1. know the general concept of business taxes;
2. identify and understand the different types of business taxes in the Philippines;
3. understand the characteristics of VAT as a tax;
4. know the persons who are liable to pay VAT;
5. comprehend the meaning of the phrase "in the ordinary course of trade or business";
6. identify the different transactions subject to VAT;
7. know the basis of VAT;
8. know the formula for computation of VAT payable; and
9. know who are required to register for VAT.
1. know the transactions subject to VAT;
2. identify the persons who are liable to pay VAT;
3. distinguish mandatory registration from optional registration;
4. understand the VAT threshold application;
5. compute the VAT payable; and
6. know the deadlines for the filing of VAT returns and the payment of the VAT due.
1. map out the procedures in withholding and payment of VAT;
2. identify instances where withholding of VAT is mandatory; and
3. know the person or entity liable to pay VAT in a transaction.
1. identify the reckoning points that will prompt the taxpayer to be deemed as required to register as a VAT
taxpayer;
2. identify when registration is mandatory and merely optional;
3. understand the implications of compliance requirements in VAT;
4. understand the invoicing requirements
5 know the consequences of noncompliance with the invoicing requirements.
1. know the VAT base and output VAT for sale of goods;
2. know the VAT base and output VAT for sale of real properties;
3. understand the different classification of sales of real properties;
4. know the exempt sales of real properties; and
5. understand the transactions deemed sales.
1. identify the services subject to VAT;
2. understand the concept of gross receipts;
3. know how to compute the VAT base and output VAT for sale of services;
4. know the taxability of lease of properties; and
5. understand what falls under VAT-exempt lease of residential units.
General Concept of Business Taxes
Business taxes are mandatory financial charges imposed by the government on businesses operating
within its jurisdiction. These taxes can take various forms, including income tax, value-added tax
(VAT), and local taxes, and are essential for funding public services and infrastructure.
Types of Business Taxes in the Philippines
In the Philippines, businesses are subject to several types of taxes, including:
●​ Value Added Tax (VAT): Imposed on the sale of goods and services.
●​ Corporate Income Tax: Levied on the net income of corporations.
●​ Percentage Tax: A simpler tax for businesses with gross sales below PHP 3 million.
●​ Withholding Taxes: Taxes withheld on compensation and certain payments.
●​ Local Business Taxes: Collected by local government units.
Characteristics of VAT
VAT is an indirect tax applied at each stage of the production and distribution process. It is charged
on the value added to goods and services at each step, making it a multi-stage tax. The standard VAT
rate in the Philippines is 12%24.
Persons Liable to Pay VAT
Individuals or entities engaged in trade or business that exceed the VAT threshold of PHP 3 million in
gross sales or receipts are liable to pay VAT. This includes both VAT-registered businesses and those
that voluntarily register for VAT24.
Meaning of "In the Ordinary Course of Trade or Business"
This phrase refers to transactions that are part of a business's regular operations. It implies that the
activities are conducted as a normal part of the business's functions, distinguishing them from
occasional or non-business activities.
Transactions Subject to VAT
The following transactions are subject to VAT in the Philippines:
●​ Sale of goods and properties.
●​ Lease of goods and properties.
●​ Sale of services.
●​ Importation of goods24.
Basis of VAT
The basis for calculating VAT is the gross selling price or gross receipts from sales. For goods, it is
the total amount paid by the buyer, excluding VAT. For services, it is based on the total receipts from
service provision24.
Formula for Computation of VAT Payable
The formula to compute VAT payable is:
VAT Payable=Gross Sales×VAT Rate
VAT Payable=Gross Sales×VAT Rate
For example, if gross sales amount to PHP 1,000,000, the VAT payable would be:
VAT Payable=1,000,000×0.12=120,000
VAT Payable=1,000,000×0.12=120,000
Registration Requirements for VAT
Businesses required to register for VAT include:
●​ Those with gross sales exceeding PHP 3 million.
●​ Businesses opting for voluntary registration even below this threshold.
●​ Importers of goods24.
Distinction Between Mandatory and Optional Registration
Mandatory registration applies to businesses whose gross sales exceed PHP 3 million. Optional
registration can occur when businesses choose to register for VAT despite not meeting this threshold
to avail themselves of input tax credits24.
VAT Threshold Application
The VAT threshold applies specifically to gross sales or receipts; businesses exceeding PHP 3 million
must register for VAT. This ensures compliance with tax obligations and eligibility for input tax
deductions.
Computation of VAT Payable
To compute the VAT payable:
1.​ Determine total gross sales.
2.​ Multiply by the VAT rate (12%).
3.​ Example: For gross sales of PHP 1,500,000:
4.​ VAT Payable=1,500,000×0.12=180,000
5.​ VAT Payable=1,500,000×0.12=180,000
6.​
Deadlines for Filing VAT Returns and Payment
VAT returns must be filed monthly and quarterly. The deadlines typically fall on the 20th day of the
following month for monthly returns and every quarter's end for quarterly returns24.
Procedures in Withholding and Payment of VAT
1.​ Identify transactions subject to withholding.
2.​ Withhold applicable VAT amounts at transaction completion.
3.​ Remit withheld amounts to the Bureau of Internal Revenue (BIR) by specified deadlines.
Instances Where Withholding of VAT is Mandatory
Withholding is mandatory in transactions involving certain payments such as professional fees or
rental payments where specified thresholds apply.
Entity Liable to Pay VAT in a Transaction
The seller or service provider is primarily liable for collecting and remitting VAT to the BIR; however,
buyers bear the financial burden as part of their purchase cost.
Reckoning Points for Required Registration as a VAT Taxpayer
Taxpayers must register as a VAT taxpayer when their gross sales exceed PHP 3 million within a
12-month period.
When Registration is Mandatory vs. Optional
Registration becomes mandatory when gross sales exceed PHP 3 million; otherwise, it remains
optional but beneficial for claiming input tax credits.
Implications of Compliance Requirements in VAT
Compliance with VAT regulations includes timely filing and payment obligations; failure can lead to
penalties or interest charges.
Invoicing Requirements
Invoices must include specific details such as seller information, buyer information, description of
goods/services sold, total amount including VAT, and other necessary identifiers as mandated by law.
Consequences of Noncompliance with Invoicing Requirements
Noncompliance can result in penalties such as fines or disallowance of input tax credits claimed by
businesses during audits.
Understanding Base and Output VAT for Sale of Goods
The base for sale of goods is their selling price excluding VAT; output VAT is calculated based on this
base at a rate of 12%.
Base and Output VAT for Sale of Real Properties
For real properties sold as capital assets, output VAT applies similarly based on their selling price
excluding any applicable taxes.
Classification of Sales of Real Properties
Sales can be classified into taxable sales (subject to 12% output VAT) and exempt sales (such as
those below certain thresholds).
Exempt Sales of Real Properties
Certain transactions may be exempt from output VAT based on specific criteria outlined in tax
regulations.
Understanding Transactions Deemed Sales
Transactions deemed sales include transfers that effectively result in a sale-like exchange even if not
formally classified as such under law.
Services Subject to VAT
Services rendered in trade or business are generally subject to a 12% output VAT unless specifically
exempted by law.
Concept of Gross Receipts
Gross receipts refer to total income received from business operations before any deductions are
made.
Computing Base and Output VAT for Sale of Services
To compute base and output VAT:
1.​ Determine total service fees charged.
2.​ Calculate output VAT at 12%:
3.​ Output VAT=Total Fees×0.12
4.​ Output VAT=Total Fees×0.12
5.​
For example:
If service fees amount to PHP 500,000,
Output VAT=500,000×0.12=60,000
Output VAT=500,000×0.12=60,000
Taxability of Lease Properties
Leases are generally subject to output VAT unless specifically exempted under applicable laws.
Residential Unit Lease Exemptions
Leases on residential units with monthly rentals below PHP 15,000 are generally exempt from output
VAT