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Taxation 2

BUSINESS TAXES

Definitions
Business pertains to trade or commercial activity regularly
engaged in as means of livelihood or with a viewpoint of obtaining
profit.
In the Course of Trade and Business - a phrase to describe
the regular conduct or pursuit of a commercial activity.
Characteristics of a Business:
1.It

performs a systematic, continuous and regular income


generating activity.
2.It

may be pursued by any person, regardless of whether or not


the business is a non-stock and nonprofit private organization or
government entity.
3.Must be within the lawful commerce of men.
Not contrary to law, morals, good customs, public order or public policy.
(ex. Sale of human organs is unlawful because its not within the commerce
of men)

Transactions Subject to Business Taxes


1.

Commercial activity- involves sales of goods and services related


to trade, profession or business (not an exempt transaction)

Example:
a) Sale of goods
b) Sale of ordinary asset used in business
2.

Services rendered by
(regardless of regularity)

Nonresident

foreign

person

Example:
Lee, a Singapore national, leased his vessel to a Filipino citizen. He is
not regularly engaged in a leasing business.
He is deemed to engage in a leasing business even if it is not regularly
engaged in leasing in the Philippines.

Non-Business Transaction
The following are Non-business Transactions that
are subject to Business Tax:
1.Sale of shares of stock through the stock
exchange subject to of 1% Other Percentage
Tax (OPT)
2.Oversees dispatch, communication originating
from the Philippines subject to 10% OPT
3.Horse racing winning subject to 10% OPT; JaiAlai subject to 30% OPT

Casual Sale
An occasional sale of goods or services by a
person who is not engaged in the business or
sale of assets that are not used in business
Example:
Sale of personal properties not used in the
business.
Employment services
For

tax purposes, casual sales are not


subject to business tax but subject to income
tax.

Summary Application

Business Taxes
Taxes imposed on ONEROUS transfer of property,
service or rights in the ordinary course of business:
1.Value-Added Tax (VAT) a general consumption tax
with a 12% additional tax on the sales price of the goods
or services by VAT-registered seller or by those required
to be under the VAT-system.
2.Other Percentage Tax (OPT) general consumption
tax to Non-VAT- registered
With several rates but the common is 3%
3.Excise

Tax (ET) taxes imposed on products that are


harmful to health, non-essential and those that deplete
natural resources

Business Registration

For regulation purposes, a business must be


registered before it starts its economic activities
so as not to render it business illegal.

1.

Initial Registration filed with the RDO to where the


principal place of business is located before the start of
business.

2.

Must submit certain documents containing basic information about


the tax status (i.e. TIN Form, Sketch of business site, exemption
certificate, Mayors permit, municipal license, DTI certificate of
registration, Articles of Partnership/Incorporation, marriage contract,
agency charter for government agencies

Annual Registration every before the start of the


business, it has to be registered. Annually, the registration
has to be renewed before the end of January.

Annual fee of P500 for every separate distinct establishment or


place of business (head office, branch, facility or warehouse).

Business Registration
Exempt from Registration Fee of P500:
1.Individuals
earning purely compensation
income
2.Overseas workers
3.Self-employed individuals where the gross
sales or receipts do not exceed P100,000 per
year
4.Cooperatives (but still have to register with BIR)

Summary Application
Seller (Business Registration)
VATRegistered
>P1,919,50
0/ year

VAT-Registered
VAT Sales
Invoice for
sales of goods
(SP +12%VAT)

Non-VATRegistered
<P1,919,50
0/ year

VAT Receipts
For sales of
services (value
of service +
12% VAT)

Non-VAT
Registered
Issues Sales Invoice for
sales of goods

Issues Receipts for Sale


of Services

VAT or Non-VAT Registration

VAT-Registered Business - subject to 12% business tax

Non-VAT- Registered Business- generally subject to 3% OPT

1.

Mandatory VAT-Registration - VAT-Registration becomes compulsory when:

a.

Expected annual gross sales or receipts exceed P1,919,500

b.

A taxpayer has realized gross sales or receipts of more than P1,919,500

2.

Optional VAT-Registration persons with taxable business transactions that do


not exceed P1,919,500 per year has the option to register under VAT system.

3.

Non-VAT Registration a person registers to a Non-VAT system who is subject


to Other Percentage Tax
But if the business expects to generate sales of more than P1,919,500

Still subject to 12%

Cannot shift the burden to customers

Cannot claim creditable input VAT on its purchases

VAT vs Non-VAT Business


VATRegister
ed

Non-VAT
Register
ed

Allowed to collect
Output VAT from
customers
(remitted to BIR)

No Output VAT is
allowed. The
business tax is
charged as
Operating
Expense

Allowed to claim
creditable Input
VAT on purchases
from VATregistered
suppliers
(advanced
payment of VAT)

No Input VAT is
allowed. The Input
VAT is charged as
part of Cost of
Purchases

VATRegistered

Non-VAT
Registered

1. Purchased goods from non-VAT supplier amounting


to P15,000
Purchases 15,000
Purchases 15,000

Cash

Cash

15,000

15,000

2. Purchased goods from a VAT-registered supplier amounting to P10,000


plus P1,200 VAT

Purchases
Input VAT

Cash

10,000
1,200

11,200

Purchases

Cash

11,200

11,200

3. Sold 12,000 worth of goods for 30,000


Cash

33,600
Sales
Output VAT

30,000
3,600

Cash
Sales

30,000
30,000

4. Paid the Business tax for the month

Output Vat 3,600


Input Vat
1,200
VAT Payable
2,400

OPT Expense 900


OPT Payable 900

VAT Payable
Cash

OPT Payable
Cash

2,400
2,400

900
900

Cancellation of VAT Registration


VAT-Registration

is irrevocable for a period of 3


years from the quarter the registration was made
Liability to pay VAT is valid until revoked by the BIR
Illustration:
In 2010, Dennys registered as VAT-registered business because its
total average gross sales during the year amounts to P1,800,000.
In 2012, the business applied for the revocation of its VATregistration because its gross sales do not exceed the new VAT
threshold amount of P1,919,500 gross sales per year.
How much is the amount of business tax in 2013 and 2014 if the
revocation was approved in 2014?
2013
2014
Annual Average Gross Sales
P1,800,000
P1,800,000
Multiplied by applicable rates
12%
3%
Amount of business taxes
P216,000
P54,000

Non-VAT Person Collecting VAT


Other Percentage Taxes applicable to the transaction
VAT due on the transaction without the benefit of any
Input Tax Credit
50% surcharge
Illustration:
Cheetah, a non-VAT person, collected P112,000 from Tarzan for
the sale of goods amounting to 100,000 plus 12,000 VAT. She
was about to pay the 3% percentage tax but the BIR found out
her violation. Cheetahs tax liability would be:
Other percentage tax (100,000 x 3%)
Add: VAT Collected
Surcharge (12000 x 50%)
Total Tax Liability

3,000
12,000
6,000

18,000
21,000

Invoices and Receipts


General Requirements
Apply for Authority to Print with the BIR
Invoices and Receipts shall be registered with BIR
Cash register machines and sales book are to be registered with BIR
Contents of the cash register receipts

Business name
Business address
VAT or Non-VAT number
Amount and Date of the transaction
Amount of Tax (for VAT invoice)

Commercial Invoices are to be issued for sale of goods while


Official Receipts are to be issued for the amount of cash received

Invoicing and Accounting for VATRegistered Persons


A.

A VAT-registered person shall issue:


1.
2.

B.

A VAT invoice for sale of goods or properties


VAT Official Receipt for sale of services or lease of goods or properties

The following information shall appear in the VAT invoice or VAT Official
receipt
1.
2.
3.
4.
5.
6.
7.

A statement that the seller is a VAT-registered person followed by the TIN.


The amount of tax shown as a separate item.
The word VAT-exempt Sale is written or printed prominently if sale is VATexempt.
The word Zero-Rated Sale is written or printed prominently if sale in
subject to zero percent.
An option to issue combined or separate invoices receipts of sale on a
combination of VAT-liable and VAT-exempt sale
Date of transaction, quantity, unit cost, and description of the goods or
properties or the nature of the service.
For sale of VAT-registered persons amounting to P1,000 or more indicate
the name, business style, address and TIN of the purchaser.