CHAPTER 7:

THE REGULAR OUTPUT VAT

Prepared by: Carl Justine T. Maniago, CPA
 SOURCES OF REGULAR OUTPUT VAT

TAXABLE TRANSACTION TAX BASIS

1. Sale of goods Gross selling price unless reasonably lower

2. Sale of services Gross receipt

3. Sale of vatable properties Gross selling price as defined by the BIR

4. Transaction deemed sales Fair value of the property deemed sale

 SALE OF VATABLE GOODS

• The sale of goods is subject to 12% VAT based on gross selling price unless unreasonably lower.

• If the selling price is unreasonably lower, the VAT shall be based on the fair value of the goods sold.

• The gross selling price is deemed unreasonably lower when it is lower by more than 30% of the actual
market value of the goods sold.

• The fair value of the goods shall be determined by the Commissioner of Internal Revenue.

• If one of the parties is government, the output VAT shall be based on the actual selling price.
 SALE OF VATABLE GOODS
ILLUSTRATION:
A VAT-registered seller made the following sales. Compute the output VAT.

Selling price Fair value

City of San Fernando P 134,000 P 200,000
ABC Trading Company 100,500 150,000
 SALE OF VATABLE SERVICES
• The sale of services is subject to 12% VAT based on the gross receipts. Gross receipt is a collection of
income.

ILLUSTRATION:
A VAT-registered repairman had the following revenue and collection during the month. Determine
the output VAT.

Revenue Collection Balance

Client A – for services rendered
Billing for mats. P 200,000 P 200,000 P 0
Service fee 100,000 50,000 50,000
Client B – work not yet started on a P500K contract
Advances P 0 P 200,000 P 0
 SALE OF VATABLE PROPERTIES
• The sale, barter or exchange of vatable real properties is subject to VAT on the gross selling price.
• Under the regulations, the gross selling price means the higher of:
• Consideration or selling price
• Fair value of the property
• Under NIRC, the fair value of property is the higher between the:
• Zone value
• Fair value per assessor’s office
• In the absence of zonal value, GSP shall mean the fair value per assessment or consideration stated in
the sales document, whichever is higher.
• If the GSP is based on the zonal value or assessor’s fair value of the property, they shall be presumed
exclusive of VAT.
 SALE OF VATABLE PROPERTIES
ILLUSTRATION:
Mr. Realtor, a real property dealer, sold a commercial lot in June 2020. The following data relate to
the sale. Compute the output VAT.
Zonal value P 4,000,000
Assessor’s value 3,500,000
Selling price 4,256,000
 SALE OF VATABLE PROPERTIES
• Installment reporting of output VAT on real properties
• The output VAT on the sale of real properties may be reported in installment if the initial payment
from such sale if it does not exceed 25% of the selling price.
• The payments shall be projected until the end of the year of sale to determine the ratio of the initial
payment.

ILLUSTRATION:
On August 1, 2020, a real property dealer sold a commercial lot with the following data:
Zonal value P 6,000,000
Assessed value 4,500,000
Selling price 5,000,000
A downpayment of P500K was paid with a balance due in 36 monthly installments of P125K starting
September 1, 2020. Compute the reportable output VAT in Aug & Sep under the installment method, if
applicable.
 SALE OF VATABLE PROPERTIES

• Sale of property by a realty dealer on a deferred payment basis

• The sale of property by a realty dealer on a deferred payment basis, not on the installment plan,
shall be treated as cash sale.

• Interest and penalties

• Interest and penalties actually or constructively received by the seller are likewise subject to VAT.
 TRANSACTIONS DEEMED SALES
• There are acquisition transactions involving goods or properties which are consumption in nature but are
not coursed through a purchase transaction. Since these transactions are forms of consumptions, they are
considered deemed sales to be subjected to the VAT.
• List of transaction deemed sales:
• Transfer, use or consumption not in the course of business of goods or properties originally intended
for sale of for use in the course of business
• Distribution or transfer to:
• Shareholders or investors share in the profits of VAT-registered persons
• Creditors in payment of debt or obligation
• Consignment of goods if actual sale is not made within 60 days following the date such goods were
consigned
• Retirement from or cessation of business with respect to all goods on hand whether capital goods,
stock in trade, supplies or materials as of the date of cessation, whether or not the business is
continued by the new owner or successor
• Cessation of status as a VAT-registered person
 TRANSACTIONS DEEMED SALES
• Transfer, use or consumption not in the ordinary course of business
• This occurs when vatable ordinary assets are used for purposes other than their intended
purpose, such as when:
• Goods or properties held for use are no longer sold but are transferred or disposed of by
other means other than sale.
• Properties originally intended for use are no longer used but are transferred, dispose of or
exchanged with other properties.
• Examples of consumptions not in the course of business:
• Withdrawal by the business owner for personal use goods held for sale or properties held for
use
• Using goods held for sale or properties held for use to pay off debts with creditors
 TRANSACTIONS DEEMED SALES
• Consignment of goods not withdrawn in 60 days
• Consigned goods to consignees, if not withdrawn within 60 days, are also presumed or deemed
sold subject to VAT.
• This is not an actual consumption but the rule is intended to prevent taxpayers from deferring
recognition of output VAT by non-reporting or delayed reporting of the sales on consignment.
• Retirement or cessation of business
• The retirement and cessation from business will result in the transfer of all goods or properties of
the business to the personal use or account of the business owner/s.
• If the business is continued by a new owner, the goods or properties of the business are
effectively sold to the new owner. Hence, they are likewise deemed sold.
• Both merger and consolidation result in the dissolution of corporation and the transfer of the
assets of the dissolved corporation to the absorbing one. Legally, this is not a deemed sale. The
unused input tax of the dissolved corporation as the date of merger or consolidation shall be
absorbed the by surviving corporation.
 TRANSACTIONS DEEMED SALES
ILLUSTRATION:
A VAT-registered taxpayer has its own sales operations but also sells goods through consignees. It also
sells goods on consignment for a commission. The following were the results of operations for the month
ended April 30, 2020:
Sales – own inventories P 500,000
Sales – reported by consignees 150,000
Sales – in behalf of consignors 100,000
Commission income on goods sold for consignors 20,000
The billed prices of the outstanding consignments still held by consignees as of April 30,2020 are as
follows:
February 2020 P 50,000
March 2020 80,000
April 2020 120,000
Compute the output VAT.
 TRANSACTIONS DEEMED SALES
• Cessation of status as VAT-registered person
• Change of business activity from VAT taxable business status to VAT exempt status
• Approval of a request for cancellation of registration due to reversion to exempt status
• Approval of request for cancellation of registration due to a desire to revert to exempt status
after the lapse of 3 consecutive years from the time of registration by a person who voluntarily
registered despite being exempt
• Approval of request for cancellation of registration of one who commence business with the
expectation of gross sales or receipts exceeding P3M but who failed to exceed this amount
during the first twelve months of operations
• Output tax on transactions deemed sales
• Based on the market value of the goods sold as of the occurrence of the deemed sale
transaction.
• In the case of retirement or cessation of business, it shall be based on the acquisition costs or
the current market price of the goods or properties, whichever is lower.
 TRANSACTIONS DEEMED SALES

• Determination of the fair market value

• The Commissioner of Internal Revenue shall determine the appropriate tax base in cases where
the:
• Transaction is deemed sale
• Gross selling price is unreasonably lower

• The subsequent sale of goods or properties deemed sold shall not be subject to VAT.

• It must be noted that the concept and rules of deemed sales and the taxation of the sale of ordinary
assets apply only to VAT taxpayers.
 OUTPUT VAT
• Billing requirements
• The output VAT must be specifically indicated in the VAT invoice or receipt. It must be billed
separately in the case of sales of properties where the fair value exceeds the selling price.
• Determination
• The amount of output VAT is dependent upon the price quoted by the VAT taxpayer. Such
amount is understood to be inclusive of the VAT in the absence of a special agreement to the
contrary.
• Rule of VAT not separately billed
• If the VAT is not separately billed in the document of sale, the selling price or consideration
stated therein shall be deemed to be inclusive of the VAT.
• Incorrect billing of VAT
• If the VAT is incorrectly billed, the total amount billed by the taxpayer shall be deemed inclusive
of the VAT. The VAT shall be recomputed as a factor of 12/112.
 OUTPUT VAT

ILLUSTRATION:

A VAT seller invoiced a sale of goods as follows:

Selling price P 100,000

Output VAT 10,000
Invoice price P 110,000

Compute the correct output VAT.