Tax 43 (Business & Income Taxation)
Vat Payable
The corresponding liability on value added
tax is generally computed as follows:
Output VAT (Gross Sales or Gross Receipts x 12%)
Less: Input VAT (Gross Purchases or Payments x 12%) xxx
VAT Payable/(Excess input VAT)
SOURCES of output VAT. Output VAT may
come from:
1. Actual sales
2. Transaction deemed sales
3. Zero (0%) rated sales
1. ACTUAL SALES (cash or on account)
Sales where there are actual exchanges
between buyer(s) and a seller(s) in the
ordinary course of trade or
business.
BASIS of the 12% output VAT:
● Sale of goods – gross selling price
● Sale of services – gross receipts
● Sale by a dealer in securities –
gross income
● Sale of real properties – the
highest amount among selling
price, fair value provided by the
city/provincial assessor, and the
zonal value provided by the
Commissioner of Internal Revenue.
CASE A - Net of VAT approach
Panatag Corporation, a VAT-registered
domestic corporation, reported gross sales
P xxx
of P5,000,000 for the 3rd quarter of 2021.
P xxx Determine the correct output VAT for the
quarter.
Answer:
Output VAT = Gross Sales x 12%
= 5,000,000 x 12% = 600,000
CASE B - Gross of VAT approach
Panatag Corporation a VAT-registered
domestic corporation, reported gross sales
of P7,840,000 inclusive of VAT for the 3rd
quarter of 2021. Determine the correct
output Vat for the quarter.
Answer:
Output VAT = Gross Sales x 12/112
=5,000,000 x 12/112 = 840,000
NOTE: In actual situation, all sales are
presumed to be INCLUSIVE of VAT
unless specified.
2. TRANSACTION DEEMED SALES
Under section 106(B) of the Tax Code,
certain transactions which are NOT
actually sales because of the absence of
actual exchange between the buyer and
seller, are considered or included in the
term ‘sale” for valued added tax purposes.
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Tax 43 (Business & Income Taxation)
Vat Payable
In a transaction deemed sale, the input VAT
was already used by the seller as a credit
against the output VAT. However, since
there was no actual sale, no output Vat is
actually charged to customers.
Consequently, the State will be deprived of
its right to collect the output VAT. To avoid
a situation where a VAT-registered
taxpayer avail of input VAT credit without
being liable for the corresponding output
VAT, certain transactions should be
considered sales even in the absence of
actual sales.
THE FOLLOWING TRANSACTIONS ARE
CONSIDERED DEEMED SALE
a. Transfer, use or consumption NOT in the
ordinary course of business of goods or
properties ordinarily intended for sale or
use in the course of business. The basis in
computing the applicable VAT shall be the
fair market value of the goods consumed.
b. Distribution or transfer to:
● Shareholders or investors as share
in the profits of a VAT-registered
persons; and
● Distribution or transfer to creditors
in payment of debt or obligation
Basis: Market Value
c. Consignments of goods if actual sale is
not made within sixty (60) days following
the date such goods were consigned.
Goods returned within the 60-day period
are NOT deemed sold.
d. Retirement from or cessation of status
as VAT-registered person with respect to
all “goods on hand” (as of the date of
retirement or cessation), whether or not
the business is continued by the new
owner or successor. Goods on hand refer
to capital goods, stock in trade and
supplies and materials (Basis should be the
acquisition cost or market value whichever
is lower)
RR 16-2005 as amended by RR 4-2007
provides that the VAT provided in (d) shall
apply to goods or properties originally
intended for sale or use in business, and
capital goods which are existing as of the
occurrence of the following:
1. Change of business activity from VAT
taxable status to VAT-exempt status. An
example is a VAT-registered persons
engaged in a taxable activity
(wholesaler/retailer) who decides to
discontinue such activity and engages
instead in any other business not subject
to VAT.
2. Approval of a request for cancellation of
registration due to reversion to exempt
status.
3. Approval of a request for cancellation of
registration due to a desire to revert to
exempt status after the lapse of three (3)
consecutive years from the time of
registration by a persons who voluntarily
registered despite being exempt under
(sec. 109 (2) of the Tax Code.
4. Approval of a request for cancellation of
registration of one who commenced
business with the expectation of gross
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Tax 43 (Business & Income Taxation)
Vat Payable
sales or receipts exceeding P3,000,000, as
amended, but who failed to exceed this
amount during the first twelve months of
operation.
VAT (TRANSACTION DEEMED SALE) SHALL
NOT BE IMPOSED ON GOODS OR
PROPERTIES EXISTING AS OF THE
OCCURRENCE OF THE FOLLOWING:
1. Change of control of a corporation by the
acquisition of the controlling interest of
such corporation by another stockholder
or group of stockholders. The goods or
properties used in business or those
comprising the stock-in-trade of the
corporation, having a change in corporate
control, will not be considered sold,
bartered or exchanged despite the change
in the ownership interest in the said
corporation
2. Change in the trade or corporate name
of the taxpayer
3. Merger or consolidation of corporations.
The unused input tax of the dissolved
corporation, as of the date of merger or
consolidation, shall be absorbed by the
new or surviving corporation.
3. ZERO RATED SALES (0% VAT) EXPORT
SALE BY A VAT-REGISTERED ENTITY
A “zero rated sale” of goods, properties
and/or services by a VAT-registered person
is a 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
existing regulations.
Purpose of Zero-Rating:
The zero rated seller become
internationally competitive by allowing the
refund or credit of input taxes that are
attributable to export sales.
Rationale for zero rating of export sales:
The Philippine VAT system adheres to the
“Cross Border Doctrine” (also known as
destination principle), according to which,
not VAT shall be imposed to form part of
the cost of the goods destined for
consumption outside of the territorial
border of the taxing authority.
FORMULA:
Gross sales (regardless of shipping arrangement) P xxx
x VAT rate 0%
OUTPUT VAT P0
Less: INPUT VAT xxx **
VAT PAYABLE/(REFUNDABLE) P (xxx) ***
The INPUT VAT attributable to zero rated
(0%) sale may be:
a. Refunded; or
b. Claimed ad deduction/tax credit against
output VAT on domestic sales; or
c. Claimed as tax credit (TCC) against any
other internal revenue taxes.
*** Refund of Input VAT on zero rated (0%)
sale
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Tax 43 (Business & Income Taxation)
Vat Payable
A VAT-registered person whose sales of
goods, properties or services are
zero-rated or effectively zero-rated may
apply for the issuance of a tax refund of
input VAT attributable on such sales. The
input VAT that may be subject of the claim
shall exclude the portion of the input VAT
that has been applied against the output
VAT. The application should be filed within
two (2) years after the close of the taxable
quarter when such sales were made.
In case of zero-rated sales under Secs.
106(A)(2)(a)(1) and (3), Secs. 108(B)(1) and
2 of the Tax Code, the payments for the
sales must have been make in acceptable
foreign currency duly accounted for in
accordance with BSP rules and regulations.
Where the taxpayer is engaged in both
zero-rated or effectively zero-rated sales
and in taxable (including sales subject to
final withholding VAT) or exempt sales of
goods, properties or services, and the
amount of creditable input VAT due or paid
cannot be directly or entirely attributed to
any one of the transactions, only the
proportionate share of input VAT allocated
to zero-rated or effectively zero rated
sales can be claimed for refund or issuance
of a tax credit certificate.
In case of person engaged in the transport
of passenger and cargo by air or sea
vessels from the Philippines to a foreign
country, the input VAT shall be allocated
ratably between his zero rated sales and
non-zero rated sales (sales subject to
regular rate, subject to final VAT
withholding, and VAT exempt sales).
EXPORT SALE BY A NON-VAT
REGISTERED ENTITY
Export sale by a Non-VAT registered entity
is a VAT-exempt transaction. Under Section
109 of the Tax Code, a VAT exempt sale
refers to sale of goods, properties or
services or the use or lease of properties
that is not subject to VAT (output tax) and
the seller/supplier is not allowed any tax
credit of VAT (input tax) on purchases
related to such exempt transaction.
Gross Sales P xxx
x VAT rate N/A VAT exempt
OUTPUT TAX P0
Less: INPUT TAX N/A Not Allowed
VAT PAYABLE -
The VAT paid by Non-VAT registered
purchasers of goods or services shall be
treated by the purchasers either as part of
its operation expenses or cost.
ZERO RATED SALE/EXPORT SALE OF
GOODS
The following sales by VAT-registered
persons shall be subject to 0% VAT under
Section 106 (A)(2)(a) of the Tax Code, as
amended by RA 10963, otherwise known as
the TRAIN Law.
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Tax 43 (Business & Income Taxation)
Vat Payable
1. 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 of the Bangko Sentral ng
Pilipinas.
2. Sale and delivery of goods to:
i. Registered enterprises with a separate
custom territory as provided\under special
laws; and
ii. Registered enterprises within tourism
enterprise zones as declared by the
Tourism Infrastructure and Enterprise Zone
Authority (TIEZA)subject to the provisions
under RA 9593 or the Tourism Act of
2009.
3. **** Sale of raw materials or packaging
materials to a non-resident buyerfor
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, paid
for in acceptable currency, and accounted
for in accordance with the rules and
regulations of the BSP;
4. **** Sales to Export-Oriented
enterprises which the code considers as
export sales at the level of the supplier of
raw materials. The sale is considered zero
rated only if the sale of raw materials or
packaging materials is made to an export
oriented-enterprise whose export sales
exceed seventy percent (70%) of actual
annual production;
5. **** Export Sales under Executive
Order No. 226, otherwise known as the
Omnibus Investment Code of 1987 and
other special laws;
6. Sale of goods, supplies, equipment and
fuel to persons engaged in international
shipping or international air transport
operations.
NOTE: ITEMS 3, 4 and 5 are NOW
subject to 12% VAT since it was omitted
in the revised list of zero rated (0%) sale
of goods enumerated in Section 3 of RR
9-2021. The sale of goods to PEZA
registered entities is still subject to 0%
VAT.
RR 9-2021 emphasized that EFFECTIVE
JULY 21, 2021, the revised list of zero rated
(0%) SALE OF SERVICES FOR VAT purposes
shall be as follows:
1. Services other than those mentioned in
the preceding paragraph, rendered to a
person engaged in business conducted
outside the Philippines or to a non resident
persons 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.
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Tax 43 (Business & Income Taxation)
Vat Payable

2. Services rendered to persons or entities

whose exemption under special laws or
international agreements to which the
Philippine is a signatory effectively
subjects the supply of such services to
zero percent (0%) rate;
3. Services rendered to persons engaged in
international shipping or international air
transport operations, including leases of
property for use thereof: Provided, that
these services shall be exclusive for
international shipping or air transport
operations;
4. Transport of passengers and cargo by
domestic air or sea vessels from the
Philippines to a foreign country;
5. Sale of power or fuel generated through
renewable sources of energy such as, but
not limited to, biomass, solar, wind,
hydropower, geothermal, ocean energy,
and other emerging energy sources using
technologies such as fuel cells and
hydrogen fuels.

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