BUSTAXA

Lecture 1: Business Tax

Nature of Business

Business (Local Government Code of 1991)

- Trade or commercial activity regularly engaged in as a means of livelihood or with a viewpoint of

obtaining profit
- Conducting, prosecuting, and continuing business by performing progressively all the acts
normally incidental thereto

Characteristics: Economic activity considered engaged in business if:

1. Regular conduct of economic activities

2. Business must be a lawful economic activity
3. The purpose of economic activity is for profit

Types:

A. According to Nature
1. Trading or Merchandising
2. Manufacturing
3. Service Business
B. According to Form
1. Sole Proprietorship
2. Partnership
3. Corporation
4. Cooperatives

Business Registration – for regulation purposes, the State, thru the exercise of its police power, requires
a business to be registered first before commencement of its economic activities. Non-compliance
renders business illegal

Kinds of Registration

1. VAT registration – P3,000,000 VAT threshold

2. Non-VAT

Requirements – register once with the appropriate Revenue District Officer:

1. Within 10 days from date of employment; or

2. On or before the commencement of business; or
3. Before payment of any tax due; or
4. Upon filing of a return, statement or declaration as required in this Code

*Note: Registration shall contain taxpayer’s name, style, place of residence, business, and such
other info as may be required by the Commissioner
 Annual Registration Fee - P500 for every separate or distinct establishment or place of business, on
or before the last day of January:

*A person maintaining a (a) head office, (b) branch or facility shall register with the Revenue District
Officer having jurisdiction over the head office, brand or facility

Lecture 2: Consumption Tax and VAT on Importation

Consumption – acquisition or utilization of goods or services by any person

- thru purchase, exchange, or other means

- utilization is subject to tax

Consumption tax – comes from importation and Domestic Sales

Types of Consumption

1. Domestic Consumption
- Purchases from resident sellers
- Resident Consumer
- Taxable
- Business tax
- Statutory taxpayer – seller
- Economic taxpayer - buyer
2. Foreign Consumption
- Non-resident consumer
- Exempt/Effectively non-vatable

Destination Principle

- Destination of the goods determines taxation or exemption from tax

- When consume or are destined for consumption abroad, zero-rated; or exempt in case of
Non-VAT exporter

Types of Domestic Consumption as to Source

1. Domestic – refers to the purchases from resident sellers

 2. Importation – purchases from non-resident sellers (Subject to VAT on importation, based on
total landed costs)

Importation

When Importation Begins and Deemed Terminated (Sec. 103, RA 10863

- Importation begins when the carrying vessel or aircraft enters the Phil. Territory with the
intention to unload therein
- Importation deemed terminated when
a. Duties, taxes, and other charges due upon the goods have been paid or secured to be
paid, at the port of entry unless goods are free from duties, taxes and other charges and
legal permit for withdrawal has been granted
b. In case the goods are deemed free of duties, taxes and other charges, the goods have
legally left the jurisdiction of the Bureau

Types of Consumption Tax on Importation

1. VAT on importation – 12%

2. Final Withholding VAT

VAT on Importation Final Withholding VAT

Object of Consumption Goods Services
Imposed Upon Importers Foreign service providers
Statutory Taxpayer Importers Resident purchaser
Nature Direct Consumption Tax Indirect Business Tax
Tax Basis Total Landed Cost Contract Price
 Collecting Agency Bureau of Customs Bureau of Internal Revenue
Timing of Payment Before withdrawal of goods After the month of payment

Percentage Tax – 3% tax on domestic sales

Module 2: Percentage Tax

Percentage Tax

- A business tax imposed on persons, entities, or transactions specified under Sections 116 to
127 of the NIRC 1997
- BIR Form 2551Q

Vat-Registered?

No

Gross receipts exceed 3M?

Yes – VAT Registrable (12% output, no input)

No – 3% percentage tax (no input tax allowed)

Who are required to file?

1. Persons, not VAT-registered, who sell goods, properties or services with annual gross sales
not exceeding P3M and are exempt from VAT (Sec 109 (BB) NIRC)
2. Persons who lease residential units where the monthly rental per unit exceeds P15,000 but
the aggregate of such rentals for the year does not exceed P3,000,000
3. Person engaged in the following industries/transaction: (Regardless if VAT or non-VAT)
a. Cars for rent or hire driven by the lessee, transportation contractors, including
person who transport passengers for hire, and other domestic carriers by land for
the transport of passengers and keepers of garages
b. International air/shipping carriers doing business in the Phil. On their gross receipts
derived from transport of cargo from the PH to another country
 Domestic International Operation
  Operation Inbound Outbound
Domestic Carrier 12% VAT Exempt Zero rated
International Carrier      
Passengers N/A Exempt Exempt
Good, Mails, or Cargoes N/A Exempt 3% Percentage Tax

c. Franchise grantees of:

i. Radio and/or television broadcasting companies – annual gross receipts
preceding year do not exceed P10M and did not opt as VAT taxpayers – 3%
Gross Receipts
ii. Gas and water utilities – 2% on Gross Receipts
d. Overseas dispatch, message or conversation transmitted from the Ph by telephone,
telegraph, tele-writer, exchange, wireless and other communication equipment
services, except those transmitted by:
i. Ph gov’t or any of its political subdivisions or instrumentalities
ii. Diplomatic services
iii. Public international organizations or any of their agencies based in the Ph
enjoying privileges, exemptions and immunities which the PH gov’t is
committed to recognize in pursuant to international agreement
iv. News services for messages which deal exclusively with the collection of
news items for, or the dissemination of news item thru, public press, radio,
television broadcasting or a newsticker service furnishing a general news
service similar to that of the public press
*Domestic Calls – 12% VAT
*Overseas Calls – 10% OPT on GR within
e. Banks, non-bank financial intermediaries performing quasi-banking functions

*Gross income of banks is held to include those items of gross income subject to
final tax

*RR4-2009 – annual net gains figure to be reported in the monthly percentage tax
return shall be the cumulative total of the net trading gain/loss since the start of the
taxable year less the figures already reflected in the previous months of the taxable
year

o Maturity is 5 years or less – 5%

o Maturity is more than 5 years – 1%
o Dividends and equity shares and net income of subsidiaries – 0%
o Royalties, rentals of property, real or personal, profits from exchange and all other
items treated as gross income under Sec.32 of Tax Code – 7%
o Net trading gains within the taxable year of foreign currency, debt securities,
derivatives and other similar financial instruments – 7%
 f. Other non-bank financial intermediaries (including pawnshops RR 10 2004)
- 5% on GR doing business in the PH
- 5% from interest, commissions, and discounts from lending activities
- Including income from financial leasing
o Maturity is 5 years or less – 5%
o Maturity is more than 5 years – 1%
g. Person, company, or corporation (except purely cooperative companies or
associations) doing life insurance business in the PH
o Subject to 2% tax on premiums collected, whether paid in money, notes, credits or
any substitute to money
o Not including premiums refunded within 6 months after payment on
account rejection of risk or returned for other reasons
o Re-insurance premiums
o Premiums from life insurance of non-residents received from abroad
o Excess of premiums on variable contracts in excess of amounts necessary to
insure the lives of the variable contract owners
o Direct Premiums of Non-Life – VATABLE
o Insurance Commission - VATABLE
h. Fire, marine, or miscellaneous agents of foreign insurance companies
o Twice the tax imposed on life insurance premiums = 4%
o Direct Insurance from Abroad – 5% percentage tax
o Owner of insurance shall report to the Insurance Commission and CIR
i. Proprietor, lessee, or operator of cockpits, cabarets, night and day clubs, boxing
exhibitions, professional basketball games, Jai-Alai and racetracks, including videoke
bars, karaoke bars, karaoke televisions, karaoke boxes and music lounges (Revenue
Memorandum Circular No.18 – 2010)
o Boxing Exhibition – 10%
o Professional Boxing – 15%
o Exemptions: World/Oriental Championships, at least one Filipino
contender, promoter is Filipino Citizen or Corporation 60% Filipino
o Cockpits, cabarets, night and day clubs – 18%
o Jai-alai, race tracts – 30%
j. Winnings or ‘dividends’ in horse races
o Pay-out on combination bets subject to 4% on the net winnings
o Pay-out on straight wagers – 10%
o Tax withheld by operator

When to File/Pay – within 25 days after the end each taxable quarter

Documentary Requirements when filing

1. BIR Form 2551Q – Quarterly Percentage Tax Return Form

 2. Duly Issued Certificate of Creditable Tax Withheld at Source (BIR Form 2307), if
applicable
3. Duly approved Tax Debit Memo, if applicable
4. For amended return, proof of payment and the return previously filed
5. Authorization letter, if filed by an authorized representative
6. Copy of Certificate of Registration issued by Cooperative Development Authority for
cooperatives, and from the National Electrification Administration for electric
cooperatives

Value Added Tax

VAT – indirect tax; can be shifted/passed on by the seller to the buyer, transferee, or lessee of the
goods, properties, or services

I. Nature and Characteristics (Sec. 105)

1. Tax on consumption of goods, prop, or services
2. Indirect tax that may be shifted
3. Collected thru the tax credit method
4. Not a cascading tax
5. Not a tax on tax
6. A transparent form of sales tax
 7. Adheres to the Cross-Border Doctrine and Destination Principle

II. Registration
1. Persons liable – any person who, in the course of the business, sells, barters, exchanges,
or leases goods or properties, or renders services and any person who imports goods
2. Mandatory VAT registration:
a. Gross sales/receipts for the past 12 months, other than those that are exempt,
have exceeded P3,000,000; or
b. There are reasonable grounds to believe that gross receipts will exceed
threshold in the next 12 months
3. Optional VAT registration:
a. Any VAT-exempt person who elect to be VAT-registered
b. Any VAT-registered person but enters into transactions VAT-exempt may opt
that the VAT apply to his transactions which would have been exempt
c. Franchisees of radio and TV whose preceding annual gross receipts do not
exceed P10M

**a and b may be reverted after 3 years, c is irrevocable

4. Persons required to register as non-VAT or VAT exempt:

a. VAT-exempt under Sec 109
b. Radio/TV broadcasting – annual receipts less than P10M; do not opt for VAT
c. PEZA and other ecozone registered enterprises enjoying preferential tax rate of
5%
d. SBM and other freeport zone-registered enterprises enjoying the preferential
tax rate of 5% in lieu of all taxes
III. Imposition of VAT

House and Lot – P3,199,200 threshold

Residential Lot – P1,919,500 threshold

Final withholding VAT on sales to gov’t – government withhold 5% (out of 12%) on VATable sales

Input VAT on Exempt Transactions – input VAT not allowed to be credited against output VAT. Shall be
treated as expense for the taxpayer to be allowed to recover the same