No. 1.1
Instructors: J.T. Yeo, CPA, JD/K.J. Culajara CPA, JD
Ateneo de Zamboanga University
Accountancy Department
Business Tax
Week 1
INTRODUCTION TO VALUE ADDED TAX
I.
INTRODUCTION TO VALUE-ADDED TAX (VAT)
The value-added tax (VAT) is a tax on consumption levied on the sale, barter,
exchange or lease of goods or properties and services in the Philippines and on
importation of goods in the Philippines. The seller is the one statutorily liable for the
payment of tax, but the amount of tax may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties, or services.
VAT 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.
Illustration: Andres sells to Boris a piece of wood – a nice, fine, well-sanded piece of
wood at the price of P100 (net of VAT). Boris then expertly crafts the wood into a
rocking chair and sells it to Cletus at P150 (net of VAT).
Andres delivers
the wood to
Boris.
ANDRES
Supplier
Boris delivers
the rocking
chair to Cletus.
BORIS
Seller
Boris pays P112
for the P100
price and the
P12 VAT (12%
of P100).
Boris generates
output VAT of
P18 from his
sale to Cletus.
But he has an
input VAT of
P12 from his
purchase from
Andres.
CLETUS
Buyer
Cletus pays
P168 for the
P150 price and
P18 VAT (12%
of P150)
Note: The output VAT represents a taxpayer’s liability to the BIR. The input VAT is like a
claim that can be offset as against the taxpayer’s output VAT. In this case, Boris is liable
only for the net output VAT of P6, since he can deduct the P12 input VAT from his P18
output VAT.
A. Transactions covered by VAT
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No. 1.1
Instructors: J.T. Yeo, CPA, JD/K.J. Culajara CPA, JD
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The following transactions entered into by any person are subject to VAT:
Any sale, barter, or exchange of goods and properties (including real properties),
or similar transactions, in the course of trade or business;
Any sale of services, or similar transactions, in the course of trade or business;
Any lease of goods and properties, or similar transactions, in the course of trade
or business;
Any importation of goods, whether in the course of trade or business or not.
Note: VAT is imposed on the seller, not the buyer.
o Exception: in importation.
B. Definition of terms
 Persons – refers to any individual, trust, estate, partnership, corporation, joint
venture, cooperative, or association;
 Taxable person – refers to any person liable for the payment of VAT, whether
registered or not in accordance with the National Internal Revenue Code (NIRC);
 “In the course of trade or business” – the regular conduct or pursuit of a
commercial or economic activity including transactions incidental thereto, by any
person regardless of whether or not the person engaged therein is a non-stock,
non-profit private corporation (irrespective of the disposition of its net income
and whether or not it sells exclusively to members or their guests), or
government entity.
o Note: If the taxpayer is a non-resident foreign person, there is no need for
regularity of conduct. Services rendered by them in the Philippines are
considered as being in the course of trade or business, and thus, subject to
the VAT.
C. Persons covered by VAT
 VAT-registered persons or entities, regardless of annual gross receipts;
 Non-VAT registered persons whose annual gross receipts for the past 12 months
exceed P3,000,000.
Application of the P3,000,000 threshold
 The aggregation rule for each taxpayer shall apply only if a professional, aside
from the practice of his profession, also derives income from other lines of
business which are subject to VAT, the same shall be combined for purposes of
determining whether the threshold has been exceeded.
 Husband and wife shall be considered as separate taxpayers.
 Generally, government and its political subdivisions are not subject to VAT
because of the legal impossibility of taxing one’s self. However, if a government
entity sells goods or services in the course of business, they are subject to VAT.
 Government-owned and controlled corporations are generally subject to VAT.
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