Taxation Lesson 101
Is barter covered by income taxation?
Will there be an income tax due and payable?
It depends. Let me prove my point through this illustration: A has a book worth Php150 and B has a toy worth Php100. They entered into a barter transaction. There are two values to consider: VALUE RECEIVED (Amount realized) and VALUE PARTED WITH (adjusted basis).
On the part of A, the value received is Php 100 and the value parted with is Php150. Thus, A incurred a loss of Php50. Consequently, there will be no income tax liability.
On the part of B, the value received is Php150 and the value parted with is Php100. Thus, B earned a gain of Php50. This gain, however, will not result to any tax payable because the TRAIN Law exempts net income in the amount of Php250,000 or less from income tax.
Business tax imposition and registration are other issues.
Now, let us discuss these more interesting topics through these questions: (1) Are individuals who entered into a barter agreement required to register with the DTI and pay business taxes (Other Percentage Tax or Value-added Tax) to the BIR? (2) Are they required to secure business permits from the local government unit?
If these individuals are not habitually engaged in barter or sale transactions, then it is undeniable that they are not required to secure business permits and to register with the DTI and the BIR. Resultantly, they are not required to pay business taxes (OPT or VAT) to the BIR and local business taxes to the local government unit. After all, the word "business" is defined under the law as "trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit."
This opinion is based on the general facts presented above. If your case is different from the facts presented in this opinion, I suggest you consult a lawyer.