Calculating Output VAT on Sales of Goods and Properties

Output Value-
Added Tax
Althea Abergos
Ida Andalis
Camille Busmente
Grazel Comia
Noreen Evalla
Output VAT
Chapter 7: Regular Output VAT Chapter 8: Zero-rated Sales

Sale of goods Zero-rated sales of goods or
Sale of services properties
Sale of properties Zero-rated sales of services
Transactions deemed sales
Regular
OUTPUT VAT
Sales of goods
The sales of goods is subject to 12% VAT based on gross selling

price in the month of sales.
Sales of goods
In June 2015, Mabaca Corporation made the following sales:

Cash Sales P 200, 000
Sales on Account (P80,000 collected) 100, 000
Installment Sales (P120,000 collected) 300, 000
Total Sales P 600, 000
Sales of goods
The output VAT shall be computed as:

Multiply by: 12%
OUTPUT VAT P 72, 000
Unreasonably lower selling price
The VAT on the sales of goods is based on the gross selling price.
However, the VAT is based on the fair value of the goods if the gross
selling price is unreasonably lower.
The gross selling price is unreasonably lower when it is lower by

more than 30% of the actual market value of the goods sold.
Nonetheless, if one of the parties is the government, the output VAT

shall be based on the actual selling price.
A VAT seller made the following sales of goods to private customers

during the month:
Selling Price Fair Value
To Customer A P 150, 000 P 180, 000
To Customer B 200, 000 190, 000
To Customer C 102, 000 150, 000

Customer Discount Selling Price Fair Value Tax Basis
A (150/180) = 83% 17% P 150, 000 P 180, 000 P 150, 000
B (200/190) = 105% 0% P 200, 000 P 190, 000 P 200, 000
C (102/150) = 68% 32% P 102, 000 P 150, 000 P 150, 000
Vatable Amount P 500, 000
Multiply by: 12%
Output VAT P 60, 000
A VAT registered seller made the following sales at unreasonably lower

selling prices:
Selling Price Fair Value
City of San Fernando P 134, 000 P 200, 000
ABC Trading Company 100, 500 P 150, 000
Selling Price Fair Value Taxable

Sale to the government P 134, 000 P 200, 000 P 134, 000
Sale to private entities P 100, 500 P 150, 000 P 150, 000
VATABLE amount P 284, 000
Multiply by 12%
Sale of services
The sales of services is subject to 12% VAT based on the gross receipt
in the month of collection.
Sale of services
A VAT registered repairman had the service provider had the following
revenue and collection during the month:
Revenue Collection Balance
Client A - for services rendered:
Billing for materials P 200, 000 P 200, 000 P 0
Service Fee P 100, 000 P 50, 000 P 50, 000
Total P 300, 000 P 250, 000 P 50, 000
Client B work not yet started on a 500,000 contract:
Advances P P 200, 000 P
Sale of services
Collection
Collection for services rendered P 250, 000
Advances from clients 200, 000
Gross Receipts P 450, 000
Multiply by: 12%
Sale of goods and services to senior citizens and persons
with disability by covered establishments
The law requires certain establishments to provide discounts of not less

than 20% to senior citizens and persons with disability.
It must be recalled also that the sales to senior citizens are exempt from
VAT. However, the sales to PWD, net of the discount, are subject to VAT.
Yuck Restaurant, a VAT taxpayer, recorded the following receipts during the
month:
Receipts from senior citizens, before 20% discount P 225, 000

Receipts from PWD, before 20% discount 75, 000
Receipts from regular customers 340, 000
Total Fees P 640, 000
Receipts from PWD, net of discount (P75,000 x 80%) P 60, 000
Receipts from regular customers 340, 000
Total vatable receipts P 400, 000
Multiply by: VAT rate 12%
Sale of properties
Type of sale of properties:

1. Sale by a dealer, developer or lessor of real properties (VATABLE)
2. Sale of properties considered ordinary assets (VATABLE)
3. Sale of properties not in the course of business (EXEMPT)
Sale of properties by a dealer
Under the law, the sale, including pre-selling, barter or exchange of real
properties by a realty dealer is subject to VAT on the gross selling price.
In the case of sale, barter or exchange of real property, the term gross selling
price was interpreted under the regulations to mean the consideration
stated in the sales document or fair value of the property whichever is
higher. In other words, gross selling price shall mean the higher of the selling
price or fair market value.
Under the NIRC, the fair market value of real property is higher between the:
a. Zonal value; and
b. Assessed value
In the absence of zonal value, gross selling price shall mean the assessed value
or consideration stated in the sales document, whichever is higher.
If the gross selling price is based on the zonal value or assessed value of the
property, the zonal value or assessed value shall be presumed exclusive of VAT.
If the fair market value is higher than the selling price, the output VAT must be
separately billed with specific mention that the VAT billed separately is based
on the market value of the property.
Mr. Realtor a real property dealer, sold a commercial lot in June
2015. The following relates to the sale:
Appraisal value P 4,500,000
Zonal value 4,000,000
Assessed value 2,500,000
Selling price 3,800,000
The output VAT shall be:
Fair market value P4,000,000

Multiply by: 12%
Output VAT P 480,000
DEF Realty Corporation, a VAT-registered realty dealer, sold the following
residential properties during the month:
Zonal value Assessed value Selling price

Residential lot P1,500,000 P1,200,000 P1,700,000
Residential dwelling 2,000,000 1,500,000 3,000,000
*The output VAT shall be nil. Recall that the sale of residential lot is exempt if sold
at a price not exceeding P 1,919,500. The sale od a residential dwelling is also
exempt if the selling price do not exceed P 3,199,200.
Installment Reporting of Output VAT
The output VAT on the sale of real properties by realty dealers shall be
reported in the month of sale. However, if the property is sold on the
installment plan, the Output VAT may be reported in installment.
Sale of real property on installment plan, means sale of real property by a

real estate dealer, the initial payment of which in the year of sale do not
exceed 25% of the selling price.
On August 1, 2014 a real property dealer sold a commercial lot with the
following data:
Zonal value P 6,000,000

Assessed value 4,500,000
Selling price 5,000,000
Down payment is P500,000 with the balance due on 36monthly installments

of P125,000 starting September 1,2014.
Output VAT (P6,000,000 x 12%) P720,000

Ratio of initial payment:
The payments shall be projected until the year-end of the year of sale to
determine the ratio of the initial payment.
Initial Payment Selling Price Ratio
Aug 1, 2014 down payment P 500,000
Sept 1, 2014 Monthly payment 125,000
Oct 1 Monthly payment 125,000
Nov 1, 2014 monthly payment 125,000
Dec 1, 2014 monthly payment 125,000
Ratio of Initial Payment P1,000,000 / P 5,000,000 = 20%
*The ratio does not exceed 25%. The sale qualifies as a sale on the
installment plan. The output VAT on the sale may be reported in installment.
Reportable Output VAT:

Payments/S P x Output VAT Output VAT
Aug 2014 P500,000/5,000,000xP720,000 = P72,000
Sept* P125,000/P5,000,000xP720,000 = P18,000
The amount to be billed by the seller for each installment shall be:
Installment P125,000 P 125,000

Plus: Output VAT 18,000
Total monthly billing starting Sept P143,000
The reportable output VAT in the 3rd and 4th quarters of 2014 shall be:
Third Quarter Fourth Quarter

July August Sept Oct Nov Dec
Output VAT P - P72K - P90K P18K-P18K-P54K
*Recall that the quarterly Output VAT is the cumulative of the Output VAT for
the entire quarter coverings 3 months.
Sale of a property by a realty dealer on a
deferred payment basis
Sale of property by a realty dealer on a deferred payment basis, not

on the installment plan, shall be treated as cash sale. The fair value
or gross selling price w/ever is higher is subject to VAT in the
month of sale subsequent collection from the sale shall no longer
be subjected to VAT.
On August 1, 2014, Exxon Realty Corp sold a residential property w/ a

fair market value of P5,000,000 for P4,000,000. The term of the sale
requires a down payment of P400,000 and the balance payable in
P200,000monthly installments starting Sept 30, 2014.
Output VAT (P5,000,000x12%) P600,000

Ratio of initial payment:
Initial Payment Selling price Ratio
Aug1 P 400,000
Sept1 200,000
Oct31 200,000
Nov30 200,000
Dec31 200,000
P 1,200,000/P 4,000,000 = 30%
The reportable Output VAT in the 3rd and 4th quarters of 2014 shall
be:
Third Quarter Fourth Quarter

July August Sept Oct Nov Dec
Output VAT P - 600K - 600K P - P -P
*the output VAT is reported in the month of sale. Hence, no output

VAT is further imposable on future installments.
Interest and Penalties
Interest and Penalties actually or constructively received by the

seller is likewise subject to VAT.
Sarangani, a VAT-taxpayer made a sale of real property with a fair

value of P3,000,000 for P2,000,000. The P360,000 Output VAT on the
sale qualified for installment reporting.
During the month, Srangani is due to receive the following, net of

VAT:
Installment P200,000
Interest 12,000
Penalty 4,000
Total P216,000
The reportable output VAT:
Installment P200,000/P2,000,000xP360,000 P36,000

Interest P12,000x12% 1,440
Penalties 4,000x12% 480
Output VAT P37,920
The total amount to be billed:

Installment P200,000
Interest 12,000
Penalty 4,000
Total P216,000
Plus: Output VAT 37,920
Total billing P253,920
Sales of properties considered ordinary assets
Even if the real property is not primarily held for sale to customers
or held for lease in the ordinary course of business but the same is
used in the trade or business of the seller, the sale thereof shall be
subjected to VAT being a transaction incidental to the taxpayers
main business.
Therefore, the sale of properties held for use (ordinary assets) such
as land, building, equipment, machineries, property improvements
and supplies side from inventories and supplies are vatable.
Sales of properties considered ordinary assets
Hill Foods Corp, a VAT taxpayer, sold the ff:
Old factory(BV=P1,500,00) P 1,300,000

Vacant lot, held as investment 4,000,000
The Output Vat shall be:
Selling Price of Old factory P 1,300,000

Multiply by: 12%
Sales of property not in the ordinary course of
business
The sales of properties not in the ordinary course of business are

exempt from VAT. Hence, the sale of capital asset is exempt from
VAT.
Acquisition (i.e. consumption) in nature but are not coursed

through a purchase transaction by the consumer. Consequently,
these are not recorded as sales by the seller. Nevertheless, since
these transactions are forms of taxable consumptions, they are
considered deemed sales for VAT purposes.
For whose advantage the taxpayers or the governments?
To the governments, because it can recapture the input taxes

that are creditable from output taxes of the other goods that were
sold by the business.
1. Transfer not in the ordinary course of business

2. Distribution to shareholders or creditors
3. Consignment of goods not withdrawn in 60 days
4. Retirement or cessation of business
5. Cessation of status as VAT-registered person
1. Transfer not in the ordinary course of business
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.
May happen when a business proprietor or partner withdraws

goods or properties held for sale, lease, or use in the ordinary
course of trade or business for his personal consumption
Deemed as a sale subject to VAT

ILLUSTRATION. A realtor transferred ownership over a residential

property which is held for sale to his daughter who is getting
married. The property had a cost basis of P 2,000,000 and a fair
market value of P 2,500,000 at the date of transfer.
How to compute for Output VAT? NOTE:

Transfer of
Fair market value P 2,500,000 ownership
Multiply by: 12% necessary
Output VAT P 300,000 Ordinary asset
2. Distributions to shareholders or creditors
Specifically, distribution or transfer to:

a. Shareholders or investors share in the profits of VAT-
registered persons (property dividends)
b. Creditors in payment of debt or obligation
(dacion en pago payment)
Analogous to purchase, hence subject to VAT

ILLUSTRATION. Delfin Corporation, a security dealer, declared the

following dividends in March 2015 (page 239):
Cash Dividend P 1,200,000

Property Dividend PP 800,000 *The property
dividend
How to compute for Output VAT? represents various
merchandise
Fair market value P 2,800,000 inventory.
Multiply by: 12%
Output VAT P 96,000
Here, actual sale is not made within sixty (60) days following the
date such goods were consigned.
Not an actual consumption, but the rule is to prevent taxpayer

from deferring recognition of Output vat by non-reporting or
delayed reporting of sales on consignment
Those returned by the consignee within the 60-day period are not
deemed sold.
ILLUSTRATION. A VAT-registered taxpayer has its own sales

operations but also sells goods through consignees. It also sells
goods on consignment for a commission. The following were the
results of operations for the month ended April 30, 2015.
Sales own inventories P 500,000

Sales reported by consignees P 150,000
Sales in behalf of consignors P 100,000
Commission income on goods
sold for consignors P 20,000
The billed prices of outstanding consignments still held by

consignees as of April 30, 2015 are as follows:
February 2015 P 50,000

March 2015 p80,000
April 2015 120,000
How to compute for Output VAT?
Direct sales P 500,000

Sales through consignees P 150,000
Commission income P 20,000
Total sales/receipts P 670,000 x 12 % = P 80,400
Deemed sales (February) P 50,000 x 12 % = 6,000
Output VAT P 86,400
*The consignment sale of a consignee is not taxable to the consignee but to

the consignor
With respect to all goods on hand, whether capital goods, stock-

in-trade, supplies, or materials, as of the date of cessation,
whether or not the business is continued by the new owner or
successor
IF RETIRED/CEASED, will result in the transfer of all goods or

properties of the business to the personal use or account of
business owner/s
Akin to withdrawal or transfer not in the ordinary course of

business
IF CONTINUED BY A NEW OWNER, goods or properties are

effectively sold
Examples of taxable cessation of business
1. Change of ownership of the business, such as:

a. Incorporation of a sole proprietorship
b. Sale by a proprietor of his entire business
2. Dissolution of a partnership and creation of a new partnership

which takes over the business
ILLUSTRATION. Mr. Misamis, a VAT-registered taxpayer, ceases

business operation in May 2015. His business properties upon
termination of business operation include:
Cash P 550,000
Accounts receivable P 120,000
Investments P 180,000
Inventories 00000000200,000
Property, plant, and equipment 800,000
Total assets 00000P 1,350,000
How to compute for Output VAT?
Inventories P 200,000
Property, plant, and equipment P 800,000
Basis P 1,000,000
Multiply by 12%
*The VAT on deemed sales applies only to ordinary assets. Accounts

receivables and inventories are non-vatable because they are capital assets.
Goods or properties originally intended for sale or use in the

business, and capital goods existing as of the occurrence of any
of the following shall be deemed sold:
a. Change of business activity from VAT-taxable to VAT-

exempt status
b. Approval of a request for cancellation of registration due

to Wreversion to exempt status
c. Approval of request for cancellation of registration due to desire

to revert to exempt status after the lapse of 3 consecutive years
from the time of registration by a person who voluntarily registered
despite being exempt
d. Approval of a request for cancellation of registration of one who

commenced business with the expectation of gross sales or
receipts exceeding P 1,919,500 but who failed to exceed this
amount during the first twelve months of operations
Transactions not considered deemed-sales
1. Change of control of a corporation by the acquisition of the

controlling interest of such corporation by another stockholder
or group of stockholders
2. Change in the trade or corporate name of the business
3. Merger or consolidation of corporations
Invoicing requirement for subsequent sale
Subsequent sale of goods or properties deemed sold shall not be

subject to VAT. However, the seller of goods or properties
previously deemed sold shall indicate the sales invoice number
wherein the output tax on deemed sale was imposed and the
corresponding tax paid on the items sold.
IMPORTANT NOTES:
Transaction deemed sale Tax base
1. Transfer not in the ordinary course of business Market value of the
goods deemed sold
2. Distribution to shareholders or creditors
4. Retirement from or cessation of business Acquisition cost or
current market price of
the goods, whichever
is lower
*The VAT on deemed sales shall apply only to VAT taxpayers and if the property
transferred is (1) an ordinary asset and (2) a vatable property.
Summary of Output VAT Rules
Timing of Reporting of
Source of Regular Output VAT VAT base
Output VAT
Gross selling price, but
Sale of goods fair value If selling price In the month of sale
is unreasonably lower
Sale of services Gross receipts In the month collected
In the month of sale or
Gross selling price
spread throughout the
Sale of real properties (higher of fair value or
collection period under
selling price)
the installment method
Fair value of the deemed In the month deemed
sale sold
Billing requirements on Output VAT
The Output VAT must be specifically indicated in the VAT invoice

or receipt. It must be billed separately in the case of sales of
properties where FMV > SP.
Determination of the Output VAT
The amount of Output VAT is dependent upon the price quoted by the
VAT taxpayer. Such amount is understood to be inclusive of the VAT in
the absence of a special agreement to the contrary.
ILLUSTRATION 1. A VAT taxpayer sold goods he quoted for sale at

P 163,352. He shall compute his sales and Output VAT in his VAT invoice
as follows:
Sales (P 163,352 / 1.12) P 148,850

Plus: Output VAT (P 163,352 x 12/112) P0 17,502
Quoted price (invoice price) P 163,352
Determination of the Output VAT
ILLUSTRATION 2. Mr. Pedro agreed to accept an audit engagement to a

client at a fee of P 100,000. The fee is agreed to be exclusive of VAT.
The amount of fees and the Output VAT which Mr. Pedro shall indicate in
his VAT official receipt shall be computed as follows:
Fees (Amount quoted exclusive of VAT) P 100,000

Plus: Output VAT (P 100,000 x 12%) P0 12,000
Quoted price (invoice price) P 112,000
Rule on VAT not separately billed
The selling price or the consideration stated therein shall be

deemed to be inclusive of the VAT.
The VAT shall be computed from the agreed price as a factor of

12/112.
Incorrect billing of VAT
If the VAT is incorrectly billed, the total amount billed by the

taxpayer shall be deemed inclusive of the VAT.
The VAT shall be recomputed from the agreed price as a factor of

12/112.
Output VAT
ZERO-RATED SALES
pages 244-257
Zero-rated Sales
Business
Taxes
Value-Added Percentage
Excise Tax
Tax Tax
VATable VAT-exempt Zero-rated

Sales transactions Sales
Zero-rated Sales
Foreign consumptions (i.e. export sales) or equivalents of

foreign consumptions (foreign currency denominated sales and
constructive exports) and sales conferred with an export sale
treatment by special laws and international agreements to
which the Philippines is a signatory
Example: Export of goods and services (not charged with

consumption taxes; foreign consumption)
Zero-rated Sales
Benefit of zero-rating. A zero-rated sale will have a zero Output

VAT but with a deductible (i.e. creditable) input VAT. As such, the
taxpayer will fully recover the VAT he paid on his domestic
purchases and on importation either by credit to any tax liability
of the taxpayer with the government or by tax refund.
Zero-rated Sales
Zero-rated Sales Exempt Sales
Input VAT No Output VAT

Input VAT non- Taxpayer does
creditable or creditable not pay VAT
refundable and non-
refundable
Zero-rated Sales

ILLUSTRATION. During the month, Rizal Corporation purchased
goods invoiced at P 350,000 excluding P 42,000 input tax. It
exported the goods for $ 12,000 which is equivalent to P 510,000
and incurred P 10,000 in expenses.
Zero-rated Sales

Assuming Rizal Corporation is a VAT taxpayer
Output VAT P 8,85 0

Less: Input VAT 42,000
Excess Input VAT (P 42,000)
Claimable in full as tax credit against other Output VAT or claimed as tax credit
against any internal revenue tax liability of Rizal Corp or as tax refund
Zero-rated Sales

Assuming Rizal Corp. is subject to 30% corporate income tax
Sales P 510,000 Input VAT not

Less: COGS, exclusive of VAT 350,000 claimable as
Gross Income P 160,000 deduction against
Less: Deductions 10,000 gross income in
Income Taxation
Taxable income P 150,000 because it is tax
Multiply by: 30% credit or tax refund
Income tax due P 45,000
Zero-rated Sales
Input VAT can be

Zero-rated Sales Exempt Sales claimed as
deduction against
Assuming Rizal Corp. is a non-VAT taxpayer gross income in
Income Taxation
Sales P 510,000
Tax benefit:
Less: COGS (P 350,000 + 42,000) 392,000
Gross Income P 118,000 P 42,000 x 30% or
Less: Deductions 10,000 P 45,000 32,400 =
Taxable income P 108,000 P 12,600 only
Multiply by: 30%
Income tax due P 32,400
Zero-rated Sales

Output
No Output VAT No Output VAT
VAT
Input VAT Creditable or Deductible against

treatment refundable gross income
Extent of
Total Partial
tax relief
Zero-rated Sales
a. Export sales
1. Zero-rated sales of goods or

b. Foreign currency denominated sales
properties
Zero-rated Sales
c. Sales to tax-exempt persons or entities under

special laws or international agreements
a. Sale of services to non-residents
b. Effectively zero-rated sales of services

2. Zero-rated sales of services
c. Transport of passengers and cargoes by domestic air
or sea carriers from the Philippines to a foreign country
d. Sale of power or fuel generated from

renewable sources of energy
Zero-rated sales of goods or properties
a. Export sales
1. Direct export
2. Indirect export
3. Sale of raw materials or packaging materials to an export-oriented
enterprise
4. Sale of gold to Bangko Sentral ng Pilipinas (BSP)
5. Those considered export sales under E.O. (The Omnibus Investment Code
of 1987) and other special laws
6. Sale of goods or properties, supplies, equipment and fuel to persons
engaged in international shipping or international air transport
operations
Export sales sales to nonresidents
Direct export sale and actual shipment of goods from the

Philippines to a foreign country, irrespective of shipping
arrangement
Indirect export sale of raw materials or packaging materials to

a non-resident buyer for delivery to a resident local export-
oriented enterprise to be used in manufacturing, processing,
packing, or repacking in the Philippines of the said buyers
Export sales sales to nonresidents
ILLUSTRATION. Guimaras Company made the following export sales

during the year:
Export Non-VAT
Terms Payment
VAT Taxpayer
destination Taxpayer
Hong Kong FOB Destination Zero-rated

$ 100,000 Exempt
Thailand FOB Destination Exempt

P 450,000 Exempt
Japan FOB Shipping Point Zero-rated

800,000 Exempt
Sales to Residents Considered Export Sales
Sales to an export-oriented enterprise sale of raw materials or

packaging materials to an export-oriented enterprise whose
sales exceed seventy percent (70%) of total annual production
Sales of gold to the BSP increases international reserve

similar to a direct export or a foreign currency denominated sale
ILLUSTRATION. Mang Joseph, a VAT-registered miner, sold to the

BSP his gold production of 2,000 grams of raw gold nuggets with
specific gravity of 14.9. the final BSP assay results in the
following pay-out before refining charges:
Final assay Price/gram Price
Gold (74%) 1,480 grams P 1,740.00 Zero-rated

P 2,575,200
Silver (18%) 360 grams 43.00 Vatable

P 450,000
Trace elements (8%) 160 grams - -
Total 2,000 grams P 2,590,680
*Sale of gold by non-VAT taxpayer to the BSP is vatable

Transactions considered export sales under E.O. 226 and other special
laws include
1. The Philippine F.O.B. value of export products exported directly by an

export producer
2. The net selling price of export products sold by a registered export
producer to another export producer
3. The net selling price of export products sold by a registered export
producer to an export trader that subsequently exports the same
Transactions
Examples considered
of Philippine Ecozones:export sales under E.O. 226 and other special
laws include
1. Philippine Economic Zone Authority (PEZA)
2. Cagayan Special Economic Zone
4. Even without actual exportation, the following shall be considered
3. Zamboanga Special Economic Zone
4.
constructively exported:
Clark Special Economic Zone
5. a. SalesZone
Clark Freeport to bonded manufacturing warehouses of export-oriented
6. enterprises
Poro Point Special Economic and Freeport Zone
7. b. Special
John Hay Sales toEconomic
export processing
Zone zones in pursuant to R.A. 7916, 7903,
8. Aurora 7922,
Specialand
Economic Zone (ASZ)
other similar R.A. 9490
exporting zones
laws include

c. Sales to enterprises duly registered and accredited with the
Subic Bay Metropolitan Authority (R.A. 7227)
d. Sales to registered export traders operating bonded
manufacturing warehouses supplying raw materials in the
manufacture of export products
laws include

e. Sales to diplomatic missions and other agencies and/or
instrumentalities granted tax immunities, of locally
manufactured, assembled or repacked products whether or not
paid for in foreign currencies
f. Sale of goods, properties, or services to a BOI-registered
manufacturer or producer
laws
Except goods sold to diplomatic missions, agencies, or

instrumentalities granted tax immunities, the sales as specified in
these transactions are eventually or ultimately exported if not directly
exported
Diplomatic missions and instrumentalities are outside the tax

jurisdiction of the state (akin to foreign consumptions)
Sale of goods, supplies, equipment, and fuel to persons

engaged in international shipping or international air
transport operations
Generally used (consumed) outside Philippine territories; foreign

consumption rather than domestic consumption
Sale of goods, supplies, equipment, and fuel to persons engaged in

international shipping or international air transport operations
Limited to goods, supplies, equipment, and fuel pertaining to or

attributable to the transport of goods and passengers from a port in the
Philippines directly to a foreign port, or vice versa, without docking or
stopping at any port in the Philippines, unless the docking or stopping is
for the purpose of unloading passengers or cargoes originated from
abroad or to load passengers and or cargoes bound for abroad
Sale of goods, supplies, equipment, and fuel to persons engaged in

international shipping or international air transport operations
ILLUSTRATION. Sibalom Company, a VAT taxpayer, sold supplies to Pan-

Pacific Airlines.
Pan Pacific Airline division Amount

Domestic operation P 400,000 12% VAT
International operation P 500,000 0% VAT
Sale of goods, properties, or services to a Board of Investments (BOI)-

registered manufacturer or producer
Sale of goods, properties, or services made by a VAT-registered supplier

to a BOI-registered manufacturer/producer whose products are 100%
exported
Certification to this effect which is good for one year must be issued by
the BOI
Pertains to sale to non-residents of goods, except export of

automobiles and non-essential commodities, assembled or
manufactured in the Philippines for delivery to a resident in the
Philippines, paid for inacceptable foreign currency and
accounted for in accordance with the rules and regulations of
the BSP
Sales under the Internal Export Program of the government
This includes sales of locally manufactured or assembled

goods for household and personal use to Filipinos abroad and
other non-residents of the Philippines, as well as returning
Overseas Filipinos under the Internal Export Program of the
government, paid for in convertible foreign currencies and
accounted for with the rules and regulations of the BSP
c. Sales to tax-exempt persons or entities under special laws or

international agreements
Sales to persons or entities deemed tax-exempt under special laws or

international agreement
Tax-exempt entities under special laws

a. Subic Bay Metropolitan Authority (SBMA)-registered enterprises
b. Philippine Economic Zone Authority (PEZA)-registered
enterprises
c. Philippine National Red Cross (PNRC) Sec. 5 (c), R.A. 10072
d. Philippine Amusement and Gaming Corporation (PAGCOR) and
its licensees or contractors P.D. 1869

Tax-exempt entities under international agreements

a. Asian Development Bank (ADB)
b. International Rice Research Institute (IRRI)
c. United Nations and its various organizations, such as World
Health Organization and UNICEF
d. United States Agency for International Development (USAID) and
its personnel and contractors (RMC 40-07)
e. Embassies, qualified employees, and dependents subject to
the reciprocity rule

The VAT reciprocity exemption on embassies and their personnel
Embassies and their qualified employees and dependents of employees

do not have indirect tax exemption under The Vienna Convention on
Diplomatic Relations but they may be exempt under the principle of
reciprocity
Those provided with VAT Exemption Certificate (VEC) or VAT Exemption

Identification Card (VEIC) shall be entitled to the benefit of zero-rating

ILLUSTRATION. ABC Corporation, a VAT supplier, sold office supplies and

equipment to the following embassies:
Embassy Exemption status Sales

Ukraine Embassy Without reciprocity exemption P 400,000 12% VAT
Russian Embassy With reciprocity exemption 600,000 0% VAT
Total P 1,000,000
Effectively zero-rated sales of goods or properties
Refers to local sale of goods or properties by a VAT-registered person to a

person or entity who was granted indirect tax exemption under special
laws or international agreement
Requirements. Prior application with the appropriate BIR office (with the
exception of direct export and foreign currency denominated sales)
otherwise, exempt
Approval given prospective effect and valid until December 31 of the

same year, renewable every year thereafer
Effectively zero-rated sales of goods or properties.
Examples of transactions covered by the zero-rating application

requirement.
a. Sales to export-oriented enterprises
b. Sales of goods, supplies, equipment, and fuel to persons
engaged in international shipping or international air transport
operations
c. Sales to BOI-registered enterprises
d. Sale to other tax-exempt persons, except senior citizens
Effectively zero-rated sales of goods or properties.
Examples of transactions not covered by the zero-rating application

requirement.
a. Direct export
b. Indirect exports (Foreign currency denominated sales)
c. Sales to Ecozone-registered enterprises
(subject to an automatic zero-rating treatment)
Zero-rated Sales
Zero-rated sales of
services
c. Transport of
passengers and d. Sale of power or
b. Effectively zero-
a. Sale of services to cargoes by domestic fuel generated from
rated sales of
non-residents air or sea carriers renewable sources of
services
from the Philippines energy
to a foreign country
Zero-rated sales of services
1. Processing, manufacturing, or repacking goods for other persons doing

business outside the Philippines, which goods are subsequently
exported
2. Services other than processing, manufacturing, or repacking rendered to

a person 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
Any other
service
Requirements for zero-rating:
1. The service must be performed in the Philippines
2. The service must be paid for in acceptable foreign currency or its

equivalent in goods or services
3. The payment must be accounted for under the rules and regulations of
the BSP.
ILLUSTRATION 1. Excel Tailoring, a VAT taxpayer, is engaged in sewing

business. During the month, it had the following receipts form sewing
services from various clients:
Item Client Price
School uniforms DLSU, a Philippine university 12% VAT
P 800,000
Garments Levi;s, a foreign dressmaker Zero-rated
$ 150,000
Finesse, a foreign textile VAT exempt
Curtains P 1,000,000
manufacturer
ILLUSTRATION 2. General consultants, a VAT taxpayer, provides various

services to clients. The detail of each transaction during the month is
shown below:
Client Place rendered Amount
A foreign corporate client Abroad VAT exempt
$ 200,000
A resident foreign corporation Philippines 100,000
12% VAT
A non-resident foreign corporation Philippines P 1,000,000
VAT exempt
Refers to
Examples ofthe local sale
entities withof servicestax
indirect to exemption:
a person or entity who was granted
indirect tax exemption under special laws or international agreements
1. Asian Development Bank (ADB)
1.
2. Services rendered
International to personsInstitute
Rice Research or entities exempt under special law or
(IRRI)
international
3. Embassies, agreement
subject to reciprocity rule
2. Philippine
4. Services rendered
Amusementto persons engaged
and Gaming international
Corporation shipping or air
(PAGCOR)
transport operations,
5. Philippine National Red including lease of property for use thereof
Cross (PNRC)
3.
6. Services
ECOZONES performed
registeredbyenterprises
subcontractor(R.A.and/or
7916) contractors in processing,
converting, or manufacturing goods for an enterprise whose export sales
exceed 70% of total annual production (i.e. export-oriented enterprise)
ILLUSTRATION
A VAT taxpayer provided security and janitorial services to the
building of the International Rice Research Institute (IRRI). Zero-
IRRI paid the taxpayer P 200,000. rated
Proactive Company, a VAT taxpayer, is a contractor providing

aircraft maintenance services to Lufthanasa, an international Zero-
air carrier. Lufthanasa paid Proactive P 1,000,000 for its rated
services rendered.
ILLUSTRATION 2. Mr. Johnny, a VAT taxpayer, provides pest control

services to vessels of Philippine Seagulls, a domestic shipping company
engaged in both domestic and international shipping operations.
Source of service fees Amount

Domestic transport division 12% VAT
P 400,000
International transport division Zero-rated
600,000
TOTAL P 1,000,000
ILLUSTRATION 5. Berde Residences leases residential units to certain

embassy personnel of foreign governments:
Personnel VAT Status Rental

Mr. Vladimir Cutin A Russian with VEIC Zero-rated
P 50,000
Mr. Marco Poroshenco A Ukrainian without VEIC 12% VAT
20,000
Mrs. Janice Naran A Mongolian without VEIC Exempt
12,000
Total P 82,000
c. Transport of passengers and cargo by domestic air or sea

carriers from the Philippines to a foreign country
Outgoing transport Services rendered in the

Zero-rated
services of domestic air Philippines to non-
VAT
or sea carrier residents
Incoming transport Services rendered

services of domestic air abroad to non-residents VAT-exempt
or sea carrier (foreign consumption)
c. Transport of services and cargo by domestic air or sea carriers

from the Philippines to a foreign country
ILLUSTRATION 1. Pinoy Airline had the following receipts:
Incoming flights (Abroad to Philippines) P 200,000,000

Exempt
Outgoing flights (Philippines to Abroad) 300,000,000
Zero-rated
Domestic flights (Philippines to Philippines) 12% VAT
500,000,000
TOTAL P 1,000,000,000
c. Transport of services and cargo by domestic air or sea carriers

from the Philippines to a foreign country
ILLUSTRATION 2. Singapore Ocean Liners, an international sea

carrier, had the following receipts during a month:
Incoming voyage (Abroad to Philippines) P 200,000,000

Exempt
Outgoing voyage (Philippines to Abroad) 300,000,000
Exempt
** The outgoing transport of mails, cargoes, or excess baggage is specifically subject

to 3% percentage tax, not to 0% VAT. Services rendered to this entity are zero-rated.
d. Sale of power or fuel generated through renewable sources of

energy
Includes, but not limited to, biomass, solar, wind, hydropower,

geothermal and steam, ocean energy, and other emerging
sources using technologies such as fuel cells and hydrogen fuels
(R.A. 9513 and R.A. 9337)
Applicable only to sale on power and does not extend to sale of

services related to the maintenance or operation of plants
generating said fuel

energy
Types of business in the electricity business

1. Generation Companies - refers to persons or entities authorized by the
Energy Regulatory Commission (ERC) to operate a facility used in the
production of electricity
2. Transmission Companies refers to any person or entity that owns and

conveys electricity through the high voltage backbone system
and/or sub-transmission assets

energy
Types of business in the electricity business
3. Distribution Companies refers to persons or entities including a

distribution utility such as electric cooperative which operates a
distribution system with the provisions or R.A. (EPIRA Law)

energy
ILLUSTRATION. Northern Electric is a generation company with

the following receipts during a month:
Sale of electricity generated from hydro plant Zero-rated

P 12,000,000
Sale of electricity generated from solar plant Zero-rated
10,000,000
Sale of electricity from coal-powered plant 12% VAT
30,000,000
Sale of electricity from natural gas-power plant 12% VAT
15,000,000

Calculating Output VAT on Sales of Goods and Properties

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Calculating Output VAT on Sales of Goods and Properties

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Output Value-

Chapter 7: Regular Output VAT Chapter 8: Zero-rated Sales

The sales of goods is subject to 12% VAT based on gross selling

In June 2015, Mabaca Corporation made the following sales:

The output VAT shall be computed as:

The gross selling price is unreasonably lower when it is lower by

Nonetheless, if one of the parties is the government, the output VAT

A VAT seller made the following sales of goods to private customers

The output VAT shall be computed as:

A VAT registered seller made the following sales at unreasonably lower

The output VAT shall be computed as:

Selling Price Fair Value Taxable

The law requires certain establishments to provide discounts of not less

Receipts from senior citizens, before 20% discount P 225, 000

Type of sale of properties:

Fair market value P4,000,000

Zonal value Assessed value Selling price

Sale of real property on installment plan, means sale of real property by a

Zonal value P 6,000,000

Down payment is P500,000 with the balance due on 36monthly installments

Output VAT (P6,000,000 x 12%) P720,000

Reportable Output VAT:

Installment P125,000 P 125,000

Third Quarter Fourth Quarter

Sale of property by a realty dealer on a deferred payment basis, not

On August 1, 2014, Exxon Realty Corp sold a residential property w/ a

Output VAT (P5,000,000x12%) P600,000

Third Quarter Fourth Quarter

*the output VAT is reported in the month of sale. Hence, no output

Interest and Penalties actually or constructively received by the

Sarangani, a VAT-taxpayer made a sale of real property with a fair

During the month, Srangani is due to receive the following, net of

Installment P200,000/P2,000,000xP360,000 P36,000

The total amount to be billed:

Hill Foods Corp, a VAT taxpayer, sold the ff:

Old factory(BV=P1,500,00) P 1,300,000

The Output Vat shall be:

Selling Price of Old factory P 1,300,000

The sales of properties not in the ordinary course of business are

Acquisition (i.e. consumption) in nature but are not coursed

For whose advantage the taxpayers or the governments?

To the governments, because it can recapture the input taxes

1. Transfer not in the ordinary course of business

1. Transfer not in the ordinary course of business

Transfer, use, or consumption not in the course of business of

May happen when a business proprietor or partner withdraws

Deemed as a sale subject to VAT

ILLUSTRATION. A realtor transferred ownership over a residential

How to compute for Output VAT? NOTE:

2. Distributions to shareholders or creditors

Specifically, distribution or transfer to:

Analogous to purchase, hence subject to VAT

ILLUSTRATION. Delfin Corporation, a security dealer, declared the

Cash Dividend P 1,200,000

3. Consignment of goods not withdrawn in 60 days

Not an actual consumption, but the rule is to prevent taxpayer

ILLUSTRATION. A VAT-registered taxpayer has its own sales

Sales own inventories P 500,000

The billed prices of outstanding consignments still held by

February 2015 P 50,000

How to compute for Output VAT?

Direct sales P 500,000