INTRODUCTION TO 

BUSINESS  Relative consumption tax- imposable only

TAXATION
What is BUSINESS TAX?
 Business tax – is a form of consumption.  rather than the buyer
 Consumption tax-is a tax upon the
utilization of goods or services by consumer
or buyers. It is a tax on the purchase or
consumption of the buyer and not on the sale
of the seller.  Consumption occurs when one
acquires good or services by purchase,
exchange or other means.
Rationale of Consumption Tax
when the the seller is a business 
 Indirect tax - tax is collected from the seller
  
 Privilege tax - tax on a privilege to do
business  
 National tax - imposed by national
government 
What are the types of business tax?
 Percentage tax  
 Value added tax  
 Excise tax 

1. It promotes savings formation. 

Types of business taxpayers  
2. It helps in wealth redistribution to
society.   VAT Taxpayer  
 Non-Vat taxpayer
3. It supports the Benefit Received Theory. 
What is the difference between the VAT, % tax
Consumption tax promotes savings formation   and excise tax in timing of imposition? 
 Vat - imposed on the sale  
The residual income that remains after  % Tax - imposed on the sale  
consumption is SAVINGS. Savings  Excise tax - impose on the importation 
promotes capital formation and investment
which are considered crucial to economic What is the difference between the VAT, % tax
development.  and excise tax when it comes to its nature?  
 Vat - Primary tax  
Consumption tax helps redistributes wealth to  % Tax - Primary tax  
society    Excise - Additional tax 

Rich people buy more and spend more since they can
afford expensive life style. A tax consumption will
make them pay more tax. Therefore, consumption tax
supports the redistribution of wealth from the rich to
the less privileged members of the society.   % tax - Any business
Consumption tax helps redistributes wealth to
society  
Rich people buy more and spend more since they can
afford expensive life style. A tax consumption will
make them pay more tax. Therefore, consumption tax
supports the redistribution of wealth from the rich to
the less privileged members of the society.
Consumption tax supports the Benefit Received
Theory  
Benefit received theory, those who receive benefits
from the government shall pay taxes. Everyone in the
state is receiving benefits from the government;
hence, everybody should be tax.  A tax consumption
will effectively make everyone contributes to the
support of the government. Consumption tax
provides a practical application of the Benefit
Received Theory.  It should not be levied upon basic
necessities such as food, education, health and shelter
or housing.
What is the difference between the VAT, % tax
and excise tax when it comes to its Subject
business?  
 Vat - Any business  
  
 Excise tax - only producer or importer of
excisable product or services
What is the difference between the VAT, % tax
and excise tax when it comes to it’s taxpayers?  
 Vat - Business only  
 % tax - business only  
 Excise tax - business or not business  
What is the difference between the VAT, % tax
and excise tax when it comes to it’s usual tax
payers?  
 Vat - big business  
 % tax - small business  
 Excise tax - big or small business 
What is the difference between the VAT, % tax
and excise tax when it comes to it’s accounting
treatment?  
 Vat - Liability  
 % tax - expense  
 Excise tax - Asset or liability

Income tax and consumption tax distinguished  Explain and Enumerate procedures of business
taxation.

 Evaluate if the sales qualifies as business

 Identify the taxable person: If individual or
juridical
 Determine the activity type: if sale of goods
or sale of services
Income tax is a consistent with the ability to pay the
 Classify the sales or receipts whether they
theory because it taxes only those who are capable to
are: Exempt; subject to %tax or Vatable.
pay tax. Consumption tax effectively taxes everyone. 
 Determine taxpayer registration type:
 If VAT registered - Pay VAT
What are the NATURE OF BUSINESS TAX?
 
 If non-VAT registered - pay 3%
percentage tax then determine the
magnitude of 12-month vatable
sales
 If exceeds P3M:
Person shall register as
VAT taxpayer
  Pay VAT prospectively
 If does not exceed P3M
Person shall continue to
pay 3% percentage tax on
sales/receipt
  Determine if the goods or services is
excisable
  If yes - pay applicable
excise tax in addition to
VAT or %tax
  If no - pay only VAT or
%tax
Note:
A. Business normally registered initially as non-
VAT taxpayers, except when its projected
operation expected to exceed 3M annual VAT
Threshold
B. Once the taxpayer becomes or registered as
VAT taxpayer, he remains as such paying VAT
until the cancellation of his VAT registration.
What is business?
Business is a habitual engagement in a
commercial activity involving the sale of goods
or services for a profit.
What are the elements of business?
a) Habitual engagement
b) Commercial Activity
What is Habitual activity?
There must be a regularity in transaction.
Isolated or casual sales are not regular
activities.
Note: A Casual sale transaction is not business
even if the profit is derived from the
transaction. On the other hand, regular
selling of goods or services for a profit is a
business despite of the absence of profit.
What is privilege stores?
Privilege stores “ tiangge” are stores or
outlets not permanently fixed to the ground
which are put up during special event such
as festivals of fiestas. They are not
habitually engaged in business, hence
exempt from business tax.
Qualification of Privilege stores?
They should engage in business activity for
a cumulative period not more than 15 days.
Otherwise, they shall consider subject to
business tax.
Note: If the problem states “establish
business enterprise” It’s a business and
subject to business tax.  services to clients for a fee is considered as business
What is the exception to the regularity rule?  Explain the Business for mere Subsistence
The sale of services by nonresident persons
are presumed made in the course of business
without regards as to whether the sale is
regular or isolated.
What is Commercial activity?
Engagement in the sale of goods or services for a
profit. The goods or services must be offered to the
public with a motive to earn unrestricted amount of
pecuniary gains.
Note: Actual existence of profit during the
period is not precondition to business
taxation, even if the business operation
results to a loss, business tax still applies.”
Enumerate persons who are not business
(ENDGB)
a. Employment
b. Non-profit organization/association
c. Directorship in a corporation
d. Government agencies and
instrumentalities
e. Business for mere substance
1.) Government agencies and instrumentalities 
➢ They provide essential public services and 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 
➢ A charitable or eleemosynary activity regularly
pursued by an institution or organization is not a
business because of the 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 
 Although a director may not be an employee,
director’s fees, per diems, and allowances are not
derived in an economic or commercial activity or
rendering of services to clients for a fee; hence, not
subject to business tax. 
5. Business for mere subsistence 
➢ This refers to businesses with gross sales or
receipts not exceeding P100,000 per year. 
➢ Marginal income earners – refers to individuals
not deriving compensation income under an
employer-employee relationship but who are self-
employed deriving gross sales or receipts not
exceeding P100,000 in any 12-month period. 
➢ Although regular in operations, marginal income
earnings are exempt from business tax, but are
subject to income tax (RR7- 2012). 
➢ These small businesses could not be considered
commercial being merely for personal or family
livelihood or subsistence. 
NOTE: Exercise of profession by regularly rendering
subject to business tax.
Business with the gross sales/receipts not exceeding
P100,000 per year. (example: Marginal income
earners)
Explain Marginal income Earners 
Individuals not deriving compensation income under  Right or privilege to use patent, copyright,
an employer-employee relationship but who are self design or model, plan, properties or rights  
employed deriving gross sales or receipts not  Rights or privilege to use in the Philippine
exceeding P100,000 in any 12 month period. any industrial, commercial or scientific
Note:  Term marginal do not include equipment 
licensed professional consultants, artist,  Right or privilege to use motion picture,
sales agents, brokers, including all others films, tapes and discs  Radio television,
whose income have been subjected to satellite transmission and cable television.
withholding tax.  Marginal income earners
are subject to income tax.  Examples of Services performed in the
Examples of Marginal Income earners Philippines  
a) Subsistential Farmers or fisherman  Construction and service contractors  
b) Small Sari-sari Store  Brokers of stocks, real estate, commercial,
c) Small Carinderias or “turo-turos” customs and immigration  
d) Drivers or operators of a single unit tricycle  Lessors of property, whether personal or
e) Others real  
 Person engaged in warehousing services  
Examples of persons who are engaged in business:
 Distributors of Cinematographic Films  
a) Consultants
 Persons engaged in milling, processing,
b) Cooking instructors
manufacturing or repacking goods  
c) Television or movie talents and artist
d) Sales agent or insurance or real estate  Proprietors, operators. Or keepers of hotels,
including broker motels, rest houses, pension houses, inns,
e) Martial arts instructors resorts, theaters and movie houses  
 Operators of restaurants, refreshment
Who are business tax payers? (CATE J. CIP)  parlors, cafes and other eating places
a) Corporation including clubs and caterers
b) Association   Dealers in securities  
c) Trust   Lending investors  
d) Estate   Transportation constructors in their transport
e) Joint venture  of passenger, goods, or cargoes from one
f) Cooperative  place in the Phil to another place in the
g) Individual  Phil.    
h) Partnership   Common carriers by air and sea relative to
their transport of passenger, goods, cargoes
Rules in business taxation:   for hire and other domestic common carriers
Each person, natural or juridical, is taxable person for by land relative(goods or cargoes)  
purposes of business taxation.  Sales of electricity by generation,
 Husband and wife are separate taxpayers   transmission, and/or distribution
 A parent company is a separate taxable companies.  
person with its subsidiary company and each  Franchise grantees of electric utilities,
subsidiary company is a taxable person   telephone, telegraph, radio, television,
 Home office and branch offices are one, not broadcasting, and all other franchise
separate, taxable person.   grantees.  
 Proprietorship is not a juridical entity. Its  Non-life insurance including surety,
sales and receipts is subject to business tax indemnity, and bonding companies. 
to the individual proprietor.  Similar services regardless of whether or not
the performance thereof calls for the
The following are exempt from income tax but exercise or use of the physical or mental
subject to business tax: faculties  
a) GPP  Lease of, use of, or the right or privilege to
b) Joint venture engaged in construction and use any copy right, patent, design or model,
oil exploration plan, secret formula or process, goodwill,
c) Local Water Districts trademark, trade brands or other like
d) Barangay micro-business enterprise. property right. 
 Lease or the use of, or the right to use any
What are types of business activity?  industrial, commercial or scientific
a) Sale or exchange of goods or properties  equipment  
b) Sale or exchange of services or lease  Supply of any scientific, techinical,
properties industrial, or commercial knowledge or
information  
Explain sale Goods or Properties.   Similar services regardless of whether or
Refers to all intangible and tangible objects not the performance thereof calls for the
which are capable of pecuniary estimation exercise or use of the physical or mental
faculties  
Explain sale or Exchange of services.  Lease of, use of, or the right or privilege to
Means performance of all kind of services in the use any copy right, patent, design or model,
Philippines for others for a fee, renumeration or plan, secret formula or process, goodwill,
consideration in kind. trademark, trade brands or other like
property right. 
Example of goods or properties that is to be sold    Lease or the use of, or the right to use any
 Real properties held primarily for sale to industrial, commercial or scientific
customers, held for lease or used in ordinary equipment  
course of business  
  Supply of any scientific, techinical,
industrial, or commercial knowledge or
information   gross selling price”

 Similar services regardless of whether or not
the performance thereof calls for the
exercise or use of the physical or mental
faculties   at the time of sale, which are
 Lease of, use of, or the right or privilege to
use any copy right, patent, design or model,
plan, secret formula or process, goodwill,
trademark, trade brands or other like
property right. 
 Lease or the use of, or the right to use any
industrial, commercial or scientific
equipment  
 Supply of any scientific, techinical,
industrial, or commercial knowledge or
information  
 Similar services regardless of whether or not
the performance thereof calls for the
exercise or use of the physical or mental
faculties
 Lease of, use of, or the right or privilege to
use any copy right, patent, design or model,
plan, secret formula or process, goodwill,
trademark, trade brands or other like
property right.
 Lease or the use of, or the right to use any
industrial, commercial or scientific
equipment
 Supply of any scientific, techinical,
industrial, or commercial knowledge or
information
 Supply of any assistance that is ancillary and
subsidiary to.    Deposits applied as payment for services
 Supply of services by non-resident person or
his employee    Contract price
 Supply techinical advice, assistance or
services rendered in connection the technical
management or administration    Rental or royalty Service fee
 Lease of motion picture films, films, tapes
and discs    Recognized whether constructively
 Lease or use of the right to use radio,
television, satellite transmission and cable
television time.
 Supply of any assistance that is ancillary and
subsidiary to.
 Supply of services by non-resident person or
his employee
 Supply techinical advice, assistance or
services rendered in connection the technical
management or administration
 Lease of motion picture films, films, tapes
and discs
 Lease or use of the right to use radio,
television, satellite transmission and cable
television time.
What is the basis of business tax in sellers of goods
or properties and sellers of services.
Goods or properties: Gross Selling Price 
Sellers of Services : Gross receipts
What is Gross selling price?
Total amount of money which obligated to pay to the
seller in consideration of the sale, barter or exchange
of goods or properties.
Note: “The excise tax, if any, on such
goods or properties shall form part of the
Enumerate deduction from gross selling price:.
 Discounts determined and granted
expressly indicated in the invoice,
the amount thereof forming part of
the gross sales. (trade discount)
Sales return and allowances
Sales return

and
allowances
 Sales return and allowances
“Note: To be deductible, discounts must not
be dependent upon the happening in the
future event or contingency”
Example of non-deductible discounts in
 Gross Selling Price because of contigency.
 Quota discounts
 Rebates
 Cash discount
What is the meaning of Gross Receipts? (RD A
CARS)
 Rendered payment
 Advance payment
 Amount charge for material supplied with
the services
Note:
or actually received
 Exclusion of VAT
What do you mean by Constructive Receipts?
Occurs when money consideration or its equivalent is
placed at the control of the person who renders
service without restriction by the payor. This is added
to gross receipts.
Examples of Constructively receipts.
a) Deposit in bank account of the seller by
the buyer in consideration of services
rendered or goods sold.
b) Issuance by the debtor of a notice to
offset any debt and obligation and
acceptance thereof of the seller as payment
for the services rendered
c) Transfer of the amounts retained y the
payor to the account of the constructor
Explain Agency monies
This are not included in gross receipts
Agency monies
➢ Amounts earmarked for payment to an
unrelated third party or received as
reimbursement for advanced payment on
behalf of another which do not redound to
 the benefit of the payor are not part of gross
receipt.

Explain the treatment of Insurance proceeds on

damaged assets.
Receipts of insurance proceeds from the
destruction of a company’s business asset, is
not viewed as sales or receipts. The
compulsory or involuntary conversion is
incase of insurance reimbursement not
viewed as sales or receipts

Explain the treatment of Withholding taxes.

Amount withheld from gross receipts shall
form part of gross receipts because they are
constructive possession and not subject to
any reservation.

Enumerate the Exempt Sales or Receipts

 Sales of certain basic necessities
 Sales exempt by law, treaty or contracts
 Casual sales
 Export sales of non-VAT taxpayers