INTRODUCTION

• IT MUST BE RECALLED THAT THE CONSUMPTION TAX ON DOMESTIC CONSUMPTION FROM RESIDENT
SELLERS IS RELATIVE.
• TAX APPLIES ONLY IF THE SELLER IS ENGAGED IN BUSINESS.
• IT WILL NOT APPLY IF THE SELLER IS NOT ENGAGED IN BUSINESS.
• HENCE, THE CONSUMPTION TAX IS CALLED “BUSINESS TAX”
• BUSINESS TAX, THEREFORE, IS A CONSUMPTION TAX PAYABLE BY PERSONS ENGAGED IN BUSINESS.

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WHAT IS BUSINESS?
• A BUSINESS IS A HABITUAL ENGAGEMENT IN A COMMERCIAL ACTIVITY INVOLVING THE SALE OF GOODS
OR SERVICES TO CUSTOMERS OR CLIENTS.

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ESSENTIAL REQUISITES OF A BUSINESS
• HABITUAL ENGAGEMENT – THERE MUST REGULARITY IN TRANSACTIONS TO CONSTRUE THE PRESENCE OF
A BUSINESS. ISOLATED OR CASUAL SALES ARE NOT REGULAR ACTIVITIES.
• HABITUAL ENGAGEMENT IS NORMALLY MANIFESTED BY REGISTRATION AS A DEALER, A SERVICE
PROVIDER, OR A PRACTITIONER IN A PARTICULAR TRADE OR PROFESSION.
• HOWEVER, NON-REGISTRATION DOES NOT EXONERATE ONE WHO IS ACTUALLY ENGAGED IN THE REGULAR
TRADE OR BUSINESS FROM BEING LIABLE TO PAY BUSINESS TAXES.

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APPLICATION OF THE REGULARITY RULE
• THE FOLLOWING ARE NOT CONSIDERED BUSINESS FOR LACK OF REGULARITY IN THEIR OPERATIONS:
1. SALE BY NON-DEALERS – NON-DEALERS ARE THOSE WHO MAKE CASUAL SALE OF GOODS OR
PROPERTIES. PEOPLE WHO SELL PROPERTIES WHICH THEY ARE NOT REGULARLY ENGAGED IN SELLING
ARE ALSO CONSIDERED NON-DEALERS. SALE OF NON-DEALERS ARE NOT SUBJECT TO BUSINESS TAX.
2. PRIVILEGE STORES – MOST COMMONLY KNOWN AS “TIANGGE.” ARE STALLS OR OUTLETS NOT
PERMANENTLY FIXED TO THE GROUND WHICH ARE PUT UP DURING SPECIAL EVENTS SUCH AS
FESTIVALS OR FIESTAS. TO BE CONSIDERED ONE, THE STORE SHOULD ENGAGE IN A BUSINESS ACTIVITY
FOR A CUMULATIVE PERIOD OF NOT MORE THAN 15 DAYS.

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ILLUSTRATION
• MS. ROMANOV, A MEDICAL PRACTITIONER, SOLD HER PRINCIPAL RESIDENCE FOR P10,000,000.
• MANG INASAR IS A REAL PROPERTY DEALER. DURING PERIODS OF EXCESS CASH LIQUIDITY, HE USUALLY
PURCHASES SHARES OF STOCKS OF OTHER CORPORATIONS AS INVESTMENT. HE SELLS THEM WHEN
CASH NEEDS ARISE.
• KIM IS A PROPRIETOR REGULARLY ENGAGED IN TRADING MERCHANDISE. DURING THE MONTH, HE
REPORTED: SALE OF MERCHANDISE P800,000; SALE OF PERSONAL CAR: P1,200,000.
CONSIDER THE INDEPENDENT TRANSACTIONS WHETHER THESE ARE SUBJECT TO BUSINESS TAX.

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ILLUSTRATION
• MANG EMIL MAKES KEY CHAINS AND WOOD ART FOR SALE TO TOURISTS DURING THE ANNUAL
MUSIKAHAN FESTIVAL. HE RENTED A BOOTH FROM THE CITY OF TAGUM, THE TIANGGE ORGANIZER, AND
RECORDED SALES OF P150,000 OVER THE WEEKLONG FESTIVITIES.
• MATET’S BAKESHOP, AN ESTABLISHED BUSINESS ENTERPRISE, ALSO RENTED A BOOTH FROM THE
ORGANIZER, CITY OF TAGUM, TO SELL ITS CAKES AND PASTRIES IN THE MUSIKAHAN FESTIVAL. MATET
GENERATED P400,000 SALES DURING THE EVENT.
CONSIDER THE FOLLOWING INDEPENDENT SCENARIOS AND DETERMINE WHETHER SUBJECT TO BUSINESS
TAX OR NOT.

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EXCEPTIONS TO THE REGULARITY RULE
• BUSINESS PRINCIPALLY FOR SUBSISTENCE OR LIVELIHOOD – REFERS TO BUSINESS WITH GROSS SALES
OR RECEIPTS NOT EXCEEDING P100,000 PER YEAR.
• MARGINAL INCOME EARNERS REFER TO INDIVIDUALS NOT DERIVING COMPENSATION INCOME UNDER AN
EMPLOYER-EMPLOYEE RELATIONSHIP BUT WHO ARE EMPLOYED DERIVING GROSS SALES OR RECEIPTS
NOT EXCEEDING P100,000 IN A 12-MONTH PERIOD.
• THE TERM MARGINAL INCOME EARNERS DO NOT INCLUDE LICENSED PROFESSIONALS, CONSULTANTS,
ARTISTS, SALES AGENTS BROKERS INCLUDING ALL OTHERS WHOSE INCOME HAVE BEEN SUBJECTED TO
WITHHOLDING TAX.

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BUSINESS PRINCIPALLY FOR SUBSISTENCE
OR LIVELIHOOD
• ALTHOUGH REGULAR IN OPERATIONS, MARGINAL INCOME EARNERS ARE EXEMPT FROM BUSINESS TAX,
BUT ARE SUBJECT TO INCOME TAX.
• EXAMPLES OF MARGINAL INCOME EARNERS:
• AGRICULTURAL GROWERS OR PRODUCERS (FARMERS OR FISHERMEN)
• SMALL SARI-SARI STORES
• SMALL CARENDERIAS OR “TURO-TUROS”
• DRIVERS OR OPERATORS OF A SINGLE UNIT TRICYCLE, AND
• OTHER SIMILARLY SITUATED.

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EXCEPTIONS TO THE REGULARITY RULE
• SALES BY NON-RESIDENTS ARE CONSIDERED MADE “IN THE COURSE OF BUSINESS” – UNDER CURRENT
TAX REGULATIONS, THESE ARE PRESUMED MADE IN THE COURSE OF BUSINESS WITHOUT REGARD AS TO
WHETHER THE SALE IS REGULAR OR ISOLATED. ACCORDINGLY, SALES BY NON-RESIDENTS ARE TO BE
SUBJECTED TO “BUSINESS TAX.”
• THIS RULE IS MERELY INTENDED TO SUPPORT THE TAXATION OF IMPORTATION WITH CONSUMPTION TAX.
IT IS ACTUALLY A MISNOMER WHICH CONFUSES THE VAT ON IMPORTATION WITH BUSINESS TAX. IN
REALITY, THE SALE IS NOT THE OBJECT OF TAXATION BUT THE PURCHASE OF THE RESIDENT BUYER.

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SALES BY NON-RESIDENTS ARE CONSIDERED
MADE “IN THE COURSE OF BUSINESS”
• SINCE IMPORT PURCHASE IS A FORM OF DOMESTIC CONSUMPTION, IT MUST BE SUBJECT TO
CONSUMPTION TAX. IF WE VIEW CONSUMPTION TAX AS A BUSINESS TAX ALONE, THE SELLER HAS TO BE
PRESUMED ENGAGED IN BUSINESS TO BE SUBJECTED TO BUSINESS TAXATION.
• THIS RULE WOULD HAVE BEEN UNNECESSARY IF THE DISTINCTION BETWEEN VAT ON IMPORTATION AND
BUSINESS TAX IS HIGHLIGHTED WELL IN THE REGULATIONS. VAT IS USUALLY VIEWED AS A SINGLE TYPE
OF CONSUMPTION TAX WHICH INCLUDES VAT ON IMPORTATION AND VAT ON SALES WHICH IS A
BUSINESS TAX. IT MUST BE CLARIFIED AGAIN THAT THESE ARE DIFFERENT TYPES OF TAXES.

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ESSENTIAL REQUISITES OF A BUSINESS
• COMMERCIAL ACTIVITY – MEANS ENGAGEMENT IN THE SALE OF GOODS OR SERVICES FOR A PROFIT. THE
GOODS OR SERVICES MUST BE OFFERED TO THE PUBLIC WITH A MOTIVE TO EARN UNRESTRICTED
AMOUNT OF PECUNIARY GAINS.
• HOWEVER, THE ACTUAL EXISTENCE OF A PROFIT DURING THE PERIOD IS NOT A PRE-CONDITION TO
BUSINESS TAXATION. EVENT IF THE BUSINESS OPERATION RESULTS TO A LOSS, BUSINESS TAX STILL
APPLIES.

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NOT BUSINESSES, UNDER COMMERCIAL
ACTIVITY RULE
• GOVERNMENT AGENCIES AND INSTRUMENTALITIES – PRIMARY MOTIVE IS TO PROVIDE ESSENTIAL
PUBLIC SERVICES
• NON-PROFIT ORGANIZATIONS OR ASSOCIATIONS – PROVIDE ELEEMOSYNARY SERVICES NOT AIMED AT
GENERATING INCOME.
• EMPLOYMENT – EMPLOYEES RENDERS SERVICES TO THEIR EMPLOYERS IN EXCHANGE FOR A PERIODIC
CONSUMPTION.
• DIRECTORSHIP IN A CORPORATION – ALTHOUGH NOT CONSIDERED AS EMPLOYMENT, IT DOES NOT
INVOLVE OFFERING OF SERVICES TO THE PUBLIC FOR PROFIT.

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ILLUSTRATION
• THE PROFESSIONAL REGULATIONS COMMISSION (PRC) COLLECTED P12,000,000 FROM PROFESSIONAL
LICENSE FEES DURING THE MONTH. IT ALSO EARNED ADDITIONAL P1,000,000 FROM RENTAL INCOME ON
ITS VACANT PREMISES.
• UNION OF HUSBANDS AFRAID OF WIVES (UHAW) IS A NON-PROFIT SOCIAL WELFARE INSTITUTION FOR
THE ASSISTANCE OF BATTERED HUSBANDS. UHAW RECEIVED P2,000,000 CONTRIBUTIONS FROM THE
PUBLIC AND GENERATED P400,000 FROM THE SALES OF A GIFT SHOP IN ITS FUND-RAISING DRIVE.
• TONY ADVANCE, A CERTIFIED PUBLIC ACCOUNTANT, PRACTICES HIS PROFESSION IN THE INDUSTRY AS
THE CHIEF FINANCIAL OFFICER OF UHAW. DURING THE MONTH, HE RECEIVED P50,000 COMPENSATION
PLUS P10,000 FRINGE BENEFITS.

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ILLUSTRATION
• MR. AGUA IS AN INDEPENDENT DIRECTOR OF AGA CORPORATION RECEIVING DIRECTOR’S FEES, PER
DIEMS, AND ALLOWANCES.
• JON, A CERTIFIED PUBLIC ACCOUNTANT, RENDERS HIS SERVICES TO THE PUBLIC FOR A FEE. IS HE
SUBJECT TO BUSINESS TAX?
• MISS SARAH BABE IS AN INSURANCE AGENT. SHE IS PAID INSURANCE COMMISSION BY INSURANCE
COMPANIES FOR EVERY POLICY SHE IS ABLE TO SELL.

CONSIDER THE SCENARIOS WHETHER THE TRANSACTIONS ARE SUBJECTED TO BUSINESS TAX.

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OTHER PERSONS CONSIDERED ENGAGED IN
BUSINESS
• CONSULTANTS
• SALES AGENTS OR BROKERS
• TELEVISION OR MOVIE TALENTS AND ARTISTS
• COOKING INSTRUCTORS
• MARTIAL ART INSTRUCTORS

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NATURE OF BUSINESS TAXES
• CONSUMPTION TAX – BUSINESS IS A TAX ON CONSUMPTION, UTILIZATION OR PURCHASE OF GOODS,
PROPERTIES OR SERVICES.
• INDIRECT TAX – IT IS IMPOSED TO THE SELLER RATHER THAN TO THE BUYER.
• PRIVILEGE TAX – TO SECURE AND ENFORCE COMPLIANCE, THE LAW MADE BUSINESS TAXES APPEAR AS A
TAX ON THE PRIVILEGE TO DO BUSINESS.

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TYPES OF BUSINESS TAXES
• VALUE ADDED TAX
• PERCENTAGE TAX
• EXCISE TAX

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BUSINESS TAXPAYERS
• WHAT IS A TAXABLE PERSON IN BUSINESS TAXATION?
• PERSON REFERS TO ANY INDIVIDUAL, TRUST, ESTATE, PARTNERSHIP, CORPORATION, JOINT VENTURE,
COOPERATIVE OR ASSOCIATION.
• EACH PERSON, NATURAL OR JURIDICAL, IS CONSIDERED A TAXABLE UNIT. THE CONCEPT OF A TAXABLE
UNIT IN INCOME TAXATION APPLIES AS WELL IN BUSINESS TAXATION EXCEPT THAT A TAXABLE UNIT IN
BUSINESS TAXATION IS CALLED A TAXABLE “PERSON.”
• HOWEVER, INCOME TAX EXEMPTION DOES NOT NECESSARILY MEAN EXEMPTION FROM BUSINESS TAX, &
VICE VERSA.

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REGISTRATION OF BUSINESS
• ANY PERSON WHO, IN THE COURSE OF TRADE OR BUSINESS, SELLS, BARTERS, EXCHANGES GOODS OR
PROPERTIES, OR ENGAGES IN THE SALE OF SERVICES SUBJECT TO BUSINESS TAX SHALL:
• REGISTER WITH THE APPROPRIATE REVENUE DISTRICT OFFICE (RDO) USING THE APPROPRIATE BIR FORM;
• PAY ANNUAL REGISTRATION FEE OF P500.00 USING BIR FORM NO. 0605 FOR EVERY SEPARATE OR DISTINCT
ESTABLISHMENT WHERE SALES TRANSACTIONS OCCUR.

• ANY PERSON WHO MAINTAINS A HEAD OFFICE OR MAIN OFFICES AND OFFICES IN DIFFERENT PLACES
SHALL REGISTER WITH THE RDO WHICH HAS JURISDICTION OVER THE PLACE WHERE THE HEAD OFFICE
OR EACH BRANCH IS LOCATED.

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ILLUSTRATION
• A BUSINESS STARTED OPERATIONS WITH A HEAD OFFICE AND TWO BRANCH OFFICES PLUS A
WAREHOUSE.
• DENZEL IS PRIMARILY ENGAGED IN THE PRACTICE OF HIS PROFESSION. HE ALSO OWNS A BOARDING
HOUSE FOR LEASE AND A TAXI UNIT.

COMPUTE FOR THE TOTAL REGISTRATION FEE PAYABLE TO THE RDO.

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REGISTRATION OF BUSINESS
• AN APPLICATION FOR REGISTRATION SHALL BE FILED WITH THE RDO WHERE THE PRINCIPAL PLACE OF
BUSINESS, BRANCH AND STORAGE PLACE OR PREMISES IS LOCATED BEFORE COMMENCEMENT OF
BUSINESS OR PRODUCTION OR QUALIFICATION AS A WITHHOLDING AGENT. IN THE CASE OF STORAGE
PLACES, APPLICATION SHALL BE FILED WITHIN 30 DAYS FROM THE DATE THE AFORESAID PREMISES HAVE
BEEN USED FOR STORAGE.
• IN ANY CASE, THE COMMISSIONER OF INTERNAL REVENUE MAY, FOR ADMINISTRATIVE AND MERITORIOUS
REASONS, DENY OR REVOKE ANY APPLICATION FOR REGISTRATION.

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REGISTRATION OF BUSINESS
• THE REGISTRATION FEE SHALL BE PAID BEFORE THE START OF SUCH BUSINESS AND EVERY YEAR
THEREAFTER ON OR BEFORE THE 31ST DAY OF JANUARY. PAYMENT SHALL BE MADE TO ANY ACCREDITED
BANK IN THE REVENUE DISTRICT WHERE THE HEAD OFFICE OR BRANCH IS REGISTERED.
• IN PLACES WHERE THERE ARE NO ACCREDITED BANKS, THE SAME SHALL BE PAID TO THE RDO,
COLLECTION AGENT, OR DULY AUTHORIZED TREASURER OF THE MUNICIPALITY WHERE EACH PLACE OF
BUSINESS OR BRANCH IS SITUATED.

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REGISTRATION CERTIFICATE
• A CERTIFICATE OF REGISTRATION SHALL BE ISSUED TO THE APPLICANT BY THE CONCERNED BIR OFFICE
UPON COMPLIANCE WITH THE REQUIREMENTS FOR REGISTRATION.

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POSTING OF REGISTRATION CERTIFICATE
• EVERY REGISTERED TAXPAYER SHALL POST OR EXHIBIT HIS REGISTRATION CERTIFICATE (ORIGINAL
COPY) AND DULY VALIDATED REGISTRATION FEE RETURN AT A CONSPICUOUS PLACE IN HIS PRINCIPAL
PLACE OR BUSINESS AND AT EACH BRANCH IN SUCH A WAY THAT IS CLEARLY AND EASILY VISIBLE TO THE
PUBLIC.

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