Major Business Taxes:

1. Value Added Taxes-12%

2. Percentage Taxes-3% under CREATE LAW 1% until June 30, 2023
3. Excise Taxes
Business Tax- imposed on onerous transfer such as sale, barter or
exchange.
Value Added Tax is a tax levied on consumption levied on sale, barter,
exchange or lease of goods, properties and services IN THE PHILIPPINES
and importation of goods into the Philippines.
Value added tax and excise tax can be imposed simultaneously but value
added tax and percentages cannot be imposed simultaneously.
Republic Act 9337 or the Value Added Tax Reform Act states that every
person who in the ordinary course of business, sells, barters, exchanges,
leases goods or properties or render services is subject to VAT if actual
or expected sales or receipts are greater than 1,919,500.

VAT THRESHOLD-TRAIN LAW 3M RA 101963

VAT TRANSACTIONS:
1. VAT EXEMPT
2. 0 RATED
3. VATABLE

VAT EXEMPT TRANSACTIONS –

Tax consequences: No output tax allowed and seller is not allowed to
claim input tax. Input tax will form part of the cost of goods sold or
expense outright.
Ex:
Sales, 112,000, inclusive of VAT:
112,000/1.12=100,000 net of VAT x 12%=12,000
Ex
Sales, 100,000, exclusive of VAT
100,000 x 12% = 12,000

Ex.
Purchases, 112,000, inclusive of VAT
112,000/1.12=100,000 net of VAT x12%= 12,000
Purchases, 100,000, exclusive of VAT
100,000x12%=12,000
If OT>IT=VAT PAYABLE
IF IT>OT=VAT REFUND
1. Sale or Importation of agricultural and marine food products in their
original state, livestock or poultry of a kind generally used as or
yielding or producing foods for human consumption and breeding stock
and genetic materials therefor
a. Original state = if products underwent into simple process such as:
FREEZING, DRYING, SALTING, BROILING, ROASTING, SMOKING, STRIPPING and
including advanced technological means of PACKAGING.
b. Polished and/or husked rice, raw cane sugar, and molasses, ordinary
salt, and copra shall be also in original state.
 c. Livestock or poultry does not include cocks, race horses, zoo animals,
and other general animals considered as pets.
d. Sale of bagasse is not exempt from VAT.
e. Fresh water is subject to VAT.
2. Sale or importation of fertilizers, seeds, seedlings, and
fingerlings, fish prawn, livestock and poultry feeds, including
ingredients whether locally imported, used in the manufacturing of
finished feeds (except feeds of letter C in number 1)
3. Importation of personal and household effects owned by a resident of
the Philippines returning from abroad and non-resident coming to the
Philippines.
4. Importation of professional instruments and implements, wearing
apparel, domestic animals, and personal household effects (except
vehicle, vessel, aircraft, machinery and other goods for use in the
manufacture and merchandise of any kind in commercial quantity)
belonging to a person coming to settle in the Philippines for their
own use and not for sale, barter or exchange, accompanying such
persons or arriving within ninety (90) days before or after their
arrival upon the production of evidence satisfactory to the CIR, that
such persons are actually coming to settle in the Philippines. (RR
13-2018).
5. Services subject to percentage taxes
6. Services by agricultural contract growers and milling for others of
palay. Agricultural contract growers refers to persons producing for
others poultry livestock and other agricultural and marine food
products in their original state,
7. Medical, dental, hospital and veterinary services, except those
rendered professionals. Laboratory services are exempted, however,
hospitals with pharmacy or drug store is subject to VAT, except those
drugs that are exempt from VAT.
8. Educational services duly accredited by Department of Education,
commission on Higher Education and Technical Education and Skill
Development Authority. Educational Services does not include seminars,
in-service training, review classes and other services rendered by
persons not accredited by DepEd, CHED or TESDA.
9. Services rendered by individual pursuant to employer-employee
relationship.
10. Services rendered by regional headquarters in which do not have
intention to earn or derive income from the Philippines.
11. Transactions which are exempt under international agreements to which
Philippines is a signatory.
12. Sales by duly registered cooperatives:
a. Dealing or transacting with members only.
b. Sale of their produce, whether original state or processed form to
non-members. To be exempted, the cooperative must be the producer
and otherwise subject to VAT.
c. Importation of direct farm inputs, machineries and equipment,
including spare parts to be used in the production and/or
processing of their produce.
13. Gross Receipts from lending activities by credit or multi-purpose
cooperative which is duly registered with CDA.
14. Sale by non-agricultural, non-electric, and non-credit cooperatives
provided that are registered and with share capital contribution from
 each member not exceeding 15,000.
15. Export sales by persons who are not subject to VAT.
16. Sale of real properties:
a. Not primary held for sale or held for lease in ordinary course of
business.
b. Under low-cost housing scheme and socialized housing.
c. Sale of residential lot valued at 1,500,000 or below. After three
years, meaning 2021, the ceiling is now 1,919,500. 3M
d. Sale of house and lot and other residential dwelling at 2,500,000
and below. After three years, meaning 2021, the ceiling is
3,199,200.
e. Lease of residential unit with a monthly rental not exceeding
15,000.
f. Lease of residential unit with a monthly rental exceeding 15,000
but the aggregate is not 3,000,000.
EXAMPLE:
CASE 1:
Number of units 20, monthly rent is 10,000.
CASE 2:
Number of Units 10, Monthly rental is 20,000. 10 x 20,000x12=2,400,000
17. Sale, importation, printing or publication of books and any newspaper
and the likes. The term book, magazine, review and bulletin defines
by RMC 75-2012 as PRINTED materials in HARD COPIES and do not include
those in digital or electronic format or computerized versions.
18. Transport of passengers by international carriers.
19. Sale, importation or lease of passenger or cargo vessel and aircraft,
including engine, equipment and spare parts thereof for domestic or
international transport operations.
20. Importation of fuel, goods and suppliers by person engaged in
international shipping or air transport operations. If used in
domestic shipping or air transport it is subject to VAT.
21. Services of Banks and other financial institutions
22. Sales or lease of goods and services to senior citizens and persons
with disability.
Ex:
A,B,C & D went out for dinner in shakeys. B is a senior citizen. After
the dinner, the bill is 2,240. S
1. How much should be the discount?
2. How much should be the amount paid?
INVOICE PRICE 2,240/1.12=2,000/4=500 each 500x20%=100.
INVOICE PRICE 2,240/1.12=2,000-100=1,900
2,000x12%=240/4=60 per head =60x3=180
1,900+180=2,080
NONVAT-2,240*20%=448.000 DISCOUNT 2,240-448=1,792
23. Transfer of property pursuant to Section 40(C)(2) of the NIRC
24. Association dues, membership fees and other assessments and charges
collected by homeowners’ associations and condominium corporation.
25. Sale of gold to BSP.
26. Sale of drugs and medicines prescribed for diabetes, high cholesterol,
and hypertension beginning January 1, 2019.
27. Importation of apparatus to be used in dual training system
28. Sales by PEZA, SBMA and other economic zones. 0-rated
29. Sale or lease of goods or properties or the performance of services
other than the transactions mentioned in the preceding numbers, the
gross annual/or receipts do not exceed 3,000,000.
30. VAT Exemption on self-employed individuals or professional availing of
the 8% tax.
ZERO RATED (0%) TRANSACTIONS
Ex. Sales 100,000 x 0%=0 Purchase 100,000 x 12%=12,000
1. No output tax, but can claim input tax, if registered.
a. Input tax can be applied as:
i. Refund
ii. Tax credit certificate
iii. Carry over method
2. If not registered, it will be VAT exempt with no input tax allowed
but treated as expense.

ZERO RATED SALE OF GOODS

1. Export sales
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 and paid for in acceptable
foreign currency or its equivalent in goods or services and
accounted for in accordance with the rules and regulations of BSP.
b. Sale of raw materials or packaging materials to a nonresident
buyer for delivery to a resident local export-oriented enterprise
to be used in manufacturing, processing, packing or repacking in
the Philippines of the said buyer’s goods and paid for in
acceptable foreign currency and accounted for in accordance with
the rules and regulations of BSP.
c. Sale of raw materials or packaging materials to export oriented
enterprise whose export sales exceeds 70% of total annual
production.
d. Sale of gold to BSP if the seller is VAT registered. **
**It was classified under TRAIN LAW as VAT Exempt Transaction.
Note: Sale of raw or packaging materials and those considered export
sales shall be subject to 12% VAT and no longer 0 rated under TRAIN LAW
if the conditions are met.
2. Sales and Delivery to:
a. Registered enterprise within a separate customs territory as
provided under special laws
b. Registered enterprises within tourism enterprise zone as declared
by Tourism Infrastructure and Enterprise Zone Authority (TIEZA)
under R.A 9593.
3. Sale of goods, supplies, equipment and fuel to persons engaged in
international air transport operation. Provided that supplies, fuels
and equipment shall be used for international shipping or air
transport operations.
NOTE: FOREIGN CURRENCY DENOMINATED SALES IS NOT INCLUDED IN TRAIN LAW.
ZERO RATED SALES OF SERVICES
1. Processing of goods for other persons which goods are subsequently
exported
2. Services rendered to a person engaged in business outside the
Philippines
 3. Effectively zero-rated sales of services
4. Services rendered to persons engage in international shipping
provided it is related to 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
7. Sale of fuel or power generated to renewable energy
VAT TAXABLE SALE OF GOODS OR PROPERTIES
To be taxable, it must be in ordinary course of business and there must
be an actual sale of:
1. Real properties held primary for sale or held for lease in ordinary
course of business
2. The right to use a patent and other intangibles
3. The right to use in the Philippines any industrial, commercial and
scientific equipment
4. The right to use motion picture films and the likes
5. Radio, TV and satellite transmission
6. Capital goods or properties with a life greater than one year.
GROSS SELLING PRICE- it is the total amount of money or its equivalent.
Any excise tax shall form part of the GSP. If sales returns, discounts
and allowances were made, VAT should be adjusted.
Ex:
Sales, 100 net of VAT
Entry:
Cash 112
Sales 100
Output tax 12 (100X12%)

Sales returns 11.2 vat inclusive

Sales Returns (11.2/1.12) 10
Output tax (10X12%) 1.2
Cash 11.2
OUTPUT 12-OUTPUT 1.2=10.8
TRANSACTION DEEMED SALE
1. Transfer, use or consumption not in the ordinary course of business
of goods or property originally intended for sale or use in ordinary
course of business
2. Distribution or transfer of goods or properties to:
a. Shareholders as property dividends
b. Creditors as payment of debt or obligation
3. Consignment of goods in which actual sale is not made within 60 days
from the date of consignment
Date of Consignment January 1, 2021 Value is 100,000
60 days after date of consignment-March 1
4. Retirement from or cessation of business with respect to inventories
or taxable goods
TRANSACTIONS NOT SUBJECT TO VAT
1. Change in control of a corporation
2. Merger or consolidation of corporations
3. Change in the trade or corporate name
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 base is the market
value of goods at the time of transaction
2. If the transaction is number 4 above, the tax base is the lower of
acquisition cost or current market price of goods
VAT on sale of real properties- must be held for sale or lease to
customers
1. Subject to VAT regardless of amount of GSP if real property is not
residential.
2. If real property is residential, it will be subject to VAT if
exceeds:
a. 1,919,500 for residential lots
b. 3,199,200 for residential house and lots
In the sale of real properties subject to VAT:
1. GSP shall be the highest of:
a. Selling price
b. Zonal Value
c. Assessed value
If B and C is not available, the latest tax declaration
If the base is letter B or C, the base is exclusive of VAT.
Note: Sale of parking lots is subject to VAT regardless of amount.
If Cash Sale: VAT= 12% of highest GSP
If installment plan, the formula to compute VAT if zonal or assessed
value is higher than the consideration:
a. Actual Collection, net of VAT x zonal/assessed value x 12%
b. Agreed Price, net of VAT
c. To be considered as installment plan, initial payments in the year
of sale do not exceed 25% of GSP.
d. To be considered as deferred payments, the initial payments in the
year of sale exceed 25% of GSP.
e. Initial payment = includes down payments made and payments
actually or constructively received during the year of sale and
the excess of mortgage over the cost.
July 1, 2021
Sold Motorcycle worth 100,000, net of VAT. DP is 11,200 and monthly
installment of 5,600 starting August.
VAT on July 1, 2021?
VAT on August 2021?
DP=11,200/1.12=10,000
Amortization=5,600/1.12=5,000 monthly
IP = DP 10,000
Amortization 5,000x5=25,000
TOTAL IP = 35,000
35,000/100,000 x 100% = 35%
INSTALLMENT PLAN = VAT by multiplying the cash received
DEFERRED PAYMENT = the whole amount will be subject to VAT
100,000x12=12,000
July 1, 2021
Sold Motorcycle worth 100,000, net of VAT. DP is 5,600 and monthly
installment of 2,240 starting August.
VAT on July 1, 2021?
VAT on August 2021?
DP = 5,600/1.12 = 5,000
Amortization = 2,240/1.12 = 2,000
IP = DP 5,000
Amortization 10,000
TOTAL IP 15,000
15,000/100,000 x 100% = 15%
5,600/1.12 x12% = 600 JULY 1
2,240/1.12x12%=240 AUGUST
VAT- TAXABLE SALE OF SERVICES
Requisites:
1. Must be in ordinary course of business
2. For leases, property must be in the Philippines
3. The seller or lessor is VAT registered or if not gross receipts
exceeds 3,000,000
4. In lease of residential units, the monthly rental exceeds 15,000 and
aggregate annual gross receipts exceeds 3,000,000.
5. In the old tax law, the monthly rent should have been 12,800 and the
threshold is 1,919,500
TAXABLE SERVICES: Those rendered by:
1. Construction and service contractors
2. Stock, Real estate, commercial customs, and immigration brokers
3. Lessors of property whether personal of real
4. All kinds of services in the Philippines provided it is not
excepted by law
5. Sale of domestic common carriers by air and sea relative to
their transport of passenger, goods, cargoes, from one place in
the Philippines to another place in the Philippines
6. Warehousing
7. Lessors or distributors of cinematographic films
8. Persons engaged in milling, processing, manufacturing or
repacking goods for others, except VAT Exempt transactions.
9. Proprietors, operators or keepers of hotel, motels, rest
houses, pension houses, inns, resorts, theaters and movie
houses. **
** this was deleted in the TRAIN LAW.
10. Proprietors or operators of restaurants, refreshment parlors,
cafes and other eating places, including clubs and caterers.
11. Lending investors
12. Sale of electricity by generation, transmission by any entity
including the NGCP and distribution companies is subject to
VAT. (RR 13-2018)
13. Services of franchise grantees of electric utilities,
telephone and telegraph, radio and television broadcasting and
all other franchise grantees except those under section 119 of
RA 10963.
14. Sale of transportation of domestic common carriers by land and
their transport of goods and cargoes.
LAND AIR SEA
Passenger 1% OPT VAT VAT
Goods and VAT VAT VAT
Cargoes
 15. Non-life insurance
Gross receipts = Premiums collected
16. Lease of properties
a. Must be in the Philippines
b. Prepaid rental shall be subject to VAT
17. Dealers in securities
a. Gross receipts = GSP less cost of securities sold
18. Pre-need companies
a. Gross receipts = Premiums received
19. HMO
a. Gross Receipts= Service fees = enrollment fees + other charges
received
b. Gross receipts = total amount of money representing the contract
price. Once received it is subject to VAT

VAT ON IMPORTATION
Importer= any person who brings goods into Philippines whether or not in
ordinary course of business. A non-exempt person who acquires tax-free
imported goods from exempt persons.
Tax Base: Total value used by BOC plus custom duties excise taxes plus
other charges.
VAT on importation must be paid first in order for the goods to be
released otherwise it will not be.
INPUT TAX CREDIT
Sources:
1. VAT paid to the supplier by a VAT-registered person on his local
purchases and VAT paid to BIR on importation of goods
2. VAT paid on purchase of real properties
3. VAT paid on purchase of services
4. Transaction deemed sale
5. Transitional input tax
a. Allowed to those person who will become a VAT-registered for the
first time. It is the higher of 2% of beginning inventory or the
actual input VAT pain on such inventory.
100,000 Beginning Inventory
100,000x2%=2,000
Actual input vat = 6,000
6. Presumptive Input Tax (SM on SM)
a. Available to personal engaged in process of SM ON SM.
b. 4% of the gross value in money of purchases
7. Input tax withheld
a. Input tax withheld by the sale of goods and services to government
and other GOCC’s
Ex:
Sales to government 100,000, exclusive of VAT. Withholding tax of sales
to government is 5%. 100,000x12%=12,000.
TOTAL INVOCIE =112,000
Withholding=100,000x5%=5,000
TO BE RECEIVED = 95,000+12,000=107,000
OUTPUT TAX = 12,000-5,000=7,000
8. Input tax on depreciable goods
a. If value of capital goods is equal to 1, 000, 000 it can be
 claimed as automatic input tax on the month of purchase
Ex:
Sales 1,000,000 net of VAT
Purchase of Delivery Vehicle 896,000, VAT inclusive.
How much is VAT payable?
OUTPUT TAX = (1,000,000x12%) 120,000
INPUT TAX = (896,000/1.12*.12) 96,000
VAT PAYABLE = 24,000

b. If the value of capital goods is greater than 1, 000, 000, input

tax must be amortized by:
i. If life is less than five years, input tax shall be divided
by the useful life
ii. If life is greater than five years, the input tax shall be
amortized using 60 months only.
iii. If sold within the period of 5 years, the entire
unamortized input tax can be claimed as automatic input tax
on the date of sale.

Ex. 1
JANUARY 2021
Sales 2,000,000 VAT Exclusive
Purchase of Machinery 1,800,000 VAT Exclusive. Useful lives is estimated
3 years.
VAT PAYABLE?
OUTPUT TAX = (2,000,000x12%) 240,000
INPUT TAX =(1,800,000x12%) (216,000)/36=6,000
VAT PAYABLE = 234,000
Ex. 2
Sales 2,000,000 VAT Exclusive
Purchase of Machinery 1,800,000 VAT Exclusive. Useful lives is estimated
8 years. 12=96
VAT PAYABLE?
OUTPUT TAX = (2,000,000x12%) 240,000
INPUT TAX =(1,800,000x12%) (216,000)/60=3,600
VAT PAYABLE 236,400
Ex. 3
March 2021, referring to Ex. 1, the machinery is sold.
How much is the INPUT TAX TO BE CLAIMED?
2 months x 6,000= 12,000
216,000-12,000=204,000 UNAMORTIZED INPUT TAX
Sales 3,000,000 x 12%=360,000 – 204,000=154,000
Ex. 4
Sales 2,000,000 VAT Exclusive
Purchase of Machinery 1,800,000 VAT Exclusive. Useful lives is estimated
3 years.
VAT PAYABLE?
OUTPUT TAX = (2,000,000x12%) 240,000
INPUT TAX =(1,800,000x12%) (216,000)
VAT PAYABLE = 24,000

8. Input tax on construction in Progress (CIP)

iv. CIP times 12%= input tax
 v. But if completed, no additional input tax can be claimed.
9. Allocation input tax
Ex.
Sales-Regular 100,000
Sales-O rated 100,000
Sales exempt 200,000
Input tax 100,000
VAT PAYABLE?
Sales-Regular 100,000=100/400x100,000=25,000
Sales-O rate 100,000=100/400x100,000=25,000
Sales exempt 200,000=200/400x100,000=50,000
TOTAL SALES 400,000
Sales regular(100,000x12%) 12,000
Sales-0 rate (100,000x0) 0
Sales Exempt -
OUTPUT TAX 12,000
Less: INPUT TAX (50,000)
VP (38,000)

10. Issuance of VAT invoice by a non-VAT person

11. Issuance of VAT invoice on exempt transactions by a VAT registered
person.
HOW ITC IS USED?
20. Used as credit against the output to compute for VAT payable
21. Any excess ITC shall be carried over the next succeeding period
a. If excess is due to month, it will be carried to next month only
b. If excess is due to quarter, it will be carried to next month or
quarter at the option of the taxpayer.
22. Input tax of 0% sales may be:
a. Be carried at next succeeding month
b. Be refunded
c. Apply for tax credit certificate in which if granted it can be
used in the payment of other internal revenue taxes.
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