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A “commercial or economic activity” is an activity where the purpose is profit or income. However, there
are exceptions. Thus:
1.An importation of goods for personal use is subject to the value-added tax.
2.An overseas communications tax, even if not related to business, is subject to a percentage tax.
The term “regular” involves more than one isolated transaction. It requires repetition and continuity of action.
This rule is subject to exceptions.
There may be isolated transactions which are subject to business taxes. Examples are:
1.An importation of goods for personal use is subject to value-added tax.
2.A single overseas communication is subject to a percentage tax.
3.A winning in a horse race or jai-alai is subject to a percentage tax.
4.A single sale of shares of stock of a domestic corporation thru a local stock exchange by one who is not
a dealer in securities is subject to a percentage tax.
EXCISE TAXES
Excise taxes apply to goods manufactured or produced in the Philippines for domestic sales or consumption
or for any other disposition and to things imported. Excise tax imposed shall be in addition to the value-added
tax. (Sec. 129, NIRC)
Illustration 1
Mr. Ante is a manufacturer of cigarettes. Is Mr. Ante subject to excise tax?
Answer: Yes (Manufacturer & the article is included in the twelve)
Illustration 2
Mr. Bueno is an importer of wines. Is Mr. Bueno subject to excise tax?
Answer: Yes (Importer & the article is included in the twelve)
Illustration 3
Mr. Cruz is a dealer, buying and selling of automobiles. Is Mr. Cruz subject to excise tax?
Answer: No (Neither manufacturer or importer, although the article is included in the twelve)
Illustration 4
Mr. De Guzman is a manufacturer of shoes. Is Mr. De Guzman subject to excise tax?
Answer: No (Manufacturer but the article is not included in the twelve)
Illustration 5
Mr. Evangelista is an importer of signature clothes. Is Mr. Evangelista subject to excise tax?
Answer: No (Importer but the article is not included in the twelve)
PERCENTAGE TAXES
The percentage taxes under the National Internal Revenue Code are (Sec.116 -127,NIRC)
3% percentage tax on sale of goods, properties or services (1% from July1, 2020
– June 30, 2023 CREATE Law)
Common carrier’s tax on domestic and international carriers
Franchise tax
Overseas communications tax
Tax on banks and non-bank financial intermediaries with quasi-banking
activities
Tax on other non-bank financial intermediaries
Tax on life insurance companies, including tax on agents of foreigninsurance
companies
Amusement tax
Tax on winnings; and
Stock transactions tax
Except the 3% percentage tax which may be on the sale of goods or properties, or of services, the percentage
taxes are on services.
VALUE-ADDED TAX
The value-added tax is imposed on
Sale of goods or properties
Sale of services; and
Importation of goods
Illustration 6
Mr. Fajardo is a manufacturer of wines whose annual gross sales do not exceed
₱3,000,000. Is he subject to excise tax?
Answer: Yes
Is he subject to value-added tax or percentage tax?
Answer: Percentage tax
Illustration 7
Mr. Gapuz is a manufacturer of clothes whose annual gross sales do not exceed ₱3,000,000. Is he
subject to excise tax?
Answer: No (not included in the twelve categories of articles)
Is he subject to value-added tax or percentage tax?
Answer: Percentage tax
Illustration 8
Mr. Herrera is a manufacturer of cigarettes whose annual gross sales exceed
₱3,000,000. Is he subject to excise tax?
Answer: Yes
Is he subject to value-added tax or percentage tax?
Answer: Value-added tax
Illustration 9
Mr. Ignacio is a manufacturer of shoes whose gross sales in a year exceed ₱3,000,000. Is he
subject to excise tax?
Answer: No (not included in the twelve categories of articles)
Is he subject to value-added tax or percentage tax?
Answer: Value-added tax
Illustration 10
Mr. Joaquin is an importer of cigarettes. Is he subject to excise tax?
Answer: Yes
Is he subject to value-added tax or percentage tax?
Answer: Value-added
Illustration 11
Mr. Kenyo is an importer of signature clothes. Is he subject to excise tax?
Answer: No (not included in the twelve categories of articles)
Is he subject to value-added tax or percentage tax?
Answer: Value-added tax
Registration of Business
Every taxpayer subject to an internal revenue tax must register with the Bureau of Internal
Revenue and pay an annual registration fee of five hundred pesos (₱500) using BIR Form
No. 0605 for every separate and distinct establishment, including facility types (sales outlets,
places of production, warehouses, and storage places),where the business is conducted. He
shall register each type of internal revenue tax for which he is obligated. The taxpayers are
required to pay the annual registration fee not later than January 31, every year.
Illustration 12
Mr. Lumibao is a merchant. He has his main store in the City of Manila, a branch store
in Quezon City, and another branch store in Pasay City. How many payments of
registration fee are required?
Answer: Three (3)
For the consequence of the failure of a vatable person to register as value-added taxpayer, see discussion in
the chapter on value-added tax.
Optional Registration
Any person who is not required to register for value-added tax because his sales did not, or is
not to expected to, exceed Three Million Pesos (₱3,000,000) a year, may elect to register under
the value-added tax system. When he thus registers, he becomes subject to all the rules on
value-added tax. Such election shall not be cancelled for the next three (3) years.
Transfer of Registration
In case a registered person decides to transfer his place of business or his head office or branch,
it shall be his duty to update his registration status by filing an application for registration
information update (BIR FORM 1905) in a prescribed form of the Bureau of Internal Revenue.
Cancellation of Registration
A registered person may cancel his registration by filing an application for registration
information (in a prescribed form BIR FORM 1905). For special rule on cancellation of VAT
registration see discussion in the chapter on value-added tax.
A taxpayer who has both a VAT and a non-VAT business may have one set of invoices only
(the VAT invoices and receipts), but in using a VAT invoice or receipt for the non-VAT sale,
the term “VAT-exempt sale” should be written or printed prominently on the invoice or receipt
(Sec. 11, RA 9337). If the words are not written or printed, the sale becomes subject to the value-
added tax. (See other rules on invoices and receipts in the chapter on value-added tax).
The general journal is called a book of “original entry.” Day to day businesstransactions are
recorded in the general journal. The transactions of a day must berecorded in the general
journal at the end of the day, or next day (not later than twenty-four hours after the
transaction).
The general ledger classifies and summaries the transactions of a period (e.g. month, year)
as recorded in the general journal. For example, the cash receiptsand cash disbursements
of a month are “entered” in a general ledger account with the title “cash”. The cash balance
at the end of the month will be reflected in a report to management or in a financial statement
called balance sheet. At the end of the year, the year-end balance of the cash of the business
will be reflected in thegeneral ledger, and will be reported in the balance sheet. At the end
of the year, the general ledger also summarizes and reflects the year-long income and
expenses of the business, and facilitates the computation of the net income of the year.
The books of accounts of a business must be preserved for a period of three yearsfrom the
date of last entry in the books. While it is the practice of some business to register a new set
of books before the end of a year, for use next year, it is allowedto use a set of books of
accounts as long as it can be used, until it is filled up.
The registration of a new set of manual books of accounts shall only be at the time when the
pages of the previously registered books have all been already exhausted, provided, that the
portions pertaining to a particular year should be properly labeled or marked by taxpayer.
This means that it is not necessary for a taxpayer to register/stamp a new set of manual books
of accounts each and every year.
Cessation of Business
The taxpayer should give notice to the Bureau of Internal Revenue should he decide to
discontinue the business that he registered with the Bureau. The reason for this is that the
Bureau will make a last determination if the taxpayer had correctly paid all the taxes due
while he was in business.
Books of Accounts shall be kept at all times in the place of business of the taxpayer. Such books and registers,
together with records, vouchers, and other supporting papers and documents prescribed by the Bureau of
Internal Revenue (BIR), kept by taxpayers shall be preserved intact, unaltered and unmutilated. Keeping of
two or more sets of records or books of accounts is prohibited.
All entries in the Manual Books of Accounts shall be handwritten. Printouts of the accounting records
pasted/glued/inserted onto pages/sheets of the registered Manual Bound Books of Accounts are prohibited and
subject to penalty pursuant to existing revenue issuances.