VAT Payable Formula: How To Compute VAT Philippines

lens shwoing calculator for VAT Payable Formula

If you are engaged in trade, business, or the practice of the profession in the Philippines, you may be liable to pay business taxes. Business taxes can take the form of a percentage tax or value-added tax (VAT). Furthermore, you may be either a VAT-registered or non-VAT-registered taxpayer. Learn how to compute VAT using VAT payable formula.

This article will tackle how to compute VAT payable and file the monthly and quarterly VAT returns.

How To Use VAT Payable Formula (Value Added Tax)?

The VAT payable is computed by multiplying the VAT rate of 12% by the gross selling price or gross value in money of the goods or services:

VAT Payable = VAT Rate x Gross Selling Price/Value in Money 

If you are VAT-registered, you can claim the input tax credit on VAT paid on local purchases and importation of goods and services. You can only claim input tax that has been correctly invoiced and has supporting documents to prove such payment. The input tax credit can be claimed in your annual or monthly VAT returns, regardless of when you made the payment.

How To Record Output VAT

Example: If you are selling a product with a gross selling price of Php 1,000.00, your VAT payable would be:

VAT Payable = 12% x 3,500.00

VAT Payable = 420.00

How To Record Input Tax

Example: If you purchase goods for 2,500.00, including VAT.

Input tax: 2,500.00*12/112

Input Tax: 267.86

How To Compute VAT Using VAT Payable Formula?

Value added tax Philippines is computed by subtracting input tax from the output tax.

VAT = Output Tax – Input Tax

If VAT is:

Negative means you are entitled to a refund.

Positive, it means you have to pay VAT.

Zero means there is no VAT payable for the period.

 

VAT Payable= Output Tax less Input Tax

Therefore: Output Tax (420.00) Less Input Tax (267.86)

Vat Payable: 152.14

 

How To File VAT Returns?

If you are a VAT-registered taxpayer, you must file and pay your VAT returns monthly or quarterly, depending on your classification as either a large taxpayer or a non-large taxpayer. Large taxpayers are those whose annual sales exceed Php 3 million, while non-large taxpayers’ yearly sales do not exceed this amount.

To file your VAT return, you will need to accomplish the following steps:

1. Compute your VAT payable for the month or quarter.

2. Fill out the VAT Return Form (BIR Form No. 2550M) and attach the duly-accomplished VAT Declaration Form (BIR Form No. 0605).

3. Submit the VAT Return Form and VAT Declaration Form to any Authorized Agent Bank (AAB) of the Revenue District Office where your business is registered on or before the 20th day following the end of the taxable month or quarter. You may also file electronically through the Electronic Filing and Payment System (eFPS).

4. Pay the VAT due using a BIR-authorized Revenue Payment Document, such as the VAT Payment Form (BIR Form No. 0605-F).

A VAT-registered person is required to file and pay VAT quarterly. The deadline for filing a VAT return is the 25th day of the month, following the end of the quarter.

1st Quarter (January – March) – Deadline is April 25

2nd Quarter (April – June) – Deadline is July 25

3rd Quarter (July – September) – Deadline is October 25

4th Quarter (October – December) – Deadline is January 25 of the succeeding year

A Non-VAT registered person is required to file and pay VAT monthly. The deadline for filing a VAT return is always on the 20th day of each month.

VAT returns shall be filed electronically through the Electronic Filing and Payment System (eFPS) of the Bureau of Internal Revenue or manually filed in triplicate copy with an Authorized Agent Bank (AAB) of the Revenue District Office where the taxpayer is required to register.

VAT-registered persons shall file a monthly VAT Declaration Form (BIR Form No. 2550M) monthly, while VAT-registered persons shall file Quarterly VAT Declaration Form (BIR Form No. 2550Q) every quarter.

Both VAT Declaration Forms must be duly stamped “Received” by the Authorized Agent Bank (AAB) or Revenue Collection Officer/Authorized City or Municipal Treasurer, who shall acknowledge receipt of payment; otherwise, the return shall not be valid.

VAT returns and payments shall be filed and paid in three (3) copies.

The original copy shall be machine validated with the corresponding VAT payment for filing. The duplicate and triplicate copies shall be duly stamped “Received” by the Authorized Agent Bank (AAB) or Revenue Collection Officer/Authorized City or Municipal Treasurer who shall issue an Official Receipt (OR); therefore; otherwise, the return shall not be valid.

Related: How To Do Annual Inventory Listing BIR 2021

What are the Penalties for Late Filing and Payment of VAT?

A failure to file a VAT return and pay VAT when due shall subject the taxpayer to a surcharge of twenty-five percent (25%) of the basic tax or a minimum of Two thousand pesos (P2,000), whichever is higher.

If you do not pay VAT when it is due, you will have to pay interest at two percent per month on the unpaid tax. It will be from the date it was supposed to be paid until it is fully paid.

Government shall impose compromise penalties on any person who files a return with an understatement of VAT liability below seventy-five percent (75%) but not less than thirty percent (30%) of such VAT liability.

The minimum amount of compromise penalty shall not be less than Ten thousand pesos (P10,000) or Twenty percent (20%) of the VAT due, whichever is higher.

Related: 9 Facts You Should Know on Tax Mapping

For cases involving willful failure to file VAT return or pay VAT when due, in addition to the penalties prescribed above, a fine of not less than Twenty thousand pesos (P20,000) but not exceeding Two hundred thousand pesos (P200,000) shall be imposed upon the offender.

If someone tries to avoid paying VAT by pretending they are exempt, they will be fined 50% of the VAT owed, plus surcharge and interest.

Any person found guilty of making untruthful statements in his VAT return shall be fined in an amount equal to the total amount of tax evaded plus surcharge and interest on such VAT, as provided herein.

If you are guilty of willfully not filing a VAT return or supplying false or incorrect information, you could be imprisoned for up to 5 years, fined between P20,000 and P200,000, or both.

VAT Updates

The Bureau of Internal Revenue has released the new rules on Value-Added Tax (VAT) exemptions for certain transactions, effective January 1, 2020.

The BIR issued Revenue Regulations (RR) No. 11-2019 last December 16, 2019, which Amends Sections 4.106-1 to 4.106-5 of RR No. 2-98, as amended by RR No. 18-99 and RR No. 14-2002, relative to the VAT treatment of particular services in connection with the sale or exchange of goods or properties.

The new VAT exemption covers the following services:

1) Services rendered by persons engaged in the transport of goods or cargoes via water within the territorial limits of a country; and

2) Services rendered by international air carriers and their agents involve transporting passengers and cargo.

A VAT-registered person who makes exempt transactions shall not be allowed any input tax except as provided under Section 4.106-5 of the National Internal Revenue Code, as amended.

The VAT exemption on certain services shall apply to sales or exchanges made on or after January 1, 2020. (Bureau of Internal Revenue)

Conclusion

The VAT system in the Philippines is complex, but understanding how to compute VAT payable formula and file VAT returns is essential for businesses operating in the country. Failing to do so can result in significant penalties. However, by following the steps outlined in this article, companies can ensure that they comply with VAT regulations.

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