CERTIFIED TAX

TECHNICIAN REVIEW
Dr. Cedric Val R. Naranjo, CPA
Chairman, Accountancy and Finance Department
University of San Jose – Recoletos

Tax Reviewer, Team PRTC

SCHEDULE
VALUE-ADDED TAX
REGISTRATION OF BUSINESS ACTIVITY

§ SEC 236 (A) of NIRC, “Every person subject

to any tax shall register once with the
appropriate Revenue District Office”

§ SEC 236 (B) of NIRC, “An annual registration

fee in the amount of FIVE HUNDRED PESOS
for every separate or distinct establishment or 5
place of business…”
REGISTRATION OF BUSINESS ACTIVITY

▪ REGISTRATION CERTIFICATE
▫ Certificate of Registration as a proof that
taxpayer has complied with the registration
requirements.
▫ COR, together with the validated Registration
Fee, must be posted at a conspicuous place
in the principal place of business.
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7
REGISTRATION OF BUSINESS ACTIVITY

MANDATORY VAT REGISTRATION (Sec 236 G)

▪ Any person who, in the course of trade or business, sells, barters or
exchanges goods or properties or engages in the sale or exchange of
services shall be liable to register the VAT tax type if:
▪ His gross sales or receipts for the past 12 months, other than those
that are exempt, have exceeded P3,000,000.
▪ There are reasonable grounds to believe that his gross sales or
receipts for the next 12 months, other than those that are exempt,
will exceed P3,000,000.
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REGISTRATION OF BUSINESS ACTIVITY

NON VAT REGISTRATION (Sec 236)

▫ Those persons subject to OTHER
PERCENTAGE TAXES
▫ Those whose transactions are VAT-exempt
▫ Marginal income earners as herein defined.

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REGISTRATION OF BUSINESS ACTIVITY
OPTIONAL VAT REGISTRATION (Sec 236 H)
▫ Any person whose general sale of goods and services (those that are
not mandatorily subject to percentage tax) do not exceed
P3,000,000, and are not required to register for VAT may elect to be
VAT-registered.
▫ Any person who is VAT registered but enters into transactions which
are exempt from VAT may opt that the VAT apply to his transactions
which would have been exempt
▫ Franchise grantees of radio and/or television broadcasting whose
annual gross receipts of the preceding year do not exceed
P10,000,000 derived from business covered by law granting the 10
franchise may opt for VAT registration.
VALUE ADDED TA X

D R . C E D R I C V A L R . N A R A N J O , C PA
VALUE ADDED TAX
• IS AN INDIRECT BUSINESS TAX IMPOSED AND
COLLECTED ON EVERY:
– Sale, barter, or exchange of goods or properties (Real or
Personal)
– Lease of Goods or Properties
– Rendition of services in the course of trade or business
– Importation of goods (whether or not in the course of trade or
business)
VALUE ADDED TAX
• CHARACTERISTICS:
– It is a tax on value added of a taxpayer
– It is an excise tax based on consumption
– It is a national tax, imposed by the national government
– It is collected through the tax credit method
– It is an indirect tax where tax shifting is always presumed
– It is a revenue or general tax.
TAX CREDIT METHOD
VAT PAYABLE = OUTPUT VAT – INPUT VAT

• OUTPUT VAT: The VAT due on the sale or lease of taxable

goods, properties or services by any person registered or
required to register under the tax code.
• INPUT VAT: The VAT due from or paid by a VAT-registered
person in the course of his trade or business on importation
of goods or local purchase of goods, properties or services,
including lease or use of property, from a VAT registered
person.
VALUE ADDED TAX
• CLASSIFICATION OF TRANSACTIONS UNDER
THE VAT SYSTEM:
– VAT – taxable transactions
• Subject to 12% VAT rate
• Zero-rated transactions

– EXEMPT transactions
VALUE ADDED TAX
TRANSAC OUTPUT INPUT VAT VAT
TION VAT PAYABLE
Subject to
12% VAT
√ √ √
Zero-Rated NEGATIVE
Sales
X √
Exempt Sales X X X
TAX BASE
• SALE OF GOODS: Gross Selling Price
Gross Sales XXX
Less: Sales Returns XXX
Sales Allowances XXX
Sales Discounts XXX XXX
Total Net Sales XXX
Add: Excise Tax, if Any XXX
GROSS SELLING PRICE XXX
TAX BASE
• SALE OF SERVICES AND LEASE OF
PROPERTIES: Gross Receipts

Cash Received (actually or constructively) XXX

Add: Advance payments for future service XXX
Materials charges with the services XXX XXX
GROSS RECEIPTS XXX
 Sale of goods and properties
GROSS SELLING PRICE (SALES INVOICES)
– total amount of money or its equivalent which the
purchaser pays or is obligated to pay to the seller in
consideration of the sale, barter or exchange of the goods or
properties, excluding VAT. The excise tax, if any, on such
goods or properties shall form part of the gross selling price
Allowable deductions from GSP:
a. discounts determined and granted at the time of sale,
which are expressly indicated in the invoice, the amount
thereof forming part of the gross sales duly recorded in
the books of accounts
b. sales discounts indicated in the invoice at the time of
sale, the grant of which is not dependent upon the
happening of a future event, may be excluded from the
gross sales within the same month/quarter it was given
c. Sales returns and allowance for which a proper credit or
refund was made during the month or quarter to the
buyer for sales previously recorded as taxable sales
Sale of service or lease of properties
GROSS RECEIPTS (OFFICIAL RECEIPTS)
- total amount of money or its equivalent representing the
contract price, compensation, service fee, rental or royalty,
including the amount charged for materials supplied with
the services and deposits applied as payments for services
rendered and advance payments actually or constructively
received during the taxable period for the services
performed or to be performed for another person, excluding
VAT, except those amounts earmarked for payment to
unrelated third (3rd ) party or received as reimbursement for
advance payment on behalf of another which do not
redound to the benefit of the payor.
Constructive receipt occurs when the money consideration
or its equivalent is placed at the control of the person who
rendered the service without restrictions by the payor. The
following are examples of constructive receipts:
1. deposits in banks which are made available to the seller
of services without restrictions
2. issuance by the debtor of a notice to offset any debt or
obligation and acceptance thereof by the seller as
payment for services rendered; and
3. transfer of the amounts retained by the payor to the
account of the contractor.
INVOICE VS. OFFICIAL RECEIPT

Sale of Invoice
Goods

Sale of Official
Service Receipt
TRANSACTIONS
SUBJECT TO
12% VAT
TRANSACTIONS SUBJECT TO 12% VAT
• Sale of Goods
– Based on GROSS SELLING PRICE
• Sale of Services
– Based on GROSS RECEIPTS
• Sale and Lease of Properties
• Transactions Deemed Sale
TRANSACTIONS DEEMED SALE

• Transfer, Use or consumption not in the course of

business of goods or properties originally intended
for sale or for use in the course of business.

– There must be a transfer of ownership

– If the property donated is an ordinary asset, the completed gift is VATABLE.
TRANSACTIONS DEEMED SALE

• Distribution or transfer to:

–Shareholders or investors share in the profits of
VAT-registered persons
• In the form of Property Dividends

–Creditors in payment of debt or obligation

• Dacion en pago arrangement
TRANSACTIONS DEEMED SALE

• Consignment of goods if actual sale is not made

within 60 days following the date such goods were
consigned.
– To prevent taxpayer from deferring recognition of output VAT by non-
reporting or delayed reporting of the sales.
TRANSACTIONS DEEMED SALE

• Retirement from or cessation of business

–All goods on hand whether capital goods, stocks in trade,
supplies or materials as of the date of cessation
–Whether or not the business is continued by the new
owner or successor.
TRANSACTIONS DEEMED SALE

• Cessation of status as a VAT-registered person

–Change of activity from VAT-taxable to VAT-exempt
–Cancellation of registration due to
• revert to exempt status after the lapse or 3 consecutive
years
• Failure of the taxpayer to exceed the gross sales/receipts
during the twelve months of operations.
TRANSACTIONS DEEMED SALE

• NOT considered as Deemed Sale

–Change of control of a corporation by the acquisition of the
controlling interest of such corporation by another
stockholder or group of stockholder
–Change in the trade or corporate name of the business
–Merger or consolidation of corporations
TRANSACTIONS DEEMED SALE -
EXAMPLE
• Luis, owner of a Merchandising Center, reported a total sales of
goods, exclusive of Value-added tax of P3,800,000. During the year,
Luis used goods intended for sale amounting to P180,000 for
various parties he celebrated. How much is subject to VAT? How
much is the OUTPUT VAT?
• Cebu Household Center is a distributor of various appliances.
During the month of July of the current taxable year, it distributed
15 units of 52-inch television set to its shareholders as payment of
dividends. The 18 units are sold to the market at P32,000. How
much is subject to VAT and its corresponding Output Vat?
TRANSACTIONS DEEMED SALE -
EXAMPLE
• Cebu Company is a wholesaler/retailer of RTW. The
consignment data showed the following:
– Consignment to Mandaue City (1 to 30 days) = P 200,000
– Consignment to Lapulapu City (31 to 60 days) = P220,000
– Consignment to Carcar City (61 to 90 days) = P 260,000
– Consignment to Naga City (over 90 days) = P150,000

Fort he month, the consignment to Mandaue has a sale of

P120,000. What is the amount subject to VAT? How much is the
Output VAT?
SALE OF PROPERTIES

• BASIS: Whichever is HIGHER:

– Consideration – VAT inclusive, unless stated

– Fair Market Value of the Property – VAT exclusive
SALE OF PROPERTIES

• TIME OF REPORTING

– LUMP SUM PAYMENT: In the month of sale

– INSTALLMENT PAYMENT: The OUTPUT VAT may be reported
in installment provided that:
• Initial Payment do not exceed 25% of the SELLING PRICE.
• OUTPUT VAT to be REPORTED =
Payments / Contract Price x OUTPUT VAT
 VAT EXEMPT
TRANSACTIONS
EXEMPT SALES
• EXEMPT consumption of goods or services from domestic sellers.
Exempt sales ARE NOT SUBJECT to VAT and Percentage Tax.
• Hence,
– VAT taxpayers making exempt sale of goods, properties, or services
shall not bill any output VAT to their customers because the sale is
not subject to VAT
– A non-VAT person making exempt sales shall not be subject to the
3% percentage tax on the sales or receipt
VAT-EXEMPT TRANSACTIONS -GOODS
• AGRICULTURAL OR MARINE FOOD PRODUCTS AND
INPUTS
– Sale and importation of agricultural and marine food products in
their original state, livestock and poultry of a kind generally used
as, or yielding or producing foods for human consumption; and
breeding stock and genetic materials therefore.
SALE OF AGRICULTURAL MARINE AND
FOOD PRODUCTS IN ORIGINAL STATE
• ORIGINAL STATE
– Unprocessed or undergoes a SIMPLE PROCESS of:
• Preparation for the market
– Boiling , Broiling, Husking, Roasting, Stripping, Grinding
• Preservation
– Freezing, Drying, Salting, Smoking
• Packaging, including advanced technological means of packaging
VAT-EXEMPT TRANSACTIONS -GOODS
• AGRICULTURAL OR MARINE FOOD PRODUCTS AND
INPUTS

– Sale and importation of fertilizers; seeds, seedlings, and

fingerlings; fish, prawn, livestock and poultry feeds, including
ingredients, whether locally produced or imported, used in the
manufacture of finished feeds (except specialty feeds for race
horses, fighting cocks, aquarium fish, zoo animals and other
animals generally considered as pets)
SALE OF FERTILIZERS…..
• Sale of Certain Farm of Fishery Inputs
– For plants or fruits cultivation: fertilizers, seeds and seedlings

– For animal husbandry: livestock, feeds, and ingredients for livestock and poultry
feeds (except if ingredients which may also be used for the production or
processing of food for human consumption is vatable)

– For fishery operations: fingerlings, fish and prawn

SALE OF FEEDS…..
• Sale of Feeds

– Feeds/Feeds’ ingredients capable of human consumption shall be subject to 12%

VAT

– Certification from Bureau of Animal Industry that it is NOT fit for human
consumption.
VAT-EXEMPT TRANSACTIONS -GOODS
• OTHER EXEMPT TRANSACTIONS

– Sale and importation of books, newspapers and magazines,

review or bulletin, or any such educational reading
material covered by United Nations Educational, Scientific, and
Cultural Organization (UNESCO) agreement on the
importation of educational, scientific and cultural materials,
including the DIGITAL or ELECTRONIC FORMAT
• Not devoted principally to the publication of paid advertisements.
• Compliant with the requirements setforth by the National Book
Development Board pursuant to RA 8047
VAT-EXEMPT TRANSACTIONS -GOODS
• OTHER EXEMPT SALES

– Passenger or cargo vessels and aircrafts including engines, equipment,

and spare parts thereof for domestic or international transport
operations (also importation)
• Subject to the requirements on restriction on vessel importation and
mandatory vessel retirement program of the MARINA
– Passenger or cargo vessels – 15 years
– Tankers – 10 years
– High speed passenger crafts – 5 years
VAT-EXEMPT TRANSACTIONS -GOODS
• SALE OF COOPERATIVES

– AGRICULTURAL COOPERATIVES
• Sale to members – EXEMPT
• Sale to non-members – EXEMPT if the producer of the agricultural
products sold is the cooperative itself.
• Importation of direct farm inputs, machineries and equipment, including
spare parts thereof, to be used directly and exclusively in the
production and/or processing of their produce. - EXEMPT
• REMEMBER: Sale of agricultural products in their original state is
exempt
VAT-EXEMPT TRANSACTIONS -GOODS
• SALE OF COOPERATIVES

– NON-AGRICULTURAL, NON-ELECTRIC AND NON-CREDIT

COOPERATIVES
• Share capital contribution of each member does not exceed P15,000
and regardless of the aggregate capital and net surplus ratably
distributed among members.
VAT-EXEMPT TRANSACTIONS -GOODS
• SALE OF REAL PROPERTIES
– SALE OF REAL PROPERTIES
• By a person NOT engaged in the realty business
• By a person ENGAGED in the realty business which complies
with statutory price ceilings
– Exemption applies to:
• Real property classified as capital assets of VAT taxpayers
• Any real properties of NON-VAT taxpayers
• Any real properties of persons not engaged in business
VAT-EXEMPT TRANSACTIONS -GOODS
• SALE OR LEASE OF REAL PROPERTIES
– SALE OF REAL PROPERTIES
• By a person ENGAGED in the realty business which complies
with statutory price ceilings (if sale of adjacent lots within 12-
month period in favor of ONE buyer shall be treated as one)
– Utilized for Socialized Housing Unit
– Low Cost Housing – ALREADY SUBJECT TO VAT
EFFECTIVE JAN 1 2021
– Residential Lot – P1,919,500/ unit - ALREADY SUBJECT TO
VAT EFFECTIVE JAN 1 2021
– Residential Dwelling – P 3,199,200 / unit
VAT-EXEMPT TRANSACTIONS -GOODS
• EXPORT SALE OF NON-VAT TAXPAYERS
• SALES EXEMPT UNDER TREATIES, INTERNATIONAL
AGREEMENTS OR SPECIAL LAWS
– Entities granted VAT exemption under special laws or international
agreements to which the Philippines is a signatory.
• SALE OF GOLD TO THE BANGKO SENTRAL NG
PILIPINAS
VAT-EXEMPT TRANSACTIONS -GOODS
• IMPORTATION of PERSONAL and HOUSEHOLD
EFFECTS
– Belonging to residents of the Philippines returning from abroad OR
non-resident citizens coming to resettle in the Philippines
– Such goods are exempt from customs duties under the Tariff and
Customs Code of the Philippines
VAT-EXEMPT TRANSACTIONS -GOODS
• IMPORTATION of PROFESSIONAL INSTRUMENTS AND
IMPLEMENTS,TOOLS OF TRADE, OCCUPATION OR
EMPLOYMENT, WEARING APPAREL, DOMESTIC ANIMALS,
AND PERSONAL AND HOUSEHOLD EFFECTS
– Belonging to persons coming to resettle in the Philippines or Filipinos or
their families and descendants who are now residents or citizens of other
countries, such parties herein referred to as overseas Filipinos
– In quantities and of the class suitable to the profession, rank or position of
the persons importing the said items
– For their own use and not for barter or sale, accompanying such persons,
or arriving within a reasonable time.
VAT-EXEMPT TRANSACTIONS -GOODS
• MEDICINE
– Diabetes, High Cholesterol, Hypertension (January 1, 2019)
– Cancer, Mental Illness, Tuberculosis, Kidney Diseases (January 1, 2021)
– Drugs and Vaccines prescribed directly used for COVID 19 treatment
(January 1 2021 to December 31, 2023)
– Medical devices directly used for COVID 19 treatment (January 1 2021 to
December 31, 2023)
VAT-EXEMPT TRANSACTIONS - SERVICES
• EDUCATION
– Schools
• Accredited by DepEd, CHED and TESDA and government
educational institutions
VAT-EXEMPT TRANSACTIONS - SERVICES
• EMPLOYMENT
– Services performed by individuals in pursuant to an employer
and employee relationship.
• Professional practitioners, consultants, talents, TV artists, brokers
and agents are not employees, hence, subject to business tax.

– Director’s Fees
• Not subject to Business Tax even if the Director is not an employee of
a corporation.
VAT-EXEMPT TRANSACTIONS - SERVICES
• SERVICES BY AGRICULTURAL CONTRACT GROWERS
AND MILLING FOR OTHERS OF PALAY INTO RICE,
CORN INTO GRITS, AND SUGAR CANE INTO RAW
SUGAR
– AGRICULTURAL CONTRACT GROWER – refers to persons
producing for others poultry, livestock or other agricultural and
marine food products in their original state.
– Milling services for the processing of agricultural produce for
ultimate human consumption are specifically exempted.
VAT-EXEMPT TRANSACTIONS - SERVICES
• LEASE OF REAL PROPERTIES

– Lease of Residential Dwelling not exceeding P15,000 a unit per

month.
– Regardless of the amount of aggregate rentals received by the
lessor during the year.
– VATABLE: Prepaid Rent and Security Deposit (applied to rental)
– NON-VAT: Loan to the lessor, Option Money, Security Deposit
(not applied to rental)
VAT-EXEMPT TRANSACTIONS - SERVICES
• COOPERATIVES
– Lending, marketing or multi-purpose cooperatives
– Members and non-members
– Non-lending activities – SUBJECT TO 12% VAT
VAT-EXEMPT TRANSACTIONS - SERVICES
• HEALTH OR HOSPITAL SERVICES
– Medical, Dental, Hospital and Veterinary Services, except those
rendered by professional

– Sales of drug by a hospital drug store (for in-patients only)

VAT-EXEMPT TRANSACTIONS - SERVICES
• HOME OWNER’S ASSOCIATION OR CONDOMINIUM
CORPORATION
– Purely reimbursement basis

• TREATY-EXEMPT SALES OF SERVICES

VAT-EXEMPT TRANSACTIONS - SERVICES
• TRANSPORTATION
– Transport of PASSENGERS by INTERNATIONAL CARRIERS
– Importation of FUEL, GOODS and SUPPLIES by persons engaged in
international shipping and air transport operations
VAT-EXEMPT TRANSACTIONS - SERVICES
• REGIONAL OR AREA HEADQUARTER OF A
MULTINATIONAL COMPANY
– Services rendered by REGIONAL OR AREA HEADQUARTERS
• Established in the Philippines
• By multinational corporations
• Supervisory, Communications and coordinating centers for their affiliates,
subsidiaries or branches in the Asia Pacific Region and do not derive income
from the Philippines.
VAT-EXEMPT TRANSACTIONS - SERVICES
SALES OF SERCICES TO SENIOR CITIZENS AND
PERSONS WITH DISABILITY
– Lodging establishments
– Hospital and clinic
– Sports and recreation centers
– Restaurants such as eating places offering regular or special menus
– Land, air, and sea travel
– Medical, dental, diagnostic and laboratory fees and professional
medical fees
– Funeral or burial services
VAT-EXEMPT TRANSACTIONS - SERVICES
• OTHERS
– Those that are subject to OTHER PERCENTAGE TAXES
INPUT VAT
 INPUT VAT

The VAT due from or paid by a VAT-registered person in the

course of his trade or business on importation of goods or local
purchase of goods, properties or services, including lease or use of
property, from a VAT registered person.
 RULES IN CLAIMING
INPUT VAT
• Must be separately reflected in the VAT invoice or
official receipts issued by a VAT REGISTERED
supplier.
• Must be paid or incurred in the course of trade or
business
• Incurred in relation to VATable sales and not from
exempt sales
WHO CAN CLAIM INPUT VAT CREDITS

• Importer upon payment of VAT prior to release of

the goods from Customs custody
• Purchaser of the domestic goods or properties
upon consummation of sale
• Purchaser of service upon payment of the
compensation, rental, royalty or fee
 TYPE OF CLAIMABLE INPUT VAT

• Regular Input VAT

• Transitional Input VAT
• Presumptive Input VAT
• Amortized or Deferred VAT (until 12.31.21)
• Standard Input VAT (until 12.31.20)
 REGULAR INPUT VAT
• Purchase or importation of goods intended for:
– Sale
– Conversion into or to form part of a financial product for sale,
including packaging materials
– Use as supplies in the course of business
– Use as raw materials supplied in the sale of services
– Use in trade or business for which deduction for depreciation
or amortization is allowed
• Purchases of real properties for which VAT has actually been
paid
• Purchases of services in which VAT has actually been paid.
 REGULAR INPUT VAT - EXAMPLE
Princess Merchandise, a VAT-registered taxpayer, provided the following
information:
Local purchase of goods intended for sale
On cash basis P 150,000
On account 400,000
Purchase of packaging supplies 20,000
Returned goods due to defects 15,000
Purchase discounts granted by the seller 10,000
Gross Sales
Cash Sales 300,000
On Account 400,000
Sales returns and allowances 20,000
Inventory ending 50,000
 TRANSITIONAL INPUT VAT

• Input Tax allowed for a taxpayer who elected to be a

VAT-registered person from being a NON-VAT
person.
• TRANSITIONAL INPUT
2% value of ending inventory
Actual VAT paid
 WHAT IS THE BASIS OF THE 2%
• ENDING INVENTORY at the time the taxpayer
shifted to VAT.
–Ending inventory when sold will be subject to VAT
–Regardless from where the inventory was purchased
(VATable or NON-VATable supplier)
–Gross amount of the inventory
 TRANSITIONAL INPUT VAT - EXAMPLE
Princess Merchandising becomes liable to the VAT
system during the current taxable year since the
gross sales from the past 12 months are more than
P3,000,000. At the beginning of the year, the inventory
has a current value of P250,000 with actual input tax
on VAT purchases of P6,500. The business entity also
has a carrying value of supplies of P12,000 with
P1,440 VAT payment. How much is the amount of
transitional input tax to be charged against the output
tax?
 PRESUMPTIVE INPUT TAX
• Presumptive input tax is provided to a limited number
of taxpayers engaged in the manufacture of goods
where the inputs to the production make use of
primary agricultural products.
–Processors of sardines, mackerel, and milk
–Manufacturers of refined sugar and cooking oil
–Manufacturers of packed noodles
• HOW MUCH? 4% of GROSS VALUE OF PRIMARY
AGRICULTURAL PRODUCTS
 PRESUMPTIVE INPUT VAT - EXAMPLE
Sardines Processing Company has the following data:
Local sales P 780,000
Export Sales ($1=P40) $ 10,000
Fishes purchased from various fishermen P 350,000
Cans from supplier, exclusive of VAT, used
for local and export sale 40,000
Oil, tomato paste, and other ingredients
from supplier, exclusive of VAT, used for
local and export sale 32,000
Onions, pepper, and garlic from various
farmers, used for local and export sales 20,000
Packaging materials and labels from suppliers
exclusive of VAT, used for local and export sales 10,000
 AMORTIZED OR DEFERRED VAT
• Allowable for purchase of Capital Goods

• Capital Goods – refer to goods or properties with

estimated useful life greater than one year and which
are treated as depreciable assets used directly or
indirectly in the production or sale of taxable goods or
services.
 AMORTIZED OR DEFERRED VAT
• GUIDELINES
– If the cost of capital goods, exclusive of VAT, is NOT
MORE THAN P1,000,000, the input tax is creditable in
the month of purchase.
– If MORE THAN P1,000,000
• Capital goods with useful life of less than 5 years: The input
tax is apportioned over its useful life in months
• Capital goods with useful life of more than 5 years: The input
tax is apportioned over 60 months OLD
 INPUT VAT ON CAPITAL GOODS
• GUIDELINES
–Effective January 1, 2022 - - -> amortization is no
longer allowed. Thus, input VAT attributable to purchase
of capital goods shall be claimed month/quarter of
purchase, regardless of the acquisition cost.
–Taxpayers with unamortized input VAT from purchases
prior to January 1, 2022 - - > shall continue amortizing
until fully utilized.
NEW
 AMORTIZED/DEFERRED VAT - EXAMPLE
In October 2020, Clouds Company made the
following purchases of capital goods exclusive of VAT:

Machine A, useful life of 3 years P 500,000

Machine B, useful life of 8 years 900,000
Machine C, useful life of 4 years 1,200,000
Machine D, useful life of 8 years 2,500,000
INPUT TAX SALE TO THE GOVERNMENT
• Sale to the government or any of its political
instrumentalities is subject to 12% of output value-
added tax.
• Input tax that can be directly attributed to VAT
taxable sales of goods and services to the
government or any of its political subdivisions not
be a credited against output tax arising from sales to
non-government units.
 INPUT TAX: SALE TO THE
• RULES:
GOVERNMENT
– Government or any of its political subdivisions
SHALL deduct and withhold a final VAT due at the
rate of 5% (effective January 1, 2021 - - it shall shift
from FINAL to CREDITABLE withholding VAT)
 INPUT TAX: SALE TO THE GOVERNMENT
Reven Enterprises, a VAT-registered taxpayer,
presented the following data for August 2021
(exclusive of VAT):
Sales Purchases
Local sales to private entities 280,000 200,000
Local sales to government 112,000 80,000

How much is the VAT payable?

 INPUT TAX: MIXED TRANSACTIONS
• RULES:

– SPECIFIC IDENTIFICATION
–PRO-RATA ALLOCATION
 INPUT TAX: MIXED TRANSACTIONS -
EXAMPLE
A VAT taxpayer had the following sales and purchases:
SALES Direct Purchases
Private Sales 1,000,000 400,000
Export Sales 900,000 250,000
Sales to Gov’t 600,000 340,000
Exempt Sales 500,000 280,000

The taxpayer purchased the following items which are not directly attributable
to any of the transactions.
• Machineries P 2,000,000
• Rental of Warehouse 500,000
 VAT PAYABLE: FILING
• VAT returns must be filed and VAT Payable be paid on a Monthly
(2550M) and Quarterly Basis (2550 Q). OLD
• Deadline:
– Monthly VAT return – 20th day of the following month
– Quarterly VAT return – 25th day of the month after the close of
the quarter
• NEW = QUARTERLY ONLY
• VAT CREDIT:
– Monthly VAT Payments (for quarterly returns)
– Creditable VAT Withheld
– Advance Payment for Sugar and Flour Industries
– VAT Paid in previously filed returns, if amended
– Advance Payments
ZERO-RATED SALE
Zero-rated Sale of Goods or Properties
 Export Sales
1. The sale and actual shipment of
goods from the Philippines to a
XYZ Corp.
foreign country, irrespective of any Buyer
shipping arrangement, paid for in (Canada)
acceptable foreign currency or its
equivalent in goods or services, and
accounted for in accordance with the
rules and regulations of the Bangko $1,000,000.00
Sentral ng Pilipinas (BSP) ABC Corp.
Seller
Requisites: (PHI)
• Actual shipment from Phils to abroad
• Paid for in acceptable foreign currency
• Currency accounted by the BSP
 Export Sales
2. The sale of goods, supplies, equipment and fuel to persons engaged in
international shipping or international air transport; provided, that the goods,
supplies, equipment and fuel have been sold and used for international
shipping or air transport operations

The sale of goods, supplies, equipment and fuel to persons engaged in

international shipping or international air transport operations is limited to
goods, supplies, equipment and fuel that shall be used in the transport of
goods and passengers from a port in the Philippines directly to a foreign port,
or vice versa, without docking or stopping at any other port in the Philippines
unless the docking or stopping at any other Philippine port is for the purpose
of unloading passengers and/or cargoes that originated from abroad, or to
load passengers and/or cargoes bound for abroad: Provided, further, that if
any portion of such fuel, goods, supplies or equipment is used for purposes
other than that mentioned in this paragraph, such portion of fuel, goods,
 Export Sales
3. Sales to persons or entities whose exemption from direct and
indirect taxes under special laws or international agreements to
which the Philippines is a signatory effectively subjects such sales to
zero rate.

Examples:
• Asian Development Bank (ADB)
• International Rice Research Institute (IRRI)
• Renewable Energy Developers under Renewable Energy Act
 Export Sales
4. Sale of raw materials, inventories, supplies, equipment,
packaging materials, and goods, to a registered export enterprise,
to be used directly and exclusively in its registered project or
activity pursuant to CREATE Law for a maximum period of
seventeen (17) years from the date of registration, unless otherwise
extended under Strategic Investment Priority Plan (SIPP)

The registered export enterprise shall refer to an export enterprise

that is also a registered business enterprise (RBE).

Sales to existing registered export enterprises located inside

ecozones and freeport zones shall also be qualified for VAT zero-
rating until the expiration of the transitory period (CREATE)
 Export Sales
5. Sales to offshore gaming licensees (RA 11590) who are subject to
5% gaming tax

Sale of goods used in non-gaming operations are not subject to 0%

rate hence subject to 12%
Zero-rated Sale of Goods
Scenario 1: 12% or 0%? Scenario 2:

Embassy of Embassy of
Canada Canada
(Buyer) (Seller)

$1,000,000.00 $1,000,000.00
ABC Corp. ABC Corp.
Seller Buyer
(PHI) (PHI)
 Additional Zero-Rate Sale and Exemptions under CREATE
Value-added Tax (VAT) zero-rating and exemption
The VAT exemption on importation and VAT zero-rating on local purchases
shall only apply to goods and services directly and exclusively used in the
registered project or activity of a registered export enterprise, for a maximum
period of seventeen (17) years from the date of registration, unless otherwise
extended under the SIPP.

The direct and exclusive use for the registered project or activity refers ta
raw materials, inventories, supplies, equipment, goods, packaging materials,
services, including provision of basic infrastructure, utilities, and maintenance,
repair and overhaul of equipment, and other expenditures directly
attributable to the registered project or activity without which the registered
project or activity cannot be carried out; Provided, Thot the VAT zero-rating on
local purchases shall be granted upon the endorsement of the concerned IPA,
in addition to the documentary requirements of the BIR.
 Previously Zero-rated Sale of Goods or
Properties which are now subject to 12%
Below are previously considered 0% sales but now subject to 12% beginning December
10, 2021 and covers transactions entered into in the third quarter of Taxable Year 2021
and onwards.
 Transition from 0% to 12%
Shift was due to satisfaction of the following conditions under
TRAIN Law:
• There is a successful establishment and implementation of an
enhanced VAT refund system that grants refunds of creditable
input tax within 90 days from the filing of the VAT refund
application with the Bureau.
• All pending VAT refund claims as of December 31, 2017 shall
be fully paid in cash by December 31, 2019.
 From 0% to 12% VAT
1. Sale of raw materials or packaging
materials to a nonresident buyer for XYZ Corp.
delivery to a resident local export- $1 Million Buyer
oriented enterprise to be used in (Canada)

manufacturing, processing, packing or

repacking and paid for in acceptable
foreign currency and accounted for in
accordance with the rules and regulations
of the Bangko Sentral ng Pilipinas (BSP) ABC Corp. DEF Corp.
Requisites: Seller Manufacturer
(PHI) (PHI)
• Goods sold to non-residents
• Paid for in acceptable foreign currency
• Currency accounted by the BSP Delivered to
 From 0% to 12% VAT
2. Sale of raw materials or
packaging materials to export-
oriented enterprise whose export XYZ Corp.
Buyer
sales exceed seventy percent (Canada)
(70%) of total annual production $1,000,000.00

Notes:
• No requirements of paying ABC Corp. DEF Corp.
Seller/Exporter
foreign currency Seller
Buyer fr ABC
(PHI)
(PHI)

P1,000,000.00
 From 0% to 12% VAT
3. Export sales under EO 226
a. Sale of export producer to another export producer or to an export
trader that subsequently export the same
b. Even without actual exportation:
• Sales to bonded manufacturing warehouses of export-oriented
manufacturers
• Sales to export processing zones (BOI-registered manufacturers or
producers)
• sales to registered export traders operating bonded trading warehouses
supplying raw materials in the manufacture of export products
• sales to diplomatic missions and other agencies and or instrumentalities
granted tax immunities, of locally manufactured, assembled or repacked
products whether paid for in foreign currency or not
Zero-rated Sale of Service
 Zero-rated Sale of Service
1. Services other than those mentioned in the
preceding paragraph, rendered to a person
engaged in business conducted outside the XYZ Corp.
Philippines or to a nonresident person not Buyer
engaged in business who is outside the (Canada)
Philippines when the services are
performed, the consideration for which is
paid for in acceptable foreign currency and
accounted for in accordance with the rules
and regulations of the Bangko Sentral ng $1,000,000.00
Pilipinas (BSP) ABC Corp.
Seller
Requisites: (PHI)
• Service was rendered to non-residents
• Paid for in acceptable foreign currency
• Currency accounted by the BSP
Note: Still zero-rate due to RR 15-2021
 Zero-rated Sale of Service
2. Services rendered to persons engaged in international shipping
or international air transport operations, including leases of
property for use thereof: provided, that these services shall be
exclusively for international shipping or air transport operations

Thus, the services referred to herein shall not pertain to those

made to common carriers by air and sea relative to their transport
of passengers, goods or cargoes from one place in the Philippines to
another place in the Philippines, the same being subject ta twelve
percent (12%) VAT under Sec. 108 of the Tax Code.
 Zero-rated Sale of Service
3. Services rendered to persons or entities whose exemption from
direct and indirect taxes under special laws or international
agreements to which the Philippines is a signatory effectively
subjects the supply of such services to zero percent (0%) rate
 Zero-rated Sale of Service
4. Sale of services, including provision of basic infrastructure,
utilities, and maintenance, repair and overhaul of equipment, to a
registered export enterprise, to be used directly and exclusively in
its registered project or activity pursuant to CREATE Law for a
maximum period of seventeen (17) years from the date of
registration unless otherwise extended under the SIPP

The registered export enterprise shall refer to an export enterprise

that is also a registered business enterprise (RBE).

Sales to existing registered export enterprises located inside

ecozones and freeport zones shall also be qualified for VAT zero-
rating until the expiration of the transitory period (CREATE)
 Zero-rated Sale of Service
5. Transport of passengers and cargo by domestic air or sea vessels
from the Philippines to a foreign country

Note: Gross Receipts of international air or shipping carriers doing

business in the Philippines derived from transport of passengers and
cargo from the Philippines to another country is VAT-exempt but subject
to 3% percentage tax

6. Sale of power or fuel generated through renewable sourced of

energy such as but not limited to biomass, solar, wind, hydropower,
geothermal, ocean energy, and other emerging energy sources
using technologies such as fuel cells and hydrogen fuels.
Previously Zero-rated Sale of Services
which are now subject to 12%
Below are previously considered 0% sales but now subject to 12% beginning
December 10, 2021 and covers transactions entered into in the third quarter of
Taxable Year 2021 and onwards.
 Transition from 0% to 12%
Shift was due to satisfaction of the following conditions under
TRAIN Law:
• There is a successful establishment and implementation of an
enhanced VAT refund system that grants refunds of creditable
input tax within 90 days from the filing of the VAT refund
application with the Bureau.
• All pending VAT refund claims as of December 31, 2017 shall
be fully paid in cash by December 31, 2019.
 From 0% to 12% VAT
1. Processing, manufacturing or
repacking goods for other persons doing
business outside the Philippines which XYZ Corp.
Buyer
goods are subsequently exported, where (Canada)
the services are paid for in acceptable
foreign currency and accounted for in
accordance with the rules and
regulations of the Bangko Sentral ng
Pilipinas (BSP) $1,000,000.00
ABC Corp.
Requisites: Seller
(PHI)
• Service was rendered to non-residents
• Paid for in acceptable foreign currency
• Currency accounted by the BSP
 From 0% to 12% VAT
2. Services performed by subcontractors and/or contractors in
processing, converting, or manufacturing goods for an
enterprise whose export sales exceed seventy percent (70%) of
total annual production
Percentage Taxes
Percentage Tax
- a business tax imposed on persons, entities, or transactions specified
under Sections 116 to 127 of the National Internal Revenue Code of 1997
(also known as Tax Code), as amended, and as required under special
laws.

- a tax imposed on sale, barter or exchange of goods or sale of services

based upon gross sales, value in money or receipts (except insurance
companies) derived by the manufacturer, producer, or seller measured by
certain percentage of the gross selling price or receipts.
Percentage Tax
BASIS OF TAX
The tax is based on gross sales, receipts or earnings except on insurance companies
where the basis of tax is the total premium collected/paid.

"Gross receipts" means all amounts received by the prime or principal contractor,
undiminished by any amount paid to any subcontractor under a subcontract
arrangement.

For the purpose of the amusement tax, the term “gross receipts” embraces all the
receipts of the proprietor, lessee or operator of the amusement place. Said gross
receipts also include income from television, radio and motion picture rights, if any.

Characteristics of Percentage Tax:

1. It is a business tax
2. It is a form of sales tax
3. It is a deduction from gross income
 Percentage Tax in NIRC Tax Base Tax Rate

Sec. 116 – Tax on persons exempt from

VAT or whose annual gross sales or
receipts do not exceed P3 Million. Quarterly Gross Sales or 1%
Receipts July 1, 2020 to
June 30, 2023
(Old Rule – monthly)
3%
January 1,
1998 to June
30, 2020

3%
July 1, 2023
Notes
1. Applicable to individuals and non-individuals including estates, trusts, partnerships
and corporations
2. Persons, who are not VAT-registered, who sell goods, properties or services, whose
annual gross sales and/or receipts do not exceed three million pesos
(Php3,000,000.00) and are exempt from value-added tax (VAT) under Section 109
(CC) of the National Internal Revenue Code, as amended by Republic Act (RA) No.
10963.
3. Persons who lease residential units where the monthly rental per unit exceeds fifteen
thousand pesos (Php15,000.00) but the aggregate of such rentals of the lessor
during the year does not exceed three million pesos (Php3,000,000.00)
4. Self-employed individuals who availed 8% preferential tax is not subject to 1% (3%)
percentage tax
5. Cooperatives are exempted
6. RC, NRC, RA, NRAE whose business income was subjected to graduated tax rate
may be subject to 1% tax (old rate 3%)
7. CREATE LAW: Effective April 11, 2021
 Percentage Tax in NIRC Tax Base Tax
Rate
Sec. 117 – Percentage tax on domestic carriers
and keepers of garage (transport of passengers) Common Carriers Tax is actual or minimum 3%
monthly gross receipts whichever is higher
Notes:
1. Applicable to the following: Note:
• Cars for rent or for hire Table of monthly or quarterly gross receipts
• Transport contractors of passengers per Unit Carrier as updated under Revenue
• Keepers of garages Regulations No. 9-2007 is suspended.
2. Does not apply to:
• Owner of bancas • Applicable to:
• Animal-drawn two-wheeled vehicles • Jeepneys for hire
3. Domestic air or sea are subject to VAT • Public utility buses
4. Transport Network Companies or Transport • Taxis
Network Vehicle System (Grab/Uber) are treated • Cars for hire
as follows:
• With Certificate of Public Convenience
(franchise) subject to 3%
• Without CPC, may be 3% or 12% VAT
depending on the gross receipts (P3M)
 Percentage Tax in NIRC
Sec. 118 – Percentage tax on
international carriers
Sec. 119 – Tax on franchises
Note: electric utilities are
subject to 12% VAT
Tax Base Tax
Rate
Gross receipts
NOTE: If with reciprocity, it can be exempted 3%
or be subjected to lower than 3%
Franchise tax is based from Gross receipts:
Franchises on radio and/or TV broadcasting 3%
companies whose annual gross receipts of
the preceding year do exceed Php 10 Million
----------------------------------------------------------- -----
Franchises on gas and water utilities 2%
------------------------------------------------------------- ------
Gaming operations of PAGCOR 5%
------------------------------------------------------------- ------
Transmission operation of National Grid 3%
Corporation of the Philippines
 Percentage Tax in NIRC
Sec. 120 – Tax on overseas dispatch,
message or conversation originating from the
Philippines
Tax Base Tax
Rate
Overseas Communication Tax is based on
the amount paid for such services (by the
person who used the communications 10%
facilities)
Exceptions:
a. government to gov’t calls
b. diplomatic services (embassies and
consular offices of foreign
governments)
c. international organizations – for
messages transmitted by international
organization or any of its agencies
based on the Philippines enjoying
privileges, exemptions and immunities
which the Philippine Government
recognize pursuant to international
agreements
d. news services
 Percentage Tax in NIRC Tax Base Tax
Rate
Sec. 121 – Tax on banks and non-bank financial Gross receipts tax is based from:
intermediaries performing quasi-banking functions Gross receipts on interest, commissions and
discounts from lending activities; income from financial
Notes: leasing:
1. Banks refer to persons and entities engaged in lending Remaining maturity period of instrument is 5 years or
funds obtained from public. less 5%
2. Non-bank financial intermediaries are persons or -------------------------------------------------------------- ---------
entities whose principal functions include lending, Remaining maturity period of instrument is more than -
investing or placement of funds or evidences of 5 years 1%
indebtedness or equity deposited with them, acquired ------------------------------------------------------------- ----------
by them, or otherwise coursed through them, with or for Dividends and equity shares in net income of 0%
their own account or for the account of others subsidiaries;
3. This rule applies to Money changers ------------------------------------------------------------- ----------
Royalties, rentals of property, real or personal, profits
from exchange and all other items treated as gross 7%
income under the Tax Code
------------------------------------------------------------- ----------
Net trading gains within the taxable year on foreign
currency, debt securities, derivatives and other 7%
similar financial instruments
 Percentage Tax in NIRC Tax Base Tax
Rate
Sec. 122 – Tax on other non-bank financial Gross receipts derived from interest,
intermediaries (not performing quasi-banking commissions, discounts and all other items 5%
functions) treated as gross income under the Tax
Code
Notes: This rule applies to: -------------------------------------------------------- --------
1. Pawnshops Interests, commissions and discounts from
2. Non-stock Savings and Loan lending activities, as well as income from
Associations financial leasing: 5%

Remaining maturity of instrument is 5

years or less
-------------------------------------------------- --------
Remaining maturity of instrument is more 1%
than 5 years
 Percentage Tax in NIRC Tax Base Tax
Rate
Sec. 123 – Tax on life insurance premiums Total premiums collected 2%

Exceptions:
1. Purely cooperative companies
2. Premiums refunded within 6 months after payment
3. Reinsurance by a company (local or foreign) that
has already paid the tax
4. Premiums of insured who is non-resident and taxes
are paid abroad
Note: Premium on Health and Accident Insurance,
whether received by a life or non-life insurance
company, shall be considered as premium on life
insurance and, therefore, likewise subject to Premium
Tax and not Value-added Tax.

Sec. 124 – Tax on agents of foreign insurance Total premiums collected/paid (twice of 4%
companies (fire, marine or miscellaneous insurance) Sec. 123)
----------------------------------------- -----
Owners of property obtain insurance 5%
directly with foreign insurance
companies
 Percentage Tax in NIRC Tax Base Tax
Rate
Sec. 125 – Amusement taxes Gross receipts

Jai-alai and race track 30%

------------------------------------------- ------
Cockpits, cabarets, night or day 18%
clubs
---------------------------------------------- ------
Professional basketball games 15%
-------------------------------------------- ------
Boxing exhibitions 10%
------------------------------------------------- ------
Videoke, karaoke, karaoke boxes, 18%
music lounges
 Percentage Tax in NIRC
Sec. 126 – Tax on winnings on race
horses
Tax Base Tax
Rate
Bettor: Winning or dividends less 10%
cost of the ticket
--------------------------------------------- ------
Bettor: Winnings or dividends less
cost of ticket from double, 4%
forecast/quinella and trifecta bets
--------------------------------------------- ------
Owner of horse: Prize of winning 10%
race horse owners
 Percentage Tax in NIRC Tax Base Tax
Rate
Sec. 127
(A) Tax on sale, barter or exchange of shares of Stock Transaction Tax: 6/10
stock listed and traded through the local stock Gross selling price or gross value in money of 1%
exchange
---------------------------------------------------- ------------------------------------------------ ------
(B) Tax on shares of stock sold or exchanged Gross selling price or gross value in money in
through public offerings accordance with the proportion of shares of
stock sold, bartered, exchanged or otherwise 4%
disposed to the total outstanding shares of
stock after listing in the local stock exchange
Up to 25%
-------------------------------------------- ------
Over 25% but not over 33 1/3% 2%
----------------------------------------- ------
Over 33 1/3% 1%
--------------------------------------------- ---------------------------------------------- ------
Note: Bayanihan to Recover as One Act (R.A. Every sale, barter, exchange or other 0
11494) expressly repealed Sec. 127 (B) disposition through IPO of shares of stock in
closely held corporations shall no longer be
subject to the tax
 Percentage Tax Returns
Transaction Return Deadline
Section 116 – Below P3M 2551Q 25th day after the end of each taxable
Section 117 – Common carriers Quarterly quarter
Section 118 – International carriers PT Return
Section 119 – Franchise grantees
Section 120 – Overseas dispatch
Section 121 – Banks and non-banks
Section 122 – Other non-bank financial intermediaries
Section 123 - Life insurance premiums
Section 124 – Agents of foreign insurance companies
Section 125 – Amusement Places
Section 126 – Tax on Winnings 1600-WP 20th day after the end of month
Section 127 2552 within five (5) banking days from date of
1. For tax on sale of shares of stock listed and traded through the collection
Local Stock Exchange (LSE) 1. a. within thirty (30) days from date
2. a.) For shares of stock sold or exchanged through primary of listing of shares of stock in the LSE
Public Offering – REPEALED b. within five (5) banking days from
b.) For tax on shares of stock sold or exchanged through date of collection.
secondary public offering - REPEALED
Special Law (e.g. PAGCOR) 2553 On or before the due date for payments
of tax as stated in the Special Law
End of Presentation