THE CPA BOARD EXAMS OUTLINES by John Mahatma G. Agripa, CPA
TAXATION
VALUE-ADDED
TAX
Supplementary discussions based on lectures by Atty. Christopher Llamado and
Atty. Dante de la Cruz, CPA (CPAR)
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DEFINITIONS
Value-added tax is a privilege/excise tax imposed on every sale,
exchange and importation of goods in the country, to be paid by sellers whose burden is passable to the final consumer. This makes it an indirect tax
It is paid and declared monthly with BIR Form 2550M, with the
20th day after month’s end as deadline. A quarterly return (BIR
Form 2550Q) is also submitted until the 25th day after the
quarter’s end
ENTITIES SUBJECT TO VAT
The following are mandated to pay value-added taxes on their business transactions:
o Those registered under the VAT system, regardless of the
amount of sales made during the taxable year o Those engaging in VAT transactions, whose gross
sales/receipts during any 12-month period exceeds Php
1,919,500, regardless of registration to VAT system o Those VAT-except entities who choose to register as a VAT
entity, regardless of amount of sales
o Those importers of any good subject to VAT, regardless if in the course of business or not
The following are likewise mandated to register under the VAT system:
o Those non-VAT-exempt with gross sales/receipts during any 12-month period exceeding Php 1,919,500, whether actually realized or merely expected in the coming 12-month period
o Broadcasting franchises whose gross sales/receipts for the
previous year exceeds Php 10,000,000
In the first case, the non-VAT taxpayer is required to register even if the Php 1,919,500 limit is breached before the 12 month period.
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The deadline to register is 10 days after the 12-month period. The taxpayer’s VAT liability shall begin on the first day of the month following registrationRegistration under the VAT system entitles the entity for input tax
credits – offsetting VAT from sales (output VAT) against VAT from
purchases (input VAT) to decrease VAT payable – and the right to pass the VAT burden to the consumers. Failure to register (especially for those entities with gross sales/receipts exceeding Php 1,919,500 for any 12-month period) will still make them liable for VAT, plus sanctions, and the inability to credit input taxes
The following may choose to register under the VAT system, though not mandated:
o Those whose gross sales/receipts during the 12-month period does not exceed Php 1,919,500. If not registered, they are subject to 3% other percentage tax (OPT)
o A VAT-exempt subsidiary company whose parent company is a
VAT-registered entity. If the subsidiary is VAT-registered and the parent is VAT-exempt, the parent may not register o Broadcasting franchises whose sales/receipts do not exceed
Php 10,000,000
The VAT registration shall be irrevocable for three years from the year of registration, except for broadcasting franchises which may no longer register out of the VAT system
Registration shall be made annually for every place of business – branch, warehouse – engaging in VAT transactions on or before January 31 of every year (Php 500 fee)
TRANSACTIONS:
VAT, ZERO-RATED, VAT-EXEMPT, DEEMED SALE
In general, business transactions are subject to VAT if it has been made actually, involves items of inventory, or ordinary assets not
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part of inventory, and made in the course of trade of business. The following are also considered VAT transactions:o Premiums collected for non-life insurance
o Sales of electricity by generation and transmission companies, except from renewable sources o Professional services (medical, dental, veterinary) o Commissions received and gross receipts of stock
brokers/dealers
The following is an abridged list of zero-rated transactions, which will not give rise to 12% output VAT, but still entitle the taxpayer of input tax credits. Note that being a zero-rated transaction is not
the same as an exempt transaction. If the taxpayer is not
registered, and he engages in these transactions, he is exempt from VAT. Since there’s no output VAT, no VAT burden is passed, thus entities purchasing from zero-rated taxpayers will not have any input VAT to offset their own output VAT in this particular transaction
o Sale of gold to Bangko Sentral ng Pilipinas
o Export sale of goods
o Foreign-currency denominated sales/services
o Sales by entities operating inside economic zones such as CDA, PEZA
o Transport of passengers/cargo from the country to any foreign area by domestic carriers through air and water
o Sales of power/fuel generated from renewable sources, such as solar and wind
Since there’s no output VAT, there’s nothing for input VAT to be offset against, so the taxpayer may either avail of refund or apply
for tax credit certificate in order to apply the input VAT against
other internal revenue tax such as income tax
The following are some VAT-exempt transactions, which gives rise to no output VAT and thus input VAT for immediate purchasers. Some may still, however, be subject to other kinds of tax, such as other percentage taxes
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that has been frozen, dried, roasted, smoked, Tetra-packed and plastic-shrink wrapped still counts as in their original state)o Fertilizers, seeds, and feeds and its ingredients for poultry animals
o Importation of personal effects
o Educational services by private institutions o Sales/services by cooperatives
o Sale/importation and related activities for books and regular publications
o Transport of people and cargo by international carriers o Sale of any good and service to senior citizens and persons
with disability
o Zero-rated transactions if the taxpayer is not registered under VAT system
As exception to the general definition of VAT transactions, the
following are some deemed sales transactions even though no
actual exchange took place. Despite this, deemed sales events still give rise to input VAT
o Transfer/use/consumption of goods originally intended for sale/use in the course of business
o Transfer of goods originally intended for business as property dividends and payment in-kind for creditors
o Retirement, dissolution or cessation of business (including change in ownership) with respect to goods still available o Cessation of VAT status (such as when the three-year election
period lapses)
VAT THRESHOLDS
As mentioned, entities with gross sales/receipts for any 12-month period exceeding Php 1,919,500 is subject to VAT – actual or expected. If the taxpayer engages in both VAT and non-VAT transactions, the amount would of course only include that of VAT transactions
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The lease of residential units with monthly rent exceeding Php 12,800 (per unit) with gross annual receipts exceeding Php 1,919,500 is a VAT transaction. If the threshold is not met, the gross receipts are subject to 3% OPT
If the threshold and the Php 12,800 montly per unit limit is not met as well, the lease is both VAT- and OPT-exempt. If the Php
1,919,500 gross receipts is reached but the Php 12,800 monthly per unit is not, the lease is VAT-exempt
Transactions involving commercial and industrial real property is subject to VAT regardless of sales value
Sales of residential house and lot valued above Php 3,919,200 and residential lot at Php 1,919,500 (per transaction) is subject to VAT. Again, this does not apply to commercial and industrial property
OUTPUT VAT
An account with a credit balance, the output VAT is 12% of the
gross sales/receipts or the selling price – the total amount that the
customer has to pay for the good/service in consideration. The gross selling price for goods is equal as follows:
Gross sales price (VAT-exclusive) xx ADD: Excise tax, tariffs, customs duties xx DEDUCT: Sales returns and allowance xx DEDUCT: Sales discounts (if immediately given) xx Gross selling price xx
For services, the basis for the 12% output VAT is as follows:
Cash received (receivables not included) xx ADD: Advance payments for future services xx ADD: Materials charges xx Gross selling price xx
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VAT. To determine if the amount is indeed inclusive of VAT, divide the amount with 1.12. If the quotient is a whole number, the amount is inclusive of VAT. Extract the VAT amount by multiplying the invoice with 12/112
The output VAT of all importers (whether in business or not) shall
be based on the landed cost – composed of invoice price, customs
duties, freight related to the importation, postage, wharfage, arrastre charges, excise tax and brokerage fees. Facilitation fees
(“hulog”) are not included
The VAT has to be paid first before the imported goods could be released from customs
As to deemed sale transactions, the output VAT is based on their
current market value, except for retirement and cessation of
business and VAT status, which is based on the lower between the current market value or the historical cost
As to sale of real property subject to VAT, output VAT shall be based on the higher between the actual selling price, the zonal value or the assessor’s value. This is if the property is bought with cash. The selling price, as mentioned, is assumed to be inclusive of VAT. Both zonal and assessor’s value is gross of VAT
If the property is paid in installments, the VAT for the period is equal to 12% of each payment in the period. This is if the higher amount is the actual selling price. But if the higher amount is either the zonal or assessor’s value, the VAT on every payment is equal as follows:
Actual collection for the period (gross of VAT) xx DIVIDE: Total consideration (gross of VAT) xx xx MULTIPLY: Zonal or assessor’s value (higher) xx xx
MULTIPLY: 12% 12%
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INPUT VAT
Input VAT credit is only available for VAT-registered purchasers and importers. It is important that the transaction is evidenced by a VAT receipt so the input VAT can be availed. Otherwise, if the taxpayer is not registered or no VAT receipt is issued, the VAT from the purchase forms part of operating expenses
There are also several other sources of input VAT as follows:
o Transitional input VAT is available for taxpayers who
registered in the VAT system for the first time, computed as
the higher between the actual input VAT on the goods
purchased or 2% of the value of beginning inventory
o Presumptive input VAT is for firms that purchase VAT-exempt
goods to be processed for VAT sales, particularly sales of
sardines, mackerel, cooking oil, packed noodles, refined
sugar and milk. The input VAT is equal to 4% of the value of
the goods used in production
o If a VAT-exempt entity issues a VAT receipt (which it
shouldn’t), the purchaser is entitled to input VAT even though the transaction is VAT-exempt
o For construction companies, input VAT for the period is equal to 12% of additional costs incurred in the period
The purchase of capital assets to be used in business is also a source of input VAT. Capital assets are those that are depreciated and are expected to be used for more than one year. The input VAT is equal to 12% of their price, net of VAT, subject to the following rules:
o If in a month, a single capital asset is purchased and its cost exceeds Php 1,000,000 (net of VAT), the total input VAT is
spread monthly over its useful life. If the useful life is 5 years
or more, the VAT is spread only for 60 months
o If in a month, more than one capital assets are purchased and their total cost exceeds Php 1,000,000, their individual input VAT is amortized following the rules above
o If the Php 1,000,000 is not breached, the total input VAT can be used for the month. If the asset is sold/disposed, the
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unamortized input VAT shall be used in total in the month of sale/disposalTaxpayers not engaged in transport/leasing business is not allowed to credit input VAT from purchases of yachts, helicopters, airplanes and other vehicles with amounts exceeding Php 2,400,000.
Some entities may be engaging in both VAT and non-VAT
transactions, and goods from VAT purchases might have been used for both transactions. To extract the input VAT attributable to the VAT transaction:
Sales/receipts subject to VAT xx DIVIDE: Total sales/receipts xx xx MULTIPLY: Total unattributable input VAT xx Input VAT attributable to VAT transactions xx
The remaining input VAT shall be recorded as operating expenses
There might be instances that input VAT exceeds output VAT for the period. This excess can be carried over in the next months until exhausted
SALES TO THE GOVERNMENT
A VAT-registered entity selling goods/services to the government shall receive proceeds equal to the following:
Gross selling price (net of VAT) xx DEDUCT: Final VAT withheld (5% of GSP, net of VAT) xx ADD: Output VAT computed on the GSP, net of VAT xx
Proceeds xx
The input VAT from the sale – the standard input VAT – shall be 7% of the gross selling price (GSP), net of VAT. If the actual input VAT (12% of the price as purchased from supplier) from the purchase of goods for the sale to the government is higher than the standard
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input VAT, the difference is expensed. Otherwise, the difference is recorded as incomeTHE VAT RETURN + MISCELLANEOUS
As mentioned, VAT-registered entities file both a monthly VAT
declaration and a quarterly VAT return (Form 2550). Payment shall
be made monthly. For instance, in the period from January to March (1st quarter), the report for February shall contain data for
both January and February, and the quarterly report shall have data for the three months. The VAT due to be shown on every month, however, shall be the VAT due for that month alone
As mentioned, senior citizens and PWDs are granted exemption
from VAT plus 20% discount on their purchases. The basis for the discount shall be the invoice price net of VAT
