1. What is consumption?
Consumption is best described as the endmost purchase of goods and services by a household or by an
individual. It’s the act of consuming, as by use, decoy and deconstruction. It could also show a
satisfaction of human desire, needs and wants. Examples are buying a chicken wings from a fast food
chain, a new pair of sneakers, and for the service, like going to a carwash to get your car cleaned.
2. Compare consumption tax to income tax.
A consumption tax is charged to people when they spend money and it can take the form of
sales taxes, tariffs, excise, and other taxes on consumed goods and services. An income tax is
levied on people when they earn money or when they receive interest, dividends, or capital
gains from their investments. Income tax are direct tax that is paid by an individual or a firm
directly to the tax collecting authority or department whereas consumption tax are indirect
taxes which individuals consumed for their own consumption rather than their income. A
consumption tax can also refer to a taxing system as a whole in which people are taxed based on
how much they consume rather than how much they add to the economy. Lastly, income taxes
are utilize to finance public services(PhilHealth, SSS and etc), and supply goods for citizens.
References: for further information you can click the link below
https://www.meruaccounting.com/blog/difference-consumption-tax-income-tax/
https://www.investopedia.com/terms/c/consumptiontax.asp#:~:text=Consumption%20taxes%20can%20take%20the,the%20economy%20(income%20tax).
3. Differentiate business, percentage and excise tax.
Business Taxes are all taxes, rates, permits fees, assessments, obligation, levies, and different
charges in regard of the occupancy or utilization of, or any business carried on by, tenants or
other occupants of the building whereas, percentage tax is a business tax charged on persons,
establishment, or negotiations specified under Sections 116 to 127 of the National Internal
Revenue Code of 1997 (also known as Tax Code), as amended, and as required under special
laws. In addition, excise taxes are often levied on goods, services and activities like soda,
gasoline, alcoholic beverages, cigarettes, amusement activities, betting, and insurance
premiums, and such taxes may be charged on the consumer or retailer, manufacturer,
contingent upon the specific tax.
References for the taxes: for further information you can click the link below
https://www.bir.gov.ph/index.php/tax-information/percentage-tax.html
https://taxfoundation.org/tax-basics/excise-tax/
4. Enumerate the list of exempt importations according to the tax code.
According to reliabooks.ph, the following are VAT exempt transactions under Section 109 of Tax
Code:
A. Sale or importation of agricultural, livestock, poultry, and marine food products in their
“original state”, Provided, that the food is generally used for human consumption.
Livestock or poultry does not include fighting cocks, racehorses, zoo animals and other
animals generally considered as pets.
Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt and
copra shall be considered as agricultural products in their original state.
Bagasse is not included in the exemption provided for under this section.
B. Sale or importation of fertilizers, seeds, seedlings and fingerlings, fish, prawn, livestock and
poultry feeds, including ingredients, used in the manufacture of finished feeds except specialty
feeds.
Specialty feeds refers to food for race horses, fighting cocks, aquarium fish, zoo animals and
other animals generally considered as pets.
C. Importation of personal and household effects belonging to residents of the Philippines
returning from abroad and non-resident citizens coming to resettle in the Philippines.
D. Importation of professional instruments and implements, wearing apparel, domestic animals,
and personal household effects except machinery and other goods use in the manufacture and
merchandise of any kind in commercial quantity belonging to persons coming to settle in the
Philippines.
E. Services subject to Percentage Tax under Title V of the Tax Code.
F. Services by agricultural contract growers and milling for others of palay into corn rice, corn
into grits and sugar cane into raw sugar.
G. Medical, Dental, Hospital and Veterinary Services except those rendered by professional;
H. Educational services rendered by private educational institutions, duly accredited by the
Department of Education (DepEd), the Commissions on Higher Education (CHED) the Technical
Education and Skills Development Authority (TESDA) and those rendered by the government
educational institutions;
I. Services rendered by individuals pursuant to an employer-employee relationship.
J. Services rendered by regional or area headquarters established in the Philippines by
multinational corporations 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 exempt under international agreements to which the Philippines is a
signatory under special laws,
Except those under Presidential Decree No. 529 that grant Petroleum Exploration
Concessionaires exemption from Custom Duty and Tax of Importation Machinery required for
their Exploration Operation.
L. Importation by agricultural cooperatives 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.
N. Sales by non-agricultural, non-electric and non-credit cooperatives.
Provided, that the share capital contribution of each member does not exceed Fifteen thousand
pesos (P15,000) and regardless of the aggregate capital and net surplus ratably distributed
among the members.
O. Export sales by person who are not VAT-registered;
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 sale residential lot valued at One million five hundred
thousand pesos (P1,500,000) and below or sale of house and lot, and other residential dwellings
valued at Two Million Five Hundred Thousand Pesos (P2,500,000) and below;
Provided, 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 or sale of house and lot, and other residential dwellings with
selling price of not more than Two Million Pesos (P2,000,000).
Q. Lease of residential unit with a monthly rental not exceeding Fifteen Thousand pesos
(P15,000).
R. Sale, importation, printing or publication of books and any newspaper, magazine, review or
bulletin which appears at regular intervals with fixed prices or subscription and sale and which is
not devoted principally to the publication of paid advertisements.
S. Transport of passengers by international carriers
T. Sale, importation or lease of passenger or cargo vessels and aircraft, including engine,
equipment and spare parts thereof for domestic or international carriers.
U. Importation of fuel, goods and supplies by persons engaged in international shipping or air
transport operations.
Provided, that the fuel, goods, and supplies shall be used for international shipping or air
transport operations.
V. Services of bank, non-bank financial intermediaries performing quasi-banking functions, and
other non-bank financial intermediaries.
W. Sale or lease of goods and services to senior citizens and persons with disability, as provided
under Expanded Senior Citizen Act of 2010 and An Act Expanding the Benefits and Privileges of
Persons with Disability, respectively.
X. Tax-Free Exchanges of Properties pursuant to Section 40 (C) (2) of the NIRC of 1997.
This can be:
1. Transfer to a controlled corporation;
2. Merger or consolidation.
No gain or loss shall be recognized if a property is transferred to a corporation by a person or
corporation in exchange for stock.
Y. Association Dues, Membership fees, and other assessments and charges collected by
homeowners associations and condominium corporations
Z. Sale of gold to the Bangko Sentral ng Pilipinas (BSP)
AA. Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension
beginning January 1, 2019.
BB. Sale or lease of goods properties or the performance of services other than the transactions
mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed
the amount of Three Million Pesos (P3,000,000).
References: for further information you can click the link below
https://reliabooks.ph/what-are-vat-exempt-transactions-in-the-philippines/