Vat

TAXATION: Value Added Tax
JVR
SAN CARLOS COLLEGE
COLLEGE OF ACCOUNTANCY
ACCOUNTING ENHANCEMENT
TAXATION
Not Subject to Business Tax:
1. Related Activities of a Non-Stock Non-Profit Organization
2. Government Functions of the national and foreign government, government agencies or instrumentalities
3. Businesses considered as principally for subsistence or livelihood (those with gross sales/gross receipts not
exceeding P100,000 annually)
4. Directors of a Corporation are not considered doing business for purposes of imposing business taxes
5. Compensation income from employment is not considered as income from business
6. Sale, Lease or Use of Properties or Goods which are not used in business or not intended to be used in
business
7. Casual Services (those services done without any intention of making them habitual)
8. Privilege stores (those set up during occasions for a maximum of 15 days)
NOTE: Unregistered businesses are taxable.
Destination Principle or Cross Border Doctrine
Those goods/properties/services to be consumed outside the Philippines are not covered by the regular VAT system.
Persons Liable to VAT
Statutory Taxpayer Who shoulders VAT
Local Sale
Importation
Sale of PEZA-registered to entities
located at customs territory
Exempt Importations
Absolutely Exempted
(a)Importation of agricultural and marine food products in their original state, livestock and poultry of a kind
generally used as, or yielding or producing foods for human consumption; and breeding stock and genetic materials
therefor.
(b)Importation of fertilizers, seeds, seedlings and fingerlings, fish, prawn, livestock and poultry feeds, including
ingredients, whether locally produced or imported, 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);
(c) Importation of personal and household effects belonging to residents of the Philippines returning from abroad and
non-resident citizens coming to resettle in the Philippines; Provided, that such goods are exempt from customs
duties under the Tariff and Customs Code of the Philippines;
(d) Importation of professional instruments and implements, wearing apparel, domestic animals, and personal
household effects (except any vehicle, vessel, aircraft, machinery and other goods for use in the manufacture of
merchandise of any kind in commercial quantity) belonging to persons coming to settle in the Philippines, for their
own use and not for sale, barter or exchange, accompanying such persons, or arriving within ninety (90) days before
or after their arrival, upon the production of evidence satisfactory to the Commissioner of Internal Revenue, that
such persons are actually coming to settle in the Philippines and that the change of residence is bonafide;
(e) Importation of books and any newspaper, magazine, review, or bulletin which appears at regular intervals with
fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements;
Exempt Importation by Exempt Persons
(a) Importation by agricultural cooperatives duly registered and in good standing with the Cooperative Development
Authority (CDA) 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;
(b)Importation of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for
domestic or international transport operations;
Provided, that the vessels to be imported shall comply with the age limit requirement, at the time of acquisition
counted from the date of the vessel’s original commissioning, as follows:
 for passenger and/or cargo vessels, the age limit is fifteen (15) years old,
 for tankers, the age limit is ten (10) years old, and
 For high-speed passenger crafts, the age limit is five (5) years old
(c) Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations;
Provided, that the said fuel, goods and supplies shall be used 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;
Illustration A
Assuming POGI Cooperative, an agricultural cooperative imported fertilizers, pesticides and tractors to be used in
production of its own products to be sold to its members. Some fertilizers, pesticides and tractors are to be sold
directly to members. Determine the VAT consequence of the importation
For use in productions For sale
Fertilizers
Pesticides
Tractors
Illustration B
Assuming POGI Corporation, a domestic carrier of passengers by air, imported the following:
To be Used for:
Domestic Operations Foreign Operations
Fuel 1,000,000 2,000,000
Goods and supplies 500,000 700,000
Spareparts of its aircraft 2,000,000 3,000,000
Required: Determine the items subject to VAT on importation
TAX by Jonas POGI Reyes, CPA Page 1

For Domestic Operations For Foreign Operations

Fuel
Goods and supplies
Spareparts
Illustration C
Determine if Exempt Importation or VATABLE Importation:
Native Chicken to be used as breeding stocks
Feeds for Native Chicken
Ingredients for manufacturing of feeds for native chicken
Genetic materials for breeding native chicken
Ingredients for manufacturing of feeds for native
chicken, determined as available for human consumption
Dressed Native Chicken with advanced packaging
Bamboo Poles
Bamboo Shoots
Orchids
White Kelso cock and hen to be used as breeding stocks
Feeds for White Kelso
Ingredients for manufacturing of feeds for White Kelso
Marinated Chicken
Canned Sardines
Fertilizers
Seeds
Shrimps
Chow Chow dogs
Racehorse
Dried Fish
Salted Fish
Smoked Meat
Roasted Coffee Beans
Rattan
rattlesnake
goldfish
Goldfish bowl
Exempt Sale of Goods or Properties
(a) Sale of agricultural and marine food products in their original state, livestock and poultry of a kind generally used
as, or yielding or producing foods for human consumption; and breeding stock and genetic materials therefor.
(b) Sale of fertilizers, seeds, seedlings and fingerlings, fish, prawn, livestock and poultry feeds, including ingredients,
whether locally produced or imported, 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);
“Specialty feeds” refers to non-agricultural feeds or food for race horses, fighting cocks, aquarium fish, zoo animals
and other animals generally considered as pets.
(c) Sales by agricultural cooperatives duly registered and in good standing with the Cooperative Development
Authority (CDA) to their members, as well as sale of their produce, whether in its original state or processed
form, to non-members;
Sales to Members Sales to Non-members
Own Produce
Purchased products
(d) Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with and in good standing
with the CDA; Provided, That the share capital contribution of each member does not exceed Fifteen Thousand Pesos
(P15,000.00) and regardless of the aggregate capital and net surplus ratably distributed among the members.
Transaction w/ Members Transaction w/ non members
Related Activities
Unrelated Activities
Assuming that the accumulated savings and undivided net surplus exceeds P10M:
Transaction w/ Members Transaction w/ non members
Related Activities
(e) Export sales by persons who are not VAT-registered;
(f) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or
business – capital assets
(g) Sale of real properties utilized for low-cost housing (P750,000 ceiling)
(h) Sale of real properties utilized for socialized housing (P450,000 ceiling)
(i) Sale of residential lot valued at (P1,919,500.00) and below, or house & lot and other residential dwellings valued
at (P3,199,200.00) and below
(j) Sale of books and any newspaper, magazine, review, or bulletin which appears at regular intervals with fixed
prices for subscription and sale and which is not devoted principally to the publication of paid advertisements;
(k) Sale of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for domestic
or international transport operations;

(l) Sale of goods or properties other than the transactions mentioned in the preceding paragraphs, the gross annual
sales and/or receipts do not exceed the amount of (P1,919,500.00);
(m) Sale to senior citizens and Persons with Disabilities (PWDs)
VAT-Exempt Sales of Services
(a) Services subject to percentage tax
(b) Services by agricultural contract growers and milling for others of palay into rice, corn into grits, and sugar cane
into raw sugar;
“Agricultural contract growers” refers to those persons producing for others poultry, livestock or other agricultural
and marine food products in their original state.
Illustration - Miller
Mang Juan is a miller of rice and coffee. He had the following results of operation for taxable year 2017:
Sale of milled rice to loyal customers 3,000,000
Gross receipts from rice milling services rendered to different warehouses 2,000,000
Sale of milled coffee beans 2,500,000
Gross receipts from coffee milling services rendered to clients 4,000,000
Determine if subject to 12% VAT, 3% Percentage Tax or Exempt.
(c) Medical, dental, hospital and veterinary services, except those rendered by professionals.
Laboratory services are exempted. If the hospital or clinic operates a pharmacy or drug store, the sale of drugs and
medicine is subject to VAT.
Illustration - Hospital
Assume the following results of a hospital operation for taxable year 2017:
Gross receipts from admitted patients 3,000,000
Gross receipts from laboratory services 2,000,000
Gross sales from medicines sold to patients 1,000,000
Dr. Amoor had P1,000,000 professional receipts for rendering services to patients.
Determine if subject to 12% Vat, 3% Percentage Tax or Exempt.
(d) Educational services rendered by private educational institutions duly accredited by the Department of Education
(DepED), the Commission on Higher Education (CHED) and the Technical Education and Skills Development
Authority (TESDA) and those rendered by government educational institutions;
“Educational services” shall refer to academic, technical or vocational education provided by private educational
institutions duly accredited by the DepED, the CHED and TESDA and those rendered by government educational
institutions and it does not include seminars, in-service training, review classes and other similar services rendered
by persons who are not accredited by the DepED, the CHED and/or the TESDA;
Receipts by a private school accredited by CHED VATABLE or Exempt
Tuition Fee
Miscellaneous Fee
Rent
Trainings and Seminars
(e) Services rendered by individuals pursuant to an employer-employee relationship;
(f) Services rendered by regional or area headquarters established in the Philippines by multinational corporations
which act as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the
Asia Pacific Region and do not earn or derive income from the Philippines;
(g) Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered and in good
standing with the Cooperative Development Authority,
Transaction w/ Members Transaction w/ Non-Members
Lending Activities
(h) Export sales by persons who are not VAT-registered;
(i) Printing or publication of books and any newspaper, magazine, review, or bulletin which appears at regular
intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid
advertisements;
(j) Lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for
domestic or international transport operations;
(k) Lease of residential units with a monthly rental per unit not exceeding (P12,800.00), regardless of the amount of
aggregate rentals received by the lessor during the year;
Assume taxable year 2017 for the following illustrations, determine if Exempt, Subject to 12% VAT or subject to 3%
Percentage Tax:
Illustration 1: A lessor rents his 15 residential units for P12,000 per month. During the taxable year, his
accumulated gross receipts amounted to P2,160,000.
Illustration 4: A lessor rents his 2 commercial and 10 residential units for monthly rent of P60,000 and P12,800
per unit, respectively. During the taxable year, his accumulated gross receipts amounted to P2,976,000
(P1,440,000 from commercial units and P1,536,000 from residential units).

(l) Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank
financial intermediaries subject to percentage tax under Secs. 121 and 122 of the Tax Code, such as money
changers and pawnshops; and
(m) Lease of goods or properties or the performance of services other than the transactions mentioned in the
preceding paragraphs, the gross receipts do not exceed the amount of (P1,919,500.00);
(n) Sale of service to Senior Citizens and Persons with Disabilities (PWDs)
Zero-Rated Sales of Goods or Properties
(a) Export sales. – “Export Sales” shall mean:
(1) The sale and actual shipment of goods from the Philippines to a foreign country, paid for in acceptable foreign
currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP);
(2) The 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 foreign currency, and accounted for in accordance with the rules and
regulations of the BSP;
(3) The sale of raw materials or packaging materials to an export-oriented enterprise whose export sales exceed
seventy percent (70%) of total annual production;
(4) Sale of gold to the BSP; and
(5) Transactions considered export sales under Executive Order No. 226, otherwise known as the Omnibus
Investments Code of 1987, and other special laws.
“Considered export sales under Executive Order No. 226” shall mean:
- Philippine port F.O.B. value determined from invoices, bills of lading, inward letters of credit, landing
certificates, and other commercial documents, of export products exported directly by a registered export
producer, or the
- net selling price of export products sold by a registered export producer to another export producer, or to an
export trader that subsequently exports the same; Provided, That sales of export products to another
producer or to an export trader shall only be deemed export sales when actually exported by the latter, as
evidenced by landing certificates or similar commercial documents;
Constructive Exportations under E.O. 226:
- 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 in the
manufacture of export products under guidelines to be set by the Board in consultation with the Bureau of
Internal Revenue (BIR) and the Bureau of Customs (BOC);
- sales to 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.
For purposes of zero-rating, the export sales of registered export traders shall include commission income. The
exportation of goods on consignment shall not be deemed export sales until the export products consigned are in
fact sold by the consignee; and Provided, finally, that sales of goods, properties or services made by a VAT-
registered supplier to a BOI-registered manufacturer/producer whose products are 100% exported are considered
export sales.
(6) The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air
transport operations
Effectively Zero-Rated Sales
Sales of goods or property to persons or entities who are tax exempt under special laws, e.g. (1) sales to enterprises
duly registered and accredited with the Subic Bay Metropolitan Authority (SBMA), (2) sales to enterprises duly
registered and accredited with the Philippine Economic Zone Authority (PEZA) or international agreements to which
the Philippines is signatory, such as, Asian Development Bank (ADB), International Rice Research Institute (IRRI),
shall be effectively subject to VAT at zero-rate.
Zero-Rated Sale of Services
(1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines, which
goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the BSP;
(2) Services other than processing, manufacturing or repacking rendered to a person engaged in business conducted
outside the Philippines or to a non-resident person not 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;
(3) 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 such services to zero percent (0%) rate;
(4) Services rendered to persons engaged in international shipping or air transport operations, including leases of
property for use thereof; Provided, however, that the services referred to herein shall not pertain to those made to
common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the
Philippines to another place in the Philippines, the same being subject to 12% VAT under Sec. 108 of the Tax Code;
(5) Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for
an enterprise whose export sales exceed seventy percent (70%) of the total annual production;
(6) Transport of passengers and cargo by domestic air or sea carriers from the Philippines to a foreign country.
Gross receipts of international air carriers doing business in the Philippines and international sea carriers doing
business in the Philippines are still liable to a percentage tax of three percent (3%) based on their gross receipts as
provided for in Sec. 118 of the Tax Code but shall not to be liable to VAT; and
(7) Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar,
wind, hydropower, geothermal and steam, ocean energy, and other emerging sources using technologies such as
fuel cells and hydrogen fuels; Provided, however, that zero-rating shall apply strictly to the sale of power or fuel
generated through renewable sources of energy, and shall not extend to the sale of services related to the
maintenance or operation of plants generating said power.

VAT on Importation of Goods

Pro-forma Computation for VAT Basis for Importation
Dutiable Value xxxxx
Add: (1) Custom’s duty xxxxx
(2) Excise Tax, if any xxxxx
(3) Other Charges xxxxx
Landed Cost xxxxx
Multiply by VAT Rate x 12%
VAT on Importation xxxxx
Dutiable Value is equal to the:
(1) amount actually paid or payable for the imported goods when sold for export to the Philippines; adjusted by
adding the following:
(2) Commissions and brokerage fees (except buying commissions)
(3) Cost of containers
(4) Cost of packing (whether for labor or materials)
(5) Royalties and license fees related to the goods
(6) Value of the following goods and services: materials, components, parts incorporated in the imported goods;
tools; dies; moulds used in production of imported goods; materials consumed in production of imported goods; and
engineering, development, artwork, design work and plans and sketches undertaken abroad and necessary for the
production of imported goods
(7) value of any part of the proceeds of any subsequent resale, disposal or use of the imported goods that accrues to
the seller
(8) transportation cost from port of exportation to port of entry in the Philippines
(9) Loading, unloading, handling charges associated with transport of goods from port of exportation to port of entry
in the Philippines
(10) cost of insurance
Other BOC charges and fees:
1. Harbor Fees
2. Wharfage dues
3. Berthing dues
4. Storage dues
5. Arrastre dues
6. Tonnage dues
7. Other fees like DST and processing fee
Payment of VAT on Importation
VAT on Importation should be due and payable to the Bureau of Customs.
Illustration D
POGI imported an article from USA. The invoice value of the imported article was $7000 ($1:P50). The following
were incurred in relation with the importation:
Insurance P15,000
Freight P10,000
Postage P5,000
Wharfage P7,000
Arrastre Charges P8,000
Brokerage fee P25,000
Facilitation Fee P3,000
The imported article is subject to 10% custom duty and P30,000 excise tax. A spent P5,000 for trucking from the
customs warehouse to its warehouse in Quezon City. The Vat on importation is:
VAT on Sale of Goods or Properties
VAT is imposed and collected on (1) every sale, barter or exchange, or (2) transactions “deemed sale” of taxable
goods or properties at the rate of 12% of the gross selling price or gross value in money of the goods or properties
sold, bartered, or exchanged, or deemed sold in the Philippines.
Transactions Deemed Sale. –
(1) 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;
(2) Distribution or transfer to:
a. Shareholders or investors share in the profits of VAT-registered person;
b. Creditors in payment of debt or obligation.
(3) Consignment of goods if actual sale is not made within 60 days following the date such goods were consigned.
Consigned goods returned by the consignee within the 60-day period are not deemed sold;
(4) 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. The following circumstances shall, among others, give rise to transactions “deemed
sale” for purposes of this Section;
a. Change of ownership of the business. There is a change in the ownership of the business when a single
proprietorship incorporates; or the proprietor of a single proprietorship sells his entire business.
b. Dissolution of a partnership and creation of a new partnership which takes over the business.
The Commissioner of Internal Revenue shall determine the appropriate tax base in cases
a. where a transaction is deemed a sale, barter or exchange of goods or properties, or
b. where the gross selling price is unreasonably lower than the actual market value.
The gross selling price is unreasonably lower than the actual market value if it is lower by more than 30% of the
actual market value of the same goods of the same quantity and quality sold in the immediate locality on or nearest
the date of sale.
Tax Basis for Output VAT in case of Deemed Sales
In the case of retirement or cessation of business: ___________________________
Other Cases of Deemed Sale: ____________________________

Change or Cessation of Status as VAT-registered Person. –

VAT registered ----> Non-Vat registered
Not subject to output tax
The VAT shall not apply to goods or properties existing as of the occurrence of the following:
(1) Change of control of a corporation by the acquisition of the controlling interest of such corporation by another
stockholder or group of stockholders.
Illustration E
POGI Corporation is a merchandising concern and has an inventory of goods for sale amounting to Php1 million.
Jonas Corporation, a real estate developer, exchanged its real estate properties for the shares of stocks of POGI
Corporation resulting to the acquisition of corporate control.
- The inventory of goods owned by POGI Corporation (Php1 million worth) is not subject to output tax despite
the change in corporate control because the same corporation still owns them.
- However, the exchange of real estate properties held for sale or for lease, for shares of stocks, whether
resulting to corporate control or not, is subject to VAT.
(2) Change in the trade or corporate name of the business;
(3) Merger or consolidation of corporations. The unused input tax of the dissolved corporation, as of the date of
merger or consolidation, shall be absorbed by the surviving or new corporation.
Illustration F
Assuming X and Y Corporation entered into a merger resulting to Y Corporation being dissolved. X had inventories of
goods amounting to P1,000,000; and Y had P600,000. Assuming the input tax unused by X and Y are P100,000 and
P50,000 respectively. In this case, there will be no deemed sale for either X or Y. However, Y’s unused input tax of
P50,000 will be absorbed by X Corporation.
“Sale of Real Properties”
Illustration G
POGI, a real estate dealer has the following sales data for 2017:
Lot A Lot B Lot C
Selling Price 1,000,000 2,000,000 1,000,000
Cost of the Property 500,0001,000,000 500,000
Mortgage assumed by buyer 600,0001,100,000 500,000
Downpayment – November 2017 100,000500,000 100,000
First Installment – December 2017 50,000 100,000100,000
Zonal Value 1,200,000 1,800,000 900,000
Assessed Value 1,100,000 1,900,000 1,000,000
Required: Determine the Output Vat for November and December.
VAT on the Sale of Services and Use or Lease of Properties. – Sale or exchange of services, as well as the use
or lease of properties shall be subject to VAT, equivalent to 12% of the gross receipts (excluding VAT).
INPUT TAXES
Treatment of Input Taxes
Exempt Sales Zero Rated Sales 12% VATABLE Sales
Cost or expense Maybe claimed for: Tax Credit to arrive at VAT Payable
(1) Refund
(2) Tax Credit Certificate
If not claimed, carry over to next
quarter/s
NOTES:
(1) Purchase of goods/properties must be evidenced by VAT invoice
(2) Purchase of service must be evidenced by Official Receipt
(3) Purchase must be from a VAT-registered person
Credits For Input Tax
Any input tax on the following transactions evidenced by a VAT invoice or official receipt issued by a VAT-registered
person shall be creditable against the output tax:
(a) Purchase or importation of goods
 For sale; or
 For conversion into or intended to form part of a finished product for sale, including packaging materials; or
 For use as supplies in the course of business; or
 For use as raw materials supplied in the sale of services; or
 For use in trade or business for which deduction for depreciation or amortization is allowed under the Tax
Code, (Amortized Input VAT)
(b) Purchase of real properties for which a VAT has actually been paid;
(c) Purchase of services in which a VAT has actually been paid;
(d) Transactions “deemed sale”;
(e) Transitional input tax;
(f) Presumptive input tax;
(g) Standard Input VAT
(h) Input VAT Carry-Over
(i) Advance Payment of VAT
Persons Who Can Avail of the Input Tax Credit
The input tax credit on importation of goods or local purchases of goods, properties or services by a VAT registered
person shall be creditable:
(a) To the importer upon payment of VAT prior to the release of goods from customs custody;
(b) To the purchaser of the domestic goods or properties upon consummation of the sale; or
(c) To the purchaser of services or the lessee or licensee upon payment of the compensation, rental, royalty or fee.
Illustration H
Assuming the following data for POGI Corporation, a VAT-registered taxpayer:
November 2017:

Purchase of raw materials, P100,000 unpaid 500,000
Professional fees expense, P200,000 unpaid 600,000
Importation of raw materials, P100,000 not yet released by BOC 1,000,000
Assuming the supplier of raw materials, as well as the service provider are all VAT-registered.
How much is the creditable input tax for November?
Claim for Input Tax on Depreciable Goods
Illustration I
POGI Corporation sold capital goods on installment on October 1, 2017. It is agreed that the selling price, including
the VAT, shall be payable in five (5) equal monthly installments.
The data pertinent to the sold assets are as follows:
Selling Price (exclusive of VAT) - P 5,000,000.00
Passed-on VAT - 600,000.00
Original Cost of Asset - 3,000,000.00
Accumulated Depreciation at the time of sale - 1,000,000.00
Unutilized Input Tax (Sold Asset) - 100,000.00
Complete the table below:
SELLER
Output VAT
Input VAT
VAT Payable
How much is the input tax of buyer in November 2017?_____________________
Transitional/Presumptive Input Tax Credits
Illustration J
Assuming POGI Corporation is not VAT-registered up to 2016. In 2017, POGI opted to register under the VAT
system. Assuming the following information in January 2017:
Beginning Inventory, as reported in the ITR last year:
From VAT-registered person 1,000,000
From Non-VAT person 800,000
Exempt Agricultural products in original state 200,000
Actual Input VAT paid, allocable to beginning inventory 220,000
Depreciable Goods or Capital Goods, Book Value 2,000,000
Unused Input VAT on capital goods 240,000
How much is the transitional input VAT?
Illustration K
Assuming POGI Corporation is a manufacturer of sardines. POGI has the following information in 2017:
Purchase of fish in original state 2,000,000
Purchase of tomatoes in original state 1,000,000
Purchase of pesticides for pest-control purposes 3,000,000
Purchase of onions and garlics as ingredients 500,000
How much is the presumptive input tax?
Withholding of VAT
Any sale of goods, properties or service to the government, including its agencies/instrumentalities, local
government units and government owned and controlled corporations will be subject to Final VAT of 5% to be
withheld by the government buyer.
To illustrate, assuming POGI sold goods for P100,000, net of VAT to the Philippine government. Assuming the
actual input VAT is P8,000. Determine VAT payable. _______________________
Input VAT carry over
Excess input VAT may be carried over to the next month/s or next quarter/s.
Illustration L
Excess input tax from 2nd quarter of 2017 ending May 31 is P5,000.
Data for June, July and August
June July August
Output VAT 100,000110,000130,000
Input VAT 99,000 109,000100,000
Determine the VAT payable each month.
June July August
Output VAT
Less: Input VAT
Input tax carry over
VAT due (Excess input tax)
Rules in Carry over:

1. Excess input tax from previous quarter may be carried over to the first month of next quarter and the last
month of the next quarter.
2. Excess input tax from first month may be carried over to the second month
3. Excess input tax from first and second month cannot be carried over to the last month of the quarter, since
the reporting is cumulative.
Input VAT on Deemed Sales
Illustration M
“A”, at the time of retirement, had 1,000 pieces of merchandise which was deemed sold at a value of P20,000.00
with an output tax of P2,400.00. After retirement, “A” sold to “B”, 500 pieces for P12,000.00. In the contract of sale

or invoice, “A” should state the sales invoice number wherein the output tax on “deemed sale” was imposed and the
corresponding tax paid on the 500 pieces is P1,200.00, which is included in the P12,000.00, or he should indicate it
separately as follows:
Gross selling price - 10,800.00
VAT previously paid on “deemed sale” - 1,200.00
Total - 12,000.00
Apportionment of Input Tax on Mixed Transactions

Illustration N
POGI Corporation has the following sales during the month:
Sale to private entities subject to 12% - 100,000.00
Sale to private entities subject to 0% - 100,000.00
Sale of exempt goods - 100,000.00
Sale to gov’t. subjected to 5% final VAT Withholding - 100,000.00
Total sales for the month - P400,000.00
The following input taxes were passed on by its VAT suppliers:
Input tax on taxable goods (12%) - 5,000.00
Input tax on zero-rated sales - 3,000.00
Input tax on sale of exempt goods - 2,000.00
Input tax on sale to government - 4,000.00
Input tax on depreciable capital good
not attributable to any specific activity - 20,000.00
(monthly amortization for 60 months)
Determine the VAT payable.
Claims for Refund/Tax Credit Certificate of Input Tax
1. Zero-rated and Effectively Zero-rated Sales of Goods, Properties or Services
The application should be filed within two (2) years after the close of the taxable quarter when such sales
were made.
2. Cancellation of VAT registration
The application should be filed within two (2) years from the date of cancellation
Period within which refund or tax credit certificate/refund of input taxes shall be made
In proper cases, the Commissioner of Internal Revenue shall grant a tax credit certificate/refund for creditable input
taxes within one hundred twenty (120) days from the date of submission of complete documents by the
taxpayer.
When to file an appeal to the Court of Tax Appeals
(1) In case of full or partial denial of the claim for tax credit certificate/refund as decided by the Commissioner
of Internal Revenue, the taxpayer may appeal to the Court of Tax Appeals (CTA) within thirty (30) days
from the receipt of said denial, otherwise the decision shall become final.
(2) If no action on the claim for tax credit certificate/refund has been taken by the Commissioner of Internal
Revenue after the one hundred twenty (120) day period from the date of submission of the application with
complete documents, the taxpayer may appeal to the CTA within 30 days from the lapse of the 120-day
period.
Consequences of Issuing Erroneous VAT Invoice or VAT Official Receipt
(A) Issuance of a VAT Invoice or VAT Receipt by a non-VAT person
Illustration P
Assuming A Corporation, a non-VAT person, sold P1,000 worth of merchandise to B Corporation, imposing 12% VAT
in the amount of P120. In the VAT invoice, the total amount reflected is P1,120. Assuming A Corporation paid 3%
percentage tax of 300 (1,000 x 3%), how much is the additional tax liability of A Corporation?
(B) Issuance of a VAT Invoice or VAT Receipt on an Exempt Transaction by a VAT-registered Person
____________________-
Filing of Return and Payment of VAT
BIR Form Due DATE
Monthly VAT Return 2550M Within 20 days after the month
Quarterly VAT Return 2550Q Within 25 days after the end of

taxable quarter
VAT registrable persons are required to file 2550Q only.

Suspension of business operations
The Commissioner of Internal Revenue or his duly authorized representative may order suspension or closure of a
business establishment for a period of not less than five (5) days for any of the following violations:
(1) Failure to issue receipts and invoices.
(2) Failure to file VAT return.
(3) Understatement of taxable sales or receipts by 30% or more of his correct taxable sales or receipt for the taxable
quarter.
(4) Failure of any person to register if their gross sales/gross receipts exceeded the VAT threshold.
Review Questions
1. Which of the following shall be subject to VAT?
a. Sale of a residential house and lot c. Sales of private car by its owner
b. Sale of an apartment house d. All of the above
2. Buhakag is a CPA. She applied for work and was hired by a firm which is engaged in Business Process
Outsourcing business handling accounting work for US entities. She was paid for his services. How will she treat
such payment for business tax purposes?

a. Subject to 12% VAT
b. Subject to percentage tax
c. Exempt from VAT and percentage tax
d. It is a zero rated transaction
3. A person engaged in trading business of goods, and employed also, sold and received the following:
Sales of goods held for sale P200,000
Sale of personal car 300,000
Sale of investment in bonds 500,000
Sale of land used in business 300,000
Sale of principal residence 600,000
Compensation income 800,000
Sale of shares of stocks 300,000
Director’s fee 400,000
How much is subject to business tax?
a. 1,300,000 b. 2,100,000 c. 200,000 d. 500,000
4. As of August 2016, Mr. POGI had the following gross receipts and gross sales in the immediately preceding
months:
Gross receipts from food business 300,000
Gross receipts from professional practice 1,100,000
Gross sales from privilege store 200,000
Gross sales of wife’s business 400,000
How much will be subject to VAT assuming Mr. POGI is not VAT-registered?
a. 1,400,000 b. 1,100,000 c. 1,800,000 d. nil
5. POGI Group of Companies, non VAT registered had the following information for 2016:
Gross Sales
POGI-parent company 1,900,000
Subsidiary 1 1,500,000
Which is correct?
a. The parent company should file a consolidated VAT return
b. Subsidiary 1, 2 and 3 should file a consolidated VAT return
c. Subsidiary should file a percentage tax return, if the parent files the same
d. Parent Company should file a percentage tax return
6. Mr. POGI is a security dealer. He had the following information:
Sales of securities in own portfolio 1,200,000
Commission income from trading stocks 700,000
Sale of bonds 100,000
Sale of vacant lot 1,500,000
Which is correct?
a. Mr. POGI should file a percentage tax return only
b. Mr. POGI should file a VAT return only
c. Mr. POGI should file a percentage tax return and an income tax return
d. Mr. POGI should file a VAT return and an income tax return and capital gains tax return
7. Mr. POGI received the following from employment, and professional practice:
Employment Professional Practice
Gross Salaries 1,200,000 Professional fees 1,000,000
Less: Withholding tax (360,000) Less: Creditable withholding tax (150,000)
SSS,HDMF,Philhealth (200,000) Net pay 850,000
Union dues (100,0000
Net pay 540,000
How much will be subject to VAT, if POGI is not VAT-registered?
a. 1,390,000 b. 2,200,000 c. 0 d. 1,000,000
8. POGI, a seller of goods, had the following transactions:
Cash sales 300,000
Credit Sales 400,000
Installment Sales(30% collected) 500,000
Shipping fee charged to customers 50,000
Excise Tax 20,000
Sales returns and allowances 100,000
Volume discount and rebates 10,000
Consignment Sales(30% commission) 100,000
Trade discount 120,000
How much is gross selling price?
a. 1,140,000 b. 1,030,000 c. 1,080,000 d. 1,070,000
9. POGI, a professional, received the following:
Collection from professional fees(10% CWT) 450,000
Collection in advance (10% CWT) 180,000
In addition, a customer cancelled POGI’s obligation amounting to P400,000, as a result of professional services
provided by POGI. A corporation where POGI is a shareholder also cancelled his obligation amounting to
P100,000.
What is the gross receipts of POGI?
a. 1,030,000 b. 1,200,000 c. 1,100,000 d. 700,000
10. POGI Car Shop had the following transactions:
Cash collection from clients 800,000
Reimbursements for transportation cost from office to client’s office 100,000

Reimbursement for spareparts paid by POGI 200,000
Proceeds of insurance 300,000
Receipt of loan from BPI 500,000
Receipt of money from a friend’s client 600,000
How much is the gross receipts of POGI?
a. 1,400,000 b. 900,000 c. 1,500,000 d. 1,100,000
11. A VAT taxpayer billed a client for P200,000 as a consideration for services. How much should the client pay,
assuming the professional income is subject to 10% creditable withholding tax?
a. 180,000 b. 160,714 c. 182,143 d. 204,000
12. Which of the following is exempt from VAT?
a. Export sale by non VAT individuals
b. Foreign currency denominated sale
c. Sale of services to entities duly registered with PEZA
d. Sale to Ramon Magsaysay Awards Foundation
13. Floyd Mayweather arrives in the Philippines with an immigration visa. He had with him the following:
Clothing, shoes and other personal apparels P200,000
Professional instruments and implements 300,000
Personal car 500,000
Compute the total amount subject to VAT on importation?
a. 1,000,000 b. 500,000 c. 0 700,000
14. POGI Shipping imported the following:
Fuels and supplies 5,000,000
Goods 2,000,000
POGI designated 30% of fuels and supplies for domestic use and 70% for international operations. He used all
the goods for international operations.
How much is the VAT on importation?
a. 660,000 b. 840,000 c. 600,000 d. 180,000
15. Petbest is a manufacturer of feeds to be consumed by pigs and fighting cocks. In 2016, Petbest imported
P2,000,000, net of VAT worth of ingredients to be used in the production. ¾ of these will be used for production
of feeds for fighting cocks. During the year, Petbest had sales, net of VAT, amounting to P4,000,000. Half of this
came from sale of feeds for fighting cocks. How much is the total VAT on importation to be paid by Petbest in
2016?
a. 60,000 b. 240,000 c. 180,000 d. nil
16. POGI Hospital, a private hospital, had the following gross sales/receipts during the month:
Revenue from in-patients 2,000,000
Revenue from consulting patients 1,000,000
X-ray revenues 500,000
ECG revenues 1,000,000
Revenue from hospital pharmacy 1,000,000
How much is the total amount subject to VAT?
a. 1,000,000 b. 4,500,000 c. 5,500,000 d. 4,000,000
17. POGI Bookstore reported the following:
Sales of books 1,000,000
Sales of newspapers 500,000
Sales of whiteboard 100,000
Sales of markers 100,000
Sales of foreign books (30% commission) 200,000
How much is the Output VAT?
a. 31,200 b. 48,000 c. 7,200 d. 228,000
18. POGI Airliner, an international carrier, had the following receipts during the month:
Passengers Cargoes Baggages
Outgoing flights 20,000,000 10,000,000 5,000,000
Incoming flights 10,000,000 4,000,000 2,000,000
How much is subject to VAT?
a. 35,000,000 b. 30,000,000 c. 21,000,000 d. zero
19. Assuming in the above problem (disregard incoming flights) that POGI Airliner is a domestic carrier and 30% of
each receipts came from domestic operations, how much is Output VAT?
a. 4,200,000 b. 1,800,000 c. 1,260,000 d. 6,120,000
20. A business establishment had the following transactions:
Sales to senior citizen 1,000,000
Sales to persons with disabilities 1,000,000
Sales to regular customers 1,000,000
If the business is VAT-registered, how much is Output VAT?
a. 216,000 b. 120,000 c. 240,000 d. 312,000
21. A VAT-registered restaurant sold goods to senior citizen for a total invoice price of P4,480. The senior citizen is
accompanied by three regular customers. How much is the amount that the restaurant should bill the senior
citizen?
a. 4,480 b. 4,000 c. 3,680 d. 4,160
22. Assuming in the above problem that the restaurant is not VAT-registered, and the amount is net of VAT, how
much will be the billing amount?
a. 4,480 b. 3,680 c. 4,256 d. 4,000
23. 1st statement: Standard input VAT is allowed for sales of goods or services to government or any of its political
subdivisions, instrumentalities or agencies including GOCC.
2nd statement: Standard input VAT is in lieu of the actual input VAT directly attributable or ratably apportioned to
sales to government or any of its political subdivisions, instrumentalities or agencies including GOCCs.

a. Both statements are correct c. Only the first statement is correct
b. Both statements are incorrect d. Only the second statement is correct
24. In case of sales to government or its political subdivisions, instrumentalities or agencies including GOCCs which
of the following is correct?
I – Should actual input VAT exceed five percent of gross payments, the excess may form part of the seller’s
expenses or cost
II – If the actual input VAT is less than five percent of the gross payment, the difference must be closed to
expensive or cost
25. VAT taxpayers including corporations use calendar quarters for VAT purposes
Withholding of VAT is done only when the buyer is the Government or any of its political subdivisions.
a. Both are correct
b. Both are incorrect
c. Only the first statement is correct
d. Only the second statementis correct
26. The input taxes on zero rated sales of goods may at the option of the VAT registered person be, except:
a. Refunded
b. Converted to tax credit certificates
c. Carried over to the next quarter
d. Used as payment of other internal revenue tax, except, withholding tax
27. Which of the following statements is INCORRECT?
a. A zero-rated sale of goods or properties (by a VAT-registered person) is a taxable transaction for VAT
purposes, but shall not result in any output tax
b. the input tax on purchases of goods, properties or services, related to zero-rated sales, shall be available as
tax credit only in accordance with the Regulations
c. For purposes of zero-rating, the export sales of registered export traders shall include commission income
d. The exportation of goods on consignment shall not be deemed export sales until the export products are in
fact sold by the consignee
28. Statement 1: All export sales are not subject to 12% Output VAT
Statement 2: All export sales are zero-rated transactions.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
29. A non-VAT person reported the following during the year:
Domestic sales P 1,000,000
Export sales 600,000
Importation of goods 500,000
Transaction deemed sales 100,000
Its total amount subject to 12% VAT would be:

a. P1,600,000 b. P1,100,000 c. P500,000 d. P1,700,000
30. Mr. POGI, 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
31. 1st statement: If the gross selling price is based on the zonal value or market value of the property, the zonal
or market value shall be deemed inclusive of VAT.
2nd statement: If the VAT is not billed separately, the selling price stated in the sales document shall be
deemed to be inclusive of VAT
32. Which of the following circumstance shall give rise to transactions “deemed sale” for purposes of VAT?
I – Change of ownership of the business (i.e., single proprietorship incorporates; or the proprietor of a sole
proprietorship sells his entire business)
II – Dissolution of a partnership and creation of a new partnership which takes over the business
a. Both I and II b. Neither I nor II c. I only d. II only
33. 1st statement: The Commissioner shall determine the appropriate tax base in cases where a transaction is
deemed a sale, barter or exchange of goods or properties or where the gross selling price is unreasonably lower
than the actual market value
2nd statement: The gross selling price is unreasonably lower than the actual market value if it is lower by more
than 30% of the actual market value of the same goods of the same quantity and quality sold in the immediate
locality on or nearest the dale of sale
34. 1st statement: VAT withheld and paid for the non-resident recipient which VAT is passed on to the resident
withholding agent by the non-resident recipient of the income, may be claimed as input tax by said VAT-
registered withholding agent upon filling his own VAT Return
2nd statement: If the resident withholding agent is a non-VAT, said passed-on VAT by the non-resident recipient
of the income, evidenced by duly filed BIR form no. 1600, shall form part of the cost of purchased services,
which may be treated either as an asset of expense, whichever is applicable of the resident withholding agent.

35. ABS Corporation provided the following data for the first quarter of 2012, its year as VAT registered person:
Cash sales, total value P336,000
Open account sales 112,000
Consignment made (exclusive of VAT):
January 1 - P200,000
February 15 - P150,000
Purchases of materials, net of VAT 80,000
Value of inventory as of Jan 1, of the year:
Purchased from VAT registered person 40,000
Purchased from non-VAT registered person 200,000
Purchases of VAT exempt goods 60,000
VAT paid on the above inventory 4,000
Goods distributed to a creditor as payment of debt, net 20,000
The VAT due is:
a. P56,400
b. P45,200
c. P57,600
d. P60,000
36. A building contractor provided the following data (all figures are net of VAT)
Contract price P5,000,000
Amount received from building 1 (net of P200,000 retention cost) 800,000
Advances received from building 2 400,000
Amount received from building 3 800,000
Receivable from building 4 1,000,000
Disbursements:
Services of contractors 500,000
Materials for construction 700,000
Imported materials, landed cost 200,000
Other general and operating expenses 100,000
Note: the imported material was also subjected to P120,000 excise taxes.
The VAT due is:
a. P81,600
b. P60,000
c. P69,600
d. P57,600
37. A VAT registered person has the following data:
Export sales, total invoice amount P3,000,000
Domestic sales, total invoice amount 6,720,000
Purchase of raw materials, used to manufacture goods for export
And domestic sales, VAT inclusive 616,000
Supplies used for both export and domestic sales, VAT inclusive 448,000
Purchase of equipment used in the manufacture of goods for export
And domestic sale, VAT exclusive ` 300,000
The amount of input tax which can be refunded or converted into tax credit certificates at the option of the VAT
registered person is:
a. P120,000
b. P118,800
c. P39,600
d. P50,000
38. Extramadura Refining Company manufactures refined sugar. It had the following data during the first quarter of
2013:
Sale of refined sugar, net of VAT 2,000,000
Purchases of sugar cane 500,000
Purchases of packaging materials, gross of VAT 224,000
Purchase of labels, net of VAT 100,000
Unpaid professional fees net of VAT 100,000
Payments to a foreign firm for management
Advisory engagement 300,000
The VAT payable is:
a. 160,000
b. 112,000
c. 172,000
d. 148,000
39. Griem Inc, a building contractor, showed to you the following data for the month of August 2013:
Cash received, gross of VAT 2,240,000
Receivables, net of VAT 3,000,000
Advances on other contracts still unearned(w/o VAT) 1,000,000
Unpaid purchases:
For materials, VAT excluded 500,000
For supplies, VAT excluded 100,000
For services of sub-contractors(VAT included) 1,848,000
Payments for purchases made in July:
Materials, gross of VAT 369,600
Services of subcontractors, net of VAT 495,000
How much is the value added tax payable?
a. 360,000
b. 228,600
c. 330,000
d. 90,000

TRAIN LAW PROVISIONS ON VAT

 The following shall be subject to 12%:
1. Foreign Currency Denominated Sales
2. Sales to export-oriented enterprise
3. Export Sales under Omnibus Investment Code
4. Processing, manufacturing or repacking goods for other persons doing business outside the Philippines, which
goods are subsequently exported, where the services are paid for in acceptable foreign currency
Conditions are:
1. Enhancement of VAT refund period from 120 days to 90 days
2. All pending VAT refund claims as of Dec. 31, 2017 shall be paid in full by December 31, 2019
 Sale of electricity generated through renewable sources of energy will be subject to 12% VAT
VAT exempt Transactions:
 Importation of professional instruments and implements, tools of trade, occupation or employment, wearing
apparel, domestic animals, and personal and household effects belonging to persons coming to settle in the
Philippines or Filipinos or their families and descendants who are now residents or citizens of other countries
 Lease of residential units threshold will be P15,000
 Exchanges in pursuance of plan of merger or consolidation:
1. Exchange of property solely for stock of another corporation
2. Exchange of stocks for stocks of another corporation
3. Exchange of securities for stocks of another corporation
 Exchange of property for stock gaining control of the corporation
 Association dues, membership fees, and other assessments and charges collected on a purely reimbursement
basis by homeowners’ associations and condominium corporations
 Sale of gold to the Bangko Sentral ng Pilipinas
 Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension beginning January 1,
2019 as determined by the Department of Health
VAT Threshold - P3,000,000
 If the individual taxpayer opted to use 8% preferential income tax, he will be exempt from 3% Percentage Tax

Vat

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TAXATION: Value Added Tax

TAX by Jonas POGI Reyes, CPA Page 1

For Domestic Operations For Foreign Operations

TAX by Jonas POGI Reyes, CPA Page 2

TAX by Jonas POGI Reyes, CPA Page 3

TAX by Jonas POGI Reyes, CPA Page 4

VAT on Importation of Goods

TAX by Jonas POGI Reyes, CPA Page 5

Change or Cessation of Status as VAT-registered Person. –

TAX by Jonas POGI Reyes, CPA Page 6

Less: Input VAT

Input tax carry over

VAT due (Excess input tax)

Rules in Carry over:

TAX by Jonas POGI Reyes, CPA Page 7

Apportionment of Input Tax on Mixed Transactions

BIR Form Due DATE

Monthly VAT Return 2550M Within 20 days after the month

Quarterly VAT Return 2550Q Within 25 days after the end of

VAT registrable persons are required to file 2550Q only.

TAX by Jonas POGI Reyes, CPA Page 8

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TAX by Jonas POGI Reyes, CPA Page 10

Its total amount subject to 12% VAT would be:

TAX by Jonas POGI Reyes, CPA Page 11

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TRAIN LAW PROVISIONS ON VAT

TAX by Jonas POGI Reyes, CPA Page 13

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