CHAPTER 6: THE VALUE ADDED
TAX
WHAT IS VAT?
VAT stands for Value Added Tax.
VAT is a type of sales tax which is levied on
consumption on the sale of goods, services
or properties, as well as importation, in the
Philippines.
To simplify, it means that a certain
tax rate (0% to 12%) is added up to the
selling price of a goods or service sold. It is
also imposed on imported goods from
abroad.
WHO ARE REQUIRED TO BE VAT
REGISTERED?
 Any person or entity who, in the
course of his trade or business, sells,
barters, exchanges, leases goods or
properties and renders service
subjects to VAT, if the aggregate
amount of actual gross sales or
receipt exceed One Million Nine
Hundred Nineteen thousand Five
Hundred Pesos (P1,919,500.00)
 A person required to register as VAT
taxpayer but failed to register
 Any person, whether or not made in
the course of his trade or business,
who imports goods.
What is the difference between zero
rating and exempting a good in the VAT?
For a “zero-rated good,” the
government doesn’t tax its sale but allows
credits for the value-added tax paid on
inputs. If a good or business is “exempt,” the
government doesn’t tax the sale of the good,
but producers cannot claim a credit for the
VAT they pay on inputs to produce it.
ZERO RATING
Almost all countries apply
preferential rates to some goods and
services, making them either “zero rated” or
“exempt.” For a “zero-rated good,” the
government doesn’t tax its retail sale but
allows credits for the value-added tax (VAT)
paid on inputs. This reduces the price of a
good. Governments commonly lower the tax
burden on low-income households by zero
rating essential goods, such as food and
utilities or prescription drugs.
EXEMPTING
If, by contrast, a good or business is
“exempt,” the government doesn’t tax the
sale of the good, but producers cannot claim
a credit for the VAT they pay on inputs to
produce it. Because exempting breaks the
VAT’s chain of credits on input purchases, it
can sometimes raise prices and revenues.
Hence, governments generally only use
exemptions when value added is hard to
define, such as with financial and insurance
services.
What are the Types of VAT and Tax
Rate?
1. VATable – 12%
 On sale of goods and properties –
twelve percent (12%) of the gross
selling price or gross value money of
the goods or properties sold, bartered
or exchanged
 On sale of services and use or lease
of properties – twelve percent of
gross receipts derived from the sale
or exchange of services, including
the use or lease of properties.
 On importation of goods – twelve
percent based on the total value used
 by the Bureau of Customs in
determining tariff and customs
duties, plus customs duties, excise
taxes, if any, from customs custody;
provided, that where the customs
duties are determined on the basis of
quantity or volume of goods, the
VAT shall be based on the landed
cost plus excise taxes, if any.
2. VAT Zero-Rated – 0%
 Zero-rated is a sale, barter or
exchange of goods, properties and/or
services subject to 0% VAT pursuant
to Sections 106 (A) and 108 (B) of
the Tax Code.
 Zero-rated is usually pertaining to
export sale of service or those zero-
rated as approved by special laws
such as PEZA or Economic Zone
registered companies.
3. VAT Exempt – 0%
 A sale of goods or transactions is
considered VAT Exempt if it falls
under SEC 109 – Exempt
Transactions.
 Normally VAT Exempt transactions
are basic necessities such as
agricultural products, tuition fees,
lending activities, real properties,
books, transportation, etc.
What is the BIR Form for VAT?
There are two types of VAT return:
1. Monthly – BIR Form 2550M is
used to file monthly VAT.
(Example: For the month of August)
2. Quarterly – BIR Form 2550Q is
used to file quarterly VAT.
(Example: For second quarter (April to
June))
When is the Deadline for Filing and
Payment of VAT?
 For the monthly VAT return,
deadline is every 20th of the
following month of the applicable
month.
Example: For July VAT return, the deadline
is August 20.
 For the quarterly VAT return,
deadline is every 25th of the
following month of the applicable
quarter.
Example: For the second quarter ending
June 30, the deadline is July 25.
What is the Penalty for Non-Filing or
Late Filing?
1. For failure to file, keep a
supply or statement, list or
information required on the
date prescribed shall pay and
administrative penalty of One
Thousand pesos (P1,000.00)
for each such failure, unless it
is shown that such failure is
due to reasonable cause and
not to willful neglect; and
2. An aggregate amount to be
imposed for such failures
during a taxable year shall
not exceed Twenty-Five
Thousand pesos
(P25,000.00).
What is a VAT invoice?
A Value-Added Tax (VAT) invoice
is a document issued by an accountable
person setting out the details of a taxable
supply and all related information as
prescribed by VAT law.
A VAT invoice must issue within fifteen
days of the end of the month in which goods
or services are supplied.
Why are VAT invoices important?
The information given on a VAT
invoice is the basis for establishing your
VAT liability on the supply of goods or
services. It also enables your VAT
registered customers to reclaim the VAT
charged to them.
Who must issue a VAT invoice?
An accountable person who supplies taxable
goods or services is obliged to issue a
Value-Added Tax (VAT) invoice where the
supply is made to any of the following:
 another accountable person
 a Department of State
 a local authority
 a body established by statute
 a person who carries on an exempt
activity
 a person other than a private
individual in another EU Member
State
 a person in another Member State
where a reverse charge to VAT
applies, that is, where the supplier is
not accountable for VAT in Ireland
but the customer is accountable for
VAT in the other Member State.
Who does not have to issue a VAT
invoice?
Special rules apply to the supply of
construction services by
 a sub-contractor registered for VAT
in the State
 a non-registered sub-contractor to a
principal contractor.
What information is required on a VAT
invoice?
The Value-Added Tax (VAT) invoice must
show:
 the date of issue
 a unique sequential number
 the supplier’s full name, address and
registration number
 the customer's full name and address
 in the case of a reverse charge, the
customer’s VAT number and a
notation that a ‘reverse charge
applies’. (This does not apply to
construction services subject to
Relevant Contracts Tax)
 in the case of a intra-Community
supply of goods, the customer’s
VAT number and a notation that this
is an ‘intra-Community supply of
goods’
 the quantity and nature of the goods
supplied
 the extent and nature of the services
rendered
 the VAT exclusive unit price
 the payment received net of VAT
 the discounts or price reductions
 the breakdown by the rate of VAT
 the total VAT payable in respect of
the supply
 the date on which the goods or
services were supplied
 in the case of early payment prior to
the completion of the supply, the
date on which the payment on
account was made, if that date differs
from the date of issue of the invoice
 in the case where a tax representative
is liable to pay the VAT in another
Member State, the full name and
address and the Member State's
VAT number of that representative
must be shown.
VAT invoices where the reverse charge
applies
In the case of the supply of goods or
services for which VAT is accounted for
under the reverse charge mechanism, the
VAT payable is not displayed on the invoice
issued.
VAT invoices where the special schemes
applies
Where the margin scheme or the
special scheme for auctioneers applies to a
supply of goods, the invoice issued must not
include an amount of VAT payable.
The invoice in relation to the margin scheme
should be endorsed as follows:
'Margin scheme — second-hand goods'.
The invoice in relation to the auctioneer’s
scheme should be endorsed as follows:
'Margin scheme — auction goods'.
Foreign currency on a VAT invoice
If you issue an invoice in a foreign
currency, it must also show the
corresponding figures in Euro. You should
use the selling rate recorded by the Central
Bank at the time the invoice is due to be
issued.
It is possible, by agreement with
Revenue, to use an alternative method for
determining the exchange rate, subject to the
condition that the agreed method must be
used in respect of all your foreign currency
transactions. You should apply to
your Revenue Office indicating the
exchange rate method that you propose to
use.
CHAPTER 7: THE REGULAR
OUTPUT VAT-REGULAR SALES
Output VAT is the value added tax that you
calculate and charge on your own sales of
goods and services if you are registered for
VAT. Output VAT must be charged on sales
both to other businesses and to ordinary
consumers. Input VAT is the value added
tax added to the price you pay for eligible
goods or services
CLASSIFICATION OF
SALES/TRANSACTIONS
1. EXEMPT SALES – Exempted from
VAT
2. ZERO RATED SALES- Subject to
0% VAT rate
3. TAXABLE SALES- Subject to 12%
VAT rate
C. TRANSACTIONS SUBJECT TO
12%:
1. Sale of Goods or Properties
2. Importation of Goods
TRANSACTIONS SUBJECT TO 0%
1. Sale of Goods
a. Export sales
b. Foreign currency denominated sales
EXEMPT TRANSACTIONS AND
SERVICES
1. Sale or importation of:
 Agricultural and marine food
products in their original state,
livestock and poultry of a kind
generally used as, or yielding or
producing foods for human
consumption; and breeding stock and
genetic materials therefor; and
 Fertilizers; seeds, seedlings and
fingerlings; fish, prawn, livestock
 and poultry feeds, including 3. Stock, real estate, commercial,
ingredients, locally. customs and immigration
brokers;
SOURCES OF REGULAR OUTPUT 4. Lessors of property, whether
VAT personal or real;
1. Sale of goods 5. Persons engaged in warehousing
2. Sales of services services;
3. Sales of properties 6. Lessors or distributors of
4. Transaction deemed sales cinematographic films;
7. Persons engaged in milling,
SALE OF GOODS processing, manufacturing or
Sale of Goods or Properties- All goods and repacking
properties (except those specifically 8. of goods for others;
exempt), including those subjects to excise 9. Proprietors, operators or keepers
tax, sold, bartered or exchanged are subject of hotels, motels, rest houses,
to a 12% VAT based on the gross selling 10. pension houses, inns, resorts,
price or gross value in money. theaters and movie houses;
ILLUSTRATION 11. Proprietors or operators of
In june 15, Mabaca corporation made the restaurants, refreshment parlors,
following sales: cafes
Cash sales P200,000 12. and other eating places, including
Sales on account (80,000 collected) clubs and caterers;
100,000 13. Dealers in securities
Installment sales (120,000 collected)
200,000 EXAMPLE FOR SALE OF SERVICES: A
VAT Registered repairman had the service
Total sales P600,000 provider had the following revenue and
collection during the month
The Output Vat be computed as: Client revenue collectio balanc
Total sales P600,000 A- for n e
Multiplied by services
12% rendere
d
Output VAT Billing P200,00 P200,00 P0
P72,000 for 0 0
material
Sale of Services and Use or Lease of s
Properties Service 100,000 50,000 50,000
The ‘sale or exchange of services is subject fee
to a 12% VAT based on the gross receipts total P300,00 P250,00 P50,00
derived by any person engaged in the sale of 0 0 0
such services or lease of properties,
including the following:
2. Construction and service
contractors;
Client B- work ot yet started on a P500,000
contract
revenue collection balance
P P200,000 P 1, 2021, the VAT exemption shall only
Collection for service rendered
P250,000
Advances from clients200,000
Gross receipts 450,000
Multiplied by: 12%
Output VAT P54,000
Sales of goods and services to senior
citizens and persons with disability
(PWD) by covered estbalishments.
Qualified PWD and senior citizen shall be
entitled to claim at least twenty percent
(20%) discount from the following
establishments relative to the sale of goods
and services for their exclusive use and
enjoyment or availment of the PWD and
senior citizen:
VAT on sale of goods or services with sales
discounts granted by business
establishments enumerated under Section 3
hereof shall be computed in accordance with
the following formula:
Amount of sale (with VAT) P1,120.00
Less: 12% VAT
120.00
Total Amount 1,000.00
Less: 20% Sales Discount 200.00
Total Amount Due P800.00
SALE OF PROPERTIES
A. Sale of real properties not primarily held
for sale to customers or for lease in the
ordinary course of trade or business; sale of
real property utilized for socialized housing
as defined by Republic Act No. 7279,
otherwise known as the Urban Development
and Housing Act of 1992, and other related
laws; residential lot valued at Php1,500,000
and below; house and lot, and other
residential dwellings valued at Php2,500,000
and below: Provided that, beginning January
apply to sale of real properties not primarily
held for sale to customers or held for lease
in the ordinary course of trade or business;
sale of real property utilized for socialized
housing as defined by RA 7279, sale of
house and lot, and other residential
dwellings with selling price of not more than
Php2 million: Provided, further, that every
three years thereafter, the amount herein
stated shall be adjusted to its present value
using the Consumer Price Index as
published by the Philippine Statistics
Authority (PSA);
B. Lease of a residential unit with a monthly
rental not exceeding Php15,000.
INTEREST AND PENALTIES
ACTUALLY OR CONSTRUCTIVELY
RECEIVED BY THE SELLER ARE
LIKEWISE SUBJECT TO VAT.
Transaction not considered deemed sales
Corporation is different from the
stockholders if the corporation is not yet
dissolved then the inventories and other
properties is not deemed sold.
 Change in the trade or corporate
name of the business.
 Merger / consolidation of
corporation’s dissolution is not
deemed sold; unused input tax is to
be absorbed by the surviving
corporation.
Fair value
- Transaction is deemed sale
- Gross price is lower
Invoicing requirement
 Sales invoice number must be
indicated wherein the output tax on
the deemed sale was imposed and the
 corresponding tax paid on the item Non-Vat taxpayers are VAT exempt. The
sold. export sales of VAT registered taxpayers are
“ essential to claim input VAT” subjected to a zero-rated VAT.

VAT EXEMPTION VS. ZERO RATING

Both vat exemption and zero-rating
Applicability effectively result in no payment of VAT.
- Not applicable to non-VAT tax Vat exemption results in PARTIAL RELIEF
payer. but zero-rating results in TOTAL RELIEF.
Example: The input VAT on exempt transactions is
Sales of good 50,000 claimable as a DEDUCTION AGAINST
Sales of equipment 18,000 GROSS INCOME. Input VAT on zero-
Consignment 3,000 rating sales is RECOVERABLE IN FULL
via tax refund.
Sales of good 50,000
Percentage rate 3% ILLUSTRATION: Different in treatment
Percentage tax 1500 During the month, Rizal Corp. purchased
goods invoiced at P350,000 excluding
Summary P42,000 input tax. It exported the goods for
 Sales of goods 30% $12,000 which is equivalent to P510,000
 Sales of service – gross receipts and incurred P10,000 in expenses.
 Sales of real properties – gross SP/
ZV/AV Assuming Rizal Corp. is a VAT tax payer
 Transaction deemed sales – Fair
value OUTPUT VAT 0
Billing requirements Less: INPUT VAT 42,000
The output VAT must be specifically sold /
capital indicated in the VAT invoice. Excess INPUT VAT (42,000)
Determination of the output VAT
The amount of output VAT is dependent *THE EXCESS INPUT VAT ON ZERO
upon the price quoted by the VAT taxpayer. RATED SALES IS CLAIMABLE IN FULL
Example: AS DEDUCTION AGAINST OUTPUT
Sales (123,000 divided by 1.12) VAT.
109,821.43
Plus, output VAT (123,000 * 12/112) Rizal Corp shall compute its taxable income
13,178.57 and income tax due as follows:
Quoted price (invoice)
123,000 Sales
P510,000
CHAPTER 8: OUTPUT VAT ZERO
RATED SALES Less: Cost of Goods Sold, exclusive of VAT
(350,000)
THE ZERO RATED VAT:
Foreign consumption like export of Gross Income
goods/services is not charged with P160,000
consumption tax. Hence, the export sales of
Less: Deductions OUTPUT VAT
(10,000) no output VAT
no output VAT
Taxable Income
P150,000 INPUT VAT TREATMENT
deductible against
Multiply by: Corporate Income tax rate creditable/
30% gross income
refundable

Income Tax due EXTENT OF TAX RELIEF

P45,000 partial
total

Assuming Rizal Corp is a NON VAT tax Zero-rated sales: goods

payer It is a taxable transaction for VAT purposes
Sales but shall not result in any output tax. Input
P510,000 tax on purchases related to such zero-rated
sales shall be available as tax credit
Less: Cost of Goods Sold, exclusive of VAT A. Export sales
(392,000) B. Foreign currency denominated sales
C. Effectively zero-rated sales
Gross Income
P118,000 Zero-rated sales: goods
A. EXPORT SALES
Less: Deductions 1. sale and actual shipment of
(10,000) goods from the Phil. to a
foreign country, paid for in
Taxable Income acceptable foreign currency
P108,000 and accounted for in
accordance with BSP rules
Multiply by: Corporate Income tax rate and regulations
30% 2. sale of raw materials or
packaging materials to a non-
INCOME TAX DUE resident buyer for delivery to
P32,000 a resident local export-
oriented enterprise to be used
in the manufacturing,
processing, packing or
TABLE OF COMPARISSON repacking in the Phil of the
said buyer’s goods, paid for
VAT in acceptable foreign
EXEMPTION ZERO currency and accounted for in
RATING accordance with BSP rules
and regulations
 3. Sale of raw materials or
packaging materials to an
export-oriented enterprise
whose export sales exceed
70% of total annual
production
4. Sale of gold to BSP
5. Transactions considered as
export sales under
6. sale of goods, supplies,
equipment and fuel to
persons engaged in
international shipping or
international air transport
operations, pertaining to or
attributable to the transport of
goods and passengers from a
port in the Philippines
directly to a foreign port, or
vice versa, without docking
or stopping at any other port
in the Philippines unless the
docking or stopping at any
other Philippine port is for
the purpose of unloading
passengers and/or cargoes
that originated from abroad,
or to load passengers and/or
cargoes bound for abroad
B. FOREIGN CURRENCY
DENOMINATED SALES
C. EFFECTIVELY ZERO-RATED
SALES
Sale of goods or property to persons or
entities who are tax-exempt under special
laws or international agreements to which
the Philippines is a signatory, such as, ADB,
IRRI, etc., shall be effectively subject to
VAT at zero-rate.
(Note: Sales to enterprises duly registered
and accredited by SBMA and with the
PEZA –deleted)
Zero-rated sales (services)
Processing, manufacturing or repacking
goods for others doing business outside the
Phil, which goods are subsequently
exported, paid for in acceptable foreign
currency and accounted for in accordance
with BSP rules and regulations
1. Services other than
processing, manufacturing or
repacking rendered to
persons outside the Phil, paid
for in acceptable foreign
currency and accounted for in
accordance with BSP rules
2. Services rendered to persons
or entities whose exemption
under special laws or int’l
agreement to which the Phil.
is a signatory effectively
subjects the services to 0%
rate
3. Services rendered to persons
engaged in int’l shipping or
air transport operations,
including leases of property
for use thereof (except
services of common carriers
by air or sea relative to
transport of passengers,
goods or cargoes from one
place in the Phil. to another
place in the Phil.)
4. Services performed by
subcontractors/contractors in
processing, converting or
manufacturing goods for an
enterprise whose export sales
exceed 70% of total annual
production
5. Transport of passenger and
cargo by domestic air or sea
carriers from Phil. to foreign
country
6. Sale of power or fuel
generated thru renewable
sources of energy such as
biomass, solar, wind,
 hydropower, geothermal and
steam, ocean energy and
other emerging sources using
technologies such as fuel
cells and hydrogen fuel
(excluding services related to
the maintenance or operation
of plant generating said
power
Effectively zero-rated sales shall refer to the
local sale of goods, properties or services by
a VAT-registered person to a person or
entity who was granted indirect tax
exemption under special laws or
international agreement.
TYPE OF BUSINESS IN THE
ELECTRICITY BUSINES:
A. Generation Companies- refer to
persons or entities authorized by
the Energy Regulatory
Commission (ERC) to operate a
facility used in the production of
electricity.
B. Transmission Companies- refer
to any person or entity that owns
and conveys electricity through
the high voltage backbone
system and or sub transmission
assets.
C. Distribution Companies- refer to
the persons or entities including a
distribution utility such as an
electric cooperative which
operates a distribution system
with the provision of RA 9136
(EPIRA Law)
Chapter 9 – INPUT VAT
WHAT IS INPUT TAX?
This refers to the VAT due or paid by a
VAT-registered person on importation or
local purchases of goods, properties, or
services, including lease or use of properties
in the course of his trade or business.
HOW DO WE DETERMIN THE INPUT
VAT?
The VAT on purchase is usually reflected as
a separate item in the VAT invoice or VAT
official receipt issued by the VAT-registered
supplier.
Illustration:
Selling Price 800,000
Output VAT (8% x 800,000) 64,000
Invoice Price 864,000
*The input VAT of the buyer is the “Output
VAT” on the VAT sales invoice or VAT
official receipt issued by the seller or
supplier.
*If the VAT is separately indicated, selling
price stated in the sales document shall be
deemed to be inclusive of VAT.
WHAT IS A CREDITABLE INPUT
VAT?
Also called “Allowable Input VAT”. Not all
input VAT paid on purchases is creditable
against output VAT.
Requisites:
1. Input VAT must have been paid or
incurred in the course of trade or
business.
2. Input VAT is evidenced by a VAT
invoice or official receipt.
3. The VAT invoice or receipt must be
issued by a VAT-registered person.
4. Input VAT is incurred in relation to
vatable sales and not from exempt
sales.
Illustration
Output VAT 230,000
Purchases:
Goods from non-VAT supplier P280,000
Goods from VAT suppliers w/
VAT Invoices 240,000 input tax credit equivalent to 2% of the
Importation of car for personal beginning inventory of goods, materials, or
Use, VAT inclusive supplies or the actual VAT paid thereon
1,120,000 whichever is higher.
Importation of grapes and In short, the transitional input VAT is based
Apples for sale on vatable beginning inventories in the
300,000 month of registration as a VAT taxpayer.
Importation of merchandise Illustration:
for sale, VAT inclusive Initial Inventory:
896,000 Raw land acquired from P10,000,000
Services from VAT suppliers, a non-VAT seller
with ordinary receipts 120,000 Various Equipment 8,000,000
Computation for creditable input VAT: Office Building 20,000,000
Goods from VAT suppliers Land where the office
224,000 Building stands 4,000,000
VAT on importation Transitional Input VAT 200,000
96,000 *10,000,000 x 2%
Total creditable input VAT
120,000 Accounting entry to record transitional
*224,000 x 12/112 24,000 input VAT
* 896,000 x 12/112 96,000 Transitional Input VAT XX
WHO CAN AVAIL INPUT TAX Beginning Inventory XX
CREDIT? To record the transitional input
a. The importer upon payment of VAT VAT.
prior to the release of the goods from Requisites for claim
Customs custody. 1. The taxpayer must submit an
b. The purchaser of the domestic goods inventory list of goods.
or properties upon consummation of 2. The taxpayer must prepare an entry
the sale; or recognizing the transitional input
c. The purchaser of service or the VAT credit in his accounting book.
lessee or licensee upon payment of *The transitional input VAT shall be
the compensation, rental, royalty or claimable in the month of registration as a
fee. VAT taxpayer.
REGULAR INPUT VAT
12% VAT paid on:
TYPES OF CLAIMABLE INPUT VAT a. Domestic purchase of goods,
1. Transitional Input VAT services, or properties, or
2. Regular Input VAT b. Importation
3. Amortization of Deferred Input VAT Timing of Credit of Regular Input VAT
4. Presumptive Input VAT Source of Regular Input Timing of Credit
5. Standard Input VAT VAT
6. Input VAT Carry-over Purchase of goods or In the month of
TRANSITIONAL INPUT VAT properties purchase
A person who becomes liable to value-added Purchase of services In the month paid
tax or any person who elects to be a VAT- Importation of goods In the month VAT is
registered person shall be given an initial paid
 Purchase of depreciable
capital goods or
properties
General Treatment In the month of
purchase
Monthly aggregate Amortized over useful
exceeds P1,000,000 life in months/60 mos.
Whichever is shorter
Purchase of non- Not creditable Special rules on input tax credit
depreciable vehicles and 1.NON-DEPRECIABLE ASSETS
on maintenance incurred 2.CONSTRUCTION IN PROGRESS
thereon 3.PURCHASE OF REAL PROPERTY ON
INSTALLMENT
Monthly Aggregate Acquisition Cost 4.PURCHASE OFGOODS OR
This refers to the total price, excluding PROPERTIES DEEMED SOLD
VAT, agreed upon one or more assets RULES IN THE DEDUCTIBILITY OF
acquired and not the payments or DEPRECIATION EXPENSE ON
installments actually made during the VEHICLES
calendar month. A.ONLY ONE VEHICLE FOR LAND
TRANSPORT ISALLOWED FOR THE
USE OF AN OFFICIAL OR EMPLOYEE,
Illustration: Purchase of Goods or THE VALUE OF WHICH SHOULD NOT
Properties EXCEED P2,400,000.
Input VAT on Goods B.NO DEPRECIATION SHALL BE
In March 15,2015, ABC Company ALLOWED TO YACHTS,
purchased goods worth P40,000, exclusive HELICOPTERS, AIRPLANES AND/OR
of VAT. ABC Company paid the invoice on AIRCRAFTS, AND LAND VEHICLES
April 28, 2015. WHICH EXCEED THE P2,400,000
Input VAT 4,800 THRESHOLD, UNLESS THE
*Shall be claimed in March, not April. TAXPAYER’S MAIN LINE OF
*40,000 x 12% BUSINESS IS TRANSPORT
Input VAT on Importation OPERATIONS OR LEASE OF
In March 2015, ABC Company imported TRANSPORT EQUIPMENT AND THE
goods with a total landed cost of P200,000. VEHICLES ARE USED IN SAID
ABC Company paid the 240,000 VAT on OPERATIONS.
importation and withdrew the goods on C.THE PURCHASE MUST BE
April 2015. SUBSTANTIATED WITH SUFFICIENT
*Shall be claimed in March, not April. EVIDENCE SUCH AS OFFICIAL
RECEIPTS OR OTHER ADEQUATE
RECORDS
D.THE DIRECT CONNECTION OR
RELATION OF THE VEHICLES TO THE
DEVELOPMENT, OPERATION AND OR
CONDUCT OF THE TRADE OR
BUSINESS OR PROFESSION OF THE
TAXPAYER MUST BE
SUBSTANTIATED.
NON-CONFORMANCE ETO THESE
REQUISITES SHALL RENDER THE
VEHICLE NON-DEPRECIABLE
FORINCOME TAX PURPOSES.
THE INPUT VAT ON THE PURCHASE
OF A NON-DEPRECIABLE VEHICLES
AND ALL INPUT VAT ON
MAINTENANCE EXPENSES INCURRED
THEREON ARE LIKEWISE
DISALLOWED FOR TAXATION
PURPOSES.(RR2-2012).
2.INPUT VAT ON CONTRUCTION ON
PROGRESS
CONTRUCTION IN PROGRESS IS THE
COST OF UNCOMPLETED
CONSTRUCTION WORK OF AN ASSET.
THIS IS THE ACCUMULATED
PROGRESS BILLING OG THE
CONTRACTOR FOR THE EXTENT OF
COMPLETION ON AN ASSET UNDER
CONSTRUCTION. UPON COMPLETION
OF THE CONSTRUCTION ACTIVITY.
3.INPUT VAT ON PURCHASE OF
REAL PROPERTY ON
INSTALLMENTS
IF THE SELLER OF A REAL PROPERTY
IS SUBJECT TO VAT ON THE SALE ON
A DEFFERED PAYMENT BASIS NOT
ON THE INSTALLMENT PLAN, THE
INPUT VAT SHALL BE CLAIMABLE BY
THE BUYER AT THE TIME OF THE
EXECUTION OF THE INSTRUMENT
SALE,SUBJECT TO THE
AMORTIZATION RULE ON
DEPRECIABLE PROPERTIS.
HOWEVER, IF THE PURCHASE IS BY
INSTALLMENT AND THE SELLER IS
ALLOWED TO BILL THE OUTPUT VAT
IN INSTALLMENT, THE BUYER CAN
ALSO CLAIM THEINPUT VAT IN THE
SAME PERIOD AS THE SELLER
RECOGNIZES THE OUTPUT VAT(SEC.
3 RR4-2007)
IN OTHER WORDS, THE OUTPUT VAT
APPEARING IN EVERY BILLING
STATEMENT OF THE SELLER AT
EVERY INSTALLMENT WHICH THE
BUYER IS OBLIGED TO PAY IS THE
INUT VAT CLAIMABLE BY THE
BUYER. THIS MEANS THE BUYER
ALSO CLAIMS THE INPUT VAT IN
INSTALLMENTS.
4. INPUT VAT ON GOODS OR
PROPERTIES DEEMED SOLD
THE CLAIMABLE INPUT VAT ON
GOODS OR PROPERTIES PREVIOUSLY
DEEMED SOLD SHALL BE THE
PPORTION OF THE OUTPUT VAT
IMPOSED UPON THE GOODS DEEMED
SOLD WHICH CORRESPONDS TO THE
GOODS PURCHASED BY THE BUYER.
ILLLUSTRATION
MR. A HAD 1,000 PIECES OF
MERCHANDISE WHICH WERE
PREVIOUSLY DEEMED SOLD SHALL
BE THE PORTION OF THE P20,000
WITH AN OUTPUT VAT OF P2,400
UPON MR A’S RETIREMENT FROM
BUSINESS.
SUBSEQUENTLY, MR.B BOUGHT 500
PIECES OF THE 1,000 PIECES OF THE
MERCHANDISE DEEMED SOLD FROM
MR. A FOR P12,000, INCLUSIVE OF
VAT. MR. A INDICATED THE INVOICE
NUMBER WHEREIN THE OUTPUT TAX
ON THE DEEMED SALE WAS IMPOSED
AND BILLED MR. B AS FOLLOWS:
GROSS SELLIING PRICE: P11,000
VAT PREVIOUSLY PAID
ON DEEMED SALE 1,200
TOTAL 11,800
PRESUMPTIVE INPUT VAT
PERSONS OR FIRMS ENGAGED IN THE
PROCESSING OF SARDINES,
MACKEREL AND MILK AND IN THE
MANUFACTURING OF REFINED
SUGAR, COOKING OIL,AND
PACKEDNOODLE BASED INSTANT
MEALS, SHALL BE ALLOWED A
PRESUMPTIVE INPUT TAX
EQUIVALENT TO 4% OF THE GROSS
VALUE OF THEIR PURCHASES OF
PRIMARY AGRICULTURAL
PRODUCTS WHICH ARE USED IN
THEIR PRODUCTIONS.
THE TERM “PROCESSING” SHALL
MEAN PASTEURIZATION, CANNING,
AND ACTIVITIES WHICH THROUGH
PHYSICAL OR CHEMICAL PROCESS
ALTER THE EXTERIOR TEXTURE OR
FORM OR INNER SUBSTANCE OF A
PRODUCT IN SUCH MANNER AS TO
PREPARE IT FOR SPECIAL USE TO
WHICH IT COULD HAVE BEEN PUT IN
ITS ORIGINAL FORM OR CONDITION.
WHAT IF THE SELLER IS A NON-
VAT REGISTERED SELLER?
THE GOVERNMENT OR GOCC SHALL
WITHOLD A 3% FINAL PERCENTAGE
TAX ON THE SALE BEFORE
PAYMENT.
INPUT VAT CARRY-OVER
THE INPUT VAT CARRY-OVER IS THE
EXCESS OF THE INPUT VAT OVER
THE OUTPUT VAT IN A PARTICULAR
MONTH OR QUARTER. IT IS A VAT
OVERPAYMENT THAT APPEARS
AFTER TAX CREDITS AND PAYMENTS
ARE DEDUCTED AGAINST THE NET
VAT PAYABLE.
RULE ON INOUT VAT CARRY-OVER
1. THE INPUT VAT CARRY-OVER
OF THE PRIOR QUARTER IS
DEDUCTIBKE IN THE FIRST
MONTH OF THE CURRENT
QUARTER.
2. THE INPUT VAT CARRY OVER
IN THE FIRDT MONTH OF THE
QUARTER IS DEDUCTIBLE IN
THE SECONDMONTH OF THE
QUARTER.
3. THE INPUT VAT CARRY-OVER
IN THE SECOND MONTH OF A
QUARTER IS NOT DEDUCTIBLE
TO THE THIRD MONTH OF THE
QUARTER.
4. THE INOUT VAT CARRY-OVER
OF THE PRIOR QUARTERIS
DEDUCTIBKE IN THE THIRD
MONTH QUARTERLY BALANCE
OF THE PRESENT QUARTER.
WHAT ARE EXCLUDED FROM INPUT
VAT CARRY OVER?
1.ADVANCE VAT WHICH HAVE BEEN
APPLIED FOR A TAX CREDIT
CERTIFICATE.
2. INPUT VAT ATTRIBUTABLE TO
ZERO-RATED CLAIM WHICH HAVE
BEEN APPLIED FOR A TAX REFUND
OR TAX CREDIT CERTIFICATE.
3,. INPUT VAT ATTRIBUTABLE TO
ZERO-RATED SALES THAT EXPIRED
AFTER THE TWO-YEAR
PRESCRIPTIVE PERIOD.
RULES ON CLAIM OF INPUT VAT
DEDUCTION(CREDIT)
1. SPECIFIC IDENTIFICATION-
INPUT VAT CAN BE TRACED TO
A PARTICULAR SALES
TRANSACTION IS CREDITED
AGAINST THE OTPUT VAT OF
SUCH SALES.
2. PRO-RATA ALLOCATION-THE
AMOUNT OF INOUT TAX DUE
OR PAID THAT CANNOT BE
DIRECTLY AND ENTIRELY
ATTRIBUTD TO ANY ONE OF
THE SAES TRANSACTIONS
SHALL BE ALLOCATED
PROPORTIONATELY ON THE
BASIS OF SALES.
Chapter 10 – VAT PAYABLE AND Private – Sales P162,000
COMPLIANCE REQUIREMENTS Export Sales 0
How do we determine the VAT Payable? Government – Sales 30,000
Output VAT xx Output VAT 192,000
Less: Creditable Input VAT xx
Net VAT payable xx
Less: Tax Credits / Payments xx *1,350,000x12% = 162,00
Tax Still Payable / (Overpayment) xx *300,000x0%
*250,000x12%

TAX CREDITS / PAYMENTS

ALLOWABLE CREDITABLE INPUT
1. VAT paid in the previous two VAT
months – for quarterly VAT returns.
2. VAT paid in return previously filed, Input VAT carry-over P12,000
in the case of amended return. Input VAT pivate-sales
3. Advanced payments made to the 60,000
BIR. Input VAT export sales
4. Final withholding VAT on sales to 36,000
the government. Standard input gov’t sales 17,500
5. Advanced VAT on certain goods. Total allowable input VAT
125,000
FINAL WITHHOLDING VAT
*250,000x7%
The 5% of sales withheld by government
agencies or GOCC’s. VAT payable on sales Tax still due or overpayment
to government and GOCC’s is 0, because Output VAT
the VAT due is pre-deducted at source, but P192,000
is still deducted from the VAT payable in Less: Total allowable input VAT
computing the, “VAT still due or 125,500
overpayment”. Net VAT Payable 66,500
Less: Tax credit/Payments
Illustration VAT-monthly returns 28,000
Sales, net of VAT Input Advanced BIR payment 20,000
VAT Final withholding VAT 12,500
Private – Sales P1,350,000 60,500
P60,000 Tax Still Due or Overpayment
Export Sales 300,000 6,000
36,000
Government-Sales 250,000 ADVANCED VAT
24,000
Exempt goods-Sales 100,000 2,000 Advanced VAT is not an input VAT and not
Total 2,000,000 included as part of the allowable input VAT.
122,000 This is an advanced payment which is a
deduction after the net VAT payable is
OUTPUT VAT determined.

Owners and sellers of goods are required to
pay advanced VAT before their withdrawal
at the point of production:
a. Refined sugar
b. Flour
c. Naturally grown and planted timber
products
ADVANCED VAT – SALE OF SUGAR
Sugar – refers to sugar other than raw cane
sugar or those with sugar content of sucrose,
in the dry state corresponds to a polarimeter
reading 99.5 degrees.
Sugar owners – a person who has legal title
over the sugar and may include sugar
planters, traders, sugar millers, cooperatives
or associations.
Base price of advanced VAT: P1,400 per
50 kg. bag
*Cooperatives are exempt from VAT.
Hence, it is not subject to the requirement of
advanced VAT.
Illustration
Cane sugar purchase-farmers P2,000,000
Refining expenses, w/ VAT 324,000
Total Production – 50 kg-bag
refined sugar 4,000
bags
Advanced VAT
P672,000
*4,000bagsxP1,400x12%
ADVANCED VAT ON THE SALE OF
FLOUR BY MILLERS
Flour Miller – person who is engaged in the
milling of imported wheat to produce flour
as finished product.
Wheat Trader – person who is engaged in
importing/buying and selling of imported
wheat.
Importation of wheat by a flour miller
Advanced VAT on future sale of flour
milled shall be paid prior to the release from
Custom’e custody of the wheat.
Purchase of wheat by flour millers from
traders
Shall also be subjected to advance VAT for
the purpose of getting advanced tax
collection from the VAT on the sale of the
flour by millers.
Basis of the Advanced VAT
For wheat imported by millers – 75% of the
sum of:
a. Invoice value multiplied by the
currency exchange rate on the date of
payment.
b. Estimated custom duties and other
charges prior to the release of the
imported wheat from Custom’s
custody, except for advanced VAT,
and
c. 5% of the sum of a and b.
For wheat purchased by flour millers from
wheat traders – 75% of the sum of:
a. Invoice value
b. Estimated freight
c. And 5% of the sum of a and b.
Illustration
Purchases from wheat trader
P900,000
Estimated Freight Also known as “Negative Net Amount” in
20,000 the VAT return may be treated as “Input
VAT carry-over” to the succeeding period.
Computation:
When and where to claim VAT refund:
Invoice price 900,000 Prescriptive period is within 2 years, claims
Estimated Freight shall be made on whichever is applicable:
20,000 1. Bureau of Internal Revenue (BIR)
Landed Cost 920,000 2. Board of Investments
Multiply by: 105% 3. One-Stop-Shop & Duty Drawback
Total 966,000 Center of the Department of Finance
Multiply by: 75%
VAT Base *Unutilized Advanced VAT shall be
724,500 available for the issuance of a tax credit
Multiply by: 12% certificate (TCC).
Advanced VAT 86,940
Requisites for TCC:
ADVANCED VAT ON THE a. Seller / Owner / Miller must claim
TRANSPORT OF NATURALLY for credit w/in 2 years.
GROWN AND PLANTED TIMBER b. Claims shall be limited to the
PLANTS unutilized advanced VAT payment
and not include excess input VAT.
Shall be paid in advance by the owner and
seller to the BIR through authorized agent ILLUSTRATION:
banks (AAB). MONTHLY APPLICATIONS

*12% advanced VAT shall be based on per VAT Non-VAT Total

cubic meter of each species of naturally Sales to 4,000,000 2,000,000 6,000,000
grown timber. Purcha. 2,500,000 1,200,000 3,700,000

Advanced Percentage Tax Output VAT P720,000

3% is creditable against the monthly or Less: Input VAT 300,000
quarterly percentage tax return. Net VAT Payable 420,000

TAX STILL DUE MIXED TRANSACTIONS

Paid to the government as follows:
 1st month of the quarter – w/in 20 Sales Input VAT
days from the end of the month Restaurants P672,000 P12,000
 2nd month of the quarter – w/in 20 5 Taxi Units 400,000 6,000
days from the end of the month F&G Shop 200,000 4,000
 3rd month of the quarter – within 25
days from the end of the quarter Output VAT P72,000
Less: Input VAT 12,000
Net VAT Payable 60,000

OVERPAYMENT COMPLIANCE REQUIREMENTS

1. Invoicing requirement
2. Accountig requirement
3. Filling of VAT
4. Filling of quarterly summary lists.
INVOICING REQUIREMENT
1. VAT invoice for every sale, barter or
exchange of goods.
2. VAT official receipt for every lease of
goods or properties, and for every sale,
barter or exchange of services.
Content of the VAT invoice or official
receipt
1. Name of seller
2. Business style of the seller
3. Business address of the seller
4. Statement that the seller is a VAT
5. Name of buyer
6. Business style of buyer
7. Address of buyer
8. TIN if buyer, if VAT
9. Date of transaction
10. Quantity
11. Unit cost
12. Description of the goods or properties or
nature of the service
13. Purchase price plus the VAT
14. Authority to print receipt number at the
lower left corner of the invoice or receipt.
Deadline of Filing Monthly VAT Return
Shall be filed duplicate copies within 20
days from the end of the month.
Deadline of Filing Quarterly VAT Return
Shall be filed within 25 days from the end of
the quarter.
QUARTERLY SUMMARY LISTS TO
BE SUBMITTED BY ALL VAT
TAXPAYERS
1. Quarterly summary list of sales to regular
buyers or customers, casual buyers or
customers and output tax
2. Quarterly summary list of local purchases
and input tax
3. Quarterly summary list of importation
Regular buyer or customer - a buyer who
are engaged in business or exercise of
profession with whom the taxpayer had
transacted at least 6 transactions in the
previous or current year.
Casual buyer or customer - a buyer who
are engaged in business or exercise of
profession with individual purchase
amounting 100,000.00 or more but didn’t
qualify as regular buyer.
Customer name Purchase Frequency
range of
purchase
Danilo Aga, M.D. 10,000- 5 times
50,000
Bentong Corp. 200,000 1 time
John Cuarezma, 80,000- 8 times
CPA 120,000
DEF Corp. 10,000- 7 times
30,000
*John Cuarezma and DEF Corp. – regular
buyer
*Danilo Aga and Benton Corp. – casual
buyer
ACCOUNTING REQUIREMENT
1. Regular accounting records
2. Subsidiary sales journal
3. Subsidiary purchase journal
Who are required to file VAT returns?
> Any person or entity who, in the course of
his trade or business, sells, barters,
exchanges, leases goods or properties, and
renders services subject to VAT
> A person required to register as a VAT
taxpayer but failed to register
> Any person who imports goods
Where to file VAT returns?
> Authorized agent bank under the
jurisdiction of the RTO/LTO where the
taxpayer is required to be registered
> Revenue collection officer
> Duly authorized treasurer of the
municipality or city
Content of the Quarterly summary list of
sales
1. BIR registered name of the buyer engaged
in business of profession
2. TIN of buyer for sales subject to VAT
3. Exempt sales
4. Zero-rated sales
5. Sales subject to VAT
6. Output tax
Content of the Quarterly summary list of
purchases
1. BIR registered name of the supplier
2. Address of supplier
3. TIN of the supplier
4. Exempt purchase
5. Zero-rated purchase
6. Purchases subject to VAT
7. Creditable input tax
8. Non-creditable input tax
Content of the Quarterly summary list of
importations
1. Import entry declaration number
2. Assessment or release order
3. Date of importations
4. Name of supplier (seller)
5. Country of origin
6. Dutiable value
7. Charges before release from Custom’s
custody
8. Landed cost
9. VAT paid
10. Official Receipt number
11. Date of VAT payment
Deadline of summary list of sales or
purchases
These shall be submitted by the taxpayer
before the 25th day of the month
The BIR RELIEF System
A taxpayer’s quarterly sales and purchases
are submitted to the BIR’s Website through
the RELIEF Data Entry System.
Suspension of business operations and
temporary closure of business
The CIR or his authorized representatives
are empowered to suspend business
operations for any of the following
violations:
A. For VAT registered persons
B. Failure to register as a taxpayer
*The temporary closure or the establishment
shall be for the duration of not less than 5
days.
Cancellation of VAT registration
The approval of a request for the
cancellation of VAT registration shall be
effective on the first day of the month
following the month of the approval of the
cancellation.
Illustration:
Troy Corporation requested for the
cancellation of his VAT registration for his
continuous inability to exceed the VAT
threshold after the expiration of the three-
year prescriptive period. The request was
approved on May 15,2015.
May June
1st half of the P100,000 P125,000
month
2nd half of the 150,000 175,000
month
Total P250,000 P300,000
*Troy shall pay the VAT on the entire
250,000 sales in May. Troy shall pay the
percentage on the P300,000 sales in June
and each month thereafter.

Liability of a non-VAT person who issues

a VAT invoice/receipt
Non-VAT taxpayers who charge output
VAT on their sales shall be subject to the
usual percentage tax, and output VAT
without the benefit of an input tax plus a
50% surcharge.
Illustration:
Reported sales P168,000
Percentage Tax 5,040

Total Sales 150,000

Output VAT charged 18,000
Total Invoice 168,000

Percentage Tax P5,040

Output VAT 18,000
Add: 50% Surcharge 9,000
Gross Amount due 32,040
Less: Percentage tax 5,040
Net Amount Due 27,000