CHAPTER 6 are when the taxpayers opted to have the VAT apply to

this non-vatable sales or receipts

6. What is the VALUE ADDED TAX MODEL?

1. What is VALUE ADDED TAX?
OUTPUT VAT P XX
The VAT covers all vatable sales of goods, LESS: INPUT VAT XX
properties, services or lease of properties by VAT VAT DUE P XX
taxpayers. LESS: TAX CREDIT XX
VAT STILL DUE PXX
VATABLE SALES OR RECEIPT are from sources
other than:
7. What is OUTPUT VAT?
a) Exempt Sales
b) Receipts from services specifically Output Vat is the VAT on the vatable sales or
SUBJECT TO PERCENTAGE TAX receipts. The output vat is presumed passed on by
2. Who are VAT TAXPAYERS? the seller on his sales or receipts.
a) VAT-registered persons- subject to VAT
even if its annual sales do not exceed the VAT JOURNAL ENTRY:
threshold. Accounts Receivable xx
b) VAT-registrable persons- exceeds the VAT
threshold without registering as VAT Sales xx
taxpayers are subject to VAT without the
benefit of an input tax credit. Output VAT xx
3. VAT THRESHOLD 8. TYPES OF OUTPUT VAT
a) REGULAR OUTPUT VAT- 12% VAT imposed
VAT AMOUNT COVERED
THRESHOLD TAXPAYERS on domestic sales or receipts
General P 3,000,000 Applicable to all b) ZERO OUTPUT VAT- 0% VAT imposed on
Threshold taxpayers other export and other zero-rated sales
than franchise 9. What is INPUT VAT?
grantees of radio
Input VAT is the VAT paid by the taxpayers on
or television
Special P 10,000,000 Applicable only to the domestic purchase from VAT suppliers or on the
Threshold franchise grantees importation of goods or services in the course of
of radio or business. Despite absence of actual payments of VAT on
television purchase or import, input VAT may also be allowed by
NOTE: Vatable Sales below VAT threshold law as incentives to the taxpayers such as in the case of
subject to 3% percentage tax until it exceeds the presumptive input VAT.
threshold.
NOTE: Input VAT has rules on creditability.
4. What is OPTIONAL VAT REGISTRATION? Not all paid input VAT is creditable against OUTPUT VAT .
Those allowed to be deductible against output VAT
Taxpayers below the threshold can voluntarily is called “claimable input VAT”, “allowable input
register as VAT-taxpayers. Such option is subject to the VAT” or “creditable input VAT”.
3-year lock-in period. The taxpayers are precluded to
have his VAT registration revoked until the lapse of 3 JOURNAL ENTRY:
years.
Purchases xx
5. What are VAT TAXPAYERS WITH MIXED
Input VAT xx
TRANSACTIONS?
Accounts Payable xx
It must be noted that despite the VAT registration,
VAT shall apply only to the vatable sales or 10. What is VAT DUE?
receipts. His non-vatable sales or receipts remains
exempt from VAT. The exempt sales remain to be At the end of each month, the input VAT is offset
exempt while the receipts specifically subject to with the output VAT. A positive VAT due is paid to
percentage tax are subject to their specific the BIR. A negative VAT is normally non-refundable
percentage tax rates. The only exceptions to this
but is carried over to the next succeeding months or Output VAT xx
quarter.

11. VAT REPORTING

Output VAT xx
Recall VAT is paid quarterly but paid monthly as
follows: Input VAT xx

VAT payable xx
PERIOD BIR FORM DEADLINE
COVERED
1st month of 2550M 20 days from
the quarter end of month VAT payable xx
2nd month of 2550M 20 days from
the quarter end of month Cash xx
For the 2550Q 25 days from OUTPUT VAT P XX
quarter end of quarter
LESS: INPUT VAT XX

JOURNAL ENTRIES: VAT DUE P XX

1ST MONTH: 3RD MONTH:

Purchases xx Purchases xx
Input VAT xx Input VAT xx
Cash xx Cash xx

Cash xx Cash xx
Sales xx Sales xx
Output VAT xx Output VAT xx

Output VAT xx Output VAT xx

Input VAT xx Input VAT xx
NOTE: There will be no VAT payable if the INPUT VAT payable xx
VAT exceeds the OUTPUT VAT.

OUTPUT VAT P XX
VAT payable xx
LESS: INPUT VAT XX
Cash xx
VAT DUE (P XX)
OUTPUT VAT P XX

LESS: INPUT VAT XX

2ND MONTH:
VAT DUE P XX
Purchases xx
LESS: TAX CREDIT XX
Input VAT xx
VAT STILL DUE P XX
Cash xx

NOTE: If the quarterly tax due is negative, it is

Cash xx non-refundable. The unutilized input VAT remains in
Sales xx
the books and is carried over as input VAT in the
following month of the next quarter.
Cash xx
Note:
Withheld final VAT xx
1. A negative VAT payable in a month means no
VAT is to be paid. Sales xx
2. A negative VAT payable in the first month of the
quarter or at the end of the quarter may be Output VAT xx
carried over to the succeeding month or quarter
as the case may be. This will be discussed on
detail under detail under VAT carryover in Cost of Sales xx
Chapter 9.
Inventory/Purchases xx

12. What are SALES SUBJECT TO SPECIAL VAT

RULES?
Output VAT xx
a) Sales to the government
b) Zero-rated Sales Cost of sales xx
c) Exempt Sales
Input VAT xx
TYPE OF SALES WHAT IS UNIQUE?
Sales to the Limited claimable input VAT Withheld final VAT xx
government
NOTE:
Zero-rated sales No output VAT but with
claimable input VAT 1. There is no VAT due and payable on sales to
Exempt Sales No output VAT and no the government.
claimable input VAT 2. The difference between the actual input VAT
and the input VAT presumed input VAT closed
to cost of sales or expenses, as the case may
13. What are the SALES TO THE GOVERNMENT
be.
INCLUDING GOCCS?
3. The excess actual input VAT is a loss which is
The Sales to the government and GOCCs are added to cost of sales. If the 7% of sales
vatable at 12% normal rate but the law requires exceed the actual input VAT, a reduction to cost
government agencies or GOCCs to withhold a 5% final or expenses will occur.
VAT on their purchase. The invoices sales or billing to
the government or GOCCs will be deducted 5% FINAL 14. What are ZERO-RATED SALES?
VAT based on sales or receipts. The taxpayer will only
Foreign consumption like report sales are non-
collect the balance.
vatable. In our current tax laws, they are subject to
Output VAT 12% OF SALES OR RECEIPTS 0% VAT to VAT taxpayers. With a zero output VAT
and a claimable input VAT, the VAT due would be
LESS: INPUT VAT (Limited to 7%) negative.
Final VAT due 5% of sales or receipts Law allows taxpayers the privilege to claim the
input VAT as a:

a) TAX REFUND- taxpayer will be paid back in

NOTE: 7% claimable input VAT on sales to the
cash
government or GOCCs is referred to as the standard
b) TAX CRREDIT AGAINTS- taxpayer can
input VAT.
use it to reduce other internal revenue tax
obligation to the BIR

JOURNAL ENTRIES: NOTE: If the input VAT on zero-rated sales is not

applied with refund or tax credit, the claimable
Inventory/Purchases xx input VAT would be added to creditable input VAT
Input VAT xx deductible against output VAT on other vatable
sales.
Cash xx
 Not only export sales are subject to 0% VAT.
There are domestic sales or local sales of goods or
services that are considered export sales such as sales
to economic zones and persons engaged international
transport operations.
JOURNAL ENTRIES:
Local sales to persons with indirect tax
Inventory/Purchases xx exemptions such as International Rice Research
Institute and Asian Development Bank are effectively
Input VAT xx subject to 0% VAT; also referred to as effectively
zero-rated sale.
Cash xx
NOTE: 0% VAT is applied to these types of sales
similar to the treatment and procedures discussed.
Cash xx 16. What are the EXEMPT SALES?
a) Exempt sales of goods, services or
Sales xx
properties
b) Services specifically subject to percentage
tax
Cost of sales xx
NOTE: Exempt sales will not be subject to
Inventory/Purchases xx output VAT. Consequently, the seller is also not
allowed to credit input VAT. The input VAT traceable
to exempt sales is part of costs or expenses of the
IF CLAIMABLE AS TAX REFUND: seller an is deductible against gross income subject to
income tax.
Cash xx

Input VAT xx
JOURNAL ENTRIES:

Inventory/Purchases xx
IF CLAIMABLE AS TAX CREDIT CERTIFICATE
(TCC): Supplies xx

Prepaid tax xx Input VAT xx

Input VAT xx Cash xx

NOTE: The prepaid tax (TCC) can be used to

settle any internal revenue tax obligations of the
Cash xx
taxpayer such as income, excise, donor’s documentary
stamp and others tax. Sales xx

IF NOT CLAIMABLE AS REFUND OR TCC: Cost of sales xx

Output VAT xx Supplies expense xx
Input VAT xx Inventory/Purchases xx

Supplies xx
NOTE: This is default treatment of input VAT or zero- Input VAT xx
rated sales. If the input VAT is not claimable as TCC or
tax refund, it will be credited against output VAT. NOTE:

1. No output is allowed to be charged on exempt

sales. However, if the taxpayer charged VAT on
15. What are the OTHER ZERO-RATED SALES? exempt sales, the same shall be considered
taxable for purposes of the VAT.
 2. The P12,000 input VAT is included in the t negative
supplies expense and is not claimable as tax
credit.
20. What are the CLASSIFICATION RULES?
a) The sale of goods destined to a non-resident
buyer abroad is a zero-rated sale even if it
involves exempt goods.
17. COMPARISON OF ZERO-RATED SALES AND b) The sale of vatable goods services in the
EXEMPT SALES Philippines is normally a regular vatable sale,
except when the sale is:
ZERO-RATED EXEMPT SALES
a. Made to the government or GOCC-
SALES
subject to final withholding VAT
Output VAT None None
Input VAT Creditable Non-creditable b. Considered an export or effectively zero-
(expense) rated such as sales to VAT exempt
Types of Sales Export or Domestic Sales persons-subject to 0% VAT.
domestic sales c) The sale of exempt goods and services to the
Taxpayers VAT taxpayers VAT or non-VAT government or GOCC is still exempt sales.
involved only taxpayers
NOTE: Zero-rating is applicable on VAT taxpayers 21. SUMMARY OF RULES ON SALES OF GOODS
only. Hence, zero-rated sales apply only to VAT
taxpayers whereas exempt sales can occur for both VAT Domestic sales Export
and non-VAT taxpayers, however, VAT taxpayers may
sales
not have exempt sales if he opted to subject exempt
Taxable VAT- Any
sales to VAT.
persons exempt person
18. What is the CLASSIFICATION OF SALES OR person*
RECEIPTS FOR VAT PURPOSES? Sales of 12%VAT 0% VAT 0% VAT
exempt
Owing to the differences in the rules, there are four goods
types of sales or receipt for purpose of the VAT: Sales of 12%VAT 0% VAT 0% VAT
a) Sales to the government exempt
b) Zero-rated sales goods
c) Exempt sales
d) Regular sales- subject to 12% VAT and
are allowed full credit of actual input VAT. It 22. What are the OTHER SALES SUBJECT TO
covers all the sales of goods, properties, or VAT?
services other than:
a. Sales to the government 1. Sales of registrable persons
b. Zero-rated sales The sales of registrable persons are subject to VAT
c. Exempt sales despite their non-registration as VAT taxpayers but
19. SUMMARY OF VAT RULES FOR EACH TYPES no input VAT credit is allowed.
OF SALES
2. Sales of non-VAT taxpayers who issues VAT
TYPES OF OUTPUT CLAIMABLE VAT DUE
invoice or receipt
SALES VAT INPUT VAT
The sale of non-VAT taxpayers who illegally charge
Exempt none none None
VAT on their sales shall be subject to VAT without
sales
the benefit of input VAT plus the 50% surcharge
Zero-rated zero Actual if not Negative
sales claimable as and the usual 3% percentage tax.
credit or
refund 3. Exempt sales billed by VAT taxpayers as
Sales to the 12% of 7% of none regular sales
government sales/receip sales/receip Exempt sales that are billed through a VAT invoice
t t or VAT receipts will be considered as regular sales.
Regular 12% of Actual input Positive Furthermore, exempt sales which are not so clearly
sales sales/receip VAT PAID or indicated as “Exempt” in the VAT invoice or VAT
receipts shall be considered as regular sales subject
to VAT.