Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao

Since 1977

TAX.3213-7 NARANJO/SIAPIAN/GUDANI
OUTPUT TAX, INPUT TAX AND VAT PAYABLE MAY 2022

LECTURE NOTES
COMPUTATION OF VAT
Output tax xxx
Less: Creditable/Allowable input taxes:
Input tax carried-over from previous period xxx
Input tax deferred from capital goods >1M xxx
Transitional input tax xxx
Presumptive input tax xxx
Add: Input tax from current period:
Purchase of capital goods <P1M xxx
Purchase of capital goods >P1M xxx
Domestic purchases of goods xxx
Domestic purchases of service xxx
Importation xxx xxx
Total available input tax xxx
Less: Deductions from input tax:
Deferred input tax on Cap Goods xxx
Input tax attributable to exempt sale xxx
Input tax on government sale* xxx
Input tax applied for TCC xxx
Input tax refund xxx xxx
Creditable/Allowable input tax xxx
VAT Payable xxx
Less: Input Tax and other tax credit xxx
VAT Still Payable (Overpayment) xxx

Note: *Input tax on gov’t sale was removed due to shift in creditable tax system beginning January 1, 2021.
OUTPUT TAX
Output tax means the 12% value-added tax on sale, transfer, barter exchange or lease of taxable goods or
properties or services by any person registered or required to register.
INPUT TAX
Input tax is the value- added tax due on or paid by a VAT registered person on importation of goods or local purchases
of goods, properties or services, including lease or use of properties in the course of his trade or business. Generally,
input tax attributable to regular purchases, deemed sale transaction, transitional and presumptive input taxes is
creditable against output tax.

Note: Purchases not qualified for input tax or purchases made from Non-VAT taxpayers are accounted in the VAT return
even if no input tax has been paid.
SUBSTANTIATION OF INPUT TAX CREDITS
Source of input tax Required proof
Importation of goods Import entry or other equivalent
document showing actual payment of
VAT on the imported goods
Domestic purchase of goods and properties Invoice with complete information
Purchase of real property Deed of Absolute Sale of Deed of
Conditional Sale, Contract to Sell
together with VAT invoice
Purchase of services Official receipt with complete
information
Transitional input tax Inventory list submitted to the BIR
Input tax on “deemed sale”
• Withdrawal for personal use Memorandum entry
• Transfer to shareholders or creditors Invoice
• Consignment (over 60 days) Invoice
• Cessation Inventory list submitted to the BIR
o If business is to be continued by new AND Invoice
owners – input tax is creditable
o If business is to be liquidated
Input tax from payments made to non-residents Monthly Remittance Return of VAT
Withheld (Form 1600)
Advance payment of sugar Payment Order showing payment of
the advance VAT

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EXCEL PROFESSIONAL SERVICES, INC.

Note: Thermal or tape receipts constitute valid proof of credit only if it shows the information as
required by rules.
VAT PAYABLE (EXCESS OUTPUT) or OVERPAYMENT (EXCESS INPUT)
a. If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT-
registered person

Output tax 100

Less: Input tax 60
VAT Payable 40

b. If the input tax exceeds the output tax, there is overpayment.

Output tax 100

Less: Input tax 300
Overpayment (200)

Excess can be:

• Carried over to succeeding quarter/s
• Applied tax credit certificate
• Refunded upon cessation of registration
COMPOSITION OF TOTAL AVAILABLE INPUT TAXES
1. Input tax carried-over from previous period – the excess input tax from previous period (year or quarter)
2. Transitional input tax – input tax from transition from Non-VAT to VAT. Transitional input tax is 2% of Beginning
Inventory on hand or actual VAT paid on such goods, materials and supplies whichever is higher

ILLUSTRATION:
In 2021, Nicanor established his dream business. He registered initially as a non-VAT. However, business
became good notwithstanding the pandemic hence he was constrained to update his registration to VAT. His
books of accounts and records disclosed the balances of following:

ASSETS
Cash 350,000
Merchandise inventory 1,000,000
Office Supplies 100,000
Total 1,450,000
LIABILITIES
Accounts Payable 800,000
Other payable 100,000
CAPITAL 550,000

Assume that all asset acquisition is from VAT taxpayers except that for merchandise inventory where 50%
thereof has been bought from non-VAT taxpayers.

How much is the transitional input tax?

Answer:
Transitional input (Beginning inventory 1,000,000 x 2%) 20,000
Actual input:
Merchandise inventory (500,000 x 12%) 60,000
Office supplies (100,000 x 12%) 12,000 72,000 (higher)

3. Presumptive input tax – is input tax presumed given to specific taxpayers. Presumptive input tax is 4% of gross
value in money of their primary agricultural products which are used as inputs to their production: (SaMaMiPaReCo)

Processing of the following: Manufacturing of the following:

• Sardines • Packed noodle-based instant meals
• Mackerel • Refined sugar
• Milk • Cooking oil

Ingredients:
Sardines Mackerel Milk Packed Noodle Refined Sugar Cooking Oil
Sardines Mackerel Milk powder NOODLE: Sugar cane Palm olein
Fresh tomatoes Carrot Glucose syrup Wheat flour Beets Olive oil
Cornstarch Pickle Vegetable oil Vegetable oil Soybean oil
Iodized salt Bay leaves Milk fat Iodized salt Canola oi
Sugar Olive oil Sugar acidity regulator Corn oil
Onions Tomato sauce SEASONING: Peanut oil
Garlic powder Sugar Cow milk Sugar flavor
Optional: Chili Salt enhancers
Pepper Iodized salt

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EXCEL PROFESSIONAL SERVICES, INC.

Optional: Chili Flavors spices

Maltodextrin
Hydrolyzed
vegetable
Protein acidity
regulator
Soy sauce
powder

Optional: Boiled
Egg

ILLUSTRATION:
ABC Corp. is engaged in the field of fishing and canning industry and is the owner of the brand “Omega
Sardines” based in Saranggani Province. The 1st quarter results of operations were disclosed:

Sales 5,000,000
COS Sardines (Fish) 1,000,000
Fresh Tomatoes 100,000
Corn which was converted to cornstarch 100,000
Iodized salt bought from groceries 100,000
Sugar 100,000
Onions 100,000
Garlic 100,000
Chili 100,000
Supplies for wrapping 100,000
Pastes 100,000
Paper labels 100,000
Tin Cans 500,000 (2,500,000)
GP 2,500,000
Expenses:
Salaries and wages 500,000
Rental 200,000
Depreciation 200,000
Transportation 100,000
Utilities (electricity, water, communication) 500,000 (1,500,000)
Net Inc 1,000,000

How much is the “presumptive input tax” assuming that all purchase of goods and services were made from
VAT taxpayers except for agricultural products and the sardines?
Answer:
Purchases Amounts Rates of input Input tax
Sardines* 1,000,000 4% 40,000
Fresh Tomatoes 100,000 4% 4,000
Corn 100,000 4% 4,000
Iodized salt bought from groceries 100,000 12%
Sugar 100,000 4% 4,000
Onions 100,000 4% 4,000
Garlic 100,000 4% 4,000
Chili 100,000 4% 4,000
Supplies for wrapping 100,000 12%
Pastes 100,000 12%
Paper labels 100,000 12%
Tin Cans 500,000 12%
Total 64,000

How much is the “actual input tax” assuming that all purchase of goods and services were made from VAT
taxpayers except for agricultural products and the sardines?
Answer:
Purchases Amounts Rates of input Input tax
Sardines 1,000,000 4%
Fresh Tomatoes 100,000 4%
Corn 100,000 4%
Iodized salt bought from groceries 100,000 12% 12,000
Sugar 100,000 4%
Onions 100,000 4%
Garlic 100,000 4%
Chili 100,000 4%

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EXCEL PROFESSIONAL SERVICES, INC.

Supplies for wrapping 100,000 12% 12,000

Pastes 100,000 12% 12,000
Paper labels 100,000 12% 12,000
Tin Cans 500,000 12% 60,000
Rental 200,000 12% 24,000
Utilities 500,000 12% 60,000
Total 192,000

Assume further that ABC Corp. was able to produce 250,000 cans of sardines and were sold for Php 20.00 per
can, how much is the VAT payable?
Answer:
Output tax (P5M x 12%) 600,000
Less: Presumptive input tax 64,000
Actual input tax (P700,000) 192,000 256,000
VAT Payable 344,000

4. Input tax from purchase or importation of capital (depreciable goods) - purchase or importation of depreciable goods
with aggregate acquisition cost (excluding VAT) in a calendar month exceeds Php 1 Million shall be claimed as
credit against the output tax in the following manner:
• If the estimated useful life of a capital good is five (5) years or more - The input tax shall be spread evenly
over a period of sixty (60) months and the claim for input tax credit will commence in the calendar month
when the capital good is acquired. The total input taxes on purchases or importations of this type of capital
goods shall be divided by 60 and the quotient will be the amount to be claimed monthly
• If the estimated useful life of a capital good is less than five (5) years — The input tax shall be spread evenly
on a monthly basis by dividing the input tax by the actual number of months comprising the estimated useful
life of the capital good. The claim for input tax credit shall commence in the calendar month that the capital
goods were acquired
Note: The amortization of the input VAT shall only be allowed until December 31, 2021 after which taxpayers
with unutilized input VAT on capital goods purchased or imported shall be allowed to apply the same as scheduled
until fully utilized.

ILLUSTRATIONS: Assuming all acquisitions were made to VAT-registered sellers, compute the following:
1. Quarterly Allowable Input Tax
2. Deferred Input Tax, if any

Scenario 1 – Aggregate acquisitions do not exceed Php 1 Million per calendar month
Period Cost of Depreciable Input Tax Allowable Deferred Input
Goods Input Tax Tax
January 200,000 24,000 24,000 -
February 300,000 36,000 36,000 -
March 500,000 60,000 60,000 -
1st Quarter 1,000,000 120,000 120,000 -

Scenario 2 – Aggregate acquisitions exceed Php 1 Million per calendar month. Life of asset is 10 years
Period Cost of Depreciable Input Tax Allowable Input Deferred Input
Goods Tax Tax
January 2,000,000 240,000 4,000* 236,000
4,000 (Jan) 232,000
February 3,000,000 360,000 6,000** 354,000
586,000
4,000 (Jan) 228,000
6,000 (Feb) 348,000
March 500,000 60,000 60,000 0
576,000
1st Quarter 5,500,000 660,000 84,000 576,000

*Php 240,000/60 months = Php 4,000 per month

**Php 360,000/60 months = Php 6,000 per month

Alternative Computation:
January February 1st Quarter
Input tax carried-over from prior
pd
Deferred from previous period 236,000 586,000
Transitional / Presumptive
Add: Input from Current
Period
Purchase of capital goods >1M 240,000 360,000
Purchase of capital goods <1M

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Domestic Purchase of 60,000

goods/service
Imported goods
Total Available Input Tax 240,000 596,000
Less: Deduction from input tax
Deferred Input tax from CG (236,000) (354,000) Feb (348,000)
Jan (232,000) Jan (228,000)
(586,000) (576,000)
Input tax applied for TCC
Input tax applied for refund
Total Allowable Input Tax 4,000 10,000 70,000

Scenario 3 – 2nd Quarter transactions following Scenario 2 (With deferred input tax from prior period)
Period Purchase of Input Tax Allowable Input Deferred Input
Goods Tax Tax
4,000 (Jan) 224,000
6,000 (Feb) 342,000
April 300,000 36,000 36,000 -
4,000 (Jan) 220,000
6,000 (Feb) 336,000
May 400,000 48,000 48,000 -
4,000 (Jan) 216,000
6,000 (Feb) 330,000
June 500,000 60,000 60,000 -
2nd Quarter 1,200,000 144,000 174,000 546,000

5. Input tax from domestic purchase of goods and services

6. Input tax from importation
• In general. VAT is imposed on goods brought into the Philippines, whether for use in business or not. The tax
shall be based on the total value used by the BOC in determining tariff and customs duties, excise tax if any and
other charges prior to the release of the goods from customs custody. In case the valuation used by the BOC in
computing customs duties is based on volume or quantity, the landed cost shall be the basis for computing the
VAT. No VAT shall be collected on imported goods which are expressly exempted.
• The VAT on importation shall be paid by the importer prior to release of such goods from customs custody.
• Sale, transfer or exchange of imported goods by tax-exempt persons. In case tax exempt persons imports goods
which are exempt and which are subsequently sold, transferred or exchanged to non-exempt persons, the latter
(buyer) shall considered the importers thereof and shall be liable for VAT due on such importation. The tax due
on importation shall constitute a lien on the goods, superior to all charges/or liens, irrespective of the possessor
of said goods.
DEDUCTION FROM INPUT TAX
1. Input tax on purchase of capital goods exceeding Php 1 Million deferred to the succeeding period – this is deducted
from input tax because the input tax is not creditable outright and subject to amortization
2. Input tax allocable or attributable to VAT exempt sale – this is deducted from input tax because the input tax is part
of cost of goods sold or expense.
Note: In Bayanihan to Heal as One Act and Bayanihan to Recover as One Act, input taxes on exempt donations are
chargeable against output tax
3. Input tax applied refund (attributable to zero-rated sales or due to erroneous payment or closure) – this is deducted
because the herein input tax is claimed for refund hence cannot be used against output tax
4. Input tax applied for tax credit certificate – this is deducted because the herein input tax is already claimed for TCC
thus cannot be used against output tax

Note: Input taxes on sale to government closed to expense are no longer considered as a deduction from input tax due
to shift in creditable system beginning January 1, 2021.
APPORTIONMENT OF INPUT TAX ON MIXED TRANSACTIONS
A VAT-registered person who is also engaged in transactions not subject to VAT shall be allowed to recognize
input tax credit on transactions subject to VAT as follows:
1. All the input taxes that can be directly attributed to transactions subject to VAT may be recognized
for input tax credit
2. If any input tax cannot be directly attributed to either a VAT taxable or VAT-exempt transaction, the
input tax shall be pro-rated to the VAT taxable and VAT-exempt transactions and only the ratable
portion pertaining to transactions subject to VAT may be recognized for input tax credit.

Note: Apportionment of input tax on sale to government applies to regular sales

ILLUSTRATION 1:
ABC Corp. disclosed the following information:
Sales:
• Regular sales – Php 3,000,000
• Sales to government – Php 1,000,000
• VAT-exempt sales – Php 1,000,000

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Other information:
• Carry-over from previous period – Php 1,000,000
• Purchase of capital goods worth Php 1,000,000
• Domestic purchase of goods worth Php 1,000,000
• Domestic purchase of services worth Php 1,000,000
• Imported goods worth Php 1,000,000

In the same period, the company has made the following:

• Filed application for tax credit certificate amounting to Php 100,000
• Filed application for tax refund amounting to Php 1,000,000
• Paid Php 100,000 for the two-month period

1. How much is the output tax?

2. How much is the total available input tax?
3. How much is the total deduction from input tax?
4. How much is the total allowable input tax?
5. How much is the VAT Still Due and Payable (Over-payment)?
Solutions:
Output tax 4,000,000 x 12% 480,000
Less: Allowable Input Tax:
Carry-over from previous period 1,000,000
Add: Current Input Tax
Purchase of capital goods 1,000,000 x 12% 120,000
Domestic purchase of goods 1,000,000 x 12% 120,000
Domestic purchase of services 1,000,000 x 12% 120,000
Imported goods 1,000,000 x 12% 120,000
TOTAL AVAILABLE INPUT TAX 1,480,000
Less: Deduction from Input Tax:
Applied for TCC 100,000
Applied for Refund 1,000,000
Input tax on exempt sale 96,000 1,196,000 284,000
VAT Payable 196,000
Less: Tax credits/payments 100,000
Total Amount Still Due 96,000

ILLUSTRATION 2:

ABC Corp.’s transaction for the 1st Quarter of 2021 as culled from Sales and Purchases Books are the following:

Sales: Amount
Regular Sales 1,000,000
Sales to government 1,000,000
Zero-rated sale 1,000,000
VAT-exempt sale 1,000,000
Purchases:
Purchase of capital goods 500,000
Domestic purchase of goods 1,500,000
Domestic purchase of service 1,000,000
Importation 100,000

Compute the following:

1. Output tax
2. Allowable or Creditable input tax
3. VAT Still Payable (Overpayment)
Solutions:
Sales: Amount Output Tax
Regular Sales 1,000,000 120,000
Sales to government 1,000,000 120,000
Zero-rated sale 1,000,000 0
VAT-exempt sale 1,000,000 0
Total 4,000,000 240,000

Purchases:
Purchase of capital goods 500,000 60,000
Domestic purchase of goods 1,500,000 180,000
Domestic purchase of service 1,000,000 120,000
Importation 100,000 12,000
Total available input tax 3,100,000 372,000

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Less: Deduction from input tax: Input tax on VAT-exempt 93,000

Allowable/Creditable input tax 279,000
Net VAT Payable (39,000)
Less: Tax credits 5% Creditable VAT 50,000
Tax Still Payable (Overpayment) (89,000)

ILLUSTRATION 3:
ABC Corp.’s transaction for the 1st Quarter of 2021 as culled from Sales and Purchases Books are the following:

Sales: Amount
Regular Sales 1,000,000
Sales to government 1,000,000
Zero-rated sale 1,000,000
VAT-exempt sale 1,000,000

In addition, the information related to input taxes are summarized below:

Carry-over from previous period 50,000
Input tax from capital goods (not deferred) 30,000
Input tax directly attributable to regular sales 50,000
Input tax directly attributable to sales to government 40,000
Input tax directly attributable to zero-rated sales 60,000
Input tax directly attributable to exempt sales 20,000
Input tax not directly attributable to any sales 70,000
Input tax applied for refund 60,000

Compute the following:

1. Total Available input tax
2. Total Allowable or Creditable input tax
3. VAT Still Payable (Overpayment)

Solutions:
Output tax 240,000

Carry-over from previous period 50,000

Add: Input tax from current period:
Input tax from capital goods (not deferred) 30,000
Input tax directly attributable to regular sales 50,000
Input tax directly attributable to sales to government 40,000
Input tax directly attributable to zero-rated sales* 60,000
Input tax directly attributable to exempt sales 20,000
Input tax not directly attributable to any sales 70,000
TOTAL AVAILABLE INPUT TAX 320,000
Less: Deduction from input tax
Input tax refunded* 60,000
Input tax attributable to exempt sale* 37,500 97,500
TOTAL ALLOWABLE / CREDITABLE INPUT TAX 222,500
Net VAT Payable 17,500
Less: Tax credits 5% Creditable VAT 50,000
Tax Still Payable (Overpayment) (32,500)
SPECIAL TREATMENT OF INPUT TAX
1. VAT for Construction in Progress
• Construction in progress (CIP) is the cost of construction work which is not yet completed. CIP is not
depreciated until the asset is placed in service. Normally, upon completion, a CIP item is reclassified and the
reclassified asset is capitalized and depreciated.
• CIP is considered, for purposes of claiming input tax, as a purchase of service, the value of which shall be
determined based on the progress billings. Until such time the construction has been completed, it will not
qualify as capital goods as herein defined, in which case, input tax credit on such transaction can be
recognized in the month the payment was made provided, that an official receipt of payment has been issued
based on the progress billings.
2. VAT for Labor Contractors
• In case of contract for the sale of service where only the labor will be supplied by the contractor and the
materials will be purchased by the contractee from other suppliers, input tax credit on the labor contracted
shall still be recognized on the month the payment was made based on a progress billings while input tax on
the purchase of materials shall be recognized at the time the materials were purchased.

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• Once the input tax has already been claimed while the construction is still in progress, no additional input
tax can be claimed upon completion of the asset when it has been reclassified as a depreciable capital asset
and depreciated.
3. VAT ON SALE OF REAL PROPERTY
GROSS SELLING PRICE
In the case of sale, barter or exchange of real property subject to VAT, gross selling price shall mean the consideration
stated in the sales document or the fair market value whichever is higher. If the VAT is not billed separately in the
document of sale, the selling price or the consideration stated therein shall be deemed to be inclusive of VAT.

The term ‘fair market value’ shall mean whichever is higher of: 1) the fair market value as determined by the
Commissioner /zonal value, or 2) the fair market value as shown in schedule of values of the Provincial and City Assessors
(real property tax declaration).

In the absence of zonal value/fair market value as determined by the Commissioner, gross selling price refers to the
market value shown in the latest real property tax declaration or the consideration, whichever is higher.

If the gross selling price is based on the zonal value or market value of the property, the zonal or market
value shall be deemed exclusive of VAT. Thus, the zonal value/market value, net of the output VAT, should
still be higher than the consideration in the document of sale, exclusive of the VAT.

If the sale of real property is on installment plan where the zonal value/fair market value is higher than the
consideration/selling price, exclusive of the VAT, the VAT shall be based on the ratio of actual collection of the
consideration, exclusive of the VAT, against the agreed consideration, exclusive of the VAT, appearing in the Contract
to Sell/Contract of Sale applied to the zonal value/fair market value of the property at the time of the execution of the
Contract to Sell/Contract of Sale at the inception of the contract. Thus, since the output VAT is based on the market
value of the property which is higher than the consideration/selling price in the sales document, exclusive of the VAT,
the input VAT that can be claimed by the buyer shall be the separately-billed output VAT in the sales document issued
by the seller. Therefore, the output VAT which is based on the market value must be billed separately by the seller in
the sales document with specific mention that the VAT billed separately is based on the market value of the property

RULES IN DETERMINING WHEN TO PAY VAT

Sale of real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business
of the seller shall be subject to VAT.

• Sale of residential lot - subject to 12% (old ruling: exempt if gross selling price does not exceed Php
1,500,000.00)
• Sale of residential house and lot or other residential dwellings - with gross selling price exceeding Php 3,199,200
(old is 2,500,000.00) is subject to 12% output VAT. Hence, VAT-exempt if below threshold

SALE OF REAL PROPERTY ON INSTALLMENT PLAN (INSTALLMENT BASIS)

Sale of real property on installment plan means sale of real property by a real estate dealer, the initial payments of
which in the year of sale do not exceed twenty-five (25%) of the gross selling price.

In case of installment sale, the seller shall be subject to output VAT on the installment payments received, including the
interests and penalties for late payment, actually and/or constructively received. Correspondingly, the buyer of the
property can claim the input tax in the same period as the seller recognized the output tax.

Installment payments, including interests and penalties, actually and/or constructively received shall be subject to twelve
percent (12%) output VAT.

Summary:
1. Output tax is based on whichever is higher of GSP or FMV (higher of BIR or Local Assessor valuation)
2. If total payments do not exceed 25% in the YEAR OF SALE, output tax is based on every payments/collections
including succeeding periods.

CASH OR DEFERRED BASIS

SALE OF REAL PROPERTY BY A REAL ESTATE DEALER ON A DEFERRED PAYMENT BASIS NOT ON THE INSTALLMENT
PLAN means sale of real property, the initial payments of which in the year of sale exceed twenty-five percent (25%) of
the gross selling price.

In the case of sale of real properties on a deferred-payment basis not on the installment plan, the
transaction shall be treated as cash sale which makes the entire selling price taxable in the month of sale.
Output tax shall be recognized by the seller and input tax shall accrue to the buyer at the time of the execution of the
instrument of sale.

Payments subsequent to “initial payments” shall no longer be subject to output VAT, in the case of sale on a deferred
payment basis.

“Initial payments” means payment or payments which the seller receives before or upon execution of the instrument of
sale and payments which he expects or is scheduled to receive in cash or property (other than evidence of indebtedness

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of the purchaser) during the taxable year when the sale or disposition of the real property was made. It covers any
down payment made and includes all payments actually or constructively received during the year of sale, the aggregate
of which determines the limit set by law.

Initial payments do not include the amount of mortgage on the real property sold except when such mortgage exceeds
the cost or other basis of the property to the seller, in which case the excess shall be considered part of the initial
payments. Also excluded from the initial payments are notes or other evidence of indebtedness issued by the purchaser
to the seller at the time of the sale.

PRE-SELLING
Pre-selling of real estate properties by real estate dealers shall be subject to VAT in accordance with the rules prescribed
above.

Summary:
1. Output tax is based on whichever is higher of GSP or FMV (higher of BIR or Local Assessor valuation)
2. If total payments exceed 25% in the YEAR OF SALE, output tax is collectible in full

Real estate dealer includes any person engaged in the business of buying, developing, selling, exchanging real properties
as principal and holding himself out as a full or part-time dealer in real estate. Transmission of property to a trustee
shall not be subject to VAT if the property is to be merely held in trust for the trustor and/or beneficiary. However, if
the property transferred is one for sale, lease or use in the ordinary course of trade or business and the transfer
constitutes a completed gift, the transfer is subject to VAT as a deemed sale transaction. The transfer is a completed
gift if the transferor divests himself absolutely of control over the property, i.e., irrevocable transfer of corpus and/or
irrevocable designation of beneficiary

ILLUSTRATIONS:
Scenario 1: BUYER MADE INITIAL PAYMENTS (25% or BELOW)
ABC Realty Corp. sold one of its real properties to Nicanor in 2020. Terms of the agreement are as follows:
• Selling price is Php 5,000,000
• 10% Down-payment
• Php 50,000 installment every 1st day of the month which shall start on February 1, 2020
• Contract to Sell was signed on January 1, 2020.
• Zonal value is Php 4,000,000 while Assessor’s fair value is Php 3,000,000

How much is the monthly output tax required to be paid by ABC Realty Corp.?

Scenario 2: BUYER MADE INITIAL PAYMENTS (EXCEEDING 25%)

ABC Realty Corp. sold one of its real properties to Inday in 2020. Terms of the agreement are as follows:
• Selling price is Php 5,000,000
• 20% Down-payment
• Php 100,000 installment every 1st day of the month following the signing of Contract to Sell (CTS)
• Contract to Sell was signed on January 1, 2020.
• Zonal value is Php 4,000,000 while Assessor’s fair value is Php 3,000,000

How much is the monthly output tax required to be paid by ABC Realty Corp.?
Solutions:
Nicanor Inday
Gross selling price of lot Php 5,000,000.00 Php 5,000,000.00
Initial Payments during the year:
Down-payment including earnest money Php 500,000.00 Php 1,000,000.00
Estimated installment payments during the year 550,000.00 1,100,000.00
Total Payments in the year of sale Php 1,050,000.00 Php 2,100,000.00
Percentage of Payment in the Year of Sale 21% 42%
Installment Plan Installment Basis Cash or Deferred Basis

Scenario 3: BUYER MADE FULL PAYMENT DURING THE YEAR OF SALE (INSTALLMENT BASIS)
Assume that Nicanor made full payment for the month of June 2020, compute the output tax.
Solutions:
WRONG PRACTICE:
Selling Price Php 5,000,000
Less: Payments:

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January (Down-payments) Php 500,000

February to May (Installments) 200,000 700,000
Balance Php 4,300,000
Rate 12%
Output Tax Php 516,000

CORRECT APPLICATION: Cash Basis

Selling Price Php 5,000,000
Rate 12%
Output Tax Php 600,000
Less: Input tax paid
January 60,000
February to May (P6,000 x 4 mos) 24,000 84,000
Deficiency output tax 516,000
Add:
Surcharge (25%) 129,000
Interest (12%) 2/21/21-6/__/21 20,640
Compromise Penalty 20,000 169,640
TOTAL AMOUNT DUE 685,640
Note: Strictly speaking, the output tax is payable in January because the sale is now under
Cash Basis. Hence transaction is exposed to the imposition of penalty due to late payment.

Scenario 4: BUYER MADE FULL PAYMENT DURING THE YEAR OF SALE (CASH OR DEFERRED BASIS)
Assume that Inday made full payment by the month of December 2020, compute the output tax.
Answer: Php 0. The output tax was already fully paid by January.

Scenario 5: BUYER MADE FULL PAYMENT IN THE 2ND YEAR

ABC Realty Corp. sold one of its real properties to Nicanor in 2020. Terms of the agreement are as follows:
• Selling price is Php 5,000,000
• 10% Down-payment
• Php 50,000 installment every 1st day of the month following signing of Contract to Sell
• Contract to Sell was signed on October 1, 2020.
• Nicanor made full payment in February, 2021.
• Zonal value is Php 4,000,000 while Assessor’s fair value is Php 3,000,000

How much is the monthly output tax required to be paid by ABC Realty Corp.? and in 2021?
Answers:
Solution:
Selling Price Php 5,000,000
Initial Payments:
Down-payment Php 500,000
November to December 100,000 600,000
Percentage of Payment in Year of Sale 12%
Installment Plan Installment Basis

Year 2020 2021

Scenario 6: REALTOR DONATED A PROPERTY
OMegaworld Corp., a DC engaged in real estate business, donated one condominium unit worth Php 14 Million to Indaylyn
Diaz in light of her winning a gold medal in Tokyo Olympics. Zonal value is Php 10,000,000 while Assessor’s fair value
is Php 12,000,000

Discussion Questions:
1. Is the donation subject to VAT? If yes, how much?
Answer:
2. Is the donation subject to Donor’s Tax?
Answer:

Scenario 7: ZONAL VALUE IS HIGHER THAN SELLING PRICE

ABC Corp. sold a parcel of land to XYZ Company on July 2, 2021, for Php 10,000,000.00, plus the output VAT, with a
monthly installment payment of Php 100,000.00, plus the output VAT. The zonal value of the subject property at the
time of sale amounted to Php 15,000,000.00. Compute for the output tax due on the installment payment.
Answer:
Solution:
Actual collection (exclusive of VAT) x higher of GSP or FMV x 12%
Agreed Consideration (exclusive of VAT
Php 100,000 x Php 15,000,000 x 12%
Php 10,000,000

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EXCEL PROFESSIONAL SERVICES, INC.

Php 150,000 x 12% = Php 18,000 for every installment

END

End of TAX.3213-7

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