lOMoARcPSD|13100023 7 - tax Bs accountancy (Mindanao State University) StuDocu is not sponsored or endorsed by any college or university Downloaded by Roselynne Gatbonton (gatbontonroselynne@gmail.com) lOMoARcPSD|13100023 THE REGULAR OUTPUT VAT SOURCES OF REGULAR OUTPUT VAT 1. Sale of vatable goods 2. Sale of vatable services 3. Sale of vatable properties 4. Transactions deemed sales The following table an overview of the tax basis of the VAT: Taxable transaction 1. Sale of goods 2. Sale of services 3. Sale of properties 4. Transactions deemed sales Tax basis Gross selling rice, unless unreasonably lower Gross receipts Gross selling price as defined by the BIR Fair value of the property deemed sold SALE OF VATABLE GOODS The sale of goods is subject to 12% VAT based on gross selling price unless unreasonably lower. Gross selling price is simply referred to as gross sales. You may wish to revisit the concept of gross selling price in Chapter 3. Illustration In June 2020, Mabaca Corporation made the following sales: Cash sales Sales on account (P80,000 collected) Installment sales (120,000 collected) Delivery chargers to customers Advances from customers Total sales P200,000 100,000 300,000 15,000 50,000 P665,000 The gross selling price and output VAT are as follows: Cash sales Sales on account (P80,000 collected) Installment sales (120,000 collected) Delivery chargers Gross selling price Multiply by: Output VAT P200,000 100,000 300,000 15,000 P615,000 12% P73,800 Unreasonably lower selling price If the selling price is unreasonably lower. The VAT shall be based on the fair value of the goods sold. The gross selling price deemed unreasonably lower when it is lower by more than 30% of the actual market value of goods sold. The fair value of the goods shall be determined by the Commissioner of Internal Revenue. Downloaded by Roselynne Gatbonton (gatbontonroselynne@gmail.com) lOMoARcPSD|13100023 Nonetheless, if one of the parties is the government, the output VAT shall be based on the actual selling price. Illustration 1 A VAT seller made the following sales of goods to private customers during the month: To customer A To customer B To customer C Total sales Selling price P150,000 200,000 102,000 P452,000 Fair value P180,000 190,000 150,000 The output VAT shall be computed as: Customer Discount A (150/180) = 83% 17% B (P200/P190) = 105% 0% C (102/150) = 68% 32% Tax basis Multiply by: Output VAT Selling price P150,000 200,000 102,000 Fair value P180,000 190,000 150,000 Tax basis P150,000 200,000 150,000 P500,000 12% P60,000 Note: the selling price to Customer C is unreasonable lower; hence, the fair is subject to VAT. Illustration 2 A VAT-registered seller made the following sales Selling price City of San Fernando P134,000 ABC Trading Company 100,000 at unreasonably lower selling prices: Fair value P200,000 150,000 The tax basis and output VAT shall be computed as: Sales to Selling price City of Fernando (gov’t) P134,000 ABC Trading (private) 100,000 Tax basis Multiply by: Output VAT Fair value P200,000 150,000 Taxable P134,000 150,000 P284,000 12% P34,080 Note: the fair value rule on sales at reasonably lower selling prices does not apply to sales made to the government. Timing of Output VAT reporting The output VAT on the sale of vatable goods is reported in the month of sales. SALE OF VATABLE SERVICES The sale of services is subject to 12% VAT based on the gross receipts. Gross receipt is collection of income. You may revisit the concept of gross receipt in Chapter 3 if needed. Illustration A VAT registered repairman had the services provider had the following revenue and collection during the month: Downloaded by Roselynne Gatbonton (gatbontonroselynne@gmail.com) lOMoARcPSD|13100023 Revenue Client A – for services rendered: Billing for materials P200,000 Services fee 100,000 Total P300,000 Collection Balance P200,000 50,000 P250,000 P 0 50,000 P50,000 Client B – work not yet started on a P500,000 contract: Advances P 0 P200,000 P 0 The gross receipt includes advances and collection of amount charged for labor and material included with the service. Collections for services rendered Advances from client Gross receipts Multiply by: Output VAT P 250,000 200,000 P 450,000 12% P54,000 Timing of Output VAT reporting The output VAT on the sale of vatable services is reported in the month of collection. SALE OF VATABLE PROPERTIES The sale, barter or exchange of vatable real properties is subject to VAT on the gross selling price. Under the regulations, “gross selling price” means the higher of the: 1. Consideration or selling price 2. Fair value of the property is the higher between the: a. Zonal value; and b. Fair value per assessor’s office In the absence of a zonal value, “gross selling price” shall mean the fair value per assessment or consideration stated in the sales document, whichever is higher. If the gross selling price is based on the zonal value or assessor’s fair value of the property, the zonal value or assessed value shall be presumed exclusive of VAT. Illustration Mr. Realtor, a real property dealer, sold a commercial lot in June 2020. The following data relate to the sale: Appraisal value Zonal value Assessor’s fair value Selling price P4,500,000 4,000,000 2,500,000 3,800,000 The gross selling price and the output VAT shall be: Downloaded by Roselynne Gatbonton (gatbontonroselynne@gmail.com) lOMoARcPSD|13100023 Gross selling price (fair market value) Multiply by: Output VAT P4,000,000 12% P480,000 Note: 1. The fair market value is the VAT base since it is higher than the P3.8M selling price. 2. The fair value is directly multiplied by 12% because it is deemed exclusive of VAT. If the fair market value is higher than the selling price, the output VAT must be separately billed with specific mention that the VAT billed separately is based on the market value of the property. If the gross selling price is based on the consideration appearing in the document of sale, the same is presumed to be inclusive of VAT. Illustration Mr. Realtor, a real property dealer, sold a commercial lot in June 2020. The following data relate to the sale: Zonal value Assessor’s fair value Selling price 4,000,000 3,500,000 4,256,000 The gross selling price and the output VAT shall be: Gross selling price (consideration) P4,256,000 Multiply by: 12/112 Output VAT P456,000 Note: 1. The consideration or selling price is the gross selling price since it is higher than the P4M fair value. 2. The consideration or selling price is multiplied by 12/112 because it is presumed by the regulation to be inclusive. Another illustration DEF Realty Corporation, a VAT-registered realty dealer, sold the following residential properties during the month: Residential lot Residential dwelling Zonal value Assessed value Selling price P1,500,000 P1,200,000 P1,700,000 2,000,000 1,500,000 3,000,000 The output VAT shall be nil. Recall from Chapter 4 that the sale of a residential lot is exempt if sold at a price not exceeding P1,919,500. The sale of residential dwelling is also exempt if the selling price does not exceed P3,199,200. Comparison of the VAT on goods and VAT on properties It must be noted that the term “selling price” or consideration on the sale of property is legally presumed VAT inclusive but this is not the case on the sale of goods. Downloaded by Roselynne Gatbonton (gatbontonroselynne@gmail.com) lOMoARcPSD|13100023 Thus, If the fair value is P100,000 P100,000 P100,000 And the selling price P120,000 P80,000 P60,000 The output VAT on the sale of Good is computed as Real property is computed as P120,000 x 12% P120,000 x 12/112 P80,000 x 12% P100,000 x 12% P100,000 x 12% P100,000 x 12% The concept of unreasonably lower does not apply on the sale of property. The higher of the fair value and selling price is always the basis of the VAT. Timing of Output reporting The output VAT on the sale vatable properties is reported in the month of sale or by installment method. Installment reporting of Output VAT on real properties The output VAT on the sale of real properties may be reported in installment if the initial payment from such sale if it does not exceed 25% of the selling price. Illustration On August 1, 2020, a real property dealer sold a commercial lot with the following data: Zonal value Assessed value Selling price P6,000,000 4,500,000 5,000,000 A down payment of P500,000 was paid with the balance due in 36 monthly installments of P125,000 starting September 1, 2020. Output VAT (P6,000,000 x 12%) P720,000 Ratio of initial payment The payments shall be projected until the end of the year of sale to determine the ratio of the initial payment: Initial payment Selling price Ratio August 1, 2020 down payment P500,000 September 1, 2020 down payment 125,000 October 1, 2020 monthly 125,000 November 1, 2020 monthly 125,000 December 1, 2010 monthly payment 125,000 Ratio of initial payment P1,000,000 /P5,000,000 = 20% The ratio does not exceed 25%. The sale qualifies as a sales on the installment plan. The output VAT on the sale maybe reported in installments. Downloaded by Roselynne Gatbonton (gatbontonroselynne@gmail.com) lOMoARcPSD|13100023 Reportable Output VAT: The reportable Output VAT in each month under the installment method shall be computed as: Payments/Selling price x output VAT Output VAT P72,000 August 2020 P500,000/P5,000,000 x P720,000 = September 2020* P125,000/P5,000,000 x P720,000 = P18,000 *and every month thereafter The billing for every monthly installment thereafter shall be: Installment P125,000 Plus: Output VAT 18,000 Total monthly billing starting September P143,000 The reportable Output VAT in the third and fourth quarters of 2020 shall be: Third quarter Fourth quarter July August September October November December P72,000 P90,000 P18,000 P18,000 P54,000 Output VAT P Note: Recall that the quarterly output VAT is the cumulative of the output VAT for the entire quarter covering 3 months. Sale of property by a realty dealer on a deferred payment basis The sale of property by a realty dealer on deferred payment basis, not on the installment plan, shall be treated as a cash sale. The fair value or gross selling price whichever is higher is subject to VAT in the month of sale. Subsequent collections from the sale shall no longer be subjected to VAT. Illustration On august 1, 2020, Exxon Realty Corporation sold a residential property with a fair market value of P5,000,000 for P4,000,000. The terms of the sale require a down payment of P400,000 and the balance payable in monthly installments of P200,000 starting September 30, 2020 Output VAT (P5,000,000 x 12%) Ratio of initial payment: August 1, 2020 down payment September 30, 2020 down payment October 31, 2020 down payment November 30, 2020 down payment December 31, 2020 down payment Initial payment P600,000 Initial payment Selling price P400,000 200,000 200,000 200,000 200,000 P1,200,000 /P4,000,000 Ratio =30% The reportable output VAT in the third and fourth quarters of 2020 shall be: Third quarter Fourth quarter July August September October November December P P600K P600K P - P - P Output VAT Note: the output VAT is reported in the month of sale. Hence, no output VAT is further impossible on the future installments Interest and penalties Interest and penalties actually or constructively received by the seller are likewise subject to VAT. Downloaded by Roselynne Gatbonton (gatbontonroselynne@gmail.com) lOMoARcPSD|13100023 Illustration Sarangani, a VAT-taxpayer made a sale of real property with a fair value of P3,000,000 for P2,000,000. The P360,000 output VAT on the sale qualified for installment reporting. During the month, Sarangani is due to receive the following net of VAT: Installment P200,000 Interest 12,000 Penalty 4,000 Total 216,000 The reportable Installment Interest Penalty Output VAT output VAT on this collection shall be: P200,000 / P2,000,000 x P360,000 12,000 x 12% 4,000 x 12% P36,000 1,440 480 P37,920 The total amount to be billed by Sarangani shall be: Installment P200,000 Interest 12,000 Penalty 4,000 Total P216,000 Plus: Output VAT 37,920 Total billing P253,920 Sale of properties considered “ordinary assets” Even if the real property is not primarily held for sale to customers or held for lease in the ordinary course of business but the same is used in the trade or business of the seller, the sale thereof shall be subject to VAT being a transaction incidental to the taxpayer’s main business. Therefore the sale of properties held for use (ordinary assets) such as land, building equipment, machineries, property improvements, and supplies aside from inventories and supplies are vatable. Sale of property not in the ordinary course of business These are exempt from VAT. Hence, sale of capital assets is exempt from VAT. Illustration Hill Foods Corporation, a VAT taxpayer, sold the following properties: Old factory (book value = P1,500,000) P1,300,000 Vacant lot, held as investment 4,000,000 The output VAT shall be computed as: Selling price of old factory P1,300,000 Multiply by: 12% Output VAT P156,000 Note: 1. The gain on the sale of the old factory shall be subject to regular income tax. 2. The sale of the vacant lot shall not be subject to VAT because it is a capital asset. The same shall be subject to the 6% capital gains tax. Downloaded by Roselynne Gatbonton (gatbontonroselynne@gmail.com) lOMoARcPSD|13100023 Query: what if Hill Foods Corporation is a non VAT-taxpayer? The sale of the old factory shall not be subject to VAT. The VAT on sale ordinary assets applies only to VAT-registered taxpayers. TRANSACTIONS DEEMED SALES There are acquisitions involving goods or properties which are consumption in nature but are not coursed through a purchased transaction. These transactions are not recorded as sales by the business and could evade taxation. Nevertheless, since these transactions are forms of consumptions, they are considered “deemed sales” for to be subjected to the VAT. List of transactions deemed sales: 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 inventors share in the profits of VAT- registered persons b. Creditors in payment of debt or obligation 3. Consignment of goods if actual sale is not made within 60 days following the date such goods were consigned 4. Retirement from or cessation of business with respect to all goods on hand whether capital goods, stock in trade, supplies or material as of the date of cessation, whether or not the business is continued by the new owner or successor 5. Cessation of status as a VAT-registered person Transfer, use or consumption not in the ordinary course of business This occurs when vatable ordinary assets are used for purposes other than their intended purpose, such as when: 1. Goods or properties held for sale are no longer sold but are transferred or disposed of by other means other than sale. 2. Properties originally intended for use are no longer used but are transferred, disposed of or exchanged with other properties. Examples of consumptions not in the course of business: 1. Withdrawal by the business owner for personal use goods held for sale or properties held for use 2. Using goods held for sale or properties held for use to pay off debts with creditors (Dacion en pago) 3. Using goods held for sale or properties held for use as property dividends to shareholders 4. Exchange of goods held for other properties 5. Sale or disposal of properties held for use in exchange for cash or other properties Illustration 1 A VAT-registered grocery operator withdrew the following for personal use: Various fruits and vegetables Various processed goods Fair value P10,000 18,000 Book value P16,000 15,000 Downloaded by Roselynne Gatbonton (gatbontonroselynne@gmail.com) lOMoARcPSD|13100023 The output VAT on the deemed sale shall be P2,160 computed as 12% x P18,000. The VAT applies only on vatable goods. The fruits and vegetables are exempt goods. Illustration 2 GH Realty, a VAT-registered realtor, transferred a commercial lot with zonal value of P400,000 and fair value per assessor of P350,,000 in exchange for the shares of stocks of a newly organized company, BHI company. The exchange of the commercial lot, a property held for sale, for shares of stocks is a deemed sale subject to a VAT. The output VAT shall be P48,000, computed as 12% x P400,000. Query: What if the GH Realty acquired control in the stocks of BHI Company? The transfer of the commercial lot shall be exempt from VAT since initial acquisition of control is a tax-free exchange that is a VAT-exempt transaction. Illustration 3 A realtor transferred a property held for sale in trust to his daughter who is getting married. The property had a cost basis of P2,000,000 and a fair market value of P2,500,000 at the date of transfer. The completed gift is a deemed sale subject to VAT. The output VAT shall be P300,000, computed as 12% x P2,500,000. Query 1: What if the donation is designated by the donor as revocable? The output VAT is nil. To be considered “deemed sold” there must be a transfer of ownership over the property. The transmission of property to a trustee shall not be subject to VAT if the property is to be merely held in trust for the trustor and/or beneficiary. Query 2: What if the done is an accredited non-profit organization? The output VAT is nil. Transfer to an accredited non-profit organization is not subject to VAT, Illustration 4 Cubao Corporation declared the following properties for distribution to shareholders as property dividends: Shares of stocks in Makati Corporation Various merchandise Total P2,000,000 3,000,000 P5,000,000 Cubao Corporation shall be subject to P360,000 output VAT, computed as 12% x P3,000,000. The merchandise shall be deemed sold to VAT but the shares of stocks are not subject to VAT on deemed sales because they are capital assets. Note that even the actual sales of stocks is VAT-exempt. Consignment of goods not withdrawn in 60 days Consigned goods to consignees, if not withdrawn within 0 days, are also presumed or deemed sold subject to VAT. This is not an actual consumption, but the rule is apparently intended to prevent taxpayers from deferring recognition of output VAT by non-reporting or delayed reporting of the sales on consignment. Downloaded by Roselynne Gatbonton (gatbontonroselynne@gmail.com) lOMoARcPSD|13100023 Illustration A VAT-registered taxpayer has its own sales operations but also goods through consignees, it also sells goods on consignment for a commission. The following were the results of operations for the month ended April 30, 2020: Sales - own inventories Sales - reported by consignees Sales - in behalf of consignors Commission income on goods sold for consignors P500,000 150,000 100,000 20,000 The billed prices of outstanding consignments still held by consignees as of April 30, 2020 are as follows: February 2020 P50,000 March 2020 80,000 April 2020 120,000 The output VAT shall be computed as: Direct sales P500,000 Sales through consignees 150,000 Commission income 20,000 Total/receipts P670,000 x 12% Deemed sales (February) P50,000 x 12% Output VAT P80,400 6,000 P86,400 Note: 1. The sales of taxpayer include direct sales and those made by its agents or consignees, gross of commission expenses to consignees. 2. The consignment sale of a consignee is not taxable to the consignee but to the consignor. Only the commission earned by the consignee on such sale is taxable to the consignee. 3. The February unsold consignment is more than 60 days old as of April 30 – the current month, hence, it is deemed sold. The March consignment is less than 60 days old; hence, it is not yet deemed sold. Retirement or cessation of business Remember that when the owner of the business withdraws a certain merchandise for his personal consumption, much would it be when he ceased or retire from business where all of the assets will become his personal disposal. The retirement or cessation from business will result in the transfer of all goods or properties of the business to the personal use or account of the business owner or owners. Hence, it is also a “deemed sale”. If the business is continued by a new owner, the goods or properties of the business are effectively sold to the new owner. Hence, the goods or properties of the business are likewise deemed sold. Illustration 1 Mr. Misamis, a VAT-registered taxpayer, ceased business operation in May 2020. His business properties upon termination of business operation include: Cash Accounts receivables P50,000 120,000 Downloaded by Roselynne Gatbonton (gatbontonroselynne@gmail.com) lOMoARcPSD|13100023 Investments Inventories Property, plant and equipment Total assets 180,000 200,000 800,000 P1,350,000 The output VAT on the deemed sale shall be computed as: Inventories P200,000 Property, plant and equipment 800,000 Basis P1,000,000 Multiply by: 12% Output VAT P120,000 Note: The VAT on deemed applies only to vatable goods and properties of business or those considered ordinary assets in income taxation. The accounts receivables and inventories are non-vatable because they are capital assets. Illustration 2 Juan, a VAT-taxpayer, is closing his business, he had in his inventory 100 sacks of rice valued at P200,000. The rice inventories shall not be subject to VAT upon cessation of business since they are VATexempt goods. Even if these are actually sold, their sales is not subject to VAT. General Rules: Business dissolution is deemed sale. As a rule of thumb, one must note that when there is business dissolution, there is deemed sale, such as in the following cases: 1. Change of ownership of the business a. Incorporation of a sole proprietorship b. Sale by a proprietor of his entire business 2. Dissolution of a partnership a. And creation of a new partnership which takes over the business b. By the incorporation into a partnership When 1. 2. 3. there is no business dissolution, there is no deemed sale such as in the following cases: Change in controlling shareholder Change in trade or corporate name Change in business address Illustration ABC Corporation exchanged real estate properties held for sale or lease for the share of stocks of DEF Corporation resulting in the acquisition of corporate control. DEF has an inventory of goods amounting to P1 million. The inventories including other properties held by DEF shall not be considered deemed sale because the same corporation is not dissolved. The same corporation still hold the inventory and there is no transfer of the same. The personality of the corporation is district and separate from its shareholders. However, the exchange of real estate properties by ABC is a vatable sale, if the exchange did not result in the acquisition of corporate control. Exception to the business dissolution rule: Downloaded by Roselynne Gatbonton (gatbontonroselynne@gmail.com) lOMoARcPSD|13100023 Merger or consolidation There is business dissolution but not a deemed sale under the law. Cessation of status as VAT-registered There is no business dissolution but is treated as a person deemed sale. Merger or consolidation Both merger and consolidation result in the dissolution of a corporation and transfer of the assets of the dissolved corporation to the absorbing corporation. In principle, the assets of the dissolved corporation should be considered deemed sold. Legally, however, the dissolution of corporation is not a deemed sale. The unused input tax of the dissolved corporation as of the date of merger or consolidation shall be absorbed by the surviving corporation. Cessation of status as VAT-registered person Goods or properties originally intended for sale or use in the business, and capital goods existing as of the occurrence of any of the following shall be deemed sold: a. Change of business activity from VAT-taxable status to VAT-exempt status b. Approval of a request for cancellation of registration due to reversion to exempt status c. Approval of request for cancellation of registration due to a desire to revert to exempt status after the lapse of 3 consecutive years from the time of registration by a person who voluntarily registered despite being exempt d. Approval of a request for cancellation of registration of one who commend business with the expectation of gross sales or receipt exceeding P3,000,000 but who failed to exceed this amount during the first twelve months of operations Output tax on transactions deemed sales The output tax on deemed sales transactions shall be based on the market value of the goods sold as of the occurrence of the deemed sale transaction. However, in the case of retirement or cessation of business, it shall be based on the acquisition costs or the current market price of the goods or properties, whichever is lower. Illustration Assume a VAT-registered taxpayer ceased business operation with the following properties book fair values: Book value Fair value Cash P50,000 P50,000 Accounts receivables 120,000 120,000 Investments 180,000 400,000 Inventories 200,000 250,000 Property, plant and equipment 800,000 600,000 Total assets P1,350,000 The output VAT on the deemed sale shall be computed as: Inventories P200,000 600,000 Property, plant and equipment Basis P800,000 Multiply by: 12% Downloaded by Roselynne Gatbonton (gatbontonroselynne@gmail.com) lOMoARcPSD|13100023 Output VAT P96,000 Determination of fair value The commissioner of Internal Revenue shall determine the appropriate tax basi in cases where the: a. Transaction is a deemed sale b. Gross selling price is unreasonably lower Invoicing Requirement for Subsequent Sale of Goods or Properties Deemed Sold The subsequent sale of goods or properties deemed sold shall not be subject to VAT. The seller of goods properties previously deemed sold shall indicate the sales invoice number wherein the output tax on the deemed sale was imposed and the corresponding tax paid on the items sold. For continuing business taxpayers, this is essential to avoid further imposition of any business tax on the subsequent sale. This is also essential for the buyer to establish its claim of input VAT on his purchase of goods previously deemed sold to the seller. Deemed sales rules apply only to VAT taxpayers only It must be noted that the concept and rules of deemed sales and the taxation of the sale of ordinary assets apply only to VAT taxpayers. These do not apply to non-VAT taxpayers by virtue of absence of an equivalent provision in our tax law. Illustration Uber Corporation, a non-VAT merchandising business, made the following sales and consignment during the month: Sale of goods Sale of equipment Consignment – 80 days old P200,000 500,000 100,000 The percentage tax shall apply only to the P200,000 sales of goods. The sale of equipment and the 80 day consignment is not part of the sales of non-VAT persons. Billing Requirements for Output VAT The output VAT must be specifically indicated in the VAT invoice or receipt. It must be billed separately in the case of sale of properties where the fair value exceeds the selling price. Determination of the Output VAT The amount of output VAT is dependent upon the price quoted by the VAT taxpayer. Such amount is understood to be inclusive of the VAT in the absence of a special agreement to the contrary. Illustration 1 A VAT taxpayer sold goods he quoted for sale at P168,000. He shall compute his sales and output VAT in his VAT invoice as follows: Sales (P168,000 / 1.12) Plus: Output VAT (P168,000 x 12/112) Quoted price (invoice price) P150,000 18,000 P168,000 The same computational procedure is employed if: a. The quoted price is agreed to be inclusive of VAT, or Downloaded by Roselynne Gatbonton (gatbontonroselynne@gmail.com) lOMoARcPSD|13100023 b. It is agreed that the seller absorbs the VAT. Illustration 2 Mr. Pedro agreed to accept an audit engagement to a client at a fee of P100,000. The fee is agreed to be exclusive of VAT. The amount of fees and the output VAT which Mr. Pedro shall indicate in his VAT official receipt shall be computed as follows: Fees (Amount quoted exclusive of VAT ) P100,000 12,000 Plus: Output VAT (P100,000 x 12% ) Quoted price (invoice) P112,000 Note: The same computational procedure is employed if it is agreed that the client or customer absorbs the VAT. Rule on VAT not separately billed If the VAT is not separately billed in the document of sale, the selling price or the consideration stated therein shall be deemed to be inclusive of the VAT. The VAT shall be computed from the agreed price as a factor of 12/112. Incorrect billing of VAT If the VAT is incorrectly billed, the total amount billed by the taxpayer shall be deemed inclusive of the VAT. The VAT shall be recomputed as a factor of 12/112. Illustration A VAT seller invoiced a sale of goods as follows: Selling price P100,000 10,000 Output VAT Invoice price P110,000 The output VAT should have been P12,000, computed as P100,000 x 12%. This is an incorrect billing. Hence, the output VAT shall be re-computed from the invoice price as: P110,000 x12%/112; hence. P11,785.71 Output VAT shall be reported in the VAT return. Reference: BUSINESS AND TRANSFER TAXATION 2019 edition by Rex Banggawan CPA MBA Note: DO NOT REPRODUCE Downloaded by Roselynne Gatbonton (gatbontonroselynne@gmail.com)