INTRODUCTION TO BUSINESS TAXES
a. Donor’s tax
NATURE AND CONCEPT OF BUSINESS TAXES
To engage in business means to employ or involve oneself
in employment, occupation, profession, or commercial
activity for gain or livelihood. The term “engage” connotes
more than a single act or isolated transactions; it involves
same continuity of action.
National Internal Revenue Taxes (NIRT)
1. Income tax
2. Business taxes
3. Transfer taxes
4. Documentary stamp tax
NIRT are collected by the Bureau of Internal Revenue
(BIR), the government’s agency primarily in charges to
assess and collect all taxes and charges imposed by the
NIRC, other laws and regulations
INCOME TAXES
Income tax is the tax imposed on taxpayer’s earnings.
Kinds of Income Taxes
a. Regular Income Taxes
b. Final Income Taxes
BUSINESS TAXES
- Business taxes is the tax imposed on the right or
privilege to engage in an onerous transfer of goods or
services in the normal conduct of business.
- Practically, all business taxes are indirect taxes
because the taxable amount of this tax is based on the
amount of gross sales (sales of goods) or gross
receipts (sale of services). The tax burden could be
passed on to the buyers.
Types of Business Taxes
The Tax Code commonly classified business taxes as:
a. Value-added tax (VAT) - 12% of gross sales/receipts
which is usually passed on to the buyers.
b. Other Percentage taxes (OPT) - ranging from 0% to
30% of gross sales/receipts. The most common is 3%.
The seller may opt to include the tax burden as part of
the selling price
Excise taxes (ET) - various tax rates, if specific, it may start
from P1.00 or if ad valorem from 0% to 60% which is
usually passed on to the buyers
TRANSFER TAXES
Transfer tax is the tax imposed on one’s right to make
casual and gratuitous transfer of one’s property to the
other person
Classification of Transfer Taxes
b. Estate tax
DOCUMENTARY STAMP TAX (DST)
Documentary stamp tax is the tax imposed on the right to
enter into a transaction that is described in the document
needed to be filed in any government office
 BUSINESS TRANSACTIONS
A business transaction is an economic event with a third
party that is recorded in an organization's accounting
system. Such a transaction must be measurable in money.
Examples of business transactions are:
a. Buying insurance from an insurer
b. Buying inventory from a supplier
c. Selling goods to a customer for cash
d. Selling goods to a customer on credit
e. Paying wages to employees
f. Obtaining a loan from a lender
g. Selling shares to an investor
INTRODUCTION TO VALUE ADDED TAX
The value-added tax (VAT) is a form of consumption tax
(from 0% to 12% imposed on each
1. Sale, barter, exchange, or lease of goods, properties,
or services in the course of trade or business in the
Philippines and
2. Importation of goods into the Philippines, whether or
not in the course of trade or business
VAT involves the following basic principles:
1. Imposition of VAT. In general, VAT is imposed on
business transactions by a VAT-registered taxpayer, or
vatable persons whose annual gross sales or receipts
exceeds P3, 000,000.
2. Treatment of VAT
a) Standpoint of buyer-is a tax added on the
purchase price of goods or services payable to
the VAT-registered seller. Called Input tax or
Input VAT, treated as Current Asset as advance
payment of sales tax.
b) Seller’s perspective-is a tax added on the value of
product or service sold collectible from the
buyer, termed as Output Tax or Output VAT
recognized by VAT-registered seller as Current
Liability to be remitted to the BIR.
3. Tax payable. If the taxpayer-seller is VAT-registered,
only the excess of output VAT over input VAT is payable
to the BIR. The excess of input over output VAT is tax
refundable or creditable
4. Tax burden: VAT is a sales tax designed to be borne by Computation: Given amount X 12% = VA
the consumers, with sellers acting merely as tax  Gross sales per VAT invoice or gross receipts per
collectors VAT invoice
5. Legal liability: The VAT-registered seller is legally liable
for the payment of VAT; however, he can shift the 2. Total VAT sales invoice or VAT purchase invoice
burden of VAT to the buyer. This makes VAT as an
amount
indirect tax
Gross sales per VAT invoice or gross receipts per VAT
Characteristics of vat invoice
a. It is imposed on business transactions a. Sales or receipts, gross of VAT
b. It follows the consumption/destination principle b. Purchases from VAT person, gross of VAT
c. It is an indirect tax, a privilege tax and an ad-valorem c. Sales, inclusive of VAT
tax d. Purchases, inclusive of VAT
d. It is cumulative Computation: Given amount X 12/112= VAT or Given
e. It employs tax credit method and basically a tax on amount/9.333= VAT
gross margin
f. It follows the tax principle of no double taxation Computation of Net VAT pay payable
Output VAT on sales or gross receipts PXX
Objects of vat Less: Input VAT on purchases and service PXXX
a. Sale of goods or properties Creditable VAT withheld XXX XXX
b. Sale of services or lease of properties Net VAT payable (refundable) PXXX
c. Importation
THE INPUT VAT
An Input tax is a value-added tax due from or paid by a
OUTPUT VAT VAT-registered person in the course of his trade or
The Output VAT is the value-added tax on sales of goods or business on local purchases of goods or services, including
services passed on to the buyer whether VAT-registered or lease or use of property from a VAT-registered person.
not. It is collected and to be treated as current tax liability.
Functions of input vat
The output VAT can only be imposed and recognized 1. Tax credit against output VAT
when: 2. Input VAT carry over
1. There is sale (actual or deemed sale) and 3. Tax refund
2. The seller-taxpayer is VAT-registered. 4. Tax credit certificate
Sources and Rates of Input VAT
Rates of output vat 1. Regular 12% VAT on
The output VAT rates that may be applied to sales or a. Purchases of goods/properties or services to other
exchange of goods or services are VAT-registered business;
1. Regular VAT rate of 12% on domestic sales; b. Purchases of goods or services from non-VAT seller
2. Zero percent (0%) VAT on
issuing VAT invoice or receipt;
a. Export sales
c. Purchases of capital goods subject to depreciation,
b. Zero-rated sales
the input VAT of which is subject to amortization
c. Effectively zero-rated sales
(deferred input VAT);
d. Construction in progress; and
Computation of VAT
e. Importation of goods (for business use or for sale
a. VAT exclusive method
locally)
b. VAT inclusive method
2. Zero-rated (0%) on
a. Zero-rated purchases; or
Determination of VAT amount b. Effectively zero-rated purchases
 How to know whether that gross sales or gross 3. Transitional Input VAT rate of 2%
receipts include th12% VAT? 4. Presumptive input VAT rate of 4%
1. The gross sales/receipts DO NOT include VAT, if it is 5. Input VAT on sales to the government
expressed in the following: a. Final withholding VAT of 5% on sales of goods or
a. Sales or gross receipts services to government; and
b. Sales or gross receipts before VAT b. Standard input VAT of 7% allowed on sales of
c. Purchases from VAT person, before VAT goods or services to the government.
d. Sales, net of VAT
e. Sales or purchases from VAT person, exclusive of Input VAT on Depreciable Capital Goods
VAT
 a. Input VAT deductible in full amount
b. Input VAT subject to amortization (Deferred Input
VAT)
Input VAT on importation
All importation of goods in t the Philippines are subject to
VAT, whether or not intended for business, except those
mentioned under Section 109 of NIRC
Computation of Duties and Taxes for Imported Goods
Basic formula:
 
Custom Duty (CD) PXXX (Dutiable
(custom) value in foreign currency X Forex
VAT XXX
Import Processing fee (IPF) XXX
Excise Tax (ET), if applicable XXX
Total duties and taxes PXXX
TRANSITIONAL INPUT VAT
- Transitional Input VAT (TIV) is allowed on the
inventory on hand (goods, materials of supplies) of a
person who, for the first time becomes liable to VAT or
elects to be VAT-registered.
- TIV is equivalent to 2% of the value of such inventory
or the actual input VAT paid on such inventory,
whichever is higher.
- Goods exempt from VAT shall be excluded in the
computation of TIV
Illustration: A business firm has just registered as VAT
business. On that date, it has inventory stock of P100, 000.
A portion of its inventory was from purchases which were
taxed with P1, 000 VAT. The input VAT allowed would be:
 TIV (P100, 000 x 2%), higher = P2,000.
PRESUMPTIVE INPUT VAT (On VAT-exempt Prime
Materials)
- Is an amount allowed by the tax code as input tax on
purchases of a VAT-registered person despite that
there is no actual VAT payment made on VAT-exempt
transactions?
- PIV is 4% of the gross value in money of their
purchases of primary agricultural products which are
used as inputs in the production of:
a. Sardines, mackerel
b. Milk
c. Refined sugar
d. Cooking oil; and
e. Packed noodle based instant meals
- VAT Refund or Tax Credit Certificate
- Allowed for VAT Refund or Tax Credit Certificate
a. Those with zero-rated and effectively zero
rated sales
b. Those who would be cancelling their VAT
registration.
Not allowed for VAT Refund or Tax Credit Certificates
(TCC)
a. Presumptive Input VAT
b. Transitional Input VAT
c. Actual input VAT on capital goods, importation, or
purchases of continuing VAT-registered persons to
the extent of their sales not subject to zero-rated,
effectively zero-rated or business cancelling their
VAT registration.
PERIOD OF VAT REFUND OR TCC
- A VAT-registered person may apply for input VAT
refund or issuance of TCC within two (2) years after
the close of the taxable quarter when the sales were
made.
- The commissioner shall grant a refund within 120
days from the date of submission of complete
documents to support the application of VAT refund or
TCC.
- For denial of applications within the 120 days period,
the taxpayer may appeal to the Court of Tax Appeal
(CTA) within 30 days from the receipt of the denial;
otherwise the decision will become final.
- If the commissioner does not give decision within 120-
day period, the taxpayer may file an appeal with the
CTA without waiting for the expiration of the 120-day
period, if the 2-year period is about to lapse.
VALUE-ADDED TAX DECLARATION
- BIR Form 2550M must be filed and paid on or before
the 20th day of the month following the taxable month
for the first two months of the quarter.
- The quarterly VAT return (BIR Form 2550Q) is to filed
on or before the 25th of the month following the close
of the quarter.
INPUT VAT TREATED AS EXPENSES OF COSTS
a. Input VAT of non-VAT registered taxpayers
b. Input VAT of VAT-exempt taxpayers
c. Excess of actual input VAT over the standard input
VAT on sales to government
d. Expired input VAT
VALUE ADDED TAX
Importation refers to the purchase of goods or
service by Philippine residents from non-resident
sellers.
 SECTION 105 PERSONS LIABLE
- Any person who in the course of trade or business,
sells, barters, exchanges, leases goods or properties,
render services and any person who imports goods
shall be subject to value added tax (VAT) imposed in
Section 106 to 108 of the tax code
- The value-added tax is an indirect tax and the amount
of tax may be shifted or passed to the buyer ,
transferee or lessee of the goods or properties or
services
- This rule shall likewise apply to existing contracts of
sale or lease of goods, properties or services at the
time of the effectivity of Republic Act No. 7716
- The phrase “ in the course of business” means the
regular conduct or pursuit of 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, non-profit
organization or government entity
 SECTION 106 VALUE ADDED TAX AND THE SALE
OF GOODS OR PROPERTIES
(A) Rate and Base of Tax
There shall be levied, assessed and collected on every sale,
barter or exchange of goods or properties, a value-added
tax equivalent to 12% of the gross selling price or gross
value in money of the goods or properties sold, bartered or
exchanged , such tax to be paid by the seller or transferor
 1. The term “goods or properties” shall mean all
tangible and intangible objects which are capable of
pecuniary estimation and shall include :
a. Real properties held primarily for sale to customers
or held for lease in the ordinary course of trade or
business
b. 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
c. The right or the privilege to use in the Philippines
of any industrial, commercial or scientific
equipment
d. The right or the privilege to use motion picture
films, tapes and discs; and Radio, television,
satellite transmission and cable television time
The term “gross selling price” means the total amount of
money or its equivalent which the purchases pays or is
obligated to pay to the seller in consideration of the sale ,
barter or exchange of the goods or properties excluding
the value-added tax
 2. The following sales by a VAT-registered persons
shall be subject to zero percent (0%) rate :
a. Export Sales – the term “export sales” means
b. The sale and actual shipment of goods from the
Philippines to a foreign country , irrespective of any
shipping arrangement that may agree upon which may
influence or determine
 SECTION 106 Zero Percent (0%) rate VAT
- The transfer of ownership of the goods so exported
and paid for in acceptable foreign currency or its
equivalent in goods or services and accounted for in
accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP)
Sale and delivery of goods to:
 Registered enterprises within the tourism
enterprise zones as declared by the Tourism
Infrastructure and Enterprise Zone Authority
(TIEZA) subject to the provisions under Republic
Act of 2009
Sale of raw materials or packaging materials to export-
oriented enterprise whose export sales exceed 70% pf
total annual production (par 4)
Those considered export sales under Executive Order No
226 , otherwise known as the Omnibus Investment Code of
1987 and other special laws; and (par. 5)
- Provided , that subparagraphs 3, 4 and 5 hereof shall
be subject to 12% value-added tax and no longer be
considered export sales subject to 0% VAT rate upon
satisfaction of the following conditions:
 The successful establishment and implementation
of an enhanced VAT refund system that grants the
refunds of creditable input tax within 90 days
from the filing of the VAT refund application with
the BIR
 SECTION 106 Transactions Deemed Sale
The following transactions shall be deemed sale:
 Transfer or use or consumption not in the course
of business of goods or properties originally
intended for sale or for use in the course of
business;
 Distribution or transfer to :
 Shareholders or investors as share in the profits of
the VAT-registered persons; or
 The following transactions shall be deemed sale:
 Creditors in payment of debt;
- Consignment of goods if actual sale is not made within
60 days following the date of such goods were
consigned; and
- Retirement from a cessation of business with respect
to inventories of taxable goods existing as of such
retirement or cessation
 SECTION 107 VALUE ADDED TAX ON
IMPORTATION OF GOODS
In general
- From custom custody
- Provided, that where the custom duties are
determined on the basis of the quantity or volume of
 the goods, the value added tax shall be based on the
landed cost plus excise taxes, if any
Rate and Base of Tax
- There shall be levied, assessed and collected on every
importation of goods a value-added tax equivalent to
twelve percent (12%) based on the total value used by
the Bureau of Customs in determining tariff and
custom duties, plus custom duties, excise taxes if any
and other charges , such tax to be paid by the importer
prior to the release of such goods
 From custom custody
- Provided, that where the custom duties are
determined on the basis of the quantity or volume of
the goods, the value added tax shall be based on the
landed cost plus excise taxes, if any
Transfer of Goods by Tax-Exempt Persons
- On such importation
- The tax due on such importation shall constitute a lien
on the goods superior to all charges or liens on the
goods , irrespective of the possessor thereof
 SECTION 108 VALUE-ADDED TAX ON SALE OF
SERVICES AND USE OF LEASE OF PROPERTIES
(A) Rate and Base of Tax
- There shall be levied, assessed and collected, a value-
added tax equivalent to twelve percent (12%) of gross
receipts derived from the sale of exchange of services,
including the use or lease of properties
- The phrase ‘sale or exchange of services’ means the
performance of all kinds of services in the Philippines
for others for a fee, including those performed or
rendered by construction and service contractors;
Stock, real estate, commercial, customs and immigration
brokers, lessors of property, whether personal or real;
Processing, manufacturing or repacking goods for others;
proprietors, operators or keepers of hotels, motels
Lending investors, transportation contractors on their
transport of goods or cargoes for hire and other domestic
common carriers by land
Transmission by any entity’ and distribution companies,
including electric cooperatives, services of franchise
grantees of electric utilities, telephone and telegraph
The phrase ‘sale or exchange of services’ shall likewise
include:
 The lease or the use of or the right or privilege to use
any copyright, patent, design or model, plan, secret
formula or process, goodwill, trademark, trade brand
or other like property or right;
 The lease or use of, or the right to use any industrial or
commercial or scientific equipment;
 The supply of scientific , technical, industrial or
commercial knowledge or information;
 The supply of services by a nonresident person or his
employee in connection with the use of property or
rights
 Machinery or other apparatus purchased from
nonresident person;
 SECTION 108 GROSS RECEIPTS
- Means the total amount of money or its equivalent
representing the contract price, compensation, service
fee, rental or royalty,
TRANSACTIONS SUBJECT TO “ZERO PERCENT (0%)
RATE
The following services performed in the Philippines by
VAT registered persons shall be subject to zero percent
(0%) rate:
1) Processing, manufacturing or repacking goods for
other persons doing business outside the
Philippines which goods are subsequently
exported
2) Services other than those mentioned in the
preceding paragraph, rendered to a person
engaged in business conducted outside the
Philippines or to a nonresident person
3) Not engaged in business who is outside of the
Philippines when the services are performed, the
consideration of which is paid for in acceptable
currency and accounted for in
4) Services rendered to person or entities whose
exemption under special laws or international
agreements
5) Services performed by subcontractors and/or
contractors in processing, converting or
manufacturing goods for an enterprise whose
export sales exceed seventy percent (70%) of total
annual production
Services rendered to:
 Registered enterprises within a separate customs
territory as provided under special law; and
 Registered enterprises within tourism enterprise
zones as declared by the TIEZA subject to the
provisions under
 Republic Act No. 9593 or the Tourism Act of 2009
Provided that subparagraphs (B1) and (B5) hereof shall be
subject to the twelve percent (12%) value-added tax and
no longer be subject to zero percent (0%) upon
satisfaction of the following conditions:
 The successful establishment and implementation
of an enhanced VAT refund system that grants a
creditable input tax within ninety (90) days from
the filing of the VAT refund application with the
Bureau
 The successful establishment and implementation
of an enhanced VAT refund system that grants a
 creditable input tax within ninety (90) days from
the filing of the VAT refund application with the
Bureau
 An amount equivalent to five percent (5%) of the
total value-added tax collection of the BIR and the
BOC from the immediately preceding year shall be
automatically appropriated annually and shall be
treated as a special account in the General Fund or
as trust receipts for the purpose of funding claims
for VAT Refund
 SECTION 109 EXEMPT TRANSACTIONS
- Subject to the provisions of Subsection (2) hereof, the
following transactions shall be exempt from value-
added tax
 Sale or importation of agricultural and marine food
products in their original state, livestock or yielding or
producing foods for human consumption, and
breeding stock and genetic materials therefor
 Products classified under this paragraph shall be
considered in their original state even if they have
undergone the simple processes of preparation or
preservation for the market such as freezing, drying,
salting, broiling, roasting, smoking, or stripping
 Polished and/or husked rice, corn grits, raw cane
sugar and molasses, ordinary salt and copra shall be
considered in their original state
 Sale or importation of fertilizers; seeds; seedlings and
fingerlings; fish, prawns, livestock and poultry feeds,
including ingredients, whether locally produced or
imported, used in the manufacture of finished feeds
(except specialty feeds for racehorses, fighting cocks,
aquarium fish, zoo animals and other animals
generally considered as pets
Services subject to percentage tax under Title V
- Services by agricultural contract growers and milling
for others of play into rice, corn into grits and sugar
cane into raw suger
- Medical , dental, hospital and veterinary services
except those rendered by professionals
- Educational services rendered by private educational
institutions , duly accredited by the Department of
Education (DepED)
Residential lot valued at One Million Five Hundred
Thousand pesos (P 1,500,000) and below, house and lot,
and other residential dwellings valued at Two Million Five
Hundred Thousand pesos (P 2,500,000) and below
 SECTION 110 TAX CREDITS
CREDITABLE INPUT TAX
1) Any input tax evidenced by a VAT invoice or official
receipt issued in accordance with Section 113 hereof
on the following transactions shall be creditable
against Output Tax :
a. Purchase or importation of goods
- For sale ; or
- For conversion into or intended to form part of a
finished product for sale including packaging
materials; or
- For use as supplies in the course of business; or
- For use as materials supplied in the sale of service;
or
- For use in trade or business for which deduction for
depreciation or amortization is allowed in this Code
b. Purchase of services on which a value added tax
has been actually paid
2) The input tax on domestic purchase or importation of
goods or properties by a VAT registered person shall
be creditable (As amended by RA 9337)
a. To the purchaser upon consummation of sale and
on importation of goods or properties; and
b. To the importer upon payment of the value-added
tax prior to the release of the goods from the
custody of the Bureau of Custom (BOC)
Exceeds One Million pesos (P 1,000,000)
Provided however, that if the estimated useful life of the
capital good is less than five (5) years, as used for
depreciation purposes; then the input VAT shall be spread
over such shorter period
3) A VAT registered person who is also engaged in
transactions not subject to the value-added tax shall
be allowed tax credit as follows :
a. Total input tax which can be directly
attributed to transactions subject to value-
added tax, and;
b. ) A ratable portion of any input tax which
cannot be directly attributed to either activity
The term ‘input tax’ means the value-added tax due from
or paid by a VAT registered person in the course of his
trade or business on importation of goods or local
purchase of goods or services, including lease or use of
property from a VAT registered person
The term ‘output tax’ means the value added tax due on
the sale or lease of taxable goods or properties or services
by any person registered or required to register under
Section 236 of this Code
EXCESS OUTPUT OR INPUT TAX
- If at the end of any taxable quarter the output tax
exceeds the input tax, the excess shall be paid by the
VAT registered person
- If the input tax exceeds the output tax, the excess
shall be carried over the succeeding quarter or
quarters;
DETERMINATION OF CREDITABLE INPUT TAX
- The claim for tax credit referred to in the foregoing
paragraph shall include not only those filed with
 other government agencies such as the Board of Audit, the provisions of the Administration Code of
Investments and the Bureau of Customs 1987 to the contrary notwithstanding;
- - Provided, that refunds under this paragraph shall be
 SECTION 111 TRANSITIONAL/PRESUMPTIVE subject to post audit by the Commission on Audit
INPUT TAX CREDITS

(A) TRANSITIONAL INPUT TAX CREDITS

- A person who becomes liable to value-added tax or
any person who elects to be a VAT-registered
person shall subject to the filing of any inventory
according to the rules and regulations prescribed by
the Secretary of Finance upon recommendation of
the Commissioner be allowed input tax on his
beginning inventory of goods, materials and
supplies
(B) PRESUMPTIVE INPUT TAX CREDITS
- As used in this Subsection, the term ‘processing’
shall mean pasteurization, canning and activities
which through physical or chemical process alter the
exterior texture or form

 SECTION 112 REFUNDS OR TAX CREDITS OF

INPUT TAX

(A) ZERO-RATED OR EFFECTIVELY ZERO-RATED

SALES
- A VAT registered person whose sales are zero-rated
or effectively zero-rated may , within two (2) years
after the close of the taxable quarter when the sales
are made apply for the issuance of aa tax credit
certificate or refund of creditable input tax due or
paid attributable to such sales,
(B) CANCELLATION OF VAT REGISTRATION
- A person whose registration has been cancelled due
to retirement from or cessation of status of business,
or due to changes in or cessation of status under
Section 106(C ) of this code, may within two (2)
years from the date of cancellation apply for the
issuance of tax credit certificate for any input tax
which may be used in payment of his other internal
revenue taxes
(C) PERIOD WITHIN WHICH REFUND OR TAX CREDIT
OF INPUT TAXES SHALL BE MADE
- In proper cases, the Commissioner shall grant a
refund for creditable input takes within ninety (90)
days from the date of submission of the official
receipts or invoices and other documents in support
of the application filed

1) Manner of Giving Refunds

- Refunds shall be made upon warrants drawn by the
Commissioner or by his duly authorized
representative without the necessity of being
countersigned by the Chairman, Commission on