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ASIA PACIFIC COLLEGE

VAT NO. 2

Page 2

TAXATION: VAT NO. 2

PROF. R.E . HERMOSILLA

BUSINESS TAXES
1. The following are major internal revenue business taxes in the NIRC of 1997, except one:
a. Income tax
b. Excise tax
c. Value-added tax
d. Percentage tax
2. Which statement is considered 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.
3. Alamid imported cigarettes from Taiwan for sale. At a later date, he sold the cigarettes in the Philippines.
He is subject to the value-added tax. He is also subject to the business tax of:
a. Excise tax
b. Income tax
c. Percentage tax
d. None of these
4. Burgos is 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 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 these
5. Cantor is a VAT-registered dealer of liquors. On his sales in the Philippines, his tax is:
a. Excise tax
b. Value-added tax
c. Percentage tax
d. None of these
6. Statement 1: A person subject to excise tax is also subject to value-added tax.
Statement 2: A person subject to percentage tax is also subject to value-added tax.
a. Both statements are correct
c. Statement 1 is correct while Statement 2 is wrong
b. Both statements are wrong
d. Statement 1 is wrong while Statement 2 is correct
7. VAT defined.
a. When first introduced last 01 January 1988, VAT means the tax on the value added by every seller to his
purchases of goods or services; as well as on importation of goods into the Philippines, whether for
personal or business use.
Note: Importation is not actually a sale of goods, or sometimes not even a business activity, yet it is
covered by the VAT business tax. This is because the VAT is actually a consumption tax levied on sales
to be borne by consumers with sellers acting simply as tax collectors. And, as the origin of importation is
from a foreign seller which is outside Phil. jurisdiction, the consumption tax (VAT) is instead paid directly
by the importer.
8. VAT on importation of goods, irregardless of value (no threshold)
a. The term importer refers to any person who brings goods into the Philippines, whether or not made in
the course of trade or business. It includes non-exempt persons or entities who acquire tax free
imported goods from exempt persons, entities or agencies. When goods imported into the Philippines by
VAT-exempt persons, entities, or agencies are subsequently sold, transferred or exchanged in the
Philippines to non-exempt persons or entities, the latter shall be considered the importers thereof who
shall be liable for the value-added tax on such importation. The tax due on such importation shall
constitute a lien on the goods, superior to all charges or liens, irrespective of the possessor of said
goods.
b. Tax rate - 12%, starting 02/01/06
c. Tax base:
1. Based on the total value used by the Bureau of Customs in determining tariff and customs duties
(dutiable value) plus customs duties, excise taxes, if any, and other legitimate charges, prior to the
removal of the goods from the customs custody.
2. Based on landed cost when customs duties are determined on the basis of quantity or volume of the
goods imported. By landed cost is meant the invoice cost, freight, insurance, customs duties, excise
taxes, if any, and other legitimate charges, prior to the removal of the goods from customs custody.
Formats of computation
1. In general:
Total value for tariff and customs duties
xxx
Add:
Customs duties
xxx
Excise tax
xxx
Other charges prior to release of goods from customs
xxx
xxx
custody
Tax base
xxx
VAT rate
12%
VAT on importation
xxx
2. Where the customs duties are determined on the basis of quantity
Total landed cost
Add:
Customs duties
Excise tax
Other charges prior to release of goods from customs
custody

or volume of the goods:


xxx
xxx
xxx
xxx

xxx

VAT NO. 2

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Tax base
xxx
VAT rate
12%
VAT on importation
xxx
d. Examples of other charges or fees prior to release of goods from the Bureau of Customs:
a. Insurance
g. Wharfage dues
b. Freight
h.
Arrastre
charges
c. Postage
i. Brokerage fees
d. Commission
j. Stamps
e. Interest
k. Processing fees
f. Bank charges
e. Payment - the VAT is to be paid prior to the release of the goods imported from the customs custody.
f. Exempt importations:
1. Agricultural and marine food products in their original state;
2. Livestock and poultry yielding foods for human consumption;
3. Breeding stock and genetic materials;
Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt and copra are
agricultural food products in their original state.
Marine food products shall include fish and crustaceans, such as, but not limited to, eels, trout,
lobster, shrimps, prawns, oysters, mussels and clams.
Livestock shall include cows, bulls and calves, pigs, sheep, goats and rabbits. Poultry shall include
fowls, ducks, geese and turkey. Livestock or poultry does not include fighting cocks, race horses, zoo
animals and other animals generally considered as pets.
Meat, fruit, fish, vegetables and other agricultural and marine food products shall be considered in
their original state even if they have undergone the simple processes of preparation or preservation
for the market, such as drying, roasting, broiling, freezing, salting, smoking or stripping.
4. Fertilizers, seeds, seedling and fingerlings;
5. Fish, prawn, livestock and poultry feeds, including ingredients used in the manufacture of finished
feeds (except specialty/non-agricultural feeds or foods for race horses, fighting cocks, aquarium fish,
zoo animals and other animals generally considered as pets);
6. Personal and household effects belonging to residents of the Phil. returning from abroad and nonresident citizens coming to resettle in the Phil., provided such goods are exempt from customs duties;
7. Professional instruments and implements, wearing apparel, domestic animals, and personal
household effects (except vehicle, vessel, aircraft, machinery and other goods for use in the
manufacture and merchandise of any kind in commercial quantity) belonging to persons coming to
settle in the Phil., for their own use and not for sale, accompanying such persons or arriving within 90
days before or after their arrival, upon production of evidence that such persons are actually coming
to settle in the Phil. and that the change of residence is bonafide;
8. Direct farm inputs, machineries and equipment, including spare parts, to be used directly and
exclusively in the production and/or processing of their produce by agricultural cooperatives duly
registered and in good standing with the CDA;
9. Books and any newspaper, magazine, review, or bulletin which appears at regular intervals with fixed
prices for subscription and sale and not devoted principally to the publication of paid advertisements;
10. Passenger or cargo vessels and aircraft, including engine, equipment and spare parts for domestic or
international transport operations; provided that the passenger and/or cargo vessels, shall be limited
to those of 150 tons and above, including engine and spare parts of said vessels; provided, further,
that the vessels shall comply with the age limit requirement, at the time of acquisition counted from
the date of the vessels original commissioning, as follows:

Passenger and/or cargo vessels, the age limit is 15 years old.

Tankers, the age limit is 10 years old.

High-speed passenger crafts, the age limit is 5 years old.


11. Fuel, goods and supplies for international shipping or air transport operations; provided that said fuel,
goods and supplies shall be used exclusively to the transport of goods and/or passengers from a port
in the Phil. directly to a foreign port without stopping at any port in the Phil.;
Problems
1. Which statement is wrong? Value-added tax on importation of goods:
a.
Is imposed on an importation for sale or for use in business.
b.
Is imposed on an importation for personal use.
c.
Should be paid prior to removal from customs custody.
d.
Is not available as input tax even if related to business.
2. One of the following statements is incorrect.
a.
Imported goods which are subject to excise tax are no longer subject to
value-added tax.
b.
VAT on the importation is paid to the Bureau of Customs before the imported
goods are released from its custody.
c.
Expenses incurred after the goods are released from customs custody are
disregarded in computing VAT on importation.

VAT NO. 2

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d.

When a person who enjoys tax-exemption on his importation subsequently


sells in the Philippines such imported articles to non-exempt person, the purchaser-non-exempt
person shall pay the VAT on such importation.
3. Which statement is correct? The value-added tax on an importation:
a.
Should be paid by the tax-exempt importer, if he subsequently sells the goods to a non-taxexempt 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.
Shall not pay the value-added tax because the transaction was exempt at the point of
importation.
4. Three of the following are exempt from the value-added tax. Which is the exception?
a. Importation of books and any newspapers, magazines, review or bulletin.
b. Importation of agricultural and marine food products in their original state.
c. Importation of petroleum products and their raw materials.
d. Importation or sale of fish, prawn, livestock and poultry feeds.
Items 5 and 6 are based on the following information:
A perfume, classified as non-essential article (20% excise tax rate), was imported for sale, the
particulars of which are as follows:
Value of importation
$10,000
Freight and insurance
P10,000
Customs duties
20,000
Other expenses prior to the release of goods from customs custody
5,000
Facilitation expense
5,000
Rate of exchange of 1 US Dollar is P56.
5. The excise tax payable on the importation is:
a. P112,000
b. P119,000
c. P120,000
d. Exempt
6. The value-added tax due on the importation is:
a. P67,200
b. P71,400
c. P85,680
d. Exempt
7. An importer wishes to withdraw his importation from the Bureau of Customs. The imported goods were
subjected to a 10% customs duty in the amount of P12,500 and to other charges in the amount of
P9,500. The value-added tax due is:
a. P12,500
b. P13,750
c. P17,640
d. P14,700
8. Daroya imported a car from U.S.A. for his personal use. Total landed cost is P280,000 (about U.S.
$4,000) including customs duties of P56,000. VAT payable is:
a. P28,000
c. P40,320
b. P33,600
d. None, because the importation is for personal
use.
Items 9 and 10 are based on the following information:
Taxpayer is VAT-registered. Importations were for:
Any value-added tax not included.
Sale
Own use
Invoice cost (Exchange rate is $1 : P56)
$80,000
$4,000
Expenses based on cost:
Freight and insurance
4%
4%
Other expenses up to the point of removal from customs house
6%
6%
Transfer expenses from customs house to warehouse in Manila
1/2%
1/2%
Selling price of goods imported for sale within the same taxable period of importation, value-added tax
included, was P6,720,000.
9. The value-added tax payable on the importations is:
a. P492,800
b. P491,300
c. P517,440
d. P620,928
10. The value-added tax payable on the sale is:
a. P99,072
b. P128,640
c. P107,200
d. P720,000
Items 11 and 12 are based on the following information:
Esprit Corp. imported an article from Japan. The invoice value of the following article was 1,000,000 Yen
(1 Yen = P0.50). The following were incurred in connection with the importation:
Insurance
P15,000
Freight
10,000
Postage
5,000
Wharfage dues
7,000
Arrastre charges
8,000
Brokerage fee
25,000
Facilitation fee
3,000
The imported article was subject to P50,000 customs duty and P30,000 excise tax. Esprit Corp. spent
P5,000 for trucking from the customs warehouse to its warehouse in Quezon City.
11. The VAT on importation is:
a. P65,800
b. P78,000
c. P65,000
d. P50,000
12. Assuming that the imported article was sold for P950,000, VAT exclusive, the VAT payable is:
a. P36,000
b. P29,200
c. P30,000
d. P114,000
Items 13 and 14 are based on the following information:

VAT NO. 2

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Falcon Co., a VAT-registered taxpayer, is a customs broker and a forwarder, representing importers
at the piers and transporting their importations to warehouses all over Luzon. On an importation by
Gencor Co., its costs were (taxes not included) as follows:
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 Falcon Co.
8,000
Forwarding charges paid to Falcon Co.
25,000
13. The value-added tax of Gencor Co., before any tax credits, is:
a. P210,960
b. P175,800
c. P173,300
d. P207,960
14.
The business tax of Falcon Co., before any tax credits, is:
a. Value-added tax of P3,960
c. Value-added tax of P0
b. Percentage tax of P990
d. Percentage tax of P0
9. About the VAT
a. It is a business tax. Without any business pursued in the Philippines by the taxpayer, the tax cannot
apply.

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 (irrespective of the
disposition of its net income and whether or not it sells exclusively to members or their guests), or
government entity. Examples are: Selling goods, leasing or renting out properties and selling services.

Exceptions, where even there is business, there is no VAT imposable:


1. Business pursued by an individual where the aggregate gross sales and/or receipts do not exceed
P100,000 during any 12-month period shall be considered principally for subsistence or livelihood
and not in the course of trade or business;
2. Sale of real properties utilized for low cost housing (P750,000 per unit or less);
3. Sale of real properties used for socialized housing (P225,000 per unit or less);
4. Sale of residential lot valued at P1,500,000 per unit and below;
5. Sale of house and lot and other residential dwellings valued at P2,500,000 and below where the
instrument of sale was executed on or after November 1, 2005; and
6. Lease of residential unit with a monthly rental per unit of P10,000 and below, irregardless of the
aggregate rentals received during the year.

Exceptions, where even there is no business, VAT is imposable:


1. Importation of goods for personal use; and
2. Services rendered in the Philippines by non-resident foreign persons, even isolated, shall be
considered as being rendered in the course of trade or business.
Problems
1. 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 for a gross selling price or receipts of P500,000.
2. 1st statement: Non-stock and non-profit 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.
2nd statement: Government entities engaged in commercial or economic activity are generally exempt
from value-added tax.
a. Both statements are correct.
c. Only the first statement is correct.
b. Both statements are incorrect.
d. Only the second statement is correct.
b.
It is an indirect tax. The statutory taxpayer has the option of shifting or passing the tax burden to
another person without violating the law. It is integrated as part of the selling price of goods or services
sold. The result is high prices. Note: High prices of goods and services sold is not caused alone by the
indirect tax added, but substantially by the too many intermediaries between the point of production to
the end-user. Aside from the tax, a yet bigger add-on which is the gross profit of the sellers cascades
down to the final consumers of the goods or services sold.
Problem
1. Value added tax is a/an:
a. Indirect tax
b. Direct tax
c. Local tax
d. Personal tax
c. It is a national tax. The collection or administration of the tax is handled by the national government
through the Bureau of Internal Revenue Offices.
10. Thresholds for business tax (VAT or percentage tax)
a. Sellers or lessors of goods or properties and performers of services whose annual gross sales and/or
receipts do not exceed P100,000 shall not be subject to VAT or percentage tax.
b. Sellers or lessors of goods or properties and performers of services whose annual gross sales and/or
receipts exceed P100,000 but not more than P1,500,000 shall be subject to either VAT or percentage
tax. If the taxpayer opts to be VAT-exempt, he shall be imposed a quarterly percentage tax of 3% based
on gross sales or receipts. If the taxpayer elects to register as VAT taxpayer, however, he shall not be
allowed to cancel his VAT registration for the next three years.

VAT NO. 2

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c. Sellers or lessors of goods or properties and performers of services whose annual gross sales and/or
receipts exceed P1,500,000 shall be compulsory VAT taxpayers, registered or not.
d. Franchise grantees of radio and/or television broadcasting, whose annual gross receipts for the
preceding calendar year do not exceed P10,000,000 derived from the business covered by the law
granting the franchise may opt for VAT registration. This option, once exercised, shall be irrevocable.
11. The Expanded VAT.
a. Effective 01 January 1996, under R.A. 7716 and amended by R.A. 8241 made effective 01 January
1997, and further amended by R.A. 8424 made effective 01 January 1998, and by R.A. 9337 (otherwise
known as the RVAT) made effective 01 November 2005, and last amended by R.A. 9361 made effective
beginning the quarterly VAT return ended 31 December 2006. VAT is a business tax levied on certain
goods, properties and services. It is a business tax required to be paid by sellers or lessors of goods or
properties and/or performers of services in the domestic market and/or importers of goods.
b. Literally, the tax is on the added value by the seller to his purchase cost of the goods sold, sometimes
called the gross profit. This is called the cost deduction approach which is not the one employed in the
Philippines.
c. The tax credit approach is the one adopted. This means that VAT is imposed on the sale first called
Output Tax and a tax credit is claimed on the VAT passed on to his purchase cost of goods or services
known as Input Tax. The difference is called the VAT payable. There seems to be a semblance of result
under the cost deduction approach and the tax credit method, although actually not. This is because
not all the purchases of goods, properties and services by the VAT taxpayers have passed on input tax.
d. For a VAT taxpayer to maximize his claim of input tax and therefore minimize his VAT payable, he would
only transact with his fellow VAT-registered taxpayers because of the passed on VAT. He will rarely buy,
if ever, goods, properties and services from non-VAT taxpayers.
e. Those whose annual gross sales and/or receipts do not exceed P1,500,000, however, are actually given
the option to become VAT taxpayers by actual registration, for them to be covered by the VAT system.
Hence, they could also transact with the affluent sector of society.

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