The Changes to the Percentage Tax & The Excise Tax on Cigars and Cigarettes

(In the Philippine Setting)

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Honor the Lord with your Wealth - BIR Tobacco Tax Stamp

The new law has introduced so many changes to our former 20 year old tax code. Now let us have and take a look on its effect to percentage taxes. Moreover, let us understand the excise tax on tobacco products and why is it legal even though it is addictive and dangerous.

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Overview

What is a Percentage Tax?

Percentage Tax is 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 P3 000000 and are not VAT-registered.

^{ahttps://businesstips.ph/how-to-compute-percentage-tax-payable-bir-philippines/}

In the Philippines, a business can fall under three business tax schemes.

1. Value Added Tax (VAT)
2. Percentage Tax
3. Exempt by law

If a business is not exempt by law to pay business taxes, then that business can either be subject to VAT or Percentage Tax. A business can be subject to percentage taxes if its gross sales/receipts does not exceed PHP 3 000 000 (1 919 500 in the Old law. This is the basic way to determine if such is subject to percentage tax. If a business does not qualify to be VAT registered entity, then it falls and be subject to percentage tax.

Most importantly, the business must not be VAT Registered because even if the income does not exceed the threshold the business will still be liable to pay VAT. Also, it must not be VAT registrable (it exceeds the threshold and it was not VAT Registered) because it will render the business to pay VAT.

There are instances specifically provided by the law that even such business exceeds the 3 Million threshold that business still cannot be subjected to VAT. And there are also provisions in the law that specifically subject a business income to Other Percentage Taxes.

What are the Major Changes to Percentage Tax?

1. The Vat threshold of Php 1 919 500 has been increased to Php 3 000 000 to be subjected to VAT. Therefore, if a business does not exceed such threshold it is subject to percentage tax (3%) unless the law express otherwise.¹

2. Tax on Sale, Barter, Exchange of Shares Listed and Traded through the local stock exchange or through Initial Public Offering. ²
   

   From 1/2 of 1% to 6/10 of 1%.

   
   The change on the stock transaction tax has an effective increase 20%.

3. Returns and Payment of Percentage Taxes shall be within twenty-five (25) days after the end of each taxable quarter. It is the result of the deletion of the power of the commissioner to prescribe rules in the interval of filing of percentage tax.³

^{1RA 10963 Sec 34 amending RA 8424 Sec 109
2RA 10963 Sec 39 amending RA 8424 Sec 127
3RA 10963 Sec 40 amending RA 8424 Sec 128}

Ever wonder why the government does not ban tobacco products even though its dangerous to health?

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Overview

An excise tax is a tax generally imposed on harmful or non-essential goods like cigarettes, alcoholic beverages and the likes, that are manufactured or produced in the Philippines for consumption or any disposition including imported goods. It is an indirect tax imposed on the producer but passed on to the consumer.

Here's why!

In every pack of cigarettes that a smoker purchases it gives the government a revenue of 30 Pesos only in excise tax. Every year the excise tax on tobacco will increase until in 2024 it will be up to the BIR through Revenue Regulation on how much excise tax will further increase.

Let us further dig deeper.

In a 30Pesos Excise tax the government has an effective revenue/ can collect up to 33.6 Pesos of taxes. Here's why.

VAT is imposed after all other taxes has been imposed. Meaning VAT is the last business tax imposed because it is imposed during the sale of a good. While excise tax is imposed after manufacture or production. It is then released to be sold to the consumer after excise tax has been imposes. So, from the producer the 30Php excise tax has been imposed. Upon its final disposition to the final consumer, VAT will then be imposed.

30 Pesos * 12%VAT = 3.6 Pesos VAT

30 Pesos * 1.12% = 33.6 Pesos Excise Tax + VAT

The government is earning 33.6 Peso per pack of cigarettes. It is one of the largest contributor of income to the national coffers. So, to every smokers out there you are paying large amount of taxes to the government. A smoker that consume a pack a day pays 1008Pesos a month to the government. It is equivalent to an income tax paid by an employee, earning 617 000 a year, to the BIR.

Taxes from tobacco products are the major source of funds of the government in providing services to its citizens. It is where the budget for health services are taken from.

Source: RA 10963

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