Take a net price of 10,000 pesos and add 12% VAT. The VAT is 10,000 times 0.12, which is 1,200, so the
gross price a customer pays is 11,200. Now run it the other way. If you are handed a VAT-inclusive total of
11,200 and need to back out the tax, divide by 1.12 to recover the 10,000 net, and the VAT is the 11,200
gross less that net, again 1,200. The key point is that VAT is 12% of the net, not 12% of the gross: inside
an 11,200 gross the tax is 1,200, which is about 10.7% of the total, because the 12% was applied to the
smaller net figure before the tax was added on.
Item
Amount (PHP)
Net price (VAT-exclusive)
₱10,000
VAT at 12%
₱1,200
Gross price (VAT-inclusive)
₱11,200
How it is calculated
Philippine VAT runs at a standard 12% under the National Internal Revenue Code as amended. To add VAT, the
calculator multiplies the net price by 0.12 and adds it on, so the gross equals the net times 1.12. To
extract VAT from a VAT-inclusive amount, it divides the gross by 1.12 to recover the net, then takes the
difference as the tax. The two modes are mirror images, which is why a 10,000 net and an 11,200 gross both
carry exactly 1,200 of VAT. This is the arithmetic on a single transaction, useful for quoting or for
reading a receipt. It is not your VAT liability to the BIR, which is output VAT on your sales less input
VAT on your purchases, filed monthly or quarterly. Businesses under the 3,000,000 peso annual threshold may
instead be non-VAT and pay the 3% percentage tax, so confirm which regime applies before using these
figures for filing.
Frequently asked questions
How do I work out 12% VAT in the Philippines?
To add VAT to a net price, multiply the net amount by 0.12 and add it on, so the gross is the net times 1.12. To extract VAT from a VAT-inclusive price, divide the gross by 1.12 to get the net, then the VAT is the gross less that net. The standard rate is 12% under the NIRC as amended.
What is the VAT registration threshold in the Philippines?
Businesses whose annual gross sales or receipts exceed PHP 3,000,000 are required to register for VAT with the BIR and charge 12% on their taxable transactions. Those below the threshold may register voluntarily or opt to pay the 3% percentage tax instead. The threshold applies per year, so a business approaching that level needs to monitor its cumulative gross closely.
Why is VAT 12% of the net but only about 10.7% of the gross price?
The 12% rate is applied to the net (VAT-exclusive) price before the tax is added on. Once you include the tax in the total, the VAT represents a smaller share of the larger gross figure. On a PHP 10,000 net, the PHP 1,200 VAT is 12% of the net but only about 10.7% of the PHP 11,200 gross. This distinction matters when you need to back out the tax from a VAT-inclusive receipt.
Is Philippine VAT the same for goods and services?
The standard 12% rate applies to both the sale of goods and the performance of services in the Philippines, subject to certain exemptions. Some transactions are zero-rated, including exports and certain sales to special economic zones, meaning VAT is charged at 0% rather than 12%. Exempt sales, such as certain medical and educational services, fall outside the VAT system entirely. Confirm which category your transaction falls into with the BIR.