THE INTERNAL REVENUE TAXES

AN INTRODUCTION

SOURCES OF INTERNAL REVENUE TAX

• Internal revenue taxes are taxes that are specifically provided by RA 8424, the
national internal revenue code of the Philippines.
• These taxes are commonly called “excise taxes” or “privilege taxes” because
they are imposed on the enjoyment of a privilege, performance of an act, or
engagement to an occupation.

NATIONAL INTERNAL REVENUE TAXES

1. Income Tax
2. Business Taxes
a. Value-added tax
b. Other percentage tax
c. Excise tax
3. Transfer Taxes
a. Estate tax
b. Donor’s tax
4. Documentary Stamp Tax

NATIONAL INTERNAL REVENUE TAXES

NIRT are collected by the bureau of internal revenue, the government agency primarily
in charge to assess and collect all taxes and charges imposed by the NIRC, other tax
laws, and regulations.

DISTINCTION OF INTERNAL REVENUE TAXES

• Income tax is the tax imposed on earnings derived from trade, profession, or
occupation. The taxable amount is the taxpayer’s net taxable income
• Business tax is the tax imposed on the right or privilege to engage in an onerous
transfer of goods or services in the normal conduct of business. The taxable
amount is the gross sales or gross receipts
• Income tax is paid only when there is net income.
• However, the business is required to pay business tax whether there is net
income or loss because the basis of business tax is net sales or gross receipts.
• Transfer tax is the tax imposed on one’s right to make casual and gratuitous
transfer of one’s property to another person.
 • Documentary stamp tax is the tax imposed on the right to enter into a transaction
that is described in the document needed to be filed in any government office.
SITUS OF TAXATION
• If pertaining to income tax, aside from the taxpayer’s citizenship and residency,
the prominent determinant factor is the protection afforded to the taxpayer by the
taxing authority.
• If pertaining to transfer tax, the prominent determinant factor aside from the
citizenship and residency of the owner, is the location of the property.
• For business tax, only goods or rights to be consumed or exercised within are
taxable.
BUSINESS TAXES
AN INTRODUCTION TO VAT AND OTHER BUSINESS TAXES
THE NATURE OF BUSINESS
•A trade or commercial activity
•Regularly engaged in
•With a viewpoint of obtaining profit
•It is not a performance of a single disconnected act to obtain a gain.
•It may be pursued by any person.
•It must be within the lawful commerce of men
TRANSACTIONS SUBJECT TO BUSINESS TAX
1. Commercial Activities
• Sales of goods and services related to trade, profession or business not
exempted by law from business tax.
• Sale of ordinary asset used in business, other than business inventory.
2. Services rendered by a nonresident foreign person (without regard to the rule of
regularity).

BUSINESS TAXES
• Imposition collected by the National Government on onerous transfer of property,
service or rights in the ordinary course of business.
CLASSIFICATION OF BUSINESS TAXES
1. Value-Added Tax (VAT) – a general consumption tax that requires a 12%
additional tax on the sales price of goods and/or services by VAT-registered seller
or seller required by law to be under VAT system.
 2. Other Percentage Tax (OPT) – general consumption taxes imposed on non-VAT-
registered business.
3. Excise Taxes – imposed on products that are harmful to health, non-essential
goods, and products that deplete natural resources that are manufactured or
produced in the Philippines. This is also levied on some imported products to
protect local industries.

IMPORTANT POINTS TO CONSIDER

1. Excise Tax is an addition to either VAT or percentage tax, if the taxpayer

produces certain excisable goods such as alcohol or cigarettes.
2. VAT and percentage tax are mutually exclusive. Businesses which pay
VAT do not pay percentage tax.

▪ However, a VAT-registered taxpayer may pay both vat and

percentage tax when it engages in activities which are specifically
designated by the law as subject to percentage tax. Moreover,
business taxpayers will pay VAT if they erroneously or intentionally
use a VAT Invoice or O.R. to bill its vat exempt sales.
BUSINESS REGISTRATION
• Businesses are required to be registered first before the commencement of its
economic activities. Non-compliance to business registration renders the
business illegal.
• Upon registration, the taxpayer will indicate in the BIR Form whether his business
is subject to VAT or OPT.
• If the products of the business are harmful or nonessential, in addition to VAT or
OPT, excise tax shall be imposed.