VAT On Sale of Goods and Properties

There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to 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. Normally, the invoice price of goods are VAT-inclusive, hence: Invoice price = Selling price + 12% of selling price; or Invoice price = 112% of Selling price

For example, if a McDonalds happy meal has an invoice price of P100, the said price is inclusive of the selling price and the 12% VAT. To get the selling price, Selling price = Invoice price / 112% VAT rate Selling price = P100 / 112% Selling price = P89.29 VAT imposed on selling price = P89.29 x 12% = P10.71

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Goods or properties shall mean all tangible and intangible objects which are capable of pecuniary estimation; 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. ◦ In the case of sale, barter or exchange of real property subject to VAT, gross selling price shall mean the consideration stated in the sales document or zonal value, whichever is higher.

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Sales returns and allowances Sales discounts

The following data were taken from the books of Tiberio Company during the month of April of the current year: Cash sales P Sales on account Sales returns and allowances Sales discount

453,200 565,800 31,548 35,250

Compute for the gross selling price and the tax base.

Cash sales Sales on account Gross selling price Less: Deductions Sales returns and allowances Sales discount Tax base

P

P

453,200 565,800 1,019,000 (31,548) (35,250) 952,202

The VAT payable is determined by deducting the input tax from the output tax. Thus, the formula in computing VAT payable is: Output tax – Input tax = VAT payable  Output tax is the VAT due on the sale or lease of taxable goods or properties or services by any person registered or required to register under the Tax Code.  Input tax refers to the VAT from or paid by a VAT registered person in the course of his trade or business.  VAT payable refers to the excess of the output tax over the allowable input tax. 

January 1, 20xx Cash/AR Sales Output VAT (liability)

Pxxx

January 1, 20xx Merchandise inventory Input VAT (asset) Cash/AP

Pxxx xxx

January 1, 20xx Output VAT Input VAT VAT payable

Pxxx

Pxxx

xxx

Pxxx Pxxx

xxx

In transactions deemed sale, no actual sale of goods took place but such transactions are subject to VAT. The rationale is to recapture the VAT that was already claimed as input tax.

Transactions deemed sale for VAT purposes Transfer, use or consumption not in the course of business of goods or properties originally intended for sale or for the use in the course of business. The output tax shall be based on the FMV of the goods deemed sold.

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Distribution or transfer to: ◦ Shareholders or investors as share in the profits of the VATregistered persons; or ◦ Creditors in payment of debt or obligation; The output tax shall be based on the FMV of the goods deemed sold. ◦ Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were consigned. Those returned by the consignee within the 60-day period are not deemed sold. The output tax shall be based on the FMV of the goods deemed sold. and

◦ 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:  Change of ownership in the business. There is a change of ownership in the business when a single proprietorship incorporates; or the proprietor of a single proprietorship sells his entire business;  Dissolution of a partnership and creation of a new partnership which takes over the business. The output tax shall be based on the FMV of the goods deemed sold or the acquisition cost, whichever is lower.

During the year, Quence Footstep, a shoestore, purchased 100 pairs of shoes from its distributor. Each pair is worth P784 and sold by the shoestore at P1,120. During the month, the management decided to give one (1) pair of shoes to each to the ten (10) salesladies. All the other 90 pairs were sold by the store. Compute for the VAT payable. Output tax (P1,120 x 100 x 12/112) Input tax (P784 x 100 x 12/112) VAT payable

P P

12,000 8,400 3,600

The rationale deeming some transactions as sale is to recapture the input taxes that are creditable from output taxes of the other goods that were sold by business. Assuming the giving of 10 pairs of shoes were not deemed sale: Output tax (P1,120 x 90 pairs x 12/112) Input tax (P784 x 100 x 12/112) VAT payable

P P

10,800 8,400 2,400

Antonio is engaged in a merchandising business. His sales invoice and other data during the month of January are shown below:

Cash sales P 770,000 Sales returns on cash sales 055,000 Account sales 495,000 Goods consigned: January 10 of the current year 265,000 November 10 of the preceding year 016,500 Goods taken for personal use 018,150 Goods taken as payment to creditors 025,850 Purchase of merchandise 1,008,000 Purchase of supplies 089,600 Telephone bills on domestic calls 003,360

Cash sales, net (P770,000 – P55,000) Account sales Consigned goods Goods taken for personal use Payment to creditors Total Multiply Output tax

P P

P 715,000 495,000 16,500 18,150 25,850 1,270,500 12/112 136,125

Merchandise Supplies Telephone Total Multiply Input tax VAT Payable (P136,125 – P117,960)

P P

P1,008,000 0,089,600 3,360 P1,100,960 12/112 117,960 18,165

The tax rate imposed on taxable sales of goods or properties is 12%, except on some transactions that have tax rate of 0%.  Zero-rated transactions are still taxable, but the rate has been set to zero. It does not charge VAT on the output, but can claim refund or tax credit for input taxes charged to him by his suppliers.  To be subject to zero tax rate, the seller must be a VATregistered person. 

Export sales  Foreign currency denominated sales  Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subject such sales to zero rate. 

Atacador produces crustaceans from his farm in Masbate City. His products are delivered to Bengala Company, a food processor who in turn sells them while sealed in cans to Calabog Corporation, a wholesaler/exporter. The canned goods are delivered to retailers while others are exported to Europe. The retailers sell the goods to households. Determine whether Atacador, Bengala, and Calabog are subject to VAT or not, respectively.

The sales of the crustaceans by Atacador to Bengala Company are exempt from VAT because they are considered as sales of marine food products in their original state. The sale of canned crustaceans by Bengala to Calabog is subject to VAT because they are no longer in their original state when they were canned. The sale by Calabog to retailers are taxable at 12%, while the exportation of such goods is zero-rated.

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The sale and actual shipment 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. Sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident local export-oriented enterprises 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.

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Sale of raw materials for packaging materials to export-oriented enterprise whose export sales exceed 70% of the total annual production. Sale of gold to the Bangko Sentral ng Pilipinas; and Those considered export sales under EO No. 226 (Omnibus Investment Code of 1987), and other special laws. The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations.

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The phrase means sale to a non-resident of goods (except automobiles and non-essential goods subject to excise taxes) assembled or manufactured in the Philippines, for delivery to a resident in the Philippines, paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas.

The following data reveals the records during the month of Fifth Corporation, a VAT registered taxpayer: Domestic sales (invoice amount) P 1,064,000 Export sales F.O.B. shipping point 820,000 Sales of goods to Tirso in Hongkong, but delivered to Pipay, a resident (payment was remitted in dollars by Tirso through PNB) 75,000 Purchases of goods sold locally (inclusive of tax) 582,400 Purchases of raw materials on goods exported (net of VAT) 380,000

Compute the VAT payable by Fifth Corporation during the month if it decides to claim as tax credit the input tax corresponding to the export sale.

Domestic sales (P1,064,000 x 12/112) Export sales (P820,000 x 0%) Foreign currency sales (P750,000 x 0%) Output tax Input tax Goods locally sold (P582,400 x 12/112) Materials on exported goods (P380,000 x 12%) VAT payable

P114,000 000 000 P

114,000 62,400 45,600 P 6,000

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Export sales are zero rated irrespective of any shipping arrangement that may be agreed upon (FOB shipping point or destination) which may influence or determine the transfer of ownership of the goods so exported. Although export sales and foreign currency denominated sales do not result to any output tax, the input taxes paid on the purchase of such goods can be credited against the output tax due for the taxable month. The transactions such as export sales and foreign currency denominated sales must be transacted by a VAT registered taxpayer.

Zero-rated transactions are not VAT exempt because they are still subject to VAT, but only at 0% rate.  One can claim a refund of Input VAT if his sales transaction is classified as zero-rated. 

The following may claim transitional input tax on beginning inventories: When he becomes liable to VAT upon exceeding the minimum turn-over of P1,919,500 in any 12-month period, or When he voluntarily registers even if his turnover does not exceed P1,919,500 (except franchise grantees of radio and television broadcasting whose threshold is P10,000,000)

The following inventories shall be the subject of a transitional input tax: Goods purchased for resale in their present condition; Materials purchased for further processing, but which have not yet undergone processing; Goods which have been manufactured by the taxpayer; Goods in process for sale; or Goods and supplies for use in the course of taxpayer’s trade or business as a VAT registered person.

The amount of transitional input tax to be allowed as tax credit shall be whichever is higher between: The beginning inventory of goods, materials and supplies equivalent to 2% of the value of such inventory; or The actual value added tax paid on such goods, materials and supplies. The value allowed for income tax purposes on inventories shall be the basis for the computation of the 2% transitional input tax excluding goods that are exempt from VAT.

Vatman became subject to VAT on March 1 of the current year. The value of his beginning inventory of goods, materials and supplies if P567,000. the VAT paid on such inventory amount to P15,500. How much is the transitional input tax of Vatman? Beginning inventory VAT (P567,000 x 2%) P 11,340 Actual VAT paid 15,500 The input tax that must be claimed should be the higher between the two, hence P15,500.

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VAT registered persons or firms engaged in the processing of sardines, mackerel and milk, and in manufacturing refined sugar, cooking oil, and packed noodle-based instant meals shall be allowed a presumptive input tax, creditable against the output tax. Equivalent to four percent (4%) of the gross value in money of their purchases of primary agricultural products which are used as inputs to their 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.

Coco say is engaged in purchasing coconut from coconut planters and process them into canned coconut cooking oil. In September, he made a total purchase of P300,000, processed them and sold the cooking oil to the public. The taxable sales, gross of VAT, amounted to P2,128,000. The invoice on the purchases of canning and labelling materials totaled to P280,000. 1.How much is the presumptive input tax? 2.How much is the VAT payable?

Presumptive input tax (P300,000 x 4%)

P12,000

Output VAT (P2,128,000 x 12/112) Presumptive input tax Input tax on materials (280,000 x 12/112) VAT Payable

228,000 12,000 42,000 186,000

P

Sale of real properties not subject to VAT  Sale of real properties subject to VAT 

Only the sale of real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business of the seller shall be subject to VAT.

The following sales of real properties are not subject to VAT Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business; Sale of real properties utilized for low-cost housing; Sale of real properties utilized for socialized housing. Sale of residential lot valued at P1,919,500 and below and house and lot and other residential dwellings valued at P3,199,200 and below. Provided, every three years thereafter the amounts stated therein shall be adjusted to its present value using the Consumer Price Index, as published by the NSO. Provided, further, that such adjustment shall be published through revenue regulations to be issued not later than March 31 of each year.

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The sale of real property subject to VAT shall be either on cash basis, on installment basis, or on a deferred payment basis. The sale of real property is on the installment plan if the initial payments do not exceed 25% of the selling price. It is on a deferred payment basis not on the installment plan if the initial payment exceed 25% of the gross selling price. If the sale is on cash basis or on a deferred payment plan, the whole selling price shall be subject to tax. If the sale is on the installment basis, VAT shall be computed based on the installment payments, including interest and penalties.

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Export sales are zero rated irrespective of any shipping arrangement that may be agreed upon (FOB shipping point or destination) which may influence or determine the transfer of ownership of the goods so exported. Although export sales and foreign currency denominated sales do not result to any output tax, the input taxes paid on the purchase of such goods can be credited against the output tax due for the taxable month. The transactions such as export sales and foreign currency denominated sales must be transacted by a VAT registered taxpayer.

Taxable sales to private Total sales

x

Taxable sales to gov’tx Total sales

Input tax =

cost

Exempt sales Total sales

Input tax =

x

Creditable

Creditable up to 5%

Input tax =

Expense or

Fortuna Corporation has the following sales during the month: Sales to private entities subject to 12% P 100,000 Sales to private entities subject to 0% 100,000 Sales of exempt goods 100,000 Sales to government subject to 5% final withholding tax 100,000 Total sales for the month P400,000

The following input taxes were passed on by its VAT suppliers: Input tax on taxable goods (12%) P5,000 Input tax on 0% sales 3,000 Input tax on sale of exempt goods 2,000 Input tax on sale to government entities 4,000 Input tax on depreciable capital goods not attributed to any specific activity 20,000

Compute the following: Input tax attributable to Input tax attributable to Input tax attributable to Input tax attributable to VAT payable

sales to private entities sales to government VAT exempt sales zero-rated sales

Input tax attributable to sales to private entities Input tax on sales subject to 12% Ratable portion (P100,000/P400,000 x P20,000) Total creditable input tax for sales to private entities Input tax attributable to sales to government Input tax on sales to government Ratable portion (P100,000/P400,000 x P20,000) Total creditable input tax for sales to government

P P

P

5,000 5,000 10,000

4,000 5,000 P 9,000

Input tax VAT exempt sales Input tax on VAT exempt sales P Ratable portion (P100,000/P400,000 x P20,000) Total creditable input tax for VAT exempt sales Input tax zero-rated sales Input tax on zero-rated sales Ratable portion (P100,000/P400,000 x P20,000) Total creditable input tax for sales to government

2,000 P

P

5,000 7,000

3,000 5,000 8,000

Output VAT on sales subject to 12% (P100,000 x 12%) P 12,000 Less input tax attributable to sales subject to 12% 10,000 VAT payable on sales subject to 12% P 2,000 Output VAT on sales to government (P100,000 x 12%) P 12,000 Less input tax attributable to sales to government 9,000 Creditable input tax withheld (P100,000 x 7%) 7,000 VAT payable on sales to government P 5,000

Output VAT on sales subject to 12% (P100,000 x 12%) Less input tax attributable to sales subject to 12% VAT payable on sales subject to 12%

P12,000 10,000 P2,000

Output VAT on sales to government (P100,000 x 12%) Less input tax attributable to sales to government Creditable input tax withheld (P100,000 x 7%) VAT payable on sales to government

P12,000 9,000 7,000 P5,000

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Capital goods refer to goods or properties with estimated useful life greater than one (1) year and which are treated as depreciable assets, used directly or indirectly in the production or sale of taxable goods or services. Where a VAT registered person purchases or imports capital goods which are depreciable assets for income tax purposes, the following rules shall be applied: ◦ Input tax on depreciable capital goods, the aggregate acquisition cost (net of VAT) of which in a calendar month, exceeds P1,000,000 shall be spread evenly over 60 months or their useful life, whichever is shorter. ◦ When the aggregate acquisition cost (net of VAT) of the existing or finished capital goods purchased or imported during any calendar month does not exceed P1,000,000, the total input taxes will be allowable as credit against output tax in the month of acquisition.

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If the capital good is sold within five (5) years or prior to exhaustion of 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.

Felicisima had the following data in its books in the month of February:

  Sales

Case A ₱ 1,900,000

Case B ₱ 1,800,000

Purchase of goods for sale

1,260,000

600,000

Purchase of machines Machine life

1,440,000 6 years

900,000 3 years

Case A: Machine life is 6 years Output tax (P1,900,000 x 12%) Less input tax on purchases (P1,260,000 x 12%) Less input tax on machine (P1,440,000 x 12%)/60 VAT payable Case B: Machine cost does not exceed P1,000,000 Output tax (P1,800,000 x 12%) Less input tax on purchases (P600,,000 x 12%) Less input tax on machine (P900,000 x 12%) VAT payable

P

P228,000 151,200 2,880 73,920

P

P216,000 72,000 108,000 36,000

Case A: Assuming machine life is only 4 years Output tax (P1,900,000 x 12%) 228,000 Less input tax on purchases (P1,260,000 x 12%) 151,200 Less input tax on machine (P1,440,000 x 12%)/48 months 3,600 VAT payable

P

P

73,200