VAT PHILIPPINES: THE CONCEPT OF VAT

VAT has two components:

1. Output VAT, and
2. Input VAT
Here in the Philippines, we are required to include VAT to our sales and pass it on to the
customer, generally. We are, therefore, required to remit this VAT (equivalent to 12%) to the
Bureau of Internal Revenue (BIR). That is your Output VAT. However, during the course of
business, we also incur some expenses. That means VAT was passed on to us already. That is
your Input VAT.
So to make things even simpler, Output VAT comes from your revenues, while Input VAT comes
from your expenses.

If you will take a look at any receipt, say, from your nearest coffee shop. You will see a
breakdown at the bottom. It would look something like this photo below.

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Notice how the VAT (12%) is separated from the Vatable Amount? In this case, the coffee shop
earned Php 151.79 and the Php 18.21 goes directly to the BIR as payment for taxes.
BIR TAX INFORMATION ON VALUE ADDED TAX
Sections 105 to 115 of the National Internal Revenue Code of 1997, as amended
Description
Value-Added Tax is a 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?
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 One Million Nine Hundred Nineteen Thousand Five
Hundred Pesos (P1,919,500.00).
A person required to register as VAT taxpayer but failed to register
Any person, whether or not made in the course of his trade or business, who imports
goods
Monthly VAT Declarations
Tax Form
BIR Form 2550M - Monthly Value-Added Tax Declaration (February 2007 ENCS)
Documentary Requirements
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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 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.

HOW DO I COMPUTE THE VAT?

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A: The Value Added Tax is computed by getting the difference of the output tax and input tax. If
you are the seller, you pass on the VAT to your client by adding 12 percent to your selling price.
If you are the buyer of goods and services, you will need to pay VAT by computing for your
output tax and input tax. Output tax is computed by dividing your total sales with the factor
9.3333. For example, your total sales is P112,000. Your output tax is computed by dividing
P112,000 with 9.333, which means your output tax is P12,000.
The input tax applies to your expenses that have VAT receipts. Take your total expenses and
divide it by 9.333. For example, your total expenses is P44,800. Your input tax is P44,800
divided by 9.333, which gives you P4,800.
Now that you have computed both output and input taxes, you can compute your VAT which is
P7,200 (P12,000 - P4,800).
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:
Lets 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 P 8,400
VAT Payable
= P3,600
Or an alternative computation:
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P112,000 /9.333 or P12,000

P78,400 /9.333 or P 8,400
VAT Payable = P 3,600
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.

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