CHAPTER 3 INTRODUCTION TO BUSINESS 10.
Explain and Enumerate procedures of business
TAXATION taxation.
Evaluate if the sales qualify as business
1. What is the NATURE OF BUSINESS TAX? Identify the taxable person: If individual or
(PRIN) juridical
Relative consumption tax- imposable only when Determine the activity type: if sale of goods or sale
the seller is a business of services
Indirect tax - tax is collected from the seller rather Classify the sales or receipts whether they are:
than the buyer Exempt; subject to %tax or Vatable.
Privilege tax - tax on a privilege to do business Determine taxpayer registration type:
National tax - imposed by national government If VAT registered - Pay VAT
If non-VAT registered - pay 3% percentage
2. What are the types of business tax? tax, then determine the magnitude of 12-month
Percentage tax vatable sales
Value added tax If exceeds P3M:
Excise tax Person shall register as VAT
taxpayer
3. Types of business taxpayers Pay VAT prospectively
VAT Taxpayer
Non-VAT taxpayer If does not exceed P3M
Person shall continue to pay 3%
4. What is the difference between the VAT, % tax percentage tax on sales/receipt
and excise tax in timing of imposition?
Answer: Determine if the goods or services is excisable
Vat - imposed on the sale If yes - pay applicable excise tax in addition to
% Tax - imposed on the sale VAT or %tax
Excise tax - impose on the importation If no - pay only VAT or %tax
5. What is the difference between the VAT, % tax Note:
and excise tax when it comes to its nature? A. Business normally registered initially as non-VAT
Vat - Primary tax taxpayers, except when its projected operation expected
% Tax - Primary tax to exceed 3M annual VAT Threshold
Excise - Additional tax B. Once the taxpayer becomes or registered as VAT
taxpayer, he remains as such paying VAT until the
6. What is the difference between the VAT, % tax cancellation of his VAT registration.
and excise tax when it comes to its Subject business?
Vat - Any business 11. What is business?
% tax - Any business Answer: Business is a habitual engagement in a
Excise tax - only producer or importer of excisable commercial activity involving the sale of goods or
product or services services for a profit.
7. What is the difference between the VAT, % tax 12. What are the elements of business?
and excise tax when it comes to its taxpayers? a) Habitual engagement
Vat - Business only b) Commercial Activity
% tax - business only
Excise tax - business or not business 13. What is Habitual activity?
Answer: there must be a regularity in transaction.
8. What is the difference between the VAT, % tax Isolated or casual sales are not regular activities.
and excise tax when it comes to its usual taxpayers?
Vat - big business Note: A Casual sale transaction is not business even
% tax - small business if the profit is derived from the transaction. On the
Excise tax - big or small business other hand, regular selling of goods or services for a
profit is a business despite of the absence of profit.
9. What is the difference between the VAT, % tax
and excise tax when it comes to its accounting 14. What are privilege stores?
treatment? Answer: Privilege stores “ tiangge” are stores or
Vat - Liability outlets not permanently fixed to the ground which
% tax - expense are put up during special event such as festivals of
Excise tax - Asset or liability fiestas. They are not habitually engaged in
business, hence exempt from business tax
15. Qualification of Privilege stores? 21. Examples of Marginal Income earners
Answer: they should engage in business activity a) Subsistential Farmers or fisherman
for a cumulative period not more than 15 days. b) Small Sari-sari Store
Otherwise, they shall consider subject to business c) Small Carinderias or “turo-turos”
tax. d) Drivers or operators of a single unit tricycle
e) Others
Note:
If the problem states, “establish business 22. Examples of persons who are engaged in
enterprise” It’s a business and subject to business business:
tax. a) Consultants
b) Cooking instructors
16. What is the exception to the regularity rule? c) Television or movie talents and artist
Answer: The sale of services by non-resident d) Sales agent or insurance or real estate
persons are presumed made during business including broker
without regards as to whether the sale is regular or e) Martial arts instructors
isolated.
23. Who are business taxpayers?
17. What is Commercial activity? (CATE J. CIP)
Answer: engagement in the sale of goods or a) Corporation’
services for a profit. The goods or services must be b) Association
offered to the public with a motive to earn c) Trust
unrestricted amount of pecuniary gains. d) Estate
“Note: Actual existence of profit during the period e) Joint venture
is not pre-condition to business taxation, even if the f) Cooperative
business operation results to a loss, business tax g) Individual
still applies.” h) Partnership
18. Enumerate persons who are not business 24. Rules in business taxation:
(ENDGB) Each person, natural or juridical, is taxable person
a) Employment for purposes of business taxation
b) Non-profit organization/association Husband and wife are separate taxpayers
c) Directorship in a corporation A parent company is a separate taxable person with
d) Government agencies and its subsidiary company and each subsidiary
instrumentalities company is a taxable person
e) Business for mere substance Home office and branch offices are one, not
separate, taxable person.
NOTE: Proprietorship is not a juridical entity. Its sales and
Exercise of profession by regularly rendering receipts are subject to business tax to the individual
services to clients for a fee is considered as proprietor.
business subject to business tax.
25. The following are exempt from income tax but
19. Explain the Business for mere Subsistence subject to business tax:
Answer: business with the gross sales/receipts not a) GPP
exceeding P100,000 per year. (example: Marginal b) Joint venture engaged in construction and oil
income earners) exploration
c) Local Water Districts
20. Explain Marginal income Earners d) Barangay micro-business enterprise.
Answer: individuals not deriving compensation
income under an employer-employee relationship 26. What are types of business activity?
but who are self-employed deriving gross sales or a) Sale or exchange of goods or properties
receipts not exceeding P100,000 in any 12month- b) Sale or exchange of services or lease
period. properties.
Note: 27. Explain sale Goods or Properties.
Term marginal do not include licensed professional Answer: refers to all intangible and tangible
consultants, artist, sales agents, brokers, including objects which are capable of pecuniary estimation
all others whose income have been subjected to
withholding tax. 28. Explain sale or Exchange of services.
Marginal income earners are subject to income tax.
Answer: Means performance of all kind of services Supply of any assistance that is ancillary and
in the Philippines for others for a fee, renumeration subsidiary to.
or consideration in kind. Supply of services by non-resident person or his
employee
29. Example of goods or properties that is to be Supply technical advice, assistance or services
sold rendered in connection the technical management
Real properties held primarily for sale to or administration
customers, held for lease or used in ordinary Lease of motion picture films, films, tapes, and
course of business discs
Right or privilege to use patent, copy right, design Lease or use of the right to use radio, television,
or model, plan, properties, or rights satellite transmission and cable television time.
Rights or privilege to use in the Philippine any
industrial, commercial, or scientific equipment 31. What is the basis of business tax in sellers
Right or privilege to use motion picture, films, of goods or properties and sellers of
tapes, and discs services?
Radio television, satellite transmission and cable Answer:
television. Goods or properties: Gross Selling Price
Sellers of services: Gross receipts
30. Examples of Services performed in the
Philippines 32. What is Gross selling price?
Construction and service contractors Answer: total amount of money which obligated to
Brokers of stocks, real estate, commercial, customs pay to the seller in consideration of the sale, barter
and immigration or exchange of goods or properties.
Lessors of property, whether personal or real
Person engaged in warehousing services Note: “The excise tax, if any, on such goods or
Distributors of Cinematographic Films properties shall form part of the gross selling
Persons engaged in milling, processing, prince”
manufacturing, or repacking goods
Proprietors, operators. Or keepers of hotels, 33. Enumerate deduction from gross selling price:
motels, rest houses, pension houses, inns, resorts, I. Discounts determined and granted at the time of
theaters, and movie houses sale, which are expressly indicated in the invoice,
Operators of restaurants, refreshment parlors, cafes the amount thereof forming part of the gross sales.
and other eating places including clubs and caterers (trade discount)
Dealers in securities
Lending investors II. Sales return and allowances
Transportation constructors in their transport of
passenger, goods, or cargoes from one place in the “Note: To be deductible, discounts must not be
Phil to another place in the Phil. dependent upon the happening in the future event or
Common carriers by air and sea relative to their contingency”
transport of passenger, goods, cargoes for hire and
other domestic common carriers by land relative 34. Example of non-deductible discounts in Gross
(goods or cargoes) Selling Price:
Sales of electricity by generation, transmission, Quota discounts
and/or distribution companies. Rebates
Franchise grantees of electric utilities, telephone, Cash discount
telegraph, radio, television, broadcasting, and all
other franchise grantees. 35. What is the meaning of Gross Receipts?
Non-life insurance including surety, indemnity, Answer: (RD A CARS)
and bonding companies. Rendered payment
Similar services regardless of whether the Deposits applied as payment for services
performance thereof calls for the exercise or use of Advance payment
the physical or mental faculties Contract price
Lease of, use of, or the right or privilege to use any Amount charge for material supplied with the
copy right, patent, design or model, plan, secret services
formula or process, goodwill, trademark, trade Rental or royalty
brands or other like property right. Service fee
Lease or the use of, or the right to use any
industrial, commercial, or scientific equipment
Supply of any scientific, technical, industrial, or
commercial knowledge or information
Note: 44. What are the exempt sales by law, treaty,
Recognized whether constructively or received or contracts?
Exclusion of VAT a) Sales by cooperative to members
b) Sales or lease of air crafts
36. What do you mean by Constructive Receipts? c) Sales of printing books, magazine, and
Answer: occurs when money consideration or its newspaper
equivalent is placed at the control of the person
who renders service without restriction by the 45. What are the exempt sales or receipts form
payor. This is added to gross receipts. casual sales?
a) Sale of person not regularly engaged in
37. Examples of Constructively receipts. business
a) Deposit in bank account of the seller by the b) Services rendered under employer-
buyer in consideration of services rendered or employee relationship
goods sold. c) Services rendered by a Regional Area
b) Issuance by the debtor of a notice to offset Headquarter of a multinational
any debt and obligation and acceptance company
thereof of the seller as payment for the
services rendered 46. What are the receipts from services
c) Transfer of the amounts retained by the specifically subject to percentage tax?
payor to the account of the constructor. (BICAP FLOW)
a) Banks and non-banks financial
38. Explain Agency monies intermediaries performing quasi-
Answer: This are not included in gross receipts. banking functions and other non-
bank financial intermediaries without quasi-
39. Explain the treatment of Insurance banking functions.
proceeds on damaged assets. b) International carries on their
Answer: Receipts of insurance proceeds from the outgoing transport of cargoes,
destruction of a company’s business asset, is not baggage, or mails.
viewed as sales or receipts. The compulsory or c) Domestic common carries on their
involuntary conversion is in case of insurance transport of passenger on land and keepers
reimbursement not viewed as sales or receipts of garage.
d) Certain amusement places
40. Explain the treatment of Withholding taxes. e) PSE on the sale, barter, or exchange of
Answer: Amount withheld from gross receipts shares by investors or corporation
shall form part of gross receipts because they are conducting IPO
constructive possession and not subject to any f) Franchise grantees of television or radio
reservation. and gas or water
g) Life insurance companies and agents of
41. Explain Business with Mixed Activity foreign insurance companies
Answer: Business which is engaged both in the h) Franchise grantees of telephone or telegraph
sales of good or properties and sales of services overseas dispatch, message, or conversation
shall be subject on business tax based on gross origination from the Philippines
selling price and gross receipts. i) Winnings from jai-alai and racetracks
42. Enumerate the Exempt Sales or Receipts 47. What are the two types of percentage tax?
Sales of certain necessities a) Specific percentage tax - those
Sales exempt by law, treaty, or contracts imposed for BICAPFLOW and apply to
Casual sales any taxpayer, whether VAT or NON- VAT
Export sales of non-VAT taxpayers register.
b) General percentage tax - for vatable sales or
43. What are the Exempt sales because receipts of non-VAT taxpayers
classified as necessities? (AHEH)
a) Agricultural or marine food 48. Explain the General VAT threshold
b) Heath services or Hospitals Answer: P3,000,000 VAT threshold is application
c) Educational Services to all other taxpayers except Franchise grantees of
d) Housing or residential properties with price radio and television
limits
49. Explain the Special VAT threshold
Answer: franchise grantees are mandatory required
to register the VAT system when their annual 53. Explain the Business Tax Accounting period.
receipts exceeds P10,000,000 Answer: The length of accounting period for
business taxes is one quarter. This referred to as
50. Explain optional VAT registration taxable quarter - composed of three months.
Answer: a person who is below VAT threshold
may, at his option, register as VAT taxpayer and 54. What are the forms used in tax return?
shall be irrevocable for 3 years. For TV or radio VAT Non-VAT
franchise grantees, the option shall be perpetually taxpayers taxpayers
Monthly tax BIR form Not
1st month 2nd month 3rd month return 2550 M applicable
Business tax 2550M 2550M 2550Q Quarterly tax BIR Form BIR Form
form return 2550 Q 2551 Q
Deadline* Within 20 Within 20 Within 25
days days days
irrevocable. 55. Deadline of Tax Returns for VAT taxpayers
*counted from the end of the month or quarter
51. What are the types of VAT taxpayers?
a) VAT- registered taxpayers - a taxpayer who Note: The train law will eventually phase out the
registered under VAT system monthly estimated VAT payments and transition into
b) VAT-registrable taxpayer - taxpayer who full quarterly payments effective January 1, 2023
exceeded the VAT threshold but did not yet
register as VAT taxpayer “Note:
Last month figure is the total figure for each
Note: quarter
VAT-registered taxpayers can credit input VAT The figure reported each month is the basis for
while non-VAT registered taxpayers are not allowed output VAT
to claim input VAT credit. The output VAT reported at the end of the month in
Only vatable sales or receipts shall be considered each quarter reduced by VAT payments computed
for the purpose of VAT threshold. in the first two months
1st 2nd 3rd month 52. 56. Deadline of Tax Returns for Non-VAT
month month Wh Taxpayers
Business tax - - 2551Q at is
form
Amount billed - 112% xx 57. Explain Short Period return
Deadline* Less: Output VAT 12% Within 25 (xx)
days Answer: File final quarterly return and pay tax due
Gross receipts - 100% xx thereon within 25 days from the end of the month
the difference between the concept of gross when the business ceased to operate or when the
receipts and sales between VAT & NON-VAT VAT registration had been officially cancelled.
taxpayers?
NON-VAT TAXPAYERS - billed price = sales or “Note: Subsequent monthly declaration/quarterly
gross receipts returns are still required to be filed if the results of
VAT TAXPAYERS - Amount billed = sales or the winding up of affairs/business of the taxpayer
gross receipts + 12% output VAT reveal taxable transaction.”
Therefore: Gross sales receipts = Amount billed -
12% output VAT 58. Explain the Timing of VAT registration
types Timing of registration
Note:
Person commencing Simultaneously
The CWT is computed based on gross
business with
sales/receipts exclusive output VAT
expectation to
The total payment received from a customer
exceed the VAT
computed as follows:
threshold
Gross sales/receipts xx
Person exceeding Register before the end of the
Less: CWT bases of gross xx
VAT threshold month following the month
sales/receipts
threshold exceeded
Net received xx
Franchise grantees Register within 30 days from
Plus: Output VAT xx
of television broad the end of calendar year
Total cash collected xx
casting and radio,
whose annual
receipts exceeds
P10,000,000
(calendar year)
Person below VAT Not later than 10 days before
threshold but opt to beginning of the taxable
register quarter.
59. Explain what happened if a VAT taxpayer
enters VAT exempt transaction?
Answer: the VAT taxpayer may opt to apply VAT
to his transaction.
60. Explain the benefit of registration as VAT
taxpayers in export sales.
Answer: Their export sales would be zero-rated
than merely exempt.
61. To whom optional VAT registration are not
allowed?
Answer: optional VAT registration are not allowed
to self-employed and professional who opted to the
8% commuted tax under income taxation.
62. Explain the Revocability of VAT
registration.
type method Revocability
Franchise Voluntary or Perpetually
grantees of mandatory irrevocable
radio or
television
Other voluntary Irrevocable for 3
persons years period
Any person Revocable any time,
who register 3 years period not
as VAT as applicable
expectation
but failed
withing 12
months
operation
63. Explain Penalty for Registrable persons
Answer: Registrable persons are still liable to VAT
but without the benefit of input tax credit in the
periods in which they are not properly registered.