Transfer and Business Taxation

Value Added Tax (VAT)

PRESENTATION BY:
I De Leon, Marielle I Diaz, Paula Angela
 WHAT IS VAT?
VAT is a tax on the value added by every seller to the purchase price or cost in
the sale or lease of goods, property or services in the ordinary course of trade or
business as well as on importation of goods into the Philippines, wether for
personal or business use.

Who a r e Required t o File VAT Returns?

Any person or entity who, in the course of his trade or business, sells,
barters, exchanges, leases goods or properties and renders services subject to
VAT, if the aggregate amount of actual gross sales or receipts exceed Three
Million Pesos (Php3,000,000.00)
A person required to register as VAT taxpayer but failed to register
Any person, whether or not made in the course of his trade or business, who
imports goods
 VAT EXEMPT TRANSACTIONS
1. Sale or importation of agricultural and marine food products in their original state.
2.Sale or importation of Fertilizers and Seeds, seedlings and fingerlings, fish, prawn,
livestock and poultry feeds, including ingredients, whether locally produced or imported.
3.Importation of personal and household effects belonging to the residents 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.
4.Importation of professional instruments and implements, wearing apparel, domestic
animals, and personal household effects (except any vehicle, vessel, aircraft, machinery
other goods for use in the manufacture and merchandise of any kind in commercial
quantity) belonging to persons coming to settle in the Philippines.
5. Services subject to percentage tax under Title V.
6.Services by agricultural contract growers and milling for others of palay into rice, corn
into grits and sugar cane into raw sugar;
7. Medical, dental, hospital and veterinary services except those rendered by professionals.
 VAT EXEMPT TRANSACTIONS
8.Educational services rendered by private educational institutions, duly accredited by
the Department of Education(DepED), the Commission on Higher Education (CHED), the
Technical Education and Skills Development Authority (TESDA)and those rendered by government
educational institutions;
9. Services rendered by individuals pursuant to an employer-employee relationship;
10.Services rendered by regional or area headquarters established in the Philippines
by multinational corporations which act as supervisory, communications and coordinating centers
for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not earn or derive
income from the Philippines.
11.Transactions which are exempt under international agreements to which the Philippines
is a signatory or under special laws, except those under Presidential Decree No. 529;
12.Sales by agricultural cooperatives duly registered with the Cooperative Development
Authority to their members as well as sale of their produce, whether in its original state or
processed form, to non-members;
13.Gross receipts from lending activities by credit or multi-purpose cooperatives duly
registered with the Cooperative Development Authority;
 VAT EXEMPT TRANSACTIONS
14.Sales by non-agricultural, non- electric and non-credit cooperatives duly registered
with the Cooperative Development Authority: Provided, That the share capital
contribution of each member does not exceed Fifteen thousand pesos (P15, 000) and
regardless of the aggregate capital and net surplus ratably distributed among the members;
15. Export sales by persons who are not VAT-registered;
16. Sale of real properties
17. Lease of a residential unit
18.Sale, importation, 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;
19. Transport of passengers by international carriers;
20.Sale, importation or lease of passenger or cargo vessels and aircraft, including
engine, equipment and spare parts thereof for domestic or international transport operations;
21.Importation of fuel, goods and supplies by persons engaged in international shipping
or air transport operations;
 VAT EXEMPT TRANSACTIONS

22.Services of bank, non-bank financial intermediaries performing quasi-banking functions,

and other non-bank financial intermediaries;
23. Sale of goods and services to senior citizens and persons with disabilities
24. Transfer of property
25.Association dues, membership fees, and other assessments and charges collected on a
purely reimbursement basis by homeowners associations and condominium corporations
26. Sale of Gold to Bangko Sentral ng Pilipinas
27.Sale or importation of prescription drugs and medicines prescribed for diabetes,
high cholesterol, and hypertension beginning January 1, 2020, and cancer, mental
illness, tuberculosis and kidney diseases beginning January 1, 2021.
28.Sale or importation of Capital equipment, all drugs, vaccines and medical devices, and
Drugs for the treatment of COVID-19.
29.Sale or lease of goods or properties or the performance of services other than
transactions mentioned in the preceding paragraphs.
COMPUTATION OF VAT PAYABLE

Output Vat (Gross Sales or Gross Receipts x 12% or Pxx

0%) Less: Input VAT (Gross Purchase or Payments x (xx)
12%) Vat Payable (Excess over input vat) Px
x

SOURCES OF OUTPUT VAT

1. ACTUAL SALE
2. TRANSACTIONS DEEMED
SALE
3. ZERO RATED SALES
1. ACTUAL SALE
B. Sale of Services - gross
receipts
Cash Received* Pxx
A. Sale of Goods or Properties - gross selling
price Deposit/Advanced payment for future projects xx
Materials charged for services xx
Gross Sales* Px
x Gross
Less: Sales x
x Receipts xx
Discount Sales xx (xx)
VAT rate 12%
Returns xx
OUTPUT VAT Pxxx
Net Sales xx C. Sale by a dealer in securities - gross
Add: Excise tax, if xx income
any Tax Base Gross Selling Price * Px
VAT rate 12% Less: Acquisition cost of securities sold for x
OUTPUT VAT Pxx the month/quarter (xx
x Balance )xx
Add: Other income subject to basic xx
tax Gross Income xx
VAT rate
OUTPUT VAT 12%
2. TRANSACTION DEEMED SALE

Under section 106 (B) of the tax code, certain transactions which are not actually sales
because of the absence of actual exchange between the buyer and the seller, are considered
or included in the term “ sale” for value added tax purposes.

OUTPUT VAT Px
(Vat on sale of goods, services, lease of properties, etc. x
) INPUT VAT (xx
(Vat on purchase of goods, services, lease of properties, etc. )
) VAT PAYABLE Px
x
3. ZERO RATED SALE
A “zero rated sale” of goods, properties and/or services by a vat registered person is
taxable transaction for VAT purposes, but shall not result in any output tax. However, the
input tax on purchases of goods, properties or services, related to such zero-rated sale, shall
be available as tax credit or refund in accordance with existimg regulations.

EXPORT SALE BY A VAT REGISTERED EXPORT SALE BY A NON-VAT REGISTERED

ENTITY ENTITY
Gross Sales Pxx Gross Sales Pxx
Multiply: VAT RATE 0% Multiply: VAT RATE N/A
OUTPUT VAT P0 OUTPUT VAT P0
INPUT VAT (xx) INPUT VAT N/A
VAT PAYABLE (Pxx VAT PAYABLE -
(refundable) ) (refundable)
SOURCES OF INPUT VAT

1. LOCAL PURCHASES OF GOODS AND

SERVICES
2. ACQUISITION OF CAPITAL GOODS
3. IMPORTATION
4. PRESUMPTIVE INPUT VAT
5. TRANSITIONAL INPUT VAT
6. CREDITABLE WITHOLDING VAT
1. LOCAL PURCHASE OF GOODS AND SERVICES SUCH AS PURCHASE OF:
A. Goods for sale
B. Goods for conversion into finish product
C. Goods for use as supplies
D. Goods for use as materials supplied in the sale of services
E.Goods for use in trade or business for which depreciation or amortization is allowed
(Capital Goods)
F. Real properties for which vat has actually been paid
G. Services for which vat has actually been paid

INPUT VAT ON CAPITAL GOODS

MORE THAN 1M NOT MORE
THAN 1M
Input tax shall be spread or allocated evenly Input tax is not allocated. The total amount of
during the estimated useful life of the input vat shall be treated as tax credit agaisnt
depreciable asset but it shall not exceed 60 output vat in the month of acquisition.
months. Allocation shall commence in the
calendar month when the capital good was
acquired.
Rules on recognition of Input Vat for Capital Goods

Aggregate Acquisition for the month > P 1,000,000 exclusive of vat, and

Life > 1 year Input Tax shall be spread evenly over such useful life but not to
exceed 60months.

Life < 1 year Not a capital asset. Input tax is not allocated.

Aggregate Acquisition cost for the month < P 1,000,000 exclusive of vat (regardless of
useful life). The related input vat is not allocated. Consequently, the total amount of input vat
shall be treated as tax credit against output vat in the month of acquisition.

UNDER THE TRAIN LAW: For capital goods acquired beginning January 1, 2022, the entire
related input vat shall be claimed during the month the capital goods are purchased,
irrespective of acquisition cost.
ILLUSTRATION:

Berlin Corporation, a vat registered taxpayer made the following acquisitionof capital goods
from VAT registered suppliers during 2024.

ACQUISITION
PURCHASE ESTIMATED
DATE COST LIFE HOW MUCH IS THE CREDITABLEINPUT
VAT FOR THE MONTH OF JANUARY?
P 600,000
Jan 13 4 years
ANSWER:
800,000
Jan 23 5 years
Jan 13 (600,000 x 12%/48mos.) P 1,500
March 15
500,000
2 years
Jan 23 (800,000 x 12%)/60mos. 1,600
Total allocated input vat for jan. 3,100
1,000,000
March 30 10 years
ILLUSTRATION: SAMPLE PROBLEM

Berlin Corporation, a vat registered taxpayer made the following acquisitionof capital goods
from VAT registered suppliers during 2024.

ACQUISITION
PURCHASE ESTIMATED
HOW MUCH IS
DATE
THECOST
CREDITABLE
LIFE
INPUT VAT FOR THE MONTH OF MARCH?

P 600,000
Jan 13 4 years
ANSWER:
Jan 13 (600,000 x 12%/48mos.) P
800,000
Jan 23 5 years Jan 23 (800,000 x 12%)/60mos. 1,500
March 15 (500,000 x 12%/24mos.) 1,600
500,000
March 15 2 years March 30 (1,000,000 x P
12%)/60mos. 2,500
1,000,000
Total allocated input vat for 2,000
7,600
March 30 10 years
march
2. IMPORTATION

Vat on importation is imposed regardless of whether such importation is for personal or

business use. Although importation is not a sale of goods, or sometimes not even a business
activity, vat is imposed because vat is a consumption tax levied on sales to be borne by
consumers with sellers acting simply as tax collectors.

PERSONS LIABLE/COVERED

1.Any person, entity or agency who bring goods into the Philippines, whether or not made
in the ordinary course or trade of business.
2.Non-exempt persons or entities who acquire tax free imported goods from exempt
persons, entities or agencies. The non-exempt persons, purchaser, transferee shall be
considered as the importer for vat purposes.
2. IMPORTATION

COMPUTATION OF VAT IMPORTATION

1. If the custom duties are determined by the BOC based on the value of the imported article
(also known as the “ad-valorem tax”:

Value for the tariff and custom Pxxx

duties ADD: Custom Duties xxx
Excise tax, if applicable xxx
Other legitimate charges prior to release by the xxx
BOC TAX BASE Pxxx
VAT Rate 12%
VAT on importation Pxx
x
2. IMPORTATION

COMPUTATION OF VAT IMPORTATION

2. If the custom duties are determined by the BOC based on the quantity or volume of the
imported article (also known as “specific” tax)

INVOICE AMOUNT Pxxx

ADD: Custom xxx
Duties Freight xxx
Insurance xxx
Other legitimate charges prior to release by the
BOC LANDED COST
ADD: Excise tax, if xxx
applicable TAX BASE Pxx
VAT Rate x
VAT on importation xxx
Pxxx
2. IMPORTATION

ILLUSTRATION:

Lucky Cigar, classified as non-essential article was imported

for sale. The particular of which are as follows: HOW MUCH IS THE VAT ON IMPORTATION?
ANSWER:

Value of importation as determined

Valuation determined by BOC P 250,000
by the BOC (assume exchange rate is $1 : $ 5,000 Add: Custom Duties 15,000
P50) Custom duties P 15,000 Excise Tax 25,000
Other BOC Charges 8,000
Excise tax 25,000 Tax Base 298,000
Other BOC 8,000 VAT Rate 12%
charges 5,000 Input VAT on importation 35,760
Facilitation 35,000
expense Shipping 4,000,000
costs
Selling price of the
goods imported
2. IMPORTATION

ILLUSTRATION: SAMPLE PROBLEM

Lucky Cigar, classified as non-essential article was imported

for sale. The particular of which are as follows:

Value of importation as determined

HOW MUCH IS THE VAT PAYABLE?
by the BOC (assume exchange rate is $1 : $ 5,000
P50) Custom duties P 15,000 ANSWER:
Excise tax 25,000
Other BOC 8,000 Output Vat (4M x 12%) P 480,000
charges 5,000 Less: Input vat on (35,760)
Facilitation 35,000 importation (4,200)
expense Shipping 4,000,000 Input vat on shipping 440,040
costs VAT PAYABLE
costs
Selling price of the
goods imported
3. PRESUMPTIVE INPUT TA X OF 4 % ON SALE OF GOODS

Persons or firms engaged in the processing of sardines, mackarel and milk, and in
manufacturing refined sugar cooking oil and packed noodle-based instant meals, shall be
allowed a presumptive input tax, creditable against the output tax, equivalent to 4% of
the gross value in money of their purchases of primary agricultural products which are
used as inputs to their production.

Entitled to presumptive Persons or firm engaged in the:

vat: Manufacturing
Processing of: of: Refined sugar
Sardines Cooking oil
Mackerel Packed noodle based
Milk instant meal
3. PRESUMPTIVE INPUT TA X OF 4 % ON SALE OF GOODS

ILLUSTRATION:
Munchies Company, manufacturer of cooking oil made of corn, has the following data for the
month:
Sales (net) P20,000,000
Purchases, corn 4,000,000
Purchases, tin 500,000
Purchase of wrapping supplies, (net) 400,000
Purchase of labels, (net) 250,000

Required: Determine the vat payable of

Minola
Output Vat (20Mx12%) 2,400,000
LESS: Input vat from purchase of:
Corn (presumptive vat: 4Mx4%) (160,000)
Tin (500,000x12%) (60,000)
Wrapping Supplies (400,000x12%) (48,000)
Labels (250,000x12%) (30,000)
VAT PAYABLE 2,102,000
4. TRANSITIONAL INPUT TAX

Person who becomes liable to value-added tax or any person who elects to be a VAT-
registered person shall, subject to the filing of an inventory according to rules and
regulations prescribed by the Secretary of Finance, upon recommendation of the
Commissioner, be allowed input tax on his beginning inventory of goods, materials and
supplies equivalent to two percent (2%) of the value of such inventory or the actual value-
added tax paid on such goods, materials and supplies whichever is higher, which shall
be creditable against the output tax.

TAXPAYERS WHO CAN AVAIL TRANSITIONAL INPUT VAT

A) Taxpayers who becomes liable to vat.
B)Taxpayers who are elects to be vat registered.
 4. TRANSITIONAL INPUT TAX

ILLUSTRATION:

NAJ Company, which used to be vat exempt because

annual receipts never exceeded the vat threshold, Required: Determine the vat payable of
its
decided to register under vat system on January 2, the company for the first quarter of
2022. The following data were taken from records 2022.
of the company for the first quarter ending arch 31, Output Vat (7Mx12%) 840,000
2022. LESS: Input vat of:
Sales, net P7,000,000 Purchases (5Mx12%) (600,000)
January - March, 2022 Purchases 5,000,000 Transitional Input Vat (70,000)
(net) Inventory, Jan 1, 2022: (Actual: 500,000x12% =
From vat registered suppliers, net 60,000) versus
500,000
(3,500,000x2%= 70,000)
From non-vat registered suppliers, 3,000,000
net VAT PAYABLE 170,000
5. CREDITABLE WITHOLDING TAX

SALE OF GOODS AND SERVICES TO THE GOVERNMENT

Section 114 (C) of the Tax Code as amended by the TRAIN Law provides, that
beginning January 1, 2021, the VAT withholding system shall shift from a final to a
creditable vat system wherein the payor shall be considered the withholding agent.
Therefore, the five percent (5%) vat withheld by the government or any of its
political subdivisions, instrumentalities or agencies, including government owned
controlled corporations (GOCC’s) shall be creditable against the output Vat of the
seller.
5. CREDITABLE WITHHOLDING TAX
ILLUSTRATION: SAMPLE PROBLEM
Dara Company, a vat registered trader had the following transactions for the 1st quarter of
2022:
Sale of office supplies to the City of Manila P2,250,000
Sale of office supplies to private entities 1,550,000
Purchases of office supplies sold to city of Manila, inclusive of vat 940,000
Purchases of office supplies sold to private entities, net of vat 1,680,000

Q1 - HOW MUCH IS THE AMOUNT OF VAT TO BE Q3 – HOW MUCH IS THE VAT PAYABLE OF DARA COMPANY FOR
WITHHELD BY THE CITY OF MANILA? THE FIRST QUARTER OF 2022?
ANSWER: ANSWER:
Output VAT 456,000
112,500 (2,250,000x5%) Less: Input Vat on Purchases
(940,000/1.12x12%)+(1,680,000x12%) (302,314.29)
5 % Withholding Vat (112,500)
Q2 - HOW MUCH IS THE OUTPUT VAT FOR THE 1ST QUARTER? VAT Payable 41,185.71
ANSWER:

Sale of office supplies to City of Manila 2,250,000

Sale of office supplies to private entities 1,550,000
Total Sales 3,800,000
Multiply by: Vat Rate
Output Vat 12%
456,000
VAT E x e m p t i o n a n d D i s c o u n t s t o
Senior Citiz e n s a n d PWDs

Under RA 9994, otherwise known as the Expanded Senior Citizens

Act of 2010, Senior Citizens are entitled to the following benefits:

1. Vat exemption and 20% discount on certain items; and

2. 5% special discount on basic necessities and prime commodities

Persons with Disability (PWDs), are likewise entitled to the

aforementioned 20% and 5% discounted as provided under RA 7277,
otherwise known as the Magna Carta Law for PWDs, as amended.
VAT E x e m p t i o n a n d D i s c o u n t s t o
Senior Citiz e n s a n d PWDs

Sample Computation of Discount and Amount

Due:

Sales (inclusive of vat) P

Less: 12% vat 1,120
(1,120x12/112) Sales, net of (120)
vat 1,000
Less:20% 200
discount Total P800
Amount Due
MIXED BUSINESS TRANSACTIONS
A Vat registered person may be engaged in a combination of sales subject to vat, zero-rated vat, and vat exempt transactions. For vat
purposes, this is known as mixed business transactions. The main concern in mixed business transaction is the allocation or
apportionment of input vat.

A vat registered person who is also engaged in transactions not subject to vat shall be allowed of input tax credit as follows:

a.Total input tax which can be directly attributed to transactions subject to vat; and

b.Ratable portion of any input tax which cannot be directly attributed to either activity (allocation shall be on the basis of sales
volume)
Output Vat xxx
Less: Input Vat
- Directly Attributed to vatable transactions (xxx)
- Not Directly Attributed (mixed transactions) to vatable transactions:

Taxable Sales
Total Sales x Input Tax (xxx)

Balance xxx
Less: 5% withholding vat on sales made to the government (xxx)
VAT PAYABLE xxx
 MIXED BUSINESS TRANSACTIONS
A taxpayer is engaged in the sale of VAT taxable goods and at the same time is also engaged in non-VAT business, in the same business
establishment. The following data for the taxable year were provided for purposes of determining the correct amount of vat payable:

Sales (subject to vat, net) P8,000,000

Sales (subject to other percentage taxes, net) 3,000,000

Solution:
Purchase of services directly attributable to vatable sales (net) 1,500,000 Output VAT (8Mx12%) 960,000

Input Vat:
Purchase of supplies directly attributable to vatable sales (net) 1,500,000 Directly attributable to
vatable sales (3Mx12%) (360,000)
Input vat on purchase of
Purchase of supplies from non-vat suppliers, directly attributable goods/services in both
types of business
to vatable sales 600,000 [(1,150,000/1.12 x12%)
+ (1,000,000x12%)] x
8M/11M (176,883.12)
Purchase of services attributable to both vatable and non-vatable
VAT PAYABLE 423,116.88
sales (gross of vat) 1,150,000

Purchase of supplies attributable to both vatable and non-vatable

sales (net of vat) 1,000,000