CHAPTER 3: VALUE-ADDED TAX ON SALE OF SERVICES transport goods or cargoes for hire and other

domestic common carriers by land, relative to

Service is subject to the value added tax if:
their transport of goods or cargoes;
a) Service is in the ordinary course of trade or l) Common carriers by air and sea relative to their
business (repetitive; habitual) transport of passengers, goods or cargoes form
b) Service is rendered in the Philippines one place in the Philippines to another place in
c) Service is not subject to any of the percentage the Philippines;
taxes m) Sales of electricity by generation companies,
transmission, and distribution companies;
SALE OR EXCHANGE OF SERVICES n) Services of franchise grantees of electric utilities,
➢ Means the performance of all kinds of services in telephone and telegraph, radio and television
the Philippines for others for a fee, remuneration broadcasting and all other franchise grantees,
or consideration (but there must be no employer- except those under Section 119 of the National
employee relationship) Internal Revenue Code who are subject to
percentage tax;
o) Non-life insurance companies (except their crop
BUSINESSES THAT ARE SUBJECT TO VAT insurances), including surety, fidelity and
bonding companies)
a) Hotels, motels, inns, pension houses and resorts; p) Similar services regardless of whether or not the
b) Restaurants, cafes and other eating places; performance thereof calls for the exercise or use
c) Security agencies; of the physical or mental faculties
d) Warehouses; q) The lease or the use of or the right or privilege to
e) Forwarders (on forwarding of cargoes); use any copy right, patent, design or model, plan,
f) Lessors of properties, real or personal; secret formula or process, goodwill, trademark,
trade brand and other like property or right;
r) The lease or the use of, or the right to use any
STATUTORY DEFINITION AND ENUMERATION OF SALE industrial, commercial or scientific equipment;
OF SERVICES s) The supply of scientific, technical, industrial or
commercial knowledge or information;
Sale of services (in the course of trade or business)
t) The supply of any assistance that is ancillary and
includes formed or rendered by (statutory provision):
subsidiary to, and is furnished as a means of
a) Construction and service contractors; enabling the application or enjoyment of any
b) Stock, real estate, commercial customs and such property, or right as is enumerated in letter
immigration brokers; (r) hereof or any such knowledge or information
c) Lessors of property, whether personal or real; as is mentioned in subparagraph (s);
d) Warehouse services; u) The supply of services by non-resident person or
e) Lessors or distributors of cinematographic films; his employee in connection with the use of
f) Persons engaged in milling, processing, property or rights belonging to, or the
manufacturing or repacking of goods for others; installation or operation of any brand, machinery
g) Proprietors, operators, or keepers of hotels, or other apparatus purchased from such non-
motels, rest houses, pension houses, inns, resident person;
resorts; v) The supply of technical advice, assistance or
h) Proprietors or operators of restaurants, services rendered in connection with technical
refreshment parlors, cafés and other eating management or administration of any scientific,
places, including clubs and caterers; industrial or commercial undertaking, venture,
i) Dealer in securities; project or scheme;
j) Lending investors; w) The lease of motion picture films, tapes and
k) Transportation contractors on their transport of discs;
goods or cargoes, including persons who
 x) The lease or use of or the right to use radio, For passengers 500,000
television, satellite transmission and cable
For cargoes 100,000
television time
Total 600,000
PERCENTAGE TAX ON COMMON
Compute the business tax?
Common Carrier by land:
Common carrier’s tax (500,000 x 12%) 60,000
• Transporting goods or cargoes 12% VAT
• Transporting passengers 3% CCTax VAT (100,000 x 12%) 12,000

Common Carriers by air or sea:

From one point in the Philippines to another point in the Illustration:

Philippines
Cebu Pacific Overseas Shipping is a domestic corporation,
• Transporting goods or cargoes 12% VAT transporting passengers and cargoes from one point in
• Transporting passengers 12% VAT the Philippines to a point abroad, and vice versa. In one
voyage, it had the following gross receipts:
From one point in the Philippines to a point outside the
Philippines For passengers 2,000,000

• Transporting goods or cargoes 0% VAT For cargoes 1,000,000

• Transporting passengers 0% VAT
Total 3,000,000

Compute the business tax?

Illustration:
VAT (3,000,000 x 0%) 0
Victory Transport Co. is a domestic corporation in
overland transportation business in Luzon, Philippines,
transporting people and cargo from southern Philippines
to northern Philippines, and vice versa. In a day, it had the
following gross receipts:

For passengers 200,000

For cargoes 50,000

Total 250,000

Compute the Business Tax?

Common carrier’s tax (200,000 x 3%) 6,000

VAT (50,000 x 12%) 6,000

Illustration

Line Shipping Co., a domestic corporation, has inter

island vessels in the Philippines transporting passengers
and cargoes (from one point in the Philippines to another
point in the Philippines) In one trip, it had the following
gross receipts:
THE TAX BASE A building contractor received on a construction in
The tax base of the VAT on sale of services is gross progress of P2,200,000 (based on the percentage of
receipts completion of the building). In addition, he received
P220,000 advance on the balance of the contract price,
Meaning of gross receipts
on work still to be done. All the amounts mentioned are
The term “gross receipts” means cash or its equivalent VAT not included
actually received or constructively received (not
a) The taxable gross receipts is 2,420,000
including the VAT) as:
b) The output VAT is 290,400
a) Payments on the contract price, compensation,
service fee, rental or royalty
b) Payments for materials supplied with the Dan a contractor, had a contract receivable of
services, and P5,000,000, VAT not included, a building contract with
c) Deposits or advanced payments on the contract Mr. E.
for services
Mr. E paid P4,800,000 as retained the balance of
P200,000 as guaranty against defects of the building that
may be discovered within one year from the date of
Constructive receipt occurs when the money
completion of the construction.
consideration or its equivalent is placed in the control of
the person who rendered the service without restriction a) The tax at gross receipts of Mr. D is 4.8M
by the payor. b) The output VAT is 576K

Examples:

a) Deposits in banks which are available to the THE TAX RATES

seller of services, without restriction,
A. Twelve percent (12%) of the gross receipts;
b) Issuance by the debtor of a notice to offset any
B. Zero percent (0%) of the gross receipts from
debt or obligation and acceptance thereof by the
services performed to certain entities under
seller as payment for the services rendered,
certain conditions (provided in the law)
c) Transfer of amount retained by the owner to the
account of the contractor

What are the input taxes?

Illustration: 1. Value-added taxes paid:
Mr. Ang is a constructor. In constructing a building, he On local purchases from VAT registered taxpayers, and on
furnished labor and was paid a contract price of importation of goods:
P1,100,000, VAT not included.
a) For materials, supplied with the sale of
a) The taxable gross receipts is 1,100,000 services;
b) The output value added tax is 132,000 b) For use as supplies;
c) For use in trade or business for which
depreciation (or amortization) is allowed for
Mr. Beng Go is a contractor, in constructing a building, the income tax purposes (capital goods), except
contract price collected, VAT not included, were for automobiles, aircraft and yachts
2. VAT paid on purchase of real property
Materials 3,300,000
3. VAT paid on purchase of services
Labor 1,100,000 4. Transitional input tax

a) The taxable gross receipts is 4,400,000

b) The output VAT is (4.4M x 12%) 528,000
Illustration: jobs on car engine amounted to P44,000, VAT not
included. Amounts paid to suppliers of paints amounted
Mr. Ho Made, a contractor, constructed a commercial
to P22,000, VAT not included. The VAT payable for the
building for Mr. I. he secured the services of Mr. J. Mr. I
month is?
paid P10,000,000 to Mr. H. Mr. H paid Mr. J, a
subcontractor, P2,000,000. All prices were VAT not Output tax (11K + 110K + 33K = 154K) x 12% = 18,480
included
Input taxes (33K + 44K + 22K = 99K) x 12% = 11,880
1. Mr. H has an output tax of (10M x 12%) 1.2M
VAT payable 6,600
2. An input tax of (2M x 12%) 240K
3. A VAT payable of 960K

Ms. Koh Sia is a building contractor. She constructed a

building for Mr. L for which she made a final billing on
October 20, 2019 of P6,000,000, VAT not included, for
materials used, and labor applied. On that billing, he
received P5,000,000 cash on the date of billing, with the
balance received in October 29. Payments in October
2019 related to construction were:

Materials purchased on October 12, 2019, VAT not

included P1,000,000

Labor furnished by sub-contractor, paid on October 30,

VAT not included 800,000

How much was the VAT payable for October 2019?

Output Tax (6M x 12%) 720,000

Input Tax (1M + 800K = 1.8M x 12%) (216,000)

VAT Payable 504,000

Mr. Lee Bhing is in the business of repairing motor

vehicles, furnishing labor only, or both labor and parts.
For one month, he had the following data, VAT not
included:

Amounts received as advances on cars to be repaired and

repainted 11,000

Amounts received for cars repaired, repainted, finished

and delivered to owners:

For labor 110,000

For parts (purchased from automobile parts VAT

registered dealers) 33,000

The parts were billed to the customers at the invoice

prices of the parts dealers. Amounts paid to machine
shops for re-grinding, reboring and other machine shop