Module 5

• National Internal Revenue Taxes:

  • Income Taxes
  • Estate Taxes
  • Donor's Taxes
  • Value-added Taxes
  • Other Percentage Taxes
  • Excise Taxes on Certain Goods
  • Documentary Stamp Taxes
• Taxes Generally Arising From Business:

  • Income Taxes
  • Value-added Taxes
  • Other Percentage Taxes
  • Excise Taxes on Certain Goods
  • Documentary Stamp Taxes
• Value-added Taxes (VAT):

  • a tax on consumption
  • form of sales tax
  • VAT is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services
  • tax is based on "value" added
• Vat is imposed on any person who is in the course of his trade or business:

  • sells,
  • barters,
  • exchanges,
  • leases goods or properties,
  • renders services,
• VAT is imposed on any person who imports goods whether or not made in the course of his trade or business
• Who are required to file VAT returns?:

  • >3M gross sales/receipts (if <3M, exempted)
  • Importer regardless of whether in business or not
• Transactions "DEEMED" sale are treated as sale for VAT purposes. The following transactions shall be "deemed sale":

  1. Transfer, use or consumption not in the course of business of goods or properties originally intended for sale or for use in the course of business;
  2. Distribution or transfer to:
  3. Share Holders or investors share in the profits of VAT-registered person;
  4. Creditors in payment of debt or obligation.
• Transactions "DEEMED" sale are treated as sale for VAT purposes. The following transactions shall be "deemed sale":

  1. Consignment of goods if actual sale is not made within 60 days following the date such goods were consigned. Consigned goods returned by the consignee within the 60-day period are not deemed sold;
  2. Retirement from or cessation of business with respect to all goods on hand, whether capital goods, stock-in-trade, supplies or materials as of the date of such retirement or cessation, whether or not the business continued by the new owner or successor.
• Basic VAT computation:

  Gross Selling Price (GSP) + 12% of GSP (VAT) = Invoice Price
• Gross Selling Price (GSP)

  • GSP includes the costs and expenses for producing your product/service, INCLUDING VAT you paid to suppliers. The VAT reflected in your expense receipts and which you paid for is your INPUT VAT
• OUTPUT VAT

  • VAT you charged and paid by your customer that you collected
• If output VAT is greater than input VAT, there is a VAT payment due
• If input VAT is greater than output VAT, there is no VAT payment due
• Jose dela Cruz was a JGSOM graduate of ADMU. After grad, he put up a milk business which became very profitable. He expected gross sales to exceed 3M pesos per year, He has no receivable and conducts business purely on cash basis.

  For the month of September of 2020, his sales invoices reflected total collections of 448k pesos. He can substantiate and has official VAT receipts for all incurred costs and expenses for the month, amounting to a total of 112k pesos.

  1. What is his output VAT? - 48k
  2. What is his input VAT? - 12k
  3. How much VAT does he need to pay the BIR for the month of September? - 60k
• Taxpayer obligations: Payment and Filing

  • For each month (within 20 days after month end [manual filing]):
  • File monthly declaration and
  • pay tax due
  • For each taxable quarter (within 25 days after end of Q):
  • file a quarterly return
  • Under the TRAIN law, starting January 1, 2023, all filing and payment will all be done quarterly already
• Important concepts in VAT:

  • VAT Zero-Rating
  • VAT Exemption
• Zero-Rated sales/services: Effect of Zero-Rating

  • A zero-rated sale (by a VAT-registered person) is a taxable transaction for VAT purposes, but shall not result in any output tax. However, the input on purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund
  • As a result, the taxpayer recognizes only input taxes; there are no output taxes from the transaction.
• What are these Zero-rated sales/Services

  • Export Sales
  • Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate
  • Processing, manufacturing or repacking goods for other persons doing business outside the Philippines, which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of BSP
• What are these Zero-Rated Sales? (cont.)

  • Services other than processing, manufacturing or repacking rendered to a person engaged in business conducted outside the Philippines or to a nonresident person not engaged in business who is outside the Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP
• What are these Zero-Rated Sales? (cont.)

  • Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent rate
• What are these Zero-Rated Sales? (cont.)

  • Services rendered to person engaged in international shipping or air transport operations, including leases of property for use thereof
  • Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed seventy percent of the total annual production;
  • Transport of passengers and cargo by domestic air or sea vessels from the Philippines to a foreign country; and
  • Sale of power or fuel generated through renewable source of energy
• Vat Exemption:

  • refers to the sale of goods or properties and/or services and the use or lease of properties that is not subject to VAT (output tax) and the seller is not allowed any tax credit of VAT (input tax) on purchases
  • The person making the exempt sale of goods, properties or services shall not bill any output tax to his customers because the said transaction is not subject to VAT.
• The following are some common VAT Exempt Transactions:

  • Sale or importation of agricultural and marine food products in their original state, livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption; and breeding stock and genetic material therefor.
• The following are some common VAT Exempt Transactions: (cont.)

  • Sale of importation of fertilizers, seeds, seedlings and fingerlings, fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished feeds (except specialty fees for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets); "Specialty feeds" refers to non-agricultural feeds or food for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets.
• The following are some common VAT Exempt Transactions: (cont.)

  • Importation of personal and household effects belonging to residents of the Philippines returning from abroad and non-resident citizens coming to resettle in the Philippines; Provided, that such goods are exempt from customs duties under the Tariff and Customs Code of the Philippines;
• The following are some common VAT Exempt Transactions: (cont.)

  • Importation of professional instruments and implements, tools of trade, occupation or employment, wearing apparel, domestic animals, and personal and household effects belonging to persons coming to settle in the Philippines, such parties hereinafter referred to as overseas Filipinos, in quantities and of the class suitable to the profession, rank or position of the persons importing said items, for their own use and not for barter or sale
• The following are some common VAT Exempt Transactions: (cont.)

  • Services subject to percentage tax under Title V of the Tax Code, as enumerated below:
  • Sale or lease of goods or properties or the performance of services, the gross annual sales and/or receipts of which does not exceed the amount of Three Million Pesos
  • Receipts on sale, barter or exchange of shares of stock listed and traded through the local stock exchange or through initial public offering
• The following are some common VAT Exempt Transactions: (cont.)

  • Services by agricultural contract growers and milling for others of palay into rice, corn into gris, and sugar cane into raw sugar;
  • Medical, dental, hospital and veterinary services, except those rendered by professionals. Laboratory services are exempted. If the hospital or clinic operates a pharmacy or drug store, the sale of drugs and medicine is subject to VAT.
• The following are some common VAT Exempt Transactions: (cont.)

  • Educational services rendered by private educational institutions duly accredited by DepED, CHED, and TESDA, and those rendered by government educational institutions;
  • Services rendered by individuals pursuant to an employer-employee relationship
• • The following sales of real properties are exempt from VAT, namely:
  • Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business.
  • Sale of real properties utilized for low-cost housing
  • Sale of real properties utilized for socialized housing
  • Sale of residential lot valued at One Million Five Hundred Thousand Pesos and below, or house & lot and other residential dwellings valued at Two Million Five Hundred Thousand Pesos and below
• The following are some common VAT Exempt Transactions: (cont.)

  • Export sales by persons who are not VAT-reistered;
• The following are some common VAT Exempt Transactions: (CONT.)

  • Lease of residential units with a monthly rental per unit not exceeding Fifteen Thousand Pesos
  • The foregoing not withstanding, lease of residential units where the monthly rental per unit exceeds Fifteen Thousand Pesos, but the aggregate of such rentals of the lessor during the year do not exceed Three Million Pesos shall likewise be exempt from VAT.
• The following are some common VAT Exempt Transactions: (CONT.)

  • Sale, importation, printing or publication of books and any newspaper, magazine review or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements;
• The following are some common VAT Exempt Transactions: (CONT.)

  • Services of bank, non-bank financial intermediaries performing quasibanking functions, and other non-bank financial intermediaries.
• The following are some common VAT Exempt Transactions: (CONT.)

  • Sale or lease of goods and services to senior citizens and persons with disability, as provided under Republic Act Nos. 9994 (Expanded Senior Citizens Act of 2010) and 10754 (An Act Expanding the Benefits and privileges of Persons with Disability), respectively;
• The following are some common VAT Exempt Transactions: (CONT.)

  • Association dues, membership fees, and other assessments and charges collected by homeowners associations and condominium corporations;
• The following are some common VAT Exempt Transactions: (CONT.)

  • Sale or importation of prescription drugs and medicines for: Diabetes, high cholesterol, and hypertension beginning January 1, 2020; and Cancer, mental illness, tuberculosis, and kidney diseases beginning January 1, 2023. Provided, That the DOH shall issue a list of approved drugs and medicines for this purpose within sixty (60) days from the effectivity of this Act; and
• The following are some common VAT Exempt Transactions: (CONT.)

  • Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of Three million pesos
• Other Percentage Taxes:

  • A percentage tax is a business tax imposed on persons or transactions specified under the tax code (sections 116 to 127).
  • Unless otherwise specified, it is a tax in addition to other taxes, including the income tax payable by the business
  • Filing and payment is made within 25 days after the end of each taxable quarter (except for sale of listed shares, 5 days from date of collection; note for IPO's, 30 days from date of listing)
• Excise taxes on Certain Goods:

  • Goods subject to Excise Taxes
  • Excise taxes apply to goods manufactured or produced in the Philippines for domestic sales or consumption or for any disposition and to things imported.
  • The excise tax imposed shall be in addition to the value-added tax.
  • Excise taxes imposed and based on weight or volume capacity or any other physical unit of measurement shall be referred to as 'specific tax' and an excise tax imposed and based on selling price or other specified value of the good shall be referred to as 'ad valorem tax.'