BUSINESS TAXES 1.

Indirect tax where tax shifting is always presumed

*Seller-statutorily liable
-imposed upon ONEROUS transfers such as sale, barter,
*”Burden of tax”- borne by final consumers
exchange, importation
2. Consumption-based
In the course of trade/business - VAT forms substantial portion of consumer
-regular conduct or pursuit of commercial or economic expenditures
activity including transactions incidental thereto regardless of 3. Imposed on value added in each stage of production
whether or not the person engaged is nonstock, nonprofit and distribution process
private organization or government entity 4. It is a credit-invoice method(tax credit approach) VAT
*services rendered in Phil by Non-Resident Foreign Person
NATURE OF TRANSACTION TAX BASE
- considered in course of trade or business even if not regular Sale of goods or properties Gross selling price
Sale of services Gross receipts
MARGINAL INCOME EARNER
Importation Total landed cost
-gross sales/receipts do not exceed P100,000 in any 12-
Dealers in securities Gross income
month period GROSS SELLING PRICE
-NOT subject to business tax *Excluding VAT
-activities principally for livelihood or subsistence *Excise tax if any, shall form part of gross selling price
TYPES OF BUSINESS TAX *If VAT not billed separately, deemed inclusive of VAT
I.VALUE ADDED TAX Real PropertyGSP
-tax on value added by every seller to purchase price or cost - Higher between consideration stated in sales
in sale or lease of goods, property or services in ordinary document and FMV (deemed exclusive of VAT)
course of trade/business, as well as importation of goods - If no FMV, MV shown in latest real property tax
into Phil( whether for personal or business use) declaration or consideration, whichever is
higher
“Cross Border Doctrine” –no VAT is imposed for consumption
outside territorial border of Phil GROSS RECEIPTS
-contract price,compensation, service fee, rental or royalty
Transfers made by TAX- EXEMPT entity to NON-TAX EXEMPT
including amount charged for materials supplied with services
-Subject to VAT (transferee shall be considered importer and and deposits applies as payments for services rendered and
liable for unpaid VAT advance payments actually or constructively received,
excluding VAT
GOODS OR PROPERTIES- all tangible and intangible objects
capable of pecuniary estimation *Receivables, though earned, are not included in
computation of vat payable
 Real Properties held primarily for sale/lease in
ordinary course of business (in case of instalment VAT REGISTRATION
plan- Vat is on instalment payments incl interest and
A.Mandatory
penalties, actually and/or constructively received by
seller) 1. if aggregate amount of actual gross sales/receipts exceed
 Right or privilege to use patent, copyright, 3M beg. 01/01/18 (1,919,500 prior to TRAIN) for past 12
design/model, plan, secret formula, process, months (other than those that are exempt) OR there are
goodwill, trademark, trade brand... reasons to believe that gross sales/ receipts for next 12
 Right or privilege to use any industrial commercial or months will exceed 3M
scientific equipment
 Right or privilege to use motion picture films, films, 2. Radio and/or television companies whose annual gross
tapes, discs receipts in preceding year exceeds 10M (mandatory reg.
 Radio, television, satellite transmission, cable applies within 30 days from end of taxable year)
television time
3. Person required to register as VAT taxpayer but failed to
SALE OF SERVICES register.

-performance of all kinds of services in Phil for fee, *Penalty for non-registration- cannot avail input tax credit for
remuneration, consideration, whether in cash or in kind period he was not properly registered

- accrues at time service fee is collected regardless of timing B. Optional

of collection
1. Any person who elects to register under optional reg.shall
CHARACTERISTICS OF VAT NOT be allowed to cancel for next 3 years. (pay annual reg.
fee of 500 pesos for every separate and distinct  Cinematographic films
establishment)  Yachts and other vessels intended for pleasure or
sports
2. Any person who is VAT-registered but enters into
 Quarry resources
transactions which are exempt from VAT

3.Franchise grantees of radio/television companies whose

annual gross receipts do not exceed 10M in preceding
year.Once exercised, IRREVOCABLE

*they may apply for VAT registration not later than 10 days
before beginning of calendar quarter and shall pay
registration fees unless they have already paid at beg. Of year

*begins on 1st day of month following registration

C. Cancellation

1. If he makes written application and satisfies Commissioner

that his gross sales/receipts will not exceed 3M for ff. 12
months

2. If he ceased to carry on his trade/business, and does not

expect to recommence for the next 12 months

* effective from 1st day of following month the cancellation

was approved

Power of Commissioner to suspend business operation

Not less than 5 days for any violations:

1. Failure to issue receipts/invoices

2. Failure to file VAT return
3. Understatement of taxable sales/receipts by 30% or
more of correct sales/receipts for taxable quarter
4. Failure to register as required by law

II. OTHER PERCENTAGE TAXES

III. EXCISE TAXES

- Applies to goods manufactured or produced in

Phil for any disposition and goods imported
- “sin products” and “non-essential goods”

TYPES:

1. Specific taxes- based on weight, volume, capacity

and other physical unit of measurement
2. Ad- valorem- based on selling price

TAXPAYERS LIABLE

1.Manufacturers

2.Importers of:

 Distilled spirits (liquors)

 Wines
 Fermented liquors
 Tobacco products
 Automobiles
 Manufactured oils and other fuels
 Mineral Products
 Non- essential goods (jewelry, perfume)
 Fireworks
VALUE-ADDED TAX
As a rule, sale of goods or services made in the normal course
of trade or business are subject to VAT unless exempt.
VAT- EXEMPT SALES
A.Sale or importation of
1. Agricultural and marine food products in “original
state”
2. Livestock
3. Poultry, generally for human consumption and
breeding stock
*Original state even if have undergone simple processes such
as freezing, drying, salting, broiling, roasting, smoking,
stripping, shrink wrapping in plastics, vacuum packing, tetra
pack
* Livestock/poultry does not include fighting cocks, race
horses, zoo animals, pets
*RAW SUGAR CANE
- refers only to Muscovado sugar
- the only sugar exempt from VAT
* Marinated fish is not exempt from VAT
B. Sale or Importation of:
1. Fertilizers
2. Seeds, seedlings, fingerlings
3. Fish, prawn, livestock and poultry feeds, including
ingredients whether locally produced or imported,
used in the manufacture of feeds.( there must be
showing that it is unfit for human consumption)
*Specialty feeds (non-agricultural feeds) are subject to VAT
C. Importation of personal and household effects belonging
to:
 Residents of Phil returning from abroad
 NRC coming to resettle in Phil
*Provided, such goods are exempt from custom duties
*Goods
- Returned personal and household effects
- Personal and household effects purchased abroad
D. Importation of professional instruments and implements,
tools of trade, occupation or employment, wearing apparel,
domestic animals and personal and household effects, in
quantities and of the class suitable to the profession, rank,
position, of the persons importing said items, for their own
use and not for barter or sale
E. Services subject to Percentage Tax under Title V of the Tax
Code
F. Services by:
a) Agricultural contract growers
b) Milling for others of:
 Palay into rice
 Corn into grits
 Sugar cane into raw sugar
*Toll processing services “exempt from VAT” shall pertain
only to services to clients from which growing of animals
were contracted. (if done independently- VATABLE
G. Medical, dental, hospital and veterinary services except
those rendered by professionals
Laboratory services- exempted
Sales made by drugstores to:
 In-patients-exempted (included in hospital bills)
 Out-patients- taxable
Medical practitioners- medical technologists, allied health
workers (occupational therapists, physical therapists, speech
therapists, nurses) and others who are not under ER-EE
relationship
Professional Practitioners are subject to vat if annual gross
professional fees exceed 3M, otherwise, 3% OPT under
Sec.116.
1. Medical practitioners
2. CPA
3. Insurance Agents (life and non-life)
4. Other professional practitioners required to pass the
government examination
*Doctor’s fees paid by patient confined in a hospital should
not be subject to vat
H. Educational services rendered by private educational
institutions duly accredited by DepEd, CHED, TESDA and
those rendered by government educational institutions.
*does not include seminars, in-service training, review
classes,etc. not accredited by DepEd, CHED and/or TESDA
I. Services rendered by individuals under ER-EE relationship
J. Services rendered by regional or area headquarters
established in the Philippines by multinational corporations
which act as supervisory, communications and coordinating
centers for their affiliates, subsidiaries or branches in the
Asia-Pacific Region and do not earn or derive income from
Philippines.
K. Transactions exempt under international agreements to
which Philippines is a signatory or under special laws
EXCEPT Presidential Decree No. 529 (Petroleum Exploration
Concessionaires under the Petroleum Act of 1949)
L. Q. Lease of residential unit with monthly rental per unit not
exceeding 15,000 (previously 12,800), regardless of amount
Sales by Agricultural Members Non-Members of aggregated rentals received by lessor during the year
Cooperatives
Cooperative’s own Exempt Exempt * if exceeds 15,000 but the aggregate during the year do not
produce (processed or exceed 3M, exempt from VAT but subject to OPT Sec.11
original state
Other than own Exempt VAT* *Lease of commercial units generally subject to VAT.
produce (from traders
Importation of direct farm inputs, machineries and R. Sale, importation, printing, publication of books,
equipment including spare parts to be used directly and newspaper, magazine, review or bulletin which appears at
exclusively for production- Exempt
regular intervals with fixed prices for subscription and sale
*Exempt if agricultural food product in original state
NOT devoted principally to the publication of
M. advertisements.

Gross Receipts by Credit or Members Non- *only covers printed matters in hard copy
Multi-purpose Cooperatives Members
From lending activities Exempt Exempt *does not apply to electronic formats
From non-lending activities VAT VAT
S. Transport of passengers by international carriers doing
business in the Philippines
N. Sales by non-agricultural, non-electric and non-credit
cooperatives, provided, the share capital contribution of -not subject to OPT also
each member does not exceed 15,000 and regardless of T. Sale, importation, lease of passenger and cargo vessels
aggregate capital and net surplus ratably distributed among and aircraft including engine, equipment and spare parts for
members. domestic or international transport operations, provided
subject to requirements on restriction on vessel importation
*Importation of machineries and equipment including spare
and mandatory vessel retirement program of MARINA
parts- subject to VAT
U. Importation of fuel, goods and supplies by persons
O. “Export sales by persons who are not VAT-registered.
engaged in international shipping or air transport
P. Sale of: operations provided it is used for international shipping or air
transport operations.
1. Real property NOT primarily held for sale or lease in the
ordinary course of business V. Services of banks, nonbank financial intermediaries
performing quasi-banking functions and other non-bank
* if used in trade/business of seller- Vatable as incidental financial intermediaries(money changers, pawnshops)
transaction
W. Sale or lease of goods to senior citizens and PWDs
2. Real properties utilized for low-cost housing and socialized
housing defined by RA 7279 (Urban Development and X. Transfer of property (new provision)
Housing Act of 1992)
Y. Association dues, membership fees and other
3. Residential lot valued at 1.5 million and below under TRAIN assessments and charges collected on purely reimbursement
law (previously, 1,919, 500) or house and lot and other basis by homeowners’ associations and condo corporations
residential dwellings valued at 2.5 M and below (previously-
Z. Sale of Gold to BSP (new provision)
3,199,200)
AA. Sale of drugs and medicines prescribed for diabetes,
*Sale of adjacent lots, though covered by separate titles,
when sold to one and same buyer, shall be presumed as sale high cholesterol and hypertension (new provision)
of one residential lot. BB. Sale or lease of goods or properties or performance of
services, the gross annual sales/receipts not exceeding 3M
Beginning January 1, 2021, VAT exemption shall only apply to:

1. Sale of real properties NOT primarily held for sale or SOURCES OF OUTPUT VAT
lease in the ordinary course of business.
A.Actual Sale (cash or on account)
2. Sale of real property utilized for socialized housing.
3. Sale of House and Lot and other residential dwellings B. Transaction Deemed Sale
with selling price of not more than 2M.
1. Transfer, use or consumption not in ordinary course
*Sale of parking lot in the sale of Condo units- subject to VAT of business of goods or properties ordinary intended
regardless of amount for sale
2. Distribution or transfer to:
 Shareholders or investors as share in profits
of VAT registered person; and
  Distribution or transfer to creditors in
payment of obligation
3. Consignment of goods if actual sale not made within
60 days ff. the date such goods were consigned
4. Retirement or cessation of status as vat registered
person with respect to all goods on hand
(Acquisition cost or MV whichever is LOWER)

C. Zero-rated Sales

*Export sale by VAT registered entity

The input attributable to zero-rated sales may be:

1. Refunded
2. Claimed as deduction/tax credit against output vat
on domestic sales
3. Claimed as tax credit against any other internal
revenue taxes

*shall exclude portion of input vat that has been applied

against output vat

*should be filed within 2 years after close of taxable quarter

when such sales were made

ZERO RATED SALE OF GOODS

A. Actual and Deemed Export Sales

(1) Sale and actual shipment of goods from Philippines

to foreign country
(2) Sale of goods, supplies, equipment and fuel to
persons engaged in international shipping or
international air transport operations

B. Effectively zero-rated sales

- International Rice Research Institute

- Asian Development Bank

-Cooperative Development Authority

-Subic Bay Metropolitan Authority

-Philippine Economic Zone Authority

C. Foreign currency Denominated Sale (now subject to 12%

VAT)

ZERO RATED SALE OF SERVICES

1. Services rendered to person engaged in business
conducted outside the Philippines

2. rendered to persons or entities whose exemption is under

special laws or international agreement

3. Rendered to persons engaged in international shipping or

international air transport operations

4. Transport of passengers and cargo by domestic air or sea

vessels from the Philippines to foreign country

5. Sale of power or fuel generated through renewable sources

of energy