Chapter 1 - Introduction to Consumption Taxes

LAWS BUSINESS &
TRANSFER
TAXATION
PRINCIPLE
T A X II
APPLICATIONS
COURSE This course is about the laws, principles,
and applications of business and transfer
taxation. Students are expected to learn
introductory consumption to taxation; the
OUTLINE importance of tax consumption,

consumption tax on sales; exempt sales,
the tax percentage, the vat on sales,
output vat-regular sales and zero rated
sales, input vat, vat payable and other
requirements, exice tax., transfer
taxation;introduction,the concept of
succession, gross estate common rules
and special rules, dedutions from gross
Reference Book: Business & Transfer estate, estate tax payable,donors
Taxation 2019 OBE Edition tax,documentary stamp tax.
By: Rex B. Banggawan, CPA, MBA
CHAPTER 1
INTRODUCTION TO CONSUMPTION TAXES
BUSINESS TAX -> is a form of consumption tax.
CONSUMPTION -> the acquisition or utilizattion of goods or services by any person.

-> levied without regard to the purpose of the purchaser whether it is for business, personal or charity use.
UTILIZATION -> subject to a tax called consumption tax.

-> Utilization of goods or services may be through purchase, exchange or other means.
Savings Formation
RATIONAL OF CONSUMPTION TAX
Rationalization of the Benefit Received Theory
Wealth Redistribution to Society

Income is normally destined toward consumption.
Consumption Tax Promotes “INCOME less CONSUMPTION is SAVINGS”
“Savings Formation” Savings is a capital is useful especially in funding projects crucial.
It’s way is to limit the level of consumption.
Consumption Tax “Rationalize It proposes that those who received more benefit from the
the Benefit Received Theory” government should pay more taxes.
A Tax Consumption will effectively render everybody taxable.
Consumption Tax helps It is a basic policy to redistribute wealth to society so that

“Redistribute Wealth to everyone in the state will benefit.
Society” A Tax Consumption will effectively make the rich pay more taxes for
the government.
It should not be levied upon basic necessities such as food, education,

A Caveat to Consumption tax health and shelter.
Doing so would be tantamount to killing the goose that lays the golden egg.
INCOME TAX CONSUMPTION
VS. TAX
Tax upon receipt Tax upon usage of

NATURE
of income. income or capital
SCOPE/COVERAGE A tax to the

A tax to ALL.
capable.
Ability to pay Benefit received

THEORETICAL BASIS
theory theory
Types of Consumption Types of Domestic Consumption
Domestic Consumption Domestic Sales
A “Resident Purchaser” The domestic consumption of a “Resident Buyer”

from “Resident Sellers” known as purchase is
and is “TAXABLE” subject to a consumption tax called “Business Tax”
Foreign Consumption Importation
A “Non-Resident Purcchaser” The domestic consumption of goods or services from

“Non-Resident Sellers” known as importation is subject
and is “Non-TAXABLE” to a consumption called “VAT on Importation”.
Business tax is imposed only if the seller is a business and is based upon the sales of goods
or receipts from rendering of services of the seller.
The VAT on importation is imposedupon the total cost of importation regardless of
whether or not the non-resident seller is a business.
Percentage Tax -> tax of various rates from 0.60% to
Types of 30%.
Consumption VAT or Value Added Tax -> a consumption tax of 12%.

Taxes
Exices Tax -> an ad valorem or specific tax, which is
imposed in addition to VAT or percentage tax, only on
certain goods or services.
Exempt Consumption -> Consumption of goods or

services that are not subject to consumption taxes.
Types of Domestic
Consumption as to Consumption Specifically Subject to Percentage
Taxability Tax-> Consumption of services thta are not subject to
VAT but are imposed with a specific percentage tax.
Vatable Consumption -> All other consumption

that are neither exempted nor subject to percentage
tax.
Excempt Consumption -> neither to percentage tax nor VAT. If they are sourced from abroad,
they are excempt from VAT on importataion. If sourced from within, they are excempt from
business tax.
Services Specifically Subject to Percentage Tax -> are taxable consumption of services but
subject only to a specific percentage tax rate set by the NIRC. Consumption of these services are not
subject to VAT.
Vatable Importation or Sales -> All other importation or sales of either goods or services that are
not exempted or specifically imposed a percentage tax is vatable.
VAT on Sales in
VAT on Importation vs.
Business Tax
Theoretically imposed on the value added -

the amount of mark up imposed by sellers
Directly computed on the
on their purchase costs. The VAT on sales or
landed costs or total purchase
receipt follows a tax credit method wherein
cost of importation without any
a VAT of 12% is imposed on sales and is
deduction or tax credit.
reduced by VAT paid by the business on its
purchases.
The Exice Tax
Exice Tax is imposed on the

consumption of commodities.
A. Sin products such as B. Non-essential commodities.
alcohol & cigarettes. (jewelry & automobiles)
D. Environmentally degrading in
C. Non-essential services.
their production r consumption.
(cosmetics surgery) (petroleum & minerals)
Exice Tax is an additional Exice Tax on excisable goods is normally

imposed before the goods are sold by
imposition to VAT or domestic producers or upon their
perrcentage tax. importation by importers.
LAWS
BUSINESS &
TRANSFER
TAXATION
PRINCIPLE
T A X II
APPLICATIONS
THANK YOU
S TAY S A F E A N D G O D B L E S S U S A L L !

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LAWS BUSINESS &

OUTLINE importance of tax consumption,

BUSINESS TAX -> is a form of consumption tax.

CONSUMPTION -> the acquisition or utilizattion of goods or services by any person.

UTILIZATION -> subject to a tax called consumption tax.

Wealth Redistribution to Society

Consumption Tax helps It is a basic policy to redistribute wealth to society so that

It should not be levied upon basic necessities such as food, education,

Tax upon receipt Tax upon usage of

SCOPE/COVERAGE A tax to the

Ability to pay Benefit received

Domestic Consumption Domestic Sales

A “Resident Purchaser” The domestic consumption of a “Resident Buyer”

Foreign Consumption Importation

A “Non-Resident Purcchaser” The domestic consumption of goods or services from

Consumption VAT or Value Added Tax -> a consumption tax of 12%.

Exempt Consumption -> Consumption of goods or

Vatable Consumption -> All other consumption

Theoretically imposed on the value added -

Exice Tax is imposed on the

Exice Tax is an additional Exice Tax on excisable goods is normally

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