Introduction to

Business Taxation
Lecture 1
 Nature
•
of
Relative consumption Tax
• Indirect Tax

Business •
•
Privilege tax
National Tax

Tax
Types of • Percentage Tax
• Value Added Tax
Business
• Excise Tax
Taxes
 Evaluate Evaluate if the sales activity qualifies as a business.

Identify Identify the taxable person.

Procedures Determine Determine the activity type

of Business Classify
Classify the sales or receipts whether they are:

Taxation
• Exempt sales or receipts
• Subject to specific percentage tax
• Vatable sales or receipts

Determine Determine taxpayer registration type.

Determine Determine of the goods or services offered is excisable.

Business
• Refers to a habitual engagement
in a commercial activity involving
the sale of goods or services for a
profit.
Habitual
engagement
• Regularity in transactions
• Exception:
• The sales of services by non-
resident persons are presumed
made in the course of business
without regard as to whether
the sale is regular or isolated.
Commercial
Activity
• Engagement in the sale of goods
or services for a profit
The following are
not businesses:

• Government agencies and

instrumentalities
• Non-profit organizations or
associations
• Employment
• Directorship in a corporation
• Business for mere subsistence
 • Refer to individuals not deriving
compensation income under an
employer-employee relationship
but who are self-employed
deriving gross sales or receipts
Marginal income not exceeding P100,000 in any
earners 12 month-period
Examples of marginal income earners
• Subsistential farmers or fishermen
• Small sari-sari stores
• Small carenderias or “turo-turo”
• Drivers or operators of a single unit tricycle, and
• Others similarly situated
 Consultants

Examples of Sales agents of insurance or real estate including

persons brokers

considered Television or movie talents and artists

engaged in
business Cooking instructors

Martial art instructors

Business taxpayers
• Each person, natural or juridical, is a taxable person for purposes of
business taxation
• Husband and wife are separate taxpayers
• A parent company is a separate taxable person with its subsidiary
company and each subsidiary company is a taxable person
• Home office and branch offices of the same business are one, not
separate taxable person
• Proprietorship is not a juridical entity.
Exempt from • GPP

income tax • Joint venture engaged in

construction or oil exploration
but subject to • Local water district
• BMBE
business tax:
Types of
VAT taxpayers
Business
Taxpayers
Non-VAT
taxpayers
 Types of business
activities:

Sales or exchange
Sales or exchange
of services or
of goods or
lease of
properties
properties
Basis of business tax
per type of activity
• Sellers of goods or properties –
Gross Selling Price
• Sellers of services – Gross Receipts
Gross selling price
• Refers to the total amount of money or its equivalent which the
purchaser pays or is obligated to pay to the seller in consideration of
the sale, barter or exchange of goods or properties.
• The excise tax, if any, on such goods or properties shall form part of
the gross selling price
 Discounts determined and
granted at the time of sale, which
Allowable are expressly indicated in the
deductions invoice
from gross
selling price Sales returns and allowances for
which a proper credit or refund
was made during the month or
quarter to the buyer on taxable
sales
Illustration:
A business taxpayer had the following transactions during the quarter:
Cash sales P400,000
Sales on credit (account sales) 600,000
Installment sales (P30,000 collected) 100,000
Sales returns and allowances 20,000
Quota discounts 10,000
Purchase of goods, including P72,000 VAT 672,000
passed on by sellers
Compute for the gross selling price
Cash sales P400,000
Account Sales 600,000
Installment sales 100,000
Total Sales P1,100,000
Less: Returns and allowances 20,000
Gross selling price P1,080,000
Illustration 2
HTC Corporation sold various specialized equipment to a buyer with
following terms:

List price P2,000,000

Freight 50,000
Installation fee 20,000
Trade discounts 10%
Cash discounts, 2% net 60 days 36,000
Gross selling price
List price P2,000,000
Less: Trade discounts (10% x P2,000,000) 200,000
Net price P1,800,000
Freight 50,000
Installation fee 20,000
Gross selling price P1,870,000
Gross receipts
Refers to the total amounts of money or its equivalent representing the
contract price, compensation, service fee, rental or royalty, including
the amount charged for materials supplied with the services and
deposits applied as payments services, rendered and advanced
payments actually or constructively received during the taxable period
for the services performed or to be performed for another person,
excluding VAT
Illustration
A laundry business had the following transactions during the month:
Cash collection for services done P400,000
Cash collection for services not yet started (advances) 100,000
Receivables on services rendered 600,000
Purchase of goods and services, including of P48,000 VAT passed on by sellers 448,000
Computation of gross receipts
Cash fees P400,000
Advances by customers 100,000
Gross receipts P500,000
Illustration 2
S2 tech, Inc. provides PC board repair services. During the month it
billed a total of P4,000,000 out of which clients settled P3,200,000. S2
Tech, Inc, also collected P8,000 interest on its bank deposits and
P14,000 dividend income from its stocks investment.
Gross receipts
• P3,200,000
• The interest and dividend income are incidental income not arising
from the activities of the business; hence excluded.
Constructive receipts
Miss Leah Mado is a pozo negro contractor. She had the following fees
for the month:
• P10,000 from Cipher Company, net of the P30,000 debt of Miss Leah
from Cipher Company
• P15,000 deposited to Miss Leah’s bank account
• P20,000 cash share from a GPP, P30,000 undistributed share was
credited to her capital account
Computation of gross receipt:
Receipts from Cipher (P10,000 + P30,000) P40,000
Fees deposited to Leah’s account P15,000
Gross receipts P55,000
Agency monies
Amounts earmarked for payment to an unrelated
third party or received reimbursement for advanced
payment on behalf of another which do not redound
to the benefit of the payor are not part of gross
receipts
 Insurance proceeds on damaged assets

• Not viewed as sales or receipts for purposes of a business taxation

Illustration
PC Repair Company received the following amounts during a month:
Cash collection from clients P400,000
Reimbursements for out-of-pocket costs incurred in servicing clients 50,000
Reimbursement for client expenses paid by PC Repair 80,000
Proceeds of fire insurance 400,000
Receipt of bank loan 500,000
Receipt of agency money to be remitted to a sister company 100,000
Gross receipts:
Cash collection from clients P400,000
Reimbursements for out-of-pocket costs incurred to clients 50,000
Gross receipt P450,000
 • Sales of certain basic necessities
• Agricultural or marine food products
Exempt sales • Health services of hospitals
• Educational services of schools
or receipts • Housing or residential properties within
price limits
• Sales exempt by law, treaty or contracts
• Sales by cooperatives to members
• Sale or lease of aircraft or vessels
• Sales or painting of books, magazines
and newspapers
 Casual sales or sales by non-
business sellers
• Sale of persons not regularly engaged in
Exempt trade or business
• Services rendered under an employer-
sales or employee relationship
receipts • Services rendered by a Reginal Area
Headquarter of a multinational company

Export sales of non-VAT registered

persons
Receipts from • Banks and n0n-banks financial
services intermediaries
specifically subject • International carriers
• Domestic common carriers
to a percentage tax
• Amusement places
• PSE
• Franchise grantees
• Life insurance companies and agents
• Franchise grantees of telephone on
overseas dispatch
• Winnings from jai-alai and race tracks
Vatable sales or receipts

3% general percentage tax Value Added Tax

Types of
percentage tax
• Specific percentage tax
• General percentage tax
 Mandatory registration as
VAT taxpayer

Reasonable grounds to
Gross sales/receipts
believe that his gross
for the past 12 months
sales or receipts for
have exceeded
the next 12 months
P3,000,000
will exceed P3,000,000
Types of VAT Taxpayers

VAT VAT
registered registrable
taxpayers taxpayer
Business Tax Reporting
VAT Taxpayers Non-VAT taxpayers
Monthly tax return BIR Form 2550 M Not applicable
Quarterly tax return BIR Form 2550Q BIR Form 2551 Q