WHAT IS VALUE-ADDED TAX

• IT IS A TRANSACTION TAX LEVIED ON THE SALE, BARTER,

EXCHANGE, OR LEASE OF GOODS, PROPERTIES OR SERVICES
AND ON IMPORTATION OF GOODS
• IT IS A TAX ON THE VALUE ADDED ALONG THE DISTRIBUTION
CHAIN UNTIL ABSORBED BY FINAL CONSUMER; THUS
ELIMINATES CASCADING (PYRAMIDING) EFFECT OF
SUBSEQUENT TAXATION
• IT IS AN INDIRECT TAX – BURDEN CAN BE SHIFTED
• IT IS AN AD VALOREM TAX - TAX BASED ON VALUE
WHO ARE SUBJECT TO VAT

• ANY PERSON ENGAGED IN TRADE OR BUSINESS

WHO:
o SELLS, BARTERS, EXCHANGES GOODS OR PROPERTIES
o RENDERS [SELLS] SERVICES
o OR LEASES GOODS OR PROPERTIES
• ANY PERSON WHO IMPORTS GOODS
o WHETHER OR NOT ENGAGED IN TRADE OR BUSINESS
WHO ARE THESE PERSONS

• NATURAL, JURIDICAL, OR NON-JURIDICAL [TRUST, ESTATE,

PARTNERSHIP, ETC.]
• A NON-STOCK, NONPROFIT PRIVATE ORGANIZATION
• OR GOVERNMENT ENTITY.
SITUS OF VAT

• WHERE SALE, BARTER, OR EXCHANGE OF GOODS

OR PROPERTIES TAKES PLACE
• WHERE LEASED PROPERTY IS LOCATED OR USED
• WHERE THE IMPORT/EXPORT IS EFFECTED
• WHERE SERVICES OR RIGHTS ARE RENDERED OR
EXERCISED
• ADOPTS THE “CROSS BORDER DOCTRINE” OR
“DESTINATION PRINCIPLE”
IN THE COURSE OF TRADE OR BUSINESS

• MEANS REGULAR CONDUCT OR PURSUIT OF

A COMMERCIAL OR AN ECONOMIC ACTIVITY,
INCLUDING TRANSACTIONS INCIDENTAL
THERETO
“REGULARITY” IS NOT REQUIRED OF NON-
RESIDENT PERSONS TO FALL UNDER THE
DEFINITION
GOODS OR PROPERTIES SUBJECT TO VAT

• REAL OR PERSONAL PROPERTIES HELD

FOR SALE OR LEASE IN THE ORDINARY
COURSE OF BUSINESS
o LAND, BUILDINGS
o SOAP, FURNITURE & FIXTURES, RADIO, TV, ETC.
o INTANGIBLE CAPABLE OF PECUNIARY
ESTIMATION
 PATENTS, TV TIME
RULES ON SALE OF REAL PROPERTIES
• IN CONNECTION WITH TRADE OR BUSINESS
 DEFERRED/INSTALLMENT
 BASIS OF VAT – CONSIDERATION OR FMV
 CONSIDERATION DEEMED INCLUSIVE OF VAT
 AMOUNT EXCEEDS P1.5M FOR LOT/P2.5M FOR
RESIDENTIAL H&L
 C.F. P1.5 M THRESHOLD FOR OTHER GOODS
[SEC 109(1)(V)]
 Nov 1, 2005 – 10%; Feb 1, 2006 – 12%
BASIS OF VAT ON SALE OF GOODS

• GROSS SELLING PRICE

o MONEY OR EQUIVALENT OBLIGATED TO PAY AS
CONSIDERATION
 EXCLUDES VAT
 EXCLUDES BY SALES DISCOUNTS/SALES
RETURNS & ALLOWANCES
 INCLUDES EXCISE TAX, IF ANY
CLASSES OF TRANSACTIONS ACCORDING TO
TAXABILITY OR NON-TAXABILITY
• TRANSACTIONS SUBJECT TO VAT
o 10%/12%
o ZERO-RATE (0%)
• TRANSACTIONS EXEMPT FROM VAT
VALUE – ADDED TAX RATES
• 10% [12% EFFECTIVE FEB 1, 2006 PER RR] VAT ON:
o DOMESTIC SALE, ETC. OF GOODS AND PROPERTIES
o SALE OF SERVICES
o LEASE OF PROPERTIES
o IMPORTATION OF GOODS
• 0% VAT ON:
o EXPORT SALES OF GOODS & SERVICES
 ACTUAL EXPORTS OF GOODS OR SERVICES
 CONSTRUCTIVE EXPORTS
o FOREIGN CURRENCY DENOMINATE SALES
HOW VAT IS COMPUTED FOR DOMESTIC SALE OF GOODS

GROSS SELLING PRICE (WITHOUT VAT) P 1,000

LESS: DISCOUNTS (GRANTED AT TIME OF
SALE & NOT SUBJ TO CONDITION) P100
SALES RETURNS & ALLOWANCES 100 200
--------------------
NTS SUBJ TO VAT 800
12% VAT [OUTPUT TAX] 96
---------------------
ACCOUNTS RECEIVABLE / CASH P 896
============
 *FOR SERVICES, BASE INCLUDES CONTRACT PRICE, COMPENSATION,
SERVICE FEE, RENTAL, ROYALTY, ETC.
TAXABLE BASE OF VAT ON IMPORTED GOODS

COST, INSURANCE, FREIGHT (CIF) P 1,000

CUSTOMS DUTIES, EXCISE TAX [IF ANY] 100
BROKERS, POSTAGE, COMMISSION, ETC. 100
-----------
TOTAL LANDED COST P 1,200
======
12% VAT P 144
======
ZERO-RATED SALES OF GOODS

• EXPORT SALES
• FOREIGN CURRENCY DENOMINATED SALES
• SALES TO PERSONS EXEMPT UNDER
SPECIAL LAWS OR INTERNATIONAL
AGREEMENTS
CROSS BORDER DOCTRINE OR DESTINATION PRINCIPLE

• NO VAT IMPOSED TO FORM PART OF GOODS

DESTINED FOR CONSUMPTION OUTSIDE OF THE
TERRITORIAL BORDER OF TAXING AUTHORITY
• THUS EXPORTS OF GOODS/SERVICES TO FX
COUNTRY ARE FREE OF VAT (0%),
• CONVERSELY, THOSE DESTINED FOR USE
CONSUMPTION IN THE PHIL ARE SUBJ TO VAT
(12%)
• ZERO-RATED DISTINGUISHED FROM VAT-EXEMPT
• CUSTOMS TERRITORY VS. ECOZONES
EXPORT SALES
• EXPORT SALES
o ACTUAL EXPORT SALE TO FX COUNTRY W/ FX CY
o SALE OF RPM TO NON-RES FOR DELIVERY TO RES EXPORT
ORIENTED W/ FX CY
o SALE TO RES EXPORT ORIENTED 70% EXPORTED
 EFFECTIVELY ZERO-RATED
o SALE OF GOLD TO BSP
o SALE CONSIDERED EXPORT SALE UNDER E.O. 226
o SALE TO INTERNATIONAL SHIPPING/AIRLINES
 EFFECTIVELY ZERO RATED
FCD SALES & SALE TO TAX EXEMPT PERSONS

• FCDS
o SALE TO NON-RESIDENT FOR DELIVERY TO RES
PAID IN FX CY OF LOCAL PRODUCTS, EXCEPT
SEC. 149/150
o SALE TO FILIPINOS ABROAD, NON-RES &
RETURNING OVERSEAS FILIPINOS PAID IN FX CY
 EFFECTIVELY ZERO RATED
• EXEMPT UNDER LAWS/AGREEMENTS
o SBMA/PEZA/ADB/IRRI OTHERS
o EFFECTIVELY ZERO-RATED [NEED BIR CERT]
TRANSACTIONS DEEMED SALE
• TRANSFER, USE OR CONSUMPTION FOR
PERSONAL USE
• DIVIDENDS/PAYMENT OF DEBTS
• CONSIGNMENT (> 60 DAYS)
• RETIREMENT/CESSATION [LOWER OF AC/FMV]
o TRANSFER TO NEW OWNER [ INC]
o NEW PARTNERSHIP
CHANGE OR CESSATION OF VAT STATUS

• SUBJECT TO OUTPUT VAT [ON GOODS EXISTING]

o VAT-REGISTERED TO VAT-EXEMPT
o APPROVED CANCELLATION OF VAT REGISTRATION TO
EXEMPT
• NOT SUBJECT TO OUTPUT VAT
o CHANGE OF CONTROLLING INTEREST
o CHANGE IN NAME
o MERGER & CONSOLIDATION
SALE OR EXCHANGES OF SERVICES SUBJECT TO VAT

TO NAME SOME:
• CONSTRUCTION & SERVICE CONTRACTORS
• BROKERS
• LESSORS OF PROPERTY VS. EXEMPT LEASE
• COMMON CARRIER OF PERSONS AND GOODS BY AIR & SEA VS. SEC
117 (CARRIERS TAX) AND 118 (INTERNATIONAL DOING DOMESTIC)
• HOTEL, REST HOUSE, INN, RESORT, CLUBS, RESTAURANT
OPERATORS VS. SEC 125
• ELECTRIC, RADIO, TV (EXCEPT <P10M) OTHER FRANCHISEES VS.
THOSE SUBJ TO % TAX IN SEC 119
• OTHERS USING MENTAL & PHYSICAL FACULTIES
GROSS RECEIPTS

• Total amount of money or its equivalent as

contract price, compensation, service fee,
rental or royalty
• Includes materials supplied with the services
and deposits
• Advance payments
• Actual or constructive
• Exclude VAT
ZERO-RATED SALES OF SERVICES

• PROCESSING, MFG, REPACKING FOR PERSONS

DOING BUS OUTSIDE PHIL & ACTUALLY EXPORTED
• SERVICES OTHER THAN ABOVE/EXEMPT ENTITIES
• EXPORT ORIENTED 70%
• INTERNATIONAL SHIPPING/AIRLINES
• BY DOMESTIC AIR/SEA CARRIER OF CARGO/PASS
TO FX COUNTRY
• POWER & FUEL RENEWABLE ENERGY
EXEMPT TRANSACTIONS
• THERE ARE 26 CLASSES OF TRANSACTIONS, TO NAME SOME:
o AGRICULTURAL & MARINE PRODUCTS
o SERVICES SUBJ % TAX IN TITLE V OF NIRC
o DOMESTIC CARRIERS OF PASSENGERS, OVERSEAS
TELECOM
o RADIO/TV FRANCHISEES (< P10MM ANNUAL SALES)
o SALARIES & WAGES OF EMPLOYEES
o SALE OF REAL PROPERTY NOT HELD FOR SALE OR LEASE
o SALES OR RECEIPTS = OR < P1,500,000 (JUL 1, 2005)
CREDIT FOR INPUT TAX

• INPUT TAX - VAT DUE ON OR PAID ON:

o PURCHASE OR IMPORTATION OF GOODS/PROPERTIES
 FOR SALE / FOR CONVERSION INTO FG FOR SALE/RPM
 SUPPLIES, RAW MATERIALS FOR SUPPLY OF SERVICES
 SUBJ TO DEPRECIATION
o PURCHASE OF SERVICES
o TRANSITIONAL INPUT TAX / PRESUMPTIVE INPUT TAX
o INPUT TAX ON SALE TO GOVT NOT CREDITABLE NON-GOVT
SALES
o SUBJECT TO 70% OF OUTPUT TAX CAP
WHO AND WHEN CAN ONE AVAIL OF INPUT TAX

• IMPORTER OF GOODS UPON PAYMENT OF

VAT BEFORE RELEASE FROM CUSTOMS
• PURCHASER OF DOMESTIC GOODS OR
PROPERTIES UPON CONSUMATION OF SALE
• PURCHASER OF SERVICES, OR LESSEE OR
LICENSEE UPON PAYMENT OF THE
COMPENSATION, RENTAL OR ROYALTY OR
FEE
CLAIM FOR INPUT TAX ON DEPRECIABLE GOODS

• PURCHASE OR IMPORTATION OF DEPRECIABLE

CAPITAL GOODS, AGGREGATE VALUE OF WHICH
DURING THE MONTH:
o EXCEEDS P1,000,000, EXCLUSIVE OF VAT
 EST USEFUL LIFE IS 5 OR MORE YEARS
 INPUT TAX IS SPREAD OVER 60 MONTHS
 EST USEFUL LIFE IS 5 YEARS OR LESS
 INPUT TAX IS SPREAD OVER ACTUAL EST USEFUL LIFE
o P1,000,000 OR LESS
SPECIAL RULES ON DEPRECIABLE CAPITAL GOODS

• CONSTRUCTION OR ASSEMBLY IN PROGRESS OF >

ONE MONTH, INPUT TAX CAN ONLY BE CLAIMED IN
THE MONTH COMPLETED
• IF STARTED PRIOR TO JUL 1, 2005, INPUT TAX
EARNED ON OR AFTER SAID DATE TO BE CLAIMED
IN THE MONTH COMPLETED
• IF ASSET SOLD PRIOR TO EXHAUSTION OF INPUT
TAX, AMORTIZATION SHALL CONTINUE AS IF NOT
SOLD [BUT RR 16-2006 ALLOWS FULL UTILIZATION
IF DISPOSED EARLIER]
APPORTIONMENT OF INPUT TAX ON MIXED
TRANSACTIONS

• A VAT-REGISTERED PERSON ENGAGED IN BOTH

VAT TAXABLE AND EXEMPT TRANSACTIONS SHALL
ONLY BE ALLOWED TO RECOGNIZE INPUT VAT
THAT CAN DIRECTLY BE ATTRIBUTED OR
ALLOCATED TO TRANSACTION SUBJ TO VAT
• INPUT TAX DIRECTLY ATTRIBUTABLE TO SALES TO
GOVERNMENT CANNOT BE CREDITED AGAINST
OUTPUT TAX ON SALES TO NON-GOVERNMENT
ENTITIES
• IF INPUT TAX CANNOT DIRECTLY BE ATTRIBUTED
TO ANY TYPE, IT SHALL BE PRORATED
SAMPLE OF MIX TRANSACTIONS

• SALES DURING THE MONTH

o SALE TO PRIVATE ENTITIES SUBJ TO 10% VAT P100,000
o SALE TO PRIVATE ENTITIES SUBJ TO 0% VAT 100,000
o SALE OF EXEMPT GOODS 100,000
o SALE TO GOV’T SUBJ TO 5% FINAL VAT W/HOLDING 100,000
 TOTAL P400,000
• INPUT TAXES DURING THE MONTH
o SALE TO PRIVATE ENTITIES SUBJ TO 10% VAT P 5,000
o SALE TO PRIVATE ENTITIES SUBJ TO 0% VAT 3,000
o SALE OF EXEMPT GOODS 2,000
o SALE TO GOV’T SUBJ TO 5% FINAL VAT W/HOLDING 4,000
o INPUT TAX ON DEPRECIABLE GOODS NOT ATTRIBUTABLE 20,000
TREATMENT OF INPUT TAX

• SALE SUBJ TO 10% VAT – SUBJ TO 70% CAP,

EXCESS INPUT TAX FOR CARRY OVER
• 0%-RATED SALES – NO OUTPUT TAX, INPUT TAX
FOR REFUND/CREDIT VS. OTHER TAXES
• EXEMPT SALE – NO OUTPUT TAX, INPUT TAX
CANNOT BE REFUNDED BUT MAY BE EXPENSED
• GOVERNMENT SALE - INPUT TAX SUBJ TO 5% CAP
THAT IS EQUAL TO W/HOLDING TAX, EXCESS INPUT
TAX MAY BE EXPENSED
• SUBSTANTIATION REQUIREMENTS
INPUT TAX EARNED ON PURCHASE OF GOODS

GROSS PURCHASE PRICE (WITHOUT VAT) P 1,000.00

LESS: 9.25% DISCOUNTS (GRANTED AT TIME OF
SALE & NOT SUBJ TO CONDITION) 92.50
---------------------
NTS SUBJ TO VAT P 907.50
12% VAT (INPUT TAX) 108.90
---------------------
TOTAL PAYABLE / CASH P1,016.40
=============

 
SALE OF GOODS PURCHASED

NOW BEFORE
GROSS SELLING PRICE (WITHOUT VAT) P 1,000
LESS: 2 % DISCOUNT (GRANTED AT TIME OF
SALE & NOT SUBJ TO CONDITION) 20
--------------------
NTS SUBJ TO VAT P 980
============
12% VAT X P980 (OUTPUT TAX) P 117.60 P117.60
Less: CREDITABLE INPUT VAT 108.90 108.90
--------------------- -------------
VAT PAYABLE P 8.70 P 8.70
============ ========
 
INPUT TAX EARNED ON PURCHASE OF GOODS

GROSS PURCHASE PRICE (WITHOUT VAT) P 1,000.00

LESS: 9.25% DISCOUNTS (GRANTED AT TIME OF
SALE & NOT SUBJ TO CONDITION) 92.50
---------------------
NTS SUBJ TO VAT P 907.50
12% VAT (INPUT TAX) 108.90 108.90
---------------------
TOTAL PAYABLE / CASH P1,016.40
=============
Beginning balance of Input VAT P 200.00 200.00
------------------- -------------
Total Input VAT available P 308,90
==========
 
SALE OF GOODS PURCHASED

NOW BEFORE
GROSS SELLING PRICE (WITHOUT VAT) P 1,000
LESS: 2 % DISCOUNT (GRANTED AT TIME OF
SALE & NOT SUBJ TO CONDITION) 20
NTS SUBJ TO VAT P 980
============
12% VAT (OUTPUT TAX) P 117.60 P117.60
Less: INPUT VAT (lower of 70% of P117.60 = P82.32
or actual Input VAT ( PREV SLIDE) P308.90 82.32 117.60
VAT PAYABLE P 35.28 P 0.00
============ ========
INPUT VAT TO BE CARRIED OVER
NOW (P308.90 – 82.32) P 226.58
BEFORE (P308.90 – 117.60) P191.30
 
FILING OF RETURN AND PAYMENT OF VAT

• MONTHLY DECLARATION FILED ON THE 20TH DAY

AFTER CLOSE OF PREVIOUS MONTH
• QUARTERLY RETURN FILED ON THE 25TH DAY
AFTER CLOSE OF PREV QTR
• TAX PAID AS RETURN IS FILED
• ESPECIAL RULES ON E-FILING AND LARGE
TAXPAYERS
• ESPECIAL RULES ON ADVANCE PAYMENT
• RULES ON GOVT SALES & NON-RESIDENTS