By: Garry S. Pagaspas
Value Added Tax (VAT) is imposed upon any person who, in the ordinary course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods. It is an indirect tax and the amount of VAT maybe shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. The BIR has mandated under Revenue Regulations No. 18-2011 that VAT shall be shown separately on the sales invoice (SI) for transactions involving goods, or on the official receipts (OR) for transactions involving services, and failure to follow the same is subject to penalties (say, P1,000.00 per SI/OR). This new mandate makes accounting for VAT a bit easier and fun. I should not say its boring, because some technical rules would thrill your brain cells. The VAT you pay on purchases is normally called “input VAT”, while the VAT you add on sales is normally called “output VAT”. In computing the VAT due and payable to the Bureau of Internal Revenue (BIR), you simply compute as follows:
The above formula is just a simple subtraction, but with the varying rules on output VAT, creditable input taxes, and other VAT rules on registration, filing of reports, makes the VAT system one-of-a-kind tax type for taxpayers. For purposes of accounting for VAT in the Philippines, you should note the following accounting areas that I wish to share sample entries. Of course, you can alter or change them to your desired account titles to fit your style for as long as they are comprehensible enough, because BIR did not prescribe the use of specific account titles. For better appreciation, I suggest you read further below with the monthly – BIR Form No. 2550M, and quarterly-BIR Form No, 2550Q.
For illustrative purposes, let us assume the following transactions or figures, and to emphasize VAT journal entries, let us assume no withholding taxes applies, unless so stated.
Company Seller (VAT-registered) sold Company Buyer (VAT-registered) for P200,000, exclusive of 12% VAT, or a total of P224,000.00. Company Seller’s purchases amounted to P100,000.00, exclusive of 12% VAT or a total of P112,000.00.
I. Sales of goods or properties
In the monthly or quarterly VAT returns, sales of goods is classified into regular sales, zero-rated sales, exempt sales, and sales to government. Sample accounting entries are as follows:
Regular sales and government sales:
Zero-rated sales or VAT-exempt sales:
Please note that VAT is shown separately through the Output VAT. In regular and government sales, VAT is added, while in zero-rated and exempt sales, not output VAT is imposed. The peculiar in government sales is the treatment of input taxes so we will deal with it later. Same is true with respect to zero-rated and exempt transaction because the difference lies in the treatment of input taxes.
II. Purchases of goods or properties, and services
Purchase of goods or properties, and services is a reciprocal of sale on the part of the seller. It could be with VAT for VATable, or without VAT for VAT-exempt or zero-rated transactions. Hereunder are sample entries.
Purchases with 12% VAT:
Zero-rated sales or VAT-exempt sales:
The only difference on the above sample entries lies on the recognition of the input taxes. For VATable purchases, input VAT is recognized separately because it represents an asset that has to be accounted for.
III. Setting-up VAT payable or creditable input VAT
For monthly or quarterly filing of VAT returns, you may either have VAT payable or excess creditable input taxes. For the first two (2) months of the quarter, you use sales, purchases, and related VAT components for the monthly period only. For the quarterly return, you aggregate figures for the three (3) months of the quarter. Hereunder are the related sample entries:
Setting-up VAT payable:
Setting-up VAT payable is simply closing the Input VAT and Output VAT accounts to VAT due and Payable account. The resulting difference would represent the VAT due and payable. This of course, presumes that the Input VAT are all creditable against output VAT and is not subject to deferred input VAT rules like on capital goods.
Setting-up Creditable input VAT:
In the above entry, the input VAT is more than the output VAT so the difference is Creditable input Vat. It is a temporary asset account like input VAT and is used to refer to prior-period purchases with VAT.
Setting-up VAT payable applying prior-period creditable Input VAT:
IV. Payment of VAT due and payable
Payment of VAT due and payable is the filing of the VAT returns within 2twenty (20) days from end of month for monthly returns using BIR Form No. 2550M, and within twenty-five (25) days from quarter-end for quarterly returns using BIR Form no. 2550Q.
Filing and Payment of VAT due and payable
The above entry is as simple as you pay a normal liability account.
V. Special VAT rules
As I have mentioned above, special VAT rules makes it more challenging to account for VAT. These rules are mostly applicable on input VAT as to its availability for deduction or credit against output VAT such as in input VAT on capital goods costing P1M having a useful life of more than five years, final withholding of VAT on sales to government, refund of input VAT attributable to zero-rated sales, and expenses, and recording as expense of input VAT attributable to VAT-exempt sales transactions.
The special rules would be a more technical topic to deal with and may just ruin your basic understanding of the above simple sample accounting entries. I intend to discuss more of the special entries in my succeeding article on accounting for VAT. Of course, the above are sample illustrative entries only, and you are free to make enhancements. Account titles may vary depending on the chart of accounts adopted by your company.
RELATED SEMINAR – WORKSHOP
We offer a once-a-month seminar-workshop on all the things you need to know about VAT through our program “Value-added Tax, Ins and Outs”
(Garry S. Pagaspas is a Resource Speaker with Tax and Accounting Center, Inc. He is a Certified Public Accountant and a degree holder in Bachelor of Laws engaged in active tax practice for more than seven (7) years now and a professor of taxation for more than four (4) years now. He had assisted various taxpayers in ensuring tax compliance and tax management resulting to tax savings rendering tax studies, opinions, consultancies and other related services. For comments, you may please send mail at firstname.lastname@example.org.)
Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances.
Bookkeeping Services. With our years of practice and being with the academe, we are confident that we could assist you maintain your books of accounts and prepare your tax returns in the light of the present rules, and regulations. We understand your financials and charges are at reasonable rates.
Tax Management and Compliance Consultancies. With our tax services, we can assist you ensure tax compliance and in the management of such continuing compliance. Proper compliance would bring about tax savings form avoiding being penalized to tax minimization strategies.
Quality Seminars and Trainings. We conduct other seminars, workshops and trainings on BIR tax compliance that you may learn to do your bookkeeping your own or at least develop working knowledge sufficient to supervise the work of your hired bookkeeper. Hereunder are our programs you could choose from:
(Post viewed 54537 times)