NATURE & CONCEPT: VALUE ADDED TAX
persons or entities who sell or lease goods,
The Tax Reform for Acceleration and Inclusion Act,
officially cited as Republic Act No. 10963:
o The TRAIN Act is the initial package of the
Comprehensive Tax Reform Program (CTRP)
signed into law by President Rodrigo Duterte
on December 19, 2017.
o The TRAIN Act is the first of four packages of
tax reforms to the National Internal Revenue
Code of 1997, or the Tax Code, as amended.
o This package introduced changes in personal
income tax (PIT), estate tax, donor's tax,
value added tax (VAT), documentary stamp
tax (DST) and the excise tax of tobacco
products, petroleum products, mineral
products, automobiles, sweetened beverages,
and cosmetic procedures.
Business tax is a tax imposed on the onerous transfer
of product, property, and service.
Onerous transfer means there is a monetary
consideration involved in transfer of goods or
services between the owner and the buyer.
Transfer of Goods or Services
O nerous T ransfer S ubject to Gratuitous Transfer
Business Taxes S ubject to T ransfer T axes
1.V alue— added T axes 1. Estate Taxes
2.Percentage Taxes 2. Donor's Taxes
3.Excise Taxes
TYPES OF BUSINESS TAXES
Value-Added Taxes –
 It is a business tax imposed and collected
from the seller in the course of trade or
business on every sale of properties (real or
personal) lease of goods or properties (real
or personal) or vendors of services.
 It is an indirect tax; thus, it can be passed on
to the buyer.
Value-Added Tax is imposed on the following:
o Sale of goods or properties in the ordinary
course of business.
o Sale of services and use or lease of properties
in the ordinary course of business.
o Importation of goods or properties whether
or not in the course of business or trade.
Percentage Taxes - It is a business tax imposed on
properties or services in the course of trade or
business whose gross annual sales or receipts do not
exceed the amount of three million pesos
(P3,000,000) and are not VAT-registered.
Excise Taxes - a tax imposed on goods manufactured
or produced in the Philippines for domestic sale or
consumption or any other disposition. It is also
imposed on things that are import.
Note:
Value-added tax and Excise tax may be imposed
simultaneously on the manufacture and importation
of products.
Value-added tax and Percentage tax cannot be
imposed at the same time. It is either that the sale is
subject to Vat, or subject to percentage tax, or not
subject to any of the two taxes at all.
WHAT IS VALUE-ADDED TAX?
It is a form of sales and indirect tax. It is a tax on
consumption levied on the sale, barter, exchange or
lease of goods or properties and services in the
Philippines and importation of goods into Philippines
It is a tax on the value added to the purchase price or
cost in the sale or lease of goods, property, or
services in the course of the trade or business and on
importation of goods into the Philippines.
It is imposed on the value added in each stage of
distribution
A sale is the transfer of ownership of property in
consideration of money received or to be received.
A barter or exchange is the transfer of ownership of
property in consideration of property received or to
be received.
“in the course of trade or business” means the regular
conduct or pursuit of a commercial or an economic
entity, including transactions incidental, thereto, by
any person engaged therein is a non-stock, non-profit
private organization or government entity.
COVERAGE OF THE VALUE ADDED TAX
 VAT on sale of goods or properties
 VAT on sale or exchange of services
 VAT on transactions deemed sales
 VAT on importation of goods
 THE PERSONS REQUIRED TO FILE VAT RETURNS:
THE TAXPAYER
o Any person or entity who, in the course of his
trade or business, sells, barters, exchanges, leases
goods or properties and renders services subject
to VAT, if the aggregate amount of actual gross
sales or receipts exceed Three Million Pesos
(Php3,000,000)
o A person required to register as VAT taxpayer but
failed to register.
o Any person, whether or not made in the course of
his trade or business, who imports goods.
VAT ON SALE OF GOODS OR PROPERTIES
Goods or properties shall mean all tangible and
intangible objects, which are capable of pecuniary
estimation and shall include, among others:
o Real properties held primarily for sale to
customers or held for lease in the ordinary
course of trade or business;
o The right or the privilege to use patent,
copyright, design or model, plan, secret
formula or process, goodwill, trademark,
trade brand or other like property or right;
o The right or privilege to use in the Philippines
of any industrial, commercial or scientific
equip;
o The right or the privilege to use motion
picture films, films, tapes and discs; and
o Radio, television, satellite transmission and
cable television time
RATE AND BASE OF TAX
There shall be levied, assessed and collected on every
sale, barter or exchange of goods or properties, value-
added tax equivalent to twelve percent (12%) of the
gross selling price or gross value in money of the
goods or properties sold, bartered or exchanged, such
tax to be paid by the seller or transferor.
GROSS SELLING PRICE
 It is the total amount of money or its
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 VAT
 The excise tax, if any, on such goods or
properties shall form part of gross selling
price.
 gross selling price includes everything that
the buyer pays the seller, except the value
added tax shifted to the buyer.
 Gross selling price shall mean the
consideration stated in the sales document
OR the fair market value, whichever is higher
(RR4-2007: Section 4, 106-4, RR 16-2005).
SALES RETURNS, ALLOWANCES & SALES DISCOUNT
The value of goods or properties sold and
subsequently returned or for which allowances were
granted by a VAT- registered person may be
deducted from the gross sales or receipts for the
quarter in which a refund is made or a credit
memorandum or refund is issued.
Sales discount granted and indicated in the invoice at
the time of sale and the grant of which does not
depend upon the happening of a future event may be
excluded from the gross sales within the same
quarter it was given.
Sales returns and allowances may be deducted from
gross sales for the month or quarter in which refund
is made or a credit memo was issued.
COMPUTATION OF VAT ON SALE OF GOODS
o VAT EXCLUSIVE METHOD FORMULA:
Gross Sales/Gross Sales Receipt (excluding VAT) x
12% = VAT (e.g., Gross Sales of a restaurant in a day)
o VAT INCLUSIVE METHOD FORMULA:
Invoice Price/Invoice Receipts (including VAT) x
(12/112) = VAT (e.g., ditto)
ILLUSTRATIVE PROBLEMS
1) A business purchased goods for P500,000 and sold
the same for P800,000. The business paid VAT on the
purchase of the goods.
The business is VAT Registered business and is
subject to 12% VAT.
The VAT due or payable is computed as follows:
OUTPUT VAT (12% OF SALES-P800,000) P96,000
INPUT VAT (12% OF PURCHASES-P500,000) 60,000 VAT
DUE P36,000
Note:
• The VAT rate imposed upon sales is called
OUTPUT VAT.
• This is reduced by the VAT paid by the business
on its purchases which is called INPUT VAT.
• The excess of the OUTPTUT VAT over the INPUT
VAT is the Vat due or payable.
2) A VAT registered business made the following
transactions during the month:
 Purchased goods for P2,240,000 inclusive of
P240,000 VAT.
 Sold these goods to clients for P 3,000,000,
exclusive of VAT
Accounting Entries:
Purchases P2,000,000
Input Tax 240,000
Cash/ Accounts Payable
Cash/Accounts Receivable P3,360,000
Sales
Output Tax
Output Tax
Input Tax
P 360,000
VAT Payable
SALE OR EXCHANGE OF SERVICES
It is the performance of all kinds of services in the
Philippines for others for a fee, remuneration or
consideration, whether in kind or in cash, including
those performed or rendered by the following:
1. Construction and service contractors;
2. Stock, real estate, commercial, customs and
immigration brokers;
3. Lessors of property, whether personal or real;
4. Persons engaged in warehousing services;
5. Lessors or distributors of cinematographic
films;
6. Persons engaged in milling, processing,
manufacturing or repacking goods for others;
7. Proprietors, operators or keepers of hotels,
motels, rest houses, pension houses, inns,
resorts, theatres, and movie houses;
8. Proprietors or operators of restaurants,
refreshment parlors, cafes, and other eating
places, including clubs and caterers;
9. Dealers in securities;
10. Lending investors;
11. Transportation contractors on their transport of
goods or cargoes, including persons who
transport goods or cargoes for hire and other
domestic common carriers by land relative to
their transport of goods or cargoes;
12. Common carriers by air and sea relative to their
transport of passengers, goods or cargoes from
one place in the Philippines to another place in
the Philippines;
13. Sale of electricity by generating, transmission by
any entity including the National Grid
Corporation of the Philippines (NGCP), and
distribution companies including electric
cooperatives shall be subject to twelve percent
(12%) VAT on their gross receipts.;
14. Franchise grantees of electric utilities,
telephone and telegraph, radio and/or
television broadcasting and all other franchise
grantees, except franchise grantees of radio
and/or television broadcasting whose annual
gross receipts of the preceding year do not
exceed Ten Million Pesos (P10,000,000.00), and
franchise grantees of gas and water utilities;
P2,240,000
15. Non-life insurance companies (except their crop
insurances), including surety, fidelity,
P3,000,000
360,000 indemnity and bonding companies; and
240,000
16. Similar services regardless of whether or not
120,000 the performance thereof calls for the exercise of
use of the physical or mental faculties.
Sale or Exchange of Services shall likewise include:
1. The lease of use of or the right or privilege to
use any copyright, patent, design or model, plan,
secret formula or process, goodwill, trademark,
trade brand or other like property or right;
2. The lease or the use of, or the right to use of any
industrial, commercial or scientific equipment;
3. The supply of scientific, technical, industrial or
commercial knowledge or information;
4. The supply of any assistance that is ancillary
and subsidiary to and is furnished as a means of
enabling the application or enjoyment of any
such property, or right or any such knowledge
or information;
5. The supply of services by a nonresident person
or his employee in connection with the use of
property or rights belonging to, or the
installation or operation of any brand,
machinery or other apparatus purchased from
such non-resident person;
6. The supply of technical advice, assistance or
services rendered in connection with technical
management or administration of any scientific,
 industrial or commercial undertaking, venture,
project or scheme;
7. The lease of motion picture films, films, tapes
and discs; and
8. The lease or the use of or the right to use radio,
television, satellite transmission and cable
television time.
TRANSACTIONS DEEMED SALES
(1) 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 personal use;
(2) Distribution or transfer to:
a) Shareholders or investors as share in the
profits of the VAT-registered persons; or
b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is not made
within sixty (60) days following the date such goods
were consigned; and
(4) Retirement from or cessation of business, with
respect to inventories of taxable goods existing as of
such retirement or cessation, whether or not the
business is continued by the new owner or successor.
The ff circumstances are 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
o Dissolution of a partnership and creation of a new
partnership which takes over the business.
Illustration:
 Mr. A sells household furniture. He removes from
his store a dining set for use in his residential
house. This is deemed a sale.
 B Corp. declared & paid property dividend out of
its merchandise inventory. This is deemed a sale.
 Mr. C is indebted to Mr. D for raw materials
purchased. When Mr. C could not pay in money,
Mr. D agreed to receive the finished goods of Mr.
C in payment for his debt. This is deemed a sale.
 E Company, a manufacturer, made sales to Mr. F
on consignment, with title to the goods to pass
only upon actual sale of the consigned goods to a
buyer. The goods are still in the shelves of Mr. F.
The consignment of the goods to Mr. F although
title to the goods has not yet passed, shall be
subject to the value added tax after sixty days
from the date of consignment. (Provision of law)
 G & H was a partnership in trade. G & H was
dissolved and IJ Corp. was formed to continue the
business. At the time the partnership was
dissolved, the books of accounts showed a
merchandise inventory of P100,000, which was
also the physical inventory (actual count). The
inventory shall be deemed sold to IJ Corp. and
shall be subject to the value added tax.
EXPORT SALES
(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 of Bangko Sentral ng Pilipinas;
(2) Sale and delivery of goods to:
i. Registered enterprises within a separate customs
territory as provided under special laws; and
ii. Registered enterprises within tourism
enterprises zones as declared by the Tourism
Infrastructure and Enterprise Zone Authority
(TIEZA) subject to the provisions 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 BSP;
(4) Sale of raw materials or packaging materials to
export-oriented enterprise whose export sales
exceed seventy percent (70%) of total annual
production;
(5) Those considered export sales under Executive
Order NO. 226, otherwise known as the “Omnibus
Investment Code of 1987”, and other special laws;
Provided, that subparagraphs (3), (4), and (5) hereof
shall be subject to the twelve percent (12%) value-
added tax and no longer be considered export sales
subject to zero percent (0%) VAT rate upon
satisfaction of the following conditions:
(1) The successful establishment and
implementation of an enhanced VAT refund
system that grants refunds of creditable input
tax within ninety (90) days from the filing of the
VAT refund application with the Bureau:
Provided, That, to determine the effectivity of
item no. 1, all applications filed from January 1,
2018 shall be processed and must be decided
within ninety (90) days from the filing of the
VAT refund application; and
(2) All pending VAT refund claims as of Dec 21,
2017 shall be fully paid in cash by Dec 31, 2019.
(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
SALE OF REAL PROPERTIES
TRAIN imposed the following on VAT exemption
provisions regarding real estate transactions:
a) Real properties not primarily held for sale to
customers or for lease in the ordinary course of
trade or business, and properties utilized for
socialized housing shall be exempted from VAT.
b) Previously at Php1,919,500, TRAIN lowered the
VAT exemption of residential lots to
Php1,500,000. This means residential lots that
were previously tax exempt (worth 1,500,001
to 1,919,500) are now subject to VAT.
c) TRAIN also lowered the VAT exemption of
residential dwellings (house and lots,
condominiums) from 3,199,200 to 2,500,000.
This means houses and condos that were
previously tax exempt (worth Php2,500,001 to
Php3,199,200) are now subject to VAT. Further,
effective January 1, 2021, the exemption shall be
lowered again from Php2,500,000 to
Php2,000,000, and every three years thereafter,
the amount stated shall be adjusted to its
present value using the Consumer Price Index
(CPI) as published by the Philippine Statistics
Authority (PSA).
d) Lease of residential unit with a monthly rental
not exceeding P15,000 shall be exempted.
The basis of VAT on taxable sale of real property is
gross selling price, which is either selling price stated
in the sale document or the fair market value
whichever is higher.
The term fair market value shall mean whichever is
higher of -
a. The fair market value as determined by the
Commissioner, (zonal value) or
b. The fair market value as shown in the schedule of
values fixed by the provincial and city assessors.
However, in the absence of zonal value/fair market
value as determined by the Commissioner, gross
selling price refers to the market value shown in the
latest real property tax declaration or the
consideration, whichever is higher. (RR4- 2007)
If the VAT is not billed separately, the selling price
stated in the sales documents shall be deemed to be
inclusive of VAT.
If the gross selling price is based on the zonal value or
market value of the property, the zonal value or
market value shall deemed exclusive of VAT.
On sale of goods and properties - twelve percent
(12%) of the gross selling price or gross value in
money of the goods or properties sold, bartered or
exchanged.
On sale of services and use or lease of properties -
twelve percent (12%) of gross receipts derived from
the sale or exchange of services, including the use or
lease of properties.
On importation of goods - twelve percent (12%)
based on the total value used by the Bureau of
Customs in determining tariff and customs duties,
plus customs duties, excise taxes, if any, and other
charges, such as 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 quantity or volume of the
goods, the VAT shall be based on the landed cost plus
excise taxes, if any.
On export sales and other zero-rated sales - 0%
VAT ON SALE OF SERVICES
 Sale of Services:
Cash received(actually and constructively)
Deposits/advance payments for future project
Materials charged for services
Gross receipts
Multiply by Vat rate
Output Vat
Less: Input Vat
Vat payable/(Excess input Taxes)
CATEGORIES OF SERVICES
Section 108 (A) of the NIRC defined and categorized
“sales or exchange of services” as the performance of
all kinds of services in the Philippines for a fee,
remuneration, or consideration including those:
o Professional/ Technical Services
o Transfer of Technology
o Lease or Use of Intangible Property
o Lease or Use of Tangible Property
VAT ON PROFESSIONAL FEES
As a rule, earnings from a practice of profession
(including services rendered by doctors of medicine
and lawyers) will be subject to a 12% VAT if:
 The professional is a VAT-registered person
 Not VAT-registered but his total gross
receipts exceed ₱3,000,000 per year.
SERVICE CONTRACTORS
In general, the gross receipts of service contractors
are subject to 12% VAT
The transactions entered by a service contractor,
subject to value added tax with the government is
subject to a final withholding value added tax of five
percent (5%) of the gross payment.
VAT ON SECURITY AGENCY FEES
The contract for security services entered by and
between the security agency and its client must
provide for a breakdown of the amount of security
services into two components:
 Agency fee
 Security guards’ salary
Note: only the agency fee is subject to 12% VAT if the
service contract stipulates the breakdown of the
amount of security services
REAL ESTATE BROKERS
 Real estate broker – a person selling property of
xxx others for a fee or commission income
xxx
xxx Rule: Income subject to VAT if
xxx
12%  Broker is VAT-registered or
xxx  Total commission earnings exceed 3,000,000
xxx during the taxable year
xxx
DEALERS IN SECURITIES
Rule: Subject to VAT based on their gross receipts.
The term “gross receipts” for dealers in securities
means gross selling price less cost of securities sold.
LENDING INVESTORS
It includes all persons other than banks, non- bank
financial intermediaries:
 not performing quasi-banking functions
 who make a practice of lending money for
themselves or for others for an interest
TRANSPORTATION SERVICES
Transport of goods and cargoes
 by land, air, and water by transportation
contractors as well as domestic common carriers
 Subject to 12% VAT
Transport of passengers
 by air and sea within the Philippines is subject to
12% VAT
 by land is subject to other percentage tax of 3%
Transport of passengers and cargoes
 by DOMESTIC air or sea vessels from the
Philippines to foreign country - 0%
FREIGHT FORWARDERS
Services may cover a cross boarder movement (from
the Philippines to foreign port or vice versa) or a
local movement (within the Philippines) of cargoes.
 TRAVEL AGENCIES
VAT is based on its gross receipts which will not
include the:
 cost of airline or ship tickets
 reimbursement of expenses for services
rendered by third party other than the travel
agency and paid to such party
However, if the margin exceeds 9% of the gross
selling price of the ticket to the passenger, the BIR
treats the transaction as a resale which is taxable on
the gross selling price.
HOTELS, RESTAURANTS AND CATERERS
Taxable base includes, among others, charges for:
 rooms, laundry, and valet services,
 food, and beverages consumption, corkage,
 handling charges for providing telephone,
telex, cable, or fax services,
 cake shop sales,
 lease to concessionaires,
 compensation, and other service fees.
Taxable base does not include:
 Service charges billed separately and actually
distributed to waiters and employees
 Actual cost of long distance and overseas
telephone calls, and other charges of the
telecommunication companies collected by
the establishment
 Local taxes
MEDIA ADVERTISING
Gross receipts subject to VAT on media transactions
would comprise the following:
 The amount of gross receipts representing
agency commissions received by an
advertising agency of the services it
performed as a broker for the media and the
advertiser, and
 The amount representing gross receipts
derived by the media from its advertising
services
LEASE OF COMMERCIAL AND RESIDENTIAL UNITS
Gross receipts are subject to 12% VAT. Subject to the
following rules:
 If monthly rental does not exceed P15,000
per unit per month - lessor shall be exempt
from VAT and other percentage tax (OPT)
 If monthly rental exceeds P15,000 per month
per unit but the aggregate annual rentals do
not exceed P3M - lessor is subject to 3% OPT
 If monthly rental exceeds P15,000 per month
per unit and the aggregate annual rentals
exceed P3M, lessor is subject to 12% VAT
FRANCHISE GRANTEES
Telecommunications - taxable base for VAT is the
gross receipts from their telephone, telegraph,
telewriter exchange, wireless and other
communication facilities services excluding amounts
earmarked as the foreign administration's share
relating to the services performed outside the Phil.
Radio and/or television broadcasting - gross receipts
of the preceding year exceeding Ten Million shall be
subject to 12% VAT, gross receipts of the preceding
year not exceeding P10M shall be subject to 3% OPT
Gas and water utilities shall be subject to 2%
franchise tax on their gross receipts derived from the
business covered by the law granting the franchise.
WORKS OF ART, LITERARY WORKS AND MUSICAL
COMPOSITIONS
Sale by the artist of his works of art, literary works,
musical compositions and similar creations, or his
services performed for the production of such works
are now subject to VAT
VAT ON IMPORTATION
Importations of goods into the Philippines are subject
to VAT, whether the importation is intended for
business or for personal use.
TAX BASE
Based on the total value used by the Bureau of
Customs in determining tariff and custom duty
(dutiable value), plus custom duties, excise taxes, if
any, and other charges prior to the removal of the
goods from customs custody, or;
Based on the landed cost plus excise tax, if any, and
other charges prior to the removal of the goods from
custom custody, if the custom duties are determined
on the basis of quantity or volume of the goods.
Landed cost includes invoice cost, freight, insurance The tax base is the amount on which the rate of value
and other charges. tax is applied
Other charges prior to removal of goods from custom TAX RATES
custody are:
 12% on domestic sales
-Insurance -Freight  0% on export sales (zero rated sales)
-Postage -Commission
-Interest -Bank charges
-Wharfage dues -Arrastre charges
-Stamps -Processing fee
-Custom brokerage fee -Custom duties
-Excise tax, if any

MANNER OF COMPUTING THE VAT

1. Output tax exceeds total input tax.
Output Tax P xxx
2. Sale of Services
Less: Input Tax (xxx)
Cash received (actually and constructively) P xxx
VAT Payable xxx Deposits/Advance payments for future
xxx
projects
2. Input tax total exceeds output tax. Materials charged for services xxx
Gross Receipts P xxx
Output Tax P xxx Multiply by the VAT rate 12%

Less: Input Tax* (xxx) Equals to OUTPUT TAX P xxx

Less: INPUT TAX xxx
VAT Payable (xxx) VAT Payable (Excess Input Tax) P xxx

*The unutilized input tax can be carried over to the

succeeding month/ quarter.
Gross receipts refer to the total amount of money or
its equivalent representing the contract price,
OUTPUT TAX - means the VAT due on the sale, lease compensation, service fee, rental or royalty, including
or exchange of taxable goods or properties or the amount charged for materials supplied with the
services by any person registered or required to services and deposits applied as payments for
register under Section 236 of the Tax Code. services rendered and advance payments actually or
constructively received during the taxable period for
INPUT TAX - means the VAT due on or paid by a VAT-
the services performed for another person, excluding
registered on importation of goods or local purchase
the VAT.
of goods, properties or services, including lease or
use of property in the course of his trade or business. Constructive receipt occurs when the money
It shall also include the transitional input tax consideration or its equivalent is placed at the
determined in accordance with Section 111 of the control of the person who rendered the service
Tax Code, presumptive input tax and deferred input without restrictions by the payor.
tax from previous period.
Examples:
BASIS OF VALUE ADDED TAX
1. Deposit in banks which are made available to the
NATURE OF TRANSACTION TAX BASE seller of services without restrictions.
1. Sale of Goods/Properties Gross Selling Price
2. Sale of Services Gross Receipts 2. Issuance by the debtor of a notice to offset any
3. Importation Total Landed Cost debt or obligation and acceptance thereof by the
4. Dealers in Securities Gross Income seller as payment for services rendered.
3. Transfer of the amounts retained by the payor to
the account of the contractor.
Advance Payment is an advance payment on behalf of
another if the same is paid to a third (3rd) party for a
present or future obligation of said another party
which obligation is evidenced by a sales
invoice/official receipt issued by the oblige/creditor
to the obligator/debtor for the sale of goods or
services by the former to the latter.
2. Dealers in Securities and Lending Investors
➔ Aggregate purchase price during the month is
more than one million
➢ Input tax shall be spread or allocated evenly
during the estimated useful life of the depreciable
asset but it shall not exceed 60 months. (Estimated
useful life is more than one year) (estimated useful
life or 60 months whichever is shorter)
➢ Allocation shall start in the month when the capital
goods were acquired.

Gross Selling Price P xxx ➢ If the capital goods were sold within the 5-year
Less: Acquisition cost of securities sold for the (60months) period or prior to exhaustion of input
xxx
month or quarter VAT, thereon, the entire input vat on the capital
Balance:
xxx goods can be claimed as input tax credit during the
month or quarter when the sale is made.
Add: Other income or incidental income xxx
Gross Income P xxx ➢ If the life of the capital good or depreciable asset is
Multiply by the VAT rate 12% not more than one (1) year or year twelve (12)
Equals to OUTPUT TAX P xxx months, the asset is not treated as capital good
Less: INPUT TAX xxx subject to depreciation. Hence allocation of input vat
VAT Payable P xxx is not applicable. The total amount of input vat shall
be claimed in the month of acquisition.
SOURCES OF INPUT VAT
➔ Aggregate purchase price during the month is less
1. LOCAL PURCHASES OF GOODS OR SERVICES such than one million
as purchase or acquisition of
➢ Input tax is not allocated. The total amount of
a. Goods for sale input vat shall be treated as tax credit against output
b. Goods for conversion into finish product vat in the month of acquisition
(including packaging materials)
c. Goods for use as supplies NOTE: Under the TRAIN Law
d. Goods for use as materials supplied in the 1. The rule on amortizing the input vat on capital
sale of services goods shall only be allowed until December 31, 2021.
e. Goods for use in trade or business for which Consequently, amortization of input vat on capital
depreciation or amortization is allowed goods purchased/imported shall no longer be
(capital goods) allowed beginning January 1, 2022.
f. Real properties for which Vat has actually
been paid 2. Taxpayers with unutilized input vat on December
g. Services for which Vat has actually been paid 31, 2021 shall be allowed to apply the same as
scheduled until fully utilized.
ACQUISITION OF CAPITAL GOODS
Month of Amount Input VAT U sefu l No. of Last month Amount of
P u rch ase life monthly of Monthly
Capital goods refer to goods or properties with a m ortizat a m ortizatio a m ortizatio n
ion n
estimated useful life of greater than 1 year and which January, P6,000,000 P720,000 6 years 60mos. Dec. 2023 P720,000/60 =
2019 (72 P12,000
are treated as depreciable assets under the tax code, mos.)
March, 3,000,000 360,000 3 years 36mos. March, P600,000/36 =
used directly or indirectly in the production or sale of 2019 2022 P10,000
outright
taxable goods or services. Under Revenue Regulation April, 800,000 96,000 2 years -0- claim on -0-
2019 April,
16-2005, input vat on the purchase of capital goods 2019
by a VAT registered person shall be allowed as a tax Dec.
2021
8,000,000 960,000 5 years 60mos. Nov., 2026 P960,000/60 =
P16,000
credit against output VAT based on the following Jan.,
2022 8,000,000 960,000 5 years -0-
outright
claim on -0-
rules: Jan., 2022
Notes: Under TRAIN Law 3. PRESUMPTIVE INPUT TAX OF 4% ON SALE OF
GOODS
 For purchase made on Jan., 2019 and March,
2019, refer to no. 1 on aggregate purchase price PRESUMPTIVE INPUT TAX CREDITS
during the month is more than one million.
Any person or firm engaged in the processing of
(Estimated useful life or 60 months whichever is
sardines, mackerel, and milk, and in manufacturing
shorter)
refined sugar and cooking oil and packed noodle-
 For purchases made on April, 2019, rule on
based instant meals shall be allowed a presumptive
aggregate purchase price during the month is less
input tax creditable against the output tax, equivalent
than one million applies.
to 4% of the gross value in money of their purchases
 For purchases made on Dec., 2021, refer to no. 2
of primary agricultural products which are used as
under the TRAIN Law.
inputs to his production.
 For purchases made on Dec., 2021, refer to no. 1
under the TRAIN Law. The term “processing” shall mean pasteurization,
canning and activities which through physical or
2. IMPORTATION
chemical process alter the exterior texture or form or
Dutiable value Pxxx OR Invoice Cost Pxxx inner substance of a product in such manner as to
Freight prepare it for special use to which it could not have
Insurance been put in its original form or condition.
Add: Legitimate expenses Add: Legitimate expenses
of importation prior to of importation prior to Entitled to Presumptive VAT:
removal from custom removal from custom
custody, such as: custody, such as:
 Persons or firms engaged in the processing of
Custom duty Pxxx Custom duty Pxxx
sardines, mackerel & milk
Processing fee xxx Processing fee xxx
Brokerage fee xxx Brokerage fee xxx
 Persons or firms engaged in the
Arrastre charges xxx Arrastre charges xxx manufacturing of refined sugar, cooking oil,
Wharfage due xxx Wharfage due xxx packed noodle based instant meals.
Interest, etc. xxx Interest, etc. xxx
4. TRANSITIONAL INPUT TAX CREDITS
Tax base Pxxx TOTAL LANDED COST Pxxx
Multiply by 12% Multiply by 12% Any person who becomes liable to value-added tax or
VAT on importation Pxxx VALUE ADDED TAX Pxxx who elects to be a VAT-registered person shall be
allowed, subject to the filing of an inventory as
➢ Every importation of goods is subject to the value prescribed by rules and regulations, on his/her
added tax, whether the importation is for sale or use beginning inventory of goods, materials and supplies,
in business, or for personal use. an input tax equivalent to 2% of the value of such
inventory or the actual value-added tax paid on such
➢ The imported goods shall be subject to VAT based goods, materials and supplies, whichever is higher,
on the ff: which shall be creditable against the output tax.
In general, based on the total value used by the 5. STANDARD INPUT VAT (on sales to government)
Bureau of Customs in determining tariff and customs
duty - (dutiable value) plus custom duties, excise Since the seller will effectively pay the 5% out of the
taxes, if any, and other legitimate charges, prior to 12% value added tax on sales to government,
removal of goods from the custom custody, or;
instrumentalities or agencies including GOCCs, the
When the custom duties are determined on the basis
7% (12% less 5%) effectively accounts for the
of the quantity or volume of the goods. the landed
cost should be used as a basis in computing vat which standard input VAT in lieu of actual input VAT. The
includes invoice cost, freight, insurance, custom difference between the actual input vat and the
duties, excise taxes, if any, and other legitimate
standard input vat is closed to costs or expenses of
charges, prior to removal of goods from the custom
custody. the seller.