Chapter 2 VALUE-ADDED TAX ON SALE OF GOODS OR • Distribution or transfer of inventory to
PROPERTIES shareholders or investors for their shares in the
profits of a VAT-registered person;
Introduction.
• Distribution or transfer of inventory to creditors
1. The value-added tax is a consumption tax. It is imposed in payment of debt
on a seller, but the seller passes it on to the buyer, • Consignment of goods if actual sale is not made
within sixty days following the date such goods
2. The value-added tax must be shown on the official
were consigned;
invoice or receipt issued to the buyer, as a separate item:
• Retirement from or cessation of business, with
3. The value-added tax is 12%, 5% or 0% of the selling respect to inventories of taxable goods as of the
date of such retirement or cessation.
4. While each sale has a value-added tax, and separate
recording in the price, books of accounts is on a per WHAT ARE GOODS OR PROPERTIES?
transaction basis, reporting and payment of the value-
Goods or properties are all tangible and intangible
added tax to the government is made monthly, on the
objects which are capable of pecuniary (money)
transactions of the month.
estimation. (The law has a provision that states what are
TAXPAYER within the meaning of goods or properties".)
Any person who sells, barters or exchanges What are “goods"? Goods are movable properties. Thus,
goods or properties in the course of trade or business will sales by a car dealer are sales of goods in the conduct of
be subject to the value-added tax. (The law exempts trade or business, subject to the value added tax.
certain transactions from the value-added tax.)
What is within the meaning of "properties"?
The taxable transactions are sale, barter and
Included in the term "properties" are real properties.
exchange. Whenever in a rule the word "sale" is used, it
Thus, sales by a real estate dealer are sales of properties
must be understood to include barter and exchange.
in the conduct of trade or business, subject to the value
added tax.
WHAT IS A SALE, BARTER OR EXCHANGE? The tax base – gross selling price.
A sale is the transfer of ownership of property in "Gross selling price"
consideration of money received or to be received. For
➢ means the total amount of money or its
the expanded meaning of "sale". A barter or exchange is
equivalent which the purchaser pays or is
the transfer of ownership of property in consideration of
obligated to pay to the seller in consideration of
property received or to be received. An isolated
the sale, barter, or excluding the value added tax.
transaction of sale or exchange of private property is not
The excise tax, if any, on such goods, will form
in the course of trade or business and is not subject to
part of the gross selling price.
the value-added tax.
➢ includes everything that the buyer pays the
TRANSACTIONS DEEMED SALES seller, except the value-added tax shifted to the
buyer. "Gross selling price" does not mean gross
The following are considered "sales" in the course of
sales. The law and regulations allow downward
trade or business subject to the value-added tax
adjustments for:
(Statutory enumeration):
(a) Sales returns and allowances,
• Transfer, use or consumption, not in the ordinary
course of business, of goods or properties (b)Sales discounts agreed upon at the time of sale, (the
ordinarily intended for sale or in the course of granting of which does not depend on the happening of
business: a future event) indicated on the sales invoice and availed
of by the buyer.
Illustration 1 THE TAX RATES
Mr. A sold an article to Mr. B. The quoted selling price was (a) Twelve percent (12%), If domestic sale;
P10,000, not including freight and value-added tax. Mr. B
(b) Five percent (5%), If sales to the Government (and
has to pay P10,500 (additional P500 for the freight) and
certain entities);
the value-added tax before title to the goods passes to
him upon delivery at his place. The GSP is _____ (c) Zero percent (0%), If export sale.
The law states zero-rated tax on exports (and certain
other transactions).
Illustration 2.
"Export sales" means the sales and actual shipments or
Mr. C. produced articles at a product ion cost of P50,000.
exportations of goods from the Philippines to a foreign
The articles are subject to an excise tax of P5,000. The
country, irrespective of any shipping arrangement that
articles became subject to the excise tax the moment
may be agreed upon which may Influence or determine
they came into existence, al and though payment of the
the transfer of ownership of the goods so exported, and
tax will be made only upon removal of the goods from
paid for in acceptable for reign currency or its equivalent
the place of production. The share of the articles in the
in goods or services, and accounted for in accordance
operating expenses is calculated at P8,000. The desired
with the rules and regulations of the Banko Sentral Ng
profit is P37,000. The selling Price is ______________
Pilipinas
Illustration 6
Illustration 3
Mr. E exported his manufactured goods to F Co. in the
Mr. D. had gross sales value added tax not included of United States, under terms of shipment F.O.B. California,
425,000. Sales, returns and allowances for the same United States. Payment was in dollars remitted thru the
period, and sales discount, stated on the invoice, availed Philippine National Bank, California, U.S.A., branch,
of by customers, were P20,000 and P5.000, respectively.
The gross selling price and tax base is
_____________________
Illustration 4. Illustration 7
Mr. D sold an article for P50,000, when the prevailing G Co. exported its manufactured goods to H Co. in the
market value was P100,000. United States, under terms of shipment F.O.B. Manila,
Philippines. Payment was in dollars remitted thru the
Philippine National Bank, California, U.S.A., branch.
Illustration 5.
E Co. is a lumber sawmill. it used lumber from its
production to construct the residential house of its
President.
The Tax Formula WHAT IS INPUT TAX?
It is value-added taxes paid: On local purchases from VAT-
registered persons, and on importations of goods:
(a) For sale;
(b) For conversion into or intended to form part of a
finished product for sale, including packaging materials;
(c) For use as supplies:
(d) For use in trade or business, for which depreciation
(or amortization) is allowed for income tax purposes
(capital goods except automobiles, aircraft and yachts:
(e) Value-added taxes paid on purchases of real property:
(f) Value-added taxes paid on purchases of services;
(g) Transitional input tax; and
(h) Presumptive input tax.
Illustration 8
Mr. R, a VAT taxpayer, made a sale at P100,000. value-
added tax not included, of goods that he bought at
P3,000 from a non-VAT taxpayer. The value added tax
payable was?
Illustration 9.
Mr. S, a VAT taxpayer, made a sale at P100,000, value-
added tax not included, of goods that he bought at
P3,000 from a VAT taxpayer, value-added tax not
included. The value-added tax payable is?