MODULE 6

Transfer and Business Taxation

SESSION TOPIC: Nature and Concepts of Business Taxes

LEARNING OUTCOMES

The following specific learning objectives are expected to be realized at the end of the
session:
1. To be able to understand the nature and concepts of business taxes
2. To be able to identify and explain the classification of business taxes
3. To be able to apply the provisions of the tax laws concerning excise tax. To
be able to apply the provision of the tax laws concerning percentage tax.

KEY POINTS

Business Domestic Consumption Foreign Consumption

Destination Principle Cross-Border Doctrine

CORE CONTENT

Business Taxation refers to the taxes that a business must pay as a normal part of
business operations. This module covers the nature and concepts of business taxes,
Types of Business, Classification of business taxes: value added tax, percentage tax
and excise tax

IN-TEXT ACTIVITY

Business - is habitual engagement in a commercial activity involving the sale of goods

or services to customers or clients.
Essential Requisites of Business
1. Habitual Engagement - there must be regularity in transactions to construe the
presence of a business. Isolated or casual sales are not regular activity, hence,
presumed not made in the ordinary course of business
2. Commercial Activity - means engagement in the sale of goods or services for a
profit.
The following are not business under this rule

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 1. Government agencies and instrumentalities
2. Non-profit organizations or associations.
3. Employment
4. Directorship
Consumption Tax - Is a tax upon the utilization of goods or services by consumers or
buyers.
Business Tax – is a form of consumption tax payable by persons engaged in business.

Rationale of Consumption Tax

1. It promotes savings formation.
2. It helps in wealth redistribution to society.
3. It supports the Benefit Received Theory.

Types of Consumption
1. Domestic Consumption – refers to consumption or purchases of Philippine
residents.
2. Foreign Consumption – refers to consumption or purchases of non-residents.

Theories
 Destination Principle - goods and services destined for use or consumption in the
Philippines are subject to consumption tax.
 Cross-Border Doctrine - goods that cross the border which are destined toward
foreign territories should not be charged with consumption taxes.

Summary of Tax Rules on Consumption

THE SELLERS DOMESTIC FOREIGN

CONSUMPTION CONSUMPTION
(Buyer is Resident) (Buyer is Non-
Resident)

Non-Resident Taxable No Tax

Resident Taxable Effectively no Tax

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Income Tax vs. Consumption Tax

INCOME TAX CONSUMPTION TAX

Nature Tax upon receipt Tax upon usage of income or

of income capital

Scope A tax to the A tax to all

capable

Supporting Tax Ability to pay Benefit Received Theory

Theory theory

Nature of Business Tax

1. Consumption tax
2. Indirect Tax
3. Privilege tax

What is taxable person in bus. Taxation

• The term person refers to any individual trust, estate, partnership, corporation,
joint venture, cooperative or association.
 Each person, natural or juridical is considered a taxable unit *
 Income taxes are based on the tax payer's net taxable income, while Business
Taxes ( vat and % tax) are generally based on gross sales or receipts.
 Income tax exemption does not necessarily mean exemption from business tax
and business tax exemption doest not necessarily mean income tax exemption.

Registration of business
Any person who, in the course of trade or business, sells, barters, exchanges goods or
properties, or engaged in the sale of services subject to business tax shall:
• Register with the appropriate revenue district office (RDO) using the appropriate
BIR form
- all taxpayers are required to register with the RDO having a jurisdiction over the
place where the head office or each branch office is located.
• Pay annual registration fee of 500 using BIR form no. 0605 for every separate or
distinct establishment where sales transaction occur.
Registering your business with the BIR is important in order to operate it legally.

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Registration certificate and posting of registration
• The certificate of registration (BIR form 2303) will be issued not later than five (5)
working days from filing of application and submission of all documentary
requirements and upon presentation of duly validated BIR form 0605 as proof of
payment of annual registration free or official receipt.
• The original copy of certificate of registration and the duly validated BIR form
0605 as proof of payment of annual registration fee are required to be displayed
in any conspicuous place in the head office, branch office, storage place or place
of production

Types of Business According To Ownership

1. Sole Proprietorship
2. Partnership
3. Corporation

Business Classification as to Activities

1. Sale or exchange of goods or properties
2. Sale or exchange of services or lease of properties

Tax Bases of Business Taxes

1. For sellers of goods or properties – taxable on gross selling price
2. For sellers of service or lessors of properties – taxable on gross receipts

Gross Selling Price

– refers to the total amount of money or its equivalent which the purchaser pays
or is obligated to pay to the seller in consideration on the sale, barter or exchange of
goods and properties.

Gross Receipts
– refers to the total amounts of money or its equivalent representing the contract
price, compensation, service fee, rental or royalty including the amount the amount
charged for materials supplied with the services and deposits applied as payments for
services, rendered and advance payments actually or constructively received during the
taxable period for the services performed or to be performed for another person,
excluding VAT.

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Constructive Receipt
-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.

TYPES OF BUSINESS TAXES

1. Value-added Taxes
- is a business tax imposed and collected from the seller in the course of trade or
business on every sale or business on every sale of properties (real or personal) lease
of goods or properties (real or personal) or verndors of services. It is an indirect tax,
thus, it can be passed on to the buyer.

2. Percentage Tax
- is a sales tax of various rates, imposed upon the gross sales or gross receipts
of non-VAT registered taxpayers.

3. Excise Taxes
- is a tax imposed on certain goods manufactured or produced or imported in the
Philippines for domestic sale or consumption. The excise tax is an addition to VAT or
percentage tax

SESSION SUMMARY

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All businesses must pay several different kinds of taxes, some easier to understand
than others. Ignorance of the law excuses no one. It is imperative that an owner knows
the different types of taxes that his business needs to pay.

SELF-ASSESSMENT

Assignment. Research about the following topics: value added tax, percentage tax and
excise tax
Quiz. Essay and/or multiple choice questions about the topic.

REFERENCES

Refer to the references listed in the syllabus of the subject.

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