VALUE-ADDED TAX (VAT)
106(A)(2),
Tax imposed and collected on every (a)
sale, barter, or exchange of goods or
properties (real or personal), (b) lease of
goods or properties (real or personal) or
(c) rendition of services, all in the course
of trade or business, and (d) importation
of goods (whether or not in the course of
trade or business).
It is an indirect tax, thus, it can be shifted
or passed on to the buyer, transferee, or
lessee of goods, properties or services
(Sec. 105 NIRC).
VAT Roadmap
Output Tax
- Input Tax
___________________
VAT Payable/Excess Input
( Output) ( Input)
Input Tax is defined under Section 110
(A) of the NIRC, as amended, as the value-
added tax due from or paid by a VAT-
registered person on the importation
of goods or local purchase of good and
services, including lease or use of
property, in the course of trade or
business, from a VAT-registered
person, and Output Tax is the value-
added tax due on the sale or lease of
taxable goods or properties or services
by any person registered or required
to register under the law. (Abakada
Guro Party List v. Ermita, G.R. Nos.
168056, 168207, 168461, 168463 &
168730, [September 1, 2005])
Output Tax
May arise from:
- Regular sale (Sec. 106(A)(1)
- Sale of services or lease of
property ( Sec. 108A)
- Transactions deemed sale (106B)
- Zero-rated sales (Sec.
(Sec. 108B)
- Exempt Transaction (Sec. 109)
- Perspective of the seller
Input Tax
May arise from:
- Importation of goods (Sec. 107
- Tax credit (Sec. 110)
- Transitional input tax credit (Sec.
111A)
- Presumptive input tax credit (Sec.
111B)
- Perspective of the buyer
Q: Who is liable to pay VAT?
GR: The seller is the one statutorily liable
for the payment of the tax but the amount
of the tax may be shifted or passed on to
the buyer, transferee or lessee of goods,
properties or services.
XPN: In case of importation, the importer
is one liable to pay for the VAT.
If the seller is VAT exempt, there is no
need to pay VAT on his sales. He will have
to shoulder the burden of the VAT passed
to him by his suppliers for his purchase.
Classification of transactions under the
VAT system
1. VAT-taxable transactions
a. Subject to 12% VAT rate
b. Zero-rated transactions
2. Exempt Transactions
Advantages in imposing VAT
1. Economic growth
2. Simplified Tax Administration
3. Promote honesty
4. Higher governmental revenues
VAT law is non-violative of the
administrative feasibility principle
zuluvictoralpha | 1
The VAT law is principally aimed to
rationalize the system of taxes on goods
and services. Thus, simplifying tax
administration and making the system
more equitable to enable the country to
attain economic recovery. (Kapatiran ng
Mga Naglilingkod sa Pamahalaan v. Tan,
G.R.No.81311, June 30, 1988).
Characteristics of VAT
1. Valued added- it is a tax on value
added of a taxpayer arising from the
sales of goods, properties or services
during the quarter. “Valued added” is
the difference between the total sales
of the taxpayer for the taxable quarter
subject to VAT and his total purchases
for the same period subject also to
value added tax.
2. Tax credit or invoice method-it is
collected through the tax credit
method or invoice method. 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.
3. Sales Tax - VAT is a tax on taxable
sale, barter or exchange of goods,
properties or services.
4. Broad-based tax on consumption in
the Philippines- every sale of goods,
properties, or services at the levels of
manufacturers or producers and
distributors is subject to VAT.
However, the tax burden rests on the
final consumers.
5. Excise tax based on consumption –
it is a tax on the privilege of engaging
in the business of selling goods or
services, or the imprtatio of the goods
6. Indirect tax- it may be shifted or
passed on to the buyers, transferee, or
lessee of the goods, properties or
services as part of the purchase price
7. Ad valorem tax - the amount is based
on the gross selling price or gross
value in money of the goods or
properties sold, bartered or
exchanged or on the gross receipts
derived from the sale or exchange of
services including the use or lease of
properties
8. Not a cascading tax - VAT is not a
cascading tax because it is merely
added as part of the purchase price
and not as a tax because the burden is
merely shifted
9. National tax- imposed by the
national government
10.Revenue or general tax
11.Regressive tax- by its very nature,
VAT is a regressive tax
Q: Does the Constitution prohibit
regressive taxes?
A: NO, What the constitution simply
provides shall evolve a progressive
system of taxation. The constitutional
provision has been interpreted to mean
simply “direct taxes are to be preferred
and as much as possible, indirect taxes
should be minimized” The mandate of
Congress is not to prescribe but to evolve
a progressive tax system. This is a mere
directive upon Congress, not a justiciable
right or legally enforceable one.
(Tolentino et.al. v. Secretary of Finance,
G.R. No. 115455, Oct. 30, 1995).
The principle of progressive taxation has
no relation with the VAT system
inasmuch as the VAT paid by the
consumer or business for every goods
bought or services enjoyed is the same
regardless of income. In other words, the
VAT paid eats the same portion of an
income, whether big or small. The
disparity lies in the income earned by a
person or profit margin marked by a
business, such that the higher the income
or profit margin, the smaller the portion
zuluvictoralpha | 2
of the income or profit that is eaten by
VAT. A converso, the lower the income or
profit margin, the bigger the part that the
VAT eats away. At the end of the day, it is
really the lower income group or
businesses with low-profit margins that
are always hardest hit (ABAKADA Guro v.
Ermita, G.R. No. 168056, September 1,
2005).
Q: How is the regressive effect of VAT
minimized?
A: The law minimizes the regressive
effects of this imposition by providing for
zero rating of certain transactions while
granting exemptions to other
transactions. The transactions which are
subject to VAT are those which involve
goods and services which are used or
availed of mainly by higher income
groups.
Elements of VAT taxable transactions
1. It must be done in the ordinary course
of business;
2. There must be a sale, barter,
exchange, lease of properties, or
rendering of service in the
Philippines; and
3. It is not VAT-exempt or VAT-zero
rated
“In the course of trade or business”
(Rule of Regularity)
It means that regular conduct or pursuit
of commercial business 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 (Sec.
105, NIRC).
This includes incidental transactions.
Thus, the sale of a VAT taxpayer (engaged
in catering business) of its delivery van or
vehicle, while an isolated event, is
considered an incidental transaction in
the course of trade or business. In the
course of its business, MKI bought and
eventually sold its delivery van. Prior to
the sale, the van was part of MKI’s
property, plant and equipment
(Mindanao II Geothermal Partnership v.
CIR, G.R. No. 193301, March 11, 2013).
However, the involuntary sale of vessels
by a taxpayer not engaged in the sale of
vessels pursuant to the government
policy of privatization is NOT subject to
VAT because the sale was not made in the
course of trade or business (CIR v.
Magsaysay Lines Inc., G.R No. 146984, July
28, 2006).
Two conditions of “in the ordinary
course of business”
1. Commercial or economic activity –
it implies that a transaction is
conducted for profit; and
2. Regularity or habituality in the
action – regularity involves more than
one isolated transaction and involves
repetition and involves repetition and
continuity of action.
XPNS to regularity:
1. Non-resident alien – 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
2. Importations – are subject to VAT
whether in the course of trade or
business or not
3. Any business where the gross sales
or receipts do not exceed P100, 000
during the 12- month period shall
be considered principally for
zuluvictoralpha | 3
 subsistence or livelihood and not in attributable thereto. The term “in the
the course of trade or business ordinary course of trade or business”
applies to all transactions. Even a non-
stock, non-profit corporation or
Sale, barter, exchange, lease of goods government entity is liable to pay VAT for
or properties, or rendering of service the sale of good and services. (CIR v.
in the Philippines COMASERCO, G.R. No. 125355, March 30,
When there is no sale, barter or exchange 2000).
of goods or properties, then no VAT
should be imposed. Thus, when an Impact v. Incidence of VAT
affiliate provides funds to a taxpayer who Impact Incidence
then uses the funds to pay a third party
the transaction is not subject to VAT, as Falls on the one The one who bears
there was no sale, barter or exchange statutorily liable the economic
between the affiliate and the taxpayer. for the payment of burden (payment)
The money was simply given as a dole-out tax, thus, the one of tax (VAT), the
(CIR v. Sony Philippines, Inc., G.R No. who can avail of a place at which the
178697, November 17, 2010). tax refund tax comes to rest.

However, if a taxpayer renders service to The seller upon The tax is shifted
an affiliate for a fee (even if the fee is to whom the tax has to the final
merely reimburse costs), the service is been imposed. He consumer or the
subject to VAT. Thus, the collection of collects the tax and buyer of the goods,
condominium –unit onwers are subject to pays it to the properties or
VAT even if they receive payments for government. services as part of
services rendered to its affiliates in trust the purchase price.
and on reimbursement-of-cost basis only,
without realizing profit (CIR v. Effect of VAT being an indirect tax on
COMASERCO, G.R. No. 125355, March 30, Exemptions
2000). If a special law merely exempts a party as
a seller from its direct liability for
NOTE: If the transaction is outside the payment of the VAT, but does not relieve
Philippines, then it is not subject to VAT. the same party as a purchaser from its
indirect burden of the VAT shifted to it by
Profit element not required for VAT to its VAT-registered suppliers, the purchase
be imposed transaction is not exempt. It is because
VAT is a tax on transaction, there is no VAT is a tax on consumption, the amount
need for a taxable gain, unlike in the of which may be shifted or passed on by
income tax. It is not required either by the seller to the purchaser of the goods,
law or jurisprudence. properties or services (CIR v. Seagate
Technology, G.R. No. 153866, February 11,
VAT is a tax on transactions imposed at 2005).
every stage of the distribution process on
the sale, barter, exchange of goods or Persons Liable to Pay VAT (Sec. 105)
property and on the performance of
services, even in the absence of profit

zuluvictoralpha | 4
1. Any person who, in the course of trade
or business, a. sells, barters,
exchanges or leases goods or
properties, or b. renders services; and
2. Any person who imports goods,
whether or not made in the course of
his trade or business
Persons Required to Register for VAT
(Sec. 236)
1. Any person who, in the course of trade
or business, sells, barters, or
exchanges goods or properties, or
engages in the sale or exchange of
services subject to VAT if his gross
sales or receipts for the past 12
month period have exceeded Three
Million Pesos (P3,000,000) or Three
Million Five Hundred Thousand Pesos
(P3,500,000)
2. Any person who, in the course of trade
or business, sells, barters, or
exchanges goods or properties, or
engages in the sale or exchange of
services subject to VAT if his there is
reasonable grounds to believe that his
gross sales or receipts for the next 12
months will exceeded P3,000,000
3. Every person required to register but
he fails to register
4. Any person who imports goods
NOTE: In importation, it shall be the
importer who shall pay VAT upon release
of the goods from the customs territory.
This is an exception to the general rule
requiring a sale before VAT shall be
incurred.
Special considerations to the following
persons:
1. Husband and wife for VAT purposes,
shall be treated as separate taxpayers.
2. Joint ventures, although exempt from
income tax, are liable to value added
tax.
3. Government subject to VAT if they sell
goods, properties or services in the
course of trade or business or when
they perform proprietary functions. In
case of transactions essential for
governmental functions, such are
exempt from VAT.
4. Non-stock, non-profit association
generally, receipts from association
dues or special assessments from
members are not subject to VAT.
Persons Exempt from VAT
1. Any person whose sales or
receipts are exempt under Sec.
109(BB);
2. Not a VAT-Registered Person
SITUS
Goods and services are taxed only in the
country where they are consumed. Thus,
exports are zero-rated, while imports are
taxed
Destination Principle, the goods and
services are taxed only in the country
where these are consumed, and in
connection with the said principle.
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. Thus,
exports are zero-rated, while imports are
taxed.
Export processing zones are to be
managed as a separate customs territory
from the rest of the Philippines and, thus,
for tax purposes, are effectively
considered as foreign territory. For this
reason, sales by persons from the
Philippine Customs Territory to those
inside the export processing zones are
zuluvictoralpha | 5
already taxed as exports. (Atlas
Consolidated Mining and Development
Corporation v. CIR, G.R. No. 141104 &
148763, June 8, 2007).
Exception to the destination principle
Our VAT law clearly provides for an
exception to the destination principle;
that is, for a zero percent VAT rate for
services that are performed in the
Philippines, "paid for in acceptable
foreign currency and accounted for in
accordance with the rules and regulations
of the BSP (Commissioner of Internal
Revenue v. American Express
International, Inc., G.R. No. 152609, June
29, 2005).
Consistent with the destination principle,
the purchases of goods and services
destined for consumption within an
ECOZONE should be free of VAT; hence,
no input VAT should then be paid on such
purchases. With no input VAT paid, there
is nothing to be refunded or credited
under Sec. 112 of the NIRC. (Coral Bay
Nickel Corp. v. CIR, G.R No. 190506, June
13, 2016)
OUTPUT TAX
VAT ON SALE OF GOODS OR
PROPERTIES (SEC. 106)
1. every sale, barter or exchange of
goods or property, or
2. transactions "deemed sale"
of taxable goods or properties at the rate
of 12% of the gross selling price or gross
value in money of the goods or properties
sold in the Philippines.
Tax Base
GROSS SELLING PRICE means the total
amount of money or its equivalent which
the purchaser pays or is obligated to pay
to the seller in consideration of the sale,
barter or exchange of the goods or
properties, excluding VAT. The excise tax,
if any, on such goods or properties shall
form part of the gross selling price.
Accrual basis; considered sale even if not
yet collected
Gross selling price in case of sale or
exchange of real property
It is the consideration stated in the sales
document or the fair market value
whichever is higher.
The term "fair market value" shall mean
whichever the higher is of:
1. The fair market value as determined
by the Commissioner (zonal value), or
2. The fair market value as shown in the
schedule of values of the Provincial
and City Assessors (real property tax
declaration).
Goods or properties
It shall mean all tangible and intangible
objects which are capable of pecuniary
estimation and shall include:
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 any
industrial commercial or scientific
equipment;
d. The right or the privilege to use
motion picture films, films, tapes and
discs;
zuluvictoralpha | 6
e. Radio, television, satellite
transmission and cable television
time.
NOTE: The above is NOT an exclusive list
Sale of Real Properties
Sale of real properties held primarily
liable for sale to customers or held for
lease in the course of trade or business
of the seller shall be subject to VAT.
This however, does not include the sale of
parking lots which may or may not be
included in the sale of condominium
units. The sale of parking lots in a
condominium is a separate and distinct
transaction and is not covered by the
rules on threshold amount not being a
residential lot, house and lot or a
residential dwelling, thus, should be
subject to VAT regardless of amount of
selling price.

Sale of residential lot with gross selling (Details on the threshold amounts
price exceeding P1,919,500, residential discussed further in Exemptions)
house and lot or other residential
dwellings with gross selling price NOTE: It is only the sale of real properties
exceeding P3,199,200, where the primarily held for sale to customers or
instrument of sale (whether the held for lease in the ordinary course of
instrument is nominated as a deed of trade or business of the seller which shall
absolute sale, deed of conditional sale or be subject to VAT. As such, transactions
otherwise) is executed on or after July 1, involving real properties held as capital
2012 shall be subject to 12 % VAT. asset of individuals are not subject to
VAT. However, it may give rise to capital
This includes sale, transfer or disposal gains tax liability.
within a 12-month period of two or more
adjacent residential lots, house and Elements of VAT- taxable sale of goods
lots or other residential dwellings in or properties:
favor of one buyer from the same
seller, for the purpose of utilizing the lots, Sale of goods and Sale or exchange
house and lots or other residential personal of real property
dwellings as one residential area wherein properties
the aggregate value of the adjacent 1. There is an 1. The seller
properties exceeds P1,919,500, for actual or executes a deed
residential lots and P3,199,200 for deemed sale, of sale,
residential house and lots or other barter, or including
residential dwellings. Adjacent residential exchange of dacion en pago,
lots, house and lots or other residential goods or barter, or
dwellings although covered by separate personal exchange,
titles and/or separate tax declarations, properties for assignment,
when sold or disposed to one and the valuable transfer, or
same buyer, whether covered by one or consideration; conveyance or
separate Deed/s of Conveyance, shall be 2. Undertaken in merely
presumed as a sale of one residential lot, the course of contracts to sell
house and lot or residential dwelling. trade or involving real
business; property;
3. For use of 2. The real

zuluvictoralpha | 7
 consumption in property is allowed as deductions from gross selling
the Philippines; located within price:
and the Philippines; a. Discounts
4. Not exempt 3. The seller or - determined and granted at the
from VAT transferor is time of sale,
under Section engaged in real - which are expressly indicated in
109 of NIRC, estate business the invoice,
special law or either as a real - the amount thereof forming part of
international estate dealer, the gross sales duly recorded in
agreement developer or the books of accounts,
binding upon lessor - the grant of which is not
the gov.t of the 4. The real dependent upon the happening of
Philippines property is an a future event
ordinary asset b. Sales returns and allowances for
held primarily which a proper credit or refund was
for sale or for made during the month or quarter to
lease in the the buyer for sales previously
ordinary recorded as taxable sales
course of
business
5. The sale is not VAT ON SALE OF SERVICE AND USE OR
exempt from LEASE OF PROPERTIES (SEC. 108 A)
VAT under Sale or exchange of services, as well as the
Section 109 of use or lease of properties shall be subject
NIRC, special to VAT, equivalent to 12% of the gross
law or receipts (excluding VAT).
international
agreement Tax Base
binding upon GROSS RECEIPTS means the total
the amount of money or its equivalent
government of representing the contract price,
the Philippines compensation, service fee, rental, or
6. The threshold royalty, including the amount charged for
amount set by materials supplied with the services and
law should be deposits and advanced payments actually
met. or constructively received during the
taxable quarter for the services
NOTE: Absence of any of the requisites performed or to be performed for
exempts the transaction from VAT. another person, excluding value-added
However, percentage taxes may apply. tax.

Deductions allowed from gross selling Money basis; consider only amount
price collected.
In computing the taxable base during the
month or quarter, the following shall be Sale or exchange of services

zuluvictoralpha | 8
It means the performance of all kinds of
services in the Philippines for a fee,
remuneration or consideration, whether
in kind or cash, including those
performed or rendered by the following:
1. Construction and service contractors;
2. Stock, real estate, commercial,
customs and immigration brokers;
3. Lessors of property, whether personal
or real
4. Transmission of electricity by electric
cooperatives
5. Persons engaged in warehousing
services;
6. Lessors or distributors of
cinematographic films;
7. Persons engaged in milling,
processing, manufacturing or
repacking goods for others;
8. Proprietors, operators, or keepers of
hotels, inns, motels, rest houses,
pension houses, inns, resorts, theaters
and movie houses
9. Proprietors or operators of
restaurants, refreshment parlors,
refreshment parlors, cafes and other
eating places, including clubs and
caterers;
10. Dealers in securities;
11. Lending investors;
12. Transportation contractors on their
transport of goods or cargoes,
including persons who transport
goods or cargoes for hire and other
domestic common carriers by land
relative to their transport of goods
and cargoes;
13. Common carriers by air and sea
relative to their transport of
passengers, goods or cargoes from
one place in the Philippines to another
place in the Philippines;
14. Sales of electricity by generation,
transmission, and/or distribution
companies;
NOTE: That sale of power or fuel
generated through renewable sources
of energy such as, but not limited to,
biomass, solar, wind, hydropower,
geothermal, ocean energy, and other
emerging energy sources using
technologies such as fuel cells and
hydrogen fuels shall be subject to 0%
VAT.
15. Franchise grantees of electric utilities,
telephone and telegraph, radio and/or
television broadcasting and all other
franchise grantees, except franchise
grantees of radio and/or television
broadcasting whose annual gross
receipts of the preceding year do not
exceed P10,000,000, shall have an
option to be registered as VAT
taxpayer and pay the tax due thereon.
Once the option is exercised, said
option shall not be irrevocable.
16. Non-life insurance companies (except
their crop insurances), including
surety, fidelity, indemnity and
bonding companies; and
17. Similar services regardless of whether
or not the performance of thereof calls
for the exercise or use of the physical
or mental faculties.
This shall likewise include:
1. The lease or the use of or the right or
privilege to use any copyright, patent,
design or model plan, secret formula
or process, goodwill, trademark, trade
brand or other like property or right;
2. The lease or the use of, or the right to
use of any industrial, commercial or,
scientific equipment;
3. The supply of scientific, technical,
industrial or commercial knowledge
or information;
4. The supply of any assistance that is
ancillary and subsidiary to and is
furnished as a means of enabling the
zuluvictoralpha | 9
 application or enjoyment of any such
property, or right as is mentioned in
subparagraph (2) or any such
knowledge or information as is
mentioned in sub paragtaph 3.
5. The supply of services by a non-
resident person or his employee in
connection with the use of property or
rights belonging to, or the installation
or operation of any brand, machinery
or other apparatus purchased from
such nonresident person;
6. The supply of technical advice,
assistance or services rendered in
connection with technical
management or administration of any
scientific, industrial or commercial
undertaking, venture, project or
scheme;
7. The lease of motion picture films,
films, tapes and discs; and
8. The lease or the use of or the right to
use radio, television, satellite
transmission and cable television
time
NOTE: The above list are not exclusive
Requisites for the taxability of sale or
exchange of services or lease or use of
property
1. There is a sale or lease or the use
of property enumerated in the law
or other similar services
2. The services is performed or to be
performed in the Philippines
3. The service is in the course of
trade of taxpayer’s trade or
business or profession
4. The service is for a valuable
consideration actually or
constructively received
5. The service is not exempt under
the NIRC, special law or
international agreement
NOTE: Absence of any of the requisites
renders the transaction exempt from VAT
but may be subject to other percentage
tax under Title V of the NIRC.
TRANSACTION DEEMED SALE (SEC. 106
B)
There is no actual sale of goods took place
but such transactions are subject to VAT.
In a transaction deemed sale, the input
VAT was already used by the seller as a
credit against output VAT. However, since
there was no actual sale, no output VAT is
actually charged to customers.
Consequently, the State will be deprived
of its right to collect the output VAT. To
avoid the situation where a VAT
registered taxpayer avail of input VAT
credit without being liable for
corresponding output VAT, certain
transactions should be considered sales
even in the absence of actual sale
The following are transactions deemed
sale and therefore subject to VAT:
1. Transfer, use or consumption in the
course of business of goods or
properties originally intended for sale
or for use in the course of business
(i.e., when a VAT-registered person
withdraws goods from his business
for his personal use)
2. Distribution or transfer to:
a. Shareholders or investors as share
in the profits of the VAT-
registered persons
b. Creditors in payment of debt
3. Consignment of goods if actual sale is
not made within sixty (60) days
following the date such goods were
consigned
4. Retirement from or cessation of
business with respect to all goods on
zuluvictoralpha | 10
 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.
CHANGES OR CESSATION OF STATUS
AS VAT-REGISTERED PERSON
To be subject to zero tax-rate, however,
the seller must be a VAT-registered
person because if he is not VAT
registered, the transactions entered into
by him are exempt from the tax.
Purpose: To exempt the transaction
completely from VAT previously collected
since input taxes passes to him may be
recovered as refund or credits.

The following change in or cessation of The zero-rated seller becomes

status of a VAT registered person are internationally competitive by allowing
subject to VAT: the refund or credit of input taxes that are
1. Change of business activity from VAT attributable to export sales (CIR v.
taxable status to VAT-exempt status. Seagate Technology (Phil.), G.R. No.
2. Approval of a request for cancellation 153866, Feb. 11, 2005).
of registration due to reversion to
exempt status. Zero-Rated v. VAT-Exempt
3. Approval of a request for cancellation
of registration due to a desire to BASIS ZERO- VAT-
revert to exempt status after the lapse RATED EXEMPT
of 3 consecutive years from the time Nature of Not Taxable for
of registration by a person who transaction taxable; VAT
voluntarily registered despite being removes although
exempt under Sec 109 (2) of the NIRC. VAT at the the tax
4. Approval of a request for cancellation exempt levied is at
of registration of one who commenced stage 0%
business with the expectation of gross By whom Need not Made by a
sales or receipt exceeding P1, 919, made be a VAT- VAT-
500 but who failed to exceed this registered registered
amount during the first 12 months of person person
operations. Input tax Not subject May claim
to output input tax
tax, thus credit
ZERO-RATED SALES (SEC. 106A2(a), cannot although
NIRC) claim input the
Zero-rated sale by a VAT-registered tax credit transaction
person is a taxable transaction for VAT resulted to
purposes but the sale does not result in zero output
any output tax. However, the input tax on tax
the purchases of goods, properties or Tax Cannot Can claim
services related to such zero-rated sale credit/refun avail. May
shall be available as tax credit or refund. d result in
increased

zuluvictoralpha | 11
 prices
Simply put, the difference lies in the input
ZERO-RATED VAT-EXEMPT tax. In VAT- exempt transactions there is
It generally refers In VAT-exempt no input tax credit allowed. In the case of
to the export sale of sales, the 0% rated transaction of a VAT registered
good and supply of taxpayer/seller person, the sale of goods or properties is
services. The shall not bill any multiplied by 0% thus his output tax is P
output tax rate is output tax on his 0.00. If the person is VAT registered, he
set at zero. When sales to his may claim such input tax as tax credit or
applied to the tax customers and refund.
base, such rate corollarily, is not
obviously results in allowed any credit ZERO RATED SALE OF GOODS
no tax chargeable or refund of the 1. Export sales
against the input taxes he paid 2. Effectively zero-rated sales
purchaser. on his purchases.
Export Sales
The seller of such This non-crediting 1. The sale and actual shipment of goods
Transactions of input taxes is from the Philippines to a Foreign
charges no output exempt country:
tax but can claim a transactions is the a. irrespective of any shipping
refund or tax credit underlying reason arrangement; and
certificate for the why the NIRC b. paid for in acceptable foreign
VAT previously adopted the rule on currency or its equivalent in
charged by apportionment of goods or services and accounted
suppliers (AT&T tax credits under for in accordance with the rules
Communications Section 104(A) and regulations of BSP.
Services Phils., Inc. whenever a VAT- 2. Sale of raw material or packaging
v. CIR, G.R. No. registered taxpayer material by a VAT-registered entity to
182364, August 3, engages in other a Non- resident buyer
2010). VAT taxable and a. For delivery to a resident local
non-VAT taxable export oriented enterprise;
No VAT shall be sales (CIR v. b. used in the manufacturing,
shifted or passed- Eastern Telecomm. processing, packing, repacking
on by VAT- Phils., Inc., G.R. No. in the Philippines of the said
registered sellers 163835, July 7, buyer’s goods;
or suppliers from 2010). c. paid for in acceptable foreign
the Customs currency and accounted in
Territory on their accordance with the rules of
sale, barter or BSP.
exchange of goods, 3. Registered enterprises within
properties or separate custom territory as provided
services to the by special laws.
subject registered 4. Registered enterprises within
Freeport Zone tourism enterprise zones as approved
enterprises. by TIEZa.

zuluvictoralpha | 12
5. International shipping or EFFECTIVELY ZERO RATED
international air transport TRANSACTION (SEC. 106A2(b), NIRC)
operations, PROVIDED that:
a. Goods, supplies, equipment, and The term “effectively zero rated sale of
fuel shall be used; and goods properties” shall refer to the local
b. For international shipping or air sale of goods and properties by a VAT-
transport operations registered person to a person or entity
6. Sale of raw material or packaging who was granted indirect tax exemption
materials to Export oriented under special laws or international
enterprise whose export sales exceed agreement.
70% of total annual production
7. Sale of Gold to BSP Since the buyer is exempt from indirect
8. Those considered as export sales tax, the seller cannot pass on the VAT and
under the Omnibus Investment Code therefore, the exemption enjoyed by the
buyer shall extend to the seller, making
the sale effectively zero rated.
FOREIGN CURRENCY DENOMINATED
SALE
The phrase 'foreign currency denominated Effectively Zero-rated vs. Automatic
sale' means sale to a nonresident of Zero-rated transaction
goods, except those mentioned in
Sections 149 and 150 assembled BASIS EFFECTIVEL AUTOMATIC
manufactured in the Philippines for Y ZERO- ZERO-RATED
delivery to a resident in the Philippines, RATED
paid for in acceptable foreign currency Nature to sales to Refers to
and accounted for in accordance with the persons or export sales
rules and regulations of the Bangko entities and foreign
Sentral ng Pilipinas (BSP) (Sec. 106[A][2] whose currency
[b], NIRC). exemption denominated
under special sales
NOTE: Section 149 refers to excise tax on laws or
automobiles. Section 150 refers to excise international
tax on nonessential goods. agreements
to which the
Requisites: Philippines is
1. The buyer must be a non-resident; a signatory
2. The goods sold must be assembled or Need to Required to Not required
manufactured in the Philippines; apply for apply for to secure BIR
3. Goods sold are to be delivered to a zero- zero-rating approval
resident of the Philippines; and rating and BIR
4. Paid for in acceptable foreign approval is
currency and accounted for in necessary
accordance with the rules and For The Primarily
regulations of the BSP. whose purchaser intended to be
benefit who, not enjoyed by
being directly the

zuluvictoralpha | 13
 and legally seller who is to a person engaged in business
liable for the directly and conducted outside the Philippines or
payment of legally liable to a nonresident person not engaged
the VAT, will for the VAT, in business who is outside the
ultimately making such Philippines when the services are
bear the seller performed, the consideration for
burden of the internationall which is paid for in acceptable foreign
tax shifted by y currency and accounted for in
the suppliers. competitive accordance with the rules and
by regulations of the BSP;
allowing the 3. Services rendered to persons or
refund or entities whose exemption under
credit of input special laws or international
Stampin Required Not required agreements to which the Philippines is
g of a signatory effectively subjects the
“zero- supply for such services to 0 % rate;
rated” 4. Services rendered to persons engaged
on VAT in international shipping or
invoice international air transport operations,
or including leases of property for use
receipt thereof; shall only be exclusively used
Effect Results in no tax chargeable for international shipping or air
against the purchaser. transport operations
5. Services performed by subcontractors
The seller can claim a refund and/or contractors in processing,
or a tax credit certificate for converting, or manufacturing goods
the VAT previously charged by for an enterprise whose export sales
suppliers. exceed 70% of total annual
production
6. Transport of passengers and cargo by
ZERO-RATED SALE OF SERVICE (SEC. air or sea vessels from the Philippines
108 B) to a foreign country; and
The following services performed in the 7. Sale of power or fuel generated
Philippines by VAT- registered persons through renewable sources of energy
shall be subject to zero percent (0%) rate. such as, but not limited to, biomass,
solar, wind, hydropower, geothermal,
1. Processing, manufacturing or ocean energy, and other emerging
repacking goods for other persons energy sources using technologies
doing business outside the Philippines such as fuel cells and hydrogen fuels
which goods are subsequently 8. Registered enterprises within a
exported, where the services are paid separate customs territory as
for in acceptable foreign currency and provided for by special laws
accounted for in accordance with the 9. Registered enterprises within tourism
rules and regulations of the BSP; enterprise zones as declared by TIEZA
2. Services other than those mentioned
in the preceding paragraph rendered

zuluvictoralpha | 14
Requirements to qualify for zero-
rating
1. The services other than “processing,
manufacturing or repacking of goods”
must be performed in the Philippines,
2. That the payment for such services be
in acceptable foreign currency
accounted for in accordance with BSP
rules, and that
3. The recipient of such services is doing
business outside the Philippines
In CIR vs. American Express International,
Inc., (2005), the Court ruled that the
Legislature does not intend to impose the
condition of being "consumed abroad" in
order for services performed in the
Philippines by a VAT-registered person to
be zerorated. In this case, the taxpayer
renders in the Philippines and facilitates
the collection and payment of receivables
belonging to its non-resident foreign
client, for which it gets paid acceptable
foreign currency inwardly remitted and
accounted for in conformity with BSP
rules and regulations.
In Accenture Inc. vs CIR (2012), the Court
ruled that the recipient of the service
must be doing business outside the
Philippines for the transaction to qualify
for zero-rating under Section 108 (B) of
the NIRC. To come within the purview of
Section 108 (B) (2), it is not enough that
the recipient of the service be proven to
be a non -resident foreign corporation.
VAT-EXEMPT TRANSACTIONS (Sec.
109)
Refers to the sale of goods or properties
and/or services and the use or lease of
properties that is not subject to VAT
(output VAT) and the seller is not allowed
any tax credit of VAT (input VAT) on
purchases
NOTE: The object of exemption from VAT
may either be the transaction itself or any
of the parties to the transaction.
An exempt transaction involves goods
or services which, by their nature are
specifically listed in and expressly
exempted from VAT under the Tax Code,
without regard to the status of the parties.
Transaction is not subject to VAT but the
seller is not allowed any tax refund of or
credit for any input taxes paid.
An exempt party is a person or entity
granted VAT exemption under the Tax
Code, a special law or an international
agreement to which the Philippines is a
signatory, and by virtue of which its
taxable transactions become exempt from
VAT. Such party is not subject to the VAT
but may be allowed a tax refund of or
credit for input taxes paid, depending on
its registration as a VAT or non-VAT
taxpayer.
Transactions exempt from VAT:
(A) Sale or importation of 
i. agricultural and marine food
products in their original state
ii. livestock and poultry of a kind
generally used as, or yielding or
producing foods for human
consumption; and breeding stock
and genetic materials therefore.
NOTE: Shall be considered in their
“original state” even if they have
undergone the simple process of
preparation or preservation for
the market (freezing, drying,
salting, etc)
zuluvictoralpha | 15
 Polished and/or husked rice, corn, ii. wearing apparel, 
grits, raw cane sugar and molasses, iii. domestic animals, and 
ordinary salt and copra shall be iv. personal household effects
considered in their original state. belonging to persons coming to
settle in the Philippines or
Non-food products are not Filipinos or their families and
included. descendants who are now
residents or citizens of other
NOTE: Refined sugar (sucrose countries, such parties
content is 99.5 and above) is hereinafter referred to as OFWs,
subject to VAT. Raw sugar refers to in quantities and of the class
sugar produced by a simple suitable to the profession, rank or
process of conversion of sugar position of the persons importing
cane without need of any said items, for their own use and
mechanical or similar device. not for barter or sale,
accompanying such persons, or
(B) Sale or importation of  arriving within a reasonable
i. fertilizers;  time: 
ii. seeds, seedlings and
fingerlings;  PROVIDED, that the BOC may,
iii. fish, prawn, livestock and upon the production of
poultry feeds, including satisfactory evidence that such
ingredients, whether locally persons are actually coming to
produced or imported, used in the settle in the PH and that the
manufacture of finished feeds goods are brought from their
(except specialty feeds for race former place of abode, exempt
horses, fighting cocks, aquarium such goods from payment of
fish, zoo animals and other animals duties and taxes:
generally considered as pets);
PROVIDED FURTHER, that
(C) Importation of personal and vehicles, vessels, aircrafts,
household effects belonging to  machineries and other similar
i. the residents of the Philippines goods for use in manufacture,
returning from abroad and  shall not fall within this
ii. nonresident citizens coming to classification and shall therefore
resettle in the Philippines: be subject to duties, taxes and
other charges.
Provided: That such goods are
exempt from customs duties under (E) Services subject to percentage tax
the Tariff and Customs Code of the under Title V;
Philippines;
(F)  Services by 
(D) Importation of  i. agricultural contract growers
i. professional instruments and and 
implements, tools of trade,
occupation or employment,

zuluvictoralpha | 16
 ii. milling for others of palay into
rice, corn into grits and sugar
cane into raw sugar;
(G) Medical, dental, hospital and
veterinary services except those
rendered by professionals.  3. coordinating centers for their
Note: Laboratory services are
exempted because it is a hospital
service.  4. do not earn or derive income
Sale of drugs to in-patients are
exempt but to out-patients are
vatable.  international agreements to which
NOTE: Philhealth is not vat-
exempt because it is not rendering
medical service.
 
(H) Educational services rendered by
private educational institutions, duly
accredited by the Department of
Education(DepED), the Commission
on Higher Education (CHED), the
Technical Education and Skills
Development Authority (TESDA)and
those rendered by government
educational institutions;
NOTE: Educational services refers to
academic, technical or vocational
education provided by those
accredited by DepED/CHED/TESDA
or government educational
institutions. It does NOT include
training, review classes and other
similar services rendered by persons
who are not accredited by
DepEd/CHED/TESDA.
(I) Services rendered by individuals
pursuant to an employer-employee
relationship.
(J) Services rendered  and net surplus ratably distributed
i. by regional or area headquarters
established in the Philippines by
multinational corporations
ii. which act as 
1. Supervisory,
2. communications and
affiliates, subsidiaries or
branches in the Asia-Pacific
Region and 
from the Philippines;
(K) Transactions which are exempt under
the Philippines is a signatory or
under special laws, except those
under Presidential Decree No. 529;
(L) Sales by agricultural cooperatives
duly registered with the Cooperative
Development Authority to their
members as well as sale of their
produce, whether in its original state
or processed form, to non-members;
their 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;
(M)Gross receipts from lending activities
by credit or multi-purpose
cooperatives duly registered with the
Cooperative Development Authority;
(N) Sales by non-agricultural, non-
electric and non-credit cooperatives
duly registered with the Cooperative
Development Authority: Provided,
That the share capital contribution of
each member does not exceed Fifteen
thousand pesos (P15, 000) and
regardless of the aggregate capital
zuluvictoralpha | 17
 among the members;
(O) Export sales by persons who are not
VAT-registered;
Rules on Export Sales
1.  By  Non-VAT registered-
VAT exempt
2. By VAT-registered- vatable
at 0% (zero-rated)
NOTE: Reason is to encourage
exporters of goods to register as
VAT-registered person with the
BIR to be able to claim unused
input tax return in the form of
refund or tax credit.
(P) Sale of real properties, namely:
i. Sale of RP  not primarily held for
sale to customers or held for
lease in the ordinary course of
trade or business
NOTE: If used in the ordinary
course of business, it will be
subject to CGT under Sec.
24(D).  and below
NOTE: However, even if the real
property is not held for sale to
customers or held for lease in
the ordinary course but the
same is used in the trade or
business of the seller, the sale
thereof shall be subject to VAT
being a transaction incidental to
the taxpayer’s main business.
(RR 13-2018)
ii. Sale of real property utilized for
low-cost housing  not exceed P1,500,000.
NOTE: Low-cost housing refers
to housing project intended for
homeless low-income family
beneficiaries, undertaken by
government or private
developers, either condominium
or subdivision, registered and
licensed by the HLURB, wherein
the unit selling price is within the
selling price per unit as set by the
Housing and Dev’t Coordinating
Council.
iii. Sale of real property utilized for
socialized housing 
NOTE: Socialized housing refers
to housing programs and projects
covering houses and lots or home
lots only undertaken by the
government or the private sector
for the underprivileged and
homeless citizens. (RR 13-2018)
iv. residential lot valued at One
million pesos (P1,500,000) and
below, house and lot, and other
residential dwellings valued at
Two million five hundred
thousand pesos (P2, 500, 000)
NOTE: RR 16-2011 already
increased the threshold amount of
residential lots to P1,919,500 and
other residential dwellings to
P3,199,200. 
NOTE: If 2 or more adjacent lots
are sold or disposed in favor of one
buyer, for the purpose of utilizing
the lots as one residential lot, the
sale shall be exempt from VAT only
if the aggregate value of the lots do
Adjacent residential lots, although
covered by separate titles/tax
declarations, when sold or
disposed to one and the same
zuluvictoralpha | 18
 buyer, whether covered by 1 or
separate Deed of Conveyance, shall
be presumed as a sale of one
residential lot. (RR 13-2018)
However, this does not include the
sale of parking lot which may or
may not be included in the sale of
condominium units. Sale of
parking lots in a condominium is a
separate and distinct transaction;
thus, subject to VAT regardless of
amount of selling price.  monthly rentals not exceeding
NOTE: Beginning January 1, 2021,
the VAT exemption shall only
apply to sale of real properties not
primarily held for sale to
customers of held for lease in the
ordinary course of 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;
NOTE: Every 3 years thereafter,
the amount herein stated shall be
adjusted to its present value using
the Consumer Price Index, as
published by the PH Statistics
Authority;  newspaper, magazine review or
 NOTE: the threshold given by the
Revenue Regulation is still applicable
because TRAIN Law retained the
codal threshold but did not
necessarily repealed RR 16-2011
(Q) Lease of a residential unit with a
monthly rental not exceeding
P15,000;
NOTE: “Residential units” shall refer
to apartments and houses & lots used
for residential purposes and
buildings or parts or units thereof
solely used as dwelling places except
motels, hotels etc.
“Unit” shall mean an apartment unit
in the case of apartments, house in
the case of residential houses, per
person in the case of dormitories,
boarding houses and bed spaces, and
per room in case of rooms for rent.
NOTE: TRAIN expanded the VAT
exemption to include those with
P15,000 (prior to train-P10k only)
and removed the provision on
adjustment of the amount based on
Consumer Price Index as published
by the NSO.
Note: From RR 13-2018: The lease of
residential units where monthly rental
per unit exceeds P15k, but the
aggregate of such rentals of the lessor
during the year do not exceed
P3,000,000, shall likewise be exempt
from VAT; however, shall still be
subject to 3% percentage tax under
Sec 116.  
(R) Sale, importation, printing or
publication of books and any
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;
(S) Transport of passengers by
international carriers;
(T) Sale, importation or lease of
passenger or cargo vessels and
aircraft, including engine, equipment
and spare parts thereof for domestic
or international transport operations;
zuluvictoralpha | 19
 ii. A shareholder exchanges
(U) Importation of fuel, goods and stock in a corporation solely
supplies by persons engaged in for the stock of another
international shipping or air corporation
transport operations; iii. A security holder of a
corporation exchanges his
NOTE: TRAIN added the proviso “that securities in such corporation
the fuel, goods and supplies shall be solely for stock or securities
used for international shipping or air in another corporation.
transport operations” in order to be
entitled to VAT exemption.  (Y) Association dues, membership fees
and other assessment and charges
(V) Services of  collected by homeowners
i. bank,  associations and condominium
ii. non-bank financial intermediaries corporations
performing quasi-banking
functions, and  NOTE: The reason is because it’s on a
iii. other non-bank financial purely reimbursement basis.
intermediaries; 
(Z) Sale of gold to the BSP
NOTE: Pawnshops are not
classified as lending investors and (AA) Sale of drugs and medicines
therefore, they are not subject to prescribed for diabetes, high
VAT. However, they shall be cholesterol and hypertension
subject to percentage tax imposed beginning January 1, 2019
on Section 122 of NIRC.
(Tambunting v CIR, 2010) (BB) Sale or lease of goods or properties
or the performance of services other
(W) Sale or release of goods and than the transactions mentioned in
services to senior citizens and the preceding paragraphs, the gross
persons with disability, as provided annual sales and/or receipts do not
under RA 9994 and 10754.  exceed the amount of P3,000,000.

(X) Transfer of property pursuant to NOTE: Correlate with Section 116

Section 40(c)(2) of the NIRC 

Sec 40(C)(2). Exception- No gain Sec. 109(2)- A VAT-registered person

or loss shall be recognized if in
pursuance of a plan of merger or
consolidation-
i. A corporation exchanges
property solely for stock in a
corporation (both are parties
to the merger/consolidation)
may elect that the exemption mentioned
in Sec. 109(1) not apply to its sale of
goods or properties or services. However,
once an election has been made, it shall be
irrevocable for a period of 3 years from
the quarter the election was made.
XPN: Franchise grantees of radio and TV
broadcasting whose annual gross receipts
for the preceding year do not exceed

zuluvictoralpha | 20
P10,000,000- the option becomes
perpetually irrevocable.
NOTE: Reason for electing VAT
registration- A VAT-registered person
who opted to be subject to VAT may avail
of the input tax credit, thus, reducing his
tax liability. However, a VAT-registered
person who opted to be exempt
therefrom cannot avail of the input tax
credit.
VAT ON IMPORTATION OF GOODS
(SEC. 107)
Importation is an act of bringing goods
and merchandise into a country
(Philippines) from a foreign country.
VAT is imposed on goods brought into the
Philippines, whether for use in business
or not, except those specifically exempted
under Section 109 (1) of the NIRC.
Purpose: This is to protect our local or
domestic goods or articles and to regulate
the entry or introduction of foreign
articles to our local market.
Tax base of VAT importation
GR: The tax base shall be based on the
total value used by the BOC in
determining tariff and customs duties
plus customs duties, excise taxes, if any,
and other charges to be paid by the
importer prior to the release of such good
from customs custody. (DUTIABLE
VALUE)
XPN: In case the valuation used by the
BOC in computing customs duties is based
on volume or quantity of the imported
goods, the landed cost shall be the basis
for computing VAT.
LANDING COST+ – consist of the invoice
amount, custom duties, freight, insurance
and other charges. If the goods imported
are subject to excise tax, the excise tax
shall form part of the tax base.
The same rule applies to technical
importation of goods sold by a person
located in Special Economic Zone to a
customer located in customs territory.
Payment of tax on imported goods
The VAT on importation shall be paid by
the importer prior to the release of such
goods from customs custody.
Beginning and end of importation
Importation begins when the carrying
vessel or aircraft enters the Philippine
territory with the intention to unload
therein. Importation is deemed terminated
when the duties, taxes and other charges
due upon the goods have been paid or
secured to be paid at the port of entry or
in case the goods are deemed free of
duties, taxes and other charges when the
goods have legally left the jurisdiction of
the Bureau.
Transfer of goods by tax-exempt
person
Consequence if a tax exempt person
would transfer imported goods to a non-
exempt person:
The purchaser or transferee shall be
considered as an importer and shall be
held liable for VAT and other internal
revenue tax due on such importation.
TAX CREDIT (SEC 110)
Input Tax means the value-added tax due
on or paid by a VAT-registered person on
importation of goods or local purchase of
zuluvictoralpha | 21
goods, properties or services, including
lease or use of properties, in the course of
his trade or business. It also includes the
transitional input tax and the
presumptive input tax determined in
accordance with Sec. 111. It includes
input taxes which can be (1) directly
attributed to transactions subject to the
VAT plus (2) a ratable portion of any
input tax which cannot be directly
attributed to either the taxable or exempt
activity.
Output Tax means the value-added tax
due on the sale or lease of taxable goods
or properties or services by (1) any
person registered or (2) required to
register under Sec 236 of the NIRC. It is
what the seller passes on to the
purchases. It may come from (1) actual
sales or (2) transactions deemed sale.
NOTE: What is output tax to the seller is
input tax to the purchaser.
Sources of Creditable Input Tax
Any input tax evidenced by a VAT invoice
or official receipt issued in accordance
with Sec 113 shall be creditable against
the output tax:
1. Purchase or importation of goods:
a. for sale
b. for conversion into or intended to
form part of a finished product for
sale including packaging materials,
or
c. for use as supplies in the course of
business
d. For use as materials supplied in the
sale of service for use in the trade or
business for which deduction for
depreciation or amortization is
allowed under this Code (Capital
Goods)
Capital Goods (depreciable goods) are
those goods or properties: (1) with an
estimated useful life of more than 1 year
(2) which are treated as depreciable
under the income tax law (3) and used
directly or indirectly in the production or
sale of taxable goods or services.
Input tax on capital goods:
1. If the aggregate cost exceeds P1M-
Where a VAT registered person
purchases or imports capital goods,
the aggregate acquisition cost of
which in a calendar month exceeds
P1M, regardless of the acquisition
cost of each capital good, shall be
claimed as credit against output tax in
the following manner:
a. If the estimated useful life of a
capital good is 5 yrs or more- input
tax shall be spread evenly over a
period of 60 months and the claim
for input tax credit will commence
in the calendar month when the
capital good is acquired
b. If the estimated useful life is less
than 5 yrs- Input tax shall be spread
evenly on a monthly basis dividing
the input tax by the actual number
of months comprising the estimated
useful life of the capital good. Such
claim for input tax shall commence
in the calendar month that the
capital goods were acquired..
2. Aggregate cost does not exceed P1M-
the tial input taxes shall be allowable
as a credit against output tax in the
month of acquisitions
3. Aggregate cost exceeds P1M but
acquired in installment payments-
refers to the total price agreed upon
zuluvictoralpha | 22
for one or more assets acquired and
not on the payments actually made
during the calendar month. Thus, will
be subject to amortization of input
tax despite the fact that the monthly
payments/installments may not
exceed P1M. (RR 16-2005)
NOTE: Train: The amortization of
the input VAT shall only allowed
until December 31, 2021 after
which the taxpayers with
unutilized input VAT on capital
goods purchased or imported shall
be allowed to apply the same as
scheduled until fully utilized.
1. Purchases of real properties for
which a VAT has actually been
paid
2. Purchases of services in which a
VAT has actually been paid
3. Transactions “deemed sale”
4. Presumptive Input Tax- an input
tax credit allowed to persons or
firms engaged in the:
(1) Processing of
(a) Sardines
(b) Mackerel
(c) milk
(2) Manufacturing of
(a) Refined sugar
(b) Cooking oil
(c) Packed noodle based
instant meals
NOTE: The allowed input tax shall
be equivalent to 4% of the gross
value in money of their purchases
of primary agricultural products
which are used as inputs in their
production. Reason: Goods are vat-
exempt.
NOTE: “Processing” means
pasteurization, canning and
activities which, through physical
or chemical process, alter the
exterior texture or form or inner
substance of a product in such a
manner as to prepare it for special
use to which it could not have been
put in its original form or
condition.
5. Transitional Input Tax credits
allowed under the transitory and
other provisions
NOTE:
● It is meant to benefit newly
VAT-registered, whether or
not they previously paid
taxes in the acquisition of
their beginning inventory of
goods, materials and
supplies. It serves to
alleviate the impact of the
VAT on the taxpayer during
that period of transition.
● It may only be availed once.
● It may be carried over to
the next taxing period until
fully utilized.
● Applicable to real property.
These can be availed of by
taxpayers who become VAT-
registered persons upon:
1. Exceeding the minimum
turnover of P1,919,500 in
any 12 month period or
2. Who voluntarily register
even if they do not reach
the threshold, except for
franchise grantees of radio
and TV broadcasting whose
threshold is P10M
zuluvictoralpha | 23
 Applicable to the inventory on
hand as of the effectivity of their
VAT registration on:
1. Goods purchased for resale
in the present condition
2. Raw materials
3. Manufactured goods
4. Goods in process for sale
5. Goods and supplies for use
in the course of the
taxpayer’s trade or
business as a VAT-
registered person (RR 16-
2005)
The allowed input tax should be
the higher between:
1. 2% of the value of the
taxpayer’s beginning
inventory of goods,
materials and supplies; or
2. The actual value-added tax
paid on such goods
NOTE: Prior payment of taxes is not
required to avail of the transitional input
tax credit because it is not a tax refund
per se but a tax credit. Tax credit is not
synonymous with tax refund. Tax refund
is defined as the money that a taxpayer
overpaid and is thus returned by the
taxing authority. Tax credit, on the other
hand, is an amount subtracted directly
from one’s total tax liability. It is any
amount given to a taxpayer as a subsidy, a
refund, or an incentive to encourage
investment. Thus, unlike a tax refund,
prior payment of taxes is not a
prerequisite to avail of a tax credit. (Fort
Bonifacio Development Corp v. CIR, 2012)
Persons who can avail of input tax
credit
1. Importer upon payment of the VAT
prior to the release of the goods from
the customs custody;
2. Purchaser of the domestic goods or
properties upon consummation of the
sale
3. Purchaser of the services or the
lessee or the licenses upon payment
of the compensation, rental, royalty
or fee
NOTE: As long as the invoices from the
suppliers are issued in the name of the
taxpayer and the expenses were actually
incurred by the taxpayer, then the input
tax pertaining to such expenses must be
credited to the taxpayer. (CIR v Sony
Philippines, 2010)
DETERMINATION OF OUTPUT TAX
- In a sale of goods or properties, it
is computed by multiplying the
gross selling price by the regular
rate of VAT.
- For sellers of services, the output
tax is computed by multiplying the
gross receipts by the regular rate
of VAT.
-
EXCESS OUTPUT OR INPUT TAX
- If the output tax exceeds the input
tax, the excess shall be paid by the
VAT-registered person.
- If input tax exceeds the output tax,
the excess shall be carried over to
the succeeding quarter or
quarters.
NOTE: Any input tax attributable
to zero-rated sales by a VAT-
registered person, may at his
option, be refunded or credited
against other internal revenue
zuluvictoralpha | 24
 taxes, subject to the provisions of
Sec. 112. (Sec 110(B)).
DETERMINATION OF CREDITABLE
INPUT TAX
- The sum of the excess input tax
carried over from the preceding
month or quarter and the input tax
creditable to a VAT-registered
person during the taxable month
or quarter shall be reduced by the
amount of claim for refund or tax
credit for VAT and other
adjustments, such as purchase
returns or allowances and input
tax attributable to exempt sale.
(Sec 110(C))
FORMULA:
Output tax
- Input tax
---------------------------------------------
Net VAT Payable/ Excess tax credits
Net VAT Payable= Output > Input
Excess tax credits= Input > Output
Note: VAT-exempt transaction do not
result to any output or input taxes.
Allocation of Input tax on MIXED
TRANSACTIONS:
- A VAT-registered person who is
also engaged in transactions not
subject to VAT shall be allowed to
recognize input tax credit on
transactions subject to VAT as
follows:
1. All input tax that can be
directly attributed to
transactions subject to VAT
may be recognized for input
tax credit; provided, that
input taxes which are
directly attributable to VAT
taxable sales of goods and
services from the
Government or any of its
political subdivisions,
instrumentalities or
agencies, including GOCCS
shall not be credit against
output taxes arising from
sales to non-government
entities; and
2. If any input tax cannot be
directly attributed to either
a VAT taxable or VAT
exempt transaction, the
input tax shall be pro-rated
to the VAT taxable and
VAT-exempt transactions;
only the ratable portion
pertaining to transactions
subject to VAT may be
recognized for input tax
credit.
NOTE: For persons engaged in
both zero-rated sales and non-zero
rated sales, the aggregate input
taxes shall be allocated ratably
between the zero-rated and non-
zero rated sales. (RR 16-2005)
NOTE: Input tax attributable to
VAT-exempt sales shall not be
allowed as credit against the
output tax but should be treated as
part of cost of goods sold.
REFUND OR TAX CREDIT OF EXCESS
INPUT TAX (Sec. 112)
Q: Who may claim/apply for issuance of
Tax Credit Certificate (TCC)?
zuluvictoralpha | 25
A: The following can avail of refund or tax
credit:
1. Zero-rated and effectively zero-rated
sales- Any VAT-registered person,
whose sales are zero-rated or
effectively zero-rated (Sec 112[A])
2. Cessation of business or VAT status-
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 Sec. 106(c) of NIRC. (Sec.
112[B])
Requirements to claim for VAT Refund:
1. The taxpayer is VAT-registered;
2. Taxpayer is engaged in zero-rated or
effectively zero-rated sales
3. The input taxes are due or paid
4. The input taxes are not transitional
input taxes as it cannot be claimed as
refund or credit
5. The input taxes have not been applied
against output taxes during and in the
succeeding quarters;
6. The input taxes claimed are
attributable to zero-rated or
effectively zero-rated sales
7. For zero-rated sales under Section
106(A)(2)(1) and (2); 106(B) and
108(B)(1) and (2). The acceptable
foreign currency exchange proceeds
have been duly accounted for in
accordance with the rules and
regulations of the BSP
8. Where there are both zero-rated or
effectively zero-rated sales and
taxable or exempt sales, and he input
taxes cannot be directly and entirely
attributable to any of these sales, the
input taxes shall be proportionately
allocated on the basis of sales volume
9. The claim is filed within 2 years after
the close of the taxable quarter when
such sales were made.
NOTE: Sec. 8 of RA 7916 mandates that
PEZA shall manage and operate the
ECOZONE as a separate customs territory.
THe provision thereby establishes the
fiction that an ECOZONE is a foreign
territory separate and distinct from the
customs territory. Accordingly, the sales
made by suppliers from a customs
territory to a purchaser located within an
ECOZONE will be considered as
exportations. Following the VAT system’s
adherence to the Cross Border Doctrine
and Destination Principle, the VAT
implications are that “no VAT shall be
imposed to form part of the cost of goods
destined for consumption outside of the
territorial border of the taxing authority.”
(Coral Bay Nickel Corporation v CIR,
2016)
Period to file claim for refund/apply
issuance of tax credit certificate
The claim which must be in writing, for
both cases, must be filed within the 2
years after the close of the taxable
quarter when the sales were made.
Reckoning point of the 2-year period:
1. Zero-rated or effectively zero-rated
sales
-the 2-yr period shall be reckoned
from the close of the taxable quarter
when the relevant sales were made
pertaining to the input VAT
regardless of whether said tax was
paid or not.
NOTE: In case the taxpayer is
engaged in zero-rated and also in
taxable or exempt sale, 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
zuluvictoralpha | 26
 proportionately on the basis of the only within thirty
volume sales. days after the
Commissioner
2. Cessation of business or VAT situs partially or fully
-The person may, within 2 years from denies the claim
the date of cancellation, apply for the within the 120-
issuance of a tax credit certificate for day period, or (2)
any unused input tax which may be only within thirty
used in payment of his other internal days from the
revenue taxes. expiration of the
120-day period if
the Commissioner
Difference between Sec 112 on refund does not act
for VAT and Sec 229 on refund of other within the 120-
taxes day period (CIR v.
San Roque Power
SEC. 112(VAT) SEC.229 (OTHER Corporation, G.R.
TAXES) Nos. 187485,
Period is 2 years Period is 2 years 196113, 197156,
after the close of from the date of February 12,
the taxable payment of the 2013)
quarter when the tax
sales were made
The 30-day Period to file an SUMMARY OF RULES ON
period of appeal Administrative PRESCRIPTIVE PERIODS FOR
to the CTA need claim before the CLAIMING REFUND OR CREDIT OF
not necessarily CIR AND judicial INPUT TAX
fall within the claim with the
two-year CTA must fall Administrative Claim: Two-Year
prescriptive within the 2 year Prescriptive Period
period, as long as Prescriptive period GR: The reckoning date is the close of the
the taxable quarter when the relevant sales
administrative were made.
claim before the
CIR is filed XPN: From June 8, 2007 to September 12,
within the two- 2008, the 2-year period for filing a claim
year for refund/credit should be counted from
prescriptive the date of filing of the VAT return and
period. This is payment of tax. (Atlas Consolidated v CIR,
because Sec. 112 2007)
(D) of the 1997
NIRC mandates NOTE: Only the administrative claim
that a taxpayer must be filed within the period
can file the
judicial claim: (1)
Judicial Claim: 120 + 30 day Period

zuluvictoralpha | 27

Two ways of filing an appeal to the
CTA:
a. Within 30 days after the CIR denies
the claim within the 120-day period,
or
b. Within 30 days from the expiration of
the 120-day period if the CIR does not
act within the 120-day period.
NOTE: The taxpayer must await the lapse
of the 120-day period before filing an
appeal to the CTA. Failure to comply with
such period violates the doctrine of
exhaustion of administrative remedies
and renders the petition premature and
without a cause of action, with the effect
that the CTA does not acquire jurisdiction
over the taxpayer’s petition.

GR: The 30-day period to appeal always

applies as it is both mandatory and
jurisdictional.
XPN: Premature filing is allowed only if
filed between December 10, 2003 and
October 5, 2010 when BIR Ruling No. DA-
489-03 was still in force.
NOTE: Late filing is absolutely prohibited.
(CIR v Mindanao II Geothermal, 2014)
Period within which BIR
Commissioner grants TCCs/ refund for
creditable input taxes
Remedy in case of CIR’s inaction within
120-day period or CTA’s denial of
claim:
1. CIR inaction- The taxpayer may
appeal to the CTA within 30 days
after the lapse of the 120 days from
the submission of the complete
documents, if not action has been
taken by the Commissioner.
2. CTA’s denial- The taxpayer may
appeal the full or partial denial of the
claim to the CTA within 30 days from
the receipt of such denial, otherwise,
the decision shall become final.

The Commissioner may grant TCC/refund

for creditable input taxes within 120 days
from the day of submission of the
complete documents in support of the
application. (Sec 112)

NOTE: The application must be

accompanied by complete supporting
documents. In addition, the taxpayer shall
attach a statement under oath attesting to
the completeness of the submitted
documents. The CIR shall render a
decision based only on the documents
submitted by the taxpayer.

If the claim for VAT is not acted upon by

the Commissioner within 120-day period
as required by law, such inaction shall be
deemed a denial of the application.

zuluvictoralpha | 28
COMPLIANCE REQUIREMENTS

zuluvictoralpha | 29

Invoicing Requirements (Sec. 113,
NIRC)
A VAT-registered person shall issue:
1. A VAT Invoice for every sale, barter
or exchange of goods or properties;
and
2. A VAT official receipt for every lease
of goods or properties, and for every
sale, barter or exchange of services.
Only VAT-registered persons are required
to print their TIN followed by the word
"VAT" in their invoice or official receipts.
Said documents shall be considered as a
"VAT Invoice" or VAT
Information contained in the VAT
Invoice or VAT Official Receipt
1. A statement that the seller is a VAT-
registered person, followed by his
TIN;
2. The total amount which the purchaser
pays or is obligated to pay to the seller
with the indication that such amount
includes the value-added tax:
Provided that:
a. Amount of the tax shall be shown
as a separate item in the invoice or
receipt’
b. If the sale is exempt from VAT, the
term “VAT-exempt sale” shall be
written or printed prominently on
the invoice or receipt
c. If the sale is subject to zero
percent (0%) VAT, the term “zero-
rated sale” shall be written or
printed prominently in the invoice
or receipt;
d. If the sale involves goods,
properties or services some of
which are VAT zero-rated or VAT-
exempt, the invoice or receipt shall
clearly indicate the breakdown of
the sale price between its taxable
exempt and zero-rated
components, and the calculation of
the value-added tax on each
portion of the sale shall be shown
in the invoice or receipt: Provided,
that the seller may issue separate
invoices or receipts for the taxable,
exempt and zero-rated
components of the sale.
3. The date of transaction, quantity,
unit cost and description of the
goods or properties or nature of
the service; and
4. In the case of sales in the amount
of one thousand pesos (P1000) or
more where the sale transfer is
made to a VAT-registered person,
the name, business style, if any,
address and TIN of the purchaser,
customer, or client.
NOTE: Without proper VAT official
receipts issued to its clients, the payments
received by respondent Takenaka for
providing services to PEZA-registered
entities cannot qualify for VAT zero-
rating. Hence, it cannot claim such sales
as zero-rated VAT not subject to output
tax. (Takenaka Corporation v. CIR, G.R. No.
193321, October 19, 2016)
The appearance of the word “zero rated”
on the face of invoices covering zero rated
sales prevents buyers from falsely
claiming input VAT from their purchases
when no VAT was actually paid. If, absent
such word, a successful claim for input
VAT is made, the government would be
refunding money it did not collect.
Further, the printing of the word “zero-
rated” on the invoice helps segregate
sales that are subject to 12%
VAT from those sales that are zero-rated.
Unable to submit the proper invoices,
taxpayer has been unable to substantiate
zuluvictoralpha | 30
its claim for refund (Eastern
Telecommunication Phils. Inc. v. CIR, G.R.
No. 183531, March 25, 2015).
NOTE: absence of breakdown or
description, the whole transaction is
construed as VATable
Q: Why would a non-VAT person
register as a VAT person if he is only
liable for 3% OPT under Sec. 116 of the
NIRC?
A: for low margin businesses to avail
input VAT credit
NOTE: income derived from employer-
employee relationship is no to VAT and
8%tax
Employees with a business may apply as
VAT-person as for the other income.
Consequences of issuing erroneous
VAT Invoice or VAT Official Receipt
1. In case of non-VAT registered person
who issues a VAT invoice/receipt, in
addition to pay other percentage taxes
shall be held liable for:
a. Payment of VAT without input tax;
b. 50% surcharge on tax due as
provided for under Sec. 248(B);
NOTE: Considered as fraud charge
The purchaser shall be allowed to
recognize an input tax credit provided
that the invoice/official receipt contains
the required information under Sec. 110
on Tax Credits.
2. In case a VAT-registered person who
issues a VAT invoice/official receipt for a
VAT-exempt sale without the words “VAT
Exempt Sale,” the transaction shall
become taxable and the issuer shall be
liable to pay VAT thereon as if Section 109
did not apply.
FILING OF RETURN AND PAYMENT
Persons required to file a VAT return:
5. Any person who, in the course of trade
or business, sells, barters, or
exchanges goods or properties, or
engages in the sale or exchange of
services subject to VAT if his gross
sales or receipts for the past 12 month
period have exceeded Three Million
Pesos (P3,000,000) or Three Million
Five Hundred Thousand Pesos
(P3,500,000)
6. Every person required to register but
he fails to register
7. Any person who imports goods
Filing of Return
Every person liable to pay the value-
added tax shall file a quarterly return of
the amount of his gross sales or receipts
within twenty-five (25) days following
the close of each quarter prescribed for
each taxpayer.
Only one consolidated return shall be
filed by the taxpayer for his principal
place of business or head office and all
branches (Sec. 114(A), NIRC)
Payment of VAT
VAT-registered person shall pay the
value-added tax on a monthly basis.
Cancellation of VAT registration
Any person, whose registration has been
cancelled in accordance with Section 236,
shall file and pay a return within 25 days
from the date of cancellation of
registration;
zuluvictoralpha | 31

NOTE: Under Section 236 of NIRC, a VAT
–registered person may cancel his
registration for VAT if:
a. He makes written application and can
demonstrate to the commissioner’s
satisfaction that his gross sales or
receipts for the following twelve (12)
months, other than those that are
exempt under Section 109(A) to (U),
will not exceed P1,500,000 or
b. He has ceased to carry on his trade or
business, and does not expect to
recommence any trade or business
within the next twelve (12) months.
The cancellation of registration will be
effective from the first day of the
following month (Sec. 236 (F), NIRC).
Where to File the Return and Pay the
Tax
GR: It shall be filed with and the tax paid
to
1. An Authorized Agent Bank (AAB);
2. Revenue Collection Officer (RCO); or
3. Duly authorized city or municipal
Treasurer, where such Treasurer is:
a. Within the Philippines; and
b. Located within the revenue
district where the taxpayer is
registered or required to register
(Sec. 114[B]).
XPN: As the Commissioner otherwise
permits.
WITHHOLDING OF VAT ON SALES TO
GOVERNMENT
Rule regarding the withholding of Final
VAT on sales to government
The Government or any of its political
subdivisions, instrumentalities or
agencies, including government owned or
controlled corporations (GOCCs) shall,
before making payment on account of its
purchase of goods and/or services taxed
at 12% shall deduct and withhold a final
VAT of 5% of the gross payment. The
payment for lease or use of properties or
property rights to nonresident owners
shall be subject to 12% withholding tax at
the time of payment. For purposes of this
section, the payor or person in control of
the payment shall be considered as the
withholding agent (Sec. 114(C), NIRC).
NOTE: The five percent (5%) final VAT
withholding rate shall represent the net
VAT payable to the seller
The remaining seven percent (7%)
effectively accounts for the standard
input VAT for sales of goods or services to
government or any of its political
subdivisions, instrumentalities or
agencies including GOCCs, in lieu of the
actual Input VAT directly attributable or
ratably apportioned to such sales.
Should actual input VAT attributable to
sale to the government exceed seven
percent (7%) of gross payments, the
excess may form part of the seller’s
expense or cost.
If actual input VAT attributable to sale to
the government is less than 7% of gross
payment, the difference must be closed to
expense or cost.
Payments arising from projects funded by
Official Development Assistance Act of
1996 shall not be subject to the final
withholding tax system.
zuluvictoralpha | 32
As amended, the use of the word final and
the deletion of the word creditable
exhibits Congress’s intention to treat
transactions with the government
differently. Since it has not been shown
that the class subject to the 5% final
withholding tax has been unreasonably
narrowed, there is no reason to invalidate
the provision. Petitioners, as petroleum
dealers, are not the only ones subjected to
the 5% final withholding tax. It applies to
all those who deal with the government.
(ABAKADA Guro Party-List v. Executive
Secretary, G.R. No. 168056, September 1,
2005)

zuluvictoralpha | 33