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VALUE ADDED TAX

What is the nature of VAT?


 VAT is a type of sales tax that is levied on consumption on the sale of goods,
services, properties, or lease of properties by VAT taxpayers, as well as
importation from abroad. A certain tax rate (0% to 12%) is added up to the selling
price of goods or services sold.
 Value-added taxation is based on taxpayers’ consumption rather than their
income. In contrast to a progressive income tax, which levies greater taxes on
higher-level earners, VAT applies equally to every purchase.
How is VAT Computed?
Output VAT XXX
Less: Input VAT XXX
VAT Due XXX
Less: Tax Credits XXX
VAT still due XXX
 Output VAT is the VAT on the vatable sales or receipts
 Input VAT is the VAT paid by the taxpayer on the domestic purchases for VAT
suppliers or on the importation of goods or services in the course of business.
 Tax credit is can be used by the taxpayer to reduce other internal revenue tax
obligation to the BIR
Summary of Tax Consequences of VAT-Taxable and VAT-Exempt Transactions.
Complete the table.

Kind of Transaction Tax consequences


VAT-taxable Sales or lease taxed  Seller is subject to VAT at 12%;
transactions at 12%  Seller is entitled to input tax credit;
:  Seller pays excess of output tax over
input tax to the BIR;
 Seller can carry-over excess input tax
to succeeding quarter(s).
Sales or leases tax  Seller is subject to VAT at 0%
at 0% (zero-rated)  Seller is entitled to input tax credit
 Seller can claim refund or tax credit for
input taxes
 Seller's extent of tax relief is full
.Exempt transactions  Seller is exempt from VAT
 Seller is not entitled to input tax credit
 Seller cannot separately bill output tax
to customers
 Seller shall be liable to VAT if he issues
Vat invoice or receipt, and without the
benefit of input tax credit

Who are the persons Subject to VAT?


 Any person who, in the course of trade or business, sells, barter, exchanges,
leases goods or properties and renders services who registered under VAT-
system, regardless of the levels of sales;
 Any person who, in the course of trade or business, sells, barter, exchanges,
leases goods or properties and renders services, whose gross sales or receipts
during the year or in any 12-month period exceed P3,000,000 threshold, whether
registered or not;
Note: For the purpose of P3,000,000 threshold, husband and wife are
considered as separate taxpayer.
 Any person who have VAT-exempt businesses which choose to register under
VAT-system, regardless of the level of sales;
 Franchise grantees of radio and/or television broadcasting whose gross annual
receipts exceed P10,000,000 threshold, but are registered;
 Importers of goods, whether or not in the course of trade or business, regardless
of purchases
Note: Unless specifically exempted by law, even a non-stock, non-profit
organization or government entity is liable to pay VAT on the sale of goods and
services.
Who are mandatory required to register as VAT-taxable?
 Those non-exempt businesses that has the Gross Sales/Receipt for the past 12
months exceed ₱3000000.
 Those non-exempt businesses whose expected sales or receipt for the next 12
months exceed ₱3000000.
 Those franchise grantees of radio and or TV broadcasting whose annual sales
for the last taxable year exceed ₱10000000.
What are the effects of failure to register by persons Required to do so?
 Any person who is required to register as a VAT taxpayer but failed to do so shall
be subject to output VAT as if they were VAT registered person even if they are
not registered, but they are not allowed to the benefit of input VAT credits.
Is cancellation of registration possible? When?
A VAT-registered person is allowed to cancel his VAT registration due to the following
circumstances:
1. If he makes a written application that can demonstrate that his gross sales or
receipts for the following twelve (12) months, other than those that are exempt
sales, will not exceed P3,000,000.
2. If the business is ceased.
3. In cases of single proprietorship, if there has been a change of ownership of the
business.
4. If there is a dissolution in cases of partnership or corporation.
5. If merger or consolidation took place with respect to the dissolved corporation.
6. If there has been a failure to begin or actually start the business.
7. If the business itself becomes Exempt.
8. When there is a voluntary registration by a person, and then he applies for the
cancellation after the lapse of three (3) years.
9. Beginning January 1, 2018, a VAT-registered individual whose gross
sales/receipts for three (3) consecutive years did not exceed P 3,000,000.
What are the consequences of Issuing Erroneous VAT Invoice or VAT Official
Receipt?
 If a non-VAT taxpayer issues an invoice or receipt that shows his TIN followed by
the word VAT,
o he shall be subject to the following:
i. the usual or applicable percentage tax
ii. the VAT due on transaction without the benefit of an input tax
iii. 50% surcharge
o The purchaser shall claim the VAT as an input tax credit, provided the
requisite information is shown on the invoice or receipt.
 If a VAT-taxpayers issues VAT invoice or receipt for VAT exempt transaction and
fails to indicate or pre-printing the caption EXEMT on the invoice or receipt,
o the transaction shall be subject to VAT thereon.
o The purchaser shall be entitled to claim input tax credit on his purchase.
What are the zero-rated transactions?
These sales are added to the taxable sales wherein their total will be the basis for
knowing whether or not it exceeded the threshold amount. Cases of zero-rated sales
shall require prior application with the appropriate BIR offices for effective zero-rating.
Without approved application, the transactions otherwise entitled to zero-rating shall be
considered exempt.
A. Zero-rated sale of goods
 EXPORT SALES
a. Direct export
 If non-VAT registered taxpayer, export sales shall be
considered exempt. The taxpayer can claim the input
VAT as expense
 Export sales of registered export traders shall include
commission income
 Exportation of goods on consignment shall not be
considered export until the export products consigned
abroad are in fact sold by the consignee
b. Sale to economic zones and tourism enterprise zones.
Technical exportation-(PCZCCPJA)
 Philippine Economic Zone Authority (PEZA)
 Cagayan Special Economic Zone
 Zamboanga Special Economic Zone
 Clark Special Economic Zone
 Clark Freeport Zone
 Poro Point Special Economic and Freeport Zone
 John Hay Special Economic Zone
 Aurora Special Economic Zone (ASZ) – RA 9490
c. Sale of goods or properties, supplies, equipment and fuel to
persons engaged in international air transport operation.
d. Considered export sales under EO 226 and other special laws
 The Philippine F.O.B. value of export products exported
directly by an export producer.
 The net selling price of export products sold by a
registered export producer to an export producer.
 The net selling price of export products sold by a
registered export producer to an export trader that
subsequently exports the same.
 Even without actual exportation, the following shall be
considered constructively exported:
 Sales to bonded manufacturing warehouses of
export-oriented enterprises
 Sales to export processing zones in pursuant to
RA 7916.7903, 7922 and other similar export
processing zones.
 Sales to enterprises duly registered and
accredited with the Subic Bay Metropolitan
Authority (RA 7227)
 Sales to registered export traders operating
bonded manufacturing warehouses supplying raw
materials in the manufacture of export products.
 Sales to diplomatic missions and other agencies
and or instrumentalities granted tax immunities, of
locally manufactured assembled or repacked
products whether or not paid for in foreign
currencies.
 Sales of goods, properties or services to a BOI-
registered manufacturer or producer.
 EFFECTIVELY ZERO-RATED SALES
a. Asian Development Bank (ADB)
b. International Rice Research Institute (IRRI)
c. United nation (UN) and its various organizations , such as:
 World Health Organization
 UNICEF
d. United States Agency for International Development (USAID)
and its personnel and contractors (RMC 40-07)
e. Embassies, qualified employees and dependents – subject to
the reciprocity rule.
f. Philippine National Red Cross (PNRC)
g. Philippine Amusement and Gaming Corporation (PAGCOR) and
its licenses or contractors- PD 1869
An approved application shall be given prospective effect from the date
received by BIR. The same shall be valid until December 31 of the
same year and renewable every year thereafter
Where to file application for zero rating:
 Taxpayers shall file their application with the Audit Information, Tax
Exemption and Incentives Division (AITEID) under the Assessment
Service
 For large taxpayers, applications shall be filed with the Large Taxpayer
Audit and Investigation Divisions I and II (LTAID I and II), BIR National
Office
VAT reciprocity exemption on embassies and their personnel:
 Under the reciprocity rule, foreign governments granting Philippine
embassies and diplomats indirect tax exemption shall likewise be
conferred the same treatment on their embassies or diplomats in the
Philippines
B. Zero-rated sale services
 Sales of Services to Non-Residents  Services other than processing,
manufacturing or repacking rendered outside the Philippines to a person
engaged in business or to a non-resident person not-engaged in business
who is outside the Philippines when the services are performed.
 Effectively Zero-Rated Sakes of Services  Local sale of services to a
person or entity who was granted indirect tax exemption under special
laws or treaty.
 Services Rendered to Persons Engaged in International Shipping or Air
Transport Operations, Including Leases of Property for Use  Service be
exclusively for international shipping or air transport operations.
 Transport of Passengers and Cargo by Domestic Air or Sea Carriers from
the Philippines to a Foreign Country  Outgoing services rendered in the
Philippines to non-residents.
 Sale of Power or Fuel Generated Through Renewable Sources of Energy
Limited to sale of power or fuel from renewable sources of energy and
does not extend to sale of services related to maintenance or operations
of plants producing said fuel.
 Services Rendered to Ecozones or Tourism Enterprises  Does not
extend to enterprises not registrable to ecozones
Enumerate exempt transactions.
EXEMPT TRANSACTIONS
 VAT taxpayers who are sellers of exempt goods, properties, or services should not
bill any output vat to customers

A. EXEMPT SALE OF GOODS OR PROPERTIES (SECRET Tax-free Gold)


TO/OF:
1. SENIOR CITIZENS AND PERSONS WITH DISABILITY
 Drugs, vaccines, and foods for medical purpose: SC AND PWD
 Vitamins: SC ONLY
 Accessories and equipment such as eye glasses, hearing aid, etc :
SC ONLY
 Casket or urn : SC AND PWD
2. EXEMPT GOODS (SALE OR IMPORTATION)
 AGRICULTURAL AND MARINE FOOD PRODUCTS IN THEIR
ORIGINAL STATE
o Original state - unprocessed. Undergone simple process of
preparation, preservation, or packaging such as boiling,
broiling, husking, roasting, stripping, grinding, freezing,
drying, smoking, salting including goods that are packaged
using advanced technological means of packaging
o Farm or fishery inputs intended for the production of marine
and agrixultural food products that are intended for human
consumption are exempt such as seeds, seedlings,
breeding, stocks, and genetic materials. Likewise for the
foods of these inputs such as fertilizers and feeds are
exempt.
 LIVESTOCK AND POULTRY OF A KIND GENERALLY USED AS,
OR YIELDING OR PRODUCING FOODS FOR HUMAN
CONSUMPTION
 BREEDING STOCK AND GENETIC MATERIALS
 BOOKS, NEWSPAPERS AND MAGAZINES
 PASSENGER OR CARGO VESSELS AND AIRCRAFTS
 MEDICINES FOR DIABETES, HIGH CHOLESTEROL OR
HYPERTENSION such as insulins and analogues and blood
glucose lowering drugs.
3. SALES OF COOPERATIVES
 Sales from related activities of cooperatives to members are
exempt from any business tax except to electric cooperatives.
 Sales from related activities of cooperatives to non-members are
only exempt if their accumulated reserves exceed Php 10,000,000.
4. SALE OF REAL PROPERTIES UNDER CERTAIN CONDITIONS
 Sale of real properties by a non-dealer of realty that are both not
held for sale and held for use in the ordinary course of the
business. This applies to the following:
o Capital assets of VAT taxpayers
o Real properties of non-VAT taxpayers
o Real properties of person not engaged in business
 Sale of real properties by dealer of realty which complies to the
following statutory price ceilings:
o Real properties utilized for socialized housing units:
 House and lot – Php 450,000
 Residential lot only – Php 180,000
o Real properties utilized for low-cost housing wherein the
price ceiling per unit is Php 750,000.
o Residential lot valued at Php 1,919,500/unit and below.
o Residential dwelling valued at Php 3,199,200/unit and below
5. EXPORT SALES OF NON-VAT TAXPAYERS
 The export sale of a person who is not VAT-registered will be
exempt from percentage tax.
6. TREATY-EXEMPT SALES OR SERVICES
 Receipts from services sold to entities which are exempt under
treaties or international agreements where Philippine Government
is a signatory – EXEMPT
7. TAX-FREE EXCHANGE OF PROPERTY
 Exchange of properties by a corporation in pursuant to a plan of
merger or consolidation - EXEMPT
 Exchange of properties by a person, alone or together with others
not exceeding four, which resulted to the acquisition of control –
EXEMPT
8. SALE OF GOLD TO THE BANGKO SENTRAL NG PILIPINAS (BSP)
 Reclassified the sale of gold to the BSP from zero-rated to -
EXEMPT
 Both applies to registered small scale miners and registered gold
traders. (RA 11256).
B. EXEMPT SALES OF SERVICES (SEARCH2 VA TRIPS)
1. EDUCATIONAL SERVICES OF SCHOOLS
 Educational services rendered by educational institutions, private
and government – EXEMPT
 Private educational institutions accredited by the Department of
Education, Commission on Higher Education, and Technical
Education and Skills Development Authority – EXEMPT
 Private educational institutions not duly accredited – TAXABLE
 Income from unrelated activities – TAXABLE
2. EMPLOYEES
 Services performed by employees in pursuant to employer-
employee relationship (compensation income) – EXEMPT, not
considered as business
 Person who exercises his or her profession (professional income) –
TAXABLE
 Director’s fee if director is not an employee of a corporation –
TAXABLE, regarded as engaged in business
3. AGRICULTURAL CONTRACT GROWERS AND MILLERS
 Services of producing, raising, or milling of agricultural or marine
food products or receipts from services for the processing of
agricultural products for ultimate consumption – EXEMPT
 Agricultural products and their processed results such as palay into
rice, corn into grits, and sugar cane into raw sugar – EXEMPT
 Other activities such as agricultural support services, food
processing, and food service enterprise – TAXABLE
4. RESIDENTIAL LEASING
 Lease of residential unit with monthly rental not exceeding P15,000
 Residential units- refer to apartments and houses and lots used for
residential purposes, and building or parts or units thereof used as
dwelling places such as, dormitories, rooms, and bed spaces,
EXCEPT, motels, motel rooms, hotels abd hotel rooms, lodging
houses, inns and pension houses.
 The term unit shall mean:
o An apartment unit
o A house
o Per person
o Per room
NOTE: The apparent purpose of this exemption is to provide tax
incentive for keeping the rentals of housing units low considering
that housing is a necessary and natural human consumption.
5. SALES OF SERVICES BY COOPERATIVES
 The gross receipts from sale of services by cooperatives such as
lending, marketing or multi-purpose cooperatives is EXEMPT
similar to the rules discussed under sales of goods by cooperative.
6. HEALTH OR HOSPITAL SERVICES
 Medical, dental, hospitals and veterinary services except those
rendered by professionals and sales of drugs by hospital
drugstores.
 The sale of the above services is not subject to business tax. This
rule applies to all health services whether rendered by a private,
non-profit or government hospital. Health services rendered by
professionals, and the sales of drugs are VATABLE.
NOTE: The leasing of clinic space is a sale of service that is not
part of the listed exempt sales of services and hence, VATABLE.
7. HOME OWNER'S ASSOCIATION OR CONDOMINIUM CORPORATION
 Exempted to association dues membership fees and other
assessments and charges collected on a purely reimbursement
basis.
 If it operates as if it sells services to members which it derives
mark-up and profit then it is taxable.
8. LEASE OF PASSENGER OR CARGO VESSELS AND AIRCRAFTS,
INCLUDING SPARE PARTS AND EQUIPMENT THEREOF
 Similar to import and sale, leasing of vessels and aircrafts including
spare parts and equipment are VAT-exempt.
NOTE: Yacht, fishing boat and private jets are not intended for
passenger or cargo transport, hence taxable.
9. TREATY-EXEMPT SALES OF SERVICES
 Services sold to entities which are exempt under treaties or
international agreements to which Philippine is a signatory are
exempt.
10. REGIONAL OR AREA HEADQUARTERS
 Acts as a supervisory, communications and coordinating centers for
their affiliates, subsidiaries or branches in the Asia Pacific Region
 Do not earn or derive income from the Philippines
11. INTERNATIONAL CARRIERS IN THEIR TRANSPORT OF
PASSENGERS
 Air carriers or shipping carriers owned by a resident foreign
corporation doing business in the Philippines
 Originating from the Philippines going abroad
12. PRINTERS/ PUBLISHERS
 The printing, or publication of books and any newspaper,
magazine, review, or bulletin which appear at regular intervals with
fixed prices for subscription and sale
 Not devoted principally to the publication of paid advertisements
13. SALE OF SERVICE TO SENIOR CITIZENS AND PERSONS WITH
DISABILITY
 Lodging establishment such as apartel, dormitory, motorist hotel,
tourism inn, and pension house excluding residency arrangements
 Hospital and clinic
 Sports and recreation centers
 Restaurants
 Land, air and sea travel
 Medical, dental, diagnostic and laboratory fees and professional
medical fees
 Funeral and burial services for the burial of senior citizens
C. OTHER EXEMPT SALES OF GOODS OR SERVICES
1. SALE OF GOODS OR SERVICE COVERED BY SPECIAL LAWS
 ECOZONE LOCATORS
o Subject to special 5% gross income tax
 RECEIPTS OF PROPRIETORS OF THEATERS OR CINEMAS
o Local government has the exclusive power to impose
business tax on gross receipts of cinemas and theaters
2. SALES BY PERSONS NOT ENGAGED IN BUSINESSES
 Sale of goods, real properties, or services by persons not engaged
in business – NOT SUBJECT TO BUSINESS TAX
3. SALES OF ASSETS HELD FOR USE
 Assets held for use are supplies and items of property, plant and
equipment – EXEMPT
 For VAT-registered taxpayers, sale of ordinary assets = incidental
transactions – SUBJECT TO VAT
D. OTHER EXEMPT TRANSACTION
1. QUASI-IMPORTATION
 Import of personal and household effects belong to residents of the
Philippines returning from abroad or non-resident citizens coming to
resettle in the Philippines. Provided such goods are exempt from
Custom duties
 Importation of professional instruments and implements, wearing
apparel, domestic animals, and personal household effects
belonging to persons coming to settle in the Philippines, for their
own use and not for sale, exchange or barter.
2. EXPORT SALES BY NON VAT REGISTERED
3. SERVICES OF BANKS, NON BANK FINANCIAL INTERMEDIARIES
PERFORMING QUASI BANKING FUNCTIONS AND OTHER NON BANK
FINANCIAL INTERMEDIARIES SUCH AS MONEY CHANGER AND
PAWNSHOPS SUBJECT TO PERCENTAGE TAX
4. SERVICES SUBJECT TO PERCENTAGE TAX
5. SALES BY NON-AGRICULTURAL, NON-CREDIT, AND NON-ELECTRIC
COOPERATIVE DULY REGISTERED TO COOPERATIVE
DEVELOPMENT AUTHORITY. Given that the share capital contribution of
the members does not exceed Php 15,000
 Importation of machineries and equipment by these cooperatives
are subject to VAT
VAT-taxable transactions
A. VAT-taxable sale of goods/properties
 12% VAT based on gross selling price/ gross sales, reported in the month of
sale.
Gross selling price – indicates the total cost to be paid by the purchaser together
with the excise tax, if given. It includes sales made in cash, on credit, and on
installment basis.
Allowable Deductions from Gross selling price:
- Discounts at the time of sale (ex. trade discounts). Discounts must not
depend to the happening of a future event in order to be deductible against
the selling price.
- Sales returns and allowances during the month or quarter.
- Example:
In October 2021, Reyes Corporation, a VAT seller, made the following
sales:
Cash Sales P 400,000
Advances from customers 80,000
Sales on installments (P20,000 collected) 50,000
Credit sales (P120,000 collected) 250,000
Delivery Charges 20,000
Total Sales P 800,000

Gross selling price and Output VAt is computed as:


Cash Sales P 400,000
Sales on installments (P20,000 collected) 50,000
Credit sales (P120,000 collected) 250,000
Delivery Charges 20,000
Gross Selling Price P 720,000
Output VAT rate x 12%
Output VAT P 86,400
 Unreasonably lower selling price
If the selling price of the goods sold is discounted by more than 30% of the
actual market value/ fair market value which shall be modified by the
Commissioner of Internal Revenue, the gross selling price is said to be
unreasonably lower.
Discount rate could be computed as :
Discount rate = (Fair Value - Selling Price)
Fair Value
If the answer Is more than 30%, then, the selling price is unreasonably
lower. In this case, the output VAT must be based on the fair value.
Example: Ms. Min, a VAT-registered seller, made the following sales to private
customers on June 2020:

Customer Fair Value Selling Price


1 P200,000 P220,000
2 60,000 40,000
3 120,000 100,000
Total Sales P360,000
Using the formula given above, the discount rates of each sales
transactions are as follows:

Customer Discount Rate


1 0%
2 33.33%
3 16.67%
Since the discount rate in the sale to Customer 2 exceeded 30%, the
basis of the output VAT shall be the fair value of the goods sold.
Output Vat is computed as:

Customer Fair Value Selling Price Tax Basis


1 P200,000 P220,000 P220,000
2 60,000 40,000 60,000
3 120,000 100,000 100,000
TAX BASIS P380,000
Output VAT Rate X 12%
Output VAT P45,600
However, the output VAT must be based on the actual selling price if the
sales are made to the government. The fair value rules on sales at unreasonably
lower selling prices does not apply to sales made to the government.
i. VAT on sale of Real Properties
Sale of Real Properties that classifies as
 Held primarily for sale to customers
 Held for lease in an ordinary course of trade or business of the
seller
 Used in trade or business
shall be subject to VAT:
1. Regardless of the amount of the gross selling price, if the real
property is not residential (ie., commercial, industrial, etc.)
2. If real property is residential, it shall subject to VAT if the GSP
exceeds:
a. P 1,919,500 for residential lots, or
b. P 3,199,200 for residential house and other
residential dwellings.
SALES OF VATABLE PROPERTIES
a. In the sale, barter, or exchange of vatable real properties
 It is subject to VAT on the gross selling price.
 Under the regulations, Gross Selling Price means the
higher of the:
a. Consideration or selling price
b. Fair value of the property
Note: It must be noted that the term "selling price" or
consideration on the sale of property is legally presumed
VAT INCLUSIVE.
 Under the NIRC, the fair value of real property is the higher
between the:
a. Zonal value ; and
b. Fair value per assessor's office
Note:
In the absence of a zonal value, "gross selling price" shall
mean the fair value per assessment or consideration stated
in the sales document, whichever is higher.
If the gross selling price is based on the zonal value or
assessor's fair value of the property, the zonal value or
assessed value shall be presumed EXCLUSIVE of VAT.
Additional Note:
 If VAT is not billed separately in the sales document, the
selling price is deemed inclusive of VAT.
 If the fair market value is higher than the selling price
(FV>SP), the output VAT must be separately billed with
specific mention that the VAT billed separately is based on
the market value of the property.
b. Sale of properties considered "ordinary assets"
The sale shall be subject to VAT if:
 The real property are primarily held for sale to customers or
held for lease in the ordinary course of business.
 The real property is held used in the trade or business of
the seller. Since the transaction is incidental to the
taxpayer's main business. The sale of properties held for
use (ordinary assets) such as land, building, equipment,
machineries, property improvement, and supplies aside
from inventories and supplies are therefore vatable.
Sale of property NOT in the ordinary course of business
 It is exempted. Hence, the sale of capital assets is exempt
from VAT.
c. Sale of property by a realty dealer on a deferred payment basis.
 If it is NOT ON INSTALLMENT PLAN.
It shall be treated as a CASH SALE and subject to VAT in
the month of sale.
VAT= 12% of whichever is higher in the fair value or gross
selling price
 If it is ON INSTALLMENT PLAN
a. VAT Payments = 12% of installment payments
BUT
b. Where Gross Selling Price = Zonal or Assessor’s value
Actual collection of consideration
Higher of
( exclusive of VAT ) Zonal Value
× = TAX
Agreed consideration appearing Or Assessor’s
Value
in the contract ( exclusive of VAT )

Tax Base x 12% = VAT


d. Additional Notes
i. A person who is not engaged in the real estate business but
who is selling real property which is classified as its ordinary
asset is also subject to VAT.
ii. If two (2) or more adjacent residential lots, house and lots, or
other residential dwellings are sold or disposed in favour of
one buyer from the same seller, for the purpose of utilizing
the same as one residential area, the sales shall be VAT
taxable if the agreed value of the properties exceeded P
1,919,500 for residential lots and P 3,199,200 for residential
house and other residential dwellings.
iii. The sale of parking lots is subject to VAT regardless of the
amount of the selling price since parking lots are not
residential lots.
iv. The output VAT on the sale of vatable properties is reported
in the month of sale or by installment method.
v. The sale of property by a realty dealer on a deferred payment
basis not on the installment plan, shall be treated as a cash
sale. The fair value or gross selling price whichever is higher
is subject to VAT in the month of sale. Subsequent collections
from the sale shall no longer be subjected to VAT.
vi. Interest and penalties actually or constructively received by
the seller are likewise subject to VAT.
vii. VAT may likewise be imposed in foreclosure sales. When the
mortgage falls to the real property which was an ordinary
asset in his hands, the VAT must be paid by the mortgagor
on or before the 20th day or 25th day of the month following
the month with right of redemption prescribes.
B. VAT-taxable sale of services
SALE OF SERVICES
 This refers to all kind of services in the Philippines rendered for others for a fee,
remuneration, or consideration. In order for the sale services to be considered
vat-taxable, there are requisites that the sale must satisfy. These requisites are
the following:
1. The sale is conducted in the ordinary course of business.
2. For leases or use of property, it must be leased and used in the
Philippines.
3. The seller or lessor is VAT-registered, or the gross receipts of the seller or
lessor during the year or in any 12-month period exceed the P 3,000,000
minimum gross receipts; and
4. In the case of lease of a residential unit, the monthly rental exceeds P
15,000 and the aggregate annual gross receipts of the lessor exceed P
3,000,000
 Sale of services which satisfied the requisites are subject to 12% VAT based on
Gross Receipts, net of Vat or 12%/112% of the total invoice amount, gross of
VAT.
o Gross receipts- is the total amount of money of its equivalent representing
the contract price, compensation, service fee, rental or royalty, including:
 the amount charged for materials supplied with the services,
 deposits applied as payments for services, rendered and
 advance payments actually or constructively received during the
taxable year for the
Constructive receipt- the consideration is placed at the control of the
person who rendered the services without restrictions by the payor.
 Timing of Output VAT reporting for sales or services:
o The sale, barter or exchange of vatable services is reported in the month
of collection.
TAXABLE SERVICES:
 All kinds of services in the Philippines for a consideration, as long as it is not
exempted by law.
1. Sales of transportation contractors on their transport of passengers, goods or
cargoes from one place in the Philippines to another place in the Philippines.
2. Sales of common carriers by air and sea relative to their transport of
passengers, goods, or cargoes for hire and other domestic common carriers
by land relative to their transport of goods or cargoes;
Notes:
o Common carriers by land with respect to their gross receipts from the
transport of passengers, shall not be liable to VAT, but to the percentage tax.
o Additional charge for excess baggage is subject to VAT.

Mode of transport Passengers Baggage/Mails/Cargoes


By land 3% percentage tax Vatable
By sea Vatable Vatable
3. Sales of electricity by generation (any person or entities authorized by the
ERC to operate a facility used in production of electricity), transmission (any
person or entity that owns and conveys electricity through high voltage
backbone system and/or sub-transmission assets) and distribution
companies (persons or entities including distribution utility such as electric
cooperatives which operates a distribution system.
The sale of power from renewable sources of energy is zero-rated but it does
not extend to sale of services related to the maintenance or operation of the
plants generating the fuel.
 The gross receipts refer to the amounts charged by the generation,
transmission companies and distribution companies.
 In computation of the gross receipt, the universal passed on and
collected by the distribution companies and electric cooperative are
excluded.
 The sale of power from renewable sources of energy is zero-rated.
4. Sales of franchise grantees of electric utilities, telephone and telegraph, radio
and television broadcasting and all other franchise grantees except:
 Radio or television companies whose annual gross receipt does not
exceed the threshold of ₱10,000,000 (subject to 3% franchise tax)
 The franchise of gas and water utilities (subject to 2% franchise tax)
 Amounts received from the overseas dispatch, message or
conversation transmitted from the Philippines through telephone,
telegraph, telewriter exchange, wireless and other communication
equipment services (subject to 10% overseas communication tax)
 Sale of services of PAGCOR (subject to 5% tax)
5. Non-life insurance companies including surety, fidelity, indemnity, bonding
companies, marine, fire and casualty insurance;
Gross receipt includes collection of cash or money substitutes such as check,
except:
 Crop insurance premiums
 Re-insurance premiums
 Returned premiums (premiums that are refunded within the period of 6
months after payment on account of rejection of risk or returned for
other reasons)
 Premiums from life insurance of non-residents received from abroad by
branches of domestic firms doing business outside the Philippines
 Excess of premiums on variable contracts in excess of the amounts
necessary to insure the lives of the variable contract owners
 DST and local taxes passed on by insurance companies to the insure
Note: the insurance and re-insurance commissions whether life or non-life are
subject to VAT

6. Lease of properties
 Lessors of properties whether personal or real properties are subject to
VAT.
 Any advance payments that as long as it constitutes pre-rental are also
subject to VAT. But if the said payment constitutes a loan, option
money, or security deposit, then the said pre-payment is not subject to
VAT.
 VAT on rentals or royalties payable to a non-resident owner or non-
resident lessor shall be withheld by the lessee or licensee in behalf of
the resident and remitted to the BIR.
7. Dealers in Securities
 in securities shall be subject to VAT on the basis of their gross
receipts. Wherein, the term “gross receipts” means gross selling price
less cost of the securities sold.
Formula:
Gross Receipt= GSP - cost of securities
Note: “Dealer in securities” means a merchant of stock or securities,
whether an individual partnership or corporation, with an established
place of business, regularly engaged in the purchase of securities and
their resale to customers, that is, one who as a merchant buys
securities and sells them to customers with a view to the gains and
profits that may be derived therefrom.
8. Pre-need companies
Refers to schools, memorial chapels, banks, nonbank financial institutions
and other entities which have also been authorized/licensed to sell or offer to
sell pre-need plans insofar as their pre-need activities or business are
concerned.
Pre-need companies are treated for VAT purposes as a dealer in securities
whose gross receipts is the amount actually received as contract price without
allowing any deduction from the gross receipts. (RR No. 16-2005)
Formula:
Gross Receipts = premiums or payments received from the plan holders
9. Health Maintenance Organization (HMO)
(HMO) provides prepaid health and medical insurance coverage to its clients.
Individuals enrolled in its health care programs pay an annual membership
fee and are entitled to various medical services provided by licensed
physicians and other professional technical staff.
 Taxable base of HMOs for VAT purposes is its gross receipts without
any deduction (Section 4.108.3(k) of Revenue Regulations (RR) No.
16-2005 (or the Consolidated VAT Regulations).
 Amounts earmarked and actually spent for medical utilization of its
members should not be included in the computation of its gross
receipts.
Formula:
Gross Receipts = service fees = enrollment fees + other charges received
from their members
What is Output VAT? What is the tax base?
OUTPUT VAT
 12% of the gross selling price exclusive or net of VAT of the goods sold,
bartered, exchanged or deemed sold in the Philippines or 12/112 of the total
invoice price(inclusive of VAT)
 For zero rated sales,the output VAT is 0% of the gross selling price.
TAX BASE OF OUTPUT VAT
 Gross selling price(GSP), net of Sales Discounts, Sales Returns and Allowances
 Gross Selling Price means the total amount of money or its equivalent which the
purchaser must pay the seller in consideration of the sale, barter or exchange.
Any excise tax shall form part of the GSP.
 When the GSP is unreasonably lower than the actual market value, the CIR
shall, by rules and regulations prescribed the Secretary of Finance, determine
the appropriate tax base. -However, when one of the parties is the government,
the output VAT shall be based on actual selling price.
 Unreasonably lower means lower by more than 30% of the actual market value.
 If sale of goods- the tax base is the gross selling price unless unreasonably lower
 If sale of services- the tax base is gross receipts
 If sale of properties- the tax base is gross selling price as defined by the BIR
 If transactions deemed sales- the tax base is the fair value of property deemed
sold
What is Input VAT?
Input tax or commonly known as input vat refers to the VAT due or paid by a Vat-
registered person on importation or local purchases of goods, properties, or services
including lease or use of properties in the course of his trade or business.

 What is Creditable input VAT?


Any input VAT paid in purchase that is creditable or deductible against output
vat. The requisites are: Input vat must be paid or incurred in the course of trade
or business. There is evidenced by a VAT invoice or official receipt and it must
be issued by a VAT- registered person. Input VAT is incurred in relation to
vatable sales not from exempt sales.

 Who can avail of input tax credit?


Vat- registered person with vat invoice and paid in the course of business and
should not be an exempt sales/ Any VAT- registered taxpayer claiming a refund
or excess or unutilized input tax credit
 What are the types of Claimable Input VAT?
o Transitional Input VAT
 Person allowed the transitional input VAT: Those persons:
1. becoming VAT-registered for the first time upon exceeding the
minimum gross sales of Php3000000 in any 12-month period or
2. who voluntarily register under the VAT system
 Transitional Input VAT- Higher of (2% of the value of the beginning
inventory, or the actual input VAT paid on such goods, materials, and
supplies). Provided that inventory shall exclude good exempt from
VAT.
 Requisites for Claim of Transitional Input VAT
1. The taxpayer must submit an inventory list of goods
2. The taxpayer must prepare on entry recognizing the transitional
input VAT credit in his accounting books.
ii. Regular Input VAT
 The Regular input VAT is the 12% VAT paid on:
o Domestic purchase of goods, services, or properties, or
o Importation of goods or services
 Timing of Credit of Regular Input VAT

Source of Regular input VAT Timing of credit


Purchase of goods or properties In the month of purchase
Purchase of service In the month paid
Importation of goods In the month VAT is paid
Purchase of depreciable capital In the month of purchase
goods or properties: -General -Amortized over useful life in
treatment -When the monthly months or 60 months, whichever
aggregate acquisition cost is shorter
exceeds P1,000,000
Purchase of non-depreciable Not creditable
vehicles and on maintenance
incurred thereon
iii. Amortization of Deferred Input VAT
Input VAT on Purchase of Capital Goods or properties
 If the monthly aggregate acquisition cost of depreciable capital goods:
o Does not exceed Php1,000,000 - The input VAT is claimable in
the month of purchase
o Exceeds Php1,000,000 - The input VAT is deferred and
amortized over the useful life in months or 60 months (i.e., 5
years), whichever is shorter.
 The input VAT to be amortized is called the "Deferred
Input VAT"
 Meaning of aggregate acquisition cost
o The aggregate acquisition cost of a depreciable asset in any
calendar month refers to the total price, excluding the VAT,
agreed upon for one or more asset acquired and not on the
payments actually made during the calendar month.
 Sale or transfer of depreciable good within a period of 5 years or prior
to the exhaustion of the amortizable input tax
o If the depreciable capital good is sold or transferred within a
period of 5 years or prior to the exhaustion of the amortizable
input tax thereon, the entire unamortized input tax on the capital
goods sold or transferred can be claimed as input tax credit
during the month or quarter when sale or transfer was made.
 Meaning of capital goods or properties.
o Capital goods or properties refers to goods or properties with
estimated useful life greater than one (1) year and which are
treated as depreciable assets under the Tax Code, used directly
or indirectly in the production or sale of taxable goods or
services.
 Special Rules on Input Tax Credit
o Non-depreciable vehicle
o Rules in deductibility of depreciation vehicles:
 Only one vehicle for land transport is allowed for the
use of an official or employee, the value which not
exceed Php2,400,000
 No depreciation shall be allowed to yachts,
helicopters, airplanes, and/or aircraft, and lands
vehicles which exceed the 2,400,000, unless taxpayer's
main line is business transport operations or lease of
transport equipment and the vehicles are used in said
operations.
 Purchase must be substantiated with sufficient
evidence such as official receipts or other adequate
records.
 The direct connections or relation of the vehicles to
the development, operation and or conduct of the trade
or business or profession of the taxpayer must be
substantiated.
 Construction in progress
o Construction in progress (CIP) is the cost of construction work
which is not yet completed. CIP is not depreciated until the
asset is placed in service. Normally, upon completion, a CIP is
reclassified and the reclassified asset is capitalized and
depreciated.
 CIP is considered, for purposes of claiming input tax,
as a purchase of service, the value of which shall be
determined based on the progress billings.
 Until such time the construction has been completed,
it will not qualify as capital goods as defined, in which
case, input tax credit on such transaction can be
recognized in the month the payment was made;
provided, that an official receipt of payment has been
issued based on the progress billings.
 Purchase or real property on installment
o If the seller of the real property is subject to VAT on the sale on
a deferred payment basis not on the installment plan, the Input
VAT shall be claimable by the buyer at the time of the
execution of the instrument of sale, subject to the amortization
rule on depreciable properties.
o If the purchase is installment and the seller is allowed to bill the
output VAT in installment, the buyer can also claim the Input
VAT in the same period as the seller recognizes the output
VAT.
 Purchase of goods or properties deemed sold
o The claimable input VAT on goods or properties previously
deemed sold shall be the portion ot the output VAT imposed
upon the goods deemed sold which corresponds to the goods
purchased by the buyer.
iv. Presumptive Input VAT
 Allowed to a persons or firms who are engaged in :
(SaMaMiCoPaRE)
o Processing of: Sardines, Mackerel and Milk
o Manufacturing of: Cooking Oil, Packed Noodles and Refined
Sugar
 The rate of presumptive tax is equivalent to 4% of the gross value in
money of their purchase or primary agricultural products which are
used in their productions.
v. Standard Input VAT
 The sale of goods and services to the government or any of its
political subdivisions, instrumentalities or agencies, including GOCCs
is subject to 5% final withholding VAT based on the gross payment
 Who will withhold the final withholding VAT?
o The government, instrumentalities or agencies, including
GOCCs shall withhold the final VAT, before making the
payment and remit the same within 10 days following the end
of the month the withholding was made.
o The VAT seller to the government, its instrumentalities, and
agencies or GOCCs can effectively claim only 7% of sales as
Input VAT. This is called the “standard input VAT”
 The increase or decrease in the actual input VAT on the
sale resulted from the conforming of the amount of
standard input VAT should be closed as expense/loss
or income/gain.
 For non-VAT seller:
o The government or GOCCs shall withhold a 3% final
percentage tax on the sale before payment
vi. Input VAT Carry-over
 It is the excess of input VAT over the output VAT in a particular
month or quarter. It is the VAT overpayment that appears after tax
credits and payments are deducted against the net VAT payable.
 Rules on Input VAT carry-over
o The input VAT carry-over of the prior(previous) quarter is
deductible in the first month of the current quarter.
o The input VAT carry-over in the first month of the quarter is
deductible in the second month of the quarter.
o The input VAT carry-over in the second month of the quarter
is NOT deductible to the third month of the quarter.
o The input VAT carry-over of the prior(previous) quarter is
deductible in the third month quarterly balance of the
present(current) quarter.
 Excluded from Input VAT carry-over
o Advanced VAT which has been applied for tax credit
certificate.
o Input VAT attributable to zero-rated claim which have been
applied for a tax refund or tax credit certificate.
o Input VAT attributable to zero-rated sales that expired after
the 2-year prescriptive period

 How is Input Tax Credit used?


 Input VAT is used as a credit against the Output VAT to compute the VAT
due/payable.
 Any excess ITC shall be carried over to the next succeeding months or quarter.
 Input VAT attributed to zero-rated sales by a VAT-registered taxpayer may, at his
option, be used as:
o Tax refund;
o Tax credit against other internal revenue tax obligations to the BIR (Tax
Credit Certificate); or
o Be applied against the output VAT from sales of a VATable line of
business or carried over to the succeeding period.
 Input VAT attributable to VAT-exempt sales is expensed and is not claimable as
tax credit.
Determination of ITC in a Taxable Month/Quarter
Formula: All input taxes arising during the month/quarter
+ Input tax carried over from previous period
+ Deferred ITC
Less: Claim for VAT refund or tax credit
Less: Input tax attributable to exempt sales
Less: Input tax attributable to final withholding tax
Input tax credit for the month/quarter

 ITCs for VAT-Registered Persons who are also engaged in Non-VAT Lines of
Business
 Such taxpayers shall be entitled to the following ITCs
o Input VAT directly attributable to transactions or sales subject to VAT;
o For input VAT that cannot be directly attributed to either VAT-taxable,
VAT-exempt, zero-rated or government transactions, only the ratable
portion pertaining to the VAT-taxable and 0-rated transactions may be
recognized for ITCs.
Formulas:
Input Tax to be
Total Sales on VAT-taxable sales Unattributed allocated to VAT-
Total Sales/Receipts X Input Taxes = taxable transactions

Input Tax to be
Total Sales/Receipts on Exempt S ales Unattributed
X Input Taxes = allocated to Exempt
Total Sales/Receipts transactions

Input Tax to be
Total Sales/Receipts on Zero-Rated Sales Unattributed
X = allocated to Zero-
Total Sales/Receipts Input Taxes
rated transactions

Input Tax to be allocated


Total Sales/Receipts on Gov't Sales Unattributed
to Government
Total Sales/Receipts X Input Taxes =
transactions

Notes:
 Input taxes (a) directly attributable and (b) ratably allocated to VAT-exempt sales
- not allowed as ITCs but shall be treated as part of costs or expenses.
 Input taxes (a) directly attributable and (b) ratably allocated to sales to the gov’t -
not allowed as ITC’s BUT excess over the implied 7% input VAT will be
expensed.
 Input taxes (a) directly attributable and (b) ratably allocated to 0-rated sale - shall
be allowed as ITCs and any excess can be carried forward, or refunded or
applied for a tax credit certificate (TCC).
REFUND or TAX CREDIT OF INPUT TAX
Only VAT-registered persons may apply for issuance of a TCC or refund on the
following basis:
1. Input taxes paid corresponding to 0-rated or effectively 0-rated sales;
2. Unused input taxes as of the date of the retirement from or cessation of
business;
3. Unused input taxes due to cessation of status of a VAT-registered person;
4. Advance (output) VAT paid when refined sugar is actually exported or sold to a
registered enterprise in an economic zone.
What is Advance VAT?
 Technically, advanced VAT is not an input VAT and not included as part of
allowable input VAT. It is an advanced payment which is a deduction after the
net VAT payable is determined. However, unutilized advanced VAT in the period
may form part of the "Input VAT carry-over" if opted by the taxpayer.
Who are subject to the advance payment of VAT?
 The owners or resellers of the goods mentioned below are subject and required
to pay Advance Bat before the withdrawal at the point of production:
a) Refined Sugar
The term sugar includes those with sugar content of sucrose by weight, in
dry state other than the raw sugar itself.
In computing the Advance Vat of the refined sugar the Base Price of
Advance VAT is P1400 per 50kg. bag.
The exception only receive when the owner of the refined sugar and
withdrawn by a cooperative.
b) Flour
 The Advance VAT of importation of wheat by a flour miller shall be
paid before the release from the Bureau of Customs
Basis – 75% of the sum of:
a. Invoice value multiplied by the currency exchange rate on the
date of payment;
b. Estimated customs duties and other charges prior to release
from Custom’s custody, except for the Advance Vat; and
c. 5% of the sum mentioned above.
Computed as 12% * 75& * 105% * (a + b)
 For those who purchase wheat by flour millers from traders, the
Advance VAT shall be paid before the delivery of wheat.
Basis – 75% of the sum of:
a. Invoice Value
b. Estimated Freight
c. 5% of the sum of a and b.
Note: Advance VAT is not paid by the traders who import wheat
regardless the intention of importation.
c) Naturally Grown and Planted Timber
Naturally grown and planted timber owners or sellers, natural or juridical,
that holds permits issued by, agreements entered into with, the Department
of the Environment and Natural Resources (DENR) shall pay Advance VAT
before it is transported for the purpose of sale.
Basis – 12% Advance VAT are based on per cubic meter of the following:
Luzon Visaya Mindanao
s
Philippine mahogany group, Manggasinoro group, P1400/m3 P1425/m3
Narig group, Polasapis group, Guijo group
Yakal group P1500/m3 P1530/m3
Apitong group P1260/m3
Softwood Species except Igem P715/m3
Igem P1275/m3
Nato P1000/m3
Furniture/Construction hardwood P950/m3
Premium Species, allowed cut P3000/m3
Lesser-used P700/m3
Pulpwood, chip wood and mathwood species P95/m3

Note: Owner or seller of naturally grown and planted timber will be exempt
in Advance VAT when he can present a Certificate of Registration showing
that he is subject only to Other Percentage Tax of 3%. But if the owner’s or
seller’s products to be transported exceeds P3,000,000 he shall pay
Advance VAT.
Time for Filing Claim for refund or TAX CREDIT
 For input taxes on zero-rated sales or lease of goods, properties, or services:
o Taxpayers should file the application within two (2) years after the close of
the taxable quarter when such sales were made.
 For unused input taxes upon retirement, change, or cessation of status as a
VAT-registered person.
o Taxpayers should file the application within two (2) years from the date of
cancellation of his VAT registration.
Place of Filing Application or Claim
 Claims for refunds/ tax credit certificates shall be filed with the appropriate BIR
office ( Large Taxpayer's Service (LTS) or Revenue District Office (RDO)) having
jurisdiction over the principal place of business of the taxpayer.
 Direct Exports shall file their claims for refunds/ tax credit certificates with VAT
Credit Audit Division (VCAD)
 The filing of the claim with one office shall preclude the same filing of the same
with another office.
Filing of VAT Return or declaration
A. Monthly VAT
 All persons liable to pay VAT shall pay a monthly VAT based on taxable
receipts and creditable purchases for the month
 BIRForm2550- file not later than 20th day following the end of the taxable
month
o shall be filed only for the first 2 months of each quarter.
B. Quarterly VAT
 All person liable to VAT shall file a quarterly return which shall include
sales and purchase information from the quarter, including the information
for the first two months of the quarter from which monthly VAT returns
have been filed.
 The taxpayer should file BIR form 2550Q not later than the 25th day
following the end of the taxable quarter. Payments made in the two
previous monthly VAT returns shall be credited against the quarterly VAT
payable to arrive at the net VAT payable (or excess input tax) for the
quarter.

C. Return under EFPS

Business Industry Period for filing Monthly VAT


declaration
Group A 25 days following the end of the
month
Group B 24 days following the end of the
month
Group C 23 days following the end of the
month
Group D 22 days following the end of the
month
Group E 21 days following the end of the
month

Taxpayers enrolled in the Electronic Filing and Payment System (EFPS) shall be
required to file their monthly VAT declarations depending on their industry classification.
D. Short Period Return
 Within 25 days from the end of the month when the business ceases to
operate or when the VAT registration has been officially cancelled.
 However, subsequent monthly declaration/ quarterly returns are still
required to be filed if the results of the winding up of the affairs or business
of the taxpayer reveal taxable transactions.