After reading this article, you will get an overview of Value Added Tax (VAT) in the Philippines under TRAIN Law.
In this article, you’ll learn about:
- What is Value Added Tax (VAT)?
- Who shall File Value Added Tax (VAT)?
- When and Where to File and Pay Value Added Tax (VAT)?
- What are the Tax Rates involving Value Added Tax (VAT)?
- What is the Basis of Value Added Tax (VAT)
- What is Input VAT, Output VAT, and VAT Payable?
- What are is Summary List of Sales and Purchases (SLSP)?
- What will happen if you sell or lease goods and/or services to the Government?
- What are the Invoicing Requirements when it comes to VAT?
- What will happen if you fail to display prominently on the invoice or receipt the words “VAT-Exempt sale” on Exempt Transaction?
- What will happen to Filing and Payment of VAT Return starting January 1, 2023?
1. What is Value Added Tax or VAT?
VAT is a consumption tax that is added in a product or service you sell.
It is an indirect tax that is passed on to buyers, consumers and end users.
2. Who shall File Value Added Tax or VAT?
This return/declaration shall be filed in triplicate by the following taxpayer:
- A person whose gross annual sales and/or receipts exceed P3,000,000
- A Person who chooses to be registered as VAT taxpayer
- A person that imports goods.
3. What are the Tax Rates involving Value Added Tax or VAT?
1. VAT 12%
3. VAT Exempt
4. What is the Basis of Value Added Tax or VAT?
VAT on Sale of Goods, Properties, Services, or Lease of Properties is based on the monthly gross sales and receipts.
VAT on Importation is based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus custom duties, excise taxes, and other charges to be paid by the importer prior to the release of such goods from customs custody.
5. When and Where to File and Pay Value Added Tax or VAT?
Monthly Value Added Tax Declaration (BIR Form 2550M) shall be filed not later than the 20th day of the following month.
Quarterly Value Added Tax Return (BIR Form 2550Q) shall be filed not later than the 25th day of the following quarter.
1st Month of the Quarter – Use BIR Form 2550M
2nd Month of the Quarter – Use BIR Form 2550M
3rd Month of the Quarter – Use BIR Form 2550Q
The return shall file through Electronic Bureau of Internal Revenue Forms (eBIRForms) or Electronic Filing and Payment System (eFPS).
And shall be paid through eFPS or Authorized Agent Bank (AAB) of the Revenue District Office (RDO) where the taxpayer is registered and conducting business.
Taxpayers with branches shall file only one consolidated return/declaration for his principal place of business or head office and all branches.
6. What is Input VAT, Output VAT, and VAT Payable?
VAT Payable is the tax you need to pay after deducting Input Tax from Output Tax.
The Formula for computing VAT Payable is:
Output Tax
– Input Tax
VAT Payable / (Overpayment)
Output Tax is the 12% Value Added Tax (VAT) due on the sale or lease of taxable goods, properties, services.
Input Tax is the 12% Value Added Tax due on the purchase, lease, or importation of taxable goods, properties and services from a VAT Registered Taxpayer or Foreign companies.
Input tax also include Input Tax on Importation, Transitional Input Tax, Presumptive Input Tax, and Deferred Input Tax.
7. What is the Summary List of Sales and Purchases (SLSP)?
All persons liable for VAT are required to submit Summary List of Sales and Purchases (SLSP) every twenty-fifth (25th) of the month following the close of the taxable quarter through BIR Software called Reconciliation of Listing for Enforcement System (RELIEF).
a. BIR’s RELIEF Data Entry is where you input information like TIN number, Registered Name, Business Address, Gross Sales or Purchases, Input Tax or Output Tax, VAT Zero Rated, VAT Exempt, etc.
b. After RELIEF Data Entry, you must check if there is no error using BIR’s RELIEF Validation.
c. After BIR RELIEF Validation, you can now Email it to esubmission@bir.gov.ph.
After few days, you will receive an email confirmation from BIR. Print a hardcopy as proof that you submit Summary List of Sales and Purchases (SLSP).
8. What will happen if you sell or lease goods and/or services to the Government?
1. If you sell goods and/or services to the government, the government or any of its agencies shall withhold a 5% Final value-added tax from you based on their gross payment to you.
2. If you’re a non-resident owner (OFW) and you lease your property to the government, the government or any of its agencies shall withhold a 12% Final value-added tax from you based on their gross payment to you.
3. Payments for purchases of goods and services arising from projects funded by Official Development Assistance (ODA) shall not be subject to the final withholding tax system.
4. Please note that Withholding of Creditable Income Tax (Expanded) is different from the withholding of Final VAT. And that beginning January 1, 2021, the VAT Withholding System shall shift from final to creditable system.
9. What are the Invoicing Requirements when it comes to VAT?
1. The amount of Input tax shall be shown as a separate item in the invoice or receipt.
2. If the Sale is exempt from VAT, the amount of VAT-exempt sale shall be written or printed prominently on the invoice or receipt.
3. If the sale is subject to zero percent (0%) VAT, the amount of zero-rated sale” shall be written or printed prominently on the invoice or receipt.
10. What will happen if you fail to display prominently on the invoice or receipt the words “VAT-Exempt sale” on Exempt Transaction?
1. The transaction shall become taxable and the issuer shall be liable to pay VAT thereon.
2. The purchase shall be entitled to claim an input tax credit on his purchase.
11. What will happen to Filing and Payment of VAT Return starting January 1, 2023?
According to Sec. 37 of TRAIN Law
- Filing and payment of Value Added Tax will be done on a quarterly basis instead on a monthly basis.
This shall be done within twenty five (25) days following the close of each taxable quarter.
References:
1. Tax Reform for Acceleration and Inclusion (TRAIN Law)
2. Regulation Implementing the Value Added Tax Provision under TRAIN Law (RR 13-2018)
3. Consolidated Value Added Tax Regulations of 2005 (RR 16-2005)
Want to learn more?
1. What are VAT Zero Rated Transactions in the Philippines?
2. What are VAT Exempt Transactions in the Philippines?
What’s Next?
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