Consumption Tax

• Consumption tax refers to  the acquisition or utilization of goods or services by any person.
• Consumption tax is 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
  • Rationalization of the benefit received theory
  • Wealth redistribution to society
• • Savings is a capital that is useful in funding projects crucial to economic activities that spur further economic development
• Consumption tax promotes savings formation by limiting the level of consumption
• • The benefits received theory proposes that those who receive more benefit from the government, should pay more taxes.
• Consumption tax, however, should not be levied upon basic necessities such as food, education, health, and shelter or housing.
• Our government can only impose tax upon domestic consumption.
• “destination principle” is about only goods and services destined for consumption in the Philippines are subject to consumption tax while those destined for consumption abroad are not subject to consumption tax.
• “Cross-border doctrine” is about goods that cross the border destined for foreign countries are not charged consumption taxes, thus our government does not impose taxes on exports.
• Domestic consumption of resident buyers from resident sellers commonly known as purchase is subject to a consumption tax called “business tax”
• The domestic consumption of goods or services from non-resident sellers commonly known as importation is subject to a consumption tax called “VAT on importation”.
• Business refers to habitual engagement in a commercial activity. It connotes regularity of transaction involving sales of goods or service for a profit.
• Exempt consumption - consumption of goods or services that are not subject to consumption taxes
• Vatable consumption - all other consumption that are neither exempted nor subject to percentage tax
• VAT on importation is directly computed on the landed costs or total purchases costs of importation without any deduction or tax credit
• VAT on sales or receipts in business taxation is theoretically imposed on the “value added”
• VAT input is claimed as tax credit against output VAT when due or paid NOT when goods are sold. The VAT does not require a perfect marching approach; hence, it is not imposed on the gross profit.
• The Excise Tax - imposed opn the consumption of commodities
• Excise Tax is an additional imposition to VAT or percentage tax
• Human necessity - Certain basic necessities such as natural agricultural or marine food products, agricultural inputs, books, newspaper and magazines, residential properties; and essential services such as residential rentals, educational services of schools; and medical services of hospitals are EXEMPT.