Basic Concepts of Value-Added Tax (VAT)
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What happens to goods returned within the 60-day period in terms of VAT?

  • They are subject to reduced VAT.
  • They are not deemed sold and not subject to VAT. (correct)
  • They are permanently removed from inventory.
  • They are considered sold and subject to VAT.

    • Goods on hand at the cessation of business must be valued at their acquisition cost regardless of market value.

    False (B)

    What was the VAT collection in the Philippines in 2019?

    P406.1 billion

    The VAT collection in the Philippines as a share of total tax revenue was _____ percent in 2019.

    <p>11.5</p> Signup and view all the answers

    Match the following years with their respective VAT collections in the Philippines:

    <p>2018 = P358.2 billion 2019 = P406.1 billion</p> Signup and view all the answers

    What is the main benefit of zero-rated sales for VAT-registered suppliers?

    <p>They are entitled to claim tax credit/refund of input VAT. (A)</p> Signup and view all the answers

    A VAT-registered supplier can pass on output VAT to a buyer when sales are zero-rated.

    <p>False (B)</p> Signup and view all the answers

    What is the period within which a supplier can apply for a tax refund after making zero-rated sales?

    <p>two years</p> Signup and view all the answers

    Sales to an ECOZONE enterprise are _____ from VAT, but the supplier cannot claim input VAT credit/refund.

    <p>exempt</p> Signup and view all the answers

    Match the following types of sales with their corresponding VAT status:

    <p>Zero-rated sales = Entitled to input VAT credit/refund Sales to ECOZONE enterprises = Exempt from VAT Exports by unregistered suppliers = Exempt from VAT and no input VAT credit Exports by VAT-registered suppliers = Zero-rated and entitled to input VAT credit</p> Signup and view all the answers

    What does 'direct and exclusive use' refer to in the context of VAT zero-rating?

    <p>Raw materials and supplies necessary for a registered project (B)</p> Signup and view all the answers

    Under the CREATE law, all purchases by a PEZA entity are VAT zero-rated without exception.

    <p>False (B)</p> Signup and view all the answers

    What does PEZA stand for?

    <p>Philippine Economic Zone Authority</p> Signup and view all the answers

    ECOZONES are to be managed as a separate _______ territory.

    <p>customs</p> Signup and view all the answers

    Match the following terms with their definitions:

    <p>Customs Territory = Areas where customs and tariffs are imposed Ecozone = A special economic area managed by PEZA VAT zero-rated = Purchases exempt from VAT under certain conditions CREATE = A law that modifies certain tax regulations</p> Signup and view all the answers

    What does the term 'statutorily' mean in relation to tax payment?

    <p>Legally liable (A)</p> Signup and view all the answers

    The seller is exempt from legal liability for tax payment if the goods are shifted.

    <p>False (B)</p> Signup and view all the answers

    What is often referred to as the VAT Regulations?

    <p>RR 16-2005</p> Signup and view all the answers

    A __________ Transaction does not mean there is no VAT rate, but refers to a category of transactions.

    <p>VAT Exempt</p> Signup and view all the answers

    Match the following definitions with their corresponding terms:

    <p>Seller = Directly liable for tax payment VAT Exempt = Classification of transactions for VAT implications Statutorily = Legally obligated Goods and Properties = Tangible and intangible objects capable of pecuniary estimation</p> Signup and view all the answers

    Which section of the Tax Code defines goods and properties?

    <p>Section 106 (A)(1) (D)</p> Signup and view all the answers

    Shifting is impossible when there is an exchange of commodities.

    <p>False (B)</p> Signup and view all the answers

    What does Section 106 (A)(1) of the Tax Code encompass?

    <p>All tangible and intangible objects capable of pecuniary estimation</p> Signup and view all the answers

    Which of the following services are exempt from VAT?

    <p>Dental services rendered by professionals (A), Laboratory services (B), Hospital services (C)</p> Signup and view all the answers

    Fees earned by medical practitioners are exempt from VAT.

    <p>False (B)</p> Signup and view all the answers

    What type of educational services are exempt from VAT?

    <p>Services rendered by private educational institutions accredited by DepEd, CHED, TESDA and government educational institutions.</p> Signup and view all the answers

    Sales of drugs to _____ of hospitals are considered part of hospital services and are exempt from VAT.

    <p>in-patients</p> Signup and view all the answers

    Match the following services to their VAT status:

    <p>Private educational services = Exempt from VAT Laboratory services = Exempt from VAT Sales of drugs to out-patients = Subject to VAT Fees earned by medical practitioners = Subject to VAT</p> Signup and view all the answers

    Which entities render services exempt from VAT under international agreements?

    <p>Multinational corporation regional headquarters (A)</p> Signup and view all the answers

    Government educational institutions' services are subject to VAT.

    <p>False (B)</p> Signup and view all the answers

    What is the effect of Presidential Decree No. 529 in relation to VAT exemptions?

    <p>It establishes exemptions for petroleum exploration concessionaires.</p> Signup and view all the answers

    Which type of cooperatives is eligible to undertake lending activities according to the regulations?

    <p>Credit or multi-purpose cooperatives (C)</p> Signup and view all the answers

    Export sales by persons who are VAT-registered are subject to VAT.

    <p>True (A)</p> Signup and view all the answers

    What is the threshold value for a residential unit's monthly rental to be exempt from VAT?

    <p>P15,000</p> Signup and view all the answers

    The sale of real properties utilized for low-cost housing valued at _____ and below is exempt from VAT.

    <p>P3,199,200</p> Signup and view all the answers

    Match the categories of cooperatives with their respective eligibility criteria:

    <p>Agricultural Cooperatives = Sale to members and non-members Credit Cooperatives = Gross receipts from lending activities Non-agricultural Cooperatives = Share capital not exceeding P15,000 Real Property Sales = Exempt value for low-cost housing</p> Signup and view all the answers

    Which of the following is NOT a condition for agricultural cooperatives regarding their sales?

    <p>Sales must be to their members only (D)</p> Signup and view all the answers

    Sales of direct farm inputs imported by cooperatives require VAT regardless of the amount.

    <p>False (B)</p> Signup and view all the answers

    What law affects the VAT imposition on rental income surpassing P3 million annually?

    <p>TRAIN Law</p> Signup and view all the answers

    Study Notes

    Value-Added Tax (VAT) - Basic Concepts

    • VAT is a business tax
    • VAT is an indirect tax, meaning the final consumer ultimately pays the tax
    • VAT is a consumption tax that is levied on the sale, exchange, barter or lease of goods or properties and services in the Philippines, and on the import. of goods.
    • Applicable to persons in commerce
    • VAT is imposed on all kinds of services in the Philippines, including real estate, commercial, customs and immigration brokers, and others
    • VAT liability is determined by the relevant regulations in the Philippines
    • VAT rates include 12% and 0% (zero-rated).

    Topic Outline

    • Introduction
      • Nature of VAT and Underlying Laws
      • Persons Liable to VAT (Statutorily liable)
      • VAT Rate
    • Transactions Related to VAT
      • VAT-taxable transactions
      • Zero-rated VAT transactions
      • Persons Exempt from VAT
      • Exempt Transactions
    • VAT Base and Computation of Output VAT
    • Input VAT and Special Topics
      • Input VAT on Capital Goods
      • VAT on Senior Citizens and PWDs
    • Accounting Entries/ Other Matters
      • Substantiation Requirements
      • Filing of VAT returns and Payment of VAT
      • Required Attachments

    Table of Contents

    • Introduction & Transactions Related to VAT
      • Definition, legal basis, and taxability of transactions
    • Computation of Output VAT
      • Tax base, timing, and computation of output VAT calculation
    • Computation of Input VAT
      • Tax base, timing, and computation of input VAT
    • Special Topics and Other Matters
      • Special topics on input VAT, accounting entries, and administrative requirements

    VAT on Importations

    • VAT is imposed on goods brought into the Philippines, whether for business or personal use
    • The tax is based on the total value used by the Bureau of Customs (BOC) in determining the tariff and customs duties, plus any relevant customs duties, excise taxes/ other charges, prior to releasing the goods from customs custody
    • No VAT is collected on importations of goods specifically exempted under the tax code

    VAT on Deemed Sales

    • Examples of deemed sales include transfers or consumption by a registered person not for business purposes.
    • Distribution to shareholders, investors, or creditors in debt payment are also examples.
    • Additional instances include consignment of goods with no sale made within 60 days, or retirement from business with goods on hand.
    • The basis of VAT for deemed sales is the market value or acquisition cost of the good, whichever is lower.

    VAT Rates

    • 12% is the rate applied to typical VATable transactions
    • 0% is used for zero-rated transactions
    • Exempt transactions are specifically outlined in the tax code

    VAT Collected in 2019

    • The Philippines collected P406.1 Billion of VAT in 2019 from goods and services
    • This amount represents a slight uptick from 2018 figures

    Export Sales

    • Zero-rated sales of goods and services don't incur output VAT to VAT-registered persons but it's still subject to input VAT (and therefore a possible credit or refund)

    VAT Implications for Registered Persons

    • Registered person sellers don't pass on VAT in zero-rated sales
    • Zero-rated transactions allow the input VAT attributed to these sales as a tax credit or refund

    Zero-Rated VAT – Purpose

    • Zero rating encourages businesses to engage in export activities.

    Export Industry

    • The study considers how the export industry contributes to the national economy

    Types of Zero-Rated Sales

    • Automatic zero-rated sales
    • Effectively zero-rated sales

    Reinforcing the Concept

    • Reinforcing discussions on importations and service sales to PEZA
    • Discussing relevant sections of the tax code (Sections 106, 108, 109)

    VAT Exempt Transactions

    • A list of transactions exempt from VAT.

    Our Thought Process

    • An outline for discussions on VAT-related transactions

    Resources

    • List of relevant articles and documents on VAT

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    Related Documents

    MGT 147 Value Added Tax (VAT) Notes PDF

    Description

    This quiz covers the fundamental concepts of Value-Added Tax (VAT) as applicable in the Philippines. It includes the nature of VAT, applicable rates, and related transactions. Test your understanding of VAT liabilities, computations, and exemptions applicable to businesses.

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