Overview on the Taxability of Constructors

1. Overview on the Taxability of Constructors Presented by: Susan D. Tusoy, CPA, MPS Asst. Chief, Assessment Division Revenue Region 19, Davao City

2. It is impossible to begin to learn that which one thinks one already knows.- Epictetus

3. Things to consider in the conduct of your Business

4. On Registration • Register your business • On or before the commencement of business • Before payment of any tax due • Upon filing of a return, statement or declaration as required by the NIRC.

5. On Registration • Register your employee/s • within 10 days from date of employment

6. On Registration • Secure Taxpayer Identification Number • Multiple TIN is punishable by law.

7. Registration Procedures PRIMARY REGISTRATION SECONDARY REGISTRATION STAGE 1 STAGE 2 Application & Issuance of TIN Registration of Business/Practice of Profession/Employment Registration of books, Issuance of ATP, CAS and Loose-leaf

8. On Invoicing Requirements • Apply for Authority to Print (ATP) • After printing, register ORs/Invoices thru Printer’s Certificate of Delivery (PCD)

9. Invoicing Requirements • Issue sequentially an OR for fees received or Sales Invoice for sale of goods. • Each SI shall show the name, address of client, date of transaction, qty, selling price per unit, description of merchandise sold and total amount. • The OR/SI shall be accomplished in duplicate, the duplicate retained & preserved in place of business for 3 years from close of taxable year.

10. On Bookkeeping Requirements • Apply for registration of books of accounts, basically a Journal, Ledger, and applicable subsidiary books • The BIR records your latest volume in our registration database. All of the above to be done within 30 days from date of registration

11. ON BOOKKEEPING REQUIREMENTS • Preserved within the prescriptive period of 3 yrs • Gross receipts exceeding P150k in any given quarter must be audited by a CPA • If using Computerized Accounting System • Must be approved by the BIR before its use

12. ON BOOKKEEPING REQUIREMENTS • Transactions for the day must be entered in books on or before 12nn the following day. Balances transferred to the Ledger on day following the end of month • It’s not required to register new set of books every year; only before the pages of current book is almost used up.

13. Constructor’s Usual Tax Type • Registration Fee • Income Tax • Business Tax • VAT • Percentage Tax • Excise Tax • Withholding Taxes • On Wages • Expanded W/tax • Wtax on Gov’t. Money Payments • Final Withholding Tax • Withholding Tax on Fringe Beneftis

14. REGISTRATION FEES

15. On Registration • Pay Annual Registration Fee of P500.00 upon registration and every year thereafter on or before Jan. 31 • for every separate or distinct establishment or place of business, including facility types where sales transactions occur

16. INCOME TAX

17. Income Tax Rates • Individual (5% - 32%) • Corporation • Normal Income Tax – 30% • Minimum Corporate Income Tax – 2% • Improperly Accumulated Earnings Tax – 10%

18. Income Tax Due Dates

19. Percentage Tax

20. Percentage Tax • Rate - 3% of gross revenue • if gross revenue do not exceed P1.5M, otherwise subject to VAT • Due Date

21. Value-Added Tax

22. VAT defined • It is a tax on the value added to the purchase price or cost in the sale or lease of goods, properties, or services in the course of trade or business. • Due Date

23. In the course of trade/business Sells barters Exchanges Leases goods or properties (including deemed sales) Renders services Whether or not it the course of trade or business Imports goods provided the aggregate sales/receipts exceeds P1.5M Transactions subject to VAT

24. How VAT Operates:

25. VAT Payable Output Tax ( Sales x 12%) - P x x x Less Input Tax (Purchases x 12%) - x x x VAT payable - P x x x

26. Output Tax • Means the value-added tax due on the sale or lease of taxable good or property or services by a VAT-registered person. • VAT Rates • 12% • 0%

27. Rules on Gross Receipts refers to 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 applied as payments for services rendered and advance payments actually or constructively received during the taxable period for the services performed or to be performed for another person, excluding the VAT.

28. INPUT TAX • Is the value added tax due from or paid by a VAT-registered person in the course of his trade or business. • Any input tax evidenced by a VAT invoice or official receipt shall be creditable against the output tax.

29. Sources Input Tax • Purchase or importation of goods • For sale • For conversion into or intended to form part of a finished product for sale including packaging materials • For use as supplies in the course of business • For use as materials supplied in the sale of service • For use in trade or business for which deduction for depreciation / amortization is allowed under the Tax Code

30. Sources of Input Tax (cont…) • Purchase of real properties for which the VAT was actually paid • Purchase of services for which the VAT was actually paid • Transitional input tax • Presumptive Input tax • Standard Input Tax (gov’t. transaction)

31. Standard Input • Rate of 7% effectively accounts for the standard Input VAT for sales of goods or services to government; • In lieu of the actual input VAT directly attributable or ratably apportioned to such sale; • If the actual input tax exceeds the standard input, the excess may form part of the seller’s expense or cost; • If less than the standard, the difference must be closed to expense or cost.

32. VAT on Gov’t. Transactions Output Tax (12%) - P 12,000 Less: Standard Input (7%) - 7,000 VAT Payable - P 5,000 Less: Withholding Tax (5%) - 5,000 VAT Payable P -0-

33. Submission of SLS / SLP • Summary List of Sales • All TPs liable to VAT with quarterly total sales/receipts exceeding P2.5M shall submit SLS • Summary List of Purchases • All TPs liable to VAT with quarterly total purchases exceeding P1.0 M shall submit SLS

34. Submission of SLS / SLP • SLS/SLP shall be submitted in softcopy to the RDO having jurisdiction of the taxpayer on or before the 25th day of the month following the close of the taxable quarter • For TPs under LTS and those enrolled in eFPS shall submit thru electronic filing facility on or before the 30th day of the following month following the close of the taxable quarter.

35. Excise Tax

36. Excise Tax on Sand and Gravel • Rate - 2% based on the actual market value of the gross output thereof • Due Date - at the time of removal

37. Withholding Tax on Wages (on Minimum Wage Earners)

38. Tax Exemption of Minimum Wage Earners Compensation income of MWEs who work in the private sector and being paid the Statutory Minimum Wageapplicable to the place where he is assignedare exempted from Income Tax and consequently from Withholding Tax

39. The following compensation received by minimum wage earners shall likewise be exempt from income tax: • holiday pay • overtime pay • night shift differential pay • hazard pay

40. Take note! An employee who receives additional compensation other than SMW, holiday pay, overtime, hazard pay, and night shift differential pay such as: Commissions Honoraria Fringe benefits Taxable allowances And other taxable income shall not enjoy the privilege of being a WME.

41. Take Note! MWEs receiving other income from business or practice of profession, except income subject to Final Tax, shall be subject to Income Tax on their entire income SMW, Holiday pay, overtime pay, night shift differential pay, and hazard pay shall still be exempt from WT

42. Hazard Pay the amount paid by the employer to MWEs Actually assigned to danger or strife-torn areas Disease-infested places Distressed or isolated stations and camps which exposed them to great danger or contagion or peril to life Any hazard pay paid to MWEs which does not satisfy the above criteria is deemed subject to IT and consequently to WT.

43. Hazardous Employment The employer shall attach to BIR Form 1601C for the months of March, June, Sept., and Dec. A copy of the List submitted to the nearest DOLE Regional/Provincial Office showing the names of the MWEs who received the hazard pay; period of employment; amount of hazard pay per month; and Justification of payment of hazard pay

44. Caution Any reduction or diminution of wages for purposes of exemption from Income Tax shall constitute misrepresentation and therefore, shall result to automatic disallowance of expense on the part of the employer.

45. Expanded Withholding Taxes

46. Persons Required to Deduct & withhold • Juridical persons, whether or not engaged in trade or business; • Individuals in connection with his trade or business, however, individual buyers of real properties are also constituted as withholding agents; • All government offices.