Benito, Zhane Ashley L.

August 24, 2019

BSA 4-BA-42 BUSITAX (S3:00 P.M.–6:00 P.M.)

Features and Coverage of VAT:

 Value-Added Tax (VAT) is an indirect tax imposed on
a. Sale, barter, or exchange of goods
b. Sale of service
c. Lease of goods or commodities in the normal course of business
d. Importation
 VAT is a:
a. Business Tax – imposed upon those who are engaged in trade or business, and those in
the practice of profession,
b. Indirect Tax passed on to the buyer- Seller bound to remit it to the BIR
c. Tax on Value added or Mark-up- input VAT from purchase of VAT registered buyers
from VAT registered suppliers are deducted from the output VAT on its sales.
d. Consumption Tax- shouldered by ultimate consumers - the general Juan dela Cruz or
John Doe public.
e.
 Output VAT- due on sale or lease of taxable goods or properties or services by any person
registered by any person registered as a VAT entity
 Input VAT- due from or paid by a VAT registered entity in the course of trade or business on
purchase, importation, lease or use of goods or properties or services from a VAT supplier
 VAT Payable- output tax minus input tax to arrive at VAT payable on a monthly VAT declaration
and the quarterly VAT returns
 Transactions subject to VAT
 Sale of electricity by generation, and transmission by any entity including the National
Grid Corporation of the Philippines (NGCP) and distribution companies including
electric cooperatives shall be subject to 12% VAT.
 Certain export sale of goods and VAT zero-rated sale of services shall be subject to 12%
VAT once the conditions on the successful establishment of an enhanced VAT refund
system and payment in cash by 31 December 2019 of all pending VAT refund claims as
of 31 December 2017 are satisfied.
 Lease of residential units where gross receipts from rentals exceed PHP15,000 per month
per unit shall be subject to VAT if the aggregate annual gross receipts exceed PHP3m.
Otherwise, the gross receipts shall be subject to 3% percentage tax under Section 116 of
the Tax Code.
VAT Exempt Transactions:
 Importation of professional instruments and implements, tools of trade, occupation or
employment, wearing apparel, domestic animals, and personal and household effects of persons
coming to settle in the Philippines and overseas Filipinos shall be exempt from VAT.
 Sale of residential lot valued at PHP1.5m and below, or house & lot and other residential
dwellings valued at PHP2.5m and below, as adjusted in 2011 using the 2010 Consumer Price
Index values*, shall be VAT-exempt.
 Lease of residential units with a monthly rental per unit exceeding PHP15,000, but the annual
aggregate of such rentals during the year does not exceed PHP3m shall be VAT-exempt.
However, it shall be subject to 3% percentage tax.
 Lease of several residential units where gross receipts from rentals do not exceed PHP15,000 per
month per unit shall be exempt from VAT and 3% percentage tax regardless of the aggregate
annual gross receipts.
The following transactions are now VAT-exempt:
 sale or lease of goods and services to senior citizens and persons with disabilities as provided
under the Expanded Senior Citizens Act and An Act Expanding the Benefits and Privileges of
Persons with Disability;
 transfer of property pursuant to Section 40(C)(2) of the Tax Code, as amended;
 association dues, membership fees, and other assessments and charges collected on a purely
reimbursement basis by homeowners’ associations and condominium corporations;
 sale of gold to the Bangko Sentral ng Pilipinas;
 sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension beginning
1 January 2019 as determined by the Department of Health;
 sale or lease of goods or properties or the performance of services other than the transactions
already mentioned, the gross annual sales and/or receipts do not exceed PHP3m; and
 self-employed individuals and professionals availing of the 8% tax on gross sales and/or receipts
and other non-operating income.
*PHP1,919,500 for sale of residential lot and PHP3,199,200 for sale of house and lot and other residential
dwellings.
Tax Base and Tax Rates:
 A 12% value added tax (VAT) of the gross selling price is imposed to all importation, sale,
barter, exchange or lease of goods or properties and sale of services.
 The term 'Gross selling price' means the total amount of money or its equivalent that 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 the value added tax.

Transaction subject to zero percent VAT:

 Sale of goods, supplies, equipment, and fuel to persons engaged in international shipping or air
transport operations shall be subject to 0% VAT when these goods are exclusively used for
international shipping and air transport operations.
 Sale of services to persons engaged in international shipping or air transport operations, including
leases of property for use thereof, shall be subject to 0% VAT when the services are exclusively
rendered for international shipping and air transport operations.
 Transport of passengers and cargo by domestic air or sea vessels from the Philippines to a foreign
country shall be subject to 0% VAT.

Sources of input taxes:

1. Transitional input tax

2. Presumptive input tax
3. Input taxes on domestic purchases or importations (VAT actually paid).

 Transitional input tax

Persons who can avail:
 Persons who become liable to VAT
 Persons who elect to be VAT-registered

Basis of transitional input tax – Beginning inventory of VAT-subject goods, materials and
supplies.
Transitional input tax allowed – The HIGHER between:
2% of the VAT-subject beginning inventory value for income tax purposes; and
Actual VAT paid on such beginning inventory.

 Presumptive input tax (IM MS SMC)

Persons or firms who can avail:
 Processor of sardines, mackerel and milk
 Manufacturer of refined sugar, cooking oil and packed noodle-based instant meal
 Basis of presumptive input tax – Gross value in money of purchases of primary agricultural
products used as inputs in the processing or manufacturing of IM MS SMC.
 Rate of presumptive input tax – 4%

 Input taxes on domestic purchases or importations of:

 Goods for sale
 Goods for conversion into finished product (including packaging materials)
 Goods for use as supplies
 Goods for use as materials supplied in the sale of services
 Goods for use in trade or business for which depreciation or amortization is allowed
 Real properties for which VAT has actually been paid
 Services for which VAT has actually been paid
 Transactions deemed sale (CR WPD)