What is Value Added Tax?
“Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to value-added tax (VAT)…”(Section 105 of the Tax Code, as amended.) The rate is 12% of the gross selling price or gross receipts.
VAT is a business tax imposed upon sales of those who are engaged in the regular conduct of trade or business in the Philippines – either as a seller of goods or rendering services. With the expanded VAT law, more establishments and entities are now subject to VAT. Those who are not engaged in trade or business are not liable thereto even if they made sales of articles or rendered services that should have been subject to VAT if regularly undertaken, as they are not engaged in trade or business. Examples of these are casual sales of say, a real property, or personal assets of persons not engaged in trade or business.
Generally, to be subject to VAT, the entity must be VAT-registered and the gross sales or gross receipts must exceed PhP1.5M (except radio and television franchising which must exceed PhP10M) during a 12-month period. Non-VAT registered with gross sales or gross receipts not exceeding P1.5M (or PhP10M in radio/television franchising) shall be subject to other percentage tax (OPT) of 3%. However, upon reaching such amount it is required to register as VAT and shall be liable to VAT.
It is likewise a consumption tax. Thus, goods which are destined to be consumed in the Philippines are subject to VAT. Non-resident foreign persons rendering services in the Philippines are likewise subject to VAT, unless otherwise exempted by law or treaty. Likewise, importers, whether for business or for personal use, are subject to tax, unless otherwise exempted by law or treaty. This is because they are destined to be consumed in the Philippines. By implication, the final consumer or end-user shoulders the VAT that aggregates along the distribution chain and every consumer is paying this. By this, no one may safely say that he or she is not paying tax at all.
Value-added tax (VAT) is an indirect tax which means that the buyers are the one’s actually burdened by the tax while the seller establishment is the one obligated to remit the corresponding tax. For buyer, the VAT imposed on his purchases is called “input VAT”. For the seller, the VAT on its sales of goods or services is called “output VAT”. If you buy a VATable good, the price you will pay includes the VAT and you will notice the same on the invoice or receipt as it is required to be shown separately.
At the end of the month or quarter, VATable entities are required to filed monthly BIR Form No. 2550M for the first two months of every calendar quarter, and quarterly BIR Form 2550Q VAT returns. In this returns, output VAT less input VAT equals VAT payable to the BIR.
Related post:
“Taxes affect lives, care for taxes and save lives”
Tags: consumption tax, destination principle, indirect tax, VAT
Please follow this links for the BIR VAT returns – http://www.bir.gov.ph/birforms/form_per.htm, and http://www.bir.gov.ph/birforms/form_per.htm
Tax, which for economically depressed people is additional burden, is not actually reaching the public but making many politicians and government employees rich.
I don’t deserve to be in the list but thank you for your vote.
thanks luminerli, think you deserve my vote and i wish you good luck…that is the sad part of tax, hope the next tita Cory type politicians and leaders will rule our country…she has my highest admiration
that’s the sad part of it…god bless
I Like this site your article is very nice , Thanks, very interesting article, keep up it coming
what about supply of labor for overseas work to a non-resident foreign company, is it subject to 12% vat?
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