PART

12
Value Added Tax

A.
BUSINESS TAXES Business taxes are those imposed upon onerous
transfers such as sale, barter exchange and importation. It is called as such
because without a business pursued in the Philippines (except importation)
by the taxpayer, business taxes cannot be applied. Business taxes are in
addition to income and other taxes paid, unless specifically exempted.

EXCEPTION: Any business pursued by an individual where the

aggregate gross sale or receipts do not exceed P100,000 during the
any 12 month period shall be considered principally for subsistence or
livelihood and not in the ordinary course of trade or business. Hence, not
subject to business taxes.

TYPES:
1. Value Added Tax 2. Other
Percentage Taxes 3. Excise
Taxes 4. Documentary
Stamp Taxes

B. NATURE AND CHARACTERISTICS OF VAT i . It is a business

 tax levied on the value-added on certain goods, properties
and services in the domestic market and/or importer of
goods.

It is imposed not on the goods or services as such but on the privacy

selling or importing goods or rendering services for a fee, remunera,
consideration.
ree, remuneration or

It is an indirect tax and the amount of tax may be shifted or passa the
buyer, transferee or lessee of the goods, properties or services.
ed or passed on
to
ices,
The party directly liable for the payment of the tax is the seller," the
service provider, although the burden of the tax may be passed
on to the consumer.
seller, importer or nay be shifted or
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EXEMPT
TRANSACTIONS
This means the sale of goods, properties or services and the use or
lease of properties are not subject to VAT (Output Tax) and the seller or
lessor is not : allowed to any tax credit on VAT (Input Tax) on
purchases.

The following are VAT-Exempt transactions (under TRAIN

Law): 1) Sale or importation of:
a. agricultural and marine food product in their original state;
b. livestock and poultry used as, or producing foods for human
consumption; c.. breeding stock
 and genetic materials.

iro

Products considered in their original state: a. products

which undergone simple processes of preparation or
preservation for the market (freezing, drying, salting,
broiling,
roasting, smoking or stripping) b. polished or husked rice C.
corn grits d. raw cane sugar and molasses e. ordinary salt f.
copra NOTE: Livestock or poultry does not include
fighting cocks, race horses, zoo animals and other
animals generally considered as pets.

2) Sale or importation
of:
a. Fertilizers b. Seeds, seedlings and fingerlings C. Fish, prawn,
livestock and poultry feeds d. Ingredients used in the manufacture of
finished feeds (except
specialty feeds for race horses, fighting cocks, aquarium fish, zoo
animals and other animals generally considered as
pets).
3) Importation of personal and household effects belonging to
the:
a. residents of the Philippines returning from abroad;
and b. Non-resident citizens coming to resettle in the
Philippines. NOTE: Such goods must be exempt from
customs duties.
4) Importation of professional instruments and implements, tools of trade,
occupation or employment, wearing apparel, domestic animals, and
personal household effects, provided: :: a. It belongs 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 herein referred to as overseas Filipinos; b. In
quantities and of the class suitable to the profession, rank or position
of the persons importing said items; C. For their own use and
not for sale, barter or exchange; d. Accompanying such persons,
or arriving within a reasonable time.

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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, vehicles, vessels, aircrafts and 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.

5)
Services subject to
percentage tax
6) Services by agricultural contract growers and milling for
others of palay into
rice, corn into grits and sugar cane into
raw sugar;
* AGRICULTURAL CONTRACT
 GROWER:
Refer to those persons producing for others' poultry, livestock or
other agricultural and marine food products in their original state such
package of services of receiving eggs
as contract for a
from breeder farm, sorting, fumigating, setting,
hatching, sexing of day-old broilers, sorting and
delivering them to other contract grower,
7) Medical, dental, hospital and veterinary services except
those rendered by
professionals
;

NOTE:
• Laboratory services are exempted. If the hospital or clinic operates a
pharmacy or drugstore, the sale of drugs and medicines are
subject to VAT. Hospital bills constitute medical services. The sales
made by the drugstore to the in-patients which are included in the
hospital bills are part of medical bills (not subject to vat). The sales of
the drug store to the out-patients are taxable because they are NOT
PART of medical services of the hospital.

8)
Educational services rendered by: a. private
educational institutions, duly accredited by: .
Department of Education (DepEd) Commission on Higher
Education (CHED) Technical
Education and Skills
Development Authority (TESDA)
=: -
=

b. Government Educational
 Institutions

9).
Services rendered by individuals pursuant to an
employer-employee relationship

Services rendered by regional or area

headquarters

Transactions which are exempt under international agreements to

which the Philippines is a signatory or under special laws
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Value Added Tax

.
.
.
For agricultural cooperatives:
a. Sales to their members
. b.
Sales to non-members if the cooperative is the producer (if not,
subject to VAT) c. Importation of: : - direct farm inputs, machineries
and equipment, including spare
parts thereof - to be used directly and exlusively in the
production and/or
processing of their
produce.
TAX
Exempt

Exempt
 SALER ER Sale of
cooperative's own produce to its
members Sale of cooperative's own
produce to nonmembers Sale to its
members of goods other than the
cooperative's own produce Sale to
nonmembers of goods other than the
cooperative's own produce
Exempt

Subject to
Vat

lending activities by credit or

multi-purpose
13) Gross receipts
from
cooperatives
TAX, Exempt

Exempt
GROSS RECEIPTS Gross Receipts
from Lending Activities to its members
Gross Receipts from Lending
Activities to nonmembers Gross Receipts
from Non-Lending Activities to its
members and non-members
Subject to
 Vat

14) Sales by non-agricultural, non-electric and non-credit cooperatives,

provided, that the share capital contribution of each member does not
exceed P15,000
NOTE:
Importation by non-agricultural, non-electric and noncredit
cooperatives of machineries and equipment including spare parts
thereof, to be used by them are subject to VAT.
TAX Exempt
Subject to Vat
CONTRIBUTION Contribution per
member < P15,000 Contribution per
member > P15,000

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Value Added Tax

15) Export sales by persons who are

not VAT-registered
EXPORT SALE By a Vat Registered Exporter By a Non-Vat
Registered Exporter
(Subject to 0% Vat)
(Exempt from Vat)

FORMULA: Output Vat (@

0%) Input Vat Excess
Input Vat**
Output Vat Input
Vat*** Vat
 Payable
None
N/A
None
(Pxx

***may be closed to expense or

cost
**MAY BE: 1. Refunded 2. Used as
Tax Credit against
output vat in relation to sales
subjected to 12% vat (local
sales) 3. May be converted into a tax
credit certificate for payment of any internal
revenue taxes (BIR taxes)

16) Sale
of:
a. Real properties not primarily held for sale to customers or held for
lease in the ordinary course of trade or business. However, even if the real
property is not primarily held for sale to customers or held for lease in the
ordinary course of trade or business but the same is used in trade or
business of the seller, the sale thereof shall be subject to vat being a
transaction incidental to the taxpayer's main business.

Real property utilized for low-cost housing as defined under

RA No. 7279, otherwise known as the "Urban Development and Housing
Act of 1992" and other related laws.

"Low-cost housing refers to housing projects intended for

homeless low income family beneficiaries, undertaken by
the Government or private developers, which may either be a
subdivision or a condominium, registered and licensed by the
Housing and Land Use Regulatory Board/Housing (HLURB) under
BP Blg. 220, PD 957, or any other similar law, wherein the unit selling
price is within the selling price per unit as set by the Housing and Urban
Development Coordinating Council (HUDCC) pursuant to RA 7279,
otherwise known as the "Urban Development and Housing Act
 of 1992" and other laws.

Real property utilized for "socialized housing" as defined by

Republic Act No. 7279, and other related laws such as RA No. 7835 and
RA No. 8763, wherein the price ceiling per unit is P450,000 or

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Value Added Tax

as may from time to time be determined by HUDCC and

the NEDA and other related laws.

“Socialized housing" refers to housing programs and projects

covering houses and lots or home lots only that are undertaken by
the government or the private sector for the underprivileged and
homeless citizens, which shall include sites and services
development, long-tem financing, liberalized terms on interest
payments, and as such other benefits in accordance with the
provisions of Republic Act 7279, otherwise known as the "Urban
Development and Housing Act of 1992" and RA No. 7835 and
RA No. 8763. “Socialized Housing” shall also refer to projects
intended for the underprivileged and homeless wherein the
housing package selling price is within the lowest interest rates
under the Unified Home Lending Program (UHLP) or any
equivalent housing program of the Government, the private
sector or non- . government organizations.
Real properties primarily held for sale to customers or held
for lease in the ordinary course of trade or business, if: i.
Residential lot valued at:
Prior to Jan. 1, 2018: P1,919,500 and
below; ! Beg. Jan. 1, 2018. (TRAIN
 Law): P1,500,000
ji,
House and lot, and other residential dwellings
valued at: . Prior to Jan. 1, 2018: P3,199,200 and
below;
Beg. Jan. 1, 2018 (TRAIN
Law): P2,500,000
NOTE: ✓ If two or more adjacent residential 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 do not exceed P1,500,000 (as amended)
Adjacent residential lots, although covered by separate titles
and/or separate tax declarations, when sold to one and the
same buyer, whether covered by one separate Deed of
Conveyance, shall be presumed as sale of one
residential lot.
Provided that beginning January 1, 2021, the vat exemption shall only
apply to sale of real properties not primarily held fro 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
under RA No. 7279, sale of house and lot and other residential
dwellings with selling price of not more that two million pesos
(P2,000,000); Provided, further, that every three (3) years thereafter
the amounts state herein shall be adjusted to its present value using
the Consumer Price Index, as published by the
Dhilinnine Statistics Authority (PSA).
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Value Added Taste

 exceeding P15,000 amount of aggregated
17) Lease of a residential unit with a monthly rental not exceedino
(P12,800 prior to Jan. 1, 2018), regardless of the amount of a
rentals received by the lessor during the year.
onthly rental per unit
rentals
lously

NOTES:
LEASE of RESIDENTIAL UNITS where the monthly rental
exceeds P15,000 (previously P12,800) but the aggregate of such of
the lessor during the year do not exceed P3,000,000 (previews
P1,919,500) shall likewise be exempt from VAT, however, the sa
shall be subjected to three (3%) percentage tax (RR
16-2011; RR 17
same

2018).

✓
In cases where a lessor has SEVERAL RESIDENTIAL UNITS for
LEASE some are leased out for a monthly rental per unit of not
exceediná P15,000 beginning Jan. 1, 2018 (previously P12,800)
while others are leased out for more than P15,000 or P12,800,
as the case may be, per unit, his tax liability will be:

-
The gross receipts from rentals not exceeding P15,000 (previously P12,800)
per month per unit shall be exempt from VAT regardless of the
aggregate annual gross receipts.
The gross receipts from rentals exceeding P15,000 (previously P12,800)
per month per unit shall be subject to VAT if the annual
gross receipts (from said units only – not including the
gross receipts from units leased out for not more than
P15,000 (previously P12,800) exceed P3,000,000
(P1,919,500 prior to 2018). Otherwise, the gross receipts
shall be subject to three percent (3%) percentage tax under
section 116 of the tax code (RR
16-2011; RR
13-2018).

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

any newspaper,
magazine, review or bulletin: a. Appears at regular intervals; b.
With fixed prices for subscription and sale; C. Not devoted
principally to the publication of paid advertisements.

19) Transport of passengers by international carriers doing busines

Philippines. The same shall not be subject to Other
Percentage amended under RA10378 and Transport of cargo
by internation doing business in the Philippines, as the same is
subject to 3% carrier's tax (Other Percentage Taxes) as
amended under RA10370 15-2015).
business in the ercentage Taxes as
national carriers
to 3% common RA10378 and (RR

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 in
20) "Sale
Cale, importation or lease of passenger or cargo Vessels and d
assenger or cargo vessels and aircrant,
including engine, equipment and spare parts thereof for domestic or
international transport operations, provided, that the exemption from vat on the
importation and local purchase of passenger and/or cargo vessels shall be
subject to the requirements on restriction on vessel importation and
mandatory vessel retirement program of MARINA (RR 15-2015).
21) Importation of fuel, goods and supplies by persons engaged
in
international shipping or air transport operations, provided
that:
Fuel, goods and supplies shall be exclusively or shall pertain to the
transport of goods and/or passenger from a port in the
Philippines. directly to a foreign port without stopping at any
other port in the Philippines. Fuel, goods or supplies is used for
the purposes other than that mentioned in the preceding
paragraph, such portion of fuel, goods and supplies shall be
subject to 12% vat.
22) "Services of banks, non-bank financial intermediaries performing
quasi
banking functions, and other non-bank financial intermediaries such
as money changers and pawnshops, subject to percentage tax under
Sections 121 and 122, respectively, of the Tax Code.
23) Sale or lease of goods and services to senior citizens and persons
with
disabilities, as provided under RA No. 9994 (Expanded Senior Citizens
Act of 2010) and RA No. 10754 (An Act Expanding the Benefits and
Privileges of Persons with Disability (PWD), respectively.
24) Transfer of property pursuant to Section 40(C)(2) of the Tax Code, as
amended (Upon effectivity of RA10963-TRAIN Law only; new
 provision).
25) Association dues, membership fees, and other assessments and
charges
collected on a purely reimbursement basis by homeowners' associations and
condominium corporations established under RA No. 9904 (Magna
Carta for Homeowners' and Homeowners Association), and RA
No. 4726 (Condominium Act), respectively. This provision shall take
effect only beginning January 1, 2018 or upon the effectivity of
RA10963-TRAIN Law (new provision).
26) Sale of Gold to the Bangko Sentral ng Pilipinas (BSP). This provision
shall
take effect only beginning January 1, 2018 or upon the effectivity of
RA10963-TRAIN Law (new provision).
27) Sale of drugs and medicines prescribed for diabetes, high cholesterol,
and
hypertension beginning January 1, 2019 (new
provision)
28) "Sale or lease of goods or properties or the performance of services other
than the transactions mentioned in the preceding paragraphs, the gross annual
sales and/or receipts do not exceed the amount of P3,000,000, as amended
(previously P1,919,500).

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Value Added Tax

D. VAT
REGISTRATION
1) MANDATORY REGISTRATION a. 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 P3,000,000 (as amended) for
the past 12 months (other than those that are exempt) OR there
are reasons to believe that the gross sales or receipts for the next
12 months will exceed P3,000,000.
b. Radio and/or television broadcasting companies whose annual
gross receipts
of the preceding year exceeds P10,000,000. C. A
person required to register as VAT taxpayer but
failed to register.
Penalty for non-registration of those required to register as VAT? He shall be
liable to pay the tax as if he were a VAT-registered person but he
cannot avail the benefits of input tax credit for the period he was
not properly registered. .
OPTIONAL REGISTRATION
Any person who is VAT-exempt or not required to register for VAT may, in
relation to D. 1.a above, elect to be VAT-registered by registering with the RDO
that has jurisdiction over the head office of that person, and pay the annual
registration fee of P500.00 for every separate and distinct establishment. Any person
who elects to register under optional registration shall not be allowed to cancel his
registration for the next three (3) years.

Any person who is VAT-registered but enters into transactions

which are exempt from VAT (mixed transactions) may opt that the
VAT apply to his transactions which would have been exempt
under Section 109(1) of the Tax Code, as amended (Sec. 109(2)].
Franchise grantees of radio and/or television broadcasting whose
annual gross receipts of the preceding year do not exceed ten
million pesos (P10,000,000.00) derived from the business covered
by the law granting the franchise may opt for VAT registration.
This option, once exercised, shall be irrevocable. (Sec. 119,
Tax Code).
The above-stated taxpayers may apply for VAT registration not
 later than ten (10) days before the beginning of the calendar quarter and shall pay
the registration fee unless they have already paid at the beginning of the year.
In any case, the Commissioner of Internal Revenue may, for
administrative reason deny any application for registration. Once registered
as a VAT person, the taxpayer shall be liable to output tax and be entitled to input
tax credit beginning on the first day of the month following registration.

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Value Added Tax

2 CANCELLATION OF VAT
REGISTRATION

Instances when a VAT-registered person may cancel his

VAT registration: 1. If he makes a 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 P3,000,000,
as amended; or

2.
If 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 for registration will be effective
from the first day of
the following month the cancellation was
approved.
3. POWER OF THE COMMISSIONER TO SUSPEND
BUSINESS OPERATIONS:
The Commissioner of the Internal Revenue or his authorized
 representative may order suspension or closure of
business establishment for a period of not less than 5
days for any of the following violations:
1. Failure to issue receipts or invoices 2. Failure to file
vat return 3. Understatement of taxable sales or receipts
by 30% or
more of the correct taxable sales or receipts for
the taxable
quarter. 4.
Failure of any person to register as required
under the law.
E. VAT FOR SELLER OF GOODS, PROPERTIES
AND SERVICES
PERSONS LIABLE - Any person who, in the course of his trade or
business. 1. Sells, barters or exchanges goods or properties
(Seller of Goods or
Properties) 2. Leases goods or
properties (Lessor) 3. Renders
services (Service Provider)
MEANING OF "IN THE COURSE OF TRADE OR BUSINESS" – the
regular conduct or pursuit of a commercial or 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.

FORMUL
A:
Output Tax
Input Tax
PXXX
(XX)
PXXX
 VAT Payable (Excess Input
Tax)

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Value Added Tax

F. OUTPUT TAX OF SELLER OF GOODS OR

PROPERTIES
KINDS OF SALE OF GOODS OR PROPERTIES
SUBJECT TO VAT: 1. Actual Sale
Transactions deemed sale: a) Transfer, use or consumption not in
the course of business of goods or
properties originally intended for sale or for use in the course of
business. Transfer of goods or properties not in the course of
business can take place when VAT-registered person withdraws
goods from his
business for his personal use; b)
Distribution or transfer to:
i. Shareholders or investors share in the profits of
VAT-registered
person; ii. Creditors in payment of debt; c) Consignment of goods
if actual sale is not made within 60 days
following the date such goods were consigned; and d) Retirement
from or cessation of business with respect to all goods on
hand, whether capital goods, stock-in-trade, supplies or
materials as of the date of such retirement or cessation,
whether or not the business is continued by the new owner or
successor.

FORMULA IN COMPUTING OUTPUT

TAX
Tax Base
Rate , Output
Tax
PXXX
XX% PXXX
TAX BASE

GSP
.....

Actual
Sale
Personal property Real
Property 1. Cash Sale 2.
Deferred Payment
Basis 3.
Installment Plan
GSP vs. FMV vs. ZV w/C
ever is the highest

[(Collection/GSP) X
GSP vs. FMV vs. ZV
w/c ever is the highest)
Transaction Deemed
Sale
1. (a), (b) and (c) above 2.
(d) above
FMV AC vs. FMV (w/c ever is lower)

GSP - Gross Selling

Price FMV – Fair market
value ZV – Zonal Value AC -
Acquisition Cost
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Value Added Tax

Gross
Selling
purch

Selling Price - means the total amount of money or its equivalent which
the
Seer pays or is obligated to pay to the seller in consideration of
the sale, barter pur
exchange of the goods or properties, excluding
VAT. The excise tax, if any, on
goods or properties shall form part of the
gross selling price. such
or exi

NOTE: The following shall be allowed as deductions from gross selling

price;
a) Sales discount indicated in the invoice at the time of sale, the grant of which
is not dependent upon the happening of a future event; and b)
Sales returns and allowances for which a proper credit or refund was made
for sales previously recorded as taxable
sales.
DEFINITION OF GROSS SELLING PRICE
EXPRESSED IN A FORMULA:
PXXX
Gross Sales Less:
Sales discount
Sales returns &
allowances Net Sales Add:
Excise tax Tax Base
XX PXXX
XX PXXX

Fair Market Value - means fair market value as shown in the schedule of
values of the
Provincial and City Assessors (real property tax
declaration).
Zonal Value - means fair market value as determined by the BIR
Commissioner.
Deferred Payment Basis - means sale of real property, the initial payments
of which in the year of sale exceed 25% of the gross selling price. ..!
Installment Plan - means sale of real property, the initial payment of which in
the year of sale do not exceed 25% of the gross selling price.
COMPONENTS OF INITIAL
PAYMENT:

Down payment Other collections

in the year of sale Excess of
unpaid mortgage over cost Initial
Payments
PXXX
XXX
XXX
PXXX

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Value Added Tax

3,
EXPORT SALE RATE - As a general rule, the rate of value-added
tax for the sale of goods or properties is 12% (Local Sales). However, the
following transactions are subject to 0% (ZERO-RATED SALES):

1) Export Sales:
a. Sale and actual shipment of goods from the Philippines to a
foreign
country, paid for in acceptable currency, and accounted for in
accordance with the rules and regulations of the BSP; Sale of raw
materials or packaging materials to a non-resident buyer for delivery to
a resident local export oriented enterprise to be used in
manufacturing, processing, packing or repacking in the Philippines of
the said buyer's goods, paid for in acceptable currency, and accounted
for in accordance with the rules and regulations of the BSP; Sale of
raw materials or packaging materials to an export-oriented
enterprise whose export sales exceed 70% of total annual
production;

d.
Transactions considered export sales
under E.O. No. 226;
ART. 23 EO 226 That
without actual exportation the
following shall be considered constructively exported for
purposes of this provision: ✓ sales to bonded manufacturing
 warehouses of export-oriented
manufacturers;
sales to export processing zones; sales to registered export
traders operating bonded trading warehouses supplying raw
materials used in the manufacture of export products under
guidelines to be set by the Board in consultation with the
Bureau of Internal Revenue and the Bureau of Customs; sales to
foreign military bases, diplomatic missions and other
agencies and/or instrumentalities granted tax immunities, of
locally manufactured, assembled or repacked products whether
paid for in foreign currency or not: Provided, further, that
export sales of registered export traders may include
commission income: and Provided, finally, that exportation of
goods on consignment shall not be deemed export sales until the
export products consigned are in fact sold by the consignee. .
Sales of locally manufactured or assembled goods for
household and personal use to Filipinos abroad and other
non-residents of the Philippines as well as returning Overseas
Filipinos under the Internal Export Program of the government
and paid for in convertible foreign currency inwardly remitted
through the Philippine
banking systems shall also be
considered export sales.

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Value Added Tax

Items 1(b), 1(c) and 1(d) above are now subject to 12%
vat under Sec. 31 of RA10963 (TRAIN Law) upon
satisfaction of the following:
Successful establishment and implementation of an enhance
 refund system that grants refunds of creditable input tax
within 90 days from the filing of the vat refund application
with the BIR; Provided that, all applications filed from January
1, 2018 shall be processed and decided within 90 days
from the filing of the vat refund application.
The ninety (90) day period to process and decide,
pending the establishment of the enhanced VAT Refund
System shall only be up to the date of approval of the
Recommendation Report on such application for VAT refund
by the Commissioner or his duly authorized representative;
Provided; that all claims for refund/tax credit certificate filed
prior to January 1, 2018 will be governed by the one-hundred
(120)-day processing period. and All pending vat refund
claims as of Dec. 31, 2017 shall be fully paid in cash by Dec.
31, 2019.
e. Sale of gold to BSP (Vat exempt beginning
Jan. 1, 2018)
f.
Sale of goods, supplies, equipment and fuel to persons engaged
in international shipping or international air transport operations.
2) Foreign Currency Denominated Sale (repealed under TRAIN Law)
-
essential
means the sale to a non-resident of goods, except automobile and non
goods, assembled or manufactured in the Philippines for delivery
to a resident in the Philippines, paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the
BSP.
3) Sales to Persons or Entities Deemed Tax-exempt under Special Law or
International Agreement (Also known as Effectively Zero-Rated Sale): a.
Sales of goods or property to persons or entities who are tax-exempt
under special laws, such as: . Subic Bay
 Metropolitan Authority (SBMA)
- Philippine Economic Zone Authority
(PEZA)
Sales of goods or property to persons or entities who are tax-exempt under
international agreements to which the Philippines is a signatory. such as:
- Asian Development Bank (ADB).
International Rice Research Institute (IRRI)

NOTE: A zero-rated sale of goods or properties is

purposes, but shall not result in any output tay un
le of goods or properties is a taxable transaction
result in any output tax. However, the input tax on purchases orties or services,
related to such zero-rated sale, shall be available as
tax credit or refund.:

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Value Added Tax

STATUS QUO ON VAT ZERO-RATING OF SALES TO

PEZA ENTITIES
DOF Memorandum Circular No. 2018-003 declared "status quo" on
vat-zero rating incentive on the sale of goods/services to separate customs
territories. It further provides that Section 8 of the PEZA Law, which provides
that special economic zones are to be operated and managed as a separate
customs territory, was not amended or repealed by TRAIN Law.
Consequently, until a law or revenue regulation is passed or issued contrary to
or incompatible with the pronouncement by the DOF, the vat zero-rating
incentive being enjoyed by PEZA locators or entities shall remain in full force
and effect.

G. OUTPUT TAX OF SELLER OF SERVICES AND LESSOR

OF GOODS OR
PROPERTIES
 FORMULA IN COMPUTING OUTPUT TAX

Gross Receipts
Rate Output
Tax
PXXX
XX%
PXXX
Gross Receipts - refers to 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 applied as payments for services rendered and advance payments.
actually or constructively received for the services performed or to be
performed for another person, excluding VAT,
Advance Payments. In a lease contract, advance payment by the
lessee may be:
1. A loan to the lessor from the
lessee. 2. An option money for the
property. 3. A security deposit to insure
the
NOT faithful
performance of certain
subject to :
obligations of the lessee to the lessor. | VAT

4. Prepaid rental
Subject to VAT

DEFINITION OF GROSS RECEIPTS

EXPRESSED IN A FORMULA:
 Cash received (actually and
constructively) Advance payments
Materials charged for services Gross
receipts
PXXX
XXX
XXX
PXXX

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NOTE:
For Dealer in Securities, the term "gross receipts" means gross selling
price less cost of securities sold.

2. "Constructive receipt" occurs when the money consideration or its

equivalent,
is placed at the control of the person who rendered the service without
restrictions by the payor. The following are example of constructive
receipts: a) Deposits in banks which are made available to the seller
of services
Issuance by the debtor of a notice to
without restrictions; b)
offset any debt or obligation and
acceptance thereof by the seller as payment for services rendered;
and c) Transfer of the amounts retained by the payor to the account of
the
contractor.

RATE - As a general rule, the rate of value-added tax for the sale of services
and lease of goods or properties is 12%. However, the following
transactions are subject to 0% (ZERO-RATED SALES):
1. Processing, manufacturing or repacking goods for other persons doing
business outside the Philippines, which goods are subsequently exported,
where services are paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the BSP;
2. Services performed by subcontractors and/or contractors in processing,
converting, or manufacturing goods for an enterprise whose export sales
exceed 70% of the total annual production;
Transactions #1 and #2 above, are already subject to 12% vat from the
effectivity of RA10963 upon satisfaction of the following:
. Successful establishment and implementation of an enhance refund
system that grants refunds of creditable input tax within 90 days
from the filing of the vat refund application with the BIR; Provided
that, all applications filed from January 1, 2018 shall be processed
and decided within 90 days from the filing of the vat refund
application.
The ninety (90) day period to process and decide, pending the establishment
of the enhanced VAT Refund System shall only be up to the date
of approval of the Recommendation Report on such application
for VAT refund by the Commissioner or his duly authorized
representative; Provided; that all claims for refund/tax credit certificate
filed prior to January 1, 2018 will be governed by the one-hundred
(120)-day processing period. and

All per

All pending vat refund claims as of Dec. 31, 2017 shall be fully paid in cash
by Dec. 31, 2019.
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 3.
Services other than processing, manufacturing or repacking goods for
other persons engaged in business who is outside the Philippines when
the services are performed, the consideration for which is paid for in
acceptable foreign currency and accounted for in accordance
with the rules and regulations of the BSP;

.
4. Services rendered to persons or entities whose exemption under special
laws
or international agreements to which the Philippines is a
signatory effectively subjects the supply of services to zero
percent (0%) rate;
5. Services rendered to persons engaged in international shipping
or air
transport operations, including leases of property for
use thereof;
6. Transport of passengers and cargo by domestic air or sea
carriers from the
Philippines to a foreign
country; and
7. Sale of power or fuel generated through renewable
sources of energy such
as, but not limited to:
a) Biomass
Solar
Wind d)
 Hydropower
Geothermal and Steam f Other emerging sources
Ocean energy g)
using technologies such as fuel cells and
hydrogen fuels.

H. INPUT TAX

REQUISITES: 1. The taxpayer is a VAT-registered person;

and 2.The input tax is related to business subject to
VAT (12% and 0%).
KINDS OF INPUT TAX 1. Input tax on local purchases of goods or
properties other than capital goods; 2. Input tax on importation of goods
or properties other than capital goods; 3. Input tax on local purchases or
importation of capital goods; 4. Input tax on local purchases of services; 5.
Creditable withholding VAT 6. Transitional input tax 7. Presumptive input tax

INPUT TAX ON LOCAL PURCHASES OR

IMPORTATION OF CAPITAL GOODS
Capital Goods - refer to depreciable properties in which the
useful life is more than one (1) year.
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When is amortization required? Durchases or importation of capital goods,

the aggregate acquisition cost of which (net of VAT) in a calendar month
exceeds P1,000,000, regardless of the
Cuisition cost of each capital good, shall be
amortized.
Amount Deductible = Input Tax/Amortization
period
NOTE: 1. Amortization period is the shorter
period of the following:
a) 60 months b) Useful life in months If the 1M threshold is not
breached, no need for amortization (Input lax is
100% deductible). 3. If the CAPITAL GOOD IS SOLD within the
five (5) year period or prior to
exhaustion of Input Vat thereon, the ENTIRE UNAMORTIZED INPUT,
TAX on the capital goods sold can be claimed as input tax credit
during the month or quarter when the sale is made. Construction in
Progress is a purchase of services. Input taxes will be recognized in
the month payment was made on the progress billing. In the
case where labor will be furnished by the contractor and materials will
be purchased by the contractee from other suppliers, input taxes
will be recognized on labor when payment is made on the progress
billings while input taxes will be recognized on materials at the time
the materials are purchased.

CREDITABLE WITHHOLDING
VAT
Non-resident persons who perform services in the Philippines are
deemed to be making sales in the course of trade or business, even if the
performance of services is not regular. The recipient of the service is the
one required to withhold and remit the VAT to the BIR. Such VAT can be
claimed by the recipient as input tax.

TRANSITIONAL INPUT TAX Persons Covered: Taxpayers who

became VAT-registered persons (previously non-VAT) shall be
entitled to a transitional input tax.

Amount Deductible:
Beginning
Inventory Rate
 PXXX
2%
PXXX
XXX
Actual Input VAT, Inventory beg.
Transitional Input Tax (Higher Amount)
PXXX
NOTE: Beginning inventory will include all inventories related to business subject
LOVAT regardless of whether or not it was purchased from VAT or
non-VAT
supplier.

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PRESUMPTIVE INPUT TAX Persons Covered: Persons

or firms engaged in: 1.
Processing of sardines, mackerel and milk; and 2. Manufacturing refined
sugar, cooking oil and packed noodle-based instant
meals.

Amount Deductible:

Purchases of Primary Agricultural

Products Rate Presumptive Input
Tax
PXXX
4%
PXXX

I. VAT ON IMPORTATION

PERSONS LIABLE: 1. Any person who bring goods into the Philippines,
whether or not made in
 the course or his trade or business. 2. It includes non-exempt persons or
entities who acquire tax-free imported
goods from exempt persons, entities or
agencies.

NOTE: In case of goods imported into the Philippines by VAT-exempt persons,

entities or agencies which are subsequently sold, transferred or exchanged in the
Philippines to non-exempt persons or entities, the latter shall be considered
the importers thereof and shall be liable for VAT due on such importation

.
FORMULA
a) Customs duties is ad valorem (based
on value): Dutiable Value
PX
XX Customs duties
X
XX Excise tax
XX
X Other charges w/in BOC
XX
X Tax Base
PX
XX Rate
12
% VAT on 'Importation ? PXXX

b)
Customs duties is specific (based on quantity or
volume): Invoice amount
PXXX
Customs duties
XXX
Freight
XXX
 Insurance
XXX Other
charges w.in BOC
XXX
Landed Cost
PXXX
Excise tax
XXX Total
PXXX Rate
12% VAT
on Importation
PXXX

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FINAL WITHHOLDING VAT

.
The government or any of its political subdivisions, instrumentalities !
agencies, including GOCCs shall, before making payment on account
of each purchase of goods and or services taxed at 12% VAT, deduct and
withhold a Final VAT due at the rate of five percent (5%) of the gross
payment.
The 5% final VAT shall represent the net VAT pavable to the seller. The remaining 7%
effectively accounts for the standard input VAT of the senel, in lieu of the actual
input VAT.

The difference between actual input VAT and standard input VAT
must be closed to expense or cost.

MIXED BUSINESS
 TRANSACTIONS
Refer to a situation wherein the taxpayer is engaged in transactions
subjwect to VAT (12% and/or 0%) as well as not subject to VAT (exempt).
The main concern in such a case is the determination of input tax that can be
claimed for VAT purposes.
A Vat registered person who is also engaged in transactions not subject to
Vat shall be allowed of Input tax credit as follows: 1. Total input tax which
can be directly attributed to transactions subject to
vat (except vat taxable sales of goods and services to the
government or
GOCCS); and. 2. Ratable Portion of any input tax which cannot be
directly attributed to either
activity. (allocation shall be on the basis of sales
volume.)

L. EXCESS INPUT TAX

KINDS OF INPUT TAX

TREATMENT carry-over

Related to sales, subject

to
12% VAT

Related to 0%
VAT
a) Carry-over b) Refund c) Convert into tax
certificate
credit

In case of cancellation
 VAT
registration
of a) Convert into tax credit
certificate l b) In case it has no other tax |
liability,
refund.

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M. VAT and DISCOUNTS FOR SENIOR

CITIZENS
Senior citizen or Elderly - refers to any Filipino citizen who is a resident of
the Philippines, sixty (60) years old or above. It may apply to senior
citizens with
dual citizenship" status provided they prove their Filipino citizenship and
have at least six (6) months residency in the Philippines (RA 9994 otherwise
known as "Expanded Senior Citizens Act of 2010" and its related revenue
regulations/ circulars RR7-2010, RR 8-2010, RMC 38-2012).
Resident Citizen – a Filipino Citizen with permanent/ legal residence in the
Philippines, and shall include one, who, having migrated to a foreign country,
has returned to the Philippines with a definite intention to reside therein, and
whose immigrant visa has been surrendered to the foreign government.

VAT Exempt Sales to Senior Citizens (Section 4, RR 7-2010)

The following items sold to a senior citizen are vat-exempt and will
entitle the - latter to a minimum discount of 20%: ;
a) Medicine and Drug Purchases including influenza and pneumococcal
vaccines and such other essential medical supplies,
 accessories and
equipment. b) Professional fees of attending physicians in all
private hospitals, medical
facilities, outpatient clinics and home health care services. c) Professional
fees of licensed health workers providing home health care
services in all private hospitals, medical facilities, outpatient clinics, and
home health care services d) Medical and dental
services, diagnostic and laboratory fees
On actual fare for land transportation travel In actual fare for domestic
air transport and sea shipping vessels and the like On the utilization of
services in hotels and similar lodging establishments,
restaurants, recreation centers h On admission fees charged by
theaters, cinema houses and concert halls,
circuses, carnivals and other similar places of culture, leisure and
amusement. .' i) On funeral and burial
services of senior citizens.

RULE FOR
RESTAURANTS
Hiccount shall be for the sale of food, drinks, dessert and other
consumable is served by the establishments, including value meals and
promotional
offered for the consumption of the general public, Condiments and side
Fall within the ambit of "other consumable items served by the
products fall within the
establishments".
the 20% discount and vat exemption for restaurants shall
apply to:
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 Dine in, take-out, take-home, drive-thru, delivery orders (excluding
bulk orders), called-in or phoned-in orders. Bulk orders are within
we context of pre-contracted or pre-arranged group meals or package and
hence, not entitled to 20% discount and VAT exemption.
Set meals, group meals or group walk-ins including purchase of a whole
cake and pizza orders.
L

"Pasalubong" food items which are single-serving/solo meal for the

personal and exclusive consumption of the Senior Citizen. However,
other "pasalubong" food items (e.g. box of biscocho, bottles or jars
of ginamos, several packets of mango preserves, etc) which are not
for the personal and exclusive consumption of the Senior Citizen are
NOT - entitled to 20% discount and VAT exemption. This limitation extends to
"novelty items" or non-consumables sold in
restaurants.

FORMULAS: :Disct.= (Total Billing

Amount - VAT) x 20%
Amount Due:
Total bill inclusive of vat Less: vat
Total bill exclusive of vat
Less: 20% discount Total
Amount Due
Pxx
(xx)
PXX
(xx)**
Pxx

Total Billing Amt. No. of customers.'

**Dsct.=
Less VAT X 20%
 **Use the above formula in the following
cases:
The bill is for a group of individuals involving non-senior citizens and a senior
citizen In case of set meal(s) not limited to a single serving and is
shared with Non-Senior Citizens. For group of diners composed
of Senior Citizens who ordered for group meals or food items for
sharing in restaurants and not all the Senior Citizens have their
valid Senior Citizen's ID cards (including purchase of whole
cake and pizza). .
Grant of 5% Special Discount (Section 5, RR 7-2010
as amended by RR 8-2010 and RMC 38-2012)...
A special discount of five percent (5%) of the regular retail price of basic
necessities and prime commodities as defined under Section 2 of the joint
DTI-DA Administration Order No. 10-02, series of 2010, shall be granted
to Senior Citizens on their purchases thereof, taking into consideration that said
purchases shall be for the personal and exclusive consumption and/or enjoyment of
the Senior Citizen (Section 3, Joint DTI. DA Administrative Order No.
10-02, Series of 2010).
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a) Basic Necessities
Rice Corn Bread excluding pastries and cakes Fresh,
dried and canned fish and other marine products
Fresh pork, beef and poultry meet Fresh eggs Fresh
and processed milk Fresh vegetables including root
crops Coffee and coffee creamer Sugar Cooking oil Salt
Powdered, liquid, bar laudry and detergent soap
Firewood Charcoal Candles

b) Prime
Commodities
 Fresh fruits Flour Dried, processed and canned pork,
beef and poultry meat Dairy products not falling under
basic necessities Canned sardines, tuna Noodles Onions
Garlic Geriatric diapers Herbicides Poultry, swine and cattle
feeds Veterinary products for poultry, swine and cattle
Nipa shingle, plyboard and construction nails Batteries
Electrical supplies and light bulbs Steel wire

Petailers – shall mean any natural or juridical person engaged in the

business of selling consumer products directly to consumers, which shall
include among others, supermarkets, grocery/convenience stores and
shops hut excluding stalls in food courts, food carts and sari-sari stores
with a capitalization of less than P100,000, public and private wet
markets, talipapa and cooperative stores.

chase of basic necessities and prime commodities are not mot

from vat. The total amount of purchases shall not exceed P1,300
calendar week without carry-over of unused amount. A purchase Wat
issued by OSCA shall be presented to the retailer upon purchase or basic
necessities and prime commodities.
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LULUULDU

NOTE:
The input tax attributable to the exempt sale shall not be allowed as a input tax
credit and must be closed to cost or expense account Dy" seller
(Sec. 10, RR 7-2010).

While RA 9994. expressly provides for the VAT exemption of Senior

Citizens on their purchase of certain goods and services, the law does
not include exemption from the payment of Percentage Tax.
 In the purchase of goods and services which are on promotional, discount,
the Senior Citizen shall avail of either the promotional discount or the
20%/5% discount, whichever is higher. However, the discount that must be
given to the Senior Citizen shall in no case be less than 20%/5%. Moreover, the
sale of goods and services on promotional discount is still exempt from
VAT (except sale of basic necessities and prime commodities).
Meals primarily prepared and intentionally marketed for children and not
for Senior Citizen's personal consumption are not entitled to 20%
discount. (Rule IV, Article 7, Section 3(d) of the Rules and
Regulations implementing RA No. 9994; Section 6 of RR
No. 7-2010).
Generally, alcoholic beverages are not subject to the 20%
discount and VAT exemption especially if purchased "in bulk",
"in buckets" or "in cases". However, if served as a single
serving drink, its purchase by a Senior Citizen is entitled to the
20% discount and VAT exemption. However, alcoholic beverages
purchased in a bar, club or cabaret are exempt from VAT but subject to
amusement tax of 18% under Section 125 of the NIRC, as amended. A
Senior Citizen may still avail of the 20% discount on the purchase of an
alcoholic drink but the discount shall
be limited only to a single
serving of an alcoholic beverage.
Cigarettes/cigars are not the food or essential items deemed
subject to the 20% discount.

.
Toll fees are not the same as "fares". Hence, it is not subject to the 20%
Senior Citizen Discount.
N. PERSONS WITH DISABILITY (RA7277-Magna Carta for Persons with
Disability as amended under RA 9442 and RA10754;) A person with disability
shall refer to an individual suffering from restriction or different abilities, as a
result of mental, physical or sensory impairment, to perform an activity in a manner
or within the range considered normal for human
being (RR
1-2009).
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- 40754 AN ACT EXPANDING THE BENEFITS AND

PRIVILEGES OF PERSONS WITH DISABILITY (PWD) ..

: "(a) At least twenty percent

"SEC. 32. Persons with disability shall be entitled to: ? At least twenty
percent (20%) discount and exemption from the value
tax (VAT), if applicable, on the following sale of goods and services
for the exclusive use and enjoyment or availment of the PWD:
(1) On the fees and charges relative to the utilization of all services in hotels and
similar lodging establishments; restaurants and recreation centers;
un admission fees charaed by theaters, cinema houses, 'concert halls, circuses,
carnivals and other similar places of culture, leisure and .
amusement;
(3) On the purchase of medicines in all
drugstores;
(4) On medical and dental services including diagnostic and laboratory
fees such as, but not limited to, x-rays, computerized tomography
scans and blood tests, and professional fees of attending doctors in
all government facilities, subject to the guidelines to be issued by the
Department of Health (DOH), in coordination with the Philippine
Health Insurance Corporation (PhilHealth);

"(5) On medical and dental services including diagnostic and

 laboratory fees, and professional fees of attending doctors in all
private hospitals and medical facilities, in accordance with the rules and
regulations to be issued by the DOH, in coordination with the
PhilHealth;

"(6) On fare for domestic air and sea

travel;

"(7) On actual fare for land transportation travel such as, but not limited to,
public utility buses or jeepneys (PUBS/PUJS), taxis, asian utility
vehicles (AUVs), shuttle services and public railways, including light
Rail Transit FURT), Metro Rail Transit (MRT) and Philippine National
Railways (PNR); and

18) On funeral and burial services for the death of the PWD: Provided,
That the beneficiary or any person who shall shoulder the funeral and
burial expenses of the deceased PWD shall claim the discount under
this rule for the deceased PWD upon presentation of the death
certificate. Such expenses shall cover the purchase of casket or urn,
embalming, hospital morgue transport of the body to intended burial site in the
place of origin, but shall exclude obituary publication and the cost of the memorial
lot.
"(b) Educational assistance to PU
post tertiary, as well as
vocational schools, through the
provision other incentives to qual
and uniform, allowance to
minimum admission
requirements;
cational assistance to PWD, for them to pursue primary, secondary,
tertiary,
v as well as vocational or technical education, in both public and
private m uah the provision of scholarships, grants, financial aids,
subsidies and
 to qualified PWD, including support for books, learning materials, allowance to the
extent feasible: Provided, That PWD shall meet the

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c) To the extent practicable and feasible, the continuance of the same

benefits and Milenes given by the Government Service Insurance System
(GSIS), Social Security System (SSS), and Pag-IBIG, as the case may
be, as are enjoyed by those in actual
service;

d) To the extent possible, the government may grant special

discounts in special programs for PWD on purchase of basic
commodities, subject to the guidelines to be issued for the purpose by
the Department of Trade and Industry (DTI) and the Department of
Agriculture (DA); and

"(e) Provision of express lanes for PWD in all commercial and

government establishments; in the absence thereof, priority shall be given
to them... "The abovementioned privileges are available only to PWD
who are Filipino citizens upon submission of any of the following as proof
of his/her entitlement thereto:
"i) An identification card issued by the city or municipal mayor or
the barangay captain of the place where the PWD resides;
 "(ii) The passport of the PWD
concerned; or
"(iii) Transportation discount fare Identification Card (ID) issued by
the National Council for the Welfare of Disabled Persons
(NCWDP).
"The privileges may not be claimed if the PWD claims a higher discount as may
be granted by the commercial establishment and/or under other ; existing laws
or in combination with other discount program/s.

"The establishments may claim the discounts granted in subsection (a),

paragraphs (1), (2), (3), (5), (6), (7), and (8) as tax deductions based on the net
cost of the goods sold or services rendered: Provided, however, That the cost of
the discount shall be allowed as deduction from the gross income for the same
taxable year that the discount is granted: Provided, further, that the total amount of the
claimed tax deduction net of value-added tax, if applicable, 'shall be included in their
gross sales receipts for tax purposes and shall be subject to proper documentation and to the
provisions of the National Internal Revenue Code (NIRC), as amended.

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O. ADMINISTRATIVE PROVISIONS
1. INVOICING
REQUIREMENTS
A VAT registered person shall issue: a) A VAT invoice for
every sale; barter or exchange of goods or
b) A VAT official receipt for every lease of
properties; and
goods or properties and for
every sale, barter or exchange of
services.
Single invoice/ receipt involving VAT and
Non-VAT transactions
A Vat registered taxpayer may issue a single invoice/ receipt involving VAT
and non-VAT transactions provided that the invoice or receipt shall clearly
indicate the break-down of the sales 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 on the invoice or receipt.

Separate invoices/ receipts involving VAT and Non-VAT

transactions

A VAT registered person may issue separate invoices/ receipts for the
taxable, exempt, and zero-rated component of its sales provided that if
the sales is exempt from value-added tax, the term "VAT-EXEMPT
SALE" shall be written or printed prominently on the invoice or receipt
and if the sale is subject to zero percent (0%) VAT, the term
"ZERO-RATED SALE" shall be written or printed prominently on the
invoice or receipt.

SALE TO SENIOR CITIZENS. The amount of sales that must be reported

for tax purposes is the undiscounted selling price and not the amount of
sales net of the discount. The gross selling price and the sales discount
must be separately indicated in the official receipt or sales invoice issued
by the establishment for the sale of goods or services to the Senior
 Citizen. With regard to the VAT exemption, the machine tape must
properly segregate the VAT exempt sales from the taxable sales
(Sections 7 and 10 of RR No. 7-2010).
The business establishment giving sales discounts to qualified Senior
Citizens is required to keep a separate and accurate record of sales,
which shall include the name of the Senior Citizen-purchaser, OSCA ID,
gross sales/receipts, sales discounts granted, dates of transactions and
voice/OR number for every sale transaction to Senior Citizens. The
invoicir
icing requirements in Section 4.113-1 of Revenue Regulations No.
16-2005 must also be complied with (Sections 7 and 10 of RR No. 7
2010).

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* CONSEQUENCES.of issuing an erroneous invoice or

official receipt
a) If a person who is not a VAT registered person issues an invoice
or
receipt showing his TIN followed by the word VAT, the nonVAT
person shall be liable to: i. The percentage taxes applicable to
his transactions. ii. The VAT due on the transactions without the
benefit of any tax
credit; and iii. A 50%
surcharge.
b)
If a VAT registered person issues a VAT invoice or official
receipt for a VAT-exempt transaction but fails to display prominently
on the invoice or receipt the term "VAT EXEMPT SALE", the
issuer shall be liable to VAT.

NOTE: In both cases, the VAT shall, if other requisite information

required is shown on the invoice or receipt, be recognized as an
input taxi credit to the purchaser.

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