Focus Notes

Keywords Notes
Tax Base Gross selling price or gross value in money.

Gross selling price is the total amount of money or its equivalent which the purchaser pays or is obligated to pay
to the seller in consideration of the sale, barter or exchange of the goods or properties excluding the value added tax.

The excise tax, if any, on such goods or properties shall form part of the gross selling price.

Sales Returns, Allowances and Sales Discounts are the value of goods or properties sold and subsequently
returned or for which allowances were granted by a VAT-registered person may be deducted from the gross
sales or receipts for the quarter in which a refund is made or a credit memorandum or refund is issued.

Sales discounts shall only be allowed as deduction from gross selling price if it is expressly indicated in the
sales invoice.

Sales discount granted and indicated in the invoice at the time of sale and the grant of which does not depend
upon the happening of a future event may be excluded from the gross sales within the same quarter it was given.

Sles return and allowances for which proper creditū or refund was made during the month or quarter to
the buyer for sales previously recorded as taxable sales.

(Check Problem 1.1)

Rates A 12% value added tax of the gross selling price or gross value in money of the goods or properties sold,
bartered or exchanged, such tax to be paid by the seller or transferor.

"Goods or Properties"  all tangible and intangible objects which are capable of pecuniary estimation and

shall include:
(a) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or
business; 
 (b) The right or the privilege to use patent, copyright, design or model, plan, secret formula or process,
goodwill, trademark, trade brand or other like property or right; 
(c)The right or the privilege to use in the Philippines of any industrial, commercial or scientific equipment; 
(d) The right or the privilege to use motion picture films, tapes and discs; and
(e) Radio, television, satellite transmission and cable television time.

(Check Problem 2.1 and 2.2)

Determination of The tax base is inclusive of VAT if the following terms are used: "inclusive of tax"; "total invoice price"; "VAT
tax inclusive"; or other similar terms. While the following are commonly used if the tax base is exclusive of VAT:
"taken from the books"; "exclusive of tax"; "VAT/tax not included"; "gross selling price"; and other similar
terms.

Output Tax is defined as the value-added tax due on the sale or lease of taxable goods or properties or
services by any person registered or required to register under the tax code

Input Tax refers to the value-added tax from or paid by a VAT registered person in the course of his trade or
business on importation of goods or local purchase of goods or services including lease or use of property
from a VAT registered person.

VAT payable refers to the output tax over the allowable input tax
Zero- Rated Sale of These are sales that are subject to output VAT rate of 0%. Although the rate is zero, it is still a rate of tax
Goods chargeable against the purchaser. It doesn’t charge VAT on the output.

The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:
(a)Export Sales include the following:
1. sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping
agreement, paid for in an acceptable foreign currency or its equivalent in goods and services;
2. sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local export-
oriented enterprise to be used in manufacturing, processing, packing or repacking and paid for in an
acceptable foreign currency;
3. sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed
 seventy percent (70%) of total annual production;
4. those considered export sales under Executive Order No. 226, otherwise known as the Omnibus
Investment Code of 1987, and other special laws; and
5. sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international
air transport operations, provided, that the goods, supplies, equipment and fuel have been sold and used
for international shipping or air transport operations.
(b) Sales to persons or entities exempted under special laws or international agreements

A zero-rated sale of goods or properties (by VAT-registered person) is a taxable transaction for VAT purposes, but
shall not result in any output tax.
(Check Problem 3)
Transactions
Deemed Sale In transaction deemed sale, no actual sale of goods took place but such transactions are subject to VAT. The
rationale is to capture the VAT that was already claimed as input tax.

The following transaction are deemed sale for VAT purposes:;

1) Transfer, use or consumption not in the course of business of goods or properties originally intended for
sale or for use in the course of business;

(2) Distribution or transfer to:

(a) Shareholders or investors as share in the profits of the VAT-registered persons; or

(b) Creditors in payment of debt;

(3) Consignment of goods if actual sale is not made within sixty (60) days following the date such goods
were consigned; and

(4) Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such
retirement or cessation.

Without deemed sale provision, the amount of goods disposed of under transaction will be considered VAT
exempt because they are transferred for purposes other than sale.

(Check Problem 4)
Problem 1
The following data were taken from the books of Jan Company during the month of June of the current year:

Cash Sales P 503,000

Sales on account 610,000
Sales returns and allowances 81,550
Sales discount 86,300
Required: Compute for the gross selling price of the tax base.

Cash Sales P 503,000

Sales on account 610,000
Gross Selling Price 1,113,000
Less: Deductions
Sales returns and allowances P81,550
Sales discount 86,300 167,850
Tax base 945,150

Problem 2
2.1) Bong is engaged in a merchandising business. His sales invoice and other data during the month of January are shown
below:
Cash sales P 770, 000
Sales returns on cash sales 55, 000
Account sales 495, 000
Goods consigned:
January 10 of the current year P 265, 000
November 10 of the preceding year 16, 500
Goods taken for personal use 18, 150
Goods taken as payment to creditors 25, 850
Purchases of merchandise 1, 008, 000
Purchase of supplies 89, 600
Telephone bills on domestic calls 3, 360

REQUIRED: Compute the following:

a.       Output tax
b.      Input tax
c.       VAT payable

Cash sales, net (770,000 – 55,000) 715, 000

Account sales 495, 000
Consigned goods 16, 500
Goods taken for personal use 18, 150
Payment to creditors 25, 850
Total: 1, 270, 500
Multiply by 3/28
Output tax 136, 125
Less: Input tax
Merchandise 1, 008, 000
Supplies 89, 600
Telephone 3, 360
Total 1, 100, 960
Multiply by 3/28 117, 960
VAT payable 18, 165

2.2)   Kate had the following data in the books in the month of February:
CASE A CASE B
Sales P 1, 900, 000 1, 800, 000
Purchase of goods for sale 1, 260, 000 600, 000
Purchase of machines 1, 440, 000 900, 000
Machine life 6 years 3 years
REQUIRED: Compute the following:
1.)   VAT payable on each of the independent
cases.
2.)   VAT payable in Case A assuming that the life of the machine is 4
years only.

1.)   Case A: Machine life is 6 years.

Output tax (1, 900, 000 * 12%) 228, 000
Less: Input taxes
Purchases (1, 260, 000 * 12%) P 151, 200
Machine (1, 440, 000 * 12%) 2, 880 154, 080
VAT payable 73, 920
Case B: Machine cost does not exceed P 1, 000, 000.
Output tax (1, 800, 000 * 12%) P 216, 000
Less: Input taxes
Purchases (600, 000 * 12 %) P 72, 000
Machine (900, 000 * 12%) 108, 000 180, 000
VAT payable 36, 000

2.)   Machine life in Case A is 4 years only.

Output tax (1, 900, 000 * 12%) P 228, 000
Less: Input taxes
Purchases (1, 260, 000 * 12%) P 151, 200
Machine (1, 440, 000 * 12%)/ 48 months 3, 600 154, 800
VAT payable 73, 200
Problem 3
X, a VAT-registered business, engaged in export of locally made products. During the taxable year, its export sales have
equivalent value of P500, 000. Also its total input VAT payments for purchases and utilized services all in connection with the
conduct of business amounted to P36, 000.

If X has no other transactions which will give rise to business tax liability, its tax credit would be as follows:

Zero-VAT export sales (P500,000 x 0%) P - 0 -

Less: Creditable Input VAT 36, 000
Creditable input VAT (P36,000)

Problem 4
During the year, Sentro, a bagstore, purchased 250 bags from its distributor. Each is worth P900 and sold by the store at
P1,500. During the month, the management decided to give two bag to each to the 5 salesladies. All the the other 240 bags were
sold by the store.
Required: Compute the following:

1. VAT payable by Sentro

Output Tax (1,500x250) x 3/28 P40,178.57

Less: Input Tax (900x250) x 3/28 24,107.14
Vat Payable P16,071.43

2. VAT payable assuming that the distributions of bags to salesladies are not deemed sale transactions.

Ouput Tax (1,500x240) x 3/28 P38,571.43

Less: Input Tax (900x250) x 3/28 24,107.14
Vat Payable P14,464.29