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Business tax is a consumption tax payable by persons engaged in business. A business is habitual
engagement in a commercial activity involving the sale of goods or services to customers or clients.


1. Habitual engagement
There must be regularity in transactions to construe the presence of business. Isolated or casual
sales are not regular activities; hence, these are presumed not made in the ordinary course of
business. It is normally manifested by registration as a dealer, a service provider, or a
practitioner in a particular trade or profession.

Application of the regularity rule

The following are not considered business for lack of regularity in their operations:
a. Sale by non-dealers
Non-dealers are those who make casual sale of goods or properties. People who sell
properties which they are not regularly engaged in are also considered as non-dealers.

Illustration 1
Mrs. Ellerton, a medical practitioner, sold his principal residence for P10M.


Illustration 2
Mang Kanor is a real property dealer. During periods of excess cash liquidity, he usually
purchases shares of stocks of other corporations as investment. He sells them when cash
needs arise.


b. Privilege stores
These stores are most commonly known as “tiangges”. Privilege stores are stalls or outlets
not permanently fixed to the ground and are put up during special events such as festivals
or fiestas. To be considered a privilege store, the store should engage in a business activity
for a cumulative period of not more than 15 days. Otherwise, they shall be considered
regular taxpayers subject to business tax and income tax.

Illustration 1
Mang Andres makes key chains and wood art for sale to tourists during the annual
Panagbenga Festival. He rented a booth from the City of Baguio, the tiangge organizer, and
recorded sales of P150,000 over the weeklong festivities.


Illustration 2
Goldi’s Bakeshop, an established business enterprise, also rented a booth in Baguio to sell
its cakes and pastries in the Panagbenga. Goldi generated P400,000 sales during the event.


2. Commercial Activity
It means engagement in the sale of goods or services for a profit. The goods or services must be
offered to the public with a motive to earn unrestricted amount of pecuniary gains. However,
the actual existence of a profit during the period is not a pre-condition to business taxation.
Even if the business operation results to a loss, business tax still applies.
The following are not businesses under this rule:
1. Government agencies and instrumentalities
2. Non-profit organizations or associations
3. Employment
4. Directorship in a corporation

Illustration 1
The PRC collected P12M from professional license fees during the month. It also earned
additional P1M from rental income on its vacant premises.


Illustration 2
Union of Husbands Afraid of Wife (UHAW) is a non-profit social welfare institution for the
assistance of battered husbands. UHAW received P2M contributions from the public and
generated P400,000 from the sales of a shop in its fund-raising drive.


Illustration 3
Mr. X, a certified public accountant, practices his profession in the industry as the Chief
Financial Officer of UHAW. During the month, he received P50,000 compensation plus
P10,000 fringe benefits.


Illustration 4
Mr. Agua is an independent director of Aga Corporation receiving director’s fees, per diems,
and allowances.


Illustration 5
John, a certified public accountant, renders his services to the public for a fee. Is he subject
to business tax?


Illustration 6
Ms. Sarah Babe is an insurance agent. She is paid insurance commission by insurance
companies for every policy she is able to sell.


Other persons considered engaged in business

1. Consultants
2. Sales agents or brokers
3. Television or movie talents and artists
4. Cooking instructors
5. Martial art instructors


1. Sellers of goods or properties-taxable on gross selling price
2. Sellers of service or lessors of properties-taxable on gross receipts
Gross selling price refers to the total amount of money or its equivalent which the purchase
pays or is obligated to pay to the seller in consideration of the sale, barter or exchange of
goods or properties. The excise tax, if any, on such goods or properties shall form part of the
gross selling price.

The term “gross selling price” includes sales made in cash, on credit and on installment
basis. This is analogous to the income taxation concept of “gross sales” except only on the
treatments of contingent discounts.

Allowable deductions from gross selling price:

1. Discounts determined and granted at the time of sale, which are expressly indicated in
the invoice, the amount thereof forming part of the gross sales and are duly recorded in
the books of accounts. To be deductible, discounts must not be dependent upon the
happening of a future event.
2. Sales returns and allowances for which a proper credit or refund was made during the
month or quarter to the buyer on taxable sales.

Illustration 1
A business taxpayer had the following transactions during the quarter:
Cash sales P 400,000
Sales on credit 600,000
Installment sales (P30,000 collected) 100,000
Sales returns and allowances 20,000
Quota discounts 10,000
Purchase of goods, including P72,000 VAT
passed on by sellers 672,000


Illustration 2
HTC Corporation sold various specialized equipment to a buyer with the following terms:
List price P 2,000,000
Freight 50,000
Installation fee 20,000
Trade discounts 10%
Cash discounts, 2%/30 net 60 days 36,000


Gross receipt refers to the total amount of money or its equivalent representing the
contract price, compensation, service fee, rental or royalty, including the amount charged
for materials supplied with the services and deposits applied as payments for services,
rendered and advanced payments actually or constructively received during the taxable
period for the services performed or to be performed for another person, excluding VAT.

Constructive receipt
It occurs when the money consideration or its equivalent is placed at the control of the
person who renders the services without restriction by the payor. This is added as part of
gross receipts.

1. Deposit in a bank account of the seller made by the buyer in consideration of services
rendered or goods sold
2. Issuance by the debtor of a notice to offset any debt or obligation and acceptance
thereof of the seller as payment for services rendered
3. Transfer of the amounts retained by the payor to the account of the contractor
Agency monies
Amounts earmarked for payment to an unrelated third party or received as reimbursement
for advanced payment on behalf of another which do not redound to the benefit of the
payor are not part of the gross receipt

Insurance proceeds on damaged assets

The receipt of insurance proceeds from the destruction of a company’s business asset is not
viewed as sales or receipts for purposes of business taxation. The compulsory or involuntary
conversion of property into money such as in the case of insurance reimbursement is not
viewed as a sale in the ordinary course of business.

Illustration 1
PC Repair Company received the following amounts during a month:
Cash collection from clients P 400,000
Reimbursement for out-of-pocket costs incurred in servicing clients 50,000
Reimbursement for client expenses paid by PC Repair 80,000
Proceeds of fire insurance 400,000
Receipt of bank loan 500,000
Receipt of agency money to be remitted to a sister company 100,000