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  • VAT Determination

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    RyD
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    VAT is determined by checking if a transaction is VATable, zero-rated, or exempt. For VATable transactions, output tax is subtracted from input tax to get the VAT payable amount. For zero-rated transactions, sellers can claim a refund for input tax paid. For exempt transactions, sellers cannot claim input tax refunds. VAT returns are generally filed quarterly within 25 days of the quarter's end, but VAT-registered persons pay VAT on a monthly basis.

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    VAT is determined by checking if a transaction is VATable, zero-rated, or exempt. For VATable transactions, output tax is subtracted from input tax to get the VAT payable amount. For zero-rated transactions, sellers can claim a refund for input tax paid. For exempt transactions, sellers cannot claim input tax refunds. VAT returns are generally filed quarterly within 25 days of the quarter's end, but VAT-registered persons pay VAT on a monthly basis.

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    11 views5 pages

    VAT Determination

    Uploaded by

    RyD
    VAT is determined by checking if a transaction is VATable, zero-rated, or exempt. For VATable transactions, output tax is subtracted from input tax to get the VAT payable amount. For zero-rated transactions, sellers can claim a refund for input tax paid. For exempt transactions, sellers cannot claim input tax refunds. VAT returns are generally filed quarterly within 25 days of the quarter's end, but VAT-registered persons pay VAT on a monthly basis.

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    of 5

    How VAT is determined.

    Now that you’re familiar with VATable, zero rated and exempt transactions, here is how
    you can determine the VAT.

     Check whether the transaction is VATable, zero rated or exempt.

    VATable Transaction

    In our example, focus with Boris.

    a. (Boris as a buyer/purchaser of goods). Andres sells to Boris a piece of wood – a nice,


    fine, well sanded piece of wood.

    Price: P100
    VAT (12%) P12
    Total P112

    b. (Boris as a seller). Boris then expertly crafts the wood into a rocking chair and sells it
    to Cletus.
    Price P150
    Tax P18
    Total P168

    Output tax is basically the tax on the seller’s product. Here, the output of Boris is the
    rocking chair that he sold to Cletus.

    The input tax on the other hand is the tax on the goods/services that would make up the
    finished goods. Here, in order for Boris to make up the rocking chair, he needs to
    purchase woods. Thus, his input tax is on the woods that Boris purchased from Andres.

    To compute for the VAT payable, we just deduct the input tax from the output tax. It is the
    VAT Payable that we’ll ultimately remit to the BIR.

    Output tax P18


    Less: Input tax (P12)
    VAT Payable P6

    Boris, the seller of the rocking chair will pay the VAT of P6.

    Remember, VAT is an indirect tax, hence the burden of paying the VAT is passed on to
    the buyer.

    Here, Boris shouldered the 12% VAT when he bought the wood from Andres however he
    was able to recover the P12 by selling the rocking chair to Cletus. Ultimately, it is Cletus,
    the end user who shouldered the 12% VAT when he paid the rocking chair at P150.

    Page 1 of 5
    Now, we go to zero-rated and exempt.

    The biggest difference of zero-rated and exempt transactions is the ability to recover VAT
    already paid to the seller.

    Why do we look at the input tax and not the output tax?
    It is the input tax that we all seek to recover because it is what we shouldered.
    Here, Boris wants to recover the 12% VAT that he paid to Andres.

    Output tax doesn’t come out of our own pockets because we can pass that burden to the
    buyers or end users.
    Boris’ selling of the rocking chair to Cletus will burden Cletus, not Boris.

    In zero rated transactions, there is total relief for the purchaser (Cletus) from the burden
    of the tax since he does not have to pay any VAT on the transaction.
    On the side of the seller (Boris), the input tax on his purchases from his supplier
    (Andres) shall be available as a tax credit or refund.

    In exempt transactions, there is only a partial relief because the seller (Boris) is not
    allowed any tax refund or credit for input taxes paid on his purchases from his supplier
    (Andres).

    VAT ZERO-RATED transaction

    Zero-rated transactions refer to the export sale of goods and supply of services. The seller
    of such transactions charges no output tax, but can claim a refund or tax credit certificate
    for the VAT previously charged by suppliers. This is for the benefit of the seller.

    Effectively zero-rated transactions refer to the sale of goods or supply of services to


    persons or entities whose exemption under special laws or international agreements to
    which the Philippines is a signatory effectively subjects such transactions to a zero rate.
    Such rate does not yield any tax chargeable against the purchaser. This is for the benefit
    of purchaser.

    In both zero-rated and effectively zero-rated transactions, the seller who charges zero
    output tax can claim a refund or a tax credit certificate for the VAT previously charged by
    suppliers.

    Let’s go back to our earlier example.


    a. (Boris as a buyer/purchaser of goods). Andres sells to Boris a piece of wood.

    Price: P100
    VAT (12%) P12
    Total P112

    Page 2 of 5
    b. (Boris as a seller). Boris then expertly crafts the wood into a rocking chair and sells it
    to Cletus.

    Price P150
    Tax P0
    Total P150

    Output tax P0
    Less: Input tax (P12)
    VAT Payable (P12)

    Here, Boris paid Andres P12 as VAT. But his transaction to Cletus was zero-rated. So he
    did not receive anything from Cletus to offset his VAT payment to Andres.

    Boris has an output of zero and an input of P12. He can apply for a refund or a tax credit
    of the P12 with the BIR because the law allows this.

    VAT Exempt Transactions

    The sale of goods or properties and/or services and the use or lease of properties is not
    subject to VAT (output tax) and the seller is not allowed any tax credit of VAT (input tax)
    on purchases.
    The person making the exempt sale of goods, properties or services shall not bill
    any output tax to his customers because the said transaction is not subject to VAT.
    The seller does not charge VAT and he CANNOT claim exemption from what has
    been passed to him.

    If we go back to our earlier example.

    a. (Boris as a buyer/purchaser of goods). Andres sells to Boris a piece of wood.

    Price: P100
    VAT (12%) P12
    Total P112

    b. (Boris as a seller). Boris then expertly crafts the wood into a rocking chair and sells it
    to Cletus.

    Price P150
    Tax P0
    Total P150

    Output tax P0
    Less: Input tax (P12)
    VAT Payable (P12)

    Page 3 of 5
    It is the same scenario as zero rated transaction however unlike it, Boris can not apply
    for a refund or a credit of the P12 with the BIR because the law does not allow this.

    Please take note of the following. These are the highlights of VAT in the TRAIN law.

    Page 4 of 5
    Q: When are VAT returns filed/paid?
    A: In General. - Every person liable to pay the VAT shall file a quarterly return of the
    amount of his gross sales or receipts within twenty-five (25) days following the close of
    each taxable quarter prescribed for each taxpayer: Provided, however, that VAT-
    registered persons shall pay the VAT on a monthly basis.

    Page 5 of 5

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