CHAPTER 1

Introduction to Consumption Taxes

Business tax is a form of consumption tax.

Consumption Tax
- Occurs when one acquires goods or services by purchase, exchange or other means
- Utilization of goods or services by consumers or buyers

Rationale of Consumption Tax

1. Promotes savings formation
2. Helps in wealth distribution to society
3. Supports benefit received theory

Benefit Received Theory

- Those who receive benefits from the government shall pay taxes.

Income Tax Consumption Tax

Nature Tax upon receipt of income Tax upon usage of income or

capital

Scope A tax to the capable A tax to all

Supporting Tax Theory Ability to pay theory Benefit received theory

Types of consumption
1. Domestic Consumption - consumption or purchases of PH residents
2. Foreign consumption - consumption/purchases of non-residents of ph
Domestic consumption can be subjected to taxation not foreign consumps

Destination principle
- Goods and services destined for use or consumps in the PH are subject to consumption
tax
Types of taxable domestic consumption
1. Importation
2. Purchase goods properties or services from resident sellers. “Sale” transaction

Consumption Tax on importation

Importer goods = consumption tax

- Subjected to value added tax on importation, 12%
Withholding VAT
- Purchaser of service from non-residents shall oay vat in importation of the service.

The consumption tax on the purchase of PH resi from resi sellers is collected from the seller.

3% business tax sellers ph

Basis of business taxes

1. Sales
2. Receipts

Types of business taxes

1. VAT on sales
2. Percentage tax
3. Excise Tax

Types of Business Taxpayers

1. VAT taxpayers
2. NON-VAT taxpayers

Excise tax is an addition to either vat or percentage tax if the taxpayer produces certain
excisable goods such as alcohol or cigs

Methods of computing Vat

1. Direct method
- vat=12%*(xxx - xxx) = xxxx
2. Tax credit method
Output Vat(12%*xxx) xxxx
Less: INput VAT xxxx
Vat due xxxx

Charactheristics of VAT on SALES

1. Tax on value-added - markup
2. Top-up on sales - invoice price
3. Tax credit method - vat on sales shall be reduced by the amount of vat paid by the
business on its purchase
4. Explicit consumption tax
5. Quarterly tax - VAT return is filed quarterly but paid on monthly basis (sec. 114 (a))

Percentage Tax - is a sales tax of various rates generally 3%.

Characteristics of Percentage Tax

1. Tax on sales or gross receipts
2. Expensed tax
 3. Implicit consumption tax
4. Monthly/quarterly tax

Non-vat taxpayers are not exceeding with sales or receipts to 1,919,500

Excise Tax
- In additioni to VAT or % tax on certain goods
Excise tax is levied on the production or importation of:
1. Sin products, tobacco alcohol
2. Petroleum
3. Automobiles
4. Non-essential commodities like jewelry yachts and other luxuries
5. Natural resources like metallic minerals etc

Under NIRC, 10 pesos above of cigs per pack shall be on excise tax of 12 per pack

1. Only domestic consumption is subjected to tax

2. If goods enter the PH, it will be taxed to consumption tax
3. If goods are exported, not subjective to tax

2 types of consumption tax on domestic consumption

a. Vat on importation
b. Business tax

3 types of business tax

a. VAT in sales
 b. Percentage taxes
c. Excise tax

Tax basis of the VAT on importation

- Computed as 12% of total landed cost of importation

The customs duty is computed as: dutiable value x exchange rate x rate of duty
CHAPTER 2

Importation
- Refers to the purchase of goods or services by PH resi from non-resi sellers

Types of consumption tax on importation

1. VAT on importation - import of goods
2. Final withholding VAT - purchase of services from non-resi

Withholding VAT is 12% of the contract price for services rendered by non-resi

The importation of goods is either

1. Exempt importation
2. Vatable importation

Exempt Importaion
a. Importation of exempt goods
- Basic necessities
1. Agriculture and marine products in original state
2. Fertilizers, seeds, fingerlings, fish, livestock and poultry feeds
3. Books, newspaper, magazine
4. Passengers, cargo vessels, aircrafts engine, equipment, spareparts

b. Importation by VAT-exempt persons

1. International shipping or air transport operators
2. Cooperatives of direct farm inputs, machineries and equipment
3. PEZA locators on their import of goods or services
c. Quas-importation
1. Personal and household effects belonging to resi of ph returning from abroad
2. Pros instruments and implements, wearing apparel, domestic animals and personal
household effects for personal use
d. Importaiton which are exempt under special laws and international agreement

Those that undwerwen simple processing of raw goods are also exempt.

Simple processing includes:

a. Preps for market
b. Preservation
c. Packaging

Examples are:
1. Boiling
2. Broiling
3. Husking
 4. Roasting - ex. Lechon
5. Stripping
6. Grinding
7. Freezing
8. Drying
9. Smoking
10. Salting

Examples of vatable processed agri and marine food prods:

a. Refined sugar
b. Wine or vinegar
c. Vegetable or coco oil
d. Canned sardines
e. Butter
f. Soy
g. Flour
h. Marinated milkfish

Ingredients for processing of human food are vatable

Pesticides and Herbicides are Vatable

Examples of vatable non-food agri or marine prods:

a. logs , wood, bamboo, orchid etc
b. Rubber hem, abaca, tobacco, tropic herbs, cotton
c. Race horses, fighting cocks, aquarium fihs, zoo animals and pets

RA 10378
- Vat exempt of passenger/cargo vessels

To be exempt cargos must be:

- passenger/cargo vessels 15 yrs
- Tankers 10 yrs
- High speed passenger crafts 5 yrs
Bus is not exempted for importation

VAT-exempt persons inder the NIRC:

1. International shipping/air transports ops
2. Agri coops - must be agricultural direct farm inputs machineries and equipments
3. Ecozone-locators - economic zones are considered foreign countries.

Importation of Mining equipment is subjected to VAT tax

Tchnical importation
- Referst to the purchase of non ecozone PH resi from PH ecozone registered enterprises.

Quasi importation
- Goods or machines equipment purchased that are going to be used in business
operations in the PH shall be a VATABLE