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Questions and Answers
What is the meaning of the term 'incidental' in the context of VAT?
What is the meaning of the term 'incidental' in the context of VAT?
What is the tax base of VAT on sale of properties?
What is the tax base of VAT on sale of properties?
Which of the following transactions is subject to VAT?
Which of the following transactions is subject to VAT?
What is the situs of VAT?
What is the situs of VAT?
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What are the requisites for the taxability of real properties under VAT?
What are the requisites for the taxability of real properties under VAT?
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Which of the following transactions is deemed a sale subject to VAT?
Which of the following transactions is deemed a sale subject to VAT?
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What is the rate of VAT on sale of properties?
What is the rate of VAT on sale of properties?
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Which of the following is exempt from VAT?
Which of the following is exempt from VAT?
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What is the VAT computation on the sale of a mansion worth Php13,000,000.00?
What is the VAT computation on the sale of a mansion worth Php13,000,000.00?
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What happens if any of the requisites for the taxability of real properties under VAT are absent?
What happens if any of the requisites for the taxability of real properties under VAT are absent?
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What is the primary purpose of taxation?
What is the primary purpose of taxation?
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What is the nature of taxation in terms of sovereignty?
What is the nature of taxation in terms of sovereignty?
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What is the characteristic of taxation that refers to its unlimited scope?
What is the characteristic of taxation that refers to its unlimited scope?
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What is the strongest power of the government?
What is the strongest power of the government?
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What is the legal basis of the Tax Code of 1997 in the Philippines?
What is the legal basis of the Tax Code of 1997 in the Philippines?
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What is the purpose of the Power of Police?
What is the purpose of the Power of Police?
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What is the primary reason why the real estate dealer registers the business as a proprietorship instead of a corporation?
What is the primary reason why the real estate dealer registers the business as a proprietorship instead of a corporation?
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What is the Tax Reform for Acceleration and Inclusion Act (TRAIN Law) also known as?
What is the Tax Reform for Acceleration and Inclusion Act (TRAIN Law) also known as?
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What are the three inherent powers of the government?
What are the three inherent powers of the government?
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What is the result of undervaluing the Total Contract Price in the contract submitted to the BIR?
What is the result of undervaluing the Total Contract Price in the contract submitted to the BIR?
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What is the characteristic of Value Added Tax (VAT) that makes it transparent?
What is the characteristic of Value Added Tax (VAT) that makes it transparent?
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What is the formula to compute the VAT?
What is the formula to compute the VAT?
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What principle is followed by the VAT in determining the taxation or exemption of goods?
What principle is followed by the VAT in determining the taxation or exemption of goods?
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What are the conditions that must be satisfied for VAT to be charged?
What are the conditions that must be satisfied for VAT to be charged?
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What is the VAT threshold?
What is the VAT threshold?
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Who are persons liable to pay VAT?
Who are persons liable to pay VAT?
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What is meant by the phrase 'in the course of his trade or business'?
What is meant by the phrase 'in the course of his trade or business'?
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What is the term for the manner by which the input tax is shifted by the seller to the buyer and credited against the buyer's output taxes?
What is the term for the manner by which the input tax is shifted by the seller to the buyer and credited against the buyer's output taxes?
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What is the main principle of a sound tax system that is based on the taxpayer's ability to pay?
What is the main principle of a sound tax system that is based on the taxpayer's ability to pay?
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Which theory states that the government has a right to compel all citizens and property within its limits to contribute?
Which theory states that the government has a right to compel all citizens and property within its limits to contribute?
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What is the type of double taxation that arises when the same property or subject matter is taxed twice for the same purpose by the same taxing authority?
What is the type of double taxation that arises when the same property or subject matter is taxed twice for the same purpose by the same taxing authority?
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What is the term for the transfer of the burden of tax by the original payer to another or someone else?
What is the term for the transfer of the burden of tax by the original payer to another or someone else?
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What is the term for the illegal means of escaping taxation through the use of pretenses and forbidden devices?
What is the term for the illegal means of escaping taxation through the use of pretenses and forbidden devices?
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What is the power of the government to take private property for public purpose with payment of just compensation?
What is the power of the government to take private property for public purpose with payment of just compensation?
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Which principle of sound tax system ensures that tax laws must be capable of being effectively enforced with the least inconvenience to the taxpayer?
Which principle of sound tax system ensures that tax laws must be capable of being effectively enforced with the least inconvenience to the taxpayer?
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What is the term for the exploitation by the taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income?
What is the term for the exploitation by the taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income?
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What is the type of taxation that arises when the same property or subject matter is taxed twice by the same taxing authority, but for different purposes?
What is the type of taxation that arises when the same property or subject matter is taxed twice by the same taxing authority, but for different purposes?
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What is the main principle of a sound tax system that ensures that the government's revenue sources are sufficient to meet its expenditures and other public needs?
What is the main principle of a sound tax system that ensures that the government's revenue sources are sufficient to meet its expenditures and other public needs?
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What is the result of Excess Percentage Tax computation?
What is the result of Excess Percentage Tax computation?
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Where can you file your BIR Form No. 2551Q?
Where can you file your BIR Form No. 2551Q?
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What is the deadline for filing Form 2551Q for the 1st quarter?
What is the deadline for filing Form 2551Q for the 1st quarter?
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How can payment for Form 2551Q be made?
How can payment for Form 2551Q be made?
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What will happen if you fail to file and pay your quarterly percentage tax return on or before the deadline?
What will happen if you fail to file and pay your quarterly percentage tax return on or before the deadline?
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What will happen if you willfully neglect to file the quarterly percentage tax within the prescribed period?
What will happen if you willfully neglect to file the quarterly percentage tax within the prescribed period?
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Can you file a separate return for your head office and for each branch?
Can you file a separate return for your head office and for each branch?
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What is the purpose of computing Excess Percentage Tax?
What is the purpose of computing Excess Percentage Tax?
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A lessor has multiple residential units for lease, with some units rented for Php15,000.00 or less per month and others for more than Php15,000.00 per month. Which of the following statements is true?
A lessor has multiple residential units for lease, with some units rented for Php15,000.00 or less per month and others for more than Php15,000.00 per month. Which of the following statements is true?
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Under the CREATE Law, what is the new percentage tax rate applicable until June 30, 2023?
Under the CREATE Law, what is the new percentage tax rate applicable until June 30, 2023?
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A consultancy business earns less than Php3,000,000.00 annually and receives a quarterly income of Php180,000.00. What is the quarterly percentage tax payable?
A consultancy business earns less than Php3,000,000.00 annually and receives a quarterly income of Php180,000.00. What is the quarterly percentage tax payable?
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If a person is exempt from VAT, what is the tax base and rate applicable?
If a person is exempt from VAT, what is the tax base and rate applicable?
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When is the quarterly percentage tax filing and payment due?
When is the quarterly percentage tax filing and payment due?
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What is the purpose of the CREATE Law?
What is the purpose of the CREATE Law?
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A lessor has multiple residential units for lease, with some units rented for Php15,000.00 or less per month and others for more than Php15,000.00 per month. Which of the following statements is true?
A lessor has multiple residential units for lease, with some units rented for Php15,000.00 or less per month and others for more than Php15,000.00 per month. Which of the following statements is true?
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How do you compute the excess percentage tax?
How do you compute the excess percentage tax?
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What is the benefit of the CREATE Law for Percentage Tax filers?
What is the benefit of the CREATE Law for Percentage Tax filers?
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What is the tax rate applicable to gross sales or receipts if the aggregate annual gross receipts do not exceed Php3,000,000.00?
What is the tax rate applicable to gross sales or receipts if the aggregate annual gross receipts do not exceed Php3,000,000.00?
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What is the basis for computing VAT in the installment basis of payment?
What is the basis for computing VAT in the installment basis of payment?
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What is the deadline for filing the monthly VAT return?
What is the deadline for filing the monthly VAT return?
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What is the VAT threshold for the sale of real properties beginning January 01, 2021?
What is the VAT threshold for the sale of real properties beginning January 01, 2021?
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What is exempt from the payment of VAT?
What is exempt from the payment of VAT?
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Who are required to pay the percentage tax?
Who are required to pay the percentage tax?
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What is the basis for the output tax on the deemed sale of properties?
What is the basis for the output tax on the deemed sale of properties?
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What is the VAT liability for the lease of residential units with a monthly rent of less than Php15,000.00?
What is the VAT liability for the lease of residential units with a monthly rent of less than Php15,000.00?
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What is the computation basis for the VAT liability of the sale of real properties?
What is the computation basis for the VAT liability of the sale of real properties?
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What is the rate of the value-added tax on the sale of services and use or lease of properties?
What is the rate of the value-added tax on the sale of services and use or lease of properties?
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What is the deadline for filing the quarterly VAT return?
What is the deadline for filing the quarterly VAT return?
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What is included in the term 'gross receipts' for the purpose of computing the value-added tax?
What is included in the term 'gross receipts' for the purpose of computing the value-added tax?
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What is the tax implication if an advance payment constitutes a prepaid rental?
What is the tax implication if an advance payment constitutes a prepaid rental?
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What is the VAT threshold for the sale of real properties beginning January 01, 2024?
What is the VAT threshold for the sale of real properties beginning January 01, 2024?
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What is the VAT liability for the sale of condominium units with a value of more than Php3,000,000.00?
What is the VAT liability for the sale of condominium units with a value of more than Php3,000,000.00?
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When is a sale considered an installment sale?
When is a sale considered an installment sale?
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What is the purpose of the security deposit in a lease of properties?
What is the purpose of the security deposit in a lease of properties?
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What is the tax implication if the advance payment is a security deposit for the faithful performance of certain obligations of the lessee?
What is the tax implication if the advance payment is a security deposit for the faithful performance of certain obligations of the lessee?
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What is the definition of 'sale or exchange of services' under Section 108 of the NIRC?
What is the definition of 'sale or exchange of services' under Section 108 of the NIRC?
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What is excluded from the definition of 'residential unit'?
What is excluded from the definition of 'residential unit'?
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What determines the initial payments in the year of sale?
What determines the initial payments in the year of sale?
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Study Notes
General Principles of Taxation
- Taxation is the power of the sovereign to raise revenue to defray the necessary expenses of the government.
- It is a way of apportioning the costs of government among those who enjoy its benefits and must bear its burdens.
- National Internal Revenue Code (NIRC) is the Tax Code of 1997 of the Philippines (Republic Act No. 8424).
- Tax Reform for Acceleration and Inclusion Act (TRAIN Law) is Republic Act No. 10963.
Nature of Taxation
- It is an inherent attribute of sovereignty.
- It is legislative in character.
Characteristics of Taxation
- Comprehensive: it covers persons, businesses, activities, professions, rights, and privileges.
- Unlimited: the power to impose taxes is unlimited in force and extent.
- Plenary: it is complete.
- Supreme: it is the strongest of all the powers of the government.
Inherent Powers of the Government
- Power of Taxation: the power to raise revenue to defray the necessary expenses of the government.
- Police Power: the power to regulate to promote public welfare.
- Power of Eminent Domain: the power to take private property for public purpose with payment of just compensation.
Principles of Sound Tax System
- Fiscal Adequacy: sources of government revenue must be sufficient to meet government expenditures and other public needs.
- Administrative Feasibility: tax laws must be capable of being effectively enforced with the least inconvenience to the taxpayer.
- Theoretical Justice: a sound tax system must be based on the taxpayer's ability to pay.
Theory and Basis of Taxation
- Lifeblood Theory: without revenue raised from taxation, the government will not survive.
- Necessity Theory: the existence of the government is a necessity; it cannot continue without a means to pay its expenses.
- Benefits-Protection Theory: the state demands and receives taxes from the subjects of taxation within its jurisdiction to secure the enjoyment of the benefits of organized society.
Double Taxation
- Direct Duplicate Taxation: taxing the same subject or object twice by the same taxing power within the same taxable period for the same purpose.
- Indirect Duplicate Taxation: the permissible kind of double taxation that arises in the absence of one or more elements of direct double taxation.
Forms of Escape from Taxation
- Shifting of Tax Burden: the transfer of the burden of tax by the original payer to another or someone else.
- Tax Avoidance: the exploitation by the taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income.
- Tax Evasion: an illegal means of escaping taxation through fraud, pretenses, and forbidden devices.
Business Taxes
- Value-Added Tax (VAT)
- Characteristics:
- It is an indirect tax.
- It is a tax on the value added of a taxpayer.
- It is a transparent form of sales tax.
- It is collected through the tax credit method.
- How to compute: Total Amount ÷ 1.12 x 12% = VAT
- Destination Principle: the destination of the goods determines taxation or exemption from tax.
- Characteristics:
VAT on Sale of Properties
- The tax base of VAT on sale of properties is 12% based on the selling price (gross) in the sales contract.
- Situs (place of taxation) of VAT: the place where the principal office of the business is located.
- Requisites for taxability (VAT) of real properties:
- The seller executes a deed of sale, including dacion en pago, barter or exchange, assignment, transfer or conveyance or merely contract to sell involving real property.
- The real property is located within the Philippines.
- The seller or transferor is engaged in the real estate business.
- The real property is held primarily for sale or for lease in the ordinary course of his trade or business.
- The sale is not exempt from VAT under any law.
VAT on Sale of Service and Use or Lease of Properties
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The tax base of VAT on sale of service and use or lease of properties is 12% based on the gross receipts derived from the sale or exchange of services, including the use or lease of properties.
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Gross receipts mean the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advanced payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person.
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The time of payment will depend on whether a sale is an installment sale or a deferred payment sale.
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Transactions exempt from the payment of VAT:
- Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business.
- Sale of real properties utilized for socialized housing.
- House and lot/other dwellings valued at less than Php2,000,000.00 (beginning January 01, 2021).
- Services rendered by individuals pursuant to an employer-employee relationship.
- Lease of residential units wherein the monthly rent is less than Php15,000.00 (beginning January 01, 2021).### VAT Exemptions
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Gross receipts from rentals not exceeding ₱15,000.00 per unit are exempt from VAT, regardless of the aggregate annual gross receipts.
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Gross receipts from rentals not exceeding ₱15,000.00 per unit are also exempt from the 3% percentage tax.
VAT Conditions
- Gross receipts from rentals exceeding ₱15,000.00 per month per unit are subject to VAT if the aggregate annual gross receipts from said units only exceeds ₱3,000,000.00.
- Otherwise, the gross receipts will be subject to 3% percentage tax.
Condominium Units
- Condominium dues and association dues are subject to specific tax rules.
Percentage Tax
- A business tax imposed on persons or entities who sell or lease goods, properties or services in the course of trade or business whose gross annual sales or receipts do not exceed ₱3,000,000.00.
- Required to be paid by:
- Persons who are not VAT-registered, who sell or lease goods, properties or services in the course of trade or business whose gross annual sales or receipts do not exceed ₱3,000,000.00 and are exempt from VAT.
- Persons who lease residential units with varying rental fees.
CREATE Law
- Comprehensive Recovery and Tax Incentives for Enterprises (CREATE) is a law that seeks to assist businesses as a response to the pandemic with retroactive provisions and lower tax rates.
- The law benefits Percentage Tax filers with a new 1% tax rate, effective until June 30, 2023.
Quarterly Percentage Tax Calculation
- Calculated by multiplying 1% to quarterly gross sales or receipts.
- Formula: Quarterly Percentage Tax Due = Gross Receipts x 1%
Excess Percentage Tax Computation
- Applies to 2020 Q3 and Q4 filings.
- Computed by checking 2551Q filings and multiplying the amounts tagged as PT010 by 1%.
- Excess Percentage Tax = 3% Amount - 1% Amount.
Filing and Payment
- BIR Form 2551Q should be filed and paid within 25 days after the end of each taxable quarter.
- Can be filed with any Authorized Agent Banks (AAB) of the Revenue District Office (RDO) or with the Revenue Collection Officer (RCO).
- Can also be paid and submitted online.
Deadlines for Filing Form 2551Q in 2021
- 1st Quarter: April 25
- 2nd Quarter: July 25
- 3rd Quarter: October 25
- 4th Quarter: January 25
Penalties for Failure of Filing
- Failure to file and pay quarterly percentage tax return on or before the deadline incurs interest of 25% plus surcharge plus compromise fee.
- Willful neglect or false and fraudulent returns incur a surcharge of 25% plus surcharge plus compromise fee.
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Description
Learn about the general principles of taxation, including its definition, nature, and laws such as the National Internal Revenue Code and Tax Reform for Acceleration and Inclusion Act. Understand how taxation works and its importance in governing a country.