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06 chapter 7 business taxes

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06 chapter 7 business taxes

  1. 1. Taxation 2 │ BUSINESS TAXES FLABERT VILLASENCIO, CPA Notre Dame of Dadiangas University
  2. 2. Transaction Subject to Business Tax 1. It is a commercial activity- involves sales of goods and services related to trade, profession or business (not an exempt transaction) Example: a) Sale of goods b) Sale of ordinary asset used in business 2. Services rendered by a Nonresident foreign person (regardless of regularity) Example: Pha Hiram, an Indian national, leased his vessel to a Filipino citizen. He is not regularly engaged in a leasing business. He is deemed to engage in a leasing business even if it is not regularly engaged in leasing in the Philippines.
  3. 3. Non-business Transaction The following are Non-business Transactions that are subject to Business Tax: 1.Sale of shares of stock through the stock exchange subject to ½ of 1% Other Percentage Tax 2.Oversees dispatch, communication originating from the Philippines subject to 10% OPT 3.Horse racing winning subject to 10% OPT; Jai-Alai subject to 30% OPT
  4. 4. Casual Sale An occasional sale of goods or services by a person who is not engaged in the business or sale of assets that are not used in business Example: 1. Sale of personal properties not used in the business.
  5. 5. Summary Application
  6. 6. Business Taxes Taxes imposed on ONEROUS transfers in the ordinary course of business: 1.Value-Added Tax (VAT) – a general consumption tax with a 12% additional tax on the sales price of the goods or services by VAT-registered seller or by those required to be under the VAT-system. 2.Other Percentage Tax (OPT) – general consumption tax to Non-VAT- registered • With several rates but the common is 3% 1.Excise Tax (ET) – taxes imposed on products that are harmful to health, non-essential and those that deplete natural resources
  7. 7. Business Registration For regulation purposes, a business must be registered before it starts its economic activities so as not to render it business illegal. 1.Initial Registration – filed with the RDO to where the principal place of business 2.Annual Registration – every before the start of the business, it has to be registered. Annually, the registration has to be renewed. • Annual fee of P500 for every separate distinct establishment or place of business.
  8. 8. Business Registration Exempt from Registration Fee: 1.Individuals earning purely compensation income 2.Overseas workers 3.Self-employed individuals where the gross sales or receipts do not exceed P100,000 per year 4.Cooperatives (but still have to register with BIR)
  9. 9. Summary Application Seller (Business Registration) VAT-Registered >P1,919,500/ year Non-VAT-Registered <P1,919,500/ year VAT-Registered VAT Sales Invoice for sale of goods VAT Receipts For sale of services Non-VAT Registered Issues Sales Invoice for sales of goods Issues Receipts for Sale of Services
  10. 10. VAT or Non-VAT Registration ▪ VAT-Registered- subject to 12% business tax ▪ Non-VAT- Registered- generally subject to 3% Other Percentage Tax 1. Mandatory VAT-Registration- VAT-Registration becomes compulsory when: a. Expected annual gross sales or receipts exceed P1,919,500 b. A taxpayer has realized gross sales or receipts of more than P1,919,500 2.Optional VAT-Registration – persons with taxable business transactions that do not exceed P1,919,500 per year has the option to register under VAT system. 3.Non-VAT Registration – a person registers to a Non-VAT system who is subject to Other Percentage Tax – Still subject to 12% – Cannot shift the burden to customers – Cannot claim creditable input VAT on its purchases
  11. 11. VAT vs Non-VAT Business VAT-Registered Allowed to collect Output VAT from customers Allowed to claim creditable Input VAT on purchases from VAT-registered suppliers Non-VAT Registered No Output VAT is allowed. The business tax is charged as Operating Expense No Input VAT is allowed. The Input VAT is charged as part of Cost of Purchases
  12. 12. VAT vs Non-VAT Business 1. Purchased goods from non-VAT supplier amounting to P5,000 Purchases 5,000 Purchases 5,000 • Cash 5,000 Cash 5,000 2. Purchased goods from a VAT-registered supplier amounting to P10,000 plus P1,200 VAT Purchases 10,000 Purchases 11,200 Input VAT 1,200 • Cash 11,200 • Cash 11,200 3. Sold 12,000 worth of goods for 30,000 Cash 33,600 • Sales 30,000 • Output VAT 3,600 Cash 30,000 Sales 30,000 4. Paid the Business tax for the month Output Vat 3,600 Input Vat 1,200 VAT Payable 2,400 OPT Expense 900 OPT Payable 900 VAT Payable 2,400 Cash 2,400 OPT Payable 900 Cash 900
  13. 13. Cancellation of VAT Registration ▪ VAT-Registration is irrevocable for a period of 3 years from the quarter the registration was made ▪ Liability to pay VAT is valid until revoked by the BIR Non-VAT Person Collecting VAT ▪ Other Percentage Taxes applicable to the transaction ▪ VAT due on the transaction without the benefit of any Input Tax Credit ▪ 50% surcharge
  14. 14. Non-VAT Person Collecting VAT Illustration: Manda Raya, a non-VAT person, collected P112,000 from Tangaka Sy for the sale of goods amounting to 100,000 plus 12,000 VAT. She was about to pay the 3% percentage tax but the BIR found out her violation. Raya’s tax liability would be: Other percentage tax (100,000 x 3%) 3,000 Add: VAT Collected 12,000 Surcharge (50%) 6,000 18,000 Total Tax Liability 21,000
  15. 15. Invoices and Receipts ▪ General Requirements oApply for Authority to Print with the BIR oInvoices and Receipts shall be registered with BIR oCash register machines and sales book are to be registered with BIR oInvoices are to be issued for sale of goods while receipt is to be issued for the amount of cash received oContents of the cash register receipts oBusiness name oBusiness address oVAT or Non-VAT number oAmount and Date of the transaction oAmount of Tax (for VAT invoice)
  16. 16. Invoicing and Accounting for VAT-Registered Persons A. A VAT-registered person shall issue: 1. A VAT invoice for sale of goods or properties 2. VAT Official Receipt for sale of services or lease of goods or properties B. The following information shall appear in the VAT invoice or VAT Official receipt 1. A statement that the seller is a VAT-registered person followed by the TIN. 2. The amount of tax shown as a separate item. 3. The word “VAT-exempt Sale” is written or printed prominently if sale is VAT-exempt. 4. The word “Zero-Rated Sale” is written or printed prominently if sale in subject to zero percent. 5. An option to issue combined or separate invoices receipts of sale on a combination of VAT-liable and VAT-exempt sale 6. Date of transaction, quantity, unit cost, and description of the goods or properties or the nature of the service. 7. For sale of VAT-registered persons amounting to P1,000 or more indicate the name, business style, address and TIN of the purchaser.
  17. 17. S E A T W O R K : ( 1 / 2 C W ) #DO IT BY PAIR #SHOW YOUR SOLUTIONS #WRITE THE LETTER AND THE ANSWER OF YOUR CHOICE

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