bus tax 1

• Consumption tax is a tax upon the utilization of goods or services by consumers or buyers
• It is a tax on the purchase or consumption of the buyer and not on the sale of the seller
• Consumption occurs when one acquires goods or services by purchase, exchange, or other means
• Rationale of Consumption Tax:

  1. Promotes savings formation

  2. Helps in wealth redistribution to society

  3. Supports the Benefit Received Theory
• Consumption tax promotes savings formation by allowing the residual income after consumption to be saved, promoting capital formation and investment
• Types of Consumption:

  1. Domestic consumption: Refers to consumption or purchase of Philippine residents

  2. Foreign consumption: Refers to consumption or purchases of non-residents
• Consumption tax supports the Benefit Received Theory by making everyone contribute to the support of the government through taxes, providing a practical application of the theory
• Income Tax vs. Consumption Tax:

  • Income Tax: Tax upon receipt of income
  • Consumption Tax: Tax upon usage of income or capital
• Summary of Tax Rule on Consumption:

  • Seller is Domestic consumption (Buyer is resident): Taxable
  • Seller is Foreign consumption (Buyer is non-resident): No tax
• Territorial Limitation in Taxation:

  • Only domestic consumption can be subjected to Philippine taxation
  • Follows the "destination principle" where goods and services destined for use or consumption in the Philippines are subject to consumption tax
• Types of Taxable Domestic Consumption:

  1. Purchase of residents of goods or services from non-residents abroad (importation)

  2. Purchase of residents of goods, properties, or services from resident sellers (sale)
• Consumption Tax on Importation:

  • Importer pays consumption tax on importation, called Value Added Tax (VAT) on importation
• Consumption Tax on Domestic Consumption from Resident Sellers:

  • Consumption tax on the purchase of Philippine residents from resident sellers is collected from the seller
• Business Tax:

  • Consumption tax on resident buyers applies to business only
  • Consumption tax levied on sales or receipts of a resident seller applies only when the seller is regularly engaged in business
• Basis of Business Taxes:

  1. Sales: For businesses that sell goods or properties

  2. Receipts: For businesses that sell services
• Types of Business Taxes:

  1. Value Added Tax (VAT) on sales

  2. Percentage Tax

  3. Excise Tax
• Types of Business Taxpayers:

  • VAT Taxpayers: Required to pay VAT
  • Non-VAT Taxpayers: Pay the percentage tax
• The Value Added Tax (VAT) on Sales:

  • A consumption tax imposed upon the sale of goods, properties, services, or lease of properties
• VAT on sales is a tax on the value added by the seller on its purchases in making sales
• VAT on sales is required by law to be included in the price of goods as a top-up
• The amount billed to customers includes both the selling price and the VAT, known as the "invoice price"
• VAT on sales is reduced by the amount of VAT paid by the business on its purchases
• Excess VAT on sales is the amount due to be remitted to the government
• Excess VAT payment on purchases is carried over as a deduction against the VAT on sales in future periods
• The amount of VAT is explicitly disclosed in the invoice or official receipt of the seller
• VAT return is filed quarterly but is paid on a monthly basis
• VAT is generally paid by bigger businesses
• VAT on sales is imposed upon sales or collection
• VAT on sales is generally paid by bigger businesses, while excise tax is generally paid by smaller businesses
• VAT on sales is generally paid by both big or small businesses
• VAT on export sales is subject to 0% VAT
• Excise tax is generally exempt and reimbursable
• Business tax is a form of consumption tax
• Consumption tax occurs when one acquires goods or services by purchase, exchange, or other means
• Consumption tax promotes savings formation by encouraging capital formation and investment
• Consumption tax helps redistribute wealth by making those who can afford expensive lifestyles pay more tax
• Consumption tax supports the Benefit Received Theory by making everyone contribute to the support of the government
• Income tax is a tax upon receipt of income, while consumption tax is a tax upon the usage of income or capital
• Income tax is consistent with the ability to pay theory, while consumption tax effectively taxes everyone
• Types of consumption include domestic consumption and foreign consumption