BUSINESS TAX REVIEWER
commercial activity involving of goods or
Consumption refers to the acquisition or
utilization of goods or services by any person.
Business tax is a form consumption tax.
Business tax is consumption tax payable by
persons engaged in business.
NATURE OF BUSINESS TAX
1. Relative consumption tax- is a tax on
the consumption of goods or services
and is imposable only when the seller is
a business.
2. Indirect tax- is also viewed as a tax on
the privilege to do business.
3. National tax- is imposed by the national
government.
TYPES OF BUSINESS TAXES
1. Percentage tax
2. Value added tax
3. Excise tax
Business normally registers initially as non-VAT
taxpayers, except when their projected
operation is expected to exceed the P3M
annual VAT threshold.
For non-VAT registered taxpayer, the evaluation
of the magnitude of vatable sales or receipts is
done continuously every month over a 12-
month period.
The taxpayer remains a non-VAT taxpayer for as
long as its 12-month rolling sales or receipts do
not exceed the P3M annual VAT threshold.
The taxpayer becomes or registered as a VAT
taxpayer, he remains as such paying VAT on
sales or receipts until the cancellation of his VAT
registration.
Business is a habitual engagement in a
services for a profit.
What does habitual engagement mean?
- Regularity in transactions to construe
the presence of a business.
- Normally manifested by registration
with the appropriate government
agencies as dealer or as a services
provider in particular trade.
A casual sale transaction is not a business even
if profit is derived from the transaction.
Privilege stores (tiangge) are stall or outlets not
permanently fixed the ground which are put up
during special events such as festivals.
Privilege store must consider the store should
engage in a business activity for a cumulative
period of not more than 15 days. Otherwise,
they shall be considered regular taxpayers
subject taxes and income tax.
Privilege tax operators shall not be consider
habitually engaged in business considering their
limited activity. They are exempt from business
tax but is subject to income tax.
EXCEPTION TO THE REGULARITY RULE
The sales of services by non-resident persons
are presumed made in the course of business
without regard as to whether the sale is regular
or isolated.
Commercial activity means engagement in the
sale of goods or services for a profit.
- The actual existence of a profit during
the period is not a pre-condition to
business taxation.
- If the business operation results to a
loss, business tax still applies.
THE FOLLOWING ARE NOT BUSINESSES:
1. Government 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 reimbursements.
2. Non-profit organizations or associations
 Is not a business because of absence of
the purpose to make profit.
3. Employment
 Employee benefits derived under
employment is not subject to business
tax but only to income tax.
4. Directorship in a corporation
 Director may not be employee,
director’s fees, per diems and
allowance are not derived in an
economic/commercial activity/
rendering services of clients for fee.
These not subject to business tax.
5. Business for mere subsistence
 Business principally for
subsistence/livelihood refers to
business with gross sales/receipts not
exceeding P100,000 per year.
Marginal income earners- refers to individual
not deriving compensation income under an
employer-employee relationship but who are
self-employed deriving gross/receipts not
exceeding P100,000 in any 12-month period.
EXAMPLE OF MARGINAL INCOME EARNERS:
1. Subsistential famers/fishermen
2. Small sari-sari store
3. Small carinderias/turo-turo
4. Drivers or operators of a single unit
tricycle
5. Others similarly situated
Marginal income earners do not include
licensed professionals, consultants, artists, sales
agents, broker, including all others whose
income have been subjected to withholding tax.
Exempt from business tax but are subject to
income tax.
EXAMPLE OF PERSONS CONSIDERED ENGAGED
IN BUSINESS:
1. Consultants
2. Sales agents of insurance/real estate
including brokers
3. Television/movie talents and artist
4. Cooking instructors
5. Martial art instructors
Business taxpayers is taxable person in business
taxation include any individual, trust, estate,
partnership, corporation, joint venture,
cooperative/association.
INCOME TAX EXEMPTION DOES NOT EQUATE
TO BUSINESS TAX EXEMPTION
 Income tax exemption does not
necessarily mean business tax
exemption.
The following persons which are exempt
taxpayers from income tax are subject to
business tax:
1. General professional partnership
2. Joint venture engaged in construction
or oil exploration
3. Local water districts
4. Barangay micro-business enterprise
TYPES OF BUSINESS TAXPAYERS
A taxable person shall register either as:
a. VAT taxpayers- 12%
b. Non-VAT taxpayers- 3% general
percentage tax
Business activities- the basis of business tax
differs on the activities business are engaged in.
TYPES OF BUSINESS ACTIVITES
a. Sales or exchange of goods/properties
b. Sales of exchange of services/lease of
properties
Goods or properties refers to all tangible and
intangible objects which are capable of
pecuniary estimation.
Sale or exchange of service shall mean the
performance of all kind of services in the
Philippines for others for fee.
BASIS OF BUSINESS TAX
Seller of goods or properties- gross selling price
Seller of services- gross receipts
Gross selling price refers to the total amount of
money or its equivalent which the purchaser
pays or is obligation to pay to the seller in
consideration of the sale.
Income taxation concept of gross sales except
only on the treatments of contingent discounts.
ALLOWABLE DEDUCTION FROM GROSS SELLING
PRICE:
1. Discount determined and granted at
the time of sale.
2. Sales return and allowances for which a
proper credit or refund was made
during the month/ quarter to the buyer
on taxable sales
Quota discounts or rebates are contingent upon
the future volume purchased by customers and
are not determinable at the date of sale.
Only trade discount is determined at the date of
sale.
Cash discount should not be deducted since
these are contingent upon the buyer paying at
an early date in the future.
Gross receipts refer to the total amount of
money or its equivalent representing the
contact price, compensation, service fee, rental
or royalty (e.g. artist). Excluding VAT
Constructive receipt occurs when the money
consideration or its equivalent a placed at the
control person who renders the services
without restriction by the payer. This added
part of gross receipts.
Agencies monies- amount earned for payment
to an unrelated third party or received as
reimbursement for advanced payment on
behalf for purpose.
Insurance proceeds on damaged assets-
receipts of insurance proceed from destruction
of a company business asset is not viewed as
sale/receipts for purposes of business.
Withholding taxes- amount withheld form part
of gross receipts because these are the
constructive possession and not subjected to
any reservation.
Business with mixed activities- shall be subject
to business tax on gross selling prices on its
sales of goods or properties and on gross
receipts on the sales of services.
EXEMPTS SALES OR RECEIPTS
1. Sales of certain basic necessities
a. Agriculture/marine food products
b. Health services of hospitals
c. Educational services of school
 d. Housing or residential properties
within price limits
2. Sales exempts by law, treaty or
contracts
a. Sales by cooperatives
to members
b. Sales or lease of aircraft or vessels
c. Sales or printing of booking,
magazines and newspaper
3. Casual sales or sales by non-business
sellers
a. Sales of persons not regularly
engaged in the trade or business
b. Services rendered under an
employer-employee relationship
c. Services rendered by a regional
area headquarter of multinational
company
4. Export sales for non-VAT registered
persons
Vatable sales/receipts- sales of goods,
properties, services or lease of properties, other
than those exempt and specifically subject to
percentage tax are vatable.
Value sales or receipts are subject to the
following:
1. 3% general percentage tax- if the
taxpayer is non-VAT registered taxpayer
2. Value added tax- if the taxpayer is a
VAT taxpayer
TYPES OF PERCENTAGE TAX
1. Specific percentage tax- those imposed
for BICAP FLOW and apply to any
taxpayer
2. General percentage tax- for vatable
sales or receipts of non-VAT taxpayers
DIFFERENCE OF THE CONCEPT OF GROSS
RECEIPTS AND SALES BETWEEN VAT AND NON-
VAT TAXPAYERS
For non-VAT taxpayer- customer/client on the
sale of goods or services is respectively withheld
10% creditable receipts.
For VAT-taxpayers- customer/client (invoice
price) on the sale of goods or services includes
the sales or gross receipts plus the 12% output
VAT.
BUSINESS TAX ACCOUNTING PERIOD
- The length of accounting period for
business taxes is one quarter.
- Referred to as a taxable quarter.
- Taxable quarter is composed of the
three month which is synchronized with
the taxable year. (Calendar or fiscal
year) of the taxpayer for purposes of
income tax
Reporting of VAT taxpayers- are required to
report their receipts or sales in two monthly
estimated VAT return for the first two months
of the quarter. VAT taxpayer pay remit VAT
monthly.
TRAIN law will eventually phase out the
monthly estimated VAT payments and VAT
payment will transaction into a full quarterly
payment effective January 1, 2023.
Reporting of non-VAT taxpayers (Percentage
taxpayers)
- TRAIN law requires percentage
taxpayers to file quarterly percentage
tax return (BIR form 255IQ)
Short period return- any person who retries
from business with due notice the BIR office
where the taxpayer is registered or whose VAT
registration has been cancelled. Within 25 days
from the end of the month when the business within 12 months of operations may
ceased to operate. apply for cancellation of VAT
registration. The 3 years lock in period
does not apply in this case.
Timing of VAT registration
Penalty for registrable persons- failure to
1. Person commencing business with an register as VAT taxpayer is not an excuse.
expectation to exceed the VAT Registrable persons are still liable to VAT but
threshold within 12 months shall without the benefit of input tax credit in the
simultaneously register as VAT periods in which are not properly registered.
taxpayer.
2. Franchise grantees of radio and
television broadcasting whose gross
annual receipt for the preceding
calendar year exceed P10,000,000 shall
register as VAT
3. 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.

VAT treatment of exempt transactions

- A VAT registered taxpayer who enters

into a VAT exempt transaction may also
opt that the VAT apply to his
transactions which would have been
exempt under section 109 of the NIRC.

Revocability of VAT registration

1. VAT registration whether voluntary or

mandatory, of franchise grantee of
radio or television is perpetually
irrevocable.
2. Who voluntarily registered VAT
taxpayer shall not be allowed to cancel
their VAT registration for the next 3
years. Referred 3 years lock in period.
3. Registered taxpayer as VAT taxpayer
with an expectation exceed the VAT
threshold but failed to exceed the same