VAT

A. Concept
 Tax on consumption levied on the sale/barter/exchange/lease of goods/properties/services
in the PH and on importation of goods into the PH
 Is a percentage tax imposed at every stage of the distribution process on the
sale/barter/exchange/ lease of goods/properties/services in the course of trade or
business, or on the importation of goods whether for business or non-business purposes
 It is a business tax levied on certain transactions involving a wide range of
goods/properties/ services, such tax being payable by the seller, lessor, or transferor. The
tax is so-called because it is imposed on the value not previously subjected to VAT
 If husband & wife, they are separate in VAT
 Generally 12%. Transitional input 2&, presumptive input 4%
 Multiply 10% to gsp to get vat if sale on goods/importation

VAT registration

Mandatory VAT Registration Optional VAT Registration

 GR: Annual gross sales/receipts is  For those who DO NOT exceed the vat
3,000,001 and above threshold of 3m
 There are reasons to believe that the  irrevocable for 3y from the quarter
gross sales/receipts for the next 12m when election was made
will exceed 3m  subject to 3% business tax (3% Other
 XCPN: Radio and/or tv broadcasting percentage tax) on gross receipts/sales
companies whose annual gross receipts  Radio and/or tv broadcasting companies
of the preceding(last) year exceeds whose annual gross receipts of the
10m preceding(last) year does NOT exceed
10m (irrevocable forever)

Penalties for non-registration of those required to register

 You cannot pass the vat, you will pay the output vat
 You cannot claim the input vat
 CIR may order suspension/closure of business for not less than 5d for any of the ff
violations:
A. failure to issue receipts/invoices
B. failure to file vat return
B. Characteristics
1. It is a tax imposed on the value added in each stage of production & distribution process
2. It is a transparent form of sales tax imposed on the taxable sale/barter/exchange of goods/
properties/services
3. It is consumption based
4. It is an indirect tax
 Liable to vat- seller
 Burden of the tax- borne by the final consumer
5. It is computed through “tax credit method” or “invoice method” wherein the input tax
shifted by the sellers to the buyer is credited against the buyer’s output taxes when he in
turn sells the taxable goods/properties/services (105 & 110a)

P&G sold product ‘x’ to the wholesaler w/ a gross selling price of 1m plus vat. The
 wholesaler sold the product to the retailer for 1.2m plus vat
Q: How much is the vat payable of the wholesaler?
A:
Output vat (from sale to the retailer) 1.2m x 144,000
12%
Less: Input vat (from purchases to P&G) 1m x 12% -120,000
VAT payable 24,000

6. It follows the “destination principle/cross-border doctrine”

C-D. Impact of Tax v Incidence of Tax

Impact of Tax Incidence of Tax

 Is on the statutory taxpayer, the one  The incidence of tax is on the one who
from whom the gov’t collects bears the burden of taxation
 Is on the seller upon whom the tax has  The incidence of VAT is on the final
been imposed consumer

E. Tax Credit Method

 Manner by which the VAT of a taxpayer is computed
 The input taxes shifted by the sellers to the buyer are credited against the buyer’s output
taxes when he in turn sells the taxable goods/properties/services
 An entity can credit against/subtract from the VAT charged on its sales/outputs the VAT
paid on its purchases/inputs/imports

Basic formula of VAT

Basic formula for Net VAT Payable

Output VAT on sales 3
Less Input VAT on purchases and -1
: services
Less Creditable VAT withheld -1= (-2)
:
=Net VAT payable (refundable) =1

Output VAT is computed as follows:

Sales/Gross Receipts 200
x VAT rate x12%
=Output VAT =24

Input VAT is computed as follows:

Purchases and services from VAT person 100
x VAT rate x12%
=Input VAT =12
Output VAT – Input VAT = VAT payable/Excess Input Tax
24 – 12 = 12
 If input VAT is higher than the output Vat, the excess input tax is carried over to the
succeeding taxable quarter/s as tax credit
 Any input tax attributable to 0-rated sales may instead be refunded or credited against
other internal revenue taxes
F. Destination Principle & Cross Border Doctrine
 Provides that goods and services are taxed only in the country where these are consumed
 The PH VAT system adhered to the Cross Border Doctrine
 The Cross Border Doctrine states that no VAT shall be imposed to form part of the cost of
goods destined for consumption outside of the territorial border of the taxing authority
 The VAT system uses the destination principle as a basis for the jurisdictional reach of the
tax. Goods & services are taxed only in the country where they are consumed. Thus,
exports are 0-rated, while imports are taxed
 following the effectivity of CREATE, the cross-border doctrine is no longer applicable. This
is because CREATE expressly requires registered export-oriented enterprises to prove the
direct and exclusive use of their purchases of goods and services in its registered
activities, a departure from the old rule which generally anchored zero-rating of purchases
on being economic zone locators.

G. Persons Liable
Any person who:
a. In the course of his trade or business
i. Sells
ii. Barters
iii. Exchanges
iv. Leases goods/properties
v. Renders services
b. Any person who imports goods
- The importer, whether an individual or corp and w/n made in the course of his trade or
business shall be liable to pay VAT
The phrase in the course of trade/business means:
 The regular conduct/pursuit of a commercial or an economic activity, including
transactions incidental thereto
 By any person regardless of whether or not the person engaged is a non-stock, non-profit
org
 Irrespective of the disposition of its net income and w/n it sells exclusively to members or
their guests, or gov’t entity (105)

Persons NOT Liable

 When the annual sales do not exceed 3m
 If ~3m & not VAT-registered shall pay a tax equivalent to 3% of his gross monthly
sales/receipts
Requisites to be subject to 3% tax:
1. The gross annual sales and/or receipts do not exceed 3m (~=3m)
2. The taxpayer is not a VAT-registered person
H. Transactions Subject to VAT
1.VAT on Sale of Goods (12%)
 The term goods/properties shall mean all tangible and intangible objects which are
capable of pecuniary estimation and shall include:
a. Real properties help primarily for sale to customers or held for lease in the ordinary
course of trade/business
b. The right/privilege to use patent/copyright/design or model/plan/secret formula or
process/ goodwill/trademark/trade brand/other like property or right
c. The right/privilege to use in the PH of any industrial/commercial/scientific equipment
d. The right/privilege to use motion picture films/tapes/discs
e. Radio/tv/satellite transmission & cable tv time
 Tax basis Gross Sales

Computation of VAT on sale of Goods

 Tax Exclusive Method
i.e Gross sales in a day 100,000
Vat= 100,000x12%=12,000
 Tax Inclusive Method
i.e Gross sales of 112,000
VAT= 112,000 / 1.12 x 12% = 12,000

Q:Kasangkapan Corp, a vat registered dealer of appliances, provided the ff data for the last
quarter of 2021

Sales, total invoice value (means vat 5,600,00

inclusive) 0
Purchases, net of input taxes (vat exclusive) 3,500,00
0
Deferred input vat from 3rd Q 30,000
How much is the vat payable for the 4th Q?
A:

Basic formula for Net VAT Payable

Output VAT on sales 3
Less Input VAT on purchases and -1
: services
Less Creditable VAT withheld -1= (-2)
:
=Net VAT payable (refundable) =1

Output VAT on sales 5.6m / 1.12 x 12% 600,000

Less Input VAT 3.5m x -420,000
: 12%
Less Deferred input vat 3rd Q -300,000= -450,000
:
=VAT payable =150,00
0
2.VAT on Sale of Services
 Tax Basis Gross Receipts
 The phrase sale or exchange of services means the performance of all kinds of services in
the PH for others for a fee/remuneration/consideration in the ordinary course of business
 Except those under s119
Computation
Q: EDT Consultancy services, a vat registered accounting firm, provided the ff data for the last
quarter of 2021

Revenues, total invoice value (we don’t use 5,600,00

this) 0
Collections, gross 4,704,00
0
Purchases of supplies, gross 3,920,00
0
Deferred input vat from 3rd Q 40,000
How much is the vat payable for the 4th Q?
A:

Output VAT on sales 4,704,000 / 1.12 x 12% 504,000

Less Input VAT 3,920,000 / 1.12 x -420,000
: 12%
Less Deferred input vat 3rd Q -40,000= -460,000
:
=VAT payable =44,000

I. Zero Rated Sales

 CREATE required registered business enterprises to prove that their local purchases of
goods and services are directly and exclusively used in their registered activities to be
accorded 0% VAT rating.
 Previously, a VAT zero-rating certificate was the only document that must be provided by a
registered export enterprise to their local suppliers. However, RMC No. 24-2022 introduced
additional requirements on top of the VAT zero-rating certificate, such as a photocopy of
the export enterprise’s BIR Certificate of Registration, a sworn declaration stating that the
goods or services being purchased are to be used directly and exclusively in the registered
project, and other documents to corroborate entitlement to the VAT zero-rating.
 These documents include but are not limited to duly certified copies of the purchase order,
job order or service agreement, sales invoices and/or official receipts, delivery receipts.
Registered export enterprises should also expect some changes in the VAT zero-rating
certificate that will be issued by its Investment Promotion Agency (IPA), which would now
include the applicable goods and services meeting the direct and exclusive use criteria.
Goods
1. Export goods (Section 106, NIRC)
2. Agricultural and marine products in their original state (e.g., rice, corn, fish)
3. Sugar, salt, and flour
4. Medicines for diabetes, high cholesterol, and hypertension
5. Relief goods for victims of calamities

Services
1. Export services (e.g., outsourcing, software development)
2. International air and sea transportation
3. Services related to international shipping
4. Life insurance premiums
5. Health insurance premiums
6. Reinsurance premiums
7. Educational services (e.g., tuition fees)
8. Healthcare services (e.g., hospital services, medical consultations)
9. Senior citizen services (e.g., discounts, privileges)

Other
1. Sales to persons with disabilities
2. Sales to Cooperatives registered with the Cooperative Development Authority
3. Sales of gold to the Bangko Sentral ng Pilipinas
4. Sales of raw materials to manufacturers

J. Exempt Sales
1. Sale or importation of:
 Agricultural and marine “food” products in their “original state”
 Livestock and poultry of any kind generally used as/yielding/producing foods for human
consumption & breeding stock and genetic materials therefore
2. Sale or importation of:
 Fertilizers
 Seeds/seedlings & fingerlings/fish/prawn/livestock and poultry feeds including ingredients,
used in the manufacture of finished feeds (except specialty feeds)
 Specialty feeds refer to non-agricultural feeds/food for race horses, fighting cocks,
aquarium fish, zoo animals and other animals generally considered as pets subject to vat
3. Importation of personal & household effects belonging to:
 The residents of the PH returning from abroad
 Nonresident citizens coming to resettle in the PH
Provided that such goods are exempt from customs duti4es under the Tariff and Customs Code of
the PH
4. importation of professional instruments and implements/tools of trade/occupation or
employment/ wearing apparel/domestic animals/personal & household effects belonging to:
 Persons coming to settle in the PH
 Filipinos/their families and descendants who are now residents/citizens of other
countries, ,such parties herein referred to as overseas Filipinos
5. Services subject to Percentage Tax under Title V of the Tax Code (116-127)
6. Services by:
 Agricultural contract growers
Persons producing for others poultry/livestock/other agricultural & marine food products in
their original state. Its services growing of poultry/livestock/other agricultural & marine
food products into marketable poultry/livestock/other marine food products
 Milling for others of:
a. palay into rice
b. corn into grits
c. sugar cane into raw sugar
7. Medical/dental/hospital/veterinary services except those rendered by professionals
 Laboratory services are exempted
 If the hospital/clinic operates a pharmacy/drugstore, the sale of drugs & medicines are
subject to VAT
 Hospital bills constitute medical services
  The sales made by the drugstore to in-patients which are included in the hospital bills are
part of medical bills exempt from vat
 Sales of the drug store to out-patients are taxable because they are not part of medical
services of the hospital
8. Education services by private educational institutions accredited by DepEd CHED TESDA &
those rendered by gov’t educational institutions
 Does not include seminars, in-service training, review classes and other similar services
rendered by persons not accredited
9. Services rendered by individuals pursuant to an employer-employee relationship (you are an
employee)
10. Services rendered by regional/area HQ established in the PH by multinational corps
 RHQ- not subject since it does not derive income w/in the PH
 ROHQ- subject to VAT since it is an extension of a foreign corp allowed to derive income in
the PH
11. If the international agreement/treaty/special law mandates that it is VAT exempt
 PAGCOR Charter/Biofuels Act/PH Red Cross/Expanded Senior Citizens Act/Magna Carta for
PWDS
 Does not include PD 529 Petroleum Exploration Concessionaires under the Petroleum Act
12. Sales by agricultural cooperatives registered with the Cooperative Development Authority
(CDA)
 to their members
 sale of their produce whether original/processed to non members
 their importation of direct farm inputs/machineries/equipment including spare parts

13. Gross receipts from “lending activities” by credit/multi-purpose cooperatives registered with
the CDA
 only lending activities are exempt (to members & non members)
14. Sales by non-agricultural/electric/credit cooperatives registered w/ the CDA provided the
share capital contribution of each member does not exceed 15k & regardless of the aggregate
capital & net surplus ratably distributed among the members
 importation by non- agricultural/electric/credit cooperatives of machineries & equipment
including spare parts are subject to VAT
 if contributions exceed 15k it is VATable
15. Export Sales by persons who are not VAT-registered
 if registered 0%, because if taxed, it will violate the cross-border doctrine
16. Sale of Real Property
 not primarily held for sale to customers/held for lease in the ordinary course of
trade/business
 real property utilized for socialized housing
 House and lot & other residential dwellings valued at 2m
17. Lease of residential unit w/ a monthly rental not exceeding 15k

18. Sale/importation/printing/publication of books & any newspaper/magazine/review/bulleting

w/c appears at regular intervals w/ fixed prices for subscription & sale & w/c is not devoted
principally to the publication of paid advertisements
 Only covers printed matters in hard copy
19. Transport of passengers by int’l carriers (air & sea) doing business in the PH. The same shall
not be subject to Other Percentage Taxes
Transport of cargo by int’l carries doing business in the PH, they are subject to 3% common
carrier’s tax
20. Sale/importation/lease of passenger/cargo vessels & aircraft including
engine/equipment/spare parts for domestic/int’l transport operations, provided that the
exemption from vat on the importation and local purchase of passenger and/or cargo vessels
shall be subject to the rqmts on restriction on vessel importation & mandatory vessel retirement
program of MARINA
21. Importation of fuel/goods/supplies by persons engaged in int’l shipping/air transport
operations (domestic & foreign/passenger & cargo); provided that the fuel/goods/supplies shall
be used for int’l shipping/air transport operations
 Used to travel from a port in the PH to a foreign port or vice versa w/o docking/stopping at
any other port in the PH
22. Services of banks/non-bank financial intermediaries performing quasi-banking functions, &
other non-bank financial intermediaries such as money changers & pawnshops, subject to
percentage tax
23. Sale/lease of goods/services to seniors & pwds
24. Transfer of property pursuant to sec 40c2
 Tax free exchanges (transfer to a controlled corp & merger/consolidation
25. Association dues/membership fees & other assessments and charges collected on a purely
reimbursement basis by HOA & condo corps
26. Sale of gold to BSP
27. Sale of drugs & medicines prescribed for diabetes/high cholesterol/hypertension
28. Sale/lease of goods/properties/services other than the transactions in the preceding
paragraphs, the gross annual sales and/or receipts do not exceed 3m

K. Transactions Deemed Sale

 No actual sale because of the absence of actual exchange between the buyer and the
seller
 Considered/included in the term sale for VAT purposes
 Rationale is because you already claimed input vat on the items

1. Transfer/use/consumption not in the course of business of goods/properties originally

intended for sale/use in the course of business.
Transfer of goods/properties not in the course of business can take place when VAT
registered person withdraws goods from his business for his personal use.

E.G San mig corp, which produces San Mig Lights gave them away for free during an event
2. Distribution/transfer to:
a. Shareholders/investors share in the profits of VAT-registered person
b. Creditors in payment of debt
E.G You are a shareholder and instead of giving you money dividends, they gave you a 10
wheeler truck used in their business
3. Consignment of goods if actual sale is not made w/in 60d ff the date such goods were
consigned
Consignment is an arrangement in which goods are left w/ a 3 rd party to sell
 4. Retirement from/cessation of business w/ respect to all goods on hand, whether capital
goods/stock- in-trade/supplies/materials as of the date of such retirement/cessation, w/n
the business is continued by the new owner/successor
If the business will be liquidated/cease operation all your inventory will be deemed sale

L. Input & Output Tax

Input Tax Output Tax

 The VAT due from or paid by a VAT-  The VAT due on the sale or lease of
registered person in the course of his taxable goods/properties/services by
trade or business on importation of any person registered/required to
goods or local purchase of goods or register under s236 of the Tax Code
services, including lease or use of
property, from a VAT registered person

M. Sources of Input VAT

Sources of Input Tax
1. Purchase or importation of goods
a. For sale
b. For conversion into/intended to form part of a finished produce for sale including
packaging materials
c. For use as supplies in the course of business
d. For use as materials supplied in the sale of service
e. For use in trade/business for which deduction for depreciation or amortization
2. Purchase of real properties/services for which a VAT has actually been paid
3. Transactions deemed sale
4. Transitional input tax (2%)
 2% of beginning inventory of goods/materials/supplies or the actual VAT paid on
such goods/materials/supplies (whichever is higher)
5. Presumptive input tax (4%)
 Persons or firms engaged in the processing of sardines/mackerel/milk/manufacturing
refined sugar/cooking oil/packed noodle based instant meals shall be allowed a
presumptive input tax, creditable against the output tax, equivalent to 4% of the
gross value in money of their purchases of primary agricultural products which are
used as inputs to their production
B. Definition
Estate Tax – Tax imposed on gratuitous transfer or donation that takes effect at the time of death
of the donor (also known as “donation mortis causa”)

C. Nature of Estate Tax –

It is a tax on the right to transfer property at death (succession) and on certain transfers which
are made by law the equivalent of testamentary disposition and is measured by the value of
the property.

a. It is an excise tax, the object of which is the shifting of economic benefits and enjoyment of
property from
the dead to the living.
b. It accrues as of the death of the decedent, notwithstanding the postponement of the
actual possession or enjoyment of the estate by the beneficiary.
c. The taxpayer in the estate taxation is the estate of the decedent represented by the
administrator, executor or legal heirs