Features

What is Value Added Tax (VAT)?

March 20, 2018

Value-added Tax (VAT) is an indirect tax to be paid by the consumer of the product and/or service. Hence, it is important to know how VAT works.

 

To explain this, let me illustrate:

 

ABC Store buys its apples from its supplier, XYZ Corporation. The cost of the apple is PhP 100.00 (VAT Inclusive). Mr. Smith now buys an apple from ABC Store at PhP 120.00 (VAT Inclusive). Who pays for the VAT?

 

Mr. Smith ultimately pays for the VAT in this transaction, but it is XYZ Corporation and ABC Store who will pay for the VAT and remit it to the BIR.

 

XYZ Corporation will pay PhP 10.71 of VAT, while ABC Store pays for PhP 12.86 of VTA.

 

Now that’s unfair for ABC store, no it’s not. ABC Store has Input VAT in this transaction in the amount of PhP 10.71 that it may offset to the Output VAT in the amount of PhP 12.86 that it is required to pay. Hence, ABC Store should only pay PhP 2.15 of VAT.

 

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