Unlock How to Compute VAT Payable in the Philippines

Are you a business owner or a skilled professional practicing your craft? If so, it’s essential to understand and fulfill your tax obligations. One of these obligations involves paying taxes in the form of either a percentage tax or a value-added tax (VAT). Whether you fall under the category of a Non-VAT or VAT-registered taxpayer, this article aims to demystify the process of computing VAT payable using a straightforward formula.

Formula for Computing VAT Payable

To determine your VAT payable, all you need to do is multiply the VAT rate, which is currently set at 12%, by the gross selling price of your goods or services. This calculation will give you a clear picture of the VAT amount you are required to pay.

So, let’s break it down:

  • VAT Payable = (VAT Rate) x (Gross Selling Price)

Remember, as a VAT-registered taxpayer, you have the advantage of claiming input tax credits for VAT paid on local purchases and the importation of goods and services in your monthly or yearly returns. To enjoy this benefit, it is crucial to ensure that your invoices are accurate and that you possess proof of payment. That’s why accounting and bookkeeping are essential processes to get things right!

Recording Your Output Tax

Suppose you recently sold a product or provided a service with a gross selling price of PHP 2,000. In that case, simply multiply the gross selling price by the VAT rate of 12% to obtain the amount. Let’s break it down:

 

VAT Payable = (12%) x (PHP 2,000) = PHP 240

 

Based on this calculation, you would owe PHP 240 as your VAT payable for the transaction.

 

Your journal entry should look like this:

Debit

Cash

2,240

Credit

Output Tax

240

Credit

Sales

2,000

 

Recording Your Input Tax

By understanding how to compute your input tax, you can ensure proper documentation and maximize your tax credits. Suppose your total purchases amount to PHP 750, inclusive of VAT. To determine your input tax, you need to multiply the purchase amount by the VAT fraction, which is 12/112 (VAT rate divided by the VAT rate plus 100).

 

Let’s break it down using an example:

Input Tax = (PHP 750) x (12/112) = PHP 80.36

 

The input tax amounts to PHP 80.36. This figure represents the VAT portion of your purchases that you can claim as a tax credit.

 

Your journal entry should look like this:

Debit

Purchases

830.36

Credit

Input Tax

80.36

Credit

Sales

750

By meticulously documenting your input tax in bookkeeping records, you establish a clear trail of your tax credits and provide evidence for future claims. The process of recording input tax is crucial for maintaining accurate financial records and maximizing your tax credits. 

Computing VAT Using VAT Payable Formula

Understanding the VAT payable formula can help you determine whether you owe VAT or are entitled to a refund. To compute your VAT payable, this straightforward formula clarifies your VAT liability:

 

  • VAT Payable = Output Tax – Input Tax

Based on the examples, your VAT payable would be PHP 159.64.  Your accounting journal entry should look like this:

Debit

Output Tax

240

Credit

Input Tax

80.36

Credit

VAT Payable

159.64



Debit

VAT Payable

159.64

Credit

Cash 

159.64

 

Noteworthy, a negative VAT payable means you’re eligible for a refund, a positive amount indicates a payment, and zero means no VAT liability. Understanding and applying the VAT payable formula simplifies the process of determining your VAT obligations.

Filing and Paying VAT

VAT returns must be filed and paid monthly or quarterly, depending on your taxpayer classification. Here’s a simple step-by-step process to help you navigate the requirements:

 

  1. Determine Your Taxpayer Classification:
  • If your annual sales exceed PHP 3,000,000, you are a taxpayer.
  • If your annual sales are below that threshold, you are a non-large taxpayer.
  1. Compute VAT Payable:
  • Calculate your monthly or quarterly VAT payable amount.
  1. Fill Out the Forms:
  • Complete BIR Form 2550M (VAT Return Form) and BIR Form 0605 (VAT Declaration Form).
  1. Submit the Forms:
  • Submit the filled forms to any AAB or authorized agent banks of the revenue district office where your business is registered.
  • Deadline: On or before the 20th day following the end of the month or quarter.
  • Alternatively, you can opt for electronic filing through the eFPS (Electronic Filing and Payment System).
  1. Make Payment:
  • Use BIR Form 0605-F (VAT Payment Form) to pay your VAT.

 

For VAT-registered taxpayers, the filing and payment frequency is quarterly:

  • Deadlines: April 25th (1st Quarter), July 25th (2nd Quarter), October 25th (3rd Quarter), and January 25th (4th Quarter).

 

For non-VAT registered taxpayers, the VAT must be paid monthly:

  • Deadline: On or before the 20th day of each month.

 

Ensure that your monthly or quarterly VAT declaration form is properly stamped “received” by the required authorities to validate the filing. Note: You have the option to file your VAT returns electronically through the BIR’s eFPS or manually file in three copies via an AAB (Authorized Agent Bank).

Penalties for Late Filing and Payment

By following the above noted guidelines, you can fulfill your VAT filing and payment obligations efficiently. Failure to do so can result in the following:  

 

  • 25% surcharge of basic tax or a minimum of PHP 2,000
  • 2% interest for every month of unpaid tax
  • Compromise penalties on individuals who file an understatement of VAT liability below 75% but not less than 30% 
  • Compromise penalties should not be less than PHP 10,000 or 20% of the VAT due.

Are VAT calculations giving you a headache? Our accounting services are here to help handle your VAT computations with precision, freeing up your time to focus on running your business.

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