BUSINESS TAX AND

8. Deficiency Tax & Tax Remedies

INTRO TO VAT

PHILIPPINE TAXATION SYSTEM

BUSINESS TAX DEFINED
● TAX LAWS IN THE PHILIPPINES
a) NATIONAL INTERNAL REVENUE ● Is a tax imposed upon onerous
CODE OF 1997 transfers such as sale, barter,
b) TAX REFORM FOR ACCELERATION exchange, and importation.
AND INCLUSION (TRAIN) ● Is a tax imposed on transactions that
c) CORPORATE RECOVERY AND TAX are in the course of trade or
INCENTIVES FOR ENTERPRISES business, including incidental
ACT (CREATE) transactions thereto.
d) EASE OF PAYING TAXES ACT - means the regular conduct or
(EOPTA) pursuit of a commercial or an
e) PASSIVE INCOME AND FINANCIAL economic activity, including
INTERMEDIARY TAXATION ACT (PIFITA) transactions incidental
thereto, by any person,
MAJOR TAX TYPES regardless of whether the
person engaged therein is a
1. Income Tax: non-stock, non-profit private
● Regular Income Tax organization or government
➢ Individuals entity.
➢ Corporation ● Is a tax imposed in addition to
● Special Income Tax Income and other taxes, unless
➢ Final Income Tax specifically exempt.
➢ Capital Gains Tax
HOW ABOUT ISOLATED
2. Business Tax: TRANSACTIONS?
● Value Added Tax
● Other Percentage Tax Isolated Transactions are those that are
● Excise Tax done rarely or even only once.

3. Transfer Tax: Use the following as a guide:

● Estate Tax ● By Residents: Not subject to
● Donor’sTax business tax.
● By Nonresident foreign persons
4. Withholding Tax (on services rendered within the
5. Documentary Stamp Tax Philippines): considered to be in
6. Local Government Tax the ordinary course of business
7. Preferential Tax
 hence subject to final withholding
VAT.

TYPES OF TRANSFERS POINT OF DIFFERENCES

A. GRATUITOUS TRANSFERS - those

that are done without consideration
- No to Business Tax
- Yes to Transfer Tax
B. ONEROUS TRANSFERS - transfers
with consideration.
- In the ordinary course or trade of
business including incidental
transactions:
a. Business Tax; and [ Sales of Goods/Properties or Services:
b. Income Tax
● VAT, in general: Subject to VAT but
exempt from OPT, no excise tax.
- Not in the course of trade or ● Exempt from VAT but subject to
business: not subject to business OPT: Exempt from VAT but subject
tax but maybe subject to income tax. to OPT, no excise tax.
● Exempt from Business Taxes:
NATURE OF BUSINESS TAX: Exempt from VAT, OPT, and excise
tax.
● Relative consumption tax - this is Manufacturing, Importation, and Sale of
a tax on the consumption of goods Sin Products or Nonessential
or services and is imposable only Goods/Services:
when the seller is a business.
● Indirect tax- the tax is collected ● VAT: Subject to VAT plus excise
from the seller rather than from the tax, if applicable.
buyer-consumer. ● OPT: Exempt from VAT but subject
● Privilege tax- is also viewed as a to percentage tax plus excise tax, if
tax on the privilege to do business. applicable.
● Excise: Subject to excise tax, where
● National tax - is imposed by the
applicable.
national government.
Accounting Treatment:
TYPES OF BUSINESS TAX
● VAT: VAT plus excise tax, if
➔ Value Added Tax (VAT) applicable.
➔ Percentage Tax / Other ● OPT: Percentage tax plus excise
tax, if applicable.
Percentage Tax (OPT)
➔ Excise Tax
 ● Excise Tax: Always applied where
required, regardless of VAT or OPT
status. ]

OPT = Other Percentage Tax

CHARACTERISTICS OF VAT
INTRO TO VAT ●
● National – imposed by national
VAT DEFINED gov’t, payable to BIR
● Indirect – tax shifting. Impact and
VAT is a tax on the value added by every incidence rest on diff persons.
seller to the purchase price or- cost in the ➢ Impact of Taxation
sale or lease of-goods, property or services. (He who is statutorily
liable to pay the tax.
He who must file the
return) – Seller
➢ Incidence of Taxation
(He who bears the
economic burden of
the tax) - Buyer
● Ad Valorem – as a percentage of
sales/receipts
● Proportional – remains constant at
12%
● Business – as a general rule, it is
only imposed on persons that are
JOURNAL ENTRY COMPARISON
businesses.
● Uses the Tax Credit Approach – it
Transaction: Sale of inventory for 112,000
is generally computed as follows:
on account.

Output Tax xxx

Normal Entry:
Less: Input Tax xxx
Accounts Receivable 112,00
VAT Payable xxx
Sales 112,000

Entry with VAT:

PERSONS LIABLE
Accounts Receivable 112,000
Sales 100,000
Section 105, par 1, National Internal
VAT Payable 12,000
Revenue Code
Any person who, in the course of trade or
business, sells, barters, exchanges, leases
goods or properties, renders services, and
any person who imports goods shall be
subject to the value-added tax.
 Patrol was part of Pinas Energy Corp.'s
property, plant, and equipment (used in the
business). Therefore, the sale of the
Nissan Patrol is an incidental transaction
IN THE COURSE OF TRADE OR made in the course of
BUSINESS Pinas Energy Corp.'s business which
should be liable for VAT.
It means the regular conduct or pursuit of a
commercial or an economic activity, EXEMPTION TO THE RULE OF
including transactions incidental thereto, REGULARITY
by any person regardless of whether
or not the person engaged therein is a ● The rule of regularity, to the contrary
nonstock, nonprofit private organization notwithstanding, services as defined
or government entity. in the Code rendered in the
Philippines by non-resident foreign
TRANSACTIONS INCIDENTAL THERETO persons shall be considered as
being in the course of trade or
Case: business.
Section 105, par 4 of the NIRC
Pinas Energy Corp . entered into a Built-
Operate-Transfer (BOT) contract with the SALE OF GOODS OR PROPERTIES
Philippine National Oil Company for DEFINED
finance , engineering , supply, installation,
testing, commissioning , operation and The term “goods or properties” refers to all
maintenance of a Geothermal Power Plant. tangible and intangible objects which are
capable of pecuniary estimation and shall
During the year, Pinas Energy Corp. sold for include, among others:
P200,000 a fully a. Real properties held primarily for
depreciated vehicle (Nissan Patrol) used in sale to customers or held for lease in
business. the ordinary course of trade or
business;
How much is the VAT if any? b. The right or the privilege to use
patent, copyright, design or model,
Answer: 200,000 x 12% = P24,000 plan, secret formula or process,
goodwill, trademark, trade brand or
It does not follow that an isolated other like property or right;
transaction cannot be an incidental c. The right or the privilege to use any
transaction for purpose of VAT liability. industrial, commercial or scientific
equipment;
Pinas Enegry Corp.'s main business is to d. The right or the privilege to use
maintain the geothermal powerplant for motion picture films, films, tapes and
PNOC. In the course of its business, Pinas discs; and
Energy Corp. bought and eventually sold a
Nissan Patrol. Prior to the sale, the Nissan
 e. Radio, television, satellite l. Common carriers by air and sea
transmission and cable television relative to their transport of
time. passengers, goods or cargoes from
one place in the Philippines to
another place in the Philippines;
SALE OF SERVICES DEFINED m. Sales of electricity by generation,
transmission, and/or distribution
Sale or exchange of services means the companies, including electric
performance of all kinds of services in the cooperatives;
Philippines for others for a fee, n. Services of franchise grantees of
remuneration or consideration, whether in electric utilities, telephone and
kind or in cash, including those performed telegraph, radio and television
or rendered by: broadcasting and all other franchise
a. Construction and service grantees, except those under
contractors; Section 119 of the Tax Code;
b. Stock, real estate, commercial, o. Non-life insurance companies
customs and immigration brokers; (except their crop insurance),
c. Lessors of property, whether including surety, fidelity, indemnity
personal or real; and bonding companies;
d. Persons engaged in warehousing p. Similar services regardless of
services; whether or not the performance
e. Lessors or distributors of thereof calls for the exercise or use
cinematographic films; of the physical or mental faculties.
f. Persons engaged in milling,
processing, manufacturing or EXERCISE
repacking goods for others;
g. Proprietors, operators or keepers of
hotels, motels, resthouses, pension VAT SUBJECT OR NOT?
houses, inns, resorts; (theatres and
movie houses (deleted in TRAIN); 1. Sale of bread by a bakery =
h. Proprietors, operators of restaurants, Nature: Goods, VAT Subject: Yes
refreshment parlors, cafes and other 2. Sale of residential lot by a real
eating places, including clubs and estate dealer = Nature: Property,
caterers; VAT Subject: Yes
i. Dealers in securities; 3. Sale of residential house and lot
j. Lending investors; by the owner who resides in such
k. Transportation contractors on their property = Nature: Property, VAT
transport of goods or cargoes Subject: No
including persons who transport 4. Sale of lechon manok and drinks
goods or cargoes for hire and other by a restaurant and other eating
domestic common carriers by land, places = Nature: Services, VAT
relative to their transport of goods or Subject: Yes
cargoes; 5. Importation of raw materials for
business purposes = Nature:
Import (Goods), VAT Subject: Yes
 6. Importation of a computer for [e.g. tindera na nangupit sa sariling benta //
personal use = Nature: Import or company giving out their products on
(Goods), VAT Subject: Yes their workers for free]
7. Sale of office supplies by a non-
[ Meron ka dapat ibebenta or gagamitin sa
profit institution = Nature: Goods, Negosyo. ]
VAT Subject: Yes
8. Warehousing services by a [ Meron ka Consumed own paninda as if for
government-owned or controlled used at consumed in the course of business
corporation = Nature: Services, ]
VAT Subject: Yes
2. Distribution or Transfer of goods or
9. Sale of food and drinks in a club properties to:
operated by a non-profit = Nature:
Services, VAT Subject: Yes (a) Shareholders or investors as share in
10. Sale of office equipment and the profits of the VAT-registered persons.
furniture by a VAT-registered (b) Creditors in payment of debt
service provider = Nature: Goods
[e.g. i owe someone money, but my
(Incidental Transaction), VAT payment is the book i sell in my business]
Subject: Yes
[ Letter A – giving out dividends in the form
[ pag importation, personal or not subject to of Properties or goods.
vat talaga ]
Concept: Upon purchase of a product, you
[ NPI and GOCCs are subject to VAT can claim input VAT which is a benefit on
engaged in business transactions ] your side. Anong ginawa? Binigay sa
shareholders or investors. Technically hindi
siya sale na magiging subject to Output
VAT. But The BIR will not sit idly and allow
TRANSACTIONS DEEMED SALE a taxpayer to claim a benefit without the
Bureau benefitting as well. ]
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.

3. Consignment of goods if actual sale is not

made within sixty (60) days following the
date such goods were consigned;

consignment = agreement
Consignor = gumagawa ng goods cancellation of registration (Vat reg -> Non
Consignee = yung may ari ng stall Vat)

[e.g pinabenta ko sa may stall sa kcc yung EXERCISE

product ko. Like ownership still rests with
me, not sa may ari ng stall] [d is yes kasi nagkaroon ng change, kasi
dapat mabayaran muna lahat bago
CONSIGNMENT PROBLEM maging proprietor. E is yes nasa #4 ang
explanation. ]
Dara – Status: Sold on 2/14, VAT: Yes,
Reason: Actual Sale, When: February [after 60 days return, tds]

Bom – Status: Sold on 6/15, VAT: Yes,

Reason: TDS, When: March

CL – Status: Unsold, VAT: Yes, Reason:

TDS, When: March

Minzy – Status: Returned on 2/16, VAT:

No, Reason: (Not applicable), When: (Not
applicable)

Bom - kasi lumagpas 60 days

Cl - lumagpas 60 days TRANSACTIONS AND TDS

APPLICABILITY - EXERCISE
Minzy - because a form of sales return,
binalik within 60 days. Di pa mag effect ang a. A VAT-registered person withdraws
TDS/Consignment goods from his business for his personal
use - YES
4. Retirement from or cessation of business,
with respect to inventories of taxable goods b. Property dividends which constitute
existing as of such retirement or cessation. stocks in trade or properties primarily held
for sale or lease declared out of retained
4.1 Change of ownership of the earnings - YES
business.
4.2 Dissolution of a partnership and c. Consigned goods returned by the
creation of a new partnership which takes consignee within the 60-day period - NO
over the business.
d. Goods on hand when a single
[ Concept: When I bought the proprietorship incorporates - YES
products/materials for my business, I
claimed input VAT. The BIR expects that e. Proprietor of a single proprietorship sells
they will eventually benefit from the sale of his entire business - YES
those products/materials in the form of
Output VAT. ] f. Goods on hand upon the dissolution of a
partnership and creation of a new
partnership which takes over the business -
4.3 Change of business activity from YES
VAT taxable to VAT Exempt
4.4 Approval of a request for
 VAT BASE
4. Subtract VAT Credits (applicable
tax credits).
5. The final amount is VAT Still Due
(the net VAT payable).
Objectives:
Output VAT Calculation
● Special Considerations
● VAT Formula
● VAT Registration
● Gross Selling Price or Gross Sales
● Gross Receipts
● Sale of Real Properties

1. Determine the VAT Base (the

taxable amount).
2. Multiply the VAT Base by 12% (the
1. SPECIAL CONSIDERATIONS
standard VAT rate).
3. The result is the Output VAT.
Privilege Stores or Tiangge Must not
operate for a cumulative period not
exceeding 15 days. If the PS is operating
more than 1 business activity in a separate
Output VAT vs Input VAT
venue or simultaneously operating multiple
business activities in 1 venue, it shall be 1. Output VAT – means the VAT due
considered 1 day per business activity. on the sale, lease, or exchange of
taxable goods or properties by any
A Privilege store is:
person registered or required to
register under Sec 236 of the Tax
● Not liable for business tax
Code.
● May still be Liable for income tax.
2. Input VAT – means the VAT due on
or paid by a VAT-registered person
on importation of goods or local
2. VAT FORMULA purchase of goods, properties, or
services, including lease or use of
property in the course of trade or
business.

[e.g. privilege stores like sa ibt stalls]

VAT Formula Calculation

1. Start with Output VAT (the VAT
collected from sales).
2. Subtract Input VAT (the VAT paid
on purchases).
3. The result is VAT Due.
 1. Any person who is VAT-exempt or
not required to register for VAT
may elect to be VAT-registered.
Any person who elects to register
under optional registration shall not
be allowed to cancel his registration
for the next three (3) years.

VAT Threshold for Husband and Wife

For purposes of the threshold of

P3,000,000, as amended, the husband
[my pruhcases can be offset sa output vat if and the wife shall be considered
ibebenta ko siya as finished product] separate taxpayers.

However, the aggregation rule for each

taxpayer shall apply. For instance, if a
Mandatory Registration professional ,aside from the practice of
his profession, also derives revenue
from other lines of business which are
otherwise subject to VAT, the same shall
What is the penalty for non-registration of
be combined for purposes of
those required to
determining whether the threshold has
register? been exceeded.

· The taxpayer shall be liable to pay the tax Case A: Sale of Goods
as if he were a VAT-
Chapel Corporation, a VAT registered
registered person but he cannot avail the entity, sold 10 boxes of its products to
benefits of input tax 7/24 convenience store. The selling price
is 10,000 per box exclusive of VAT. How
credit for the period he was not properly much is the VAT and how much should
registered. 7/24 pay?

Optional Registration
Case B: Sale of Services

In anticipation of Ivan's birthday party,

Josephine went to Belo Medical Group to
avail of facial services for P33,600
inclusive of VAT. Belo is a VAT
Registered Entity. What is the amount of
VAT?

[calcu: vat inclusive amt divided by 1.12

times 12%]

Since ABC Corp is a non-VAT registered

entity, it cannot charge VAT even if it
exceeds the ₱3,000,000 threshold unless it
officially registers as a VAT taxpayer.

Final Answer:
● Total Amount Due by DEF Corp to
ABC Corp: ₱100,000
https://docs.google.com/document/d/ Receipts. This refers to the total
1CkYSKqIQdwys2D_UTcVMqGj0GRG__Yy amount charged.
cEok15cMwf4Y/edit?tab=t.0 3. Non-life insurance – Gross
receipts. This refers to total
premiums collected (whether money,
notes, or credits). Life insurance is
not subject to VAT.
4. Millers – Gross receipts. This may
refer to the market value if the miller
receives milled products as form of
payment.

(Full text from Topic 3 PowerPoint file

copied word for word)

Topic 4: Zero-Rated Sales

Objectives:

● Zero-Rated Sale of Goods

● Zero-Rated Sale of Service

Definition: A “zero rated sale” of goods,

properties and/or services by a VAT
registered person is a taxable transaction
● for VAT purposes, but shall not result in any
output tax. However, the input tax on
purchases of goods, properties or services,
related to such zero-rated sale, shall be
available as tax credit or refund in
accordance with existing regulations (RR
Topic 3: VAT on Importation 21-2021).

Objectives: (Full text from Topic 4 PowerPoint file

copied word for word)
● Special VAT Bases
● VAT Registration
● VAT on Importation
Topic 5: VAT Exempt Sales of Goods
Special VAT Base Rules
Objectives:
1. Dealers of Securities – Gross
receipts (net of cost). Note that ● What are VAT Exempt Sales?
Gross Receipts for dealers of
securities actually refers to Gross VAT Exempt Sales VAT Exempt Sales are
selling price less cost of the exempt consumption of goods or services
securities sold. from domestic sellers. Exempt sales are not
2. Sale of electricity by transmission subject to VAT and percentage tax. Hence,
& distribution companies – Gross VAT taxpayers making exempt sale of
goods, properties, or services, shall not bill
any output VAT to their customers because
the sale is not subject to VAT. Non-VAT
taxpayers making exempt sales shall not be
subject to the 3% percentage tax on their
sales or receipt.