- The video is the third in a series about business taxation.
- It discusses the four characteristics of value-added tax (VAT).
- The characteristics are: VAT is an indirect tax, it is consumption-based, it is imposed on the value added in each stage of production and distribution, and it is collected through the tax credit method or invoice method.
- The video explains that VAT and other business taxes are indirect taxes, meaning they can be shifted to buyers or consumers.
- It also explains that VAT is consumption-based, with the end user of consumer goods or services ultimately shouldering the tax liability.

- The video discusses the characteristics of VAT (Value Added Tax)
- VAT is not remitted by wholesalers or retailers as they are not consumers
- The burden of VAT falls on the final consumer or end user
- VAT is a consumption-based tax and is paid by the buyer
- VAT is an indirect tax that is passed on by the seller
- VAT is imposed at every stage of production and distribution
- VAT is collected through the credit invoice method, where the amount paid is deducted from the tax due.

- Procter & Gamble sold soap to a wholesaler for 1 million, plus VAT of 12%.
- The wholesaler sold the soap to retailers for 1.2 million, plus VAT of 12%.
- The output VAT for the wholesaler was 144.
- The wholesaler will credit the output VAT given by Procter & Gamble, which was 120.
- The difference of 24,000 will be remitted to the BIR as the remaining VAT.
- This is the fourth characteristic of value-added tax.

The video explains the four characteristics of value-added tax (VAT), including that it is an indirect tax, consumption-based, imposed at each stage of production and distribution, and collected through the tax credit or invoice method. It also discusses how VAT is passed on to the final consumer and provides an example of how VAT is calculated and remitted.

So this is the third of the 4 videos pertaining to introduction to business taxation.

So in this particular video, I will be discussing to you the 4 characteristics of value-added tax.

Okay, so this is a bit shorter compared to the first 2 videos that I already shared in my channel.

So value-added tax are characterized by the following.

Number 3, it is imposed on the value added in each stage of production and distribution process.

And the last 1, it is collected through the tax credit method or invoice method.

So these are actually the characteristics that I'm going to discuss in this particular video.

So there may be other characteristics of VAT, nonetheless those may no longer be significant.

So, this is what we will share in this video.

In fact, not only VAT, but business taxes.

So, because business taxes are indirect tax, so naturally VAT is an indirect tax.

So, when we say indirect tax, it is a tax that can be shifted to the buyers or consumers.

So meaning to say, the liable can avoid that tax because instead of him paying the tax, he will actually send it to the buyer or consumer.

So, in our examples, in our previous videos, since we used 7-11 in our example, I hope 7-11 will pay us for the advertisement, right?

So, what Sir Tabag did was he went to 7-eleven.

We can't match the 1 who posted on Ateneo, right?

So, Sir Tabagnyo went to 7-eleven, bought a sunmig light, so he can do something.

So, you're the example of 7-eleven, so you're selling to me in the ordinary course of trade so as seller you are liable to VAT but your payment to BIR it won't come from your pocket, you will transfer it to me.

For example, the value of the sunbeam light that I am buying for you is, for example, 100, so that it can

Instead of paying 711 for 100, I will pay 112.

Because the 12% VAT that 711 should pay, he gave it to me.

So the seller will not actually shoulder the VAT.

And I'll repeat, all business taxes are indirect.

In our tax code, the only indirect is business taxes.

We discussed 3 business taxes in our second video, right?

So those are the indirect taxes under the NIRC.

Because, for example, income tax, I can't pass the tax on my income to others.

Because since I was the 1 who derived the income, I will be the 1 to be subjected to income tax.

In our first video, you donated to your girlfriend, right?

You donated a bag worth half a million, right?

You can't pass it because you're the donor, so you will be the 1 to be liable to the donor's tax.

Sir, the donor can agree with the donor that the donor's tax is only for the donor to pay.

That's fine but that will not be binding to BIR.

That's just valid between the donor and the donnie.

So, the moment the donnie doesn't fulfill, the donor will be the 1 to pay.

That's why it can't be a direct tax, it can't be passed.

And even if the donor pays the tax, when the donor files the tax return, the return is still a donor's tax return, not a donor's tax return.

And all other taxes except business taxes.

That's why this first characteristic that it is an indirect tax is not applicable only to VAT, it will also apply to other business taxes.

When we say consumption-based, the 1 who will really shoulder the burden is the consumer.

So let me illustrate the consumption base.

So it is the end user of consumer goods or services which ultimately shoulders the tax liability.

So for example, go to this illustration, Let's change the name because I used an example earlier, right?

Supplied raw materials to San Miguel Corporation instead of PNG.

San Miguel Corporation for manufacturing San Miguelite.

Then of course, San Miguel Corporation sells it to wholesalers or distributors.

Then ultimately to Tabag, the end user earlier.

So, it means that consumption-based, for example, You are PNG, or San Miguel Corporation.

When you sell to a wholesaler, you are liable to VAT.

You are San Miguel Corp or PNG in our slide.

So, the moment that you sold your product to the wholesaler, you will be liable to VAT.

But actually, the VAT you will be remitting from the BIR will not come from your own pocket.

It will come from the pocket of the wholesaler that you sold.

But, sir, Procter & Gamble, San Miguel Corporation, also has VAT that was entrusted to them by the supplier, the Pinoy Raw Materials Corp.

Before I started manufacturing, I bought my raw materials.

So, the supplier of raw materials, VAT, has a loan on me.

And when I sold this to my wholesaler, I also have a loan on VAT to my wholesaler.

But what I'm going to remit to BIR is this, for example, I paid Php 200 to the wholesaler.

The Php I paid to the supplier of raw materials is Php 100.

Php 100 only because I paid Php 200 to the wholesaler, less Php 100 that I paid to the supplier of raw materials so I really didn't pay a single baht from my pocket because I'm not a consumer so there's no baht that came from the market if you're not a consumer.

Procter & Gamble or San Miguel Corporation to a wholesaler of 200 Watt, right?

So, the wholesaler will sell to the retailer, right?

For example, he sold to the retailer 300 Watt, in pertaining to Watt.

So, the Watt he sold to the retailer is 300.

So, the retailer will now remit VAT to BIR.

300 that he gave to the retailer, less 200 that he gave to Procter & Gamble or San Miguel Corporation lent him.

So, how much did Wholesaler remit to BIR that came from Wholesaler's money?

Nothing, because wholesaler is not a consumer the same goes for the retailer for example, the retailer has a 300W spent from the wholesaler, right?

He's selling it to Tabag I'm an end user, he's selling to me now.

P400 invested in me, less P300 invested in him by the wholesaler.

So, the question is, how much was the VAT that was borrowed from the retailer?

And all of it came from me, they paid for all of it.

That's why it's VAT is consumption based.

The burden will be on the consumer or end user.

It will be born by the final consumer or end user.

That's why it's true that VAT is heavy for buyers.

But if you're the buyer, you just have to choose what you want to buy.

But of course, we can't do anything if we're really going to buy a necessity.

So even if it's a necessity, sir, there's VAT.

Of course, as long as it's not on the list of VAT exemptions.

So, it's also related to number 1, right?

It is indirect tax because all VATs were just passed.

But take note, the liable is still the seller.

The burden of paying the tax was passed to the buyer.

So I hope the first 2 characteristics are clear.

Okay, let's proceed to the third characteristic.

Okay, so third characteristic of VAT or business tax, it is imposed on the value added in its stage of production and distribution process.

There is VAT in every stage of production and distribution process.

So, before I bought the Sunmig Light, because in our first illustration, I was so bored, I bought a Sunmig Light.

You thought I was going to drink it, right?

There's a lot of alcohol but it's all for my ex, not for me.

In our example earlier, I bought San Miguelite at 7-Eleven.

So, before it came to me, of course it started with raw materials first, then San Miguel Corporation produced it, then it was sold the distributor or wholesaler then to the retailer, then to me so every states of production states of distribution has VAT From raw materials, it has a cost there, it adds VAT to its cost.

It was transferred to San Miguel Corporation, San Miguel Corporation had an additional cost, so it adds VAT again.

It was transferred to wholesaler, it adds VAT again.

In the wholesaler or distributor-retailer, there's VAT.

In the TABAG, it's stopped there because in every states of production and distribution so you know it is imposed on the value added in each stage of production and distribution process so just to reiterate in a motor illustration not any anon et on a massive Procter & Gamble so Limbawa the public is 1 of alcohol see Procter & Gamble So,

just to reiterate, look at this illustration.

Of course, before Procter & Gamble manufactured soap, they bought raw materials from RM Corp.

He will transfer VAT to Procter & Gamble.

From Procter & Gamble, he will transfer VAT to Wholesaler.

From Wholesaler, he'll transfer VAT to Retailer.

In every stage of production and distribution process.

I bought 2 at 7-11, sunmik lights and soap.

From me, nothing because I'm not part of the distribution process.

I am the final consumer, end user, so I shoulder all of that.

I shoulder, the end user shoulder all of that from the beginning until you.

It is imposed on the value added in each stage of production and distribution process.

Okay, Then the second 1 earlier, consumption-based.

Third, in every stage of production and distribution, interrelated, right?

Let's proceed to number 4, the last item.

So, let's go to the last topic in this particular video.

So, this video is shorter, obviously, than the first 2 I'm sorry for my lips, my ex kissed me.

It is collected through credit invoice method.

So, look, I'm Proctor and Gamble in the problem.

When I sold to Wholesaler, I transferred VAT to him.

For example, I sold to Wholesaler, I transferred VAT to Wholesaler of 200 pesos.

The VAT I was charged by raw materials corp.

So, the question is, how much will I use from BIR?

The excess of my output VAT, that's what I lent to Wholesaler, 200 pesos.

Over my input VAT, the VAT that was given to me by Raw Materials Corporation so 200 I gave to Full Sailor less 100 I gave to me I am Proctor and Gamble less 100 I gave to me by Raw Materials Corp So I will be remitting only 100 pesos compared to what is called credit invoice method.

Tax credit because it is a deduction from the tax due so the So, credit invoice method, you will only pay the amount you have deposited in the VAT that you have deposited.

Procter and Gamble, on January 10, sold soap.

This is our example, soap earlier, right?

Let's not put their names on the soap they're already making a fuss so, Procter & Gamble sold soap to a wholesaler selling price 1 million of course, there are many soaps that's why wholesalers are selling 1 million is the selling price so how much will the wholesaler pay to Procter & Gamble?

Natural 1 million 120 because 1 million plus VAT is 12% so 1 million 120 to Procter & Gamble, natural 1,120,000 because 1,000,000 plus VAT of 12% so 1,120,000 is the VAT that Procter & Gamble charged to Wholesaler.

So how much VAT did it give to retailers?

So if I'm a wholesaler, I sell to a retailer of 1.2 plus VAT, so he will pay me 1,344,000.

Okay, that's why my output Watt as supplier is 144.

I will credit, because of the credit invoice, I will credit the output VAT that was given to me by Procter and Gamble.

How much did Procter and Gamble give me as VAT?

120 based on the 1 million selling price.

Because, of course, before you can credit at that amount, there must be proof.

So, if that is sale of goods, then invoice.

So, 144 that I lent to the retailer less 120 that I lent to Procter & Gamble has a difference of 24,000.

That's the only thing I will remit to BIR.

Okay, that's actually the fourth characteristic of value-added tax.

And actually, that's the end of our third video so again thank you very much for watching thank you for subscribing Stay safe, God bless you all.


Speaker 0: Hi guys, welcome back to my channel. So this is the third of the 4 videos pertaining to introduction to business taxation. So in this particular video, I will be discussing to you the 4 characteristics of value-added tax. Okay, so this is a bit shorter compared to the first 2 videos that I already shared in my channel. Okay, so let's proceed.

So value-added tax are characterized by the following. Number 1, it is an indirect tax. Number 2, it is consumption based. Number 3, it is imposed on the value added in each stage of production and distribution process. And the last 1, it is collected through the tax credit method or invoice method.

So these are actually the characteristics that I'm going to discuss in this particular video. So there may be other characteristics of VAT, nonetheless those may no longer be significant. So, this is what we will share in this video. So, let's start. Number 1, VAT is indirect tax.

In fact, not only VAT, but business taxes. Business taxes are indirect tax. So, because business taxes are indirect tax, so naturally VAT is an indirect tax. So, when we say indirect tax, it is a tax that can be shifted to the buyers or consumers. So meaning to say, the liable can avoid that tax because instead of him paying the tax, he will actually send it to the buyer or consumer.

Okay? So, in our examples, in our previous videos, since we used 7-11 in our example, I hope 7-11 will pay us for the advertisement, right? Since we used 7-11, let's use that. So, for example, 7-11 is a seller. We're a bit bored.

So, what Sir Tabag did was he went to 7-eleven. That's all we can do. We can't match the 1 who posted on Ateneo, right? So, Sir Tabagnyo went to 7-eleven, bought a sunmig light, so he can do something. So, you're the example of 7-eleven, so you're selling to me in the ordinary course of trade so as seller you are liable to VAT but your payment to BIR it won't come from your pocket, you will transfer it to me.

For example, the value of the sunbeam light that I am buying for you is, for example, 100, so that it can

Speaker 1: compute faster. For example, 100 to make

Speaker 0: it easier to compute. Instead of paying 711 for 100, I will pay 112. Because the 12% VAT that 711 should pay, he gave it to me. So that's what indirect tax means. So the seller will not actually shoulder the VAT.

The buyer will shoulder the VAT. So, that's what indirect tax means. And I'll repeat, all business taxes are indirect. In our tax code, the only indirect is business taxes. We discussed 3 business taxes in our second video, right?

The VAT, percentage tax, and excise tax. So those are the indirect taxes under the NIRC. Because, for example, income tax, I can't pass the tax on my income to others. Okay? Because since I was the 1 who derived the income, I will be the 1 to be subjected to income tax.

You donated to your girlfriend, right? In our first video, you donated to your girlfriend, right? You donated a bag worth half a million, right? It's subject to donor stacks. You can't pass it because you're the donor, so you will be the 1 to be liable to the donor's tax.

That's why it's called donor's tax. Sir, the donor can agree with the donor that the donor's tax is only for the donor to pay. That's fine but that will not be binding to BIR. That's just valid between the donor and the donnie. So, the moment the donnie doesn't fulfill, the donor will be the 1 to pay.

That's why it can't be a direct tax, it can't be passed. And even if the donor pays the tax, when the donor files the tax return, the return is still a donor's tax return, not a donor's tax return. We don't have that form in the BIR. Estate tax is direct tax. And all other taxes except business taxes.

Okay? That's why this first characteristic that it is an indirect tax is not applicable only to VAT, it will also apply to other business taxes. Okay? Next number 2, it is consumption-based. When we say consumption-based, the 1 who will really shoulder the burden is the consumer.

So let me illustrate the consumption base. So it is the end user of consumer goods or services which ultimately shoulders the tax liability. So for example, go to this illustration, Let's change the name because I used an example earlier, right? San Miguelite. I bought it from 7-11.

Imagine, Pinoy Raw Materials Corp. Supplied raw materials to San Miguel Corporation instead of PNG. San Miguel Corporation for manufacturing San Miguelite. Then of course, San Miguel Corporation sells it to wholesalers or distributors. Wholesalers sell it to retailers.

Then ultimately to Tabag, the end user earlier. So, it means that consumption-based, for example, You are PNG, or San Miguel Corporation. When you sell to a wholesaler, you are liable to VAT. You are San Miguel Corp or PNG in our slide. So, the moment that you sold your product to the wholesaler, you will be liable to VAT.

But actually, the VAT you will be remitting from the BIR will not come from your own pocket. It will come from the pocket of the wholesaler that you sold. But, sir, Procter & Gamble, San Miguel Corporation, also has VAT that was entrusted to them by the supplier, the Pinoy Raw Materials Corp. For example, I'm from San Miguel Corp. Before I started manufacturing, I bought my raw materials.

So, the supplier of raw materials, VAT, has a loan on me. And when I sold this to my wholesaler, I also have a loan on VAT to my wholesaler. But what I'm going to remit to BIR is this, for example, I paid Php 200 to the wholesaler. The Php I paid to the supplier of raw materials is Php 100. So how much am I remitting to BIR?

Php 100 only because I paid Php 200 to the wholesaler, less Php 100 that I paid to the supplier of raw materials so I really didn't pay a single baht from my pocket because I'm not a consumer so there's no baht that came from the market if you're not a consumer. Let's go to the wholesaler. The wholesaler has a trust, right? Procter & Gamble or San Miguel Corporation to a wholesaler of 200 Watt, right? Remember?

So, the wholesaler will sell to the retailer, right? For example, he sold to the retailer 300 Watt, in pertaining to Watt. So, the Watt he sold to the retailer is 300. So, the retailer will now remit VAT to BIR. How much will he remit?

Just 100 again. 300 that he gave to the retailer, less 200 that he gave to Procter & Gamble or San Miguel Corporation lent him. So, how much did Wholesaler remit to BIR that came from Wholesaler's money? Nothing, because wholesaler is not a consumer the same goes for the retailer for example, the retailer has a 300W spent from the wholesaler, right? He's selling it to Tabag I'm an end user, he's selling to me now.

He invested P400 in me. How much will the retailer remit to BIR? P400 invested in me, less P300 invested in him by the wholesaler. Do you remember? So, the question is, how much was the VAT that was borrowed from the retailer?

None. None. Because he's not a consumer. Here I am, Enrico Tabag. I'm the 1 who bought this product.

How much did the retailer VAT pay me? 400. So how much of my money was paid by VAT? 400. All of it was paid by me.

That's why VAT is consumption-based.

Speaker 1: And all of it came from me, they paid for all of it.

Speaker 0: That's why it's VAT is consumption based. The burden will be on the consumer or end user. It will be born by the final consumer or end user. That's why it's true that VAT is heavy for buyers. That's true.

But if you're the buyer, you just have to choose what you want to buy. But of course, we can't do anything if we're really going to buy a necessity. So even if it's a necessity, sir, there's VAT. Of course, as long as it's not on the list of VAT exemptions. Okay?

So that's the number 2 characteristic. It is consumption-based. So, it's also related to number 1, right? It is indirect tax because all VATs were just passed. All VATs were just passed by the seller.

Go back to your number 1. See? I just passed it all. But take note, the liable is still the seller. The burden of paying the tax was passed to the buyer.

Okay? So I hope the first 2 characteristics are clear. It is an indirect tax. It is consumption-based. Okay, let's proceed to the third characteristic.

Okay, so third characteristic of VAT or business tax, it is imposed on the value added in its stage of production and distribution process. Let's simplify it. It means there is VAT in every stage. There is VAT in every stage of production and distribution process. So, before I bought the Sunmig Light, because in our first illustration, I was so bored, I bought a Sunmig Light.

You thought I was going to drink it, right? I don't drink much, my ex drinks a lot. She's a good drinker. I'm not a drinker, my ex is a drinker. He's a good drinker.

Here in the mansion, just kidding. There's a lot of alcohol but it's all for my ex, not for me. So I'll go back. In our example earlier, I bought San Miguelite at 7-Eleven. 7-Eleven is getting cheaper.

How much did you owe me? So, before it came to me, of course it started with raw materials first, then San Miguel Corporation produced it, then it was sold the distributor or wholesaler then to the retailer, then to me so every states of production states of distribution has VAT From raw materials, it has a cost there, it adds VAT to its cost. It was transferred to San Miguel Corporation, San Miguel Corporation had an additional cost, so it adds VAT again. It was transferred to wholesaler, it adds VAT again. So it's added

Speaker 1: by VAT. It's now in the wholesaler, so

Speaker 0: VAT is added again. In the wholesaler or distributor-retailer, there's VAT. In the TABAG, it's stopped there because in every states of production and distribution so you know it is imposed on the value added in each stage of production and distribution process so just to reiterate in a motor illustration not any anon et on a massive Procter & Gamble so Limbawa the public is 1 of alcohol see Procter & Gamble So,

Speaker 1: just to reiterate, look at this illustration. This is Proctor and Gamble. For example, does Proctor

Speaker 0: and Gamble produce alcohol? They both use it. Soap, soap. Let's focus on alcohol. You don't just buy soap.

Soap. Of course, before Procter & Gamble manufactured soap, they bought raw materials from RM Corp. Raw Materials Corp. I can't think of a name. Raw Materials Corp.

Of course, from Raw Materials Corp. Okay? He will transfer VAT to Procter & Gamble. From Procter & Gamble, he will transfer VAT to Wholesaler. From Wholesaler, he'll transfer VAT to Retailer.

In every stage of production and distribution process. Then Retailer will transfer VAT to me. He bought soap. I bought 2 at 7-11, sunmik lights and soap. From me, nothing because I'm not part of the distribution process.

So, for me, it will end. I am the final consumer, end user, so I shoulder all of that. That's how it is. I shoulder, the end user shoulder all of that from the beginning until you. Okay?

So, I hope it's clear. It is imposed on the value added in each stage of production and distribution process. These are interrelated, so indirect. Okay, Then the second 1 earlier, consumption-based. Third, in every stage of production and distribution, interrelated, right?

Okay, look at this illustration. Oh, that's the third 1. Let's proceed to number 4, the last item. So, let's go to the last topic in this particular video. So, this video is shorter, obviously, than the first 2 I'm sorry for my lips, my ex kissed me.

Why are you girls like that? Kissing? You can't wait, right? It's tempting. You can't wait.

Okay, fourth. Fourth characteristic. It is collected through credit invoice method. Actually, we've already discussed that. So, look, I'm Proctor and Gamble in the problem.

When I sold to Wholesaler, I transferred VAT to him. For example, I sold to Wholesaler, I transferred VAT to Wholesaler of 200 pesos. But, I also bought raw materials corp. The VAT I was charged by raw materials corp. Is 100 pesos.

So, the question is, how much will I use from BIR? The excess of my output VAT, that's what I lent to Wholesaler, 200 pesos. Over my input VAT, the VAT that was given to me by Raw Materials Corporation so 200 I gave to Full Sailor less 100 I gave to me I am Proctor and Gamble less 100 I gave to me by Raw Materials Corp So I will be remitting only 100 pesos compared to what is called credit invoice method. That's why VAT is tax credit. Tax credit.

Tax credit because it is a deduction from the tax due so the So, credit invoice method, you will only pay the amount you have deposited in the VAT that you have deposited. For example, let's look at this. Procter and Gamble, on January 10, sold soap. This is our example, soap earlier, right? Soap to Wholesaler.

Let's not put their names on the soap they're already making a fuss so, Procter & Gamble sold soap to a wholesaler selling price 1 million of course, there are many soaps that's why wholesalers are selling 1 million is the selling price so how much will the wholesaler pay to Procter & Gamble? Natural 1 million 120 because 1 million plus VAT is 12% so 1 million 120 to Procter & Gamble, natural 1,120,000 because 1,000,000 plus VAT of 12% so 1,120,000 is the VAT that Procter & Gamble charged to Wholesaler. Wholesaler sold those to its retailers. It sold 1.2 million. So it can earn, right?

1.2. So plus VAT. So how much VAT did it give to retailers? So 1.2 times 12% equals 144. That's your output VAT.

That's the output VAT of Wholesaler. Output VAT is the VAT on sale. Input VAT, VAT on your purchases. So if I'm a wholesaler, I sell to a retailer of 1.2 plus VAT, so he will pay me 1,344,000. Why 1,344,000?

Because 1.2 plus 144 Watt. Okay, that's why my output Watt as supplier is 144. But I will not remit that to the BIR. I will credit, because of the credit invoice, I will credit the output VAT that was given to me by Procter and Gamble. How much did Procter and Gamble give me as VAT?

120 based on the 1 million selling price. Why credit invoice, sir? Because, of course, before you can credit at that amount, there must be proof. Either invoice or receipts. So, if that is sale of goods, then invoice.

So, 144 that I lent to the retailer less 120 that I lent to Procter & Gamble has a difference of 24,000. That's the only thing I will remit to BIR. Okay, that's actually the fourth characteristic of value-added tax. And actually, that's the end of our third video so again thank you very much for watching thank you for subscribing Stay safe, God bless you all.

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Introduction to Business Taxation Episode 3 of 4