MODULE 3. VALUE-ADDED TAX ON SALE u.

supply of services by non-resident or his employee with

the use of property /rights belonging to, or
OF SERVICES installation /operation of any brand, machinery or
Lesson 1 – Delineation of Service other apparatus purchased from that non-resident.
Service is subject to VAT if: v. technical advice, assistance or services rendered in
(a) Service is in the course of trade or business. connection with technical management or
(b) Service is rendered in the Philippines. administration of scientific, industrial, or commercial
(c) Service is not subject to any of the percentage taxes. undertaking, venture, project, or scheme.
w. lease of motion picture films, tapes, and discs.
"Sale or exchange of services” x. lease /use of /right to use radio, television, satellite
- performance of all kinds of services in the Philippines transmission and cable television time.
for a fee, remuneration or consideration
- provided there is no existing employer-employee Lesson 2- Percentage Tax on Common Carriers
relationship. Figure 3-2. VAT or percentage tax of domestic carriers.
 A taxpayer may have two lines of taxable activities, Common carrier by land:
one subject to VAT and to percentage tax. Transporting goods or cargoes 12% VAT
Transporting passengers 3% Common carrier's tax
Examples of businesses subject to VAT:
(a) Hotels, motels, inns, pension houses and resorts. Common carriers by air or sea:
(b) Restaurants, cafes, and other eating places.
From Philippines to Philippines
(c) Security agencies.
Transporting goods or cargoes 12%
(d) Warehouses.
VAT
(e) Forwarders.
Transporting passengers 12%
(f) Lessors of properties, real or personal.
VAT
From Philippines to outside the Philippines (export)
Figure 3-1. Statutory definition and enumeration of sale of
services Transporting goods or cargoes 0% VAT
a. Construction and service contractors. Transporting passengers 0% VAT
b. Stock, real estate, commercial, customs and
immigration brokers. Lesson 3 - The Tax Base (gross receipts)
c. Lessors of property (personal or real)
d. Warehousing services. "GROSS RECEIPTS”
e. Lessors/distributors of cinematographic films. - cash or its equivalent actually or constructively
f. Persons engaged in milling, processing, manufacturing, received (not including VAT) as:
or repacking of goods for others. a. Payments on contract price, compensation, service
g. Proprietors, operators, or keepers of hotels, motels, fee, rental, or royalty.
rest houses, pension houses, inns, resorts. b. Payments for materials supplied with the services.
h. Proprietors or operators of restaurants, refreshment c. Deposits or advanced payments.
parlors, cafes, and other eating places (clubs & CONSTRUCTIVE RECEIPT
caterers) - occurs when money consideration or its equivalent is
i. Dealers in securities. placed in control of the person who rendered the
j. Lending investors. service without restriction by the payor.
k. Transportation contractors of goods or cargoes Examples:
(including persons goods or cargoes for hire and other (a) Deposits in banks available to seller without
domestic common carriers by land) restriction.
l. Common carriers by air and sea (passengers, goods or (b) Issuance by debtor of notice to offset any debt or
cargoes) from Philippines to other place in Philippines. obligation and acceptance thereof, by the seller as
m. electricity by generation companies, transmission, and payment for the services rendered.
distribution companies. (c) Transfer of amount retained by the owner to the
n. franchise grantees of electric utilities, telephone and account of contractor.
telegraph, radio, and television broadcasting, etc. Quick Facts to Remember:
(except those under Section 119 of NIRC who are  The tax is on the cash received.
subject to percentage tax)  Receivables are not taxable.
o. Non-life insurance companies (except crop insurances),  Taxable gross receipts include gross receipts for
including surety, fidelity and bonding companies. materials furnished with the services.
p. Similar services regardless of whether or not the  Advances, although not yet earned, are already
performance calls for exercise or use of taxable gross receipts.
physical/mental faculties.
q. lease /use of /right /privilege to use copyright, patent, Will there be sales discounts and sales returns and allowances
design or model, plan, secret formula or process, that will reduce the gross receipts? Yes.
goodwill, trademark, trade brand, etc.
r. lease /use of /right to use industrial, commercial or Example 3-9. (Sales Returns)
scientific equipment.  In services provided, with materials, payments were
s. supply of scientific, technical, industrial or commercial received already by the VAT taxpayer, but the buyer
knowledge or information. of the services returned some of the materials.
t. assistance that is ancillary and subsidiary to, and  The gross receipts will be reduced by the peso value
furnished as a means of enabling the application of the sales returns.
/enjoyment of property/right as enumerated in (r) or Example 3-10. (Sales Allowance)
knowledge /information mentioned in (s).  In services provided, payments on which were
received already by the VAT taxpayer, but the buyer
 complained on the quality of the work done, and Electricity from VAT taxpayer 20,000
there was a downward adjustment on the price. PLDT 5,000
 The gross receipts will be reduced by the sales Office personnel 25,000
allowance. Other expenses of operations:
THE TAX RATES Paid to VAT taxpayers 3,000
 12% of gross receipts. Paid to non-VAT taxpayers 8,000
 0% of gross receipts from services performed to
certain entities under certain conditions (provided in Note:
law)  When gross receipt was subject to withholding
income tax, determine the gross receipts before
THE TAX FORMULA withholding tax.
Output taxes xx  = amount received / withholding tax rate
Less: Input taxes (xx) The computation for VAT would be:
VAT payable xx Output taxes:
On professional fees received:
INPUT TAXES (180,000/90%) ₱200,000
VAT paid on local purchases from VAT registered taxpayers, (200,000 x 12%) ₱24,000
and on importation of goods: reimbursements from clients for
a. For materials, supplied with the sale of services. expenses chargeable to clients,
b. For use as supplies. billed to Mr. AyeBee (6,000 x 12%) _720_
c. For use in trade or business for which Total ₱24,720
depreciation/amortization is allowed for income tax Less: Input taxes
purposes (capital goods), except automobiles, aircraft, Expenses chargeable to client, billed
and yachts. to Mr. AyeBee (6k x 12%) 720
 VAT paid on purchase of real property. Computer (70k x 12%) 8,400
 VAT paid on purchase of services. Office supplies (1kx 12%) 120
 Transitional input tax Water (10kx 12%) 1,200
Example 3-12. Electricity (20k x 12%) 2,400
 Mr. Lilo is in the business of repairing motor vehicles. PLDT (5,000 x 12%) 600
 For one month, he had obtained the following data. Other expenses of operations, paid
VAT not included: to VAT taxpayers (3,000 X 12%) 360 13,800
advances ₱11,000
VAT payable ₱10,920
Amounts received:
For labor 110,000
Withholding of VAT
For parts 33,000
- Government, including GOCC will, before making
 The parts were billed to the customers at invoice
payment on contractors (subject to VAT), deduct and
prices.
withhold a final withholding VAT of 5% of gross
 re-grinding, reboring and other machine shop jobs is payment.
₱44,000, VAT not included. - When a sale is subject to final VAT under the above
 paints amounted to ₱22,000, VAT not included. rule, it is not included anymore in the month-end
VAT payable for the month would be computed, as follows: and quarter-end computations for VAT payable.
Example 3-13. - tax withheld will be considered a cost or expense by
seller.
Advances 11,000
Cash received:
For labor 110,000
For parts 33,000
Total amount received 154,000.

Output taxes (154k x 12%) ₱ 18,480

Less: Input taxes -
On parts (33k x 12%) ₱3,960
On services (44k x 12%) 5,280
On paints (22k x 12%) 2,640 (11,880)
VAT payable ₱ 6,600

 Mr. AyeBee is a CPA in practice of public accounting.

 He is a VAT-registered taxpayer.
 Data for a taxable month, VAT not included, are as
follows:

Professional fees:
Received, net of a 10% withholding income tax 180,000
Receivables 300,000
Reimbursements received on advances:
Expenses chargeable to client, billed to clients 20,000
Expenses chargeable to client, billed to Mr. AyeBee 6,000
Computer from VAT taxpayer 70,000
Office supplies from VAT taxpayer 1,000
Water from VAT supplier 10,000