Accounting Review

TAXATION
801: Value-Added Tax
Prof. SONNIE A. RAMOS, CPA, MBA

1. DEFINITION AND SCOPE OF VAT

VAT Defined Value-added tax is a tax on the value added to the purchase price or cost in the
sale or lease of goods, property or services in the course of the trade or business.
It is imposed on the value added in each stage of distribution.
Scope of VAT Every person who, in the course of trade or business, sells, barters, exchanges,
leases goods or property, or renders services is subject to VAT, if the aggregate of
his actual or expected gross sales and/or gross receipts exceeds P3,000,000. Any
person who imports goods is subject to VAT.

2. VALUE-ADDED TAX RATES

On sale of goods or properties 12%
On sale of services and lease of properties 12%
On export sales 0%
On importation of goods 12%

3. VALUE-ADDED TAX BASE

Gross selling price Selling price plus all incidental expenses except VAT, returns, discounts, and
allowances
Gross receipts All money actually or constructively received, deposits, and advance payments for
supplies and services, excluding VAT
Dutiable value or landed *Serves as the tax base if the Bureau of Customs used the total value of importation
cost of importation to determine tariff and custom duty plus excise tax, if any, and other charges prior
to the release of goods from customs custody.
*Landed cost is used if custom duties are based on the quantity or volume of
importation
*Landed cost means the invoice price, freight, insurance, customs duties, excise
tax if any, and other charges prior to the release of the goods from customs custody.
*Other charges on importation:
a. Insurance
b. Postage and stamps
c. Interest
d. Freight
e. Custom duty
f. Arrastre charges
g. Processing fee
h. Bank charges
i. Commission
j. Wharfage dues

4. COMPUTATION OF TAX BASE

Sales of goods - tax Gross Sales Pxxx
base is gross selling Less: Sales returns xxx
price Sales allowances xxx
Sales discounts xxx xxx
Total xxx
Add: Excise tax, if any xxx
Gross selling price xxx
Sales of services - tax Cash received (actually and constructively) Pxxx
base is gross receipts Add: Advance payments for future services xxx
Materials charges with the services xxx xxx
Gross receipts xxx
Importation of goods - a. Dutiable value
tax base is dutiable Value of importation Pxxx
value of importation or Add: Custom duties xxx
landed cost Excise tax xxx
Other charges prior to release of goods from
customs duty xxx xxx
Dutiable value xxx

b. Landed cost (based of volume or quantity)

Invoice price Pxxx

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 Accounting Review
TAXATION
801: Value-Added Tax
Prof. SONNIE A. RAMOS, CPA, MBA

Add: Freight xxx

Sale of real properties
on installment plan -
gross selling price or
zonal value whichever is
higher, plus other
charges
Sale of real property on
deferred payment plan -
selling price or the fair
market value whichever
is higher
Sales of securities by
dealers - gross receipts
Sale of electricity by
generation,
transmission, and
distribution companies -
gross receipts
Insurance xxx
Customs duty xxx
Excise tax, if any xxx xxx
Landed cost xxx
Installment received Pxxx
Add: Interest on installment xxx
Penalties for late payment xxx xxx
Tax base xxx
*Sale of real property is considered on installment plan if
the initial payments do not exceed 25% of GSP
*Sale of real property is considered on deferred
payment plan if the initial payments exceed 25% of the
gross selling price.
*Fair market value refers to the zonal value of the
property as determined by BIR or the assessed values
as determined by Provincial or City Assessors Office
Gross selling price Pxxx
Less: Acquisition cost of securities sold xxx
Balance xxx
Add: Other incidental income xxx
Gross receipts xxx
a. For generation companies - total amount charged for
the sale of electricity and related ancillary services
b. For transmission companies - total amount charged
for the transmission of electricity and related ancillary
services
c. For distribution companies - total amount charged for
the distribution and supply of electricity and related
electric service

5. VAT ON SALE OF GOODS OR PROPERTY

a. Real property held primarily for sale to customers or held for lease in the ordinary course or trade or business
b. The right or privilege to use patent, copyright, design or model, plan, secret formula or process, goodwill,
trademark, trade brand or other like property or right
c. The right or privilege to use in the Philippines of any industrial, commercial or scientific equipment
d. The right or privilege to use motion picture films, films, tapes and discs
e. Radio, television, satellite transmission and cable television time

6. EXPORT SALE
a. The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping
arrangement
b. 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
byer’s goods and paid for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of BSP (12%)
c. Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed 70% of
the total annual production (12%)
d. Sale of gold to BSP (EXEMPT)
e. Those considered export sales under EO no. 226, otherwise known as the Omnibus Investments Code of 1987
and other special laws (12%)
f. Sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air
transport operations; Provided, that the same is 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 other port in the Philippines. Unless docking or stopping at any
other Philippine port is for the purpose of unloading passengers and/or cargoes that originated from abroad or
to load passenger and/or cargoes bound for abroad.

7. SALE OF REAL PROPERTIES

a. Sale of residential lot with gross selling price exceeding P1,500,000

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TAXATION
801: Value-Added Tax
Prof. SONNIE A. RAMOS, CPA, MBA

b. Sale of residential house and lot or other residential dwellings with gross selling price exceeding P2,500,000
c. Installment sale of residential house and lot or other residential dwellings with gross selling price exceeding
P1,000,000

8. EFFECTIVELY ZERO-RATED SALES DEFINED

Sales of goods or property to persons or entities who are tax-exempt under special laws, e.g. sales to enterprises
duly registered and accredited with the Subic Bay Metropolitan Authority (SBMA) pursuant to R.A. No. 7227, sales
to enterprises duly registered and accredited with the Philippine Economic Zone Authority (PEZA) or international
agreements to which the Philippines is signatory, such as, Asian Development Bank (ADB), International Rice
Research Institute (IRRI), etc., shall be effectively subject to VAT at zero-rate. (12% but upon implementation of the
enhance VAT refund)

9. DEEMED SALES TRANSACTIONS

1) Transfer, use or consumption not in the course of trade or business of goods and properties originally intended
for sale or use in the course of trade or business;
2) Distribution or transfer to shareholders or investors as share in the profits of VAT-registered person;
3) Distribution or transfer to creditors in payment of debt or obligation;
4) Consignment of goods if not sold within 60 days following the date of consignment;
5) Retirement from or cessation of business with respect to all goods on hand, whether capital goods, stock-in-
trade, supplies or materials as of the date of such retirement or cessation, whether or not the business is
continued by the new owner or successor.

Notes: a) In case 1) to 4), the tax base is the market value.

b) In case 5), the tax base is the lower between acquisition cost or market value.

The Commissioner of Internal Revenue shall determine the appropriate tax base where the gross selling price is
unreasonably lower than the actual market value (lower by more than 30% of the actual market value).

10. SALE, TRANSFER, OR EXCHANGE OF IMPORTED GOODS BY TAX-EXEMPT PERSONS

a. In the case of goods imported into the Philippines by VAT-exempt persons, entities, or agencies which are
subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entities, the latter shall
be considered the importers thereof who shall be liable for VAT on such importation.
b. The tax due on such importation shall constitute a lien on the goods, superior to all charges or liens, irrespective
of the possessor of said goods.

11. SUMMARY OF THE DIFFERENCES BETWEEN SALE OF GOODS OR PROPERTIES AND SALE OF
SERVICES OR LEASE OF PROPERTIES
Sale of Goods or Properties Sale of Services or Lease of
Properties
a. Tax base Gross selling price (accrual basis) Gross receipts (cash basis)
b. Source of output tax a. Actual sales a. Actual sales
b. Zero-rated sales b. Zero-rated sales
c. Deemed sales

12. EXERCISES
a. The following information taken from the books of a VAT-registered enterprise was provided to you:
Domestic sales of goods P3,000,000
Sales of packaging materials to an export oriented enterprise whose export sales exceed
70% of the total annual production 2,000,000
Local sales of goods to Asian Development Bank (ADB) 500,000
Consignment of goods (not returned within 60 days following the date of consignment)
Goods transferred for the personal use of the owner 200,000
100,000

How much was the:

a. total taxable sales?
b. the output tax using 12% VAT rate?

b. (Phil. CPA Modified) A VAT-registered trader made the following sales of goods during the second calendar
quarter of 2009 (net of VAT):
Cash sales P200,000

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 Accounting Review
TAXATION
801: Value-Added Tax
Prof. SONNIE A. RAMOS, CPA, MBA

Open account sales 100,000

Installment sales (receipts, P40,000) 100,000
Consignment sales (not yet sold as of end of the quarter):
June 15 100,000
May 15 100,000
April 15 100,000

How much is the output tax for the quarter using 12% rate?

c. A VAT-registered contractor has the following selected VAT exclusive data for the month of July 2009:
Collections from contracts completed 2008 P500,000
Advances from contracts to be completed in 2010-01-26 300,000
Collections form contracts completed in July 2009, net of 10% retention on billings
transferred by the payor to the account of the contractor 198,000
Materials charged with services rendered 100,000

How much is the output tax for the month of July 2009?

d. A VAT-registered taxpayer has the following VAT-exclusive data for the month of January 2009:
Accounts receivable, January 1, 2009 P500,000
Sales on account for the month of January 1,000,000
Cash sales for the month of January 300,000
Accounts receivable, January 31, 2009 700,000

How much is the output tax for the month of January 2009 assuming the taxpayer is:
a. trader.
b. service provider.

e. Babes Corp. imported an article from Japan. The invoice value of the imported article was ¥1,000,000
(¥1=P0.35). The following were incurred in connection with the importation:
Insurance P15,000
Freight 10,000
Postage 5,000
Wharfage dues 7,000
Arrastre charges 8,000
Brokerage fees 25,000
Facilitation fee 3,000

The imported article was subject to P50,000 customs duties and to P30,000 excise tax.

How much was the VAT on importation?

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