TARLAC STATE UNIVERSITY - COLLEGE OF BUSINESS AND ACCOUNTANCY

MID-YEAR 2021
TAX 2 – BUSINESS AND TRANSFER TAXATION

CONCEPT OF CONSUMPTION AND CONSUMPTION

TAXES; AND VAT ON IMPORTATION

CONSUMPTION TAX TYPES OF TAXABLE DOMESTIC CONSUMPTION

is a tax imposed upon the utilization of goods or
1. Purchase of residents of goods, properties, or
services by consumers or buyers. It is a tax imposed on
services from resident sellers. This is a “sale”
the purchase or consumption of the buyer and not on
transaction on the seller’s perspective.
the sale of the seller.
2. Purchase of residents of goods or services from
TYPES OF CONSUMPTION non-residents abroad. This is commonly known as
“importation” on the buyer’s perspective.
1. Domestic – refers to consumption or purchase of
Philippine residents.
TWO TYPES OF CONSUMPTION TAX ON DOMESTIC
2. Foreign – refers to consumption or purchase of
CONSUMPTION
non-residents.
1. VAT on Importation – tax imposed uniformly to all
Territoriality rule – only domestic consumptions are
taxpayers, whether engaged in business or profession
subject to Philippine Taxation.
or not.
TYPES OF BUSINESS TAXES 2. Business Tax – imposed only if the seller is engaged
1. VAT on Sales in business or profession.
2. Percentage Taxes
3. Excise Tax

Description VAT on Sales Percentage Tax Excise Tax

Tax Imposed on VATable sales VATable sales and those Excisable goods or articles
specifically subject to
percentage tax
Accrual / Timing of Point of sale for goods or Point of collection Point of production
Imposition of Tax Point of collection for sale of
services
Tax Rate Currently at 12% Generally, 3%. Various ad valorem and
Those specifically subject to specific rates (Sec. 141 to
percentage tax at various 151 of NIRC)
percentages
Basis Mark-up or value added Sales or receipts Sales value per unit of
article
Effect On Selling Added on the selling price Specifically included in the Included in the cost of
Price selling price production
Presentation In the Output VAT Reported as a deductible Capitalized then expensed
Financial Less: Input VAT expense under taxes and upon sale of the excisable
Statement = VAT Payable (liability) or licenses expense. article (included in the cost
VAT Refundable or prepaid of sales)
taxes (assets)
Export Sales Subject to 0% VAT Exempt Exempt (tax is reimbursable)
 TARLAC STATE UNIVERSITY - COLLEGE OF BUSINESS AND ACCOUNTANCY
MID-YEAR 2021
TAX 2 – BUSINESS AND TRANSFER TAXATION

IMPOSABLE TAX PER TYPE OF CONSUMPTION

Buyer/ Consumer
SELLER OF GOODS
Resident Non-Resident
Domestic Businesses
• VAT Registered / VAT Registrable 12% VAT on gross sales 0% VAT on gross selling price
• Non-VAT Registered 3% Percentage Tax on gross sales Exempt

12% VAT on importation based on

Foreign Businesses Exempt
landed cost

Buyer/ Consumer
SELLER OF SERVICES
Resident Non-Resident
Domestic Businesses
0% VAT on gross receipts
• VAT Registered/ VAT Registrable 12% VAT on gross receipts (services must be rendered in the
Philippines, if not, exempt)
3% Percentage Tax
• Non-VAT Registered Exempt
on gross receipts

12% Final Withholding VAT

Foreign Businesses (applies regardless of the place Exempt
where it is rendered)

EXCISE TAX IMPORTATION

Imposed, in addition to VAT or percentage tax, on Refers to the purchase of goods including services by
certain goods manufactured, produced, or imported in the Philippine residents from non-resident sellers.
the Philippines for domestic consumption. Importation is a form of domestic consumption.
Excise Tax is imposed on the production or imposed on
TYPES OF CONSUMPTION TAX ON IMPORTATION
the production or importation of the following:
1. VAT on Importation – the consumption on the
a. Sin products, such as tobacco and alcoholic
import of goods
products
2. Final Withholding VAT – consumption tax on the
b. Petroleum and petroleum related products
purchase of services from non-resident.
c. Automobiles, yacht and sports cars
d. Non-essential commodities such as jewelries and
VAT on Final Withholding
perfumes
Importation VAT
e. Metallic or non-metallic minerals, mineral
Object of
products and quarry resources such as coal, coke, Goods Service
consumption
gold, chromite and silver.
Foreign service
f. Sweetened beverages and vanity tax on cosmetic Imposed upon Importer/buyer
provider
surgeries (TRAIN Law)
Statutory Resident purchaser
Importer/buyer
taxpayer of the service
Direct Indirect business
Nature
consumption tax tax
Tax basis Landed cost Contract price
Collecting
BOC BIR
agency
Before
Timing of After the month of
withdrawal of
Payment payment
goods
 TARLAC STATE UNIVERSITY - COLLEGE OF BUSINESS AND ACCOUNTANCY
MID-YEAR 2021
TAX 2 – BUSINESS AND TRANSFER TAXATION
IMPORTATION OF GOODS
a. Exempt Importation
b. Vatable Importation
VAT ON IMPORTATION AND BASIS
The importation of goods is subject to VAT based on
Total Landed Cost regardless of whether the:
a. Importer is engaged or not in trade or business
b. Importer is a VAT or non-VAT registered
c. Importation is for business or personal use
d. Non-resident seller is engaged or not engaged in
business.
COMPOSITION OF TOTAL LANDED COST
1. Dutiable Value
a. Cost of Goods
b. Freight and Insurance
c. Other directly related charges and costs
2. Customs Duty
(Dutiable Value x Exchange Rate x Rate of Duty)
3. Excise Tax (if applicable)
4. Other In-Land-Cost
a. Bank charge
b. Brokerage fee
c. Arrastre charge
d. Wharfage due
e. Customs documentary stamp tax
f. Processing fees on importation
PRESUMPTION OF VATABILITY
All importations are generally subject to VAT unless it
can be proven as exempt under any of those
specifically exempt under the NIRC or other special
laws. The burden of proof in establishing VAT
exemption rests upon the taxpayer.
VAT-EXEMPT IMPORTATION
A. Importation of Exempt Goods
- Agricultural and marine food products in their
original state
- Livestock or poultry used as, or producing
food for human consumption
- Breeding stock and genetic materials
- Fertilizers, seeds, seedlings and fingerlings,
fish, prawn, livestock and poultry feeds,
including ingredients used in the manufacture
of finish feeds.
- Books and any newspaper, magazine, review,
or bulletin (as amended by CREATE Law)
- Passenger or cargo vessels and aircrafts,
including engine, equipment, including spare
parts thereof for domestic or international
transport operations
B. Importation by VAT-Exempt Persons
- International shipping or air transport
operators
- Agricultural cooperatives of direct farm
inputs, machineries, and equipment including
spare parts thereof, to be used directly and
exclusively in the production and or
processing of their produce
- PEZA locator on their import of goods or
services
C. Quasi-Importation
- Personal and household effects belonging to
residents of the Philippines returning from
abroad and non-resident citizens coming to
resettle in the Philippines
- Professional instruments and implements,
wearing apparel, domestic animals, and
personal household effects belonging to
persons coming to settle in the Philippines
D. Importation which are exempt Special Laws and
International Agreement
- New Provisions under CREATE Law related to
Importations of equipment and materials to
fight COVID-19
- Exempt Importations under RA 11494 –
Bayanihan Act II
SUBSEQUENT SALE BY EXEMPT PERSONS TO NON-
EXEMPT PERSONS
If an exempt importer subsequently sells his exempt
importation to a non-exempt person, the non-exempt
buyer shall be subject to VAT on importation. The tax
due on such importation shall constitute a lien on the
goods, superior to all charges or liens, irrespective of
the possessor of said goods. (Sec.4 107-1(c); RR 16-
2005)
However, the rule does not apply to exempt
importation of exempt goods. Exempt goods are
exempt from consumption tax. They are not subject to
VAT on importation and VAT on sales.
TECHNICAL IMPORTATION
Refers to the purchase of non-Ecozone Philippine
residents from Philippine Ecozone-registered
enterprises. Legally speaking, Ecozones are considered
foreign territories, hence, the purchase from Economic
Zones is subject to VAT on Importation. Similarly, sales
to Ecozones are subject to zero-rated VAT for VAT
 TARLAC STATE UNIVERSITY - COLLEGE OF BUSINESS AND ACCOUNTANCY
MID-YEAR 2021
TAX 2 – BUSINESS AND TRANSFER TAXATION

taxpayers. Likewise, sales to Ecozones are exempt from

business tax for non-VAT taxpayers. (Sec. 109 (K and V)
of NIRC)

IMPORTATION OF SERVICES
a. Exempt Importation
b. Subject to Specific Percentage Tax
c. Subject to Final Withholding VAT

VAT-EXEMPT IMPORT OF SERVICES

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

SPECIFICALLY SUBJECT TO PERCENTAGE TAX

A. Premium payment on insurance policies directly
sourced abroad is subject to a 5% percentage tax.

WITHHOLDING VAT ON IMPORTATION OF SERVICES

In the cases of sale of services by non-residents, the
regulations required the resident buyers to “withhold”
the VAT which is presumed to have been passed-on by
the non-resident seller. The real object of taxation is
the purchase of service by the resident buyer, it is not
the sale of the non-resident seller.

PAYMENT OF 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 filed 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 VAT creditable against
its Output VAT.
2. If the resident purchaser is a non-VAT business,
the VAT on importation or Withholding VAT shall
be part of the cost of purchase or services and
shall be treated as asset or expense whichever is
applicable.
3. If the purchaser is not engaged in business, the
VAT on importation or withholding VAT is merely
added to the costs of the importation.