Taxation 2 │BUSINESS TAXES

FLABERT VILLASENCIO, CPANotre Dame of Dadiangas University

Transaction Subject to Business Tax

1. It is a commercial activity- involves sales of goods and services related to trade, profession or business (not an exempt transaction)

Example: a) Sale of goodsb) Sale of ordinary asset used in business

2. Services rendered by a Nonresident foreign person (regardless of regularity)

Example:

Pha Hiram, an Indian national, leased his vessel to a Filipino citizen. He is not regularly engaged in a leasing business.

He is deemed to engage in a leasing business even if it is not regularly engaged in leasing in the Philippines.

Non-business Transaction

The following are Non-business Transactions that are subject to Business Tax:

1.Sale of shares of stock through the stock exchange subject to ½ of 1% Other Percentage Tax

2.Oversees dispatch, communication originating from the Philippines subject to 10% OPT

3.Horse racing winning subject to 10% OPT; Jai-Alai subject to 30% OPT

Casual Sale

An occasional sale of goods or services by a person who is not engaged in the business or sale of assets that are not used in business

Example:

1. Sale of personal properties not used in the business.

Summary Application

Business Taxes

Taxes imposed on ONEROUS transfers in the ordinary course of business:

1.Value-Added Tax (VAT) – a general consumption tax with a 12% additional tax on the sales price of the goods or services by VAT-registered seller or by those required to be under the VAT-system.

2.Other Percentage Tax (OPT) – general consumption tax to Non-VAT- registered• With several rates but the common is 3%

3.Excise Tax (ET) – taxes imposed on products that are harmful to health, non-essential and those that deplete natural resources

Business Registration

For regulation purposes, a business must be registered before it starts its economic activities so as not to render it business illegal.

1.Initial Registration – filed with the RDO to where the principal place of business

2.Annual Registration – every before the start of the business, it has to be registered. Annually, the registration has to be renewed.• Annual fee of P500 for every separate distinct

establishment or place of business.

Business Registration

Exempt from Registration Fee:

1.Individuals earning purely compensation income

2.Overseas workers

3.Self-employed individuals where the gross sales or receipts do not exceed P100,000 per year

4.Cooperatives (but still have to register with BIR)

Summary Application

Seller (Business Registration)

VAT-Registered >P1,919,50

0/ year

Non-VAT-Registered <P1,919,50

0/ year

VAT-Registered

VAT Sales Invoice for

sale of goods

VAT Receipts

For sale of services

Non-VAT RegisteredIssues Sales Invoice for

sales of goodsIssues Receipts for Sale

of Services

VAT or Non-VAT Registration▪ VAT-Registered- subject to 12% business tax

▪ Non-VAT- Registered- generally subject to 3% Other Percentage Tax

1.Mandatory VAT-Registration- VAT-Registration becomes compulsory when:

a. Expected annual gross sales or receipts exceed P1,919,500b. A taxpayer has realized gross sales or receipts of more than

P1,919,500

2.Optional VAT-Registration – persons with taxable business transactions that do not exceed P1,919,500 per year has the option to register under VAT system.

3.Non-VAT Registration – a person registers to a Non-VAT system who is subject to Other Percentage Tax– Still subject to 12%– Cannot shift the burden to customers– Cannot claim creditable input VAT on its purchases

VAT vs Non-VAT Business

VAT-Register

ed

Allowed to collect Output VAT from

customers

Allowed to claim creditable Input

VAT on purchases from VAT-registered suppliers

Non-VAT Register

edNo Output VAT is

allowed. The business tax is

charged as Operating Expense

No Input VAT is allowed. The Input VAT is charged as

part of Cost of Purchases

VAT vs Non-VAT Business

4. Paid the Business tax for the month

3. Sold 12,000 worth of goods for 30,000Cash 33,600• Sales 30,000

• Output VAT 3,600

Cash 30,000

Sales 30,000

Output Vat 3,600Input Vat 1,200VAT Payable 2,400

OPT Expense 900OPT Payable 900

1. Purchased goods from non-VAT supplier amounting to P5,000Purchases 5,000• Cash 5,000

2. Purchased goods from a VAT-registered supplier amounting to P10,000 plus P1,200 VATPurchases 10,000Input VAT 1,200• Cash 11,200

Purchases 11,200

• Cash 11,200

Purchases 5,000Cash 5,000

VAT Payable 2,400Cash 2,400

OPT Payable 900Cash 900

Cancellation of VAT Registration▪ VAT-Registration is irrevocable for a period of 3

years from the quarter the registration was made

▪ Liability to pay VAT is valid until revoked by the BIR

Non-VAT Person Collecting VAT▪ Other Percentage Taxes applicable to the transaction

▪ VAT due on the transaction without the benefit of any Input Tax Credit

▪ 50% surcharge

Non-VAT Person Collecting VATIllustration:

Manda Raya, a non-VAT person, collected P112,000 from Tangaka Sy for the sale of goods amounting to 100,000 plus 12,000 VAT. She was about to pay the 3% percentage tax but the BIR found out her violation. Raya’s tax liability would be:

Other percentage tax (100,000 x 3%) 3,000

Add: VAT Collected 12,000

Surcharge (50%) 6,000 18,000

Total Tax Liability 21,000

Invoices and Receipts▪General Requirementso Apply for Authority to Print with the BIRo Invoices and Receipts shall be registered with BIRo Cash register machines and sales book are to be registered with BIRo Invoices are to be issued for sale of goods while receipt is to be issued for the amount of cash receivedo Contents of the cash register receiptso Business nameo Business addresso VAT or Non-VAT numbero Amount and Date of the transactiono Amount of Tax (for VAT invoice)

Invoicing and Accounting for VAT-Registered PersonsA. A VAT-registered person shall issue:1. A VAT invoice for sale of goods or properties2. VAT Official Receipt for sale of services or lease of goods or propertiesB. The following information shall appear in the VAT invoice or VAT Official receipt1. A statement that the seller is a VAT-registered person followed by the TIN.2. The amount of tax shown as a separate item.3. The word “VAT-exempt Sale” is written or printed prominently if sale is VAT-exempt.4. The word “Zero-Rated Sale” is written or printed prominently if sale in subject to zero percent.5. An option to issue combined or separate invoices receipts of sale on a combination of VAT-liable and VAT-exempt sale6. Date of transaction, quantity, unit cost, and description of the goods or properties or the nature of the service.7. For sale of VAT-registered persons amounting to P1,000 or more indicate the name, business style, address and TIN of the purchaser.

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