How to Compute VAT Payable in the Philippines

How to compute Value Added Tax (VAT) payable in the Philippines? Any person or entity who is engaged in trade, business or in the practice of profession may be liable to business taxes. Business taxes can be either a Percentage tax or a Value Added Tax. Furthermore, a taxpayer can be a VAT registered or a Non-VAT registered taxpayer. In this article, we will tackle how to compute VAT Payable and file the monthly and quarterly VAT returns.

 

What is a Value Added Tax?

Value-Added Tax is a business tax in the form of sales tax. It 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. It is an indirect tax, which may be shifted or passed on to the buyer, transferee or lessee of goods, properties or services.

 

Who Are Required To File VAT Returns

The following persons or entities are required to file VAT returns:

1. Any person or entity who, in the course of his trade or business, sells, barters, exchanges, leases goods or properties and renders services subject to VAT, if the aggregate amount of actual gross sales or receipts exceed P1,919,500 (RR 16-2011, RR 3 -2012), as amended.
2. A person required to register as VAT taxpayer but failed to register
3. Any person, whether or not made in the course of his trade or business, who imports goods

 

Who may opt to register as VAT and what will be his liability?

1. Any person who is VAT-exempt under Sec. 4.109-1 (B) (1) (V) not required to register for VAT may, in relation to Sec. 4.109-2, elect to be VAT-registered by registering with the RDO that has jurisdiction over the head office of that person, and pay the annual registration fee of P500.00 for every separate and distinct establishment.
2. Any person who is VAT-registered but enters into transactions which are exempt from VAT (mixed transactions) may opt that the VAT apply to his transactions which would have been exempt under Section 109(1) of the Tax Code, as amended [Sec. 109(2)].
3. Franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding year do not exceed ten million pesos (P10,000,000.00) derived from the business covered by the law granting the franchise may opt for VAT registration. This option, once exercised, shall be irrevocable. (Sec. 119, Tax Code).
4. Any person who elects to register under optional registration shall not be allowed to cancel his registration for the next three (3) years.

The above-stated taxpayers may apply for VAT registration not later than ten (10) days before the beginning of the calendar quarter and shall pay the registration fee unless they have already paid at the beginning of the year. In any case, the Commissioner of Internal Revenue may, for administrative reason deny any application for registration. Once registered as a VAT person, the taxpayer shall be liable to output tax and be entitled to input tax credit beginning on the first day of the month following registration.

 

What are the BIR forms used in filing VAT Returns?

VAT returns are filed monthly using the Monthly Value Added Tax Declaration Return BIR Form 2550M and quarterly using the Quarterly Value Added Tax Declaration Return BIR Form 2550Q. To download forms, please click here to go to the BIR forms download page.

 

How to compute Value Added Tax Payable

Value Added Tax Payable is normally computed as follows:

1. Computing Net VAT Payable on VAT “exclusive” Sales/Receipts

Total Output Tax Due or Total Vatable Sales/Receipts x 12%
Less: Total Allowable Input Tax or Total Vatable Purchases x 12%
Equals: VAT Payable

 

Sample Computation of VAT Payable:

Let’s assume that,
Total Vatable Sales (VAT exclusive) = P100,000
Total purchases with VAT receipts (VAT exclusive) = P70,000

P100,000 x 12% or P12,000
– P70,000 x 12% or P8,400
VAT Payable = P3,600

2. Computing Net VAT Payable on VAT “inclusive” Sales/Receipts

Total Output Tax Due or Total Vatable Sales / 1.12 x 12%
Less: Total Allowable Input Tax or Total Vatable Purchases / 1.12 x 12%
Equals: VAT Payable

Sample Computation of VAT Payable:

Example based on the above assumption:
Total Vatable Sales (VAT inclusive) = P112,000
Total purchases with VAT receipts (VAT inclusive) = P78,400

P112,000 /1.12 x 12% or P12,000
– P78,400 /1.12 x 12% or P8,400
VAT Payable = P3,600

Or an alternative computation:

P112,000 /9.333 or P12,000
– P78,400 /9.333 or P8,400
VAT Payable = P3,600

Output tax means the VAT due on the sale, lease or exchange of taxable goods or properties or services by any person registered or required to register under Section 236 of the Tax Code.

Input tax means the VAT due on or paid by a VAT-registered on importation of goods or local purchase of goods, properties or services, including lease or use of property in the course of his trade or business. It shall also include the transitional input tax determined in accordance with Section 111 of the Tax Code, presumptive input tax and deferred input tax from previous period.

Total Vatable Purchases are your total purchases from VAT registered suppliers. This should be supported with VAT receipts.

Note:
VAT exempt sales, zero rated sales, purchases not qualified for input tax, and other input taxes (if any)  should also be shown in the VAT returns. See BIR Forms.

 

How, when and where to File VAT Returns?

Documentary Requirements

1. Duly issued Certificate of Creditable VAT Withheld at Source (BIR Form No. 2307), if applicable
2. Summary Alphalist of Withholding Agents of Income Payments Subjected to Withholding Tax At Source (SAWT), if applicable
3. Duly approved Tax Debit Memo, if applicable
4. Duly approved Tax Credit Certificate, if applicable
5. Authorization letter, if return is filed by authorized representative.

Procedures

1. Fill-up BIR Form No. 2550M (for monthly VAT declaration) or 2550Q (for quarterly VAT declaration) in triplicate copies (two copies for the BIR and one copy for the taxpayer)
2. If there is payment: File the Monthly VAT declaration, together with the required attachments, and pay the VAT due thereon with any Authorized Agent Bank (AAB) under the jurisdiction of the Revenue District Office (RDO)/Large Taxpayers District Office (LTDO) where the taxpayer (head office of the business establishment) is registered or required to be registered.

The taxpayer must accomplish and submit BIR-prescribed deposit slip, which the bank teller shall machine validate as evidence that payment was received by the AAB. The AAB receiving the tax return shall stamp mark the word “Received” on the return and machine validate the return as proof of filing the return and payment of the tax.

In places where there are no duly accredited agent banks, file the Monthly VAT declaration, together with the required attachments and pay the VAT due with the Revenue Collection Officer (RCO) or duly authorized Treasurer of the Municipality where such taxpayer (head office of the business establishment) is registered or required to be registered.

The RCO or duly authorized Municipal/City Treasurer shall issue a Revenue Official Receipt upon payment of the tax.

3. If there is no payment:
File the Monthly VAT Declaration, together with the required attachments with the RDO/LTDO/Large Taxpayers Assistance Division, Collection Agent or duly authorized Municipal/ City Treasurer of Municipality/City where the taxpayer (head office of the business establishment) is registered or required to be registered.

Deadline

Monthly VAT returns BIR Form 2550M:
Not later than the 20th day following the end of each month (manual filing)

Quarterly VAT returns BIR Form 2550Q:
Within twenty five (25) days following the close of taxable quarter (manual filing)

For EFPS filing, please visit the BIR website for detailed and updated dates of deadlines.

Reference:
BIR Tax information on Value Added Tax
Sections 105 to 115 of the National Internal Revenue Code of 1997, as amended

Disclaimer: New and subsequent BIR rulings, issuances and or laws may render the whole or part of the article obsolete or inaccurate. For more information, please inquire or consult with the BIR.