Hello and Welcome Class.

How’s everyones day? Lets have a simple activity.

I want you to find some receipts in your home. So ms. Bautista, what product did you buy in the receipt
you found. Oh you ate at Jollibee. So as you can see in every receipt that you brought, there is a VAT.
But on the other hand, there are also purchases we make that is zero rated or vat exempt. So we will
further discuss about that on the next few weeks.

But for Today we’re going to be understanding what value added tax is and how to calculate it.

This topic is very important especially for each of everyone of you who would become CPA and if you
are looking to start a business in a vat system country for example here in the Philippines.

Firstly, what is VAT?. As of right now, we know that VAT stands for Value Added Tax.

So anyone do you have any idea what VAT is and how it works?

Yes you are correct. The tax in vat is obviously the cut or percentage you pay to the government. No
biggie there right?

The value added signifies the entities like the manufacturer…… the retailer….. who add value in the
supply chain

more on the in just a minute just as I know that from this year 2022 more that 170 countries worldwide
levy a VAT on goods and services.

If you were to ask a professional about VAT…. I mean what’s the definition of VAT and what it is…. Their
response would be like…

Tax placed on a product whenever value is added at each stage of the supply chain from production to
the sale
Now… it may be easy for some of you to understand that but not for all of us right? For it raises more
questions than it answers.

So we will take the high points from the definition and dig deep from there and those are…… SUPPLY
CHAIN…….. and VALUE ADDED

So whats the supply chain? Well it’s every stage from the supply of materials and the manufacturing of
the goods through to their distribution and sale.

Now the supply chain consists of RAW SUPPLIERS, MANUFACTURER, DISTRIBUTOR, RETAILER,
CONSUMERS….. these make up the supply chain

Now to see what each of on does, let’s take an example of a wooden desk.

The raw supplier mines or harvests the goods and makes them available for the manufacturer. The
manufacturer gets the goods from the raw supplier and builds the product

Distributors builds the relationships with the manufacturer and markets its products

also acts as a distribution point for the retailers.

The retailers makes the product available and within the reach of the consumers

The consumer obviously gets the end costumer that buys the product

So the second point is what does value added mean? Can anyone guess?

So as you see each one of the supply chain entities has a role and that role is basically the value it’s
adding to the supply chain.
Any transactions between the entities will be subject to vat

So does anyone have any idea what percentage we apply here in the Philippines? You can drop it on the
chatbox.

So correct. All of you have guessed right as here in the Philippines, we imply a 12% VAT

And These entities collect tax from each other and submit it to the government or tax authorities

The core concept of VAT is VAT PAYABLE……….. that is the amount that the supply chain entity pays to
the government after the transactions.

Lets see and example of a retailer that buys a product from a distributor and sells it to the consumer.

Selling price of the product for the manufacturer is 250 pesos and the 12% of 250 pesos is 30 pesos

So the invoice that the retailers gets is of 280 pesos.

That 12% that the retailer paid will be marked as input vat for the retailer.

Now, once the retailer sells that item, it’s going to invoice the consumer or the customer the 12% of VAT
on its selling price which is 36 pesos if you look at 300 pesos 12% of 300 is 36 pesos

And that 36 pesos will be marked as output vat in terms of the retailer.

So in solving for VAT PAYABLE, it is output vat minus input vat for the retailer.

That would be 36 pesos minus 30 pesos and 6 pesos at the end

And that would be the amount that will be given to the government by the retailer.
Now lets take a bigger example because the same process is going to be applied across the supply chain

EXCELLLLLLLLLLLLLL

So lets go back to the presentation. As you can see, the blue arrows and blue numbers show the output
vat and the red arrows and the red numbers show the input vat and vat payable can be calculated for
each entity that is gonna collect tax and submit it to the government.

Now VAT is beneficial for business entities as the tax is split up…. The main burden is beared by the
consumer that is why more and more countries are adopting the vat system.

So I hope this has been informative to you class and I’d like to take everyone who participated.

So for the next meeting, I want you to prepare as we will further discuss about input and output VAT
and after that we would be having a short quiz.

Thank you guys and see you on our next meeting.