Introduction to VAT Sales to Gov’t & GOCCs

Scope on VAT on Sales  5 % withholding VAT at source – presumed VAT payable

Covers all sales of goods, properties, services or lease of  VAT payable – effectively zero
properties other than:  Claimable input VAT – 7% (12-5)
1. VAT exempt sales  Difference between Actual Input VAT vs Withheld Final
2. Services specifically subject to Percentage tax VAT – addition or reduction to COS / expenses
If the seller is VAT-registered or VAT-registrable.  Computation:
Output VAT XXX
VAT Exempt Transactions under NIRC - EESE Less:
1. Exempt importations Standard Input VAT (12%) XXX
2. Exempt sales Withheld Final VAT (5%) XXX
3. Services specifically subject to Percentage tax Net VAT Payable -0-
4. Export sales of non-VAT taxpayers
Other Sales Subject to VAT
Notes: Types of Sales Description Tax Payable
 Branches – not taxable units , thus VAT threshold shall be 1. Sale of registrable Did not register; Output VAT
based on aggregate sale of head office & its branches persons cannot claim
Input VAT
 Subsidiary – taxable unit
2. Sale of non-VAT Output VAT +
 For spouses – if sales/receipts cannot be directly
taxpayer who PT + 50%
attributable to or identified as exclusively earned/realized
issues VAT invoice surcharge
by either spouse – it shall be divided equally between or receipt
them 3. Exempt sales “Exempt” is not Output VAT
billed by VAT indicated less Input VAT
VAT Model taxpayer as
Output VAT XXX regular sales
Less: Input VAT XXX
Net VAT Payable XXX
Less: Tax Credit or payments XXX VAT reporting
Tax still payable or (overpayment) XXX (XXX)  Due quarterly; but paid in 3 installments of 2 monthly & 1
quarterly payment
Output VAT  Paid Monthly & quarterly
Types:  Monthly VAT return (BIR Form 2550M) – 1st & 2nd month –
1. Regular Output VAT – for domestic sales (12%) reports only Output & Input VAT
a. Seller of goods/properties – Gross Selling Price  Quarterly VAT return (2550Q) – 3rd month – VAT paid in
b. Seller of services / leases of properties – Gross prior 2 months is deducted
Receipts
2. Zero Output VAT – export & other zero-related sales 1st month 2nd month 3rd month
Taxable Sales XXX XXX Total for 3
Input VAT months
 VAT paid on domestic purchases or on VAT on Multiply by 12% 12% 12%
importation Output VAT XXX XXX XXX
 Incentives by law – transitional input VAT & presumptive Less: Input VAT XXX XXX Total for 3
input VAT months
Monthly VAT Payable XXX XXX XXX
Classification of Sales for VAT purposes Less: VAT paid in prior XXX
Types of Taxation Output Claimable VAT months
Sales VAT Input VAT payable Quarterly VAT XXX
a. Exempt Exempt none none None payable
Sales from VAT
b. Zero- 0% Zero Actual Negativ  Negative VAT payable – no VAT will be paid; maybe
rated Output e carried over to succeeding month/quarter
VAT
c. Sales to 5% Final 12% of 7% of Zero VAT Invoicing Requirements
Gov’t Withholdi Sales/ sales/ Important in substantiating correct Output VAT & claims for
ng VAT receipt receipts refund or TCC
d. Regular 12% 12% of Actual positive Using single invoice or receipt for mixed sales
Sales Output Sales/ Maybe used provided that:
VAT receipt a. Invoice/receipt – clearly indicate breakdown of sales or
receipt among taxable, exempt & zero-rated
Input VAT on Zero-Rated Sales can be claimed thru: components
1. Tax refund - cash b. Calculation of VAT on each portion of sale shall be shown
2. Tax Credit Certificate – tax credit against any other on invoice/receipt
internal revenue taxes aside from VAT such as income tax,
excise tax, donor’s tax, documentary stamp tax Using separate invoice or receipt for mixed sales
3. If not claimed thru refund or TCC – credited against Provided that:
Output VAT at end of month (default treatment) a. If sale is exempt – “VAT-EXEMPT SALE” – written/printed
Entries: prominently
Cash (1) XXX b. If zero rated – “ZERO RATE SALE”- written/printed
Prepaid Tax (2) XXX
prominently
Output VAT (3) XXX
Input VAT XXX

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Regular Output VAT Example of Taxable Cessation of business (4) – C-IS, D, C
1. Change of ownership of the business, such as:
Summary a. Incorporation of sole proprietorship
Source VAT Base Timing of Output b. Sale by proprietor of his entire business
VAT reporting 2. Dissolution of a PNP & creation of new PNP
Sale of goods Gross sales, FV is SP Month of sale
is unreasonably  VAT – applies only to vatable goods (inventory, PPE) not
lower capital assets (AR, Investments)
Sale of services Gross Receipts Month collected  Rules of VAT on deemed sales of VAT taxpayers apply
Sale of properties Gross SP (higher of Month of sale or only if property is:
FV or SP) spread out 1. ordinary asset
(installment)
2. vatable property
Transaction FV of deemed sale Month deemed
deemed sales sold
Transaction not considered deemed-sales - CCM
1. Change of control of corporation by acquisition of
controlling interest of such corporation by another SH or
Unreasonably Lower Selling Price
group of SH.
 VAT is based on Fair Value if SP is unreasonably lower
2. Change in trade/corporate name
(lower by more than 30% of actual market value)
3. Merger/consolidation
 If 1 parties is the Gov’t – Output VAT is still based on actual
 Results to dissolution – not a deemed sale
SP; above rule does not apply
 Unused input tax – absorbed by surviving corporation.
Sale of Properties
Output Tax on Transaction Deemed Sale
1. By dealer, developer or lessor of real properties – vatable
 Based on market value (fair value) of goods at date of
2. Ordinary assets – vatable
deemed sale transaction
3. Not in the course of business – exempt
 If case of retirement or cessation of business – based on
 Gross SP – higher of FV or SP
acquisition costs or current market price of goods or
 FV is higher of Zonal Value & Assessed Value
properties w/ever is lower
 If no zonal value – higher of assessed value or
consideration
Determination of Fair Value
 If gross SP is based on zonal value or assessed value –
CIR shall determine the appropriate tax base in case:
presumed exclusive of VAT
a. Transaction is deemed sale
 If FV is higher than SP – output VAT must be separately
b. Gross SP is unreasonably lower
billed w/ specific mention that VAT billed separately is
based on FV
Invoicing Requirement for Subsequent Sale of Goods or
 Independent appraisal value – not prescribed by NIRC
Properties Deemed Sold
 Subsequent sale of G/P deemed sold – not subject to VAT
Installment Reporting of Output VAT
 Seller – indicate Sales Invoice number wherein output tax
Sale of Real Property on Installment Plan – sale of real property
on deemed sale was imposed & corresponding tax aid
by real estate dealer, initial payment of w/c in the yr of sale
 Important to avoid further imposition of business tax &
(all payments in the year of sale) does not exceed 25% of the
establish claim of input VAT
SP.
 If above criteria is met – Output VAT maybe reported in
*Deemed Sales Rules Apply only to VAT taxpayers only
installments
𝑃𝑎𝑦𝑚𝑒𝑛𝑡𝑠
 𝑂𝑢𝑡𝑝𝑢𝑡 𝑉𝐴𝑇 𝑟𝑒𝑝𝑜𝑟𝑡𝑎𝑏𝑙𝑒 = 𝑥 𝑡𝑜𝑡𝑎𝑙 𝑜𝑢𝑡𝑝𝑢𝑡 𝑉𝐴𝑇
𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 Billing Requirements on Output VAT
 Total billing = installment + reportable output VAT  Output VAT – specifically indicated in VAT invoice /
receipt
Interest & Penalties – actually or constructively received –  Billed separately when FV exceeds SP
likewise subject to VAT  If VAT is not separately billed – SP or consideration stated
shall be deemed inclusive of VAT
Sale of property by realty dealer on deferred payment basis –  If VAT is incorrectly billed – total amount billed shall be
not installment, treated as cash sale deemed inclusive of VAT (basis shall be Invoice price x
12/112)
Transaction Deemed Sale  Above rules apply also to claim of Input VAT
 Acquisition in nature but not thru purchase transaction.
Includes: T, D-SC, C, R, C
1. Transfer, use, or consumption not in the course of business
of goods/properties originally intended for sale or for use
in the business.
2. Distribution or transfers to:
a. Shareholders/investors share in profits of VAT –registered
persons.
b. Creditors in payment of debt/obligation
3. Consignment of goods if actual sale is not made w/in 60
days following date of consignment
4. Retirement from or cessation of business w/ respect to all
goods on hand whether capital goods, stock in trade,
supplies or materials as of the date of cessation, whether
or not the business is continued by new owner/successor.
5. Cessation of status as VAT-registered persons.

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Input VAT Regular Input VAT
 VAT due or paid by VAT-registered person on importation  12% Paid on purchases or importation
or local purchases of goods, properties, or services,
including lease/use of properties in the business/trade Timing of Credit of Regular Input VAT
Sources: (Purchase of - ) Timing of Credit
Creditable Input VAT /Allowable Input VAT - Requisites: PEVI Goods or properties Month of purchase
1. Paid/incurred in course of trade/business Services Month paid
2. Evidenced by VAT invoice or official receipt Importation of Goods Month paid
3. VAT invoice/receipt must be issued by VAT-registered Depreciable Capital
person Goods/Properties:
4. Incurred in relation to Vatable sales & not from exempt a. General treatment Month of purchase
sales b. Monthly aggregate Amortized over useful
acquisition cost exceeds life in months or 60
Types of Vatable Sales: 1,000,000 months, w/ever is
shorter
1. Sale to Gov’t
Non-depreciable vehicles & on Not creditable
2. Regular Sales
maintenance incurred thereon
3. Export Sales
Deferred Input VAT
 Input VAT evidence by Ordinary Receipt rather than by
Input VAT on Purchase of Capital Goods/Properties
VAT official receipt – not creditable
 Input VAT to be amortized – Deferred Input VAT
 Monthly Aggregate Acquisition Cost – total price,
Who can avail of input tax credit?
excluding VAT, agreed upon one more assets acquired &
a. Importer upon payment of VAT on importation prior to
not payments or installments actually made during the
release of goods from Custom custody
calendar month
b. Purchaser of domestic goods/properties upon
 Depreciable capital goods – goods/properties w/
consummation of sale
estimated useful life of more than 1 yr w/c are treated as
c. Purchaser of service/lessee or licensee upon payment of
depreciable for income tax purposes, used directly or
the compensation, rental, royalty or fee
indirectly in production/sale of taxable goods or services

Types of Claimable Input VAT - TRAPSI

Sale/Transfer of Depreciable Capital Goods w/in 5 years
Rate/ Description
 If it is sold prior to exhaustion of amortizable input tax –
1. Transitional Input VAT 2% of higher of vatable
entire unamortized input tax can be claimed as input tax
beg. Inventory or Actual
credit during the calendar month/quarter when
VAT paid on such
sale/transfer is made
2. Regular Input VAT 12% paid on domestic
purchases or importation
3. Amortization of >1million over 60 months or Special Rules on Input Tax Credit - NCPP
Deferred Input VAT useful life w/ever is shorter 1. Non-depreciable vehicles
4. Presumptive Input VAT 4% of purchases of primary 2. Construction in progress
agricultural products 3. Purchase of real property on installment
5. Standard Input VAT 4. Purchase of goods/properties deemed sold
6. Input VAT Carry-Over
Input Vat on Non-depreciable Vehicles
Rules on deductibility of depreciation expense on vehicles:
Transitional Input VAT a. Only 1 vehicle for land transport is allowed for use of an
 For TP who elects to be a VAT-registered person official/employee; value should not exceed 2,400,000
 Goods exempt from VAT shall be excluded in b. No dep’n shall be allowed to yachts, helicopters,
computation airplanes, and/or aircrafts, and land vehicles w/c exceed
 Based on vatable beginning inventories in month of 2,400,000, unless taxpayer’s main line of business is
registration as VAT TP transport operations or lease of transport equipment &
 Actual VAT paid – based on Inventory – materials, goods, vehicles are used in such operations
supplies c. Purchase – substantiated w/ sufficient evidence like
 If purchased from VAT suppliers – remove VAT first before official receipt or other adequate records
computing for value of inventory d. Direct connection/relation of vehicles to dev’t, operation
&/or conduct of trade/business/profession of TP must be
Timing of Credit of Transitional Input VAT substantiated.
 Claimable in month of registration as VAT TP  If requisites are not conformed – vehicle is non-
depreciable for tax purposes – input VAT is disallowed on
Requisites for Claim of Transitional Input VAT purchase & on maintenance expenses incurred on such.
1. TP must submit an inventory list of goods
2. TP must prepare an entry recognizing transitional input Input VAT on Construction in Progress
VAT credit in his acctg books Construction in progress – cost of uncompleted construction
Accounting Entry: work of an asset; accumulated progress billing of contractor
Transitional Input VAT XXX for extent of completion on asset under construction
Beginning Inventory XXX  Considered as purchase of service, not purchase of
capital goods
 Input tax – creditable upon payment of progress billings &
is neither credited upon completion of construction nor
amortized.
 Claimable Input VAT = Payments x 12/112
 If TP purchases materials to be used & contractor only bills
the labor, Input VAT shall be claimed upon payment of

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 the billings; input VAT on purchase of materials shall be Rules on Claim of Input VAT Deduction (Credit)
claimed upon purchase. 1. Specific Identification – input VAT that can be traced to
particular transaction – credited against output VAT of
Input VAT on purchase of real property on installments such sales
 If deferred payment, not installment – input VAT is 2. Pro-rata allocation – if cannot be traced directly &
claimable at time of execution of instrument of sale, entirely attributed to any sales; pro-rated based on total
subject to amortization rule on depreciable asset sales
 If by installment & seller is allowed to bill Output VAT in
installment – buyer can claim Input VAT in same period Computation of Allowable or Creditable Input VAT in VAT
as seller recognized output VAT return
Input Tax Carry-Over, from previous period XXX
Input VAT on goods/properties deemed sold Deferred Input Tax on Capital Goods exceeding 1M XXX
 Pro-rated ; portion of output VAT imposed upon goods Transitional Input Tax XXX
deemed sold w/c corresponds to goods purchased by Presumptive Input Tax XXX
buyer. Regular Input VAT from: XXX
Purchases of capital goods not exceeding 1M XXX
Purchase of capital goods exceeding 1M XXX
Presumptive Input VAT
Domestic purchase of goods, other than capital XXX
 Firms engaged in processing (Sa Ma Mi Co Pa Re)
goods
Sardines, Mackerel, Milk, Cooking Oil ,Packed noodle Importation of goods, other than capital goods XXX
based instant meals, Refined Sugar Domestic purchases of services XXX
 4% of gross value in money of purchases of primary agri Services rendered by non-residents XXX
products (VAT exempt raw materials) used in their others XXX
productions. Total Available Input Tax XXX
 Processing – pasteurization, canning, activities w/c thru Less: Deductions from Input Tax XXX
physical/ chemical process alter exterior texture/form On capital goods, deferred for future periods XXX
/inner substance of product in such manner as to prepare On sales to gov’t closed to expense XXX
it for special use to w/c it could not have been put in its Allocable to exempt sales XXX
original form/condition Claimed as refunds/TCC XXX
 Firms should own the business, it should not be for other Others XXX
clients. Total Allowable(creditable) Input Tax XXX

Standard Input VAT

 Effectively 7% (12% - 5%)
 Sale to Gov’t & GOCCs
 5% final withholding VAT based on gross payment
 Gov’t / GOCCs shall withhold final VAT & remit the same
w/in 10 days following end of month the withholding was
made.
 Difference between Actual Input VAT & Standard Input
VAT = Closed to COS
 If SIV > AIV = GAIN; SIV < AIV = LOSS
 If seller is Non-VAT : Gov’t / GOCC – withhold 3% final
Percentage Tax

Input VAT Carry Over

 Excess of input VAT over Output VAT in particular
month/quarter
 VAT overpayment that appears after tax credits &
payments are deducted against net VAT Payable

Rules: (Input VAT Carry Over of the - )

1. Prior Quarter – deductible in the 1st month of current
quarter
2. Prior quarter – deductible in the 3rd month quarterly
balance of current quarter
3. 1st Month of quarter – deductible in 2nd month of quarter
4. 2nd month of quarter – not deductible to 3rd month of
quarter

What are excluded from Input VAT Carry-Over

1. Advanced VAT w/c have been applied for TCC
2. Input VAT attributable to zero-rated claim w/c have been
applied for tax refund or TCC
3. Input VAT attributable to zero-rated sales that expired
after 2 year prescriptive period

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VAT Payable
Tax Credits/Payments – VV AFA
1. VAT paid in previous 2 months – for quarterly VAT returns 
2. VAT paid in return previously filed, in case of amended
return
3. Advanced payments made to BIR
4. Final Withholding VAT on sales to Gov’t
5. Advanced VAT on certain goods
VAT Payments in Monthly Returns
 Applies to quarterly VAT Return (2550Q; not applicable to
monthly return VAT (2550M)
Advanced VAT
 Owners or sellers of the ff goods are required to pay
advanced VAT before withdrawal at point of production:  Paid thru an authorized agent bank or to a revenue
a. Refined Sugar
b. Flour
c. Naturally grown & planted timber products
 Technically not an input VAT & not included as allowable
input VAT
 Advanced payment
 But unutilized advanced VAT may form part of Input VAT
carry over
 Importation of wheat – not the object of taxation ;
purpose of advanced VAT – to collect advanced tax
collection from VAT on future sale of flour by millers.
Importation of agri/marine food products normally does
not require an Authority to Release Imported Goods
(ATRIG) from BIR for its release from Custom’s warehouse
 For advanced VAT – ATRIG shall be secured by importers
of wheat (miller/trader)
 Payment Order, w/ deposit slip issued by authorized
agent bank or ROR issued by Revenue Collection Officers
– serve as proof for such advanced payment
Advanced VAT on Transport of Naturally Grown & Planted
Timber Products
Basis: 12% of per cubic meter as stated in p314
collection officer / deputized city/ municipal treasurer
 Owner/concessionaire/seller of naturally grown / private
timber products – shall not allow any transport of said
timber products from cutting area w/out advanced
payment of VAT
 If non-VAT: Advanced Percentage Tax – shall be paid (3%)
& is creditable against monthly or quarterly percentage
tax return

Advanced VAT on Sale of Sugar Certificate of Advanced Payment (CAP) – released by BIR
Base price of Advanced VAT: P1,400 per 50kg. bag upon payment of advanced tax/ percentage tax ; proof
Computation: 12% x P1,400 x # of bags
 Sugar – refers to sugar other than raw cane sugar / those Tax Still Due
w/ sugar content Paid on:
 Paid thru an authorized agent bank or to a revenue 1st & 2nd Month of Q – w/in 20 days from end of Month
collection officer / deputized city/ municipal treasurer 3rd month – w/in 25 days from end of Quarter
 Tax credit for advanced input VAT must be supported by
Payment Order showing payment of Advanced VAT Overpayment on Advanced VAT – maybe treated as Input
 Cooperative – exempt from VAT, thus not required to pay VAT carry over
Advanced VAT Alternative Treatment on Certain Overpayments
1. From input VAT on zero-rated sales
Advanced VAT on Sale of Flour by Millers 2. From advanced Input VAT
Computation: 12% x 75% x 105% x (a+b)
Basis:
For wheat imported by millers – 75% of sum of:
a. Invoice value X Currency Exchange Rate on date of
payment
b. Estimated custom duties & other charges prior to release
of imported wheat from Custom’s custody, except for
advanced VAT, and
c. 5% of sum of a + b

For wheat purchased by flour millers from wheat traders – 75%

of the sum of:
a. Invoice Value
b. Estimated freight
c. 5% of sum of a & b

 Flour miller – engaged in milling of imported wheat to

produce flour as finished product, where such wheat
may be directly imported/purchased from an
importer/trader.
 Wheat trader – engaged in importing/buying & selling of
imported wheat
Importation of wheat by flour miller
 Advanced VAT on future sale of flour milled from imported
wheat shall be paid prior to release from Custom’s duty of
the wheat, w/c is imported & declared for milling
Purchase of wheat by flour millers from traders
 Subject also to advanced VAT & shall be paid by flour
miller prior to delivery of wheat by trader

 Importation of wheat by any trader – exempt from

payment of advanced VAT regardless of intended use.

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