VAT PHILIPPINES: THE CONCEPT OF VAT

VAT has two components:

1. Output VAT, and
2. Input VAT

Here in the Philippines, we are required to include VAT to our sales and pass it on to the customer,
generally. We are, therefore, required to remit this VAT (equivalent to 12%) to the Bureau of
Internal Revenue (BIR). That is your Output VAT. However, during the course of business, we
also incur some expenses. That means VAT was passed on to us already. That is your Input VAT.
So to make things even simpler, Output VAT comes from your revenues, while Input VAT comes
from your expenses.

If you will take a look at any receipt, say, from your nearest coffee shop. You will see a breakdown at the
bottom. It would look something like this photo below.
Notice how the VAT (12%) is separated from the Vatable Amount? In this case, the coffee shop
earned Php 151.79 and the Php 18.21 goes directly to the BIR as payment for taxes.

The Computation of VAT

Remember, I mentioned that you are required to pay for 12% and that you also already paid for some
VAT? That is where the computation and confusion comes in. Tax payable is equivalent to Output VAT
minus Input VAT. I included sample spreadsheet computation here to provide more details. Of course this
does not represent the business world because there are other things to consider (like valid expenses,
withholding taxes, etc.).

One caveat I want to make here now is that not all businesses can use Input VAT (but can claim them)
and not all businesses have Output VAT. This will be tackled separately in part 3 of this series. In the
meantime, our recommendation is to look at your BIR Certificate of Registration (form 2303) to see if you
have VAT listed there. If there is, then this article is for you.

How to compute Value Added Tax (VAT)

payable (Philippines)
Posted: May 21, 2012 in Tutorials_BIR

99
Any person or entity who is engaged in trade, business or in the practice of profession may be liable to business taxes. Business

taxes can be either a Percentage tax or a Value Added Tax. Furthermore, a taxpayer can be a VAT registered or a Non-VAT

registered taxpayer. In this article, we will tackle how to compute VAT Payable and file the monthly and quarterly VAT returns.

What is a Value Added Tax?

Value-Added Tax is a business tax in the form of sales tax. It is a tax on consumption levied on the sale, barter, exchange or lease

of goods or properties and services in the Philippines and on importation of goods into the Philippines. It is an indirect tax, which

may be shifted or passed on to the buyer, transferee or lessee of goods, properties or services.

Who Are Required To File VAT Returns

The following persons or entities are required to file VAT returns:

1. Any person or entity who, in the course of his trade or business, sells, barters, exchanges, leases goods or properties and

renders services subject to VAT, if the aggregate amount of actual gross sales or receipts exceed One Million Five Hundred

Thousand Pesos (P1,500,000.00).

2. A person required to register as VAT taxpayer but failed to register

3. Any person, whether or not made in the course of his trade or business, who imports goods

Who may opt to register as VAT and what will be his liability?

1. Any person who is VAT-exempt under Sec. 4.109-1 (B) (1) (V) not required to register for VAT may, in relation to Sec.

4.109-2, elect to be VAT-registered by registering with the RDO that has jurisdiction over the head office of that person, and pay

the annual registration fee of P500.00 for every separate and distinct establishment.

2. Any person who is VAT-registered but enters into transactions which are exempt from VAT (mixed transactions) may opt that

the VAT apply to his transactions which would have been exempt under Section 109(1) of the Tax Code, as amended [Sec.

109(2)].

3. Franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding year do not exceed ten

million pesos (P10,000,000.00) derived from the business covered by the law granting the franchise may opt for VAT

registration. This option, once exercised, shall be irrevocable. (Sec. 119, Tax Code).

4. Any person who elects to register under optional registration shall not be allowed to cancel his registration for the next three

(3) years.

The above-stated taxpayers may apply for VAT registration not later than ten (10) days before the beginning of the calendar

quarter and shall pay the registration fee unless they have already paid at the beginning of the year. In any case, the

Commissioner of Internal Revenue may, for administrative reason deny any application for registration. Once registered as a

VAT person, the taxpayer shall be liable to output tax and be entitled to input tax credit beginning on the first day of the month

following registration.

What are the BIR forms used in filing VAT Returns?

VAT returns are filed monthly using the Monthly Value Added Tax Declaration Return BIR Form 2550M and quarterly using the

Quarterly Value Added Tax Declaration Return BIR Form 2550Q. To download forms, please click here to go to the BIR forms

download page.

How to compute Value Added Tax Payable

Value Added Tax Payable is normally computed as follows:

1. Computing Net VAT Payable on VAT exclusive Sales/Receipts

Total Output Tax Due or Total Vatable Sales/Receipts x 12%

Less: Total Allowable Input Tax or Total Vatable Purchases x 12%

Equals: VAT Payable

Sample Computation of VAT Payable:

Lets assume that,

Total Vatable Sales (VAT exclusive) = P100,000

Total purchases with VAT receipts (VAT exclusive) = P70,000

P100,000 x 12% or P12,000

-P 70,000 x 12% or P8,400

VAT Payable = P3,600

2. Computing Net VAT Payable on VAT inclusive Sales/Receipts

Total Output Tax Due or Total Vatable Sales / 1.12 x 12%

Less: Total Allowable Input Tax or Total Vatable Purchases / 1.12 x 12%

Equals: VAT Payable

Sample Computation of VAT Payable:

Example based on the above assumption:

Total Vatable Sales (VAT inclusive) = P112,000

Total purchases with VAT receipts (VAT inclusive) = P78,400

P112,000 /1.12 x 12% or P12,000

P78,400 /1.12 x 12% or P8,400

VAT Payable = P3,600

Or an alternative computation:

P112,000 /9.333 or P12,000

P78,400 /9.333 or P8,400

VAT Payable = P3,600

Output tax means the VAT due on the sale, lease or exchange of taxable goods or properties or services by any person registered

or required to register under Section 236 of the Tax Code.

Input tax means the VAT due on or paid by a VAT-registered on importation of goods or local purchase of goods, properties or

services, including lease or use of property in the course of his trade or business. It shall also include the transitional input tax

determined in accordance with Section 111 of the Tax Code, presumptive input tax and deferred input tax from previous period.

Total Vatable Purchases are your total purchases from VAT registered suppliers. This should be supported with VAT receipts.
Note:

VAT exempt sales, zero rated sales, purchases not qualified for input tax, and other input taxes (if any) should also be shown in

the VAT returns. See BIR Forms.

How, when and where to File VAT Returns?

Documentary Requirements

1. Duly issued Certificate of Creditable VAT Withheld at Source (BIR Form No. 2307), if applicable

2. Summary Alphalist of Withholding Agents of Income Payments Subjected to Withholding Tax At Source (SAWT), if

applicable

3. Duly approved Tax Debit Memo, if applicable

4. Duly approved Tax Credit Certificate, if applicable

5. Authorization letter, if return is filed by authorized representative.

Procedures

1. Fill-up BIR Form No. 2550M (for monthly VAT declaration) or 2550Q (for quarterly VAT declaration) in triplicate copies

(two copies for the BIR and one copy for the taxpayer)

2. If there is payment: File the Monthly VAT declaration, together with the required attachments, and pay the VAT due thereon

with any Authorized Agent Bank (AAB) under the jurisdiction of the Revenue District Office (RDO)/Large Taxpayers District

Office (LTDO) where the taxpayer (head office of the business establishment) is registered or required to be registered.

The taxpayer must accomplish and submit BIR-prescribed deposit slip, which the bank teller shall machine validate as evidence

that payment was received by the AAB. The AAB receiving the tax return shall stamp mark the word Received on the return

and machine validate the return as proof of filing the return and payment of the tax.

In places where there are no duly accredited agent banks, file the Monthly VAT declaration, together with the required

attachments and pay the VAT due with the Revenue Collection Officer (RCO) or duly authorized Treasurer of the Municipality

where such taxpayer (head office of the business establishment) is registered or required to be registered.
The RCO or duly authorized Municipal/City Treasurer shall issue a Revenue Official Receipt upon payment of the tax.

3. If there is no payment:

File the Monthly VAT Declaration, together with the required attachments with the RDO/LTDO/Large Taxpayers Assistance

Division, Collection Agent or duly authorized Municipal/ City Treasurer of Municipality/City where the taxpayer (head office of

the business establishment) is registered or required to be registered.

Deadline

Monthly VAT returns BIR Form 2550M:

Not later than the 20th day following the end of each month (manual filing)

Quarterly VAT returns BIR Form 2550Q:

Within twenty five (25) days following the close of taxable quarter (manual filing)

For EFPS filing, please visit the BIR website for detailed and updated dates of deadlines.

SOURCE: http://businesstip.ph/how-to-compute-vat-payable-in-the-philippines/

HOW TO COMPUTE VAT PAYABLE IN THE PHILIPPINES

How to compute Value Added Tax (VAT) payable in the Philippines? Any person or entity who
is engaged in trade, business or in the practice of profession may be liable to business taxes.
Business taxes can be either a Percentage tax or a Value Added Tax. Furthermore, a taxpayer can
be a VAT registered or a Non-VAT registered taxpayer. In this article, we will tackle how to
compute VAT Payable and file the monthly and quarterly VAT returns.

WHAT IS A VALUE ADDED TAX?

Value-Added Tax is a business tax in the form of sales tax. It is a tax on consumption levied on
the sale, barter, exchange or lease of goods or properties and services in the Philippines and on
importation of goods into the Philippines. It is an indirect tax, which may be shifted or passed on
to the buyer, transferee or lessee of goods, properties or services.

WHO ARE REQUIRED TO FILE VAT RETURNS

The following persons or entities are required to file VAT returns:
1. Any person or entity who, in the course of his trade or business, sells, barters, exchanges, leases
goods or properties and renders services subject to VAT, if the aggregate amount of actual gross
sales or receipts exceed P1,919,500 (RR 16-2011, RR 3 -2012), as amended.
2. A person required to register as VAT taxpayer but failed to register
3. Any person, whether or not made in the course of his trade or business, who imports goods

WHO MAY OPT TO REGISTER AS VAT AND WHAT WILL BE HIS LIABILITY?
1. Any person who is VAT-exempt under Sec. 4.109-1 (B) (1) (V) not required to register for VAT
may, in relation to Sec. 4.109-2, elect to be VAT-registered by registering with the RDO that has
jurisdiction over the head office of that person, and pay the annual registration fee of P500.00 for
every separate and distinct establishment.

2. Any person who is VAT-registered but enters into transactions which are exempt from VAT
(mixed transactions) may opt that the VAT apply to his transactions which would have been
exempt under Section 109(1) of the Tax Code, as amended [Sec. 109(2)].

3. Franchise grantees of radio and/or television broadcasting whose annual gross receipts of the
preceding year do not exceed ten million pesos (P10,000,000.00) derived from the business
covered by the law granting the franchise may opt for VAT registration. This option, once
exercised, shall be irrevocable. (Sec. 119, Tax Code).

4. Any person who elects to register under optional registration shall not be allowed to cancel his
registration for the next three (3) years.

The above-stated taxpayers may apply for VAT registration not later than ten (10) days before the
beginning of the calendar quarter and shall pay the registration fee unless they have already paid
at the beginning of the year. In any case, the Commissioner of Internal Revenue may, for
administrative reason deny any application for registration. Once registered as a VAT person, the
taxpayer shall be liable to output tax and be entitled to input tax credit beginning on the first day
of the month following registration.

What are the BIR forms used in filing VAT

Returns?
VAT returns are filed monthly using the Monthly Value Added Tax Declaration Return BIR Form 2550M
and quarterly using the Quarterly Value Added Tax Declaration Return BIR Form 2550Q.

How to compute Value Added Tax Payable

Value Added Tax Payable is normally computed as follows:

1. Computing Net VAT Payable on VAT exclusive Sales/Receipts

Total Output Tax Due or Total Vatable Sales/Receipts x 12%
Less: Total Allowable Input Tax or Total Vatable Purchases x 12%
Equals: VAT Payable

Sample Computation of VAT Payable:

Lets assume that,
Total Vatable Sales (VAT exclusive) = P100,000
Total purchases with VAT receipts (VAT exclusive) = P70,000

P100,000 x 12% or P12,000

P70,000 x 12% or P8,400
VAT Payable = P3,600

2. Computing Net VAT Payable on VAT inclusive Sales/Receipts

Total Output Tax Due or Total Vatable Sales / 1.12 x 12%

Less: Total Allowable Input Tax or Total Vatable Purchases / 1.12 x 12%
Equals: VAT Payable

Sample Computation of VAT Payable:

Example based on the above assumption:

Total Vatable Sales (VAT inclusive) = P112,000
Total purchases with VAT receipts (VAT inclusive) = P78,400
P112,000 /1.12 x 12% or P12,000
P78,400 /1.12 x 12% or P8,400
VAT Payable = P3,600

Or an alternative computation:

P112,000 /9.333 or P12,000

P78,400 /9.333 or P8,400
VAT Payable = P3,600

Output tax means the VAT due on the sale, lease or exchange of taxable goods or
properties or services by any person registered or required to register under Section
236 of the Tax Code.

Input tax means the VAT due on or paid by a VAT-registered on importation of goods
or local purchase of goods, properties or services, including lease or use of property in
the course of his trade or business. It shall also include the transitional input tax
determined in accordance with Section 111 of the Tax Code, presumptive input tax
and deferred input tax from previous period.

Total Vatable Purchases are your total purchases from VAT registered suppliers. This
should be supported with VAT receipts.

Note:
VAT exempt sales, zero rated sales, purchases not qualified for input tax, and other
input taxes (if any) should also be shown in the VAT returns. See BIR Forms.
How, when and where to File VAT Returns?
Documentary Requirements

1. Duly issued Certificate of Creditable VAT Withheld at Source (BIR Form No.
2307), if applicable
2. Summary Alphalist of Withholding Agents of Income Payments Subjected to
Withholding Tax At Source (SAWT), if applicable
3. Duly approved Tax Debit Memo, if applicable
4. Duly approved Tax Credit Certificate, if applicable
5. Authorization letter, if return is filed by authorized representative.

Procedures

1. Fill-up BIR Form No. 2550M (for monthly VAT declaration) or 2550Q (for
quarterly VAT declaration) in triplicate copies (two copies for the BIR and one copy
for the taxpayer)
2. If there is payment: File the Monthly VAT declaration, together with the required
attachments, and pay the VAT due thereon with any Authorized Agent Bank (AAB)
under the jurisdiction of the Revenue District Office (RDO)/Large Taxpayers District
Office (LTDO) where the taxpayer (head office of the business establishment) is
registered or required to be registered.

The taxpayer must accomplish and submit BIR-prescribed deposit slip, which the
bank teller shall machine validate as evidence that payment was received by the AAB.
The AAB receiving the tax return shall stamp mark the word Received on the return
and machine validate the return as proof of filing the return and payment of the tax.
In places where there are no duly accredited agent banks, file the Monthly VAT
declaration, together with the required attachments and pay the VAT due with the
Revenue Collection Officer (RCO) or duly authorized Treasurer of the Municipality
where such taxpayer (head office of the business establishment) is registered or
required to be registered.

The RCO or duly authorized Municipal/City Treasurer shall issue a Revenue Official
Receipt upon payment of the tax.

3. If there is no payment:
File the Monthly VAT Declaration, together with the required attachments with the
RDO/LTDO/Large Taxpayers Assistance Division, Collection Agent or duly
authorized Municipal/ City Treasurer of Municipality/City where the taxpayer (head
office of the business establishment) is registered or required to be registered.

Deadline

Monthly VAT returns BIR Form 2550M:

Not later than the 20th day following the end of each month (manual filing)

Quarterly VAT returns BIR Form 2550Q:

Within twenty five (25) days following the close of taxable quarter (manual filing)

For EFPS filing, please visit the BIR website for detailed and updated dates of
deadlines.

Reference:
BIR Tax information on Value Added Tax
Sections 105 to 115 of the National Internal Revenue Code of 1997, as amended
Value-added tax (VAT)
VAT applies to practically all sales of services and imports, as well as to sales, barter,
exchange, or lease of goods or properties (tangible or intangible). The tax is equivalent to a
uniform rate of 12%, based on the gross selling price of goods or properties sold, or gross
receipts from the sale of services. On importation of goods, the basis of the tax is the value used
by the Bureau of Customs in determining tariff and customs duties plus customs duties, excise
taxes, if any, and other charges. Where the valuation used by the Bureau of Customs is by
volume or quantity, the VAT basis is the landed cost plus excise taxes, if any.

Certain transactions are zero-rated or exempt from VAT. Export sales by VAT-registered
persons are zero-rated.

Certain sales of services exempt from VAT, including services provided by financial
intermediaries, are subject to percentage taxes based on gross sales, receipts, or income. A 3%
percentage tax also applies to persons who are not VAT-registered because their annual sales or
receipts do not exceed PHP 1,919,500.

Customs duties
Applicable customs duties are determined based on the tariff classification of the import
product. As with the rest of the Association of South East Asian Nations (ASEAN) countries,
tariff classification in the Philippines is based on the ASEAN Harmonised Tariff Nomenclature
(AHTN), which is patterned after the Harmonised Commodity Classification and Coding
System (HS) Convention and its 2002 revisions. The latest edition, HS Code 2012, entered into
force on 1 January 2012. With HS Code 2012, the overall AHTN tariff lines were reduced by
247, or an approximately 4% cut in the number of AHTN tariff lines in 2010. Although 267
classification rulings were issued to address commonly raised valuation and tariff classification,
it is still advisable that tariff classification rulings from the Philippine Tariff Commission be
secured prior to importation into the Philippines in case of uncertainty as to the correct
classification of a product. Note that while the tariff classification rulings issued by the
Philippine Tariff Commission do not prevent the Bureau of Customs from conducting its own
verification, these rulings carry persuasive reference in support of the classification and duty
rate used by an importer.

The Philippines adopts the World Trade Organization (WTO) Valuation Agreement, where the
declared invoice price is used as the basis for determining customs duties.

As a protective measure, the Philippines retains higher tariff rates (20% to 50%) on sensitive
agricultural products, such as grains, livestock and meat products, sugar, certain vegetables, and
coffee. A few agricultural commodities are subject to minimum access volumes, but these
represent less than 1% of all tariff lines.
In view of the existing free trade agreements in the region, such as the ASEAN Free Trade Area
(AFTA), ASEAN-China Free Trade Area (ACFTA), ASEAN-Korea Free Trade Area
(AKFTA), the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA), the ASEAN-
Japan Comprehensive Economic Partnership Agreement (AJCEPA), and the ASEAN-INDIA
Free Trade Area (AIFTA), the Philippines has taken steps to progressively eliminate tariffs.
Tariff reductions for the Philippines range from 10% to 35% for most products included in the
Normal Track list.

Excise taxes
Excise tax is payable at varying rates on alcohol products, tobacco products, petroleum
products, mineral products, and automobiles. Excise tax is also payable on all goods commonly
or commercially known as jewellery, whether real or imitation; perfumes and toilet waters; and
yachts and other vessels intended for pleasure or sport at 20% of the wholesale price or value of
the importation used by the Bureau of Customs in determining tariff and customs duties.

Documentary stamp tax (DST)

DST is payable at varying rates on various documents and transactions. The following table
contains selected examples:

Taxable document/transaction (tax base) DST rate

PHP 1 for every PHP 200 or fractional part of par

Original issue of shares
value

Sale, barter, or exchange of shares of stock listed

Exempt
and traded through the local stock exchange

Other sales agreement, agreement to sell,

PHP 0.75 for every PHP 200 or fractional part of
memoranda of sales, delivery or transfer of
par value
shares or certificates of stock

Certificate of profits, interest in property or PHP 0.50 for every PHP 200 or fractional part of
accumulations face value

PHP 1 for every PHP 200 or fractional value of the

Non-exempt debt instruments
issue price.

Bank check, draft, certificate of deposit not

PHP 1.50 for each instrument
bearing interest, other instruments

PHP 10 to PHP 100 depending upon the amount of

Life insurance policy
insurance
 Taxable document/transaction (tax base) DST rate

PHP 3 for the first PHP 2,000 or fractional part of

amount stipulated in contract, and PHP 1 for every
Lease/hiring agreement
PHP 1,000 or fractional part in excess of PHP
2,000 for each year of contract term

PHP 20 for the first PHP 5,000 of amount secured,

Mortgage, pledge, deed of trust and PHP 10 for every PHP 5,000 or fractional part
in excess of PHP 5,000

PHP 15 for each PHP 1,000 of consideration/value

Deed of sale, conveyance of real property
or fractional part thereof

Capital gains tax

Capital gains arise from the sale or exchange of capital assets. Capital assets are
property held by the taxpayer (whether or not connected with its trade), other than the
following:

Inventories or property held primarily for sale to customers in the ordinary course of
business.
Real property or depreciable property used in trade or business.
Property of a kind that would be included in the inventory of the taxpayer if on hand at
the close of the taxable year.

Capital losses are deductible only to the extent of capital gains.

There are no holding period requirements for capital assets of corporations.

A 6% final tax is imposed on the higher of the gross selling price or fair market value
upon the sale, exchange, or disposition of land or buildings not actually used in the
business of a corporation. The tax is withheld by the buyer at the time of sale.

Net capital gains derived from the sale, exchange, transfer, or similar transactions of
shares of stock not traded through a local stock exchange are taxed at 5% on the first
PHP 100,000 of gains, and 10% on gains in excess of PHP 100,000. Sales of shares of
stock listed and traded on a local stock exchange, other than the sale by a dealer in
securities, are subject to a stock transaction tax of 0.5% based on the gross selling
price, provided the listed corporation observes a minimum public ownership of at least
10% based on the companys issued and outstanding shares, exclusive of any treasury
shares or such percentage as may be prescribed by the Securities and Exchange
Commission (SEC) or Philippine Stock Exchange (PSE), whichever is higher;
otherwise, the 5%/10% tax shall apply.
Capital gains from the sale of bonds, debentures, or other certificates of indebtedness
with a maturity of more than five years are exempt from tax.

A tax is levied on every sale, barter, exchange, or other disposition through an initial
public offering (IPO) of shares of stock in closely held corporations. A closely held
corporation is any corporation of which at least 50% in value of the total outstanding
capital stock, or at least 50% of the total combined voting power of all classes of stock
entitled to vote, is owned directly or indirectly by, or for, not more than 20 individuals.
The tax rates provided hereunder are based on the proportion of the gross selling
price, or gross value in money, of the shares of stock sold, bartered, exchanged, or
otherwise disposed of to the total outstanding shares of stock after listing on the local
stock exchange.

Proportion of sale to total shares Tax rate (%)

25% or less 4

Over 25% but not over 33.33% 2

Over 33.33% 1

Fringe benefits tax

A final tax of 32%, payable by the employer, is imposed on the grossed-up monetary
value of fringe benefits (e.g. housing, expense accounts, vehicles of any kind,
household personnel, interest on loans at lower than market rates [the current
benchmark rate is 12%], membership dues for social and athletic clubs, foreign travel
expenses, holiday and vacation expenses, educational assistance, insurance)
furnished or granted to managerial or supervisory personnel by the employer. An
exception is for fringe benefits required by the nature of or necessary to the trade,
business, or profession of the employer, or when the fringe benefit is for the
convenience or advantage of the employer.

The following fringe benefits are not subject to the tax:

Those authorised and exempted from tax under special laws.

Contributions of the employer for the benefit of the employee to retirement, insurance,
and hospitalisation benefit plans.
Those granted to rank-and-file employees (however, the employees may be subject to
WHT on compensation).
Those of relatively small value or de minimis benefits.

The fringe benefits tax is payable on a calendar quarter basis and is an additional
deductible expense for the employer. Fringe benefits already subjected to fringe
benefits tax will no longer form part of the employees taxable income.
The grossed-up monetary value of the fringe benefit is generally computed by dividing
the actual monetary value of the benefit by 68%.

Payroll taxes
Social security contributions
Corporations doing business in the Philippines must be registered with social
institutions, such as the Social Security System (SSS), Home Development Mutual
Fund (HDMF), and Philippine Health Corporation (PHIC), upon employment of any
employee and prior to the due date of the remittance of any social contributions.

Employee contributions for social security are deducted from the employees salary
payments. For 2016, the maximum monthly deductions remain at PHP 581.30 for SSS,
PHP 100 for HDMF, and PHP 437.50 for PHIC.

Employers are also required to make contributions. Employers maximum contribution

for each employee is PHP 1,208.70 per month. Employer contributions for HDMF and
PHIC are generally of the same amount as the employee contributions.

Local government taxes

Local government units impose local business taxes, which are generally based on the
gross sales or gross receipts of the prior year, and real property taxes, which are levied
annually on the basis of a fixed proportion of the value of the real property (taxable
value). The local business tax rate varies depending on the location of the business,
but generally shall not exceed 3%. Real property located in a province may be subject
to real property tax of not more than 1% of its taxable value, while real property in a city
(or municipality in Metro Manila) may be subject to real property tax of not more 2% of
its taxable value.

How do I compute the VAT?

A: The Value Added Tax is computed by getting the difference of the output tax and
input tax. If you are the seller, you pass on the VAT to your client by adding 12 percent
to your selling price.
If you are the buyer of goods and services, you will need to pay VAT by computing for
your output tax and input tax. Output tax is computed by dividing your total sales with
the factor 9.3333. For example, your total sales is P112,000. Your output tax is computed
by dividing P112,000 with 9.333, which means your output tax is P12,000.
The input tax applies to your expenses that have VAT receipts. Take your total expenses
and divide it by 9.333. For example, your total expenses is P44,800. Your input tax is
P44,800 divided by 9.333, which gives you P4,800.
Now that you have computed both output and input taxes, you can compute your VAT
which is P7,200 (P12,000 - P4,800).
Henry Ong, CMC, CMA, is president and COO of Business Sense, a business advisory firm that
provides expert solutions to small and medium sized companies. You may reach him
at hong@businesssense.com.ph .
How to compute Value Added Tax Payable
Value Added Tax Payable is normally computed as follows:
1. Computing Net VAT Payable on VAT exclusive Sales/Receipts
Total Output Tax Due or Total Vatable Sales/Receipts x 12%
Less: Total Allowable Input Tax or Total Vatable Purchases x 12%
Equals: VAT Payable
Sample Computation of VAT Payable:
Lets assume that,
Total Vatable Sales (VAT exclusive) = P100,000
Total purchases with VAT receipts (VAT exclusive) = P70,000
P100,000 x 12% or P12,000
- P70,000 x 12% or P8,400
VAT Payable = P3,600
2. Computing Net VAT Payable on VAT inclusive Sales/Receipts
Total Output Tax Due or Total Vatable Sales / 1.12 x 12%
Less: Total Allowable Input Tax or Total Vatable Purchases / 1.12 x 12%
Equals: VAT Payable
Sample Computation of VAT Payable:
Example based on the above assumption:
Total Vatable Sales (VAT inclusive) = P112,000
Total purchases with VAT receipts (VAT inclusive) = P78,400
P112,000 /1.12 x 12% or P12,000
- P78,400 /1.12 x 12% or P8,400
VAT Payable = P3,600
Or an alternative computation:
P112,000 /9.333 or P12,000
- P78,400 /9.333 or P8,400
VAT Payable = P3,600
Output tax means the VAT due on the sale, lease or exchange of taxable goods or properties or
services by any person registered or required to register under Section 236 of the Tax Code.
Input tax means the VAT due on or paid by a VAT-registered on importation of goods or local
purchase of goods, properties or services, including lease or use of property in the course of his
trade or business. It shall also include the transitional input tax determined in accordance with
Section 111 of the Tax Code, presumptive input tax and deferred input tax from previous period.
Total Vatable Purchases are your total purchases from VAT registered suppliers. This should be
supported with VAT receipts.
Note:
VAT exempt sales, zero rated sales, purchases not qualified for input tax, and other input taxes (if
any) should also be shown in the VAT returns. See BIR Forms.
Value Added Tax (Taxable Sales) Philippines
1. 1. COVERAGE OF THE VALUE-ADDED TAX I. VAT on sales or lease of goods, properties
and services; a) Sales on goods and properties b) Transactions deemed sale c) Sales of
Services and use or lease of properties
2. 2. CLASSIFICATION OF SALES/TRANSACTIONS 1. Exempt Sales -exempt from VAT 2.
Zero Rated Sales -subject to zero percent VAT rate 3. TAXABLE SALES -subject to 12%
VAT rate
3. 3. What does the law says? The NIRC under section 105 provides that any person who,
in the course of his trade or business, sells, barters, exchanges, leases goods or properties,
renders services, and any person who imports goods (unless their transactions are VAT
exempt or zero-rated) shall be liable to the 12% VAT rate imposed in Sections 106, 107 and
108 of the NIRC.
4. 4. Receipt samples with VAT
5. 5. Receipt samples with VAT
6. 6. Computation of VAT on Sale of goods Tax Exclusive Method the VAT is presumed not
yet included in the tax base amount. Such amount representing the taxable base (exclusive
of vat), whether gross sales price or gross sales receipts, is multiplied by 12% vat rate. The
resulting product is the VAT due or output tax, as the case maybe. This is normally the
method adopted by the seller when it prepares the sales invoice on its sales transactions.
7. 7. Computation of VAT on Sale of goods Tax Inclusive Method the VAT is presumed to be
already included in the tax base amount. Such amount representing the taxable base
(inclusive of vat), whether invoice sales price or invoice gross receipts, is multiplied (12/112)
vat factor. The resulting product is the vat due or output tax as the case maybe. This is
usually the method adopted by the BIR in its tax audits/examinations.
8. 8. Computation of VAT on Sale of goods VAT Exclusive Method Formula: Gross
Sales/Gross Sales Receipt (excluding VAT) x 12% = VAT e.g. Gross Sales of a restaurant in
a day P50,000 x .12 = P6,000 VAT Inclusive Method Formula: Invoice Price/Invoice
Receipts (including VAT) x (12/112) = VAT e.g. (ditto) P56,000 x (12/112) = P6,000
9. 9. b) Transactions deemed sale Transfer, use or consumption not in the course of
business of goods or properties originally intended for sale or for use in the course of
business. *Transfer of goods or properties not in the course of business can take place when
the VAT-registered person withdraws goods from his business for his personal use.
Distribution or transfer to: (a) shareholders as share in the profits of the VAT-registered
person. *Property Dividends which are distributed by the company to its shareholders and
declared out of retained earnings shall be subject to VAT (12%) (b) Creditors in payment of
debt or obligation
10. 10. b) Transactions deemed sale Consignment of goods if actual sale is not made within
60 days following the date such goods were consigned. *Consigned goods returned by the
consignee within the 60- day period is not deemed sold. Retirement from or cessation of
business with respect to inventories of taxable goods (all goods on hand, whether capital
goods, stock-in-trade, supplies or materials) existing as of the date of such retirement. (a)
Change of ownership of the business. There is a change in the ownership of the business
when a sole proprietorship incorporates; or the proprietor sells his entire business. (b)
Dissolution of a partnership and creation of a new partnership which takes over the business.
*tax base shall be the acquisition cost/current market price whichever is lower.
11. 11. b) Transactions deemed sale Formula: Gross Value of Goods deemed sold (excluding
VAT) x 12% = VAT e.g. A at the time of retirement has 1,000 pcs of merchandise which was
deemed sold at a

escription
Value-Added Tax is a form of sales tax. It is a tax on consumption levied on the sale,
barter, exchange or lease of goods or properties and services in the Philippines and on
importation of goods into the Philippines. It is an indirect tax, which may be shifted or
passed on to the buyer, transferee or lessee of goods, properties or services.

[return to index]

Who are required to file vat returns?

Any person or entity who, in the course of his trade or business, sells, barters, exchanges,
leases goods or properties and renders services subject to VAT, if the aggregate amount of
actual gross sales or receipts exceed One Million Nine Hundred Nineteen Thousand Five
Hundred Pesos (P1,919,500.00).
A person required to register as VAT taxpayer but failed to register
Any person, whether or not made in the course of his trade or business, who imports goods

[return to index]

Monthly VAT Declarations

Tax Form

BIR Form 2550M - Monthly Value-Added Tax Declaration (February 2007 ENCS)

Documentary Requirements

1. Duly issued Certificate of Creditable VAT Withheld at Source (BIR Form No. 2307), if
applicable

2. Summary Alphalist of Withholding Agents of Income Payments Subjected to

Withholding Tax At Source (SAWT), if applicable

3. Duly approved Tax Debit Memo, if applicable

4. Duly approved Tax Credit Certificate, if applicable

5. Authorization letter, if return is filed by authorized representative.

Procedures

1. Fill-up BIR Form No. 2550M in triplicate copies (two copies for the BIR and one copy
for the taxpayer)
2. If there is payment:

File the Monthly VAT declaration, together with the required attachments, and
pay the VAT due thereon with any Authorized Agent Bank (AAB) under the
jurisdiction of the Revenue District Office (RDO)/Large Taxpayers District
Office (LTDO) where the taxpayer (head office of the business establishment)
is registered or required to be registered.
The taxpayer must accomplish and submit BIR-prescribed deposit slip, which
the bank teller shall machine validate as evidence that payment was received
by the AAB. The AAB receiving the tax return shall stamp mark the word
"Received" on the return and machine validate the return as proof of filing the
return and payment of the tax.
In places where there are no duly accredited agent banks, file the Monthly VAT
declaration, together with the required attachments and pay the VAT due with
the Revenue Collection Officer (RCO) or duly authorized Treasurer of the
Municipality where such taxpayer (head office of the business establishment)
is registered or required to be registered.
The RCO or duly authorized Municipal/City Treasurer shall issue a Revenue
Official Receipt upon payment of the tax.

3. If there is no payment:

File the Monthly VAT Declaration, together with the required attachments with the
RDO/LTDO/Large Taxpayers Assistance Division, Collection Agent or duly
authorized Municipal/ City Treasurer of Municipality/City where the taxpayer (head
office of the business establishment) is registered or required to be registered.

Deadline

Manual Filing

Not later than the 20th day following the end of each month

Through Electronic Filing and Payment System (eFPS):

MANILA, Philippines (UPDATED) Wondering how your employer is computing

your income tax?

You can calculate it yourself.

In our previous story, we enumerated the items you need to consider in
computing your salary tax. (READ: What to consider in computing income tax).

Now, we'll show you how to compute it.

Here's a step-by-step guide for manual computation. You may also use the tax
calculator below.

Step 1: Determine your taxable income.

To compute your taxable income, follow this formula:

Taxable income = (Monthly Basic Pay + Overtime Pay + Holiday Pay + Night
Differential) - (SSS/PhilHealth/Pag-IBIG deductions - Tardiness - Absences)

Let's say Employee A is married with one dependent, and has a basic monthly
pay of P25,000. Based on the tables of government contributions, Employee A
will pay:

P581.30 - SSS contribution (View SSS contribution table)

P312.50 - PhilHealth contribution (View PhilHealth contribution table)
P100 - Pag-IBIG contribution

Employee A's taxable income will therefore be P24,006.20. Here's how it is

computed:

Taxable income = P25,000 - (P581.30 + P312.50 + P100)

= P25,000 - 993.8

= P24,006.20

Step 2: Using your taxable income, compute your income tax by

referring to the Bureau of Internal Revenue (BIR) tax table.
In the BIR table below, look for your pay period (usually it's "Monthly" for
employed taxpayers), then your status ("S/ME" means single/married with no
dependent, "ME1/S1" means married/single with one dependent, and so on).

There are 8 columns under each pay period. Under the columns are taxable
income amounts and their corresponding tax rates. As the taxable income
increases, the tax rate also goes up.

In the row indicating your status, look for the highest amount that does not
exceed your taxable income.

Let's use Employee A, with status "ME1/S1," as example. The highest amount
that does not exceed Employee A's taxable income of P24,006.20 is P17,917
(ME1/S1 row, Column 6).

The heading of Column 6 reads "1,875.00 + 25% over."

This means Employee A's tax is P1,875 plus 25% of the difference of his taxable
income (P24,006.20) and the amount in the table (P17,917).

Here's the computation:

Tax = 1,875 + [(24,006.20-17,917) X .25]

= 1,875 + (6,089.2 x .25)

= 1,875 + 1,522.3

= P3,397.30

Tax calculator

We also provided a simple tax calculator below. All you need to do is select your
salary period and civil status, and provide the figures for the different fields.
SSS, PhilHealth and Pag-IBIG contributions will automatically appear once you
put in your basic salary. Do not use commas in the calculator. Have fun!

Computation of income tax

1. 1. COMPUTATION OF INCOME TAX
2. 2. Computation of Income Tax In order to understand the concept described above, let us
use the hypothetical data: Mr. De Castro is gainfully employed as a full-time professor at the
Far Eastern Academy. His monthly salary is P85, 000.00 and said academy deducted 32%
of his salary for tax. He is married, with five (5) children namely: Jackie, 25 years old but
mentally retarded; Celine, 22years old; Andrew, 19 years old; Ely, 18 years old; and Ben, 15
years old. Solve the monthly and annual tax of Mr. De Castro. Identify if there is an
overpayment/tax payable using the following allowable deductions: SSS= P700.00/Monthly
Pag-IBIG= P200.00 PhilHealth= P200.00 Union Due= P100.00
3. 3. Given: Total allowance reductions : P1, 200.00/month x 12 = P14, 400.00/year Gross
income : P85, 000.00/month x 12 = P1, 020, 000.00/year Tax deduction from his employer
(32% of his salary) : P1, 020, 000.00 x 0.32 = P 326, 400.00
4. 4. Given: Tax income : P85, 000.00(month income) P1,200.00(allowance deductions) =
P83, 800.00 Annual tax of Mr. De Castro : P83, 800.00 x 0.32 = P26, 816.00(monthly tax) x
12 = P321, 792.00
5. 5. Computation: A. Single Gross income : P1, 020, 000.00 - P14, 400.00(allowance
deductions) = P1, 005, 600.00 Gross taxable income : P1, 005, 600.00 P50, 000.00
(personal exemptions) = P955, 600.00
6. 6. Computation: Taxable income (Notes: Using the tax table, tax table, tax due is P125,
000.00 + 32% of the excess of P500, 000.00) : P955, 600 P500, 000 = P455, 600 x 0.32 =
P145, 792 + P125, 000 = 270, 792.00 Tax due from his employer : P326, 400.00 Tax
withheld per BIR 1700 : P270, 792.00
7. 7. Computation: Overpayment of Mr. De Castro from his employer: P55,
608.00(refundable)
8. 8. Computation: B. Married with 4 Qualified Dependents Gross income : P1, 020, 000.00
- P14, 400.00(allowance deductions) = P1, 005, 600.00 Gross taxable income :P1, 005,
600.00 P150, 000.00 (personal exemptions + 4 Qualified dependant) = P855, 600.00
9. 9. Computation: Taxable income (Notes: Using the tax table, tax table, tax due is P125,
000.00 + 32% of the excess of P500, 000.00) : P855, 600 P500, 000 = P355, 600 x 0.32 =
P113, 792 + P125, 000 = 238, 792.00 Tax due from his employer : P326, 400.00 Tax
withheld per BIR 1700 P238, 792.00
10. 10. Computation: Overpayment of Mr. De Castro from his employer: P87,
608.00(refundable)
11. Basic Pay:
12. 50,000.00
13. Taxable Allowance:
14. 10,000.00
15. Non-taxable Allowance:
16. 0.00
17. Night Differential:
18. 0.00
19. Overtime Pay:
20. 0.00
21. Gross Pay:
22. 60,000.00
 23. Withholding Tax:
24. 14,592.09
25. SSS Contribution
26. 581.30
27. PhilHealth Contribution:
28. 437.50
29. PAG-IBIG Contribution:
30. 100.00
31. Total Deductions:
32. 15,710.89
33. Net Pay:
34. 44,289.11
Typical tax computation for 2015
Assumptions

Resident alien husband and wife with two dependent children.

Salary and allowances of husband arising from employment: salary of PHP 652,000,
living allowances of PHP 100,000, housing benefits (100%) of PHP 300,000.
Teaching salary of wife: PHP 68,000.
Gross dividend income from investment in shares of stock of a domestic corporation of
PHP 10,000.
Interest of PHP 20,000 on peso bank account.
Capital gain on sale of shares of PHP 5,000.
Taxes withheld by employer of husband at PHP 173,640 and by employer of wife at PHP
1,300.

Husband (PHP) Wife (PHP)

Tax computation

Gross income:

Salary (1) 652,000 68,000

Living allowances 100,000

Housing benefits (300,000) (2)

Total income 752,000 68,000

Deductions:
 Personal exemption (50,000) (50,000)

Additional exemption for dependent children (3) (50,000)

Total deductions (100,000) (50,000)

Net taxable income 652,000 18,000

Tax due:

On first 500,000 125,000

On remainder of 152,000 at 32% 48,640

On first 10,000 500

On remainder of 8,000 at 10% 800

Total tax 173,640 1,300

Less:

Tax withheld by employer per Form 2316 (4) (173,640) (1,300)

Net tax due 0 0

Notes

The following items were not included in the income tax return because they are
subject to final tax:
 Interest on peso bank account 20,000

Capital gain on sale of shares 5,000

Dividend income 10,000

Housing benefit 300,000

1. Philippine social tax contributions, if any, made by the resident alien and/or his wife to
the Philippine social security agencies shall be allowed as deductions from gross income
in calculating their tax liabilities for the year.
2. Housing benefits are subject to FBT, payable by the employer. Under the FBT
regulations, such benefits are taxable to the extent of 50% of the rentals for the house or
living quarters used by the employee and paid by the employer if the lease contract is in
the name of the employer.

To compute the FBT due, 50% of the rental payment is grossed-up before applying the
32% tax. Thus, the grossed-up value of PHP 150,000 is PHP 220,588, and the tax
payable is PHP 70,588.
3. The additional exemption for dependent children is to be claimed by the husband unless
he explicitly waives the right in favour of his wife.
4. For individuals receiving salary and other allowances from one employer only, the tax
due is usually equal to tax withheld since the employer is required to compute and
withhold the total tax due on the employee's compensation earned during the year, using
the annual graduated income tax table, before paying the last payroll for the year.

The above individual tax calculation also applies to non-resident aliens engaged in
trade or business in the Philippines for their Philippine-source income, except that
personal exemptions are allowed only under certain conditions.

Sample Problem 1 Computation: Total compensation received from January 1 to May 31, 2009P
125,000.00 Add: Compensation to be received on June 25,000.00 Gross Compensation Jan.
June, 2009P150,000.00 Less: Personal Exemption 50,000.00 Taxable CompensationP 100,000.00
Tax Due * P 14,500.00 Less: Tax Withheld from Jan. to May 15,000.00 Excess tax withheld to be
refunded by employer P 500.00 on or before June 30, 2009 of the current year * Tax Due on
P70,000.00 P 8,500.00 Tax on excess (P30,000 x 20%) 6,000.00 Tax on P23,000 P 14,500.00

33 32 Sample Problem 2 Ms. Allister, married with 2 qualified dependent children (with husbands
waiver) receives P25,000 monthly compensation (net of SSS, Philhealth, HDMF contributions) in
2009 while tax withheld was P35,000.00. Total Compensation Jan. - Nov. (P25,000 x 11 mos.)P
275,000.00 Add: Compensation to be received in Dec. 25,000.00 Gross Compensation IncomeP
300,000.00 Less: Personal Exemption - Married P 50,000 Additional Exemptions - 2 x P25,000
50,000P100,000.00 Taxable Compensation IncomeP200,000.00 Tax Due*P 37,500.00 Less Tax
Withheld from Jan. to Nov. 35,000.00 To be withheld from employees December salaryP 2,500.00
Tax on P140,000.00 P22,500.00 Tax on excess (P60,000.00 x 25%) 15,000.00 *TAX DUE
P37,500.00

EXAMPLE 1: Mr. A, single (S) with no qualified dependent, receives compensation income of
P12,000.00 (net of all non-taxable items of gross income) as regular monthly compensation for
March, 2009. Compute his withholding tax for the month.

118 COMPUTATION: Using the monthly withholding tax table, the withholding tax is computed by
referring to Table A, line 2, column 5 showing a tax of P708.33 on P10,000.00 plus 20% of the
excess (P12,000.00 less P10,000.00 = P2,000.00). Taxable compensationP12,000.00 Less:
Compensation level (Table A, Line 2, Column 5) 10,000.00 ExcessP 2,000.00 Tax on P10,000.00P
708.33 Tax on excess (P2,000.00 x 20%) 400.00 Withholding tax for March, 2009 P 1,108.33

119 EXAMPLE 2: Mr. B, single (S2) with two (2) qualified dependent children, receives
P7,500.00.00 as semi-monthly regular compensation (net of non-taxable items) and P800.00 as
commission (supplementary compensation) for January, 2009, or a total of P8,300.00.

120 COMPUTATION: Using the semi-monthly withholding tax table, the withholding tax for
January, 2009 is computed by referring to Table B, Line 2, Column 5 [Fix compensation level taking
into account only the regular semi-monthly compensation income of P7,500.00] which shows a tax of
P354.17 plus 20% of the excess (P8,300.00 less P7,083.00 = P1,217.00). Total taxable
compensationP8,300.00 Less: compensation level (Table B, Line 2, Column 5) 7,083.00
ExcessP1,217.00 Tax on P7,083.00P 354.17 Tax on excess (P1,217.00 x 20%) 243.40 Withholding
tax for January, 2009P 597.57

121 EXAMPLE 3: Mrs. C, married (ME) with two (2) children receives on September, 2009,
P20,00.00 as regular compensation. Mr. C, her husband, is also employed and claims for the 2
qualified dependent children (additional exemptions).

122 COMPUTATION: Using the monthly withholding tax table, the withholding tax due is computed
by referring to Table A, Line 2, Column 6 which shows a tax of P1,875.00 on P15,833.00 plus 25%
of the excess (P20,000.00 less P15,833.00 = P4,167.00). Total taxable compensation P20,000.00
Less: Compensation Level (Table A, Line 2, Column 6) 15,833.00 Excess P 4,167.00 Tax on
P15,833.00 P 1,875.00 Tax on excess (P4,167.00 x 25%) 1,041.75 W/Tax for September, 2009 P
2,916.75

123 EXAMPLE 4: Mr. D, married, with four (4) qualified dependent children (ME4) receives
P10,000.00 (net of taxable items) as regular semi-monthly compensation for the payroll period
October 16 to 30, 2009. Mrs. D, his wife, is also employed. Mr. D did not waive his right in favor of
his wife to claim for the additional exemptions.

124 COMPUTATION: Using the semi-monthly withholding tax table, the withholding tax due is
computed by referring to Table B, Line 4, Column5 which shows a tax of P354.17 on P9,167.00 plus
20% in excess (P10,000.00 less P9,167.00 = P833.00). Taxable compensationP10,000.00 Less:
Compensation Level (Table B, Line 4, Column 5) 9,167.00 Excess P 833.00 Tax on P9,167.00 P
354.17 Tax on excess (P833.00 x 20%) 166.60 W/Tax for October 16-30, 2009 P 520.17

125 EXAMPLE 5: Mr. E, married with two (2) legitimate dependent children and one (1) legally
adopted child, receives P30,000.00 (net of non-taxable items) as regular compensation for the
month of March, 2010 from the Department of Agriculture where he works as a supervisor. Mrs. E,
his wife is not employed and is the one taking care of the children.

126 COMPUTATION: Using the monthly withholding tax table, the withholding tax due is computed
by referring to Table B, Line 3, Column 6 which shows a tax of P1,875.00 on P22,083.00 plus 25%
of the excess (P30,000.00 less P22,083.00 = P7,917.25). Taxable compensationP30,000.00 Less:
Compensation Level (Table B, Line 3, Column 6) 22,083.00 Excess P 7,917.00 Tax on P22,083.00
P 1,875.00 Tax on excess(P7,917.25 x 25%) 1,979.25 W/Tax for March,2010 P 3,854.25

127 EXAMPLE 6: On December, 2009, Mrs. F, married with three (3) qualified dependent children
receives P20,0000.00 as regular monthly salary (consisting of her basic salary of P15,000 and other
items of taxable compensation income but net of SSS, Pag-ibig & Medicare and other non-taxable
items) from her private employer. She also received during the month her 13 th month pay
amounting to P15,000.00 plus other benefits such as productivity incentive bonus (PIB) of
P10,000.00,and loyalty pay of P3,000.00. Mr. F, her husband, who works as a section chief in the
Commission on Elections, waived his right to claim the additional exemption for the children and
accordingly executed the required waiver on time. Compute the withholding tax of Mrs. F for the
month of Dec., 2009.

128 Gross Benefits: 13 th month pay P15,000.00* Productivity IB 10,000.00* Loyalty pay 3,000.00*
Total Gross Benefits P 28,000.00* *NOTE: Non-taxable because the 13 th month pay and other
benefits does not exceed P30,000.00. COMPUTATION: Using the monthly withholding tax table, the
withholding tax due is computed by referring to Table B, Line 3, Column 5 which shows a tax of
P708.33 on P16,250.00 plus 20% of the excess (P20,000.00 less P16,250.00 = P3,750.00). Taxable
compensationP 20,000.00 Less: Compensation Level (Table B, Line 3, Column 5) 16,250.00
ExcessP 3,750.00 Tax on P16,250.00P 708.33 Tax on excess (P3,750.00 x 20%) 750.00
Withholding tax for December, 2009 P 1,458.33