Value Added Tax (VAT) under Train Tax Law

photo shows VAT under train law

What will be the effect of the Train Tax Law in the Philippines on businesses?’ This is a question that has been on the minds of business owners and employees since President Rodrigo Duterte signed Republic Act No. 10963 or the “Tax Reform for Acceleration and Inclusion (TRAIN) Act” into law last December 2017. Among other things, TRAIN imposes a new 12% value-added tax (VAT) on transactions starting January 1, 2018. In this article, we’ll discuss how BIR Value Added Tax (VAT) under Train Tax Law in the Philippines affects businesses. Stay tuned!

On March 15, 2018, the Bureau of Internal Revenue in the Philippines issued the RR NO. 13, 2018 for vat under train law.

This regulation issued is to implement the Value Added Tax provisions under the Tax Reform for Acceleration and Inclusion (TRAIN). What is the effect of train law on value-added tax? Does it make it better or get worst? Well, this article will give you the information that you should know about the value-added tax (VAT) train law.

What is VAT Under Train Law?

A VAT is an indirect tax. Indirect tax means that you can pass on the taxes to the buyer, user, or consumer of the goods, products, or services received.

In VAT, any person, whether a franchise grantee, who in the course of trade or business, sells, barters, exchange, leases, goods or properties, render services shall impose a percentage tax. However, the tax base should be limited only to the value-added to such goods, properties or services by the seller, transferor, or lessor.

A Vat Registered Required to Pay Individual Tax under Train Law 2019?

Value-added tax is classified as a business tax. Business taxes are taxes imposed on any transactions related to transferring goods or properties and services to another with or without considerations.

While individual tax is an income tax, any person who earned or generated income must be taxed. Income taxes include doctors, lawyers, accountants, and ordinary people who are earning incomes.

Therefore, Value Added Tax is imposed on the sale of services or goods, properties while individual tax is a tax on the income received by the owner from his business.

What is vat threshold Philippines 2018 and tax rate?

A VAT is a consumption tax levied on the sale, barter, exchange, or lease of goods or properties and services in the Philippines and the importation of goods into the Philippines.

You will be subject to a value-added tax of 12% based on the gross sales or receipts if the expected sales are more than 3 million. These transactions include the sale of goods or commodities or selling of services. The tax base or the VAT threshold increases from 1,919,500 to 3,000,000 as of this year.

The tax base of the VAT is limited only to the value-added to such goods, properties, or services by the seller, transferor or lessor.

Who is Subject to Value Added Tax Under Train Law?

In General rule, any person is a VAT-registered and who is in the course of business or trade, sells, barters, exchange, leases goods or properties, renders services, and any person who imports goods shall be subject to the Value Added Tax (VAT).

Any person whose gross receipts or gross sales exceeds the threshold of Three Million Pesos (3,000,000) in one year shall be subject to VAT. If your gross sales or gross receipts are less than 3,000,000, you can either choose to pay a percentage tax or an 8% income tax rate. Read the latest updates on percentage under CREATE Law.

TIP: In the case of importation of taxable goods, the importer, whether an individual or corporation, and whether or not made in the course of his trade or business, shall be liable to VAT.

How To File and Pay Valued Added Tax in the Philippines?

Every Person shall file a quarterly return of the number of his gross sales or receipts within twenty-five (25) days following the close of each taxable quarter prescribed for each taxpayer.

VAT registered persons shall pay the value-added tax every month.

UPDATE
UPDATE: On January 1, the filing and payment required under the Tax Code within twenty-five days (25) following the close of each taxable quarter.

Is a VAT Exempt Person not Subject to Percentage Tax (3%)?

The person who is not a VAT-registered sales or receipts are exempt from payment of value-added tax but must pay a tax equivalent of Three percent (3%) of his gross quarterly sales or receipts.

However, It shall exempt any person engaged in cooperatives and self-employed individuals and professionals availing of the 8% tax on gross sales or receipts and other non-operating income from the payment of three percent (3%) additional percentage tax.

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UPDATE
UPDATE: On January 1, 2019, cooperatives and self-employed and professionals with total annual gross sales or gross receipts not exceeding Five Hundred Thousand pesos (500,000) shall be exempt from Value added tax and three percent(3%) of percentage tax.

Conclusions

The vat threshold is three million pesos and will be subject to a twelve percent (12%) tax rate based on the annual gross sales. A person may not be subject to vat train law if the gross sales or receipts do not exceed the vat threshold Philippines 2018. Although the gross sales or receipts do not meet the threshold amount, you may still register your business as vat and claim the input tax. The vat threshold in the Philippines in 2018 increased from the previous vat threshold.

For more VAT updates, please read the BIR updates.

If you have questions regarding the vat updates, please don't be shy to drop your comments below.  Your thoughts are precious to us. 

Learn More: Percentage Tax under CREATE LAW 2021

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4 Replies to “Value Added Tax (VAT) under Train Tax Law”

  1. We have a frameshop that pays percentage tax due to gross sales look ess than 3M. My question is: should our supplier (who is VAT registered) of imported framesticks charge our business with VAT whenever we purchase sticks from them?

  2. Should VAT be included in the computation of the gross receipt to determine the local business tax due?
    What is your interpretation of the definition of gross receipt/sales as defined in Department of Finance Local Finance Circular No. 1-2013

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