Value-Added Tax

Value-Added Tax

     It is a tax on the value added by every seller to his purchases of goods or services; as well as on importation of goods into the Philippines, whether for personal or business use.  VAT is a tax on consumption levied on the sale, barter, exchange or lease of goods or properties and services in the Philippines and on importation of goods into the Philippines levied at each stage of the production and distribution process (VAT revenue is secured by being collected throughout the  production/distribution process and production decisions do not get distorted due to the tax credit provision on inputs).  Personal end-consumers of products and services cannot recover VAT on purchases, but businesses are able to recover VAT (input tax) on the products and services that they buy in order to produce further goods or services that will be sold to yet another business in the supply chain or directly to a final consumer.  In this way, the total tax levied at each stage in the economic chain of supply is a constant fraction of the value added by a business to its products, and most of the cost of collecting the tax is borne by business, rather than by the state.

VAT is an indirect tax, which may be shifted or passed on to the buyer, transferee or lessee of goods, properties or services.   The Value Added Tax (VAT) Reform Act (Republic Act 9337), more commonly known as the expanded VAT (E-VAT) law, was passed by Congress in May 2005 and amended by RA9361.  After some objections on its legality, it was finally implemented on November 1, 2005.  This law provides for

-                     the expansion of the coverage of the VAT,

-                     reduction in the excise tax on certain petroleum products, and

-                     increase in the corporate income tax rate.

The burden of the tax is borne by the final consumers of VAT-able  goods or services although the producers and suppliers of these goods and services are the ones who have to file their VAT returns to the Bureau of Internal Revenue (BIR).  The VAT system was first adopted in the Philippines in 1988 in place of the sales/turnover tax and a host of other taxes.  At present, a single rate destination principle value added tax equivalent to 12% based on the following:

	Nature of Transactions		Tax Base
a.	Sale of goods or properties		Gross selling price
b.	Sale of services		Gross receipts
c.	Importation		Total landed cost
d.	Dealers in Securities		Gross Income

“Importer”

-   refers to any person who brings goods into the Philippines, whether or not made in the course of trade or business.

-   Importation is not a sale of goods, or sometimes not even a business activity, yet is subject to vat.  This is because vat is a consumption tax levied on sales to be borne by consumers with sellers acting simply as tax collectors.  And, as the origin of importation is from a foreign seller which is outside Philippine jurisdiction, the consumption tax (vat) is instead paid directly by the importer.

 “For subsistence or livelihood”

-   Any business pursued by an individual where the aggregate gross sale or receipts do not exceed P100,000 during the any 12 month period shall be considered principally for subsistence or livelihood and not in the ordinary course of trade or business.