VALUE ADDED VALUE ADDED TAXTAX

Presented by:MS. SUSAN D. TUSOY, CPA, MPS

Asst. Chief, Assessment DivisionRR 19 – Davao City

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BASIC CONCEPTS OF BASIC CONCEPTS OF VALUE ADDED TAXVALUE ADDED TAX

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VAT definedVAT defined

It is a tax on the value added to the purchase price or cost in the sale or lease of goods, properties, or services in the course of trade or business.

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VAT definedVAT defined

It is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services.

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Background of VATBackground of VATVAT is a universal taxation system;

VAT has major amendments :

1. E.O. 273 – VAT Law (1988) Jan. 1, 19882. RA 7716 – E-VAT (RR 7-95) Jan. 1, 19963. RA 8241 – IVAT (RR 6-97) Jan. 1, 19974. RA 8242 – Tax Reform Act of 1997

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Background of VATBackground of VAT5. RA 9337 – New Expanded VAT Law

signed into law on May 24, 2005 Implementation withheld due to TRO TRO was lifted by the SC on Oct. 18, 2005 Became effective November 1, 2005 Implementing Rules and Regulations

RR 14-2005 was superseded by RR 16-2006 (amended by RR 2-2007, RR 4-2007, RR 10-2011 & RR 16-2011)

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Objectives of VATObjectives of VAT

Broaden Tax Base

Provide an audit trail

Simplify business taxation

Who are liable to VAT?Who are liable to VAT?SELLER provided the

aggregate sales/receipts exceeds the threshold* (or who opt to register as VAT)

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In the course of trade/business Sells barters Exchanges Leases goods or

properties (including deemed sales)

Renders services

IMPORTER Whether or not in the course of trade or business Imports goods

* The threshold is now P1,919,500 effective Jan. 1, 2012 (RR 16-2012)

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VAT Rates:VAT Rates:

10% (up to January 31, 2006)

12% (effective 2-1-06) and

0%

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TRANSACTIONS COVEREDTRANSACTIONS COVERED

Sale or Exchange of Goods / PropertiesImportationSales or Exchange of ServicesTransaction Deemed SalesZero-Rated Sales of Goods / Properties /

ServicesEffectively Zero-Rated Transactions

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BASIS OF VAT on Goods/Prop.BASIS OF VAT on Goods/Prop.

Shall be the GROSS SELLING PRICE (GSP) GSP is the total amount of money or its equivalent which the purchaser pays or is obligated to pay

excluding VAT.

the excise tax, if any shall form part of the gross selling price

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BASIS OF VAT on ImportationBASIS OF VAT on Importation

If based on VALUE TOTAL VALUE used by the BOC in

determining: Tariff and custom duties plus custom duties,

excise taxes, if any and Other charges paid by the importer (prior to

ATRIG)If based on QUANTITY and VOLUME

VAT shall be based on the LANDED COST plus EXCISE TAXES

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BASIS OF VAT on BASIS OF VAT on SERVICES/LEASE OF PROP.SERVICES/LEASE OF PROP.

shall be the GROSS RECEIPTS

It refers to the total amount of money or its equivalent representing:

the contract price compensation, service fee, rental or royalty, including the amount charged for materials

supplied with the services and deposits applied as payments for services rendered and

advance payments actually or constructively received

ZERO-RATED SALES: Goods/Properties

It is a taxable transaction for VAT purposes but shall not result in any output tax. Input tax on purchases of goods, properties or services related to such zero-rated sales shall be available as tax credit or refund.

A. Export sales

B. Foreign currency denominated sales

C. Sales to persons or entities deemed tax-exempt under special law or international agreement.

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Shall refer to the local sales of goods or properties by a VAT-registered person to a person or entitiy who was granted indirect tax exemptions under special laws or international agreements.

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Effectively Zero-rated sales of goods and properties (Sec. 6 of RR 4-2007)

Transactions deemed sale (Sec. 106(B))

1. 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;

2. Distribution or transfer to:a. Shareholders or investors share in the

profits of VAT reg. person (property dividends); or

b. Creditors in payment of debt or obligation.

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Transactions deemed sale (Sec. 106(B))

3. Consignment of goods if actual sale is not made within 60 days;

4.Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement or cessation; and

5.Change of tax detail or status from VAT to NON-VAT.

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Rules on invoicing and recording of “deemed sale” transactions

Memorandum entry in the subsidiary sales journal to record withdrawal of goods for personal use must be made

For distribution to shareholders and creditors –

invoice shall be prepared at the time of the occurrence of the transaction recorded in the subsidiary journal

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Rules on invoicing and recording of “deemed sale” transactions

For retirement or cessation of business –

inventory shall be prepared and submitted to RDO not later than 30 days from retirement invoice shall be prepared for the entire inventory entry in the subsidiary sales journal

Note: If business is to be continued by new owner, the entire amount of output tax shall be allowed as input tax

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OUTPUT TAX & OUTPUT TAX & INPUT TAXINPUT TAX

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Output TaxOutput Tax

Means the value-added tax due on the sale or lease of taxable good or property or services by a VAT-registered person.

VAT Rates 12% 0%

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It is evidenced by a VAT invoice or official receipt shall be creditable against the output tax.

Input tax on domestic or importation of goods.

Input tax that can be directly attributedA ratable portion of the input tax which

cannot be directly attributed to either activity

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Input TaxInput Tax

Sources of Input TaxSources of Input Tax

Purchase or importation of goods For sale; or For conversion into or intended to form part of a

finished product for sale including packaging materials; or

For use as supplies in the course of business; or

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Sources of Input TaxSources of Input Tax

For use as materials supplied in the sale of service; or

For use in trade or business for which deduction for depreciation / amortization is allowed under the Tax Code

Purchase of services on which VAT has been actually paid

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Sources of Input TaxSources of Input TaxPurchase of real properties for which the

VAT was actually paidPurchase of services for which the VAT

was actually paidTransitional input tax Presumptive Input taxStandard Input Tax (gov’t. transaction)

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Input Tax on depreciable capital goods, the aggregate acquisition cost of which (net of VAT) in a calendar month, exceeds P1,000,000 shall be spread evenly over 60 months or their useful life, whichever is shorter.

Spreading of VAT on Capital Goods

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If capital good is sold within 5 years or prior to exhaustion from input VAT thereon, the entire unamortized input tax on the capital goods sold can be claimed as input tax credit during the month/quarter when the sale was made.

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Spread of VAT on Capital Goods

Option to apply for refund/tax credit certificate of capital goods has been withdrawn.

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Spread of VAT on Capital Goods

VAT PayableVAT Payable

Output Tax ( Sales x 12%) - P x x xLess Input Tax (Purchases x 12%) - x x xVAT payable - P x x x

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Journal Entries upon PurchaseJournal Entries upon Purchase

1. Purchase of goods with invoice price of P16,800.00

Purchases 15,000 Input Tax 1,800 Cash P16,800

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Journal Entries upon SaleJournal Entries upon Sale

2. Sales of P22,400 inclusive of VAT Cash 22,400 Sales 20,000 Output tax 2,400

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Journal EntriesJournal Entries

3. To remit VAT to BIR

Output Tax 2,400.00 Input Tax 1,800.00 VAT Payable 600.00 # VAT Payable 600.00 Cash 600.00

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VAT PayableVAT Payable

Output Tax - P 2,400.00Less Input Tax - 1,800.00

VAT Payable - P 600.00

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Transitional Input TaxTransitional Input Tax

A person becomes liable to VAT or elects to be VAT registered person shall be allowed input tax of 2% of the value of inventory or the actual VAT paid, whichever is higher

Subject to the filing of inventory list

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Transitional Input TaxTransitional Input Tax

Example: Mr. A becomes liable to VAT starting Jan.

2011. He has P200,000 worth of inventory. Actual VAT payment on purchases from VAT registered suppliers were P18,000.00.

Allowed transitional input tax: P18,000 The 2% of P200,000 (P4,000) is lower than

P18,000

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Presumptive Input TaxPresumptive Input Tax

4% of the gross value in money of purchases of primary agricultural products which are used as inputs to their production:

Sardines Mackerel and milk Refined sugar Cooking oil Packed noodle-based instant meals

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Refund or Tax Credit of Input Refund or Tax Credit of Input Tax Tax (Sec. 112 of the NIRC)(Sec. 112 of the NIRC)

Any VAT registered person whose sales are ZERO-RATED or EFFECTIVELY ZERO-RATED may, within two (2) years after the close if the taxable QUARTER when the sales was made, apply for the issuance of a TCC.

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Refund or Tax Credit of Input Refund or Tax Credit of Input Tax Tax (Sec. 112 of the NIRC)(Sec. 112 of the NIRC)

Person whose registration has been cancelled due to retirement or cessation of business or due to change in or cessation of status may, within two (2) years from the date of cancellation, apply for the issuance of a TCC.

VAT on VAT on GOVERNMENT GOVERNMENT

TRANSACTIONSTRANSACTIONS

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VAT on Government Sales Sale of goods and services to government is subject to 12%

VAT;

The 5% VAT withheld represents the net VAT payable of the seller

The remaining 7% effectively accounts for the standard input tax in lieu of the actual input VAT

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VAT ON GOVERNMENT TRANSACTIONS

If actual input VAT exceeds 7% of gross payments, the excess may form part of the sellers’ cost; and

If actual input VAT is less than 7% of gross payments, the difference must be treated as income of the seller.

The income received from the government while subject to final withholding on VAT shall still be reported in the VAT return

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Apportionment of input tax on mixed transactions

Input tax directly attributed to VATable transactions may be recognized for input tax credit

Input tax directly attributable to VATable sales to government shall not be credited against output tax from sales to non-government entities

Input tax that cannot be directly attributed to either VATable or exempt transaction shall be pro-rated and only the ratable portion can be allowed as tax credit

Apportionment of input tax on mixed Apportionment of input tax on mixed transactionstransactions

Input tax attributable to VAT exempt transaction shall not be allowed as tax credit but should be treated as part of cost or expense

Input tax attributable to the zero-rated sales may be refunded or applied for tax credit certificate

Apportionment of input tax on mixed Apportionment of input tax on mixed transactionstransactions

Apportionment of Input Tax on Mixed Transactions

Taxable sales to privateTotal sales

X Input Tax = Creditable

Taxable sales to govt.Total sales

X

Input Tax = Creditable *

Exempt salesTotal sales

X Input Tax = Expense or cost

* Subject to the 7% standard input tax provision

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Taxable sales 0%Total sales

X

Input Tax = Refundable

COMPLIANCE COMPLIANCE REQUIREMENTSREQUIREMENTS

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Optional Registration

1. Any person who is VAT-exempt under Sec. 4.109-1 (B)(1)(V) may elect to be VAT registered;

2. 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 exempt transactions;

Any person who elects to register shall not be entitled to cancel registration for the next 3 years.

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3. Franchise grantees of radio and/or television broadcasting with annual gross receipts not exceeding P10M. (This option once exercised is irrevocable);

Optional Registration

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Penalty for Failure to Register as VAT Taxpayer

•Taxpayer shall be liable to pay the tax as if he was a VAT registered person

• Taxpayer cannot avail of the benefits of input tax credit for the period he/it was not properly registered.

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Invoicing Requirements

For every sale, barter or exchange of goods or properties

- VAT invoices

For every sale, barter or exchange of services or lease of goods or properties

- VAT official receipts

A VAT-registered person shall issue:

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Information needed in the VAT Information needed in the VAT Invoice or VAT Official Receipt:Invoice or VAT Official Receipt:

1. Name and business address of taxpayer who will use the invoice/official receipt;

2. TIN of taxpayer followed by the word “VAT”;

3. The amount of tax shown as a separate item;

4. Date of transaction, quantity, unit cost and description of the goods or properties or the nature of the service;

5. Authority to Print details and serial number of booklets at the lower left corner of receipt.

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The word “VAT EXEMPT SALE” written or printed prominently if sale is VAT-exempt;

The words “ZERO-RATED SALE” written or printed prominently if sale is subject to zero percent

Cont…

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Cont…Cont…

Option to issue combined or separate invoices/receipts of sale in a combination of VAT-liable and VAT-exempt sale. If the sale is combined, the invoice or receipt should indicate the break-down of the sale price between the taxable and the exempt component and the calculation of the VAT

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Cont…Cont…

For sale to VAT-registered persons amounting to P1,000 or more, indicate the name, business style (if any), address and TIN of the purchaser

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ABAKA CORP.88 East Avenue, Quezon City

VAT Reg. TIN: 115-688-025-000

Sold to : TAUWAYA Corp.Address : 75 Fairview St., Brgy. Pio del Pilar, Makati CityTIN : 215-880-000 VAT

DESCRIPTION QTY UNIT COST TOTAL TRANSACTION TYPE

Spiral Notebook 50 P3,200 P160,000 Vatable100 pcs./boxPoultry products- 100 42 4,200 VAT-Exempt SaleEggs (Per Dozen)Native Decors for 50 12,000 600,000 Zero-rated SaleExport (100 pcs./box)

Vatable Sales P160,000VAT-Exempt Sale 4,200Zero-rated Sale 600,000TOTAL SALES P764,20010% VAT 16,000TOTAL ATP AMOUNT PAYABLE P780,000

Invoice No. 037585

Sample Invoice

June 06, 2005

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Accounting Requirements All persons subject to VAT shall in addition to regular

accounting records, maintain the following SUBSIDIARY SALES JOURNAL – which the daily

sales are recorded. It includes columns for date of sale; name of customer; TIN of customer, Sales Invoice/OR number, exempt sales; VAT sales (12%) government sales and Zero-Rated Sales;

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Accounting Requirements SUBSIDIARY PURCHASE JOURNAL – which the

daily purchases are recorded. It includes columns for date of purchase; name of supplier; TIN of Supplier, purchase invoice number, exempt purchases; domestic purchases (capital goods and other than capital goods), purchases from importation and purchases from services.

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Proper Invoicing and Receipting Proper Invoicing and Receipting Output TaxOutput Tax

Revenue Regulations 18-2011

• Reiterates Sec. 237 of the Tax Code that VAT-registered taxpayers should separately bill the VAT.

• The amount shall be shown as a separate item in the invoice or receipt

Spot the error…..Spot the error…..

Should be…..Should be…..

Penalties for Erroneous Issuance of VAT Invoice or VAT Official Receipt

Infraction Penalty

1. NON-VAT person who issues a VAT invoice/official receipt

- payment of percentage tax, if applicable

payment of VAT (w/out input tax) 50% surcharge on the VAT due If the invoice/official receipt contains the required information, purchaser shall be allowed to recognize an input tax credit

2. VAT-registered person who issues a VAT invoice/official receipt for a VAT-exempt sale without the words “VAT-EXEMPT SALE”

Subject to 12% VAT

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FILING AND FILING AND PAYMENT DUE PAYMENT DUE

DATESDATES

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Filing of Return

Every persons liable to pay the VAT shall file a: MONTHLY RETURN (2550M) – every 20th day of

the following the close of each month; and QUARTERLY RETURN (2550Q) – every 25th day of

the following the close of each taxable quarter. Any person, whose registration has been

CANCELLED – within 25 days from the date of cancellation of registration

Only one consolidated return shall be filed by the taxpayer for his principal place of business or head office and all branches.

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Synchronized Filing of Quarterly VAT and Synchronized Filing of Quarterly VAT and Quarterly Income Tax (RR 8-2002)Quarterly Income Tax (RR 8-2002)

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Ex: Fiscal year ends May 31Under Manual Filing System Under EFPS

Quarter Covered Months Forms to UsedDue Date

For Filing/Payment

Due date

eFiling ePayment

1st QuarterJune 2550M July 20 Staggered (pls see table) Jul. 25

July 2550M August 20 Staggered (pls see table) Aug..25

August 2550Q September 25 Sept. 25 Sept. 25

2nd QuarterSeptember 2550M October 20 Staggered (pls see table) Oct. 25

October 2550M November 20 Staggered (pls see table) Nov. 25

November 2550Q December 25 Dec. 25 Dec. 25

3rd QuarterDecember 2550M January 20 Staggered (pls see table) Jan. 25

January 2550M February 20 Staggered (pls see table) Feb. 25

February 2550Q March 25 Mar. 25 Mar. 25

4th QuarterMarch 2550M April 20 Staggered (pls see table) Apr. 25

April 2550M May 20 Staggered (pls see table) May 25

May 2550Q June 25 June 25 June 25

SCHEDULE OF STAGGERED SCHEDULE OF STAGGERED FILING OF RETURNS (RR 26-2002)FILING OF RETURNS (RR 26-2002)

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GROUP MONTHLY VAT DECLARATION & PERCENTAGE TAX RETURNS

A 25 days ff the end of the month

B 24 days -do-

C 23 days -do-

D 22 days -do-

E 21 days -do-

Submission of SLS/SLP

Persons required to submit:

• Summary List of Sales – all VAT taxpayers

• Summary List of Purchases – all VAT taxpayers

Note: Effective Jan. 1, 2012 (regardless of the amount of sales and purchases) all VAT registered TPs are required to submit SLS/P under RR 1-2012

Due Date:On or before the 25th day of the month

following the close of the taxable quarter.66

Submission of SLS/SLP

Ref: RMO 56-2010 / RMC 60-2010

•Electronic submission•Thru efps

•Manually•Use of removable storage media

•3.5 inch floppy diskette•USB flash drive•CD•DVD

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Section Nov. 1/2005

Adjusted threshold amounts

Sale of Residential Lot Sec. 109(P)

P1,500,000 P1,919,500

Sale of Residential House & Lot Sec. 109(P)

2,500,000 3,199,200

Lease of residential units Sec. 109(Q)

10,000 12,800

Sale or lease of goods or properties or the performance of services Sec. 109(V)

1,500,000 1,919,500

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Adjusted Threshold (RR 16-2011) Effective 1-1-12

APPLICATIONAPPLICATION

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TEST YOURSELFTEST YOURSELF Compute for the Output Tax of the Model

Corporation

Output taxOutput tax

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Sales output tax

Sales to Private 42,900,000 5,148,000

Sales to Gov't. 15,000,000 1,800,000

Sales - Non VAT 500,000

total sales 58,400,000 6,948,000

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TRY IT YOURSELFTRY IT YOURSELF

Determine the following input taxes assuming all VAT taxable purchases were duly supported with VAT Invoices/ORs: On purchase of goods directly attributable to

government transactions; On purchase of capital goods On purchase of goods other than capital goods On purchase of services

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IT on purchases directly attributable to IT on purchases directly attributable to gov’t. transactionsgov’t. transactions

Input Tax directly attributable to gov't. sales

Purchases 13,000,000.00 12%

1,560,000.00

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IT on Capital GoodsIT on Capital GoodsTotal 2,500,000.00 Input Tax on Capital Goods to be spread over 300,000.00 Allowable monthly credit (P300,000 / 60 mos) 5,000.00

Input tax on Depreciable goods - prior year 180,000.00 Input tax on Depreciable goods - current year 60,000.00 Total 240,000.00 (Assumption: Above equipments are intended for a branch without sale to government)

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IT on goods other than capital IT on goods other than capital goodsgoods

Purchases 34,850,000

Purchases - gov't. transaction 13,000,000

Fringe Benefits - groceries 40,000

Marketing Expenses 420,000

Office Supplies 20,500

Fuel, Oil, and Lubricants 600,000

Total 48,930,500

VAT Rate 12%

Input Tax 5,871,660

INPUT TAX ON PURCHASE OF GOODS OTHER THAN CAPITAL GOODS

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IT on purchase of servicesIT on purchase of servicesFreight In 500,000 Professional Fees 500,000

Light 450,000

Programming services 500,000

Communication 180,000

Rent Expense 334,500

Security Services - agency fee 70,000

Repairs and Maintenance 175,000

Transportation 211,000

Representation 350,000

Advertisement 120,000

Insurance 50,000

Total 3,440,500 VAT Rate 12%Input Tax 412,860

Summary of Input taxesSummary of Input taxes

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SOURCES OF INPUT TAX:GROSS INPUT TAX TO BE PRO-RATED DEFERRED

34,850,000.00 4,182,000.00 - 13,000,000.00 1,560,000.00 -

1,080,000.00 129,600.00 129,600.00 3,440,500.00 412,860.00 412,860.00

no data given 360,000.00 180,000.00 180,000.00 2,500,000.00 300,000.00 60,000.00 240,000.00

6,944,460.00 782,460.00 420,000.00 Deductions from Input Tax 420,000.00 Input Tax on gov't. sale closed to expense/cost 710,974.32 Input tax on exempt sale closed to expense/cost 6,699.14 total 1,137,673.46 Allowable input tax credit 5,806,786.54

from capital goods in excess of P1M - current

Purchases - regular transactionsPurchases - sale to gov't.

Purchase of services

Goods other than capital goods and

intended for sale

from capital goods in excess of P1M - previous

Let’s apply:Let’s apply:

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Apportion the input tax on mixed transaction

Apportioned Input TaxApportioned Input Tax

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INPUT TAX allocation

Sales to Privatetotal sales(42.9M /58.4M) X P4,712,940 =782,460.00 574,786.54

Sales to Gov't.total sales(15.0M /58.4M) X P4,712,940 =782,460.00 200,974.32

NV Sales EXPENSE ORtotal sales COST(.5M /58.4M) X 4,904,520782,460.00 6,699.14

782,460.00 *compare to 7% standard input

x Input tax =

x Input tax =

x Input tax =

CREDITABLE

CREDITABLE *

Input Tax Available for Gov’t. SalesInput Tax Available for Gov’t. Sales

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On Purchases - gov't transaction (13M x 12%) 1,560,000.00 Apportioned Input Tax 200,974.32 Total 1,760,974.32 Less: Standard Input Tax 1,050,000.00 Input Tax on Sale to Gov't. Closed to Expense710,974.32

Journal Entry on Gov’Journal Entry on Gov’t. Transactiont. Transaction

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Cash 15,900,000.00 Withholding Tax on VAT (5%) 750,000.00 Expanded Withholding Tax (1%) 150,000.00 Sales 15,000,000.00 Output Tax 1,800,000.00 To record sale to government.

Journal Entry on Gov’Journal Entry on Gov’t. Transactiont. Transaction

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Cost/Expense 710,974.32 Input Tax 710,974.32 To close input tax allocated to sale to gov't. to appropriate account.

Input Tax on Purchases - gov't transaction 1,560,000.00 Add: Allocated Input tax on gov't. transaction 200,974.32 Total Input Tax Available 1,760,974.32 Less: Standard Input Tax 1,050,000.00 Closed to Expense/Cost 710,974.32

Journal Entry to close the input Journal Entry to close the input tax attributable to exempt salestax attributable to exempt sales

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Cost/Expense 6,699.14 Input Tax 6,699.14 To close input tax allocated toexempt transaction to appropriate account.

Let’s fill-up the VAT FormLet’s fill-up the VAT Form

FORM 2550Q

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Men love their country, not because it is great, but because it is their

own.  ~Seneca

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The End

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