Module 1.

1
TAX.2-Value-Added Tax (VAT) Review Notes and Exercises TRIMEX for REMS

LECTURE NOTES

A. Nature and Characteristics of VAT

❖ It is a business tax levied on the value-added NOTE: Such goods must be exempt from
on certain goods, properties and services in customs duties.
the domestic market and/or importer of
goods. 4) Importation of professional instruments and
implements, wearing apparel, domestic animals,
❖ It is imposed not on the goods or services as and personal household effects, provided:
such but on the privilege of selling or a. It belong to persons coming to settle in the
importing goods or rendering services for a Philippines;
fee, remuneration or consideration. b. For their own use and not for sale, barter or
exchange;
❖ It is an indirect tax and the amount of tax c. Accompanying such persons, or arriving within
may be shifted or passed on to the buyer, ninety (90) days before or after their arrival;
transferee or lessee of the goods, properties d. Upon production of evidence satisfactory to
or services. the Commissioner, that such persons are
actually coming to settle in the Philippines;
❖ The party directly liable for the payment of and
the tax is the seller, importer or the service e. The change of residence is bona fide.
provider, although the burden of the tax may
be shifted or passed on to the consumer. NOTE: Importation of vehicle, vessel, aircraft,
machinery and other goods for use in the
B. EXEMPT TRANSACTIONS manufacture and merchandise of any kind in
commercial quantity is subject to VAT.
This means the sale of goods, properties or
services and the use or lease of properties are 5) Services subject to percentage tax
not subject to VAT (Output Tax) and the seller or
lessor is not allowed to any tax credit on VAT 6) Services by agricultural contract growers and
(Input Tax) on purchases. milling for others of palay into rice, corn into grits
and sugar cane into raw sugar;
The following are VAT exempt transactions:
1) Sale or importation of: 7) Medical, dental, hospital and veterinary services
a. agricultural and marine food product in except those rendered by professionals;
their original state;
b. livestock and poultry used as, or NOTE:
producing foods for human consumption; ✓ Laboratory services are exempt. If the
c. breeding stock and genetic materials. hospital or clinic operates a pharmacy or
drugstore, the sale of drugs and medicines
Products that will be considered in their are subject to VAT.
original state: ✓ Hospital bills constitute medical services. The
a. products which undergone simple sales made by the drugstore to the in-
processes of preparation or preservation patients which are included in the hospital
for the market (freezing, drying, salting, bills are part of medical bills (not subject to
broiling, roasting, smoking or stripping) vat).
b. polished or husked rice ✓ The sales of the drug store to the out-
c. corn grits patients are taxable because they are NOT
d. raw cane sugar and molasses PART of medical services of the hospital.
e. ordinary salt
f. copra 8) Educational services rendered by:
a. private educational institutions, duly
NOTE: Livestock or poultry does not include accredited by:
fighting cocks, race horses, zoo animals and i. Department of Education (DepEd)
other animals generally considered as pets. ii. Commission on Higher Education (CHED)
iii. Technical Education and Skills
2) Sale or importation of: Development Authority (TESDA)
a. Fertilizers
b. Seeds, seedlings and fingerlings b. Government Educational Institutions
c. Fish, prawn, livestock and poultry feeds
d. Ingredients used in the manufacture of 9) Services rendered by individuals pursuant to an
finished feeds (except specialty feeds for employer-employee relationship
race horses, fighting cocks, aquarium
fish, zoo animals and other animals 10) Services rendered by regional or area
generally considered as pets). headquarters

3) Importation of personal and household effects 11) Transactions which are exempt under
belonging to the: international agreements to which the Philippines
a. residents of the Philippines returning from is a signatory or under special laws
abroad; and
b. Non-resident citizens coming to resettle 12) For agricultural cooperatives:
in the Philippines.
Page 1 of 22
 a. Sale to their members ✓ Adjacent residential lots, house and lots,
b. Sale to non-members if the cooperative is and other residential dwellings, although
the producer (if not, subject to VAT) covered by separate titles and/or
c. Importation of: separate tax declarations, when sold to
- direct farm inputs, machineries and one and the same buyer, whether
equipments, including spare parts covered by one separate Deed of
thereof Conveyance, shall be presumed as sale of
- to be used directly and exclusively in one residential lot, house and lot and
the production and/or processing of other residential dwellings (RR 16-2019;
their produce. RR 13-2020). This however, does not
include the sale of parking lot which may
Type of Product Sale to Sale to or may not be included in the sale of
Members Non- condominium units. The sale of parking
Members lots in a condominium is a separate and
Sale of cooperative’s distinct transaction and is not covered by
own produce Exempt Exempt the rules on threshold amount not being
a residential lot, house & lot or a
Other than the Exempt Subject residential dwelling, thus, should be
cooperative’s own to Vat subject to VAT regardless of amount of
produce (i.e., from selling price.” (RR-13-2020)
Traders)
17) Lease of a residential unit with a monthly rental
13) Gross receipts from lending activities by not exceeding P12,800, regardless of the amount
credit or multi-purpose cooperatives of aggregated rentals received by the lessor
during the year.
NOTE:
Exemption is not only limited to the gross NOTES:
receipts on loans extended to its members ✓ LEASE of RESIDENTIAL UNITS where the
but also to other persons who are not monthly rental per unit exceeds P12,800 but
members. the aggregate of such rentals of the lessor
during the year do not exceed P3,000,000
14) Sales by non-agricultural, non-electric and shall likewise be exempt from VAT, however,
non-credit cooperatives, provided, that the the same shall be subjected to the 3%
share capital contribution of each member percentage tax.
does not exceed P15,000
✓ In cases where a lessor has SEVERAL
NOTE: RESIDENTIAL UNITS for LEASE, some are
Importation by non-agricultural, non-electric leased out for a monthly rental per unit of not
and noncredit cooperatives of machineries exceeding P12,800 while others are leased
and equipment including spare parts thereof, out for more than P12,800 per unit, his tax
to be used by them are subject to VAT. liability will be:

15) Export sales by persons who are not VAT- - The gross receipts from rentals not
registered exceeding P12,800 per month per unit
shall be exempt from VAT regardless of
16) Sale of: the aggregate annual gross receipts.
a. Real properties not primarily held for sale
to customers or held for lease in the - The gross receipts from rentals exceeding
ordinary course of trade or business P12,800 per month per unit shall be
b. Real property utilized for low-cost and subject to VAT if the annual gross
socialized housing receipts (from said units only – not
c. Real properties primarily held for sale to including the gross receipts from units
customers or held for lease in the leased out for not more than P12,800)
ordinary course of trade or business, if: exceed P3,000,000.
i. Residential lot valued at 1,919,500
and below; 18) Sale, importation, printing or publication of books
ii. House and lot, and other residential and any newspaper, magazine, review or bulletin:
dwellings valued at 3,199,200 and a. Appears at regular intervals;
below. b. With fixed prices for subscription and sale;
c. Not devoted principally to the publication of
NOTE: paid advertisements.
✓ If two or more adjacent residential lots,
house and lots, and other residential 19) Sale, importation or lease of:
dwellings are sold or disposed in favor of a. Passenger or cargo vessels and aircraft,
one buyer from the same seller, for the b. Including engine, equipment and spare parts
purpose of utilizing the lots, house and thereof
lots, or other residential dwellings as one c. For domestic or international transport
residential area “within a 12-month operations.
period”, the sale shall be exempt from
VAT only if the aggregate value do not Provided, that the exemption from VAT on
exceed P3,000,000 for residential lots the importation and local purchase of
and P3,199,200 for residential lots and passenger and/or cargo vessels shall be
other residential dwellings. limited to those of 150 tons and above,
including engine and spareparts of said
vessel; and the vessel to be imported shall

Page 2 of 19 Module 1.1

 comply with the age limit requirement as the gross sales or receipts for the next 12 months
follows: will exceed P3,000,000.
✓ Passenger and/or cargo – 15 years old
✓ Tankers – 10 years old b. Radio and/or television broadcasting companies
✓ High speed passenger crafts – 5 years old whose annual gross receipts of the preceding
year exceeds P10,000,000.
Provided, finally, that the exemption shall be
subject to the provisions of Sec. 4 of RA NOTE: A person required to register as VAT taxpayer but
9295, otherwise known as “The Domestic failed to register.
Shipping Development Act of 2004”
Penalty for non-registration of those
20) Importation of fuel, goods and supplies by required to register as VAT?
persons engaged in international shipping or He shall be liable to pay the tax as if he were
air transport operations, provided that: a VAT-registered person but he cannot avail
✓ Fuel, goods and supplies shall be the benefits of input tax credit for the period
exclusively or shall pertain to the he was not properly registered.
transport of goods and/or passenger from
a port in the Philippines directly to a 2) OPTIONAL REGISTRATION
foreign port without stopping at any other
port in the Philippines. a. Any person whose annual gross sales or receipts
✓ Fuel, goods or supplies is used for the did not exceed P3,000,000 may elect to be VAT-
purposes other than that mentioned in registered by registering with the RDO that has
the preceding paragraph, such portion of jurisdiction over the head office of that person,
fuel, goods and supplies shall be subject and pay the annual registration fee of P500.00 for
to 12% vat. every separate and distinct establishment. Upon
registration, he shall not be allowed to cancel his
21) Importation of life-saving equipment, safety registration for the next three (3) years.
and rescue equipment and communication
and navigation safety equipment, steel plates b. Any person who is VAT-registered but enters into
and other metal plates including marine- transactions which are exempt from VAT (mixed
grade aluminum plates used for shipping transactions) may opt that the VAT apply to his
transport operations; Provided, that the transactions which would have been exempt.
exemption shall be subject to the provisions
of Sec. 19 of RA 9295, otherwise known as c. Franchise grantees of radio and/or
“The Domestic Shipping Development Act of television broadcasting whose annual gross
2004” (RR 4-2007). receipts of the preceding year do not exceed ten
million pesos (P10,000,000.00) derived from the
22) Importation of capital equipment, machinery business covered by the law granting the
and spare parts, life-saving and navigational franchise may opt for VAT registration. This
safety equipment, steel plates and other option, once exercised, shall be irrevocable.
metal plates including marine-grade (Sec. 119, Tax Code).
aluminum plates used in the construction,
repair, renovation or alteration of any 3) CANCELLATION OF VAT REGISTRATION
merchant marine vessel operated or to be
operated in the domestic trade. Provided, Instances when a VAT-registered person
that the exemption shall be subject to the may cancel his VAT registration:
provisions of Sec. 19 of RA 9295, otherwise 1. If he makes a written application and can
known as “The Domestic Shipping demonstrate to the commissioner's
Development Act of 2004” (RR 4-2007). satisfaction that his gross sales or receipts for
the following twelve (12) months, other than
23) Services of banks, non-bank financial those that are exempt under Section 109 (A)
intermediaries performing quasi-banking to (U), will not exceed P3,000,000.00); or
functions, and other non-bank financial
intermediaries; 2. If he has ceased to carry on his trade or
business, and does not expect to recommence
24) Sale or lease of goods or properties or the any trade or business within the next twelve (12)
performance of services , the gross annual months.
sales/or receipts do not exceed the amount of ✓ The cancellation for registration will be
P3,000,000; effective from the first day of the following
month the cancellation was approved.
25) Vat on Purchase of SPECIFIED Goods and
Services by a Senior Citizen. 3. POWER OF THE COMMISSIONER TO SUSPEND
BUSINESS OPERATIONS:
C. VAT REGISTRATION ❖ The Commissioner of the Internal Revenue or
his authorized representative may order
1) MANDATORY REGISTRATION suspension or closure of business
establishment for a period of not less than 5
a. Any person or entity who, in the course of his days for any of the following violations:
trade or business, sells, barters, exchanges, 1. Failure to issue receipts or invoices
leases goods or properties and renders services 2. Failure to file vat return
subject to VAT, if the aggregate amount of actual 3. Understatement of taxable sales or
gross sales or receipts exceed P3,000,000 for receipts by 30% or more of the
the past 12 months (other than those that are correct taxable sales or receipts for
exempt) OR there are reasons to believe that the taxable quarter.
4. Failure of any person to register as

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 required under the law.
Transaction Deemed Sale
D. VAT FOR SELLER OF GOODS, PROPERTIES AND 1. (a), (b) and (c) FMV
SERVICES above
2. (d) above AC vs. FMV (w/c ever
❖ PERSONS LIABLE - Any person who, in the course of is lower)
his trade or business:
1. Sells, barters or exchanges goods or properties GSP – Gross Selling Price
(Seller of Goods or Properties) FMV – Fair market value
2. Leases goods or properties (Lessor) ZV – Zonal Value
3. Renders services (Service Provider) AC – Acquisition Cost

❖ MEANING OF “IN THE COURSE OF TRADE OR Gross Selling Price – means the total amount of money or
BUSINESS” – the regular conduct or pursuit of a its equivalent which the purchaser pays or is obligated to
commercial or economic activity, including pay to the seller in consideration of the sale, barter or
transactions incidental thereto, by any person exchange of the goods or properties, excluding VAT. The
regardless of whether or not the person engaged excise tax, if any, on such goods or properties shall form
therein is a non-stock, non-profit private organization part of the gross selling price.
(irrespective of the disposition of its net income and
whether or not it sells exclusively to members or NOTE: The following shall be allowed as deductions from
their guests), or government entity. gross selling price;
a) Sales discount indicated in the invoice at the time
❖ FORMULA: of sale, the grant of which is not dependent upon
the happening of a future event; and
Output Tax PXXX b) Sales returns and allowances for which a proper
Input Tax (XXX) credit or refund was made for sales previously
VAT Payable (Excess Input Tax) PXXX recorded as taxable sales.

E. OUTPUT TAX OF SELLER OF GOODS OR DEFINITION OF GROSS SELLING PRICE EXPRESSED IN A

PROPERTIES FORMULA:

❖ KINDS OF SALE OF GOODS OR PROPERTIES SUBJECT Gross Sales PXXX

TO VAT: Less: Sales discount XX
1. Actual Sale Sales returns & allowances XX XX
2. Transactions deemed sale: Net Sales PXXX
a) Transfer, use or consumption not in the Add: Excise tax XX
course of business of goods or properties Tax Base PXXX
originally intended for sale or for use in the
course of business. Transfer of goods or Fair Market Value – means fair market value as shown in
properties not in the course of business can the schedule of values of the Provincial and City
take place when VAT-registered person Assessors (real property tax declaration).
withdraws goods from his business for his
personal use; Zonal Value – means fair market value as determined by
b) Distribution or transfer to: the BIR Commissioner.
i. Shareholders or investors share in the
profits of VAT-registered person; Deferred Payment Basis - means sale of real property,
ii. Creditors in payment of debt; the initial payments of which in the year of sale exceed
c) Consignment of goods if actual sale is not 25% of the gross selling price.
made within 60 days following the date such
goods were consigned; and Installment Plan – means sale of real property, the
d) Retirement from or cessation of business with initial payment of which in the year of sale do not
respect to all goods on hand, whether capital exceed 25% of the gross selling price.
goods, stock-in-trade, supplies or materials
as of the date of such retirement or COMPONENTS OF INITIAL PAYMENT:
cessation, whether or not the business is
continued by the new owner or successor. Down payment PXXX
Other collections in the year of sale XXX
❖ FORMULA IN COMPUTING OUTPUT TAX Excess of unpaid mortgage over cost XXX
Initial Payments PXXX
Tax Base PXXX
Rate XX% ❖ RATE - As a general rule, the rate of value-added tax
Output Tax PXXX for the sale of goods or properties is 12% (Local
Sales). However, the following transactions are
❖ TAX BASE subject to 0% (ZERO-RATED SALES):

Actual Sale 1) Export Sales:

Personal property GSP a. Sale and actual shipment of goods from the
Real Property Philippines to a foreign country, paid for in
1. Cash Sale GSP vs. FMV vs. ZV acceptable foreign currency or its equivalent
2. Deferred w/c ever is the highest in goods or services, and accounted for in
Payment Basis accordance with the rules and regulations of
3. Installment Plan [(Collection/GSP) x the BSP;
GSP vs. FMV vs. ZV b. Sale of raw materials or packaging materials
Allowed only to a w/c ever is the highest] to a non-resident buyer for delivery to a
real estate dealer resident local export oriented enterprise to be

Page 4 of 19 Module 1.1

 used in manufacturing, processing, packing international agreements to which the
or repacking in the Philippines of the said Philippines is a signatory, such as:
buyer’s goods, paid for in acceptable - Asian Development Bank (ADB)
currency, and accounted for in accordance - International Rice Research Institute
with the rules and regulations of the BSP; (IRRI)
c. Sale of raw materials or packaging materials
to an export-oriented enterprise whose NOTE: A zero-rated sale of goods or properties is
export sales exceed 70% of total annual a taxable transaction for VAT purposes, but shall
production; not result in any output tax. However, the input
d. Sale of gold to BSP tax on purchases of goods, properties or services,
e. Transactions considered export sales under related to such zero-rated sale, shall be available
E.O. No. 226; as tax credit or refund.

ART. 23 EO 226 F. OUTPUT TAX OF SELLER OF SERVICES AND

That without actual exportation the following LESSOR OF GOODS OR PROPERTIES
shall be considered constructively
exported for purposes of this provision: ❖ FORMULA IN COMPUTING OUTPUT TAX
✓ sales to bonded manufacturing
warehouses of export-oriented Gross Receipts PXXX
manufacturers; Rate XX%
✓ sales to export processing zones; Output Tax PXXX
✓ sales to registered export traders
operating bonded trading warehouses ❖ Gross Receipts – refers to the total amount of money
supplying raw materials used in the or its equivalent representing the contract price,
manufacture of export products under compensation, service fee, rental or royalty, including
guidelines to be set by the Board in the amount charged for materials supplied with the
consultation with the Bureau of Internal services and deposits applied as payments for
Revenue and the Bureau of Customs; services rendered and advance payments actually or
✓ sales to foreign military bases, diplomatic constructively received for the services performed or
missions and other agencies and/or to be performed for another person, excluding VAT.
instrumentalities granted tax immunities,
of locally manufactured, assembled or Advance Payments. In a lease contract, advance
repacked products whether paid for in payment by the lessee may be:
foreign currency or not: Provided, further,
That export sales of registered export 1. A loan to the lessor from the
traders may include commission income: lessee.
and Provided, finally, That exportation of 2. An option money for the NOT
goods on consignment shall not be property. subject to
deemed export sales until the export 3. A security deposit to insure the VAT
products consigned are in fact sold by the faithful performance of certain
consignee. obligations of the lessee to the
✓ Sales of locally manufactured or lessor.
assembled goods for household and
personal use to Filipinos abroad and other 4. Prepaid rental Subject
non-residents of the Philippines as well as to VAT
returning Overseas Filipinos under the
Internal Export Program of the DEFINITION OF GROSS RECEIPTS EXPRESSED IN A
government and paid for in convertible FORMULA:
foreign currency inwardly remitted
through the Philippine banking systems Cash received (actually and constructively) PXXX
shall also be considered export sales. Advance payments XXX
f. Sale of goods, supplies, equipment and fuel Materials charged for services XXX
to persons engaged in international shipping Gross receipts PXXX
or international air transport operations.
NOTE:
2) Foreign Currency Denominated Sale – means the 1. For Dealer in Securities, the term “gross receipts”
sale to a non-resident of goods, except means gross selling price less cost of
automobile and non-essential goods, assembled securities sold.
or manufactured in the Philippines for delivery to
a resident in the Philippines, paid for in 2. “Constructive receipt” occurs when the money
acceptable foreign currency and accounted for in consideration or its equivalent is placed at the
accordance with the rules and regulations of the control of the person who rendered the service
BSP. without restrictions by the payor. The following
are example of constructive receipts:
3) Sales to Persons or Entities Deemed Tax-exempt a) Deposits in banks which are made available
under Special Law or International Agreement: to the seller of services without restrictions;
a. Sales of goods or property to persons or b) Issuance by the debtor of a notice to offset
entities who are tax-exempt under special any debt or obligation and acceptance thereof
laws, such as: by the seller as payment for services
- Subic Bay Metropolitan Authority (SBMA) rendered; and
- Philippine Economic Zone Authority c) Transfer of the amounts retained by the
(PEZA) payor to the account of the contractor.
b. Sales of goods or property to persons or
entities who are tax-exempt under ❖ RATE - As a general rule, the rate of value-added tax
for the sale of services and lease of goods or

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 properties is 12%. However, the following calendar month exceeds P1,000,000, regardless of
transactions are subject to 0% (ZERO-RATED the acquisition cost of each capital good, shall be
SALES): amortized.
1. Processing, manufacturing or repacking goods for
other persons doing business outside the Amount Deductible = Input Tax/Amortization period
Philippines, which goods are subsequently
exported, where services are paid for in NOTE:
acceptable foreign currency and accounted for in 1. Amortization period is the shorter period of the
accordance with the rules and regulations of the following:
BSP; a) 60 months
2. Services other than processing, manufacturing or b) Useful life in months
repacking goods for other persons engaged in
business conducted outside the Philippines or to a 2. If the 1M threshold is not breached, no need for
non-resident person who is outside the amortization (Input Tax is 100% deductible).
Philippines when the services are performed, the
consideration for which is paid for in acceptable 3. If the CAPITAL GOOD IS SOLD within the five (5)
foreign currency and accounted for in accordance year period or prior to exhaustion of Input Vat
with the rules and regulations of the BSP; thereon, the ENTIRE UNAMORTIZED INPUT TAX
3. Services rendered to persons or entities whose on the capital goods sold can be claimed as input
exemption under special laws or international tax credit during the month or quarter when the
agreements to which the Philippines is a sale is made.
signatory effectively subjects the supply of
services to zero percent (0%) rate; 4. Construction in Progress is a purchase of
4. Services rendered to persons engaged in services. Input taxes will be recognized in the
international shipping or air transport operations, month payment was made on the progress
including leases of property for use thereof; billing. In the case where labor will be furnished
5. Services performed by subcontractors and/or by the contractor and materials will be purchased
contractors in processing, converting, or by the contractee from other suppliers, input
manufacturing goods for an enterprise whose taxes will be recognized on labor when payment
export sales exceed 70% of the total annual is made on the progress billings while input taxes
production; will be recognize on materials at the time the
6. Transport of passengers and cargo by domestic materials are purchased.
air or sea carriers from the Philippines to a
foreign country; and ❖ CREDITABLE WITHHOLDING VAT
7. Sale of power or fuel generated through
renewable sources of energy such as, but not Non-resident persons who perform services in the
limited to: Philippines are deemed to be making sales in the
a) Biomass course of trade or business, even if the performance
b) Solar of services is not regular.
c) Wind
d) Hydropower The recipient of the service is the one required to
e) Geothermal and Steam withhold and remit the VAT to the BIR. Such VAT can
f) Ocean energy be claimed by the recipient as input tax.
g) Other emerging sources using technologies
such as fuel cells and hydrogen fuels.
❖ TRANSITIONAL INPUT TAX
G. INPUT TAX
Persons Covered:
❖ REQUISITES: Taxpayers who became VAT-registered persons
1. The taxpayer is a VAT-registered person; and (previously non-VAT) shall be entitled to a
2. The input tax is related to business subject to VAT transitional input tax.
(12% and 0%).
Amount Deductible:
❖ KINDS OF INPUT TAX Beginning Inventory PXXX
1. Input tax on local purchases of goods or Rate 2%
properties other than capital goods; PXXX
2. Input tax on importation of goods or properties Actual Input VAT, Inventory beg. XXX
other than capital goods; Transitional Input Tax (Higher Amount) PXXX
3. Input tax on local purchases or importation of
capital goods; NOTE: Beginning inventory will include all inventories
4. Input tax on local purchases of services; related to business subject to VAT regardless of
5. Creditable withholding VAT whether or not it was purchased from VAT or non-
6. Transitional input tax VAT supplier.
7. Presumptive input tax
❖ PRESUMPTIVE INPUT TAX
❖ INPUT TAX ON LOCAL PURCHASES OR IMPORTATION
OF CAPITAL GOODS Persons Covered:
Persons or firms engaged in:
Capital Goods – refer to depreciable properties in 1. Processing of sardines, mackerel and milk; and
which the useful life is more than one (1) year. 2. Manufacturing refined sugar, cooking oil and
packed noodle-based instant meals.
When is amortization required?
Amount Deductible:
Purchases or importation of capital goods, the
aggregate acquisition cost of which (net of VAT) in a Purchases of Primary Agricultural Products PXXX

Page 6 of 19 Module 1.1

 Rate 4% A Vat registered person who is also engaged in
Presumptive Input Tax PXXX transactions not subject to Vat shall be allowed of
Input tax credit as follows:
H. VAT ON IMPORTATION 1. Total input tax which can be directly attributed
to transactions subject to vat (except vat taxable
❖ PERSONS LIABLE: sales of goods and services to the government or
1. Any person who bring goods into the Philippines, GOCCs); and
whether or not made in the course or his trade or 2. Ratable Portion of any input tax which cannot be
business. directly attributed to either activity. (allocation
2. It includes non-exempt persons or entities who shall be on the basis of sales volume.)
acquire tax-free imported goods from exempt
persons, entities or agencies. K. EXCESS INPUT TAX

NOTE: In case of goods imported into the Philippines KINDS OF INPUT TAX TREATMENT
by VAT-exempt persons, entities or agencies which Related to sales subject Carry-over
are subsequently sold, transferred or exchanged in to 12% VAT
the Philippines to non-exempt persons or entities, the
latter shall be considered the importer thereof and Related to 0% VAT a) Carry-over; or
shall be liable for VAT due on such importation b) Refund; or
c) Convert into tax credit
❖ FORMULA: certificate

a) Customs duties is ad valorem (based on value): In case of cancellation of a) Convert into tax credit
VAT registration certificate; or
Dutiable Value PXXX b) In case it has no other
Customs duties XXX tax liability, refund.
Excise tax XXX
Other charges w/in BOC XXX
Tax Base PXXX ❖ RULE ON CARRY-OVER OF EXCESS INPUT TAX
Rate 12%
VAT on Importation PXXX 1. Excess input tax in the 1st month of the quarter can
be carried over to the 2nd month.
b) Customs duties is specific (based on quantity or
volume): 2. Excess input tax in the 2nd month CANNOT be carried
over to the 3rd month (Quarterly VAT).
Invoice amount PXXX
Customs duties XXX 3. Excess input tax in the 3rd month may be carried over
Freight XXX to the:
Insurance XXX a) 1st month of the subsequent quarter; and
Other charges w.in BOC XXX b) 3rd month of the subsequent quarter
Landed Cost PXXX
Excise tax XXX ❖ RULE ON REFUND OR CONVERSION TO TAX
Total PXXX CREDIT CERTIFICATE
Rate 12%
VAT on Importation PXXX 1. Zero-Rated Sales - File application with the BIR
within 2 years from the end of the taxable
I. FINAL WITHHOLDING VAT quarter.

❖ The government or any of its political 2. Cancellation of VAT registration – File

subdivisions, instrumentalities or agencies, application with the BIR within 2 years from date
including GOCCs shall, before making payment on of cancellation.
account of each purchase of goods and or
services taxed at 12% VAT, deduct and withhold NOTE: Refund shall be granted within 120 days
a Final VAT due at the rate of five percent (5%) from the date of submission of complete
of the gross payment. documents.

❖ The 5% final VAT shall represent the net VAT L. ADMINISTRATIVE PROVISIONS
payable to the seller. The remaining 7%
effectively accounts for the standard input VAT of 1. INVOICING REQUIREMENTS
the seller, in lieu of the actual input VAT.
❖ A VAT registered person shall issue :
❖ The difference between actual input VAT and a) A VAT invoice for every sale, barter or
standard input VAT must be closed to expense or exchange of goods or properties; and
cost. b) A VAT official receipt for every lease of
goods or properties and for every sale,
J. MIXED BUSINESS TRANSACTIONS barter or exchange of services.

Refer to a situation wherein the taxpayer is engaged ❖ Single invoice/ receipt involving VAT and Non-
in transactions subject to VAT (12% and/or 0%) as VAT transactions
well as not subject to VAT (exempt). The main
concern in such a case is the determination of input A Vat registered taxpayer may issue a single
tax that can be claimed for VAT purposes. 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 its taxable, exempt

Page 7 of 19 Module 1.1

 and zero-rated components and the calculation iii. A 50% surcharge.
of the Value-Added Tax on each portion of the
sale shall be shown on the invoice or receipt. b) If a VAT registered person issues a VAT
invoice or official receipt for a VAT-exempt
❖ Separate invoices/ receipts involving VAT and transaction but fails to display prominently
Non-VAT transactions on the invoice or receipt the term “VAT
EXEMPT SALE”, the issuer shall be liable to
A VAT registered person may issue separate VAT.
invoices/ receipts for the taxable, exempt, and
zero-rated component of its sales provided NOTE: In both cases, the VAT shall, if other
that if the sales is exempt from value-added requisite information required is shown on the
tax, the term "VAT-EXEMPT SALE" shall be invoice or receipt, be recognized as an input
written or printed prominently on the invoice tax credit to the purchaser.
or receipt and if the sale is subject to zero
percent (0%) VAT, the term "ZERO-RATED 2. RETURN & PAYMENT OF VAT (MANUAL FILING)
SALE" shall be written or printed prominently
on the invoice or receipt. a) Monthly VAT Returns (First 2 months of the
Quarter) – on or before the 20th day following
❖ CONSEQUENCES of issuing an erroneous the end of the month.
invoice or official receipt
a) If a person who is not a VAT registered b) Withholding VAT Return – on or before the
person issues an invoice or receipt 10th day following the end of the month.
showing his TIN followed by the word VAT,
the non-VAT person shall be liable to: c) Quarterly VAT (Last month of the Quarter) –
i. The percentage taxes applicable to his on or before the 25th day following the end of
transactions. the quarter.
ii. The VAT due on the transactions without
the benefit of any tax credit; and

EXEMPTIONS PROVIDED UNDER THE TRAIN AND CREATE LAW

https://www.bir.gov.ph/index.php/tax-code.html#title4 See Title IV, Chapter 1, Section 109 A to 109 CC of

the National Internal Revenue Code (The Tax Code)

Page 8 of 19 Module 1.1

Page 9 of 19 Module 1.1
 MULTIPLE CHOICE QUESTIONS REVIEW QUIZZER
1. Value added tax as to subject matter is: b. Services by agricultural contract growers
a. Indirect tax c. Local tax c. Milling for others of palay into rice, corn into grits
b. Direct tax d. Transaction tax and sugar cane into raw sugar
d. Services rendered by professionals
2. Who is the one statutorily liable for the payment of
VAT? 11. Which of the following services is exempt from VAT?
a. Consumer c. Seller a. Medical, dental, hospital and veterinary laboratory
b. Buyer d. Buyer or the Seller servies
b. Professional fees of Medical Doctors
3. This refers to the sale of goods or properties and/or c. Sale of drugs and medicine to patients confined in
services and the use or lease of properties that is not the hospital
subject to VAT (output tax) and the seller is not d. Both “a” and “c”
allowed any tax credit of VAT (input tax) on purchases.
a. VAT-exempt sales 12. The following educational services shall not be subject
b. Transactions deemed sales to VAT, except:
c. Zero-rated sales a. Rendered by private educational institutions
d. Taxable sales accredited by Department of Education
b. Rendered by private educational institutions
4. Which of the following is subject to value-added tax? accredited by Commission on Higher Education
a. Sale or importation agricultural and marine food c. Rendered by private educational institutions
product in their original state accredited by Technical Education and Skills
b. Sale or importation of livestock and poultry used Development Authority
as, or producing foods for human consumption d. Rendered by Review Schools
c. Sale or importation of breeding stock and genetic
materials 13. Which of the following is not considered “Educational
d. None of the choices services” for VAT exemption purposes?
a. Seminars
5. The following products shall be considered in their b. In-service training
original state, except: c. Review classes
a. Products which undergone simple processes of d. All of the choices
preparation or preservation for the market
(freezing, drying, salting, broiling, roasting, 14. Which of the following transactions by an agricultural
smoking or stripping) cooperative is not exempt from value-added tax?
b. Brown sugar a. Sale to members of abaca produced by the
c. Polished or husked rice agricultural cooperative.
d. Corn grits b. Sale to non-members of abaca not produced by
6. Which of the following sales will be exempt from value the agricultural cooperative.
added tax? c. Importation of direct farm inputs to be used
I. Sale of copra directly and exclusively in the production or
II. Sale of flowers in their original state. processing of the agricultural cooperative’s
III. Sale of cotton in their original state. produce.
a. I only c. II only d. Importation of agricultural products in their original
b. III only d. I, II and III state.

7. Which of the following is/are not considered livestock 15. Cooperatives may be exempt from VAT. Which of the
or poultry for VAT-exempt transactions purposes? following is not?
I. Fighting cocks a. Gross receipts lending activities by credit or multi-
purpose cooperatives
II. Race horses
b. Sales by non-agricultural, non-electric and non-
III. Zoo animals credit cooperatives, the share capital contribution
of each member does not exceed Fifteen Thousand
IV. Other animals generally considered as pets. Pesos (P15,000)
a. I, II, III and IV c. I and II only c. Importation by non-agricultural, non-electric and
b. I, II and III only d. II, III and IV only non-credit cooperatives of machineries and
equipment, including spare parts thereof
8. Which of the following sale or importation of goods d. All of the choices
shall not be exempt from VAT?
a. Fertilizers 16. If a non-VAT registered person exports goods, what is
b. Seeds, seedlings and fingerlings the treatment of such transaction for VAT purposes?
c. Fish, prawn, livestock and poultry feeds, including a. Subject to 12% VAT
ingredients, whether locally produced or imported, b. Subject to 0% VAT
used in the manufacture of finished feeds c. Exempt
d. Specialty feeds. d. Either “b” or “c”

9. One of the following is not an activity subject to VAT: 17. The following sales of real properties are exempt from
a. Sale of feeds for fighting cocks VAT, exept:
b. Importation of feeds for race horses a. Sale of real properties not primarily held for sale
c. Retail of feeds for aquarium fish b. Sale of residential lot valued at P3,000,000 and
d. Importation of ordinary feeds for poultry chicken below
c. Sale of residential house and lot and other
10. The following services shall be exempt from VAT, residential dwellings valued at P3,199,200
except: d. Sale of parking lot valued at P3,000,000 and below
a. Services subject to percentage tax

Page 10 of 19 Module 1.1

18. Poli, a real estate developer, sold to Justo two adjacent b. Output tax d. Sales tax
residential lots for P1,000,000 each. What is tax
treatment of the sale transaction for VAT purposes? 25. The following transactions shall be “deemed sale”
a. Subject to 12% VAT except:
b. Subject to 0% VAT a. A VAT-registered person withdraws goods from his
c. Exempt business for personal use.
d. Either “a” or “c” b. Distribution or transfer to shareholders or investors
of property dividends taken from the inventory of
19. Which of the following receipts for the current year the business.
from lease of residential units is subject to VAT? c. Consignment of goods if actual sale is made within
I. Monthly rental per unit-P12,500; Aggregate 60 days following the date such goods were
annual rent-P2,000,000. consigned.
II. Monthly rental per unit-P14,000; Aggregate d. Retirement from or cessation of business with
annual rent-P1,800,000. respect to all goods on hand, whether capital
III. Monthly rental per unit-P14,000; Aggregate goods, stock-in-trade, supplies or materials as of
annual rent-P3,000,000 the date of such retirement or cessation, whether
IV. Monthly rental per unit-P15,000; Aggregate or not the business is continued by the new owner
annual rent-P2,000,000. or successor.
a. IV only c. All of the above
b. III and IV only d. None of the above 26. Mr. Ferds, VAT-registered real estate dealer,
transferred a parcel of land held for sale to his son as
20. The following has the option to register under the VAT gift on account of his graduation. For VAT purposes,
system, which has none? the transfer is:
a. A person whose annual gross sales or receipts in a. Not subject to VAT because it is a gift
the preceding year did not exceed P3,000,000 and b. Subject to VAT because it is a deemed sale
does not expect that its sale or receipts in the transaction
current year will breach said threshold. c. Not subject to VAT because it is subject to gift tax
b. Any person who is VAT-registered but enters into d. Subject to VAT because it is considered an actual
transactions which are exempt from VAT (mixed sale
transactions)
c. Franchise grantees of gas and water utilities whose 27. Which of the following is not included in the term
annual gross receipts of the preceding year did not "gross selling price"?
exceed P10,000,000. a. Total amount of money or its equivalent paid by
d. Franchise grantees of radio and/or television the purchaser
broadcasting whose annual gross receipts of the b. Amount receivable from the purchaser
preceding year did not exceed P10,000,000 c. Value-added tax passed on by the seller to the
buyer
21. Which of the following persons may be subject to VAT d. Excise tax
even if the transaction is for personal use?
a. Seller of goods and properties 28. Evelyn, a trader of appliances, made the following
b. Service providers sales of goods during the month of March 2022,
c. Importers exclusive of VAT:
d. All of the choices Cash sales P200, 000
Open account sales 100, 000
22. Which of the following statements as to the meaning of Installment sales 100, 000
“In the Course of Trade or Business” is incorrect? Note: Receipt from installment
a. It means the regular conduct or pursuit of a sales is P20,000
commercial or economic activity. Consignment made: (net of VAT)
b. If the main activity is subject to VAT, all January 15, 2021 100, 000
transactions related to it, even if incidental will be February 15, 2021 100, 000
subject to VAT as well. March 15, 2021 100, 000
c. A non-stock, non-profit private organization is
exempt from VAT if its net income will be Output tax is:
exclusively used for its primary purpose/s and it a. P60,000 c. P72,000
sells exclusively to members and their guests b. P40,800 d. P64,800
d. Non-resident persons who perform services in the
Philippines are deemed to be making sales in the 29. Shok Tong Co. is a manufacturer of beer. During a
course of trade or business, even if the particular quarter, it had the following transactions
performance of services is not regular. (net of VAT):
January 4, 2021: Consigned beer to a retailer in
23. Who of the following shall be subject to VAT? Quezon City amounting to P200,000.
I. VAT-registered person whose gross sales do February 14, 2021: Exported P1,000,000 worth of beer
not exceed P3,000,000 to Japan.
February 27, 2021: President of San-mor Trading
II. A non-resident lessor or foreign licensor who is
celebrated his birthday, consuming P50,000 worth
not VAT-registered.
of beer given to him by the company as a birthday
III. Any person who is required to register under gift.
VAT system but failed to register. March 20, 2021: Declared property dividend of one
case of beer for every 10 shares, amounting to
a. I, II and III c. II and III only P150,000.
b. I and II only d. I and III only
Additional information: From January to March,
24. The value added tax due on the sale of taxable goods, domestic sales to wholesalers amounted to P600,000.
property and services by any person whether or not he No beer was returned by the consignee until the end of
has taken the necessary steps to be registered. the quarter.
a. Input tax c. Excise tax

Page 11 of 19 Module 1.1

 35. The output tax for December 2021 is:
The output tax for the quarter is: a. P5,400 c. P10,000
a. P72,000 c. P120,000 b. P4,500 d. none
b. P192,000 d. P60,000
36. If the taxpayer is principally engaged in manufacturing
30. Which of the following is not included in computing business and the lots sold were utilized as office
initial payments for the purpose of determining spaces, how much is the output tax for the month of
whether a real estate dealer can use installment November?
method or not? a. P26,500 c. P31,800
a. Downpayment b. P34,800 d. P90,000
b. All payments actually or constructively received
fduring the year of sale 37. Which of the following is not deductible from "Gross
c. Amount of mortgage on the property sold Selling Price"?
d. Excess of unpaid mortgage on the property sold a. Discounts determined and granted at the time of
over its cost sale, which are expressly indicated in the invoice,
the amount thereof forming part of the gross sales
31. Kaktus Realty Inc. developed a condominium in Manila. duly recorded in the books of accounts
During the month of January 2021, it had the following b. Discount determined and granted after paying
data (VAT included,if applicable): within a certain period of time
c. Sales discount indicated in the invoice at the time
Selling Price of sale, the grant of which is not dependent upon
Cash sale of a 3 bedroom unit P5,040,000 the happening of a future event, deductible within
Sale of parking lot 560,000 the same month or quarter given
Installment sale of 2 bedroom d. Sales returns and allowances for which a proper
unit (initial payments is more credit or refund was made during the month or
than 25% of the selling price) 3,920,000 quarter to the buyer for sales previously recorded
as taxable sales
The 3 bedroom unit sold for cash had a zonal value of
P5,000,000 and the 2 bedroom unit had a fair market 38. On January 5, 2021, Towell Co., VAT-registered, sold
value per Tax Declaration of P3,000,000. on account goods for P112,000, gross of VAT. The
term was: 2/10, n/30. Payment was made on January
How much is the output tax for the month? 10, 2021. The output tax is:
a. P920,000 c. P1,020,000 a. P12,000 c. P11,760
b. P900,000 d. P1,080,000 b. P13,171 d. P13,440

32. West Star Realty Corp. sells a commercial lot in the 39. Any input tax attributable to zero-rated sales by a
month of November 2021 under the following terms VAT-registered person may at his option be:
(including VAT): a. Deducted from output tax
b. Refunded
Total contract price P1,120,000 c. Applied for a tax credit certificate which may be
Downpayment, 11-01-2021 112,000 used in payment of other internal revenue taxes.
First installment, 12-01-2021 112,000 d. All of the above
Zonal value 1,500,000
40. Sale of raw materials or packing materials to export-
The output VAT in November 2021 is: oriented enterprise is considered export sales when
a. P12,000 c. P18,000 export sales of such enterprise
b. P120,000 d. P180,000 a. Exceed 50% of total annual production
b. Exceed 60% of total annual production
33. Based on the preceding number, if on December the c. Exceed 70% of total annual production
buyer was late in paying the amount due and was d. Exceed 80% of total annual production
charged interest and penalty of P5,000, how much is
the output VAT for the month? 41. The following are zero-rated, if paid for in acceptable
a. P12,000 c. P18,000 foreign currency and accounted for in accordance with
b. P12,600 d. P18,600 the rules and regulations of the Bangko Sentral ng
Pilipinas except one:
Use the following data for the next two (3) questions: a. Sale and actual shipment of goods from the
JJ is a real estate dealer. During the month of November Philippines to a foreign country.
2021, he sold three (3) commercial lots under the b. Sale of raw materials or packaging materials to a
following terms (all amounts are net of VAT, if any): non-resident buyer for delivery to a resident local
export-oriented enterprise.
Lot 1 Lot 2 Lot 3 c. Sale to a non-resident of goods (except automobile
Selling Price P250,000 P200,000 P300,000 and non-essential goods) assembled or
Cost 150,000 130,000 175,000 manufactured in the Philippines for delivery to a
Gain/Loss 100,000 70,000 125,000 resident in the Philippines.
Terms: d. Sale of real property to a nonresident person for
Down, Nov. 5 25,000 50,000 40,000 delivery to a resident in the Philippines.
Due:
12/05/ 2021 25,000 20,000 20,000 42. T Corp. is a local export oriented enterprise engage in
Year 2022 200,000 130,000 240,000 the business of manufacturing of sardines. It sold to
Mr. Bo Huang of China under the term FOB Shipping
Point.
34. The output tax in November 2021 is:
a. P26,500 c. P31,800 Mr. Huang wants a specialized packaging material for
b. P34,800 d. P90,000 his sardines. He ordered the said packaging materials
from another Philippine Company Norhan Packaging

Page 12 of 19 Module 1.1

 Inc. (NPI). It was agreed that NPI will deliver the a. Sales to enterprises duly registered and accredited
packaging materials to T. Corp so that the latter can with the Subic Bay Metropolitan Authority (SBMA)
use the same for the sardines to be delivered to Mr. b. Sales to enterprises duly registered and accredited
Huang in China. with the Philippine Economic Zone Authority
(PEZA)
What is the tax treatment for VAT purposes of the sale c. Sales to Development Bank of the Philippines
of T. Corp. to Mr. Huang? (DBP)
a. Subject to 12% d. Sales to International Rice Research Institute
b. Subject to 0% (IRRI)
c. Exempt
d. None of the choices 50. Which of the following shall be subject to Value-Added
Tax on sale or exchange of services?
43. Based on the preceding number, what is the tax a. Construction and service contractors
treatment of the sale of NPI to Mr. Huang? b. Stock, real estate, commercial, customs and
a. Subject to 12% immigration brokers
b. Subject to 0% c. Lessors of property, whether personal or real
c. Exempt d. All of the choices
d. None of the choices
51. Which of the following shall not be included in the term
44. Continuing number 41, suppose T Corp. bought "gross receipts"?
packaging materials from NPI, what is status of the a. Total amount of money or its equivalent
sale? representing the contract price, compensation,
a. Subject to 12% service fee, rental or royalty.
b. Subject to 0% b. Amount charged for materials supplied with the
c. Subject to 0% only if NPI’s export sales exceed services.
70% of total annual production in the current year. c. Advance payments actually or constructively
d. Subject to 0% only if T Corp.’s export sales exceed received during the taxable period for the services
70% of total annual production in the current year. performed or to be performed for another person.
d. Value-added tax.
45. Same scenario in number 43, except that T Corp.’s
export sales in the preceding year did not exceed 70%, 52. A VAT-registered taxpayer engaged in the supply of
what is the status of the sale of NPI? services has the following data taken from its books for
a. Subject to 12% the month of January 2022:
b. Subject to 0% Accounts receivable – Trade, January 560,000
c. Subject to 0% only if NPI’s export sales exceed 1, 2022
70% of total annual production in the current year. Accounts receivable – Non-trade, 300,000
d. Subject to 0% only if T Corp.’s export sales exceed January 1, 2022
70% of total annual production in the current year. Sales on account for the month of 1,000,000
January
46. Petron Corp. sold fuel to China Eastern Airlines, an Cash sales for the month of January 300,000
international air carrier. Which of the following Accounts receivable - Trade, January 784,000
statements is correct? 31, 2022
a. The sale transaction is subject to 12% VAT Accounts receivable – Non-trade, 400,000
b. The sale transaction will fall under zero-rated January 31, 2022
transaction
c. The sale transaction is exempt from VAT How much is the output tax for the month of January?
d. None of the choices a. P156,000 c. P129,120
b. P132,000 d. P110,000
47. Flying V Inc. sold fuel to Philippine Airlines for its
scheduled flight from Manila to Cebu to Hong Kong. 53. Ms. Erica is a VAT-registered make-up artist. She
Which of the following statements is correct? charges her clients at cost plus 50%. In a month, she
a. The sale of fuel that will be used for the entire used the following materials:
scheduled flight is subject to 12% VAT Lipstick 150,000
b. The sale of fuel that will be used for the entire Blush-on 50,00
scheduled flight is subject to 0% Foundation 150,000
c. The sale of fuel that will be used for the flight from Mascara 30,000
Manila to Cebu is subject to 0% Eye shadow 20,000
d. The sale of fuel that will be used for the flight from Eye Liner 25,000
Cebu to Hong Kong is subject to 0%
Assuming she was able to collect all fees for the
48. Which is not a requisite of “foreign currency services she rendered for the month, how much is the
denominated sales”? output tax?
a. The sales exceed an aggregate foreign exchange a. P76,500 c. P51,000
value of $US1,000. b. P25,500 d. nil
b. The buyers are Filipinos abroad, returning overseas
Filipino or other nonresidents of the Philippines. 54. Roberts Investment Co., a VAT-registered investment
c. The goods are paid for in convertible foreign house, has the following data for the month of
currency inwardly remitted through the banking November:
system in the Philippines. Broker’s Commission 500,000
d. The goods are assembled or made in the Shares sold:
Philippines for household or personal use. Anne Inc., held as inventory (cost
300,000) 400,000
49. Which of the following local sales of goods or property Jessie Corp., held as investment (cost
and-services will not be at zero-rate? 350,000) 600,000

Page 13 of 19 Module 1.1

 How much is the output tax? c. Wheat into flour
a. P102,000 c. P72,000 d. Sugar cane into raw sugar
b. P108,000 d. P180,000
62. Which of the following zero-rated services performed in
55. Vikings Manpower Agency has the following data in a the Philippines require that they be paid for in
month (net of VAT): acceptable foreign currency and accounted for in
accordance with the rules and regulations of the
Collections for salaries of personnel 400,000 Bangko Sentral ng Pilipinas (BSP)?
Collections for agency fee 100,000 a. Processing, manufacturing, or repacking goods for
other persons doing business outside the
How much is the output tax? Philippines, which goods are subsequently
a. P60,000 c. P48,000 exported
b. P12,000 d. nil b. Services, other than processing, manufacturing, or
repacking rendered to a person engaged in
56. Based on the preceding number, if the taxpayer is a business conducted outside the Philippines or to a
security agency, how much is the output tax? non-resident person not engaged in business who
a. P60,000 c. P48,000 is outside the Philippines when the services are
b. P12,000 d. nil performed
c. Both “a” and “b”
57. A VAT-registered contractor has the following selected d. Neither “a” nor “b”
VAT inclusive data for the month of July, 2022:
63. Philippine Airlines has daily flights from Philippines to
Collections from contracts P560,000 Abroad. What business tax will apply on the ticket
completed in 2021 sales?
Advances from contracts to be 336,000 a. Three percent (3%) percentage tax
completed in 2023 b. Twelve percent (12%) VAT
Collections from contracts c. VAT at zero percent (0%)
completed in July, 2022, net of d. Exempt
10% retention on billings which 221,760
was deposited in the account of 64. Based on the preceding number, if the flights are
the contractor by the contractee domestic, what business tax will apply on the ticket
Materials charged with the services 112,000 sales?
rendered a. Three percent (3%) percentage tax
b. Twelve percent (12%) VAT
How much is the output tax for the month of July, c. VAT at zero percent (0%)
2022? d. Exempt
a. P150,528 c. P131,760
b. P134,400 d. P120,000 65. Which of the following shall be subject to 0% Value-
Added Tax?
58. Which of the following non-life insurance companies a. Sale of electricity by generation companies
shall not be subject to Value-Added Tax? b. Sale of electricity by transmission companies
a. Crop insurance companies c. Sale of electricity by distribution companies
b. Fidelity companies d. Sale of power or fuel generated through renewable
c. Surety companies sources of energy
d. Bonding companies
66. Tax credit for input taxes shall be allowed if:
59. Which of the following statements is incorrect? a. Both the seller and the purchaser are VAT-
a. Lease of property shall be subject to VAT registered.
regardless of the place where the contract of lease b. Either one of the seller or the purchaser is VAT-
or licensing agreement was executed if the registered.
property leased or used is located in the c. Neither one of the seller or the purchaser is VAT-
Philippines. registered as long as VAT invoice is issued.
b. VAT on rental and/or royalties payable to non- d. The seller is VAT-registered regardless of whether
resident foreign corporations or owners for the sale the purchaser is VAT-registered or not.
of services and use of lease of properties in the
Philippines shall be based on the contract price 67. Which of the following transactions in the course of
agreed upon by the licensor and the licensee. trade or business requires actual payment of VAT
c. The licensee shall be responsible for the payment before an input tax is allowed as tax credit from the
of VAT on such rentals and/or royalties in behalf of output tax?
the non-resident foreign corporation or owner. a. Purchase of services
d. None of the choices. b. Transactions deemed sale
c. Domestic purchase of goods for use as raw
60. Which of the following advance payments by the lessee materials supplied in the sale of services
may be subject to VAT? d. Domestic purchase of goods for use in trade or
a. A loan to the lessor from the lessee business for which deduction for depreciation or
b. An option money for the property amortization is allowed under the Tax Code
c. A security deposit to insure the faithful
performance of certain obligations of the lessee to 68. The input tax credit on importation of goods or local
the lessor purchases of goods, properties or services by a VAT-
d. Pre-paid rental registered person shall be creditable to which of the
following?
61. Which of the following milling jobs shall not be exempt a. To the importer upon payment of VAT prior to the
from VAT? release of goods from customs custody
a. Palay into rice b. To the purchaser of the local goods or properties
b. Corn into corn grits upon consummation of the sale

Page 14 of 19 Module 1.1

 c. To the purchaser of services or the lessee or Office machines (5 pcs.), 8 years 2,000,000
licensee upon payment of the compensation, useful life, net of VAT
rental, royalty, or fee
d. All of the choices Repair of store amounted to P20,000, no supporting
official receipt.
69. Vitarich Corp. has the following data on its purchases
and disbursements in a month: Creditable Input tax is:
Local purchases from VAT suppliers: a. P38,800 c. P37,440
Goods (60% still unpaid) P180,000 b. P34,800 d. P35,520
Services (30% still unpaid) 240,000
76. Kusina Co., had its kitchen assembled by a VAT
Local purchases from non-vat suppliers taxpayer. It took six months for the contractor to finish
Goods (70% still unpaid) 90,000 the work. Kusina Co. purchased materials in July from
Services (20% still unpaid) 120,000 VAT suppliers at a cost of P500,000, VAT not included.
Payment to the contractor in July 2022 on the
How much is the creditable input tax? Construction in Progress, VAT not included was:
a. P50,400 c. P41,760
b. P64,080 d. P56,520 On contractor’s billing in June P100,000
On contractor’s billing in July 70,000
70. Where a VAT-registered person purchases or imports
capital goods, which are depreciable assets for income The input tax available in July is:
tax purposes, the aggregate acquisition cost of which a. P0 c. P60,000
(exclusive of VAT) exceeds P1,000,000 in a calendar b. P80,400 d. P20,400
month regardless of the acquisition cost of each capital
good, shall be claimed as credit: 77. Hooratex Manufacturing Inc., a VAT-registered entity,
a. over a period of 60 months regardless of the useful is engaged in the business of manufacturing foam. In a
life. month, it hired the services of a foreign firm to
b. over 60 months or useful life, whichever is shorter. conduct studies on how to improve efficiency in the
c. in full in the month acquired, if the estimated life is Company’s manufacturing process. The contract price
less than 5 years. is P5,000,000 immediately paid during the month.
d. in full in the quarter acquired unless the estimated
life is less than 5 years, in which case over the Also, it entered into a contract with another
actual number of months comprising the estimated manufacturing firm abroad to allow the former to use
life. the latter’s technology. During the month, it paid
P1,000,000 in royalties.
Use the following data for the next three (4) questions:
Ofel, a VAT registered taxpayer made the following How much is the withholding VAT to be remitted by the
acquisition of capital goods from VAT registered suppliers Company to the Bureau of Internal Revenue?
(net of vat) during the quarter; a. P720,000 c. P120,000
b. P60,000 d. nil
Date Cost Estimated Life
July 2 1,500,000 8 years 78. The allowable transitional input tax is:
July 10 500,000 2 years a. The lower between 2% of the value of beginning
August 5 400,000 3 years inventory or actual VAT paid on such inventory.
August 20 500,000 4 years b. The higher between 2% of the value beginning
October 10 500,000 4 years inventory or actual VAT paid on such inventory.
October 15 600,000 6 years c. The actual VAT paid on the beginning inventory.
d. 2% of the value of beginning inventory.
The July 2 acquisition was retired in September.
79. A taxpayer registered under the VAT system on
71. The input tax for the month July is: January 2022 after his sales from previous year
a. P4,275 c. P63,000 exceeded P3,000,000. The following selected data
b. P5,500 d. P240,000 were taken from his books:
Inventory purchased from VAT suppliers, 12-31-13:
72. The input tax for the month of August is: Cost, net of VAT P60,000
a. P2,583 c. P108,000 Net realizable value 50,000
b. P8,083 d. P113,500
Inventory purchased from non-VAT
73. The input tax for the month of October is: suppliers, 12-31-13
a. P2,450 c. P178,950 Cost 400,000
b. P132,000 d. P231,450 Net realizable value 500,000

74. If the goods acquired in July are not capital goods, how How much is the transitional input tax?
much is the input tax for such month? a. P9,200 c. P9,000
a. P4,275 c. P63,000 b. P7,200 d. P1,000
b. P5,500 d. P240,000
80. All of the following are allowed to claim presumptive
75. Maymay, VAT-registered, made the following input tax, except for one.
purchases during the month of January, 2021: a. Processor of sardines, mackerel and milk.
Goods for sale, inclusive of VAT P 246,400 b. Manufacturer of refined sugar and cooking oil.
Supplies, exclusive of VAT 20, 000 c. Producers/manufacturers of packed noodles.
Packaging materials, total invoice d. Supplier of books and other school supplies.
amount 56, 000
Home appliances for residence, 81. Which of the following statements is incorrect?
gross of VAT 17,920

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 a. Imported goods which are subject to excise tax are Expenses based on cost:
no longer subject to value-added tax. Freight and 6% 6%
b. VAT on importation is paid to the Bureau of insurance
Customs before the imported goods are released Other expenses up 4% 4%
from its custody. to the point of
c. Expenses incurred after the goods are released removal from
from Customs custody are disregarded in customs house
computing VAT on importation. Transfer expense 2% 2%
d. When a person who enjoys tax-exemption on his from customs
importation subsequently sells in the Philippines house to
such imported articles to non-exempts person, the warehouse in
purchaser-non-exempt person shall pay the VAT Makati, net of VAT
on such importation.
Selling price of goods imported for sale within the taxable
82. The vat on importation of goods which are period of importation was P8,000,000.
subsequently used or sold in the course of trade or
business by a vat registered importer shall be treated 87. The value added tax payable on importation is:
as a. P492,800 c. P623,700
I. Tax credit b. P491,300 d. P620,928
II. Inventoriable cost
III. Expense 88. The value added tax payable on sale is
a. I only c. III only a. P355,200 c. P366,000
b. II only d. None of the choices b. P128,640 d. P720,000

83. Nilda imported a car from USA for her personal use. 89. A VAT-registered supplier sold goods amounting to
Total landed cost is P250,000 excluding custom duties P500,000 to a government-controlled corporation
of P50,000 and excise tax of P25,000. VAT on during a particular quarter. Which of the following
importation is: statements is incorrect in relation to the sale in
a. P30,000 c. P36,000 relation to the sale of goods?
b. P39,000 d. nil a. The sale is subject to final withholding VAT.
b. The government-controlled corporation will
84. An importer wishes to withdraw its importation from withhold VAT amounting to P25,000.
the Bureau of Customs. The imported goods were c. The government-controlled corporation shall remit
subjected to 10% customs duty in the amount of the withholding of VAT to the BIR within 10 days
P24,000 and other customs charges in the amount of following the end of the month the withholding was
P10, 000. The value-added tax due is: made.
a. P24,000 c. P32,880 d. The VAT-registered supplier may refuse the
b. P25,200 d. P20,000 withholding of VAT as long as it is willing to pay
the full 12% VAT.
85. World Power Corp. imported an article from Japan. The
invoice value of the imported articles was $7,000 ($1- 90. Government units making payments to VAT registered
P50). The following were incurred in connection with business is required to withhold the estimated tax
the importation: corresponding to its payment. The VAT withholding tax
Insurance P 15,000 on payment to VAT registered suppliers is
Freight from Japan 10,000 a. 3% of gross payment
Postage 5,000 b. 5% of gross payment
Wharfage 7,000 c. 8.5% of gross payment
Arrastre charges 8,000 d. 10% of gross payment
Brokerage fee 25,000
Facilitation fee 3,000 Use the following data for the next five questions:
A VAT-registered trader has the following transactions:
The imported article was imposed P50,000 customs Sales of good to private entities, P2,500,000
duty and P30,000 excise tax. net of VAT
Purchases of goods sold to 896,000
The Company spent P5,000 for trucking, the carrier is private entities, gross of 12%
not subject to VAT, from the customs warehouse to its VAT
warehouse in Quezon City. Sales to a government owned 1,000,000
The VAT on importation is: corporation (GOCC), net of VAT
a. P60,000 c. P60,600 Purchases of goods sold to 700,000
b. P42,000 d. P80,000 GOCC, net of 12% VAT

86. Based on the preceding number, if the imported article 91. How much is the output tax?
was sold for P800,000, VAT exclusive, the VAT payable a. P300,000 c. P420,000
is: b. P120,000 d. nil
a. P24,000 c. P36,000
b. P12,000 d. P11,040 92. How much is the standard input tax?
a. P20,000 c. P50,000
Use the following data for the next two (2) questions: b. P70,000 d. nil
Taxpayer is a VAT registered person. Importation were
for: (amounts are vat exclusive) 93. How much is the creditable input tax?
a. P166,000 c. P70,000
For Sale For Own b. P96,000 d. P180,000
Use
Invoice cost (exchange $100,000 $5,000 94. How much is the input tax closed to expense
rate is $1 : P45) (income)?

Page 16 of 19 Module 1.1

 a. P14,000 c. (P14,000) 102. But assuming further that the taxpayer opted to
b. P34,000 d. (P34,000) claim them as refund, the VAT due is:
a. P576,000 c. P746,888
95. How much is the VAT payable to the BIR? b. P697,888 d. P620,000
a. P404,000 c. P204,000
b. P390,000 d. nil 103. First statement: Unused input tax of persons
whose registration had been cancelled may be
96. A VAT- registered person is engaged in the sale of VAT converted into tax credit certificate which may be used
taxable goods and at the same time is also engaged in in payment of other NIRC taxes.
non-VAT business, in the same business Second statement: Refund or tax credit certificate shall
establishment. be granted within 25 days from the date of submission
of complete documents.
During the quarter it made P300,000 sales plus value- a. Both statements are correct.
added tax of P36,000. The sales of the non-VAT b. Both statements are incorrect.
business amounted to P200,000 with a separate c. Only the first statement is correct.
percentage tax of P6,000 for a total of P206,000. d. Only the second state statement is correct.
During the same quarter, repairs on the building
amounted to P50,000 plus value tax of P6,000. 104. Monthly VAT declaration is filed on or before the:
Supplies purchased for common use amounted to a. 10th day from the end of each month.
P10,000 value-added tax of P1,200. b. 20th day from the end of each month.
c. 25th day from the end of each month.
The creditable input tax is: d. 30th day from the end of each month.
a. P7,200 c. P4,320
b. P6,000 d. P3,600 105. Every person liable to pay VAT shall file a quarterly
return of the amount of his quarterly gross sales or
97. Using the data in the preceding number, the VAT receipts within how many days following the close of
payable is: taxable quarter using the latest version of Quarterly
a. P24,000 c. P31,680 VAT Return if it is?
b. P25,000 d. P26,400 a. Thirty (30) days c. Twenty (20) days
b. Twenty-five (25) days d. Ten (10) days
98. Which statement is not correct?
a. The excess input taxes of a taxable month arising 106. The withholding agent of creditable value added
from domestic sales may be carried over to the tax is required to remit the amount of value added tax
succeeding month withheld within:
b. The excess input taxes of a taxable quarter arising a. 25 days following the end of month the withholding
from domestic sales may be carried over to the was made
succeeding quarter b. 20 days following the end of month the withholding
c. The excess input taxes of a taxable period arising was made
from domestic sales may be refunded c. 15 days following the end of month the withholding
d. The excess input taxes of a payable period arising was made
from exports sales may be refunded. d. 10 days following the end of month the withholding
was made
99. Which of the following excess input taxes can be
refunded, converted into tax credit certificates or 107. A new businessman consulted you relative to the
carried over to the next quarter at the option of the filing of tax return and payment of his tax. The
VAT-registered taxpayer? business is VAT registered although he is expecting to
a. Input tax on purchase of capital goods. earn an annual gross receipts ranging from P900,000
b. Input tax on importation of supplies to P1,200,000 only. These are his questions:
c. Input tax on zero-rated sales of goods or services.
d. Input tax on purchase of real properties. I. What business tax should be paid by him?
II. When is the deadline for filing the tax return
100. Leomar, a VAT-registered person has the following for the month of May?
data: III. When is the deadline for the payment of the
business tax return for the month of June or
Export sales, total invoice amount P3,000,000 second quarter/
Domestic sales, total invoice amount 6,720,000
Purchases used to manufacture Goods
Which of the following choices would be the correct
for export and domestic sales:
advice?
Raw Materials, VAT inclusive 616,000
Supplies, VAT inclusive 448,000 Question I Question II Question III
Equipment, VAT exclusive 300,000
a. VAT June 20 July 25
The amount of input tax which can be refunded or b. VAT June 25 July 25
converted into tax credit certificates at the option of c. Non-VAT June 20 July 25
Leomar is: d. Non-VAT June 20 July 20
a. P120,000 c. P39,600
b. P118,800 d. P50,000 108. A taxpayer registered under the VAT system on
January 1, 2022. His records during the month show:
101. Based on the preceding number, if the refundable Value of inventory as of December 31,
input taxes were not refunded but used as tax credit, 2021 purchased from VAT-registered P112,000
the VAT due is: persons
a. P576,000 c. P666,888 VAT paid on inventory as of December 31,
b. P697,888 d. P570,000 2021 12,000
Value of inventory as of December 31,
2021 purchased, from non-VAT persons 518,000
Sales, net of VAT 140,000

Page 17 of 19 Module 1.1

 Sales, gross of VAT 45,920 of capital goods, how much is Popocute’s VAT due or
Purchases, net of VAT 70,000 excess input tax?
Purchases of VAT exempt goods 50,000 a. P305,000 c. P136,000 excess IT
b. P300,000 d. P161,000 excess IT
VAT payable is:
a. P23,080 c. P12,720 114. Calea Refining Company manufactures refined
b. P25,320 d. P13,320 sugar. It had the following data during the first quarter
of 2021:
109. The following are the data of Davao Appliances Sale of refined sugar, net of VAT P2,000,000
Marketing Co. for the last quarter of 2021: Purchases of sugar cane 500,000
Sales up to December 15, total Purchases of packaging materials,
Invoice value P380,800 gross of VAT 784,000
Purchases up to December 15, net Purchases of labels, net of VAT 100,000
of input taxes 150,000
The VAT payable is:
Additional information: a. P124,000 c. P144,000
On December 16, 2021, the Company retired from its b. P112,500 d. P62,000
business and the inventory valued at P190,000
remained unsold. There is a deferred input tax from 115. Tore Inc., a building contractor, showed to you the
the third quarter of P3,500. following data:
Contract Price P5,000,000
How much is the total value-added taxes payable by Cash received (VAT included) 2,240,000
Davao Appliances Marketing Co.? Receivables 3,000,000
a. P42,100 c. P22,800 Advances on other contracts still
b. P21,500 d. P19,300 unearned (w/o VAT) 1,000,000
Payments:
110. Magnifeco Corp. is a VAT-registered dealer of For materials, VAT excluded 500,000
appliances. The following data are for the last quarter For supplies, VAT excluded 100,000
of 2021: For services of sub-contractors
Sales, total invoice value P6,920,000 (VAT included) 1,848,000
Purchases, net of input taxes 5,500,000
Sales return, total invoice value 200,000 How much is the value added tax payable?
Purchase return, net of VAT 300,000 a. P360,000 c. P330,000
Deferred input taxes (carried over from the b. P270,000 d. P90,000
third quarter of 2021) 12,000
116. Dong Inc., a manufacturer, had the following data
The value added tax payable for the last quarter of for the first month of 2021: (First year as a VAT
2021 by Magnifeco Corp. is: Taxpayer)
a. P84,000 c. P108,000 Sales:
b. P96,000 d. P130,500 Exports P2,000,000
Domestics (Without VAT) 1,000,000
111. During a quarter, ChenMitch Corp. made sales of Purchases, excluding VAT:
goods amounting to P1,000,000 plus output tax of Raw Materials 300,000
P120,000 for a total of P1,120,000. It also made sales Services 100,000
of services amounting to P200,000 plus output tax of Machinery
P24,000 for a total of P224,000. (estimated useful life 2 years) 400,000

During the same quarter, it made domestic purchases On January 1, 2021, the company had inventories and
of P1,000,000 for goods for sale plus input tax of taxes paid thereon as follows:
P120,000. It also hired the services of an independent Cost VAT Paid
contractor to repair the building used for both lines of Raw Materials P120,000 P2,000
activities for which it paid the amount of P50,000 plus Supplies 40,000 4,000
P6,000 VAT. Its deferred input tax is P215,000 for
which P200,000 is a carry-over input tax related zero During the month, raw materials were purchased from
rated transaction. another enterprise with a total invoice value of
P61,600, not included above.
ChenMitch received a credit memorandum for
purchases returned during the quarter covering The VAT payable by Dong Inc. is:
purchases made in the previous quarter amounting to a. P72,000 c. P11,000
P336,000, P36,000 of which adjustment pertains to b. P57,000 d. P66,000
input tax. It also filed a claim for refund of P200,000
input tax on zero rated transaction. 117. Carlito, a VAT registered grocery and sugar dealer
submitted the following data as of Dec. 31, 2020 to the
How much is ChenMitch’s creditable input tax? Revenue District Officer:
a. P5,000 c. P126,000
b. P105,000 d. P215,000 Grocery items, total value P350,000
Raw sugar cane, total value 150,000
112. Based on the preceding number, how much is the
VAT payable or excess tax credit? During the month of January 2021, first month as a
a. P39,000 c. P126,000 VAT-registered taxpayer, he had the following sales
b. P108,000 d. P221,000 and purchases:
Sales Purchases
113. Assuming the same facts in question 111, except Grocery, total invoice value P1,195,040 P708,400
that the company has not filed a claim for refund Raw sugar cane,
during the period for input tax on previous purchases (Excluding VAT) 570,000 320,000

Page 18 of 19 Module 1.1

 Services from abroad 500,000
The VAT payable for the first month is:
a. P29,400 c. P45,140 NOTE: All fees and taxes applicable to the importation
b. P47,400 d. P36,500 were paid during the month.

118. Barong Barong Construction Co. is a vat-registered How much is the output tax?
building contractor. Its summary of transactions during a. P720,000 c. P600,000
the month of August 2022 showed the following (all b. P480,000 d. P408,000
figures are net of VAT, if applicable):
119. How much is the creditable withholding VAT?
Receipts: a. P287,900 c. P60,000
Collections from a project with contract 3,000,000 b. P91,500 d. nil
price of P5,000,000 (20% pertains to
materials used in the construction) 120. How much is the creditable input tax?
Advances from clients 1,000,000 a. P287,900 c. P60,000
b. P290,300 d. P146,300
Materials and supplies inventory:
July 31, 2022 130,000
August 31, 2022 175,000 -END-

Local purchases of goods & properties:

Materials and supplies 400,000
Company Car (useful life is 4 years) 800,000
Construction equipment (8 years) 2,400,000

Importation of construction materials:

Dutiable Value (customs duty is 10%) 800,000
Excise Tax 160,000
Fees within the Bureau of Customs 140,000
Freight from customs to Company’s 20,000
warehouse

Purchases of services:
Local 350,000
Abroad 600,000

Disbursements:
Materials and supplies 200,000
Local purchases of services 262,500

Page 19 of 19 Module 1.1