VALUE ADDED TAX
The
In business tax, everything begins in consumption.
We consume goods and service.
It can be actual or constructive consumption.
Actual Consumption – example, bili kang pagkain,
kinain mo. Nagbukas ng ilaw, gumagamit ka ng
kuryente. Sumakay ka sa uber at grab.
Anything in the Philippines may be taxed.
Consumption tax. It is tax on consumption. It is tax
on the purchase, not on the sale. It is tax on the
buyer. He is able to consume because he bought it.
Person being taxed is the buyer. You do not tax the
seller.
How come the seller pays the VAT?
VAT is indirect tax. Being an indirect tax, the impact
of taxation and burden of taxation fall on two
different persons.
Impact means the person to whom the law
originally imposes the tax liability.
Incidence refers to the person who will ultimately
pay the liability.
In indirect tax, seller originally pays but the person
liable is the buyer. Seller is the statutory tax payer.
Buyer is the legal or real taxpayer.
The burden is shifted to the seller.
Two types of Consumption
1. Domestic – the use of the goods and
availment of services happened here.
2. Foreign – the use of the goods and
availment of services happened outside the
Philippines.
Applying the principle of territoriality, we can only
tax consumption within the Philippines. Our
authority is only within our jurisdiction. We do not
tax foreign consumption.
Domestic sale is subject to VAT. Seller and buyer is
domestic.
Importation is subject to VAT. Direction of
importation is from outside to inside. Consumption
is made in the Philippines. Thus, it is subject to VAT.
It does not matter where the sale was made.
question is: where it is consumed?
Exportation is from inside to outside. Consumption
is made outside the Philippines. That is why
exportation is not subject to VAT. It is either zero-
rated or exempt. In either case, you will not pay
VAT. We do not have any authority to tax abroad.
It is zero-rated if the seller is VAT-registered person.
Section 106 (A) (2) (a)
(2) The following sales by VAT-registered persons
shall be subject to zero percent (0%) rate:
(a) Export Sale
If not VAT-registered person, exempt.
Section 109 (1) (o)
(1) Subject to the provisions of Subsection (2) hereof,
the following transactions shall be exempt from the
value-added tax.
(O) Export sales by persons who are not VAT-
registered;
Destination Principle or Cross-Border Doctrine in
relation to Territoriality Principle
What are the business taxes?
1. VAT (Title IV)
2. Other percentage taxes (Title V)
3. Excise Tax
Excise tax is tax on non-essential items, luxury
goods and harmful items. Example: cigarette, liquor
VAT and OPT cannot be imposed simultaneously.
Section 109 (1) (e)
(1) Subject to the provisions of Subsection (2) hereof,
the following transactions shall be exempt from the
value-added tax.
(E) Services subject to percentage tax under Title V;
Shares of stock in domestic stock corporation sold in
a local stock exchange is subject to OPT (1/2 of 1%)
(Section 127). It is not subject to VAT.
In relation to Section 24 (C)
VAT and Excise tax can be imposed simultaneously.
Type of Sales
1. Domestic
2. Foreign or export sale
 a. Actual export sale – the goods
physically was transferred from
Philippines to another country
b. Constructive export sale – goods in
the Philippines are delivered in an
entity in the Philippines, as if the
goods went out of the country.
Example: render a sale located in a
customs territory or economic zone.
They are treated by fiction of law as
foreign territory.
3. Transactions Deemed Sale
Section 106 (A) (2) (a) (1)
The only actual foreign export sale
(1) The sale and actual shipment of goods from the
Philippines to a foreign country, irrespective of any
shipping arrangement that may be agreed upon
which may influence or determine the transfer of
ownership of the goods so exported 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 Bangko Sentral
ng Pilipinas (BSP);
Constructive export sale
Section 106 (A) (2) (a) (2) to (6)
Sale of silver to BSP is subject to VAT.
SEC. 109. Exempt Transactions. (1) (U)
(U) Importation of fuel, goods and supplies by
persons engaged in international shipping or air
transport operations;
Vs. Section 106 (A) (2) (a) (6)
Sale to airline companies – zero-rated.
In either case, they will not pay anything.
Who are the persons liable to pay VAT?
SEC. 105
As business tax, it must be in the ordinary course of
trade or business to be subject to VAT.
Any person sells barters, exchanges, leases goods or
properties, renders services.
If not in the ordinary course of business, you are not
subject to VAT.
When there is importation, it need not be in the
ordinary course of business. Even if it is for personal
use, it is subject to VAT as a general rule.
There are a lot of exempt exportation in Section 109.
What do you mean by in the course of trade or
business?
The phrase "in the course of trade or business"
means 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, nonprofit 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.
What type of government is subject to VAT?
Government entity performing proprietary function.
If it is performing governmental function, it is
exempt to VAT.
GR: Repetitive or habituality
XPN:
1. Importation
2. “including transactions incidental thereto”
3. The rule of regularity, to the contrary
notwithstanding, services as defined in this
Code rendered in the Philippines by
nonresident foreign persons (natural or
juridical) shall be considered as being
rendered in the course of trade or business.
4. Section 106 B Transaction Deemed Sale
A is the owner of the bakery. Through the years, he was
able to keep sacks of flour. B wanted to buy the sacks of
flour. Is it subject to VAT although he is only selling
bread?
Yes. It is incidental to trade of business
CASE: Mindanao II Geothermal Parnership vs CIR
There is a sale of Nissan patrol car. CIR: it is subject
to VAT. Taxpayer: it is isolated transaction.
Even if that is an isolated transaction, a sale of your
service car is a sale incidental to your ordinary
course of trade or business and subject to VAT. The
sale is voluntary.
CASE: CIR vs Magsaysay Shipping Lines
Shipping lines is forwarding company. Sale of ship
is the issue here. BIR: subject to VAT. It is incidental
to the business. Respondent: our business is
forwarding and not selling of ships.
Even if it is transaction incidental thereto, it is NOT
subject to VAT.
Magsaysay is under the private essential program of Philippines is a signatory
the government. The sale is involuntary and not effectively subjects such
subject to VAT. sales to zero rate.
You have to look on the
Expropriation of property is an involuntary sale. international agreement.
Example: PEZA
(Economic Zone Act)
Transactions Deemed Sale No need for BIR There is a need for BIR
Section 106 (B) Transactions Deemed Sale. - The application or approval application and approval
following transactions shall be deemed sale: The word “zero-rated” It must be indicated in
(1) Transfer, use or consumption not in the course of need not be printed in invoice and receipt.
business of goods or properties originally intended your invoice or receipt
for sale or for use in the course of business;
Example: A has a supermarket. There are imported VAT-Exempt Zero-Rated Transaction
corned beef. He had visitors. A got corned beef from Transaction
his supermarket. It is transaction deemed sale and VAT Liability: None VAT : Liability: None
subject to VAT. Base x Zero is always
(2) Distribution or transfer to: zero
(a) Shareholders or investors as share in the profits It will only give you It will give you total
of the VAT-registered persons (property dividend) partial relief. relief.
or When you buy goods, When you purchase, you
(b) Creditors in payment of debt; you have no output. In pay for input. No output
Example: San Miguel beer declared dividends and your purchases, you pay paid. Input tax can be
distributed beers. It is considered as transaction for input refunded. Section 112
deemed sale
If a property in kind was used as payment (dacion Characteristics of VAT
en pago), it is subject to VAT. 1. Indirect Tax
(3) Consignment of goods if actual sale is not made 2. Proportional Tax – fixed rate
within sixty (60) days following the date such goods 3. Does not apply tax pyramiding or cascading
were consigned; (look for the date of actual sale) or tax on tax
(4) Retirement from or cessation of business, with 4. Fiscal Tax
respect to inventories of taxable goods existing as of
such retirement or cessation. Invoice – sale of goods; Tax Base: gross selling price
Receipt – sale of services; TB: gross receipt
VAT is indirect tax
The value-added tax is an indirect tax and the Section 106. "Gross selling price" means the total
amount of tax may be shifted or passed on to the amount of money or its equivalent which the
buyer, transferee or lessee of the goods, properties purchaser pays or is obligated to pay to the seller in
or services. This rule shall likewise apply to existing consideration of the sale, barter or exchange of the
contracts of sale or lease of goods, properties or goods or properties, excluding the value-added tax.
services at the time of the effectivity of Republic Act The excise tax, if any, on such goods or properties
No. 7716. (Section 105) shall form part of the gross selling price.
GSP x 12% VAT = Output Tax
Differentiate Automatic Zero-rating vs Effective To determine GSP, VAT must be excluded.
Zero-Rating
Automatic Zero-Rating Effective Zero-Rating Section 108. "Gross receipts" means the total amount
What appears in Section what appears in Section of money or its equivalent representing the contract
106 A2a 1-6. Because 106 (A)(2)(c) price, compensation, service fee, rental or royalty,
they are specifically Sales to persons or including the amount charged for materials
identified as zero-rated entities whose supplied with the services and deposits and
in the Tax Code exemption under special advanced payments actually or constructively
laws or international received during the taxable quarter for the services
agreements to which the
performed or to be performed for another person,
excluding value-added tax.
Selling price without VAT is 100%
12% of this amount with VAT
Prices are 112%
Selling price x 12 % = Output
112%
Selling price/9.33333= Output
Section 112. Refund of input tax on zero-rated sale -
Refund of input tax arising from zero-rated sale only
vs.
Section 229. Refund of tax erroneously or illegally
collected
Section 228. Protesting of Assessment
Gross sale/gross receipt did not exceed 100,000, no
VAT and no OPT. You are not doing it as business,
but a mere subsistence.
If Gross sale/gross receipt is more than 100,000 but
below, 1,919,500 – registration to VAT is optional
Liable to 12% output and can claim input if opted to
register.
If did not register, you are liable to pay OPT of 3%
If Gross sale/gross receipt is 1,919,500 and up,
registration is mandatory.
Expected sale is P1M. Registration to VAT is
optional. You opt to register. Your actual gross sale
reached P2M. You are VAT-registered. 12% VAT
and can claim input.
Expected sale is P1M and you did not register. Your
liability is 3% OPT. During the year, your sale
reached P2M. The liability now is 12%. Since not
VAT-registered, you cannot claim input tax.
If lot is sold, P1,919,500 is the threshold
If house and lot, P3,199,200 is the threshold
If lease of residential unit, P12,800 is the threshold.
VAT on importation
GR: It is subject to VAT whether or not in trade or
business
XPN: exempt entity on their importation
Asian Development Bank
VAT-exempt entity on importation later on sold the
import. Is there VAT consequence?
Yes. Purchaser may be considered as importer who
will now be liable to pay VAT.
As VAT-registered person, you are given the option
to consider exempt transaction be subject to VAT. It
is irrevocable for 3 years.
As exempt, there is no VAT liability. If you opt to be
subjected to VAT, you are liable to 12% VAT.
So why opt to pay VAT?
For the claim of input tax.
*If you have significant input tax, just register to use
the input tax.
Section 109
A. It only covers marine and agricultural products. It
must be unprocessed to be exempt. Simple process
are still considered in their original state.
L. If sale by cooperative, it is still exempt even
processed or in the original state
B. Specialty feeds are subject to VAT
G. Medical and dental services should not be
rendered under the employer-employee
relationship. This pertains to self-employed
professionals.
CASE: St. Luke’s Medical Center vs CIR
Sale of medicine in the hospital pharmacy. The
pharmacy must be owned and operated by the
hospital to be VAT-exempt if sale is made to in-
patients. If made to out-patient, it is subject to VAT.
If not owned by the hospital, the sale is subject to
VAT
I. It is under employer-employee relationship
H. Government education institution is exempt from
VAT. Private educational institutions accredited by
DepEd, TESDA and CHED.
Sec 109.
P
FIRST LEVEL
Lease of residential unit for it to be subject to VAT,
you have to meet a threshold of P12,800.
However, if the unit is a commercial one, it is
automatically subject to VAT. No more threshold
that has to be met because if being lease
commercially, it is in the ordinary course of business
which is a requirement to be subject to VAT.
How do you define a unit?
It can be a dormitory, apartment, house, or
condominium. Look for the agreement with the
lessor.
For example, the lease contract pertains to a house, it does
not matter how many will be the occupants. If the rent is
for the house, the house is considered as 1 unit only
regardless of the number of occupants. If P30,000 is the
rent for the house and there are 3 occupants, the rent of
each occupant is P10,000. Will that be subject to VAT?
According to the lessor, the rent of each occupant is only
P10,000. Is that correct?
No. The treatment of the house is one unit which the
rent is above the threshold.
If you are renting a house with 3 others, your rent is
P5,000 a month. Since 4 of you are staying there, the rent
is P20,000. Will that be subject to VAT?
No. The unit in the contract is only P5,000.
If you are a bed spacer, 10 kayo sa room. The rent is
P2,000 per person. So per room, the rent is P20,000. Will
that be subject to VAT?
No. Even though the whole unit will amount to
P20,000 but the unit in the contract is P2,000. It is not
subject to VAT.
Monthly rental is on per unit per occupant basis.
SECOND LEVEL
For example, there are 10 units in apartment A with 30
sqm. Unit B has 20 units and 28 sqm area. Unit C has 10
units and 35 sqm area. Monthly rental for every unit A is
P10,000, for B is P15,000 and for C is P20,000. Will the
lessor be subject to VAT?
FIRST: Look for the monthly rental threshold. Only
B and C met the first threshold.
SECOND: Look for the annual rental whether it
would meet the threshold of P1,919,500.
B = P300,000 a month x 12 = P3.6M
C = P200,000 a month x 12 = P2.4 M
Thus, B and C is subject to VAT.
If B has only 1 unit which is P15,000 a month, is it
subject to VAT?
Even though above P12,800, the annual rental is not
met. Thus, it is not subject to VAT.
*Both thresholds must be met to be subject to
VAT.
If you are selling a lot, the threshold is P1,919,500.
If your are selling a house and lot, the threshold is
P3,199,200.
There are 3 adjacent lots owned by A, B and C. Then, E
comes wanting to buy a lot for his house. E told A that he
wants to buy the lot for P1M. It was sold in January 1. E
told B that he will buy his lot in March 1 for P1M. E told
C that he will buy the lot in August 1 for P1M. Are the
sales of the three lots subject to VAT?
No.
What if each lot is sold for P1.5M, is it subject to VAT?
No.
What if A sold to lot for P2M, B for P1M and C for
P1.9M is it subject to VAT?
If engaged in the sale of land, only the sale of A is
subject to VAT. It exceeded the P1,919,500. If it is a
capital asset, it is not subject to VAT.
First and second lot owned by A. third lot owned by B. E
told A that he will buy the lot for P1M in January 1 and
the other lot for P1M in March 1. E told B that he will
buy the land for P1M. The lots are for the house. Is it
subject to VAT?
Only the sale by A since it is for residential house
and lot. As a general rule, you have to meet the
P1,919,500. However, if you are buying lot to
convert it to one residential house, there are certain
requirements.
1. The buyer and the seller must be one and
the same
2. Look at the date of sale. More than two sales
must happen within the period of one year
(not necessarily a calendar year, it must be
within 12 month period.) If it exceeded one
year, the intent to convert it to one
residential lot is only after thought.
3. Meet the threshold requirement
4. The lots must be adjacent
In a condominium, is the parking subject to VAT?
It is treated as a separate unit and always subject to
VAT.
R. Sale of newspaper
1. As to the regularity of publication, it must be on a
regular interval (monthly, quarterly, daily)
2. There has to be a fixed price
3. As to the subscribers, there must be regular
subscribers.
4. The newspaper or magazine must not be
principally devoted to advertisement
Under Sec 109 1W, you are not liable to VAT
because you did not meet the threshold. However,
you are liable to OPT under Sec 116.
The enumeration in Section 109 A to V are exempt
transaction regardless of the level of sale even above
threshold except for lease of residential unit.
Under W, other than those mentioned in A to V
which exceed the threshold of P1,919,500 is subject
to OPT.
How to determine VAT liability?
Compute output tax and input tax. The difference is
the VAT liability.
If the output is higher than the input, there is VAT.
If the output is lower than the input, there is no VAT
liability. The excess of tax may be carried over to the
next quarter.
When do you pay tax?
Pay on the date when you file the return. (Pay as
you file system)
Is there an exception?
Section 114. VAT.
VAT return shall be filed quarterly following the
close of each taxable quarter. Payment shall be made
monthly
If you are engaged in the manufacture of lanterns,
the bulk of purchases of sale of materials would be
from May to August. September to October is
usually the period of sale.
The sources of input taxes
1. Domestic purchases –company located in
the Philippines subject to 12% VAT
2. Importation
3. Transitional input tax of 2%
4. Presumptive input tax
Rate of 12%, 2% and 4%
Transitional input tax - input tax allowed by law to
a taxpayer who will be liable to VAT for the first
time (non-VAT to VAT transition)
This can only be claimed once. It is not a yearly
input tax.
2% of the beginning balance of the goods, inventory,
materials and supplies OR actual input tax paid,
whichever is higher
How can you be liable for VAT for the first time?
1. The first year of operation of the business
and opted to be a VAT-registered person
2. Formerly you are non-VAT registered and
registered to VAT
CASE: Fort Bonifacio Development Corp vs CIR
There is a sale of land to the government, no input
tax. When it was sold again, there is no input tax.
There is a buyer, who wants to claim transitional
input tax on land and improvements.
It is considered as goods and inventory under Sec
106A. Real property is considered as goods. Thus,
the buyer was able to claim input tax.
Presumptive input tax of 4%
There is actually no input tax but the law presumes
that there is. It may only be claimed by persons or
firms engaged in the
1. processing of sardines, mackerel and milk,
and
2. in manufacturing refined sugar and cooking
oil
3. packed noodle-based instant meals
It is considered as primary agricultural products
which are exempt from VAT under Sec 109. There is
no output VAT in exempt properties. If no output,
no input that can be claimed. These products are
already processed since there is no input.
Sec 112. Refund of input tax on zero-rated sales
Sec 228. Protest of assessment
Sec 229. Refund of tax erroneously or illegally
collected
GR: Refund of input tax on zero-rated sales is not
tax erroneously collected. San Roque Power vs CIR
Sec 229 will only apply if the input tax is
erroneously collected.
When you should file the claim?
In Sec 112, it must be filed within 2 years from close
of the quarter when the sales occurred. Look if
calendar of fiscal year.
In Sec 229, it must also be filed within 2 years from
the date of payment of the tax erroneously or
illegally collected.
If you filed a claim on April 1, 2014 to CIR because
in January 1 you had zero-rated sale, it will expire
on March 31, 2016.
If you filed your claim on Feb 1, 2016 to CIR, it is an is filed, BIR
administrative claim. BIR has 120 days to decide the must decide
claim (until May 31, 2016). If the BIR has a decision on within 180
May 31, 2016 denying the refund. If you received the days. If
decision on June 2, what is your remedy? reinvestigation,
You can appeal to CTA within 30 days from the taxpayer has
receipt of the denial. It is already a judicial claim. within 60 days
to submit
Two instances when you can go directly to CTA en supporting
banc: evidence + 180
1. Decision of RTC involving local taxes days to decide
2. Decision of Central Board of Assessment Claim for Claim must be
Appeals (CBAA) regarding real property refund may made within 2
taxes exceed the 2 years only
All other appeals, go to CTA Division. year period
(maximum of 2
If you filed on March 1, 2016, you still have a period years + 120
of 120 days to wait for the resolution of the BIR. If days + 30 days)
may decision na, go to CTA division.
If after 120 days, BIR has no decision, the inaction of CASE: RCBC vs CIR
BIR is denial. You can now appeal to CTA Division Look for the nature of advice issued by BIR whether
within 30 days it is general or specific. If it is general and
interpretative, it is applicable to all taxpayer
GR: San roque Power vs CIR similarly situated.
Period of 120 days plus 30 days is mandatory. If the
period of 120 days has not expired yet, CTA cannot GR: Input tax can always be claimed as a refund
decide the case for lack of jurisdiction. XPN: Transitional input tax – wala ka naming
binayad e
XPN: BIR allowed filing of appeal despite the non-
expiration of 120 days. Effective only for the period Section 115
of Oct 6, 2010 to December 10, 2016. Taxpayer need The Commissioner or his authorized representative
not wait for the expiration of 120 days to appeal if is hereby empowered to suspend the business
there is a decision already. operations and temporarily close the business
establishment of any person for any of the following
Remedy violations:
CIR -> CTA Division -> CTA en banc -> SC via Rule (a)  In the case of a VAT-registered Person. -
45 (1) Failure to issue receipts or invoices;
(2) Failure to file a value-added tax return as
Section 229. required under Section 114; or
For example, A paid tax erroneously on June 1, 2014. (3) Understatement of taxable sales or receipts by
The 2 year period will expire on May 31, 2016. A thirty percent (30%) or more of his correct taxable
applied for refund on January 2, 2016. Decision was sales or receipts for the taxable quarter.
issued on March 3, 2016 denying the refund. A can (b)  Failure of any Person to Register as Required under
go to CTA within 30 days from receipt of decision. A Section 236.
filed appeal to CTA on May 3, 2016. A received the The temporary closure of the establishment shall be
decision denying appeal on May 5, 2016. He only for the duration of not less than five (5) days and
has until May 31 to avail the refund. shall be lifted only upon compliance with whatever
EVERYTHING SHOULD HAPPEN WITHIN 2 requirements prescribed by the Commissioner in the
YEARS. closure order.

Sec 112 Sec 229 Sec 228 CASE: Commonwealth Management Service Corp.
BIR has 120 No period was If vs CIR
days to decide specified reconsideration
Profit is not a consideration before an enterprise is
subject to VAT. Thus, even though CoMaSeCo has
no profit and uses the dues collected for its
expenses, it is still subject to VAT.