Chapter 7

Introduction Business Taxes

Business taxes are those imposed upon onerous transfers such as sale,|
barter, exchange and importation. It is called as such because without a_
business pursued in the Philippines (except importation) by the taxpayer,
business taxes cannot be applied.~

Unlike an income tax, which is based on the

Business taxes are in taxpayer's net taxable income, business taxes
addition to income and are generally based on gross sales or gross
other taxes paid, unless receipts. Hence, irrespective of the results of
specifically exempted. business operations (income or loss), taxpayers
engaged in trade are still liable to pay for
business taxes (either vat or percentage tax, plus
excise tax, if applicable).

“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; Sect. 4.105-3 of RR 16-2005).

Vat provisions pertain to those persons whose undertakings are intended

to be pursued on a going concern basis where the end view is to realize
unrestricted amounts of pecuniary gains or profits from those who may avail
of the goods they sell or the services they render (RMC 77-2008). Therefore,
isolated transactions are generally not considered in the ordinary course of
trade or business, hence, not subject to business tax. However, RR 16-2005
provides that services rendered in the Philippines by non-resident persons
shall be considered as being rendered in the course of trade or business even
if the performance is not regular.
By residents are considered not in the ordinary course of
trade or business, thus, not subject to vat.
Isolated
Transactions _ By nonresidents (on services rendered in the Philippines)
are considered in the ordinary course of trade or business,
thus, subject to Final withholding vat.

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ILLUSTRATION 1: Sale in the ordinary course of trade or business’

Determine which of the following transactions are considered sale in the
| ordinary course of trade, consequently subject to business tax

1. Pedro sold his vehicle acquired 3 years ago for P400,000.

2. Abe Corporation, distributor of appliances, sold TV units from its
inventory to various malls in Metro Manila.
3. An auditing firm rendered audit and tax services to its clients.
4. Anasold some of her jewelry for P50,000 to her best friend, Lorna

Answer:
* Transactions 2 and 3 only. ;
Transactions 1 and 4 are casual or isolated sales not made in the ordinary
course of trade or business.

TYPES of TRANSFER:
1. Gratuitous Transfer (transfer without consideration) — not subject to
business tax but subject to transfer taxes (donor's tax or estate tax).

2. Onerous Transfer (transfer with consideration):

a. In the ordinary course of trade or business including incidental
transactions:
Subject to (unless exempt under the law):
« Business tax; and
= Income

‘b. Not in the course of trade or business - not subject to business tax
but may be subject to income tax.

ILLUSTRATION 2: INCIDENTAL TRANSACTION |

Pinas Energy Corp. entered into a Built-Operate-Transfer (BOT) contract

with the PNOC for finance, engineering, supply, installation, testing,
_ -| commissioning, operation and maintenance of a Geothermal Power Plant.
During the year, Pinas Energy Corp. sold for P200,000 a fully depreciated
vehicle (Nissan Patrol) used in business,

Question: How much is the business tax, if any?

Answer: VAT = P200,000 x 12% = P24,000

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Chapter 7 - Bustiess Cages

BASIS: Mindanao Geothermal Il_vs. CIR, GR No. 193301 dated March 11,
2013 (refer also to Sec. 105 of the Tax Code, as amended).

GUIDE:
If the asset sold is an ordinary asset, it is generally subject to vat unless exempt
under the law, Mindanao II's business is to covert the steam supplied to it by the
PNOC into electricity and to deliver the electricity to NPC. In the course of its
business, Mindanao |! bought and and eventually sold a Nissan Patrol. Prior the
sale, the Nissan Patrol was part of Mindanao Il’s property, plant and equipment.
Therefore, the sale of Nissan Patrol is an incidental transaction made in the course
of of Mindanao II’s business which should be liable for VAT.

TYPES OF BUSINESS TAXES .

There are three (3) major business taxes in the Philippines, namely:

1. Value added tax (VAT)

2. Other percentage taxes (OPT) or simply Percentage Tax
3. Excise taxes

As a rule, all sale of goods or services made in the normal course

of trade or business are subject to vat unless exempt under the law (refer
to Chapter 8 of this book for vat exempt sales). Nonetheless, if the sale is
exempt from vat, it may be subject to Other Percentage Tax (OPT) under
Sections 116 to 127 of the Tax Code as discussed in Chapter 9.
Consequently, transactions already subjected to vat should no longer be
subject to Percentage Tax. However, such is not the case with respect to
excise taxes. A transaction subjected to either vat or percentage tax may
still be subjected to excise tax as illustrated. below:

Table 7-1: Business Taxes ~ :

VAT - OPT Excise Tax
SALE of Goods/Properties or Service may be subject to:
* VAT, in general X
><
mm<e

= Exempt from vat but subject to OPT Vv X

: Exempt from business taxes E
Manufacturing/Importation and Sale of Sin-products, Non-
essential goods/services may be subject to:
= In general, Vat (+ excise tax, if applicable); OR
jinn
xs

<<

_"Percentage Tax (+ excise tax, if applicable) -

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 | Chapter 7 ~ Business Téees
A transaction subjected to value added tax must no longer be
subjected to percentage tax. Nonetheless, a business entity or taxpayer
may be engaged in transactions that are subject to vat, exempt from vat
and subject to percentage tax (mixed transactions) at the same time.
Therefore, a taxpayer may be subjected to value added tax and at the
same time, percentage tax including excise tax if applicable.

ILLUSTRATION 3:

CASE A:
ABC Corporation is a vat registered taxpayer engaged in trading consumer
goods.
Question 1: What is the applicable business tax of ABC Corporation?
“+ Answer: vat
Question 2: May the BIR subject the sale of ABC Corporation to Percentage
tax in addition to vat? ; :
“+ Answer: No.
* A transaction already subjected to vat should no longer be
subjected to Percentage fax.
CASE B:
Jeepney Transport Corporation is engaged in operating jeepneys in Metro
Manila.
Question 1: What is the applicable business tax of the company?
“> Answer: Percentage Tax.
» Jeepney operation is subject to Common Carriers Tax
(CCT), a Percentage Tax under Section 117 of the Tax
Code (Refer also to Chapter 9 - Percentage Taxes).
Question 2: May the BIR subject the company to 12% vat in addition to
Percentage tax?
** Answer: No.
* _A transaction already subjected to percentage tax should
no longer be subjected to vat.
CASE C:
Jeepney Transport Corporation is engaged in:
» Jeepney operations in Metro Manila; and
« — Sale of jeepney spare parts and accessories
Question: What is the applicable business tax of the company?
“+ Answer: Percentage Tax and Vat
= Jeepney operation - Percentage tax
Sale of Jeepney spare parts and accessories - VAT
= The company is engaged in mixed transactions, hence,
may be subjected to vat and percentage tax wa

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CASE D:
Cigarette Corporation in manufacturing and selling premium cigarettes.
Question: What is the applicable business tax of the company?
«+ Answer: Vat and Excise Tax
o Manufacture of cigarettes - Excise tax (Refer to Chapter 10)
0. Sale of cigarettes - vat

|. VALUE-ADDED TAX

VAT is a 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. It is a tax on
consumption levied on the sale, barter, exchange or lease of goods or
properties and services in the Philippines (cross border doctrine) and on
importation of goods into the Philippines levied at each stage of
production and distribution process (RR 4-2007). "Cross border doctrine"
means that no VAT: shall be imposed to form part of the cost of goods
destined for consumption outside the territorial. border of the Philippine
taxing authority (ATLAS Consolidated Mining vs. CIR, June 8, 2007).

KINDS OF VAT
1. VAT on sale of goods or properties
2. Vat on importation of goods
3. Vat on sale of services and use or lease of properties

Persons Liable

Sale in the Ordinary Course:

Section 4.105-1 of RR 16-2005 provides that any person who, in
the course of his trade or business, sells, barters, exchanges or leases
goods or properties, or renders services, and any person who imports
goods, shall be liable to VAT imposed in Sections 106 to 108 of the Tax
‘Code.

Importation:
In the case of importation of taxable goods, the importer, whether
an individual or corporation and whether or not made in the course of his
trade or business, shall be liable to VAT imposed in Sec. 107 of the Tax
‘Code. pe i

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TRANSFER
BY A TAX-EXEMPT ENTITY TO NONE-TAX EXEMPT ENTITY
Section 107(B)‘of the Tax Code provides that in the case of tax-
free importation of goods into the Philippines by persons, entities, or
agencies exempt from tax where such goods are subsequently sold,
transferred or exchanged in the Philippines to non-exempt persons or
entities, the purchasers, transferees or recipients shall be considered the
importers thereof, who shall be liable for any, internal revenue tax on such
importation.

MEANING OF THE TERM “GOODS OR PROPERTIES”

Section 106(A)(1) of the Tax Code defined the term “goods or
properties” as all tangible and intangible objects which are capable of
pecuniary estimation and shall include, among others:

1. Real properties held primarily for sale to customers or held for

lease in the ordinary course of trade or business
2. 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
3. The right or the privilege to use any eee commercial or
scientific equipment
- 4. 'The right or the privilege to use motion pictiire’ films, films, tapes
and discs; and
5. . Radio, television, satellite transmission and cable television time. ©

‘ SALE OF SERVICES [Sec. 108(A)]

Sale of services means performance of all kind of services in the
Philippines for others for a fee, remuneration or consideration, whether in
kind or in cash. Vat on sale of service is a tax on payments for services
rendered in the exercise of profession or calling. It is an indirect tax and,
thus, may be passed on to the client or customer. It is a tax on service
and, as such, it accrues at the time the service fee is collected (regardless
' of timing of collection). Such payments may be collected in advance or
after the service is rendered (Refer to Chapter 8 for additional discussions).

SALE OF REAL PROPERTIES

Sale of real properties shall refer to real properties held primarily for
Sale. to customers or held for lease in’ the ordinary course of trade or
business of the seller. In the case of sale of real properties on the

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installment plan, the real estate dealer shall be subject to VAT on the
- installment .payments, including interest and penalties, actually and/or
constructively received by the seller (Section 104.106-3, RR 16-2005).

Characteristics of Vat

4. Itis an indirect tax where tax shifting is gays presumed

The value added tax is an indirect tax and the amount may be
shifted or passed on to the buyer, transferee or lessee of the goods,
properties or services (Section. 105 tax code; Section 4, RR.16-2005).
The seller is the one statutorily liable to pay for the payment of the tax
but the amount of the tax may be shifted or passed on the buyer or
transferee or lessee of the goods, properties or services. This rule
shall likewise apply to existing contracts of sale or lease of goods,
properties or services at the time of the effectivity of RA 9337 (Vat
Reform Act). However, in the case of importation, the importer is the
liable for the vat (RR 16-2005).

The “burden of the tax” is borne by the final consumers although

the producers and suppliers of these goods and services are the ones
who have to file their VAT returns to the Bureau of Internal Revenue
(BIR). Hence, what is transferred or shifted to the consumers is not
the “liability to pay the tax” but the tax burden.

2. Itis consumption-based.

Vat 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 (RR 16-2005). It is the end
user of consumer goods or services which ultimately shoulders the tax
as a liability therefrom is passed on to the end users by the providers
of these goods or services. The vat, thus, forms a substantial portion
of consumer expenditures.

3. I/tis imposed on the value-added in each singe of production and

distribution process.

The vat system assures fiscal adequacy through the collection

of taxes on every level of consumption. Each business in the supply
chain takes part in the process of controlling and collecting the tax. To
illustrate vat on each stage of production, refer to the illustration in the
next page.

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ILLUSTRATION 4:

VAT is imposed.on the value-added in each stage of production and/or

distribution process.

Tabako Manufacturing is a manufacturer of bombastic tobacco (sin product subject

to excise tax). It sells its products to Noypi Distibutors, the company’s exclusive
distributor in the Philippines.

Noypi sells the same to the following:

ABC Company - exclusive distributor for Luzon
DEF, Incorporated— exclusive distributor for Visayas
XYZ Company— exclusive distributor for Mindanao
ABC sells the products to its various customers such as “7/24 supermarket’

VAT IS IMPOSED AS FOLLOWS:

** Tabako is subject to vat on its sale to Noypi. In addition to vat, Tabako is alo
subject to excise tax.

“+ Noypi will charge vat (output vat) on its sale to ABC, DEF, XYZ and DEF.

“ABC will charge vat fo its customers such as 7/24.

“+ 7/24 will charge vat to its customers/end-users.

NOTE: The end-users will ultimately shoulder the tax passed-on to them by the
suppliers of the goods.

4. It is a credit-invoice method value-added tax

Vat payable or the amount of vat to be remitted by taxpayers to the

Bureau of Internal Revenue (BIR) is computed by deducting the input
vat from the output vat. The.sellers of goods or services passed-on to
the end users the liability to pay the tax who in turn may credit their vat
liability from the vat payments they received from the final consumer.
This is because vat is a consumption tax levied on sales to be borne
by consumers with sellers acting simply as tax collectors.

In the Philippines, the “Credit-Invoice Method” or “Tax Credit

Approach” is adopted in computing the Vat Payable. This means that
VAT is imposed on the sale first called “Output Vat” and a tax credit
is allowed or claimed on the VAT passed-on to his purchase or cost
of goods or services known as “Input Tax”. The excess of output vat
over input vat is called “VAT Payable”.

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ILLUSTRATION 5: Tax Credit Approach

On January 10, 2023, Alpha Corporation sold product “X” to Delta Incorporated for
-| P1,000,000 plus 12% vat. On January 15, 2023, Delta sold the product to Omega
Corporation for P1,200,000 plus vat of P144,000.

Question: How much is the vat payable of Delta?

“> Answer: P24,000
Output Vat (from sale to Omega) P144,000
Input Vat (purchases from Alpha) - (120,000). tax credit
Vat Payable P24,000
o Vat payable is the excess of output vat (vat ‘on sale) over input vat (vat
on purchases). The excess of vat passed-on by Delta to Omega |
(P144,000) over the vat paid on its purchases from Alpha (P120,000).
o'. The input vat is a deduction (tax credit) from output vat.

‘Output tax means the vat due on the sale, lease or exchange of
taxable goods or properties or services by any person registered or
required to register under Section 236 of the Tax Code. /nput tax means
the vat due on or paid by a‘VAT-registered on importation of goods or
local purchase of goods, properties or services, including lease or use of
property in the course of his trade or business.

Sec. 4.110-7 of RR 16-2005 as amended by RR2-2007 provides

that “if the input tax inclusive of input tax carried over from the previous
quarter exceeds the output tax, the excess input tax shall be carried over
to the succeeding quarter or quarters, provided, however, that any input
tax attributable to zero-rated sales by a VAT-registered person may at his
option be refunded or applied for a tax credit certificate which may be
used in the payment of internal revenue taxes, subject to the limitations as
may be provided for by law, as well as, other implementing rules (for
additional discussion, refer to Chapter 8 for 0% sales).

Basis of Value Added Tax

The'12% value added tax shall be based on the following:

Nature of Transaction(s
a. Sale of goods or properties Gross selling price
b. Sale of services Gross receipts
c. Importation Total landed cost
d. Dealers in Securities ’ Gross Income

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Chabter 7 - Bustaess Ty tes

Sale of Goods:
Gross Sales Pxx
Less: Sales discounts xx**
Sales returns xx** XX
Net sales XX
Add: Excise tax, if any XX
Tax Base XX
x Vat rate 12%
Output Vat, ° , thee
Less: Input vat (xx)
VAT Payable/ (Excess input tax) Pxx
**Sales Discounts, Retums and Allowances (Sec. 4.106-9 of RR 16-2005)

In computing the taxable base during the month or quarter, the

following shall be allowed as deductions from gross selling price
[Section 106(D) of the Tax Code, as amended]:

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 or a credit memo was issued during the
month or quarter to the buyer for sales previously recorded as
taxable sales.

Sale of Services:
Cash received (actually and constructively)*** Pxx
Deposits/Advance payments for future projects XX
Materials charged for services l

Gross receipts XX
x Vat rate 12%
Output Vat ’ XX
Less: Input vat (xX).
VAT Payable/ (Excess input tax) - Pxx_|
“Receivables (For Sale of Services), although ened, are not includedinin the
computation of vat payable.

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Dealer in Securities and LendingInvestors:

Gross Selling Price Pxx
Less: Acquisition cost of securities sold for the month/quarter (xx)
Balance XX
Add: Other income subject to basic tax XX
‘| Gross Income XX
x Vat rate 12%
* Output Vat XX
Less: Input vat (xx)
VAT Payable Pxx

GROSS SELLING PRICE

The total amount of money or its ' If the vat is not billed
equivalent which the purchaser pays or is separately in the
obligated to pay to the seller in consideration _ document of sale, the
of the sale, barter or exchange of the goods or selling price shall be
properties, excluding VAT. The excise tax, if _ deemed to be inclusive ©
any, on such goods or properties shall form of vat.
part of the gross selling pricehin 106(A)(1),
NIRC]}.

In the case of sale, barter or exchange of real property subject to

VAT, gross selling price shall mean the consideration stated in the sales
document or the fair market value, whichever is higher (RR 4-2007;
Section 4.106-4, RR 16-2005).

Fair Market Value

The term shall mean whichever is higher if the gross. selling
of: 1) the fair market value as determined by the price is based on
Commissioner or 2) the fair market value as shown zonal or market
in schedule of values of the Provincial and City value of property,
Assessors (real property tax declaration). However, the. zonal or market
in the absence of zonal value as determined by the value shall be
Commissioner, gross selling price refers to the deemed exclusive of
market value shown in the latest real property tax vat.
declaration or the consideration, whichever I's
higher (RR 4-2007).

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GROSS RECEIPTS

Gross receipts refer to 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 applied as payments for services rendered and
advance payments actually or constructively received during the taxable
period for the services performed or to be performed for another person,
excluding the VAT.

“Constructive receipt” occurs when the money consideration or its

equivalent is placed at the control of the person who rendered the service
without. restrictions by the payor. The following are examples of
constructive receipts: :

a) Deposit in banks which are made available to the seller of service

without restrictions. :

b) Issuance by the debtor of a notice to offset any debt or obligation

and acceptance thereof by the seller as payment for services
rendered; and

c) Transfer of the amounts retained by the payor to the account of

the contractor.

VAT REGISTRATION

Under the Tax Code, as amended, vat registration is classified into -

two (2), mandatory and optional vat registration.

A. MANDATORY REGISTRATION

1. 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 R3,000,000 beginning January 1, 2018
under RA 10963-TRAIN Law for the past 12 months (other than
those that are exempt) or there are reasons to believe that the
gross sales or receipts for the next 12 months will exceed
P3,000,000.

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2. Radio and/or television broadcasting

companies whose annual gross Penaltyfornon-registration %
receipts of the preceding year ofthose required to register. %
exceeds P10,000,000. Mandatory he taxpayer shall be fiable fos
registration applies within 30 days P@¥ the fax as if he were a VAT-
from the end of the taxable year to eae hence e) fe a
radio/ TV broadcasters whose gross ad Fel fal no ;
annual receipt for the taxable year properly recjsleted 8
exceeded R10M (RR 4-2007). '
3. A person required to register as VAT
taxpayer but failed to register.

VAT THRESHOLD, FOR HUSBAND AND WIFE

. For purposes of the threshold of P3,000,000, as amended, the

husband and the wife shall be considered separate taxpayers.
However, the aggregation rule for each taxpayer shall apply. For
instance, if a professional, aside from the practice of his profession,
also derives revenue from other lines of business which are otherwise
subject to VAT, the same shall be combined for purposes of
determining whether the threshold has been exceeded. Thus, the
VAT-exempt sales shall not be included in determining the threshold.

B. OPTIONAL REGISTRATION

1. Any’person who is VAT-exempt or not required to register for VAT

may elect to be VAT-registered by registering with the RDO that
has jurisdiction over the head office of that person, and pay the
annual registration fee for every separate and distinct
establishment. Any person who elects to register under optional
registration shall not be allowed to cancel his registration for the
next three (3) years.

2. Franchise grantees of radio and/or television broadcasting whose

annual gross receipts of the preceding year do not exceed ten
million pesos (P10,000,000) derived from the business covered by
the law granting the franchise may opt for VAT registration. This
option, once exercised, shall.be irrevocable. (Sec. 119, Tax
Code).

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The above-stated taxpayers may apply for VAT registration

not later than ten (10) days before: the beginning of the calendar
quarter and shall pay the registration fee unless they have already
paid at the beginning of the year. In any case, the Commissioner
of Internal Revenue may, for administrative reason deny any
application for registration. Once registered.as a VAT person, the
taxpayer shall be liable to output tax and be entitled to input tax
credit beginning on the first day of the month following registration.

CANCELLATION OF REGISTRATION
Instances when a VAT-registered person may cancel his VAT
registration: :

1. If he makes a written application and can demonstrate. to the

commissioner's satisfaction that his gross sales or receipts for the
following twelve (12) months, other than those that are exempt
under Section 109 (A) to (U), will not exceed P3,000,000; or

2. If he has ceased to carry on The cancellation for registration }%

his trade or business, and will be effective from the first’ [>
does not expect to day of'the following month the |)
recommence any trade or cancellation was approved. 4
business within the next i
twelve (12) months. , “aU a CE Sd eee ey Baie eee

Power of the Commissioner to suspend business operations:

The Commissioner of the Internal Revenue or his authorized

representative may order suspension or closure of business establishment
for a period of not less than 5 days for any of the following violations:
1. Failure to issue receipts or invoices
2. Failure to file. vat return soil
3 “Understatement” of taxable sales or receipts by 30%.or more of the
correct taxable sales or receipts for the taxable quarter.
Failure of any person to register as required under the law.
1 '

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COMPUTATION OF VAT PAYABLE

~ The corresponding liability on: value added tax, as discussed in the

preceding pages, is generally eerniuted as follows:

Output Vat (Sales or Receipts x 12%) Pxx

Less: Input Vat (Purchases or Disbursements Goods x 12%) (xx)
Vat Payable (Excess input vat) Pxx | -

Output vat means the vat due on the sale, lease or exchange of
taxable goods or properties or services by any vat registered person or
non-vat registered person but required to register under Section 236 of the
Tax Code. It is an’ad valorem tax charged on the selling price of taxable
goods or services, and is payable by the customer.

ILLUSTRATION 5:

Case A: Sale of Goods

Orange Corporation, the leading distributor of orange juice in the country, sold 10 boxes
of its products to 7/24 convenience store. The selling price is 210,000 per box exclusive
of vat. If Orange Corporation is a vat registered entity, it should charge an additional |
amount of P-12,000 per box representing 12% vat. Consequently, 7/24 will pay a total of
P 112,000 computed as follows:
Selling Price (10 boxes x P10, 1000) P100,000
Add: 12% VAT 12,000
Total Amount due/payable by 7/24 —_P11,200

Case B: Sale of Services .

In anticipation of lvan’s birthday party, Josephine went to Belo Medical Group to avail
facial services for P30,000 exclusive of vat. Belo is a vat registered entity, hence, |
charges additional 12% vat. Consequently, seeRING should pay a total of P33,600
computed as follows:
Value of the services rendered — P30,000
Add: 12% VAT 3,600
Total Amount Due payable by Ivan P33,600

Case C: Lease of Property

Jamylle Development Corporation (vat registered entity) leases a commercial space to
JC Corporation for 250,000 a month. JC will pay a total of 256,000 per month to the
lessor computed as follows:
F Rent per month ’ P50,000
: Add: 12% VAT (50,000x 12%). 6,000
; Total Amount due/payable by JC P56,000

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 fo {

7 eee ve Busttess Mes

Case D: Sale of Services by a non-vat registered entity

Mas Smart, Tayo a non-vat registered corporation rendered professional services to
Kate (vat registered) for 2100,000. Annual gross receipts of Mas Smart.exceeded the
P3,000,000 vat threshold during 2021.

Question 1: How much is the total amount due by Kate to Mas Smart?
“+ Answer: P100,000
“For failure to register under the VAT System, MAS Smart cannot pass-on the output
vat to its customers.

Question 2: Using the same assumption in the preceding question, how much is the vat
due/payable of Mas Smart to the BIR?
“* Answer: P12,000
A non-vat registered entity required to register as vatable entity but failed to do so is
liable to pay the equivalent output vat of 12% and is not entitled to claim input tax.

Il OTHER PERCENTAGE TAXES (OPT)

It is a tax imposed on sale, barter, exchange or importation of
goods, or sale of services based upon gross sales, value in money of
receipts derived by the manufacturer, producer, importer or seller
measured by certain percentage of the gross selling price or receipts.
Any person who is not a VAT registered person (persons exempt from
VAT under Sec. 109 of the tax code) and is not exempt from business tax
(i.e. business undertaking by an individual with gross sales/receipts
<P100,000 in any twelve-month period) shall be subject to other
percentage taxes. A more detailed discussion of Percentage Taxes is
presented in Chapter 9 of this book.

lll. EXCISE TAXES

In addition to VAT, excise taxes apply to goods manufactured or

produced in the Philippines for domestic sales or consumption or for any
‘other disposition, and goods imported. The goods manufactured or
imported under this category are classified as either “sin products” (such
as wines and cigarettes) or “non-essential goods” (such as automobile
and minerals) under the Tax Code. A more detailed discussion of Excise
Taxes is Prgeenied in| Chapter 10 of this book.

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 Chu tor 7 - Bustitess ‘Lagees
4

e aya da (BAY hy) :

MULTIPLE CHOICE.
4. Business Taxes are
a. Imposed upon onerous transfers such as sale, barter, exchange or
importation.
b. Imposed upon gratuitous transfers such donation inter-vivos and
donation mortis causa.
C. Imposed upon gratuitous and onerous transfers.
d. None of the above

2. Under the tax code, the following are major internal revenue business taxes,
except:
a. Value added tax c. Excise tax
b. Percentage tax d. Income tax

3. Which is correct?
a. Without a business pursued in the Philippines (except importation) by
the taxpayer, value added tax cannot be imposed.
b. “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
or not the person engaged therein is a non-stock, non-profit private
organization or government entity.
Services rendered in the Philippines by a non-resident foreign person
shall be considered as being rendered in the course of trade or
business even if the performance is not reget:
d. All of the above

4. Which statement is false? Transactions considered “in the course of trade or

business”, and therefore subject to the business taxes include:
a. Regular conduct or pursuit of a commercial or an economic activity
by a stock private organization.
b. Regular conduct or pursuit of a commercial or an.economic activity
by a non-stock, non-profit private organization.
c. Isolated services in the Philippines by non-resident foreign persons.
d. Isolated sale of goods or services for a gross selling id or receipts
of R950, 000.

5. The provisions of vat law shall apply to persons whose undertakings are
intended to be pursued on a going concern basis where the end view is to
realize unrestricted amounts of pecuniary gains or profits from those who may
avail of the goods they sell or the services they render. Which of the following
statements is correct?
a, Services rendered in the Philippines by a-citizen or resident person
shall be considered as being rendered in the course/of trade or
business even if the performance is not regular.
/

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 Chapter 77 ~- Business Lie "
b.. Services rendered in the Philippines by a non- -resident foreign
ae person shall be considered as being rendered in the course of trade
_ or business even if the performance | is not regular.
c. Both “a” and “b"
d. Neither “ a” nor D

6. Statement 1: Business taxes are Sco on gross income.

Statement 2: Business tax is in addition to income tax, ~
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

7. Statement 1: 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 VAT.
Statement 2: The excise tax, if any, on such goods or properties shall-form
part of the gross selling price.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

8. Which of the following statements is correct? In the case of sale, barter or

“exchange of real property subject to vat,
a. Gross selling price shall mean the consideration stated in the sales
document or the fair market value, whichever is higher.
b. Fair market value shall mean whichever is higher of the fair market
value as determined by the BIR Commissioner or the fair market
value as shown in schedule of values of the Provincial and City
Assessors.
c. Gross selling price, in the absence of zonal value or fair market
value as determined by the BIR Commissioner, shall refer to the
market value shown in the latest real property tax declaration or the
consideration, whichever is higher.
d. All of the above

9. Which of the following statements is correct?

|. | Vat may be imposed together with other percentage tax
hy Vat may be imposed together with excise tax
lll... Vat and other percentage tax may be inppsee together win income
‘tax
' a. ll only c. Il and Ill only
-b. Illonly qj 1, land Il

40. As to tax rate, value added taxi is an exinible of

a. Graduated tax c. Regressive tax
b. Progressive tax d. Proportional tax. ,

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 i '

Chapter 7 - Business Lawes

We Which of the following statements is correct? ?

a. The seller of goods/services is the one statutorily liable to pay vat.
b..The “burden of the tax” is borne by the final consumers although the
producers and suppliers of these goods and services are the ones who
- have to file their VAT returns to the Bureau of Internal Revenue. Hence,
what is transferred or shifted to the consumers is not the ‘liability to pay
the tax” but the tax burden.
c. Both “a” and “b”
d. Neither “a” nor “b”

12. Which is correct?

a. All vat-exempt taxpayers shall be subject to other percentage taxes.
b. A taxpayer who is subject to percentage. tax on his OSs receipts will also
be subject to income tax on his net income.
c. Both “a” and “b”
d. Neither “a” nor “b” arise Sue
13. Georgia is a manufacturer of “GJ supermini-cigarettes”. In making sales,
taxes on the products and transactions are passed on to the buyers. For vat
purposes, which of the following forms part of the gross selling price?
a. Value added tax c. Excise tax
b. Percentage tax d. Income tax

14. Alex imported cigarettes for sale in the Philippines. What business tax will
‘ Alex pay?
1" Answer. He will pay VAT on importation and on the sale of the
cigarettes.
2” Answer. He will pay excise tax on inipereiao of the cigarettes.
a. Both answers are correct
b. Both answers are incorrect
c. Only the 1° answer is correct
d. Only the 2" answer is correct

15. Which is correct?

a. An excise tax which imposes a tax based on weight or volume capacity or
any other physical unitof measurement is called specific tax.
b. An excise tax which imposes a tax based on selling price or other
specified value of the article is called ad valorem tax.
c. Apercentage tax which is imposed whether the transaction resulted in a
gain or loss is called transaction tax.
d. All of the above.

16. A taxpayer imported cigarettes from China for sale. At a later date, he sold
‘the cigarettes in the Philippines. .He is subject to value-added tax. He is also
subject to business tax of
a. Income tax c:. Excise tax
b. Percentage tax d. None of the above

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 Chapter vy - Business Lagves

Af: Who of the following is NOT subject to vat?

a. Vat registered person whose gross sales do not exceed P3,000, 000.
b. Avnonresident lessor or foreign licensor-who is not vat registered.
c. Any person who is required to a under the vat system but failed to
register.
d.° None of mis above.

18. Anon-VAT registered whose sales for the year exceeded PS, 000,000 is
a. Exempt from VAT
b. Subject to 0% VAT
c. Subject to percentage tax
d. Subject to 12% VAT °

49. Which of the following is/are correct?

I. Persons whose transactions are exempt from value added tax under
-Section 109 because their gross sales/and or receipts do not exceed
P3,000,000 may voluntarily apply for ale under the VAT
system.
Il. A VAT-registered person whose gross sales and/or receipts for two
(2) consecutive years did not exceed P3,000,000 may apply for
cancellation of VAT registration and revert back to being VAT-exempt
under Section 109.
a. | only | c. Both! and II
b. Il only , d. Neither | nor II

20. Which is incorrect?

a. A taxpayer whose annual gross receipts or sales exceed P3,000,000
shall pay VAT even if not VAT registered.
b. A taxpayer whose annual receipts or sales do not exceed
P3,000,000 but who is VAT registered shall pay VAT.
c. The same transaction may be subjected to both income tax and VAT.
d. None of the above

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