PART 12

Value Added Tax

A. BUSINESS TAXES
Business taxes are those imposed upon onerous transfers such as sale, barter, exchange
and importation. It is called as such because without a business pursued in the
Philippines (except importation) by the taxpayer, business taxes cannot be applied.
Business taxes are in addition to income and other taxes paid, unless specifically
exempted.

EXCEPTION:
Any business pursued by an individual where the aggregate gross sale or receipts do not
exceed P100,000 during the any 12 month period shall be considered principally for
subsistence or livelihood and not in the ordinary course of trade or business. Hence, not
subject to business taxes.

TYPES:
1. Value Added Tax
2. Other Percentage Taxes
3. Excise Taxes
4. Documentary Stamp Taxes

B. NATURE AND CHARACTERISTICS OF VAT

• It is a business tax levied on the value-added on certain goods, properties and
services in the domestic market and/or importer of goods.

• It is imposed not on the goods or services as such but on the privilege of selling
importing goods or rendering services for a fee, remuneration or consideration.

• It is an indirect tax and the amount of tax may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or services.
 • The party directly liable for the payment of the tax is the seller, importer or the
service provider, although the burden of the tax may be shifted or passed on the
consumer.

C. EXEMPT TRANSACTIONS
This means the sale of goods, properties or services and the use or lease of
properties are not subject to VAT (Output Tax) and the seller or lessor is not allowed
to any tax credit on VAT (Input Tax) on purchases.

The following are VAT-Exempt transactions (under TRAIN Law):

1) Sale or importation of;
a. agricultural and marine food product in their original state;
b. livestock and poultry used as, or producing foods for human consumption;
c. breeding stock and genetic materials.

Products considered in their original state:

a. products which undergone simple processes of preparation or preservation
for the market (freezing, drying, salting, broiling, roasting, smoking or
stripping)
b. polished or husked rice
c. corn grits
d. raw cane sugar and molasses
e. ordinary salt
f. copra
NOTE: Livestock or poultry does not include fighting cocks, race horses, zoo
animals and other animals generally considered as pets.

2) Sale or importation of:

a. Fertilizers
b. Seeds, seedlings and fingerlings
c. Fish, prawn, livestock and poultry feeds
d. Ingredients used in the manufacture of finished feeds (except specialty
feeds for race horses, fighting cocks, aquarium fish, zoo animals and other
animals generally considered as pets).

3) Importation of personal and household effects belonging to the:

a. residents of the Philippines returning from abroad; and
b. Non-resident citizens coming to resettle in the Philippines.
NOTE: Such goods must be exempt from customs duties.
4) Importation of professional instruments and implements, tools of trade,
occupation or employment, wearing apparel, domestic animals, and personal
household effects, provided:
 a. It belongs to persons coming to settle in the Philippines, or Filipinos or
their families and descendants who are now residents or citizens of other
countries such parties herein referred to as overseas Filipinos;
b. In quantities and of the class suitable to the profession, rank or position of
the persons importing said items;
c. For their own use and not for sale, barter or exchange;
d. Accompanying such persons, or arriving within a reasonable time.
Provided, that the Bureau of Customs may, upon the production of
satisfactory evidence that such persons are actually coming to settle in the
Philippines and that the goods are brought from their former place of
abode, exempt such goods from payment of duties and taxes: Provided,
further, vehicles, vessels, aircrafts and machineries and other similar goods
for use in manufacture, shall not fall within this classification and shall
therefore be subject to duties, taxes and other charges.

5) Services subject to percentage tax

6) Services by agricultural contract growers and milling for others of palay into
rice, corn into grits and sugar cane into raw sugar;

AGRICULTURAL CONTRACT GROWER:

Refer to those persons producing for others' poultry, livestock or other
agricultural and marine food products in their original state such as contract for
a package of services of receiving eggs from breeder farm, sorting, fumigating,
setting, hatching, sexing of day-old broilers, sorting and delivering them to
other contract grower.

7) Medical, dental, hospital and veterinary services except those rendered by

professionals;

NOTE:
 Laboratory services are exempted. If the hospital or clinic operates a
pharmacy or drugstore, the sale of drugs and medicines are subject to VAT.
 Hospital bills constitute medical services. The sales made by the drugstore
to the in-patients which are included in the hospital bills are part of
medical bills (not subject to vat).
 The sales of the drug store to the out-patients are taxable because they are
NOT PART of medical services of the hospital.

8) Educational services rendered by;

a. private educational institutions, duly accredited by;
i. Department of Education (DepEd)
 ii. Commission on Higher Education (CHED)
iii. Technical Education and Skills Development Authority (TESDA)

b. Government Educational Institutions

9) Services rendered by individuals pursuant to an employer-employee

relationship
10) Services rendered by regional or area headquarters

11) Transactions which are exempt under international agreements to which the
Philippines is a signatory or under special laws

12) For agricultural cooperatives: cooperatives

a) Sales to their members
b) Sales to non-members if the cooperative is the producer (if not, subjected
to VAT)
c) Importation of:
- Direct farm inputs, machineries and equipment, including spare parts
thereof
- To be used directly and exclusively in the production and/or processing
of their produce.

SALE TAX
 Sale cooperative’s own produce to its Exempt
members
 Sale of cooperative’s own produce to non- Exempt
members
 Sale to its members of good other than the Exempt
cooperative’s own produce
 Sale to non-members of goods other than Subject to VAT
the cooperative’s own produce

13) Gross receipts from lending activities by credit or multi-purpose cooperatives

GROSS RECEIPTS TAX
 Gross Receipts from Lending Activities to its Exempt
members
 Gross Receipts from Lending Activities to Exempt
non-members
 Gross Receipts from Non-Lending Activities Subject to VAT
to its members and non-members
14) Sales by non-agricultural, non-electric and non-credit cooperatives, provided,
that the share capital contribution of each member does not exceed P15,000
NOTE:
 Importation by non-agricultural, non-electric and noncredit cooperatives of
machineries and equipment including spare parts thereof, to be used by them
are subject to VAT.

CONTRIBUTION TAX
 Contribution per member < P15 000 Exempt
 Contribution per member > P15,000 Subject to VAT

15) Export sales by persons who are not VAT-registered

EXPORT SALE
By a Vat Registered Explorer By a Non-Vat Registered Explorer
(Subject to 0% Vat) (Exempt from Vat)

FORMULA:
Output Vat (@ 0%) P0 Output Vat None
Input Vat (xx) Input Vat*** N/A
Excess Input Vat** (Pxx) Vat Payable None

**MAY BE: ***may be closed to expense or cost

1. Refunded
2. Used as Tax Credit Against
output vat in relation to sales
subjected to 12% vat (local
sales)
3. May be converted into a tax
credit certificate for payment of
any internal revenue taxes (BIR
taxes)

16) Sale of:

a. Real properties not primarily held for sale to customers or held for lease in
the ordinary course of trade or business. However, even if the real property
is not primarily held for sale to customers or held for lease in the
ordinary course of trade or business but the same is used in trade or
business of the seller, the sale thereof shall be subject to vat being a
transaction incidental to the taxpayer's main business.
b. Real property utilized for low-cost housing as defined under RA No. 7279,
otherwise known as the "Urban Development and Housing Act of 1992"
and other related laws.

"Low-cost housing" refers to housing projects intended for homeless low-

income family beneficiaries, undertaken by the Government or private
developers, which may either be a subdivision or a condominium,
registered and licensed by the Housing and Land Use Regulatory
Board/Housing (HLURB) under BP BIg. 220, PD 957, or any other similar
law, wherein the unit selling price is within the selling price per unit as set
by the Housing and Urban Development Coordinating Council (HUDCC)
pursuant to RA 7279, otherwise known as the "Urban Development and
Housing Act of 1992" and other laws.

c. Real property utilized for "socialized housing" as defined by Republic Act

No. 7279, and other related laws such as RA No. 7835 and RA No. 8763,
wherein the price ceiling per unit is P450,000 or as may from time to time
be determined by HUDCC and the NEDA and other related laws.

"Socialized housing" refers to housing programs and projects covering

houses and lots or home lots only that are undertaken by the government
or the private sector for the underprivileged and homeless citizens. which
shall include sites and services development, long-terra financing.
liberalized terms on interest payments, and as such other benefits in
accordance with the provisions of Republic Act 7279. otherwise known as
the -Urban Development and Housing Act of 1992" and RA No. 7835 and
RA No. 8763. "Socialized Housing" shall also refer to projects intended for
the underprivileged and homeless wherein the housing package selling
price is within the lowest interest rates under the Unified Home Lending
Program (UHLP) or any equivalent housing program of the Government,
the private sector or non-government organizations.

d. Real properties primarily held for sale to customers or held for lease in the
ordinary course of trade of business, if:
i. Residential lot valued at:
 Prior to Jan. 1, 2018: P1,919,500 and below;
 Beg. Jan. 1, 2018 (TRAIN Law): P1,500,000

ii. House and lot, and other residential dwellings valued at:
 Prior to Jan. 1, 2018: P3,199,200 and below;
 Beg. Jan. 1, 2018 (TRAIN Law): P2,500,000
 NOTE:
 If two or more adjacent residential lots are sold or disposed in favor of one
buyer, for the purpose of utilizing the lots as one residential lot, the sale
shall be exempt from vat only if the aggregate value do not exceed
P1,500,000 (as amended). Adjacent residential lots, although covered by
separate titles and/or separate tax declarations, when sold to one and the
same buyer, whether covered by one separate Deed of Conveyance, shall
be presumed as sale of one residential lot.

 Provided, that beginning January 1, 2021, the vat exemption shall

only apply to sale of real properties not primarily held from sale to
customers or held for lease in the ordinary course of trade or
business, sale of real property utilized for socialized housing as
defined under RA No. 7279, sale of house and lot and other
residential dwellings with selling price of not more than two million
pesos (P2,000,000); Provided, further, that every three (3) years
thereafter, the amounts state herein shall be adjusted to its present
value using the Consumer Price Index, as published by the Philippine
Statistics Authority (PSA).

17) Lease of a residential unit with a monthly rental not exceeding P15,000
(P12,800 prior to Jan. 1, 2018), regardless of the amount of aggregated rentals
received by the lessor during the year.

NOTES:
✓ LEASE of RESIDENTIAL UNITS where the monthly rental per unit exceeds
P15,000 (previously P12,800) but the aggregate of such rentals the lessor
during the year do not exceed P3,000,000 (previously P1,919,500) shall likewise
be exempt from VAT, however, the same shall be subjected to three (3%)
percentage tax (RR 16-2011; RR 13-2018).

 In cases where a lessor has SEVERAL RESIDENTIAL UNITS for LEASE, some
are leased out for a monthly rental per unit of not exceeding P15,000
beginning Jan. 1, 2018 (previously P12,800) while others are leased out
for more than P151000 or P12,800, as the case may be, per unit, his
tax liability will be:

- The gross receipts from rentals not exceeding P15,000 (previously

P12,800) per month per unit shall be exempt from VAT regardless of
the aggregate annual gross receipts.
 - The gross receipts from rentals exceeding P15,000 (previously
P12,800) per month per unit shall be subject to VAT if the annual gross
receipts (from said units only — not including the gross receipts from
units leased out for not more than P15,000 (previously P12,800)
exceed P3,000,000 (P1,919,500 prior to 2018). Otherwise, the gross
receipts shall be subject to three percent (3%) percentage tax under
section 116 of the tax code (RR 16-2011; RR 13-2018).

18) Sale, importation, printing or publication of books and any newspaper,

magazine, review or bulletin:
a. Appears at regular intervals;
b.
c. With fixed prices for subscription and sale;
d. Not devoted principally to the publication of paid advertisements.

19) Transport of passengers by international carriers doing business in the

Philippines. The same shall not be subject to Other Percentage Taxes as
amended under RA10378 and Transport of cargo by international carriers doing
business in the Philippines, as the same is subject to 3% common carrier's tax
(Other Percentage Taxes) as amended under RA10378 and .(RR 152015 ).

20) "Sale, importation or lease of passenger or cargo vessels and aircraft, including
engine, equipment and spare parts thereof for domestic or international
transport operations, provided, that the exemption from vat on the importation
and local purchase of passenger and/or cargo vessels shall be subject to the
requirements on restriction on vessel importation and mandatory vessel
retirement program of MARINA (RR 15-2015).

21) Importation of fuel, goods and supplies by persons engaged In international

shipping or air transport operations, provided that:
 Fuel, goods and supplies shall be exclusively or shall pertain to the
transport of goods and/or passenger from a port in the Philippines directly
to a foreign port without stopping at any other port In the Philippines.
 Fuel, goods or supplies Is used for the purposes other than that mentioned
in the preceding paragraph, such portion of fuel, goods and supplies shall
be subject to 12% vat.

22) "Services of banks, non-bank financial intermediaries performing quasi-banking

functions, and other non-bank financial intermediaries such as money changers
and pawnshops, subject to percentage tax under Sections 121 and 122,
respectively, of the Tax Code.
 23) Sale or lease of goods and services to senior citizens and persons with
disabilities, as provided under RA No. 9994 (Expanded Senior Citizens Act of
2010) and RA No. 10754 (An Act Expanding the Benefits and Privileges of
Persons with Disability (PWD), respectively.

24) Transfer of property pursuant to Section 40 (C)(2) of the Tax Code, as amended
(Upon effectivity of RA10963-TRAIN Law only; new provision).

25) Association dues, membership fees, and other assessments and charges
collected on a purely reimbursement basis by homeowners' associations and
condominium corporations established under RA No. 9904 (Magna Carta for
Homeowners' and Homeowners Association) and RA No.4726 (Condominium
Act), respectively This provision shall take effect only beginning January 1, 2018
or upon the effectivity of RA10963-TRAIN Law (new provision).

26) Sale of Gold to the Bangko Sentral ng Pilipinas (BSP). This provision shaltake
effect only beginning January 1, 2018 or upon the effectivity of RA10963-TRAIN
Law (new provision).

27) Sale of drugs and medicines prescribed for diabetes, high cholesterol, and
hypertension beginning January 1, 2019 (new provision)

28) "Sale or lease of goods or properties or the performance of services other than
the transactions mentioned in the preceding paragraphs, the gross annual
sales and/or receipts do not exceed the amount of P3,000,000, as amended
(previously P1,919,500).

D. VAT REGISTRATION

1) MANDATORY REGISTRATION
a. Any person or entity who, in the course of his trade or business, sells, barters,
exchanges, leases goods or properties and renders services subject to VAT, if
the aggregate amount of actual gross sales or receipts exceed P3,000,000 (as
amended) for the past 12 months (other than those that are exempt) OR
there are reasons to believe that the gross sales or receipts for the next 12
months will exceed P3,000,000.

b. Radio and/or television broadcasting companies whose annual gross receipts of

the preceding year exceeds P10,000,000.

c. A person required to register as VAT taxpayer but failed to register.

 Penalty for non-registration of those required to register as VAT? He shall
be liable to pay the tax as if he were a VAT-registered person but he cannot
avail the benefits of input tax credit for the period he was not properly
registered.

2) OPTIONAL REGISTRATION

Any person who is VAT-exempt or not required to register for VAT may, in
relation to D.1.a above, elect to be VAT-registered by registering with the RDO
that has jurisdiction over the head office of that person, and pay the annual
registration fee of P500.00 for every separate and distinct establishment. Any
person who elects to register under optional registration shall not be allowed to
cancel his registration for the next three (3) years.

Any person who is VAT-registered but enters into transactions which are exempt
from VAT (mixed transactions) may opt that the VAT apply to his transactions
which would have been exempt under Section 109(1) of the Tax Code, as
amended [Sec. 109(2)].

Franchise grantees of radio and/or television broadcasting whose, annual

gross receipts of the preceding year do not exceed ten million pesos
(P10,000,000.00) derived from the business covered by the law granting the
franchise may opt for VAT registration. This option, once exercised, shall be
irrevocable. (Sec. 119, Tax Code).

The above-stated taxpayers may apply for VAT registration not later than ten
(10) days before the beginning of the calendar quarter and shall pay the
registration fee unless they have already paid at the beginning of the year. In
any case, the Commissioner of Internal Revenue may, for administrative reason
deny any application for registration. Once registered as a VAT person, the
taxpayer shall be liable to output tax and be entitled to input tax credit
beginning on the first day of the month following registration.

3) CANCELLATION OF VAT REGISTRATION

Instances when a VAT-registered person may cancel his VAT registration:

1. If he makes a written application and can demonstrate to the
commissioner's satisfaction that his gross sales or receipts for the following
twelve (12) months, other than those that are exempt under 109 (A) to (U),
will not exceed P3,000,000, as amended; or
2. If he has ceased to carry on his trade or business, and does not expect to
recommence any trade or business within the next twelve (12) months.
  The cancellation for registration will be effective from the first day of
the following month the cancellation was approved.

3. POWER OF THE COMMISSIONER TO SUSPEND BUSINESS OPERATIONS:

❖ The Commissioner of the Internal Revenue or his authorized
representative may order suspension or closure of business
establishment for a period of not less than 5 days for any of the
following violations:
1. Failure to issue receipts or invoices
2. Failure to file vat return
3. Understatement of taxable sales or receipts by 30% or more
of the correct taxable sales or receipts for the taxable quarter.
4. Failure of any person to register as required under the law.

E. VAT FOR SELLER OF GOODS, PROPERTIES AND SERVICES

 PERSONS LIABLE - Any person who, in the course of his trade or business:
1. Sells, barters or exchanges goods or properties (Seller of Goods or
Properties)
2. Leases goods or properties (Lessor)
3. Renders services (Service Provider)

 MEANING OF "IN THE COURSE OF TRADE OR BUSINESS" — the regular conduct or

pursuit of a commercial or economic activity, including transactions incidental thereto,
by any person regardless of whether or not the person engaged therein (irrespective of
the disposition of is a non-stock, non-profit private organization its net income and
whether or not it sells exclusively to members or their guests), or government entity.

 FORMULA:

Output Tax PXXX

Input Tax (XX)
VAT Payable (Excess Input Tax) PXXX

F. OUTPUT TAX OF SELLER OF GOODS OR PROPERTIES

 KINDS OF SALE OF GOODS OR PROPERTIES SUBJECT TO VAT:

1. Actual Sale
2. Transactions deemed sale:
a) Transfer, use or consumption not in the course of business of goods or
properties originally intended for sale or for use in the course of
 business. Transfer of goods or properties not in the course of business
can take place when VAT-registered person withdraws goods from his
business for his personal use;
b) Distribution or transfer to:
i. Shareholders or investors share in the profits of VAT-registered
person;
ii. Creditors in payment of debt;
c) Consignment of goods if actual sale is not made within 60 days
following the date such goods were consigned; and
d) Retirement from or cessation of business with respect to all goods on hand,
whether capital goods, stock-in-trade, supplies or materials as of the date of
such retirement or cessation, whether or not the business is continued by the
new owner or successor.

 FORMULA IN COMPUTING OUTPUT TAX

Tax Base PXXX

Rate XX%Output Tax PXXX

 TAX BASE

Actual Sale
Personal property GSP
Real Property
1. Cash Sale GSP vs. FMV vs. ZV w/c ever is the highest
2. Deferred Payment GSP vs. FMV vs. ZV w/c ever is the highest
3. Basis
4. Installment Plan [(Collection/GSP) x GSP vs. FMV vs. ZV w/c
ever is the highest
Transaction Deemed Sale
1. (a), (b) and (c) above FMV
2. (d) above AC vs. FMV (w/c ever is lower)

GSP — Gross Selling Price

FMV — Fair market value
ZV — Zonal Value
AC — Acquisition Cost

Gross Selling Price — means the total amount of money or its equivalent which 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 VAT. The excise tax, if any, on such goods
or properties shall form part of the gross selling price.

NOTE: The following shall be allowed as deductions from gross selling price;
a) Sales discount indicated in the invoice at the time of sale, the grant of which is
not dependent upon the happening of a future event; and
b) Sales returns and allowances for which a proper credit or refund was made for
sales previously recorded as taxable sales.

DEFINITION OF GROSS SELLING PRICE EXPRESSED IN A FORMULA:

Gross Sales PXXX

Less: Sales discount XX
Sales returns & allowances XX XX
Net Sales PXXX
Add: Excise tax XX
Tax Base PXXX

Fair Market Value — means fair market value as shown in the schedule of values of the
Provincial and City Assessors (real property tax declaration)

Zonal Value— means fair market value as determined by the BIR Commissioner.

Deferred Payment Basis - means sale of real property, the initial payments of which in
the year of sale exceed 25% of the gross selling price.

Installment Plan — means sale of real property, the initial payment of which in
the year of sale do not exceed 25% of the gross selling price.

COMPONENTS OF INITIAL PAYMENT:

Down payment PXXX

Other collections in the year of sale XXX
Excess of unpaid mortgage over cost XXX
Initial Payments PXXX

3. EXPORT SALE
 RATE - As a general rule, the rate of value-added tax for the sale of goods or properties is
12% (Local Sales). However, the following transactions are subject to 0% (ZERO-RATED
SALES):
1) Export Sales:
a. Sale and actual shipment of goods from the Philippines to a foreign country,
paid for in acceptable currency, and accounted for in accordance with the
rules and regulations of the BSP;
b. Sale of raw materials or packaging materials to a non-resident buyer for
delivery to a resident local export oriented enterprise to be used in
manufacturing, processing, packing or repacking in the Philippines of the said
buyer's goods, paid for in acceptable currency, and accounted for in accordance
with the rules and regulations of the BSP;
c. Sale of raw materials or packaging materials to an export-oriented enterprise
whose export sales exceed 70% of total annual production;
d. Transactions considered export sales under E.O. No. 226;

ART. 23 EO 226
That without actual exportation the following shall be considered
constructively exported for purposes of this provision:
 sales to bonded manufacturing warehouses of export-oriented
manufacturers;
 sales to export processing zones;
 sales to registered export traders operating bonded trading warehouses
supplying raw materials used in the manufacture of export products under
guidelines to be set by the Board in consultation with the Bureau of
Internal Revenue and the Bureau of Customs;
 sales to foreign military bases, diplomatic missions and other agencies
and/or instrumentalities granted tax immunities, of locally manufactured,
assembled or repacked products whether paid for in foreign currency or
not: Provided, further, that export sales of registered export traders may
include commission income: and Provided, finally, that exportation of
goods on consignment shall not be deemed export sales until the export
products consigned are in fact sold by the consignee.
 Sales of locally manufactured or assembled goods for household and
personal use to Filipinos abroad and other non-residents of the Philippines
as well -as returning Overseas Filipinos under the Internal Export Program
of the government and pad for in convertible foreign currency inwardly
remitted through the Philippine banking systems shall also considered
export sales.

Items 1(b), 1(c) and 1(d) above are now subject to 12% vat under 31 of
RA10963 (TRAIN Law) upon satisfaction of the following.

 Successful establishment and implementation of an enhance refund

system that grants refunds of creditable input tax within 90 days
 from the filing of the vat refund application with the BIR; Provided
that, all applications filed from January 1, 2018 shall be processed
and decided within 90 days from the filing of the vat refund
application.

The ninety (90) day period to process and decide, pending the
establishment of the enhanced VAT Refund System shall only be up to
the date of approval of the Recommendation Report on such
application for VAT refund by the Commissioner or his duly authorized
representative; Provided; that all claims for refund/tax credit
certificate filed prior to January 1, 2018 will be governed by the one-
hundred (120)-day processing period. and
 All pending vat refund claims as of Dec. 31, 2017 shall be fully paid in
cash by Dec. 31,2019.

e. Sale of gold to BSP (Vat exempt beginning Jan. 1, 2018)

f. Sale of goods, supplies, equipment and fuel to persons engaged in international

shipping or international air transport operations.

2) Foreign Currency Denominated Sale (repealed under TRAIN Law) — means the sale
to a non-resident of goods, except automobile and non-essential goods, assembled
or manufactured in the Philippines for delivery to a resident in the Philippines, paid
for in acceptable foreign currency and accounted for in accordance with the rules
and regulations of the BSP.
3) Sales to Persons or Entities Deemed Tax-exempt under Special Law or International
Agreement (Also Known as Effectively Zero-Rated Sale):
a. Sales of goods or property to persons or entities who are tax-exempt under
special laws, such as:
- Subic Bay Metropolitan Authority (SBMA)
- Philippine Economic Zone Authority (PEZA)

b. Sales of goods or property to persons or entities who are tax-exempt under

international agreements to which the Philippines is a signatory, such as:
- Asian Development Bank (ADB)
- International Rice Research Institute (IRRI)

NOTE: A zero-rated sale of goods or properties is a taxable transaction for VAT purposes,
but shall not result in any output tax. However, the input tax on purchases of goods,
properties or services, related to such zero-rated sale, shall be available as tax credit or
refund.
 STATUS QUO ON VAT ZERO-RATING OF SALES TO PEZA ENTITIES

DOF Memorandum Circular No. 2018-003 declared "status quo" on vat-zero

rating incentive on the sale of goods/services to separate customs territories. It further
provides that Section 8 of the PEZA Law, which provides that special economic zones are
to be operated and managed as a separate customs territory, was not amended or
repealed by TRAIN Law. Consequently, until a law or revenue regulation is passed or
issued contrary to or incompatible with the pronouncement by the DOF, the vat zero-
rating incentive being enjoyed by PEZA locators or entities shall remain in full force and
effect.

G. OUTPUT TAX OF SELLER OF SERVICES AND LESSOR OF GOODS OR PROPERTIES

 FORMULA IN COMPUTING OUTPUT TAX

Gross Receipts PXXX

Rate XX%
Output Tax PXXX

 Gross Receipts— refers to the total amount of money or its equivalent representing
the contract price, compensation, service fee, rental or royalty, including the amount
charged for materials supplied with the services and deposits applied as payments for
services rendered and advance payments actually or constructively received for the
services performed or to be performed for another person, excluding VAT.

Advance Payments. In a lease contract, advance payment by the lessee may be:

1. A loan to the lessor from the lessee.

2. An option money for the property. NOT subject to VAT
3. A security deposit to insure the faithful
performance of certain obligations of
the lessee to the lessor.
4. Prepaid rental Subject to VAT

DEFINITION OF GROSS RECEIPTS EXPRESSED IN A FORMULA:

Cash received (actually and constructively) PXXX

Advance payments XXX
Materials charged for services XXX
Gross receipts PXXX
NOTE:
 1. For Dealer in Securities, the term "gross receipts" means gross selling price less
cost of securities sold.

2. “Constructive receipt” occurs when the money consideration or its equivalent

example of constructive receipts;:
a) Deposits in banks which are made available to the seller of service without
restrictions;
b) Issuance by the debtor of a notice to offset any debt or obligation and
acceptance thereof by the seller as payment for services rendered; and
c) Transfer of the amounts retained by the payor to the account of the contractor.

 RATE - As a general rule, the rate of value-added tax for the sale of services and lease of
goods or properties is 12%. However, the following transactions are subject to 0%
(ZERO-RATED SALES):

1. Processing, manufacturing or repacking goods for other persons doing business

outside the Philippines which goods are subsequently exported, where services are
paid for in acceptable foreign currency and accounted for in accordance with the
rules and regulations of the BSP;
2. Services performed by subcontractors and/or contractors in processing, converting,
or manufacturing goods for an enterprise whose export sales exceed 70% of the
total annual production;

Transactions #1 and #2 above, are already subject to 12% vat from the effectivity of
RA10963 upon satisfaction of the following:
 Successful establishment and implementation of an enhance refund system
that grants refunds of creditable input tax within 90 days from the filing of the
vat refund application with the BIR; Provided that, all applications filed from
January 1, 2018 shall the filing of the vat refund application.

The ninety (90) day period to process and decide, pending the establishment of
the enhanced VAT Refund System shall only be up to the date of approval of the
Recommendation Report on such application for VAT refund by the
Commissioner or his duly authorized representative; Provided; that all claims
for refund/tax credit certificate filed prior to January 1, 2018 will be governed
by the one-hundred (120)-day period, and
 All pending vat refund claims as of Dec. 31, 2017 shall be fully paid in cash by
Dec. 31 2019.

3. Services other than processing, manufacturing or repacking goods for other persons
engaged in business who is outside the Philippines when the services are
 performed, the consideration for which is paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of the BSP;

4. Services rendered to persons or entities whose exemption under special laws or

international agreements to which the Philippines is a signatory effectively subjects
the supply of services to zero percent (0%) rate;

5. Services rendered to persons engaged in internation al shipping or air transport

operations, including leases of property for use thereof;

6. Transport of passengers and cargo by domestic air or sea carriers from the
Philippines to a foreign country; and
7. Sale of power or fuel generated through renewable sources of energy such as, but
not limited to:
a) Biomass
b) Solar
c) Wind
d) Hydropower
e) Geothermal and Steam
f) Ocean energy
g) Other emerging sources using technologies such as fuel cells and hydrogen
fuels.

H. INPUT TAX
 REQUISITES:
1. The taxpayer is a VAT-registered person; and
2. The input tax is related to business subject to VAT (12% and 0%).

 KINDS OF INPUT TAX

1. Input tax on local purchases of goods or properties other than capital goods;
2. Input tax on importation of goods or properties other than capital goods;
3. Input tax on local purchases or importation of capital goods;
4. Input tax on local purchases of services;
5. Creditable withholding VAT
6. Transitional input tax
7. Presumptive input tax

 INPUT TAX ON LOCAL PURCHASES OR IMPORTATION OF CAPITAL GOODS

Capital Goods — refer to depreciable properties in which the' useful life is more
than one (1) year.
 When is amortization required?
Purchases or importation of capital goods, the aggregate acquisition cost of which (net of
VAT) In a calendar month exceeds P1,000,000, regardless of the acquisition cost of each
capital good, shall be amortized.

Amount Deductible = Input Tax/Amortization period

NOTE:
1. Amortization period is the shorter period of the following:
a) 60 months
b) Useful life In months
2. If the 1M threshold is not breached, no need for amortization (Input Tax is 100%
deductible).

3. If the CAPITAL GOOD IS SOLD within the five (5) year period or prior to exhaustion of
Input Vat thereon, the ENTIRE UNAMORTIZED INPUT TAX on the capital goods sold can
be claimed as input tax credit during the month or quarter when the sale is made.
4. Construction in Progress is a purchase of services. Input taxes will be recognized in the
month payment was made on the progress billing. In the case where labor will be
furnished by the contractor and materials will be purchased by the contractee from
other suppliers, input taxes will be recognized on labor when payment is made on the
progress billings while input taxes will be recognized on materials at the time the
materials are purchased.

 CREDITABLE WITHHOLDING VAT

Non-resident persons who perform services in the Philippines are deemed to be making
sales in the course of trade or business, even if the performance of services is not
regular.
The recipient of the service is the one required to withhold and remit the VAT to the BIR.
Such VAT can be claimed by the recipient as input tax.

 TRANSITIONAL INPUT TAX

Persons Covered:
Taxpayers who became VAT-registered persons (previously non-VAT) shall be entitled to a
transitional input tax.
 Amount Deductible:
Beginning Inventory PXXX
Rate 2%
PXXX
Actual Input VAT, Inventory beg. XXX
Transitional Input Tax (Higher Amount) PXXX

NOTE: Beginning inventory will include all inventories related to business subject to VAT
regardless of whether or not it was purchased from VAT or non-VAT supplier.

 PRESUMPTIVE INPUT TAX

Persons Covered:
Persons or firms engaged in:
1. Processing of sardines, mackerel and milk; and
2. Manufacturing refined sugar, cooking oil and packed noodle-based instant meals.

Amount Deductible:

Purchases of Primary Agricultural Products PXXX

Rate 4%
Presumptive Input Tax PXXX

I. VAT ON IMPORTATION

 PERSONS LIABLE:
1. Any person who bring goods into the Philippines, whether or not made in the course
or his trade or business.
2. It includes non-exempt persons or entities who acquire tax-free imported goods from
exempt persons, entities or agencies.

NOTE: In case of goods imported into the Philippines by VAT-exempt persons, entities or
agencies which are subsequently sold, transferred or exchanged in the Philippines to
non-exempt persons or entities, the latter shall be considered the importers thereof and
shall be liable for VAT due on such importation

 FORMULA:
a) Customs duties is ad valorem (based on value):
Dutiable Value PXXX
Customs duties XXX
Excise tax XXX
 Other charges w/in BOC XXX
Tax Base PXXX
Rate 12%
VAT on Importation PXXX

b) Customs duties is specific (based on quantity or volume):

Invoice amount PXXX
Customs duties XXX
Freight XXX
Insurance XXX
Other charges w.in BOC XXX
Landed Cost PXXX
Excise tax XXX
Total PXXX
Rate 12%
VAT ON Importation PXXX

J. FINAL WITHHOLDING VAT

 The government or any of its political subdivisions, instrumentalities or agencies,

including GOCCs shall, before making payment on account of each purchase of
goods and or services taxed at 12% VAT, deduct and withhold a Final VAT due at the
rate of five percent (5%) of the gross payment.

 The 5% final VAT shall represent the net VAT payable to the seller. The remaining 7%
effectively accounts for the standard input VAT of the seller, in lieu of the actual
input VAT.

 The difference between actual input VAT and standard input VAT must be closed to
expense or cost.

K. MIXED BUSINESS TRANSACTIONS

Refer to a situation wherein the taxpayer is engaged in transactions subject to VAT (12%
and/or 0%) as well as not subject to VAT (exempt). The main concern in such a case is
the determination of input tax that can be claimed for VAT purposes.

A Vat registered person who is also engaged in transactions not subject to Vat shall be
allowed of Input tax credit as follows:
 1. Total input tax which can be directly attributed to transactions subject to vat (except
vat taxable sales of goods and services to the government or GOCCs); and
2. Ratable Portion of any input tax which cannot be directly attributed to either
activity. (allocation shall be on the basis of sales volume.)

L. EXCESS INPUT TAX

KINDS OF INPUT TAX TREATMENT

Related to sales subject to 12% VAT Carry-over
Related to 0% VAT a) Carry-over
b) Refund
c) Convert into tax credit certificate
of
In case of cancellation VAT a) Convert into tax credit
registration certificate
b) In case it has no other tax liability,
refund.

M. VAT and DISCOUNTS FOR SENIOR CITIZENS

Senior citizen or Elderly - refers to any Filipino citizen who is a resident of the Philippines,
sixty (60) years old or above. It may apply to senior citizens with "dual citizenship"
status provided they prove their Filipino citizenship and have at least six (6) months
residency in the Philippines (RA 9994 otherwise known as "Expanded Senior Citizens Act
of 2010" and its related revenue regulations/ circulars RR7-2010, RR 8-2010, RMC 38-
2012).

Resident Citizen — a Filipino Citizen with permanent/ legal residence in the Philippines,
and shall include one, who, having migrated to a foreign country, has returned to the
Philippines with a definite intention to reside therein, and whose immigrant visa has
been surrendered to the foreign government.

VAT Exempt Sales to Senior Citizens (Section 4, RR 7-2010)

The following items sold to a senior citizen are vat-exempt and will entitle the latter to a
minimum discount of 20%:
a) Medicine and Drug Purchases including influenza and pneumococcal vaccines
and such other essential medical supplies, accessories and equipment.
b) Professional fees of attending physicians in all private hospitals, medical facilities,
outpatient clinics and home health care services.
c) Professional fees of licensed health workers providing home health care services in
all private hospitals, medical facilities, outpatient clinics, and home health care
services
d) Medical and dental services, diagnostic and laboratory fees
e) On actual fare for land transportation travel
f) In actual fare for domestic air transport and sea shipping vessels and the like
g) On the utilization of services in hotels and similar lodging establishments,
restaurants, recreation centers
h) On admission fees charged by theaters, cinema houses and concert halls, circuses,
carnivals and other similar places of culture, leisure and amusement.
i) On funeral and burial services of senior citizens.

RULE FOR RESTAURANTS

The discount shall be for the sale of food, drinks, dessert and other consumable items
served by the establishments, including value meals and promotional meals, offered for
the consumption of the general public. Condiments and side products fall within the
ambit of "other consumable items served by the establishments".

The 20% discount and vat exemption for restaurants shall apply to:

• Dine in, take-out, take-home, drive-thru, delivery order(excluding bulk orders),

called-in or phoned-in orders. Bulk orders are within the context of pre-contracted
or pre-arranged group meals or packages, and hence, not entitled to 20% discount
and VAT exemption.

• Set meals, group meals or group walk-ins including purchase of a whole cake and
pizza orders.

• "Pasalubong" food items which are single-serving/solo meal for the personal and
exclusive consumption of the Senior Citizen. However, other "pasalubong" food
items (e.g. box of biscocho, bottles or jars of ginamos, several packets of mango
preserves, etc) which are not for the personal and exclusive consumption of the
Senior Citizen are NOT entitled to 20% discount and VAT exemption. This limitation
extends to "novelty items" or non-consumables sold in restaurants.

FORMULAS:
 Discount = (Total Billing Amount – VAT) x 20%
 Amount Due:
Total bill inclusive of vat Pxx
Less: vat (xx)
 Total bill exclusive of vat Pxx
Less: 20% discount (xx)**
Total Amount Due Pxx

**Use the above formula in the following cases:

 The bill is for a group of individuals involving non-senior citizens and a senior
citizen
 In case of set meal(s) not limited to a single serving and is shared with Non-
Senior Citizens.
 For group of diners composed of Senior Citizens who ordered for group meals
or food items for sharing in restaurants and not all the Senior Citizens have their
valid Senior Citizen's ID cards (including purchase of whole cake and pizza).
I. Grant of 50/0 Special Discount (Section 5, RR 7-2010 as amended by RR 8-2010 and
RMC 38-2012).

A special discount of five percent (5%) of the regular retail price of basic necessities and
prime commodities as defined under Section 2 of the joint DTI-DA Administration Order
No. 10-02, series of 2010, shall be granted to Senior Citizens on their purchases
thereof, taking into consideration that said purchases shall be for the personal and
exclusive consumption and/or enjoyment of the Senior Citizen (Section 3, Joint DTI-DA
Administrative Order No. 10-02, Series of 2010).

a) Basic Necessities
• Rice
• Corn
• Bread excluding pastries and cakes
• Fresh, dried and canned fish and other marine products
• Fresh pork, beef and poultry meet
• Fresh eggs
• Fresh and processed milk
• Fresh vegetables including root crops
• Coffee and coffee creamer
• Sugar
• Cooking oil
• Salt
• Powdered, liquid, bar laudry and detergent soap
• Firewood
• Charcoal
• Candles

b) Prime Commodities
  Fresh fruits
 Flour
 Dried, processed and canned pork, beef and poultry meat
 Dairy products not falling under basic necessities
 Canned sardines, tuna
 Noodles
 Onions
 Garlic
 Geriatric diapers
 Herbicides
 Poultry, swine and cattle feeds
 Veterinary products for poultry, swine and cattle
 Nipa shingle, plyboard and construction nails Batteries
 Electrical supplies and light bulbs
 Steel wire

Retailers — shall mean any natural or juridical person engaged in the business of selling
consumer products directly to consumers, which shall include among others,
supermarkets, grocery/convenience stores and shops but excluding stalls in food courts,
food carts and sari-sari stores with a capitalization of less than P100,000, public and
private wet markets, talipapa and cooperative stores.

Purchase of basic necessities and prime commodities are not exempt from vat. The
total amount of purchases shall not exceed P1,300 per calendar week without carry-over
of unused amount. A purchase booklet issued by OSCA shall be presented to the retailer
upon purchase of basic necessities and prime commodities.

NOTE:
 The input tax attributable to the exempt sale shall not be allowed as an input tax
credit and must be closed to cost or expense account by the seller (Sec. 10, RR 7-
2010).

 While RA 9994 expressly provides for the VAT exemption of Senior Citizens on their
purchase of certain goods and services, the law does not include exemption from
the payment of Percentage Tax.

 In the purchase of goods and services which are on promotional discount, the
Senior Citizen shall avail of either the promotional discount or the 20%/5% discount,
whichever is higher. However, the discount that must be given to the Senior Citizen
shall in no case be less than 20%/5%. Moreover, the sale of goods and services on
 promotional discount is still exempt from VAT (except sale of basic necessities and
prime commodities).

 Meals primarily prepared and intentionally marketed for children and not for Senior
Citizen's personal consumption are not entitled to 20% discount. (Rule IV, Article 7,
Section 3 (d) of the Rules and Regulations implementing RA No. 9994; Section 6 of
RR No. 7-2010).

 Generally, alcoholic beverages are not subject to the 20% discount and VAT
exemption specially if purchased “in buckets” or “in cases”. However, if served as a
single serving drink, its purchase by a Senior Citizen is entitled to the 20% discount
and VAT exemption. However, alcoholic beverages purchased in a bar, club or
cabaret are exempt from VAT but subject to amusement tax of 18% under Section
125 of the NIRC, as amended. A Senior Citizen may still avail of the 20% discount on
the purchase of an alcoholic drink but the discount shall be limited only to a single
serving of an alcoholic beverage.

 Cigarettes/cigars are not the food or essential items deemed subject to the 20%
discount.

 Toll fees are not the same as "fares". Hence, it is not subject to the 20% Senior
Citizen Discount.

N. PERSONS WITH DISABILITY (RA7277-Magna Carta for Persons with Disability as

amended under RA 9442 and RA 10754;)
A person with disability shall refer to an individual suffering from restriction or different
abilities, as a result of mental, physical or sensory impairment to perform an activity in a
manner or within the range considered normal for human being (RR 1-2009).

RA 10754 AN ACT EXPANDING THE BENEFITS AND PRIVILEGES OF PERSONS WITH

DISABILITY (PWD)

"SEC. 32 Persons with disability shall be entitled to:

"(a) At least twenty percent (20%) discount and exemption from the value-added tax (VAT), if
applicable, on the following sale of goods and services for the exclusive use and enjoyment or
availment of the PWD:
"(1) On the fees and charges relative to the utilization of all services in hotels and similar
lodging establishments; restaurants and recreation centers;
"(2) On admission fees charged by theaters, cinema houses, concert halls, circuses,
carnivals and other similar places of culture, leisure and amusement;
"(3) On the purchase of medicines in all drugstores;
 "(4) On medical and dental services including diagnostic and laboratory fees such as, but
not limited to, x-rays, computerized tomography scans and blood tests, and professional
fees of attending doctors in all government facilities, subject to the guidelines to be
issued by the Department of Health (DOH), in coordination with the Philippine Health
Insurance Corporation (PhilHealth);
"(5) On medical and dental services including diagnostic and laboratory fees, and
professional fees of attending doctors in all private hospitals and medical facilities, in
accordance with the rules and regulations to be issued by the DOH, in coordination with
the PhilHealth;
"(6) On fare for domestic air and sea travel;
"(7) On actual fare for land transportation travel such as, but not limited to, public utility
buses or jeepneys (PUBs/PU)s), taxis, asian utility vehicles (AUVs), shuttle services and
public railways, including light Rail Transit (LRT), Metro Rail Transit (MRT) and Philippine
National Railways (PNR); and
"(8) On funeral and burial services for the death of the PWD: Provided, That the
beneficiary or any person who shall shoulder the funeral and burial expenses of the
deceased PWD shall claim the discount under this rule for the deceased PWD upon
presentation of the death certificate. Such expenses shall cover the purchase of casket
or urn, embalming, hospital morgue, transport of the body to intended burial site in the
place of origin, but shall exclude obituary publication and the cost of the memorial lot.

"(b) Educational assistance to PWD, for them to pursue primary, secondary, tertiary, post tertiary,
as well as vocational or technical education, in both public 'and private schools, through the
provision of scholarships, grants, financial aids, subsidies and other incentives to qualified PWD,
Including support for books, learning materials, and uniform allowance to the extent feasible:
Provided, That PWD shall meet the minimum admission requirements;

"(c) To the extent practicable and feasible, the continuance of the same benefits and privileges
given b’ the Government Service Insurance System (GSIS), Social Security System (SSS), and Pag-
IBIG, as the case may be, as are enjoyed by those in actual service;

"(d) To the extent possible, the government may grant special discounts in special programs for
PWD on purchase of basic commodities, subject to the guidelines to be issued for the purpose by
the Department of Trade and Industry (DTI) and the Department of Agriculture (DA); and

"(e) Provision of express lanes for PWD in all commercial and government establishments; in the
absence thereof, priority shall be given to them. "The abovementioned privileges are available
only to PWD who are Filipino citizens upon submission of any of the following as proof of his/her
entitlement thereto:
 "(i) An identification card issued by the city or municipal mayor or the barangay captain
of the place where the PWD resides;

"(ii) The passport of the PWD concerned; or

"(iii) Transportation discount fare Identification Card (ID) issued by the National Council
for the Welfare of Disabled Persons (NCWDP).

"The privileges may not be claimed if the PWD claims a higher discount as may be
granted by the commercial establishment and/or under other existing laws or in
combination with other discount program/s.

"The establishments may claim the discounts granted in subsection (a), paragraphs (1), (2),
(3), (5), (6), (7), and (8) as tax deductions based on the net cost of the goods sold or services
rendered: Provided, however, That the cost of the discount shall be allowed as deduction from
the gross income for the same taxable year that the discount is granted: Provided, further, That
the total amount of the claimed tax deduction net of value-added tax, if applicable, shall be
included in their gross sales receipts for tax purposes and shall be subject to proper
documentation and to the provisions of the National Internal Revenue Code (NIRC), as amended.

O. ADMINISTRATIVE PROVISIONS
1) INVOICING REQUIREMENTS

 A VAT registered person shall issue:

a) A VAT invoice for every sale, barter or exchange of goods or properties; and
b) A VAT official receipt for every lease of goods or properties and for every sale,
barter or exchange of services.

 Single invoice/ receipt involving VAT and Non-VAT transactions

A Vat registered taxpayer may issue a single invoice/ receipt involving VAT and
non VAT transactions provided that the invoice or receipt shall clearly indicate
the break-down of the sales price between its taxable, exempt and zero-rated
components and the calculation of the Value-Added Tax on each portion of the
sale shall be shown on the invoice or receipt.

 Separate invoices/ receipts involving VAT and Non-VAT transactions

A VAT registered person may issue separate invoices/ receipts for the taxable,
exempt, and zero-rated component of its sales provided that if the sales is
exempt from value-added tax, the term "VAT-EXEMPT SALE" shall be written or
 printed prominently on the invoice or receipt and if the sale is subject to zero
percent (0%) VAT, the term "ZERO-RATED SALE" shall be written or printed
prominently on the invoice or receipt.

 SALE TO SENIOR CITIZENS. The amount of sales that must be reported for tax
purposes is the undiscounted selling price and not the amount of sales net
of the discount. The gross selling price and the sales discount must be
separately indicated in the official receipt or sales invoice issued by the
establishment for the sale of goods or services to the Senior Citizen. With
regard to the VAT exemption, the machine tape must properly segregate the
VAT exempt sales from the taxable sales (Sections 7 and 10 of RR No. 7-2010).

The business establishment giving sales discounts to qualified Senior Citizens is

required to keep a separate and accurate record of sales, which shall include
the name of the Senior Citizen-purchaser, OSCA ID, gross sales/receipts, sales
discounts granted, dates of transactions and invoice/OR number for every sale
transaction to Senior Citizens. The invoicing requirements in Section 4.113-1 of
Revenue Regulations No. 16-2005 must also be complied with (Sections 7 and
10 of RR No. 7-2010).

 CONSEQUENCES of issuing an erroneous invoice or official receipt

a) If a person who is not a VAT registered person issues an invoice or receipt
showing his TIN followed by the word VAT, the non VAT person shall be
liable to:
i. The percentage taxes applicable to his transactions.
ii. The VAT due on the transactions without the benefit of any tax credit;
and
iii. A 50% surcharge.

b) If a VAT registered person issues a VAT invoice or official receipt for a VAT-
exempt transaction but fails to display prominently on the invoice or
receipt the term "VAT EXEMPT SALE", the issuer shall be liable to VAT.

NOTE: In both cases, the VAT shall, if other requisite information required is
shown on the invoice or receipt, be recognized as an input tax credit to the
purchaser.
 QUIZZER

Choose the letter of the correct answer.

Principles

1. Value added tax

a. Is an indirect national tax levied on the value added in the production of a good (or
service) as it moves through the various stages of production.
b. Is ad valorem tax.
c. Is preferred in place of a personal income tax by many economists because income
taxes are a disincentive to work, whereas a VAT discourages unnecessary
consumption.
d. All of the above.

 Answer: D

2. Which of the following is incorrect?

a. An article exempt from vat may be exempt from percentage tax
b. An article subjected to excise tax may be subjected to vat
c. An article subjected to vat may be subjected to percentage tax
d. None of the above

 Answer: D
◊ If an article is exempt from vat and at the same time not in the list of
transactions subject to Percentage Taxes (sections 116-127), such article is
exempt business tax such as but not limited to:
 sale of agricultural marine food products at its original state
 sale of fertilizers, poultry feeds
 sale of books

◊ Excise tax is in addition to vat or Percentage Tax

◊ An article may be subjected to either vat or percentage tax, but same article
cannot be subjected to both vat and percentage tax. A taxpayer (individual or
corporation), however, may be engaged in transactions that are subject to vat
 and transactions subject to percentage taxes (mixed transactions). What is
prohibited is "same transaction or article" is subjected to vat and percentage
tax.

3. Which of the following is incorrect?

a. A vat-taxable article may be exempt from vat
a. A vat-taxable article may be subject to vat
b. A taxpayer may have two businesses where one is subject to .at and the other is
subject to percentage tax
c. Manufacturers and importers of goods are subject to excise tax

 Answer: D

◊ A" is correct. Sale of an article not exempt from vat is not subject to vat if the
seller is not vat registered and the amount of annual sale or receipts than the
vat threshold.
◊ "B" is correct. Sale of an article not exempt from vat is subject to vat if the seller
is vat registered or the annual gross sales or receipts exceeded the vat
threshold.
◊ "C" is correct. The taxpayer or seller is engaged in mixed transactions. Refer also
to the discussions in No. 2
◊ "D" is wrong. To be subjected to excise tax, the product manufactured or
imported shall pertain to sin products and non-essential goods.

4. Which of the following is not a business tax?

a. Excise Tax
b. Value-added tax
c. Other percentage tax
d. Income tax

 Answer: D

5. Which is correct?
a. Without a business pursued in the Philippines (except importation) by the taxpayer,
value added tax cannot be imposed.
 b. "In the course of trade or business" means the regular conduct or pursuit of a
commercial or an economic activity, including transactions incidental thereto, by
any person regardless of whether or not the person engaged therein is a non-
stock, non-profit private organization or government entity.
c. Services rendered in the Philippines by a non-resident foreign person shall be
considered as being rendered in the course of trade or business even if the
performance is not regular.
d. All of the above

 Answer: D
◊ Generally, isolated transaction is not subject to vat. It is assumed to have been
made not in the ordinary course of trade or business, However, isolated services
rendered by a nonresident foreign person is considered a transaction in the ordinary
course of trade or business, therefore subject to vat.

6. Statement 1: For a person to be subjected to any business tax, it is necessary

that he is regularly engaged in the conduct or pursuit of an economic activity.
Statement 2: A non-resident foreign person performing isolated transaction in
the Philippines shall be liable to VAT.
A B C D
Statement 1 True True False True
Statement 2 True False True False

 Answer: A
◊ Refer to the discussions in No. 5

7. Which statement is wrong? Transactions considered "in the course of trade or business",
and therefore subject to the business taxes include:
a. Regular conduct or pursuit of a commercial or an economic activity by a stock private
organization.
b. Regular conduct or pursuit of a commercial or an economic activity by a non-stock,
non-profit private organization.
c. Isolated services in the Philippines by non-resident foreign persons.
d. Isolated sale of goods or services.

 Answer: D
8. Statement 1: Non-stock and nonprofit private organizations which sell exclusively to
their members in the regular conduct or pursuit of commercial or economic activity are
exempt from value-added tax.
Statement 2: Government entities engaged in commercial or economic activity are
generally exempt from value-added tax
a. Both statements are correct.
b. Both statements are incorrect.
c. Only the first statement is correct.
d. Only the second state statement is correct.

 Answer: B
◊ As long as the transaction is not exempt under the law, vat shall be imposed
regardless of the classification of the seller or the buyer (government, non-
stock non-profit organization, private entities, etc.). Refer also to letter "c" of
the next question.

9. The term "in the course of trade or business" does not include
a. Regular conduct or pursuit of a commercial or economic activity.
b. Incidental business transactions.
c. Transactions by any person, regardless of whether or not 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)
or government entity.
d. None of the above

 Answer: D
◊ Under the vat law, incidental transactions (i.e., sale of asset used in business) is
subject to value added tax.

10. Who is the one statutorily liable for the payment of VAT?

a. consumer c. seller

b. buyer d. buyer or seller

 Answer: C

11. An individual who is not an employee nor a license professional, deriving gross sales or
receipts not exceeding P100,000 from activities principally for subsistence or livelihood
a. Minimum Wage Earner c. Ambulant Vendor
 b. Marginal Income Earner d. A privileged store

 Answer: B
◊ Marginal Income Earners are not subject to business taxes.

12. Pedro is a manufacturer of fermented liquors. In making sales, all taxes on the products
and transactions are passed on to the buyers. For purposes of the value added tax,
which of the three (3) taxes listed below that he pays forms part of the gross selling
price?
a. Excise tax
b. Value added tax
c. Percentage tax
d. None of the choices

 Answer: A
◊ Manufacture or importation of sin products and non-essential goods is subject
to excise tax. However, sale of such products will be subject to vat or
percentage tax. Excise tax is in addition to vat or percentage tax.

13. Which is correct?

a. An excise tax which imposes a tax based on weight or volume capacity or any other
physical unit of measurement is called specific tax.
b. An excise tax which imposes a tax based on selling price or other specified value of
the article is called ad valorem tax.
c. A percentage tax which is imposed whether the transaction resulted in a gain or
loss is called transaction tax.
d. All of the above.

 Answer: D

14. Which of the following taxes describes the value added tax?
a. Income tax
b. Sales tax
c. Indirect tax
d. Personal tax

 Answer: C

Vat Registration
15. Which is incorrect?
a. A taxpayer whose annual gross receipts or sales exceed P3,000,000 shall pay vat
even if not vat registered.
b. A taxpayer whose annual receipts or sales do not exceed P3,000,000 but who is vat
registered shall pay vat.
c. A non-resident lessor or foreign licensor who is not vat-registered is subject to vat.
d. An individual taxpayer whose gross sales or receipts do not exceed P100,000 is
exempt from VAT provided he pays the 3% other percentage tax.

 Answer: D; (Refer to No. 11)

16. Registration of taxpayers under the vat system may be classified as, except
a. Mandatory vat registration
b. Optional vat registration
c. Mixed vat registration
d. None of the above

 Answer: C
MANDATORY VAT REGISTRATION
a) Gross sales or receipts > P3,000,000 (previously P1,919,500) and not
exempted under the law from value added tax
b) Gross receipts preceding year > P10,000,000 and the taxpayer is a radio and/or
television broadcasting company.

OPTIONAL VAT REGISTRATION

c) Gross sales or receipts 5P3,000,000 (previously P1,919,500) and not
exempted under the law from value added tax
d) Gross receipts preceding year 5P10,000,000 and the taxpayer is a radio
and/or television broadcasting company.

17. Which of the following has an option to register under the VAT system in 2018?
I. Common carriers by air transporting passengers, the gross receipts of which do
not exceed P3,000,000.
II. Radio and/or television broadcasting companies whose annual gross receipts of
the preceding year exceeds P10,000,000.
III. Operator of cockpit, the receipts of which do not exceed P3,000,000 during the
year,
IV. Seller of vat-subject services the gross receipts of which do not exceed
P3,000,000.
a. IV only
b. I and III only
 c. I and IV only
d. All of the above
 Answer: C
◊ II and Ill cannot avail the optional vat registration because these transactions,
under the law, are subject to Percentage Taxes instead of value added tax.

18. The following data were provided by spouses' Pedro and Ana. In 2018, Pedro's gross
receipts from his practice of profession was P2,850,000 while her wife, Ana, has gross
sales of P2,200,000 derived from her trading business. Assuming they are not vat
registered, will they be subject to vat?
a. Yes, because their aggregate gross receipts/sales exceeded the vat threshold of
P3,000,000.
b. No, because for purposes of vat threshold, husband and wife shall be considered as
separate taxpayers.
c. Yes, because their gross receipts/sales are not specifically exempt from vat as
provided in the Tax Code.
d. None of the above

 Answer: B
◊ VAT Threshold prior to 2018, P1,919,500; P3,000,000 beginning January 1, 2018.
As a rule, husband and wife are treated as separate taxpayers.

19. In 2016, the following gross receipts/sales were recorded by Juan:

Gross receipts from practice of profession P1,250,000
Gross sales from trading activities 600,000
Gross sales — sale of agricultural food products 475,000

Assuming Juan is non-vat registered, will he be subject to vat?

No, because his gross receipts/sales in each business do not exceed the vat
threshold of P1,919,500.
a. Yes, because if a professional, aside from the practice of his profession, also derives
revenue from other lines of business which are otherwise subject to VAT, the same
shall be combined for purposes of determining whether the threshold has been
exceeded.
b. No, because he is not vat registered
c. None of the above

 Answer: A
◊ VAT Threshold prior to 2018 is P1,919,500. In determining whether the
taxpayer exceeded the vat threshold, exclude transactions expressly provided
 by law as vat exempt. Therefore, ignore the gross sales from sale of agricultural
food product in the problem.
◊ P1,250,000 + 600,000 7 P1,850,000. It is lower than the vat threshold prior to
TRAIN Law of P1,919,500.

20. JJ is a certified public accountant. He applied for work and was Ned by a Firm which is
engage in Business Process Outsourcing business handling accounting work for US
entities, He was paid for his services. How should JJ treat such payment for business tax
purpose?
a. Subject to 12% VAT
b. Subject to Percentage tax
c. Exempt from VA r and Percentage Tax
d. It is a zero-rated transaction

 Answer: C
◊ The payment he is receiving is classified as salaries or compensation income
due to the presence of employer-employee relationship. JJ is an employee of
the Firm, hence, not subject to business tax.

Vat Exempt Sales and Transactions

21. Where even if there is a business, there is no vat imposable when
I. A business is pursued by an individual where the aggregate gross sales and or
receipts do not exceed P100,000 during any twelve month period.
II. Sale of real properties for low cost housing
III. Sale of real properties for socialized housing
IV. Sale of residential lot at P1,500,000 per unit and below beginning January
1, 2018
V. Sale of house and lot and other residential dwellings valued at P2,500,000 and
below beginning January 1, 2018
a. I, II and III only c. III, IV and V only
b. II and III only d. All of the above

 Answer: D

22. Where even if there is no business, vat is imposable on:

I. Importations of goods for personal use
II. Services rendered in the Philippines by nonresident foreign persons, even
isolated, shall be considered as being rendered in the course of trade or
business.
a. I only c. I and II
b. II only d. None of the above
  Answer: C

23. One of the following is not an activity subject to VAT:

a. Sale in retail of goods by a dealer
b. Sale of bamboo poles by a dealer
c. Sublease of real property in the course of business
d. Importation of ordinary feeds for poultry chicken

 Answer: D

24. The following are exempt from vat, except

a. Sale in retail of goods by a dealer
b. Sale of Bamboo poles by a dealer
c. Sublease of real property in the course of business
d. Importation of ordinary feeds for poultry chicken

 Answer: D

25. The following are exempt from vat, except

a. Sale of 1 sack of rice
b. Sale of lechon manok
c. Sale of pet food
d. Sale of newspaper

 Answer: C

26. The following are exempt from vat, except

a. Sale of marinated fish
b. Sale of gold to the Bangko Sentral ng Pilipinas
c. Association dues, membership fees, and other assessments and charges collected
by homeowners associations and condominium corporations.
d. None of the above

 Answer: A
◊ Revenue Ruling 348-11 dated Sept 28, 2011 provides that sale of marinated fish
is not exempt from vat. Laws granting exemption from tax are construed
strictly against the taxpayer. Exemption from payment of tax must be clearly
stated in the language of the law.
◊ "B" is exempt from vat beginning Jan.1, 2018 (previously subject to 0% vat) is
exempt from vat beginning Jan. 1, 2018
27. Which of the following shall be exempt from vat?
a. Services of banks.
b. Services of money changers and pawnshops.
c. Services of credit cooperatives
d. All of the above

 Answer: D
◊ "A" and "B" are subject to gross receipts tax, a percentage tax under Sections
121 and 122 of the Tax Code.
◊ "C" is exempt from vat and OPT.

28. Which of the following is exempt from VAT?

a. Common carriers transporting passengers by air within the Philippines
b. Common carriers transporting passengers by sea within the Philippines
c. Common carriers transporting passengers by land within the Philippines
d. Common carriers transporting cargoes by air within the. Philippines

 Answer: C

29. Which of the following carrier shall be subject to value-added tax?

a. Sea carrier classified as Resident Foreign Corporation, annual gross receipts is
P2,000,000.
b. Air carrier classified as Resident Foreign Corporation, annual gross receipts is
P2,000,000.
c. Sea carrier classified as Domestic Corporation, voyage is from Philippines to Japan,
annual gross receipts is -P2,000,000.
d. None of the choices,

 Answer: C
◊ "C" is subject to 0% vat
◊ "A" and 13" are subject to Section 118 of the Tax Code, also known as common
carriers tax on international carriers with respect to their transport of goods
cargoes or mails originating in the Philippines. As to their passenger operations,
they are exempt both from vat and percentage tax.

30. A dealer in securities sold unlisted shares of stocks of a domestic, corporation in 2018
and derived a gain of P100,000 therefrom. The sale is:
a. Subject to capital gains tax
b. Subject to percentage tax of % of 1% of gross selling price.
c. Subject to 12% vat
d. Exempt from business tax.
  Answer: C

31. Determine the business taxes of the following for 2018 taxable year:
I. Lease of residential units with a monthly rental per unit not exceeding P15,000
(regardless of the amount of aggregate annual gross rentals).
II. Lease of residential units with a monthly rental per unit exceeding P15,000 but the
aggregate of such rentals during the year do not exceed P3,000,000.
III. Lease of commercial units regardless of monthly rental per unit.
A B C D
I None None None VAT
II OPT OPT OPT VAT
III VAT OPT VAT VAT

 Answer: C
GUIDE
◊ Lease of commercial units = generally subject to vat, regardless of the amount
of monthly rental per unit.
◊ Lease of residential units.
 Monthly rental per unit 5 815,000 = exempt from business tax
 Monthly rental per unit > exempt P15,000 but the annual gross receipts
from this units < from vat but subject to 3% percentage tax under Section
116 of the Tax Code, as amended.
 Monthly rental per unit >P15,000 and annual gross receipts from this
units > P3,000,000 = subject to 12% vat.
 Lessor engaged in renting out residential units with monthly rental per
unit of < P15,000 as well as residential units with monthly rental per unit
of > P15,000 = treat both activities separately. The residential units with
monthly rental per unit of > 15,000 is either subject to Section 116 or vat.

32. Determine the correct statement from the following:

In cases where a lessor has several residential units for lease, some are leased out for
monthly rental per unit of not exceeding P15,000 while others are leased out for more
than P15,000 per unit, his tax liability will be:
a. The gross receipts from rentals not exceeding P15,000 per month per unit shall be
exempt from vat regardless of the aggregate annual gross receipts.
b. The gross receipts from rentals exceeding P15,000 per month per unit shall be
subject to vat if the annual gross receipts from said units including the gross
receipts from units leased out for not more than P15,000 exceed P3,000,000.
c. Both statements are correct.
d. Both statements are incorrect
  Answer: A
◊ Refer to the discussions in the preceding number (No. 30) o be subject to vat
under the TRAIN Law, the lease of residential units shall have
I. Monthly rental per unit exceeding P15,000
II. Gross annual rental exceeding P3,000,000
a. Both I and II are necessary
b. Both I and II are not necessary
c. Only I is necessary
d. Only II is necessary

 Answer: A

33. To be subject to vat under the TRAIN Law, the lease of commercial units shall have
I. Monthly rental per unit exceeding P12,800
II. Gross annual rental exceeding P3,000,000
a. Both I and II are necessary
b. Both I and II are not necessary
c. Only I is necessary
d. Only II is necessary

 Answer: D

34. Sale of the following real properties prior to 2018 are exempt from vat, except.
a. Residential lot, held for sale in the ordinary course of business, sold for P1,600,000.
b. Residential house and lot, held for sale in the ordinary course of trade, sold for
P2,700,000.
c. Sale of property used in the ordinary course of business.
d. Sale of real property not primarily held for sale in the ordinary course of business.

 Answer: C
◊ Letter "a" is not subject to vat because the threshold for residential lot prior to
the effectivity of TRAIN Law was P1,919,500
◊ The threshold for residential house and lot and other residential dwellings prior
to 2018 was P3,199,200. Consequently, letter la' is exempt from vat prior to
2018.
◊ If the property sold is not for sale in the ordinary course of trade or business
nor for use in business, the asset is classified as capital asset. Consequently,
capital asset not subject to vat but may be subject to capital gains tax.

35. Sale of the following real properties beginning January 1, 2018 are subject to vat, except
 a. Residential lot, held for sale in the ordinary course of business, sold for P1,600,000.
b. Residential house and lot, held for sale in the ordinary course of trade, sold for
P2,700,000.
c. Sale of real property used in the ordinary course of business.
d. Sale of real property not primarily held for sale in the ordinary course of business.

 Answer: C
◊ Under the TRAIN Law, the threshold for sale of residential lot was reduced from
P1,919,500 to P1,500,000 while that of residential house and lot and other
residential dwellings was reduced from P3,199,200 to P2,500.000. Applying
these revised thresholds, transactions "a' "b" are now subject to 12% vat
beginning January 1, 2018.
◊ "C" is subject to vat

36. In 2017, Ana bought one unit of residential house and lot for P2.850,000 from Lorna: a
vat registered real estate developer, in one of the latter's subdivision projects located in
Bulacan. A month after the purchase, she learned that the owner of the adjacent
residential house and lot, Fe, is about to relocate in Batangas. She bought the adjacent
unit for 81,500,000. Based on the information provided, which of the following
statements is correct?

a. The purchase of residential house and lot from Lorna and Fe are subject to vat.
Since the units are adjacent and the aggregate purchase price of the two (2) units
(P2,850,000 and P.1,500,000) is more than the vat threshold of 83,199,200, the
said units shall be subject to 12% vat.
b. Only the sale of residential house and lot by Lorna is subject to vat, regardless of
selling price, because it was made in the course of trade or business and the seller
is a vat registered.
c. Both acquisitions are exempt from vat, however, the sale of residential house and
lot by Fe to Ana shall be subject to 6% capital gains tax.
d. None of the above

 Answer: C
◊ RR 13-2012 provides, if two or more adjacent residential lots, house and lots.
and other residential dwellings are sold or disposed in favor of one buyer from
the sale seller, for the purpose of utilizing the lots, house and lots, or other
residential dwellings as one residential area "within a 12-month .period", the
sale shall be exempt from vat only if the aggregate value do not exceed
P1,919,500 for residential lots and P3,199,200 for residential lots and other
residential dwellings. Adjacent residential lots, house and lots, and other
residential dwellings, although covered by separate titles and/or separate tax
 declarations, when sold to one and the same buyer, whether covered by one
separate Deed of Conveyance, shall be presumed as sale of one residential lot,
house and lot and other residential dwellings (RR 16-2011; RR 13-2012). This
however, does not include the sale of parking lot which may or may not be
included in the sale of condominium units. The sale of parking lots in a
condominium is a separate and distinct transaction and is not covered by the
rules on threshold amount not being a residential lot, house & lot or a
residential dwelling, thus, should be subject to VAT regardless of amount of
selling price."

37. Statement 1: The sale of two (2) adjacent residential lots in the course of trade or
business to one buyer within the same taxable year for 1.1,000,000 each is subject to
vat.
Statement 2: The sale of parking lot as an adjunct of a condominium unit in the course
of trade or business at a gross selling price of P500,000 is exempt from vat as long as its
price, together with the unit, does not exceed P3,199,200.

A B C D
Statement 1 True True False False
Statement 2 True False True False

 Answer: B
◊ The sale of parking lot as an adjunct of a condominium unit is subject to vat
regardless of selling price because it is not classified as house and lot nor other
residential dwellings.

38. Prior to 2018, a real estate dealer sold two (2) adjacent residential lots in the city for a
price of P.800,000 each, or a total price of P800,000, to a vendee who intends to erect
his residential house thereon.
The sale shall be classified as a
a. 12% VAT transactions
b. 0% VAT transactions
c. VAT exempt transactions
d. None of the foregoing

 Answer: A
◊ When two adjacent lots were sold by the same seller to the same vendee
within twelve a month period, treat the same as one transaction. Consequently,
the selling price in the problem, when combined, will exceed the vat threshold
(prior to 2018) of P1,919,500.
39. Assume the taxable year in the p receding number is 2018, the sale shall be classified as
a. 12% VAT transactions
b. 0% VAT transactions
c. VAT exempt transactions
d. None of the foregoing

 Answer: A
◊ The consolidated selling price (treated as one transaction), will exceed the vat
revised vat threshold for 2018 of P1,500 ,000, hence 2017, subject to vat.

40. Clifford purchase a condominium un it from his friend in for P3,000,000 and a parking
lot from the subdivision developer for P800,000. The correct amount of vat is
a. P456,000 c. P96,000
b. P360,000 d. P0

 Answer: C
◊ The sale of the condominium by Cliffor’s friend is subject to6% capital gains tax
because the unit sold to him is classified as capital asset located in the
Philippines.
◊ The sale of parking lot by the subdivision developer (therefore ordinary asset of the
developer) is subject to vat. Such sale shall not be subject to the P1,500,000
(previously P1,919,500) or P2,500,000 (previously P3,199,200) threshold because
sale of parking lot, under revenue regulations, is not treated as a sale of
residential lot nor house and lot and other residential dwellings. This rule is
applicable before or after the effectivity of the TRAIN Law.

41. Prior to 2018, a subdivision developer sold five (5) residential house and lots, each to
different vendees, for P3,000,000 per lot, or a total sales of 4215,000,000 for the
taxable period. These sales shall be classified as:
a. 12% VAT transactions
b. 0% VAT transactions
c. VAT exempt transactions
d. None of the foregoing

 Answer: C
◊ Since there are different vendees, treat each transaction separately. If not
combined or not treated as one transaction, the selling price per unit is lower
than the required threshold of P3,199,200 (prior to 2018), therefore, not
subject to value added tax.
42. Assume the sale in the preceding number was made in 2018, the sale shall be classified
as:
a. 12% VAT transactions
b. 0% VAT transactions
c. VAT exempt transactions
d. None of the foregoing

 Answer: A
◊ Based on the data provided, even if the sale to the different vendees are not
combined, the selling price per unit still exceeded the revised vat threshold of
P2,500,00 for sale of residential house and lot and other residential dwellings,
hence, subject to vat.
43. Statement 1: Lease of a parking lot attached to a residential unit at P8,000 per month is
exempt from vat.
Statement 2: Lease of 8 residential units at 818,500 per month is subject to vat.
A. B. C. D.
Statement 1 True True False False
Statement 2 True False True False

 Answer: D
◊ Statement 1 is wrong. It is subject to vat. The rules on lease of residential units
will not apply to lease of parking space or parking lot.
◊ Statement 2 is wrong. The total annual gross receipts in the problem is only
P1,776,000 (8 x P18,500 x 12 months). It will not exceed the vat threshold, prior
or after the effectivity of the TRAIN Law, hence, subject only to Percentage Tax
under Section 116 of the Tax Code.

44. Statement 1: Sales of drugs and medicines of pharmacy run by the hospital to
outpatients are subject to VAT.
Statement 2: Pharmacy items used in the performance of medical procedures in
hospital units such as in the operating and delivery rooms and by other departments
are considered part of medical services rendered by the hospital, hence, not subject to
vat.
A. B. C. D.
Statement 1 True True False False
Statement 2 True False True False

 Answer: A

45. Kape Ko Cooperative is an agricultural cooperative which processes coffee production of

its members for sale to Nescafe Philippines, a coffee processing company selling instant
 coffee. Kape Ko imported a coffee drier from abroad. After five years of active use, Kape
Ko sold the coffee drier to one of its members, Juan Dela Cruz. Which of the following is
subject to vat?
a. Importation of coffee drier.
b. The sale of coffee drier to one of its members, Juan Dela Cruz
c. Sale of coffee to Nescafe Philippines
d. Sale of coffee by members to Kape Ko Cooperative

 Answer: B

Output Vat
46. Camella realty corporation sold the following real properties during 2017 the taxable
year:
2 units of residential house and lot at P3,000,000 each P6,000,000
4 residential lots at P2,000,000 each 8,000,000
1 commercial lot at P3,000,000 3,00,000

How much is the total transactions subject to VAT?

a. P6,000,000 c. P11,000,000
b. P8,000,000 d. P17,000,000

 Answer: C

47. Using the same data in the preceding number but assuming the taxable year is 2018,
how much is the total transactions subject to vat?
a. P6,000,000 c. P11,000,000
b. P8,000,000 d. P17,000,000

 Answer: D
48. A telephone company, VAT-registered, provides services for domestic and overseas calls.
It is a taxpayer as far as what business tax is concerned?
a. Value-added tax
b. Overseas communications tax;
c. Value-added tax on domestic calls and overseas communications tax on overseas
calls;
d. Franchise tax.

 Answer: C

49. Which of the following is not subject to VAT by a VAT-registered seller?

 a. Remaining inventory upon retirement from business
b. Sale of company's used car to its officers
c. Sale of goods or services to the national government
d. Sale of residential lot amounting to P1,000,000

 Answer: D
◊ "A" is a transaction deemed sale, subject to vat.
◊ "B" is an incidental transaction, subject to vat.
◊ "C" is subject to vat. If the goods or service sold is not exempt under the law,
the vat shall be imposed regardless of the classification of the buyer or seller
(i.e., government, charitable institutions, non-profit educational institutions)

50. Sta. Lucia Realty, a real estate dealer, sold a commercial lot amounting to P800 ,000. This
transaction is
a. vat exempt c. subject to vat
b. zero-rated sale d. subject to OPT

 Answer: C

51. The value added tax due on the sale of taxable goods, property and services by any
person whether or not he has taken the necessary steps to be registered.
a. input tax c. excise tax
b. output tax d. sales tax

 Answer: B

52. Gross selling price includes all of the following except one. Which one?
a. Total amount which the purchaser pays to the seller.
b. Total amount which the purchaser is obligated to pay to the seller.
c. Excise tax.
d. Value-added tax.

 Answer: D

53. Which of the following is not deductible from Gross Selling Price for vat purposes?
a. Discounts determined and granted at the time of sale, which are expressly
indicated in the invoice, the amount thereof forming part of the gross sales duly
recorded in the books of accounts.
b. Discount determined and granted after the agreed sales quota is met by the buyer.
 c. Sales discount indicated in the invoice at the time of sale, the grant of which is not
dependent upon the happening of a future event, deductible within the same
month or quarter given.
d. Sales returns and allowances for which a proper credit or refund was made during
the month or quarter to the buyer for sales previously recorded as taxable sales.

 Answer: B

54. On January 5, 2018, Pinoy Food Corporation, vat-registered, sold on account goods for
P112,000 inclusive of vat. The term was: 2/10, n/30. Payment was made on January
10, 2018. The total amount due is:
a. P110,000 c. P112,000
b. P107,800 d. P109,760

 Answer: A
◊ The buyer paid within the discount period, therefore, the 2% discount shall be
granted. However, since the discount granted is conditional (to be granted
only if paid within 10 days), the basis for the imposition of vat shall be the
selling price before deducting the discount. The total amount to be paid by the
buyer shall be computed as follows:

Solution:
Selling price without discount P100,000
Less: cash discount (2,000)
Add: 12% vat based on P100.000 12,000
Total amount due P110,000

55. Mr. Andres. VAT-registered real estate dealer, transferred a parcel of land held for sale to
his son as gift on account of his graduation. For VAT purposes, the transfer is:
a. Not subject to VAT because it is a gift
b. Subject to VAT because it is a deemed sale transaction
c. Not subject to VAT because it is subject to gift tax
d. Subject to VAT because it is considered an actual sale
◊
 Answer: B

56. One of the following is not a transaction deemed sale:

a. Transfer, use or consumption not in the course of business of goods or properties
originally intended for sale or for use in the course of business.
b. Distribution or transfer to shareholders or investors of goods or properties as share
in the profits of a VAT-registered person or creditors in payment of debt
 c. Retirement from or cessation from business with respect to all goods on hand as of
the date of such retirement or cessation.
d. Consignment of goods if actual sale is made within 60 days following the date such
goods were consigned.

 Answer: D
 Item 'D' is not a transaction deemed sale. It is an actual sale.

57. The following are the data of Davao International for the last quarter of 2018:
Sales up to Dec 15 (invoice value) P380,800
Purchases up to Dec 15 (net) 150,000

Additional information:
On December 16, 2016, the Company retired from its business and the inventory valued
at P190,000 remained unsold. There is a deferred input tax from the third quarter of
P3,500,

How much is the total value-added taxes payable of Davao International?

a. P42,100 c. P22,800
b. P21,500 d. P19,300

 Answer: A

Solution:
OUTPUT VAT
Sales up to Dec. 15 P40,800
TDS transaction 22,800
INPUT VAT
On Purchases (18,000)
Deferred input vat (3,500)
VAT PAYABLE P42,100

58. Genson Distribution Inc., a VAT taxpayer, had the following data in a month:
Cash sales P200,000
Open account sales 500,000
Consignment:
0 to 30 days old (on which there were remittances from consignees of
P200,000) 600,000
31 to 60 days old 700,000
61 days old and above 900,000
 How much is the output tax?
a. P348,000 c. P264,000
b. P216,000 d. P.108,000

 Answer: B
Cash sales P200,000
Open account sales 500,000
Remittance from 0-30 days consignment 200,000
Consignment, 61 days old and above 900,000
Total P1,800,400
x Vat Rate 12%
Output vat P216,000

59. Ana, a vat registered lessor of commercial spaces received P1,337,500 rentals during the
year from various clients, net of the 5% creditable withholding tax on rental income.
How much is the correct output vat?
a. P154,080 c. P150,000
b. P142,500 d. P160,500

 Answer: C

Solution:
Amount received P1,337,500
Divide by (95% net + 12% vat) 1.07
Gross rental income excl. of vat P1,250,000
X 12%
Output vat P150,000

Check.
Rental income exclusive of vat P1,250,000
Add: 12% vat 150,000
Less: 5% withholding: (P1,250,000 x 5%) (62,500)
Amount received P1,337,500

60. Assume that in the preceding number, Ana is a non-vat registered lessor, how much is
her correct business tax?
a. P42,237 c. P38,118
b. P40,125 d. PO

 Answer: A
Solution:
 Amount received P1.337.500
Divide by 95%
Gross rental income P1,407,895
x 3%
OPT under Section 116, P42,237

61. Prior to 2018, sale of raw materials or packing materials to export-oriented enterprise is
considered export sales when export sales of such enterprise
a. Exceed 50% of total annual production
b. Exceed 60% of total annual production
c. Exceed 70% of total annual production
d. Exceed 80% of total annual production

 Answer: C

GUIDE:
a. Sale of raw materials or packaging materials to a local export oriented
enterprise may be subject to 0% vat or 12% vat depending on the ratio
of its exports sales over its total annual production. If the ratio exceeds
70%, the applicable vat rate is 0%, otherwise 12%.
b. Sale of raw materials or packaging materials to a non-resident buyer for
delivery to a resident local export oriented enterprise to be used in
manufacturing, processing, packing or repacking in the Philippines of the
said buyers goods. paid for in acceptable currency, and accounted for in
accordance With the rules and regulations of the BSP, is subject to 0%
vat.
c. Transactions considered export sales under EO 226, otherwise known
as the Omnibus Investment Code of the Philippines, are subject to 0%
rate
NOTE: Transactions "a to c" above will be subjected to 12% vat under
the TRAIN Law but only after the requirements set by law are fully
satisfied (refer to Pages 544-545).

 Foreign Currency Denominated Sale. Means the sale to a non-

resident of goods, except automobile and non-essential goods,
assembled or manufactured in the Philippines for delivery to a
resident in the Philippines, paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of
the BSP, This provision was repealed under TRAIN Law. Therefore,
subject to 12% vat beginning January 1, 2018.
 STATUS QUO ON VAT ZERO-RATING OF SALES TO PEZA ENTITIES
 DOF Memorandum Circular No. 2018-003 declared "status quo" on
vat-zero rating incentive on the sale of goods/services to separate
customs territories. It further provides that Section 8 of the PEZA
Law, which provides that special economic zones are to be operated
and managed as a separate customs territory, was not amended or
repealed by TRAIN Law. Consequently, until a law or revenue
regulation is passed or issued contrary to or incompatible with the
pronouncement by the DOF, the vat zero-rating incentive being
enjoyed by PEZA locators or entities shall remain in full force and
effect.
62. Bobs Corporation is a local export oriented enterprise engage in the business of
manufacturing of sardines. In 2017, it sold to Mr. Bo Huang of China under the term FOB
Shipping Point.

Mr. Huang wants a specialized packaging material for his sardines. He ordered the said
packaging materials from another Philippine Company Norhan Packaging Inc. (NPI). It
was agreed that NPI will deliver the packaging materials to Bobs Corporation so
that the latter can use the same for the sardines to be delivered to Mr. Huang in
China.

What is the tax treatment for vat purposes of the sale of Bobs Corporation to Mr.
Huang?
a. Subject to 12%
b. Subject to 0%
c. Exempt
d. None of the choices

 Answer: B

63. Based on the preceding number, what is the tax treatment of the sale of NPI to Mr.
Huang?
a. Subject to 12%
b. Subject to 0%
c. Exempt
d. None of the choices

 Answer: B

64. Suppose Bobs Corporation bought packaging materials from NPI, what is status of the
sale?
a. Subject to 12%
 b. Subject to 0%
c. Exempt
d. None of the choices

 Answer: D

65. Which of the following service may be subject to VAT?

a. Hospital services
b. TESDA-registered educational services
c. Seminars and Training services
d. Employee's services

 Answer: C

Input Vat
66. Tax credit for input taxes shall be allowed if:
a. Both the seller and the purchaser are VAT-registered
b. Either one of the seller or the purchaser is VAT-registered.
c. Neither one of the seller or the purchaser is VAT- registered as long as VAT invoice
is issued.
d. The seller is VAT-registered regardless of whether the purchaser is VAT-registered
or not.

 Answer: A
◊ If the seller is vat registered but the buyer is non-vat registered, the latter is not
allowed to recognized "input vat" in its books. Instead, the applicable vat is
recognized either as part of the article purchased or as part of its operating
expenses.
◊ If the seller is non-vat registered, the buyer (even if vat registered) cannot
recognize input vat because the seller did not impose such tax on its sale.
67. Any input tax attributable to zero-rated sales by a vat-registered person may at his
option be:
a. Deducted from output tax
b. Refunded
c. Applied for a tax credit certificate (TCC) which may be used in payment of
internal revenue taxes.
d. All of the above

 Answer D
 ◊ If the exporter is non-vat registered, its export sale is exempt from vat. The
input vat attributable to its export sale may only be classified as cost of the
article exported or as part of the exporter's operating expenses.
◊ TCCs may be used to pay any internal revenue taxes (BIR taxes) only. It cannot
be credited against other taxes collected by other taxing authorities such as the
Bureau of Customs and the Local Government Units.

68. Which statement is not correct?

a. The excess input taxes of a taxable month arising from domestic sales may be
carried over to the succeeding month.
b. The excess input taxes of a taxable quarter arising from domestic sates may be
carried over to the succeeding quarter.
c. The excess input taxes of a taxable period arising from domestic sales may be
refunded.
d. The excess input taxes of a payable period arising from exports sales may be
refunded.

 Answer: C

Input Vat on Importations

69. The vat on importation of goods which are subsequently used or sold in the course of
trade or business by a vat registered importer shall be treated as
I. Tax credit
II. Inventoriable cost
III. Expense
a. I only c. III only
b. II only d. none of the above

 Answer: A
◊ Items II and III are applicable only if the importer is non-vat registered.

70. Which of the following statements is incorrect?

a. VAT on importation is paid to the Bureau of Customs before the imported goods
are released from its custody.
b. When a person who enjoys tax-exemption on his importation subsequently sells in
the Philippines such imported articles to non-exempts person, the purchaser-non-
exempt person shall pay the VAT on such importation.
c. Expenses incurred after the goods are released from Customs custody are
disregarded in computing VAT on importation.
 d. Imported goods which are subject to excise tax are no longer subject to value
added tax.

 Answer: D

71. Which of the following importation is subject to value added tax?

a. Importation for personal use of the importer
b. Importation intended for resale
c. Importation of machinery for the importers factory
d. All of the above

 Answer: D

72. Francis, not a vat registered taxpayer, was sent a package of goods by his brother who
was abroad. The package was claimed by Francis. The Bureau of Customs required him
to pay vat on importation. Francis refused to pay the vat on the ground that he was not a
vat registered and therefore not an importer. Was Francis' ground in refusing to pay vat
correct?
a. Yes, because only vat registered importers should be subject to vat.
b. No, because importations, unless exempted, should be subject to vat.
c. Yes, because the goods were for her personal use, and therefore, he was not an
importer.
d. No, because the package of goods sent by his brother had value.

 Answer: B

73. First statement: An importation of goods by a non-profit charitable organization shall not
be subject to the value-added tax.
Second statement: In the case of importation, the importer is not the one liable for the
VAT but the person who shall buy the imported goods.
a. Both statements are correct
b. Only the first statement is correct
c. Both statements are incorrect
d. Only the second statement is correct

 Answer: C

74. Which statement is correct? Vat on importation

a. Should be paid by the tax exempt importer, if he subsequently sells the goods to a
non-tax exempt purchaser.
 b. Should be paid by the non-tax exempt purchaser to whom the tax exempt importer
sells it.
c. Is a liability, either of the tax exempt importer or the non-tax exempt purchaser.
d. Should not be paid if the importer is tax exempt but the imported article was
subsequently sold to a non-exempt purchaser because the transaction was exempt
at the point of importation.

 Answer: B
◊Refer also to letter "b" of No. 70.

75. Which of the following is not a proper inclusion for the computation of VAT on imported
items?
a. Custom duties on importation
b. Excise tax on importation
c. Invoice price of the imported items
d. Facilitation expense

 Answer: D

76. Pacman imported brand new Jaguar, 2018 model from the USA for personal use of
Jinkee. Total landed costs is P15,000,000 exclusive of customs duties of P3,000,000,
excise tax of P2,000,000, and facilitation cost of P1,000,000. VAT payable is:
a. P240,000 c. P1,800,000
b. P360,000 d. P2,400,000

 Answer: D
◊ Unless exempt under the law, all importations, regardless of purpose, is subject
to value added tax.
◊ Facilitation expense shall not be included in computing vat on importation.
◊ Vat on importation = (P15M + P3M + P2M) x 12% = P2,400,000

77. Statement 1: The Vat on importation is always based on the dutiable value of the article
imported, as determined by the Bureau of Internal Revenue, including customs duties
and excise taxes.
Statement 2: The importation by a person exempt from Vat is exempt from the tax
whatever may be the ultimate destination of the article imported.
a. Both statements are correct
b. Both statements are not correct
c. Only the first statement is correct
d. Only the second statement is correct
  Answer: B
◊ In cases where valuation from BOC is not provided, the invoice price shall be
used as basis in computing the vat on importation plus all additional legitimate
charges imposed by the BOC such as customs duties and excise taxes

Use the following data for the next four (4) questions:
World Power Corp. imported an article from Japan. The invoice value of the imported
articles was $7,000 ($1- P50), however, customs officials valued the imported article for
P500,000. The following additional costs were incurred in connection with the
importation:
Insurance P 15,000
Freight from Japan 10,000
Postage 5,000
Wharfage 7,000
Arrastre charges 8,000
Brokerage fee 25,000
Facilitation fee 3,000

The imported article was imposed P50,000 customs duty and P30,000 excise tax.

The Company likewise spent P50,000 for trucking fee from the customs warehouse to its
warehouse in Quezon City. The carrier is a vat-registered entity.

78. The VAT on importation is:

a. P60,000 c. P60,600
b. P78,000 d. P80,000

 Answer: B

Solution:
Value of Imported Article P500000
Insurance 15,000
Freight from Japan 10,000
Postage 5, 000
Wharfage 7, 000
Arrastre charges 8.000
Brokerage fee 25,000
Customs duty 50.000
Excise tax 30.000
Total P650,000
x 12%
 Vat on importation P60,000

◊ Facilitation fee shall be excluded in the computation because it is in the nature

of an illegal payment (bribe).

79. Based on the preceding number, if the imported article was sold for P800,000 (exclusive
of vat), the VAT payable is:
a. P24,000 c. P36,000
b. P12,000 d. P30,000

 Answer: B

Solution:
Output vat P96,000
Input vat on importation (78,000)
Input vat on freight (50,000 x 12%) (6,000)
Vat payable P12,000

80. Assume the BOC; did not provide the valuation for the imported article, the vat on
importation is:
a. P60,000 c. P60,600
b. P42,000 d. P80,000

 Answer: A

Solution:
Purchase Price (Invoice Value); P350,000
P7,000 x P50
Insurance 15,000
Freight from Japan 10,000
Postage 5,000
Wharfage 7,000
Arrastre charges 8,000
Brokerage fee 25,000
Customs duty 50,000
Excise tax 30,000
Total P500,000
x 12%
Vat on importation P60,000
 ◊ Facilitation fee shall be excluded in the computation because it is in the
nature of an illegal payment (bribe).

81. Based on the preceding number, if the imported article was sold for P800,000, VAT
exclusive, the VAT payable is:
a. P24,000 c. P36,000
b. P12,000 d. P30,000

 Answer: D
Solution:
Output vat P96,000
Input vat on importation (60,000)
Input vat on freight (50,000 x 12%) (6,002)
Vat payable P30,000

Use the following data for the next two (2) questions:
Taxpayer is a VAT registered person. Importation were for: (amounts are vat exclusive)
For Sale For Own Use
Invoice cost (exchange rate is $1 : P45) $100,000 $5,000
Expenses based on cost:
Freight and insurance 6% 6%
Other expenses up to the point of removal 4% 4%
from customs house
Transfer expense from customs house to 2% 2%
warehouse in Makati, net of VAT
Selling price of goods imported for sale was P8,000,000.

82. The value added tax payable on importation is:

a. P492,800 c. P623.700
b. P491,300 d. P620,928

 Answer: C
Solution:
For Sale For Own Use
Invoice Value P4,500,000 P225,000
Add: additional expenses up to point of
removal from customs house (10%) 450,000 22,500
Total P4,950,000 P247,000
Vat Rate 12% 12%
Input Vat on importation P594,000 P29,700
 TOTAL Vat on Importation P623,700

83. The value added tax payable on sale is

a. P355,200 c. P366,000
b. P128,640 d. P720,000

 Answer: A
Output Vat P960,000
Less: Vat in importation (For Sale) (594,000)
Input vat on transfer from BOC to warehouse (10,800)
(P4.500,000 x 2% x 12%)
Vat Payable P355,200

◊ The input vat paid to BOC in relation to input vat on importation "for own use" is
non-creditable against the output vat because it is a non-business related
importation. It shall be treated as a personal expense of the importer.
◊ In general, all importation, regardless of purpose, is subject to vat on
importation. It shall be paid to the BOO before the imported article is release.
However, only importations intended for resale in the ordinary course and
importation for business use shall be deductible from Output Vat.

84. Aboitiz Transport, a vat registered taxpayer, is a customs broker and forwarder,
representing importers at the piers and transporting their importations to warehouses
all over the Philippines. On an importation by Unilever, its costs were as follows
(exclusive of taxes):
Invoice cost of importation (exchange rate is $1:P56) $30,000
Expenses on the importation up to Philippine port P20,000
Excise tax 10,000
Customs duty 15,000
Customs brokerage charges paid to Aboitiz 8,000
Forwarding charges and brokerage fee paid to Aboitiz 25,000

The value added tax of Unilever on its importation is

a. P173,300 c. P207,960P
b. 175,800 d. P210,960

 Answer: C
Solution:
Invoice cost of importation (exchange rate is $30,000 x P56) P1,680,000
Expenses on the importation up to Philippine port 20,000
 Excise tax 10,000
Customs duty 15,000
Customs brokerage charges paid to Aboitiz 8,000
Total P1,733,000
Vat rate input 12%
Vat on importation P207,000

◊ Though the amount was paid to Aboitiz, the "brokerage fee" is considered
charges imposed by the BOC. It shall be considered as reimbursement by only
by Aboitiz but it will not form part of Aboitiz fees subject to income tax.

85. The business tax of Aboitiiz Transport is

a. P3,000 value added tax
b. P990 percentage tax
c. P3,000 value added tax or P990 percentage tax, at the option of Aboitiz
d. Exempt from business tax

 Answer: A

Transitional Input Vat

86. A person subject to Vat for the first time can have an input tax out of the inventory of
goods, material and supplies on hand at the time he become liable. This is called:
a. Value added tax deemed paid
b. Transitional input tax
c. Presumptive input tax
d. None of the above

 Answer: B

87. Taxpayers who became VAT registered persons upon exceeding the vat threshold of
P3:000,000 in any 12-month period, or who voluntarily register even if their turnover
does not exceed P3,000,000 shall be entitled to a transitional input tax on the inventory
on hand as of the effectivity of their vat registration on the following, except;
a. Supplies for use in the course of taxpayer's trade or business
b. Goods which have been manufactured by the taxpayer
c. Goods in processed for sale
d. Capital goods being used in the operation of the business

 Answer: D
88. Transitional input tax can be claimed as deduction from output tax. Which of the
following statements is correct as to when it can be allowed as deduction?
a. It can be claimed by a vat registrable person, he inception of
b. It can be claimed by a taxpayer who registered as vat taxpayer from the inception
of business.
c. It can be claimed by a taxpayer who is initially subject to vat and subsequently cancelled
his vat registration.
d. It can be claimed by a taxpayer who is initially paying percentage tax and
subsequently registered as vat taxpayer.

 Answer: D

89. Which of the following shall be included in the beg inning inventory for purposes of
determining the transitional input vat?
a. Goods purchased for resale in the ordinary course of trade or business.
b. Materials purchased for further processing which have not yet undergone
processing
c. Goods which have been manufactured by the taxpayer
d. All of the above

 Answer: D
90. An owner of warehouse, which used to be vat exempt, because its annual receipts never
exceeded P1,919,500, decided to register under the vat system on January 2,
2018. The following data were from the 1st quarter ending March 31, 2018:
Rental from warehousing services, net of vat
Purchases of supplies in February gross of vat
Inventory of supplies, January 1, 2018
Vat on inventory of supplies, January 1, 2018
How much was the vat payable for the quarter ending March 2018?
a. P26,320 c. P14,000
b. P18,320 d. PO

 Answer: B
Output Vat (P336,000 x 12%) P40,320
Input vat.
Purchases of supplies in Eel), (P112,000 x 3/28) (12,000)
Transitional input Vat (10,000)
Vat payable P18,000
◊ The allowable transitional input vat is the higher between the actual input vat
on the beginning inventory and 2% of the beginning inventory. The composition
of the beginning inventory.
 ◊ Actual vat on beginning inventory = P10,000; 2% of P100,000 = P2,000. The
allowable transitional input vat is P10,000.

91. A taxpayer registered under the VAT system on January 1, 2018. His records during the
month show:
Value of inventory as of December 31, 2017
VAT-registered persons P112,000
VAT paid on inventory as of December 31, 2017 12,000
Value of inventory as of December 31, 2017 purchased, from 518,000
non-VAT persons
Sales, net of VAT 281,000
Purchases during the month, net of VAT 70,000
Purchases during the month of vat exempt goods 50,000

VAT payable is:

a. P23,080 c. P12,720
b. P25,320 d. P12,320

 Answer: C
Solution:
Output Vat (P281,000 x 12%) P33,000
Less:
Purchases (P70,000 x 12% (8,400)
T0ransitional input vat (higher)
Actual P12,000
vs.2% x (P112,000 + 518,000) P12,600 (12,000)
Value Added Tax Payable P12,720

◊ The 2%Transitional input vat shall be multiplied from the beginning inventory
regardless of whether it was acquired from vat registered or non-vat registered
suppliers.

92. Carlito, a VAT registered grocery and sugar dealer submitted the following data as of Dec.
31, 2017 to the Revenue District Officer:
Grocery items, total value P350,000
Raw sugar cane, total value 150,000

During the month of January 2018, first month as a VAT-registered taxpayer, he had the
following sales and purchases:
Sales Purchases
Grocery, total invoice value P1,195,040 P708,400
 Raw sugar cane 570,000 320,000

The VAT payable for the first month is:

a. P29,400 c. P45,140
b. P47,400 d. P36,500

 Answer: C
Solution:
Output Vat (P1,195,040 x 3/28) P128,040
Less:
Purchases (P708,400 x 3/28) (75,900)
Transitional input vat (higher)
Actual
vs. 2% x P350,000 P7,000 (7,000)
Value Added Tax Payable P45,140

◊ The 2%Transitional input vat shall be multiplied from the beginning

inventory of “goods subject to vat" regardless of whether it was acquired
from vat registered or non-vat registered suppliers.
◊ Raw sugar cane is a vat exempt, hence, shall be excluded from the
determination of transitional input vat.
◊ Unlike in the preceding problem (No. 91), the beginning inventory of
"grocery items" in this particular case is silent as to how much came from
vat registered and non-vat registered suppliers. Applying the principle that
as to "deductions", it must be strictly construed against the taxpayer and
liberally in favor of the government, it is safe to consider the 2% as the TIV
rather than getting the 12% vat on the entire beginning inventory, which,
some, if not all or majority, may have been purchased from non-vat
registered suppliers.

93. Gallaxy Corporation, a manufacturer, had the following data for the first month of 2018:
(First year as a VAT Taxpayer)
Sales:
Export sale P2,000,000
Domestic sales (net) 1,000,000
Purchases:
Raw materials 300,000
Services 100,000
Machinery (useful life is 2 years) 400,000

On January 1, 2018, the company had inventories and taxes paid thereon as follows:
 Cost Vat Paid
Raw materials P120,000 P2,000
Supplies 40,000 4,000

During the month. additional raw materials were purchased from another enterprise
with a total invoice value of P61,600, not included above.

The VAT payable of Gallaxy is.

a. P72,000 c. P11,000
b. P57,000 d. P66,000

 Answer: C
Solution:

Output Vat (P1,000,000 x 12%) P120,000

Less:
Purchases (P300k + 100k + 400K***) x 12% (96,000)
Additional purchases (P616,600 x 3/28) (6,600)
Transitional input vat (higher)
RAW MATERIALS:
Actual P2,000
vs. 2% x P120,000 2,400 (2,400)
SUPPLIES:
Actual P4,000
vs. 2% x P40,000 800 (4,000)
Value Added Tax Payable P11,000

 The input vat on the purchase of capital goods (machinery) shall not be
amortized over its useful life because the acquisition cost for the month
did not exceed P1,000,000.
 The TIV for the raw materials and supplies shall be computed separately.

Presumptive Input Vat

94. Which statement is wrong?

a. There is a transitional input tax on sales of goods or properties.
b. There is a transitional input tax on sales of services.
c. There is a presumptive input tax on sales of goods or properties.
d. There is a presumptive input tax on sales of services.

 Answer: D
95. All of the following are allowed presumptive input tax, except for one.
a. Processor of sardines, mackerel and milk.
b. Manufacturer of refined sugar and cooking oil.
c. Producers/manufacturers of packed noodles.
d. Supplier of books and other school supplies.

 Answer: D

96. Olive is a producer of cooking oil from coconut and corn. Previously exempt from value
added tax, he became subject to value added tax on January 1, 2017. For January
2017; sales; vat not included, of P700,000, he had the following other data for the
moth:
Inventory, January 1, 2017: Cost
Corn and coconut purchased from farmers P100,000
Packaging materials purchased from vat suppliers 22,400
Supplies purchased from vat suppliers 11,200
Purchases during the month:
Purchases during the month from coconut and 330,000
corn farmers
Purchases during the month from vat suppliers:
Packaging materials P56,000
Supplies 16,800

The transitional input tax is

a. P672 c. P3,600
b. P762 d. P4,080

 Answer: C

Solution:
Output vat (P700,000 x 12%) P84,000
Input vat: P2,400
T1V (P22,400 x 3/28) vs (P22,400 x 2%) 1,200
whichever is higher
T1V (P11,200 x 3/28) vs (P11.200 i 2%) 13,200
whichever is higher
Presumptive (P330,000 x 4%) 7,800 (24,600)
Vat payable P59,400

97. The presumptive input tax is

 a. P13,200
b. P33,000
c. P6,600
d. P39,600

 Answer: A

98. The creditable input taxes are

a. P21,762
b. P24,600
c. P25,080
d. P21,672

 Answer: B

99. The value added tax payable for the month is

a. P62,328
b. P58,920
c. P59,400
d. P62,328

 Answer: C

100. Mantika Corp., a VAT-registered Corp., is a producer of cooking oil from coconut and
corn. It had the following data for the month of January 2018:
Sales, gross a' VAT P784,000
Corn & Cocoi ut, Dec. 31, 2018 50,000
Purchases •.)f Corn & Coconut in 2018 330,000
Corn & Co2onut, Jan. 1, 2018 20,000
Purchases from VAT suppliers, VAT included:
Packaging Materials 56,000
Supplies 16,800

The value-added tax payable for the month:

a. P56,060 c. P60,650
b. P54,900 d. P63,000

 Answer: A
OUTPUT VAT (P784,000 x3/28) P84,000
LESS INPUT VAT
Presumptive P330,000 x 4% (13,200)
 Materials and supplies (7,800)
Total Creditable Input VatP63,000
Input Vat on Capital Goods

101. When is the input tax on purchases of capital assets is amortized over 60 months or
useful lives of the capital assets if shorter than 60 months?
a. If capital assets have been acquired from enterprises registered with and located at
the export processing zones.
b. If the value of the capital asset purchased, excluding vat, exceeds P1,000,000.
c. If the aggregate monthly purchases of capital assets, excluding vat, exceeds
P1,000,000.
d. If the vat taxpayer has secured prior approval for him to amortized input tax on
purchases of capital assets.

 Answer: C

102. Statement 1: The input vat on purchase of capital goods valued at P1,000,000 shall be
spread over 60 months if the life of property is equivalent to 5 years or more.
Statement 2: The input vat on purchase of capital goods valued at P1,000,000 shall be
spread over the life of property if the life of property is less than 5 years.
a. Both statements are correct
b. Only first statement is correct
c. Both statements are incorrect
d. Only first statement incorrect

 Answer: C
◊ The P1,000,000 threshold is not applied on per capital goods" purchased button
the "aggregate purchases" of capital goods for the month,
◊ The aggregate purchase price for the month must exceed the P1,000000
threshold.

103. A taxpayer has excess credit as a result of input taxes paid on purchases of capital
goods. He may:
a. Have his excess tax credit refunded to a VAT registered person.
b. Make his application for refund in the subsequent period following the period
during which the purchases were made.
c. Carry-over and apply his excess tax credit against output taxes in the subsequent
period or periods.
d. Use it in payment of any internal revenue tax of a VAT registered person.

 Answer: C
104. Pedro, vat-registered, made the following purchases during the month of January, 2018:
Goods for sale, inclusive of VAT P246,400
Supplies, exclusive of VAT 20, 000
Packaging materials, total invoice amount 56,000
Home appliances for residence, gross of VAT 17,920
Office machines (5 pcs.), 8 years useful life, net of VAT 2,000,000

Creditable Input taxes are:

a. P38,800 c. P37,440
b. P34,800 d. P35,520

 Answer: A
Input vat on goods for sale (P246,400 x 3/28) P26,400
Supplies (P20,000 x 12%) 2,400
Packaging materials (P56,000 x 3/28) 6,000
Home appliances; (non-creditable; personal use)
Office machines (P2M x 12% / 60 months 4,000
Total Creditable Input Vat P38,800

105. A VAT registered taxpayer made the following acquisition of capital goods from VAT
registered suppliers (net of vat) during 2017:
Purchase Date Acquisition Cost Estimated Useful Life (yrs)
Jan. 1*** P1,000,000 10
15 500,000 2
Mar. 2 200,000 6
20 300,000 2
Oct. 6 600,000 4
30 800,000 6
Dec. 25 3,000,000 1

106. How much is the creditable input vat for the month of January?
a. P2,000 c. P4,500
b. P2,500 d. P6,000

 Answer: C

◊ The aggregate acquisition cost for the month of January exceeds P1M, hence,
amortize the Input vat as follows:
Jan. 1 (P1,000,000 x 12%/60 mos.) P2,000
Jan. 15 (P500,000 x 12%)/24 mos. 2,500
 Total allocated input vat for January P4,500

107. How much is the creditable input vat for the month of February?
a. P2,000 c. P4,500
b. P2,500 d. P6,000

 Answer: C
◊ Same solution with the preceding number

108. How much is the creditable input vat for the month of March?
a. P4,000 c. P64.000
b. P4,500 d. P64,500

 Answer: D
◊ The aggregate acquisition cost for the month of March is not more than
P1,000,000. Accordingly, the related input vat should not be spread or
allocated during the estimated useful life of the assets. The entire input vat for
these assets should be claimed as tax credit during the month of March.

Solution:
Jan. 1 (P1,000,000 x 12%/60 mos.) P2,000
Jan. 15 (P500,000 x 12%)/24 mos. 2,500
For March acq. = P500,000 x 12% 60,000
Total allocated input vat for January P64,500

109.How much is the creditable input vat for the month of April?
a. P2,000 c. P4,500
b. P2,500 d. P6,000

 Answer: C
From January Acquisition:
Jan. 1 (P1,000000 x 12%/60 mos.) P2,000
Jan. 15 (P500,000 x 12%)/24 mos. 2,000
March Acquisition ----
TOTAL input tax credit for April P4,500

110. How much is the creditable input vat for the month of October?
a. P2,500 c. P7,600
b. P4,500 d. P8,000

 Answer: C
 Solution:
From January Acquisition..
Jan. 1 (P1,000,000 x 12%/60 mos.) P2,000
Jan. 15 (P500,000 x 12%)/24 mos. 2,500
March Acquisition ----
From October Acquisition:
Oct. 6 (P600,000 x 12%/48 mos.) P1,500
Oct. 30 (P800,000 x 12%)/60 mos. 1,600
TOTAL input tax credit for October P7,600

111. How much is the creditable input vat for the month of November?
a. P2,500 c. P7,600
b. P4,500 d. P8,000

 Answer: C
◊ Same Computation with the preceding number
112. How much is the creditable input vat for the month of December?
a. P63,600 c. P463,600
b. P268,000 d. P480,000

 Answer: C
From January Acquisition:
**Unclaimed Input vat for January 1 acquisition: P98000 [1M x
12% - (2,000 x 11 months)]
Jan. 15 (P500,000 x 12%)/24 mos. 2,500
March Acquisition -----
From October Acquisition:
Oct. 6 (P600,000 x 12%/48 mos.) P1,500
Oct. 30 (P800,000 x 12%)/60 mos. 1,600
December Acquisition (P3M x 12%) (Not a capital asset) 360,000
TOTAL input tax credit for December P463,600

**Unclaimed Input vat for January 1

If the capital good is sold or disposed within the five (5) year period or
prior to exhaustion of input vat thereon the entire unamortized input vat
thereon can be claimed as input tax credit doting the month or quarter when
the sale/disposal is made.

Use the following data for the nex t five (5) questions:
 Mother's Best Corporation is a manufacturer of cooking oil made of corn since 2010.
However, for 2018 taxable year, it started its operations as vat registered (from being VAT
exempt). The following were the transactions during the first quarter taken from its
books and records:
July Aug. Sept
SALES P780,000 P640,000 P720,000
PURCHASES:
Corn used as raw materials 125,000 160,000 210,000
Supplies and other materials 150,000 175,000 170,000
Two (2) heavy equipment
(U.L.-8 yrs.) 800,000
Four (.4),light equipment
(U.L.-4 yrs.) 450,000

BEGINNING INVENTORY:
 Supplies/other materials-from vat suppliers 10,000
 Supplies/other materials-from non-vat suppliers 60,000
 Corn 25,000

Determine the following:

113. Transitional input vat is

a. PO c. P1.200
b. P200 d. P1,400

 Answer: "D"

114. Vat payable for the month of July is

a. (P80,800) c. P66,475
b. P64,575 d. P66,675

 Answer: "C"

115. Vat payable for the month of August is

a. P48,000 c. P45,900
b. P47,800 d. (P96,750)

 Answer: "B"

116. Vat payable for the month of September is

a. P53,750 c. P51,850
 b. P53,950 d. (P88,075)

 Answer: "A"
Solution:
July August September
(cumulative)
Output Vat P93,600 P76,800 P256,800
IV [Higher bet. actual of P1,200 vs. (2%xP70,000)] (1,400) - (1,400)
** 4% Presumptive input vat (5,000) (6,400) (19800)
I.V on supplies and other materials (18,000) (21,000) (59,400)
I.V. on heavy equipment (1,600) (1,600) (4,800)
I.V. on light equipment (1,125) (1,125) (3,375)
Vat liability P66,475 P47,800 P168,025
Less: Vat paid in July and August - - (114,275)
Vat Payable -September P66,475 P47,800 P53,750
◊ **Beginning inventory of coin shall not he included in the computation of TIV.

117. How much is the correct vat payable (excess input vat) for the month of September
assuming the company disposed one of the heavy equipment during the month?
a. P8,150 c. P13,925
b. P7,750 d. P10,725

 Answer: "A"
Any unclaimed input vat on capital goods shall be deducted from the vat
liability at the time of disposal or retirement.

Solution:
July August September
(cumulative)
Output Vat P93,600 P76,800 P256,800
TIV [Higher bet. actual of P1,200 vs. (2%xP70,000)] (1,400) - (1,400)
** 4% Presumptive input vat (5,000) (6,400) (19800)
I.V on supplies and other materials (18,000) (21,000) (59,400)
I.V. on heavy equipment (1,600) (1,600) *(4,800)
I.V. on heavy equipment (retired) **(46,400)
I.V. on light equipment (1,125) (1,125) (3,375)
Vat liability P66,475 P47,800 P168,025
Less: Vat paid in July and August - - (114,275)
Vat Payable -September P66,475 P47,800 P8,150

*P1,600 + 1,600 +800 on the undisposed heavy equipment

 **Unclaimed input vat on one heavy equipment
= P48,000= P400,000 cost x 12% - input vat claimed in July and August
= P48,000-(800 x 2 months) = 46,400
To Check:
I.V. for the two heavy equipment for the 1st Qtr
Undisposed = (P400,000 x 12%)/60 x 3 months = P2,400
Disposed = P400,000 x 12% = P48,000
TOTAL for the two equipment = P50,400

Standard Input Vat (SIV)

118. What institution is required to deduct and withhold a final VAT of 5% on the purchase of
goods or services subject to VAT?
a. National government or any political subdivision thereof
b. Government-owned or controlled corporations
c. Both (a) and (b)
d. Neither (a) nor (b)

 Answer: C

119. Which of the following statements is correct regarding standard input tax?
I. Input tax that can be directly attributable to VAT taxable sales of goods and
services to the Government shall be credited against output taxes arising from
sales to non-Government entities.
II. The government or any of its political subdivisions, instrumentalities or
agencies as well as purchasers in the course of trade or business shall deduct
and withhold a final VAT due at the rate of five percent (5%) of the gross
payment.
a. I only c. Both I and II
b. II only d. Neither I nor II

 Answer: C
◊ I" is wrong. Only SIV is allowed to be credited from the output vat on
sale attributable to the government.
◊"II" is wrong. The 5% final vat is applicable only if the buyer is the
government including its political subdivisions and government agencies
and/or instrumentalities.

120. If actual input VAT is less than the standard input tax (7% of gross payment):
a. The excess may form part of the sellers' expense or cost.
b. The difference must be closed to expense or cost.
 c. The excess shall be claimed as input tax credit from output tax on other
sales/receipts.
d. None of the choices.

 Answer: D

121. Government units making payments to VAT registered business is required to withhold
the estimated tax corresponding to its payment. The VAT withholding tax on payment to
VAT registered suppliers is
a. 3°/o of gross payment
b. 5% of gross payment
c. 8.5% of gross payment
d. 10% of gross payment

122.The withholding agent of creditable value added tax is required to remit the amount of
value added tax withheld within
a. 25 days following the end of month the withholding was made
b. 20 days following the end of month the withholding was made
c. 15 days following the end of month the withholding was made
d. 10 days following the end of month the withholding was made

 Answer: D

123. Ana sold office supplies to the City of Davao on April 1, 2018. The City of Davao shall
remit the 5% final vat to the Bureau of Customs on or before:
a. April 11, 2018
b. April 20, 2018
c. April 30, 2018
d. May 10, 2018

 Answer: D

124. Lorna sold office supplies to the City of Davao on April 28, 2018. The City of Davao shall
remit the 5% final vat to the Bureau of Customs on or before:
a. April 11, 2018
b. April 20, 2018
c. April 30, 2018
d. May 10, 2018

 Answer: D
125.A VAT-registered supplier sold goods amounting to P500,000 to a government controlled
corporation during a particular quarter. Which of the following statements is incorrect in
relation to the sale in relation to the sale of goods?
a. The sale is subject to final withholding VAT.
b. The government-controlled corporation will withhold P25,000 withholding VAT.
c. The government-controlled corporation shall remit the withholding of VAT to the
BIR within 10 days following the end of the month the withholding was made.
d. The VAT-registered supplier may refuse the withholding of VAT as long as it is willing
to pay the full 12% VAT.

 Answer: D
Use the following data for the next five (5) questions.
A VAT-registered trader has the following transactions:
Sales of good to private entities, net of VAT P2,500,000
Purchases of goods sold to private entities, gross of 12% VAT 896,000
Sales to a. government owned corporation (GOCC), net of VAT 1,000,000
Purchases of goods sold to GOCC, net of 12% VAT 700,000

126. How much is the output tax?

a. P300,000 c. P420,000
b. P120,000 d. nil

 Answer: C
◊ Output Vat = Sales to private entities and the government Output vat = (P2.5M
+ P1 M) x 12% = P420,000

127. How much is the standard input tax?

a. P20,000
b. P70,000
c. P50,000
d. nil

 Answer: B
◊ Standard Input Vat (Sly) = IM x 7% = 70,000

128.How much is the creditable input vat (CIV)?

a. P166,000 c. P70,000
b. P96,000 d. P180,000

 Answer: A
◊ CIV. = From purchases for sale to private entities + SIV
 ◊ CIV = P96,000 + 70,000 = P166,000

129. How much is the input tax closed to income or (expense)?

a. P14,000 c. (P14,000)
b. P34,000 d. (P34,000)

 Answer: C
◊ SIV 7 P70,000
◊ Actual Input vat on sale to the government = P700,000 x 12% = P84,000
◊ Expense = Actual over SIV = P84,000 — P70,000 = P14,000
◊ If Actual input vat is higher than S IV = close to expense
◊ If SIV is higher than Actual input vat = close to income

130. How much is the VAT payable to the BIR?

a. P404,000 c. P204,000
b. P390,000 d. nil

 Answer: C
OUTPUT VAT P420,000
LESS INPUT VAT
SIV (70,000)
On purchase of goods (96,000)
5% withholding from the government (50,000)
Vat Payable (50,000)

OR

OUTPUT VAT (from private entities only) P300,000

LESS INPUT VAT
On purchase of goods (96,000)
Vat Payable P204,000

131. A VAT-registered trader has the following transactions for the month of July 2018:
Sale of goods to private entities, net of VAT 896,000
Purchases of goods sold to private entities, gross of 12%
VAT Sales to a government owned corporation (GOCC) , net of
VAT Purchases of goods sold to GOCC, net of 12% VAT
Purchases of Machineries, gross of VAT, useful life is 6 years

How much is the VAT payable to the BIR?

a. P280,000 c. P191,500
 b. P224,000 d. P300,000

 Answer: C

OUTPUT VAT P480,000

LESS INPUT VAT
Private (96,000)
SIV (105,000)
Allocated Input Vat (12,000)
(1,200.000/60 x 2.5/4)
5% withholding from the government (75,000)
Vat Payable P191,500

OR

OUTPUT VAT (private entities only) P300,000

LESS INPUT VAT
Private (96,000)
Allocated Input Vat (12,000)
(1,200,000/60 x 2.5/4)
Vat Payable P191,500)

132. Based on the preceding number, how much is the input tax closed to expense
(incomeP1)?
a. 13,500 c. (13,500)
b. P21,000 d. (P21,500)

 Answer: A

◊ Total actual input vat = P96,000 + 20,000 + 84,000 = P200,000

◊ Allowed = P213,500
◊ Income= P13,500

133. Leomar, a VAT-registered person has the following data:

Export sales, total invoice amount P3,000,000
Domestic salE 3, total invoice amount 6,720,000
Purchases ..sed to manufacture Goods for
export and domestic sales:
Raw Materials, VAT inclusive 616,000
Supplies, VAT inclusive 448,000
Equipment, VAT exclusive 300,000
 The amount of input tax which can be refunded or converted into tax credit certificates
at the option of Leomar is:
a. P120,000 c. P39,600
b. P118,800 d. P50,000

 Answer: D
Solution:
Raw Materials (P616,000 x 3/28) P66,000
Supplies (P448,000 x 3/28) 48,000
Ejquipment (P300,000 x 12%) 36, 000
Total input vat P150,000
X 3/9
Input vat attributable to export sale P50,000

134. Based on the preceding number, if the refundable input taxes were not refunded but
used as tax credit, the VAT due is:
a. P576,000 c. P666,888
b. P697,888 d. P570,000

 Answer: D
Solution:
Output vat P720,000
Total input vat (150,000)
Vat Payable P570,000

135.But assuming further that the taxpayer opted to claim them as refund, the VAT due is:
a. P576,000 c. P746,888
b. P697,888 d. P620,000

 Answer: D
Solution:
Output vat P720,000
Total input vat (100,000)
Vat Payable P620,000
Sale of Real Property

136. Sale of real property by a real estate dealer, the initial payments of which do not exceed
twenty five percent (25%) of the gross selling price in the year of sale is considered
a. Sale of real estate by a real estate dealer on a deferred basis .
 b. Sale of real estate by a real estate dealer on installment basis
c. Both "a" and "b"
d. Neither "a" nor "b"

 Answer: B

137. In the case of sale of real properties on the installment plan, the real estate dealer shall
be subject to VAT on the:
a. Selling price
b. Selling price or fair market value whichever is lower
c. Selling price of fair market value whichever is higher
d. Installment payments, including interest and penalties, actually or constructively
received by the seller.

 Answer: D

138. Statement 1: On a sale of real property on installments by a real estate dealer, the seller
shall be subject to VAT on the installment payment received, including interests and
penalties for late payment.
Statement 2: On sale of real property on installments by real estate dealer, where the
Vat is computed not on the consideration in the deed of sale but on the higher fair
market value, the Vat must be billed separately with a specific mention that it is based
on the market value of the property.
a. Both statements are correct
b. Both statements are not correct
c. Only the first statement is correct.
d. Only the second statement is correct

 Answer: A

139.Statement 1: In the case of sale on deferred payment basis not qualifying under the
month of sale installment plan, the transaction shall be treated as cash sale and the vat
is payable on the month of sale.
Statement 2: In the case of a sale on deferred payment basis not qualifying under the
installment plan, payments subsequent to the initial payments shall no longer be
subject to vat.
a. Both statements are correct
b. statements are not correct
c. Only the first statement is correct
d. Only the second statement is correct
  Answer: A

140. Kaktus Realty Inc. developed a condominium in Manila. During the month of January
2013, it had the following data (VAT included, if applicable):
Selling Price
Cash sale of a 3 bedroom unit P5,040,000
Sale of parking lot 560,000
Installment sale of 2 bedroom unit (initial
payments exceed 25% of the selling price) 3,920,000

The 3 bedroom unit sold for cash had a zonal value of P5,000,000 and the 2 bedroom
unit had a fair market value per Tax Declaration of P3,000,000.
How much is the output tax for the month?
a. P920,000 c. P1,020,000
b. P900,000 d. P1,080,000

 Answer: D

3 Bedroom unit
SP = P5,040,000/1.12 = P4,5000
ZV =P5M
Output Vat = P5M x 12% P600,000

2 Bedroom unit
SP = P3,920,000 7 P3,500,000
ZV= P3,000,000 60,000
OV = P3.5M x 12% 420.000
TOTAL Output Vat P1,080,000

141.West Star Realty Corp. sells a commercial lot in the month of November 2018 under the
following terms (including VAT):
Total contract price P1,120,000
Downpayment, 11-01-2018 112,000
First installment, 12-01-2018 112,000

The output VAT in November 2013 is:

a. P12,000 c. P30,000
b. P24,000 d. P120,000

 Answer: D
◊ Ratio of initial payment over SP = 200/1M = 20%
 ◊ Type of Sale = Installment Sale
◊ Output Vat Nov. = P224,000 x 3/28 = P24,000

142. Bahay Kubo Inc. is a real estate dealer. Details of its sales during the year showed the
following:
Date of sale June 2, 2014
Consideration in the deed of sale P5,000,000

Fair market value in the assessment rolls 4,800,000

Zonal Value 5,200,000
Schedule of payments:
June 2, 2014 1,000,000
June 2, 2015 2,000,000
June 2, 2016 2,000,000

How much is the output tax to be recognized for the June 2, 2016 payment?
a. PO c. P249,600
b. P24,000 d. P624,000

 Answer: C
◊ Ratio of initial payment over SP = 1/5 = 20%
◊ Type of Sale = Installment Sale
◊ Output Vat Nov. 2016 = 2/5 x 5,200,000 x 12% = P249,600

143. Assuming that the scheduled payment on June 2, 2014 is P2,000,000, how much is the
output tax to be recognized for the June 2, 2016 payment?
a. PO c. P249,600
b. P24,000 d. P624,000

 Answer: A
◊ Ratio of initial payment over SP = 2/5 = 40%
◊ Type of sale = deferred sale; treated as cash sale
◊ The entire output vat will be paid on 2014
◊ Liability 2016 = PO

Use the following data for the next two (2) questions:
JJ is a real estate dealer. During the month of October 2016, he sold three (3)
commercial lots under the following terms:
LOT 1 Lot 2 Lot 3
Selling price P250,000 P200,000 P300,000
Cost 150,000 130,000 175,000
 Gain/Loss 100,000 70,000 125,000
Terms:
Down, Oct. 5 25,000 50,000 40,000
Due:
12/05/2016 25,000 20,000 20,000
Year 2017 200,000 130,000 240,000
Zonal Value 350,000 260,000 250,000

144. How much is the Output tax for the month of October?
a. P26,000 c. P31,000
b. P34,800 d. P40,000

 Answer: D

145. The Output tax for December is

a. P5,400 c. P6,600
b. P4,500 d. none
 Answer: C

Lot 1 Lot 2 Lot 3 Lot 4

Ratio 20% 35% 20% 20%
Type of Sale Installment Deferred Sale Sale

OCT P4,200 31,200 4,800 P40,200

NOV 4,200 none 2,400 6,600

146.Statement 1: On a sale of real property on installments by a real estate dealer, the seller
shall be subject to VAT on the installment payment received, including interests and
penalties for late payment.
Statement 2: On sale of real property on installments by real estate dealer, where the
Vat is computed not on the consideration in the deed of sale but on the higher fair
market value, the Vat must be billed separately with a specific mention that it is based
on the market value of the property.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct.

 Answer: A
147.Statement 1: In the case of sale on deferred payment basis not qualifying under the
installment plan, the transaction shall be treated as cash sale and the Vat is payable on
the month of sale.
Statement 2: In the case of a sale on deferred payment basis not qualifying under the
installment plan, payments subsequent to the initial payments shall no longer be subject
to vat.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct.

 Answer: A

Sale by a Dealer in Securities

148.A dealer in securities has the following for the year 2018:
Sales, shares held as inventory P5,000,000
Sales, shares held as investment 1,500,000
Cos of shares, held as inventory 2,000,000
Cos of shares, held as investment 500,000
Supplies expense, net of vat 100,000
Rent expense, net of vat 200,000

How much is the vat payable?

a. P470,000 c. P270,000
b. P324,000 d. vat exempt

 Answer: B
Solution:
Sales, shares held as inventory P5 000, 000
Cos of shares, held as inventory (2,000 000)
Gross income 3,000,000
Vat rate 12%
Output vat P360,000
Les: Input vat
Supplies expense 12,000
Rent expense 24,000 (36,000)
Vat Payable P324,000
VAT/Discount on sale to Senior Citizens and PWDs
149. Lola Lita, a senior citizen, bought a medicine with a selling price of P9,520 inclusive of
VAT. How much is the net amount to be paid by Lola?
 a. P8,500 c. P6,916
b. P7,616 d. P6,800

 Answer: D
Purchase price = P9,520/1.12 P8,500
Discount (P8,500 x 20%) (1,700)
Amount to be paid by the SC P6,800

JOURNAL ENTRY OF THE SELLER

Cash P6,800
SC Discount Expense 1,700
Sales P8,500

◊ Record the sales at undiscounted amount 0expenses.

◊ The 20% discount shall be recognized as part of operating
◊ Any input vat attributable to the sale to SC and PWDs shall be classified as operating
expenses

150. Lobo Sot, a senior citizen went to Jollibee to treat his 4 grandchildren on account of his
retirement. They consumed foods and beverages with gross amount of P1,120 inclusive
of VAT. How much is amount to be paid by lolo Sot?
a. P896 c. P1,056
b. P920 d. P1,100

 Answer: C
◊ Allocated the GC = P1,120 x 4/5 = P896
◊ Allocated to the SC = P1,120 x 1/5 /1 12 x 80% = P160
◊ Amount to be Paid = P896 + 160 = P1,056

151. Gabriana Clinic, a VAT-registered entity, performed a prosthetic surgery on the legs of
Loyd, a person with disability. The total cost of medical operation was P500,000. Being a
disabled person, Loyd received 20% discount from Gabriana. How much is the total
amount to be paid by Loyd?
a. P400,000 c. P500,000
b. P448,000 d. P560,000

 Answer: B
◊ Amount to be Paid = P500,000 x 80% = P400,000

152. Masbate Foam Inc. paid royalties to Kama Italia Inc., a manufacturer of foam based in
Italy for allowing the former to use the latter's newly developed technology in
 manufacturing foam. Which of the following statements is true as to the tax
consequence of the said payment?
a. Masbate Foam Inc. will pay the BIR 5% final withholding VAT
b. Kama Italia Inc. will pay the BIR 5% final withholding VAT
c. Masbate Foam Inc. will pay the BIR 12% creditable withholding VAT
d. Kama Italia Inc. will pay the BIR 12% creditable withholding VAT

 Answer: C

153. The Commissioner or his authorized representative is empowered to suspend the

business operations and temporarily close the business establishment of any person for:
a. Failure to issue receipts or invoices of a VAT- registered entity.
b. Failure to file a VAT-return for VAT-registered person as required by the tax code.
c. Understatement of taxable sales or receipts by thirty percent (30%) or more of his
correct taxable sales or receipts for the taxable quarter
d. All of the above

 Answer: D
154. 1st Statement - Failure of any person to register as a VAT-entity shall result to his being
temporarily closed for the duration of not less than five (5) days and shall be lifted only
upon compliance with whatever requirements prescribed by the Commissioner in the
closure order.
2nd Statement — A taxpayer may apply for VAT registration not later than ten (10) days
before the beginning of the calendar quarter and shall they have already paid at the
beginning of the year.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct.

 Answer: A

155. The term "gross receipts" for hotel and restaurant business operators shall include
I. Service charges billed separately and actually distributed to waiters and
employees.
II. Actual cost of long distance and overseas telephone calls, fax, cable, telex, and
charges of the telecommunication companies collected by the
establishment for the customers/clients for the concerned telecommunication
companies, such as PLDT, which are earmarked for payment to the latter.
III. Vat passed on to customers
IV. Local taxes
 V. Rooms, laundry, valet services and food/beverages consumption
VI. Handling charges for providing telephone, cable or fax services
VII. Cake shop sales, lease to concessionaires and compensation for other services
a. V and VII only c. V, VI and VII only
b. II, Ill and VII only d. All of the above

 Answer: C

156.Which statement is correct?

a. The sales invoice that shows a total, with an indication that it includes the value
added tax, even if it does not show the tax separately, is a correctly prepared
invoice.
b. The invoice which shows the selling price and the value added tax separately, and
with a total which is a correct amount is a properly prepared invoice.
c. An invoice which shows the selling price and the value added tax separately, but
where the value added tax is wrong, which is paid by the buyer, is a
d. violation of the revenue regulations on issuance of sales invoices. A sales invoice by
a VAT taxpayer can be used only on a VAT sale.

 Answer: D

157. First statement: The transitional input tax shall be 2% of the value of the beginning
inventory on hand, or actual VAT paid on such goods, materials and supplies, whichever
is higher, which amount shall be creditable against the output tax of VAT-registered
persons.
Second statement- The value allowed for income tax purposes on inventories shall be
the basis for the computation of the 2% transitional input tax, including goods that are
exempt for VAT under Sec. 109 of the Tax Code.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct.

 Answer: C

158.First statement: Unused input tax of persons whose registration had been cancelled
may be converted into tax credit certificate which may be used in payment of other NIRC
taxes.
Second statement: Refund or tax credit certificate shall be granted within 25 days from
the date of submission of compete documents.
a. Both statements are correct.
 b. Both statements are incorrect.
c. Only the first statement is correct.
d. Only the second state statement is correct.

 Answer: C

159. If a person who is not VAT-registered issues an invoice or receipt showing his TIN,
followed by the word "VAT", the erroneous issuance shall result to the following,
except which One?
a. The non-VAT person shall be liable to the percentage taxes applicable to his
transactions.
b. The non-VAT person shall be liable to the VAT due on the transactions.
c. The non-VAT person shall have the benefit of input tax credit.
d. The non-VAT person shall be liable to a 50% surcharge under Sec. 248 (B) Tax Code.

 Answer: C

160. Which of the following statement is not correct?

a. Under Vat, the consumption tax is borne by the consumer.
b. Under Vat, the seller is merely serving as tax collector.
c. Under Vat, the buyer is claiming the input Vat.
d. Under Vat, the final consumer is claiming the input vat as refund.

 Answer: D

161. What institution is required to deduct and withhold a final VAT of 5% on the purchase of
goods or services subject to VAT?
a. National government or any political subdivision thereof
b. Government-owned or controlled corporations
c. Both (a) and (b)
d. Neither (a) nor (b)

 Answer: C

162. The withholding agent of creditable value added tax is required to remit the amount of
value added tax withheld within
a. 25 days following the end of month the withholding was made
b. 20 days following the end of month the withholding was made
c. 15 days following the end of month the withholding was made
d. 10 days following the end of month the withholding was made
  Answer: D

163.A VAT-registered supplier sold goods amounting to P500,000 to a government-controlled

corporation during a particular quarter. Which of the following statements is incorrect in
relation to the sale in relation to the sale of goods?
a. The sale is subject to final withholding VAT.
b. The government-controlled corporation will withhold P25,000 withholding VAT.
c. The government-controlled corporation shall remit the withholding of VAT to the
BIR within 10 days following the end of the month the withholding was made.
d. The VAT-registered supplier may refuse the withholding of VAT as long as it is willing
to pay the full 12% VAT.

 Answer: D