10 Questions
Who ultimately bears the burden of tax?
Final consumers
What happens when a taxpayer is subject to percentage tax on their gross receipts?
They are also subject to income tax on their net income
What is the status of a non-VAT registered taxpayer whose sales for the year exceeded P3,000,000?
Subject to percentage tax
What type of tax is the percentage tax?
A business tax
What is the relationship between the percentage tax and the value-added tax?
Persons and transactions subject to the percentage tax are no longer subject to VAT
What is the characteristic of other percentage taxes?
They are indirect taxes that can be passed on
What is the tax burden shifted to?
The final consumers
What happens when a taxpayer is subject to VAT?
They are exempt from percentage tax
What is the result of a non-VAT registered taxpayer exceeding the sales threshold?
They are subject to percentage tax
What is the characteristic of the percentage tax?
It is imposed on the gross receipts
Study Notes
Percentage Tax
- Non-VAT registered taxpayers are subject to percentage tax, which is a tax on sales of services and goods.
- Gross receipts from sales and payments on purchases from VAT registered suppliers are included in the calculation of percentage tax.
JJ's Convenience Store
- JJ's sales of processed food items: 280,000
- JJ's sales of non-food items: 220,000
- JJ's purchases of processed food items: 100,000
- JJ's purchases of non-food items: 80,000
- JJ's salaries of helpers: 48,000
- JJ's percentage tax due for the year: unknown
Second Quarter of 2018
- Accounts receivable, beginning: 50,000
- Sales on account: 100,000
- Accounts receivable, end: 75,000
- Purchase of supplies: 11,200
- Percentage tax due: unknown
VAT Registration
- If the taxpayer is VAT-registered, the VAT due is unknown
- VAT registration affects the percentage tax due
Tax Code
- Section 116 of the Tax Code as amended under the TRAIN Law: subject to 3% percentage tax
- Fruit dealer with gross receipts of 2,500,000 is subject to 3% percentage tax
- Individual taxpayer with gross sales of 100,000 is not subject to 3% percentage tax
- School bus operator with gross receipts of 3,000,000 is subject to 3% percentage tax
Percentage Tax Characteristics
- Paid on a monthly or quarterly basis
- Not allowed by law to be shifted to customers or clients
- Isolated transactions not in the course of business will not result in a liability for a percentage tax
Binay's Sales
- Sale of fresh fruits: 500,000
- Sale of fresh vegetables: 500,000
- Sale of dried fish: 500,000
- Sale of refined sugar: 500,000
- Sale of cooking oil: 500,000
- Only 50% of the above sales were collected
- Percentage tax for the year 2018: unknown
VAT and Percentage Tax
- The "burden of tax" is borne by the final consumers
- Tax burden is transferred or shifted to the consumers
- VAT-exempt taxpayers are not subject to other percentage taxes
- Taxpayer subject to percentage tax on gross receipts will also be subject to income tax on net income
Tax Classification
- Percentage tax is a business tax
- Not a transfer tax, ad valorem tax, or progressive tax
Calculate the percentage tax due for a non-VAT registered taxpayer who operates a convenience store. Given sales and purchases of processed food and non-food items, and salaries of helpers.
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