1.

VAT

 Indirect
 Business percentage tax
 Excise tax
o A tax on the privilege of exercising an occupation, business, or occupation

2. Why is VAT a multi-stage tax?

Stage P VAT VAT Remitted Commentary

Producer (P) 100 12 12 P pays P tax at
imports importation
materials valued
at
P makes 400 48 36 P accounts for
intermediate P48 but credits
product and P12 tax paid to
sells to importation. P
manufacturer invoices M P48
(M)
M makes final 900 108 60 M accounts for
article and sells 108
to Trader (T)
48 invoices
Trader, 108
T sells articles 1200 144 36 T accounts for P
for Consumer 144 but credits
(C) 108 Trader,
invoices C for
144
Total Paid by 1200 144 Total Vat
Consumer Remitted
3. Basic Formula for the Computation of the VAT Payable

Gross Taxable Sales

Less: Sales Returns
Sales Allowances
Allowable Sales Discounts
xxx equals xxx
Net

(Net x 0.12)
xxx equals xxx
Output Tax (Output VAT)

Class Notes:
What happens here with the Sales Returns?
 Effectively there are no Sales made

What about Sales Allowances, or Allowable Sales Discounts?

 Wholesales, volume discounts
 Such kinds of sale are excluded

Input Tax carried over from the previous period xxx

Domestic Purchases xxx
Importations xxx
TOTAL xxx
(Total x. 0.12)

Input Tax xxx

TOTAL INPUT TAXES xxx [B]
VAT PAYABLE xxx [A-B]

Sir’s PPT Note: All amounts are assumed net of VAT in the above formula

Persons Liable (for VAT)

1. Any person who, IN THE COURSE OF TRADE OR BUSINESS
 Sells, barters or exchanges goods or properties
 Leases goods or properties
 Renders services
 What are “goods or properties?”

o All tangible and intangible objects which are capable of pecuniary estimation:
 Real properties held primarily for sale to customers or held for lease in
the ordinary course of trade or business
  Right to use patent, copyright, design, trademark (royalties)
 Right to use films, tapes and discs
 Right to use industrial, commercial or scientific equipment

 What is “xxx in the course of trade or business?”

o xxx the regular conduct or pursuit of a commercial or an economic activity,
including incidental transactions, by any person, regardless of whether the
person engaged therein is a non-stock, non-profit private organization
(irrespective of the disposition of its net income and whether or not it sells
exclusively to members of their guests), or government entity.
o Incidental transaction
o CIR v. Magsaysay Lies, Inc., 497 SCRA 71
 Isolated transactions; therefore the sale was not in the course of the
trade or business of NDC. Sufficient in itself to declare the sale as outside
the coverage of VAT
o Mindanao II Geothermal Partnership vs. CIR, GR No. 193301, March 11, 2013
 Service vehicle

 Exceptions to “xxx in the course of trade or business”

o Any business where the gross sales or receipts do not exceed Php 100,000 during
any 12 month period shall be considered principally for subsistence or livelihood
and not in the course of trade or business
o The rule of regularity to the contrary notwithstanding, services rendered in the
Philippines by non-resident foreign persons shall be considered as being
rendered in the course of trade or business

2. Any person who imports goods

Class notes:
1. Sir refers to S. 108 (a) [TRAIN]

Taxability of Transaction under the VAT System

1. Taxable at 12% [Regular]
2. Taxable at 0% [Zero-rated]
3. Exempt
4. Final withholding VAT of 5% [Government collection from the immediately preceding year
which shall be treated as a special account in the General Fund]
S. 106 – Transactions Deemed Sales
1. Transfer, use or consumption not in the course of business of goods originally intended for
sale or for use in the course of business xxx

2. Distribution or Transfer to:

a. Shareholder or investors as share in the profits of the VAT registered person xxx
b. Creditors in payment of debt or obligation

3. Consignment of goods if actual sale is not made within 60 days following [date of
consignment] xxx if returned within 60 days by the consignee, not deemed sold

4. Retirement from or cessation of business with respect to all goods on hand xxx WoN the
business is continued by the new owner or successor

Zero-Rating (S.107) v. Exemption (S.109)

ZR:
X Co. sells raw materials to Toy Co. (an exporter)
Sells for 100
12% VAT 12
Total Invoice 112

Y Co. exports for 200

0% VAT 0
Total Invoice 200

Y gets a Php 12.00 tax credit!

Can therefore get a refund

Ex:
X Co. sells to Y
For 100
12% VAT 12
Total Invoice 112

Y Co. sells for 200

0% VAT 0
Total Invoice 200

Y does not get a Php 12.00 tax credit!

Zero-Rated Sales

A. As to the object of the sale

1. Zero-rated sale of goods or properties by VAT registered persons under S. 106 (3) [a. (2) in
NIRC]

Sale of goods
export sales
o the sale and actual shipment of goods from the Philippines to a foreign country
(actual export sale)

o the sale of raw materials or packaging materials to non-resident buyer for

delivery to resident local export-oriented enterprise to be used in
manufacturing, processing, packaging or repacking in the Philippines of the said
buyer’s goods

o xxx

o xxx

o Sale of goods, supplies, equipment and fuel to persons engaged exclusively in

international shipping or international air transport; provided that the goods
supplies, equipment and fuel have been sold and used for international shipping
and air-transport operations;

 Additional provision: S. 106 (A) (2)

 Items c, d, and e shall be subject to 12% VAT and no longer be
considered export sales subject to 0%
o Conditions:
 xxx successful establishment and implementation
of an enhanced VAT refund system that grants
refunds of creditable input tax within (CLAIMS FOR
REFUND AND PAYMENT THEREOF MUST BE MADE
WITHIN) 90 days from filing of the VAT refund
application with the Bureau

 All pending VAT refund claims as of December 31,

2017, shall be fully paid in cash by Dec. 31, 2019

 Deleted proviso: xxx no longer subject to 0% VAT

are a) Sale of gold to BSP, and b) Foreign-currency
denominated sales – now the items are exempt
 Conditions to be an exporter:
> Be paid in foreign currency
> Receipt/s must be accounted for
o surrender the receipt/s to the BSP
o effect is that the money goes into our foreign currency reserves

2. Zero-rate sales of services by VAT registered persons under S. 108

> service providers xxx
> S. 108 (B) – refer to codal; class ends here, no class notes except to remember the distinction
between ZR and Ex

3. Sales to Persons or Entities deemed tax-exempt by special law or international agreement

 i.e ADB, IRRI, which shall be effectively zero rated