CAE 13 - Business tax

VALUE ADDED TAX

MANNER OF COMPUTING THE VAT
The tax is computed in the following manner:

1. Output tax exceeds total input tax.

Output Tax Pxxx

Less: Input Tax (xxx)

VAT Payable xxx

2. Input tax total exceeds output tax

Output Tax P xxx

Less: Input Tax* (xxx)

VAT Payable (xxx)

* The unutilized input tax can be carried over to

the succeeding month/ quarter
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❖ What is "output tax"?

Output tax means the VAT due on the sale, lease or exchange of
taxable goods or properties or services by any person registered or
required to register under Section 236 of the Tax Code.
❖ What is "input tax"?

Input tax means the VAT due on or paid by a VAT-registered on

importation of goods or local purchase of goods, properties or services,
including lease or use of property in the course of his trade or business. It
shall also include the transitional input tax determined in accordance with
Section 111 of the Tax Code, presumptive input tax and deferred input tax
from previous period.

❖ Basis of Value Added Tax

Nature of transaction Tax Base

1. Sale of goods or properties Gross selling price

2. Sale of services Gross receipts

3. Importation Total landed cost

4. Dealers in securities Gross income

➢ The tax base is the amount on which the rate of value tax is applied

❖ Tax Rates

● 12% on domestic sales

● 0% on export sales (zero rated sales)
 CAE 13 - Business tax

Computations:

1. Sale ofGoods
Gross Sales( Selling price) P xxx

Less: Sales discounts P xxx

Sales returns xxx
Total xxx
Net Sales P xxx
Add: Excise tax, if any xx
TAX BASE P xxx
Multiply by the VAT rate 12%
Equals to OUTPUT TAX P xxx
Less: INPUT TAX xxx
VAT Payable ( Excess Input Tax) P xxx

Notes:
Gross selling price is the total amount of money or its equivalent which the
purchaser pays or is obliged to pay to the seller in consideration of the
sale, barter, or exchange, excluding the value added tax.

● The excise tax, if any, shall form part of the gross selling price.

● Briefly stated, gross selling price includes everything that the buyer pays
the seller, except the value added tax shifted to the buyer.

● Sales discount granted and indicated in the invoice at the time of sale
and the grant of which does not depend upon the happening of future
event may be excluded from gross sales within the same month or
quarter it was given.

● Sales returns and allowances may be deducted from gross sales for the
month or quarter in which refund is made or a credit memo was issued.
 CAE 13 - Business tax

SALE, BARTER OR EXCHANGE OF REAL PROPERTY SUBJECT TO VAT

Gross selling price shall mean the consideration stated in the sales document
OR the fair market value, whichever is higher (RR4-2007: Section 4, 106-4, RR 16-2005).
The term fair market value shall mean whichever is higher of
1. The fair market value as determined by the Commissioner or
2. The fair market value as shown in schedule of values of the Provincial
and City Assessors (real property tax declaration).

However, in the absence of zonal value/fair market value as determined by

the Commissioner, gross selling price refers to the market value shown in the
latest real property tax declaration or the consideration, whichever is higher.
(RR4-2007)
*****

2. Sale of Services

Cash received( actually and constructively) P xxx

Deposits/Advance payments for future xxx
projects
Materials charged for services xxx
Gross Receipts P xxx
Multiply by the VAT rate 12%
Equals to OUTPUT TAX P xxx
Less: INPUT TAX xxx
VAT Payable ( Excess Input Tax) P xxx
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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 for another person, excluding the VAT.

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.
Examples:
1. Deposit in banks 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.
3. Transfer of the amounts retained by the payor to the account
of the contractor.

Advance Payment is an advance payment on behalf of another if the same

rd
is paid to a third (3 ) party for a present or future obligation of said
another party which obligation is evidenced by a sales invoice/official
receipt issued by the oblige/creditor to the obligator/debtor for the sale of
goods or services by the former to the latter.
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3. Dealers in Securities and Lending Investors

Gross Selling Price P xxx

Less: Acquisition cost of securities sold for the xxx
month or quarter
xxx
Balance:

Add: Other income or incidental income xxx

Gross Income P xxx

Multiply by the VAT rate 12%
Equals to OUTPUT TAX P xxx
Less: INPUT TAX xxx
VAT Payable P xxx

INPUT VAT
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Sources of Input VAT:

1. LOCAL PURCHASES OF GOODS OR SERVICES such as purchase

or acquisition of
a. Goods for sale
b. Goods for conversion into finish product( including
packaging materials)
c. Goods for use as supplies
d. Goods for use as materials supplied in the sale of services
e. Goods for use in trade or business for which depreciation
or amortization is allowed ( capital goods)
f. Real properties for which Vat has actually been paid
g. Services for which Vat has actually been paid

★Acquisition of Capital Goods

Capital goods refer to goods or properties with estimated useful

life of greater than 1 year and which are treated as depreciable
assets under the tax code, used directly or indirectly in the
production or sale of taxable goods or services. Under Revenue
Regulation 16-2005, input vat on the purchase of capital goods by a
VAT registered person shall be allowed as a tax credit against output
VAT based on the following rules:

➔Aggregate purchase price during the month is more than

one million
➢ Input tax shall be spread or allocated evenly during the
estimated useful life of the depreciable asset but it shall not
exceed 60 months. ( estimated useful life is more than one year)
(estimated useful life or 60 months whichever is shorter)
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➢ Allocation shall start in the month when the capital goods

were acquired.

➢ If the capital goods were sold within the 5 year (60months)

period or prior to exhaustion of input VAT, thereon, the entire
input vat on the capital goods can be claimed as input tax credit
during the month or quarter when the sale is made.

➢ If the life of the capital good or depreciable asset is not more than
one (1)year or year twelve (12) months, the asset is not treated as
capital good subject to depreciation. Hence allocation of input vat is
not applicable. The total amount of input vat shall be claimed in the
month of acquisition.

➔Aggregate purchase price during the month is less than

one million
➢ Input tax is not allocated. The total amount of input vat shall be
treated as tax credit against output vat in the month of acquisition

NOTE: Under the TRAIN Law

1. The rule on amortizing the input vat on capital goods shall only
be allowed until December 31, 2021. Consequently, amortization
of input vat on capital goods purchased/imported shall no longer
be allowed beginning January 1, 2022.

2. Taxpayers with unutilized input vat on December 31, 2021 shall

be allowed to apply the same as scheduled until fully utilized.

Illustration:
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Company A made the following purchases during the year:

Month of Amount Input VAT Useful No. of Last month Amount of
Purchase life monthly of Monthly
amortizat amortizatio amortization
ion n
January, P6,000,000 P720,000 6 years 60mos. Dec. 2023 P720,000/60 =
2019 (72 P12,000
mos.)
March, 3,000,000 360,000 3 years 36mos. March, P600,000/36 =
2019 2022 P10,000
outright
April, 800,000 96,000 2 years -0- claim on -0-
2019 April,
2019
Dec. 8,000,000 960,000 5 years 60mos. Nov., 2026 P960,000/60 =
2021 P16,000
Jan., outright
2022 8,000,000 960,000 5 years -0- claim on -0-
Jan., 2022

Notes: Under TRAIN Law

● For purchase made on Jan., 2019 and March, 2019, refer to no. 1
on aggregate purchase price during the month is more than one
million.. (estimated useful life or 60 months whichever is shorter)
● For purchases made on April, 2019, rule on aggregate purchase
price during the month is less than one million applies.
● For purchases made on Dec., 2021, refer to no. 2 under the
TRAIN Law.
● For purchases made on Dec., 2021, refer to no. 1 under the
TRAIN Law.

2. IMPORTATION
 CAE 13 - Business tax

Dutiable value Pxxx OR Invoice Cost Pxxx

Freight
Insurance
Add: Legitimate expenses Add: Legitimate expenses
of importation prior to of importation prior to
removal from custom removal from custom
custody, such as: custody, such as:
Custom duty Pxxx Custom duty Pxxx
Processing fee xxx Processing fee xxx
Brokerage fee xxx Brokerage fee xxx
Arrastre charges xxx Arrastre charges xxx
Wharfage due xxx Wharfage due xxx
Interest, etc. xxx Interest, etc. xxx
Tax base Pxxx TOTAL LANDED COST Pxxx
Multiply by 12% Multiply by 12%
VAT on importation Pxxx VALUE ADDED TAX Pxxx

➢ Every importation of goods is subject to the value added tax,

whether the importation is for sale or use in business, or for
personal use.

➢ The imported goods shall be subject to VAT based on the ff:

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● In general, based on the total value used by the Bureau of Customs

in determining tariff and customs duty - (dutiable value )plus custom
duties, excise taxes, if any, and other legitimate charges, prior to
removal of goods from the custom custody.

OR
● When the custom duties are determined on the basis of the
quantity or volume of the goods. the landed cost should be used as
a basis in computing vat which includes invoice cost, freight,
insurance, custom duties, excise taxes, if any, and other legitimate
charges, prior to removal of goods from the custom custody.

3. PRESUMPTIVE INPUT TAX OF 4% ON SALE OF GOODS

Presumptive Input Tax Credits

Any person or firm engaged in the processing of sardines, mackerel,

and milk, and in manufacturing refined sugar and cooking oil and
packed noodle-based instant meals shall be allowed a presumptive
input tax creditable against the output tax, equivalent to 4% of the
gross value in money of their purchases of primary agricultural
products which are used as inputs to his production.

The term “processing” shall mean pasteurization, canning and

activities which through physical or chemical process alter the exterior
texture or form or inner substance of a product in such manner as to
prepare it for special use to which it could not have been put in its
original form or condition.
 CAE 13 - Business tax

Entitled to Presumptive VAT:

● Persons or firms engaged in the processing of sardines,

mackerel & milk
● Persons or firms engaged in the manufacturing of refined
sugar, cooking oil, packed noodle based instant meals.

4. Transitional Input Tax Credits.

Any person who becomes liable to value-added tax or who elects to be

a VAT-registered person shall be allowed, subject to the filing of an
inventory as prescribed by rules and regulations, on his/her beginning
inventory of goods, materials and supplies, an input tax equivalent to
2% of the value of such inventory or the actual value-added tax paid
on such goods, materials and supplies, whichever is higher, which
shall be creditable against the output tax.

5. Standard Input VAT

Standard input VAT on sales to government

Since the seller will effectively pay the 5% out of the 12% value added
tax on sales to government, instrumentalities or agencies including
GOCCs, the 7% (12% less 5%) effectively accounts for the standard input
VAT in lieu of actual input VAT. The difference between the actual input
vat and the standard input vat is closed to costs or expenses of the seller.

Source:
Transfer and Business Taxation, Tabag & Garcia
Internet Sources:
https://www.bir.gov.ph/index.php/tax-information/value-added-tax.html
http://www.ntrc.gov.ph/images/Publications/guide-to-philippine-taxes-2016/value-added-tax.pdf