CONSUMPTION TAXES Flashcards
What is consumption tax?
Consumption tax is a BUSINESS TAX upon the utilization of goods or services by consumers or buyers. It is a tax on the purchase or consumption of the BUYER and not on the sale of the seller.
What is the rationale behind the imposition of consumption tax?
- It promotes SAVINGS FORMATION - crucial to economic development
- It help in WEALTH REDISTRIBUTION to society - wealthier individuals consume more and so they are taxed more.
- It supports the BENEFIT RECEIVED THEORY
What are the types of consumption?
- Domestic consumption - consumption or purchases of Philippine residents
- Foreign consumption - consumption or purchases of non-residents. (CANNOT BE TAXED)
What is the situs of consumption taxes?
In observance of the territorial limitation, the “DESTINATION PRINCIPLE” is followed for consumption taxes. It states that the goods and services DESTINED FOR USE OR CONSUMPTION IN THE PHILIPPINES ARE SUBJECT TO CONSUMPTION TAX, whereas those to be used/consumed abroad are not subject to consumption tax. The following is a summary of tax rules on consumption:
Seller is non-resident
a. Buyer is resident - taxable (VAT on importation)
b. Buyer is non-resident - No tax
Seller is resident
a. Buyer is resident - taxable (VAT or OPT)
b. Buyer is non-resident - effectively no tax (EXPORT)
What is the consumption tax on importation?
Importers of goods shall pay consumption tax on their importation (VAT of 12%)
It must be noted that VAT on importation has its own rules, most of which are not the same with those in this deck.
(See other deck for VAT on importation)
Who is being taxed in consumption taxation?
It is the buyer who is actually taxed. The buyer pays the consumption tax to the seller and the same is remitted by the seller to the government
The SELLERS are the ones named to pay the tax, hence they are the STATUTORY TAXPAYERS.
The BUYERS are the ones who actually shoulder the tax burden and are called the ECONOMIC TAXPAYERS.
This indirect imposition of tax is necessitated by administrative feasibility, because IT IS EASIER TO COLLECT TAX FROM FEWER REGULATED SELLERS THAN FROM NUMEROUS BUYERS.
Who are the statutory taxpayers in consumption taxes?
The sellers.
Who are the economic taxpayers in consumption taxes?
The buyers.
Explain why consumption tax is a business tax.
Consumption tax is levied on the sales/receipts of a seller and is APPLICABLE ONLY WHEN THE SELLER IS REGULARLY ENGAGED IN BUSINESS.
Consumption tax does not apply where the seller is not in business.
For VAT on importation, the buyer pays VAT regardless whether the nonresident seller is engaged in business or not.
What is the basis of business taxes?
- Sales - total amount agreed as consideration for the sale of goods whether collected or uncollected.
- Receipts - collections from the sale of service.
What are the types of business taxes?
- Value Added Tax (VAT)
- Percentage Tax (OPT)
- Excise Tax
T or F
Consumption tax is a form of business tax.
False. Consumption tax is broader than business tax. Therefore it must be “BUSINESS TAX IS A FORM OF CONSUMPTION TAX”
T or F
Consumption taxes are always indirect in nature.
False. VAT on importation is direct, since the buyer is the one who is taxed and actually pays the same.
T or F
VAT on importation is a business tax.
False.
Explain consumption and its components and which ones are subject to tax.
Consumption can either be foreign or domestic consumption. Foreign consumption (Export) is effectively not taxed.
Domestic consumption could either be from resident or non-resident sellers.
Those goods or services coming from non-resident sellers are subject to a VAT on importation, however some imports are exempt.
The goods from resident sellers are subject to a BUSINESS TAX which could either be excise tax, percentage tax, or VAT depending on the classification. For it to be subject to business tax, the transaction must be done in the ordinary course of business.
