VALUE ADDED

TAX
Value-Added Tax
◦ Value-Added Tax is a business tax imposed and collected on every
1. Sale, barter, or exchange of goods or properties (real or personal)
2. Lease of goods or properties (real or personal)
3. Rendition of services, all in the course of trade or business
4. Importation of goods (whether or not in the course of trade or business)
◦ VAT is an indirect tax, thus, it can be shifted or passed on to the buyer, transferee or lessee of
goods, properties or services
◦ The current VAT rate is 12%.
Who is liable to pay VAT?
◦ The seller is the one statutorily liable for the payment of the tax but the amount of the tax may
be shifted or passed on to the buyer, transferee or lessee of goods, properties or services.
◦ In case of importation, the importer is the one liable for VAT.
◦ If the seller is VAT exempt, there is no need to pay VAT on his sales. He will have to shoulder
the burden of the VAT passed to him by his suppliers for his purchases.
Classification of Transactions Under the VAT
System
1. VATable Transactions
◦ Subject to 12% VAT Rate
◦ Zero-rated Transactions

2. Exempt Transactions
Characteristics of VAT
1. Value added
2. Tax credit or Invoice method
3. Sales tax
4. Broad-based tax on consumption in the Philippines
5. Excise tax based on consumption
6. Indirect tax
7. Ad valorem tax
8. National tax
Tax Credit Method
◦ The input tax shifted by the seller to the buyer is credited or deducted against the buyer’s
output taxes when he in turn sells the taxable goods, properties or services.
◦ Under the VAT method of taxation, which is invoice-based, an entity can subtract from the
VAT charged on its sales or outputs the VAT it paid on its purchases, inputs and imports.
Destination Principle/Cross Border Doctrine
◦ Goods and services are taxed only in the country where they are consumed. Thus, exports are
zero-rated, while imports are taxed.
Person Liable
1. Any person, who, in the course of trade or business:
a. Sells, barters, exchanges or leases goods or properties, or
b. Renders services
2. Any person who imports goods, whether or not made in the course of his trade or business
Person Liable
◦ Any person who, in the course of trade or business, sells, barters, or exchanges goods or
properties, or engages in the sale or exchange of services, shall be liable to register for VAT if:
1. Gross sales or gross receipts for the past 12 months have exceeded P3M, other than those that are
exempt
2. There are reasonable grounds to believe that his gross receipts or gross sales in the next 12 months
shall exceed P3M, other than those that are exempt.
◦ Failure to register as VAT taxpayer shall be held liable to pay the tax as if he is a VAT
registered person but he cannot avail of the input tax credit for the period he has not properly
registered.
Person NOT Liable
1. A non-VAT registered person whose annua gross sales or receipts do not exceed P3M shall not be liable
to VAT, instead, he shall be liable for 3% percentage tax.
2. An individual who is a Marginal Income Earner (MIE) deriving compensation as employee under the
employer-employee relationship, self-employed and deriving gross sales or receipts not exceeding
P100,000 in any 12-month period, and where the activities of such MIE is principally for substinence
or livelihood.
3. In transactions subject to VAT but became not subject from VAT because his annual gross sales do not
exceed P3M (he shall pay percentage tax)
4. In VAT-exempt transactions under Section 109(1) (A to V), regardless of annual gross sales
Imposition of VAT
Nature of Transaction Tax Base
Sale of goods or properties Gross selling price
Importation of goods Total landed cost
Sale of services and use or lease of properties Gross receipts
VAT on Sale of Goods or Properties
◦ Gross selling price – It 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 VAT. The excise tax, if any, on such goods or properties shall form part of the gross selling
price.
◦ For real property, gross selling price is the consideration stated in the sales document or the FMV,
whichever is higher. FMV is the zonal value (BIR) or assessed value (LGU)
◦ Allowable deductions from gross selling price:
◦ Sales discount
◦ Senior citizens are entitled to a 20% discount.
◦ Sales returns and allowances
VAT on Sale of Goods or Properties
◦ Sale of real properties held primarily to customers or held for lease in the ordinary course of trade or
business of the seller shall be subject to VAT.
◦ Sale of residential house and lot with gross selling price of not more than P2,559,300 (as of January 1,
2021) is VAT exempt.
◦ Lease of residential units with a monthly rental of P15,000 is VAT-exempt.
◦ If the monthly rental exceeds P15,000, but the aggregate of such rental of the lessor during the year do not exceed
P3M, likewise exempt from VAT. But liable for 3% percentage tax.
◦ Gross receipts from rentals not exceeding P15,000 per month per unit shall be exempt from VAT and 3%
percentage tax, regardless of the aggregate.
◦ The gross receipts of rental exceeding P15,000 per month per unit shall be subject to VAT, if aggregate exceeds
P3M, otherwise, 3% percentage tax.
VAT on Sale of Goods or Properties
◦ Sale on installment plan – it means sale of real property by a real estate dealer, the initial
payments of which in the year of sale do not exceed 25% of the gross selling price. The real
estate dealer shall be subject to VAT on the installment payments.
◦ Sale on a deferred payment basis – it means sale of real property, the initial payments of which
in the year of sale exceed 25% of the gross selling price. The entire selling price is taxable in
the month of sale.
VAT on Importation of Goods
◦ Importation is an act of bringing goods and merchandise into the Philippines from a foreign land.
◦ VAT is imposed on goods brought into the Philippines whether for use in business or not, except those
specifically exempted under Sec 109(1) of the NIRC.
◦ Tax base: Total value used by the BOC in determining tariff and customs duties plus customs duties,
excise taxes, if any, and other charges to be paid by the importer prior to the release of such goods from
customs custody / LANDED COST.
◦ Landed cost consists od the invoice amount, customs duties, freight, insurance and other charges.
◦ The VAT on importation shall be paid by the importer prior to the release of such goods from customs
custody
VAT on Importation of Goods
◦ Importation begins when the carrying vessel or aircraft enters the Philippine territory with the intention
to unload therein.
◦ Importation is deemed terminated when the duties, taxes and other charges due upon the goods have been
paid or secured to be paid at the port of entry or in case the goods are deemed free of duties, taxes and
other charges, when the goods have legally left the jurisdiction of the Bureau.
VAT on Sale of Service and Use or Lease of
Properties
◦ Sale or exchange of services, as well as the use or lease of properties, shall be subject to VAT, equivalent to 12% of the
gross receipts.
◦ Gross receipts pertain to the total amount of money or its equivalent representing the contract price, compensation,
service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and
advanced payments (1) actually) or (2) constructively received during the taxable quarter for the services performed or
to be performed for another person, excluding VAT, except those amounts earmarked for payment to unrelated third
party or received as reimbursement for advance payment on behalf of another which do not redound to the benefit of
the payor (or service provider).
VAT on Sale of Service and Use or Lease of
Properties
Constructive Receipt
◦ It occurs when the money consideration or its equivalent is placed at the control of the person who
rendered the service without restrictions by the payor. The following are examples of constructive
receipts:
◦ Deposit in banks which are made available to the seller without restrictions
◦ Issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof by the seller as payment
for services rendered
◦ Transfer of the amounts retained by the payor to the account of the contractor
Transaction Deemed Sale

◦ These transactions are not actual sale of goods, but deemed as such,
thus, subject to VAT.
Transaction Deemed Sale
1. Transfer, use or consumption not in the course of business of goods or properties originally intended for sale of for
use in the course of business.
2. Distribution or transfer to:
a. Shareholders or investors as share in the profits of the VAT-registered persons
b. Creditors in payment of debt

3. Consignment of goods if actual sale is not made within 60 days following the date such goods were consigned.
4. Retirement from or cessation of business with respect to all goods on hand, whether capital goods, stock-in-trade,
supplies or materials whether or not the business is continued by the new owner or successor.