BUSINESS & TRANSFER
TAXATION
REX B. BANGGAWAN, CPA, MBA
BUSINESS TAXATION
• TOPIC OUTLINE:
– The Theory of Consumption Tax
– Exempt Consumption
– The VAT on Importation
– Business Taxation
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•
•
•
The Business Concept
Percentage Taxes
The VAT Threshold
VAT on Sales
THE THEORY OF CONSUMPTION TAX
• What is consumption?
• It is the purchase or utilization of goods and
services
• Nature of consumption tax
• Consumption tax is a tax upon the buyer and
is not a tax upon the seller.
The Rational of Consumption Tax
• Income – Consumption = Savings
• Benefit of Savings: Capital Formation
• Benefits of Tax on Consumption:
– Capital formation
– Wealth redistribution
– Benefit received theory
Types of Consumption
Sellers
Philippine
residents
Foreign
residents
Philippine buyers Foreign buyers
(Domestic
(Foreign
Consumption) consumption)
Purchase to the
Export
buyer/ Sales to
the seller
Import
-
Because of territorial consideration…
ONLY DOMESTIC CONSUMPTION IS
SUBJECT TO TAXATION!
Treatment of Foreign Consumption
(Export Sales)
TYPES OF PHILIPPINE SELLERS TAX TREATMENT
VAT Taxpayers
0% VAT
Non-VAT Taxpayers
Exempt
TYPES OF DOMETIC CONSUMPTION
• Consumption from abroad – subject to
VAT on Importation
• Consumption from Philippine sellers –
subject to Business Tax
Types of Consumption Taxes
VAT ON IMPORTATION
BUSINESS TAX
VAT on import of
Value Added Tax on
goods –
sales
VAT on import of
Percentage taxes
services –(Final
withholding VAT)
Excise taxes
VAT on Importation vs. Business Tax
Basis
Scope
Nature of
consumption tax
Statutory taxpayer
The economic
taxpayer
Nature of
imposition
VAT on
Importation
Purchase
All consumption
Pure form
Business Tax
Sales or Receipts
Consumption from
businesses only
Relative form
Buyer
Buyer
Seller
Buyer
Direct
Indirect
Overview of Consumption taxes
• VAT on Importation
– For goods: 12% of the landed cost
– For services: 12% of the contract price of
service
Business Taxation
• Value Added Tax on sales
– Output VAT (12% of sales)
– Less: Input VAT (VAT paid on purchases)
– VAT Payable
XXX
XXX
XXX
• Percentage tax – a tax of generally 3% (1/2 of
1% to 30%) on sales or receipts
• Excise tax – (various specific or ad valorem
rates based on sales value)
Exempt Consumptions
• Agricultural or marine food products in
original state
• Hospital Health services
• Employment
• Regional Area Headquarter (RHQ) of
Multinational Companies
• Educational services
Exempt consumption…
•
•
•
•
•
•
•
Real properties
International or domestic sea and air carrier
International transport of passengers
Cooperative services
Safety devices
Quasi-importation
Sales/importations exempt under TREATY
In short…
Exempt consumptions are:
“A/M HERE
2
RI CS
QT”
Exempt consumptions: a detailed look
• A/M food products –
– “In original state” means unprocessed foods for
human consumption
– Food of things for ultimate human consumption
– Agricultural contract growers/millers
• Hospital services – within hospital, except:
– Sales of medicine
– Services of professionals
• Employment – this is not a business
• Regional Area Headquarter of Multinational
company – this is not business
• Educational services – schools accredited by
CHED, TESDA and or Dep-Ed
• Real Properties
– Sale of real properties
• by non-dealers (casual sale)
• By dealers of:
–
–
–
–
low-cost housing units (P180,000 and P450,000)
socialized housing units (P750,000)
residential lots (P1,919,500)
residential dwellings (P3,199,200)
– Lease of residence – rental per unit per month do
not exceed P12,800
• International/Domestic sea or air carriers
– Sale/importation/lease – aircraft, sea vessels,
machineries, equipments and spare parts
• Cooperatives – all cooperatives of any forms
so long as with a CGS, except electric
cooperatives
• Quasi-Importation
– Importation of personal, household effects and
professional instruments belonging to nonresidents coming to settle in the Philippines
– Importation of fuel or supplies by persons
engaged in international transport operations
THE VAT ON IMPORTATION
• All importations not falling under
exempt importation under A/M HERE
RI2CS QT are subject to 12% VAT on
landed cost
BUSINESS TAXATION
• The Business Concept:
“HABITUAL ENGAGEMENT IN A COMMERCIAL
ACTIVITY.”
What business tax to pay?
• List of services/entities specifically subject to
percentage taxes (BICAP FLOW)
• Other sellers of goods or services are VATABLE
Mnemonics: BICAP FLOW
– Banks
– International carriers
– Common carriers
– Certain amusement places
– PSE sales
– Franchises
– Life Insurance
– Overseas Communication
– Winnings
What is VATABLE?
• “Vatable” means subject to the VAT on sales if
the person is VAT-registered or VATregistrable.
• A VAT-registrable person is a person who
exceeded the VAT threshold
The VAT Threshold
• Franchisees of TV or radio – P10M sales or
receipt during a year (special threshold)
• All other businesses – P1,919,500 sales or
receipts in any 12-month period (general
threshold)
NOTE: For purposes of the VAT threshold, only
vatable sales/receipts are considered
(i.e. sales or receipts other than from A/M HERE RICS QT
and BICAP FLOWS)
Services subject to Percentage Taxes
(BICAP FLOW)
•
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Banks
International carriers
Common carriers
Certain Amusement places
PSE sales
Franchise
• Life Insurance
• Overseas communication
• Winnings
The Value Added Tax
Topic Outline:
• Sources of Output VAT
• Sources of Input VAT
• Determination of VAT payable
Sources of Output VAT
• Regular Output VAT – 12%
– Sale of goods
– Sale of services
– Sale of real properties
– Transactions deemed sales
• Zero-rated VAT – 0%
List of transactions deemed sales
• Consignment if not withdrawn in 60 days
• Usage not in the course of business
– Withdrawal of goods for personal use
– Dacion en pago
– Property dividend
• Retirement from or cessation of business
• Change of status as VAT taxpayer to a non-VAT
taxpayer
Basis and Timing of Recognition:
Output VAT
Basis
Sales of goods Selling price
Sales of services Gross receipts
Sale of real
properties
Transaction
deemed sales
Gross selling
price (SP or
FMV w/e is
higher)
Fair market
value
Timing
Month of sale
Month of
collection
Month of sale
or amortized
Month deemed
sales
Input VAT
• Input VAT – the VAT paid on purchases
including incentives allowed by the law as
credit against Output VAT
• Not all input VAT payments are creditable
Requirement for creditable input VAT
• It must be paid in the course of business
• It must be billed by a VAT supplier
• Evidenced by an VAT invoice or VAT receipt
Sources of Input VAT
• Transitional input VAT
• Regular input VAT
– Purchase of goods
– Purchase of services
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Deferred input VAT
Presumptive input VAT
Standard input VAT
Input VAT carry-over
Payment of advanced VAT
• Applicable to only:
– Refined sugar
– Flour
– Timber
Determination of VAT payable
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Output VAT
Less: Creditable Input VAT
VAT Payable
Less: Advanced VAT /tax credit
Tax Still due
XXX
XXX
XXX
XXX
XXX
Thank you!