lecture vat with exercises

8/12/2019 Lecture VAT With Exercises

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VALUE ADDED TAX

Presented by:MS. SHEILA JOY C. BENEDICTO, CPA, MBA

Revenue Officer IIRDO 132 East, Davao City

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BASIC CONCEPTS OFVALUE ADDED TAX

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VAT defined

It is a tax on the value added to thepurchase price or cost in the sale or leaseof goods, properties, or services in thecourse of trade or business.

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VAT defined

It is an indirect tax and the amount of taxmay be shifted or passed on to the buyer,transferee or lessee of the goods,properties or services.

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Background of VATVAT is a universal taxation system;

VAT has major amendments :

1. E.O. 273 VAT Law (1988) Jan. 1, 19882. RA 7716 E-VAT (RR 7-95) Jan. 1, 19963. RA 8241 IVAT (RR 6-97) Jan. 1, 19974. RA 8242 Tax Reform Act of 1997


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Background of VAT5. RA 9337 New Expanded VAT Law

signed into law on May 24, 2005Implementation withheld due to TROTRO was lifted by the SC on Oct. 18, 2005Became effective November 1, 2005Implementing Rules and Regulations

RR 14-2005 was superseded by RR 16-2006(amended by RR 2-2007, RR 4-2007, RR 10-2011& RR 16-2011)


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Who are liable to VAT?SELLER provided the

aggregatesales/receiptsexceeds the

threshold* (orwho opt toregister asVAT)

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In the course oftrade/business

Sells barters Exchanges

Leases goods orproperties(includingdeemed sales)

Renders services

IMPORTER Whether or not inthe course of tradeor business

Imports goods

* The threshold isnow P1,919,500effective Jan. 1,2012 (RR 16-2012)


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VAT Rates:

10% (up to January 31, 2006)

12% (effective 2-1-06) and

0%


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TRANSACTIONS COVERED

Sale or Exchange of Goods / PropertiesImportation

Sales or Exchange of ServicesTransaction Deemed SalesZero-Rated Sales of Goods / Properties /ServicesEffectively Zero-Rated Transactions


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BASIS OF VAT on Goods/Prop.

Shall be the GROSS SELLING PRICE (GSP) GSP is the total amount of money or itsequivalent which the purchaser pays or isobligated to pay

excluding VAT.

the excise tax, if any shall form part of thegross selling price


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BASIS OF VAT on Importation

If based on VALUE TOTAL VALUE used by the BOC in

determining:Tariff and custom duties plus custom duties,excise taxes, if any andOther charges paid by the importer (priorto ATRIG)

If based on QUANTITY and VOLUME VAT shall be based on the LANDED COST

plus EXCISE TAXES


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BASIS OF VAT onSERVICES/LEASE OF PROP.

shall be the GROSS RECEIPTS

It refers to the total amount of money or

its equivalent representing: the contract price compensation, service fee, rental or royalty, including the amount charged for materials

supplied with the services and deposits appliedas payments for services rendered and

advance payments actually or constructivelyreceived


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ZERO-RATED SALES: Goods/Properties

It is a taxable transaction for VAT purposes but shall notresult in any output tax. Input tax on purchases ofgoods, properties or services related to such zero-ratedsales shall be available as tax credit or refund.

A. Export sales

B. Foreign currency denominated sales

C. Sales to persons or entities deemed tax-exemptunder special law or international agreement.

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Shall refer to the local sales of goods orproperties by a VAT-registered person to aperson or entitiy who was granted indirecttax exemptions under special laws orinternational agreements.

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Effectively Zero-rated sales of goods andproperties (Sec. 6 of RR 4-2007)


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Transactions deemed sale(Sec. 106(B))

1. Transfer, use, or consumption not in thecourse of business of goods or propertiesoriginally intended for sale or for use in the

course of business;2. Distribution or transfer to:

a. Shareholders or investors share in theprofits of VAT reg. person (propertydividends); or

b. Creditors in payment of debt or obligation.

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Transactions deemed sale(Sec. 106(B))

3. Consignment of goods if actual sale is not made within60 days;

4. Retirement from or cessation of business, withrespect to inventories of taxable goods existing as ofsuch retirement or cessation; and

5. Change of tax detail or status from VAT to NON-VAT.

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Rules on invoicing and recording ofdeemed sale

transactions

Memorandum entry in the subsidiary sales journal to recordwithdrawal of goods for personal use must be made

- For distribution to shareholders and creditors

invoice shall be prepared at the time of the occurrence ofthe transaction recorded in the subsidiary journal

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Rules on invoicing and recording ofdeemed sale

transactions

For retirement or cessation of business

inventory shall be prepared and submitted to RDO not

later than 30 days from retirement invoice shall be prepared for the entire inventory entry in the subsidiary sales journal

Note : If bus iness i s to b e cont inu ed b y n ew ow ner, theent i re amou nt of ou tput tax sha l l be al lowed as inputtax

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OUTPUT TAX & INPUTTAX

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Output Tax

Means the value-added tax due on thesale or lease of taxable good or propertyor services by a VAT-registered person.VAT Rates 12% 0%

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It is evidenced by a VAT invoice or officialreceipt shall be creditable against theoutput tax.Input tax on domestic or importation ofgoods.Input tax that can be directly attributedA ratable portion of the input tax whichcannot be directly attributed to eitheractivity

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Input Tax


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Sources of Input Tax

Purchase or importation of goods For sale; or For conversion into or intended to form part of

a finished product for sale including packagingmaterials; or

For use as supplies in the course of business;or

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Sources of Input Tax

For use as materials supplied in the sale ofservice; or

For use in trade or business for whichdeduction for depreciation / amortizationis allowed under the Tax CodePurchase of services on which VAT hasbeen actually paid

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Sources of Input TaxPurchase of real properties for which theVAT was actually paidPurchase of services for which the VAT

was actually paidTransitional input taxPresumptive Input taxStandard Input Tax (gov t. transaction)

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Input Tax on depreciable capital goods,

the aggregate acquisition cost of which(net of VAT) in a calendar month,exceeds P1,000,000 shall be spreadevenly over 60 months or their useful life,w h ich ever is sh o rter.

Spreading of VAT on CapitalGoods

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If capital good is sold within 5 years orprior to exhaustion from input VAT thereon, the entire unamortized input taxon the capital goods sold can be claimedas input tax credit during themonth/quarter when the sale was made.

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Spread of VAT on Capital Goods


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Option to apply for refund/tax creditcertificate of capital goods has been

withdrawn.

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Spread of VAT on Capital Goods


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VAT PayableOutput Tax ( Sales x 12%) - P x x xLess Input Tax (Purchases x 12%) - x x xVAT payable - P x x x

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Journal Entries upon Purchase

1. Purchase of goods with invoice price ofP30,800.00

Purchases 27,500Input Tax 3,300

Cash P30,800

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Journal Entries upon Sale

2. Sales of P36,400 inclusive of VAT

Cash 36,400Sales 32,500Output tax 3,900

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Journal Entries

3. To remit VAT to BIR

Output Tax 3,900.00Input Tax 3,300.00VAT Payable 600.00

#VAT Payable 600.00

Cash 600.00

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VAT Payable

Output Tax - P 3,900.00Less Input Tax - 3,300.00

VAT Payable - P 600.00

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Transitional Input Tax

A person becomes liable to VAT or electsto be VAT registered person shall be

allowed input tax of 2% of the value ofinventory or the actual VAT paid,whichever is higherSubject to the filing of inventory list

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Transitional Input Tax

Example:Mr. A becomes liable to VAT starting Jan.2011. He has P200,000 worth of

inventory. Actual VAT payment onpurchases from VAT registered supplierswere P18,000.00.

Allowed transitional input tax: P18,000The 2% of P200,000 (P4,000) is lowerthan P18,000

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Presumptive Input Tax

4% of the gross value in money of purchasesof primary agricultural products which areused as inputs to their production:

SardinesMackerel and milkRefined sugarCooking oilPacked noodle-based instant meals

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Refund or Tax Credit of InputTax (Sec. 112 of the NIRC)

Any VAT registered person whose salesare ZERO-RATED or EFFECTIVELYZERO-RATED may, within two (2) yearsafter the close if the taxable QUARTERwhen the sales was made, apply for theissuance of a TCC.


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Refund or Tax Credit of InputTax (Sec. 112 of the NIRC)

Person whose registration has beencancelled due to retirement orcessation of business or due to changein or cessation of status may, withintwo (2) years from the date ofcancellation, apply for the issuance ofa TCC.


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VAT on GOVERNMENTTRANSACTIONS

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VAT on Government Sales Sale of goods and services to government is subject to 12%

VAT;

The 5% VAT withheld represents the net VAT payable of theseller

The remaining 7% effectively accounts for the standard inputtax in lieu of the actual input VAT

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VAT ON GOVERNMENTTRANSACTIONS

If actual input VAT exceeds 7% of gross payments, theexcess may form part of the sellers

cost; and

If actual input VAT is less than 7% of gross payments, thedifference must be treated as income of the seller.

The income received from the government while subject

to final withholding on VAT shall still be reported in theVAT return

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Input tax that cannot be directly attributedto either VATable or exempt transactionshall be pro-rated and only the ratable

portion can be allowed as tax credit

Apportionment of input tax on mixedtransactions


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Input tax attributable to VAT exempttransaction shall not be allowed as taxcredit but should be treated as part of cost

or expenseInput tax attributable to the zero-ratedsales may be refunded or applied for tax

credit certificate

Apportionment of input tax on mixedtransactions


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Apportionment of Input Tax on Mixed Transactions

Taxable sales to privateTotal sales X Input Tax =

Creditable

Taxable sales to govt.Total sales

X

Input Tax = Creditable *

Exempt salesTotal sales

X Input Tax = Expense or cost

* Subject to the 7% standard input tax provision

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Taxable sales 0%Total sales

X

Input Tax = Refundable


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COMPLIANCEREQUIREMENTS

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Optional Registration

1. Any person who is VAT-exempt under Sec. 4.109-1(B)(1)(V) may elect to be VAT registered;

2. Any person who is VAT-registered but enters intotransactions which are exempt from VAT (mixedtransactions) may opt that the VAT apply to hisexempt transactions;

Any person who elects to register shall not beentitled to cancel registration for the next 3 years.

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3. Franchise grantees of radio and/or televisionbroadcasting with annual gross receipts notexceeding P10M. (This option once exercised

is irrevocable);

Optional Registration

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Penalty for Failure to Register asVAT Taxpayer

Taxpayer shall be liable to pay thetax as if he was a VAT registered

person

Taxpayer cannot avail of the

benefits of input tax credit for theperiod he/it was not properlyregistered.

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Invoicing Requirements

For every sale, barter or exchange of goods orproperties- VAT invoices

For every sale, barter or exchange of services or

lease of goods or properties- VAT official receipts

A VAT-registered personshall issue :

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Information needed in the VATInvoice or VAT Official Receipt:

1. Name and business address of taxpayer who will use theinvoice/official receipt;

2. TIN of taxpayer followed by the word

VAT

;3. The amount of tax shown as a separate item;

4. Date of transaction, quantity, unit cost and description ofthe goods or properties or the nature of the service;

5. Authority to Print details and serial number of booklets atthe lower left corner of receipt.

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The word VAT EXEMPT SALE written or printedprominently if sale is VAT-exempt;

The words ZERO-RATED SALE

written or printed

prominently if sale is subject to zero percent

Cont

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Cont

Option to issue combined or separateinvoices/receipts of sale in a combinationof VAT-liable and VAT-exempt sale. If thesale is combined, the invoice or receipt

should indicate the break-down of the saleprice between the taxable and the exemptcomponent and the calculation of the VAT

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Cont

For sale to VAT-registered personsamounting to P1,000 or more , indicatethe name, business style (if any), addressand TIN of the purchaser

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Accounting Requirements

All persons subject to VAT shall in addition to regularaccounting records, maintain the following SUBSIDIARY SALES JOURNAL which the daily

sales are recorded. It includes columns for date ofsale; name of customer; TIN of customer, SalesInvoice/OR number, exempt sales; VAT sales (12%)government sales and Zero-Rated Sales;

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Accounting Requirements

SUBSIDIARY PURCHASE JOURNAL

which thedaily purchases are recorded. It includes columns fordate of purchase; name of supplier; TIN of Supplier,purchase invoice number, exempt purchases;domestic purchases (capital goods and other thancapital goods), purchases from importation andpurchases from services.

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P lti f E I f VAT


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Penalties for Erroneous Issuance of VATInvoice or VAT Official Receipt

Infraction Penalty1. NON-VAT person who

issues a VAT invoice/officialreceipt

- payment of percentage tax, ifapplicable

- payment of VAT (w/out input tax)- 50% surcharge on the VAT due

- If the invoice/official receiptcontains the required information,purchaser shall be allowed torecognize an input tax credit

2. VAT-registered person who

issues a VAT invoice/officialreceipt for a VAT-exemptsale without the words

VAT-EXEMPT SALE

Subject to 12% VAT

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FILING AND

PAYMENT DUEDATES

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Filing of Return Every persons liable to pay the VAT shall file a:

MONTHLY RETURN (2550M) every 20th day ofthe month following the close of each month; and

QUARTERLY RETURN (2550Q) every 25th day

following the close of each taxable quarter. Any person, whose registration has been

CANCELLED within 25 days from the date ofcancellation of registration

Only one consolidated return shall be filed by thetaxpayer for his principal place of business or headoffice and all branches.

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Synchronized Filing of Quarterly VAT andQuarterly Income Tax (RR 8-2002)

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Ex: Fiscal year ends May 31Under ManualFiling System Under EFPS

Quarter Covered Months Forms to UsedDue Date

For Filing/Payment

Due date

eFiling ePayment

1st Quarter

June 2550M July 20 Staggered (pls see table) Jul. 25

July 2550M August 20 Staggered (pls see table) Aug..25

August 2550Q September 25 Sept. 25 Sept. 25

2nd QuarterSeptember 2550M October 20 Staggered (pls see table) Oct. 25

October 2550M November 20 Staggered (pls see table) Nov. 25

November 2550Q December 25 Dec. 25 Dec. 25

3rd QuarterDecember 2550M January 20 Staggered (pls see table) Jan. 25

January 2550M February 20 Staggered (pls see table) Feb. 25

February 2550Q March 25 Mar. 25 Mar. 25

4th QuarterMarch 2550M April 20 Staggered (pls see table) Apr. 25

April 2550M May 20 Staggered (pls see table) May 25

May 2550Q June 25 June 25 June 25


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SCHEDULE OF STAGGERED

FILING OF RETURNS (RR 26-2002)

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GROUP MONTHLY VAT DECLARATION & PERCENTAGETAX RETURNS

A 25 days ff the end of the month

B 24 days -do-C 23 days -do-D 22 days -do-

E 21 days -do-


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Submission of SLS/SLP

Persons required to submit:

Summary List of Sales all VAT taxpayers

Summary List of Purchases all VAT taxpayers

Note: Effective Jan. 1, 2012 (regardless of the amount of sales andpurchases) all VAT registered TPs are required to submit SLS/Punder RR 1-2012

Due Date:On or before the 25 th day of the month

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Submission of SLS/SLP

Ref: RMO 56-2010 / RMC 60-2010 Electronic submission

Thru efps

Manually Use of removable storage media

3.5 inch floppy diskette USB flash drive CD DVD

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Section Nov.

1/2005

Adjustedthresholdamounts

Sale of Residential Lot Sec.109(P)

P1,500,000 P1,919,500

Sale of Residential House &Lot Sec. 109(P)

2,500,000 3,199,200

Lease of residential unitsSec. 109(Q)

10,000 12,800

Sale or lease of goods orproperties or theperformance of services

Sec. 109(V)

1,500,000 1,919,500

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Adjusted Threshold (RR 16-2011)Effective 1-1-12


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APPLICATION

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Compute for the Output Tax of the ModelCorporation


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Output tax

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Sales output tax

Sales to Private 42,900,000 5,148,000

Sales to Gov't. 15,000,000 1,800,000

Sales - Non VAT 500,000

total sales 58,400,000 6,948,000


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Determine the following input taxesassuming all VAT taxable purchases were

duly supported with VAT Invoices/ORs: On purchase of goods directly attributable togovernment transactions;

On purchase of capital goods

On purchase of goods other than capital goods On purchase of services


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IT on purchases directly attributable togov

t. transactions

Input Tax directly attributable to gov't. sales

Purchases 13,000,000.00 12%

1,560,000.00


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IT on Capital Goods Total 2,500,000.00 Input Tax on Capital Goods to be spread over 300,000.00 Allowable monthly credit (P300,000 / 60 mos) 5,000.00

Input tax on Depreciable goods - prior year 180,000.00 Input tax on Depreciable goods - current year 60,000.00 Total 240,000.00 (Assumption: Above equipments are intended for a branch without sale to government)


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IT on goods other than capitalgoods

Purchases 34,850,000

Purchases - gov't. transaction 13,000,000 Fringe Benefits - groceries 40,000

Marketing Expenses 420,000

Office Supplies 20,500

Fuel, Oil, and Lubricants 600,000 Total 48,930,500

VAT Rate 12%

Input Tax 5,871,660

INPUT TAX ON PURCHASE OF GOODS OTHER

THAN CAPITAL GOODS


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IT on purchase of services Freight In 500,000

Professional Fees 500,000 Light 450,000

Programming services 500,000

Communication 180,000

Rent Expense 334,500

Security Services - agency fee 70,000

Repairs and Maintenance 175,000

Transportation 211,000

Representation 350,000

Advertisement 120,000 Insurance 50,000

Total 3,440,500 VAT Rate 12%Input Tax 412,860

Summary of Input taxes


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SOURCES OF INPUT TAX:

GROSS INPUT TAX TO BE PRO-RATED DEFERRED

34,850,000.00 4,182,000.00 - 13,000,000.00 1,560,000.00 -

1,080,000.00 129,600.00 129,600.00 3,440,500.00 412,860.00 412,860.00

no data given 360,000.00 180,000.00 180,000.002,500,000.00 300,000.00 60,000.00 240,000.00

6,944,460.00 782,460.00 420,000.00

Deductions from Input Tax 420,000.00 Input Tax on gov't. sale closed to expense/cost 710,974.32 Input tax on exempt sale closed to expense/cost 6,699.14 total 1,137,673.46 Allowable input tax credit 5,806,786.54

from capital goods in excess of P1M - cur

Purchases - regular transactionsPurchases - sale to gov't.

Purchase of services

Goods other than capital goods and

intended for sale

from capital goods in excess of P1M - pr


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Let

s apply:

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Apportion the input tax on mixed transaction


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Apportioned Input Tax

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INPUT TAX allocation

Sales to Privatetotal sales(42.9M /58.4M) X P4,7 782,460.00 574,786.54

Sales to Gov't.total sales(15.0M /58.4M) X P4,7 782,460.00 200,974.32

NV Sales EXPENSE ORtotal sales COST(.5M /58.4M) X 4,90 782,460.00 6,699.14

782,460.00 *compare to 7% standard input

x Input tax =

x Input tax =

x Input tax =

CREDITABLE

CREDITABLE *


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Input Tax Available for Gov

t. Sales

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On Purchases - gov'ttransaction (13M x 12%) 1,560,000.00 Apportioned Input Tax 200,974.32 Total 1,760,974.32

Less: Standard Input Tax 1,050,000.00 Input Tax on Sale to Gov't. 710,974.32


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Journal Entry on Gov

t. Transaction

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Cash 15,900,000.00 Withholding Tax on VAT (5%) 750,000.00

Expanded Withholding Tax (1%) 150,000.00 Sales 15,000,000.00 Output Tax 1,800,000.00

To record sale to government.


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Journal Entry to close the input

tax attributable to exempt sales

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Cost/Expense 6,699.14

Input Tax 6,699.14 To close input tax allocated to

exempt transaction to appropriate account.


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Let s fill-up the VAT Form

FORM 2550Q

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Men love their country, not

because it is great, but because itis their own.~Seneca

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The End

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