Value Added Tax on Sales to Government in Philippines
Government, any of its political subdivision, instrumentality or agencies, including
government-owned or controlled corporations (GOCCs) is also subject to value added tax
inthe Philippines, unless otherwise exempted. Sales to government of goods, properties,
orservices are subject to 12% value added tax. However, there are some special rules
that one must be aware of in dealing with the government sales - final withholding VAT
onsales to government in the Philippines, accounting and fill-out of value added tax
returns inthe Philippines.
Final withholding VAT on sales to government
‘Asa rule, government or ary of its political subdivision, instrumentalities, or agencies,
including government-owned or controlled corporations are mandated to withhold 5%
(out of the 12% VAT) on VATable sales upon payment to value added tax sellers of goods
orservices. Such 5% withholding tax shall represent the net VAT payable by the seller to
government. This would mean that the seller will not be made to pay more than 5% out of
the 12% value added taxon government sales in the Philippines. In the VAT returns
however, the 12% value added taxon sale to government has to be declared for
transparency purposes.
Sample computation on final VAT on sales to government:
A Corp. sold P1,000,000 worth of goods plus 12% VAT or P120,000 to
Government Agency (GA). Upon payment of GA to A Corp., GA will withhold
the 5% or P50,000 (P 1,000,000 multiplied by 5%), so it will only pay
P1,070,000.00 (P1,120,000 less P50,000) to A Corp. A Corp. will no
longer pay or remit the Bureau of Internal Revenue (BIR) the P70,000
(P120,000 less P50,000) because the P50,000 withheld by GA constitute
final VAT on sales to government in the Philippines.~ standard input VAT onsales togovernment.
Since the seller will effectively pay the 5% out of the 12% value added taxon sales to
government, the 7% (12% less 5%) effectively accounts for the standard input VAT in liew
of actual input VAT. The question nowis - How about the actual input taxon purchases of
‘the seller for goods or services used in sales to government? Such actual Input tax
attributable or ratable (for those with mixed transactions) to sales to government will no
longer be deducted against the output VAT on other regular sales because the standard
input VAT will take their place. Said actual input VAT attributable or ratable to
government sales shall not also be carried over to succeeding months or quarters, not an
outright Input VAT expense, and not allowed to be clalmed for refund and tax credit
certificates. Instead, such actual input VAT are closed to the standard input VAT in the
‘books of account of the VAT-registered taxpayer in the Philippines and any difference
treated as follows:
* factual input VAT exceeds standard input VAT, input VAT expenses; or
+ Ifactual input VAT is less than the standard input VAT, closed to expense or cost.
Sample computation on sales to government
A Corp. sold P1,000,000 worth of goods plus 12% VAT or P120,000 to
Government Agency (GA). In making such sales to government, A
Corporation's purchases totaled P625,000 plus 12% VAT of P75,000.00.
Asasale to government, A Corp. will not compute VAT due and payable at
P45,000 (P120,000 less P75,000). With the 5% or P50,000.00 final VAT
withheld by GA, the P75,000.00 input VAT will not be deducted from the
P120,000 output VAT on sales to GAor on other VATable sales of A Corp.
Instead, it will be closed in the books of accounts of A Corp. as input VAT
expense of P5,000 (P75,000 actual less P70,000 standard). On the other
hand, assuming the actual input VAT is only P60,000, then closing the
actual input VAT in the books will result toa reduction of expense or cost, or
simply other income of P10,000 (P60,000 actual less P70,000 standard).