3.1 VAT Output Taxes (301) PDF

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TAXATIONFAR EASTERN UNIVERSITY – MANILAVAT-OUTPUT TAXES (301)1. Transactions subject to VAT1. Transactions Tax Based a. Sales of goods or properties Gross selling price (Accrual basis) b. Sales of services and lease of properties Gross receipts ( Cash basis) c. Importation Dutiable (total) value as ...

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TAXATION FAR EASTERN UNIVERSITY – MANILA

VAT-OUTPUT TAXES (301) 1. Transactions subject to VAT 1. a. b. c.

Transactions Sales of goods or properties Sales of services and lease of properties Importation

Tax Based Gross selling price (Accrual basis) Gross receipts ( Cash basis) Dutiable (total) value as the tax base on importation, if the BOC uses the total value in determining tariff and customs duties. Landed cost as the tax base on importation, if custom duties are determined on the basis of the quantity or volume of goods.

2. In the Course of Trade or Business – Defined  The phrase “in the course of trade or business” means the regular conduct or pursuit of a commercial or an 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 organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity.  The rule of regularity, to the contrary notwithstanding, services as defined in the Tax Code rendered in the Philippines by non-resident foreign persons shall be considered as being rendered in the course of trade or business. 3. Goods or properties  The term “goods or properties” refers to all tangible and intangible objects which are capable of pecuniary estimation and shall include, among others: a. Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business; b The right or the privilege to use patent, copyright, design or model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or right; c. The right or the privilege to use any industrial, commercial or scientific equipment; d. The right or the privilege to use motion picture films, films, tapes and discs; and e. Radio, television, satellite transmission and cable television time. 4. Sale of exchange services  Sale or exchange of services means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, whether in kind or in cash, including those performed or rendered by: a. Construction and service contractors; b. Stock, real estate, commercial, customs and immigration brokers; c. Lessors of property, whether personal or real; d. Persons engaged in warehousing services; e. Lessors or distributors of cinematographic films; f. Persons engaged in milling, processing, manufacturing, or repacking of goods for others; g. Proprietors, operator or keepers of hotels, motels, rest houses, pension houses, inns, resorts, theatres and movie houses; h. Proprietors, operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers; i. Dealers in securities; j. Lending investors; k. Transportation contractors on their transport of goods or cargoes including persons who transport goods or cargoes for hire and other domestic common carriers by land, relative to their transport of goods or cargoes; l. Common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines; m. Sales of electricity by generation, transmission, and/or distribution; n. Franchise grantees of electric utilities, telephone and telegraph, radio and/or television broadcasting and all other franchise grantees, except franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding year do not exceed P10,000,000, and franchise grantees of gas and water utilities; o. Non-life insurance companies (except their crop insurance), including surety, fidelity, indemnity and bonding companies; p. Similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. 2. Characteristic of VAT a. It is an indirect tax where tax shifting is always presumed. The value added tax is an indirect tax and the amount may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. The seller is the one statutorily liable to pay for the payment of the tax but the amount of the tax may be shifted or passed on the buyer or transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of RA 9337 (VAT Reform Act). However, in the case of importation the importer is the one liable for the VAT. (RR 16-2005). The “burden of the tax” is borne by the final consumers although the producers and suppliers of these goods and services are the ones who have to file their VAT returns to the BIR. Hence, what is transferred or shifted to the consumers is not the “liability to pay the tax” but the tax burden. b. It is consumption-based. 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 into the Philippines (RR 16-2005). It is the end user of consumer goods or services which ultimately shoulders the tax as a liability therefrom is passed to the end users by the providers of these goods or services. The VAT, thus, forms a substantial portion of consumer expenditures.

3. VAT output taxes

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c. It is imposed on the value-added in each state of production and distribution process. The VAT system assures fiscal adequacy through the collection of taxes on every level of consumption. Each business in the supply chain takes part in the process of controlling and collecting the tax. d. It is a credit-invoice method value-added tax. VAT payable is computed by deducting the input VAT from the output VAT. The providers of goods or services passed on to the users the liability to pay the tax who in turn may credit their VAT liability from the VAT payments they received from the final consumer. This is because VAT is a consumption tax levied on sales to be borne by consumers with sellers acting simply as tax collectors. In the Philippines, the “Credit-Invoice Method” or “Tax Credit Approach” is adopted in computing the VAT payable. This means the VAT is imposed on the sale first called “Output VAT” and a tax credit is allowed or claimed on the VAT passed-on to his purchase or cost of goods or services known as “Input Tax”. The excess of output VAT over Input VAT is called “ VAT Payable”

3. Computation of VAT (Excess Input Tax) a. Output tax exceeds of input tax at the end of any quarter Output tax xxx Less Input Tax and other tax credit (xxx) VAT payable (Current liability) xxx b. Input tax inclusive of input tax carried over from the previous quarter exceeds output tax Output tax Less Input Tax and other tax credit Excess input tax(Current asset)

xxx (xxx) (xxx)

4. Computation of the tax base and the applicable tax rates Transaction Tax Base a. Sale of goods Gross Selling Price Gross selling price

Tax Rate 12% or 0% Xxx

Less: Sales returns and allowances Sales discount

b. Sale of real properties on installment plan ( initial payment do not exceed 25% of the gross selling price)

c. Sale of real properties on cash basis or deferred payments plans (initial payments exceed 25% of the gross selling price) d. Sales of services

e. Gross receipts for dealer in securities

Net sales Add: Excise tax if any

Xxx Xxx

Tax Base

Xxx

Installment received Add: Interest Other charges

3. VAT output taxes

12% or 0%

xxx xxx xxx

xxx

Tax Base xxx Upon full collection, if the zonal value or market value is higher than the total receipts or collections, the additional vat shall be paid accordingly (RMC 3-96; RR 4-3007) Selling price stated in the sales documents or fair market value, whichever is higher

xxx

Advance payments for future projects Materials charged with the services

xxx xxx

Gross receipts (excluding vat) Note: Receivables, although earned, are not included

xxx

Gross receipts computed as follows: Gross selling price Less: Acquisition cost of securities sold for the month or quarter Balance

12% or 0%

12% or 0%

Gross receipts computed as follows: Cash received (actually or constructively)

Add: Other or incidental income f. Gross receipts on the sale of electricity by generation, transmission and distribution companies

xxx xxx (xxx)

12% or 0% xxx (xxx) xxx xxx

Gross receipts xxx Gross receipts shall refer to the following: a. Total amount charged by generation companies for the sale of electricity and related ancillary services; and/or b. Total amount charged by transmission companies for transmission of electricity and related ancillary services; and/or c. Total amount charged by distribution companies and electric cooperatives for

12% or 0%

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distribution and supply of electricity and related electric service. The universal charge passed on and collected by distribution companies and electric cooperatives shall be excluded from the computation of the Gross Receipts.  Sale of power or fuel generated through renewable source of energy  The sale of power or fuel from renewable source of energy is zero rated.  Renewable sources of energy may include, but is not limited to, biomass, solar, wind, hydropower, geothermal and steam, ocean energy and other emerging sources using technologies such as fuel cells and hydrogen fuels. (RA 9513 and RA 9337)  The zero rated is limited on sale of power and does not extend to sales of services related to the maintenance or operation of plants generating said fuel. Types of business in the electricity business: 1. Generation companies – refers to persons or entities authorized by the Energy Regulatory Commission (ERC) to operate a facility used in the production of electricity. 2. Transmission companies - refers to any person or entity that owns and conveys electricity through the high voltage backbone system and or sub-transmission assets. 3. Distribution companies – refers to persons or entities including a distribution utility such as electric cooperative which operates a distribution system with the provision of RA 9136. Distribution companies and transmission companies are just “ pass through” entities (RMC 62 – 2012, RMC 71-2012, RMC 61-2005)

e. Importation “Importer” – refer persons bringing goods into the Philippines, whether or not made in the course of trade or business. Importation is not a sale of goods, or sometimes not even a business activity, yet is subject to vat. This is because vat is a consumption tax levied on sales to be borne by consumers with sellers acting simply as tax collectors. Since the origin of importation is from a foreign seller which is outside Philippine jurisdiction, vat is instead paid directly by the importer.

a. In general (As determined by the BOC) Total value for tariff and custom duties Dutiable Value Add: Custom duties Excise tax Other charges prior to release of goods from custom custody*** Tax base

12% xxx xxx xxx xxx xxx xxx

b. In case where custom duties is based on volume or quantity Invoice cost Add: Custom duties Excise tax Other charges prior to release Total landed cost (Tax base)

xxx xxx xxx xxx

*** Examples of other charges prior to release: a. Insurance b. Freight c. Postage d. Commission e. Interest f. Bank charges g. Wharfage dues h. Arrastre charges i. Brokerage fees j. Stamps k. Processing fees l. Custom duty m. Excise tax Note: Facilitation fee- not included as a charges prior to release from custom custody. Excise tax is applicable to manufacturers and importers of sin products and non-essential goods. (If the problem is silent, assume excise tax rate of 20%) (RR 16-2005): No VAT shall be collected on importation of goods which are specifically exempted under Sec. 109 (1) of the tax code.

5. Output VAT a. Meaning of output tax Output tax means the value-added tax on sale or lease of taxable goods or properties or services by any person registered or required to register b. Determination of output tax In a sale of goods or properties, the output tax is computed by multiplying the gross selling price by the regular rate of VAT 6. Sources of Output Tax Transaction

3. VAT output taxes

Examples

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a. Actual sales of goods or properties

Cash sales and sales on account

b. Actual sales of services or lease of properties

Cash sales and collections

1) 2) 1. 2.

Sales of goods for cash Sales of goods on account Sale of services Lease of properties

c. Deemed sales of goods or properties 7. Zero Rated Sale Defined A zero-rated sale of goods or properties and services (by a VAT-registered person) is a taxable transaction for VAT purposes, but shall not result in any output tax. However, the input tax on purchases of goods, properties or services, related to such zero-rated sale, shall be available as tax credit or refund in accordance with the Regulations.

Examples of Zero-Rated Sales

a. Export sales 1. Sales of goods or properties a) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); b) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local export oriented enterprise to be used in manufacturing, processing, packing, or repacking in the Philippines of the said buyer’s goods and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); (Note With Condition) c) Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed 70% of the total annual production. (Note With Condition) e) Those considered export sales under the Omnibus Investment Code of 1987 (E.O No. 226), and other special laws. (Note With Condition) f) The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations. Provided, That the goods, supplies, equipment and fuel shall be used for international shipping or air transport operations. Provided, That subparagraphs (B), (C), and (E) hereof shall be subject to the twelve percent (12%) value-added tax and no longer be considered export sales subject to zero percent (0%) VAT rate upon satisfaction of the following conditions:\ (1) The successful establishment and implementation of an enhanced VAT refund system that grants refunds of creditable input tax within ninety (90) days from the filing of the VAT refund application with the Bureau: Provided, That, to determine the effectivity of item no. 1, all applications filed from January 1, 2018 shall be processed and mustbe decided within ninety (90) daysfrom thefiling of the VAT refund application; and (2) All pending VAT refund claims as of December 31, 2017 shall be fully paid in cash by December 31, 2019. Provided, That the Department of Finance shall establish a VAT refund center in the Bureau of Internal Revenue (BIR) and in the Bureau of Customs (BOC) that will handle the processing and granting of cash refunds of creditable input tax. An amount equivalent to five percent (5%) of the total VAT collection of the BIR and the BOC from the immediately preceding year shall be automatically appropriated annually and shall be treated as a special account in the General Fund or as trust receipts for the purpose of funding claims for VAT refund: Provided, That any unused fund, at the end of the year shall revert to the General Fund. Provided, further, That the BIR and the BOC shall be required to submit to the Congressional Oversight Committee on the Comprehensive Tax Reform Program (COCCTRP) a quarterly report of all pending claims for refund and any unused fund.

(g) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate. Effectively zero-rated sales Sales of goods or property to persons or entities who are tax-exempt under special laws, e.g. sales to enterprise duly registered and accredited with the Subic Bay Metropolitan Authority (SBMA) pursuant to R.A. No. 7227, sales to enterprises duly registered and accredited with the Philippine Economic Zone Authority (PEZA) or international agreements to which the Philippines is signatory, such as, Asian Development Bank (ADB), International Rice Research Institute (IRRI), etc., shall be effectively subject to VAT at zero-rate. 1) Enterprises Registered Under the Bases Conversion and Development Act of 1992 and The Special Economic Zone Act of 1995 (R.A.7916) 

Registered Activities Enterprises that are registered with the : a) Subic Bay Metropolitan Authority (SBMA) b) Clark Development

3. VAT output taxes

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