Value-Added Tax on

Regular Sales
The Scope of VAT and Percentage Tax

Categories of Business Sales:

1. Exempt Sales
2. Sales of services specifically subject to percentage
taxes
3. Other sales
Scope of VAT and Percentage Tax
VAT Registered Non-VAT Registered
Business Business
Exempt sale of No tax No Tax
goods and services
Sales of services Percentage tax of Percentage tax or
specifically subject various rates various rates
to percentage tax
Vatable sales of 12% VAT 3% percentage tax
goods or services
The VAT Model

Output VAT xxx

Less: Input VAT xxx
Net VAT Payable xxx
Less: Tax credit or payments xxx
Tax still payable or (overpayment) xxx
OUTPUT VAT
Output VAT is the VAT passed-on by a VAT Taxpayer on
his sales to customers or clients.

Types of Output VAT

1. Regular Output VAT
2. Zero-percent Output VAT
OUTPUT VAT
Regular Output VAT – 12%
A. Sale of goods
B. Sale of services
C. Sale of properties
D. Transactions deemed sale
Illustration – Sale of Goods
In June 2015, Freedom Co. made the following sales:
 Cash sales, P300,000
 Sales on account (P50,000 collected), P150,000
 Installment sales (P120,000 collected), P300,000

Compute for the output VAT

Unreasonably lower selling price
 The VAT on the sale of goods is normally based on
the gross selling price. However, the VAT is based on
the fair value of the goods if the gross selling price is
unreasonably lower.
 The gross selling price is unreasonably lower than the
market value if it is lower by more than 30% of the
actual market value of the goods sold.
 Nonetheless, if one of the parties is the government,
the output VAT shall be based on the actual selling
price. (Sec. 7, RR4-2007)
Illustration – Sale of Goods
A VAT seller made the following sales of goods during a
month:
Customer Selling Price Fair Value
A P 200,000 P 180,000
B 210,000 230,000
C 150,000 250,000
Government 120,000 200,000
Compute for output VAT
Illustration – Sale of Services
A VAT registered repairman, a services provider, had the
following revenue and collection during the month:

Client Revenue Collection Balance

A 300,000 280,000 20,000
B - 200,000 -
C 150,000 150,000 -
Compute the output VAT
Illustration – Sale of Goods/Services
Mcdonalds, a VAT taxpayer, recorded the following
receipts during the month:
 Receipts from senior citizens, before 20% discount,
P250,000
 Receipts from PWD, before 20% discount, P60,000
 Receipts from regular customers, P412,000

Compute the output VAT

OUTPUT VAT
Regular Output VAT – 12%
A. Sale of goods
B. Sale of services
C. Sale of properties
D. Transactions deemed sale
Sale of Properties
Types of Sales of Properties Taxability
Sale by a dealer, developer or VATABLE
lessor of real properties
Sale of real properties VATABLE
considered ordinary assets
Sale of properties not in the EXEMPT
course of business
Sale of properties by a dealer
 The sale, including pre-selling, barter or exchange of
real properties by a realty dealer is subject to VAT on
the gross selling price.
 Gross selling price is the higher between the selling
price and the fair market value.
 The fair market value of a property according to the
NIRC, is the higher between zonal value and assessed
value.
Sale of properties by a dealer
 If the gross selling price is based on the zonal value,
or assessed value of the property, the zonal value or
assessed value shall be presumed exclusive of VAT.
 If the fair market value is higher than the selling
price, the output VAT must be separately billed with
specific mention that the VAT billed separately is
based on the market value of the property.
Illustration - Sale of properties by a dealer
Mr. Benta, a real property dealer, sold a commercial lot
in June 2018. The following relates to the sale:
 Appraisal value, P3,500,000
 Zonal value, P3,000,000
 Assessed value, P1,500,000
 Selling price, P1,800,000

Compute the output VAT

Illustration - Sale of properties by a dealer
Alaya Realty Corporation, a VAT-registered realty dealer,
sold the following residential properties during the
month:
Property Zonal Value Assessed Selling Price
Value
Residential P1,300,000 P 1,200,000 P1,400,000
Lot
Residential 2,000,000 1,700,000 2,500,000
dwelling

Compute the output VAT

Installment reporting of Output VAT
 The output VAT on the sale of real properties by
realty dealers shall be reported in the month of sale.
However, if the property is sold on the installment
plan, the output VAT may be reported in installment.
 Sale of real property on installment plan means sale
of real property by a real estate dealer, the initial
payment of which in the year of sale do not exceed
25% of the selling price.
Illustration - Installment reporting
On August 1, 2018, a real property dealer sold a
commercial lot with the following data:
 Zonal value, P4,000,000
 Assessed value, P4,500,000
 Selling price, P5,000,000
 Down payment is P500,000, and the balance due on
36 monthly installments of P125,000 starting
September 1, 2018.
Compute output VAT for December 31, 2018.
Illustration - Installment reporting
On June 30, 2018, a real property dealer sold a
commercial lot with the following data:
 Zonal value, P6,000,000
 Assessed value, P4,500,000
 Selling price, P4,000,000
 Payment is made as follows:
Down payment P500,000
December 31, 2018 500,000
June 30, 2019 1,500,000
December 31, 2019 1,500,000
Compute output VAT for December 31, 2018.
Illustration - Installment reporting
On June 30, 2018, a real property dealer sold a
commercial lot with the following data:
 Zonal value, P6,000,000
 Assessed value, P4,500,000
 Selling price, P4,000,000
 Payment is made as follows:
Down payment P1,500,000
P500,000 semiannually starting December 31, 2018.
Compute output VAT for taxable year 2019.
Interest and Penalties
Interest and penalties actually or constructively
received by the seller is likewise subject to VAT.
Illustration - Interest and Penalties
Sarangani, a VAT-taxpayer made a sale of real property
with a fair value of P3,000,000 for P2,000,000. The
P360,000 Output VAT on the sale qualified for
installment reporting. During the month, Sarangani is
due to receive the following, net of VAT:
 Installment due, P200,000
 Interest, P12,000
 Penalty, P4,000
Compute the total output VAT.
Sale of properties considered “ordinary assets”
 Even if the real property is not primarily held for sale to
customers or held for lease in the ordinary course of
business but the same is used in the trade of business of
the seller, the sale thereof shall be subject to VAT being a
transaction incidental to the taxpayer’s main business.
 Therefore, the sale of properties held for use (ordinary
assets) such as land, building, equipment, machineries,
property improvements, and supplies aside from
inventories and supplies are vatable.
 The sales of properties not in the ordinary course of
business are exempt (i.e. casual sales, except ordinary
assets, are exempt)
Illustration - “ordinary assets”
Hill Foods Corporation, a VAT taxpayer, sold the
following properties:
 Old factory (book value, P1,500,000), P1,300,000
 Vacant lot, held as investment, P4,000,000

Compute for the output VAT.

OUTPUT VAT
Regular Output VAT – 12%
A. Sale of goods
B. Sale of services
C. Sale of properties
D. Transactions deemed sale
Transactions deemed sale
1. Transfer not in the ordinary course of business
A business proprietor or partner may withdraw goods
or properties held for sale, lease or use in the ordinary
course of trade or business for his personal
consumption. For the purpose of the VA, this
transaction is deemed as a sale subject to VAT.
Illustration No. 1
A realtor transferred ownership over a residential
dwelling which is held for sale to his daughter who is
getting married. The property had a cost basis of
P2,000,000 and a fair market value of P2,500,000 at the
date of transfer. Compute output VAT
Transactions deemed sale
2. Distribution to shareholders or creditors
The acquisition by shareholders of goods or properties
declared as property dividends or by creditors as
payment of their loans under dacion en pago payment
is a form of consumption which is analogous to a
purchase. Such distribution shall be deemed sold and
subject to VAT.
Transactions deemed sale
3. Consignment of goods not withdraw in 60 days
Consignment of goods if actual sale is not made within
60 days following the date such goods were consigned
are presumed or deemed sold subject to VAT.
Illustration - Consignment
A VAT-registered taxpayer has its own sales operations but
also sells goods through consignees. It also sells goods on
consignment for a commission. The following were the
results of operations for the month ended April 30, 2015:
 Sales – own inventories, P500,000
 Sales – reported by consignees, P150,000
 Sales in behalf of consignors, P100,000
 Commission income on goods sold for consignors, P20,000
 The billed prices of outstanding consignments still held by
consignees as of April 30 includes: March 1, 2015,
P80,000; April 1, 2015, P120,000.
Compute output VAT
Transactions deemed sale
4. Retirement or cessation of business
The retirement or cessation from business will result in the
transfer of all goods or properties of the business to the
personal use or account of the business owner or owners.
Hence, it is also a deemed sale.
Transactions deemed sale
4. Retirement or cessation of business
Examples of taxable cessation of business:
5. Change of ownership of the business, such as:
a. Incorporation of a sole proprietorship
b. Sale by a proprietor of his entire business
2. Dissolution of a partnership and creation of new
partnership which takes over a new business
Illustration - Retirement or cessation of business
Mr. Gwapo, a VAT-registered taxpayer, ceases business
operations in May 2015.His business properties upon
termination of business operation include:
 Cash, P50,000
 Accounts receivables, P120,000
 Investments, P180,000
 Inventories, P200,000
 Property, plant and equipment, P800,000
Transactions deemed sale
5. Cessation of status as a VAT-registered person.
Goods or properties originally intended for sale or use in the
business, and capital goods existing as of the occurrence of
any of the following shall be deemed sold:
a. Change from business activity from VAT-taxable status to VAT-
exempt status
b. Approval of request for cancellation of registration
Note:
Deemed sale rules apply only to VAT taxpayers if:
1. The property transferred is an ordinary asset
2. The property transferred is a vatable property
Transactions not considered deemed sales
1. Change of control of a corporation by the
acquisition of the controlling interest of such
corporation by another stockholder or group of
stockholders.
2. Change in the trade or corporate name of the
business.
3. Merger or consolidation corporations
THANK YOU.