Things You Need to Know about Value Added Tax (VAT)

Tax can be confusing. At the basic, there is Percentage Tax or Value Added Tax; VAT registered and a Non-VAT registered tax payer. In the Philippines, managing tax matters can be really complicated. Several individuals and companies even hire Consultants/Accounting Firms to manage compliance reporting.

At JCL-BPO, we aim to educate our Clients and website visitors about Business and Finance including tax issues. In this article, we are focusing on Value Added Tax (VAT) with the objective of making it more understandable.

And if you find anything unclear from the items below, just send an inquiry via info@jclbpo.com and we will try our best to clarify it for you.

Basic Information about Value Added Tax

Any person or entity who is engaged in trade, business or in the practice of profession may be liable to business taxes (VALUE ADDED TAX (VAT) RA 9337 as implemented by RR 16-2005 as amended by RR 2-2007 and 4-2007).

Business tax can be either a Percentage tax or a Value Added Tax. Likewise, a taxpayer can be a VAT registered entity or a Non-VAT registered taxpayer. In this article, we will discuss the meaning of VAT, its background, objectives, how to compute VAT Payable and file the monthly and quarterly VAT returns.

 

What is a Value Added Tax?

 VAT (Value Added Tax) is simply a form of “Sales Tax” and “Tax on Consumption” levied on:

1. Sale of goods, properties and services

2. Importation of goods (An indirect tax imposed on sellers but actually shouldered by the buyers. Sellers act merely as tax collectors)

 

Background of Value Added Tax

Value-Added Tax (VAT) is a business tax levied on sale of certain goods, properties and services.VAT is a universal taxation system.VAT has various major and controversial amendments.

  • E.O. 273 – VAT Law (1988)
  • RA 7716 – known as the Expanded Value Added Tax(E-VAT), Implemented by RR 7-95
  • RA 8241 – known as the Improved Value Added Tax(IVAT), Implemented by RR 6-97
  • RA 8424 – Tax Reform Act as of 1997
  • RA 9337 – known as the New Expanded VAT Law; signed into law on May 24, 2005implemented by
  • RR 14-2005 on June 22, 2005temporarily restrained by Supreme Court and deferred indefinitely by RMC 30-2005Temporary Restraining Order (TRO) finally lifted by Supreme Court on October 18, 2005 and became effective Nov 1, 2005
  • RR 16 – 2005 supersedes RR 14-2005
  • RR amended by RR 2-2007 & 4-2007

 

Objectives of VAT

  • To broaden the tax base
  • To provide an audit trail
  • To simplify business taxation
  • To increase revenue

 

Who Are Liable for VAT?

The following persons or entities are required to file VAT returns:

  • Any person who in the course of trade / business / practice of profession sells goods, properties, renders service or lease properties
  • Whose Gross Sales / Gross Receipts for 12 months exceeds P1,919,500 (RR 16-2011, RR 3 -2012), as amended.
  • A person required to register as VAT taxpayer but failed to register
  • Importers

 

What are the transactions covered by VAT?

  • Sale or Exchange of Goods or Properties
  • Importation
  • Leasing of Properties (Real / Personal)
  • Sale of Services
  • Transactions Deemed Sales

 (Check our blog on Transactions covered by VAT)

 

Who may elect to register as VAT and what will be his liability?

  • Any person who is VAT-exempt under Sec. 4.109-1 (B) (1) (V) not required to register for VAT may, in relation to Sec. 4.109-2, elect to be VAT-registered by registering with the RDO that has jurisdiction over the head office of that person, and pay the annual registration fee of P500.00 for every separate and distinct establishment.
  • Any person who is VAT-registered but enters into transactions which are exempt from VAT (mixed transactions) may opt that the VAT apply to his transactions which would have been exempt under Section 109(1) of the Tax Code, as amended [Sec. 109(2)].
  • Franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding year do not exceed ten million pesos (P10,000,000.00) derived from the business covered by the law granting the franchise may opt for VAT registration. This option, once exercised, shall be irrevocable. (Sec. 119, Tax Code).
  • Any person who elects to register under optional registration shall not be allowed to cancel his registration for the next three (3) years.

The above-stated taxpayers may apply for VAT registration not later than ten (10) days before the beginning of the calendar quarter and shall pay the registration fee unless they have already paid at the beginning of the year. In any case, the Commissioner of Internal Revenue may, for administrative reason deny any application for registration. Once registered as a VAT person, the taxpayer shall be liable to output tax and be entitled to input tax credit beginning on the first day of the month following registration.

 

What are the BIR forms used in filing VAT Returns?

VAT returns are filed monthly and quarterly using the Monthly Value Added Tax Declaration Return BIR Form 2550M and the Quarterly Value Added Tax Declaration Return BIR Form 2550Q.

 

How to compute Value Added Tax Payable?

Before I show you how to compute VAT here are the definitions of terms:

  • Output tax means the VAT due on the sale, lease or exchange of taxable goods or properties or services by any person registered or required to register under Section 236 of the Tax Code.
  • Input tax means the VAT due on or paid by a VAT-registered on importation of goods or local purchase of goods, properties or services, including lease or use of property in the course of his trade or business. It shall also include the transitional input tax determined in accordance with Section 111 of the Tax Code, presumptive input tax and deferred input tax from previous period.

Total Vatable Purchases are your total purchases from VAT registered suppliers and should be supported with VAT receipts.

Value Added Tax Payable is normally computed as follows:

1.   Computing VAT payable on VAT exclusive Sales/Receipts:

Total Output Tax Due or Total Vatable Sales/Receipts x 12%
Less: Total Allowable Input Tax or Total Vatable Purchases x 12%
Equals: VAT Payable/ (Excess Input)

2.    Computing Net VAT Payable on VAT “inclusive” Sales/Receipts:

Total Output Tax Due or Total Vatable Sales / 1.12 x 12%
Less: Total Allowable Input Tax or Total Vatable Purchases / 1.12 x 12%
Equals: VAT Payable

 

Sample Computation of VAT Payable:

Assuming that, (figures are in Philippine peso)

 

Total Vatable Sales (VAT exclusive) 100,000.00
Total Vatable Purchases (VAT exclusive) 60,000,00

 

  1. Computing VAT payable on VAT exclusive Sales/Receipts

 

Total Output Tax Due or Total Vatable Sales/Receipts x 12%
Less: Total Allowable Input Tax or Total Vatable Purchases x 12%
Equals: VAT Payable/(Excess Input)

 

VAT Payable Computation:
Output (100,000 x 12%) 12,000.00
Input (60,000 x 12%) 7,200.00
VAT Payable 4,800.00

 

  1. Computing Net VAT Payable on VAT “inclusive” Sales/Receipts

Total Output Tax Due or Total Vatable Sales / 1.12 x 12%
Less: Total Allowable Input Tax or Total Vatable Purchases / 1.12 x 12%
Equals: VAT Payable

 

VAT Payable Computation:
Output (100,000/1.12 x 12%) 10,714.29
Input (60,000/1.12 x 12%) 6,428.57
VAT Payable 4,285.72

 

VAT exempt sales, zero rated sales, purchases not qualified for input tax, and other input taxes (if any)  should also be shown in the VAT returns. See BIR Forms for reference.

 

How, when and where to File VAT Returns?

  • Documentary Requirements

1. Duly issued Certificate of Creditable VAT Withheld at Source (BIR Form No. 2307), if applicable
2. Summary Alphalist of Withholding Agents of Income Payments Subjected to Withholding Tax At Source (SAWT), if applicable
3. Duly approved Tax Debit Memo, if applicable
4. Duly approved Tax Credit Certificate, if applicable
5. Authorization letter, if return is filed by authorized representative

  • Procedures

If there is Payment:

  • Fill-up BIR Form No. 2550M (for monthly VAT declaration) or 2550Q (for quarterly VAT declaration) in triplicate copies (two copies for the BIR and one copy for the taxpayer)
  • File the Monthly VAT declaration, together with the required attachments, and pay the VAT due thereon with any Authorized Agent Bank (AAB) under the jurisdiction of the Revenue District Office (RDO)/Large Taxpayers District Office (LTDO) where the taxpayer (head office of the business establishment) is registered or required to be registered.
  • Accomplish and submit BIR-prescribed deposit slip, which the bank teller shall machine validate as evidence that payment was received by the AAB. The AAB receiving the tax return shall stamp mark the word “Received” on the return and machine validate the return as proof of filing the return and payment of the tax.
  • In places where there are no duly accredited agent banks, file the Monthly VAT declaration, together with the required attachments and pay the VAT due with the Revenue Collection Officer (RCO) or duly authorized Treasurer of the Municipality where such taxpayer (head office of the business establishment) is registered or required to be registered.
  • The RCO or duly authorized Municipal/City Treasurer shall issue a Revenue Official Receipt upon payment of the tax.

If there is No Payment:

  • File the Monthly VAT Declaration, together with the required attachments with the RDO/LTDO/Large Taxpayers Assistance Division, Collection Agent or duly authorized Municipal/ City Treasurer of Municipality/City where the taxpayer (head office of the business establishment) is registered or required to be registered.
  • Deadline

For Manual Filing:

  • Monthly VAT returns BIR Form 2550M – Not later than the 20th day following the end of each month
  • Quarterly VAT returns BIR Form 2550Q – Within twenty five (25) days following the close of taxable quarter

For EFPS Filing:

Visit the BIR website for detailed and updated dates of deadlines.

References:

Disclaimer: New and subsequent BIR rulings, issuances and/or laws may render the whole or part of the article obsolete or inaccurate. For more information, please inquire or consult with the BIR.

 

By Joana Lagrosa, JCL-BPO Director for Operation


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