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5 December 2013

65E Scout Borromeo St., South Triangle


Quezon City

Experience









Partner SVS and Associates, CPAs (2000-present)


CFO Toon City Animation (2008-present)
CFO PHINMA BPO Group (2004-2012)
Professor UE Graduate School (2006-2008)
VP Finance STI (2002-2004)
AVP Finance ACA Group (1999-2002)
AVP Finance Automatic Centre (1994-1999)
Auditor Punongbayan & Araullo, CPAs (1991-1994)

Education





BSBA Accounting at UE-Caloocan (1991)


Certified Public Accountant (1991)
Executive MBA at I/AME (2004)
AIMs Strategic Finance Program for CFOs (2011)

Part
Part
Part
Part

1:
2:
3:
4:

Income tax on individuals


Income tax on corporations
Withholding taxes
Value-added tax (VAT)

1.
2.
3.
4.
5.
6.
7.

General principles of income taxation


Computation of gross income
Allowable deductions
Personal exemptions
Computation of taxable income
Income tax rates and computation
Filing / payment of income tax

Income in the
Philippines

Income outside the


Philippines

Resident Citizen

TAXABLE

TAXABLE

Non-resident Citizen

TAXABLE

NOT TAXABLE

Overseas Contract
Workers

TAXABLE

NOT TAXABLE

Resident Alien

TAXABLE

NOT TAXABLE

Non-resident Alien

TAXABLE

NOT TAXABLE

Type of Individual

All income derived from whatever source including:


1.

Compensation for services in whatever form (fees, salaries,


commissions and similar forms)
2. Income from trade or business
3. Income from exercise of profession
4. Gains from dealings of properties
5. Interests
6. Rents
7. Royalties
8. Dividends
9. Prizes and winnings
10. Partners share in income of general professional partnership

The following are excluded in computing for the


gross income subject to tax:
1.
2.
3.
4.
5.
6.
7.
8.
9.

Proceeds from life insurance


Return of insurance premium
Compensation for injuries or sickness
Retirement benefits received under RA 7641
Prizes, awards from sports competitions sanctioned by
national sports associations
13th month pay and other bonuses or incentives up to
P30,000 per annum
GSIS, SSS, Philhealth and Pag-ibig contributions, and union
dues of individuals
Income of minimum wage earners earning purely
compensation income
De minimis benefits
8

Compensation income of minimum wage


earners (MWE) who work in the private sector
and being paid the statutory minimum wage
(SMW) are exempted from income tax
Holiday pay, overtime pay, night shift
differential pay, and hazard pay earned by the
MWE shall also be exempted from income tax

MWEs receiving any but not limited to the following


other income are not exempted from income tax
on their entire income *:
a) Additional compensation such as commissions,
honoraria, fringe benefits, benefits exceeding the
allowable amount of P30,000 per year, taxable allowances
b) Income from the conduct of trade, business, or practice
of profession except income subject to final tax

* - The salary, holiday pay, overtime pay, night differential


pay, and hazard pay, shall still be exempt from
withholding tax

10

1.

2.

3.

4.

5.

Monetized unused vacation leave credits of


private employees not exceeding 10 days per
year
Monetized value of vacation and sick leave credits
paid to government officials and employees
Medical cash allowance to dependents of
employees not exceeding P125 per month
Rice subsidy of one sack of rice not to exceed
P1,500 per month
Uniform and clothing allowance not exceeding
P4,000 per annum

11

6.

7.
8.

9.

10.

Actual medical assistance (medical allowance,


maternity, and consultations) not exceeding
P10,000 per annum
Laundry allowance not exceeding P300 per month
Employees achievement awards other than cash
or gift certificates with value not exceeding
P10,000 per year
Gifts given during Christmas and major
anniversary celebrations not exceeding P5,000
per year
Daily meal allowance for OT work and night shift
not exceeding 25% of the basic minimum wage
12

Gross Income
Less: Allowable Deductions
Gross Taxable Income
Less: Personal Exemptions
Taxable Income

Compensation
from EmployerEmployerEmployee
Relationship

Income from
Trade, Business,
or Practice of
Profession

Pxxx,xxx.xx

Pxxx,xxx.xx

Not applicable

xxx,xxx.xx

Pxxx,xxx.xx

Pxxx,xxx.xx

Xxx,xxx.xx

xxx,xxx.xx

Pxxx,xxx.xx

Pxxx,xxx.xx

13

A.

EXPENSES ordinary and necessary trade,


business or professional expenses,
including:
1)
2)
3)
4)

Salaries, wages and other forms of compensation


Travel expenses
Rentals
Entertainment, amusement and recreation not to
exceed the following prescribed ceiling:



Engaged in sale of goods 0.50% of net sales


Engaged in sale of services 1% of net sales

14

A.

EXPENSES
General Requirements:
1.

2.
3.

Substantiated by adequate proof documented by


official receipts or adequate records which reflect the:

Amount being deducted

Connection or relation of expense to business or
trade
Not contrary to law, morals, public policy or order (such
as bribes, kickbacks or similar payments)
The taxes required to be withheld (if applicable) have
been properly withheld and remitted on time.

15

B.

INTEREST the amount paid for the


borrowers use of money during the term
of the loan:
1) The amount of interest which corresponds to the
amount of the principal amortized or paid during the
year shall be allowed as deduction in such taxable
year
2) At the option of the taxpayer, interest incurred to
acquire property used in trade business or exercise
of a profession may be allowed as a deduction or
treated as a capital expenditure

16

B.

INTEREST
Limitations on deductibility:
The amount of deductible interest shall be
reduced by an amount equal to 33% of
interest income earned which had been
subjected to final withholding tax
Example:
Interest expense
Less: Limitation
Interest income P10,000
X rate
33%
Allowable interest expense

P40,000

3,300
P36,700
17

C.

TAXES paid or incurred within the taxable


year in connection with the taxpayers
trade or business except:
1.
2.
3.
4.
5.
6.

Philippine income tax


Foreign income tax, if taxpayer avails of the
foreign tax credit
Estates and donors tax
Value-added tax
Capital gains tax
Percentage taxes

18

D.

LOSSES - Losses actually sustained during


the taxable year and not compensated for
by insurance or other forms of indemnity
shall be allowed as deductions:
 If incurred in trade, profession or business
 Of property connected with the trade,
business or profession, if the loss arises from
fires, storms, shipwreck, or other casualties,
or from robbery, theft or embezzlement.

19

E.

DEPRECIATION:
 The gradual diminution in the service or
useful value of tangible property due from
exhaustion, wear and tear and normal
obsolescence
 Amortization of the value of intangible assets
with definitely limited duration
 Allowable depreciation methods
1. Straight-line method
2. Declining balance method
3. The sum-of-the-years digit method

20

E.

DEPRECIATION:
1. Straight-line method
Annual depreciation = Cost / useful life
Asset acquisition cost - P100,000
Estimated useful life - 5 years

Year
1
2
3
4
5

BV at
beg of year
100,000
80,000
60,000
40,000
20,000

Depreciation
Depreciation
Rate
Expense
20%
20,000
20%
20,000
20%
20,000
20%
20,000
20%
20,000

Accumulated
Depreciation
20,000
40,000
60,000
80,000
100,000

BV at
end of year
80,000
60,000
40,000
20,000
-

21

E.

DEPRECIATION:
2. Declining balance method
Annual depreciation
= Book value at beginning of year * deprecation
rate (usually double the straight-line rate)
Asset acquisition cost - P100,000
Estimated useful life - 5 years

Year
1
2
3
4
5

BV at
beg of year
100,000
60,000
36,000
21,600
12,960

Depreciation
Depreciation
Rate
Expense
40%
40,000
40%
24,000
40%
14,400
40%
8,640
12,960

Accumulated
Depreciation
40,000
64,000
78,400
87,040
100,000

BV at
end of year
60,000
36,000
21,600
12,960
-

22

E.

DEPRECIATION:
3. Sum-of-the-years digit method
Annual depreciation
= Acquisition cost * deprecation rate (based on
total of the estimated useful years)
Asset acquisition cost - P100,000
Estimated useful life - 5 years

Year
1
2
3
4
5

BV at
beg of year
100,000
66,667
40,000
20,000
6,667

Depreciation
Rate
5/15
4/15
3/15
2/15
1/15

Depreciation
Expense
33,333
26,667
20,000
13,333
6,667

Accumulated
Depreciation
33,333
60,000
80,000
93,333
100,000

BV at
end of year
66,667
40,000
20,000
6,667
-

23

F.

Donations and Charitable Contributions:


 Donations and charitable contributions to
government and NGOs are deductible in full
 Other donations and charitable contributions
are limited up to 10% of the taxpayers
taxable income before donations and
charitable contributions
Taxable income
Add back: Donations
Taxable income before donations
Less: Allowable donation
(150,000 X 10%)
Adjusted taxable income

100,000.00
50,000.00
150,000.00
15,000.00
135,000.00
24

G.

Premium payments on health and/or


hospitalization insurance of an individual
taxpayer:
 Maximum of P2,400 per family per year
 Gross family income should not exceed
P250,000

25

In lieu of the itemized deductions, an


individual subject to tax, may elect for an
optional standard deduction (OSD)
 Amount equivalent to forty percent (40%) of
gross sales or receipts
 No longer required to attach audited financial
statements
 Least priority in BIR audit

26

GROSS SALES
LESS: COST OF SALES
GROSS INCOME
ALLOWABLE DEDUCTIONS
NET INCOME

Itemized
1,000,000
400,000
600,000

OSD
1,000,000
1,000,000

300,000
300,000

400,000
600,000

40% of
Gross Sales

27

1.

Basic personal exemption


 Fifty thousand pesos (P50,000) for each
individual taxpayer
 In the case of married individuals, where only
one of the spouses is deriving income, only
such spouse shall be allowed the exemption

28

2.

Additional personal exemption


 Twenty five thousand pesos (P25,000) for
each dependent not exceeding four (4)
 For married individuals, may be claimed only
by one of the spouses
 For legally separated spouses, may be claimed
only by the spouse who has custody of the
dependent/s
 The total amount of exemptions claimed by
both shall not exceed the allowed maximum

29

Dependent


Legitimate, illegitimate or legally adopted child


chiefly dependent upon and living with the
taxpayer
Not more than 21 years of age, unmarried and not
gainfully employed
Regardless of age, is incapable of self support
because of physical or mental defect

30

Change of status:


If the taxpayer should have additional dependents


during the year, the taxpayer may claim the
exemptions in full for such year
If any of the dependents dies or if any of such
dependents marries, becomes 21 or becomes
gainfully employed during the year, the taxpayer
may still claim the same exemptions for such year

31

Gross Income
Less: Allowable Deductions
Gross Taxable Income
Less: Personal Exemptions
Taxable Income

Compensation
from EmployerEmployerEmployee
Relationship

Income from
Trade, Business,
or Practice of
Profession

Pxxx,xxx.xx

Pxxx,xxx.xx

Not applicable

xxx,xxx.xx

Pxxx,xxx.xx

Pxxx,xxx.xx

Xxx,xxx.xx

xxx,xxx.xx

Pxxx,xxx.xx

Pxxx,xxx.xx

32

TAXABLE INCOME
From
To
10,000.00
10,000.01
30,000.00
30,000.01
70,000.00
70,000.01
140,000.00
140,000.01
250,000.00
250,000.01
500,000.00
500,000.01
above

Basic
500.00
2,500.00
8,500.00
22,500.00
50,000.00
125,000.00

TAX DUE
Additional
5% of amount
10% of excess over 10,000
15% of excess over 30,000
20% of excess over 70,000
25% of excess over 140,000
30% of excess over 250,000
32% of excess over 500,000

33

NET INCOME

Itemized
300,000

OSD
600,000

50,000

50,000

100,000
150,000
150,000

100,000
150,000
450,000

LESS: PERSONAL EXEMPTIONS


BASIC
ADDITIONAL (4)
TOTAL
TAXABLE INCOME
Tax on 140,000
Tax on 250,000
Tax on over 140,000 (10,000 X 25%)
Tax on over 250,000 (200,000 X 30%)
INCOME TAX DUE

22,500
50,000
2,500
25,000

60,000
110,000

34

Individuals required to file ITR:


 Resident Filipino Citizen
 Non-resident Filipino Citizen - on income
within the Philippines
 Resident Alien - on income within the
Philippines
 Non-resident Alien engaged in trade or
business or in the exercise of profession
in the Philippines

35

Individuals not required to file ITR:


 An individual qualified under substituted
filing earning purely compensation
income from one employer and the income
tax on which has been correctly withheld
 An individual whose sole income has been
subjected to final withholding tax
 An individual who is exempt from income
tax pursuant to other laws

36

Where to File / Pay


The ITR shall be filed with the BIR RDO where the
taxpayer is registered (No Payment Returns)
The ITR shall be paid in any of the authorized
agent bank (AAB) within the jurisdiction of the BIR
RDO where the taxpayer is registered

When to File
The ITR shall be filed on or before April 15 of each
year covering income for the preceeding taxable
year

37

1.
2.
3.
4.
5.
6.

Taxable income
Allowable deductions
NOLCO
Income tax rate
Special income taxation
MCIT

39

Tax on Corporations:
 A domestic corporation is taxable on all
income derived from sources within and
without the Philippines
 A Foreign corporation, whether engaged
or not in trade or business in the
Philippines, is taxable only on income
derived from sources within the
Philippines

40

Gross sales / receipts


Less: Cost of sales / services
Gross income
Less: allowable deductions
Taxable income

P XXX.XX
XXX.XX
P XXX.XX
XXX.XX
P XXX.XX

41

A.
B.
C.
D.
E.
F.
G.
H.
I.
J.

Expenses
Interests
Taxes
Losses
Bad Debts
Depreciation
Depletion
Charitable and other contributions
Research and development
Pension trusts
42

General Requirements:
1.

Should be ordinary and necessary expenses


paid/incurred during the taxable year for the
development, management, operation and/or
conduct of the trade, business or profession such as:


Salaries and other remuneration

Travel expenses

Rentals

Entertainment, amusement and recreation expenses


directly related to or in furtherance of trade

43

General Requirements:
2. Substantiated by adequate proof documented
by official receipts or adequate records which
reflect the:



3.
4.

Amount being deducted


Connection or relation of expense to business or trade

Not contrary to law, morals, public policy or order


(such as bribes, kickbacks or similar payments)
The taxes required to be withheld (if applicable)
have been properly withheld and remitted on
time.

44

Entertainment, Amusement, and Recreation


(EAR) Expenses



Includes representation expenses and/or depreciation


or rental expense relating to entertainment facilities.
Representation expenses shall refer to expenses
incurred by a taxpayer in connection with the conduct
of his trade, business or exercise of profession, in
entertaining, providing amusement and recreation to,
or meeting with, a guest or guests at a dining place,
place of amusement, country club, theater, concert,
play, sporting event, and similar events or places.

45

Entertainment, Amusement, and Recreation


(EAR) Expenses


Representation expenses shall NOT refer to fixed


representation allowances that are subject to
withholding tax on wages.
BIR Revenue Regulations No. 10-2002 provides
the imposition of a ceiling on EAR expenses.

46

Ceiling on (EAR) Expenses




For taxpayers engaged in the sale of


goods/properties - 0.50% of net sales (i.e., gross
sales less sales returns/allowances and sales
discounts).
For taxpayers engaged in the sale of services
(including exercise of profession and use or lease
of properties) - 1% of net revenues (i.e., gross
revenues less discounts).

47

Reportorial requirement on EAR expenses




Taxpayer is required to use the account title


"entertainment, amusement and recreation
expense in its FS and ITR , or to disclose in the
notes to FS the corresponding amount.
EAR expense should be reported in the
taxpayer's ITR as a separate expense item.

48

Definition


Interest is the payment for the use or


forbearance or detention of money, regardless
of the name by which it is called. It includes the
amount paid for the borrowers use of money
during the term of the loan, as well as for his
detention of money after the due date for its
repayment.

49

Requisites for deductibility of interests


1.
2.
3.
4.

5.
6.

An indebtedness exists.
The interest has been paid or incurred.
The indebtedness must be that of the taxpayer.
The indebtedness is connected with the
taxpayers trade, business or exercise of
profession.
The interest was paid or incurred during the
taxable year.
The interest is stipulated in writing.

50

Requisites for deductibility of interests


7.
8.
9.
10.

The interest is legally due.


The indebtedness is not between related parties.
The interest was not incurred to finance
petroleum exploration.
If incurred on an indebtedness to acquire
property, the interest was not treated as a
capital expenditure.

51

Limitations on deductibility


The amount of deductible interest shall be


reduced by an amount equal to 33% of interest
income earned which had been subjected to
final withholding tax

52

When fully deductible




Interest incurred or paid on all unpaid businessbusinessrelated taxes shall be fully deductible from
gross income and shall not be subject to the
limitation on deduction. Thus, such interest
expense shall not form part of the expense that
is to be diminished by 33% of interest income
subjected to final tax.

53

Types of taxes that are deductible




Taxes paid or incurred within the taxable year in


connection with the taxpayers trade or
business, except:
1. Philippine income tax
2. Foreign income tax, if taxpayer avails of the
foreign tax credit
3. Estates and donors tax
4. Capital gains tax
5. Percentage taxes
6. VAT
54

Types of losses
1.

2.

3.

Ordinary losses

Losses incurred in trade, business or profession.

Losses of property connected with trade, business or
profession if due to casualty, etc.
Capital losses

Losses from sales or exchanges of capital assets
(allowable only to the extent of capital gains).

Securities becoming worthless (considered loss from
sale or exchange, on last day of the taxable year).
Special kind of losses

Losses from wash sales of stock or securities.

Wagering losses.

Abandonment losses in petroleum operations.
55

Requisites for deductibility


1.

2.
3.

4.
5.

Actually sustained and charged-off during the taxable


year and not compensated for by insurance or other
forms of indemnity.
Incurred in trade, profession or business.
Of property connected with the trade, business, or
profession, if the loss arises from fires, storms, shipwreck
or other casualties, or from robbery, theft, or
embezzlement.
Loss has not been claimed as deduction for estate tax
purposes.
Sustained in a closed and completed transaction.

56

Net operating loss carrycarry-over (NOLCO)




NOLCO refers to the excess of allowable deductions over


gross income of the business for any taxable year which
had not been previously offset as deduction from gross
income.
Can be carried over as deduction from gross income for
the next three (3) consecutive years,
years however, for mines,
other than oil and gas well, net operating loss incurred in
any of the first ten years of operation may be carried over
for the next five (5) years

57

When NOLCO is not allowed as a deduction


a)
b)

If the net loss is incurred in the year during which the


taxpayer was exempt from income tax;
If there has been substantial change in the ownership of
the business.
There is no substantial change in the ownership of the
business when:
i.
Not less than 75% in nominal value of outstanding
shares issued is held by or on behalf of the same
persons; or
ii.
Not less than 75% of paid up capital of the
corporation is held by or on behalf of the same
persons.
58

Net operating loss carrycarry-over (NOLCO)


Illustration:
2009 Net loss

P500,000

2010 Taxable Income (before NOLCO)

P150,000

2011 Net Loss (before NOLCO)

P135,000

2012 Taxable Income (before NOLCO)

P225,000

59

Net operating loss carrycarry-over (NOLCO)


Illustration:
2010
Taxable income
P150,000
Less: NOLCO
150,000
Net taxable income
0

2011
(P135,000)
0
0

2009 NOLCO
Applied NOLCO (2010 & 2012)
Forfeited NOLCO

P500,000
375,000
P125,000

2012
P225,000
225,000
0

Available NOLCO (2011 Loss) of P135,000 may be


applied until 2014.
60

Definition


Debts resulting from the worthlessness or


uncollectibity, in whole or in part, of the
amounts due to the taxpayer by others.

61

Requisites for deductibility


1.
2.
3.
4.

5.

There must be an existing indebtedness due to the


taxpayer which must be valid and legally demandable;
The same must not be sustained in a transaction
entered into between related parties;
The same must be connected with the taxpayers
trade, business or practice of profession;
The same must be actually charged off the books of
accounts of the taxpayer as of the end of the taxable
year;
The same must be actually ascertained to be worthless
and uncollectible as of the end of the taxable year.

62

Includes:


The gradual diminution in the service or useful


value of tangible property due from exhaustion,
wear and tear and normal obsolescence.
Amortization of the value of intangible assets
with definitely limited duration.

63

Requisites for deductibility


1.
2.
3.
4.

Must be reasonable;
Must be for property used or employed in the
business, or temporarily not in use;
Must be charged off during the taxable year; and
Must be supported by a statement submitted
together with the tax return.

64

A reasonable allowance for depletion shall be


allowed as deduction:




for entities engaged in oil and gas wells or


mines
under a cost depletion method
not permitted if depletion allowance has
equaled the invested capital

65

Requisites for deductibility


1.

2.

Evidence or proof submitted to the BIR by showing the


Certificate/s of Donation and indicating therein the
following:

Actual receipt by the accredited non-stock, non-profit
corporation/NGO of the donation or contribution and
the date of receipt thereof; and

The amount of the charitable donation or contribution,
if in cash; if property, whether real or personal, the
acquisition cost of the said property.
For donation worth over P1 million, notice to the Revenue
District Office is required.

66

When fully deductible


1.

2.

3.

Donations to the Philippine Government or to


any of its agencies or political subdivisions,
including fully-owned government corporations
undertaking priority activities;
Donations to foreign institutions or international
organizations to whom the Philippine
Government has treaties or commitments with
or covered by special laws;
Donations to NGOs subject to conditions set
forth in Revenue Regulations 13-98.

67

When deductibility is limited


Donations to accredited non-stock, non-profit
corporations shall be allowed LIMITED
deductibility:
 Not in excess of 5% of the donors income
derived from trade, business or profession
computed before the donation;

68

When allowed as a deduction


1.
2.


If incurred in connection with the trade,


business or profession of the taxpayer; and
If not charged to capital account.
If treated as deferred expense, the R and D shall
be amortized over a period of not less than 60
months.

69

Limitations on deductions
Contribution made to a pension trusts may be
claimed as deduction in the following manner:
a) Amount contributed for the normal service cost
- 100% deductible; and
b) Amount contributed for the past service cost
1/10 of the amount contributed is deductible in
year the contribution is made, the remaining
balance will be amortized equally over nine
consecutive years.

70

Requisites for deductibility of payments to


pension trusts
a)

b)
c)
d)
e)

There must be a pension or retirement plan to


provide for the payment of reasonable pensions to
employees;
The pension plan is reasonable and actuarially
sound;
It must be funded by the employer;
The amount contributed must no longer be subject
to its control or disposition; and
The payment has not theretofore been allowed as a
deduction.
71

An income tax of thirty percent (30%) is


imposed upon the taxable income derived by
the following corporations during each
taxable year:
1. Domestic Corporations from all sources within
and without the Philippines
2. Foreign Corporations from all sources within
the Philippines

An income tax of ten percent (10%) is


imposed upon the taxable income derived by
ROHQs
72

5% Gross Income Tax (GIT) for some entities


registered with the Philippine Economic Zone
Authority (PEZA) and with other Ecozone (i.e.,
Subic, Clark, John Hay or Poro Point Special
Economic Zone).
Income Tax Holiday (ITH) for some entities
registered with the Board of Investments (BOI),
Philippine Economic Zone Authority (PEZA) and with
other Ecozone (i.e., Subic, Clark, John Hay or Poro
Point Special Economic Zone)

73

10% on taxable income of proprietary, nonprofit educational institutions and hospitals


provided that gross income from activities
other than the primary purpose shall not
exceed 50% of the total gross income
 10% final tax on interest income and other
loan-related income of the foreign currency
deposit unit (FCDU) of banks


74







Persons liable
Limitations
Tax rate
Tax base
Treatment of excess MCIT

75

Persons liable
Beginning on the 4th taxable year from start of
operations, Domestic and resident foreign
corporations:
 Whenever such corporation has zero or
negative taxable income; or
 Whenever the amount of MCIT is greater than
the normal income tax due from such
corporation.

76

Normal income tax




30% effective January 1, 2009 pursuant to RA


No. 9337.

Application of MCIT
The comparison between the normal income tax
and the MCIT shall be made at the end of every
quarter of the taxable year and at the end of the
taxable year

77

Limitations


The MCIT shall apply only to domestic and resident


foreign corporations subject to the normal corporate
income tax.
In the case of a domestic corporation whose operations
or activities are partly covered by the regular income
tax system and partly covered under a special income
tax system, the MCIT shall apply on operations covered
by the regular corporate income tax system.
In computing the MCIT due from a resident foreign
corporation, only the gross income from sources within
the Philippines shall be considered for such purpose.

78

Tax rate


Two percent (2%) of the gross income

Tax base


The term gross income derived from business


shall be equivalent to gross sales less sales
returns, discounts and allowances and cost of
goods sold. Cost of goods sold shall include
all business expenses directly incurred to
produce the merchandise to bring them to their
present location and use.

79

Cost of goods sold





For a trading concern, cost of goods sold will


exclude expenses incurred in selling the product.
The cost composition of such cost of goods sold
includes only those items which are direct and
incidental to the acquisition of the merchandise
intended for sale.
Thus, expenses for gasoline, repairs, maintenance
and depreciation of motor vehicles, the salaries
and commissions of the drivers and sales people
and cost of delivery of the products are not items
of cost of sales
80

A. Trading or Merchandising
Gross sales
Less: sales returns, discounts, and allowances
Net sales
Cost of goods sold:
Invoice cost of the goods sold
Import duties
Freight in transporting the goods
Insurance while the goods are in transit
Gross income

81

B. Manufacturing
Gross sales
Less: sales returns, discounts, and allowances
Net sales
Cost of goods sold:
Raw materials used
Direct labor
Manufacturing overhead
Freight in transporting the goods
Insurance while the goods are in transit
Gross income

82

C. Services
Gross receipts
Less: discounts and allowances
Net receipts
Cost of services:
Salaries and employees benefits of personnel, consultants, and
specialists directly rendering the service
Cost of facilities directly utilized in providing the service such as
depreciation or rental of equipment used and cost of supplies
Includes interest expense in the case of banks and other
financial institutions
Gross income
83

Treatment of excess MCIT




Any excess of MCIT over the normal income tax


can be carried forward and be credited against
the normal income tax due in the next three
succeeding taxable years.
If the computed annual MCIT is higher than the
normal income tax due, excess MCIT from the
previous taxable year/s shall not be allowed to
be credited as the same can only be applied
against normal income tax.

84

GROSS SALES
COST OF SALES
GROSS INCOME
OPERATING EXPENSES
NET INCOME
REGULAR INCOME TAX (30% of Net Income)
MCIT (2% OF Gross Income)
MCIT Balance, beginning of the year
MCIT excess over RCIT
Available MCIT
INCOME TAX DUE FOR THE YEAR
LESS: MCIT TO BE APPLIED
INCOME TAX PAYABLE

2010
1,000,000
400,000
600,000
580,000
20,000

2011
1,100,000
450,000
650,000
620,000
30,000

2012
1,300,000
500,000
800,000
680,000
120,000

6,000
12,000

9,000
13,000

36,000
16,000

6,000
6,000

6,000
4,000
10,000

10,000
10,000

12,000
12,000

13,000
13,000

36,000
10,000
26,000

85

1.
2.
3.
4.
5.
6.
7.
8.

Scope
Withholding tax on wages
Withholding tax table
Computation of withholding tax
Annualized computation of income tax
Nature of expanded withholding tax (EWT)
EWT Rates
EWT computation

87

Withholding tax on wages


 Creditable withholding taxes


Importance of Withholding Taxes:


Any income payment which is otherwise
deductible under the Code shall be allowed as a
deduction from the payors gross income only if it
is shown that the income tax required to be
withheld has been paid to the Bureau.

88

1.

2.

Requirement Every employer making


payment of wages shall deduct and
withhold the corresponding amount of
income tax due.
Exception Withholding of a tax is not
required:
a)
b)

Where the total compensation of an individual


does not exceed the statutory minimum wage
On De Minimis benefits

89

Exempt income of minimum wage earners


(MWE):
1. Basic salary
2. 13th month pay
3. Holiday pay, Overtime pay, Night shift differential
pay
4. Hazard pay

Not considered MWE:


1. Employees receiving additional compensation such
as commissions, honoraria and fringe benefits in
excess of P30,000 per annum
2. Employees with other income from trade or business
or practice of profession
90

3.

4.

Liability for tax The employer shall be


liable for the withholding and remittance
of the correct amount of tax. If the
employer fails to comply, such tax shall
be collected from the employer together
with the penalties.
Credits The amount withheld from the
employee is creditable against the
employees income tax for the taxable
year.

91

5.

Year-end adjustment On or before the


end of the calendar year but prior to the
last payroll, the employer shall
determine the tax due from each
employee for the taxable year. The
difference between the tax due and
taxes withheld shall either be withheld
from the last payroll or refunded not
later than January 25 of the following
year.

92

6.

Filing of return and payment of taxes


withheld The return shall be filed and
the payment made within ten (10) days
following the end of the month. (Jan. 15

7.

for December)
Annual information returns Annual
information return containing the list of
employees, total compensation and taxes
withheld, must be submitted not later
than January 31.

93

8.

BIR forms
1902 Application for registration for individuals
earning purely compensation income
1601C Monthly remittance return of income taxes
withheld on compensation
1604CF Annual information return of income tax
withheld on compensation and final withholding taxes
2316 Employers certificate of compensation payment
/ tax withheld
1700 Annual income tax return for individuals
earning compensation income

94

The withholding agent shall be guided by the


prevailing minimum wage rate and its own
policy on whether employees are:
a) Not considered paid on Saturdays, Sundays, or
Rest days
b) Not considered paid on Sundays, or Rest days
c) Considered paid on Rest days, Special and Regular
holidays
d) Required to work everyday including Sundays or
Rest days, Special and Regular holidays

95

a) Not considered paid on Saturdays, Sundays, or


Rest days
Total number of days in a year
Number of Saturdays and Sundays in a year

365
(104)

Number of days required to work

261

Daily minimum wage

466

Total annual compensation


Divide by: number of months in a year
Monthly minimum wage rate

121,626
12
10,136

96

b) Not considered paid on Sundays, or Rest days


Total number of days in a year
Number of Sundays in a year
Number of days required to work
Daily minimum wage
Total annual compensation
Divide by: number of months in a year
Monthly minimum wage rate

365
(52)
313
466
145,858
12
12,155

97

c) Considered paid on Rest days, Special and Regular


holidays
Total number of days in a year
Number of non-working days
Number of days required to work
Daily minimum wage
Total annual compensation
Divide by: number of months in a year
Monthly minimum wage rate

365
365
466
170,090
12
14,174

98

d) Required to work everyday including Sundays or


Rest days, Special and Regular holidays
Total number of days in a year

365

Additional days for work on holidays


Number of days required to work

28
393

Daily minimum wage

466

Total annual compensation


Divide by: number of months in a year
Monthly minimum wage rate

182,905
12
15,242

99

Every employer making payment of


compensation shall deduct and withhold a tax
determined based on the prescribed
withholding tax tables:
1.
2.
3.
4.

Monthly tax table


Semi-monthly tax table
Weekly tax table
Daily tax table

If compensation is paid other than the


periods above, the tax shall be computed
based on annualized computation
100

SEMI-MONTHLY

1
0.00 + 0%
Over

Withholding tax >>>


Status
Exemption
Employees without qualified dependent/s
1. Z
1
2. S/ME
50,000
1
Employees with qualified dependent/s
1. ME1/S1
75,000
1
2. ME2/S2
100,000
1
3. ME3/S3
125,000
1
4. ME4/S4
150,000
1

2
3
4
0.00 + 5% 20.83 + 10% 104.17 +
Over
Over
15% Over

5
354.17 +
20% Over

6
937.50 +
25% Over

7
2,083.33 +
30% Over

8
5,208.33 +
32% Over

2,083

417
2,500

1,250
3,333

2,917
5,000

5,833
7,917

10,417
12,500

20,833
22,917

3,125
4,167
5,208
6,250

3,542
4,583
5,625
6,667

4,375
5,417
6,458
7,500

6,042
7,083
8,125
9,167

8,958
10,000
11,042
12,083

13,542
14,583
15,625
16,667

23,958
25,000
26,042
27,083

101

SEMI-MONTHLY

1
0.00 + 0%
Over

Withholding tax >>>


Status
Exemption
Employees without qualified dependent/s
1. Z
1
2. S/ME
50,000
1
Employees with qualified dependent/s
1. ME1/S1
75,000
1
2. ME2/S2
100,000
1
3. ME3/S3
125,000
1
4. ME4/S4
150,000
1

2
3
4
0.00 + 5% 20.83 + 10% 104.17 +
Over
Over
15% Over

5
354.17 +
20% Over

6
937.50 +
25% Over

7
2,083.33 +
30% Over

8
5,208.33 +
32% Over

2,083

417
2,500

1,250
3,333

2,917
5,000

5,833
7,917

10,417
12,500

20,833
22,917

3,125
4,167
5,208
6,250

3,542
4,583
5,625
6,667

4,375
5,417
6,458
7,500

6,042
7,083
8,125
9,167

8,958
10,000
11,042
12,083

13,542
14,583
15,625
16,667

23,958
25,000
26,042
27,083

Mr. Psy, joined the company as a manager on March 1, 2012 with a monthly salary of P50,000. He is married with 3 children.
Semi-monthly salary
Withholding tax:
Tax on 15,625
Tax on over 15,625 (30%)
Net pay

25,000.00
2,083.33
2,812.50

4,895.83
20,104.17

102

Monthly salary
Number of months from March 1 to Dec. 31
Total annual compensation
Less: Personal exemptions (ME3)
Taxable Income
Using annual tax table:
Income Tax Due
Tax on 250,000
Tax on over 250,000 (30%)
Less: Taxes withheld by employer
Semi-monthly withholding tax
X number of periods (10 months)
TAX STILL DUE (REFUNDABLE)

50,000
10
500,000
125,000
375,000

50,000
37,500
4,896
20

87,500

97,917
(10,417)

103

1. It is a means of collecting the


income tax in advance.

2. It is creditable against the


payees income tax liability.

Illustration:
Assuming (A) withholds 15% EWT from its
payments of management fees to (B), a
VAT-registered entity, amounting to
P 1,000,000 (exclusive of VAT).
Monthly Remittance Return of (A)
EWT Due (15% of P 1,000,000)

P 150,000

Income Tax Return of (B)


Tax Due
Creditable tax
Income Tax Payable

P 320,000
150,000
P 170,000

104

Only payments enumerated under the EWT


regulations are subject to EWT.
The payee and the payor must be residents of
the Philippines (except in case of payments to
non-resident aliens engaged in trade or
business in the Philippines).
The EWT is not a final tax.

105

Large Taxpayers (LT)


Top 10,000 Private Corporations
(TTC)
Government Offices (GO)
Other Non-Large Taxpayers
Agents/Employees Having
Control of Payment

106

NATURE OF INCOME PAYMENT

TAX
RATE

ATC
IND

CORP

EWT- professionals (lawyers, CPAs, engineers, etc)/talent fees paid


to juridical persons
- if the current year's gross income is P720,000 and below

10%

WI 010 WC 010

- if the current year's gross income exceeds P720,000

15%

WI 011 WC 011

10%

WI 020

15%

WI 021

10%

WI 030

15%

WI 031

10%

WI 040

15%

WI 041

10%

WI 050

15%

WI 051

EWT- professional entertainers- if the current year's gross income does not exceed P720,000.00
- if the current year's gross income exceeds P720,000.00
EWT- professional athletes- if the current year's gross income does not exceed P720,000.00
- if the current year's gross income exceeds P720,000.00
EWT- movie, stage, radio, television and musical directors- if the current year's gross income does not exceed P720,000.00
- if the current year's gross income exceeds P720,000.00
EWT- management and technical consultants
- if the current year's gross income is P720,000 and below
- if the current year's gross income exceeds P720,000

107

NATURE OF INCOME PAYMENT

TAX

ATC

RATE

IND

10%

WI 060

15%

WI 061

10%

WI 070

15%

WI 071

10%

WI 080

15%

WI 081

10%

WI 090

15%

WI 091

5%

WI 100 WC 100

EWT- cinematographic film rentals

5%

WI 110 WC 110

EWT- prime contractors/sub-contractors

2%

WI 120 WC 120

EWT- business and bookkeeping agents and agencies

CORP

- if the current year's gross income is P720,000 and below


- if the current year's gross income exceeds P720,000
EWT- insurance agents and insurance adjusters
- if the current year's gross income is P720,000 and below
- if the current year's gross income exceeds P720,000
EWT- other recipient of talent fees- if the current year's gross income does not exceed P720,000.00
- if the current year's gross income exceeds P720,000.00
EWT- fees of directors who are not employees of the company
- if the current year's gross income is P720,000 and below
- if the current year's gross income exceeds P720,000
EWT- rentals : real/personal properties, poles,satellites & transmission
facilities, billboards

108

NATURE OF INCOME PAYMENT


EWT- income distribution to beneficiaries of estates & trusts
EWT- gross commission or service fees of custom, insurance, stock, real estate,

TAX

ATC

RATE

IND

CORP

15%

WI 130

10%

WI 140 WC 140

10%

WI 141

10%

WI 151

15%

WI 150

10%

WI 152

15%

WI 153

immigration & commercial brokers & fees of agents of professional entertainers


EWT- payments for medical practitioners through a duly registered professional partnership

EWT- payments for medical/dental /veterinary services thru hospitals/clinics/


health maintenance organizations, including direct payments to service providers
- if the current year's income payments for the medical/dental/veterinary services
is P720,000 and below
- if the current year's income payments for the medical/dental/veterinary services
exceeds P720,000

EWT- payment to partners of general professional partnerships


-if the current year's income payments for the partner is P720,000 and below
-if the current year's income payments for the partner exceed P720,000
EWT- payments made by credit card companies
EWT- Income payments made by the government to its local/resident suppliers

1/2 of 1% WI 156 WC 156

1%

WI 640 WC 640

of Goods

109

NATURE OF INCOME PAYMENT

TAX
RATE

EWT- Income payments made by the government to its local/resident suppliers

ATC
IND

CORP

2%

WI 157 WC 157

1%

WI 158 WC 158

2%

WI 160 WC 160

15%

WI 159

10%

WI 515 WC 515

EWT - Gross payments to embalmers by funeral companies

1%

WI 530

EWT - payments made by pre-need companies to funeral parlors

1%

WI 535 WC 535

EWT- Tolling fee paid to refineries

5%

WI 540 WC 540

EWT- Income payments made to suppliers of agricultural products

1%

WI 610 WC 610

EWT- Income payments on purchases of minerals, mineral products & quarry resources

1%

WI 630 WC 630

of Services
EWT- Income payments made by top 10,000 private corporations to
their local/resident supplier of goods
EWT- Income payments made by top 10,000 private corporations to
their local/resident supplier of services
EWT- additional payments to government personnel from importers, shipping
and airline companies or their agents for overtime services
EWT- commission,rebates, discounts & other similar considerations paid/granted to
independent & exclusive distributors, medical/technical & sales representatives
& marketing agents & sub-agents of multi-level marketing companies

110

Company is a top 10,000 corporation. A manager of


the Company entertained a client and paid a
restaurant P 20,000 in cash
Manager should withhold 2% EWT
 Restaurants OR should be in the name of Company
 CWT certificate (BIR Form No. 2307) should be
issued by the Company in the name of the restaurant,
immediately.


111

 Payments to utility companies which are required to be


subjected to withholding tax shall likewise be subjected
to withholding tax even if the meter or billing statement
(e.g. electric or water meter or the telephone bill) is not
in the name of the payor, as long as there is valid proof
that payment of a particular expense is being
shouldered by the aforementioned payor (i. e. contract
between the registered user of the meter and the payor)
 Payments made by persons who are sharing portions of
the bill which is in the name of another person as long
as he is a duly constituted withholding agent and shall
only withhold on the portion of the expense being
shouldered by him.

112

1.

Filing of return and payment of taxes


withheld The return shall be filed and
the payment made within ten (10) days
following the end of the month. (Jan. 15

2.

for December)
Annual information returns Annual
information return containing the list of
payees, TIN, amount of income
payments and taxes withheld, must be
submitted not later than January 31.

113

3.

BIR forms
1601E Monthly remittance return of
creditable income taxes withheld (Expanded)
1604E Annual information return of
creditable income taxes withheld (Expanded)
2307 Certificate of creditable tax withheld
at source

114

EWT is computed based on the amount of


expense excluding the VAT
PROFESSIONAL FEE
VAT
TOTAL AMOUNT
LESS: EWT
PROFESSIONAL FEE
X EWT RATE
NET AMOUNT PAYABLE

50,000
6,000
56,000
50,000
10%

5,000
51,000

115

1.
2.
3.
4.

Nature (characteristics)
Coverage (persons liable)
Basis (transactions)
Rate (VAT percentage)

117

Value-added tax (VAT) is a tax on


consumption levied on the sale, barter,
exchange or lease of goods or properties and
services in the Philippines and on importation
of goods in the Philippines.
The seller is the one liable for the payment of
VAT.

118

Any person* who, in the course of his trade or


business, sells, barters, exchanges, or leases
goods or properties, or renders services.
The importer, in case of importation of taxable
goods, whether an individual or corporation, and
whether or not made in the course of his trade or
business.

* Person refers to any individual, trust, estate, partnership,


corporation, joint venture, cooperative or association.

119

1.

2.

3.

VAT covered subject to normal VAT


(output tax) and can claim VAT credits (input
tax).
Zero rated subject to zero (0%) output tax
and can claim input tax as tax credit or
refund.
VAT exempt not subject to output tax and
cannot claim input tax.

120

1.

2.

3.

Agricultural and marine food products in


their original state, and livestock and
poultry generally used in producing foods
for human consumption.
Fertilizers, seeds, seedlings and
fingerlings, fish prawn, livestock and
poultry feeds.
Personal and household effects of
residents returning from abroad.

121

4.

5.

Importation of professional instruments,


wearing apparel, domestic animals, and
personal household effects belonging to
persons coming to settle in the
Philippines for their own use and not for
sale.
Medical, dental, hospital, laboratory and
veterinary services (except those
rendered by professionals). Sale of drugs
and medicine is subject to VAT if the
hospital operates a pharmacy or drug
store.
122

6.
7.

8.
9.

Services by agricultural contract growers


and milling for others.
Educational services rendered by private
educational institutions duly accredited
by DepEd, CHED or TESDA.
Services pursuant to an employeremployee relationship.
Services rendered by regional or area
headquarters established in the
Philippines by multinational
corporations.
123

10.
11.

12.

Transactions which are exempt under


international agreements.
Sales by agricultural cooperatives duly
registered with the Cooperative
Development Authority (CDA).
Gross receipts from lending activities by
credit or multi-purpose cooperatives
duly registered with the CDA.

124

13.

14.

15.

Sales by non-agricultural, non-electric


and non-credit cooperatives duly
registered with the CDA and the capital
contribution of each member does not
exceed P15,000.
Export sale by persons who are not VAT
registered.
Sale of real properties not primarily held
for sale to customers or held for lease in
the ordinary course of trade or business.

125

16.
17.

18.

Lease of residential units with a monthly


rental per unit not exceeding P12,800.
Sale, importation, printing or publication
of books and any newspaper, magazine,
review or bulletin which appears at
regular intervals with fixed prices for
subscription and sale and which is not
devoted principally to the publication of
paid advertisements.
Sale, importation or lease of passenger
or cargo vessels and aircraft (including
parts).
126

19.

20.

21.

Importation of fuel, goods and supplies


by persons engaged in international
shipping or air transport operations.
Services of banks and non-bank financial
intermediaries subject to percentage tax
such as pawnshops and money changers.
Sale or lease of goods or properties or the
performance of services subject to
percentage tax (gross annual sales or
receipts does not exceed P1,919,500).

127

Types of zero-rated (0%) sales


1. Automatic zero-rated sales - there is no need to
secure an approved application for zero-rating
from the BIR in order for the sale to qualify as
zero-rated.
2. Effectively zero-rated sales - refer to the local
sale of goods and services by a VAT registered
person to a person or entity who was granted
indirect tax exemption under special laws or
international agreement. Requires an approved
application for zero rating from the BIR.
128

1.
2.

3.

Export sales
Foreign currency denominated sale to a
non-resident
Sale to person or entities deemed tax
exempt under special law or international
agreement

129

In the case of sales to persons or entities


granted special tax treatments such as a
PEZA-registered enterprise or an SBMAregistered enterprise, the benefit of
effective zero-rating shall apply only on
sales to such persons or entities operating
inside the restricted area of the Ecozone
or within the confines of the secured
perimeter of the Freeport Zone

130

All tangible and intangible objects including:


1.
Real properties held primarily for sale
2.
Patent, copyright, design or model, plan,
secret formula or process, goodwill,
trademark, trade brand
3.
Industrial commercial or scientific
equipment
4.
Motion picture films, films, tapes and discs
5.
Radio, television, satellite transmission and
cable television time

131

Real properties held primarily for sale to


customers or held for lease
Residential lot over P1,919,500 or house
and lot over P3,199,200
Sale on installment shall be subject to VAT
on the installment payments, including
interests and penalties received by the seller

132

Sale of real property by a real estate dealer


wherein the initial payments* on the year
of sale do not exceed 25% of the gross
selling price
Should the initial payments in the year of
sale exceed 25%, it shall be treated as cash
sale which makes the entire selling price
taxable in month of sale

* Initial payments means payments which the seller receives


before or upon execution of the instrument of sale and
payments scheduled during the year the sale was made.

133

Sale or exchange of services means the


performance of all kinds of services for others
for a fee, remuneration or consideration,
whether in kind or in cash, including the
following:
1. Construction and service contractors
2. Stock, real estate, commercial, customs,
and immigration brokers
3. Lessors of property
4. Warehousing services
5. Lessors or distributors of cinematographic
films

134

Sale or exchange of services


6. Milling, processing, manufacturing or
repacking of goods for others
7. Hotels, motels, rest houses, pension houses,
inns, resorts, theaters, and movie houses
8. Restaurants, refreshment parlors, cafes, and
other eating places including clubs and
caterers
9. Dealers in securities
10. Lending investors
11. Transportation contractors
135

Sale or exchange of services


12. Common carriers by air and sea
13. Sales of electricity by generation,
transmission, and/or distribution companies
14. Franchise grantees of electric utilities,
telephone and telegraph, radio and/or tv
broadcasting with annual gross receipts of
over P10M
15. Non-life insurance companies including
surety, fidelity, indemnity and bonding
companies

136

Sale or exchange of services


16. Similar services regardless of whether or
not the performance thereof calls for the
exercise or use of the physical or mental
faculties
17. Lease or use of any copyright, patent,
design or model, plan, formula or process,
goodwill, trademark, brand, or other
property or right
18. Lease or use of any industrial, commercial
or scientific equipment

137

Sale or exchange of services


19. Supply of scientific, technical, industrial, or
commercial knowledge of information
20. The supply of technical advice, assistance
or services, rendered in connection with
technical management or administration of
any scientific, industrial, or commercial
undertaking, venture, project or scheme
21. Lease or use of radio, TV, satellite
transmission and cable TV time

138

Input tax means the VAT due on or paid by


a VAT-registered person on importation of
goods or local purchases or goods,
properties, or services, including lease or use
of properties, in the course of his trade or
business.
Must be supported by a VAT invoice or official
receipt issued by a VAT-registered person.

139

OUTPUT TAX
Sales/receipts inclusive of VAT
Divide by: 100% + VAT rate
Sales/receipts excluding VAT
X VAT rate
LESS: INPUT TAX
Costs/expenses inclusive of VAT
Divide by: 100% + VAT rate
Costs/expenses excluding VAT
X VAT rate
VAT PAYABLE

11,200.00
112%
10,000.00
12%

1,200.00

8,400.00
112%
7,500.00
12%

900.00
300.00

140

Purchase of capital goods, which are


depreciable assets for income tax purposes.
Aggregate acquisition cost (exclusive of
VAT) refers to the total price agreed upon
(contract price) and not on payments
actually made.

141

1.

Acquisition cost does not exceed P1M:


- Input taxes will be allowable as credit in the
month of acquisition
OUTPUT TAX
LESS: INPUT TAX
On costs and expenses
Amount inclusive of VAT
Divide by: 100% + VAT rate
Amount excluding VAT
X VAT rate
On furniture and equipment
Amount inclusive of VAT
Divide by: 100% + VAT rate
Amount excluding VAT
X VAT rate
VAT PAYABLE

130,000.00

84,000.00
112%
75,000.00
12%

9,000.00

1,100,000.00
112%
982,142.86
12%

117,857.14

126,857.14
3,142.86

142

2.

Acquisition cost exceeds P1M:


- Input taxes shall be spread evenly over the life
of the asset
OUTPUT TAX
LESS: INPUT TAX
On costs and expenses
Amount inclusive of VAT
Divide by: 100% + VAT rate
Amount excluding VAT
X VAT rate
On furniture and equipment
Amount inclusive of VAT
Divide by: 100% + VAT rate
Amount excluding VAT
X VAT rate
Total input tax
Divide by: useful life (in months)
VAT PAYABLE

130,000.00

84,000.00
112%
75,000.00
12%

9,000.00

1,500,000.00
112%
1,339,285.71
12%
160,714.29
60

2,678.57

11,678.57
118,321.43

143

If the input tax exceeds the output tax, the excess


input tax shall be carried over to the succeeding
period
OUTPUT TAX
LESS: INPUT TAX
On costs and expenses
Amount inclusive of VAT
Divide by: 100% + VAT rate
Amount excluding VAT
X VAT rate
On furniture and equipment
Amount inclusive of VAT
Divide by: 100% + VAT rate
Amount excluding VAT
X VAT rate
Total input tax
Divide by: useful life (in months)
VAT PAYABLE (CREDITABLE)

10,000.00

84,000.00
112%
75,000.00
12%

9,000.00

1,500,000.00
112%
1,339,285.71
12%
160,714.29
60

2,678.57

11,678.57
(1,678.57)

144

If the input tax exceeds the output tax, the excess


input tax shall be carried over to the succeeding
period
OUTPUT TAX
LESS: INPUT TAX
Carried from previous period
On costs and expenses
Amount inclusive of VAT
Divide by: 100% + VAT rate
Amount excluding VAT
X VAT rate
On furniture and equipment
VAT PAYABLE (CREDITABLE)

12,000.00
1,678.57
50,000.00
112%
44,642.86
12%

5,357.14
2,678.57

9,714.29
2,285.71

145

The government or any of its political subdivisions,


instrumentalities or agencies, including GOCCs,
shall deduct and withhold a final VAT due of 5% of
the gross payment for purchase of goods and
services.
The 5% final VAT shall represent the net VAT
payable of the seller. The remaining 7% accounts
for the standard input tax for sale to government.
The difference between the actual input tax and the
7% shall be closed to income or expense.

146

Dr. Vicki Kho received the following amounts (exclusive of VAT) for the month:
From a government hospital
From a private hospital
Total receipts

40,000.00
86,511.60
126,511.60

32%
68%

The government hospital withheld the final VAT of 5% amounting to P2,000.


Total expenses for the month is P121,366 inclusive of VAT.

147

Computation of VAT Payable for the month:


Output tax (12% of total receipts)
Input tax:
On purchases (121,366/1.12 x 12%)
Less: Input tax closed to expense
Prorated input tax on sale to
government (13,003.50 x 32%)
Less: Assumed input tax on sale
to government (40,000 x 7%)
VAT due
Less: Creditable VAT from government hospital
VAT Payable

15,181.39
13,003.50

4,111.40
2,800.00
1,311.40

11,692.10
3,489.29
2,000.00
1,489.29

148

1.

2.

3.

A statement that the seller is a VATregistered person, followed by his TIN


The amount of VAT shall be shown as a
separate item in the invoice or receipt
(subject to penalty to P1,000 to P50,000
and imprisonment of 2-4 years)
If the sale is exempt from VAT, the term
VAT-Exempt Sale shall be written or
printed prominently on the invoice or
receipt
149

4.

5.

If the sale is subject to 0% VAT, the term


Zero-Rated Sale shall be written or
printed prominently on the invoice or
receipt
For sale of P1,000 or more to a VATregistered person, the name, address, and
TIN of the customer or client should be
indicated.

150

Monthly VAT return (BIR form no. 2550M)


20 days following the end of the month
Quarterly VAT return (BIR form no. 2550Q)
25 days following the close of the taxable
quarter
Quarterly summary list of sales and
purchases 30 days following the close of
the taxable quarter

151

Submission of summary list of sales and


purchases mandatory for all persons subject
to VAT (RR 1-2012)
Required information in the summary list of
sales:
1.
2.
3.
4.
5.
6.
7.

Registered name of the buyer


TIN of the buyer
Exempt sales
Zero-rated sales
Sales subject to VAT
Sales subject to final VAT withheld
Output tax
152

Required information in the summary list of


purchases:
1.
2.
3.
4.
5.
6.
7.
8.

Registered name of the seller


Address of the seller
TIN of the seller
Exempt purchases
Zero-rated purchases
Purchases subject to VAT
Purchases subject to final VAT withheld
Input tax

Shall be submitted through Compact DiskRecordable (CDR) medium


153

Thank You!

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