Output VAT in the Philippines (Value-Added Tax)

Philippine VAT Treatment of Sales

Gerard Carpizo explains the Philippine VAT treatment of different types of sales, focusing on output VAT and the distinction between zero-rated and VAT-exempt transactions.

VAT Registration Threshold

Businesses that sell, exchange, or transfer goods or properties, and businesses that provide services, generally must register for VAT if their gross sales or receipts in the past 12 months exceed ₱3 million, or if they reasonably expect to exceed that threshold in the next 12 months.

Example: A taxpayer registered for percentage tax and using the 8% optional income tax rate has accumulated gross sales of ₱2.8 million by the third quarter. The presenter says the taxpayer should update their registration to VAT because they can reasonably expect to reach the ₱3 million threshold. They can no longer use the 8% optional income tax rate.

Output VAT

Output VAT is the VAT due on taxable sales, leases, or exchanges of goods, properties, or services by a person registered or required to register for VAT. The rate discussed is 12%. Services performed for a fee or other consideration are generally treated as sales or exchanges of services for VAT purposes.

VAT Treatment Framework

Zero-Rated Sales

• Taxable transactions subject to a 0% VAT rate.
• They produce zero output VAT, but related input VAT may be available as a tax credit or refund.

Example: A VAT-registered exporter sells ₱1 million of goods in a zero-rated transaction; output VAT is ₱0.

VAT-Exempt Sales

• Transactions not subject to output VAT.
• Input VAT related to exempt sales cannot be claimed as a credit.

Example: A drugstore sells prescription diabetes medication to a senior citizen for a VAT-inclusive ₱1,120. The presenter says no output VAT is due.

Key Distinction

Both categories result in no output VAT collected on the sale. However, zero-rated sales remain taxable at 0% and may preserve eligibility for an input VAT credit or refund, while exempt sales do not.

Source and Additional Notes

• Presenter: Gerard Carpizo
• Source cited: The Bureau of Internal Revenue (BIR), for lists of services and VAT-exempt transactions.
• Assets or instruments mentioned: None. The video concerns tax compliance, not investment products or market performance.
• Disclaimer: No “not financial advice” disclaimer is stated.