Other Percentage Tax (OPT) or Value Added Tax (VAT) Registration?

For the initial registration with the Bureau of Internal Revenue (BIR) in the Philippines, the simple rules to determine whether an entrepreneur or an entity should register under Other Percentage Tax (OPT) or Value Added Tax (VAT) may be enumerated as follows:

OPT by nature.

Industry covered by other percentage tax by nature are required to register under OPT regardless of gross receipts or gross sales. Examples of this are common carries – operators of public utility buses, jeepneys, taxis and the likes, life insurance premiums, banks and non-bank finance intermediaries, etc.;

VAT by nature

Industry covered by the VAT system may either register under OPT or VAT depending on expected gross receipts or gross sales within the 12-month period whether or not it would exceed P1,919,500.00.

  • If expected to exceed the threshold, then may opt to register as VAT. This is optional and irrevocable for a period of three (3) years even if actual receipts do not exceed the threshold.

Example, when it registered in 2009 as VAT, actual gross receipts as seller of service or gross sales as seller of goods amounted to P1,000,000.00, 2010 only P1,400,000.00. Can he downgrade registration from VAT to non-VAT?

Answer is no because of the rule on irrevocability of optional VAT registration within three year period. It would continue as VAT registered.

  • If not expected to exceed the threshold, then, it may register under OPT until such time that its gross receipts or gross sales exceed P1,919,500, in which case it will be mandatory to register under VAT. Upon VAT registration, it is entitled to claim transitional input VAT based on the higher amount between 2% of the value of the inventory or actual input VAT on such purchases, whichever is higher.Should it fail to register under VAT, then, it shall be liable for VAT, but without the benefit of the input taxes because it only applies to VAT registered.
  • If its transactions are exempt from VAT, it may also opt to register as VAT. It may then apply tax exemptions on such exempt transactions or apply VAT on the exempt transactions. Once it opted to apply, then, the same is irrevocable indefinitely.

Those are the basic rules that every entrepreneur should take note of. Failure to apply the above rules may either lead to payment of penalties or any other disadvantage of the entrepreneur.

Reference:

Revenue Regulations No. 16-2005, as amended

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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.


 

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