There shall be levied, assessed and collected on every sale,

barter or exchange of goods or properties, a value-added tax

equivalent to 12% of the gross selling price or gross value in
money of the goods or properties sold, bartered or
exchanged, such tax to be paid by the seller or transferor.

Normally, the invoice price of goods are VAT-inclusive, hence:

Invoice price = Selling price + 12% of selling price; or

Invoice price = 112% of Selling price
For example, if a McDonalds happy meal has an invoice price
of P100, the said price is inclusive of the selling price and the
12% VAT. To get the selling price,

Selling price = Invoice price / 112% VAT rate

Selling price = P100 / 112%
Selling price = P89.29
VAT imposed on selling price = P89.29 x 12% = P10.71
 Goods or properties shall mean all tangible and intangible objects
which are capable of pecuniary estimation;
 Gross selling price – means the 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 the value-added tax. The excise
tax, if any, on such goods or properties shall form part of the
gross selling price.
◦ In the case of sale, barter or exchange of real property subject
to VAT, gross selling price shall mean the consideration stated
in the sales document or zonal value, whichever is higher.
 Sales returns and allowances
 Sales discounts
The following data were taken from the books of Tiberio
Company during the month of April of the current year:

Cash sales P 453,200

Sales on account 565,800
Sales returns and allowances 31,548
Sales discount 35,250

Compute for the gross selling price and the tax base.
Cash sales P 453,200
Sales on account 565,800
Gross selling price 1,019,000
Less: Deductions
Sales returns and allowances (31,548)
Sales discount (35,250)
Tax base P 952,202
 The VAT payable is determined by deducting the input tax
from the output tax. Thus, the formula in computing VAT
payable is:
Output tax – Input tax = VAT payable
 Output tax is the VAT due on the sale or lease of taxable
goods or properties or services by any person registered or
required to register under the Tax Code.
 Input tax refers to the VAT from or paid by a VAT registered
person in the course of his trade or business.
 VAT payable refers to the excess of the output tax over the
allowable input tax.
January 1, 20xx Cash/AR Pxxx
Sales Pxxx
Output VAT (liability) xxx

January 1, 20xx Merchandise inventory Pxxx

Input VAT (asset) xxx
Cash/AP Pxxx

January 1, 20xx Output VAT Pxxx

Input VAT Pxxx
VAT payable xxx
In transactions deemed sale, no actual sale of goods took place
but such transactions are subject to VAT. The rationale is to
recapture the VAT that was already claimed as input tax.

Transactions deemed sale for VAT purposes

Transfer, use or consumption not in the course of business of

goods or properties originally intended for sale or for the use in

the course of business. The output tax shall be based on the
FMV of the goods deemed sold.
 Distribution or transfer to:
◦ Shareholders or investors as share in the profits of the VAT-
registered persons; or
◦ Creditors in payment of debt or obligation;
The output tax shall be based on the FMV of the goods
deemed sold.
◦ Consignment of goods if actual sale is not made within sixty
(60) days following the date such goods were consigned.
Those returned by the consignee within the 60-day period
are not deemed sold. The output tax shall be based on the
FMV of the goods deemed sold. and
◦ 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 such retirement or cessation, whether or not the business is
continued by the new owner or successor. The following circumstances
shall, among others, give rise to transactions deemed sale:
 Change of ownership in the business. There is a change of ownership
in the business when a single proprietorship incorporates; or the
proprietor of a single proprietorship sells his entire business;
 Dissolution of a partnership and creation of a new partnership which
takes over the business.
The output tax shall be based on the FMV of the goods deemed sold or
the acquisition cost, whichever is lower.
During the year, Quence Footstep, a shoestore, purchased 100
pairs of shoes from its distributor. Each pair is worth P784 and
sold by the shoestore at P1,120. During the month, the
management decided to give one (1) pair of shoes to each to the
ten (10) salesladies. All the other 90 pairs were sold by the store.
Compute for the VAT payable.

Output tax (P1,120 x 100 x 12/112) P 12,000

Input tax (P784 x 100 x 12/112) 8,400
VAT payable P 3,600
The rationale deeming some transactions as sale is to recapture
the input taxes that are creditable from output taxes of the other
goods that were sold by business.

Assuming the giving of 10 pairs of shoes were not deemed sale:

Output tax (P1,120 x 90 pairs x 12/112) P 10,800

Input tax (P784 x 100 x 12/112) 8,400
VAT payable P 2,400
Antonio is engaged in a merchandising business. His sales
invoice and other data during the month of January are shown
below:
Cash sales P 770,000
Sales returns on cash sales 055,000
Account sales 495,000
Goods consigned:
January 10 of the current year 265,000
November 10 of the preceding year 016,500
Goods taken for personal use 018,150
Goods taken as payment to creditors 025,850
Purchase of merchandise 1,008,000
Purchase of supplies 089,600
Telephone bills on domestic calls 003,360
Cash sales, net (P770,000 – P55,000) P 715,000
Account sales 495,000
Consigned goods 16,500
Goods taken for personal use 18,150
Payment to creditors 25,850
Total P 1,270,500
Multiply 12/112
Output tax P 136,125
Merchandise P1,008,000
Supplies 0,089,600
Telephone 3,360
Total P1,100,960
Multiply 12/112
Input tax P 117,960

VAT Payable (P136,125 – P117,960) P 18,165

 The tax rate imposed on taxable sales of goods or properties
is 12%, except on some transactions that have tax rate of 0%.
 Zero-rated transactions are still taxable, but the rate has been

set to zero. It does not charge VAT on the output, but can
claim refund or tax credit for input taxes charged to him by
his suppliers.
 To be subject to zero tax rate, the seller must be a VAT-

registered person.
 Export sales
 Foreign currency denominated sales
 Sales to persons or entities whose exemption under special

laws or international agreements to which the Philippines is a

signatory effectively subject such sales to zero rate.
Atacador produces crustaceans from his farm in Masbate City. His
products are delivered to Bengala Company, a food processor who
in turn sells them while sealed in cans to Calabog Corporation, a
wholesaler/exporter. The canned goods are delivered to retailers
while others are exported to Europe. The retailers sell the goods
to households.

Determine whether Atacador, Bengala, and Calabog are subject to

VAT or not, respectively.
The sales of the crustaceans by Atacador to Bengala Company are
exempt from VAT because they are considered as sales of marine
food products in their original state.

The sale of canned crustaceans by Bengala to Calabog is subject to

VAT because they are no longer in their original state when they
were canned.

The sale by Calabog to retailers are taxable at 12%, while the

exportation of such goods is zero-rated.
 The sale and actual shipment from the Philippines to a foreign
country, irrespective of any shipping arrangement that may be agreed
upon which may influence or determine the transfer of ownership of
the goods so exported and paid for in acceptable foreign currency or
its equivalent in goods or services, and accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas.
 Sale of raw materials or packaging materials to a non-resident buyer
for delivery to a resident local export-oriented enterprises to be used
in manufacturing, processing, packing or repacking in the Philippines
of the said buyer’s goods and paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas.
 Sale of raw materials for packaging materials to export-oriented
enterprise whose export sales exceed 70% of the total annual
production.
 Sale of gold to the Bangko Sentral ng Pilipinas; and
 Those considered export sales under EO No. 226 (Omnibus
Investment Code of 1987), and other special laws.
 The sale of goods, supplies, equipment and fuel to persons
engaged in international shipping or international air transport
operations.
 The phrase means sale to a non-resident of goods (except
automobiles and non-essential goods subject to excise taxes)
assembled or manufactured in the Philippines, for delivery to a
resident in the Philippines, paid for in acceptable foreign
currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas.
The following data reveals the records during the month of Fifth Corporation, a
VAT registered taxpayer:
Domestic sales (invoice amount) P 1,064,000
Export sales F.O.B. shipping point 820,000
Sales of goods to Tirso in Hongkong, but delivered to
Pipay, a resident (payment was remitted in
dollars by Tirso through PNB) 75,000
Purchases of goods sold locally (inclusive of tax)
582,400
Purchases of raw materials on goods exported (net
of VAT) 380,000
Compute the VAT payable by Fifth Corporation during
the month if it decides to claim as tax credit the input
tax corresponding to the export sale.
Domestic sales (P1,064,000 x 12/112) P114,000
Export sales (P820,000 x 0%) 000
Foreign currency sales (P750,000 x 0%) 000

Output tax P 114,000

Input tax
Goods locally sold (P582,400 x 12/112) 62,400
Materials on exported goods
(P380,000 x 12%) 45,600
VAT payable P 6,000
 Export sales are zero rated irrespective of any shipping
arrangement that may be agreed upon (FOB shipping point or
destination) which may influence or determine the transfer of
ownership of the goods so exported.
 Although export sales and foreign currency denominated sales
do not result to any output tax, the input taxes paid on the
purchase of such goods can be credited against the output tax
due for the taxable month.
 The transactions such as export sales and foreign currency
denominated sales must be transacted by a VAT registered
taxpayer.
 Zero-rated transactions are not VAT exempt because they are
still subject to VAT, but only at 0% rate.
 One can claim a refund of Input VAT if his sales transaction is

classified as zero-rated.
The following may claim transitional input tax on beginning
inventories:
When he becomes liable to VAT upon exceeding the minimum

turn-over of P1,919,500 in any 12-month period, or

When he voluntarily registers even if his turnover does not

exceed P1,919,500 (except franchise grantees of radio and

television broadcasting whose threshold is P10,000,000)
The following inventories shall be the subject of a transitional
input tax:
Goods purchased for resale in their present condition;
Materials purchased for further processing, but which have not

yet undergone processing;

Goods which have been manufactured by the taxpayer;
Goods in process for sale; or
Goods and supplies for use in the course of taxpayer’s trade or

business as a VAT registered person.

The amount of transitional input tax to be allowed as tax credit
shall be whichever is higher between:
The beginning inventory of goods, materials and supplies

equivalent to 2% of the value of such inventory; or

The actual value added tax paid on such goods, materials and

supplies.
The value allowed for income tax purposes on inventories shall
be the basis for the computation of the 2% transitional input tax
excluding goods that are exempt from VAT.
Vatman became subject to VAT on March 1 of the current year.
The value of his beginning inventory of goods, materials and
supplies if P567,000. the VAT paid on such inventory amount to
P15,500. How much is the transitional input tax of Vatman?

Beginning inventory VAT (P567,000 x 2%) P 11,340

Actual VAT paid 15,500
The input tax that must be claimed should be the higher
between the two, hence P15,500.
 VAT registered persons or firms engaged in the processing of sardines,
mackerel and milk, and in manufacturing refined sugar, cooking oil,
and packed noodle-based instant meals shall be allowed a
presumptive input tax, creditable against the output tax.
 Equivalent to four percent (4%) of the gross value in money of their
purchases of primary agricultural products which are used as inputs to
their production.
 The term “processing” shall mean pasteurization, canning and activities
which through physical or chemical process alter the exterior texture
or form or inner substance of a product in such manner as to prepare
it for special use to which it could not have been put in its original
form or condition.
Coco say is engaged in purchasing coconut from coconut
planters and process them into canned coconut cooking oil. In
September, he made a total purchase of P300,000, processed
them and sold the cooking oil to the public. The taxable sales,
gross of VAT, amounted to P2,128,000. The invoice on the
purchases of canning and labelling materials totaled to
P280,000.
1.How much is the presumptive input tax?
2.How much is the VAT payable?
Presumptive input tax (P300,000 x 4%) P12,000

Output VAT (P2,128,000 x 12/112) 228,000

Presumptive input tax 12,000
Input tax on materials (280,000 x 12/112) 42,000
VAT Payable P 186,000
 Sale of real properties not subject to VAT
 Sale of real properties subject to VAT
Only the sale of real properties held primarily for sale to
customers or held for lease in the ordinary course of trade or
business of the seller shall be subject to VAT.
The following sales of real properties are not subject to VAT
Sale of real properties not primarily held for sale to customers or held for

lease in the ordinary course of trade or business;

Sale of real properties utilized for low-cost housing;

Sale of real properties utilized for socialized housing.

Sale of residential lot valued at P1,919,500 and below and house and lot

and other residential dwellings valued at P3,199,200 and below. Provided,

every three years thereafter the amounts stated therein shall be adjusted
to its present value using the Consumer Price Index, as published by the
NSO. Provided, further, that such adjustment shall be published through
revenue regulations to be issued not later than March 31 of each year.
 The sale of real property subject to VAT shall be either on cash
basis, on installment basis, or on a deferred payment basis.
 The sale of real property is on the installment plan if the initial
payments do not exceed 25% of the selling price. It is on a deferred
payment basis not on the installment plan if the initial payment
exceed 25% of the gross selling price.
 If the sale is on cash basis or on a deferred payment plan, the
whole selling price shall be subject to tax.
 If the sale is on the installment basis, VAT shall be computed
based on the installment payments, including interest and
penalties.
 Export sales are zero rated irrespective of any shipping
arrangement that may be agreed upon (FOB shipping point or
destination) which may influence or determine the transfer of
ownership of the goods so exported.
 Although export sales and foreign currency denominated sales
do not result to any output tax, the input taxes paid on the
purchase of such goods can be credited against the output tax
due for the taxable month.
 The transactions such as export sales and foreign currency
denominated sales must be transacted by a VAT registered
taxpayer.
Taxable sales to private x Input tax = Creditable
Total sales

Taxable sales to gov’tx Input tax = Creditable up to 5%

Total sales

Exempt sales x Input tax = Expense or

cost
Total sales
Fortuna Corporation has the following sales during the month:
Sales to private entities subject to 12% P 100,000
Sales to private entities subject to 0% 100,000
Sales of exempt goods 100,000
Sales to government subject to 5% final withholding tax 100,000
Total sales for the month P400,000
The following input taxes were passed on by its VAT suppliers:
Input tax on taxable goods (12%) P5,000
Input tax on 0% sales 3,000
Input tax on sale of exempt goods 2,000
Input tax on sale to government entities 4,000
Input tax on depreciable capital goods not attributed to
any specific activity 20,000
Compute the following:
Input tax attributable to sales to private entities
Input tax attributable to sales to government
Input tax attributable to VAT exempt sales
Input tax attributable to zero-rated sales
VAT payable
Input tax attributable to sales to private entities
Input tax on sales subject to 12% P 5,000
Ratable portion (P100,000/P400,000 x P20,000) 5,000
Total creditable input tax for sales to private entities P 10,000

Input tax attributable to sales to government

Input tax on sales to government P 4,000
Ratable portion (P100,000/P400,000 x P20,000) 5,000
Total creditable input tax for sales to government P 9,000
Input tax VAT exempt sales
Input tax on VAT exempt sales P 2,000
Ratable portion (P100,000/P400,000 x P20,000) 5,000
Total creditable input tax for VAT exempt sales P 7,000

Input tax zero-rated sales

Input tax on zero-rated sales P 3,000
Ratable portion (P100,000/P400,000 x P20,000) 5,000
Total creditable input tax for sales to government 8,000
Output VAT on sales subject to 12% (P100,000 x 12%) P 12,000
Less input tax attributable to sales subject to 12% 10,000
VAT payable on sales subject to 12% P 2,000

Output VAT on sales to government (P100,000 x 12%) P 12,000

Less input tax attributable to sales to government 9,000
Creditable input tax withheld (P100,000 x 7%) 7,000
VAT payable on sales to government P 5,000
Output VAT on sales subject to 12% (P100,000 x 12%) P12,000
Less input tax attributable to sales subject to 12% 10,000
VAT payable on sales subject to 12% P2,000

Output VAT on sales to government (P100,000 x 12%) P12,000

Less input tax attributable to sales to government 9,000
Creditable input tax withheld (P100,000 x 7%) 7,000
VAT payable on sales to government P5,000
 Capital goods refer to goods or properties with estimated useful life greater
than one (1) year and which are treated as depreciable assets, used directly
or indirectly in the production or sale of taxable goods or services.
 Where a VAT registered person purchases or imports capital goods which are
depreciable assets for income tax purposes, the following rules shall be
applied:
◦ Input tax on depreciable capital goods, the aggregate acquisition cost (net of
VAT) of which in a calendar month, exceeds P1,000,000 shall be spread evenly
over 60 months or their useful life, whichever is shorter.
◦ When the aggregate acquisition cost (net of VAT) of the existing or finished
capital goods purchased or imported during any calendar month does not
exceed P1,000,000, the total input taxes will be allowable as credit against
output tax in the month of acquisition.
 If the capital good is sold within five (5) years or prior to exhaustion
of input VAT thereon, the entire unamortized input tax on the capital
goods sold can be claimed as input tax credit during the
month/quarter when the sale was made.
Felicisima had the following data in its books in the month of
February:
  Case A Case B
₱ ₱
Sales 1,900,000 1,800,000

Purchase of goods for sale 1,260,000 600,000

Purchase of machines 1,440,000 900,000

Machine life 6 years 3 years
Case A: Machine life is 6 years
Output tax (P1,900,000 x 12%) P228,000
Less input tax on purchases (P1,260,000 x 12%) 151,200
Less input tax on machine (P1,440,000 x 12%)/60 2,880
VAT payable P 73,920

Case B: Machine cost does not exceed P1,000,000

Output tax (P1,800,000 x 12%) P216,000
Less input tax on purchases (P600,,000 x 12%) 72,000
Less input tax on machine (P900,000 x 12%) 108,000
VAT payable P 36,000
Case A: Assuming machine life is only 4 years
Output tax (P1,900,000 x 12%) P
228,000
Less input tax on purchases (P1,260,000 x 12%)
151,200
Less input tax on machine (P1,440,000 x 12%)/48 months
3,600
VAT payable P 73,200