Value Added

Taxes Part 1

Taxation Review

Mr. James Dane T. Adayo

 Concept of Consumption Taxes

Consumption

Domestic Foreign
(Export) 0%

Fr. Domestic
Importation
Sellers
Exempt consumption
Exempt Exempt
Importation sales

Vatable Services specifically

Taxable Importation
subject to OPT Take note: As a rule opt and VAT are mutually
consumption Exclusive
Below VAT
Threshold taxpayers In case of sellers with transactions subject to VAT
and transactions subject to OPT. Input taxes will
be allocated.
VAT SUBJECT

TRANSACTIONS
Consumption tax
 Occurs when one acquires goods or purchases by purchase, exchange or other means.

 A consumption tax is a tax upon utilization of goods or services by consumers or buyers. It

is a tax on the purchase or consumption of the buyer and not on the sale of the seller.

 The sellers are the ones named by the law to pay the tax. The sellers are statutory taxpaye
rs. However, the buyers are the one who actually shoulder the tax burden. The buyers are t
he real taxpayers or the economic taxpayers.

 The law collects the consumption tax from sellers. Sellers, in turn, pass the consumption ta
x by including it in their sales prices of goods or services. Most often, the buyers do not no
tice the tax. This is a simple and convenient way to collect tax without undue disturbance to
customers.
The term business tax is a misnomer
 Businesses are merely acting as an agents of the government for the collection of con
sumption of taxes from the buyers.

 Business are not the real taxpayers in the business tax.

Vat subject transactions
Transactions Tax base
a. Sale of goods or properties in
the course of trade Or business Gross selling price
b. Sale of services and lease of properties
in the course of trade or business Gross receipts
c. Importation Total landed cost

P3,000,000 sales above- Usually VAT registrable entity

P3,000,000 and below- OPT
The Scope of VAT on sales
The VAT covers all sales of goods, properties, services or lease of properties, services or lease
of properties other than:
1. VAT exempt sales
2. Services specifically subject to percentage tax

Provided however, that the seller must be a VAT-registered person or a registrable person.

A registrable person or those who exceed the VAT threshold are subject to VAT even if not
registered as VAT- taxpayer.

On the other hand, a VAT-registered person will be subject to VAT even if its annual sales do
not exceed the VAT threshold
VAT Exempt transactions under NIRC
1. Exempt transactions
2. Exempt sales
3. Services specifically subject to percentage tax
4. Export sales of non-VAT Taxpayers

VAT Threshold

VAT Threshold Amount Covered taxpayers

General threshold P3,000,000 Applicable to all taxpayers other than

franchise grantees of radio or television
Special threshold P10,000,000 Applicable only to franchise grantees
of radio or television

Only VATable sales are considered in the said threshold

In the course of trade or business defined
The phrase in the course of trade or business means the regular conduct or pursuit of a
commercial or an economic activity including transactions incidental thereto by any
person regardless of whether or not the person engaged therein is a non-stock, non-profit
private organization (irrespective of the disposition of its net income and whether or not it
sells exclusively to members or their guests), or government entity.

The rule of regularity, to the contrary notwithstanding, services as defined in the Tax Code
rendered in the Philippines by non-resident foreign persons shall be considered as being
rendered in the course of trade or business.
Good or properties
The term “ good or properties “ refers to all tangible and intangible objects which are cap
able of pecuniary estimation and shall include, among others:
a. Real properties held primarily for sale to customers or held for lease in the ordinary co
urse of trade or business;
b. The right or the privilege to use patent, copyright, design or model, plan, secret formul
a or process, goodwill, trademark, trade brand or other like property or right;
c. The right or the privilege to use any industrial, commercial or scientific equipment;
d. The right or the privilege to use motion pictures films, films, tapes and discs; and
e. Radio, television, satellite transmission and cable television time.
Sale or exchange of services
Sale or exchange of services means 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.
a. Construction and service contractors; Contractors Tax
b. Stock, real state, commercial, customs and immigration brokers; Brokers’ Tax
c. Lessons of property, whether personal or real; Lessor’s Tax
d. Persons engaged in warehousing services;
e. Lessor or distributors of cinematographic films;
f. Person engaged in milling, processing, manufacturing or repacking goods for other;
g. Proprietors, operator and keepers of hotel, motels, rest houses, pension houses, inns,
resorts, theatres and movie houses;
h. Proprietors, operators of restaurants, refreshment parlors, cafes and other eating places, including clubs
and caterers; caterers tax
i. Dealers in securities;
j. Lending inventors;
k. Transportations contractors on the transport of goods or cargoes including persons who transport goods or
cargoes for hire other domestics common carries by land, relative to their transports of goods or cargoes;
Sale or exchange of services
l. 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;

m. Sales of electricity by generation, transmission, and/or distribution company;

n. 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 no exceed P10,000,000, and franchise grantees of gas and water
utilities;

o. Non-life insurance companies ( except their crop insurance ), including surety, fidelity, indemnity, and
bonding companies;

p. Similar services regardless of whether or not the performance thereof calls for the exercise or use of the
physical or mental faculties. ( ex. Basketball Players ) – Physical faculties
( ex. CPA , Doctors – Mental faculties )
Computation of Vat Payable ( Excess Input Tax )

a. Output tax exceeds input tax at the end of any taxable Output tax xxx
quarter Less : Input tax xxx
VAT payable xxx

b. Input tax inclusive of input tax carried over from the Output tax xxx
previous quarter exceeds output tax Less: Input tax ( xxx )
Excess Input tax xxx
Computation of Tax Base and the Applicable Tax Rates
Transaction Tax Base Tax Rate
a. Sale of goods Gross selling price 12% or 0%
Gross sales xxx
Less: Sales return and allowances xxx
Sales discount xxx (xxx)
Net sales xxx
Add: Excise tax, if any xxx
Tax base ( including VAT ) xxx

b. Sale of real properties Installment received xxx 12% or 0%

on installment plan Add: Interest xxx
( initial payments do not Penalties for late payment xxx xxx
Exceed 25% of the gross Tax base xxx
Selling price )
Computation of Tax Base and the Applicable Tax Rates
Transaction Tax Base Tax Rate

c. Sale/barter of real properties Selling price stated in the sales documents or fair 12% or 0%
on cash basis or deferred payment market value, or whichever is higher
plan ( initial payments exceed
25% of the gross selling
price )

d. Sale of services Gross receipts computed as follows: 12% or 0%

Cash received ( actually and constructively ) xxx
Advance payments for future projects xxx
Materials charged with the services xxx
Gross receipts ( excluding VAT ) xxx

Implies CASH BASIS Note: Receivables, although earned, are not included.
Computation of Tax Base and the Applicable Tax Rates
Transaction Tax Base Tax Rate
e. Gross receipts For Gross receipts computed as follows: 12% or 0%
Dealer in securities Gross selling price xxx
Less: Acquisition cost of securities sold for
the month or quarter xxx
Balance xxx
Add: Other or incidental income xxx
Gross receipts ( excluding VAT ) xxx
f. Gross receipts on the Gross receipts shall refer to the following: 12% or 0%
Sale of electricity by a. by generation companies for the sale of electricity
generation, and related ancillary services;
transmission and b. by transmission companies of transmission of
distribution electricity and related ancillary services;
companies c. by distribution companies and electric cooperatives
for distribution and supply of electricity and related electric
service. The universal charge passed on the collected by
distribution companies and electric cooperatives shall
be excluded from the computation of the Gross Receipts.
Computation of Tax Base and the Applicable Tax Rates
Transaction Tax Base Tax Rate
g. Importation a. In general ( Ad Valorem ) 12%
Total value xxx
Add: Customs duties xxx
Excise tax xxx
Other charges prior to release of
goods from Customs custody xxx xxx
Tax base xxx

b. In case where customs duties is based on volume or quantity

Total landed cost xxx
Add: Excise tax xxx
Tax Base xxx
Output VAT

a. Meaning of output tax Output tax means the value-added tax on sale or lease of
taxable goods or properties or services by any person

b. Determination of output In a sale of goods or properties, the output tax is computed

tax by multiplying the gross selling price the regular rate of VAT.
Sources of Output Taxes
Sale of goods or properties
a. Actual regular sales
b. Actual zero-rated sales
c. Deemed sales
Sale of services and lease of properties
a. Actual regular sales
b. Actual zero-rated sales

Zero-Rated Sales Defined

A zero-rated sale of goods or properties and services is a taxable transaction for VAT purposes, but shall not
result in any output tax.

However, input tax on purchases of goods, properties or services, related to such zero-rated sale shall be
available for credit or refund in accordance with VAT regulation.
Examples of Zero-Rated Sales
Sales of goods or properties Sale of service and lease of properties
a. Export sales of goods
1) The sale and actual shipment of goods 1) Processing, manufacturing or repacking of goods for other rom
the Philippines to a foreign country persons doing business in the Philippines which goods are
irrespective of any shipping arrangement that subsequently exported;
may be agreed upon which may influence or
determine the transfer of ownership of the 2) Services other than processing, manufacturing or
goods so exported; repacking rendered to a person engaged in business conducted
outside the Philippines or to a non resident person when the
services are performed;
2) Sale of raw materials or packaging materials to
Non resident buyer for delivery to resident local 3) Services rendered to persons or entities whose exemption
export oriented enterprise to be used in effectively subjects the supply of such services to zero
processing, packing or repacking in the percent rate;
Philippines of the said buyer’s goods;
4) Services rendered to persons engaged in international shipping
3) Sale of raw or packaging materials whose or air transport operations, including lease of property for use.
export oriented enterprise, whose export sales
Exceed 70% of the total annual production.
Examples of Zero-Rated Sales
Sales of goods or properties Sale of service and lease of properties

4)Those considered export sales under the 5) Services performed by subcontractors and /or contractors
( E. 0. No. 226 ), and other official laws. in processing, converting, or manufacturing goods for an enterprise
whose export sales exceed 70% of the total annual production.

5) The sale of goods, supplies equipment and 6) Transport of passengers and cargo by domestic air or sea carriers
fuel to persons engaged in Intl. shipping or from the Philippines to a foreign country
Internation air transport operations
( new per RA 9337 ). 7) Sale of power or fuel generated through renewable
Provided however, that zero rating shall not extend to the sale of
services related to the maintenance or operation of plants
generating said power.
Examples of Zero-Rated Sales
Sales of goods or properties Sale of service and lease of properties

4)Those considered export sales under the 5) Services performed by subcontractors and /or contractors
( E. 0. No. 226 ), and other official laws. in processing, converting, or manufacturing goods for an enterprise
whose export sales exceed 70% of the total annual production.

5) The sale of goods, supplies equipment and 6) Transport of passengers and cargo by domestic air or sea carriers
fuel to persons engaged in Intl. shipping or from the Philippines to a foreign country
Internation air transport operations
( new per RA 9337 ). 7) Sale of power or fuel generated through renewable
Provided however, that zero rating shall not extend to the sale of
services related to the maintenance or operation of plants
generating said power.

b. Foreign currency denominated sales Effectively zero rated sales

c. Effectively zero rated sales

Foreign Currency Denominated Sales Defined
“Foreign Currency Demonated Sales” means the sale to a non-resident of goods, except those mentioned in
Sec. 149 ( Automobiles ) and 150 ( Non Essential Goods ) of the Tax Code, assembled or manufactured in the
Philippines for delivery to a resident in the Philippines, paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP.

Sales of locally manufactured of assembled goods for household and personal use to Filipinos abroad and other
non-residents of The Philippines as well as returning Overseas Filipinos under the Internal Export Program of the
government paid for in convertible foreign currency and accounted for in accordance for in accordance with the rules
and regulations of the BSP shall also be considered export sales.

Effectively Zero-Rated Sales Defined

Sales of goods or property or services to persons or entities who are tax- exempt under international agreements to
which the Philippines is signatory, such as, Asian Development Bank ( ADB ) International Rice Research Institute (IRRI),
Deemed Sales Transactions

1) Transfer, use or consumption not in the course of trade or business of goods and properties originally intended for
sale or use in the course of trade or business;
2) Distribution or transfer to shareholders or investors as share in the profits of VAT – registered person;
3) Distribution or transfer to creditors in payment of debt or obligation
4) Consignment of goods if not sold within 60 days following the date of consignment;
5) Retirement from or cessation of business with respect to all goods on hand whether capital goods, stock-in-trade,
supplies or materials as of the date of such retirement or cessation, whether or not the business is continued by the
new owner or successor.

Notes: a) In cases 1) to 4), the tax base in the market value.

b) In cases 5), the tax base is the lower between acquisition cost or market value.

The Commissioner of Internal Revenue shall determine the appropriate tax base where the gross selling price
unreasonably lower than the actual market value ( lower by more than 30% of the actual market value).
Sale, Transfer, or Exchange of Imported Goods by Tax-Exempt Persons

a. In the case of goods imported into the Philippines by VAT-exempt persons, entities, or agencies which are
subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entities the latter shall be
considered the importers thereof who shall be liable for VAT on such importation.

b. The tax due on such importation shall institute a lien on the goods, superior to all charges or liens, irrespective
of the possessor of said goods.
Summary of the Difference Between Sale of Goods or Properties and Sale of
Services or Lease of Properties

Sale of Goods or Properties Sale of Services or Lease of Properties

a. Tax base Gross selling price ( accrual basis ) Gross receipts ( cash basis )

b. Sources of output tax a. Actual regular sales a. Actual regular sales

b. Actual zero- rated sales b. Actual zero-rated sales
c. Deemed sales
Exercises

1. The following information taken from the books of a VAT- registered enterprise was provided to you:
Domestic sales of goods P3,000,000
Sales of packaging materials to an export oriented enterprise whose
export sales exceed 70% of the total annual production 2,000,000
Local sales of goods to Asian Development Bank ( ADB ) 500,000
Consignment of goods ( not turned within 60 days following the date
of consignment 200,000
Goods transferred for the personal use of the owner ( cost is P90,000 )
market value ( deemed sales ) 100,000

How much was the:

a. total taxable sales?
b. The output tax using 12% VAT rate?
Exercises

2. A VAT – registered trade made the following sales of goods during the second calendar quarter of 2018 ( net of
VAT):

Cash sales P200,000

Open account sales 100,000
Installment sales ( receipts P40,000 ) 100,000
Consignment sales ( not yet sold as of end of the quarter ):
June 15 100,000
May 15 100,000
April 15 ( deemed sale ) 100,000
How much is the output tax for the quarter using 12% rate?
Exercises

3. A VAT – registered contractor has the following selected VAT exclusive data for the month of July 2018:
Collections from contracts completed in 2017 P500,000
Collections from contracts complete in July 2019, net of 10% retention on billings
transferred by the payor to the account of the contractor 198,000
Materials charged with the services rendered, July, 2018 100,000
Payments for services rendered by a sub-contractor, July, 2018 200,000

How much is the:

a. Gross receipts for July 2018?

b. Output tax for the month of July, 2018 using the 12% rate?
Exercises

4. A VAT – registered taxpayer has the following VAT exclusive data for the month of July 2018:
Accounts receivable January 1, 2018 P500,000
Sales on account for the month of January 1,000,000
Cash sales for the month of January 300,000
Accounts receivable, January 31, 2018 700,000
Cash purchases for the month of January 2018 400,000

How much is the output tax for the month of January, 2018 using 12% rate assuming the taxpayer is a
a. Trader
b. Service provider
Exercises

5. Babes Corp. imported an article from Japan. The invoice value of the imported article was Y1,000,000 (Y1 = P0.35).
The following were incurred in connection with the importation:
Insurance P15,000
Freight 10,000
Postage 5,000
Wharfage dues 7,000
Arrastre charges 8,000
Brokerage fees 25,000
Facilitation fee 3,000
The imported article was subject to P50,000 customs duties and to P30,000 excise tax.
How much was the VAT on importation using 12% rate?
Exercises

1. Which of the following is a zero-rated sale of goods?

A. Export sale of a person who is not VAT-registered
B. Sale of non-food agricultural products
C. The sale and actual shipment of goods from the Philippines to a foreign country, paid for in acceptable foreign
currency, accounted for in accordance with the rules and regulations of the BSP
D. Sale of cotton and cotton seeds

2. A VAT-registered person shall issue for every service rendered or lease of properties a:
A. VAT sales invoice
B. VAT official receipt
C. VAT credit certificate
D. VAT refund
 VAT EXEMPT

TRANSACTIONS
1. VAT Exempt transactions
a) Sale or importation of: Exempt sale of goods
-agricultural and marine food products in their original state Exempt importation
-livestock and poultry of a kind generally used as, or yielding or producing foods for
human consumption; and
-breeding stock and genetic materials therefor;
b) Sale or importation of: Exempt sale of goods
-fertilizers, seeds, seedlings and fingerlings; Exempt importation
-fish, prawn, livestock and poultry feeds, including ingredients, whether locally
produced or imported, used in the manufacture of finished feeds
-(except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and
other animals generally considered as pets
c) Importation of personal and household effects Exempt importation
-belonging to a resident of the Philippines returning from Abroad and
-Nonresident citizens coming to resettle in the Philippines
- Provided, that such goods are exempt from customs duties under the Tariff and
Customs Code of the Philippines;
1. VAT Exempt transactions

d) Importation of professional instruments and implements, wearing apparel, Exempt importation

domestic animals, and personal household effects
- (except any vehicle, vessel, aircraft, machinery and other goods for use in the
manufacture and merchandise of any kind in commercial quantity)
- Belonging to persons coming to settle in the Philippines for their own use and not
for sale, barter or exchange
- Accompanying such persons, or arriving within 90 days before or after their arrival,
upon production of evidence satisfactory to the Commissioner;
- That such persons are actually coming to settle in the Philippines and that the
change of residence is bona fide;
e) Services subject to percentage tax; Exempt sale of services
f) Services by agricultural contract growers and milling for others of palay into rice, Exempt sale of services
corn into grits and sugar cane into raw sugar;
1. VAT Exempt transactions

g) Medical, dental, hospital and veterinary services, except those rendered by Exempt sale of services
professionals
h) Educational services rendered by: Exempt sale of services
-Private educational institutions, duly accredited by DepEd, CHED, TESDA and
Those rendered by government institutions
i) Services rendered by individuals pursuant to an employee employer relationship Exempt sale of services
j) Services rendered by regional or area headquarters established in the Philippines Exempt sale of services
by Multinational Corporations;
-which act as supervisory, communications, and coordinating center for their
affiliates in the Asia Pacific region
-do not earn or derive income from the Philippines
1. VAT Exempt transactions
k) Transactions which are exempt Exempt sale of services
-under International agreement to which the Philippines is a signatory thereof Exempt sale of goods
-under special laws except those granted under PD No. 529, Petroleum exploration
Concessionaires under Petroleum Act of 1949
l) Sakes by agricultural cooperatives duly registered and in good standing with the Exempt sale of services
CDA to their members as well as  
-sale of their produce, whether in its original state or processed form, to
non-members;
-their importation of direct farm inputs, machineries and equipment including spare
parts thereof, to being used directly and exclusively in the production and/or
processing their produce
 
Sale by a agricultural cooperatives to non-members can only be exempted from VAT
if the producer of the agricultural products sold is the cooperative itself. If the
cooperative is not the producer (e.g Trader), then only those sales to its members
shall be exempted from VAT; It is to be reiterated, however that the sale or
importation of agricultural food products in their original state is exempt from VAT
irrespective of the seller and buyer thereof, pursuant to subsection (a) thereof
1. VAT Exempt transactions

m) Gross receipts from lending activities by credit or multi purpose cooperatives Exempt sale of services
duly registered and in good standing with the CDA
n) Sale by non-agricultural, non-electric and non-credit cooperatives duly registered Exempt sale of services
and in good standing with the CDA;
-Provided, that the share capital contribution of each member does not exceed
P15,000 and regardless of the aggregate capital and net surplus ratably
distributed among members
o) Exports sale of persons who are not VAT-registered Exempt sale of goods
1. VAT Exempt transactions
p) The following exempt sale of real properties are exempt from VAT namely; Exempt sale of real
1) Sale of real properties not primarily held for sale to customers or held for lease in the Properties
ordinary course of trade or business
However, even if the real property is not primarily for sale to customers or held for Note: To letter P
lease in the course of trade or business but the same is used in trade or business of
VAT exemption shall only
the seller, the sale thereof shall be subject to VAT being a transaction incidental to the apply to sale of real
taxpayer’s main business; Properties not primarily
held for sale to customers
2) Sale of real property utilized for low cost housing (price ceiling per unit of P2,000,000) or held for lease in the
3) Sale of real property utilized for socialized housing (price ceiling for house and lot- ordinary course of trade or
business, sale of real
P400,000; for lot only P160,000; property utilized for
4) Sale of residential lot valued at P1,500,000 and below and house and lot and other socialized housing and sale
residential dwellings valued at P2,500,000 and below where the instrument of sale/transfer/ of house and lot with
selling price
disposition was executed on or after July 1, 2005 of not more than P2M.
Note: Sale of parking lot in a condominium is a separate and distinct transaction and is not
covered by the rules on threshold amount not being a residential lot, house and lot or a
residential dwelling, this should be subjected to VAT regardless of the selling price
q) Lease of: Exempt lease of
-residential units properties
With a monthly rental of P15,000 (used to be P12,800)
-regardless of the amount of aggregate rentals received by the lessor during the year
1. VAT Exempt transactions
r) Sale or importation, printing or publication of books and any newspaper, magazine, Exempt sale of goods
review, or bulletin which appears at regular intervals with fixed prices for subscription and Exempt sale of services
sale and which is not devoted principally to the publication of paid advertisement: Exempt importation
s) Sale, importation or lease of passenger or cargo vessels and aircrafts, including engine, Exempt importation
equipment and spare parts thereof for domestic or international transport operations;
Provided, that the exemption from VAT on the importation and local purchase of
passenger
and/or cargo vessels shall be limited to those of 150 tons and above, including engine
and spare parts of said vessels; provided further that the vessels to be imported shall
comply with the age limit requirement, at the time of acquisition counted from the date
of the vessels’ original commissioning, as follows:
1) For passenger and/or cargo vessels, the age limit is 15 years old;
2) For tankers, the age limit is 10 years old;
3) For high speed passengers crafts, the age limit is 5 years old;
Provided finally, that exemption shall be subject to the provisions of Sec. 4 of R.A 9295
otherwise known as the Domestic Shipping Development Act of 2004.
1. VAT Exempt transactions
t) Importation of life saving equipment, safety and rescue equipment and communication Exempt importation
and navigational safety equipment, steel plates and other metal plates including marine-
grade aluminum plates used for shipping transport operations; Provided that the
exemption shall be subject to the provisions of Sec.4 of R.A 9295
u) Importation of capital equipment, machinery, spare parts life saving and navigational Exempt importation
equipment, steel plates and other metal plates including marine-grade aluminum plates
to be used in the construction, repair, renovation or alteration of any merchant marine
vessel operated or to be operated in the domestic trade. Provided, that the exemption
shall be subject to the provisions of R. A 9295.
v) Importation of fuel, goods and supplies by persons engaged in international shipping Exempt sale of services
and air transport operations; Provided that the said fuel, goods and supplies shall be used
exclusively or shall pertain to the transport of goods and/or passengers from a port in the
Philippines directly to a foreign port or vice versa, without docking or stopping at any
other port in the Philippines unless the docking oor stopping at any other port in the
Philippines is for the purpose of unloading passengers and/or cargoes that originated from
Abroad, or to load passengers and/or cargoes bound for abroad; Provided further, that if
any portion of such fuel, goods or supplies is used for purposes other than that
mentioned in this paragraph, such fuel, goods and supplies shall be subject to 12% VAT.
1. VAT Exempt transactions
w) Services of banks, non bank financial intermediaries performing quasi banking functions, Exempt sale of services
and other non-bank financial intermediaries, such as money changers and pawnshops,
subject to percentage tax under Sec. 121 and 122 respectively of the Tax Code
x) Sale or lease of : Exempt sale of goods
-goods or properties or Exempt sale of services
-the performance of services Exempt lease of
-other than the transactions mentioned in the preceding paragraphs, properties
- the gross annual sales and/or receipts do not exceed the amount of P3,000,000 (used
to be P1,919,500)
 
y) Sale of any goods and services to Senior Citizens shall be exempt from the value added Exempt sale of goods
taxes (applicable also to PWDs) Exempt sale of services
1. VAT Exempt transactions
z) Sale of gold to BSP that will take effect starting January 1, 2018 Exempt sale of goods
aa) Sale of drugs and medicines for diabetes, high cholesterol and hypertension beginning Exempt sale of goods
January 1, 2019.
bb) Association dues, membership fees and other charges or assessment related on a Exempt sale of services
purely reimbursement basis by homeowners associations and condominium corporations
starting January 1, 2018
cc) Transfer of property pursuant to section 40 (c) (2) of Tax Code Exempt sale of goods
Exercises
a. The following data taken from its books are presented to you by Fish Fresh and Dried, VAT registered
company:Sale of locally produced canned sardines P1,000,000
Sale of newly hauled fresh sardines 1,500,000
Sale of canned sardines to a Subic Bay Metropolitan Authority
accredited Enterprise 500,000
Sale of locally produced dried fish 700,000
Importation of fresh fish from Alaska, USA 2,000,000
Importation of canned sardines from Portugal 3,000,000
How much is the total VAT on local sales of importation?

b. The following importations are made by different persons:

Importation of cows and bulls by a VAT registered company P5,000,000
Importation of fighting cocks by a non-VAT registered person 4,000,000
Importation of turkey by VAT-registered person 3,000,000
Importation of race horses by VAT registered person 2,000,000
Importation of livestock and poultry feeds by Non-VAT registered person 1,000,000
Importation of ingredients to be used in the manufacture of finished fertilizer 500,000

How much is VAT due on importations?

c. Identify the following transactions as: A) VAT subject at regular rate B) VAT subject at zero rate C) VAT exempt
1. Sale of an apartment house  
2. Sale of the right or the privilege to use any industrial, commercial or scientific equipment  
3. Services rendered by transportation contractors in their transport of goods, or cargoes from one domestic  
port to another domestic port
4. Services rendered by local construction and service contractors  
5. Sale of electricity by generation, transmission and/or distribution companies  
6. Services rendered by a beauty parlor  
7. Services rendered by a funeral parlor  
8. Transport of passengers and cargoes by a domestic air or sea carriers from the Philippines to a foreign  
Country
9. Sale of good, supplies, equipment and fuel to persons engaged in international shipping and air transport  
operations
10. Sale of raw materials or packaging materials to export oriented enterprise whose export sales exceed 70%  
of the total annual production
11. Sale of power or fuel generated through renewable sources of energy  
12. Services rendered to persons engaged in international shipping or air transport operations, including  
lease of property for use thereof;
13. Sale of gold to Banko Sentral ng Pilipinas  
14. Sale to non-resident buyer of goods assembled in the Philippines to be delivered to a resident in the  
Philippines, paid for in acceptable foreign currency and accounted per BSP rules and regulations.
15. Distribution or transfer of goods to creditor in payment of debt or obligation  
c. Identify the following transactions as: A) VAT subject at regular rate B) VAT subject at zero rate C) VAT exempt
17. Sale of goods or services to Land Bank of the Philippines  
18. Services rendered by review schools for CPA licensure examination  
19. Educational services rendered by private educational institutions accredited by DepEd, CHED and  
TESDA
20. Export sales of persons who are VAT registered  
21. Export sales of persons who are not VAT registered  
22. Sale of real property utilized for low-cost or socialized housing  
23. Lease of residential units where the monthly rental per unit does not exceed P15,000  
24. Lease of commercial units where the monthly rental per unit doest not exceed P15,000 and whose  
annual gross rentals amounted to P3,000,000
25. Sale of agricultural foods products in their original state where the annual gross sales exceed  
P3,000,000
26. Sale of canned food products where the annual gross sales exceeds P3,000,000  
27. Performance of VAT-subject services where the annual gross receipts do not exceed P3,000,000  
28. Milling of cassava into flour  
29. Medical services rendered by professionals  
30. Medical services rendered to confined patient by a doctor employed by the hospital  
31. Sale of two(2) adjacent lots to one buyer where the aggregated value exceeds P3,000,000  
32. Sale of medicine to Senior citizens  
Input taxes
Input tax Defined
a. Meaning of input tax Input tax is the value added tax due from or paid by a VAT registered person in
the course of his trade or business on importation of goods or local purchase of
goods, properties or services, including lease or use of properties, in the course of
trade or business. It shall also include the transitional input tax and the
presumptive input tax.
b. Categories of 1) VAT paid on local purchases (passed on by seller) or on importation (passed
creditable or deductible on VAT)
input tax 2) Presumptive input tax
3) Transitional input tax
4) Standard input tax
c. Persons who can avail The input tax credit on importation of goods or local purchases of goods,
of input tax credit properties or services by a VAT-registered person shall be creditable:
1) To the importer upon payment of VAT prior to release of goods from customs
duty
2) To the purchaser of the domestic goods or properties upon consummation of
the sale, or
3) To the purchaser of services or the lessee or licensee upon payment of the
compensation, rental, royalty or fee.
d. Exercises: Determine whether or not input tax credit can be availed of (Y/N)
1) Importation of goods for personal use, VAT already paid  
2) Importation of goods for business use, VAT not yet paid  
3) Purchase on account of domestic goods from VAT-registered supplier evidenced by a VAT invoice  
4) Purchase for cash of domestic goods from VAT registered supplier evidenced by a receipt printed  
by unaccredited printer
5) Purchase of domestic properties from non-VAT seller, evidenced by VAT official receipt  
6) Purchase of services from a VAT-registered service provider, bills already paid  
7) Purchase of services from a VAT-registered service provider, bills not yet paid  
8) Purchase on account from goods from a non-VAT seller who issued VAT invoice  
Determination of Allowable input taxes
A. Determination of Input tax carried over from previous period xxx
creditable input tax Input tax deferred on capital goods exceeding P1,000,000
from previous quarter xxx
Transitional input tax xxx
Presumptive input tax xxx
Others xxx
Total xxx
Input taxes on current transactions xxx
Total available input taxes xxx
Less: Deductions from input taxes xxx
Total allowable input taxes xxx
B. Deductions from a. Input tax claimed as tax credit certificate or refund
input taxes b. Input tax attributed to VAT-exempt sales
c. Input tax attributed to sales to government
Sources of Creditable Input taxes (Local purchases or Importation)
Passed on VAT
1) Input tax evidenced
by a VAT invoice or
official receipts issued by
a VAT-registered person
2) VAT-registered person
is also engaged in
transaction not subject to
VAT
1) Purchase or importation of goods
a) For sale; or
b) For conversion into or intended to form part of a finished product for sale,
including packaging materials’; or
c) For use as supplies in the course of trade or business;
d) For use as raw materials supplied in the sale of services
e) For use in the trade or business for which deduction for depreciation or
amortization is allowed
1) Purchase of real properties for which a VAT has actually been paid
2) Purchase of services in which a VAT has actually been paid
3) Transaction deemed sale.
A VAT registered person who is also engaged in transactions not subject to VAT shall
be allowed to recognize input tax credit on transactions subject to VAT as follows:
a) All the input taxes that can be directly attributed to transactions subject to VAT
may be recognized for input tax credit and;
b) If any input tax cannot be directly attributed to either a VAT taxable or VAT
exempt transaction the input tax shall be pro rated to the VAT taxable and VAT
exempt transactions and only the ratable portion pertaining to transactions
subject to VAT may be recognized for input tax credit computed as follows:
EXERCISE

Exercise: A VAT registered taxpayer is also engaged in VAT exempt transactions. The following VAT
exclusive data made available:

a. Domestic VAT-subject sales P1,000,000

b. VAT-exempt sales 500,000
c. Export sales 300,000
d. Purchases of supplies from VAT supplier (used for all transactions) 150,000
e. Purchase of merchandise from VAT registered trader (for VAT sales only) 200,000

Compute the VAT payable assuming the taxpayer will use the input tax on zero rated sales as input tax credit
Claim of input tax on Depreciable goods (RR 16-2005)
a) Where a VAT-registered person
purchases or imports capital goods,
which are depreciable assets for
income tax purposes, the aggregate
acquisition of which (exclusive of VAT)
in a calendar month exceeds P1M,
regardless if the acquisition cost of
each capital goods
b) Where the aggregate acquisition
cost (exclusive of VAT) of the existing
or finished depreciable capital goods
purchased or imported during any
calendar month does not exceed
P1,000,000
a) Estimated useful life is 5 years or more- input tax shall be spread
evenly over a period of 60 months to commence on the calendar month
when the capital good is acquired
b) Estimated useful life is less than 5 years- Input tax shall be spread
evenly on a monthly basis by dividing the input tax by the actual
number of months comprising the estimated useful life. The claim for
input tax shall commence in the calendar month the capital good is
acquired. Note: Only be allowed until Dec. 31, 2021.
The total amount of input taxes will be allowable as credit against
output taxes in the month of acquisition.
Claim of input tax on Depreciable goods (RR 16-2005)
c) Meaning of aggregate acquisition The aggregate acquisition cost of a depreciable asset in any calendar
cost month refers to the total price, excluding the VAT, agreed for one or
more assets acquired and not on the payments actually made during the
calendar month. An asset acquired in installment for an acquisition cost
of more than P1,000,000 excluding the VAT will be subject to
amortization of input tax despite the fact that the monthly payments or
installments may not exceed P1,000,000
d) Sale or transfer of depreciable good If the depreciable capital good is sold or transferred within a period of 5
within a period of 5 years or prior to years or prior to the exhaustion of the amortizable input tax thereon, the
the exhaustion of the amortizable entire unamortized input tax on the capital goods sold or transferred
input tax can be claimed as input tax credit during the month or quarter when
sale or transfer was made.
Claim of input tax on Depreciable goods (RR 16-2005)
e) Meaning of capital goods or
properties
f) Meaning of construction in
Progress
g) Input tax on construction in
Progress
Capital goods or properties refers to goods or properties with estimated
useful life greater than one year and which are treated as depreciable
assets under the Tax Code, used directly or indirectly in the production or
sale of taxable goods or services.
Construction in progress is the cost of construction work which is not yet
completed. CIP is not depreciated until the asset is placed in service.
Normally, upon completion, a CIP is reclassified and the reclassified asset is
capitalized and depreciated.
a. CIP is considered for purposes of claiming input taxes, a purchase of
service, the value of which shall be determined based on the progress
billings.
b. Until such time the construction has been completed, it will not qualify
as capital goods as defined, in which case, input tax credit on such
transaction can be recognized in the month the payment was made;
provided that an official receipt of payment has been issued based on the
progress billings.
Claim of input tax on Depreciable goods (RR 16-2005)
h) Contract for the sale of service
where only the labor will be supplied
I) Input tax claimed while the
construction is in progress
j) Rules on allowing input tax credit
on vehicles and other expenses
incurred (RR 12-2012)
In case of contract for the sale of service where only the labor will be
supplied by the contractor and the materials will be purchased by the
contractee from other supplier, input tax credit on the labor contracted shall
still be recognized on the month the payment was made based on the
progress billings while input tax on the purchase of materials shall be
recognized at the time the materials were purchased.
Once the input tax has already been claimed while the construction is in
progress,no additional input tax can be claimed upon completion of the asset
when it has been reclassified as a depreciable capital asset and depreciated.
a. Only the vehicle for land transport is allowed for the use of an official or
employee, the value of which should not exceed P2,400,000
b. No depreciation shall be allowed for yachts, helicopters, airplanes and/or
aircrafts, and land vehicles which exceed the above threshold amount
(P2.4M) unless the taxpayer’s main line of business is transport operations
or lease of transportation equipment and the vehicles purchased are
used in the said operations
c. All maintenance expenses on account of non-depreciable vehicles for
taxation purposes are disallowed in its entirety
d. The input taxes on the purchase of non-depreciable vehicles and all input
taxes on maintenance expenses incurred thereon are likewise disallowed
Exercise
The following transactions were recorded in a particular quarter:
January- Purchase of three (3) units of capital goods valued at P300,000 per unit
February- Purchase of one (1) unit of capital goods valued at P2,000,000
March- Purchase of five (5) units of capital goods with 3 year estimated life valued at P600,000 per unit
-Construction in progress, payments based on progress billings is P1,200,000
- Purchase of land transport vehicle for business use, P2,500,000

How much is the creditable input tax for the months of January, February and March?
Presumptive Input Tax
1) Persons allowed presumptive input tax
2)Rate and basis of presumptive input tax
1. Processors of sardines, mackerel and milk.
2. Manufacturer of refined sugar and cooking oil.
3. Manufacturers of packed noodle-based instant
meals
4% (used to be 1 1/2 % ) of gross value in money of
purchases of primary agricultural products which are used as
inputs to their production.
Exercise

A VAT Registered processor of sardines has the following data:

Purchases of sardines P500,000
Purchases of tomatoes, onions and other agricultural products 300,000
Purchases of labels and packaging materials 200,000

How much is the total creditable input taxes?

Transitional Input Tax
1)Situations where transitional input tax
maybe allowed
2)Basis of transitional input tax
3) Amount of transitional input tax
1) Taxpayers who became VAT-registered persons upon
exceeding the minimum turnover of P3,000,000 in any
12-month period;
2) Taxpayers who voluntarily register even if their turnover
does not exceed P3,000,000 (except franchise grantee of
radio and/or television broadcasting whose threshold is
P10,000,000)
Beginning inventory of goods, materials and supplies
(excluding those that are VAT-exempt under Sec. 109)
2% (used to be 8% ) of the value of the beginning
inventory on hand or actual VAT paid on such goods,
materials and supplies, whichever is higher.
The value allowed for income tax purposes
on inventories
shall be the basis for the computation of the 2% (used to be
8%) transitional input tax, excluding goods that are exempt
from VAT under Sec. 109 of the Tax Code.
Exercise

A taxpayer is engaged in VAT subject transactions but enjoys exemption from VAT as an entity because his annual
gross sales do not exceed the VAT threshold amount. Beginning of the current year, he decides to optionally
register under the VAT system. Compute the transitional input tax based on the following data:
Ending inventory- VAT subject goods, previous year
Cost P300,000
Net realizable value 200,000
Ending inventory VAT-exempt goods, previous year
Cost P100,000
Net realizable value 150,000
Actual VAT paid on inventory 3,000

How much is the transitional input tax?

Standard input tax
1) Input tax attributable to VAT
sales to Government not creditable
against output tax on sales to non-
Government entities
2) Government required to withhold
3) Final withholding VAT represents
the net VAT payable of the seller
4) Difference between the VAT rate
and the withholding VAT rate
accounts for the standard input
Tax
Input taxes that can be directly attributable to VAT taxable sales of goods
and services to the Government or any of its political subdivisions,
instrumentalities or agencies including GOCC’s shall not be credited against
output taxes arising from sales to non Government entities.
The government or any of its political subdivisions, instrumentalities or
agencies, including GOCCs shall deduct and withhold a final VAT due at the
rate of five(5%) of the gross payment.
The five (5%) final withholding VAT rate shall represent the net VAT payable
of the seller.
The remaining seven percent (7%) effectively accounts for the standard
input VAT for sale of goods or services to government or any of its political
subdivisions, instrumentalities, or agencies including GOCCs in lieu of the
actual input VAT directly attributable or ratably apportioned to such sales.
Should actual input VAT attributable to sale to government exceeds seven
percent (7%) of gross payments, the excess may form part of the seller’s
expense or cost. On the other hand, if actual input VAT is less than seven
percent (7%) of gross payment, the difference must be closed to expense
or cost.
Exercise

Exercise A VAT registered service provider has the following transactions for the first quarter of 2014:

1) Purchased materials for use in contract with the Government paying P896,000 gross of VAT.
2) Sent a bill to the client with VAT inclusive amount of P5,600,000
3) Collected P2,000,000 out of the P5M contract price, net of 5% withholding VAT and 2% withholding income tax.

Prepare the necessary journal entries on the books of the service provider.
Withholding VAT
Transactions
1) Purchase of goods by
Government, political subdivisions
etc.
2) Purchase of services by
Government, political subdivisions
etc.
3) Payment for services rendered
in the Philippines by a non-resident
4) Purchase of goods or services in
the course of trade or business
(payee seller has more than one
buyer)
5) Purchase of goods or services in
the course of trade or business
(payee seller has only one payor-
Withholding agent and withholding rate
Government or any of its political subdivisions instrumentalities or agencies
including government owned or controlled corporations (GOCCs)
5%
Government or any of its political subdivisions instrumentalities or agencies
including government owned or controlled corporations
5%
Government or any of its political subdivisions instrumentalities or agencies
Private corporations, individuals, estate and trusts whether large or non
large taxpayer
12% final
Payor-purchaser in the course of trade or business
Payee-seller shall execute:
1) Waiver of the Privilege to claim input tax credit
2) Notice of availment of the option to pay through withholding process
12% of payee’s gross sales or receipts
Payor-purchaser in the course of trade or business
Payee- seller shall execute waiver and notice of availment as in above
Remittance of withholding VAT
Remittance of The VAT withheld shall be remitted within ten (10) days following the end of
withholding VAT the month the withholding was made.
Advance payment of VAT
a. Transactions requiring
advance payment of VAT
b. Advance payment of VAT
allowed as tax credit against
output tax
1) Sale of refined sugar
2) Sale of flour
3) Transport of naturally grown and planted timber products
4) Sale of jewel, gold and other metallic minerals.
The advance payments made by the seller/owner of refined sugar, importer or
miller of wheat/flour and sellers of naturally grown and planted timber products
shall be allowed as credit against their output tax on the actual gross selling price
of refined sugar/flour/timber products.
Refund of Input tax
a. Input tax on Zero Rated A VAT registered person whose sales of goods, properties or services are
sales of goods or property zero rated or effectively zero rated sales may apply for the issuance of the
etc. tax credit certificate or refund of input tax attributable to such sales. The
input tax that may be subject of the claim shall exclude the portion of input
tax that has been applied against the output tax. The application should be
made within 2 years after the close of the taxable quarter when the sales
were made.
b. Unused Input tax of A VAT-registered person whose registration has been cancelled due to
Person Who Retired or retirement or cessation of business, or due to change in or cessation of
Ceased Business status may, within 2 years from the date of cancellation, apply for the
issuance of a tax credit certificate for any unused input tax which he may
use in payment of his other internal revenue taxes. He shall entitled to a
refund if he has no internal revenue tax liabilities.
Refund of Input tax
c. Period of Refund or Tax
Credit of Input Tax
d. Manner of giving Refunds
Refund or Tax Credit certificate shall be granted within 90 days from the
date of submission of complete documents.
Refunds shall be made upon warrants drawn by the Commissioner of
Internal Revenue or by his authorized representative without the necessity
of being countersigned by the COA chairman.
Refund of Input tax
c. Period of Refund or Tax
Credit of Input Tax
d. Manner of giving Refunds
Refund or Tax Credit certificate shall be granted within 90 days from the
date of submission of complete documents.
Refunds shall be made upon warrants drawn by the Commissioner of
Internal Revenue or by his authorized representative without the necessity
of being countersigned by the COA chairman.
Exercise
a.Miss Ellery Corporation, VAT registered, has the following transactions during the month of January 2018:
Domestic sales, exclusive of VAT P800,000
Importation of goods for sale 240,000
Importation of goods for personal use 100,000
Purchase of office supplies, exclusive of VAT 20,000
Purchase of office equipment total invoice price (estimated life
is 3 years) 1,680,000
Purchase of home appliances for the residence of Elirie Corp.,
gross of VAT 17,920
Payment of services for for store repair, contractor not VAT-
registered but issued VAT invoice (total invoice amount) 33,600
Purchase of services for repainting of store (evidenced by
ordinary receipt issued by contractor) 4,480
Purchase of real property to be used as office, VAT not included,
purchase price not paid yet 500,000
Purchase of vehicle for land transport and for business use,
net of VAT 1,200,000
Payment of maintenance expense for vehicle for land transport,
net of VAT 50,000
Question 1- How much is the total allowable input taxes for the month?
Exercise 2

b. Mr. Villaluz, VAT registered taxpayer has the following data for the first month of the second quarter of
2019: sales, net of 12% VAT
Domestic P2,000,000
Export sales 3,000,000
Purchases attributed to domestic sales, net of 12% VAT 500,000
Purchases attributed to export sales net of 12% VAT 1,500,000
Purchases attributed to both domestic and export sales net of 12% VAT 700,000

1- How much of the input taxes can be claimed as tax credit certificate or tax refund?
2- Assuming the taxpayer decides to apply a portion of the input taxes attributable to zero rated sales against
the output tax, what is the net amount of input tax that can be claimed as tax credit certificate or tax refund?
Exercise 3
c. Mr. Roque, manufactures refined sugar. The following selected data are made available:
Sale of refined sugar, net of VAT P2,000,000
Purchase of sugar cane from farmers 500,000
Purchase of packaging materials, gross of VAT 784,000
Purchase of labels, gross of VAT 112,000
Advanced payment of VAT before release from refinery 60,000

How much is the total creditable input tax using 12% VAT rate?
TRAIN LAW CHANGES IN VALUE ADDED TAX
1 VAT Ceiling from P 1,919,500 to P 3,000,000 2 VAT Exemption
ITEM OLD TRAIN
2018 to 2020 –
Residential House P 1,919,500
P1,500,000
2018 to 2023 –
Residential House and Lot P 3,199,200
P2,000,000
Lease of Residential Unit P 12,800 P 15,000
PWD *Under RR Expressly provided
Senior Citizen *Under RR Expressly provided
Association Dues, Membership
Fees, and Other Assessments and
charges collected by home-owners *Under RMC Expressly provided
associations and condominium
corporations
Sale of Goods to BSP Zero-Rated VAT Exempt
Sale of Drugs and Medicines VAT Exempt
prescribed for diabetes and  -
(2019 onwards)
hypertension
TRAIN LAW CHANGES IN VALUE ADDED TAX
1 VAT Ceiling from P 1,919,500 to P 3,000,000 2 VAT Exemption

ITEM OLD TRAIN

Amortization of Input tax on Capital
Goods Exceeding P1M
Refund of input taxes
On a monthly
Payment of Value Added Taxes
Only be allowed until
Amortized
Dec. 31, 2021.
90 days from date of
submission of complete
120 days documents(CIR must state
in writing in case of
denial)
Beginning January 1, 2023,
filing and payment shall be
done within twenty five (25)
basis
days following close of
quarter.
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