MALIJAN, JESSICA MARIE T.

2ND YEAR BSA-2C

1. What is business?
"Business" or the phrase "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, nonprofit private organization (irrespective of the
disposition of its net income and whether or not it sells exclusively to members or their guests), or government
entity.

2. What are the 3 major business taxes? Define each and enumerate examples and transactions for
each business taxes.

Value Added Tax

Value Added Tax (VAT) is a business tax imposed and collected from the seller in the course of trade or
business on every sale of properties (real or personal) lease of goods or properties (real or personal) or
vendors of services. It is an indirect tax; thus, it can be passed on to the buyer.

Value-Added Tax (VAT) is a form of sales tax. It 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. It is an indirect tax, which may be shifted or passed on to the buyer, transferee or lessee of
goods, properties or services.

The following transactions are deemed sale for purposes of VAT:

1. Transfer,147 use, or consumption not in the course of business of goods or properties originally intended
for sale or for use in the course of business;

2. Distribution or transfer to shareholders or investors as share in the profits of the VAT-registered persons,
or to creditors in payment of debt or obligation;

3. Consignment of goods if actual sale is not made within 60 days following the date such goods were
consigned; and

4. Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such
retirement or cessation. On these deemed sale transactions, the BIR Commissioner, by the rules and
regulations prescribed by the Secretary of Finance, is authorized to determine the base of the tax.
Percentage Tax

Percentage Tax is a business tax imposed on persons or entities who sell or lease goods, properties or
services in the course of trade or business whose gross annual sales or receipts do not exceed P1,500,000
and are not VAT-registered.

Persons refer to individuals and non-individuals, which include, but are not limited to, estates,
trusts, partnerships, and corporations.

1. Persons, who are not VAT-registered, who sell goods, properties or services, whose annual gross
sales and/or receipts do not exceed three million pesos (Php3,000,000.00) and are exempt from
value-added tax (VAT) under Section 109 (BB) of the National Internal Revenue Code, as
amended by Republic Act (RA) No. 10963.
2. Persons who lease residential units where the monthly rental per unit exceeds fifteen thousand
pesos (Php15,000.00) but the aggregate of such rentals of the lessor during the year does not
exceed three million pesos (Php3,000,000.00)
3. Persons engaged in the following industries/transactions:
a. Cars for rent or hire driven by the lessee, transportation contractors, including persons who
transport passengers for hire, and other domestic carriers by land for the transport of
passengers (except owners of bancas and owners of animal-drawn two-wheeled vehicle)
and keepers of garages
b. International air/shipping carriers doing business in the Philippines on their gross receipts
derived from transport of cargo from the Philippines to another country
c. Franchise grantees of –
i. radio and/or television broadcasting companies whose annual gross receipts for
the preceding year do not exceed Php 10,000,000.00 and did not opt to register as
VAT taxpayers, and
ii. gas and water utilities.
d. Overseas dispatch, message or conversation transmitted from the Philippines by
telephone, telegraph, tele-writer exchange, wireless and other communication equipment
services, except those transmitted by:

i. The Philippine Government or any of its political subdivisions or instrumentalities;

ii. Diplomatic services;
iii. Public international organizations or any of their agencies based in the Philippines
enjoying privileges, exemptions and immunities which the Philippine Government
is committed to recognize pursuant to international agreement; and
iv. News services for messages which deal exclusively with the collection of news
items for, or the dissemination of news item through, public press, radio or
 television broadcasting or a new sticker service furnishing a general news service
similar to that of the public press.
e. Banks, non-bank financial intermediaries performing quasi-banking functions
f. Other non-bank financial intermediaries (including pawnshops as clarified under Revenue
Regulations [RR] No. 10 – 2004)
g. Person, company or corporation (except purely cooperative companies or associations)
doing life insurance business in the Philippines
h. Fire, marine or miscellaneous agents of foreign insurance companies
i. Proprietor, lessee or operator of cockpits, cabarets, night or day clubs, boxing exhibitions,
professional basketball games, Jai-Alai and racetracks, including videoke bars, karaoke
bars, karaoke televisions, karaoke boxes and music lounges as clarified under Revenue
Memorandum Circular (RMC) No. 18 – 2010
j. Winnings or 'dividends' in horse races

Excise Tax

Excise taxes apply to goods manufactured or produced in the Philippines for domestic sales or consumption
or for any other disposition and to things imported. The excise tax imposed shall be in addition to the value-
added tax.

The excise taxes are imposed on:

(a) Manufacturers; or

(b) Importers, of any of the following categories of goods or articles:

(a) Distilled spirits (e.g., liquors);

(b) Wines (e.g., grape wine);

(c) Fermented liquors (e.g., beer);

(d) Tobacco products (e.g., chewing tobacco);

(e) Cigars;

(f) Cigarettes;

(g) Automobiles;

(h) Manufactured fuel oils (e.g., gasoline);

 (i) Minerals (e.g., gold, silver); and

(j) Non-essential goods (e.g., jewelry, perfumes).

The percentage taxes under the National Internal Revenue Code are:

(a) 3% percentage taxes on sale of goods, properties or services;

(b) Common Carrier's tax on domestic carriers;

(c) Common Carrier's tax on international carriers;

3. Identify when to select VAT or Percentage tax (threshold).

The recent passage of the TRAIN law as implemented by Section 3(C) of Revenue Regulations No. 8-2018,
self-employed individuals and/or professionals are now given a choice as to the tax rate to be applied to
determine their income tax liability. There are, however, certain considerations that need to be observed
before a taxpayer can choose which tax rate to apply. One of the considerations is the new VAT threshold
(now increased from P1,919,500 to P3,000,000 per year). If the gross sales/receipts and other non-operating
income does not exceed the VAT threshold, the individual taxpayer who is practicing his profession or earning
income purely from self-employment, shall have the option to avail of either:

1. The graduated income tax rates, under Section (24)(A)(2)(a) of the Tax Code, as amended; OR

2. The eight percent (8%) tax on gross sales or receipts and other non-operating income in excess of P250,000,
in lieu of the graduated income tax rates under Section 24(A) and the percentage tax under Section 116
under the Tax Code.

The individual taxpayer must signify his intention to avail of the 8% income tax rate either in the 1st Quarter
Percentage and/or Income Tax Return, or in the initial quarter return of the taxable year upon commencement
of a new business/practice of profession; otherwise, the taxpayer shall be considered as having availed of
the graduated rates. The option to select the flat rate of 8% (or graduated rates) is irrevocable for the taxable
year, and no amendment of the option shall be made during the taxable year after the choice is made.

However, if the gross sales/receipts and other non-operating income exceeds the VAT threshold during the
taxable year, the individual’s income tax shall be computed using the graduated income tax rates even if he
initially selected the 8% income tax rate. In such case, the 8% income tax rate paid in the previous quarters
shall be allowed as tax credit. Consequently, the taxpayer shall be subject to business taxes, such as
percentage tax and VAT, in addition to income tax.

On the other hand, when a non-VAT taxpayer (i.e., one who has not breached the P3-million VAT
threshold) opts to be taxed under the graduated income tax rates, he shall continue to pay the required
percentage tax under Section 116 of the Tax Code.
In terms of documentation, a taxpayer who opts for the 8% tax rate needs to accomplish BIR Form No.
1905 (Application for Registration Information Update/Correction/Cancellation) to effect the end date for his
VAT or percentage tax registration, and as such, he is no longer required to file VAT or percentage tax
returns. If a non-VAT taxpayer is unable to timely update his registration, he shall continue to file a “zero” or
NIL percentage tax return with a notation that he is availing of the 8% income tax rate option for the taxable
year. In the case of a VAT taxpayer, he will not qualify to avail of the 8% tax rate until he de-registers for
VAT.

If the taxpayer earning income from self-employment or practice of profession opts to be taxed at
graduated rates or has failed to signify the chosen option of 8%, the tax base shall be the net income.

The option to choose the 8% income tax rate is not available to taxpayers whose business income is
subject to Other Percentage Tax.

References
(n.d.). Retrieved from https://www.bir.gov.ph/index.php/tax-code.html#title4

(n.d.). Retrieved from https://businesstips.ph/business-taxes-in-the-philippines/

(n.d.). Retrieved from http://www.ntrc.gov.ph/images/Publications/guide-to-philippine-taxes-

2016/value-added-tax.pdf

(n.d.). Retrieved from https://www.pwc.com/ph/en/taxwise-or-otherwise/2018/making-a-choice-for-

good.html

REYES, V. D. (2008, october). Retrieved from https://www.scribd.com/doc/6504745/Philippine-Business-

Taxes