INTRODUCTION TO THE

VALUE ADDED TAX

JBCG
INCLUDES VAT ON SALES

• All sales of goods, properties, services, or lease of

properties other than:
• VAT exempt sales
• Services specifically subject to percentage tax
*must be registered or registrable
VAT EXEMPT TRANSACTIONS

• Exempt Importations
• Exempt Sales
• Services specifically subject to percentage tax
• Export sales of non-VAT taxpayers
VAT THRESHOLD

• General Threshold – Php 3,000,000

• Special Threshold – Php 10,000,000
VALUE ADDED TAX MODEL

Output VAT
(Less: Input VAT)
Net VAT payable
(Less: Tax credits or VAT withhold or Previous payments)

VAT due or VAT overpayment

OUTPUT VAT

• The VAT passed on to customers or clients by a VAT taxpayer

on his sales to customers.
• Regular Output VAT – domestic sales
• Zero-Output VAT – export and other zero-rated sales
• Goods or properties – GSP
• Services or lease of properties - GR
ZERO OUTPUT VAT

• Arising from transactions considered as export sales

and those granted with zero-rating treatment under
special laws or international agreements to which the
Philippines is a signatory.
INPUT VAT

• VAT paid on the domestic purchases or VAT paid on the

importation of goods or services by the taxpayer.
• Includes:
• Transitional Input VAT – 2% of beginning inventory or actual payment,
whichever is higher.
• Presumptive Input VAT – 4% of primary agricultural products.
(processing of sardines, mackerel, and milk)
SALES TO GOVERNMENT
• Sales to Government agencies or any of its
instrumentalities, including government-owned
and controlled corporations (GOCCs) – subject
to a 5% Final withholding VAT.
VAT EXEMPT SALES

• 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

• Export Sales of goods or services

• Other sales conferred with zero rating status by law
• VAT payable is inherently negative on zero rated sales
• In line with this:
• Tax refund – the taxpayer will recover cash.
• TCC – tax credit against any other Internal Revenue taxes except VAT
• Against output VAT – for the end of the Month *default treatment
EXEMPT SALES VS. ZERO-RATED SALES

• Exempt sales
• Not taxable to VAT
• VAT traceable cannot be credited against output VAT

• Zero-rated sales
• Taxable, at a zero rate
• VAT traceable can be credited against output VAT
SALES TO GOVERNMENT AND GOCC

• Subject to 5% final withholding VAT at source on sales.

• Presumed to be the VAT payable of the taxpayer.
• Claimable input VAT is 7% of gross sales to the
Government or GOCC.
SUMMARY COMPARISON

Types of Sales Output VAT Claimable Input VAT VAT Payable

Exempt Sales None None None

Zero-rated Sales Zero Actual Negative

Sales to Government 12% 7% None

Regular Sales 12% Actual positive

OTHER SALES SUBJECT TO VAT

• Sales of Registrable Persons – no input VAT credit is allowed

• Sales of non-VAT taxpayers who issues VAT invoice or receipt –
non-VAT taxpayers who illegally charge VAT. Shall pay VAT +
50% surcharge +3%PT
• Exempt sales Billed by VAT taxpayers as Regular sales – Issued
VAT invoice or receipt or did not stamped “exempt” clearly
VAT REPORTING
• It is paid in three installments of two monthly and one
quarterly payments.
• VAT is paid monthly and quarterly.
VAT INVOICING REQUIREMENT

• Single Invoice or Receipt

• Must clearly indicate the breakdown
• Calculation of VAT on each portion must be shown

• Separate Invoice or Receipt

• If exempt sale, “VAT-EXEMPT SALE” must be written or printed prominently
• If zero-rated sale, “ZERO-RATED SALE” must be written or printed
prominently
TAX QUERY

• What may be the reason of Senator Panfilo Lacson behind telling the
public to reduce unnecessary VAT exemptions? What are these VAT
exemptions and explain its impact on the overall VAT collection process.
• Tax applicable to music producers/music director.
• What is subsistence? Tax bracket of a tricycle owner/driver and do we
have a proper reason to believe that he is working for subsistence?
FORMAT

• I – Facts about the tax query.

• II – Answer or resolution of the tax query.
• III – Constitutional Statement/RA/SC Ruling/DOJ Opinions/BIR
Ruling/CTA Ruling/CTAEB ruling/OM/RR/RMO/RMC/RAO/RDAO
supporting your answer or resolution
• IV – Evaluation of your answer or recommendation or counter argument,
if necessary.
• V – References
THE END… 

CREATING A BETTER
LEARNING EXPERIENCE
JBCG