Value Added Tax VAT-EXEMPT TRANSACTIONS (SEC.
109, NIRC)
DEFINITION Concept
VAT is a tax on consumption levied on the sale, barter, • Sale of goods or properties and/or services and the
exchange or lease of goods or properties and services in use or lease of properties that is not subject to VAT
the Philippines and on importation of goods into the (output tax) and the seller is not allowed any tax
Philippines. [Sec.4.105-2, RR No. 16-2005 credit of VAT (input tax) on purchases.
• The person making the exempt sale of goods,
Characteristics of VAT
properties or services shall not bill any output tax
• Indirect Tax to his customers because the said transaction is not
o The amount of tax maybe shifted or passed on subject to VAT. [Sec. 4.109-1 (A), RR No. 16-05)
by the seller to the buyer, transferee or lessee
of goods, properties or services; • VAT Exempt transactions shall not be liable for VAT
or the 3% percentage tax.
• Imposed on the Value added to goods, properties,
or services of a taxpayer; • VAT Exempt transactions shall not be included in
• A Broad-based tax consumption imposed on all determining the general threshold prescribed by
stages of taxable sale but the burden rests with the law, the amount of which is P3,000,000.00
final consumer who consumes the goods, Examples are:
properties or services
• sale of agricultural food product;
• services subject to percentage tax;
IMPACT AND INCIDENCE OF TAX • services rendered under employer-employee
relationship;
• Impact of taxation is on the statutory taxpayer, the
one from whom the government collects. • lease of residential unit with monthly rent not
exceeding P15,000;
Thus, for VAT the impact of tax is on the seller or • Transfer of properties under tax-free exchange
importer. • Association dues collected from condominium
corporations
• The incidence of taxation is on the one who bears • Sale or lease of goods or properties or the
the burden of taxation. performance of services other than the
transactions mentioned in the preceding
Thus for VAT, the incidence of tax is on the paragraphs, the gross annual sales and/or receipts
consumer. do not exceed the amount of P3,000,000 (but
subject to 3% percentage tax).
TAX CREDIT METHOD / INVOICE METHOD
VAT uses a tax credit method wherein a taxpayer can PRESUMPTIVE INPUT TAX CREDIT [SEC. 111 (B), NIRC]
subtract from the VAT charged on its sales (output VAT) It is an input tax credit allowed to persons of firms
the VAT it paid on its purchases (input VAT). engaged in the:
Output VAT is the VAT due on the sale of goods or • Processing of: Reason: These are basic necessities. The raw
services. o Sardines;
materials when purchased has no VAT (no input)
Hence once they sell the goods they have output
Input VAT is the VAT due on or paid on local purchases o Mackerel; and tax.
o Milk. wala silang input tax pambangga sa output tax.
or importation
• Manufacturing of: Reason: to lower the output vat
o Refined sugar;
o Cooking oil; and
o Packed noodle-based instant meals
• Tax Rate and Base
o 4% of the gross value in money of their
purchases of primary agricultural products
which are used as inputs to their production.
TRANSITIONAL INPUT TAX CREDIT [SEC. 111 (B), NIRC]
• A person who becomes liable to value-added tax or
any person who elects to be a VAT-registered
person shall, subject to the filing of an inventory
according to rules and regulations prescribed by
the Secretary of Finance, upon recommendation of
the Commissioner.
• Tax Rate and Base
2% of the value of such inventory or the actual
value-added tax paid on such goods, materials and
supplies, whichever is higher, which shall be
creditable against the output tax.