Value Added Tax

Here's the tax that I know you all love to hate.

Everybody knows that VAT has driven the prices of goods and services up. Even those that are VAT-exempt have been forced to raise their prices because they need to pay for the goods and services of VAT-able businesses. You ought to know this: although VAT consists of 12% of the transaction, the reality is that the commodity you are buying or the service you are paying for has been raised by as much as 36%! Shocking? Here's why:

Taxable transactions are classified as with input and output tax (12%) and with input but no output tax (0%.)

12% VAT Transactions

1.) Sale, barter or exchange of goods and properties including the following transactions:

a.) Not ordinary transfer, use or consumption of goods or services that were originally intended for ordinary sale/business.

b.) Shares in the profits of VAT-registered persons or entities distributed or transfered to shareholders/investors.

c.) Transfers to creditors as payment for debts.

d.) Consignment -if there was no actual sale within 60 days after the goods were consigned.

e.) Retirement from business or closing the business down -with regard to the inventories of taxable goods existing at the time of the closure of the business or the retirement of the owner.
f.) Transactions considered as sales.

2.) Importation of goods

3.) Sale of services or lease of properties

In 12% VAT there is what is called an input tax and an output tax. With regard to commodities, it goes this way: the manufacturer sells his products to a wholesaler. The sale already includes the 12% imposed on the manufacturer. This is the manufacturer's output tax and the wholesaler's input tax. The wholesaler then sells the products to a retailer. The price contains the manufacturer's 12% VAT (wholesaler's output tax) and the wholesaler's 12% VAT (retailer's input tax.) By the time the retailer sells the product to a customer, the sales price already contains the manufacturer's 12% VAT (wholesaler's output,) the wholesaler's 12% VAT (retailer's output,) and the retailer's 12% VAT, which is the customer's input tax and the reatailer's output tax. Therefore, the tax has been shifted to the customer and magnified 3 times! 36% of the sales price to the customer is now VAT.

0% VAT Transactions

1.) Export sales by VAT-registered persons/entities:
a.) Sale an actual shipment of goods from the Philippines to another country.
b.) Sale of raw material/packaging material to non-resident buyers for delivery to a resident  local export-oriented enterprise.
c.) Sale of raw materials/packaging materials to export-oriented enterprises whose export sales exceed 70% of total annual production.
d.) Sale of gold to the Central Bank.
e.) Those considered sales under the Omnibus Investment Code (EO 226) and other special laws.
f.) Sale of goods, supplies, equipment and fuel to persons engaged in international shipping/air transport operations.

2.) Sales paid in foreign currency in accordance with Central Bank rules to non-residents of the Philippines of goods assembled or manufactured in the Philippines for delivery to a resident of the Philippines except for automobiles and non-essential goods.

3.) Sales to persons or entities exempt under special laws and international agreements (PEZA Law, UN,  ADB, etc.)

In 0% VAT the taxpayer pays the input tax, which is later refunded or credited to his other taxes under the NIRC. this does not include real property tax. That's why it's called 0% VAT. You still pay, but you get it back one way or another.

Exempt Transactions

1.) Educational services by duly accredited private educational institutions

2.) Services performed under an employer-employee relationship

3.) Export sales by persons/entities that aren't VAT-registered

4.) Sale or lease of real property that isn't normally intended for sale or lease in the ordinary business sense.

5.) Real property used for low-cost and socialized housing

6.) Lease of residential units where the rent is less than Php12,800 per month

Payment of VAT is monthly and the filing of the quarterly VAT return is within 25 days from the end of each tax quarter. You are required to register for VAT if your gross sales or receipts (not including those that are exempt) for the past 12 months exceed Php1.5M -including those who believe with reasonable grounds- that their gross sales or receipts (excluding the exempted ones) will exceed Php1.5M. If the gross sales and receipts don't reach Php1.5M, you get a 3% percentage tax instead.

The government claims that its services are VAT-free. Government hospitals are free from VAT. While that may be true, the problem is the government cannot serve everybody and there is a lack of facilities and equipment in many cases. Furthermore, by creating VAT (and increasing it to 12% later on) the government has caused the prices of services and commodities -including the purchasing of equipment it uses for itself- to rise. Many essential items, such as the gasoline that the jeepney driver buys, have become more expensive. We really cannot live any longer with this tax. It's too oppressive.