Chapter 1 Bttax Banggawan

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Chapter 1 BTTax banggawan
Accontancy (Tarlac State University)
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Chapter 1- Introduction to Consumption Taxes
CHAPTER 1
INTRODUCTION TO CONSUMPTION TAXES
Chapter Overview and Objectives
Business tax ' is a form of consumption tax. An understanding of
consumption tax is essential to your understanding and appreciation of
business taxes. This chapter provides an overview of consumption tax.
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l
After this chapter, readers are expected to comprehend:

1. The concept of a consumption tax
2. Types of consumption and consumption taxes
3. The destination principle
4. · The nature of the VAT on importation
5. The nature and types of business tax
6. The characteristics of the VAT on sa]es
7. The characteristics of percentage tax
THE CONCEPT OF CONSUMPTION AND CONSUMPTION TAX

Consumption refers to the acquisition or utilization of goods or services by
any person. The utilization of goods or services may be through purchase,
exchange or other means. This utilization is subject to a tax called
consumption tax.
Consumption is levied without regard to the purpose of the purchaser or

consumer whether it is for business, persona] or charity use.
Rationale of Consumption Tax

1. Savings formation
2. Rationalization of the Benefit Received Theory
3. Wealth redistribution to society
Consumption tax promotes savings formation.

Income is normally destined toward consumption. Income less consumption
is savings. Savings is a capital that is usefu] in funding projects crucial to
economic activities that could spur further economic development. A tax on
consumption promotes savings formation by limiting the level of
consumption.
Consumption tax rationalizes the Benefit Received Theory.

The Benefit Received Theory proposes that those who receive more benefit
from the government should pay more taxes. It is undeniable that, in one
way or another, every resident or citizen, whether rich or poor, benefits
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Chapter 1 - Introduction to Consumption Taxes

from the_ government's public services. Thus, the legal truism in taxatio
that receipt of benefit from the government is conclusively presumed. 11 •
I
So how couJd the government tax everybody? Every person, rich or po ·

consumes goods and services as normal part of life. This is true even if thor, ,
do not earn income. A tax on consumption will effectively render everybo~Yl
taxable. Therefore, consumption tax is a practical rationalization of thy!
Benefit Received Theory in taxation. e
Consumption tax helps redistribute wealth to society.

It is a basic state policy to redistribute wealth to society so everyone in the
State could enjoy the same.
On the individual level, there's no question that rich people buy or spend
more than poor people. With bigger income and wealth, the rich can afford 1
expensive lifestyles. A tax on consumption will effectively make the rich pay
more taxes for the government.
In effect, consumption tax supports the redistribution of wealth from the

rich people to the Jess privileged members of our society.
;
A caveat to consumption tax

There is one important caveat to consumption tax however. It should not be
levied upon basic necessities such as food, education, health, and shelter or
housing. Doing so would be tantamount to killing the goose that lays the
golden egg. Our curre~t tax system observes this with qualifications.
Income tax vs. consumption tax
Income tax Consum tion tax

Nature Tax upon receipt of Tax upon usage of income
income or ca ital
A tax to all
Theoretical basis Abili Benefit received theo
I
. r.
r.t Note to readers:
Your keen ~ppreciation of the fo1Jowing section is highly critical to your
understandmg of rules on consumption taxes in future chapters.
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TYPES OF CONSUMPTION
Domestic consumption Foreign consumption

Seller (Buyer= Resident) (Buyer= Non-resident)
- Resident
sellers I SELLER ,- - -- - - - - - -Exp;,;•I Buyer
I
Sales orlt, Purchase
'
.'I
receipts
BUYER
I
- Non-resident
sellers
I IMPORTER
I
+------
Import ------1 Seller
I
Philippines Abroad
Purchaser Status
Resident Taxable
Non-resident
Because taxation is inherently territorial, our government can only impose

tax upon domestic consumption. In observing this, our tax laws adhere to
the "Destination principle." Only goods and services destined for
consumption in the Philippines are subject to consumption tax while those
destined for consumption abroad are not subject to consumption tax.
Following the cross-border doctrine, goods that cross the border destined for
foreign countries are not charged consumption taxes. Due to "this, the
government do not impose taxes on exports. The NIRC either exempts
exports or subject them to a 0% tax rate.
TYPES OF DOMESTIC CONSUMPTION AS TO SOURCE

1. Domestic sales - purchases from resident sellers
2. Importation - purchases from abroad by non-residents
CONSUMPTION TAX ON DOMESTIC SALES

The domestic consumption of resident buyers from resident sellers
commonly known as purchase is subject to a consumption tax called a
business tax. It is called business tax because the consumption tax is
indirectly imposed upon sellers which are businesses.
This does not mean, however, that the se1lers are the ones being subjected
to the tax burden. The object of taxation is the purchase of buyers but owing
to the inherent difficulty of co1lecting tax from numerous buyers compared
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C nsumption Taxes
Cha ter 1- Introduction to o
P . osed the obligation to pay the tax upon sellers.
to fewer sellers, the law imp . t the same purchases of buyers which are
Anyway, the sales of s~llers are JUS
the real object of taxation.
. . of the rinciple of administrative feasibility in
This is an apphc~tion . position business tax is well-known as an
taxation. Due to this reverse imp ,
indirect tax.
CONSUMPTION TAX ON IMPORTATION .

The domestic consumption of goods or services from no~-resident sellers
commonly known as importation is subject to a consumpt10n tax called the
VAT on importation."
The VAT is directly levied upon the buyer - importer. The principle of
administrative feasibility cannot be applied in this case because seller is
non-resident and is out of reach of Philippine's taxing power. It must be
recalled that taxation is territorial; hence, tax obligations can only be
enforced and demanded upon residents - in this case, the buyer.
BUSINESS TAX VS. VAT ON IMPORTATION: A DIFFERENT/A TION

VAT on Importation Business Tax
Scope of tax Imports from business Purchases from
or non-business businesses only
Type of consumption tax Pure form Relative form
Statutorv taxpayer Buver Seller
The economic taxpaver Buyer Buver
Nature of imposition Direct Indirect
Basis of tax Total purchase cost Sales or receipts
The business tax is imposed.

only if the seller is a business an d 1s
. b ased upon
the sales of goo ds or receipts from rendering of services f th ,
1
why this consumption tax came to be known as a "busi·n "te seb ler. Thats
ess ax ut it is not
°
actually a tax upon the business because the tax burde • h.
business to the buyer who will actually shoulder the tax b~r~e~. ifted by th e
Business refers to habitual engagement in a commercial activ·1 1

regularity of transaction involving sale of goods or services c,,0 rty. t cfionnotes
a pro 1t.
The VAT on importation is imposed upon. the total cost of in1 portat1on .
regardless of whether or not the non-resident seller is a business 1 .
therefore a pure form of consumption tax as it docs not relatively app.ly ~=
tax.
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Chapter 1- Introduction to Consumption Taxes . . '
Is the VAT on . importation an impasse to administrative feasibility? The

answer is no. The government has an in-placed border control. Border
control on goods is managed by the Bureau of Customs (BOC). Goods have to
be cleared through the BOC first before they are allowed to enter the
Philippines. With this in-placed control mechanism, the VAT on importation
is conveniently collectible through the BOC. Thus, the law tasked the BOC to
collect the tax in behalf of the BIR.
Business tax rules on domestic sales

The seller is • The buyer is Subject to business tax?
Business Business YES
;
Business Not business .. I
. YES
.,
Not business Business NO
• .J ....
Not business Not business . . NO I
'
Value Added Tax rules on importation
The seller is The buyer is Subject to VAT importation? on
Business Business YES
I
Business Not business . YES
I ;
Not business Business YES
Not business Not business YES
It must be noted that being in business is very essential to business taxation
while it is not the case with importation. So long as there is importation of
goods or services, the VAT generally applies. .
TYPES OF CONSUMPTION TAXES

1. Percentage Tax - tax of various rates from 0.60% to 30%
2. Value Added Tax - a consumption tax of 12%
3. Excise Tax - an ad valorem or specific tax, which is imposed in addition
to VAT or percentage tax, only on certain goods or services
TYPES OF DOMESTIC CONSUMPTION AS TO TAXABILITY

I
J
1. Exempt consumption -
These are consumption of goods or services that are not subject to
consumption taxes.
Z. Consumptions specifically subject to percentage tax - I I
This includes consumption of services that are not subject to VAT but are
imposed with a specific percentage tax.
3. Vata/J/e consumption -
This incl ud es all other co nsumption that arc neither exempted nor subject to
percentage tax.
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Types of Consumption Per Type of Domestic Consumption
f DOMESTIC I
IMPORTATION SALES/RECEIPTS
Exempt consumption Exempt importation Exempt sales/receipt
Services subject to a Service specifically Services specifically ~

%tax subject to a% tax subject to a% tax
Vatable consumption Vatable importation Vatable sales or receipt
EXEMPT CONSUMPTION
Exempt consumptions are neither subject to percentage tax nor value added
tax. If they are sourced from abroad, they are exempt from VAT on
importation. If sourced from within,-they are exempt from business tax.
Basis of exemption from consumption tax

·=·
Basis of exemption VAT .on Importation Business Tax
The goods imported is a The goods, services or
Human necessity human necessity. property sold is a
human necessity.
The importation does The seller is not
Out of scope of tax not constitute a engaged in business.
domestic consumption.
The importation is The sales or receipt is
Tax incentive exempted as a tax exempted as a tax
incentive to certain incentive to certain
importers. sellers.
International comity The importation is The sales or receipt is
exempted by treaty. exempted by treaty.
Human necessity
Certain basic necessities such as natural agricultural or marine food
products, agricultural inputs, books, newspapers and magazines, •residential
properties; and essential services such as residential rentals, educational
services of schools; and medical services of hospitals are exempt. Taxation
shall not result in killing the goose that lays the golden egg. In principle,
these consumables are not taxable.
out ofscope Q,fthe consumption tax

Note the scope of the following consumption taxes:

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VAT on im ortation Business tax
The bringing of goods to the Domestic consumption from
Philippines which represents businesses only (i.e. sales or receipts
current domestic consum tion. of persons en a ed in business onl
Scope of VAT on importation

The VAT on importation applies to current purchase or acquisition of goods
or services by a resident person from non-resident persons. Importation
which do not reflect current acquisition of goods or services are therefore
exempt.
An example is when a non-resident person imports to the Philippines his

personal, household and professional instruments or effects. This is not a
domestic consumption because he is not acquiring these goods. They are
already his even before he brought (imported) the goods into the
Philippines. It is therefore exempt from VAT on importation.
Scope of Business Taxes

Only sales or receipts of persons engaged in business is subject to business
tax. Hence, if the seller of goods or services is not a business, there is no
business tax.
Tax incentives
Certain importations are not subjected to the VAT on importation for some
reasons. Example is the exemption on the importation of vessels or aircraft
in an effort of the government to assist or improve domestic air or sea
transport or assist tourism in the Philippines.
Certain institutions are not subjected to business taxes for some reasons.
Example is the exemption of cooperatives in a bid for the government to
promote cooperative undertaking as it is instrumental in economic
developments benefiting most rural poor.
International corrJi.t.y_
Importation or sales of goods or services that are agreed to be exempted in
an international agreement to which the Philippine government is a
signatory are exempt from the VAT on importation and business tax,
respectively.
SERVICES SPECIFICALLY SUBJECT TO PERCENTAGE TAX

Services specifically subject to percentage tax are taxable consumption of
services but subject only to a specific percentage tax rate set by the NIRC.
Consumption of these services are not subject to VAT.

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Chapter 1- lntroduction to Consumption Taxes

VATABLE IMPORTATION OR SALES
All other importation or sales of either goods or services that are not
exempted or specifically imposed a percentage tax is vatable.
Readers are highly advised to carefully understand the following structures

of consumption tax.
.
The Structure of the VAT on Importation

VAT on Im □ ortain
Imvort ofservice Import of.qoods
Exempt Exempt Exempt
%tax Percentage tax -
VAT Final withholding VAT VAT on importation
Import of services
The import of service is either:
a. Exempt
b. Subject to percentage tax
c. Subject to final withholding VAT
The import of services by certain VAT-exempt person is exempt from VAT. I

Currently, there is only one import of service that is subject to a percentage
tax. The import of other services is subject to VAT called the ''final
withholding VAT." The VAT is computed ~s 12% of the contract price of the
services and is paid to the BIR.
Import of goods .
The import of goods is either:
a . . Exempt
b. Subject to VAT on importation
If the import of goods is not exempted, the importation is subject to VAT on

importation. The VAT on importation is computed as 12% of the landed cost '
of the goods and is paid to the BOC.
The Structure of the Business Tax
Business Tax
Sales of services Sales o{.qoods .
,Exempt Exempt receipt
%tax Exempt sales
Receipts specifically
-
subiect to a % tax
- VAT Vatable receipts Vatable sales
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Sales of services
The receipt from the sale of services is either:
a. Exempt
b. Specifically subject to a percentage tax
c. Vatable
Sales of goods
The sales from the sale of goods is either:
a. Exempt
b. Vatable
Vatable sales or receipts are subject to 12% VAT if the taxpayer is a VAT
taxpayer and to a 3% general percentage tax if the taxpayer is a non-VAT
taxpayer.
To sum up, readers must note the following:
b. Services specifically Subject to a particular percentage tax and

sub·ect to% tax is exem t from VAT
c. Vatable sales or receipts Sub·ect to either VAT or 3%
VAT on Importation vs. VAT on Sales in Business Tax

The VAT on importation is directly computed on the landed costs or total
purchase costs of importation without any deduction or tax credit.
The VAT imposed on sales or receipt in business taxation is unique as it is

theoretically imposed on the value added - the amount of mark-up imposed
by sellers on their purchase costs. The VAT on sales or receipt follows a tax
credit method wherein a VAT of 12% is imposed on sales and is reduced by
VAT paid by the business on its purchases.
The tax due is computed as:

Output VAT (12% of sales or receipts) P xxx,xxx
Less: Input VAT (12% VAT paid on purchases) xx,xxx
VAT due P xx.xxx
Input VAT is claimed as tax credit against output VAT when due or paid not
wh en goods are sold. The VAT does not require a perfect matching
approach; hence, it is not imposed on the gross profit.
This feature of the VAT on sales or receipts is unique compared to

percentage taxes which is merely computed as a fixed percentage of sales or
receipts.
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Chapter 1- \ntroduction to Consumption Taxes
The Excise Tax

Excise tax is imposed on the consumption of commodities such as:
a. sin products such as alcohol and cigarettes
b. non-essential commodities, such as automobiles and jewelry
c. non-essential services, such as cosmetic surgery
d. products which are environmentally degrading in their production or
consumption, such petroleum and minerals
Excise tax is an additional imposition to VAT or percentage tax. Unlike

business taxes such as percentage taxes and VAT on sales or receipts which
are levied at the point of sales, excise tax levied at the point of prod~ction or
importation.
The excise tax on excisable goods is normally imposed before the goods are
sold by domestic producers or upon their importation by importers.
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CHAPTER 1: SELF-TEST EXERCISES ·
Discussion Questions
1. What is consumption?
2. Compare consumption tax to income tax.
3. What are the types of consumption? Which type pays tax?
4. Discuss the nature of business tax.
5. Enumerate and describe the nature of each type of business tax.
6. Compare the VAT on importation to the business tax.
7. Discuss the characteristics of the VAT on sales.
8. Compare the direct method to the tax credit method in VAT computation.
9. Discuss the characteristics 'or the percentage tax.
10. Discuss the nature of exci~e tax. ·
11. Compare VAT on sales, percentage tax, and excise'tax.
f JI l
True or False 1
1. Consumption tax is a tax levied upon businesses.
I I
2. A purchase is a form of consumption.

3. A tax on consumption will effectively causes all re~idents of the state to pay
tax.
4. Consumption is the acquisition or utilization of goods and services.
5. Income tax is based on the taxpayers' capacity to sacrifice for the support of
the government. · ,
6. Consumption tax is more consistent with .the "ability to pay" theory rather
than the "benefit received" theory.
7. A tax on consumption would support savings initiative.
8. Consumption taxes should not apply to basic necessities.
9. Both domestic consumption and foreign consumption are subject to
consumption tax.
10. Non-resident sellers are exempt from consumption taxes on their domestic
,, #- 1 ( .J •
sales.
11. Resident sellers shall pay consumption tax on foreign consumption.
12. The sale by non-resident persons abroad is subject to Philippine
I • •
consumption tax.
13. The utilization or consumption of goods or services shall be taxable in their
country of origin.
14. The sale by non-resident persons .,
in the · Philippines is exempt from
consumption tax. ·
15. The sale by resident in the Philippines is subject to consumption tax.
True or False 2
1. The consumption tax for purchases of goods or services from foreign
sources shall be payable by the buyer.
2. Business tax is a form of consumption tax.
3. Consumption tax is a form of business tax.
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4. Business tax is imposed on the sales of sellers which is the purchases lllade
by buyers.
5. The VAT on importation is payable only by those regularly engaged in trade
or business.
6. Business taxes are paid by sellers while the VAT on importation is paid by
the buyers.
7. The statutory taxpayer and the economic taxpayer are the same with the
VAT on importation.
8. Business taxes are usually included in the price of goods and services of the
seller but are remitted by the seller to the government.
9. In business taxes, the statutory taxpayer is not the economic taxpayer.
10. The sales or importation of goods is not subject to specific percentage tax.
11. When the impact and incidence of taxation rests upon different persons, the
tax is an indirect tax.
12. Domestic pay consumption tax to domestic sellers.
13. Importers pay consumption tax to non-resident sellers.
14. Domestic sellers pay consumption tax to the government
15. Exporters pay consumption tax to the government.
Multiple Choice - Theory: Part 1

1. Which type of consumption will pay consumption tax?
a. Domestic consumption
b. Foreign consumption
c. Both domestic and foreign consumption
d. Neither domestic nor foreign consumption
2. , Which is a tax upon the usage of income?

a. Savings tax c. Consumption tax
b. Investment tax d. Business tax
3. Which is subject to the VAT on importation?

a. Foreign cons~mption from resident sellers
b. Foreign ~onsumption from foreign sellers
c. Domestic consumption from resident sellers
d. Domestic consumption from foreign sellers
4. Which is subject to business tax?

a. Foreign consumption from resident sellers
b. Foreign consumption from foreign sellers
c. Domes~c consump~on from resident sellers
d. Domestic consumption from foreign sellers
5. Which is an incorrect statement regardin .

a. They are always indirect in natu g con 5 umption taxes?
" . re.
b. They e f ,ect1ve1y tax everyone in th e~
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c. They apply only when the goods or services are destined for
consumption within the Philippines.
d. Consumption taxes may encourage savings formation.
6. Which is correct regarding consumption tax?

a. It may help in the redistribution of wealth to society.
b. It is entirely based upon the consumersJ ability to pay.
c. It applies to both domestic and foreign consumption.
d. It applies only when the seller is non:resident.
7. Domestic consumption.is taxable when the seller is

a. a non-resident.
b. a resident.
c. either a resident or a non-resident.
d. both a resident and a non-resident .\
8. Foreign consumption shall

a. pay consumption tax if the seller is a resident. '
b. pay consumption tax if the seller is a non-resident.
c. not pay consumption tax if the seller is a non-resident.
d. not pay consumption tax regardless of the residency of the seller.
1,
9. The tax on domestic consumption is referred to as

a. VAT on importation. c. Either A or B
b. Business tax. d. Neither A nor B
10. The tax on domestic consumption from foreign suppliers is It
a. VAT on importation. c. Either A or B

11. The tax on domestic consumption from resident suppliers is

a. VAT on importation. c. Either A or B ,
12. Which is not a business tax?

a. VAT on importation c. Percentage tax r ,l I J
I ,
b. VAT on sales d. Excise tax
13. The percentage tax is generally

a. 3% of sales or receipts c. 3% of mark-up
b. 3% of purchases d. 12% of mark-up
14. The VAT as a business tax is '., .,

a. 12% of sales or receipts c. 12% of mark-up 1 •,
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---,
15. The VAT on importation is
a. 12% of sales c. 12% of mark-up
16. Which form of consumption is tax-free?

a. Sales to a resident
b. Sales to a non-resident
c. Importation by an importer engaged in business
d. Importation by an importer not engaged in business
17. As to incidence of tax, the VAT on importation is a form of

a. Direct tax c. Ad valorem tax
b. Indirect tax d. Specific tax
18. Which of these import consumptions is tax-free?

a. Importation from a sel1er not engaged in trade or business
b. Importation from a seller engaged in trade or business
c. Both A and B
d. Neither A nor B
19. Which importation is subject to the VAT on importation?

a. Importation by a person engaged in business
b. Importation by a person not engaged in business
c. Both A or B
d. Neither A nor B
2 o. Who is the statutory taxpayer to the VAT on importation?

a. Foreign seller c. Both A and B
b . o omes tic buyer d. None of these
Multiple Choice - Theory: Part 2

1. Generally, the tax basis of business tax is
a. sales or receipts c. Either A or B
b. purchase cost d. Both A and B
2. Who is the statutory taxpayer of business taxes?

a. The seller who must be engaged in trade or business
b. The seller, whether or not engaged in trade or business
c. The buyer who must be engaged in trade or business
d. The buyer, whether or not engaged in trade or business
3. The economic taxpayers of consumption taxes are

a. Sellers who are engaged in trade or business
b. Sellers, whether or-not engaged in trade or business
c. Buyers who are engaged in trade or business
d. Buyers, whether or not engaged in trade or business
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4. What is the method used to determine the VAT due and payable?
a. Direct method c. Tax credit method
b. Indirect method d. Withholding method
5. Which statement is conceptually incorrect?

a. The buyer pays the consumption tax on his/her purchase to the seller
b. The buyer pays the consumption tax to the government
c. The seller pays the consumption tax to the government
d. The seller collects consumption tax for the government
6. Which is correct?
a. The sales to foreigners must include a business tax.
b. The sales to residents must include a business tax.
c. The purchase from abroad must include a business tax.
d. All of these
7. The deduction from Output VAT is called

a. Percentage tax c. Input VAT
b. VAT due and payable d. VAT on importation
8. Which is a pure form of a sales tax?

a. Percentage tax c. Both A and B
b. Value Added Tax d. Neither A nor B
9. Statement 1: A business which pays VAT norma1ly does not pay percentage
tax.
Statement 2: A business which pays percentage tax also pays VAT.
Which statement is correct?
a. Statement 1 c. Both statements
b. Statement 2 d. Neither statement
10. Which of the following business taxes applies only for domestic
consumption?
a. VAT on sales c. Excise tax
b. Percentage tax d. All of these
11. Excise tax is paid by

a. Sellers
b. Buyers
c. Importers or manufacturers
d. Seller or buyer depending on who agreed to pay the excise tax
12. Export sale is (select the incorrect one)

a. Exempt from percentage tax
b. Exempt from VAT
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chapter 1- Introduction to Consumption Taxes · ·
c. Exempt from excise tax

d. All of these
13. Statement 1: Excise tax is always paid together with VAT or percentage tax.
Statement 2: Excise tax is paid at the point of sale.
,J
Which statement is·false?

a. Statement 1 · c. Both statements
b. Statement 2 d. Neither statement
14. Which is imposed with a tax of zero percent (0%)?

l I
a. All export sales l ,
b. Export sales of VAT-registered taxpayers

c. Import sales of VAT-registered taxpayers
d. Export sales of non-VAT registered taxpayers only
l I
15. Which is not subject to excise tax?

a. Sin products
b. Non-essential commodities
c. Food products •, r I
d. Mineral products
16. The tax basis of consumption tax on foreign purchase is

a. sales or receipts c. Eith'e r A or B
b. purchase costs d. Both A and B
17. The consumption tax on domestic purchases is imposed upon the

a. sales or receipts c. Either A or B . , ,
b. purchase cost d. Both A and B ·
18. Technically, the excise

· • tax. on the manufacture of certain art·1cl es 1s
· payablE
only w h en th e art1c1e 1s mtended for
a. Domestic consumption c. Both A and B
• I
b. Foreign consumption d. Neither A nor B , J ,I I
19. Which is correct with the VAT on importati ? • : •

a. Payable only when the importer is eng::~d in bus· ·
b. Payable only when the for . 11 . mess
Pa abl e1gn se er Is engaged in business t
~- Pa~abl: ::,yari~ss othf the ~urpose of the importation , . .
en e resident seller is not engaged in business
20. The VAT on d .
a d' ornestic sales is an example of
· a 1rect tax
b. an indirect .ta c. a regulatory tax.
x. d. a specific tax. ., I ,·'
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Multiple Choice -Problem Part 1
1. Free Company, a resident business, renders services to Mr. Erlwin, a
resident person who is not engaged in business.
Identify the statutory taxpayer and the type of consumption tax.

a. Free Company - Business tax
b. Mr. Erlwin - VAT on importation :
c. Mr. Erlwin - Business tax
d. Free Company-VAT on importation
2. Baliwag Company, a non-resident business, purchased P200,000 from

Cauayan Company, a resident business. Which will pay the consumption tax
on this transaction? '
a. Cauayan Company c. Both A and B
b. Baliwag Company d. Neither A nor B
3. Heidenberg Corporation, a resident business, purchased P 100,000 goods

from Kiwi Company, a non-resident business.
Identify the statutory taxpayer and the type of consumption tax.

a. Heidenberg Company - Business tax
b. Kiwi Company - business tax
c. Heidenberg Company- VAT on importation
d. Kiwi Company - VAT on importation
4. Mr. Cedric, an employee, sold his residential lot to Mrs. Corneto, a real
property dealer. Who is subject to consumption tax with respect to this
transaction?
a. Mr. Cedric c. A and B
b. Mrs. Corneto d. Neither A nor B
5. Mr. Parma made a casual sale involving a car to Mrs. Tutyal, a resident
buyer. Mr. Porma is not a car dealer. Who is subject to consumption tax?
a. Mr. Parma c. Both Mr. Porma and Mrs. Tutyal
b. Mrs. Tutyal d. Neither Mr. Parma nor Mrs. Tutyal
6. Mr. Llama, an employee, imported a pair of shoes from Hongkong. Which

con sumption tax is he liable to pay?
a. Business tax c. Both
b. VAT on importation d. None
7. Ka pcdcra syon, a charitable non-profit corporation, imports various office

suppli es from XG Manufacturing Industries in China. Which is correct?
a. !<a ped rasyon Is exempt from VAT on importation.
b. Kap ld rasyon Is suhj ct to VAT on Importation.
c. XG Manufact11rl11g Industries ls subject to business tax.
d. XG Manufacturing lnduslrlcs shall pay the VAT on the importation.
17

lOMoARcPSD|23181610
~
I
, 8. Mr. Cavite produces an excisable article for sale in the Philippine market
Which is incorrect with respect to Mr. Cavite's business taxation?
a. Mr. Cavite is subject to either VAT or percentage tax
b. Mr. Cavite pays excise tax in addition to VAT or percentage tax
c. Mr. Cavite pays excise tax in addition to VAT and percentage tax
d. Mr. Cavite will pay excise tax without regard to whether he is a VAT or
non-VAT taxpayer.
9. A person engaged in business is subject to 3% business tax. He has

inventories of goods in his possession costing P77,600 which he intends to
r s~ll to earn a mark-up of 25% of cost net ·of the 3% business tax. He shall /
invoice the sale of the P77,600 goods at
a. Pl00,000 c. P 97,000 . l
b. P103,000 d. P 110,000
I
, , )0. A business wants to make a Pl0,000 profit from the sale of an inventory
costing P30,000. The business is subject to 3% percentage tax. At
f
what
amount shall the business invoice the sale?
a. P 41,237 c. P 40,000
b. P 41,200 d. P 38,800
11. A person who imports goods or properties will more likely pay
a. a 3% percentage tax on the importation
b. a 12% VAT on the importation
c. either 3% or 12% tax on the importation
d. no consumption tax
12. A person who is not regularly engaged in trade or business made a casual
1
sale of a property for Pl00,000. What will be the invoice price of the sale? J
a. Pl00,000 c. P112,000
b. P103,000 d. Either B or C
13. Alison is regularly engaged in the sales of goods. He will pay
a. Value added tax only. c. Either A or B
b. Percentage tax only. d. Neither A nor B
14. Mr. Ventura is subject to 3% percentage tax. He made a total collection of

P206,000 during a month and paid P103,000 in purchases. Compute his
percentage tax. · ·
a. PO c. P6,180
b. P 3,000 d. P12,000 •'·
15. A business taxpayer purchased goods worth P120,000 from non-residents

and sold goods worth P140,000 for P180,000. What is the concept of "vaJue
added" for VAT purposes?
a. PZ00,000 C. P 80,000
b. P140,000 ,. d. P 60,000
I I
18

Sc-..clwilhCtmScwiner
lOMoARcPSD|23181610

16. In the immediately preceding problem, what is the basis of percentage tax?
a. P200,000 c. P120,000
b. P140,000 d. P180,000
17. Assuming the same data i~ the above Pr<?blem, what is the basis of ~he VAT
on importation?
a. P200,000 c. P120,000
b. P140,000 d. P 80,000
18. Mr. Coroneti imported P300,000 equipment for business use and a
Pl,200,000 car for personal use. What is the amount subject to the VAT on
importation?
a. P0 C. p 1,200,000
b. P 300,000 d. P 1,500,000
Multiple Choice - Problem Part 2

Basic Case 1
1. A business taxpayer had the following purchases and receipts:
Import of goods or services P 190,000
Domestic purchase of goods or services 100,000
Domestic sales of goods and services 150,000
Export sales of goods or services 50,000
Compute the total amount subject to consumption tax to the business.
a. PS00,000 c. P350,000
b. P400,000 d. P340,000
2. In the immediately preceding problem, determine the amount subject to
consumption tax if the taxpayer is not engaged in business
a. P490,000 c. P200,000
b. P390,000 d. Pl 90,000
Basic case 2
3. A VAT-registered taxpayer recorded the following sales and purchases,
exclusive of VAT, during the month:
Sales p 300,000
Purchases 200,000
What would be the output VAT?

a. P 48,000 c. P24,000
b. P 36,000 d. P12,000
4. What is the input VAT? J I
a. P48,000 c. P24,000
b. P36,000 , d. P12,000
19

lOMoARcPSD|23181610

5. What is the VAT payable?
a. P36,000 c. P12,000
b. P24,000 d. PO
6. Assuming the taxpayer is a non-VAT taxpayer paying 3% percentage tax
the percentage tax shall be '
a. P12,000 c. P 6,000
b. P 9,000 d. P 3,000
Basic Case 3
A business taxpayer recorded the following transactions during the month:
Philippines Abroad Total
Sales P 350,000 P 200,000 P 550,000
Purchases 150.000 100,000 250,000
Total P 500,000 P 300,000 P 800,000
Assuming the taxpayer is a VAT-registered taxpayer
7. Compute the output VAT.
a. PO C. P 36,000
b. P 24,000 d. P 42,000
8. Compute the VAT on importation.

a. p 0 c. P18,000
b. P 12,000 d. P32,000
Assuming the taxpayer is a non-VAT taxpayer
9. Compute the percentage tax.
a. p o c. P 9, 000
b. p 6,000 d. P 10,500
10. Compute the VAT on importation.

a. p O C. P12,000
b. p 3,000 d. P18,000 I
Basic Case 4
Sindangan Company, a VAT-registered taxpayer, purchased P400,000 worth of
goods and sold the same for P800,000.
11. Assuming that the business operation of Sindangan Company is limited to
Philippine residents, what is the total business tax it will report on its sales?
a. p 96,000 C. p 24,000
b. P 48,000 d. P O
12. Assuming that the purchases were imports and · the sales were exports,
compute respectively the business tax and total consumption tax.
a. P 96,000; P144,000 c. P 24,000; P72,000
b. P 24,000; P144,000 d. PO; P48,000
20
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Chapter 1 BTTax banggawan

Accontancy (Tarlac State University)

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Chapter 1- Introduction to Consumption Taxes

After this chapter, readers are expected to comprehend:

THE CONCEPT OF CONSUMPTION AND CONSUMPTION TAX

Consumption is levied without regard to the purpose of the purchaser or

Rationale of Consumption Tax

Consumption tax promotes savings formation.

Consumption tax rationalizes the Benefit Received Theory.

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Chapter 1 - Introduction to Consumption Taxes

So how couJd the government tax everybody? Every person, rich or po ·

Consumption tax helps redistribute wealth to society.

In effect, consumption tax supports the redistribution of wealth from the

A caveat to consumption tax

Income tax vs. consumption tax

Income tax Consum tion tax

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Chapter 1- Introduction to Consumption Taxes

Domestic consumption Foreign consumption

Because taxation is inherently territorial, our government can only impose

TYPES OF DOMESTIC CONSUMPTION AS TO SOURCE

CONSUMPTION TAX ON DOMESTIC SALES

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CONSUMPTION TAX ON IMPORTATION .

BUSINESS TAX VS. VAT ON IMPORTATION: A DIFFERENT/A TION

The business tax is imposed.

Business refers to habitual engagement in a commercial activ·1 1

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Chapter 1- Introduction to Consumption Taxes . . '

Is the VAT on . importation an impasse to administrative feasibility? The

Business tax rules on domestic sales

Not business Not business . . NO I

TYPES OF CONSUMPTION TAXES

TYPES OF DOMESTIC CONSUMPTION AS TO TAXABILITY

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Chapter 1- Introduction to Consumption Taxes

Services subject to a Service specifically Services specifically ~

Basis of exemption from consumption tax

out ofscope Q,fthe consumption tax

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Chapter 1- Introduction to Consumption Taxes

Scope of VAT on importation

An example is when a non-resident person imports to the Philippines his

Scope of Business Taxes

SERVICES SPECIFICALLY SUBJECT TO PERCENTAGE TAX

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Chapter 1- lntroduction to Consumption Taxes

Readers are highly advised to carefully understand the following structures

The Structure of the VAT on Importation

The import of services by certain VAT-exempt person is exempt from VAT. I

If the import of goods is not exempted, the importation is subject to VAT on

The Structure of the Business Tax

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Chapter 1- Introduction to Consumption Taxes

To sum up, readers must note the following: