CHAPTER 1: INTRODUCTION TO  Object of taxation- purchase of buyers

CONSUMPTION TAXES  PRINCIPLE OF ADMINISTRATIVE

FEASIBILITY is applied.
CONSUMPTION – acquisition or utilization of
goods or services by any person. This is subject to 2. IMPORTATION
CONSUMPTION TAX.
 Purchase from NON-RESIDENT
 Should not be levied to basic necessities SELLERS.
like food, medical health, education, and  Subject to VAT on Importation
shelter.  VAT is directly levied to the buyer-
importer
SAVINGS = INCOME – CONSUMPTION
 PRINCIPLE OF ADMINISTRATIVE
INCOME TAX VS. CONSUMPTION TAX FEASIBILITY is NOT applied.

Income tax Consumption

Tax VAT on Business Tax
Nature Tax upon Tax upon usage Importation
receipt of of income. Scope of Tax Imports from Purchases from
income. business or Non- business ONLY
Scope/Coverage A tax to the A tax to all. business
capable. Type of Pure form Relative form
Theoretical Ability to pay Benefit received consumption
basis theory theory Tax
Statutory Buyer Seller
Taxpayer
Type of Purchaser Status The Buyer Buyer
consumption economic
1. Domestic Resident Taxable taxpayer
Consumption Nature of Direct Indirect
2. Foreign Non-resident Exempt/Effectively Imposition
Consumption non-taxable Basis of Tax Total purchase Sales or
cost Receipts
Destination Principle- goods and services destined
for consumption in the Philippines and not BUSINESS TAX RULES ON DOMESTIC
Abroad. SALES
Cross-border doctrine- exempts EXPORTS or The seller is The buyer is Subject to
subject to 0% tax rate. business tax
Business Business YES
TYPES OF DOMESTIC CONSUMPTION AS TO Business Not Business YES
SOURCE Not Business Business NO
Not Business Not Business NO
1. DOMESTIC SALES

 Purchase from RESIDENT SELLERS

 Subject to BUSINESS TAX
 Sellers are not the ones being subjected to
the tax burden.
 VALUE ADDED TAX RULES ON Scope of VAT on Importation
IMPORTATION
 Acquisition of goods by a resident from a
The seller is The buyer is Subject to VAT non-resident seller. If not then, EXEMPT.
on Importation
Business Business YES Scope of Business Tax
Business Not Business YES
Not Business Business YES  Only sales or receipts of persons engaged in
Not Business Not Business YES business. If not, then NOT subject to
business tax

TYPE OF CONSUMPTION TAXES The structure of VAT on Importation

1. Percentage Tax – 0.60 to 30% VAT on Importation

2. Value Added Tax – consumption tax 12% Import of Import of
3. Excise Tax – ad valorem or specific tax, service goods
which is imposed in addition to a VAT or Exempt Exempt Exempt
% of Tax Percentage tax -
percentage tax, on certain goods or service.
VAT Final VAT on
TYPE OF CONSUMPTION PER TYPE OF withholding Importation
VAT (12% of (12% of the
DOMESTIC CONSUMPTION
the contract landed cost)
IMPORTATION DOMESTIC price)
SALES/
RECEIPTS
The structure of Business Tax
Exempt Exempt Exempt
Consumption Importation sales/receipt Business Tax
Services subject Service Service Sales of Sales of Goods
to a % tax specifically specifically Services
subject to a % subject to a % Exempt Exempt receipt Exempt sales
tax tax
% of Tax Receipts -
Vatable Vatable Vatable specifically
Consumption Importation sales/receipt subject to a %
tax
VAT (12% Vatable Vatable Sales
Basis of exemption from consumption tax
VAT if Receipts
1. Human Necessity – food products, books, taxpayer and
3% general
newspapers, magazines, residential properties
percentage
are EXEMPT. tax)
2. Out of scope of the consumption tax
VAT DUE COMPUTATION:
VAT on importation Business Tax
The bringing of goods to Domestic consumption Output VAT (12% of sales or receipts) XX
the Philippines which from BUSINESS ONLY.
Less: Input VAT
represents CURRENT
DOMESTIC (12% VAT paid on purchases) XX
CONSUMPTION.
VAT DUE XX
 THE EXCISE TAX is imposed on:
a. Sin products (cigarettes and alcohol)
b. Non-essential commodities (automobiles
and jewelry)
c. Non-essential services (cosmetic surgery)
d. products that are environmentally
degrading (petroleum and minerals)
CHAPTER 2: VAT ON IMPORTATION
a. Importation of exempt goods – NOT subject to
VAT IMPORTATION
1. Agricultural and Marine food products
2. Fertilizers, seeds, seedlings, fish, prawn, poultry
feeds,
3. Books and newspapers, magazine, review,
bulletin appear at regular intervals with fixed prices.
4. Passenger or cargo vessels and aircrafts including
engine, equipments, spare parts, for domestic or
international transportation.

Types of Consumption Tax on Importation b. Importation by VAT exempt persons

1. VAT on Importation – for the import goods 1. International shipping or air transport operators
on their import fuel, goods, and supplies
2. Final Withholding Tax – for the purchase of
services from non-residents 2. Cooperatives of direct farm inputs, equipments,
spare parts used directly in production process.
VAT on Final
Importation Withholding 3. PEZA locators of import goods or service
VAT
Object Goods Services c. Quasi-importation
Consumption
1. Personal and household effects belonging to
Imposed upon Importer/Buyer Foreign
service residents of the Philippines returning from abroad
providers and non-resident citizens coming to resettle in the
Statutory Importer/Buyer Resident Philippines.
taxpayer purchaser of
service ** 2. Professional instruments and implements,
Nature Direct Indirect wearing apparel, domestic animals, and personal
Consumption Business Tax household effects belonging to persons coming to
Tax settle in the Philippines, for their own use and not
Tax Basis Landed Cost Contract for sale, barter, exchange.
price (12%)
Collecting BOC BIR d. Importation which are exempt under special
agency laws and international agreement.
Timing of Before After the
Payment withdrawal of month of IMPORTATION OF EXEMPT GOODS
goods payment
 INDIVIDUALS ENGAGED IN A. Basic human food and related goods
BUSINESS and CORPORATION
1. Agricultural or marine food products in original
IMPORT OF GOODS state.

1. Exempt Importation 2. Livestock and poultry of a kind generally used as,

or yielding or producing foods for human
2. Vatable Importation consumption.
3. Breeding stock and genetic materials therefore. C. Acts of packaging including advanced
technological means of packaging.
B. Books, newspapers, and magazines
Examples:
C. Passengers or cargo vessels and aircrafts,
including engine, equipment, and spare parts. - Shrink wrapping
- Vacuum packing
BASIC HUMAN FOOD AND RELATED - Tetra-packing
PRODUCTS
VATABLE Processed agricultural or marine
Agricultural or marine food products in food products
ORIGINAL STATE
Examples:
Examples of exempt:
- Refined sugar
1. Grapes, apples, oranges, and other fruits - White vinegar
2. Vegetables, tea, ginseng - Vegetable or coconut oil
- Canned sardines
3. Rice, corn, coffee beans and other edible farm - Butter
products - Soy
- Flour
4. Marine foods such as fish and crustaceans
- Marinated milk fish
5. Poultry and livestock
Other foods EXEMPT FROM VAT:
6. Milk, eggs, and meat, FOR HUMAN
- Cauliflower
CONSUMPTION
- Chicken produced for meat or eggs
Meaning of simple processing - Marine or agricultural food products
- Ingredients used for human food
(EXEMPT FROM VAT) consumption
A. Acts of preparation for the market VATABLE:
Examples: - Flower intended as gift
- Cockfighting chickens
- Boiling
- Products used as maintenance: pesticides,
- Broiling
herbicides, animal medicines, fishing
- Husking
equipment, fishing boats, tractors, plows,
- Roasting
driers, threshers and harvesters
- Stripping
- Animals NOT intended for consumption:
- Grinding
Zoo animals, race horse, aquarium fish,
B. Acts of preservation cocks, and pets. INCLUDING THEIR
“SPECIAL FEEDS”
Examples: - Ingredients used for processing foods
- Freezing
- Drying
- Smoking
- Salting
BOOKS, NEWSPAPERS, MAGAZINES,
REVIEW OR BULLETINS
- Exempt if based upon the necessity of
EDUCATION and INFORMATION
Conditions for exemptions:
1. appear at regular intervals w/ fixed prices
2. sales must NOT be devoted principally to the
publication of paid advertisements.
VATABLE: SCHOOL SUPPLIES
- Chalks
- Markers
- Pen
- Notebooks
- Paper
PASSENGER OR CARGO VESSELS AND
AIRCRAFTS
Exempt: engine, equipments, spare parts
Qualifications for exemption:
- Passenger or cargo vessels – 15 years
- Tankers – 10 years
- High speed passenger crafts – 5 years
VAT EXEMPT PERSONS UNDER NIRC
1. International shipping or air transport
operators
-fuels, goods, and supplies brought domestically but
not consumed herein and will be used
INTERNATIONALLY.
2. Agricultural Cooperatives
- importation of direct-farm inputs, machineries and
equipments, spare parts.
3. Ecozone-locators
Importation of professional instruments and
implements, wearing apparel, domestic animal
and personal household effects
Conditions for exemption:
1. The goods belong to persons who come to settle
in the Philippines.
2. The goods must accompany the person upon
arrival or within 90 days before or after his/her
arrival.
3. There must be evidence to show that the change
of residence is bonafide.
4. The importation is NOT a vehicle, machinery, or
other equipment.
Importation is generally subject to VAT unless it
can be proven as exempt under any conditions.
Landed cost encompasses all costs of importation
incurred prior to withdrawal of goods from the
warehouse of BOC, EXCEPT UNOFFICIAL OR
ILLEGAL PAYMENTS MADE AND
FACILITATOR’S FEE.
Duitable Value – all costs incurred in bringing
goods in the Philippine port.
CUSTOM DUTY COMPUTATION:
= Duitable value x Exchange rate x Rate of Duty
Nature of Final Withholding VAT
In principle, domestic consumption by anybody
(business or non-business) of services from
abroad should be subject to VAT regardless of
the place (within or without) where the service is
rendered.
As a withholding tax, the obligation to withhold
the VAT technically exists only if
(REQUISITES):

1. Service is rendered WITHIN THE

PHILIPPINES

2. Payor-purchaser of the service is an individual

engaged in business or corporation.

Situs of Taxation- where service is rendered.

VAT EXEMPT IMPORT OF SERVICES

1. Purchaser of service from non-residents when the

service is rendered abroad.

2. Purchaser of service from non-residents when the

individual purchaser is not engaged in business,

3. Purchaser of service from non-residents by VAT-

exempt persons such as ecozone locators,

VATABLE IMPORT OF SERVICES

Examples:

 Lease or use of properties or property rights

owned by non-residents.
 Services rendered to local insurance
companies, with respect to reinsurance
premium payable to non-residents.
 Other services rendered in the Philippines by
non-residents.