Impact, incidence of (value-added) tax

The impact of taxation is on the statutory taxpayer, the one from whom the government collects. The impact of VAT is on the seller or importer upon whom the tax has been imposed. (See Section 105 of the NIRC)

The incidence of tax is on the one who bears the burden of taxation. The incidence of VAT is on the final consumer.

The Supreme Court  has clarified the difference between the concepts of impact of tax (liability) and incidence of tax (burden). The seller remains directly and legally liable for payment of the VAT but the burden is borne by the consumer or final purchaser.In indirect taxation, there is a need to distinguish between the liability (impact) for the tax and the burden (incidence) of the tax.  The amount of tax paid may be shifted or passed on by the seller to the buyer. What is transferred in such instances is not the liability for the tax, but the tax burden.  In adding or including the VAT due to the selling price, the seller remains the person primarily and legally liable for the payment of the tax.  What is shifted only to the intermediate buyer and ultimately to the final purchaser is the burden of the tax.

Stated differently, a seller who is directly and legally liable for payment of an indirect tax, such as the VAT on goods or services is not necessarily the person who ultimately bears the burden of the same tax.  It is the final purchaser or consumer of such goods or services who, although not directly and legally liable for the payment thereof, ultimately bears the burden of the tax. (G.R. No. 151135. July 02, 2004)