1) Real property that is used in the trade or business (as incidental transaction to the seller’s main business)

Subject to VAT
2) Real property held primarily for sale to a customer or held for lease in the ordinary course of trade or business
Subject to VAT
3) Real property utilized for socialized housing VAT exempt
 4) Residential house and lot and other residential dwellings with selling price not more than P3,199,200 VAT
exempt
5) Residential house and lot and other residential dwellings with selling price more than P3,199,200 Subject to
VAT
6) Residential lot, commercial lot and units, parking lot in the sale of condominium units Subject to VAT
7) Other real properties not specifically provided under the law as VAT exempt Subject to VAT

• As a rule, lease of commercial units are subject to VAT.

• Lease of residential units with monthly rent per unit of more than P15K will either be subject to VAT or Percentage
tax.
• The gross receipts from the commercial units and residential units shall be subject to VAT provided the total annual
gross receipts exceeded the VAT threshold of P3M

A. The Sale or importation of agricultural and marine food products, livestock and poultry for general use and
human consumption and breeding stock and genetic materials.
B. Fertilizers, seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds, including ingredients,
whether locally produced or imported.
C. The Importation of effects belonging from those coming to resettle in Philippines.
D. Importation of professional instruments and implements, tools of trade, occupation or employment, wearing
apparel, domestic animals, and personal and household.
E. Services subject to percentage tax.
F. Agricultural Contracts Growers and Milling
G. Medical, dental, hospital and veterinary services except those rendered by professionals.
H. Educational services by Educational Institutions accredited by Department of Educational (DepED), the
Commission on Higher Education (CHED) and the Technical Education and Skills Development Authority
(TESDA) and those rendered by the government educational institutions;
I. Services rendered by individuals pursuant to an employer-employee relationship;
J. Services rendered by regional or area headquarters established in the Philippines by multinational
corporations which act as supervisory, communications and coordinating centers for their affiliates.
K. Transaction exempt under international agreement (special laws- PAGCOR. Biofuels act, Ph Red ZCross,
Expanded Senior, Magna carta for PWDs)
L. Agricultural cooperatives duly registered and in good standing with the Cooperative Development Authority
(CDA).
M. Lending activities by credit or multi-purpose cooperatives duly registered and in good standing with the
Cooperative Development Authority;
N. Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with and in good standing
with CDA
O. Export sales by persons who are not VAT-registered; VAT reg is subject to 0% vat rate
P. Real Properties utilized for low coat housing RA No. 7279 known as Urban Development Act of 1992”;sale of
real properties utilized for specialized housing as defined under RA No. 7279, and other related laws, such as
RA No. 7835 and RA No. 8763,

`````
Q. Lease of residential units with a monthly rental per unit not exceeding Fifteen Thousand Pesos (P15, 000.00)
and 3m annually.
R. Books, Newspaper, Magazine, review or bulletin not devoted principally to the publication of paid
advertisements
S. Transport of passengers by international carriers;
T. Passenger or cargo vessels and aircraft
U. Importation of fuel, goods and supplies by persons engaged in international shipping or air transport
operations.
V. Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-
bank financial intermediaries.
W. Sale or lease of goods and services to senior citizens and persons with disabilities.
X. Transfer of property in merger or consolidation (pursuant to Section 40(C)(2) of the Tax Code.
Y. Association dues, membership fees, and other assessments and charges collected on a purely
reimbursement basis by homeowners’ associations and condominium.
Z. Sale of gold to the Banko Sentral ng Pilipinasn (BSP).
AA. Medicines prescribed for diabetes, high cholesterol, and hypertension.
BB. Sale or lease of goods or properties or the performance of services other than the transactions mentioned in
the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of Three Million
Pesos (Php 3,000,000.00). Note: Self-employed individuals and professionals availing of the 8% on gross
sales and/or receipts and other non-operating income, under Sections 24 (A)(2)(b) and 24 (A)(2)(c)(2) of the
NIRC shall also be exempt from the payment of twelve (12%) VAT.
 Who are subject to zero-rated sales (non-vatable sales):

1. Foreign consumption like export sales

2. Domestic sales or local sales of goods or services that are considered export sales such as sales to economic
zones

3. Persons engaged in international transport operations

4. Local sales to persons with indirect tax exemption such as International Rice Research Institute and Asian
Development Bank –referred to as Effectively Zero-Rated Sale

Comparison of VAT on Goods and VAT on Properties

• It must be noted that the term “selling price” or consideration on the sale of property is legally presumed VAT
inclusive but this is not the case on the sale of goods.
• The concept of unreasonably lower does not apply on the sale of property. The higher the fair value and selling price
is always the basis of the VAT

VAT ON IMPORTATION
Passengers or Cargo Vessels and Aircrafts
➢ Illustration: Total transportation Group has land, sea and air transport operations. To beef up its operations, it
imported 5 units of Daewoo bus, 1 unit of aircraft and 2 cruise ships.
• The importation of the airplane ships are exempt but the importation of the buses for land transport is subject to
VAT
International shipping or air transport operators
➢ Illustration 1: Malaysian Ferries is an international shipping carrier. It imported to the Philippines fuel and supplies
to be used in its shipping operations.
• Note that the fuel, goods, or supplies will be consumed in the high seas or in foreign territories outside the country.
The importation is not a domestic consumption but a foreign consumption; hence, it is exempt from VAT

➢ Illustration 2: Pinoy Airline IMPORTED JET FUEL FROM Iraq at total cost of P50,000,000. 40% of the importation is
declared for international air transport operations.
• 40% of the 50,000,000 importation will be consumed in foreign airspaces. This is not for domestic consumption;
hence, it is exempt from VAT. Only the 60% portion which will be used domestically will be subject to the VAT on
importation

➢ Illustration 3: Lufta Airline, an international air carrier, imported jet fuel at the total cost of P40,000,000. It
subsequently sold P10,000,000 of these to Feel Air, a domestic air a carrier.
• Lufta Airline is exempt on its importation of the P10,000,000 worth jet fuel. Since fee air is not an exempt person
and that jet fuels are vatable goods, feel Air will be treated as the importer of the P10,000,000 jet fuel and will be
subjected to VAT. Lufta Airline is not required to pass the VAT on its sales of the fuel.

Agricultural Cooperatives
➢ Illustration 1: Abra Farmer’s Cooperative imported the following equipment:
Tractors and threshers to be used by the cooperative P2,000,000 E
Plows and water pumps to be resold to members 3,000,000 V
Fertilizers and hybrid seeds to be sold by the cooperative 1,000,000 E
Herbicide and pesticides to be used by the cooperative 500,000 E
Cars for the use of cooperative directors and officers 2,000,000 V

➢ Illustration 2: Assume that fertilizer and herbicides in the foregoing illustration is subsequently sold by Abra
Farmer’s Cooperative to Jon Juan, member farmer. What is the tax consequence of the sale?
• Jon Juan shall be treated as importer and shall be subjected to VAT but only to on vatable goods such as herbicides.
Since the fertilizer is a VAT-exempt goods, Jon Juan shall not pay VAT on importation thereon.

➢ Illustration 3: A credit cooperative imported a computer server from abroad at a cost of P1,500,000.
• This importation is generally subject to VAT on importation since the exemption does not extend to cooperatives
which are not engaged in processing or production.

➢ illustration 4: A mining cooperative imported an ozone generator and an ultrafine ore grinding machine for its gold
recovery plant.
• The importation is generally subject VAT because the cooperative is not an agricultural cooperative.
Illustration 5: Arado Coop, a farming cooperative, imported ten tractors and 20 sacks of hybrid seed. Arado Coop
subsequently sold four tractors and 5 sacks of hybrid seed to Mr. Laco, a cooperative member.
• Arado Coop, is exempt from VAT on its importation of farm equipment and seed. Its sales of equipment and seeds
to Mr. Laco is not subjected to business tax. Mr. Laco shall be considered an importer but Mr. Laco shall be subject to
VAT only on the farm equipment but not on the hybrid seeds

➢ Illustration 6: A cooperative imported frozen meat from China. It subsequently sold all of this to Philippine
consumers.
• The importation of frozen meat, an exempt goods, is an exempt importation for any importer. Hence, the sales
by the cooperative to the consumers (i.e., finals consumption) shall not be subjected to VAT. Likewise, the buyers
shat not be subject to VAT on importation

Ecozone-locators
➢ Illustration 1: Winshield corporation, a PEZA locator, sold scrap metals to Recycle Industries Corporation, a
customs territory buyer (i.e., buyer outside the Ecozone).
• Recycle Industries shall pay the VAT on importation directly to the Bureau of Customs (BOC). Winshield Corporation
is not required to imposed the VAT on its sales. However, it must be furnished a copy of the receipt issued by the BOC
for the VAT payment (See BIR Ruling No. DA-031-2007)

➢ Illustration 2: KT, an ecozone locator, imported two machineries for use in the ecozone. It resold one machinery
to S3, a fellow PEZAlocator, and resold the other to T4, a person outside the zone.
• The importation by the locator shall be exempt. The sales S3 shall not be subject to business tax since it is deemed
a foreign consumption. S3 also an ecozone locator, shall not likewise be subject to the VAT on importation. However,
T4, a non-collector, shall pay VAT on importation on the machinery it purchased from KT.

Import of personal and household effects belong to residents of the Philippines returning from abroad or non-
resident citizens coming to resettle in the Philippines.

Professional instruments and implements, wearing apparel, domestic animals, and personal household effects
belonging to persons coming to settle in the Philippines, for their own use and not for sale, barter or exchange.
➢ Illustration 1: Mr. Siman was employed abroad as an OFW. He went abroad taking with him personal effects such
as clothes, pieces of personal jewelry and gadgets aggregating P300,000 in value. When his contract ended, he
returned to the Philippines bringing with him the same effects which now have an aggregate value of P280,000.
• The importation (i.e, return) of the personal effects will not be subject to VAT since these are past purchases which
had been subjected to consumption tax when it was brought into Philippines

➢ Illustration 2: While employed abroad Mr. Siman purchased an iPhone 6 worth P30,000 for selfie purposes. Mr.
Siman brought the iPhone to the Philippines when his employment contract ended.
•The importation of the iPhone shall not be subject to VAT on importation for the same reason that is not a present
consumption of household effects when it was brought into the Philippines.
• Furthermore, purchases abroad by non-residents are non-subject to consumption tax in the Philippines.
• Their subsequent importation to the Philippines is exempt from VAT on importation

➢ Illustration 3: Mrs. Kookai Ukay, a Philippine resident, purchased used clothing and shoes worth P300,000 from
abroad to be sold in her “Ukay-ukay” sales outlets in the Philippines. She reserved P50,000 of these for her
personal use.
• The entire P300,000 purchased of goods from abroad is a domestic consumption subject to the VAT on importation.
This rules applies without regard to the purpose of the importation whether for business or for personal use
(Binili pero for domestic consumption pero if ginamit international and nagwork muna don VAT exempt)

➢ Illustration 4: Mrs. Lovely Bulalo, a non-resident Filipino businesswoman, owns a machine in her business in
France. She decommissioned the machine to be transferred to her business in the Philippines.
• Although the machine is a past foreign consumption, the importation of the same to the Philippines is subject to VAT
because the VAT exemption is limited only to personal, professional or household effects

➢ Illustration 5: An international non-profit organization based in Switzerland. Sent goods intended as donation to
victims of flood in the Philippines. The goods consist of various households effects, grocery goods and rice.
• The importation of these donated goods into the Philippines is subject to VAT, except for the rice – a VAT –exempt
goods. These imported donations are exempt from VAT if made in favor of accredited non-profit organization.
(If may accredited then all are exempt)

Importation of professional instruments and implements, wearing apparel, domestic animal and personal
household effects
➢ Illustration 1: Mr. Marques, a professional boxer, applied for an application to migrate in the Philippines and was
granted by the Philippine government. He brought his boxing gears and household effects including his personal
car to the Philippines.
• The importation of professional instruments and household effects are exempt but the importation of the car is
subject to VAT.
➢ Illustration 2: While in Dubai, Mrs. Waca bought a car and numerous pieces of jewelry from her salaries as OFW.
She intended to sell the jewelry to her friends and townsfolk in the Philippines. When her contract ended, Mrs.
Waca brought in the car and the jewelry to the Philippines.
• The importation of the car is vatable since it is not a personal effect. The imported pieces of jewelries are commercial
quantity which makes them clearly not personal items; hence, vatable

illustration 3: Mr. Kung Fu, a Chinese martial arts master, arrived in the Philippines with an immigration visa. He
brought with him the following he declared as his personal effects:
10 pieces of brand new iPhone 6 P150,000 each Vatable
10 pieces of brand new IBM laptops P80,000 each Vatable
5 desktop computers P40,000 each Vatable
1 piece of used laptop P30,000 exempt
1 piece of used iPhone 4S P 20,000 exempt
1piece of used calculator P 400 exempt
Used clothes, apparel and travelling bag P 7,000 exempt
• The used laptop, iPhone 4S, calculator, clothes, and apparel are apparently personal effects which are past
consumptions; hence, these are exempt from VAT.
• The nature and quantity of the iPhone6, IBM laptops and desktop computers is clearly inconsistent with the concept
of personal effects. These items are unquestionably for domestic consumption; hence, subject to VAT.

Importation of Goods - Vatable Importation

Illustration 1 - Basic: MRS Trading Corporation imported goods from abroad for domestic sale. Shown below are the
details of the importation

Illustration 2 - Comprehensive: Mang Pandong imported a sports car from the US for personal use. The following shows
details of the charges of the importation.
• The relevant exchange rate per Bureau of Customs Memorandum Circular is P45: $1. The importation is subject to
P683,510 excise tax and 30% tariff rate.
VAT ON SALES OF GOODS AND PROPERTIES
Sale of goods to senior citizens and persons with disability

Illustration: Special Care Store, is a business catering for the needs of seniors and persons with disabilities. It had the
following sales of goods during the month

Agricultural and marine food products in their original state

Illustration 1: Fruit and vegetable dealer
Mang Pandong owns a meat and fish outlet in the Baguio City public market. He had the following sales during the
month:
Sales of live hogs P120,000 VAT exempt
Sale of frozen carcass and meat 240,000 VAT exempt
Sales of fresh fishes 150,000 VAT exempt
Sales of dried and/or smoked fish 80,000 VAT exempt

• Mang Pandong is not subject to business tax on all of these sales.

Illustration 2: Farmer
Agricorp is engaged in the farming and horticulture business. It earned the following during a quarter:
Sale of palay and rice P 100,000 VAT exempt
Sales of banana mushrooms 100,000 VAT exempt
Sale of firewood and charcoal 150,000
Sale of orchids, flowers, and bonsai 250,000
•Note: It must be emphasized again that the term “vatable” means that the sale is subject to VAT if the taxpayer is
VAT-registered or a VAT registrable person but to a 3% percentage tax if the taxpayer is non-VAT taxpayer

Illustration 3: Poultry operator

The following relates to the sales of Mr. Birdie, a poultry operator;
Sales of chicken P 400,000 VAT exempt
Sale of one-day old chicks 120,000 VAT exempt
Sales of eggs for “penoy” and “balot” 180,000 VAT exempt
Sales of chicken manure 100,000 VAT exempt
• All of these are exempt from the business tax.
• Obviously, chicken manure is not intended for human consumption but it is actually a vegetable fertilizer similar to
guano; thus, it is also exempt

Illustration 4: Pet Shop

Raymund, a veterinarian, operates a pet shop. The following were his sales and receipts during the month:
Sales of pets P 600,000 vatable
Sales of animal vitamins, medicines, and feeds 200,000 vatable
Receipts from veterinary services 200,000 vatable
• All of these are subject to business tax. Feeds for pets are vatable.
Note also that services provided by professionals are vatable

Illustration 5: Monte Rey had the following sales in his store:

Sales of meat cuts P 400,000 VAT exempt
Sales of hotdogs 100,000 vatable
Cup noodles 10,000 vatable
Canned sardines and beans 40,000 vatable
• The sale of meat cuts is exempt. The sales of hotdogs, cup noodles, and canned goods which are processed foods
are vatable

Illustration 6: Juan, a dealer of sugar made the following:

P400,000 worth of muscovado sugar VAT exempt
P600,000 worth of refined sugar. Subject to VAT
• The sale of muscovado sugar which considered raw cane sugar is exempt from business tax.
• Only the sale of refined sugar is subject to business tax

Sale of certain farm or fishery Inputs

Illustration: A farm supply dealer sold the following items:
a. Tractors and water pumps Vatable
b. Seeds VAT Exempt
c. Organic and inorganic fertilizers VAT Exempt
d. Pesticides and herbicides Vatable
The sales of seeds and fertilizers are exempt. The sale of farm or fishery equipment such as tractors, water pumps and
other farming inputs such as pesticides and herbicides are vatable by virtue of the lack of express legal exemption.

Books, Newspapers, Magazines, Review or Bulletins

Illustration: Jet Bookstore sold the following goods:
Novels P 100,000 VAT exempt
Textbooks 300,000 VAT exempt
School supplies and notebooks 200,000
Office supplies 180,000
Advertising magazines 20,000
• Only the sale of novels and textbooks (i.e., books) are VAT-exempt. The sale of office supplies, school supplies other
than books and advertising magazines are vatable

Medicines prescribed for diabetes, high cholesterol and hypertension

Illustration: St. Joseph Medical Store made the following sales during the quarter
Note that the medicines prescribed for diabetes, high cholesterol or hypertension is exempt regardless of the buyer.
The exemption on medical accessories or equipment is limited to senior citizens

Sales of goods by cooperatives

Illustration 1: Cooperative transacting business with members and non-members
• A credit cooperative reported the following sales during the month:
Related activities Unrelated activities
Sales from members P 200,000 P 100,000
Sales from non-members 300,000 20,000
Total P 500,000 P 120,000
• If the accumulated reserves of the cooperative do not exceed P 10,000,000, the total P 500,000 sales from related
activities is exempt from business tax, but the P 120,000 sales from unrelated activities is taxable.
• If the accumulated reserves of the cooperative exceed P 10,000,000, only the P 200,000 sales from the members
from related activities is exempt from the business tax while all the other sales are taxable

.Sales by agricultural cooperatives

Example: Benguet Agri Coop is a duly registered agricultural cooperative engaged in growing abaca and production of
bags made of abaca. It is also engaged in the sale of kitchen kits made of rattan from other cooperatives and traders.
The following data for the year were provided:
To Members To Non-Members
Sale of abaca bags P6,000,000 P4,000,000
Sale of kitchen kits P2,000,000 P3,000,000 Vatable
• VAT payable of Benguet is P36,000 (P3,000,000 x 12%)

Sales by non-agricultural, non-electric and non-credit cooperatives

Example: A non-agricultural, non-electric and non-credit cooperative with maximum contribution per member of
P15,000 has the following data for the taxable year (net of applicable taxes):
Sales P5M (No output VAT)
Purchases P2M (No input VAT)
• The cooperative is VAT exempt

• Example: An electric cooperative has the following data for the taxable year (net of applicable taxes):
Sales P5M Output VAT (P5M x 12%) P600,000
Purchases P2M Input VAT (P2M x 12%) (240,000)
VAT Payable P360,000
Example: Coop Natin, a duly registered non-agricultural, non-electric and non-credit cooperative, imported equipment
valued at P1,000,000 for its own use.
Input VAT is P120,000 (P1,000,000 x 12%)
• Note: Only agricultural cooperatives are exempt from importation of equipment to be used directly and exclusively
in the production or processing of the agricultural cooperative’s produce.

Sales of real properties

Sale by non-dealers of realty

Illustration 1:
Dr. Atoei, a VAT-registered medical doctor, sold his principal residence for P12,000,000 and his medical clinic building
for 50,000,000 to purchase a bigger building for his medical practice.
• The sale of the principal residence being a capital asset is not subject VAT even if Dr. Atoei is a VAT-registered
taxpayer.
• The sale of his medical clinic building is subject to VAT as it is an ordinary asset to his medical practice

Illustration 2:
Mr. Lee Mado, is a non-VAT registered lawyer. He disposed of his law office building for 8,000,000 to pursue his dream
of establishing a beauty parlor.
• The sale of Mr. Mado of his office building, despite being an ordinary asset, is not subject to VAT because he is non-
VAT taxpayer

Illustration 3:
Mr. Kannaway, a farmer, sold his rice farm land for P 4,000,000 to finance his acquisition of a fish pond.
•Mr. Kannaway is not engaged in business. His sale of farm land, a capital asset, is not subject to VAT.

Sale by realty dealer, developer or lessor

Illustration 1:
ABC Realty Corporation sold a residential lot at a price of P1,800,000.
• This sale is exempt from the business tax the sale conforms to the P1,919,500 sales price ceiling on sales of residential
lot under the law.

ABC Realty Corporation sold a house and lot at a price of P3,200,000.

• The sale is subject to business tax (i.e., VAT) since the sale is above the P3,199,200 price ceiling on the sale of
residential dwellings.
• Note that because of their volume of sales, realtors are usually registered as VAT taxpayers

Illustration 2:
Don Pedro, an employee, sold a residential lot for P2,000,000.
• The sale is exempt from the business tax even if made above the P1,919,500 price limit because Don Pedro is not
regularly engaged in the realty business.
• The residential lot is a capital asset exempt from VAT.
• The sale of real property classified as a capital asset is subject to the 6% capital gains tax and will not be subject to
the business tax.

The National Housing Authority, a government agency, sells “low-cost housing units” with a price of P 1,000,000 per
unit to qualified applicants.
• The sale of the housing shall be subject to tax despite being described as “low-cost housing units” because it does
not comply with the price limit set by law

Sale of adjacent lots: Illustration: A realty developer was supposed to sell a 100m2 lot at a price of P2,000,000.
However, the lump sum sale of the lot would make it subject to business tax. The developer proposed to sell the first
50 m2 lot for P1,000,000 then later the other 50 m2 for another P1,000,000 so that the sale of the lot would be tax
free.
• This tax minimization technique is no longer allowed. The sale of the adjacent lots to the same buyer shall be
aggregated for proposes of the threshold. Since the aggregate selling price of the lots exceeds the price ceiling, both
sales are subject to business tax (i.e., VAT).
• The VAT will be recognized on the second sale. This aggregation rule does not apply to sale of parking lots which may
or may not be included in the sale of condominium units because parking lots are not residential in nature. The sale
of parking lot is vatable

Sale of adjacent lots: Illustration: Cevar Realty sold a residential house and lot for P1,800,000 together with an adjacent
parking lot separately priced for P200,000 to a buyer.
• The P200,000 sales of the parking lot are vatable.
• The P1.8M sale of the residential lot is exempt. The aggregation rules does not apply.

Export sales by non-VAT persons

James Corp. provided the following data for 2021 taxable year: Export Sale (net) P5M; Purchases (net) P2.8M

Non-VAT Taxpayers - The export sales are VAT exempt.

Output VAT (P5M x 0%) VAT exempt
Input VAT (P2.8M x 12%) (336,000)
Excess Input VAT of P336,000 is not refundable but can be used as part of cost or expense.
• VAT exempt: Exporter has no output VAT and cannot claim input VAT. The attributable input VAT on purchases shall
be recognized either as part of cost or expense

VAT Taxpayers – The export sales is subject to VAT but at 0% rate.

Output VAT (P5M x 0%) P0
Input VAT (P2.8M x 12%) (336,00)
Excess Input/Refundable (336,000) ========
• VAT 0% rate: Retail sale has no output VAT but the seller can claim input VAT

Treaty-exempt sales goods

Illustration 1:
Ureshi Company, a non-VAT taxpayer, supplies the Asian Development bank (ADB) with office supplies.
• Thus, the sale of Ureshi Company to ADB is exempt from the percentage tax and VAT as non-VAT taxpayer.
• The percentage tax under Sec. 109 (BB) or the NIRC, as amended, applies to sales or lease of goods or properties or
the performances of services other than those enumerated therein.
• The enumeration includes “transactions which are exempt under international agreements to which the Philippines
is a signatory or under special law”.

Illustration 2 Assuming the same information in the previous illustration, except that Ureshi is a VAT-registered
taxpayer.
• The P500,000 sales to ADB will be subject to zero-rated VAT

Tax-free exchange of property

Illustration 1
Pursuant to a plan of merger between Zues Company, a VAT registered taxpayer, and T-Rex Company shall surrender
the following assets:
Cash P 500,000
Property, plant and equipment 3,000,000
Receivable 800,000
Patent 1,500,000
Inventories 1,800,000
• Zeus Company shall receive 2,000 shares of stocks of T-Rex Company which it plans to distribute to its shareholders
after which it shall cease to exist and operate as a legal entity.
• The transfer of all of Zeus Company’s assets including the ordinary assets inventory and property, plant and
equipment shall not be subject to VAT and not be subject to the rules on “deemed sales”.

• Assuming Zeus is a non-VAT taxpayer, the same shall not be subject to percentage tax. Non-VAT taxpayers are not
subject to percentage tax on the sale as the tax applies only to sales of goods or services in the ordinary course of
business

Illustration 2:
Miss Vanessa, a VAT-registered taxpayer exchanged Her real estate inventories for the stocks of a start-up corporation.
As a result of this exchange, she obtained 51% voting stake in said corporation.
• The transfer of real estate inventory, an ordinary asset, in this case is not subject to VAT since this is a tax-free
exchange of property.
• Assuming Vanessa is a non-VAT registered taxpayer, the transfer of the real estate inventory shall not be subject to
percentage tax since percentage tax applies only to sales of goods or services in the ordinary course of business,
excluding incidental transactions

Sale of gold to the Bangko Sentral ng Pilipinas (BSP)

Illustration 1: Mang Joseph, a non-VAT registered miner, sold to the BSP his gold production of 2,000 grams of raw
gold nuggets with specific gravity of 14.9.

• The P3,167,200 sale of gold is exempt.

• The P19,080 sale of silver is subject to 3% percentage tax. The BSP shall withhold the 3% percentage tax as final tax.

Assuming the same information in illustration 1 except that Mang Joseph is a VAT- registered miner.
• The P3,167,200 shall still be exempt.
• The 19,080 sale of silver is subject to 12% VAT. The BSP shall withhold final VAT on the selling price of the silver. The
final withholding by government agencies and GOCCs on their purchases will be discussed in another topic

Illustration 3
Boss Edong is gold trader. He purchases gold and silver from electronic scrap metal refiners and small-scale miners.
He refined the gold and sold them to the following:

• Under RA 11256, the gold sold by traders shall be presumed purchased from small-scale miners. Whether VAT-
registered or non-VAT registered, Boss Edong shall be exempt from VAT or percentage tax on the P800,000 sales of
gold to the BSP.
• The sales of gold to jewellers and the sale of silver is vatable. It is subject to 12% VAT if Boss Edong is a VAT taxpayer
and to a 3% percentage tax if he is a non-VAT taxpayer.
Exempt Sales of Services
Educational Services of Schools (CHED, TESDA AND DEPED)
Illustration 1:
Hebron College, a private college accredited by CHED, reported P2,000,000 receipts from tuition fees during the
month. Hebron also reported P100,000 rental income from the building being rented by commercial tenants.
• The tuition fee is exempt.
• P100,000 rental is an income from unrelated trade to education; hence, subject to business tax

Illustration 2:
Topnotch Pampanga, an accredited continuing professional education provider, provides professional seminars,
professional reviews and certification programs for graduates and professionals.
• The receipts of Topnotch Pampanga from the foregoing services is subject to business tax.
• It is subject to VAT is if is a VAT-registered taxpayer and 3% percentage tax if non-VAT taxpayer.

Employment
Illustration 1:
Aljon, an audit practitioner and a part-time teacher earned the following:
Compensation income P1,800,000
Receipts from audit clients 1,200,000
• The compensation income is exempt from business tax as employment is not business. Only the P1,200,000 receipt
from professional fees is subject to business tax because the exercise of a profession is considered business.

Illustration 2:
Dr. Almor Ranas arranged with hospital to accept his clients. He entertains clients in the hospital. The hospital shall bill
his professional fees in the name of the hospital. The hospital repays Dr. Ranas his professional fees less hospital
accommodation charges.
• The professional fees are not compensation income and are therefore subject to business tax.
• Furthermore, medical practitioners are not allowed to claim exemption under the cloak of the hospital service
exemption.

Agricultural contract growers and millers

Illustration 1:John is an agricultural grower. John was contracted by Purepork, a distributor of pork and chicken meat
products, raise hogs and chicken. John shall be paid a fixed contract price for the undertaking.
• The contract price received by John from pure pork is exempt from business tax.
• The sale of Pure pork of its meat products is also exempt from business tax

Illustration 2: Cordilleran Milling Company offers a variety of milling services ranging from palay, corn, cane to raw
sugar, and gold ores. It had the following receipts during the month:
Palay and corn milling fees P600,000 tax-exempt
Sugar milling fees 200,000 tax-exempt
Ore ball milling fees 400,000 taxable
• Only those receipts from milling services for the processing of agricultural produce for ultimate human consumption
are specifically exempted, hence, the receipts from the ball milling of gold ore are taxable.

Illustration 3: SA Dressing Company operates a chicken dressing plant whereby chicken of farm producers are brought,
slaughtered, cut and dressed for supermarket sales.
• Dressing services on agricultural products even if the residual product is in original state is not agricultural contract
growing or milling; this, it is vatable.

Illustration 4: You Lechon Inc. sells charcoal roasted swine, chicken or ducks offered with different menus in its dining
outlets.
• You Lechon is subject to VAT even if the goods sold it sells underwent simple processing. It is a restaurant classified
as a seller of service rather than seller of goods.

Illustration 5: Chooks sells roasted swine chicken and ducks alone without the dining space where customers buy and
leave.
•Chooks is not a seller of services but a seller of goods. Since it is selling agricultural product which underwent simple
processing, it shall be exempt

Residential leasing
Example: Lease of several residential units in Makati with the following details:
Monthly Rent Annual Gross Receipts Tax
P12,000 P3,200,000 VAT Exempt
P16,000 P2,800,000 Percentage Tax
P16,000 P3,800,000 VAT

Illustration 1: Lease of commercial and residential units in Makati with the following details:
Monthly Rent Annual Gross Receipts
Commercial P12,000 P1,800,000
Residential P16,000 P2,500,000
P4,300,000 Vatable
* The total gross receipts from both commercial and residential units amounted to P4,300,000 (which exceeded the
VAT threshold of P3M) is subject to VAT

Illustration 2:
Gensan Travel Lodge has 200 rooms with average occupancy of twenty-four days a month. Gensan Travel Lodge
charges P2,000 for each day of stay. It earns P320,000 average monthly fees.
• Hotels inns, and lodges are not residential dwellings hence subject to business tax. The exemption limit does not
apply to them.
• Since the projected annual receipt of P3,840,000 (P320,000 x 12) exceeds the P3,000,000 VAT threshold, Gensan
Travel Lodge is subject to VAT

Health or Hospital Services

Betany Hospital, a private hospital, had the following receipts and sales during a month:
Patient service revenue P10,000,000 tax exempt
In-patient sales 1,000,000 tax exempt
Out-patient sales:
Anti-diabetes and hypertension medicines 800,000 tax exempt
Other medicines 3,000,000
Check-up fees 200,000 tax exempt
Laboratory services 2,700,000 tax exempt
Rent income on clinic space leased to doctors 500,000
Total P18,200,00

Illustration 1:
A representative office of Institu Company, a corporation established in the Netherlands, is based in Baguio City. The
office coordinates activities of branches and subsidiaries of Institu Company across Asia. Institu Company subsidize
the Philippine office by transferring P2,000,000 monthly to cover administrative expenses.
• The representative office is exempt since it is not a business. The monthly subsidy from Institu Company are mere
advances or reimbursements for office expenses.

Assume the same information in the preceding problem, except that the Philippine office is a research office. Research
output are sold by the Philippine office to its affiliates and subsidiaries of Institu in the Philippines and Asia.
• In this case, the Philippine office would be subject to a business tax, sales of services for Philippine affiliates would
be vatable.
• Sales of services for overseas affiliates would be subject to zero

Transport by International carriers

Illustration DXY Enterprise imports, sells and leases air and water and water crafts. During the quarter, it had the
following transactions:

Printers or publishers
Jet bookstore reported the following sales during the month:
Sales of books inventories P400,000
Commission income from book publishers 30,000
• The sale of books is an exempt sales of goods. The service of undertaking to sell books for others for a fee or
commission is not among those exempt sales of services; hence, commission income is vatable.

Senior citizens and persons with disability

TLC Lechon, a non-VAT registered, seller or roasted chicken, decided to add a small space for dine-in service to cater
for customer demand. It had the following receipts and sales for the month

•The original take-out sales are sale of goods not service. Since the goods underwent simple process, they are exempt.
• The dine in receipts are sales of service not sales of goods hence normally taxable but restaurants receipts from
senior citizens and persons which disability are legally exempted hence non-taxable. The dine-in receipts from other
customers shall be subject to 3% percentage tax since TLC Lechon is a non-VAT taxpayer

Illustration 1: A VAT registered restaurant sold food and beverages totalling P2,240 to a senior citizen who presented
a senior citizen identification card. The senior citizen was accompanied by three other non-senior citizens.
Illustration 2: • Assuming the same facts except that the restaurant is a non-VAT taxpayer, the amount to be billed
shall be:
Totals sales P2,240
Less: senior citizen discount (2,240 x ¼ x 20%) 112
Amount due P2,128

Receipts of proprietors of theaters or cinemas

Illustration:
SM Entertainment Corporation leases films from producers. It leased the film “Ang Probinsyana” from Coco Martina.
It also leased the film “Gangnam” from Oppa Entertainment Corporation in Korea. SM Entertainment realized P200M
from the show of the films nationwide.
• Theatre or Cinema:
SM Entertainment Corporation, an exhibitor of films is subject to local amusement tax in the provinces or cities where
its cinemas are situated. It is not subject to VAT or percentage tax.
• Lease of films from producers:
Coco Martina is vatable on the lease of its films to SM Entertainment.
The lease of the film from Oppa Entertainment in Korea is an import of service subject to the 12% final withholding
VAT
Sales to the Government and GOCC
Example: During the month, a VAT-registered person made a single sale of goods to a government agency for P448K,
inclusive of P48K output VAT. These goods were purchased for P336K, including P36K input VAT.
Sales 400,000
Add: 12% output VAT (400,000 x 12%) 48,000
Total 448,000
Less: 5% final withhold VAT (400,000 x 5%) 20,000
Cash received by the taxpayer 428,000

Example: During the month, a VAT-registered person made a single sale of goods to a government agency for P448K,
inclusive of P48K output VAT. These goods were purchased for P336K, including P36K input VAT.
• In reporting, Form 2550M would look like this:
Output VAT 48,000
Less: Standard Input VAT (7% x 4000,000) 28,000
VAT due 20,000
Less: Tax credit – 5% withholding VAT (20,000)
VAT due and payable 0
Note:
• There is no VAT due or payable and VAT refundable on sales to the government.
• The claimable standard input VAT will be charged to cost of sales or expenses

Example: During the month, a VAT-registered person made a single sale of goods to a government agency for P448K,
inclusive of P48K output VAT. These goods were purchased for P336K, including P36K input VAT.
Computation of VAT payable:
Output VAT 48,000
Less: Input VAT 36,000
Less: 5% final withhold VAT (400,000 x 5%) 20,000
Claimable standard input VAT (8,000)
Note:
• There is no VAT due or payable and VAT refundable on sales to the government.
• The claimable standard input VAT will be charged to cost of sales or expenses.

Ex1: A VAT registered person sold and exported the following goods during the quarter:
Philippines Abroad
• Banana fruit P500,000 – VAT Exempt $10,000 – 0% VAT
• Tobacco P800,000 – 12% VAT $20,000 – 0% VAT

Ex2: a VAT registered taxpayer made the following domestic sales of goods to the following entities:
DA IRRI Private Clients
Sale of rice seeds 500K 700K 1,800M
Sale of pesticides 400K 300K 3,200M

• Vat exempt: 500K, 1,800M

• 0 Rated Sales: 700K, 300K
• Regular Sale: 3,200M
• Regular Sale with 5% final withholding VAT: 400K

Other Sales Subject to VAT

1) Sales of registrable persons are subject to VAT despite their non-registration as VAT taxpayers but no input VAT
credit is allowed.
A taxpayer sold goods for P1M. He purchased the goods for P800K exclusive of P96K input VAT.
Output VAT (P1M x 12%) P120,000
Less: Input VAT 0
VAT due and payable P120,000

2) Sales of non-VAT taxpayers who issues VAT invoice or receipt (illegally charge VAT on their sales) are subject to VAT
without the benefit of input VAT plus the 50% surcharge and usual 3% percentage tax.
Ex.: A taxpayer sold goods for P1M. He purchased the goods for P800K exclusive of P96K input VAT.
Output VAT (P1M x 12%) P120,000
Surcharge on output VAT (120K x 50%) 60,000
Percentage tax (P1M x 3%) 30,000
Total taxes due P210,000

3) Exempt sales billed by VAT taxpayers as regular sales Are considered as regular sales subject to 12% VAT.
• Exempt sales which are not so clearly indicated as “Exempt” in the VAT invoice or VAT receipts are considered as
regular sales subject to 12% VAT.
Ex.: A taxpayer sold goods for P1M. He purchased the goods for P800K exclusive of P96K input VAT.
Output VAT (P1M x 12%) P120,000
Less: Input VAT 96,000
VAT due and payable P 24,000

Import of Services: Subject to Final Withholding VAT

Illustration 1:
Session Food Corporation is a licensed franchisee of Ronald, Inc., a non-resident foreign franchisor. During the month,
Session is due to pay P800,000 royalties.

• Note: 96,000 will be shouldered by Session at the same time as withholding agent of 240,000, he should remit this
amount.
Illustration 2:
Phil Mines imported a customized ozone generator from Chen Company in China. Before shipment, Phil Mines had
the machine customized by Guangzu Industries in China for P500,000. The generator has a total landed cost of P120M
on importation. Chen Company installed the generator at Phil Mine’s processing plant in the Philippines for P220,000

Nature of the Final Withholding VAT

Illustration 1:
Eagle Company sought the help of Mr. Putin, a repairman doing business in Australia, to fix its malfunctioning
machinery in the Philippines. The contract price was P1,000,000. Eagle company shall pay P120,000 (12% x P1M) final
withholding VAT to the BIR.
Query:
1. What if Mr. Putin is not engaged in business in Australia? The contract price is still subject the 12% final withholding
VAT. Mr. Putin is conclusively presumed engaged in business.
2.What if Eagle Company is non-profit institution? The contract price is still subject to the 12% final withholding VAT.
Even non-profit corporation required to withhold.
3.What if Eagle Company is an ecozone locator? The contract price will not be subjected to the 12% final withholding
VAT because ecozone locators are outside the country (i.e., non-residents) by legal fiction

Illustration 2:
Mr. Wong, a resident travelling sales agents, asked the assistance of Mr. Teng, a Chinese national doing business
abroad, to help him install a GPS tracking device in his car for P300,000. Mr. Wong shall pay P36,000 (12% x 300,000)
final withholding VAT.
Query:
1.What if Mr. Teng is not business engaged in business in China? The contract price is still subject to the 12% final
withholding VAT since he will be presumed engaged in business.
2. What if Mr. Wong is not a businessman? The contract price shall not be subject to final withholding VAT because
withholding tax obligation exist only for individuals engaged in business.

Sale of Vatable Goods

Illustration: In June 2020, Mabaca Corporation made the following sales:

Illustration 1: A VAT seller made the following sales of goods to private customers during the month:

Note: The selling price to Customer C is unreasonably lower by 30% ; hence, the fair value is used to compute for the
output VAT

The sale of services is subject to 12% VAT based on the gross receipts.
• Gross receipts – is collection of income

A VAT registered repairman had the following revenue and collection during the month:
Cash Basis – Commercial Lot
Illustration 1:
Mr. Realtor, a real property dealer, sold a commercial lot in June 2020. the following data related to

Notes:
1) The fair market value is the VAT base since it is higher than the P3.8M selling price.
• fair value of real property is the higher between the Zonal value and fair value per assessor’s office
2) The fair value is directly multiplied by 12% because it is deemed exclusive of VAT.
3) If the FMV is higher than the selling price, the output VAT must be separately billed with specific mention that the
VAT billed separately is based on the market value of the property

Illustration 2:
Mr. Realtor, a real property dealer, sold a commercial lot in June 2020. the following data relate to the sale

Notes:
1. The consideration or selling price is the gross selling since it is higher than the P4M fair value.
• The consideration or selling price is multiplied by 12/112 because it is presumed by the regulation to be inclusive.

Residential Lot and Dwelling

The output VAT shall be nil.
• Nil - zero, especially as a score in certain games; non-existent.
• The sale of a residential lot is exempt if sold at a price not exceeding P1,919,500.
• The sale of residential dwelling is also exempt if the selling price does not exceed P3,199,200.

Installment Payment Basis

The billing for every monthly installment thereafter shall be:

Installment P 125,000
Plus: Output VAT 18,000
Total monthly billing starting September P 143,000
July August Sept. Oct. Nov. Dec.
Output VAT P P72,000 P90,000 P18,000 P18,000 P54,000
Note: Recall that the quarterly output VAT is the cumulative of the output VAT for the entire quarter covering 3
months.

Sale of property by a realty dealer on a deferred payment basis:

Illustration: On Aug. 1, 2020, Exxon Realty Corp. sold a residential property with a fair market value of P5,000,000 for
P4,000,000. The terms of the sale require a down payment of P400,000 and the balance payable in monthly
installments of P200,000 starting Sept. 30, 2020
Interest and penalties actually or constructively received by the seller are subject to VAT.
Illustration: Sarangani, a VAT-taxpayer made a sale of real property with a fair value of P3M for P2M. The P360,000
output VAT on the sale qualified for installment reporting.

Sale of Capital Assets

• Sale of property not in the ordinary course of business - exempt

• The sales of properties not in the ordinary course of business are exempt from VAT. Hence, the sale of capital assets
is exempt from VAT.

Transactions Deemed Sales:

-Transfer, use or consumption not in the ordinary course of business
Illustration 1: A VAT-registered grocery operator withdrew the following for personal use:
Fair Value Book Value
Various fruits and vegetables P 10,000 P 16,000 exempt goods
Various processed goods 18,000 15,000 vatable
The output VAT on the deemed sale: 18,000 x 12% = 2,160
Illustration 2:
GH Realty, a VAT-registered realtor, transferred a commercial lot with zonal value of P400,000 and fair value per
assessor of P350,000 in exchange for the shares of stocks of a newly organized company, BHI Co.
• The exchange of the commercial lot, a property held for sale, for shares of stocks is a deemed sale subject to VAT.
The output VAT shall be P48,000, computed as 12% x P400,000.

Query: What is GH Realty acquired control in the stocks of BHI Co.?

• The transfer of the commercial lot shall be exempt from VAT since initial acquisition of control is a tax-free exchange
that is a VAT-exempt transaction

Illustration 3:
A realtor transferred a property held for sale in trust to his daughter who is getting married. The property had a cost
basis of P2,000,000 and a fair market value of P2,500,000 at the date of transfer.
• The completed gift is a deemed sale subject to VAT.
• The output VAT shall be P300,000 computed as 12% x P2,500,000

Query 1: What if the donation is designated by the donor as revocable?

• The output VAT is nil. To be considered “deemed sold”, there must be a transfer of ownership over the property.
The transmission of property to a trustee shall not be subject to VAT if the property is to be merely held in trust for
the trustor and/or beneficiary.

Query 2: What if the donee is an accredited non-profit organization?

• The output VAT is nil. Transfer to an accredited non-profit organization is not subject to VAT.

Illustration 4:
Cubao Corporation declared the following properties for distribution to shareholders as property dividends:
Shares of stocks in Makati Corporation P2,000,000 exempt
Various merchandise 3,000,000 vatable
Total P5,000,000
• Cubao Corporation shall be subject to P360,000 output VAT, computed as 12% x P3,000,000. the merchandise shall
be deemed sold subject to VAT but the shares of stocks are not subject to VAT on deemed sales because they are
capital assets. Note that even the actual sales of stocks is VAT- exempt

Consignment of Goods not Withdrawn in 60 Days

Illustration:
Uber Corporation, a non-VAT merchandising business, made the following sales and consignment during the month:
Sale of goods P200,000
Sale of equipment 500,000
Consignment – 80 days old 100,000
• The percentage tax shall apply only to the P200,000 sales of goods.
• The sale of equipment and the 80-day consignment is not part of the sales of non-VAT persons.

Illustration: A VAT-registered has its own sales operations but also sells goods through consignees. It also sells
goods on consignment for a commission. The following were the results of operations for the month ended April 30,
2020:
Sales - own inventories P 500,000
Sales - reported by consignees 150,000
Sales - in behalf of consignors 100,000
Commission income on goods sold for consignors 20,000

The billed prices of outstanding consignments still held by consignees as of April 30, 2020 are as follows:
February 2020 P 50,000
March 2020 80,000
April 2020 120,000

Consignment of Goods not Withdrawn in 60 Days

Note:
• 1. The sales of the taxpayer include direct sales and those made by its agents or consignees, gross of commission
expenses to consignees.
• 2. The consignment sale of a consignee is not taxable to the consignee but to the consignor. Only the commission
earned by the consignee on such sale is taxable to the consignee.
• 3. The February unsold consignment is more than 60 days old as of April 30 – the current month. Hence, it is deemed
sold. The March consignment is less than 60 days old, hence, it is not yet deemed sold

Retirement or Cessation of Business

Illustration 1: Mr. Misamis, a VAT-registered taxpayer, ceased business operation in May 2021. His business properties
upon termination of business operation include:
Cash P 50,000
Accounts Receivables 120,000
Investments 180,000
Inventories 200,000
Property, plant and equipment 800,000
Total Assets P 1,350,000
Note: The VAT on deemed sales applies only to vatable goods and properties of business or those considered ordinary
assets in income taxation. The accounts receivables and inventories are non-vatable because they are capital assets

The output VAT on the deemed sale shall be computed as:

Inventories P 200,000
Property, plant and equipment 800,000
Basis P 1,000,000
Multiply b 12%
Output VAT P 120,000

Illustration 2
Juan, a VAT taxpayer, is closing his business. He had in his inventory 100 sacks of rice valued at P200,000.
• The rice inventories shall not be subject to VAT upon cessation of business since they are VAT-exempt goods. Even
if these are actually sold, their sales is not subject to VAT.

General Rule: Business dissolution is deemed sale.

Illustration:
ABC Corporation exchanged real estate properties held for sale or lease for the shares of stocks of DEF Corporation
resulting in the acquisition of corporate control. DEF has an inventory of goods amounting to P1 million.
• The inventories including other properties held by DEF shall not be considered deemed sale because the same
corporation is not dissolved. The same corporation still hold the inventory and there is no transfer of the same. The
personality of the corporation is distinct and separate from its shareholders.
• However, the exchange of real estate properties by ABC is a vatable sale if the exchange did not result in the
acquisition of corporate control
*Whichever is lower retirement and cessation of business (Deemed Sale)

Determination of output VAT

CREDITABLE INPUT VAT

Illustration: Mrs. Aguilar had a P230,000 output VAT in the month. She also made the following purchases during the
month:
 Creditable input VAT shall be:
Goods from non-VAT suppliers P 280,000 No input VAT
Goods from VAT suppliers with VAT invoices 224,000 (P224,000 x 12/112) = P24,000
Importation of car for personal use, VAT inclusive 1,120,000 Input VAT for personal use cannot be
charged to input VAT-registered
business
Importation of grapes and apples for sale 300,000 VAT Exempt
Importation of merchandise for sale, VAT inclusive 896,000 (P896,000 x 12/112) = P96,000
Services from VAT suppliers, evidenced by ordinary
Receipts 120,000 Input VAT not evidenced by VAT invoice
Total creditable input VAT = P120,000

Illustration: Malaybalay Corporation had the following input VAT during the quarter:
Creditable input VAT shall be:
Input VAT traceable to regular domestic sales P400,000 P400,000
Input VAT traceable to VAT-exempt sales 30,000 VAT exempt sales cannot claim input VAT
Input VAT traceable to export sales 600,000 600,000
Total creditable input VAT P 1,000,000

Transitional Input VAT

Illustration Ilo-ilo General Merchandise, Inc. exceeded the VAT threshold in June 2020- it had the following inventory
of goods at the start of July 2020:

Input VAT on Purchase of Capital Goods or Properties

Ilustration: Isulan Company, a VAT-registered taxpayer, purchased the following capital goods in March 2020
Construction in Progress
In January 2020 Tandag Corporation hired the services of Aliling Construction to build a small sales building at an
P11,200,000 fixed price contract price inclusive of VAT. The construction was subject to 10% retention which would
be released upon completion.

•Since the input VAT is claimed while the construction is still in progress, no further additional input VAT can
be claimed upon completion of the asset when it is reclassified as a depreciable capital asset and when it is
depreciated.
• If the taxpayer purchases the materials to be used in the construction and the contractor only bills the labor
the input VAT on the Construction in progress shall be claimed upon payment of the billings.
• The input VAT on the purchases of the materials shall be claimed upon purchase.

Presumptive Input VAT

Illustration: Processor of cooking oil
• Bilimo Oil Corporation, a VAT-registered cooking oil manufacturer, purchased the following materials and supplies
in the processing of cooking oils during the month:

• During the month Bilimo produced 1,000 cans and 1,500 bottles of cooking oils and sold 800 cans and 1,200 bottles
to various wholesalers for P2,800,000.
• The presumptive input VAT shall be P1,200,000 x 4% = P48,000

Assuming that there are no other sources of input VAT, the VAT payable for the month shall be computed as

Illustration: Processor of sardines

• Sardinas Corporation processes hot chili-flavored sardines. During the month, Sardinas purchased the following
ingredients for the processing of canned sardine
•Sardines, including mackerel are marine products, not agricultural products. The presumptive input VAT, a tax credit
shall be construed against the taxpayer

The presumptive input VAT shall be computed from the agricultural purchases as follows

Illustration: Processor of refines sugar for others

Sugarie Corporation operates a sugar refinery for clients. During the month, it processed P10,000,000 worth of
sugarcane and produced P40,000,000 worth of sugar. Sugarie charges 10% of the production as processing charge.
• Sugarie Corporation cannot claim presumptive Input VAT because it does not own the sugar it processes.
• Sugarie shall be subject to 12% VAT on its processing fees.
• If Sugarie produces raw sugar, its processing fees shall be exempt from VA

llustration:
A VAT taxpayer made a P100,000 sales to the government invoiced at P112,000 inclusive of output VAT. The taxpayer
purchased the same for P90,000 exclusive of P10,800 input VAT.
The government will withhold P5,000 (i.e., 5% of P100,000) and release the P107,000 net proceeds of the sale to the
taxpayer. The P5,000 withheld is presumed the actual VAT payable of the seller.

What if the seller is a non-VAT registered seller? The government or GOCC shall withheld a 3% final percentage tax on
the sale before payment.

Journal Entry Method: This can be conveniently

analyzed by accounting entries as follows:
Purchase 90,000
Actual input VAT 1,800
Accounts payable/cash 100,800
To record the purchase

Cash/Receivable 107,000
Final VAT withheld (5% x P100k) 5,000
Sales 100,000
Output VAT 12,000
To record sales to the government
Output VAT 12,000
Income & Expense summary (loss) 3,800
Final VAT withheld 5,000
Actual Input VAT 10,800
To close the VAT account
What if the seller is a non-VAT registered seller?
The government or GOCC shall withheld a 1% final percentage tax on the sale before payment.

Input Tax Carry-Over