VALUE-ADDED TAX

(VAT)
VALUE-ADDED
TAX
Secs. 105-115, NIRC
Value-added Tax: Discussion Outline

I. Nature of VAT and Underlying Laws

II. Persons Liable to VAT
III. VAT-taxable transactions
IV. Transactions Deemed Sale
V. Persons Exempt from VAT
VI. Zero-Rated and Exempt Transactions
VII. VAT Rates
VIII. VAT Base
IX. Withholding VAT
X. Input Taxes
XI. Substantiation Requirements
XII. Treatment of Excess Input Tax
XIII. Filing of VAT returns and Payment of VAT
XIV. Other Matters
 Nature of VAT
and Underlying
Laws
Value-added Tax: Nature of VAT and Underlying Laws

 Types of Transfer
 Gratuitous Transfer
 Transfer without consideration
 Not subject to business tax. Instead, subject to
transfer tax (either donor’s tax or estate tax).
 Onerous Transfer
 Transfer with a consideration
 In the ordinary course of trade or business including incidental
transactions – Subject to business and income tax unless exempt
under the law.
 Not in the ordinary course of trade or business – not subject to
business tax but may be subject to income tax.
Value-added Tax: Nature of VAT and Underlying Laws

 Nature and Characteristics of VAT

 Tax on Value Added

 It is imposed only on the value added of a taxpayer.
 “Value added” is the difference between total sales of the taxpayer
and his total purchases for the same period subject also to VAT.
[MAMALATEO]
Value-added Tax: Nature of VAT and Underlying Laws

 Nature and Characteristics of VAT

 Sales Tax
 The taxpayer (seller) determines his tax liability by computing the tax
on the gross selling price or gross receipts (output tax), and
subtracting or crediting the VAT on the purchase (or importation) of
goods or services (input tax) against the tax due on his own sale.

 VAT rate: 12% standard rate; 0% on certain sales or transactions

 VAT base: gross selling price or gross receipts
Value-added Tax: Nature of VAT and Underlying Laws

 Nature and Characteristics of VAT

 Tax on Consumption
 VAT is a consumption tax imposed at every stage of the distribution
process on (i) the sale, barter, exchange, or lease of goods or
properties, (ii) rendition of services in the course of trade or
business, and (iii) the importation of goods, whether or not such
imported goods are for use in business. [Sec. 4.105-2, RR 16-2005]
Value-added Tax: Nature of VAT and Underlying Laws

 Nature and Characteristics of VAT

 Indirect Tax - Impact and Incidence of Taxation

Impact Incidence
Refers to the statutory taxpayer (i.e., Refers to the buyer / final consumer,
the seller/importer), the one who the one who ultimately bears the
collects tax and pays to the burden of Taxation
Government
Value-added Tax: Nature of VAT and Underlying Laws
 Nature and Characteristics of VAT

 Tax Credit Method

 Under the VAT method of taxation, which is invoice-based, an entity
can credit against or subtract from the VAT charged on its sales or
outputs the VAT paid on its purchases, inputs and imports. [CIR v.
Seagate, G.R. No. 153866 (2005)].
 The VAT payable is the excess of output tax over input tax:
OUTPUT VAT – INPUT VAT = VAT PAYABLE or EXCESS INPUT TAX

Note: If input VAT is higher than output VAT, the excess input tax is carried over
to the succeeding taxable quarter/s as tax credit. However, any input tax
attributable to zero-rated sales may instead be refunded or credited against
other internal revenue taxes. [Sec. 4.110-7, RR 16-2005]
Value-added Tax: Nature of VAT and Underlying Laws
 Nature and Characteristics of VAT

 Destination Principle and Cross- Border Doctrine

 General rule: The VAT system uses the destination principle as a
basis for the jurisdictional reach of the tax. Goods and services are
taxed only in the country where they are consumed. Thus, exports
are zero-rated, while imports are taxed. [CIR v. American Express
International, G.R. No. 152609 (2005)]
Value-added Tax: Nature of VAT and Underlying Laws
 Nature and Characteristics of VAT

 Value added
 is the value that a producer adds to his raw materials or purchases
(other than labor) before selling the new or improved product or
service.

 An indirect tax (i.e., levied on goods and services; not on persons, and
ultimately paid by consumers in the form of higher prices)

 A business and excise tax

Value-added Tax: Nature of VAT and Underlying Laws
 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 the
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 importations, the importer is liable for the VAT. (Revenue
Regulations No. 16-2005)
Persons Liable
to VAT
Value-added Tax: Persons Liable to VAT

 Applicable provision: Title IV of NIRC of 1997

Section 105. Persons Liable. – Any person, who in the course of trade
or business, sells, barters, exchanges, leases goods or properties,
renders services, and any person who imports goods shall be subject to
the VAT imposed in Sections 106 to 108 of this Code.
Value-added Tax: Persons Liable to VAT

 Applicable provision: Title IV of NIRC of 1997

Section 105. Persons Liable. – Any person, who in the course of trade
or business, sells, barters, exchanges, leases goods or properties,
renders services, and any person who imports goods shall be subject to
the VAT imposed in Sections 106 to 108 of this Code.
Value-added Tax: Persons Liable to VAT

 Any person who, in the course of trade or business,

 sells, barters, or exchanges goods or properties (seller or
transferor)
 leases goods or properties (lessor)
 renders services (service provider)

EXCEPTIONS:
 A non-VAT-registered person whose annual gross sales or receipts do
not exceed P3M.
 Franchise grantees under Sec. 119 of this Code whose annual gross
receipts do not exceed P10M and who are not VAT-registered.
Value-added Tax: Persons Liable to VAT

 Imports goods (importer) – the person who brings goods into the
Philippines, whether or not made in the course of trade or business

 Any person who voluntarily registers his business under the VAT system,
regardless of the level of sales.
Value-added Tax: Persons Liable to VAT

 Definition of “In the course of trade or business” (Rule of Regularity)

 In the course of trade or business: the regular conduct or pursuit
of a commercial or economic activity, including transactions
incidental thereto, by any person regardless of whether or not the
person engaged therein is a non-stock, non-profit private
organization (irrespective of the disposition of its net income and
whether or not it sells exclusively to members or their guests), or
government entity.
 Non resident persons who perform services in the Philippines are
deemed to be making sales in the course of trade or business,
even if the performance of services is not regular.
Value-added Tax: Persons Liable to VAT

 VAT and Percentage Tax

General Rule: VAT and Percentage Tax cannot be charged together. The
transaction is subject to either VAT or Other Percentage Tax, but not both.

Exception: When a non-VAT registered person erroneously issues a VAT

invoice [Sec. 4.113- 4, RR 16-2005]
VAT-taxable
transactions
VAT on Sale of Goods or Properties
VAT is imposed and collected on:

● Every sale, barter or exchange, or

● Transactions deemed sale of taxable

goods or properties.
Sale of Goods or Properties
● Goods or Properties: all tangible and intangible
objects which are capable of pecuniary
estimation.
● Includes:

• Real properties held primarily for sale to

customers or held for lease in the ordinary
course of trade or business

• 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
Sale of Goods or Properties
● Includes:

• The right or the privilege to use any

industrial, commercial or scientific
equipment

• The right or the privilege to use motion

picture films, films, tapes and discs

• Radio, television, satellite transmission and

cable television time
VAT on Importations
In General:
• VAT is imposed on goods brought into the
Philippines, whether for use in business or not.
• The tax is based on the total value used by the
Bureau of Customs (BOC) in determining tariff and
customs duties, plus customs duties, excise taxes, if
any, and other charges, such as postage,
commission, and similar charges, prior to the release
of the goods from customs custody.
VAT on Importations
In General:
• In case the valuation used by the BOC in computing customs
duties is based on volume or quantity of the imported goods, the
landed cost shall be the basis for computing VAT.
• Landed cost consists of the invoice amount, customs duties,
freight, insurance and other charges. If the goods imported are
subject to excise tax, the excise tax shall form part of the tax
base.
• The VAT on importation shall be paid by the importer prior to the
release of such goods from customs custody.
• No VAT shall be collected on importation of goods which are
specifically exempted under Sec. 109 (1) of the Tax Code
VAT on Subsequent Sale of Tax-Free Importations
Transfer of Goods by Tax-exempt Persons:

In the case of goods imported into the Philippines by

VAT-exempt persons, entities, or agencies which are
subsequently sold, transferred or exchanged in the
Philippines to non-exempt persons or entities, the latter
shall be considered the importers thereof, and shall be
liable for the VAT due on such importation. The tax due
on such importation shall constitute a lien on the goods,
superior to all charges/liens, irrespective of the possessor
of said goods.
Sale or Exchange of Services
● Services: the performance of all kinds of services in the Philippines for
others for a fee, remuneration or consideration whether in kind or in
cash.
● Includes services performed or rendered by [Sec 108 (A), Tax Code] :
a) construction and service contractors
b) stock real estate, commercial, customs and immigration brokers
(Amended by RA No. 9010, effective January 1, 2003 and included in
RA 9337)

c) lessors of property, whether personal or real

d) providers of warehousing services

e) lessors or distributors of cinematographic films

Sale or Exchange of Services
f) persons engaged in milling, processing, manufacturing or
repacking goods for others
g) proprietors, operators, or keepers of hotels, motels, rest houses,
pension houses, inns, resorts, theaters and movie houses
h) proprietors or operators of restaurants, refreshment parlors,
cafes and other eating places, including clubs and caterers
i) dealers in securities
j) lending investors
k) 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
l) common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one place
in the Philippines to another place in the Philippines
Sale or Exchange of Services
(cont.)
m) sales of electricity by generation, transmission and/or
distribution companies
n) franchise grantees of electric utilities, telephone and
telegraph, radio and/or television broadcasting and all
other franchise grantees except those under Section 119
of this Code, (Section 119 refers to franchise grantees of
radio and/or television broadcasting whose annual gross
receipts of the preceding year do not exceed P 10
million, and franchise grantees of gas and water utilities).
o) non-life insurance companies (except their crop
insurances) including surety, fidelity, indemnity and
bonding companies
p) similar services regardless of whether or not the
performance thereof calls for the exercise or use of the
physical or mental faculties
Value-added Tax: Other Matters

I. Nature of VAT and Underlying Laws

II. Persons Liable to VAT
III. VAT-taxable transactions
IV. Transactions Deemed Sale
V. Persons Exempt from VAT
VI. Exempt Transactions
VII. VAT Rates
VIII. VAT Base
IX. Withholding VAT
X. Input Taxes
XI. Substantiation Requirements
XII. Treatment of Excess Input Tax
XIII. Filing of VAT returns and Payment of VAT
XIV. Other Matters
Transactions
Deemed Sale
Value-added Tax: Transactions Deemed Sale

Rate: 12% VAT

Basis: Market value of the goods deemed sold as of the time of the
occurrence of the transactions

However, in case of retirement or cessation of business, the tax base

shall be the acquisition cost or the current market price of the goods or
properties, whichever is lower.

In the case of a sale where the gross selling price is unreasonably lower
than the FMV, the actual market value shall be the tax base. The gross
selling price is unreasonably lower than the actual market value if it is
lower by more than 30% of the actual market value of the same goods of
the same quantity and quality sold in the immediate locality on or nearest
the date of sale. [Sec. 4.106-7, RR 16-2005]
Value-added Tax: Transactions Deemed Sale

1. 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., Withdrawal of goods from business for personal

use of a VAT-registered person

Note: Transmission of property to a trustee, if such property is one for sale,

lease or use in the ordinary course of trade or business and the transfer
constitutes a completed gift, is subject to VAT as a deemed sale transaction.
[Sec. 4.106-3, RR 16-2005]
Value-added Tax: Transactions Deemed Sale

2. Distribution or transfer to:

a) Shareholders or investors as share in the profits of the

VAT-registered person

■ Property dividends which constitute stocks in trade or properties

primarily held for sale or lease declared out of retained earnings
on or after January 1, 1996 and distributed by the company to its
shareholders shall be subject to VAT based on the zonal value or
fair market value at the time of distribution, whichever is
applicable.

b) Creditors in payment of debt or obligation.

Value-added Tax: Transactions Deemed Sale

3. Consignment of goods if actual sale is not made within 60 days following

the date such goods were consigned;
• Consigned goods returned by the consignee within the 60-day period
are not deemed sold.

4. Retirement from or cessation of business, with respect to all goods on

hand, whether capital goods, stock-in-trade, supplies or materials as of
the date of such retirement or cessation, whether or not the business is
continued by the new owner or successor.
Persons Exempt
from VAT
Value-added Tax: Persons Exempt from VAT

1. Those engaged in transactions exempt from VAT

2. Those who entered into transactions incidental to
VAT-exempt activities
3. Those who entered into isolated transactions
Zero-Rated and
Exempt
Transactions
Value-added Tax: Zero-Rated and Exempt Transactions

Section 108 (B) of the Tax Code, as amended – Zero-

Rated Transactions

Section 109 of the Tax Code, as amended – Exempt

Transactions
Value-added Tax: Zero-Rated and Exempt Transactions
Value-added Tax: Zero-Rated and Exempt Transactions
VAT Rates
Value-added Tax: VAT Rates

 Taxable
 General Rate – 12%
 Special Rate – 0%

 Exempt
VAT Base
Value-added Tax: VAT Base

a. Computation
1. Sales of goods
a. Sales returns and allowances
b. Sales discounts
2. Sale of services

b. Treatment of reimbursements
Value-added Tax: VAT Base
12% VAT 0% VAT VAT Exempt

Gross Sales/ Receipts XXX XXX XXX

Less: Sales Returns XXX
Sales Allowances XXX
Allowable Sales Discounts XXX XXX XXX XXX
Net XXX XXX XXX
12% 0% -
OUTPUT TAX XXX [A] 0 [A] -
Input tax carried over from previous period XXX XXX -
Domestic Purchases XXX
Importations XXX
Capital goods subject to
XXX
depreciation
Total XXX
12% XXX* XXX* -
INPUT TAX XXX [B] XXX [B] -

VAT PAYABLE/OVERPAYMENT XXX [A-B] (XXX)[A-B] -

Note: All amounts in the formula are assumed to be net of VAT
*no longer subject to limitation (70% of output tax)
Value-added Tax: VAT Base (General Rules)
Value-added Tax: VAT Base (Sale of Goods)
Value-added Tax: VAT Base (Sale of Goods)
Value-added Tax: VAT Base (Sale of Goods)
Value-added Tax: VAT Base (Sale of Goods)
Value-added Tax: VAT Base (Sale of Real Properties)
Value-added Tax: VAT Base (Sale of Real Properties)

Section 109 (P) of the Tax Code, as amended, provides:

Sale of real properties not primarily held for sale to customers or held for lease in the
ordinary course of trade or business, or real property utilized for low-cost and socialized
housing as defined by Republic Act No. 7279, otherwise known as the Urban Development
and Housing Act of 1992, and other related laws, residential lot valued at One million five
hundred thousand pesos (P1,500,000) and below, house and lot, and other residential
dwellings valued at Two million five hundred thousand pesos (P2,500,000) and below:
Provided, That 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 Two million pesos
(P2,000,000): Provided, further, That every three (3) years thereafter, the amount
herein stated shall be adjusted to its present value using the Consumer Price Index, as
published by the Philippine Statistics Authority (PSA);
Value-added Tax: VAT Base (Sale of Real Properties)
Value-added Tax: VAT Base (Sale of Real Properties)
Value-added Tax: VAT Base (Sale of Real Properties)
Value-added Tax: VAT Base (Sale of Real Properties)
Value-added Tax: VAT Base (Sale of Services)
Value-added Tax: VAT Base (Sale of Services)
Value-added Tax: VAT Base (Sale of Services)
Withholding
VAT
Value-added Tax: VAT Base (Withholding VAT)

TYPES OF WITHHOLDING VAT

a. On Payments to Non-residents (creditable withholding VAT)

b. On Payments by Government (final withholding VAT)
Value-added Tax: VAT Base (Withholding VAT)

On Payments to Non-residents (creditable withholding VAT)

Value-added Tax: VAT Base (Withholding VAT)

On Payments to Non-residents (creditable withholding VAT)

Value-added Tax: VAT Base (Withholding VAT)

On Payments by Government
Value-added Tax: VAT Base (Withholding VAT)

On Payments by Government
Input Taxes
Value-added Tax: Input Taxes (Definition)
Value-added Tax: Input Taxes (Adjustments)
Value-added Tax: Input Taxes (Sources)
Value-added Tax: Input Taxes (Sources)
Value-added Tax: Input Taxes (Transitional Input Tax)
Value-added Tax: Input Taxes (Presumptive Input Tax)
Value-added Tax: Input Taxes (General Rule)

• For purchases of goods

Input Tax = Total VAT Invoice Amount (gross of EWT) x
12%
• For purchases of Services
Input Tax = Total VAT O.R. Amount (gross of EWT) x 12%
• For importation of goods (if any VAT is paid)
Input Tax = VAT Base* x 12%
*Value used by BOC in determining tariffs and customs duties + customs duties, excise taxes and
other charges. If BOC value is based on volume or quantity, base is Total Landed Cost = invoice
amount + customs duties, freight, insurance and other charges, and excise tax, if any
Value-added Tax: Input Taxes (Journal Entries)
Value-added Tax: Input Taxes (Journal Entries)
Value-added Tax: Input Taxes (Journal Entries)
Value-added Tax: Input Taxes (Capital Goods)
Value-added Tax: Input Taxes (Capital Goods)

Total Input Tax

Monthly Input Tax 
Estimated Useful Life in Months
Value-added Tax: Input Taxes (Capital Goods)

Asset Life Cost Input tax Addition to input

(years) (excluding amortization tax per month
VAT) period (months)
A 10 600,000 60 1,200
(600,000/60 x
12%
B 4 500,000 48 1,250
(500,000/48 x
12%)
C 5 400,000 60 800
(400,000/60 x
12%
Total 1,500,000 3,250
Value-added Tax: Input Taxes (Capital Goods)
Value-added Tax: Input Taxes (Capital Goods)
Value-added Tax: Input Taxes (VAT Payable / Excess Input Tax)
Value-added Tax: Input Taxes (Construction in Progress)
Value-added Tax: Input Taxes (Construction in Progress)
Substantiation
Requirements
Value-added Tax: Substantiation Requirements
Value-added Tax: Substantiation Requirements
Value-added Tax: Substantiation Requirements
Value-added Tax: Substantiation Requirements
Value-added Tax: Substantiation Requirements

Transactions Required Support

2. Input tax on purchases

of real property
a. Cash /Deferred basis Public Instrument (i.e., deed
of absolute sale, deed of
conditional sale,
contract/agreement to sell,
etc.) together with the VAT
Invoice for the entire selling
price and Non-VAT ORs for
the initial and succeeding
payments
Public Instrument and VAT
b. Installment basis OR for every payment
Value-added Tax: Substantiation Requirements

Transactions Required Support

3. Input tax on domestic purchases VAT OR

of services

4. Input tax on importation Import entry or other

of goods equivalent document
showing actual
payment of VAT on
the imported goods.
Value-added Tax: Substantiation Requirements

Transactions Required Support

5. Transitional Inventory of goods as

input tax shown in a detailed
list to be submitted to
the BIR.

6. Input tax on “deemed Required invoices

sale” transactions
Value-added Tax: Substantiation Requirements

Transactions Required Support

7. Input tax from payments made Monthly Remittance

to non-residents (such as for Return of Value Added
services, rentals, or royalties) Tax Withheld (BIR Form
1600) filed by the
resident payor in behalf
of the non-resident
evidencing remittance
of VAT due which was
withheld by the payor.
Value-added Tax: Substantiation Requirements

Transactions Required Support

8. Advance VAT on sugar Payment order

showing payment of
the advance VAT
Value-added Tax: Substantiation Requirements
Value-added Tax: Invoicing Requirements
Value-added Tax: Invoicing Requirements
Value-added Tax: Invoicing Requirements
Treatment of
Excess Input
Tax
Value-added Tax: Treatment of Excess Input Tax

 Carry-over
 Claim for Refund
 Tax Credit
Value-added Tax: Treatment of Excess Input Tax

• Any VAT taxpayer may apply for the issuance of a tax

credit certificate or refund of any input tax attributable to:
• zero-rated and effectively zero-rated sales;
• Cancellation of VAT registration
to the extent that such input tax has not been applied
against the output tax
Value-added Tax: Treatment of Excess Input Tax
Value-added Tax: Treatment of Excess Input Tax

Mode of recovery of input tax attributable to

zero-rated sales
Value-added Tax: Treatment of Excess Input Tax
 Filing of VAT
Returns and
Payment of VAT
Value-added Tax: Filing of VAT Returns and Payment of VAT
Value-added Tax: Filing of VAT Returns and Payment of VAT
Value-added Tax: Filing of VAT Returns and Payment of VAT
Value-added Tax: Filing of VAT Returns and Payment of VAT
Value-added Tax: Filing of VAT Returns and Payment of VAT
Other Matters
Value-added Tax: Other Matters

 Administrative and Penal Sanctions

 Surcharge, interest and other penalties

 The interest on unpaid amount of tax, civil penalties
and criminal penalties imposed in Title XI of the
NIRC shall also apply to violations of the VAT
provisions of the NIRC. [Sec. 115, NIRC; Sec. 4.115-
1, RR 16-2005]
Value-added Tax: Other Matters
 Administrative and Penal Sanctions

 Suspension of Business Operations

 In addition to other administrative and penal sanctions
provided for in the NIRC and implementing regulations, the
CIR or his duly authorized representative may order the
suspension or closure of a business establishment for a
period of not less than 5 days for any of the following
violations:
(1) Failure to issue receipts and invoices
(2) Failure to file VAT return as required under Sec. 114 of the NIRC
(3) Understatement of taxable sales or receipts by 30% or more of his
correct taxable sales or receipt for the taxable quarter
(4) Failure of any person to register as required under Sec. 236 of the
NIRC
Value-added Tax: Other Matters
 Summary Lists
Value-added Tax: Other Matters
 Summary Lists
Thanks!
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