4/23/2020

Value Added Tax

BUS-TAX / 2nd Semester AY 2019-2020

Contents Value Added Tax

a. Business Taxes
b. Value Added Tax
c. VAT Registration
d. VAT for Seller of Goods, Properties
and Services (Output VAT)
e. VAT for Buyer of Goods, Properties
and Services (Input VAT)
f. Final Withholding VAT
g. Mixed Business Transactions
h. Administrative Provisions

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Business Taxes
Business taxes are those imposed upon onerous transfers such as sale, barter,
exchange and importation.

Exception: Any business pursued by an individual where the aggregate gross sale or
receipts do not exceed P100,000 during any twelve (12) month period shall be
considered principally for subsistence or livelihood and not in the ordinary course of
trade or business.

Types:
1. Valued Added Tax
2. Other Percentage Taxes
3. Excise Taxes
4. Documentary Stamp Taxes

Value Added Tax

1. It is imposed not on the goods or services as such but on the privilege of selling
or importing goods ore rendering services for a fee, remuneration or
consideration

2. It is an indirect tax and the amount of tax may be shifted or passed on to the
buyer, transferee or lessee of the goods, properties or services.

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Exempt transactions
See separate discussion (part 2f) of this topic

VAT Registration – (Mandatory Registration)

• If the aggregate amount of actual gross sales or receipts exceed P3,000,000 for
the past 12 months (other than those that are exempt) or there are reasons to
believe that the gross sales or receipts for the next 12 months will exceed
P3,000,000.

• Radio and/or television broadcasting companies whose annual gross receipts of

the preceding year exceeds P10,000,000

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

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VAT Registration – (Optional Registration)

• Any person who is VAT-exempt or not required to register for VAT may, in relation
to the first bullet of the previous slide, elect to be VAT-registered by registering
with the Revenue District Office, and pay the annual registration fee of P500 for
home office and branch registration. Any person who elects to register under this
condition shall not be allowed to cancel his registration for the next three (3)
years.

• 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.

VAT Registration – (cont. Optional Registration)

• Franchise grantees of radio and/or television broadcasting whose annual gross
receipts of the preceding year do not exceed P10,000,000 derived from the
business covered by the law granting the franchise may opt for VAT registration.
This option once exercised, shall be irrevocable.

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VAT Registration – (Cancellation)

• If he makes a written application and can demonstrate to the Commissioner’s
satisfaction that his gross sales or receipts for the following 12 months, other than
those that are exempt, will not exceed P3,000,000.
• If he has ceased to carry on his trade or business, and does not expect to
recommence any trade or business within the next twelve months.
• Power of the Commissioner to suspend business operations

The commissioner may order suspension or closure of business for a period of not
less than 5 days for any of the ff. violations:
1. Failure to issue receipts or invoices
2. Failure to file VAT return
3. Understatement of taxable sales or receipts by 30% or more of the correct
taxable sales or receipts for the taxable quarter
4. Failure of any person to register as required under the law

VAT for Seller of Goods, Properties and Services

Formula:
Output tax – Input tax = VAT Payable (if the difference is positive)
Output tax – Input tax = Excess Input Tax (if the difference is negative)*

*Can be credited for the next tax period or apply for refund

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Output tax
Formula:
Tax Base x 12% as a general rule or 0% as zero rated sales = Output Tax

A. Tax Base – Actual Sale

• Personal Property – Gross Selling Price
• Real Property (Cash Sale) – Gross Selling Price vs. Fair Market Value vs. Zonal
Value (whichever is the HIGHEST)
• Real Property (Deferred Payment Basis) – Gross Selling Price vs. Fair Market
Value vs. Zonal Value (whichever is the HIGHEST)
• Real Property (Installment Plan) – (Collection over Gross Selling Price) x Gross
Selling Price vs. Fair Market Value vs. Zonal Value (whichever is the highest)

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Output tax
Formula:
Tax Base x 12 or 0% = Output Tax

Transactions deemed sale

1. 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 VAT-registered person withdraws goods from his
business for his personal use,
2. Distribution or transfer to a. shareholders or investors share in the profits of VAT-registered
person or b. creditors in payment of debt,
3. Consignment of goods if actual sale is not made within 60 days following the date such goods
were consigned; and
4. Retirement from cessation of business with respect to all goods on hand, whether capital
goods, stock-in-trade, supplies or materials as of the date of such retirement or cessation,
whether or not the business is continued by new owner or successor.

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Output tax
Formula:
Tax Base x 12% as a general rule or 0% as zero rated sales = Output Tax

B. Tax Base – Transaction deemed sale

• 1, 2, and 3 in the previous slide – Fair Market Value
• 4 – Historical Cost or Actual/Acquisition Cost vs. Fair Market Value (whichever is
lower)

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Output tax
Definition:
• Gross Selling Price – Gross Sales less Sales Discount, Return and Allowances
plus Excise Tax (if any)
• Fair Market Value – as shown in the schedule of values of the Provincial and City
Assessors (real property tax declaration)
• Zonal Value – fair market value as determined by the Bureau of Internal Revenue
• Deferred Payment Basis – means sale of real property, the initial payments of
which in the year of sale exceed 25% of the gross selling price.
• Installment Plan – sale of real property, the initial payment of which in the year of
sale do not exceed 25% of the gross selling price.
• Initial Payment – Downpayment + Other collections in the year of sale + Excess of
unpaid mortgage over cost (if any)

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Zero rated Sale (0% Output VAT)*

1. Export Sales
a. Sale and actual shipment of goods from the Philippines to a foreign country
b. Sale of raw materials or packaging materials to a non-resident buyer for delivery
to a resident local export oriented enterprise
c. Sale of raw materials or packaging materials to an export-oriented enterprise
whose export sales exceed 70% of the total annual production
d. Transactions considered export sales under E.O. No. 226
e. Sale of gold to BSP
f. Sale of goods, supplies, equipment and fuel to persons engaged in international
shipping or international air transport operations.
2. Foreign Currency Denominated Sale
3. Sales to Persons or Entities Deemed Tax-exempt under Special Law or International
Agreement (Also known as Effectively Zero-Rated Sale)

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Zero rated Sale (0% Output VAT)*

*Sale shall not result in any output tax since zero is the rate of VAT. However, the
input tax on purchases (whether goods, properties or services) related to such sale
shall be available as tax credit, carry-over or refund.

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Input Tax (in the point of view of the buyer of goods, properties and services)

Kinds of Input Tax

1. On local purchases or importation of goods or properties
2. On local purchases or importation of capital goods*
3. On local purchases of services
4. Creditable withholding VAT
5. Transitional input tax
6. Presumptive input tax

*Capital Goods refer to depreciable properties in which the useful life is more than (1)
year.

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Input tax
Kinds of Input Tax
On local purchases or importation of capital goods

Capital Goods refer to depreciable properties in which the useful life is more than (1)
year.

The aggregate acquisition cost of which (net of VAT) in a calendar month exceeds
P1,000,000 regardless of the acquisition cost of each capital goods, shall be
amortized.

Amount Deductible = Input Tax / Amortization Period

Amortization Period = 60 months or useful life in months whichever is shorter

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Input tax
Kinds of Input Tax
Creditable Withholding VAT

Non-resident persons who perform services in the Philippines are deemed to be

making sales in the course of trade or business, even if the performance of services
is not regular.

The recipient of the service is the one required to withhold and remit the VAT to the
BIR.

Such VAT can be claimed by the recipient as input tax

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Input tax
Kinds of Input Tax
Transitional Input Tax

Applicable to taxpayer who is previously non-VAT registered and became VAT-

registered

Amount deductible = (Beginning Inventory* x 2%) vs Actual Input VAT of beginning

Inventory*, whichever is Higher

*whether purchases from VAT or non-VAT supplier

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Input tax
Kinds of Input Tax
Presumptive Input Tax

Applicable to taxpayers engaged in a. processing of sardines, mackerel and milk; and

b. manufacturing refined sugar, cooking oil and packed noodle-based instant meals.

Amount deductible = Purchases of primary agricultural products x 4%

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Input tax
Kinds of Input Tax
VAT on Importation
1. Customs duties is ad valorem (based on value)
VAT = (Dutiable Value + Customs Duties + Excise Tax +Other Charges within Bureau
of Customs) x 12%

2. Customs duties is specific (based on quantity or volume)

VAT = (Landed Cost + Excise Tax) x 12%
Landed Cost = Invoice Amount + Customs Duties + Freight + Insurance + Other
Charges

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Final Withholding VAT (Government Transaction)

The 5% final VAT shall represent the net VAT payable to the seller. The remaining 7%
effectively accounts for the standard input VAT of the seller, in lieu of the actual input
VAT

The difference between actual input VAT and standard input VAT (7%) must be
closed to expense or income.

• In government sales, if actual input VAT (actual purchases related to government

sales x 12%) is greater than 7% (government sales x 7%), the difference is closed
to expense

• In government sales, if actual input VAT (actual purchases related to government

sales x 12%) is less than 7% (government sales x 7%), the difference is closed to
income

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Mixed Business Transactions

A VAT-registered person who is also engaged in transactions not subject to VAT shall
be allowed of input tax credit as follows:

• Total input tax which can be directly attributed to transactions subject to VAT
(except VAT taxable sale of goods and services to the government or GOCCs);
and

• Ratable portion of any input tax which cannot be directly attributed to either
activity. (allocation shall be on the basis of sales volume)

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Administrative Provisions
A VAT-registered person shall issue

1. VAT invoice/Sales Invoice for sale, barter, exchange of goods or properties

2. VAT official receipt for every lease of goods or properties and for every sale,
barter or exchange of services

A VAT registered taxpayer may issue a single invoice/receipt involving VAT and non-
VAT transactions provided that the invoice or receipt shall clearly indicate the break-
down of the sales price between taxable, exempt and zero-rated components and
the calculation of the Value Added Tax on each portion of the sale shall be shown on
the invoice or receipt.

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