TAX BRIEFING

Atty. Elenita B. Quimosing

Chief of Staff, Office of the Deputy
Commissioner- Operations Group

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)

BASIS OF TAXATION
found
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.

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.

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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Sec. 27 Gross Income-Defined

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

equipment used and cost of supplies

rental

of

Sec.48. Long-Term Contracts

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.

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.49. Installment Basis

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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RR 3-2012 Threshold Amounts

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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RR 3-2012 Threshold Amounts

(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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RR 3-2012 Threshold Amounts

(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 taxpayers main
business.
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RR 3-2012 Threshold Amounts

(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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RR 3-2012 Threshold Amounts

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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RR 3-2012 Threshold Amounts

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.
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HOW TO COMPUTE VAT

OUTPUT TAX INPUT TAX = VAT PAYABLE
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_________________
Output Tax ____________

300,000
36,000
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HOW TO COMPUTE
Percentage Tax
Formula:
Gross Amount Received
Multiply by tax rate
PercentageTax Due

P xxxx
3 %
P xxxx

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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--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.

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Tax Forms & Filing

Deadlines
NOTE: TP needs to file a return even when
theres no tax due to pay.
Tax Type
1. Annual Regn Fee

Form
Type

0605

Tax Base/Remarks
Fixed P500.00

Deadlines
January 31st

2. % Tax

2551M 3% on gross if 1.5M &

20th ff taxable month

3. VAT (monthly)

2550M 12% gross sales if above

1.5M
2550Q
Same

20th ff taxable month

1601E

10th ff taxable month

VAT(quarterly)

4. W/holding Taxes

below

See back of tax form

5. Annual Information 1604-E w/ alpha list of payees

25th ff end of qtr.

March 1, the ff year.

Return on WHT

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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