VALUE ADDED TAX ON SALE

OF GOODS OR PROPERTIES
Pre-Final
 Preliminary Statements
 The value added tax is a consumption tax. It is imposed
on a seller, but the seller passes it on to the buyer;

 The value added tax must be shown on the official

invoice or receipt issued to the buyer, as a separate
item;

 The value added tax is 12%, 5% or 0% of Selling Price.

 While each sale has a value added tax, reporting and

payment of the value added tax to the government is
made monthly, on the transactions of the month.
 Definition & Scope of VAT
 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.

 It is imposed on the value added in each stage of

distribution.

 It is an indirect tax that may be shifted or passed

on to the buyer, transferee or lessee of the
goods, property or services.
“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 or government entity.

 There is no automatic exemption from VAT

registration requirement of local government
units.
 Subsistence or Livelihood
 Any business or business pursued by
an individual where the aggregate
gross sale or receipts do not exceed
P100,000 during any 12 month period
shall be considered principally for
subsistence or livelihood and not in
the course of business.
 Goods or Property
-shall mean all tangible and intangible objects that
are capable of pecuniary estimation and shall include:

 Real property held primarily for sale to customer or

held for lease in the ordinary course of trade or
business

 The right or privilege to use patent, copyright,

design or model, plan, secret formula or process,
goodwill, trademark, trade brand or other like
property or right
 Goods or Property
 The right or privilege to use in the Philippines
of any industrial, commercial or scientific
equipment;

 The right or privilege to use motion picture

films, films, tapes and disc; and

 Radio, television, satellite transmission and

cable television time.
Definition of sale, barter/exchange

 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 or property in consideration of
property received or to be received.
 The Taxpayer
 Any person who sells, barter or exchanges goods
or properties in the course of trade or business
will be subject to the value added tax, if the
aggregate amount of actual gross sales or
receipts exceed Three Million Pesos (P3,000,000).

 A person required to register as VAT taxpayer but

failed to register

 Any person, whether or not in the course of his

trade or business, who import goods.
 The Tax Base
 The tax base is gross selling price.

 “Gross selling price” means 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, excluding the value added tax. The
excise tax, if any, on such goods will form
part of the gross selling price.
Gross Selling Price vs. Gross Sales
 “Gross selling price” does not mean gross
sale. The law and regulations allow downward
adjustment for:

 Sales return and allowances

 Sales discounts agreed upon at the time of

sale indicated on the sales invoice and availed
of by the buyer.
 The Tax Rates
 The tax rates are:

 Twelve percent (12%), if domestic sales;

 Five percent (5%), if sales to the Government

(and certain entities)

 Zero (0%), if export sale.

 Transaction Deemed Sale
 Transfer, use or consumption not in the course of
business of goods or property originally intended
for sale or for use in the course of business.

 Distribution or transfer to:

a) Shareholders or investor as share in profits of

the VAT-registered persons;

b) Creditors in payment of debt or obligation

 Transaction Deemed Sale

 Consignment of goods if actual sale is not

made within sixty (60) days following the
date such good were consigned; and

 Retirement from or cessation of business,

with respect to inventories of taxable good
existing as of such retirement or cessation.
 Export Sale shall means:
1.The sales and actual shipments or
exportations 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 good service and accounted for in
accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas.
 Export Sale shall means:
2. Sales of raw material or packaging materials
to a non-resident 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 Bangko Sentral
ng Pilipinas.
 Export Sale shall means:
3. Sale of raw material or packaging materials to
export-oriented enterprise whose export sales
exceed seventy percent (70%) of the total annual
production.

4. Sale of gold to the Bangko Sentral ng Pilipinas if

the seller is a VAT-registered taxpayer.

5. Those considered export sales under Executive

Order 226, otherwise known as the Omnibus
Investment Code of 1987 and other special laws.
 Export Sale shall means:
6. The sale of goods, supplies, equipment and
fuel to person engaged in international shipping
or international air transport operations;
Provided, that the same is limited to goods,
supplies, equipment and fuel pertaining to or
attributable to the transport of good and passage
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 is for unloading passenger or cargos
originating from abroad or bound for abroad.
 The Tax Formula

Output taxes (seller’s VAT on sales)

Less:
Input taxes (VAT paid on purchase by seller)

Equals:
Value added tax payable of seller
 The Real Estate Dealer
 A sale of real property by a real estate dealer will be
subject to the value added tax is 12% of the gross
selling price.

 Gross selling price is whichever is higher between the

consideration stated in the contract of sale and the
fair market value.

 A “real estate dealer” is any person engaged in the

business of buying, developing, selling or exchanging
real property as principal and holding himself out as a
full or part-time dealer of real estate.
 Sale on Installment
 Sale of property on installment means sale of
real property by a real estate dealer, the initial
payment of which in the year of sale do not
exceed twenty five percent (25%) of the gross
selling price.

 In case of installment sales, the seller shall be

subject to output VAT on the installment
payment received, including interest and
penalties for late payment, actually or
constructively received.
 Sale on Deferred Payment
 Sale on deferred payment means sale of real
property, the initial payment of which in the
year of sale exceeds twenty-five percent
(25%) of the gross selling price.

 In the case of sale of real properties on

deferred basis, the transaction shall be
treated as cash sale which makes the entire
selling price taxable in the month of sale.
 Initial Payment
 It is the payments which the seller receives
before or upon execution of the instrument
of sale and payments which the seller is
scheduled to received in cash or property
during the taxable year when the sale or
disposition of the real property was made. It
covers any down payment made and includes
all payment actually or constructively received
during the year of sale, the aggregate of
which determines the limit by law.
Illustration
 Belle Corporation sold a parcel of land to SGB
Company on Oct. 1, 2015 for P2,000,000, plus
the output VAT, with down payment of
P200,000 VAT not included, and 36 equal
monthly installment payment of P50,000 plus
the output VAT.
 First installment is due on month-end. The
zonal value of the subject property at the time
of sale amounted to P3,000,000.
 What is the output tax on the Oct.1, 2015
payment?
Solution
Installment sale
(P200,000 + 150,000)/2,000,000 = 17.5%

Actual collection(w/o VAT) X Zonal X 12%

Consideration (w/o VAT) Value

P200,000 x P3,000,000 x 12% = P36,000

P2,000,000
Illustration
 Belle Corporation sold a parcel of land to SGB
Company on Oct. 1, 2015 for P2,000,000, plus
the output VAT, with down payment of P600,000
VAT not included, and balance of 1,400,000 on
or before December 31, 2016.

 The zonal value of the subject property at the

time of sale amounted to P3,000,000.

 What is the output tax on the Oct.1, 2015

payment?
Solution

 Deferred sale
 Initial payment = 600,000/2,000,000=30%

October 1, 2015
Gross selling price P3,000,000 x 12% =
360,000
 Presumptive Input Tax

 Person or firms engaged in processing

sardines, mackerel and milk and in
manufacturing refined sugar and cooking oil
and packed noodle-based instant meal will
be allowed a presumptive input tax,
equivalent to four percent (4%) of the gross
value in money of their purchases of primary
agricultural products which are used as
inputs to their production.
 Definition of terms
 “Primary agricultural products” are
agricultural product in their original state.

 The term “processing” means pasteurization,

canning and activities which through physical
or chemical process alters the exterior
texture or form or inner substance of a
product in such a manner as to prepare it for
special use to which it could not have been
put in its original form and condition.
Illustration
 Mr. ST purchases sardines from fishermen and
process them into canned sardines. Going to
processing in a certain taxable period were the
following purchases, value added tax not included:

Fish(from fishermen) P100,000

Tin cans 20,000
Tomato paste (in cans) 5,000
Olive oil (in plastic bottles) 2,500
Pepper (from farmers) 1,800
Paper labels (from printer) 500
Illustration
Assuming sales during the period amounted to
P400,000, the VAT payable would have been:

Output VAT (400K x 12%) 48,000

Less: Input VAT
Non-agricultural products
(20K+5K+2.5K+.5K)x12% 3,360
Agricultural-product
On pepper (P1,800 x 4%) 72
VAT PAYABLE 44,568
 VAT EXEMPT TRANSACTIONS
A. Sale or importation of:
1. Agricultural and marine food product in their
original state;
2. Livestock and poultry used as, or producing foods
for human consumption;
3. Breeding stock and genetic materials.

B. Sales or importation of:

1. Fertilizers
2. Seeds, seedlings and fingerlings
3. Fish, prawn, livestock and poultry feeds
 VAT EXEMPT TRANSACTIONS
4. Ingredients used in the manufacture of finished
feeds (except feeds for race horses, fighting cocks,
acquarium fish, zoo animals and pets animals)

C. Importation of personal and household

effects belonging to the:
1. Resident of the Philippines returning from abroad
2. Non-resident citizens coming to resettle in the
Philippines
NOTE: Such goods must be exempt from customer
duties.
VAT EXEMPT TRANSACTIONS
D. Importation of professional instruments and
implements, tools of trade, occupation or
employment, wearing apparel, domestic,
animals and personal household effects.

E. Services subject to percentage tax

F. Services by agricultural contract growers and

milling for others of palay into rice, corn into
grits and sugar cane into raw sugar.
VAT EXEMPT TRANSACTIONS
G. Medical, dental, hospital and veterinary
services except those rendered by professionals.

H. Educational services rendered by:

I. Private educational institution, accredited by
i. Department of Education (DepEd)
ii. Commission on Higher Education (CHED)
iii. Technical Education and Skills Development
Authority (TESDA)
II. Government Education Institution
VAT EXEMPT TRANSACTIONS
I. Services rendered by individuals pursuant to
an employer-employee relationship.

J. Services rendered by regional or area

headquarters.

K. Transactions which are exempt under

international agreements to which the
Philippines is a signatory or under special laws
VAT EXEMPT TRANSACTIONS
L. For agricultural cooperatives:
i. Sale to their members
ii. Sale to non-members if the cooperative is the
producer
iii. Importation of direct farm inputs, machineries
and equipment, including spare parts to be used
directly and exclusively in the production and/or
processing of their produce.

M. Gross receipts from lending activities by

credit or multi-purpose cooperatives.
VAT EXEMPT TRANSACTIONS
N. Sales by non-agricultural, non-electric and
non-credit cooperatives, provided that the
share capital contribution of each member
does not exceed P15,000, if more than
P15,000 then subject to VAT.

O. Export sales by person who are not VAT-

registered.
◦ VAT registered exporter – 0% VAT
◦ Non-VAT registered exporter - Exempted
VAT EXEMPT TRANSACTIONS
P. Sale of Real Properties

◦ Not primarily held for sale to customer or held for

lease in the ordinary course of trade or business.

◦ Utilized for socialized housing as per RA 7279

◦ Sale of house and lot and other residential

dwellings with selling price of not more than
P2,000,000 as adjusted in 2011 using 2010
consumer price index.
VAT EXEMPT TRANSACTIONS
Q. Lease of a residential unit with a monthly rental
not exceeding P15,000 regardless of the amount of
aggregated rentals received by the lessor during the
year.
◦ Monthly rental per unit exceeds P15,000 but aggregate
for the year does not exceed P3,000,000 also exempt
from VAT.
◦ If several units with rental either exceed or below
P15,000 the units NOT exceeding P15,000 shall be
exempt regardless of aggregate annual income while
those exceeding P15,000 shall be subject to VAT if
aggregate amount exceeds P3 million otherwise subject
to percentage tax.
VAT EXEMPT TRANSACTIONS
R. Sale, importation, printing or publication of
books and any newspaper, magazine, review or
bulletin which appears at regular intervals with
fixed prices or subscription and sale and which is
not devoted principally to the publication of paid
advertisements.

Provided further, That the materials enumerated

herein are compliant with the requirements set
forth by the National Book Development Board
pursuant to RA 8047, 2021.
VAT EXEMPT TRANSACTIONS
S. Transport of passenger by international
carriers doing business in the Philippines.

T. Sale, importation or lease of passenger or

cargo vessels and aircraft, including engine,
equipment and spare parts thereof for
domestic or international transport operation,
subject to restriction on importation and
mandatory vessel retirement program of
MARINA.
VAT EXEMPT TRANSACTIONS
U. Importation of fuel, goods and supplies by
persons engaged in international shipping or
air transport operations.

V. Services of banks, non-bank financial

intermediaries performing quasi-banking
functions, and other non-bank financial
intermediaries such as money changers and
pawnshop, subject to percentage tax Sec. 121-
122 of the Tax Code.
VAT EXEMPT TRANSACTIONS
W. Sale of lease of goods and services to senior
citizen and person with disabilities.

X. Transfer of property pursuant to Section

40(C)(2) of the Tax Code.

Y. Association dues, membership fees, and

other assessment and charges collected on a
purely reimbursement basis by homeowners
association and condominium corporation.
VAT EXEMPT TRANSACTIONS
Z. Sale of Gold to the Bangko Sentral ng
Pilipinas (Under Train law Jan. 1, 2018).

AA. Sales of drugs and medicines prescribed

for diabetes, high cholesterol and hypertension
beginning January 1, 2019.

BB. Sale or importation of capital equipment,

drugs, vaccine and medical devices for
treatment of Covid19.
VAT EXEMPT TRANSACTIONS
CC. Sale or lease of goods or properties of the
performance of services other than the
transaction mentioned in the preceding
paragraphs, the gross annual sales/receipts do
not exceed the amount of P3,000,000 as
amended.
The End