Business Tax- form of consumption tax

CHAPTER 1: CONSUMPTION TAXES

CONSUMPTION - refers to the acquisition/utilization of goods or services by any person (thru purchase/exchange,etc.)
- levied REGARDLESS of the purpose of the purchaser/consumer whether it is for business, personal/charity

I. RATIONALE OF CONSUMPTION TAX

A. Savings formation – promotes savings formation by limiting the level of consumption (income-consumption=savings)
B. Rationalization of the Benefit Received theory- those who received more benefit should pay more taxes
C. Wealth redistribution to society – basic state policy
*Caveat to consumption tax – should not be levied upon basic necessities
INCOME TAX VS CONSUMPTION TAX
INCOME TAX CONSUMPTION TAX
NATURE Tax upon receipt of income Tax upon usage of income/capital
SCOPE/COVERAGE Tax to the capable Tax to all
THEORETICAL BASIS Ability to pay theory Benefit received theory

II. TYPES OF CONSUMPTION TAXES

A. Percentage Tax – tax of various rates from 0.60% to 30%
B. Value Added Tax – a consumption tax of 12%
C. Excise Tax – an ad valorem or specific tax imposed in addition to VAT/percentage tax on certain goods/services
- Levied at the point of production or importation (imposed before goods are sold by domestic producers or upon
importation by importers)
- Imposed on the consumptions such as:
a. Sin products (alcohol and cigarettes)
b. Non-essential commodities (Automobiles and jewelry)
c. Non-essential services (Cosmetic Surgery)
d. Products which are environmentally degrading in their production/consumption (petroleum & minerals)

III.TYPES OF CONSUMPTION – FOLLOWS THE DESTINATION PRINCIPLE

A. Foreign Consumption – export , status: EXEMPT/EFFECTIVELY NON-TAXABLE (0% TAX RATE)
B. Domestic consumption
a. Types of Domestic Consumption as to Source
1. Domestic Sales – purchases from resident sellers
- subject to business tax (indirect tax imposed upon sellers which are businesses)
2. Importation – purchases from abroad by non-sellers
- subject to VAT on importation imposed upon buyers

BUSINESS TAX VAT ON IMPORTATION

SCOPE OF TAX Purchases from businesses ONLY Imports from business or non-businesses
TYPE OF CONSUMPTION
Relative form Pure form
TAX
STATUTORY TAXPAYER Seller Buyer
ECONOMIC TAXPAYER Buyer Buyer
NATURE OF IMPOSITION Indirect Direct
BASIS OF TAX Sales/receipts Total purchase cost

b. Types of Domestic Consumption as to Taxability

1. Exempt Consumption – neither subject to percentage tax nor VAT
BASIS OF EXEMPTION FROM CONSUMPTION TAX
BASIS OF
BUSINESS TAX VAT ON IMPORTATION
EXEMPTION
Human Necessity Goods which are considered as human necessity
Out of Scope of tax Seller is not engaged in business Does not constitute a domestic consumption
Tax incentive To certain sellers To certain Importers
International comity Those which are exempted by treaty

2. Consumptions specifically subject to percentage tax - not subject to VAT but to a certain % tax
3. Vatable consumption (Vatable Importation/ Sales)
STRUCTURE OF THE VAT ON IMPORTATION
IMPORT OF SERVICE IMPORT OF GOODS
Exempt Exempt Exempt
% tax Percentage tax ---
Final withholding VAT VAT on importation
VAT
(12% of the contract price and is paid to BIR) (12% of the landed cost and is paid to the BOC)

STRUCTURE OF THE BUSINESS TAX

SALES OF SERVICE SALES OF GOODS
Exempt Exempt Receipt Exempt Sales
% tax Receipts specifically subject to a % tax ---
VAT Vatable Receipts Vatable Sales
*VATABLE SALES/RECEIPTS: 12 % if the taxpayer is VAT TAXPAYER; 3% general percentage tax if NON-VAT TAXPAYER
CHAPTER 2: VALUE ADDED TAX ON IMPORTATION
IMPORTATION – refers to the purchase of goods or services by PHILIPPINE RESIDENTS from NON-RESIDENT SELLERS

I. TYPES OF CONSUMPTION TAX ON IMPORTATION

A. VAT on importation – for the import of GOODS
B. Final withholding VAT – for the purchase of SERVICES from non-residents
COMPARISON BETWEEN THE CONSUMPTION TAX ON IMPORTATION
VAT ON IMPORTATION FINAL WITHHOLDING TAX
OBJECT CONSUMPTION Goods Services
IMPOSED UPON Importers/buyers Foreign Service Providers
Resident purchase of the Service
STATUTORY TAXPAYER Importers/buyers
*individuals engaged in business and corporations
NATURE Direct consumption tax Indirect Business tax
TAX BASIS Landed cost Contract Price
COLLECTING AGENCY BOC BIR
TIMING OF PAYMENT Before withdrawal of goods After the month of payment

II. IMPORT OF GOODS

A. Exempt Importation
a. Importation of Exempt Goods
1. Basic Human food and related goods
1.1 Agricultural or marine food products in ORIGINAL STATE
Simple Processing (EXEMPT):
o Acts of preparation for the market (boiling, broiling, husking, roasting, stripping, grinding)
- Example: husked rice, corn grits, raw cane sugar (muscobado), roasted beans, ordinary salt, ground meat, copra,
boiled eggs, lechon
o Acts of preservations (freezing, drying, smoking, salting)
o Acts of packaging including advanced technological means of packaging
Processed food products (VATABLE):
- Refined sugar, wine/vinegar, vegetable/coconut oil, canned sardines, butter , soy, flour, marinated milk fish
1.1.1 Farm/ fishery inputs- intended for the production of marine/agricultural food products
Exempt:
o Seeds, seedlings, breeding stocks and genetic materials
o Fertilizers and feeds including ingredients manufacture of finished feeds

Vatable:
- Pesticides, herbicides, animal medicines, fishing equipment, fishing boats, tractors, plows, driers, threshers, harvesters, specialty
feeds

1.2 Livestock and poultry of a kind generally used as/ yielding/producing foods for HUMAN CONSUMPTION
1.3 Breeding stock and genetic materials therefore
*Note: Ingredients of feeds for animal food intended for human consumption is VAT-EXEMPT but ingredients for the
processing of human food is VATABLE

2. Books, newspapers, and magazines

3. Passengers or cargo vessels and aircrafts, including engine, equipment and spare parts

b. Importation by VAT-exempt persons

c. Quasi-Importation
d. Importation which are exempt under special laws and international agreement
B. Vatable Importation

III. IMPORT OF SERVICES

A. VAT-exempt
B. Subject to specific percentage tax
C. Subject to final withholding VAT