PART 4 — Inclusion of Government Mandated Taxes in the computation of Trucking Rates
By: Jan J. Go
Tags: Philippines, Trucking, Value Added Tax, Percentage Tax, Bir

From our previous learning materials, we have learned the importance and roles of variable and fixed costs, as well as markup or profit, and learned how all of them are computed or combined in order to come up with our initial pricing. This is what we call “Vat-Exclusive” or can also be referred to as “Net of VAT” Prices.

In this article, we will discuss some of the directly relevant taxes as part of the equation as this component of our trucking rate is something we simply cannot ignore .

But first, we have to identify either your company is registered with the Bureau of Internal Revenue (BIR) as a VAT-registered, or a Non-VAT registered company, as this will dictate how you’ll go about pricing your rates that are inclusive of taxes. To do this, you only need to refer to your BIR Certificate of Registration 2303.

Non-VAT Registered Companies

Non-VAT Registered companies would fall normally under percentage taxes and not VAT. These are companies with annual gross sales or revenues under three million pesos (3,000,000.00). This is outright computed at 3% of the gross sales or receipts.

Since this is applied or deducted from your gross sales, it is important to consider this in our computation too.

How do we factor in 3% Percentage Tax in our equation?

To illustrate, suppose that the trucking rate is Php10,000.00. If you don’t consider 3% Percentage Tax in your computation, the BIR will take away 3% or 300.00 (based from the sample amount) from your trucking rate, which if not considered, will add up to your cost and may most likely eat a portion of your markup. We do not want that. Hence, in order to avoid that situation, simply divide the sample trucking rate (Php10,000.00) by 97% (0.97). This will result to Php10,309.28. The Government will simply deduct the 3% from the Php10,309.28 or Php 309.28 Percentage Tax which typically is remitted quarterly, therefore allow you to preserve your earlier trucking rate of Php10,000.00

In dealing with larger companies, many of them will prefer VAT Registered trucking companies simply because your Output VAT will be their Input VAT which they can legally use to compute for lower VAT Payables to the Government.

Also, it can easily be assumed that most if not all of your purchases are with 12% VAT. Sadly, this means that those Input VAT cannot be used to reduce your 3% Percentage Tax payable to BIR.

VAT Registered Companies.

These are companies registered with BIR as VAT Registered Companies, having annual gross sales or receipts of three million pesos or more by definition of BIR.

What is Value Added Tax (VAT)?

In simpler definition, Value Added Tax (VAT), is a business tax levied on goods or services sold by companies or professionals categorized as VAT Registered by the BIR, that are levied on domestic and ordinary businesses with a rate of VAT at 12%.

Generally, there are two kinds of VAT. Input VAT and Output VAT.

As a trucking operator and in our perspective, Output VAT at the same rate of 12% is applied onto our Vat-Exclusive Prices. This means that we simply add 12% of the Vat-Exclusive Prices to complete the equation.

To illustrate, let us use the same prices we indicated earlier. If the Vat-Exclusive Price of our trucking service is computed at Php10,000.00, we simply need to compute the 12% first in order to determine the Output VAT.

To do this, simply multiply 12% (0.12) from the VAT-Exclusive Price which will result to Php1,200.00. This will be your Output VAT, then add this onto the Vat-Exclusive Price in order to calculate the Vat-Inclusive Price.

Another formula to make it quicker is to simply multiply 1.12 to the same rate which will have the same result at Php11,200.00

Unlike Percentage Tax where the 3% is computed directly from the gross amount, sale or receipt. 12% VAT is computed from the VAT-Exclusive Price thus we use 1.12 as the multiplier, instead of dividing the amount.

On the otherhand, Input VAT are computed from your purchases. The difference between Output VAT and Input VAT is what you pay or remit to the Government following guidelines of the BIR.

Conclusion

Either you apply as a percentag tax or VAT Registered trucking company, it is vital to consider these taxes in the computation of your truck rates most especially if you are registered with the BIR. Note that in computing for trucking rates, what you are really trying to do here is to get a cristal-clear picture of all costs, expenses, and taxes, and account them all in order to protect your markup or profit. Remember that any slight mistake or error, would most likely put a dent to your markup or profit. So get those numbers up, and start your computation properly.

NEXT: PART 5 — Summing it all to compute the ideal Trucking Rate