The Philippines government, or any of its political subdivisions, instruments or agencies, including Government-owned and Controlled Corporations (GOCCs) is liable to pay for the Value Added Tax subjects to special rules. The government shall withhold 5% out of the 12% regular VAT. This would represent the net VAT payable by the seller to the Bureau of Internal Revenue. The 7% difference shall be accounted for as Standard Input VAT.
The standard input VAT serves as the input VAT in lieu of the actual input VAT of the related goods or services. The actual input VAT relating to goods or services sold to government would no longer be deducted from the output VAT of the regular sales. It shall not be allowed also to be carried over to succeeding months or quarters nor be claimed as tax credit or refund. The actual input VAT relating to the purchase of goods or services sold to government shall be closed to standard input VAT.
The difference between the actual input VAT and standard input VAT will be accounted as follows:
- Actual Input VAT > Standard Input VAT = Input VAT Expense
- Actual Input VAT < Standard Input VAT = Closed to Expense or Cost
Example:
Case 1: Actual Input VAT > Standard Input VAT
ABC Merchandising, a VAT-registered business, has the following data relating to sales to government:
Sales P500,000
Output VAT (P500,000 x 12%) 60,000
Purchases (all sold to government) 200,000
Input VAT (200,000 x 12%) 24,000
Computation of VAT Payable:
Output VAT (P500,000 x 12%) P 60,000
Less: Standard Input VAT (500,000 x 7%) 35,000
Net VAT Payable P 25,000
Less: Final Withholding Tax (500,000 x 5%) 25,000
Output VAT Payable -0-
Accounting for the Difference between Actual and Standard Input VAT:
Actual Input VAT P 24,000
Standard Input VAT (35,000)
Income and Expense Summary P (11,000)
Case 2: Actual Input VAT < Standard Input VAT
DFE Merchandising, a VAT-registered business, has the following data relating to sales to government:
Sales P500,000
Output VAT (P500,000 x 12%) 60,000
Purchases (all sold to government) 400,000
Input VAT (400,000 x 12%) 48,000
Computation of VAT Payable:
Output VAT (P500,000 x 12%) P 60,000
Less: Standard Input VAT (500,000 x 7%) 35,000
Net VAT Payable P 25,000
Less: Final Withholding Tax (500,000 x 5%) 25,000
Output VAT Payable -0-
Accounting for the Difference between Actual and Standard Input VAT:
Actual Input VAT P 48,000
Standard Input VAT (35,000)
Cost of Sales/Other Expense P 13,000
The 12% Value Added Tax on sale to government must be declared in VAT return for transparency purposes.
