SELF-PACED LEARNING MODULE

COLLEGE DEPARTMENT

MODULE 8
Subject:

BUSINESS TAX

AISAT COLLEGE – DASMARIÑAS, INC.

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 Unit Business Taxes
Module PERCENTAGE TAXES – 1
AE25-BT BUSINESS TAXES Units: 3hrs Page |2

INFORMATION SHEET PR-8.1.1

“Percentage Taxes -1”

As a rule, VAT is imposed on every sale, barter, exchange of goods or services and on importations.
However, there are instances where the same does not apply because the transaction is subject to other
percentages taxes under Section 116 to 127 of the tax code, as amended.

If the transaction is subject to other percentage tax (OPT), it is no longer subject to VAT. Nonetheless,
other percentage taxes as well as value added tax may be imposed together with excise tax.

Under the National Internal Revenue code, the percentage taxes are:

1. 3% percentage tax on persons exempt from the VAT, when their gross annual sales do not
exceed Php 3 million (previously P1,919,500) and who are not VAT registered.

2. Under tax reforms of 2017-18, a self-employed or professional individual whose gross annual
sales or receipts do not exceed Php3M pays the income tax at 8% on gross sales or receipts
only, and is not subject to 3% percentage tax.

Note: Persons subject to the above tax shall have the option to apply for VAT registration not later than
ten(10) before the beginning of the taxable quarter. It shall not be allowed to cancel his registration for
a period of three(3) years.

Illustration 1. Mr. A, whose gross annual sales never exceeded the statutory threshold had \, in a
taxable month, gross sales of P100,000, sales returns and allowances of P5,000 and sales discounts of
P2,000. The percentage tax is

Gross Sales P100,000

Less:
Sales Returns and Allowances P5,000
Sales Discounts 2,000 7,000
Sales* subject to percentage tax P 93,000
Percentage tax at 3% P 2,790

Illustration 2. Mr. B is a trades. His gross sales in the preceding year amounted to P3,000.000. He did not
exceed the threshold, he is subject to 3% percentage tax

Illustration 3 Mr. C sells agricultural food products in 2017, gross sales to P440,000. For the 1 st month of
2018 his gross sales amounted to P100,000.
What business tax would he pay 2017? NONE. He is not subject to the VAT. He is exempted and he is
not subject to 3% percentage tax under Section 109 of the NIRC.

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

MODULE 8th
MIDTERM
8 Meeting JULIETA S. ECHEGOYEN MR. WILBERT A. MAÑUSCA
Subject Teacher School Director
 Unit Business Taxes
Module PERCENTAGE TAXES – 1
AE25-BT BUSINESS TAXES Units: 3hrs Page |3

OPTIONAL VAT REGISTRATION

Which is better a VAT registered or remain subject to the 3% percentage tax?
Illustration 4. Sales P200,000
Purchases from VAT registered persons 100,000
Expenses, paid to VAT registered persons 60,000

IF VAT REGISTERED

Output taxes (P200,000 x 12%) P 24,000

Less: Input taxes
On purchases (100,000 x 12%) P12,000
On expenses ( 60,000 x 12%) 7,200 19,200
VAT Tax Payable P 4,800 *

Total tax payments

VAT paid on the purchases P 12.000
VAT paid on the expenses 7,200
VAT Payable 4,800 *
Total P 24,000
IF NOT VAT-REGISTERED
Percentage tax (P200,000 x 3%) P 6,000

Total tax payments

VAT paid on the purchases P 12.000
VAT paid on the expenses 7,200
Percentage tax payable 6,000
Total P 25,200

The following are exempt from 3% percentage tax

1. Cooperatives, and
2. Self-employed individuals and professionals of the 8% tax on gross sales and/or receipts and
other non-operating income under Section 24 (a)(2)(b) and 24(a)(2)(c)(2)(a) of the tax code as
amended.

Illustration A.(Corporate Taxpayers) ABC Trading Corporation (Non-VAT registered) is a trades of

electronic products. Data for the year were provided as follows:
Gross Receipts P 1,800,000
Purchases on account from VAT suppliers 1,200,000
Payments made to VAT suppliers 800,000
Purchases on account from Non-VAT suppliers 200,000
Operating Expenses 400,000

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

MODULE 8th
MIDTERM
8 Meeting JULIETA S. ECHEGOYEN MR. WILBERT A. MAÑUSCA
Subject Teacher School Director
 Unit Business Taxes
Module PERCENTAGE TAXES – 1
AE25-BT BUSINESS TAXES Units: 3hrs Page |4

Question 1
What is the applicable business tax and the amount due for the year?
Answer:
 Applicable business tax :3% OPT because
a) The taxpayer is not vat registered
b) The transaction is not a vat-exempt transaction
c) The amount of sales is < P3M
d) The transaction is not subject to OPT under Sec 117 to 127
 Amount of business tax due : (P1.8M x 3% = 54,000)
Question 2
Assuming ABC opted to register under the VAT system, what is the applicable business tax and the
amount due for the year?
Answer.
 Applicable business tax : 12% (optional VAT registration)
 Amount of business tax due: P 72,000
Output VAT ( P1.8M x 12%) P216,000
Input VAT (P1,2M x 12%) (144,000)
VAT Payable P 72,000
Illustration 2. Omega Corporation (Non-VAT registered entity) is engaged in trading consumer products.
It generated total sales of P3,200,000 for 2018 taxable year.
Question: What is the applicable business tax and the amount due for 2018?
Answer
 Applicable business tax > 12% VAT ( gross sales >P3,000,000)
 Amount of business tax due: P384,000 ( P3.2M x 12%)
Note: Although Alpha Omega is a Non-VAT registered entity, it is still liable to 12% VAT
because the sales exceeded the VAT threshold of P3M (under TRAIN Law). Prior to the
implementation of RA10963(TRAIN Law) is P1,919,500. However, as a consequence of the
failure to register under the VAT system, it cannot pass to customers the applicable output
vat and is not entitled to input vat credit.

SELF-EMPLOYED/ PROFESSIONAL (SEP) under the TRAIN Law

Self-employed as “a sole proprietor or an independent contractor who reports income earned from self-
employment. It includes professionals whose income is derived purely from the practice of profession
and not under an employer –employee relationship.

Professional a “ person formally certified by a professional body belonging to a specific by virtue of

having completed a required course of studies/and or practice, whose competence can usually be
measured against an established set of standards.

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

MODULE 8th
MIDTERM
8 Meeting JULIETA S. ECHEGOYEN MR. WILBERT A. MAÑUSCA
Subject Teacher School Director
 Unit Business Taxes
Module PERCENTAGE TAXES – 1
AE25-BT BUSINESS TAXES Units: 3hrs Page |5

Applicable Tax(es) of SEP

PURELY Self-Employed and or Professional
With Gross Sales and/or Receipts and other non-operating income

NOT EXCEEDING THE VAT THRESHOLD MORE THAN THE VAT THRESHOLD

Applicable Taxes Applicable Taxes

Income Tax : 8% Income Tax: 8%
Business Tax : 3% OPT under Sec 116 Business Tax 12% VAT

or

8% tax on gross sales/receipts and other operating

income in excess of P250,00 IN LIEU of graduated
income tax rate and the Percentage tax under Sec. 116

Individual Taxpayer earning Compensation Income + Self Employed and or Professional

With Gross Sales and/or Receipts and other non-operating income

NOT EXCEEDING THE VAT THRESHOLD MORE THAN THE VAT THRESHOLD

Compensation Income Compensation Income

Subject to graduated tax rate Subject to graduated tax rate

Income as S.E.P. Income as S.E.P.

Income Tax : 8% Income Tax : 8%
Business Tax : 3% OPT under Sec 116 Business Tax : 3% OPT under Sec 116

or

8% tax on gross sales/receipts and other operating

income IN LIEU of graduated income tax rate and the
Percentage tax under Sec. 116

Reference Book:
A study on Business Taxes and Transfer Taxes
under the Train Law
Virgilio D. Reyes
2018 Edition

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

MODULE 8th
MIDTERM
8 Meeting JULIETA S. ECHEGOYEN MR. WILBERT A. MAÑUSCA
Subject Teacher School Director
 Unit Business Taxes
Module PERCENTAGE TAXES – 1
AE25-BT BUSINESS TAXES Units: 3hrs Page |6

Transfer and Business Taxation

By: Enrico D. Tabag
Earl Jimson R. Garcia

SELF-CHECK QUESTIONS PR-8.1.1.

Directions: Answer the following:

1. Peter is engaged in the following during 2018 taxable year; Trucking business (Gross receipts –
P1,600,000), Lease of apartments ( monthly rental is P14,500 per unit, annual gross receipts
P1,200,000), Practice of accountancy, gross receipts of P900,000.

Q : What is the applicable business tax of Peter for 2018?

2. Peter is a big time fish dealer. His gross receipts during 2-18 taxable year to P 5,000,000

Q : What is the applicable business tax and the amount due that Peter should pay for the year?

3. Assume Peter is also engaged in leasing-out its delivery trucks to other fish dealers. Assume
further that his total gross receipts from such transaction amounted to P1,500,000.

Q: what is the applicable business tax and the amount due for the year?

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

MODULE 8th
MIDTERM
8 Meeting JULIETA S. ECHEGOYEN MR. WILBERT A. MAÑUSCA
Subject Teacher School Director
 Unit Business Taxes
Module PERCENTAGE TAXES – 1
AE25-BT BUSINESS TAXES Units: 3hrs Page |7

SELF-CHECK ANSWER KEY PR-8.1.1.

Directions: Answer the following:

1. Q : What is the applicable business tax of Peter for 2018?

Answer:
o Applicable business tax: 3% OPT under Section 116 of the Tax Code

2. Q : What is the applicable business tax and the amount due that Peter should pay for the
year?
Answer:
o Applicable business tax : NONE.
Peter is engaged in a VAT exempt sale. Note: Under Section 109 of the Tax Code,
sale of agricultural and marine food products in their original state is exempt from
VAT.

3. Q: What is the applicable business tax and the amount due for the year?
Answer:
o Applicable business tax: 3% OPT ( from lease of delivery trucks only) under Section
116 of the Tax Code as amended.
o His sales as a fish dealer remains to be exempt from business tax.
Note:
- Income from lease of property (real or personal) is not a VAT exempt
transaction.
- Peter is not a registered person
- Peter gross receipts from leasing is not more than the VAT threshold
- Peter is not engage in a transaction subject to Other Percentage Tax (OPT)
other than Section 116
o Business Tax due: P 45,000 computed as = P 1,500,000 x 3%

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

MODULE 8th
MIDTERM
8 Meeting JULIETA S. ECHEGOYEN MR. WILBERT A. MAÑUSCA
Subject Teacher School Director
 Unit Business Taxes
Module PERCENTAGE TAXES – 1
AE25-BT BUSINESS TAXES Units: 3hrs Page |8

STUDENT NAME: __________________________________ SECTION: __________________

PERFORMANCE TASK PR-8.8.1

PERFORMANCE TASK TITLE: VAT ON PERCENTAGE TAX COMPUTATION
PERFORMANCE OBJECTIVE: The learners enable to compute VAT and percentage tax
TOOLS AND MATERIALS: Modules
EQUIPMENT : none
ESTIMATED COST : none
PROCESS / PROCEDURE

Solve the following:

Assigned Task in Module 7 – Problems 7.1 to 7.3 and additional problems in percentage taxes.

1. Super Buntog, a VAT-registered common carrier by land, has an average gross receipts of
P 12,000.000 comprising of P10,000,000 for the transport passengers and P2,000,000 for excess
baggage fares. Its total purchases of parts and supplies from VAT-registered person amounted to
P448,000 inclusive of VAT. How much is Super Buntog’s business tax liaibility?

2. Global Air Cargo, an international air shipping carrier of foreign registry, has the following gross
receipts during a quarter.
Origin Destination Gross Receipts
Philippines Japan P 600,000
Japan Canada 700,000
Philippines Japan transshipments 1,700,000
To USA (60%) P 3,000,000

How much is the percentage tax to be paid in the Philippines for the given quarter?

3. A jeepney operator in Baguio City, with two units, has the following gross receipts from his jeepney
services for the period
Unit 1 Unit 2
January P 600 P 1,000
February 500 1,500
March 800 2,000
April 2,500 -0–

How much is the percentage tax for the first quarter?

PRECAUTIONS :

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

MODULE 8th
MIDTERM
8 Meeting JULIETA S. ECHEGOYEN MR. WILBERT A. MAÑUSCA
Subject Teacher School Director
 Unit Business Taxes
Module PERCENTAGE TAXES – 1
AE25-BT BUSINESS TAXES Units: 3hrs Page |9

ASSESSMENT METHOD : PERFORMANCE TASK CRITERIA CHECKLIST

STUDENT NAME: _____________________________________ SECTION: ___________

PERFORMANCE TASK CRITERIA CHECKLIST PR-8-8.1

Did I … CRITERIA SCORING
1 2 3 4 5
1. Logic and key points. All corresponding ideas about the topic are
logically presented.
2. Content. Content of the essay flows and is passionate.
3. Cleanliness. Very clean and well presented.
4. Spelling and Grammar. No error in spelling and grammar.
5. Word usage. Word choice and usage are professionals.

GRADES

Teacher’s Remarks □ Quiz □ Recitation □ Project

5 - Excellently Performed
4 - Very Satisfactory Performed
3 - Satisfactory Performed
2 - Fairly Performed
1 - Poorly Performed

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

MODULE 8th
MIDTERM
8 Meeting JULIETA S. ECHEGOYEN MR. WILBERT A. MAÑUSCA
Subject Teacher School Director