The Value Added Tax Model (Banggawan, 2019) The VAT payable of a VAT taxpayer

is computed as: OUTPUT VAT Output VAT is the VAT on the vatable sales or receipts.
The output VAT is presumed passed on by the seller on his sales or receipts.
Illustration Assume that a ABC Company, a VAT taxpayer, made a P 100,000 vatable
sales account. The taxpayer shall bill the following to the customer: This shall be
recorded by the taxpayer in its books as follows: Accounts receivable P 112,000
Sales P 100,000 Output VAT 12,000 Types of Output VAT Output VAT P xxx,xxx Less:
Input VAT xxx,xxx VAT due xxx,xxx Less: Tax credits xxx,xxx VAT still due P xxx,xxx
Selling price P 100,000 Add: VAT (12% x PI00,000) 12,000 Total invoice price P
112,000 1. Regular Output VAT- 12% VAT imposed on domestic sales or receipts 2.
Zero Output VAT- 0% VAT imposed on export and other zero-rated sales The Sources
of Regular Output VAT 1. Sale of Vatable goods 2. Sale of Vatable services 3. Sale of
Vatable properties 4. Transactions deemed sales 1. Sale of vatable goods is subject
to 12% VAT based on the gross selling price. If the selling price is unreasonably
lower , the VAT shall be based on the fair value of the goods sold as determined by
the Commissioner of Internal Revenue. The gross selling price is deemed
unreasonably lower when it is lower by more than 30% of the actual market value of
the goods sold. 2. Sale of vatable services is subject to 12% VAT based on the gross
receipts. 3. Sale of vatable real properties is subject to 12 % VAT based on
whichever is higher between the selling price and fair value of the property. The
output VAT on the sale of real properties may be reported in installment if the initial
payment from such sale does not exceed 25% of the selling price. Sale of property
by a realty dealer on a deferred payment basis, not on installment plan, shall be
treated as cash sales. The fair value or gross selling price whichever is higher is
subject to vat in the month of sales. Subsequent collection from the sale shall no
longer be subjected to VAT. Sale of properties considered as “ordinary assets” Even
if the property is not primarily held for sale to customers or held for lease in the
ordinary course of business but the same is used in the trade or business of the
seller, the sale thereof is subject to VAT being a transaction incidental to the
taxpayer’s main business (Sec. 4.109 1(B) (p) of RR 16-2005 as amended by RR4-
2007). Therefore, the sale of properties held for use (ordinary assets) such as land,
building, equipment, machineries, property improvements and supplies are vatable.
Sale of property not in the ordinary course of business 147 The sales of properties
not in the ordinary course of business are exempt from VAT. Hence, the sale of
capital assets is exempt from VAT' Illustration: Hill Foods Corporation, a VAT
taxpayer, sold the following properties: Old factory (book value= P1,500,000)
P1,300,000 Vacant lot, held as investment 4,000,000 The output VAT shall be
computed as: Selling price of old factory P1,300,000 Multiply by: 12% Output VAT P.
156,000 Note: a. The gain on the sale of the old factory shall be subject to regular
income tax. b. The sale of the vacant lot shall not be subject to VAT because it is a
capital asset. The same shall be subject to the 6% capital gains tax. If Hill Foods
Corporation is a non-VAT taxpayer, the sale of the old factory shall not be subject to
VAT. The VAT on sale of ordinary assets applies only to VAT-registered taxpayers. 4.
Transactions Deemed Sales There are acquisition transactions involving goods or
properties which are consumption in nature but are not coursed through a purchase
transaction. These transactions (i.e. consumptions) are not recorded as sales by the
business and could evade taxation. Nevertheless, since these transactions are forms
of consumptions, they are considered "deemed sales" for to be subjected to the VAT.
List of Transactions deemed sales: 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 persons 148 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 all goods on hand whether capital goods, stock in trade,
supplies or materials as of the date of cessation, whether or not the business is
continued by the new owner or successor. 5. Cessation of status as a VAT-registered
person Transfer, use or consumption not in the ordinary course of business This
occurs when vatable ordinary assets are used for purposes other than their
intended purpose, such as when: 1. Goods or properties held for sale are no longer
sold but are transferred or disposed of by other means other than sale. 2. Properties
originally intended for use are no longer used but are transferred, disposed of or
exchanged with other properties. Examples of consumptions not in the course of
business: 1. Withdrawal by the business owner for personal use goods held for sale
or properties held for use. 2. Using goods held for sale or properties held for use to
pay off debts with creditors (Dacion en pago) 3. Using goods held for sale or
properties held for use as property dividends to shareholders 4. Exchange of goods
held for use for other properties 5. Sale or disposal of properties held for use in
exchange for cash or other properties 149 INPUT VAT Input VAT is the VAT due or
paid by a VAT registered person on importation or local purchases of goods,
properties or services, including lease or use of properties in the course of his trade
or business. Creditable Input VAT Input VAT has rules on creditability. Not all paid
input VAT is creditable against output VAT. Those allowed to be deductible against
output VAT is called "claimable input VAT', "allowable input VAT" or "creditable input
VAT”. Requisites of a Creditable Input VAT: 1. The input VAT must have been paid or
incurred in the course of trade or business. 2. The input VAT is evidenced by a VAT
invoice or official receipts. 3. The VAT invoice or receipts must be issued by a VAT-
registered person. 4. Input VAT is incurred in relation to vatable sales not from
exempt sales Types of Input VAT 1. Transitional Input VAT 2. Regular Input VAT 3.
Amortization of Deferred Input VAT 4. Presumptive Input VAT 5. Standard Input VAT
6. Input VAT Carry-over Transitional Input VAT A person who becomes liable to value-
added tax or any person who elects to be a VAT registered person shall be given an
initial input tax credit equivalent to 2% of the beginning inventory of goods,
materials, or supplies or the actual VAT paid thereon whichever is higher (See Sec.
111 NIRC as amended by RA 9337). The value allowed for income tax purposes on
inventory shall be the basis of the computation of the 2% transitional input VAT.
(Sec.111.1@), RR162005). Goods exempt from VAT shall be excluded in the
computation of the transitional input VAT (RMC 62-2005). 150 In short, the
transitional input VAT is based on vatable beginning inventories in the month of
registration as a VAT taxpayer Timing of Credit of Transitional Input VAT The
transitional input VAT shall be claimable in the month of registration as a VAT
taxpayer. Requisites for Claim of Transitional Input VAT 1. The taxpayer must submit
an inventory list of goods 2. The taxpayer must prepare an entry recognizing the
transitional input VAT credit in his accounting books. Regular Input VAT The regular
input VAT is the 12% VAT paid on: a. Domestic purchase of goods, services, or
properties, or b. Importation of goods or service Timing of Credit of Regular Input
VAT Source of Regular Input VAT Timing of credit Purchase of goods or properties In
the month of purchase Purchase of Services In the month paid Importation of Goods
In the month VAT is paid Purchase of depreciable goods or properties: General
treatment In the month of purchase When monthly aggregate acquisition cost ex
ceeds P1,000,000 Amortized over useful life in months or 60 months whichever is
shorter Purchase of non-depreciable vehicles and on maintennance incurred thereon
not creditable(RR12-2012) Input VAT on Purchase of Capital Goods or properties If
the monthly aggregate acquisition cost of depreciable capital goods: 151 Does not
exceed — The input VAT is claimable in the month of purchase. Exceeds P1,000,000
- The input VAT is deferred and amortized over the useful life in months or 60
months (i.e., 5 years), whichever is shorter, The input VAT to be amortized is called
the 'Deferred input VAT." Monthly Aggregate Acquisition Cost The "monthly
aggregate acquisition cost" of depreciable capital goods refers to the total price,
excluding VAT, agreed upon one or more assets acquired and not the payments or
installments actually made during the calendar month. (RRI 6-2005 as amended by
RR4 2007) The term depreciable goods refers to goods or properties with estimated
useful life of more than one year which are treated as depreciable assets for income
tax purposes, used directly or indirectly in the production or sale of taxable goods or
services. Presumptive input VAT Persons or firms engaged in the processing of
sardines, mackerel and milk and in the manufacturing of refined sugar, cooking oil
and packed noodle based instant meals, shall be allowed a presumptive input tax
equivalent to 4% of the gross value in money of their purchases of primary
agricultural products which are used in their productions. 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. Standard Input VAT 152 The sale of goods and
services to the government or any of its political subdivisions, instrumentalities or
agencies, including government-owned and controlled corporations (GOCCs) is
subject to a 5% final withholding VAT based on the gross payment. The government,
instrumentalities, agencies or GOCCs shall withhold the final VAT before making the
payment and remit the same within 10 days following the end of the month the
withholding was made. The 5% withheld final VAT shall be deemed the actual VAT
payable of the seller. Due to the final withholding VAT, the sellers to the
government, instrumentalities or agencies including GOCCs can effectively claim
only 7% of sales as input VAT. This is called the "standard input VAT." The actual
input VAT on the sale to government would have to be increased or decreased to
conform to the amount of the standard input VAT. The adjustment is closed to
expenses or loss or income or gain. Future Transition The final withholding system
on the sales to the government and GOCC will be abandoned effective Jan. 1, 2021
in favor of the tax creditable withholding system. This would mean the elimination
of the 7% standard input VAT in favor of full creditability of input VAT on government
or GOCC sales. Input VAT Carry-Over The input VAT carry-over is the excess of the
input VAT over the output VAT in a particular month or quarter. It is the VAT
overpayment that appears after tax credits and payments are deducted against the
net VAT payable. Rules on Input VAT carry-over 153 154 1.The input VAT carry-over
of the prior quarter is deductible in the first month of the current quarter. 2. The
input VAT carry-over in the first month of the quarter is deductible in the second
month of the quarter. 3. The input VAT carry-over in the second month of a quarter
is not deductible to the third month of the quarter. 4, The input VAT carry-over of
the prior quarter is deductible in the third month quarterly balance of the present
quarter. Illustration Assume ABC Company in the previous illustration purchased
goods from a VAT supplier. The supplier billed at P78,400, inclusive of VAT. The VAT
shall be checked on the invoice. If not indicated therein, it can be computed from
the invoice as follows: This shall be recorded by the taxpayer in its books as follows:
Purchases 70,000 Input VAT 8,400 Accounts payable 78,400 VAT DUE At the end of
each month, the input VAT is offset with the output VAT. A positive VAT due is paid to
the BIR. A negative VAT is normally non-refundable but is carried over to the next
succeeding months or quarter. Illustration Invoice price P 78,400 Divide by: VAT-
inclusive rate (100% + 12%)) 112% Purchase price 70,000 Multiply by: VAT rate
12% VAT on purchase P 8,400 155 Continuing the two preceding illustrations, ABC
Company shall compute its VAT due as follows: At the end of the month, ABC
Company shall close its VAT accounts as follows: Output VAT 12,000 Input VAT 8,400
VA T payable 3,600 VAT REPORTING VAT is paid on a quarterly and monthly basis as
follows: Illustration 1 A VAT taxpayer had the following purchases and sales,
exclusive of VAT. Accounting Entries: The following are recorded by the taxpayer:
January Output VAT P 12,000 Less: Input VAT 8,400 VAT due P 3,600 Period covered
BIR Form Deadline First month of the quarter 2550M 20 days from end of month
Second month of the quarter 2550M 20 days from end of month For the quarter
2550Q 25 days from end of quarter January February March Cash Purchases
700,000 320,000 375,000 Cash sales 650,000 580,000 500,000 156 There will be
no VAT payable since the input VAT exceeds output P 6,000 (i.e. P84,000 - P78,000)
unutilized input VAT remains on the book In VAT reporting, the January 2550M would
look like: This is not VAT refundable. It is called "input VAT carry-over. February In
VAT reporting , the February 2550M would look like: Purchases 700,000 Input VAT
84,000 Cash 784,000 Cash 728,000 Sales 650,000 Output VAT 78,000 Output VAT
78,000 Input VAT 78,000 Output VAT P 78,000 Less: Input VAT 84,000 VAT due P
6,000- Purchases 320,000 Input VAT 38,400 Cash 358,400 Cash 649,600 Sales
580,000 Output VAT 69,600 Output VAT 69,600 Input VAT (P38,400+ 6,000) 44,400
VAT payable 25,200 VAT Payable 25,200 Cash 25,200 157 March In VAT reporting,
the quarterly 2550Q in March would look like: If the quarterly tax due is negative, it
is non-refundable. The unutilized input VAT remains in the book and is carried over
as input VAT in the following month of the next quarter. Note: 1. The monthly VAT
return (BIR Form 2550M) for the first two months of the quarter reports only Output
VAT P 69,600 Less: Input VAT 44,400 VAT due P 25,200 Purchases 375,000 Input VAT
45,000 Cash 420,000 Cash 560,000 Sales 500,000 Output VAT 60,000 Output VAT
60,000 Input VAT (P38,400+ 6,000) 45,000 VAT payable 15,000 VAT Payable 15,000
Cash 15,000 to record payment of VAT due Output VAT P 207,600 Less: Input VAT
167,400 VAT due P 40,200 Less: Tax Credit Estimated monthly VAT payments 25,200
VAT still due P 15,000 output VAT and input VAT for the month. 2. The quarterly VAT
return (BIR Form 2550Q) for the third month of the quarter covers output VAT and
input VAT from January to March. Any VAT paid in the prior two months is deducted
from the quarterly balance. 3. A negative VAT payable in the first month of the
quarter or at the end of the quarter may be carried over to the succeeding month or
quarter as the case may be. The foregoing discussion