CHAPTER 1-INTRODUCTION TO CONSUMPTION TAXES

THE CONCEPT OF CONSUMPTION AND CONSUMPTION TAX

 A tax upon acquisition or utilization of goods or services by any person. The utilization of goods or services may be through purchase,
exchange or other means. This utilization is subject to a tax called consumption tax.
 Consumption is levied without regard to the purpose of the purchaser or consumer whether it is for business, personal or charity use.

Rationale of Consumption Tax

 Savings formation
 Rationalization of the Benefit Received Theory
 Wealth redistribution to society

Income tax vs. consumption tax

Income tax Consumption

Nature Tax upon receipt of income Tax upon usage of income or capital
Scope/coverage A tax to the capable A tax to all
Theoretical basis Ability to pay theory Benefit received theory

Types of consumption Purchaser Status

1. Domestic consumption Resident Taxable
2. Foreign consumption Non-resident Exempt/Effectively non-taxable

*Destination principle- only goods and services destined for consumption in the Philippines are subject to consumption tax while
those destined for consumption abroad are not subject to consumption tax.
TYPES OF DOMESTIC CONSUMPTION AS TO SOURCE
1. Domestic sales - purchases from resident sellers
2. Importation - purchases from abroad by non-residents

CONSUMPTION TAX ON DOMESTIC SALES

 The domestic consumption of resident buyers from resident sellers commonly known as purchase is subject to a
consumption tax called a business tax. It is called business tax because the consumption tax is indirectly imposed upon sellers
which are businesses.

BUSINESS TAX VS. VAT ON IMPORTATION: A DIFFERENTIATION

VAT on importation Business Tax

Imports from business or non- Purchases from businesses
Scope of tax business only
Type of consumption tax Pure form Relative form
Statutory taxpayer Buyer Seller
The economic taxpayer Buyer Buyer
Nature of imposition Direct Indirect
Basis of tax Total purchase cost Sales or receipts

 Border control on goods is managed by the Bureau of Customs (BOC). Goods have to be cleared through the BOC first
before they are allowed to enter the Philippines. With this in-placed control mechanism, the VAT on importation is conveniently
collectible through the BOC. Thus, the law tasked the BOC to collect the tax in behalf of the BIR.

Business tax rules on domestic sales

 The seller must be engaged in business to be subject to business tax.

Value Added Tax rules on importation

 The vat on importation is imposable whether the buyer (importer) or seller is engaged or not engaged in business.