MODULE 2

Consumption Tax on Sales -

Introduction to Business Taxation
 Nature of business tax
1. Relative consumption tax
2. Indirect tax
3. Privilege tax
4. National tax
 Types of business tax
1. Percentage Tax
2. Value Added Tax
3. Excise Tax
 Comparison of business taxes
Point of Difference VAT % Tax Excise Tax
Timing of imposition Sale Sale Production/Import

Nature Primary tax Primary tax Additional tax

Any business in Any business in Only producers or

Subject businesses importers of excisable
general general
product or services
Business or
Taxpayers Business only Business only
non-business
Usual taxpayers Big businesses Small businesses Bir or small businesses

Accounting treatment Liability Expense Asser or liability

 BUSINESS
1. HABITUAL ENGAGEMENT
– Regularity in transactions
• Exception to the regularity rule: Sale of services by non-
resident persons are presumed made in the course of
business without regards as to whether the sale is regular
or isolated.
– Normally manifested by registration with the appropriate
government agencies
2. COMMERCIAL ACTIVITY
– Engagement in the sale of goods or services for a profit.
 BUSINESS
The following are not businesses:
1. Government agencies and instrumentalities – fees for services rendered
are not intended to earn a profit but mere reimbursement of costs.
2. Non-profit organization or associations – charitable activities regularly
pursued are not considered in the pursuit of business because of the
absence of the purpose of making a profit.
3. Employment – employee benefits derived under employment is not
subject to business tax but only to income tax.
4. Directorship in a corporation – fees, per diems, and allowances are not
derived in an economic or commercial activity or rendering of services to
clients for a fee
5. Business for mere subsistence – businesses with gross sales or receipts not
exceeding P100,000 per year. Marginal income earners are exempt from
business tax, but are subject to income tax
 BUSINESS TAXPAYERS
• Includes any individual, trust, estate, partnership, corporation, joint venture,
cooperative or association.
Rules:
1. Each person, natural or juridical, is a taxable person for purpose of business
taxation.
2. Husband and wife are separate taxpayers.
3. A parent company is separate taxable person with its subsidiary company and
each subsidiary company is a taxable person.
4. Home office and branch offices of the same business are one, not separate,
taxable person.
5. Proprietorship is not a juridical entity. Its sales and receipts is subject to
business tax to the individual proprietor. Multiple proprietorship businesses of
the same individual are all taxable to that individual as the taxpayer.
 Types of business taxpayers

A. VAT taxpayers
– 12% VAT

B. Non-VAT taxpayers
– 3% general percentage tax
 BASIS OF BUSINESS TAX PER TYPE OF ACTIVITY
 SELLER OF GOODS OR PROPERTIES – GROSS SELLING PRICE
 Gross selling price is the total amount of money or its equivalent which the
purchaser pays or is obligated to pay to the seller less discounts determined
and granted at the time of sale and returns and allowances for which proper
credit or refund was made during the month or quarter to the buyer on
taxable sales.

 SELLER OF SERVICES – GROSS RECEIPTS

 Total amount of money or its equivalent representing the contract price,
compensation, service fee, rental or royalty, including the amount charged for
materials supplied with the services and deposits applied as payments for
services, rendered and advanced payments actually or constructively received
during the taxable period for the services performed or to be performed for
another person, excluding VAT. Agency monies and insurance proceeds on
damaged assets are not part of gross receipts but withholding taxes form part
of the gross receipts.
 TYPES OR SALES OR RECEIPTS
Sale of goods Sale of services

Exempt sales (Chapter 4) Exempt sales Exempt receipts

Receipts specifically subject

to % tax (Chapter 5) - BICAP FLOW

Vatable sales Vatable Sales Vatable receipts

 VATABLE SALES OR RECEIPTS
1. 3% general percentage tax – if the taxpayer is non-VAT
registered taxpayer

2. Value added tax – if the taxpayer is a VAT taxpayer

 TYPES OF PERCENTAGE TAX
1. Specific percentage tax – those imposed for BICAP FLOW
and apply to any taxpayer, whether VAT or non-VAT
registered.
2. General percentage tax – for vatable sales or receipts of
non-VAT taxpayers
 Mandatory registration as vat taxpayer

1. If vatable gross sales or receipts for the past 12 months have

exceeded P3 million.
2. There are reasonable grounds to believe that his vatable gross
sales or receipts for the next 12 months will exceed P3 million.
• P3 million threshold is applicable to all except for franchise
grantees of radio or television where the threshold is P10 million.
• If below VAT threshold taxpayer may opt to register as VAT
taxpayer which is irrevocable for 3 years, but for TV or radio
franchisee grantees, the option shall be perpetually irrevocable.
 TYPE OF VAT TAXPAYERS
a. VAT – registered taxpayer
b. VAT – registrable taxpayer
SUMMART RULES ON VAT AND PERCENTAGE TAX

VAT – registered business Non-VAT business

Exempt sales of goods and
No business tax No business tax
services
Sale of services specifically
Specific % tax rate Specific % tax rate
subject to percentage tax
Vatable sales of goods or 12% VAT 3% percentage tax
services
Business Tax Accounting Period & Tax Reporting
• Taxable quarter – this is the length of accounting
period for business taxes which synchronized with
taxable year of the taxpayer
VAT taxpayers Non-VAT taxpayers
Monthly tax BIR Form 2550 M Not applicable
return • Deadline is within 20 that is counted from the
end of the month
• Phased out effective January 1, 2023
Quarterly tax BIR Form 2550 Q BIR Form 2551 Q
return * Deadline is within 25 that is counted from the * Deadline is within 25 that is
end of the quarter counted from the end of the
quarter
 Short period return
• Shall file quarterly return and pay the tax due thereon
within twenty-five (25) days from the end of month
when the business ceased to operate or when the VAT
registration had been officially cancelled.
• Provided, however, that subsequent monthly
declarations/quarterly returns are still required to be
filed it the results of the winding up of the
affairs/business of the taxpayer reveal taxable
transactions.
 Timing of vat registration
1. Persons commencing business with an expectation to exceed the VAT
threshold within 12 months shall simultaneously register as VAT taxpayer
with the registration of their new business or trade with the BIR.
2. Persons exceeding the VAT threshold shall register as VAT taxpayer before
end of the month following the month the threshold is exceeded.
3. Franchise grantee of radio and television broadcasting, whose gross annual
receipt for the preceding calendar year exceeded P10 million shall registers
VAT taxpayer within 30 days from the end of the calendar year.
4. Persons who are below the threshold but opt to be registered as VAT
taxpayer shall register not later than 10 days before the beginning of the
taxable quarter.
 Revocability of vat registration
1. The VAT registration, whether voluntary or mandatory, of franchise
grantees of radio or television is perpetually irrevocable. Thus, they
continue to be VAT taxpayers until the dissolution if their business.
2. Any person, other than franchise grantees of radio or television, who
voluntarily registered as VAT taxpayers shall not be allowed to cancel
their VAT registration for the next 3 years. This is referred to as the 3
year lock in period.
3. Any person who registered as VAT taxpayers with an expectation to
exceed VAT threshold but failed to exceed the same within 12 months
of operations may apply for cancellation of VAT registration. The
three-year lock-in period does not apply in this case.