Taxation 2 │BUSINESS TRANSACTIONS

FLABERT VILLASENCIO, CPANotre Dame of Dadiangas University

Classification of Business Transactions

1. VAT Transactions:a) Allowed with Input VATb) NOT allowed with Input VAT

2. Zero-VAT Rated Transactions

3. VAT-exempt Transactions:a) Exempt from Other Percentage Taxb) Subject to Other Percentage Tax

4. Transactions with government units.

VAT Transactions

1. Allowed with Input VAT– Transactions entered into of a VAT-registered

business– Basic Business Tax computation:

Output VAT (12% Sales)xxx

Less:Input VAT (12% Purchases from VAT person)xxx

Net VAT payable (Refund) xxx

Output VAT- 12% of GROSS SALES OR RECEIPTS (applicable)

Input VAT- 12% of its PURCHASES to VAT-registered person or provider

VAT Transactions

1. NOT Allowed with Input VAT– Transactions entered into of a Non- VAT business

wherein its annual gross sales or receipts exceeds P1,919,500 annually

Illustration:X, a non-VAT registered business, has total annual

sales of 2,000,000. Its total purchases of merchandise from VAT registered suppliers amounted to 1,344,000, inclusive of 12% VAT.

Tax Base (Sales) 2,000,000VAT rate 12%Business Tax Liability or VAT payable 240,000

VAT Transactions

VAT Taxable transactions that are not allowed to deduct Input VAT:

1.Non-VAT business with Sales or Gross receipts of more than 1,919,500 per year which are not among the VAT-exempt and not among those exclusively subject to OPT

2.Non-VAT franchise grantees of radio and television broadcasting with annual sales of more than 10,000,000

3.Importations which are exempted

4.Local payment of rent of vessel or carriers owned by nonresident foreign entity.

ZERO-VAT Rated Transactions

▪ These are sales that are subject to OUTPUT Vat rate of 0%

▪ Mainly from export sales by VAT-registered persons that generate foreign currency reserves

▪ The actual input VAT on the purchase shall be applied for TCC (Tax Credit Certificate) or refund of creditable input tax due

Illustration:

Export Sales: 500,000

Input VAT: 36,000

SOLUTION:

Zero- VAT Sales -0-

Less: Input VAT 36,000

Creditable Input VAT (36,000)

ZERO-VAT Rated TransactionsZero- Rated transactions are the following:

▪Export sales paid in acceptable foreign currency

▪Sale of gold to BSP

▪Foreign currency denominated sales

▪Effectively Zero-rated sales– Sale of power or fuel– Sale and services to the following persons or entities:▪ Registered with SBMA and CDA▪ Registered with PEZA▪ Asian Development Bank▪ IRRI

▪Gross receipts of a domestic corporation for:– Transport from Phil to foreign country– Paid in acceptable foreign currency

VAT- Exempt and OPT Exempt Transactions

▪ Not subject to 12% output VAT, not subject to OPT and not entitled to input VAT

Illustration:

Purchases 560,000 with 60,000 VAT

Export Sales 600,000

Computation:

Export Sales 600,000

Zero-rated 0%

Tax Liability 0

VAT- Exempt and OPT Exempt Transactions

1. Export Sales of Non-VAT registered business

2. Importation of the following:1. Fuel, goods and supplies by international shipping or air

transport companies2. Personal and household effects belonging to residents of

the Philippines returning from abroad as long as goods are exempted from custom duties

3. Professional instruments and implements, wearing apparel, domestic animals and personal household effects for their own use and not for sale

3. Sales and Importation of the following:1. Agricultural and marine food products in their original

state2. Fertilizers, seeds, seedlings, fingerlings and any other

products used for production of finished feeds except special feeds

VAT- Exempt Transactions with Specific OPT

1. 3% - sale or lease of goods or properties of NON-VAT Registered

• gross receipts of domestic carriers by land, air and shipping companies

• Franchise of radios and television companies with less than 10,000,000 annual gross receipts

2. 2%- gross receipts for services rendered by franchise of gas and water utilities

3. 10%- gross receipts on overseas dispatch from Philippines4. 5%- on insurance premium5. 10%- on services by fire, marine or miscellaneous insurance

of foreign insurance companies6. 30%,18%, 15%, 10%- gross receipts for services of

proprietors, lessees or operators of Jai-alai and race tracts, cockpits, night or day clubs, professional basketball games, boxing exhibitions, winnings, net of cost of ticket

7. ½% to 4% - stocks on IPO

Transactions with the Government Units

– With Standard Input VAT of 7%– Subject to the following:1.Final VAT of 5% (if seller is VAT Registered2.Percentage Tax of 3% (If seller is Non-VAT)– Withhold the following:1.1% on purchase of goods2.2% on purchase of services

Illustration:A business, VAT- registered, selling merchandise has the

following:Sales 100,000VAT 12,000

Transactions with the Government Units

Illustration:A business, VAT- registered, selling merchandise has the following:

Sales 100,000VAT 12,000

Solution:

Sales 100,000Add: VAT 12,000Total 112,000Less: Final WHT(100,000 x 5%) 5,000(CWT 100,000x1%) 1,0006,000

106,000

Transactions with the Government Units

Actual Input VAT is Greater than Standard Input VAT•The excess may form part of the seller’s expense or cost.Illustration:

Assume the following data related to the sale of a VAT-registered business to the government:

Sales 100,000Output VAT 12,000Purchases (all to gov’t) 70,000Input VAT 8,400

Compute for the VAT Payable.

Transactions with the Government Units

Actual Input VAT is Greater than Standard Input VAT

Sales 100,000Output VAT 12,000Purchases (all to gov’t) 70,000Input VAT 8,400

Compute for the VAT Payable.

Output VAT 12,000Less: Actual Input VAT 8,400 Standard Input VAT 7,000 7,000 Cost of Sale or Other Exp 1,400Net VAT Payable 5,000Less: Final Withholding VAT 5,000Output VAT Payable -

Transactions with the Government Units

Actual Input VAT is Greater than Standard Input VAT

Journal Entries:

1.Purchases 70,000 Input VAT 8,400

Cash 78,4002. Cash 106,000 Creditable Withholding VAT 5,000 Creditable Withholding Tax 1,000

Sales 100,000Output VAT 12,000

3. Output VAT 12,000 Income and Exp Summary 1,400

Input VAT 8,400Creditable Withholding VAT 5,000

Transactions with the Government Units

Actual Input VAT is Lesser than Standard Input VAT•The excess is treated as a taxable income.Illustration:

Assume the following data related to the sale of a VAT-registered business to the government:

Sales 100,000Output VAT 12,000Purchases (all to gov’t) 50,000Input VAT 6,000

Compute for the VAT Payable.

Transactions with the Government Units

Actual Input VAT is Lesser than Standard Input VAT

Sales 100,000Output VAT 12,000Purchases (all to gov’t) 50,000Input VAT 6,000

Compute for the VAT Payable.

Output VAT 12,000Less: Actual Input VAT 6,000 Standard Input VAT 7,000 7,000 Income and Exp Summ. (1,000)Net VAT Payable 5,000Less: Final Withholding VAT 5,000Output VAT Payable -

Transactions with the Government Units

Actual Input VAT is Lesser than Standard Input VAT

Journal Entries:

1.Purchases50,000 Input VAT 6,000

Cash 56,0002. Cash 106,000 Creditable Withholding VAT 5,000 Creditable Withholding Tax 1,000

Sales 100,000Output VAT 12,000

3. Output VAT 12,000 Input VAT 6,000

Creditable Withholding VAT 5,000 Income and Exp Summary 1,000

SEATWORK: (1/2 CW)

PROBLEM 8-1, 8-2

ASSIGNMENT (1WHOLE):

PROBLEM 8-3 TO 8-6 (SHOW

YOUR SOLUTIONS

#DO IT BY PAIR #SHOW YOUR SOLUTIONS

#WRITE THE LETTER AND THE ANSWER OF

YOUR CHOICE

Problem 8–1 1.False – Vatable transactions of non-VAT business is not allowed to deduct input VAT. 2.True 3.False – Some business transactions are VAT-exempt. 4.True 5.False – subject to OPT.6.True 7.True 8.False – not allowed for TCC and tax refund, but allowed only for tax credit. 9.True 10.False – Zero rated sales are applicable only to VAT-registered business/person. This is a VAT-exempt and OPT-exempt transactions. 11. True 12. False – It can be claimed as a deduction from sale as part of cost of product sold. 13. True 14. False – Sales of non-VAT person, exceeding P1,919,500 per year is also subject to VAT. 15. False – Only those agricultural and marine food products.

Problem 8–2 1.False – Publication of newspaper is VAT-exempt and also OPT-exempt. 2.True 3.False – The exemption pertains only to Output VAT. 4.True 5.False – Zero VAT transactions are applicable only to VAT-registered persons. 6.False – Some VAT taxable transactions have not allowed to have Input VAT particularly if the business is a non-VAT. 7.False – Exempt from business tax because it is considered as a subsistence livelihood. 8.True 9.False – Exempt from VAT. 10.False – zero VAT. 11.False – VAT-exempt. 12.True 13.False – VAT-exempt and OPT-exempt. 14.False – more than P3,199,200. 15.True