Chapter 2

Value-Added Tax

 Nature and Characteristics of VAT

VAT is a tax on consumption levied on the sale, barter, exchange or lease of
goods or properties and services in the Philippines and on importation of goods
into the Philippines. The seller is the one statutorily liable for the payment of the
tax but the amount of the tax may be shifted or passed on to the buyer, transferee
or lessee of the goods, properties or services. In the case of importation, the
importer is the one
liable for the VAT. (Sec 4.105-2, RR 16-2005)

 Scope of VAT
The following transactions entered into by any person are subject to VAT:
 Any sale, barter, or exchange of goods and properties (including real
properties), or similar transactions, in the course of trade or business;
 Any sale of services, or similar transactions, in the course of trade or
business;
 Any lease of goods and properties, or similar transactions, in the course of
trade or business; and
 Any importation of goods, whether or not in the course of trade or
business.

 Meaning of the Term “Sales of Goods or Properties”

The term "goods or properties" shall mean all tangible and intangible objects,
which are capable of pecuniary estimation and shall include, among others:
1. Real properties held primarily for sale to customers or held for lease in the
ordinary course of trade or business;
2. The right or the privilege to use patent, copyright, design or model, plan,
secret formula or process, goodwill, trademark, trade brand or other like
property or right;
3. The right or privilege to use in the Philippines of any industrial, commercial
or scientific equipment;
4. The right or the privilege to use motion picture films, films, tapes and
discs; and
5. Radio, television, satellite transmission and cable television time.
TRAIN https://www.bir.gov.ph/index.php/tax-information/value-added-tax.html

 Meaning of the Term “Sale or Exchange of Services”

The term "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 the following:
1. Construction and service contractors;
2. Stock, real estate, commercial, customs and immigration brokers;
3. Lessors of property, whether personal or real;
4. Persons engaged in warehousing services;
5. Lessors or distributors of cinematographic films;
6. Persons engaged in milling, processing, manufacturing or repacking
goods for others;
7. Proprietors, operators or keepers of hotels, motels, rest houses, pension
houses, inns, resorts, theatres, and movie houses;
8. Proprietors or operators of restaurants, refreshment parlors, cafes, and
other eating places, including clubs and caterers;
9. Dealers in securities;
10. Lending investors;
11. Transportation contractors on their transport of goods or cargoes,
including persons who transport goods or cargoes for hire and other
domestic common carriers by land relative to their transport of goods or
cargoes;
12. 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;

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13. Sale of electricity by generating, transmission by any entity including the

National Grid Corporation of the Philippines (NGCP), and distribution
companies including electric cooperatives shall be subject to twelve
percent (12%) VAT on their gross receipts;
14. 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 not exceed Ten Million Pesos
(₱10,000,000.00), and franchise grantees of gas and water utilities;
15. Non-life insurance companies (except their crop insurances), including
surety, fidelity, indemnity and bonding companies; and
16. Similar services regardless of whether or not the performance thereof calls
for the exercise of use of the physical or mental faculties.
The phrase "sale or exchange of services" shall likewise include:
1. The lease of use of or the right or privilege to use any copyright, patent,
design or model, plan, secret formula or process, goodwill, trademark,
trade brand or other like property or right;
2. The lease or the use of, or the right to use of any industrial, commercial or
scientific equipment;
3. The supply of scientific, technical, industrial or commercial knowledge or
information;
4. The supply of any assistance that is ancillary and subsidiary to and is
furnished as a means of enabling the application or enjoyment of any such
property, or right or any such knowledge or information;
5. The supply of services by a nonresident person or his employee in
connection with the use of property or rights belonging to, or the
installation or operation of any brand, machinery or other apparatus
purchased from such non-resident person;
6. The supply of technical advice, assistance or services rendered in
connection with technical management or administration of any scientific,
industrial or commercial undertaking, venture, project or scheme;
7. The lease of motion picture films, films, tapes and discs; and
8. The lease or the use of or the right to use radio, television, satellite
transmission and cable television time. TRAINhttps://www.bir.gov.ph/index.php/tax-information/value-added-tax.html

 Registration of VAT Taxpayer

Any person who, in the course of trade or business, sells, barters or exchanges
goods or properties, or engages in the sale or exchange of services, shall register
as VAT-taxpayer with the Bureau of Internal Revenue if:
1. Gross sales or receipts for the past twelve (12) months, other than
VATexempt sales, have exceeded ₱3,000,000 (RA 10963); or
2. There are reasonable grounds to believe that his gross sales or receipts
for the next twelve (12) months, other than VAT-exempt sales, will exceed
₱3,000,000.

 Effect of Non-Registration: No Benefit of Input Tax

If a person is required to register as a VAT taxpayer and he does not so register,
he shall be subject to the output on his sale, without any deduction for a value-
added tax on his purchase. Once a taxpayer registers as a VAT taxpayer, he will
have a continuing status of a VAT taxpayer until he cancels his registration.

 Cancellation of VAT Registration

A VAT-registered person may cancel his registration if
1. He makes written application and can demonstrate to the Commissioner’s
satisfaction that his gross sales or receipts for the following twelve (12)
months, other than those are exempt under Section 109 (a) to (u), will not
exceed ₱3,000,000; or
2. He has ceased to carry on his trade or business and does not expect to
recommence any trade or business within the next twelve (12) months. The

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cancellation of registration will be effective from the first day of the following
month.

 VAT-Exempt Transactions
The following transactions shall be exempt from the value-added tax:
(Sec. 109, NIRC; Sec. 7, RA9337)
1. Sale or importation of agricultural and marine food products in their
original state, livestock and poultry of a kind generally used as, or yielding
or producing foods for human consumption; and breeding stock and
genetic materials therefor.
Products classified under this paragraph shall be considered in their
original state even if they have undergone the simple processes of
preparation or preservation for the market, such as freezing, drying,
salting, broiling, roasting, smoking or stripping. Polished and/or husked
rice, corn grits, raw cane sugar and molasses, ordinary salt, and copra
shall be considered in their original state; muscovado
2. Sale or importation of fertilizers; seeds, seedlings and fingerlings; 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);
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, tools of trade,
occupation or employment, wearing apparel, domestic animals, and
personal and household effects belonging to persons coming to settle in
the Philippines or Filipinos or their families and descendants who are now
residents or citizens of other countries, such parties hereinafter referred to
as overseas Filipinos, in quantities and of the class suitable to the
profession, rank or position of the persons importing said items, for their
own use and not for barter or sale, accompanying such persons, or
arriving within a reasonable time: Provided, That the Bureau of Customs
may, upon the production of satisfactory evidence that such persons are
actually coming to settle in the Philippines and that the goods are brought
from their former place of abode, exempt such goods from payment of
duties and taxes: Provided, further, that vehicles, vessels, aircrafts,
machineries and other similar goods for use in manufacture, shall not fall
within this classification and shall therefore be subject to duties, taxes and
other
charges; (RR 13-2018) RA 10963 TRAIN LAW
5. Importation of fuel, goods and supplies by persons engaged in
international shipping or air transport operations: Provided, that the said
fuel, goods and supplies shall be used for international shipping or air
transport operations. Thus, said fuel, goods and supplies shall be used
exclusively or shall pertain to the transport of goods and/or passenger
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 or stopping at any other Philippine port 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 portion of fuel, goods and
supplies shall be subject to twelve percent
(12%) VAT (RR 13-2018) RA 10963 TRAIN LAW);
6. Importation of certain goods to fight COVID-19. The importation of the
following goods shall not be subject to the requirement of issuance of
Authority to Release Imported Goods (ATRIG) before release by the

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Bureau of Customs: (a) capital equipment, its spare parts and raw
materials, necessary to produce personal protective equipment
component; (b) all drugs, vaccines and medical devices specifically
prescribed and directly used for the treatment of COVID-19; and (c) drugs,
including raw materials, for the treatment of COVID-19 approved by the
FDA for use in clinical trials. The above exemption claimed shall be
subject to post audit by the Bureau of Internal Revenue (BIR) or the
Bureau of Customs (BOC), as may be applicable.
7. Services subject to percentage tax;
8. Services by agricultural contract growers and milling for others of palay
into rice, corn into grits and sugar cane into raw sugar (Agricultural
contract grower refers to those persons producing for others poultry,
livestock or other agricultural and marine food products in their original
state RR16-05 as
amended).
9. Medical, dental, hospital and veterinary services except those rendered by
professionals, Laboratory services are exempted;
10. 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;
11. Services rendered by individuals pursuant to an employer-employee
relationship;
12. 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;
13. Transactions which are exempt under international agreements to which
the Philippines is a signatory or under special laws except those granted
under P.D. No. 529 - Petroleum Exploration Concessionaires under the
Petroleum Act of 1949
14. Sales by agricultural cooperatives duly registered and in good standing
with the Cooperative Development Authority (CDA) to their members, as
well as of their produce, whether in its original state or processed form, to
nonmembers, 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;
15. Gross receipts from lending activities by credit or multi-purpose
cooperatives duly registered and in good standing with the Cooperative
Development Authority;
16. Sales by non-agricultural, non-electric and non-credit cooperatives duly
registered with and in good standing with CDA; Provided, that the share
capital contribution of each member does not exceed Fifteen Thousand
Pesos (₱15,000) and regardless of the aggregate capital and net surplus
ratably distributed among the members;
17. Export sales by persons who are not VAT-registered;
18. Beginning January 1, 2021, the VAT exemption shall only apply to sale
of real properties not primarily held for sale to customers or held for lease
in the ordinary course of trade or business, sale of real property utilized for
socialized housing as defined by Republic Act No. 7279, sale of house
and lot, and other residential dwellings with selling price of not more than
₱2,000,000: as adjusted to ₱2,559,300 in 2011 using 2010 CPI.; (RR 8-2021)
RA 10963 TRAIN LAW
19. Lease of residential units with a monthly rental per unit not exceeding
₱15,000.
The foregoing notwithstanding, lease of residential units where the
monthly rental per unit exceeds ₱15,000, but the aggregate of such

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rentals of the lessor during the year do not exceed ₱3,000,000 shall
likewise be exempt from VAT; however, the same shall be subject to three
percent (3%) percentage tax under Section 116 of the Tax Code.

In cases where a lessor has several residential units for lease, some are
leased out for a monthly rental per unit of not exceeding ₱15,000 while
others are leased out for more than ₱15,000 per unit, his tax liability will
be as follows:
a. The gross receipts from rentals not exceeding ₱15,000 per month
per unit shall be exempt from VAT regardless of the aggregate
annual gross receipts. It is also exempt from the 3% percentage
tax.
b. The gross receipts from rentals exceeding ₱15,000 per month per
unit shall be subject to VAT if the aggregate annual gross receipts
from said units only exceeds ₱3,000,000. Otherwise, the gross
receipts will be subject to the 3% tax imposed under Section 116 of
the Tax Code; (RR 13-2018) RA 10963 TRAIN LAW
20. Sale, importation, printing or publication of books and any newspaper,
magazine, journal, review bulletin, or any such educational reading
material covered by the UNESCO Agreement on the Importation of
Educational, Scientific and Cultural Materials, including the digital or
electronic format thereof: Provided, that the materials enumerated herein
are not devoted principally to the publication of paid advertisements.
CREATE Law
21. Transport of passengers by international carriers; (RR 13-2018) RA 10963 TRAIN
LAW
22. Sale, importation or lease of passenger or cargo vessels and aircraft,
including engine, equipment and spare parts thereof for domestic or
international transport operations: Provided, however, that the exemption
from VAT on the importation and local purchase of passenger and/or
cargo vessels shall be subject to the requirements on restriction on vessel
importation and mandatory vessel retirement program of Maritime Industry
Authority (MARINA); (RR 13-2018) RA 10963 TRAIN LAW
23. Services of banks, non-bank financial intermediaries performing
quasibanking functions, and other non-bank financial intermediaries such
as money changers and pawnshops, subject to percentage tax under
Secs.
121 and 122, respectively, of the Tax Code; (RR 13-2018) RA 10963 TRAIN LAW
24. Sale or lease of goods and services to senior citizens and persons with
disabilities, as provided under Republic Act Nos. 9994 (Expanded Senior
Citizens Act of 2010) and 10754 (An Act Expanding the Benefits and
Privileges of Persons with Disability), respectively; (RR 13-2018) RA 10963 TRAIN
LAW
25. Transfer of Property pursuant to Section 40(C)(2) [tax-free exchange: (1)
transfer to a controlled corporation; and, (2) merger or consolidation] of
the
Tax Code, as amended; (RR 13-2018) RA 10963 TRAIN LAW
26. Association dues, membership fees, and other assessments and charges
collected on a purely reimbursement basis by homeowners’ associations
and condominium corporations established under Republic Act No. 9904
(Magna Carta for Homeowners and Homeowners’ Association) and
Republic Act No. 4726 (The Condominium Act), respectively; (RR 13-2018) RA
10963 TRAIN LAW

27. Sale of gold to the Bangko Sentral ng Pilipinas; (previously zero-rated transaction) (RR
13-2018) RA 10963 TRAIN LAW

28. Sale by manufacturers, distributors, wholesalers and retailers of drugs and

medicines prescribed for the treatment and/or prevention of diabetes,
highcholesterol and hypertension starting January 1, 2019. The
importation of the above-described drugs and medicines shall be subject

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to VAT under Section 107 of the Tax Code. as amended. The FDA
approved list includes
Human Insulin, Biguanides and Sulfonylureas (RR 25-2018) RA 10963 TRAIN LAW
29. Sale or lease of goods or properties or the performance of services other
than the transactions mentioned in the preceding paragraphs, the gross
annual sales and/or receipts do not exceed the amount of ₱3,000,000. (RR
13-2018) RA 10963 TRAIN LAW

Transactions exempt from the value-added tax:

1. Sale or importation of agricultural and marine food products in their original
state…
Illustration 1
Mr. Andres a farmer milled his palay into rice. He sold the rice to Mr. Buenave a
wholesaler, who in turn sold it to Mr. Cruz a retailer, who in turn sold it to Mr.
Dizon a consumer. Who are subject to value-added tax?

Illustration 2
Mr. Escoto imported boars and swines for breeding purposes. Is Mr. Escoto
subject to value-added tax?

Illustration 3
Mr. Flores is a fisherman. Fish caught and still unsold at the end of the day, he
makes into and sells as dried fish, salted, or smoked fish. Is Mr. Flores subject
to value-added tax?

Illustration 4
Mr. Gomez a fisherman processes his catch of sardines into canned sardines.
Is Mr. Gomez subject to value-added tax?

5. Services subject to percentage tax

Illustration 5
Baliwag Transit is a bus company plying the route from Baliwag to Cubao and
Baliwag to Grace Park and vice-versa. Is the bus company subject to
valueadded tax?

9. Services rendered by individuals pursuant to an employer-employee

relationship
Illustration 6
Mr. Danilo Haber is a construction foreman of F&F Construction Company.
He has to abide with the company policy relative to his assignment, time and
day of reporting, and others. Is the service rendered by Mr. Haber subject to
VAT?

15. Export sales by persons who are not VAT-registered

Illustration 7
Mr. Imperial is a non-VAT registered taxpayer. He exported commodities to
Japan and Australia. Are the exportations subject to VAT? How about if he is
a VAT-registered?

17. Lease of residential units with a monthly rental per unit not exceeding
₱15,000.
Illustration 8
A lessor rents his 15 residential units for ₱14,500 per month. During the
taxable year, his accumulated gross receipts amounted to ₱2,610,000. Is
the lessor subject to value-added tax or 3% percentage tax?

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Illustration 9
A lessor rents his 20 residential units for ₱14,500 per month. His
accumulated gross receipts during the taxable year amounted to
₱3,480,000. Is the lessor subject to value-added tax or 3% percentage tax?

Illustration 10
A lessor rents his 15 residential units for ₱15,500 per month. During the
taxable year, his accumulated gross receipts amounted to ₱2,790,000. Is
the lessor subject to value-added tax or 3% percentage tax?

Illustration 11
A lessor rents his 20 residential units ₱15,500 per month. His accumulated
gross receipts during the taxable year amounted to ₱3,720,000. Is the
lessor subject to value-added tax or 3% percentage tax?

Illustration 12
A lessor rents his 2 commercial and 10 residential units for monthly rent of
₱60,000 and ₱15,000 per unit, respectively. During the taxable year, his
accumulated gross receipts amounted to ₱3,240,000 (₱1,440,000 from
commercial units and ₱1,800,000 from residential units).

Illustration 13
A lessor rents his 5 commercial and 10 residential units for monthly rent of
₱60,000 and ₱15,000 per unit, respectively. During the taxable year, his
accumulated gross receipts during the taxable year amounted to
₱5,400,000 (₱3,600,000 from commercial units and ₱1,800,000 from
residential units).

Illustration 14
A lessor rents his 5 commercial and 10 residential units for monthly rent of
₱60,000 and ₱15,500 per unit, respectively. During the taxable year, his
accumulated gross receipts amounting to ₱5,460,0000 (₱3,600,000 from
commercial units and ₱1,860,000 from residential units).

 Rate and Base of Tax

1. On sale, barter or exchange of goods or properties, a value-added tax
equivalent to twelve percent (12%) of the gross selling price or gross value
in money of the goods or properties sold, bartered or exchanged, such tax
to be paid by the seller or transferor. (Sec. 106, NIRC; Sec. 4, RA 9337)

2. On sale or exchange of services, a value-added tax equivalent to twelve

percent (12%) based on gross receipts. (Sec. 108, NIRC; Sec. 6, RA 9337)

3. On importation of goods a value-added tax equivalent to twelve percent

(12%) based on the total value used by the Bureau of Customs in
determining tariff and customs duties, plus customs duties, excise taxes, if
any, and other charges, such tax to be paid by the importer prior to the
release of such goods from customs custody: Provided, That where the
customs duties are determined on the basis of the quantity or volume of
the goods, the value-added tax shall be based on the landed cost plus
excise
taxes, if any. (Sec. 107, NIRC; Sec. 5, RA 9337)
Customs duties is ad valorem Customs duties is specific (based on
value) (based on quantity or volume)

Dutiable value ₱xx Invoice amount ₱xx

Customs duties xx Customs duties xx
Excise tax xx Freight xx
Other charges w/in BOC xx Insurance xx

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Tax Base xx Other charges w/in BOC xx

Rate 12% Landed Cost xx
VAT on Importation xx Excise tax xx
Total xx
Rate 12%
VAT on Importation xx

 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 of the goods or properties, excluding the value-added tax. The
excise tax, if any, on such goods or properties shall form part of the gross selling
price (Sec.
106, NIRC: Sec. 4, RA 9337).
But the law and regulations allow deductions for
1. Sales returns and allowances; and
2. Sales discount agreed upon at the time of the sale, indicated on the sales
invoice, and availed of by the buyer. (Sec. 4, RA 9337)

Illustration 15
Mr. Jacinto a VAT taxpayer, sold inventory from his store at a selling price of
₱10,000. The trade practice is to add a value-added tax of 12% on a sale, so
that the buyer had to pay ₱11,200. How much is the gross selling price?

Illustration 16
Mr. King a VAT taxpayer had the following data in a month:

Cash sales …………………………………..…. ₱ 226,600

Sales on account………………………………. 282,900
Sales returns and allowances..………………. 15,774
Sales discount…………………………………. 17,625

How much is the gross selling price and VAT?

Answer:
Gross selling price tax base…..…………… * ₱ 476,101
VAT….…………………..………...…………… 57,132
* 226,600 + 282,900 - 15,774 - 17,625

 Landed Cost pongan

Where the customs duties are determined on the basis of the quantity or volume of
the goods, the value-added tax shall be based on the landed cost plus excise taxes
if any

Landed cost means the invoice amount of the goods imported plus all the
legitimate expenses of importation (e.g. insurance, freight, postage, commission,
interest, bank charges, wharfage dues, brokerage fee, stamps, processing fee,
customs duty, excise taxes, and storage fee) prior to the release of the goods from
customs custody. TBReyes

Where the customs and tariff duties are based on the value of the importation, the
tax base is the dutiable value of the importation, as determined by the Bureau of
Customs plus all legitimate expenses of importation prior to the removal of the
goods from customs custody.

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Illustration 17
Mr. Que made an importation of merchandise to be sold. The custom and
tariff duties ware based on the quantity of the imported goods. The invoice
amount was ₱2,250,000. Freight was ₱200,000 and marine insurance was
₱50,000. Other legitimate expenses on the importation prior to removal from
customs custody amounted to ₱250,000. How much is the landed cost and
VAT? Answer:
Landed cost tax base……...……………….. * ₱ 2,750,000
VAT….…………………..………...…………… 330,000
* 2,250,000 + 200,000 + 50,000 + 250,000 = 2,750,000
Illustration 18
Mr. Rafael made an importation of an article for personal use. The customs
and tariff duties ware based on the value of the importation as determined by
the Bureau of Customs, the invoice amount of the importation was ₱9,800
and freight and insurance was ₱600. The dutiable value of the importation
was ₱10,000. All other legitimate expenses of importation amounted to
₱1,000. How much is the tax base and VAT? Answer:
Dutiable value tax base…….……………….. * VAT…. ₱ 11,000
…………………..………....…………… 1,320
*10,000 + 1,000 = 11,000
 Gross Receipts
Gross receipts means the total amount of money or its equivalent representing
1. the contract price, compensation, service fee, rental or royalty;
2. including the amount charged for materials supplied with the
services; and
3. deposits and advanced payments; actually or constructively
received during the taxable quarter for the services performed or to be
performed for another person, excluding value-added tax. (Sec. 6,
RA 9337)
Illustration 19
Mr. Lagman a VAT taxpayer rendered services to Mr. Maceda on September
5 and billed him ₱50,000 value-added tax not included. On September 20 Mr.
Maceda informed Mr. Lagman that the check in payment was ready and he
could pick it up anytime. Mr. Lagman picked up the check on October 7. How
much is the taxable gross receipts for the month of September? Answer:
Gross receipts for September ₱50,000

Illustration 20
In August Mr. Napa owner of a VAT registered motor shop, agreed to do
repair work on the car of Mr. Oliver for ₱10,000. Mr. Napa asked for an
advance payment of ₱5,000 in August even as no repair work was done yet,
with the balance payable upon delivery of the car fully repaired. The car was
delivered fully repaired in September, and Mr. Oliver paid ₱5,000. How much
is the taxable gross receipts in August and September?

Illustration 21
Mr. Pablo a VAT registered building contractor billed a property owner an
amount of ₱4,000,000 value-added tax not included. The property owner paid
him so far only ₱3,000,000. How much is the taxable gross receipts and
VAT? Answer:
Gross receipts tax base…..……………….. ₱ 3,000,000
VAT….…………………..………...…………… 360,000

 Tax Formula
On sales of goods, properties, and services:
Output taxes………………………… ₱ xxx
Less: Input taxes….………………... (xxx)
VAT Payable……………………….. ₱ xxx

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Output tax means the VAT due on the sale, lease or exchange of taxable goods
or properties or services by any person registered or required to register under
Section 236 of the Tax Code. It is also called output VAT.

Input tax means the VAT due on or paid by a VAT-registered on importation of

goods or local purchase of goods, properties or services, including lease or use of
property in the course of his trade or business. It shall also include the transitional
input tax determined in accordance with Section 111 of the Tax Code, presumptive
input tax and deferred input tax from previous period. It is also called input VAT.
(Sec.
110, NIRC) https://www.bir.gov.ph/index.php/tax-information/value-added-tax.html

VAT payable refers to the excess of the output tax over the allowable input tax.

The amount of value-added tax (output tax on the seller and input tax on the buyer)
is computed as follows: MTBAmpongan

1. If the amount does not include the tax – multiply by 12%

VAT (₱100,000 x 12%) = ₱12,000

2. If the amount includes the tax – multiply by 12/112

VAT (₱112,000 x 12/112) = ₱12,000

VAT on sale of goods or properties Illustration 22

Mr. Urbano a VAT taxpayer purchased goods from Mr. Vidal a VAT supplier,
to be sold. The total amount paid on the purchase was ₱89,600 VAT
included. Mr. Urbano sold the goods to Mr. Wong for ₱156,800 inclusive of
VAT. How much is the VAT payable? Answer:
Output taxes……………… ₱156,800 x 12/112 = ₱ 16,800
Less: Input taxes….……… ₱ 89,600 x 12/112 = (9,600)
VAT Payable………………………………………….. 7,200

Illustration 23
In a month Mr. Yulo a VAT taxpayer made sales amounting to ₱500,000 VAT
not included. For the same period he made purchases with invoices showing
purchases prices not including VAT as follows:
Goods from a VAT supplier..….……………..… ₱ 150,000 ₱ 150,000
Goods from non-VAT supplier…………………. 100,000 ---
Supplies from a VAT supplier….………………. 25,000 25,000
Services from a VAT taxpayer…….……………. How 30,000 30,000
much is the VAT payable?
Answer:
Output taxes……………… ₱500,000 x 12% = Less: Input taxes…. ₱ 60,000
……… ₱205,000 x 12% = (24,600)
VAT Payable………………………………………….. 35,400

VAT on importation of goods Illustration 24

Mr. Tan a VAT- registered taxpayer made an importation of goods for sale
with a landed cost of ₱250,000. He sold the goods for ₱475,000 Vat not
included.
How much is the VAT payable?
Answer:
Output taxes……………… ₱475,000 x 12% = Less: Input taxes…. ₱ 57,000
……… ₱250,000 x 12% = (30,000)
VAT Payable………………………………………….. 27,000

10
Chapter 2
Value-Added Tax

VAT on sale of services Illustration 25

Mr. Zabala is a VAT building contractor. He received the following from
property owners in a given month, the amounts of gross receipts, VAT not
included:

For building completed:

Labor and materials………………………………………….. ₱10,800,000
For building still uncompleted
Labor…………………………………………………………… 2,400,000
Advances on the contract price, for building construction of which has
not begun……………………………………………. 1,200,000

And payments with invoices/receipts from suppliers, (not including payments

on the value-added tax, shown separately in the invoices/receipts) as follows:

For materials, from VAT suppliers……………………………… 2,160,000

For services, from VAT sub-contractors………………………. 3,600,000

How much is the VAT payable?

Answer:
Output tax:
For building completed …………………… For 1,296,000
building still uncompleted……………. 288,000
Advances…………………………………… 144,000 1,728,000
Less: Input tax:
Materials from VAT 259,200
suppliers……………. 432,000 691,200
Services from VAT sub-contractor.. 1,036,800
………
VAT Payable…………………………………………………

Illustration 26
Mr. Salas a VAT-registered building contractor received ₱5,000,000 the
contract price of a building that he constructed. He paid several sub-
contractors a total of ₱3,000,000. The amounts given do not include the
value-added tax.
How much is the VAT payable ?
Answer:
Output taxes……………… ₱5,000,000 x 12% = Less: Input taxes…. ₱ 600,000
……… ₱3,000,000 x 12% = (360,000)
VAT Payable………………………………………….. P 240,000

 Zero Rated (0%) Transactions

A zero-rated sale of service (by a VAT-registered person) is a 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 these Regulations. (RR 13-2018) RA
10963 TRAIN LAW

A VAT refund or tax credit shall be granted when the application for the refund or
tax credit is filed within 2 years after the close of the taxable year and strict
compliance with the invoicing requirements as mandated by our Tax Code.
The following services performed in the Philippines by VAT-registered person shall
be subject to zero percent (0%) rate:

1. Processing, manufacturing or repacking goods for other persons doing

business outside the Philippines, which goods are subsequently exported,
where the services are paid for in acceptable foreign currency and

11
Chapter 2
Value-Added Tax

accounted for in accordance with the rules and regulations of the BSP.
(RR
09-2021, TRAIN Law, NOW Subject to VAT)
2. Services performed by subcontractors and/or contractors in processing,
converting, or manufacturing goods for an enterprise whose export sales
exceed seventy percent (70%) of the total annual production. (RR 09-
2021, TRAIN Law, NOW Subject to VAT)
3. Services other than processing, manufacturing or repacking rendered to a
person engaged in business conducted outside the Philippines or to a
nonresident person engaged in business who is outside the Philippines
when the services are performed, the consideration for which is paid for in
acceptable foreign currency and accounted for in accordance with the
rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
4. Services rendered to persons or entities whose exemption under special
laws or international agreements to which the Philippines is a signatory
effectively subjects the supply of such services to zero percent (0%) rate;
5. Services rendered to persons engaged in international shipping or air
transport operations, including leases of property for use thereof:
Provided, that these services shall be exclusively for international shipping
or air transport operations. Thus, the services referred to herein shall not
pertain to those made to 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, the same being subject to
twelve percent (12%) VAT under Sec. 108 of the Tax Code.
6. Transport of passengers and cargo by domestic air or sea vessels from
the Philippines to a foreign country. Gross receipts of international air or
shipping carriers doing business in the Philippines derived from transport
of passengers and cargo from the Philippines to another country shall be
exempt from VAT; however, they are still liable to a percentage tax of
three percent (3%) based on their gross receipts derived from transport of
cargo from the Philippines to another country as provided for in Sec. 118
of the Tax Code; and
7. Sale of power or fuel generated through renewable sources of energy
such as, but not limited to, biomass, solar, wind, hydropower, geothermal
and steam, ocean energy, and other shipping sources using technologies
such as fuel cells and hydrogen fuels; Provided, however that zero-rating
shall apply strictly to the sale of power or fuel generated through
renewable sources of energy, and shall not extend to the sale of services
related to the maintenance or operation of plants generating said power.
(RR 13-2018) RA 10963 TRAIN LAW

The following sales by VAT-registered persons shall be subject to zero percent

(0%) rate:

1. Export sales - "Export Sales" shall mean:

a. The sale and actual shipment 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, paid for in acceptable foreign
currency or its equivalent in goods or services, and accounted for,
in accordance with the rules and regulations of the Bangko Sentral
ng
Pilipinas (BSP);
b. The sale of goods, supplies, equipment and fuel to persons
engaged in international shipping or international air transport
operations: Provided, That the goods, supplies, equipment, and fuel
shall be used exclusively for international shipping or air transport
operations.

12
Chapter 2
Value-Added Tax

c. The sale of raw materials or packaging materials to a non-resident

buyer for delivery to as a resident local export-oriented enterprise to
be used in manufacturing, processing, packing or repacking in the
Philippines of the said buyer's goods, paid for in acceptable foreign
currency, and accounted for in accordance with the rules and
regulations of the BSP; (RR 09-2021, TRAIN Law, NOW Subject to
VAT)
d. The sale of raw materials or packaging materials to an
exportoriented enterprise whose export sales exceed seventy
percent (70%) of total annual production; (RR 09-2021, TRAIN Law,
NOW
Subject to VAT)
e. Transactions considered export sales under Executive Order No.
226, otherwise known as the Omnibus Investments Code of 1987,
and other special laws; and (RR 09-2021, TRAIN Law, NOW
Subject to VAT)
f. The sale of goods, supplies, equipment and fuel to persons
engaged in international shipping or international air transport
operations; Provided, That the goods, supplies, equipment, and fuel
shall be used exclusively for international shipping or air transport
operations; Provided, that the same is limited to goods, supplies,
equipment and fuel that shall be used in the transport of goods and
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 or stopping at any other Philippine
port 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 the mentioned in
this paragraph, such portion of fuel, goods and supplies shall be
subject to twelve percent (12%) output VAT.
2. Sales to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively
subjects such sales to zero rate. RA 10963 TRAIN LAW
a. Special laws, such as:
i. Subic Bay Metropolitan Authority (SBMA)
ii. Philippine Economic Zone Authority (PEZA)
b. International agreements, such as:
i. Asian Development Bank (ADB)
ii. International Rice Research Institute (IRRI)
https://www.bir.gov.ph/index.php/tax-information/value-added-tax.html
Illustration 27
The following data reveals the records during the month for Dayao
Corporation a VAT registered taxpayer.

13
Chapter 2
Value-Added Tax

Domestic sales VAT inclusive…………………………….. ₱ 532,000

Export sales VAT not included….......…………………….. 410,000
Sales of goods to Mr. Ebreo in Singapore but delivered
to Mr. Falcon a resident (payment was remitted in
dollars by Mr. Ebreo thru the BPI) VAT not included 375,000
Purchases of goods sold locally VAT inclusive 291,200
Purchases of raw materials on goods exported VAT not
Included………………………………………………… 190,000
How much is the VAT payable?
Answer:
Output tax:
Domestic sales…………………………………..
Export sales………………………………………
Foreign currency denominated sales…………..
Input tax:
Purchases of goods sold locally……………….. 31,200
Purchases of raw materials on goods exported ₱ 57,000
22,800 54,000
VAT Payable……………………………………………………… 0 48,000
45,000 ₱102,000

 Creditable Input Tax

Any input tax evidenced by VAT invoice or official receipt on the following
transactions shall be creditable against the output tax of a VAT-registered person:
(Sec. 8, RA 9337)

1. Purchase or importation of goods

 For sale; or
 For conversion into or intended to form part of a finished product for
sale, including packaging materials; or
 For use as supplies in the course of business; or
 For use as materials supplied in the sale or service; or
 For use in trade or business for which deduction for depreciation or
amortization is allowed under the Code.
 Purchase of real properties for which a VAT has actually been paid;
 Purchase of services in which a VAT has actually been paid;
 Transitional input tax;
 Presumptive input tax;
 A VAT registered person who is also engaged in transactions not
subject to VAT shall be allowed input tax credit as follows:
 Total input tax which can be directly attributed to transactions subject
to VAT; and
 A ratable portion of any input tax which cannot be directly attributed to
either activity.

 Transactions deemed sale: (Sec. 106 B, NIRC; Sec. 4 RA 9337)

 Transfer, use or consumption not in the course of business of
goods or properties originally intended for sale or for use in the
course of business; (e.g. owner withdraws goods from his business for his
personal use)  Distribution or transfer to:
• Shareholders or investors as share in the profits of the
VATregistered persons: or
• Creditors in payment of debt;
 Consignment of goods if actual sale is not made within 60 days
following the date such goods, were consigned; and
 Retirement from or cessation of business, with respect to
inventories of taxable goods existing as of such retirement or
cessation.

14
Chapter 2
Value-Added Tax

 Goods Consigned
A consignment is a transaction where the owner of the goods (called the
consignor) gives them to somebody (called the consignee), for the latter to sell, at
a suggested retail price. While still unsold by the consignee, the consignor retains
ownership of the goods. When the consignee sells, he remits payment for the
goods to the consignor.

Goods on consignment shall be subject to tax when the goods are actually sold by
the consignee, or although not yet sold, when 60 days shall have elapsed from the
date the goods were consigned.

Illustration 28
Atienza Company is a manufacturer and consigned goods to SM Corporation
and the age of consignment shipments (at suggested selling prices) were as
follows:

Consignment shipments, 0 to 30 days

(from which there was a sale at ₱50,000…. ₱ 200,000
Consignment shipments, 31, to 60 days……… 150,000
Consignment shipments, 61 to 90 days……… 300,000
Consignment shipments, 91 days and over…..
400,000 How much is the taxable sales from the consignments?
Answer:
0 – 30 days ……………………………………. 31 – 60 days ₱ 50,000
……………………………………. 61 – 90 days -----
……………………………………. 91 days and over 300,000
………………………………. 400,000
Total……………………………………………… 750,000

Illustration 29
By the end of October, Mr. Barbosa’s consignment shipments over sixty days
old to Robinson Corporation was at a suggested selling price of ₱400,000 but
there was no advice on its sale. Advice on its sale was in November, when
there was a remittance from Robinson Corporation of ₱360,000 (net of a
commission of ₱40,000). How much is the taxable sales of Mr. Barbosa on
the consignment for the month of October and November? Answer:
October…..……………………………………… ₱ 400,000
November……….……………………………… -----

Illustration 30
Antoinette Camacho is engaged in a merchandising business. Her sales
invoice and other data all VAT inclusive during the month of November are
shown below: (Use two decimal)

Cash sales……………………………….. ₱ 385,000 41,250.00

Sales returns on cash sales……………. 27,500 (2,946.43)
Sales on account………………………… 247,500 26,517.86
Goods consigned:
November 15……………………..… 132,500 -----
September 15…………….………… 8,250 883.93 65,705.36
Purchases of merchandise………..…… 504,000 -54,000.00
Purchases of supplies………………….. 44,800 -4,800.00
Telephone bills on domestic calls…….. 1,680 -180.00 -58,980.00
How much is the VAT payable?
Answer:
Output taxes……………… ₱613,250* x 12/112 = ₱ 65,705.36
(58,980.00)
6,725.36 15
Chapter 2
Value-Added Tax

Less: Input taxes….……… ₱550,480** x 12/112 =

VAT Payable…………………………………………..
* 385,000 - 27,500 + 247,500 + 8,250 = 613,250
**504,000 + 44,800 + 1,680 = 550,480

 Transitional Input Tax on Beginning Inventories

When a taxpayer becomes subject to value-added tax (previously non-VAT), he
shall be allowed an input tax on his beginning inventories. The following
inventories shall be the subject of transitional input taxes: (Sec. 9, RA 9337)
1. Goods purchased for resale in their present condition;
2. Materials purchased for further processing, but which have not yet
undergone processing;
3. Goods which have been manufactured by the taxpayer;
4. Goods in process for sales; or
5. Goods and supplies for use in the course of taxpayer’s trade or business
as a VAT registered person.

The amount of transitional input tax to be allowed as tax credit shall be whichever
is higher between:
1. The beginning inventory of goods, materials and supplies equivalent to
2% of the value of such inventory; or
2. The actual value-added tax paid on such goods, materials and supplies.

The transitional input tax is only on VAT paid inventory. There is no transitional
input tax on services, because one does not inventory services.

Illustration 31
Mr. Ibatan became subject to value-added tax on April 1 of the current year.
The value of his beginning inventory of goods, materials and supplies is
₱283,500 VAT not included? The value-added tax paid on such inventory
amount to ₱34,020. How much is the transitional input tax of Mr. Ibatan?
Answer:
Input tax:
On beginning inventory (₱283,500 x 2%) ₱ 5,670
Actual VAT paid…………………………… 34,020
Transitional input tax (higher) 34,020
…………………………
 Presumptive Input Tax
VAT registered persons or firms engaged in the processing of sardines, mackerel
and milk, and in manufacturing refined sugar, cooking oil, and packed noodle-
based meals shall be allowed a presumptive input 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. (Sec. 9, RA 9337)

Illustration 32
Mr. Jao is engaged in purchasing copra from copra producers and processed
them into canned cooking oil. In October he made a total purchases of
₱150,000 processed them and sold the cooking oil to the public. The taxable
sales amounted to ₱950,000 VAT not included. Purchases of canning and
labeling materials totaled to ₱125,000 VAT not included. How much is the
VAT payable?

Answer:
Output tax: ………………………………….(₱950,000 x 12%) ₱ 114,000
Less: Input taxes
Purchases of canning and labeling materials 15,000
Presumptive input tax ….(₱150,000 x 4%) 6,000 21,000
VAT Payable…………………………………………………… 93,000
16
Chapter 2
Value-Added Tax

 Input Tax from Capital Goods

Capital goods are properties used in business which are subject to depreciation
(tangible, example machinery) or subject to amortization (intangible example
patent). The property has more than one year useful life. If the property has less
than one year useful life it is not a capital good. TBReyes

Input tax from capital goods: UNTIL DEC. 31, 2021 TRAIN Law
1. If the aggregate acquisition cost per month for such goods, excluding
the VAT component do not exceeds ₱1,000,000 input tax is taken in the
month that the purchase was made.
2. If the aggregate acquisition cost per month for such goods, excluding
the VAT component exceeds ₱1,000,000:
a) With a useful life of 5 years or more the input tax shall be spread
over
60 months; and (Note: 60 months or their useful life, whichever is shorter)
b) With a useful life of less than 5 years the input tax shall be spread
over the months of its useful life. (Sec. 8, ibid.)

3. Construction in progress (CIP) is the cost of construction work which is not

yet completed. This is a purchase of services the value of which is
determined based on progress billings. Input tax is allowed in the month
that payment is made on the progress billing. Where only labor is supplied
by the contractor and the materials are purchased by the taxpayer, input
tax on the labor contracted is allowed in the month that payment is made
based on a progress billing, while input tax is allowed on the materials as
they are purchased. TBReyes
T

Illustration 33
In May Mr. Kim purchased a fixed asset (capital good) for seven hundred fifty
thousand pesos ₱750,000 VAT not included with an estimated useful life of
ten years. How much is the input VAT for the month of May?

Illustration 34
In June Mr. Lapuz purchased a fixed asset (capital good) for one million two
hundred thousand pesos (₱1,200,000) VAT not included with an estimated
useful life of ten years. How much is the input VAT for the month of June?

Illustration 35
In July Mr. Magno purchased a fixed asset (capital good) for one million eight
hundred thousand pesos (₱1,800,000) VAT not included with an estimated
useful life of four years. How much is the input VAT for the month of July?

 VAT on Sale of Real Property

Sale of real properties held primarily for sale to customers or held for lease in the
ordinary course of trade or business of the seller shall be subject to VAT. (Sec. 3, RR 4-
2007)
Thus, the sale of the following real properties is not subject to VAT:
1. Sale of real property not primarily held for sale to customers or held for
lease in the ordinary course of trade or business
2. Sale of real property utilized for low-cost and socialized housing
3. Sale of house & lot and other residential dwellings valued at ₱2,559,300
and below; TRAIN LAW

The value-added tax shall be:

Gross selling price, whichever is higher between

17
Chapter 2
Value-Added Tax

1. Consideration stated in the contract of sale

2. Fair market value as determined by the X 12% = VAT
Commissioner of BIR (zonal value)
3. Fair market value in the schedule of values of
the Provincial or City Assessor

Sale of real property on installment plan

Sale of real property on installment plan means sale of real property by a real
estate dealer, the initial payments of which in the year of sale do not exceed 25%
of the gross selling price.

However, in the case of sale of real properties on the deferred-payment basis, not
on the installment plan, the transaction shall be treated as cash sale which makes
the entire selling price taxable in month of sale.

The formula to compute the VAT if zonal or fair market value is higher than the
consideration or selling price:

Agreed consideration, whichever is deed of sale

VAT not included higher
Actual collection, Zonal value or VAT to be shown
VAT not included x fair market value, x 12% = separately in the

Initial payments means payment or payments which the seller receives before or
upon execution of the instrument of sale and payments which he expects or is
scheduled to receive in cash or property (other than evidence of indebtedness of
the purchaser) during the year when the sale or disposition of the real property
was made. It covers any down payment made and includes all payments actually
or constructively received during the year of sale, the aggregate of which
determines the limit set by law.

Initial payments do not include the amount of mortgage on the real property sold
except when such mortgage exceeds the cost or other basis of the property to the
seller, in which case, the excess shall be considered part of the initial payments.

Also excluded from initial payments are notes or other evidence of indebtedness
issued by the purchaser to the seller at the time of the sale. Pre-selling of real
estate properties by real estate dealers shall be subject to VAT in accordance with
rules prescribed above.

Illustration 36
Navarro Corporation has the following data (VAT not included):

Selling price on July 1………..…………………………….. ₱ 2,700,000

Payments on the selling price:
July 1……………………………………………………. 337,500
December 1……………………………………………. 337,500
July 1 following year………………………………….. 2,025,000

Zonal value……………………………………………... 3,000,000

Fair market value in the assessment rolls of the city How 2,550,000
much is the VAT payable?
Answer:
Down payment July 1……………………………………… ₱ 337,500
Installment payment December 1………………………… + 337,500
675,000

18
Chapter 2
Value-Added Tax

Initial payments (not exceeding 25% of the selling price)

(675,000/2,700,000 = 25%)
Installment output/input
tax: July 1
₱ 337,500 x ₱ 3,000,000 x 12% = ₱ 45,000
₱ 2,700,000

December 1
₱ 337,500 x ₱ 3,000,000 x 12% = ₱ 45,000
₱ 2,700,000

July 1 following year

₱ 2,025,000 x ₱ 3,000,000 x 12% = ₱ 270,000
₱ 2,700,000

 Filing of Return and Payment of VAT

On importation of goods the value-added tax is payable prior to the release of the
imported goods from customs custody.

On sale of goods or properties or sale of services the VAT taxpayer prepares

monthly VAT declarations (BIR Form No. 2550M) and quarterly VAT returns
(2550Q) and pays the VAT at the time the declarations and returns are filed, as
follows:
1. Monthly declaration: Within twenty (20) days after the end of the month
UNTIL DEC. 31, 2022 TRAIN LAW
2. Quarterly return: Within twenty-five (25) days after the end of the quarter,
reflecting the transactions of the whole quarter with the tax computed on
the data for the quarter being reduced by the taxes paid for the first and
second months of the quarter.
Any excess input tax of the first month of the quarter shall not be refundable but
shall be carried over to the declaration of the second month of the quarter to
reduce the value-added tax payable for the second month. Any excess input tax of
the second month of the quarter is not carried over to the quarter-end return. Any
excess input tax in the quarterly return shall be carried over to the first month of
the next quarter and to the quarterly return of such next quarter.

Illustration 37
Ocampo Corporation has the following data VAT not included:
Sales Purchases

First quarter per quarterly return….. ₱ 675,000 ₱ 720,000

April………………………………….. 310,000 254,000
May………………………………….. 215,000 216,000
June…………………………………. 270,000 157,250

How much is the VAT payable for the months of April and May and for the
second quarter?
Answer: ₱ 37,200 ₱ 25,800 ₱ 95,400
(30,480)
April (25,920)
May 2 (75,270)
nd
Quarter
Output tax: (5,400) (5,400)
Less: Input tax (1,320)
Excess input tax 1,320 0 13,410
1stQ
VAT paid, April
VAT Payable

19
Chapter 2
Value-Added Tax

 Input VAT on Sales to Government

But Starting January 1, 2021, the above-mentioned rules and regulation will no
longer apply, as the 5% final withholding VAT system will now shift to a creditable
withholding tax system. Under this new system, no more concept of standard input
VAT as the actual input VAT related on sale to government will now be the basis
as deduction to output VAT. In short, VAT treatment on sales to government will
now be the same as VAT treatment on sale to non-government taxpayer except for
the mandatory withholding of 5% by the government agency who avail the goods
or services offered by the seller.

The 5% withholding vat shall be remitted within 10 days from the close of the
month the withholding was made.

Proof of Withholding (RMC 36-2021):

Beginning 2021 – The government agency shall issue Certificate of Creditable Tax
Withheld at source using BIR form 2307.

Illustration 38
FX Corporation made total sales of ₱1,000,000 to the government. Purchases
directly attributable to such sales amounted to ₱700,000. Sale of goods to
private entities ₱2,500,000 and purchases ₱800,000. All transactions net of
vat.
Date Account titles Debit Credit
Cash 1,070,000
Creditable Withholding VAT (1,000,000 x 5%) 50,000
Sales 1,000,000
Output tax 120,000
~ Sales to Government~

Cash 2,800,000
Sales 2,500,000
Output tax 300,000
~ Sales to Private Co.~

Purchases 700,000
Input tax 84,000
Cash 784,000
~ Purchases from VAT-taxpayer sold to Govt. ~

Purchases 800,000
Input tax 96,000
Cash 896,000
~ Purchases from VAT-taxpayer sold to Private Co. ~

Output tax 420,000

Input tax 180,000
Creditable Withholding VAT 50,000
VAT Payable 190,000

 Accounting for Value-Added Tax

The usual VAT transactions and their respective accounting entries are listed
below:

1. To record cash purchases/sales of merchandise.

a) In the books of the buyer

20
Chapter 2
Value-Added Tax

Purchases xx
Input tax xx
Cash xx

b) In the books of the seller

Cash xx
Sales xx
Output tax xx

2. To record VAT payable at the end of the period.

Output tax xx Input tax xx
VAT payable xx

3. To record payment of VAT to the BIR.

VAT payable xx
Cash xx

4. To record purchases/sales of merchandise on account.

a) In the books of the buyer
Purchases xx
Input tax xx
Accounts payable xx

b) In the books of the seller

Accounts receivable xx
Sales xx
Output tax xx

5. To record collection/payment of purchases/sales of merchandise on

account within the discount period.
a) In the books of the buyer
Accounts payable xx Purchase
discount xx
Input tax xx
Cash xx

b) In the books of the seller

Cash xx
Sales discount xx
Output tax xx
Accounts receivable xx

6. To record in the books of the buyer the payment of freight on goods

purchased on credit. Term: FOB destination, freight collect. (Seller bears
the exp.; buyer pays the freight)
Accounts payable xx
Cash xx

7. To record in the books of the buyer the payment of goods purchased.

Term: FOB shipping point, freight collect. (Buyer bears the exp.; buyer
pays the freight)
Freight in xx
Input tax xx
Cash xx

21
Chapter 2
Value-Added Tax

8. To record return of goods purchased/sold and receipt/payment of cash.

a) In the books of the buyer
Cash xx
Input tax xx
Purchase returns xx

b) In the books of the seller

Sales returns xx
Output tax xx
Cash xx

9. To record transitional input tax of a new VAT-registered establishment.

Input tax xx
Merchandise Inventory xx

10. To record presumptive input tax on the purchase of sugar cane by a sugar
refinery. (Seller bears the exp.; buyer pays the freight)
Raw materials – sugar cane xx
Input tax xx
Cash xx

11. To record sales of merchandise during the day which consist of VAT
subject and VAT-exempt goods.
Cash xx
Output tax xx
Sales – exempt xx
Sales - taxable xx

Illustration 39
Paz Corporation had the following selected transactions during the month of
November:
Nov. 3 - Purchased goods from Quinto Enterprise invoice price ₱22,400 VAT
inclusive Term: 1/10, n/30.
5 - Returned defective goods purchased from Quinto Enterprise invoice
price VAT inclusive ₱2,800.
8 - Sold merchandise to Mr. Rabago for cash ₱27,500 exclusive of
VAT. 10 - Sold to Samson Company ₱7,500 exclusive of VAT,
term:2/10, n/30.
12 - Paid the account with Quinto Enterprise.
15 - Received payment from Samson Company.

Record the above transactions in the accounting books. MTBAmpongan

General Journal
Date Account titles Debit Credit
Nov. 3 Purchases 20,000
Input tax 2,400
Accounts payable – Quinto 22,400

5 Accounts payable - Quinto 2,800

Purchases returns 2,500
Input tax 300

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Value-Added Tax

8 Cash 30,800
Sales 27,500
Output tax 3,300

10 Accounts receivable – Samson Co. 8,400

Sales 7,500
Output tax 900

12 Accounts payable - Quinto 19,600

Purchase discount (17,500* x 1%) 175
Input tax (175 x 12%) 21
Cash 19,404
*19,600 x 12 / 112 = 2,100 - 19,600 = 17,500

15 Cash 8,232
Sales discount (7,500 x 2%) 150
Output tax (150 x 12%) 18
Accounts receivable – Samson Co. 8,400

Note: Remittance to the BIR

Output tax 4,182
Input tax 2,079
Vat payable 2,103
OT 3,300+900-18= 4,182; IT 2,400-300-21= 2,079

 Statement of Financial Position Presentation of VAT Accounts

The account output tax and VAT payable are classified in the Statement of
Financial Position as current liabilities while the input tax is a current asset.

At the end of the period, if the total output taxes exceed the total input taxes the
balance shall be the VAT payable, while if the result is otherwise, the debit balance
of the input taxes shall be carried over as a tax credit in the following period as
deferred input tax.

 Invoicing Requirement
Ataxpayer subject to value-added tax must use invoices or receipts approved by
and registered with the Bureau of Internal Revenue. Among other things shown in
the invoice or receipt should be his Taxpayer’s Identification Number and an
indication that he is a value-added taxpayer. For example an invoice or receipt will
show a heading:
(Sec. 113, NIRC; Sec. 11, RA9337)

A.A. Saver’s Mart

Owned by: Josefina T. Siy
Plaza Naning Poblacion Baliuag, Bulacan
TIN 102-694-910-001 VAT

The invoice or receipt should show the value-added tax as a separate item, and
the total in the invoice includes the value-added tax.

VAT Sales : 134.51

VAT Exempt Sales : 38.45
VAT Zero Rated Sales : 0.00
Total Sales : 172.96
12% VAT : 16.14
Total Amount Due : 189.10

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Chapter 2
Value-Added Tax

 Erroneous Use of VAT Invoice

1. If a person who not VAT-registered issues an invoice or receipt showing
his Taxpayer’s Identification Number (TIN) followed by the word “VAT” he
shall be liable to:
a) other percentage taxes;
b) value-added tax without the benefit of any input tax credit;
c) Be subject to a 50% surcharge.
The VAT shall, if the other requisite information required under Subsection
(B) hereof is shown on the invoice or receipt, be recognized as an input
tax credit to the purchaser under Section 110 of this Code.

2. If a VAT-registered person issues a VAT invoice or VAT official receipt for

a VAT-exempt transaction but fails to display prominently on the invoice or
receipt the words "VAT-EXEMPT SALE", the transaction shall become
taxable and the issuer shall be liable to pay the VAT thereon. The
purchaser shall be entitled to claim an input tax credit on his purchase.

REVIEW QUESTIONS
1. Is the value-added tax a direct or an indirect tax?

2. What are the rates of value-added tax?

3. What is the tax base for the value-added tax on (a) sale of goods, (b) sale of
services, and (c) importation?

4. State the basic formula in computing VAT payable?

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