WHAT'S THE VAT OUTPUT

A company was selling an office unit for P33.6 million.

The documents didn’t say whether the amount was VAT-inclusive or exclusive.

The property’s zonal value is P31 million.

So here’s the question:

💡 What is the correct output VAT payable to the BIR?

Options:

A P3.60 million

B P3.72 million

C P4.03 million

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Before diving into the VAT computation, it helps to know where the answer comes from.

In February 2007, the Bureau of Internal Revenue issued Revenue Regulation No. 4-2007, amending parts of the Consolidated VAT Regulations of 2005 (RR 16-2005).

The key purpose of this regulation was to clarify how VAT should be computed on the sale of real properties—particularly when the declared selling price and the property’s zonal value don’t match.

RR 4-2007 states that for VAT purposes, the gross selling price is whichever is higher of:

1️⃣ the price stated in the sales document (exclusive of VAT), or

2️⃣ the fair market value — usually the BIR’s zonal value or the assessor’s schedule of values.

It also adds an important clarification:

“If the VAT is not billed separately in the document of sale, the selling price shall be deemed inclusive of VAT.”

In simpler terms, VAT is also based on the higher of the selling price or the zonal value.

So how much VAT should the seller pay?

Step 1 — Is P33.6 M VAT-inclusive?

Under RR 4-2007:

“If the VAT is not billed separately in the document of sale, the selling price shall be deemed inclusive of VAT.”

✅ Therefore, P33.6 M already includes VAT.

Step 2 — Extract the VAT-exclusive price

P33.6 M ÷ 1.12 = P30 M

✅ VAT-exclusive selling price = P30 million

Step 3 — Compare with zonal value

RR 4-2007 also provides:

“Gross selling price shall mean the consideration stated in the sales document or the fair market value (zonal), whichever is higher.”

Compare:

Selling price (exclusive of VAT): P30 M

Zonal value: P31 M

✅ Higher value = P31 M → basis for VAT

Step 4 — Compute Output VAT

✅ P31 M × 12% = P3.72 M

✅ Correct Answer: B — P3.72 million

Because when the VAT-exclusive price is lower than the zonal value, the zonal value becomes the VAT base under BIR RR 4-2007.