ADVANCED REVIEW SOLUTIONS TAX

3RD FLOOR LAPERAL GO BUILDING MORAYTA COR.PAREDES STREET, MANILA CITY 1008
CONTACT # 09989712041 / 09472722534 UNC-1

TAXATION J. JAVIER

VALUE-ADDED TAX

BUSINESS TAX
 Business refers to organized efforts and regular activities to produce and/or sell products or services.
o Any business or business pursued by an individual where the aggregate gross sale or receipts do
not exceed P100,000 during any 12-month period shall be considered principally for subsistence
or livelihood and not in the course of business.
o Generally, services rendered in the Philippines by a non-resident foreign person shall be
considered as being rendered in the course of trade or business even if the performance of service
is not regular.

TYPES OF BUSINESS TAX

 Value-Added Tax (VAT)
 Other Percentage Tax (OPT)
 Excise Tax/Sin Tax

VALUE-ADDED TAX - 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; It is an indirect tax,
which may be shifted or passed on to the buyer, transferee or lessee of goods, properties or services.

SCOPE OF VAT

 Sale, barter or exchange of goods and properties in the course of trade or business.
 Sale of services or similar transactions in the course of trade or business.
 Lease of goods and properties, or similar transactions, in the course of trade or business.
 Importation of goods, whether in the course of trade or business or not.

WHO ARE LIABLE TO PAY VAT?

 VAT Registered:
o Sales, barters, exchanges, leases of goods or properties and services, except those transactions
under Sec 109 (A) to (BB), of a person who is a VAT registered.
 VAT Registrable:
o Sales, barters, exchanges, leases of goods or properties and services, except those transactions
under Sec 109 (A) to (BB), of a person who is not VAT registered but whose aggregate gross
sales or receipts exceed Three Million Pesos (P3,000,000.00).
o Services of Franchise grantees of radio and TV broadcasting, whose annual receipt for the
preceding years exceeded P10,000,000.
 Importer of Products

WHO ARE REQUIRED TO FILE VAT RETURN?

 Any person or entity who, in the course of his trade or business, sells, barters, exchanges, leases goods
or properties and renders services subject to VAT, if the aggregate amount of actual gross sales or
receipts exceed Three Million Pesos (Php3,000,000.00).
 A person required to register as VAT taxpayer but failed to register.
 Any person, whether or not made in the course of his trade or business, who imports goods.

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 ADVANCED REVIEW SOLUTIONS TAX
3RD FLOOR LAPERAL GO BUILDING MORAYTA COR.PAREDES STREET, MANILA CITY 1008
CONTACT # 09989712041 / 09472722534 UNC-1

TAXATION J. JAVIER

WHO ARE LIABLE TO REGISTER AS VAT TAXPAYERS?

 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 if:
o His gross sales or receipts for the past twelve (12) months, other than those that are exempt
under Section 109 (A) to (U), have exceeded Three Million Pesos (P3,000,000.00).
 He is required to register as VAT taxpayer before the end of the month following the month
the threshold exceeded.
o There are reasonable grounds to believe that his gross sales or receipts for the next twelve (12)
months, other than those that are exempt under Section 109 (A) to (U), will exceed Three Million
Pesos (P3,000,000.00).
 Optional registrant may register 10 days before the beginning of the taxable quarter.
o Franchise grantees of radio and TV broadcasting, whose annual receipt for the preceding year
exceeded P10,000,000.
 They are required to register 30days from the end of the calendar year.

VAT REPORTING RESPONSIBILITIES

 For the 1st two months of the quarter, VAT should be paid and reported on or before 20th day following
the close of the month using Form 2550M. (OPTIONAL ONLY)
 For the last month of the quarter, VAT Quarter Summary must be reported on or before 25th day following
the close of the quarter using Form 2550Q and any remaining payable should be paid on or before the
mentioned deadline.

VAT RATES: Business Transactions are either

 VAT Exempt;
 “VATable”
o Subject to 12% VAT
o Zero-rated

WHAT ARE THE VAT EXEMPT TRANSACTIONS?

 (A) 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;
 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;
 (B) 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 considered as pets);
 (C) 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;
 (D) 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 the goods are brought from their former place of abode, exempt
such goods from payment of duties and taxes: Provided, further, That the 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;

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 ADVANCED REVIEW SOLUTIONS TAX
3RD FLOOR LAPERAL GO BUILDING MORAYTA COR.PAREDES STREET, MANILA CITY 1008
CONTACT # 09989712041 / 09472722534 UNC-1

TAXATION J. JAVIER

 (E) Services subject to percentage tax under Title V

 (F) Services by agricultural contract growers and milling for others of palay into rice, corn into grits and
sugar cane into raw sugar;
 (G) Medical, dental, hospital and veterinary services except those rendered by professionals;
 (H) 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;
 Services rendered by individuals pursuant to an employer-employee relationship;
 (J) 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;
 (K) Transactions which are exempt under international agreements to which the Philippines is a signatory
or under special laws, except those under Presidential Decree No. 529;
 (L) Sales by agricultural cooperatives duly registered with the Cooperative Development Authority to their
members as well as sale 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;
 (M) Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered with the
Cooperative Development Authority;
 (N) Sales by non-agricultural, non- electric and non-credit cooperatives duly registered with the
Cooperative Development Authority: Provided, That the share capital contribution of each member does
not exceed Fifteen thousand pesos (P15,000) and regardless of the aggregate capital and net surplus
ratably distributed among the members;
 (O) Export sales by persons who are not VAT-registered;
 (P) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course
of trade or business or real property utilized for low-cost and socialized housing as defined by Republic
Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992, and other related
laws, residential lot valued at One million pesos (P1,500,000) and below, house and lot, and other
residential dwellings valued at Two million five hundred thousand pesos (P2,500,000) and below:
Provided, That 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 the selling price of not more than Two million pesos (P2,000,000):
Provided, further, That every three (3) years thereafter, the amount herein stated shall be adjusted to its
present value using the Consumer Price Index, as published by the Philippine Statistics Authority(PSA);
 (Q) Lease of a residential unit with a monthly rental not exceeding Fifteen thousand pesos (₱15,000);
 (R) Sale, importation, printing or publication of books, and any newspaper, magazine, journal, review
bulletin, or any such educational reading material covered by the 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.
 (S) Transport of passengers by international carriers;
 (T) Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment
and spare parts thereof for domestic or international transport operations;
 (U) Importation of fuel, goods and supplies by persons engaged in international shipping or air transport
operations: Provided, That the fuel, goods, and supplies shall be used for international shipping or air
transport operations;
 (V) Services of bank, non-bank financial intermediaries performing quasi-banking functions, and other
non-bank financial intermediaries;
 (W) Sale or lease of goods and services to senior citizens and persons with disability, 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;
 (X) Transfer of property pursuant to Section 40(C)(2) of the NIRC, as amended;
 (Y) Associations dues, membership fees, and other assessments and charges collected by homeowners’
associations and condominium corporations;
 (Z) Sale of gold to the Banko Sentral ng Pilipinas (BSP);

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 ADVANCED REVIEW SOLUTIONS TAX
3RD FLOOR LAPERAL GO BUILDING MORAYTA COR.PAREDES STREET, MANILA CITY 1008
CONTACT # 09989712041 / 09472722534 UNC-1

TAXATION J. JAVIER

 (AA) Sale of or importation of prescription drugs and medicines for:

(i) Diabetes, high cholesterol, and hypertension beginning January 1, 2020; and
(ii) Cancer, mental illness, tuberculosis, and kidney diseases beginning January 1, 2021.
 (BB) Sale or importation of the following beginning January 1, 2021 to December 31, 2023:
(i) Capital equipment, its spare parts and raw materials, necessary for the production of personal
productive equipment components such as coverall, 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
(ii) All drugs, vaccines and medical devices specifically prescribed and directly used for the
treatment of Covid-19; and
(iii) Drugs for the treatment of Covid-19 approved by the FDA for use in clinical trials, including
raw materials directly necessary for the production of such drugs: Provided, that the 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 item (ii) within sixty (60) days from the effectivity of this Act, and every three (3)
months thereafter, the Department of Health (DOH) shall issue a list of prescription drugs and
medical devices covered in this provision: Provided, finally, That the exemption claimed under
this Subsection shall be subject to post audit by the Bureau of Internal Revenue or Bureau of
Customs as may be applicable.
 (CC) 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 (P3,000,000).

VAT ZERO-RATED TRANSACTIONS:

The following transactions by VAT-registered persons shall be subject to zero percent (0%) rate:
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 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 (BSP);
2. Services other than processing, manufacturing, or repacking of goods rendered to a person engaged
in business conducted outside the Philippines or to a nonresident 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 Bangko Sentral ng Pilipinas (BSP);
3. 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 for a maximum period of 17 years from the date of registration, unless
otherwise extended under SIPP. Provided that the above sales to existing registered export enterprise
located inside ecozones and freeport zones shall also be qualified for VAT-zero rating until the
expiration of the transitory period.
4. The sale of services, goods, supplies, equipment and fuel to persons engaged in international
shipping or international air transport operations: Provided, That the services, goods, supplies,
equipment and fuel shall be used for international shipping or air transport operations.
5. Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country;
and
6. Sale of power or fuel generated through renewable sources of energy such as, but not limited to,
biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources
using technologies such as fuel cells and hydrogen fuels.
7. Sales of goods and services to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively subjects such sales to
zero rate.

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 ADVANCED REVIEW SOLUTIONS TAX
3RD FLOOR LAPERAL GO BUILDING MORAYTA COR.PAREDES STREET, MANILA CITY 1008
CONTACT # 09989712041 / 09472722534 UNC-1

TAXATION J. JAVIER

SOURCES OF OUTPUT VAT

 VAT on Actual Sale (including installment sale of real property not primarily held for sale whose selling
price exceeded the exempt amount)
 VAT on Transaction Deemed Sale

SOURCES OF INPUT VAT

 VAT on Actual Purchases
o Purchase of Capital Goods with amount P1,000,000 and above
o Ordinary Goods and Services
o VAT on importation
 Transitional Input Tax
 Presumptive Input Tax
TRANSACTION DEEMED SALES
 Transfer, use or consumption, not in the course of business, of goods or properties originally intended
for sale or for use in the course of business.
 Distribution or transfer to:
o Shareholders or investors as share in the profits of the VAT-registered person; or
o Creditors in payment of debt or obligation
 Consignment of goods if actual sale is not made within sixty (60) days following the date such goods
were consigned. Consigned goods returned by the consignee within the 60-day period are not deemed
sold;
 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";
o Change of ownership of the business. There is a change in the ownership of the business when
a single proprietorship incorporated; or the proprietor of a single proprietorship sells his entire
business.
o Dissolution of a partnership and creation of a new partnership which takes over the business.

VAT ON SALE OF REAL PROPERTY ON INSTALLMENT

 Sale is considered on installment if Initial Payments does not exceed 25% of Selling Price.
 Initial Payments – all payments received in the year of sale (including interests and penalties and
including excess of mortgage over cost)
 Tax Base, whichever is the higher between FMV and Selling Price.

TRANSITIONAL INPUT VAT

 Persons who become liable to VAT or elects to be a VAT-registered shall be allowed input tax equivalent
to 2% of his beginning inventory or the actual VAT paid on such inventory whichever is higher.

PRESUMPTIVE INPUT
 Persons or firms engaged in the processing of sardines, mackerel and milk, and in manufacturing refined
sugar and cooking oil, 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.

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 ADVANCED REVIEW SOLUTIONS TAX
3RD FLOOR LAPERAL GO BUILDING MORAYTA COR.PAREDES STREET, MANILA CITY 1008
CONTACT # 09989712041 / 09472722534 UNC-1

TAXATION J. JAVIER

STANDARD INPUT (EFFECTIVE 2021 – NO LONGER APPLICABLE)

 Government or any of its political subdivisions, instrumentalities or agencies including GOCCs shall,
before making payment on account of each purchase taxed at 12% VAT, deduct and withhold VAT of
5%. Such amount is considered Final Withholding Tax. Provided, that effective January 1, 2021, it will be
considered Creditable Withholding Tax.

AMORTIZATION OF INPUT VAT ON PURCHASES OF CAPITAL GOODS COSTING MORE THAN

P1,000,000
 Input VAT of depreciable capital goods are distributed to its estimated useful life or 5 years, whichever is
shorter. Provided, that effective January 1, 2022, input VAT of all newly purchased depreciable capital
goods will be claimed in full on the month/quarter of purchase.
 Depreciable Capital Goods refers to properties that are used directly or indirectly in the production or sale
of taxable goods or services. Such goods have estimated useful life of more than one year and are treated
as depreciable assets for income tax purposes.

DISCUSSION PROBLEMS

PROBLEM 1
On January 02, 2023, A real estate dealer entered in a VATable sale with the following details:
 Selling Price – P6,000,000
 Zonal Value – P5,900,000
 Assessed Value – P6,100,000
 Payment Scheme:
o Down Payment of P150,000.
o Balance is payable in 60 equal monthly.

PROBLEM 2
A VAT taxpayer had the following sales and with their corresponding directly input VAT during the month:

Sales amount Input VAT

Sales to private entities 900,000.00 60,000.00
Export sales 300,000.00 36,000.00
Sales to government 250,000.00 24,000.00
Sales to exempt goods 100,000.00 2,400.00
1,550,000.00 122,400.00
Required:
1. How much input VAT should be allowed as creditable?
2. How much of the actual input shall form part of the cost and expenses?
3. Compute VAT Payable

PROBLEM 3
On December 1, 2021, JMH Corp purchased machinery amounting to P5,000,000. Such machinery will be used
in the production of the company’s sole product, “board passers”.

Required:
1. Assuming that the machinery has an estimated useful life of 4 years:
a. Determine the input VAT related on the said purchase for the month of December 2021.
b. Determine the input VAT relate on the said purchase for the month of January 2022.

2. Assuming that the machinery has an estimated useful life of 6 years:

a. Determine the input VAT related on the said purchase for the month of December 2021.
b. Determine the input VAT relate on the said purchase for the month of January 2022.

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 ADVANCED REVIEW SOLUTIONS TAX
3RD FLOOR LAPERAL GO BUILDING MORAYTA COR.PAREDES STREET, MANILA CITY 1008
CONTACT # 09989712041 / 09472722534 UNC-1

TAXATION J. JAVIER

PROBLEM 3
Lucky You, Inc., a VAT-registered business, manufacturer of packed noodle based instant meal called Pancit
Canton. As of the start of the quarter, Lucky You had a beginning inventory that was acquired from both VATable
and VAT-exempt suppliers. Below are the details for the quarter:
 Sales to regular customers (Invoice price): ₱3,920,000
 Sales to senior citizens: ₱1,500,000
 Purchases (VAT inclusive):
o Cooking oil from VAT-registered suppliers: ₱896,000
o Fresh Shrimp from VAT registered suppliers: ₱300,000
o Fresh Malunggay leaves from VAT registered suppliers: ₱500,000
 Beginning Inventory (VAT inclusive):
o From VAT-registered suppliers: ₱224,000
o From VAT-exempt suppliers: ₱1,600,000
Compute the VAT Payable

PROBLEM 4
X Corporation, a VAT registered company engaged in the lease of residential properties. During the first quarter
of 2022, the following information were made available (all amounts are exclusive of VAT):
 Rental income with monthly rental of P18,000 per unit, P800,000.
 Rental income with monthly rental of P15,000 per unit, P600,000
 Rental income with monthly rental of P13,000 per unit, P600,000
 Receivable from tenants as of December 31, 2021, P200,000 (60% is VAT exempt)
 Receivable from tenants as of March 31, 2022, P300,000 (40% is VAT exempt)
 Input tax credit on purchase of goods and services for the 1st quarter of 2022, P80,000

1. How much is the output tax for the 1st quarter of 2022?
2. How much is creditable input tax credit for the 1st quarter of 2022?
3. Using the provisions of the Ease of Paying Taxes Act, compute the output tax

END!

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