Value Added Tax

Value-Added Tax (VAT)

• form of sales tax
• It is a tax on consumption levied on the sale, barter, exchange or lease
of goods or properties and services in the Philippines and on
importation of goods into the Philippines
• It is an indirect tax, which may be shifted or passed on to the buyer,
transferee or lessee of goods, properties or services.
Features of VAT
• VAT is a:
• Indirect tax
• Privilege tax – VAT is imposed on the privilege or right to sell or
import goods or render service. It is not imposed on the goods,
properties, or services provided.
• Creditable – The input tax from the purchase of goods or services is
creditable against the output tax levied on sale.
• Additional cost – VAT, once shifted to the end user, is no longer a
creditable tax but an additional cost to the value of goods purchased.
Who are required to File VAT
Returns?
• Any person or entity who, in the course of his trade or business, sells,
barters, exchanges, leases goods or properties and renders services
subject to VAT, if the aggregate amount of actual gross sales or
receipts exceed Three Million Pesos (Php3,000,000.00)
• A person required to register as VAT taxpayer but failed to register
• Any person, whether or not made in the course of his trade or
business, who imports goods
Illustration 1
• Haizel is a retailer of construction materials in the Municipality of
Roxas, Palawan. During the month of June, she made a sale to Mary in
which the total value-added tax (output tax) billed on the sale was
P800.00. The 800.00 was added to the total cost of purchase and
collected by Haizel from the customer. Who is burdened to pay the
value added tax?
• The seller Haizel, who imposed the value added tax tax is the one
burdened to pay for it. It is a misconception that the VAT is charged to
the buer and collected by the seller. The tax law imposed the VAT to
the seller. However, the seller transfers the burden of VAT to the
buyer.
Who are liable to register as
VAT taxpayer?
• Any person who, in the course of trade or business, sells, barters or
exchanges goods or properties or engages in the sale or exchange of
services shall be liable to register if:
• His gross sales or receipts for the past twelve (12) months, other than those
that are exempt under Section 109 (A) to (U), have exceeded Three Million
Pesos (P3,000,000.00): or
• There are reasonable grounds to believe that his gross sales or receipts for
the next twelve (12) months, other than those that are exempt under Section
109 (A) to (U), will exceed Three Million Pesos (P3,000,000.00).
Value-Added Tax Rates
• On sale of goods and properties - twelve percent (12%) of the gross selling price
or gross value in money of the goods or properties sold, bartered or exchanged
• On sale of services and use or lease of properties - twelve percent (12%) of gross
receipts derived from the sale or exchange of services, including the use or lease
of properties
• On importation of goods - twelve percent (12%) based on the total value used by
the Bureau of Customs in determining tariff and customs duties, plus customs
duties, excise taxes, if any, and other charges, such as tax to be paid by the
importer prior to the release of such goods from customs custody; provided, that
where the customs duties are determined on the basis of quantity or volume of
the goods, the VAT shall be based on the landed cost plus excise taxes, if any.
• On export sales and other zero-rated sales – 0%
How VAT Payable is computed?
• Tax Credit Method: Output Tax less Input Tax
• Output tax means the VAT due on the sale, lease or exchange of
taxable goods or properties or services by any person registered or
required to register under Section 236 of the Tax Code.
• Input tax means the VAT due on or paid by a VAT-registered on
importation of goods or local purchase of goods, properties or
services, including lease or use of property in the course of his trade
or business. It shall also include the transitional input tax determined
in accordance with Section 111 of the Tax Code, presumptive input
tax and deferred input tax from previous period.
• Output tax > Input Tax = Excess represent VAT payable

• Input tax > Output tax = Excess shall be carried over to the next
quarter or quarters
VAT Output Tax Base
VAT Output Tax Base VAT Transaction
Gross Selling Price On sale, barter, exchange, or lease of goods or
properties
Gross Receipts On sale of service and use or lease of properties
Landed cost or total value of importation On importation of goods
Creditable Input Tax
Creditable input tax may arise from:
• Input tax on local purchases
• Input tax on the importation of goods
• Transitional input tax
• Presumptive input tax
• Other creditable input taxes
Illustration 2
• Angel Evaporada, a registered VAT taxpayer, had total sales of goods
during a particular period amounting to 1,500,000. The total cost in
purchasing the goods sold amounted to 900,000. (a) How much is
Angel’s VAT Payable? (b) Compute the gross profit.
Answer to Illustration 2

Output Tax (1,500,000x12%) 180,000

Input Tax (900,000x12%) 108,000
VAT Payable 72,000

Sales 1,500,000
Cost of Sales 900,000
Gross Profit 600,000
Illustration 3
• Ed has the following transactions for the month of May
• Sales – exclusive of VAT 290,000
• Sales – inclusive of VAT (invoice price) 201,600
• Purchases from Ted, supplier – exclusive of VAT 80,000
• Purchases from Ged, supplier – inclusive of VAT 56,000
How much is the value-added tax liability?
Answer to Illustration 3

Output Tax
Sales – Exclusive of VAT (290,000 x 12%) 34,800
Sales – Inclusive of VAT (201,600/1.12*12%) 21,600 56,400
Input Tax
Purchases – Exclusive of VAT (80,000 x 12%) 9,600
Purchases – Inclusive of VAT (56,000/1.12*12%) 6,000 15,600
VAT Payable 40,800
Failure to Register of Taxpayers
liable to VAT
• Any person who becomes liable to VAT and fails to register as such
shall be liable to pay the output tax as if he is a VAT-registered
person, but without the benefit of input tax credits for the period in
which he was not properly registered.
Illustration 4
• Uge made a total annual sales of 3,600,000 and annual purchases of
goods of 3,100,000 exclusive on input tax of 372,000 during the past
12 months. Uge did not register purposely as a value added taxpayer.
What is the tax liability of Uge.

Output Tax (3,600,000 x 12%) 432,000

Input Tax 0
VAT Payable 432,000
• Uge is liable to register under the value added tax system since the
annual sales of the past 12 months exceeded the threshold for
registration of 3,000,000. As a VAT-liable taxpayer she is obliged to
pay the output tax of 432,000. As a result of her failure to register,
Uge cannot claim the 372,000 input tax against her output tax liability.
Cancellation of Registration
• If he makes a written application and can demonstrate to the
commissioner's satisfaction that his gross sales or receipts for the
following twelve (12) months, other than those that are exempt
under Section 109 (A) to (U), will not exceed Three Million Pesos
(P3,000,000.00); or
• If he has ceased to carry on his trade or business, and does not expect
to recommence any trade or business within the next twelve (12)
months.
Filing of VAT Return and Payment of
VAT
1. Monthly VAT Declarations
• All persons liable to VAT shall pay a monthly VAT based on the taxable
receipts and creditable purchases for the month.
• BIR Form 2550M – filed not later than 20th day following the end of
the taxable month. It shall be filed only for the first 2 months of each
quarter.
2. Quarterly VAT Declaration
• All persons liable to VAT shall file a quarterly return which shall
include sales and purchase information for the quarter, including the
information for the first 2 months of the quarter for which monthly
VAT returns have been filed.
• BIR Form 2550Q – filed not later than the 25th day following the end
of the taxable quarter. Payments made in the 2 previous monthly VAT
returns shall be credited against the quarterly VAT payable to arrive at
the net VAT payable (or excess input tax) for the quarter.
3. Returns under the Electronic Filing and Payment System (EFPS)
• Taxpayer enrolled in the EFPS shall be required to file their monthly
VAT declaration within 21, 22, 23, 24 or 25th day following the end of
each month, depending on their industry.
• Payment of the tax due via EFPS shall be five days later than the
deadline for filing.
Assignment
• Lucil is engaged in two (2) line of businesses, one with VAT and the other is Non-VAT.
His records show the following (VAT not included)
• Sales:
• From VAT business 4,000,000
• From Non-VAT business 6,000,000
• Purchases of goods from VAT suppliers:
• For VAT business 2,000,000
• For Non-VAT business 3,000,000
• Purchases from VAT supplier of supplies used for both VAT and Non-VAT businesses
20,000
• Operating Expenses (Non-VAT) 1,800,000
• Compute the VAT payable and Net Income