CHAPTER 5:
Value Added Tax
(VAT)
VALUE ADDED TAX
The VAT covers all vatable sales of goods, properties, services
or lease of properties by VAT taxpayers.
Vatable sales or receipts are from sources other than:
1. Exempt sales
2. Receipts from services specifically subject to percentage
tax
VAT TAXPAYERS
A. VAT-registered persons – taxpayers who will be subject to
VAT even if its annual sales did not exceed the
VAT threshold.
B. VAT-registrable persons – taxpayers whose sales or
receipts exceed the VAT threshold without registering as
VAT taxpayers are subject to VAT without the benefit of
an input tax credit.
VAT THRESHOLD
VAT Threshold Amount Covered Taxpayers
General Threshold P3,000,000 Applicable to all taxpayers other than
franchise grantees of radio or television.
Special Threshold P10,000,000 Applicable only to franchise grantees of
radio or television
ASSESSMENT OF THE VAT
THRESHOLD
Illustration 1: Taxpayers with mixed transactions
Cipeda Department Store had the following sales for the last 12-month
period:
Fertilizers, seeds, poultry, and hog feeds P1,200,000
Fruits and vegetables 800,000
Groceries 800,000
Clothes, shoes and other apparels 600,000
Furniture 400,000
Total P3,800,000
ASSESSMENT OF THE VAT
THRESHOLD
Illustration 2: Individual with multiple proprietorship businesses
As of September 2020, Mr. Tabaco had the following gross receipts from his
professional practice and his other businesses in the immediately preceding
12-months:
Gross receipts from restaurant business P2,200,000
Gross receipts from barbecue stand 200,000
Gross receipts from taxicab operations 1,500,000
Gross receipts from professional practice 900,000
TOTAL P4,800,000
ASSESSMENT OF THE VAT
THRESHOLD
Illustration 3: Married Individual Taxpayers
Mr. Mrs. Crocs had the following salesand gross receipts from
their
respective businesses during the last 12-month period:
Mr. Crocs Mrs. Crocs Total
Gross receipts from profession P2,200,000 P1,700,000 P3,900,000
Sales from sari-sari store 1,350,000 1,350,000
Total P2,200,000 P3,050,000 P5,250,000
Optional VAT Registration
Taxpayers below the threshold can voluntarily register as
VAT taxpayers. Such option is subject to the 3-year lock-in
period. The taxpayer is precluded to have his VAT
registration revoked until the lapse of 3 years.
VAT Taxpayers with Mixed
Transactions
It must be noted that despite the VAT registration, VAT shall apply
on to the vatable sales or receipts.
Non-vatable sales or receipts remains exempt from VAT.
THE VALUE ADDED TAX MODEL
Output VAT P xxx,xxx
Less: Input VAT xxx,xxx
VAT Due P xxx,xxx
Less: Tax credits xxx,xxx
VAT still due Pxxx,xxx
OUTPUT VAT
Output VAT is the VAT on the vatable sales or receipts. The output
VAT is presumed passed on by the seller on his sales or receipts.
Illustration:
Assume that ABC Company, a VAT taxpayer, made a P100,000
vatable sales on account.
The taxpayer shall bill the following to the customer:
Selling Price P 100,000
Add: VAT (12% x P100,000) 12,000
Total Invoice Price P 112,000
TYPES OF OUTPUT VAT
1) Regular Output VAT – 12% VAT imposed on domestic
sales or receipts.
2) Zero Output VAT – 0% VAT imposed on export and
other zero-rated sales.
INPUT VAT
VAT paid by the taxpayer on the domestic purchases from VAT
suppliers or on the importation of goods or services in the course
of business.
Input VAT has rules on creditability. Not all paid input VAT is
creditable against output VAT. Those allowed to be deductible
against output VAT is called “claimable input VAT”, “allowable
input VAT” or “creditable input VAT”.
INPUT VAT
Illustration:
Assume ABC Company in the previous illustration purchased
goods from a VAT supplier. The supplier billed at P78,400,
inclusive of VAT.
Invoice Price
Divide by:
Purchase Price
Multiply by:
VAT on Purchase
VAT DUE
At the end of each month, the input VAT is offset with the output
VAT. A positive VAT due is paid to the BIR. A negative VAT is
normally non-refundable but is carried over to the next
succeeding months or quarter.
VAT DUE
Illustration:
Continuing the two preceding two illustrations, ABC Company
shall compute its VAT due as follows:
Output VAT
Input VAT
VAT Due
VAT REPORTING
VAT is paid every 25th of the quarter, using BIR Form 2550Q.
Illustration 1:
A VAT taxpayer had the following purchases and sales, exclusive
of VAT
January February March
Cash Purchases ₱ 700,000 ₱ 320,000 ₱ 375,000
Cash Sales 650,000 580,000 500,000
VAT REPORTING
Illustration 2:
A VAT taxpayer had the following purchases and sales,
exclusive of any VAT, in the second quarter of the calendar
year.
Sales April May June Total
Sales ₱ 625,000 ₱ 400,000 ₱ 800,000 ₱ 1,825,000
Input VAT 60,000 54,000 50,400 164,400
THANK
YOU!
