CHAPTER 7 5.

TAX BASIS & OUTPUT VAT computation

1. What are the SOURCES OF REGULAR OUTPUT SALES TO SP FV TAXABLE

VAT? Tax basis P xx
a) Sale of vatable goods
Multiply by: 12%
b) Sale of vatable services
c) Sale of vatable properties Output VAT P xx
d) Transaction deemed sales
NOTE: The fair value rule on sale at
2. TAX BASIS OF THE VAT unreasonably lower selling prices does not apply to
TAXABLE TRANSACTION TAX BASIS sales made to the government.
1. SALE OF GOODS Gross selling price, unless 6. What is TIMING OF OUTPUT VAT REPORTING?
unreasonably lower (Sale of vatable goods)
2. SALE OF SERVICES Gross Receipt
3. SALE OF PROPERTIES Gross selling price as The output VAT on sale of vatable goods is reported
defined by the BIR in the month of sale.
4. TRANSACTIONS Fair value of the property
DEEMED SALES deemed sold 7. What is SALE OF VATABLE SERVICES?

The sale of services is subject to 12% VAT based on

3. What is SALE OF VATABLE GOODS?
The sale of goods is subject to 12% VAT base on
gross selling price, unless unreasonably lower.
NOTE: Gross selling price is simply referred to as
gross sales, you may wish to revisit the concept of gross
selling price.
4. What is UNREASONABLY LOWER SELLING
PRICE?
the gross receipts. Gross Receipt is collection of income,
you may revisit the concept of gross receipt in Chapter
3.
8. What is TIMING OF OUTPUT VAT REPORTING?
(Sale of vatable services)
The output VAT on sale of vatable services is
reported in the month of collection.
9. What is SALE OF VATABLE PROPERTIES?

If the selling price is unreasonably lower, the VAT The sale, barter or exchange of vatable real
shall be based on the fair value of the goods sold. The properties is subject to VAT on the gross selling price.
gross selling price deemed unreasonably lower when it Under the regulations, gross selling price means higher
is lower by more than 30% of the actual market value of of the:
the goods sold. The fair value of the goods sold shall be
determined by Commissioner of Internal Revenue. a) Consideration or selling price
b) Fair value of the property
NOTE: If one of the parties is the government, the i. Zonal value
output VAT shall be based on the actual selling price. ii. Fair Value per assessor’s office
OUTPUT VAT SHALL BE COMPUTED In the absence of zonal value, “gross selling price”
CUSTOME DISCOUN SP FV TAX shall mean the fair value per assessment or
R T BASIS consideration stated in the sales documents, whichever
SP % SP is higher.
=Rate
FV NOTE: If the gross selling price is based on the
Total tax basis: P xx zonal vale or assessor’s fair value of the property, the
Multiply by: 12% zonal value or assessed value shall be presumed
exclusive of VAT.
Output VAT P xx
If the fair market value is higher than the
NOTE: The selling price is unreasonably lower, selling price, the output VAT must be separately billed
hence the fair value is subject to VAT.
with specific mention that the VAT billed separately is
based on the market value of the property. If the gross
selling price is based on the consideration appearing in
the document of sale, the same is presumed to be REPORTABLE OUTPUT VAT:
inclusive of VAT.
The sale of residential lot is exempt if sold at a Payments
× Output VAT
price not exceeding P1,919,500. The sale of a Selling Price
residential dwelling is also exempt if the selling price
does not exceed P3,199,200 NOTE: Recall that the quarterly output VAT is the
10. What is the COMPARISON OF THE VAT ON cumulative of the output VAT for the entire quarter
GOODS AND VAT ON PROPERTIES? covering 3 months.

It must be noted that the term “selling price” or 13. What is SALE OF PROPERTY BY A REALTY
consideration on the sale of property is legally DEALER ON A DEFERRED PAYMENT BASIS?
presumed VAT inclusive but this is not the case on the
The sale of property by a dealer on a deferred
sale of goods.
payment basis, not on the installment plan, shall be
IF THE FV AND THE Goods is Real treated as a cash sale. The fair value or gross receipt
IS: SP IS: computed property is selling price whichever is higher is subject to VAT in the
as computed month of sale. Subsequent collections from the sale
as shall no longer be subjected to VAT.
₱ ₱ P 120,000 P 120,000 x
100,000.0 120,000.0 x 12% 12/112 NOTE: The output VAT is reported in the month of
0 0 sale. Hence, no output VAT is further imposable on
₱ ₱ P 80,000 x P 100,000 x future installment.
100,000.0 80,000.00 12% 12% 14. What is INTEREST & PENALTIES?
0
₱ ₱ P 100,000 P 100,000 x Interest & penalties actually or constructively
100,000.0 60,000.00 x 12% 12% received by the seller are likewise subject to VAT.
0
The concept of unreasonably lower does not 15. What is SALE OF PROPERTIES CONSIDERED
apply on the sale of property. The higher of the fair “ORDINARY ASSET”?
value and selling price is always the basis of the VAT Even if the real property is not primarily held for
11. TIMING OF OUTPUT VAT REPORTING (Sale of sale to customers or held for lease in the ordinary
vatable properties) course of business but the same is used in the trade or
business of the seller, the sale thereof shall be subject
The output VAT on the sale of properties is reported to VAT being a transaction incidental to taxpayer’s
in the month of sale or by installment method. main business.
12. What is INSTALLMENT REPORTING OF OUTPUT 16. What is SALE OF PROPERTY NOT IN THE
VAT ON REAL PROPERTIES? ORDINARY COURSE OF BUSINESS?
The output VAT on the sale of properties may be The sales of properties not in the ordinary course of
reported in the installment if the initial payment from business are exempt from VAT. Hence, the sale of
such sale if it does not exceed 25% of the selling price. capital assets is exempt from VAT.
RATIO OF INITIAL PAYMENT: 17. Query: WHAT IF IT IS NON-VAT TAXPAYER?
Total Initial Payment (1 st year ) The sale shall not be subject to VAT. The VAT on
=Ratio
Selling Price sale of ordinary assets applies only to VAT-registered
taxpayers.
If ratio does not exceed 25%, the sale qualifies
as a sale on the installment plan. The output VAT on 18. What are TRANSACTIONS DEEMED SALES?
the sale may be reported in installments.
 There are acquisition transactions involving goods
or properties which are consumption in nature but are
not coursed through a purchase transaction. These
transactions are not recorded as sales by the business
and could evade taxation. Nevertheless, since these
transactions are forms of consumptions, they are
considered “deemed sales” for to be subject to the
VAT.
List of Transactions deemed sales:
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:
i. Shareholders or investors share in the
profits of VAT-registered persons
ii. Creditors in payment of debt or
obligation
iii. Consignment of goods if actual sale is
not made within 60 days following the
date such goods were consigned.
iv. Retirement from or cessation of
business with respect to all goods on
hand whether capital goods, stock in
trade, supplies or materials as of the
sate of cessation, whether or not the
business is continued by the new owner
or successor.
v. Cessation of statues as VAT-registered
person.
19. What is the TRANSFER, USE OR CONSUMPTION
NOT IN THE ORDINARY COURSE OF BUSINESS?
This occurs when vatable ordinary assets are used
for purposes other than their intended purpose, such as
when:
a) Goods or properties held for sale are no
longer sold but are transferred or disposed
by other means other than sale.
b) Properties originally intended for use are no
longer used but are transferred, disposed of
or exchanged with other properties.
20. Query: What if the realty acquired control in
the stocks of a company?
The transfer of the commercial lot shall be exempt
from VAT since initial acquisition of control is a tax-free
exchange that is VAT-exempt transaction.
21. Query: What if the donation is designated by
the donor as revocable?
The output VAT is nil. To be considered “deemed
sold”, there must be a transfer of ownership over the
property. The transmission of property to a trustee shall
not be subject to VAT if the property is to be merely
held in trust for the trustor and/or beneficiary.
22. Query: What if the done is an accredited non-
profit organization?
The output VAT is nil. Transfer to an accredited
non-profit organization is not subject to VAT.
NOTE: Merchandise shall be deemed sold subject to
VAT but the shares of stock are not subject to VAT on
deemed sales because they are capital asset. Even the
actual sales of stock are VAT-exempt.
23. What is CONSIGNMENT OF GOODS NOT
WITHDRAWN IN 60 days?
Consigned goods to consignees, if not withdrawn
within 60 days, are also presumed or deemed sold
subject to VAT.
NOTE: This is not an actual consumption, but the
rule is apparently intended to prevent taxpayers from
deferring recognition output VAT by non-reporting or
delayed reporting of the sales on consignment.
i. The sales of taxpayer include direct sales and
those made by its agents or consignees, gross of
commission expenses to consignees.
ii. The consignment sale of a consignee is not
taxable to the consignee but to the consignor.
Only the commission earned by the consignee
on such sale is taxable to the consignee.
24. What is the RETIREMENT OR CESSATION OF
BUSINESS?
The retirement or cessation from business will result
in the transfer of all goods or properties of the business
to the personal use or account of the business owners.
Hence, it is also a “deemed sale.”
NOTE: If the business is continued by a new owner,
the goods or properties of the business are effectively
sold to the new owner. The VAT on deemed applies only
to vatable goods and properties of business or those
considered ordinary assets in income taxation. The
accounts receivables and inventories are non-vatable
because they are capital assets.
 Goods or properties originally intended for sale or
use in the business, and capital goods existing as of the
occurrence of any of the following shall be deemed
sold.
25. GENERAL RULE: BUSINESS DISSOLUTION IS
DEEMED SALE. a) Change of business activity from VAT-
taxable status to VAT-exempt status
One must note that when there is business b) Approval of a request for cancellation of
dissolution, there is deemed sale, such as in the registration due to reversion to exempt
following cases: status.
a) Change of ownership of the business c) Approval of request for cancellation of
i. Incorporation of a sole registration due to a desire to revert to
proprietorship exempt status after the lapse of 3
ii. Sale by a proprietorship of his consecutive years from the time of
entire business registration by a person who voluntarily
b) Dissolution of a partnership registered despite being exempt.
i. Creation of a new partnership d) Approval of request for cancellation of
which takes over the business registration one who commenced business
ii. By incorporation into a partnership with the expectation of gross sales or
receipt exceeding P3,000,000 but who
NOTE: When there is no dissolution, there is no failed to exceed this amount during the first
deemed sales such as in the following cases: 12 months of operations.
a) Change in controlling interest 29. What is OUTPUT TAX ON TRANSACTIONS
b) Change in trade or corporate name DEEMED SALES?
c) Change in business address The output tax on deemed sales transactions shall
26. EXCEPTION TO THE BUSINESS DISSOLUTION be based on the market value of the goods sold as of
RULE: the occurrence of the deemed sale transaction.
NOTE: In the case of retirement or cessation of
1. Merger or There is business dissolution business, it shall be based on the acquisition costs or
consolidation but not a deemed sale under the current market price of the goods or properties,
the law whichever is lower.
2. Cessation of There is no business 30. DETERMINATION OF FAIR VALUE
status as dissolution but treated as a
VAT- deemed sale. The commissioner of Internal Revenue shall
registered determine the appropriate tax basis in cases where the:
person a. Transaction is a deemed sale
b. Gross selling price is unreasonably
lower
27. What is MERGER OR CONSOLIDATION?
31. What is INVOICING REQUIREMENT FOR
It is a result in a dissolution of a corporation and the SUBSEQUENT SALE OF GOODS OR PROPERTIES
transfer of the assets of the dissolved corporation to the DEEMED SOLD?
absorbing corporation. The asset dissolved corporation
The subsequent sale of goods or properties deemed
should be considered deemed sold. sold shall not be subject to VAT. The seller of goods
NOTE: The dissolution of a corporation is not properties previously deemed sold shall indicate the
sales invoice number wherein the output tax on the
deemed sale. The unused input tax of the dissolved
deemed sale was imposed and the corresponding tax
corporation as of the date of merger or consolidation
paid on the items sold. For continuing business
shall be absorb by the surviving corporation.
taxpayers, this is essential to avoid further imposition of
28. CESSATION OF STATUS AS VAT-REGISTERED any business tax on the subsequent sale. This is also
PERSON essential for the buyer to establish its claim of input VAT
on his purchase of goods previously deemed sold to the
seller.
32. What are DEEMED SALES RULES APPLY ONLY
TO VAT-TAXPAYERS ONLY?

It must be noted that the concept and rules of

deemed sales and the taxation of the sale of ordinary
assets apply only to VAT taxpayers. These do not apply
to non-VAT taxpayers by virtue of absence of an
equivalent provision in our tax law.
33. What are the BILLING REQUIREMENTS FOR THE
OUTPUT VAT?

The output VAT must be specifically indicated in the

VAT invoice or receipt. It must be billed separately in
the case of sale of properties where the fair value
exceeds the selling price.
34. What is the DETERMINATION OF THE OUTPUT
VAT?

The amount of output VAT is dependent upon the

price quoted by the VAT taxpayer. Such amount is
understood to be inclusive of the VAT in the absence of
a special agreement to the contrary.
NOTE: The same computational procedure is
employed if:
a. The quoted price is agreed to be inclusive of
VAT, or
b. It is agreed that the seller absorbs the VAT.
35. What are the RULES ON VAT NOT SEPRATELY
BILLED?

If the VAT is not separately billed in the document

of sale, the selling price or the consideration stated
therein shall be deemed to be inclusive of the VAT. The
VAT shall be computed from the agreed price as a factor
of 12/112.
36. What is INCORRECT BILLING OF VAT?

If the VAT is incorrectly billed, the total amount

billed by the taxpayer shall be deemed inclusive of the
VAT. The VAT shall be recomputed as a factor of
12/112.