Introduction to Value Added

Tax
Chapter 6
 The Value-Added Tax
Covers all vatable sales of goods, properties, services, or
lease of properties by VAT Taxpayers.

VAT TAXPAYERS ARE:

• VAT- Registered Persons- Will be subject to VAT even if his annual sales
do not exceed the VAT Threshold.
• VAT- Registrable Persons- Those whose sales/ receipts exceed the VAT
Threshold. (Will be subject to VAT without the benefit of an input tax
Credit.
 The VAT Threshold
VAT Threshold Amount Covered Taxpayers

General Threshold P3,000,000 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.
 Illustrations: Assessment of the VAT
Threshold
Helmet Lovers Department Store had the
Following sales for the last 12 month period:
Fertilizers, Seeds, Poultry and Hog Feeds P1,200,000
Fruits and Vegetables P800,000
Groceries P800,000
Clothes, Shoes and Other Apparel P600,000
Furniture P400,000
________________
Total P3,800,000
 ASSESMENT
Vatable Sales are the Following:
Groceries P800,000
Clothes, Shoes and other P600,000
Apparel
Furniture P400,000
_______________
Total P1,800,000

Remarks: Total sales does not exceed VAT Threshold. Need not
to be VAT Registered. Pay 3% Percentage Tax.
 Illustration 2:
As of September 2020, Mr. Vico Sotto had the Following
gross receipts from his business and professional practice in
the immediately preceding 12 months.
Gross Receipts from Restaurant Business P2,200,000

Gross Receipts from Barbeque Stand P200,000

Gross Receipts from Taxi Cab Operations P1,500,000

Gross Receipts from Professional Practice P900,000

__________________
Total P4,800,000
The Following are Exempt Sales
Barbeque Stand Sales (Exempt) P200,000
Taxi Cab Receipts (Subject to OPT) P1,500,000
_________
TOTAL VAT Exempt Sales P1,700,000

Vatable Sales and Receipts are:

Gross Receipts from Restaurant Business P2,200,000

Gross Receipts from Exercise of Profession P900,000

__________
Total P3,100,000
Important Footnotes
Optional VAT Registration
•Taxpayers below the Threshold can voluntarily
register as VAT taxpayers.
•Such option is subject to a 3 year Lock-In Period.
•Within this period a person is prevented or
precluded of having his VAT Registration revoked.
 VAT Taxpayers with Mixed
Transactions
• VAT shall only apply to Vatable Sales or Receipts.
• His non-vatable sales or receipts remains exempt from
VAT.
• The Sales subject to Percentage Taxes are subject to
their Specific Percentage Tax Rates.
• The only exemption to this is when the taxpayer opted
to have the VAT apply to this non- vatable sales or
receipts.
The Value Added Tax
Model
Basic Formula

Output VAT XXX

Less: Input VAT (XXX)
VAT DUE XXX
Less: Tax Credits (XXX)
VAT Still Due XXX
 Output VAT
• Is the VAT on the Vatable sales or receipts.
• This is presumed passed on by the seller on his sales or
receipts.
Types of Output VAT:
1. Regular Output VAT- 12% VAT imposed on domestic
sales or receipts.
2. Zero-Output VAT- 0% VAT imposed on export and other
zero-rated sales.
 INPUT VAT

• VAT paid by the taxpayer on the domestic

purchases from VAT suppliers on the importation
of goods or services in the course of the business.
• Not all paid Input Vat is creditable against output
VAT.
• Claimable Input Vat- Those allowed to be
deductible against Output VAT.
 VAT Due
•Input VAT is offset against output VAT.
•A Positive VAT due is paid to the BIR.
•A Negative VAT Due is normally non-
refundable but is carried over to the
next succeeding months or quarters.
 VAT Reporting
Period Covered BIR Form Deadline

First month of the 2550M 20 Days from End

Quarter of Month
Second Month of 2550M 20 Days From End
the Quarter of Month
For the Quarter 2550Q 25 Days from end
of the Quarter
Sales Subject to Special Tax Laws
(Summary)
Types of Sales What is Unique?

Sales to the Government Limited Claimable Input

VAT
Zero- Rated Sales No Output VAT but with
Claimable Input VAT
Exempt Sales No Output VAT and No
Claimable Input VAT
 COMPARISON OF ZERO-RATED AND
EXEMPT SALES
Zero- Rated Sales Exempt Sales
Output VAT None None
Input VAT Creditable Non- Creditable
(Exempt Sales)
Types of Sales Export or Domestic Domestic Sales
Sales
Taxpayers Involved VAT Taxpayers only VAT and Non-VAT
Taxpayers
 Summary of VAT Rules for each type
of Sales
Types of Sales Output VAT Claimable Input VAT VAT Due

EXEMPT SALES None None None

ZERO-RATED SALES Zero Actual if not claimed NEGATIVE

as Credit or Refund

SALES TO THE 12% of Sales/ Receipts 7% of Sales/ Receipts None

GOVERNMENT

REGULAR SALES 12% of Sales/ Receipts Actual Input VAT Paid Positive or Negative
Summary of Rules on Sales of Goods
Domestic Sales Export Sales

Taxable Persons Vat Exempt Persons (Persons Any Persons

with Indirect Tax Exemption)

Sale of Exempt Goods 12% VAT 12% VAT 0% VAT

Sale of Vatable Goods 12% VAT 12% VAT 0% VAT

OTHER SALES SUBJECT
TO VAT
SALES of Registrable Persons

•Their sales are still subject to

VAT despite their non-
Registration as VAT Tax Payer.
•No Input VAT credit is allowed.
Sales of Non-VAT Taxpayers who
Issues VAT Invoice or Receipt
•The sale of Non VAT taxpayers who
illegally charge VAT on their sales shall
be subject to VAT without the benefit of
Input VAT plus the 50% surcharge and
the usual 3% Percentage Tax
 Exempt Sales Billed by VAT
Taxpayers as Regular Sales
•Exempt sales that are billed through a VAT invoice
or VAT receipt will be considered as regular sales.
•Exempt sales which are not so clearly indicated as
“Exempt” in the VAT invoice or VAT receipts shall
be considered as Regular Sales subject to VAT.