VALUE ADDED TAX

Presented by:
MR. GRECIO PAUL R. DIAZ, CPA
Revenue Officer
RDO 113-West Davao City
 Topic Outline
• Basic concepts of VAT
• Persons liable
• VAT of Sales of Goods / Properties / Importation
/ Services
• Exempt Transactions
• Output Tax and Input Tax
• Transitional Input Tax Credits
• Presumptive Input Tax Credits
• VAT on Government Sales
• Compliance Requirements
 Topic Outline
• Filing and Payment Due Dates
• Staggered Filing
• Summary List of Sales and Purchases
• Taxability of Privilege Store
• VAT Treatment of Security Agencies
• Agricultural Contract Growers (RR 97-2010)
Basic Concepts of
VAT
VAT defined
• It is a tax on the value added to the
purchase price or cost in the sale or lease
of goods, properties, or services in the
course of trade or business.
• It is an indirect tax and the amount of tax
may be shifted or passed on to the buyer,
transferee or lessee of the goods,
properties or services.
Background of VAT
• VAT is a business tax levied on the sale of
goods, properties and services and on
importation of goods;
• VAT is a universal taxation system;
• VAT has various major and most
controversial amendments:
1. E.O. 273 – VAT Law (1988) Jan. 1, 1988
2. RA 7716 – E-VAT (RR 7-95) Jan. 1, 1996
3. RA 8241 – IVAT (RR 6-97) Jan. 1, 1997
4. RA 8242 – Tax Reform Act of 1997
Background of VAT
5. RA 9337 – New Expanded VAT Law
• signed into law on May 24, 2005
• Implementation withheld due to TRO
• TRO was lifted by the SC on Oct. 18, 2005
• Became effective November 1, 2005
• Implementing Rules and Regulation RR 14-
2005 was superseded by RR 16-2006
(amended by RR 2-2007 and RR 4-2007)
VAT Reform (RA 9337): Why is it
necessary?
The current Philippine fiscal condition
requires that immediate attention be given to
fiscal reform:
– In 2004, debt service ratio was 86.1% of the
government revenue;
– Interest payments alone was 37.4% of government
revenues; and
– Infrastructure and other capital expenditures were only
ten 10.87% of government expenditures of the same
year.
Objectives of VAT

• Broaden Tax Base

• Provide an audit trail

• Simplify business taxation

 Persons Liable
(Sec. 105 of the NIRC)
PERSONS
• SELLER • In the course of
trade/business
provided the
– Sells aggregate
– barters sales/receipts
– Exchanges
– Leases goods or
exceeds P1.5M
properties (or who opt to
(including
deemed sales) register as VAT)
– Renders services

• IMPORTER • Whether or not in

the course of trade
or business
– Imports goods
“In the course of trade of business”
defined
• Means the regular conduct or pursuit of a
commercial or an economic activity
including transactions incidental thereto,
by any person regardless of whether or
not the person engaged therein is a:
a) non-stock, non-profit private organization
(irrespective of the disposition of its net
income and whether or not it sells exclusively
to members or their guests), or
b) government entity.
VAT Rates:
Sec. 106, 107 and 108 of the NIRC

• 10% (up to January 31, 2006)

• 12% (effective February 1, 2006) and

• 0%
TRANSACTIONS COVERED

• Sale or Exchange of Goods / Properties

• Importation
• Sales or Exchange of Services
• Transaction Deemed Sales
• Zero-Rated Sales of Goods / Properties /
Services
• Effectively Zero-Rated Transactions
BASIS OF VAT
VAT ON GOODS / PROPERTIES
• GROSS SELLING PRICE
• Gross Selling Price means the total amount of
money or its equivalent which the purchaser
pays or is obligated to pay to the seller in
consideration of the sale, barter or exchange of
the goods or properties excluding VAT. The
excise tax, if any on such goods or properties
shall form part of the gross selling price
BASIS OF VAT
VAT ON IMPORTATION
• If based on VALUE
– TOTAL VALUE used by the BOC in determining:
• Tariff and custom duties plus custom duties, excise
taxes, if any and
• Other charges paid by the importer (prior to ATRIG)

• If based on QUANTITY and VOLUME

– VAT shall be based on the LANDED COST plus
EXCISE TAXES
BASIS OF VAT
VAT ON SERVICES/LEASE OF PROP.
• GROSS RECEIPTS
• 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 of 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 VAT.
Sales or Exchange of
Goods / Properties
(Sec. 106 of the NIRC)
 SALES OR EXCHANGE OF GOODS /
PROPERTIES
Refer to all tangible and intangible objects which are
capable of pecuniary estimation and shall include :
1. Real properties
• held primarily for sale to customers
• Installment plan (on installment payments + interest +
penalties actual or constructively received)
- where the Initial payments < 25% of GSP
• Deferred payment basis (treated as cash sales)
- where the initial payments > 25% of GSP
• Residential Lot (>1.5M) and
• Residential house and Lot (> 2.5M)
• held for lease in the ordinary course of business
GOODS/PROPERTIES (cont….)
2. Right or privilege to use patent, copyright, design or
model plan, secret formula or process, goodwill,
trademark, trade name, trade brand or other like
property or right;
3. The right or the 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.
GOODS/PROPERTIES (New Covered)

• Sale of non-food agricultural products; marine

and forest products in their original state by
primary producer or owner of the land;
• Sale of cotton and cotton seeds in their original
state;
• Sale or importation of coal and natural gas, in
whatever form or state; and
• Sale or importation of petroleum products,
including raw materials for their production
 ZERO-RATE SALES: Goods/Properties

It is a taxable transaction for VAT purposes but shall not

result in any output tax. Input tax on purchases of
goods, properties or services related to such zero-rated
sales shall be available as tax credit or refund.

A. Export sales

B. Foreign currency denominated sales

C. Sales to persons or entities deemed tax-exempt

under special law or international agreement.
Effectively Zero-rated sales of goods and
properties (Sec. 6 of RR 4-2007)

Shall refer to the local sales of goods or properties

by a VAT-registered person to persons or entities
who was granted indirect tax exemptions under
special laws or international agreements to which
the Philippines is a signatory, such as, ADB, IRRI,
etc., shall be effectively subject to VAT at zero-rate.

- requires no prior BIR approval.

Transactions deemed sale
(Sec. 106(B))
1. 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;
2. Distribution or transfer to:
a. Shareholders or investors share in the profits of VAT reg.
person (property dividends); or
b. Creditors in payment of debt or obligation.
3. Consignment of goods if actual sale is not made
within 60 days;
4. Retirement from or cessation of business, with
respect to inventories of taxable goods existing as of
such retirement or cessation; and
5. Change of tax detail or status from VAT to NON-VAT.
 Rules on invoicing and recording of
“deemed sale” transactions
• Memorandum entry in the subsidiary sales journal to record
withdrawal of goods for personal use must be made

- For distribution to shareholders and creditors –

• invoice shall be prepared at the time of the occurrence of

the transaction recorded in the subsidiary journal
Rules on invoicing and recording of
“deemed sale” transactions

For retirement or cessation of business –

• inventory shall be prepared and submitted to RDO not

later than 30 days from retirement
• invoice shall be prepared for the entire inventory
• entry in the subsidiary sales journal

Note: If business is to be continued by new owner, the

entire amount of output tax shall be allowed as input
tax
Importation of Goods
(Sec. 107 of the NIRC)
 IMPORTATION ON GOODS

Refer to the goods acquired from foreign

countries by a persons, non-exempt entities or
exempt entities whether or not in the course of
trade or business.
- No VAT shall be collected (under Sec. 109(1))
- Goods sold, transferred or exchanged in the
Philippines to NON-EXEMPT persons or entities
- The purchasers, transferees or recipients shall
be considered IMPORTERS therefore:
- Subject to all INTERNAL REVENUE TAX
Sales or Exchange of
Services
(Sec. 108 of the NIRC)
 SALE OR EXCHANGE OF SERVICES

Refer to 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 by the ff. –
1. Construction and service contractor;
2. Stock, real estate, commercial, customs and
immigration brokers;
3. Lessors of property, whether personal or real;
4. Persons engaged in warehousing services;
Sale or Exchange of Services (cont…)

5. Lessors, 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, theaters, and movie houses;
Sale or Exchange of Services (cont…)

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 of goods or;

cargoes
Sale or Exchange of Services (cont…)

12. Common carriers by air and sea relative to

their transport of passengers, goods or
cargoes from one place in the Phil to
another place in the Phil.;

13. Sales of electricity by generation,

transmission, and/or distribution companies;

14. Franchise grantees (AGR >10M);

Sale or Exchange of Services (cont…)

15. Non-life insurance companies (except crop

insurance), including surety, fidelity, indemnity
and bonding companies;

16. Other similar services or use of the physical or

mental faculties;
Sale or Exchange of Services includes:

a) Lease or the 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
right;
b) Lease or the use of, or the right to use any
industrial, commercial or scientific equipment;
c) Supply of scientific, technical industrial or
commercial knowledge or information;
Sale or Exchange of Services includes:

d) Supply of any assistance that is ancillary and

subsidiary as a means of enabling the
application and enjoyment of the property,
right, or knowledge, information as mentioned
in (b) and (c);
e) Supply of services by a non-resident 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 purchase from such non-resident
person;
Sale or Exchange of Services includes:

f) Supply of technical advice, assistance or

services rendered in connection with technical
management or administration of any scientific,
industrial or commercial undertaking, ventures,
project or scheme;
g) Lease of motion picture films, films, tapes and
discs;
h) Lease or the use of, or the right to use, radio,
television, satellite, transmission and cable
television time;
Sale or Exchange of Services – Newly Covered:

a) Sale of the artist of his work of art, literary

works, musical compositions and similar
creations, or his services performed for the
production of such works;
b) Services rendered by doctors of medicine duly
registered with the PRC;
c) Services rendered by lawyers duly registered
with the IBP;
Sale or Exchange of Services – Newly Covered:

d) Common carriers by air and sea relative to their

transport of passengers from one place in the
Philippines to another place in the Philippines;
e) Sale of electricity by generation, transmission
and distribution companies (sale of power fuel
generated through renewable source of energy
subject to 0%); and
f) Sale of electric cooperative as well as
importation of machines and equipments
including spare parts.
ZERO-RATE SALES: Services
It is a taxable transaction for VAT purposes but shall not
result in any output tax. Input tax on purchases of
goods, properties and services related to such zero-
rated sales shall be available as tax credit or refund
A. Services performed in the Philippines:
1. Processing, manufacturing or repacking goods for other persons
doing business OUTSIDE the Philippines, which goods are
subsequently EXPORTED, where services are paid for in
acceptable FOREIGN CURRENCY and accounted for in
accordance with the rules and regulations of the BSP;
2. Services other than processing, manufacturing or repacking
rendered to a persons 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;
ZERO-RATE SALES: Services (cont…)
3. Services rendered to persons or entities whose exemption 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;
4. Services rendered to persons engaged in international shipping or
air transport operations, including leases of property for use thereof
(not pertain to transport of passengers, goods or cargoes from one
place in the Philippines to another place in the Philippines);
5. Services performed by subcontractors and/or contractors in
processing, converting or manufacturing goods for an enterprise
whose export sales exceeds 70% of the total annual productions;
6. Transport of passengers and cargo by air or sea vessels from the
Philippines to a foreign country; and
7. Sale of power or fuel generated through renewable source of energy
such as, but not limited to biomass, solar, wind, hydropower,
geothermal, ocean energy, and other emerging energy source using
technologies such as fuel cells ad hydrogen fuels.
Effectively Zero-rated sales of services
(Sec. 13 of RR 4-2007)

Shall refer to the local sales of services by a VAT-

registered person to persons or entities who was
granted indirect tax exemptions under special laws
or international agreements to which the Philippines
is a signatory, such as, ADB, IRRI, etc., shall be
effectively subject to VAT at zero-rate.

- requires no prior BIR approval.

Exempt Transactions
(Sec. 109 of the NIRC)
 Exempt Transactions
(Sec. 109(1)a - x of the Tax Code)

a) Agricultural and marine food products,

livestock and poultry;
b) Fertilizers, seeds, seedlings and
fingerlings, fish, prawn, livestock and
poultry feeds;
c) Importation of personal and household
effects;
d) Importation of professional instruments
and implements, wearing apparel etc…;
 Exempt Transactions
(Sec. 109(1)a - x of the Tax Code)
e) Services subject to percentage tax;
f) Services by agricultural contract growers
and milling for others;
g) Medical, dental, hospital and veterinary
services, except those rendered by
professionals;
h) Educational services rendered by private
educational institutions duly accredited by
DepEd, CHED, and TESDA;
 Exempt Transactions
(Sec. 109(1)a - x of the Tax Code)

i) Services rendered by individuals pursuant

to an employer-employee relationship;
j) Services rendered by regional or area
headquarters by multinational corp.;
k) Transactions which are exempt under
international agreements;
 Exempt Transactions
(Sec. 109(1)a - x of the Tax Code)

l) Sales by agricultural coops;

m)Gross receipts from lending activities by
credit or multi-purpose coop;
n) Sales by non-agri, non-electric and non-
credit coops;
- capital contribution does not exceed P15,000
o) Export sales by persons who are not
VAT-registered;
 Exempt Transactions
(Sec. 109(1)a - x of the Tax Code)
p) Sale of real properties
- Not primarily held for sale
- Low-cost housing
- Socialized housing
- Res’l lot (<P1.5M) or house & lot (<P2.5M)
q) Lease of res’l units (<P10K/mo.);
r) Printing or publication of books,
newspaper etc..;
 Exempt Transactions
Refer to (Sec. 109(1)a - x of the Tax Code)

s) Sale/importation or lease or passenger

or cargo vessels and aircraft;
t) Importation of life saving equipment etc..
u) Importation of capital equipments,
machinery etc…;
v) Importation of fuel, goods and supplies
by international shipping/air transport
operation;
 Exempt Transactions
(Sec. 109(1)a - x of the Tax Code)

w) Services of banks etc…; and

x) Sale of goods/services/properties other
than those mentioned above whose
annual sales and/or receipts do not
exceed P1.5M
Exempt vs. Zero Rate Transactions
• Exempt Transaction
– Sale of goods, properties, and services and
the use or lease of property is not subject to
VAT (no output tax)
– Seller is not allowed to claim input tax
• Zero-rated Transaction
– Subject to VAT but will not result to output tax
– Seller is entitled to claim input tax
Output Tax
&
Input Tax
 Output Tax
• Means the value-added tax due on the
sale or lease of taxable good or property
or services by a VAT-registered person.
• VAT Rates
– 12%
– 0%
 INPUT TAX (Sec. 110 of the NIRC)
• Is the value added tax due from or paid by
a VAT-registered person in the course of
his trade or business.
• Creditable Input Tax
– Any input tax evidenced by a VAT invoice or
official receipt shall be creditable against the
output tax.
– Input tax on domestic or importation of goods.
– Input tax that can be directly attributed
– A ratable portion of the input tax which cannot
be directly attributed to either activity
Sources of Input Tax
• Purchase or importation of goods
– For sale; or
– For conversion into or intended to form part of a
finished product for sale including packaging
materials; or
– For use as supplies in the course of business; or
– For use as materials supplied in the sale of service; or
– For use in trade or business for which deduction for
depreciation / amortization is allowed under the Tax
Code
• Purchase of services on which VAT has been
actually paid
 Sources of Input Tax (cont…)
• Purchase of real properties for which the
VAT was actually paid
• Purchase of services for which the VAT
was actually paid
• Transitional input tax
• Presumptive Input tax
• Standard Input Tax (gov’t. transaction)
Spread of VAT on Capital
Goods
• Input Tax on depreciable capital goods,
the aggregate acquisition cost of which
(net of VAT) in a calendar month,
exceeds P1,000,000 shall be spread
evenly over 60 months or their useful life,
whichever is shorter.
Cont…

• If capital good is sold within 5 years or

prior to exhaustion from input VAT
thereon, the entire unamortized input tax
on the capital goods sold can be claimed
as input tax credit during the
month/quarter when the sale was made.
• Option to apply for refund/tax credit
certificate of capital goods has been
withdrawn.
 How VAT Operates:
PURCHASES SALES
PAID
PRICE INPUT PRICE OUTPUT TO
PAID VAT TOTAL CHARGED VAT TOTAL BIR

1ST SELLER - - - 100.00 12.00 112.00 12.00

2ND SELLER 100.00 12.00 112.00 120.00 14.40 134.40 2.40

3RD SELLER 120.00 14.40 134.40 150.00 18.00 168.00 3.60

4TH SELLER 150.00 18.00 168.00 170.00 20.40 190.40 2.40

20.40
 VAT Payable

Output Tax ( Sales x 12%) - P xxx

Less Input Tax (Purchases x 12%) - xxx
VAT payable - P xxx
 Journal Entries upon Purchase
1. Purchase of goods with invoice price of
P16,800.00

Purchases 15,000
Input Tax 1,800
Cash P16,800
 Journal Entries upon Sale
2. Sales of P22,400 inclusive of VAT

Cash 22,400.00
Sales 20,000
Output tax 2,400
 Journal Entries
3. To remit VAT to BIR

Output Tax 2,400.00

Input Tax 1,800.00
VAT Payable 600.00
#
VAT Payable 600.00
Cash 600.00
VAT Payable
Output Tax - P 2,400.00
Less Input Tax - 1,800.00
VAT Payable - P 600.00
Transitional Input Tax
(Sec. 111(A) of the NIRC)
 Transitional Input Tax
• A person becomes liable to VAT or elects
to be VAT registered person shall be
allowed input tax of 2% of the value of
inventory or the actual VAT paid,
whichever is higher
– Subject to the filing of inventory list
 Transitional Input Tax
Example:
Mr. A becomes liable to VAT starting Jan.
2011. He has P200,000 worth of
inventory. Actual VAT payments on
purchases from VAT registered suppliers
were P18,000.00.

Allowed transitional input tax: P18,000

The 2% of P200,000 (P4,000) is lower
than P18,000
Presumptive Input
Tax
(Sec. 111(B) of the NIRC)
 Presumptive Input Tax
4% of the gross value in money of
purchases of primary agricultural
products which are used as inputs to
their production:
• Sardines
• Mackerel and milk
• Refined sugar
• Cooking oil
• Packed noodle-based instant meals
 Refund or Tax Credit of Input Tax
(Sec. 112 of the NIRC)
• Any VAT registered person whose sales are
ZERO-RATED or EFFECTIVELY ZERO-RATED
may, within two (2) years after the close if the
taxable QUARTER when the sales was made,
apply for the issuance of a TCC.
• Person whose registration has been cancelled
due to retirement or cessation of business or
due to change in or cessation of status may,
within two (2) years from the date of
cancellation, apply for the issuance of a TCC.
 Refund or Tax Credit of Input Tax
(Sec. 112 of the NIRC)
• Apply for the issuance of TCC within TWO (2)
years:
– ZERO-RATED or EFFECTIVELY ZERO-RATED
SALES, within two (2) years after the close if the
taxable QUARTER when the sales was made.
– Person whose registration has been cancelled due to
retirement or cessation of business or due to change
in or cessation of status may, within two (2) years
from the date of cancellation.
VAT on Government
Sales
VAT on Government Sales

• Sale of goods and services to government is subject to 12%

VAT;

• The 5% VAT withheld represents the net VAT payable of the

seller

• The remaining 7% effectively accounts for the standard input

tax in lieu of the actual input VAT
 Cont…

• If actual input VAT exceeds 7% of gross payments, the

excess may form part of the sellers’ cost; and

• If actual input VAT is less than 7% of gross payments, the

difference must be treated as income of the seller.

• The income received from the government while subject to

final withholding on VAT shall still be reported in the VAT
return
Sample: Sales to Gov’t.
Sales to Government 200,000.00 24,000.00
Purchases 140,000.00 16,800.00

VAT PAYABLE:

OUTPUT TAX 24,000.00

LESS: 7% STANDARD INPUT 14,000.00
VAT PAYABLE 10,000.00
LESS 5%FINAL WTAX 10,000.00
AMOUNT DUE -
Apportionment of input tax on mixed
transactions

• Input tax directly attributed to VATable transactions

may be recognized for input tax credit

• Input tax directly attributable to VATable sales to

government shall not be credited against output
tax from sales to non-government entities
 Apportionment of input tax on mixed
transactions

• Input tax that cannot be directly attributed to

either VATable or exempt transaction shall be
pro-rated and only the ratable portion can be
allowed as tax credit

• Input tax attributable to VAT exempt transaction

shall not be allowed as tax credit but should be
treated as part of cost or expense

• Input tax attributable to the zero-rated sales may

be refunded or applied for tax credit certificate
 Apportionment of Input Tax on Mixed Transactions

Taxable sales to private Creditable

X Input Tax =
Total sales

Taxable sales to govt. Creditable *

X Input Tax =
Total sales

Exempt sales Expense or cost

X Input Tax =
Total sales

* Subject to the 7% standard input tax provision

 Illustration
SDT Corporation has the following sales during the
month:

Sales to private entities subject to 12%- P100,000

Sales to private entities subject to 0% - 100,000
Sales to exempt goods - 100,000
Sales to gov’t subjected to 5% FWT - 100,000

Total sales for the month - P 400,000

 Illustration
The following input taxes were passed on by its VAT
suppliers:

Input tax on taxable goods (12%) - P 5,000

Input tax on zero-rated sales - 3,000
Input tax on sale of exempt goods - 2,000
Input tax on sale to gov’t. - 4,000
Input tax on depreciable capital goods
not attributable to any specific activity
(monthly amortization for 60 months) - 20,000
 Input Tax Attributable to Sales to
Private Entities
Input tax on sale subject to 12% - P 5,000.00

Ratable portion of the input tax not

directly attributable to any activity:
Total Sales ( 12%) x Amount of
Total Sales ITNDA

P100,000 x P20,000 = 5,000.00

P400,000
IT attributable to sales of Private
Entities = P10,000.00
 Input Tax Attributable to
Zero-rated Sales
IT on zero-rated sale subject to 0% - 3,000.00

Ratable portion of the input tax not

directly attributable to any activity:
Total Sales ( 0%) x Amount of
Total Sales ITNDA

P100,000 x P20,000 = 5,000.00

P400,000
IT attributable zero-rated sales = P8,000.00
 Input Tax Attributable to Sales to Gov’t.
Input tax on sale to gov’t. - P4,000.00
Ratable portion of the input tax not
directly attributable to any activity:
Total Sales to gov’t x Amount of
Total Sales ITNDA

P100,000 x P20,000 = 5,000.00

P400,000
IT attributable to sales to gov’t. = P 9,000.00
Input Tax Attributable to
Exempt Sales
Input tax on VAT-exempt sale - P2,000.00
Ratable portion of the input tax not
directly attributable to any activity:
VAT - Exempt Sales x Amount of
Total Sales ITNDA

P100,000 x P20,000 = 5,000.00

P400,000
Total IT attributable to VAT-Exempt = P7,000.00
(charge to cost or expense)
 Journal Entry on Gov’t. Transaction

Cash P107,000.00
Final Withholding Tax 5,000.00
Sales P100,000.00
Output Tax 12,000.00
#
Output Tax 12,000.00
Final Withholding Tax 5,000.00
Input Tax 7,000.00
#
Assume – Input Tax Available for gov’t. transaction is P9,000.00
Entry to close input tax:
Cost/Expense 2,000.00
Input Tax 2,000.00
 Journal Entry on Gov’t. Transaction
Assume – Input Tax Available for gov’t. transaction is P3,000.00
Entry to close input tax:
Input Tax P4,000.00
Cost/Expense P4,000.00

#
 Summary
Effectively
VAT Zero-Rated Zero-Rated Exempt
Subject to 12% Subject to 0% Sale to Zero- Not subject
VAT (for VAT Local sales – 12% rated entities is
liable (if VAT liable, – subject to 0%
transactions) otherwise Local sales –
exempt) 12%
Allowed to Allowed to Allowed to Not allowed to
claim input tax claim input tax claim input tax claim input
of 12% on VAT of 12%. Option of 12% on VAT taxes. VAT
purchases of to claim TCC on purchases of forms part of
goods & excess input goods & the asset, cost
services taxes. services or expense.
 Compliance
Requirements
(Sec. 113 of the NIRC)
Optional Registration
1. Any person who is VAT-exempt under Sec. 4.109-1
(B)(1)(V) may elect to be VAT registered;
2. 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
exempt transactions;
Any person who elects to register shall not be
entitled to cancel registration for the next 3 years.
Optional Registration

3. Franchise grantees of radio and/or television

broadcasting with annual gross receipts not
exceeding P10M. (This option once exercised
is irrevocable);
Penalty for Failure to Register as
VAT Taxpayer
•Taxpayer shall be liable to pay the
tax as if he was a VAT registered
person

• Taxpayer cannot avail of the

benefits of input tax credit for the
period he/it was not properly
registered.
Invoicing Requirements
A VAT-registered person
shall issue:

• For every sale, barter or exchange of goods or

properties
- VAT invoices

• For every sale, barter or exchange of services or

lease of goods or properties
- VAT official receipts
Information needed in the VAT
Invoice or VAT Official Receipt:
1. Name and business address of taxpayer who will use the
invoice/official receipt;

2. TIN of taxpayer followed by the word “VAT”;

3. The amount of tax shown as a separate item;

4. Date of transaction, quantity, unit cost and description of

the goods or properties or the nature of the service;

5. Authority to Print details and serial number of booklets at

the lower left corner of receipt.
Cont…

• The word “VAT EXEMPT SALE” written or printed

prominently if sale is VAT-exempt;

• The words “ZERO-RATED SALE” written or printed

prominently if sale is subject to zero percent
Cont…
• Option to issue combined or separate
invoices/receipts of sale in a combination of
VAT-liable and VAT-exempt sale. If the sale is
combined, the invoice or receipt should indicate
the break-down of the sale price between the
taxable and the exempt component and the
calculation of the VAT
• For sale to VAT-registered persons amounting to
P1,000 or more, indicate the name, business
style (if any), address and TIN of the purchaser
Sample Invoice
Invoice No. 037585
ABAKA CORP.
88 East Avenue, Quezon City
VAT Reg. TIN: 115-688-025-000
June 06, 2005
Sold to : TAUWAYA Corp.
Address : 75 Fairview St., Brgy. Pio del Pilar, Makati
City
TIN : 215-880-000 VAT
DESCRIPTION QTY UNIT COST TOTAL TRANSACTION TYPE
Spiral Notebook 50 P3,200 P160,000 Vatable
100 pcs./box
Poultry products- 100 42 4,200 VAT-Exempt Sale
Eggs (Per Dozen)
Native Decors for 50 12,000 600,000 Zero-rated Sale
Export (100 pcs./box)

Vatable Sales P160,000

VAT-Exempt Sale 4,200
Zero-rated Sale 600,000
TOTAL SALES P764,200
10% VAT 16,000
TOTAL ATP AMOUNT PAYABLE P780,000
Accounting Requirements
• All persons subject to VAT shall in addition to regular
accounting records, maintain the following
• SUBSIDIARY SALES JOURNAL – which the daily
sales are recorded. It includes columns for date of
sale; name of customer; TIN of customer, Sales
Invoice/OR number, exempt sales; VAT sales (12%)
government sales and Zero-Rated Sales;
• SUBSIDIARY PURCHASE JOURNAL – which the
daily purchases are recorded. It includes columns for
date of purchase; name of supplier; TIN of Supplier,
purchase invoice number, exempt purchases;
domestic purchases (capital goods and other than
capital goods), purchases from imporation and
purchases from services.
Penalties for Erroneous Issuance of VAT
Invoice or VAT Official Receipt
Infraction Penalty
1. NON-VAT person who - payment of percentage tax, if
issues a VAT invoice/official applicable
- payment of VAT (w/out input tax)
receipt
- 50% surcharge on the VAT due
- If the invoice/official receipt
contains the required information,
purchaser shall be allowed to
recognize an input tax credit
2. VAT-registered person who
issues a VAT invoice/official Subject to 12% VAT
receipt for a VAT-exempt
sale without the words
“VAT-EXEMPT SALE”
Filing and Payment
Due Dates
(Sec. 114 of the NIRC)
Filing of Return
• Every persons liable to pay the VAT shall file a:
• MONTHLY RETURN (2550M) – every 20th day of
the following the close of each month; and
• QUARTERLY RETURN (2550Q) – every 25th day of
the following the close of each taxable quarter.
• Any person, whose registration has been
CANCELLED – within 25 days from the date of
cancellation of registration

• Only one consolidated return shall be filed by the

taxpayer for his principal place of business or head
office and all branches.
 Synchronized Filing of Quarterly VAT and Quarterly
Income Tax (RR 8-2002)

Under Manual
Ex: Fiscal year ends May 31
Filing System Under EFPS

Due Date Due date

Quarter Covered Months Forms to Used
For Filing/Payment eFiling ePayment
June 2550M July 20 Staggered (pls see table) Jul. 25
1st Quarter
July 2550M August 20 Staggered (pls see table) Aug..25

August 2550Q September 25 Sept. 25 Sept. 25

September 2550M October 20 Staggered (pls see table) Oct. 25

2nd Quarter
October 2550M November 20 Staggered (pls see table) Nov. 25

November 2550Q December 25 Dec. 25 Dec. 25

December 2550M January 20 Staggered (pls see table) Jan. 25

3rd Quarter
January 2550M February 20 Staggered (pls see table) Feb. 25

February 2550Q March 25 Mar. 25 Mar. 25

March 2550M April 20 Staggered (pls see table) Apr. 25

4th Quarter
April 2550M May 20 Staggered (pls see table) May 25

May 2550Q June 25 June 25 June 25

 SCHEDULE OF STAGGERED
FILING OF RETURNS (RR 26-2002)

GROUP MONTHLY VAT DECLARATION & PERCENTAGE

TAX RETURNS

A 25 days ff the end of the month

B 24 days -do-

C 23 days -do-

D 22 days -do-

E 21 days -do-
Submission of SLSP
(RMO 56-2010 / RMC 60-2010)
Submission of SLS/SLP

Persons required to submit:

• Summary List of Sales – all VAT taxpayers with

quarterly gross sales/receipts exceeding P2.5M

• Summary List of Purchases – all VAT taxpayers

with gross purchases in excess of P1M.

Due Date:
On or before the 25th day of the month
following the close of the taxable quarter.
Submission of SLS/SLP
Ref: RMO 56-2010 / RMC 60-2010

•Electronic submission
•Thru efps
•Manually
•Use of removable storage media
•3.5 inch floppy diskette
•USB flash drive
•CD
•DVD
 Taxability of
Privilege Stores
(RR16-2003 as amended by RR 24-2003)
 Taxation of Privilege Stores
(RR16-2003 as amended by RR 24-2003)

• Also known as “tiangges”

• Not permanently fixed to the ground
selling variety of goods/services for short
duration of time
• If duration exceeds 6 mos., it shall no
longer be treated as privilege store
 Obligation of Exhibitor / Organizer
• Post the Certificate of Registration of the
organizer
• Obligation to deduct and withhold the EWT
on lease payments to the lessor
– 5% due on the 10th of the following month
• Obligation to inform the RDO
 Obligation of Exhibitor/ Organizer
• Obligation to ensure presentation of TIN,
remittance of actual EWT and Percentage
Tax
• Obligation to report to BIR non-compliant
privilege-store operators
 Obligations of Privilege-Store
Operators
• Obligation to deduct and withhold the EWT
on rental payments
• Obligation to pay Advance Percentage
Tax
 Advance Percentage Tax
SET-UP IN

LOCATION OF
PRIVILEGE STORE NON-AIRCONDITIONED
AIRCONDITIONED PLACE
PLACE

City or First Class P150 per day or P100 per day of

Municipality P4,500 per month P3,000 per month

Municipality other P75.00 per day or P50 per day or

than first class P2,500 per month P1,500 per month
municipality
VAT TREATMENT OF THE
PAYMENT FOR SECURITY
SERVICES
(RMC 39-2007)
 I. BACKGROUND
INCOME TAX:

Cash basis or Accrual basis may be

adopted as accounting method for
reporting of income

The timing of the imposition of the tax

depends on the accounting method
employed.
VALUE-ADDED TAX:

 Seller of Services, including

security agencies, have to be
taxed solely on the Cash
Basis.

 Cash Basis – upon actual or

constructive receipt of income
VALUE-ADDED TAX:

Gross Receipts – must constitute

the gross income of the taxpayer
when received or earned.

If amount received does not form

part of gross income, the same
cannot be part of gross receipts
subject to VAT.
Do the salaries of security guards form
part of the taxable gross receipts of a
security agency?

Prior to RMC 39-2007:

 Salaries of the security guards are actually
the liability of the agency, hence, includible in
its gross receipts for business tax purposes.
 BIR Ruling Nos. 69-02,049-85 and 271-81
RMC 39-2007:

 Liability of the security agencies for the

prescribed increases in the wage rates
of workers are explicitly required to be
borne by the principal or clients of the
service contractor pursuant to Sec 6 of
RA 6727 (The Wage Rationalization
Act)
RMC 39-2007:

 Sec 1, Rule XIV of the 1994 Revised

Rules and Regulations implementing
RA 5487 provided that the monies
received by the agency from its clients
as an amount reserved for the
remuneration of the guard or detective
must be segregated.
RMC 39-2007:

 Security Agency has no control or

dominion over the portion of the
payment received from its client which is
intended or earmarked as salaries of the
guards.

 Only receipts which a taxpayer is free to

enjoy at his option is taxed to him as his
income. (Corliss v Bowers, 281 U.S.
376)
 II. INCOME TAX TREATMENT OF THE
PAYMENTS MADE TO SECURITY AGENCY:

1. On the Part of the Security Agency:

 Agency Fee (amount net of VAT) – part of gross
income subject to income tax

 Security Guards’ Salaries – LIABILITY

 If the Contract does not provide for a

breakdown of the amount payable to the
Security Agency, the entire amount
representing the Contract Price will be taxed as
income to the Agency, which must form part of
its gross receipts.
Illustration:

Assume that Vigilant Security Agency,

Inc. was contracted by Tanzo Jewelry
Corp., to provide security services to the
latter’s store. The contract price on a
monthly basis is P18,000.00 broken
down into: Security Guards’ Salaries of
P14,179.08 and Agency Fee of
P3,820.92 (inclusive of VAT)
Journal Entries:

Debit: Cash 17,931.77

Prepaid Income Tax (2% EWT
on agency fee) 68.23

Credit: Service Income (agency fee) 3,411.54

Output Tax (on agency fee) 409.38
Due to Security Guards 14,179.08
Journal Entries: Upon Payment of the
Security Guards’ Salaries:

Debit: Due to Security Guard 14,179.08

Credit: Cash 12,617.11

Withholding Tax Payable 1,541.97

The Security Agency who is the trustee of the

funds segregated and earmarked as salaries of
the security guards is the withholding agent for
purposes of the withholding tax on
compensation.
 2. On the Part of the Client or User of
Security Services:

Journal Entries:

Debit: Security Services-Agency Fee 3,411.54

Security Services-SG Salaries 14,179.08
Input Tax (only on Agency Fee) 409.38

Credit: Cash 17,931.77

WHT Payable(2% EWT on
agency fee) 68.23
 III. VAT TREATMENT OF THE PAYMENTS
FOR SECURITY SERVICES:

1.On the Part of the Security Agency:

 12% Output Tax shall be based on the
Agency Fee which in turn will be the Input
Tax of its Client.

 Salaries of the Security Guards will not

form part of the its gross receipts subject to
VAT but shall be recognized as a
LIABILITY of the security agency.
 III. VAT TREATMENT OF THE
PAYMENTS
FOR SECURITY SERVICES:
2. On the Part of the Client:

 Input Tax credit is based on the

Agency Fee paid by the Client.

 VAT official receipt must be

issued to the Client.
 III. VAT TREATMENT OF THE
PAYMENTS
FOR SECURITY SERVICES:
2. On the Part of the Client:
 The Client can not claim Input Tax
Credit on the salary portion of the
Security Services Expense because it
pertains to service Exempt from VAT
pursuant to Sec 109 (I) of the NIRC-
Services rendered by individual
pursuant to employee-employer
relationship
IV. MANNER OF ISSUING RECEIPT
FOR THE ENTIRE CONTRACT PRICE:
On the Agency Fee:

VAT Official Receipt must be issued pursuant to Sec

113 of the NIRC as implemented by Sec. 4.113-1 of
RR 16-2005.

The receipt should cover only the amount of Agency

Fee paid with the indication that such amount
received includes the VAT. The VAT must be shown
as a separate item in the VAT Official Receipt.
IV. MANNER OF ISSUING RECEIPT
FOR THE ENTIRE CONTRACT PRICE:
On the Security Guards’ Salaries:

 Must be covered by a Non-VAT

Acknowledgement Receipt.

 Duly Notarized Certification of the

Expanded Withholding Taxes (see ANNEX
A of this RMC) must also be submitted.
V. WITHHOLDING TAX COMPLIANCE:

On the Agency Fees:

The Client is constituted as the

withholding agent of the EWT
(following the rule on RR 2-98,
as amended by RR 30-03).
V. WITHHOLDING TAX COMPLIANCE:

On the Security Guards’ Salaries:

The Security Agency shall be the one responsible

for the Withholding of Tax on Compensation.

While it is the Client who claims the payment as an

expense, it is the Security Agency who physically
controls the payment of salaries of the Security
Guards.
V. WITHHOLDING TAX COMPLIANCE:
On the Security Guards’ Salaries:

Security Agency must Furnish its Client,

on or before January 31 of the year
following the year of withholding, a
Notarized Certification (see Annex A)
indicating the names of the guards
employed by the Client, their respective
TINS, the amount of their salaries and the
amount of tax withheld from each.
V. WITHHOLDING TAX COMPLIANCE:

On the Security Guards’ Salaries:

 The Certification together with the Non-

VAT Acknowledgement Receipt must be
kept on file by the Client as substantiation
for the claim of the expense.
Taxability of Agricultural
Contract Growers
(RMC 97-2010)
 Taxability of Agricultural
Contract Growers
• Toll processing services confirmed as
VAT exempt pertain only services to
clients from which growing of animals
were contracted.
• Preparing and packaging hogs/chicken
ready for delivery after producing or
growing them can be said to be within the
purview of agricultural contract growing.
Cont…

• If such an activity is done independently of

growing poultry, livestock, or other
agricultural and marine food products, the
same can be considered as VAT taxable
services not covered by agricultural
contract growing.
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