Introduction to Business Taxation PDF

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INTRODUCTION TO BUSINESS TAXATION> Taxation - is the process by which the government collects money from people to use for government or public purposes.> Business taxes – are those imposed upon onerous transfers such as sale, barter, exchange and importation. Types of transfer: Gratuitous tra...

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INTRODUCTION TO BUSINESS TAXATION > Taxation - is the process by which the government collects money from people to use for government or public purposes. > Business taxes – are those imposed upon onerous transfers such as sale, barter, exchange and importation.

-What is a Business?Business – refers to a habitual engagement in a commercial activity involving the sale of goods or services for a profit. Elements of business: 1. Habitual engagement 2. Commercial activity 3. Business activities – sale of goods or services

Types of transfer: 1) Gratuitous transfer (transfer without consideration) – not subject to business tax but subject to transfer taxes (donor’s tax or estate tax). 2) Onerous transfer (transfer with consideration -monetary, goods or services) a. in the ordinary course of trade or business including incidental transactions – subject to (unless exempt under the law): business tax and income tax b. not in the course of trade or business – not subject to business tax but may be subject to income tax

Onerous transfers are the transfer of goods or services in return of something of equal value for example in sales. A transfer is said to be gratuitous when there is no consideration for the transfer.

-Nature of Business Tax1. Relative consumption tax – Business tax is a tax on the consumption of goods or services and is imposable only when the seller is a business. 2. Indirect tax – The tax is collected from the seller rather than from the buyer-consumer. 3. Privilege tax – Business tax as a tax on the privilege to do business. 4.National tax – Business tax is imposed by the national government

-In the Course of Trade or Businessmeans the regular conduct or pursuit of a commercial or an economic activity, including incidental transactions, by any person engaged in a non-stock, non-profit private organization or government entity. > Commercial activity - means the conduct of any aspect of a business, concession or service in order to provide goods or services to any person for compensation. > Economic activity - is the activity of making, providing, purchasing, or selling goods or services. Any action that involves producing, distributing, or consuming products or services is an economic activity. > Incidental transactions - means any privately negotiated transactions that are not offered to customers in the ordinary course of the entity's business. (e.g., selling a car used for delivery of goods is considered as an income of the business) -Isolated Transactionsare generally not considered in the ordinary course of trade or business by residents, hence, not subject to business tax. Exception to the rule: > Nonresidents (on services rendered in the Philippines) are considered in the ordinary course of trade or business, thus, subject to final withholding tax (involves payee and withholding agent). > Final Withholding Tax is a deduction of tax from the payee’s income which is not creditable against the income tax due of the payee on other income. -The amount of income tax withheld by the withholding agent is constituted as a full and final payment of income tax due from the payee of the said income. -The liability for payment of tax rests primarily on the payor as a withholding agent. Failure to withhold the tax or in case of under withholding, the deficiency tax shall be collected from payor/withholding agent. -The payee is not required to file an income tax return for the particular income. - Payee - a person to whom money is paid or is to be paid, especially the person to whom a

-Types of Business Taxes-

check is made payable. - Withholding agent - is any person or entity who is in control of the payment subject to withholding tax and therefore

is required to deduct and remit taxes withheld to the government. -What is Habitual Engagement?> is normally manifested by registration with the appropriate government agencies as a dealer or as a service provider in a particular trade or vocation but nonregistration is not an excuse to business taxation. > There must be regularity in transactions to construe the presence of a business. - Isolated or casual sales are not regular activities; hence, these are presumed not made in the ordinary course of business. > A casual sale transaction is not a business even if profit is derived from the transaction. - On the other hand, the regular selling of goods or services for a profit is a business despite the absence of actual profit from such activity. > Privilege Stores (“tiangge”) - are stalls or outlets not permanently fixed to the ground which 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 or otherwise shall be considered regular taxpayers subject to business taxes and income tax. > Privilege store operators – shall not be considered habitually engaged in business considering their limited activity and are exempt from business tax but is subject to income tax. > Exception to the regularity rule: The sales of services by non-resident persons are presumed made in the course of business without regard as to whether the sale is regular or isolated. > Our current tax law views the consumption tax on import of services a business tax. -What is Commercial Activity?> means engagement in the sale of goods or services for a profit.

> Not a business because of the absence of the purpose to make profit. 3. Employment > Employee benefits derived under employment is not subject to business tax but only to income tax. 4. Directorship in a corporation > Although a director may not be an employee but director’s fees, per diems, and allowances are not derived in an economic or commercial activity or rendering of services for a fee. 5. Business principally for subsistence (action or fact of maintaining or supporting oneself at a minimum level) > Refers to businesses with gross sales or receipts not exceeding P100,000 per year.

-Not Businesses - Business principally for subsistence:> Marginal income earners – refer to individuals not deriving compensation income under an employer-employee relationship but who are self- employed deriving gross sales or receipts not exceeding P100,000 in any 12-month period. - Do not include licensed professionals, consultants, artists, sales agents, brokers, including all others whose income have been subjected to withholding tax. - Exempts from business tax but are subject to income tax. - The small business could not be considered commercial being merely for personal or family livelihood or subsistence. > Examples of marginal income earners: 1. Subsistential farmers or fishermen; 2. Small sari-sari stores; 3. Small carinderias or turo-turos; 4. Drivers or operators of a single unit tricycle;

Examples of people considered engaged in business: 5. Others similarly situated 1) Consultants 2) Sales agents or insurance or real estate including brokers 3) Television or movie talents and artists 4) Cooking instructors -Business Taxpayers5) Martial arts instructors includes any individual, trust, estate, partnership, corporation, joint venture, cooperative or -Not businesses - The following are not subject to business association. tax:Rules: 1. Government agencies and instrumentalities > Provide essential public services. They 1. may Each charge person, natural or juridical, is a taxable person for reasonable fees for services renderedpurposes but are of not business taxation. intended to profit but are merely costs

reimbursements.

2. Husband and wife are separate taxpayers.

2. Non-profit or charitable organizations or associations...