BUSINESS TAXES

 Are imposed upon onerous transfers such as sale, barter, or exchange.

 But a person may, although not engaged in business, be subject to a business tax such as
value added tax on importation of goods not for business use.

MAJOR BUSINESS INTERNAL REVENUE TAXES:

(1).Value-added taxes;
(2).other Percentage taxes; and
(3).Excise taxes.

VALUE-ADDED TAX
 Value-Added Tax (VAT) is a form of sales tax. It is a tax on consumption levied on the sale,
barter, exchange or lease of goods or properties and services in the Philippines and on
importation of goods into the Philippines. It is an indirect tax, which may be shifted or passed
on to the buyer, transferee or lessee of goods, properties, or services.

 The 12% percent value-added tax (VAT) rate is imposed on most goods and services that have
achieved actual gross sales of over PHP 3 million.

NATURE OF VAT
 Privilege tax;
 Imposed on the privilege of selling, bartering, exchanging or leasing, goods or services, and
importation whether or not made in the course of trade or business;
 Indirect tax; it may be passed on or shifted, until it reaches the final purchaser;
 Consumption tax;
 It is a percentage tax; 0% or 12%

Value-added tax is a tax on consumption levied on the sale, barther, exchange or lease of goods or
properties and services in the Philippines and on importation of goods into the Philippines.

The seller is the one statutorily liable for the payment of the tax but the amount of tax may be shifted
or passed on to the buyer, transferee or lessee of the goods, properties or services. In the case of
importation, however, the importer is the one liable for the value-added tax.

WHO ARE REQUIRED TO REGISTER FOR VAT?

 Any person or entity who, in the course of his trade or business, sells, barters, exchanges,
leases goods or properties and renders services subject to VAT, if the aggregate amount of
actual gross sales or receipts exceed Three Million Pesos (Php3,000,000.00); imports goods
whether made in the course of traded or business or not;

 Any person who has reasonable grounds to believe that his gross sales or receipts for the next
12 months, other than those that are exempt under Section 109 (A) to (U) of the Tax Code,
will exceed Three Million Pesos (Php3,000,000.00).
COMPLIANCE FOR VAT-REGISTERED PERSON
A VAT registered person is required to issue a:
 VAT invoice for every sale, barter or exchange of goods or properties;
 VAT official receipt for every lease of goods or properties; and
 VAT official receipt for every sale, barter or exchange of services.

A Taxpayer that is not within the threshold to be VAT registered may opt to register as a VAT
Taxpayer. However they cannot revoke their registration for the next three (3) taxable years.

WHAT IS A VAT-EXEMPT TRANSACTION?

 It is a sale of goods, properties or service and the use or lease of properties which is not
subject to output tax and whereby the buyer is not allowed any tax credit or input tax related
to such exempt sale.

WHAT ARE VAT-EXEMPT TRANSACTIONS:

 Sale of raw materials, packaging materials, supplies, inventories, and goods, to a registered
enterprise and used in its registered activity;
 Sale of services, including the provision of basic infrastructure, maintenance, utilities, and
repair of equipment, to a registered enterprise;
 Services rendered to persons engaged in air transport operations or international shipping,
including leases of property, provided that these services are exclusively used for air transport
operations or international shipping;
 The transport of passengers and cargo by domestic air or sea vessels from the Philippines to a
foreign country;
 Sales to persons or entities who are exempted from direct and indirect taxes under special
international agreements to which the Philippines is a signatory;
 The manufacturing, processing, or repacking of goods for persons or entity that is doing
business outside of the Philippines, and the said goods are subsequently exported and paid for
by foreign currency; and
 The sale of power is generated through renewable resources such as geothermal and steam,
hydropower, biomass, solar, and wind, among others.
 New registered export enterprises under CREATE can enjoy the VAT exemption for a
maximum of 17 years starting from the date of registration. Meanwhile existing registered
export companies located inside freeport zones and ecozones, the VAT exemption shall be
until the expiration of the transitory period.
 A registered export enterprise is a corporation, partnership, or other entity established under
Philippine laws and registered with an Investment Promotion Agency (IPA). They must also
engage in manufacturing, assembling, or processing activities that result in the direct
exportation of manufactured or processed products.
INPUT AND OUTPUT TAX
OUTPUT TAX: This is the 12% VAT you add on your purchase price for sales and services.(value-
added tax due on the sale or lease of taxable goods or properties or services by any person registered
or required to register under Section 236 of this Code)

INPUT TAX: This is the 12% VAT you pay on your purchases in relation to your trade or business.
(the value-added tax due from or paid by a VAT-registered person in the course of his trade or
business on importation of goods or local purchase of goods or services, including lease or use of
property, from a VAT-registered person. It shall also include the transitional input tax determined in
accordance with Section 111 of the Tax Code)

If you are VAT-registered Taxpayer, you may claim the input tax credit on VAT paid on local
purchases and importation of goods and services. You can only claim input tax that has been
correctly invoiced and has supporting documents to prove such payment. The input tax credit can be
claimed in your annual or monthly VAT returns, regardless of when you made the payment.

Transitional Input Tax Credits - A person who becomes liable to value-added tax or any person
who elects to be a VAT-registered person shall, subject to the filing of an inventory according to rules
and regulations prescribed by the Secretary of finance, upon recommendation of the Commissioner,
be allowed input tax on his beginning inventory of goods, materials and supplies equivalent to two
percent (2%) of the value of such inventory or the actual value-added tax paid on such goods,
materials and supplies, whichever is higher, which shall be creditable against the output tax.
Presumptive Input Tax Credits - Persons or firms engaged in the processing of sardines, mackerel
and milk, and in manufacturing refined sugar and cooking oil, shall be allowed a presumptive input
tax, creditable against the output tax, equivalent to four percent (4%) of the gross value in money of
their purchases of primary agricultural products which are used as inputs to their production. (Sec.
112 NIRC)

HOW TO CALCULATE VAT DUE AND PAYABLE

OUTPUT TAX- CREDITABLE INPUT TAX=VAT DUE AND PAYABLE

Example: A VAT registered tax payer has sales on 100,000 Pesos exclusive of VAT and has paid
50,000 pesos in sales and services exclusive of VAT.

Output tax is 12% of 100,000= 12,000

Input tax is 12% of 50,000= 6,000
THUS: 12,000 - 6,000= 6,000 PESOS VAT DUE AND PAYABLE (Either Monthly or Quarterly)

IF the VAT DUE AND PAYABLE is in the negative, the taxpayer would be entitled to a tax
refund/credit
ZERO-RATED TRANSACTION (0% VAT)
 It is a sale, barter or exchange of goods, properties and/or services subject to 0% VAT
pursuant to Sections 106 (A) (2) and 108 (B) of the Tax Code. It is a taxable transaction for
VAT purposes, but shall not result in any output tax. However, the input tax on purchases of
goods, properties or services, related to such zero-rated sales, shall be available as tax credit
or refund in accordance with existing regulations.

Pursuant to RR 21-2021, the following sales of goods or properties by VAT-registered persons shall
be subject to zero-percent (0%) VAT."
(a).Export sales. This includes sale of goods, supplies, equipment, and fuel to persons engaged in
international shipping or international transport operations, provided that the goods, supplies,
equipment and fuel shall be used exclusively for international shipping or air transport
operations;
(b).Sales to persons or entities whose exemption from direct and indirect taxes under special laws
or international agreements to which the Philippines is a signatory effectively subjects such
sales to zero rate;
(c). Sales of raw materials, inventories, supplies, equipment, packaging materials, and goods to a
registered export enterprise, to be used directly and exclusively in its registered project or
activity.
On the other hand, the following services performed in the Philippines by a VAT-registered person
shall be subject to zero-percent (0%) VAT:
(1).Services other than processing, manufacturing or repacking of goods rendered to a person
engaged in business conducted outside the Philippines, or to a non-resident person not
engaged in business who is outside the Philippines when the services are performed;
(2).Services rendered to persons or entities whose exemption from direct and indirect taxes under
special or international agreements to which the Philippines is a signatory, effectively
subjects the supply of such services to zero-percent rate;
(3).Sale of services, including provision of basic infrastructure, utilities, and maintenance, repair
and overhaul of equipment, to a registered export enterprise, to be used directly and
exclusively in its registered project or activity;
(4).Services rendered to persons engaged in international shipping or air transport operations,
including leases of property, provided that these services shall be exclusively for international
shipping or air transport operations;
(5).Transport of passengers and cargo by domestic air or sea vessels from the Philippines to a
foreign country; and
(6).Sale of power or fuel generated through renewable sources of energy such as, but not limited
to biomass, solar, wind, hydropower, geothermal and steam, ocean energy, and other
emerging sources using technologies such as fuel cells and hydrogen fuels.

VAT EXEMPT UNDER SEC 109 OF THE NIRC:

(a) Sale or importation of agricultural, livestock, poultry, and marine food products in their
“original state”, Provided, that the food is generally used for human consumption.
 Livestock or poultry does not include fighting cocks, racehorses, zoo animals and other
animals considered as pets.

Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt and copra
shall be considered as agricultural products in their original state. Bagasse is not included in
the exemption provided for under this section.

(b) Sale or importation of fertilizers, seeds, seedlings and fingerlings, fish, prawn, livestock and
poultry feeds, including ingredients, used in the manufacture of finished feeds except
specialty feeds. Specialty feeds refers to food for racehorses, fighting cocks, aquarium fish,
zoo animals and other animals considered as pets.
(c) Importation of personal and household effects belonging to residents of the Philippines
returning from abroad and non-resident citizens coming to resettle in the Philippines.
(d) Importation of professional instruments and implements, wearing apparel, domestic animals,
and personal household effects except machinery and other goods use in the manufacture and
merchandise of any kind in commercial quantity belonging to persons coming to settle in the
Philippines.
(e) Services subject to Percentage Tax under Title V of the Tax Code.
(f) Services by agricultural contract growers and milling for others of palay into corn rice, corn
into grits and sugar cane raw sugar.
(g) Medical, Dental, Hospital and Veterinary Services except those rendered by professional;
(h) Educational services rendered by private educational institutions, duly accredited by the
Department of Education (DepEd), the Commissions on Higher Education (CHED) the
Technical Education and Skills Development Authority (TESDA) and those rendered by the
government educational institutions;
(i) Services rendered by individuals pursuant to an employer-employee relationship.
(j) Services rendered by regional or area headquarters established in the Philippines by
multinational corporations which act as supervisory, communications and coordinating
centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not earn
or derive income from the Philippines.
(k) Transactions which exempt under international agreements to which the Philippines is a
signatory under special laws, Except those under Presidential Decree No. 529 that grant
Petroleum Exploration Concessionaires exemption from Custom Duty and Tax of Importation
Machinery required for their Exploration Operation.
(l) Importation by agricultural cooperatives of direct farm inputs, machineries and equipment,
including spare parts thereof, to be used directly and exclusively in the production and/or
processing of their produce.
(m) Gross Receipts from lending activities by credit or multi-purpose cooperatives.
(n) Sales by non-agricultural, non-electric and non-credit cooperatives.
Provided, that the share capital contribution of each member does not exceed Fifteen
thousand pesos (P15,000) and regardless of the aggregate capital and net surplus ratably
distributed among the members.
(o) Export sales by person who are not VAT-registered;
 (p) Sale of real properties not primarily held for sale to customers or held for lease in the
ordinary course of trade or business or sale residential lot valued at One million five hundred
thousand pesos (P1,500,000) and below or sale of house and lot, and other residential
dwellings valued at Two Million Five Hundred Thousand Pesos (P2,500,000) and below;
Provided, That beginning January 1, 2021, the VAT exemption shall only apply to sale of real
properties not primarily held for sale to customers or held for lease in the ordinary course of
trade or business or sale of house and lot, and other residential dwellings with selling price of
not more than Two Million Pesos (P2,000,000).
(q) Lease of residential unit with a monthly rental not exceeding Fifteen Thousand pesos
(P15,000).
(r) Sale, importation, printing or publication of books and any newspaper, magazine, review or
bulletin which appears at regular intervals with fixed prices or subscription and sale and
which is not devoted principally to the publication of paid advertisements.
(s) Transport of passengers by international carriers
(t) Sale, importation or lease of passenger or cargo vessels and aircraft, including engine,
equipment and spare parts thereof for domestic or international carriers.
(u) Importation of fuel, goods and supplies by persons engaged in international shipping or air
transport operations.
Provided, that the fuel, goods, and supplies shall be used for international shipping or air
transport operations.
(v) Services of bank, non-bank financial intermediaries performing quasi-banking functions, and
other non-bank financial intermediaries.
(w) Sale or lease of goods and services to senior citizens and persons with disability, as provided
under Expanded Senior Citizen Act of 2010 and An Act Expanding the Benefits and
Privileges of Persons with Disability, respectively.
(x) Tax-Free Exchanges of Properties pursuant to Section 40 (C) (2) of the NIRC of 1997.
This can be:
(1).Transfer to a controlled corporation;
(2).Merger or consolidation.
No gain or loss shall be recognized if a property is transferred to a corporation by a person or
corporation in exchange for stock.
(y) Association Dues, Membership fees, and other assessments and charges collected by
homeowners associations and condominium corporations
(z) Sale of gold to the Bangko Sentral ng Pilipinas (BSP)
(aa) Sale of drugs and medicines prescribed for diabetes, high cholesterol, and
hypertension beginning January 1, 2019.
(bb) Sale or lease of goods properties or the performance of services other than the
transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do
not exceed the amount of Three Million Pesos (P3,000,000).
VAT EXEMPT VS. ZERO-RATED TRANSACTION
Vat-exempt transactions do not result in any input or output VAT while zero-rated sales although do
not result in output VAT but will result in input VAT.
VAT exemption: No VAT is charged on exempt items or services, and the supplier cannot claim
input VAT as a credit or refund.
Zero-rated VAT: VAT is technically applicable at a 0% rate, but the supplier does not collect VAT
from the customer. The supplier can usually claim input VAT.

In practice this is useful for VAT benefits, such as CWT (input tax). (Refer to CWT)

VAT threshold for the following:

(1).Sale of goods and services: 3M
(2).Sale of Goods and Services: 3M
(3).Sale of residential properties: 3.6M
(4).Lease of residential properties: 3M

TRANSACTIONS DEEMED SALE:

(1).Transfer, use or consumption not in the course of business of goods or properties originally
intended for sale or for use in the course of business;
(2).Distribution or transfer to:
(a) Shareholders or investors as share in the profits of the VAT-registered
persons; or
(b) Creditors in payment of debt;
(3).Consignment of goods if actual sale is not made within sixty (60) days following the date
such goods were consigned; and
(4).Retirement from or cessation of business, with respect to inventories of taxable goods
existing as of such retirement or cessation.
Value-added tax and percentage tax cannot be imposed at the same time.

It is either that the sale is subject to VAT, or subject to percentage tax, or not subject to any of the two
taxes at all.
OTHER FINDINGS

APPLICATION OF VAT, PERCENTAGE AND EXCISE (pp.226)

As a general rule if the taxpayer is subject to VAT, the taxpayer cannot be subject to percentage,
likewise if subject to Percentage. However, they may be subject to Excise tax either way.

SPECIAL CASES WHEN THEY’RE SUBJECT TO THE THREE TAXES (pp.226)

A company with multiple business who has.

Company A has 2 business, Jeepney Operation, and Sale of Jeepney Parts

The following business are taxed on:
Jeepney Operation - Percentage
Sale of Jeepney Parts - VAT
Points to consider:
Company itself: - is an entity on itself that represent the business but not the business
itself. (Refer to law on Corporation RA. 11232)
Jeepney Operation - Service, Not VAT registered.
Sale of Jeepney parts - Trade, is VAT registered.

Explanation:
As stated in RA11232, a company is an entity, it has a juridical personality, now the company
is subject to corporate tax, but the business are not. In paper the business can be owned by the
company, but income derived from business cannot be account to the company this is because the
nature of the business may not be related of what the company is doing, for example, the company
may be a security and exchange.