Module 2 Intro To Business Taxation
Module 2 Intro To Business Taxation
Module 2 Intro To Business Taxation
Indirect tax – the tax is collected from the seller rather than
from the buyer-consumer.
Percentage tax
Excise Tax
Comparison of Business taxes
Point of Difference VAT Percentage Tax Excise Tax
Only producers or
Subject businesses Any business, in Any business, in importers of
general general excisable products or
services
Examples:
Consultants
Sales agents of insurance
Real estate including brokers
TV or movie talents and artists
Cooking instructors
Martial arts instructors
Not considered business:
Example:
Mr. Ysmael, an accounting practitioner, has two commercial businesses with the
following receipts and sales:
Business 1, Business 2 and the accounting practice are not taxable persons being
proprietorship businesses. The sales and receipts of these totaling P2,700,000
shall be taxable to Mr. Ysmael as the taxable person.
A parent
company is a separate taxable person with its subsidiary
company and each subsidiary company is a taxable person.
ABC Company and its branch are one entity while XTB Subsidiary
is a separate entity. The transfer of goods by ABC Company to its
Manila City branch is not subject to business tax. The intercompany
sales made between ABC Company and its subsidiary, XTB
Company, is subject to business tax. XTB Company’s transaction
with the Manila branch is also a transaction with its parent, hence
taxable.
Rules:
Home office and branch offices of the same business are one, not
separate taxable person.
Example:
DEF Company has its head office at Makati City and two branches in
Manila City and Quezon City. The sales outlet has the following sales:
Makati Head Office P2,000,000
Manila City branch 1,800,000
Quezon City branch 1,200,000
The branches are not taxable persons. The sales of the branch offices
including the head office shall be taxable to DEF Corporation. The
same shall be reported to the BIR RDO in the principal place of
business.
Rules:
Example:
Dr. Jones owns a bakery registered as a proprietorship business.
He also owns a clinic, also registered as a proprietorship business.
His clinic occasionally purchases bread from his grocery. Dr.
Jones’ children also bought breads from the bakery.
Sales or printing of books, magazines and newspapers Phil. Stock Exchange (PSE) on the sale, barter or exchange of shares by
Casual sales or sales by non-business sellers investors or corporations conducting initial public offerings.
Sale of persons not regularly engaged in trade or business Franchise grantees of television or radio and gas or water.
Services rendered under an employer-employee relationship
Life insurance companies and agents of foreign insurance companies.
Services rendered by a Regional area Headquarter of a
multinational company Franchise grantees of telephone or telegraph on overseas dispatch,
Export sales of non-VAT registered persons message or conversation originating from the Philippines.
BICAP FLOW
VATABLE SALES OR RECEIPTS
If taxpayer is NonVAT registered - subject to Percentage tax of 3%
If there are reasonable grounds to believe that his gross sales or receipts for the next 12
months will exceed P3million.
Only VATABLE sales or receipts shall be considered for the purpose of VAT threshold.
Since the P1,900,00 expected vatable sales or receipts is below the P3,000,000 VAT
threshold, Mrs. Maranao may register as a non-VAT taxpayer.
Note:
1. Mrs. Maranao shall not pay business tax on exempt sales;
2. The receipts from services specifically subject to percentage tax shall be subject to
the particular percentage tax rate that apply to the receipts.
2. Mrs. Maranao shall pay the 3% general percentage tax on the vatable sales and
receipts for as long as her vatable sales or receipts do not exceed the VAT threshold.
3. If there is a reasonable expectation that vatable sales or receipts in the next 12
months will exceed the VAT threshold, the taxpayer shall register as VAT taxpayer.
BUSINESS TAX ACCOUNTING PERIOD
The length of accounting period for business taxes is one quarter. This is referred to as
taxable quarter. The taxable quarter is composed of three (3) months which is
synchronized with the taxable year (calendar or fiscal) of the taxpayer for purposes of
income tax.
1st Mo. 2nd Mo. 3rd Mo. 1st Mo. 2nd Mo. 3rd Mo.
The 12-month totals of monthly receipts from the current month until 12 months
back shall be monitored if it exceeds the P3M VAT threshold.
Since his receipts exceeded P3,000,000 by October 2022 , he is subject to VAT
prospectively starting November 2022. He is mandatorily required to update his
registration from a non-VAT to a VAT taxpayer on or before November 30,
2022.
Required: Compute the Business Tax and Income tax payable of Mr. Quezon. (Review the rules in
Income Taxation – see next slide)
PURELY SELF-EMPLOYED AND/OR
MIXED INCOME EARNER
PROFESSIONAL (SEP) w/ gross sales/receipts
OR Regular Income
8%** tax on gross Tax
sales/Receipts and
Regular Income Regular Income OR
other operating
Tax Tax 8%** tax on gross
income in excess of Regular Income
P250,000 IN sales/Receipts and
Tax
LIEU of the other operating
graduated tax rate income LIEU of
the graduated tax
and Sec. 116
**Provided, the SEP is rate and Sec. 116
nonVAT registered, not **Provided, the SEP is
engaged in VAT-exempt- nonVAT registered, not
sales transactions; not engaged in VAT-exempt-
subject to OPT other than sales transactions; not
Sec. 116. which is 3%. subject to OPT other than
Sec. 116. which is 3%.
TRANSITION TO THE VALUE ADDED TAX
A. Under the regular income tax option (Using Income Tax Table)
Assuming Mr. Quezon opted to the regular tax option for the year 2022 in his first quarter 1701Q, he shall separately pay the regular income tax
computed per individual tax table and the 3% percentage tax under 2551Q.
If we compute his regular tax using the income tax table, Mr. Quezon must have paid P205,000 in estimated income tax as of September 30, 2022
using 1701Q.
On the other hand, Mr. Quezon must have paid his quarterly percentage tax using Form 2551Q until the end of the quarter ending September 30,
2022.
The optional VAT registration is not allowed to self-employed and or professional individuals who opted to the 8%
commuted tax under income taxation.
VAT taxpayer shall continue to pay VAT until the cancellation or revocation of their VAT-registration.
◦ Businesses whose VAT registration has been cancelled will be registered or reverted back as non-VAT taxpayers. They will be
subject to the percentage tax on sales or receipts.