Business Taxes: Value Added Tax (VAT)

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the primary characteristic of Value Added Tax (VAT) that distinguishes it from other types of taxes?

It is a tax on the value of assets.

It is an indirect tax on consumption. (correct)

It is a tax on the value of services only.

It is a direct tax on income.

What is the purpose of the Tax Credit Method in VAT?

To impose a tax on the value of assets.

To credit the input tax against the output tax. (correct)

To increase the tax rate on goods and services.

To provide a tax exemption on certain goods and services.

What is the term for the VAT due or paid on the taxable sale, barter, or exchange of goods, properties, or services by a seller or transferor?

Value Added Tax

Output Tax (correct)

Sales Tax

Input Tax

How is the VAT rate applied in the Philippines?

It is inclusive of the selling price. Signup and view all the answers

What is the formula to compute the VAT?

Total Amount ÷ 1.12 x 12% = VAT Signup and view all the answers

What is the principle that determines the taxation or exemption from tax in VAT?

Destination Principle Signup and view all the answers

What is the VAT rate imposed on export sales of goods in the Philippines?

0% Signup and view all the answers

What distinguishes the Input Tax from the Output Tax?

Input Tax is due from or paid by a VAT-registered person on importation of taxable goods, or on local purchase of taxable goods, properties or services. Signup and view all the answers

What are the three essential conditions that must be satisfied for a transaction to be subject to VAT?

The sale must be made by a taxable person in the course of his trade or business, the sale must be of taxable goods or properties, and the sale must be made in the Philippines Signup and view all the answers

What is the tax base of VAT on sale of properties?

Selling Price (Gross) in the sales contract Signup and view all the answers

What is meant by the phrase 'in the course of his trade or business'?

A regular conduct or pursuit of a commercial or an economic activity Signup and view all the answers

Who are persons liable to VAT?

Any person who sells, barters, exchanges, leases goods or properties, or renders services Signup and view all the answers

What is the VAT rate on sale of goods or properties?

12% Signup and view all the answers

What is the VAT threshold?

Php3,000,000.00 Signup and view all the answers

What is the situs (place of taxation) of VAT?

The location of the property Signup and view all the answers

Is the sale of a property used in a business subject to VAT?

Yes, because the property is used in a business Signup and view all the answers

Are services rendered in the Philippines by non-resident foreign persons subject to VAT?

Yes, because they are services rendered in the Philippines Signup and view all the answers

Is the importation of goods subject to VAT?

Yes, because it is an importation of goods Signup and view all the answers

If a real estate dealer sells a property with a selling price of Php1,560,000.00, how much is the VAT exclusive price?

Php1,392,857.14 Signup and view all the answers

What is a condition for the taxability of real properties under VAT?

The seller or transferor is engaged in the real estate business Signup and view all the answers

What is an example of a transaction deemed as a sale subject to VAT?

A transfer, use or consumption not in the course of business of goods or properties originally intended for sale or for use in the course of business Signup and view all the answers

What is the basis for the output tax when a real estate dealer retires from or ceases business with respect to inventories on hand?

The market value of the properties at the time of the occurrence of the transaction Signup and view all the answers

What is not a requisite for the taxability of real properties under VAT?

The real property is held primarily for personal use Signup and view all the answers

What happens when a real estate dealer transfers a property not in the course of business?

The transaction is subject to VAT Signup and view all the answers

What is the effect of the absence of any of the requisites for the taxability of real properties under VAT?

The transaction becomes exempt from VAT Signup and view all the answers

What is the significance of the principal office of the business in the context of VAT?

It is the place where the principal office of the business is located Signup and view all the answers

Study Notes

Value Added Tax (VAT)

VAT is a tax on consumption levied on the sale, barter, exchange, or lease of goods, properties, and services in the Philippines and on the importation of goods.

Characteristics of VAT

Indirect tax
Tax on value added of a taxpayer
Transparent form of sales tax, with the amount of tax shown as a separate item in the VAT invoice or receipt
Collected through the tax credit method
Adopts the "tax inclusive method"
Follows the destination principle (taxation or exemption from tax depends on the destination of the goods)

Computation of VAT

Total amount ÷ 1.12 x 12% = VAT

Elements of a VATable Transaction

There must be a sale, barter, exchange, or lease (SBEL) in the Philippines
The SBEL must be of taxable goods, properties, or services
The SBEL must be made by a taxable person in the course of his trade or business or furtherance of his profession

VAT Threshold

Annual gross sales and/or receipts of more than Php3,000,000.00

Persons Liable for VAT

Any person who, in the course of his trade or business, sells, barters, exchanges, leases goods or properties, or renders services
Any person who imports goods

Meaning of "In the Course of His Trade or Business"

Regular conduct or pursuit of a commercial or economic activity
Includes transactions incidental to the main purpose

VAT on Sale of Properties

Properties subject to VAT:
- Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business
Tax base of VAT on sale of properties: 12% of the gross selling price or gross value in money of the goods or properties sold

Scenario: VAT Computation on Sale of Properties

Selling price: Php13,000,000.00
Computation: Php13,000,000.00 ÷ 1.12 x 12% = Php1,560,000.00 (if selling price is exclusive of VAT)

Situs of VAT

Place where the principal office of the business is located

Requisites for Taxability (VAT) of Real Properties

Seller executes a deed of sale, including dacion en pago, barter, or exchange, assignment, transfer, or conveyance or merely contract to sell involving real property
Real property is located within the Philippines
Seller or transferor is engaged in the real estate business
Real property is held primarily for sale or for lease in the ordinary course of his trade or business
Sale is not exempt from VAT under any law

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

This quiz covers the basics of Value Added Tax (VAT) in the Philippines, including its characteristics and application.