Business Tax

Christopher de Guzman, CPA, CAT

 Consumption Tax
Privilege tax
Savings
Redistribution
Principles Destination Principles/ Cross
Border Doctrine
Engaged in business
Seller as statutory taxpayers
Administrative feasibility
Types of Business Taxes
VAT OPT Excise

Sale of goods and services

• In general Yes
• Exempt from VAT Yes
• Exempt from business tax
Sale of sin products and non-essential Yes Yes
goods Yes Yes

Exempt from business tax: Marginal Income Earners

Marginal Income Earners

• Includes individuals whose business

do not realize a gross sales or
receipts exceeding P 100,000 in any
12-month period.

• Excludes licensed professionals,

consultants, artists, sales agents,
brokers, and others similarly
situated.
Administrative
Provisions

Registration Requirements
Sec. 236(A) – 236(I)
 On or before the commencement of
the business;

Registration Fee of P 500 for every

When to separate or distinct establishment or
place of business;
Register?
Due date: On or before January 31;

Except: cooperatives, purely

compensation individuals, OCW;
 Mandatory registration

• Gross sales or receipts, except VAT exempt, for the past 12

months exceeds Php 3,000,000; or
• Gross sales or receipts, except VAT exempt, for the next 12
months will exceed Php 3,000,000;
• Failure to register, he is liable to VAT without the benefit of
Kinds of input tax.

Registration Optional registration

• Not exceeding P 3,000,000 but voluntarily elected to be a VAT

registered person;
• to be filed 10 days before the beginning of the calendar
quarter;
• Irrevocable for three years;
• Not applicable to professionals who elected the 8% tax rate;

Non – VAT; or VAT exempt - subject to OPT of 3%

(Sec. 116)
 Radio or television broadcasting
companies, the minimum threshold is
P 10,000,000 (preceding year only);
Business Radio or TV broadcasting companies
Registration opted to be VAT registered, is subject
to VAT but irrevocable lifetime;

Within 30 days after the end of the

calendar year.
 • Duly registered receipts or commercial invoice must
be issued at the point of each sale and transfer of
merchandise or for services rendered valued at P 100
or more.

• Electronic receipts or sales or commercial invoices

shall be issued by busines engaged in export of
Issuance of goods or services, e-commerce, and under the
jurisdiction of the large taxpayers within 5 years from
Receipts the effectivity of the TRAIN LAW.

• Discretionary for others in lieu of manual receipts,

sales or commercial invoice.

• Receipts must be kept in the business for three

years.
 Cancellation of
Registration
• Written application;
• Gross sales or receipts, except those VAT
exempt, for the following 12 months will
not exceed P 1,500,000; or
• Cease business and do not expect to
recommence any trade or business within
next 12 months.
• Cancellation will take effect from the first
day of the following month.
 The BIR has the power to suspend
business operation:

Suspension 1. Failure to issue receipts or invoices;

2. Failure to file VAT return
of Business 3. Understatement of taxable sales or
Operation receipts by 30% or more of the
correct taxable sales or receipts for
the taxable quarter.
4. Failure of any person to register as
required under the law.
 Value Added Tax
Sec. 105 – 115 of the Tax Code as amended by TRAIN LAW
Who are
liable?
VAT Payable

Output Tax (Sales) P xxx

Input Tax (Purchases) P xxx
VAT Payable (Net) P xxx
 Output Tax:

• 12% Regular VAT

• Zero Rated VAT
• VAT Exempt
Types of VAT
Input Tax:

• 12% Regular VAT

• 2% Transitional input tax
• 4% Presumptive input tax
• VAT Exempt
Application:
I. True or False:
1. For a person to be subjected to any business tax, it is necessary that he is regularly engaged
in the conduct or pursuit of an economic activity. False
2. A non-resident foreign person performing isolated transaction in the Philippines shall be
liable to VAT. True
3. Non-stock and non-profit private organizations which sell exclusively to their members in
the regular conduct or pursuit of commercial or economic activity are exempt from value-
added tax. False
4. Government entities engaged in commercial or economic activity are generally exempt
from value added tax. False
5. A tax payer whose annual gross receipts or sales exceed P 3,000,000 shall pay VAT even if
not VAT registered. True -
Application:
1. A taxpayer whose annual receipts or sales do not exceed P 3,000,000 but who
is VAT registered shall pay VAT. True
2. The non-resident lessor or foreign licensor who is not VAT-registered is subject
to VAT. True
3. An individual whose gross sales or receipts do not exceed P 100,000 is exempt
from VAT provided he pays the 3% other percentage tax. False
4. On January 1, 2018, company A, a newly established business is expecting to
generate a revenue for year 2018 amounting to P 3,500,000, thus mandatorily
liable to VAT. True
5. On January 31, 2018, Company B, a non-VAT registered person issues a vatable
invoice amounting to P 20,000, thus not liable to VAT. False
Application:
1. In 2018, Mr. Chris gross receipts from his practice of profession is P 1,600,000
while her wife has gross sales of P 1,200,000 derived from her trading business.
Assuming that they are not VAT-registered person, will they be subject to VAT?
Why? No, separate taxpayers
2. In 2018, the following gross receipts/ sales were recorded by Nora.
• Gross receipts from practice of profession P 850,000.00
• Gross receipts from transport of goods and services 2,450,000.00
• Gross sales from trading activities 675,000.00
• Assuming Nora is a non-VAT registered, will she be liable to VAT? Why? Yes
3. Taxpayers who are qualified to optionally register may apply for VAT registration
not later than how many days before the beginning of the calendar quarter? 10
days
Application

14. If a radio or television broadcasting company who is not mandatorily required to register under the VAT
system chose to be a Vat taxpayer. What is the consequence of its choice? Liable to VAT,
irrevocable lifetime
15. CLD made the following sales during the 12-month period:
Sales, VAT taxable transactions P 2,500,000.00
Sales, VAT zero-rated transactions 400,000.00
Sales, VAT exempt transactions 100,000.00
Total P 3,000,000.00
Based on the above facts, Is CLD liable to VAT? Why? Sales – No, 2,900,000
16. Sales during the year of 2018:
Subject to: Chris Princess Nora Cora
12% VAT 900,000 1,950,000 1,200,000 2,000,000
0% VAT 1,000,000 965,000 650,000 1,000,000
Exempt 1,200,000 785,000 550,000 250,000
Who is subject to VAT? Justify.
All are not liable
 VAT EXEMPT
(Sec. 109 of the Code of the Philippines, as amended by TRAIN LAW)
VAT EXEMPT – SEC. 109
(A) Sales or importation of agricultural and marine food products in
their original state, livestock and poultry of a kind generally used as, or
yielding, or producing foods for human consumption; and breeding
stock and genetic materials therefor;

(B) Sale or importation of fertilizers; seeds, seedlings, and fingerlings;

fish, prawn, livestock, and poultry feeds, including ingredients, whether
locally produced or imported, used in the manufacture of finished
feeds (except feeds for pets);
VAT EXEMPT – SEC. 109
(C) Importation of personal and household effects belonging to the residents
of the Philippines returning from abroad and nonresident citizens coming to
resettle in the Philippines. (as long as exempt from tariff and customs);

(D) Importation of professional instruments and implement, tools of trade,

occupation or employment, wearing apparel, domestic animals, and
personal household effects (except any vehicle, vessel, aircraft, machinery,
other goods for use in the manufacture and merchandise of any kind in
commercial quantity) belonging to OFW and their families coming to resettle
in the Philippines, for their own use and not for sale, barter, or exchange…
VAT EXEMPT – SEC. 109
(E) Services subject to percentage tax (Title 5);

(F) Services by agricultural contract growers and milling for others of palay
into rice, corn into grits, and sugar cane into raw sugar;

(G) Medical, dental, hospital, and veterinary services except those rendered
by professionals (Doctor’s fee is subject to VAT);

(H) Educational services rendered by private educational institution, duly

accredited by the DepEd, CHED, and TESDA, and those rendered by
governmental educational institution;
VAT EXEMPT – SEC. 109
(I) Services rendered by individuals pursuant to the employer – employee
relationship;

(J) Services rendered by regional or area headquarters established in the

Philippines by multi-national corporation 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
the Philippines;

(K) Transactions which are exempt under international agreement to which

the Philippines is a signatory or under special laws… except those under PD
No. 529;
VAT EXEMPT – SEC. 109
(L) Sales by agricultural cooperatives duly registered with the Cooperative
Development Authority to their members as well as sale of their produce, whether
in its original state or processed form, to non-members; their importation 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;

(M) Gross receipts from lending activities by credit or multi-purpose cooperatives

duly registered with the Cooperative Development Authority;

(N) Sales by non-agricultural, non-electric, and non-credit cooperatives duly

registered with the Credit Development Authority: Provided: that the share capital
contribution of each member does not exceed P 15,000;

(0) Export sales by persons who are not VAT – registered;

VAT EXEMPT – SEC. 109
(P) Sale of real properties not primarily held for sale to customers or held for lease
in the ordinary course of trade or business or real property utilized for low-cost and
socialized housing…residential lot valued at P1,500,000 and below; house and lot
and other residential dwellings valued at P 2,500,000 and below…

• That beginning January 1, 2021, the VAT exemption shall only apply to sale of real
properties not primarily held for sale to customers or held for lease in the
ordinary course of trade or business, sale of real property utilized for socialized
housing, sale of house and lot, and other residential dwellings with selling price
of not more than P 2,000,000;
• To be adjusted every three years.
• Thus, starting 2021, the law excluded residential lot and the low-cost housing.
VAT EXEMPT – SEC. 109

(P) continued…
• Same seller with same buyer of an adjacent real property, subject to VAT if
exceeded the threshold amount;
• Parking lot of the condominium unit is subject to VAT;

(Q) Lease of residential unit with a monthly rental not exceeding P

15,000…
(commercial unit is subject to VAT, regardless of the amount provided
more than the threshold)
• If more than 15,000 and the receipts do not exceed P 3,000,000, subject to 3%
• If more than 15,000 and receipts exceed P 3,000,000, subject to VAT.
VAT EXEMPT – SEC. 109
(R) Sales, importation, printing, or publication of books and any newspaper,
magazine, review or bulletin which appears at regular intervals with fixed prices for
subscription and sale and which is not devoted principally to the publication of paid
advertisement;

(S) Transport of passengers by international carriers;

(T) Sale, importation, or lease of passenger or cargo vessel and aircraft, including
engine, equipment, and spare parts thereof for domestic or international transport
operations;

(U) Importation of fuel, goods, and supplies by persons engaged in international

shipping or air transport operations PROVIDED TO BE USED FOR INTERNATIONAL
SHIPPING OR AIR TRANSPORT OPERATIONS.
VAT EXEMPT – SEC. 109
(W) VAT on purchase of SPECIFIED GOODS and SERVICES by a Senior Citizen (RA
9994) AND VAT on purchase of SPECIFIED GOODS by a Person with disability (PWD)
under RA 10754;

(X) Transfer of property under Sec. 40C of the Tax Code;

(Y) Association dues, membership fees, and other assessments and charges
collected by homeowner’s association and condominium corporations;

(Z) Sales of gold to Bangko Sentral ng Pilipinas;

(AA) Sales of drugs and medicines prescribed for diabetes, high cholesterol, and
hypertension to beginning January 1, 2019 …

(BB) Section 116 of the Tax Code (VAT threshold)

Application: