Consumption is the usage or utilization of goods or services by any person.

The utilization of goods or services may be

through purchase, exchange or other means.
Consumption tax is the tax upon the usage or utilization of goods or services by consumers or buyers.

Rationale
1. it promotes savings formation = tinatax nila yung consumption to create or foster savings. If there is savings because
it can provide as capital which can be used for various ventures. Tina tax nila yung consumption kasi kapag alam nila
na tinatax ang kanilang tax, he/she will tend to limit his/her consumption to create savings.
2. It supports the benefit received theory because it imposed taxes to both rich and poor since pareho sila nag co-
consume. Consumption tax is an equalizing factor that will tax everyone.
3. It helps in wealth distribution to society.

VAT ON IMPORTATION VS. BUSINESS TAX

Two consumption tax in the as to
VAT ON IMPORTATION BUSINESS TAX
source
Definition A tax on the purchase of RESIDENTS A tax on the purchase if RESIDENTS of
of goods or services from NON- goods or services from RESDENT
RESIDENTS abroad sellers. (ex. VAT on sales and OPT)
Scope of tax All imports from business/non- Purchases from business sellers only.
business. (hindi kasama yung mga nonbusiness
sellers)
Type of consumption tax Pure form of consumption tax Relative form of consumption tax

Because it does not distinguish Because it depends upon the source

whether the source is a business or whether the source is a business or
not. not.
Statutory taxpayer Buyer/importer Seller (for administrative feasibility).
Under the assumption that the seller
will recoup the tax from the
consumer by the sales wherein that
sales is composed ng purchases ng
consumers.
Economic taxpayer (nag so shoulder Buyer/importer Buyer
ng burden)
Nature of imposition Direct tax Indirect tax
Basis of imposition Landed cost/total purchase cost Sales or receipys
(lahat ng gastusin mula sa labas
hanggang sa ilabas ng BOC)

Domestic consumption: consumption or purchases by Philippine residents

Types consumption tax: vat and percentage tax , and excise

VAT: 12% of sales or receipts and applies if the taxpayer is VAT-registered taxpayer. Threshold is P3M of vatable sales or
receipts per year. But may idededuct na input vat. Input vat ay vat na nakasama sa purchases mo or yung vat na
binabayaran sa purchases mo.
General Percentage tax (3%): if the taxpayer is not VAT registered.
Two types of percentage tax
1. General Percentage tax
2. specific percentage tax: different taxes for different types of services.

Mandatory registration: kahit nakalimutan mag registered. Vat taxpayer ka pa rin

Voluntary registration: kahit hindi lumagpas sa threshold yung sales mo, pero gusto mo mag pa VAT. You cannot cancel
the registration until the lapse of 3 years.

Once you become a VAT taxpayer, it will take effect until the cancellation of your registration.
 TYPES OF
DOMESTIC IMPORT SALES OR RECEIPT (SELLER’S PERSPECTIVE)
CONSUMPTION
Exempt Exempt importation Exempt sales or receipts
consumption (no - No VAT
tax) - No percentage tax
Services subject to specific percentage tax. (OPT)
(BICAP FLOW)
- Bank
- International carrier
Consumption - Common carrier
subject to specific - Amusement places
Direct insurance from abroad (import
percentage tax (a - Sales of stock through PSE
of service) 5% percentage tax.
form of - Franchise
consumption tax - Life insurance

- No VAT but have percentage tax of various

Vatable importation
- Vat importation for goods = 12%
- Final withholding VAT for services =
12%. This is only applicable kapag If the seller: (of goods)
business man na individual
Vatable
consumption
rates
Importation sales or receipts
- Vat in general= 12%
- General Percentage tax = 3%
- Vat taxpayer = 12%
- Non-VAT taxpayer= 3%
If the seller/service provider: (of services)
- If non-VAT taxpayer and not imposed on
specific percentage tax = 3% General
percentage tax
- If VAT taxpayer and not imposed on specific
percentage tax = 12% vat on receipt

BASIS OF EXEMPT CONSUMPTION

1. Human consumption
2. Out of the scope of the tax: must be current acquisitions/importations.
3. Tax incentives: PEZA (for importation) and Cooperatives (for business tax)
4. International comity (treaty)

VAT ON IMPORTATION VS FINAL WITHOLDING VAT

POINT OF DIFFERENTIATION VAT ON IMPORATION FINAL WITHOLDING VAT
 1. Object
2. Target Taxpayers
3. Imposition / Nature
4. Statutory Taxpayer (sino Importer/buyer
pinangalanan ng batas na mag
bayad ng tax sa gobyerno)
5. Basis
6. Timing of Payment
7. Collecting Agency
TYPES OF BUSINESS TAXES
1. Value-Added tax (VAT)
2. Percentage tax
a. General percentage tax
b. Specific percentage tax (BICAP FLOW)
3. Excise tax: additional consumption tax on consumption on certain commodities or goods.
VAT ON IMPORATION OF GOODS
1. Exempt Importation
A. Importation of exempt goods
1) Basic Human food and related goods
a) Agricultural and marine food products in original state:
Goods: equipment, inventories, and Services
supplies, etc.
Import or purchases of services
Import or purchase of goods from from nonresidents.
non-residents.
REQUIREMENTS:
Applicable lang siya sa mga
negosyante ang mag wiwithold
(individual engaged in business/
corporations)
If corporations, negosyante or hindi
(non-profit or profit oriented) mag
wiwithold
The service must be performed
within the Philippines in order to
withhold, otherwise hindi ma
wiwithold.
Importer/buyer Non-residents service provider
Direct consumption tax Indirect consumption tax (business
tax)
Resident purchaser (dahil sa labas
ng jurisdiction yung service
provider, wala siya business dito, so
mahirap maasahan mag comply)
kaya withholding, taga withhold si
purchaser or withholding agent.
Landed Cost Since hindi siya dadaan ng BOC,
titignan ang CONTRACT PRICE
Before withdrawal of goods from After the month of payment: kung
the BOC. kailan binayaran yung contract price
within 10 days.
Bureau of Customs (BOC) Bureau of Internal Revenue (BIR)
Let’s say P1M ang contract price,
multiply by 12% = P120K. Hindi mo
ito ibabawas sa P1M, instead
ibabayad mo iyon sa BIR kasi ayun
yung pinas ani non resident service
provider sayo which accordingly
withheld. Ang babawasan mo lang
sa P1M ay yung final income tax:
NRA-NETB; 25%
NRFC: 25%
 b) Livestock and poultry of kind generally used as or yielding or producing foods for human
consumption.
c) Breeding stock and genetic materials therefore
2) Fertilizers, seeds, seedlings and fingerlings, fish, prawn, livestock and poultry feeds, including ingredients
used in the manufacture of finished feeds.
3) Books, newspapers, and magazines
4) Passengers or cargo vessels and aircrafts, including engine, equipment, and spare parts.
5) Critical/needed health care equipment supplies.
6) Raw materials to make health equipment and supplies.
7) Prescription drugs and medicines for:
a) diabetes, high cholesterol, and hypertension
b) cancer, mental illness, tuberculosis, and kidney diseases

BASIC HUMAN FOOD AND RELATED GOODS

a) Agricultural and marine food products in original state

Agricultural and marine food products are natural objects of human consumption. The
importation of these goods is exempt from VAT on IMPORTATION. Import exemption is limited to
agricultural or marine food products in their ORIGINAL STATE or those which undergone SIMPLE
PROCESSING. Good that underwent ADVANCED processing are vatable.

Examples of exempt agricultural or marine foods products in ORIGINAL STATE:

(1) Grapes, apples, oranges, and other fruits
(2) Vegetables, tea, ginseng
(3) Rice, corn, coffee beans, and other edible farm products
(4) Marine foods such as fish and crustaceans*
(5) Poultry and livestock**
(6) Milk, eggs, meat for human consumption

*MARINE shall include fish and crustaceans such as but not limited to eels, trout, lobster, shrimps,
prawns, oysters, mussels, and clams.
**LIVESTOCK includes cow, bulls and calves, pigs, sheep, goats, and rabbits. POULTRY shall include fowls,
ducks, geese, and turkey.

Meaning of” original state”

Means unprocessed. However, an agricultural or marine food product is still considered in its original
state even if it has undergone simple process of preparation or preservation for the market including
advanced technological means of packaging. (WALANG CHANGE IN THE CHEMICAL COMPISITION OF
GOODS)

Examples of simple process of preparation (nos. 1-4) and preservation (nos. 6-10) for the market include
the following:
(1) Freezing
(2) Drying
(3) Salting
(4) Smoking
(5) Boiling
(6) Broiling
(7) Husking
(8) Roasting
(9) Stripping (pag balat)
(10)Grinding
Rationale: to prolong and preserve the shell life of products

Examples of advanced technological means of packaging which do not alter the nature of agricultural or
marine food products being “in original state”:
(1) Shrink wrapping in plastics.
(2) Vacuum packing
(3) Tetra-packing
(4) Other similar packaging methods

Hence, the following agricultural or marine food products which underwent processing are also EXEMPT:
 With simple act of preparation With simple act of preservation With acts of packaging
Husked rice Sundried fruits Tetra-packed fresh fruit juice
Corn grits Salted meat Shrink wrapped meat
Raw cane sugar Smoked fish
Roasted beans Dried fish
Ordinary salt Frozen meat or fish
Ground meat
Copra
Boiled eggs
Lechon (heating)

Examples of vatable advanced processed agricultural or marine food products (processed products
considered as not “in their original state)
Refined sugar Canned sardines / mackerel Flour
(canning)
Wine or vinegar (fermentation) Butter Marinated milk fish (marinating)
Vegetable or coconut oil Soy Pasteurization

Rules on VAT taxation of poultry and feeds

Livestock Poultry Pets
Importation of
Importation of feeds for
Importation of feed
ingredients for

The importation of the following non-food agricultural or marine products is subject to VAT on
importation:
(1) Logs, wood, bamboos, orchids, and similar forest products
(2) Rubber hem, abaca, tobacco, tropical herbs, cotton, and other non-food crops
(3) Shells, corals, and other non-food marine products usually used as ornaments.
(4) Race horse, fighting cocks, aquarium fish, zoo animals and other animals generally considered as
pets.

FERTILIZERS, SEEDS, SEEDLINGS AND FINGERLINGS, FISH, PRAWN, LIVESTOCK AND POULTRY FEEDS,
INCLUDING INGREDIENTS USED IN THE MANUFACTURE OF FINISHED FEEDS.

The importation of fertilizers, seeds, seedlings, fingerlings, fish prawn, livestock, and poultry feeds,
including ingredients used in the manufacture of finished feeds is EXEMPT since they are ultimately
intended for the production of food products for human consumption. However, the importation of
specialty feeds (i.e. pet feeds) is TAXABLE as it not intended for ultimate consumption.

Other farming implements such as pesticides and herbicides are subject to VAT on importation.

The exemption only covers only those farm and fishery inputs enumerated by law. The importation of
farm, fishery or fishing equipment such as fishing boats, tractors, plow, threshers and harvesters is
SUBJECT to VAT.

BOOKS (related or not related to education) AND ANY NEWSPAPERS, MAGAZINES, REVIEW, OR
BULLETINF WHICH APPEAR AT REGULAR INTERVALS WITH FIXED PRICES FOR SUBSCRIPTION AND SALE
AND WHICH IS NOT DEVOTED PRINCIPALLY TO THE PUBLICATION OF PAID ADVERTISEMENTS

E-copies are also exempt.

The exemption of these materials Is apparently based upon the necessity of education and information.

Conditions for exemption of newspaper, magazine, review, or bulletin:

1. Must appear wat regular intervals with fixed prices for subscription.
2. The sale must not be devoted principally to the publication of paid advertisements.
 Note: exemption does not extend to other school supplies such as chalks, boar markers, pens, notebooks,
and papers.

PASSENGERS OR CARGO VESSELS AND AIRCRAFTS, INCLUDING ENGINE, EQUIPMENT, AND SPARE
PARTS

VAT exemption covers the import of Passengers or cargo vessels and aircrafts, including engine,
equipment, and spare parts thereof for DOMESTIC / INTERNATIONAL transport operations.

To qualify for exemption, the importation must be subject to the requirements on restriction on vessel
importation and mandatory vessel retirement program of the Marina Industry Authority (MARINA)
- Passengers or cargo vessels: 15 years
- Tankers: 10 years
- High speed passenger crafts: 5 years

The importation and lease of these items from non-residents whether for domestic or international
transport is exempt from VAT. The apparent basis our shortage of these vehicles. Difficulties in air or sea
support could impede national development.

B. IMPORTATION BY VAT – EXEMPT PERSONS: yung nagpapasok ay exempt, kung iba taxable, but if ibinenta niya
sa nonexempt person, ma tatax yung nonexempt person as importer.
a) International shipping or air transport operators
b) Agricultural cooperatives
c) Ecozone-locators

INTERNATIONAL SHIPPING OR AIR TRANSPORT OPERATORS

The importation of fuel, goods and supplies by persons engaged in international shipping or air
transport operations is exempt from VAT on importation. They are the RFC na international carriers
na nandito sa pilipinas

Although the fuel, goods and supplies are imported in the Philippines, these are not intended to be
consumed in the Philippines by these international carriers. These are destined for consumption
abroad, hence, exempt from VAT under the destination principle. (not domestic consumption,
hence, EXEMPT from VAT)

AGRICULTURAL COOPERATIVES
The importation of cooperatives 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 is exempt from VAT on importation.

Farm inputs: fertilizers, herbicides, pesticides, animal medicines, equipment

The status of agri-coop as VAT exempt person is limited to importation of direct farm inputs,
machineries, and equipment, including spare parts.

Conditions for exemption:

1. The cooperative must be an agricultural cooperative duly registered and in good standing with
the cooperative development authority (CDA)
2. The importation involves direct farm inputs, machineries, and equipment, including spare parts
to be used directly and exclusively in the production and/or processing of their produce.

ECOZONE-LOCATORS

C. QUASI-IMPORTATION: it involves bringing of goods here in the Philippines but not meant for domestic
consumption. (kapag nag donate of goods from abroad papunta sa Philippines, vatable but exempt kapag
accredited or non-profit ung recipient)
a) Import of personal and household effects belong to residents of the Philippines returning from
abroad or non-resident citizens coming to resettle in the Philippines.
 b) Professional instruments and implements, wearing apparel, domestic animals, and personal
household effects belonging to persons coming to settle in the Philippines, for their own use and
not for sale, barter, or exchange.

IMPORT OF PERSONAL AND HOUSEHOLD EFFECTS BELONG TO RESIDENTS OF THE PHILIPPINES

RETURNING FROM ABROAD OR NON-RESIDENT CITIZENS COMING TO RESETTLE IN THE
PHILIPPINES.
The importation of personal and household effects by residents returning from abroad is NOT
subject to VAT because it is a past consumption which is previously subjected to consumption tax
herein.

The importation of personal and household effects by non-residents intending to resettle in the
Philippines is a FOREIGN CONSUMPTION NOT subject to Philippine consumption tax.

Note: when personal and household effects were purchases before, they were already subjected to
consumption taxes. The VAT in importation applies to importation which represents current
consumption of personal or household effects. It does not apply to their PAST CONSUMPTION.

Conditions for exemptions:

1) The personal and household effects belong to the Philippine residents or non-residents
intending to resettle in the Philippines.
2) The goods are exempt from custom duties.

IMPORTATION OF PROFESSIONAL INSTRUMENTS AND IMPLEMENTS, WEARING APPAREL,

DOMESTIC ANIMALS, AND PERSONAL HOUSEHOLD EFFECTS BELONGING TO PERSONS COMING
TO SETTLE IN THE PHILIPPINES, FOR THEIR OWN USE AND NOT FOR SALE, BARTER, OR EXCHANGE.

Conditions for exemptions:

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 bona fide.
4) The importation is not a vehicle, machinery or other equipment used in the manufacture or
merchandise of any kind in commercial quantity.

D. Importation which are exempt under special laws and international agreement or exempt by treaty:
international convention.

3. Vatable importation
12% of landed cost
4. Sds
5. sd