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Chapter 1:
INTRODUCTION TO
CONSUMPTION TAXES
Prepared by: Carl Justine T. Maniago, CPA
CONSUMPTION
 Acquisition or utilization of goods or services by any person.
 Utilization may be through purchase, exchange or other means.
 Utilization is subject to CONSUMPTION TAX.
 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
 Income is destined for consumption. Income less consumptions is savings.
 Tax on consumption promotes savings formation by limiting the level of
consumption.
 Rationalization of Benefit Received Theory
 Those who receive more benefit from the government should pay more taxes.
 Every resident or citizen, whether rich or poor, benefits from the government’s
public services.
 Tax on consumption will effectively render everybody taxable.
 Wealth Redistribution to Society
 Rich people buy or spend more than poor people. With bigger income and
wealth, the rich can afford expensive lifestyle.
 Hence, tax on consumption will effectively make the rich pay more taxes for the
government.
CAVEAT TO CONSUMPTION TAX
 Consumption tax should not be levied upon basic

necessities such as:
 Food
 Education
 Health
 Shelter or Housing
INCOME TAX VS. CONSUMPTION TAX
INCOME TAX CONSUMPTION TAX
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
TYPES OF CONSUMPTION PURCHASER STATUS
Domestic Consumption Resident Taxable
Foreign Consumption Non-resident Exempt/Effectively non-
taxable
DESTINATION PRINCIPLE
• Only goods or services destined for consumption in the Philippines are subject to
consumption tax while those destined for consumption abroad are not subject to
consumption tax.
• Taxation is inherently territorial – government can only impose tax upon domestic
consumption.
CROSS-BORDER DOCTRINE
• Goods that cross the border destined for foreign countries are not charged
consumption taxes.
• Government do not impose taxes on exports.
• NIRC either exempts exports or subject them to a 0% tax rate.
TYPES OF DOMESTIC CONSUMPTION
AS TO SOURCE
DOMESTIC SALES
 Resident buyers purchase from resident sellers.
 Consumption tax is called business tax.
 Consumption tax is indirectly imposed upon sellers which are businesses. Hence,
business tax is well-known as an indirect tax.
 Tax burden is not on seller, but on buyer as the object of taxation is the purchase
of buyers.
 Law imposed the obligation to pay the tax upon sellers (statutory).
 Principle of administrative feasibility.
TYPES OF DOMESTIC CONSUMPTION
AS TO SOURCE
IMPORTATION
 Domestic consumption of goods or services from non-resident seller.
 Subject to a consumption tax called VAT on importation.
 VAT is directly levied upon the buyer – importer.
 Administrative feasibility cannot be applied because taxation is territorial.
 Tax obligations can only be enforced and demanded upon residents – in this
case, the buyer.
BUSINESS TAX VS VAT ON IMPORTATION:
A DIFFERENTIATION
VAT ON IMPORTATION BUSINESS TAX
Scope of Tax Imports of business and Purchases from
non-business businesses 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

BUREAU OF CUSTOMS (BOC)
 They manage the border control of goods (for importation).

 Goods have to be cleared through the BOC first before they are allowed to
enter the Philippines.
 They collect the VAT on importation on behalf of BIR.
BUSINESS TAX RULES ON DOMESTIC SALES
The seller is The buyer is Subject to business tax?

Business Business YES
Business Not business YES
Not business Business NO
Not business Not business NO
VALUE ADDED TAX RULES ON IMPORTATION
The seller is The buyer is Subject to VAT on imprt.?

Business Business YES
Business Not business YES
Not business Business YES
Not business Not business YES
TYPES OF CONSUMPTION TAXES
 PERCENTAGE TAX
 Tax of various rates from 0.60% to 30% (3% general percentage tax.)
 VALUE ADDED TAX

 A consumption tax of 12%.
 EXCISE TAX
 An ad valorem or specific tax, which is imposed in addition to VAT or percentage
tax, only on certain goods or services.
TYPES OF DOMESTIC CONSUMPTION AS
TO TAXABILITY
 EXEMPT CONSUMPTION
 Consumption of goods or services not subject to consumption taxes.
 CONSUMPTIONS SPECIFICALLY SUBJECT TO PERCENTAGE TAX

 Consumption of services that 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.
TYPES OF CONSUMPTION PER TYPE OF
DOMESTIC CONSUMPTION
DOMESTIC
IMPORTATION SALES/RECEIPTS
Exempt consumption Exempt importation Exempt sales/receipt
Services subject to a % Service specifically Services specifically

tax subject to a % tax subject to a % tax
Vatable consumption Vatable importation Vatable sales/receipt

EXEMPT CONSUMPTION
 Neither subject to percentage tax nor value added tax.
 If sourced from abroad – exempt from VAT on importation.
 If sourced from within, exempt from business tax.
BASIS OF EXEMPTION VAT ON IMPORTATION BUSINESS TAX

Human Necessity The goods imported are The goods, services or
human necessities. property sold are human
necessities.
Out of Scope Tax The importation does not The seller is not engaged in
constitute a domestic business.
consumption.
Tax Incentive The importation is exempted The sales or receipt is

as a tax incentive to certain exempted as a tax incentive
importers. to certain sellers.
International Comity The importation is exempted The sales or receipt is
by treaty. exempted by treaty.
SERVICES SPECIFICALLY SUBJECT TO
PERCENTAGE TAX
 Services specifically subject to percentage tax are taxable consumption of
services but subject only to a specific percentage tax rate set by NIRC.
 Consumption of these services are not subject to VAT.
VATABLE IMPORTATION ON SALES

 All other importation or sales of either goods or services that are not
exempted or specifically imposed a percentage tax is vatable.
THE STRUCTURE OF THE VAT ON
IMPORTATION
IMPORT OF SERVICES IMPORT OF GOODS
Exempt Exempt Exempt
% Tax Percentage Tax -
VAT Final Withholding VAT VAT on Importation
 VAT is computed as 12% of the contract price of the services and is paid to
the BIR.
THE STRUCTURE OF THE BUSINESS TAX
SALES OF SERVICES SALES OF GOODS
Exempt Exempt receipt Exempt sales
% Tax Receipts specifically -

subject to a % tax.
VAT Vatable receipts Vatable sales
 Vatable sales or receipts are subject to 12% VAT if the taxpayer is a VAT
taxpayer and to a 3% general percentage tax if the taxpayer is a non-VAT
taxpayer.
VAT ON IMPORTATION VS VAT ON
SALES IN BUSINESS TAX
 VAT ON IMPORTATION
 Directly computed on the landed costs or total purchase costs of importation
without any deduction or tax credit.
 VALUE ADDED
 The amount of mark-up imposed by the sellers on their purchase costs.
 VAT ON SALES OR RECEIPT

 Follow a tax credit method wherein a VAT of 12% is imposed on sales and is
reduced by VAT paid by the business on its purchases.
The tax due is computed as follows:
Output VAT (12% of sales or receipts) xxx,xxx

Less: Input VAT (12% VAT paid on purchases) xx,xxx
VAT due xx,xxx
Input tax is claimed as a tax credit against output VAT when due or paid not
when goods are sold.
The VAT does not require a perfect matching approach; hence, it is not
imposed on the gross profit.
THE EXCISE TAX
 Imposed on the consumption of commodities such as:

 Sin products such as alcohol and cigarettes
 Non-essential commodities such as automobiles and jewelry
 Non-essential services such as cosmetic surgery
 Products which are environmentally degrading in their production or
consumption such as petroleum and minerals
 Additional imposition to VAT or percentage tax
 Levied at the point of production or importation.
SAMPLE PROBLEM #1:
Sales, VAT business P 600,000

Sales, non-VAT business 300,000
Purchase of goods to be sold, VAT businesses 200,000
Purchase of goods to be sold, non-VAT business 100,000
Purchase of supplies, for VAT & non-VAT business 30,000
A. How much is the output VAT?

B. How much is the input VAT?
C. How much is VAT payable/refundable?
SAMPLE PROBLEM #1:
How much is the output VAT?
Sales, VAT business 600,000 * 12% = 72,000
How much is the input VAT?

Purchase of goods to be sold, VAT businesses 200,000 * 12% = 24,000
Purchases of supplies
VAT on the purchase 30,000 * 12% = 3,600
Sales, VAT business 600,000
Sales, non-VAT business 300,000 900,000
Allocable to VAT business (based on sales) - (600,000/900,000) * 3,600 = 2,400
Total input tax 24,000 + 2,400 = 26,400
SAMPLE PROBLEM #1:
How much is VAT payable/refundable?
Total output VAT 72,000

Total input tax 26,400
VAT PAYABLE 45,600
SAMPLE PROBLEM #2:
A person is engaged in business is subject to 3% business tax. He has inventories

of goods in his possession costing P77,600 which he intends to sell to earn a
mark up of 25% of cost net of the 3% business tax. He shall invoice the sale of
the P77,600 goods at what amount?
SOLUTION:
Mark up on cost (77,600 * 125%) 97,000
Sales Price (97,000 / 97%) 100,000
SAMPLE PROBLEM #3:
A business taxpayer recorded the following transactions during the month:
Philippines Abroad Total

Sales 350,000 200,000 550,000
Purchases 150,000 100,000 250,000
Total 500,000 300,000 800,000
Assuming the tax payer is a VAT-registered taxpayer

A. Compute the output VAT
B. Compute the VAT on Importation
Assuming the tax payer is a non-VAT taxpayer

A. Compute the percentage tax
SAMPLE PROBLEM #3:
Assuming the tax payer is a VAT-registered taxpayer
A. Compute the output VAT

Sales, Philippines (350,000 * 12%) 42,000

Purchases, Abroad (100,000 * 12%) 12,000
SAMPLE PROBLEM #3:
Assuming the tax payer is a non-VAT taxpayer
A. Compute the percentage tax

Sales, Philippines (350,000 * 3%) 10,500

Purchases, Abroad (100,000 * 12%) 12,000
CHAPTER 2 (PART 1):
VALUE ADDED TAX ON
IMPORTATION
IMPORTATION
• Refers to the purchase of goods or services by Philippine residents

from non-residents.
TYPES OF CONSUMPTION TAX ON IMPORTATION

1. VAT on Importation
- import of Goods
2. Final Withholding VAT
- purchase of services from non-residents.
COMPARISON BETWEEN THE CONSUMPTION
TAX ON IMPORTATION
VAT ON IMPORTATION FINAL WITHHOLDING VAT

Object Consumption Goods Services
Imposed upon Importers/buyers Foreign service providers
Statutory taxpayer Importers/buyers Resident purchaser of the

service
Nature Direct consumption tax Indirect business tax
Tax Basis Landed cost Contract price
Collecting Agency BOC BIR
Timing of Payment Before withdrawal of goods After the month of payment

IMPORT OF GOODS
The importation of goods is either:
• EXEMPT IMPORTATION
• VATABLE IMPORTATION
EXEMPT IMPORTATION
• Importation of exempt goods
• Importation by VAT-exempt persons
• Quasi-importation
• Importation which are exempt by special laws and international

agreement
EXEMPT IMPORTATION:
IMPORTATION OF EXEMPT GOODS
The importation of the following exempt goods is NOT subject to

VAT:
A. Basic human food and related goods
B. Books, newspapers and magazines
C. Passengers or cargo vessels and aircrafts, including engine,
equipment and spare parts
EXEMPT IMPORTATION: IMPORTATION OF EXEMPT GOODS
BASIC HUMAN FOOD AND RELATED PRODUCTS
1. AGRICULTURAL OR MARINE FOOD PRODUCTS IN ORIGINAL STATE

Import exemption is limited to agricultural or marine food
products in their original state or those which undergone simple
processing. Good that underwent advanced processing are vatable.
Examples of exempt agricultural or marine food products in original

state:
- Grapes, apples, oranges, and other fruits
- Vegetables, tea, ginseng
- Rice, corn, coffee beans and other edible farm products
- Marine food such as fish and crustaceans
- Poultry and livestock
- Milk, eggs, and meat for human consumption
Simple processing includes:
A. Acts of preparation for the market

- boiling, broiling, husking, roasting, stripping, grinding
B. Acts of preservation
- freezing, drying, smoking, salting
C. Acts of packaging including advanced technological means of packaging

- packaging is not processing, it does not alter the nature
of the product
- advanced technological means – shrink wrapping in
plastics, vacuum packaging, tetra-packaging
Processed agricultural or marine food products

- those which have undergone changes in their chemical compositions or
have undergone complex processing or treatment or are utilizing advanced
technologies in their processing.
Examples:
- Refined sugar
- Wine or vinegar
- Vegetable of coconut oil
- Canned sardines
- Butter
- Soy
- Flour
- Marinated milk fish
Use or purpose dictates vatability
- Are flowers intended as love gifts exempt? How about

cauliflower?
- Is cockfighting chickens exempt?

Farm or fishery inputs
Marine or agricultural inputs intended for the production of

marine or agricultural food products which are ultimately intended
for human consumption are VAT-exempt.
Some examples of farm or fisher inputs are seeds, seedlings,

breeding stocks and genetic materials.
Foods of these inputs such as fertilizers and feeds including

ingredients manufacture of finished feeds are also VAT-exempt.
Farm or fishery inputs
Product intended as maintenance of crops, livestock or poultry

and supplemental implements of agricultural or inputs such as
pesticides, herbicides, animal medicines, fishing equipment, fishing
boats, tractors, plows, driers, threshers and harvesters are vatable.
Ingredients of feeds for animal food intended for ultimate

human consumption is VAT-exempt but ingredients for the processing
of human food is vatable.
Illustration:
Simaron Company imported the following agricultural

implements:
Urea Fertilizer P 800,000
Cargil corn seeds 400,000
Pesticides 600,000
Herbicides 800,000
Determine which are vatable and which are exempt.

Illustration:
Urea Fertilizer Exempt

Cargil corn seeds Exempt
Pesticides Vatable
Herbicides Vatable
Rules on VAT taxation of poultry and feeds
LIVESTOCK POULTRY PETS

Importation of x x Vatable
Importation of x x Vatable
feeds for
Importation of feed x x Vatable
ingredients for
Examples of vatable non-food agricultural or marine products:
- Logs, wood, bamboo, orchid, and similar forest products
- Rubber hem, abaca, tobacco, topical herbs, cotton and other non-
food crops
- Shells, corals, and other non-food marine products usually used as

ornaments
- Race horses, fighting cocks, aquarium fish, zoo animals, and other
animals generally considered as pets
BOOKS, NEWSPAPERS, MAGAZINE, REVIEW OR BULLETINS
2. BOOKS, NEWSPAPERS, MAGAZINE, REVIEW OR BULLETINS
- VAT-exemption is based upon the necessity of education and information.
- The Philippine Constitution recognizes the vital role of communication and

information in nation-building.
- Conditions for exemption:

A. They must appear at regular intervals with fixed prices for
subscription
B. The sale must not be devoted principally to the publication of paid
advertisements
- Exemption does not extend to other school supplies such as chalk, board
markers, pens, notebook, pad paper and office supplies.
PASSENGER OR CARGO VESSELS AND AIR CRAFTS
3. PASSENGER OR CARGO VESSELS AND AIR CRAFTS
- VAT exemption covers the import of passenger or cargo vessels and aircrafts
including engine, equipment, spare parts thereof for domestic or international
transport operations.
- VAT exemption is granted by law in an effort to help the modernization of

shipping, transport and tourism industry
- To qualify, the importation must be subject to the requirements on restriction

on vessel importation and mandatory vessel retirement program of the Marina
Industry Authority (MARINA):
A. Passenger or cargo vessels – 15 years
B. Tankers – 10 years
C. High speed passenger crafts – 5 years
Illustration:
Total Transport Group has land, sea and air transport

operations. To beef up its operations, it imported 5 units of Daewoo
bus, 1 unit of aircraft and 2 cruise ships. Determine which is exempt
and which is subject to VAT on importation.
Illustration:
The importation of the airplane and ships are exempt but the
importation of the buses for land transport is subject to VAT.
EXEMPT IMPORTATION:
IMPORTATION BY VAT-EXEMPT PERSONS
VAT-exempt persons are not subject to VAT on importation. The

exempt of their exemption varies per exempt persons.
What happens when an exempt importer subsequently sells his

exempt importation to a non-exempt person?
- The non-exempt buyer shall be subject to VAT on

importation.
EXEMPT IMPORTATION: IMPORTATION BY VAT-EXEMPT PERSONS
INTERNATIONAL SHIPPING OR AIR
TRANSPORT OPERATORS
1. INTERNATIONAL SHIPPING OR AIR TRANSPORT OPERATORS
- The exemption is limited to the importation of fuel, goods,

and supplies.
- Although the goods are physically brought in the Philippines,

they are not intended to be consumed herein.
- They will ultimately be used in international transport.

Hence, it is foreign consumption rather than domestic consumption.
TRANSPORT OPERATORS
Illustration 1:
Malaysian Ferries is an international shipping carrier. It

imported to the Philippines fuel and supplies to be used in its shipping
operations.
Fuel and supplies will be consumed in the high seas or in

foreign territories. Importation is foreign consumption – exempt
from VAT.
TRANSPORT OPERATORS
Illustration 2:
Pinoy Airline imported jet fuel from Iraq at a total cost of P50-
M. 40% of the importation is declared for domestic airline operations
while 60% is declared for international air transport operations.
60% of the P50-M importation is exempt from VAT. 40%

portion is subject to the VAT on importation.
TRANSPORT OPERATORS
Illustration 3:
Lufta Airline, an international air carrier, imported jet fuel at a

total cost of P40-M. It subsequently sold P10-M of these to Feel Air, a
domestic air carrier.
Lufta Airline is exempt on its importation. Feel Air is not an

exempt person and that jet fuels are vatable goods. Feel Air will
be treated as the importer of the P10-M jet fuel and will be
subject to VAT.
AGRICULTURAL COOPERATIVES
2. AGRICULTURAL COOPERATIVES
- The status of agri-coop as VAT-exempt person is limited to

importation of direct farm inputs, machineries and equipment including their
spare parts.
- Conditions for exemption:

A. The cooperative must be agricultural cooperative duly
registered and in good standing with the Cooperative Development Authority
(CDA).
B. The importation involves direct farm inputs, machineries,
equipment and their spare parts to be used directly and exclusively in the
production and processing of their produce.
Illustration 1:
Abra Farmer’s Cooperative imported the equipment below. Determine
which importation are exempt and which are not.
Tractors and threshers to be used by the P 2,000,000 Exempt
cooperative
Plows and water pumps to be resold to members 3,000,000 Vatable
Fertilizers and hybrid seeds to be sold by the 1,000,000 Exempt

cooperative
Herbicides and pesticides to be used by the 500,000 Exempt
cooperative
Cars for the use of cooperative directors and officers 2,000,000 Vatable
Illustration 2:
Assume that the fertilizers and herbicides in the foregoing illustration is
subsequently sold by Abra Framer’s Cooperative to Jon Juan, member farmer.
What is the tax consequence of the sales?
Jon Juan shall be treated as importer and shall be subject

to VAT but only to vatable goods such as herbicides. Fertilizer is
VAT exempt goods.
Illustration 3:
A credit cooperative imported a computer server from abroad at a cost of
$1,500,000. Is the importation subject to VAT on importation?
Subject to VAT on importation. Credit cooperative is not

engaged in processing and production.
Illustration 4:
A mining cooperative imported an ozone generator and an ultrafine ore
grinding machine for its gold recovery plant. Is the importation subject to VAT on
importation?
Subject to VAT on importation. The cooperative is not an

agricultural cooperative.
Illustration 5:
Arado Coop, a farming cooperative, imported 10 tractors and 20 sacks of
hybrid seeds. Arado coop subsequently sold four tractors and five sacks of hybrid
seeds to Mr. Laco, a cooperative member. Who is subject to VAT on importation?
Arado Coop is exempt from VAT on its importation of farm

equipment and seeds. Mr. Laco shall be considered an importer
but he is subject to VAT on importation only on the farm
equipment. Hybrid seeds are exempt goods.
Illustration 6:
A cooperative imported frozen meat from China. It subsequently sold all
of this to Philippine consumers. Is the importation subject to VAT? Is the sale to
the consumers subject to VAT?
Importation of frozen meat is an exempt importation. The

sale to the consumers is not also subject to VAT.
ECOZONE-LOCATORS
3. ECOZONE-LOCATORS
- Ecozones are designated places of economic activity for the production of goods or
services for the export market. These are considered foreign countries and are deemed
outside Customs territory.
- Customs territory refers to the portion of the Republic of the Philippines outside
of designated special economic zones.
- Technical importation refers to the purchase of non-Ecozone Philippine residents

from Philippine Ecozone-registered enterprises. Purchase from these Ecozones is subject to
the VAT on importation.
- Sales to Ecozones are subject to zero-rated VAT for VAT taxpayers because
Ecozones are considered foreign territories.
- Sales to Ecozones are exempt from business tax for non-VAT taxpayers.
ECOZONE-LOCATORS
Illustration 1:
Winshield Corporation, a PEZA locator, sold scrap metals to Recycle
Industries Corporation, a customs territory buyer. Is Recycle Industries
Corporation subject to VAT on importation? If yes, to whom the corporation shall
pay the VAT?
Yes, Bureau of Customs.

ECOZONE-LOCATORS
Illustration 2:
KT, an ecozone locator, imported two machineries for use in the ecozone.
It resold one machinery to S3, a fellow PEZA-locator, and resold the other to T4, a
person outside the zone. Who is subject to VAT on importation?
Importation by KT shall be exempt. The sale to S3 shall not

be subject to business tax since it is deemed a foreign
consumption. S3 is not also subject to VAT on importation. T4
shall pay VAT on importation on the machinery it purchased from
KT.
EXEMPT IMPORTATION:
QUASI-IMPORTATIONS
1. Import of personal and household effects belong to residents

of the Philippines returning from abroad or non-resident citizens
coming to resettle in the Philippines.
2. Professional instruments and implements, wearing apparel,

domestic animals, and personal household effects belonging to
persons coming to settle in the Philippines, for their own use
and not for sale, barrier, or exchange.
EXEMPT IMPORTATION:
QUASI-IMPORTATIONS
Conditions for exemptions:
1. The personal and household effects belong to Philippine

residents or non-residents intending to resettle in the Philippines.
2. The goods are exempt from Custom duties.
NOTE: These goods are past consumptions which have been

previously subjected to consumption tax herein.
EXEMPT IMPORTATION:
QUASI-IMPORTATIONS
Illustration 1:
Mr. Siman was employed abroad as an OFW. He went abroad taking with
him personal effects such as clothes, pieces of personal jewelry and gadgets
aggregating P300,000 in value. When his contract ended, he returned to the
Philippines bringing with him the same effects which now have an aggressive
value of P280,000. Will the importation of personal effects be subject to VAT on
importation?
No, these are past purchases which had been subjected to

consumption tax when purchased in the Philippines.
EXEMPT IMPORTATION:
QUASI-IMPORTATIONS
Illustration 2:
While employed abroad, Mr. Siman purchased an iPhone 6 worth P30,000
for selfie purposes. Mr. Siman brought the iPhone to the Philippines when his
employment contract ended. Is this subject to VAT on importation?
No, it is not present consumption and purchases abroad by

non-residents are not subject to consumption tax in the
Philippines.
EXEMPT IMPORTATION:
QUASI-IMPORTATIONS
Illustration 3:
Mrs. Kookai Ukay, a Philippine resident, purchased used clothing and shoes
worth P300,000 from abroad to be sold in her “ukay-ukay” sales outlets in the
Philippines. She reserved P50,000 of these for her personal use. Is the purchase
subject to VAT on importation?
The entire P300,000 purchase of goods from abroad is a

domestic consumption subject to the VAT on importation. This rule
applies without regard to the purpose of the importation whether
for business or personal use.
EXEMPT IMPORTATION:
QUASI-IMPORTATIONS
Illustration 4:
Mrs. Lovely Bulalo, a non-resident Filipino businesswoman, owns a
machine in her business in France. She decommissioned the machine to be
transferred to her business in the Philippines. Is the importation of the machine
subject to VAT on importation?
Yes, although the machine is past foreign consumption, the

importation of the same to the Philippines is subject to VAT
because the VAT exemption is limited only to personal,
professional or household effects.
EXEMPT IMPORTATION:
QUASI-IMPORTATIONS
Illustration 5:
An international non-profit organization based in Switzerland sent goods
intended as donation to victims of flood in the Philippines. The good consist of
various household effects, grocery goods, and rice. Is the import of these donated
goods into the Philippines subject to VAT on importation.
Yes, except rice. These imported goods are exempt from

VAT if made in favor of accredited non-profit organization.
CHAPTER 2 (PART 2):
VALUE ADDED TAX ON
IMPORTATION
EXEMPT IMPORTATION:
QUASI-IMPORTATIONS
IMPORTATION OF PROFESSIONAL INSTRUMENTS AND IMPLEMENTS,
WEARING APPAREL, DEOMESTIC ANIMAL AND PERSONAL HOUSEHOLD
EFFECTS
Conditions for exemptions:

1. The goods belong to persons who come to settle in the
Philippines.
2. The goods must accompany the person upon arrival or within
90 days before or after his/her arrival.
3. There must be evidence to show that the change of residence is
bona fide.
4. The importation is not a vehicle, machinery or other equipment
used in the manufacture or merchandise of any kind in commercial
quantity.
EXEMPT IMPORTATION:
QUASI-IMPORTATIONS
Illustration 1:
Mr. Marquez, a professional boxer, applied for an application to migrate in
the Philippines and was granted by the Philippine government. He brought his
boxing gears and household effects including his personal car to the Philippines.
Which among the importation is exempt from VAT?
Professional instruments and household effects. Importation

of the car is subject to VAT.
EXEMPT IMPORTATION:
QUASI-IMPORTATIONS
Illustration 2:
Mr. Kung Fu, a Chinese martial arts master, arrived in the PH with an
immigration visa. He brought with him the following which he declared as his
personal effects. Determine which are exempt and which are not.
ITEMS
10 pcs of brand new iPhone 6 P 150,000 each VATABLE
10 pcs of brand new IBM laptops 80,000 each VATABLE
5 desktop computers 40,000 each VATABLE

1 piece of used laptop 30,000 EXEMPT
1 piece of used iPhone 4S 20,000
EXEMPT
1 piece of used calculator 400
EXEMPT
Used clothed, apparel and travelling 7,000
bag EXEMPT
EXEMPT IMPORTATION:
QUASI-IMPORTATIONS
Illustration 3:
While in Dubai, Mrs. Waca bought a car and numerous pieces of jewelry
from her salaries as OFW. She intended to sell the jewelry to her friends and
townsfolk in the PH. When her contract ended, Mrs. Waca brought in the car and
the jewelry to the PH. Which among the importation are vatable?
Both the importation of the car and the jewelries are

vatable.
EXEMPT IMPORTATION:
IMPORTATION EXEMPT UNDER
SPECIAL LAWS OR TREATIES
Import that are exempted by special laws,

treaties or international agreements to which
the PH government is a signatory is not subject
to the VAT on importation.
VAT ON IMPORTATION
Other 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 non engaged in business
VAT ON IMPORTATION
Presumption of vatability
Importation is generally subject to VAT unless it can be

proven as exempt under any of those conditions discussed herein or
under a provision of special law or treaty. The burden of proof in
establishing VAT exemption rests upon the importer.
VAT ON IMPORTATION
TAX BASIS
Vat importation = 12% of total landed cost
LANDED COST
A. Dutiable value
B. Other in-land costs
1. Custom Duty
2. Excise tax, if any
3. Other in-land costs, such as
a. Bank charge d. Wharfage due
b. Brokerage fee e. Documentary stamp tax
c. Arrastre charge f. Import processing fees
VAT ON IMPORTATION
Landed costs encompass all costs of importation incurred prior to the

withdrawal of the goods from the warehouse of the Bureau of Customs,
except unofficial or illegal payments made.
Dutiable value, also called transaction value, refers to the value used by
the BOC in determining customs duties, such as:
1. Cost of the goods 3. Insurance
2. Freight 4. Other charges and costs
Dutiable value encompasses all costs incurred in bringing the goods up to

the PH port and prior to any other in-land costs of import.
Customs duty = Dutiable value x Exchange rate x Rate of Duty

VAT ON IMPORTATION
Illustration 1:
MRS Trading Corporation imported goods from abroad for domestic sale. Shown below are the details of the
importation.
Peso value of supplier’s invoice P 2,000,000

Other costs incurred to bring goods to PH port 70,000
Other charges before withdrawal of goods, including
P5k facilitation fee paid to a fixer 85,000
Rate of duty 10%
Freight of goods from BOC warehouse to
MRS warehouse in Makati City 20,000
A. How much is the custom duty?

B. How much is the VAT on importation?
VAT ON IMPORTATION
Illustration 1:
A. Customs Duty
Peso value of supplier’s invoice P 2,000,000
Other costs to bring goods to the PH 70,000
Dutiable value P 2,070,000
Rate of duty 10%
Customs duties P 207,000
VAT ON IMPORTATION
Illustration 1:
B. VAT on Importation
Other official costs paid before withdrawal
of goods from the BOC 80,000
Customs duties 207,000
Total landed cost P 2,357,000
Vat rate 12%
VAT on importation P 282,840
VAT ON IMPORTATION
Illustration 2:
Mang Pandong imported a sports car from the US for personal ise. The following shows the details of the
charges of the importation:
Purchase price $ 50,000

Insurance in transit 500
Freight 800
Arrastre P 8,500 Brokerage fee 90,000

Bank Charge 6,000 Custom’s documentary stamp 265
Wharfage dues 800 Import processing fee 250
Exchange rate is P45:$1. Importation is subject to P683,510 excise tax and 30% tariff rate.
VAT ON IMPORTATION
Illustration 2:
A. Customs Duty
Purchase Price $ 50,000
Insurance in transit 500
Freight 800
Dutiable value in $ $ 51,300
Exchange rate 45
Dutiable value in P P2,308,500
Rate of duty 30%
Customs Duty P692,550
VAT ON IMPORTATION
Illustration 2:
A. VAT on Importation
Customs duties 692,550
Excise tax 683,510
Other charges 105,815
Total landed cost P 3,790,375
Vat rate 12%
VAT on importation P 454,845
IMPORT OF SERVICES
The purchase of services from non-residents may be:

1. VAT-exempt
2. Subject to specific percentage tax
3. Subject to final withholding VAT
The import of services is generally subject to a final withholding

VAT, except when it is exempted or is imposed with a percentage
tax.
IMPORT OF SERVICES:
FINAL WITHHOLDING VAT
NATURE OF FINAL WITHHOLDING VAT
- Our current tax law views it as a business tax.

- VAT is deemed imposed upon non-resident service providers.
- Law presumes that non-resident sellers are engaged in
business even if the sales transactions are merely casual.
- Non-residents can’t be obligated to file tax returns due to
territorial considerations – the resident buyer is obligated to
withhold the VAT & to remit to the government.
IMPORT OF SERVICES:
As a withholding tax, the obligation to withhold the VAT technically

exists only if:
1. the service is rendered within the Philippines; and

2. the payor-purchaser of the service is an individual
engaged in business or a corporation
IMPORT OF SERVICES:
SITUS OF TAXATION OF SERVICES
The place where the service is rendered and not the place
where the output of the service will be ultimately used. Hence, the
service must be rendered within to be subjected to the withholding
tax.
IMPORT OF SERVICES:
Illustration 1:
Eagle Company sought the help of Mr. Putin, a repairman doing business in
Australia, to fix its malfunctioning machinery in the Philippines. The
contract price was P1,000,000. Is the repair of the machinery subject to
final withholding VAT? If yes, how much should be the VAT?
Yes, P120,000.
IMPORT OF SERVICES:
Illustration 1 (Questions):
1. What if Mr. Putin is not engaged in business in Australia?

2. What if Eagle Company is a non-profit institution?
3. What if Eagle Company is an ecozone locator?
IMPORT OF SERVICES:
Illustration 2:
Mr. Wong, a resident travelling sales agent, asked the assistance of

Mr. Teng, a Chinese national doing business abroad, to help him
install a GPS tracking device in his car for P300,000. Is the service
subject to final withholding VAT?
Yes, VAT of P36,000.

IMPORT OF SERVICES:
Illustration 2 (Questions):
1. What if Mr. Teng is not engaged in business in China?

2. What if Mr. Wong is not a businessman?
IMPORT OF SERVICES:
VAT-EXEMPT IMPORT OF SERVICES
The following are exempt from the final withholding VAT:
A. Purchase of services from non-residents when the service is

rendered abroad
B. Purchase of services from non-residents when the individual
purchaser is not engaged in business
C. Purchase of services from non-residents by VAT-exempt persons
such as ecozone locators
IMPORT OF SERVICES:
IMPORT OF SERVICES SPECIFICALLY
SUBJECT TO PERCENTAGE TAX
The only one import of service is subject to a percentage tax is the

direct acquisition of insurance cover from abroad. The premium
payment on insurance policies directly sourced abroad is subject to
a 5% percentage tax. The policy holder shall pay the same to the
BIR.
IMPORT OF SERVICES:
VATABLE IMPORT OF SERVICES
All other import of services is subject to final withholding VAT.
Final withholding vat is computed as 12% of the contract price.
Examples of vatable import of services:

1. Lease or use of properties or property rights owned by non-
residents
2. Services rendered to local insurance companies, with respect to
reinsurance premiums payable to non-residents
3. Other services rendered in the PH by non-residents
IMPORT OF SERVICES:
Illustration 1:
Session Food Corporation is a licensed franchise of Roland, Inc., a

non-resident foreign franchiser. During the month, session is due to
pay P800,000 royalties.
A. How much is the final withholding VAT?

B. How much is to be remitted to Ronald, Inc.?
IMPORT OF SERVICES:
Illustration 1:
A. How much is the final withholding VAT?

Royalties P 800,000
VAT tax rate 12%
Final withholding VAT P 96,000
IMPORT OF SERVICES:
Illustration 1:
B. How much is to be remitted to Ronald, Inc.?

Royalties P 800,000
Less Final income tax (P800k*30%) 240,000
Amount due Ronald, Inc. P560,000
VAT is not deductible against gross royalty because the

withholding tax is not tax on income, unless it’s agreed that the
contract price is VAT-inclusive.
PAYMENT OF THE WITHHOLDING VAT
Using BIR Form 1600, the withholding VAT is remitted monthly on

or before the 10th day of the following month after the
withholding was made, except for taxes withheld for December
which shall be files or paid on or before January 25 of the
following year.
TREATMENT OF THE VAT ON IMPORTATION
AND THE WITHHOLDING VAT
1. If the resident purchaser is a VAT-registered business, it can

claim the VAT on importation or withholding VAT as input
creditable against the output VAT.
2. If the resident purchaser is a non-VAT business, the VAT on

importation or final withholding VAT shall be part of the
purchase of goods or services and shall be treated as asset
or expense.
3. If the purchaser is not engaged in business, the VAT on

importation is merely added to the costs of the goods
imported.
CHAPTER 3 (PART 1):
INTRODUCTION TO BUSINESS TAXATION
NATURE OF BUSINESS TAX
A. RELATIVE CONSUMPTION TAX
Business tax is imposable only when the seller is a business.
B. INDIRECT TAX
Tax is collected from the seller rather than the buyer-consumer.
C. PRIVILEGE TAX
It is viewed as a tax on the privilege to do business.
D. NATIONAL TAX
It is imposed by the national government.
TYPES AND COMPARISON OF BUSINESS TAXES
POINT OF VAT PERCENTAGE TAX EXCISE TAX

DIFFERENCES
Timing of Sale Sale Production/Import
imposition
Nature Primary tax Primary tax Additional tax
Subject businesses Any business, in Any business, in Only producers or

general general importers of
excisable products or
services
Taxpayers Business only Business only Business or non-
business
Usual taxpayers Big businesses Small businesses Big/small businesses
Accounting Liability Expense Asset/Liability

treatment
PROCEDURES OF BUSINESS TAXATION
1. Evaluate if the sale activity qualifies as a business.
A. If not, the activity is exempt from business tax.
B. If yes, the business must register for business tax. Proceed.
2. Identify the taxable person.

A. If individual, include all proprietorship businesses including branches of
the individual tax payer.
B. If juridical, include all branches of the corporate taxpayer.
3. Determine the activity type.

A. If sales of goods, determine the sales.
B. If sales of services, determine the receipts.
4. Classify the sales of receipts whether they are:
A. Exempt sales or receipts – pay no business tax
B. Sales or receipts subject to specific % tax – pay specific % tax
C. Vatable sales or receipts
5. Determine taxpayer registration type.

A. If taxpayer is VAT registered, pay VAT on vatable sales or receipts.
B. If taxpayer is non-VAT registered, pay the 3% general % tax then
determine the magnitude of 12-month vatable sales at the end of every
month:
- If it exceeds P3M – the person shall register as VAT taxpayer; pay VAT
prospectively effective on the succeeding monthly vatable
sales/receipts.
- If it does not exceed P3M – the person shall continue paying the 3%
general % tax on the vatable sales/receipts.
6. Determine if the goods or services offered is excisable.

A. If yes, pay the applicable excise tax in addition to VAT and or percentage
tax.
B. If not, pay only VAT and or percentage tax.
WHAT IS BUSINESS?
BUSINESS refers to a habitual engagement in a

commercial activity involving the sale of goods or
services for a profit.
ELEMENTS OF BUSINESS:
1. Habitual Engagement
2. Commercial Activity
HABITUAL ENGAGEMENT
 There must be regularity in transactions.
 Isolated and casual sales are not regular activities.
 Manifested by registration with the appropriate government agencies as a

dealer or as a service provider in a particular trade or vocation. Non-
registration is NOT an excuse to business tax.
 A casual sale transaction is not a business even if profit is derived from the
transaction. The regular selling of goods or services for a profit is a
business despite the absence of actual profit from such activity.
HABITUAL ENGAGEMENT
ILLUSTRATION 1:
Mang Merto, a realty dealer, purchased shares of stocks as investments and
sold them at a profit. Is the activity subject to business tax?
No, sale of stocks investments by a realtor are not made in the course of
realty business.
What if Mang Merto is a security dealer?
Transaction is subject to business tax.

HABITUAL ENGAGEMENT
ILLUSTRATION 2:
Joshua is a proprietor regularly engaged in trading merchandise. During the

month, he reported the following:
Sales of merchandise P 800,000
Sale of personal car 1,200,000
Which sale is subject to business tax?
The P800k sales is subject to business tax. P1.2M sales is outside the
merchandising business, hence, not subject to business tax.
HABITUAL ENGAGEMENT
PRIVILEGE STORES
 Most commonly known as tiangge.
 Stalls or outlets not permanently fixed to the ground which are put up
during special events such as festivals or fiestas.
 The store is engaged in a business activity for a cumulative period of not
more than 15 days.
PRIVILEGE STORE OPERATORS

 They shall not be considered habitually engaged in business considering their
limited activity.
 Exempt from business tax BUT subject to income tax.
HABITUAL ENGAGEMENT
ILLUSTRATION 1:
Mang Andro makes key chains and wood art for sale to tourists during the
annual Panagbenga Festival. He rented a booth from the City of Baguio, the
tiangge organizer, and recorded sales of P350,000 over the weeklong activities.
Is the sales of Mang Andro subject to business tax?
No, Mang Andro is not considered habitually engaged in business.

HABITUAL ENGAGEMENT
ILLUSTRATION 2:
Danes Bakeshop, an established business enterprise, also rented a booth

from the organizer, City of Baguio, to sell its cakes and pastries during the
Panagbenga Festival. Danes generated P400,000 sales during the event.
Is the P400,000 sales subject to business tax?
Yes, Danes Bakeshop is not a privilege store since it is an established and

regularly operating business.
COMMERCIAL ACTIVITY
 Engagement in the sale of goods or services for a profit.
 The goods or services must be offered to the public with a motive to

unrestricted amount of pecuniary gains.
 Actual existence of a profit during the period is not a pre-condition to

business taxation.
 Even if the business operation results to a loss, business tax still applies.
The following are not businesses:
1. Government agencies and instrumentalities
2. Non-profit organizations or associations
3. Employment
4. Directorship in a corporation
5. Business for mere subsistence

1. GOVERNMENT AGENCIES AND INTRUMENTALITIES
 Agencies and instrumentalities provide essential public services.

 They may charge reasonable fees for services rendered but are not intended
to profit but are merely costs reimbursement.
ILLUSTRATION:
The Professional Regulations Commission (PRC) collected P12M from
professional license fees during the month. It also earned additional P1M from
rental income on its vacant premises. Which activity is subject to business tax
and which is not?
P12M receipt is exempt from business tax. Leasing is a commercial activity,

hence P1M is subject to business tax.
2. NON-PROFIT OR CHARITABLE ORGANIZATIONS
 A charitable or eleemosynary activity regularly pursued by an institution or

organization is not a business because of the absence of the purpose to
make profit.
ILLUSTRATION:
Union of Husbands Afraid of Wife (UHAW) is a non-profit social welfare
institution for the assistance of battered husbands. UHAW received P2M
contributions from the public and gathered P400K from the sales of a gift shop in
its fund-raising drive. Which activity is subject to business tax and which is not?
P2M receipt is exempt from business tax. Selling of the gift-shop is a

commercial activity and is subject to business tax.
3. EMPLOYMENT
 Employee benefits derived under employment is not subject to business tax

but only to income tax.
ILLUSTRATION:
Bernard Bakilan, a Certified Public Accountant, practices his profession in
the industry as the Chief Financial Officer of UHAW. During the month, he
received P50K compensation plus P10K fringe benefits. Which activity is subject
to business tax and which is not?
Employment does not involve sales of services to clients or customers.

Compensation income and the fringe benefits are not subject to business tax.
4. DIRECTORSHIP IN A CORPORATION
 Although a director may not be an employee, director’s fee, per diems, and
allowances are not derived in an economic or commercial activity or
rendering of services to clients for a fee.
ILLUSTRATION 1:
Mr. Agua is an independent director if Aga Corporation receiving director’s
fees, per diems, and allowances totaling P15K per board meeting appearances. Is
Mr. Agua subject to business tax?
No.
What if Mr. Agua is an employee of Aga Corporation?

Mr. Agua’s director’s fees shall be part of his compensation income and is
not likewise subject to business tax.
4. DIRECTORSHIP IN A CORPORATION
ILLUSTRATION 2:
John, a Certified Public Accountant, renders his services to the public for a
fee. Is he subject to business tax?
The exercise of profession by regularly rendering services to clients for a

fee is considered a business subject to business tax.
5. BUSINESS PRINCIPALLY FOR SUBSISTENCE
BUSINESS PRINCIPALLY FOR SUBSISTENCE/LIVELIHOOD

 Businesses with gross sales or receipts not exceeding P100k per year.
MARGINAL INCOME EARNERS

 Refer to individuals not deriving compensation income under an employer-
employee relationship but who are self-employed deriving gross sales or
receipts not exceeding P100K in any 12-month period.
 Examples: subsistential farmers/fishermen, small sari-sari stores, small
carinderias or “turo-turos”, drivers or operators of a single unit tricycle
 It doesn’t include licensed professionals, consultants, artists, sales agents,
brokers.
 Subject to income tax.
BUSINESS TAXPAYERS
RULES:
1. Every person, natural or juridical, is a taxable person for purposes of business
taxation.
2. Husband and wife are separate taxpayers.
3. A parent company is a separate taxable person with its subsidiary company

and each subsidiary company is a taxable person.
4. Home office and branch offices of the same business are one, not separate,
taxable person.
5. Proprietorship is not a juridical entity. Its sales and receipts are subject to
business tax to the individual proprietor. Multiple proprietorship businesses of
the same individual are all taxable to that individual as the taxpayer.
BUSINESS TAXPAYERS
ILLUSTRATION 1:
Mr. Ysmael, an accounting practitioner, has two other commercial businesses
with the following receipts and sales:
Mr. Ysmael’s practice P 1, 200,000
Business 1 800,000
Business 2 700,000
Are Mr. Ysmael’s other commercial businesses subject to business tax
separate from his practice of profession?
No, the sales and receipts totaling P2.7M shall be taxable to Mr. Ysmael as
the taxable person.
BUSINESS TAXPAYERS
ILLUSTRATION 2:
DEF Corporation has its head office in Makati City and two branches in Manila
City and Quezon City. The sales outlet has the following sales:
Makati Head Office P 2,000,000
Manila City branch 1,800,000
Quezon City branch 1,200,000
Are the two branches subject to business tax separate from the head office?
No, branches are not taxable persons. All the sales shall be reported to the
BIR RDO in the principal place of the business – Makati City.
BUSINESS TAXPAYERS
ILLUSTRATION 3:
ABC Company has a branch in Manila City and a subsidiary, XTB Company, in
Davao City.
A. What if ABC Company transfers goods to Manila City branch? Is the
activity subject to business tax?
B. What if there’s an intercompany sales between ABC Company and XTB
Company? Is this subject to business tax?
C. Will the transaction between XTB Company and the Manila City
branch be subject to business tax?
A. No
B. Yes
C. Yes
BUSINESS ACTIVITIES
The basis of business tax differs on the activities businesses are engaged on.
TYPES OF BUSINESS ACTIVITIES:
1. Sales or exchange of goods or properties

 Refers to all tangible and intangible objects which are capable of pecuniary
estimation.
2. Sales or exchange of services

 Performance of all kind of services in the Philippines for others for a fee,
remuneration or consideration, whether in kind or cash.
BASIS OF BUSINESS TAX PER TYPE OF ACTIVITY:
GROSS SELLING PRICE
 Total amount of money or its equivalent which the purchaser pays or is

obligated to pay to the seller in consideration of the sale, barter or exchange
of goods or properties.
 Excise tax, if any, shall form part of the gross selling price.
 Includes sales made in cash, on credit and on installment basis and is
analogous to the income taxation concept of “gross sales” except only on
treatments of contingent discount.
 Allowable deductions from gross selling price:
 Discounts determined and granted at the time of the sale, which are expressly
indicated in the invoice, in the amount thereof forming part of the gross sales and
are duly recorded in the books of accounts. They must not be dependent upon the
happening of future event or contingency.
 Sales returns and allowances for which a proper credit or refund was made
during the month or quarter to the buyer on taxable sales.
GROSS SELLING PRICE
ILLUSTRATION:
HTC Corporation sold various specialized equipment to a buyer with the

following terms:
List price P 2,000,000

Freight 50,000
Installation fee 20,000
Trade discounts 10%
Cash discounts, 2%/30 net of 60 days 36,000
Determine the gross selling price.

GROSS SELLING PRICE
ILLUSTRATION:
List price P 2,000,000

Less: Trade discounts (10% x P2M) 200,000
Net price P 1,800,000
Freight 50,000
Installation fee 20,000
Gross selling price P1,870,000
GROSS RECEIPTS
 Refers to the total amount of money or its equivalent representing the

contract price, compensation, service fee, rental or royalty, including the
amount charged for materials supplied with the services or deposits applied
as payments for services, rendered and advanced payments actually or
constructively received during the taxable period for the services performed
or to be performed to another person, excluding VAT.
GROSS RECEIPTS
ILLUSTRATION:
A laundry business had the following transactions during the month:
Cash collection for the services done P 400,000

Cash collection for services not yet started 100,000
Receivables on services rendered 600,000
Purchases of goods and services 448,000
Determine the gross receipt.

GROSS RECEIPTS
ILLUSTRATION:
Cash fees P 400,000

Advances by customers 100,000
Gross receipts P500,000
GROSS RECEIPTS
CONSTRUCTIVE RECEIPTS
 Occurs when the money consideration or its equivalent is placed at the
control of the person who renders the services without restriction by the
payor. This is added as part of gross receipts.
 Examples:
 Deposit in a bank account of the seller made by the buyer in consideration of
services rendered or goods sold
 Issuance by the debtor a notice to offset any debt or obligation and acceptance
thereof of the seller as payment for services rendered
 Transfer of the amounts retained by the payor to the account of the contractor
GROSS RECEIPTS
ILLUSTRATION:
Miss Leah Mado is a pozo negro contractor. She had the following fees for the
month:
A. P10,000 from Cipher Company, net of P30,000 debt of Miss Leah from
the company
B. P15,000 deposited to Miss Leah’s bank account
C. P20,000 cash share from a general professional partnership, P30,000
undistributed share was credited to her capital account
Compute the gross receipt.

GROSS RECEIPTS
ILLUSTRATION:
Receipts from Cipher (10k + P30k) P 40,000

Fees deposited to Leah’s bank account 15,000
Gross receipts P 55,000
The share from the net income of a GGP is not gross receipts since
Miss Leah is not selling services to the GGP.
GROSS RECEIPTS
AGENCY MONIES
 Amounts earmarked for payment to an unrelated third party or received as
reimbursement for advanced payment on behalf of another which do not
redound to the benefit of the payor and are not part of gross receipts.
INSURANCE PROCEEDS ON DAMAGED ASSETS

 Not viewed as sales or receipts for purposes of business taxation.
 The compulsory or involuntary conversion of property into money such as in
the case of insurance reimbursement is not viewed as a sale in the ordinary
course of business.
GROSS RECEIPTS
ILLUSTRATION:
PC Repair Company received the following amounts during the month:

Cash collection from clients P 400,000
Reimbursements for out-of-pocket costs
incurred in servicing clients 50,000
Reimbursement for client expenses paid
by PC Repair Company 80,000
Proceeds of fire insurance 400,000
Receipt of bank loan 500,000
Receipt of agency money to be remitted to
a sister company 100,000
Compute the gross receipts.

GROSS RECEIPTS
ILLUSTRATION:
Cash collection from clients P 400,000

Reimbursements for out-of-pocket costs
incurred to clients 50,000
Gross receipts P450,000
CHAPTER 3 (PART 2):
INTRODUCTION TO BUSINESS TAXATION
GROSS RECEIPTS
WITHHOLDING TAXES
 Amounts withheld form part of gross receipts because these are in
constructive possession and not subject to any reservation, the withholding
agent being only a conduit in the collection process.
ILLUSTRATION:
A lessor received P9,500 rentals from a lessee net of 5% withholding tax
evidenced by BIR Form 2307. How much is the gross receipt?
P10,000 (P9,500/95%)
BUSINESS WITH MIXED ACTIVITIES
A business which is engaged in both the sales of

goods or properties and sales of services shall be
subject to business tax on gross selling price on
its sales of goods or properties and on gross
receipts on the sales of services.
TYPES OF SALES OR RECEIPTS:
EXEMPT SALES OR RECEIPTS
1. Sales of certain basic necessities, such as:
a. agricultural or marine products
b. health services of hospitals
c. educational services of schools
d. housing or residential properties within price limits
2. Sales exempt by law, treaty or contracts

a. sales by cooperatives to members
b. Sales or lease of aircraft or vessels
c. Sales or printing of books, magazines and newspapers
3. Casual sales or sales by non-business sellers
4. Exports sales of non-VAT registered person

RECEIPTS FROM SERVICES SPECIFICALLY SUBJECT
TO A PERCENTAGE TAX
A. Banks, non-bank financial intermediaries performing quasi-banking functions
B. International carriers on their outgoing transport of the cargoes, baggage or mails
C. Domestic common carriers on their transport of passengers on land and keepers of
garage
D. Certain amusement places
E. Philippine Stock Exchange on the sale, barter or exchange of shares by investors or
corporations conducting initial public offering
F. Franchise grantees of television or radio and gas or water
G. Life insurance companies and agents of foreign insurance companies
H. Franchise grantees of telephone or telegraph on overseas dispatch, message or
conversation originating from the Philippines
I. Winnings from jai-alai and race tracks
VATABLE SALES OR RECEIPTS
3% GENERAL PERCENTAGE TAX

 If the taxpayer is non-VAT registered taxpayer.
VALUE ADDED TAX

 If the taxpayer is a VAT taxpayer.
TYPES OF PERCENTAGE TAX

A. SPECIFIC PERCENTAGE TAX
- imposed for BICAP FLOW and apply to any taxpayer.
B. GENERAL PERCENTAGE TAX
- for vatable sales or receipts of non-VAT taxpayers.
MANDATORY REGISTRATION AS VAT TAXPAYER

1. Gross sales or receipts for the past 12 months have exceeded P3M.
2. There are reasonable grounds to believe that his gross sales or receipts
for the 12 months will exceed P3M.
THE GENERAL THRESHOLD: P3M

This is applicable to all other taxpayers, except franchise grantees of radio
or television.
THE SPECIAL THRESHOLD: P10M

Franchise grantees are mandatorily required to register to the VAT system
when their annual receipts exceed P10M.
OPTIONAL VAT REGISTRATION
A person who is below the VAT threshold may, at his option, register as VAT
taxpayer. Once made, this option shall be irrevocable for 3 years. For TV and
radio franchise grantees, the option shall be perpetually irrevocable.
TYPES OF VAT TAXPAYERS

1. VAT-REGISTERED TAXPAYERS
- a taxpayer who is registered under the VAT system
2. VAT-REGISTRABLE TAXPAYERS
- a taxpayer who exceeded the VAT threshold but did not yet
register as a VAT taxpayer.
Note: VAT-registered taxpayers are allowed credit for input VAT while
non-VAT registered taxpayers are not allowed to claim input VAT credit.
Illustration 1:
Assume a taxpayer had P600K output VAT in its vatable sales and paid P320K
VAT on its purchases. Compute the VAT due assuming the taxpayer is:
A. VAT-registered
B. VAT-registrable
A. VAT-registered
P600K – P320K = P280K
B. VAT-registrable
P600K – 0 = P600K
Illustration 2:
Mrs. Maranao is starting a business with the following projected result of
operations within 12 months:
Exempt sales P 400,000

Receipts from services subject to % tax 1,200,000
Other sales or receipts 1,900,000
Can Ms. Maranao register as a non-VAT taxpayer?
Yes, only vatable sales or receipts shall be considered for the purpose of
the VAT threshold.
DIFFERENCE OF THE CONCEPT OF GROSS RECEIPTS AND SALES
BETWEEN VAT AND NON-VAT TAXPAYERS
Illustration 1 – Non-VAT Taxpayers
A non-VAT taxpayer billed a client P150,000 for professional services

rendered. The client withheld 10% creditable withholding tax (CWT).
How much the taxpayer will be able to collect?
Professional fees billed P 150,000

Less: 10% CWT 15,000
Net professional fee collected P 135,000
The gross receipt in this case is the amount billed (P150K).

Illustration 2 – VAT Taxpayers
A VAT taxpayer billed a client P150,000 for professional services rendered.

The client withheld 10% creditable withholding tax (CWT).
A. Compute the gross receipts.

B. Compute the total cash collected.
Illustration 2 – VAT Taxpayers

A. Compute the gross receipts.
Gross receipts (P150K/112%) P 133,929
B. Compute the total cash collected.

Professional fees P 133,929
Less: 10% CWT 13,393
Net professional fees P 120,536
Plus: Output VAT (P133,929*12%) 16,071
Total cash collected P 136,607
BUSINESS TAX ACCOUNTING PERIOD
The length of accounting period for business taxes is one quarter. This is referred to as a
taxable quarter.
CALENDAR YEAR TAXPAYERS

First quarter : Jan 1 to Mar 31
Second quarter : Apr 1 to Jun 30
Third quarter : Jul 1 to Sep 30
Fourth quarter : Oct 1 to Dec 31
FISCAL YEAR TAXPAYERS
Example:
First quarter : Sep 1 to Nov 30
Second quarter : Dec 1 to Feb 28/29
Third quarter : Mar 1 to May 31
Fourth quarter : Jun 1 to Aug 31
Note: Individuals are limited to use the calendar accounting period while corporate taxpayers
may opt for either the calendar year or the fiscal year accounting period.
BUSINESS TAX REPORTING
VAT TAXPAYERS NON-VAT TAXPAYERS
Monthly tax return BIR Form 2550 M Not applicable
Quarterly tax return BIR Form 2550 Q BIR Form 2551 Q
VAT taxpayers are required to report their receipts/sales in two monthly estimated
VAT returns for the first two months of the quarter and a quarterly VAT return on the third
month of the quarter.
1st Month 2nd Month 3rd Month

Business tax form 2550 M 2550 M 2550 Q
Deadline Within 20 days Within 20 days Within 25 days
The TRAIN Law will eventually phase out the monthly estimated VAT payments and VAT
payment will transition into a full quarterly payment effective January 1, 2023.
REPORTING OF NON-VAT TAXPAYERS
The TRAIN Law requires percentage taxpayers to file quarterly

percentage tax returns (BIR Form 2551Q). All percentage taxpayers pay
their percentage taxes on a quarterly basis.
1st Month 2nd Month 3rd Month

Business tax form - - 2551 Q
Deadline - - Within 25 days
BUSINESS TAX REPORTING
Illustration:
Assume a business taxpayer had the following gross sales in the first quarter of
2019: Jan – P220K; Feb – P180K; and Mar – P260K. Determine the taxable income and
the BIR Form to use each month assuming the business is (a) percentage taxpayer and
(b) VAT taxpayer.
A. Percentage taxpayer
Jan : P0 : none
Feb : P0 : none
Mar : P660K : Form 2551Q
B. VAT taxpayer
Jan : P220K : Form 2550M
Feb : P180K : Form 2550M
Mar : P660K : Form 2550Q
SHORT PERIOD RETURNS
Any person who retires from business with due notice to the BIR office where
the taxpayer (head office) if registered or whose VAT registration has been
cancelled shall file final quarterly return and pay the tax due thereon
within 25 days from the end of the month when the business ceased or
when the VAT registration had been officially cancelled.
Subsequent monthly declarations/quarterly returns are still required to be

filed if the results of the winding up of the business of the taxpayer reveal
taxable transactions.
TRANSITION TO THE VALUE ADDED TAX
Illustration: VAT threshold monitoring and VAT transition
Mr. Quezon had the following vatable receipts from his service business since
his start of business in January 1, 2020. Determine at what month will he start to
be subjected to VAT.
VATABLE RECEIPTS CUMMULATIVE COSTS & EXPENSES INPUT VAT
RECEIPTS
Jan 1 – Sep 30 P 2,250,000 P 2,250,000 P 1,200,000 P0
October 1,000,000 3,250,000 500,000 0
November 1,000,000 4,250,000 700,000 74,000
December 1,000,000 5,250,000 800,000 62,000
Since his receipts exceeded P3M by Oct 2020, he is subject to VAT

prospectively starting November 2020.
Under the regular Income Tax Option
Assuming Mr. Quezon opted to the regular tax option for the Year 2020 in his
first quarter 1701Q, he shall separately pay the regular income tax computed per
individual tax table and the 3% percentage tax under 2551Q.
If we computed his regular tax using the income tax table, Mr. Quezon must
have paid P205,000 in estimated tax as of September 30, 2020 using 1701Q.
On the other hand, he must have also paid his quarterly percentage tax using
Form 2551Q until the end of the quarter ending September 30,2021.
Required returns:
For October 2020 – file 2551Q adjustment return
October 2020 gross receipts P 1,000,000
Tax rate 3%
Percentage tax due P 30,000
Required returns:
For November and December 2020 – file VAT prospectively
BIR Form 2550M for November 2020

Output VAT (1M*12%) P 120,000
Less: Input VAT 74,000
VAT due P 46,000
BIR Form 2550Q for the 4th quarter ending December 2020
Output VAT (1M+1M)*12% P 240,000
Less: Input VAT (P74K + P62K) 136,000
Vat due P 104,000
Less: VAT payments (Nov 2020) 46,000
Vat still due P 58,000
Required returns:
Year 2020 income tax due
Total receipts in 2020 P 5,250,000

Less: Costs & expenses in 2020 3,200,000
Taxable income P2,050,000
File the tax due under Form 1701A

Tax due on P2.05M per tax table P 506,000
Estimated income tax payments (Form 1701Q) 205,000
Income tax still due P 301,000
Under the 8% Commuted Tax Option
Assuming Mr. Quezon opted to the 8% income tax in the first quarter of 2020,
his option to the 8% shall be invalidated.
He shall be subjected to regular income tax for the entire Year 2020 while
his payments under the 8% commuted tax shall be treated as a tax credit against
his regular income tax due.
He will pay VAT prospectively starting November 2020 and will be assessed
percentage tax for all sales or receipts from January 1, 2020 to October 2020.
As of third quarter, 8% income tax due

January to September receipts P 2,250,000
Less exempt 250,000
Total P 2,000,000
Tax rate 8%
Income tax due P 160,000
Assessment of percentage tax in November 2020
Jan to Oct receipts P 3,250,000
Tax rate 3%
Percentage tax due P 97,500
BIR Form 2550M for November 2020

Output VAT (1M*12%) P 120,000
Less: Input VAT 74,000
VAT due P 46,000
BIR Form 2550Q for the 4th quarter ending December 2020
Output VAT (1M+1M)*12% P 240,000
Less: Input VAT (P74K + P62K) 136,000
Vat due P 104,000
Less: VAT payments (Nov 2020) 46,000
Vat still due P 58,000
Year 2020 income tax due
Total receipts in 2020 P 5,250,000

Less: Costs & expenses in 2020 3,200,000
Percentage tax expense 97,500
Taxable income P1,952,500
File the tax due under Form 1701A

Tax due on P1,952,500 per tax table P 475,750
Estimated income tax payments (Form 1701Q) 160,000
Income tax still due P 315,570
Illustration: Non-registration as VAT taxpayer
Assume instead that Mr. Quezon paid P13,500 percentage tax in November
and registered as a VAT taxpayer only on December 2020.
Mr. Quezon shall be subject to VAT in November despite his failure to
update his VAT registration. Registrable persons are subject to VAT without the
benefit of the input VAT in the period they are not properly registered.
Mr. Quezon is required to pay the following additional assessments for

November 2020.
Output VAT (P1M * 12%) P 120,000
Less: Input VAT 0
VAT due P 120,000
Illustration: Non-registration as VAT taxpayer
Mr. Quezon shall file a claim for refund or credit for the P13,500 percentage
tax paid as it is an erroneous payment of tax considering the VAT should have
been paid for the month.
If claim for tax credit is approved, the VAT payable shall be computed as
follows:
Output VAT (P1M * 12%) P 120,000

Less: Input VAT 0
VAT due P 120,000
Less: Tax credit 13,500
VAT still due P 106,500
TIMING OF VAT REGISTRATION
1. Persons commencing business with an expectation to exceed the VAT
threshold within 12 months shall simultaneously register as VAT taxpayer with
the registration of their new business or trade with the BIR.
2. Persons exceeding the VAT threshold shall register as VAT taxpayer before
the end of the month following the month the threshold is exceeded.
3. Franchise grantees of radio and television broadcasting, whose gross

annual receipt for the preceding calendar exceeded P10M shall register as
VAT taxpayer within 30 days from the end of the calendar year.
4. Persons who are below the threshold but opt to be registered as VAT taxpayer
shall register not later than 10 days before the beginning of the taxable
quarter.
REVOCABILITY OF VAT REGISTRATION
1. The VAT registration, whether voluntary or mandatory, of franchise grantees
of radio or television is perpetually irrevocable. Thus, they continue to be
VAT taxpayers until the dissolution of the business.
2. Any person, other than franchise grantees of radio or television, who

voluntarily registered as VAT taxpayers shall not be allowed to cancel their
VAT registration for the next 3 years. This is referred to as the 3-year lock-in
period.
3. Any person who registered as VAT taxpayers with an expectation to exceed

the VAT threshold but failed to exceed the same within 12 months of
operations may apply for cancellation of VAT registration. The 3-year lock-in
period does not apply in this case.
CHAPTER 4 (PART 1):
EXEMPT SALES OF GOODS,
PROPERTIES, & SERVICES
PREPARED BY:
CARL JUSTINE T. MANIAGO, CPA
EXEMPT SALES
 These are exempt consumption of goods or services from domestic

sellers.
 These are not subject to VAT and percentage tax.
 Hence,
 VAT taxpayers making exempt sale of goods, properties, or services shall
not bill any output VAT to their customers because the sale is not subject
to VAT.
 A non-VAT person making exempt sales shall not be subject to 3%
percentage tax on the sales or receipt.
EXEMPT SALES OF GOODS OR PROPERTIES
1. SALE OF GOODS TO SENIOR CITIZENS AND PERSONS WITH DISABILITY
SALE OF GOODS SC PWD

a. Drugs, vaccine and foods for special medicine purpose E E
b. Vitamins and mineral supplements E V
c. Accessories and equipment by of for senior citizens such as E V
eyeglasses, hearing aid, dentures, prosthetics, artificial bone
replacements, walkers, crutches, wheelchairs, quad canes,
geriatric diapers, and other essential medical supplies,
accessories and equipment
d. Casket or urn E E
Aside from VAT exemption on sales, senior citizens and PWDs are also legally
mandated to be given 20% discount on sales of these goods.
2. SALE OF EXEMPT GOODS
A. AGRICULTURAL OR MARINE PRODUCTS AND INPUTS
a.1. Sale of 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 therefore
a.2. Sale of 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.
ILLUSTRATION 1:
The following relates to the sales of Mr. Birdie, a poultry operator:

Sales of chicken P 400,000
Sales of one-day old chicks 120,000
Sales of eggs for “penoy” & “balot” 180,000
Sales of chicken manure 100,000
Determine which are VAT exempt and which are not.
All of these are exempt from business tax.

ILLUSTRATION 2:
Juan, a dealer of sugar, made P400,000 worth of muscovado sugar

and P600,000 worth of refined sugar. Determine which is VAT exempt
and which is not.
The sale of muscovado sugar which is considered raw cane sugar

is exempt from business tax. Only the sale of refined sugar is subject to
business tax.
SALE OF CERTAIN FARM OR FISHERY INPUTS

Exemption is qualified and limited:
a. For plants/fruit cultivation
- fertilizers, seeds, and seedlings
b. For animal husbandry
- livestock, feeds and ingredients for livestock and
poultry feed
c. For fishery operations
- fingerlings, fish and prawn
B. BOOKS, NEWSPAPERS AND MAGAZINES
- Same criteria with exemption of magazines under VAT-
exempt importations.
ILLUSTRATION:
Jet bookstore sold the following goods. Determine which among
these are exempt from VAT.
Novels P 100,000
Textbooks 300,000
School supplies & notebooks 200,000
Office supplies 180,000
Advertising magazines 20,000
Only sale of novels and books.

C. MEDICINES FOR DIABETES, HIGH CHOLESTEROL OR HYPERTENSION
- Starting January 1, 2019, the TRAIN Law provide for the VAT-
exemption on the sale of medicines prescribed for diabetes, high
cholesterol or hypertension.
- Examples:
1. Insulins and analogues
2. Blood glucose lowering drugs, such as biguanides,
sulfonylureas, alpha glucosidase inhibitors, thiazolidinediones, etc.
ILLUSTRATION :
Saint Joseph Medical Store made the following sales during the
quarter:
SC PWDs OTHERS
Vitamin & P 300,000 E P 20,000 V P 500,000 V
minerals
Insulin 200,000 E 100,000 E 400,000 E
Other 100,000 E 140,000 E 300,000

V
medicines
Medical 50,000 E 20,000 V 150,000 V
monitoring
devices
Medical 80,000 E 10,000 V 210,000 V
therapy
equipment
D. PASSENGER OR CARGO VESSELS AND AIRCRAFTS
- The sale of passenger or cargo vessels and

aircrafts including engines, equipment, and spare parts
thereof for domestic or international transport operations is
exempt from VAT.
3. SALE OF COOPERATIVES
 With the exception of electric cooperatives, cooperatives of any

kind are exempt from business tax if they transact business only with
members.
 Cooperatives which transact business with non-members are

subject to business tax on their sales to non-members if their
accumulated reserves exceed P10,000,000.
 Regardless of the type of cooperative, their transactions from

unrelated activities are subject to business taxes.
ILLUSTRATION:
A farming cooperative which transacts business with members and

non-members had the following sales during the month:
RELATED ACTIVITIES UNRELATED ACTIVITIES

Sales from members P 200,000 P 100,000
Sales from non-members 300,000 20,000
Determine which transactions are exempt from business tax if:

A. Accumulated reserves of the cooperative is P9.5M
B. Accumulated reserves of the cooperative is P11M
ILLUSTRATION:
A. Accumulated reserves of the cooperative is P9.5M

The total P500K sales from related activities is exempt
from business tax.
B. Accumulated reserves of the cooperative is P11M

Only the P200K sales from members from related
activities is exempt from business tax.
4. SALE OF REAL PROPERTIES UNDER CERTAIN CONDITIONS
A. SALE BY A NON-DEALER OF REALTY

- Sale of real properties not primarily held for sale to customers
or held for lease in the ordinary course of business is exempt from
business tax. The seller is not engaged in business of selling properties.
- Sale of properties held for use classified as ordinary asset by
VAT taxpayers is an incidental transaction subject to VAT.
- The exemption applies to:
a. Real property classified as capital assets of VAT taxpayers
b. Any real properties of non-VAT taxpayers
c. Any real property of persons not engaged in business
ILLUSTRATION:
Dr. Atoei, a VAT-registered medical doctor, sold his principal

residence for P12,000,000 and his medical clinic building for P500,000 to
purchase a bigger building for his medical practice. Determine which
sale of property is exempt from VAT.
The sale of the principal residence being a capital asset is not

subject to VAT. The sale of medical clinic building is subject to VAT as it
is an ordinary asset to his medical practice.
B. SALE BY A REALTY DEALER, DEVELOPER OR LESSOR
- The sale by businesses engaged in the real estate business is
normally subject to business tax.
- The sales of the residential properties, being essential goods, are
exempt if they comply with the statutory or regulatory price ceilings:
1. Sale of real properties utilized for socialized housing units
(housing program for the underprivileged and homeless
citizens.):
a. House & lot package – P450K
b. Residential lots only – P180K
2. Sale of real properties utilized for low-cost housing (housing
projects intended for the homeless low-income family
beneficiaries) wherein the price ceiling per unit is P750K
3. Sale of residential lot valued at P1,919,500/unit and below
4. Sale of residential dwelling valued at P3,199,200/unit and
below
ILLUSTRATION 1:
ABC Realty Corporation sold a house and lot at a price of

P3,200,000. Is this subject to business tax?
Yes, since the sale is above P3,199,200 price ceiling on the sale of
residential dwellings.
ILLUSTRATION 2:
Don Pedro, an employee, sold a residential lot of P2,000,000. Is this

subject to business tax?
No. Even though made above the P1,919,500 price limit, Don Pedro
is not regularly engaged in the realty business. This is subject to 6%
capital gains tax.
SALE OF ADJACENT LOTS
- For the purpose of the ceiling, the sale of adjacent residential

lots, house and lots, and other residential dwellings within the 12-month
period in favor of one buyer shall be treated as one.
- This aggregation rule does not apply to sale of parking lots

which may or may not be included in the sale of condominium units
because parking lots are not residential in nature. The sale of parking
lot is vatable.
5. EXPORT SALES OF NON-VAT TAXPAYERS
- Export sales of non-VAT taxpayers are exempt from
percentage tax. Under the law, however, the export sale of VAT
taxpayers is taxable to the value added tax but at 0% rate.
ILLUSTRATION 1:
Ina Bangunan is a non-VAT registered corporate producer of high
value crops and agricultural products for export and domestic sales. It
had the following sales during the quarter. Determine which sales are
exempt.
Sales of Domestic Sales Export Sales
Banana P 400,000 E P 1,200,000 E
Oranges 500,000 E 1,800,000 E
Wine/Vinegars 40,000 V 400,000 E
ILLUSTRATION 2:
Assume the same information in Illustration 1, except that Ina
Bangungan is VAT-registered taxpayer but did not opt to subject its
exempt sales to VAT.
Sales of Domestic Sales Export Sales

Banana P 400,000 E P 1,200,000 V
Oranges 500,000 E 1,800,000 V
Wine/Vinegars 40,000 V 400,000 V
The P40,000 domestic sales of vinegar is subject to 12% VAT. The P3,400,000
total export sales are subject to 0% VAT.
6. SALES EXEMPT UNDER TREATIES, INTERNATIONAL AGREEMENTS OR
SPECIAL LAWS
- There are entities that are granted VAT exemption under special
laws or international agreements to which the PH is signatory. Sales to
exempt entities are exempt from VAT. Likewise, they are also exempt
from the scope of 3% percentage tax.
- Examples of exempt parties:
1. PEZA registered enterprises
2. Asian Development Bank
3. International Rice Research Institute
4. Philippine National Red Cross
5. Embassies of foreign governments
6. The Philippine Amusement and Gaming Corporation
7. TAX-FREE EXCHANGE OF PROPERTY
- The TRAIN Law added tax free exchange of property to the list of
VAT-exempt transactions, thus the following exchange of properties
are not vatable:
1. Exchange of properties by a corporation in pursuant to plan

of merger or consolidation
2. Exchange of properties by a person, alone or together with

others not exceeding four, which resulted to the acquisition of control
ILLUSTRATION:
Miss Vanessa, a VAT-registered taxpayer, exchanged her real

estate inventories for the stocks of a start-up corporation. As a result of
this exchange, she obtained 51% voting stake in the said corporation. Is
the transaction subject to VAT?
The transfer of real estate inventory, an ordinary asset, in this case is

not subject to VAT since this is a tax-free exchange of property.
8. SALE OF GOLD TO THE BANGKO SENTRAL NG PILIPINAS

(BSP)
The TRAIN Law reclassified the sale of gold to the BSP

from zero-rated to exempt. Under RA 11256, the tax applies
both to registered small scale minerals and registered gold
traders.
ILLUSTRATION 1:
Mang Joseph, a non-VAT registered miner, sold to the BSP his gold
production of 2,000 grams of raw gold nuggets with specific gravity of
14.9.
The final BSP assay results in the following pay-out before refining
charges. Determine how much of the total price is exempt from VAT.
FINAL ASSAY PRICE/GRAM PRICE

Gold (74%) 1,480 grams P 2,140 P 3,167,200
Silver (18%) 360 grams 53 19,080
Trace Elements (8%) 160 grams
TOTAL 2,000 grams P 3,186,280
ILLUSTRATION 1:
FINAL ASSAY PRICE/GRAM PRICE

Gold (74%) 1,480 grams P 2,140 P 3,167,200
Silver (18%) 360 grams 53 19,080
Trace Elements (8%) 160 grams
TOTAL 2,000 grams P 3,186,280
The P3,167,200 sale of gold is exempt. The P19,080 sale of silver is

subject to 3% percentage tax.
ILLUSTRATION 2:
Assuming the same information in Illustration 1 except that Mang

Joseph is a VAT registered miner. Will the sale of gold still be exempt?
How about the sale of silver, what is its tax implication?
The sale of gold shall still be exempt. The sale of silver is now
subject to 12% VAT.

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Chapter 1:

 Acquisition or utilization of goods or services by any person.

 Utilization may be through purchase, exchange or other means.

 Utilization is subject to CONSUMPTION TAX.

 Levied without regard to the purpose of the purchaser or consumer

 Consumption tax should not be levied upon basic

INCOME TAX CONSUMPTION TAX

Nature Tax upon receipt of income. Tax upon usage of

Scope/Coverage A tax to the capable. A tax to all.

Theoretical Basis Ability to pay theory. Benefit received theory.

Statutory Taxpayer Buyer Seller

The economic Taxpayer Buyer Buyer

Nature of Imposition Direct Indirect

Basis of Tax Total purchase cost Sales or receipts

 They manage the border control of goods (for importation).

The seller is The buyer is Subject to business tax?

VALUE ADDED TAX RULES ON IMPORTATION

The seller is The buyer is Subject to VAT on imprt.?

 VALUE ADDED TAX

 CONSUMPTIONS SPECIFICALLY SUBJECT TO PERCENTAGE TAX

Exempt consumption Exempt importation Exempt sales/receipt

Services subject to a % Service specifically Services specifically

Vatable consumption Vatable importation Vatable sales/receipt

BASIS OF EXEMPTION VAT ON IMPORTATION BUSINESS TAX

Tax Incentive The importation is exempted The sales or receipt is

VATABLE IMPORTATION ON SALES

Exempt Exempt Exempt

% Tax Percentage Tax -

VAT Final Withholding VAT VAT on Importation

SALES OF SERVICES SALES OF GOODS

Exempt Exempt receipt Exempt sales

% Tax Receipts specifically -

 VAT ON SALES OR RECEIPT

Output VAT (12% of sales or receipts) xxx,xxx

 Imposed on the consumption of commodities such as:

Sales, VAT business P 600,000

A. How much is the output VAT?

How much is the input VAT?

How much is VAT payable/refundable?

Total output VAT 72,000

A person is engaged in business is subject to 3% business tax. He has inventories

A business taxpayer recorded the following transactions during the month:

Philippines Abroad Total

Assuming the tax payer is a VAT-registered taxpayer

Assuming the tax payer is a non-VAT taxpayer

Assuming the tax payer is a VAT-registered taxpayer

A. Compute the output VAT

B. Compute the VAT on Importation

Assuming the tax payer is a non-VAT taxpayer

A. Compute the percentage tax

B. Compute the VAT on Importation

• Refers to the purchase of goods or services by Philippine residents

TYPES OF CONSUMPTION TAX ON IMPORTATION

VAT ON IMPORTATION FINAL WITHHOLDING VAT

Imposed upon Importers/buyers Foreign service providers

Statutory taxpayer Importers/buyers Resident purchaser of the

Tax Basis Landed cost Contract price

Collecting Agency BOC BIR

Timing of Payment Before withdrawal of goods After the month of payment

The importation of goods is either:

• Importation of exempt goods

• Importation by VAT-exempt persons

• Importation which are exempt by special laws and international

The importation of the following exempt goods is NOT subject to