Mariela M. Pelaez BA1MA Mr.

Kallos

VAT (Value-Added Tax) is a form of sales tax. It is a tax on consumption levied

on the sale, barter, exchange or lease of goods or properties and services in the
Philippines and on importation of goods into the Philippines.

The Philippines has one of the highest VAT rates in the world, which is a
significant burden for many businesses. The government recently revised it
through the TRAIN Law to make it less painful for them.

SOME PRODUCTS HAVE RECENTLY BEEN EXEMPT FROM VAT

A number of goods and services are now VAT-free. The government recognizes
their value to society. As a result, they reduce the amount of tax they pay.
Among these items are:

•Houses that cost P3 million or less.

•Socialized housing priced around P450,000 or lower (government or privately

own housing projects meant for the homeless and low-income citizens).

•Diabetes, cholesterol, and hypertension medicines (the •VAT exemption for

these will apply on 2019).

A few corporations and organizations are also added to this list.

•Businesses that are earning P3 million or less in sales annually.

•Government agencies

•Corporations under the government

•State universities

54 OUT OF 61 SPECIAL LAWS WITH NON ESSENTIAL VAT EXEMPTIONS HAVE

BEEN REPEALED

This action was taken to make the VAT exemption system more equitable and
less confusing. The administration admitted that many high-income earners
who received VAT exemptions did not deserve them because the products they
sold were non-essential. Among these are published magazines, professional
instruments, and many others.

People with lower incomes will benefit more from the repeal of special laws
governing non-essential items. Instead, the government will collect VAT from
high-income earners.

The following essential goods and services are still exempt from VAT:

•Tourism

•Cooperatives

•Agriculture

•Food

•Renewable energy
•Health

•Monthly rents and leases which cost less than P15,000

Businesses and Business Process Outsourcing companies operating in special

economic zones

In addition, individuals with disabilities and senior citizens are still exempt from
VAT.

THE GOVERNMENT IS STRICTER WITH ENTERPRISES FILING FOR VAT ZERO

RATING

The Philippine Economic Zone Authority (PEZA) has always used economic tools
to entice foreign investors to invest in local businesses. Tax breaks were one of
these tools. This meant that the government exempted these companies from
direct and indirect taxes, including VAT.

Given that VAT was only intended to be applied to goods and services for
domestic consumption, it stands to reason that goods intended for foreigners
should be exempt from this tax.

VAT has been zero-rated on export sales made by PEZA businesses since 2009.
This meant that the 12% VAT rate would not be imposed on buyers of these
PEZA sellers, both inside and outside the Philippines. It is instead passed on to
the suppliers.
This VAT rate was only available to "direct exporters" who could demonstrate
that they did business outside of the Philippines. The definition of direct
exporters, on the other hand, was not made clear.

The government was able to change its definition thanks to the TRAIN Law.
They list the following as direction exporters:

•Organizations within tourism enterprise zones as declared by the Tourism

Infrastructure and Enterprise Zone Authority (TIEZA).

•Enterprises within a separate customs territory as provided under special laws.

As a result, only the correct enterprises are able to file for a VAT zero-rating.

CHANGES IN THE VAT REFUND SYSTEM

Every company has an output VAT and an input VAT. Output VAT is the tax that
your customers pay when they purchase your goods and services. Input VAT, on
the other hand, refers to the amount you pay to your suppliers when you buy
goods and services.

Businesses should have more output VAT than input VAT in general. This is not
the case for businesses that use zero-rate VAT. This is due to the fact that they
operate outside of the Philippines.
Because they cannot remit VAT through sales transactions, their input tax
frequently exceeds their output tax liabilities. This puts them at a disadvantage
when compared to businesses that only serve the local community.

The government is aware of their plight. As a result, they devised a VAT refund
system for these specific types of taxpayers. They can apply for a refund for the
excess of input tax credits, according to the Philippine Tax Code. They only need
to file an appeal with their Revenue District Office (RDO) or Large Taxpayers
District Office (LTDO), both of which have jurisdiction over them.

The current administration intends to use TRAIN to expedite VAT refunds for
these taxpayers. They altered the procedure by shortening the time it takes the
BIR to accept refund applications from 120 to 90 days. In addition, the BIR is
now required to write legal and factual reasons for rejecting a refund
application.