What’s the Difference between VAT and OPT?

For instance, have you given any thought to which tax classification you want to register under? The choice you make with regards to that can make a huge difference for your business, especially early on when you’re still trying to break even.


In all likelihood, you’ll have to make a choice between registering as a VAT-classified business or a Non-VAT classified business. Let’s take a moment to discuss the differences between VAT and OPT and how you should make your decision.

Two Types of Sales Taxes

Just about all types of businesses operating in the Philippines are subjected to sales taxes collected by the BIR (Bureau of Internal Revenue). The two types of sales taxes the BIR often requires businesses to pay include the following:


         • VAT (value-added tax)


        • OPT (other percentage tax)


If the term OPT is unfamiliar to you, then you may have seen or heard it referred to previously as the percentage tax or Non-VAT. Businesses, professionals, and sole-proprietors are obligated to pay the aforementioned taxes. Failure to pay could lead to your business being shut down and you potentially being prosecuted.

Comparing and Contrasting VAT and OPT

We noted earlier that your business can either be classified as VAT or Non-VAT, but how should you go about making that decision? Well, there are several factors to consider. Let’s discuss them in greater detail below. 


Here’s the thing: You may not always have the option of choosing between the VAT or OPT structure. According to the BIR, there is a threshold businesses can refer to when determining whether they should be VAT classified or Non-VAT classified.


If the annual gross sales and/or receipts of your business do not exceed Php 3,000,000.00, then you can have it registered as either VAT classified or Non-VAT classified. On the other hand, if the aggregate amount of actual gross sales or receipts for your business exceeds Php 3,000,000.00, it must be registered as VAT-classified.


Another important point of difference between VAT and OPT is the parties responsible for paying the taxes.


Businesses that decide to register under the OPT or Non-VAT structure will have to pay a direct tax. This means that your business will have to handle the tax on its own and the amount cannot be passed on to the consumers.


When it comes to an indirect tax such as VAT, the businesses registered under that classification are essentially collecting the tax payments from their consumers. Still, the businesses themselves will be the ones that will have to remit the tax payments to the BIR.


The last major difference between VAT and OPT is the tax rate itself.


Non-VAT registered businesses are required to pay a 3 percent tax on their annual revenues.


VAT-registered businesses have to pay 12 percent of VAT Payable.


Coming up with the VAT Payable involves some calculations:


         • First, the business must calculate their output VAT, which are the taxes paid by the customers whenever they purchase products or services.


         • The business must also calculate their input VAT or the VAT they paid when they were purchasing their goods from their manufacturers.


        • Once the output and input VAT have been determined, the business can then perform a simple calculation. Subtract the input VAT from the output VAT and you’ll get the VAT Payable.

Should I Register My Business as VAT or Non-VAT?

There is no universal answer for business owners here. The best you can do is to calculate your potential annual revenue and see if it will exceed the threshold or not. Remember that if you register as a VAT taxpayer, this will be irrevocable for the next 3 years even if your actual sales or receipts do not exceed the threshold.


Watch this video about the Difference between VAT and OPT.

We at ACCOUNTAHOLICSPH are ready to work with you to make those complex calculations easier. By partnering with us, you’ll be able to make more informed decisions regarding your company’s taxes and you’ll realize greater profits in the process! Contact us today for more information.