BUSINESS AND TRANSFER TAXES

INTRODUCTION TO BUSINESS TAX

Nature Of Business Tax

⮚ Relative consumption tax – tax on the consumption of goods or services and it is imposable only when the
seller is doing business.
⮚ Indirect tax – tax is collected from the seller rather from the buyer-consumer.
⮚ Privilege tax – it is a tax imposed on the privilege of doing business.
⮚ National tax – it is imposed by the national government.

Types Of Business Taxes

Procedures Of Business Taxation

1. Evaluate if the sales activity qualifies as a business
2. Identify the taxable person
3. Determine the activity type
4. Classify the sales or receipts.
5. Determine taxpayer registration type.
6. Determine if the goods or service offered is excisable
What is a business?
- refers to the habitual engagement in a commercial activity involving the sale of goods or services for a profit

**Privilege stores are stalls or outlets not permanently fixed to the ground which are put up during special events
such as festivals and fiestas hence they are not considered as business due to their limited activity
Who are business taxpayers?
- Includes any individual, trust, estate, partnership, corporation, joint venture, cooperative or association.
RULES:
1. Each person, natural or juridical, is a taxable person for purposes of business taxation
2. Husband and wife are separate taxpayers
3. A parent company is a separate taxable person with its subsidiary company and each subsidiary company is a
taxable person
4. Home office and branch offices of the same business are one, not separate taxable person.
5. Proprietorship is not a juridical entity. Its sales and receipts is subject to business tax to the individual
proprietor. Multiple proprietorship businesses of the same individual is taxable to that individual as the
taxpayer.

Sale of Goods or Properties

- Refers to all tangible and intangible objects which are capable of pecuniary estimation which shall include, among
others
1. Real properties held primarily for sale to customers, held for lease or is used in the ordinary course of trade
or business.
2. The right or the privilege to use a patent, copyright, design or model, plan, secret formula or process,
goodwill, trademark, trade brand or other similar properties or rights.
3. The right or privilege to use in the Philippines any industrial, commercial or specific scientific equipment.
4. The right or privilege to use motion picture films, films tapes and discs; and
5. Radio, television, satellite transmission and cable television time.

Sale or Exchange of services

- Performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, whether
in kind or in cash, including those performed or rendered by the following:
❑ Construction and service contractors
❑ Stock, real estate, commercial, customs and immigration brokers
❑ Lessors of property, whether personal or real
❑ Persons engaged in warehousing services
❑ Lessors or distributors of cinematographic films
 ❑ Persons engaged in milling, processing, manufacturing or repacking of goods or others
❑ Proprietors, operators or keepers of hotels, motels and rest houses, pension houses, inns, resorts, theaters
and movie houses
❑ Proprietors or operators of restaurants, refreshments parlors, cafes and other eating places, including clubs
and caterers
❑ Dealers in securities
❑ Lending investors
❑ Transportation contractors in their transport of passengers, goods or cargoes from one place in the
Philippines to another place in the Philippines
❑ Common carriers by air and sea relative to their transport of passengers goods or cargoes for hire and other
domestic common carriers by land relative to their transport of goods or cargoes
❑ Sales to electricity by generation, transmission and or distribution companies
❑ Franchise grantees of electric utilities, telephone and telegraph, radio and or television broadcasting and all
other franchise grantees
❑ The supply of services by a nonresident person or his employee in connection with the use of property or
rights belonging to, or the installation or operation of any brand, machinery or other apparatus purchased
from such non-resident person.
❑ The supply of technical advice, assistance or services rendered in connection with technical management or
administration of any scientific industrial or commercial undertaking, venture, project or scheme.
❑ The lease of motion picture films, tapes and discs
❑ The lease or the use of or the right to use radio, television, satellite transmission and cable television time.

What is the treatment for withholding taxes?

A lessor received P9,500 from a lessee net of 5% withholding tax evidenced by BIR Form 2307. How much is the
gross receipts?

Answer: The Gross Receipts shall be the P10,000 computed as P9,500 / 95%

Note: Amount withheld shall form part of gross receipts because these are in constructive possession and not
subject to any reservation, the withholding agent is merely a conduit in the collection process.
Business with Mixed Activities
- engaged in both sales of goods or properties and sales of services.
 BUSINESS AND TRANSFER TAXES
EXEMPT SALE OF GOODS PROPERTIES, AND SERVICES

Other Exempt Sales Of Good Or Services

EXEMPT SALE OF GOODS OR PROPERTIES

Sale Of Goods To Senior Citizens And Persons With Disability

Aside from VAT exemption the SC and PWD are also given 20% discount on the sales of these goods
ILLUSTRATION:
SC PWD
VITAMIN SUPPLEMENTS EXEMPT VATABLE
MEDICAL DRUGS EXEMPT EXEMPT
EYE GLASSES and WHEELCHAIRS EXEMPT VATABLE
HOUSEHOLD AND KITCHEN SUPPLIES VATABLE VATABLE
CASKETS AND URNS EXEMPT EXEMPT
MEMORIAL LOT VATABLE VATABLE

Sale OF EXEMPT GOODS

1. Agricultural or marine food products and inputs
a. Sale of agricultural and marine food products in their original state, livestock and poultry of a
kind generally used as, or yielding or producing foods for human consumption; and breeding
stock and genetic materials therefore;
b. Sale of fertilizers; seeds, seedlings and fingerlings; fish prawn, livestock and poultry feeds,
including ingredients, whether locally produced or imported, used in the manufacture of
finished feeds, except specialty feeds;
Note: the same rule applies as mentioned in VAT on importation

2. Medicines for diabetes, high cholesterol and hypertension

- TRAIN law (starting January 1, 2019) provided the exemption on the sale of medicine prescribed for
diabetes, high cholesterol, hypertension, as determined by the Department of Health (DOH) , by
manufacturers, distributers, wholesalers and retailers.
Examples:
a. Insulins and analogues
b. Blood glucose lowering drugs
Note: Regardless who the buyer is ( whether the buyer is not a PWD or SC still it is VAT Exempt so long as
it is medicine for diabetes, high cholesterol or hypertension)
- TRAIN law (starting January 1, 2021) provided the exemption on the sale of medicine prescribed for
Cancer, mental illness, tuberculosis and kidney diseases.
- (January 1, 2021 – December 31, 2023)
- Capital equipment, its spare parts and raw materials, necessary for the production of personal
protective equipment, components such as coveralls, gown, surgical cap, surgical mask, N-95 mask,
scrub suits, goggles and face shield, double or surgical gloves, dedicated shoes and shoe covers, for
COVID 19
- all drugs, vaccines and medical devices specifically prescribed and directly used for the treatment of
COVID – 19
- drugs for the treatment of COVID – 19 approved by the FDA for use in clinical trials, including raw
materials directly necessary for the production of such drugs: Provided, that the DTI shall certify such
equipment, spare parts or raw materials for importation are not locally available or insufficient in
quantity, or not in accordance with the quality specification required: Provided, further, that for the
 second item, within 60 days from the effectivity of this act, every eight(8) months thereafter, the
DOH shall issue a list of prescription drugs and medical devices covered by this provision, Provided,
finally, that the exemption claimed under this subsection shall be subject to post audit by the BIR or
the BOC as may be applicable.

3. Passenger or Cargo Vessels and Aircrafts

- passenger and cargos vessels and aircrafts including engines, equipment and spare parts thereof for
domestic or international transport operations are exempt from VAT

Sale Of Cooperatives
- ALL TRANSACTIONS OF COOPERATIVES OF ANY KIND TO MEMBERS ARE EXEMPT TO BUSINESS TAX EXCEPT
ELECTRIC COOPERATIVES
- Transactions to Non-members on related activities are subject to business tax if accumulated reserves
exceeds P10,000,000
- Unrelated activities regardless of type of cooperative is subject to business tax whether to members or non-
members.

Sale Of Real Properties Under Certain Conditions

- Categories of exempt transactions on Real Properties:
1. By a person not engaged in realty business
2. By a person engaged in the realty business (non-dealer)
- By a person not engaged in realty business
1. Real Properties Classified as capital assets
2. Any real properties of non-VAT taxpayers
3. Any real properties of persons not engaged in business
- By a person engaged in realty business which complies with the price ceilings (dealer)
o Sale of real properties for socialized housing units:
1) House and lot – P450,000
2) Residential lots only – P180,000
o Real properties utilized for low-cost housing wherein the price ceiling per unit is P750,000
o Any real properties of persons not engaged in business
o Sale of residential lot valued at P1,919,500/ unit and below
o Sale of residential dwelling valued at P3,199,200/ unit and below

Tax-Free Exchange Of Property

- Exchange or properties by a corporation in pursuant to a plan of merger or consolidation
- Exchange of properties by a person, alone or together with others not exceeding four, which resulted to
the acquisition of control

Sale Of Gold To Bangko Sentral Ng Pilipinas (Bsp)

- Previously a zero-rated transaction but under TRAIN LAW reinstated to being EXEMPT.

EXEMPT SALE OF SERVICES

Educational Services Of Schools
1. Private educational institutions duly accredited by the :
a. Department of Education (DepEd)
b. Commission on Higher Education (CHED)
c. Technical Education and Skills Development Authority (TESDA)
2. Government educational institutions

Employment
- To be exempt there MUST be an employer – employee relationship.
- Professionals earning income outside of the employer-employee relationship are subject to business taxes

Agricultural Contract Growers And Millers

 - Services by agricultural contract growers and milling for others or palay into rice, corn into grits, and sugar
cane into raw sugar

Residential Leasing
- Lease of residential unit with monthly rental not exceeding P15,000
- Residential units includes apartments and houses and lots used for residential purposes, and buildings or
parts or units thereof used as dwelling places such as, dormitories, rooms and bed spaces, except motels,
motel rooms, hotels and hotel rooms, lodging houses, inns and pension houses.
- The term units shall mean:
◦ An apartment unit for apartment
◦ A house in the case of residential houses
◦ Per person incase of dormitories, boarding houses and bed spaces
◦ Per room in the case of rooms for rent

Sale Of Services By Cooperatives

- The gross receipts from sales of services by cooperatives such as lending marketing or multi-purpose
cooperatives is exempt similar to the rules discussed under sales of goods by cooperatives.

Health Or Hospitals Services

- exemption applies to medical, dental, hospital and veterinary services
- it should be clear that services by professionals such as doctors and sales of drugs by hospitals drugstores are
vatable

Home Owner’s Association Or Condominium Corporation

- TRAIN law provided exemption on association dues, membership fees, and other assessments and charges
collected by homeowners associations and condominium corporations on a purely reimbursement basis
from business tax. (there is an absence of profit-seeking motive)

Lease Of Passenger Or Cargo Vessels And Aircrafts, Including Spare Parts And Equipment Thereof
- Similar to import and sales, the leasing of vessels and aircrafts including spare parts and equipment are VAT-
Exempt.
Illustration:
Yacht VATABLE
Tanker EXEMPT
Fishing Boat VATABLE
Cargo Plane EXEMPT
Private Jets VATABLE

Treaty-Exempt Sale Of Services

- There is an international treaty or international agreements of which the Philippine government is a
signatory are exempt.

Regional Or Area Headquarters Of A Multinational Company

- Services rendered by regional or are headquarters established in the Philippines by Multinational
Corporations which acts as supervisory, communications and coordinating centers for their affiliates,
subsidiaries or branches in the Asia Pacific Region and do not derive income from the Philippines.
- RAH or RHQ are merely administrative offices and not classified as a separate business or branch. Regional
Operating Headquarters (ROHQ) are those that undergo operations hence are taxable.

Transport Of Passengers By International Carriers

- The receipts from the transport of passengers by international carriers origination from the Philippines going
abroad is now exempt from business tax under RA 10378
- For domestic carriers with international operations:
o Receipts from outgoing flights – 0% VAT
 o Receipts from incoming flights – EXEMPT
o Receipt from domestic flights – 12% VAT

Services Of Printers And Publishers

- The printing or publication of 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 is exempt.

Sales Of Service To Senior Citizens And Persons With Disability

- Exemption is only for essential services provided by the following covered establishments:
1. lodging establishment, such as apartel, dormitory, motorist hotel, tourism inn, pension house
excluding long-term residency arrangements
2. Hospital and clinic
3. Sports and recreation centers
4. Restaurants
5. Land, air and sea travel
6. Medical, dental, diagnostic and laboratory fees and professional medical fees
7. Funeral or burial services for the burial of senior citizens

SALES OF GOODS OR SERVICE COVERED BY SPECIAL LAWS

Ecozone Locators
- They are subject to a special 5% gross income tax, in lue of all taxes national or local. As such they will be
subject to VAT or percentage tax.

Proprietors Of Theaters Or Cinemas

- Local government has the exclusive power to impose business tax on gross receipts of cinemas or theaters.
Theaters are not subject to VAT or percentage tax.

INVOICING REQUIREMENTS FOR EXEMPT SALES

- The invoice should include a pre-printing caption “EXEMPT” on the invoice or receipt

BUSINESS AND TRANSFER TAXES

Percentage taxes
Percentage tax
 - is a national tax measured by a certain percentage of the gross selling price or gross value in money of goods
sold or bartered; or of the gross receipts or earnings derived by any person engaged in the sale of services

SERVICES SPECIFICALLY SUBJECT TO PERCENTAGE TAXES

NOTE:
1. The term VATABLE means it is either the 12% VAT or the 1% General percentage tax rate as amended by the
CREATE law.
2. The 3% Percentage tax shall be known as the common carriers tax based on quarterly receipts of common
carriers transport by land.
SUMMARY:

TAX EXEMPTION ON GENERAL PERCENTAGE TAX RATE

1. VAT Taxpayers
2. Self-employed and professionals who opted to the 8% income tax*
3. Cooperatives**
*The 8% income tax is a bundle tax rate covering both income tax and percentage tax. There is no need to file the
2551Q. The taxpayer only needs to file the BIR form 1701A on or before April 15 of each year.
**The exemption to cooperatives is not absolute. This is limited only to transactions among members.

WITHHOLDING PERCENTAGE TAX

Sale to government agencies, and instrumentalities including government-owned and controlled corporation (GOCC)
is subject to withholding tax of 1% percentage tax (3% before CREATE law) at source.