VAT-Exempt Transactions

Transactions Not Subject to VAT

1. Transactions exempt from VAT

2. Transactions subject to Percentage Tax

NIRC, Section 109

1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be
exempt from the value-added tax.

A. Sale or importation of agricultural and marine food products in their original state,
livestock and poultry of a kind generally used as, or yielding or producing foods for
human consumption; and breeding stock and genetic materials therefor.

Products classified under this paragraph shall be considered in their original state even if
they have undergone the simple processes of preparation or preservation for the market,
such as freezing, drying, salting, broiling, roasting, smoking or stripping. Polished and/or
husked rice, corn grits, raw cane sugar and molasses, ordinary salt, and copra shall be
considered in their original state;

B. Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock
and poultry feeds, including ingredients, whether locally produced or imported, used in
the manufacture of finished feeds (except specialty feeds for race horses, fighting cocks,
aquarium fish, zoo animals and other animals generally considered as pets);

C. Importation of personal and household effects belonging to the residents of the

Philippines returning from abroad and non-resident citizens coming to resettle in the
Philippines: Provided, That such goods are exempt from customs duties under the Tariff
and Customs Code of the Philippines;

D. Importation of professional instruments and implements, tools of trade, occupation or

employment, wearing apparel, domestic animals, and personal and household effects
belonging to persons coming to settle in the Philippines or Filipinos or their families and
descendants who are now residents or citizens of other countries, such parties
hereinafter referred to as overseas Filipinos, in quantities and of the class suitable to the
profession, rank or position of the persons importing said items, for their own use and
not for barter or sale, accompanying such persons, or arriving within a reasonable time:
Provided, That the Bureau of Customs may, upon the production of satisfactory evidence
that such persons are actually coming to settle in the Philippines and that the goods are
brought from their former place of abode, exempt such goods from payment of duties
 and taxes: Provided, further, That vehicles, vessels, aircrafts, machineries and other similar
goods for use in manufacture, shall not fall within this classification and shall therefore
be subject to duties, taxes and other charges;

E. Services subject to percentage tax under Title V;

F. Services by agricultural contract growers and 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;

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;

I. Services rendered by individuals pursuant to an employer-employee relationship;

J. Services rendered by regional or area headquarters established in the Philippines by

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

K. Transactions which are exempt under international agreements to which 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 (PhP15,000) and regardless of the
aggregate capital and net surplus ratably distributed among the members;

O. Export sales by persons who are not VAT-registered;

P. Sale of real properties not primarily held for sale to customers or held for lease in the
ordinary course of trade or business or real property utilized for low-cost and socialized
housing as defined by Republic Act No. 7279, otherwise known as the Urban
 Development and Housing Act of 1992, and other related laws, residential lot valued at
One million five hundred thousand pesos (PhP1,500,000) and below, house and lot, and
other residential dwellings valued at Two million five hundred thousand pesos
(PhP2,500,000) and below: Provided, That beginning January 1, 2021, the VAT exemption
shall only apply to sale of real properties not primarily held for sale to customers or held
for lease in the ordinary course of trade or business, sale of real property utilized for
socialized housing as defined by Republic Act No. 7279, sale of house and lot, and other
residential dwellings with selling price of not more than Two million pesos
(PhP2,000,000): Provided, further, That every three  (3) years thereafter, the amount
herein stated shall be  adjusted to its present value using the Consumer Price  Index, as
published by the Philippine Statistics Authority  (PSA);

Q. Lease of a residential unit with a monthly rental not exceeding Fifteen thousand pesos
(PhP15,000);

R. Sale, importation, printing or publication of books and any newspaper, magazine, review
or bulletin which appears at regular intervals with fixed prices or 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;

U. Importation of fuel, goods and supplies by persons engaged in international shipping or

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

V. Services of bank, non-bank financial intermediaries performing quasi-banking functions,

and other non-bank financial intermediaries;

W. Sale or lease of goods and services to senior citizens and persons with disability, as
provided under Republic Act Nos. 9994 (Expanded Senior Citizens Act of 2010) and
10754 (An Act Expanding the Benefits and Privileges of Persons With Disability),
respectively;

X. Transfer of property pursuant to Section 40(C)(2) of the NIRC, as amended;

Y. Association dues, membership fees, and other assessments and charges collected by
homeowners associations and condominium corporations;

Z. Sale of gold to the Bangko Sentral ng Pilipinas (BSP);

 AA. Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension
beginning January 1, 2019; and

BB. Sale or lease of goods or properties or the performance of services other than the
transactions mentioned in the preceding paragraphs, the gross annual sales and/or
receipts do not exceed the amount of Three million pesos (PhP3,000,000).

(2) A VAT-registered person may elect that Subsection (1) not apply to its sale of goods
or properties or services: Provided, that an election made under this subsection shall be
irrevocable for a period of three (3) years from the quarter the election was made.

Food Products and its Production

NIRC Sec 109 Exempt Transactions

 (A)    Sale or importation of agricultural and marine food products in their original state,

livestock and poultry of a kind generally used as, or yielding or producing foods for
human consumption; and breeding stock and genetic materials therefor. Products
classified under this paragraph shall be considered in their original state even if they
have undergone the simple processes of preparation or preservation for the market, such
as freezing, drying, salting, broiling, roasting, smoking or stripping. Polished and/or
husked rice, corn grits, raw cane sugar and molasses, ordinary salt, and copra shall be
considered in their original state;
 (B)    Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn,
livestock and poultry feeds, including ingredients, whether locally produced or imported,
used in the manufacture of finished feeds (except specialty feeds for race horses, fighting
cocks, aquarium fish, zoo animals and other animals generally considered as pets);
 (F)    Services by agricultural contract growers and milling for others of palay into rice,
corn into grits and sugar cane into raw sugar;

Food products

 Agricultural (grains, beans, fruits, vegetables, etc.)

 Marine (fish, crustaceans, etc.)
 Livestock
 Poultry
o Breeding stock and genetic materials 
  Not exempt
o Race horses
o Fighting cocks
o Aquarium fish
o Zoo and pet animals

Examples:

Agricultural Marine Livestock Poultry

Fish
Polished or husked Rice
•      Bangus Chicken   
Corn grits Pigs
•      Tilapia
Raw cane sugar, Goats
Crustaceans, such Ducks
molasses  Sheep
as     Geese
Ordinary salt Cows
•    Prawns, shrimps Turkey
Copra Bulls
•    Crabs, lobster
Mongo Rabbits
•    Mussels, clams
Apple, chico, papaya
•    Trout, eels
Eggplant, horse radish

Original state,  even if undergone simple processes of

 Preparation or preservation (freezing, drying, salting, broiling, roasting, smoking,

stripping)
 Packaging (shrink-wrapping in plastics, vacuum packing, tetra pack, etc.)

o Not exempt:  marinated fish, iodized salt, Mang Inasal, canned goods, etc.

Farm and fishery production inputs

 Fertilizers and feeds, including ingredients in making

 Seeds, seedlings, fingerlings

 Not exempt
o Specialty feeds
o Herbicides, insecticides and pesticides
Agricultural contract growers and millers for others of rice, corn and sugar

Agricultural contract growers

 persons producing for others poultry, livestock or other agricultural and marine food
products in their original state.

 Not exempt:  production-independent toll processing

Milling for others of

 palay into rice

 corn into grits, and
 sugar cane into raw sugar

 Not exempt:  milling of flour, wheat, cheese, etc.

Cooperatives

NIRC Sec 109 Exempt Transactions

 (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 (PhP15,000) and
regardless of the aggregate capital and net surplus ratably distributed among the
members;

Cooperatives
Agricultural cooperatives are also exempt on their importation of

 direct farm inputs,

  machinery and equipment including spare parts

if to be used directly and exclusively in the production or processing of their produce.

Medical Services and Medicines

NIRC Sec 109 Exempt Transactions

 (G)   Medical, dental, hospital and veterinary services except those rendered by
professionals.
 (AA)   Sale of drugs and medicines prescribed for diabetes, high cholesterol, and
hypertension beginning January 1, 2019.

Transactio
Description
n
Medical, dental, hospital and veterinary services, including laboratory
 Exempt
services
Medical Practitioner’s Fees

Exempt
 Billed by hospital VAT-able
 Paid directly to practitioner

Medicines

Exempt
 Billed by hospital
VAT-able
 Purchased from pharmacy/drugstore

Generally, medicines are subject to VAT. However, the following are exempt:

o medicines prescribed for diabetes, high cholesterol, and hypertension

Sale and Lease of Real Property

NIRC Sec 109 Exempt Transactions

  (P)    Sale of real properties not primarily held for sale to customers or held for lease in
the ordinary course of trade or business or real property utilized for low-cost and
socialized housing, residential lot valued at PhP1,500,000 and below, house and lot, and
other residential dwellings valued at Two million five hundred thousand pesos
(PhP2,500,000) and below;
 (Q)    Lease of a residential unit with a monthly rental not exceeding Fifteen thousand
pesos (PhP15,000);
 (X)    Transfer of property pursuant to Section 40(C)(2) of the NIRC, as amended;

Exempt Sales of Real Property:

 Sale not in the ordinary course of trade or business

 Sale in the ordinary course of trade or business

0. Socialized housing under UHLP

a. Low-cost housing under HLURB
b. Residential lot not exceeding P1.5 million
c. Residential house and lot not exceeding P2.5 million (this will be P2 million
starting year 2021)

Adjacent lots sold to the same buyer within 12 months shall be treated as one sale.

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

Low-cost housing refers to housing projects intended for homeless low-income family

beneficiaries undertaken by the Government or private developers which may be a
subdivision or a condominium

Lease of Real Property

 Residential units with a monthly rent not exceeding PhP15,000:  Exempt

 Residential units with a monthly rent exceeding PhP15,000:  VATable
 Commercial units:  VATable
Transportation Services, Supplies and Vehicles

NIRC Sec 109 Exempt Transactions

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

Modes of Transportation
Passenger   I  
Cargo
Land
Water or sea Vessels
Air Aircraft

International carriers

 Shipping or air transport

 Owned by resident foreign corporations doing business in the Philippines
 Exempt on their international transport of passengers

Transport Services of International Carriers

Passengers  Cargoes 
Sea or air

 International Exempt 3% CCT

Outgoing Exempt Exempt
 International Incoming

Transport vehicles sale, importation or lease

  Including engine, equipment and spare parts
 For passenger or cargo
 Marine vessel or aircraft
 For domestic or international transport operations

Fuel, goods and supplies

 by persons engaged in international shipping or air transport operations

 for international shipping or air transport operations

Books, Importations, Export Sales and Sale of Gold

Books and newspapers, magazines, review or bulletins

NIRC Sec 109 Exempt Transactions

(R)    Sale, importation, printing or publication of books and any newspaper, magazine,
review or bulletin which appears at regular intervals with fixed prices or subscription and
sale and which is not devoted principally to the publication of paid advertisements;

 Exempt transactions
 sale, importation, printing or publication
 Books
 covers printed matters in hard copy and does not apply to electronic
copies of the said books.
 Any newspaper, magazine, review or bulletin
 appears at regular intervals with fixed prices or subscription and sale and
 not devoted principally to the publication of paid advertisements

Importations
NIRC Sec 109 Exempt Transactions

 (C)    Importation of personal and household effects belonging to the residents of the
Philippines returning from abroad and non-resident citizens coming to resettle in the
Philippines: Provided, That such goods are exempt from customs duties under the Tariff
and Customs Code of the Philippines;
  (D)    Importation of professional instruments and implements, tools of trade, occupation
or employment, wearing apparel, domestic animals, and personal and household effects
belonging to persons coming to settle in the Philippines or Filipinos or their families and
descendants who are now residents or citizens of other countries, such parties
hereinafter referred to as overseas Filipinos, in quantities and of the class suitable to the
profession, rank or position of the persons importing said items, for their own use and
not for barter or sale, accompanying such persons, or arriving within a reasonable time:
Provided, That the Bureau of Customs may, upon the production of satisfactory evidence
that such persons are actually coming to settle in the Philippines and that the goods are
brought from their former place of abode, exempt such goods from payment of duties
and taxes: Provided, further, That vehicles, vessels, aircrafts, machineries and other similar
goods for use in manufacture, shall not fall within this classification and shall therefore
be subject to duties, taxes and other charges;

Personal and household effects

 belonging to
 residents returning from abroad, or
 non-residents coming to resettle in the Philippines
 reasonable quantity
 provided exempt from customs duties

Professional instruments & implements, tools of trades, occupation or employment, wearing

apparel, domestic animals, and personal and household effects

 belonging to
 persons coming to settle in the Philippines, or
 overseas Filipinos or their families who are now residents or citizens of
other countries
 accompanying such persons or arriving within reasonable time
 in quantities and class suitable to the profession, rank or position of the persons
importing
 for their own use and not for barter or sale
 excluding goods for use in manufacture
 provided exempt from customs duties
Export Sales

NIRC Sec 109 Exempt Transactions

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

Export sales by persons who are

 Not-VAT-registered    = exempt
 VAT-registered           = zero-rated VAT

Non-
Registration VAT
VAT

0%
Taxation Exempt
VAT

Output VAT 0 0

Input VAT 0 120

VAT Payable
(Refundable or 0 (120)
Creditable)

Sale of Gold to BSP

NIRC Sec 109 Exempt Transactions

(Z)    Sale of gold to the Bangko Sentral ng Pilipinas (BSP);

Sale of gold to BSP is exempt

 applies to both registered small-scale miners and accredited gold traders (under R.A.
11256)
 sales of gold to BSP by accredited gold traders shall be presumed to have been
purchased from small-scale miners

Schools, Homeowners, and Exempt Persons and Entities

Educational Services of Registered Schools

NIRC Sec 109 Exempt Transactions

(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.

Educational  services

 academic,  technical  or  vocational  education

 provided by
 Government educational institutions, or
 Private educational institutions duly  accredited  by  the  DepED,  the 
CHED  or TESDA 
 does  not  include 
 seminars
 in-service  trainings
 review  classes 
 and  other  similar  services

Homeowner's Associations and Condominium Corporations

NIRC Sec 109 Exempt Transactions

(Y)    Association dues, membership fees, and other assessments and charges collected
by homeowners associations and condominium corporations.
  Dues, fees, assessments and charges collected on a purely reimbursement basis.

Exempt Persons and Entities

NIRC Sec 109 Exempt Transactions

 (I)    Services rendered by individuals pursuant to an employer-employee relationship.

 (W)  Sale or lease of goods and services to senior citizens and persons with disability
 (J)    Services rendered by regional or area headquarters established in the Philippines by
multinational corporations which act as supervisory, communications and coordinating
centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not
earn or derive income from the Philippines.
 (K)    Transactions which are exempt under international agreements to which the
Philippines is a signatory or under special laws, except those under Presidential Decree
No. 529.

Services rendered by employees

 Not a business; subject to income tax

Sale or lease of goods and services to senior citizens and persons with disability

 Only for
 Not for kiddie meal, wines and cigars

Regional Area Headquarters

 any foreign business entity formed, organized, and existing under any laws other than
those of the Philippines whose purpose is to supervise, coordinate and communicate
center to its affiliates, subsidiaries, and branches in the Asia-Pacific Region and other
foreign markets. An RHQ cannot derive income in the Philippines. The parent company
of the RHQ office may market and sell products to other companies except for the RHQ
office in the Philippines.
 RAHQ ROHQ

Administrative branch of an MNC Extension of a foreign corporation

Performs supervisory, communications and Performs qualifying services to its head office,
coordinating centers for their affiliates, subsidiaries affiliates, subsidiaries or branches in the Asia-
or branches in the Asia-Pacific region Pacific region

Not allowed to derive income from the Philippines Allowed to derive income in the Philippines

Exempt from VAT Subject to VAT

Exempt from corporate income tax Subject to corporate income tax

 Exempt from local taxes, fees and charges  Exempt from local taxes, fees and charges

An ROHQ is allowed to derive income from the qualifying services it renders in the Philippines,
which could be any of the following:

 General administration and planning;

 Business planning and coordination;
 Sourcing/procurement of raw materials and components;
 Corporate finance advisory services;
 Marketing control and sales promotion;
 Training and personnel management;
 Logistics services;
 Research and development services, and product development;
 Technical support and maintenance;
 Data processing and communication; and
 Business development.

Exempt Transactions under International Agreements or Special Laws

 International treaties or agreements

 Special laws: PEZA, ADB, IRRI, Red Cross, PAGCOR, Biofuels act, Senior Citizens Act,
Magna Carta for PWDs, etc.

Percentage Taxpayers

NIRC Sec 109 Exempt Transactions

 (E)    Services subject to percentage tax under Title V.

  (V)    Services of bank, non-bank financial intermediaries performing quasi-
banking functions, and other non-bank financial intermediaries.
 (BB)    Sale or lease of goods or properties or the performance of services other
than the transactions mentioned in the preceding paragraphs, the gross annual
sales and/or receipts do not exceed the amount of Three million pesos
(PhP3,000,000).

Those who are obliged to pay the following percentage taxes:

 Common carriers
 Proprietors, lessees and operators of amusement places
 Life insurance companies
 Foreign insurance company agents
 Government franchise grantees
 Racetrack owners with regards to winnings in horse races
 Overseas communications telecommunication companies
 Banks and financial intermediaries
 Brokers of stocks traded in the local stock exchange

Value-Added Tax

   

Value-Added Tax (VAT) 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. It is an indirect tax, which may be shifted or passed on to the buyer,
transferee or lessee of goods, properties or services.

Characteristics of Value-Added Tax

 Tax on consumption
 Indirect tax
 Privilege tax
 Ad-valorem tax
 Proportional tax

Illustration 1:
Maria sold a burger to Pedro for P100, plus P12 VAT.
Pedro sold the burger to Juan for P200, plus P24 VAT.

SCOPE OF VALUE ADDED TAX

A. Sale, barter or exchange of goods and properties in the course of trade or

business
B. Sale of services or similar transactions in the course of trade or business
C. Lease of goods and properties in the course of trade or business
D. Importation of goods, whether or not in the course of trade or business

WHO ARE REQUIRED TO FILE VAT RETURNS?

 Any person or entity who, in the course of his trade or business, sells, barters,
exchanges, leases goods or properties and renders services subject to VAT, if
the aggregate amount of actual gross sales or receipts exceed Three Million
Pesos (Php3,000,000.00) (For radio or TV franchise grantees, the VAT
threshold is P10 million.)
 A person required to register as VAT taxpayer but failed to register
 Any person, whether or not made in the course of his trade or business, who
imports goods

REGISTRATION

A.    Mandatory Registration

 Businesses with actual or projected gross sales or receipts exceeding P3

million
 Businesses required to register as VAT taxpayer but failed to register
 Radio or television broadcasting companies with gross receipts exceeding
P10 million

B.    Voluntary Registration

 Businesses which are VAT-exempt or not required to register

 Businesses with VAT-exempt transactions
  Radio or television broadcasting companies with gross receipts not
exceeding P10 million
 Not allowed to cancel VAT registration for the next three (3) years

C.    Cancellation of VAT Registration

 Businesses with gross sales or receipts will not exceed P3 million

 Businesses that will cease operation, and will not re-operate within 12
months

Illustration 2:
Goods bought for P100 and sold for P120.
Non-VAT Percentage tax payable  (P120 x 3%) P3.60
Value-added tax payable:
Output VAT (P120 x 12%)   P14.40
Input VAT (P100 x 12%) (12.00)
Value-added tax payable (P20 x 12%) P2.40

Illustration 3:
Goods bought for P100 and sold for P100.
Non-VAT Percentage tax payable  (P100 x 3%) P3.00
Value-added tax payable:
Output VAT (P100 x 12%)   P12.00
Input VAT (P100 x 12%) (12.00)
Value-added tax payable (P0 x 12%) P0.00

VALUE-ADDED TAX RATES

 On sale of goods and properties - twelve percent (12%) of the gross

selling price or gross value in money of the goods or properties sold,
bartered or exchanged
 On sale of services and use or lease of properties - twelve percent
(12%) of gross receipts derived from the sale or exchange of services,
including the use or lease of properties
 On importation of goods - twelve percent (12%) based on the total value
used by the Bureau of Customs in determining tariff and customs duties, plus
customs duties, excise taxes, if any, and other charges, such as tax to be paid
 by the importer prior to the release of such goods from customs custody;
provided, that where the customs duties are determined on the basis of
quantity or volume of the goods, the VAT shall be based on the landed cost
plus excise taxes, if any.
 On export sales and other zero-rated sales - 0%

VAT Payable Basic Computation:

   x
Sales or receipts       Output VAT  
12%  
Purchases x 12% (Input VAT)
Gross profit x 12% VAT Payable

Example computation of VAT of Pedro:

Sales    P200     x 12%      P24  
Purchases  100   x 12%       (12)  
Gross
 100   x 12% P12  
profit

Output VAT

Classification of Sales of VAT Taxpayers

1. Actual Sales/Receipts
2. Transaction Deemed Sales*
3. Zero-Rated Sales/Receipts
4. Exempt Sales/Receipts

Actual Sales or Receipts:

a. Sale of goods - 12% of gross sales

b. Sale of services - 12% of gross receipts
o Includes lease of properties, sales by a dealer of securities
c. Sale of real properties - 12% of gross selling price
o Gross selling price: whichever is highest of the selling price, zonal value or
assessor value
Goods or properties – tangible and intangible objects which are capable of pecuniary
estimation and shall include, among others:

1. Real properties held primarily for sale to customers or held for lease in the ordinary
course of business
2. 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
3. The right or privilege to use any industrial, commercial or scientific equipment
4. The right or the privilege to use motion picture films, film tapes and discs, and
5. Radio, television, satellite transmission and cable television time

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.

Exchange of services – the performance of all kinds of services in the Philippines for others for
a fee, remuneration or consideration, whether in kind or in cash, including those performed or
rendered by construction contractors, stock and real estate brokers, lessors or property, persons
engaged in warehousing, milling, manufacturing, hotels and restaurant services, dealers in
securities, lending investors, transportation contractors, sellers of electricity, franchise grantees,
non-life insurance companies, lessors of goods or properties and other similar services
regardless of whether or not the performance thereof calls for the exercise of use of the physical
or mental faculties.

Gross receipts  means the total amount of money or its equivalent representing the contract
price, compensation, service fee, rental or royalty, including the amount charged for materials
supplied with the services and deposits and advanced payments actually or constructively
received during the taxable quarter for the services performed or to be performed for another
person, excluding value-added tax.

Constructive receipt  occurs when the money or consideration or its equivalent is placed at the
control of the person who rendered the service without restrictions by the payor.

Illustrations:
Company A: Seller of goods
Sale of goods: P500,000
Collection:  P300,000

Company B:  Seller of services

Revenues from services:  P500,000

Collection:  P300,000

Company C:  Lessor of real property

Lease of real property:  P500,000

Collection:  P300,000

Company D: Seller of real property

Proceeds from sale of real property:  P1,000,000

Fair market value as per BIR zonal valuation:  P1,200,000
Fair market value as per LGU assessor valuation: P1,100,000

Computation of VAT:

Sales of P200,000 exclusive of VAT.

VAT = P200,000   x 12% = P24,000

Sales of P500,000 inclusive of VAT.

VAT = P500,000 / 1.12 x 12% = P54,000

VAT = P500,000  x 12 ÷ 112   = P54,000

VAT = P500,000     x 3/28       = P54,000

Transactions Deemed Sales:

1. Transfer, use or consumption, not in the ordinary course of business of goods or

properties ordinarily held for sale or use in the course of business
 2. Distribution or transfer of inventory to
 shareholders or investors for their shares in the profits
 creditors in payment of debt

3. Consignment of goods if actual sale is not made within 60 days

4. Retirement from or cessation of business, with respect to goods on hand
 Change in ownership of business
 Dissolution of a partnership
 Incorporation of a sole proprietorship

5. Changes in or cessation of status of VAT registration, with respect to goods on hand

 VAT to non-VAT
 VAT to exempt

Zero-Rated Sales:
The following sales of goods and services by VAT-registered persons shall be subject to zero
percent (0%) rate:

a. Actual export sales

b. Constructive export sales
 Eco-zone-registered companies (PEZA, TIEZA, etc.)
c. Sales to entities which are exempt under special laws or international agreements, such
as
 ADB, IRRI, PNRC
 UNO, WHO, UNICEF
 Foreign country embassies in the Philippines
d. Sales of goods and services to international shipping or air transport service companies
e. Transport of passengers and cargo by domestic air or sea carriers from the Philippines to
a foreign country.
f. Sales of power or fuel generated through renewable sources of energy

Domestic Carriers
Passengers  Cargoes 

VAT-
Land 3% CCT
able
 Passengers  Cargoes 

Sea or air

 Domestic VAT
VAT
 International
0% VAT 0% VAT
Outgoing
Exempt
 International Exempt
Incoming

International Carriers

Passengers  Cargoes 

Sea or air

 International Exempt 3% CCT

Outgoing
Exempt Exempt
 International
Incoming

Export sales by persons who are

 Non-VAT-registered    = exempt (but not allowed input tax credit)

 VAT-registered           = zero-rated VAT (allowed input tax credit)

Non-
Registration VAT
VAT

0%
Taxation Exempt
VAT

Output VAT 0 0

Input VAT 0 120

VAT Payable 0 (120)

(Refundable or
Creditable)

Input VAT attributable to zero-rated sales may be

o Refunded, or
o Claimed as input tax on domestic sales, or
o Claimed as tax credit against any other NIRC tax

Input VAT

Sources of Input VAT

1. Local purchases of goods and services

2. Importation
3. Acquisition of capital goods
4. Presumptive Input Tax
5. Transitional Input Tax
6. Standard Input Tax

Requisites for Claiming Input VAT:

 Supported by VAT invoice from VAT-registered suppliers

 Related to VATable sales, not from exempt sales
 Paid or incurred in the course of trade or business

Local purchases of goods and services

 Goods for sale or for use in the business

 Services availed by the business
Importation

 Goods:  12% on (landed cost + excise tax)

 Services:  12% of gross payments

Illustration 1:
Company A imported goods for its business operations goods costing P1 million. The
computation of the VAT on importation is as follows:
Purchase price P   1,000,000

Add:  Other acquisition costs 70,000

Dutiable Value P 1,070,000

Add:  Customs Duty & other charges 321,730

Total Landed Cost P 1,391,730

Add:  Excise Tax 100,000

VAT Base P 1,491,730

VAT Rate 12%

Value-Added Tax P    179,008

Illustration 2:
Company B has hired a foreign company to assist in installing a high technology equipment in
its laboratory. The agreed contract price is P500,000.

The value added tax on the importation of services is P60,000.

Acquisition of capital goods

 Capital goods - goods or properties with estimated useful life (EUL) of more than 1 year
and are treated as depreciable assets under our tax code.
 For capital goods with total purchase price during the month not exceeding P1 million,
the total input VAT is recognized as input VAT during the month of acquisition.
 For capital goods with total price during the month exceeding P1 million, spread the
total input VAT over EUL not exceeding 60 months
 Allocation allowed only until Dec 31, 2021. Thereafter, outright during the month of
acquisition

Illustration:

Capital goods were purchased for P5,000,000. Input VAT is P600,000.

If the EUL is 4 years, the input VAT shall be allocated equally over the period of 4 years
or 48 months. The monthly input VAT to be recognized is P12,500.

If the EUL is 6 years, the input VAT shall be allocated equally over the period of 5 years
or 60 months. The monthly input VAT to be recognized is P10,000.

4% Presumptive Input Tax

 Applicable to
o Processors of sardines, mackerel and milk and
o Manufacturers of cooking oil, packed instant noodles and refined sugar
 4% of primary coopcultural products which are used in the production

Illustration:

444 Sardines Manufacturing:

P
Sales
5,000,000

Purchases of fresh fish 1,000,000

Purchases of tomatoes and other vegetables 1,000,000

Purchases of cans and other packaging

800,000
materials

The presumptive input VAT is P40,000 and the total input VAT is P136,000. The VAT payable is
P464,000.
Transitional Input Tax

 Applicable to taxpayers who becomes liable to VAT, and those who elect to be VAT-
registered
 2% or actual VAT, whichever is higher

Illustration:

Company C

Actual
Value 2% TIT
VAT

P    P
Goods with VAT P 12,000
100,000 2,000

Goods without
 100,000    2,000
VAT

P
Total P 12,000 P 4,000
200,000

The transitional input tax will be P12,000.

Company D

Actual
Value 2% TIT
VAT

P    P
Goods with VAT P 12,000
100,000 2,000

Goods without
 800,000    16,000
VAT

P P
Total P 12,000
900,000 18,000

The transitional input tax will be P18,000.

7% Standard Input Tax

 Arising from sales to the government

Illustration:

Company E sold goods to the local government of Puerto Princesa amounting to P1

million, excluding VAT.

a. How much is the total invoice amount?

b. How much will be collected by Company E from the local government?
c. How much is the standard input tax and the VAT due?

Answers:

a. Total invoice amount = P1 million selling price + P120,000 VAT = P1,120,000

b. Collection = P1,120,000 - 5% Final Withholding Tax of P50,000 = P1,070,000
c. SIT and VAT Due:

P1,000,00  P120,00
Output tax  12% 
0 0

Less:  Standard input tax 1,000,000 7% 70,000

VAT Payable 50,000

Less:  Final VAT

50,000
Withheld 

VAT Due 0

Exercise Problems

1.  The taxpayers had the following sales last year. Indicate whether the taxpayer is
subject to VAT, Non-VAT or Exempt. Assume the taxpayers are of independent
situations.
 Gross VAT- Non-VAT
Receipts Registered Registered
John P   100,000
Peter   1,000,000
 Joe  2,000,000    
Mary 3,000,001

2.  Determine the business tax applicable to each case of rental of real property:

Cas Monthly Rent per Aggregate Annual Applicable

Type
e Unit Rental Tax
A Residential P 14,000 P2,800,000
B Residential P 14,000 P3,200,000
C Residential P 16,000 P2,400,000
D Residential P 16,000 P3,600,000
E Commercial  P 14,000 P2,800,000
F Commercial  P 14,000 P3,200,000
G Commercial  P 16,000 P2,400,000
H Commercial  P 16,000 P3,600,000

3.  Compute the Value-Added Tax in each of the following cases:

a. Selling price, VAT not included, of P300.00

b. Selling price, VAT included, of P420.00
c. Selling price of P500.00 excluding VAT, and VAT passed on to buyer of P80.00

4.  A product has been sold to a senior citizen for P672.00 including VAT. How much will
the senior citizen pay?

5. A taxpayer had the following data:

Collections during the period 

Revenues of prior month   P 200,000
Revenues of the current month  300,000
Revenues of the next month 100,000

Required:  Compute for the business tax if the taxpayer is a

a.  Bus operator
b. Night club/bar
c. Cockpit
d. Basketball astrodome
e. Boxing arena
f. VAT-registered seller of goods
g. VAT-registered seller of services

6. Luigi is a registered broker of stocks listed and traded in the local stock exchange. He
is not engaged in dealing securities. Yesterday, he sold 20,000 shares of AssetPro
Knowledge Corporation for P8.00 per share. The shares have a par value of P6.00 and
were previously purchased for P7.00.

Required:  Determine the business tax due.

7. Miss Keem Chu, a TV and films artist, had the following data for the 2nd quarter of the
curre8t year. Assume that the amounts are exclusive of tax.

Receipts from talent fees   P4,800,000

Gross receipts from jeepneys (5 units) 1,200,000
Purchase of TV and film wardrobes 1,500,000
Purchase of jeepney spare parts 50,000
Promotion expenses for TV and film activities 150,000
Salary of drivers and mechanics 80,000
Insurance premium for jeepneys 30,000
Rent of office space used in both of her occupation and jeepney operations, subject
500,000
to VAT

Required:  Compute for the value-added tax payable of Ms. Keem Chu.
8. Mr. Tax operates two separate lines of business:  Panganan, a VAT-registered
restaurant, and Lambingan Videoke Bar. In the taxable period, the businesses had the
follow data, exclusive of VAT:

Pangana Lambinga
 Total
n n
Cash sales P 550,000 P 300,000  P   850,000
Credit card sales 150,000 200,000  350,000
Sales on
100,000 50,000  150,000
account 
 P1,350,00
P 800,000 P 550,000
0

Payment for operations expenses of Panganan is P600,000, 70% of which is to VAT

suppliers.

Required:   Compute for the business taxes payable.

9. iTransporter Services is engaged in the land transport services from Ilocos Norte to
any point in the Philippines. It also has its own ferry boat which transport cargoes and
passengers. During the month, it had the following gross receipts, excluding taxes:

Land transport services:

Ilocos to Manila   P 800,000
Manila to Ilocos 700,000
Ferry boat services: Cargo Passengers
Batangas to Mindoro and vice versa  300,000 400,000
Sorsogon to Samar and vice versa 400,000 500,000
Payment of expenses to VAT sellers:
Services for repairs of transport units  200,000
Purchase of spare parts 300,000
Insurance of transport units 200,000
 Other expenses (70% from VAT
 900,000  
sellers)

Required:
a.  Compute for the business taxes payable if the land transport services are for cargoes.
b. Compute for the business taxes payable if the land transport services are for
passengers.

Answers and Solutions

1.  The taxpayers had the following sales last year. Indicate whether the taxpayer is
subject to VAT, Non-VAT or Exempt. Assumed the taxpayers are independent of
situations.

Gross VAT- Non-VAT

Receipts Registered Registered
John P   100,000 VAT Exempt
Peter   1,000,000 VAT Non-VAT
 Joe  2,000,000  VAT  Non-VAT
VAT
Mary 3,000,001 VAT
(without input tax)

2.  Determine the business tax applicable to each case of rental of real property:

Cas Monthly Rent per Aggregate Annual Applicable

Type
e Unit Rental Tax
A Residential P 14,000 P2,800,000 Exempt
B Residential P 14,000 P3,200,000 Exempt
C Residential P 16,000 P2,400,000 PT     
D Residential P 16,000 P3,600,000          VAT
E Commercial  P 14,000 P2,800,000 PT    
F Commercial  P 14,000 P3,200,000          VAT
G Commercial  P 16,000 P2,400,000 PT    
H Commercial  P 16,000 P3,600,000          VAT

3.  Compute the Value-Added Tax in each of the following cases:

a. Selling price, VAT not included, of P300.00

 b. Selling price, VAT included, of P420.00
c. Selling price of P500.00 excluding VAT, and VAT passed on to buyer of P80.00

Answers: 
a: P300.00 x 12% = P36.00
b: P420.00 x 3/28 = P45.00
c: P580.00 x 3/28 = P62.14

4.  A product has been sold to a senior citizen for P672.00 including VAT. How much will
the senior citizen pay?

Answer:

Selling price, net of VAT  (P672/1.12)   P600.00

 (P600 x
Less:  Discount    120.00
20%)
Net Amount Due   P480.00

5. A taxpayer had the following data:

Collections during the period :

Revenues of prior month   P 200,000
Revenues of the current month  300,000
Revenues of the next month 100,000

Required:  Compute for the business tax if the taxpayer is a

a.  Bus operator
b. Night club/bar
c. Cockpit
d. Basketball astrodome
e. Boxing arena
f. VAT-registered seller of goods
g. VAT-registered seller of services

Answers:
a.  P600,000 x 3% = P18,000
b.  P600,000 x 18% = P108,000
c.  P600,000 x 18% = P108,000
d.  P600,000 x 15% = P90,000
e.  P600,000 x 10% = P60,000
f.   P300,000 x 12% =  P36,000
g.  P600,000 x 12% =  P72,000

6. Luigi is a registered broker of stocks listed and traded in the local stock exchange. He
is not engaged in dealing securities. Yesterday, he sold 20,000 shares of AssetPro
Knowledge Corporation for P8.00 per share. The shares have a par value of P6.00 and
were previously purchased for P7.00.

Required:  Determine the business tax due.

Answer:

Gross Receipts (20,000 shares x P8.00 per share)    P  160,000

Stocks Transactions Tax Rate   60% x 1%
Stocks Transactions Tax P    960

7. Miss Keem Chu, a TV and films artist, had the following data for the 2nd quarter of the
curre8t year. Assume that the amounts are exclusive of tax.

Receipts from talent fees   P4,800,000

Gross receipts from jeepneys (5 units) 1,200,000
Purchase of TV and film wardrobes 1,500,000
Purchase of jeepney spare parts 50,000
Promotion expenses for TV and film activities 150,000
Salary of drivers and mechanics 80,000
Insurance premium for jeepneys 30,000
Rent of office space used in both of her occupation and jeepney operations, subject
500,000
to VAT

Required:  Compute for the value-added tax payable of Ms. Keem Chu.

Answer:
VAT
Talent fees - Output VAT 4,800,000 12% 576,000
Purchase of TV and film wardrobes 1,500,000 12% 180,000
Promotion expenses for TV and film activities 150,000 12% 18,000
Allocated Rent (P500,000 x  4.8/6.0) 400000 12% 48,000
VAT Payable 330,000

8. Mr. Tax operates two separate lines of business:  Panganan, a VAT-registered

restaurant, and Lambingan Videoke Bar. In the taxable period, the businesses had the
follow data, exclusive of VAT:

Pangana Lambinga
 Total
n n
Cash sales P 550,000 P 300,000  P   850,000
Credit card sales 150,000 200,000  350,000
Sales on
100,000 50,000  150,000
account 
 P1,350,00
P 800,000 P 550,000
0

Payment for operations expenses of Panganan is P600,000, 70% of which is to VAT

suppliers.

Required:   Compute for the business taxes payable.

Answer:

VAT PT
Sales P  700,000 P  500,000
Expenses   (600,000 x 70%)     420,000                
Tax Base 280,000 500,000
Tax Rate           12%           18%
Tax Due P  33,600 P  90,000

9. iTranposter Services is engaged in the land transport services of cargoes from Ilocos
Norte to any point in the Philippine. It also has its own ferry boat which transport
cargoes and passengers. During the month, it had the following gross receipts,
excluding taxes:

Land transport services:

Ilocos to Manila   P 800,000
Manila to Ilocos 700,000
Ferry boat services: Cargo Passengers
Batangas to Mindoro and vice versa  300,000 400,000
Sorsogon to Samar and vice versa 400,000 500,000
Payment of expenses to VAT sellers:
Services for repairs of transport units  200,000
Purchase of spare parts 300,000
Insurance of transport units 200,000
 Other expenses (70% from VAT
 900,000  
sellers)

Required:
a.  Compute for the business taxes payable if the land transport services are for cargoes.
b. Compute for the business taxes payable if the land transport services are for
passengers.

Answers:
a.
Output VAT       
Land transport of cargoes P1,500,000    
   Ferry boat services  1,600,000    
P
   Total gross receipts  12%  P 372,000
3,100,000
Input VAT    
   VAT expenses  P 700,000    
   Other expenses (P900,000 x 70%)  630,000    
P
   Total VAT payments 12%     159,600
1,330,000
 VAT Payable        P 212,400

b.
Output VAT       
   Ferry boat services  1,600,000    
P
   Total gross receipts  12%  P 192,000
1,600,000
Input VAT    
   VAT expenses  P 700,000    
   Other expenses (P900,000 x 70%)  630,000    
P
   Total VAT payments 12%
1,330,000
  Allocation to VAT Sales  16/31   
  Allocated VAT payments P 686,452  12%        82,374
 VAT
       P 109,626
Payable
 PT Payable  Land transport of passengers P1,500,000  3%  45,000