BUSINESS TRANSACTIONS

VAT, Percentage TaxVAT, Percentage Tax

MS. Marinor G. Quintilla, ,CPA, MBA

QUERY 1:

WHAT IS BUSINESS OR “IN THE COURSE OF TRADE OR BUSINESS?”

ANS.

• MEANS THE REGULAR CONDUCT OR PURSUIT OF A COMMERCIAL OR ECONOMIC ACTIVITY

• GOAL – PROFIT• REGULAR – REPETITION AND

CONTINUITY OF ACTION.

3 MAJOR BUSINESS TAXES

The General Outline

BACKGROUND TO VAT

• VAT became effective in the Philippines on Jan. 1, 1988 by E.O. 273.

• Its imposition eliminated traditional business taxes such as tax on hotels, motels, dealers in securities, caterer’s fee.

• Passage of RA 9337: SALES OF GOODS AND SERVICES = SUBJECT TO VAT

NATURE AND CHARACTERISTICS OF VAT

• VAT is tax on consumption• Levied on the sale, barter, exchange

or lease of goods, properties or services in the Philippines and importation of goods in the Philippines.

• Seller is liable for payment of tax but the amount may be shifted to the buyer, transferee or lessee of goods, properties or services.

SCOPE OF VAT• Any sale, barter or exchange of goods

and properties (including real properties) in the course of trade or business;

• Any sale of services in the course of trade or business

• Any lease of goods & properties in the course of trade or business

• Any importation of goods, whether in the course of trade or business or not

“in the course of trade or business”

Means the regular conduct or pursuit of a commercial or an economic activity including transactions incidental thereto

any business pursued by an individual where aggregate sales is less than P100K during any 12 month period shall be considered for subsistence/livelihood and NOT in the course of business.

MANDATORY REGISTRATION

• 1. GROSS SALES OR RECEIPTS FOR THE PAST 12 MONTHS = EXCEEDED P1.5M; OR

• 2. GROSS SALES OR RECEIPTS FOR THE NEXT 12 MONTHS WILL EXCEED P1.5M

CASE 1:<GRADED RECITATION>

BABA, OPERATES A BUSINESS. DURING THE YEAR, HIS GROSS RECEIPTS AMOUNTED TO P1.2M.

If Baba is a VAT registered person, is he liable to pay VAT?

ANSWER:• Yes, a VAT REGISTERED

PERSON is subject to tax even if his gross receipts did NOT exceed P1.5M. If he is NOT REGISTERED, then he would NOT be subject to VAT because his gross receipts do not exceed P1.5M.

HOW ABOUT IF HE IS NOT VAT-REGISTERED BUT HIS ANNUAL GROSS RECEIPTS IS P1.8M

(SAME PROBLEM)

ANSWER:

• HE IS SUBJECT TO VAT BECAUSE THE GROSS RECEIPTS EXCEEDED P1.5M.

Administrative Provisions

MANDATORY REGISTRATION

Optional registration of VAT -EXEMPT PERSONS

• Gross sales or gross receipts – do not exceed P1.5M for any 12 month.

• Franchise grantees of radio and television broadcast station = annual gross receipts in the preceding year DOES NOT exceed 10M.

• ONLY VAT – REGISTERED persons are required to print their TIN followed by word “VAT” in their invoices or receipts

CLASSIFCATIONS OF VAT

VAT ON SALE OF GOODS OR PROPERTIES

TAX RATES

FORMULA

OUTPUT TAX > INPUT TAX = TAX PAYABLE

APPEAR IN THE BALANCE SHEET AS VAT PAYABLE (LIABILITY)

OUTPUT TAX < INPUT TAX = TAX PAYABLE

APPEAR IN THE BALANCE SHEET AS DEFERRED INPUT TAX (ASSET SECTION)

INVOICE

OTHER PERCENTAGE TAXES

Sec. 109(1) of the Tax Code

GROSS RECEIPTS /GROSS SALES OF NON-VAT

REGISTERED PERSON

• Do not exceed P1.5M per year is subject to 3% percentage tax rather than 12% of VAT.

EXAMPLES• Domestic carriers and keepers of garages• Franchise• Overseas dispatch or message from the

Philippines• Bank and non-bank financial institutions• Life insurance companies• Amusement places• Sale of shares of stock in local stock exchange• Business with annual sales of P1.5M and

below

DOMESTIC CARRIERS AND KEEPERS OF GARAGES

• Includes cars for rent or for hire driven by the lessee, transportation contractors, including persons paid to transport passengers and other domestic carriers by land, for the transport of passengers, except owners of bancas, owners of animal-drawn two wheeled vehicles and keepers of garages.

Note:

• Businesses with annual gross sales of P100K and below are EXEMPT from VAT and other percentage taxes.

FRANCHISES

• A privilege acquired by special grants from the public through the legislature which imposes on the grantee as a consideration, a duty to the public to see that they are properly used.

• Gas & water – 2% on gross receipt• Radio or TV broadcasting – annual gross

receipts of last year do not exceed P10M

LIFE INSURANCE

• 5% of the total premium collected – basis for percentage tax

AMUSEMENT PERCENTAGE TAX

• BOXING – 10%• PROFESSIONAL BASKETBALL

GAMES – 15%• COCKPITS – 18%• JAI-ALAI AND RACE TRACTS –

30%• NIGHT/DAY CLUBS – 12%

WINNINGS ON HORSE RACES

• 10 % TAX ON WINNINGS IN HORSE RACES

• BASED ON ACTUAL AMOUNT PAID TO HIM FOR EVERY WINNING TICKET AFTER DEDUCTING THE COST OF THE TICKET.

SHARES OF STOCK

• ½ of 1% of the gross selling price• listed or traded in the local stock

exhange.

INITIAL PUBLIC OFFERING (IPO)

• UP TO 25% - 4%• OVER 25% BUT NOT OVER 33 1/3% - 2%• OVER 33 1/3 %11 - 1%

• BASED ON THE GROSS SELLING PRICE OR GROSS VALUE IN MONEY OF THE SHARES OF STOCKS

RETURNS AND PAYMENT OF PERCENTAGE TAX

• Every person shall file monthly return : within 20 days after the end of each taxable month.

• STOCK TRANSACTION IN STOCK EXCHANGE: within 5 banking days from the date withheld by the broker

• TAX ON WINNINGS – Remitted to the BIR within 20 days from the date withheld

• STOCKS’ INITIAL OFFERING – within 30 days from the date of listing in the local stock exchange

RETURNS AND PAYMENT OF PERCENTAGE TAX

• Amusement tax – payable at the end of each month and complete tax return for the quarter shall be filed within 20days at the end of the quarter

• Overseas dispatch – to be remitted 20 days after the end of each quarter.

EXCISE TAX

A NATIONAL INTERNAL REVENUE TAX APPLIES TO:

• MANUFACTURERS• IMPORTERS

EXAMPLES OFEXCISE TAX

EXCISE TAX

• IMPOSED ON HARMFUL OR NON-ESSENTIAL GOODS MANUFACTURED OR PRODUCED IN THE PHILIPPINES

• FOR DOMESTIC SALE, CONSUMPTION OR FOR ANY DISPOSITION INCLUDING IMPORTED GOODS.

2 KINDS OF EXCISE TAXES

• SPECIFIC TAX• AD VALOREM TAX

FILING OF RETURN AND PAYMENT OF EXCISE TAX

• Indigenous petroleum, natural gas or liquefied natural gas = paid by the first buyer, purchaser or transferee for local sale, barter or transfer

• Exported goods _ shall be paid by the owner, lessee, concessionaire or operator of the mining claim

LOCAL TAXES

CONCEPT OF LOCAL TAXES

• Belongs exclusively to the legislative body of the government

• Local government units do not have the inherent power to tax but the law delegates such power to them through the LOCAL GOVERNMENT CODE (LGC) enacted by the Congress

SCOPE OF LOCAL TAXATION

• LOCAL GOVERNMENT TAXATION• REAL PROPERTY TAXATION

WHO MAY EXERCISE LOCAL TAXATION POWER

• PROVINCIAL BOARD• MUNICIPAL BOARD• CITY COUNCIL• BARANGAY COUNCIL

3 COMMON LOCAL TAXES

• COMMUNITY TAX• PROFESSIONAL TAX• REAL ESTATE TAX

-END-GOD BLESS !!!