BUSINESS TAX: Value-Added Tax

 Privilege tax
 Imposed on the onerous transfer of products, property & service
 Exercised by Congress
 Not a tax on property, nor a tax on a person
 Regular conduct of commercial activity – concept and nature of business
o Requisites:
 Regularly undertaken
 Intended for profit
 Financial in character
EXCEPTIONS TO THE RULE
 Rule of Regularity Exception
o Single sale of services and goods rendered by an NRA in the PH – 12% VAT
o Sale of shares of stocks through the local stock exchange by one who is not a
security dealer – ½ of 1%
 Intended for Profit Exception
o Importation of goods for personal used – 12% VAT
o Privilege stores or tiangges – exempt business tax (cumulative of 15 days of
operation only)
 Rule of Regularity & for Profit Exception
o Subsistence livelihood – exempt business tax

BUSINESS REGISTRATION
VAT-REGISTERED NON-VAT REGISTERED
Gross sales/gross receipts of more than 3M Gross sales/gross receipts 3M and below
Optional registration Other Percentage Tax

ANNUAL REGISTRATION FEE

 Amount of P500.00
 Paid on or before the last day of January
 By EVERY separate and distinct establishment (Sales Outlet, Branch/Head Office,
Warehouse or storage places, Place of production)
 Exempt entities from Annual Registration Fee: Cooperative, Pure Compensation Earner,
Overseas workers, marginal taxpayers
o Note: Cooperatives are still required to register with the BIR

KINDS OF BUSINESS TAX

1. Transfer or Exchange Tax
a. VAT
b. OPT
2. Production Stage or Importations
a. Excise Tax or “SIN” Tax
- Ad Valorem Tax (based on SP or value of the goods)
- Specific Tax (based on unit of measurement)

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TAX BASE OF BUSINESS TAX
 Gross Selling Price – includes SP and all incidental expenses EXCEPT VAT & returns,
discounts and allowances
 Gross Receipts – includes all money actually or constructively received, deposits and
advance payments
 Landed Cost – invoice price of imported goods and all expenses of importation
incurred before the release of goods

TAXABLE BASE

GROSS SELLING PRICE (GSP) GROSS RECEIPTS (GR)

Sale of goods or properties Sale of Services or leases
Point of taxation Point of Taxation
Accrual Basis Cash Basis

ALLOWABLE DEDUCTIONS
1. Sales Returns and Allowances – credit or refund made during the month or quarter
2. Sales Discounts
o Granted at time of sale
o Expressly indicated in the invoice
o Formed part of the gross sales
o Not dependent on the happening of a future event

TAX BASE COMPUTATION

Sale of Goods Installment Sales of Real Property

Gross Sales xxx Selling Price HIGHER than FMV or ZV
Less: SRA xxx -Initial payments do not exceed 25% of the GSP
SD xxx (xxx)
Net Sales xxx Installment received xxx
Add: Excise Tax, if any xxx Add: Interest xxx
Tax Base xxx Other charges xxx xxx
Tax Rate: 12% or 0% Taxable Base xxx
Deferred Payment Plan or Cash Basis Tax Rate: 12% or 0%
-Initial payment exceed 25% of the GSP under
cash basis FMV or ZV HIGHER than SP
-Initial payment do not exceed 25% if the GSP
ℎ
Selling price stated in the sales docs or FMV or ( )
× (ℎ ℎ )
( )
ZV, whichever is the HIGHEST
Tax Rate: 12% or 0%
Tax rate: 12% or 0%
Sale of Services Dealer in securities
Cash Rec’d (Actual or Constructive) xxx Gross Selling Price xxx
Advance Payment for future projects xxx Less: AC of securities sold for the period xxx
Materials charged with the services xxx Balance xxx
Gross Receipts (excluding VAT) xxx Add: Other incidental income xxx
Tax Rate: 12% or 0% Gross Receipts xxx
Tax Rate: 12% or 0%

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 Importation (In general) In Case Custom Duties based on Volume or
Quantity
Total Value (Dutiable) xxx Total Landed Cost* xxx
Add: Custom Duties xxx Add: Excise Tax xxx
Excise Tax xxx Tax Base xxx
Other charges prior to release xxx Tax Rate: 12%
Tax Base xxx
Tax Rate: 12% *Landed Cost = Invoice Amount + Custom
Duties + Freight + Insurance + Other Charges

VAT PAYABLE
Output Tax xxx
Less: Input Tax (xxx)
VAT Payable xxx
Tax Input Rae: 12% or 2% or 4% or 5% Final VAT or 7% SIV

PERSONS LIABLE
1. Any person who, in the course of trade or business
o Sells, barters or exchanges goods or properties (seller or transferor)
o Leases goods or properties (lessor)
o Renders services (service provider)
2. Import goods (importer

VALUE-ADDED TAX
1. Onerous tax 3. Indirect tax
2. Privilege tax 4. Cumulative
Notes:
PRINCIPLES UNDER VAT -Sales Document – there should be a
breakdown to be allowed to claim for
1. Origin Principle – situs: country of production
creditable input VAT
2. Destination Principle – situs: country of consumption - If dutiable value is used, disregard the
3. Cross Border Doctrine invoice price amount
-Seller – statutory taxpayer – to remit the
VAT
IMPORTANCE OF REGISTRATION UNDER VAT SYSTEM -Buyer – economic taxpayer
General Rule: Temporary closure minimum of 5 days -The lesser the no. of stages, the lesser the
Exception: Does not apply to an exporter price of goods
Effect: treated as exempt instead of zero-related transaction
Difference: Availability of tax credit (in zero-related, allowed)

TYPES OF BUSINESS TRANSACTIONS

VAT-Taxable Transactions a. Allowed with creditable input VAT

b. Not allowed with creditable input VAT
Zero-VAT Rated Transactions
VAT-Exempt Transactions a. Exempt from OPT
b. Subject to OPT
Transactions with Government Units

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VAT TAXABLE TRANSACTIONS ALLOWED WITH CREDITABLE INPUT VAT (12%)

Transactions of VAT-registered business

1. Sale, barter, or exchange of good or 3. Importation of goods
property 4. Sale of services & use or lease of
2. Transactions deemed sale properties

Transactions deemed sale

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-registered person
b. Creditors in payment of debt or obligation
3. Consignment of goods if actual sale is not made within 60 days following the date such
goods were consigned
4. Retirement from or cessation of business with respect to inventories of taxable goods
existing as of such retirement or cessation
a. Change of ownership (single proprietorship incorporates, single proprietor sells
entire business)
b. Dissolution/creation of new partnership

VAT on Importation
All subject to 12% VAT Creditable as Input VAT
Importation by VAT person for business use Yes
Importation by VAT person for personal use No
Importation by non-VAT person for business use No
Importation by non-VAT person for personal use No

VAT TAXABLE TRANSACTIONS NOT ALLOWED WITH CREDITABLE INPUT VAT

Transactions of VAT-registrable business

1. Non-VAT franchise grantees of radio/television broadcasting with annual gross
receipts of more than P10M
2. Local payments of rent of vessel or carriers owned by non-resident of foreign entity
3. Importations (personal use or business use as Non-VAT/Registrable)

ZERO-VAT RATED TRANSACTIONS

 Sales that are subject to output VAT rate of 0%
 Mainly exports sales by VAT-registered person
 The actual input VAT available as tax credit or tax refund
 Tax rate: Output Tax – 0% ; Input Tax – 12%

CLASSIFICATION OF ZERO-VAT RATED TRANSACTIONS

1. Export sales of goods or services
2. Foreign currency denominated sales (Removed from 0% rated, RA 10963)
3. Effectively zero-rated sales

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EXPORT SALES OF GOODS OR PROPERTIES
1. Sale and actual shipment of goods from the PH to a foreign country
2. Sale of gold to BSP (Now EXEMPT, RA10963)
3. Sale of goods, supplies, equipment and fuel to persons engaged in international
shipping or air transport operations
a. Provided above items are used for international shipping and air transport
operations (RA10963)
4. Sale of raw materials or packaging materials:
a. To a nonresident buyer for deliver to a resident to a resident local export-
oriented enterprise
b. To export-oriented enterprise whose export sales exceed 70% of total annual
production
5. Export sales under EO No 226 (Omnibus Investment Code of 1987)
a. Shall be subject to 12% VAT by year 2020 upon establishment of
implementation of a VAT refund system granting refund of creditable input VAT
with 90 days from filing of VAT refund application & all pending VAT refund
claims as of Dec. 31, 2017 shall be fully paid in cash by Dec 31, 2018 (RA 10963)

EXPORT SALES UNDER EO NO 226 (OMNIBUS INVESTMENT CODE OF 1987)

1. Sales to bonded manufacturing warehouses of export-oriented manufacturers
2. Sales to export processing zone
3. Sales to foreign military bases, diplomatic missions, and/or instrumentalities granted
with tax immunities of locally manufactured, assembled or repacked products whether
paid for foreign currency or not
4. Sales to nonresident Filipinos & “balikbayans” paid for in foreign currency inwardly
remitted thru the PH banking system
5. Commission income on export sales of export registered trader
6. Consigned goods actually sold by foreign consigness

EXPORT SALE OF SEVICES OR LEASE OF PROPERTIES

1. Processing, manufacturing, or repacking of goods for persons doing business outside
the PH subsequently exported (timeline from 0% to 12% VAT by 2026)
2. Services other than No.1
a. To a person engaged in business conducted outside the PH
b. To a non-resident person not engaged in business who is outside the PH where
the services are performed
3. Services rendered to persons engaged in international shipping or air transport
operations including lease of property for use thereof
a. Must be exclusively for international operations
4. Transport of passengers and cargo by domestic air or sea carriers only from the PH to
foreign country
5. Services performed by subcontractor and/or contractors in processing or converting
goods for an enterprise where export sales exceeds 70% of total annual production
(timeline from 0% to 12% VAT by 2026)
6. Sale of electricity by generation companies, transmission by any entity, and distribution
companies, including electric cooperatives (RA 10963)

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EFFECTIVELY ZERO-RATED SALES
 No actual export
 Considered as constructive export
 Local sale of VAT-registered person
 To a person/entity granted indirect tax exemption under special laws or international
agreement

Enterprises duly registered & accredited with:

1. Subic Bay Metropolitan Authority
2. Philippine Economic Zone Authority
3. Clark Development Authority
International Agreement
1. Asian Development Bank
2. International Rice Research Institute

AUTOMATIC vs EFFECTIVELY ZERO-RATED SALES

Requirements
Transactions
Filing/Approval of BIR Stamping of word “zero-rated”
Automatic No No
Effectively Yes Yes

VAT-EXEMPT TRANSACTIONS (Subject to OPT)

 Tax on persons exempt from VAT under Sec 109 of the Tax Code
 In general: Businesses with annual gross sales or receipts NOT EXCEEDING P3M
(RA10963)

PERSONS OR BUSINESSES SUBJECT TO OPT

1. Persons exempt from VAT under Sec. 109 3%
2. Domestic carriers by land, air or water and transport passengers for hire,
3%
and keepers of garages
3. International carriers, air shipping doing business in the PH 3%
4. Franchise holders or grantees in respect to franchise on radio and//or
television broadcasting companies, whose annual gross receipts of the 3%
preceding year not exceed P10M
5. senders of overseas messages 10%
6. Banks and non-bank financial intermediaries performing quasi-banking
5% or 1%
functions
7. Other non-bank financial intermediaries 5% or 1%
8. Life insurance companies 2%
9. Agents of foreign insurance companies 10%
10. Proprietors, lessees, or operators of amusement places 18% or 10%

VAT-EXEMPT TRANSACTIONS (ALSO EXEMPT FROM OPT)

 Not subject to 12% output vat
 Also not subject to other percentage tax
 Cannot claim any creditable input VAT
 Export sales of non-VAT registered business

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  Importation
 VAT-exempt transactions under Sec. 109

VAT-EXEMPT TRANSACTIONS
1. Sale or importation of
a. Agricultural/marine food products in their original state
b. Livestock/poultry generally used as or producing foods for human
consumption
c. Breeding stock and genetic materials therefore
2. Sale or importation of
a. Fertilizers, seeds, seedlings & fingerlings
b. Fish, prawn, livestock/poultry feeds including ingredients, whether locally
produced or imported used in the manufacture or finished feeds EXCEPT
specialty feeds for race horses, fighting cock, aquarium fish, zoo animals and
other animals generally considered as pets
3. Importation of personal and households effects belonging to:
a. Residents of the PH returning from abroad
b. Non-resident citizens coming to resettle in the PH PROVIDED such goods are
exempt from custom duties under the Tariff and Customs Code of the PH
4. Importation of professional instruments and implements wearing apparel, domestic
animal, and personal household effects belonging to:
a. Persons coming to settle in the PH for their own use and not for sale or
exchange
b. Accompanying such persons on arriving within 90 days before or after their
arrival
c. Overseas Filipinos and their families and descendants who are now residents or
citizens of other countries
Except any vehicle, vessel, aircraft, machinery and other goods for use in the
manufacture and merchandise of any kind in commercial quantity
5. Services subject to percentage tax
6. Services by agricultural contract growers and milling for others of palay into rice, corn
into grits, sugar cane into raw sugar
7. Medical, dental, hospital and veterinary services except those rendered by
professionals
8. Services rendered by individual pursuant to an employer-employee relationship
9. Educational services rendered by private education institutions duly accredited by
DepEd, CHED, TESDA and those rendered by government educational institutions
10. Services rendered by regional or area HQ established in the PH by multinational
corporations which:
a. Act as supervisory, communications, and coordinating centers or their affiliates,
subsidiaries or branches in the Asia Pacific Region; and
b. Do not earn or derive income from the PH
11. Transactions which are exempt under international agreements to which the PH is a
signatory
12. Gross receipts from lending activities by credit or multi-purpose cooperatives duly
registered & in good standing with the CDA

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13. Sales by agricultural cooperatives duly registered and in good standing with the CDA
to their members, as well as
a. Sale for their produce, whether in its original state or processed form to
nonmembers
b. Their importation of direct form inputs, machineries and equipment, including
spare parts thereof
To be used directly and exclusively in the production and/or processing of their
produce
Products Sold Sale to Members Sale to nonmembers
Sale of coop’s own produce EXEMPT EXEMPT
Other than coop’s own produce
EXEMPT Subject to VAT
(e.g. from traders)
Sale of agricultural food products in
their original state (irrespective of EXEMPT EXEMPT
seller and buyer)
14. Sale by non-agricultural, non-electric and non-credit cooperatives duly registered with
and in good standing with the CDA. PROVIDED:
a. Share capital contribution of each member does not exceed P15,000
b. Regardless of the aggregate capital and net surplus ratably distributed among
the members
Importation of the machineries and equipment, including spare parts thereof, to
be used by them are SUBJECT TO VAT
15. Export sales by persons who are non-VAT registered
16. Sale, importation, printing or publication of books and any newspaper, magazines,
review or bulletin
a. Which appears at regular intervals
b. With fixed prices for subscription and sale
c. Which is not devoted principally to the publication of paid ads
17. The following sales of real properties are exempt from VAT
a. Not primarily held for sale to customers or held for lease in the ordinary course
of trade or business
b. Sale of real properties utilized for low-cost housing, only until Dec. 31, 2020 per
RA 10963 (price ceiling per unit of P2M)
c. Sale of real property utilized for socialized housing (price ceiling per unit of
P800T)
d. Sale of:
i. Residential lot valued at P1,919,500 & below (Until Dec 31, 2020 only,
RA 10963)
ii. House and lot and other residential dwelling valued at P2M and below
Instrument of sale/transfer/disposition executed on or after July 1, 2005.
18. Lease of residential units
a. Monthly rental not exceeding P15,000 per unit (Revised RA 10963)
b. Regardless of the amount of aggregate rentals received by the lessor during
the year
19. Transport of passengers by international carriers
20. Importation of fuel, goods and supplies by persons engaged in international shipping
or air transport operations – must be exclusively for international operations

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 RULE ON IMPORTATION BY INTERNATIONAL CARRIERS
o Used exclusively to transport goods and or passengers from PH to a foreign
port
o No docking or stopping to any other PH port UNLESS the purpose of docking
or stopping:
 Unloading passengers or cargoes originated from abroad
 Load passengers/cargoes bound for abroad PROVIDED if any of the
portion of such fuel, goods and supplies are used for purposes other
than above, subject to 12% VAT
21. Sale, importation or lease of passenger or cargo vessels and aircraft including engine,
equipment and spare parts thereof for domestic and or international transport
operations:
a. Limited to 150 tons and above, including engine and spare parts of said vessels
b. Comply with the age limit requirement, at the time of acquisition counted from
the date of the vessel’s original commissioning
Age Limit Requirement of Imported Vessel
Passenger/cargo vessel 15 years old
Tankers 10 years old
High-speed passenger crafts 5 years old
EXEMPTION: subject to the provisions of The Domestic Shipping Development Act

22. Importation of life-saving equipment, safety and rescue equipment and

communication and navigational safety equipment, steel plates, capital equipment,
machinery, spare parts, and other metal plates including marine-grade aluminum
plates
a. Used for shipping transport operations
b. Used in the construction, repair, renovation, or alteration of any merchant
marine vessels operated or to be operated in the domestic trade
23. Services of banks, non-bank financial intermediaries performing quasi-banking
functions and other non-bank financial intermediaries (i.e. money changer, pawnshops)
24. Sale or lease of goods or properties or the performance of the services other than the
transaction mentioned in the preceding paragraphs, the gross annual sales and or
receipts do not exceed P3M
25. VAT on purchase of specified goods and services by a senior citizen and persons with
disabilities
26. Association dues, membership fees and other assessments and charges collected by
home-owner associations and condominium corporations (RA 10963)
27. Transfers of property pursuant to Sec. 40 (C) (2) – RA10963
28. Sale of gold to BSP (RA 10963 revision from 0% to exempt)
29. Sale of drugs and medicines prescribed

TRANSACTIONS WITH GOVERNMENT UNITS

 PH Govt
 Political Subdivisions, instrumentalities
 Govt agencies
 GOCCs

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 Business Taxes Withheld Creditable Withholding Tax
1. Final Tax of 5% 1.Purchase of goods – 1%
2. OPT of 3% 2.Purchase of services – 2%

Illustration:
Sales 250,000.00
Add: VAT (250k*12%) 30,000.00
Total 280,000.00
Less: Final W/holding Tax (5%) ( 12,500.00)
CWT on Sales (1%) ( 2,500.00)
Net Amount 265,000.00

FINAL WITHHOLDING TAX (5%)

 Represents the net VAT payable of the seller
 Creditable against the VAT payable

STANDARD INPUT VAT (7%)

 Input tax directly attributable to VAT Taxable Sales with govt units
 In lieu of the actual input vat (AIV, 12%) directly attributable or ratable apportioned to
such sales
 Not credited against output taxes from sales to non-government entities

TREATMENT OF DIFFERENCE BETWEEN AIV AND SIV

 AIV>SIV
o Excess may form part of seller’s cost or expense
Sales 250,000.00
Output VAT (250k*12%) 30,000.00
Purchases 175,000.00
Output VAT (175k*12%) 21,000.00

The NET VAT PAYABLE is determined as follows:

Output VAT 30,000.00
Less: AIV 21,000.00
SIV (250k*7%) 17,500.00 ( 17,500.00)
Inc. & Exp. Summary 3,500.00
VAT Payable 12,500.00
Less: CWT - Final VAT (250k*12%) ( 12,500.00)
Net VAT Payable -

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  AIV<SIV
o Difference shall be closed to Income and Expense account as taxable income
or to the COS
Sales 250,000.00
Output VAT (250k*12%) 30,000.00
Purchases 125,000.00
Output VAT (175k*12%) 15,000.00

The NET VAT PAYABLE is determined as follows:

Output VAT 30,000.00
Less: AIV 15,000.00
SIV (250k*7%) 17,500.00 ( 17,500.00)
Inc. & Exp. Summary 3,500.00
VAT Payable 12,500.00
Less: CWT - Final VAT (250k*12%) ( 12,500.00)
Net VAT Payable -

TYPES OF FINAL WITHHOLDING VAT

Transaction Withholding Agent Withholding VAT Rate
Govt, political subdivisions, 5% of gross payment made
Purchase of goods
agencies, GOCCs (Final)
Govt, political subdivisions, 5% of gross payment made
Purchase of services
agencies, GOCCs (Final)
Govt, political subdivisions,
Payments for services
agencies, GOCCs, private
rendered in the PH by a 12% Finals
corporations, individuals,
non-resident
estates

Effective Jan 1, 2021 (RA 10963 Revision)

 VAT Final withholding system shifts to creditable system
 Payments for purchases of goods and services arising from Official Development
Assistance funded projects NOT subject to Final WTx

INPUT TAX
Value-added tax due from or paid by VAT registered person in the course of his trade
or business on:
1. Local purchases of goods or properties
2. Local purchase of services
3. Importation of goods
4. Lease or use of properties

CATEGORIES OF INPUT VAT

1. Local purchase of goods and 3. Standard Input Tax
services 4. Purchase of equipment and capital
2. Importation of goods goods

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 5. Presumptive input tax 7. Excess of input over output VAT
6. Transitional input tax

PERSONS WHO CAN AVAIL OF CREDITABLE INPUT VAT

1. To the importer upon payment of VAT prior to the release of goods from custom
custody
2. To the purchaser of the domestic goods or properties upon consummation of the sale
3. To the purchaser of services or the lessee or licensee upon payment of the
compensation, rental, royalty or fee.

DETERMINATION OF ALLOWABLE INPUT VAT

Input tax carried over from previous period xxx
Input tax deferred on capital goods exceeding P1M from previous quarter xxx
Transitional Input Tax xxx
Presumptive Input Tax xxx
Others (SIV, W/holding VAT, Advance payment of VAT) xxx
Total xxx
Input Taxes on Current Transactions xxx
TOTAL AVAILABLE INPUT TAXES xxx
Less: Deductions from Input Taxes (xxx)
TOTAL ALLOWABLE INPUT TAXES xxx

SOURCES OF CREDITABLE INPUT VAT

A. Passed-on VAT
1. Purchase or Importation
a. For sale
b. For conversion into or to form part of a finished product for sale including
packaging materials
c. For use as supplies in the course of trade or business
d. For use as raw materials supplied in the sale of services
e. For use in trade or business for which deduction for depreciation or
amortization is allowed
Input Tax evidence by a VAT invoice or official receipts issued by a VAT-registered
2. Purchase of real properties for which a VAT has actually been paid
3. Purchase of services in which a VAT has actually been paid
4. Transactions deemed sale
5. Presumptive input tax
6. Transitional input tax
Input tax evidenced by a VAT invoice or actual receipts issued by a VAT-registered

VAT-registered person engaged in a mixed business transactions allowed to recognize input

tax credit on transactions subject to VAT
1. All input taxes directly attributable to transactions subject to VAT
2. Pro-rata input tax to the VAT taxable and VAT exempt transactions as follows
×

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CLAIM FOR INPUT TAX ON DEPRECIABLE GOODS
 Requisites:
o A VAT-registered person purchases or imports capital goods which are
depreciable goods for income tax purposes
o Aggregate acquisition cost of which (exclusive of VAT) in a calendar month
exceeds P1M
o Regardless of the acquisition cost of each capital good

MANNER OF CLAIMING INPUT TAX ON DEPRECIABLE ASSETS (w/c AC does not exceed P1M)
Total input taxes will be allowable as credit against output tax in the month of
acquisition.

AGGREGATE ACQUISITION COST OF A DEPRECIABLE ASSET IN ANY CALENDAR MONTH

Refers to the total price, excluding VAT, agreed upon for one or more assets acquired
and not on the payments actually made during the calendar month.

ACCOUNTING TREATMENT
1. Estimated UL of a Capital Good is 5 years or more
a. Input Tax spread evenly over a period of 6 months.
b. Commenced in the calendar month when the capital good was acquired
2. Estimated UL is less than 5 years
a. Input tax spread evenly on monthly basis by dividing the input by the ACTUAL
number of months comprising the estimated UL of the capital good
b. Commenced in the calendar month when the capital good was acquired

Amortization allowed only until December 31, 2021 (RA 10963)

Manner of claiming it on DA
Beginning Jan 2022, unutilized input VAT shall be allowed to apply the same as
schedule until fully utilized

MANNER OF CLAIMING INPUT TAX ON DEPRECIABLE ASSET

 If the depreciable capital good is sold/transferred within the period of 5 years or prior
to the exhaustion of the amortizable input, entire unamortized input tax on the capital
goods sold/transferred can be claimed as input tax credit during the month or quarter
when the sale or transfer was made

MANNER OF CLAIMING INPUT TAX ON CIP

 Cost of construction work which is not yet completed
 Not depreciated until the asset is placed on service
 Upon completion, CIP is reclassified and the reclassified asset is capitalized and
depreciated
 Option A
o Considered as a purchase of service
o Value shall be determined based on the progress billings
 Option B
o Until such time the construction has been completed it will not qualify as capital
goods

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 o Input tax credit can be recognized in the month the payment was made
o Provided, an official receipt of payment has been issued based on the progress
billings

CONTRACT FOR THE SALE OF SERVICE

 Where only labor will supplied by the contractor
 Materials purchased by contractee from other suppliers
Applicable Input Tax Date
On labor contracted On the month payment was made based on progress billings
On materials purchased At the time the material was purchased

B. PRESUMPTIVE INPUT TAX

 Persons allowed:
1. Processors of sardines, mackerel, and milk
2. Manufacturers of refined sugar and cooking oil
3. Manufacturer of packed noodle-based instant meals
 Basis: Gross value in money of purchases of primary agricultural products used as
inputs for their productions
 Rate of PIV: 4%

C. TRANSITIONAL INPUT TAX

 Persons allowed
1. Taxpayers who become VAT-registered upon exceeding the minimum turnover of
P3M in any 12-month period
2. Voluntarily registered even if their turnover does not exceed P3M (except franchise
grantees of radio and TV broadcasting whose threshold is P10M)
 Basis: Value of Beg. Inventory of goods, materials and supplies on hand (excluding those
that are VAT exempt under Sec 109)
 Rate of TIV: 2%
 Limit: 2% or Actual VAT paid, whichever is higher
 Entitled to a TIV on the inventory on hand as of the effectivity of their VAT registration
1. Goods purchased for resale in their present condition
2. Materials purchased for further processing but which have not yet undergone
processing
3. Goods which have been manufactured by the taxpayer
4. Goods in process for sale
5. Goods and supplies for use in the course of the taxpayer’s trade or business as a
VAT-registered person

CLAIMS FOR REFUND/TAX CREDIT CERTIFICATE

 Who may avail?
Vat registered person whose sale of goods or services are zero-rated or
effectively zero-rated.
 Amount claimed
Shall exclude the portion of the input tax that has been applied against the
output tax

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 Prescriptive period: Within 2 years after the close of the taxable quarter when the sales
were made.

 Who may avail?

VAT-registered person whose registration has been cancelled due to (1)
retirement or cessation of business (2) due to change in or cessation of status

 Prescriptive period
Within 2 years from the date of cancellation

 Period of refund or Tax Credit of Input Tax

Granted within 90 days from the date of submission of complete documents
(from 120 days to 90 days under RA 10963)

 Failure to act on application within prescribed period

Penalty for failure shall be imposed on any official agent or employee of BIR
(RA10963)

 Where to claim refund or TCC

o Appropriate BIR office having jurisdiction over the principal place or business
of the taxpayer
o Direct exporters: may file their claim for TCC with the One Stop Shop Center of
the DOF
o Filing of the claim with one office shall preclude the filing of the same claim
with another office

 Full or partial denial on claim for tax refund of

o Commissioner must state in writing the legal basis for the denial
o Taxpayer appeals decisions with CTA within 30 days from the receipt of denial
decision (RA10963)

Special Notes
 Silent, accredited by CHED, DepEd, TESDA
 Silent, exclusive of VAT
 Inclusive if expressly told
 CWT and Final Withholding VAT – based on the Sales Price
exclusive of VAT
 Final Withholding VAT – creditable only against the VAT
Payable
 SIV (7%) – creditable input vat against output VAT (for govt
transactions only)
 Difference between AIV and SIV – additional income in the
income tax or additional allowable deduction in the income tax
 1% and 2% - creditable withholding tax against the income tax
payable, part of the expanded creditable withholding tax

BA128_NotesOnVAT | ldraganit98