SUPPLEMENTAL DISCUSSION ON VAT ON SALES

A registrable person or those who exceed the VAT threshold are subject to VAT even if not registered as
VAT-taxpayer. On the other hand, a VAT-registered person will be subject to VAT even if its annual sales do
not exceed the VAT threshold.

Illustration 1
Dingalan Company is a VAT-registered taxpayer with sales not exceeding the P3,000,000 VAT threshold in
any 12-month period.
Dingalan shall pay VAT on its vatable sales or receipts even if it is below the threshold because it is a VAT-
registered taxpayer.

Illustration 2
Mr. Y, a non-VAT registered taxpayer, exceeded the VAT threshold on August 2018. He reported P200,000
sales in September 2018.
Mr. Y shall pay VAT on his sales effective September 2018.

Illustration 3
A department store had the following sales for the last 12-month period:
Fertilizers, seeds, poultry, etc. P 1,200,000
Fruits and vegetables 800,000
Groceries 800,000
Clothes, shoes and other apparels 600,000
Furniture 400,000
Total P 3,800,000
How much is the vatable sales?
Since the total of the vatable sales is below the VAT threshold, the department store is not required to
register as a VAT taxpayer. Consequently, it may continue paying the 3% percentage tax on these vatable
sales until it exceeds the threshold.

OUTPUT VAT
Output VAT is the VAT passed on to customers or clients by a VAT taxpayer on his sales to customers.
Types of Output VAT
1. Regular Output VAT – for domestic sales
2. Zero Output VAT – for exempt and other zero-rated sales
Regular Output VAT
The regular output VAT is computed as 12% of the following:
a. Sellers of goods or properties – Gross selling price
b. Sellers of services or lease of properties – Gross receipts

Zero-output VAT
The zero output VAT arises from the export sales of VAT taxpayers. Zero output VAT also arises from
transactions considered export sales and those granted with zero-rating treatment under special laws or
international agreements to which the Philippines is a signatory.

INPUT VAT
It is the VAT paid on the domestic purchases or VAT paid on the importation of goods or services by the
taxpayer.
Input VAT also arises from incentives provided by law such as the transitional input VAT and the
presumptive input VAT.

TYPES OF SALES DESCRIPTION TAXATION

a. EXEMPT SALES
b. ZERO-RATED SALES
c. SALES TO GOVT
d. REGULAR SALES
Sales of exempt goods or Exempt from VAT
services
Export sales, sales to non- Subject to 0% Output VAT
resident persons and those
granted zero-rating treatment
Sales to government agencies Subject to 5% Final
or any of its instrumentalities, Withholding VAT
including GOCCs
Sales to domestic or resident Subject to 12% Output VAT
private entities and individuals

VAT EXEMPT SALES

Exempt sales of VAT taxpayers refer to sales of:
a. Exempt goods, services or properties
b. Services specifically subject to percentage tax

Exempt sales will not be subject to Output VAT. Consequently, the seller is also not allowed to credit input
VAT. The input VAT traceable to exempt sales is part of costs or expenses of the seller and is deductible
against gross income subject to income tax.

ZERO-RATED SALES
Zero-rated sales are sales of goods or services to non-residents. Zero-rated sales include:
a. Export sales of goods or services
b. Other sales conferred with zero rating status by law

Zero-rated sales shall not result in an Output VAT but the Input VAT on zero-rated sales is creditable to the
zero output VAT. VAT payable is inherently negative on zero-rated sales.
The input VAT on zero-rated sales can be alternatively claimed through:
a. Tax refund
b. Tax credit certificate

If claimed as tax refund, the taxpayer will recover cash. If claimed as tax credit certificate (TCC), the TCC
can be used as tax credit against any other internal revenue taxes aside from VAT.

If the input VAT on zero-rated sales is not claimed through tax refund or TCC, it is credited against Output
VAT at the end of the month.

SALES TO GOVERNMENT AND GOCCs

The sale to government and GOCCs is subject to a 5% final withholding VAT at source on sales. The 5% final
withholding VAT is presumed the VAT payable of the seller. Consequently, the seller need not pay further
VAT on the sale.
Because of this, the claimable input VAT of the seller is effectively set by the law at only 7% (12%-5%) of
gross sale to the government or GOCCs.