Basic Concepts of Value-Added Tax (VAT)
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Questions and Answers

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

Flashcards

Zero-Rated Sales

Sales where a VAT-registered supplier doesn't charge VAT (0%), but can claim input VAT refunds.

VAT-registered supplier

A business legally registered to collect and pay VAT.

Input VAT

VAT paid by a business on goods or services used in its operations.

Tax credit/refund

Claiming back VAT paid on goods or services for output sales.

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Transaction exempted from VAT

Sales to ECOZONE enterprises or exports by unregistered suppliers, not eligible for VAT credit/refund.

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Goods returned within 60 days (VAT)

Goods returned within 60 days are not considered sold and are exempt from Value Added Tax (VAT).

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Business Cessation (VAT)

When a business closes, inventory valuation is based on the lower of acquisition cost or market value.

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2019 VAT Collection (Philippines)

Philippine VAT collections for goods and services reached P406.1 billion in 2019, up from P358.2 billion in 2018.

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VAT Collection Efficiency (Philippines)

Based on OECD data, the Philippines has the lowest VAT collection efficiency in the Asia-Pacific region.

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VAT Related Transactions

These are transactions related to Value Added Tax.

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Seller's liability for tax

The seller is legally responsible for paying the tax.

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Shifting of tax

Transfer of tax responsibility in an exchange of goods.

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VAT Regulations

Rules governing Value Added Tax (VAT).

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Statutorily liable

Legally obligated to pay the tax.

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VAT Exempt Transaction

A transaction not subject to VAT.

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Goods and properties

Tangible or intangible items with a monetary value.

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Tax Code

A document/set of laws that outline various taxes.

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VAT

Value-Added Tax. A tax on goods or services at each stage of their production.

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PEZA Entity VAT Zero-Rating

Purchases by a Philippine Economic Zone Authority (PEZA) entity are generally zero-rated for Value Added Tax (VAT).

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Direct and Exclusive Use

Items used solely and directly for a company's registered project or operation (e.g., raw materials, equipment).

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Customs Territory

Areas in the Philippines where tariffs and customs duties can be imposed.

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Ecozone Customs Territory

Ecozones are managed separately by PEZA as distinct customs areas within the Philippines.

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Zero-Rated VAT Limitation

While PEZA entity purchases are generally zero-rated, CREATE (a body) restricts this to goods directly and solely used for the registered project/activity.

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VAT exemption for medical services

Medical, dental, hospital, and veterinary services are exempt from Value Added Tax (VAT), excluding laboratory services and sales of drugs/medicines to in-patients.

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VAT on hospital pharmacy sales

Sales of drugs and medicines in hospital pharmacies are subject to VAT, except when sold to in-patients.

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Educational services VAT exemption

Services provided by duly accredited private and government educational institutions are exempt from VAT.

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Employer-employee services VAT

Services provided by individuals in an employer-employee relationship are exempt from VAT.

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Multinational Corporate HQ services

Supervisory, communication, and coordinating services by multinational corporations' regional/area headquarters in the Philippines are exempt from VAT.

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International agreement VAT exemptions

Certain transactions exempt from VAT due to international agreements, except those under Presidential Decree No. 529.

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VAT on petroleum exploration

VAT exemption is not applied to petroleum exploration concessionaires under Presidential Decree No. 529.

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VAT exemption (labor)

Services of those working in the employer-employee relationship are exempt from VAT.

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Agricultural Cooperative Sales

Sales of agricultural produce (raw or processed) by registered cooperatives to members and non-members.

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Cooperative Lending Sales

Gross receipts from lending activities by credit cooperatives.

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Small Non-agricultural Coop Sales

Sales by non-agricultural cooperatives where individual member capital is a maximum of P15,000.

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Non-VAT Registered Export Sales

Export sales by individuals not registered for Value Added Tax.

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Real Property Sales (Non-Primary)

Sales of real property not primarily held for sale, including low-cost housing.

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Residential Lease (Low Monthly Rental)

Residential unit leases with monthly rental up to P15,000.

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Book/Publication Sales

Sales, importation, printing or publishing of qualifying educational materials.

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High-Rental VAT

Rent exceeding P15,000 per month is subject to VAT. Yearly gross exceeds P3M.

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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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