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TAXATION: Value Added Tax (VAT)

A. What is Value Added Tax (Vat)

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.

B. Transactions subject to VAT

C. Characteristic of VAT
a. It is an indirect tax where tax shifting is always presumed.
The value added tax is an indirect tax and the amount may be shifted or passed on to the buyer, transferee or lessee of the
goods, properties or services. The seller is the one statutorily liable to pay for the payment of the tax but the amount of the
tax may be shifted or passed on the buyer or transferee or lessee of the goods, properties or services. This rule shall likewise
apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of RA 9337 (VAT Reform
Act). However, in the case of importation the importer is the one liable for the VAT. (RR 16-2005).

The “burden of the tax” is borne by the final consumers although the producers and suppliers of these goods and services are
the ones who have to file their VAT returns to the BIR. Hence, what is transferred or shifted to the consumers is not the “liability
to pay the tax” but the tax burden.

b. It is consumption-based.
VAT 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 (RR 16-2005). It is the end user of consumer goods or services which ultimately
shoulders the tax as a liability therefrom is passed to the end users by the providers of these goods or services. The VAT, thus,
forms a substantial portion of consumer expenditures.

c. It is imposed on the value-added in each state of production and distribution process.

The VAT system assures fiscal adequacy through the collection of taxes on every level of consumption. Each business in the
supply chain takes part in the process of controlling and collecting the tax.

d. It is a credit-invoice method value-added tax.

VAT payable is computed by deducting the input VAT from the output VAT. The providers of goods or services passed on to the
users the liability to pay the tax who in turn may credit their VAT liability from the VAT payments they received from the final
consumer. This is because VAT is a consumption tax levied on sales to be borne by consumers with sellers acting simply as tax
collectors.

In the Philippines, the “Credit-Invoice Method” or “Tax Credit Approach” is adopted in computing the VAT payable. This means
the VAT is imposed on the sale first called “Output VAT” and a tax credit is allowed or claimed on the VAT passed-on to his
purchase or cost of goods or services known as “Input Tax”. The excess of output VAT over Input VAT is called “ VAT Payable”

D. Computation of VAT (Excess Input Tax)

a. Output tax exceeds of input tax
Output tax xxx
Less Input Tax and other tax credit (xxx)
VAT payable (Current liability) xxx

b. Input tax exceeds of output tax

Output tax xxx
Less Input Tax and other tax credit (xxx)
Excess Input Tax (Current asset) xxx

E. Who are Required to File VAT Returns

• Any person or entity who, in the course of his trade or business, sells, barters, exchanges, leases goods or properties and
renders services subject to VAT, if the aggregate amount of actual gross sales or receipts exceed Three Million Pesos
(Php3,000,000.00)
• A person required to register as VAT taxpayer but failed to register
• Any person, whether or not made in the course of his trade or business, who imports goods

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TAXATION: Value Added Tax (VAT)

F. Computation of the tax base and the applicable tax rates

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TAXATION: Value Added Tax (VAT)

G. What is Output VAT

Output tax means the value-added tax on sale or lease of taxable goods or properties or services by any person registered or
required to register. In determining the output tax in a sale of goods or properties, the output tax is computed by multiplying the
gross selling price by the regular rate of VAT.

H. Sources of Output Tax

I. Zero Rated Sale Defined

A zero-rated sale of goods or properties and services (by a VAT-registered person) is a taxable transaction for VAT purposes, but
shall not result in any output tax. However, the input tax on purchases of goods, properties or services, related to such zero-
rated sale, shall be available as tax credit or refund in accordance with the Regulations.

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TAXATION: Value Added Tax (VAT)

Examples of Zero-Rated Sales

Export sales

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TAXATION: Value Added Tax (VAT)

Export sales (Cont.)

J. Sales, Transfer, or Exchange of Imported Goods by Tax-Exempt Persons

a. In the case of goods imported into the Philippines by VAT-exempt persons, entities, or agencies which are subsequently sold,
transferred or exchanged in the Philippines to non-exempt persons or entities, the latter shall be considered the importers
thereof who shall be liable for VAT on such importation.

b. The tax due on such importation shall constitute a lien on the goods, superior to all charges or liens, irrespective of the possessor
of said goods.

K. Sale of Real Properties

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TAXATION: Value Added Tax (VAT)

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TAXATION: Value Added Tax (VAT)

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