MODULE 7

Transfer and Business Taxation

SESSION TOPIC: Value Added Tax

LEARNING OUTCOMES
The following specific learning objectives are expected to be realized at the end of the session:
1. To be able to understand the nature and concepts of value added tax
2. To be able to know and apply the formula in computing VAT
3. Understand the elements of input and output VAT

KEY POINTS
Value Added Tax Output Tax Input Tax
Vat Payable

CORE CONTENT
VAT is everywhere, it’s included in most of the items or services that we purchased. This module
include the nature of value added tax, definition, evolution of the VAT, Rationale of VAT system.
Output VAT and Input VAT: Basic Formula and Elements of the VAT system

IN-TEXT ACTIVITY

Value Added Tax - Definition

Value-Added Tax (VAT) is a form of sales tax. It is a tax on consumption levied on the sale, barter,
exchange or lease of goods or properties and services in the Philippines and on importation of goods
into the Philippines. It is an indirect tax, which may be shifted or passed on to the buyer, transferee or
lessee of goods, properties or services.

Nature of Value Added Tax

VAT is a privilege tax. It is imposed not on the goods or services as such but on the privilege of
selling or importing goods, or rendering services for a consideration

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.

Input Tax

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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.

VAT Payable – is the excess of the output tax on sale of goods/services over the input tax on
importation (if any) and local purchases

Value-Added Tax Rates 

 On sale of goods and properties - twelve percent (12%) of the gross selling price or gross
value in money of the goods or properties sold, bartered or exchanged
 On sale of services and use or lease of properties - twelve percent (12%) of gross receipts
derived from the sale or exchange of services, including the use or lease of properties
 On importation of goods - twelve percent (12%) based on the total value used by the Bureau of
Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any,
and other charges, such as tax to be paid by the importer prior to the release of such goods
from customs custody; provided, that where the customs duties are determined on the basis of
quantity or volume of the goods, the VAT shall be based on the landed cost plus excise taxes,
if any.
 On export sales and other zero-rated sales - 0%

Output VAT
-12% of the gross selling price (GSP), exclusive or net of VAT, of the goods sold, bartered,
exchanged, or deemed sold in the Philippines, OR

12/112 of the total invoice price (inclusive or gross of VAT)

Tax Base: GSP, net of Sales Discounts, Sales Returns, and Allowances

SESSION SUMMARY
Value added tax increases government revenues, reduces tax evasion and provides a more timely
and efficient framework for collecting taxes.

SELF-ASSESSMENT
Assignment. The evolution of the VAT system in the Philippines
Quiz. Basic VAT computations

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REFERENCES
Refer to the references listed in the syllabus of the subject.

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