What is Value-Added Tax?
According to www.bir.gov.ph “Value-Added Tax (VAT) is a form of sales tax. It 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. It is an indirect tax, which may be shifted or passed on to the buyer, transferee or lessee of goods, properties or services.”
Who are liable to VAT?
Individual, trust, estate, partnership, corporation, joint venture or cooperative or association who enters into transactions are subject to VAT.
A person/entity is liable to VAT when:
Its annual gross sales or receipt of MORE THAN 1,919,500.00 from taxable transactions for the next 12 months were realized.
Illustration:
Mr. V decided opening a business under the trade name VAT A. Co. with an expected annual sales of 1,919,500.01 . Vat A. Co. Based on the provided information, should register under the VAT system for the current year.
OTHERWISE:
If a person or entity expected an annual gross sales/receipts of 1,919,500.00 or less from its transactions, the person/entity shall be classified as VAT-Exempt person which is subject to Other Percentage Tax (OPT).
Illustration:
Mr. X decided to start a business with an assumed annual gross sales of 1,919,499.99. on January 201A, he register his business as VAT exempt under 3% Percentage Tax.
HOWEVER,
If the actual total/annual gross sales/receipts from the transactions exceeds 1,919,500.00 Mr. X becomes liable to VAT,
Illustration
On November 3, 201A, upon summarizing the sales report, January to September sales resulted to a total of 1,820,000. While preparing his October sales, he found out that he already exceeded the threshold of 1,919,500.00. Following the Regulation, Mr. X will be required to update his record from VAT exempt to 12% VAT, 10 days after the end of the last month when his gross resales/receipts exceeds. Therefore, for the month of October, Mr. X will be subjected to 12% VAT.
CONTINUATION:
If Mr. X did not update his registration to the Bureau, he will still pay for 12% VAT but cannot use or claim his credit for its input VAT.
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