THINGS YOU NEED TO KNOW ABOUT

VAT(VALUE ADDED TAX)

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THINGS YOU NEED TO KNOW ABOUT

VAT(VALUE ADDED TAX)

Tax can be confusing.

At the basic, there is Percentage Tax or Value Added Tax;

Tax can be confusing.

At the basic, there is Percentage Tax or Value Added Tax;

Tax can be confusing.

VAT registered and a Non-VAT registered tax

payer

 In the Philippines, managing tax matters can be really complicated. Several

individuals and companies even hire Consultants/Accounting Firms to manage compliance reporting.

and

 In the Philippines, managing tax matters can be really complicated. Several

individuals and companies even hire Consultants/Accounting Firms to manage compliance reporting.

aim to educate our Clients and website visitors about Business

and Finance including tax issues.

andJC L-BPO

Basic Information

about Value Added

Tax

Any person or entity who is engaged in trade, business or in the practice of

profession may be liable to business taxes (VALUE ADDED TAX (VAT) RA 9337 as implemented by RR 16-

2005 as amended by RR 2-2007 and 4-2007).

Business tax can be either a Percentage tax or a Value Added Tax. Likewise, a taxpayer can be a VAT registered entity or a Non-VAT registered taxpayer.

In this deck, we will discuss the meaning of VAT, its background, objectives, how to compute VAT Payable and

file the monthly and quarterly VAT returns in the Philippines.

What is a Value Added Tax?

 VAT (Value Added Tax) is simply a form of “Sales Tax” and “Tax on Consumption” levied on:

1. Sale of goods, properties and services

2. Importation of goods (An indirect tax imposed on sellers but actually shouldered by the buyers. Sellers act merely as tax collectors)

Background of Value Added Tax

Value-Added Tax (VAT) is a business tax levied on sale of certain

goods, properties and services.

Objectives of VAT

Objectives of VAT

•To broaden the tax base•To provide an audit trail•To simplify business taxation•To increase revenue

Who Are Liable for VAT?

Who Are Liable for VAT?The following persons or entities are required to file VAT

returns:

• Any person who in the course of trade / business / practice of profession sells goods, properties, renders

service or lease properties

• Whose Gross Sales / Gross Receipts for 12 months exceeds P1,919,500 (RR 16-2011, RR 3 -2012), as

amended.

• A person required to register as VAT taxpayer but failed to register

• Importers

What are the

transactions covered by

VAT?

• Sale or Exchange of Goods or Properties

• Importation

• Leasing of Properties (Real / Personal)

• Sale of Services

• Transactions Deemed Sales

Who may elect to register as VAT and what will be his liability?

• Any person who is VAT-exempt under Sec. 4.109-1 (B) (1) (V) not required to register for VAT

may, in relation to Sec. 4.109-2, elect to be VAT-registered by registering with the RDO that has jurisdiction over the

head office of that person, and pay the annual registration fee of P500.00 for every separate and distinct

establishment.•Any person who is VAT-registered but enters into transactions which are exempt from VAT (mixed transactions) may opt that the VAT apply to his transactions which would have been exempt under Section 109(1) of the Tax Code, as amended [Sec. 109(2)].

•Franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding year do not exceed ten million pesos (P10,000,000.00) derived from the business covered by the law granting the franchise may opt for VAT registration. This option, once exercised, shall be irrevocable. (Sec. 119, Tax Code).

•Any person who elects to register under optional registration for the next three (3) years. shall not be allowed to cancel his registration

The above-stated taxpayers may apply for VAT registration not later than ten (10) days before the beginning of the calendar quarter and shall

pay the registration fee unless they have already paid at the beginning of the year.

In any case, the Commissioner of Internal Revenue may, for administrative reason deny any application for registration. Once registered as a VAT person, the taxpayer shall be liable to

output tax and be entitled to input tax credit beginning on the first day of the month

following registration.

What are the BIR forms used in filing VAT Returns?

VAT returns are filed monthly and quarterly using the Monthly Value

Added Tax Declaration Return BIR Form 2550M

and

the Quarterly Value Added Tax Declaration Return BIR Form 2550Q.

How to compute Value Added Tax Payable?

How to compute Value Added Tax Payable?Before I show you how to compute VAT here are the definitions of terms:

How to compute Value Added Tax Payable?Before I show you how to compute VAT here are the definitions of terms:

• Output tax means the VAT due on the sale, lease or exchange of taxable goods or properties or services by

any person registered or required to register under Section 236 of the Tax Code.

• Output tax means the VAT due on the sale, lease or exchange of taxable goods or properties or services by

any person registered or required to register under Section 236 of the Tax Code.

How to compute Value Added Tax Payable?Before I show you how to compute VAT here are the definitions of terms:

• Input tax means the VAT due on or paid by a VAT-registered on importation of goods or local purchase of goods, properties or services, including lease or use of property in the course of his trade or business. It shall also include the transitional input tax determined in

accordance with Section 111 of the Tax Code, presumptive input tax and deferred input tax from

previous period.

Total Vatable Purchases are your total purchases from VAT

registered suppliers and should be supported with VAT receipts.

  Value Added Tax Payable is normally computed as follows:

Sample Computation of VAT Payable:Assuming that, (figures are in Philippine peso)

1.   Computing VAT payable on VAT exclusive Sales/Receipts:

Total Output Tax Due or Total Vatable Sales/Receipts x 12%Less: Total Allowable Input Tax or Total Vatable Purchases x 12%Equals: VAT Payable/ (Excess Input)

2.    Computing Net VAT Payable on VAT “inclusive” Sales/Receipts:

Total Output Tax Due or Total Vatable Sales / 1.12 x 12%Less: Total Allowable Input Tax or Total Vatable Purchases / 1.12 x 12%Equals: VAT Payable

Sample Computation of VAT Payable:

Total Vatable Sales (VAT exclusive) 100,000.00Total Vatable Purchases (VAT exclusive) 60,000.00

Assuming that, (figures are in Philippine peso)

1. Computing VAT payable on VAT exclusive Sales/Receipts

Total Output Tax Due or Total Vatable Sales/Receipts x 12%Less: Total Allowable Input Tax or Total Vatable Purchases x 12%Equals: VAT Payable/(Excess Input)

VAT Payable Computation:Output (100,000 x 12%) 12,000.00Input (60,000 x 12%) 7,200.00VAT Payable 4,800.00

2. Computing Net VAT Payable on VAT “inclusive” Sales/Receipts

Total Output Tax Due or Total Vatable Sales / 1.12 x 12%Less: Total Allowable Input Tax or Total Vatable Purchases / 1.12 x 12%Equals: VAT Payable

VAT Payable Computation:Output (100,000/1.12 x 12%) 10,714.29Input (60,000/1.12 x 12%) 6,428.57VAT Payable 4,285.72

VAT exempt sales, zero rated sales, purchases not qualified for input tax, and other input taxes (if any)  should also be shown in the VAT returns.

See BIR Forms for reference.

How, when and where to File VAT Returns?Documentary Requirements

1. Duly issued Certificate of Creditable VAT Withheld at Source (BIR Form No. 2307), if applicable

2. Summary Alphalist of Withholding Agents of Income Payments Subjected to Withholding Tax At Source (SAWT), if applicable

3. Duly approved Tax Debit Memo, if applicable

4. Duly approved Tax Credit Certificate, if applicable

5. Authorization letter, if return is filed by authorized representative

ProceduresIf there is Payment:

•Fill-up BIR Form No. 2550M (for monthly VAT declaration) or 2550Q (for quarterly VAT declaration) in triplicate copies (two copies for the BIR and one copy for the taxpayer)

•File the Monthly VAT declaration, together with the required attachments, and pay the VAT due thereon with any Authorized Agent Bank (AAB) under the jurisdiction of the Revenue District Office (RDO)/Large Taxpayers District Office (LTDO) where the taxpayer (head office of the business establishment) is registered or required to be registered.

•Accomplish and submit BIR-prescribed deposit slip, which the bank teller shall machine validate as evidence that payment was received by the AAB. The AAB receiving the tax return shall stamp mark the word “Received” on the return and machine validate the return as proof of filing the return and payment of the tax.

•In places where there are no duly accredited agent banks, file the Monthly VAT declaration, together with the required attachments and pay the VAT due with the Revenue Collection Officer (RCO) or duly authorized Treasurer of the Municipality where such taxpayer (head office of the business establishment) is registered or required to be registered.

•The RCO or duly authorized Municipal/City Treasurer shall issue a Revenue Official Receipt upon payment of the tax.

If there is No Payment:

•File the Monthly VAT Declaration, together with the required attachments with the RDO/LTDO/Large Taxpayers Assistance Division, Collection Agent or duly authorized Municipal/ City Treasurer of Municipality/City where the taxpayer (head office of the business establishment) is registered or required to be registered.

DEADLINE For Manual Filing:

•Monthly VAT returns BIR Form 2550M – Not later than the 20th day following the end of

each month• Quarterly VAT returns BIR Form 2550Q – Within twenty five (25) days following the

close of taxable quarter

For EFPS Filing:

Visit the BIR website for detailed and updated dates of deadlines.

References:www.bir.gov.phBIR Tax information on Value Added TaxSections 105 to 115 of the National Internal Revenue Code of 1997, as amended

Disclaimer: New and subsequent BIR rulings, issuances and/or laws may render the whole or part of the article obsolete or inaccurate. For more information, please inquire or consult with the BIR.

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