VALUE ADDED TAX Presented by: MR. GRECIO PAUL R. DIAZ, CPA Revenue Officer RDO 113-West Davao City

VALUE ADDED TAX

Presented by:MR. GRECIO PAUL R. DIAZ, CPA

Revenue OfficerRDO 113-West Davao City

Topic Outline

• Basic concepts of VAT• Persons liable• VAT of Sales of Goods / Properties / Importation

/ Services• Exempt Transactions• Output Tax and Input Tax• Transitional Input Tax Credits• Presumptive Input Tax Credits• VAT on Government Sales• Compliance Requirements

Topic Outline

• Filing and Payment Due Dates• Staggered Filing • Summary List of Sales and Purchases• Taxability of Privilege Store• VAT Treatment of Security Agencies• Agricultural Contract Growers (RR 97-2010)

Basic Concepts of VAT

VAT defined

• It is a tax on the value added to the purchase price or cost in the sale or lease of goods, properties, or services in the course of trade or business.

• It is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services.

Background of VAT

• VAT is a business tax levied on the sale of goods, properties and services and on importation of goods;

• VAT is a universal taxation system;• VAT has various major and most

controversial amendments:1. E.O. 273 – VAT Law (1988) Jan. 1, 19882. RA 7716 – E-VAT (RR 7-95) Jan. 1, 19963. RA 8241 – IVAT (RR 6-97) Jan. 1, 19974. RA 8242 – Tax Reform Act of 1997

Background of VAT

5. RA 9337 – New Expanded VAT Law• signed into law on May 24, 2005• Implementation withheld due to TRO• TRO was lifted by the SC on Oct. 18, 2005• Became effective November 1, 2005• Implementing Rules and Regulation RR 14-2005

was superseded by RR 16-2006 (amended by RR 2-2007 and RR 4-2007)

VAT Reform (RA 9337): Why is it necessary?The current Philippine fiscal condition requires that immediate attention be given to fiscal reform:

– In 2004, debt service ratio was 86.1% of the government revenue;

– Interest payments alone was 37.4% of government revenues; and

– Infrastructure and other capital expenditures were only ten 10.87% of government expenditures of the same year.

Objectives of VAT

• Broaden Tax Base

• Provide an audit trail

• Simplify business taxation

Persons Liable (Sec. 105 of the NIRC)

PERSONS

• SELLER provided the aggregate sales/receipts exceeds P1.5M (or who opt to register as VAT)

• In the course of trade/business– Sells– barters– Exchanges– Leases goods or

properties (including deemed sales)

– Renders services

• IMPORTER • Whether or not in the course of trade or business– Imports goods

“In the course of trade of business” defined• Means the regular conduct or pursuit of a

commercial or an economic activity including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a:a) non-stock, non-profit private organization

(irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or

b) government entity.

VAT Rates:

Sec. 106, 107 and 108 of the NIRC

• 10% (up to January 31, 2006)

• 12% (effective February 1, 2006) and

• 0%

TRANSACTIONS COVERED

• Sale or Exchange of Goods / Properties

• Importation

• Sales or Exchange of Services

• Transaction Deemed Sales

• Zero-Rated Sales of Goods / Properties / Services

• Effectively Zero-Rated Transactions

BASIS OF VAT

VAT ON GOODS / PROPERTIES

• GROSS SELLING PRICE • 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 VAT. The excise tax, if any on such goods or properties shall form part of the gross selling price

BASIS OF VAT

VAT ON IMPORTATION

• If based on VALUE– TOTAL VALUE used by the BOC in determining:

• Tariff and custom duties plus custom duties, excise taxes, if any and

• Other charges paid by the importer (prior to ATRIG)

• If based on QUANTITY and VOLUME– VAT shall be based on the LANDED COST plus

EXCISE TAXES

BASIS OF VAT

VAT ON SERVICES/LEASE OF PROP.• GROSS RECEIPTS• 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 of 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 or to be performed for another person, excluding VAT.

Sales or Exchange of Goods / Properties

(Sec. 106 of the NIRC)

Refer to all tangible and intangible objects which are capable of pecuniary estimation and shall include :

1. Real properties • held primarily for sale to customers

• Installment plan (on installment payments + interest + penalties actual or constructively received)

- where the Initial payments < 25% of GSP• Deferred payment basis (treated as cash sales)

- where the initial payments > 25% of GSP• Residential Lot (>1.5M) and • Residential house and Lot (> 2.5M)

• held for lease in the ordinary course of business

SALES OR EXCHANGE OF GOODS / PROPERTIES

GOODS/PROPERTIES (cont….)

2. Right or privilege to use patent, copyright, design or model plan, secret formula or process, goodwill, trademark, trade name, trade brand or other like property or right;

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

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

5. Radio, television, satellite, transmission and cable television time.

GOODS/PROPERTIES (New Covered)

• Sale of non-food agricultural products; marine and forest products in their original state by primary producer or owner of the land;

• Sale of cotton and cotton seeds in their original state;

• Sale or importation of coal and natural gas, in whatever form or state; and

• Sale or importation of petroleum products, including raw materials for their production

ZERO-RATE SALES: Goods/Properties

It is a taxable transaction for VAT purposes but shall not result in any output tax. Input tax on purchases of goods, properties or services related to such zero-rated sales shall be available as tax credit or refund.

A. Export sales

B. Foreign currency denominated sales

C. Sales to persons or entities deemed tax-exempt under special law or international agreement.

Shall refer to the local sales of goods or properties by a VAT-registered person to persons or entities who was granted indirect tax exemptions under special laws or international agreements to which the Philippines is a signatory, such as, ADB, IRRI, etc., shall be effectively subject to VAT at zero-rate.

- requires no prior BIR approval.

Effectively Zero-rated sales of goods and properties (Sec. 6 of RR 4-2007)

Transactions deemed sale (Sec. 106(B))

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 reg.

person (property dividends); orb. Creditors in payment of debt or obligation.

3. Consignment of goods if actual sale is not made within 60 days;

4. Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement or cessation; and

5. Change of tax detail or status from VAT to NON-VAT.

Rules on invoicing and recording of “deemed sale” transactions

• Memorandum entry in the subsidiary sales journal to record withdrawal of goods for personal use must be made

- For distribution to shareholders and creditors –

• invoice shall be prepared at the time of the occurrence of the transaction recorded in the subsidiary journal

Rules on invoicing and recording of “deemed sale” transactions

For retirement or cessation of business –

• inventory shall be prepared and submitted to RDO not later than 30 days from retirement• invoice shall be prepared for the entire inventory• entry in the subsidiary sales journal

Note: If business is to be continued by new owner, the entire amount of output tax shall be allowed as input tax

Importation of Goods


Refer to the goods acquired from foreign countries by a persons, non-exempt entities or exempt entities whether or not in the course of trade or business.

IMPORTATION ON GOODS

- No VAT shall be collected (under Sec. 109(1))

- Goods sold, transferred or exchanged in the Philippines to NON-EXEMPT persons or entities

- The purchasers, transferees or recipients shall be considered IMPORTERS therefore:

- Subject to all INTERNAL REVENUE TAX

Sales or Exchange of Services


Refer to 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 by the ff. –

1. Construction and service contractor;

2. Stock, real estate, commercial, customs and immigration brokers;

3. Lessors of property, whether personal or real;

4. Persons engaged in warehousing services;

SALE OR EXCHANGE OF SERVICES

5. Lessors, 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, theaters, and movie houses;

Sale or Exchange of Services (cont…)

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 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 Phil to another place in the Phil.;

13. Sales of electricity by generation, transmission, and/or distribution companies;

14. Franchise grantees (AGR >10M);


15. Non-life insurance companies (except crop insurance), including surety, fidelity, indemnity and bonding companies;

16. Other similar services or use of the physical or mental faculties;


Sale or Exchange of Services includes:

a) Lease or the 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 right;

b) Lease or the use of, or the right to use any industrial, commercial or scientific equipment;

c) Supply of scientific, technical industrial or commercial knowledge or information;


d) Supply of any assistance that is ancillary and subsidiary as a means of enabling the application and enjoyment of the property, right, or knowledge, information as mentioned in (b) and (c);

e) Supply of services by a non-resident 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 purchase from such non-resident person;


f) Supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking, ventures, project or scheme;

g) Lease of motion picture films, films, tapes and discs;

h) Lease or the use of, or the right to use, radio, television, satellite, transmission and cable television time;

Sale or Exchange of Services – Newly Covered:

a) Sale of the artist of his work of art, literary works, musical compositions and similar creations, or his services performed for the production of such works;

b) Services rendered by doctors of medicine duly registered with the PRC;

c) Services rendered by lawyers duly registered with the IBP;

Sale or Exchange of Services – Newly Covered:

d) Common carriers by air and sea relative to their transport of passengers from one place in the Philippines to another place in the Philippines;

e) Sale of electricity by generation, transmission and distribution companies (sale of power fuel generated through renewable source of energy subject to 0%); and

f) Sale of electric cooperative as well as importation of machines and equipments including spare parts.

ZERO-RATE SALES: Services

It is a taxable transaction for VAT purposes but shall not result in any output tax. Input tax on purchases of goods, properties and services related to such zero-rated sales shall be available as tax credit or refund

A. Services performed in the Philippines:1. Processing, manufacturing or repacking goods for other persons

doing business OUTSIDE the Philippines, which goods are subsequently EXPORTED, where services are paid for in acceptable FOREIGN CURRENCY and accounted for in accordance with the rules and regulations of the BSP;

2. Services other than processing, manufacturing or repacking rendered to a persons engaged in business conducted OUTSIDE the Philippines or to a NON-RESIDENT person not engaged in business who is OUTSIDE the Philippines when the services are performed, the consideration for which is paid for in acceptable FOREIGN CURRENCY and accounted for in accordance with the rules and regulations of the BSP;

ZERO-RATE SALES: Services (cont…)

3. Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate;

4. Services rendered to persons engaged in international shipping or air transport operations, including leases of property for use thereof (not pertain to transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines);

5. Services performed by subcontractors and/or contractors in processing, converting or manufacturing goods for an enterprise whose export sales exceeds 70% of the total annual productions;

6. Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country; and

7. Sale of power or fuel generated through renewable source of energy such as, but not limited to biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy source using technologies such as fuel cells ad hydrogen fuels.

Shall refer to the local sales of services by a VAT-registered person to persons or entities who was granted indirect tax exemptions under special laws or international agreements to which the Philippines is a signatory, such as, ADB, IRRI, etc., shall be effectively subject to VAT at zero-rate.

- requires no prior BIR approval.

Effectively Zero-rated sales of services (Sec. 13 of RR 4-2007)

Exempt Transactions


a) Agricultural and marine food products, livestock and poultry;

b) Fertilizers, seeds, seedlings and fingerlings, fish, prawn, livestock and poultry feeds;

c) Importation of personal and household effects;

d) Importation of professional instruments and implements, wearing apparel etc…;

Exempt Transactions (Sec. 109(1)a - x of the Tax Code)

e) Services subject to percentage tax;f) Services by agricultural contract growers

and milling for others;g) Medical, dental, hospital and veterinary

services, except those rendered by professionals;

h) Educational services rendered by private educational institutions duly accredited by DepEd, CHED, and TESDA;


i) Services rendered by individuals pursuant to an employer-employee relationship;

j) Services rendered by regional or area headquarters by multinational corp.;

k) Transactions which are exempt under international agreements;


l) Sales by agricultural coops;

m)Gross receipts from lending activities by credit or multi-purpose coop;

n) Sales by non-agri, non-electric and non-credit coops;

- capital contribution does not exceed P15,000

o) Export sales by persons who are not VAT-registered;


p) Sale of real properties- Not primarily held for sale- Low-cost housing- Socialized housing- Res’l lot (<P1.5M) or house & lot (<P2.5M)

q) Lease of res’l units (<P10K/mo.);r) Printing or publication of books,

newspaper etc..;


Exempt Transactions Refer to (Sec. 109(1)a - x of the Tax Code)

s) Sale/importation or lease or passenger or cargo vessels and aircraft;

t) Importation of life saving equipment etc..

u) Importation of capital equipments, machinery etc…;

v) Importation of fuel, goods and supplies by international shipping/air transport operation;

w) Services of banks etc…; and

x) Sale of goods/services/properties other than those mentioned above whose annual sales and/or receipts do not exceed P1.5M


Exempt vs. Zero Rate Transactions

• Exempt Transaction– Sale of goods, properties, and services and

the use or lease of property is not subject to VAT (no output tax)

– Seller is not allowed to claim input tax

• Zero-rated Transaction– Subject to VAT but will not result to output tax– Seller is entitled to claim input tax

Output Tax &

Input Tax

Output Tax

• Means the value-added tax due on the sale or lease of taxable good or property or services by a VAT-registered person.

• VAT Rates– 12%– 0%

INPUT TAX (Sec. 110 of the NIRC)

• Is the value added tax due from or paid by a VAT-registered person in the course of his trade or business.

• Creditable Input Tax– Any input tax evidenced by a VAT invoice or

official receipt shall be creditable against the output tax.

– Input tax on domestic or importation of goods.– Input tax that can be directly attributed– A ratable portion of the input tax which cannot

be directly attributed to either activity

Sources of Input Tax

• Purchase or importation of goods– For sale; or– For conversion into or intended to form part of a

finished product for sale including packaging materials; or

– For use as supplies in the course of business; or– For use as materials supplied in the sale of service; or– For use in trade or business for which deduction for

depreciation / amortization is allowed under the Tax Code

• Purchase of services on which VAT has been actually paid

Sources of Input Tax (cont…)

• Purchase of real properties for which the VAT was actually paid

• Purchase of services for which the VAT was actually paid

• Transitional input tax

• Presumptive Input tax

• Standard Input Tax (gov’t. transaction)

• Input Tax on depreciable capital goods, the aggregate acquisition cost of which (net of VAT) in a calendar month, exceeds P1,000,000 shall be spread evenly over 60 months or their useful life, whichever is shorter.

Spread of VAT on Capital Goods

• If capital good is sold within 5 years or prior to exhaustion from input VAT thereon, the entire unamortized input tax on the capital goods sold can be claimed as input tax credit during the month/quarter when the sale was made.

• Option to apply for refund/tax credit certificate of capital goods has been withdrawn.

Cont…

How VAT Operates:

PURCHASES SALES

PRICE PAID

INPUT VAT TOTAL

PRICE CHARGED

OUTPUT VAT TOTAL

PAID TO BIR

1ST SELLER - - - 100.00 12.00 112.00 12.00

2ND SELLER 100.00 12.00 112.00 120.00 14.40 134.40 2.40

3RD SELLER 120.00 14.40 134.40 150.00 18.00 168.00 3.60

4TH SELLER 150.00 18.00 168.00 170.00 20.40 190.40 2.40

20.40

VAT Payable

Output Tax ( Sales x 12%) - P x x x

Less Input Tax (Purchases x 12%) - x x x

VAT payable - P x x x

Journal Entries upon Purchase

1. Purchase of goods with invoice price of P16,800.00

Purchases 15,000

Input Tax 1,800

Cash P16,800

Journal Entries upon Sale

2. Sales of P22,400 inclusive of VAT

Cash 22,400.00

Sales 20,000

Output tax 2,400

Journal Entries

3. To remit VAT to BIR

Output Tax 2,400.00

Input Tax 1,800.00

VAT Payable 600.00

#

VAT Payable 600.00

Cash 600.00

VAT Payable

Output Tax - P 2,400.00

Less Input Tax - 1,800.00

VAT Payable - P 600.00

Transitional Input Tax

(Sec. 111(A) of the NIRC)


• A person becomes liable to VAT or elects to be VAT registered person shall be allowed input tax of 2% of the value of inventory or the actual VAT paid, whichever is higher– Subject to the filing of inventory list


Example: Mr. A becomes liable to VAT starting Jan.

2011. He has P200,000 worth of inventory. Actual VAT payments on purchases from VAT registered suppliers were P18,000.00.

Allowed transitional input tax: P18,000 The 2% of P200,000 (P4,000) is lower than

P18,000

Presumptive Input Tax

(Sec. 111(B) of the NIRC)

Presumptive Input Tax

4% of the gross value in money of purchases of primary agricultural products which are used as inputs to their production:

• Sardines• Mackerel and milk• Refined sugar• Cooking oil• Packed noodle-based instant meals

Refund or Tax Credit of Input Tax (Sec. 112 of the NIRC)

• Any VAT registered person whose sales are ZERO-RATED or EFFECTIVELY ZERO-RATED may, within two (2) years after the close if the taxable QUARTER when the sales was made, apply for the issuance of a TCC.

• Person whose registration has been cancelled due to retirement or cessation of business or due to change in or cessation of status may, within two (2) years from the date of cancellation, apply for the issuance of a TCC.

Refund or Tax Credit of Input Tax (Sec. 112 of the NIRC)

• Apply for the issuance of TCC within TWO (2) years:

– ZERO-RATED or EFFECTIVELY ZERO-RATED SALES, within two (2) years after the close if the taxable QUARTER when the sales was made.

– Person whose registration has been cancelled due to retirement or cessation of business or due to change in or cessation of status may, within two (2) years from the date of cancellation.

VAT on Government Sales

VAT on Government Sales

• Sale of goods and services to government is subject to 12% VAT;

• The 5% VAT withheld represents the net VAT payable of the seller

• The remaining 7% effectively accounts for the standard input tax in lieu of the actual input VAT

Cont…

• If actual input VAT exceeds 7% of gross payments, the excess may form part of the sellers’ cost; and

• If actual input VAT is less than 7% of gross payments, the difference must be treated as income of the seller.

• The income received from the government while subject to final withholding on VAT shall still be reported in the VAT return

Sample: Sales to Gov’t.

Sales to Government 200,000.00 24,000.00 Purchases 140,000.00 16,800.00

VAT PAYABLE:

OUTPUT TAX 24,000.00 LESS: 7% STANDARD INPUT 14,000.00 VAT PAYABLE 10,000.00 LESS 5%FINAL WTAX 10,000.00 AMOUNT DUE -

Apportionment of input tax on mixed transactions

• Input tax directly attributed to VATable transactions may be recognized for input tax credit

• Input tax directly attributable to VATable sales to government shall not be credited against output tax from sales to non-government entities

• Input tax that cannot be directly attributed to either VATable or exempt transaction shall be pro-rated and only the ratable portion can be allowed as tax credit

• Input tax attributable to VAT exempt transaction shall not be allowed as tax credit but should be treated as part of cost or expense

• Input tax attributable to the zero-rated sales may be refunded or applied for tax credit certificate

Apportionment of input tax on mixed transactions

Apportionment of Input Tax on Mixed Transactions

Taxable sales to privateTotal sales

X Input Tax = Creditable

Taxable sales to govt.Total sales

X Input Tax = Creditable *

Exempt salesTotal sales

X Input Tax = Expense or cost

* Subject to the 7% standard input tax provision

Illustration

SDT Corporation has the following sales during the month:

Sales to private entities subject to 12%- P100,000

Sales to private entities subject to 0% - 100,000

Sales to exempt goods - 100,000

Sales to gov’t subjected to 5% FWT - 100,000

Total sales for the month - P 400,000

Illustration

The following input taxes were passed on by its VAT suppliers:

Input tax on taxable goods (12%) - P 5,000Input tax on zero-rated sales - 3,000Input tax on sale of exempt goods - 2,000Input tax on sale to gov’t. - 4,000Input tax on depreciable capital goods

not attributable to any specific activity (monthly amortization for 60 months) - 20,000

Input Tax Attributable to Sales to Private Entities

Input tax on sale subject to 12% - P 5,000.00

Ratable portion of the input tax not

directly attributable to any activity:

Total Sales ( 12%) x Amount of

Total Sales ITNDA

P100,000 x P20,000 = 5,000.00

P400,000

IT attributable to sales of Private

Entities = P10,000.00

Input Tax Attributable to Zero-rated Sales

IT on zero-rated sale subject to 0% - 3,000.00



Total Sales ( 0%) x Amount of

Total Sales ITNDA

P100,000 x P20,000 = 5,000.00

P400,000

IT attributable zero-rated sales = P8,000.00

Input Tax Attributable to Sales to Gov’t.

Input tax on sale to gov’t. - P4,000.00



Total Sales to gov’t x Amount of

Total Sales ITNDA

P100,000 x P20,000 = 5,000.00

P400,000

IT attributable to sales to gov’t. = P 9,000.00

Input Tax Attributable to Exempt SalesInput tax on VAT-exempt sale - P2,000.00



VAT - Exempt Sales x Amount of

Total Sales ITNDA

P100,000 x P20,000 = 5,000.00

P400,000

Total IT attributable to VAT-Exempt = P7,000.00

(charge to cost or expense)

Journal Entry on Gov’t. Transaction

Cash P107,000.00

Final Withholding Tax 5,000.00

Sales P100,000.00 Output Tax 12,000.00

#

Output Tax 12,000.00

Final Withholding Tax 5,000.00

Input Tax 7,000.00

#

Assume – Input Tax Available for gov’t. transaction is P9,000.00

Entry to close input tax:

Cost/Expense 2,000.00

Input Tax 2,000.00

Journal Entry on Gov’t. Transaction

Assume – Input Tax Available for gov’t. transaction is P3,000.00

Entry to close input tax:

Input Tax P4,000.00

Cost/Expense P4,000.00

#

Summary

VAT Zero-Rated

Effectively Zero-Rated

Exempt

Subject to 12% VAT (for VAT liable transactions)

Subject to 0%Local sales – 12% (if VAT liable, otherwise exempt)

Sale to Zero-rated entities is – subject to 0%Local sales – 12%

Not subject

Allowed to claim input tax of 12% on VAT purchases of goods & services

Allowed to claim input tax of 12%. Option to claim TCC on excess input taxes.

Allowed to claim input tax of 12% on VAT purchases of goods & services

Not allowed to claim input taxes. VAT forms part of the asset, cost or expense.

Compliance Requirements


Optional Registration

1. Any person who is VAT-exempt under Sec. 4.109-1 (B)(1)(V) may elect to be VAT registered;

2. 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 exempt transactions;

Any person who elects to register shall not be entitled to cancel registration for the next 3 years.

3. Franchise grantees of radio and/or television broadcasting with annual gross receipts not exceeding P10M. (This option once exercised is irrevocable);

Optional Registration

Penalty for Failure to Register as VAT Taxpayer

•Taxpayer shall be liable to pay the tax as if he was a VAT registered person

• Taxpayer cannot avail of the benefits of input tax credit for the period he/it was not properly registered.

Invoicing Requirements

• For every sale, barter or exchange of goods or properties

- VAT invoices

• For every sale, barter or exchange of services or lease of goods or properties

- VAT official receipts

A VAT-registered person shall issue:

Information needed in the VAT Invoice or VAT Official Receipt:

1. Name and business address of taxpayer who will use the invoice/official receipt;

2. TIN of taxpayer followed by the word “VAT”;

3. The amount of tax shown as a separate item;

4. Date of transaction, quantity, unit cost and description of the goods or properties or the nature of the service;

5. Authority to Print details and serial number of booklets at the lower left corner of receipt.

• The word “VAT EXEMPT SALE” written or printed prominently if sale is VAT-exempt;

• The words “ZERO-RATED SALE” written or printed prominently if sale is subject to zero percent

Cont…

Cont…

• Option to issue combined or separate invoices/receipts of sale in a combination of VAT-liable and VAT-exempt sale. If the sale is combined, the invoice or receipt should indicate the break-down of the sale price between the taxable and the exempt component and the calculation of the VAT

• For sale to VAT-registered persons amounting to P1,000 or more, indicate the name, business style (if any), address and TIN of the purchaser

ABAKA CORP.88 East Avenue, Quezon City

VAT Reg. TIN: 115-688-025-000

Sold to : TAUWAYA Corp.Address : 75 Fairview St., Brgy. Pio del Pilar, Makati CityTIN : 215-880-000 VAT

DESCRIPTION QTY UNIT COST TOTAL TRANSACTION TYPE

Spiral Notebook 50 P3,200 P160,000 Vatable100 pcs./boxPoultry products- 100 42 4,200 VAT-Exempt SaleEggs (Per Dozen)Native Decors for 50 12,000 600,000 Zero-rated SaleExport (100 pcs./box)

Vatable Sales P160,000VAT-Exempt Sale 4,200Zero-rated Sale 600,000TOTAL SALES P764,20010% VAT 16,000TOTAL ATP AMOUNT PAYABLE P780,000

Invoice No. 037585

Sample Invoice

June 06, 2005

Accounting Requirements • All persons subject to VAT shall in addition to regular

accounting records, maintain the following• SUBSIDIARY SALES JOURNAL – which the daily

sales are recorded. It includes columns for date of sale; name of customer; TIN of customer, Sales Invoice/OR number, exempt sales; VAT sales (12%) government sales and Zero-Rated Sales;

• SUBSIDIARY PURCHASE JOURNAL – which the daily purchases are recorded. It includes columns for date of purchase; name of supplier; TIN of Supplier, purchase invoice number, exempt purchases; domestic purchases (capital goods and other than capital goods), purchases from imporation and purchases from services.

Penalties for Erroneous Issuance of VAT Invoice or VAT Official Receipt

Infraction Penalty

1. NON-VAT person who issues a VAT invoice/official receipt

- payment of percentage tax, if applicable

- payment of VAT (w/out input tax)-50% surcharge on the VAT due- If the invoice/official receipt contains the required information, purchaser shall be allowed to recognize an input tax credit

2. VAT-registered person who issues a VAT invoice/official receipt for a VAT-exempt sale without the words “VAT-EXEMPT SALE”

Subject to 12% VAT

Filing and Payment Due Dates


Filing of Return

• Every persons liable to pay the VAT shall file a:• MONTHLY RETURN (2550M) – every 20th day of

the following the close of each month; and• QUARTERLY RETURN (2550Q) – every 25th day of

the following the close of each taxable quarter.• Any person, whose registration has been

CANCELLED – within 25 days from the date of cancellation of registration

• Only one consolidated return shall be filed by the taxpayer for his principal place of business or head office and all branches.

Synchronized Filing of Quarterly VAT and Quarterly Income Tax (RR 8-2002)

Ex: Fiscal year ends May 31Under Manual Filing System Under EFPS

Quarter Covered Months Forms to UsedDue Date

For Filing/Payment

Due date

eFiling ePayment

1st QuarterJune 2550M July 20 Staggered (pls see table) Jul. 25

July 2550M August 20 Staggered (pls see table) Aug..25

August 2550Q September 25 Sept. 25 Sept. 25

2nd QuarterSeptember 2550M October 20 Staggered (pls see table) Oct. 25

October 2550M November 20 Staggered (pls see table) Nov. 25

November 2550Q December 25 Dec. 25 Dec. 25

3rd QuarterDecember 2550M January 20 Staggered (pls see table) Jan. 25

January 2550M February 20 Staggered (pls see table) Feb. 25

February 2550Q March 25 Mar. 25 Mar. 25

4th QuarterMarch 2550M April 20 Staggered (pls see table) Apr. 25

April 2550M May 20 Staggered (pls see table) May 25

May 2550Q June 25 June 25 June 25

SCHEDULE OF STAGGERED FILING OF RETURNS (RR 26-2002)

GROUP MONTHLY VAT DECLARATION & PERCENTAGE TAX RETURNS

A 25 days ff the end of the month

B 24 days -do-

C 23 days -do-

D 22 days -do-

E 21 days -do-

Submission of SLSP(RMO 56-2010 / RMC 60-2010)

Submission of SLS/SLP

Persons required to submit:

• Summary List of Sales – all VAT taxpayers with quarterly gross sales/receipts exceeding P2.5M

• Summary List of Purchases – all VAT taxpayers with gross purchases in excess of P1M.

Due Date:On or before the 25th day of the month

following the close of the taxable quarter.

Submission of SLS/SLP

Ref: RMO 56-2010 / RMC 60-2010

•Electronic submission•Thru efps

•Manually•Use of removable storage media

•3.5 inch floppy diskette•USB flash drive•CD•DVD

Taxability of Privilege Stores

(RR16-2003 as amended by RR 24-2003)

Taxation of Privilege Stores(RR16-2003 as amended by RR 24-2003)

• Also known as “tiangges”

• Not permanently fixed to the ground selling variety of goods/services for short duration of time

• If duration exceeds 6 mos., it shall no longer be treated as privilege store

Obligation of Exhibitor / Organizer

• Post the Certificate of Registration of the organizer

• Obligation to deduct and withhold the EWT on lease payments to the lessor– 5% due on the 10th of the following month

• Obligation to inform the RDO

Obligation of Exhibitor/ Organizer

• Obligation to ensure presentation of TIN, remittance of actual EWT and Percentage Tax

• Obligation to report to BIR non-compliant privilege-store operators

Obligations of Privilege-Store Operators

• Obligation to deduct and withhold the EWT on rental payments

• Obligation to pay Advance Percentage Tax

Advance Percentage Tax

LOCATION OF PRIVILEGE STORE

SET-UP IN

AIRCONDITIONED PLACENON-AIRCONDITIONED

PLACE

City or First Class Municipality

P150 per day orP4,500 per month

P100 per day ofP3,000 per month

Municipality other than first class municipality

P75.00 per day orP2,500 per month

P50 per day orP1,500 per month

VAT TREATMENT OF THE PAYMENT FOR SECURITY

SERVICES (RMC 39-2007)

I. BACKGROUND

INCOME TAX:

Cash basis or Accrual basis may be adopted as accounting method for reporting of income

The timing of the imposition of the tax depends on the accounting method employed.

VALUE-ADDED TAX:

Seller of Services, including

security agencies, have to be

taxed solely on the Cash

Basis.

Cash Basis – upon actual or

constructive receipt of income

VALUE-ADDED TAX:

Gross Receipts – must constitute

the gross income of the taxpayer

when received or earned.

If amount received does not form

part of gross income, the same

cannot be part of gross receipts

subject to VAT.

Do the salaries of security guards form

part of the taxable gross receipts of a

security agency?

Prior to RMC 39-2007: Salaries of the security guards are actually

the liability of the agency, hence, includible in its gross receipts for business tax purposes.

BIR Ruling Nos. 69-02,049-85 and 271-81

RMC 39-2007:

Liability of the security agencies for the prescribed increases in the wage rates of workers are explicitly required to be borne by the principal or clients of the service contractor pursuant to Sec 6 of RA 6727 (The Wage Rationalization Act)

RMC 39-2007:

Sec 1, Rule XIV of the 1994 Revised Rules and Regulations implementing RA 5487 provided that the monies received by the agency from its clients as an amount reserved for the remuneration of the guard or detective must be segregated.

RMC 39-2007:

Security Agency has no control or dominion over the portion of the payment received from its client which is intended or earmarked as salaries of the guards.

Only receipts which a taxpayer is free to enjoy at his option is taxed to him as his income. (Corliss v Bowers, 281 U.S. 376)

II. INCOME TAX TREATMENT OF THE PAYMENTS MADE TO SECURITY AGENCY:

1. On the Part of the Security Agency: Agency Fee (amount net of VAT) – part of gross

income subject to income tax

Security Guards’ Salaries – LIABILITY

If the Contract does not provide for a breakdown of the amount payable to the Security Agency, the entire amount representing the Contract Price will be taxed as income to the Agency, which must form part of its gross receipts.

Illustration:

Assume that Vigilant Security Agency, Inc. was contracted by Tanzo Jewelry Corp., to provide security services to the latter’s store. The contract price on a monthly basis is P18,000.00 broken down into: Security Guards’ Salaries of P14,179.08 and Agency Fee of P3,820.92 (inclusive of VAT)

Journal Entries:

Debit: Cash 17,931.77

Prepaid Income Tax (2% EWT

on agency fee) 68.23

Credit: Service Income (agency fee) 3,411.54

Output Tax (on agency fee) 409.38

Due to Security Guards 14,179.08

Journal Entries: Upon Payment of the

Security Guards’ Salaries:

Debit: Due to Security Guard 14,179.08

Credit: Cash 12,617.11

Withholding Tax Payable 1,541.97

The Security Agency who is the trustee of the funds segregated and earmarked as salaries of the security guards is the withholding agent for purposes of the withholding tax on compensation.

2. On the Part of the Client or User of Security Services:

Journal Entries:

Debit: Security Services-Agency Fee 3,411.54

Security Services-SG Salaries 14,179.08

Input Tax (only on Agency Fee) 409.38

Credit: Cash 17,931.77

WHT Payable(2% EWT on

agency fee) 68.23

III. VAT TREATMENT OF THE PAYMENTS FOR SECURITY SERVICES:

1.On the Part of the Security Agency: 12% Output Tax shall be based on the

Agency Fee which in turn will be the Input Tax of its Client.

Salaries of the Security Guards will not form part of the its gross receipts subject to VAT but shall be recognized as a LIABILITY of the security agency.

III. VAT TREATMENT OF THE PAYMENTS

FOR SECURITY SERVICES:

2. On the Part of the Client:

Input Tax credit is based on the Agency Fee paid by the Client.

VAT official receipt must be issued to the Client.

III. VAT TREATMENT OF THE PAYMENTS

FOR SECURITY SERVICES:2. On the Part of the Client:

The Client can not claim Input Tax Credit on the salary portion of the Security Services Expense because it pertains to service Exempt from VAT pursuant to Sec 109 (I) of the NIRC-Services rendered by individual pursuant to employee-employer relationship

IV. MANNER OF ISSUING RECEIPT FOR THE ENTIRE CONTRACT PRICE:

On the Agency Fee:

VAT Official Receipt must be issued pursuant to Sec 113 of the NIRC as implemented by Sec. 4.113-1 of RR 16-2005.

The receipt should cover only the amount of Agency Fee paid with the indication that such amount received includes the VAT. The VAT must be shown as a separate item in the VAT Official Receipt.

IV. MANNER OF ISSUING RECEIPT FOR THE ENTIRE CONTRACT PRICE:

On the Security Guards’ Salaries:

Must be covered by a Non-VAT

Acknowledgement Receipt.

Duly Notarized Certification of the

Expanded Withholding Taxes (see ANNEX

A of this RMC) must also be submitted.

V. WITHHOLDING TAX COMPLIANCE:

On the Agency Fees:

The Client is constituted as the withholding agent of the EWT

(following the rule on RR 2-98,

as amended by RR 30-03).



The Security Agency shall be the one responsible for the Withholding of Tax on Compensation.

While it is the Client who claims the payment as an expense, it is the Security Agency who physically controls the payment of salaries of the Security Guards.



Security Agency must Furnish its Client, on or before January 31 of the year following the year of withholding, a Notarized Certification (see Annex A) indicating the names of the guards employed by the Client, their respective TINS, the amount of their salaries and the amount of tax withheld from each.



The Certification together with the Non-VAT Acknowledgement Receipt must be kept on file by the Client as substantiation for the claim of the expense.

Taxability of Agricultural Contract Growers

(RMC 97-2010)

Taxability of Agricultural Contract Growers

• Toll processing services confirmed as VAT exempt pertain only services to clients from which growing of animals were contracted.

• Preparing and packaging hogs/chicken ready for delivery after producing or growing them can be said to be within the purview of agricultural contract growing.

Cont…

• If such an activity is done independently of growing poultry, livestock, or other agricultural and marine food products, the same can be considered as VAT taxable services not covered by agricultural contract growing.

susantusoy.weebly.com

Documents

VALUE ADDED TAX Presented by: MR. GRECIO PAUL R. DIAZ, CPA Revenue Officer RDO 113-West Davao City