Chapter 1 Introduction To Consumption Taxes

Chapter 1:
INTRODUCTION TO
CONSUMPTION TAXES
Prepared by: Carl Justine T. Maniago, CPA
CONSUMPTION
 Acquisition or utilization of goods or services by any person.
 Utilization may be through purchase, exchange or other means.
 Utilization is subject to CONSUMPTION TAX.
 Levied without regard to the purpose of the purchaser or consumer

whether it is for business, personal or charity use.
RATIONALE OF CONSUMPTION TAX
 Savings Formation
 Income is destined for consumption. Income less consumptions is savings.
 Tax on consumption promotes savings formation by limiting the level of
consumption.
 Rationalization of Benefit Received Theory
 Those who receive more benefit from the government should pay more taxes.
 Every resident or citizen, whether rich or poor, benefits from the government’s
public services.
 Tax on consumption will effectively render everybody taxable.
 Wealth Redistribution to Society
 Rich people buy or spend more than poor people. With bigger income and
wealth, the rich can afford expensive lifestyle.
 Hence, tax on consumption will effectively make the rich pay more taxes for the
government.
CAVEAT TO CONSUMPTION TAX
 Consumption tax should not be levied upon basic

necessities such as:
 Food
 Education
 Health
 Shelter or Housing
INCOME TAX VS. CONSUMPTION TAX
INCOME TAX CONSUMPTION TAX
Nature Tax upon receipt of income. Tax upon usage of

income or capital.
Scope/Coverage A tax to the capable. A tax to all.
Theoretical Basis Ability to pay theory. Benefit received theory.

TYPES OF CONSUMPTION
TYPES OF CONSUMPTION PURCHASER STATUS
Domestic Consumption Resident Taxable
Foreign Consumption Non-resident Exempt/Effectively non-
taxable
DESTINATION PRINCIPLE
• Only goods or services destined for consumption in the Philippines are subject to
consumption tax while those destined for consumption abroad are not subject to
consumption tax.
• Taxation is inherently territorial – government can only impose tax upon domestic
consumption.
CROSS-BORDER DOCTRINE
• Goods that cross the border destined for foreign countries are not charged
consumption taxes.
• Government do not impose taxes on exports.
• NIRC either exempts exports or subject them to a 0% tax rate.
TYPES OF DOMESTIC CONSUMPTION
AS TO SOURCE
DOMESTIC SALES
 Resident buyers purchase from resident sellers.
 Consumption tax is called business tax.
 Consumption tax is indirectly imposed upon sellers which are businesses. Hence,
business tax is well-known as an indirect tax.
 Tax burden is not on seller, but on buyer as the object of taxation is the purchase
of buyers.
 Law imposed the obligation to pay the tax upon sellers (statutory).
 Principle of administrative feasibility.
TYPES OF DOMESTIC CONSUMPTION
AS TO SOURCE
IMPORTATION
 Domestic consumption of goods or services from non-resident seller.
 Subject to a consumption tax called VAT on importation.
 VAT is directly levied upon the buyer – importer.
 Administrative feasibility cannot be applied because taxation is territorial.
 Tax obligations can only be enforced and demanded upon residents – in this
case, the buyer.
BUSINESS TAX VS VAT ON IMPORTATION:
A DIFFERENTIATION
VAT ON IMPORTATION BUSINESS TAX
Scope of Tax Imports of business and Purchases from
non-business businesses only
Type of Consumption Tax Pure Form Relative Form
Statutory Taxpayer Buyer Seller
The economic Taxpayer Buyer Buyer
Nature of Imposition Direct Indirect
Basis of Tax Total purchase cost Sales or receipts

BUREAU OF CUSTOMS (BOC)
 They manage the border control of goods (for importation).

 Goods have to be cleared through the BOC first before they are allowed to
enter the Philippines.
 They collect the VAT on importation on behalf of BIR.
BUSINESS TAX RULES ON DOMESTIC SALES
The seller is The buyer is Subject to business tax?

Business Business YES
Business Not business YES
Not business Business NO
Not business Not business NO
VALUE ADDED TAX RULES ON IMPORTATION
The seller is The buyer is Subject to VAT on imprt.?

Business Business YES
Business Not business YES
Not business Business YES
Not business Not business YES
TYPES OF CONSUMPTION TAXES
 PERCENTAGE TAX
 Tax of various rates from 0.60% to 30%.
 VALUE ADDED TAX

 A consumption tax of 12%.
 EXCISE TAX
 An ad valorem or specific tax, which is imposed in addition to VAT or percentage
tax, only on certain goods or services.
TYPES OF DOMESTIC CONSUMPTION AS
TO TAXABILITY
 EXEMPT CONSUMPTION
 Consumption of goods or services not subject to consumption taxes.
 CONSUMPTIONS SPECIFICALLY SUBJECT TO PERCENTAGE TAX

 Consumption of services that are not subject to VAT but are imposed with a
specific percentage tax.
 VATABLE CONSUMPTION
 All other consumption that are neither exempted nor subject to percentage tax.
EXEMPT CONSUMPTION
 Neither subject to percentage tax nor value added tax.
 If sourced from abroad – exempt from VAT on importation.
 If sourced from within, exempt from business tax.
BASIS OF EXEMPTION VAT ON IMPORTATION BUSINESS TAX

Human Necessity The goods imported are The goods, services or
human necessities. property sold are human
necessities.
Out of Scope Tax The importation does not The seller is not engaged in
constitute a domestic business.
consumption (ie not current
acquisition).
Tax Incentive The importation is exempted The sales or receipt is
as a tax incentive to certain exempted as a tax incentive
importers. to certain sellers.
International Comity The importation is exempted The sales or receipt is
by treaty. exempted by treaty.
SERVICES SPECIFICALLY SUBJECT TO
PERCENTAGE TAX
 Services specifically subject to percentage tax are taxable consumption of
services but subject only to a specific percentage tax rate set by NIRC.
 Consumption of these services are not subject to VAT.
VATABLE IMPORTATION OR SALES

 All other importation or sales of either goods or services that are not
exempted or specifically imposed a percentage tax is vatable.
VAT ON IMPORTATION VS VAT ON
SALES IN BUSINESS TAX
 VAT ON IMPORTATION
 Directly computed on the landed costs or total purchase costs of importation
without any deduction or tax credit.
 VALUE ADDED
 The amount of mark-up imposed by the sellers on their purchase costs.
 VAT ON SALES OR RECEIPT

 Follow a tax credit method wherein a VAT of 12% is imposed on sales and is
reduced by VAT paid by the business on its purchases.
The tax due is computed as follows:
Output VAT (12% of sales or receipts) xx,xxx

Less: Input VAT (12% VAT paid on purchases) xx,xxx
VAT due xx,xxx
Input tax is claimed as a tax credit against output VAT when due or paid not
when goods are sold.
The VAT does not require a perfect matching approach; hence, it is not
imposed on the gross profit.
THE EXCISE TAX
 Imposed on the consumption of commodities such as:

 Sin products such as alcohol and cigarettes
 Non-essential commodities such as automobiles and jewelry
 Non-essential services such as cosmetic surgery
 Products which are environmentally degrading in their production or
consumption such as petroleum and minerals
 Additional imposition to VAT or percentage tax
 Levied at the point of production or importation.
SAMPLE PROBLEM #1:
Sales, VAT business P 600,000

Sales, non-VAT business 300,000
Purchase of goods to be sold, VAT business 200,000
Purchase of goods to be sold, non-VAT business 100,000
Assuming all amounts are VAT exclusive:

A. How much is the output VAT?
B. How much is the input VAT?
C. How much is VAT still due?
SAMPLE PROBLEM #1:
How much is the output VAT?
Sales, VAT business 600,000 * 12% = 72,000
How much is the input VAT?

Purchase of goods to be sold, VAT businesses 200,000 * 12% = 24,000
How much is VAT still due?

Total output VAT 72,000
Total input tax 24,000
VAT STILL DUE 48,000
SAMPLE PROBLEM #2:
A person is engaged in business is subject to 3% business tax. He has inventories

of goods in his possession costing P77,600 which he intends to sell to earn a
mark up of 25% of cost net of the 3% business tax. He shall invoice the sale of
the P77,600 goods at what amount?
SOLUTION:
Mark up on cost (77,600 * 125%) 97,000
Sales Price (97,000 / 97%) 100,000

Chapter 1 Introduction To Consumption Taxes

Uploaded by

Copyright:

Available Formats

Chapter 1 Introduction To Consumption Taxes

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter 1 Introduction To Consumption Taxes

Uploaded by

Copyright:

Available Formats

Chapter 1:

 Acquisition or utilization of goods or services by any person.

 Utilization may be through purchase, exchange or other means.

 Utilization is subject to CONSUMPTION TAX.

 Levied without regard to the purpose of the purchaser or consumer

 Consumption tax should not be levied upon basic

INCOME TAX CONSUMPTION TAX

Nature Tax upon receipt of income. Tax upon usage of

Scope/Coverage A tax to the capable. A tax to all.

Theoretical Basis Ability to pay theory. Benefit received theory.

Statutory Taxpayer Buyer Seller

The economic Taxpayer Buyer Buyer

Nature of Imposition Direct Indirect

Basis of Tax Total purchase cost Sales or receipts

 They manage the border control of goods (for importation).

The seller is The buyer is Subject to business tax?

VALUE ADDED TAX RULES ON IMPORTATION

The seller is The buyer is Subject to VAT on imprt.?

 VALUE ADDED TAX

 CONSUMPTIONS SPECIFICALLY SUBJECT TO PERCENTAGE TAX

BASIS OF EXEMPTION VAT ON IMPORTATION BUSINESS TAX

VATABLE IMPORTATION OR SALES

 VAT ON SALES OR RECEIPT

Output VAT (12% of sales or receipts) xx,xxx

 Imposed on the consumption of commodities such as:

Sales, VAT business P 600,000

Assuming all amounts are VAT exclusive:

How much is the input VAT?

How much is VAT still due?

A person is engaged in business is subject to 3% business tax. He has inventories

You might also like

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.