INTRODUCTION TO VALUE ADDED TAX

BUSINESS TAXATION

Introduction to Value Added Tax (VAT) - The excess of input over output VAT is
tax refundable or creditable
The value-added tax (VAT) is a form of
consumption tax (from 0% to 12% imposed on each 4. Tax burden:
1. Sale, barter, exchange, or lease of goods,
properties, or services in the course of trade - VAT is a sales tax designed to be borned
or business in the Philippines and by the consumers, with sellers acting
2. Importation of goods into the Philippines, merely as tax collectors
whether or not in the course of trade or
business 5. Legal liability:

Nature and Rationale of VAT - The VAT-registered seller is legally liable

for the payment of VAT;
VAT involves the following basic principles: - however, he can shift the burden of VAT
to the buyer. This makes VAT as an
1. Imposition of VAT. indirect tax

- In general, VAT is imposed on business

transactions by a VAT-registered Characteristics of VAT
taxpayer, or vatable persons whose
annual gross sales or receipts exceeds a. It is imposed on business transactions
P3,000,000. b. It follows the consumption/destination
principle
2. Treatment of VAT c. It is an indirect tax, a privilege tax and an
ad-valorem tax
- Standpoint of buyer d. It is cumulative
-is a tax added on the purchase price e. It employs tax credit method and basically a
of goods or services payable to the VAT- tax on gross margin
registered seller. Called Input tax or f. It follows the tax principle of no double
Input VAT, treated as Current Asset as taxation
advance payment of sales tax.

- Seller’s perspective Objects of VAT

-is a tax added on the value of
product or service sold collectible from 1. Sale of goods or properties
the buyer, termed as Output Tax or 2. Sale of services or lease of properties
Output VAT recognized by VAT- 3. Importation
registered seller as Current Liability to be
remitted to the BIR. OUTPUT VAT

3. Tax payable. The Output VAT is the value-added tax on

sales of goods or services passed on to the buyer
- If the taxpayer-seller is VAT-registered, whether VAT-registered or not.
only the excess of output VAT over input It is collected and to be treated as current tax
VAT is payable to the BIR. liability.
 The output VAT can only be imposed and The gross sales/receipts include VAT, if it is
recognized when: expressed in the following:

1. There is sale (actual or deemed sale) and 2. Total VAT sales invoice or VAT purchase
2. The seller-taxpayer is VAT-registered. invoice amount

RATES OF OUTPUT VAT Gross sales per VAT invoice or gross receipts per
VAT invoice
The output VAT rates that may be applied to a. Sales or receipts, gross of VAT
sales or exchange of goods or services are b. Purchases from VAT person, gross of
VAT
1. Regular VAT rate of 12% on domestic sales; c. Sales, inclusive of VAT
2. Zero percent (0%) VAT on d. Purchases, inclusive of VAT
a. Export sales
b. Zero-rated sales Computation:
c. Effectively zero-rated sales
Given amount x 12/112 = VAT or
Given amount/9.333 = VAT
Computation of VAT

a. VAT exclusive method Computation of Net VAT pay payable

b. VAT inclusive method
Output VAT on sales or gross receipts P XX
Determination of VAT amount Less:
Input VAT on purchases and services (XXX)
How to know whether that gross sales or gross Creditable VAT withheld (XXX)
receipts include the12% VAT? Net VAT payable (refundable) P XXX

1. The gross sales/receipts DO NOT include

VAT, if it is expressed in the following: THE INPUT VAT

a. Sales or gross receipts An Input tax is a value-added tax due from

b. Sales or gross receipts before VAT or paid by a VAT-registered person in the course of
c. Purchases from VAT person, before his trade or business on local purchases of goods or
VAT services, including lease or use of property from a
d. Sales, net of VAT VAT-registered person.
e. Sales or purchases from VAT person,
exclusive of VAT
FUNCTIONS OF INPUT VAT
Computation:
1. Tax credit against output VAT
Given amount x 12% = VAT 2. Input VAT carry over
(Given amount multiplied by 12% equals VAT)
3. Tax refund
4. Tax credit certificate
 Sources and Rates of Input VAT Computation of Duties and Taxes for Imported
Goods
1. Regular 12% VAT on
Basic formula
▪ Purchases of goods/properties or
services to other VAT-registered Custom Duty (CD) P XXX
business; (Dutiable (custom) value in foreign currency X
▪ Purchases of goods or services from Foreign exchange rate)
non-VAT seller issuing VAT invoice or VAT XXX
receipt; Import Processing fee (IPF) XXX
▪ Purchases of capital goods subject to Excise Tax (ET), if applicable XXX
depreciation, the input VAT of which is Total duties and taxes P XXX
subject to amortization (deferred input
VAT);
▪ Construction in progress; and Additional information
▪ Importation of goods (for business use or
for sale locally)

2. Zero-rated (0%) on

▪ Zero-rated purchases; or
▪ Effectively zero-rated purchases

3. Transitional Input VAT rate of 2%

4. Presumptive input VAT rate of 4%

5. Input VAT on sales to the government

▪ Final withholding VAT of 5% on sales of

goods or services to government; and
▪ Standard input VAT of 7% allowed on
sales of goods or services to the
government.

Input VAT on Depreciable Capital Goods

a. Input VAT deductible in full amount

b. Input VAT subject to amortization (Deferred
Input VAT)

Input VAT on importation

All importation of goods in the Philippines

are subject to VAT, whether or not intended for
business, except those mentioned under Section 109
of NIRC
 PRESUMPTIVE INPUT VAT
(On VAT-exempt Prime Materials)

Is an amount allowed by the tax code as

input tax on purchases of a VAT-registered person
despite that there is no actual VAT payment made on
VAT-exempt transactions.

PIV is 4% of the gross value in money of

their purchases of primary agricultural products
which are used as inputs in the production of:

▪ Sardines, mackerel
▪ Milk
▪ Refined sugar
▪ Cooking oil; and
▪ Packed noodle based instant meals

VAT Refund or Tax Credit Certificate

Allowed for VAT Refund or Tax Credit Certificate

▪ Those with zero-rated and effectively zero

rated sales
▪ Those who would be cancelling their VAT
TRANSITIONAL INPUT VAT
registration.
Transitional Input VAT (TIV) is allowed on
Not allowed for VAT Refund or Tax Credit
the inventory on hand (goods, materials of supplies)
Certificates (TCC)
of a person who, for the first time becomes liable to
VAT or elects to be VAT-registered.
▪ Presumptive Input VAT
TIV is equivalent to 2% of the value of such
inventory or the actual input VAT paid on such ▪ Transitional Input VAT
inventory, whichever is higher. ▪ Actual input VAT on capital goods,
Goods exempt from VAT shall be excluded in importation, or purchases of continuing
the computation of TIV VAT-registered persons to the extent of their
sales not subject to zero-rated, effectively
Illustration: zero-rated or business cancelling their VAT
registration.
A business firm has just registered as VAT
business. On that date, it has inventory stock of
P100,000. A portion of its inventory was from PERIOD OF VAT REFUND OR TCC
purchases which were taxed with P1,000 VAT. The
input VAT allowed would be: A VAT-registered person may apply for input
VAT refund or issuance of TCC within two (2) years
TIV (P100,000 x 2%), higher P2,000. after the close of the taxable quarter when the sales
were made.
 The commissioner shall grant a refund
within 120 days from the date of submission of
complete documents to support the application of
VAT refund or TCC.

For denial of applications within the 120

days period, the taxpayer may appeal to the Court
of Tax Appeal (CTA) within 30 days from the
receipt of the denial; otherwise the decision will
become final.

If the commissioner does not give decision

within 120-day period, the taxpayer may file an
appeal with the CTA without waiting for the
expiration of the 120-day period, if the 2-year
period is about to lapse.

VALUE-ADDED TAX DECLARATION

BIR Form 2550M must be filed and paid on

or before the 20th day of the month following the
taxable month for the first two months of the
quarter.
The quarterly VAT return (BIR Form 2550Q)
is to filed on or before the 25th of the month
following the close of the quarter.

INPUT VAT TREATED AS EXPENSES OF COSTS

a. Input VAT of non-VAT registered taxpayers

b. Input VAT of VAT-exempt taxpayers
c. Excess of actual input VAT over the standard
input VAT on sales to government
d. Expired input VAT