12% consumption tax imposed on the sale of goods, services, and importation in the Philippines, applicable to businesses with annual gross receipts exceeding ₱3,000,000.
Value-Added Tax is the Philippines' primary consumption tax. At 12%, it is added to the selling price of goods and services by every VAT-registered business in the supply chain. The final consumer bears the full economic burden, while businesses in the middle act as collectors — remitting the difference between VAT collected from customers (output VAT) and VAT paid to suppliers (input VAT).
Businesses whose gross annual sales or receipts exceed ₱3,000,000 are required to register for VAT. Businesses below this threshold may opt to register voluntarily or remain under the 3% Percentage Tax regime. Once VAT-registered, the business must charge and collect 12% VAT on all applicable transactions and file monthly and quarterly VAT returns.
In practice: Tagumpay Furniture in Pampanga sells a dining set for ₱56,000. Of this, ₱50,000 is the base price and ₱6,000 (12%) is VAT. Tagumpay remits the net VAT to the BIR (output VAT minus input VAT on its wood and materials purchases). The customer pays the full ₱56,000 and ultimately bears the tax cost.
Why it matters: VAT registration changes how you price, invoice, and account for every transaction. Your VAT-registered clients can claim input VAT on what they buy from you — making you a more attractive supplier. But failing to properly account for VAT (collecting it but not remitting it, or claiming input VAT without valid invoices) can result in serious deficiency assessments.
Zero-rated sales (to exporters, PEZA locators, diplomatic missions) and VAT-exempt transactions (certain basic goods, educational services) are different regimes — they are not the same as simply not being VAT-registered.