Pamantasan ng Lungsod ng Valenzuela

College of Business and Accountancy

Department of Accountancy

BUSINESS AND TRANSFER TAXATION (TAX2)

Business Tax and Value-Added Tax

Business Taxes those imposed upon onerous transfers such as sale, barter, exchange and importation.

“In the course of trade or business” means the regular conduct or pursuit of a commercial or an economic activity, including transactions
incidental thereto, by any person, regardless of whether the person engaged therein is a non-stock, non-profit private organization or
government entity (Sec. 105 NIRC; Sec. 4. 105-3 of RR 16-2005).

Types of Business Taxes

1. Value Added Tax (VAT)
2. Other Percentage Taxes (OPT) or simply Percentage Tax
3. Excise Taxes

VAT OPT Excise Tax

SALE of Goods/Properties may be subject to:
• VAT, in general ✓ X X
• Exempt from VAT but subject to OPT E ✓ X
• Exempt from business taxes E E -
•
Manufacturing/Importation and Sale of Sin-products, Non- ✓ X ✓
essential goods/services may be subject to: X ✓ ✓

VALUE-ADDED TAX – tax on the value added by every seller to the purchase price or cost in the sale or lease of goods, property or
services in the ordinary course of trade or business as well as on importation of goods into the Philippines, whether for personal or business
use.

The rule of regularity, to the contrary notwithstanding, services as defined in the Tax Code rendered in the Philippines by non-resident
foreign persons shall be considered as being rendered in the course of trade or business.

Characteristics of VAT
1. It is an indirect tax where tax shifting is always presumed.
2. It is consumption-based.
3. It is imposed on the value-added in each stage of production and distribution process.
4. It is a credit-invoice method value added-tax.

Nature of Transaction(s) Tax Base

Sale of goods or properties Gross Selling Price
Sale of services Gross Receipts
Importation Total Landed Cost
Dealers in securities Gross Income

Kinds of VAT
1. VAT on sale of Goods or Properties
The term “goods or properties” refers to all tangible and intangible objects which are capable of pecuniary estimation and shall
include, among others:
a. Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business;
b. The right or the privilege to use patent, copyright, design or model, plan, secret formula or process, goodwill, trademark,
trade brand or other like property or right;
c. The right or the privilege to use any industrial, commercial or scientific equipment;
d. The right or the privilege to use motion picture films, films, tapes and discs; and
e. Radio, television, satellite transmission and cable television time.

Gross Sales XX
Less: Sales Returns and Allowances XX
Sales Discounts XX XX
Net Sales XX
Add: Excise tax, if any XX
Tax base (excluding VAT) XX

The term "gross selling price" means the total amount of money or its equivalent which the purchaser pays or is obligated to pay
to the seller in consideration of the sale, barter or exchange of the goods or properties, excluding the value-added tax. The excise
tax, if any, on such goods or properties shall form part of the gross selling price.

In computing the taxable base during the month or quarter, the following shall be allowed as deductions from gross selling price:

1
Value-Added Tax TAX2

a) Discounts determined and granted at the time of sale, which are expressly indicated in the invoice, the amount thereof
forming part of the gross sales duly recorded in the books of accounts.

Sales discount indicated in the invoice at the time of sale, the grant of which is not dependent upon the happening of a
future event, may be excluded from the gross sales within the same month/quarter it was given.

b) Sales returns and allowances for which a proper credit or refund was made during the month or quarter to the buyer for
sales previously recorded as taxable sales.

2. VAT on Importation of Goods

Importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines with intention to unload therein.

Importation is deemed terminated upon payment of the duties, taxes and other charges due upon the articles, or secured to be paid,
at a port of entry and the legal permit for withdrawal shall have been granted, or in case said articles are free of duties, taxes and
other charges, until they have legally left the jurisdiction of the customs.

There shall be levied, assessed and collected on every importation of goods a value-added tax equivalent to twelve percent (12%)
based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise
taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody:
Provided, That where the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax
shall be based on the landed cost plus excise taxes, if any.

In general, where customs duties are based on the value (ad valorem)
Total value (i.e. dutiable value-cost, insurance, freight) XX
Add: Customs duties XX
Excise tax XX
Other charges prior to release of goods from Customs custody XX
Tax Base XX

In case where customs duties is based on volume or quantity (specific)

Invoice Amount XX
Add: Customs Duties XX
Freight XX
Insurance XX
Other legitimate charges prior to release by the BOC XX
Total landed cost XX
Add: Excise tax XX
Tax Base XX

3. VAT on sale of Services and use or lease of properties

Sale or exchange of services means the 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:
a. Construction and service contractors;
b. Stock, real estate, commercial, customs and immigration brokers;
c. Lessors of property, whether personal or real;
d. Persons engaged in warehousing services;
e. Lessors or distributors of cinematographic films;
f. Persons engaged in milling, processing, manufacturing or repacking goods for others;
g. Proprietors, operators or keepers of hotels, motels, rest houses, pension houses, inns, resorts; (theatres and movie houses
(deleted in TRAIN);
h. Proprietors, operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers;
i. Dealers in securities;
j. Lending investors;
k. Transportation contractors on their transport of goods or cargoes including persons who transport goods or cargoes for hire
and other domestic common carriers by land, relative to their transport of goods or cargoes;
l. Common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines
to another place in the Philippines
m. Sales of electricity by generation, transmission, and/or distribution companies, including electric cooperatives;
n. Services of franchise grantees of electric utilities, telephone and telegraph, radio and television broadcasting and all other
franchise grantees, except those under Section 119 of the Tax Code;
o. Non-life insurance companies (except their crop insurance), including surety, fidelity, indemnity and bonding companies;
p. Similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental
faculties.

The phrase “sale of exchange of services” shall likewise include:

1) The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan secret formula or process,
goodwill, trademark, trade brand or other like property or right;
2) The lease or the use of, or the right to use of any industrial, commercial or scientific equipment;
3) The supply of scientific, technical, industrial or commercial knowledge or information;

2
Value-Added Tax TAX2

4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the application or
enjoyment of any such property, or right as is mentioned in subparagraph (2) or any such knowledge or information as is
mentioned in subparagraph (3);
5) 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 nonresident person.
6) 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;
7) The lease of motion picture films, films, tapes and discs; and
8) The lease or the use of or the right to use radio, television, satellite transmission and cable television time.

Lease of properties shall be subject to the tax herein imposed irrespective of the place where the contract of lease or licensing
agreement was executed if the property is leased or used in the Philippines.

Cash received (actually and constructively) XX

Advance payments for future projects XX
Materials charged with the services XX
Gross receipts (excluding VAT) XX

The term "gross receipts" means the total amount of money or its equivalent representing the contract price, compensation,
service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advanced
payments actually or constructively received during the taxable quarter for the services performed or to be performed for another
person, excluding value-added tax. Receivables, although earned, are not included.

For Dealer in Securities, the term “gross receipts” means gross selling price less cost of the securities sold.

Gross selling price XX

Less: Acquisition cost of securities sold for the month or quarter XX
Balance XX
Add: Other or incidental income XX
Gross receipts (excluding VAT) XX

Output tax means the value-added tax on sale or lease of taxable goods or properties or services by any person registered or required to
register. In a sale of goods or properties, the output tax is computed by multiplying the gross selling price by the regular rate of VAT.

Illustration 1
The following data are taken from the books of a dealer in securities:

Selling price, shares held as inventory P 3,000,000

Selling price, shares held as investment 2,000,000
Acquisition cost, shares held as inventory 1,000,000
Acquisition cost, shares held as investment 1,500,000
Other income, shares held as inventory 200,000

Required:
How much is the output tax using 12% rate?

Illustration 2
A VAT-registered taxpayer has the following VAT-exclusive data for the month of January 2024:

Accounts receivable, January 1, 2024 P 500,000

Sales on account for the month of January 1,000,000
Cash sales for the month of January 300,000
Accounts receivable, January 31, 2024 700,000
Cash purchases for the month of January 2024 400,000

Required:
How much is the output tax for the month of January, 2024 using 12% rate assuming the taxpayer is a:
a) Trader
b) Service Provider

Sources of Output VAT

1. Actual Regular Sales
Sales where there are actual exchanges between buyer(s) and a seller(s) in the ordinary course of trade or business
including transactions incidental thereto, by any person, regardless of whether or not the person engaged therein is a non-stock,
non-profit private organization or government entity (Section 105 of the Tax Code, as amended), shall be subject to 12% VAT,
unless exempt under the law.

2. Transaction Deemed Sales

Under Section 106(B) of the Tax Code, certain transactions which are not actually sales because of the absence of actual
exchange between the buyer and the seller, are considered or included in the term “sale” for value added tax purposes.

3
Value-Added Tax TAX2

The following transactions are considered deemed sale:

a. Transfer, use or consumption not in the ordinary course of business of goods or properties ordinarily intended for sale or
use in the course of business. The basis in computing the applicable VAT shall be fair market value of the goods
consumed.
b. Distribution or transfer to:
• Shareholders or investors as share in the profits of a VAT-registered person; and
• Distribution or transfer to creditors in payment of debt or obligation.
c. Consignments of goods if actual sale is not made within sixty (60) days following the date such goods were consigned.
Goods returned within the 60-day period are not deemed sold.
d. Retirement from or cessation of status as VAT registered person with respect to all “goods on hand” (as of the date of
retirement or cessation), whether or not the business is continued by the new owner or successor. Goods on hand refer to
capital goods, stock in trade and supplies and materials (Basis should be the acquisition cost or market value whichever
is lower)

RR 16-2005 as amended by RR 4-2007 provides that the VAT provided above shall apply to goods or properties originally
intended for sale or use in business, and capital goods which are existing as of the occurrence of the following:
i. Change of business activity from VAT taxable status to VAT-exempt status.
ii. Approval of a request for cancellation of registration due to reversion to exempt status.
iii. Approval of a request for cancellation of registration due to a desire to revert to exempt status after the lapse of
three (3) consecutive years from the time of registration by a person who voluntarily registered despite being
exempt under Sec. 109 (2) of the Tax Code.
iv. Approval of a request for cancellation of registration of one who commenced business with the expectation of
gross sales or receipts exceeding P 3,000,000, as amended, but who failed to exceed this amount during the first
twelve months of operation.

3. Zero (0%) Rated Sales (Export Sale)

A zero-rated sale of goods or properties and services (by a VAT-registered person) 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
sale, shall be available as tax credit or refund in accordance with the Regulations.

Zero-Rated Sales of Goods or Properties

a. Export sales of goods
1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping
arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so
exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
2) Sale and delivery of goods to:
i. Registered enterprises within a separate customs territory as provided under special laws; and
ii. Registered enterprises within tourism enterprise zones as declared by the Tourism Infrastructure and
Enterprise Zone Authority (TIEZA) subject to the provisions under Republic Act No. 9593 or The Tourism
Act of 2009. (Vetoed)
3) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local export-oriented
enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer’s goods
and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP);
4) Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed 70% of the total
annual production;
5) Those considered export sales under the Omnibus Investment Code of 1987 (E. O. No. 226), and other special laws.
6) The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air
transport operations Provided, That the goods, supplies, equipment and fuel shall be used for international shipping
or air transport operations.
b. Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a
signatory effectively subjects such sales to zero rate.

Zero-rated Sales of Goods or Properties which Shall be Subject to 12% VAT Upon Satisfaction of Certain Conditions
(under the TRAIN)
1) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local export-oriented enterprise
to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer’s goods and paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP);
2) Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed 70% of the total annual
production;
3) Those considered export sales under the Omnibus Investment Code of 1987 (E. O. No. 226), and other special laws.
“Considered export sales under Executive Order No. 226” shall mean:
a. the Philippine port F.O.B. value determined from invoices, bills of lading, inward letters of credit, landing certificates,
and other commercial documents, of export products exported directly by a registered export producer, or
b. the net selling price of export products sold by a registered export producer to another export producer, or to an export
trader that subsequently exports the same;

Sales of export products to another producer or to an export trader shall only be deemed export sales when actually
exported by the latter, as evidenced by landing certificates or similar commercial documents.

4
Value-Added Tax TAX2

Pursuant to EO 226 and other special laws, even without actual exportation, the following shall be considered
constructively exported:
a. sales to bonded manufacturing warehouses of export-oriented manufacturers;
b. sales to export processing zones pursuant to Republic Act (RA) Nos. 7916, as amended, 7903, 7922 and other similar
export processing zones;
c. sale to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority pursuant to RA 7227;
d. sales to registered export traders operating bonded trading warehouses supplying raw materials in the manufacture of
export products under guidelines to be set by the Board in consultation with the Bureau of Internal Revenue (BIR) and
the Bureau of Customs (BOC);
e. sales to diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of locally manufactured,
assembled or repacked products whether paid for in foreign currency or not.

Zero-Rated Sales of Services and Lease of Properties

a. Processing, manufacturing or repacking of goods for other persons doing business outside the Philippines which goods are
subsequently exported where the services are paid for in acceptable foreign currency and accounted for in accordance with
the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
b. Services other than processing, manufacturing or repacking 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
the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
c. Services rendered to persons or entities whose exemption under special laws or international agreements to which the
Philippines is a signatory effectively subjects the supply of such services to zero percent rate;
d. Services rendered to persons engaged in international shipping or air transport operations, including lease of property for use
thereof: Provided, that these services shall be exclusive for international shipping or air transport operation;
e. Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise
whose export sales exceed 70% of the total annual production.
f. Transport of passengers and cargo by domestic air or sea carriers from the Philippines to a foreign country.
g. Sale of power or fuel generated through renewable sources of energy. Provided, however, that zero-rating shall not extend to
the sale of services related to the maintenance or operation of plants generating said power.
h. Services rendered to:
i. Registered enterprises within a separate customs territory as provided under special law; and
ii. Registered enterprises within tourism enterprise zones as declared by the TIEZA subject to the provisions under
Republic Act No. 9593 or The Tourism Act of 2009. (Vetoed)

Zero-rated sales of Services and Lease of Properties which shall be subject to 12% VAT upon satisfaction of Certain
conditions (under the TRAIN)
1) Processing, manufacturing or repacking of goods for other persons doing business outside the Philippines which goods are
subsequently exported where the services are paid for in acceptable foreign currency and accounted for in accordance with
the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
2) Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise
whose export sales exceed 70% of the total annual production.

Sale, Transfer, or Exchange of Imported Goods by Tax-Exempt Persons

a. In the case of goods imported into the Philippines by VAT-exempt persons, entities, or agencies which are subsequently sold,
transferred or exchanged in the Philippines to non-exempt persons or entities, the latter shall be considered the importers
thereof who shall be liable for VAT on such importation.
b. The tax due on such importation shall constitute a lien on the goods, superior to all charges or liens, irrespective of the
possessor of said goods.

Illustration 3
The following information taken from the books of a VAT-registered enterprise was provided to you:
Domestic sales of goods P 3,000,000
Sales of packaging materials to an export-oriented enterprise whose export sales exceed
70% of the total annual production 2,000,000
Local sales of goods to Asian Development Bank (ADB) 500,000
Consignment of goods (not returned within 60 days following the date of consignment) 200,000
Consignment of goods (returned within 60 days following the date of consignment) 150,000
Goods transferred for the personal use of the owner (cost is P90,000), market value 100,000
Goods transferred to creditor as payment of debt of the enterprise (cost, P100,000)
market value 90,000
Goods transferred to owners as share in the profit of the enterprise, market value 80,000
Required:
How much was the total taxable sales and the output VAT using 12% rate?

- END OF COURSE FILE -

References
Tabag, E. D., & Garcia, E. J. (2022). Transfer & Business Taxation.