Business Taxes

Business Defined

Business means “trade or commercial

activity regularly engaged in as a means of
livelihood or with a viewpoint of obtaining
profit.”
“In the course of Trade or Business”
 It refers to the regular conduct or pursuit of a
commercial or an economic activity, including
transactions incidental thereto, by any person
regardless of whether or not the person
engaged therein is a non-stock, non-profit
organization or government entity.
 Such person, entity, organization or associations
engaged in the course of trade or business shall
be held liable to pay business tax.
Privilege Tax Defined

A privilege tax is a tax imposed upon the

privilege of engaging in a business or
trade, or pursuing an occupation, calling,
or practice or exercise of a profession.
What are the different kinds of
Business Tax?
1. Other percentage tax
2. Excise tax
3. Value-added tax
Businesses subject to Other
Percentage Tax
1. Persons exempt from VAT
2. Domestic carriers
3. International carriers
4. Franchise holders of water, gas,
telephone and radio companies
5. Overseas communications
6. Banks & non-bank financial intermediaries
7. Finance companies
8. Life insurance companies
9. Agents of foreign insurance companies
10. Amusement places
11. Winnings from racehorse
12. Sale of shares of stock traded through
the local stock exchange
Businesses subject to Excise Tax:
1. Manufacturers
2. Importers:
1. Distilled spirits
2. Wines
3. Fermented liquor
4. Cigars
5. Cigarettes
6. Tobacco products
7. Automobile
8. Manufactured fuels and other oils
9. Mineral products
10. Non-essential goods
What is the Nature of Excise Tax?

1. Direct tax
2. Computed based on ad-valorem or
specific tax
Value-Added Tax
 Value-added tax (VAT) is a tax on the gross
selling price or gross receipt derived from the
sale, barter or exchange and lease of goods or
properties and rendering of services including
importation, in the ordinary course of trade or
business.
 It is an indirect tax, the burden of which may be
shifted from one seller, transferor, or lessor to
another until such burden is ultimately
shouldered by the end-consumer.
Tax Base of Output VAT
Transaction Tax Base
Sale of goods Gross Selling Price
Sale of services Gross Receipts
Importation Landed Cost
Under VAT, transactions are classified:

a. Taxable transactions
(1) Those subject to 12%
(2) Those subject to 0%

b. Exempt transactions
Rate of VAT

1. For Output VAT

a. regular VAT rate of 12%
b. zero percent (0%) rate
2. For Input VAT
a. regular VAT rate of 12%
b. zero percent (0%) rate
c. transitional input VAT rate of 2%
d. presumptive input VAT rate of 4%
e. final withholding VAT of 5% on sales of
goods and services to government
f. standard input VAT of 7% allowed on
sales of goods or services to the
government.
VAT-Taxable Transactions

a. Sale, barter or exchange of goods or

properties;
b. Transactions deemed sale;
c. Importation of goods; and
d. Sale of services and use or lease of
properties.
Transactions Deemed Sale
1. Transfer, use or consumption not in the course
of business of goods or property originally
intended for sale or for use in the course of
business.
2. Distribution or transfer to:
1. a. shareholders or investors as share in the
profits of the VAT registered persons;
2. b. creditors in payment of debt or obligation.
3. Consignment of goods if actual sale is not
made within sixty (60) days following the
date such goods were consigned; and
4. Retirement from or cessation of business,
with respect to inventories of taxable
goods existing as of such retirement or
cessation.
Gross selling price in relation to VAT

Gross selling price is the total amount of

money or its equivalent which the
purchaser pays or its obligated to pay to
the seller in consideration of the sale,
barter or exchange, excluding the value-
added tax.
Any excise tax on the transaction shall
form part of the gross selling price.
Sale or Exchange of Services
 Sale or exchange of services refers to the
performance of all kinds of services for a fee,
remuneration or consideration, including those
performed or rendered by:
1. Construction and service contractors;
2. Stock, real estate, commercial, customs and
immigration brokers;
3. Lessors of property, whether personal or real;
4. Warehousing services
5. Lessors or distributors of cinematographic films;
6. Persons engaged in milling, processing,
manufacturing or repacking goods for others.
7. Proprietors, operators or keepers of hotels, rest
houses, pension houses, inns, resorts, theaters
and movie houses;
8. Proprietors or operators of restaurants,
refreshment parlors, cafes and other eating
places, including clubs and caterers.
9. Dealers in securities;
10. Lending investors;
11. Transportation contractors on their transport of
goods and cargoes;
12. Domestic common carriers by air and sea
relative to their transport of passengers, goods
or cargoes from one place in the Philippines to
another place in the Philippines;
13. Sale of electricity by generation, transmission and
distribution companies;
14. Franchise grantees of electric utilities, telephone and
telegraph, radio and/or television broadcasting and all
other franchise grantees;
15. Non-life insurance companies including surety, fidelity,
indemnity and bonding companies;
16. Pre-need companies;
17. Health maintenance organization; and
18. Similar services regardless of whether or not the
performance thereof calls for the exercise or use of the
physical or mental faculties.
Gross Receipts in relation to VAT

Gross receipts refer to the total amount

of money or its equivalent representing the
contract price, compensation, service fee,
rental or royalty, including the amount
charged for materials, supplies and
deposits and advance payments actually
or constructively received during the
taxable year, excluding the value added
tax.
Transaction subject to 0% VAT

Zero-rated transaction is a taxable

transaction although no output tax results
therefrom.
Being a taxable transaction, the input tax
on the purchase or lease of goods,
properties or services related to such zero-
rated transaction may be claimed as a tax
credit or tax refund.
Zero-Rated Sales
a. Export sales by VAT-registered person;
b. Foreign currency denominated sale – the
sale to a non-resident of goods
assembled or manufactured in the
Philippines for delivery to a resident in
the Philippines, paid for in acceptable
foreign currency, except:
1.) automobiles (Sec. 149, NIRC); and
2.) non-essential goods (Sec. 150, NIRC)
Zero-Rated Sales

c. Sales to persons or entities whose

exemption is subject to special laws and
international agreements (BCDA, PEZA,
ADB and IRRI)
Zero-Rated Sale of Services
1. Processing, manufacturing or repacking goods for other
persons doing business outside the Philippines, which
goods are subsequently exported, where the services
are paid for in acceptable foreign currency and
accounted for in accordance with the rules and
regulation of the BSP;
2. Services other than processing, manufacturing or
repacking rendered to a person engaged in business
conducted outside the Philippines or to a non-resident
person not engaged in business who is outside the
Philippines when the services are performed, the
consideration for which is paid for in acceptable foreign
currency and accounted for in accordance with the
rules and regulations of the BSP;
3. Services rendered to persons or entities whose
exemption under special laws or international
agreements to which the Philippines is a signatory
effectively subjects the supply of such services to zero
percent (0%) rate;
4. Services rendered to persons engaged in international
shipping or air transport operations, including leases of
property for use thereof; provided, however, that the
services referred to herein shall not pertain to those
made by common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one
place in the Philippines to another place in the
Philippines;
5. Services performed by subcontrators and/or contractors
duly accredited by either the Board of Investments or the
Export Development Council in processing, converting,
or manufacturing goods for an enterprise whose export
sales exceed 70% of the total annual production;
6. Transport of passengers and cargo by domestic air or
sea carriers from the Philippines to a foreign country;
7. Sale of power or fuel generated through renewable
sources of energy such as, but not limited to, biomass,
solar, wind, hydropower, geothermal, ocean energy, and
other emerging energy sources using technologies such
as fuel cells and hydrogen fuels.
Exempt Transactions from VAT

Exempt transactions are those

transactions that are not subject to output
tax and also cannot claim any input tax
as tax credit.
Definition of Terms:
 Output tax is the value-added tax due on the
sale or lease of taxable goods or properties or
services by any person registered or required to
register under the VAT system.
 Input tax is the value-added tax due from or
paid by a VAT registered person in the course of
his trade or business on importation of goods or
local purchase of goods or services, including
lease or use of property, from a VAT registered
person, including the transitional input tax.
Transitional Input Tax
 A person who becomes liable to value-added tax when
the minimum turnover of P3 Million in any 12 month
period has been exceeded or any person who elects to
be a VAT-registered person shall, subject to the filing of
an inventory according to rules and regulations
prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, be allowed input
tax on his beginning inventory of goods, materials and
supplies equivalent to 2% of the value of such inventory,
or the actual value-added tax paid on such goods,
materials and supplies, whichever is higher. The
amount allowable shall be creditable against the output
tax.
Transitional Input Tax
 Real estate developers subject to VAT for the first time
are entitled to transitional input tax credit based on the
value of their beginning inventory of real properties.
 Illustration:
 Starting 2010, Mr. Puno becomes liable to value-added
tax. Records show that he has P300,000 worth of
merchandise inventory. Actual payments of VAT on
purchases from VAT-registered persons amounted to
P27,000.
 Mr. Puno is entitled to transitional input tax of P27,000;
the P6,000 (P300,000 x 2%) being lower than the value-
added tax actually paid.
Presumptive Input Tax
 Persons or firms engaged in the processing of sardines,
mackerel and milk, and in manufacturing refined sugar,
cooking oil and packed noodle-based meals, shall be
allowed a presumptive input tax, creditable against the
output tax, equivalent to 4% of the gross value in money
of their purchases of primary agricultural products which
are used as inputs of their production.
 Processing shall mean pasteurization, canning and
activities which through physical or chemical process
alter the exterior texture of form or inner substance of a
product in such manner as to prepare it for special use to
which it could not have been put in its original form or
condition.
Presumptive Input Tax
 Illustration:
 Mr. Jorge is engaged in the manufacture of
refined sugar. For the month, purchases of raw
sugar from VAT-exempt persons totaled
P330,000. Proceeds from sale of refined sugar
amounted to P550,000.
 Mr. Jorge shall be entitled to a presumptive input
tax of P13,200 (P330,000 x 4%)
Treatment of the Excess of Output Tax or
Input Tax over the Other
If the output tax exceeds the input tax at
the end of any quarter, the excess shall be
paid by the VAT registered person
representing his VAT payable to the BIR.
If the input tax exceeds the output tax at
the end of any quarter, the excess shall be
carried over to the succeeding quarter or
quarters, provided:
1. The input tax inclusive of input VAT
carried over from the previous quarter
shall not exceed 70% of the output VAT;
and
2. Any input tax attributable to zero-rated
sales by a VAT registered persons may,
at his option, be refunded or credited
against other internal revenue taxes.
What is Input-VAT Allocation?
 When a taxpayer with a VAT business and a non-VAT
business makes a purchase during the month from a
VAT-registered person, for use in his VAT and non-VAT
business, the input tax on the purchase shall be
allocated between the VAT and non-VAT business on
the basis of sales during the taxable month pro-rata:
a. Ordinary 12% variable purchases-creditable
b. Zero-rate purchases-creditable or convertible or
refundable
c. Exempt purchases- cost or expense
What is Withholding of Creditable
Input VAT?
 The government, or any of its political
subdivision, intrumentalities or agencies,
including government-owned or controlled
corporations, shall, before making payment on
its purchase of goods or services from sellers
subject to the VAT, deduct and withheld the VAT
at a rate of 5% of the gross payment, which shall
be creditable against the VAT liability of the
sellers.
Who are required by law to register for
VAT?
Any person who, in the course of trade or
business, sells, barters or exchanges
goods or properties, or engages in the
sale or exchange of services shall be
liable to register for VAT if his gross sales
or receipts for the past 12 months, other
than those that are exempt, have
exceeded P3million.
What other percentage taxes, aside from
VAT are imposed under the NIRC?
a. Tax on persons exempt from VAT (3% on
quarterly gross sales or receipts)
b. Tax on domestic carriers and keepers of
garages (3% on gross receipts)
c. Tax on international carriers (3% of gross
receipts)
d. Tax on franchises (3%, 2%)
e. Overseas communication tax (10% on amount
paid for every overseas dispatch, message or
conversation from the Philippines)
f. Tax on banks and non-bank financial
intermediaries
g. Tax on finance companies (3% on gross
receipts from items of gross income)
h. Tax on life insurance premiums (5% on
total premiums collected from life
insurance business)
i. Tax on agents of foreign insurance
companies (10% on total premiums)
j. Amusement taxes
k. Tax on winnings in horse races
l. Tax on sale/exchange of shares of stock
listed and traded at the local stock
exchange.
Banks and Non-Bank Financial
Intermediaries
a. On interest, commissions and discounts from
lending activities:
maturity period is 5 yrs or less-5%
maturity period is more than 5 yrs.-1%
b. On dividends and equity shares in net income of
subsidiaries- 0%
c. On royalties, rentals of property, profits from
exchange and all other items treated as gross
income- 7%
d. On net trading gains within the taxable
year on foreign currency, debt securities,
derivatives and other similar financial
instruments.
Amusements
a. Cockpits- 18%
b. Cabarets, night and day clubs- 18%
c. Boxing exhibitions except those wherein world
or oriental championship is at stake and at least
one of the contenders is a citizen of the
Philippines and promoted by a citizen of the
Philippines or by a corporation or association at
least 60% of the capital is owned by such
citizens- 10%
d. Professional basketball games- 15%
e. Jai-alai and racetracks- 30%
Shares of stock sold or exchanged
through IPO
 On the gross selling price or gross value in
money derived on every sale, barter, or
exchange or other disposition through IPO in
closely held corporations in accordance with the
proportion of such shares to the total
outstanding shares of stock:
not over 25%- 4%
over 25% but not exceeding 33 1/3%- 2%
over 33 1/3%- 1%
Exemption from Percentage Tax

Any business or business pursued by an

individual where the aggregate gross sale
or receipts do not exceed P100,000 during
any 12-month period shall be considered
principally for subsistence or livelihood
and not in the course of business.
Excise Taxes

Excise taxes apply to goods

manufactured or produced in the
Philippines for domestic sale or
consumption or for any other disposition
and to things imported.
The excise taxes shall be in addition to the
value-added tax.
Two (2) Kinds of Excise Taxes

a. Specific taxes – these are excise taxes

that are based on weight or volume
capacity or any other physical unit of
measurement.
b. Ad valorem taxes – these are excise
taxes that are based on selling price or
other specified value of the good.
Articles that are subject to Specific Tax

a. Distilled spirits from locally produced materials

(is the substance known as ethyl alcohol,
ethanol or spirits of wine, and includes whisky,
brandy, rum, vodka, and fortified wines with
more than 25% alcohol)
b. Still wines
c. Tobacco products (hand-twisted)
d. Cigars (rolls of tobacco)
e. Cigarettes packed by hand
f. Petroleum products
Articles that are subject to Ad Valorem
Tax
a. Distilled spirits
b. Sparkling wines/champagnes
c. Fermented liquors (beer)
d. Cigarettes packed by machine
e. Automobiles
f. Non-essential goods (jewelry, perfumes,
yachts, etc.)
g. Minerals, mineral products and quarry
resources
Documentary Stamp Tax

Documentary stamp tax is an internal

revenue tax imposed upon documents,
instruments, loan agreements and papers
evidencing the acceptances, assignments,
sales, and transfers of the obligation, right,
or property incident thereof, and in respect
of the transaction so had so accomplished.
Nature of DST

The documentary stamp tax is a tax

imposed on the transaction rather than on
the document itself.
It is an excise tax levied upon the privilege
granted to the taxpayer so that he may
enter into the transaction in the
Philippines.
Does the failure to affix or stamp a document or
paper affect the validity of the transaction?

 It will not.
 However, the document or paper shall not be
recorded nor shall any copy thereof be admitted
or used in evidence in any court until the
requisite stamp/s shall have been affixed thereto
and cancelled.
 It shall prohibit any notary public or other officer
authorized to administer oaths from adding his
acknowledgment to any documents subject to
the documentary stamp tax.