HASSAN, NADZRA C.
BSA2
TAX2 Business and Transfer Taxation
Prelim Project – Concept Map
VAT is added to a product at every
point of the supply chain where
value is added to it.
The VAT on importation is
directly computed on the
landed costs or total
purchase costs of
importation without any
deduction or tax credit.
VAT-Exempt persons are not subject to VAT on Importation.
VAT-Exempt Persons under the NIRC:
1. International shipping or air transport
operator
2. Agricultural cooperatives
3. Ecozone-locators
VAT on Importation the bringing of
goods to the Philippines which
represents bus current domestic
consumption.
Structure of the VAT on Importation
SCOPE Import of service Import of goods
Exempt Exempt Exempt
The VAT on importation applies to
% Tax % Tax -
current purchases or acquisitions by a
VAT Final Withholding VAT VAT on Importation
resident of goods or services from non-
residents. Imports that do not
represent recent purchases of goods or
services are so exempt. Excise tax is an additional imposition to VAT or
percentage tax. Unlike business taxes such as
percentage taxes and VAT on sales or receipts which are
levied at the point of sales, excise tax levied at the point
of production or importation.
Terminologies Meaning
a. Exempt sales or receipts Exempt to VAT and percentage tax
b. Services specifically subject to % tax Subject to a particular percentage tax and is exempt from VAT
c. Vatable sales or receipts Subject to either VAT or 3% percentage tax
HASSAN, NADZRA C. BSA2
TAX2 Business and Transfer Taxation
Prelim Project – Concept Map

Continuation…

Importation refers to the purchase of

goods or services by Philippine
residents from non-resident sellers.
EXEMPT ON IMPORTATION

A. Importation of exempt goods
Certain goods considered basic necessities
are not subject to the VAT on importation,
such as:
1. Agricultural and marine food products in
their original state
2. Fertilizers, seeds, seedlings and fingerlings,
fish, prawn, livestock and poultry feeds,
including ingredients used in the manufacture
of finished feeds
3. Books and any newspaper, magazine,
review, or bulletin which appear at regular
intervals with fixed prices for subscription and
sale and which is not devoted principally to
the publication of paid advertisements
4. Passengers or cargo vessels and aircrafts,
including engine, equipment and spare parts
thereof for domestic or international
transport operations
B. Importation by VAT-exempt
persons
1. International shipping or air
transport operators on their import
of fuel, goods and supplies
2. 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
3. PEZA locators on their import of
goods or services
D. Importation which are exempt under special
laws and international agreement
C. Quasi-importation
1. Personal and household effects
belonging to residents of the Philippines
returning from abroad and 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, barter or exchange
HASSAN, NADZRA C. BSA2
TAX2 Business and Transfer Taxation
Prelim Project – Concept Map

Treatment of the VAT on

Continuation…
BASIC HUMAN FOOD AND RELATED
PRODUCTS
Agricultural or marine food products in
their original state Import exemption is
limited to agricultural or marine food
products in their original state or those
which undergone simple processing are
vatable.
Livestock, poultry, marine (RR16-2005)
to be considered in "original state, the
goods must be in their raw form are also
exempt.
Farm or Fishery Inputs
Marine or agricultural inputs intended for the
production of marine or agricultural food intended
for human consumption are also VAT-exempt.
The importation of farm or fishery inputs are
exempt. Likewise, foods of these inputs are also
VAT-exempt.
Products intended as maintenance of crops,
livestock or poultry and supplemental implements
of agricultural or inputs are vatable.
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 final withholding VAT shall be part
of the cost of 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.

Final Withholding VAT

PASSENGER OR CARGO VESSELS AND

AIRCRAFTS
The VAT exemption covers the import of
passenger or cargo vessels and aircrafts,
including engine, equipment and spare parts
thereof for domestic or international
transport operations.
To qualify for exemption, the importation
must be subject to the requirements on
restriction on (MARINA):
✓ Passenger or cargo vessels - 15 years
✓ Tankers- 10 years
✓ High speed passenger crafts - 5 years
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
VATABLE IMPORT OF SERVICES
All other of import of services is subject to
final withholding VAT. The 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 Philippines by non-
residents
 HASSAN, NADZRA C. BSA2
TAX2 Business and Transfer Taxation
Prelim Project – Concept Map

NOTE:
1. Businesses normally register initially as non-VAT taxpayers, except when their projected operation is expected to exceed the P3M annual VAT threshold.
2. 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.

Vatable Sales or Receipts Other sales of goods, properties,

services or lease of properties,
other than those exempt and Value added tax - if the taxpayer
specifically subject to percentage is a VAT taxpayer
tax are vatable.
3% general percentage tax if the Optional VAT Registration
taxpayer is non-VAT registered
taxpayer
VAT-registered taxpayers are
allowed credit for input VAT while A person who is below the VAT threshold
Timing of VAT registration non-VAT registered taxpayers are may, at his option, register as VAT taxpayer.
4. Persons who are below the threshold but
not allowed to claim input VAT Once made, this option shall be irrevocable
opt to be registered as VAT taxpayer shall credit. for 3 years. For TV or radio franchise
register not later than 10 days before the
1. Persons beginning of the taxable quarter (Ibid).
grantees, the option shall be perpetually
commencing business irrevocable.
with an expectation
to exceed the VAT
threshold within 12 Type of VAT Taxpayers
months shall
2. Persons exceeding the VAT
VAT-registered taxpayer - a taxpayer who
simultaneously 3. Franchise grantees of radio and
register as VAT threshold shall register as VAT television broadcasting, whose gross registered under the VAT system
taxpayer with the taxpayer before the end of the annual receipt for the preceding calendar
registration of their month following the month the year exceeded P10,000,000, shall register VAT-registrable taxpayer - a taxpayer who
new business or trade
threshold is exceeded. as VAT taxpayer within 30 days from the exceeded the VAT threshold but did not yet
with the BIR.
end of the calendar year (RR16-2005). register as a VAT taxpayer

BUSINESS TAX REPORTING

 HASSAN, NADZRA C. BSA2
TAX2 Business and Transfer Taxation
Prelim Project – Concept Map
Exempt sales are exempt consumption of
goods or services from domestic sellers.
Exempt sales are not subject to VAT and
percentage tax. and marine food products in
a. Agricultural
their original state
b. Fertilizers, seeds, seedlings and
fingerlings, fish, prawn, livestock and
poultry feeds, including ingredients used in
the manufacture of finished feeds
c. Books, newspapers or magazines
d. Medicines prescribed for diabetes and
hypertension
e. Passenger or cargo vessels and aircrafts
1. Sale of real properties utilized for low-cost
housing
2. Sale of real properties utilized for socialized
housing
3. Sale of residential lot valued at P1,919,500
and below and other residential dwelling
valued at P3,199,200 and below
Senior Citizen is legally mandated to be given
20% discount on the sales of these goods
above.
Exempt Sales of Goods, or Exempt Sales of Services
Properties
1. Sales of goods to senior citizens
1. School
and persons with disability
2. Employees
2. Sales of exempt goods 3. Agricultural Contract growers
3. Sales of goods by cooperatives and milers
4. Sales of residential properties 4. Residential Leasing
5. Export sales by non-VAT persons 5. Cooperative services
6. Treaty-exempt sales of goods 6. Hospital
7. Home owner’s association or
7. Tax-free exchange of property
condominium corporation
8. Sale of gold to the Bangko Sentral 8. Lease passenger or Cargo
ng Pilipinas (BSP) vessels and aircrafts, including
engine, equipment and spare
Other Exempt Sales of Goods and Services parts thereof for domestic or
1. Sales of goods or services taxed by special laws international transportation
a. Sales of goods or services by Ecozone locators
b. Sale of amusement service by theaters and cinemas
operations
These are subject to tax by special laws and are not subject to national 9. Treaty-exempt services
business taxes such as VAT or percentage tax. 10. Regional area headquarters
2. Sales by persons not engaged in businesses 11. International carriers
The sale goods, real properties or services by persons not engaged in business
12. Printers or publishers
is not subject to business taxes.
3. Sale of assets held for use 13. Senior Citizen and person with
The sale of assets held for use such as supplies and items of property, plant disability
and equipment such as: land and building, machineries, office furniture and
fixture, and office equipment is normally exempt from business tax. For VAT-
registered taxpayers, however, the sale of these ordinary assets is considered
"incidental transactions" subject to VAT.
HASSAN, NADZRA C. BSA2
TAX2 Business and Transfer Taxation
Prelim Project – Concept Map

Non-VAT
Percentage Tax is a national tax measured by
Taxpayers are
a certain percentage of the gross selling or
gross value in money of goods sold those who did not
exceed the VAT
threshold and who
did not register.
SERVICES SPECIFICALLY SUBJECT TO PERCENTAGE
TAX
1. Banks and non-bank financial intermediaries
2. International carriers on their transport of cargoes, excess
baggage and mails only (RA 10378)
3. Common carriers on their transport of passengers by land
and keepers
4. Certain amusement places
5. Brokers in effecting sales of stocks through the Philippine
Stock Exchange and corporations or shareholders on initial
public offerings
6. Certain franchise grantees
7. Life insurance companies and agents of foreign insurance
8. Telephone companies on overseas communication
9. Jai-alai and cockpit operators on winnings

TAX ON BANKS AND NON-BANK FINANCIAL INTERMEDIARIES

PERFORMING QUASI-BANKING FUNCTIONS
"Banks" refers to entities engaged in the lending of funds obtained in
the form of deposits. (RA 8791, The General Banking Law of 2000)
"Banks" includes commercial banks, savings banks, mortgage banks,
development banks rural banks, stocks and savings associations,
branches and agencies of foreign banks (RA 337, The General Act).
 HASSAN, NADZRA C. BSA2
TAX2 Business and Transfer Taxation
Prelim Project – Concept Map

PERCENTAGE TAX ON INTERNATIONAL

Note on domestic carriers:
Domestic sea or air carriers with international
operation are vatable on their outgoing
shipment of passengers, excess baggage,
cargoes or mails. They are actually subject to a
zero-rated VAT on such shipment.
Two types of international carriers:
a) International air carriers
b) International shipping carriers
CARRIERS
International carriers doing business in the
Philippines shall pay a tax equivalent to 3% of
their quarterly gross receipts derived from the
transport of cargoes, baggage, or mails from
the Philippines to another country.

Note that other operators of amusement places such as bowling

alleys, golf courses, and billiard halls are vatable. Cinemas and
theaters are not subject to this national amusement tax because it
is exclusively subject to local amusement tax.

Places of boxing exhibitions 10%

Places of professional basketball 15%
games
Cockpits, cabarets, night or day 18%
clubs Exempt receipts on professional boxing
Jai-alai and race tracks 30% The gross receipts from professional boxing are exempt
from percentage tax under the following conditions:
1. World or Oriental Championship
2. At least one of the contenders is a Filipino citizen
3. The promoter is a Filipino citizen or a corporation 60% of
which is owned by Filipino citizen
HASSAN, NADZRA C. BSA2
TAX2 Business and Transfer Taxation
Prelim Project – Concept Map
Primary offering = Primary shares outstanding shares after IPO
Tax on the Shares of Stock Sold or Exchanged through an Initial
Public Offering (IPO)
Secondary offering = Secondary shares outstanding shares before
The sale, barter, exchange or other disposition through initial
public offering of shares of stocks in a closely held corporation is
subject to the following tax rates based on the gross selling price
or gross value in money in proportion to the shares sold, bartered
or exchanged or otherwise disposed:

TAX ON FRANCHISES
Generally, franchises are vatable. Exceptionally however, there are
only two types of franchises that are specifically subject to
percentage taxes under the NIRC:

Vatable Franchises
a. Electricity - electric generation or transmission and distribution
by electric cooperatives are vatable
b. Telecommunication Telecom companies are vatable, except on
their - receipts from outgoing messages since these are subject to
the 10% overseas communication tax.
C. Transportation - Transport companies are vatable, except
receipts of common carriers by land on their transport of
passengers since these are subject to the 3% common carriers’ tax.
d. Private franchises
Taxation of other receipts of life insurance business
1. Renewal or re-insurance fee, re-instatement fee and penalties -
these are considered incidental to or connected to insurance policy
contracts and are akin to premium; hence, subject to the 2%%
premiums tax.
2. Management fees, rental income, or other income from unrelated
services- these are vatable.
3. Investment income - If investment income is realized from the
investment of premiums earned, it is exempt.
HASSAN, NADZRA C. BSA2
TAX2 Business and Transfer Taxation
Prelim Project – Concept Map

TAX ON OTHER TAXABLE SALES OF NON-VAT TAXPAYERS

The imposable percentage tax on taxable sales or receipts,
other than from services or transactions specifically subject to
percentage tax, of non-VAT registered persons is 3%.

EXEMPTION FROM PERCENTAGE TAX

The percentage tax does not cover:
1. VAT taxpayers
2. Self-employed and or professionals who
opted to the 8% income tax
3. Cooperatives