TAXATION II

PART 2 – BUSINESS TAXES

Introduction to Business Taxes

Business Tax, defined:

It is a tax imposed upon the privilege of engaging in

business or pursuing an occupation, calling, or profession.

Nature of Business Tax:

It is an excise tax or a privilege tax

Business, defined:

The term “business” as used in the Tax Code means

business in the trade or commercial sense only. It is,
therefore, to be construed in the plain and ordinary
meaning being restricted to activities or affairs where
profit is the purpose, or livelihood is the motive.

Note: Local Government Code definition of business –

“business” is defined as “trade or commercial activity”
regularly engaged in as a means of livelihood or with a
view to profit (Sec. 131 (d), LGC).

“To engage in business”, defined:

To engage in business is to begin and carry on a business,

or to employ or involve oneself therein. The word
“engage’ connotes more than single at or isolated
transaction; it involves some continuity of action.
“Business” on the other hand, is that which occupies the
time, attention and labor of men for the purpose of
livelihood or profit. Accordingly, “to engage in business” is
construed as signifying “to follow the employment which
occupies the time, attention, and labor for the purpose of
a livelihood or profit”.
Treatment of Establishments Operated by
Organizations or Associations Not Operated for
Profit

Case: Saint Paul University of Manila (SPUM) is a non-

profit educational institution. It operates a canteen for its
students.

Question: Is SPUM subject to VAT and other business

taxes?

Answer: Yes. All transactions regularly conducted or

those made incidental to the pursuit of a commercial or
economic activity are considered as entered into in the
course of trade or business, regardless of whether the one
operating the business is a non-stock non-profit
organization. It is the nature of the activity that
counts, not the person or entity performing the activity.

Question: How about the government? Is it also subject

to business taxes?

Answer: Yes. For as long as the government or any of its

instrumentality is engaged in an activity that is considered
a “regular conduct or pursuit of a commercial or an
economic activity, including transactions incidental
thereto” it is subject to business taxes, unless such
government agency or government corporation is
expressly exempted from such business tax.

Question: May a single act be considered a “transaction

in business”?

Answer: Yes. If an isolated transaction, which if repeated

would be a business, is proved to have been undertaken
with the intent that it should be the first of several
transactions, that is, with the intent of carrying on a
business, then it is a first transaction in an existing
business.
Case: Chavit Singson makes all the necessary
preparations to carry on the business of a wholesale
tobacco dealer and holds himself out and solicits trade as
such. In December 2016, he was able to transact only one
sale without a license.

Question: Is the act of Chavit Singson considered as

engaging in business?

Answer: Yes. Although he makes only one sale without a

license, but intending to continue the business, Chavit
Singson is engaged in business within the meaning of the
law.

Case: Felix Ang buys a Mercedes Benz car. After a day

Felix Ang sells it, because he has no further use for said
motor vehicle.

Question: Is the sale subject to a business tax, e.g. VAT?

Answer: No. Felix Ang can hardly be “engaged in the sale

of a personal property” considering that there was no
intent of carrying on the business of buying and selling
cars with the said single transaction.

“Occupation”, defined

Occupation means one’s regular business or employment,

or an activity which principally takes up one’s time,
thought and energies. It includes any calling, business,
trade, profession, or vocation.

“Calling”, defined

Calling means one’s regular business, trade, profession,

vocation or employment which does not require the
passing of an appropriate government board or bar
examination, such as professional actors and actresses,
hostesses, masseurs, commercial stewards and
stewardesses.
“Profession”, defined
Profession means a calling which requires the passing of
an appropriate government board or bar examination,
such as the practice of law, medicine, public accounting,
engineering, etc. (Sec. 3(e-1), NIRC)

Limitations on the Power of the Legislature to

impose taxes upon professions:

General Rule: the power of the Legislature to impose

taxes upon professions, trades, occupations, and
privileges is unlimited.

Limitations: The only limitations are those found in the

Constitution, and that such tax laws must be reasonable
and not arbitrary.

Examples of Constitutional Limitations –

(1) uniform and equitable;

(2) prohibition against taxation of religious, charitable
entities, and educational entities;
(3) due process and equal protection requirement; and
(4) non-impairment of obligation of contracts.

The “Rule of Exclusion” as Applied to Business

Taxes

The “rule of exclusion” provides that where the taxable

business is specified by law, any business not so
specified is necessarily not subject to tax.

It is embodied in the legal maxim – “expressio unius

est exclusio alterius” which means "the express
mention of one thing excludes all others"; OR “inclusio
unius est exclusio alterius” which means “the inclusion
of one is the exclusion of another”.
Rules to Apply when a Business is Conducted with
Another Business

When businesses are distinct from each other:

(1) A person engaged in two or more separate and

distinct business at the same time should pay two
separate taxes on his sales or receipts, although he has
only one place of business or office for their operation.

(2) The same rule applies where a person who, although

engaged in only one particular kind or class of business,
nevertheless maintains two or more separate distinct
establishments.

When a Business is Incidental to a Main Business:

General Rule: A company which is already taxed on its

main business may not be further taxed for engaging in
an activity which is merely part of, incidental to, and is
necessary to its main business.

However, if the business is not merely incidental to its

main business but is already distinct in itself, then the
said business shall be treated separately.

Case 1: 1 Person Engaged in 2 Separate and Distinct

Businesses – Mr. Lucien Sayuno is engaged in a business
consultancy and real estate business. He has only one
office address for his consultancy and real estate
businesses. He earned P1.8M sales receipts in his business
consultancy and P2.5M in his real estate business.

Question: What are the tax consequences of Mr. Sayuno

business receipts?

Answer: Mr. Sayuno has to pay two separate taxes on

his consultancy business and on his real estate business.
It means that he has to have two separate business
taxes, two separate kinds of receipts for his two different
types of businesses.
Case 2: 1 Person Engaged in Same Type of Business
but Maintaining Two or More Separate Distinct
Establishments – Mr. Vic Yu is engaged in business
consultancy services. However, Mr. Yu registered ABC
Company for his consultancy business in Luzon, and DEF
Company for his consultancy services in Vizayas and
Mindanao. Mr. A earned P1.8M sales receipts in his ABC
Company and P2.5M in his DEF Company.

Question: What are the tax consequences of Mr. Yu’s

business receipts?

Answer: Mr. Yu has to pay two separate taxes on the

sales or receipts on his consultancy business in ABC
Company and on his sales or receipts on his consultancy
business in DEF Company. It means that he has to have
two separate business taxes, two separate kinds of
receipts for his two different types of businesses.

Case 3: Business Establishment Conducting Another

Business Not Incidental to and Necessary to its Main
Business – YKK Company is engaged in hotel services.
In its hotel business is a restaurant which caters to the
general public where wine and liquor are sold not only to
its hotel guests but also the public anytime during
business hours. The BIR assessed YKK Company for its
sales on the restaurant operations.

Question: Is the BIR correct in the separate assessment

on the restaurant operations of YKK Company?

Answer: Yes. Company Y is liable to pay separate

privilege taxes on its sales on the food and drinks sold in
its restaurant considering that the restaurant catered to
the general public where wine or liquor was sold not only
to the hotel guests, but also to the general public anytime
during the business hours. The serving of liquor in the
restaurant cannot be said to be a mere incident of a
restaurant business for the greater number of restaurants
do nor serve liquor at all.
Note: If the Restaurant caters only to the hotel guests
and not to the general public, then it is considered as an
incidental activity to its hotel operations and, thus,
cannot be taxed separately.

Business Taxes Under the NIRC

1. Value Added Tax

2. Other Percentage Taxes
3. Excise Tax
4. Documentary Stamp Tax

VALUE-ADDED TAX

Concept of “Value-Added Tax”: Value-added-tax is a

tax on consumption levied on the sale, barter,
exchange or lease of goods or properties and
services in the Philippines and on importation of
goods into the Philippines. The taxpayer (seller of
goods or services) determines his tax liability by
computing the tax on the gross selling price or gross
receipt (output tax), and subtracting or crediting the
earlier VAT on the purchase or importation of goods or on
the purchase of service (input tax) against the tax due on
his own sale.

Transactions Subject to VAT

(1) Sale, barter, or exchange, lease of goods or

properties;
(2) Sale of services; and

(3) Importation of goods.

Nature or Characteristics of VAT

(a) It is an excise tax – a tax on the privilege of

engaging in the business of selling goods or services,
lease of goods or properties, or in the importation of
goods;
(b) It is a percentage tax – imposed at every stage of
the distribution process on the sale, barter, or exchange,
or lease of goods or properties, and on the performance of
service in the course of trade or business, or on the
importation of goods (whether for business or non-
business purposes)

(c) It is an ad valorem tax – where the amount is based

on the gross selling price or gross value in money of
goods and services.

(d) It is an indirect tax – the amount of which may be

shifted to or passed on the buyer, transferee, or lessee of
the goods, properties or services. [Sec. 105, NIRC]

(e) VAT being an indirect tax, it is also regressive in

nature – In terms of individual income and wealth, a
regressive tax imposes a greater burden (relative to
resources) on the poor than on the rich — there is an
inverse relationship between the tax rate and the
taxpayer's ability to pay as measured by assets,
consumption, or income.

Note: These taxes tend to reduce the tax incidence of

people with higher ability-to-pay, as they shift the
incidence disproportionately to those with lower
ability-to-pay; the regressivity of a particular tax can
also factor the propensity of the taxpayers to engage in
the taxed activity relative to their resources (the
demographics of the tax base). In other words, if the
activity being taxed is more likely to be carried out by the
poor and less likely to be carried out by the rich, the tax
may be considered regressive.

Question: The Constitution requires that Congress shall

“evolve a progressive system of taxation”. VAT being
regressive in character, does this not go against the
provision of the Constitution?

Answer: No. While VAT, by its very nature, is regressive,

the Constitution does not really prohibit the
imposition of indirect taxes (which is essentially
regressive). What it simply provides is that Congress shall
“evolve a progressive system of taxation”. Direct
taxes are to be preferred and, as much as possible,
indirect taxes should be minimized as they are not
entirely avoided because of its difficulty or impossibility of
avoiding them.

“Impact of Taxation” versus “Incidence of

Taxation”, as applied to VAT

The impact
 of taxation is on the statutory taxpayer,

the one from whom the government collects; the impact
of VAT is on the seller or importer upon whom the tax
has been imposed.

On the other hand, the incidence of taxation is on the

one who bears the burden of taxation; the incidence of
VAT is on the final consumer.

“Tax Credit Method” Applied to VAT

The tax credit method refers to the manner by which

the VAT of a taxpayer is computed. The input taxes
shifted by the sellers to the buyer are credited
against the buyer’s output taxes when he in turn
sells the taxable goods, properties or services. Under
this system, an entity can credit against or subtract from
the VAT charged on its sales or outputs the VAT paid on
its purchases, inputs and imports.

Case: Anne Curtis imports goods for her trading business

worth P100,000 and pays P12,000 by way of VAT. She
sells the goods to Vice Ganda for P120,000 plus VAT of
P14,400 or a total of P134,400. Vice Ganda, who is also
into trading business sells the goods to Vhong Navarro for
P150,000 plus VAT of P18,000 or a total of P168,000.
Questions:

(a) What are the VAT consequences on Anne Curtis?

(b) What are the VAT consequences on Vice Ganda?
(c) What are the VAT consequences on Vhong Navarro?

Answers:

(a) Anne Curtis incurs an input tax of P12,000 on her

importation. When she sells the goods to Vice Ganda she
incurs an output tax of P14,400. Under the tax credit
method, Anne Curtis can credit her input tax of P12,000
against her output tax of P14,400. This in effect makes
her net VAT liability of only P2,400.

(b) On the part of Vice Ganda, he incurs an input tax of

P14,400 for purchasing the goods from Anne Curtis. When
she sells the same goods to Vhong Navarro, she also
incurs output tax of P18,000. Applying the tax credit
method, Vice Ganda can credit his input tax of P14,400
against his output tax of P18,000 making his net VAT
liability of only P3,600.

(c) On the part of Vhong Navarro, since he is the final

consumer of the product, he bears the incidence of
taxation for the input tax of P18,000 on his purchase of
the goods from Vice Ganda.

THE “P-I-S-O” PRINCIPLE

For every PURCHASE of goods or services (as well

as importation), there is an INPUT TAX involved;
and for every SALE of goods or services, there is an
OUTPUT TAX involved.

The “Cost Deduction Method”

This is VAT on a single stage tax where the consumption

tax is payable only by the original sellers. Under this
method, the VAT is not shifted to the buyer but borne
solely by the seller.
The consumption tax becomes part of the cost of the
seller.

Concept of “Economic Zones” (Ecozones)

Ecozones are those managed and operated by the PEZA

as separate customs territory (Sec. 8, RA 7916
“Special Economic Zone Act of 1995”). This means that in
such zone the legal fiction of foreign territory is
created.

Concept of “Customs Territory”

“Customs Territory” shall mean the national territory of

the Philippines outside of the proclaimed boundaries
of the ecozones except those areas specifically declared
by other laws and/or presidential proclamations to have
the status of special economic zones and/or free ports.

Treatment of Sales Made from a Person in the

Customs Territory to a PEZA-registered entity in the
ecozones:

*a. Sales made by a person in the customs territory to a

PEZA-registered entity are considered exports to a
foreign country and thus, zero-rated.

b. Conversely, sales by a PEZA-registered entity to a

person in the customs territory are deemed imports
from a foreign country.

Rules on VAT Treatment of Sales to and by PEZA-

Registered Enterprise Within/Without the Ecozones

*a. Any sale of goods, property or services made by a

VAT-Registered supplier from the Customs Territory
to any registered enterprise operating in the ecozone,
regardless of the class or type of the latter’s PEZA
registration, is subject to 0% VAT rate as this is
considered an export.
b. Any sale of goods, property and services by VAT-
Exempt supplier from the Customs Territory to a
PEZA registered enterprise shall be treated exempt from
VAT, regardless of whether or not the PEZA registered
buyer is subject to taxes under the NIRC or enjoying the
5% special tax regime.

c. The sale of goods by a PEZA registered enterprise

to a buyer from the Customs Territory (i.e. domestic
sales) shall be treated as a technical importation
made by the buyer. Such buyer shall be treated as an
importer thereof and shall be subject to 12% VAT.

d. The sale of services by a PEZA registered

enterprise to a buyer from the Customs Territory is not
embraced by the 5% special tax regime, hence, shall be
subject to 12% VAT.

e. The sale of goods by a PEZA registered enterprise to

another PEZA registered enterprise (i.e. Intra-Ecozone
Sales of Goods) shall be exempt from VAT.

f. The sale of services by ecozone enterprise, to another

ecozone enterprise (Intra-ecozone enterprise Sale of
Service) –

(1) if PEZA registered seller is subject to 5% 
 special

tax regime, it is exempt from VAT;
*(2) if PEZA registered seller is not subject to 5%
special tax regime, meaning, it is subject to taxes
under NIRC, it is subject to 0% VAT pursuant 
 to
“cross border doctrine”.

*Note: Under RA 10963, the sale and delivery of goods

to registered enterprise within a separate customs
territory and to registered enterprises within tourism
enterprise zones as declared by TIEZA are not zero-
rated (vetoed by Pres. Duterte as “it violates the
principle of limiting the VAT zero rating to direct
importers”).
5. Persons Liable for VAT

a. Any person who, in the course of trade or business

(1) sells, barters, exchanges goods or properties;
(2) leases goods or properties;
(3) renders services [Sec. 105, NIRC]; and
(4) earns annual gross sales or receipts of P3,000,000 or
more. (Note: Increased under RA 10963 from
P1,919,500)

b. Any person who imports goods or services, whether

in the course of business or not.

Case: Allen Lee imported goods for his personal use. The
Bureau of Customs assessed him duties and VAT on his
importation. Mr. Lee contests the imposition of VAT on his
importation claiming that the same are for his personal
use and not for business.

Question: Is Mr. Lee correct?

Answer: No. Any person who imports goods, whether the

same are for personal use or for business shall be subject
to VAT.
 The importer, whether an individual or
corporation and whether or not made in the course of his
trade or business, shall be liable to pay VAT.

“In the Course of Trade or Business”, meaning.

This means that there is regularity or that activity is the

regular conduct or pursuit of a commercial or an
economic activity, including transactions incidental
thereto, by any person regardless of whether or not the
person engaged therein is a non-stock, non-profit private
organization (irrespective of the disposition of its net
income and whether or not it sells exclusively to members
or their guests), or government entity. Thus, transactions
that are made incidental to the pursuit of a commercial or
economic activity are considered as entered into in the
course of trade or business.
2014 Bar Exams: Masarap Kumain, Inc. (MKI) is a
Value-Added Tax (VAT)-registered company which has
been engaged in the catering business for the past 10
years. It has invested a substantial portion of its capital
on flat wares, table linens, plates, chairs, catering
equipment, and delivery vans. MKI sold its first delivery
van, already 10 years old and idle, to Magpapala Gravel
and Sand Corp. (MGSC), a corporation engaged in the
business of buying and selling gravel and sand. The selling
price of the delivery van was way below its acquisition
cost.

Question: Is the sale of the delivery van by MKI to MGSC

subject to VAT?

Answer: Yes, it is subject to VAT. The sale of the delivery

van is considered as a sale in the course of trade or
business. Note that said delivery van was purchased and
used in furtherance of the company’s catering forming
part of its capital assets although not held for sale or
lease. Even such an isolated transaction involving assets
used in business may be subject to VAT if incidental to the
pursuit of a commercial or economic activity and,
therefore, is considered as entered into “in the course of
trade or business”.

Note: The BIR issued RMC 15-2011 revoking an earlier

ruling (BIR Ruling No. DA-563-06) on the same subject
matter citing as basis the ruling of the Court of Tax
Appeals in the case of CS Garments, Inc. vs. CIR.

Rule of Regularity Does Not Apply to Non-Resident

Persons Performing Services in the Philippines

Non-resident persons who perform services in the

Philippines are deemed to be making sales in the
course of trade or business, even if the performance of
services is not regular. Thus, they are subject to business
taxes, including VAT.
A non-stock, non-profit organization or government
agency engaged in providing services for a fee

A non-stock, non-profit, organization or government

entity, is liable to pay VAT, even in the absence of profit
attributable thereto. The term “in the course of trade or
business” requires the regular conduct or pursuit of a
commercial or an economic activity, regardless of
whether or not the entity is profit-oriented. It is
immaterial whether the primary purpose of a corporation
indicates that it receives payments for services rendered
to its affiliates on a reimbursement-on-cost basis only,
without realizing profit. As long as the entity provides
service for a fee, remuneration or consideration,
then the service rendered is subject to VAT.

Case: Manila Golf Club collects membership fees and

association dues for the maintenance of the golf facilities.

Question: Are these membership fees and association

dues subject to VAT?

Answer: Yes. Membership fees and association dues

collected by clubs organized and operated exclusively for
pleasure, recreation and other non-profit purposes are
subject to VAT pursuant to RMC 35-2012.

Association Dues Collected by Condominium

Corporations

Question: How about Condominium corporations who

collect association dues, membership fees & other
assessments & charges from tenants and members for the
maintenance of the condominium facilities and common
areas, are they subject to VAT?

Answer: Not anymore RA 10963 (TRAIN Law),

effective January 01, 2018. Association dues,
membership fees, and other assessments and charges
collected by homeowners associations and condominium
corporations are now expressly VAT exempt.
Note: Previously they were subject to VAT pursuant to
RMC 65-2012.

Application of Annual Sales VAT Threshold of

P3,000,000 to VAT-Registered and Non-VAT-
Registered Taxpayers

a. A VAT-registered taxpayer whose sales exceed the

threshold amount of P3,000,000 as annual sales is
subject to 12% VAT.
b. A VAT-registered taxpayer whose sales do not
exceed the required amount of P3,000,000 as annual
sales is still subject to 12% VAT.
c. A non-VAT-registered taxpayer who earns an annual
sales of more than P3,000,000, is subject to 12% VAT.
However, he is not entitled to the tax-credit system.
Thus, he cannot claim a deduction of his input taxes as
against his output tax.
d. A non-VAT-registered taxpayer who earns an annual
sales P3,000,000 and below is not subject to 12%
VAT. However, he shall be subject to a percentage tax
of 3% of his gross monthly sales/receipts.

Requisites for a Taxpayer to be Subject to a 3%

Percentage Tax instead of the 12% VAT

(1) The gross annual sales and/or receipts do not exceed

P3,000,000.00; and
(2) The taxpayer is not a VAT-registered person.

“Marginal Earners”, not Subject to Business Taxes

A marginal income earner is an individual deriving gross

sales or receipts of not exceeding P100,000 during any
12-month period. Marginal income earners are not subject
to business taxes because they are by law not
considered as engaged in trade or business.
VAT on Sale of Goods or Properties

a. Transactions covered: It covers every sale, barter or

exchange, or transactions “deemed sale” of taxable goods
or properties
b. The basis for the imposition of VAT: It is based on
the gross selling price or gross value in money of the
goods or properties sold, bartered or exchanged.
c. Person liable for VAT (impact of taxation): It is
paid by the seller/transferor.

Goods or Properties covered by VAT Transactions

Goods or properties include all tangible and intangible

objects which are capable of pecuniary estimation,
which include the following:

(a) Real properties held primarily for sale to


 customers or held for lease in the ordinary course 
 of
trade or business;
(b) The right or the privilege to use patent, copyright,
design, or model, plan, secret formula or process,
goodwill, trademark, trade brand or other like property or
right;
(c) The right or the privilege to use in the Philippines of
any industrial, commercial or scientific equipment;
(d) The right or the privilege to use motion picture films,
films tapes and discs;
(e) Radio, television, satellite transmission and cable
television time.

Requisites of Taxability of Sale of Goods or

Properties
 -

In order to be taxable, the sale of goods (tangible or

intangible) or properties must have the following
requisites:

a. It is an actual or deemed sale of goods or properties for

a valuable consideration;
b. It is undertaken in the course of trade or business;
c. It is for the use or consumption in the Philippines; and
d. It is not exempt from value added tax under the Tax
Code, special law, or international agreement.

VAT on Sale of Real Properties

Persons liable of VAT on Sale of Real Properties –

Those liable for VAT on sale of real property, where the

gross sales/receipts is more than P3,000,000/year are the
following:

(1) Any person (natural or juridical) engaged in sale or

exchange of real properties;
(2) Real estate lessors;
(3) Non-resident lessors (property located in the
Philippines);
(4) Non-stock, non-profit organizations; and
(5) Government agencies, instrumentalities, GOCCs.

Transaction Sales on Real Properties that are VAT

taxable:

(1) Sale on installment plan;

(2) Pre-selling by real estate dealers;
(3) Sale of residential lot which is more than
P3,000,000; or house and lot/other residential
dwelling (condominium units) which is more than
P3,199,200; and
(4) Lease of residential units, where the rental per unit

 is more than P15,000/month (Note: increased
under RA 10963 from P12,800) or total rental from all
units is more than P3,000,000/year.

Transaction Sales on Real Properties that are not

VAT taxable
(1) Those that are not primarily held for sale;
(2) Low cost or socialized housing;
(3) Residential lot is less than P3,000,000;
(4) House and lot/ other residential dwelling is less than
P3,199,200;
(5) Lease where the rental per unit is less than
15,000/month OR total
 rental from all units is less than
P3,000,000/ year;
(6) Transfer to corporation in exchange of shares of
stocks (see Sec. 40, NIRC for Tax-free exchange);
(7) Advance payment by the lessee;
(8) Security deposits for lease agreements; and
(9) Transmission to a trustee (except, when the
transmission is 
 deemed sale transaction).

Note: Transmission of property to a trustee shall NOT

be subject to VAT if the property is to be transferred
merely held in trust for the trustor and/or beneficiary.

However, if the property transferred is originally

intended for sale, lease or use in the ordinary course
of trade or business and the transfer constitutes a
completed gift, the transfer is subject to VAT as a
deemed sale transaction.

The transfer is a completed gift if the transferor divests

himself absolutely of control over the property, i.e.,
irrevocable transfer of corpus and/or irrevocable
designation of beneficiary.

Case 1: Mr. Orly Francisco transferred his property to Mr.

Art Acero who holds the property in trust for Mr. Mario
Gamboa, the beneficiary.

Question: Is the transfer of the property subject to VAT?

Answer: No. Transmission of property to a trustee shall

not be subject to VAT if the property is to be merely held
in trust for the trustor and/or a beneficiary as in this case.

Case 2: Mr. Leo De Leon transferred his property to Mr.

Ed Rojas who holds the property in trust for Mr. Wash
Lou, the beneficiary. The transfer is an irrevocable
transfer and a completed gift in favor of Mr. Wash Lou.
The property transferred to Mr. Ed Rojas as a trustee is an
ordinary asset (one used for sale, lease or use in the
ordinary course of trade or business).

Question: Is the transfer to Mr. Wash Lou subject to

VAT?

Answer: Yes, the transfer is subject to VAT as it is

deemed a sale transaction considering the following:

(a) the transfer is a completed gift (where the transferor

divested himself absolutely of control over the property,
i.e., irrevocable transfer of corpus and/or irrevocable
designation of a beneficiary); and

(b) the property transferred is one used for sale, lease

or use in the ordinary course of trade or business
(ordinary asset).

Case 3: Mr. Rafael Hechanova transferred his property to

Mr. Charlie Rufino who holds the property in trust for Mr.
Fred Parungao. The property transferred to Mr. Charlie
Rufino as a trustee is an ordinary asset (one used for sale,
lease or use in the ordinary course of trade or business).

Question: Is the transfer subject to VAT?

Answer: No, it is not subject to VAT. While the

transferred property is an ordinary asset, there is no
completed gift since Mr. Charlie Rufino merely holds the
property in trust for Mr. Fred Parungao.

Case 4: Mr. Manuel Samson transferred his property to

Mr. Greg Lee who holds the property in trust for Mr.
Stanly Lin or any other person as Mr. Samson decides as
beneficiary. The property transferred to Mr. Lee as a
trustee is an ordinary asset (one used for sale, lease or
use in the ordinary course of trade or business).

Question: Is the transfer subject to VAT?

Answer: No, it is not subject to VAT. While the
transferred property is an ordinary asset, there is no
completed gift since Mr. Samson retains the power to
designate of the beneficiary of the trust. Note here
that the designation of the beneficiary is revocable.

Real Estate Dealers Subject to VAT on Installment

Payments

A “real estate dealer” includes any person engaged in

the business of buying, developing, selling, exchanging
real properties as principal and holding himself out as a
full or part-time dealer in real estate.

Rule: The real estate dealer shall be subject to VAT on

the installment payments, including interest and
penalties, actually and/or constructively received by the
seller.

Sale of Real Property on Installment Plan versus

Sale of Real Property on Deferred Payment

a. In a “sale of real property on installment plan” the

initial payments in the year of sale do not exceed
25% of the gross selling price. In this case, what is
VAT taxable only is on the payment actually or
constructively received.

b. In “sale of real property on deferred payment”, the

initial payments in the year of sale exceeds 25% of the
gross selling price. In this case, the transaction is
treated as cash sale and the entire selling price is
taxable on the month of sale.

“Initial payments”, definition and exclusions –

Initial payments are payment or payments which the

seller receives before or upon execution of the instrument
of sale and payments which he expects or is scheduled to
receive in cash or property during the year (not a 12-
month period) when the sale or disposition of the real
property was made. It includes down payment and all
payments actually or constructively received during
the year of sale.

It excludes –

(1) the amount of mortgage on the real property

sold, except as to the excess when such mortgage
exceeds the cost or other basis of the property to the
seller; and

(2) notes or other evidence of indebtedness issued by

the purchaser to the seller at the time of the sale.

Zero-Rated Sales of Goods or Properties, and

Effectively Zero-Rated Sales of Goods or Properties

“Zero-rated sales of goods or properties”, defined:

A zero-rated sale by a VAT-registered person is a taxable

transaction for VAT purposes, but shall not result in
any output tax. However, input tax on purchases of
goods, properties or services related to such zero-rated
sale shall be available as tax credit or refund.

Sales by VAT-registered persons that are subject to

zero percent (0%) rate:

The following sales are subject to 0% VAT rate:

(1) Export sales;

(2) Sales to persons or entities deemed tax-exempt under
special law or international agreement (“effectively zero-
rated”)

Export Sales

The following are considered as “export sales” –

a. The sale and actual shipment of goods from the

Philippines to a Foreign country and paid for in acceptable
foreign currency or its equivalent in goods or services,
and accounted for in accordance with the rules and
regulations of the 
 BSP;

b. Sale of raw materials or packaging materials to a

Nonresident buyer for delivery to a resident local export-
oriented enterprise to be used in manufacturing,
processing, packing or repacking in the Philippines of the
said buyer's goods and paid for in acceptable foreign
currency and accounted for in accordance with the rules
and regulations of the BSP;

c. Sale of raw materials or packaging materials to Export-

oriented enterprise whose export sales exceed seventy
percent (70%) of total annual production. (Note: Any
enterprise whose export sales exceed 70% of the total
annual production of the preceding taxable year shall be
considered an export-oriented enterprise upon
accreditation under the rules & regulations of Export
Development Act, RA 7844;

d. Those considered export sales under the Omnibus

Investment Code of 1987, and other special laws (e.g.
Bases Conversion & Development Act of 1992)

e. The sale of goods, supplies, equipment and fuel to

persons engaged in International shipping or international
air transport operations. (added by RA 9337);

“Effectively Zero-Rated Sales”

a. Effectively zero-rated sales are sales to persons or

entities whose exemption under special laws or
international agreements to which the Philippines is a
signatory effectively subjects such sales to zero rate. They
also include the local sale of goods and properties by a
VAT-registered person to a person or entity who was
granted indirect tax exemption under special laws or
international agreement.
b. The following are examples of sales to persons or
entities deemed tax-exempt under special law or
international agreement:

(1) sales to enterprises duly registered and accredited

with the Subic Bay Metropolitan Authority (SBMA)
pursuant to RA 7227;

(2) sales to enterprises duly registered with the

Philippine Economic Zone Authority (PEZA); and

(3) international agreements to which the Philippines is

a signatory such as Asian Development Bank (ADB),
International Rice Research Institute (IRRI), etc. (RR
16-2005)

Prior Application for Effective Zero-Rating Not

Necessary

RR 4-2007 removed the distinction between automatic

and effectively zero-rated transactions found in prior
Revenue Regulations (including RR 16-2005) with respect
to the requirement of prior application with the BIR for
effective zero-rating. The paragraph requiring prior
application has now been deleted.

This was issued as a result of the SC Decision in CIR vs.

Seagate Technology in 2005.

CIR vs. Seagate Technology (February 11, 2005)

SC Ruling:

The BIR regulations additionally requiring an approved

prior application for effective zero rating with the BIR
cannot prevail over the clear VAT nature of
Seagate’s transactions (subject to zero-rating, as an
entity registered with the PEZA).

An effectively zero-rated transaction does not and cannot

become exempt simply because an application therefor
was not made or, if made, was denied.

Transactions Deemed Sale

The following transactions shall be “deemed sale”

pursuant to Sec. 106 (B) of the NIRC and are subject to
VAT:

a. Transfer, use or consumption not in the course of

business of goods or properties originally intended for sale
or for use in the course of business (e.g. when a VAT-
registered person withdraws goods from his business for
his personal use. (RR 16-2005);

b. Distribution or transfer to shareholders, investors or

creditors;


(1) Shareholders or investors as share in the profits of

the VAT-registered persons*; or

(2) Creditors in payment of debt or obligation;

*Property dividends which constitute stocks in trade or

properties primarily held for sale or lease declared out
of retained earnings on or after Jan. 1, 1996 and
distributed by the company to its shareholders shall be
subject to VAT based on the zonal value or FMV at the
time of the distribution, whichever is applicable. (RR 16-
2005)

c. Consignment of goods if actual sale is not made within

60 days following the date such goods were consigned

(Note: Consigned goods returned by the consignee within
the 60-day period are not deemed sold. (RR 16- 2005)

d. Retirement from or cessation of business, with respect

to ALL goods on hand (whether capital goods, stock-in-
trade, supplies or materials, as of the date of such
retirement or cessation, whether or not the business is
continued by the new owner or successor), inventories of
taxable goods existing as of such retirement or cessation.
Note: Examples of such circumstances that would give
rise to transactions deemed sale are –

(a) change of ownership of the business (e.g. when a sole

proprietorship incorporates, or the proprietor of a single
proprietorship sells his entire business); and

(b) dissolution of a partnership and creation of a new

partnership which takes over the business. (RR 16-2005)

VAT Exempt Transactions: They refer to –

(a) The sale of goods or properties and/or services and

the use or lease of properties that is not subject to VAT
(output tax) and the seller is not allowed any tax
credit of VAT (input tax) on purchases.

(b) The person making the exempt sale of goods,

properties or services shall not bill any output tax to
his customers.

Note: the VAT-registered person may elect that the

exemption not apply to its sale of goods or properties or
services; provided that the election made shall be
irrevocable for a period of three (3) years from the
quarter the election was made.

Exempt Transaction, enumerated

(1) Sale/import of agricultural, marine food products in

original state; of livestock and poultry –

(a) Original state even if they have undergone the

simple processes of preparation or preservation for the
market, such as freezing, drying, salting, broiling,
roasting, smoking or stripping;

(b) Polished and/or husked rice, corn grits, raw cane

sugar and molasses, ordinary salt, AND COPRA shall be
considered in their original state;
(2) Sale or importation of fertilizers; seeds, seedlings and
fingerlings; fish, prawn, livestock and poultry feeds,
including ingredients, whether locally produced or
imported, used in the manufacture of finished feeds
(except “specialty feeds” for race horses, fighting cocks,
aquarium fish, zoo animals and other animals generally
considered as pets);

(3) Import of personal and household effects of Phil

resident returning from abroad and nonresident citizens
coming to resettle in the Philippines;

(4) Import of professional instruments and implements,

wearing apparel, domestic animals, and personal
household effects belonging to persons coming to settle in
the Philippines, for their own use and not for sale, barter
or exchange;

(5) Services subject to percentage tax;

(6) Services by agricultural contract growers and milling

for others of palay into rice, corn into grits and sugar cane
into raw sugar;

(7) Medical, dental, hospital and veterinary services

except those rendered by professionals;

Note: Laboratory services are exempted. If the hospital or

clinic operates a pharmacy or drug store, the sale of drugs
and medicine is subject to VAT. [RR 16-2005]

(8) Educational services rendered by private educational

institutions, duly accredited by DEPED, CHED, TESDA, and
those rendered by government educational institutions;

(9) Services rendered by individuals pursuant to an

employer-employee relationship;

(10) Services rendered by regional or area headquarters

established in the Philippines by multinational
corporations which act as supervisory, communications
and coordinating centers for their affiliates, subsidiaries or
branches in the Asia-Pacific Region and do not earn or
derive income from the Philippines;

(11) Transactions which are exempt under international

agreements to which the Philippines is a signatory or
under special laws, except those under PD No. 529
[Petroleum Exploration Concessionaires under the
Petroleum Act of 1949];

(12) Sales by agricultural cooperatives duly registered

with the Cooperative Development Authority (CDA) to
their members as well as sale of their produce to non-
members. Exemption includes importation of direct farm
inputs, machineries and equipment, including spare parts
thereof, to be used directly and exclusively in the
production and/or processing of their produce;

(13) Gross receipts from lending activities by credit or

multi-purpose cooperatives duly registered with the CDA;

(14) Sales by non-agricultural, non-electric and non-

credit cooperatives duly registered with the Cooperative
Development Authority are exempt BUT their importation
of machineries and equipment, including spare parts
thereof, to be used by them are SUBJECT to VAT; 


(15) Export sales by persons who are not VAT-registered;

(16) Sale of real properties – the following. sales are

exempt:

(1) Sale of real properties not primarily held for sale to

customers or held for lease in the ordinary course of
trade or business;
(2) Sale of real properties utilized for low-cost housing
as defined by RA No. 7279;
(3) Sale of real properties utilized for socialized housing
as defined under RA No. 7279; and
 (4) Sale of residential lot valued at P3,000,000 and
below, or house & lot and other residential dwellings
valued at P3,199,200 and below;

(17) Lease of residential units with a monthly rental per

unit not exceeding P15,000, regardless of the amount of
aggregate rentals received by the lessor during the year;

Note: Lease of residential units where the monthly rental

per unit exceeds P15,000 but the aggregate of such
rentals of the lessor during the year do not exceed One
Million Five Hundred Pesos P3,000,000 shall likewise be
exempt from VAT, however, the same shall be subjected
to three percent (3%) percentage tax.

(18) Sale, importation, printing or publication of books

and any newspaper, magazine review or bulletin which
appears at regular intervals with fixed prices for
subscription and sale and which is not devoted principally
to the publication of paid advertisements;

(19) Sale, importation or lease of passenger or cargo

vessels and aircraft, including engine, equipment and
spare parts thereof for domestic or international transport
operations [added by RA 9337];

(20) Services of
 intermediaries performing quasi-banking

functions and other non-bank financial intermediaries;

(21) Sale of gold to the BSP (previously zero-rated,

now tax exempt under the TRAIN law); and

(22) Sale or lease of goods or properties or the

performance of services other than the transactions
mentioned in the preceding paragraphs, the gross annual
sales and/or receipts do not exceed the amount of
P3,000,000;

(23) Importation of fuel, goods and supplies by persons

engaged in international shipping or air transport
operations: Provided, That the fuel, goods, and supplies
shall be used for international shipping or air transport
operations;

(24) Sale or lease of goods and services to senior citizens

and persons with disability, as provided under Republic
Act Nos. 9994 (Expanded Senior Citizens Act of 2010)
and10754 (An Act Expanding the Benefits and Privileges
of Persons With Disability), respectively;

(25) Transfer of property pursuant to Section 40(C)(2) of

the NIRC, as amended (property for shares exchange)

(26) Association dues, membership fees, and other

assessments and charges collected by homeowners
associations and condominium corporations;

(27) Sale of drugs and medicines prescribed for diabetes,

high cholesterol, and hypertension beginning January 1,
2019; and

(28) Sale or lease of goods or properties or the

performance of service, the gross annual sales and/or
receipts do not exceed the amount of P3,000,000.

Case 1: Mr. & Mrs. Smith are both engaged in a catering

business. In 2018, Mr. Smith’s gross annual sales reached
P2,400,000.00 while Mrs. Smith’s gross annual sales
reached P1,700,000.

Question: Are Mr. & Mrs. Smith subject to VAT?

Answer: No. They are both not subject to VAT. For

purposes of the threshold of P3,000,000, the husband
and the wife shall be considered separate
taxpayers.

Case 2: Aside from engaging in a catering business, Mr.

Smith was also a professional rendering accounting
services. In 2018, Mr. Smith also earned gross receipts of
P1,200,000.00 from his accounting practice. Is Mr. Smith
subject to VAT?

Answer: Yes. The aggregation rule for each taxpayer

shall apply in the case of Mr. Smith. In this case since Mr.
Smith not only derived income from his professional
services but also derived revenue from another line of
business, catering business in this case, which is
otherwise subject to VAT, both revenues are combined for
purposes of determining whether the threshold has been
exceeded. In this case, since Mr. Smith’s total revenue
has exceeded the threshold of P3,000,000, he is subject
to VAT.

Case 3: Mrs. Smith, aside from her catering business is

also engaged the sale, importation, printing and
publication of books and newspapers which is tax-exempt
with gross sales of P500,000. The BIR assessed Mrs.
Smith for unpaid VAT since her annual gross sales for
2018 already exceeded the threshold of P3,000,000.

Question: Is the BIR assessment proper?

Answer: No. The VAT-exempt sales of Mrs. Smith for

2018 are not to be included in determining the VAT sales
threshold.

Input Tax and Output Tax, defined

a. Input Tax – it is the VAT due on or paid by a VAT-

registered person on importation of goods or local
purchases of goods, properties, or services, including
lease or use of properties, in the course of his trade or
business.

b. Output Tax – it is the VAT due on the sale or lease of

taxable goods or properties or services by any person
registered or required to register under Section 236 of the
Code. (Sec. 110 (A), NIRC)

VAT Refund or Tax Credit of Excess Input Tax

Who May Claim for Refund or Apply for TCC
(1) Zero-Rated Sales –

(a) Any VAT-registered person, whose sales are zero-

rated or effectively zero-rated may apply for the
issuance of a TCC or refund of creditable input tax
due or paid attributable to such sales, except
transitional input tax, to the extent that such input tax
has not been applied against output tax, within two
(2) years after the close of the taxable quarter
when the sales were made. The input tax that may
be subject of the claim shall exclude the portion of
input tax that has been applied against the output
tax.

(b) Where the taxpayer is engaged in zero-rated or

effectively zero-rated sale and also in taxable or
exempt sale of goods of properties or services, and
the amount of creditable input tax due or paid cannot
be directly and entirely attributed to any one of the
transactions, it shall be allocated proportionately on
the basis of the volume of sales.

(c) In the case of a person engaged in the transport of

passenger and cargo by air or sea vessels from the
Philippines to a foreign country, the input taxes shall
be allocated ratably between his zero-rated sales and
non-zero-rated sales (sales subject to regular rate,
subject to final VAT withholding and VAT-exempt
sales).

Note: Eastern Telecommunications Philippines, Inc.

v. CIR (2012)

Ruling: The absence of the word “zero-rated” on the

invoices and receipts of a taxpayer will result in the
denial of the claim for tax refund.

(2) Cancellation of VAT Registration –

(a) A person whose registration has been cancelled due to

retirement from or cessation of business, or due to
changes in or cessation of status under Section 106(C) of
the Code may, within two (2) years from the date of
cancellation, apply for the issuance of a tax credit
certificate for any unused input tax which may be used in
payment of his other internal revenue taxes.

(b) He shall be entitled to a refund if he has no internal

revenue tax liabilities against which the tax credit
certificate may be utilized.

Period for BIR to Act on Application for Refund

In proper cases, the CIR shall grant a tax credit

certificate/refund for creditable input taxes within 90
days (reduced from 120 days by the TRAIN law)
from the date of submission of complete documents in
support of the application.

In case of full or partial denial of the claim for tax credit

certificate/refund as decided by the Commissioner of
Internal Revenue:

(a) The taxpayer may appeal to the Court of Tax Appeals

(CTA) within 30 days from the receipt of said denial,
otherwise the decision shall become final.

(b) If no action on the claim for tax credit

certificate/refund has been taken by the Commissioner of
Internal Revenue after the 90 day period from the date
of submission of the application with complete documents,
the taxpayer may appeal to the CTA within 30 days from
the lapse of the 90-day period.

Note: RMC 54-2014 (2 years, 90 days, 30 Days)

(amended by RA 10963)

1. The administrative claim with the BIR

Commissioner for VAT refund or TCC must be filed
within two years from the close of the taxable
quarter when the zero-rated sales and/or effectively
zero-rated sales were made.

2. The Commissioner shall have 90 days from the

submission of the complete supporting documents
within which to decide whether or not to grant the
claim.

3. If the claim is not acted upon by the Commissioner

within the 90 days, such inaction shall be deemed a
denial of the claim.

4. If the Commissioner denies the claim, whether in

full or in part, or if the Commissioner does not act on
the claim within the 90-day period, the taxpayer
should file a judicial claim with the Court of Tax
Appeals (CTA) –

(i) within 30 days from receipt of the Commissioner’s

decision denying the claim (whether in full or in part)
within the 90-day period; or

(ii) from the expiration of the 90-day period if the

Commissioner does not act within the 90-day period.

Note: The taxpayer is required to observe the 90+30 day

rule before lodging a petition for review with the CTA.

5. In cases where the taxpayer has filed for a Petition for

Review with the CTA, the Commissioner loses
jurisdiction over the administrative claim.

6. Failure to file a judicial claim with the CTA within 30

days from the expiration of the 90-day period
renders the Commissioner’s decision or inaction deemed a
denial, final and unappealable.

Manner of Giving Refund

Unutilized creditable input taxes attributed to zero-rated

sales can only be recovered through the application for
refund or tax credit. There is no other mode of
recovering unapplied input taxes aside from an application
for refund or tax credit. However, any unutilized
creditable input taxes attributable to VAT zero-rated
sales that is claimed as a deduction for income tax
purposes, are disallowed. Refunds shall be made upon
warrants drawn by the Commissioner or by his duly
authorized representative without the necessity of being
countersigned by the Chairman of COA, provided that
refunds shall be subject to post audit by the COA.

Tax Credit Certificate Used as Payment for Internal

Revenue Taxes

Case: Mr. Jose Velarde, a VAT-registered taxpayer was

issued a tax credit certificate for his input taxes from his
zero-rated sales. He imported raw materials for his
manufacturing company.

Question: Can Mr. Velarde use his TCC as payment for

the duties imposed on his imported raw materials? How
about on the VAT imposed on his importation?

Answer: No. The TCC cannot be used as payment on the

duties imposed on his importation since duties are not
an internal revenue tax. Mr. Velarde, however, can use
his TCC to pay off the VAT imposed on his importation
since VAT is an internal revenue tax.

The Destination Principle or Cross Border Doctrine

The “Cross Border Doctrine”

The Cross Border Doctrine mandates that no VAT shall

be imposed to form part of the cost of the goods
destined for consumption outside the territorial
border of the taxing authority. Hence, actual export of
goods and services from the Philippines to a foreign
country must be free of VAT, while those destined for use
or consumption within the Philippines shall be imposed
with 12% VAT. This system of taxation is designed to
make our local products competitive in the foreign
market.

The “Destination Principle” Applied to VAT

This principle provides for the basis of the jurisdictional

reach of the VAT.

General Rule - The destination of the goods determines

taxation or exemption from tax. Goods and services are
taxed only in the country where they are consumed.

Exceptions to the General Rule – while as a general

rule, the value-added tax (VAT) system uses the
destination principle, our VAT law itself provides for a
clear exception, under which the supply of service shall
be zero-rated (meaning, it is subject to VAT but on a
zero-rated VAT) when the following requirements are
met:

(1) the service is performed in the Philippines;

(2) the service falls under any of the categories provided

in Section 106 of the Tax Code; and

(3) it is paid for in acceptable foreign currency that is

accounted for in accordance with the regulations of the
Bangko Sentral ng Pilipinas.

Other Changes in VAT (under RA 10963) –

1. Sale and delivery of goods to registered enterprise

within a separate customs territory and to registered
enterprises within tourism enterprise zones as declared by
TIEZA are not zero-rated (vetoed by PRRD as “it violates
the principle of limiting the VAT zero rating to direct
importers”).

2. The sale of gold to the BSP is no longer considered

zero-rated but considered VAT exempt.

3. The sale of goods, supplies, equipment and fuel to

persons engaged in international shipping or international
air transport operations is zero-rated, provided, that the
goods, supplies, equipment and fuel shall be used for
international shipping or air transport operations.

4. Foreign currency denominated sales are no longer

considered as zero-rated sales.

5. VAT refunds must be acted upon and granted within 90

days (reduced from 120 days) from the date of
submission of complete documents in support of the
application filed with the BIR. Any official, agent, or
employee of the BIR who fails to act on the application
within the 90-day period shall be criminally liable.

6. Expansion of the importation exemption on professional

instruments to include those belonging to overseas
Filipinos, and their families and descendants who are now
residents or citizens of other countries.

7. VAT exemption on services rendered to persons

engaged in international shipping or international air
transport operations, including leases of property for use
thereof are zero-rated, provided, that these services shall
be exclusive for international shipping or air transport
operations.

8. VAT cap on Socialized Housing Units: Sale of real

properties not primarily held for sale to customers or held
for lease in the ordinary course of trade or business or
real property utilized for low-cost and socialized housing
as defined by RA 7279, otherwise known as the Urban
Development and Housing Act of 1992, and other related
laws, residential lot valued at P1.5M and below, house and
lot, and other residential dwellings valued at P2.5M and
below. Note: beginning January 1, 2021, the VAT
exemption shall only apply to sale of real properties not
primarily held for sale to customers or held for lease in
the ordinary course of trade or business, sale of real
property utilized for socialized housing as defined by RA
7279, sale of house and lot, and other residential
dwellings with selling price of not more than P2M (to be
adjusted every 3 years)

9. Exemption of VAT on lease of a residential unit with a

monthly rental not exceeding P15,000 (increased
from P12,800)

10. VAT exemption on importation of fuel, goods and

supplies by persons engaged in international shipping or
air transport operations: Provided, That the fuel, goods,
and supplies shall be used for international shipping or air
transport operations;

11. VAT exemption of sale or lease of goods and services

to senior citizens and persons with disability, as provided
under Republic Act Nos. 9994 (Expanded Senior Citizens
Act of 2010) and10754 (An Act Expanding the Benefits
and Privileges of Persons With Disability), respectively;

12. VAT exemption of transfer of property pursuant to

Section 40(C)(2) of the NIRC, as amended (property for
shares exchange)

13. VAT exemption of association dues, membership fees,

and other assessments and charges collected by
homeowners associations and condominium corporations;

14. VAT exemption of sale of drugs and medicines

prescribed for diabetes, high cholesterol, and
hypertension beginning January 1, 2019; and

15. VAT exemption of sale or lease of goods or properties

or the performance of service, the gross annual sales
and/or receipts do not exceed the amount of P3,000,000
(increased from P1,919,500)

16. Beginning January 1, 2023, the filing of VAT Return and

payment of tax shall be done within 25 days following the
close of each taxable quarter (no more monthly)

17. Inclusion of sale of electricity by generation

companies, transmission by any entity, and distribution
companies, including electric cooperatives in the definition
of “sale or exchange of services”.

18. Effective 1 January 2021, the VAT withholding system

shall shift from final to a creditable system. Payments for
purchase of goods and services arising from Official
Development Assistance funded projects shall not be
subject to the final withholding VAT.

OTHER PERCENTAGE TAXES

Meaning of Percentage Taxes

Percentage taxes are taxes measured by a certain

percentage of the gross selling price or gross value in
money of goods sold, bartered, exchanged, or imported,
or gross receipts or earnings derived by any person
engaged in the sale of services. It is business tax that is
based on a given ratio between the gross sales or receipts
and the burden imposed upon the taxpayer. The
percentage tax on sales is based on a set of ratio between
the volume of sales and the amount of tax.

Nature of Percentage Taxes

1. Percentage taxes are privilege taxes (excise taxes).

Like the VAT and other percentage taxes, they are
imposed on the privilege to sell commodities or services.

2. Percentage taxes are indirect taxes. Like the VAT and

other percentage taxes, they can be shifted to the end
user or consumer of the goods.

Other Percentage Tax and the Tax Credit System

Question: Since “other percentage taxes” are indirect

taxes, does it also follow the tax credit system as in VAT?

Answer: No. Unlike in the VAT system, the tax credit

system does not apply in the case of the other percentage
taxes. This means that the seller of goods or services
cannot offset the percentage taxes from his input taxes
arising from his purchases of good and services.

Effects of Shifting of Tax to Service-Recipient

Question: What are the effects of the shifting of the tax

from the service provider to the service-recipient?

Answer: The effects are as follows:

(1) If the service-recipient is a taxpayer engaged in trade,

business / calling or profession, the shifted percentage tax
on the purchase in the course of trade or business shall be
treated as part of the cost of purchases or expenses in the
books of accounts or records, that is, deductible in
computing one’s tax.

(2) If the service-recipient is a taxpayer not engaged in

trade, business / calling or profession, or if the purchase
is a purchase not in the course of trade, business/calling
or profession, the shifted percentage tax shall form part of
the cost of purchases or expenses for personal
consumption and, therefore, not deductible in computing
any kind of tax.

Other Percentage Taxes Imposed

The persons or the enterprises that are liable to

percentage taxes are the following:

1. Percentage small business enterprises or those who are

exempt from payment of VAT or who are not a VAT-
registered person, whose gross annual sales or receipts
from the sale, or lease of goods or properties, or the
performance of services, do not exceed P3,000,000 (as
amended by TRAIN Law)

2. Percentage tax on domestic carriers and keepers of

garage.
3. Percentage tax on international air carriers and
international shipping carriers doing business in the
Philippines.

4. Percentage taxes on franchise grantees.

5. Percentage tax in the form of Overseas

Communications Tax.

6. Percentage tax on the gross receipts derived from

sources within the Philippines by all banks and non-bank
financial intermediaries performing quasi-banking
functions.

7. Percentage tax on other non-bank financial

intermediaries doing business in the Philippines, from
interests, commissions, discounts and all other items
treated as gross income under the Tax Code.

8. Percentage tax on life insurance premiums collected

from every person, company or corporation doing life
insurance business of any sort in the Philippines, except
purely cooperative companies or associations.

9. Percentage tax on agents of foreign insurance

companies.

10. Percentage tax by way of an amusement taxes on the

proprietors of amusement places like cockpits, cabarets,
night or day clubs, boxing exhibitions, professional
basketball games, jai-alai and race tracks.

11. Percentage tax by way of an amusement taxes on

winners in race horses and jai-alai.

12. Percentage tax on sale of shares of stocks listed and

traded (a) through the local stock exchange or (b)
through initial public offerings

Marginal Income Earners

“Marginal Income Earners” are those whose aggregate
gross sales or receipts are earning less than P100,000
during any 12-month period. They shall neither be subject
to percentage tax nor VAT, including the P500 annual
registration fee.

Question: Under regulations, “Marginal Income Earners”

are still required to register with the BIR. What is the
effect of one’s failure to register as Marginal Income
Earners?

Answer: In case one fails to register as such, he shall be

held liable for the payment of the 3% percentage tax, in
addition to the annual registration fee of P500 per
establishment, plus all the applicable penalties.

Note: With the passage of the TRAIN law (where those

earning P300,000 per year are exempted from paying any
income tax), the recognition of Marginal Income Earners
is still relevant when insofar as the payment of business
tax is concerned.

Transactions Exempt from VAT

Case: ABC Corporation is exempt from VAT. Does it follow

that that it is also exempted from the 3% percentage tax?

Answer: Yes. If a transaction is exempt from VAT, it is

also exempt from the 3% percentage tax. Thus, an
educational institution which is exempt from VAT (if it
meets certain conditions), is also not subject to the
percentage tax irrespective of the amount of its gross
quarterly sales or receipts.

Case: Mr. Antonino owns various properties for lease. He

obtained insurance policies directly from a foreign
insurance company not doing business in the Philippines.
Are the insurance premiums paid by Mr. Antonino subject
to percentage tax?

Answer: No. Since Mr. Antonino directly obtained his

insurance policies with a foreign insurance corporation not
doing business in the Philippines, the insurance premiums
paid by him are not subject to any percentage tax.

Note: However, in all cases where owners of property

obtain insurance directly with foreign companies, it shall
be the duty of said owners to report to the Insurance
Commissioner and to the BIR Commissioner each case
where insurance has been so effected.

Question: Who has the power to levy and collect

amusement taxes on gross receipts from paid admission
fees?

Answer: Under the Local Government Code, the power to

levy and collect the tax on gross receipts from paid
admission fees belongs to the provinces and cities.

Question: When is the operator required to withhold the

percentage tax on the dividends and prizes?

Answer: The tax shall be withheld by the operator,

manager or person in charge of the horse races BEFORE
paying the dividends or prizes.

Note: RA No. 7716 repealed Sections 113, 114, and 115

of the NIRC which imposed percentage taxes on
proprietors or operators of hotels, motels, and other; on
proprietors and operators of restaurants, refreshment
parlors and other eating places including club and caterers
(caterer’s tax); and on dealers in securities and lending
investors, respectively. They are now subject to the
VAT (Sec. 108 NIRC)

EXCISE TAXES ON CERTAIN GOODS

Definition of Excise Taxes in the NIRC

Excise taxes, as used in the Tax Code, refer to taxes

applicable to certain –
(a) specified goods or articles goods enumerated in
Title VI of the NIRC that are manufactured or produced in
the Philippines for domestic sale or consumption, or for
any other disposition; and to

(b) those imported into the Philippines, but excluding

those that are actually exported.

Nature of Excise Taxes

Excise taxes, as used in the Tax Code, are imposed

directly on certain specified goods, manufactured or
produced locally or imported. They are, therefore, taxes
on property.

When classifying taxes according to subject matter or

object, the term “excise tax” or “privilege tax”, is
employed to refer to a tax other than “personal tax” (e.g.
community tax) and “property tax” (e.g. real property
tax). That is NOT the sense in which “excise tax” is used
in the Tax Code as it is in a sense, a property tax.

No Conflict with Local Taxation if it Does Not

Directly Subject the Produce or Goods

There is a proscription under Sec. 133 (h) of RA 7160, or

the LGC, prohibiting the LGUs from subjecting to excise
taxes the articles enumerated under the NIRC, and taxes,
fees or charges on petroleum products.

However, the tax imposed is not an excise tax as imposed

under the NIRC where it does not subject directly the
produce or goods to tax but indirectly as an incident
to, or in connection with, the business to be taxed.

Thus,

(1) A municipal tax or license fee imposed for the storage

of copra and/or hemp in warehouse or for engaging
in buying or selling copra and/or hemp the amount of
the tax or license fee to be collected being based on the
weight (P0.50 for P100 kilos or fraction thereof per
month) is NOT an excise tax. It is a tax on a business of
buying and selling or storing copra (Uy Mateo & Co.,
Inc. vs. City of Cebu, 93 Phil. 300)

(2) Similarly, a municipal tax of “P150 on tin can

factories having a minimum annual output capacity of
30,000” is not an excise tax as it is not one on specified
articles (Shell Co. vs. Vano, 84 Phil. 389)

Purpose and Justification of Excise Taxes

The selective application and imposition of excise taxes

may be justified on any of the following grounds:

(1) To curtail consumption of certain commodities,

excessive or indiscriminate use of which is considered
harmful to the individual or community. Taxes of this kind
are sumptuary in nature and are exemplified by the taxes
on alcoholic beverages and tobacco products;

(2) To protect a domestic industry the products of

which face competition from similar imported articles;
(3) To distribute the tax burden in proportion to
benefit derived from a particular government service.
Examples are the excise taxes on gasoline, lubricating
oils, and denatured alcohol for motor power; and

(4) To raise revenue. The excise taxes have on many

occasions been justified on the pretext of prosecuting any
of the three objectives mentioned above to minimize
opposition to the tax. In reality, however, the main
purpose is to raise revenue.

Goods Subject to Excise Tax

In General –

Excise internal revenue taxes apply to the following:

(1) Locally manufactured or produced goods. – They

refer to goods mentioned in the Tax Code as subject to
excise taxes if manufactured or produced in the
Philippines for domestic sale or consumption or for any
other disposition (Sec. 129, NIRC).

Note: The place of manufacture or production is not

important – the excise tax is imposed whether the goods
are of domestic origin or imported into the country,
so long as such articles (except for minerals and mineral
products), are for local sale or consumption.

Case: ABC Corporation manufactures distilled spirits for

export. They used locally manufactured distilled spirits
from coconuts. After manufacturing them, they shipped
them out to its customers in the US. Are the distilled
spirits manufactured by the ABC Corporation subject to
excise tax? What is the effect of the exportation of the
products to the US?

Answer: The locally manufactured distilled spirits are not

subject to any excise tax considering that they are
NOT for local sale or consumption. However, in the
event that they are subjected to excise taxes, such excise
taxes may be refunded if the products are exported and
upon submission of proof their actual exportation and
upon receipt of the corresponding foreign exchange
payment.

(2) Imported goods. – They refer to goods mentioned in

the Tax Code as subject to excise taxes imported from
foreign countries, in which case, they shall be in addition
to the customs duties, if any (Sec. 129, NIRC). Excise
taxes do not apply to those imported articles which were
neither to be sold, consumed, nor disposed of
locally but were subsequently exported.

Persons Liable for Excise Tax on Importations

Question: Who pays for the excise taxes on imported

articles?
Answer: Excise tax on imported articles shall be paid by
the owner or importer to the Customs Officers,
conformably with the regulations of the Department of
Finance and before the release of such articles from the
customshouse, or by the person who is found in
possession of articles which are exempt from excise
taxes other than those legally entitled to exemption.

The importer is the consignee of the imported article

or the person to whom the bill of lading has been
duly assigned or indorsed. He is the owner of the
goods at the time of the withdrawal thereof from the
customhouse. If the importer sells the imported article
while still in the custody of the Bureau of Customs, the
buyer becomes the owner and, hence, is liable to pay the
tax.

Case: Mr. Baladjay is the consignee of imported goods

subject to excise tax. While still under the jurisdiction of
the BOC, Mr. Baladjay sold his goods to and endorsed the
bill of lading to Mr. Claro. Who is liable to pay the duties
and taxes on the imported goods?

Answer: Mr. Claro, the owner of the goods and the

holder of the bill of lading is liable to pay the duties and
taxes on the imported goods.

Importations Made by Tax-Exempt Persons

In the case of tax-free articles brought or imported into

the Philippines by persons, entities, or agencies
exempt from tax which are subsequently sold,
transferred or exchanged in the Philippines to non-
exempt persons or entities, the purchasers or
recipients shall be considered the importers thereof, and
shall be liable for the duty and internal revenue tax due
on such importation. Conversely, if the purchasers or
recipients are entities exempt from tax, then they shall
not be liable for any duty or internal revenue tax on the
importation.
Case: ABC Corp. is the consignee of imported goods
subject to excise tax. ABC Corp., however, is a
corporation that is given tax and duty exemption on its
importations. While still under the jurisdiction of the BOC,
ABC Corp. sold the goods to and endorsed the bill of
lading to XYZ Corp. which is not a tax-exempt institution.
May the BOC assess XYZ Corp. for duties and taxes on the
imported goods?

Answer: Yes. Since XYZ Corp. was already the owner of

the goods at the time of withdrawal of the goods from the
customs house, it is liable to the duties and taxes on the
imported goods.

Case: ABC Corp. is the consignee of imported goods

subject to excise tax. While still under the jurisdiction of
the BOC, ABC Corp. sold the goods to and endorsed the
bill of lading to XYZ Corp. which is a tax and duty exempt
institution on its importation. May the BOC assess XYZ
Corp. for duties and taxes on the imported goods?

Answer: No. Since XYZ Corp. was already the owner of

the goods at the time of withdrawal of the goods from the
customs house, it is not liable to the duties and taxes on
the imported goods considering that it is a tax and duty
exempt institution.

Imported Article in Bonded Warehouse

In case articles are deposited in a bonded warehouse,

before their sale or disposal, the excise tax payment
may be delayed until removal thereof from the bonded
warehouse. The reason is that the articles while in the
bonded warehouse are still under customs custody.

When Excise Taxes Already Paid

Question: What happens when the excise taxes on the

imported goods deposited in bonded warehouses have
already been paid?
Answer: After the excise taxes thereon have already
been paid, the same shall not be allowed to be stored
or allowed to remain in the distillery, distillery
warehouse, bonded warehouse or other place where
made, otherwise, all such articles shall be forfeited.

Lost Articles Deposited in a Bonded Warehouse

Question: What happens when the articles deposited in a

bonded warehouse are lost, can the BOC still collect
excise taxes thereon?

Answer: No. The loss of the articles subject to excise

taxes before removal from the place of production or
release from customs custody bars the collection of the
tax which is otherwise due thereon, or if the same has
already been paid, entitles the taxpayer to a refund.

Law at the Time of Removal Applies

Case: ABC Corporation imported articles and deposited

them in a bonded warehouse. When the imported articles
arrived in the Philippines, the applicable excise tax rate
was 4%. However, at the time the goods were being
withdrawn from the bonded warehouse, the excise rate
was reduced to 2%. BOC assessed the importer the at 4%
tax rate. Is the assessment correct?

Answer: No. Inasmuch as the excise taxes become due

and payable upon removal of the articles, it follows that
the law in force at the time of removal and not the
law at the time of arrival of the imported article
governs.

Excise Tax and VAT

Case: ABC Corp. imported articles that are exempt from

excise taxes. While the BOC recognized the exemption of
the imported article from excise tax, the BOC assessed
ABC Corp. of VAT on the imported articles. Is the
assessment proper?

Answer: Yes. Imported goods exempt from excise taxes,

unless otherwise provided, are subject to value-added-tax
(VAT). Excise taxes are imposed in addition to VAT.
These two taxes are distinct from each other and the
exemption of one does not carry the exemption of the
other.

Specific Commodities Subject to Excise Taxes –

1. On alcohol products.
2. On tobacco products.
3. On petroleum products.
4. Spirits Under Bond for Rectification.
5. Fermented Liquors to Bonded Warehouse.
6. Damaged Liquors Free of Tax.
7. Tobacco Products Without Prepayment of Tax.
8. Automobiles used exclusively within the free port zones
9. Locally extracted natural gas and liquefied natural gas.

Payment of Excise Tax Before Withdrawal

Excise tax on domestic goods shall be paid by the

manufacturer or producer thereof before the removal
of such goods from the place of production, except
on indigenous petroleum, locally extracted natural gas
and liquefied natural gas which shall be paid by the
first buyer, purchaser or transferee for local sale,
barter or transfer, while the excise tax on exported
products shall be paid by the owner, lessee,
concessionaire or operator of the mining claim.

Question: Who pays for the excise tax in the event the
domestic products are removed from the place of
production without payment of the tax?

Answer: Should domestic products be removed from the

place of production without the payment of the tax, the
owner or person having possession thereof shall be
liable for the tax due thereon.
 DOCUMENTARY STAMP TAX

Nature of Documentary Stamp Tax

A documentary stamp tax is an excise tax or a privilege

tax because it is really imposed on the privilege to
enter into a transaction rather than on the document.
The law taxes the document because of the
transaction. Being a privilege tax, it is paid only once.
(not on the number of copies or documents)

DSTs are levied on the exercise by persons of certain

privileges conferred by law for the creation, revision, or
termination of specific legal relationships through the
execution of specific instruments. Hence, in imposing the
DST, not only the document but also the nature of and
character of the transaction is considered.

DST is not a tax on the business transacted but on

the privilege, opportunity, or facility offered at exchanges
for the transaction of the business. It is an excise tax on
the facilities used in the transaction of the business
separate and apart from the business itself.

DST and Tax on Income

Case: ABC Corp., a BOI-registered enterprise enjoys

income tax holiday (ITH) incentive. During its ITH period
it entered into series of transactions where DSTs are
required to be paid. BIR assessed ABC Corp. for it non-
payment of the DSTs. ABC Corp., however, insists that
since it is entitled to an ITH as an incentive, it should be
required to pay DTS. Is the contention of ABC Corp.
correct?

Answer: No. DST is not a tax on income, but is in the

nature of an excise tax imposed on a transaction or
document. Thus, it is liable to pay DSTs. Its ITH incentive
does not carry exemption from payment of DSTs.
Purpose of DST

The purpose of the law imposing DST on documents,

instruments, and papers is to raise revenue.

Case: Mr. Magulang sold his lot to Mr. Malamya for

P2,000,000. While a Deed of Absolute Sale was signed by
the parties, the same was never notarized and no DST
was paid. Mr. Malamya went to court to enforce their
contract of sale. Magulang claims that the contract of sale
is void as no DST was paid to validate the contract. Is the
contention of Mr. Magulang valid?

Answer: No. While the non-payment of DSTs has

consequences, it does not operate to invalidate
contracts. However, in some instances, it makes certain
contracts unenforceable when not in the required public
document.

When DST Accrues

Question: When should the corresponding DST be paid?

Answer: Section 173, NIRC requires that the

corresponding DST shall be paid at the time “the act is
done or transaction had”. The implication is that the
DST shall be attached to the taxable document (loan
agreements, instruments and papers) at the time it is
issued or executed. The rule, however, is well-settled that
the stamp tax may be paid at any time either before
or at the time the document is presented in
evidence. This is without prejudice to surcharge and
interest under Sec. 249(a), NIRC and to criminal liability
under Sec. 265, NIRC.

Section 173, NIRC states when the DST accrues or is due.

Being a privilege tax, the DST accrues when the
privilege is exercised, regardless of circumstances that
may take place in the future like cancellation or
rescission.
DST Paid Only On Valid Transactions

Case: Mr. A and Mr. B entered into a contract of sale. Mr.

B paid for the DST on the sale. The contract was
subsequently declared null and void by the courts.
Can Mr. B claim a refund on the DST paid by him on the
contract of sale?

Answer: Yes. If the transaction is subsequently annulled

or invalidated by the court, the tax paid may be refunded
because the law presupposes a valid transaction. An
invalid transaction or contract is non-existent.

Period Within Which to Pay the DST

Question: What is the period within which the DST is

required to be paid?

Answer: Except as otherwise provided by rules and

regulations, the tax return shall be filed and the tax due
shall be paid at the same time within five (5) days
after the close of the month when the taxable
document was signed, issued, accepted or transferred. In
lieu of the foregoing, the tax may be paid either through
purchase of DST stamp and actual affixture, or by
imprinting a secured stamp on the taxable document
through the web-based Electronic Documentary Stamp
Tax (eDST) System.

Sale of Real Property on Installment or on Deferred

Payment Basis

Case: Mr. A and Mr. B entered into a Contract to Sell on

Jan. 15, 2010 for the sale of a lot, a capital asset, for the
amount of P5M payable on installment for 5 years. On
Jan. 15, 2015, Mr. B paid the last installment and a
Deed of Absolute Sale was executed between the
parties on the same date. The FMV of the property on
Jan. 15, 2010 was P4M. However, the FMV of the
property on Jan. 15, 2015 increased to P6M. What is
the period within which the DST is to be paid and upon
which amount should be DST be computed?

Answer: For sales of real property on installment or

deferred payment basis, the DST on the sale is
payable only upon execution of the Deed of
Absolute Sale. However, the basis for the DST shall be
the gross selling price or fair market value (FMV) of the
property, whichever is higher, at the time of the
execution of the Contract to Sell. Thus, the DST
should be paid on or before Feb. 05, 2015 and the DST
shall be based on the amount of P5M.

Affixture and Cancellation of DST

DSTs may be paid by the purchase and affixture of

the documentary stamps to the document or
instrument taxed or to such other paper as may be
indicated by law or rules and regulations as the proper
recipient of the stamp, and by the subsequent
cancellation of the same.

The purchase of the stamp is a form of payment

made, and the affixture thereof on the document or
instrument taxed is to insure that the corresponding
tax has been paid and for such document. The purpose
of cancellation is to obviate the possibility that the
stamp cancelled will be reused for similar documents
for similar purposes.

Erroneous Affixture of DST

Question: What is the effect of the erroneous affixture of

the DST?

Answer: The affixture of the documentary stamps to

papers other than those authorized by law is, however,
not tantamount to failure to pay the DST. Hence, the
taxpayer should not be required to pay anew the value
of the documentary stamps which were not properly
affixed. (Fireman’s Fund Insurance Co. vs. CIR, CTA Case
No. 1629, May 26, 1969).

Note: The Supreme Court in the case of Fireman’s Fund

Insurance, however, did not hold that the procedure
of affixing the stamp to any other paper which is
not authorized by law or regulation as valid.

Thus, while the taxpayer may not be required to pay

anew the value of the documentary stamps, the
erroneous procedure in affixing the documentary stamps
renders the same as invalid.

Such that, if the affixing procedure was not valid, the

“failure to stamp a taxable document” as provided in Sec.
201 takes effect, meaning – that the document may
not be recorded, used as an evidence, or notarized.

Persons liable to pay the DST

Both parties to the transaction are liable to pay the

DST. The tax is paid by the person making, signing,
issuing, accepting or transferring the documents. Section
173, NIRC places the burden of paying the tax upon the
parties to the contract and leaves the tax to be paid
indifferently by either party and accordingly, the party
assuming payment of said tax under the contract becomes
directly liable therefor. But if for one reason or another,
the DST is not paid, both the person issuing and the
person to whom the document is issued may be
made liable.

Where one party enjoys exemption from DST

Case: Mr. A and Mr. B entered into a contract subject to

DST of P500. Mr. A, however, is exempted from paying
taxes including the DST. Will Mr. B required to pay the
DST on the contract? If so, for how much?

Answer: The rule is that whenever one party to the

taxable document enjoys exemption from the tax above
imposed, the other party thereto who is not exempt
shall be the one directly liable for the tax. In this
case, Mr. B shall be required to pay the DST on the
contract and for entire amount of P500.

Where to file DST return

Question: Where are the DST returns and filed and paid?

Answer: Except in cases where the Commissioner

otherwise permits, the aforesaid tax return shall be filed
with and the tax due shall be paid through the
authorized agent bank within the territorial
jurisdiction of the Revenue District Office which has
jurisdiction over the residence or principal place of
business of the taxpayer. In places where there is no
authorized agent bank, the return shall be filed with the
Revenue District Officer collection agent, or duly
authorized Treasurer of the City or Municipality in which
the taxpayer has his legal residence or principal
place of business.

Effect of Non-Payment of DST

Question: What is the effect of the non-payment of the

DST?

Answer: Failure to stamp a taxable document does not

invalidate the instrument, document, or paper which is
required by law. However, the following are the effects of
such failure to stamp:

(1) The instrument, document or paper shall not be

recorded (i.e. in the Registry of Deeds);

(2) Such instrument, document or paper shall not be

admitted or used as evidence in any court until the
requisite stamp is affixed thereto and cancelled;

(3) No notary public or other officer authorized to

administer oaths shall add his jurat or
acknowledgment to the document unless the proper
documentary stamp is affixed thereto and cancelled; and

(4) The taxpayer shall be liable to pay the 25%

surcharge on the unpaid amount (Sec. 248, NIRC). In
view of Section 201, NIRC, the DST is due at the same
time the document or instrument evidencing a particular
transaction is notarized (date of reckoning the period
provided under Sec. 5, RR No. 6-2001)

Documents and Instruments Subject to DST

The documentary stamp taxes payable on documents or

instruments are as follows:

1. Original issue of shares of stock (Sec. 174)

2. Sales, agreements to sell, memoranda of sales,
deliveries or transfer of shares or certificates of stock
(Sec. 175)
3. Bonds, debentures, certificates of stocks or
indebtedness issued in foreign countries (Sec. 176)
4. Certificates of profits or interest in property or
accumulations (Sec. 177)
5. Bank checks, drafts, certificates of deposit not bearing
interest and other instruments (Sec. 178)
6. Debt instruments (Sec. 179)
7. Bills of exchange or drafts (Sec. 180)
8. Acceptance of bills of exchange and others (Sec. 181)
9. Foreign bills of exchange and letters of credit (Sec.
182)
10. Life Insurance Policies (Sec. 183) (RA 10001)
11. Policies of insurance upon property (Sec. 184)
12. Fidelity bonds and other insurance policies (Sec. 185)
13. Policies of annuities and pre- need plans (Sec. 186)
14. Indemnity bonds (Sec. 187)
15. Certificates (Sec. 188)
16. Warehouse receipts (Sec. 189)
17. Jai-alai and horse race tickets, lotto or other
authorized numbers games (Sec. 190)
18. Bills of Lading or receipts (Sec. 191)
19. Proxies (Sec. 192)
20. Powers of attorney (Sec. 193)
21. Leases and other hiring agreements (Sec. 194)
22. Mortgages, pledges, and deeds of trust (Sec. 195)
23. Deeds of sale and conveyances of real property (Sec.
196)
24. Charter parties and similar instruments (Sec. 197)
25. Assignments and renewals of certain instruments
(Sec. 198)

Exempt instruments, documents and papers

The following instruments, documents and papers shall be

exempt from documentary stamp tax (Sec. 199):

1. Policies of insurance or annuities made or granted by a

fraternal or beneficiary society, order, association or
cooperative company, operated on the lodge system or
local cooperation plan and organized and conducted solely
by the members thereof for the exclusive benefit of each
member and not for profit;
2. Certificates of oaths administered to any government
official in his official capacity;
3. Certificates of acknowledgment by any government
official in the performance of his official duties;
4. Written appearance in any court by any government
official, in his official capacity;
5. Certificates of the administration of oaths to any person
as to the authenticity of any paper required to be filed in
court by any person or party thereto, whether the
proceedings be civil or criminal;
6. Papers and documents filed in courts by or for the
national, provincial, city or municipal governments;
7. Affidavits of poor persons for the purpose of proving
poverty;
8. Statements and other compulsory information required
of persons or corporations by the rules and regulations of
the national, provincial, city or municipal governments
exclusively for statistical purposes and which are wholly
for the use of the bureau or office in which they are filed,
and not at the instance or for the use or benefit of the
person filing them;
9. Certified copies and other certificates placed upon
documents, instruments and papers for the national,
provincial, city or municipal governments, made at the
instance and for the sole use of some other branch of the
national, provincial, city or municipal governments;
10. Certificates of the assessed value of lands, not
exceeding Two hundred pesos (P200) in value assessed,
furnished by the provincial, city or municipal Treasurer to
applicants for registration of title to land.
11. Borrowing and lending of securities executed under
the Securities Borrowing and Lending Program of a
registered exchange, or in accordance with regulations
prescribed by the appropriate regulatory authority:
Provided, however, that any borrowing or lending of
securities agreement as contemplated hereof shall be duly
covered by a master securities borrowing and lending
agreement acceptable to the appropriate regulatory
authority, and which agreement is duly registered and
approved by the Bureau of Internal Revenue (BIR).
12. Loan agreements or promissory notes, the aggregate
of which does not exceed Two hundred fifty thousand
pesos (P250,000), or any such amount as may be
determined by the Secretary of Finance, executed by an
individual for his purchase on installment for his personal
use or that of his family and not for business or resale,
barter or hire of a house, lot, motor vehicle, appliance or
furniture: Provided, however, that the amount to be set
by the Secretary of Finance shall be in accordance with a
relevant price index but not to exceed ten percent (10%)
of the current amount and shall remain in force at least
for three (3) years.
13. Sale, barter or exchange of shares of stock listed and
traded through the local stock exchange;
14. Assignment or transfer of any mortgage, lease or
policy of insurance, or the renewal or continuance of any
agreement, contract, charter, or any evidence of
obligation or indebtedness, if there is no change in the
maturity date or remaining period of coverage from that
of the original instrument.
15. Fixed income and other securities traded in the
secondary market or through an exchange.
16. Derivatives; Provided, that for purposes of this
exemption, repurchase agreements and reverse
repurchase agreements shall be treated similarly as
derivatives.
17. Interbranch or interdepartmental advances within the
same legal entity.
18. All forebearances arising from sales or service
contracts including credit card and trade receivables;
Provided, that the exemption be limited to those executed
by the seller or service provider itself.
19. Bank deposit accounts without a fixed term or
maturity.
20. All contracts, deeds, documents and transactions
related to the conduct of business of the Bangko Sentral
ng Pilipinas.
21. Transfer of property pursuant to Section 40(C)(2) of
the National Internal Revenue Code of 1997, as amended.
22. Interbank call loans with maturity of not more than
seven (7) days to cover deficiency in reserves against
deposit liabilities, including those between or among
banks and quasi-banks. (Sec. 199, as amended by RA
9243);
23. Deeds to property donated to the government;
24. Certificates of ownership and transfer of chattel;
25. Ordinary bills of sale of personal property and sales of
real property the consideration of which does not exceed
P200;
26. Certificates of acknowledgment on the following
taxable instruments when such certificates are a
necessary part of the instrument:
(a) power of attorney;
(b) contract of lease of land or tenement
(c) deeds of mortgage, pledge, or trust; and
(d) contracts of sale of real property (BIR Primer);
27. Assignments of tax credit certificates as they are not
among those expressly subjected to the tax under Title
VII of the Tax Code (Note: the notarial acknowledgment
to the deed of assignment is subject to tax pursuant to
Sec. 188 NIRC; BIR Ruling No. 113-99, July 29, 1999);
and
28. Remittances of all overseas Filipino workers (OFWs),
upon showing of the same proof of entitlement by the
OFW’s beneficiary or recipient. (RA 10022).