Module 3 - Value Added Tax
Module 3 - Value Added Tax
Value
Added Tax
Allan Marquez, CPA
Lecturer
Learning Objectives
Business tax is a tax imposed upon the privilege of engaging in business, pursuing a
calling or a profession.
It is the tax imposed on the ONEROUS TRANSFER of product, property, or service
such as sale, barter, exchange, and importation.
Business activity in general is subject to business tax.
BUSINESS
The term “BUSINESS” as used in the tax code means business in the trade or commercial sense only.
It is therefore, to be construed in the plain and ordinary meaning being restricted to activities or
affairs where profit is the purpose, or livelihood is the motive.
“In the ordinary course of trade or business” means the regular conduct or pursuit of a commercial
or an economic activity, including activities incidental thereto, by any person, regardless of whether
or not the person engaged therein is a non-stock, non-profit private organization or government
entity (Section 105 of NIRC)
Isolated transactions are generally not considered with ordinary course of trade or business; hence,
not subject to business tax. However, as provided by under RR 16-2005, services rendered in the
Philippines by a NONRESIDENT-ALIEN (either individual or corporation), shall be considered as being
rendered in the course of trade or business even if the performance is not regular.
BUSINESS
General Rule
It should be used in the commercial or economic activity
There should be regularity in the activity.
Exemption
Marginal Income Earners (RR 7-2012)
“Defined as individuals whose business do not realize a gross sales or receipts NOT exceeding
P100,000 in a twelve month period. This is considered business for subsistence or livelihood.”
Sales or services of non-resident alien or nonresident foreign corporation is considered in
engage in business.
TYPES OF BUSINESS TAX
Business Tax
VAT OPT Excise Tax
Sale of Goods or Service
In general Yes - -
Exempt from VAT - Yes -
Exempt for Business Tax - - -
Sales of Sin Products and Non-essential goods
In general Yes - Yes
Exempt from VAT - Yes Yes
VALUE ADDED TAX (VAT)
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 a tax on the value added by every seller to the purchase price or cost in the sale or lease of
goods, property or services in the ordinary course of trade or business as well as on importation of
goods into the Philippines, whether for personal or business use.
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. However, in case of importation, the importer is the one liable for
the VAT.
NATURE OF VALUE ADDED TAX (VAT)
Privilege Tax
Levied upon the right to engage in business (still chargeable even if the business is incurring
losses
It is an indirect tax
Liable to VAT is the seller but the burden of paying the tax is shifted or to be borne by the final
consumer.
It is consumption based
It is the end user of consumer goods or services which ultimately shoulders the tax as a liability
therefrom is passed on to the end users by the providers of these goods or services. The VAT,
thus, forms a substantial portion of consumer expenditures.
NATURE OF VALUE ADDED TAX (VAT)
It is imposed on the value added on each stage of production and distribution process
VAT is a tax on the value added by every seller to the purchase price or cost in the sale or lease of
goods, property, or services in the ordinary course of trade or business as well as on importation
of goods into the Philippines, whether for personal or business use.
It is collected through the “tax credit method” or “invoice method
VAT payable is computed by deducting the input from the output VAT.
PERSONS LIABLE TO VAT
• Mandatory Registration
• Optional Registration
VAT REGISTRATION
Mandatory Registration
Any person or entity who, in the course of his trade or business, sell, barters, exchanges, leases goods or
properties and renders services subject to VAT, if the aggregate amount of actual gross sales or receipt exceed
P3,000,000 beginning January 1, 2018 (previously P1,919,500) for the past 12 months (other than those that
are exempt) or there are reasons to believe that the gross sales or receipt for the next 12 months will exceed
P3,000,000.
Radio and/or television broadcasting companies whose annual gross receipts of the preceding year exceeds
P10,000,000. Mandatory registration applied within 30 days from the end of the taxable year when gross
receipts exceed P10,000,000
A person required to register as VAT taxpayer but failed to register.
Optional Registration
Any person who is VAT-exempt or not required to register for VAT may elect to be VAT registered
by registering with the RDO that has jurisdiction over the head office of that person, and pay the
annual registration fee for every separate and distinct establishment. Any person who elects to
register under optional registration shall bot be allowed to cancel his registration for the next 3
years.
Any person who is VAT-registered but enters into transactions which are exempt from VAT (mixed
transactions) may opt that the VAT apply to his transactions which would have been exempt.
Franchise grantees of radio and/or television broadcasting whose annual gross receipts of the
preceding year do not exceed P10,000,000 derived from the business covered by the law
granting the franchise may opt for VAT registration. This option, once exercised, shall be
irrevocable. The taxpayer should apply for VAT registration not later than 10 days before the
beginning of the calendar quarter.
CANCELLATION OF VAT Registration
If the taxpayer makes a written application and can demonstrate to the commissioner’s satisfaction
that his gross sales or receipts for the following 12 months, other than those exempt from VAT, will
not exceed P3,000,000.
If taxpayer ceased to carry on his trade or business, and does not expect to recommence any trade
or business within the next 12 months.
POWER OF THE COMMISSIONER TO SUSPEND BUSINESS
OPERATIONS
The Commissioner of the Internal Revenue or his authorized representative may order suspension or
closure of business establishment for a period of not less than 5 days for any of the following violations:
Failure to issue receipts or invoice
Failure to file VAT return
Understatement of taxable sales or receipts by 30% or more of the correct taxable sales or
receipts for the taxable quarter
Failure of any person to register as required under the law
BASIS OF VALUE ADDED TAX
Illustrative Examples:
CORONA Corporation, the leading distributor of face mask in the country, sold 10 boxes of its
products to 7/11 convenience store, The selling price P1,000 per box exclusive of VAT. If CORONA
Corporation is a VAT registered entity, how much is the output VAT.
BASIS OF VALUE ADDED TAX
Sales of Services
• Gross receipts refers 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 applied as payments for services rendered
and advance payments actually or constructively received during the taxable period for the
services performed or to be performed for another person, excluding the VAT.
BASIS OF VALUE ADDED TAX
Sales of Services
Illustrative Examples
To ensure the safety of the employee, the company ask the service to have a total disinfection of
the office from SMOKE DISINFECTION Company. SMOKE Disinfection Company is a vat registered
entity and provide an invoice with a total amount of P11,200 stating that it is VAT inclusive.
Compute the output VAT of Smoke Disinfection Company.
BASIS OF VALUE ADDED TAX
Importation
• Landed cost is the total expenditure incurred including purchase price, shipping fee, customs
duties, excise tax, if any, and all other charges prior to the release of such goods from customs
custody.
BASIS OF VALUE ADDED TAX
Importation
Illustrative Example
Face Shield, classified as an essential article was imported for sale. The particulars of which are as follows.
Exchange rate is $1: 40 (no foreign currency is assumed at peso)
Value of Importation as Determined by the BOC $15,000
Freight and Insurance 20,000
Customs Duties 20,000
Other Expenses prior to the release of goods from customs custody 10,000
Facilitation expense 5,,000
Transfer costs from customs to the importer’s warehouse 25,000
Importation
Illustrative Example
BASIS OF VALUE ADDED TAX
Dealers of Securities
Dealers of securities means merchant of stocks or securities with an established place of business,
regularly engaged in the purchase of securities and their resale to customers, that is one who as
merchant buys securities and sells them to customers, and with a view to be gains and profits that
may be derived therefrom.
BASIS OF VALUE ADDED TAX
Dealers of Securities
Illustrative Example
A dealer in securities has the following for the year 2018:
Sales, Shares held for sale in the ordinary course of trade or business 5,000,000
Cost of Shares, held for sale in the ordinary course of trade or business 2,000,000
Installment If the buyer only paid portion of The seller shall be subject to VAT on
Sale selling price wherein initial payments installment payments inclusive of
do not exceed 25% of the selling price interest and penalties
SOURCES OF OUTPUT VAT
Input tax means a VAT due from or paid by a VAT-registered person in the
course of his trade or business on importation of goods or local purchase of
goods or services including lease or use of property, from a VAT-registered
person
SOURCES OF INPUT TAX
Goods for use in trade or business for which deduction for depreciation or amortization is allowed, except automobiles, aircraft, and
yacht (Capital Goods)
SOURCES OF INPUT TAX
Goods for use in trade or business for which deduction for depreciation or amortization is allowed, except automobiles, aircraft, and
yacht (Capital Goods)
SOURCES OF INPUT TAX
Goods for use in trade or business for which deduction for depreciation or amortization is allowed, except automobiles, aircraft, and
yacht (Capital Goods)
SOURCES OF INPUT TAX
Goods for use in trade or business for which deduction for depreciation or amortization is allowed, except automobiles, aircraft, and
yacht (Capital Goods)
SOURCES OF INPUT TAX
Importation
• VAT on importation is imposed regardless of whether such importation is for personal or
business use. Although importation is not a sale of goods, or sometimes not even a
business activity, VAT is imposed because VAT is a consumption tax levied on sales to be
borne by consumers with sellers acting simply as tax collectors. And, as the origin of
importation is from a foreign seller, the VAT is instead paid directly by the importer.
• In the case of goods imported into the Philippines by VAT-exempt persons, entities or
agencies which subsequently sold, transferred or exchanged in the Philippines to non-
exempt persons or entities, the latter person shall be considered the importers thereof
and shall be liable for the VAT due on such importation.
SOURCES OF INPUT TAX
Importation
SOURCES OF INPUT TAX
Importation
SOURCES OF INPUT TAX
Importation
SOURCES OF INPUT TAX
Under RR 2-2007 provides that, if the input tax inclusive of the input tax carried
over from the previous quarter exceeds the output tax, the excess input tax shall
be carried over to the succeeding quarter or quarters; Provided, however, that
any input tax attributable to zero-rated sales by a VAT registered taxpayer may at
his option be refunded or applied for a tax credit certificate which may be used
in the payment of other internal revenue taxes.
MIXED BUSINESS TRANSACTIONS
Invoicing Requirements
• The following requirements shall be indicated in VAT invoice or VAT official receipt:
o A statement that the seller is VAT registered person followed by TIN.
o The total amount to be paid with the indication that such amount includes:
o Amount of tax shall be shown as a separate item in the invoice receipt.
o “VAT exempt sale” if the sale is exempt.
o “Zero-rated sale” if the sale is subject to 0% VAT.
o If mixed sales, breakdown of the sales price between its taxable, exempt, and zero-rated components and the calculation
of the VAT on each portion. Separate invoices or receipts may be issued for each type of sales.
o The name, business style, if any, address, and TIN of the customer, in case the sales amount to P1,000,000 or more.
TAX RETURN PREPRATION, RILLING AND
COMPLIANCE REQUIREMENTS
Invoicing Requirement, Refund of Input Taxes and Others
Consequence of Issuing Erroneous Invoice or Official Receipt
• By Non-VAT Registered Person
- The taxpayer will be liable on percentage taxes applicable to his transactions, VAT due on
the transactions where he erroneously issued invoice or official receipt without the
benefit of any tax credit and 50% surcharge.
• By a VAT Registered Person
• For instance the sale is for a VAT exempt customer, failure to indicate “VAT Exempt” the
transaction will become taxable and the issuer shall be liable to pay the VAT thereon.
TAX RETURN PREPRATION, RILLING AND
COMPLIANCE REQUIREMENTS
Accounting Requirement
All persons subject to VAT shall maintain:
Regular accounting records
Subsidiary sales journal
Subsidiary purchase journal
TAX RETURN PREPRATION, RILLING AND
COMPLIANCE REQUIREMENTS