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Destination principle: only goods and services destined for consumption in the
Philippines are subject to tax while those destined for consumption abroad are not
subject to consumption tax
Cross-border doctrine: goods that cross the border destined for foreign countries
are not charged consumption taxes
: the government do not impose taxes on export
: the NIRC either exempt or subject them to 0% tax rate
Types of Domestic Consumption as to source:
1. Domestic Sales: purchases from resident sellers
: resident buyers from resident sellers commonly known as purchase subject to
consumption tax called business tax (well-known as indirect tax)
: because the consumption tax is indirectly imposed upon sellers which are
businesses
2. Importation: purchases from abroad by non-residents
VAT on Importation Business Tax
Scope of tax Imports from business or non-business Purchases from
businesses only
Type of consumption tax Pure form Relative form
Statutory taxpayer Buyer Seller
The economic taxpayer Buyer Buyer
Nature of imposition Direct Indirect
Basis of tax Total purchase cost Sales or receipt
: domestic consumption of goods or services from some non-resident sellers commonly
known as importation subject to consumption tax called VAT on importation
: VAT is directly levied upon the buyer-importer
Business tax: imposed only if the seller is a business and is based upon the sales
of goods or receipts from rendering of services of the seller
VAT on importation: imposed upon the total cost of importation regardless of
whether or not the non-resident seller is a business
Foreign:
Outgoing (Export): exempt to business tax
Ingoing (Import): subject to business tax but it is 0%
Domestic: subject to 12%
Types of consumption tax:
1. Percentage tax: tax of various rates from 0.60% to 30%
2. Value added tax: a consumption tax of 12%
3. Excise tax: an ad valorem or specific tax, which is imposed in addition to
VAT or percentage tax, only on certain goods or services
Human necessity: certain basic necessities
Natural agricultural or marine food from products
Agricultural inputs
Books, newspapers and magazines
Residential properties
: essential services;
Residential rentals
Educational services of schools
Medical services of hospitals
Tax incentives: certain importations like importation of vessels or aircraft in an
effort of the government to assist or improve domestic air or sea transport or
assist tourism in the Philippines
Basis of exemption VAT on importation Business tax
Human necessity The goods imported is a human necessity The goods, services or
property sold is a human necessity
Out of scope of tax The importation does not constitute a domestic consumption
The seller is not engaged in business
Tax incentive The importation is exempted as a tax incentive to a certain
importers The sales or receipt is exempted as a tax incentive to certain sellers
International comity The importation is exempted by treaty The sales or
receipt is exempted by treaty
Basis of exemption from consumption tax
VAT on importation
Import of goods Import of services
Exempt Exempt Exempt
% tax - Percentage tax
VAT VAT on importation Final withholding tax
Business tax
Sale of goods Sale of services
Exempt Exempt receipt Exempt sales
% tax - Receipts specifically subject to a % tax
VAT Vatable sales Vatable receipts
Vatable sales or receipts: subject to 12% VAT if the taxpayer is a VAT taxpayer and
to a 3% general percentage tax if the taxpayer is a non-VAT taxpayer
VAT on importation: landed costs or total purchase costs of importation without any
deduction or tax credit
VAT on sales in business tax: the amount of markup imposed by sellers on their
purchase costs
: VAT of 12% and is reduced by VAT paid by the business in its purchases
Tax due is computed as:
Output VAT (12% of sales or receipts)
Less: Input VAT (12% VAT paid on purchases)
Vat due