Major Business Taxes: Tax consequences: No output tax allowed and seller is

not allowed to claim input tax. Input tax will form part
1. Value Added Taxes-12% of the cost of goods sold or expense outright.
2. Percentage Taxes-3% under CREATE LAW 1% until June 30, Ex:
2023
Sales, 112,000, inclusive of VAT:
3. Excise Taxes
112,000/1.12=100,000 net of VAT x 12%=12,000
Business Tax- imposed on onerous transfer such as sale,
barter or exchange. Ex

Value Added Tax is a tax levied on consumption levied on Sales, 100,000, exclusive of VAT
sale, barter, exchange or lease of goods, properties and
services IN THE PHILIPPINES and importation of foods into 100,000 x 12% = 12,000
the Philippines.

Value added tax and excise tax can be imposed

simultaneously but value added tax and percentages cannot Ex.
be imposed simultaneously. Purchases, 112,000, inclusive of VAT
Republic Act 9337 or the Value Added Tax Reform Act 112,000/1.12=100,000 net of VAT x12%= 12,000
states that every person who in the ordinary course of
business, sells, barters, exchanges, leases goods or Purchases, 100,000, exclusive of VAT
properties or render services is subject to VAT if actual
or expected sales or receipts are greater than 1,919,500. 100,000x12%=12,000

1. Sale or Importation of agricultural and marine food

products in their original state, livestock or
VAT THRESHOLD-TRAIN LAW 3M RA 101963 poultry of a kind generally used as or yielding r
producing foods for human consumption and breeding
VAT TRANSACTIONS: stock and genetic materials therefor
1. VAT EXEMPT a. Original state = if products underwent into simple
2. 0 RATED process such as: FREEZING, DRYING, SALTING,
3. VATABLE BROILING, ROASTING, SMOKING, STRIPPING and
including advanced technological means of
PACKAGING.
VAT EXEMPT TRANSACTIONS –
b. Polished and/or husked rice, raw cane sugar, and poultry livestock and other agricultural and marine
molasses, ordinary salt, and copra shall be also in food products in their original state,
original state. 7. Medical, dental, hospital and veterinary services,
except those rendered professionals. Laboratory
c. Livestock or poultry does not include cocks, race services are exempted, however, hospitals with
horses, zoo animals, and other general animals pharmacy or drug store is subject to VAT, except
considered as pets. those drugs that are exempt from VAT.
8. Educational services duly accredited by Department
d. Sale of bagasse is not exempt from VAT. of Education, commission on Higher Education and
e. Fresh water is subject to VAT. Technical Education and Skill Development Authority.
Educational Services does not include seminars, in-
2. Sale or importation of fertilizers, seeds, service training, review classes and other services
seedlings, and fingerlings, fish prawn, livestock rendered by persons not accredited by DepEd, CHED or
and poultry feeds, including ingredients whether TESDA.
locally imported, used in the manufacturing of 9. Services rendered by individual pursuant to
finished feeds (except feeds of letter C in number employer-employee relationship.
1) 10. Services rendered by regional headquarters in which
3. Importation of personal and household effects owned do not have intention to earn or derive income from
by a resident of the Philippines returning from the Philippines.
abroad and non-resident coming to the Philippines. 11. Transactions which are exempt under international
4. Importation of professional instruments and agreements to which Philippines is a signatory.
implements, wearing apparel, domestic animals, and
personal household effects (except vehicle, vessel, 12. Sales by duly registered cooperatives:
aircraft, machinery and other goods for use in the a. Dealing or transacting with members only.
manufacture and merchandise of any kind in b. Sale of their produce, whether original state
commercial quantity) belonging to a person coming or processed form to non-members. To be
to settle in the Philippines for their own use and exempted, the cooperative must be the producer
not for sale, barter or exchange, accompanying such and otherwise subject to VAT.
persons or arriving within ninety (90) days before c. Importation of direct farm inputs, machineries
or after their arrival upon the production of and equipment, including spare parts to be
evidence satisfactory to the CIR, that such persons used in the production and/or processing of
are actually coming to settle in the Philippines. their produce.
(RR 13-2018). 13. Gross Receipts from lending activities by credit or
5. Services subject to percentage taxes multi-purpose cooperative which is duly registered
6. Services by agricultural contract growers and with CDA.
milling for others of palay. Agricultural contract 14. Sale by non-agricultural, non-electric, and non-
growers refers to persons producing for others credit cooperatives provided that are registered
 and with share capital contribution from each Ex:
member not exceeding 15,000.
15. Export sales by persons who are not subject to VAT. A,B,C & D went out for dinner. B is a senior citizen.
16. Sale of real properties: After the dinner, the bill is 2,240.
a. Not primary held for sale or held for lease in
ordinary course of business. 1. How much should be the discount?
b. Under low-cost housing scheme and socialized 2. How much should be the amount paid?
housing. INVOICE PRICE 2,240/1.12=2,000/4=500 each 500x20%=100.
c. Sale of residential lot valued at 1,500,000 or
below. After three years, meaning 2021, the INVOICE PRICE 2,240/1.12=2,000-100=1,900
ceiling is now 1,919,500. 3M
d. Sale of house and lot and other residential 2,000x12%=240/4=60 per head =60x3=180
dwelling at 2,500,000 and below. After three
years, meaning 2021, the ceiling is 3,199,200. 1,900+180=2,080
e. Lease of residential unit with a monthly
rental not exceeding 15,000. 23. Transfer of property pursuant to Section 40(C)(2)
f. Lease of residential unit with a monthly of the NIRC
rental exceeding 15,000 but the aggregate is 24. Association dues, membership fees and other
not 3,000,000. assessments and charges collected by homeowners’
17. Sale, importation, printing or publication of books associations and condominium corporation.
and any newspaper and the likes. The term book, 25. Sale of gold to BSP.
magazine, review and bulletin defines by RMC 75- 26. Sale of drugs and medicines prescribed for
2012 as PRINTED materials in HARD COPIES and do not diabetes, high cholesterol, and hypertension
include those in digital or electronic format or beginning January 1, 2019.
computerized versions. 27. Importation of apparatus to be used in dual
18. Transport of passengers by international carriers. training system
19. Sale, importation or lease of passenger or cargo 28. Sales by PEZA, SBMA and other economic zones.
vessel and aircraft, including engine, equipment 29. Sale or lease of goods or properties or the
and spare parts thereof for domestic or performance of services other than the transactions
international transport operations. mentioned in the preceding numbers, the gross
20. Importation of fuel, goods and suppliers by person annual/or receipts do not exceed 3,000,000.
engaged in international shipping or air transport 30. VAT Exemption on self-employed individuals or
operations. If used in domestic shipping or air professional availing of the 8% tax.
transport it is subject to VAT. ZERO RATED (0%) TRANSACTIONS
21. Services of Banks and other financial institutions
22. Sales or lease of goods and services to senior Ex. Sales 100,000 x 0%=0 Purchase 100,000 x 12%=12,000
citizens and persons with disability.
 1. No output tax, but can claim input tax, if **It was classified under TRAIN LAW as VAT Exempt
registered. Transaction.
a. Input tax can be applied as:
i. Refund Note: Sale of raw or packaging materials and those
ii. Tax credit certificate considered export sales shall be subject to 12% VAT and
iii. Carry over method no longer 0 rated under TRAIN LAW if the conditions are
2. If not registered, it will be VAT exempt with no met.
input tax allowed but treated as expense.
2. Sales and Delivery to:
a. Registered enterprise within a separate
customs territory as provided under special
ZERO RATED SALE OF GOODS laws
b. Registered enterprises within tourism
1. Export sales enterprise zone as declared by Tourism
a. The sale and actual shipment of goods from the Infrastructure and Enterprise Zone Authority
Philippines to a foreign country, irrespective (TIEZA) under R.A 9593.
of any shipping arrangement that may be agreed 3. Sale of goods, supplies, equipment and fuel to
upon which may influence or determine the persons engaged in international air transport
transfer of ownership of the goods so exported operation. Provided that supplies, fuels and
and paid for in acceptable foreign currency or equipment shall be used for international shipping
its equivalent in goods or services and or air transport operations.
accounted for in accordance with the rules and
regulations of BSP. NOTE: FOREIGN CURRENCY DENOMINATED SALES IS NOT INCLUDED
b. Sale of raw materials or packaging materials IN TRAIN LAW.
to a nonresident buyer for delivery to a
resident local export-oriented enterprise to ZERO RATED SALES OF SERVICES
be used in manufacturing, processing, packing
or repacking in the Philippines of the said 1. Processing of goods for other persons which goods
buyer’s goods and paid for in acceptable are subsequently exported
foreign currency and accounted for in 2. Services rendered to a person engaged in business
accordance with the rules and regulations of outside the Philippines
BSP. 3. Effectively zero-rated sales of services
c. Sale of raw materials or packaging materials 4. Services rendered to persons engage in
to export oriented enterprise whose export international shipping provided it is related to
sales exceeds 70% of total annual production. transport of goods and passengers
d. Sale of gold to BSP if the seller is VAT 5. Services performed by sub-contractor in
registered. ** manufacturing of goods for enterprise whose exports
sales exceeds 70% of total annual production
 6. Transport of passengers and cargoes by domestic air Sales returns 11.2 vat inclusive
or sea carriers from Philippines to foreign country
7. Sale of fuel or power generated to renewable energy Sales Returns (11.2/1.12) 10

VAT TAXABLE SALE OF GOODS OR PROPERTIES Output tax (10X12%) 1.2

To be taxable, it must be in ordinary course of business Cash 11.2

and there must be an actual sale of:
OUTPUT 12-OUTPUT 1.2=10.8
1. Real properties held primary for sale or held for
lease in ordinary course of business TRANSACTION DEEMED SALE
2. The right to use a patent and other intangibles 1. Transfer, use or consumption not in the ordinary
3. The right to use in the Philippines any industrial, course of business of goods or property originally
commercial and scientific equipment intended for sale or use in ordinary course of
4. The right to use motion picture films and the likes business
5. Radio, TV and satellite transmission 2. Distribution or transfer of goods or properties to:
6. Capital goods or properties with a life greater a. Shareholders as property dividends
than one year. b. Creditors as payment of debt or obligation
GROSS SELLING PRICE- it is the total amount of money or 3. Consignment of goods in which actual sale is not
its equivalent. Any excise tax shall form part of the made within 60 days from the date of consignment
GSP. If sales returns, discounts and allowances were Date of Consignment January 1, 2021 Value is 100,000
made, VAT should be adjusted.
60 days after date of consignment-March 1
Ex:
4. Retirement from or cessation of business with
Sales, 100 net of VAT respect to inventories or taxable goods
Entry: TRANSACTIONS NOT SUBJECT TO VAT
Cash 112 1. Change in control of a corporation
Sales 100 2. Merger or consolidation of corporations
3. Change in the trade or corporate name
Output tax 12 (100X12%)
Output VAT on sale of goods, barter, exchange or deemed
sale is computed by multiplying the GSP by the 12% rate.
Note that if problem is silent, it is VAT inclusive.

Tax base for transaction deemed sale:

 1. If the transaction is number 1 to 3 above, the tax a. Actual Collection, net of VAT x zonal/assessed
base is the market value of goods at the time of value x 12%
transaction b. Agreed Price, net of VAT
2. If the transaction is number 4 above, the tax base
c. To be considered as installment plan, initial
is the lower of acquisition cost or current market
price of goods payments in the year of sale do not exceed 25%
of GSP.
VAT on sale of real properties- must be held for sale or d. To be considered as deferred payments, the
lease to customers initial payments in the year of sale exceed
1. Subject to VAT regardless of amount of GSP if real 25% of GSP.
property is not residential. e. Initial payment = includes down payments made
2. If real property is residential, it will be subject and payments actually or constructively
to VAT if exceeds: received during the year of sale and the
a. 1,919,500 for residential lots excess of mortgage over the cost.
b. 3,199,200 for residential house and lots
July 1, 2021
In the sale of real properties subject to VAT:
Sold Motorcycle worth 100,000, net of VAT. DP is 11,200
1. GSP shall be the highest of:
a. Selling price and monthly installment of 5,600 starting August.
b. Zonal Value
c. Assessed value VAT on July 1, 2021?

If B and C is not available, the latest tax declaration VAT on August 2021?

If the base is letter B or C, the base is exclusive of DP=11,200/1.12=10,000

VAT. Amortization=5,600/1.12=5,000 monthly
Note: Sale of parking lots is subject to VAT regardless IP = DP 10,000
of amount.
Amortization 5,000x6=30,000
If Cash Sale: VAT= 12% of highest GSP
TOTAL IP = 40,000
If installment plan, the formula to compute VAT if zonal
or assessed value is higher than the consideration: 40,000/100,000 x 100% = 40%

INSTALLMENT PLAN = VAT by multiplying the cash received

DEFERRED PAYMENT = the whole amount will be subject to 3. The seller or lessor is VAT registered or if not gross
VAT receipts exceeds 3,000,000
4. In lease of residential units, the monthly rental
100,000x12=12,000 exceeds 15,000 and aggregate annual gross receipts
exceeds 3,000,000.
July 1, 2021
5. In the old tax law, the monthly rent should have been
Sold Motorcycle worth 100,000, net of VAT. DP is 5,600 12,800 and the threshold is 1,919,500
and monthly installment of 2,240 starting August.
TAXABLE SERVICES: Those rendered by:
VAT on July 1, 2021?
1. Construction and service contractors
VAT on August 2021? 2. Stock, Real estate, commercial customs,
and immigration brokers
DP = 5,600/1.12 = 5,000 3. Lessors of property whether personal of
real
Amortization = 2,240/1.12 = 2,000
4. All kinds of services in the Philippines
IP = DP 5,000 provided it is not excepted by law
5. Sale of domestic common carriers by air
Amortization 12,000 and sea relative to their transport of
passenger, goods, cargoes, from one
TOTAL IP 17,000
place in the Philippines to another
17,000/100,000 x 100% = 17% place in the Philippines
6. Warehousing
5,600/1.12 x12% = 600 JULY 1 7. Lessors or distributors of
cinematographic films
2,240/1.12x12%=240 AUGUST 8. Persons engaged in milling, processing,
manufacturing or repacking goods for
VAT- TAXABLE SALE OF SERVICES
others, except VAT Exempt transactions.
Requisites: 9. Proprietors, operators or keepers of
hotel, motels, rest houses, pension
1. Must be in ordinary course of business houses, inns, resorts, theaters and
2. For leases, property must be in the Philippines movie houses. **
 ** this was deleted in the TRAIN LAW. a. Gross receipts = GSP less cost of securities
sold
10. Proprietors or operators of 18. Pre-need companies
restaurants, refreshment parlors, cafes a. Gross receipts = Premiums received
and other eating places, including clubs 19. HMO
and caterers. a. Gross Receipts= Service fees = enrollment fees
11. Lending investors + other charges received
12. Sale of electricity by generation, b. Gross receipts = total amount of money
transmission by any entity including the representing the contract price. Once received
NGCP and distribution companies is it is subject to VAT
subject to VAT. (RR 13-2018)
13. Services of franchise grantees of VAT ON IMPORTATION
electric utilities, telephone and
telegraph, radio and television Importer= any person who brings goods into Philippines
broadcasting and all other franchise whether or not in ordinary course of business. A non-
grantees except those under section 119 exempt person who acquires tax-free imported goods from
of RA 10963. exempt persons.
14. Sale of transportation of domestic
Tax Base: Total value used by BOC plus custom duties
common carriers by land and their
excise taxes plus other charges.
transport of goods and cargoes.
VAT on importation must be paid first in order for the
LAND AIR SEA goods to be released otherwise it will not be.
Passenger 1% OPT VAT VAT
Goods and VAT VAT VAT INPUT TAX CREDIT
Cargoes
Sources:
15. Non-life insurance 1. VAT paid to the supplier by a VAT-registered person on
Gross receipts = Premiums collected his local purchases and VAT paid to BIR on
16. Lease of properties importation of goods
a. Must be in the Philippines 2. VAT paid on purchase of real properties
b. Prepaid rental shall be subject to VAT 3. VAT paid on purchase of services
17. Dealers in securities 4. Transaction deemed sale
5. Transitional input tax a. If value of capital goods is equal to 1, 000,
a. Allowed to those person who will become a VAT- 000 it can be claimed as automatic input tax
registered for the first time. It is the higher of on the month of purchase
2% of beginning inventory or the actual input VAT
pain on such inventory. Ex:

100,000 Beginning Inventory Sales 1,000,000 net of VAT

100,000x2%=2,000 Purchase of Delivery Vehicle 896,000, VAT

inclusive.
Actual input vat = 6,000
How much is VAT payable?
6. Presumptive Input Tax (SM on SM)
a. Available to personal engaged in process of SM OUTPUT TAX = (1,000,000x12%) 120,000
ON SM.
INPUT TAX = (896,000/1.12*.12) 96,000
b. 4% of the gross value in money of purchases
7. Input tax withheld VAT PAYABLE = 24,000
a. Input tax withheld by the sale of goods and
services to government and other GOCC’s

Ex: b. If the value of capital goods is greater than

1, 000, 000, input tax must be amortized by:
Sales to government 100,000, exclusive of VAT. i. If life is less than five years,
Withholding tax of sales to government is 5%. input tax shall be divided by the
100,000x12%=12,000. useful life
ii. If life is greater than five years,
TOTAL INVOCIE =112,000
the input tax shall be amortized
Withholding=100,000x5%=5,000 using 60 months only.
iii. If sold within the period of 5
TO BE RECEIVED = 95,000+12,000=107,000 years, the entire unamortized input
tax can be claimed as automatic
OUTPUT TAX = 12,000-5,000=7,000 input tax on the date of sale.
8. Input tax on depreciable goods
Ex. 1 2 months x 6,000= 12,000

JANUARY 2021 216,000-12,000=204,000 UNAMORTIZED INPUT TAX

Sales 2,000,000 VAT Exclusive Sales 3,000,000 x 12%=360,000 – 204,000=154,000

Purchase of Machinery 1,800,000 VAT Exclusive. Useful Ex. 4

lives is estimated 3 years.
Sales 2,000,000 VAT Exclusive
VAT PAYABLE?
Purchase of Machinery 1,800,000 VAT Exclusive. Useful
OUTPUT TAX = (2,000,000x12%) 240,000 lives is estimated 3 years.

INPUT TAX =(1,800,000x12%) (216,000)/36=6,000 VAT PAYABLE?

VAT PAYABLE = 234,000 OUTPUT TAX = (2,000,000x12%) 240,000

Ex. 2 INPUT TAX =(1,800,000x12%) (216,000)

Sales 2,000,000 VAT Exclusive VAT PAYABLE = 24,000

Purchase of Machinery 1,800,000 VAT Exclusive. Useful

lives is estimated 8 years. 12=96
8. Input tax on construction in Progress (CIP)
VAT PAYABLE? iv. CIP times 12%= input tax
v. But if completed, no additional input tax can
OUTPUT TAX = (2,000,000x12%) 240,000 be claimed.
9. Allocation input tax
INPUT TAX =(1,800,000x12%) (216,000)/60=3,600
Ex.
VAT PAYABLE 236,400
Sales-Regular 100,000
Ex. 3
Sales-O rated 100,000
March 2021, referring to Ex. 1, the machinery is sold.
Sales exempt 200,000
How much is the INPUT TAX TO BE CLAIMED?
Input tax 100,000 a. If excess is due to month, it will be carried
to next month only
VAT PAYABLE? b. If excess is due to quarter, it will be
carried to next month or quarter at the option
Sales-Regular 100,000=100/400x100,000=25,000
of the taxpayer.
Sales-O rate 100,000=100/400x100,000=25,000 22. Input tax of 0% sales may be:
a. Be carried at next succeeding month
Sales exempt 200,000=200/400x100,000=50,000 b. Be refunded
c. Apply for tax credit certificate in which if
TOTAL SALES 400,000
granted it can be used in the payment of other
Sales regular(100,000x12%) 12,000 internal revenue taxes.

Sales-0 rate (100,000x0) 0 FILING OF VAT RETURN AND PAYMENT VAT (NON-EFPS)

Sales Exempt - 1. Monthly VAT return on declaration

a. Use from 2550M and must be filed not later than
OUTPUT TAX 12,000 20th day following the end of taxable month
b. If there is payment, it will be paid in AAB
Less: INPUT TAX (50,000)
c. If no payment, it will be filed to revenue district
VP (38,000) in which has jurisdiction over the business
2. Quarterly VAT return and declaration
a. Use form 2550Q and must be file not later than 25th
day following the end of taxable quarter
10. Issuance of VAT invoice by a non-VAT person b. Payments made in last two months shall be credited
11. Issuance of VAT invoice on exempt transactions against the VAT payable for the quarter
by a VAT registered person. c. If there is payment, it will be paid in AAB
d. If no payment, it will be filed to revenue district
HOW ITC IS USED?
in which has jurisdiction over the business
20. Used as credit against the output to compute for
RETURNS UNDER ELECTRONIC FILING & PAYMENT SYSTEM (EFPS)
VAT payable
21. Any excess ITC shall be carried over the next -it must be filed within the 21, 22, 23, 24, 25 days
succeeding period following the end of each month. Once filed the payment
is to be made 5 days after the deadlines.
ISSUANCE OF VAT INVOICE AND RECEIPT

A VAT- registered person shall:

1. Issue VAT invoice in sale, barter, exchange of

goods and properties
2. A VAT official receipt for every lease must be
issue.

END OF HANDOUT

NEXT ISSUE: OTHER PERCENTAGE TAXES