2. Value-Added Tax (VAT)

2. Value-Added Tax (VAT)

a. Concept and Elements of VATable Transactions b. Impact and Incidence of Tax c. Destination Principle; Cross-Border Doctrine d. Transactions Deemed Sale Subject to VAT e. Zero-Rated Transactions f. VAT Exempt Persons vs. VAT Exempt Transactions g. Input and Output Tax h. Tax Refund or Tax Credit

Time of Filing and Payment

Before January 1, 2023, Monthly VAT Declarations for each of the first 2 months of a taxable quarter were filed and the tax due thereon was paid not later than the 20th day following the end of each such month.

A Quarterly VAT return shall be filed within 25 days following the close of taxable quarter. The term “taxable quarter” shall mean the quarter that is synchronized to the income tax quarter of the taxpayer.

Before January 1, 2023, amounts reflected in the monthly VAT Declarations for the first 2 months of the quarter were included in the quarterly VAT return which reflected the cumulative figures for the taxable quarter.

Note: Beginning January 1, 2023, the filing AND payment of VAT shall be done within twenty-five (25) days following the close of each taxable quarter (NIRC, Sec. 114(A), as amended by RA 10963).

Place of Filing and Payment

Quarterly VAT returns and the corresponding VAT may be filed and paid electronically or manually through the channels authorized under the NIRC and applicable BIR regulations.

Withholding of final VAT on Sales to Government

Withholding of Creditable VAT on Sales to Government (Final Withholding Before January 1, 2021)

The government or any of its political subdivisions, instrumentalities or agencies, including government-owned or controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods and/or of services taxed at 12% VAT pursuant to Secs. 106 and 108 of the Tax Code¹, deduct and withhold creditable VAT at the rate of five percent (5%) of the gross payment thereof, pursuant to Sec. 114(C) of the Tax Code.

Under the pre-2021 rule: The 5% final VAT withholding rate shall represent the net VAT payable of the seller. The remaining seven percent (7%) effectively accounts for the standard input VAT for sales of goods or services to government or any of its political subdivisions, instrumentalities or agencies including GOCCs, in lieu of the actual input VAT directly attributable or ratably apportioned to such sales. Should actual input VAT exceed seven percent (7%) of gross payments, the excess may form part of the sellers’ expense or cost. On the other hand, if actual input VAT is less than 7% of gross payment, the difference must be closed to expense or cost.

As of 2021, any VAT withheld by the Government will be treated as a deduction to the VAT Payable by the taxpayer.

Note: Beginning January 1, 2021, the VAT withholding system referred above shall shift from final to a creditable system.