WHAT IS VALUE-ADDED TAX

• IT IS A TRANSACTION TAX LEVIED ON THE SALE, BARTER, EXCHANGE, OR LEASE OF GOODS, PROPERTIES OR SERVICES AND ON IMPORTATION OF GOODS

• IT IS A TAX ON THE VALUE ADDED ALONG THE DISTRIBUTION CHAIN UNTIL ABSORBED BY FINAL CONSUMER; THUS ELIMINATES CASCADING (PYRAMIDING) EFFECT OF SUBSEQUENT TAXATION

• IT IS AN INDIRECT TAX – BURDEN CAN BE SHIFTED• IT IS AN AD VALOREM TAX - TAX BASED ON VALUE

WHO ARE SUBJECT TO VAT

• ANY PERSON ENGAGED IN TRADE OR BUSINESS WHO:o SELLS, BARTERS, EXCHANGES GOODS OR PROPERTIES o RENDERS [SELLS] SERVICESo OR LEASES GOODS OR PROPERTIES

• ANY PERSON WHO IMPORTS GOODSo WHETHER OR NOT ENGAGED IN TRADE OR BUSINESS

WHO ARE THESE PERSONS

• NATURAL, JURIDICAL, OR NON-JURIDICAL [TRUST, ESTATE, PARTNERSHIP, ETC.]

• A NON-STOCK, NONPROFIT PRIVATE ORGANIZATION• OR GOVERNMENT ENTITY.

SITUS OF VAT

• WHERE SALE, BARTER, OR EXCHANGE OF GOODS OR PROPERTIES TAKES PLACE

• WHERE LEASED PROPERTY IS LOCATED OR USED• WHERE THE IMPORT/EXPORT IS EFFECTED• WHERE SERVICES OR RIGHTS ARE RENDERED OR

EXERCISED • ADOPTS THE “CROSS BORDER DOCTRINE” OR

“DESTINATION PRINCIPLE”

IN THE COURSE OF TRADE OR BUSINESS

• MEANS REGULAR CONDUCT OR PURSUIT OF A COMMERCIAL OR AN ECONOMIC ACTIVITY, INCLUDING TRANSACTIONS INCIDENTAL THERETO “REGULARITY” IS NOT REQUIRED OF NON-

RESIDENT PERSONS TO FALL UNDER THE DEFINITION

GOODS OR PROPERTIES SUBJECT TO VAT

• REAL OR PERSONAL PROPERTIES HELD FOR SALE OR LEASE IN THE ORDINARY COURSE OF BUSINESSo LAND, BUILDINGSo SOAP, FURNITURE & FIXTURES, RADIO, TV, ETC.o INTANGIBLE CAPABLE OF PECUNIARY

ESTIMATION PATENTS, TV TIME

RULES ON SALE OF REAL PROPERTIES

• IN CONNECTION WITH TRADE OR BUSINESS DEFERRED/INSTALLMENT BASIS OF VAT – CONSIDERATION OR FMV CONSIDERATION DEEMED INCLUSIVE OF VAT AMOUNT EXCEEDS P1.5M FOR LOT/P2.5M FOR

RESIDENTIAL H&L C.F. P1.5 M THRESHOLD FOR OTHER GOODS

[SEC 109(1)(V)] Nov 1, 2005 – 10%; Feb 1, 2006 – 12%

BASIS OF VAT ON SALE OF GOODS

• GROSS SELLING PRICEo MONEY OR EQUIVALENT OBLIGATED TO PAY AS

CONSIDERATION EXCLUDES VAT EXCLUDES BY SALES DISCOUNTS/SALES

RETURNS & ALLOWANCES INCLUDES EXCISE TAX, IF ANY

CLASSES OF TRANSACTIONS ACCORDING TO TAXABILITY OR NON-TAXABILITY

• TRANSACTIONS SUBJECT TO VATo 10%/12% o ZERO-RATE (0%)

• TRANSACTIONS EXEMPT FROM VAT

VALUE – ADDED TAX RATES

• 10% [12% EFFECTIVE FEB 1, 2006 PER RR] VAT ON:o DOMESTIC SALE, ETC. OF GOODS AND PROPERTIESo SALE OF SERVICESo LEASE OF PROPERTIESo IMPORTATION OF GOODS

• 0% VAT ON:o EXPORT SALES OF GOODS & SERVICES

ACTUAL EXPORTS OF GOODS OR SERVICES CONSTRUCTIVE EXPORTS

o FOREIGN CURRENCY DENOMINATE SALES

HOW VAT IS COMPUTED FOR DOMESTIC SALE OF GOODS

GROSS SELLING PRICE (WITHOUT VAT) P 1,000LESS: DISCOUNTS (GRANTED AT TIME OF SALE & NOT SUBJ TO CONDITION) P100SALES RETURNS & ALLOWANCES 100 200--------------------NTS SUBJ TO VAT 800 12% VAT [OUTPUT TAX] 96---------------------ACCOUNTS RECEIVABLE / CASH P 896============ *FOR SERVICES, BASE INCLUDES CONTRACT PRICE, COMPENSATION, SERVICE FEE, RENTAL, ROYALTY, ETC.

TAXABLE BASE OF VAT ON IMPORTED GOODS

COST, INSURANCE, FREIGHT (CIF) P 1,000CUSTOMS DUTIES, EXCISE TAX [IF ANY] 100BROKERS, POSTAGE, COMMISSION, ETC. 100-----------TOTAL LANDED COST P 1,200======12% VAT P 144======

ZERO-RATED SALES OF GOODS

• EXPORT SALES• FOREIGN CURRENCY DENOMINATED SALES• SALES TO PERSONS EXEMPT UNDER

SPECIAL LAWS OR INTERNATIONAL AGREEMENTS

CROSS BORDER DOCTRINE OR DESTINATION PRINCIPLE

• NO VAT IMPOSED TO FORM PART OF GOODS DESTINED FOR CONSUMPTION OUTSIDE OF THE TERRITORIAL BORDER OF TAXING AUTHORITY

• THUS EXPORTS OF GOODS/SERVICES TO FX COUNTRY ARE FREE OF VAT (0%),

• CONVERSELY, THOSE DESTINED FOR USE CONSUMPTION IN THE PHIL ARE SUBJ TO VAT (12%)

• ZERO-RATED DISTINGUISHED FROM VAT-EXEMPT• CUSTOMS TERRITORY VS. ECOZONES

EXPORT SALES

• EXPORT SALESo ACTUAL EXPORT SALE TO FX COUNTRY W/ FX CYo SALE OF RPM TO NON-RES FOR DELIVERY TO RES EXPORT

ORIENTED W/ FX CYo SALE TO RES EXPORT ORIENTED 70% EXPORTED

EFFECTIVELY ZERO-RATEDo SALE OF GOLD TO BSPo SALE CONSIDERED EXPORT SALE UNDER E.O. 226o SALE TO INTERNATIONAL SHIPPING/AIRLINES

EFFECTIVELY ZERO RATED

FCD SALES & SALE TO TAX EXEMPT PERSONS

• FCDSo SALE TO NON-RESIDENT FOR DELIVERY TO RES

PAID IN FX CY OF LOCAL PRODUCTS, EXCEPT SEC. 149/150

o SALE TO FILIPINOS ABROAD, NON-RES & RETURNING OVERSEAS FILIPINOS PAID IN FX CY EFFECTIVELY ZERO RATED

• EXEMPT UNDER LAWS/AGREEMENTSo SBMA/PEZA/ADB/IRRI OTHERSo EFFECTIVELY ZERO-RATED [NEED BIR CERT]

TRANSACTIONS DEEMED SALE

• TRANSFER, USE OR CONSUMPTION FOR PERSONAL USE

• DIVIDENDS/PAYMENT OF DEBTS• CONSIGNMENT (> 60 DAYS)• RETIREMENT/CESSATION [LOWER OF AC/FMV]

o TRANSFER TO NEW OWNER [ INC]o NEW PARTNERSHIP

CHANGE OR CESSATION OF VAT STATUS

• SUBJECT TO OUTPUT VAT [ON GOODS EXISTING]o VAT-REGISTERED TO VAT-EXEMPTo APPROVED CANCELLATION OF VAT REGISTRATION TO

EXEMPT• NOT SUBJECT TO OUTPUT VAT

o CHANGE OF CONTROLLING INTERESTo CHANGE IN NAMEo MERGER & CONSOLIDATION

SALE OR EXCHANGES OF SERVICES SUBJECT TO VAT

TO NAME SOME:• CONSTRUCTION & SERVICE CONTRACTORS• BROKERS• LESSORS OF PROPERTY VS. EXEMPT LEASE • COMMON CARRIER OF PERSONS AND GOODS BY AIR & SEA VS. SEC

117 (CARRIERS TAX) AND 118 (INTERNATIONAL DOING DOMESTIC)• HOTEL, REST HOUSE, INN, RESORT, CLUBS, RESTAURANT

OPERATORS VS. SEC 125• ELECTRIC, RADIO, TV (EXCEPT <P10M) OTHER FRANCHISEES VS.

THOSE SUBJ TO % TAX IN SEC 119• OTHERS USING MENTAL & PHYSICAL FACULTIES

GROSS RECEIPTS

• Total amount of money or its equivalent as contract price, compensation, service fee, rental or royalty

• Includes materials supplied with the services and deposits

• Advance payments• Actual or constructive• Exclude VAT

ZERO-RATED SALES OF SERVICES

• PROCESSING, MFG, REPACKING FOR PERSONS DOING BUS OUTSIDE PHIL & ACTUALLY EXPORTED

• SERVICES OTHER THAN ABOVE/EXEMPT ENTITIES• EXPORT ORIENTED 70%• INTERNATIONAL SHIPPING/AIRLINES• BY DOMESTIC AIR/SEA CARRIER OF CARGO/PASS

TO FX COUNTRY• POWER & FUEL RENEWABLE ENERGY

EXEMPT TRANSACTIONS

• THERE ARE 26 CLASSES OF TRANSACTIONS, TO NAME SOME:o AGRICULTURAL & MARINE PRODUCTSo SERVICES SUBJ % TAX IN TITLE V OF NIRCo DOMESTIC CARRIERS OF PASSENGERS, OVERSEAS

TELECOMo RADIO/TV FRANCHISEES (< P10MM ANNUAL SALES)o SALARIES & WAGES OF EMPLOYEESo SALE OF REAL PROPERTY NOT HELD FOR SALE OR LEASEo SALES OR RECEIPTS = OR < P1,500,000 (JUL 1, 2005)

CREDIT FOR INPUT TAX

• INPUT TAX - VAT DUE ON OR PAID ON:o PURCHASE OR IMPORTATION OF GOODS/PROPERTIES

FOR SALE / FOR CONVERSION INTO FG FOR SALE/RPM SUPPLIES, RAW MATERIALS FOR SUPPLY OF SERVICES SUBJ TO DEPRECIATION

o PURCHASE OF SERVICESo TRANSITIONAL INPUT TAX / PRESUMPTIVE INPUT TAXo INPUT TAX ON SALE TO GOVT NOT CREDITABLE NON-GOVT

SALESo SUBJECT TO 70% OF OUTPUT TAX CAP

WHO AND WHEN CAN ONE AVAIL OF INPUT TAX

• IMPORTER OF GOODS UPON PAYMENT OF VAT BEFORE RELEASE FROM CUSTOMS

• PURCHASER OF DOMESTIC GOODS OR PROPERTIES UPON CONSUMATION OF SALE

• PURCHASER OF SERVICES, OR LESSEE OR LICENSEE UPON PAYMENT OF THE COMPENSATION, RENTAL OR ROYALTY OR FEE

CLAIM FOR INPUT TAX ON DEPRECIABLE GOODS

• PURCHASE OR IMPORTATION OF DEPRECIABLE CAPITAL GOODS, AGGREGATE VALUE OF WHICH DURING THE MONTH:o EXCEEDS P1,000,000, EXCLUSIVE OF VAT

EST USEFUL LIFE IS 5 OR MORE YEARS INPUT TAX IS SPREAD OVER 60 MONTHS

EST USEFUL LIFE IS 5 YEARS OR LESS INPUT TAX IS SPREAD OVER ACTUAL EST USEFUL LIFE

o P1,000,000 OR LESS

SPECIAL RULES ON DEPRECIABLE CAPITAL GOODS

• CONSTRUCTION OR ASSEMBLY IN PROGRESS OF > ONE MONTH, INPUT TAX CAN ONLY BE CLAIMED IN THE MONTH COMPLETED

• IF STARTED PRIOR TO JUL 1, 2005, INPUT TAX EARNED ON OR AFTER SAID DATE TO BE CLAIMED IN THE MONTH COMPLETED

• IF ASSET SOLD PRIOR TO EXHAUSTION OF INPUT TAX, AMORTIZATION SHALL CONTINUE AS IF NOT SOLD [BUT RR 16-2006 ALLOWS FULL UTILIZATION IF DISPOSED EARLIER]

APPORTIONMENT OF INPUT TAX ON MIXED TRANSACTIONS

• A VAT-REGISTERED PERSON ENGAGED IN BOTH VAT TAXABLE AND EXEMPT TRANSACTIONS SHALL ONLY BE ALLOWED TO RECOGNIZE INPUT VAT THAT CAN DIRECTLY BE ATTRIBUTED OR ALLOCATED TO TRANSACTION SUBJ TO VAT

• INPUT TAX DIRECTLY ATTRIBUTABLE TO SALES TO GOVERNMENT CANNOT BE CREDITED AGAINST OUTPUT TAX ON SALES TO NON-GOVERNMENT ENTITIES

• IF INPUT TAX CANNOT DIRECTLY BE ATTRIBUTED TO ANY TYPE, IT SHALL BE PRORATED

SAMPLE OF MIX TRANSACTIONS

• SALES DURING THE MONTHo SALE TO PRIVATE ENTITIES SUBJ TO 10% VAT P100,000o SALE TO PRIVATE ENTITIES SUBJ TO 0% VAT 100,000o SALE OF EXEMPT GOODS 100,000o SALE TO GOV’T SUBJ TO 5% FINAL VAT W/HOLDING 100,000

TOTAL P400,000• INPUT TAXES DURING THE MONTH

o SALE TO PRIVATE ENTITIES SUBJ TO 10% VAT P 5,000o SALE TO PRIVATE ENTITIES SUBJ TO 0% VAT 3,000o SALE OF EXEMPT GOODS 2,000o SALE TO GOV’T SUBJ TO 5% FINAL VAT W/HOLDING 4,000o INPUT TAX ON DEPRECIABLE GOODS NOT ATTRIBUTABLE 20,000

TREATMENT OF INPUT TAX

• SALE SUBJ TO 10% VAT – SUBJ TO 70% CAP, EXCESS INPUT TAX FOR CARRY OVER

• 0%-RATED SALES – NO OUTPUT TAX, INPUT TAX FOR REFUND/CREDIT VS. OTHER TAXES

• EXEMPT SALE – NO OUTPUT TAX, INPUT TAX CANNOT BE REFUNDED BUT MAY BE EXPENSED

• GOVERNMENT SALE - INPUT TAX SUBJ TO 5% CAP THAT IS EQUAL TO W/HOLDING TAX, EXCESS INPUT TAX MAY BE EXPENSED

• SUBSTANTIATION REQUIREMENTS

INPUT TAX EARNED ON PURCHASE OF GOODS

GROSS PURCHASE PRICE (WITHOUT VAT) P 1,000.00LESS: 9.25% DISCOUNTS (GRANTED AT TIME OF SALE & NOT SUBJ TO CONDITION) 92.50---------------------NTS SUBJ TO VAT P 907.5012% VAT (INPUT TAX) 108.90---------------------TOTAL PAYABLE / CASH P1,016.40=============

 

SALE OF GOODS PURCHASED

NOW BEFOREGROSS SELLING PRICE (WITHOUT VAT) P 1,000LESS: 2 % DISCOUNT (GRANTED AT TIME OF SALE & NOT SUBJ TO CONDITION) 20--------------------NTS SUBJ TO VAT P 980============12% VAT X P980 (OUTPUT TAX) P 117.60 P117.60Less: CREDITABLE INPUT VAT 108.90 108.90--------------------- -------------VAT PAYABLE P 8.70 P 8.70 ============ ======== 

INPUT TAX EARNED ON PURCHASE OF GOODS

GROSS PURCHASE PRICE (WITHOUT VAT) P 1,000.00LESS: 9.25% DISCOUNTS (GRANTED AT TIME OF SALE & NOT SUBJ TO CONDITION) 92.50---------------------NTS SUBJ TO VAT P 907.5012% VAT (INPUT TAX) 108.90 108.90---------------------TOTAL PAYABLE / CASH P1,016.40=============Beginning balance of Input VAT P 200.00 200.00------------------- -------------Total Input VAT available P 308,90========== 

SALE OF GOODS PURCHASED

NOW BEFOREGROSS SELLING PRICE (WITHOUT VAT) P 1,000LESS: 2 % DISCOUNT (GRANTED AT TIME OF SALE & NOT SUBJ TO CONDITION) 20NTS SUBJ TO VAT P 980============12% VAT (OUTPUT TAX) P 117.60 P117.60Less: INPUT VAT (lower of 70% of P117.60 = P82.32or actual Input VAT ( PREV SLIDE) P308.90 82.32 117.60VAT PAYABLE P 35.28 P 0.00 ============ ========INPUT VAT TO BE CARRIED OVERNOW (P308.90 – 82.32) P 226.58BEFORE (P308.90 – 117.60) P191.30 

FILING OF RETURN AND PAYMENT OF VAT

• MONTHLY DECLARATION FILED ON THE 20TH DAY AFTER CLOSE OF PREVIOUS MONTH

• QUARTERLY RETURN FILED ON THE 25TH DAY AFTER CLOSE OF PREV QTR

• TAX PAID AS RETURN IS FILED• ESPECIAL RULES ON E-FILING AND LARGE

TAXPAYERS• ESPECIAL RULES ON ADVANCE PAYMENT• RULES ON GOVT SALES & NON-RESIDENTS