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BUSINESS TAXES

CONCEPT and NATURE of Business:

Business is the regular conduct of


commercial or economic activity where the
primary motive is profit or livelihood.

Requisites of business activity:

1. Intended for profit


2. Regularly undertaken
3. Financial in character
CONCEPT and NATURE of Business Taxes:
Business tax is a tax imposed on the onerous
transfer of product, property and service.
- Business activity in general is subject to
business tax.
Kinds of business tax:
1. Value-added tax
a) Sale of properties or goods in the ordinary
course of business
b) Sale of services in the ordinary course of
business
c) Importation of goods or properties whether
or not in the course of business/trade.
2. Percentage tax generally imposed on services
a) Overseas communication tax
b) Franchise tax
c) Common carriers tax
d) Amusement tax
e) Tax on winnings
f) Stock transaction tax
3. Excise tax
a) Manufacturer/importer of the ff:
i. Wines
ii. Distilled spirits and fermented liquors
iii. Cigars, cigarettes and tobacco
iv. Automobiles, fuels and oils, mineral
products and non-essential goods
Exceptions:

1. Importation of goods for personal use


2. An overseas communication made (related to
business or not)
3. Single service rendered by a non-resident
alien in the Philippines
4. Sale of house and lot and other forms of
residence or dwelling valued over P2,500,000
5. Single winning in horse race or jai-alai
6. Sale of shares through local stock exchange
by one who is not a security dealer
7. Individual taxpayer whose gross
sales/receipts in any month during a 12-
month period do not exceed P100,000.
Classification of Business Transactions (for tax
purposes):

1. VAT Taxable Transactions allowed with


creditable Input VAT
2. VAT Taxable Transactions not allowed with
creditable Input VAT
3. Zero-Rated Transactions
4. VAT-exempt transactions; which are exempt
from Other Percentage Tax
5. VAT-exempt transactions; subject to Other
Percentage Tax
6. Transactions with the government units
A. VALUE-ADDED TAX (VAT)
Definition:

The value-added tax is a tax on consumption


levied on the sale, barter or exchange or lease
of goods or properties or services in the
Philippines and on importation of goods into the
Philippines.

A tax which is imposed only on the increase


in the worth, merit or importance of goods,
properties or services, and not on the total
value of the goods or services being sold or
rendered.
Characteristics:
1. It is a tax on transactions.
2. It is an indirect tax.
3. It is a tax on value added of the taxpayer.
4. It is a transparent form of sales tax.
4. It is a broad-based tax on consumption of
goods, properties or services in the
Philippines.
5. It is collected through the tax credit
method.
6. It does not cascade (tax on tax).
7. It adopts the tax-inclusive method.
8. It follows the Destination Principle/Cross
Border Principle. (Toshiba Information Equipment Inc.
Vs. CIR, 9 March 2010)
Destination Principle - VAT is imposed in the
country in which the products or services are
actually consumed or used.

Impact of tax is on the seller upon whom the


tax has been imposed and who shifts the
burden.
Incidence of taxation - customer who finally
bears the burden of the tax.

Major Features of the VAT are:

1. VAT replaced the old 15 business taxes.


2. VAT eliminated 67 various tax rates and
replaced it with only two 12% and 0%.
Transactions subject to VAT.

1. Sale, barter or exchange of goods and


properties in the course of business (including
deemed sale) in the Philippines.;
2. Sale or exchange of services in the course of
trade or business in the Philippines;
3. Lease or use of goods and properties in the
course of trade or business in the Phils.; and
4. Importation of goods, whether or not in the
course of trade or business.
5. Exportations in the course of trade or business.
The term "in the course of trade or business"
means the regular conduct or pursuit of a
commercial or economic activity, including
transactions incidental thereto, by any person
regardless of whether or not the person engaged
therein is a non-stock, non-profit private
organization (irrespective of the disposition of its
net income and whether or not it sells exclusively
to members or their guests), or government entity.

Non-resident persons who perform services in


the Philippines are deemed to be making sales in
the course of trade or business, even if the
performance of services is not regular.

(CIR vs. Magsaysay Lines, GR No. 146984, 28 July 2006)


VAT operation illustrated:

(a) (b) (c) (d) (e) (f) (g)


Price Input tax Total Price charged Output Total VAT
paid tax payable
1st Seller - - - P10 P1.20 P11.20 P1.20

2nd Seller P10 P1.20 P11.20 P40 P4.80 P44.80 P3.60

3rd Seller P40 P4.80 44.80 P60 P7.20 P67.20 P2.40

4th Seller P60 P7.20 67.20 P90 P10.80 P100.80 P3.60

Consumer P90 P10.80 100.80


VAT tax rates:

1. On sale/lease of goods or properties - 12%


2. On rendering of service - 12%
3. On export sale - 0%
4. On importation of goods - 12%

Tax Base:

1. Gross selling price includes the selling price


and all incidental expenses charged by the
seller to the buyer except VAT sales returns,
discounts and allowances.
2. Gross receipts all money actually or
constructively received.
3. Landed cost refers to the invoice price of
imported goods and all expenses of importation
incurred before the release of goods from the
custody of the Bureau of Customs.

Method of computing VAT

1. Cost deduction method

Example:

Selling price P100,000


Less: Cost of Sales 90,000
Taxable sales (value added) 10,000
VAT (12% x P10,000) P 1,200
2. Tax credit method

Example:

Output tax (VAT on sales) P 12,000


12% x P100,000
Less: Input tax (VAT paid on purchases) 10,800
12% x P90,000
VAT payable P 1,200

Output tax - the value-added tax due on the sale


or lease or taxable goods, properties or
services by any person registered or required
to register under the VAT System. (Sec.
110A, NIRC)
Sources of Output Taxes:
1. Actual sales
2. Zero-rated sales
3. Deemed sales

Input tax - the VAT due on or paid by a VAT-


registered person on importation of good or local
purchases of goods or services, including lease or
use of properties, in the course of his trade or
business. (Rev. Regs. No. 4.110-1, 1st par.)

Input tax shall also include:


a. passed-on VAT
b. presumptive input tax
c. transitional input tax
d. standard input tax
Presumptive Input Tax Credits. -

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 (4%) of the gross value in money of their
purchases of primary agricultural products which
are used as inputs to their production.
Transitional Input tax credits-

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 for
eight percent (2%) 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.
Persons liable

Any person who, in the course of trade or business

(1) sells, barters, exchanges goods or properties,


(2) leases goods or properties,
(3) renders services; and
(4) any person who imports goods.

The seller/lessor is the one statutorily liable


for the payment of the tax but the amount of
the tax may be shifted or passed on to the
buyer, transferee or lessee of the goods,
properties or services.
VAT Registration, in General.

Any person who, in the course of trade or


business, sells, barters, exchanges goods or
properties, or engages in the sale of services
subject to VAT imposed in Sections 106 and
108 of the Code, as amended, shall register
the VAT tax type with the BIR district office
having jurisdiction over the HO.

Registration for VAT purposes are of two kinds,


namely:

1. Mandatory registration, and


2. Optional registration
Mandatory VAT Registration.

- Any person who, in the course of trade or


business, sells, barters or exchanges goods or
properties or engages in the sale or exchange
of services shall be liable to register the VAT
tax type if:

1) His gross sales or receipts for the past twelve


(12) months, other than those that are exempt
under Section 109 (1) (A) to (U) of the Code,
as amended, have exceeded One Million Nine
Hundred Nineteen Thousand Five Hundred Pesos
(P1,919,500.00); or
*(R.R. No. 16-2011, effective 1 January 2012)
2) There are reasonable grounds to believe that
his gross sales or receipts for the next twelve
(12) months, other than those that are exempt
under Section 109 (1) (A) to (U) of the Code,
as amended, will exceed One Million Nine
Hundred Nineteen Thousand Five Hundred Pesos
(P1,919,500.00).

Moreover, franchise grantees of radio and


television broadcasting, whose gross annual
receipt for the preceding calendar year
exceeded P10,000,000.00, shall register as
VAT taxpayer within thirty (30) days from the
end of the taxable year
Non-VAT Registration.

The following are not required to register VAT


as a tax type:

1) Those persons subject to other percentage


taxes under Title V of the Code, as amended;

2) Those whose transactions are VAT-exempt as


enumerated under Section 109 of the Code, as
amended.

3) Marginal Income earners as herein defined.


Optional Registration for VAT- Exempt Persons.

1) Any person who is VAT-exempt under Section


109 (1) (V) of the Code, as amended, i.e., sale
or lease of goods or properties or the
performance of services other than the
transactions mentioned in Section 109 (1) (A) to
(U) of the Code, as amended, the gross annual
sales and/or receipts do not exceed the amount
of One Million Nine Hundred Nineteen Thousand
Five Hundred Pesos (P1,919,500.00) not
otherwise required to register for VAT may
elect to be VAT-registered by registering with
the BIR district office that has jurisdiction
over the HO of that person.
2) Any person who is VAT-registered but enters
into transactions which are exempt from VAT
(mixed transactions) may opt that the VAT
apply to his transactions which would have been
exempt under Section 109 (1) of the Code, as
amended.

3) Franchise grantees of radio and/or television


broadcasting whose annual gross receipts of the
preceding year do not exceed Ten Million Pesos
(P10,000,000.00) derived from the business
covered by the law granting the franchise may
opt for VAT registration. This option, once
exercised, shall be irrevocable.
The following compliance activities must be
performed by a VAT-registered taxpayer:

1. Pay the annual registration fee of P500.00


for every place of business or establishment
that generates sales;

2. Register the books of accounts of the


business/occupation/calling, including practice of
profession, before using the same;

3. Register the sales invoices and official


receipts as VAT-invoices or VAT official
receipts for use on transactions subject to
VAT.
(If there are other transaction not subject to
VAT, a separate set of non-VAT invoices or
non-VAT official receipts need to be registered
for use on transactions not subject to VAT);

4. Filing of the Monthly Value-added Tax


Declaration on or before the 20th day following
the end of the taxable month (for manual
filers)/on or before the prescribed due dates
enunciated in RR No. 16-2005 (for e-filers)
using BIR Form No. 2550M and of the
Quarterly VAT Return on or before the 25th
day following the end of the taxable quarter
using BIR Form No. 2550Q.
5. Submit with the RDO/LTDO having
jurisdiction over the taxpayer, on or before the
deadline set in the filing of the Quarterly VAT
Return, the soft copy of the Quarterly
Schedule of Monthly Sales and Output Tax (if
the quarterly sales exceed P2,500,000.00), and
the soft copy of the Quarterly Schedule of
Monthly Domestic Purchases and Input Tax/ the
soft copy of the Schedule of
Transactional/Individual Importation ( if the
quarterly total purchases exceed
P1,000,000.00), reflecting therein the required
data prescribed under existing revenue
issuances.
In determining the main or principal business
of a taxpayer, we apply the predominance test.
Under this test, if more than fifty (50%) of its
gross sales and/or gross receipts comes from
its business/es subject to VAT, its
main/principal business falls within the VAT
system making its status as a VAT person.
Otherwise, he can not be considered as a VAT
person eligible for the election provided for
under Section 109(2) of the Tax Code.
VAT Taxable Transactions allowed with creditable
Input VAT

- These are transactions of VAT-registered


business on items other than those which are
VAT-exempt and other than those which are
subject to Specific OPT.

1. Sale of goods
- Deemed Sale Transactions
2. Sale of services
3. Importation of goods
VAT on Sale of goods or properties

Goods or properties shall mean all tangible or


intangible objects which are capable of
pecuniary estimation and shall include:

1. Real properties held primarily for sale to


customers or held for lease in the ordinary
course of trade or business;

2. The right or privilege to use patent, copyright,


design or model, plan, secret formula or
process, goodwill, trademark, trade brand and
other like property or right;
3. The right or privilege to use in the Philippines
of any industrial, commercial or scientific
equipment;

4. The right or privilege to use motion pictures


films, films, tapes, and discs; and

5. Radio, television, satellite transmission and


cable television time.

Requisites for taxability:

Sale of goods and personal properties


- there is an actual/deemed sale,
barter or exchange
- the sale is in the course of
trade/business
-goods/properties are located in the
Phils.
-sale is not VAT-exempt
Sale or exchange of real property
- seller executes deed of sale
- real property is located in the Phils.
- seller/transferor is a real estate
dealer
- real property is an ordinary asset
- sale is not VAT-exempt
- threshold amount set is met
Sale of residential lot with gross selling
price exceeding P1,919,500.00, residential
house and lot or other residential dwellings
with gross selling price exceeding
P3,199,200.00, where the instrument of
sale (whether the instrument is nominated as
a deed of absolute sale, deed of conditional
sale or otherwise) is executed on or after
Nov. 1, 2005, shall be subject to ten
percent (10%) output VAT, and starting Feb.
1, 2006, to twelve percent (12%) output
VAT . (R.R. No. 16-2011)
Transactions Deemed Sale

a. Transfer, use or consumption not in


the course of business or properties
originally intended for sale or for use in the
course of business. xxx

b.Distribution or transfer to:

i) Shareholders or investors as share in


the profits of the VAT- registered person;
xxx or
ii) Creditors in payment of debt or
obligation
c. Consignment of goods if actual sale is
not made within sixty (60) days following the
date such goods were consigned. Consigned
goods returned by the consignee within the 60-
day period are not deemed sold.

d. Retirement from or cessation of


business, with respect to all goods on hand,

i) whether capital goods, stock-in-trade,


supplies or materials as of the date of such
retirement, or cessation,
ii) whether or not the business is continued
by the new owner or successor. xxx [Rev.
Regs. No. 16-2005, Sec. 4.106-7]
Exempt:

- VAT shall not apply to goods or properties


which are originally intended for sale or for use
in the course of business existing as of the
occurrence of the following as they are mere
changes in form and not in substance.

1) Change of control of a corporation

- Change of control of a corporation by the


acquisition of the controlling interest of such
corporation by another stockholder or group of
stockholders.
Exception to the exemption: exchange of goods
or properties (inc. real) for shares of stock is
subject to VAT.

2) Change in the trade or corporate name of the


business

3) Merger or consolidation of corporations

- The unused input tax of the dissolved


corporation, as of the date of merger or
consolidation, shall be absorbed the
surviving or new corp. (R.R. 10-2011)
Changes in or cessation of status of a VAT-registered person
wherein VAT still applies:

1) Change of business activity from VAT taxable status to


VAT-exempt status

2) Approval of request for cancellation of VAT registration


due:

a. to reversion to exempt status


b. to desire to revert to exempt status after lapse of
3 consecutive years from the time of registration by
a person who voluntarily registered despite being
exempt under Sec. 109 (2)
c. failure to meet the specific threshold
(P1,919,500.00) by one who commenced business with
the expectation of reaching the required gross sales
or receipts during the first 12 months of operation.
VAT on Sale of service and use/lease of
properties used

Sale or exchange of services means the


performance of all kinds of services in the
Philippines for others for a fee, remuneration
or consideration, whether in kind or in cash,
including those performed or rendered by the
following:

a. construction and service contractors;

b.stock, real estate, commercial, customs and


immigration brokers;
c. lessors of property, whether personal or
real;

d. persons engaged in warehousing services

e. lessors or distributors of cinematographic


films;

f. persons engaged in milling, processing,


manufacturing or repacking goods for others;

g. proprietors, operators or keepers of hotels,


motels, rest-houses, pension houses, inns,
resorts; theaters, and movie houses;
h. proprietors or operators of restaurants,
refreshment parlors, cafes and other eating
places, including clubs and caterers;

i. dealers in securities;

j. lending investors;

k. transportation contractors on their transport


of goods or cargoes, including persons who
transport goods or cargoes for hire and other
domestic common carriers by land relative to
their transport of goods or cargoes;
l. common carriers by air and sea relative to
their transport of passengers, goods or cargoes
from one place in the Philippines to another
place in the Philippines;

m. sales of electricity by generation companies,


transmission, and/or distribution companies;

n. franchise grantees of electric utilities,


telephone and telegraph, radio and television
broadcasting and all other franchise grantees
except franchise grantees of radio and/or
television broadcasting whose annual gross
receipts of the preceding year do not exceed
Ten Million Pesos (P10,000,000.00), and
franchise grantees of gas and water utilities;

o. non-life insurance companies (except their


crop insurances), including surety, fidelity,
indemnity and bonding companies; and

p. similar services regardless of whether or not


the performance thereof calls for the exercise
or use of the physical or mental faculties.
[NIRC of 1997, Sec. 108 (A), as amended by
R.A. No. 9337; Rev. Regs. No. 16-2005, Sec.
4,108-2, 1st par., arrangement and numbering
supplied]
Requisites for taxability:

- there is sale or exchange of service or lease


or use of property;
- service is performed or to be performed in
the Philippines and in case of lease, property
leased or used must be located in the
Philippines;
- the service in the course of the taxpayers
trade/business/profession;
- service is for valuable consideration
- service is not exempt
VAT on Importation of Goods or Properties

- Shall be paid by the importer prior to the release of


such goods from customs custody.

Importer refers to any person who brings goods into the


Philippines, whether or not made in the course of trade
or business. It includes non-exempt persons/entities
who acquire goods from exempt persons/entities.

If importer is tax-exempt, the subsequent


purchasers, transferees or recipients of such imported
goods shall be considered as importers who shall be
liable for the tax on importation.

The tax due on such importation shall constitute a lien on


the goods superior to all charges or liens on the goods,
irrespective of the possessor thereof. Sec. 107 (B)
VAT Taxable Transactions not allowed tax credit
for input VAT paid

- These transactions are other than those which


are VAT-exempt and other than those which
are subject to Specific OPT.

1. transactions of Non-VAT business with annual


sales or gross receipts exceeding the threshold
amount;
2. Issuance of VAT-invoice/receipt for exempt
transactions;
Zero-Rated Transactions

Zero-rated sale - It is a sale, barter or


exchange of goods, properties and/or services
subject to 0% VAT pursuant to Sections 106
(A) (2) and 108 (B) of the Tax Code. It is a
taxable transaction for VAT purposes, but shall
not result in any output tax. However, the input
tax on purchases of goods, properties or
services, related to such zero-rated sales,
shall be available as tax credit or refund in
accordance with RR No. 16-2005.

Commissioner of Internal Revenue v. Seagate Technology (Philippines), G. R. No.


153866, February 11, 2005 and Commissioner, of Internal Revenue v. American
Express International, Inc. (Philippine Branch), G. R. No. 152609, June 29, 2005
Under a zero-rating scheme, the sale or
exchange of a particular service is completely
freed from the VAT, because the seller is
entitled to recover, by way of a refund or as
an input tax credit, the tax that is included in
the cost of purchases attributable to the sale
or exchange.

Commissioner, of Internal Revenue v. American Express


International, Inc. (Philippine Branch), G. R. No. 152609,
June 29, 2005
Zero-rated sale distinguished from exempt
transactions:

a. A zero-rated sale is a taxable


transaction but does not result in an output tax
WHILE an exempt transaction is not subject to
the output tax.

b. The input tax on the purchases of a


VAT registered person who has zero-rated
sales may be allowed as tax credits or refunded
WHILE the seller in an exempt transaction is
not entitled to any input tax on his purchases
despite the issuance of a VAT invoice or
receipt.
c. Persons engaged in transactions which
are zero rated being subject to VAT are
required to register WHILE registration is
optional for VAT-exempt persons.
Kinds of Zero-Rated Sales
A. As to object of the sale:
1. Zero-rated sales of goods or properties by
VAT-registered persons
a. Export Sales [Sec. 106 (A)(2)]
i) actual export sale paid for in acceptable
foreign currency or its equivalent in goods
or services, and accounted for in
accordance with the rules and regulation
of BSP.
ii) sale of raw materials or packaging
materials to a nonresident buyer for
delivery to a resident local export-
oriented enterprise to be used in
manufacturing, processing, packing or
repacking in the Philippines of said buyers
goods and paid for in acceptable foreign
currency or its equivalent in goods or
services, and accounted for in accordance
with the rules and regulation of BSP.

Export oriented enterprise enterprise whose


export sales exceed 70% of total annual
production of the preceding taxable year.
iii) sale of raw materials or packaging
materials to an export-oriented enterprise
iv) sale of gold to BSP

v) considered export sales under EO


No. 266 (Omnibus Investment Code of 1987)
and other special laws - shall mean the
Philippine port F.O.B. value determined from
invoices, bills of lading, inward letters of
credit, landing certificates, and other
commercial documents, of export products
exported directly by a registered export
producer, or the net selling price of export
products sold by a registered export producer
to another export producer, or to an export
trader that subsequently exports the same;
Provided, That sales of export products to
another producer or to an export trader shall
only be deemed export sales when actually
exported by the latter, as evidenced by landing
certificates or similar commercial documents;
Provided, further, That without actual
exportation the following shall be considered
constructively exported for purposes of these
provisions:

- sales to bonded manufacturing warehouses of


export-oriented manufacturers;
- sales to export processing zones;
An ECOZONE or a Special Economic Zone has
been described as selected areas with highly
developed or which have the potential to be
developed into agro-industrial, industrial,
tourist, recreational, commercial, banking,
investment and financial centers whose metes
and bounds are fixed or delimited by
Presidential Proclamations.
The national territory of the Philippines
outside of the proclaimed borders of the
ECOZONE shall be referred to as the Customs
Territory.

[Commissioner of Internal Revenue v. Toshiba Information


Equipment (Phils.), Inc., G. R.. No. 150154, August 9, 2005]
Sales to ecozone is considered an export-
sale. Notably, while an ecozone is
geographically within the Philippines, it is
deemed a separate customs territory and is
regarded in law as foreign soil. Sales by
suppliers from outside the borders of the
ecozone to this separate customs territory are
deemed as exports and treated as export sales.
These sales are zero-rated or subject to a tax
rate of zero percent.

Commissioner of Internal Revenue v. Sekisui Jushi


Philippines, Inc., G. R. No. 149671, July 21, 2006
- sales to registered export traders operating
bonded trading warehouses supplying raw
materials in the manufacture of export products
under guidelines to be set by the Board in
consultation with the Bureau of Internal
Revenue (BIR) and the Bureau of Customs
(BOC);

-sales to diplomatic missions and other agencies


and/or instrumentalities granted tax immunities,
of locally manufactured, assembled or repacked
products whether paid for in foreign currency
or not.
vi) sale of goods, supplies, equipment and fuel
to persons engaged exclusively in international
shipping or international air transport
operations.
-limited to goods and passengers
transported from a port in the Phils. directly to
a foreign port, without docking or stopping at
any other port in the Philippines.
b. Foreign Currency Denominated Sale as
provided in Section 106 (A)(2)(b) sale to
a non-resident of goods assembled or
manufactured in the Philippines except
automobiles and non-essential goods for
delivery to a nonresident in the Philippines
c. Sale to persons or entities which is VAT
exempt under special laws or international
agreements to which the Philippines is a
signatory as provided in Section 106
(A)(2)(c) i.e. ADB and IRRI

2. Zero-rated sales of services by VAT-


registered persons

a. Processing, manufacturing or repacking


goods for other persons doing business
outside the Philippines which goods are
subsequently exported, where the
services are paid for in acceptable foreign
currency and accounted for in accordance
with the rules and regulations of the BSP.

b. Services other than those mentioned in


the preceding paragraph rendered to a
person engaged in business conducted
outside the Philippines or to a
nonresident person not engaged in
business who is outside the Philippines
when the services are performed the
consideration for which is paid for in
acceptable foreign currency and accounted
for in accordance with the rules and
regulations of the BSP.
c. Services rendered to persons or entities
whose exemption under special laws or
international agreements to which
the Philippines is a signatory effectively
subjects the supply of such services to
zero percent (0%) rate.

d. Services rendered to persons engaged in


international shipping or international air
transport operations, including leases of
property for use thereof; Provided,
however, that the services referred to
herein shall not pertain to those made to
common carriers by air and sea relative to
their transport of passengers, goods or
cargoes from one place in the Phil. to
another place in the Phil., the same being
subject to 12% VAT under Sec. 108.

e. Services performed by subcontractors


and/or contractors in processing,
converting, of manufacturing goods for an
enterprise whose export sales exceed
seventy percent (70%) of total annual
production.
f. Transport of passengers and cargo by air
or sea vessels from the Philippines to a
foreign country and;
g. Sale of power or fuel generated through
renewable sources of energy such as, but
not limited to, biomass, solar, wind,
hydropower, geothermal, ocean energy,
and other emerging energy sources using
technologies such as fuel cells and
hydrogen fuels. Zero-rating shall apply
strictly to the sale of power or fuel
generated through renewable sources of
energy, and shall not extend to the sale
of services related to the maintenance or
operation of plants generating said power.
B. As to how the transaction shall be subject to
zero-rating
1. Automatically zero-rated sales
2. Effectively zero-rated sales
Automatically zero-rated sales Effectively zero-rated sales

Generally, refers to export sale of Refer to local sale by a VAT-


goods or properties and supply of registered person to a
services by a VAT-registered person/entity who was granted
person. indirect tax exemption under
special law or international
agreements.
No need to file application form An application for zero-rating
and secure BIR approval before must be filed in and approved by
the sale. the BIR.
1. Automatically zero-rated sales
a. Sale to registered ecozones and freeport
zones enterprises.
2. Effectively zero-rated sales
a. sale to foreign embassies and its personnel
are effectively zero-rated provided that:
- sale has been made in their official
capacities; and
- zero-rating allowed on the basis of
reciprocity duly proved thru authentic
documents.
b. PAGCOR (see CIR vs. Acesite Hotel Corp.
16 February 2007)
VAT-exempt transactions; which are exempt from
Other Percentage Tax

- These transactions are not subject to Output


VAT, also not subject to Other Percentage Tax
(OPT), and could not claim any credit for the
actual input VAT paid during the period.

The business transactions included under this


category are the following:

1. Export sales of non-VAT registered business.

2. Importation of the following:


a. Fuel, goods and supplies by persons engaged
in international shipping or air transport
operation;

b. Personal and household effects belonging to


residents of the Philippines returning from
abroad, and non-resident citizens coming to
settle in the Philippines; provided, that such
goods are exempt from custom duties under the
Tariff and Customs Code of the Philippines;

c. Professional instruments and implements,


wearing apparel, domestic animals, and personal
household effects belonging to persons coming
to settle in the Phils. for their own use.
3. Sale or importation of

a. Agricultural and marine food products in


their original state, livestock and poultry of a
kind generally used as, or yielding or producing
foods for human consumption; and breeding
stock and genetic materials therefor;
b. Fertilizers; seeds, seedlings and fingerlings;
fish, prawn, livestock and poultry feeds,
including ingredients, whether locally produced
or imported, used in the manufacture of
finished feeds (except specialty feeds for race
horses, fighting cocks, aquarium fish, zoo
animals and other animals generally considered
as pets);
c. Books and any newspaper, magazine, review
or bulletin not devoted principally to the
publication of paid advertisements;

d. Passenger or cargo vessels and aircraft,


including engine, equipment and spare parts
thereof for domestic or international transport
operations (limitations under Section 4 of Republic
Act No. 9295, otherwise known as The Domestic
Shipping Development Act of 2004.)

4. Printing or publication of books and any


newspaper, magazine, review or bulletin not
devoted principally to the publication of paid
advertisements;
5. Services of
a. agricultural contract growers and milling for
others of palay into rice, corn into grits and
sugar cane into raw sugar;
b. Medical, dental, hospital and veterinary
services except those rendered by
professionals;
c. Educational services rendered by private
educational institutions, duly accredited by the
Department of Education (DEPED), the
Commission on Higher Education (CHED), the
Technical Education And Skills Development
Authority (TESDA) and those rendered by
government educational institutions;
d. individuals pursuant to an employer-employee
relationship;
e. regional or area headquarters established in
the Philippines by multinational corporations
which act as supervisory, communications and
coordinating centers for their affiliates,
subsidiaries or branches in the Asia-Pacific
Region and do not earn or derive income from
the Philippines;
f. Transactions which are exempt under
international agreements to which the
Philippines is a signatory or under special laws,
except those under Presidential Decree No.
529 Petroleum Exploration Concessionaires
under the Petroleum Act of 1949;
g. Services of banks, non-bank financial
intermediaries performing quasi-banking functions,
and other non-bank financial intermediaries;
6. Sales/Receipts of Cooperatives that are duly
registered with the Cooperative Development
Authority (CDA)
a. by agricultural cooperatives duly registered with
the Cooperative Development Authority (CDA) to
their members as well as sale of their produce,
whether in its original state or processed form, to
non-members; their importation of direct farm
inputs, machineries and equipment, including spare
parts thereof, to be used directly and exclusively
in the production and/or processing of their
produce;
b. gross receipts from lending activities by
credit or multi-purpose cooperatives duly
registered and in good standing with the
Cooperative Development Authority;
c. by non-agricultural, non-electric and non-
credit cooperatives duly registered with the
Cooperative Development Authority: Provided,
That the share capital contribution of each
member does not exceed Fifteen thousand pesos
(P15,000) and regardless of the aggregate
capital and net surplus ratably distributed
among the members;
*Importation by non-agricultural, non-electric and non-credit
cooperatives of machineries and equipment, including spare parts
thereof, to be used by them are subject to VAT.
7. Sale/lease of real properties (ordinary assets)

a. not primarily held for sale to customers or


held for lease in the ordinary course of trade
or business, or

b. real property utilized for low-cost and


socialized housing;

c. residential lot valued at P 1,919,500 and


below, house and lot, and other residential
dwellings valued at P3,199,200 and below;

d. lease of residential units with monthly rental


per unit not exceeding P12,800.
MATRIX OF INTERNAL REVENUE TAXES CONTRIBUTED BY
TYPICAL BUSINESS

Transactions Value 100% Custom 10% Excise 12% VAT 30% Income
Duties Tax Tax
1. Domestic Purchase 800 (96)
2. Imported goods 250 250 50 (66)
3. Expenses 200 (24)
Business taxes (250+50) 300
4. Sales 2,000 240
5. Income before income tax 450
(2,000-800-250-200-300)
6. Income tax 135 135
7. Income after tax 315 250 50 54 135
8. Revenue contributed to the
government 489
VAT-exempt transactions; subject to Other
Percentage Tax

- These transactions are subject to specific


Other Percentage Tax (OPT) under Title V of
the Tax Code.
Businesses Subject to Other Percentage Taxes:
1. Business with gross annual sales/receipts of not
more than P 1,919,500.
2. Domestic carriers and keepers of garages
(Sec.117, NIRC)
3. Franchise (Sec. 119)
4. Overseas dispatch or message from the
Philippines (Sec. 120)
5. Bank and non-bank financial institutions (R.R.
9-2004)
6. Life insurance companies
7. Tax on agents of foreign insurance companies
8. Amusement places
9. Tax on winnings
10. Sale of shares of stock through the local
stock exchange.
Common Carriers Tax

DOMESTIC:

3% CCT - Transporting passengers by land


12% VAT - Transporting passengers by air/sea;
- Transporting goods/cargoes by
land, air or sea
0% VAT - Transporting passengers,
goods/cargoes by air or sea from
the Philippines to other countries
INTERNATIONAL:

3% CCT - International air and shipping


carriers doing business in the Philippines. (Tax
Base: RR No. 11-2011)

not subject percentage tax shipments


originating from a place other than the
Philippines to a point of destination other than
the Philippines

subject to percentage tax pro rata only the


first destination - shipments originating from
the Philippines to a point outside the Philippines
Franchise Tax
Franchise a law that authorizes a person,
whether natural or juridical, to do business
involving public utility.
Franchise grantees may be subject to
percentage tax or value-added tax.

- 2% based on gross receipts of business


franchise on electric, gas, and water utilities.

- 3% based on gross receipts of business on radio


and/or television companies whose annual gross
receipts of the preceding year do not exceed
P10M.
Overseas Communication Tax

- it is collected on every overseas


communication, dispatch, message or
conversation.
- it should be originating from or outgoing from
the Philippines
- it is to be paid by the person making the call,
communicating or using the facility.
-it is to be collected by the provider of the
communication facility and be remitted within
20 days after the end of the quarter.
-tax rate = 10%
- the provider/owner of the communication
facility is subject to 12% VAT.
Exemption from overseas communication tax:
Amounts paid for messages by
1. The Government of the Philippines on messages
to any of its political subdivisions.
2. Any embassy and consular offices of a foreign
government.
3. A public international organization based in the
Philippines that enjoys exemptions or immunities
with the Philippine government.
4. Any newspaper, press, radio, or television to
any newspaper, press, radio, or television with
message dealing exclusively with news items for
dissemination through press, radio, or television
broadcasting.
Tax on Banks and Non-bank Financial
Intermediaries

-collection of percentage tax based on gross


receipts from sources within the Philippines

1. Interest, commission and discounts from


lending activities as well as income from
financial leasing on the basis of remaining
maturity of instrument from which such
receipts are derived:

maturity period is 5 yrs or less 5%


maturity period is more than 5 yrs 1%
2. On royalties, rentals of properties, real or
personal, profits from exchange and all other
items treated as gross income under the income
tax law. -7%

3. On net trading on foreign currency, debts


instruments, derivatives and other similar
financial instruments. 7%

4. Dividends and equity shares in net income of


subsidiaries 0%
Tax on Life Insurance Companies
Basis: gross receipts (premiums) collected
whether money, notes, credits or any
substitute for money by life insurance
companies only.
Rate: 5%
Tax on Agents of Foreign Insurance Companies
-covers policy on fire, marine, or misc
insurance underwritten by agents authorized
under the Tax Code to procure policies on risks
locate in the Philippines.

Rate: 10%
Amusement Tax

Tax Rates:
Boxing exhibition -10%
Cockpits, night clubs or cabarets -18%
Professional basketball -15%
Jai-alai and race tracks -30%

Basis: gross receipts


- which includes income from television,
radio, and motion pictures rights

Persons liable: operator, proprietor or lessee of


amusement places where amusement activities
conducted.
Exemption:

Boxing exhibition where world or Oriental


championship title in any division is at stake
provided one of the contenders is a citizen of
the Philippines and said exhibition is promoted
by citizen/s of the Philippines or a corporation
where 60% of its capital is owned by Filipino
citizens.
Tax on Winnings
- applicable on winnings on horse race or jai-alai only

Base: For the winning individual - amount paid for every


ticket less cost of the ticket.
For the owner of the winning race horse prize

-percentage tax shall be withheld from the prize by


the operator or owner of the amusement place.

Rates:
Winnings in horse race/jai alai -10%
Winnings from double forecast,
quinella and trifect bets - 4%
Owner of winning horse -10%
Stock Transaction Tax

- applicable on sale, barter, exchange or trade


of shares of stock through the local stock
exchange.

Rate: of 1%
Basis: gross selling price or the gross value of
money

- the cost of stock and gain or loss on the sale


are disregarded.
Transactions with the government units

- withholding percentage tax implies that the


percentage tax due from the taxpayer is being
withheld by the payor; hence the amount
collected by the payee is net of percentage
tax.

-withholding of percentage tax basically applies


to the Philippine government and its political
subdivisions, bureaus, and offices making
payments to private individuals, partnership or
corporation, which are subject to percentage
tax.
Business taxes (withhold)
Final VAT of 5% (VAT-registered)
Percentage Tax of 3% (Non-VAT subject to
OPT of 3% as the case may be)

Creditable Withholding Income Taxes (CWIT)


1% on purchases of goods
2% on purchases of services

Illustration:
Assume that S, a VAT-registered business,
sold merchandise worth P100,000 to the
government. The net proceeds would be:
Sales P100,000
Add: VAT 12,000
Total 112,000
Less: Final withholding VAT P5,000
CWIT on sales 1,000 6,000
Net amount P106,000

Since the final withholding VAT is only 5%,


the remaining 7% shall effectively account as
standard input VAT for sales of goods or
services to the government, in lieu of the
actual input VAT directly attributable or
ratable apportioned to such sales.
EXCISE TAX
Concept and Nature
1. It is a tax imposed on some specific
goods/products manufactured or produced in
the Philippines for domestic sale or
consumption.
2. It is a tax imposed on some specific
goods/product imported for local consumption.
Classification:
1. Specific tax based on weight/volume capacity
or any other physical unit of measurement.
2. Ad valorem tax based on the selling price or
any other specified value of goods.
Goods subject to excise tax

1. Alcohol products distilled spirits, wines,


fermented liquors
2. Tobacco products cigars and cigarettes
3. Manufactured petroleum products mineral oils,
motor fuels, lubricating oils and greases
4. Automobiles
5. Non-essential products jewelry, perfume,
toilet waters, yacht, and other vessels intended
for pleasure
6. Mineral products minerals, mineral products or
quarry resources
Time of filing and payment:

1. Generally, excise tax is payable upon the


removal of the goods from production.
2. Excise tax for metallic or mineral products
locally produced is payable within 15 days after
the end of the quarter when product is
removed.
3. For imported goods, excise tax is payable
before the release from the Bureau of
Customs.
DOCUMENTARY STAMP TAX
Concept and Nature
1. It is a tax imposed on certain transactions that
are supported by documents.
2. It is one form of an excise tax that covers
certain types of transaction employed in the
Philippines.
3. It is usually affixed on the face of the
documents serving as an evidence of the
transactions subjected to such tax.
4. Basically, the transaction is the one being
taxed and not the document.
Person liable:

1. By the person making, signing, issuing, accepting


or transferring the documents.
2. Whenever one party to the taxable document is
exempted from tax, the other party who is not
exempted shall be liable to pay for the DST.