lOMoARcPSD|8689743 Business Taxes Lecture Notes Business Taxation (University of the Philippines System) Studocu is not sponsored or endorsed by any college or university Downloaded by Erica Lamsen (ericajanelamsen06@gmail.com) lOMoARcPSD|8689743 Transfer and Business Tax Business Taxes - Notes: imposed upon onerous* transfers (i.e. sale, barter, exchange and importation) *Transfer for value “In the Course of Trade or Business” - - - - regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto. VAT provisions pertains to those persons whose undertakings are intended to be pursued on going concern basis. Isolated transactions* – not considered in the ordinary course of business. XPN: Services rendered in the Phils. by a non-resident foreign person is considered rendered in the course of trade or business. *Transaction or event in which tangible personal property or a taxable service is sold, transferred, offered for sale or delivered by the owner thereof (1) Business taxes are in addition to income and other taxes paid. XPN: if specifically exempted. (2) Income/loss – taxpayers engaged in trade are still liable to pay for business taxes. Types of Transfer 1. Gratuitous Transfer – not subject to business tax but subject to transfer tax (donor’s tax or estate tax) 2. Onerous Transfer – in the ordinary course of business: subject to business tax (either VAT or percentage tax plus excise tax, if applicable) and income tax, unless exempted by the law. – not in the course of business: not subject to business tax but may be subject to income tax. Note: If the asset sold is an ordinary asset, it is generally subject to vat unless exempt under the law. TYPES OF BUSINESS TAXES “For subsistence or livelihood” - - pursued by an individual whose gross sale or receipts < P100,000 during 12-month period. Not subject to business taxes. Marginal Income Earners shall include but not limited to agricultural growers/producers, selling directly to ultimate consumers, small sari-sari stores, small carinderias or “turoturos”, drivers/operators of a single unit tricycle, and such. It does not include licensed professional, consultants, artists, sales agents, brokers and others, including all others whose income have been subject to withholding tax. 1. Value Added Tax (VAT) 2. Other Percentage Taxes (OPT) 3. Excise Tax Illustration: Sale of Goods/Properties or Service may be subject to: - In general, VAT Exempt from VAT but subject to OPT Exempt from Business Taxes Manufacturing/Importation and Sale of Sinproducts, non-essential goods/services may be subject to: - In general, VAT + Excise Tax Or OPT + Excise Tax Reference: Transfer and Business Taxation 2020 ed. by Tabag and Garcia Downloaded by Erica Lamsen (ericajanelamsen06@gmail.com) lOMoARcPSD|8689743 Transfer and Business Tax VALUE-ADDED TAX - tax on consumption levied on the sale, barter, exchange or lease of goods or properties and services in the Philippines (cross border doctrine)* and on importation of goods into the Philippines levied at each stage of production and distribution process. *No VAT shall be imposed to form part of the cost of goods destined for consumption outside the territorial border of the Philippine taxing authority. KINDS OF VAT 1. VAT on sale of goods or properties 2. VAT on importation of goods 3. VAT on sale of services and use or lease of properties PERSONS LIABLE - - - - the SALE OF SERVICES - - Sale in the ordinary course of business: any person who, sells, barters, exchanges or leases goods or properties, or render services and any person who import goods, shall be liable to VAT. In importation of taxable goods, the importer, whether an individual or corp. and whether or not made in the course of business, shall be liable to VAT. Transfer made by a tax-exempt entity to none-tax exempt entity: the purchasers, transferees or recipients shall be considered the importers, liable for any internal revenue tax. Meaning of Properties” (1) Real properties held primarily for sale to customers or held for lease in the ordinary course of business. (2) The right or the privilege to use patent, copyright, design or model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or right. (3) The right or the privilege to use any industrial commercial or scientific equipment (4) The right or the privilege to use motion picture films, films, tapes and discs (5) Radio, TV, satellite transmission and cable television time. term “Goods or all intangible and intangible objects which are capable of pecuniary estimation: VAT is a tax on payments for services rendered in the exercise of profession or calling. It is an indirect tax. It accrues at the time of collection of service fee. SALE OF REAL PROPERTIES - - held primarily for sale to customers or held for lease in the ordinary course of trade or business of the seller. In installment plan, the real estate dealer shall be subject to VAT on the installment payments, including interest and penalties. CHARACTERISTICS OF VAT 1. It is an indirect tax where tax shifting is always presumed. - “Burden of the tax” is borne by the final consumers although producers and suppliers are the ones who file their VAT returns to the BIR. What is transferred is not the liability to pay the tax but the tax burden. 2. It is consumption-based. Reference: Transfer and Business Taxation 2020 ed. by Tabag and Garcia Downloaded by Erica Lamsen (ericajanelamsen06@gmail.com) lOMoARcPSD|8689743 Transfer and Business Tax it is a tax on consumption, it forms a substantial portion of consumer expenditures. 3. It is imposed on the value-added in each stage of production and distribution process. - assures fiscal adequacy through the collection of taxes on every level of consumption. 4. It is a credit-invoice method valueadded tax. - the providers of goods or services passed on the end users the liability to pay the tax who in turn may credit their VAT liability from the VAT payments they received from the final consumer. - VAT is a consumption tax levied on sales to be borne by consumers with sellers acting simply as tax collectors. NOTE: Input VAT should be supported with VAT receipts. Credit-Invoice Method or Tax Credit Approach - - - VAT is imposed on the sale first called “Output VAT” and a tax credit is allowed or claimed on the VAT passed-on to his purchase or cost of goods or services known as “Input Tax”. (tax credit) VAT Payable – excess of output VAT over input VAT. BASIS OF VALUE ADDED TAX - RA 9337 or The VAT Reform Act. Amended by RA 9361 Nature of Transaction Sale of goods/properties Sale of services Importation Dealers in Securities Tax Base Gross SP Gross Receipts Total landed cost Gross Income Sale of Goods: Gross Sales xx Sales Discounts (xx) Sales Returns (xx) Net Sales xx Excise Tax, if any xx Tax Base xx x VAT rate 12% Output VAT xx Input VAT (xx) VAT Payable/ (Exc. input tax) xx OUTPUT TAX - VAT due on the sale, lease or exchange of taxable goods or properties or services by any person registered or required to register. Cash received (actually and constructively)* xx Deposits/Adv. Payments for INPUT TAX - Sale of Services: VAT due on or paid by a VATregistered on importation of goods or local purchase of goods, properties or services, including lease or use of property in business. future projects xx Materials charged for services xx Gross receipts xx x VAT Rate 12% Reference: Transfer and Business Taxation 2020 ed. by Tabag and Garcia Downloaded by Erica Lamsen (ericajanelamsen06@gmail.com) lOMoARcPSD|8689743 Transfer and Business Tax Output VAT xx Input VAT (xx) VAT Payable/ (Exc. input tax) xx *Receivables (For Sale of Services), although earned, are not included in the computation of VAT payable. Dealer in Investors: Securities and Lending Gross Selling Price xx Acq. Cost of Securities Sold (xx) Balance xx Other Income subj to basic tax xx Gross Income xx x VAT rate Assessors (real property tax declaration) (3) In the absence of zonal value, GSP refers to the MV shown in real property tax declaration or the consideration, whichever is higher. Note: If based on nos. 1 and 2, the zonal or MV shall be deemed exclusive of VAT. GROSS RECEIPTS - 12% Output VAT xx Input VAT (xx) VAT Payable/ (Exc. input tax) xx total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied w/ the services and deposits applied as payments for services rendered and advanced payments actually or constructively received during taxable period for the services performed or to be performed for another person, excluding the VAT. Constructive receipt consideration is placed at the control of the person who rendered service without restrictions by the payor. (1) Deposit in banks which are made available to the seller (2) Issuance by the debtor of a notice to offset any debt or obligation and acceptance of seller (3) Transfer of the amounts retained by the payor to the account of the contractor GROSS SELLING PRICE - - total amount of money or its equivalent which the purchaser pays or is obligated to pay to the seller, excluding VAT. excise tax is part of GSP, if any. In the case of sale, barter or exchange of real property subj to VAT - GSP is the consideration stated in the sales document or the fair market value*, whichever is higher. *The term is whichever is higher: (1) The fair MV as determined by the commissioner (zonal value) (2) The fair MV as shown in schedule of values of the Provincial and City Advance Payment - advance payment on behalf of another if the same is paid to a 3 rd party for present or future obligation of said another party, evidenced by a sale invoice. VAT REGISTRATION Reference: Transfer and Business Taxation 2020 ed. by Tabag and Garcia Downloaded by Erica Lamsen (ericajanelamsen06@gmail.com) lOMoARcPSD|8689743 Transfer and Business Tax A. Mandatory Registration 1. In course of trade or business, sells, barters, exchanges, leases goods or properties and renders services is subject to VAT. If the aggregate amount of actual gross sales or receipts exceed P3,000,000 beginning Jan. 1, 2018 under RA 10963 – TRAIN Law for the past 12 months (unless exempted) or gross sales/receipts for the next 12 months exceed P3,000,000. 2. Radio and/or TV broadcasting companies having annual gross receipts P10,000,000. (Note: Mandatory registration applies within 30 days from the end of the taxable year) 3. A person required to register as VAT taxpayer but failed to register. NOTE: Penalty of non-registration of those required to register – cannot avail the benefits of input tax credit. VAT THRESHOLD FOR HUSBAND AND WIFE - - Threshold of P3,000,000, the husband and wife shall be considered separate taxpayers. The VAT-exempt sales shall not be included in determining threshold. B. Optional Registration 1. Not required person may elect to be VAT-registered by registering with the RDO that has jurisdiction over the head office of that person, and pay the annual reg. free for every separate and distinct establishment. (Note: Non-cancellable for the next 3 years) 2. Franchise grantees of radio and/or TV broadcasting having < P10M gross receipt derived from the business covered by the law granting the franchise may opt to VAT registration (Note: Shall be irrevocable) Note: (1) They may apply for VAT registration not later than 10 days before the beginning of the calendar quarter and shall pay the reg fee unless already paid. (2) CIR may for administrative reason deny any application for registration (3) Once registered, the taxpayer is liable to output tax and be entitled to input tax credit beg. on the 1st day of the month ff registration. C. Cancellation of Registration 1. If he makes a written application for commissioner’s satisfaction that his gross sales/receipt will not exceed P3,000,000 for the ff 12 months. 2. If he has ceased to carry on his business, and does not expect to recommence any business within the next 12 months. Note: Cancellation will be effective from the 1st day of the ff month the cancellation was approved. Power of the Commissioner Suspend Business Operations to may order suspension or closure of business establishment for a period of not less than 5 days for any of the ff violations: (1) Failure to issue receipts or invoices (2) Failure to file VAT return (3) “Understatement” of taxable sales or receipts by 30% or more of the correct taxable sales/receipts for the taxable quarter - Reference: Transfer and Business Taxation 2020 ed. by Tabag and Garcia Downloaded by Erica Lamsen (ericajanelamsen06@gmail.com) lOMoARcPSD|8689743 Transfer and Business Tax (4) Failure of any person to register as required by the law. COMPUTATION OF VAT PAYABLE Output VAT (Sales/Receipts x 12%) xx Less: Input VAT (Purchases of Goods (xx) or Services x 12%) Advance VAT Payment Vat Payable (Excess input VAT) (xx) xx Output VAT - - vat due on the sale, lease or exchange of taxable goods or properties or services by any vat registered person or non-VAT registered person but required to register. ad valorem tax, charged on SP of taxable goods/services Advanced Payment of VAT - Raw sugar and refined sugar are subject to adv. payment of VAT, by the owner or seller before the sugar is withdrawn from any sugar refinery/mill. Base Price: - applying VAT rate of 12% on the applicable base price of P1,400 per 50 kg bag for refined sugar and P1,000 per 50 kg bag for all other types. Exempt from Advance VAT Payment (1) Withdrawal of raw cane sugar (2) Withdrawal of sugar by duly accredited and registered agricultural cooperative of good standing (3) Withdrawal of sugar by duly accredited and registered agricultural cooperative which is sold to another agricultural cooperative Reference: Transfer and Business Taxation 2020 ed. by Tabag and Garcia Downloaded by Erica Lamsen (ericajanelamsen06@gmail.com) lOMoARcPSD|8689743 Transfer and Business Tax Withdrawal or Transfer of Ownership of Sugar The proprietor of a sugar refinery/mill shall not allow the issuance of quedan/warehouse receipts or other evidence of ownership or allow any withdrawal of sugar from its premises without proof of payment of advance VAT. Credit for Advance Payment - Adv payment of VAT made by sellers of sugar under revenue reg 6-2015 shall be allowed as credit against output tax based on actual gross selling price of sugar. Reference: Transfer and Business Taxation 2020 ed. by Tabag and Garcia Downloaded by Erica Lamsen (ericajanelamsen06@gmail.com)
