VALUE ADDED TAX

Presented by: MS. SHEILA JOY C. BENEDICTO, CPA, MBA Revenue Officer II RDO 132 East, Davao City

BASIC CONCEPTS OF VALUE ADDED TAX

VAT defined

It is a tax on the value added to the purchase price or cost in the sale or lease of goods, properties, or services in the course of trade or business.

VAT defined

It is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services.

Background of VAT

VAT is a universal taxation system; VAT has major amendments :

1. 2. 3. 4. E.O. 273 VAT Law (1988) Jan. 1, 1988 RA 7716 E-VAT (RR 7-95) Jan. 1, 1996 RA 8241 IVAT (RR 6-97) Jan. 1, 1997 RA 8242 Tax Reform Act of 1997

Background of VAT
5. RA 9337 New Expanded VAT Law
signed into law on May 24, 2005 Implementation withheld due to TRO TRO was lifted by the SC on Oct. 18, 2005 Became effective November 1, 2005 Implementing Rules and Regulations
RR 14-2005 was superseded by RR 16-2006 (amended by RR 2-2007, RR 4-2007, RR 10-2011 & RR 16-2011)

Objectives of VAT
Broaden

Tax Base

Provide
Simplify

an audit trail business taxation

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Who are liable to VAT?

SELLER

In the course of trade/business

Sells barters Exchanges Leases goods or properties (including deemed sales) Renders services

provided the aggregate sales/receipts exceeds the threshold* (or who opt to register as VAT)

IMPORTER

Whether or not in the course of trade or business

Imports goods

* The threshold is now P1,919,500 effective Jan. 1, 2012 (RR 16-2012)

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VAT Rates:
10%
12% 0%

(up to January 31, 2006) (effective 2-1-06) and

TRANSACTIONS COVERED

Sale or Exchange of Goods / Properties Importation Sales or Exchange of Services Transaction Deemed Sales Zero-Rated Sales of Goods / Properties / Services Effectively Zero-Rated Transactions

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BASIS OF VAT on Goods/Prop.

Shall be the GROSS SELLING PRICE (GSP) GSP is the total amount of money or its equivalent which the purchaser pays or is obligated to pay

excluding VAT.

the excise tax, if any shall form part of the gross selling price
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BASIS OF VAT on Importation

If based on VALUE
TOTAL VALUE used by the BOC in determining:
Tariff and custom duties plus custom duties, excise taxes, if any and Other charges paid by the importer (prior to ATRIG)

If based on QUANTITY and VOLUME

VAT shall be based on the LANDED COST plus EXCISE TAXES
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BASIS OF VAT on SERVICES/LEASE OF PROP.

shall be the GROSS RECEIPTS

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
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It refers to the total amount of money or its equivalent representing:

ZERO-RATED SALES: Goods/Properties

It is a taxable transaction for VAT purposes but shall not result in any output tax. Input tax on purchases of goods, properties or services related to such zero-rated sales shall be available as tax credit or refund. A. Export sales B. Foreign currency denominated sales C. Sales to persons or entities deemed tax-exempt under special law or international agreement.

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Effectively Zero-rated sales of goods and properties (Sec. 6 of RR 4-2007)

Shall refer to the local sales of goods or properties by a VAT-registered person to a person or entitiy who was granted indirect tax exemptions under special laws or international agreements.

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Transactions deemed sale (Sec. 106(B))

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 share in the profits of VAT reg. person (property dividends); or b. Creditors in payment of debt or obligation.
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Transactions deemed sale (Sec. 106(B))

3. Consignment of goods if actual sale is not made within 60 days;
4. Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement or cessation; and 5. Change of tax detail or status from VAT to NON-VAT.

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Rules on invoicing and recording of deemed sale transactions

Memorandum entry in the subsidiary sales journal to record

withdrawal of goods for personal use must be made - For distribution to shareholders and creditors invoice shall be prepared at the time of the occurrence of the transaction recorded in the subsidiary journal

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Rules on invoicing and recording of deemed sale transactions

For retirement or cessation of business inventory shall be prepared and submitted to RDO not later than 30 days from retirement invoice shall be prepared for the entire inventory entry in the subsidiary sales journal

Note: If business is to be continued by new owner, the entire amount of output tax shall be allowed as input tax
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OUTPUT TAX & INPUT TAX

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Output Tax
Means the value-added tax due on the sale or lease of taxable good or property or services by a VAT-registered person. VAT Rates

12% 0%

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Input Tax
It is evidenced by a VAT invoice or official receipt shall be creditable against the output tax. Input tax on domestic or importation of goods. Input tax that can be directly attributed A ratable portion of the input tax which cannot be directly attributed to either activity

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Sources of Input Tax

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

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Sources of Input Tax

For use as materials supplied in the sale of service; or For use in trade or business for which deduction for depreciation / amortization is allowed under the Tax Code Purchase of services on which VAT has been actually paid

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Sources of Input Tax

Purchase of real properties for which the VAT was actually paid Purchase of services for which the VAT was actually paid Transitional input tax Presumptive Input tax Standard Input Tax (govt. transaction)

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Spreading of VAT on Capital Goods

Input Tax on depreciable capital goods, the aggregate acquisition cost of which (net of VAT) in a calendar month, exceeds P1,000,000 shall be spread evenly over 60 months or their useful life, whichever is shorter.

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Spread of VAT on Capital Goods

If capital good is sold within 5 years or prior to exhaustion from input VAT thereon, the entire unamortized input tax on the capital goods sold can be claimed as input tax credit during the month/quarter when the sale was made.

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Spread of VAT on Capital Goods

Option to apply for refund/tax credit certificate of capital goods has been withdrawn.

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VAT Payable
Output Tax ( Sales x 12%) Less Input Tax (Purchases x 12%) VAT payable P xxx xxx P xxx

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Journal Entries upon Purchase

1.

Purchase of goods with invoice price of P30,800.00

Purchases Input Tax Cash

27,500 3,300
P30,800

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Journal Entries upon Sale

2.

Sales of P36,400 inclusive of VAT

Cash Sales Output tax 36,400

32,500 3,900

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Journal Entries
3.

To remit VAT to BIR

Output Tax Input Tax VAT Payable # VAT Payable Cash 3,900.00 3,300.00 600.00 600.00

600.00

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VAT Payable
Output Tax Less Input Tax VAT Payable P 3,900.00 3,300.00 P 600.00

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Transitional Input Tax

A person becomes liable to VAT or elects to be VAT registered person shall be allowed input tax of 2% of the value of inventory or the actual VAT paid, whichever is higher Subject to the filing of inventory list

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Transitional Input Tax

Example: Mr. A becomes liable to VAT starting Jan. 2011. He has P200,000 worth of inventory. Actual VAT payment on purchases from VAT registered suppliers were P18,000.00.
Allowed transitional input tax: P18,000 The 2% of P200,000 (P4,000) is lower than P18,000

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Presumptive Input Tax

4% of the gross value in money of purchases of primary agricultural products which are used as inputs to their production:
Sardines Mackerel and milk Refined sugar Cooking oil Packed noodle-based instant meals

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Refund or Tax Credit of Input Tax (Sec. 112 of the NIRC)

Any VAT registered person whose sales are ZERO-RATED or EFFECTIVELY ZERO-RATED may, within two (2) years after the close if the taxable QUARTER when the sales was made, apply for the issuance of a TCC.

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Refund or Tax Credit of Input Tax (Sec. 112 of the NIRC)

Person whose registration has been cancelled due to retirement or cessation of business or due to change in or cessation of status may, within two (2) years from the date of cancellation, apply for the issuance of a TCC.

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VAT on GOVERNMENT TRANSACTIONS

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VAT on Government Sales

Sale of goods and services to government is subject to 12% VAT;
The 5% VAT withheld represents the net VAT payable of the seller The remaining 7% effectively accounts for the standard input tax in lieu of the actual input VAT

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VAT ON GOVERNMENT TRANSACTIONS

If actual input VAT exceeds 7% of gross payments, the excess may form part of the sellers cost; and

If actual input VAT is less than 7% of gross payments, the difference must be treated as income of the seller.
The income received from the government while subject to final withholding on VAT shall still be reported in the VAT return

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Apportionment of input tax on mixed transactions

Input tax directly attributed to VATable transactions may be recognized for input tax credit Input tax directly attributable to VATable sales to government shall not be credited against output tax from sales to non-government entities

Apportionment of input tax on mixed transactions

Input

tax that cannot be directly attributed to either VATable or exempt transaction shall be pro-rated and only the ratable portion can be allowed as tax credit

Apportionment of input tax on mixed transactions

Input

tax attributable to VAT exempt transaction shall not be allowed as tax credit but should be treated as part of cost or expense
tax attributable to the zero-rated sales may be refunded or applied for tax credit certificate

Input

Apportionment of Input Tax on Mixed Transactions

Taxable sales to private X Total sales Input Tax Input Tax = Creditable

Taxable sales to govt. Total sales

Taxable sales 0% Total sales

=
=

Creditable *

Input Tax

Refundable

Exempt sales Total sales

X Input Tax

Expense or cost

* Subject to the 7% standard input tax provision

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COMPLIANCE REQUIREMENTS

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Optional Registration
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 exempt transactions; Any person who elects to register shall not be entitled to cancel registration for the next 3 years.

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Optional Registration
3. Franchise grantees of radio and/or television broadcasting with annual gross receipts not exceeding P10M. (This option once exercised is irrevocable);

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Penalty for Failure to Register as VAT Taxpayer

Taxpayer shall be liable to pay the tax as if he was a VAT registered person
Taxpayer cannot avail of the benefits of input tax credit for the period he/it was not properly registered.
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Invoicing Requirements
A VAT-registered person shall issue: For every sale, barter or exchange of goods or properties - VAT invoices For every sale, barter or exchange of services or lease of goods or properties - VAT official receipts

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Information needed in the VAT Invoice or VAT Official Receipt:

1. Name and business address of taxpayer who will use the invoice/official receipt; 2. TIN of taxpayer followed by the word VAT; 3. The amount of tax shown as a separate item; 4. Date of transaction, quantity, unit cost and description of the goods or properties or the nature of the service; 5. Authority to Print details and serial number of booklets at the lower left corner of receipt.

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Cont
The word VAT EXEMPT SALE written or printed prominently if sale is VAT-exempt; The words ZERO-RATED SALE written or printed prominently if sale is subject to zero percent

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Cont

Option to issue combined or separate invoices/receipts of sale in a combination of VAT-liable and VAT-exempt sale. If the sale is combined, the invoice or receipt should indicate the break-down of the sale price between the taxable and the exempt component and the calculation of the VAT

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Cont

For sale to VAT-registered persons amounting to P1,000 or more, indicate the name, business style (if any), address and TIN of the purchaser

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Accounting Requirements
All persons subject to VAT shall in addition to regular accounting records, maintain the following SUBSIDIARY SALES JOURNAL which the daily sales are recorded. It includes columns for date of sale; name of customer; TIN of customer, Sales Invoice/OR number, exempt sales; VAT sales (12%) government sales and Zero-Rated Sales;

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Accounting Requirements
SUBSIDIARY PURCHASE JOURNAL which the daily purchases are recorded. It includes columns for date of purchase; name of supplier; TIN of Supplier, purchase invoice number, exempt purchases; domestic purchases (capital goods and other than capital goods), purchases from importation and purchases from services.

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Penalties for Erroneous Issuance of VAT Invoice or VAT Official Receipt

Infraction Penalty
- payment of percentage tax, if 1. NON-VAT person who issues a VAT invoice/official applicable - payment of VAT (w/out input tax) receipt

- 50% surcharge on the VAT due - If the invoice/official receipt contains the required information, purchaser shall be allowed to recognize an input tax credit

2. VAT-registered person who issues a VAT invoice/official receipt for a VAT-exempt sale without the words VAT-EXEMPT SALE

Subject to 12% VAT

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FILING AND PAYMENT DUE DATES

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Filing of Return
Every persons liable to pay the VAT shall file a: MONTHLY RETURN (2550M) every 20th day of the month following the close of each month; and QUARTERLY RETURN (2550Q) every 25th day following the close of each taxable quarter. Any person, whose registration has been CANCELLED within 25 days from the date of cancellation of registration Only one consolidated return shall be filed by the taxpayer for his principal place of business or head office and all branches.
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Synchronized Filing of Quarterly VAT and Quarterly Income Tax (RR 8-2002)
Ex: Fiscal year ends May 31 Under Manual Filing System Due Date For Filing/Payment
July 20 August 20 September 25 October 20 November 20 December 25 January 20 February 20 March 25 April 20 May 20 June 25

Under EFPS Due date eFiling

Staggered (pls see table) Staggered (pls see table) Sept. 25 Staggered (pls see table) Staggered (pls see table) Dec. 25 Staggered (pls see table) Staggered (pls see table) Mar. 25 Staggered (pls see table) Staggered (pls see table) June 25

Quarter Covered

Months
June

Forms to Used
2550M 2550M 2550Q 2550M 2550M 2550Q 2550M 2550M 2550Q 2550M 2550M 2550Q

ePayment
Jul. 25 Aug..25 Sept. 25 Oct. 25 Nov. 25 Dec. 25 Jan. 25 Feb. 25 Mar. 25 Apr. 25 May 25 June 25
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1st

Quarter

July August September

2nd Quarter

October November December

3rd

Quarter

January February March

4th

Quarter

April May

SCHEDULE OF STAGGERED FILING OF RETURNS (RR 26-2002)

GROUP MONTHLY VAT DECLARATION & PERCENTAGE TAX RETURNS 25 days ff the end of the month 24 days 23 days 22 days 21 days -do-do-do-do-

A B C D E

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Submission of SLS/SLP
Persons required to submit:
Summary List of Sales all VAT taxpayers Summary List of Purchases all VAT taxpayers
Note: Effective Jan. 1, 2012 (regardless of the amount of sales and purchases) all VAT registered TPs are required to submit SLS/P under RR 1-2012

Due Date: On or before the 25th day of the month following the close of the taxable quarter.
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Submission of SLS/SLP
Ref: RMO 56-2010 / RMC 60-2010 Electronic submission Thru efps Manually Use of removable storage media 3.5 inch floppy diskette USB flash drive CD DVD
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Adjusted Threshold (RR 16-2011)

Effective 1-1-12
Section Nov. 1/2005 Adjusted threshold amounts

Sale of Residential Lot Sec. 109(P) Sale of Residential House & Lot Sec. 109(P) Lease of residential units Sec. 109(Q) Sale or lease of goods or properties or the performance of services Sec. 109(V)

P1,500,000 2,500,000 10,000 1,500,000

P1,919,500 3,199,200 12,800 1,919,500

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APPLICATION

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 Compute for the Output Tax of the Model Corporation

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Output tax
Sales
Sales to Private Sales to Gov't. Sales - Non VAT total sales 42,900,000 15,000,000 500,000 58,400,000 6,948,000

output tax
5,148,000 1,800,000

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Determine the following input taxes assuming all VAT taxable purchases were duly supported with VAT Invoices/ORs:
On purchase of goods directly attributable to government transactions; On purchase of capital goods On purchase of goods other than capital goods On purchase of services

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IT on purchases directly attributable to govt. transactions

Input Tax directly attributable to gov't. sales Purchases 13,000,000.00 12% 1,560,000.00

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IT on Capital Goods
Total Input Tax on Capital Goods to be spread over Allowable monthly credit (P300,000 / 60 mos) 2,500,000.00 300,000.00 5,000.00

Input tax on Depreciable goods - prior year 180,000.00 Input tax on Depreciable goods - current year 60,000.00 Total 240,000.00 (Assumption: Above equipments are intended for a branch without sale to government)

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IT on goods other than capital goods

INPUT TAX ON PURCHASE OF GOODS OTHER THAN CAPITAL GOODS
Purchases Purchases - gov't. transaction Fringe Benefits - groceries Marketing Expenses Office Supplies Fuel, Oil, and Lubricants Total VAT Rate 34,850,000 13,000,000 40,000 420,000 20,500 600,000 48,930,500 12%

Input Tax

5,871,660

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IT on purchase of services
Freight In
Professional Fees Light Programming services Communication Rent Expense Security Services - agency fee Repairs and Maintenance Transportation Representation Advertisement Insurance

500,000
500,000 450,000 500,000 180,000 334,500 70,000 175,000 211,000 350,000 120,000 50,000

Total VAT Rate Input Tax

3,440,500 12% 412,860

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Summary of Input taxes

SOURCES OF INPUT TAX:
Purchases - regular transactions Purchases - sale to gov't. Goods other than capital goods and intended for sale 1,080,000.00 Purchase of services 3,440,500.00 from capital goods in excess of P1M - previous no data given from capital goods in excess of P1M - current 2,500,000.00 Deductions from Input Tax Input Tax on gov't. sale closed to expense/cost Input tax on exempt sale closed to expense/cost total Allowable input tax credit 129,600.00 412,860.00 360,000.00 300,000.00 6,944,460.00 420,000.00 710,974.32 6,699.14 1,137,673.46 5,806,786.54 129,600.00 412,860.00 180,000.00 180,000.00 60,000.00 240,000.00 782,460.00 420,000.00 GROSS 34,850,000.00 13,000,000.00 INPUT TAX TO BE PRO-RATED DEFERRED 4,182,000.00 1,560,000.00 -

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Lets apply:
Apportion the input tax on mixed transaction

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Apportioned Input Tax

INPUT TAX allocation
Sales to Private x Input tax = total sales (42.9M /58.4M) X P4,712,940 782,460.00 = Sales to Gov't. x Input tax = total sales (15.0M /58.4M) X P4,712,940 782,460.00 = NV Sales total sales (.5M /58.4M) X x Input tax = CREDITABLE 574,786.54 CREDITABLE * 200,974.32

EXPENSE OR COST 4,904,520 782,460.00 6,699.14 782,460.00

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*compare to 7% standard input

Input Tax Available for Govt. Sales

On Purchases - gov't transaction (13M x 12%) 1,560,000.00 Apportioned Input Tax 200,974.32 Total 1,760,974.32 Less: Standard Input Tax 1,050,000.00 Input Tax on Sale to Gov't. Closed to710,974.32 Expense
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Journal Entry on Govt. Transaction

Cash 15,900,000.00 Withholding Tax on VAT (5%) 750,000.00 Expanded Withholding Tax (1%) 150,000.00 Sales 15,000,000.00 Output Tax 1,800,000.00 To record sale to government.

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Journal Entry on Govt. Transaction

Cost/Expense Input Tax To close input tax allocated to sale to gov't. to appropriate account. 710,974.32 710,974.32

Input Tax on Purchases - gov't transaction Add: Allocated Input tax on gov't. transaction Total Input Tax Available Less: Standard Input Tax Closed to Expense/Cost

1,560,000.00 200,974.32 1,760,974.32 1,050,000.00 710,974.32

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Journal Entry to close the input tax attributable to exempt sales

Cost/Expense 6,699.14 Input Tax To close input tax allocated to exempt transaction to appropriate account.

6,699.14

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Lets fill-up the VAT Form

FORM 2550Q

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Men love their country, not because it is great, but because it is their own. ~Seneca

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The End
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