Nature

Scope
Supporting tax theory

Income tax
Tax upon receipt of income
A tax to the capable
Ability to pay theory

Consumption tax
Tax upon usage of income or capital
A tax to all
Benefit received theory

The seller is
Non-resident
Resident

Domestic consumption
Taxable
Taxable

Foreign consumption
No tax
Effectively no tax
Buyer

Sellers of goods
Domestic business
- VAT registered business
- Non-VAT-registered business
Foreigners

Resident

Non-resident

12% VAT on gross sales

3% Percentage tax on gross sales
12% VAT on landed cost of importation

0% VAT on gross selling price

Exempt
Exempt

Buyer

Sellers of services
Domestic business
- VAT registered business
- Non-VAT-registered business
Foreigners

Tax rate
Basis
Timing of imposition
Generally paid by
Export sales

Resident

Non-resident

12% VAT on gross receipts

3% Percentage tax on gross receipts
12% final withholding VAT

0% VAT on gross receipts

Exempt
Exempt

VAT
12%
Mark-up or value added
Upon sales or collection
Bigger businesses
Subject to 0% VAT

% Tax
Generally 3%
Sales or receipts
Upon sales or collection
Smaller businesses
Exempt

Excise Tax
Various ad valorem tax rates and specific taxes
Sales value or per unit of excisable goods
Upon production or importation
Both big or small businesses
Exempt (tax is reimbursable)

Consumption Tax a tax upon the utilization of goods or services; tax on the purchase or consumption of the buyer and
not on the sale of the seller.
Rationale of Consumption Tax
1. It promotes savings formation.
2. It helps in wealth redistribution to society.
3. It supports the Benefit Received Theory.
Types of Consumption
1. Domestic consumption consumption or purchase of Philippine residents.
2. Foreign consumption consumption or purchase of non-residents.

Destination principle goods and services destined for the use in the Philippines are subject to consumption tax.
Cross-border doctrine goods that cross the border which are destined towards foreign territories are charge with
consumption tax.

Types of taxable domestic consumption

1. Importation purchase of residents of goods or services from non-residents abroad.
2. Sale - purchase of residents of goods, properties or services from resident sellers.
CONSUMPTION TAX ON IMPORTATION
VAT on importation every importer of goods shall pay consumption tax on his importation. 12% of the total import cost
of the goods prior to the withdrawal of the goods from the warehouse of the Bureau of Customs.
Withholding VAT every purchaser of service from non-residents shall likewise pay VAT on importation of the service.
This Withholding VaT is computed as 12% of the contract price of the service.
CONSUMPTION TAX ON DOMESTIC CONSUMPTION FROM RESIDENT SELLERS
The consumption tax on the purchases of Philippine residents from resident sellers is collected from the seller. Our tax law
imposed the consumption tax upon the sales of seller of goods or receipts of sellers of services.