VALUE ADDED TAX Presented by MS SUSAN D

VALUE ADDED TAX Presented by: MS. SUSAN D. TUSOY, CPA, MPS Asst. Chief, Assessment Division RR 19 – Davao City 1

BASIC CONCEPTS OF VALUE ADDED TAX 2

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. 3

VAT defined 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. 4

Background of VAT is a universal taxation system; VAT has major amendments : 1. 2. 3. 4. E. O. 273 – VAT Law (1988) Jan. 1, 1988 RA 7716 – E-VAT (RR 7 -95) Jan. 1, 1996 RA 8241 – IVAT (RR 6 -97) Jan. 1, 1997 RA 8242 – Tax Reform Act of 1997 5

Background of VAT 5. RA 9337 – New Expanded VAT Law signed into law on May 24, 2005 Implementation withheld due to TRO was lifted by the SC on Oct. 18, 2005 Became effective November 1, 2005 Implementing Rules and Regulations ◦ RR 14 -2005 was superseded by RR 16 -2006 (amended by RR 2 -2007, RR 4 -2007, RR 10 -2011 & RR 16 -2011) 6

Objectives of VAT Broaden Tax Base Provide an audit trail Simplify business taxation 7

Who are liable to VAT? SELLER • 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 provided the aggregate sales/receipts exceeds the threshold* (or who opt to register as VAT) * The threshold is now P 1, 919, 500 effective Jan. 1, 2012 (RR 16 -2012) 8

VAT Rates: 10% (up to January 31, 2006) 12% (effective 2 -1 -06) and 0% 9

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 10

BASIS OF VAT on Goods/Prop. Shall be the GROSS SELLING PRICE (GSP) GSP is the total amount of money or its equivalent which the purchaser pays or is obligated to pay excluding VAT. the excise tax, if any shall form part of the gross selling price 11

BASIS OF 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 12

BASIS OF VAT on SERVICES/LEASE OF PROP. shall be the GROSS RECEIPTS It refers to the total amount of money or its equivalent representing: ◦ the contract price ◦ compensation, service fee, rental or royalty, ◦ including the amount charged for materials supplied with the services and deposits applied as payments for services rendered and ◦ advance payments actually or constructively received 13

ZERO-RATED 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. 14

Effectively Zero-rated sales of goods and properties (Sec. 6 of RR 4 -2007) Shall refer to the local sales of goods or properties by a VAT-registered person to a person or entitiy who was granted indirect tax exemptions under special laws or international agreements. 15

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); or b. Creditors in payment of debt or obligation. 16

Transactions deemed sale (Sec. 106(B)) 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. 17

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 18

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 19

OUTPUT TAX & INPUT TAX 20

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% 21

Input Tax It is 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 22

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 23

Sources of Input Tax 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 24

Sources of Input Tax 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) 25

Spreading of VAT on Capital Goods • Input Tax on depreciable capital goods, the aggregate acquisition cost of which (net of VAT) in a calendar month, exceeds P 1, 000 shall be spread evenly over 60 months or their useful life, whichever is shorter. 26

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. 27

Spread of VAT on Capital Goods Option to apply for refund/tax credit certificate of capital goods has been withdrawn. 28

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 29

Journal Entries upon Purchase 1. Purchase of goods with invoice price of P 16, 800. 00 Purchases 15, 000 Input Tax 1, 800 Cash P 16, 800 30

Journal Entries upon Sale 2. Sales of P 22, 400 inclusive of VAT Cash 22, 400 Sales 20, 000 Output tax 2, 400 31

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 32

VAT Payable Output Tax Less Input Tax VAT Payable - P 2, 400. 00 1, 800. 00 P 600. 00 33

Transitional Input Tax 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 34

Transitional Input Tax Example: Mr. A becomes liable to VAT starting Jan. 2011. He has P 200, 000 worth of inventory. Actual VAT payment on purchases from VAT registered suppliers were P 18, 000. Allowed transitional input tax: P 18, 000 The 2% of P 200, 000 (P 4, 000) is lower than P 18, 000 35

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 36

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. 37

Refund or Tax Credit of Input Tax (Sec. 112 of the NIRC) 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. 38

VAT on GOVERNMENT TRANSACTIONS 39

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 40

VAT ON GOVERNMENT TRANSACTIONS • 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 41

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

Apportionment of input tax on mixed transactions 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

Apportionment of input tax on mixed transactions 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 Taxable sales to private X Total sales Input Tax = Creditable Taxable sales to govt. Total sales X Input Tax = Creditable * Taxable sales 0% Total sales X Input Tax = Refundable Exempt sales Total sales X Input Tax = Expense or cost * Subject to the 7% standard input tax provision 45

COMPLIANCE REQUIREMENTS 46

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. 47

Optional Registration 3. Franchise grantees of radio and/or television broadcasting with annual gross receipts not exceeding P 10 M. (This option once exercised is irrevocable); 48

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. 49

Invoicing Requirements A VAT-registered person shall issue: • 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 50

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. 51

Cont… • 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 52

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 53

Cont… For sale to VAT-registered persons amounting to P 1, 000 or more, indicate the name, business style (if any), address and TIN of the purchaser 54

Sample Invoice No. 037585 ABAKA CORP. 88 East Avenue, Quezon City VAT Reg. TIN: 115 -688 -025 -000 June 06, 2005 Sold to Address City TIN : TAUWAYA Corp. : 75 Fairview St. , Brgy. Pio del Pilar, Makati : 215 -880 -000 VAT DESCRIPTION QTY UNIT COST Spiral Notebook 50 100 pcs. /box Poultry products 100 Eggs (Per Dozen) Native Decors for 50 Export (100 pcs. /box) P 3, 200 42 12, 000 Vatable Sales VAT-Exempt Sale Zero-rated Sale TOTAL SALES 10% VAT TOTAL ATP AMOUNT PAYABLE TOTAL TRANSACTION TYPE P 160, 000 Vatable 4, 200 VAT-Exempt Sale 600, 000 Zero-rated Sale P 160, 000 4, 200 600, 000 P 764, 200 16, 000 P 780, 000 55

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; 56

Accounting Requirements • 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 importation and purchases from services. 57

Proper Invoicing and Receipting Output Tax q Revenue Regulations 18 -2011 • Reiterates Sec. 237 of the Tax Code that VATregistered taxpayers should separately bill the VAT. • The amount shall be shown as a separate item in the invoice or receipt

Spot the error…. .

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$Penalties for Erroneous Issuance of VAT Invoice or VAT Official Receipt Infraction Penalty -$

Penalties for Erroneous Issuance of VAT Invoice or VAT Official Receipt Infraction Penalty - payment of percentage tax, if 1. NON-VAT person who issues a VAT invoice/official applicable - payment of VAT (w/out input tax) receipt - 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 Subject to 12% VAT receipt for a VAT-exempt sale without the words “VAT-EXEMPT SALE” 61

FILING AND PAYMENT DUE DATES 62

Filing of Return • Every persons liable to pay the VAT shall file a: • MONTHLY RETURN (2550 M) – every 20 th day of the following the close of each month; and • QUARTERLY RETURN (2550 Q) – every 25 th 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. 63

Synchronized Filing of Quarterly VAT and Quarterly Income Tax (RR 8 -2002) Under Manual Filing System Ex: Fiscal year ends May 31 Quarter Covered 1 st Quarter 2 nd 3 rd 4 th Quarter Months Forms to Used Under EFPS Due date Due Date For Filing/Payment e. Filing e. Payment June 2550 M July 20 Staggered (pls see table) Jul. 25 July 2550 M August 20 Staggered (pls see table) Aug. . 25 August 2550 Q September 2550 M October 20 Staggered (pls see table) Oct. 25 October 2550 M November 20 Staggered (pls see table) Nov. 25 November 2550 Q December 2550 M January 20 Staggered (pls see table) Jan. 25 January 2550 M February 20 Staggered (pls see table) Feb. 25 February 2550 Q March 2550 M April 20 Staggered (pls see table) Apr. 25 April 2550 M May 20 Staggered (pls see table) May 2550 Q June 25 64

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 C D E 24 days 23 days 22 days 21 days -do-do- 65

Submission of SLS/SLP Persons required to submit: • Summary List of Sales – all VAT taxpayers • Summary List of Purchases – all VAT taxpayers Note: Effective Jan. 1, 2012 (regardless of the amount of sales and purchases) all VAT registered TPs are required to submit SLS/P under RR 1 -2012 Due Date: On or before the 25 th day of the month following the close of the taxable quarter. 66

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 67

Adjusted Threshold (RR 16 -2011) Effective 1 -1 -12 Adjusted threshold amounts Section Nov. 1/2005 Sale of Residential Lot Sec. 109(P) P 1, 500, 000 P 1, 919, 500 Sale of Residential House & Lot Sec. 109(P) 2, 500, 000 3, 199, 200 10, 000 12, 800 1, 500, 000 1, 919, 500 Lease of residential units Sec. 109(Q) Sale or lease of goods or properties or the performance of services Sec. 109(V) 68

APPLICATION 69

TEST YOURSELF ◦ Compute for the Output Tax of the Model Corporation 70

Output tax Sales output tax Sales to Private 42, 900, 000 5, 148, 000 Sales to Gov't. 15, 000 1, 800, 000 Sales - Non VAT total sales 500, 000 58, 400, 000 6, 948, 000 71

TRY IT YOURSELF Determine the following input taxes assuming all VAT taxable purchases were duly supported with VAT Invoices/ORs: ◦ On purchase of goods directly attributable to government transactions; ◦ On purchase of capital goods ◦ On purchase of goods other than capital goods ◦ On purchase of services 72