The Difference Between VAT and Non-VAT

Know the difference between VAT and Non-VAT and the forms that you might need to be tax compliant.

The definition of Value-Added Tax and Percentage Tax.
A list of things you need to know as a taxpayer if you are VAT or Non-VAT registered.
A list of possible forms you need to submit.

According to the BIR, Value-Added Tax is a form of sales tax. A VAT is a tax on consumption imposed on the sale, barter, exchange, or lease of goods, properties, and services in the Philippines. This indirect tax may be passed on to the buyer, transferee or lessee of the goods, properties, or services. While Percentage Tax which is also known as Non-VAT Tax is a business tax imposed on persons, entities, or transactions specified under Sections 116 to 127 of the National Internal Revenue Code of 1997 (also known as Tax Code).

Here’s what you need to know:

	VAT	Non-VAT
Taxpayer	Any person or entity that exceeds PHP 3 Million of Gross Sales or Receipts	Any person or entity that does not exceed PHP 3 Million of Gross Sales and Receipts
Tax Rate	12% VAT Payable (Output Tax less Input Tax)	3% of the Gross Sales/Revenue

What type of business structure?

The choice is up to you. Professionals and sole-proprietors have the option to pick between the two (VAT or Non-VAT). However, if your gross sales exceed PHP 3 million, you are required by the Bureau to opt for VAT. Still, confused about which to opt for? Ask your district’s BIR Regional District Office (RDO).

To help you decide which best structure you should choose, compute your taxes under VAT and Non-VAT and pick the less tax amount.

List of possible forms to file:

Form	Name	VAT	Non-VAT
1601C	Withholding Tax on Compensation	✓	✓
0619F	Monthly Remittance Form for Final Income Taxes Withheld	✓	✓
0619E	Monthly Remittance Form of Creditable Income Taxes Withheld (Expanded)	✓	✓
2550M	Monthly Value-Added Tax Declaration	✓	✗
2550Q	Quarterly Value-Added Tax Return	✓	✗
2551Q	Quarterly Percentage Tax Return	✗	✓
1701Q	Quarterly Income Tax Return For Self-Employed Individuals, Estates and Trusts	✓	✓
1702Q	Quarterly Income Tax Return (For Corporations and Partnerships)	✓	✓
1601EQ	Quarterly Remittance of Creditable Income Tax Withheld	✓	✓
1601FQ	Quarterly Remittance Return of Final Income Taxes Withheld,	✓	✓
1604C	Annual Information Return of Income Taxes Withheld on Compensation	✓	✓
1604E	Annual Information Return of Creditable Income Taxes Withheld	✓	✓
1604F	Annual Information Return of Income Payments Subjected to Final Withholding Taxes	✓	✓