NATURE & CONCEPT: VALUE ADDED TAX Percentage Taxes - It is a business tax imposed on

persons or entities who sell or lease goods,

The Tax Reform for Acceleration and Inclusion Act,
properties or services in the course of trade or
officially cited as Republic Act No. 10963:
business whose gross annual sales or receipts do not
o The TRAIN Act is the initial package of the exceed the amount of three million pesos
Comprehensive Tax Reform Program (CTRP) (P3,000,000) and are not VAT-registered.
signed into law by President Rodrigo Duterte Excise Taxes - a tax imposed on goods manufactured
on December 19, 2017. or produced in the Philippines for domestic sale or
o The TRAIN Act is the first of four packages of consumption or any other disposition. It is also
tax reforms to the National Internal Revenue imposed on things that are import.
Code of 1997, or the Tax Code, as amended.
o This package introduced changes in personal Note:
income tax (PIT), estate tax, donor's tax, Value-added tax and Excise tax may be imposed
value added tax (VAT), documentary stamp simultaneously on the manufacture and importation
tax (DST) and the excise tax of tobacco of products.
products, petroleum products, mineral
products, automobiles, sweetened beverages, Value-added tax and Percentage tax cannot be
and cosmetic procedures. imposed at the same time. It is either that the sale is
subject to Vat, or subject to percentage tax, or not
Business tax is a tax imposed on the onerous transfer subject to any of the two taxes at all.
of product, property, and service.
WHAT IS VALUE-ADDED TAX?
Onerous transfer means there is a monetary
consideration involved in transfer of goods or It is a form of sales and indirect tax. It is a tax on
services between the owner and the buyer. consumption levied on the sale, barter, exchange or
lease of goods or properties and services in the
Transfer of Goods or Services Philippines and importation of goods into Philippines
It is a tax on the value added to the purchase price or
O nerous T ransfer S ubject to Gratuitous Transfer cost in the sale or lease of goods, property, or
Business Taxes S ubject to T ransfer T axes
services in the course of the trade or business and on
1.V alue— added T axes 1. Estate Taxes importation of goods into the Philippines.
2.Percentage Taxes 2. Donor's Taxes
3.Excise Taxes
It is imposed on the value added in each stage of
distribution
TYPES OF BUSINESS TAXES
A sale is the transfer of ownership of property in
Value-Added Taxes – consideration of money received or to be received.
 It is a business tax imposed and collected A barter or exchange is the transfer of ownership of
from the seller in the course of trade or property in consideration of property received or to
business on every sale of properties (real or be received.
personal) lease of goods or properties (real
or personal) or vendors of services. “in the course of trade or business” means the regular
 It is an indirect tax; thus, it can be passed on conduct or pursuit of a commercial or an economic
to the buyer. entity, including transactions incidental, thereto, by
any person engaged therein is a non-stock, non-profit
Value-Added Tax is imposed on the following: private organization or government entity.
o Sale of goods or properties in the ordinary COVERAGE OF THE VALUE ADDED TAX
course of business.
o Sale of services and use or lease of properties  VAT on sale of goods or properties
in the ordinary course of business.  VAT on sale or exchange of services
o Importation of goods or properties whether  VAT on transactions deemed sales
or not in the course of business or trade.  VAT on importation of goods
 THE PERSONS REQUIRED TO FILE VAT RETURNS:  gross selling price includes everything that
THE TAXPAYER the buyer pays the seller, except the value
added tax shifted to the buyer.
o Any person or entity who, in the course of his
 Gross selling price shall mean the
trade or business, sells, barters, exchanges, leases consideration stated in the sales document
goods or properties and renders services subject OR the fair market value, whichever is higher
to VAT, if the aggregate amount of actual gross (RR4-2007: Section 4, 106-4, RR 16-2005).
sales or receipts exceed Three Million Pesos
(Php3,000,000) SALES RETURNS, ALLOWANCES & SALES DISCOUNT
o A person required to register as VAT taxpayer but
The value of goods or properties sold and
failed to register.
subsequently returned or for which allowances were
o Any person, whether or not made in the course of
granted by a VAT- registered person may be
his trade or business, who imports goods. deducted from the gross sales or receipts for the
VAT ON SALE OF GOODS OR PROPERTIES quarter in which a refund is made or a credit
memorandum or refund is issued.
Goods or properties shall mean all tangible and
intangible objects, which are capable of pecuniary Sales discount granted and indicated in the invoice at
estimation and shall include, among others: the time of sale and the grant of which does not
depend upon the happening of a future event may be
o Real properties held primarily for sale to excluded from the gross sales within the same
customers or held for lease in the ordinary quarter it was given.
course of trade or business;
o The right or the privilege to use patent, Sales returns and allowances may be deducted from
copyright, design or model, plan, secret gross sales for the month or quarter in which refund
formula or process, goodwill, trademark, is made or a credit memo was issued.
trade brand or other like property or right; COMPUTATION OF VAT ON SALE OF GOODS
o The right or privilege to use in the Philippines
of any industrial, commercial or scientific o VAT EXCLUSIVE METHOD FORMULA:
equip;
Gross Sales/Gross Sales Receipt (excluding VAT) x
o The right or the privilege to use motion
12% = VAT (e.g., Gross Sales of a restaurant in a day)
picture films, films, tapes and discs; and
o Radio, television, satellite transmission and o VAT INCLUSIVE METHOD FORMULA:
cable television time
Invoice Price/Invoice Receipts (including VAT) x
RATE AND BASE OF TAX (12/112) = VAT (e.g., ditto)

There shall be levied, assessed and collected on every ILLUSTRATIVE PROBLEMS

sale, barter or exchange of goods or properties, value-
1) A business purchased goods for P500,000 and sold
added tax equivalent to twelve percent (12%) of the
the same for P800,000. The business paid VAT on the
gross selling price or gross value in money of the
purchase of the goods.
goods or properties sold, bartered or exchanged, such
tax to be paid by the seller or transferor. The business is VAT Registered business and is
subject to 12% VAT.
GROSS SELLING PRICE
 It is the total amount of money or its The VAT due or payable is computed as follows:
equivalent which the purchaser pays or is OUTPUT VAT (12% OF SALES-P800,000) P96,000
INPUT VAT (12% OF PURCHASES-P500,000) 60,000 VAT
obligated to pay to the seller in consideration
DUE P36,000
of the sale, barter or exchange of the goods or
properties, excluding the VAT Note:
 The excise tax, if any, on such goods or
properties shall form part of gross selling • The VAT rate imposed upon sales is called
price. OUTPUT VAT.
• This is reduced by the VAT paid by the business transport goods or cargoes for hire and other
on its purchases which is called INPUT VAT. domestic common carriers by land relative to
• The excess of the OUTPTUT VAT over the INPUT their transport of goods or cargoes;
VAT is the Vat due or payable. 12. Common carriers by air and sea relative to their
transport of passengers, goods or cargoes from
2) A VAT registered business made the following
one place in the Philippines to another place in
transactions during the month:
the Philippines;
 Purchased goods for P2,240,000 inclusive of 13. Sale of electricity by generating, transmission by
P240,000 VAT. any entity including the National Grid
 Sold these goods to clients for P 3,000,000, Corporation of the Philippines (NGCP), and
exclusive of VAT distribution companies including electric
cooperatives shall be subject to twelve percent
(12%) VAT on their gross receipts.;
14. Franchise grantees of electric utilities,
telephone and telegraph, radio and/or
television broadcasting and all other franchise
grantees, except franchise grantees of radio
and/or television broadcasting whose annual
gross receipts of the preceding year do not
Accounting Entries:
Purchases P2,000,000
exceed Ten Million Pesos (P10,000,000.00), and
Input Tax 240,000 franchise grantees of gas and water utilities;
Cash/ Accounts Payable P2,240,000
15. Non-life insurance companies (except their crop
Cash/Accounts Receivable P3,360,000 insurances), including surety, fidelity,
Sales P3,000,000
Output Tax 360,000 indemnity and bonding companies; and
Output Tax
Input Tax
P 360,000
240,000
16. Similar services regardless of whether or not
VAT Payable 120,000 the performance thereof calls for the exercise of
use of the physical or mental faculties.
SALE OR EXCHANGE OF SERVICES
Sale or Exchange of Services shall likewise include:
It is the performance of all kinds of services in the
Philippines for others for a fee, remuneration or 1. The lease of use of or the right or privilege to
consideration, whether in kind or in cash, including use any copyright, patent, design or model, plan,
those performed or rendered by the following: secret formula or process, goodwill, trademark,
trade brand or other like property or right;
1. Construction and service contractors; 2. The lease or the use of, or the right to use of any
2. Stock, real estate, commercial, customs and industrial, commercial or scientific equipment;
immigration brokers; 3. The supply of scientific, technical, industrial or
3. Lessors of property, whether personal or real; commercial knowledge or information;
4. Persons engaged in warehousing services; 4. The supply of any assistance that is ancillary
5. Lessors or distributors of cinematographic and subsidiary to and is furnished as a means of
films; enabling the application or enjoyment of any
6. Persons engaged in milling, processing, such property, or right or any such knowledge
manufacturing or repacking goods for others; or information;
7. Proprietors, operators or keepers of hotels, 5. The supply of services by a nonresident person
motels, rest houses, pension houses, inns, or his employee in connection with the use of
resorts, theatres, and movie houses; property or rights belonging to, or the
8. Proprietors or operators of restaurants, installation or operation of any brand,
refreshment parlors, cafes, and other eating machinery or other apparatus purchased from
places, including clubs and caterers; such non-resident person;
9. Dealers in securities; 6. The supply of technical advice, assistance or
10. Lending investors; services rendered in connection with technical
11. Transportation contractors on their transport of management or administration of any scientific,
goods or cargoes, including persons who
 industrial or commercial undertaking, venture, buyer. The goods are still in the shelves of Mr. F.
project or scheme; The consignment of the goods to Mr. F although
7. The lease of motion picture films, films, tapes title to the goods has not yet passed, shall be
and discs; and subject to the value added tax after sixty days
8. The lease or the use of or the right to use radio, from the date of consignment. (Provision of law)
television, satellite transmission and cable  G & H was a partnership in trade. G & H was
television time. dissolved and IJ Corp. was formed to continue the
business. At the time the partnership was
TRANSACTIONS DEEMED SALES
dissolved, the books of accounts showed a
(1) Transfer, use or consumption not in the course of merchandise inventory of P100,000, which was
business of goods or properties originally intended also the physical inventory (actual count). The
for sale or for use in the course of business; Transfer inventory shall be deemed sold to IJ Corp. and
of goods or properties not in the course of business shall be subject to the value added tax.
can take place when VAT-registered person
EXPORT SALES
withdraws goods from his business for personal use;
(1) The sale and actual shipment of goods from the
(2) Distribution or transfer to:
Philippines to a foreign country, irrespective of any
a) Shareholders or investors as share in the shipping arrangement that may be agreed upon
profits of the VAT-registered persons; or which may influence or determine the transfer of
b) Creditors in payment of debt; ownership of the goods so exported and paid for in
acceptable foreign currency or its equivalent in goods
(3) Consignment of goods if actual sale is not made or services, and accounted for in accordance with the
within sixty (60) days following the date such goods rules and regulations of Bangko Sentral ng Pilipinas;
were consigned; and
(2) Sale and delivery of goods to:
(4) Retirement from or cessation of business, with
respect to inventories of taxable goods existing as of i. Registered enterprises within a separate customs
such retirement or cessation, whether or not the territory as provided under special laws; and
business is continued by the new owner or successor. ii. Registered enterprises within tourism
The ff circumstances are transactions "deemed sale"; enterprises zones as declared by the Tourism
Infrastructure and Enterprise Zone Authority
o Change of ownership of the business. There is a (TIEZA) subject to the provisions under Republic
change in the ownership of the business when a Act No. 9593 or The Tourism Act of 2009
single proprietorship incorporated; or the
proprietor of a single proprietorship sells his (3) Sale of raw materials or packaging materials to a
entire business nonresident buyer for delivery to a resident local
o Dissolution of a partnership and creation of a new export-oriented enterprise to be used in
partnership which takes over the business. manufacturing, processing, packing or repacking in
the Philippines of the said buyer's goods and paid for
Illustration: in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP;
 Mr. A sells household furniture. He removes from
his store a dining set for use in his residential (4) Sale of raw materials or packaging materials to
house. This is deemed a sale. export-oriented enterprise whose export sales
 B Corp. declared & paid property dividend out of exceed seventy percent (70%) of total annual
its merchandise inventory. This is deemed a sale. production;
 Mr. C is indebted to Mr. D for raw materials
purchased. When Mr. C could not pay in money, (5) Those considered export sales under Executive
Mr. D agreed to receive the finished goods of Mr. Order NO. 226, otherwise known as the “Omnibus
C in payment for his debt. This is deemed a sale. Investment Code of 1987”, and other special laws;
 E Company, a manufacturer, made sales to Mr. F Provided, that subparagraphs (3), (4), and (5) hereof
on consignment, with title to the goods to pass shall be subject to the twelve percent (12%) value-
only upon actual sale of the consigned goods to a added tax and no longer be considered export sales
subject to zero percent (0%) VAT rate upon The basis of VAT on taxable sale of real property is
satisfaction of the following conditions: gross selling price, which is either selling price stated
in the sale document or the fair market value
(1) The successful establishment and
whichever is higher.
implementation of an enhanced VAT refund
system that grants refunds of creditable input The term fair market value shall mean whichever is
tax within ninety (90) days from the filing of the higher of -
VAT refund application with the Bureau:
a. The fair market value as determined by the
Provided, That, to determine the effectivity of
Commissioner, (zonal value) or
item no. 1, all applications filed from January 1,
b. The fair market value as shown in the schedule of
2018 shall be processed and must be decided
values fixed by the provincial and city assessors.
within ninety (90) days from the filing of the
VAT refund application; and However, in the absence of zonal value/fair market
value as determined by the Commissioner, gross
(2) All pending VAT refund claims as of Dec 21, selling price refers to the market value shown in the
2017 shall be fully paid in cash by Dec 31, 2019. latest real property tax declaration or the
consideration, whichever is higher. (RR4- 2007)
(6) The sale of goods, supplies, equipment and fuel to
persons engaged in international shipping or If the VAT is not billed separately, the selling price
international air transport operations: stated in the sales documents shall be deemed to be
inclusive of VAT.
Provided, That the goods, supplies, equipment and
fuel shall be used for international shipping or air If the gross selling price is based on the zonal value or
transport operations market value of the property, the zonal value or
market value shall deemed exclusive of VAT.
SALE OF REAL PROPERTIES
On sale of goods and properties - twelve percent
TRAIN imposed the following on VAT exemption
(12%) of the gross selling price or gross value in
provisions regarding real estate transactions:
money of the goods or properties sold, bartered or
a) Real properties not primarily held for sale to exchanged.
customers or for lease in the ordinary course of
On sale of services and use or lease of properties -
trade or business, and properties utilized for
twelve percent (12%) of gross receipts derived from
socialized housing shall be exempted from VAT.
the sale or exchange of services, including the use or
b) Previously at Php1,919,500, TRAIN lowered the
lease of properties.
VAT exemption of residential lots to
Php1,500,000. This means residential lots that On importation of goods - twelve percent (12%)
were previously tax exempt (worth 1,500,001 based on the total value used by the Bureau of
to 1,919,500) are now subject to VAT. Customs in determining tariff and customs duties,
c) TRAIN also lowered the VAT exemption of plus customs duties, excise taxes, if any, and other
residential dwellings (house and lots, charges, such as tax to be paid by the importer prior
condominiums) from 3,199,200 to 2,500,000. to the release of such goods from customs custody;
This means houses and condos that were provided, that where the customs duties are
previously tax exempt (worth Php2,500,001 to determined on the basis of quantity or volume of the
Php3,199,200) are now subject to VAT. Further, goods, the VAT shall be based on the landed cost plus
effective January 1, 2021, the exemption shall be excise taxes, if any.
lowered again from Php2,500,000 to
Php2,000,000, and every three years thereafter, On export sales and other zero-rated sales - 0%
the amount stated shall be adjusted to its
present value using the Consumer Price Index
(CPI) as published by the Philippine Statistics VAT ON SALE OF SERVICES
Authority (PSA).
d) Lease of residential unit with a monthly rental
not exceeding P15,000 shall be exempted.
 Sale of Services: REAL ESTATE BROKERS
 Real estate broker – a person selling property of
Cash received(actually and constructively) xxx others for a fee or commission income
Deposits/advance payments for future project xxx
Materials charged for services xxx Rule: Income subject to VAT if
Gross receipts xxx
Multiply by Vat rate 12%  Broker is VAT-registered or
Output Vat xxx  Total commission earnings exceed 3,000,000
Less: Input Vat xxx during the taxable year
Vat payable/(Excess input Taxes) xxx
DEALERS IN SECURITIES
CATEGORIES OF SERVICES
Rule: Subject to VAT based on their gross receipts.
Section 108 (A) of the NIRC defined and categorized
“sales or exchange of services” as the performance of The term “gross receipts” for dealers in securities
all kinds of services in the Philippines for a fee, means gross selling price less cost of securities sold.
remuneration, or consideration including those: LENDING INVESTORS
o Professional/ Technical Services It includes all persons other than banks, non- bank
o Transfer of Technology financial intermediaries:
o Lease or Use of Intangible Property
 not performing quasi-banking functions
o Lease or Use of Tangible Property
 who make a practice of lending money for
VAT ON PROFESSIONAL FEES themselves or for others for an interest

As a rule, earnings from a practice of profession TRANSPORTATION SERVICES

(including services rendered by doctors of medicine
Transport of goods and cargoes
and lawyers) will be subject to a 12% VAT if:
 by land, air, and water by transportation
 The professional is a VAT-registered person
contractors as well as domestic common carriers
 Not VAT-registered but his total gross
 Subject to 12% VAT
receipts exceed ₱3,000,000 per year.
SERVICE CONTRACTORS Transport of passengers

In general, the gross receipts of service contractors  by air and sea within the Philippines is subject to
are subject to 12% VAT 12% VAT
 by land is subject to other percentage tax of 3%
The transactions entered by a service contractor,
subject to value added tax with the government is Transport of passengers and cargoes
subject to a final withholding value added tax of five  by DOMESTIC air or sea vessels from the
percent (5%) of the gross payment. Philippines to foreign country - 0%
VAT ON SECURITY AGENCY FEES FREIGHT FORWARDERS
The contract for security services entered by and Services may cover a cross boarder movement (from
between the security agency and its client must the Philippines to foreign port or vice versa) or a
provide for a breakdown of the amount of security local movement (within the Philippines) of cargoes.
services into two components:
 Agency fee
 Security guards’ salary
Note: only the agency fee is subject to 12% VAT if the
service contract stipulates the breakdown of the
amount of security services
 TRAVEL AGENCIES  If monthly rental does not exceed P15,000
per unit per month - lessor shall be exempt
VAT is based on its gross receipts which will not
from VAT and other percentage tax (OPT)
include the:
 If monthly rental exceeds P15,000 per month
 cost of airline or ship tickets per unit but the aggregate annual rentals do
 reimbursement of expenses for services not exceed P3M - lessor is subject to 3% OPT
rendered by third party other than the travel  If monthly rental exceeds P15,000 per month
agency and paid to such party per unit and the aggregate annual rentals
exceed P3M, lessor is subject to 12% VAT
However, if the margin exceeds 9% of the gross
selling price of the ticket to the passenger, the BIR FRANCHISE GRANTEES
treats the transaction as a resale which is taxable on
Telecommunications - taxable base for VAT is the
the gross selling price.
gross receipts from their telephone, telegraph,
HOTELS, RESTAURANTS AND CATERERS telewriter exchange, wireless and other
communication facilities services excluding amounts
Taxable base includes, among others, charges for: earmarked as the foreign administration's share
 rooms, laundry, and valet services, relating to the services performed outside the Phil.
 food, and beverages consumption, corkage, Radio and/or television broadcasting - gross receipts
 handling charges for providing telephone, of the preceding year exceeding Ten Million shall be
telex, cable, or fax services, subject to 12% VAT, gross receipts of the preceding
 cake shop sales, year not exceeding P10M shall be subject to 3% OPT
 lease to concessionaires,
 compensation, and other service fees. Gas and water utilities shall be subject to 2%
franchise tax on their gross receipts derived from the
Taxable base does not include: business covered by the law granting the franchise.
 Service charges billed separately and actually WORKS OF ART, LITERARY WORKS AND MUSICAL
distributed to waiters and employees COMPOSITIONS
 Actual cost of long distance and overseas
telephone calls, and other charges of the Sale by the artist of his works of art, literary works,
telecommunication companies collected by musical compositions and similar creations, or his
the establishment services performed for the production of such works
 Local taxes are now subject to VAT

MEDIA ADVERTISING VAT ON IMPORTATION

Gross receipts subject to VAT on media transactions Importations of goods into the Philippines are subject
would comprise the following: to VAT, whether the importation is intended for
business or for personal use.
 The amount of gross receipts representing
agency commissions received by an TAX BASE
advertising agency of the services it
Based on the total value used by the Bureau of
performed as a broker for the media and the
Customs in determining tariff and custom duty
advertiser, and
(dutiable value), plus custom duties, excise taxes, if
 The amount representing gross receipts
any, and other charges prior to the removal of the
derived by the media from its advertising
goods from customs custody, or;
services
Based on the landed cost plus excise tax, if any, and
LEASE OF COMMERCIAL AND RESIDENTIAL UNITS
other charges prior to the removal of the goods from
Gross receipts are subject to 12% VAT. Subject to the custom custody, if the custom duties are determined
following rules: on the basis of quantity or volume of the goods.
Landed cost includes invoice cost, freight, insurance The tax base is the amount on which the rate of value
and other charges. tax is applied
Other charges prior to removal of goods from custom TAX RATES
custody are:
 12% on domestic sales
-Insurance -Freight  0% on export sales (zero rated sales)
-Postage -Commission
-Interest -Bank charges
-Wharfage dues -Arrastre charges
-Stamps -Processing fee
-Custom brokerage fee -Custom duties
-Excise tax, if any

MANNER OF COMPUTING THE VAT

1. Output tax exceeds total input tax.
Output Tax P xxx
2. Sale of Services
Less: Input Tax (xxx)
Cash received (actually and constructively) P xxx
VAT Payable xxx Deposits/Advance payments for future
xxx
projects
2. Input tax total exceeds output tax. Materials charged for services xxx
Gross Receipts P xxx
Output Tax P xxx Multiply by the VAT rate 12%

Less: Input Tax* (xxx) Equals to OUTPUT TAX P xxx

Less: INPUT TAX xxx
VAT Payable (xxx) VAT Payable (Excess Input Tax) P xxx

*The unutilized input tax can be carried over to the

succeeding month/ quarter.
Gross receipts refer to the total amount of money or
its equivalent representing the contract price,
OUTPUT TAX - means the VAT due on the sale, lease compensation, service fee, rental or royalty, including
or exchange of taxable goods or properties or the amount charged for materials supplied with the
services by any person registered or required to services and deposits applied as payments for
register under Section 236 of the Tax Code. services rendered and advance payments actually or
constructively received during the taxable period for
INPUT TAX - means the VAT due on or paid by a VAT-
the services performed for another person, excluding
registered on importation of goods or local purchase
the VAT.
of goods, properties or services, including lease or
use of property in the course of his trade or business. Constructive receipt occurs when the money
It shall also include the transitional input tax consideration or its equivalent is placed at the
determined in accordance with Section 111 of the control of the person who rendered the service
Tax Code, presumptive input tax and deferred input without restrictions by the payor.
tax from previous period.
Examples:
BASIS OF VALUE ADDED TAX
1. Deposit in banks which are made available to the
NATURE OF TRANSACTION TAX BASE seller of services without restrictions.
1. Sale of Goods/Properties Gross Selling Price
2. Sale of Services Gross Receipts 2. Issuance by the debtor of a notice to offset any
3. Importation Total Landed Cost debt or obligation and acceptance thereof by the
4. Dealers in Securities Gross Income seller as payment for services rendered.
3. Transfer of the amounts retained by the payor to ➔ Aggregate purchase price during the month is
the account of the contractor. more than one million
Advance Payment is an advance payment on behalf of ➢ Input tax shall be spread or allocated evenly
another if the same is paid to a third (3rd) party for a during the estimated useful life of the depreciable
present or future obligation of said another party asset but it shall not exceed 60 months. (Estimated
which obligation is evidenced by a sales useful life is more than one year) (estimated useful
invoice/official receipt issued by the oblige/creditor life or 60 months whichever is shorter)
to the obligator/debtor for the sale of goods or
services by the former to the latter. ➢ Allocation shall start in the month when the capital
goods were acquired.
2. Dealers in Securities and Lending Investors

Gross Selling Price P xxx ➢ If the capital goods were sold within the 5-year
Less: Acquisition cost of securities sold for the (60months) period or prior to exhaustion of input
xxx
month or quarter VAT, thereon, the entire input vat on the capital
Balance:
xxx goods can be claimed as input tax credit during the
month or quarter when the sale is made.
Add: Other income or incidental income xxx
Gross Income P xxx ➢ If the life of the capital good or depreciable asset is
Multiply by the VAT rate 12% not more than one (1) year or year twelve (12)
Equals to OUTPUT TAX P xxx months, the asset is not treated as capital good
Less: INPUT TAX xxx subject to depreciation. Hence allocation of input vat
VAT Payable P xxx is not applicable. The total amount of input vat shall
be claimed in the month of acquisition.
SOURCES OF INPUT VAT
➔ Aggregate purchase price during the month is less
1. LOCAL PURCHASES OF GOODS OR SERVICES such than one million
as purchase or acquisition of
➢ Input tax is not allocated. The total amount of
a. Goods for sale input vat shall be treated as tax credit against output
b. Goods for conversion into finish product vat in the month of acquisition
(including packaging materials)
c. Goods for use as supplies NOTE: Under the TRAIN Law
d. Goods for use as materials supplied in the 1. The rule on amortizing the input vat on capital
sale of services goods shall only be allowed until December 31, 2021.
e. Goods for use in trade or business for which Consequently, amortization of input vat on capital
depreciation or amortization is allowed goods purchased/imported shall no longer be
(capital goods) allowed beginning January 1, 2022.
f. Real properties for which Vat has actually
been paid 2. Taxpayers with unutilized input vat on December
g. Services for which Vat has actually been paid 31, 2021 shall be allowed to apply the same as
scheduled until fully utilized.
ACQUISITION OF CAPITAL GOODS
Month of Amount Input VAT U sefu l No. of Last month Amount of
P u rch ase life monthly of Monthly
Capital goods refer to goods or properties with a m ortizat a m ortizatio a m ortizatio n
ion n
estimated useful life of greater than 1 year and which January, P6,000,000 P720,000 6 years 60mos. Dec. 2023 P720,000/60 =
2019 (72 P12,000
are treated as depreciable assets under the tax code, mos.)
March, 3,000,000 360,000 3 years 36mos. March, P600,000/36 =
used directly or indirectly in the production or sale of 2019 2022 P10,000
outright
taxable goods or services. Under Revenue Regulation April, 800,000 96,000 2 years -0- claim on -0-
2019 April,
16-2005, input vat on the purchase of capital goods 2019
by a VAT registered person shall be allowed as a tax Dec.
2021
8,000,000 960,000 5 years 60mos. Nov., 2026 P960,000/60 =
P16,000
credit against output VAT based on the following Jan.,
2022 8,000,000 960,000 5 years -0-
outright
claim on -0-
rules: Jan., 2022
Notes: Under TRAIN Law 3. PRESUMPTIVE INPUT TAX OF 4% ON SALE OF
GOODS
 For purchase made on Jan., 2019 and March,
2019, refer to no. 1 on aggregate purchase price PRESUMPTIVE INPUT TAX CREDITS
during the month is more than one million.
Any person or firm engaged in the processing of
(Estimated useful life or 60 months whichever is
sardines, mackerel, and milk, and in manufacturing
shorter)
refined sugar and cooking oil and packed noodle-
 For purchases made on April, 2019, rule on
based instant meals shall be allowed a presumptive
aggregate purchase price during the month is less
input tax creditable against the output tax, equivalent
than one million applies.
to 4% of the gross value in money of their purchases
 For purchases made on Dec., 2021, refer to no. 2
of primary agricultural products which are used as
under the TRAIN Law.
inputs to his production.
 For purchases made on Dec., 2021, refer to no. 1
under the TRAIN Law. The term “processing” shall mean pasteurization,
canning and activities which through physical or
2. IMPORTATION
chemical process alter the exterior texture or form or
Dutiable value Pxxx OR Invoice Cost Pxxx inner substance of a product in such manner as to
Freight prepare it for special use to which it could not have
Insurance been put in its original form or condition.
Add: Legitimate expenses Add: Legitimate expenses
of importation prior to of importation prior to Entitled to Presumptive VAT:
removal from custom removal from custom
custody, such as: custody, such as:
 Persons or firms engaged in the processing of
Custom duty Pxxx Custom duty Pxxx
sardines, mackerel & milk
Processing fee xxx Processing fee xxx
Brokerage fee xxx Brokerage fee xxx
 Persons or firms engaged in the
Arrastre charges xxx Arrastre charges xxx manufacturing of refined sugar, cooking oil,
Wharfage due xxx Wharfage due xxx packed noodle based instant meals.
Interest, etc. xxx Interest, etc. xxx
4. TRANSITIONAL INPUT TAX CREDITS
Tax base Pxxx TOTAL LANDED COST Pxxx
Multiply by 12% Multiply by 12% Any person who becomes liable to value-added tax or
VAT on importation Pxxx VALUE ADDED TAX Pxxx who elects to be a VAT-registered person shall be
allowed, subject to the filing of an inventory as
➢ Every importation of goods is subject to the value prescribed by rules and regulations, on his/her
added tax, whether the importation is for sale or use beginning inventory of goods, materials and supplies,
in business, or for personal use. an input tax equivalent to 2% of the value of such
inventory or the actual value-added tax paid on such
➢ The imported goods shall be subject to VAT based goods, materials and supplies, whichever is higher,
on the ff: which shall be creditable against the output tax.
In general, based on the total value used by the 5. STANDARD INPUT VAT (on sales to government)
Bureau of Customs in determining tariff and customs
duty - (dutiable value) plus custom duties, excise Since the seller will effectively pay the 5% out of the
taxes, if any, and other legitimate charges, prior to 12% value added tax on sales to government,
removal of goods from the custom custody, or;
instrumentalities or agencies including GOCCs, the
When the custom duties are determined on the basis
7% (12% less 5%) effectively accounts for the
of the quantity or volume of the goods. the landed
cost should be used as a basis in computing vat which standard input VAT in lieu of actual input VAT. The
includes invoice cost, freight, insurance, custom difference between the actual input vat and the
duties, excise taxes, if any, and other legitimate
standard input vat is closed to costs or expenses of
charges, prior to removal of goods from the custom
custody. the seller.