TAXATION 3

What is VAT and how is it imposed in the Philippines?

VAT is a 12% tax on the sale, barter, exchange, or lease of goods or properties and services, and on importation of goods. It is an indirect, consumption-based tax imposed at every stage of the distribution process, using the credit-invoice method.

When is VAT registration required?

Registration is required if expected gross sales or receipts exceed ₱3,000,000 in the next 12 months. Registration must be renewed yearly by January 31 with a ₱500 fee per establishment.

What is a VAT-registered person vs. a VAT-registrable person?

A VAT-registered person is already registered for VAT. A VAT-registrable person is required to register but has not yet done so.

What is the formula for computing VAT payable?

VAT Payable = Output Tax (VAT on sales) – Input Tax (VAT on purchases)

Define Output Tax and Input Tax.

• Output Tax: VAT due on sales/leases of taxable goods or services.

• Input Tax: VAT paid on purchases/imports of goods or services used in business.

Name 4 characteristics of VAT.

• Indirect tax (tax shifting presumed)

• Consumption-based

• Imposed at each stage production/distribution

• Uses credit-invoice method

What are the current VAT rates in the Philippines?

There are two rates: 0% (zero-rated) and 12% (standard rate).

What happens if a non-VAT person issues a VAT invoice?

The person is liable for percentage tax, VAT due (without input tax credit), and a 50% surcharge.

Name at least 5 VAT-exempt transactions under Sec. 109, NIRC.

• Sale/importation of agricultural and marine food products in their original state

• Sale/importation of fertilizers, seeds, feeds

• Importation of personal/household effects by returning residents

• Services by agricultural contract growers

• Medical, dental, hospital, and veterinary services (except by professionals)

Name more VAT-exempt transactions.

6. Educational services by accredited institutions
7. Employer-employee services
8. Sales by agricultural cooperatives
9. Sale of real property not primarily held for sale or lease
10. Sale of residential lot ≤ ₱1,500,000 or house and lot ≤ ₱2,500,000
11. Lease of residential unit ≤ ₱15,000/month
12. Sale/importation of books and newspapers
13. Transport of passengers by international carriers
14. Sale or lease to senior citizens and PWDs
15. Sale/importation of certain prescription drugs

Can a VAT-exempt person choose to register as a VAT taxpayer?

Yes, by applying at least 10 days before the next quarter and paying the ₱500 fee. Once registered, the election is generally irrevocable for 3 years.

What are Other Percentage Taxes and who pays them?

OPT are business taxes imposed on persons or entities not subject to VAT, such as domestic common carriers, international carriers, franchises, banks, insurance, amusement, and certain stock transactions.

When must businesses register and renew with the BIR?

All covered businesses must register and renew annually by January 31, with a ₱500 fee per establishment.

What are the grounds for BIR to close a business establishment?

• Failure to issue receipts/invoices

• Failure to file VAT return

• Understatement of sales/receipts by 30% or more

What is the current VAT threshold for exemption?

Gross annual sales and/or receipts not exceeding ₱3,000,000 are VAT-exempt.

When are VAT and percentage tax returns due?

• VAT: 20th day after the taxable quarter (attach BIR Form 1701Q)

• Percentage Tax: On or before the 20th day after each taxable quarter

What must a VAT invoice or official receipt contain?

• Statement that seller is VAT-registered with TIN

• Total amount with VAT shown separately

• “VAT-exempt sale” or “zero-rated sale” if applicable

• For sales ≥ ₱1,000 to VAT-registered buyers: name, address, TIN of buyer

How is VAT computed on sale of goods/services?

• Goods: 12% of gross selling price

• Services: 12% of gross receipts (excluding VAT)

What is Excise Tax and who pays it?

Excise Tax is imposed on manufacturers or importers of specific goods (e.g., alcohol, tobacco, fuel, automobiles, mineral products, non-essential goods).

What happens if a VAT-registered person fails to indicate “VAT-exempt sale” on a receipt for an exempt transaction?

The transaction becomes VAT-taxable, and the issuer must pay VAT; the purchaser can claim input tax credit.