Business and Transfer Taxes

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Value-added Tax 2

Module 4: Value-added Tax 2

At the end of this module, you will be able to:

1. Understand the concept of VAT
2. Identify situations where input tax credit is available
3. Appreciate the role of VAT
4. Apply the concept of VAT

An individual or organization engaged in trade, business or in the practice of profession are

obliged with business taxes. Percentage tax or a Value Added Tax are both business taxes.
A taxpayer can be a VAT registered or a Non-VAT registered taxpayer. The imposition and
computation of the value-added tax will be the point of discussion for these two modules.
This second part of discussion on VAT covers more on the BIR requirements on VAT.

COMPLIANCE REQUIREMENTS
SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. -
(A) Invoicing Requirements. - A VAT-registered person shall, for every sale, issue an invoice
or receipt.
In addition to the information required under Section 237, the following information shall
be indicated in the invoice or receipt:
(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's
identification number (TIN); and (2) The total amount which the purchaser pays or is
obligated to pay to the seller with the indication that such amount includes the value-added
tax.
(B) Accounting Requirements. - Notwithstanding the provisions of Section 233, all persons
subject to the value-added tax under Sections 106 and 108 shall, in addition to the regular
accounting records required, maintain a subsidiary sales journal and subsidiary purchase
journal on which the daily sales and purchases are recorded.
The subsidiary journals shall contain such information as may be required by the Secretary
of Finance.
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SEC. 114. Return and Payment of Value-Added Tax. -
(A) In General. - Every person liable to pay the value-added tax imposed under this Title
shall file a quarterly return of the amount of his gross sales or receipts within twenty-five
(25) days following the close of each taxable quarter prescribed for each taxpayer:
Provided, however, That VAT-registered persons shall pay the value-added tax on a
monthly basis.
Any person, whose registration has been cancelled in accordance with Section 236, shall
file a return and pay the tax due thereon within twenty-five (25) days from the date of
cancellation of registration: Provided, That only one consolidated return shall be filed by
the taxpayer for his principal place of business or head office and all branches.
(B) Where to File the Return and Pay the Tax. - Except as the Commissioner otherwise
permits, the return shall be filed with and the tax paid to an authorized agent bank,
Revenue Collection Officer or duly authorized city or municipal Treasurer in the
Philippines located within the revenue district where the taxpayer is registered or required
to register.
(C) Withholding of Creditable Value-Added Tax. - The Government or any of its political
subdivisions, instrumentalities or agencies, including government-owned or -controlled
corporations (GOCCs) shall, before making payment on account of each purchase of goods
from sellers and services rendered by contractors which are subject to the value-added tax
imposed in Sections 106 and 108 of this Code, deduct and withhold the value-added tax due
at the rate of three percent (3%) of the gross payment for the purchase of goods and six
percent (6%) on gross receipts for services rendered by contractors on every sale or
installment payment which shall be creditable against the value-added tax liability of the
seller or contractor: Provided, however, That in the case of government public works
contractors, the withholding rate shall be eight and one-half percent (8.5%): Provided,
further, That the payment for lease or use of properties or property rights to nonresident
owners shall be subject to ten percent (10%) withholding tax at the time of payment.
For this purpose, the payor or person in control of the payment shall be considered as the
withholding agent.
The value-added tax withheld under this Section shall be remitted within ten (10) days
following the end of the month the withholding was made.
SEC. 115. Power of the Commissioner to Suspend the Business Operations of a
Taxpayer. - The Commissioner or his authorized representative is hereby empowered to
suspend the business operations and temporarily close the business establishment of any
person for any of the following violations:
(a) In the case of a VAT-registered Person. -
(1) Failure to issue receipts or invoices;
(2) Failure to file a value-added tax return as required under Section 114; or
(3) Understatement of taxable sales or receipts by thirty percent (30%) or more of his
correct taxable sales or receipts for the taxable quarter.
(b) Failure of any Person to Register as Required under Section 236. - The temporary
closure of the establishment shall be for the duration of not less than five (5) days and shall
 Business and Transfer Taxes
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Value-added Tax 2

be lifted only upon compliance with whatever requirements prescribed by the

Commissioner in the closure order.

Glossary
Invoice: An itemized list of goods shipped usually specifying the price and the terms of sale
Subsidiary: Furnishing aid or support
Consolidate: To join together into one whole
Withhold: To deduct
Understate: To represent as less than is the case

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References and Supplementary Materials

Books and Journals

Revised EVAT Law (R.A. 9337)

The Comprehensive Tax Reform Program (R.A. 8424)
Ballada, Win Lu (2012). Income Taxation. Manila. Domdane Publisher.
Ampongan, Omar (2012). Transfer and Business Taxation. Philippines.
Valencia and Roxas (2012). Transfer and Business Taxation. Baguio City. Valencia
Educational Supply.
De Leon (2012). Transfer and Business Taxation. Manila. Rex Bookstore.

Online Supplementary Reading Materials

Bureau of Internal Revenue website; https://www.bir.gov.ph/; May 10, 2017

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Value-added Tax 2

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Glossary
Trend Analysis: The focus is to evaluate and analyze the amount of change and percent
of change from one period to the next.
Common-size Analysis: an easily comparable, or common-size, presentation of financial
statement data in amount measured as a percent
Gross profit ratio: a ratio that tells us how much Gross Profit is made for every one peso
of revenue
Return on sales: a comparison of net income and net sales; it measures how well a
company's management team is doing its job
Return on assets: reveals how much income management has been able to squeeze from
each peso's worth of a company's assets
Return on ordinary shareholders’ equity: measures how much earnings the
shareholders are getting out of their invested money.
Earnings per share: the portion of a company's profit allocated to each outstanding
ordinary share
Current ratio: a liquidity test that will show how a company's current assets can meet its
short-term liabilities
Quick ratio: measures a company's ability to meet its short-term obligations with its
most liquid assets
Accounts Receivables turnover ratio: evaluate the ability of a company to efficiently
issue credit to its customers and collect funds from them in a timely manner
Average collection period: evaluate the ability of a company to efficiently issue credit to
its customers and collect funds from them in a timely manner
Inventory turnover ratio: an efficiency calculation used to control and manage turns by
comparing cost of goods sold and average inventory in an equation
Average age of inventory: the average amount of time it takes for a company to sell its
inventory
Debt ratio: measures debt level of a business as a percentage of its total assets
Debt to equity: indicates the soundness of long-term financial policies of a company
Times interest earned: indicates how well a company can cover its interest payments on
a pretax basis
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Value-added Tax 2

Price-earnings ratio: compare different investments or the same investment over

different periods of time

References and Supplementary Materials

Books
Garrison, R (2011). Managerial Accounting for Managers. USA. McGraw-Hill, 2nd Edition.
Weygandt, Kieso, and Kimmel (2008). Managerial Accounting. USA. Wiley International
Edition.
Hansen and Mowen (2011). Managerial Accounting. USA. Cengage Philippine Edition.
Drury, Colin (2014). Management and Cost Accounting. USA. Cengage Philippine Edition.
Schneider & Sollenberger (2009). Managerial Accounting. USA. Cengage Philippine
Edition.

Online Supplementary Reading Materials

Bureau of Internal Revenue website; https://www.bir.gov.ph/; May 10, 2017

Journal
Journal of the American Taxation Association. ISSN 0198-9073. American Taxation Association.

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Video
http://www.investopedia.com/video/play/valueadded-tax-vat/