Tuesday, November 4, 2014

Sources of Output Tax


·         Actual Sale
o    Domestic
o    Export or Zero Rated Sales
·         Transactions Deemed Sale

Ø  Gross Sales include (a)Cash sales, (b)Sales on account, (c)installment sales, (d)deemed sales, and (e)other amounts due from buyer as for packaging, delivery, and insurance.

Ø  Excise Tax, if any, is included in the gross sales, while VAT is excluded.

v  Sales Discount granted and indicated in the invoice at the time of sale and the grant of which does not depend upon the happening of future event may be excluded from gross sales within the same month or quarter it was given.

v  Sales Returns and Allowances may be deducted from gross sales for the month or quarter in which refund is made or a credit memo was issued.

Vat on sale of Goods or services with sales discounts granted by business establishments shall be computed in accordance with the following illustration:
Sales (exclusive of vat)
Less: 20% discount
Vatable sale
Add:  12% vat
Total amount to be paid

The foregoing privileges to person with disability shall not be claimed if the said person with disability claims a higher discount as may be granted by a commercial establishment and/or under existing laws or in combination with other discount program/s.  Thus, a person with disability who is at the same time a senior citizen can only claim one 20% discount on a particular sale transaction

EXEMPT FROM VAT (refer to a separate discussion)  

The following transactions are DEEMED SALE for VAT purposes:

  1. Transfer, use or consumption not in the ordinary course of business of goods or properties ordinarily intended for sale or use in the course of business.

Market Value
  1. Distribution or transfer to:
·         shareholders or investors as share in the profits of a VAT-registered person.
·         Distribution or transfer to creditors in payment of debt or obligation.

Market Value

  1. Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were consigned.
·         Goods RETURNED WITHIN the 60-DAY PERIOD are not deemed sold.

Market Value
  1. Retirement from or cessation of business, with respect to all goods on hand (as of the date of retirement or cessation) whether or not the business is continued by the new owner or successor.  Goods in hand refer to:
·         Capital goods
·         Stock in-trade
·         Supplies or materials

The following circumstances, among others, give rise to transactions deemed sale
                      i.    Change of ownership in the business.  There is a change in the ownership in business when:
1.     a single proprietorship incorporates
2.     the proprietor of a single proprietorship sells his entire business.

                     ii.    Dissolution of a partnership and creation of a new partnership which takes over the business

·         Change of control of corporation by the acquisition of the controlling interest of such corporation by another shareholder or group of shareholder,

Acquisition Cost or Current Market Price whichever is lower
A zero rated sale of goods, properties and/or services (by a VAT registered person) is a taxable transaction for VAT purposes, but shall not result in any output tax. However, the input tax on purchases of goods, properties or services, related to such zero-rated sale, shall be available as tax credit or refund in accordance with existing regulations.

VAT Exempt Transaction
A VAT-exempt transaction, on the other hand, refers to the sale of goods, properties or services or the use or lease of properties that is not subject to VAT (output tax) under Section 109 of the Tax Code of 1997, and the seller/supplier is not allowed any tax credit of VAT (input tax) on purchases related to such exempt transaction.
Zero rated sale versus Exempt sale
VAT rate
Related Input vat

Zero Rated Sale

·         VAT registered

regardless of any shipping arrangement

·         Input Vat on goods subjected to 0% vat can claimed as deduction against output vat.

Exempt Sale

·         Non-VAT registered


·         The input Vat on goods cannot be claimed as deduction against output vat.

"cross border doctrine" means that no VAT shall be imposed to form part of the cost of goods destined for consumption outside the territorial border of the Philippine taxing authority.

3.1. The following SALES shall be subject to ZERO PERCENT (0%) rate:
a.     Sale of goods which are directly shipped by a VAT-registered resident to a place outside the Philippines (Export Sales).

b.     Sale of goods which are considered as "Deemed" Export sales by a VAT-registered person to certain entities who are also residents of the Philippines:

1.     Sales to Export-Oriented enterprises which the Code considers as export sales at the level of the supplier of raw materials.
Ø  Zero rated ONLY IF “Sale of raw materials or packaging materials to an export oriented-enterprise whose export sales exceed seventy percent (70%) of actual annual production.

2.    Sales of gold to the Bangko Sentral ng Pilipinas.
3.     Sales considered as exportation of goods under a special law such as Executive Order No. 226 (Omnibus Investments Code of 1987) and Republic Act No. 7916 (PEZA Law)
Ø  Sale to Special Economic Zones (SEZ)

ART. 23 EO 226
That without actual exportation the following shall be considered constructively exported for purposes of this provision:
Ø  sales to bonded manufacturing warehouses of export-oriented manufacturers;
Ø  sales to export processing zones;
Ø  sales to registered export traders operating bonded trading warehouses supplying raw materials used in the manufacture of export products under guidelines to be set by the Board in consultation with the Bureau of Internal Revenue and the Bureau of Customs;

Ø  sales to foreign military bases, diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of locally manufactured, assembled or repacked products whether paid for in foreign currency or not: Provided, further, That export sales of registered export traders may include commission income: and Provided, finally, That exportation of goods on consignment shall not be deemed export sales until the export products consigned are in fact sold by the consignee.

Ø  Sales of locally manufactured or assembled goods for household and personal use to Filipinos abroad and other non-residents of the Philippines as well as returning Overseas Filipinos under the Internal Export Program of the government and paid for in convertible foreign currency inwardly remitted through the Philippine banking systems shall also be considered export sales.

c.     Foreign currency denominated sales of goods.
The phrase means sale to a nonresident of goods (except automobiles and non-essential goods subject to excise taxes) assembled or manufactured in the Philippines, for delivery to a resident in the Philippines, paid for in acceptable foreign currency and accounted for in accordance with rules and regulations.

d.     Sales to entities, the exemption of which, under a special law or an international agreement with the Government of the Philippines, effectively zero rates such sales.
§  Sale of Goods to Asian Development Bank when made directly, is zero rated under the law which provides “Sales to persons or entities whose exemption under international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate.

3.2. The following SERVICES performed in the Philippines shall be subject to ZERO percent (0%) rate:
a.     "Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
b.     "Services other than those mentioned in the preceding paragraph rendered to a person engaged in business conducted outside the Philippines or to a nonresident person not engaged in business who is outside the Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
c.     "Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate;
d.     "Services rendered to persons engaged in international shipping or international air transport operations, including leases of property for use thereof;
e.     "Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production;
f.      "Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country; and

g.     "Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels.

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