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Quicknotes on Value-Added Tax (CPA Review)

CHARACTERISTICS (ABCD VIP)


1. Tax on gross profit Output tax (sales) minus Input tax (purchases)
2. Business tax Generally applies to regular sales and purchases
3. Non-cascading Not a tax on a tax
4. Follows destination principle Applies to consumption within PH
only
5. Ad Valorem Uses a base to determine tax liability
6. Indirect can be shifted
7. Privilege or excise tax not a tax on property

Q: Are there personal transactions which are vatable?


A: Yes. Importations and non-regular NRA activities.

Q: Why is VAT called a consumption tax?


A: Because it follows the destination or cross border doctrine which means only
properties consumed within the bounds of territories should be taxed. Thus,
exports are either zero or exempt while imports are always vatable.

Q: What is being shifted?


A: Only the burden to pay VAT is shifted to the buyer (economic taxpayer), never
the liability to collect and remit to government. The latter remains with the seller
(statutory taxpayer).

Q: Who are liable to pay VAT?


A: General Rule: Seller is the one statutorily liable for the payment of the tax. Can
be shifted to buyers.
Exception: In the case of importation, the importer (buyer) is the one liable for
the VAT.
Exception to the exception: In cases of VAT-Exempt importations (Pasalubong ng
Balikbayan).

SOURCES
VAT is a tax on regular sale or consumption levied on the following: (BELIS2)
Barter
Exchange
Lease
Importation
Sales
Services

Q: Does VAT arises from every sale transaction?


A: No. VAT arises only from regular/ordinary/normal/incidental business
transactions.

Example: A sold to B some of her inventory.

Q: Vatable?
A: Yes. Item is an inventory.

Another example: A sold to B her watch.

Q: Is there a sale?
A: Yes. Sale of watch.

Q: Vatable sale?
A: No. Not a regular sale.

Q: Mariah Carey made a one-time concert in the Philippines. Ticket vatable?


A: Yes. NRA.

Q: What are incidental transactions?


A: Not the business itself but related to the conduct of the business. That is, if
Camilla Homes sold cars to its employees, those are vatable because, regardless
of not being real property, it is important to their agents daily activities.

Note: VAT will arise even in the absence of profit (i.e., at a loss) attributable to a
business transaction.

PERSONS LIABLE
Any person who, in the course of trade or business (Doctrine of Regularity), is
considered
seller
lessor
service provider
importer, whether or not made in the course of trade or business
Non-resident persons even if the performance of services is not regular.

ADVANTAGES (Promotes PESH)


1. Promote savings
2. Economic growth
3. Simplified tax administration
4. Higher governmental revenues

Q: Is VAT regressive?
A: Yes. Because VAT has basically flat rate, the poorer you are, the heavier VAT to
you.

Q: Who are the persons required to register for VAT?


A: Every person if:
The actual Gross sale or gross receipts have exceeded 1,919,500; or
Expecting Gross sales or receipts to exceed 1,919,500 within 12 months.

Q: May a person earning below the threshold register under the VAT system?
A: Yes. Optional registration. Cannot be revoked within 3 years.

Q: My annual importations totaled P1,500,000. Vatable?


A: Yes. Regardless of value and purpose.

Q: What is the penalty for failure to register as VAT taxpayer?


A: Must pay the VAT but cannot avail of the input tax credit.

VAT ON SALE OF GOOD OR PROPERTIES


Every sale, barter or exchange of goods or properties shall be subject to 12% VAT
based on the gross selling price or gross value in money of the goods or properties
sold.

Gross Selling Price: the total amount of money or its equivalent plus excise tax.

Goods: all tangible and intangible objects which are capable of pecuniary
estimation.

Invoice Interpretation:
Sales Invoice VAT Sales Invoice
Gross of Vat Net of VAT
Vat Exclusive VAT Inclusive
Formula: Base x 12% = VAT Base / 1.12 X 12% = VAT

Q: Are all intangible properties subject to VAT?


A: No, only those capable of pecuniary (monetary) estimation.

Q: Is the sale of real properties subject to VAT?


A: Ordinary real property is VATable. Capital properties are non-VATable. Only
real estate dealers are subject to VAT.

Q: What are the allowable deductions from the gross selling price?
A:
1. Discounts determined and granted at the time of the sale (i.e., trade discounts).
2. Sales returns and allowances for which proper credit or refund was made.

ZERO-RATED AND EFFECTIVELY ZERO RATED SALES


The following sales by VAT-REGISTERED persons shall be subject to 0% rate
(TIGER):
Sales to entities with treaties (e.g., PEZA, SBMA)
International travels (Planes and Ships)
Sale of gold to BSP
Exports of VAT reg. entities
Sale of renewable energy

Note: These are only common examples lifted out by examiners.

Automatic vs. Effectively Zero-Rated Sale


Although both are taxed similarly, automatic zero-rated transactions differ from
effectively zero-rated transactions as to their source.

An automatically zero-rated sale refers to an export sale or a foreign currency


denominated sale or local sale without treaty agreements.

An effectively zero-rated sale are local sale to entity with treaty agreements (e.g.,
PEZA, SBMA).

Q: What if silent, automatic or effectively zero-rated?


A: Automatic yan.
TRANSACTIONS DEEMED SALE (IN EFFECT SUBJECT TO 12% VAT)
Note: The gross selling price is unreasonably lower than the fair market value if
it is lower by more than 30% of the actual market value.

a. Kinain mo na mga inventories.

b. Distribution or transfer to:


Shareholders
Property dividends
Creditors
Consignment of goods if actual sale is not made within 60 days following
the date such goods were consigned

Q: What is the difference between zero-rated and VAT-exempt transactions?


A: In VAT-exempt transactions there is no input tax credit allowed. In Zero-Rated,
there is creditable VAT.
E.g.: Output tax -------------------- P 0.00
Less: Input tax ------------------- 5,000.00
VAT Creditable 5, 000.00

Q: Is the sale of goods to ecozone, such as PEZA, considered as export sale?


A: Yes. Notably, while an ecozone is geographically within the Philippines, it is
deemed a separate customs territory and is regarded in law as foreign soil.

Q: What is the rationale for zero-rating exports sale?


A: It is because the Philippine VAT system adheres to the cross border doctrine,
according to which, no VAT shall be imposed to form part of the cost of goods
destined for consumption outside of the territorial border of the taxing authority.

VAT ON SALE OF SERVICES AND USE OR LEASE OF PROPERTIES


Constructive receipt: occurs when the money consideration or its equivalent is
placed at the control of the person who rendered the service without restrictions
by the payor.

Q: What are the categories of Services:


A:
1. Professional/ technical consultancy
2. Transfer of technology
3. Lease or use of intangible property
4. Lease or use of tangible property

Q: Are non-stock, non-profit entities liable to pay VAT for sale of goods and
services?

A: Yes. As long as the entity provides service for a fee, remuneration or


consideration, then the service rendered is subject to VAT.

VAT EXEMPT TRANSACTIONS


Sale of goods or properties and/or services and the use or lease of properties that
is not subject to VAT and the seller is not allowed any tax credit of VAT on
purchases.

The following are VAT-exempt transactions: (RICE POPS)


Sale of residential lot valued at 1,919,500 and below, or house and lot valued
at 3,199,200 and below
International flights fuel
Cooperative dealings
Exports on Non-VAT reg. Entities
Pasalubong of our balikbayans
Sale or importation of agricultural and marine food products in their original state
Printing of books and the likes which are not devoted of paid advertisements
Sale or importation of fertilizers, seeds, seedlings and fingerlings

Note: These are only common examples lifted out by examiners.

Q: Why would a VAT-exempt person choose to be subject to VAT than to be VAT


exempt?
A: A VAT-registered person who opted to be subject to VAT may avail of the input
tax credit. However, a VAT-registered person who opted to be exempt therefrom
cannot avail of the input tax credit.

Q: Will a VAT-registered purchaser of goods, properties or services that are VAT-


exempt be entitled to any input tax on such purchase?
A: No.

Q: Are petroleum products exempt from VAT?


A: No longer exempt.
Q: What are some common zero-rated and VAT-Exempt transactions?
A: Zero-rated (TIGER)
Exempt (RICE POPS)

SOURCES OF INPUT TAX


a. Purchase or importation of goods
b. Purchase of real properties for which a VAT has actually been paid
c. Purchases of services in which a VAT has actually been paid
d. Transactions deemed sale
e. Transitional input tax (2%)
f. Presumptive input tax (4%)
g. Transitional input tax credits allowed under the transitory and other provisions
of these Regulations
h. Creditable Withholding VAT on payments to non-residents

Q: What is transitional input tax credit?


A: It is an input tax credit allowed to person who becomes liable to value-added
tax or any person who elects to be a VAT-registered person. The allowed input tax
shall be whichever is higher between:
2% of the value of the taxpayers beginning inventory of goods, materials
and supplies; or
The actual value-added tax paid on such goods.
Q: What is presumptive input tax credit?
A: It is an input tax credit allowed to persons or firms engaged in the:
1. processing of:
a. sardines
b. mackerel
c. milk
2. manufacturing of:
a. refined sugar
b. cooking oil
c. packed noodle based instant meals
The allowed input tax shall be equivalent to four percent (4%) of the gross value
in money.

DETERMINATION OF THE INPUT/OUTPUT TAX; VAT PAYABLE; EXCESS INPUT TAX


CREDIT
VAT payable computation:
Output Tax
- Input Tax
VAT payable (Refundable)

If at the end of any taxable quarter the output tax exceeds the input tax, the
excess shall be paid by the VAT-registered person.

If the input tax exceeds the output tax, the excess shall be carried over to the
succeeding quarter or quarters.

Q: If input tax exceeds output tax, will there be refund?


A: Generally no. Carryover is the proper treatment. Except if the due to zero-rated
transactions or illegally assessed tax, refund is allowed.

Any input tax attributable to zero-rated sales by a VAT-registered person may at


his option be refunded or credited (apply for TCC) against other internal revenue
taxes.

Q: What are the options available to a VAT-registered person, whose sales are (1)
zero-rated, effectively zero-rated, (2) has ceased in business operation, or (3) has
been assessed illegally?
A:
1. To claim for tax credit (TCC); or
2. To claim for refund.

Q: What are the consequences of issuing an erroneous VAT invoice/VAT official


receipt?
A:1. In case of non-VAT registered person who issues a VAT invoice/receipt shall
be held liable to:
a. payment of percentage tax if applicable;
b. payment of VAT without input tax;
c. 50% surcharge on tax due; and
d. the purchaser shall be allowed to recognize an input tax credit provided that
the invoice/official receipt contains the required information.

2. In case of VAT-registered who issues a VAT invoice/official receipt for a VAT-


exempt sale without the words VAT Exempt Sale shall be held liable to pay 12%
VAT.
Q: When should VAT be paid?
A: GR: VAT-registered persons shall pay the VAT on a monthly basis.
XPN: Persons whose registration has been canceled in accordance with Section
236 who shall pay the tax due thereon within 25 days from the date of
cancellation of registration.

VAT RATES
12 Regular rate
7 Standard input vat
5 Final withholding vat
4 Presumptive input vat
2 Transitional input vat
0 Zero-Rated
Exempt Non-VAT

Regulatory requirements
Monthly 2550M VAT Declaration 20th
Quarterly 2550Q VAT Return 25th

Note: Examinees are commonly confused as regards BIR form for VAT Declaration
or Return. Its VAT Dec if Monthly; VAT return if quarterly. BIR requires only
quarterly returns.