Introduction to VAT in Philippines

Topics: Tax, Value added tax, Taxation in the United States Pages: 21 (7303 words) Published: September 17, 2014
VALUE ADDED TAX

What is Value Added Tax (VAT)?

It is a tax on consumption levied on the sale, barter, exchange, or lease of goods or services in the Philippines and on the importation of goods into the Philippines.

It is an indirect tax, as provided in Section 105 of the NIRC. It is an indirect tax meaning the amount of tax may be shifted on the buyer, transferee or lessee of the goods, property, or services. The Code provides that the tax may be shifted to the consumer, most if not at all, taxpayers who are VAT liable shift the burden of paying tax to the consumers.

It is a tax imposed on the gross selling price or gross receipt derived from the sale, barter, or exchange and lease of goods or properties and rendering of services including importation, in the ordinary course of trade or business.

It is the difference between the total sales of the taxpayer for the taxable quarter and his total purchases for the same period subject also to VAT.

Characteristics:
It is a tax on value added of a taxpayer.
It is collected through the tax credit method.
It is a transparent form of sales tax.
It is a broad-based tax on consumption of goods, properties or services in the Philippines. It is an indirect tax.
The Philippines adopted the “tax inclusive method.”
There is no cascading in the value added tax system.

How are transactions classified under the VAT system of taxation? Under the VAT system of taxation, transactions are classified as follows:

(a) Taxable transactions
(1) Those subject to 12%
(2) Those subject to 0%
(b) Exempt transactions

VATable transactions:
A.) Sale, barter or exchange of goods or property.
B.) Transactions deemed sale.
C.) Importation of goods
D.) Sales of services and use or lease of property.

Who are the persons liable and required to pay VAT? (Sec.105) Any person who, in the course of his trade or business, sells, barters, exchanges, or leases goods or properties, or renders service, and any person who imports goods, shall be liable to VAT imposed in sections 106-108 of the Tax Code, if the aggregate amount of actual gross sales or receipts exceed P1, 919,500 (RR 16-2011, RR 3 -2012), as amended.

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. However, in the case of importation of taxable goods, the importer, whether an individual or corporation and whether or not made in the course of his trade or business, shall be liable to VAT imposed in Sections 107 of the Tax Code.

Professional practitioners
Output Tax: means the value added tax due from or paid by the VAT- registered person in the course of his trade or business on importation of goods, properties or services, including lease or use of property from a VAT-registered person. (Sec.110 [A], NIRC). Input Tax: means the VAT due from or paid by a VAT-registered person in the course of his trade or business or importation of goods or local purchase of goods or services, including lease or use of property from a VAT-registered person. (Sec.110 [A], NIRC). To illustrate: X, a VAT registered seller of trucks, buys his materials, such as wheels from Y, also a VAT registered entity. Since Y is VAT registered, the wheels which X bought form Y are subject to VAT. Assuming Y shifts the burden of paying the VAT to X, the VAT on the wheels bought by X from Y is what we call “input tax.” Assuming that X already sold the truck, since X is also a VAT registered entity, his sale of the car is subject to VAT. This is what we refer as “output tax.” Further, the input tax paid by the taxpayer is to be deducted from his output tax to arrive at his VAT payable or creditable formula:

OUTPUT TAX
LESS: INPUT TAX
VAT PAYABLE (CREDITABLE)

Sources of Input Tax:
Creditable Input Tax
(1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof on the...
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