VALUE-ADDED TAX COMPUTATION

1. On July 2018, Mr. Pascua opted to register as a VAT taxpayer. He had the following inventory
balances as of June 30, 2018:

Goods purchased from VAT Registered Taxpayer P 240,000

Goods purchased from Non-VAT Taxpayer 160,000
Services purchased from VAT Registered Taxpayer 112,000
Total P 232,000

Requirement: Compute the claimable Input VAT for the month of July 2018.

2. Tayabas Oil Milling Corporation, a VAT-registered CNO manufacturer, purchased (exclusive of

VAT) the following materials and supplies in the processing of CNO during the month:

Copra P 980,000
Hexane solvent 160,000
Containers 120,000
Sodium hydroxide/carbonate 90,000
Activated Carbon 130,000
Total P 1,480,000

The oil mill produced 10,000 containers of CNO and sold 8,600 containers to various customers for
P260.00 per container.

Requirement: Compute the VAT Payable for the month.

3. CJ Construction Company made a contract with the Department of Public Works and Highways
(DPWH) amounting to P1,000,000 exclusive of VAT. Actual vat paid of CJ Construction in relation
with the contract amounting to P80,000.

DPWH withheld the equivalent 5% of the contract amount and paid P1,050,000 net proceeds to CJ
Construction.

Requirement: Compute the VAT Payable still due and payable of CJ Construction.

4. On April 20, 2018 the taxpayer filed its first quarter Value-Added Tax Return. Hereunder are the
additional information:
Output Vat Input VAT

First quarter P 280,000 P 320,000

Second quarter:
April 2018 P 90,000 P 60,000
May 2018 83,000 65,000
June 2018 98,000 88,000
Total for the second quarter P 271,000 P 213,000

Requirement: Compute the VAT payable for the quarter ending June 30, 2018.

5. On January 12, 2018 Araneta Company purchased goods from a VAT registered Taxpayer amounting
to P50,000 (exclusive of 12% VAT). On January 20, 2018 Araneta Company sold the goods with a
total invoice price of P62,000.

Requirement: Compute the VAT payable for the month of January.

 BUSINESS AND TRANSFER TAXATION 2019

Chapter 12

OUTPUT VAT ON ZERO-RATED SALES

THE ZERO-RATED VAT
Foreign consumption like export of goods or services is not charged with consumption tax. Hence,
the export sales of non-VAT taxpayers are VAT exempt. The export sales of VAT-registered
taxpayers are subjected to a zero-rated VAT.
VAT exemption vs. Zero-rating
Both VAT exemption and zero-rating effectively result in no payment of VAT. The defference lies
on the treatment of input VAT. VAT exemption actually results in partial relief but zero-rating
results in total relief.
The input VAT on exempt transactions is claimable as a deduction against gross income. The
taxpayer recovers only the income tax benmefit of the deduction. Conversely, input VAT on zero-
rated sales is recoverable in full via tax refund or tax credit certificate.
Table of comparison
VAT exemption Zero-rating

Output VAT No output VAT No output VAT

Input VAT treatment Deductible against gross Creditable or refundable

income

Extent of tax relief Partial Total

ZERO-RATED SALES
Zero-rated sales are foreign consumptions such as export sales and other sales to non-residents
including transactions that are granted with a zero-rating status by special law or by international
agreement to which the Philippines is a signatory.
Categories of zero-rated sales
A. Zero-rated sales of goods and properties
B. Zero-rated sales of services

ZERO-RATED SALES OF GOODS OR PROPERTIES

Caterories of Zero-rated sales of goods or properties:
1. Export sales
2. Foreign currency denominated sales
3. Sales to tax-exempt persons or entities under special laws or international agreements

EXPORT SALES
Under the NIRC as amended, “export sales” shall mean:
1. Direct export
2. Indirect export
3. Sale of raw materials or packaging materials to an export-oriented enterprise
4. Sale of gold to the Bangko Sentral ng Pilipinas (BSP)
5. Those considered export sales under E.O. 226 (The Omnibus Investment Code of 1987),
and other special laws
6. Sale of goods or properties, supplies, equipment and fuel to persons engaged in
international shipping or international air transport operations.

Chapter 12 – Output VAT (Zero-rated Sales) Page 2

 BUSINESS AND TRANSFER TAXATION 2019

EXPORT SALES – SALES TO NON-RESIDENTS

Direct export is the sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of the shipping arrangement.
Indirect export is the sale ofr raw materials or packaging materials to a non-resident buyer for
delivery to a resident local-export oriented enterprise to be used in manufacturing, processing,
packing or repacking in the Philippines of the said buyers.
Requirement for zero-rating of export sales to non-residents:
a. The sale must have been paid for in acceptable foreign currency or its equivalent in good or
services.
b. The sale must be accounted for under the rules of the BSP.

SALES TO RESIDENTS CONSIDERED EXPORT SALES

Sale to an export-oriented enterprise
The sale of raw materials or packaging materials to an export-oriented enterprise whose sales exceed
seventy percent (70%) of total annual production is subject to zero-rated VAT.
Any enterprise whose export sales exceed 70% of the total annual production of the prededing
taxable year shall be considered an “export-oriented enterprise”. A certification to this effect is
issued by the pertinent government agency.
Sale of goods, properties or services to a BOI-registered manufacturer or producer
The sale of goods, properties or services made by a VAT-registered supplier to a BOI-registered
manufacturer/producer whose products are 100% exported are considered export sales. A
certification to this effect which is good for one year must be issued by the BOI.

FOREIGN CURRENCY DENOMINATED SALE

The term “Foreign currency denominated sale” means sale to non-residents of goods, except
export of automobiles and non-essential commodities, assembled or manufactured in the Philippines
for delivery to a resident in the Philippines, paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the BSP.
Sales under the Internal Export Program of the government
Sales of locally manufactured or assembled goods for household and personal use to Filipinos abroad
and other non-residents of the Philippines as well as returning Overseas Filipinos under the Internal
Export Program of the government paid for in convertible foreign currencies and accounted for with
the rules and regulations of the BSP shall also be considered export sales.

SALES TO TAX-EXEMPT PERSONS OR ENTITIES UNDER SPECIAL LAWS OR

INTERNATIONAL AGREEMENTS
Sales to persons or entities deemed tax-exempt under special laws or international agreement shall be
effectively subject to VAT at zero-rate.
Tax-exempt entities under special laws:
a. Subic Bay Metropolitan Authority (SBMA) – reistered enterprises
b. Philippine Economic Zone Authority (PEZA) – registered enterprises
c. Philippine National Red Cross (PNRC) – Sec. 5 (c) RA 10072
d. Philippine Amusement and Gaming Corporation (PAGCOR) and its licensees or contractors-
PD1869

Chapter 12 – Output VAT (Zero-rated Sales) Page 3

 BUSINESS AND TRANSFER TAXATION 2019

Tax-exempt entities under international agreements:

a. Asian Development Bank (ADB)
b. International Rice Research Institute (IRRI)
c. United Nation (UN) and its various organizations, such as:
a. World Health Organization
b. UNICEF
d. United States Agency for International Development (USAID) and its personnel and
contractors (RMC 40-07)
e. Embasies, qualified employees and dependents – subject to the reciprocity rule

ZERO-RATED SALES OF SERVICES

Categories of zero-rated sale of services:
1. Sale of services to non-residents
2. Effectively zero-rated sales of services
3. Transport of passengers and cargoes by domestic air or sea carriers from the
Philippines to a foreign country
4. Sale of power or fuel generated from renewable sources of energy
Sales of services to non-residents
1. Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines, which goods are subsequently exported
2. Services other than processing, manufacturing or repacking rendered to a person engaged in
business conducted outside the Philippines or to a non-resident person not-engaged in
business who is outside the Philippines when the services are performed.
Effectively zero-rated sales of services
The term ”effectively zero-rated sales of services” shall refer to the local sale of services to a person
or entity who was granted indirect tax exemption under specail laws or international agreements.
Transport of passengers and cargo by domestic air or sea carriers from the Philippines to a
foreign country
The outgoing transport services of domestic air carrier or sea carrier constitute services rendered in
the Philippines to non-residents. It is therefore subject to zero-rated VAT.
Sale of power or fuel generated through renewable sources of energy
The sale of power or fuel from renewable sources of energy isa zero-rated. Renewable sources of
energy may include, but is not limited to, biomass, solar, wind, hydropower, geothermal and steam,
ocean energy and other emerging sources using technologies such as fuel cells and hydrogen
fuels.(RA 9513 & RA 9337)
The zero-rating treatment is limited on sale of power and does not extend to sale of services related to
the maintenance or operation of plants generating said fuel.
Types of businesses in the electricity business:
a. Generation companies- refers to persons or entities authorized by the Energy Regulatory
Commission (ERC) to operate a facility used in the production of electricity.

b. Transmission companies- refers to any person or entity that owns and conveys electricity
through the high voltage backbone system and or subtransmission assets.

c. Distribution companies- refers to persons or entities including a distribution utility such as

electric cooperative which operates a distribution system with the provision of RA 9136
(EPIRA law).

Chapter 12 – Output VAT (Zero-rated Sales) Page 4