Introduction to Business Taxes

What is Business?
 Business or in the course of trade or business means
the regular conduct or pursuit of a commercial or
economic activity, including transactions incidental
thereto, by any person or government entity

 The requisites are:

a) The activity must be a commercial or economic
activity.
b) There must be regularity in the activity.
Application of the Regularity Rule
 Not Considered Business:
 Sale by non-dealers – those who make casual sale of
goods or properties.
 Privilege stores – “tiangge”;not permanently fixed to the
ground during special events such as festivals; store
should not engage in a business activity for a cumulative
period of not more than 15 days
Exceptions to the Regularity Rule
 1. Business principally for substinence or livelihood
 Marginal Income earner self-employed; gross receipts
not exceeding 100,000 pesos per year
 2. Sales of non-residents are presumed made in the
course of business
 Without regard as to whether the sale is regular or
isolated, hence subject to Business Tax
Not Qualified as Commercial
Activity
1. Government Agencies
2. Non-profit organizations or associations
3. Employment
4. Directorship in corporation

Elements of Commercial Activity

1. Engaged in sale of goods or services
2. Objective is to gain profit (resulting to loss doesn’t
make it unqualified)
3. Must be offered to the public
Nature of Business Taxes
1. Consumption tax – utilization or purchase of goods,
properties or services
2. Indirect tax – imposed to the seller rather than buyer
3. Privilege Tax – tax on the privilege to do business
3 Major Business Taxes
a) Excise Tax
b) Percentage Tax
c) Value-Added Tax
Business Taxpayers
 The term “person” refers to any individual, trust,
estate, partnership, corporation, joint venture,
cooperative or association.
 Natural or juridical
Registration of Business for VAT
 Illustration
 Ray is a merchant. He has his main store in Manila,
branches in Pasig, Cavite and Ortigas.

 There will be 4 separate registrations and 4 separate

payments of the registration fees.
 Where? In the location of each of the businesses
Tax bases of Business Tax
1. Gross Selling Price (for goods or properties)
 Allowable deductions:
 Discounts determined and granted at the time of sale (must
not be dependent upon the happening of a future event, ex:
Quota discounts, cash discounts)
 Sales returns and allowances
2. Gross Receipts (for services)
 Includes advance payments actually or constructively
received
 Constructive receipt – money or any consideration is
placed at the control of the person who renders the
service without restriction by the payor.
Others
 Agency money – not part of Gross Receipt; do not
redound to the benefit of the payor
 Insurance proceeds on damaged assets – not part of
gross receipts; involuntary conversion of property into
money such in the case of insurance reimbursement is
not viewed as a sale in the ordinary course or business
 Withholding taxes – form part of gross recipts;
constructive possession and not subject to any
reservation
Difference of the Concept of Gross Receipts and
Sales between VAT and Non- VAT Taxpayers
 Illustration:
 A taxpayer billed a client P150,000 for services
rendered. The client withheld 10% CWT. How much
is the Gross Receipts and CWT:
 If the taxpayer is VAT registered? 133,929; 13,393
 If the taxpayer is Non-VAT registered? 150,000, 15,000
Business Tax Accounting Period
 Length of accounting period for business taxes is one
quarter
 Referred to as the taxable quarter
 Three months which may be calendar or fiscal year
Business Tax Reporting
 Intra-quarter business tax reporting
 To minimize the burden of one-time payment of the
quarterly business tax, payment of business tax is spread
to the months of the quarter
VAT Taxpayers Non-VAT Taxpayers
Monthly Tax return BIR Form 2550 M BIR Form 2551 M
Quarterly Tax return BIR Form 2550 Q BIR Form 2551 Q

 VAT taxpayers file both forms, Non-VAT files either

forms
Illustration
 A taxpayer reported the ff sales:
 January – 220k, Febuary – 180K, March 260K

 What will the BIR Form to use and amount filed if:
 Percentage taxpayer, filing monthly
 Percentage taxpayer, filing quarterly
 VAT taxpayer
Deadline of Business Tax returns
 Within 20 days from the end of the month or quarter
whichever is applicable.
 if any person retires from business with due notice to
the BIR office, he shall file a final quarterly return and
pay the tax due thereon within 25 days from the end of
the month when the business ceases to operate
 Subsequent monthly /quarterly returns are still
required if the results of the winding up of the business
reveal taxable transactions.