Accounting for VAT on Sales to Government in the Philippines

In this article, let us share sample accounting journal entries related to final value added tax on sales to government in the Philippines. Let us use the sample data on sales to government and let us make some modifications as we go along to illustrate other rules. We disregarded the application of withholding tax on income payments to simplify illustrations and journal entries.

For the month of September 2012, A Corp. sold P1,000,000 worth of goods plus 12% VAT or P120,000 to Government Agency (GA). It likewise sold P2,000,000 plus 12% VAT or P240,000 to private buyers. Total purchases of goods and services of  A Corp. from VAT-registered sellers totaled P1,500,000 plus 12% VAT or P180,000. Of such purchases, P500,000 plus 12% VAT or P60,000.00 is used in sales to government, P500,000 plus 12% VAT or P60,000.00 is used for sales to private buyers, and the other P500,000 plus 12% VAT or P60,000.00 is a common purchase.

Journal entry on the purchase with VAT

• Debit: Purchases                                              P1,500,000.00
• Debit: Input VAT                                              P   180,000.00
• Credit: Accounts Payable or Cash              P1,680,000.00

Journal entry on sales to government

• Debit: Accounts Receivable – GA              P1,120,000.00
• Credit: Output VAT – GA                                    120,000.00
• Credit: Sales                                                          1,000,000.00

Journal entry on sales to private buyers

• Debit: Accounts Receivable – private      P2,240,000.00
• Credit: Output VAT – private                             240,000.00
• Credit: Sales                                                          2,000,000.00

Journal entry on collection from GA

• Debit: Cash                                                         P1,070,000.00
• Debit: Final VAT (5% of P1M)                             50,000.00
• Credit: Accounts Receivable – GA             P1,120,000.00

Journal entry on collection from private buyers

• Debit: Cash                                                         P2,240,000.00
• Credit: Accounts Receivable – private  P2,240,000.00

Apportionment of input VAT

Input VAT of P60,000 for sales to private buyers is creditable against output VAT on sales to private, while P60,000 input VAT on common purchases should be allocated between sales to private buyers – P40,000.00 (P2M/P3M multiply by P60,000) and sales to government – P20,000.00 (P1M/P3M multiply by P60,000). Total input VAT on sales to government of P80,000 (P60,000 identified plus P20,000 apportioned) is closed to standard input VAT with the corresponding treatment of the difference.  If no common purchase, no need to apportion.

• Debit: Input VAT – GA                                   P80,000.00
• Debit: Input VAT – private                           P100,000.00
• Credit: Input VAT                                             P180,000.00

Accounting entry on VAT payable

• Debit:  Output VAT-private                          P240,000.00
• Credit: Input VAT-private                             P100,000.00
• Credit: VAT Due and Payable                      P140,000.00

Closing accounting entries on sales to government in the Philippines

• Debit:    Output VAT – GA                             P120,000
• Debit:    Input VAT Expense – GA              P10,000
• Credit: Final VAT (5%)                                    P50,000
• Credit: Input VAT – GA                                  P80,000

The total input VAT on sales to government of P80,000 exceeded the standard input VAT of P70,000 (P120,000 output VAT less P50,000 final withholding VAT) by P10,000.00 and is treated as input VAT expense or charged to cost. If in the sample computations of final VAT on sales to government above the total input VAT on sales to government is only P60,000, and not P80,000, then, here is the sample entry.

• Debit:    Output VAT – GA                             P120,000
• Credit:  Other income                                    P10,000
• Credit: Final VAT (5%)                                    P50,000
• Credit: Input VAT – GA                                  P60,000

Under Section 4.114-2 of Revenue Regulations No. 16-2005, as amended by Revenue Regulations No. 4-2007, if the actual input VAT attributable to sale to government is less than 7% (standard input VAT) of gross payment,  the difference must be closed to expense or cost. This would mean a reduction of expense or cost, or in simple application, other income.

Finally, we intended not to include the application for withholding tax on the above in order to simplify and concentrate on final value added tax on sales to government in the Philippines. Should you wish to learn more about withholding tax implications, please read more on…Features of Withholding Taxes in the Philippines, and Accounting for Withholding Taxes in the Philippines.

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Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may please send mail at in**@ta************.org.)

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