17.-GCRO Top250 PG March2019

Topic 250
& Percentage Taxes

General Course for Revenue Officers VTPT 250 Slide –
VER 2.0 – August 2018
Objectives
Determine the concepts and rationale behind the adoption of
the VAT system;
Identify the scope of the VAT System and its compliance
requirement, as to registration, invoicing and accounting
requirements, filing of returns and payment of VAT,
computation of VAT;
Identify the different audit reporting requirements to be
prepared, submitted and attached to a tax audit docket; and
Identify the persons/transactions covered by percentage
taxes, its tax base and tax rates used in computing
percentage tax liability;
General Course for Revenue Officers VTPT 250 Slide – 2

Topic Outline
I. Basic Concepts of Value-Added Tax
II. Compliance Requirements
III. Computations of Value-Added Tax
IV. Percentage Taxes
V. Audit Techniques

I. Basic Concepts
of Value-Added Tax

Background of Value-Added Tax
1. Value-Added Tax (VAT) is a business tax levied on the sale of
goods, properties and services and on importation of goods;
2. VAT is a universal taxation system;
3. VAT has various major and most controversial amendments;
Effectivity
E.O. 273 - VAT Law (1988) Jan. 1, 1988
RA 7716 - Expanded Value-Added Tax Jan. 1, 1996
(E-VAT), Implemented by RR 7-95
RA 8241 - Improved Value-Added Tax Jan. 1, 1997
I-VAT), Implemented by RR 6-97
RA 8424 - Tax Reform Act as of 1997 Jan. 1, 1998

Background of Value-Added Tax
RA 9337 − known as the New Expanded VAT Law
− signed into law on May 24, 2005
− implementation withheld due to Temporary
Restraining Order (TRO)
− TRO lifted by the Supreme Court on Oct. 18, 2005
− became effective Nov. 1, 2005
− Implementing Rules and Regulation RR 14-2005 was
superseded by RR 16-2005

The VAT Reform (RA 9337):
Why is it necessary?
The current Philippine fiscal condition requires that immediate
attention be given to fiscal reform:
In 2004, debt service (principal and interest payments) was
equivalent to eighty-six point one percent (86.1%) of
government revenues;
Interest payment alone was equivalent to thirty-seven point
four percent (37.4%) of government revenues;
Infrastructure and other capital expenditures were only ten
point eighty-seven percent (10.87%) of government
expenditures for the same year.
Objectives of Value-Added Tax
1. Broaden Tax Base

2. Provide an audit trail
3. Simplify business taxation

VAT Coverage: Persons Liable
Sellers of Goods or
Properties Where Gross Sales
or Gross Receipts
Sellers of Services >3,000,000.00 in
and/or Use or Lease of any 12-month
Properties period
Importers

VAT Rates
10% (up to January 31, 2006);
12% (effective February 1, 2006);
and
0%

Basis of VAT
Sale of goods/Properties > Gross Sales
Gross selling price means the total amount of

money or its equivalent which the purchaser
pays or is obligated to pay to the seller in
consideration of the sale, barter or exchange of
the goods or properties, excluding VAT. The
excise tax, if any, on such goods or properties
shall form part of the gross selling price.
Basis of VAT
Importation
Total value used by the Bureau of Customs in

determining tariff and custom duties, plus
custom duties, excise taxes, if any, and other
charges paid by the importer prior to the release
of such goods from customs custody.

Basis of VAT
Sale of Service/Lease of Properties > Gross Receipt.
Gross Receipts refers to the total amount of money

or its equivalent representing the contract price,
compensation, service fee, rental or royalty,
including the amount charged for materials supplied
with the services and deposits applied as payments
for services rendered and advance payments
actually or constructively received during the
taxable period for the services performed or to be
performed for another person, excluding VAT (RR
16-2005).
Transactions Covered by VAT
A. Sale or Exchange of Goods or Properties
B. Importation
C. Sale or Exchange of Services
D. Transactions Deemed Sales
E. Zero-Rated Sale of Goods or Properties
F. Effectively Zero-Rated Transactions

Sale or Exchange of Goods or Properties
The term “Goods or Properties” - shall mean all tangible and

intangible objects which are capable of pecuniary estimation and
shall include:
1. Real properties held primarily for sale to customers or held

for lease in the ordinary course of trade or business;
2. The right or the privilege to use patent, copyright, design or
model, plan, secret formula or process, goodwill, trademark,
trade brand or other like properties or rights;

Sale or Exchange of Goods or Properties
3. The right or the privilege to use in the Philippines

of any industrial, commercial or scientific
equipment;
4. The right or the privilege to use motion picture
films, films, tapes and discs; and
5. Radio, television, satellite transmission and cable
television time.

Sale of Goods/Properties
Sale of non-food agricultural products; marine and
forest products in their original state by primary
producer or owner of the land;
Sale of cotton and cotton seeds in their original state;
Sale or importation of coal and natural gas, in
whatever form or state; and
Sale or importation of petroleum products, including
raw materials for their production.

Sale or Exchange of Services
Sale or exchange of services means the performance of
all kinds of services in the Philippines for others for a fee,
remuneration or consideration. It includes those
performed or rendered by the following:
1. Construction and service contractors;
2. Stock, real estate, commercial, customs and immigration
brokers;
3. Lessors of property, whether personal or real;
4. Persons engaged in warehousing services;

5. Lessors or distributors of cinematographic films;
6. Persons engaged in milling, processing, manufacturing or
re-packing goods for others;
7. Proprietors, operators, or keepers of hotels, motels, rest
houses, pension houses, inns, resorts, theaters and movie
houses;
8. Proprietors or operators of restaurants, refreshment parlors,
cafes and other eating places, including clubs and caterers;
9. Dealers in securities;
10. Lending investors;

11. Transportation contractors on their transport of goods
or cargoes, including persons who transport goods or
cargoes for hire;
12. 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;
13. Sales of electricity by generation, transmission, and/or
distribution companies;

14. Franchise grantees of electric utilities, telephone and
telegraph, radio and/or television broadcasting companies
whose annual gross receipt of the preceding year exceeds
Ten Million Pesos (P10,000,000.00) and franchise grantees of
gas and water utilities;
15. Non-life insurance companies (except their crop
insurances), including surety, fidelity, indemnity and
bonding companies; and
16. Similar services regardless of whether or not the
performance thereof calls for the exercise or use of the
physical or mental faculties.
Sale or Exchange of Services includes:
a. The lease or the use of, or the right or privilege to
use any copyright, patent, design or model, plan,
secret formula or process, goodwill, trademark,
trade brand or other like property or right;
b. The lease or the use of, or the right to use of any
industrial, commercial or scientific equipment;
c. The supply of scientific, technical, industrial or
commercial knowledge or information;

d. The supply of any assistance that is ancillary and
subsidiary to and is furnished as a means of enabling
the application or enjoyment of any such property, or
right as is mentioned in subparagraph (b) hereof, or
any such knowledge or information as is mentioned
in subparagraph (c) hereof;
e. The supply of services by a non-resident person or
his employee in connection with the use of property
or rights belonging to, or the installation or operation
of any brand, machinery, or other apparatus
purchased from such non-resident person;
f. The supply of technical advice, assistance or
services rendered in connection with technical
management or administration of any scientific,
industrial or commercial undertaking, venture,
project or scheme;
g. The lease of motion picture films, films, tapes and
discs; and
h. The lease or the use of or the right to use radio,
television, satellite transmission and cable
television time.
Sale by the artist of his works of art, literary works, musical
compositions and similar creations, or his services performed
for the production of such works;
Services rendered by doctors of medicine duly registered
with the Philippine Regulations Commission (PRC);
Services rendered by lawyers duly registered with Integrated
Bar of the Philippines (IBP);
Common carriers by air and sea relative to their transport of
passengers from one place in the Philippines to another
place in the Philippines;

Toll road operations (effective Aug. 16, 2010);
Philippine Amusement and Gaming Corporation
(PAGCOR) and its licensees and franchisees;
currently reverted to Franchise Tax;
Sale of electricity by generation, transmission and
distribution companies (sale of power fuel
generated through renewable sources of energy
subject to 0%); and
Sale by electric cooperatives as well as importation
of machines and equipment including spare parts.
Zero-Rated Sales of Goods
Zero-Rated Transactions are transactions that are subject to VAT
but the rate is at 0%.
(a) Export Sales – the term means:
(1) Sale and actual shipment of goods from the Philippines
to a foreign country, irrespective of any shipping
arrangement that may be agreed upon which may
influence or determine the transfer of ownership of the
goods so exported and 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) Sale and delivery of goods to:
(i) Registered enterprises within a separate customs
territory as provided under special laws; and
(ii) Registered enterprises within tourism enterprise
zones as declared by the Tourism Infrastructure
and Enterprise Zone Authority (TIEZA) subject to the
provisions under Republic Act No. 9593 or The
Tourism Act of 2009. (Vetoed by the President)

(3) 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 re-
packing in the Philippines of the said buyer’s
goods and paid for in acceptable foreign
currency and accounted for in accordance with
the rules and regulations of the BSP;

(4) Sale of raw materials or packaging materials to
export-oriented enterprise whose export sales
exceed seventy percent (70%) of total annual
production;
(5) Sale of gold to BSP (deleted under the TRAIN Law,
Now VAT Exempt);
(5) Those considered export sales under E.O. 226,
otherwise known as the Omnibus Investment Code
of 1987, and other special laws; and

(6) The sale of goods, supplies, equipment and fuel to
persons engaged in international shipping or
international air transport operations.
Provided, that the goods, supplies, equipment, and
fuel shall be used exclusively for international
shipping or air transport operations.

Conditions for vatability:
(1) The successful establishment and implementation of an
enhanced VAT refund system that grants refunds of
creditable input tax within ninety (90) days from the filing of
the VAT refund application with the Bureau: Provided, That,
to determine the effectivity of item no. 1, all applications
filed from January 1, 2018 shall be processed and must be
decided within ninety (90) days from the filing of the VAT
refund application; and
(2) All pending VAT refund claims as of December 31, 2017
shall be fully paid in cash by December 31, 2019.
Provided, That the Department of Finance shall establish a VAT
refund center in the Bureau of Internal Revenue (BIR) and in the
Bureau of Customs (BOC) that will handle the processing and
granting of cash refunds of creditable input tax.
An amount equivalent to five percent (5%) of the total VAT
collection of the BIR and the BOC from the immediately
preceding year shall be automatically appropriated annually and
shall be treated as a special account in the General Fund or as
trust receipts for the purpose of funding claims for VAT refund:
Provided, That any unused fund, at the end of the year shall revert
to the General Fund.
Provided, further, That the BIR and BOC shall be required to submit
to the Congressional Oversight Committee on the Comprehensive
Tax Reform Program (COCCTRP) a quarterly report of all pending
claims for refund and any unused fund.
["(b) Foreign Currency Denominated Sale. — The phrase 'foreign
currency denominated sale' means sale to a nonresident of goods,
except those mentioned in Sections 149 and 150, assembled or
manufactured in the Philippines for delivery to a resident in the
Philippines, paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP).] - (Deleted under TRAIN Law)
(b) Sales to persons or entities whose exemption under

special laws or international agreements to which the
Philippines is a signatory effectively subjects such sales
to zero rate.

2. Exemptions Under Special Laws or International

Agreement
Sales to persons or entities or entities whose

exemption under special laws or international
agreements to which the Philippines is a signatory
effectively subjects such sales to zero-rate.

Zero-Rated Sale of Services
1. Processing, manufacturing or re-packing 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, is subject to twelve percent (12%) VAT upon
successful implementation of VAT Refund System;
2. Services other than processing, manufacturing or re-packing
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
specials laws or international agreements to which the Philippines is
a signatory effectively subjects the supply of such services to zero
rated (0%) rate;
4. Services rendered to persons engaged in international shipping or air
transport operations, including leases of property for use thereof;
Provided, that these services shall be exclusively for international
shipping or air transport operations. Thus, 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 twelve percent (12%) VAT under Sec. 108 of
the NIRC;
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 total
annual production, is subject to twelve percent
(12%) VAT upon successful implementation of VAT
Refund System;

6. Transport of passengers and cargo by domestic air or
sea vessels from the Philippines to a foreign country.
Gross receipts of international air or shipping carriers
doing business in the Philippines derived from transport
of passengers and cargo from the Philippines to
another country shall be exempt from VAT; however,
they are still liable to a percentage tax of three percent
(3%) based on their gross receipts derived from
transport of cargo from the Philippines to another
country as provided for in Sec. 118 of the Tax Code; 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.
Zero-Rated Sales of Services
The successful establishment and implementation of an enhanced
VAT refund system that grants and pays refunds of creditable input
tax within ninety (90) days from the filing of the VAT refund
application with the Bureau
The Secretary of Finance shall provide transitory rules for the grant
of refund under the enhanced VAT Refund System after the
determination of the fulfillment of the condition by the
Commissioner of Internal Revenue
Department of Finance shall establish a VAT Refund Center in the
BIR and in the Bureau of Customs that will handle the processing
and granting of cash refunds of creditable input tax

Effectively Zero-Rated Transactions
Effectively zero-rated sale of goods and properties – shall
refer to the local sale of goods and properties by a VAT-
registered person to a person or entity who was granted
indirect tax exemption under special laws or international
agreement.
Effectively zero-rated sale of services – shall refer to the
local sale of services by a VAT-registered person to a person
or entity who was granted indirect tax exemption under
special laws or international agreement.

Effectively Zero-Rated Transactions
The concerned taxpayer must seek prior approval

or prior confirmation from the appropriate offices of
the BIR so that a transaction is qualified for effective
zero-rating. Without an approved application for
effective zero-rating, the transaction otherwise
entitled to zero-rating shall be considered exempt.

Transactions Deemed Sale
Transactions Deemed Sale are transaction that are considered
as sale for VAT purposes although there is no actual 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
2. Distribution or transfer to:
a. Shareholders or investors as share in the profits of the
VAT - registered persons; or
b. Creditors in payment of debt.

Transactions Deemed Sale
3. Consignment of goods if actual sale is not made within
sixty (60) days following the date said goods were
consigned; and
4. Retirement from or cessation of business and change 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.
5. Change in status from VAT to Non-VAT.
Input Tax
It refers to the VAT due from or paid by a VAT-
registered person on importation of goods or
local purchase of goods or services, including
lease or use of property, from another VAT-
registered person in the course of his trade or
business. It shall also include the transitional and
presumptive input tax determined in accordance
with Section 111 of the NIRC.

Persons who can avail of
Input Tax Credits
PURCHASER of domestic goods or properties
IMPORTER upon payment of VAT prior to
release of goods from Custom
PURCHASER OF SERVICES
• PROVIDED that the purchaser/importer is
VAT registered

Sources of Input Taxes
1. Domestic purchases or importation of goods
a. for sale
b. raw materials in production including
packaging materials
c. supplies in the course of business
d. equipment/machineries used in trade or business
except automobiles aircraft and yachts
2. Purchase of property (real or personal)
3. Purchase of services where VAT has been actually paid
4. Transitional Input Tax
5. Presumptive Input Tax
6. Transaction Deemed Sale
Requisites on Deductibility of Input Tax
Supplier must be VAT registered

VAT OR/Invoice issued
Name, address and TIN of
customer/buyer indicated in VAT OR/SI
(if in excess of P1,000)

Transitional Input Tax
A person who becomes liable to VAT or any person who
elects to be a VAT-registered person shall, subject to the
filing of an inventory according to rules and regulations
prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, be allowed input tax
on his beginning inventory of goods, materials and supplies
equivalent to two percent (2%) of the value such inventory
or actual VAT paid on such goods, materials and supplies,
whichever is higher, which shall be creditable against the
output tax.

Presumptive Input Tax
4% presumptive input tax is allowed to persons
or firms engaged in processing/manufacturing
of the following products:
sardines
mackerel
milk
refined sugar
cooking oil
packed noodle-based instant meals

Claims for Input Tax on Depreciable Goods
a. If the estimated useful life of a capital good is five (5) years or
more – The input tax shall be spread evenly over a period of sixty
(60) months and the claim for input tax credit will commence in the
calendar month when the capital good is acquired. The total input
taxes on purchases or importation of this type of capital goods
shall be divided by (60) and the quotient will be the amount to be
claimed monthly.
b. If the estimated useful life of a capital good is less than five (5)
years – The input tax shall be spread evenly on a monthly basis by
dividing the input tax by the actual number of months comprising
the estimated useful life of the capital good. The claim for input
tax credit shall commence in the calendar month that the capital
goods were acquired.
c. The amortization of the input VAT shall only

be allowed until December 31, 2021, after
which taxpayers with unutilized input VAT on
capital goods purchased or imported shall be
allowed to apply the same as scheduled until
fully utilized.

A manufacturer purchased capital goods on different
occasions as follows:
Month of Amount (Php) 12% Input Tax Useful No. of Last Month of
Purchase Life Monthly Amortiza-tion
Amortiza-
tion
Jan 2018 8,500,000.00 1,020,000.00 6 years 60 December 2022
Feb 2019 8,500,000.00 1,020.000.00 4 years 48 January 2022
Dec 2021 10,000,000.00 1,200.000.00 5 years 60 November 2026
Jan 2022 10,000,000.00 1,200.000.00 5 years - *Outright claim
on Jan. 2022

a. For purchase made on January 2018, the amortization shall
be for the shorter period of 5 years only or up to December
2022 although the useful life is 6 years.
b. For purchase made on February 2018, the amortization
shall be for period of 4 years only or up to January 2022
since the useful life of the asset is shorter than 5 years.
c. For purchase made on December 2021, the amortization
shall be for the period of 5 years or up to November 2026.
d. For purchase made on January 2022, no amortization shall
be made and the input VAT shall be claimed on the month
of purchase or January 2022.
Apportionment of Input Tax on
Mixed Transactions
1. All the input taxes that can be directly attributed to transactions subject
to VAT may be recognized for input tax credit; Provided, that input taxes
that can be directly attributable to VAT taxable sales of goods and
services to the Government or any of its political subdivisions,
instrumentalities or agencies, including Government-Owned or
Controlled Corporations (GOCCs) shall not be credited against output
taxes arising from sales to non Government entities; and
2. If any input tax cannot directly attributed to either a VAT taxable or VAT-
exempt transaction, the input tax shall be pro-rated to the VAT taxable
and VAT-exempt transactions and only the ratable portion pertaining to
transactions subject to VAT may be recognized for input tax credit.

Determination of Creditable Input Tax
All input taxes creditable to a VAT-registered person

during a taxable month or quarter, plus any input tax
carried over from the preceding month or quarter, shall
be reduced by the amount of the claim for refund or tax
credit for VAT and other adjustments, such as purchase
returns or allowances and input tax attributable to
exempt sales.

Input Tax Formula
On domestic purchase of goods and properties Pxxx
On domestic purchase of services xxx
On importation of goods xxx
On lease of goods and properties xxx
Transitional/presumptive input tax xxx
Carry-over from previous quarter xxx
Total Input Tax xxx
Less:
Claim for refund Pxxx
Claim for tax credit xxx
Adjustment for purchase return xxx xxx
Net creditable input tax for the quarter Pxxx

Allocation of Input Taxes between VAT
Taxable and VAT Non-Taxable Operations
If a VAT-registered person is also engaged in other

activities not subject to VAT, the input taxes paid for
purchases of goods and services which cannot be
directly attributed to either operation shall be
allocated between the VAT taxable and VAT non-
taxable operations using the total sales.

Formula
Total Sales/Receipts Input to be
VAT Taxable Operations X Un-attributed allocated to
Input taxes = VAT taxable
Total Sales/Receipts operations
VAT Taxable & Non-taxable
Operations
Total Sales/Receipts Un-attributed Input to be
VAT Non-taxable Operations X Input taxes = allocated to
VAT non-taxable
Total Sales/Receipts operations
VAT Taxable & Non-taxable
Operations
Illustration: ERA Corporation has the following sales during
the month:
Sale to private entities subject to 12% P 100,000.00
Sale to private entities subject to 0% P 100,000.00
Sale of exempt goods P 100,000.00
Sale of government, subjected to 5% final P 100,000.00
VAT withholding
Total sales for the month P 400,000.00

The following input taxes were passed on by its VAT
suppliers:
Input tax on taxable goods (12%) P 5,000.00
Input tax on zero-rated sales P 3,000.00
Input tax on sale of exempt goods P 2,000.00
Input tax on sale to government P 4,000.00
Input tax on depreciable capital good not P 20,000.00
attributable to any specific activity (monthly
amortization for 60 months)

The creditable input tax for the month shall be computed as follows:
Input tax on sale subject to 12% - P5,000.00
Input tax on zero-rated sale - P3,000.00
Ratable portion of the input tax not
directly attributable to any activity
Taxable sales (0% and 12%) X Amount of input tax not

Total Sales directly attributable
P200,000.00 X P20,000.00 = P10,000.00
P400,000.00
Total creditable input tax for the month = P18,000.00

B. The input tax attributable to sales to government for the month
shall be computed as follows:
Input tax on sale to government - P4,000.00
Ratable portion of Input tax not directly
attributable to any activity:
Taxable sales to gov’t. X Amount of input tax not

P100,000.00 X P20,000.00 = P5,000.00
P400,000.00
Total input tax attributable to

sales to government = P9,000.00
C. The input tax attributable to VAT-exempt sales for the month
shall be computed as follows:
Input tax on VAT-exempt sales - P2,000.00
Ratable portion of Input tax not directly
attributable to any activity:
VAT-exempt sales . X Amount of input tax not
P100,000.00 X P20,000.00 = P5,000.00
P400,000.00
Total input tax attributable to

VAT-exempt sales = P7,000.00
The table below shows a summary of the foregoing transactions of ERA Corporation:
Output Input Input VAT Total Creditable Net VAT Excess Input Unreco
VAT VAT Not directly Input Input VAT Payable Input VAT for verable
directly Attributable VAT VAT for refund Input
Attributa to any carry- VAT
ble activity over
Sale subject to 10,000 5,000 5,000 10,000 10,000 0 0 0 0
10% VAT
Sale subject to 0 3,000 5,000 8,000 8,000 0 0 8,000 0
0% VAT
Sale of Exempt 0 2,000 5,000 7,000 0 0 0 0 7,000*
Goods
Sale of Govt. 10,000 4,000 5,000 9,000 5,000** 5,000*** 0 0 4,000*
Subject to 5%
Final WH VAT
*These amounts are not available for input tax credit but may be recognized as cost or expense
General Course input
**Standard for Revenue
VAT ofOfficers
5% on sales to Government as provided in SEC 4.114-2(a)
VTPT 250 Slide – 67
VER***Withheld
2.0 – Augustby2018
Government entity as Final Withholding VAT
Transactions Exempt from VAT
1. Sale or importation of agricultural and marine food products
in their original state, livestock and poultry of a kind for
human consumption; and breeding stock and genetic
materials;
2. Sale or importation of fertilizers, seeds, seedlings and
fingerlings, fish, prawn, livestock and poultry feeds;
3. Importation of personal and household effects belonging
to residents of the Philippines returning from abroad and non-
resident citizens coming to re-settle in the Philippines;
Provided, that such goods are exempt from customs duties
under the Tariff and Customs Code of the Philippines;
4. Importation of professional instruments and implements, wearing
apparel, domestic animals and personal household effects
belonging to
a. persons coming to settle in the Philippines; or
b. Filipinos or their families and descendants who are now
residents or citizens of other countries, such parties hereinafter
referred to as overseas Filipinos,
1) In quantities and of the class suitable to the profession, rank
or position of the persons importing said items;
2) For their own use;
3) Not for barter or sale; and
4) Accompanying such persons, or arriving within a reasonable
time
Bureau of Customs may exempt such goods from payment of
duties and taxes subject to:
1. The production of satisfactory evidence that such
persons are actually coming to settle in the Philippines;
and
2. That the goods are brought from their former place of
abode.
Vehicles, vessels, aircrafts, machineries and other similar goods
for use in manufacture, shall not fall within this classification and
shall therefore be subject to duties, taxes and other charges;
5. Services subject to Percentage Tax under Title V, NIRC as
enumerated below:
a. Sale or lease of goods or properties or the
performance of services of non-VAT-registered
persons, the gross annual sales and/or receipts of
which does not exceed the amount of Three Million
Pesos (P3,000,000.00) (Sec.116 of the NIRC);
b. Services rendered by domestic common carriers by
land, for the transport of passengers and keepers of
garages (Sec. 117);

c. Services rendered by international air/shipping
carriers (Sec. 118);
d. Services rendered by franchise grantees of radio
and/or television broadcasting whose annual gross
receipts of the preceding year do not exceed Ten
Million Pesos (P10,000,000.00), and by franchise
grantees of gas and water utilities (Sec. 119);
e. Service rendered for overseas dispatch, message or
conversation originating from the Philippines (Sec.
120);
f. Services rendered by any person, company or
corporation (except purely cooperative companies or
associations) doing life insurance business of any sort in
the Philippines (Sec. 123);
g. Services rendered by fire, marine or miscellaneous
insurance agents of foreign insurance companies (Sec.
124);
h. Services of proprietors, lessees or operators of cockpits,
cabarets, night or day clubs, boxing exhibitions,
professional basketball games, Jai-Alai and race tracks
(Sec. 125); and
i. Receipts on sale, barter or exchange of shares
of stock listed and traded through the local
stock exchange or through initial public
offering (Sec. 127).
6. Services by agricultural contract growers and
milling for others of palay into rice, corn into grits
and sugar cane into raw sugar;
7. Medical, dental, hospital and veterinary services,
except those rendered by professionals;
8. Educational services by private institutions, duly accredited by the
Department of Education (DepEd) and the Commission on Higher
Education (CHED) and the Technical Education and Skills
Development Authority (TESDA) and those rendered by government
educational institutions;
9. Services rendered by individuals pursuant to an employer-employee
relationship;
10. Services rendered by Regional or Area Headquarter 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;

11. Transactions which are exempt under International Agreements to
which the Philippines is a signatory or under special laws;
12. Sales by agricultural cooperatives duly registered and in good
standing with the Cooperative Development Authority (CDA) to their
members;
13. Gross receipts from lending activities by credit or multi-purpose
cooperative duly registered and in good standing with the CDA;
14. Sale by non-agricultural, non-electric and non-credit
cooperatives: provided that the share capital contribution of each
member does not exceed Fifteen Thousand Pesos (P15,000) and
regardless of the aggregate capital and net surplus ratable
distributed among the members;
15. Export sales by a non-VAT registered person;
16. The following sales of real properties are exempt from VAT:
a. Sale of real properties not primarily held for sale or lease in the ordinary
course of trade or business.
However, even if the real property is not primarily held for sale to
customers or held for lease in the ordinary course of trade or business but
the same is used in the trade or business of the seller, the sale shall
therefore be subject to VAT being a transaction incidental to the
taxpayer’s main business (RR 4-2007).
b. Sale of real properties utilized for low-cost housing wherein the price
ceiling per unit is P750,000.00.
c. Sale of house and lot utilized for socialized housing wherein the price
ceiling per unit is P450,000.00.

d. Sale of residential lot valued at One Million Five Hundred Thousand
Pesos (P1,500,000.00) and below, or house & lot and other residential
dwellings valued at Two Million Five Hundred Thousand Pesos
(P2,500,000.00) and below, as adjusted in 2011 using the 2010
Consumer Price Index values.
Beginning January 1, 2021, the VAT exemption shall only apply to:
Sale of real properties not primarily held for sale to customers or
held for lease in the ordinary course of trade or business
Sale of real property utilized for socialized housing as defined by
Republic Act No. 7279,
Sale of house and lot, and other residential dwellings with selling
price of not more than Two Million Pesos (P2,000,000.00)
17. Lease of residential unit with a monthly rental per unit not exceeding
P15,000.00;
Illustration 1:
A lessor rents his 15 residential units for P14,500 per month. During the
taxable year, his accumulated gross receipts amounted to P2,610,000. He is
not subject to VAT since the monthly rent per unit does not exceed P15,000.
He is also not subject to 3% Percentage Tax.
Using the same example, assuming he has 20 residential units with the same
monthly rent per unit and his accumulated gross receipts during the taxable
year amounted to P3,480,000, he is still not subject to VAT even if the
accumulated earnings exceeded P3,000,000 since the monthly rent per unit
does not exceed P15,000. He is also not subject to 3% Percentage Tax.
Illustration 2:
A lessor rents his 15 residential units for P15,500 per month. During
the taxable year, his accumulated gross receipts amounted to
P2,790,000. He is not subject to VAT since his accumulated gross
receipts did not exceed P3,000,000. He is, however, subject to 3%
Percentage Tax since the monthly rent per unit is more than
P15,000.00.
Using the same example, assuming he has 20 residential units with
the same monthly rent per unit and his accumulated gross receipts
during the taxable year amounted to P3,720,000, he is already
subject to VAT since the accumulated earnings exceeded
P3,000,000 and the monthly rent per unit is more than P15,000.00.
Illustration 3:
A lessor rents his 2 commercial and 10 residential units for
monthly rent of P60,000 and P15,000 per unit, respectively.
During the taxable year, his accumulated gross receipts
amounted to P3,240,000 (P1,440,000 from commercial units and
P1,800,000 from residential units). The P1,440,000 from
commercial units is not subject to VAT since it did not exceed
P3,000,000. It is, however, subject to 3% Percentage Tax. On the
other hand, the P1,800,000 accumulated receipts from the
residential units are not subject to Percentage Tax and exempt
from VAT since the monthly rent is not more than P15,000.

Using the same example, assuming the lessor has 5
commercial units and his accumulated gross receipts during
the taxable year amounted to P5,400,000 (P3,600,000 from
commercial units and P1,800,000 from residential units), he is
subject to VAT with respect to P3,600,000 since it exceeded
P3,000,000. The P1,800,000 accumulated receipts from
residential units are not subject to Percentage Tax and exempt
from VAT since the monthly rent is not more than P15,000.

Illustration 4:
A lessor rents his 5 commercial and 10 residential units
for monthly rent of P60,000 and P15,500 per unit,
respectively. During the taxable year, his accumulated
gross receipts amounting to P5,460,0000 (P3,600,000
from commercial units and P1,860,000 from residential
units) shall be subject to VAT since it exceeded the
P3,000,000 threshold and the monthly rent of
residential units is more than P15,000.
18. Sale, importation, 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;
19. Transport of passengers by international carriers;
20. Sale, importation or lease of passenger or cargo
vessels and aircraft, including engine, equipment and
spare parts for domestic and international transport
operations;
21. 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 for international shipping
or air transport operations;
22. Services of banks, non-bank financial intermediaries performing
quasi-banking functions, and other non-bank financial intermediaries
subject to percentage tax under Sections 121 and 122 of the NIRC,
such as money changers and pawnshops;
23. Sale or lease of goods and services to senior citizens and persons
with disabilities, as provided under Republic Act Nos. 9994
(Expanded Senior Citizens Act of 2010) and 10754 (An Act Expanding
the Benefits and Privileges of Persons with Disability), respectively;
24. Transfer of Property pursuant to Section 40(C)(2) of the Tax
Code, as amended;
25. Association dues, membership fees, and other assessments
and charges collected on a purely reimbursement basis by
homeowners’ associations and condominium corporations
established under Republic Act No. 9904 (Magna Carta for
Homeowners and Homeowners’ Association) and Republic Act
No. 4726 (The Condominium Act), respectively;
26. Sale of gold to the Bangko Sentral ng Pilipinas;

27. Sale of drugs and medicines prescribed for diabetes,
high cholesterol, and hypertension beginning
January 1, 2019 as determined by the Department of
Health; and
28. Sale or lease of goods or properties or the
performance of services other than the transactions
mentioned in the preceding paragraphs, the gross
annual sales and/or receipts do not exceed the
amount of Three Million Pesos (P3,000,000.00).
Note:
Self-employed individuals and professionals availing

of the 8% tax on gross sales and/or receipts and other
non-operating income, under Sections 24(A)(2)(b) and
24(A)(2)(c)(2)(a) of this Code shall also be exempt from
the payment of twelve percent (12%) VAT.

Reasons for Exemptions
The exemption on basic goods and services
common to the general population was maintained
because public interest is required.
The impact of the Expanded-VAT (E-VAT) on the

prices of prime commodities and services which was
exempted would be minimal and limited only to the
transport component and warehousing portion of
the cost of these commodities.

Effects on Exempt Transaction
An exemption means that the sale of goods,
properties, services, use or lease of properties is NOT
subject to VAT (output tax) and the seller is not
allowed any tax credit (input tax) previously paid.
Thus, the person making the exempt sale of goods,
properties or services shall not bill any output tax to
his customers because the said transaction is not
subject to VAT.

Refund or Tax Credit of Input Tax
Persons Who May File Claim
Basis of Claim
Limitations on Refund or Tax Credit

Claims for Refund/Tax Credit
Certificate (TCC) of Input Tax
a. Zero-rated sales or lease of goods, properties or services - within 2 years
after close of taxable quarter
b. Cancellation of VAT registration – within 2 years from the date of
cancellation
c. Where to file – appropriate BIR office (LTS or RDO) having jurisdiction
over the principal place of business of the taxpayer
d. Period within which refund of taxes/TCC/refund of input taxes shall be
made – within 90 days [TRAIN law] from the date of submission of
complete documents in support of the application filed
e. Manner of giving refund – upon warrants drawn by the CIR or duly
authorized representative
Source: Sec. 1.112-1 of RR 16-2005

Place of Filing Application or Claim
Claims for refunds shall be filed with the

appropriate BIR Office, Large Taxpayers Service
(LTS), Revenue District Office (RDO) having
jurisdiction over the principal place of business of
the taxpayer. Claims for input tax refund of direct
exporters shall be exclusively filed with the VAT
Credit Audit Division (VCAD).

Period within which Refund or Tax Credit
of Input Taxes shall be acted upon
In proper cases, the Commissioner shall grant a tax credit/refund for
creditable input taxes within ninety (90) days from the date of
submission of complete documents in support of the application filed.
The 90-day period to process and decide, pending the establishment

of the enhanced VAT Refund System shall only be up to the date of
approval of the Recommendation Report on such application for VAT
refund by the Commissioner or his duly authorized representative;
Provided, that all claims for refund/tax credit certificate filed prior to
January 1, 2018 will be governed by the one hundred twenty (120)-day
processing period.

Final Decision
In case of full or partial denial of the claim for tax
refund, the taxpayer affected may, within thirty (30)
days from the receipt of the decision denying the
claim, appeal the decision with the Court of Tax
Appeals; Provided, however, that failure on the
part of any official, agent, or employee of the BIR
to act on the application within ninety (90)-day
period shall be punishable under Section 269 of
the Tax Code, as amended.

VAT Refund Process
Head of VATAS evaluates
VATAS requests
processing office the
for eLA
issues TVN report/findings
RO/GS refers
RO/GS verifies Concerned office
cases resulting in
submitted consolidates
VAT assessment
documents for findings (if there
instead of refund
claims is existing eLA)
to VATAS
Concerned office
VATAS may issue RO/GS
recommends
an LA to the communicates
issuance of
taxpayer findings to the TP
General Course for Revenue Officers ICN/PAN/FAN
VTPT 250 Slide – 96
VAT Refund Process: Direct Exporters
Direct exporter
files claims at
VCAD
ACIR-AS/DCIR-
TARD reviews
OG/CIR approves
docket with report
claim

VAT Refund Process: Zero-rated TPs
Direct exporter
files claims at
RDO/LTAD
Assessment
RD/ACIR-LTS
Div./HREA reviews
approves claim
claims

VAT Refund: Time Frame
No. of days from receipt of application
VCAD Cases Claims less than Claims P50M to Claims more
P50 million P150M than P150 million
Verification 65 60 55
processing
Review (TARD) 20 20 20
Approval:
ACIR – AS 5 5 5
DCIR - OG 5 5
CIR 5
Total No. of Days 90 90 90
VAT Refund: Time Frame - LTS
LTS Cases No. of Days from
Receipt
Verification/processing 60
Review (Office of HREA) 20
Approval of ACIR-LTS 10
Total No. of Days 90

VAT Refund: Time Frame - Region
Regional Cases No. of Days from
Receipt
Verification/processing (RDOs) 60
Review (Assessment Division) 20
Approval of Regional Director 10

Total No. of Days 90

Manner of Giving Refund
Refund shall be made upon warrants drawn by
the Commissioner or by his duly authorized
representative without the necessity of being
countersigned by the Chairman, Commission on
Audit (COA), the provision of the Revised
Administrative Code to the contrary
notwithstanding. Refunds under this paragraph
shall be subject to post audit by the COA [Sec.
4.106-2 (a)(b)(c) and (d), RR 7-95].

II. Compliance
Requirements

Persons Required to Register (Mandatory)
General Rule
Any person who is:

Commencing business
Liable to VAT
VAT-exempt person
(optional registration)

Persons Liable to VAT
In general – any person who, in the course of trade or
business, sells, barters, exchanges goods or
properties or engages in the sale of services subject
to VAT imposed in Secs. 106 and 108 of the Tax Code
shall register with the appropriate RDO using the
appropriate BIR forms and pay an annual registration
fee in the amount of P500.00 using BIR Form 0605
for every separate or distinct establishment or place
of business (save a warehouse without sale
transactions) before the start of such business and
every year thereafter on or before the 31st of January.
Persons Liable to VAT
Mandatory - any person who, in the course of trade or
business, sells, barters, exchanges goods or properties or
engages in the sale of services shall be liable to register if:
1. His gross sale or receipts of the past 12 months,
other than those that are exempt under Sec.
109 (1)(A) to (U) of the NIRC, have exceeded
P3,000,000; or
2. There are reasonable grounds to believe that
his gross sales or receipts for the next 12
months, other than those that are exempt under
Sec. 109 (1)(A) to (U) of the Tax Code, will
exceed P3,000,000.
Persons Becoming Liable to VAT
Any person, whose gross sales or receipts in any twelve (12)-
month period shall exceed the amount of Three Million Pesos
(P3,000,000.00) shall register in accordance with Section 236
(A), and shall pay the annual registration fee prescribed within
ten (10) days after the end of the last month of that period.
He shall be liable to VAT commencing from the first day of the
month following his registration. However, franchise grantees
of radio and television broadcasting, whose gross annual
receipts for the preceding calendar year exceeded Ten Million
Pesos (P10,000,000.00) shall register within thirty (30) days from
the end of the calendar yearo. 6-97].

Optional VAT Registration
A person may opt to register as VAT if he/she/it will fall in any of the
following:
1. Any person who is VAT-exempt under Sec. 4.109-1 (B) (1) (V) may
elect to be VAT registered;
2. Any person who is VAT-registered but enters into transactions
which are exempt from VAT (mixed transactions) may opt that the
VAT apply to his transactions would be exempt under Section 109
(1);
Any person who elects to register shall not be entitled to cancel
registration for the next three (3) years; and
3. Franchise grantees of radio and/or television broadcasting with
annual gross receipts not exceeding Ten Million Pesos
(P10,000,000.00) (This option once exercised is irrevocable).
Procedures for Registration
In general, any person who in the course of
trade or business, sells, barters, exchanges
goods or properties, or engages in the sale
of services subject to VAT imposed on Secs.
106 and 108 of the Code, as amended, shall
register the VAT tax type with the RDO
having jurisdiction over the head office .
Annual Registration – Five Hundred Pesos
(P500.00) payable on or before the 31st day
of January
Effective Date of Registration
If the effective date of registration falls on
the first or second month of taxable quarter,
the initial monthly VAT declaration shall be
filed within twenty (20) days after the end of
the month, and the initial quarterly return
shall be filed on or before the 25th day after
the end of the taxable quarter

Where to File and Pay
The monthly VAT declaration and quarterly return
(BIR Form No. 2550M and 2550Q) shall be filed with,
and paid to a duly BIR-accredited bank of the
Revenue District/BIR Office where the taxpayer is
required to be registered.
Where no payment is involved, shall be filed with

the Revenue District Officer, Collection Agent,
duly authorized Municipal/City treasurer of
Municipality/City where the taxpayer is registered
or required to be registered.
Registration Matrix
Form 1901 Form 1903 Form 1904
Individuals Corporations Government
Transaction*
1. Duly Accomplished Form-3
copies
2. Duly filled-up BIR Form 0605-
3 copies (for payment of
registration fee)
3. a. Birth Certificate of
Applicant and Dependents
b. Applicant’s current
residence/address

Registration Matrix
Transaction*
4. Marriage Contract, if
applicable
5. Copy of judicial
Declaration of Separation,
if separated
* Per E.O. 98

Registration Matrix
Transaction*
6. Mayor’s
Permit/Municipal
License
7. Certificate of
Registration from DTI
8. Corporate Charter for
GOCC’s
9. Copy of the Unit or
Agency Charter
Registration Matrix
Transaction*
10. Copy of the Head Offices BIR
Form 1903 duly stamped
11. Sketch of business site
12. Books of Accounts
13. Sales Invoices and/or Official

Receipts

Transfer of Registration
Change of address within the Revenue District

Office
Change of Address or Principal Place of Business

Cancellation of Registration
All applicants for cancellation or registration due to

closure/cessation or termination of business shall
be subjected to immediate investigation by the
Revenue District Officer concerned to determine
the taxpayer’s tax liabilities [Sec. 4-107-6, RR No. 7-
95, as amended by RR 11-2008].

Requirements
Letter request for cessation of registration
Existing BIR Certificate of Registration (for
surrender)
Inventory list of unused invoices and
receipts (if applicable)
Unused invoices and receipts for
cancellation (for destruction)
Same requirements as in cancellation of
TIN (if applicable)
The RDO, upon receipt of the notice, registration update, inventory list of
goods, inventory list of unused sales invoice/official receipts/other
accounting forms, and the unused sales invoices/official receipts and all
other unutilized accounting forms shall:
“End date” the tax types of the taxpayer;
Destruct, in the presence of the taxpayer or his authorized
representative, the unutilized SI/ORs and other accounting
forms by cutting them crosswise and lengthwise at the middle
thereof so that the same shall be divided into four ensuring that
the same will no longer be used as originally intended; and
Return to taxpayer the destructed SI/ORs and other accounting
forms for burning and/or proper disposition.

Cancellation of VAT Registration
The cancellation of registration may either pertain to
cancellation of business registration and/or TIN. Cancellation
of business registration shall not automatically cancel the TIN
of the person. TIN is cancelled upon:
a. Death of an individual;
b. Dissolution, merger or consolidation of judicial person;
c. Discovery of a taxpayer having multiple TINS; and
d. Payment of estate tax by the heirs, administrator or
executor.

Cancellation of VAT Registration
Cancellation of business registration may be granted
on the following instances:
a. Closure/cessation of business operations;
b. Dissolution of corporation/partnership;
c. Merger/consolidation;
d. Death of an individual.

Invoicing Requirements
1. Invoicing Requirements (information that must be contained in the VAT
receipts/invoice):
a. Name, TIN and address of seller
b. Date of transaction
c. Name, TIN, business style, if any, and address of the VAT-registered
purchaser, customer or client
d. Quantity
e. Description of item/nature of service rendered
f. Total Cost
g. VAT amount
If mixed transaction:
VAT exempt sales
VAT zero-rated sales
Note: Taxpayer have the option to maintain separate set of OR/invoice for
transactions subject to 12% or 0% and exempt from VAT .
Consequences of Issuing Erroneous
VAT Invoice or VAT Official Receipt
A. Issuance of a VAT Invoice or VAT Receipt by a non-VAT person – If a person
who is not VAT-registered issues an invoice or receipt showing his TIN,
followed by the word “VAT”, the erroneous issuance shall result to the
following:
1. The non-VAT person shall be liable to:
a. The percentage taxes applicable to his transactions;
b. VAT due on the transactions under Sec. 106 or 108 of the NIRC, without
the benefit of any input tax credit; and
c. A fifty percent (50%) surcharge under Sec. 248 (B) of the Tax Code.
2. VAT shall be recognized as an input tax credit to the purchaser under
Sec. 110 of the NIRC, provided the received information are shown on
the invoice or receipt.

Consequences of Issuing Erroneous
VAT Invoice or VAT Official Receipt
B. Issuance of a VAT Invoice or VAT Receipt on an Exempt
Transaction by a VAT-Registered Person – If a VAT-
registered person issues a VAT invoice or VAT official
receipt for a VAT-exempt transaction, but fails to display
prominently on the invoice or receipt the words “VAT-
exempt sale”, the transaction shall become subject to VAT and
the issuer shall be liable to pay VAT thereon. The purchaser
shall be entitled to claim an input tax credit on his purchase
provided that the required information are shown on the invoice
or receipts.

Invoice or Instrument of Sale or Transfer
For “Transaction Deemed Sale”
1. In the case of transfer, use or consumption not in the course of business, a
memorandum entry in the subsidiary sales journal to record withdrawal of goods
for personal use is required.
2. In the case of distribution or transfer to shareholders as share or to creditors in
payment of debt and Consignment of goods, an invoice shall be prepared at the
time of the occurrence of the transaction which should include all the required
information.
3. In the case of retirement from or cessation of business, an inventory list shall be
prepared and submitted to the Revenue District Officer who has jurisdiction over
the taxpayer’s principal place of business not later than thirty (30) days after the
retirement or cessation from business.
4. If the business is to be liquidated and the goods in the inventory are sold or
disposed to VAT registered buyers, an invoice or instrument of sale or transfer
shall be prepared, citing the invoice number wherein the tax was imposed on the
deemed sale.
Modified Procedures for Registration of Printed
Receipts or Sales/Commercial Invoices (Revenue
Regulations 26-2003)
1. Printer’s Certificate of Delivery of Receipts and Invoices of the
Printer or Printer’s Certificate of Delivery (PCD) shall be issued by
the printer to taxpayer every time a delivery of ordered
receipts/invoices is made.
one time basis - full delivery
piece meal basis - partial delivery
2. Manually printed Receipts/Invoices shall not be issued/used by

the seller to any customer unless the seller has received his copy
of the PCD received by BIR that issued the ATP.

Modified Procedure for Registration of Printed
Receipts or Sales/Commercial Invoices
3. The PCD received by BIR shall be issued in 5 copies:
Original – taxpayer’s copy for audit and other internal
revenue tax purposes
Duplicate – printer’s copy for audit and other internal
revenue tax purposes
Triplicate – BIR office that issued the Authority to Print (ATP)
a. certified photocopy of ATP
b. taxpayer’s Sworn Statement (original copy)

Modified Procedure for Registration of Printed
Receipts or Sales/Commercial Invoices
Quadruplicate - BIR office that has jurisdiction over the place where the
receipts/invoices shall be used/issued
Quintuplicate - BIR office that has jurisdiction over the place of
business of the printer
4. Unused or un-issued receipts or invoices previously registered and stamped
prior to RR No. 26-2003 may still be used until it is fully consumed.
5. Within 30 days from issuance of the PCD, the taxpayer or printer, as the case
may be, shall submit to the concerned BIR office that has jurisdiction over
the taxpayer-user’s principal place of business the triplicate copy of the
PCD, together with the certified photocopy of the ATP and the taxpayer’s
Sworn Statement enumerating responsibilities and commitments of the
taxpayer-user.

Issuance of VAT Invoice/Receipt for Non-VAT/
Exempt Sale of Goods, Properties or Services
A VAT registered person shall issue a VAT receipt or invoice for every sale which shall
indicate the following in addition to the information under Sec 236 of the 1997 NIRC as
amended:
1. A statement that the seller is a VAT registered person followed by his TIN;
2. The total amount which the purchaser pays or is obligated to pay to the
seller with the indication that such amount includes the VAT; Provided, that
a. The amount of tax shall be shown as a separate item in the
invoice or receipt;
b. If the sale is exempt from VAT, the term “VAT-exempt sale” shall be
written or printed prominently on the invoice or receipt;

Issuance of VAT Invoice/Receipt for Non-VAT/
Exempt Sale of Goods, Properties or Services
c. If the sale is subject to 0% VAT, the term “zero-rated sale” shall be
written or printed prominently on the invoice or receipt; and
d. If the sale involves goods, properties or services some of which are
subject to and some of which are VAT zero-rated or VAT-exempt,
the invoice or receipt shall clearly indicate the breakdown of the
sale price between its taxable, exempt and zero-rated components,
and the calculation of the VAT on each portion of the sale shall be
shown on the invoice or receipt.
3. In case of sales in the amount of One Thousand Pesos (P1,000) or more,
indicate the name, business style (if any), address and TIN of the
purchaser.

Additional Information to be indicated
in the VAT Invoice/Receipt
“Not to be issued for NON-VAT/EXEMPT sale of goods,
properties or services. If issued, sales shall be subject to
twelve percent (12%) VAT.”
Notes: 1.) Not necessary if the taxpayer opts to

use one (1) set of invoice/receipt for
the taxable, exempt, and zero-rated
components of the sale.
2.) Under RR 16-2005, this is not included
anymore, therefore, this maybe omitted.
ATP and Manner of Printing
Receipts/Invoices (RR18-2012)
1. All persons, whether private or government, who are
engaged in business shall secure/apply from the BIR an
Authority to Print principal and supplementary
receipts/invoices. NGAs, GOCCs and LGUs engaged in
proprietary functions shall apply for ATP in the printing of
their principal and supplementary receipts/invoices.
2. For newly registered taxpayers, the ATP shall be secured
simultaneously with the Certificate of Registration (COR).

3. The Taxpayer-applicant shall apply for an ATP and submit the
required documents, using the on-line ATP System. In case of
systems downtime, taxpayer shall apply for ATP and submit the
required documents at the RDO/LT Office having jurisdiction over
the Head Office.
4. As a general rule, all applications for ATP of the Head Office (HO) and
all its branches shall be done on-line. In case of systems downtime
as officially posted in the BIR website, all applications for ATP shall
be manually filed and the corresponding ATP shall be manually
issued through an alternative off-line ATP system, by the RDO/LT
Office having jurisdiction over the taxpayer’s Head Office. ATP
processed during systems downtime shall be immediately uploaded
upon availability of the on-line ATP system.
5. There shall be one application for ATP per establishment (HO or
branch) which shall be filed with RDO/LT Office concerned where
the HO is registered. Each application shall be issued a separate
ATP. The principal and supplementary receipts/invoices of the HO
and each of the branches must have their own independent series
of serial number. Each application as well as the printed accounting
document/s shall reflect the exact address of the branch, TIN and
the branch code attached to the TIN.
6. The approved ATP shall be valid only upon full usage of the
inclusive serial numbers of principal and supplementary
receipts/invoices reflected in such ATP or five (5) years from
issuance of the same, whichever comes first.

7. No ATP shall be granted for the printing of principal and
supplementary receipts/invoices unless the required information
which shall be prescribed in a separate revenue issuance, are
reflected therein.
8. The replicate copy of the ATP issued shall be printed at the inside
back portion of the cardboard cover of each booklet/pad of
principal and supplementary receipts/invoices printed.
9. Only BIR Accredited Printers shall have the exclusive authority to
print principal and supplementary receipts/invoices.
10. The on-line ATP System shall generate reports that will be
prescribed in the Revenue Memorandum Order that will be issued
for this purpose

Accounting Requirements
Accounting Requirements (in addition to the
regular accounting records maintained):
a. Subsidiary sales journal
b. Subsidiary purchase journal
c. Subsidiary record for acquisition,
purchase or importation of depreciable
assets or capital goods

Recording Procedures/
Accounting Entries
a. To record purchases
Purchases xxx
Input Tax xxx
Cash or A/P xxx
EWT Payable xxx
b. To record sales
Cash xxx
Creditable WT xxx
Sales xxx
Output Tax xxx

Recording Procedures/
Accounting Entries
c. To record monthly/ quarterly payment
Output Tax xxx

Input Tax xxx
Cash xxx

Filing of Returns and Payment of VAT
Manner of Filing (Sec. 114)
Payment Procedures
Short Period Return

VAT Returns
Returns Manner of Submission Payment
For Manual EFPS Manual
2550M Large and Not later Group A: 25 days At the time
Non-Large than the following end of of filing or
taxpayer 20th day the month before 25th
following Group B: 24 days of the
the close following end of following
of the the month month
month Group C: 23 days
following end of
the month
VAT Returns
2550M Group D: 22 days At the time

following end of the of filing or
month before 25th of
Group E: 21 days the following
following end of the month
month
2550Q Not later than the 25th day following the close of each taxable
quarter
Beginning January 1, 2023, the filing and payment required under the Tax Code shall
be done within twenty-five (25) days following the close of each taxable quarter.
VAT Returns
2551M Large and Not later Group A: 25 days At the time
Non-Large than the following end of of filing or
taxpayer 20th day the month before 25th
following Group B: 24 days of the
the close following end of following
of the the month month
month Group C: 23 days
following end of
the month
VAT Returns
2551M Group D: 22 days At the time
following end of of filing or
the month before 25th
Group E: 21 days of the
following end of following
the month month
2551Q Return shall be filed and the tax paid within 20 days
after the end of each taxable quarter

Submission of Quarterly Summary List of
Sales/Purchases/Importation
Persons Required to Submit Quarterly List of
Sales/Purchases/Importation (RR 1-2012)
(1) Persons Required to Submit Summary Lists of Sales. — All
persons liable for VAT such as manufacturers,
wholesalers, service providers, among others are required
to submit Summary List of Sales.
(2) Persons Required to Submit Summary Lists of Purchases.
— All persons liable for VAT such as manufacturers,
service-providers, among others are required to file
Summary List of Purchases.
xxx
Persons Required to Submit Quarterly List of

Sales/Purchases/Importation (RR 1-2012)
(7) The Quarterly Summary List of Sales and Purchases

shall be submitted through Compact Disk-
Recordable (CDR) medium following the format
provided in Subsection (g) hereof. “

Use of Updated Medium for Submitting Summary List
of Sales and Purchases (RMO 56-2010)
“Removable Storage media refers to 3.5 inch floppy

diskette, universal serial bus (USB) flash drives,
compact disc (CD)/digital video disc (DVD)”

Use of Updated Medium for Submitting Summary List
of Sales and Purchases (RMO 56-2010)
“Procedures shall be amended as follows:
1. Receive SLSP diskettes/USB flash drives/CDs/DVDs from
VAT taxpayers together with duly filled out SLSP
Acknowledgment Report in two copies. In case of
replacement diskette/USB flash drive/CD/DVD, the
previously filled out SLSP Acknowledgment Report must be
re-submitted for easy reference.
xxx
3. Assign control number in the SLSP Acknowledgment Report
and record taxpayer’s information in the SLSP Register…
VAT taxpayers who reached the set threshold for

sales/purchases/importations is required to submit
Summary List of Sales(SLS)/Summary List of
Purchases(SLP)/Summary Lists of Importation (SLI) or all.
Taxpayers must submit these to email address:
esubmission@bir.gov.ph using the electronic format of
BIR- RELIEF which can be downloaded from the BIR
Web.

When & Where to File Summary List of Sales/Purchases (RR 1-2005)
Taxpayer Where When
− Non EFPS users RDO having On or before the 25th day
− Non Large jurisdiction over the following the close of
Taxpayers HO of the taxpayer taxable quarter calendar
or fiscal
− EFPS users Thru electronic filing On or before the 30th day
− Large Taxpayers facility following the close of the
- e attachment taxable quarter
- e submission
Beginning January 1, 2021, the VAT withholding system under this subsection
shall shift from final to a creditable system.
Withholding of Creditable VAT
The government or any of its political subdivisions,
instrumentalities or agencies, including government-
owned or controlled corporations (GOCCs) shall, before
making payment on account of its purchase of goods
and/or of services taxed at twelve percent (12%) VAT
pursuant to Sections 106 and 108 of the Tax Code, deduct
and withhold a final VAT due at the rate of five percent
(5%) of the gross payment thereof (net of VAT
component)

The five percent (5%) final VAT withholding rate shall represent
the net VAT payable of the seller. The remaining seven
percent (7%) effectively accounts for the standard input VAT for
sales of goods or services to government or any of its political
subdivisions, instrumentalities or agencies including GOCCs, in
lieu of the actual input VAT directly attributable or ratably
apportioned to such sales. Should actual input VAT exceed the
standard input tax, the excess may form part of the sellers’
expense or cost. On the other hand, if actual input VAT is less
than the standard input tax, the difference must be closed to
expense or cost.

Output Tax – 12%
Standard Input Tax – 7%
VAT Payables 5%
(VAT withheld by Government)

Withholding of Final VAT
The government or any of its political subdivisions, instrumentalities or
agencies, including government owned or controlled corporations
(GOCCs) as well as the private corporations, individuals, estates and trusts,
whether large or non-large taxpayers, shall withhold the 10% / 12% VAT,
starting February 1, 2006, with respect to the following payments:
1. Lease or use of properties or property rights owned by non-
residents; and
2. Other services rendered in the Philippines by non-residents.
Payments for purchase of goods and services arising from projects funded
by Official Development Assistance (ODA) as defined under Republic Act
No. 8182, “Official Development Assistance Act of 1996,” as amended shall
not be subject to the Final/Creditable Withholding Taxes.
Suspension of Business Operation
(Sec. 115 of the NIRC)
Failure to issue receipts or invoices;

Failure to file VAT return;
Understatement of taxable sales or receipts by thirty
percent (30%) or more of his correct taxable sales or
receipt for the taxable quarter; or
Failure of any person to register.

III. Computations
of VAT

VAT Payable
It refers to the excess of output tax over

allowable input tax. In the case of
importation, it is the VAT due on such
importation.

Output Tax
It refers to the VAT on sale or lease of

taxable goods, properties or services by
any person registered or required under
the VAT system.

Output Tax Computation
Rules:
1. Billed Inclusive
GROSS SALES (GS) = Total Invoice Amount x 1
1.12
OUTPUT TAX (OT) = GS x 12%
2. Billed Exclusive
OUTPUT TAX (OT) = Total Invoice Amount x 12
112

Sale of Real Property
OUTPUT TAX =
Gross Selling Price/or

Zonal Value/or X 1
Fair Market Value whichever 1.12
is higher

Sale of Services/Use or Lease of Properties
OUTPUT TAX = Total Amount Received X 1

(inclusive of VAT) 1.12
or
Gross Receipts X 12% (assuming all

(exclusive of VAT) receipts are subject
to VAT)

Importation of Goods
OUTPUT TAX = Total

Landed X 12%
Cost
Landed Cost consists of the invoice amount, excise
tax (if any), customs duties, freight and insurance
and other charges prior to release of goods from
customs custody.
Computation of VAT Payable
Output Tax (Total Invoice Amount x 1/12) XXX

Less: Input Tax (IT)
Transitional/Presumptive IT XXX
IT carried over from previous quarter XXX
Importation of Goods XXX XXX
VAT Payable XXX

Effect of Excess Output Tax or Input Tax
If the output tax exceeds input tax, the excess

shall be the VAT payable.
If input tax inclusive of input VAT carried over
from the previous quarter exceeds the output
tax, the balance may be credited in the
following month/quarter.

Problem 1
Compute the transitional input tax on each of the
following independent cases:
1. MZET Inc. registered as a value-added taxpayers on January 2 of
the year. Inventory as of January 1 had a value for income tax
purposes of Two Hundred Eighty Thousand Pesos (P280,000).
The VAT paid on such inventories when purchased was
Seventeen Thousand Pesos (P17,000).
2. MZET Inc. registered as a value-added taxpayers on July 1.
Inventories as of that date had a value for income tax purposes
of One Hundred Forty-Eight Thousand Pesos (P148,000). The
VAT paid on such inventories when acquired was Twelve
Thousand Six Hundred Pesos (P12,600).
Problem 2
Compute the VAT due during the quarter.
J. Cruz, a taxpayer, is engaged in a restaurant business and a
jeepney operator at the same time. He has complied with the
registration requirements of the BIR. For the quarter Jan –
March 2009, gross receipts from restaurant business
amounted to One Million One Hundred Fifty-Five Thousand
Pesos (P1,155,000) and Three Hundred Eighty-Five Thousand
Pesos (P385,000) from jeepney operations. During the period,
he incurred One Hundred Seventy-Six Thousand Pesos
(P176,000) for the repair of the building where his office is
located.
Problem 2
Supplies purchased for common use amounted
to Twenty-Two Thousand Pesos (P22,000). He
also disbursed the following amounts:
Tires and spare parts P77,000

Kitchen utensils 26,400
VAT paid:
Jan P36,000
Feb 20,000

Problem 3
A. Compute for the VAT during the quarter
B. Compute for the refund that may be granted to MZET
Corporation in connection with its claim for refund of input tax
on capital goods.
MZET Corporation is a domestic corporation engaged in automobile

business. During the fourth quarter of 2008, it made the following
transactions:
Sales from automobiles P7,040,000

Income from repairs 1,760,000
Purchases and supplies 5,280,000
Repairs of the building used in the business 165,000
Problem 4
Compute the VAT payable for the month of June 2009.
MCZ Realty, Inc., a domestic corporation, is engaged in business as a real estate
lessor. On June 30, one of its properties (land and building) being offered for
rent/lease was sold at Ten Million Five Hundred Thousand Pesos
(P10,500,000.00) to JSZ Corporation. During the month of June, total vatable rental
income is One Million Five Hundred Forty Thousand Pesos (P1,540,000.00).
Additional Information:
1. Fair market value as determined by the Commissioner P 8,000,000
2. Fair market value as shown in the schedule of 7,000,000
Values of the City Assessor
3. Book value at the time of sale 2,400,000
4. Total input tax available 500,000

Problem 5
Compute the VAT to be paid by ETHAN, DREW and FRIDAY.
ETHAN, a VAT taxpayer, imported articles with a dutiable

value of Two Hundred Thousand Pesos (P200,000) and
customs duties and other charges of Forty Thousand Pesos
(P40,000). He sold the articles to DREW, also a VAT taxpayer
for Three Hundred Eighty-Five Thousand Pesos (P385,000).
DREW sold the goods to FRIDAY, a VAT taxpayer for Four
Hundred Forty Thousand Pesos (P440,000). FRIDAY sold the
articles to GWEN, consumer for Five Hundred Fifty Thousand
Pesos (P550,000). Assume that sales are inclusive of VAT.

IV. Percentage Taxes

Other Percentage Taxes Imposed
under Title V of The NIRC
Section of Type of Taxable Tax Rate Exemptions
NIRC Tax/Activity Base
116 Tax on VAT- Gross 3% Gross Section 109 –
exempt person Monthly Receipts Exempt
whose annual Sales or Tax (GRT Transactions: a
sales/ receipts Receipts with to d, g to t
do not exceed option to
3,000,000 register as
VAT
taxpayer)

117 Percentage tax on Quarterly 3% Gross Owners of
domestic carriers Gross Receipts bancas and
and keepers of Receipts Minimum owners of
garages: gross animal drawn
- Cars for rent or two-wheeled
hire vehicle
- Transportation
contractors
- Other domestic
carriers by
land, air or water

Computing the Percentage Tax
Minimum Gross Receipts Required
1. Jeep for hire
a. Manila and other cities P2,400.00
b. Provincial P1,200.00
2. Public Utility Bus

a. Not exceeding 30 passengers P3,600.00
b. Exceeding 30 but not exceeding
50 passengers P6,000.00
c. Exceeding 50 passengers P7,200.00

Percentage Tax Computation
3. Taxi
a. Manila and other cities P3,600.00
b. Provincial P2,400.00
4. Car for hire (with chauffeur) P3,000.00
5. Car for hire P1,800.00

(without chauffeur) (Sec. 117, NIRC)

118 Percentage tax on Monthly 3% Gross
international Gross Receipts
carriers Receipts Tax
- International air
carriers
International
shipping carriers

Section of Type of Tax/Activity Taxable Tax Rate Exemptions
NIRC Base
119 Tax on franchise Monthly 3% Gross Receipts
- Radio and/or Gross Tax (With option to
television Receipts register as VAT
broadcasting derived taxpayer)
companies whose from
annual gross receipts the 2% GRT (without
of the preceding year business option to register
does not exceed covered by as VAT Taxpayer)
P10 Million, if P10 the law
Million and above, granting the
subject to VAT franchise
- Gas 2%
- Water 2%
120 Tax on overseas Amount 10% 1.Government
dispatch, message paid for (payable by 2.Diplomatic
or conversation such the person Services
originating from the services paying for 3.International
Philippines the Organization
services 4.News
and paid to Services
the person
rendering
the
services)
Section Type of Taxable Tax Rate Exemptions
of NIRC Tax/Activity Base
121 Tax on bank Gross 1%/5/0%
and receipts - (financial
non-bank (schedular) inter
financial mediation
intermediaries income)
7%-other
income
122 Tax on Gross 1%/5/ (from
finance receipts lending activity)
companies 7% (other
income)
0% (dividends
and equity
shares and net
income of
subsidiaries)
123 Tax on life Total 2%
insurance premium
premium collected
- Every
person of
company or
corporation

Premiums Exempt from Tax
1. Premiums refunded within six (6) months after payment;
2. Premiums paid upon reinsurance by a company that has
already paid the tax;
3. Premiums collected or received by any branch of a
domestic corporation, firm or association doing business
outside the Philippines;
4. Premiums collected or received on account of any
reinsurance; and
5. Portion of the premiums collected or received by the
insurance companies on variable contracts.

Section of Type of Tax/Activity Taxable Tax Rate Exemptions
NIRC Base
124 Tax on agents of Premium 10%
Foreign Insurance Paid payable
Companies (FIC) (except by agent,
- Every fire, marine or Reinsurance) or 5%
miscellaneous payable
insurance agent by owner
authorized under of
the Insurance Code property
- Owners of property Insurance
who obtain if there is
insurance directly no agent
with foreign companies
125 Amusement taxes Gross 18% cockpits, Boxing
- Proprietor, lessee Receipts cabarets, night exhibitions
or operator of: or day clubs wherein world
cockpits, cabarets, 10% boxing or oriental
night and day club, exhibition championships
boxing exhibitions, 15% professional in any division
is at stake
professional basketball subject
basketball games, games to some
Jai-alai, Race 30% Jai-alai conditions
tracks and race tracks
Exemption of Boxing Exhibition
from Tax
Boxing exhibition wherein World or Oriental Championships in
any division is at stake shall be exempt from amusement tax
subject to the following conditions:
1. At least one (1) of the contenders for World or Oriental
Championship is a citizen of the Philippines; and
2. Said exhibitions are promoted by the citizen/s of the
Philippines or by a corporation or association at least sixty
percent (60%) of the capital of which is owned by such
citizen/s.

126 Tax on Winnings 10%
winnings of bettor;
- Persons who prize of
wins in horse owners
races of
winning
horses

Section Type of Tax/Activity Taxable Tax Rate Exemptions
of NIRC Base
127 Tax on sale, barter GSP or 1/2 of 1% Payable Sale by a
or exchange of shares of Gross by seller or transferor dealer
stock listed and traded Value on in securities
through the local stock Remarks: A dealer
Money
exchange in securities is
- Seller or transferor subject to VAT
of the shares of stock 1-4% (Schedular)
- Issuing corporations payable by the
in primary offering or issuing corporation
the seller in in primary offering
secondary offering or by the seller in
General Course for Revenue Officers secondary offering VTPT 250 Slide – 186
Manner of Filing and Payment
A. In general 1. The Percentage Tax Return (2551Q) shall be filed within
20 days after the end of each taxable month. For EFPS
users based on industry grouping – due date – 25th of
the month following EOM
2. Any person retiring from a business subject to
percentage tax shall file his return and pay the tax due
thereon within 20 days after closing his business.
3. In the case of a person whose VAT registration has
been cancelled and who becomes liable under Sec.
116 of the NIRC, the tax shall accrue from the date of
cancellation.

B. Tax on Overseas The person rendering the
Dispatch, message or service is required to collect
conversation originating from and pay the tax within 20 days
the Philippines after the end of each quarter
C. 1. Amusement The taxes shall be payable at

taxes the end of each quarter within
2. Tax on Winning 20 days after the end of each
(horse races) quarter.

D. Others
1. Capital Gains The stock broker or the seller in the case
realized from of secondary offering shall remit/pay the
sale of shares tax within 5 banking days from the date of
of stocks collection/sale thereof and to submit on
listed and Monday of each week to the secretary of
traded in the the Stock exchange a return which shall
local stock contain a declaration of all the
exchange transactions during the preceding week
including and taxes collected by him and turned to
secondary the BIR.
offering
2. Public Offering The corporate issuer shall file the return

of shares of and pay the corresponding tax within 30
stock (Primary days from the date of listing of the shares
offering) of stock in the local stock exchange

V. Audit Techniques

Preliminary Approach to Investigation
1. Familiarize with the business of the taxpayer.
2. Ascertain if the taxpayer maintains branches or other business
establishments other than its main office.
3. Determine if the taxpayer is engaged in other lines of business.
4. Study the accounting methods and peculiarities in the industry
group where the taxpayer belongs.
5. If possible, conduct interviews with responsible accounting and
sales personnel.
6. Examine the quarterly VAT returns and monthly VAT
declarations filed.
7. Scrutinize the validation of payment on the VAT
declarations/returns.
Preliminary Approach to Investigation
8. Refer to the report of the audit of the VAT liabilities of the
taxpayer.
9. Check reasonableness of sales and purchases together with
output and input taxes declared.
10. Tally input tax carried over against prior period’s VAT return.
11. Identify significant changes in sales and purchases and VAT
payment.
12. Obtain documentary requirements for claims for VAT
credit/refund.
13. Requests for the books of accounts and accounting records
to be examined.

Audit of Sales and Output Tax
Gross Taxable Sales of Goods and Services
1. Reconcile the amount of each category of sales per monthly VAT

declarations, quarterly VAT returns and financial statements with
the recorded amount of sales per general ledger, sales journal,
including the control subsidiary sales journal for each branch.
2. Review the composition of the sales account in the journals and
ledgers and ascertain that:
a. Only those transactions which are specifically exempted
under Sec. 109 of the NIRC, are treated as exempt sales.
b. “Deemed” sales of goods and recorded as taxable
transactions.

c. Verify and compare entries appearing in the subsidiary and/or
sales journal and compare the same with information shown in
the sales invoice.
d. Test the accuracy of the sales summary against the source
documents.
e. Determine compliance with invoicing requirements and
procedures.
f. Ensure that the sales invoice issued for sales transactions are all
accounted for.
g. For those using loose-leaf invoices/cash register machines,
require presentation.

h. Be alert on the use of double or multiple set of invoices
bearing identical serial numbers.
i. Verify if the transactions covered by the “Statement of
Account”, “Delivery Receipt”, Debit Notes and other similar
documents are properly recorded as sales.
j. When confronted with a delivery receipt, ascertain whether
it covers a consummated sale or consignment sale.
k. If the taxpayer is engaged in both taxable and exempt
transaction, ascertain that only VAT invoices are issued for
VAT taxable transactions and separate invoices are issued
for exempt transactions.
l. Test check footings in the sale and subsidiary sales
journals and posting to the general ledger.
m. Verify sales contracts, marketing agreements,
consignment terms and other sales related documents.
n. Scrutinize miscellaneous and other income accounts and
ascertain if such accounts are taxable.
o. Examine the cash receipts book and official receipts
issued to uncover any collection which may not have
been included in the taxable sale.
p. Tour the company and plant premises and relate the
equipment in use and the volume of business with the
amount of sales declared for tax purposes.
q. Be resourceful in discovering under declaration of sales.
r. If necessary, analyze all accounts affecting total sales
particularly cash accounts and/or notes receivable,
collections from receivables, sales discounts and sales
returns, bad debts written off and other relevant
accounts.
s. Identify instances of gross selling prices of goods and
services being unreasonably lower than the actual market
value and make necessary adjustment.
t. If accounting records are unreliable, look into gate
passes, purchase order registers and other records used
by the taxpayer in its day-to-day transactions.
u. Ascertain the correctness of output tax computations.
v. Verify whether other charges such as excise tax,
packaging, insurance, freight and delivery expenses are
treated as part of the gross taxable sale.
w. Account for deductions for sales.
x. In case the taxpayer enjoys full or partial exemption
pursuant to special laws, verify the extent of exemption
and compliance with conditions.

Audit of Sales of Goods and Services
Apply the pro-forma computation to arrive at the total sale of goods:
Cash Sales Pxx
Add: Collections on accounts receivable Pxx
Collection on notes receivable xx
(if it pertains to sale of goods)
Sales discounts granted xx
Sales returns and allowances from
Sales on account xx
Bad debts written off xx
Accounts receivable, ending xx
Notes receivable, ending xx
Total receivables during the period Pxx
Less: Accounts receivable, beg. Pxx
Notes receivable, beg. xx xx
Sales on account
Total sales during the period Pxxx
Account for the quantity of goods actually sold in appropriate case, as a
tool to further audit
Finished goods, beginning xxx
Add: Production or purchase xxx
Total available for sale xxx
Less: Finished goods, end xxx
Number of units issued xxx
Less: Samples, destroyed or lost items xxx
Number of units issued xxx
Less: Samples, destroyed or lost items xxx
Number of units sold during the period xxx
Multiply by average selling price/unit xxx
Total sales per audit xxx
Determine the taxable sale by computing:
Total sales during the period Pxxx
Add: Deemed sale per audit xxx
Total sales per audit xxx

Less: Zero-rated sales Pxxx
Exempt sales xxx xxx
Gross taxable sales Pxxx

Less: Sales Returns and Allowances xxx
Taxable Sales Pxxx

Apply the following pro-forma computation to arrive at the gross
taxable receipts during the period:
Income or billing during the period Pxxx
Add: Accounts receivable, beginning xxx
Retention receivable, ending xxx
Total available for collection xxx
Less:Accounts receivable, ending xxx
Retention receivable, ending xxx xxx
Collection from receivable xxx
Add: Deposits or advances and
mobilization fee xxx
Gross receipts during the period xxx
Less: Gross receipts from exempt service xxx
Gross receipts from zero-rated service xxx xxx
Taxable Gross Receipts Pxxx
Audit Purchases and Input Tax
Reconcile the amount of each category of purchases per VAT
declarations and returns with the amount of purchases per
subsidiary purchases journal.
Analyze and compare the summary of purchases with entries
appearing in the subsidiary purchase journals, purchase
invoices and other source documents.
Review the composition of the purchase accounts in the
journals and ledgers.
Determine substantiation of claims for input tax credits.

Determine correctness of computation of claims
for input tax credits.
Check the authenticity of substantial claims input
tax credits by confirming purchase transactions.
Ascertain that purchase returns or allowances
granted to the taxpayer and input tax attributable
to exempt sales results in a corresponding
reduction in the input tax balance.

Applications for the issuance of tax credit certificates
and refund affecting the input tax credit available at
the time of application.
Reconcile the amounts of input tax claimed in the VAT
return for the portion carried over from previous
quarters and the balance carried to succeeding
quarters with the amounts recorded in the books of
accounts.
Ascertain that the recorded amount of the purchase of
goods or properties and services are net of VAT.
Zero-rated & Foreign Currency
Denominated Sales
Determine whether sales declared as zero-rated actually
emanate from export sales or foreign currency denominated
sales and other transactions that may qualify as zero-rated or
effectively zero-rated sales.
1. For actual export sales, review the following:
a. Invoices
b. Bills of lading
c. Inward letters of credit
d. Lending certificates
e. Other commercial documents.

Worksheet of Zero-rated & Foreign
Currency Denominated Sales
(1) (2) (3) (4) (5)
Date of Sales Name of AWB/BL Shipment
Export Invoice No. Consignee No. Date
(6) (7)
Amount of Sales in Amount of Foreign
Foreign Currency Currency Remitted
Per Invoice
(8) (9)
Conversion Rate Amount of Remittance in Pesos

Worksheet of Zero-rated & Foreign
Currency Denominated Sales
(10) (11)
Date of Remittance Accredited Bank
(12) (13)
Bank Credit Memo No. Sales per Book
(14) (15)
Discrepancy Between Discrepancy Between

6&7 9 & 13

Denominated Sales
2. Secure approval for zero-rating on export sales other than
actual exports.
3. For “foreign currency denomination sales”, review the
transactions and ascertain if:
a. the buyer is non-resident;
b. the goods are assembled or manufactured in the
Philippines;
c. the goods are to be delivered to a resident in the
Philippines; and
d. the goods are paid for and inwardly remitted in
acceptable foreign currency.
Denominated Sales
4. For zero-rated sales of services, verify contract
agreement to ascertain the person for whom the
services were rendered, amount of consideration,
description of the services and documents
evidencing actual payments. (See matrix on the next
slide)
5. For other effectively zero-rated transactions, secure
a copy of the application approved by the Revenue
District Office.
Denominated Sales
(1) (2)
Name of Contractee Contract Price
(3) (4)
Amount Billed in Amount Received in
Foreign Currency Foreign Currency
(5) (6)
Official Receipt No. Date of Receipt
(7) (8)
Conversion Rate Amount Received in Pesos
(9) (10) (11)
Name of Bank Bank Cr. Memo No. Discrepancy Between 3 & 4

Reporting Requirements of Revenue Officers
The audit report should contain the following:
1. Copy of the Letter of Authority
2. VAT declarations and VAT returns for the audited period with
proper validation of payment by the bank
3. Worksheets showing the following schedules:
Analysis of sales and output tax
Analysis of purchases and input tax
Analysis of relevant accounts such as cash, receivables,
payables, advances, etc. (if necessary)
Adjustment to sales and output tax
Adjustment to purchases and input tax
Computation of deficiency VAT
General Course for Revenue Officers VTPT 250 Slide –

Reporting Requirements of Revenue Officers
4. Revenue Officer’s Memorandum Report
5. Revenue Officer’s VAT audit report (BIR Form 1717V)
6. One copy of the BIR’s Authority to Accept Payment (ATAP)
7. Approved application for zero-rate, if applicable
8. Photocopies of certificate of registration with other
government agencies evidencing exemption from VAT, if
applicable
9. Copy of audited financial statements for the period under audit
10. A copy of “Access of Records” letter
11. Other general and specific requirements
12. Checklist of duly accomplished audit procedures undertaken

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Topic 250

& Percentage Taxes

General Course for Revenue Officers VTPT 250 Slide – 2

General Course for Revenue Officers VTPT 250 Slide – 3

General Course for Revenue Officers VTPT 250 Slide – 4

General Course for Revenue Officers VTPT 250 Slide – 5

General Course for Revenue Officers VTPT 250 Slide – 6

1. Broaden Tax Base

General Course for Revenue Officers VTPT 250 Slide – 8

General Course for Revenue Officers VTPT 250 Slide – 9

10% (up to January 31, 2006);

12% (effective February 1, 2006);

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Gross selling price means the total amount of

Total value used by the Bureau of Customs in

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Gross Receipts refers to the total amount of money

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The term “Goods or Properties” - shall mean all tangible and

1. Real properties held primarily for sale to customers or held

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3. The right or the privilege to use in the Philippines

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Conditions for vatability:

(b) Sales to persons or entities whose exemption under

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2. Exemptions Under Special Laws or International

Sales to persons or entities or entities whose

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5. Services performed by subcontractors and/or

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The concerned taxpayer must seek prior approval

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Supplier must be VAT registered

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c. The amortization of the input VAT shall only

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All input taxes creditable to a VAT-registered person

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If a VAT-registered person is also engaged in other

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