CONSUMPTION TAX CONSUMPTION TAX ON DOMESTIC

- refers to the acquisition or utilization of goods or CONSUMPTION FROM RESIDENT

services by any person. The utilization of goods or SELLERS
services may be through purchase, exchange or -the consumption tax on the purchases of the
other means. Philippine residents from residents sellers is
collected from the seller.
RATIONALE OF CONSUMPTION TAX
1. Savings formation NOTE: The sells or gross receipts of resident
2. Rationalization of the Benefit Received Theory sellers upon which the tax is imposed are, by
3. Wealth redistribution to society themselves, the purchase or consumption of
resident buyers.

INCOME TAX VS. CONSUMPTION TAX Statutory Taxpayers- are the ones named by law
to pay the tax
CONSUMPT
INCOME TAX Economic Taxpayers- are the ones who
ION TAX
actually shoulders the tax burden
Tax upon
Tax upon RECEIPT of USAGE of
NATURE CONSUMPTION TAX FOR RESIDENT
income income or
capital BUYERS APPLIES TO BUSINESSES
SCOPE A tax to CAPABLE A tax to ALL ONLY
BENEFIT - Tax levied on the sales or receipts of a
TAX resident seller is applicable only when the seller
ABILITY TO PAY RECEIVED
THEORY is regularly engaged in business, that is why
THEORY
consumption tax is called a “business tax”.
TYPES OF DOMESTIC SONSUMPTION AS
TO SOURCE TABLE OF COMPARISON
1. DOMESTIC SALES- purchases from resident VAT on Business Tax
sellers Importation
2. IMPORTATION – purchases from abroad by Basis of tax Acquisition Cost Sales or receipts
non-residents Scope of Tax Imports from Purchase from
business or non- business only
TYPES OF CONSUMPTION business
PURCHASER STATUS Nature of Pure Form Relative Form
DOMESTIC RESIDENT TAXABLE Consumption
tax
FOREIGN NON-RESIDENT EXEMPT
Statutory Buyer Seller
taxpayer
Our government can only impose tax Economic Buyer Buyer
upon domestic consumption because? taxpayer
-Taxation is inherently territorial and this Nature of Direct Indirect
adheres to the “Destination principle”. Only imposition
goods and services destined for consumption in the
Philippines are subject to consumption tax.
BASIC TAX RULES ON
CONSUMPTION TAX ON DOMESTIC CONSUMPTION
Buyer Subject to
IMPORTATION
business tax?
1. Value Added Tax (VAT)- 12% of the total
import cost of the goods
2. Withholding VAT- 12% of the contract price of Business Business YES
the service Business Non-business YES
Non-business Business NO
NOTE: VAT & WITHHOLDING VAT are
Non-business Non-business NO
calculated the same.
 1. Invoice-based crediting- for Input VAT is to be
Buyer Subject to substantiated with invoices, our VAT system is
business tax? known as “invoice-based”.
2. Non-observance of the matching of costs or
expenses and sales- Output VAT is recorded when
Business Business VAT on
a sale is made, input VAT is recorded whenever a
importation
purchase is made and not when the goods are sold.
Business Non-business VAT on
importation
SELLING PRICE P XX
Non-business Business VAT on
PLUS: OUTPUT VAT XX
importation
INVOICE PRICE XX
Non-business Non-business VAT on
importation
Journal Entries
NOTE: The VAT on importation consistently Inventories/Purchase xx
applies regardless of whether or not the seller or the Input VAT xx
buyer is engage in business. Accounts Payable/ Cash xx

BASIS OF BUSINESS TAX Cash/Accounts Receivable xx

1. Sales- for business which sells goods or Sales xx
properties; pertain to total amount agreed as Output VAT xx
consideration for the sale of goods whether
collected or uncollected. Output VAT xx
2. Receipts- for business that sells services; pertain Input VAT xx
to collections from the sale of service. VAT due and payable xx

TYPES OF CONSUMPTION TAXES Note: The input VAT on purchased and Output
1. Percentage tax – tax of various rates from VAT on sales are specifically monitored by VAT
0.60% to 30% taxpayers on separate accounts.
2. Value added tax – a consumption of 12%
3. Excise tax – an ad valorem or specific tax, which TAX CONSUMPTION
is imposed in addition to VAT or percentage
IMPORTATION DOMESTIC
tax, only on certain goods or services
SALES/RECEIPTS
Exempt Exempt Exempt
METHODS OF COMPUTING VAT
consumption importation sales/receipts
1. Direct method- value added tax is computed by
applying the VAT rate to the difference of the Services subject to Service specifically Service specifically
selling price and the purchase price; this is not % tax subject to a % tax subject to a % tax
employed in the Philippines. Vatable Vatable Vatable
2. Tax credit method- the VAT rate is imposed consumption importation sales/receipts
upon the sales or receipt (output) of business, this is
called the “output vat”. The output Vat is then
reduced by the VAT paid by the business on its
purchases (input), this is called “Input VAT”.

Output VAT (% x Amount) P xx

Less: Input VAT xx
VAT Due P XX

Note: the excess of the output vat over the

input vat is the VAT due or payable.

SPECIAL FEATURES OF THE

CREDIT METHOD.
 EXCISE TAX
This is imposed on the consumption of commodities such
as:
a. Sin products such as alcohol and cigarettes
BASIS OF EXEMPTION FROM b. Non-essential commodities such as automobiles
and jewelry
CONSUMPTION TAX c. Non-essential services such as cosmetic surgery
d. Products which are environmentally degrading in
BASIS OF VAT ON BUSINESS TAX their production or consumption, such as
EXEMPTION IMPORTATION petroleum and minerals
Human The goods are The goods,
necessity imported is a human services or Excise tax is an additional imposition to VAT or
necessity. property sold is a percentage tax. Unlike business taxes such as percentage
human necessity taxes and VAT on sales or receipts which are levied at the
point of sales, excise tax levied at the point of production
Out of scope The importation does The seller is not
or importation.
of tax not constitute a engaged in
domestic business.
The excise tax on excisable goods is normally
consumption. imposed before the goods are sold by domestic producers
Tax incentive The importation is The sales or or upon their importation by importers.
exempted as a tax receipts is
incentive to certain exempted as a tax
importers. incentive to
certain sellers.
International The importation is The sales or
comity exempted by treaty. receipts is
exempted by
treaty.
STRUCTURE OF THE VAT ON
IMPORTATION

VAT on importation
Import of service Import of goods
Exempt Exempt Exempt
% tax Percentage tax None
VAT Final withholding VAT on importation
VAT
STRUCTURE OF THE BUSINESS TAX
VAT on importation VS VAT on Sales in
Business Tax
The VAT on importation is directly computed
on the landed costs ot total purchase costs of
importation without any deduction or tax credit.

The VAT imposed on sales or receipts in

business taxation is unique as it is theoretically
imposed on the value added – the amount of mark-
up imposed by sellers on their purchase costs. The
VAT on sales or receipts follows a tax credit
method wherein a VAT of 12% is imposed on sales
and is reduced by VAT paid by the business on its
purchases.