THE VALUE ADDED

TAX ON SALES

CHAPTER 6
THE SCOPE OF THE VAT ON SALES

The VAT covers all sales of goods, properties,

services or lease of properties
other than:
1. VAT exempt sales
2. Services specifically subject to percentage tax

Provided, however, that the seller must be a VAT-

registered person or registrable person.
THE SCOPE OF THE VAT ON SALES

A registrable person or those who exceeded the

VAT threshold are subject to VAT even if not
registered as VAT taxpayer. On the other hand, a
VAT registered person will be subject to VAT even
if its annual sales do not exceed the VAT threshold.
EXAMPLE:

Dingalan Company is a VAT-registered taxpayer

with sales not exceeding the P1,919,500 VAT
threshold in ary 12 month period.

Dingalan shall pay VAT on its vatable sales or receipts

even if it is below the threshold because it is a VAT-
registered taxpayer.
VAT EXEMPT TRANSACTIONS
UNDER THE NIRC

1. Exempt importations
2. Exempt sales
3. Services specifically subject to percentage tax
4. Export sales of non-VAT taxpayers
THE VAT THRESHOLD
VAT THRESHOLD AMOUNT COVERED TAXPAYERS

General Threshold P1.919.500 Applicable to all

taxpayers other than
franchise grantees of
radio or television.

Special Threshold P10,000,000 Applicable only to

franchise grantees of
radio or television.

Only vatable sales are considered for purposes of the VAT threshold.
THE VALUE ADDED TAX MODEL

The VAT payable of a VAT taxpayer is computed as:

Output VAT
P XXX
Less: Input VAT
XXX

____________
Net VAT payable
P XXX
Less: Tax credits or payments
OUTPUT VAT

Output VAT is the VAT passed-on by a VAT

taxpayer on his sales to customers or clients.

Types of Output VAT

1. Regular Output VAT - for domestic sales
2. Zero Output VAT - for export and other zero-
rated sales
REGULAR OUTPUT VAT

The regular output VAT is computed as 12% of the

following:

A. Sellers of goods or properties - Gross selling price

B. Sellers of services or lease of properties - Gross
receipts

Sources of the regular output VAT will be discussed in detail in Chapter 7

ZERO OUTPUT VAT

The zero output VAT arises from the export sales of

VAT taxpayers. Zero output VAT also arises from
transactions considered export sales and those
granted with zero-rating treatment under special
laws or international agreements to which the
Philippines is a signatory.

Sources of the zero output VAT will be discussed in detail in Chapter 8.

INPUT VAT

Input VAT is the VAT paid on the domestic

purchases or VAT paid on the importation of goods
or services by the taxpayer. Input VAT also arises
from incentives provided by law such as the
transitional input VAT and the presumptive input
VAT.

The detailed rules on input VAT will be discussed in detail in Chapter 9.

CLASSIFICATION OF SALES FOR VAT
PURPOSES
 TYPES OF SALES DESCRIPTION TAXATION

Exempt Sales Sales of exempt goods or Exempt from VAT

services

Zero-Related Sales Export sales, sales to non- Subject to )%

resident persons & those Output VAT
granted zero rating
treatment

Sales to Government Sales to government Subject to a 5%

agencies or any of its Final withholding VAT
instrumentalities,
including government-
owned and controlled
corporations (GOCCS)

Regular Sales Sales to domestic or Subject to 12%

resident entities and Output VAT
individuals
VAT EXEMPT SALES
Exempt sales of VAT taxpayers refer to sales of:
a. Exempt goods, services or properties
b. Services specifically subject to percentage tax

Exempt sales will not be subject to Output VAT.

Consequently, the seller is also not allowed to credit
input VAT. The input VAT traceable to exempt
sales is part of costs or expenses of the seller and is
deductible against gross income subject to income tax
ZERO-RELATED SALES
Zero-rated sales are sales of goods or services to
non-residents. Zero-rated sales include:
A. Export sales of goods or services
B. Other sales conferred with zero-rating status by
law

Zero-rated sales shall Not result to an Output VAT

but the input VAT on zero-rated sales is creditable
to the zero output VAT. VAT payable is inherently
negative on zero-rated sales.
ZERO-RELATED SALES
The input VAT on zero-rated sales can be alternatively
claimed through:
a. tax refund, or
b. tax credit certificate

If claimed as tax refund, the taxpayer will recover

cash. If claimed as tax credit certificate (TCC), the TCC
can be used as tax credit against any other internal
revenue taxes aside from VAT.
ZERO-RELATED SALES

If the input VAT on zero-rated sale is not claimed

through tax refund or tax credit certificate, it is
credited against Output VAT at the end of the month
SALES TO GOVERNMENT AND
GOCCS
The sale to government and government owned and
controlled corporation (GOCCs) is subject to a 5%
final withholding VAT at source on sales. The 5%
final withholding VAT is presumed the VAT payable of
the seller. Consequently, the seller need not pay
further VAT on the sale.
SALES TO GOVERNMENT AND
GOCCS
Because of this, the claimable input VAT of the seller is
effectively set by the law at only 7% (12%-5%) of gross
sale to the government or GOCCs.
REGULAR SALES

Regular sales pertain to sales other than:

a. Exempt Sales
b. Sales to the government or GOCC’s
c. Export Sales
 COMPARISON OF OUTPUT VAT,
INPUT VAT AND PAYABLE
TYPES OF SALES OUTPUT VAT CLAIMABLE VAT PAYABLE
INPUT VAT

Exempt Sales none none none

Zero-Related zero actual negative

Sales

Sales to 12% of 7% of none

Government sales/receipts sales/receipts

Regular Sales 12% of actual positive

sales/receipts
VAT INVOICING REQUIREMENT
Using a single invoice or receipt for mixed sales
A VAT-registered taxpayer may use a single invoice or
receipt involving VAT and non-VAT transactions,
provided that:
A. the invoice or receipt must clearly indicate the
breakdown of the sales or receipt between taxable,
and zero-rated components
B. the calculation of VAT on each portion of the sale
shall be shown on the invoice or receipt
VAT INVOICING REQUIREMENT
Using a separate invoice or receipt for mixed sales
A VAT-registered taxpayer may also use different
invoice or receipt for the taxable, exempt and zero-
rated components of its sales. Provided that:

a. if the sale is exempt from VAT, the term "VAT-

EXEMPT SALE shall be written or printed prominently
on the invoice or receipt
b. if the sale is subject to zero percent (0%) VAT, the
term "ZERO-RATED SALE” shall be written
prominently on the invoice or receipt
-END OF CHAPTER 6-