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 goods 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
be imposed simultaneously. Ex.
Republic Act 9337 or the Value Added Tax Reform Act Purchases, 112,000, inclusive of VAT
states that every person who in the ordinary course of
business, sells, barters, exchanges, leases goods or 112,000/1.12=100,000 net of VAT x12%= 12,000
properties or render services is subject to VAT if actual
or expected sales or receipts are greater than 1,919,500. Purchases, 100,000, exclusive of VAT

100,000x12%=12,000

VAT THRESHOLD-TRAIN LAW 3M RA 101963 If OT>IT=VAT PAYABLE

VAT TRANSACTIONS: IF IT>OT=VAT REFUND

1. VAT EXEMPT 1. Sale or Importation of agricultural and marine food

2. 0 RATED products in their original state, livestock or
3. VATABLE poultry of a kind generally used as or yielding or
producing foods for human consumption and breeding
stock and genetic materials therefor
VAT EXEMPT TRANSACTIONS –
a. Original state = if products underwent into simple are actually coming to settle in the Philippines.
process such as: FREEZING, DRYING, SALTING, (RR 13-2018).
BROILING, ROASTING, SMOKING, STRIPPING and 5. Services subject to percentage taxes
including advanced technological means of 6. Services by agricultural contract growers and
PACKAGING. milling for others of palay. Agricultural contract
growers refers to persons producing for others
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.
d. Sale of bagasse is not exempt from VAT. 8. Educational services duly accredited by Department
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 17. Sale, importation, printing or publication of books
their produce. and any newspaper and the likes. The term book,
13. Gross Receipts from lending activities by credit or magazine, review and bulletin defines by RMC 75-
multi-purpose cooperative which is duly registered 2012 as PRINTED materials in HARD COPIES and do not
with CDA. include those in digital or electronic format or
14. Sale by non-agricultural, non-electric, and non- computerized versions.
credit cooperatives provided that are registered 18. Transport of passengers by international carriers.
and with share capital contribution from each 19. Sale, importation or lease of passenger or cargo
member not exceeding 15,000. vessel and aircraft, including engine, equipment
15. Export sales by persons who are not subject to VAT. and spare parts thereof for domestic or
16. Sale of real properties: international transport operations.
a. Not primary held for sale or held for lease in 20. Importation of fuel, goods and suppliers by person
ordinary course of business. engaged in international shipping or air transport
b. Under low-cost housing scheme and socialized operations. If used in domestic shipping or air
housing. transport it is subject to VAT.
c. Sale of residential lot valued at 1,500,000 or 21. Services of Banks and other financial institutions
below. After three years, meaning 2021, the 22. Sales or lease of goods and services to senior
ceiling is now 1,919,500. 3M citizens and persons with disability.
d. Sale of house and lot and other residential
dwelling at 2,500,000 and below. After three Ex:
years, meaning 2021, the ceiling is 3,199,200.
e. Lease of residential unit with a monthly A,B,C & D went out for dinner. B is a senior citizen.
rental not exceeding 15,000. After the dinner, the bill is 2,240.
f. Lease of residential unit with a monthly 1. How much should be the discount?
rental exceeding 15,000 but the aggregate is 2. How much should be the amount paid?
not 3,000,000.
INVOICE PRICE 2,240/1.12=2,000/4=500 each 500x20%=100.
EXAMPLE:
INVOICE PRICE 2,240/1.12=2,000-100=1,900
CASE 1:
2,000x12%=240/4=60 per head =60x3=180
Number of units 20, monthly rent is 10,000.
1,900+180=2,080
CASE 2:
23. Transfer of property pursuant to Section 40(C)(2)
Number of Units 10, Monthly rental is 20,000 of the NIRC
24. Association dues, membership fees and other upon which may influence or determine the
assessments and charges collected by homeowners’ transfer of ownership of the goods so exported
associations and condominium corporation. and paid for in acceptable foreign currency or
25. Sale of gold to BSP. its equivalent in goods or services and
26. Sale of drugs and medicines prescribed for accounted for in accordance with the rules and
diabetes, high cholesterol, and hypertension regulations of BSP.
beginning January 1, 2019. b. Sale of raw materials or packaging materials
27. Importation of apparatus to be used in dual to a nonresident buyer for delivery to a
training system resident local export-oriented enterprise to
28. Sales by PEZA, SBMA and other economic zones. be used in manufacturing, processing, packing
29. Sale or lease of goods or properties or the or repacking in the Philippines of the said
performance of services other than the transactions buyer’s goods and paid for in acceptable
mentioned in the preceding numbers, the gross foreign currency and accounted for in
annual/or receipts do not exceed 3,000,000. accordance with the rules and regulations of
30. VAT Exemption on self-employed individuals or BSP.
professional availing of the 8% tax. c. Sale of raw materials or packaging materials
to export oriented enterprise whose export
ZERO RATED (0%) TRANSACTIONS sales exceeds 70% of total annual production.
d. Sale of gold to BSP if the seller is VAT
Ex. Sales 100,000 x 0%=0 Purchase 100,000 x 12%=12,000 registered. **
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
1. Export sales b. Registered enterprises within tourism
a. The sale and actual shipment of goods from the enterprise zone as declared by Tourism
Philippines to a foreign country, irrespective Infrastructure and Enterprise Zone Authority
of any shipping arrangement that may be agreed (TIEZA) under R.A 9593.
 3. Sale of goods, supplies, equipment and fuel to 6. Capital goods or properties with a life greater
persons engaged in international air transport than one year.
operation. Provided that supplies, fuels and
equipment shall be used for international shipping GROSS SELLING PRICE- it is the total amount of money or
or air transport operations. its equivalent. Any excise tax shall form part of the
GSP. If sales returns, discounts and allowances were
NOTE: FOREIGN CURRENCY DENOMINATED SALES IS NOT INCLUDED made, VAT should be adjusted.
IN TRAIN LAW.
Ex:
ZERO RATED SALES OF SERVICES
Sales, 100 net of VAT
1. Processing of goods for other persons which goods
are subsequently exported Entry:
2. Services rendered to a person engaged in business
outside the Philippines Cash 112
3. Effectively zero-rated sales of services Sales 100
4. Services rendered to persons engage in
international shipping provided it is related to Output tax 12 (100X12%)
transport of goods and passengers
5. Services performed by sub-contractor in
manufacturing of goods for enterprise whose exports
sales exceeds 70% of total annual production
6. Transport of passengers and cargoes by domestic air
or sea carriers from Philippines to foreign country Sales returns 11.2 vat inclusive
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
3. The right to use in the Philippines any industrial, 1. Transfer, use or consumption not in the ordinary
commercial and scientific equipment course of business of goods or property originally
4. The right to use motion picture films and the likes intended for sale or use in ordinary course of
5. Radio, TV and satellite transmission business
 2. Distribution or transfer of goods or properties to: a. 1,919,500 for residential lots
a. Shareholders as property dividends b. 3,199,200 for residential house and lots
b. Creditors as payment of debt or obligation
3. Consignment of goods in which actual sale is not In the sale of real properties subject to VAT:
made within 60 days from the date of consignment
1. GSP shall be the highest of:
Date of Consignment January 1, 2021 Value is 100,000 a. Selling price
b. Zonal Value
60 days after date of consignment-March 1 c. Assessed value
4. Retirement from or cessation of business with If B and C is not available, the latest tax declaration
respect to inventories or taxable goods
If the base is letter B or C, the base is exclusive of
TRANSACTIONS NOT SUBJECT TO VAT
VAT.
1. Change in control of a corporation
2. Merger or consolidation of corporations Note: Sale of parking lots is subject to VAT regardless
3. Change in the trade or corporate name of amount.

Output VAT on sale of goods, barter, exchange or deemed If Cash Sale: VAT= 12% of highest GSP
sale is computed by multiplying the GSP by the 12% rate.
Note that if problem is silent, it is VAT inclusive. If installment plan, the formula to compute VAT if zonal
or assessed value is higher than the consideration:
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 payments in the year of sale do not exceed 25%
price of goods 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
25% of GSP.
1. Subject to VAT regardless of amount of GSP if real e. Initial payment = includes down payments made
property is not residential.
and payments actually or constructively
2. If real property is residential, it will be subject
to VAT if exceeds:
 received during the year of sale and the VAT on August 2021?
excess of mortgage over the cost.
DP = 5,600/1.12 = 5,000
July 1, 2021
Amortization = 2,240/1.12 = 2,000
Sold Motorcycle worth 100,000, net of VAT. DP is 11,200
and monthly installment of 5,600 starting August. IP = DP 5,000

VAT on July 1, 2021? Amortization 10,000

VAT on August 2021? TOTAL IP 15,000

DP=11,200/1.12=10,000 15,000/100,000 x 100% = 15%

Amortization=5,600/1.12=5,000 monthly 5,600/1.12 x12% = 600 JULY 1

IP = DP 10,000 2,240/1.12x12%=240 AUGUST

Amortization 5,000x5=25,000 VAT- TAXABLE SALE OF SERVICES

TOTAL IP = 35,000 Requisites:

35,000/100,000 x 100% = 35% 1. Must be in ordinary course of business

2. For leases, property must be in the Philippines
INSTALLMENT PLAN = VAT by multiplying the cash received 3. The seller or lessor is VAT registered or if not gross
receipts exceeds 3,000,000
DEFERRED PAYMENT = the whole amount will be subject to 4. In lease of residential units, the monthly rental
VAT exceeds 15,000 and aggregate annual gross receipts
exceeds 3,000,000.
100,000x12=12,000
5. In the old tax law, the monthly rent should have been
July 1, 2021 12,800 and the threshold is 1,919,500

Sold Motorcycle worth 100,000, net of VAT. DP is 5,600 TAXABLE SERVICES: Those rendered by:
and monthly installment of 2,240 starting August.
1. Construction and service contractors
VAT on July 1, 2021?
2. Stock, Real estate, commercial customs, 13. Services of franchise grantees of
and immigration brokers electric utilities, telephone and
3. Lessors of property whether personal of telegraph, radio and television
real broadcasting and all other franchise
4. All kinds of services in the Philippines grantees except those under section 119
provided it is not excepted by law of RA 10963.
5. Sale of domestic common carriers by air 14. Sale of transportation of domestic
and sea relative to their transport of common carriers by land and their
passenger, goods, cargoes, from one transport of goods and cargoes.
place in the Philippines to another
place in the Philippines LAND AIR SEA
6. Warehousing Passenger 1% OPT VAT VAT
Goods and VAT VAT VAT
7. Lessors or distributors of
Cargoes
cinematographic films
8. Persons engaged in milling, processing,
manufacturing or repacking goods for 15. Non-life insurance
others, except VAT Exempt transactions. Gross receipts = Premiums collected
9. Proprietors, operators or keepers of 16. Lease of properties
hotel, motels, rest houses, pension a. Must be in the Philippines
houses, inns, resorts, theaters and b. Prepaid rental shall be subject to VAT
movie houses. ** 17. Dealers in securities
a. Gross receipts = GSP less cost of securities
** this was deleted in the TRAIN LAW. 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)
VAT ON IMPORTATION 6. Presumptive Input Tax (SM on SM)
a. Available to personal engaged in process of SM
Importer= any person who brings goods into Philippines ON SM.
whether or not in ordinary course of business. A non- b. 4% of the gross value in money of purchases
exempt person who acquires tax-free imported goods from 7. Input tax withheld
exempt persons. a. Input tax withheld by the sale of goods and
services to government and other GOCC’s
Tax Base: Total value used by BOC plus custom duties
excise taxes plus other charges. Ex:
VAT on importation must be paid first in order for the Sales to government 100,000, exclusive of VAT.
goods to be released otherwise it will not be. Withholding tax of sales to government is 5%.
100,000x12%=12,000.
INPUT TAX CREDIT
TOTAL INVOCIE =112,000
Sources:
Withholding=100,000x5%=5,000
1. VAT paid to the supplier by a VAT-registered person on
his local purchases and VAT paid to BIR on TO BE RECEIVED = 95,000+12,000=107,000
importation of goods
2. VAT paid on purchase of real properties OUTPUT TAX = 12,000-5,000=7,000
3. VAT paid on purchase of services
4. Transaction deemed sale 8. Input tax on depreciable goods
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
Ex:
pain on such inventory.
Sales 1,000,000 net of VAT
100,000 Beginning Inventory
Purchase of Delivery Vehicle 896,000, VAT
100,000x2%=2,000
inclusive.
Actual input vat = 6,000
How much is VAT payable?
 OUTPUT TAX = (1,000,000x12%) 120,000 INPUT TAX =(1,800,000x12%) (216,000)/36=6,000

INPUT TAX = (896,000/1.12*.12) 96,000 VAT PAYABLE = 234,000

VAT PAYABLE = 24,000 Ex. 2

Sales 2,000,000 VAT Exclusive

b. If the value of capital goods is greater than Purchase of Machinery 1,800,000 VAT Exclusive. Useful
1, 000, 000, input tax must be amortized by: lives is estimated 8 years. 12=96
i. If life is less than five years,
input tax shall be divided by the VAT PAYABLE?
useful life
OUTPUT TAX = (2,000,000x12%) 240,000
ii. If life is greater than five years,
the input tax shall be amortized INPUT TAX =(1,800,000x12%) (216,000)/60=3,600
using 60 months only.
iii. If sold within the period of 5 VAT PAYABLE 236,400
years, the entire unamortized input
Ex. 3
tax can be claimed as automatic
input tax on the date of sale. March 2021, referring to Ex. 1, the machinery is sold.

How much is the INPUT TAX TO BE CLAIMED?

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.
VAT PAYABLE? Sales-0 rate (100,000x0) 0

OUTPUT TAX = (2,000,000x12%) 240,000 Sales Exempt -

INPUT TAX =(1,800,000x12%) (216,000) OUTPUT TAX 12,000

VAT PAYABLE = 24,000 Less: INPUT TAX (50,000)

VP (38,000)

8. Input tax on construction in Progress (CIP)

iv. CIP times 12%= input tax
v. But if completed, no additional input tax can 10. Issuance of VAT invoice by a non-VAT person
be claimed. 11. Issuance of VAT invoice on exempt transactions
9. Allocation input tax by a VAT registered person.

Ex. HOW ITC IS USED?

Sales-Regular 100,000 20. Used as credit against the output to compute for
VAT payable
Sales-O rated 100,000 21. Any excess ITC shall be carried over the next
succeeding period
Sales exempt 200,000 a. If excess is due to month, it will be carried
to next month only
Input tax 100,000
b. If excess is due to quarter, it will be
VAT PAYABLE? carried to next month or quarter at the option
of the taxpayer.
Sales-Regular 100,000=100/400x100,000=25,000 22. Input tax of 0% sales may be:
a. Be carried at next succeeding month
Sales-O rate 100,000=100/400x100,000=25,000
b. Be refunded
Sales exempt 200,000=200/400x100,000=50,000 c. Apply for tax credit certificate in which if
granted it can be used in the payment of other
TOTAL SALES 400,000 internal revenue taxes.

Sales regular(100,000x12%) 12,000 FILING OF VAT RETURN AND PAYMENT VAT (NON-EFPS)
1. Monthly VAT return on declaration
a. Use from 2550M and must be filed not later than
20th day following the end of taxable month
b. If there is payment, it will be paid in AAB
c. If no payment, it will be filed to revenue district
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
b. Payments made in last two months shall be credited
against the VAT payable for the quarter
c. If there is payment, it will be paid in AAB
d. If no payment, it will be filed to revenue district
in which has jurisdiction over the business

RETURNS UNDER ELECTRONIC FILING & PAYMENT SYSTEM (EFPS)

-it must be filed within the 21, 22, 23, 24, 25 days
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