BUSINESS TAXES
Definition
- Imposed upon onerous transfers such as sale, barter, exchange, and
importation
- Are in addition to income and other taxes paid, unless specifically
exempted
- Generally based on gross sales or gross receipts
- “In the course of trade or business” – regular conduct or pursuit of a
commercial or an economic activity, including transactions incidental
thereto, by any person, regardless of whether the person engaged
therein is a non-stock, non profit private organization or government
entity
- As a rule, all sale of goods or services made in the normal course of
trade or business are subject to VAT unless exempt.
- If the sale is exempt from VAT, it may be subject to OPT
- A transaction subjected to VAT must no longer be subjected to OPT.
Except if the taxpayer is engaged in transactions that are subject to
VAT, exempt from VAT, and subject to PT (mixed transactions) at the
same time
Isolated Transactions (Not subject to business tax)
- Services rendered in the Philippines by non-resident persons shall be
considered as being rendered in the course of trade or business even if
the business is not regular
- By residents are considered not in the ordinary course of trade or
business – NOT SUBJECT TO VAT
- By nonresidents considered in the ordinary course of trade or business
– SUBJECT TO FINAL WITHHOLDING TAX
TYPES OF TRANSFER
1. Gratuitous Transfer (without consideration) – SUBJECT TO
DONOR’S TAX or ESTATE TAX, not to business tax
2. Onerous Transfer (with consideration)
a. In the ordinary course of trade or business including
incidental transactions – SUBJECT TO UNLESS EXEMPT,
BUSINESS TAX AND INCOME
b. Not in the ordinary course of trade or business – SUBJECT TO
INCOME TAX, not to any business tax
VALUE ADDED TAX
Definition
- A tax on the value added by every seller to the purchase price or cost in
the sale or lease of goods, property, or services
- A tax on consumption levied on the sale, barter, exchange, or lease of
goods or properties and services in the Philippines and on importation
of goods
- Cross Border Doctrine – no VAT shall be imposed to form part of the
COG destined for consumption
Characteristics
- It is an indirect tax where tax shifting is always presumed – the
burden of the tax is borne by the final consumers. Hence, what is
transferred or shifted to the consumers is not the LIABILITY TO PAY
THE TAX but the TAX BURDEN
- It is consumption based
- It is imposed on the value-added in each stage of production and
distribution process – the vat system assures fiscal adequacy through
the collection of taxes on every level of consumption
- It is a credit invoice method VAT
Output tax
- The vat due on the sale, lease or exchange of taxable goods or
properties or services by any person registered or required to register
Input tax
- The vat due on or paid by a VAT registered on importation of goods or
local purchase of goods, properties or services including lease or use of
property
Basis of VAT
- Sale of goods or properties – gross selling price
- Sale of services – gross receipts
- Importation - total landed cost
- Dealers in Securities – gross income
Gross Selling Price
- The total amount of money or its equivalent which the purchaser pays
or its obligated to pay to the seller… , EXCLUDING VAT
1 – RAMOS
 - If the VAT is not billed separately in the document of sale, the selling - Franchise grantees of radio and/or television broadcasting whose
price shall be deemed to be INCLUSIVE of VAT annual gross receipts do not exceed P10M derived from the business
- In the case of sale, barter or exchange of real property subject to VAT, covered by the law granting the franchise may opt for VAT registration.
gross selling price shall mean the consideration stated in the sales This option, once exercised, shall be irrevocable.
document or the FMW, whichever is higher (FMV as determined by the
commissioner or the FMV shown in schedule of values of the Cancellation of Registration
Provisional and City Assessors) - If he makes a written application and can demonstrate to the comms’
- If the gross selling price is based on zonal or market value, it shall be satisfaction that his gross sales or receipts for the following twelve
deemed EXLUSIVE OF VAT months will not exceed P3M; or
Gross Receipts - If he has ceased to carry on his trade or business and does not expect to
recommence within the next 12 months
- Total amount of money or its equivalent representing the contract
price, compensation, service fee, rental or royalty, including the amount Power of the Commissioner to suspend business operations
charged for materials supplied, EXCLUDING VAT - Failure to issue receipts or invoices
- Constructive receipt – placed at the control of the person who rendered - Failure to file vat return
the service without restrctions by the payor - Understatement of taxable sales or receipts by 30% or more of the
correct taxable sales
VAT Registration
- Failure of any person to register as required under the law
Mandatory
Computation of VAT Payable
- Any person or entity who, in the course of trade or business … renders Output Vat (Sales or receipts x 12%) xx
services subject to VT, if the aggregate amount of actual gross sales or Less: Input Vat (Purchases or Disbursements x 12% xx
receipts exceed P3M beginning January 1, 2018 under RA 10963- VAT Payable (Excess input vat) xx
TRAIN Law for the past 12 months or there are reasons to believe that
the gross sales or receipts for the next 12 months will exceed P3M VAT EXEMPT SALES (SEC. 109 of the TAX CODE)
- Radio or television broadcasting companies whose annual gross
receipts of the preceding year exceeds P10M. The mandatory (a) Sale or importation of agricultural and marine food products in their
registration applies within 30 days from the end of the taxable year original state, livestock, and poultry, or yielding or producing foods
- A person required to register as VAT taxpayer but failed to register for human consumption and breeding stock and generic materials
- PENALTY FOR NON COMPLIANCE: The taxpayer shall be liable to pay  Even if they have undergone simple processes such as freezing,
the tax as if he were a VAT-registered person but he cannot avail the drying, salting, broiling, etc. including those using technological
benefits of input tax credit for the period means of packaging
- VAT Threshold for Husband and Wife - Husband and wife shall be
considered separate taxpayers. However, the aggregation rule for each EXAMPLE OF FOOD PRODUCTS IN THEIR ORIGINAL STATE
taxpayer shall apply Agricultural Marine Livestock Poultry
Polished/ Fish Cows Fowls
Optional husked rice Lobster, shrimps, Bulls Ducks
Corn grits prawns, oysters. Calves Geese
- Any person who is VAT-exempt or not required to register for VAT may Raw cane sugar Mussels, clams, Pigs Turkey
elect to be VAT registered by registering with the RDO that has a and molasses trout, eels Sheep
jurisdiction over the head office of that person, and pay the annual Copra Goats
registration fee for every separate and distinct establishment Rabbits

2 – RAMOS
  Under the revised regulation, raw cane sugar refers only to
muscovado sugar (RR 4-2015)
 Sale of marinated fish is not exempt from vat. (RR 348-11)
(b) Sale or importation of fertilizers; seeds, seedlings and fingerlings;
fish, prawn, livestock and poultry feeds, including ingredients,
whether locally produced or imported, used in the manufacture of
finished feeds (except specialty feeds for race horses, fighting cocks,
aquarium fish, zoo animals and other animals generally considered
as pets);
 For example, sale/importation of V-Mig feeds for pets;
importation of raw materials for the formulation of feeds for
animals
(c) Importation of personal and household effects belonging to the
residents of the Philippines returning from abroad and nonresident
citizens coming to resettle in the Philippines: Provided, that such
goods are exempt from customs duties under the Tariff and Customs
Code of the Philippines;
(d) Importation of professional instruments and implements, tools of
trade, occupation or employment, [95] wearing apparel, domestic
animals, and personal and household effects belonging to persons
coming to settle in the Philippines or Filipinos or their families and
descendants who are now residents or citizens of other countries,
such parties hereinafter referred to as overseas Filipinos, in
quantities and of the class suitable to the profession, rank or position
of the persons importing said items, [95] for their own use and not
for barter or sale, accompanying such persons, or arriving within a
reasonable time: [96] Provided, That the Bureau of Customs may,
upon the production of satisfactory evidence that such persons are
actually coming to settle in the Philippines and the goods are
brought from their former place of abode, exempt such goods from
payment of duties and taxes:[97] Provided, further, That the
vehicles, vessels, aircrafts, machineries and other similar goods for
use in manufacture,[97] shall not fall within this classification and
shall therefore be subject to duties, taxes and other charges;
(e) Services subject to percentage tax under Title V;
(f) Services by agricultural contract growers and milling for others of
palay into rice, corn into grits and sugar cane into raw sugar;
 Agricultural contract growers – persons producing for others’
poultry, livestock, or other agricultural and marine food products
in their original state.
 Toll processing/toll dressing/ toll manufacturing – involves
procedures such as weighing, killing, dressing, scalding, cut-ups
and packaging (Section 4.109-1(B)(1)(f) of RR 16-05) = EXEMPT
FROM VAT – shall pertain only to services to clients from which
frowing of animals were contracted
 If an activity is done independently of growing poultry, livestock
or other agricultural and marine food products, the same can be
considered as VATABLE SERVICES NOT COVERED by agricultural
contract growers.
(g) Medical, dental, hospital and veterinary services except those
rendered by professionals;
 Laboratory services are EXEMPTED
 If the hospital or clinic operates a pharmacy or drugstore, the sale
of drugs and medicines are SUBJECT TO VAT
 Hospital bills = Medical services (EXEMPTED)
 Sales made to in-patients which are INCLUDED in the hospital
bills are part of medical bills exempt from VAT
(h) Educational services rendered by private educational institutions,
duly accredited by the Department of Education(DepED), the
Commission on Higher Education (CHED), the Technical Education
and Skills Development Authority (TESDA) and those rendered by
government educational institutions; [55]
 Educational services – refer to academic, technical or vocational
education provided by private educational institutions accredited
by the DepEd, CHED, and TESDA, and those rendered by
government educational institutions
 It does not include seminars, in-service training, review classes
and other similar services rendered by persons who are not
accredited by the same government agencies provided.
(i) Services rendered by individuals pursuant to an employer-employee
relationship;
(j) Services rendered by regional or area headquarters established in
the Philippines by multinational corporations which act as
supervisory, communications and coordinating centers for their
affiliates, subsidiaries or branches in the Asia-Pacific Region and do
not earn or derive income from the Philippines;
(k) Transactions which are exempt under international agreements to
which the Philippines is a signatory or under special laws, except
those under Presidential Decree No. 529; [55]
 Examples: PAGCOR Charter, Biofuels Act, PH Red Cross, Expanded
Senior Citizens Act of 2010
3 – RAMOS
(l) Sales by agricultural cooperatives duly registered with the
Cooperative Development Authority to their members as well as sale
of their produce, whether in its original state or processed form, to
non-members; their importation of direct farm inputs, machineries (o) Export sales by persons who are not VAT-registered;
and equipment, including spare parts thereof, to be used directly and
exclusively in the production and/or processing of their produce; Export Sales

To Members To Non-members - By a NON-VAT Registered – EXEMPT

Sale of cooperative’s own - By a VAT Registered – VATABLE @ 0% (Zero-rated Sales)
produce (Processed or at its Exempt Exempt
original state (p) SALE OF REAL PROPERTY
Other than the coop’s own Subject to Vat (if it
produce (i.e. from traders) refers to agri food TRAIN Law provides that VAT Exemption on Sale of Real Property beginning
Exempt
products at its og state) JANUARY 1, 2021 shall only apply to the ff:
 Sale or importation of agricultural food products in their original
 Sale of real properties not primarily held for sale to customers or
state is EXEMPT FROM VAT irrespective of the seller and buyer
held for lease in the ordinary course of trade or business
thereof (Sec. 4.109-1 (B)(I), RR 4-2007
 Sale of real property utilized for socialized housing as defined
(m) Gross receipts from lending activities by credit or multi-purpose
under RA No. 7279
cooperatives duly registered with the Cooperative Development
 Sale of House and Lot and other Residential dwellings with selling
Authority;
price of not more than P3,199,200
Gross receipts by credit or multi- From From Non-members  Sale of parking lot in the sale of condominium units – SUBJECT
purpose cooperatives Members TO VAT (regardless of amount of selling price)
From lending activities Exempt Exempt
From non-lending activities VAT VAT Note:

 If the sale of real property was NOT made in the ordinary course of
(n) Sales by non-agricultural, non- electric and non-credit cooperatives trade or business, the real property is classified as CAPITAL ASSET,
duly registered with the Cooperative Development Authority: hence, NOT SUBJECT TO VAT but to CAPITAL GAINS TAX
Provided, That the share capital contribution of each member does  It is subject to VAT if:
not exceed Fifteen thousand pesos (P15,000) and regardless of the  Sale of residential house and lot and other residential
aggregate capital and net surplus ratably distributed among the dwellings’ selling price is MORE than P3,199,200
members;  Sale of residential lot
 Sale of commercial lot/units
Gross receipts/ Sales by From From Non-  Other real properties not specifically included under the law
Members members as VAT-Exempt
Electric cooperatives Exempt Exempt (q) Lease of a residential unit with a monthly rental not exceeding
Non-agricultural, non electric, non Fifteen thousand pesos (₱15,000); [100]
lending/credit coops
 The Percentage Tax rate under Section 116 of the Tax Code, as
amended by CREATE Law shall be as follows:
- Contribution per member <Php Exempt Exempt
15,000  Prior to July 1, 2021 - 3%
- Contribution per member >Php  From July 1, 2021 to June 30, 2023 – 1%
15,000  Beginning July 1, 2023 - 3%
VAT VAT
4 – RAMOS
Lease of residential units By air or sea VAT 0% VAT
Cargo or goods VAT 0% VAT
 Monthly rental is < P15,000 = EXEMPT from VAT (t) Sale, importation or lease of passenger or cargo vessels and aircraft,
 Monthly rental is > P15,000 including engine, equipment and spare parts thereof for domestic or
- Annual receipts of the lessor > P3M = Subject to VAT international transport operations;
- Annual receipts of the lessor < P3M = Subject to OPT (u) Importation of fuel, goods and supplies by persons engaged in
Lease of commercial units international shipping or air transport operations: Provided, That
the fuel, goods, and supplies shall be used for international shipping
 Generally subjected to VAT regardless of monthly rental or air transport operations; [95]
 If lessor is NON-VAT registered and annual gross receipts is < P3M = (v) Services of bank, non-bank financial intermediaries performing
Subject to OPT quasi-banking functions, and other non-bank financial
intermediaries;
In case lessor has several residential units (w) Sale or lease of goods and services to senior citizens and persons
with disability, as provided under Republic Act Nos. 9994 (Expanded
 Monthly rental is < P15,000 = EXEMPT from VAT
Senior Citizens Act of 2010) and 10754 (An Act Expanding the
 Monthly rental is > P15,000
Benefits and Privileges of Persons With Disability), respectively; [95]
- Annual receipts of the lessor > P3M (Excluding gross receipts from
(x) Transfer of property pursuant to Section 40(C)(2) of the NIRC, as
units with monthly rental of < P15,000) = Subject to VAT
amended; [95]
- Annual receipts of the lessor < P3M = Subject to OPT
(y) Associations dues, membership fees, and other assessments and
(r) Sale, importation, printing or publication of books, and any
charges collected by homeowners’ associations and condominium
newspaper, magazine, journal, review bulletin, or any such
corporations; [95]
educational reading material covered by the UNESCO Agreement on
(z) Sale of gold to the Banko Sentral ng Pilipinas (BSP);[101]
the Importation of Educational, Scientific and Cultural Materials,
(aa) Sale of or importation of prescription drugs and medicines for:
including the digital or electronic format thereof: Provided, That the
[102]
materials enumerated herein are not devoted principally to the
i. Diabetes, high cholesterol, and hypertension beginning
publication of paid advertisements;
January 1, 2020; and [103]
 Book, newspaper, magazine, review and bulletin – only covers
ii. Cancer, mental illness, tuberculosis, and kidney diseases
printed matters in hard copy and does not apply to electronic format
beginning January 1, 2021. [104]
or versions
 A corporation’s other transactions such as printing of brochures, Provided, That the DOH shall issue a list of approved drugs and medicines
bookbinding, engraving, etc. shall be SUBJECT TO VAT for this purpose within sixty (60) days from the effectivity of this Act; and
(s) Transport of passengers by international carriers;[95] [105]
International Carriers (Resident Foreign Corporations) (bb) Sale or importation of the following beginning January 1, 2021 to
December 31, 2023: [106]
TRANSPORT OF: Originating in the Philippines
i. Capital equipment, its spare parts and raw materials,
Passengers VAT exempt
necessary for the production of personal protective equipment
Cargo or goods VAT exempt but subject to Common Carrier’s Tax
components such as coveralls, gown, surgical cap, surgical
(Percentage Tax) under Section 118.
mask, N-95 mask, scrub suits, goggles and face shield, double
Domestic Common Carriers
or surgical gloves, dedicated shoes, and shoe covers, for
TRANSPORT OF: Within the PH PH to Abroad COVID-19 prevention; and [106]
Passengers ii. All drugs, vaccines and medical devices specifically prescribed
By land Common Carrier Tax 0% VAT and directly used for the treatment of COVID-19; and [106]
5 – RAMOS
 iii. Drugs for the treatment of COVID-19 approved by the Food
and Drug Administration (FDA) for use in clinical trials,
including raw materials directly necessary for the production
of such drugs: Provided, That the Department of Trade and
Industry (DTI) shall certify that such equipment, spare parts
or raw materials for importation are not locally available or
insufficient in quantity, or not in accordance with the quality
or specification required: Provided, further, That for item (ii),
within sixty (60) days from the effectivity of this Act, and every
three (3) months thereafter, the Department of Health (DOH)
shall issue a list of prescription drugs and medical devices
covered by this provision: Provided, finally, That the
exemption claimed under this subsection shall be subject to
post audit by the Bureau of Internal Revenue or the Bureau of
Customs as may be applicable. [106]
(cc)Sale or lease of goods or properties or the performance of services
other than the transactions mentioned in the preceding paragraphs,
the gross annual sales and/or receipts do not exceed the amount of
Three million pesos (P3,000,000.00)
OUTPUT VAT may come from:
1. Actual sale (Domestic sale)
 Actual exchange between buyer(s) and a seller(s) shall be subject to
12% VAT, unless exempt under the law
 Sale of Goods or Properties
Gross Sales Pxx
VAT rate 12%
OUTPUT VAT Pxxx
 Sale of service (including lease of properties)
Gross receipts (actual or constructive) Pxx
VAT rate 12%
OUTPUT VAT Pxxx
 Advance payments in a lease contract (Advance payment by the
lessee may be:
- A loan to the lessor from the lessee – Not VATable
- An option money for the property – Not VATable
- A security deposit – Not VATable
- Prepaid rental – Subject to VAT
 Incidental transactions
- If net of VAT approach – Gross sales x 12%
- If gross of VAT approach – Gross sales x 3/28
2. Transactions Deemed Sale
 Certain transactions which are not actually sales because of the
absence of actual exchange between the buyer and the seller, are
considered or included in the term “sale” for VAT purposes
 VAT payable is computed by deducting the input vat from the output
vat
Output VAT (Vat on sale of goods, services, etc) Pxx
Input VAT (Vat on purchase of goods, services, etc.) (xx)
VAT PAYABLE Pxxx
 Input vat was already used by the seller as a credit against the output
vat. But since there was no actual sale, no output vat is actually
charged to customers.
 The following are transactions considered deemed sale:
a. Transfer, use or consumption not in the ordinary course of
business of goods or porperties – the basis of the applicable vat
shall be the FMV of the goods consumed.
b. Distribution or transfer to:
- Shareholders of investors as share in the profits of a VAT-
registered person; and
- Distribution or transfer to creditors in payment of debt
(Basis: Market Value)
c. Consignment of goods if actual sale is not made within 60 days
d. Retirement from or cessation of status as vat registed person
with respect to all goods on hand
 Transactions deemed sale shall not be imposed to the ff:
a. Change of control of a corporation by the acquisition of the
controlling interest
b. Change in the trade or corporate name of the taxpayer
c. Merger or consolidation of corporations
3. Zero-rated Sales (0% VAT)
a. Export sale by a VAT registered entity
- A zero rated sale of goods, properties, and/or services by a
vat registered person is a TAXABLE transaction for VAT
purposes, but shall NOT result in any OUTPUT TAX
- The input vat attributable to zero rated sale may be
refunded, claimed as deductions/tax credit against output
vat on domestic sales; or claimed as tax credit against any
other internal revenue taxes
b. Export sale by a NON-VAT registered entity
- It is considered as a vat-exempt transaction
6 – RAMOS
 - VAT paid by a non-vat registered purchaser of goods or - Taxpayers with unutilized input as of December 31, 2021 shall be
services shall be treated as either part of Operating Expense allowed to apply the same as scheduled until fully utilized
or Cost. - For purchases made on January 2022, no amortization shall be made.

INPUT VAT may come from: Construction in Progress

1. Local purchase of goods or services such as purchase of:  Is the cost of construction work which is not yet completed
a. Goods for sale  Is considered, for purposes of claiming input tax, as a purchase of
b. Goods for conversion into finish product service, the value of which shall be determined based on the progress
c. Goods for use as supplies billings
d. Goods for use as materials supplied in the sale of services  Upon completion, a CIP item is reclassified and the reclassified asset is
e. Goods for use in trade or business for which depreciation or capitalized and depreciated
amortization is allowed (Capital Goods) – refer to goods or 2. Importation
properties with estimated useful life of greater than 1 year, used  Vat on importation is imposed regardless of whether such
directly or indirectly in the production or sale of taxable goods or importation is for personal or business use.
services  Persons Liable/Covered:
f. Real properties where vat has actually been paid a. Any person, entity or agency who bring goods into the
Philippines, whether or not made in the OCOTOB
Input VAT on Capital Goods b. Non-exempt persons or entities who acquire tax-free imported
 More than 1M goods from exempt persons, entities, or agencies. The non-
 Input tax shall be spread or allocated evenly during the exempt person shall be considered as the IMPORTER for vat
estimated useful life but it shall not exceed 60 months. purposes
Allocation shall commence when the capital good was acquired. Computation of VAT on importation
 If the capital good is sold within 5 years prior to exhaustion of
input vat, the entire unamortized input vat on the capital goods a. If the customs duties are determined by the BOC based on the value of
sold can be claimed as INPUT TAX CREDIT during the month or the imported article (Ad-valorem tax)
quarter when the sale is made.
Value for tariff and customs duties Pxxx
 If the life of the capital good is not more than 1 year, the asset is
not treated as a capital good, hence, allocation of input vat is not ADD:
applicable.
 Not more than 1M Custom’s duties xx
 Input tax is not allocated. The total amount of input vat is treated as TAX Excise tax, if applicable xx
CREDIT against output vat in the month of acquisition
Other legitimate charges prior to release by BOC xx
Note under TRAIN Law:
TAX BASE xx
- Capital goods acquired beginning January 1, 2022, the entire related
input vat shall be claimed during the month the capital goods are VAT rate 12%
purchased, irrespective of acquisition cost.
VAT ON IMPORTATION Pxxx
- For purchase made on January 2018, the amortization shall be for a
SHORTER PERIOD OF 5 YEARS only or up to December 2022.
- For purchases made on February 2018, the amortization shall be up to
its useful life since it is shorter than 5 years or up to January 2022.
7 – RAMOS
*Legitimate charges may include 4. TRANSITIONAL INPUT TAX
 Who can avail?
 Customs duties
 Taxpayers who becomes liable to VAT
 Brokerage
 Taxpayer who are elects to be vat registered
 Wharfage
 They will be allowed input tax on their beginning inventory of goods,
 Arrastre materials and supplies equivalent to 2% of the value of such
 Stamps inventory or the actual value added tax paid on such goods,
 Processing fee materials, and supplies, whichever is higher, which shall be
b. If the customs duties are determined by the BOC based on the quantity creditable against the output tax.
or volume (Specific tax) 5. CREDITABLE WITHHOLDING VAT
INVOICE AMOUNT Pxxx  As amended by the TRAIN law, beginning January 1, 2021, the VAT
withholding system shall shift from final to a creditable vat
ADD: system wherein the payor shall be considered the withholding
agent.
Custom’s duties xx
 The 5% vat withheld by the government shall be creditable against
Freight xx the output vat of the seller.
 The amount of input vat to be recognized by the seller on its sale to
Insurance xx the government shall be the actual amount of vat on purchases.
Standard input vat is no longer computed.
Other legitimate charges prior to release by BOC xx
VAT withheld from Nonresidents
LANDED COST Pxxx

Add: Excise tax, if applicable xxx  The payment for lease or use of properties or property rights to
nonresident owners shall be subject to 12% withholding tax at the
TAX BASE Pxxx time of payment.

Vat rate 12% CARRY-OVER of Excess Input Vat

VAT on IMPORTATION Pxxx  RR 2-2007 states that, if the input vat inclusive of the input tax carried
over from the previous quarter exceeds the output tax, the excess input
3. PRESUMPTIVE INPUT TAX OF 4% ON SALE OF GOODS
tax shall be carried over to the succeeding quarter/s.
 Applicable to persons or firms engaged in the processing of sardines,
 Provided that any input tax attributable to zero-rated sales by a vat
mackerel and milk, and in manufacturing refined sugar and cooking
registered taxpayer , may at his option be refunded or applied for a tax
oil, shall be allowed a presumptive input tax, creditable against the
credit certificate which may be used in the payment of internal revenue
output tax, equivalent to four percent (4%) of the gross value in
taxes.
money of their purchases of primary agricultural products which are
used as inputs to their production LEASE OF REAL PROPERTY

ENTITLED TO PRESUMPTIVE TAX (4%  Lease of commercial units

Processing of Manufacturing of  Gross receipts from lease of commercial units are subject to 12%
- Sardines - Refined sugar VAT
- Mackerel - Cooking oil  Advance payment by the lessee is subject to vat if the payment is
- Milk - Packed noodle (Instant) applied to rentals such as prepaid rent.

8 – RAMOS
SALE OF REAL PROPERTY SP inclusive of interest and
penalties
 If installment payment basis VAT Exemption and Discounts to Senior Citizens and PWDs
 The sale is considered installment if the initial payment does not
exceed 25% of the selling price. Hence, the buyer of the property  Entitled to VAT exemption and 20% discount on certain items; and 5%
can claim the input vat in the same period as the seller recognizes special discount on basic necessities and prime commodities
the output tax .
SELLER IS NOT SUBJECT TO VAT – they are subject to OPT (1%)
 Initial payments = all payments the seller receives on or before
the execution of the instrument of sale, including cash or property Sales (without VAT) P1,000
received, interest, penalties & other charges, excess of mortgage
over cost, etc. Less: 20% discount (200)
 If the zonal value/ FMV is higher than the consideration or selling Sales, net of discount P800
price, exclusive of the vat, the vat shall be based on the ratio of
actual collection of the consideration, exclusive of the vat, against Percentage Tax (1,000 x 1%) = P10
the agreed consideration, exclusive of the vat applied to the
zonal/ FMV of the property at the time of the execution of  Input tax attributable to the vat exempt sale is considered as cost or an
Contract to Sell expense account by business establishments and shall not be allowed
 Formula for OUTPUT VAT under Installment Sale as input tax credit
 Senior Citizens and PWDs are not exempted from the payment of
Year of Sale = Initial Payment/GSP x Higher between GSP or FMV Percentage Tax

Subsequent Year(s) = Collections / GSP x Higher between GSP or FMV MIXED BUSINESS TRANSACTIONS

 If Deferred Payment Basis
 The transaction shall be treated as cash sale which makes the
entire selling price taxable in the month of sale
 Output tax shall be recognized by the seller and input tax shall
accrue to the buyer at the time of the execution of the instrument
Summary of VAT on Sale of Real Properties
A vat registered person who is also engaged in transactions not subject
to vat shall be allowed of input tax credit as follows:
a. Total input tax – which can be directly attributed to transactions
subject to vat
b. Ratable Portion of any input tax which cannot be directly attributed to
either activity (allocation shall be on the basis of sales volume)

Payment Terms Payment of Output VAT Payable on Mixed Transactions

VAT
Output vat Pxxx
CASH If total selling price is paid Output vat shall be
immediately by the buyer reported during the Less: Input vat
month of the sale
DEFERRED If the buyer only paid: Same effect with cash Directly attributed to vatable transactions (xxx)
- Portion of the SP, and sales
- INITIAL PAYMENT, Not directly attributed as per RR 14-2005
exceeds 25% of the SP
Taxables sales private entities x input tax** (xxx)
INSTALLMENT If the buyer only paid: The seller or the real
- Portion of the SP, and estate dealer shall be Exempt sales (Total sales x input tax) NA***
- INITIAL PAYMENT, do subject to vat on
not exceed 25% of the installment payments, Balance Pxxx

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 Less: 5% withholding vat on sales made to gov’t (xxx)  Understatement of taxable sales or receipts by 30% or more of
his correct taxable sales
VAT Payable Pxxx
b. Failure of any person to register. The temporary closure of the
FILING OF VAT RETURNS establishment shall be for the duration of not less than 5 days shall be
lifted only upon compliance with the requirements prescribed by the
 Every person liable to pay the VAT shall file and pay a monthly and Commissioner
quarterly vat return based on the amount of his gross sales or receipts,
as the case may be. OTHER PERCENTAGE TAXES
 Monthly vat return – shall be filed and paid not later than the 20 th day
TAX ON PERSONS EXEMPT FROM VAT (Section 116)
following the end of each month
 Quarterly vat return – shall be filed and paid not later than the 25 th day Person liable:
following the close of each taxable quarter prescribed for each taxpayer
 Beginning January 1, 2023, the filing and payment required under Tax  Non-vat registered with < P3M of annual gross sales and/or receipts
Code shall be done within 25 days following the close of each taxable  Persons who lease residential units where the monthly rental > P15K
quarter but the aggregate of rentals of the lessor does not exceed P3M
 Any person whose registration has been cancelled, shall file a return Exempt Person (CREATE Law)
and pay the tax due within 25 days from the date of cancellation of
registration  Cooperatives
 Self-employed individuals and professionals availing 8% tax
INVOICE AND ACCOUNTING REQUIREMENTS
Requisites
A vat registered person shall issue a VAT INVOICE for every sale, barter,
or exchange of goods or properties; and a VAT OFFICIAL RECEIPT for every  Not vat registered
issue of goods or properties, and for every sale, barter or exchange of goods  Annual gross sales or receipts do not exceed P3M
 Not exempt from vat under Section 109(1)(A) to (BB) of Tax Code
CONSEQUENCES OF ISSUING AN ERRONEOUS INVOICE/ OR
A taxpayer with annual gross sales and/or receipts not exceeding P3M is NOT
By a non-vat registered person (If he claims to be VAT registered even if not)
automatically subject to Percentage Tax
 Percentage taxes applicable to his transactions
FORMULA
 The VAT due on the transactions without the benefit of any tax credit
 50% surcharge Tax base (gross sales or receipts) Pxxx
By a vat registered person (If he fails to put “vat exempt sale” on OR Multiply: Tax Rate
 The transaction shall become taxable and the issuer shall be liable to Prior to July 1, 2020 3%
pay the VAT
 If the invoice/receipts contain the required information, the purchaser From July 1, 2020 to June 30, 2023 1%
shall be allowed to recognize an input tax credit. Beginning July 1, 2023 (CREATE law) 3%
POWER OF THE COMMISSIONER TO SUSPEND BUSINESS OPERATIONS Percentage tax due Pxxx
a. In the case of a VAT registered person
 Failure to issue receipts or invoices;
 Failure to file VAT return
10 – RAMOS
 SELF-EMPLOYED/PROFESSIONAL (SEP) under the TRAIN LAW  He shall be allowed an income tax credit of quarterly payments under
8% income tax option
PURELY Self-employed and/or Professional
 He shall also be liable for business tax, in addition to income tax.
With Gross Sales and/or Receipts and other non-operating income
Percentage tax is imposed on the first P3M , and the excess shall be
NOT EXCEEDING THE VAT MORE THAN THE VAT THRESHOLD
subject to VAT
THRESHOLD + NVR OR VAT REGISTERED
Applicable Taxes Applicable Taxes  Percentage tax due on the P3M shall be collected without penalty if
Income Tax: Graduated Tax Rate Income Tax: Graduated Tax Rate timely paid on the due date immediately following the month the
Business Tax: OPT under SEC. 116 Business Tax: VAT threshold was breached.

PERCENTAGE TAX ON DOMESTIC COMMON CARRIERS AND KEEPERS OF

OR (at SEP’s option)
GARAGES (SECTION 117)
8% tax on gross sales/receipts and
other O.I. in excess of P250k in lieu  Subject to 3% common carriers tax (CCT)
of the graduated income tax rate and
 Applies to the quarterly gross receipts of operators of:
the Percentage Tax
 Cars for rent
 Cars for hire driven by the lessee
Individual Taxpayer earning Compensation Income Self-employed  Transportation contractors (such as tourist bus)
and/or Professional  Other domestic carriers by land for transport of passengers, &
With Gross Sales and/or Receipts and other non-operating income  Keepers of garages
NOT EXCEEDING THE VAT MORE THAN THE VAT THRESHOLD  It shall not apply to
THRESHOLD + NVR OR VAT REGISTERED  Owners of bancas, and
Compensation income: Compensation Income
 Animal drawn two-wheeled vehicles
Subject to graduated tax rate Subject to graduated tax rate
BUSINESS TAXES OF DOMESTIC COMMON CARRIERS
Income as SEP Income as SEP Transport of Business Tax
Income Tax: Graduated Tax Rate Income Tax: Graduated Tax Rate By land Passengers 3% CCT regardless of gross receipts
Business Tax: OPT under SEC. 116 Business Tax: VAT
Goods/Cargoes VAT or Sec 116 if GR < 3M & non vat reg.
By air or Passengers VAT or Sec 116 if GR < 3M & non vat reg.
OR (at SEP’s option) sea Goods/Cargoes VAT or Sec 116 if GR < 3M & non vat reg.
8% tax on gross sales/receipts and
Int’l flights/ shipments of domestic carriers – 0% VAT if VAT reg. ,
other O.I. in excess of P250k in lieu
otherwise not exempt
of the graduated income tax rate and
the Percentage Tax
Requisites (for OPTION to be taxed at 8%) PERCENTAGE TAX ON INTERNATIONAL CARRIERS (Sec. 118)
 Taxpayer is non-vat registered  International air and shipping centers shall be subject to 3% based on
 Is vat exempt under Section 109(CC), the reason for vat exemption is gross receipts derived from their transport of goods
because the annual G/S did not exceed P3M  International carriers – refer to foreign international air carriers and
 Is not subject to other percentage taxes other than Sec. 116 international shipping carriers doing business in the PH (resident foreign
 The SEP shall signify his/her intention to be taxed at 8% corporations)
If the SEP exceeded P3M

 Automatically subjected to graduated rates

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EXEMPTION FROM VAT
 International air carriers and international shipping carriers shall not be
subject to 12% VAT (passengers and cargo) for the reason that vat is
applicable ONLY on sale of goods or services rendered in the Philippines
TAX ON FRANCHISES (Section 119)
Royalties, rentals of real or personal property, profits from
exchange and all other items treated as gross income under Sec.
32 of Tax Code
Net trading gains within the taxable year on foreign currency, 7%
debts securities, derivative, and other financial instruments 7%

BUSINESS TAXES FOR FRANCHISE GRANTEES Non-bank financial intermediary

Grantor Type of Franchise Business Tax - Known as The General Banking Act authorized by BSP to perform quasi-
Radio /Telev. 3% OPT or 12% VAT if banking activities
Broadcasting Co. vat reg. or if GR > P10M
for the preceding year Financial intermediary
Government Gas and water utilities 2% OPT regardless of
gross receipts - Persons or entities whose principal functions include lending, investing,
All other types of 12% vat OR 3% OPT if or placement of funds or evidences of indebtedness or equity deposited
franchises non vat reg. & GR < P3M with them, acquired by them, or otherwise coursed through them, either
Private Companies All types of franchise 12% vat OR 3% OPT if for their own account or the account of others
non vat reg. & GR < P3M
Quasi-banking activities

TAX ON OVERSEAS, DISPATCH, MESSAGE OR CONVERSATION - Refer to the borrowing of funds from 20 or more personal or corporate
ORIGINATING FROM THE PHILIPPINES (Section 120) lenders at any one time,

 An Overseas Communication Tax (OCT) of 10% shall be collected upon TAX ON OTHER NON-BANK FINANCIAL INTERMEDIARIES (Section 122)
every overseas dispatch, message or conversation transmitted from the Maturity period is 5 years or less 5%
Philippines by telephone, telegraph, telewriter exchange, wireless and Maturity period is more than 5 years 1%
other communication equipment service on the amount paid for such
services.
 Exemptions: Gross Receipt Tax on Lending Investors
 Government
 Lending investors as well as dealers in securities are subject to 12%
 Diplomatic Services
VAT on the basis of their gross receipts
 International Organizations
 News services TAX ON LIFE INSURANCE PREMIUMS (Section 123)

TAX ON BANKS AND NON-BANK FINANCIAL INTERMEDIARIES
PERFORMING QUASI-BANKING OPERATIONS
Kinds of Income
Interest, commissions and discounts from lending activities and
financial leasing on the basis of remaining maturities of
instruments:
a. Maturity period is 5 years or less
b. Maturity period is more than 5 years
Dividends and equity shares in net income of subsidiaries
 Subject to 2% tax of the total premium collected, whether such
premiums are paid in money, notes, credits, or any substitute for money
 The following shall NOT be included in the taxable receipts
Tax Rate
 Premiums refunded within 6 months after payment on account
of risk or returned for other reasons
 Reinsurance premiums where tax has been previously paid
 Premiums collected or received by any branch of a domestic
5%
corporation, firm, or association doing business outside the
1%
0% Philippines of ANY LIFE insurance of a NON-RESIDENT insured

12 – RAMOS
  Premiums collected or received on account of RE-INSURANCE, Vs. APMMR
in case of personal insurance resides outside the Philippines
Higher amount between GGR and APMMR Pxx
 Portion of the premiums collected or received by the insurance
companies on variable contracts Gaming Tax Rate 5%
TAX RATES ON AGENTS OF FOREIGN INSURANCE COMPANIES (Sec. 124) GAMING TAX Pxx
 Agents of nonresident foreign insurance companies – 4% Payment of Gaming Tax
 Owners of property who obtain insurance directly from foreign
companies – 5% - It shall be directly remitted to the BIR not later than the 20 th day
following the end of each month
AMUSEMENT TAXES (Sec. 125)
Income from non-gaming operations
Amusement Place OPT Rate
Jai-alia and racetracks 30% - Non gaming revenues of operations of all OGLs shall be subject to VAT or
Cockpits, cabarets, night or day clubs 18% OPT, whichever is applicable
Professional basketball games 15%
TAX ON WINNING (Sec 126)
Boxing exhibitions 10%
Taxpaye Winnings from Rate Basis
r
 Boxing exhibitions wherein World or Oriental Championships in any
Bettor Regular bet 10% Winning or dividends less cost
division is at stake shall be EXEMPT from amusement tax provided that
of ticket
at least ONE of the contenders is a citizen of Philippines, and said Double, forecast/quinella
Bettor 4% Winning or dividends less cost
exhibitions are promoted by citizen(s) of the Philippines or by a and trifecta bets of ticket
corporation or association at least 60% of the capital is owned by such Horse - 10% Gross Winnings
citizen/s. owners
GAMING TAX on Services rendered by Offshore Gaming Licenses (Sec.
125A) TAX ON SALE, BARTER, OR EXCHANGE OF SHARES OF STOCK LISTED AND
TRADED THROUGH THE LOCAL STOCK EXCHANGE (Section 127)
 In lieu of ALL other direct and indirect internal revenue taxes and local
taxes, there shall be levied, assessed and collected from OGLs (whether  A tax rate of 0.006 or 6/10 of 1% of the gross selling price or gross
PH based or Foreign-based), a gaming tax equivalent to (whichever is value in money of the shares of stock sold, bartered, exchanged or
higher) between: otherwise disposed which shall be paid by the seller or transferor
5% of Gross Gaming Revenue  The seller shall not be a dealer in securities. Any gain or loss from sale
5% of the Agreed Pre-determined minimum monthly revenue or exchange shall be ignored. For this reason, the percentage tax paid
from gaming operations herein is also referred to as STOCK TRANSACTION TAX.
Gross wagers Pxx  Any gain derived shall be exempt from CGT and from regular individual
or corporate income tax
Less: Payouts (xx)  The following sellers or transferors of stock are liable to this tax
 Individual taxpayer, whether citizen or alien
Gross Gaming Revenue Pxxx
 Corporate taxpayer, whether domestic or foreign
 Other taxpayers such as estate, trust, trust funds and pension
funds
13 – RAMOS
 Every stockbroker who effected the sale shall collect the tax and remit
the same to the BIR within 5 banking days from the date of collection.
He is also required to submit on Mondays of each week to the secretary
of the stock exchange, of which, he/she is a member, a true and
complete return which shall contain a declaration of all transactions
effected through him during the preceding week and of taxes collected
by him, and turned over to the BIR
 Taxes imposed under Section 127 shall NOT APPLY to the ff:
 Dealers in securities
 Investor in shares of stock in a mutual fund company; and
 All other persons, whether natural or juridical, who are
specifically exempt from national internal revenue taxes

RETURN AND PAYMENTS OF PERCENTAGE TAXESS

1. Persons liable to pay percentage taxes

 They shall file a quarterly return of the amount and pay within
25 days after the end of each taxable quarter
2. Person retiring from business
 Any person retiring from a business subject to percentage tax
shall notify the nearest internal revenue officer, file his return
and pay the tax due within 20 days after closing his business
3. Determination of Correct Sales or Receipts

14 – RAMOS