Taxation Acel

TAX BRIEFING

Atty. Elenita B. Quimosing Chief of Staff, Office of the Deputy

Commissioner- Operations Group

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Overview of Taxation• Main Principle of Taxation• Basis of Taxation Purposes of Taxes

The BIR and You! Business Tax under the Tax Code NewThreshold Amounts for VAT Compliance Requirements Others

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1st Canon of Taxation

1st: The subject of every state ought to contribute towards the support of government nearly as possible in proportion to their respective abilities, that is in proportion to the revenue which they respectively enjoy under the protection of the state.

Adam Smith (Wealth of Nations)

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BASIS OF TAXATIONfound on the reciprocal duties of

protection and support between the state and its inhabitants. The state collects taxes from the subjects so that it may be able to perform the functions of government. The citizen, on the other hand, pays taxes so that he may be secured in the enjoyment of the benefits of an organized society.

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PURPOSES OF TAXATION

What are taxes for? The prevalent idea is, taxes serve mainly to

finance the govt. Taxes can be viewed along other objectives:• Social justice attribute of taxation –

re-distribution of income or wealth • Regulatory purposes – like taxes on

sin products; non-essential items like luxury cars, jewelries, perfume.

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“TAXES ARE THE PRICE WE PAY

FOR CIVILIZATION”

. . .Justice OLIVER WENDELL HOLMES

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Tax compliance and your finances

AVOID PENALTIES, NOT “AVOID TAXES”

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For taxpayers engaged in the sale of service -means gross receipts less sales returns, allowances,

discounts and cost of services. -Cost of services refers to all direct costs and

expenses necessarily incurred to provide the services required by the customers and clients including (A) salaries and employee benefits of personnel,

consultants and specialists directly rendering the service and

(B) cost of facilities directly utilized in providing the service such as depreciation or rental of equipment used and cost of supplies

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Sec. 27 Gross Income-Defined

For tax purposes, 'long-term contracts' means building, installation or construction contracts covering a period in excess of one (1) year.

Gross income derived in whole or in part from such contracts shall be reported upon the basis of percentage of completion based on the return certificate of architects or engineers showing the percentage of completion during the taxable year of the entire work performed under contract.

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Sec.48. Long-Term Contracts

To be deducted from such gross income all expenditures made during the taxable year on account of the contract, account being taken of the material and supplies on hand at the beginning and end of the taxable period for use in connection with the work under the contract but not yet so applied. If upon completion of a contract, it is found that the taxable net

income arising thereunder has not been clearly reflected for any year or years, the Commissioner may permit or require an amended return.

Beginning January 1, 1998 income from log-term contracts are required to be reported using percentage of completion method only.

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Sec.48. Long-Term Contracts

sale or other disposition of real property, if in case the initial payments do not exceed 25% of the selling price, the income may be returned on that proportion of the installment payments actually received in that year, which the gross profit realized or to be realized when payment is completed, bears to the total contract price.

'initial payments' means the payments received in cash or property other than evidences of indebtedness of the purchaser during the taxable period in which the sale or other disposition is made.

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Sec.49. Installment Basis

Section 4.106-3 -Sale of real properties held primarily for sale to customers or held for

lease in the ordinary course of trade or business of the seller shall be subject to VAT.

Sale of residential lot with gross selling price exceeding P1,919,500.00, residential house and lot or other residential dwellings with gross selling price exceeding P3,199,200.00, where the instrument of sale (whether the instrument is nominated as a deed of absolute sale, deed of conditional sale or otherwise) is executed and notarized on or after January 1, 2012 and shall be subject to twelve percent (12%) output VAT.

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RR 3-2012 Threshold Amounts

However, for instruments of sale executed and notarized on or after Nov. 1,2005 but prior to January 1, 2012, the threshold amounts should appropriately be P1,500,000 and P2,500,000 respectively, and excess thereof shall be subject to ten percent (10%) output VAT, and starting Feb.1, 2006, to twelve percent (12%) output VAT.

Every 3 years, the amounts of thresholds shall be adjusted to its present value using the Consumer Price Index, as published by the National Statistics Office (NSO); such adjustment shall be published through revenue regulations to be issued not later than March 31 of the year of adjustment.

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(p) The following sales of real properties are exempt from VAT, namely:

Sale of residential lot valued at P1,919,500.00

and below, or house & lot and other residential dwellings valued at P3,199,200.00 and below where the instrument of sale/transfer/disposition was executed and notarized on or after January 1, 2012; However, for instruments executed and notarized on or after Nov.1, 2005 but prior to January 1, 2012, the threshold amounts should appropriately be P1,500,000 and P2,500,000 respectively.

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(p) The following sales of real properties are exempt from VAT, namely:

Sale of real properties not primarily held for

sale to customers or held for lease in the ordinary course of trade or business.

However, even if the real property is not primarily held for sale to customers or held for lease in the ordinary course of trade or business but the same is used in the trade or business of the seller, the sale thereof shall be subject to VAT being a transaction incidental to the taxpayer’s main business.

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(q) exempt from VAT - Lease of residential units with a monthly rental per unit not exceeding P12,800.00, regardless of the amount of aggregate rentals received by the lessor during the year; the foregoing notwithstanding, lease of residential units where the monthly rental per unit exceeds P12,800.00 but the aggregate of such rentals of the lessor during the year do not exceed P1,919,500.00 shall likewise be exempt from VAT, however, the same shall be subjected to 3% percentage tax.

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The term 'residential units' shall refer to apartments and houses & lots used for residential purposes, and buildings or parts or units thereof used solely as dwelling places (e.g., dormitories, rooms and bed spaces) except motels, motel rooms, hotels, hotel rooms, lodging houses, inns and pension houses.

The term 'unit' shall mean an apartment unit in

the case of apartments,house in the case of residential houses; per person in the case of dormitories, boarding houses and bed spaces; and per room in case of rooms for rent.

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In cases where a lessor has several residential units for lease, some are leased out for a monthly rental per unit of not exceeding P12,800.00 while others are leased out for more than P12,800.00 per unit, his tax liability will be as follows: 1. The gross receipts from rentals not exceeding P12,800.00 per month per unit shall be exempt from VAT regardless of the aggregate annual gross receipts. 2. The gross receipts from rentals exceeding P12,800.00 per month per unit shall be subject to VAT if the aggregate annual gross receipts from said units only (not including the gross receipts from units leased for not more than P12,800.00) exceeds P1,919,500.00. Otherwise, the gross receipts will be subject to the 3% tax imposed under Section 116 of the Tax Code.

HOW TO COMPUTE VAT

Purchase Invoice bears the input tax: Purchase Inv Amt = Purchases + Input Tax (IT) Accounting Entry: Purchases/Mdse.Inventory ___ 180,000 Input Tax ___________ 21,600 Cash/Accts. Payable__________ 201,600

Sales Invoice bears the output tax: Sales Inv Amt = Sales + Output Tax (OT) Accounting Entry: Cash 336,000

Sales_________________ 300,000 Output Tax ____________ 36,000

OUTPUT TAX – INPUT TAX = VAT PAYABLE

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HOW TO COMPUTE Percentage Tax

Formula: Gross Amount Received P xxxx

Multiply by tax rate 3 % PercentageTax Due P xxxx

2020

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RR 1-2012 SLSP

Mandatory Submission of Quarterly Summary List of Sales and Purchases (SLSP) by All VAT Registered :

•Persons Required to Submit Summary Lists of Sales (SLS): All persons liable for VAT such as manufacturers, wholesalers, service-providers, among others are required

•Persons Required to Submit Summary Lists of Purchases (SLP): All persons liable for VAT such as manufacturers, service-providers, among others are required

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RMO 5-2012 Benchmarking

Conduct of Performance Benchmarking Method

• Objective: to address tax leakages, or the schemes being applied by some taxpayers and tax practitioners in reducing tax payments to the government. • Benchmarking of taxpayers -the process of setting a standard to determine the performance level of taxpayers in a given line of industry or sector. • In this case, the ratios of Net VAT Due and Income Tax Due in relation to gross sales/receipt, vis-à-vis profit margin rate is to be used for the purpose of setting the industry standard for taxpayers’ compliance.

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Other Enforcement Activities

•Modified Tax Compliance Verification Drive (MTCVD) under Rmo 31-2003 - campaign to expand the tax base and enhance taxpayer compliance in the areas of business registration, invoicing & bookkeeping. •Letter Notices – issued based on result of data matching from RELIEF and BOC•Reconciliation of Listing for Enforcement (RELIEF) supports the third party information program of the Bureau through the cross referencing of third party information from the taxpayers' Summary Lists of Sales and Purchases prescribed to be submitted on a quarterly basis.

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RR 5-2012 Effect of Rulings

Binding effect of rulings issued prior to Tax Reform Act of 1997

•All rulings issued prior to January 1, 1998 will no longer have any binding effect. Consequently, these rulings cannot be invoked as basis for any current business transaction/s. Neither can these rulings be used as basis for securing legal tax opinions/rulings.

Tax Forms & Filing Deadlines

NOTE: TP needs to file a return even when there’s no tax due to pay.

Tax Type Form Type

Tax Base/Remarks Deadlines

1. Annual Reg’n Fee

0605 Fixed P500.00 January 31st

2. % Tax 2551M 3% on gross if 1.5M & below

20th ff taxable month

3. VAT (monthly) VAT(quarterly)

2550M

2550Q

12% gross sales if above 1.5M

Same

20th ff taxable month

25th ff end of qtr.4. W/holding Taxes

1601E See back of tax form 10th ff taxable month

5. Annual Information Return on WHT

1604-E w/ alpha list of payees March 1, the ff year.

5. Income Tax (Q) 1701Q 45 days ff end of qtr, except Q1 due on April 15

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The SAWT and MAP

Summary Alphalist of Withholding Tax at Source(SAWT) List of the contents of Certificates of Taxes W/held at Source ( Form 2307) like income received; period when income earned, amount of tax w/held. All 2307 shall be attached to SAWT. SAWT attached by recipient of income to 1701, 1701Q (individuals) and 1702, 1702Q (GPPs) Monthly Alphalist of Payees (MAP) List of the contents of all 2307 issued by you MAP attached by payor of income to remittance

returns like 1601-E, 1601-C

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BIR : Top “GO IT”

Call Center : 981-8888

Website: www.bir.gov.ph

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Taxation Acel