COLLEGE OF ACCOUNTANCY

C-AE25 BUSINESS TAXATION

First Semester AY 2023-24

A. Course Code & Title : C-AE25 BUSINESS TAXATION

B. Module No. & Title : Module 5 – Introduction to Value Added Tax
C. Time Frame (Weeks/Hours) : 1 week (3 hours)

D. Overview

This module deals with Value Added Tax. It describes when the tax is applicable, the rates and
the procedures on how to compute VAT due/payable.

E. Desired Learning Outcomes

After studying this module, you should be able to:

a. Determine when businesses are subject to Value Added Tax;
b. Identify which transactions are considered exempt or zero-rated; and,
c. Determine how to compute VAT Due/Payable.

F. Values Integration
In studying this module, it is hoped that you will be able to develop and manifest the following UA Core
Value/s:

✓ Servant Leadership
✓ Integrity
✓ Excellence
✓ Service Orientation
✓ Teamwork
✓ Obedience
✓ Open Communication

G. Interaction/Collaboration
You will be engaging in activities that would make use of:

✓ Google Forms
✓ Group Chat
✓ Other tools _______________

H. Content/Discussion

VALUE ADDED TAX

Value added tax covers all VATable sales of goods, properties, services or lease of properties by VAT
taxpayers. This does not include exempt sales and those specifically subject to percentage tax (as
discussed in Module 4).

A VAT registrable person whose sales or receipts exceeds the VAT threshold is liable for value added
tax. The threshold is generally 3,000,000 pesos. For franchise grantees of radio or television, the
threshold is 10 million pesos.

Faculty: LIGAYA T. DAVID Page 1

 COLLEGE OF ACCOUNTANCY
C-AE25 BUSINESS TAXATION
First Semester AY 2023-24

Taxpayers below the VAT threshold can voluntarily register as VAT taxpayers. Such option is subject to
a 3 year lock in period when exercised.

Value Added Tax formula

Output VAT P xxxx

Less: Input VAT xxxx

VAT due/payable P xxxx

Less tax credits (if any) xxxx

VAT still due/payable P xxxx

Where:

Output VAT - is the VAT on the VATable sales or receipts, currently at 12%. (or 0% for zero-rated VAT)

Input VAT- paid by the taxpayer on domestic purchases from VAT suppliers or on the importation of
goods or services in the course of business. (Take note: in the course of business)

VAT due/payable - is the difference between the output VAT and the input VAT.

Example:

B Company, a VAT taxpayer made a 100,000 pesos sales, VAT exclusive. During the same period, the
company had 80,000 pesos of expenses, VAT inclusive.

The VAT due/payable is computed as follows:

Amount of sale P 100,0000

Rate of value added tax 12%

Output VAT 12,000

Note: Sale is VAT exclusive, this means the VAT is not yet included in the sale.

Amount of expenses 80,000

(Divide by 1+VAT rate) x VAT /1.12 x .12

rate

Input VAT 8,571

Faculty: LIGAYA T. DAVID Page 2

 COLLEGE OF ACCOUNTANCY
C-AE25 BUSINESS TAXATION
First Semester AY 2023-24

Note: Expenses were stated as VAT inclusive (meaning this includes VAT).

Output VAT P12,000

Input VAT 8,571

VAT Payable P 3,429

Sales subject to special VAT rules

a. Sales to the government

The amount of input VAT claimable is limited to 7% of the amount of sale to the government.

The remaining 5% is considered a final VAT due to the BIR which is withheld by the government
and/or GOCC.

The 7% claimable input VAT is also called the standard input VAT.

Take note that the 5% is final and therefore can no longer be changed. (like the case of final tax).

Any difference in the input VAT and standard input VAT is closed to expense/income.

Example:

A VAT registered person made a sale to the government for 448,000, VAT inclusive. such sale
was purchased for 300,000, VAT exclusive.

The VAT payable/ due is computed as follows:

Output VAT P 48,000

Standard input VAT at 7% 28,000

(48,000/12*7)

Final VAT due and withheld P 20,000

(48,000/12*5)

Standard input VAT P 28,000

Actual input VAT (300,000*.12) 36,000

Excess input VAT closed to expense P 8,000

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 COLLEGE OF ACCOUNTANCY
C-AE25 BUSINESS TAXATION
First Semester AY 2023-24

Note:

Under the TRAIN LAW, beginning January 1, 2021, the VAT withholding system under this subsection
shall shift from final to a creditable system:

b. Zero rated sales

In principle, foreign consumption like export sales are non-VATable. In our current tax laws,
they are subject to 0% VAT to VAT taxpayers. This means that the output VAT is zero but there
may be input VAT which may be claimed as tax credit or tax refund. Sales to economic zones
fall under this.

Example:
A VAT registered person made an export sale or 400,000. Such sale was purchased for 300,000,
VAT exclusive.

The VAT payable/ due is computed as follows:

Output VAT P 0

Input VAT (300,000*.12) 36,000

VAT due/payable P(36,000)

c. Exempt Sales

Exempt sales include:

1. Exempt sales of goods services or properties
2. Services specifically subject to percentage tax

Since these sales have no output VAT, the input VAT applicable to these sales are treated as part of
expenses.

1. Progress Check:

Answer the following:

Determine whether the following are exempt, subject to percentage tax or VATable
Seller of agricultural food products Exempt

Furniture shop Vatable

Vegetable trader Exempt

A private high school Exempt

A private hospital Exempt

A dentist Vatable

Hospital drugstore Vatable

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 COLLEGE OF ACCOUNTANCY
C-AE25 BUSINESS TAXATION
First Semester AY 2023-24

Non-profit elementary school Exempt

Government college Exempt

Restaurant Vatable

2. Evaluation:

Provide the answers on the following:

1. A VAT taxpayer had the following sales and purchases during the month

Sales VAT exclusive 300,000

purchases, including 14,000 VAT 280,000

a. how much is VAT payable if sale is VAT exempt

_______________________

b. how much is VAT payable if sale is made to the government

300000x12% = 36,000/12*7=21,000 standard VAT
Actual VAT 14,000
VAT Payable = 7,000
Final tax 36,000/12*5 =15,000

c. how much is VAT payable if sale is made to regular customer

_______________________

2. A VAT taxpayer is engaged in the following transactions:

exempt sale export sales regular sales

Output VAT 0 300,000

input VAT 12,000 36000 200,000

Required: How much is creditable input VAT? _________________

How much is input VAT treated as expense? _____________

How much is VAT payable? ____________________

3. A sale of 400,000 pesos to the government from good shepherd chase for 300,000 pesos from
VAT suppliers.

Required: How much is output VAT? ______________

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 COLLEGE OF ACCOUNTANCY
C-AE25 BUSINESS TAXATION
First Semester AY 2023-24

How much is input VAT?______________

How much is VAT due? _______________

4. A VAT taxpayer exported 1 million pesos worth of goods. It incurred 36,000 pesos input VAT
on the sale. How much is creditable input VAT? ___________________________

5. A VAT taxpayer received a 5% creditable withholding tax plus 48,150 cash from a VAT invoice.
Required: How much is output VAT? ____________________

I. References

TRAIN LAW

CREATE ACT

Aduana, N. L. (2016). Simplified and Procedural Handbook on Transfer and Business Taxation.

Ampongan, O. E. (2015). CPA Review in Taxation. Iriga City, Philippines: Ampongan, Omar Erasmo G.

Ampongan, O. E. (2016). Transfer, Business & local Taxation. Iriga City, Philippines: Ampongan, Omar Erasmo
G.

Ballada, W., & Ballada, S. (2015). Transfer and Business Taxation. Manila City, Philippines: Domdane.

Banggawan, R. B. (2019). Business and Transfer Taxation Laws Principles and Applications. Baguio City,
Philippines: Real Excellence Publishing.

De Leon, H. S., & De Leon, H. M. (2016). The Law on Transfer and Business Taxation (with Illustrations,
Problems, and Solutions). Manila City, Philippines: REX Book Store.

Duncano, D. A. (2017). Easy Guide to taxation for Entrepreneurs. Mandaluyong City: Anvil Publishing, Inc.

Duncano, D. A. (2016). National Internal Revenue Code of 1997 As Amended Updated with Annotations.
Mandaluyong City, Philippines: Anvil Publishing, Inc.

Reyes, V. D. (2013). Philippine Business and Transfer Taxes. Philippines: Philippine Business and Transfer
Taxes.

Reyes, V. D. (2015). Taxation: Law and Accounting for the CPA Reviewees and the Bar Reviewer.

Tabag, E. D., & Garcia, E. J. (2017). Transfer and Business Taxation. Quezon City, Philippines: MaxCor
Publishing House, Inc.

Valencia, E. G., & Roxas, G. F. (2013-2014). Transfer and Business Taxation Principles and Laws with Accounting
Principles. Baguio City, Philippines: Valencia Educational Supply.

Module prepared by : MR. ROCKY D. BAYAS

Faculty: LIGAYA T. DAVID Page 6

 COLLEGE OF ACCOUNTANCY
C-AE25 BUSINESS TAXATION
First Semester AY 2023-24

Reviewed/updated by : LIGAYA T. DAVID

Faculty: LIGAYA T. DAVID Page 7