Government, any of its political subdivision, instrumentality, or agencies, including government-owned or controlled corporations (GOCCs) is also subject to value-added taxes in the Philippines, unless otherwise exempted. Sales to Government of goods, properties, or services are subject to 12% value-added tax. However there are special rules that accountants and businessmen must be aware of in dealing with the government sales.
(1) Final withholding VAT on sales to government in the Philippines, and;
(2) Accounting & filling-out VAT return forms in the Philippines.
FINAL WITHHOLDING VAT ON SALES TO GOVERNMENT
As a rule, government or any of its political subdivision, instrumentality, or agencies, including GOCCs are mandated to withhold 5% (out of 12% regular VAT) on VATable sales upon payment to to value-added tax sellers of goods or services. Such 5% withholding tax shall represent net VAT payable by the seller to government. This would mean that the seller will not be made to pay more than 5% out of the 12% value-added tax on government sales in Philippines. In VAT returns, however, the 12% value-added tax on sale to government has to be declared for transparency purposes.
Sample problem:
On January 201_, ABC Corp. sold P1,000,000 worth of goods to a GOCC.
Analysis on the problem:
Sales Revenue of ABC amounted to P1,000,000
Output VAT charged to government shall be P120,000 (P1,000,000 x 12%) - to be reported
on BIR form 2550M or 2550Q whichever comes earlier for transparency purposes.
Final withholding VAT amounted to P50,000 (P1,000,000 x 5%) - which is the net VAT
payable.
Amount collectible will only be at P1,070,000 (P1,120,000 - P50,000) - expected cash
collection by ABC Corp to GOCC.
ACCOUNTING AND FILLING-OUT VAT RETURNS
For the purpose of further elaborating the transaction, I provided specific accounts to clearly identify the accounting transactions.
Dr. - Accounts Receivable P 1,120,000.00
Cr. - Sales Revenue - Government P 1,000,000.00
Cr. - Output VAT 120,000.00
To record sales transaction to GOCC.
How about the 7% difference on 12% total VAT against 5% withholding VAT?
The P70,000 difference as a result of P120,000 output tax and P50,000 net VAT is the standard input VAT sale to government (only for this transaction). Thus, we have to enter in the books of accounts the following accounting entry:
Dr. - Input VAT - Standard P 70,000.00
Cr. - Creditable Input VAT - Standard P 70,000.00
To record standard input VAT on sale to government.
Rules for standard input VAT on sales to government
Since the seller will effectively pay 5% out of 12% value-added tax on sales to government, the 7% effectively accounts for the standard input VAT in lieu of actual input VAT. The question is, how about the actual input VAT attributable or ratable (for those mixed transactions) to sales to government will no longer be deducted to against the output VAT on other regular sales because the standard input VAT will take its place. Said actual input VAT attributable or ratable to government sales shall not be carried over to succeeding months or quarters, not an outright input VAT expense, and not allowed to be claimed for refund and tax credit certificate. Instead, such actual input VAT shall be treated in the books of a VAT-registered taxpayer as follows:
(a) Actual Input VAT > Standard Input VAT = Input VAT Expense
(b) Actual Input VAT < Standard Input VAT = Reduction in cost or expense account
Sample problem:
Actual input VAT directly attributable to government sales is P75,000 from purchase of goods used to government transactions amounted to P625,000. The entry will be:
Dr. - Asset/Expense Account P 625,000.00
Dr. - Input VAT - Actual 75,000.00
Cr. - Cash/Accounts Payable P 700,000.00
To record purchase of goods for government transactions.
The closing entry to record the actual input VAT against standard input VAT is as follow:
Dr. - Creditable Input VAT - Standard P 70,000.00
Dr. - Input VAT Expense 5,000.00
Cr. - Input VAT - Actual P 75,000.00
To record input VAT expense related to actual input VAT.
The closing entry to record offsetting of output tax and input tax is as follow:
Dr. - Output VAT P 120,000.00
Cr. - Input VAT - Standard P 70,000.00
Cr. - VAT Payable 50,000.00
To record offsetting of output tax against standard input tax attributable to government transactions.
The entry to record payment of VAT payable is:
Dr. - VAT Payable P 50,000.00
Cr. - Creditable Withholding VAT P 50,000.00
This is based on the entry upon collection of cash and BIR form 2306 as follows:
Dr. - Cash P 1,070,000.00
Dr. - Creditable Withholding VAT 50,000.00
Cr. - Accounts Receivable P 1,120,000.00
Another problem:
If actual input tax is P60,000 only. The entry to record the difference between actual and standard input tax will be:
Dr. - Creditable Input VAT - Standard P 70,000.00
Cr. - Input VAT - Actual P 60,000.00
Cr. - Cost of Sale/ Input VAT Expense 10,000.00
The difference of P10,000.00 is considered as "other income" that may be presented as a reduction to Cost of Sales Account or credit to Input VAT Expense. Same accounting entries will be made on the following entries to record offsetting of output VAT and standard input VAT.
(1) Final withholding VAT on sales to government in the Philippines, and;
(2) Accounting & filling-out VAT return forms in the Philippines.
FINAL WITHHOLDING VAT ON SALES TO GOVERNMENT
As a rule, government or any of its political subdivision, instrumentality, or agencies, including GOCCs are mandated to withhold 5% (out of 12% regular VAT) on VATable sales upon payment to to value-added tax sellers of goods or services. Such 5% withholding tax shall represent net VAT payable by the seller to government. This would mean that the seller will not be made to pay more than 5% out of the 12% value-added tax on government sales in Philippines. In VAT returns, however, the 12% value-added tax on sale to government has to be declared for transparency purposes.
Sample problem:
On January 201_, ABC Corp. sold P1,000,000 worth of goods to a GOCC.
Analysis on the problem:
Sales Revenue of ABC amounted to P1,000,000
Output VAT charged to government shall be P120,000 (P1,000,000 x 12%) - to be reported
on BIR form 2550M or 2550Q whichever comes earlier for transparency purposes.
Final withholding VAT amounted to P50,000 (P1,000,000 x 5%) - which is the net VAT
payable.
Amount collectible will only be at P1,070,000 (P1,120,000 - P50,000) - expected cash
collection by ABC Corp to GOCC.
ACCOUNTING AND FILLING-OUT VAT RETURNS
For the purpose of further elaborating the transaction, I provided specific accounts to clearly identify the accounting transactions.
Dr. - Accounts Receivable P 1,120,000.00
Cr. - Sales Revenue - Government P 1,000,000.00
Cr. - Output VAT 120,000.00
To record sales transaction to GOCC.
How about the 7% difference on 12% total VAT against 5% withholding VAT?
The P70,000 difference as a result of P120,000 output tax and P50,000 net VAT is the standard input VAT sale to government (only for this transaction). Thus, we have to enter in the books of accounts the following accounting entry:
Dr. - Input VAT - Standard P 70,000.00
Cr. - Creditable Input VAT - Standard P 70,000.00
To record standard input VAT on sale to government.
Rules for standard input VAT on sales to government
Since the seller will effectively pay 5% out of 12% value-added tax on sales to government, the 7% effectively accounts for the standard input VAT in lieu of actual input VAT. The question is, how about the actual input VAT attributable or ratable (for those mixed transactions) to sales to government will no longer be deducted to against the output VAT on other regular sales because the standard input VAT will take its place. Said actual input VAT attributable or ratable to government sales shall not be carried over to succeeding months or quarters, not an outright input VAT expense, and not allowed to be claimed for refund and tax credit certificate. Instead, such actual input VAT shall be treated in the books of a VAT-registered taxpayer as follows:
(a) Actual Input VAT > Standard Input VAT = Input VAT Expense
(b) Actual Input VAT < Standard Input VAT = Reduction in cost or expense account
Sample problem:
Actual input VAT directly attributable to government sales is P75,000 from purchase of goods used to government transactions amounted to P625,000. The entry will be:
Dr. - Asset/Expense Account P 625,000.00
Dr. - Input VAT - Actual 75,000.00
Cr. - Cash/Accounts Payable P 700,000.00
To record purchase of goods for government transactions.
The closing entry to record the actual input VAT against standard input VAT is as follow:
Dr. - Creditable Input VAT - Standard P 70,000.00
Dr. - Input VAT Expense 5,000.00
Cr. - Input VAT - Actual P 75,000.00
To record input VAT expense related to actual input VAT.
The closing entry to record offsetting of output tax and input tax is as follow:
Dr. - Output VAT P 120,000.00
Cr. - Input VAT - Standard P 70,000.00
Cr. - VAT Payable 50,000.00
To record offsetting of output tax against standard input tax attributable to government transactions.
The entry to record payment of VAT payable is:
Dr. - VAT Payable P 50,000.00
Cr. - Creditable Withholding VAT P 50,000.00
This is based on the entry upon collection of cash and BIR form 2306 as follows:
Dr. - Cash P 1,070,000.00
Dr. - Creditable Withholding VAT 50,000.00
Cr. - Accounts Receivable P 1,120,000.00
Another problem:
If actual input tax is P60,000 only. The entry to record the difference between actual and standard input tax will be:
Dr. - Creditable Input VAT - Standard P 70,000.00
Cr. - Input VAT - Actual P 60,000.00
Cr. - Cost of Sale/ Input VAT Expense 10,000.00
The difference of P10,000.00 is considered as "other income" that may be presented as a reduction to Cost of Sales Account or credit to Input VAT Expense. Same accounting entries will be made on the following entries to record offsetting of output VAT and standard input VAT.
Mam, can you help me fill-up my 2550Q?
ReplyDeletegood article that should stimulate the thinking.
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Thank you for this :)
ReplyDeleteHi gud pm
ReplyDeleteCan you teach me on how to account sales to government with this problem .A has income to gov't 10000 less .05 vat 446.43, less .02 tax 178.57 net collection 9,375.00 ...how to make 2550M for this income? hope you answer me tanx.
very clear illustration and explanation...thanks.
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ReplyDeletethanks for this article. can you help me how to compute the Input tax directly attributable to sale to government and Amount of Input Tax not directly attributable?
ReplyDeleteThank you so much
Thank you for this article. Can I ask for help, what will be the amount to entry in the OR to be given to the procuring entity. Is it the 1,000,000 or the 1,120,000 based from your example.
ReplyDeleteVery informative. Thank you.
ReplyDeleteHow to compute the input vat for government if purchases is mixed which is for the government and not for the government to
ReplyDeleteCan you help me fill up in 2550M
ReplyDeleteYung 7% standard input vat po ba ay pwede iless sa other ouput vat. Halimbawa po sa sales to the public. Thank you po.
ReplyDeleteWHERE'S THE SAMPLE FOR FILLING-OUT VAT RETURNS?
ReplyDelete