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Comprehensive VAT

TAXATION
By:
Dr. Ruperto P. Somera, Ph.D., CBA, CPA
Tax Consultant, Professor/Lecturer
Former Director, Bureau of Internal Revenue
Former Member, Board of Accountancy
Fellow Tax Management
Fellow Tax Research

VAT is a tax on the taxable sale, barter or exchange


of goods, properties or services. A barter or
exchange, or assignment, conveyance, or transfer
or other mode of transferring ownership, has the
same tax consequence as a sale.
It is generally passed on to the buyer, even if the
sale is made to tax-exempt entities.
VAT is transparent in the sense that the law
requires that the tax be shown as a separate item in
the VAT invoice or receipt.

Subject to VAT
1. Sale of goods or properties related to business
or trade (actual sales or deemed sales)
The sale of goods or services should be made in the
Philippines to be subject to VAT.

2. Gross receipts related to business or trade


(sale of services or lease of properties in the
Philippines)
3. Importation (purchases of goods or services
outside the Philippines either for persona or
business use)
3

Value Added Tax (VAT) is a tax on the value


added of a taxpayer arising from taxable
sales of goods, properties or services during
the quarter at the rate of 0% or 12%. Value
added is the difference between total sales
of the taxpayer for the taxable quarter subject
to value added tax and his total purchases
for the same period subject also to value
added tax.
4

The term output tax (something referred to


as output VAT) means the value tax due on
the sale, barter, exchange or lease of taxable
goods, properties or services by any person
registered or required to register.

The term input tax (sometimes referred to


as Input VAT) means the value added tax
due from or paid by a VAT-registered person
in the course of his trade or business on
importation of goods or local purchase of
goods, properties or services, including
lease or use of property, from another VATregistered person.

When the output tax is greater than the input


tax, the difference called VAT payable
On the other hand, when the input tax is
greater than the output tax, the difference
called excess input tax shall be carried over
to the next taxable period, or it may be
claimed as tax credit or refund if it arises or is
directly attributable from zero-rated or
effectively zero-rated sales.
7

Stages of Value Added Tax


PRODUCTION
MANUFACTURING
IMPORTATION

PRODUCTION
MANUFACTURING
IMPORTATION

FINAL
CONSUMER

DISTRIBUTOR

WHOLESALER

RETAILER

FINAL
CONSUMER

Formula of Vat System


Output Vat on sales
Pxxx
Less: Input Vat on purchases and services
Creditable Vat withheld xxx
xxx
Net Vat payable (refundable)
Pxxx

Pxxx

The Output Vat computed as follows:


Sales or gross receipts Pxxx
Multiplied by VAT rate 12%
Output VAT
Pxxx
The Input VAT is computed as follows:
Purchases and services acquired from VAT person
Multiplied by VAT rate 12%
Input VAT
Pxxx

Pxxx

Example
Amount
Sales

100

Output tax (100 x 12%)


Purchases

12.0
80

Input tax (80 x 12%)


Value added
VAT payable (20 x 12%)

VAT

9.6
20
2,4

10

When will you be subject to VAT?


1.Upon registration as VAT person
2.Importation of goods
3.Upon reaching P1,919,500 sale of goods
or services

11

Is the business VAT-registered?

NO

YES

Gross receipts or
sales subject to
12% output VAT
and a benefit of
input VAT on
purchases

Does the annual gross receipts


or sales exceed P1,919,500

YES

Gross receipts or sales subject


to 12% output VAT but no
benefits of input VAT on
purchases.

NO

Gross receipts or sales


subject to 3% percentage tax.

12

BUSINESS REGISTRATION
VAT - Registered
1. With gross
sales/receipts of
more than P1,919,500
per year
2. With gross
sales/receipts of
P1,919,500 and below
per year and opted to
be registered as VAT.

Non-VAT - Registered
1. With gross
sales/receipts below
P1,919,500
2. Percentage taxes
(sales tax)

13

VAT Person

1. Vat Taxable
2. Zero-VAT
3. VAT-Exempt

Non-VAT Person

1. VAT-Exempt
2. Other percentage TAX

Sales/Receipt of

Registered as VAT
VAT Person

VAT Taxable
Transaction

Not registered as VAT, whose sales/receipts is more


than the threshold of P1,919,500

Could claim Input VAT credit if registered under VAT


System.
Could claim Input VAT credit if not registered under
VAT System.

14

VAT Taxable Transactions

Sales Receipts
of VAT
registered
Business other
than those
subject of other
Percentage Tax.

Importations,
other than
Zero-Exempt

Sales / Receipts of
Non-VAT business,
exceeding
P1,919,500 year,
Gross receipts of
Radio / TV
franchise holder,
more than
P10,000,000 a
year.

15

Optional VAT Registration


Option for VAT-exempt persons to be VAT
registered and to be subject to 12% Vat on
exempt sales under Section 109; irrevocable
for three years
Previously, available only to exporters of food
and non-food agricultural and marine food
products, cotton seeds, copra, fertilizers,
seeds, seedlings, fingerlings and animal feeds
16

Accounting Entries for sale of Goods


Dr. Accounts Receivable/Cash
Cr. Sales Taxable
Output Taxes
Dr. Sales Returns and Allowances
Output Taxes
Cr. Accounts Receivable/Cash
17

Dr. Purchases
Input Taxes
Cr. Accounts Payable/Cash
Dr. Accounts Payable/Cash
Cr. Purchase Returns
Input Taxes

18

Accounting Entries for Sales of


Services
Upon issuance of the billing statement:
Dr. Accounts Receivable
Cr. Revenue
Deferred Output Tax
Upon collection of receivable:
Dr. Cash
Cr. Accounts Receivable
Dr. Deferred Output Tax
Cr. Output Tax

19

RATES OF VAT
Output Tax
1. 12% standard rate;
2. 0% (zero rate)
Input Tax
1. 12% standard rate;
2. 0% (zero rate)
3. 2% transitional or 12% actual input tax rate;
4. 4% presumptive input tax rate; and
5. 5% final withholding tax rate.

20

Bookkeeping Requirements
Books for VAT Purposes
a) Subsidiary sales journal
Date

Zero-rated

Sales
Exempt

Taxable

Deemed
Sales

Out VAT

21

Bookkeeping Requirements
B) Purchases journal.
Date

Good for
Sale

Supplies

Raw
Materials

Services

Capital
Goods

Non-Vat Input Taxes

Input deemed
paid Purchase

22

Invoicing requirements
The words VAT EXEMPT SALE written or printed
prominently if sale is VAT-exempt
The words ZERO-RATED SALE written of printed
prominently if sale is subject to zero percent
Option of issue combined or separated
invoices/receipts if sale is a combination of VATable
and VAT-exempt sale. If combined the voice or
receipts should indicate the break-down of the sale
price between the taxable and the exempt component
and the calculation of the VAT.
23

Invoicing requirements
For sales to VAT-registered persons
amounting to P1,000 or more, indicate the
name, business style, address and TIN of the
purchaser
Requirements previously applies on sale of at least
P100 and , regardless of amount, where purchaser
is a VAT registered person

24

Invoice/receipt without TIN and address of


buyer not a valid support of input VAT
Case: (Nesic Philippines, Inc. v. CIR, CTA Case
No. 7012, March 13, 2009)

Court disallowed claim of input VAT credits


on the ground that the invoices and official
receipts issued by suppliers do not indicate
the address or TIN.

25

Court of Tax Appeals:


Purchaser-taxpayer is duty bound to
ensure full compliance with the
invoicing requirements, otherwise,
failure to comply with the requirements
could be fatal to its claim for recognition
of its input tax credits.

26

Presentation of BIR authority to print


required if not indicated in the invoice
Case: (Kepco Ilijan Corporation v. Commissioner
of Internal Revenue, CTA Case No. 7473, January
05, 2009)
Taxpayer is engaged in the production and sale of
electricity to NPC. It filed a claim for refund of its
input VAT from its importations and domestic
purchase of goods and services. Its claim is
supported by invoices and receipts which,
however, do not bear the BIR authority to print and
consequently, disallowed.
27

Due date in the filling of Value Added Tax


Returns
Quarter
Covered

1st QTR.

2nd QTR.

3rd QTR.

4th QTR.

Months

Forms to be
Used

Under
Manual Due
Date

Under EFRS
Due Date

January

2550M

February 20

February 25

February

2550M

March 20

March 25

March

2550Q

April 25

April 25

April

2550M

May 20

May 25

May

2550M

June 20

June 25

June

2550Q

July 25

July 25

July

2550M

August 20

August 25

August

2550M

September 20 September 25

September

2550Q

October 25

October 25

October

2550M

November 20

November 25

November

2550M

December 20

December 2028

December

2550Q

January 25

January 25

PERSONS LIABLE TO VAT


Any person who, in the course of trade or
business, sells barters, exchange, lease
goods or properties, renders services, and
any person who imports goods shall be
subject to the value-added tax.
The value-added tax 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.
29

TAXABLE TRANSACTIONS
A taxable transaction could either be (a) a
sale, barter or exchange of goods or
properties in the course of trade or
business (b) sale of service, or lease or use
of goods or property, in the course of trade
or business.

30

The phrase in the course of trade or


business means the regular conduct or
pursuit of a commercial or an economic
activity, including transactions incidental
thereto, by any person, regardless of
whether or not the person engaged therein
is
a
non-stock,
non-profit
private
organization or government entity.

31

REQUISITED FOR TAXABILITY OF


SALE OF GOODS OR PROPERTIES
1) There is an actual sale, barter or exchange of
goods or properties for a valuable
consideration;
2) The sale is undertaken in the course of trade
or business or exercise of profession in the
Philippines;
3) The goods or properties are located within the
Philippines and are for use or consumption
therein; and
4) The sale is not exempt from value added tax.
32

With respect to sale or exchange of real property, the


following requirements must be meet:

1. The seller executes a deed of sale, including


dacion en pago, barter or exchange,
assignment, transfer, or conveyance, or
merely contract to sell involving real property;
2. The real property is located within the
Philippines;
3. The seller or transferor is engaged in real
estate business either as a real estate dealer,
developer, or lessor;
4. The real property is held primarily for sale or
for lease in the ordinary course of his trade or
business; and
33

Types of sale
Actual sale The sellers output tax
automatically becomes the VAT-registered
buyers input tax, which the latter can credit
against his output tax on his taxable sales of
goods, properties or services during the quarter.
However, the output tax passed on by a VATregistered seller becomes part of the cost of
acquisition of an asset or an expense of a nonVAT-registered (or VAT-exempt) buyer.

34

Types of sale
Deemed sale The following transactions are
considered as deemed sale:
a)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;
b)Distribution or transfer to shareholders or
investors as share in the profits of the VATregistered persons or to creditors in payment of
debt;
35

Types of sale
c) Consignment of goods, if actual sale is not
made within sixty days following the date
such goods were consigned; and
d) Retirement from or cessation of business,
with respect to inventories of taxable goods
existing as of such retirement or cessation.
Retirement from or cessation of business
with respect to all goods on hand, whether
capital goods, stock-in-trade, supplies or
material as of the date of such retirement or
cessation.
36

Transactions Deemed Sale


The Following transactions are deemed sale and are subject
to VAT:
1.Transfer, use or consumption not in the course of business of
goods or property originally intended for sale or for use in the
course of business.
2.Distribution or transfer to:

Shareholders or investors as share in the

3.Consignment of goods if actual sale is not made within sixty


(60) days following the date such goods were cosigned; and
4.Retirement from or cessation of business, with respect to
inventories of taxable goods existing as of such retirement of
cessation.

37

For transactions deemed sale, the output tax shall


be based on the market value of the goods
deemed sold as of the time of the occurrence of
the transactions enumerated above.
In the case of retirement or cessation of business,
the tax base shall be acquisition cost or the current
market price of the goods or properties, whichever
is lower. In the case of a sale where the gross
selling price is unreasonable lower than the fair
market value, the actual market value shall be the
tax base.
38

Gross Selling Price


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 the value-added tax. The excise tax, if any, on
such goods or property shall form part of the gross selling
price.
Sales returns and allowances for which a proper credit or
return made, and sales discounts determined and granted at
the time of sale which are expressly indicated in the invoice,
are proper deductions from gross selling price to arrive at the
tax base.
39

Tax Base and Rates


There shall be levied, assessed and
collected on every sale, barter or exchange,
or transactions deemed sale of taxable
goods or property, value-added tax
equivalent to 12% of the gross selling price
or gross value in money of the goods or
property sold, bartered or exchanged, or
deemed sold in the Philippines.
40

Meaning of the Term


Goods or Properties
Real properties held primarily for sale to customers or
held for lease in the ordinary course of trade
The right to use patent, copyright, design or model,
plan, secret formula or process, trademark, trade brand;
The right to use any industrial commercial or scientific
equipment;
The right to use motion picture films, films, tapes and
discs; and
Radio, television, satellite transmission and cable
television time.

41

Allowable Deduction from Gross


Selling Price
Discounts granted at the time of
sale
Sales returns and allowances

42

OUTPUT TAX
Vatable Sales/Receipt-Private
Sales to Government
Zero Rated Sales/Receipts
Exempt Sales/Receipts
Deemed Sale

Rate
12%
5%
0%
Exempt
12%

43

VAT on Importation of Goods


In general VAT is imposed on goods
brought into the Philippines, whether for use
in business or not.
Applicability and payment The VAT on
importation shall be paid by the importer
prior to the release of such goods from
customs custody
Sales, transfer or exchange of imported
goods by tax-exempt persons.
44

VATABLE transactions (previously exempt)


a. Sale of electricity by generation, transmission
and distribution companies
Repeals zero-rating of generation
companies
Repeals VAT exemption of NPC
Repeals VAT exemption of electric
cooperatives including on their importation
of machineries and equipment
Repeals 3% franchise tax on electric
utilities

45

VATable transactions (previously exempt)

b. Sale of nonfood agricultural products;


marine and forest products in their
original state by primary producer or
owner of the land

46

VATable transactions (previously exempt)

c. Sale of cotton and cotton seeds in their original


state; and copra
Sec. 109 Exempt Transactions
Sale or importation of agricultural and marine food products in their
original state, livestock and poultry of a kind generally used as, or yielding
or producing foods for human consumption; and breeding stock and
genetic materials thereof.

47

VATable transactions (previously exempt)


d. Sale or importation of coal and natural gas, in
whatever form or state
e. Sale or importation of petroleum products
subject to excise tax, including raw materials
for their production

48

VATable transactions (previously exempt)


f. Sale by the artist of his works of art, literary
work, musical compositions and
g. Services rendered by doctors of medicine duly
registered with the PRC
h. Services rendered by lawyers duly registered
with the IBP

49

VATable services (previously subject to


percentage/franchise tax)
a. Proprietors, lessees or operators of cabarets and
night or day clubs
Previously subject to an 18% amusement tax

b. Common carriers by air and sea relative to their


transport of passengers from one place in the
Philippines to another place in the Philippines
3% common carriers tax under Sec. 117 on transport
of passengers by domestic carriers by air and sea has
been repealed. Domestic carriers by air and sea shall
now be fully under VAT

50

VATable services (previously subject to


percentage/franchise tax)
Franchise taxes of domestic air carriers under
their charters have been abolished
Domestic land carriers continue to be subject to
VAT on transport of cargoes

51

Excise Tax
Exciseable Products Old Rate

New Rate

Naphtha, regular
gasoline and similar
products of distillation

P4.80

P4.35

Kerosene

P0.60

P0.00

Diesel fuel oil

P1.63

P0.00

Bunker fuel oil

P0.30

P0.00

Locally extracted natural


gas and liquefied natural
gas

2%

No excise tax

52

Categories of VAT exemptions


1. Exempt persons the seller or the
buyer is not liable to value added tax; or
2. Exempt transactions transactions in
certain goods, properties or services,
which are not subject to value added
tax, even if such goods, properties or
services are sold by a VAT registered
person, and regardless of the annual
gross sales or receipts derived
therefrom.
53

VAT-Exempt Transactions
1. Sale or importation of agricultural
and marine food products in their
original state, livestock and poultry
of a kind generally used as, or
yielding or producing foods for
human consumption; and breeding
stock.
54

VAT-Exempt Transactions
2. Sales or importation of fertilizers, seeds,
seedlings and fingerlings, fish, prawn,
livestock, and poultry feeds, including
ingredients, whether locally produced or
imported, used in the manufacture of
finished feeds (except specialty feeds for
race horses, fighting cocks, aquarium
fish, zoo animals and other animals
generally considered as pets)
55

VAT-Exempt Transactions
3. Importation of personal and
household effects belonging to
residents of the Philippines
returning from abroad and nonresident citizens coming to resettle
in the Philippines;

56

VAT-Exempt Transactions
4. Importation of professional instruments
and implements, wearing apparel,
domestic animals, and personal
household effects (except any vehicle,
vessel, aircraft, machinery and other
goods for use in the manufacture and
merchandise of any kind in commercial
quantity) belonging to persons coming to
settle in the Philippines
57

VAT-Exempt Transactions
5. Services subject to percentage tax
Sales or lease of goods or properties or
the performance of services of non-VATregistered persons, the gross annual
sales and/or receipts of which does not
exceed the amount of P1,919,500.00

58

VAT-Exempt Transactions
6. Services by agricultural contract
growers and milling for others of
palay into rice, corn into grits, and
sugar into raw sugar;
7. Medical, dental, hospital and
veterinary services, except those
rendered by professionals.
59

VAT-Exempt Transactions
8. Educational services rendered by
private educational institutions duly
accredited by the Department of
Education (DepED), the
Commission on Higher Education
(CHED) and the Technical
Education and Skills Development
Authority (TESDA);
60

Sale of pharmacy/medicine to in-patients is


exempt from VAT as part of medical services
(CIR vs. Professional Services, Inc. CTA EB 409,
January 8, 2009)

The term hospital services under Sec. 109(L)


includes sale of drugs to in-patients because the
maintenance and operation of a pharmacy by a
hospital is a necessary and essential service or
facility rendered by hospital to patients.

61

VAT-Exempt Transactions
9. Sales by agricultural cooperatives duly
registered and in good standing with the
Cooperative Development Authority (CDA)
to their members, as well as sale of their
produce, whether in its original state or
processed form, to non-members;

62

VAT-Exempt Transactions
10.Gross receipts from lending activities by
credit or multi-purpose cooperatives duly
registered and in good standing with the
Cooperative Development Authority.
11.Sales by non-agricultural, non-electric and
non-credit cooperatives duly registered
provided, that the share capital contribution
of each member does not exceed Fifteen
Thousand Pesos (P15,000.00)
63

Persons exempt from VAT under


Special Laws:
a. CDA-registered cooperatives (RA 6938,
RA 8424)
b. Enterprise registered with Special
Economic Zones or Free Ports in the
Philippines
c. Regional or Area Headquarters
established in the Philippines by
multinational corporations
64

Vat exempt under treaty


Under the Vienna Convention on
Diplomatic Relations of 1961,
diplomatic agents are exempt from all
dues and taxes, personal or real,
national, regional or municipal.

65

VAT Exempt Senior Citizen


A senior citizen or elderly is a Filipino citizens who is a
resident of the Philippines, and sixty (60) years old or
above. It includes senior citizens with dual citizenship
status provided they prove their Filipino citizenship and
have at least six (6) months residency in the Philippines.
Senior citizens are now subject to a 20% discount and
VAT-exempt on purchases of goods and services as long
as the senior citizens himself or herself can show a valid
senior citizens ID card.

66

VAT-Exempt Transactions
Export sales by persons who are
not VAT-registered;
Sales of real properties are exempt
from VAT:
Sale of real properties not primarily
held for sale to customers
Sale of real properties utilized for lowcost housing
67

Zero-Rated
Sales

68

Zero-rated sales

a. Export sales by VAT-registered persons, as follows:


1. Sale and actual shipment of goods from the
Philippines to a foreign country;
2. Sale of raw material or packaging materials to a nonresident buyer for delivery to a resident local exportoriented enterprise;
3. Sale of raw materials or packaging materials to exportoriented enterprise whose export sales exceed 70% of
total annual production;
4. Sale of gold to the Bangko Sentral ng Pilipinas;
5. Those that are considered export sales under
(Omnibus Investment Code of 1987) and
other special
laws; and
6. Sale of good, supplies, equipment and fuel to persons
engaged in international shipping or international air 69
transport operations.

Zero-rated sales
b. Foreign currency denominated sale sale to a nonresident of goods assembled or manufactured in the
Philippines for delivery to a resident in the Philippines,
paid for in acceptable foreign currency
c. Sales to persons or entities whose exemption under
special laws and international agreements to which the
Philippines is a signatory subjects such sales to zeropercent (0%) rate, such as entities registered with the
following:
1. Subic Bay Metropolitan Authority and Clark
Development Authority
2. Philippine Economic Zoe Authority or PEZA; and
3. Asian Development Bank or ADB and International
Rice Research Institute or IRRI (under international
agreements).
70

Zero-rated sales
a. Processing, manufacturing or repacking or
exported goods for persons doing business
outside the Philippines, paid for in acceptable
foreign currency in accordance with BSP rules
and regulations;
b. Services to persons doing business outside the
Philippines or to a non-resident person not
engaged in business who is outside the
Philippines, the consideration of which is paid for
in acceptable foreign currency in accordance with
BSP rules and regulations;
71

Zero-rated sales
c. Services rendered to persons or entities whose
exemption under special laws or international
agreements to which the Philippines is a signatory
effectively subjects such services to zero-percent
(0%) rate;
d. Services rendered to persons engaged in
international shipping or international air transport
operations, including leases of property for use
thereof;
e. Services performed by subcontractors and/or
contractors
in
processing,
converting,
or
manufacturing goods for an enterprise whose
export sales exceed 70% of total annual
72
production;

Zero-rated sales
f. Transport of passengers and cargo by air or sea
vessels from the Philippines to a foreign country;
and
g. Sale of power of fuel generated through
renewable sources of energy such as, but not
limited to, biomass, solar, wind, hydropower,
geothermal, ocean energy, and other emerging
energy sources using technologies such as fuel
cells and hydrogen fuels.
73

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.

74

Sales of Services

75

Zero-Rated Sales of Goods


Foreign Currency Denominated
Sale
Sales of locally manufactured or
assembled goods for household and
personal use to Filipinos abroad and
other non-residents of the
Philippines as well as returning
Overseas Filipinos
76

VAT on Sales of Services


1.Services performed for a valuable
consideration in relation to trade, business or
profession, unless exempted by Code or
special law.
2.Lease or use of personal properties (tangible
or intangible) such as rights, privileges, or
properties, or the supply of knowledge or
information, assistance or services.
3.Lease of real properties.
77

Taxable Base on Services


1. Total amount of money or its equivalent
representing the contract price, compensation
services fee, rental or royalty.
2. Amount charged for materials supplied, with the
services and deposits and advance payments
actually or constructively received during the
taxable quarter, excluding VAT.

78

Gross Receipts
Means the total amount of money or its
equivalent representing the contract price,
compensation, services and deposits
applied as payments for services rendered
and advanced payments actually or
constructively received during the taxable
period for the services performed or to be
performed for another person, excluding
value-added tax.
79

Constructive receipt
Deposit in Banks
Issuance by the debtor of a
notice of offset any debt or
obligation
Transfer of the amounts
retained by the payor to the
account of the contractor
80

Constructive receipt
Occurs when the money consideration or its
equivalent is placed at the control of the person who
rendered the service without restrictions by the payor.
1.Deposits in bank which are made available to the
seller of services without restrictions;
2.Issuance by the debtor of a notice to offset any debt
or obligation and acceptance thereof by the seller as
payment for services rendered; and
3.Transfer of the amounts retained by the payor to
the account of the contractor.
81

Requirements for Value-Added


taxability of Service Transactions
The requisites of services subject to VAT are the
following:
1. The services must be performed or is to be
performed in the course of business in the
Philippines.
2. The service is rendered valuable consideration
actually or constructively received.
3. The service rendered is not exempt from VAT
under the Tax Code, other special laws or
international agreement.
82

Sale or Exchange of Services


It refers to the performance of
all kinds of services in the
Philippine for other for a fee,
remuneration consideration.

83

Professional / Technical
Services
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.

84

Professional / Technical
Services
a. Performed or rendered by construction
and service contractors;
b. Stock, real estate, commercial customs
and immigration brokers;
c. Persons engaged in milling, processing,
manufacturing or re-packing;
d. Dealers in securities;
e. Lending investors;
85

Professional / Technical
Services
f.

Transportation contractors on their transport of goods or


cargoes, including persons who transport goods or
cargoes, for hire and other water relative to their
transport of goods or cargoes;
g. Non-life insurance companies (except crop insurance),
including surety, fidelity, indemnity and bonding
companies; and
h. The supply of services by a nonresident 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
nonresident persons.
86

Transfer of Technology
Consists of the supply of scientific,
technical, industrial or commercial
knowledge or information to and
furnished as a subsidiary assistance to
and furnished as a means of enabling
the application and enjoyment of the
technology transfer.
87

Transfer of Technology
a. The lease or use of any industrial,
commercial knowledge or information;
b. The supply of scientific, technical, industrial
or commercial knowledge or information; and
c. The supply of any assistance that is ancillary
and subsidiary to and is furnished as a
means of enabling the application or
employment of any such property or right.
88

Lease or Use of Intangible


Property
This includes copyrights, patents,
designs, models, plans, secret formula
or process, goodwill, trademark, trade
brand or other like property or right;
right to use radio, television, satellite
transmission and cable television time.

89

Lease or Use of Tangible


Property
This is grouped as industrial, commercial or
scientific equipment, including the supply of
any assistance that is ancillary and
subsidiary to and is furnished as a means of
enabling the application or enjoyment of
such properties motion picture, films, tapes
and discs.

90

Lease or Use of Tangible


Property
a.
b.
c.
d.

Lessors or property, whether personal or real;


Warehousing services;
Lessors / distributors of cinemategraphic films;
Proprietors, operators or keepers of hotels,
motels, rest-houses, pension houses, inns,
resorts
e. Proprietors, operators of restaurants,
refreshment parlors, cafs and other eating
places, including clubs and caterers.
91

Lease or Use of Tangible


Property
f. Services of franchise grantees of telephone
and telegraph, radio and television
broadcasting and all other franchise grantees.
g. The lease or the use of or the right or privilege
__ any copyright, patent, design or model, __
or formula or process, goodwill, trademark __
other like property or right

92

Common Carriers by Land


Common carriers by land with respect to
their gross receipts from the transport of
passengers including operators of taxicabs,
utility cars for rent or hire driven by the
lessees (rent-a-car companies), and tourist
buses used for the transport of passengers
shall be subject to the 3% percentage tax,
but shall not be liable for VAT.
93

Domestic common carriers by air and sea


transport of passengers, goods or cargoes
from one place in the Philippines to another
place in the Philippines;
Domestic common carriers by air and sea are
subject to 12% VAT on their gross receipts from
their transport of passengers, goods or cargoes
from one place in the Philippines to another place
in the Philippines.

94

Transporting Goods or Cargoes


Transporting Passengers
By Air or Sea:
From/To Within the PhilippinesTransporting Goods or Cargoes
Transporting Passengers

12% VAT
3% Common Carriers Tax

12% VAT
12% VAT

From One Point in the Philippines to Abroad


Transporting Goods or Cargoes
0% VAT
Transporting Passengers
0% VAT

95

Input TAX

96

Input Tax means the VAT due on


or paid by a VAT-registered person
on importation of goods or local
purchases of goods, properties, or
services, including lease or use or
properties, in the course of trade or
business. It include the transitional
input tax and the presumption input
tax
97

Five (5) categories of input taxes that may be


credited against output tax, namely:
1. Input tax credit on importation of goods and
current local purchases of goods, properties and
services
2. Transitional input credit
3. Presumption input tax credit
4. Final withholding tax credit
5. Excess input tax credit.

98

Input Taxes
Purchase or importation of goods
Purchase of real properties for which a VAT
has actually been paid
Purchase of services in which a VAT has
actually been paid
Transactions deemed sale
Transitional input tax
Presumptive input tax
Transitional input tax credits
99

Input taxes
Sources of Input Tax
Domestic Purchases Capital Goods above P 1 million
Domestic Purchases Capital Goods less than P 1 million
Domestic Purchases Goods
Domestic Purchases Services
Importations Capital Goods above P 1 million
Importations Capital Goods less than P 1 million
Importations Goods
Presumptive Input Tax on Goods and Supplies

100

Persons Who Can Avail of the Input


Tax Credit
To the importer upon payment of VAT prior to
the release of goods from customs custody;
To the purchaser of the domestic goods or
properties upon consummation of the sale;
or
To the purchaser of services or the lessee or
licensee upon payment of the compensation,
rental, royalty or fee.
101

Input Tax on Depreciable Goods


Where a VAT-registered persons
purchase or imports capital goods,
which are depreciable assets for income
tax purposes, the aggregate acquisition
cost of which (exclusive of VAT) in a
calendar month exceeds One Million
Pesos (P1,000,000.00), regardless of
the acquisition cost of each capital good.
102

Input Tax on Depreciable Goods


If the estimated useful life of a capital
goods is five (5) years or more The
input tax shall be spread evenly over a
period of sixty (60) months
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
103

Staggered claim of inputs tax for


capital goods, whose acquisition
cost net of VAT exceeds P1
million, over 60 months or the
useful life, whichever is shorter
Option to apply for refund/tax credit
certificate has been withdrawn

104

Substantation Requirements on
Input Tax
A. IN GENERAL:
1. Proof that input tax was incurred in the
course of trade or business.
2. Supported by VAT invoice or receipt bearing
VAT number of seller.
3. Seller must be vat registered.
4. Purchaser must also be VAT registered.
5. Invoice must be in the name of buyer.
6. Address of buyer is indicated.
105
7. Business style of buyer.

Substantation Requirements on Input Tax


B. INPUT TAX ON INPORTATION:
1. Import entry or equivalent document
2. Payment of VAT on imported goods (official
receipts)

C. TRANSITIONAL AND/OR PRESUMPTIVE


INPUT TAX:
1. Inventory of unused tax credits duly accounted in
the books and returns
2. Inventory of goods filed with the BIR

D. INPUT TAX ON DEEMED SALE


TRANSACTIONS:
Inventory filed with the BIR

106

Kinds Input TAX


1.Transitional Input TAX
2.Presumptive Input TAX
3.Creditable Input TAX

107

Input taxes
Presumptive/transitional input tax credits
Reduces from 8% to 2% the optional
transitional input tax credit allowed on
beginning inventory of persons becoming
liable to VAT
Increases from 1 % to 4% the
presumptive input tax credit for
manufacturers of sardines, mackerel, milk,
refined sugar, cooking oil and, under the
bill
108

Transitional input tax

There are three situations where a person may


claim transitional input tax on his beginning
inventories of goods, materials, and supplies:
1.When he becomes liable to value added tax for
the first time
2.When he elects to register as a VAT-registered
person, provided he is eligible; and
3.If he is already a VAT-registered person and also
deals in goods or properties, the sale of which is
exempt,

109

Transitional Input Tax Credits


Transitional Input Tax Credits A person
who becomes liable to value-added tax
or any person who elects to be a VATregistered person shall, subject to the
filing of an inventory

110

Transitional Input Tax on


Beginning Inventories
Goods purchased for resale;
Materials purchased for further
processing;
Goods which have been manufactured
by the taxpayers;
Goods in process for sale; or
Goods and supplies for use of tax payers
111

Case: (Fort Bonifacio Development Corporation


vs. CIR, et. al. (GR Nos.158885 and 170680, April
2, 2009)
Petitioner is engaged in development and sale of
real property. It availed of transitional input tax
credit based on the value of its land inventory
which was not subjected to VAT upon purchase.
was disallowed by the BIR.

112

Presumptive Input Tax Credits


Persons of firms engaged in the processing
of sardines, mackerel, and milk, and in
manufacturing refined sugar, cooking oil and
packed noodle-based instant meals, shall be
allowed a presumptive input tax, creditable
against the output tax, equivalent to four
percent (4%) of the gross value in money of
their purchases of primary agricultural
products which are used as input to their
production.
113

Creditable Input Tax


Any input tax evidenced by a VAT invoice or
official receipt on the following transactions
shall be creditable against the output tax:
a) Purchase or importation of goods:
For sale; or
For conversion into or intended to form part
of a finished product for sale; including
packaging materials; or
114

Creditable Input Tax

For use as supplies in the course of


business; or
For use as materials supplied in the sale of
service; or
For use in trade or business for which
deduction for depreciation or amortization is
allowed under this Code.
b)Purchase of services on which a valueadded tax has been actually paid.
The input tax on domestic purchase of
115
goods or properties shall be creditable.

Substantiation of Input Tax


Credits
Input taxes for the importation of goods or the
domestic purchase
For the importation of goods import entry or
other equivalent document
For the domestic purchase of goods and
properties invoice showing the information
For the purchase of real property public
instrument i.e., deed of absolute sale, deed of
conditional sale, contract/agreement to sell
For the purchase of services official receipt
showing the information
116

Substantiation of Input Tax


Credits
Presumptive input tax shall be
supported by an inventory of goods
as shown
Input tax on deemed sale
transactions shall be substantiated
with the invoice

117

Mixed Business Transactions


A mixed business transaction, would refer to
business dealing of a VAT-registered person
engaged in a combination of sales subject
to VAT, Zero-VAT and VAT-exempt
transactions.
The main concern in mixed business
transaction is the allocation of Input VAT.
118

Allocation of Input VAT


A VAT-registered person who is also engaged in
transactions not subject to VAT shall be allowed of
Input Tax credit as follows:
1.Total Input Tax which can be directly attributed to
transactions subject to VAT (except VAT taxable
sales of goods and services to government or
government owned and controlled corporations);
and
2.A rotable portion of any Input Tax which cannot
be directly attributed to either activity.
119

Where the taxpayer is engaged in VAT


taxable, Zero-rated and VAT-exempt
sale of goods or services, and the
amount of creditable input tax could not
directly and entirely attributed to a
specific transaction, the Input VAT shall
be allocated proportionately on the
basis of the sales volume.

120

Apportionment of Input Tax on


Mixed Transactions
If any input tax cannot be 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

121

Apportionment of Input Tax on


Mixed Transactions
Taxable sales (0% and 10%)
-------------------------------------- x Amount of input
Total Sales
tax not directly
attributable

122

Final withholding VAT on


government purchases
Unifies to 5% and converts to a final tax the
withholding VAT rate on income payments by
government (previously 3%, 6% and 8.5%)

123

Withholding of VAT on Government


Money Payments and Payments to
Non-Residents
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 attributable to sale to government exceeds
seven percent (7%) of gross payments, the excess may
form part of the sellers expense or cost. On the other hand,
if actual input VAT attributable to sale to government is less
than seven percent (7%) of gross payment, the difference
must be closed to income.
124

Construction in progress (CIP)


Is the cost of construction work which is not yet completed.
CIP is not depreciated until the asset is placed in service.
Normally, upon completion, a CIP item is reclassified and
the reclassified asset is capitalized and depreciated.
CIP is considered, for purposes of claiming input tax, as a
purchase of service, the value of which shall be determined
based on the progress billings. Until such time the
construction has been completed, it will not qualify as capital
goods as herein defined, in which case, input tax credit on
such transaction can be recognized in the month the
payment was made; Provided, that an official receipt of
payment has been issued based on the progress billings.
125

Construction in progress (CIP)


In case of contract for the sale of service where only the
labor will be supplied by the contractor and the materials will
be purchased by the contractee from other suppliers, input
tax credit on the labor contracted shall still be recognized on
the month the payment was made based on a progress
billings while input tax on the purchase of materials shall be
recognized at the time materials were purchased.
Once the input tax has already been claimed while the
construction is still in progress, no additional input tax can
be claimed upon completion of the asset when it has been
reclassified as depreciable capital asset and depreciated.

126

Sale of Real Properties


Sale of residential lot with gross selling price
exceeding P1,919,500.00 residential house
and lot or other residential dwellings with gross
selling price exceeding P3,199,200.00 where
the instrument of sale (whether the instrument
is nominated as a deed of absolute sale, deed
of conditional sale or otherwise)

127

Sale of real property on


installment plan
Means sale of real property by a real estate dealer, the initial
payments of which in the year of sale do not exceed twenty-five
(25%) of the gross selling price.
In case of installment sale, the seller shall be subject to output VAT
on the installment payments received, including the interest and
penalties for late payment, actually and/or constructively received,
subject to the provisions of Sec.4.106-4 hereof. Correspondingly, the
buyer of the property can claim the input tax in the same period as
the seller recognized the output tax.
Installment payments, including interests and penalties, actually
and/or constructively received starting February 1, 2006 shall be
subject to twelve percent (12%) output VAT.
128

Sale of real property on


installment plan
In the case of sale of real properties on a deferred-payment
basis not on the installment plan, the transaction shall be
treated as cash sale which makes the entire selling price
taxable in the month of sale. Output tax shall be recognized
by the seller and input tax shall accrue to the buyer at the
time of the execution of the instrument of sale.
Payments subsequent to initial payment shall no longer be
subject to output VAT, in the case of sale on a deferred
payment basis.
129

Gross Selling Price


Illustration:
ABC Corporation sold a parcel of land to XYZ
Company on July 2, 2006 for P1,000,000.00, plus
the output VAT, with a monthly installment payment
of P10,000.00, plus the output VAT. The zonal
value of the subject property at the time of sale
amounted to P1,500,000.00. Computer for the
output tax due on the installment payment.

130

Gross Selling Price


Formula:
Actual collection (exclusive of the VAT)
Agreed consideration (exclusive of the VAT)

x Zonal value x 12%

P10,000.00 x P1,500,000.00 = P15,000.00


P1,000,000.00
P15,000.00 x 12% = P1,800.00
Selling price is the amount of consideration in a contract of sale between
the buyer and seller or the total price of the sale which may include cash
or property and evidence of indebtedness issued by the buyer, excluding
the VAT.
131

Refund or TAX Credit of


Input TAX

132

Claims for Refund/Tax Credit


Certificate of Input Tax
Zero-rated and Effectively Zero-rated
Sales of Goods, Properties or
Services
Cancellation of VAT registration

133

Not Allowed for Vat Refund or


Tax Credit Certificate
The following are not allowed to apply for VAT
refund or issuance of tax credit certificate:
1.Presumptive input VAT
2.Transitional input VAT
3.Actual input Vat on capital goods, importation, or
purchases of continuing VAT-registered persons to
the extent of their sales not subject to zero-rated,
effectively zero-rated or business cancelling their
VAT registration.
134

Vat Refunds
2 issues:
1.Reckoning date for the 2-year period
- filing of tax return? Or close of taxable
quarter?
2.Period of 120 days for the BIR to act on
claims
135

Reckoning of prescriptive period for VAT


refund.
Zero-rated or Effectively Zero-rated Sales. Any
VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the
close of the taxable quarter when the sales were made,
apply for the issuance of a tax credit certificate or refund of
creditable input tax due or paid attributable to such sales,
except transitional input tax, to the extent that such input
tax has not been applied against the output tax x x x

136

For claims of refund of unutilized input VAT


attributable to export sales, there must be
proof of actual exportation or shipment of
goods from the Philippines to a foreign
country.

137

For claims of refund of unutilized input VAT


attributable to zero-rated sales, there must
be proof of valid VAT official
receipts/invoices covering the zero-rated
sales.

138

Once a carry-over option is taken,


actually or constructively, it becomes
irrevocable for that taxable year and no
application for a tax refund or TCC shall
then be allowed.

139

Claims for Refund/Tax Credit


Certificate of Input Tax
Period within which refund or tax credit
certificate/refund of input taxes shall be
made
In proper cases, the Commissioner of Internal
Revenue shall grant a tax credit
certificate/refund for creditable input taxes
within one hundred twenty (120) days from
the date of submission of complete
documents in support of the application
140

Recovery of Tax Erroneously or Illegally


Collected.
In any case, no such suit or proceeding shall
be filed after the expiration of two (2) years
from the date of payment of the tax or penalty
regardless of any supervening cause that may
arise after payment: Provided, however, That the
Commissioner may, even without a written claim
therefor, refund or credit any tax, where on the
face of the return upon which payment was
made, such payment appears clearly to have
been erroneously paid.
141

Court of Tax Appeals:


Claim for VAT refund (Northern Mini Hydro vs. CIR,
CTA No. 7257, May 28, 2009)

Ruling: Without valid VAT official receipts, the


sales of electricity to NPC cannot qualify for VAT
zero-rating and consequently, the claim for refund
of unutilized input VAT attributable thereto cannot
be granted.

142

Court of Tax Appeals:


Claim for VAT refund (Philex Mining Corp vs. CIR,
CTA No. 7495, October 20, 2009)

Ruling: To be considered an export sale, there


must be, not only a sale, but also an actual
shipment of goods from the Philippines to a
foreign country. Thus, for purposes of application
for refund, the actual shipment must also be made
in the same quarter the sale was made.
143

Revenue Memorandum Circular


No. 39-2007

Clarifying Income Tax and


VAT Treatment of Agency
Fees/Gross Receipts of
Security Agencies

144

Vat on Security Agency Fees


In the computation of VAT related to the gross receipts
by a Vat-registered security agency:
1.The contract for security services entered by and
between the security agency and its client must
provide for a breakdown of the amount of security
services into two components:
a. The agency fee
b. The security guards salary
Only the agency fee is subject to 12% VAT if the
service contract stipulates the breakdown.
145

REVENUE REGULATION NO.


NO. 10-2011

Exchange of Real Property


to Share of Stocks

146

Not subject to output tax.


The VAT shall not apply to goods or properties which are
originally intended for sale or for use the course of
business existing as of the occurrence of the following:
1.Change of control of corporation by acquisition of the
controlling interest of such corporation by another
stockholder (individual or corporate) or group of
stockholders. The goods or properties used in business
(including those held for lease) or those comprising the
stock in trade of the corporation having a change in
corporate control will not be considered sold, bartered,
or exchanged despite the change in the ownership
interest in the said corporation.
147

However, the exchange of goods or properties including


the real estate properties used in business or held for
sale or for lease by the transferor, for shares of stocks,
whether resulting in corporate control or not, is subject
to VAT.

148

REVENUE REGULATIONS
NO. 18-2011
Providing Penalties for Violation of the
Requirement that Output Tax on the Sale of
Good and Services Should be Separately
Indicated in the Sales Invoice or Official
Receipt

149

All VAT-registered taxpayers who are required under


Section 237 of the 1997 Tax Code, as amended to issue
sales or commercial invoices or official receipts should
separately bill the VAT corresponding thereto. The
amount of the tax shall be shown as a separate item in
the invoice receipt.
Failure or refusal to comply with the requirement shall,
upon conviction, for each act or omission, be punished
by a fine of not less than One Thousand Pesos
(Php1,000) but not more than Fifty Thousand Pesos
(Php50,000) and suffer imprisonment of not less than two
(2) years but not more than four (4) years.
150

REVENUE REGULATIONS
NO. 1-2012
Requiring the Mandatory Submission of
Quarterly Summary List of Sales and
Purchases (SLSP) by All VAT Registered
Taxpayer Thereby Amending

151

Persons Required to Submit Summary Lists of


Sales/Purchases
1.Persons Required to Submit Summary Lists of
Sales. All persons liable for VAT such as
manufacturers, wholesalers, service, providers,
among others are quires 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

152

REVENUE REGULATIONS
NO. 3-2012
Effectivity of Threshold Amounts for Sale of Residential Lot,
Sale of House and Lot Lease of Residential Unit and Sale
or Lease of Goods or Properties or Performance of Services
covered by Section 109 (P), (Q) and (v) of the Tax Code of
1997

153

Section

Amount in Pesos (2005)

Adjusted threshold
amounts

Section 109 (P)

1,5000,000

1,919,500.00

Section 109 (P)

2,500,000

3,199,200.00

Section 109 (Q)

10,000

12,800.00

Section 109 (V)

1,500,000

1,919,500.00

154

Revenue Regulations
No. 13-2012
VAT treatment on Sale of Adjacent
Residential Lots, House and Lots or Other
Residential Dwellings, thereby Amending
Certain Provisions of Revenue Regulations
No. 16-2005, as amended, Otherwise
Known as Consolidated VAT Regulations of
2005
155

Sale of Real Properties


This includes sale, transfer or disposal within a 12-month
period of two or more adjacent residential lots, house and
lots or other residential dwellings in favor of one residential
area wherein the aggregate value of the adjacent properties
exceeds P1,919,500.00, for residential lots and
P3,199,200.00 for residential house and lots or other
residential dwellings, Adjacent residential lots, house and lots
or other residential dwellings although covered by separate
titles and/or separate tax declarations, when sold or disposed
to one and the same buyer, whether covered by one or
separate Deed/s of Conveyance, shall be presumed as a
sale of one residential lot, house and lot or residential
dwelling.
156

Sale of Parking Lot


Does not include the sale of parking lot
which may or may not be include in the sale
of condominium units. The sale of parking
lot in a condominium is a separate and
distinct transaction and is not covered by the
rules on threshold amount not being a
residential lot, house & lot or a residential
dwelling, thus, should be subject to VAT
regardless of amount of selling price.
157

Revenue Memorandum
Circular No. 35-2012
Clarifying the Taxability of Clubs
Organized and Operated
Exclusively for Pleasure,
Recreation, and Other Non-Profit
Purposes.

158

Income Tax
Clubs which are organized and operated exclusively for
pleasure, recreation, and other non-profit purposes are subject
to income tax under the National Internal Revenue Code of 1997
as amended. According to the doctrine of casus omissus pro
omisso habendus est, a person object or thing omitted from an
enumeration must be held to have been omitted intentionally.
The provision in the National Internal Revenue Code of 1977
which granted income tax exemption to such recreational clubs
was omitted in the current list of tax exempt corporations under
National Internal Revenue Code of 1997, as amended. Hence,
the income of recreational clubs from whatever source, including
but not limited to membership fees, assessment dues, rental
income, and service fees are subject to income tax.

159

Value Added tax


A non-stock, non-profit organization or
government entity is liable to pay VAT on the
sale of goods or services. This conclusions
was affirmed by the Supreme Court in
Commissioner of Internal Revenue v. Court
of Appeals and Commonwealth
Management and Services Corporations,
G.R. No. 125355, March 30, 2000. In this
case, the Supreme Court held.
160

Revenue Memorandum Circular


No. 6-2012
Joint Guidelines Implementing the Special
Provision of the General Appropriations Act on
Value Added Tax (VAT) Refunds
September 5, 2012

161

Revenue Memorandum Circular


No. 9-2013
Clarifying the Taxability of Association
Dues, Membership Fees, and Other
Assessments/Charges Collected by
Homeowners Associations
162

Income Tax
-the amounts paid in as dues or fees by
homeowner-members of a homeowners association
form part of the gross income of the latter subject to
income tax. This is because a homeowners
association furnishes its members with benefits,
advantages, and privileges in return for such
payments. For tax purpose, the association dues
membership fees and other assessments/charges
collected by a homeowners association constitute
income payments or compensation for beneficial
services it provides to its members and tenants.
163

Value-Added Tax (VAT) and


Percentage Tax
-Association dues, membership fees, and
other assessments/charges collected by a
homeowners association are subject to VAT
since they constitute income payment or
compensation for the beneficial services it
provides to its homeowner-members.
164

Tax on Persons Exempt from Value-Added


Tax (VAT) any person whose sales or
receipts are exempt from the payment of
value added tax and who is not a VATregistered person shall pay a tax equivalent
to three percent (3%) of his gross quarterly
sales of receipts: Provided, that
cooperatives shall be exempt from the three
percent (3%) gross receipts tax.
165

Thank You
and
May GOD Bless You
in all the days of your life.

166