Chapter 1&2 Introduction to Business TAxes & VAT on sale of goods or

properties

Definition of terms:
1. Mr. X is a lessor of real property and personal property (cars). The tax that he pays is
Value-added Tax.
2. Value-added Tax is an Indirect Tax. (he ultimate cost of the VAT will usually be borne
by the final customers)
3. Tax on business is a Direct Tax. (Corporate taxes are a good example of direct
taxes, manufacturing company)
4. Major business internal revenue taxes in the tax code:
- Excise tax
- Value-added tax
- Percentage tax
5. Mr. Y imported cigarettes from the United States for sale in the Philippines. Business
taxes in the Philippines are due VAT and Excise tax.
6. Transactions by a VAT registered person that result to Output VAT:
- Sales on account
- Cash sale
*Export sales is an exception.
Problem Solving:
1. Mr. A is a VAT taxpayer, had the following data, VAT not included:
Sales 1,600,000; Purchases from VAT suppliers 400,000; Purchases from non VAT
suppliers 240,000; Operating expenses 600,000. Net income for the month is 360,000.
Solution:
1,600,000-400,000-240,000-600,000= 360,000

2. Mr. Lot, a real estate dealer: Consideration on sale per deed of sale 3,000,000, Zonal
value 2,600,000, Fair market value in assessment roll 2,500,000.
Payment as follows:
April 10, 2019 (date of sale) 375,000
October 10, 2019 375,000
April 10, 2020 2,250,000
Output Vat on April 10, 2019 is 45,000
 Solution:
3,000,000 (the highest) x 12%= 360,000
375,000 (April 10, 2019) / 3,000,000 (deed of sale)= 0.125 x 360,000 (computed
VAT)= 45,000

3. Mr. A, a VAT taxpayer, had the following data, VAT not included: Sales 1,600,000,
Purchases from VAT suppliers 400,000, Purchases from non-VAT suppliers 240,000,
Operating expenses 600,000. VAT payable is 144,000.
Solution:
1,600,000 x 12%= 192,000
400,000 x 12%= 48,000
192,000-48,000= 144,000

Additional (presumptive tax):

Z Co. is a manufacturer of corn and vegetable cooking oils. It had the following data in a
month, VAT not included:
Sales 900,000
Purchases from farmers:
Of corns 200,000
Of vegetables 220,000
Purchases from VAT suppliers:
Of paper labels 5,000
Others 500
Purchases of plastic containers from VAT suppliers 40,000
Purchases of machine parts from non-VAT supplier 80,000
How much was the VAT payable for the month?
Solution:
900,000 x 12%= 108,000
200,000 x 4% = 8,000
220,000 x 4% = 8,800
5,000 x 12% = 600
500 x 12% = 60
40,000 x 12% = 4,800
 108,000 -22,260= 85,740

Chapter 3 VAT on sale of services

Definition of Terms:
1. If seller’s VAT on sales exceeds seller’s VAT on purchases will result in VAT payable.
[Output tax (higher) - Input tax= VAT payable]
[Output tax (lower) - Input tax= Deferred Input Tax]
2. Constructive receipts- occurs when the money in consideration or equivalent is placed
in control of the person who rendered service without restriction by the payor.
3. Transaction by VAT-registered taxpayer which is subject to VAT:
- Foreign currency denominated sale
- Transaction deemed sale
*Sale of services rendered in foreign countries is not subject to VAT
4. Service is subject to VAT if:
- Service is in the course of trade or business
- Service is rendered in the Philippines
*Service is subject to any of the percentage tax not included.
Remember:
- Export sales by persons who are not VAT registered are a VAT exempt.
- Services performed by an individual under employer-employee relationship are
exempt from VAT.

Problem Solving:
1. Mr. T, a building contractor, in constructing a building, labor was furnished by him and
was paid a contract price of 2,500,000; receivables for 500,000. Output VAT is 300,000.
Solution:
2,500,000 x 12%= 300,000

2. Mr. Rey, Transport Co., a domestic corporation, transporting by land cargoes and
passengers to northern Philippines from southern Philippines, and vice versa, had the
following gross receipts: 400,000 for transporting passengers; 250,000 for transporting
cargoes. Output VAT is 30,000.
Solution:
250,000 x 12%= 30,000
 3. X, Shipping Co., a domestic corporation, has inter island vessels in the Philippines
transporting passengers and cargoes from one point in the Philippines to another point
in the Philippines, had the following gross receipts; 600,000 for transporting passengers,
200,000 for transporting cargoes. Output VAT is 96,000.
Solution:
600,000 x 12%= 72,000
200,000 x 12%= 24,000
72,000 + 24,000= 96,000

4. Mr. M, a building contractor, constructed a commercial complex for Mr N. He secured

the services of Mr. O. Mr. N paid 8,000,000 to Mr. M. Mr. M paid Mr. O, subcontractor,
2,500,000. All prices were VAT not included. VAT payable is 660,000.
Solution:
8,000,000 - 2,500,000= 5,500,000
5,500,000 x 12%= 660,000

5. Y Co., a common carrier with air and sea transportation units transporting cargoes and
passengers to a point abroad and vice versa, had the following gross receipts: 3,000,000
for transporting passengers, 2,000,000 for transporting cargoes. Output VAT is 0.
*From one point in the Philippines to a point outside the Philippines:
Transporting goods/cargoes 0% VAT
Transporting passengers 0% VAT

Chapter 4 Common VAT rules on sale of goods, properties and services-the sales
invoice
Definition of terms:
1. Input tax is available to a VAT-registered buyer, provided that seller issues a VAT
invoice or official receipt, which separately indicates the VAT component
2. Two kinds of sales invoices:
- BIR-approved pre-printed sales invoice (readable and understandable)
- BIR-approved computer
Problem solving:
1. A senior citizen ate in a restaurant, VAT not included, for food 500, for softdrinks 40.
How much must a senior citizen pay?
Solution:
500 + 40= 540
540 x 20%= 108
540 - 108= 432

2. Mr. D sold goods to Mr. E, with a price, VAT not included, of 140,000. He prepared an
invoice which showed a price, VAT not included, of 130,000 and a VAT of 10,000. How
much was the VAT?
Solution:
130,000 + 10,000= 140,000 x 12/112= 15,000

3. Mr. L sold goods to Mr. M, VAT included, at 67,200. How much was the VAT?
Solution:
67, 200 x 12/112= 7,200

4. A selling price of 3,000, VAT not included, was billed in a sales invoice or official receipt
which showed a total of 3,360. How much was the VAT on the sale?
Solution:
3,000 x 12%= 360
5. Mr. R sold goods and billed the buyer 300,000, with no details on VAT. How much was
the selling price VAT not included?
Solution:
300,000 x 12/112= 32,143
300,000 - 32,143= 267,857

6. Barbie Bakeshop sells cakes and pastry items to well-known hotels around Metro
Manila. Total sales in the 1st quarter of 2020 were 224,000, including VAT. 75% of the
sales are normally on account. How much is the VAT on the sales for the 1st quarter of
2020?
Solution:
224,000 x 12/112= 24,000
7. A senior citizen bought goods from Excel Drug on which VAT exemption is provided in
the Senior Citizen Law. Goods were sold to the general public VAT included at 2,240.
What must be the sales invoice shown on the sale to the senior citizen?
Solution:
2,240 x 20%= 448
2,240 - 448= 1,792
1,792 x 12/112= 192
1,792 - 192= 1,600

8. Mr. X issued sales invoice showed the ff:

Selling price 4,000
VAT 460
Total 4,460
How much was the correct VAT on the sale?
Solution:
4,460 x 12/112= 478

9. Mr. Y sold goods to Mr. Z. Selling price, VAT not included, was 15,000. How much was
the VAT?
Solution:
15,000 x 12%= 1,800