MODULE 2.
Jaye &
VAT ON SALE OF GOODS OR
PROPERTIES
LESSON 1- TRANSACTIONS DEEMED “SALES”
QUICK FACTS ON VAT
1. VAT is a consumption tax. It is imposed on a seller,
but the seller passes it on buyer.
2. VAT should be shown on the official invoice or
receipt as a separate item.
3. VAT is 12%, 5% or 0% of the selling price.
4. Each sale has a VAT, and separate recording on a per
transaction basis, reporting and payment of VAT to
government is made monthly.
TAXPAYER
- Person who sells, barter or exchanges goods or
properties in course of trade or business subject to
VAT.
- Law exempts certain transactions from VAT.
TAXABLE TRANSACTIONS
- Sale, barter and exchange.
- when “sale” is used, it includes barter and exchange.
a. SALE
- transfer of ownership of property for money.
b. BARTER/EXCHANGE
- Transfer of ownership for property.
- isolated transaction of sale or exchange of private
property is not in course of trade or business and not
subject to VAT.
TRANSACTIONS DEEMED SALES
a. transfer, use or consumption, not in ordinary
course of business, of goods/properties for sale or
in course of business.
b. distribution or transfer of inventory to
shareholders for their shares in profit of VAT
registered person.
c. distribution or transfer of inventory to creditors in
payment of debt.
d. consignment if actual sale is not made within 60
days following the date it was consigned.
e. retirement from or cessation of business
Example 2-3. Mr. Cocoteh sells household furniture. He
removed from his store a living room set for use in his
residential house. This is deemed a sale.
Example 2-4. Titik Dee Co. declared and paid a dividend out
of merchandise inventory. This is deemed a sale.
Example 2-5. Ephal Co. is indebted to Ferlaloo Co. for raw
materials. When Eco Co. could not pay in money, Ferlaloo Co.
agreed to receive the finished goods of Eco Co. in payment.
This is deemed a sale by Eco Co.
Example 2-6. GnaG Co., a manufacturer, made sales, as
follows:
 To Mr. HaRimm, on credit, with title to the goods
passing to Mr. HaRimm, and
 to Mr. Inahya, on consignment, with title to the
goods to pass only upon actual sale of the consigned
goods to a buyer. The goods consigned to Mr. Inahya
are still in the shelves.
 sale to Mr. HaRimm is subject to VAT because title to
the goods has passed to Mr. HaRimm.
 The consignment to Mr. Inahya, although title to the
goods has not yet passed, will be subject to the VAT
when actually sold by Mr. Inahya, or after 60days
from the date of consignment (Provision of law).
Example 2-7. Jay & Kaye was a partnership in trade.
Kaye was dissolved, and Led & Med was formed to continue
the business of Jay & Kaye. At the time Jay & Kaye was
dissolved, merchandise inventory is of ₱100,000, which was
also the physical inventory. The inventory will be deemed
sold by Jay &Kaye Co. to Led & Med Co., and will be subject to
VAT.
"GOODS OR PROPERTIES"
- all tangible and intangible objects capable of
pecuniary (money) estimation.
- GOODS are movable properties.
- PROPERTIES are real properties.
TAX BASE = Gross Selling Price
- amount on which the rate of VAT is applied.
- gross selling price includes everything that the buyer
pays the seller.
- Excludes VAT
- Includes excise tax.
- law and regulations allow downward adjustments
for:
a. Sales returns and allowances;
b. Sales discounts agreed upon, at the time of sale,
(granting does not depend on the happening of
future event)
Remember:
In an "actual sale", the selling price of the seller is:
a. Recovery of cost and expenses; and
b. Desired profit.
 The Commissioner of Internal Revenue will
determine tax base in case the transactions are
deemed sales, or where the gross selling price is
unusually lower than the actual market value.
TAX RATES
a. 12% - domestic sale;
b. 5% - sales to Government (and certain entities);
c. 0%
- export sale.
- whether title to the goods passed to the buyer in the
Philippines or abroad but paid in acceptable foreign
currency.
"Export sales"
- sales and actual shipments or exportations of goods
from Philippines to foreign country, irrespective of
shipping arrangement that may influence or
determine the transfer of ownership and paid in
foreign currency or its equivalent in goods or
services and accounted in accordance with rules and
regulations of BSP.[
LESSON 2- DETERMINATION OF VALUE-ADDED TAX PAYABLE
VAT Payable of Seller
Output tax - VAT on sale.
Output Taxes (seller’s VAT on sales) xx
Less: Input Taxes (seller’s VAT paid on purchases, etc.) (xx)
VAT PAYABLE OF SELLER xx
Input tax – VAT paid:
On local purchases from VAT-registered persons, and on
importations, of goods:
a. For sale.
b. For conversion of finished product for sale, including
packaging materials.
c. For use as supplies.
d. For use in trade or business, which
depreciation/amortization is allowed for income tax
purposes (capital goods) except automobiles,
aircraft, and yachts.
e. VAT paid on purchases of real property.
f. VAT paid on purchases of services.
g. Transitional input tax
 h. Presumptive input tax
Example.
 Mr. Oh imported goods to be sold, with a landed
cost of ₱40,000.
 He sold the goods to Mr. Peeh for ₱90,000.
 Mr. Peeh sold the goods to Mr. Qyu for ₱170,000,
for use by Mr. Qyu as raw materials.
 Mr. Qyu secured the services of Mr. R, a service
contractor and paid ₱50,000.
 Mr. Qyu sold his products for ₱400,000.
 All taxpayers involved are VAT-registered persons
and all selling prices do not include VAT.
Reminder:
Examples must be understood as all occurring within a
month. It must be stated now that the vat is paid after the
end of a month.
REAL ESTATE DEALER
- any person engaged in business of buying,
developing, selling, or exchanging real property as
principal.
- sale of real property by real estate dealer will be
subject to VAT at 12% of the gross selling price.
GROSS SELLING PRICE
- whichever is highest of the:
a. Consideration in deed of sale.
b. Zonal value, per Commissioner of Internal Revenue.
c. FMV per Real Property Declaration the Provincial or
City Assessor
*In absence of zonal value/FMV as MV refer to MV in latest
real property tax declaration.

INSTALLMENT SALE BY THE REAL ESTATE DEALER

- Installment payments of VAT is allowed if initial
payments do not exceed 25% of selling price in the
deed of sale.
STEPS ON INSTALLMENT VAT OF REAL ESTATE DEALER.
When initial payments do not exceed 25% of selling price:
1. Compute VAT at 12% on tax base (whichever is
highest of 3 values)
Tax formula on a purchase-sale transaction:
2. Determine the VAT on the installment payment, as
follows:

Example 2-22.
Example 2-15. Sale of real property in installments by a real estate dealer
 Mr. R, a VAT taxpayer, made a sale at ₱100,000, VAT
not included, of goods that he bought at ₱3,000
from a non-VAT taxpayer.
Example 2-16.

Output tax (₱100k x 12%) ₱12,000

Less: Input tax 0______
VAT payable ₱12,000

 Mr. Selly, VAT taxpayer, made a sale at ₱100,000,

VAT not included,
 of goods that he bought at ₱3,000 from a VAT
taxpayer, VAT not included.
Illustration 2-17. *Deed of sale and each OR showing installment price must
state that the VAT is based on zonal value.
Output tax (₱100k x 12%) ₱12,000
Less: Input tax (₱3k x 12%) 360____ Example 2-23.
VAT payable ₱11,640 Mr. Bolly is a real estate dealer. He sold a piece of land in
installment. Data were as follows:
Gross sales ₱200,000
Less: S. returns and allowances ₱20,000
Sales discounts 1,200 21,200
Net sales ₱178,800
Output Tax (178,800 x 12%) ₱ 21,456

On assumed data:
Gross purchases ₱100,000
Less: P. returns & allowances ₱10,000
Purchase discounts 500 (10,500)
Net purchases ₱89,500
Input tax (P89.5k x 12%) ₱10,740

From the preceding computations:

Output tax ₱21,456
Less: Input tax (10,740)
VAT payable 10,716
PRESUMPTIVE INPUT TAX
- 4% of gross value in money of purchases of primary
agricultural products.
- Persons or firms processing sardines, mackerel, and
milk, and in manufacturing refined sugar and cooking
oil, and packed noodle-based instant meals.
PRIMARY AGRICULTURAL PRODUCTS
- agricultural products in their original state.

Note:
 Agricultural products, previously VAT exempt, give
input tax to the preferred taxpayer.
 Are original marine products within the meaning of
original agricultural products? NO. The law at times
mentions “agricultural" and "marine" products
separately.
"PROCESSING"
- pasteurization, canning and activities through
physical or chemical process alters the exterior
texture or form or inner substance to prepare it for
special use.

Example 2-24.
Mr. Fis-shy purchases sardines from fishermen and processes
them into canned sardines. Going to processing in certain
period were the following purchases, VAT not included: