What is the Difference between VAT and Percentage Tax ?
Value Added Tax (VAT) and Percentage Tax are both business taxes collected from the sale of goods and services. The similarity ends there because these taxes are different in nature. Business owners, especially the new ones, need to know which one applies to their business to avoid future disputes with the Bureau of Internal Revenue (BIR).
Value Added Tax (VAT)
Value Added Tax (VAT) is a form of sales tax. As such, it is based on gross receipts from sale, barter, exchange, or lease of goods or properties and services within the Philippines. It is also imposed on goods imported into the country. VAT is an indirect tax which means the end consumer is being charged for the tax. In the Philippines, the rate of VAT is at 12% except for export sales and other zero-rated sales which is at 0%.
Who needs to register as a VAT taxpayer?
- Any person or entity engaged in the business of selling goods or services that are subject to VAT and whose annual gross sales or receipts exceed or are expected to exceed One Million Nine Hundred Nineteen Thousand Five Hundred Pesos ( Php 1,919,500.00 ).
- Any person or entity that is not VAT exempt but failed to register.
- Any person or entity engaged in importation of goods.
How to register as a VAT taxpayer?
- Use BIR Form 0605 and pay the registration fee of Php 500.00.
- Register books of accounts like ledgers and columnar books.
- Secure Authority to Print then register invoice and official receipt booklets.
What are your responsibilities as a VAT taxpayer?
- Display Certificate of Registration at the place of business.
- Issue invoices and/or official receipts. A sales invoice is issued for every sale, barter, or exchange of goods or property. An official receipt is issued for lease of property and sale, barter or exchange of services.
- Keep your books. Make sure that your books are updated and always ready in case an audit is made.
- File monthly. Use BIR Form 2550M. If there is payment, go to an Authorized Agent Bank (AAB) in the Revenue District Office where registered. If there is no payment, submit to the RDO where registered, with required attachments. Deadline is not later than the 20th day of the next month.
- File quarterly. Use BIR Form 2550Q. If there is payment, go to an AAB in the RDO where registered. If there is no payment, submit to the RDO where registered, with required attachments. Deadline is every 25th day of the following month from the last day of covered quarter.
- Pay annual registration fee equivalent to Php500.00 not later than January 31.
For small businesses with gross annual sales and receipts that do not exceed Php 750,000.00, and are not VAT-registered, percentage tax is imposed for sold or leased goods, properties or services. The tax rate varies depending on the nature of business. The usual rate is 3% but it could go as high as 30%, for gross receipts of Jai-Alai and racetrack operators for instance.
Who are required to file percentage tax?
- Any person exempted from VAT under Sec. 109z of the Tax Code.
- Domestic carriers and keepers of garages.
- International air and shipping carriers based in the country.
- Franchise grantees of utilities.
- Franchise grantees in broadcasting business the annual gross receipts of which do not exceed Php10M and opted not to register as VAT taxpayers.
- Operators of communications equipment sending dispatch, messages, or conversations overseas.
- Life insurance premiums and agents of foreign insurance companies.
- Proprietor, lessee, or operator of betting businesses such as cockpits, race tracks, cabarets, etc.
- Stock brokers trading through Local Stock Exchange other than sake of dealer in securities, as well as corporate issuers or stock brokers of domestic or foreign markets.
When to file percentage tax returns?
- Monthly. Use BIR Form 2551M. If there is payment, go to an Authorized Agent Bank (AAB) in the Revenue District Office where registered. If there is no payment, submit to the RDO where registered, with required attachments. Deadline is not later than the 20th day of the next month.
- Quarterly. Use BIR Form 2551Q. If there is payment, go to an AAB in the RDO where you are registered. If there is no payment, submit to the RDO where registered, with required attachments. Deadline is every 20th day of the following month from the last day of covered quarter.
Note that for both tax types, even if there are no payments to be made, it is important that you file your returns to the RDO that covers your business location. Failure to do so may mean penalties and you must pay even if there are no tax dues.
It’s always best to seek the advise of your Accountant or Tax Lawyer regarding this issues.
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Robert G. Sarmiento Properties
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Real Estate Broker’s Association of the Philippines
President, Greenhills Chapter 2008-2009
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