Chapter 7: THE REGULAR OUTPUT VAT
PROPERTY is legally presumed VAT inclusive but this
Sources of Regular Output VAT (and their sources)
1. Sale of vatable goods- gross selling price, unless
reasonably lower.
2. Sale of vatable services- gross receipts.
3. Sale of vatable properties- gross selling price as
defined by BIR.
4. Transactions deemed sales- fair value of the
property deemed sold.
1. Sale of Vatable Goods
- subject to 12% VAT based on gross selling price
(gross sales) unless unreasonably lower.
Unreasonably lower- when it is lower by more than 30% of
the actual market value of the goods sold.
-if unreasonably lower, VAT shall be based on the fair
value of the goods sold.
Fair value of the goods sold- determined by the Commissioner
of Internal Revenue.
 If one of the parties is the GOVERNMENT, the output
VAT shall be based on the ACTUAL SELLING PRICE.
TIMING OF OUTPUT VAT REPORTING- the month of sale.
2. Sale of Vatable Services
- subject to 12% VAT based on the gross receipts.
gross receipts- collection of income. It includes advances and
collection of amount charged for labor and materials included
with the service.
TIMING OF OUTPUT VAT REPORTING- the month of collection.
3. Sale of Vatable Properties
- subject to VAT on the gross selling price.
gross selling price- higher of the a.) consideration or selling
price and b) fair value of the property.
fair value of the property- higher between the a.) zonal value
and b.) fair value per assessor’s office.
 In the absence of a zonal value, gross selling price
shall be the FAIR VALUE PER ASSESSMENT or
CONSIDERATION STATED IN THE SALES DOCUMENT,
whichever is higher.
 If the gross selling price is based on the zonal value
and fv per assessor’s office, the value shall be
presumed EXCLUSIVE OF VAT.
 If the gross selling price is based on the
consideration appearing on the document of sale,
the value shall be presumed INCLUSIVE OF VAT.
 TIMING OF OUTPUT VAT REPORTING- the month of
sale or by installment method.
VAT on Goods VS. VAT on Properties
- Selling price or consideration on the SALE OF
is not the case on the SALE OF GOODS.
- The concept of unreasonably lower does not apply
on the sale of property. The higher of the FV and SP
is ALWAYS the basis of the its VAT.
INSTALLMENT REPORTING of Output VAT on real properties
- The output VAT on the sale of real properties may be
reported in installment if the initial payment does
not exceed 25% of the selling price.
Sale of property by a realty dealer on a DEFERRED PAYMENT
BASIS
- Shall be treated as a cash sale.
- The fair value or gross selling price whichever is
higher is subject to VAT in the month of sale.
SUBSEQUENT COLLECTIONS from the sale shall no
longer be subjected to VAT.
Interest and penalties
- interest and penalties actually or constructively
received by the seller are likewise SUBJECT TO VAT.
Sale of properties considered ORDINARY ASSETS
- even if the real property is not primarily held for sale
to customers or held for leases in the ordinary course
of business but the same is used in the trade or
business of the seller, the sale shall thereof be
SUBJECT TO VAT being a transaction incidental to the
taxpayer’s main business.
- sale of properties held for use (land, building,
equipment, machineries, property improvements,
and supplies) aside from inventories and supplies are
VATABLE.
- Only applicable to VAT-registered taxpayers.
Sale of properties not in the course of the business
- sale of properties not in the ordinary course of
business are exempt from VAT. The sale of capital
assets is exempt from VAT.
4. Transactions Deemed Sales
Deemed sales- acquisition transactions involving goods or
properties which are consumption in nature but are coursed
through a purchase transaction. These are transactions not
recorded as sales by the business and could evade taxation.
List of transactions deemed as sales still subjected to VAT:
4.1 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.
- Occurs when vatable ordinary assets are used for
purposes other than their intended purpose, such as
when:
 1. Goods or properties HELD FOR SALE are no
longer sold but are transferred or disposed of by
other means other than sale.
2. Properties INTENDED FOR USE are no longer
used but are transferred, disposed of or
exchanged with other properties.
4.2 Distribution or transfer to:
a. Shareholders or investors share in the profits of
VAT-registered persons
b. Creditors in payment of debt or obligation
4.3 Consignment of goods if actual sale is not made
WITHIN 60 DAYS following the date such goods were
consigned.
- Consigned goods to consignees, if not withdrawn
within 60 days, are also presumed or deemed sold
subject to VAT.
- Intended to prevent taxpayers from deferring
recognition of output VAT by non-reporting or
delayed reporting of the sales on consignment.
4.4 Retirement from or cessation of business with respect
to all goods on hand whether capital goods, stock in
trade, supplies or materials as of the date of cessation,
whether or not the business is continued by the new
owner or successor.
- The retirement or cessation will result in the transfer
of all goods or properties of the business to the
personal use or account of the business owner or
owners.
- If business is continued by a new owner, the goods or
properties of the business are effectively sold to the
new owner.
General rule: BUSINESS DISSOLUTION IS DEEMED SALE.
1. Change of ownership of the business,
a. Incorporation of a sole proprietorship
b. Sale by a proprietor if his entire business.
2. Dissolution of a partnership.
a. And creation of a new partnership which takes
over the business
b. By incorporation into a partnership.
WHEN THERE IS NO DISSOLUTION, THERE IS NOT DEEMED
SALE SUCH AS:
a. Change in controlling shareholder
b. Change in trade or corporate name
c. Change in business address
EXEPTION TO THE BUSINESS DISSOLUTION RULE
1. Merger or consolidation- there is a business
dissolution but not a deemed sale under the law.
- Both result in the dissolution of a corporation and a
transfer of the assets of the dissolved corporation to
the absorbing corporation.
- Legally, this is not a deemed sale. The unused input
tax od the dissolved corporation as of the date of
merger or consolidation shall be absorbed by the
surviving corporation.
4.5 Cessation of status as a VAT-registered person.
- Goods or properties originally intended for sale or
use in the business, and capital goods existing as of
any of the occurrence of the following shall be
deemed sold:
a. Change of business activity from VAT-taxable status
to VAT-exempt status.
b. Approval of a request for cancellation of registration
due to reversion to exempt status.
c. Approval of request for cancellation of registration
due to a desire to revert to exempt status after the
lapse of 3 consecutive years from the time of
registration by a person who voluntarily registered
despite being exempt.
d. Approval of request for cancellation of registration of
one who commenced business with the expectation
of gross sales or receipt exceeding P 3M but who
failed to exceed this amount during the first 12
months of operations.
Output Tax on Transactions Deemed sales
- Shall be based on the MARKET VALUE OF THE
GOODS SOLD as of the occurrence of the sale
transaction.
- However, in the case of retirement or cessation of
business, it shall be based on the ACQUISITION
COSTS or the CURRENT MARKET PRICE OF THE
GOODS OR PROPERTIES, whichever is lower.
Invoicing Requirement for Subsequent Sale of Goods or
Properties Deemed Sold
- The SUBSEQUENT SALE OF GOODS OR PROPERTIES
SOLD shall not be subject to VAT.
- The seller of goods or properties previously deemed
sold shall indicate the sales invoice number wherein
the output tax on the deemed sale was imposed and
the corresponding tax paid on the items sold.
Deemed sales rules apply to VAT taxpayers only!
- The concept and rules of deemed sales and the
taxation of the sale of ordinary assets apply only to
VAT taxpayers.
Billing Requirements for Output VAT
- Output VAT must be specifically indicated in the
invoice or receipt. It must be billed separately in the
case of sales of properties where the fair value
exceeds the selling price.
Determination of the Output VAT
- The amount of output VAT is dependent upon the
price quoted by the VAT taxpayer. Such amount is
understood to be inclusive of the VAT in the absence
of a special agreement to the contrary.
Rule on VAT not separately billed
- The selling price or the consideration stated therein
shall be deemed to be inclusive of the VAT.
Incorrect billing of VAT

- The total amount billed by the taxpayer shall be

deemed inclusive of the VAT. Computed by
multiplying to 12/112.