07 chapter 8 business transactions

Taxation 2 │
BUSINESS TRANSACTIONS
FLABERT VILLASENCIO, CPA
Notre Dame of Dadiangas University

Classification of Business Transactions
1. VAT Transactions:
a) Allowed with Input VAT
b) NOT allowed with Input VAT
2. Zero-VAT Rated Transactions
3. VAT-exempt Transactions:
a) Exempt from Other Percentage Tax
b) Subject to Other Percentage Tax
4. Transactions with government units.

VAT Transactions
1. Allowed with Input VAT
– Transactions entered into of a VAT-registered business
– Basic Business Tax computation:
Output VAT (12% Sales) xxx
Less:Input VAT (12% Purchases from VAT person) xxx
Net VAT payable (Refund) xxx
Output VAT- 12% of GROSS SALES OR RECEIPTS (applicable)
Input VAT- 12% of its PURCHASES to VAT-registered person or
provider

VAT Transactions
1. NOT Allowed with Input VAT
– Transactions entered into of a Non- VAT business wherein its
annual gross sales or receipts exceeds P1,919,500 annually
Illustration:
X, a non-VAT registered business, has total annual sales of
2,000,000. Its total purchases of merchandise from VAT
registered suppliers amounted to 1,344,000, inclusive of 12%
VAT.
Tax Base (Sales) 2,000,000
VAT rate 12%
Business Tax Liability or VAT payable 240,000

VAT Transactions
VAT Taxable transactions that are not allowed to deduct Input
VAT:
1.Non-VAT business with Sales or Gross receipts of more than
1,919,500 per year which are not among the VAT-exempt and not
among those exclusively subject to OPT
2.Non-VAT franchise grantees of radio and television
broadcasting with annual sales of more than 10,000,000
3.Importations which are exempted
4.Local payment of rent of vessel or carriers owned by
nonresident foreign entity.

ZERO-VAT Rated Transactions
▪ These are sales that are subject to OUTPUT Vat rate of 0%
▪ Mainly from export sales by VAT-registered persons that
generate foreign currency reserves
▪ The actual input VAT on the purchase shall be applied for TCC
(Tax Credit Certificate) or refund of creditable input tax due
Illustration:
Export Sales: 500,000
Input VAT: 36,000
SOLUTION:
Zero- VAT Sales -0-
Less: Input VAT 36,000
Creditable Input VAT (36,000)

ZERO-VAT Rated Transactions
Zero- Rated transactions are the following:
▪Export sales paid in acceptable foreign currency
▪Sale of gold to BSP
▪Foreign currency denominated sales
▪Effectively Zero-rated sales
– Sale of power or fuel
– Sale and services to the following persons or entities:
▪ Registered with SBMA and CDA
▪ Registered with PEZA
▪ Asian Development Bank
▪ IRRI
▪Gross receipts of a domestic corporation for:
– Transport from Phil to foreign country
– Paid in acceptable foreign currency

VAT- Exempt and OPT Exempt Transactions
▪ Not subject to 12% output VAT, not subject to OPT and not
entitled to input VAT
Illustration:
Purchases 560,000 with 60,000 VAT
Export Sales 600,000
Computation:
Export Sales 600,000
Zero-rated 0%
Tax Liability 0

VAT- Exempt and OPT Exempt Transactions
1. Export Sales of Non-VAT registered business
2. Importation of the following:
1. Fuel, goods and supplies by international shipping or air transport
companies
2. Personal and household effects belonging to residents of the
Philippines returning from abroad as long as goods are exempted
from custom duties
3. Professional instruments and implements, wearing apparel,
domestic animals and personal household effects for their own use
and not for sale
3. Sales and Importation of the following:
1. Agricultural and marine food products in their original state
2. Fertilizers, seeds, seedlings, fingerlings and any other products used
for production of finished feeds except special feeds

VAT- Exempt Transactions with Specific
OPT
1. 3% - sale or lease of goods or properties of NON-VAT
Registered
• gross receipts of domestic carriers by land, air and shipping
companies
• Franchise of radios and television companies with less than
10,000,000 annual gross receipts
2. 2%- gross receipts for services rendered by franchise of gas
and water utilities
3. 10%- gross receipts on overseas dispatch from Philippines
4. 5%- on insurance premium
5. 10%- on services by fire, marine or miscellaneous insurance
of foreign insurance companies
6. 30%,18%, 15%, 10%- gross receipts for services of proprietors,
lessees or operators of Jai-alai and race tracts, cockpits,
night or day clubs, professional basketball games,
boxing exhibitions, winnings, net of cost of ticket
7. ½% to 4% - stocks on IPO

Transactions with the Government Units
– With Standard Input VAT of 7%
– Subject to the following:
1. Final VAT of 5% (if seller is VAT Registered
2. Percentage Tax of 3% (If seller is Non-VAT)
– Withhold the following:
1. 1% on purchase of goods
2. 2% on purchase of services
Illustration:
A business, VAT- registered, selling merchandise has the following:
Sales 100,000
VAT 12,000

Illustration:
A business, VAT- registered, selling merchandise has the following:
Sales 100,000
VAT 12,000
Solution:
Sales 100,000
Add: VAT 12,000
Total 112,000
Less: Final WHT
(100,000 x 5%) 5,000
(CWT 100,000x1%) 1,000 6,000
106,000

Actual Input VAT is Greater than Standard Input VAT
•The excess may form part of the seller’s expense or cost.
Illustration:
Assume the following data related to the sale of a VAT-registered
business to the government:
Sales 100,000
Output VAT 12,000
Purchases (all to gov’t) 70,000
Input VAT 8,400
Compute for the VAT Payable.

Sales 100,000
Output VAT 12,000
Input VAT 8,400
Output VAT 12,000
Less: Actual Input VAT 8,400
Standard Input VAT 7,000 7,000
Cost of Sale or Other Exp 1,400
Net VAT Payable 5,000
Less: Final Withholding VAT 5,000
Output VAT Payable -

Journal Entries:
1.Purchases 70,000
Input VAT 8,400
Cash 78,400
2. Cash 106,000
Creditable Withholding VAT 5,000
Creditable Withholding Tax 1,000
Sales 100,000
Output VAT 12,000
3. Output VAT 12,000
Income and Exp Summary 1,400
Input VAT 8,400

Actual Input VAT is Lesser than Standard Input VAT
•The excess is treated as a taxable income.
Illustration:
Assume the following data related to the sale of a VAT-registered
business to the government:
Sales 100,000
Output VAT 12,000
Input VAT 6,000

Sales 100,000
Output VAT 12,000
Input VAT 6,000
Output VAT 12,000
Less: Actual Input VAT 6,000
Standard Input VAT 7,000 7,000
Income and Exp Summ. (1,000)
Net VAT Payable 5,000
Less: Final Withholding VAT 5,000
Output VAT Payable -

Journal Entries:
1.Purchases 50,000
Input VAT 6,000
Cash 56,000
2. Cash 106,000
Creditable Withholding Tax 1,000
Sales 100,000
Output VAT 12,000
3. Output VAT 12,000
Input VAT 6,000
Income and Exp Summary 1,000

S E A T W O R K : ( 1 / 2 C W )
PROBLEM 8-1, 8-2
ASSIGNMENT (1WHOLE):
PROBLEM 8-3 TO 8-6 (SHOW YOUR
SOLUTIONS
#DO IT BY PAIR #SHOW YOUR SOLUTIONS
#WRITE THE LETTER AND THE ANSWER OF YOUR CHOICE

Problem 8–1
1.False – Vatable transactions of non-VAT business is not allowed to deduct input VAT.
2.True
3.False – Some business transactions are VAT-exempt.
4.True
5.False – subject to OPT.
6.True
7.True
8.False – not allowed for TCC and tax refund, but allowed only for tax credit.
9.True
10.False – Zero rated sales are applicable only to VAT-registered business/person. This
is a VAT-exempt and OPT-exempt transactions.
11. True
12. False – It can be claimed as a deduction from sale as part of cost of product sold.
13. True
14. False – Sales of non-VAT person, exceeding P1,919,500 per year is also subject to
VAT. 15. False – Only those agricultural and marine food products.

Problem 8–2
1.False – Publication of newspaper is VAT-exempt and also OPT-exempt.
2.True
3.False – The exemption pertains only to Output VAT.
4.True
5.False – Zero VAT transactions are applicable only to VAT-registered persons.
6.False – Some VAT taxable transactions have not allowed to have Input VAT particularly if
the business is a non-VAT.
7.False – Exempt from business tax because it is considered as a subsistence livelihood.
8.True
9.False – Exempt from VAT.
10.False – zero VAT.
11.False – VAT-exempt.
12.True
13.False – VAT-exempt and OPT-exempt.
14.False – more than P3,199,200.
15.True

07 chapter 8 business transactions

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07 chapter 8 business transactions