40

Lesson 4

Value Added Tax

Lesson Objectives:

At the end of this lesson, the students should be able to:

a. Identify the transactions that are subject and exempt to VAT
b. Define input and output taxes and how to compute for VAT payable
c. Learn how, when, and where to file the VAT returns and the compliance
requirements and attachments needed
d. Apply, practice, solve, analyze, and evaluate problems relating to value
added tax

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Discussion:

VAT subject transactions

TRANSACTIONS TAX BASE
Sale of goods or properties in the course of trade or business Gross selling price
Sale of services and lease of properties in the course of trade or business Gross receipts
importation Total landed cost

The phrase “in the course of trade or business” means the regular conduct or pursuit of a
commercial or an economic activity including transactions incidental thereto, by any person
regardless of whether or not the person engaged therein is a nonstock, nonprofit private
organization (irrespective of the disposition of its net income and whether or not it sells
exclusively to members or their guests), or government entity.

The rule of regularity, to the contrary notwithstanding, services as defined in the Tax Code in
the Philippines by nonresident foreign persons shall be considered as being rendered in the
course of trade or business.

The term “goods or properties” refers to all tangible and intangible objects which are
capable of pecuniary estimation and shall include, among others:
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 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 any industrial, commercial, or scientific equipment
d. The right or the privilege to use motion picture films, films, tapes and discs
e. Radio, television, satellite transmission and cable television time

Computation of VAT Payable (excess input tax)

Output tax exceeds input tax at the end of any taxable quarter Output tax xx
Less: input tax xx
VAT Payable xx
Input tax inclusive of input tax carried over from the previous Output tax Xx
quarter exceeds output tax Less: input tax (xx)
Excess input tax xx

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Computation of The Tax Base and The Applicable Tax Rates

TRANSACTION TAX BASE TAX RATE
Sale of goods The term “gross selling price” means the total amount of money or its 12% or 0%
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, f any, on
such goods or properties shall form part of the gross selling price

In computing the taxable base during the month or quarter, the

following shall be allowed as deductions from gross selling price:
a. Discounts determined ad granted at the time of sale which are
expressly indicated in the invoice, the amount thereof forming
part of the gross sales duly recorded in the books of accounts.
Sales discount indicated un the invoice at the time of sale, the
grant of which is not dependent upon the happening of a
future event, may be excluded from the gross sales within the
same month/ quarter it was given.
b. Sales returns and allowances for which a proper credit or
refund was made during the month or quarter to the buyer for
sales previously recorded as taxable sales
Gross selling price
Gross sales xx
Less: sales returns and allowances xx
Sales discounts xx xx
Net sales xx
Add: excise tax, if any xx
Tax base (excluding VAT) xx
Sale of real properties Installment received xx 12% or 0%
on installment plan Add: interest xx
(initial payments do Penalties for late payment xx xx
not exceed 25% of Tax base xx
the gross selling If FMV is greater than selling price:
price) 𝑎𝑐𝑡𝑢𝑎𝑙 𝑐𝑜𝑙𝑙𝑒𝑐𝑡𝑖𝑜𝑛 (𝑉𝐴𝑇 𝑒𝑥𝑐𝑙𝑢𝑠𝑖𝑣𝑒)
𝑥 𝑓𝑎𝑖𝑟 𝑚𝑎𝑟𝑘𝑒𝑡 𝑣𝑎𝑙𝑢𝑒
𝑎𝑔𝑟𝑒𝑒𝑑 𝑐𝑜𝑛𝑠𝑖𝑑𝑒𝑟𝑎𝑡𝑖𝑜𝑛 (𝑉𝐴𝑇 𝑒𝑥𝑐𝑙𝑢𝑠𝑖𝑣𝑒)
Sale of real properties Selling price stated in the sales documents or fair market value, 12% or 0%
on cash basis or whichever is higher
deferred payment
plan (initial payments
exceed 25% of the
gross selling price)
Sale of services The term “gross receipts” means the total amount of money or its 12% or 0%
equivalent representing the contract price, compensation, service fee,
rental royalty, including the amount charged for materials supplied
with the services and deposits and advanced payments actually or
constructively received during the taxable quarter for the services
performed or to be performed for another person, excluding value-

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added tax
Gross receipts:
Cash received (actually and constructively) xx
Advance payments for future projects xx
Materials charged with the services xx
Gross receipts (excluding VAT) xx
Note: receivables, although earned, are not included
Gross receipts for For dealer in securities, the term “gross receipts” means gross selling 12% or 0%
dealer in securities price less cost of the securities sold
Gross receipts computed as follows:
Gross selling price xx
Less: acquisition cost of securities sold for the month or quarter xx
Balance xx
Add: other or incidental income xx
Gross receipts (excluding VAT) xx
Gross receipts on the Gross receipts shall refer to the following: 12% or 0%
sale of electricity by a. Total amounts charged by generation companies for the sale
generation, of electricity and related ancillary services
transmission and b. Total amount charged by transmission by any entity including
distribution National Grid Corporation of the Philippines (NGCP) for
companies transmission of electricity and related ancillary services
c. Total amount charged by distribution companies and electric
cooperatives for distribution and supply of electricity and
related electric service. The universal charge passed on and
collected by distribution companies and electric cooperatives
shall be excluded from the computation of the Gross Receipts
Sale of electricity by generation, transmission by any entity including
the National Grid Corporation of the Philippines (NGCP), and
distribution companies including electric cooperatives shall be subject
to 12% VAT on their gross receipts
Gross receipts from Total premiums collected, whether paid in money, notes, credits or any 12% or 0%
nonlife insurance substitute for money
companies

VAT on Importation
When importation Importation begins when the carrying vessel or aircraft enters the jurisdiction of the
begins and deemed Philippines with intention to unlad therein
terminated Importation s deemed terminated upon payment of the duties, taxes and other
charges due upon the articles, or secured to be paid, at a port of entry and the
legal permit for withdrawal shall have been granted, or in case articles are free of
duties, taxes and other charges, until they have legally left the jurisdiction of the
customs
Tax base There shall be levied, assessed and collected on every importation of goods a value-
added tax equivalent to twelve percent (12%) based on the total value used by the
Bureau of Customs in determining tariff and custom duties, plus customs duties,

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excise taxes, if any, and other charges, such tax to be paid by the importer prior to
the release of such goods from customs custody: Provided, that where the customs
duties are determined on the basis of the quantity or volume of the goods, the
value-added tax shall be based on the landed cost plus excise taxes, if any.
In general where customs duties are based on the value (ad valorem)
Total value (dutiable value-cost, insurance, freight) xx
Add: custom duties xx
Excise tax xx
Other charges prior to release of goods from customs custody xx xx
Tax base xx
In case where customs duties is based on volume or quantity (specific):
Total landed cost xx
Add: excise tax xx
Tax base xx
Tax rate 12%

Output Tax
Meaning Output tax means the value-added tax on sale or lease of taxable goods or
properties or services by any person registered or required to register
Determination of In a sale of goods or properties, the output tax is computed by multiplying the gross
output tax selling price by the regular rate of VAT
Sample Problem:
The following data are taken from the books of a dealer in securities:
Selling price, shares held as inventory P3,000,000
Selling price, shares held as investment 2,000,000
Acquisition cost, shares held as inventory 1,000,000
Acquisition cost, shares held as investment 1,500,000
Other income, shares held as inventory 200,000
The output tax using 12% rate is
selling price, shares held as inventory 3,000,000
acquisition cost, shares held as inventory (1,000,000)
other income, shares held as inventory 200,000
vatable sales 2,200,000
rate 12%
output tax 264,000

A VAT registered contractor has the following selected VAT exclusive data for the month of July 2018:
Collections from contracts completed in June 2018 P500,000
Advances from contracts to be completed in August 2018 300,000
Collections from contracts completed in July 2018, net of 10% retention on billings transferred 198,000
by the payor to the account of the contractor
Materials charged with the services rendered July 2018 100,000
Payments for services rendered by a sub-contractor July 2018 200,000
The gross receipts and output tax for the month of July 2018 are:

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Collections, June 2018 500,000

advances 300,000
collections, July 2018 (198K/90%) 220,000
materials 100,000
gross receipts 1,120,000
rate 12%
output tax 134,400

Mr. Chris T, Rosales, not VAT registered, imported an article from Japan for his personal use. The invoice value
of the imported article was Y1,000,000 (Y1=P0.35). the following were incurred in connection with the
importation
Insurance P15,000
Freight 10,000
Postage 5,000
Wharfage dues 7,000
Arrastre charges 8,000
Brokerage fees 25,000
Facilitation fee 3,000
The imported article was subject to P50,000 customs duties and to P30,000 excise tax. How much was the VAT
on importation using 12% rate?
Cost 350,000
Insurance 15,000
Freight 10,000
dutiable value 375,000
Customs duties 50,000
excise tax 30,000
other charges (postage, wharfage, arrastre, brokerage) 45,000
tax base 500,000
rate 12%
VAT 60,000

Zero-rated sales are taxable transaction for VAT purposes, but shall not result in any output
tax. However, the input tax on purchases of goods, properties or services, related to such
zero-rated sale, shall be available as tax credit or refund in accordance with the
Regulations.

Zero-Rated Sales of Goods and Properties

a. Export sales of goods
1. The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of
any shipping arrangement that may be agreed upon which may influence or determine the
transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its
equivalent in goods or services, and accounted for in accordance with the rules and regulations

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of the Bangko Sentral ng Pilipinas (BSP)

2. Sale and delivery of goods to registered enterprises within a separate custom territory provided
under special laws and registered enterprises within tourism enterprise zones as declared by the
Tourism Infrastructure and Enterprise Zone Authority (TIEZA) subject to the provision under Republic
Act No. 9593 or the Tourism Act of 2009.
3. 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 in the
Philippines of the said buyer’s goods and paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)
4. Sale of raw materials or packaging materials to export-oriented enterprise whose export sales
exceed 70% of the total annual production
5. Those considered export sales under the Omnibus Investment Code of 1987 (E.O.No.226), and
other special laws
6. The 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 shall
be used for international shipping or air transport operations
b. Sales to persons or entities whose exemption under special laws or international agreements to which
the Philippines is a signatory effectively subjects sales to zero rate

Zero-rated Sales of Goods or Properties which shall be subject to 12% VAT Upon Satisfaction
of Certain Conditions (under the TRAIN)
Items subject to 12% VAT
and no longer be
considered export sales
subject to 0% VAT rate
Conditions to be satisfied
1. 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 in the Philippines of the
said buyer’s goods and paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP)
2. Sale of raw materials or packaging materials to export-oriented
enterprise whose export sales exceed 70% of the total annual production
3. Those considered export sales under the Omnibus Investment Code of
1987 (E.O.No.226), and other special laws
1. Successful establishment and implementation of an enhanced VAT
refund system that grants refunds of creditable input tax within 90 days
from the filing of the VAT refund application with the Bureau
To determine the effectivity of item 1, all applications filed from January
1, 2018 shall be processed and must be decided within 90 days from the
filing of the VAT refund application
2. All pending VAT refund claims as of December 31, 2017 shall be fully
paid in cash by December 31, 2019

Considered Export Sales Under Omnibus Investment Code

"Export sales" shall mean the Philippine port F.O.B. value, determined from invoices, bills of lading, inward
letters of credit, landing certificates, and other commercial documents, of exports products exported directly
by a registered export producer or the net selling price of export product sold by a registered export
producer to another export producer, or to an export trader that subsequently exports the same: Provided,

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That sales of export products to another producer or to an export trader shall only be deemed export sales
when actually exported by the latter, as evidenced by landing certificates or similar commercial documents:
Provided, further, That without actual exportation the following shall be considered constructively exported
for purposes of this provision:
1. sales to bonded manufacturing warehouses of export-oriented manufacturers;
2. sales to export processing zones;
3. sale to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority pursuant
to RA 7227
4. sales to registered export traders operating bonded trading warehouses supplying raw materials used
in the manufacture of export products under guidelines to be set by the Board in consultation with
the Bureau of Internal Revenue and the Bureau of Customs;
5. sales to foreign military bases, diplomatic missions and other agencies and/or instrumentalities
granted tax immunities, of locally manufactured, assembled or repacked products whether paid for
in foreign currency or not: Provided, further, that export sales of registered export trader may include
commission income: and Provided, finally, that exportation of goods on consignment shall not be
deemed export sales until the export products consigned are in fact sold by the consignee.
Sales of locally manufactured or assembled goods for household and personal use to Filipinos abroad and
other non-residents of the Philippines as well as returning Overseas Filipinos under the Internal Export Program
of the government and paid for in convertible foreign currency inwardly remitted through the Philippine
banking systems shall also be considered export sales.

Zero-Rated Sales of Services and Lease of Properties

1. processing, manufacturing or repacking of goods for other persons doing business outside the
Philippines which goods are subsequently exported where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP)
2. services other than processing, manufacturing or repacking rendered to a person engaged in
business conducted outside the Philippines or to a nonresident person not engaged in business who is
outside the Philippines when the services are performed the consideration for which is paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP)
3. services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services to
zero percent rate
4. services rendered to persons engaged in international shipping or air transport operations, including
lease of property for use thereof provided, that these services shall be exclusive for international
shipping or air transport operation
5. services performed by subcontractors and/or contractors in processing, converting, or manufacturing
goods for an enterprise whose export sales exceed 70% of the total annual production
6. transport of passengers and cargo by domestic air or sea carriers from the Philippines to a foreign
country
7. sale of power or fuel generated through renewable sources of energy. Provided, however, that zero-
rating shall not extend to the sale of services related to the maintenance or operation of plants
generating said power
8. services rendered to registered enterprises within a separate custom territory provided under special
laws and registered enterprises within tourism enterprise zones as declared by the Tourism

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Infrastructure and Enterprise Zone Authority (TIEZA) subject to the provision under Republic Act No.
9593 or the Tourism Act of 2009

Zero-rated sales of services and lease of properties which shall be subject to 12% VAT Upon
Satisfaction of Certain Conditions (under the TRAIN)
Items subject to 12% 1. processing, manufacturing or repacking of goods for other persons doing
VAT and no longer be business outside the Philippines which goods are subsequently exported
considered export where the services are paid for in acceptable foreign currency and
sales subject to 0% accounted for in accordance with the rules and regulations of the Bangko
VAT rate Sentral ng Pilipinas (BSP)
2. services performed by subcontractors and/or contractors in processing,
converting, or manufacturing goods for an enterprise whose export sales
exceed 70% of the total annual production
Conditions to be 1. Successful establishment and implementation of an enhanced VAT refund
satisfied system that grants refunds of creditable input tax within 90 days from the
filing of the VAT refund application with the Bureau
To determine the effectivity of item 1, all applications filed from January 1,
2018 shall be processed and must be decided within 90 days from the filing
of the VAT refund application
2. All pending VAT refund claims as of December 31, 2017 shall be fully paid in
cash by December 31, 2019

Effectively Zero-Rated Sales

Sales of goods or property or services to persons or entities who are tax-exempt under international
agreements to which the Philippines is signatory, such as, Asian Development Bank (ADB), International Rice
Research Institute (IRRI), etc., shall be effectively subject to VAT at zero-rate

Deemed Sales Transactions

a. 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. Transfer of goods or properties not in the course of business
can take place when VAT-registered person withdraws goods from his business for his personal use;
b. Distribution or transfer to:
o Shareholders or investors as share in the profits of the VAT-registered person; or
o Creditors in payment of debt or obligation
c. Consignment of goods if actual sale is not made within sixty (60) days following the date such goods
were consigned. Consigned goods returned by the consignee within the 60-day period are not
deemed sold;
d. 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 such retirement or cessation, whether or not the
business is continued by the new owner or successor. The following circumstances shall, among
others, give rise to transactions "deemed sale";
o Change of ownership of the business. There is a change in the ownership of the business when
a single proprietorship incorporated; or the proprietor of a single proprietorship sells his entire
business

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o Dissolution of a partnership and creation of a new partnership which takes over the business.

Sale, Transfer, Or Exchange of Imported Goods by Tax-Exempt Persons

a. In the case of goods imported into the Philippines by VAT-exempt persons, entities, or agencies which
are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entities,
the latter shall be considered the importers thereof who shall be liable for VAT on such importation
b. The tax due on such importation shall constitute a lien on the goods, superior to all charges or liens,
irrespective of the possessor of said goods

Sample problems
The following information taken from the books of a VAT registered enterprise was provided to you:
Domestic sales of goods P3,000,000
Sales of packaging material to an export-oriented enterprise whose export sales exceed 70% of 2,000,000
the annual production
Local sales of goods to Asian Development Bank 500,000
Consignment of goods (not returned within 60 days following the date of consignment) 200,000
Consignment of goods (returned within 60 days following the date of consignment) 150,000
Goods transferred for the personal use of the owner (cost is P90,000), market value 100,000
Goods transferred to creditor as payment of debt of the enterprise (cost, P100,000), market 90,000
value
Goods transferred to owners as share in the profit of the enterprise, market value 80,000
How much was the total taxable sales and the output VAT using 12% rate?
tax output
rate tax
Domestic sales of goods 3,000,000
12% 360,000
Sales of packaging material to an export-oriented enterprise whose export
2,000,000
sales exceed 70% of the annual production 0% -
Local sales of goods to Asian Development Bank 500,000
0% -
Consignment of goods (not returned within 60 days following the date of
200,000
consignment) 12% 24,000
Goods transferred for the personal use of the owner (cost is P90,000), market
100,000
value 12% 12,000
Goods transferred to creditor as payment of debt of the enterprise (cost,
90,000
P100,000), market value 12% 10,800
Goods transferred to owners as share in the profit of the enterprise, market
80,000
value 12% 9,600

5,970,000 416,400

A VAT registered corporation has the following data taken from the books of accounts for the first calendar
quarter of 2018:
gross sales 5,000,000

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sales returns and allowances 100,000

sales discount given at the time of sale 400,000
sales discount given to cover prompt payment 200,000
sales allowance to cover roll back in prices 120,000
cost of sales 1,500,000
office equipment purchased January 1,2018 1,100,000
vehicle for land transport imported January 1, 2018 2,500,000
purchase of goods for sale, included in the cost of sales above 300,000
operating expenses (40% with passed-on VAT) 500,000
office supplies purchased (wholly used) 90,000
VAT payments for January and February 40,000
How much is the taxable sales and the output VAT?
gross sales 5,000,000
sales returns and allowances (100,000)
sales discount given at the time of sale (400,000)
taxable sales 4,500,000
rate 12%
output VAT 540,000

VAT-exempt Transactions
It is a sale of goods, properties or service and the use or lease of properties which is not
subject to output tax and whereby the buyer is not allowed any tax credit or input tax
related to such exempt sale.
a. 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 therefore;
b. Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry
feeds, including ingredients, whether locally produced or imported, used in the manufacture of
finished feeds (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and
other animals considered as pets);
c. Importation of personal and household effects belonging to residents of the Philippines returning from
abroad and non-resident citizens coming to resettle in the Philippines; Provided, that such goods are
exempt from custom duties under the Tariff and Customs Code of the Philippines;
d. Importation of professional instruments and implements, tools of trade, occupation or employment,
wearing apparel, domestic animals, and personal and household effects ( except vehicles, vessels,
aircrafts machineries and other similar goods for use in manufacture which are subject to duties, taxes
and other charges) belonging to persons coming to settle in the Philippines or Filipinos or their families
and descendants who are now residents or citizens of other countries, such parties hereinafter
referred to as overseas Filipinos, in quantities and of the class suitable to the profession, rank or
position of the persons importing said items, for their own use and not barter or sale, accompanying
such persons, or arriving within a reasonable time; Provided, That the Bureau of Customs may, upon
the production of satisfactorily evidence that such persons are actually coming to settle in the
Philippines and that the goods are brought from their place of residence, exempt such goods from

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payment of duties and taxes.

e. Services subject to percentage tax under Title V of the Tax Code, as amended;
f. Services by agricultural contract growers and milling for others of palay into rice, corn into grits, and
sugar cane into raw sugar;
g. Medical, dental, hospital and veterinary services except those rendered by professionals;
h. Educational services rendered by private educational institutions duly accredited by the Department
of Education (DepED), the Commission on Higher Education (CHED) and the Technical Education
and Skills Development Authority (TESDA) and those rendered by the government educational
institutions;
i. Services rendered by individuals pursuant to an employer-employee relationship;
j. Services rendered by regional or area headquarters established in the Philippines by multinational
corporations which act as supervisory, communications and coordinating centers for their affiliates,
subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income from the
Philippines;
k. Transactions which are exempt under international agreements to which the Philippines is a signatory
or under special laws except those granted under P.D. No. 529 - Petroleum Exploration
Concessionaires under the Petroleum Act of 1949;
l. Sales by agricultural cooperatives duly registered and in good standing with the Cooperative
Development Authority (CDA) to their members, as well as of their produce, whether in its original
state or processed form, to non-members, their importation of direct farm inputs, machineries and
equipment, including spare parts thereof, to be used directly and exclusively in the production
and/or processing of their produce;
m. Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered and in
good standing with the Cooperative Development Authority;
n. Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with and in good
standing with CDA; Provided, that the share capital contribution of each member does not exceed
Fifteen Thousand Pesos (P15,000.00) and regardless of the aggregate capital and net surplus ratably
distributed among the members;
o. Export sales by persons who are not VAT-registered;
p. The following sales of real properties:
i. Sale of real properties not primarily held for sale to customers or held for lease in the ordinary
course of trade or business.
ii. Sale of real properties utilized for low-cost housing as defined by RA No. 7279, otherwise known
as the "Urban Development and Housing Act of 1992" and other related laws, such as RA No.
7835 and RA No. 8763;
iii. Sale of real properties utilized for specialized housing as defined under RA No. 7279, and other
related laws, such as RA No. 7835 and RA No. 8763, wherein price ceiling per unit is Php
450,000.00 or as may from time to time be determined by the HUDCC and the NEDA and
other related laws;
iv. Sale of residential lot valued at One Million Five Hundred Thousand Pesos (P1,500,000.00) and
below, or house and lot and other residential dwellings valued at Two Million Five Hundred
Thousand Pesos (P2,500,000.00) and below, as adjusted using latest Consumer Price Index
values. (If two or more adjacent lots are sold or disposed in favor of one buyer, for the
purpose of utilizing the lots as one residential lot, the sale shall be exempt from VAT only if the
aggregate value of the lots do not exceed One Million Five Hundred Thousand Pesos
(P1,500,000.00). Adjacent residential lots, although covered by separate titles and/or

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separate tax declarations, when sold or disposed to one and the same buyer, whether
covered by one or separate Deed of Conveyance, shall be presumed as a sale of one
residential lot.)
q. Lease of residential units with a monthly rental per unit not exceeding Fifteen Thousand Pesos
(P15,000.00), regardless of the amount of aggregate rentals received by the lessor during the year;
Provided, that not later than January 31, 2009 and every three (3) years thereafter, the amount of
P10,000.00 shall be adjusted to its present value using the Consumer Price Index, as published by the
Philippine Statistics Authority (Formerly known as NSO);
r. Sale, importation, printing or publication of books and any newspaper, magazine, review or bulletin
which appears at regular intervals with fixed prices for subscription and sale and which is not devoted
principally to the publication of paid advertisements;
s. Transport of passengers by international carriers;
t. Sale, importation or lease of passenger or cargo vessels and aircraft, including engine equipment
and spare parts thereof for domestic or international transport operations; Provided, that the
exemption from VAT on the importation and local purchase of passenger and/or cargo vessels shall
be subject to the requirements on restriction on vessel importation and mandatory vessel retirement
program of Maritime Industry Authority (MARINA);
u. Importation of fuel, goods and supplies by persons engaged in international shipping or air transport
operations; Provided, that the said fuel, goods and supplies shall be used exclusively or shall pertain to
the transport of goods and/or passenger 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; Provided, further,
that if any portion of such fuel, goods or supplies is used for purposes other than the mentioned in the
paragraph, such portion of fuel, goods and supplies shall be subject to 12% VAT;
v. Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other
non-bank financial intermediaries, such as money changers and pawnshops, subject to percentage
tax under Sections 121 and 122, respectively of the Tax Code; and
w. Sale or lease of goods and services to senior citizens and persons with disabilities, as provided under
Republic Act Nos. 9994 (Expanded Senior Citizens Act of 2010) and 10754 (An Act Expanding the
Benefits and Privileges of Persons with Disability), respectively;
x. Transfer of property in merger or consolidation (pursuant to Section 40(C)(2) of the Tax Code, as
amended);
y. Association dues, membership fees, and other assessments and charges collected on a purely
reimbursement basis by homeowners’ associations and condominium established under Republic Act
No. 9904 (Magna Carta for Homeowners and Homeowner’s Association) and Republic Act No. 4726
(The Condominium Act), respectively;
z. Sale of gold to the Banko Sentral ng Pilipinas (BSP) (previously zero-rated transaction);
aa. Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension (beginning
on January 1, 2019 as determined by the Department of Health); and
bb. Sale or lease of goods or properties or the performance of services other than the transactions
mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the
amount of Three Million Pesos (Php 3,000,000.00). Note: Self-employed individuals and professionals
availing of the 8% on gross sales and/or receipts and other non-operating income, under Sections 24
(A)(2)(b) and 24 (A)(2)(c)(2) of the NIRC shall also be exempt from the payment of twelve (12%) VAT.

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Sample problems
Compute the VAT due on the following importations made by different persons:
importation of cows and bulls by a VAT registered company 5,000,000
importation of fighting cocks by a non-VAT registered person 4,000,000
importation of turkey by VAT registered person 3,000,000
importation of race horses by VAT registered person 2,000,000
importation of livestock and poultry feeds by a non-VAT registered person 1,000,000
importation of ingredients to be used in the manufacture of finished fertilizer 500,000

importation of fighting cocks by a non-VAT registered person 4,000,000

importation of race horses by VAT registered person 2,000,000
importation of ingredients to be used in the manufacture of finished fertilizer 500,000
taxable sales 6,500,000
rate 12%
VAT due 780,000

The following information pertains to lease of property for the current year
APARTMENT HOUSE COMMERCIAL BUILDING
case 1 rent per month 15,000 15,000
annual gross receipts 2,500,000 2,500,000
VAT-subject
VAT-Exempt 2,500,000 2,500,000
case 2 rent per month 15,000 15,000
annual gross receipts 3,500,000 3,500,000
VAT-subject 3,500,000 3,500,000
VAT-Exempt
case 3 rent per month 20,000 20,000
annual gross receipts 3,000,000 3,000,000
VAT-subject
VAT-Exempt 3,000,000 3,000,000
case 4 rent per month 20,000 20,000
annual gross receipts 3,500,000 3,500,000
VAT-subject 3,500,000 3,500,000
VAT-Exempt

Based on the following current year information, determine the VAT subject and the VAT exempt amounts
HUSBAND WIFE
case 1 gross receipts, practice of profession 2,500,000 2,000,000
VAT-subject - -
VAT-Exempt 2,500,000 2,000,000
case 2 gross receipts, practice of profession 1,800,000 -
gross receipts, beauty parlor - 1,200,000

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gross receipts, trucking business 1,500,000 -

gross sales, grocery store - 1,500,000
gross sales, agricultural food products (original state) 1,200,000 -
gross sales, livestock - 1,300,000
total 4,500,000 4,000,000
VAT-subject 3,300,000 -
VAT-Exempt 1,200,000 4,000,000

Mr. Jose Diesto signified his intention to be taxed at 8% income tax in lieu of the graduated income tax rates
and percentage tax under Section 116 in his 1st quarter income tax. However, his gross sales/receipts during
the taxable year have exceeded the VAT threshold as follows:
1st quarter January 250,000.00
February 250,000.00
March 250,000.00
2nd quarter April 250,000.00
May 250,000.00
June 250,000.00
3rd quarter July 250,000.00
August 250,000.00
September 250,000.00
4th quarter October 1,000,000.00
November 1,000,000.00
December 1,000,000.00
total - 5,250,000.00
How much is the percentage tax? P3M x 3% = P90,000
How much is the Value-added tax? P5,250,000 – P3,000,000= P2,250,000 x 12%= P270,000
When shall he update his registration from non-VAT to VAT? November 30

Input Taxes
Meaning of input Input tax is the value-added tax due from or paid by VAT-registered person in the
tax course of his trade or business on importation of goods or local purchase of goods,
properties or services, including lease or use of properties, in the course of his trade or
business. It shall also include the transitional input tax and the presumptive input tax.
Categories of 1.VAT paid on local purchases (passed on by seller) or on importation (passed-on VAT)
creditable or 2.Presumptive input tax
deductible input 3.Transitional input tax
taxes 4.Standard input tax
Persons who can The input tax credit on importation of goods or local purchases of goods, properties or
avail of input tax services by a VAT-registered person shall be creditable:
credit 1.to the importer upon payment of VAT prior to the release of goods from customs
custody
2.to the purchaser of the domestic goods or properties upon consummation of the
sale
3.to the purchaser of services or the lessee or licensee upon payment of the

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compensation, rental, royalty or fee

Determination of Allowable Input Taxes

Determination input tax carried over from previous period xxx
of creditable input tax deferred on capital goods exceeding P1,000,000 from previous
input tax quarter xxx
transitional input tax xxx
presumptive input tax xxx
others xxx
total xxx
input taxes on current transactions xxx
total available input taxes xxx
less: deductions from input taxes xxx
total allowable input taxes xxx
Deductions a. Input tax claimed as tax credit certificate or refund
from input b. Input tax attributed to VAT-exempt sales
taxes c. Input tax attributed to sales to government

Sources of Creditable Input Taxes (Local Purchases or Importation)

Input tax a. Purchase or importation of goods
evidenced by a 1.for sale
VAT invoice or 2.for conversion into or intended to form part of a finished product for sale,
official receipts by including packaging materials
a VAT-registered 3.for use as supplies in the course of trade or business
person which shall 4.for use as raw materials supplied in the sale of services
be valid for 5 years 5.for use in trade or business for which deduction for depreciation or
from the date of amortization is allowed
permit to use b. Purchase of real properties for which a VAT has actually been paid
c. Purchase of services in which VAT has actually been paid
d. Transactions deemed sale
VAT-registered A VAT-registered person who is also engaged in transactions not subject to VAT shall be
person is also allowed to recognize input tax credit on transactions subject to VAT as follows:
engaged in a. All the input taxes that can be directly attributed to transactions subject to VAT
transactions not may be recognized for input tax credit
subject to VAT b. 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 computed as follows:
VAT Sales/total sales x input taxes

Claims for Input Tax on Depreciable Goods (Under RR16-2005)

Where the aggregate (a) If the estimated useful life of a capital good is five (5) years or more – The
acquisition cost (exclusive input tax shall be spread evenly over a period of sixty (60) months and the

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of VAT) of depreciable
capital goods during any
calendar month exceeds
P1,000,000
Where the aggregate
acquisition cost (exclusive
of VAT) of depreciable
capital goods during any
calendar month does not
exceed P1,000,000
Amortization allowed until
December 31,2021
Meaning of aggregate
acquisition cost
Sale or transfer of
depreciable good within a
period of 5 years or prior to
the exhaustion of the
amortizable input tax
Meaning of capital goods
or properties
Meaning of construction in
progress
Input tax on construction in
progress
Contract for the sale of
56
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.
(b) 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.
the total input tax is creditable against output tax in the month acquired.
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
The aggregate acquisition cost of a depreciable asset in any calendar month
refers to the total price agreed upon for one or more assets acquired and not
on the payments actually made during the calendar month. Thus, an asset
acquired in instalment for an acquisition cost of more than P 1,000,000.00 will
be subject to the amortization of input tax despite the fact that the monthly
payments/installments may not exceed P 1,000,000.00.
If the depreciable capital good is sold/transferred within 5 years or prior to the
exhaustion of the amortizable input tax, the entire unamortized input tax can
be claimed as input tax credit during the month/quarter when the sale or
transfer was made
Goods or properties with estimated useful life greater than one (1) year
treated as depreciable assets under Sec. 34(F) of the NIRC; and used directly
or indirectly in the production or sale of taxable goods or services. [Sec. 16, RR
4-2007]
CIP is the cost of construction work which is not yet completed. CIP is not
depreciated util the asset is places in service. Normally, upon completion, a
CIP is reclassified and the reclassified asset is capitalized and depreciated
a. 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
b. Until such time the construction has been completed, it will not qualify
as capital goods as define, 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
In case of contract for the sale of service where only the labor will be supplied
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service where only the labor
will be supplied
Input tax claimed while the
construction is in progress
Rules on allowing input tax
credit on vehicles, and
other expenses incurred
Presumptive Input Tax
Persons allowed
presumptive input tax
Rate and basis of
presumptive input tax
Transitional Input Tax
Situations where transitional
input tax may be allowed
Basis of transitional input tax
Amount of transitional input
tax
Standard Input Tax
Input tax attributable to VAT
sales to Government not
creditable against output
tax on sales to non-
57
by the contractor and 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 the progress
billings while input tax on the purchase of materials shall be recognized at the
time the materials were purchased
Once the input tax has already been claimed while the construction is 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
a. Purchase of vehicle must be substantiated with official receipts or
other adequate records;
b. Taxpayer has to prove the direct connection of the motor vehicle to
the business;
c. Only one vehicle for land transport is allowed for the use of an
official/employee with value not exceeding P2.4 million;
d. No depreciation shall be allowed for yachts, helicopters, airplanes
[Sec. 3, RR 12-2012
1.Processors of sardines, mackerel, and milk
2.Manufacturers of refined sugar, cooking oil
3.Manufacturers of packed noodle-based instant meals
four percent (4%) of the gross value in money of their purchases of primary
agricultural products which are used as inputs to their production
a. Taxpayers who became VAT-registered persons upon exceeding the
minimum turnover of P3,000,000.00 in any 12-month period
b. Taxpayers who voluntarily register even if their turnover does not
exceed P3,000,000.00 (except franchise grantees of radio and
television broadcasting whose threshold is P10,000,000.00)
Beginning inventory of goods, materials and supplies (including those that are
VAT-exempt under Sec.109)
(2%) of the value of the beginning inventory on hand or actual VAT paid on
such, goods, materials and supplies, whichever is higher
The value allowed for income tax purposes on inventories shall be the basis for
the computation of the 2% transitional input tax, including goods that are
exempt from VAT under Sec. 109 of the Tax Code.
Input taxes that can be directly attributable to VAT taxable sales of goods and
services to the Government or any of its political subdivisions, instrumentalities
or agencies including GOCCs shall not be credited against output taxes
arising from sales to non-Government entities
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Government entities
Government required to The government or any of its political subdivisions, instrumentalities or
withhold agencies, including GOCCs shall deduct and withhold a final VAT due at the
rate of fiver percent (5%) of the gross payment

Beginning January 1, 2021, the VAT withholding system under this Subsection
shall shift from final to a creditable system

The payor or person in control of the payment shall be considered as the

Final withholding VAT
represent the net VAT
payable of the seller
Difference between the
VAT rate and the
withholding VAT rate
accounts for the standard
input tax
withholding agent
The five percent (5%) final withholding VAT rate shall represent the net VAT
payable of the seller
The remaining seven percent (7%) effectively accounts for the standard input
VAT for sales of goods or services to government or any of its political
subdivisions, instrumentalities or agencies including GOCCs, in lieu of the
actual input VAT directly attributable or ratably apportioned to such sales
Should actual input VAT attributable to sale to government exceeds seven
percent (7%) of gross payments, the excess may form part of the seller’s
expense or cost. On the other hand, if actual input VAT attributable to sale to
government is less than seven percent (7%) of gross payment, the difference
must be closed to expense or cost

Withholding VAT
TAX
DESCRIPTION RATE ATC
TYPE
Applicable to Government Withholding Agent Only
WV VAT withholding on Purchase of Goods 5% WV010
WV VAT Withholding on Purchase of Services 5% WV020
Applicable to Both Government and Private Withholding Agents
WV VAT Withholding from non-residents (Government Withholding Agents) 12% WV040
WV VAT Withholding from non-residents (Private Withholding Agents) 12% WV050
VAT Withholding on Purchases of Goods (with waiver of privilege to claim tax credit)
WV 12% WV012
creditable
VAT Withholding on Purchases of Goods (with waiver of privilege to claim input tax credit)
WV 12% WV014
final
VAT Withholding on Purchases of Services (with waiver of privilege to claim input tax credit)
WV 12% WV022
creditable
VAT Withholding on Purchases of Services (with waiver of privilege to claim input tax credit)
WV 12% WV024
final

Remittance of Withholding VAT

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The VAT withheld shall be remitted within ten (10) days following the end of the month the
withholding was made

Advance Payment Of VAT

Transactions requiring 1.sale of refined sugar
advance payment of 2. sale of flour
VAT 3. transport of naturally grown and planted timber products
4. sale of jewelry, gold and other metallic minerals
Advance payment of The advance payments made by the seller/owner of refined sugar, importer or
VAT allowed as credit miller of wheat/flour and sellers/owners of naturally grown and planted timber
against output tax products shall be allowed as credit against their output tax on the actual gross
selling price of refined sugar/flour/timber products
Advance payments advance payments which remains unutilized at the end of taxpayer’s taxable
may be available for year where the advance payment was made, which is tantamount to excess
issuance of tax credit payment, may, at the option of the owner/seller/taxpayer or
certificate importer/miller/taxpayer, be available for the issuance of TCC upon application
duly filed with the BIR by the seller/owner or importer/miller within two (2) years
from the date of filing of the 4th quarter VAT return of the year such advance
payments were made, or if filed out of time, from the last day prescribed by law
for filing the return
Advance VAT payment Advance VAT payments which have been the subject of an application for the
claimed as TCC cannot issuance of TCC shall not be allowed as carry-over nor credited against the
be carried over output tax of the succeeding quarter/year
Issuance of TCC limited Issuance of TCC shall be limited to the unutilized advance VAT payment and shall
to unutilized advance not include excess input tax
VAT payment
Separate applications Issuance of TCC for input tax attributable to zero-rated sales shall be covered by a
required separate application for TCC following applicable rules

Refund of Input Tax

Input tax on zero-rated A VAT-registered person whose sales of goods, properties or services are zero-
sales of goods or rated or effectively zero-rated may apply for the issuance of a tax credit
property certificate/refund of input tax attributable to such sales. The input tax that may be
subject of the claim shall exclude the portion of input tax that has been applied
against the output tax. The application should be filed within two (2) years after
the close of the taxable quarter when such sales were made
Printing of the word The supreme court has ruled in several cases that the printing of the word “zero-
“zero-rate” required rated” is required to be placed on the VAT invoices or receipts covering zero-
rated sales in order to be entitled to claim for tax credit or refund
Other documents may In another case, failure of the taxpayer to indicate its zero-rated sales in its VAT
be used to prove “zero- returns and in its official receipts is not sufficient reason to deny its claim for tax
rated sale credit or refund when there are other documents from which the court can
determine the veracity if the taxpayer’s claims
Unused input tax of A VAT-registered person whose registration has been cancelled due to retirement

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person who retired or from or cessation of business, or due to changes in or cessation of status under
ceased business Sec. 106 (C) of the Tax Code may, within two (2) years from the date of
cancellation, apply for the issuance of a tax credit certificate for any unused
input tax which he may use in payment of his other internal revenue taxes;
Provided, however, that he shall be entitled to a refund if he has no internal
revenue tax liabilities against which the tax credit certificate may be utilized.
Period of refund or tax refund or tax credit certificate/refund of input taxes shall be made in proper
credit of input tax cases, the Commissioner of Internal Revenue shall grant a tax credit
certificate/refund for creditable input taxes within ninety (90) days from the date
of submission of complete documents in support of the application
Appeal of full or partial In case of full or partial denial of the claim for tax credit certificate/refund as
denial decided by the Commissioner of Internal Revenue, the taxpayer may appeal to
the Court of Tax Appeals (CTA) within thirty (30) days from the receipt of said
denial, otherwise the decision shall become final. However, if no action on the
claim for tax credit certificate/refund has been taken by the Commissioner of
Internal Revenue after the ninety (90) day shall be punishable under Section 269
of this code
Manner of giving Refunds shall be made upon warrants drawn by the Commissioner of Internal
refunds Revenue or by his authorized representative without the necessity of being
countersigned by the COA Chairman.

Sample Problem
Elirie Corporation, VAT-registered, has the following transactions during the month of January 2018
domestic sales, exclusive of VAT 800,000
importation of goods for sale 240,000
importation of goods for personal use 100,000
purchase of office supplies, exclusive of VAT 20,000
purchase of office equipment, total invoice price (estimated life is 3 years) 1,680,000
purchase of home appliances for the residence of Elirie Corp's President, gross of VAT 17,920
payment of services for store repair, contractor not VAT-registered but issued VAT official
receipt (total invoice amount) 33,600
purchase of services for repainting of store (evidenced by ordinary receipt issued by
contractor) 4,480
purchase of real property to be used as office, VAT not included, purchase price not yet
paid 500,000
purchase of vehicle for land transport and for business use, net of VAT 1,200,000
payment of maintenance expenses for vehicle for land transport, net of VAT 50,000
How much of the VAT on importation can be claimed as input tax credit? P240,000 x 12%= P28,800
(importation of goods for sale)
How much of the input tax on purchase of office equipment can be claimed as input tax credit?
P1,680,000/1.12 x 12%/36= P5,000
Can the passed-on VAT on purchase of vehicle for land transport be claimed as input tax credit? Yes, does
not exceed P2.4M threshold
Can the passed-on VAT by a service contractor who is not VAT registered be claimed as input tax credit? Yes
How much is the total allowable input taxes for the month?

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importation of goods for sale 28,800

purchase of office equipment, total invoice price (estimated life is 3 years) 5,000.00
purchase of vehicle for land transport and for business use, net of VAT(1.2Mx12%/60mos) 2,400
purchase of office supplies, exclusive of VAT 2,400
payment of services for store repair, contractor not VAT-registered but issued VAT official
receipt (total invoice amount) 3,600.00
payment of maintenance expenses for vehicle for land transport, net of VAT 6,000
input taxes 48,200

COMPLIANCE REQUIREMENTS

Invoicing Requirement, Refund of Input Taxes and Others

VAT invoice and VAT A VAT-registered person shall issue: --
Official Receipt (1) A VAT invoice for every sale, barter or exchange of goods or properties; and
(2) A VAT official receipt for every lease of goods or properties, and for every sale,
barter or exchange of services.
Validity of VAT invoice The invoice/receipt shall be valid for 5 years from date of permit to use
and VAT OR
Invoicing requirement The following information shall be indicated in VAT invoice or VAT official receipt:
(1) A statement that the seller is a VAT-registered person, followed by his TIN;
(2) The total amount which the purchaser pays or is obligated to pay to the seller
with the indication that such amount includes the VAT; Provided, That:
(a) The amount of tax shall be shown as a separate item in the invoice or receipt;
(b) If the sale is exempt from VAT, the term “VAT-exempt sale” shall be written or
printed prominently on the invoice or receipt;
(c) If the sale is subject to zero percent (0%) VAT, the term “zero-rated sale” shall be
written or printed prominently on the invoice or receipt;
(d) If the sale involves goods, properties or services some of which are subject to
and some of which are VAT zero-rated or VAT-exempt, the invoice or receipt shall
clearly indicate the break-down of the sale price between its taxable, exempt and
zero-rated components, and the calculation of the VAT on each portion of the
sale shall be shown on the invoice or receipt. The seller has the option to issue
separate invoices or receipts for the taxable, exempt, and zero-rated components
of the sale.
(3) In the case of sales in the amount of one thousand pesos (P1,000.00) or more
where the sale or transfer is made to a VAT-registered person, the name, business
style, if any, address and TIN of the purchaser, customer or client, shall be indicated
in addition to the information required in (1) and (2) of this Section.

Invoicing and Recording Deemed Sale Transactions

Deemed sale transaction Invoicing and recording
Transfer, use or consumption, memorandum entry
not in the course of business

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Distribution or transfer to
Shareholders or investors
Or to Creditors in payment of
debt or obligation
Consignment of goods if
actual sale is not made
within sixty (60) days
Retirement from or cessation
of business
VAT returns and payment of value-added tax
a. Monthly VAT declaration and payment of VAT
Filing of the declaration and
payment of VAT
Taxpayers enrolled with EFPS
b. Filing of Quarterly VAT return and Payment of VAT
Filing of quarterly return and
payment of value-added tax
Meaning of taxable quarter
Quarterly return included the
amounts reflected in the
monthly VAT declarations
Monthly payments to be
credited in the quarterly VAT
return
Deductions from the
quarterly VAT payable
(excess input tax)
62
an invoice shall be prepared at the time of the occurrence of the
transaction, which should include, all the information prescribed in Sec. 4.113-
1. The data appearing in the invoice shall be duly recorded in the subsidiary
sales journal. The total amount of “deemed sale” shall be included in the
return to be filed for the month or quarter.
Same as in above
an inventory shall be prepared and submitted to the RDO who has jurisdiction
over the taxpayer’s principal place of business not later than 30 days after
retirement or cessation from business
Not later than 20th day following the end of the first 2 months in a quarter
Group A - 25 days following the end of the month
Group B - 24 days following the end of the month
Group C - 23 days following the end of the month
Group D - 22 days following the end of the month
Group E- 21 days following the end of the month
Every person liable to pay the value-added tax imposed under this Title shall
file a quarterly return of the amount of his gross sales or receipts within twenty-
five (25) days following the close of each taxable quarter prescribed for each
taxpayer: Provided, however, That VAT-registered persons shall pay the
value-added tax on a monthly basis:
beginning January 1, 2023, the filing and payment required under the Tax
Code shall be done within twenty-five (25) days following the close of each
taxable quarter.
The term “taxable quarter” shall mean that quarter that is synchronized with
the income tax quarter of the taxpayer (i.e., the calendar quarter or fiscal
quarter)
Amounts reflected in the monthly VAT declarations for the first two (2) months
of the quarter shall still be included in the quarterly VAT return, which reflects
the cumulative figures for the taxable quarter
Payments in the monthly VAT declarations shall be credited in the quarterly
VAT return to arrive at the net VAT payable, or excess input tax/overpayment
as of the end of the quarter
The VAT payable/excess input tax for each taxable quarter shall be reduced
by the total amount of taxes previously paid for the immediately preceding
two (2) months, and the advance payments/creditable VAT withheld by the
payors for he three months of the quarter
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Substituted VAT Return
Substituted VAT return
(payee with Lone Payor)
Payee with several payors
Short Period Return
Final return of a person who
retires from business
Subsequent monthly
declarations/quarterly
returns to be filed after
retirement
Effective date of VAT
registration
Initial monthly VAT
declaration or quarterly VAT
return
Payment of VAT on Importation
The VAT on importation shall be paid by the importer prior to the release of such goods from
customs custody
Where to file ang pay VAT
Where to file monthly VAT
declaration and quarterly
VAT return if payment is
involved
63
1.in case of sale of goods or services by persons subject to 12% VAT, whose
gross sales or receipts have already been subjected to 12% VAT by the lone
payor, the payee(seller) shall no longer be required to file the monthly VAT
declaration and the quarterly returns.
2. the monthly remittance return of VAT withheld duly filed by the withholding
agent-payor serves as the substituted return of the payee (seller) with the
lone payor
Payees with several payors are still required to file the regular VAT return
reflecting the consolidated total of all taxable transactions for the taxable
period and applying as tax credits the taxes withheld by several payors
Any person who retires from business with due notice to the BIR office where
the taxpayer (head office) is registered or whose VAT registration has been
cancelled shall file a final quarterly return and pay the tax due thereon within
twenty-five (25) days from the end of the month when the business ceases to
operate or when VAT registration has been officially cancelled
monthly declarations/quarterly returns are still required to be filed if the results
of the winding up of the affairs/business of the taxpayer reveal taxable
transactions
All persons first registered shall be liable to VAT on the effective date of
registration stated in their Certificates of Registration
1.If the effective date of registration falls on the first or second month of the
taxable quarter, initial monthly VAT declaration shall be filed within twenty
(20) days after the end of the month, and the initial quarterly return shall be
filed on or before the 25th day after the end of the taxable quarter.
2. if the effective date of registration falls on the third month of the taxable
quarter the quarterly returns shall be filed on or before the 25th day of the
month following the end of the taxable quarter, and no monthly VAT
declaration need be filed for the initial quarter.
The monthly VAT declaration and quarterly return shall be filed with, and VAT
due thereon paid to, an AAB under the jurisdiction of the Revenue District/BIR
Office where the taxpayer (head office of the business establishment) is
required to be registered.
In cases where there are no duly accredited agent banks within the
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Where to file monthly VAT
declaration and quarterly
VAT return if no payment is
involved
consolidated quarterly VAT
return or monthly VAT
declaration
municipality or city, the monthly VAT declaration and quarterly VAT return,
shall be filed with and any amount due shall be paid to the RDO, Collection
Agent or duly authorized Treasurer of the Municipality/City where such
taxpayer (head office of the business establishment) is required to be
registered.
The quarterly VAT return and the monthly VAT declaration, where no
payment is involved, shall be filed with the RDO/LTDO/Large Taxpayers
Assistance Division (LTAD), Collection Agent, duly authorized Municipal/City
Treasurer of Municipality/City where the taxpayer (head office of the business
establishment) is registered or required to be registered.”
Only one consolidated quarterly VAT return or monthly VAT declaration
covering the results of operation of the head office as well as the branches
for all lines of business subject to VAT shall be filed by the taxpayer, for every
return period, with the BIR office where said taxpayer is required to be
registered.

Submission of Quarterly Summary List of Sales and Purchases

Persons Required to Submit
Summary Lists of
Sales/Purchases
When to File the Summary
Lists of Sales/Purchases
Where to File the Summary
Lists of Sales/Purchases
Submission of summary lists of
sales or purchases
Persons Required to Submit Summary Lists of Sales. — All persons liable for VAT
such as manufacturers, wholesalers, service-providers, among others, with
quarterly total sales/receipts (net of VAT) exceeding Two Million Five Hundred
Thousand Pesos (P2,500,000.00).
Persons Required to Submit Summary Lists of Purchases. — All persons liable
for VAT such as manufacturers, service-providers, among others, with
quarterly total purchases (net of VAT) exceeding One Million Pesos (P
1,000,000.00).
on or before the twenty-fifth (25th) day of the month following the close of
the taxable quarter (VAT quarter)-calendar quarter or fiscal quarter
The quarterly summary list of sales or purchases, whichever is applicable, shall
be submitted in diskette form to the RDO or LTDO or LTAD having jurisdiction
over the taxpayer
For taxpayers authorized to use computerized accounting system, the above
list shall be submitted through Compact-Disk Recordable (CDR) medium

Suspension of business operations

the Commissioner of Internal Revenue or his duly authorized representative may order suspension or closure
of a business establishment for a period of not less than five (5) days for any of the following violations:
(1) Failure to issue receipts and invoices.
(2) Failure to file VAT return as required under the provisions of Sec. 114 of the Tax Code.
(3) Understatement of taxable sales or receipts by 30% or more of his correct taxable sales or receipt for the
taxable quarter.
(4) Failure of any person to register as required under the provisions of Sec. 236 of the Tax Code.

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Mandatory Registration under VAT System

Persons required to
mandatorily register
Any person who, in the course of trade or business, sells, barters or exchanges
goods or properties or engages in the sale or exchange of services shall be
liable to register if:
i. His gross sales or receipts for the past twelve (12) months, other than those
that are exempt under Sec. 109 (A) to (BB) have exceeded Three million pesos
(P3,000,000.00); or
ii. There are reasonable grounds to believe that his gross sales or receipts for
the next twelve (12) months, other than those that are exempt under Sec. 109
(A) to (BB, will exceed Three million pesos (P3,000,000.00)

Optional Registration of VAT-Exempt Persons

Persons allowed optional
VAT registration
a. Any person who is VAT exempt under Section 109 (aa) not required to
register for VAT may elect to be VAT-registered by registering with the
RDO that has jurisdiction over the head office of that person, and pay
the annual registration fee of P500 for every separate and distinct
establishment or place of business, including facility types where sales
transactions occur, shall be paid upon registration and every year
thereafter on or before the last day of January
Cooperatives, individuals earning purely compensation income,
whether locally or abroad, and overseas workers are not liable to the
registration fee herein imposed
b. Any person who elects to register optionally shall not be entitled to
cancel his registration for the next three (3) years
c. Any person who elected to pay 8% tax on gross sales or receipts shall
not be allowed to avail of this option
d. For purposes of VAT, any person who has registered VAT as a tax type
shall be referred to as a VAT-registered person who shall be assigned
only one TIN

Attachments
Monthly VAT Declarations
BIR Form 2550M - Monthly Value-Added Tax Declaration (February 2007 ENCS)
Documentary Requirements
1. Duly issued Certificate of Creditable VAT Withheld at Source (BIR Form No. 2307), if applicable
2. Summary Alphalist of Withholding Agents of Income Payments Subjected to Withholding Tax at
Source (SAWT), if applicable
3. Duly approved Tax Debit Memo, if applicable
4. Duly approved Tax Credit Certificate, if applicable
5. Authorization letter, if return is filed by authorized representative.
Quarterly Value-Added Tax Return
BIR Form No. 2550Q - Quarterly Value-Added Tax Return (February 2007 ENCS)
Documentary Requirements
1. Duly issued Certificate of Creditable VAT Withheld at Source (BIR Form 2307), if applicable

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2. Summary Alphalist of Withholding Agents of Income Payments Subjected to Withholding Tax at

Source (SAWT), if applicable
3. Duly approved Tax Debit Memo, if applicable
4. Duly approved Tax Credit Certificate, if applicable
5. Previously filed return and proof of payment, for amended return
6. Authorization letter, if return is filed by authorized representative

Summary of the Lesson:

The lesson classified the transactions that are subject and exempt to VAT. It also defined
what are input and output taxes and how to compute the VAT payable of a taxpayer. the
lesson also highlighted the filing of VAT returns of a taxpayer and the compliance
requirements as well as the attachments needed. The lesson also focused on illustrating
problems relating to value added tax.

References:
TAMAYO, LIM, CAIGA, MANUEL (2019). VAT-subject Transactions. Taxation. The Review School
of Accountancy
TAMAYO, LIM, CAIGA, MANUEL (2019). VAT-exempt Transactions. Taxation. The Review
School of Accountancy
TAMAYO, LIM, CAIGA, MANUEL (2019). Input Taxes. Taxation. The Review School of
Accountancy
TAMAYO, LIM, CAIGA, MANUEL (2019). Compliance Requirements. Taxation. The Review
School of Accountancy
TABAG, E.D. (2020). Value Added Tax. CPA Reviewer in Taxation with Special Topics and
Properly Filled BIR Forms. EDT Bookshop

Learning Module on BTAX302