This is the first part in our three-part series on How to Compute for Value Added Tax (VAT). In this article, we will be covering the computations and briefly mention its effects to your business.
VAT Philippines: The Concept of VAT
VAT Has Two Components:
1. Output VAT, and
2. Input VAT
Here in the Philippines, we are required to include VAT to our sales and pass it on to the customer, generally. We are, therefore, required to remit this VAT (equivalent to 12%) to the Bureau of Internal Revenue (BIR). That is your Output VAT. However, during the course of business, we also incur some expenses. That means VAT was passed on to us already. That is your Input VAT.
So to make things even simpler, Output VAT comes from your revenues, while Input VAT comes from your expenses.

If you will take a look at any receipt, say, from your nearest store. You will see a breakdown at the bottom. It would look something like this photo below.

Notice how the VAT (12%) is separated from the Vatable Amount? In this case, the shop earned Php 50.00 and the Php 5.36 goes directly to the BIR as payment for taxes.
Hopefully this will help clarify the terminologies and application in the course of your business. Below is a spreadsheet of the breakdown with a brief explanation of how VAT (input and output) affects your business and where to properly record them.
The Computation of VAT
Remember, I mentioned that you are required to pay for 12% and that you also already paid for some VAT? That is where the computation and confusion comes in. Tax payable is equivalent to Output VAT minus Input VAT. I included sample spreadsheet computation here to provide more details. Of course this does not represent the business world because there are other things to consider (like valid expenses, withholding taxes, etc.).
One caveat I want to make here now is that not all businesses can use Input VAT (but can claim them) and not all businesses have Output VAT. This will be tackled separately in part 3 of this series. In the meantime, our recommendation is to look at your BIR Certificate of Registration (form 2303) to see if you have VAT listed there. If there is, then this article is for you.
Hi! How would you file a tax return with zero-rated vat on sales? does it need supporting docs like invoices? Our company is BOI-registered and we are having export sales, though we are now starting to make sales in the Philippines. Does it mean we have to issue an invoice and include it in our zero-rated sales?
Of course, your company has to issue VAT invoices even for zero-rated sales. I think you don’t need to attach supporting docs for zero-rated sales to VAT tax returns but just be ready in case the BIR subjects your company to a tax audit.
Francis’ reply is right. You don’t need any attachments when you file the returns. You just have to keep these hard copies so when the time comes that the BIR or your external auditor performs the annual audit requirement, you can present them properly.
Just be sure that you input them in the proper fields.
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