Reminder for our Online Classes:

 Open all your cameras as much as possible

 Put in a mute mode all your devices, unless you are
advise to.
 Live Discussion will start at exactly 2:00PM
EXEMPT SALES
AND VAT PART I
By: Edelwin Fajutagana
INTENDED LEARNING OUTCOME:

At the end of the topic, you will be able to:

• understand the exempt sales of goods, properties
and services;
• understand the nature VAT; and
• Identify the output VAT

Exempt Sales and VAT (PART I)

Exempt Sales

Exempt sales are exempt consumption of goods and

services from domestic sellers. Exempt sales are not
subject to VAT and percentage tax. Hence,
1.VAT taxpayers making exempt sale of goods, properties,
or services shall not bill any output VAT to their
customers because the sale is not subject to VAT.
2.A non-VAT person making exempt sales shall not be
subject to the 3% percentage tax on the sales or receipt.

Exempt Sales and VAT (PART I)

Exempt Sales
Exempt Sales of Goods, or Properties
• Sale of goods to senior citizens and persons with disability
• This covers sale of essential goods only
• Sales of exempt goods
• Agricultural and marine food products in their original state
• Fertilizers, seeds, seedlings and fingerlings, fish, prawn, livestock, and poultry feeds, including ingredients used in the
manufacture of finished feeds
• Books, newspapers' or magazines
• Medicines prescribed for diabetes and hypertension
• Passenger or cargo vessels and aircrafts
• Sales of goods by cooperatives
• Sales by agricultural cooperatives duly registered in good standing with the Cooperative Development Authority (CDA)
to their members, as well as sales 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 be used directly and
exclusively in the production and or processing of their produce.
• Sales by non-agricultural, non-electric and non-credit cooperatives duly registered and in good standing with the CDA.
Exempt Sales and VAT (PART I)
Exempt Sales
Exempt Sales of Goods, or Properties
• Sales of residential properties
• Sale of real properties utilized for low-cost housing
• Sale of real properties utilized for socialized housing
• Sale of residential lot valued at P1,919,500 and below and other residential dwelling valued at P3,199,200 and
below
• Export sales by non-VAT persons
• Treaty-exempt sales of goods
• Sales of goods exempt under international agreement to which the Philippines is a signatory or under special laws.
• Tax-free exchange of property
• The exchange of properties in pursuant to a plan of merger or consolidation or the transfer of property that
resulted in the initial acquisition of corporate control
• Sale of gold to the Bangko Sentral ng Pilipinas (BSP)
• The sale of gold to the BSP is now a VAT-exempt transaction which is previously considered a zero-rated sale.
Exempt Sales and VAT (PART I)
Exempt Sales
Exempt Sales of services
• Schools
• Educational services rendered by private educational institution duly accredited by the Department of Education,
the Commissioner on Higher Education and Technical Education and Skills Development Authority and those
rendered by government educational institutions
• Employees
• Services performed by individuals in pursuant to an employer and employee relationship
• Agricultural contract growers and millers
• Services by agricultural contract growers and milling for others of palay into rice, corn into corn grits, and sugar
case into raw sugar.
• Residential Leasing
• Lease of residential unit with monthly rental not exceeding P15,000
• Cooperative services
• Gross receipts from lending activities by credit or multi-purpose cooperative duly registered and in good standing
with the Cooperative Development Authority
Exempt Sales and VAT (PART I)
Exempt Sales
Exempt Sales of services
• Hospitals
• Medical, dental, hospital and veterinary services except those rendered by professionals and sales of drugs by a
hospital drug store.
• Home owner's association or condominium corporations
• Association dues, membership fees, and other assessments and charges collected by homeowner's association and
condominium corporations.
• Lease passenger or Cargo vessels and aircrafts, including engine, equipment and spare parts thereof for
domestic or international transport operations
• Treaty-exempt services
• Transactions which are exempt under international agreement to which the Philippines is a signatory or under
special laws.
• Regional area headquarters
• Services rendered by regional or area headquarters established in the Philippines by multinational corporation which
acts as supervisory, communications, and coordinating centers for their affiliates, subsidiaries or branches in the
Asia Pacific Region and do not or derive income from the Philippines.
Exempt Sales and VAT (PART I)
Exempt Sales
Exempt Sales of services
• International carriers
• Transport of passengers by international carrier (RA 10378)
• Printers or publishers
• Sales, printing or publication of books and any newspaper, magazine, review, or bulletin which
appears at regular intervals with fixed prices for subscription and sale and which is not devoted
principally to the publication of paid advertisements.
• Senior citizens and persons with disability
Sales of basic essential services to senior citizens and persons with disability by service establishments
such as:
• Restaurant
• Hotels and lodging establishments
• Recreation centers, such as theater, cinema houses, concert halls, carnivals and such other places of
leisure or amusement
Exempt Sales and VAT (PART I)
Exempt Sales
Other exempt sales of goods or services
• Sales of goods or services taxed by special laws
• Sales of goods or services by Ecozone locators
• Sale of amusement service by theaters and cinemas
These are subject to tax by special laws and are not subject to national business taxes such as VAT or
percentage tax.
• Sales by persons not engaged in businesses
• The sale goods, real properties or services by persons not engaged in business is not subject to
business taxes.
• Sale of assets held for use
• The sale of assets held for use such as supplies and items of property, plant and equipment such as:
land and building, machineries, office furniture and fixture, and office equipment is normally
exempt from business tax. For VAT-registered taxpayers, however, the sale of these ordinary assets
is considered "incidental transactions" subject to VAT.
Exempt Sales and VAT (PART I)
The VALUE ADDED TAX

The VAT covers all vatable sales of goods, properties, services, or lease of properties by VAT
taxpayers.
Vatable sales or receipts are from sources other than:
1. Exempt sales
2. Receipts from services specifically subject to percentage tax
Who are VAT taxpayers?
• VAT-registered persons
• VAT-registrable persons
A VAT-registered person will be subject to VAT even if its annual sales do not exceed the VAT
threshold. A registrable person or those whose sales or receipts exceed the VAT threshold without
registering as VAT registering as VAT taxpayers are subject to VAT without the benefit of an input
tax credit.

Exempt Sales and VAT (PART I)

The VALUE ADDED TAX

The VAT Threshold

Exempt Sales and VAT (PART I)

The VALUE ADDED TAX

Illustration: Taxpayers with mixed transactions

Masagana Department Store had the following sales for the last 12-month period:

Since the total of the vatable sales is below the VAT threshold, the Masagana Department Store is not
required to register as a VAT taxpayer. Consequently, it may continue paying 3% percentage tax on these
vatable sales until it exceeds the thresholds.
Exempt Sales and VAT (PART I)
The VALUE ADDED TAX

Optional VAT Registration

Taxpayers below the threshold can voluntarily register as
VAT taxpayers. Such option is subject to the 3-year lock-in
period. The taxpayer is precluded to have his VAT
registration revoked until the lapse of 3 years.

Exempt Sales and VAT (PART I)

The VALUE ADDED TAX

VAT Taxpayers with Mixed Transactions

It must be noted that despite the VAT registration, VAT shall apply
only to the vatable sales or receipts. His non-vatable sales or receipts
remains exempt from VAT. The exempt sales remain to be exempt
while the receipts specifically subject to percentage are subject to
their specific percentage tax rates. The only exception to this is when
the taxpayer opted to have the VAT apply to this non-vatable sales or
receipts.

Exempt Sales and VAT (PART I)

The VALUE ADDED TAX

VAT Taxpayers with Mixed Transactions

It must be noted that despite the VAT registration, VAT shall apply
only to the vatable sales or receipts. His non-vatable sales or receipts
remains exempt from VAT. The exempt sales remain to be exempt
while the receipts specifically subject to percentage are subject to
their specific percentage tax rates. The only exception to this is when
the taxpayer opted to have the VAT apply to this non-vatable sales or
receipts.

Exempt Sales and VAT (PART I)

The VALUE ADDED TAX

The VALUE ADDED TAX MODEL

The VAT payable of a VAT taxpayer is computed as:

Exempt Sales and VAT (PART I)

The VALUE ADDED TAX

Output VAT
Output VAT is the VAT on the vatable sales or receipts. The output
VAT is presumed passed on the seller on his sales or receipts.

Exempt Sales and VAT (PART I)

The VALUE ADDED TAX

Illustration
Assume that GCQ Company, a VAT taxpayer, made a P100,000 vatable sales on account.
The taxpayer shall bill the following to the customer:

Exempt Sales and VAT (PART I)

The VALUE ADDED TAX

Types of Output VAT

1. Regular Output VAT - 12% VAT imposed on domestic sales or
receipts
2. Zero Output VAT - 0% VAT imposed on export and other zero-
rated sales

Exempt Sales and VAT (PART I)

The VALUE ADDED TAX

Input VAT
Input VAT is the VAT paid by the taxpayer on the domestic purchases
from VAT suppliers or on the importation of goods or services in the
course of business.
Despite absence of actual payment of VAT on purchase or import, input
VAT may also be allowed by law as incentives to the taxpayer such as
in the case of presumptive input VAT.
Input VAT has rules on creditability. Not all paid input VAT is creditable
against output VAT. Those allowed to be deductible against output VAT
is called "claimable input VAT", "allowable input VAT" or "creditable
input VAT".
Exempt Sales and VAT (PART I)
The VALUE ADDED TAX

Illustration:
Assume GCQ Company from above illustration purchased goods from a VAT supplier. The
supplier billed at P78,400 inclusive of VAT.
VAT shall be checked on the invoice. If not indicated therein, it can be computed from the
invoice as follows:

Exempt Sales and VAT (PART I)

The VALUE ADDED TAX

VAT DUE
At the end of each month, the input VAT is offset with the output VAT. A positive
VAT due is paid to the BIR. A negative VAT is normally non-refundable but is
carried over to the next succeeding months or quarter.

Exempt Sales and VAT (PART I)

The VALUE ADDED TAX

VAT REPORTING

Exempt Sales and VAT (PART I)

The VALUE ADDED TAX ILLUSTRATION

Illustration 1
A VAT taxpayer had the following purchases and sales, exclusive of VAT:

Accounting Entries:
The following are recorded by the taxpayer:

Exempt Sales and VAT (PART I)

The VALUE ADDED TAX ILLUSTRATION

There will be no VAT payable since the input VAT exceeds the output VAT. The P6,000 (i.e. P84,000 -
P78,000) unutilized input VAT remains on the book.
In VAT reporting, the January 2250M would look like:

This is non VAT refundable. It is called "input VAT carry-over".

Exempt Sales and VAT (PART I)

The VALUE ADDED TAX ILLUSTRATION

In VAT reporting, the February 2250M would look like:

Exempt Sales and VAT (PART I)

The VALUE ADDED TAX ILLUSTRATION

In VAT reporting, the quarterly 22500 Q in March would look like:

If the quarterly tax due is negative, it is non-refundable. The unutilized input VAT remains in the books and is carried over as
input VAT in the following month of the next quarter.
Exempt Sales and VAT (PART I)
END
“Confidence is good, but overconfidence
always sinks the ship”
– Oscar Wilde
STUDENTS CONCERNS:

 If you have any concerns about our online class especially if it affects
majority of the class, please do let me know.
CLASS REMINDERS:
Please be reminded of the following activities for our 4th week
of Online Class Discussion.
• Our scheduled quiz is on Wednesday
• Quiz: 2:30-3:30PM
• Assignment will be posted right after this live conference which will be
submitted on Friday, 1:30PM

INTRODUCTION TO TAXATION AND TAX ADMINISTRATION

Thank you
And
keep safe