Chapter 9

VAT
 COVERAGE OF
THE VALUE-ADDED TAX
I. VAT on sales or lease of goods,
properties and services;

a) Sales on goods and

properties
b) Transactions deemed sale
c) Sales of Services and use or lease of
properties
 CLASSIFICATION OF
SALES/TRANSACTION
1. S Sales
Exempt
-exempt from VAT
2. Zero Rated Sales
-subject to zero percent VAT rate
3. TAXABLE SALES
-subject to 12% VAT rate
 VAT
VAT Definition
•

Value-added tax 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.
 “What does the law says?”
• The NIRC under section 105 provides that any
person who, in the course of his trade or
business, sells, barters, exchanges, leases
goods or properties, renders services, and any
person who imports goods (unless their
transactions are VAT exempt or zero-rated)
shall be liable to the 12% VAT rate imposed in
Sections 106, 107 and 108 of the NIRC.
 Vat on sale of Goods or Property
•

Goods or property shall mean all tangible and

intangible objects that are capable of pecuniary estimation
shall include:
•Real property held primarily for sale to customers or held for
lease in the ordinary course of trade or business.
Example:
1. Sale of residential lot with gross selling price exceeding P1,
919,500.00.
2. Sale of residential house and lot or other residential
dwellings with gross selling price exceeding P 3,199,200.00.
3. Instalment sale of residential house and lot or other
residential dwellings with gross selling price exceeding P
1,000,000.
4. A real estate investment trust shall be subject to VAT on its
gross sales from any disposal of real property.
 Vat on sale of Goods or Property
•

Goods or property shall mean all tangible and

intangible objects that are capable of pecuniary estimation
shall include:
•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.
• The right or the privilege to use in the Philippines of any
industrial, commercial or scientific equipment.
•The right or the privilege to use motion picture films, films,
and discs, Radio television, satellite transmission and cable
television time
 Gross Selling Price
•

Gross selling price 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
value-added tax.
•

The excise tax, of any, on such goods or

property shall form part of the gross selling
price.
 Computation of VAT on Sale of goods
• Tax Exclusive Method
the VAT is presumed not yet included in the
tax base amount. Such amount representing the
taxable base (exclusive of vat), whether gross
sales price or gross sales receipts, is multiplied by
12% vat rate. The resulting product is the VAT due
or output tax, as the case maybe. This is normally
the method adopted by the seller when it
prepares the sales invoice on its sales
transactions.
 Receipt samples with VAT
Value Added Tax Payable is normally computed as follows:
Computing Net VAT Payable on VAT “exclusive” Sales/Receipts. Total Output Tax Due or
Total Vatable Sales/Receipts x 12% …

Vatable (V) P 363.62

VAT 12% 43.63
Amount Due P 319.99
 Computation of VAT on Sale of goods
• Tax Inclusive Method
the VAT is presumed to be already included in
the tax base amount. Such amount representing
the taxable base (inclusive of vat), whether
invoice sales price or invoice gross receipts, is
divide with 1.12 and multiplied by 12% vat factor.
The resulting product is the vat due or output
tax as the case maybe. This is usually the method
adopted by the BIR in its tax audits/examinations.
 Receipt samples with VAT
Computing Net VAT Payable on VAT “inclusive” Sales/Receipts. Total Output Tax Due or
Total Vatable Sales / 1.12 x 12%

Gross P 694.77
Gross P 121.33 Amount
Amount
VAT 74.44
VAT 13.00 (694.77/1.1
(121.33/1.1 2x12%)
2x12%)
Net P 620.33
Net Amount P 108.33 Amount
 Computation of VAT on Sale of goods
• VAT Exclusive Method Formula:
Gross Sales/Gross Sales Receipt (excluding VAT) x 12% = VAT
e.g. Gross Sales of a restaurant in a day

P50,000 x .12 = P6,000

• VAT Inclusive Method Formula:

Invoice Price/Invoice Receipts (including VAT) /1.12x12%= VAT
e.g. (ditto)

P56,000 x 1.12x12% = P6,000

 b) Transactions “deemed sale”
• 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 the VAT-registered person withdraws
goods from his business for his personal use.
• Distribution or transfer to:
(a)shareholders as share in the profits of the VAT-registered
person.
*Property Dividends which are distributed by the company to
its shareholders and declared out of retained earnings shall
be subject to VAT (12%)
(b) Creditors in payment of debt or obligation
 b) Transactions “deemed sale”
• Consignment of goods if actual sale is not made within 60
days following the date such goods were consigned.
*Consigned goods returned by the consignee within the 60-
day period is not deemed sold.
• Retirement from or cessation of business with respect to
inventories of taxable goods (all goods on hand, whether
capital goods, stock-in-trade, supplies or materials) existing as
of the date of such retirement.
(a)Change of ownership of the business. There is a change in
the ownership of the business when a sole proprietorship
incorporates; or the proprietor sells his entire business.
(b)Dissolution of a partnership and creation of a new
partnership which takes over the business.
*tax base shall be the acquisition cost/current market price
whichever is lower.
 b) Transactions “deemed sale”
Formula:
Gross Value of Goods “deemed sold” (excluding VAT) x 12% = VAT

e.g. A at the time of retirement has 1,000 pcs of merchandise which was
deemed sold at a