VAT Philippines: How to Compute VAT Payable

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Are you engaged in trade or business? Are you practicing a profession? If you are, you must pay the taxes you are liable for. These taxes can be in the form of either a percentage tax or a value-added tax. You could be a Non-VAT or VAT-registered taxpayer. If you are a VAT-registered taxpayer, this article will guide and help you learn how to compute value-added tax using the VAT payable formula. 

VAT Payable Formula

Tax services in Manila share that calculating your VAT payable is not as complex as it seems. Simply multiply the VAT rate, currently set at 12%, by the gross selling price of your goods or services. This straightforward calculation provides a clear indication of the VAT amount you must pay. The simple formula is as follows: 

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

You can claim your input tax credit on VAT paid on local purchases and importation of goods and services. The input tax can only be claimed if your invoices are correct and if you have proof of payment.  You can claim it in your monthly or yearly returns. According to bookkeeping services in the Philippines, it’s essential to record this information accurately in your financial records carefully to ensure accuracy. 

When making your journal entry, note the details of the transaction, including the VAT payable amount, to maintain transparency and compliance. Remember, understanding how to compute VAT payable empowers you to fulfill your tax obligations accurately. By keeping track of your VAT payments and properly claiming input tax credits, you can navigate the world of taxation with confidence and peace of mind.

Recording Output Tax

For instance, if you were selling a good or service with a PHP 2,000 gross selling price, your VAT Payable would be PHP 240.

(12%) (2000) = 240

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

Your journal entry should look like this:

CreditOutput Tax240

Recording Input Tax

If your purchases amount to PHP 750 including VAT, your input tax would be PHP 80.36.

(750) (12/112) = 80.36

Your journal entry should look like this:

CreditInput Tax80.36

To maintain accurate financial records, accounting services in the Philippines reiterate that it is essential to record the input tax correctly. When making your journal entry, note the details of the transaction and include the input tax amount. By doing so, you ensure transparency and compliance with tax regulations. The process of recording input tax is crucial for maintaining accurate financial records and maximizing your tax credits. 

Computing VAT Using VAT Payable Formula

You can get your VAT by getting the difference between the input tax and the output tax. Note that if your VAT is negative, you need to get a refund. If it’s positive, you need to pay VAT. If you get zero, that means you do not have any VAT Payable for that certain period.

VAT Payable = Output Tax – Input Tax

Based on the examples, your VAT payable would be PHP 159.64. 

Your journal entry should look like this:

DebitOutput Tax240
CreditInput Tax80.36
CreditVAT Payable159.64
DebitVAT Payable159.64
CreditCash 159.64

Filing VAT Returns

You need to file and pay your VAT returns monthly or quarterly. It will also depend on how you are classified as a taxpayer. You are classified as a taxpayer if your annual sales exceed PHP 3,000,000 and if your annual sales are less than that amount, then you are classified as a non-large taxpayer.

Step-by-step Process:

  1. Compute Monthly or Quarterly VAT Payable
  2. Fill out BIR Form 2550M (VAT Return Form) and BIR Form 0605 (VAT Declaration Form)
  3. Submit the filled-up forms to any AAB or authorized agent banks of the revenue district office in the area your business is registered on or before the 20th day of the end of the month or quarter. You can also opt to file electronically through the eFPS or the Electronic Filing and Payment System.
  4. Pay VAT using BIR Form 0605-F (VAT Payment Form).

If you are a VAT-registered taxpayer, you need to file and pay your VAT every quarter. Note that the deadline is on the 25th day following the end of the quarter.

The following are the deadlines for each quarter:

  • 1st Quarter – April 25
  • 2nd Quarter – July 25
  • 3rd Quarter – October 25
  • 4th Quarter – January 25

If you are a non-vat registered taxpayer, you will have to pay your VAT monthly and the deadline for it is on the 20th day of each month.

You can file your VAT returns through the BIR’s eFPS or manually file through an AAB in three copies. Make sure you file your monthly VAT declaration form or quarterly VAT declaration form. Both declaration forms should be duly stamped “received” by the required authorities for them to be valid.

Penalties for Late Filing and Payment

Do note that failure to pay and file on time 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.

Take the stress out of VAT calculations and ensure compliance by contacting our professional accounting services in Pasig today. Let our experts guide you through the complexities of VAT, ensuring accurate computations and timely filings, so you can focus on growing your business with peace of mind.