Lesson Proper for Week 1
       It is legally undertaken. A business activity is considered legal when it is not
Lesson 1: Definition of business
             Business is the regular conduct of commercial or economic activity with the
primary motive of profit or livelihood. The secondary concerns of business may fall
under the categories of social responsibility, environmental safety or promotion,
and safeguarding of public welfare and interest.
             All business perform various activities daily. These may be classified as
either business activities or not.  Business tax covers only those actions that are
classified as business activities especially those involving the sale of goods or
services.
 Requisites of a business activity
             For an activity to qualify as a business activity, it should satisfy the following
requirements:
1.       It is intended for profit. The primary motive of an activity is to maximize
profit or the interest of the shareholders. Profit can be improved by increasing the
volume of sales, reducing the cost of manufacturing and selling the product, and
improving its market share or developing effective and efficient marketing
strategy.
2.       It is regularly undertaken. The activity must possess the quality of a
continuing and progressing economic act and not a mere single disconnected act.
A business activity is carried throughout the year, following the principle or the
rule of regularity.
3.       It is financial in character. The activity involves the exchange of values or
transactions that are financial in nature. Business activities can be further divided
into non-financial activities and financial activities. For example, the hiring of an
employee is a business activity or transaction but it is not financial in character. In
short, no money or its equivalent is involved. Similarly, the payment of salaries and
wages of hired employees is a business activity which is financial in nature.
4.
against the law, public order or public safety. The sale of illegal drugs is primarily
intended to realize profit and enrich the seller of goods financially. It can be
regurlarly undertaken by those involved in such activity and it is financial in
character. However, the activity itself is against the law, and therefore, cannot be
considered under the realm of business activity.
Lesson 2: Classifications of activities
General rule: For an activity to be categorized as a business activity, it should be
(1) primarily intended for profit; (2) regularly undertaken; (3) financial in character;
and (4) legally undertaken.
             Generally, a business activity is subject to business tax.
             Thus, business activities or activities that meet the requisites mentioned are
subject to business tax. This general rule, however, is subject to certain exceptions
as illustrated in the suceeding sections.
Exceptions: The following are the basic rules of business activity and the respective
activities that are exceptions thereto:
1.       For the basic rule that the activity is primarily intended for profit, the
exceptions thereto:
a.       The importation of goods for personal use (Sec. 107, NIRC, as amended); and
b.       An overseas communication made that is either related or non-related to
business (Sec. 120, NIRC, as amended).
            It can be clearly observed that the two preceding activities are not carried
out for profit. Consequently, they are not supposedly subject to business tax.
Nonetheless the provision of the law on taxation mandates that they should be
subject to business as exceptions to the basic rule.
2.       For the basic rule that the activity should be regularly undertaken, the
exceptions are:
a.       The single service rendered by a non-resident alien in the Philippines (Sec.
105, NIRC, as amended);
b.       The sale of house and lot and other forms of residence or dwelling valued
over Php 3,199,200 (Sec. 7, RA 9337, as amended);
c.       The single winning in the horse race or jai-alai (Sec. 126, NIRC, as amended)
and
d.       The only sale of shares through local stock exchange by one who is not
security dealer ( Sec. 127, NIRC, as amended).
Again, the above activities are isolated or not regularly undertaken. These activities
should then be classified as non-business activities and, therefore, not subject to
business tax. However, the law considers them as exceptions to the basic rule.
3.       For the basic rule that the activity is primarily intended for profit and
regularly undertaken, the exceptions are as follows:
            A regular conduct of business acivity whose gross sales or receipts in any 12-
month period do not exceed Php 100,000 shall be considered as a means of
subsistence or livelihood and shall not be subject to business tax.
            Individuals whose business do not realize gross sales or receipts exceeding
Php 100,000 in any 12-month period are classified as marginal income earners and
not subject to business tax (Sec. 2, Rev. Reg. 11-2008, as amended).
            It is clear that the aforementioned activities are for profit and regularly
undertaken, and thus, should be subject to business tax. However, if the gross
receipts do not exceed Php 100,000, the activity is considered for subsistence only.
This particular exception is only applicable if the taxpayer is classified as an
individual taxpayer. It does not apply to partnerships and corporations. It should
be remembered, therefore, that an activity which meets the aforementioned
requisites subject to the exceptions mentioned is a business activity and thus,
subject to business tax.
Lesson 3: Classification of business entities
             The types of business are broadly classified according to nature and form or
ownership.
1.       According to nature
a.       Merchandising. It is a business entity engaged in buying a product in one
form and selling it in the same form. Merchandising business is subject to business
tax based on the gross sales made during the period.
b.       Manufacturing. The nature of manufacturing business entity is to buy a
product in one form and to sell it another. In manufacturing, there is a coversion of
of raw materials into a finished product. Manufacturing business is subject to
business tax based on the gross sales during the taxable year.
c.       Service. Service entities are engaged in rendering services to customers. This
type of business is subject to business tax based on the gross receipts made during
the period.
d.       Hybrid Business. A business entity is classified under this category when it
carries both the nature of manufacturing and service to customers. It is subject to
business tax based on either its gross sales or its gross receipts during the taxable
period.
2.       According to form or ownership
a.       Sole Proprietorship. It is a form of business entity owned by only one person.
b.       Partnership. It is a business entity owned by two or more persons and
formed by an agreement between partners in which the profits or losses are
divided among themselves.
c.       Corporation. It is a form of business entity owned by five or more persons. A
corporation is created by the operation of law.
Lesson 4: Concept and Nature of Business Taxes
             Business Tax is a tax imposed on the onerous transfer of product, property,
and service.
             Onerous Transfer means that there is monetary consideration involved in 2.       Sale of services and use of lease of properties in the ordinary course of the
the transfer of goods or services between the owner and the buyer. However, if business (Sec. 108, NIRC, as amended).
the transfer of goods or services is without consideration (i.e., for free), the
3.       Importation of goods or properties whether or not in the course of business
transfer is said to be gratuitous. Gratuitous transfer is subject not to business tax,
or trade (Sec. 107, NIRC, as amended)
but to Transfer tax.
Coverage of Percentage Tax
             The percentage tax is generally imposed on services. The following taxes
are among those percentage taxes mentioned in Secs. 116-127, NIRC, as amended:
1.       Three percent tax on any person whose sales or receipts are exempt from
payment of value-added tax because gross annual sales do not exceed Php
3,000,000
2.       Tax on domestic carriers and keepers of garages
3.       Tax on international carriers
4.       Tax on franchisers
5.       Overseas communication tax
6.       Tax on banks and non-bank financial intermediaries
Lesson 5: Kinds of Business Taxes
7.       Tax on finance companies
             The business taxes named in the National Internal Revenue Code (NIRC) of
the Philippines or RA 8424, as amended, are: 8.       Tax on life insurance premiums

1.       Value-added tax, 9.       Tax on agents of foreign insurance companies

2.       Percentage tax, and 10.   Amusement taxes

3.       Excise tax 11.   Tax on winnings

Coverage of Value-added Tax 12.   Tax on sale of shares of stock traded through local stock exchange

             The value-added tax is imposed on the following:  

1.       Sale of goods or properties in the ordinary course if the business (Secs. 105- Coverage of Excise Tax
106, NIRC, as amended).              The excise tax or also called as Sin tax, within the context of business tax is
imposed on following (Secs. 129-151, NIRC, as amended).
1.       Manufacturer of any of the products mentioned below or
2.       Importer of any of the following products:
a.       Wines
b.       Distilled spirits (like liquors) and fermented liquors (like beer)
c.       Cigars, cigarettes, and tobacco
d.       Automobiles, fuel and oils, mineral products, and non-essential goods and
services
e.       Cosmetic procedures, surgeries and body enhancements undertaken to an
aesthetic reason;
f.        Sweetened beverage