SELF-PACED LEARNING MODULE

COLLEGE DEPARTMENT

MODULE 2
Subject:

BUSINESS TAX

AISAT COLLEGE – DASMARIÑAS, INC.

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 Unit Business Taxes
Module VALUE-ADDED TAX on SALE OF GOODS or PROPERTIES
AE25-BT BUSINESS TAXES Units: 3hrs Page |2

INFORMATION SHEET PR-2.1.1

“VALUE-ADDED TAX on SALE OF GOODS or PROPERTIES”

Preliminary Statements.
1. The VAT is a consumption tax. It is imposed on a seller, but the seller passes it on to the buyer.
2. The VAT must be shown on the official invoice or receipt issued to the buyer, as a separate item;
3. The value-added tax is 12%, 5% or 0% of the selling price.
4. While each sale has a VAT, and separate recording in the books of accounts is on per transaction
basis reporting and payment of the VAT to the government is made on the transactions of the
month.

THE TAXPAYER
The taxable  Any person who sells, barters or exchanges goods or properties
transaction in the course of trace or business will be subject to the value-
s are sale, added tax. ( The law exempts certain transactions from the
barter and value-added tax).
exchange.
Whenever What is a sale, barter or exchange?
in a rule
the word A sale is the transfer of ownership of property in
“sale” is consideration of money received or to be received. For the
used, it expanded meaning of “sale” see Fig 2-1 on transaction
must be “deemed sales
understood
to include A barter or exchange is the transfer of ownership of
barter and property received or to be received
exchange
An isolated transaction of sale or exchange of private property is not in
the course of trade or business, and it not subject to the VAT.

Figure 2-1. Transactions deemed sales

a) Transfer, use or consumption, not in the ordinary course of business of

goods or properties ordinarily intended for sale or in the course of business
b) Distribution or transfer of inventory to shareholders or investors for their
shares in the profits of a VAT-registered person.
c) Distribution or transfer of inventory to creditors in payment of debt.
d) Consignment of goods if actual sale is not made within sixty days following
the date such goods were consigned.
e) Retirement from or cessation of business, with respect to inventories of taxable goods as of the
date of such retirement or cessation.
SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:
MODULE 1st
PRELIM
2 Meeting JULIETA S. ECHEGOYEN MR. WILBERT A. MAÑUSCA
Subject Teacher School Director
 Unit Business Taxes
Module VALUE-ADDED TAX on SALE OF GOODS or PROPERTIES
AE25-BT BUSINESS TAXES Units: 3hrs Page |3

Illustration 2-1. Mr. A made a cash sale of his merchandise inventory.

The sale is subject to the VAT

Illustration 2-2. Mr. B sold his three year old family car.
This is not subject to the VAT

Illustration 2-3. Mr. C sells household furniture. He removed from his store a living room set for use in
his residential house.
This is deemed a sale.
Illustration 2-4 D Co, declared and paid a dividend out of merchandise inventory.
This is deemed a sale.

Illustration 2-5 E Co. is indebted to F Co. for raw materials. When E Co. could not pay in money, F co.
agreed to receive the finished goods of E. Co. in payment.
This is deemed a sale by E Co.

Illustration 2-6 G Co. a manufacturer, made sales, as follows: To Mr. H, on credit, with title to the goods
passing to Mr. H, and to Mr. I, on consignment, with title to the goods to pass only upon
actual sale of the consigned goods to a buyer. The goods consigned to Mr. I are still
shelves of Mr. I. The sale to Mr. H is subject to the VAT because title to the goods has
passed to Mr. H. The consignment to Mr. I, although title to the goods has not yet
passed, will be subject to the VAT when actually sold by Mr. I or after sixty days from the
date of consignment ( Provision of law)

Illustration 2-7 J & K was a partnership in trade J&K was dissolved and L&M was formed to continue the
business of J&K. At the time J&K was dissolved the books of accounts showed a
merchandise inventory of P100,000 to which was also the physical inventory.
The inventory will be deemed to sold by J&K to L&M Co., and will be
Sales of subject to the VAT.
movable and
immovable What are goods or properties?
properties are
taxable “Goods or properties” are all tangibles and intangible objects which are capable of
pecuniary (money) estimation, ( The laws has a provision that states what are within
the meaning of “goods or properties”.)

“Goods” are movable properties. Thus, sales by a car dealer are sales of goods in the conduct of trade
or business subject to the VAT.

“Properties” are real properties. Thus sales by a real estate dealer are sales of
properties in the conduct of business subject to the VAT

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

MODULE 1st
PRELIM
2 Meeting JULIETA S. ECHEGOYEN MR. WILBERT A. MAÑUSCA
Subject Teacher School Director
 Unit Business Taxes
Module VALUE-ADDED TAX on SALE OF GOODS or PROPERTIES
AE25-BT BUSINESS TAXES Units: 3hrs Page |4

THE TAX BASE

 The amount on which the rate of value-added tax is applied) is gross selling price.

“Gross Selling Price (GSP)” – the total amount of money or its equivalent which the purchase pays or is
obligated to pay to the seller in consideration of the sale, barter or exchange, excluding the VAT. The
excise tax, if any , on such goods, will form part of the gross selling price.

Stated briefly “GSP” includes everything that the buyer pays the seller, except VAT shifted to the buyer.

Gross Selling Price does not mean Gross Sales. The law and regulations allow to downward adjustment
for:
a) Sales Return and Allowances
b) Sales Discounts

Illustration 2-8. Mr. A sold an article to Mr. B. The quoted selling price was P10,000, not including
freight and VAT. Mr. B has to pay P10,500 (additional P500 for the freight) and the VAT
before title to the goods passes to him upon delivery at his place.
The gross selling price was P10,500.

Illustration 2-9 Mr. C produced articles at a production cost of P50,000. The articles are subject to an
excise tax of P5,000. The articles became subject to the excise tax the moment they
In an “actual sale” came into existence, although payment of the tax will be made only upon arrival of the
The selling price of goods from the place of production. The share of the articles in the operating
the seller is: expenses is calculated at P8,000. The desired profit is P37,000. The selling price was
a) Recovery of cost P100,000 which was
and expenses;
and
b)Desired Profit Recovery of:
The VAT billed to
In an “actual sale” Production cost P 50,000
the buyer, and
Operating expenses 8,000
The selling price of received by the
Excise Tax 5,000
the seller is: seller, is not part
Desired Profit 37,000
of the selling price.
a) Recovery of cost Selling Price P100,000
Value-added tax at 12% 12,000
and expenses; Total, to be paid by the buyer P112,000

The gross selling price does not include the VAT

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

MODULE 1st
PRELIM
2 Meeting JULIETA S. ECHEGOYEN MR. WILBERT A. MAÑUSCA
Subject Teacher School Director
 Unit Business Taxes
Module VALUE-ADDED TAX on SALE OF GOODS or PROPERTIES
AE25-BT BUSINESS TAXES Units: 3hrs Page |5

THE TAX RATES

The tax rates are:
a) Twelve percent (12%), if domestic safe;
b) Five percent (5%), if sales to the Government (and certain entities);
c) Zero percent (0%), if export safe.

The law states zero-rated tax on exports (and certain other transactions)

“Export sales” – means the sales and actual shipments or exportations of goods from
Goods exported
the Philippines to a foreign country, irrespective of any shipping arrangement
are taxed 0%,
that may
whether title to
be agreed up on which may influence or determine the transfer of ownership of the
the goods passed
goods so exported, and paid for in acceptable foreign currency or its equivalent in
to the buyer in the
goods or services, and accounted for in accordance with the rules and regulation of the
Philippines or
BSP.
abroad,
Illustration 2-13. Mr. E exported exported his manufactured goods to F Co. in the
but paid in
United States, under terms of shipment F.O.B. California, United States.
acceptable foreign
Payment was in dollars remitted thru the Philippine National Bank,
currency.
California, U>S>A>, branch.
Since title to the goods was transferred, and hence. The sale was
consummated, in the United States, the sale was export sale.

Illustration 2-14. G. Co. exported its manufactured goods to H Co. in the United States, under terms of
shipment F.O.B. Manila, Philippines. Payment was in dollars remitted thru the Philippine National Bank.,
California, USA, branch. Even as title to the goods was transferred, and hence, the sale was
consummated, in the Philippines, the sale was still an export sale.

THE TAX FORMULA

Output taxes (seller’s value-added tax on sales)
Less: Input taxes (seller’s value-added taxes paid on purchased, etc..
Equals: Value - added tax payable of seller

What is output tax? It is the VAT on a sale.

What is input tax? It is value-added taxes paid.

On local purchases from VAT-registered persons, and on importations, of goods.

a) For sale
b) For conversion into or intended to form part of a finished product for sale, including packaging
materials;
SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:
MODULE 1st
PRELIM
2 Meeting JULIETA S. ECHEGOYEN MR. WILBERT A. MAÑUSCA
Subject Teacher School Director
 Unit Business Taxes
Module VALUE-ADDED TAX on SALE OF GOODS or PROPERTIES
AE25-BT BUSINESS TAXES Units: 3hrs Page |6

c) For use as supplies;

d) For use in trade or business, for which depreciation ( or amortization) is allowed for income tax
purposes (capital goods), except automobiles, aircraft and yachts;
e) VAT paid on purchases of real property;
f) VAT paid on purchases of services;
g) Transitional input tax
h) Presumptive input tax

Figure 2-2 Tax Formula

Output Taxes

Input Taxes

Real property Supplies

Goods Capital goods

Services Materials

Presumptive Transitional

Value-added tax payable

Figure 2 - 3. The tax formula on a purchase-sale transaction

Mr. A, a VAT taxpayer Mr. B, a VAT taxpayer

Output tax on a sale Output tax on a sale

to Mr. B less: Input tax on purchase
from Mr. A
VAT Payable

Reference Book:
A study on Business Taxes and Transfer Taxes
SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:
MODULE 1st
PRELIM
2 Meeting JULIETA S. ECHEGOYEN MR. WILBERT A. MAÑUSCA
Subject Teacher School Director
 Unit Business Taxes
Module VALUE-ADDED TAX on SALE OF GOODS or PROPERTIES
AE25-BT BUSINESS TAXES Units: 3hrs Page |7

under the Train Law

Virgilio D. Reyes
2018 Edition

SUBJECT TEACHER: APPROVED FOR IMPLEMENTATION:

MODULE 1st
PRELIM
2 Meeting JULIETA S. ECHEGOYEN MR. WILBERT A. MAÑUSCA
Subject Teacher School Director