INSTITUTO NG PANGANGALAKAL AT PAGTUTUOS

Subject Code: ACT 26

Subject Title: Business Taxation
No. of Units: 3

MODULE 8:
VALUE-ADDED TAX
I. Pre-test / Activity
1. Which of the following is subject to value-added tax?
A. Sale of fruits C. Sale of vegetables
B. Sale of olive oil D. Sale of copra

2. Which of the following transactions is exempt from VAT?

A. Legal services
B. Services rendered by domestic air transport companies
C. Medical services such as dental and veterinary services rendered by professionals
D. Services arising from employee-employer relationship

II. Content
A. NATURE AND CHARACTERISTICS OF VAT
VAT is a tax on consumption levied on the sale, barter, exchange or lease of goods or properties and services in the
Philippines and on importation of goods into the Philippines. 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 the goods, properties
or services. In the case of importation, the importer is the one liable for the VAT. (Sec 4.105-2, RR 16-2005)

B. SCOPE OF VAT
The following transactions entered into by any person are subject to VAT:
 Any sale, barter, or exchange of goods and properties (including real properties), or similar transactions, in the
course of trade or business;
 Any sale of services, or similar transactions, in the course of trade or business;
 Any lease of goods and properties, or similar transactions, in the course of trade or business; and
 Any importation of goods, whether or not in the course of trade or business.
C. MEANING OF THE TERM “SALES OF GOODS OR PROPERTIES”
The term "goods or properties" shall mean all tangible and intangible objects, which are capable of pecuniary estimation
and shall include, among others:
1. Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business;
2. The right or the privilege to use patent, copyright, design or model, plan, secret formula or process, goodwill,
trademark, trade brand or other like property or right;
3. The right or privilege to use in the Philippines of any industrial, commercial or scientific equipment;
4. The right or the privilege to use motion picture films, films, tapes and discs; and
5. Radio, television, satellite transmission and cable television time. TRAIN

D. MEANING OF THE TERM “SALE OR EXCHANGE OF SERVICES”

The term "sale or exchange of services" means the performance of all kinds of services in the Philippines for others for
a fee, remuneration or consideration, whether in kind or in cash, including those performed or rendered by the following:
1. Construction and service contractors;
2. Stock, real estate, commercial, customs and immigration brokers;
3. Lessors of property, whether personal or real;
4. Persons engaged in warehousing services;
5. Lessors or distributors of cinematographic films;
6. Persons engaged in milling, processing, manufacturing or repacking goods for others;
7. Proprietors, operators or keepers of hotels, motels, rest houses, pension houses, inns, resorts, theatres, and movie
houses;
8. Proprietors or operators of restaurants, refreshment parlors, cafes, and other eating places, including clubs and
caterers;
9. Dealers in securities;
10. Lending investors;
11. Transportation contractors on their transport of goods or cargoes, including persons who transport goods or
cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes;
12. Common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the
Philippines to another place in the Philippines;
13. Sale of electricity by generating, transmission by any entity including the National Grid Corporation of the
Philippines (NGCP), and distribution companies including electric cooperatives shall be subject to twelve percent
(12%) VAT on their gross receipts;

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 14. Franchise grantees of electric utilities, telephone and telegraph, radio and/or television broadcasting and all other
franchise grantees, except franchise grantees of radio and/or television broadcasting whose annual gross receipts
of the preceding year do not exceed Ten Million Pesos (₱10,000,000.00), and franchise grantees of gas and water
utilities;
15. Non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity and bonding
companies; and
16. Similar services regardless of whether or not the performance thereof calls for the exercise of use of the physical
or mental faculties.
The phrase "sale or exchange of services" shall likewise include:
1. The lease of use of or the right or privilege to use any copyright, patent, design or model, plan, secret formula or
process, goodwill, trademark, trade brand or other like property or right;
2. The lease or the use of, or the right to use of any industrial, commercial or scientific equipment;
3. The supply of scientific, technical, industrial or commercial knowledge or information;
4. The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the
application or enjoyment of any such property, or right or any such knowledge or information;
5. The supply of services by a nonresident person or his employee in connection with the use of property or rights
belonging to, or the installation or operation of any brand, machinery or other apparatus purchased from such
non-resident person;
6. The supply of technical advice, assistance or services rendered in connection with technical management or
administration of any scientific, industrial or commercial undertaking, venture, project or scheme;
7. The lease of motion picture films, films, tapes and discs; and
8. The lease or the use of or the right to use radio, television, satellite transmission and cable television time. TRAIN
https://www.bir.gov.ph/index.php/tax-information/value-added-tax.html
E. VAT-EXEMPT TRANSACTIONS
The following transactions shall be exempt from the value-added tax:
(Sec. 109, NIRC; Sec. 7, RA9337)
1. Sale or importation of agricultural and marine food products in their original state, livestock and poultry of a kind
generally used as, or yielding or producing foods for human consumption; and breeding stock and genetic
materials therefor.
Products classified under this paragraph shall be considered in their original state even if they have
undergone the simple processes of preparation or preservation for the market, such as freezing, drying, salting,
broiling, roasting, smoking or stripping. Polished and/or husked rice, corn grits, raw cane sugar and molasses,
ordinary salt, and copra shall be considered in their original state;
2. Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds,
including ingredients, whether locally produced or imported, used in the manufacture of finished feeds (except
specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered
as pets);
3. Importation of personal and household effects belonging to the residents of the Philippines returning from abroad
and nonresident citizens coming to resettle in the Philippines: Provided, That such goods are exempt from
customs duties under the Tariff and Customs Code of the Philippines;
4. Importation of professional instruments and implements, tools of trade, occupation or employment, wearing
apparel, domestic animals, and personal and household effects belonging to persons coming to settle in the
Philippines or Filipinos or their families and descendants who are now residents or citizens of other countries,
such parties hereinafter referred to as overseas Filipinos, in quantities and of the class suitable to the profession,
rank or position of the persons importing said items, for their own use and not for barter or sale, accompanying
such persons, or arriving within a reasonable time.
Provided, that the Bureau of Customs may, upon the production of satisfactory evidence that such persons
are actually coming to settle in the Philippines and that the goods are brought from their former place of abode,
exempt such goods from payment of duties and taxes: Provided, further, that vehicles, vessels, aircrafts,
machineries and other similar goods for use in manufacture, shall not fall within this classification and shall
therefore be subject to duties, taxes and other charges; (RR 13-2018) RA 10963 TRAIN LAW
5. Services subject to percentage tax;
6. Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugar cane
into raw sugar
7. Medical, dental, hospital and veterinary services except those rendered by professionals;
Note:
a. If the hospital or clinic operates a Laboratory services are exempted.
b. Pharmacy or drugstore, the sale of drugs and medicines are subject to VAT. Hospital bills constitute
medical services.
c. Sales made by the drugstore to the in-patients which are included in the hospital bills are part of medical
bills (not subject to vat).
d. Sales of the drug store to the out-patients are taxable because they are NOT PART of medical services of
the hospital. Health Maintenance Organizations (HMOS) are subject to vat, unless they directly provide
medical services to their clients.
Medical practitioners shall likewise include medical technologists, allied health workers (e.g., occupational
therapists, physical therapists, speech therapists, nurses, etc.) and other medical practitioners who are not under
an employer-employee relationship with the hospital, clinic or HMO and other similar establishments.
Pursuant to RR 16-2005, services of Professional Practitioners are subject to VAT if annual gross
professional fees exceed ₱3,000,000. Otherwise, such professional fees are subject to Percentage Tax under Sec.
116 of the Tax Code as amended. Professional Practitioners include, among others, the following: Medical
practitioners, CPAs Insurance Agents (Life & Non-life);

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8. Educational services rendered by private educational institutions, duly accredited by the Department of
Education (DEPED), the Commission on Higher Education (CHED), the Technical Education And Skills
Development Authority (TESDA) and those rendered by government educational institutions;
9. Services rendered by individuals pursuant to an employer-employee relationship;
10. Services rendered by regional or area headquarters established in the Philippines by multinational corporations
which act as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches
in the Asia-Pacific Region and do not earn or derive income from the Philippines;
11. Transactions which are exempt under international agreements to which the Philippines is a signatory or under
special laws;
12. Sales by agricultural cooperatives duly registered and in good standing with the Cooperative Development
Authority (CDA) to their members, as well as of their produce, whether in its original state or processed form, to
non-members, their importation of direct farm inputs, machineries and equipment, including spare parts thereof,
to be used directly and exclusively in the production and/or processing of their produce;
13. Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered and in good
standing with the Cooperative Development Authority;
14. Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with and in good standing with
CDA; Provided, that the share capital contribution of each member does not exceed Fifteen Thousand Pesos
(₱15,000) and regardless of the aggregate capital and net surplus ratably distributed among the members;
15. Export sales by persons who are not VAT-registered;
16. Beginning January 1, 2021, the VAT exemption shall only apply to 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 property utilized for
socialized housing as defined by Republic Act No. 7279, sale of house and lot, and other residential dwellings
with selling price of not more than ₱3,600,000 (RR 01-2024)
17. Lease of residential units with a monthly rental per unit not exceeding ₱15,000.
The foregoing notwithstanding, lease of residential units where the monthly rental per unit exceeds ₱15,000, but
the aggregate of such rentals of the lessor during the year do not exceed ₱3,000,000 shall likewise be exempt
from VAT; however, the same shall be subject to three percent (3%) percentage tax under Section 116 of the Tax
Code.
In cases where a lessor has several residential units for lease, some are leased out for a monthly rental per
unit of not exceeding ₱15,000 while others are leased out for more than ₱15,000 per unit, his tax liability will be
as follows:
a. The gross receipts from rentals not exceeding ₱15,000 per month per unit shall be exempt from VAT
regardless of the aggregate annual gross receipts. It is also exempt from the 3% percentage tax.
b. The gross receipts from rentals exceeding ₱15,000 per month per unit shall be subject to VAT if the
aggregate annual gross receipts from said units only exceeds ₱3,000,000. Otherwise, the gross receipts
will be subject to the 3% tax imposed under Section 116 of the Tax Code; (RR 13-2018) RA 10963 TRAIN
LAW
18. Sale, importation, printing or publication of books, and any newspaper, magazine, journal, review bulletin, or any
such educational reading material covered by the United Nations Educational, Scientific and Cultural
Organization (UNESCO) Agreement on the importation of educational, scientific and cultural materials,
including the digital or electronic format thereof. Provided, that the materials enumerated herein are not devoted
principally to the publication of paid advertisements. Provided further, that the materials enumerated herein
are compliant with the requirements set forth by the National Book Development Board pursuant to R.A. No.
8047. CREATE Law
19. Transport of passengers by international carriers; (RR 13-2018) RA 10963 TRAIN LAW
20. Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts
thereof for domestic or international transport operations: Provided, however, that the exemption from VAT on
the importation and local purchase of passenger and/or cargo vessels shall be subject to the requirements on
restriction on vessel importation and mandatory vessel retirement program of Maritime Industry Authority
(MARINA); (RR 13-2018) RA 10963 TRAIN LAW
21. Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations:
a. Provided, that the said fuel, goods and supplies shall be used for international shipping or air transport
operations. Thus, said fuel, goods and supplies shall be used exclusively or shall pertain to the transport
of goods and/or passenger from a port in the Philippines directly to a foreign port, or vice versa, without
docking or stopping at any other port in the Philippines unless the docking or stopping at any other
Philippine port is for the purpose of unloading passengers and/or cargoes that originated from abroad, or
to load passengers and/or cargoes bound for abroad:
b. Provided, further, that if any portion of such fuel, goods or supplies is used for purposes other than that
mentioned in this paragraph, such portion of fuel, goods and supplies shall be subject to twelve percent
(12%) VAT (RR 13-2018) RA 10963 TRAIN LAW);
22. Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank
financial intermediaries such as money changers and pawnshops, subject to percentage tax under Secs. 121 and
122, respectively, of the Tax Code; (RR 13-2018) RA 10963 TRAIN LAW
23. Sale or lease of goods and services to senior citizens and persons with disabilities, as provided under Republic
Act Nos. 9994 (Expanded Senior Citizens Act of 2010) and 10754 (An Act Expanding the Benefits and Privileges
of Persons with Disability), respectively; (RR 13-2018) RA 10963 TRAIN LAW
24. Transfer of Property pursuant to Section 40(C)(2) [tax-free exchange: (1) transfer to a controlled corporation;
and, (2) merger or consolidation] of the Tax Code, as amended; (RR 13-2018) RA 10963 TRAIN LAW
25. Association dues, membership fees, and other assessments and charges collected on a purely reimbursement basis
by homeowners’ associations and condominium corporations established under Republic Act No. 9904 (Magna
Carta for Homeowners and Homeowners’ Association) and Republic Act No. 4726 (The Condominium Act),
respectively; (RR 13-2018) RA 10963 TRAIN LAW

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 26. Sale of gold to the Bangko Sentral ng Pilipinas; (previously zero-rated transaction) (RR 13-2018) RA 10963
TRAIN LAW
27. Sale or importation of prescription drugs and medicines for:
a. Diabetes, high cholesterol, and hypertension beginning January 1, 2020; and
b. Cancer, mental illness, tuberculosis, and kidney diseases beginning January 1, 2021.
The exemption from VAT under this subsection shall only apply to the sale or importation by the manufacturers,
distributors, wholesalers and retailer of drugs an medicines included in the list of approved drugs and medicines"
issued by the Department of Health (DOH) for this purpose. (RR 4-2021)
28. Sale or importation of the following beginning January 1, 2021 to December 31, 2023:
a. Capital equipment, its spare parts and raw materials, necessary for the production of personal protective
equipment (PPE) components such as coveralls, gown, surgical cap, surgical mask, n-95 mask, scrub suits,
goggles and face shield, double or surgical gloves, dedicated shoes, and shoe covers, for COVID-19
prevention;
b. All drugs, vaccines and medical devices specifically prescribed and directly used for the treatment of
COVID-19; and
c. Drugs for the treatment of COVID-19 approved by the Food and Drug Administration (FDA) for use in
clinical trials, including raw materials directly necessary for the production of such drugs.
Provided, that the Department of Trade and Industry (DTI) shall certify that such equipment, spare parts or raw
materials for importation are not locally available or insufficient in quantity, or not in accordance with the quality
or specification required.
Provided further, that for item (b), within sixty (60) days from the effectivity of the CREATE, and every three
(3) months thereafter, the Department of Health (DOH) shall issue a list of prescription drugs and medical devices
covered by this provision.
Provided finally, That for items (a) and (c) hereof, on the sale or importation of equipment, spare parts and
raw materials for the production of PPE components as well as the sale or importation of raw materials directly
necessary for the production of drugs for the treatment of COVID-19, the supplier/s or importer shall submit, for
the purpose of availing the exemption, the following: (1) Certified true copy of License to Operate", issued to the
manufacturer-buyer by the DOH-FDA authorizing the manufacture of medical grade PPE components and drugs
for the treatment of COVID-19; and (2) "Sworn Declaration" from the manufacturer-buyer that the items shall be
used for the manufacture of the PPE components and drugs for the treatment of COVID-19.
The exemption claimed under this subsection shall be subject to post audit by the Bureau of Internal
Revenue (BIR) or the Bureau of Customs (BOC), as may be applicable.
29. Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the
preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of Three Million Pesos
(₱3,000,000).
For purposes of these Regulations, the ₱3,000,000.00 gross annual sales shall comprise of the business' total
revenues from sales of its products, which are either goods or services, including non-refundable advance
deposits/payments for services, net of discounts, sales returns and allowances, covering the calendar or fiscal
year. Sales incidental to the registered operations of the business shall also be included pursuant to Section 105
of the Tax Code, as amended.

Transactions exempt from the value-added tax:

1. Sale or importation of agricultural and marine food products in their original state…
Illustration 1
Mr. Andres a farmer milled his palay into rice. He sold the rice to Mr. Buenave a wholesaler, who in turn sold it
to Mr. Cruz a retailer, who in turn sold it to Mr. Dizon a consumer. Who are subject to value-added tax?

Illustration 2
Mr. Escoto imported boars and swines for breeding purposes. Is Mr. Escoto subject to value-added tax?

Illustration 3
Mr. Flores is a fisherman. Fish caught and still unsold at the end of the day, he makes into and sells as dried fish,
salted, or smoked fish. Is Mr. Flores subject to value-added tax?

Illustration 4
Mr. Gomez a fisherman processes his catch of sardines into canned sardines. Is Mr. Gomez subject to value-
added tax?

2. Services subject to percentage tax

Illustration 5
Baliwag Transit is a bus company plying the route from Baliwag to Cubao and Baliwag to Grace Park and vice-
versa. Is the bus company subject to value-added tax?

3. Services rendered by individuals pursuant to an employer-employee relationship

Illustration 6
Mr. Danilo Haber is a construction foreman of F&F Construction Company. He has to abide with the company
policy relative to his assignment, time and day of reporting, and others. Is the service rendered by Mr. Haber
subject to VAT?

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 4. Export sales by persons who are not VAT-registered
Illustration 7
Mr. Imperial is a non-VAT registered taxpayer. He exported commodities to Japan and Australia. Are the
exportations subject to VAT? How about if he is a VAT-registered?

5. Lease of residential units with a monthly rental per unit not exceeding ₱15,000.
Illustration 8
A lessor rents his 15 residential units for ₱14,500 per month. During the taxable year, his accumulated gross
receipts amounted to ₱2,610,000. Is the lessor subject to value-added tax or 3% percentage tax?

Illustration 9
A lessor rents his 20 residential units for ₱14,500 per month. His accumulated gross receipts during the taxable
year amounted to ₱3,480,000. Is the lessor subject to value-added tax or 3% percentage tax?

Illustration 10
A lessor rents his 15 residential units for ₱15,500 per month. During the taxable year, his accumulated gross
receipts amounted to ₱2,790,000. Is the lessor subject to value-added tax or 3% percentage tax?

Illustration 11
A lessor rents his 20 residential units ₱15,500 per month. His accumulated gross receipts during the taxable year
amounted to ₱3,720,000. Is the lessor subject to value-added tax or 3% percentage tax?

Illustration 12
A lessor rents his 2 commercial and 10 residential units for monthly rent of ₱60,000 and ₱15,000 per unit,
respectively. During the taxable year, his accumulated gross receipts amounted to ₱3,240,000 (₱1,440,000 from
commercial units and ₱1,800,000 from residential units).

Illustration 13
A lessor rents his 5 commercial and 10 residential units for monthly rent of ₱60,000 and ₱15,000 per unit,
respectively. During the taxable year, his accumulated gross receipts during the taxable year amounted to
₱5,400,000 (₱3,600,000 from commercial units and ₱1,800,000 from residential units).

Illustration 14
A lessor rents his 5 commercial and 10 residential units for monthly rent of ₱60,000 and ₱15,500 per unit,
respectively. During the taxable year, his accumulated gross receipts amounted to ₱5,460,000 (₱3,600,000 from
commercial units and ₱1,860,000 from residential units).

F. RATE AND BASE OF TAX

1. On sale, barter or exchange of goods or properties, a value-added tax equivalent to twelve percent (12%) of the
gross sales. (RR 3-2024)

2. On importation of goods a value-added tax equivalent to twelve percent (12%) based on the total value used by
the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any,
and other charges, such tax to be paid by the importer prior to the release of such goods from customs
custody: Provided, That where the customs duties are determined on the basis of the quantity or volume of the
goods, the value-added tax shall be based on the landed cost plus excise taxes, if any. (Sec. 107, NIRC; Sec. 5,
RA 9337)

Customs duties is ad valorem (based Customs duties is specific (based on

on value) quantity or volume)
Dutiable value ₱xx Invoice amount ₱xx
Customs duties xx Customs duties xx
Excise tax xx Freight xx
Other charges w/in BOC xx Insurance xx
Tax Base xx Other charges w/in BOC xx
Rate 12% Landed Cost xx
VAT on Importation xx Excise tax xx
Tax Base xx
Rate 12%
VAT on Importation xx

G. GROSS SALES
Gross sales refers to the total amount of money or its equivalent the contract price, compensation, service fee, rental or
royalty, including the amount charged for materials supplied with the services during the taxable period for the services
performed for another person, which the purchaser pays or is obligated to pay to the seller in consideration of the sale,
barter or exchange of services that has already been rendered by the seller and the use or lease of properties that have
already been supplied by the seller, excluding VAT and those amounts earmarked for payment to third party (3rd) or
received as reimbursement for payment on behalf of another which do not redound to the benefit of the seller as provided
under relevant laws, rules or regulations: Provided, that for long-term contracts for a period of one (1) year or more, the
invoice shall be issued on the month in which the service, or use or lease of properties is rendered or supplied. (RR 3-
2024)

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 But the law and regulations allow deductions for
1. The value of services rendered for which allowances were granted by a VAT-registered person during the quarter
in which a refund is made or a credit memorandum of refund is issued.
2. Sales discount grated and indicated in the invoice at the time of sale and the grant of which is not dependent upon
the happening of a future event may be excluded from the sales within the same quarter it was given. (RR 3-2024)

Illustration 15
Mr. Jacinto a VAT taxpayer, sold inventory from his store at a selling price of ₱10,000. The trade practice is to add a
value-added tax of 12% on a sale, so that the buyer had to pay ₱11,200. How much is the gross selling price?

Illustration 16
Mr. King a VAT taxpayer had the following data in a month:
Cash sales …………………………… ₱ 226,600
Sales on account…………………….. 282,900
Sales returns and allowances..………. 15,774
Sales discount……………………….. 17,625
How much is the gross selling price and VAT?

H. LANDED COST
Where the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax shall
be based on the landed cost plus excise taxes if any
Landed cost means the invoice amount of the goods imported plus all the legitimate expenses of importation (e.g.
insurance, freight, postage, commission, interest, bank charges, wharfage dues, brokerage fee, stamps, processing fee,
customs duty, excise taxes, and storage fee) prior to the release of the goods from customs custody. TBReyes
Where the customs and tariff duties are based on the value of the importation, the tax base is the dutiable value of the
importation, as determined by the Bureau of Customs plus all legitimate expenses of importation prior to the removal of
the goods from customs custody.

Illustration 17
Mr. Que made an importation of merchandise to be sold. The custom and tariff duties ware based on the quantity of the
imported goods. The invoice amount was ₱2,250,000. Freight was ₱200,000 and marine insurance was ₱50,000. Other
legitimate expenses on the importation prior to removal from customs custody amounted to ₱250,000. How much is the
landed cost and VAT?

Illustration 18
Mr. Rafael made an importation of an article for personal use. The customs and tariff duties ware based on the value of
the importation as determined by the Bureau of Customs, the invoice amount of the importation was ₱9,800 and freight
and insurance was ₱600. The dutiable value of the importation was ₱10,000. All other legitimate expenses of importation
amounted to ₱1,000. How much is the tax base and VAT?

I. TAX FORMULA
On sales of goods, properties, and services:
Output taxes………………………… ₱ xxx
Less: Input taxes….………………... (xxx)
VAT Payable……………………….. ₱ xxx

Output tax means the VAT due on the sale, lease or exchange of taxable goods or properties or services by any person
registered or required to register under Section 236 of the Tax Code. It is also called output VAT.

Input tax means the VAT due on or paid by a VAT-registered on importation of goods or local purchase of goods,
properties or services, including lease or use of property in the course of his trade or business. It shall also include the
transitional input tax determined in accordance with Section 111 of the Tax Code, presumptive input tax and deferred
input tax from previous period. It is also called input VAT. (Sec. 110, NIRC) https://www.bir.gov.ph/index.php/tax-information/value-
added-tax.html
VAT payable refers to the excess of the output tax over the allowable input tax.
The amount of value-added tax (output tax on the seller and input tax on the buyer) is computed as follows: MTBAmpongan
1. If the amount does not include the tax – multiply by 12%
VAT (₱100,000 x 12%) = ₱12,000

2. If the amount includes the tax – multiply by 12/112

VAT (₱112,000 x 12/112) = ₱12,000

VAT on sale of goods or properties

Illustration 19
Mr. Urbano a VAT taxpayer purchased goods from Mr. Vidal a VAT supplier, to be sold. The total amount paid on the
purchase was ₱89,600 VAT included. Mr. Urbano sold the goods to Mr. Wong for ₱156,800 inclusive of VAT. How
much is the VAT payable?

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 Illustration 20
In a month Mr. Yulo a VAT taxpayer made sales amounting to ₱500,000 VAT not included. For the same period he
made purchases with invoices showing purchases prices not including VAT as follows:
Goods from a VAT supplier..….………… ₱ 150,000
Goods from non-VAT supplier………….. 100,000
Supplies from a VAT supplier….……….. 25,000
Services from a VAT taxpayer…….……. 30,000
How much is the VAT payable?

VAT on importation of goods

Illustration 21
Mr. Tan a VAT- registered taxpayer made an importation of goods for sale with a landed cost of ₱250,000. He sold the
goods for ₱475,000 Vat not included. How much is the VAT payable?

J. ZERO RATED SALES (0% VAT)

1. Zero-Rated Sales of Goods or Properties

The following sales by VAT-registered persons shall be subject to zero-percent (0%) rate:
a. Export sales - "Export Sales" shall mean:
1) The sale and actual shipment of goods 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, 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 Plipinas (BSP); and
2) The sole of goods, supplies, equipment, and fuel to persons engaged in international shipping or
international air transport operations: Provided, that the goods, supplies, equipment, and fuel shall be
used exclusively for international shipping or air transport operations.
The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or
international air transport operations is limited to goods, supplies, equipment and fuel that shall be
used in the transport of goods and passengers from a port in the Philippines directly to a foreign
port, or vice versa, without docking or stopping at any other port in the Philippines unless the
docking or stopping at any other Philippine port is for the purpose of unloading passengers and/or
cargoes that originated from abroad, or to load passengers and/or cargoes bound for abroad: Provided,
further, that if any portion of such fuel, goods, supplies or equipment is used for purposes other than
that mentioned in this paragraph, such portion of fuel, goods, supplies, and equipment shall be subject
to 12% VAT;
3) Sales to persons or entities whose exemption from direct and indirect taxes under special laws or
international agreements to which the Philippines is a signatory effectively subjects such sales to zero
rate,
4) Sale of raw materials, inventories, supplies, equipment, packaging materials, and goods, to a
Registered Export Enterprise, to be used directly and exclusively in its registered project or activity
pursuant to Sections 294 (E) and 295 (D) of Republic Act No. 11534 or the "Corporate Recovery and
Tax Incentives for Enterprise Act" ("CREATE Act"). and Section 5, Rule 2 of its IRR for a maximum
period of seventeen (17) years from the date of registration, unless otherwise extended under the
Strategic Investment Priority Plan (SIPP); Provided, That the term "registered export enterprise" shall
refer to an export enterprise as defined under Section 4 (M), Rule 1 of the CREATE Act IRR, that is
also a registered business enterprise as defined in Section 4 (W) of the same IRR: Provided further,
That the above-described sales to existing registered export enterprises located inside ecozones and
freeport zones shall also be qualified for VAT zero-rating under this sub-item until the expiration of
the transitory period.

2. Zero-Rated Sale of Services

The following services performed in the Philippines by a VAT-registered person shall be subject to zero percent
(0%) VAT rate:
a. Services other than processing, manufacturing or repacking of goods rendered to a person engaged in
business conducted outside the Philippines or to a non-resident person not engaged in business who is
outside the Philippines when the services are performed, the consideration for which is paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP;
b. Services rendered to persons or entities whose exemption from direct and indirect taxes under special laws
or international agreements to which the Philippines is a signatory, effectively subjects the supply of such
services to zero percent (0%) rate;
c. Sale of services, including provision of basic infrastructure, utilities, and maintenance, repair and overhaul
of equipment, to a Registered Export Enterprise, to be used directly and exclusively in its registered
project or activity pursuant to Sections 294 (E) and 295 (D) of CREATE Act, and Section 5, Rule 2 of its
IRR for a maximum period of seventeen (17) years from the date of registration, unless otherwise extended
under the SIPP; Provided, That the term registered export enterprise" shall refer to an export enterprise as

7
 defined under Section 4 (M) Rule 1 of the CREATE IRR, that is also a registered business enterprise as
defined in Section 4 (W) of the same IRR: Provided further, That the above-described sales to existing
registered export enterprises located inside ecozones and freeport zones shall also be qualified for VAT
zero-rating under this sub-item until the expiration of the transitory period.
d. Services rendered to persons engaged in international shipping or air transport operations, including leases
of property for use thereof: Provided, that these services shall be exclusively for international shipping or
air transport operations. Thus, the services referred to herein shall not pertain to those made to common
carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the
Philippines to another place in the Philippines, the same being subject to twelve percent (12%) VAT under
Sec. 108 of the Tax Code.
e. Transport of passengers and cargo by domestic air or sea vessels from the Philippines to a foreign country.
Gross receipts of international air or shipping carriers doing business in the Philippines derived from
transport of passengers and cargo from the Philippines to another country shall be exempt from VAT;
however, they are still liable to a percentage tax of three percent (3%) based on their gross receipts derived
from transport of cargo from the Philippines to another country as provided for in Sec. 118 of the Tax Code;
and
f. Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass,
solar, wind, hydropower, geothermal and steam, ocean energy, and other emerging sources using
technologies such as fuel cells and hydrogen fuels: Provided, however, that zero-rating shalt apply strictly
to the sale of power or fuel generated through renewable sources of energy, and shall not extend to the sale
of services related to the maintenance or operation of plants generating said power.
Registered Export Enterprise (REE) As defined under Section 4(M), Rule 1 of the CREATE IRR, an
export enterprise refers to any individual, partnership, corporation, Philippine branch of a foreign
corporation, or other entity organized and existing under Philippine laws and registered with an Investment
Promotion Agency (IPA) to engage in manufacturing, assembling or processing activity, and services such
as information technology (IT) activities and business process outsourcing (BPO), and resulting in the direct
exportation, and/or sale of its manufactured, assembled or processed product or IT/BPO services to another
registered export enterprise that will form part of the final export product or export service of the latter, of
at least seventy (70%) of its total production or output. Provided, however, that the export enterprise is also
a registered business enterprise as, defined in Section 4(W) of the same IRR.
Registered Business Enterprise (RBE) Refers to any individual, partnership, corporation, Philippine
branch of a foreign corporation, or other entity organized and existing under Philippine laws and registered
with an Investment Promotion Agency (PA) excluding service enterprises such as those engaged in customs
brokerage, trucking or forwarding services, janitorial services. security services, insurance, banking, and
other financial services, consumers' cooperatives, credit unions, consultancy services, retail enterprises,
restaurants, or such other similar services, as may be determined by the Fiscal Incentive Review Board
(FIRB), irrespective of location, whether inside or outside the zones, duly accredited or licensed by any of
the investment promotion agencies and whose income delivered within the economic zones shall be subject
to taxes under the National Internal Revenue Code (NIRC) of 1997 (or the Tax Code), as amended.
Direct and exclusive use in the registered project or activity refers to raw materials, supplies, equipment,
goods, packaging materials, services, including provision of basic infrastructure, utilities, and maintenance,
repair and overhaul of equipment, and other expenditures directly attributable to the registered project or
activity without which the registered project or activity cannot be carried out.
Only the portion of the expense directly and exclusively used by a registered export enterprise for its
registered project or activity shall qualify for VAT zero-fating on local purchases, excluding those used for
administrative purposes. The registered export enterprise concerned should adopt a method to best allocate
goods or services purchased, e.g. for utilities, use of separate water and power meters for its registered
project or activity or any method that may determine the allocation such as area usage or ratio of utility
expenses between cost of sales and administrative expenses as reflected in the prior year Audited Financial
Statements, If the goods or services are used in both the registered project or activity and administration
purposes and the proper allocation could not be determined, the purchase of such goods and services shall
be subject to 12% VAT.

For this purpose, services for administrative purposes, such as legal, accounting, and such other similar
services, are not considered expenses directly attributable to and exclusively used in the registered project
or activity.

Illustration 22
The following data reveals the records during the month for Dayao Corporation a VAT registered taxpayer.
Domestic sales VAT inclusive………………................... ₱ 532,000
Export sales VAT not included….......…………............... 410,000
Sales of goods to Mr. Ebreo in Singapore but delivered
to Mr. Falcon a resident (payment was remitted in
dollars by Mr. Ebreo thru the BPI) VAT not included.. 375,000
Purchases of goods sold locally VAT inclusive............... 291,200
Purchases of raw materials on goods exported VAT not
Included…………………………………................. 190,000
How much is the VAT payable?

8
K. CREDITABLE INPUT TAX
Any input tax evidenced by VAT invoice or official receipt on the following transactions shall be creditable against the
output tax of a VAT-registered person: (Sec. 8, RA 9337)
1. Purchase or importation of goods
 For sale;
 For conversion into or intended to form part of a finished product for sale including packaging materials;
 For use as supplies in the course of business;
 For use as materials supplied in the sale of service;
 For use in trade or business for which deduction for depreciation or amortization is allowed under the tax
code;
2. Purchase of real property on which Value Added Tax has been actually paid;
3. Purchase of services on which a Value Added Tax has been actually paid.
4. Transitional input vat
5. Presumptive input vat
Primarily input VAT credits are not allowed for purchases/import of goods, properties and services that are not connected
to the trade or business the VAT-registered person operates in.

L. TRANSACTIONS DEEMED SALE (SEC. 106 B, NIRC; SEC. 4 RA 9337)

1. Withdrawal of goods from the business by a VAT-registered person for his personal use;
2. Distribution or transfer to shareholders and creditors;
3. Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were
consigned; and
4. 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 the business is continued by a
new owner or successor.
Thus, it is not only the actual sale of goods/inventory that will give rise to output VAT.

M. GOODS CONSIGNED
A consignment is a transaction where the owner of the goods (called the consignor) gives them to somebody (called the
consignee), for the latter to sell, at a suggested retail price. While still unsold by the consignee, the consignor retains
ownership of the goods. When the consignee sells, he remits payment for the goods to the consignor.

Goods on consignment shall be subject to tax when the goods are actually sold by the consignee, or although not yet
sold, when 60 days shall have elapsed from the date the goods were consigned.

Illustration 23
Atienza Company is a manufacturer and consigned goods to SM Corporation and the age of consignment shipments (at
suggested selling prices) were as follows:
Consignment shipments, 0 to 30 days
(From which there was a sale at ₱50,000)…...... ₱ 200,000
Consignment shipments, 31, to 60 days………...... 150,000
Consignment shipments, 61 to 90 days………....... 300,000
Consignment shipments, 91 days and over…......... 400,000
How much is the taxable sales from the consignments?

Illustration 24
By the end of October, Mr. Barbosa’s consignment shipments over sixty days old to Robinson Corporation was at a
suggested selling price of ₱400,000 but there was no advice on its sale. Advice on its sale was in November, when there
was a remittance from Robinson Corporation of ₱360,000 (net of a commission of ₱40,000). How much is the taxable
sales of Mr. Barbosa on the consignment for the month of October and November?

Illustration 25
Antoinette Camacho is engaged in a merchandising business. Her sales invoice and other data all VAT inclusive during
the month of November are shown below: (Use two decimal)
Cash sales…………………………........... ₱ 385,000
Sales returns on cash sales……….…….... 27,500
Sales on account…………………............. 247,500
Goods consigned:
November 15………………….......... 132,500
September 15…………….…............. 8,250
Purchases of merchandise…..……............ 504,000
Purchases of supplies……………............. 44,800
Telephone bills on domestic calls……....... 1,680
How much is the VAT payable?

N. TRANSITIONAL INPUT TAX ON BEGINNING INVENTORIES

When a taxpayer becomes subject to value-added tax (previously non-VAT), he shall be allowed an input tax on his
beginning inventories. The following inventories shall be the subject of transitional input taxes: (Sec. 9, RA 9337)
1. Goods purchased for resale in their present condition;
2. Materials purchased for further processing, but which have not yet undergone processing;
3. Goods which have been manufactured by the taxpayer;

9
 4. Goods in process for sales; or
5. 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:
1. The beginning inventory of goods, materials and supplies equivalent to 2% of the value of such inventory; or
2. The actual value-added tax paid on such goods, materials and supplies.

Illustration 26
Mr. Ibatan became subject to value-added tax on April 1 of the current year. The value of his beginning inventory of
goods, materials and supplies is ₱283,500 VAT not included? The value-added tax paid on such inventory amount to
₱34,020. How much is the transitional input tax of Mr. Ibatan?

O. PRESUMPTIVE INPUT TAX

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 meals shall be allowed a presumptive input tax equivalent to (4%) of the
gross value in money of their purchases of primary agricultural products which are used as inputs to their
production. (Sec. 9, RA 9337)

Illustration 27
Mr. Jao is engaged in purchasing copra from copra producers and processed them into canned cooking oil. In October
he made a total purchases of ₱150,000 processed them and sold the cooking oil to the public. The taxable sales amounted
to ₱950,000 VAT not included. Purchases of canning and labeling materials totaled to ₱125,000 VAT not included. How
much is the VAT payable?

P. INPUT TAX FROM CAPITAL GOODS

Capital goods are properties used in business which are subject to depreciation (tangible, example machinery) or subject
to amortization (intangible example patent). The property has more than one year useful life. If the property has less than
one year useful life it is not a capital good. TBReyes

Input tax from capital goods: UNTIL DEC. 31, 2021 TRAIN Law
1. If the aggregate acquisition cost per month for such goods, excluding the VAT component do not exceeds
₱1,000,000 input tax is taken in the month that the purchase was made.
2. If the aggregate acquisition cost per month for such goods, excluding the VAT component exceeds
₱1,000,000:
a) With a useful life of 5 years or more the input tax shall be spread over 60 months; and
b) With a useful life of less than 5 years the input tax shall be spread over the months of its useful life.
Taxpayers with unutilized input VAT on capital goods purchased or imported prior to January 1, 2022, shall be allowed
to amortize the same as scheduled until fully utilized. Hence, Schedule 3(B) of BIR Forms 2550M/Q shall still be filled
out. However, if the depreciable capital good is sold/transferred within the period of five (5) years or prior to the
exhaustion of the amortizable input tax thereon, the entire unamortized input tax on the capital goods sold/transferred
can be claimed as input tax credit during the month/quarter when the sale or transfer was made.

Illustration 28
In May Mr. Kim purchased a fixed asset (capital good) for seven hundred fifty thousand pesos ₱750,000 VAT not
included with an estimated useful life of ten years. How much is the input VAT for the month of May?

Illustration 29
In June Mr. Lapuz purchased a fixed asset (capital good) for one million two hundred thousand pesos (₱1,200,000) VAT
not included with an estimated useful life of ten years. How much is the input VAT for the month of June?

Illustration 30
In July Mr. Magno purchased a fixed asset (capital good) for one million eight hundred thousand pesos (₱1,800,000)
VAT not included with an estimated useful life of four years. How much is the input VAT for the month of July?
Q. VAT ON SALE OF REAL PROPERTY
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. (Sec. 3, RR 4-2007)
Thus, the sale of the following real properties is not subject to VAT:
1. Sale of real property not primarily held for sale to customers or held for lease in the ordinary course of trade or
business
2. Sale of real property utilized for socialized housing
3. Sale of house & lot and other residential dwellings valued at ₱3,600,000 and below; (RR 01-2024)
The value-added tax shall be:
Gross selling price, whichever is higher between
1. Consideration stated in the contract of sale
2. Fair market value as determined by the Commissioner of BIR (zonal value) X 12% = VAT
3. Fair market value in the schedule of values of the Provincial or City Assessor

Sale of real property on installment plan

Sale of real property on installment plan 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.

10
 However, in the case of sale of real properties on the deferred-payment basis, not on the installment plan, the transaction
shall be treated as cash sale which makes the entire selling price taxable in month of sale.
The formula to compute the VAT if zonal or fair market value is higher than the consideration or selling price:
Actual collection, Zonal value or fair VAT to be shown
VAT not included x market value, x 12% = separately in the deed
Agreed consideration, whichever is higher of sale
VAT not included
Initial payments means payment or payments which the seller receives before or upon execution of the instrument of
sale and payments which he expects or is scheduled to receive in cash or property (other than evidence of indebtedness
of the purchaser) during the year when the sale or disposition of the real property was made. It covers any down payment
made and includes all payments actually or constructively received during the year of sale, the aggregate of which
determines the limit set by law.
Initial payments do not include the amount of mortgage on the real property sold except when such mortgage exceeds
the cost or other basis of the property to the seller, in which case, the excess shall be considered part of the initial
payments.
Also excluded from initial payments are notes or other evidence of indebtedness issued by the purchaser to the seller
at the time of the sale. Pre-selling of real estate properties by real estate dealers shall be subject to VAT in accordance
with rules prescribed above.

Illustration 31
Navarro Corporation has the following data (VAT not included):
Selling price on July 1…………………………............... ₱ 2,700,000
Payments on the selling price:
July 1……………………………………................... 337,500
December 1………………………………................. 337,500
July 1 following year………………………............... 2,025,000

Zonal value………………………………......................... 3,000,000

Fair market value in the assessment rolls of the city......... 2,550,000
How much is the VAT payable?

R. FILING OF RETURN AND PAYMENT OF VAT

On importation of goods the value-added tax is payable prior to the release of the imported goods from customs custody.
On sale of goods or properties or sale of services the VAT taxpayer prepares quarterly VAT returns (2550Q) and pays
the VAT at the time the declarations and returns are filed, within twenty-five (25) days after the end of the quarter,
reflecting the transactions of the whole quarter with the tax computed on the data for the quarter being reduced by the
taxes paid for the first and second months of the quarter. Any excess input tax in the quarterly return shall be carried
over to the quarterly return of such next quarter.
Illustration 32
Ocampo Corporation had the following data VAT not included:
Sales Purchases
First quarter per quarterly return….. ₱ 675,000 ₱ 720,000
April…………………………………............... 310,000 254,000
May…………………………………............... 215,000 216,000
June………………………………….............. 270,000 157,250
How much is the VAT payable for the second quarter?

S. ACCOUNTING FOR VALUE-ADDED TAX

The usual VAT transactions and their respective accounting entries are listed below:
1. To record cash purchases/sales of merchandise.
a) In the books of the buyer
Purchases xx
Input tax xx
Cash xx
b) In the books of the seller
Cash xx
Sales xx
Output tax xx
2. To record VAT payable at the end of the period.
Output tax xx
Input tax xx
VAT payable xx

11
 3. To record payment of VAT to the BIR.
VAT payable xx
Cash xx

4. To record purchases/sales of merchandise on account.

a) In the books of the buyer
Purchases xx
Input tax xx
Accounts payable xx
b) In the books of the seller
Accounts receivable xx
Sales xx
Output tax xx
5. To record collection/payment of purchases/sales of merchandise on account within the discount period.
a) In the books of the buyer
Accounts payable xx
Purchase discount xx
Input tax xx
Cash xx

b) In the books of the seller

Cash xx
Sales discount xx
Output tax xx
Accounts receivable xx
6. To record in the books of the buyer the payment of freight on goods purchased on credit. Term: FOB destination,
freight collect. (Seller bears the exp.; buyer pays the freight)
Accounts payable xx
Cash xx

7. To record in the books of the buyer the payment of goods purchased. Term: FOB shipping point, freight collect.
(Buyer bears the exp.; buyer pays the freight)
Freight in xx
Input tax xx
Cash xx
8. To record return of goods purchased/sold and receipt/payment of cash.
a) In the books of the buyer
Cash xx
Input tax xx
Purchase returns xx

b) In the books of the seller

Sales returns xx
Output tax xx
Cash xx
9. To record transitional input tax of a new VAT-registered establishment.
Input tax xx
Merchandise Inventory xx
10. To record presumptive input tax on the purchase of sugar cane by a sugar refinery.
Raw materials – sugar cane xx
Input tax xx
Cash xx
11. To record sales of merchandise during the day which consist of VAT subject and VAT-exempt goods.
Cash xx
Output tax xx
Sales – exempt xx
Sales - taxable xx

Illustration 33
Paz Corporation had the following selected transactions during the month of November:
Nov. 3 - Purchased goods from Quinto Enterprise invoice price ₱22,400 VAT inclusive Term: 1/10, n/30.
5 - Returned defective goods purchased from Quinto Enterprise invoice price VAT inclusive ₱2,800.
8 - Sold merchandise to Mr. Rabago for cash ₱27,500 exclusive of VAT.
10 - Sold to Samson Company ₱7,500 exclusive of VAT, term: 2/10, n/30.
12 - Paid the account with Quinto Enterprise.
15 - Received payment from Samson Company.

12
 Record the above transactions in the accounting books. MTBAmpongan
General Journal
Date Account titles Debit Credit

T. MIXED BUSINESS TRANSACTIONS

Mixed transaction refers to a situation wherein the taxpayer is engaged in transactions subject to VAT (12% and/or 0%)
as well as not subject to VAT (exempt). The main concern in such a case is the determination of input tax that can be
claimed for VAT purposes. A Vat registered person who is also engaged in transactions not subject to Vat shall be
allowed of Input tax credit as follows:
1. Total input tax which can be directly attributed to transactions subject to vat; and
2. Ratable Portion of any input tax which cannot be directly attributed to ether activity (allocation shall be on the
basis of sales volume.)

Output Vat....................................................................................................... ₱xx

Less: Input Vat
 Directly attributed to vatable transactions (100% deductible)..... (xx)
 Not directly attributed to vatable transactions (mixed transactions)
computed as follows (RR 14-2005):
Vatable sales x Common input tax***...................... (xx)
Total Sales**
Withholding vat
 Vat withheld by the government..................................................... (xx)
 Vat withheld for nonresidents.......................................................... (xx)
VAT PAYABLE............................................................................................ xx

Note:
1. **Vatable and non-vatable sales
2. ***Input vat not directly attributable to vatable transactions only
3. The input vat allocated to vat-exempt sales shall be recognized as expense or cost, computed as follows:
Vat-exempt sales x Common input tax
Total Sales
4. Beginning January 1, 2021, the input vat on sale to the government or any of its political subdivisions,
instrumentalities or agencies, including government- owned or controlled corporations (GOCCS) is already
deductible in full, hence, should be excluded from the allocation of input vat on mixed transactions.

13
 Excess Input Tax [Section 110(B) and 112 of the Tax Code, as amended]
Kinds of Input Tax Treatment
Related to sales subject to 12% VAT Carry-over to the succeeding quarter/s

Related to 0% VAT a) **Refund; or

b) **Convert into tax credit certificate to be applied
against other internal revenue taxes.

In case of cancellation of VAT registration **Convert into tax credit certificate to be applied
against other internal revenue taxes.
NOTE: **To the extent that such input tax has not been applied against output tax

III. Activity
Problem 1
For 2022 taxable year, determine the applicable business tax of the following:
Lease of Residential Units.
Case Monthly Rental Aggregate Annual Rental Answer
A ₱14,000 ₱3,200,000
B 16,000 2,800,000
C 16,000 3,000,000
D 18,000 3,200,000
Lease of Commercial Units
Case Monthly Rental Aggregate Annual Rental Answer
A ₱12,000 ₱3,200,000
B 16,000 2,800,000
C 16,000 3,000,000
D 10,000 3,500,000

Problem 2
Determine whether or not the transaction described below is subject to VAT. Write "V" in the space provided if the
transaction is subject to vat. Write "X" if the transaction is vat exempt or subject to other types of tax.
Case Transaction Answer
A Sale by agricultural cooperatives of their produced to members and non-members.
B Receipts from lending activities by credit multipurpose cooperatives duly registered and in good
standing with Cooperative Development Authority.
C Importation by non-agricultural, non-electric, non-credit cooperatives of machineries and
equipment to be used by them.
D Publication of magazines devoted principally to the publication of paid advertisements.
E Sale of parking lots in a condominium (SP is not more that ₱3,000,000).
F Isolated sale of good or service for a gross selling price of ₱2,800,000.
G Export sale by a vat registered exporter not exceeding the vat threshold of ₱3,000,000.
H Transport of passengers and cargo by air or sea vessels.
I Sale of drugs and medicines
J Services of banks, non-bank financial intermediaries performing quasi-banking functions, and
other non-bank financial intermediaries such as money changers and pawnshops.

Problem 3
For 2022 taxable year, determine whether the following is subject to vat Write "V” in the space provided if the transaction is
subject to vat. Write “E” if the transaction is vat exempt.
Case Transaction Answer
A Sale by a real estate dealer of residential lot with a selling price of ₱800,000.
B Sale by a real estate dealer of residential lot with a selling price of ₱3,500,000.
C Sale by a real estate dealer of commercial lot with a selling price of ₱2,800,000.
D Sale of residential lot classified as capital asset.
E Sale by a real estate dealer of residential house and lot with a selling price of ₱3,000,000.
F Sale by a real estate dealer of condominium unit with a selling price of ₱3,250,000.
G Sale by a real estate dealer of parking lot in a condominium unit with a selling price of ₱850,000.
H Sale of residential house and lot classified as capital asset with a selling price of ₱8,000,000.

Problem 4
Assume the following transactions with the corresponding invoice cost inclusive of vat, if applicable:
Apol, non-VAT taxpayer, sells to LJ, Vat taxpayer........ ₱89,600
LJ, Vat taxpayer, sells to Chris, Vat taxpayer................. 134,400
Chris, Vat taxpayer, sells to Abi..................................... 201,600
Abi, non-VAT taxpayer, exported the goods in Canada.. 300,000
Required: Determine the following:
a. Vat payable of Apol
b. Vat payable of LJ
c. Vat payable of Chris
d. Vat payable of Abi

14