services is not a precondition to taxation.

Theories of Cost Allocation

Taxation is a mode of allocating government’s costs or burden to the people. In distributing the
costs or burden, the gov’t. regards the following general considerations in the exercise of its
taxation power:

1. Benefit Received Theory –This presupposes that the more benefit one receives from the
gov’t. the more taxes he should pay.

2. Ability to Pay Theory – This presupposes that taxation should also consider the taxpayer’s
ability to pay. Those who have more should be taxed more even if they benefit less from the
gov’t.. Those who have less shall contribute less even if they receive more of the benefits from
the gov’t.
The Lifeblood Doctrine

Taxes are essential and indispensable to the continued subsistence of the gov’t. Without taxes,
the govt. would be paralyzed for lack of motive power to activate or operate it. Taxes are the
lifeblood of the gov’t., and their prompt and certain availability are an imperious need. Upon
taxation depends the gov’t’s ability to serve the people for whose benefit taxes are collected.

INHERENT POWERS OF THE STATE.

A govt. has its basic needs and rights which co-exist with its creation. It has right to sustenance,
protection, and properties. These rights or powers of the State are natural, inseparable and
inherent to every govt. No gov’t. can sustain or effectively operate without these powers. These
powers are naturally exercisable by the gov’t. even in the absence of an express grant of power
of the Constitution.

The Inherent Powers of the State are:

1. Taxation Power – the power of the State to enforce proportional contribution from its subjects
to sustain itself. (for govt. support)

- most important of the inherent powers

- to raise revenue to defray the necessary expenses of the govt.

As to purpose, in taxation, money is taken from its subjects to support the govt.

2. Eminent Domain – the power of the State to take private property for public use upon
payment of just compensation.

- important of the inherent powers

- only the owner of the property are persons affected

As to purpose, in eminent domain, private property is taken for public use.

3. Police Power – the power of the State to enact laws to promote public health, public morals,
public safety and the general welfare of the people.

- most superior of the inherent powers

As to purpose, in police power, private property is taken or destroyed to protect general welfare.
Scope of the Taxation Power

The scope of taxation is widely regarded as comprehensive, plenary, unlimited and supreme.
However, despite the seemingly unlimited nature of taxation, it is not absolutely unlimited.
Taxation has its own inherent limitations and limitations imposed by the Constitution.

A. Inherent limitations – territoriality of taxation, public purpose, etc

B. Constitutional limitations – due process of law, equal protection of the law, etc.

SITUS OF TAXATION (Place of Taxation)

It is the tax jurisdiction that has the power to levy taxes upon the tax object. Situs rule serve as
frames of reference in gauging whether the tax object is within or outside the tax jurisdiction of
the taxing authority.

Factors affecting the Situs of Taxation :

1. Subject matter- or what is being taxed.

- may be a person, a property or an act or activity

2. Nature of tax- or which or kind of tax to impose.

- may be an income tax, an import duty or a real property tax.

3. Citizenship of the taxpayer- Filipino citizen; Alien; Resident alien, Non-resident alien

4. Residence of a taxpayer- within (inside) or without (outside) the Philippines

The following Situs of Taxation apply:

1. Persons- residence of a taxpayer;

2. Real Property or Tangible Personal Property- location of the property;

3. Intangible Personal Property- As a rule, situs is the domicile of the owner unless he has
acquired a situs elsewhere;

4. Income- taxpayer’s residence or citizenship, or place where the income was earned;

5. Business, Occupation and Transaction- place where business is being operated

6. Gratuitous transfer of property- taxpayer’s residence or citizenship, or location of the
property. (Antonym is onerous)

Examples of Situs Rules:

1. Business Tax Situs – Businesses are subject to tax in the place where the business is
conducted.

Illustration:
A taxpayer is involved in car dealership abroad and restaurant operation in the
Philippines.
The restaurant business will be subject to business tax in the Philippines since the
business is conducted herein, but the car dealing business is exempt because the business is
conducted abroad.

2. Income Tax Situs on Services – Service fees are subject to tax where they are rendered.

Illustration:

A foreign corporation leases a residential space to a non-resident Filino citizen abroad.

The rent income will be exempt from Philippine taxation as the leasing service is
rendered abroad.

3. Income Tax Situs on Goods – The gain on sale is subject to tax in the place of sale.

Illustration:

While in China, a resident OFW citizen agreed with a Chinese friend to sell his diamond
necklace to the latter. They stipulated that the delivery of the item and the payment will be made
a week later in the Philippines. The sale was consummated as agreed.

The contract of sale is consensual and is perfected by the meeting of the minds of the
contracting parties. The perfection of the contract is in China. The situs of taxation is China. The
gain on the sale of the necklace will be taxable abroad and exempt in the Philippines.

4. Property Tax Situs - Properties are taxable in their location,

Illustration:

An overseas Filipino worker has a residential lot in the Philippines.

He will still pay real property tax despite his absence in the Philippines because his
property is located herein.
5. Personal Tax Situs – Persons are taxable in their place of residence.

Illustration:

Arnold S. is an Indian studying medicine in the Philippines.

Arnold will pay personal tax in the Philippines even if he is an alien because he is
residing in the Philippines.

Other Fundamental Doctrines in Taxation

1. Marshall Doctrine – “The power to tax involves the power to destroy”.

Taxation power can be as an instrument of police power. It can be used to discourage or prohibit
undesirable activities or occupation. And as such, taxation power carries with it the power to
destroy.

2. Holme’s Doctrine – “Taxation power is not to destroy while the court sits”. Taxation power
may be used to build or encourage beneficial activities or industries by the grant of tax
incentives.

3. Prospectivity of Tax Laws – Tax laws are generally prospective in operation. An ex post
facto law or a law that retroacts is prohibited by the Constitution.

4. Non-compensation or Set-off – Taxes are not subject to automatic set-off or compensation.

The taxpayer cannot delay payment of tax to wait for the resolution of a lawsuit involving his
pending claim against the gov’t. Tax is not a debt, hence, it is not subject to set-off.

5. Non-assignment of Taxes – Tax obligations cannot be assigned or transferred to another

entity by contract.

6. Inprescriptibility in Taxation – Prescription is the lapsing of a right due to the passage of time.
Under the National Internal Revenue Code (NIRC) tax prescribes if not collected within 5 years
from the date of its assessment. In the absence of an assessment, tax prescribes if not
collected by judicial action within 3 years from the date the return is required to be filed.
However, tax due from taxpayers who did not file a return or those who filed fraudulent returns
do not prescribe.

7. Doctrine of Estoppel – Any representation made by the party toward another who relied
therein in good faith will be held true and binding against that person who made the
misrepresentation. The gov’t. is not subject to estoppel. The error of any gov’t. employee does
not bind the gov’t. It is held that the neglect or omission of gov’t. officials entrusted with the
collection of taxes should not be allowed to bring harm ordetriment to the interest of the people.
8. Judicial Non-Interference – Generally, courts are ot allowed to issue injunction against the
govt.’s pursuit to collect tax as this would unnecessarily defer tax collection. This rule is
anchored on the Lifeblood Doctrine.

9. Strict Construction of Tax Laws – When the law clearly provides for taxation, taxation is the
general rule unless there is a clear exemption. Hence the maxim, “Taxation is the rule,
exemption is the exception”.

TERMS RELATED TO TAXATION

DOUBLE TAXATION - occurs when the same taxpayer is taxed twice by the same tax
jurisdiction for the same thing. Nothing in our law expressly prohibits double taxation.

ESCAPES FROM TAXATION - are the means available to the taxpayer to limit or even avoid
the impact of taxation.

1. TAX EVASION (TAX DODGING) – refers to any act or trick that tends to illegally reduce or
avoid the payment of tax.
Example: understatement of income

2. TAX AVOIDANCE (TAX MINIMIZATION) – refers to any act or trick that reduces or totally
escapes taxes by any legally permissible means.
Example: careful tax planning; selection and execution of transaction that would expose
taxpayer to lower taxes

3. TAX EXEMPTION (TAX HOLIDAY) - refers to the immunity, privilege or freedom from being
subject to a tax which others are subject to. Tax exemptions may be granted by the Constitution,
law or contract.

SHIFTING – this is the process of transferring tax burden to other taxpayers.

TAX AMNESTY – Amnesty is a general pardon granted by the govt. to erring taxpayers to give
them a chance to have a fresh start to be part of a society with a clean slate. It is an absolute
forgiveness or waiver by the gov’t. on its right to collect and is retrospective in application.

TAX CONDONATION - is a forgiveness of the tax obligation under certain justifiable grounds.
This is also referred as Tax Remission.

CHAP. 2 - TAXES, TAX LAWS & TAX ADMINISTRATION

TAXATION LAW – refers to any law that arises from the exercise of the taxation
power of the State.
Types of Taxation Laws

1. Tax Laws – These are laws that provide for the assessment and collection of
taxes.

Examples:
A. The National Internal Revenue Code (NIRC)
B. The Tariff and Customs Code
C. The Local Tax Code
D. The Real Property Tax Code

2. Tax Exemption Laws – These are laws that grant certain immunity from
taxation.

Examples:
A. The Minimum Wage Law
B. The Omnibus Investment Code of 1987 (E. O. 226)
C. Barangay Micro Business Enterprise (BMBE) Law
D. Cooperative Development Act

Philippine tax laws are civil and not political in nature. They are effective even during
periods of enemy occupation. They are laws of occupied territory and not by the
occupying enemy. Tax payments made during occupations of foreign enemies are valid.
Our internal revenue laws are not penal in nature because they do not define crime. Their
penalty provisions are merely intended to secure taxpayers’ compliance.

Sources of Taxation Laws

1. Constitution

2. Statutes and Presidential Decrees

3. Judicial Decisions or Case Laws

4. Executive Orders and Batas Pambansa

5. Administrative Issuances

6. Local Ordinances

7. Tax Treaties and Conventions with Foreign Countries

8. Revenue Regulations

TRAIN LAW - TAX REFORM FOR ACCELERATION AND INCLUSION – Republic Act No.
10963 – It is the first package of the Comprehensive Tax Reform Program (CTRP) which
was approved on December 19, 2017.

- The TRAIN will provide hefty income tax cuts for the majority of Filipino taxpayers while
raising additional funds to help support the government’s accelerated spending and
social service programs.

- With the people’s support and understanding, all of these reforms will result in more
and better jobs, lower prices, and a brighter future for every Filipino.

CREATE LAW – CORPORATE RECOVERY AND TAX INCENTIVE FOR ENTERPRISES –

It cuts corporate income taxes and provides incentives to help businesses recover from
the pandemic and encourage foreign investments.

- It will reduce income tax rates from 30% to 20% for MSMEs and to 25% for other
corporate taxpayers.

TAX – is an enforced proportional contribution levied by the lawmaking body of the State
to raise revenue for public purpose.

CLASSIFICATION OF TAXES
A. As to Purpose

1. Fiscal or Revenue Tax – a tax imposed for general purpose.

2. Regulatory – a tax imposed to regulate business, conduct, acts or transactions.
3. Sumptuary – a tax levied to achieve some social or economic objectives.

B. As to Subject Matter

1. Personal, Poll or Capitation - a tax on persons who are residents of a particular

territory.
2. Property Tax – a tax on properties – real or personal.
3. Excise or Privilege Tax – a tax imposed upon the performance of an act,
enjoyment or privilege or engagement in an occupation.

C. As to Incidence

1. Direct Tax – When both the impact and incidence of taxation rest upon the same
taxpayer, the tax is said to be direct. The tax is collected from the person who is
intended to pay the same. The statutory taxpayer is the economic taxpayer.
 2. Indirect Tax – When the tax is paid by any person other than the one who is
intended to pay the same, the tax is said to be indirect. This occurs in the case of
business taxes where the statutory taxpayer is not the economic Taxpayer.

The Statutory Taxpayer is the person named by law to pay the tax. An Economic
Taxpayer is the one who actually pays the tax.

D. As to Amount

1. Specific Tax - a tax of a fixed amount imposed on a per unit basis such as per
kilo, liter, meter, etc.
2. Ad valorem – a tax of a fixed proportion imposed upon the value of the tax
object.

E. As to Rate

1. Proportional Tax - This is a flat or fixed rate tax. The use of proportional tax
emphasizes equality as it subjects all taxpayers with the same rate without regard
to their ability to pay.
2. Progressive or Graduated Tax – This is a tax which imposes increasing rates as
the tax base increases. The use of progressive tax rates results in equitable
taxation because it gets more tax to those who are more capable. It aids in
lessening the gap between the rich and the poor.
3. Regressive Tax – The tax imposes decreasing tax rates as the base increases.
This is the total reverse of progressive tax. Regressive tax is regarded as
anti-poor. It directly violates the Constitutional guarantee of progressive taxation.
4. Mixed Tax – This tax manifests tax rates which is a combination of any of the
above types of tax.

F. As to Imposing Authority

1. National Tax – a tax imposed by the national govt.

Examples:

a. Income Tax – a tax on annual income, gains or profits

b. Estate Tax – a tax on gratuitous transfer of properties by a decedent upon
death.
c. Donor’s Tax – a tax on gratuitous transfer of properties by a living donor.
d. Value Added Tax (VAT) – a consumption tax collected by VAT business
taxpayers.
e. Other Percentage Tax – a consumption tax collected by Non-VAT taxpayers.
f. Excise Tax – a tax on sin products and non-essential commodities such as
alcohol, cigarettes and metallic minerals. This should be differentiated with the
privilege tax which I also called excise tax.
 g. Documentary Stamp Tax – a tax on documents, instruments, loan agreements,
and papers evidencing the acceptance, assignment, sale or transfer of an
obligation, right or property incident thereto.

2. Local Tax – a tax imposed by the municipal or local government.

Examples:

a. Real Property Tax

b. Professional Tax
c. Business taxes, fees and charges
d. Community Tax
e. Tax on Banks and other financial institutions

DISTINCTION OF TAXES WITH SIMILAR ITEMS

1) Tax vs. Revenue

Tax – is the amount imposed by the government for a public purpose.

Revenue – refers to all income collections of the govt. which includes taxes, tariff,
licenses, toll, penalties and others. The amount imposed is tax but the amount collected
is revenue.

2) Tax vs. License Fee

Tax – has broader subject than license. It emanates from taxation power and is imposed
upon any object such as persons, properties or privileges to raise revenue.

License Fee – emanates from police power and is imposed to regulate the exercise of a
privilege such as the commencement of business or a profession.

Taxes are imposed after the commencement of a business or profession whereas license
fees are imposed before engagement in those activities. In other words, a Tax is a
post-activity imposition while a license fee is pre-activity imposition.

3) Tax vs. Toll

Tax – is a levy of the government hence, it is a demand of sovereignty.

Toll – is a charge of the use of other’s property hence, it is a demand of ownership.

Both the government and private entities impose toll, but private entities cannot impose
taxes.
4) Tax vs. Debt

Tax – it arises from law; generally payable in money; non-payment of tax leads to
imprisonment;

Debt – it arises from private contracts; can be paid in kind; non-payment of debt does not
lead to imprisonment

5) Tax vs. Special Assessment

Tax – is an amount imposed upon persons, properties or privileges; non-payment of tax

leads to imprisonment;

Special Assessment - is levied by the government on lands adjacent to a public

improvement; Non-payment of special assessment does not result in imprisonment.

6) Tax vs. Tariff

Tax – is an amount imposed upon persons, privilege, transactions, or properties. A Tax is

broader than tariff.

Tariff – amount imposed on imported or exported commodities

7) Tax vs Penalty

Tax – is an amount imposed for the support of the govt.; a tax arises from law

Penalty – is an amount imposed by both the government and private individuals. It may
arise both from law or contract

TAX SYSTEM – refers to the methods or schemes of imposing, assessing and collecting
taxes. It includes all the tax laws and regulations, the means of their enforcement, and
the government offices, bureaus and withholding agents which are part of the machinery
of the government in tax collection.

Basic Principles of a Sound Tax System

1. Fiscal Adequacy – requires that the sources of gov’t. funds must be sufficient to cover
government costs. The gov’t. must not incur a deficit. A budget deficit paralyzes the
government’s ability to deliver the essential public services to the people. Hence, taxes
should increase in response to an increase in government spending.

2. Equality or Theoretical Justice - suggests that taxation should consider the

taxpayer’s ability to pay. It also suggests that the exercise of taxation should not
be oppressive, unjust, or confiscatory

3. Administrative Feasibility – suggests that tax laws should be capable of efficient and
effective tax administration to encourage compliance. Government should make easy for
the taxpayer to comply by avoiding bottlenecks and reducing compliance costs.

TAX ADMINISTRATION – refers to the management of the tax system. Tax administration
of the national tax system of the Philippines is entrusted to the Bureau of Internal
Revenue (BIR) which is under the supervision and administration of the Department of
Finance.

THE BUREAU OF INTERNAL REVENUE (BIR)

- It was created by Commonwealth Act 466 on June 15, 1939. Effective July 1, 1939 it
revised and codified the then internal revenue laws of the Philippines.

- -its mission is “to collect taxes efficiently and effectively, for and at the least cost to the
govt., through impartial and consistent enforcement of internal revenue laws, and
convenient and honest service to taxpayers:.

- an administrative agency which is involved in the administration and collection of

national taxes.

- accounts for more than 60% of the national govt.’s total revenues

- under the supervision and control of the Department of Finance (DOF)

- headed by a chief known as the Commissioner of the BIR

- has 4 Deputy Commissioners, each to be designated to the following:

- Operations Group
- Legal Enforcement Group
- Information Systems Group
- Resource management Group

CHAP. 3 - INTRODUCTION TO BUSINESS TAXATION

Consumption refers to the acquisition or utilization of goods or services by any person. The
utilization of goods or services may be through purchase, exchange or other means. The
utilization is subject to a tax called Consumption tax.

Consumption is levied without regard to the purpose of the purchaser or consumer whether it is
for business, personal or charity use. However, a consumption tax should not be levied upon
basic necessities such as food, education, health, and shelter or housing. A business tax is a
form of consumption tax.

Only goods and services destined for consumption in the Philippines are subject to consumption
tax while those destined for consumption abroad are not subject to consumption tax. The govt.
do not impose taxes on exports. The NIRC either exempts exports or subject them to a 0% tax
rate.

The domestic consumption of resident buyers from resident sellers commonly known as a
purchase is subject to consumption tax called a Business Tax. It is called a business tax
because the consumption tax is indirectly imposed upon sellers which are businesses.

Business refers to habitual engagement in a commercial activity. It connotes regularity of

transactions involving sale of goods or services for a profit.

Elements of a Business:

Habitual engagement – refers to regularity in transactions. Therefore, isolated or casual sales

are not regular activities because they are presumed not made in the ordinary course of
business.

Commercial Activity means engagement in the sale of goods or services for a Profit. The goods
or services must be offered to the public with a motive to earn an unrestricted amount of
pecuniary gains. However, the actual existence of profit during the period is not a precondition
to business taxation even if the business operation results in a loss, business tax still applies.
– the purpose of which is for profit

A Casual Sale transaction is not a business even if profit is derived from the
transaction.

Business Tax Rules on Domestic Sales

If the Seller is: If the Buyer is: Subject to Bus. Tax

Business Business Yes

Business Not a Business Yes

Not a Business Business No

Not a Business Not a Business No

Only Sales or Receipts of persons engaged in business is subject to business tax. Hence, if the
seller of goods or services is not a business, there is no business tax.

Nature of Business Tax

1. Relative Consumption tax - Business tax is a tax on the consumption of goods or
services and is imposable only when the seller is a business.

2. Indirect tax - The tax is collected from the seller rather than from the buyer-
consumer.

3. Privilege tax - Business tax is also viewed as a tax on the privilege to do

business.

4. National tax - Business tax is imposed by the national government.

Business taxes are those imposed upon onerous transfers such as sale, barter, exchange and
importation. It is called as such because without a business pursued in the Philippines by the
taxpayer, business taxes cannot be applied. “In the course of trade or business” means the
regular conduct or pursuit of a commercial or an economic activity including transactions
incidental thereto by any person engaged therein as a non-stock, non-profit private organization
or govt. entity.

Isolated transactions are generally not considered in the ordinary course of trade or business
hence, not subject to business tax. However, services rendered in the Philippines by a
non-resident foreign person shall be considered as being rendered in the course of trade or
business even if the performance is not regular.

For Subsistence or Livelihood – Any business pursued by an individual where the aggregate
gross sale or receipts do not exceed P 100,000 during any 12 month period shall be considered
principally for subsistence or livelihood and not in the ordinary course of trade or business.
Hence, not subject to business taxes.

Examples of MIEs:
a. Subsistential farmers or fishermen
b. Small Sari-sari Stores
c. Small carenderias or Turo-turo
d. Drivers or operators of a single unit tricycle

They are called Marginal Income Earners (MIEs). The MIE shall include but not limited to
agricultural growers/producers (farmers/fishermen), those selling directly to ultimate consumers
such as, small sar-sari stores, small carenderias or turo-turos, drivers/operators of a single unit
tricycle, and such, but shall not licensed professionals, consultants, artists, sales agents,
brokers and other similarly situated, include all others whose income has been subject to a
withholding tax.

Examples of Persons Considered Engaged in Business:

a. Consultants
b. Sales agents of insurance or real estate including Brokers
c. Television or Movie talents
d. Cooking Instructors
e. Martial arts Instructors

BUSINESS TAXES

Scope of tax - Purchases from businesses only

Statutory taxpayer - Seller
Economic taxpayer - Buyer
Nature of imposition. - Indirect
Basis of tax - Sales or Receipts
The business tax is imposed only if the seller is a business and is based upon the sale of goods
or receipts from rendering of services of the seller. That is why this consumption tax came to be
known as a “Business Tax” but it is not actually a tax upon the business because the tax burden
is shifted by the business to the buyer who will actually shoulder the tax burden. Only sales or
receipts of persons engaged in business are subject to business tax. Nobusiness tax if the seller
is not a business.

The following are not businesses:

Govt. agencies and its instrumentalities - they provide essential public service

Non-profit Organizations or Associations - because of the absence of the purpose to make

profit (for Charity)

Employment - not a commercial activity

Directorship in a corporation - fees earned are not derived from a commercial activity or
rendering of service to clients for a fee

Business for mere subsistence – the M I Es -b“Irrespective of the results of business operations
(income or loss) taxpayers engaged in trade are still liable to pay for business taxes.”

TYPES OF BUSINESS TAXES

Percentage Tax – (Non-Vat Taxpayer) P 3M threshold – Effective July 1, 2020 until June
30, 2023, Percentage tax is reduced from 3% to 1% (CREATE LAW)

Value Added tax (VAT) - (VAT Taxpayer) - a consumption tax of 12%

Excise tax - an ad valorem tax or specific tax, which is imposed in addition to Percentage
tax or VAT only on certain goods or services.
 Basis of Business Tax Seller of Goods Seller of
or Properties Services

Basis of Business Tax Gross Selling Price Gross Receipts

(Cash or Sales Invoice) Official Receipts (OR)

GROSS SELLING PRICE - refers to total amount of money or its equivalent which the
purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or
exchange of goods or properties.

GROSS RECEIPTS - refers to the total amount of money or its equivalent representing the
contract price, compensation, service fee, rental or royalty . It excludes VAT.

A business taxpayer or a taxable person in business taxation includes any individual, trust,
estate, partnership, joint venture, cooperative or association

Business Tax Accounting Period

The length of the accounting period for business taxes is one quarter. This is referred to as a
taxable quarter. The taxable quarter is composed of 3 months which is synchronized with the
taxable year ( i. e Calendar Year or Fiscal Year) of the taxpayer for purposes of income tax.

Illustration:

Mr. Vera is registered with the BIR as a self-employed accountant.

Note: Individuals are limited to use only the calendar accounting period. Hence, the taxable
quarters of Mr. Vera shall be:

•1st Quarter - January 1 to March 31

•2nd Quarter - April 1 to June 30
•3rd Quarter - July 1 to Sept. 30
•4th Quarter - Oct. 1 to December 31

Illustration:

ABC Corporation is reporting under income taxation using a fiscal year ending every August 31.
The taxable quarters of ABC Corporation under its fiscal year shall be:

•1st Quarter - Sept. 1 to Nov. 30

•2nd Quarter - Dec. 1 to Feb. 28/29
•3rd Quarter - March 1 to May 31
•4th Quarter - June 1 to Aug. 31
A corporation may opt for either a calendar or fiscal year accounting period.

Types of Business Tax Returns (this will be discussed in detail next Chapters)

Percentage Taxpayer VAT Taxpayer

Monthly Tax Return Not applicable BIR Form 2550 M

Quarterly Tax Return BIR Form 2551 Q BIR Form 2550 Q

Percentage Taxpayer (Non-VAT)

1st Month 2nd Month Quarter

BIR Form - - 2551 Q

Deadline No filing No filing 25 days after end of

qtr

VAT Taxpayer

1st Month 2nd Month Quarter

BIR Form 2550 M 2550 M 2550 Q

Deadline 20 days after 20 days after 25 days after end of

end of month end of month qtr

Illustration

Assume a business taxpayer had the following gross sales in the 1st Quarter of 2020: January =
P 220,000; February = P180,000; March = P 260,000.

For Percentage Taxpayer (Non-Vat)

January February March

Total Amount No filing No filing 660,000

BIR Form. No filing No filing Form 2551 Q

For VAT Taxpayer:

January February March

Sales or Receipts 220,000 180,000 660,000

BIR Form Form 2550 M Form 2550 M Form 2550 Q

Illustration

Dr. Cruz, a medical practitioner, sold his residence for P 10M. The sale of property by a
non-realty dealer is a casual sale and not made in the course of business, hence, it is
exempt from business tax. Note: Dr. Cruz is a medical practitioner and not a reality dealer

Illustration

Mr. Santos is a proprietor regularly engaged in trading merchandise. During the month, he
reported the following:

Sale of merchandise - P 800,000 (habitual transaction)

Sale of personal car - P 1,250,000 (casual/isolated sale)

Mr. Santos is not car dealer so only the sale of merchandise is subject to business tax.

CHAP. 4 - EXEMPT SALES OF GOODS, PROPERTIES & SERVICES

Exempt Sales are exempt consumption of goods or services from domestic sales. Exempt
sales are not subject to VAT and Percentage tax.
Hence,
1) making an exempt sale of goods, properties or services shall not bill any output VAT to their
customers because the sale is not subject to VAT.
2) A non-VAT person making exempt sales shall not be subject to the 1% percentage tax on the
sale or receipt.

EXEMPT SALES OF GOODS OR PROPERTIES

1) Sale of goods to Senior Citizens (SC) and Persons with Disability (PWDs) This covers sale of
essential goods only. Aside from VAT exemption, an additional 20% discount is legally
mandated.

2) Sale of Exempt Goods

A) Agricultural and marine food products in their original state.
B) Fertilizers, seeds, seedling and fingerlings, fish, prawns, livestock and poultry feeds,
including ingredients used in the manufacture of finished feeds.
 C) Books, newspaper and magazines
D) Medicines prescribed for diabetis and hypertension
E) Passenger or cargo vessels and aircrafts

3) Sale of goods by Cooperatives

Sale by agricultural cooperatives duly registered in good standing with the Cooperative
Development Authority (CDA) to their members, as well as sales of their produce,
whether in its original state or processed form to non-members, their importation of direct
farm inputs, machineries and equipment, including spare parts thereof, to be used
directly and exclusively in the production and or processing of their produce. Sales by
non-agricultural, non-electric and non-credit cooperatives duly registered and with good
standing with the CDA are vatable.

4) Sale of residential properties

A) Sale of real properties utilized for low-cost housing
B) Sale of real properties utilized for socialized housing.
C) Sale of residential lot valued at P 1,919,500 and below and other
residential dwelling valued at P 3,919, 200 and below.

5) Export sales by Non-VAT person

6) Treaty-exempt sales of goods

Sales of goods, exempt under international agreement to which the Philippines is a
signatory or under special laws.

7) Tax-free exchange of property

The exchange of properties in pursuant to a plan of merger or consolidation or the
transfer of property that resulted in the initial acquisition of corporate Control.

8) Sale of GOLD to the Bangko Sentral ng Pilipinas (BSP)

The sale of gold to the BSP is now a VAT-exempt transaction which is previously
considered a zero-rated sale.

EXEMPT SALES OF SERVICES

1) Schools
Educational services rendered by private educational institutions, duly accredited by the
Department of Education (DepED), the Commission on Higher Education (CHED) and the
Technical Education and Skill Development Authority (TESDA) and those rendered by
government educational institutions.

2) Employees
Services performed by individuals in pursuant to an employer-employee relationship.
3) Agricultural contract growers and milling for others of palay into rice, corn into corn grits and
sugar into raw sugar.

4) Residential leasing - Lease of residential units with monthly rental not exceeding P 15,000.

5) Cooperative Services
Gross receipts from lending activities by credit or multi-purpose cooperatives duly
registered and in good standing with the CDA.

6) Hospitals
Medical, dental, hospitals and veterinary services except those rendered by
professionals and sales of drugs by a hospital drug store.

7) Homeowners Association or Condominium Corporations

Association dues, membership fees and other assessments and charges collected by
homeowner’s associations and condominium corporations.

8) Lease passenger or Cargo vessels and aircrafts, including engine equipment and spare parts
thereof for domestic or international transport operations.

9) Treaty-exempt services

10) Regional area headquarters - DEFER

11) International carriers

Transport of passengers by international carriers.

12) Printers or Publishers

Sale, printing or publication of books and any newspaper, magazines, review or
bulletins.

13) Senior Citizens and PWDs – sale of basic essential services.

NOTE: Taxation of the sale of properties held for use is absent in the case of Non- VAT
taxpayers. In law, the percentage tax is limited to the sale of goods or services in the course of
business to the exclusion of incidental transactions. The sale of ordinary assets held for use is
not subject to percentage tax.

ILLUSTRATION

A VAT-registered restaurant sold food and beverages totaling P 2,240 to senior citizens who
presented a senior citizen identification card. The senior citizen was accompanied by 3 other
non-senior citizens.

Invoice price to senior citizen (2,240 x ¼) 560

Less: Input VAT to SC (560 x 12/112) 60
Sales to SC 500
Less: SC discount (500 x 20%) 100
Net amount due to SC 400
Sale to Non-SC (2,240 x 3/4) 1,680
Total amount to Bill 2,080

In VAT receipts:
Vatable sales 1,500
Sale to SC 500
Output VAT (1,500 x 12%) 180
Total Sales 2,180

A restaurant is a Non-VAT taxpayer:

Total sales 2,240
Less: SC discount (2,240 x 1/3 x 20%) 112
Amount due 2,128

1. sale of live hogs

• Exempt because live hogs are under the sales of exempt goods.
2. sale of frozen carcass and meat
• Exempt
3. sale of fresh fishes
• Exempt
4. sale of dried and/or smoked fish
• Exempt
5. sale of palay and rice
• Exempt because they are exempt agricultural food products
6. sale of banana
• Exempt
7. sale of mushrooms
• Exempt
8. sale of firewood and charcoal
• Subject to tax because they are vatable as they are non-food agricultural
products
9. sale of orchids, flowers and bonsai
• Subject to tax
Note: It must be emphasized again that the term “vatable” means that the sale is subject
to VAT if the taxpayer is VAT registered or a VAT registrable person but to a 3%
percentage tax if the taxpayer is non-VAT taxpayer

10. sale of chicken

• Exempt
11. sale of 1-day old chicks
• exempt
12. sale of eggs for “penoy” and “balot”
• exempt
13. sale of chicken manure
• exempt

All of the above are exempt from the business tax. Obviously, chicken manure is not
intended for human consumption, but it is actually a vegetable fertilizer similar to guano;
thus, it is also exempt

14. sale of pets

15. sale of animal vitamins, medicines and feeds
16. receipts from veterinary services

All of the above are subject to business tax. Feeds for pets are vatable. Note also that
services provided by professionals are vatable.

17. sale of meat cuts

18. sale of hotdogs
19. sale of cup noodles
20. sale of canned sardines and beans

The sale of meat cuts is exempt. The sales of hotdogs, cup noodles, and canned goods
which are processed foods are vatable.

21. sale of muscovado sugar

• the sale of muscovado sugar which considered raw cane sugar is exempt
from business tax.
22. sale of refined sugar
• Only the sale of refined sugar is subject to business tax.
23. sale of seeds and fertilizers
• Exempt
24. sale of farm/fishery equipment (tractors,water pumps)
25. sale of farm inputs (pesticides , herbicides)

The sale of farm or fishery such as tractors, water pumps, and other farming inputs such
as pesticides and herbicides are vatable by virtue of the lack of express legal exemption.
26. sale of livestock or poultry feeds and ingredients

•The sale of livestock or poultry feeds and ingredients used in the manufacture of
finished feeds are exempt. However, the sale of ingredients which may also be used for
the production or processing of food for human consumption is vatable.

•Thus, for the sale (including importation) of livestock and poultry feeds or ingredients
used in the manufacture of finished feeds to be exempt from VAT, it must be proven that
the same is unfit for human consumption or that the ingredient cannot be used to
produce food for human consumption as certified by the Food and Drug Administration
(FDA) (RMC55-2014, June 17,2014)

27. sale of novels and textbooks

• Only the sale of novels and textbooks are VAT-exempt. The sale of office supplies,
school supplies other than books and advertising magazines are vatable.

28. sales made by MIEs

• Self-employed individuals who are categorized as marginal income earners (MIEs) are
still subject to income tax, but they are exempted from paying business taxes, such as
VAT and percentage tax.

CHAP. 5 – PERCENTAGE TAXES

A PERCENTAGE TAX is a national tax measured by a certain percentage of the gross selling
price or gross value in money of goods sold or bartered; or of the gross receipts or earnings
derived by any person engaged in the sale of services.

Percentage Taxpayers or (Non-VAT) are those who do not exceed the VAT threshold ( P 3 M)
and who do not register as VAT taxpayers. Businesses with vatable sales exceeding the VAT
threshold of P P 3M shall be subject to VAT on such sales.

Note: Value Added Tax (VAT) will be discussed in detail in the next chapter.

How can you know if your business is subject to Percentage Tax?

You need to compute the gross sales or gross receipts, either expected or from the previous
year. If the gross sales or receipts are less than three million (3M), then you are subject to
percentage tax rates.

Is Percentage Tax a deductible expense?

Yes, a Percentage tax is a deductible account of the gross income.
Who are subject to Percentage Tax?
Primarily, any persons who are not VAT registered and whose gross income or sales is less than
three million (P 3,000,000) thresholds will be subject to percentage tax. These include estates,
trusts, partnerships, and corporations.

TAX ON OTHER TAXABLE SALES OF NON-VAT TAX PAYERS

The imposable percentage tax on taxable sales or receipts, other than from services or
transactions specifically subject to percentage tax of Non-VAT taxpayers is 1% payable every
25 th day at the end of the Quarter.

Before implementing CREATE Law, the percentage tax rate is three percent (3%) of gross sales
or gross receipts. However, due to CREATE Law in 2020, the percentage reduces from 3% to
One percentage (1%) tax rate. The percentage tax rate is one percent (1%) starting July 1,
2020. Percentage Tax is reduced from 3% to 1% effective July 1, 2020 until June 30, 2023.

EXEMPTION FROM PERCENTAGE TAX

The Percentage Tax does not cover:
1. VAT taxpayers;
2. Self employed and/or Professionals who opted to the 8% Income tax; and,
3. Cooperatives

Individuals (Self employed and/or Professionals) paying the 8% income tax shall only file
Income tax. There is no need to file Percentage tax.

Cooperatives shall be exempt from the 1 % Percentage tax. This exemption, However, it is not
absolute. Sales or receipts of cooperatives outside their registered activities are still subject to
business tax similar to the business tax treatment of gov’t. agencies and nonprofit institutions.

WITHHOLDING PERCENTAGE TAX AT SOURCE

The sale to govt. agencies and instrumentalities including Govt. Owned and Controlled
Corporations (GOCCs) is subject a withholding tax of 1% at source. The govt. agency,
instrumentality or GOCC withholds the 1% percentage tax and issues to the taxpayer BIR Form
2307. The taxpayer shall attach this form in filing his quarterly percentage tax return.

Illustration
During the quarter Mr. Cruz, a non-VAT taxpayer, sold various office supplies to a govt. agency
for P 200,000 and to private customers for P 80,000.

Sales P 200,000
Less: 1% final w/tax percentage tax 2,000
Net proceeds to be paid to Mr. Cruz P 198,000
The percentage tax payable for the quarter shall be computed and presented in
BIR Form 2551 Q as follows:

Sales subject to govt. w/tax (198,000/99%) 200,000

Sales to private customers 80,000
Gross Sales 280,000
X w/tax 1%
Percentage tax due 2,800
Less: Tax credit (BIR Form 2307) 2,000
Percentage tax Payable 800

Illustration
Goodday Corp., a Non-VAT taxpayer paying the 1% percentage tax, had the following receipts
for the quarter:

Taxable sales to govt. entities 150,000

Taxable sales to private entities 60,000
Exempt sales 180,000 (not subject to % tax)
Total Sales 390,000

The total tax withheld at source was P 1,500.

The percentage tax payable for the quarter to be presented in BIR Form 2551 Q shall be:

Taxable sales to govt. entities 150,000

Taxable sales to private entities 60,000
Total taxable sales 210,000
Multiply by 1% x 1%
Percentage tax due 2,100
Less: W/tax at source (BIR Form 2307) 1,500
Percentage Tax Payable 600

Illustration
Sweet Restaurant had annual receipts of P 1.5 M. During the month, Sweet Restaurant
generated P 200,000 gross receipts.

Restaurant operation is not among those services or transactions specifically subject to

percentage tax, so it shall pay 1% general percentage tax computed as: Percentage tax = (
200,000 x 1% = P 2,000.)

CHAP. 6 - VALUE ADDED TAXES (VAT)

VALUE ADDED TAX (VAT) is a tax on the value added by every seller on the purchase price or
cost in the sale or lease of goods, property or services in the ordinary course of trade or
business as well as on importation of goods into the Philippines whether personal or business
use.

VAT is a type of sales tax which is levied on consumption on the sale of goods, services or
properties, as well as importation, in the Philippines. To simplify, it means that a certain tax rate
is added up to the selling price of a goods or services sold. It is also imposed on imported goods
from abroad.

It covers all vatable sale of goods, properties, services or lease of properties by VAT taxpayers.

We may not be aware of it, VAT (Value Added Tax) is part of our life, we are paying it regularly.
VAT is everywhere, it’s in the most of the goods or services we purchase.

Take for an instance, whenever we go to the salon to get our hair done, when we dine in a
restaurant, watch a movie, when we buy clothes, when we gas up our car, and many more, VAT
is included in what we pay.

Vatable sales or receipts are from sources other than:

1. Exempt Sales

2. Receipts from services subject to Other Percentage Taxes (OPT).

Who are VAT taxpayers?

VAT-Registered persons - even if its annual sales do not exceed the VAT threshold.
VAT-Registrable persons - whose sales or receipts exceed the VAT threshold but did not
register as VAT. Hence, subject to VAT but without the benefit of an input tax credit.

VAT THRESHOLD

General Threshold – Applicable to all taxpayers other than Franchise grantees of radio or
television - P 3 M
A Branch is not a separate entity with their head office. A head office and a branch shall file a
consolidated VAT return.

Optional VAT Registration

Taxpayers below the threshold can voluntarily register as VAT taxpayers. Such an option is
subject to the 3-year lock-in period. The taxpayer is precluded to have the VAT registration
revoked until the lapse of 3 years registration

It must be noted that despite the VAT registration, VAT shall apply only to Non- vatable sales or
receipts. Exempt sales remain to be exempt while receipts specifically subject to percentage tax
are subject to Other Specific Percentage Tax Rates.
Comparison of Percentage Tax and VAT

Basis Percentage Tax VAT

1. Timing of imposition Sale Sale

2. Nature Primary tax Primary tax

3. Subject businesses Any business, in general Any business, in general

4. Taxpayers Business only Business only

5. Usual taxpayers Small businesses Big businesses

6. Accounting treatment Expense Liability

PROCEDURES OF BUSINESS TAXATION

1. Evaluate if the sales activity qualifies as a business.

a. If not, the activity is exempt from business tax
b. If yes, the business must register for business tax. Proceed to the succeeding procedures.

2. Identify the taxable person

a. If Individual - Include all proprietorship branches of the individual taxpayer.
b. If juridical, include all branches of the corporate taxpayer

3. Determine the Activity Type

If sales of goods - determine the sales
If sales of services - determine the receipts

4. Classify the sales or receipts whether they are:

- Exempt sales or receipts - pay no business tax
- Sales or receipts subject to specific Percentage tax - pay specific percentage tax
- Vatable sales or receipts

5. Determine taxpayer Registration Type

- if taxpayer is VAT registered - pay VAT on vatable sales or receipts

- if is Non-VAT-registered – pay the 1% Percentage tax then determine the magnitude of
12-month vatable sales at the end of every month.
- if it exceeds P 3,000,000 – the person shall register as a VAT prospectively effective on the
succeeding monthly vatable sales or receipts
- If it does not exceed P 3,000,000 – the person shall continue paying the 1% general
percentage tax on the sales or receipts.
6. Determine the goods or services is excisable.
- if Yes, pay the applicable excise tax in addition to VAT or Percentage tax.
-if No, pay only the VAT or Percentage tax

NOTE:

Businesses normally register initially as Non-VAT taxpayers, except when their projected
operation is expected to exceed the P 3 M annual VAT threshold.

For Non-VAT registered taxpayer, the evaluation of the magnitude of vatable sales or receipts is
done continuously every month over a 12-month period. The taxpayer remains a Non-VAT
taxpayer for as long as its 12-month rolling sales or receipts do not exceed the P 3 M annual
VAT threshold.

Once the taxpayer becomes or registered as a VAT taxpayer, he remains as such paying VAT
on vatable sales.

Who Pays Percentage Tax?

Type of Percentage Tax VAT Registered Non-VAT

Taxpayer Taxpayer

Specific Percentage Tax Yes Yes

General Percentage Tax No Yes

THE VAT MODEL

Output VAT - - - - - - - - - - - - - - - - - - x x x
Less: Input VAT - - - - - - - - - - - - - - - x x x
VAT due - - - - - - - - - - - - - - - - - - - - x x x
Less: Tax Credits (if there is any) - - x x x
VAT still due . . . . . . . . . . . . . . . . . . . X x x

OUTPUT VAT = is the VAT on vatable sales or receipts. The Output VAT is presumed passed on
by the seller to the buyer on its sales or receipts.

2 Types of Output VAT:

1. Regular Output VAT – 12% VAT imposed on domestic sales or receipts.

2. Zero Output VAT – 0% VAT imposed on export and other zero-rated
Sales.

INPUT VAT = is the VAT paid by the taxpayer on the domestic purchases from VAT suppliers or
on the importation of goods or services in the course of business.

= it has rules on credibility. Not all paid Input VAT is creditable against Output VAT. Those
allowed are called “Claimable Input VAT” or “Allowable Input VAT” or :Creditable Input VAT” or a
Deferred VAT.

VAT DUE = at the end of each month, the Input VAT is offset with the Output VAT. A positive
VAT due is paid to the BIR. A negative VAT is normally non-refundable but is carried over to the
next succeeding months or quarter.

VAT REPORTING = VAT is filed and paid Monthly and Quarterly.

1st Month of the Quarter - BIR Form 2550 M – Deadline -within 20 days after end of the month

2nd Month of the Quarter - BIR Form 2550 M – Deadline - within 20 days after end of the month

Every Quarter - BIR Form 2550 Q - within 25 days after end of every quarter

Illustration 1
Rosal Dept. Store had the following sales for year 2021:

Fertilizers, Seeds, Poultry & Hog Feeds - - - - - - - - - - 1,200,000

Fruits & Vegetables - - - - - - - - - - - - - - - - - - - - - - - - - 800,000
Groceries - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 800,000
Clothes, Shoes & Other Apparels - - - - - - - - - - - - 600,000
Furniture - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 400,000
Total - - - - - - - - - - - - - - - - - - - - - - - 3,800,000
=========
Compute for Vatable Sales.

Sales of Fertilizers, Seeds, Poultry, Hog Feeds, Fruits and Vegetables are Exempt sales.

Vatable Sales are:

Groceries - - - - - - - - - - - - - - - - - - - - - - - 800,000
Clothes, Shoes & Other Apparels - - - -- - 600,000
Furniture - - - - - - - - - - - - - - - - - - - - - - 400,000
Total Vatable Sales - - - - - - - - - - - - - - - 1,800,000
=========
Still subject to Percentage Tax because it is below the P 3 M threshold.
Illustration 2

Ms. Rose had the following gross receipts from her professional practice and other business in
2021:

Restaurant business- - - - - - - - - - - - - - - - - - - - 2,200,000

Barbecue stand - - - - - - - - - - - - - - - - - - - - - - - 200,000
Taxi Cab operations - - - - - - - - - - - - - - - - - - - - 1,500,000
Professional practice - - - - - - - - - - - - - - - - - - - - 900,000
Total Revenue - - - - - - - - - - - - - - - - - - - - - - - 4,800,000
=========
Compute the Vatable Sales:
Restaurant business - - - - - - - - - - - - - - - 2,200,000
Professional practice - - - - - - - - - - - - - - - 900,000
Total Vatable Sales- - - - - - - 3,100,000 (Vatable already)
=========

Barbecue stand – Exempt - underwent simple process (not Vatable)

Taxi Cab operations – subject to Common Carrier’s Tax (3%) (not Vatable)

Illustration 3 – Married Individual Taxpayers

Mr. & Mrs. Lily had the following revenues during the year 2021:
Mr. Lily Mrs. Lily Total
Professional practice - - - - 2,200,000 1,700,000 3,900,000
Sari-sari store- - - - - - - - - - 1,350,000 1,350,000
Total - - - - - - - - - - - 2,200,000 3,050,000 5,250,000
======== ======== ========

Each individual is a taxable person and is separately subject to business tax. The
aggregation shall be made for each individual spouse. Hence,Mr. Lily will pay 1%
Percentage Tax in the upcoming month, but Mrs. Lily shall pay VAT because she
exceeded the VAT threshold. If any sales or receipts cannot be directly attributed to or
identified as exclusively earned or realized by either spouse, the same shall be divided
equally between them for the purpose of determining their respective sales or receipts
for the purpose of the threshold.

Illustration 4
Mr. Lirio had the following purchases and sales (exclusive of VAT) during
the first quarter of 2021:

January February March Total

Cash Purchases 700,000 320,000 375,000 = 1,395,000
Cash Sales 650,000 580,000 500,000 = 1,730,000
The following entries are recorded by the taxpayer for January:

To record Purchases:
Purchases 700,000
Input VAT 84,000 (700,000 x 12%)
Cash 784,000

To record Sales
Cash 728,000
Sales 650,000
Output VAT 78,000 (650,000 x 12%)

To offset Output against Input VAT:

Output VAT 78,000
Deferred VAT 6,000 (Input VAT Carryover)
Input VAT 84,000

Need to file VAT return but No Payment of VAT because Input is bigger than Output.

The following entries are recorded by the taxpayer for February:

To record Purchases:
Purchases 320,000
Input VAT 38,400
Cash 358,400

To record Sales:
Cash 649,600
Sales 580,000
Output Vat 69,600

To offset Output against Input VAT:

Output VAT 69,600
Input VAT *** 44,400 (38,400 + 6,000)
VAT Payable 25,200

To record remittance/payment of VAT:

VAT Payable 25,200
Cash 25,200

***38,400 (320,000 x 12%) from February plus 6,000 January carry-over

In VAT reporting, the February would look like:

Output VAT 69,600
 Less: Input VAT 44,400
VAT due and payable 25,200
======

The following entries are recorded by the taxpayer for March:

To record Purchases:
Purchases 375,000
Input VAT 45,000
Cash 420,000

To record Salles:
Cash 560,000
Sales 500,000
Output VAT 60,000

To offset Output against Input VAT:

Output VAT 60,000
Input VAT 45,000
VAT Payable 15,000
======
To record remittance/payment of VAT:
VAT Payable 15,000
Cash 15,000

In VAT reporting, the Quarterly 2550 Q would look like:

Output VAT - - - - - - - - - - - - - - - - - - - - - 207,600
Less: Input VAT - - - - - - - - - - - - - - - - - - 167,400
VAT due - - - - - - - - - - - - - - - - - - - - - - - 40,200
Less: Tax credit (if there’s any) 0
Monthly VAT payments - - 25,200 25,200
VAT still due - - - - - - - - - - - - - - - - - - - - - - 15,000
======

If the quarterly tax due is negative, it is non-refundable. The unutilized Input VAT remains in the
books and is carried over as Input VAT (Deferred VAT) in the following month of the next quarter.

Illustration 5
Mr. Rosal, a VAT taxpayer who used the calendar year had the following
Input VAT and Output VAT from January to April 2021:

January February March April

Output VAT 80,000 90,000 85,000 75,000
Input VAT 60,000 80,000 65,000 70,000

The VAT due and payable shall be reported and computed as follows:

January February March April

Output VAT 80,000 90,000 255,000 75,000
Less: Input VAT 60,000 80,000 205,000 70,000
Monthly VAT due 20,000 10,000 50,000 5,000
====== ===== ====== =====

Vat Payable for the Quarter - - - - - - - - - - - - - 50,000

Less: VAT paid in Jan. and Feb. - - - - - - - - - - 30,000
Quarterly VAT due and payable - - - - - - - - - - - - 20,000
======

To continue…For the month of April:

Output Vat - - - - - - - - - - - - - - - - - - - - - - - 75,000

Input VAT - - - - - - - - - - - - - - - - - - - - - - - - - - 70,000
VAT due and payable (April)- - - - - - - - - - - - - 5,000
======

Note:

1. The monthly VAT return for the first 2 months reports only Output VAT and Input VAT
for the month.

2. The quarterly VAT for the 3 rd month covers the Output and Input VAT from January to
March. VAT paid in the first 2 prior months is deducted in the quarterly balance.

3. April is the first month after the quarter. Reporting will be monthly for April and May
and cumulative for the quarter ending June.

Illustration 6
ABC Company had the following sales and purchases, Exclusive of VAT, in the 2nd quarter of
2021:

April May June Total

Sales 625,000 400,000 800,000 1,825,000
Input VAT 60,000 54,000 50,400 164,400

The VAT due and payable will be:

 April May June
Sales 625,000 400,000 1,825,000
Multiply by x 12% x 12% x 12%

Output VAT 75,000 48,000 219,000

Less: Input VAT 60,000 54,000 164,400
VAT due 15,000 (6,000) 54,600

Less: VAT paid in April 15,000

Quarterly VAT due and payable 39,600
=======

Illustration 7
XYZ Company had the following sales and purchases, Inclusive of VAT, in the 2nd quarter of
2021:

April May June Total

Sales 625,000 400,000 800,000 1,825,000
Input VAT 60,000 54,000 50,400 164,400

The VAT due and payable will be:

April May June Total

Sales 625,000 400,000 1,825,000
Divide by / 1.12 / 1.12 / 1.12

Sales with VAT 625,000 400,000 1,825,000

Without VAT 558,036 357,143 1,629,464
Output VAT 66,964 42,857 195,536
Less: Input VAT 60,000 54,000 164,400
VAT due 6,964 (11,143) 31,136

Less: VAT paid in April 6,964

Quarterly VAT due and payable 24,172
=======

NOTE: IF THE PROBLEM IS SILENT (MEANING IT DID NOT MENTION WHETHER

EXCLUSIVE OR INCLUSIVE OF VAT) ASSUME IT IS INCLUSIVE OF VAT.

CHAP. 7 – OTHER PERCENTAGE TAXES (OPT)

SERVICES SPECIFICALLY SUBJECT TO OTHER PERCENTAGE TAX (OPT)

Banks and Non-Bank financial intermediaries
International Carriers on their transport of cargoes, excess baggage and mails only
Common carriers on their transport of passengers by land and keepers of garage
Certain amusement places
Brokers in effecting sale of stocks through Phil. Stock Exchange and corporations
or shareholders on initial public offering
Certain franchise grantees
Life insurance companies and agents of foreign insurance
Telephone companies on overseas communication
Jai-alai and cockpit operators on winnings

Business or Activity Percentage Tax Tax Rates

Banks & Intermediaries Gross Receipts tax 5%, 1%, 7%

International Carriers Int’l. Carrier’s Tax 3%

Common Carriers Common Carrier’s Tax 3%

Amusement places Amusement tax 10%/15%/18%/30%

Sales of stocks by an Stock Transaction Tax 60% x 1%

Investor

Sales of stocks during an IPO Tax 4%/2%/1%

Initial Public Offering (IPO)

Franchise Franchise Fee 5%

Life Insurance Premiums Tax 2%/4%/5%

Overseas Calls Overseas Communication 10%

Tax

Amusement betting Winnings Tax 10%/4%

SELECTED ILLUSTRATIONS ON OTHER PERCENTAGE TAXES (OPT)

TAX RATES ON BANK AND QUASI BANKS
Quasi Banks- are non-bank financial intermediaries performing quasi-banking
functions such as borrowing of funds.
Examples of non-bank financial intermediaries without quasi-banking
functions are Pawnshops and Money Changers.
The percentage tax on banks, quasi-banks and other non-bank intermediaries is
commonly known as Gross Receipts Tax.
Tax Rates on Banks and Quasi-Banks
1. Interest income, commissions and discounts from lending activities, and income
from financial leasing on the basis of remaining maturities of instruments:
A. Maturity period of 5 years or less- - - - - - - - - - - - - - 5%
B. Maturity period of more than 5 years - - - - - - - - - - 1%
2. On royalties, rentals of property, real or personal ,
profits from exchange and all other items
treated as gross income- - - - - - - - - - - - - - - - -- - - - -- - - - - 7%

Illustration 1
Q Bank had the following receipts during the month:

Source of Income Total Amount

A. Interest income from loans maturing P 2,500,000
within 2 years
B. Interest income from loans maturing more 1,000,000
than 2 years but within 5 years
C. Interest income on loans maturing more 1,200,000
than 5 years
D. Processing fees 300,000
E. Rent Income from foreclosed properties 200,000

Required: Compute the Gross Receipts tax.

P 2,500,000 x 5% = P 125,000
1,000,000 x 5% = 50,000
1,200,000 x 1% = 12,000
300,000 x 7% = 21,000
200,000 x 7% = 14,000
P 222,000

Percentage tax on Domestic Carriers and Keepers of Garage

Common Carrier = is any person, corporation, firm or association engaged in the

business of carrying or transporting passengers or goods or both, by land, water
or air, for compensation, and offering their services to the public.
“Common Carrier’s Tax” = tax due on gross receipts of common carriers on their
transport of passengers by land.

Rules on Common Carriers:

 Mode of Transport Passengers Baggage/Mails/Cargoes

By Land 3% Percentage tax Vatable

By Water or Sea Vatable Vatable

By Air Vatable Vatable

Illustration

Mr. C is an operator of a tricycle, 5 jeepneys and 2 buses. The monthly receipts of

his vehicle are summarized below:

Passengers Cargoes Total

Tricycle 20,000 xxx - 20,000 xxx

Jeepneys 150,000 10,000 160,000

Buses 200,000 40,000 240,000

Total 370,000 50,000 420,000

ASSUME:
A. Mr. C is Non-Vat registered, the Common Carrier’s tax is:

The P 50,000 is subject to 3% general percentage tax rate.

The P 350,000 is subject to 3% Common Carrier’s Tax;
400,000 x 3 % = P 12,000 (Total) same rate

B. Mr. C is a VAT registered business.

350,000 x 3 % = P 10,500

Note: 1. Tricycle is not subject to tax.

2. The P 50,000 receipts from cargoes are subject to VAT.

AMUSEMENT TAXES
Proprietor, lessee or operator of the following amusement places shall pay based
on the tax rates:
Place of boxing exhibitions = 10 %
Places of professional basketball games = 15 %
Cockpits, Cabarets, night or day clubs = 18 %
Jai-alai and Race tracks = 30 %
Bowling alleys, Golf courses, Billiard halls are Vatable.
Cinemas and Theaters are not subject to amusement tax but exclusively subject to
local amusement tax.

Exempt receipts from Professional Boxing:

● World or Oriental Championship
● At least 1 of the contenders is a Filipino citizen
● The promoter is a Filipino citizen or a corporation 60% of which is owned by
● Filipino citizens

Illustration
Southway, Inc. reported receipts from the following events:
Professional non-titled boxing bouts P 200,000
Philippine Championship boxing bouts 300,000
Professional basketball games 400,000
Amateur basketball games 500,000
Concert of various musical artists 400,000
Total P 1,800,000

Required: Compute the amusement tax:

Answer: 200,000 x 10% = P 20,000

300,000 x 10% = 30,000
400,000 x 15% = 60,000
Total Amusement tax = P 110,000

Note: Amateur basketball games and Concerts are Vatable if it is a VAT taxpayer.
If Non-VAT registered, it is subject to 3% general percentage tax.

TAX ON FRANCHISES
Generally, franchises are vatable. The percentage tax on franchise grantees is
called “Franchise Tax”
Only 2 types of franchises that are subject to Percentage Tax:

Franchise Grantees % Tax Rate

Radio, Television broadcasting companies 3%
whose annual gross receipts do not exceed P 10,000,000.
Gas and Water Utilities 2%

VAT Registration – Franchise grantees of radio or television broadcasting

companies are mandatorily required to register as VAT taxpayer if they exceed the
P 10 M gross receipts threshold. Even if below the threshold, they may register as
VAT taxpayer.
Once the option is exercised, said option shall be irrevocable. In other words, VAT
registration is non-cancellable until the dissolution of the business.

Note: There is no similar provision for franchise grantees of gas and water utilities.
Hence, they are subject to percentage tax even if they exceed the P 10 M gross
receipts threshold.

Illustration 1 – Radio Franchise Grantees

Radio Ambak exceeded the P 10 M annual gross receipts last year due to increase
in advertisements. Radio Ambak is only expected to reach its P 6 M average
annual receipts this year.

Answer: Radio Ambak shall be subject to VAT starting this year. Once the P 10 M
threshold is exceeded, TV or radio broadcasting companies will be perpetually
covered by VAT.

Illustration 2 – Gas Utilities

Davao Gas Corp., a gas utility, consistently had gross sales exceeding P 10 M every
year. During the year, it had P 12 M sales.

Answer: It is subject to 2 % franchise tax on P 12 M sales.

Illustration 3 – Water Utilities

Digos Water District reported a P 12 M receipt in a month from water bills from
Digos residents.

Answer: The receipt of of local water districts is subject to 2 % franchise tax and
not VAT. Local water districts are exempt from income tax but not business tax.
Franchise tax does not apply to water refilling or purification stations selling
bottled mineral water. They are Vatable.

VATABLE FRANCHISES
Electricity
Telecommunication
Transportation
Private franchises

EXERCISE - CHAP. 4 - EXEMPT SALES OF GOODS, PROPERTIES & SERVICES

TEST I – TRUE OR FALSE – Write TRUE if the statement is correct and FALSE if it is
incorrect/wrong.

1) Exempt sales are not subject to neither percentage nor VAT. TRUE
2) A non-VAT person making exempt sales shall be subject to 3% percentage tax on
the sales. FALSE

3) Sale of livestock and poultry feed s excluding ingredients in the manufacture of

finished feeds are exempt sales. FALSE

4) Exempt sales include medical, dental, hospitals and veterinary services except
those rendered by professionals and sales of drugs by a hospital drug store. TRUE

5) Transport of passengers and cargoes by international carriers are exempt sales. FALSE

6) Miller of palay into rice and sugar cane into refined sugar are both exempt from
business tax. FALSE

7) Sale of agricultural supply such as fertilizers are exempt while farm tools are
subject to business tax. TRUE

8) Agriculture produce such as palay, corn and tobacco are exempt sales. FALSE

9) Sale of agricultural and marine food products in their original state are exempt
Sales. TRUE

10) Palay, rice and firewood are exempt agricultural food products. FALSE

TEST II – ACCOUNT CLASSIFICATION – Which of the following Goods, Properties

and Service are EXEMPT SALES or subject to BUSINESS TAX? Extend the amount
and total all items under each category.

ITEMS EXEMPT SALES BUSINES TAX

Example: Fruit dealer, P 20,0000 P _20,000 P________
Casual sale of a car by a non-dealer, P 500,000 500,000 __________
Sale of office equipment by a business, P 1,000,000 __________ 1,000,000
Frozen fish, P 30,000 30,000 __________
Marinated meat, P 50,000 __________ 50,000
Sale of textile, P 150,000 __________ 150,000
Tuition fees of a TESDA accredited school, P 1,500,000 1,500,000 _________
Miller of sugar cane into raw sugar, P 2,000,000 2,000,000 __________
Agricultural contract grower, P 500,000 500,000 __________
Professional fees of Dr Tong of St. Paul Hospital, P 250,000 __________ 250,000
St. Claire hospital services, P 3,000,000 3,000,000 __________
T O T A L ----------------------------------------------------------------- 7,530,000 1,450,000
========== ==========
TEST III – TRANSACTION ANALYSIS – Identify if the transaction is an EXEMPT SALE
(EXM) or subject to BUSINESS TAX (BUS). Write the letter code only.
Example: __EXM____ Sale of live hogs.

__EXM____ 1) Sale of fresh fishes

__EXM____ 2) Sale of palay
__BUS____ 3) Sale of flowers
__EXM____ 4) Sale of guano fertilizer
__BUS____ 5) Sale of animal feeds
__BUS____ 6) Sale of bread
___EXM___ 7) Sale of meat cuts
___BUS___ 8) Sale of sardines
___BUS___ 9) Sale of farm equipment
___EXM___ 10) Milling for others of sugar cane into raw sugar
___EXM___ 11) Hospital services
___BUS___ 12) Sale of medicines
___BUS___ 13) Professional fees of veterinary doctors
___BUS___ 14) Services of TV artists
___BUS___ 15) Professional fees paid to doctors
___BUS___ 16) CPA Review classes rendered by Ateneo de Davao University
___EXM___ 17) Outgoing transport of passengers by an international air carrier
___BUS___18) Receipts from domestic flights
___EXM___ 19) Medical laboratory services of hospitals
___EXM___ 20) Compensation income of ADDU teachers

PROBLEM – SOLVE/ANSWER THE FOLLOWING !! (2 points each)

1) A senior citizen purchased medicines from Mercury Drug with a total tax-
inclusive price of P 1,120.

1-A) P __ 120____ How much is the applicable VAT?

1-B) P __1,000_______ How much is the amount net of VAT?

1-C) P ___200_______ How much is the senior citizen discount?

1-D) P ___800_______ How much should a senior citizen pay?

2) FAVORABLE Restaurant, a vat-registered business sold food and beverages to a

senior citizen totaling P 2,240 who presented a Senior Citizen I D. The senior
citizen was accompanied by one (1) non-senior citizen.

2-A) P ____120______ VAT on senior citizen sales

2-B) P ____200______ Senior citizen discount

2-C) P ____800______ Sales to a senior citizen.

2-D) P ____1,920______ Amount due.

EXERCISE – O P T (OTHER PERCENTAGE TAX)

TEST I – TRUE OR FALSE – Write the letter that corresponds to your answer:
A - TRUE
B - FALSE

1) The 1% general percentage tax applies to Non-VAT taxpayers.

TRUE
2) Common carriers are vatable on their transport of cargoes or baggage.
TRUE
3) Franchise grantees of private franchisees are vatable.
TRUE
4) Franchise grantees of transport operations are subject to percentage tax.
FALSE - “SUBJECT TO OTHER”
5) Franchise grantees of the government on utilities are subject to Other Percentage tax.
TRUE
6) The percentage tax of banks is called “Premiums Tax”.
FALSE - “GROSS RECEIPTS TAX”
7) The sale of water by water utility franchise grantees is subject to VAT.
FALSE - “REGARDLESS OF AMOUNT TILL SUBJECT TO TAX”
8) The sale of electricity by electric utility franchise grantees is subject to VAT.
TRUE
9) A common carrier by land for transport of cargoes, baggage or mails is subject to VAT.
TRUE
10) The gross receipts tax does not apply to rural banks.
FALSE - “APPLIES TO RURAL BANKS(BANKS ARE SUBJECT TO GROSS
RECEIPTS TAX)
10) Services performed by individuals in pursuant to an employer-employee relationship is an
example of exempt service.
TRUE
11) Keepers of garage is subject to 5% Other percentage tax.
FALSE - 3%
12) Services specifically subject to Other percentage tax rates apply to non-VAT registered
taxpayers only.
FALSE - ALSO TO VAT REGISTERED
13) Cooperatives shall be exempt from the 1% gross receipts.
TRUE
14) Franchisees on radio and television broadcasting have an option to be registered as VAT
Taxpayers.
TRUE
15) Gross annual sales and/or receipts of which do not exceed P3,000,000 is subject to 1%
percentage tax.
TRUE
16) The seller of goods or services is the one statutory liable to pay VAT.
TRUE
17) A business which is not registered is exempt from paying business taxes.
FALSE - NOT EXEMPTED, NEED TO BE REGISTERED IN ORDER TO NOT BE
PENALIZED
18) Sale of marine food products that undergone simple process of preparation for the market
is already taxable.
FALSE - SIMPLE PROCESSES, EXEMPT
19) Both life and non-life insurance companies are services specifically subject to other
percentage tax.
LIFE INSURANCE IS ONLY SUBJECT TO PERCENTAGE TAX
20) Feeds for pets are vatable.
TRUE

TEST II - MULTIPLE CHOICE – Select the best answer and write the letter that
corresponds to your answer.

1) From which of the following source does the 3% Common carrier’s tax specifically apply?
A) transport of passengers
B) transport of goods
C) both A and B
D) neither A nor B

2) Which is not specifically subject to Common carrier’s tax?

A) Bus
B) Taxi
C) Jeepney
D) Truck

3) Which of these is vatable?

A) City taxis
B) Sea vessels
C) Provincial buses
D) City buses

4) Which is subject to 3% Other percentage tax?

A) Kalesa
B) Bangka
C) Bulldozer
D) Car for hire

5) Which of the following franchisees is subject to franchise tax?

A) Electricity
B) Transportation
C) Water Utility
D) Telephone

6) The franchise tax on radio or television franchisees is:

A) 2% of gross receipts
B) 3% of revenue
C) 2% of revenue
D) 3% of gross receipts

7) What is the business tax liability of gas and water utilities with gross receipts not exceeding
P 10 M?
A) VAT
B) 1% Other Percentage tax
C) 2% Other Percentage tax
D) Exempt

8) What is the business tax liability of gas and water utilities with gross receipts exceeding
P10 M?
A) VAT
B) 2% Other Percentage tax
C) 3% Other Percentage tax
D) Exempt

9) The gross receipt tax on long-term interest income is:

A) 7 %
B) 5 %
C) 3 %
D) 1 %

10) Which is subject to the gross receipts tax?

A) Banks
B) Quasi-Banks
C) Pawnshops
D) All of these

11) The gross receipts of banks pertain to:

A) principal collection
B) interest collection
C) principal and interest collection
D) None of these

12) Which is not subject to amusement tax?

A) places of boxing exhibitions
B) places of professional basketball games
C) Cockpits
D) Golf course

13) Which of the following franchises is subject to franchise tax?

A) Electricity
B) Transportation
C) Water Utility
D) Telephone

14) What is the business tax liability of radio or television broadcasting company with gross
receipts not exceeding P 10 M?
A) VAT
B) 1% Percentage Tax
C) 3% Other Percentage Tax
D) No business tax

15) Who is engaged in business?

A) a trader
B) a seller of his residential house
C) a person employed by a corporation
D) a sari-sari store owner (MIE)

16) A radio or television broadcasting company with annual gross receipts of P 12 M shall pay:
A) VAT
B) 3% Percentage Tax
C) 2% Other Percentage Tax
D) No business tax

17) A Non-VAT taxpayer shall file and pay its business tax every:
A) 20 th day of each month
B) 20 th day after the quarter
C) 25 th day of each month
D) 25 th day after the quarter

18) Which is subject to gross receipts tax?

A) Banks
B) Quasi-banks
C) Pawnshops
D) All of these

19) Operators of discos or cabarets are subject to amusement tax of:

A) 10%
B) 15%
C) 18%
D) 30%

20) Which of the following is not exempt from amusement tax?

A) World Championship
B) Oriental Championship
C) National Championship
D) None of these

21) A person who made a one-time or casual sale of properties is:

A) exempt from business tax
B) subject to percentage tax
C) subject to VAT
D) 3% percentage tax on its export sales

22) A Marginal Income Earner (MIE) shall pay:

A) 1% Percentage Tax
B) 12% VAT
C) 3% Percentage Tax
D) None of these

23) A Non-VAT registered person who exceeded the VAT threshold will pay:
A) Percentage Tax
B) VAT
C) both A and B
D) either A or B at his discretion

24) A Non-VAT taxpayer whose sales for the year exceeded P 3M is:
A) exempt from VAT
B) subject to 0% VAT
C) subject to Percentage tax
D) subject to 12% VAT

25) It is a proportional contribution by persons and property levied by the lawmaking body of
the State:
A) Tax
B) License fee
C) Special Assessment
D) Toll

TEST III - MULTIPLE CHOICE – Indicate the Tax Rate. Select the best answer and write the
letter that corresponds to your answer. You can use the choices more than once.
A - 3%
B - 2%
C - 5%
D - 18%
E - 15%
F - 0%
G - 1%
H - Exempt

1) Franchise grantees on gas and water utilities. B - 2%

2) Banks and Quasi-banks interest on loans with maturity period of 5 years or less C - 5%

3) Professional basketball games E - 15%

4) Non-VAT registered persons other than exempt sales of goods, properties or services. G - 1%

5) Sari-sari store (MIE) H - EXEMPT

6) Operator of cockpits D - 18%

7) Banks and Quasi-banks interest on loans with maturity period of more than 5 years G - 1%

8) Domestic land carriers and keepers of garage A - 3%

9) Boxing exhibitions and at least one of the contenders is Filipino citizen H - EXEMPT

10) Franchises of radio and/or television broadcasting whose annual gross receipts of
the preceding year do not exceed P 10 M. A - 3%
TEST IV –– SOLVE/ANSWER THE FOLLOWING. MULTIPLE CHOICE - Write the letter that
corresponds to your answer. You can use the choices more than once.
A - P 1,000,000
B - P 20,000
C - P 1,980
D - P 45,000
E - P 4,000
F - P 42,500
G - P 310,000
H - P 198,000
I P 400,000
J - P 500,000
K - P 5,000
L - P 25,000
M - Jan. 20, 2022
N - Jan. 25, 2022
O - 2551 Q
P - 2550 Q

Items 1 and 2 refer to the following:

Byahe Davao Bus, is a Non-VAT registered business and operates a common carrier by land.
During the 4 th Quarter 2020, it has the following receipts:
Transport of passengers P 1,500,000
Transport of cargoes 750,000
Excess baggage 250,000

1) How much is the Common Carrier’s Tax? D - 45,000

2) What amount is subject to Percentage tax? A - 1,000,000

Items 3 to 5 refer to the following:

Blue Bank Company has the following income for the month of January 2021:
Interest income with maturity of more than 5 years P 500,000
Interest income with maturity of less than 5 years 400,000
Rentals from other properties 250,000

3) Gross Receipt tax on interest income of more than 5 years K - 5,000

4) Gross Receipt tax on interest income of less than 5 years B - 20,000

5) Total Gross Receipts Tax for the month F - 42, 500

Items 6 and 7 refer to the following:
Mr. Y, a Non-Vat registered, is engaged in business and sold the following:
Sales of personal residence P 3,000,000
Sale of other capital assets 200,000
Sale of ordinary assets 500,000

6) Amount subject to business tax J - 500,000

7) Percentage tax payable K - 5,000

Items 8 and 9 refer to the following:

Mr X, a Non-Vat taxpayer, is a proprietor with sales in a year amounting to:
Mini sari-sari store - P 198,000
2 units Tricycle for hire - 50,000

8) Amount subject to Percentage Tax for the year is. 248,000

9) His Total Percentage tax payable for the year is: 2,480

Items 10 and 11 refer to the following:

Monte Roy, a Non-VAT registered business, had the following sales in its store
Sale of hotdog - P 100,000
Sale of meat cuts - 400,000
Cup noodles - 10,000
Canned sardines - 200,000

10) Amount of exempt sales I - 400,000

11) Amount of sales subject to Percentage tax G - 310,000

Items 12 to 15 refer to the following:

The following data pertain to a Non-VAT taxpayer which started its operations on Nov. 1 of
the 4 th Quarter 2021. The business adopts a calendar year:

November December
Revenue (Sales) P 250,000 P 150,000
12) How much is the amount subject to Percentage tax in the 4th quarter to be reflected in
the BIR Report? I - 400,000

13) How much is the 4 th Quarter Percentage tax payable? E - 4,000

14) Deadline of filing the 4 th Quarter payment is (exact date): N - JANUARY 25, 2022

15) What BIR Form is to be used? O - 2551 Q