ENT 323, FM 126 – BUSINESS TAXATION

Module 1
INTRODUCTION TO BUSINESS TAXES

Lesson 1-1 – National Internal Revenue Taxes

Sources of Internal Revenue Tax

NIRT are collected by the Bureau of Internal Revenue, the government agency primarily in charge
to assess and collect all taxes and charges imposed by the NIRC, other tax laws, and regulations.

These taxes are commonly called

Internal revenue taxes are taxes “excise taxes” or “privilege taxes”
that are specifically provided by because they are imposed on the
RA 8424, the National Internal enjoyment of a privilege,
Revenue Code of the Philippines. performance of an act, or
engagement to an occupation.

National Internal Revenue Taxes

Documentary
Income Tax Business Taxes Transfer Taxes
Stamp Tax

Other
Value- Donor’s
Percentage Excise Tax Estate Tax
added Tax Tax
Tax

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Distinction of Internal Revenue Taxes

DOCUMENTARY
INCOME TAX BUSINESS TAX TRANSFER TAX
STAMP TAX

the tax imposed

on the right or
PRIVILEGE TO
the tax imposed
ENGAGE IN AN
on EARNINGS
ONEROUS
derived from the tax imposed
TRANSFER of
trade, profession, the tax imposed on the right to
goods or services
or occupation. on one’s right to enter into a
in the normal
conduct of make CASUAL transaction that is
business. AND described in the
GRATUITOUS document
TRANSFER of needed to be
one’s property to filed in any
another person. government
office.
The taxable The taxable
amount is the amount is the
taxpayer’s net gross sales or
taxable income. gross receipts.

Income Tax VS Business Tax

INCOME TAX BUSINESS TAX

+ Tax upon receipt of income + Tax upon usage of income or
+ A tax to the capable (progressive capital
tax, remember?) + A tax to all

NOTA BENE:
• Income tax is paid only when there is net income.
• However, the business is required to pay business tax whether there is net income
or loss because the basis of business tax is net sales or gross receipts.

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Modes of Property Transfer

Properties:
1. Real
2. Personal

Onerous transfer Gratuitous transfer

Normal course of
Casual transfer Transfer taxes
business

Business taxes Capital gains tax Estate tax Donor’s tax

Transfers and their Related Taxes

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ILLUSTRATIVE CASE:

Candy is an owner of a real property carrying a value of P5,000,000.

CGT on sale of capital asset. The gain of

P1,000,000 is no longer reportable in the
ITR because the transfer is already
collected with final CGT (a form of income
If candy is not engaged in realty business and tax).
the property is transferred to Thea for a price of
P6,000,000, what are the taxes?
Documentary stamp tax, to make the
document acceptable at the registry of
deeds for processing of transfer.

VAT for the sale in the course of business;

If candy is a VAT registered realtor and the

property is transferred to Thea for a price of Income tax on the gain arising from sale;
P6,000,000, what are the taxes?
Documentary stamp tax to make the deed of
sale acceptable in the registry of deeds.

Donor’s tax for the gratuitous transfer, and

If, out of the generosity, Candy transfers the
property to Thea as a gift, what are the taxes? Documentary stamp tax, to make the deed
of donation acceptable in the registry of
deeds.

Estate tax for the transfer of inheritance;

and
If the property is transferred to Thea by the fact
of Candy’s death, what are the taxes? Documentary stamp tax to effect the
documentation of transfer.

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Situs of Taxation

+ If pertaining to income tax, aside from the taxpayer’s citizenship and residency, the
prominent determinant factor is the protection afforded to the taxpayer by the taxing
authority.
+ If pertaining to transfer tax, the prominent determinant factor aside from the citizenship and
residency of the owner, is the location of the property.
+ For business tax, only goods or rights to be consumed or exercised within are taxable.
(Destination Principle)

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Module 1
INTRODUCTION TO BUSINESS TAXES

Lesson 1-2 – Business Taxes

The Concept of Consumption

Consumption refers to the acquisition or utilization of goods or services by

any person.
•The utilization may be through purchase, exchange or other means.
•The utilization (not the goods or services) is subject to consumption tax.
•The consumption tax is levied without regard to the purpose of the purchaser or consumer.

Rationale of Consumption Tax

Savings Benefit Received Wealth

Formation Theory Redistribution
Rich people spend
Receipt of benefit
Income – more than the poor.
from the government
Consumption = (?)
is conclusively
Savings
presumed.
The rich can afford
expensive lifestyle.
Limiting the level of Everyone consumes –
consumption which renders Consumption tax
promotes savings. everybody taxable. ☺ effectively makes the
rich pay more taxes.

Types of Consumption

Resident Buyer from Non-Resident Sellers

Resident Buyer from Resident Seller
(IMPORTED)

Subject to VAT on Importation for imports from

Subject to business taxes*. business or non-business.

Indirect Imposition
Direct Imposition
• Statutory taxpayer is the seller.
• The buyers are the ones subjected to the tax • Statutory and economic taxpayer is the buyer.
burden (economic taxpayer).
Based on the total purchase cost.
Based on gross sales or receipts

VAT on Importation is collectible through the BOC.

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Domestic
Resident
Consumption
Resident BUYER
Export
Non-Resident (Foreign
Consumption)

SELLER
Import
Resident (Domestic
Consumption)
Non-Resident BUYER

Foreign
Non-Resident
Consumption

The Nature of Business

C
trade or
commercial
activity

P
With a
viewpoint of
obtaining profit

R Regularly
engaged in

It is not a performance It must be within the

It may be pursued by
of a single disconnected lawful commerce of
any person.
act to obtain a gain. men.

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Transactions Subject to Business Tax

Commercial Activities
• Sales of goods and services related to Services rendered by a
trade, profession or business not
exempted by law from business tax.
nonresident foreign person
• Sale of ordinary asset used in business, (without regard to the rule of
other than business inventory. regularity).

Casual Sale

+ A casual sale is an occasional sale of goods or services by a person who is not engaged in
business or sale of assets that are not used in business.
+ It involves selling of personal properties or belongings not used in business.

Casual Sales Not Subject to Business Tax, but Subject to Income Tax:

Sale of house and/or lot classified as capital asset (not used in business);

Sale of personal car and other tangible assets not used in business;

Employment services.

Business Taxes

+ Impositions collected by the National Government on onerous transfer of property, service,

or rights in the ordinary course of business.

Classification of Business Taxes

Value-Added Tax (VAT) Other Percentage Taxes (OPT) Excise Taxes

– a general – imposed
This on products
is also levied on some
consumption tax that that are harmful
imported to health,
products to
requires a 12% non-essential
protect local goods, and
industries.
– general consumption products that deplete
additional tax on the
taxes imposed on non natural resources that are
sales price of goods
VAT-registered manufactured or produced
and/or services by VAT-
businesses. in the Philippines.
registered seller or
seller required by law to
be under VAT system.

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Value-added Tax on:

Sale of good or properties

Sale of Services

Importation of goods

Percentage Taxes:

Common Carrier’s Tax

3% on sale of goods,
(Domestic & Franchise Tax
properties, or services
International)

Tax on banks and non-

bank financial
Overseas Tax on other non-bank
intermediaries
Communication Tax financial intermediaries.
performing quasi-
banking functions.

Tax on insurance Tax on agents of foreign

Amusement Tax
companies. insurance companies.

Tax on winnings Stock Transaction Tax

Excise Taxes
On the consumption of commodities such as:

Environmentally
Non-essential Non-essential
Sin Products degrading
goods Services
products

Distilled spirits, Manufactured

Wines, Domestic fuel oils
Automobiles
Fermented procedures, (gasoline, diesel
liquors surgeries, and fuel, etc.)
body
enhancement
Tobacco undertaken for
products, aesthetic
Jewelries Minerals
Cigars, purposes.
Cigarettes

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Important points to consider:

Excise tax is an addition to either VAT or percentage tax, if the taxpayer

produces certain excisable goods such as alcohol or cigarettes.

VAT and percentage tax are mutually exclusive. Businesses which pay VAT
do not pay the percentage tax.

•However, a VAT-registered taxpayer may pay both VAT and percentage tax
when it engages in activities which are specifically designated by the law as
subject to percentage tax.
•Moreover, business taxpayers will pay VAT if they erroneously or intentionally
use a VAT invoice or O.R. to bill its vat-exempt sales.

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Module 1
INTRODUCTION TO BUSINESS TAXES

Lesson 1-3 – Business Registration

Businesses are required to be registered first before the commencement of its economic activities.
Non-compliance to business registration renders the business illegal.

Upon registration, the taxpayer will indicate in the BIR form whether his business is subject to VAT
or OPT.

If the products of the business are harmful or nonessential, in addition to VAT or OPT, excise tax
shall also be imposed.

Mandatory VAT Registration

+ 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 if:

There are reasonable grounds to

His gross sales or receipts for the
believe that his gross sales or
past twelve (12) months, other
receipts for the next twelve (12)
than those that are exempt under
months, other than those that are
section 109 (A) to (U), have
exempt under section 109 (A) to
exceeded three million pesos
(U), will exceed three million pesos
(P3,000,000.00): or
(P3,000,000.00).

Optional VAT Registration

Persons with taxable The optional VAT A taxpayer who did

business transactions registration shall be not opt to register
that do not exceed irrevocable for a under VAT System
the threshold has the period of 3 years from must register under
option to register the date of non-VAT System
under the VAT registration. when he is a VAT-
System. exempt person
subject to other
percentage tax.

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Illustration

Snollygoster Trading may remain as non-VAT in 2019.

Snollygoster Trading is
registered as a non-
VAT business in 2019.
in year 2020, it expects Snollygoster is required to register under VAT System in 2020.
to generate P
3,120,000 sales. What
are the implications to If Snollygoster registered as VAT business in 2020, it can claim
Snollygoster Trading creditable input VAT on its purchases and payments to VAT-
registered persons.
regarding its
subsequent renewal of
If Snollygoster does not register as VAT business in 2020 and its
registration? actual sales amounted to P 3,120,000, the business would still be
liable to 12% VAT on sales, but it cannot claim creditable input VAT
on its purchases and payments to VAT-registered persons.

VAT VS NON-VAT

VAT-Registered Non VAT-registered

Allowed to collect output VAT from customers.

No output VAT allowed. The business tax is charged
The Output VAT is a current liability to be
as operating expense.
remitted to the BIR.

Allowed to claim creditable Input VAT on

purchases from VAT-registered suppliers. The No Input VAT allowed. The input VAT (if any) is
Input VAT is a current asset, an advance payment charged as part of cost of purchases.
of VAT.

Cancellation of VAT Registration

Once a person registered his

business under VAT system, A VAT registered person
such VAT registration shall be remains to be liable to pay vat
irrevocable for 3 years from until his vat registration is
the quarter the VAT revoked by the BIR.
registration was made.

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Non-VAT Person Collecting VAT

+ A non-VAT person who issues VAT Invoice/OR shall pay the following:
1. Other percentage taxes applicable to his transactions;
2. VAT due on the transaction under section106 or 108 of the Tax Code without the
benefit of any input tax credit; and
3. 50% surcharge under sec. 24 (B) of the Tax Code.

Invoices and Receipts

+ The taxpayer shall apply for the authority to print with the BIR before the printing of
invoice and receipts. The invoices and receipts should be registered with the BIR.

The cash register receipts must show, among others, the following:

• Proprietor’s business name;

• Business address;
• VAT or non-VAT number;
• Amount and date of transaction

In case of VAT invoice, the amount of tax shall be shown as a separate item in the
invoice or receipt.

A commercial invoice is to be issued for sale of goods while an official receipt is to be

issued for the amount of cash received from sales or rendering of services.

Tax Reporting

TYPES OF BUSINESS TAX RETURNS

VAT Taxpayers Non-VAT Taxpayers
Monthly Tax Return BIR Form 2550 M Not Applicable
Quarterly Tax Return BIR Form 2550 Q BIR Form 2551 Q

+ VAT Taxpayers remit VAT monthly.

+ On January 1, 2023, VAT payment will transition into a full quarterly payment under the
TRAIN Law.

QUARTER

M1 M2 M3

Form 2550 M 2550 M 2550 Q

Within 20 days Within 20 days Within 25 days

Deadline
(eom) (eom) (eoq)

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+ The TRAIN Law requires percentage taxpayers to file quarterly tax returns.

QUARTER

M1 M2 M3

Form n/a n/a 2551 Q

Deadline n/a n/a Within 25 days (eoq)

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