01/12/2024

INTRODUCTION
TO BUSINESS
TAXES
Instructor: Loyd Juppet O. Jorca, CPA
Overview and
Objectives
Concept of being engaged in trade or
1
business and the exceptions to the rule

Protection
2

Investment
 -are those imposed upon onerous
Business transfers such as sale, barter,
exchange and importation. It is in

Taxes addition to income and other taxes

paid, unless specifically exempted.

It is called as such bucause without business pursued

in the Philippines (except importation) by the taxpayer
business taxes cannot be applied.

Unlike an INCOME TAX, which is based on taxpayers

net taxable income, BUSINESS TAXES are
generally based on gross sales or gross receipts.
Hence, regardless of the result of business operations,
whether INCOME or LOSS taxpayers engaged in
trade are still liable to pay business taxes. Either:

1. VAT plus Excise Tax (if applicable)

2. Peercentage Tax plus Excise Tax (if applicable)
 INCOME TAX BUSINESS TAX
COMPUTATION COMPUTATION
Gross Sales/Receipts Gross Sales/Receipts* xx Subject to
Business
xx COGS xx
Tax
COGS xx Gross Profit xx
Gross Profit xx OPEX xx
Subject to
Income
OPEX xx Net Taxable Income
Tax Net Taxable Income xx
xx
*Net of discount not dependent
upon the happenings in future
event.
 - Habitual engagement from
commercial activity.

What is -Regular conduct or pursuit of

commercial or an economic

Busines
activity , including transactions
incidental thereto, by any person,
regardless of whether the person
s? engaged therein is non-stock, non-
profit private organizationoir
government entity.
VAT provisions pertain to those person whose
undertakings are intended to be pursued on a GOING
CONCERN BASIS with the purpose of realizing
unrestricted amounts of pecuniary gains or
profits.Therefore,ISOLATED TRANSACTIONS are
generally not considered in the ORDINARY COURSE of
business, hence, not suject to business tax.

EXCEPT, services rendered in the Philippines by non-

resident alien person- it is considered as being rendered
in the course of business even the performance is not
 Isolated Transactions

RESIDENT NON-RESIDENT ALIEN

(On services redered in PH)
CITIZEN
(On services redered in PH)
Are not considered in the Are considered in the
ordinary course of trade or ordinary course of trade or
business, thus, business, thus subject to 12%
NOTSUBJECT TO VAT. FINAL WITHHOLDING VAT.
 ILUSTRATIONS:
Identify if the transaction is made in ordinary course or business.

Illustration 1 Illustration 2

1. Ben sold his house and lot 2. Gaisano Rizal Branch sold
worth 3.5 million pesos. 200 pieces of plastic roses
from their inventories to their
various couple customers in
Iloilo City.
 ILUSTRATIONS:
Identify if the transaction is made in ordinary course or business.

Illustration 3 Illustration 4

SGV and Co. rendered a tax Dimson sold to her mom a

and audit services to personal jewelry worth
PHINMA- university of Iloilo. P300,000.
 Nature of Business
Tax
1. Relative Consumption Tax- Tax on consumption of goods or
services and imposable only when the seller is business.
2. Indirect Tax- Tax is collected from the seller rather from the
buyer-consumer.
3. Privelege Tax- Tax on a privelege to do a business.
4. National Tax- Imposed by the national Government
 Type of Transfers
1. Gratuitous Trasfer (transfer without a consideration)- Not
subject to business tax but subject to transfer taxes.(donor’s
tax and estate tax)
2. Onerous Transfer (transfer with consideration):
a. In the ordinary course of trade or business including
incidental transactions
Subject to (unless exempt under the law)
a.1. Business Tax; AND
a.2. Income Tax
b. Not in the ordinary course of trade or business- Not subject
to business but may be subject to income tax.
 Ordinary
Asset
-Asset used in the ordinary
course of the business (ordinary
assets).

(i.e., PPE, supplies,

 Type of Business
Taxes
1. Value Added Tax (VAT)
2. Other Percentage Tax or simply Percentage Tax
3.Excise Tax
Point of differences VAT % Tax Excise Tax

Timing of Imposition Sale Sale Production/Import

Nature Primary Tax Primary Tax Additional Tax

Only producers or
Any business, in Any business, in importers of
Subject businesses
general general excisable products
or services
Business or non-
Taxpayers Business only Business only
business
Big or small
Usual Taxpayers Big businesses Small businesses
businesses
Accounting Treatment Liability Expense Asset or Liability
 Business Tax
Summary:
Point of differences VAT % Tax Excise Tax

SALE of Goods or Service may be subject

to:
VAT, in general YES NO NO

Exempt from VAT but subject to OPT Exempt YES NO

Exempt from business taxes Exempt Exempt -

Manufacturing/Importation and Sale of

Sin-products, Non-essential goods or
services may be subject to
In general, VAT (+ excise tax, if applicable); OR YES NO YES

Percenatge Tax (+ excise tax, if applicable) NO YES YES

QUESTION?

Are there any possibilities that a

VAT paying taxpayer be
subjected to Percentage Tax?

ANSWER: YES- for mixed

transactions ?
 What is Value-
Added Tax?
VAT- is a tax on the value added by every
seller to the purchase of price or cost in
the sale or lease of goods, property or
services in the ordinary course of trade or
business as well as importation of goods
into the Philippines whether for personal
or business use.
 Kinds of VAT

1. VATon sale of goods or properties

2. VATon sale of services and use or lease or
properties
3. VAT on Importation of goods/services
 Persons Liable

Domestic Foreign Consumption

Consumption (Importation)

Statutory Taxpayer Seller Statutory Taxpayer Buyer/Importer

Economic Taxpayer Buyer Economic Taxpayer Buyer/Importer

Did you
The Fact!
know?
TRANSFER BY A TAX EXEMPT ENTITY TO NONE-
TAX EXEMPT ENTITY

Section 107 (B) of Tax Code provides that in the

case of tax-free importation of goods into the
Philippines by persons, entities, or agencies
EXEMPT from tax where such goods are
subsequently sold, transfered or exchanged in
the PH to non-exempt persons will be subject to
import taxes (VAT on Importation).
 Characteristics of VAT
1. It is an idirect Tax where shifting is always presumed (eecept
importation)
2. It is consumption based
3. It is imposed on the value-added in each stage of production
oand distribution process.
4. It is a credit-invoice method value added tax.
 Characteristics of VAT
4. It is a credit-invoice method value added tax.

Vat payable or the amount of vat to be remitted by taxpayers

to the BIR is computed by deducting the INPUT VAT from the
OUTPUT VAT.

Output Vat P xx
Input Vat xx
Vat Payable xx
 Characteristics of VAT
Output Vat P xx
Input Vat xx
Vat Payable (xx)

Any excess input tax shall be

carried over to the succeeding
quarter or quarters.

In cases of zero-rated sales (export sales- to be discussed in

subsequent chapter) by a VAT registered person at his option be
REFUNDED OR applied for TAX CREDIT CERTIFICATE
Basis of Value Added
Tax
The 12% value added tax shall be based on the following:
Nature of Transactions Tax Base
1. Sale of goods or properties Gross Selling Price
2. Sale of services Gross receipts
3. Importation Total Landed cost
4. Dealers in securities Gross Income
Pro-forma computation:
In computing the taxable base
during yhe month or quarter,
the following shall be allowed as
deductions from gross selling
price. [ Section 106 (D) of the
Tax Code, as amended]:

1. DISCOUNTS determined and

granted at the time of sale,
which are expressly indicated in
the invoice and NOT
DEPENDENT IN THE
FUTURE EVENT.

2. SALES RETURNS AND

ALLOWANCES fro which
proper credit memo issued
DURING THE MONTH or
QUARTER for sales recorded as
Pro-forma computation:
Pro-forma computation:
 The total amount of money or its
equivalent which the purchaser pays or is
Gross Selling Price obligated to pay to the seller in
consideration of the sale, barter or
exchange of goods or properties,
excluding VAT. The excise tax if any, on
such goods or proprties shall form part
of the gross selling price.
If the VAT is not billed seperately in the document of sale the
selling price shall be deemed to be inclusive of vat.

In case of sale, barter or exchange of REAL PROPERTY

subject to VAT, GSP shall mean the consideration stated in:*

1. Sales document
whichever is HIGHER
2. Fair market value

* (RR 4-2007; section 4.106-4, RR16-2005)

FAIR MARKET VALUE

The term shall mean whichever is the HIGHER of:

1. FMV determined by the Commissioner

2. FMV shown in the schedule of values of the Provincial

and City Assessors (real property tax declaration)

The GROSS SELLING PRICE is based on zonal or market

value of property, the zonal or market value shall be
deemed EXCLUSIVE of VAT.
 The total amount of money or its
equivalent representing the contract
Gross price, compensation, service fee, rental
fee, rental or royalty, including the
amount charge for materials supplied
Receipts with the services and deposits applied as
payments for services rendered and
advance payments actually or
constructively received excluding VAT.

“Constructive Receipt” occurs when the money consideration

or its equivalent is palced at the control of the person who
rendered the service without restrictions to the payor.

a. Deposit in banks are made availble to the seller of the

services without restrictions.
b. Issuance by the debtor to offset any debt or obligation and
acceptance therof by the seller as payment for services
rendered;and
c. Transfer of the amounts retained by the payor to the account of
the contractor.
 VAT
Registration
Classified into two (2):
A. Mandatory registration
B. Optional registration

A. MANDATORY REGISTRATION

1. Any person or entity whose

aggregate amount of gross sales or
receipts exceed 3 million beginning
January 1, 2018 under RA 10963-
TRAIN Law for the past 12 months
(other than those exempt) or there
are reasons to believe that the
gross sales or receipts for the next
12 months will exceed 3 million.
 VAT
Registration
2. Radio and or television broadcasting
companies whose annual gross receipts
of the preceeding yeat exceeds
10,000,000 million. Mandatory
registration applies within 30 days from
the end of the taxable year to radio/TV
broadcasters whose gross annual
receipt for taxable year exceeded P10
million. (RR 4-2007)

3. A person required to register as

VAT taxpayer but failed to register.
VAT THRESHOLD FOR HUSBAND AND
WIFE

For purposes of determining the 3

million threshold they are considered as
separate taxpayers. However,
aggregation of income from different
business line of EACH SPOUSES subject
to VAT shall be combined for
purposes of determining whether
the threshold has been exceeded.
Thus,the VAT exempt sales shall
not be included in determining the
threshold.
PENALTY OF NON-REGISTRATION OF
THOSE REQUIRED TO REGISTER

The taxpayer shall be liable to pay

tax as if he were registered as VAT-
registered person but cannot avail
the benefits of input tax credit for
the period he was not properly
registered.

REGISTERED NOT
REGISTERED
Gross Sales xx Gross Sales
xx
Multiply 12% Multiply
12%
Output VAT xx VAT
Payable xx
Less:
 VAT
Registration
Classified into two (2):
A. Mandatory registration
B. Optional registration

A. OPTIONAL REGISTRATION

1. Any person or entity whose VAT-

exempt or not required to register for
VAT may elect to be VAT-registered. Any
person who elects to register under the
optional registration shall not be
allowed to cancel his registration for
the next three (3) years. (HOLDING
PERIOD)
 VAT
Registration
2. FRANCHISE GRANTEES of RADIO
AND/OR TV BROADCASTING who does
not exceed 10 million but opt for VAT
registration. Once the optionwas
excercised, it shall be IRREVOCABLE.

The above stated taxpayers may

apply for VAT registration not later
than 10 days BEFORE the calendar
quater and shall pay the
registration fee unless they have
already paid at the beginning of
the year. In any cas the CIR, for
administrative reasonmay deny the
applivcation for registration.
Once registered as a VAT person, the
taxpayer shall be liable to output tax
and be entitled to input tax credit
beginning on the FIRST DAY of the
FOLLOWING MONTH FOLLOWING
REGISTRATION.

CANCELLATION OF REGISTRATION

1. Written apllication
demonstrating the gross sales or
receipt does not exceed the
threshold (P3,000,000).

2. Ceased to carry out the trade or

business and does not expect to
recommence any trade or business
within the next twelve (12)
months.
 II. OTHER PERCENATGE TAX
1. General percentage tax (3%)
When the business is not a VAT
Registrable business.

2. Specific Percenatge tax

These are identified selling of

goods or services subject to special
busines tax ( to bediscussed in the
future)

III. EXCISE TAX

It is in addition to VAT, on goods
manufactured and imported under
the category classified as either:
1. sin products (e.i.,ciggaretes anf
wines)
2. non-essential goods (automobile
Thank You!