How to Avoid Misappropriating the VAT with These Compliance Guidelines

September 1, 2020

How to Avoid Misappropriating the VAT with These Compliance Guidelines

How can you avoid VAT misappropriation?

  1. Register Your Accounting Books
  2. Issue an Official Receipt
  3. File Your Vat Returns

As a consumer, you might be all-too-familiar with the VAT, or value-added tax. The standard rate of the VAT in the Philippines stands at 12% and is typically imposed on top of the actual value of a merchandise of service that is provided by a business. On the other side of the coin, businesses hold the responsibility of filing their VAT returns. They make sure that they do everything there is to know on how to avoid misappropriating the VAT. 

Businesses who have failed to remit their VAT may find themselves in trouble with the law. In particular, the outstanding balance will be subjected to a 25% surcharge — a staggering amount, especially if they’ve been found to be willfully negligent in the act. Tax evasion is one nasty thing and any business is certainly obliged to be on the right side of the law. Read on to learn more.

Register Your Accounting Books

A businessman registering his accounting books

Registering your accounting books, or books of accounts is the first compliance guideline that you need to keep in mind. Simply put, a book of accounts is a compilation of financial records that contain all information regarding a business’ financial transactions. Currently, the Bureau of Internal Revenue accepts three different kinds of books of accounts, namely manual books of accounts, computerized, and loose-leaf.

If you’re a newly-registered business, you need to fill out a BIR Form 1905 — Application for Registration Information Update/Correction/Cancellation. However, if you’re submitting your books in general you’ll need to submit the same form on top of the following:

  •  Photocopy of the first page of your previously-registered books
  • Newly-bound journals and/or ledgers.
  • The current year’s Proof of Payment Annual Registration Fee (Form 0605).

Issue an Official Receipt

People issuing an official receipt

Another simple VAT compliance guideline that you need to adhere to, if you’re a business owner, is that you should always dutifully issue an Official Receipt after every transaction made with a customer. Apart from being an act of good faith to the consumer, the OR also paves the way for you to reduce your taxable income.

You should know that a business’s taxable income denotes how much tax they have to pay. A lower taxable income equates to a lower remittance, while a higher value means a higher tax to be paid

Before a business is able to print ORs, they should ensure that they have been granted the authority by the BIR to print at an accredited printing press. The manner of displaying the VAT percentage is also important — you should make sure that it’s placed separately from all the other expenses shown in the receipt. Failure to do so will result in a Php 1,000 penalty for each invoice, without exceeding Php 50,000 annually. 

File Your Vat Returns

Wooden blocks that spell VAT on top of a calculator

One cannot stress enough the importance of filing your business’s VAT returns at a responsible and timely manner. After all, this forms the basis for your business’s taxable income.

Your bookkeeper should be able to help you stay on top of the many requirements, changes, memorandums, and circulars that are being distributed by the BIR — part of this is the need to submit the VAT returns, or remittances. 

For your Monthly VAT Declarations, you need to be able to fill out BIR Form 2550M. Once you’ve secured all the necessary documents like the following:

  • Certificate of Creditable VAT Withheld at Source
  • Tax Debit Memo
  • Tax Credit Certificate

You would need to submit your VAT declaration alongside the documents mentioned above, to any Authorized Agent Bank that is under the jurisdiction of the Revenue District Office, or Large Taxpayers DIstrict Office — where the business is registered. 

Other conditions may apply, but these are fortunately made available on the BIR’s website for your perusal. 

Key Takeaway

If you’re a business owner, you should be able to understand how to avoid misappropriating the VAT. It’s all about complying with the guidelines that have been set forth by the BIR, as well as staying on top of your deadlines and requirements. 

Always keep it a point to make yourself aware of your responsibilities as a taxpayer. The tips above can hopefully let you stay on the right track when it comes to any financially-related endeavor.