BUSINESS TAXATION

WHAT IS A BUSINESS?

A habitual engagement in a commercial activity involving the sale of goods or services to customers or clients.

ESSENTIAL REQUISITES

• Habitual Engagement
• Commercial Activity

HABITUAL ENGAGEMENT

• Regularity in transactions
• Isolated or casual sales are not regular activities

REGULARITY RULE

NOT A BUSINESS (NOT REGULAR)

• Sale by non-dealers
• Privilege stores

ILLUSTRATION 1

• Mrs. Ellerton, a medical practitioner, sold his principal residence for P10M.

ILLUSTRATION 1

• The sale of real properties by non-dealer is a casual sale not made in the course of business; hence, exempt from business tax.

ILLUSTRATION 2

• Mang Merto is a real property dealer. During period of excess cash liquidity, he usually purchases shares of stocks as investment.
• He sells them when cash needs arise.

ILLUSTRATION 2

• The acquisition and sale of stocks investments by a realtor is one not made in the course of the realty business and are not subject to business tax.

EXCEPTIONS TO REGULARITY RULE

• Business principally for subsistence or livelihood
• Sales of non-residents are presumed made in the course of business

MARGINAL EARNERS

• small sari-sari stores
• small carenderias
• drivers or operators of a single unit of tricycle

COMMERCIAL ACTIVITY

• Engagement in the sale of goods or service for a profit
• Offered to the public with a motive to earn unrestricted amount of pecuniary gains

NOT A BUSINESS

• Government agencies
• Non-profit organizations
• Employment
• Directorship in a corporation

ILLUSTRATION 1

• PRC collected P12M from professional license fees and P1M from rental income on its vacant premises.

ILLUSTRATION 1

• Leasing is a commercial activity very depart from the nature of government service; hence, subject to business tax.

ENGAGED IN BUSINESS

• Consultants
• Sales agents
• TV artists
• Cooking instructors
• Martial art instrutors

NATURE OF BUSINESS TAX

• Consumption Tax
• Indirect Tax
• Privilege Tax

TYPES OF BUSINESS TAXES

• Value Added Tax
• Percentage Tax
• Excise Tax

BUSINESS TAXPAYERS

• Person:
• any individual, trust, estate, partnership, corporation, joint venture, cooperative or association

Income tax exemption does not necessarily mean business tax exemption and vice versa.

General Professional Partnerships and Local Water Districts are subject to business tax.

TYPES OF PAYERS

• VAT Taxpayers (registered or registrable)
• Non-VAT Taxpayers (Neither registered or registrable)

REGISTRATION OF BUSINESS

Any person who, in the course of trade or business, sells, barters, exchanges goods or properties, or engaged in the sale of services subject to business tax shall:

REGISTRATION

• Register with the appropriate RDO using the appropriate BIR form
• Pay annual registration fee of P500 using BIR Form No. 0605 for every separate or distinct establishment where sales transactions occur

ILLUSTRATION

• A business started operations with a head office and two branch office plus a warehouse.

ILLUSTRATION

• The business shall pay 3 x P500 or P1,500 total registration fee.
• The warehouse is not a sales outlet hence exempt from registration fee.

ILLUSTRATION 2

• Renzel is primarily engaged in the practice of profession.
• He also owns a boarding house for lease and a taxi unit.

ILLUSTRATION 2

• Renzel shall register his professional practice as his main office
• and his boarding house and taxi unit as separate branches.

REGISTRATION

• The registration fee shall be paid before the start of such business.
• Every year thereafter on or before the January 31.

TYPES OF BUSINESS AS TO REGISTRATION

• VAT registered taxpayers - pay 12% vat
• Non-VAT registered taxpayers - pay 3% percentage tax

BUSINESS CLASSIFICATIONS AS TO ACTIVITIES

• Sale or exchange of goods or properties
• Sale or exchange of services, or lease of properties

1. Sale of Goods or Properties

• Taxable on Gross Selling Price
• refers to the total amount the purchaser pays in consideration of the sale
• includes cash, credit, installment

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2. Sale of Services / Lease of Properties

• Taxable on Gross Receipts
• refers to the total amount of money actually or constructively received excluding VAT

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BUSINESS TAX REPORTING

Length of accounting period for business taxes is one quarter (TAXABLE QUARTER)

To minimize burden of one-time payment, payment is spread to the months of the quarter.

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DEADLINE

MONTHLY TAX RETURN

• VAT Taxpayers - within 20 days from the end of the month
• Non-VAT Taxpayers - SAME

QUARTERLY TAX RETURN

• VAT Taxpayers - within 25 days from the end of the month
• Non-VAT Taxpayers - within 20 days from the end of the month

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• VAT taxpayers – (2) monthly VAT returns and (1) quarterly VAT return
• Non-VAT taxpayers – (3) monthly percentage tax returns or (1) quarterly percentage tax return

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CATEGORIES OF BUSINESS SALES

• Exempt sales (Topic 4)
• Sales of services specifically subject to percentage tax (Topic 5)
• VATable sales

EXEMPT SALES

• VAT Exempt from Importations - exempt consumption from abroad
• VAT Exempt Sales - exempt consumption from domestic sellers

EXEMPT SALES

• Sales of basic necessities
• Sales exempt by law, treaties, or contracts
• Casual sales or sales of non-business sellers
• Export sales of non-VAT registered persons

PERCENTAGE TAX

• These are services which are specifically designated by law to be subject to percentage tax
• Subject at various rates ranging from 1/2 of 1% to 30%

VATABLE SALES

THE VAT THRESHOLD

Mandatory Registration as VAT Taxpayer

• Gross sales or receipts for the past 12 months have exceeded P1,919,500
• There are reasonable grounds to believe that his gross sales or receipts for the next 12 months will exceed P1,919,500

Mandatory Registration as VAT Taxpayer

• Except franchise grantees of radio or television broadcasting companies (threshold is P10,000,000)

Optional Registration

• A person who is below the VAT threshold may, at his option, register as VAT taxpayer.

TIMING OF VAT REGISTRATION

1. Persons commencing business –
simultaneous with registration of new business

2. Persons exceeding VAT threshold –
10 days from the end of month

3. Franchise grantees of radio and television broadcasting –
30 days from the end of calendar year

4. Persons below threshold but opts to register –
not later than 10 days before the beginning of the taxable quarter

REVOCABILITY

Franchise grantees of radio or television: whether voluntary or mandatory, perpetually irrevocable

Voluntary registration: irrevocable for 3 years

Mandatory registration but failed to exceed the VAT threshold within 12 months :
cancellation is allowed (3-year lock-in period does not apply)

PENALTY FOR REGISTRABLE PERSONS

A person which qualified to register as VAT taxpayer under the VAT threshold but did not register...

...still liable to 12% VAT BUT without the benefit of input tax credit in the periods in which they are not properly registered.

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