Output VAT

Output VAT is the 12% tax that a VAT-registered business charges on top of its selling price and collects from customers. It is called "output" because it arises from the business's output — the goods or services it produces and sells. The business holds this collected VAT temporarily before remitting it to the BIR (net of input VAT credits).

Output VAT must be clearly shown on every VAT Sales Invoice or Official Receipt. The invoice must separately state the base amount (exclusive of VAT) and the VAT amount — or indicate the VAT-inclusive total with the breakdown. "VAT-inclusive" pricing must be disclosed so customers understand what they are paying.

In practice: Luzon Printing Press charges ₱200,000 for a batch of brochures. The VAT-inclusive price = ₱200,000 × 1.12 = ₱224,000. The output VAT is ₱24,000. Luzon Printing collects ₱224,000 from the client. The ₱24,000 output VAT is reported in the monthly 2550M return and remitted to the BIR (after offsetting any input VAT from ink and paper purchases).

Why it matters: Output VAT is not your money — it belongs to the BIR from the moment you collect it. Businesses that use VAT collections for operating expenses face a severe cash crunch when payment is due. Segregating VAT in your accounting system from day one prevents this common trap.

If a sale is returned or cancelled, you can issue a Credit Memo to reverse the output VAT — reducing your VAT payable for that period. Keep all documentation of returns and credit memos as BIR auditors scrutinize output VAT reductions.