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07 chapter 8 business transactions

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07 chapter 8 business transactions

  1. 1. Taxation 2 │ BUSINESS TRANSACTIONS FLABERT VILLASENCIO, CPA Notre Dame of Dadiangas University
  2. 2. 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.
  3. 3. 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
  4. 4. 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
  5. 5. 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.
  6. 6. 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)
  7. 7. 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
  8. 8. 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
  9. 9. 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
  10. 10. 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
  11. 11. 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
  12. 12. Transactions with the Government Units 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
  13. 13. Transactions with the Government Units 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.
  14. 14. Transactions with the Government Units Actual Input VAT is Greater than Standard Input VAT Sales 100,000 Output VAT 12,000 Purchases (all to gov’t) 70,000 Input VAT 8,400 Compute for the VAT Payable. 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 -
  15. 15. Transactions with the Government Units Actual Input VAT is Greater than Standard Input VAT 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 Creditable Withholding VAT 5,000
  16. 16. Transactions with the Government Units 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 Purchases (all to gov’t) 50,000 Input VAT 6,000 Compute for the VAT Payable.
  17. 17. Transactions with the Government Units Actual Input VAT is Lesser than Standard Input VAT Sales 100,000 Output VAT 12,000 Purchases (all to gov’t) 50,000 Input VAT 6,000 Compute for the VAT Payable. 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 -
  18. 18. Transactions with the Government Units Actual Input VAT is Lesser than Standard Input VAT Journal Entries: 1.Purchases 50,000 Input VAT 6,000 Cash 56,000 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 Input VAT 6,000 Creditable Withholding VAT 5,000 Income and Exp Summary 1,000
  19. 19. 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
  20. 20. 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.
  21. 21. 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

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