 The Tax Reform for Acceleration and Inclusion (TRAIN) Act, officially cited as Republic Act No.

10963:

- The TRAIN Act is the initial package of the Comprehensive Tax Reform Program (CTRP) signed into
law by President Rodrigo Duterte on December 19, 2017.

- The TRAIN Act is the first of four packages of tax reforms to the National Internal Revenue Code
of 1997, or the Tax Code, as amended.

- This package introduced changes in personal income tax (PIT), estate tax, donor's tax, value
added tax (VAT), documentary stamp tax (DST) and the excise tax of tobacco products,
petroleum products, mineral products, automobiles, sweetened beverages, and cosmetic
procedures.

- Note: The following discussions on business taxes are based on TRAIN LAW.

 Business tax is a tax imposed on the onerous transfer of product, property, and service.

 Onerous transfer means there is a monetary consideration involved in transfer of goods or

services between the owner and the buyer.

ONEROUS TRANSFER – subject to business tax… Value added tax, percentage tax and excise tax.

GRATUITOUS TRANSFER – subject to transfer tax… Estate tax and donor’s tax.

TYPES OF BUSINESS TAXES

Value-added Taxes

 Is a business tax imposed and collected from the seller in the course of trade or business on every
sale of properties (real or personal) lease of goods or properties (real or personal) or vendors of
services.

 It is an indirect tax thus, it can be passed on to the buyer.

 Value-Added Tax is imposed on the following:

Sale of goods or properties in the ordinary course of business.

Sale of services and use or lease of properties in the ordinary course of business.

Importation of goods or properties whether or not in the course of business or trade.

Percentage Taxes
  Is a business tax imposed on persons or entities who sell or lease goods, properties or services in
the course of trade or business whose gross annual sales or receipts do not exceed the amount of
three million pesos (P3,000,000) and are not VAT-registered.

Excise Taxes

 Is a tax imposed on goods manufactured or produced in the Philippines for domestic sale or
consumption or any other disposition. It is also imposed on things that are import.

Notes:

Value-added tax and Excise tax may be imposed simultaneously on the manufacture and importation of
products.

Value-added tax and Percentage tax cannot be imposed at the same time. It is either that the sale is
subject to Vat, or subject to percentage tax, or not subject to any of the two taxes at all.

The phrase “in the course of trade or business” means the regular conduct or pursuit of a commercial
or an economic entity, including transactions incidental, thereto, by any person engaged therein is a
non-stock, non-profit private organization or government entity,

Value Added Tax

 Value-Added Tax (VAT) is a form of sales tax. It is an indirect tax, which may be
shifted or passed on to the buyer, transferee or lessee of goods, properties or services.
It 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 into the
Philippines. 

 What is a sale, barter, or exchange?

A sale is the transfer of ownership of property in consideration of
money received or to be received.
A barter or exchange is the transfer of ownership of property in
consideration of property received or to be received.

It is imposed on the value added in each stage of distribution.

The Persons Required to File VAT Returns

The Taxpayer
  Any person or entity who, in the course of his trade or business, sells, barters, exchanges,
leases goods or properties and renders services subject to VAT, if the aggregate amount of
actual gross sales or receipts exceed Three Million Pesos (Php3,000,000.00)

 A person required to register as VAT taxpayer but failed to register

 Any person, whether or not made in the course of his trade or
business, who imports goods

Rate and Base of Tax.

- There shall be levied, assessed and collected on every sale, barter or exchange of
goods or properties, value-added tax equivalent to twelve percent (12%) of the gross
selling price or gross value in money of the goods or properties sold, bartered or
exchanged, such tax to be paid by the seller or transferor.

Gross Selling Price

 The term “gross selling price” means the total amount of money or its equivalent which the
purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or
exchange of the goods or properties, excluding the value-added tax.

 The excise tax, if any, on such goods or properties shall form part of the gross selling price.

COVERAGE OF THE VALUE ADDED TAX

 VAT on sale of goods or properties

 VAT on transactions deemed sales

 VAT on sale or exchange of services

 VAT on importation of goods

 VAT on sale of goods or properties

Goods or properties shall mean all tangible and intangible objects, which are capable of pecuniary
estimation and shall include, among others:

 Real properties held primarily for sale to customers or held for lease in the ordinary course of
trade or business;

Sale of Real Properties

TRAIN imposed the following on VAT exemption provisions regarding real estate transactions:
a) Real properties not primarily held for sale to customers or for lease in the ordinary course of trade
or business, and properties utilized for socialized housing shall be exempted from VAT.

b) Previously at Php1,919,500, TRAIN lowered the VAT exemption of residential lots to

Php1,500,000.

This means residential lots that were previously tax exempt (worth Php1,500,001 to Php1,919,500) are
now subject to VAT.

c) TRAIN also lowered the VAT exemption of residential dwellings (house and lots, condominiums)
from Php 3,199,200 to Php 2,500,000.

This means houses and condos that were previously tax exempt (worth Php2,500,001 to
Php3,199,200) are now subject to VAT.

Further, effective January 1, 2021, the exemption shall be lowered again from Php2,500,000 to
Php2,000,000, and every three years thereafter, the amount stated shall be adjusted to its present
value using the Consumer Price Index (CPI) as published by the Philippine Statistics Authority (PSA).

d. Lease of residential unit with a monthly rental not exceeding P15,000 shall be exempted from VAT.

 The basis of VAT on taxable sale of real property is gross selling price, which is either selling
price stated in the sale document or the fair market value whichever is higher.

 The term fair market value shall mean whichever is higher of

a. The fair market value as determined by the Commissioner, (zonal value) or

b. The fair market value as shown in the schedule of values fixed by the provincial and
city assessors.

 If the VAT is not billed separately, the selling price stated in the sales documents shall be
deemed to be inclusive of VAT.

 If the gross selling price is based on the zonal value or market value of the property, the zonal
value or market value shall deemed exclusive of VAT.

 The right or the privilege to use patent, copyright, design or model, plan, secret formula or
process, goodwill, trademark, trade brand or other like property or right;

 The right or privilege to use in the Philippines of any industrial, commercial or scientific
equipment;

 The right or the privilege to use motion picture films, films, tapes and discs; and

 Radio, television, satellite transmission and cable television time

Sales Returns, Allowances and Sales Discounts.

- The value of goods or properties sold and subsequently returned or for which allowances were
granted by a VAT- registered person may be deducted from the gross sales or receipts for the
quarter in which a refund is made or a credit memorandum or refund is issued.
 - Sales discount granted and indicated in the invoice at the time of sale and the grant of which
does not depend upon the happening of a future event may be excluded from the gross sales
within the same quarter it was given.

VAT Exclusive method formula:

Gross Sale/Gross Receipt (excluding VAT) x 12% = VAT

VAT Inclusive method formula:

Invoice Price/Invoice Receipt (excluding VAT) x (12/112) = VAT

 VAT on transactions deemed sales

The following transactions shall be 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 as share in the profits of the VAT-registered persons; or

(b) Creditors in payment of debt;

(3) Consignment of goods if actual sale is not made within sixty (60) days following the date such
goods were consigned. Consigned
goods returned by the consignee within
the 60-day period are not deemed sold
(4) Retirement from or cessation of business, with respect to
all goods on hand, whether
capital goods, stock-in-trade, supplies or materials as of the date of
such retirement or cessation, whether or not the business is continued
by the new owner or successor.

The following circumstances shall, among others, give rise to

transactions "deemed sale"
o Change of ownership of the business. There is a change
in the ownership of the business when a single
proprietorship incorporated; or the proprietor of a single
proprietorship sells his entire business
 o Dissolution of a partnership and creation of a new
partnership which takes over the business.
Illustration:

 Mr. A sells household furniture.  He removed from his store a dining

set for use in his residential house. This is deemed a sale.
 B Corp. declared and paid property dividend out of its merchandise
inventory.  This is deemed a sale.
 Mr. C is indebted to Mr. D for raw materials purchased. When Mr. C
could not pay in money, Mr. D agreed to receive the finished goods
of Mr. C in payment for his debt.  This is deemed a sale.
 E Company, a manufacturer, made sales to Mr. F on consignment,
with title to the goods to pass only upon actual sale of the
consigned goods to a buyer. The goods are still in the shelves of
Mr. F. The consignment of the goods to Mr. F although title to the
goods has not yet passed, shall be subject to the value added tax
after sixty days from the date of consignment. (Provision of law)
 G & H was a partnership in trade. G & H was dissolved and IJ
Corp. was formed to continue the business.  At the time the
partnership was dissolved, the books of accounts showed a
merchandise inventory of P100,000, which was also the physical
inventory (actual count).  The inventory shall be deemed sold to IJ
Corp. and shall be subject to the value added tax.

 VAT on sale or exchange of services

Cash received (actually and constructively) xxx

Deposits/advance payments for future projectxxx

Materials charged for service xxx

Gross receipts xxx

Multiply by Vat rate 12%

Output Vatxxx

Less: Input Vat xxx

Vat payable/(Excess input Taxes) xxx

Categories of Services
-Section 108 (A) of the NIRC defined and categorized “sales or exchange of services” as the
performance of all kinds of services in the Philippines for a fee, remuneration, or consideration
including those:

• Professional/ Technical Services

• Transfer of Technology

• Lease or Use of Intangible Property

• Lease or Use of Tangible Property

VAT on Professional Fees

 As a rule, earnings from a practice of profession (including services rendered by doctors of

medicine and lawyers) will be subject to a 12% VAT if:

 The professional is a VAT-registered person, or

 Not VAT-registered but his total gross receipts exceed ₱3,000,000 per year.

Service Contractors

In general, the gross receipts of service contractors are subject to 12% VAT

The transactions entered by a service contractor , subject to value added tax with the government is
subject to a final withholding value added tax of five percent(5%) of the gross payment.

VAT on Security Agency Fees

 The contract for security services entered by and between the security agency and its client
must provide for a breakdown of the amount of security services into two components:

 Agency fee

 Security guards salary

Note: only the agency fee is subject to 12% VAT if the service contract stipulates the breakdown of the
amount of security services

Real Estate Brokers

 Real estate broker – a person selling property of others for a fee or commission income

Rule: Income subject to VAT if

 Broker is VAT-registered or

 Total commission earnings exceed

₱3,000,000 during the taxable year

Dealers in Securities
  Rule: Subject to VAT based on their gross receipts.

 The term “gross receipts” for dealers in securities means gross selling price less cost of
securities sold.

Lending Investors

 Includes all persons other than banks, non- bank financial intermediaries:

 not performing quasi-banking functions

 who make a practice of lending money for themselves or for others for an interest

Transportation Services

 Transport of goods and cargoes

-by land, air, and water by transportation contractors as

well as domestic common carriers

- Subject to 12% VAT

- Transport of passengers

-by air and sea within the Philippines is subject to 12%

VAT

- By land is subject to other percentage tax (OPT) of 3%

- Transport of passengers and cargoes

-by DOMESTIC air or sea vessels from the Phil to

foreign country - 0%

Freight Forwarders

 Services may cover a cross boarder movement (from the Philippines to foreign port or vice
versa)

 or a local movement (within the Philippines) of cargoes.

Freight Forwarders

Particulars Include Exclude

Outbound Movement:

Local origin charges /

Actual commission income of the forwarder on the freight /

Inbound Movement:

Local destination charges /

Currency adjustment factor /

Actual commission income of the forwarder on the /

freight

Outbound or Inbound Movement:

Offshore destination or origin charges /

Freight (exclusive of the commission of forwarders) /

Accessorial charges /

Travel Agencies

 VAT is based on its gross receipts which will not include the:

- cost of airline or ship tickets

- reimbursement of expenses for services rendered by third party other than the travel
agency and paid to such party

*However, if the margin exceeds 9% of the gross selling price of the ticket to the passenger, the BIR
treats the traansaction as a resale which is taxable on the gross selling price.

Hotels, Restaurants and Caterers

 Taxable base includes, among others, charges for:

 rooms, laundry, and valet services,

 food, and beverages consumption, corkage,

 handling charges for providing telephone, telex, cable, or fax services,

 cake shop sales,

 lease to concessionaires,

 compensation, and other service fees.

Taxable base does not include:

 Service charges billed separately and actually distributed to waiters and employees

 Actual cost of long distance and overseas telephone calls, and other charges of the
telecommunication companies collected by the establishment

 Local taxes
Media Advertising

 Gross receipts subject to VAT on media transactions would comprise the following:

-The amount of gross receipts representing agency commissions received by an advertising agency of
the services it performed as a broker for the media and the advertiser, and

-The amount representing gross receipts derived by the media from its advertising services

Lease of Commercial and Residential Units

 Gross receipts are subject to 12% VAT

Subject to the following rules:

 If monthly rental does not exceed P15,000 per unit per month - lessor shall be exempt from
VAT and other percentage tax (OPT)

 If monthly rental exceeds P15,000 per month per unit but the aggregate annual rentals do not
exceeds P3,000,000- lessor is subject to 3% OPT

 If monthly rental exceeds P15,000 per month per unit and the aggregate annual rentals exceed
P3,000,000, lessor is subject to 12% VAT

Franchise Grantees

 Telecommunications- taxable base for VAT is the gross receipts from their telephone,
telegraph, telewriter exchange, wireless and other communication facilities services excluding
amounts earmarked as the foreign administration's share relating to the services performed
outside the Philippines

 Radio and/or television broadcasting - gross receipts of the preceding year exceeding Ten
Million shall be subject to 12% VAT, gross receipts of the preceding year not exceeding Ten
Million shall be subject to 3% percentage tax

 Gas and water utilities shall be subject to 2% franchise tax on their gross receipts derived from
the business covered by the law granting the franchise.

Works of Art, Literary Works and Musical Compositions

 Sale by the artist of his works of art, literary works, musical compositions and similar
creations, or his services performed for the production of such works are now subject to VAT

 What comprises "sale or exchange of services"?

The term "sale or exchange of services" means the performance of all kinds
of services in the Philippines for others for a fee, remuneration or
consideration, whether in kind or in cash, including those performed or
rendered by the following:
1. Construction and service contractors;
2. Stock, real estate, commercial, customs and immigration brokers;

3. Lessors of property, whether personal or real;

4. Persons engaged in warehousing services;

5. Lessors or distributors of cinematographic films;

6. Persons engaged in milling, processing, manufacturing or

repacking goods for others;
7. Proprietors, operators or keepers of hotels, motels, rest houses,
pension houses, inns, resorts, theatres, and movie houses;
8. Proprietors or operators of restaurants, refreshment parlors, cafes,
and other eating places, including clubs and caterers;
9. Dealers in securities;

10. Lending investors;

11. Transportation contractors on their transport of goods or cargoes,

including persons who transport goods or cargoes for hire and
other domestic common carriers by land relative to their transport
of goods or cargoes;
12. Common carriers by air and sea relative to their transport of
passengers, goods or cargoes from one place in the Philippines to
another place in the Philippines;
13. Sale of electricity by generating, transmission by any entity
including the National Grid Corporation of the Philippines (NGCP),
and distribution companies including electric cooperatives shall be
subject to twelve percent (12%) VAT on their gross receipts.;
14. Franchise grantees of electric utilities, telephone and telegraph,
radio and/or television broadcasting and all other franchise
grantees, except 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), and franchise
grantees of gas and water utilities;
15. Non-life insurance companies (except their crop insurances),
including surety, fidelity, indemnity and bonding companies; and
16. Similar services regardless of whether or not the performance
thereof calls for the exercise of use of the physical or mental
faculties.
The phrase "sale or exchange of services" shall likewise include:
1. The lease of use of or the right or privilege to use any copyright,
patent, design or model, plan, secret formula or process, goodwill,
trademark, trade brand or other like property or right;
2. The lease or the use of, or the right to use of any industrial,
commercial or scientific equipment;
3. The supply of scientific, technical, industrial or commercial
knowledge or information;
4. The supply of any assistance that is ancillary and subsidiary to and
is furnished as a means of enabling the application or enjoyment of
any such property, or right or any such knowledge or information;
5. The supply of services by a nonresident person or his employee in
connection with the use of property or rights belonging to, or the
installation or operation of any brand, machinery or other apparatus
purchased from such non-resident person;
6. 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;
7. The lease of motion picture films, films, tapes and discs; and

8. The lease or the use of or the right to use radio, television, satellite
transmission and cable television time.

 VAT on importation of goods

O Importations of goods into the Philippines are subject to VAT, whether the importation is intended
for business or for personal use.

Tax Base

- Based on the total value used by the Bureau of Customs in determining tariff and custom
duty(dutiable value), plus custom duties, excise taxes, if any, and other charges prior to the removal of
the goods from customs custody OR

-Based on the landed cost plus excise tax, if any, and other charges prior to the removal of the goods
from custom custody, if the custom duties are determined on the basis of quantity or volume of the
goods.
  Landed cost includes invoice cost, freight, insurance and other charges.

 Other charges prior to removal of goods from custom custody are:

-Insurance -Freight

-Postage -Commission

-Interest -Bank charges

-Wharfage dues -Arrastre charges

-Stamps -Processing fee

-Custom brokerage fee -Custom duties

-Excise tax, if any

Export Sales. –

The term “export sales” means:

(1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any
shipping arrangement that may be agreed upon which may influence or determine the transfer of
ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in
goods or services, and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);

(2) Sale and delivery of goods to:

(i) Registered enterprises within a separate customs territory as provided under special
laws; and

(ii) Registered enterprises within tourism enterprises zones as declared by the Tourism
Infrastructure and Enterprise Zone Authority(TIEZA) subject to the provisions under
Republic Act No. 9593 or The Tourism Act of 2009.

(3) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident
local export-oriented enterprise to be used in manufacturing, processing, packing or repacking
in the Philippines of the said buyer's goods and paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP);

(4) Sale of raw materials or packaging materials to export-oriented enterprise whose export sales
exceed seventy percent (70%) of total annual production;

(5) Those considered export sales under Executive Order NO. 226, otherwise known as the
“Omnibus Investment Code of 1987”, and other special laws;

Provided, That subparagraphs (3), (4), and (5) hereof shall be subject to the twelve percent
(12%) value-added tax and no longer be considered export sales subject to zero percent (0%)
VAT rate upon satisfaction of the following conditions:
 O (1) The successful establishment and implementation of an enhanced VAT refund
system that grants refunds of creditable input tax within ninety (90) days from the filing of the
VAT refund application with the Bureau: Provided, That, to determine the effectivity of item
no. 1, all applications filed from January 1, 2018 shall be processed and must be decided within
ninety (90) days from the filing of the VAT refund application; and

O (2) All pending VAT refund claims as of December 21, 2017 shall be fully paid in cash by
December 31, 2019.

(6) The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or
international air transport operations:

Provided, That the goods, supplies, equipment and fuel shall be used for international shipping or air
transport operations. [4]

VAT tax rates

 On sale of goods and properties - twelve percent (12%) of the gross selling price or gross value
in money of the goods or properties sold, bartered or exchanged

 On sale of services and use or lease of properties - twelve percent (12%) of gross receipts
derived from the sale or exchange of services, including the use or lease of properties

 On importation of goods - twelve percent (12%) based on the total value used by the Bureau of
Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and
other charges, such as tax to be paid by the importer prior to the release of such goods from
customs custody; provided, that where the customs duties are determined on the basis of
quantity or volume of the goods, the VAT shall be based on the landed cost plus excise taxes, if
any.

 On export sales and other zero-rated sales - 0%

 VALUE ADDED TAX

MANNER OF COMPUTING THE VAT

The tax is computed in the following manner:

1. Output tax exceeds total input tax.

Output Tax Pxxx

Less: Input Tax (xxx)
VAT Payable xxx

2. Input tax total exceeds output tax

Output Tax P xxx

Less: Input Tax* (xxx)
VAT Payable (xxx)
 * The unutilized input tax can be carried over to the
succeeding month/ quarter

❖ What is "output tax"?

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.

❖ What is "input tax"?

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.

❖ Basis of Value Added Tax

Nature of transaction Tax Base

1. Sale of goods or properties Gross selling price

2. Sale of services Gross receipts

3. Importation Total landed cost

4. Dealers in securities Gross income

➢ The tax base is the amount on which the rate of value tax is applied
 ❖ Tax Rates

● 12% on domestic sales

● 0% on export sales (zero rated sales)

Computations:
1. Sale of Goods

Gross Sales(Selling price) P xxx

Less: Sales discounts P xxx

Sales returns xxx

Total xxx

Net Sales P xxx

Add: Excise tax, if any xx

TAX BASE P xxx

Multiply by the VAT rate 12%

Equals to OUTPUT TAX P xxx

Less: INPUT TAX xxx

VAT Payable ( Excess Input Tax) P xxx

Notes:

Gross selling price is the total amount of money or its equivalent which the
purchaser pays or is obliged to pay to the seller in consideration of the sale,
barter, or exchange, excluding the value added tax.

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

● Briefly stated, gross selling price includes everything that the buyer pays
the seller, except the value added tax shifted to the buyer.

● Sales discount granted and indicated in the invoice at the time of sale and
the grant of which does not depend upon the happening of future event
may be excluded from gross sales within the same month or quarter it
was given.

● Sales returns and allowances may be deducted from gross sales for the
month or quarter in
SALE, BARTER OR EXCHANGE OF REAL PROPERTY SUBJECT TO VAT

Gross selling price shall mean the consideration stated in the sales document

OR the fair market value, whichever is higher (RR4-2007: Section 4, 106-4, RR 16-2005).

The term fair market value shall mean whichever is higher of

1. The fair market value as determined by the Commissioner or

2. The fair market value as shown in schedule of values of the Provincial
and City Assessors (real property tax declaration).

However, in the absence of zonal value/fair market value as determined by

the Commissioner, gross selling price refers to the market value shown in the
latest real property tax declaration or the consideration, whichever is higher.
(RR4-2007)
 *****

2. Sale of Services

Cash received( actually and constructively) P xxx

Deposits/Advance payments for future
xxx
projects
Materials charged for services xxx
Gross Receipts P xxx
Multiply by the VAT rate 12%
Equals to OUTPUT TAX P xxx
Less: INPUT TAX xxx
VAT Payable ( Excess Input Tax) P xxx

Gross receipts refers to the total amount of money or its equivalent

representing the contract price, compensation, service fee, rental or
royalty, including the amount charged for materials supplied with the
services and deposits applied as payments for services rendered and
advance payments actually or constructively received during the taxable
period for the services performed for another person, excluding the VAT.

Constructive receipt occurs when the money consideration or its

equivalent is placed at the control of the person who rendered the
service without restrictions by the payor.
 Examples:

1. Deposit in banks which are made available to the seller of

services without restrictions.
2. Issuance by the debtor of a notice to offset any debt or
obligation and acceptance thereof by the seller as payment for
services rendered.
3. Transfer of the amounts retained by the payor to the account of
the contractor.

Advance Payment is an advance payment on behalf of another if the same

rd
is paid to a third (3 ) party for a present or future obligation of said
another party which obligation is evidenced by a sales invoice/official
receipt issued by the oblige/creditor to the obligator/debtor for the sale of
goods or services by the former to the latter.

3. Dealers in Securities and Lending Investors

Gross Selling Price P xxx

Less: Acquisition cost of securities sold for the
xxx
month or quarter
xxx
Balance:

Add: Other income or incidental income xxx

Gross Income P xxx
 Multiply by the VAT rate 12%
Equals to OUTPUT TAX P xxx
Less: INPUT TAX xxx

VAT Payable P xxx

INPUT VAT

Sources of Input VAT:

1. LOCAL PURCHASES OF GOODS OR SERVICES such as purchase

or acquisition of
a. Goods for sale
b. Goods for conversion into finish product( including
packaging materials)
c. Goods for use as supplies
d. Goods for use as materials supplied in the sale of services
e. Goods for use in trade or business for which depreciation
or amortization is allowed ( capital goods)
f. Real properties for which Vat has actually been paid
g. Services for which Vat has actually been paid

★Acquisition of Capital Goods

 Capital goods refer to goods or properties with estimated useful
life of greater than 1 year and which are treated as depreciable
assets under the tax code, used directly or indirectly in the
production or sale of taxable goods or services. Under Revenue
Regulation 16-2005, input vat on the purchase of capital goods by a
VAT registered person shall be allowed as a tax credit against output
VAT based on the following rules:

➔Aggregate purchase price during the month is more than

one million

➢ Input tax shall be spread or allocated evenly during the

estimated useful life of the depreciable asset but it shall not
exceed 60 months. ( estimated useful life is more than one year)
(estimated useful life or 60 months whichever is shorter)
➢ Allocation shall start in the month when the capital goods
were acquired.

➢ If the capital goods were sold within the 5 year (60months)

period or prior to exhaustion of input VAT, thereon, the entire
input vat on the capital goods can be claimed as input tax credit
during the month or quarter when the sale is made.

➢ If the life of the capital good or depreciable asset is not more

than one (1)year or year twelve (12) months, the asset is not
treated as capital good subject to depreciation. Hence allocation of
input vat is not applicable. The total amount of input vat shall be
claimed in the month of acquisition.

➔Aggregate purchase price during the month is less than

one million

➢ Input tax is not allocated. The total amount of input vat shall be
treated as tax credit against output vat in the month of acquisition
 NOTE: Under the TRAIN Law

1. The rule on amortizing the input vat on capital goods shall only
be allowed until December 31, 2021. Consequently, amortization
of input vat on capital goods purchased/imported shall no longer
be allowed beginning January 1, 2022.

2. Taxpayers with unutilized input vat on December 31, 2021 shall

be allowed to apply the same as scheduled until fully utilized.
Illustration
Month of Amount Input VAT Useful No. of Last month Amount of
Purchase life monthly of Monthly
amortizat amortizatio amortization
ion n
January, P6,000,000 P720,000 6 years 60mos. Dec. 2023 P720,000/60 =
2019 (72 P12,000
mos.)
March, 3,000,000 360,000 3 years 36mos. March, P600,000/36 =
2019 2022 P10,000
outright
April, 800,000 96,000 2 years -0- claim on -0-
2019 April,
2019
Dec. 8,000,000 960,000 5 years 60mos. Nov., 2026 P960,000/60 =
2021 P16,000
Jan., outright
2022 8,000,000 960,000 5 years -0- claim on -0-
 Jan., 2022
Company A made the following purchases during the year:
 Notes: Under TRAIN Law

● For purchase made on Jan., 2019 and March, 2019, refer to no. 1 on
aggregate purchase price during the month is more than one million..
(estimated useful life or 60 months whichever is shorter)
● For purchases made on April, 2019, rule on aggregate purchase price
during the month is less than one million applies.
● For purchases made on Dec., 2021, refer to no. 2 under the TRAIN Law.
● For purchases made on Dec., 2021, refer to no. 1 under the TRAIN Law.
2. IMPORTATION
Dutiable value Pxxx OR Invoice Cost Pxxx

Freight

Insurance

Add: Legitimate expenses Add: Legitimate expenses

of importation prior to of importation prior to
removal from custom removal from custom
custody, such as: custody, such as:

Custom duty Pxxx Custom duty Pxxx

Processing fee xxx Processing fee xxx

Brokerage fee xxx Brokerage fee xxx

Arrastre charges xxx Arrastre charges xxx

Wharfage due xxx Wharfage due xxx

Interest, etc. xxx Interest, etc. xxx

Tax base Pxxx TOTAL LANDED COST Pxxx

Multiply by 12% Multiply by 12%

VAT on importation Pxxx VALUE ADDED TAX Pxxx

 ➢ Every importation of goods is subject to the value added tax,
whether the importation is for sale or use in business, or for
personal use.

➢ The imported goods shall be subject to VAT based on the ff:

● In general, based on the total value used by the Bureau of Customs in

determining tariff and customs duty - (dutiable value )plus custom
duties, excise taxes, if any, and other legitimate charges, prior to
removal of goods from the custom custody.

OR

● When the custom duties are determined on the basis of the

quantity or volume of the goods. the landed cost should be used as a
basis in computing vat which includes invoice cost, freight, insurance,
custom duties, excise taxes, if any, and other legitimate charges, prior
to removal of goods from the custom custody.

3. PRESUMPTIVE INPUT TAX OF 4% ON SALE OF GOODS

Presumptive Input Tax Credits

Any person or firm engaged in the processing of sardines, mackerel, and

milk, and in manufacturing refined sugar and cooking oil and packed
noodle-based instant meals shall be allowed a presumptive input tax
creditable against the output tax, equivalent to 4% of the gross value in
money of their purchases of primary agricultural products which are
used as inputs to his production.
The term “processing” shall mean pasteurization, canning and activities
which through physical or chemical process alter the exterior texture or
form or inner substance of a product in such manner as to prepare it for
special use to which it could not have been put in its original form or
condition.

Entitled to Presumptive VAT:

● Persons or firms engaged in the processing of sardines,

mackerel & milk
● Persons or firms engaged in the manufacturing of refined
sugar, cooking oil, packed noodle based instant meals.

4. Transitional Input Tax Credits.

Any person who becomes liable to value-added tax or who elects to be a

VAT-registered person shall be allowed, subject to the filing of an
inventory as prescribed by rules and regulations, on his/her beginning
inventory of goods, materials and supplies, an input tax equivalent to 2%
of the value of such inventory or the actual value-added tax paid on
such goods, materials and supplies, whichever is higher, which shall be
creditable against the output tax.

5. Standard Input VAT

Standard input VAT on sales to government

Since the seller will effectively pay the 5% out of the 12% value added tax
on sales to government, instrumentalities or agencies including GOCCs, the
7% (12% less 5%) effectively accounts for the standard input VAT in lieu of
actual input VAT. The difference between the actual input vat and the
standard input vat is closed to costs or expenses of the seller.

Value Added Tax - Monthly Declaration and Quarterly Return and

Payment

Monthly Declaration:

All persons liable to the value added tax shall pay the tax for each of the first and second months of
a quarter, based on the transactions of the month, as reflected in the monthly VAT declaration,
within 20 days after the end of each month.

* If the output taxes exceed the input taxes, there shall be a value added tax payable.
* If the input taxes exceed the output taxes, there shall be no value added tax payable. The excess
of input taxes over the output taxes in the first month shall be carried over the second month.
There is no carry over of excess input taxes from the second month to the third month.

***Monthly Vat declarations are on transactions of the month.

Quarterly Return:

Within twenty five (25) days after the end of the taxable quarter, there shall be a Quarterly
VAT return, reflecting the cumulative transactions of the quarter.

The value added taxes shown and paid under the first and second months' declarations shall be
deducted from the output taxes in the quarterly return. Any excess of input taxes over the output
taxes of the quarter shall be carried over to the next quarter.

***Quarterly return is on transactions of the quarter.

***A VAT taxpayer has 2 Monthly VAT Declarations and a Quarterly VAT Return in each quarter.