BABUSTAX – Questionnaire

A. VAT
1. What are the allowable deductions from the gross selling price?
2. What are the “transactions deemed as sale” subject to VAT?
3. What is the tax based of VAT on the transactions deemed as sale?
4. When is VAT imposed on importation of goods?
5. Who pays for the tax on importation of goods?
6. Who is an importer?
7. What is the tax base of VAT on importation?
8. Give a sample importation transaction with computation of VAT.
9. Distinguish “automatically zero-rated sales” from “effectively zero-rated sales”.
10. Enumerate the zero-rated sales.
11. Enumerate the zero-rated services.
12. What are the sources of input tax?
13. What is transitional input tax credit?
14. What is presumptive input tax credit?
15. How are input taxes on depreciable goods computed?
16. How is input tax on mixed transactions (VATable/VAT-Exempt/Zero-Rated)
allocated?
17. What is the rule on withholding of final VAT on sales to government?
18. Discuss the requisites and procedure on the refund or tax credit of excess input
tax.

B. Percentage Taxes
1. What is “Other Percentage Taxes (OPT)”?
2. What are the transactions covered by OPT?
3. Who are exempt from payment of OPT?

C. Excise Taxes
1. What is an Excise Tax
2. What is the nature of excise tax?
3. What are the kinds of excise taxes?

Write legibly using black/blue pen on yellow pad.

Submission time:
Tax – 8:30 AM, 29 April 2023 (Class will start at 8:30 AM)
1. What are the allowable deductions from the gross selling price?

SECTION 34. DEDUCTIONS FROM GROSS INCOME (LEGISLATIVE GRACE)

Business Deductions

Individuals engaged in business or the practice of a profession, and who opted to

be taxed at the regular graduated income tax rates, the following expenses are
allowed as deductions from gross income which all ordinary and necessary
expenses paid or incurred during the taxable year in connection with the trade,
business, or profession, including raw materials, supplies, and direct labour.

Personal Deductions

Home mortgage interest, medical expenses, contributions, and other personal

expenses cannot be claimed as deductions for income tax purposes. However,
social security contributions, up to the prescribed amount of maximum mandatory
contributions, are excluded from gross income.

2. What are the “transactions deemed as sale” subject to VAT?

 Transfer or use or consumption not in the ordinary course of business.

Basis: FMV of the goods consumed

 Distribution or transfer to:

a. Property Dividends
b. Transfer to creditors in payment of debt (Dacion en pago)
Basis: Market Value

 Consignment of goods is actual sale is made more than 60 days following the
date such goods were consigned.
 Retirement from or cessation of status as vat registered, with respect to all
goods on hand (or capital goods, stocks in trade and supplies and materials)
Basis: Acquisition cost or Market Value whichever is lower

VAT SHALL NOT BE IMPOSED ON GOODS OR PROPERTIES EXISTING

AS THE OCCURENCE OF:

Change of control of a corporation by the acquisition of controlling interest

of such corporation by another stockholder.
 Change in trade or corporate name of taxpayer. 3. Merger or consolidation
or corporations.

3. What is the tax based of VAT on the transactions deemed as sale?

- If the selling price is unreasonably lower, the basis of the output VAT is the
selling price. VAT applies to practically all sales of services and imports, as well
as to the sale, barter, exchange, or lease of goods or properties (tangible or
intangible). The tax is equivalent to a uniform rate of 12%, based on the gross
selling price of goods or properties sold, or gross receipts from the sale of
services.

4. When is VAT imposed on importation of goods?

- Importation of goods is subject to a 12% VAT based on the

total value used by the Bureau of Customs in determining tariff and
customs duties, plus excise taxes, if any, and other charges which shall
be paid prior to the release of the goods from customs custody:
Provided, That where the customs duties are determined on the basis
of the quantity or volume of the goods, the VAT shall be based on the
landed cost plus excise tax, if any.

In case tax-free imports are subsequently sold to non-exempt

persons, the purchasers or possessors thereof shall be considered the
importers thereof who shall be liable for any internal revenue tax on
such importation.

5. Who pays for the tax on importation of goods?

- The Importer

In practice, import duty is levied when imported goods first enter the country. For
example, in the United States, when a shipment of goods reaches the border, the
owner, purchaser or a Customs broker (the importer of record) must file entry
documents at the port of entry and pay the estimated duties to Customs.

6. Who is an importer?

- A person or organization that brings goods or services into a country from

abroad for sale and a person who introduces an idea from a different place or
context.
 Importer is an individual or a firm authorized by the government of respective
country to act as an 'Importer' to bring goods or services in a country from
outside countries. The importer is responsible completing necessary legal import
customs clearance procedures and formalities on arrival of goods in to a country.

7. What is the tax base of VAT on importation?

- Value-Added Tax (VAT) is payable at point of importation into the State.

Imported goods are liable to VAT at the same rate as applies to similar goods
sold within the State. For example, goods which are zero-rated on sale within the
State are zero-rated at importation.

On imports, the base is the dutiable value, plus customs duties, excise tax, if any,
and other charges prior to the release of such goods from customs custody.

8. Give a sample importation transaction with computation of VAT.

9. Distinguish “automatically zero-rated sales” from “effectively zero-rated sales”.

- Automatically sales by VAT-registered persons which are subject to 0% rate,

meaning the tax burden is not passed on to the purchaser. A zero-rated sale by a
VAT-registered person, which is a taxable transaction for VAT purposes, shall not
result in any output tax. Zero-rated transactions generally refer to the export sale of
goods and supply of services. The tax rate is set at zero. When applied to the tax
base, such rate obviously results in no tax chargeable against the purchaser. The
seller of such transactions charges no output tax, but can claim a refund of or a tax
credit certificate for the value-added tax (VAT) previously charged by suppliers.

While effective zero-rated sales is refers to the local sale of services by a VAT -
registered person to a person or entity who was granted indirect tax exemption
under special laws or international agreement. Effectively zero-rated transactions,
however, refer to the sale of goods or supply of services to persons or entities whose
exemption under special laws or international agreements to which the Philippines is
a signatory effectively subjects such transactions to a zero rate. Again, as applied to
the tax base, such rate does not yield any tax chargeable against the purchaser. The
seller who charges zero output tax on such transactions can also claim a refund of
or a tax credit certificate for the VAT previously charged by suppliers.

10. Enumerate the zero-rated sales

 Certain foods
  Beverages
 Exported goods
 Donated goods sold by charity shops
 Equipment for disabled
 Prescription medications
 Water
 Sewage services
 Books
 Printed publication
 Children’s Clothing

11. Enumerate the zero-rated services.

 Provision of internet access to a certain websites

 Exporting sales
 Sales to any person/entity whose exemption under special laws or
international agreements
 Services rendered to persons or entities who have direct and indirect tax
exemption granted

12. What are the sources of input tax?

 Transitional input tax

Persons who can avail:

Persons who become liable to VAT
Persons who elect to be VAT-registered

Basis of transitional input tax:

Beginning inventory of VAT subject goods, materials and supplies

Transitional input tax allowed – the higher between:

2% of the VAT-subject beginning inventory value for income tax purpose
Actual VAT paid on such beginning inventory

 Presumptive input tax

Persons or firms who can avail:

Processor o sardines, mackerel and milk
Manufacturer of refined sugar, cooking oil and packed noodle based
instant meal
 Basis of presumptive input tax:
Gross value in money of purchases of primary agricultural products used
as inputs in the processing or manufacturing of IM MS SMC

Rate of presumptive input tax:

4%

 Input taxes on domestic purchases or importations (VAT actually paid)

13. What is transitional input tax credit

SECTION 111. TRANSITIONAL AND/PRESUMPTIVE INPUT TAX CREDITS

- The transitional input tax shall be 8% of the value of the inventory. or actual VAT
paid, whichever is higher, which amount may be allowed as. tax credit against
the output tax of the VAT-registered person.

A person who becomes liable to value-added tax 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 eight percent (8%) of the
value of such inventory or the actual value-added tax paid on such goods,
materials and supplies, whichever is higher, which shall be creditable against the
output tax.

14. What is presumptive input tax credit?

- Persons or firms engaged in the processing of sardines, mackerel and milk, and in
manufacturing refined sugar and cooking oil, shall be allowed a presumptive input
tax, creditable against the output tax, equivalent to one and one-half percent (1
1/2%) of the gross value in money of their purchases of primary agricultural products
which are used as inputs to their production.

the word "presumptive" in various BIR regulations in relation to the input tax
provided in Section 105, including Revenue Regulations No. 7-95, indicates that the
input tax is presumed to have been paid on goods or properties which were
heretofore not subject to VAT.

15. How are input taxes on depreciable goods computed?

 - Agreement as to Useful Life on Which Depreciation Rate is Based. – Where
under rules and regulations prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, the taxpayer and the Commissioner have
entered into an agreement in writing specifically dealing with the useful life and
rate of depreciation of any property, the rate so agreed upon shall be binding on
both the taxpayer and the National Government in the absence of facts and
circumstances not taken into consideration during the adoption of such
agreement. The responsibility of establishing the existence of such facts and
circumstances shall rest with the party initiating the modification. Any change in
the agreed rate and useful life of the depreciable property as specified in the
agreement shall not be effective for taxable years prior to the taxable year in
which notice in writing by certified mail or registered mail is served by the party
initiating such change to the other party to the agreement:

Provided, however, That where the taxpayer has adopted such useful life and
depreciation rate for any depreciable asset and claimed the depreciation
expenses as deduction from his gross income, without any written objection on
the part of the Commissioner or his duly authorized representative, the aforesaid
useful life and depreciation rate so adopted by the taxpayer for the aforesaid
depreciable asset shall be considered binding for purposes of this Subsection.

16. How is input tax on mixed transactions (VATable/VAT-Exempt/Zero-Rated)

allocated?

- For a taxpayer with mixed transactions, there are two types of input taxes that may
be used as credit against output taxes—(a) those that are directly attributed to
VATable transactions (including transactions which are zero-rated) and those that
are allocated for the reason that the input tax cannot be directly

- Rate of Tax for Mixed Income Earners. – Taxpayers earning both compensation
income and income from business or practice of profession shall be subject to the
following taxes:

(1) All Income from Compensation – The rates prescribed under Subsection (A)(2)
(a) of this Section.

(2) All Income from Business or Practice of Profession –

If Total Gross Sales and/or Gross Receipts and Other Non-operating Income Do Not
Exceed the VAT Threshold as Provided in Section 109(BB) of this Code – The rates
prescribed under Subsection (A) (2)(a) of this Section on taxable income, or eight
percent (8%) income tax based on gross sales or gross receipts and other non-
 operating income in lieu of the graduated income tax rates under Subsection (A)(2)
(a) of this Section and the percentage tax under Section 116 of this Code.

17. What is the rule on withholding of final VAT on sales to government?

- Under the previous VAT regulation, the aforementioned 5% Final Withholding VAT on
sale to government represents the final net VAT payable of the seller and no additional
VAT payment for that transaction should be required. This amount is withheld by the
withholding agent, which in this case is the government agency who avail the goods or
services offered by the seller, and the 7% difference from the 12% VAT rate will be
considered as the standard input VAT. Any excess of the actual input VAT related to the
sale to government over the 7% standard input VAT shall be recognized as deductible
expense. And any excess of the Standard Input VAT over the actual Input VAT related to
sale to government will be recognized, on the other hand, as other income.
18. Discuss the requisites and procedure on the refund or tax credit of excess input tax.

- Excess Output or Input Tax – If at the end of any taxable quarter the output tax
exceeds the input tax, the excess shall be paid by the VAT-registered person. If the
input tax exceeds the output tax, the excess shall be carried over to the succeeding
quarter or quarters: Provided, however, that any input tax attributable to zero-rated
sales by a VAT-registered person may at his option be refunded or credited against
other internal revenue taxes, subject to the provisions of Section 112
B. PERCENTAGE TAX

1. What is “other Percentage Taxes (OPT)”?

- Other Percentage Tax or OPT is a business tax imposed on INDIVIDUALS or

BUSINESSES that sell or lease goods or services with an annual revenue that
doesn't exceed P3 million and is NOT VAT registered.

Other Percentage Tax or OPT is a business tax imposed on INDIVIDUALS or

BUSINESSES that sell or lease goods or services with an annual revenue that
doesn’t exceed P3 million and is NOT VAT registered. Thus, this can apply to a
broad range of groups from professionals to sole proprietors or even
corporations. If you belong to the aforementioned category and have not opted
for the 8% income tax rate on gross sales and receipts, your BIR Certificate of
Registration (COR) must indicate the OPT as one of your tax types.

2. What are the transactions covered by OPT?

- Consumption levied on the sale, barter, exchange or lease of goods or

properties and services in the Philippines and on importation of goods into the
Philippines. It is an indirect tax, which may be shifted or passed on to the buyer,
transferee or lessee of goods, properties or services

Noteworthy, there are two groups that fall under OPT. The first group is for those
whose activities are VATABLE, but their gross sales do not go beyond the P3
million threshold. Examples are most startups and professionals like freelancers,
doctors, bloggers etc. It also includes those who lease residential units for more
than P15,000 but the total rentals will not exceed P3 million.

3. Who are exempt from payment of OPT?

- A compensation income earner, self-employed and professional taxpayer

whose taxable annual income is PHP250, 000 or less

- Persons, who are not VAT-registered, who sell goods, properties or services,
whose annual gross sales and/or receipts do not exceed three million pesos
(Php3,000,000.00) and are exempt from value-added tax (VAT) under Section
109 (BB) of the National Internal Revenue Code, as amended by Republic Act
(RA) No. 10963.
C. EXCISE TAX

1. What is an Excise Tax?

- Excise taxes apply to services and to goods manufactured or produced in the

Philippines for domestic sales, consumption, or for any other disposition and to things
imported. An excise tax is a legislated tax on specific goods or services at the time they
are purchased. Goods subject to excise taxes could be fuel, tobacco, and alcohol,
among others.

 Excise taxes are taxes required on specific goods or services like fuel,
tobacco, and alcohol.
 They are primarily taxes that must be paid by businesses, usually
increasing prices for consumers indirectly.
 Excise taxes can be ad valorem (paid by percentage) or specific (cost
charged by unit).
 Sin taxes are a form of excise tax on goods that have a high social
cost, such as alcohol and tobacco.
 Some excise taxes can be required directly from the consumer like
property taxes and excise tax penalties on certain retirement account
activities.

2. What is the nature of excise tax?

- Excise Tax is a tax on the production, sale or consumption of a

commodity in a country.

An excise, or excise tax, is any duty on manufactured goods that is

normally levied at the moment of manufacture for internal consumption
rather than at sale. Excises are often associated with customs duties,
which are levied on pre-existing goods when they cross a designated
border in a specific direction; customs are levied on goods that become
taxable items at the border, while excise is levied on goods that came
into existence inland.

An excise is considered an indirect tax, meaning that the producer or

seller who pays the levy to the government is expected to try to recover
their loss by raising the price paid by the eventual buyer of the goods.
Excises are typically imposed in addition to an indirect tax such as a
sales tax or value-added tax (VAT).
3. What are the kinds of excise taxes?

 Specific Tax – refers to the excise tax imposed which is based on weight or
volume capacity or any other physical unit of measurement
 Ad Valorem Tax – refers to the excise tax which is based on selling price or other
specified value of the goods/articles
