VALUE ADDED TAXATION

-is a business tax imposed and collected on every:

a. Sale, barter or exchange of goods or properties (real or
personal);
b. Lease of goods or properties (real or personal); or
c. Rendition of services, all in the course of trade or business; and
d. Importation of goods (WON in the course of trade or business.
- It is an indirect tax, thus it can be shifted or passed on to the
buyer, transferee or lessee of goods, properties or services (Sec.
105, NIRC)
Classification of transactions under the
VAT system
1. VAT – taxable transactions
a. Subject to 12% VAT rate
b. Zero-rated transactions

2. Exempt Transactions
Characteristics of VAT

1. Value added
- it is a tax on value added of a taxpayer arising from the
sales of goods, properties, or services during the quarter.
“Value added” is the difference between the total sales of the
taxpayer for the taxable quarter subject to VAT and his total
purchases for the same period subject also to value added tax
(Mamalateo, 2014)
2. Sales tax
- VAT is a tax on the taxable sale, barter or exchange of goods,
properties or services. A barter or exchange has the same tax
consequence as a sale. A sale may be an actual or deemed sale, or an
export sale or local sale (Mamalateo, 2014). The buyer is informed
that the price includes VAT and the computation is shown in the
official receipt/sales invoice.
3. Excise tax based on consumption
- It is a tax on the privilege of engaging in the business of selling
goods or services, or the importation of goods.

4. Indirect Tax
- Tax shifting is always presumed. It may be shifted or passed on
to the buyers, tranferee, or lessee of the goods, properties or services
as part of the purchase price.
Impact and incidence of Tax

IMPACT INCIDENCE
The one statutorily liable for the payment The one who bears the economic burden
of tax, thus, the one who can avail of a (payment) of tax (VAT), the place at
tax refund. which the tax comes to rest.
The seller upon whom the tax has been The tax is shifted to the final consumer or
imposed. He collects the tax and pays it the buyer consumer or the buyer of the
to the government goods, properties or services as part of the
purchase price.
5. Tax Credit Method
- The input tax shifted by the seller to the buyer is credited or
deducted against the buyer’s output taxes when he in turn sells the
taxable goods, properties or services.

- Under the VAT method of taxation, which is invoice based, an

entity can subtract from the VAT charged on its sales or outputs the
VAT it paid on its purchases, inputs and imports.
Formula

Output Tax – Input Tax = Net VAT payable or Excess input

Tax
Net VAT Payable = Output Tax > Input Tax
Excess Input Tax = Output Tax < Input Tax
Illustration: For the month of January 2020, Mr. A sells to
Mr. B Steel Tables & chairs for 112,000. Within the same
month, Mr. A purchased steel plates and other materials to
make these into the finished products for P56,000.
Determine Mr. A’s VAT payable.
To compute for the output tax from sale:
Total Selling Price (equivalent to 112%) 112,000
Vatable gross sales or receipts
(112,000/ 1.12 to get 100%) 100,000
Output VAT (12% of P100,000) 12,000

To compute for input tax from purchases

Domestic purchase of goods 56,000
Vatable gross purchase
(56,000/1.12 to get 100%) 50,000
Input Vat (12% of 50,000) 6,000
To compute for the VAT payable

Output VAT 12,000

Less: Input VAT 6,000
VAT Payable 6,000
6. Destination Principle and Cross Border Doctrine
- Goods and services are taxed only in the country where they are consumed. Thus,
exports are zero-rated, while imports are taxed (Domondon, 2014)

Destination Principle - goods and services are taxed only in the country where these are
consumed.

Cross-Border Doctrine – mandates that no VAT shall be imposed to form part of the cost
of goods destined for consumption outside the territorial border of the taxing authority.

Hence, actual export of goods and services from the Philippines to a foreign country
must be free of VAT, while those destined for use or consumption within the Philippines
shall be imposed with 12% VAT (Atlas Consolidated Mining & Dev’t Corp. vs. CIR)
PERSONS LIABLE
In General
1. Any person, who in the course of trade or business
a. Sells, barters, exchanges or leases goods or
properties, or
b. Renders services; and any person who imports
goods, whether or not made in the course of his trade or
business.
 “Person” refers to any individual, trust, estate, partnership,
corporation, joint venture, cooperative or association.
 “Taxable person” refers to any person liable for the payment of
VAT, whether registered or registrable in accordance with Sec. 236
of the NIRC.
 “Vat registered person” refers to any person who is registered as a
VAT taxpayer under Sec. 236 of the NIRC. His status as a VAT-
registered person shall continue until the cancellation of such
registration (RR 16-05)
 *In importation, it shall be the importer who shall pay VAT upon
release of the goods from the customs territory. This is an exception
to the general rule requiring a sale before VAT shall be incurred.
 IMPOSITION OF VAT

Normal VAT transactions subject to 12%

Nature of Transaction Tax Base

1. Sale of goods and properties Gross Selling Price

2. Importation of goods Total landed cost

3. Sale of Services and use or lease of Gross receipts

properties
Sale of goods or properties

Vat is imposed and collected on

1. Every sale, barter or exchange, or
2. transactions “deemed sale”

- The VAT accrues upon the consummation of sale of goods or

properties, regardless of the terms of payment between the contracting
parties (Sec. 106 in relation to Sec. 113 and 237 of NIRC). Thus, as
soon as the seller issues a VAT invoice, whether the sale is for cash or
on credit, he becomes liable to VAT on such sale (Mamalateo, 2014)
The following are transactions deemed sale subject to VAT:
1. Transfer, use or consumption not in the course of business of goods or properties
originally intended for sale or for use in the course of business (i.e. when a VAT
registered person withdraws goods from his business for his personal use)
2. Distribution or transfer to:
a. Shareholders or investors as share in profits of the VAT registered persons
b. Creditors in payment of debt

3. Consignment of goods if actual sale is not made within 60 days following the date
of such goods were consigned. Except when returned w/in 60 days.
4. Retirement from or cessation of business with respect to all goods on hand,
whether capital goods, stock-in-trade, suppliers or materials as of the date of such
retirement or cessation, WON the business is continued by the new owner or
successor (Sec 106 (b) NIRC)
Transactions that are considered retirement
or cessation of business
1. Change of ownership of the business
2. Dissolution of a partnership and creation of a new
partnership which takes over the business (Sec 4.106-7,
RR 16-2005).
Change or cessation of Status as vat registered
person subject to VAT

1. Change of business activity from VAT taxable status to

VAT exempt status;
2. Approval of a request for cancellation of registration to
reversion to exempt status;
3. Approval of a request for cancellation of registration due
to a desire to revert status after the lapse of 3 consecutive
years from the time of registration by a person who
voluntarily registered despite being exempt under Sec
109 (2) of the NIRC.
4. Approval of a request for cancellation of registration of one who
commenced business with the expectation of gross sales or receipt
exceeding P3,000,000 but who failed to exceed this amount during the
first 12 months of operation.
Change in or cessation of status of vat registered person
not subject to output tax

1. Change of control in the corporation of as corporation by

the acquisition of controlling interest of the corporation
by another stockholder or group of stockholders;
2. Change in the trade or corporate name of the business;
3. Merger or consolidation of corporations.
Zero rated Sales

Zero rated sale by a VAT registered person is a taxable

transaction for VAT purposes but the sale does not result in
any output tax. However, the input tax on the purchases of
goods, properties or services related to such zero rated sale
shall be available as tax credit or refund.
To be subject to zero tax rate, however, the seller must be a
VAT registered person because if he is not VAT registered,
the transactions entered into by him are exempt from the tax.
Zero rated sale of goods

1. Export Sales
2. Foreign Currency Denominated Sales
3. Effectively Zero rated sales
Export Sales

1. The sale and actual shipment of goods from the Philippines to a

Foreign country;
2. Sale of raw materials or packaging materials by a VAT registered
entity to a Non resident buyer
3. Sale of raw materials or packaging materials to export oriented
enterprise whose export sales exceed 70% of total annual
production
4. Sale of Gold to BSP
5. Those considered as export sales under the Omnibus Investment
Code of 1987 (EO 226)
Rules on Export Sales
By a Non-Vat registered Vat expempt
By a Vat registered Vatable at 0%
Foreign Currency denominated Sales

the sale to a nonresident of goods, except those mentioned in

Sec 149 and 150, assembled or manufactured in the
Philippines for delivery to a resident in the Philippines, paid
for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP. (Sec
106(a) (2) (b), NIRC)
Sec. 149 refers to tax on automobiles
Sec 150 refers to excise tax on non-essential goods.
Requisites for FCDS

1. The buyer must be a non resident

2. The goods sold must be assembled or manufactured in
the Philippines
3. Goods sold are to be delivered to a resident of the
Philippines and
4. Paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the BSP
Effectively Zero rated Transaction

The term shall refer to the local sale of goods and properties
by a VAT registered person to a person or entity who was
granted indirect tax exemption under special laws or
international agreement.

Since the buyer is exempt from indirect tax, the seller cannot
pass on the VAT and therefore, the exemption enjoyed by the
buyer shall extend to the seller, making the sale effectively
zero rated (R.M.C. 50-2007)
VAT EXEMPT TRANSACTIONS

 This refers to the sale of goods or properties and/or

services and the use or lease of properties that is not
subject to VAT (Output tax) and the seller is not allowed
any tax credit of VAT (input tax) on purchases.

 The person making the exempt sale of goods, properties or

services shall not bill any output tax to his customers
because the said transaction is not subject to VAT (Sec
4.109-1, RR 16-2005)
Exempt Transactions

a. Sale or importation of
1. Agricultural and marine food products in their original
state
2. Livestock and poultry of
 A kind generally used as, or yielding or producing foods for
human consumption;
 Breeding stock and genetic materials therefor
Original State

* Even if they have undergone the simple processes of preparation or preservation for
the market, such as freezing, drying, salting, broiling, roasting, smoking or stripping.
Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt,
and copra shall be considered in their ordinary state.

b. Sale or importation of
1. fertilizers;
2. seeds, seedlings and fingerlings;
3. fish, prawn, livestock and poultry feeds, including ingredients,
whether locally produced or imported, used in the manufacture of
finished feeds.
a. except specialty feeds for race horses, fighting cocks,
aquarium fish, zoo animals and other animals generally considered
pets.
c. Importation of personal and household effects belonging to:
1. residents of the Philippines returning from abroad, and
2. non-resident citizens coming to resettle in the Philippines;
Provided , that such goods are exempt from customs duties under the
Tariff and Customs Code of the Philippines.
d. Importation of
1. professional instruments and implements;
2. wearing apparel;
3. domestic animals, and
4. personal household effects ( except any vehicle, vessel, aircraft, machinery and other
goods for use in the manufacture and merchandise of any kind in commercial quantity)
belonging to persons coming to settle in the Phils.
a. For their own use and
b. not for sale, barter or exchange
c. Accompanying such person, or arriving within 90 days before
or after their arrival,
d. Upon the production of evidence satisfactory to the
CIR, that such person are actually coming to settle in
the Phils., and that the change of residence is bonafide;
e. Services subject to percentage tax
f. Service by
1, agricultural contract growers, and
2. milling for others of
a. palay into rice;
b. corn into grits and
c. Sugar can into raw sugar
g. Medical, dental, hospital and veterinary services, except those
rendered by professionals.
h. Educational Services
1. Rendered by private educational institution duly
accredited by the DepEd, Ched, TESDA
2. and those rendered by government educational
institutions
i. Services rendered by individuals pursuant to an employer- employee
relationship
j. Services rendered
- by regional or area headquarters established in the Phils. by
multinational corporations which act as:
1. supervisory,
2. communications and
3. coordinating centers
for their affiliate, subsidiaries or branches in the Asia Pacific
Region, and do not earn or derive income from
the Phils.
k. Transactions which are exempt under International agreements to
which the Phils. Is a signatory or under special laws except those granted
under PD no. 529 which refers to Petroleum Exploration Concessionaires
under Petroleum Act of 1949

l. Sale of agricultural cooperatives duly registered and in good standing

with the CDA to their members, as well as sale of their produce, whether
in its original state or processed form, to non members; their importation
of direct farm inputs, machineries and equipment, including spare parts
thereof, to be used directly and exclusively in the production and/or
processing of their produce.
m. Gross receipts from lending activities by credit or multi-purpose
cooperatives duly registered and in good standing with the CDA
n. Sale by non-agricultural, non-elelctric and non-credit cooperatives
duly registered with and in good standing with the CDA; Provided,
that the share capital contribution of each member does not exceed
P15,000 and regardless of the aggregate capital and net surplus
ratably distributed among the members.
o. Export sales by person who are not Vat registered
p. Sale of real properties, namely
1. Sale of real properties not primarily held for sale to customers or held
for lease in the ordinary course of trade or business;
2. Sale of real properties utilized for low-cost housing as defined by RA
7279, otherwise known as the “Urban Development and Housing Act
of 1992” and other related laws, such as RA 7835 ang RA 8763.
q. Lease of residential units with a monthly rental per unit not exceeding P15,000, regardless of the
amount of aggregate rentals received by the lessor during the year.
r. Sale, importation, printing or publication of books and any newspaper, magazine, review, or
bulletin which appears at regular intervals with fixed prices for subscription and sale and which is
not devoted principally to the publication of paid advertisement.
s. Transportation of passengers by International carriers, transport of passengers by international
carriers doing business in the Phils.
t. Sale, importation or lease of passenger or cargo vessels and aircrafts, including engine, equipment
and spare parts thereof for domestic transport operations.
u. Importation of fuel, goods and supplies by persons in international shipping or air transport
opertions
v. Services of banks, non bank financial intermediaries performing
quasi-banking functions and other non bank financial intermediaries
subject to percentage tax under Sec 121 and 122 of the NIRC, such as
money changers and pawnshops
w. Sale or lease of goods or properties or the performance
of service other than transactions mentioned in the preceding
paragraphs, the gross annual sales and/or receipts do not exceed the
amount of P3,000,000
Output and Input tax

Output tax – the value added tax due on the sale or lease of
taxable goods or properties or services by any person
registered or required to register under Sec. 236 of NIRC
(Sec 110(a)(3), NIRC
 It is what the taxpayer – seller passes on to the purchaser.
 It may come from actual sale and transaction deemed sales
Input tax

The value added tax due on or paid by a VAT registered

person on importation of goods or local purchases of goods,
properties or services, including lease or use of properties, in
the course of his trade or business. It shall include the
transitional input tax and the presumptive input tax
determined in accordance with Sec 111 of the NIRC (Sec
110(a)(3), NIRC
It includes taxes which can be

1. Directly attributed to transactions subject to the VAT, plus

2. A ratable portion of any input tax which cannot be
directly attributable to either the taxable or exempt
activity (RR 16-2005
Presumptive Input Tax Credit

Sec 111(b), NIRC – may be claimed by persons engaged in

the business of processing sardines, mackerel and milk,
manufacturing refined sugar and cooking oil, and noodle
based instant meals, all of which are substantially produced
from primary agricultural and marine food products, the
supply of which is exempt from VAT
Transitional Input Tax Credit

Sec 111 (a), NIRC – may be claimed by persons who become

liable to VAT for the first time and such represent input tax
on inventories of goods, materials and supplies existing on
the date of commencement of a person’s status as a taxable
person
Final withholding tax credit

Sec 114 (c), NIRC – is based on the amount paid to the

supplier of goods or services by the government and is
required to be withheld by the government to the BIR
 Types of Input Tax Rate
Input tax on importation and local 12% standard or 0%
purchases
Presumptive Input tax credit 4%
Transitional Input Tax credit 2%
Final withholding tax credit 5%
Excess input tax credit Apply for tax refund
or tax credit certificate
GROSS SELLING PRICE
- the total amount of money or its equivalent which the
purchaser pays or is obligated to pay to the seller in
consideration of the sale, barter or exchange of the goods or
properties, excluding VAT. The excise tax, if any, on such
goods or properties shall form part of the gross selling price.

 Sale or exchange of real properties

 - THE GSP is the consideration stated in the sales
document or the fair market value whichever is higher.
Allowable deductions from gross selling
price
A. Discounts
B. Sales Returns and Allowances
Sale of real properties

 Sale of real properties held primarily for sale to customers

or held for lease in the ordinary course of trade or business
of the seller shall be subject to vat.

Threshold amount
Sale of Residential Lot P 1,500,000
Residential House & Lot P 2,500,000
FMV shall mean whichever is higher of:
1. The FMV as determined by the Commissioner (zonal value); or
2. The FMV as shown in the schedule of values of the Provincial or
City Assessors (real property tax declaration).
 however, in the absence zonal value, gross selling price
refers to the market value shown in the latest real property tax
declaration or the consideration whichever is higher.
Elements of VAT taxable sale of goods or
properties
Sale of goods and personal properties
1. There is an actual sale or deemed sale, barter or exchange
of goods or personal properties for valuable consideration;
2. Undertaken in the course of trade or business;
3. For use or consumption in the Philippines; and
4. Not exempt from VAT under Sec. 109 of NIRC, special law
or international agreement binding upon the gov’t of the
Philippines.
Sale or exchange of real properties
1. Seller executes a deed of sale, including dacion en pago, barter
or exchange, assignment, transfer, or conveyance, or merely contracts
to sell involving real properties.
2. the real property is located in the Philippines;
3. the seller or transferor is engaged in real estate business either as
a real estate dealer, developer or lessor;
4. the real property is an ordinary asset held primarily for sale or
for lease in the ordinary course of business;
5. the is not exempt from VAT
6. the threshold amount set by law should be met.
The sale of real property subject to VAT shall either be in
1. Cash basis
2. Installment basis - initial payment in the year of sale do not
exceed (25%) of the GSP. The vat payment shall be in
installment.
3. Deferred payment basis – the initial payments in the year of sale
exceeds 25% of the GSP. It will be treated as a cash sale. Hence,
the entire selling price taxable in the month of sale. (RR 16-2005)
VAT ON IMPORTATION OF GOODS

VAT is imposed on goods brought into the Philippines,

whether for use in business or not, except those specifically
exempted under Sec 109(1) of the NIRC.
Purpose: To protect our local or domestic goods or articles
and to regulate the entry or introduction of foreign article to
our local market.
Tax base of VAT on importation

GR. The tax base shall be based on the total value used by
the BOC in determining tariff and customs duties plus
customs duties, excise taxes, if any, and other charges to be
paid by the importer prior to the release of such goods from
customs custody. (Transaction value)
Exception: In case valuation used by the BOC in computing
customs duties is based on volume or quantity of the
imported goods, the landed costs shall be the basis of the
VAT.
Landed cost – consists of the invoice amount, customs duties, insurance
and other charges. If the goods imported are subject to excise tax, the
excise tax shall form part of the tax base.

The same rule applies to technical importation of goods sold by a person

located in Special Economic Zone to a customer located in a customs
territory (Sec. 4.107-1, RR16-2005)

The Vat on importation shall be paid by the importer prior to the release
of such goods from customs custody.
VAT on sale of service and use of lease
properties
Sale or exchange of services, as well as the use or lease of
properties, shall be subject to VAT, equivalent to 12% of the
gross receipts (excluding VAT) (RR 16-2005)
Sale or exchange of services
 It means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or
consideration , whether in kind or in cash, including those
performed or rendered by the following:
 1. Construction and service contractors;
 2. Stock, real estate, commercial customs and immigration
brokers;
 3. Lessors of property, whether personal or real.
Lease of residential units
Subject to VAT if:
1. The monthly rental per unit exceeds P15,000; and
2. The annual aggregate /gross receipts must exceed P3,000,000.
Note: both elements must concur.

“Per Unit” under RR 16-2011, per unit is defined as:

Apartment – per apartment
Room – per room
Bed spacing – per student
Illustration: Lease of Residential units

Monthly fee Aggregate/Gross Receitps Subject to VAT?

P15,000 P3,000,000 No
P15,000 P3,200,000 No
P16,000 P3,000,000 No
P16,000 P3,200,000 Yes, both elements are
concur
TAX CREDIT MECHANISM

 It is one where the Input Vat can be used to reduce the amount of Output Vat; or a
situation where the Creditable Input Vat can be used to reduce the amount of
Output Vat for the next succeeding quarters or taxable years.
 Creditable Input Vat is when the Output Vat is less than the Input Vat
 Vat Payable is when the Output Vat is greater than the Input Vat
FILING OF RETURNS AND PAYMENT

A VAT declaration for the month

(form 2550M) must be filed within
20 days after the end of the month
concerned
A vat return covering the amount of gross sales or
receipts and purchases for the prescribed taxable
quarter (form 2550Q) must be filed by the TP
within 25 days following the close of the quarter to
which it relates. (Sec. 114, NIRC)
Only one consolidated return shall be filed by the
TP for his principal place of business (Sec.114A,
NIRC)
VAT must be paid every month.
Form 2550-M From 2550-Q
Scope Monthly sales and/or Quarterly sales and/or
receipts within 20 days receipts within 25 days
following the end of the after the close of each
month taxable quarter.

The VAT payable for each

calendar quarter is reduced
by the total amount of
taxes previously paid for
the preceding 2 months
and/or the sum of the
allowance excess input tax
carried over and the VAT
withheld by the
governement.
Deadline 20th day of the following 25 day of following
month calendar quarter
Invoicing requirements

A VAT registered person shall issue

1. A VAT invoice for every sale, barter or
exchange of goods or properties; and
2. A VAT official receipt for every lease
of goods or properties, and for every
sale, barter or exchange of service.
Only VAT registered person are required to
print their TIN followed by the word “VAT”
in their invoice or official receipts. Said
document shall be considered as a “VAT
INVOICE” or VAT
Person required to File VAT RETURN

 1. Every person or entity who in the course of trade or

business, sells or leases goods, properties, and services subject
to VAT, if the the aggregate amount of actual gross sales or
receipts exceeds P3,000,000 tor any twelve month period.
 2.a person required to register as VAT taxpayer but failed to
register.
 3. Any person who imports goods.
 4. Professional practitioners whose gross fees exceeds
P3,000,000 for any 12-month period.
Where to File the Return and Pay the tax

 GR. It shall be filed with and the tax paid to:

 1. An Authorized Agent Bank (AAB).
 2. Revenue Collection Officer (RCO)
 3. Duly authorized city or municipality treasurer, where such treasurer
is
a. Within the Philippines, and
b. Located within the revenue district where the taxpayer is required to
register (Sec. 114(b))

 Exceptions: As the Commissioner otherwise permits

Withholding of Final Vat on Sales to the
Government
The government or any of its political subdivisions,
instrumentalities or agencies including GOCCs shall before
making payment on account of its purchase of goods and/or
services taxed at 12% shall deduct and withhold a final VAT
of 5% of the gross payment. The payment for lease or use of
properties, or property rights to nonresident owners sahll be
subject to 12% withholding tax at the time of payment. For
purposes of this section, the payor or person in control of the
payment shall be considered as the withholding agent. (Sec.
114(c), NIRC)

The 5% final VAT withholding rate represents the
*

net VAT payable to the seller.

The remaining 7% effectively accounts for the
standard input VAT for sales of goods or services to
the government or any of its political subdivision ,
instrumentalities, or agencies including GOCCs in
lieu of the actual input VAT directly attributable or
ratably apportioned to such sales.
The duly filed BIR form No. 1600 is the
proof or documentary substantation for the
claimed input tax or input VAT.
The VAT withheld shall be remitted within
10 days following the end of the month the
withholding was made (Sec. 4, 114-2. RR
16-2005)
The end.