Consumption Tax (Buyer is (Buyer is non-

resident) resident)
 occurs when one acquires goods or Non- Taxable No Tax
services by purchase or exchange Resident
 upon utilization of goods or services by Resident Taxable Effectively No
consumers or buyers Tax
 not on the sale of the seller

Rationale: Types of taxable domestic consumption

1. Promotes savings formation 1. Importation – purchase of residents of goods

from non-residents abroad
2. Helps in wealth redistribution to society
2. Sale – purchase of residents from resident
3. Supports the Benefit Received Theory
sellers
*should not be levied upon basic necessities
Consumption Tax on Importation
Income Consumption
 VAT on Importation – importers of
Tax Tax
goods shall pay consumption tax; 12%
Nature Tax upon Tax upon usage
receipt of of income or of the total import cost of the goods
income capital paid prior to the withdrawal of the
Scope Tax to the Tax to all goods from the warehouse of Bureau of
capable Customs
Supporting Ability to Benefit  Withholding Tax – purchaser of service
Tax Theory pay theory Received from non-residents shall likewise pay
Theory VAT on importation; 12% of the
contract price of this service
Types of Consumption Consumption Tax on Domestic Consumption
from Resident Sellers
1. Domestic Consumption – consumption of
Philippine Residents  Collected from seller; sales of seller or
receipts of services
2. Foreign Consumption – consumption of non-
residents  Regularly engaged in business

*only Domestic Consumption can be subjected Sellers – statutory taxpayers

to Philippine Taxation Buyers – economic taxpayers
Destination Principle – for use or consumption Consumption Tax for Resident Buyers Applies to
in the Philippines are subject to consumption Business Only
tax
 Seller is not in business
Cross-Border Doctrine – goods which are  Business Tax – tax on the privilege to do
destined to foreign territories should not be business; Privilege tax
taxed
Vat on Business Tax
The Seller Domestic Foreign Importation
Consumption Consumption
 Basis of Tax Acquisition Sales or 1. Sales – for business which sells goods; total
Cost Receipts amount agreed as consideration for the sale of
Scope of Tax All Consumption goods whether collected or uncollected
Consumption Form
businesses 2. Receipts – for business that sells services
only
Nature of Pure Form Relative
Consumption Form Types of Business taxes:
Tax
Statutory Buyer Seller 1. VAT on Sales
Taxpayer 2. Percentage tax
The Buyer Buyer
economic 3. Excise Tax
Taxpayer
Nature of Direct Indirect Types of Business Taxpayers:
Imposition 1. VAT taxpayers – required to pay VAT

2. Non-VAT taxpayers – who pays percentage

Seller Resident Applicable tax
Buyer Consumption
Tax
Domestic
Sellers VAT on Sales
Business Business Business Tax  Tax on added value – added by the
Business Non- Business Tax seller on its purchases in making sales;
Business
based upon the price increases made by
Non- Business None
the producers and distributors
business
 Top-up on sales – require to be included
Non- Non- None
business business in the price of goods as a top-up;
Invoice Price (includes both); VAT
INCLUSIVE IF VAT IS NOT SEPARATELY
Seller Resident Applicable INDICATED IN THE SALES DOCUMENT
Buyer Consumption  Tax Credit Method – VAT on sales shall
Tax be reduced by the amount of VAT paid
Foreign by the business on its purchases
Sellers
 An explicit consumption tax – disclosed
Business Business VAT on
in the invoice or official receipt of the
importation
Business Non- VAT on seller
business importation  Quarterly tax – but paid on a monthly
Non- Business VAT on basis
business importation
Methods of Computing VAT:
Non- Non- VAT on
business business importation 1. Direct Method – computed by applying the
VAT rate to the difference of the selling price
Basis of Business tax
and the purchase; not employed in the *percentage tax is computed directly on the
Philippines sales and is reported as an expense

2. Tax Credit Method – imposed upon the sales
or receipt of the business.
Special Features of the Tax Credit Method:
1. Invoice-based crediting – entitlement for
input vat is to be substantiated with invoices.
*percentage tax is presented as part of “taxes
and licenses” and a deduction against gross
income under income taxation
Who pays percentage tax?
1. Non-VAT Taxpayers

2. Non-observance of the matching of costs or 2. Taxpayers who sells services specifically

expenses and sales – output vat is recorded subject to percentage tax
when a sale is made; input vat is recorded when
*not exceeding the threshold
a purchase is made not when goods are sold
*the concept of sales between VAT taxpayers
VAT Taxpayers
and percentage taxpayers differs (PT – sales is
1. VAT-registered taxpayers equal to the invoice; VAT – sales plus 12%
comprises invoice)
2. VAT-registrable taxpayers
*VAT and percentage tax are mutually exclusive
*1,919,500 ( VAT taxpayers) mandatorily
(VAT taxpayers may pay both)
required to pay
Excise Tax – in addition to Vat or percentage tax
Percentage Tax – sales tax of various rates; 3%
on certain goods imposed in the Philippines for
imposed upon the gross sales or gross receipts
domestic consumption
of non-vat taxpayers
Levied on: tobacco, alcohol, petroleum,
Characteristics of the Percentage Tax
automobiles, jewelry, perfumes, toilet waters,
1. Tax on sales or gross receipts – total amount yacht, sports cars, metallic or non-metallic
due from the buyer is considered sales minerals, quarry resources, coal, coke, gold,
chromite, silver
2. An expensed tax – direct tax or privilege tax
of the sellers Seller of Resident Non-
goods Buyer resident
3. An implicit consumption tax – inclusion in the Buyer
selling price but same is not separately Vat 12% Vat on 0% Vat on
presented in the invoice; not disclosed to the Registered gross sales gross selling
buyer business price
Non-vat 3% Percentage Exempt
4. Monthly or quarterly tax – payable monthly registered tax on gross
*the concept of invoice and selling price to a business sales
percentage taxpayer is the same. The invoice Foreigners 12% Vat on Exempt
price is recorded as sales landed cost of
importation
*percentage tax and input vat paid on
purchases are not separately recognized
 Seller of Resident Buyer Non- 1. Vat on Importation – on the import of goods
services resident
Buyer 2. Final Withholding Tax – purchase of services
Vat 12% Vat on gross 0% Vat on from non-residents
Registere receipts gross *payable to Bureau of Customs
d business receipts
Non-vat 3% Percentage Exempt *Withholding tax – 12% of the payment for
registered tax on gross services rendered by non-residents
business receipts
Foreigner 12% Final Exempt *resident purchaser is the one statutory liable
s Withholding Vat for the payment of VAT
VAT % Tax Excise Tax
Exempt Consumptions:
Tax Rate 12% Generall Various
y 3% and *Vat is not applied to goods considered as basic
valorem necessities
tax rates
and 1. agricultural and marine food products in their
specific original state
taxes
*nature objects of human consumption
Basis Mark-up Sales or Sales Value
or value receipts or per unit *In original state – unprocessed or simple
added of process (preparation for the market,
excisable preservation, packaging)
goods or
articles 2. fertilizers, seeds, seedlings and fingerlings,
Timing Upon Upon Upon fish, prawns, livestock and poultry feeds,
of sales or Sales or production including ingredients used in the manufacture
impositi collectio collectio or of feeds
on n n importatio
n 3. personal and household effects
Generall Bigger Smaller Both big or
*belong to Philippine Residents or non-
y paid business business small
by es es businesses residents intending to resettle in the
Export Subject Exempt Exempt ( Philippines; exempt from Customs Duties
Sales to 0% tax is
Vat reimbursa
ble) 4. professional instruments and implements,
wearing apparel, domestic animals, for their
own use and not for sale, barter or exchange
VALUE ADDED TAX ON IMPORTATION
*belong to persons who come to settle in the
Importation – refers to the purchase of gods
Philippines
including services by Philippine residents from
non-residents; domestic consumption and is *must accompany the person upon arrival or
subject to consumption tax within 90 days before or after his/her arrival
Types of Consumption Tax on Importation *must be evidence to show that the change of
residence is bona fide
*not a vehicle, machinery or other equipment
used in the manufacturer or merchandise of any
kind in commercial quantity
5. books and any newspaper, magazine, review
or bulletin which appear at regular intervals
with fixed price for subscription and sale and
which is not devoted principally to the
publication of paid ads
*based upon the necessity of education and
information
6. fuels, goods and supplies by persons engaged
in international shipping or air transport
operations
*exempt from Vat under the destination
principle
7. cooperatives of direct farm inputs,
machineries and equipment, including spare
parts to be used directly and exclusively in the
production and or processing of their produce
*must be an agricultural cooperative duly
registered and in good standing with the
Cooperative Development Authority
8. transactions which are exempt under
international agreement to which the
Philippines is signatory
9. exempt under special laws
Presumption of Vatability – generally subject to
Vat unless it can be proven as exempt under
any of those conditions
Subsequent Sale by Exempt Person to Non-
exempt Persons – the non-exempt buyer shall
be subject to Vat on importation
Vat on Importation
*since the object of taxation is the
consumption, the importation of goods is
subject to Vat regardless of whether the:
1. importer is engaged or not engaged in trade
or business
2. importer is a Vat or non-Vat business
3. importation is for business or personal use
4. non-resident seller is engaged or not engaged
in business
Tax basis of Vat on importation
*computed as 12% of the total landed cost of
the importation
Composition of landed cost:
1. Dutiable value
2. Custom duty
3. Excise Tax
4. Other in-land cost
Landed Cost – encompasses all costs of
importation incurred prior to the withdrawal of
the goods from the warehouse of BOC except
unofficial or illegal payments made
Dutiable Value – total value used by the BOC in
determining the tariff and custom duties;
encompasses all costs incurred in bringing the
goods up to the Philippine port and prior to any
other in-land costs of import
1. cost of the goods
2. freight
3. insurance
4. other charges and costs
Technical Importation
- by consumers in a customs territory
from person located in Special
Economic Zones
 - refers to the purchase of non-Ecozone
Philippine residents from Philippine
Ecozone registered enterprise

Customs Territory – the portion of the Republic

of the Philippines outside of designated special
economic zones (foreign territories)

Withholding Vat on Import of Services

- purchase of services from non-residents

is an importation of service which is
subject to Withholding Vat