BUSINESS TAXATION

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REX B. BANGGAWAN, CPA, MBA
 BUSINESS TAXATION
• TOPIC OUTLINE:
– The Theory of Consumption Tax
– Exempt Consumption
– The VAT on Importation
– Business Taxation
• The Business Concept
• Percentage Taxes
• The VAT Threshold
• VAT on Sales
 THE THEORY OF CONSUMPTION TAX

• What is consumption?
• It is the purchase or utilization of goods and
services

• Nature of consumption tax

• Consumption tax is a tax upon the buyer and
is not a tax upon the seller.
 The Rational of Consumption Tax
• Income – Consumption = Savings

• Benefit of Savings: Capital Formation

• Benefits of Tax on Consumption:

– Capital formation
– Wealth redistribution
– Benefit received theory
 Types of Consumption
Philippine buyers Foreign buyers
(Domestic (Foreign
Sellers Consumption) consumption)
Philippine Purchase to the Export
residents buyer/ Sales to
the seller
Foreign Import -
residents
Because of territorial consideration…

ONLY DOMESTIC CONSUMPTION IS

SUBJECT TO TAXATION!
Treatment of Foreign Consumption (Export
Sales)
TYPES OF PHILIPPINE SELLERS TAX TREATMENT
VAT Taxpayers 0% VAT
Non-VAT Taxpayers Exempt
TYPES OF DOMETIC CONSUMPTION
• Consumption from abroad – subject to
VAT on Importation
• Consumption from Philippine sellers –
subject to Business Tax
 Types of Consumption Taxes
VAT ON IMPORTATION BUSINESS TAX
VAT on import of Value Added Tax on
goods – sales
VAT on import of Percentage taxes
services –(Final
withholding VAT)
Excise taxes
VAT on Importation vs. Business Tax
VAT on
Importation Business Tax
Basis Purchase Sales or Receipts
Scope All consumption Consumption from
businesses only
Nature of Pure form Relative form
consumption tax
Statutory taxpayer Buyer Seller
The economic Buyer Buyer
taxpayer
Nature of Direct Indirect
imposition
 Overview of Consumption taxes
• VAT on Importation
– For goods: 12% of the landed cost
– For services: 12% of the contract price of
service
 Business Taxation
• Value Added Tax on sales
– Output VAT (12% of sales) XXX
– Less: Input VAT (VAT paid on purchases) XXX
– VAT Payable XXX
• Percentage tax – a tax of generally 3% (1/2 of
1% to 30%) on sales or receipts
• Excise tax – (various specific or ad valorem
rates based on sales value)
 Exempt Consumptions
• Agricultural or marine food products in
original state
• Hospital Health services
• Employment
• Regional Area Headquarter (RHQ) of
Multinational Companies
• Educational services
 Exempt consumption…
• Real properties
• International or domestic sea and air carrier
• International transport of passengers
• Cooperative services
• Safety devices
• Quasi-importation
• Sales/importations exempt under TREATY
 In short…
Exempt consumptions are:

“A/M HERE RIC QT”

Exempt consumptions: a detailed look

• A/M food products –

– “In original state” means unprocessed foods for
human consumption
– Food of things for ultimate human consumption
– Agricultural contract growers/millers
• Hospital services – within hospital, except:
– Sales of medicine
– Services of professionals
• Employment – this is not a business
• Regional Area Headquarter of Multinational
company – this is not business
• Educational services – schools accredited by
CHED, TESDA and or Dep-Ed
• Real Properties
– Sale of real properties
• by non-dealers (casual sale)
• By dealers of:
– low-cost housing units (P180,000 and P450,000)
– socialized housing units (P750,000)
– residential lots (P1,919,500)
– residential dwellings (P3,199,200)
– Lease of residence – rental per unit per month do
not exceed P12,800
• International/Domestic sea or air carriers
– Sale/importation/lease – aircraft, sea vessels,
machineries, equipments and spare parts
(EXPIRED!)
• Cooperatives – all cooperatives of any forms
so long as with a CGS, except electric
cooperatives
• Quasi-Importation
– Importation of personal, household effects and
professional instruments belonging to non-
residents coming to settle in the Philippines
– Importation of fuel or supplies by persons
engaged in international transport operations
THE VAT ON IMPORTATION
 Scope of VAT on Importation
• All importations not falling under exempt
importation under A/M HERE RIC QT are
subject to 12% VAT on landed cost
 Meaning of landed cost
• All cost of importation from abroad to the
Philippines prior to the withdrawal of the
goods from the Bureau of Customs
BUSINESS TAXATION
 The Business Concept

“HABITUAL ENGAGEMENT IN A
COMMERCIAL ACTIVITY”
 Not considered business
• Business for mere subsistence
• Privilege stores (RR16-2013)
Scope of Each Type of Business Tax
• List of services/entities specifically subject to
percentage taxes (BICAP FLOW)
• Other sellers of goods or services are VATABLE
Mnemonics: BICAP FLOW
– Banks
– International carriers
– Common carriers
– Certain amusement places
– PSE sales
– Franchises
– Life Insurance
– Overseas Communication
– Winnings
 What is VATABLE?
• “Vatable” means subject to the VAT on sales if
the person is VAT-registered or VAT-registrable.

• A VAT-registrable person is a person who

exceeded the VAT threshold
 The VAT Threshold
• Franchisees of TV or radio – P10M sales or
receipt during a year (special threshold)
• All other businesses – P1,919,500 sales or
receipts in any 12-month period (general
threshold)
NOTE: For purposes of the VAT threshold, only
vatable sales/receipts are considered
(i.e. sales or receipts other than from A/M HERE RIC QT and
BICAP FLOWS)
Services subject to Percentage
Taxes
 Banks
• Interest income
– From short-term loans – 5%
– From long-term loans* – 1%
• Other items of gross income (except
dividends) – 7%

*Long-term = more than 5 year remaining maturity

 International carriers
• Pertains to airlines or shipping carriers owned
by foreign corporations – 3% on Gross
Philippine Billings

• Rules on transshipment:
– Domestic transshipment
– Foreign transshipment
 Common Carriers and Keepers of Garage

• Carriers by land on their transport of

passengers only – 3%
• Includes jeepneys, public utility buses, taxis
and car for hire

• Note: RR9-2007 on new presumptive quarterly gross

receipts
 Certain Amusement Places
• Places of boxing exhibitions – 10%
• Places of professional basketball games – 15%
• Cockpits, cabarets, night club or day clubs –
18%
• Jai-alai and race tracks – 30%

Note: Exemption on boxing

 PSE sales of stock
• Types of sales:
– Sale by an investor: ½ of 1% of the gross selling
price
– Sale in an IPO – depends on volume of block sale
• Primary Offering – volume % computed after IPO
• Secondary Offering – volume % computed before IPO
 Certain Franchises
• Franchise of Gas and TV – 3%
(Up to P10M annual gross receitps)

• Franchise of Water – 2%
 Life Insurance
• On proceeds of direct life insurance which
includes evidence of indebtedness – 2% (RA
10001)
• The term “life insurance” also includes group
insurance, health and accident insurance
policies
 Overseas Communication
• 10% on gross payment of the service

• Exception: Calls made by

– Diplomats
– International organizations
– News services
– Government
 Winnings
• On jai-alai and race track – 10% on winnings
net of any cost of ticket

• Exception: combination bets on race tracks –

5%
– Double forecast/Daily double
– Trifecta
– Quinella
 NOTE!

Other sales of services and sales of

goods other than those under BICAP
FLOW and A/M HERE RIC QT are
VATABLE!
THE VALUE ADDED TAX
 Topic Outline: VAT
• Sources of Output VAT
• Sources of Input VAT
• Determination of VAT payable
 Sources of Output VAT
• Regular Output VAT – 12%
– Sale of goods
– Sale of services
– Sale of real properties
– Transactions deemed sales
• Zero-rated VAT – 0%
 List of transactions deemed sales
• Consignment if not withdrawn in 60 days
• Usage not in the course of business
– Withdrawal of goods for personal use
– Dacion en pago
– Property dividend
• Retirement from or cessation of business
• Change of status as VAT taxpayer to a non-VAT
taxpayer
Basis and Timing of Recognition: Output VAT

Basis Timing
Sales of goods Selling price Month of sale
Sales of services Gross receipts Month of
collection
Sale of real Gross selling Month of sale
properties price (SP or or amortized
FMV w/e is
higher)
Transaction Fair market Month deemed
deemed sales value sales
 ZERO-RATED SALES OF GOODS
• Direct Exports
• Indirect Exports
• Sale to an export-oriented enterprise
• Sale of Gold to the BSP
• Considered Export Sales under EO 226
• Sale of goods, supplies, equipment to persons
engaged in international shipping or transport
 Considered Export Sales under EO226
• Sales between export traders
• Sale to bonded manufacturing warehouses of
export-oriented enterprises
• Sales to export processing zones
• Sales to diplomatic missions and other agencies
or instrumentalities granted with tax immunities
• Sales to BOI-registered
manufacturers/producers
 ZERO-RATED SALES OF SERVICES
• Sales of services to non-residents
• Effectively zero-rated sales of services
• Transport of passengers by Domestic air or sea
carriers from Philippines to a foreign country
• Sale of power or fuel generated through
renewable sources of energy
 Effectively zero-rates sales of services

• Sales to persons exempt under special laws or

international agreements
• Services rendered to persons engaged in
international shipping or air transport
operations
• Services performed by sub-contractor and or
contractors of export-oriented enterprises
 Input VAT
• Input VAT – the VAT paid on purchases
including incentives allowed by the law as
credit against Output VAT

• Not all input VAT payments are creditable

 Requirement for creditable input VAT

• It must be paid in the course of business

• It must be billed by a VAT supplier
• Evidenced by an VAT invoice or VAT receipt
 Sources of Input VAT
• Transitional input VAT
• Regular input VAT
– Purchase of goods
– Purchase of services
• Deferred input VAT
• Presumptive input VAT
• Standard input VAT
• Input VAT carry-over
 Payment of advanced VAT
• Applicable to only:
– Manufacturers of:
• refined sugar
• Flour
– Owners/Transporters of timber
 Determination of VAT payable
• Output VAT XXX
• Less: Creditable Input VAT XXX
• VAT Payable XXX
• Less: Advanced VAT /tax credit XXX
• Tax Still due XXX
 Thank you!
God bless and more power!