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VALUE ADDED TAX A: General Rule: Seller is the one statutorily liable for the

payment of the tax. Can be shifted to buyers.


CHARACTERISTICS (ABCD VIP) Exception: In the case of importation, the importer (buyer) is
1. Tax on gross profit – Output tax (sales) minus the one liable for the VAT.
Input tax (purchases) Exception to the exception: In cases of VAT-Exempt
2. Business tax – Generally applies to regular importations (Pasalubong ng Balikbayan).
sales and purchases
SOURCES
3. Non-cascading – Not a tax on a tax
VAT is a tax on regular sale or consumption levied on the
4. Follows destination principle – Applies to following: (BELIS2)
consumption within PH only  Barter
5. Ad Valorem – Uses a base to determine tax  Exchange
liability
 Lease
6. Indirect – can be shifted
 Importation
7. Privilege or excise tax – not a tax on property
 Sales
 Services
Q: Are there personal transactions which are vatable?
A: Yes. Importations and non-regular NRA activities.
Q: Does VAT arises from every sale transaction?
Q: Why is VAT called a consumption tax? A: No. VAT arises only from regular/ordinary/normal/incidental
A: Because it follows the destination or cross border doctrine business transactions.
which means only properties consumed within the bounds of
territories should be taxed. Thus, exports are either zero or Example: A sold to B some of her inventory.
exempt while imports are always vatable.
Q: Vatable?
Q: What is being shifted? A: Yes. Item is an inventory.
A: Only the burden to pay VAT is shifted to the buyer
(economic taxpayer), never the liability to collect and remit to Another example: A sold to B her watch.
government. The latter remains with the seller (statutory
taxpayer). Q: Is there a sale?
A: Yes. Sale of watch.
Q: Who are liable to pay VAT?

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Q: Vatable sale? 2. Economic growth
A: No. Not a regular sale. 3. Simplified tax administration
4. Higher governmental revenues
Q: Mariah Carey made a one-time concert in the Philippines.
Ticket vatable? Q: Is VAT regressive?
A: Yes. NRA. A: Yes. Because VAT has basically flat rate, the poorer you
are, the heavier VAT to you.
Q: What are incidental transactions?
A: Not the business itself but related to the conduct of the Q: Who are the persons required to register for VAT?
business. That is, if Camilla Homes sold cars to its A: Every person if:
employees, those are vatable because, regardless of not  The actual Gross sale or gross receipts
being real property, it is important to their agents’ daily have exceeded 1,919,500; or
activities.  Expecting Gross sales or receipts to exceed 1,919,500
within 12 months.
Note: VAT will arise even in the absence of profit (i.e., at a
loss) attributable to a business transaction. Q: May a person earning below the threshold register under
the VAT system?
A: Yes. Optional registration. Cannot be revoked within 3
PERSONS LIABLE years.
Any person who, in the course of trade or business (Doctrine
of Regularity), is considered Q: My annual importations totaled P1,500,000. Vatable?
 seller A: Yes. Regardless of value and purpose.
 lessor
 service provider Q: What is the penalty for failure to register as VAT taxpayer?
 importer, whether or not made in the course of trade or A: Must pay the VAT but cannot avail of the input tax credit.
business
 Non-resident persons even if the performance of
VAT ON SALE OF GOOD OR PROPERTIES
services is not regular.
Every sale, barter or exchange of goods or properties shall be
subject to 12% VAT based on the gross selling price or gross
ADVANTAGES (Promotes PESH) value in money of the goods or properties sold.
1. Promote savings

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Gross Selling Price: the total amount of money or its  International travels (Planes and Ships)
equivalent plus excise tax.  Sale of gold to BSP
 Exports of VAT reg. entities
Goods: all tangible and intangible objects which are capable
of pecuniary estimation.  Sale of renewable energy

Invoice Interpretation: Note: These are only common examples lifted out by
Sales Invoice VAT Sales Invoice examiners.
Gross of Vat Net of VAT
Vat Exclusive VAT Inclusive Automatic vs. Effectively Zero-Rated Sale
Formula: Base x 12% = VAT Base / 1.12 X 12% = VAT Although both are taxed similarly, automatic zero-rated
transactions differ from effectively zero-rated transactions as
Q: Are all intangible properties subject to VAT? to their source.
A: No, only those capable of pecuniary (monetary) estimation.
An automatically zero-rated sale refers to an export sale or a
Q: Is the sale of real properties subject to VAT? foreign currency denominated sale or local sale without treaty
A: Ordinary real property is VATable. Capital properties are agreements.
non-VATable. Only real estate dealers are subject to VAT.
An effectively zero-rated sale are local sale to entity with
Q: What are the allowable deductions from the gross selling treaty agreements (e.g., PEZA, SBMA).
price?
A: Q: What if silent, automatic or effectively zero-rated?
1. Discounts determined and granted at the time of the sale A: Automatic yan.
(i.e., trade discounts).
2. Sales returns and allowances for which proper credit or
refund was made. TRANSACTIONS DEEMED SALE (IN EFFECT SUBJECT
TO 12% VAT)
Note: The gross selling price is “unreasonably lower” than the
ZERO-RATED AND EFFECTIVELY ZERO RATED SALES fair market value if it is lower by more than 30% of the actual
The following sales by VAT-REGISTERED persons shall be market value.
subject to 0% rate (TIGER):
 Sales to entities with treaties (e.g., PEZA, SBMA) a. Kinain mo na mga inventories.

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VAT ON SALE OF SERVICES AND USE OR LEASE OF
b. Distribution or transfer to: PROPERTIES
 Shareholders Constructive receipt: occurs when the money consideration or
 Property dividends its equivalent is placed at the control of the person who
rendered the service without restrictions by the payor.
 Creditors
 Consignment of goods if actual sale is not made within Q: What are the categories of Services:
60 days following the date such goods were consigned A:
1. Professional/ technical consultancy
Q: What is the difference between “zero-rated” and “VAT- 2. Transfer of technology
exempt” transactions? 3. Lease or use of intangible property
A: In VAT-exempt transactions there is no input tax credit 4. Lease or use of tangible property
allowed. In Zero-Rated, there is creditable VAT.
E.g.: Output tax -------------------- P 0.00 Q: Are non-stock, non-profit entities liable to pay VAT for sale
Less: Input tax ------------------- 5,000.00 of goods and services?
VAT Creditable 5, 000.00
A: Yes. As long as the entity provides service for a fee,
Q: Is the sale of goods to ecozone, such as PEZA, considered remuneration or consideration, then the service rendered is
as export sale? subject to VAT.
A: Yes. Notably, while an ecozone is geographically within the
Philippines, it is deemed a separate customs territory and is
regarded in law as foreign soil. VAT EXEMPT TRANSACTIONS
Sale of goods or properties and/or services and the use or
Q: What is the rationale for zero-rating exports sale? lease of properties that is not subject to VAT and the seller
A: It is because the Philippine VAT system adheres to the is not allowed any tax credit of VAT on purchases.
cross border doctrine, according to which, no VAT shall be
imposed to form part of the cost of goods destined for The following are VAT-exempt transactions: (RICE POPS)
consumption outside of the territorial border of the taxing Sale of residential lot valued at 1,919,500 and below,
authority. or house and lot valued at 3,199,200 and below
International flight’s fuel
Cooperative dealings
Exports on Non-VAT reg. Entities

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Pasalubong of our balikbayans SOURCES OF INPUT TAX
Sale or importation of agricultural and marine food products in a. Purchase or importation of goods
their original state b. Purchase of real properties for which a VAT has actually
Printing of books and the likes which are not devoted of paid been paid
advertisements c. Purchases of services in which a VAT has actually been
Sale or importation of fertilizers, seeds, seedlings and paid
fingerlings d. Transactions deemed sale
e. Transitional input tax (2%)
Note: These are only common examples lifted out by f. Presumptive input tax (4%)
examiners. g. Transitional input tax credits allowed under the transitory
and other provisions of these Regulations
Q: Why would a VAT-exempt person choose to be subject to h. Creditable Withholding VAT on payments to non-residents
VAT than to be VAT exempt?
A: A VAT-registered person who opted to be subject to VAT Q: What is transitional input tax credit?
may avail of the input tax credit. However, a VAT-registered A: It is an input tax credit allowed to person who becomes
person who opted to be exempt therefrom cannot avail of the liable to value-added tax or any person who elects to be a
input tax credit. VAT-registered person. The allowed input tax shall be
whichever is higher between:
Q: Will a VAT-registered purchaser of goods, properties or  2% of the value of the taxpayer’s beginning inventory of
services that are VAT-exempt be entitled to any input tax on goods, materials and supplies; or
such purchase?  The actual value-added tax paid on such goods.
A: No. Q: What is presumptive input tax credit?
A: It is an input tax credit allowed to persons or firms engaged
Q: Are petroleum products exempt from VAT? in the:
A: No longer exempt. 1. processing of:
a. sardines
Q: What are some common zero-rated and VAT-Exempt b. mackerel
transactions? c. milk
A: Zero-rated (TIGER) 2. manufacturing of:
Exempt (RICE POPS) a. refined sugar
b. cooking oil
c. packed noodle based instant meals

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The allowed input tax shall be equivalent to four percent (4%) A:
of the gross value in money. 1. To claim for tax credit (TCC); or
2. To claim for refund.

DETERMINATION OF THE INPUT/OUTPUT TAX; VAT Q: What are the consequences of issuing an erroneous VAT
PAYABLE; EXCESS INPUT TAX CREDIT invoice/VAT official receipt?
A:1. In case of non-VAT registered person who issues a VAT
VAT payable computation: invoice/receipt shall be held liable to:
Output Tax a. payment of percentage tax if applicable;
- Input Tax b. payment of VAT without input tax;
VAT payable (Refundable) c. 50% surcharge on tax due; and
d. the purchaser shall be allowed to recognize an input tax
If at the end of any taxable quarter the output tax exceeds the credit provided that the invoice/official receipt contains the
input tax, the excess shall be paid by the VAT-registered required information.
person.
2. In case of VAT-registered who issues a VAT invoice/official
If the input tax exceeds the output tax, the excess shall be receipt for a VAT-exempt sale without the words “VAT Exempt
carried over to the succeeding quarter or quarters. Sale” shall be held liable to pay 12% VAT.

Q: If input tax exceeds output tax, will there be refund? Q: When should VAT be paid?
A: Generally no. Carryover is the proper treatment. Except if A: GR: VAT-registered persons shall pay the VAT on a
the due to zero-rated transactions or illegally assessed tax, monthly basis.
refund is allowed. XPN: Persons whose registration has been canceled in
accordance with Section 236 who shall pay the tax due
Any input tax attributable to zero-rated sales by a VAT- thereon within 25 days from the date of cancellation of
registered person may at his option be refunded or credited registration.
(apply for TCC) against other internal revenue taxes.

Q: What are the options available to a VAT-registered person, VAT RATES


whose sales are (1) zero-rated, effectively zero-rated, (2) has 12 Regular rate
ceased in business operation, or (3) has been assessed 7 Standard input vat
illegally? 5 Final withholding vat

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4 Presumptive input vat
2 Transitional input vat
0 Zero-Rated
Exempt Non-VAT

Regulatory requirements
Monthly 2550M VAT Declaration 20th
Quarterly 2550Q VAT Return 25th

Note: Examinees are commonly confused as regards BIR


form for VAT Declaration or Return. Its VAT Dec if Monthly;
VAT return if quarterly. BIR requires only quarterly returns.