TAXATION II
From the Lectures of Atty. Percy P. Donalvo
BUSINESS TAXES
Q: What are the business taxes found under the
NIRC?
1. Value Added Tax (VAT)
2. Percentage Tax
3. Excise Tax
Q: What are business taxes?
A: They are only imposed in transactions for business
purposes.
Q: How is business defined?
A: Business is the regular conduct of commercial or
economic activity where the primary motive is profit or
livelihood. The following are the requirements to say one
is engaged in business:
1. There is a commercial activity;
2. It is intended for profit (not necessarily the sole
motive);
3. It is regular; and
4. It is financial.
VALUE ADDED TAX (VAT)
Value Added Tax (VAT) is a uniform tax assessed,
levied and collected on every importation of goods
whether or not in the course of trade or business OR
imposed on each sale, barter of goods or exchange of
properties or in the rendition of service in the regular
course of trade or business.
It is imposed only on increased worth, merit or
importance of goods, properties and services and not on
the total value of goods and services.
It is also a tax on spending or consumption.
CHARACTERISTICS OF VAT
a. It is a BUSINESS TAX.
it is generally imposed on persons engaged in
business.
Section 105. Persons Liable. Any person who, in the course of trade
or business, sells, barters, exchanges, leases goods or properties,
renders services, and any person who imports goods shall be subject
to the VAT imposed in Sections 106 to 108 of this Code. xxx
GENERAL RULE: Any person, whether natural or
juridical, who, in the course of trade or business, sells,
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Gopo | 2017-2018
barters, exchanges, leases goods or properties, renders
services.
“In the course of trade or business” means the
regular conduct or pursuit of a commercial or an
economic activity, including transactions
incidental thereto, by any person regardless of
whether or not the person engaged therein is a
nonstock, nonprofit private organization
(irrespective of the disposition of its net income and
whether or not it sells exclusively to members or
their guests), or government entity.
“Carrying on business” does not mean the
performance of a single disconnected act, but
means conducting, prosecuting and continuing
business by performing progressively all the acts
normally incident thereof. While “doing business”
conveys the idea of business being done, not from
times to time, but all the time. “Course of business”
is what is usually done in the management of trade
or business. (CIR v Magsaysay Lines)
Q: Is a non-stock non-profit organization liable for
VAT?
A: YES. Section 105 NIRC is clear. VAT is a tax on
transactions, imposed at every stage of the distribution
process on the sale, barter, exchange of goods or
property, and on the performance of services, even in
the absence of profit attributable thereto. The term “in
the course of trade or business” requires the regular
conduct or pursuit of a commercial or an economic
activity regardless of whether or not the entity is profit-
oriented.
xxx As long as the entity provides service for a fee,
remuneration or consideration, then the service rendered
is subject to VAT. (CIR v. COMASERCO)
EXCEPTION: Any person who imports goods shall be
subject to VAT.
Regardless of whether it is made “in the course of
trade or business” or not, VAT is imposed.
REMEMBER: VAT is imposed on a “transaction-basis”.
Each transaction will have a corresponding VAT.
It can only be imposed when there is a
transaction/importation involved.
Under Section 106, there must be a sale, barter or
exchange of goods or properties before any VAT
may be levied. (CIR v Sony)
b. It is an INDIRECT TAX.

The one statutorily liable to pay is the seller.
The burden thereof may be shifted by the statutory
taxpayer to the buyer, transferee or lessee of the goods,
properties or services. (Hence, regardless of who fails to
pay the vat – the seller or the buyer – it will still be the
seller who will be held responsible for the payment
thereof.)
c. It is a TAX ON SPENDING OR CONSUMPTION
OF GOODS/SERVICES
However, note that it is not a tax on privilege but a
tax on consumption. Thus, take note of where the
services are consumed (must be here in the PH).
Note: difference between performance and
consumption. (American Express Case)
Consumption pertains to the use of a thing in a
way that thereby exhausts it. (Sony case)
Services means the performance or successful
completion of a contractual duty, usually resulting in
the performers release from any past or future
liability.
d. It follows the DESTINATION PRINCIPLE and the
CROSS BORDER DOCTRINE.
Destination Principle means that the destination of
the goods determines the taxation or exemption
from VAT. Goods and services are taxed only in the
country where they are consumed.
Cross Border Doctrine states that VAT is to be
imposed to form part of the cost of goods destined
for consumption outside of the territorial border of
the taxing authority.
Illustration: Goods or services consumed here in
the PH are subject to 12%VAT but the goods or
services exported outside the PH are zero-rated
because they are no longer consumed here in the
PH. (exports are zero-rated whereas imports are
taxed.)
e. It is a PERCENTAGE TAX.
It is imposed at every stage of the distribution
process on the sale, barter, exchange or lease of
goods or properties and on the performance of
service in the course of trade or business or on the
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TAXATION II
From the Lectures of Atty. Percy P. Donalvo
Gopo | 2017-2018
importation of goods, whether for trade or non-
business.
f. It is an EXCISE TAX.
It is a tax on the privilege of engaging in the
business of selling goods or services or in the
importation of goods.
g. It is an AD VALOREM TAX.
Its amount or rate is based on gross selling price or
gross value in money or gross receipts derived from
the transaction.
COMPUTATION OF VAT
Output VAT(from sales)
- Input VAT (from purchases)
VAT PAYABLE
Q: What is “Cost Deduction Method”?
A: It is a single state tax system and payable only by the
original sellers. (ABAKADA v Ermita) This is the former
VAT law.
Q: What is “Tax Credit Method”?
A: Under the Tax Credit Method, an entity can credit
against or subtract from the VAT charged on its sales or
outputs the VAT paid on its purchases, inputs and
imports.
NOTE: Right now, the VAT system is a mixture of the
cost deduction method and the tax credit method.
a. Cost Deduction – the one liable is the statutory
taxpayer.
b. Tax Credit – in every purchase you pay, you will
have tax credit in the form of input VAT.
While it is true that the seller is the one liable for VAT, he
can still claim the same as part of his tax credit for his
tax liabilities.
IMPOSITION OF VAT
NOTE: Changes under the TRAIN LAW are highlighted in yellow.
Q: What are the transactions covered by VAT? (Sec
105, NIRC)
1. Sale of goods or properties in the course of
trade or business;
 TAXATION II
From the Lectures of Atty. Percy P. Donalvo
Gopo | 2017-2018

2. Sale of services and leases in the course of  Tax rate: 12 %*

trade or business;  Tax Base: the gross selling price or gross value
3. Importation, whether or not in the course of trade in money of the goods or properties sold,
or business. bartered or exchanged (output VAT)
GROSS SELLING PRICE
Section 105. Persons Liable. xxx The rule of regularity, to the
Sales Returns
contrary notwithstanding, services as defined in this Code rendered in
Sales Discounts – must not be conditional.
the Philippines by NONRESIDENT FOREIGN PERSONS shall be
Sales Allowance
considered as being in the course of trade or business.
TAX BASE

VAT ON SALE OF GOODS OR PROPERTIES RULES:

1. Consider the threshold amount (must exceed
Q: How does the law define “goods” or P1,919,500/ 3M* beginning January 1, 2018);
“properties”?
2. The liability of the person also depends on
his VAT registration. Every business may
Section 106. Value-Added Tax on Sale of goods or Properties. – register himself either as a VAT taxpayer or a
a. Rate and Base of Tax. – non-VAT taxpayer. (if VAT-registered, may claim
input tax)
(1) “Goods or Properties” – The term “goods” or “properties” shall
mean all tangible and intangible objects which are capable of
pecuniary estimation and shall include:
Kinds of VAT registration:
(a) Real properties held primarily for sale to customers or held for
lease in the ordinary course of trade or business;
(b) The right or the privilege to use patent, copyright, design or 1. Mandatory (Sec 236 G)
model, plan, secret formula or process, goodwill, trademark,
trade brand or other like property or right; a. If GR for the past 12 months, other than
(c) The right or the privilege to use in the Philippines of any those exempt under 109 (A) to (U), have
industrial, commercial or scientific equipment;
(d) The right or the privilege to use motion picture films, tapes and exceeded P P1,919,500/3M; or
discs; and b. There are reasonable grounds to believe
(e) Radio, television, satellite transmission and cable television time. that GR for the next 12 months, other
than those exempt, will exceed
The term “gross selling price” means the total amount of money or
its equivalent which the purchaser pays or is obligated to pay to the P1,919,500/P3M;
seller in consideration of the sale, barter or exchange of the goods or
properties, excluding the VAT. The excise tax, if any, on such goods or 2. Optional (Sec 236 H)
properties shall form part of the gross selling price.
- any person who is not required to register
for VAT under G may elect to register for
VAT by registering with the Revenue District
Section 106. Value-Added Tax on Sale of goods or Properties. – Officer that has jurisdiction over the head
(A) Rate and Base of Tax. – There shall be levied, assessed and
collected on every sale, barter or exchange of goods or office of that person, and paying the annual
properties, value added tax equivalent to twelve (12%) of the registration fee in Subsection B.
gross selling price or gross value in money of the goods or
properties sold, bartered or exchanged, such tax to be paid by
the seller or transferor;
EFFECTS:

- The option is irrevocable for three (3) years

from the time of registration;
Section 106. Value-Added Tax on Sale of goods or Properties. –
(D) Sales Returns, Allowances and Sales Discounts. – The value
of goods or properties sold and subsequently returned or for - The taxpayer is liable to pay VAT even if he
which allowances were granted by a VAT-registered person may did not reach the ceiling amount required.
be deducted from the gross sales or receipts for the quarter in
which a refund is made or a credit memorandum or refund is WHO ARE NOT ALLOWED TO AVAIL OF
issued. Sales discount granted and indicated in the invoice at the
time of sale and the grant of which does not depend upon the THIS OPTION? (Sec 236H)
happening of a future event may be excluded from the gross
sales within the same quarter it was given. a. Self-employed individuals and/or
professionals;

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 TAXATION II
From the Lectures of Atty. Percy P. Donalvo
Gopo | 2017-2018

b. Mixed income earners – persons who are Doctrine, i.e., exportation of goods or properties
employed and are at the same time is zero-rated).
exercising their own
trade/business/profession. (2) EFFECTIVELY ZERO-RATED
TRANSACTIONS
Rationale: These persons have the option
to be taxed at 8% based on GS/R. (Only if Refers to the local sale of goods or supply of
their income will not exceed P3M.) services by a VAT registered person to persons
who are granted tax exemptions under special
laws or international agreements to which the
Q: Suppose the taxpayer is not a VAT-registered PH is a signatory.
person and his gross sales exceeds the threshold.
Will he be subject to VAT? Example: Commercial transactions in economic
zones, which are considered “foreign territory”.
a. GENERAL RULE: YES, because he exceeded
the threshold;
b. EXCEPTION: NO, if the subject transaction is
one specifically declared by the NIRC as VAT- ZERO-RATED TRANSACTIONS SALE OF GOODS
exempt. (Sec 106.2):

TRANSACTIONS DEEMED SALES (TDS) a. Export Sales -

b. Foreign Currency Denominated Sale
(B) Transactions Deemed Sale. - The following transactions shall be c. Sales to persons or entities whose
deemed sale:  exemption under special laws or
1. Transfer, use or consumption not in the course of business of international agreements to which the
goods or properties originally intended for sale or for use in the
course of business;  Philippines is a signatory effectively subjects
2. Distribution or transfer to: such sales to zero rate.
a. Shareholders or investors as share in the profits of the VAT-
registered persons; or
b. Creditors in payment of debt;
3. Consignment of goods if actual sale is not made within sixty (60)
days following the date such goods were consigned; and 
4. Retirement from or cessation of business, with respect to
inventories of taxable goods existing as of such retirement or
cessation.

ZERO-RATED VAT

Q: Is zero-rating still a VAT transaction?

A: YES, it is still a VAT transaction because it is a sale,
barter, exchange of property. Only that the percentage of
the tax to be imposed is 0% (output tax). An input tax
may still be claimed for the goods or services that have
been procured to run the business. (No output tax but
there is an input tax)
Q: What then is the tax treatment id the output tax is
zero?
A: A VAT refund may be claimed from the government.
EXPORT SALES
(1) The sale and actual shipment of goods from the
Philippines to a foreign country, irrespective of any
shipping arrangement that may be agreed upon which may
influence or determine the transfer of ownership of the goods
so exported and paid for in acceptable foreign currency
or its equivalent in goods or services, and accounted for
in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP); 

a. There must be actual exportation of goods or

TWO TYPES OF ZERO-RATED TRANSACTIONS properties;
(FOR GOODS OR PROPERTIES): b. The sale or transaction must be paid for in an
acceptable foreign currency or its equivalent in
(1) AUTOMATICALLY ZERO-RATED goods or services;
TRANSACTIONS c. The payment is accounted for in accordance
with the PSP r&r;
Refers to the actual exportation of goods (in line
with the Destination Principle and Cross Border
4

d. The taxpayer exporting is a VAT-registered
person;
e. The substantiation reqts must have been
complied with.
(2) Sale of raw materials or packaging materials to a
nonresident 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 and paid for in acceptable foreign
currency and accounted for in accordance with the rules
and regulations of the Bangko Sentral ng Pilipinas
(BSP);  Bureau of Customs in determining tariff and customs duties plus
A – F~B – F
A (producer of raw/pacakging materials)
Enters into contract of sale with F (foreigner; with the
agreement that the materials sold to F shall be delivered to
B)
B (local export-oriented enterprise) will produce the finished
product to be exported to F.
(3) Sale of raw materials or packaging materials to export-
oriented enterprise whose export sales exceed seventy
percent (70%) of total annual production; 
Now subject to 12% VAT and no longer zero
rated export sales upon satisfaction of the
conditions*
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and 
Now classified as a VAT exempt transaction. (?)
(5) Those considered export sales under Executive Order NO.
226, otherwise known as the "Omnibus Investment Code of
1987", and other special laws; and
*the gov’t has to comply with the conditions
(6) The sale of goods, supplies, equipment and fuel to persons
engaged in international shipping or international air
transport operations.  thereof.
(7) The sale and delivery of goods to:
(i) Registered enterprises within a separate customs territory as
provided under special laws;
(ii) Registered enterprises within tourism enterprise zones as
declared by the Tourism Infrastracture and Enterprise Zone
Authority (TIEZA) subject to the provisions under A 9593
(Tourism Act of 2009).
FOREIGN CURRENCY DENOMINATED SALE
(b) Foreign Currency Denominated Sale. - The phrase "foreign currency
denominated sale" means sale to a nonresident of goods, except those
mentioned in Sections 149 and 150, 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 Bangko Sentral ng Pilipinas (BSP).
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TAXATION II
From the Lectures of Atty. Percy P. Donalvo
Gopo | 2017-2018
149 and 150 refers to non-essential goods (jewelry,
perfumes, toilet waters, yacht, and other vessels
intended for leisure.
VAT ON IMPORTATION OF GOODS
(A) In General. - There shall be levied, assessed and collected on
every importation of goods a value-added tax equivalent to
twelve percent (12%) based on the total value used by the
customs duties, excise taxes, if any, and other charges, such 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 the quantity or volume of
the goods, the value-added tax shall be based on the landed cost
plus excise taxes, if any xxx
 Importation of goods is always subject to VAT,
whether related to business or not. Registration is
immaterial.
 But the importation of goods must not have been
classified as VAT-exempt.
 Tax Rate: 12 %
 Tax Base:
1. Dutiable Value – total value used by the
Bureau of Customs in determining tariff
and customs duties.
2. Customs and taxes paid, if any
3. Other charges
(B)  Transfer of Goods by Tax-exempt Persons. - In the case of tax-free
importation of goods into the Philippines by persons, entities or
agencies exempt from tax where such goods are subsequently
sold, transferred or exchanged in the Philippines to non-
exempt persons or entities, the purchasers, transferees or
recipients shall be considered the importers thereof, who shall be
liable for any internal revenue tax on such importation. The tax due
on such importation shall constitute a lien on the goods superior to
all charges or liens on the goods, irrespective of the possessor
“Technical Importation”
VAT ON SALE OF SERVICES, AND USE OR LEASE
OF PROPERTY
“Sale or exchange of services” – all kinds of services
in the PH for others for a fee, remuneration or
consideration. The services need not be performed in
the PH, but have to be consumed in the PH, in order to
be subject to Vat. (American Express Case)
 Tax Rate: 12%
 Tax Base: Gross Receipts – the total amount
of money or its equivalent representing the

a. contract price, compensation, service
fee, rental or royalty,
b. including the amount charged for
materials supplied with the services and
c. 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.
Q: WON the salaries of security guards
should be included in the gross receipts.
A: YES. The VATable amount includes the
salaries of security guards. (Protector’s
Services v CIR)
lessors/distributors of cinematographic films
Subject to VAT (108A)
Cinema operators/proprietors
No. (CIR v SM Prime Holdings)
Persons engaged in the TRANSPORTATION
business
Persons engaged in the transportation business are
engaged in the sale of services and are subject to VAT.
GENERAL RULE: Domestic transportation by land,
air or sea is subject to VAT. (This presupposes that it
exceeds the 1.9M threshold or that the taxpayer is a
VAT-registered taxpayer.)
 tollway operators – toll fees collected are
subject to VAT (Diaz v Sec of Finance)
 franchise grantees – will be subjected to VAT
depending on the character of their franchise
and their yearly gross receipts. (a) radio and TV
– >10M threshold = 12% VAT; <10M = OPT
EXCEPTION: Domestic transportation of persons by
land; VAT exempt (NOTE: tax consequence: subject to
Other Percentage Tax 3% GRT)
 Int’l air or shipping carriers: subject to 3%
international carrier tax.
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TAXATION II
From the Lectures of Atty. Percy P. Donalvo
Gopo | 2017-2018
 Domestic carriers with int’l flights – (a) int’l
flights: zero-rated transactions; (b) domestic
flights – subject to VAT
PROFESSIONALS
GENERAL RULE: Subject to VAT regardless of their
gross receipts for the entire year. (But if they are not
VAT-registered, the threshold shall be considered ??)
SALE OF ELECTRICITY
GENERAL RULE: Service providers are subject to VAT.
Electric cooperatives are subject to 12 %VAT
EXCEPTION: Sale of power or fuel-generated thru
renewable sources of energy such as, but not limited to,
biomass, solar, etc; considered zero-rated transactions.
ZERO-RATED SALE OF SERVICES
Export of services performed in the PH by VT-registered
persons. (108B) *EXCEPTION TO THE DESTINATION
PRINCPLE.
(1) Now subject to 12% VAT upon satisfaction of conditions
a. Processing, manufacturing repacking of goods performed in
the PH;
b. For other persons doing business outside the PH;
c. The goods are subsequently exported; and
d. The services rendered are paid for in acceptable foreign
currency and accounted for in accordance with the rules and
regulations of the BSP.
(2)
a. Services other than 1a;
b. Must be performed in the PH;
c. Must be rendered to a person engaged in business
conducted outside PH or to a NR person not engaged in
business who is outside PH when the services are
performed; and
d. Foreign currency, accounted for in accordance with BSP r&r.
(3) 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
such services to zero percent (0%) rate; 
(4) Services rendered to persons engaged in international
shipping or international air transport operations, including
leases of property for use thereof; Provided, That these
services shall be exclusive for international shipping or
air transport operations.
 TAXATION II
From the Lectures of Atty. Percy P. Donalvo
Gopo | 2017-2018

(5) Services performed by subcontractors and/or contractors in d. Personal household effects

processing, converting, of manufacturing goods for an
e. Tools of trade, occupation or employment.
enterprise whose export sales exceed seventy percent
(70%) of total annual production. (Now subject to 12%VAT
upon satisfaction of conditions) EXCEPT any vehicle, aircraft, machinery, other
(6) Transport of passengers and cargo by air or sea vessels goods for use in the manufacture and
from the Philippines to a foreign country; and
merchandise of any kind in commerciall quantity:
(7) Sale of power or fuel generated through renewable sources
of energy such as, but not limited to, biomass, solar, wind,
hydropower, geothermal, ocean energy, and other emerging 1. Belonging to persons coming to SETTLE in the
energy sources using technologies such as fuel cells and PH;
hydrogen fuels. [53
2. In quantities and of the class suitable to the
profession, rank or position of the persons
VAT EXEMPT TRANSACTIONS (Sec 109) importing said items;
3. For their own use and not for sale, barter,
The object of an exemption in VAT is either: exchange;
(1) VAT Exempt Transaction; or 4. Accompanying such persons; or
(2) VAT Exempt Person 5. Arriving within 90 days before or after their
arrival/arriving at a reasonable t ime;
VAT exempt transaction VAT exempt person 6. Upon production of evidence satisfactory to the
It involves goods. It is The person/entity is
transactional in nature. Goods or granted a VAT
CIR that such persons are actually coming to
services that are specifically exemption under the settle in the PH and that the change of residence
listed by law to be VAT exempt. tax code or under is bona fide.
special law or
international
agreements entered
 Persons coming to settle in the PH – wants to
into by the PH. live here regardless of citizenship ;
Effect VAT mechanisms under the The person exempt
NIRC are not applicable to that from VAT will not be  Overseas Filipinos, or Filipinos or their
kind of transaction. Meaning able to impose 12% families and descendants who are now
there wil be no output tax to be VAT (output). But he residents/citizens of other countries – not
paid by the taxpayer and no can claim input taxes
input tax may be claimed by the (ie subjected to 0%
necessarily coming to resettle; may still be
taxpayer for that transaction. VA; whatever he overseas.
purchases may be
claimed for input REAL PROPERTIES; SALE OF RP NOT PRIMARILY
taxes because he is
totally exempt from
HELD FOR SALE TO CUSTOMERS/HELD FOR
the payment of any LEASE IN THE ORDINARY COURSE OF TRADE OR
VAT, even indirectly.) BUSINESS

RE: ORIGINAL STATE a. By non-dealer – If capital asset : VAT exempt;

ordinary asset: subject to VAT (consider if
a. marinated – no longer in its original state registered or not)
b. dried (bulad) – original state
c. refined sugar – no longer in its original state b. By Dealer – classify according to types of real
properties under the VAT law:
IMPORTATIONS BY BALIKBAYAN
a. must be personal and household effects 1. Low Cost Housing – 750K
b. belonging to returning residents of the PH and 2. Socialized Housing
nonresident citizens coming to resettle in the  Residential lot only -
PH;  Residential house and lot – 450K.
c. Provided that such goods are exempt from 3. Residential Lot – 1,919,500/ 1.5M
customs duties under the Tariff and Customs 4. Residential Dwelling – 3, 919, 200/2.5M
Code of the PH. (residential house and lot or condominium,
townhouse)
IMPORTATIONS BY PERSONS COMING TO SETTLE 5. Commercial – Look at the VAT registration.
IN THE PH If not registered, 1.9M threshold. (follow the
general rule)
a. Professional instruments and implements
b. Wearing apparel NOTE: When it comes to real estate transactions,
c. Domestic animals; and determine on a per-transaction basis. If the transaction

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 TAXATION II
From the Lectures of Atty. Percy P. Donalvo
Gopo | 2017-2018

does not exceed the selling, the transaction is VAT 3. Sale of drugs and medicines prescribed for
exempt even if the taxpayer is not VAT-registered. (???) diabetes, high cholesterol, and hypertension
4. Association dues, membership fees, and other
REAL PROPERTIES; LEASE assessments and changes collected by
homeowners associations and condominium
a. Commercial - GENERAL RULE: Dependent on corporations;
the VAT registration and threshold. 5. Sale of gold to the (BSP)
b. Residential – the gross receipts from lease of
residential units are subject to the following
rules:
If the monthly rental does
not exceed P12,800/15K The lessor shall be exempt
per unit per month, from tax and OPT
regardless of the aggregate
annual rentals
If the monthly rental
exceeds P12,800/15K per The lessor shall be exempt
unit per month BUT the from VAT, but subject to
aggregate annual rentals do 3% OPT
not exceed P1, 919, 500
Exceeds both 12, 800/15K The lessor is subject to 12%
and 1, 919, 500 VAT TAX CREDIT

Input VAT is a form of tax credit.

SALE, IMPORTATION, PRINTING OR PUBLICATION
OF BOOKS, NEWSPAPER MAGAZINE REVIEW OR INPUT VAT; COMPOSITIONS
BULLETIN

1. Printed or published at regular intervals; 1. Importation of goods related to the trade or

2. Available for subscription and sale at fixed business;
prices; and 2. Local purchase of goods/services including
3. Are not principally devoted to the publication of lease or use of property from a VAT-registered
paid advertisements. person;
3. Transitional input tax in accordance with Section
TRANSPORT OF PASSENGERS BY INTERNATIONAL 111 of this Code;
CARRIERS 4. Presumptive Input Tax Credits;
5. Input taxes which can be directly attributed to
It does not matter whether the transport is to or from the VATable transactions plus ratable portion of any
PH. input tax, which cannot be directly attributed to
either a taxable or tax-exempt entity;
CATCH-ALL PROVISION 6. Depreciable capital goods.

Transactions other than those previously enumerated,

the gross annual sales/receipts do not exceed P1,919,
500 /3M (3% OPT on gross sales or receipts)
*Not all VAT-exempt transactions are subject to OPT.
Normally, if it generally deals with selling of services and
goods and it falls within the catch-all provision, that’s the
only time the transaction will be subjected to OPT. (And
specific transactions subject to OPT)
VAT EXEMPT TRANSACTIONS UNDER THE TRAIN
LAW
1. Sale or lease of goods and services to senior
citizens and PWD
2. Transfer of property due to merger or
consolidation (transfers of ordinary assets)
8
TRANSITION INPUT VAT; WHO MAY CLAIM
1. Any person who becomes liable to VAT
2. Any person who elects to be a VAT-
registered person
Transition Input VAT is that input VAT which can be
claimed by the taxpayer who becomes liable for VAT for
the first time.
Q: What is the amount of the transitional input VAT
that can be deducted against the output tax?
A: whichever is higher between
1. 2% of the value of the beginning inventory of
goods, materials and supplies; OR

2. The actual VAT paid on such goods, materials,
and supplies.
PRESUMPTIVE INPUT TAX; WHO MAY CLAIM
A: It is claimable only by those who are engaged in
specific business:
1. Persons or firms engaged in the processing
of sardines, mackerel and milk; and
2. Persons or firms engaged in manufacturing
refined sugar and cooking oil and packed
noodle-based instant meals;
 Input VAT rate: 4% of the gross value in money
of their purchases of primary agricultural
products, which are used as inputs to their
production.
Transitional Input Tax Presumptive Input Tax
Tax rate 2% or actual VAT paid, 4%
whichever is higher
Tax base Value of beginning gross value in money of
inventory the purchases
How Liable for VAT for the Engaged in specific
it works first time businesses
TAXES FROM MIXED TRANSACTIONS
Only the ratable portion which refers to the VATable
transaction may be claimed as input tax.
DEPRECIABLE CAPITAL GOODS
 Goods or properties with estimated useful life of
more than one (1) year, which are treated as
depreciable assets used directly or indirectly in
the production or sale of taxable goods or
services.
 Versus capital assets: capital assets are
properties used in business which are subject to
depreciation
 In income taxation context, these are part of
ordinary assets.
RULE: The amount of input tax that can be deducted in
the taxable quarter will depend on the aggregate
acquisition cost for the specific month:
a. If the aggregate acquisition cost of the
depreciable goods, excluding VAT, exceeds
1M – amortize the VAT component for 60
months or the life of the asset, whichever is
shorter (allowed only until end of 2021)
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TAXATION II
From the Lectures of Atty. Percy P. Donalvo
Gopo | 2017-2018
b. If it does not exceed 1M – claim the entire 12%
VAT during the quarter when the depreciable
capital good was purchased.
Sec 110 (B) Excess Output or Input Tax. If at the end of any taxable
quarter the output tax exceeds the input tax, the excess shall be
paid by the VAT-registered person.
Sec 110 (B) Excess Output or Input Tax. If the input tax exceeds the
output tax, the excess shall be carried over to the succeeding
quarter/s. Provided, however, that any input tax attributable to the
purchase of capital goods or to zero-rated sales by a VAT-
registered person may at his option be refunded or credited
against other internal revenue taxes, subject to the provisions of
Section 112.
VAT REFUND
NOTE: TRAIN Law removed tax credit. Only tax refund
is allowed.
Three basic principles about VAT refund:
a. Strictly construed against the taxpayer and in
favor of the taxing authority because a tax
refund partakes of the nature of a tax exemption.
b. The proper party to seek the refund for tax is the
statutory taxpayer. It is the seller of the property
and not the end consumer.
c. The VAT refund is applicable only to the VAT
registered taxpayers. If he is not a VAT
registered person, he cannot claim for any tax
refund.
Two instances wherein the VAT-registered taxpayer
can claim a Tax Credit/Refund of Input Tax:
a. Zero-rated or effectively zero-rated sales of
goods, properties, or services;
b. Cancellation of VAT registration
*other taxpayers who have no zero-rated sales can only
carry-over the excess input tax to the next taxable
quarter.
Two-tiered process of the application for a VAT
refund:
a. Administrative Claim – filed with the BIR;
b. Judicial Claim – If the administrative application
fails, with the CTA;
PROCEDURE:

a. Where it should be filed: Admin Claim – with
the appropriate BIR office or RDO where the
principal business is located;
b. When it should be filed: Admin Claim –
within 2 years from the close of the taxable
quarter when the sales were made. Otherwise,
it is prescribed and barred forever.
c. Period to decide application: The CIR has 120
days/90 days from the date of submission of the
complete documents in support of the
administrative claim within which to decide upon
the application for refund.
d. Actions by the CIR:
a) Grant of the application; or
b) Denial of the application; or
c) Inaction.
Note: Under the TRAIN Law, the CIR is now
mandatorily required to make a ruling and he
must state the ruling in writing, with legal and
factual basis for the denial. (Otherwise, he shall
be subject to criminal sanctions)
e. In case of denial: The taxpayer may avail of the
judicial remedies.
o file an appeal (judicial claim) within 30
days from receipt of the denial with the
CTA in Division via a PETITION FOR
REVIEW under RRCTA Rule 8, Section
2.
o Rule 42 of the Ordinary Rules of
Court shall apply suppletorily.
o In case of denial by the CTA in
Division (whole or partial): MR within 15
days from receipt of the decision;
o In case of denial of the MR by the
CTA in Division: elevate it to the CTA
En Banc via a Petition for Review.
o In case of denial of the PfR by the
CTA En Banc: Supreme Court via a
Petition for Review on Certiorari under
Rule 45 of the Rules of Court within 15
days from receipt of the decision.
f. If there is inaction on the part of the CIR
within 120 days from the submission of the
complete documents, the taxpayer may:
a) Wait for the CIR to make a decision; or
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TAXATION II
From the Lectures of Atty. Percy P. Donalvo
Gopo | 2017-2018
b) File an appeal with the CTA in division
within 30 days after the lapse of the 120-
day period.
g. GENERAL RULE: The 120-day and 30-day
periods are MANDATORY and
JURISDICTIONAL.
EXCEPTION: Aichi Ruling (Dec 10, 2003 to Oct
6, 2010)
OTHER PERCENTAGE TAX (OPT)
Percentage Tax is a national tax measured by a certain
percentage of the gross selling price or gross value in
money of goods sold, bartered or imported; or of the
gross receipts or earnings derived by any person
engaged in the sale of services (CIR v Solidbank
Corporation)
OPT is imposed on a person/transaction because the
NIRC or other special laws specifically declares such
transaction or person to be subject thereto.
 Tax base: Gross Sales or Gross Receipts
(whatever is received, without any deductions or
exclusions)
Q: Is there an instance where a taxpayer will be held
liable for both VAT and OPT in the same
transaction?
GENERAL RULE: once a person is subject to VAT or
OPT, it can no longer be subject to that other kind of
business tax, except excise tax.
A: YES. As a penalty. That is, if the taxpayer subject to
OPT issues a VAT invoice and bills out VAT for that
transaction. In such a case, the BIR will impose the
proper OPT for the transaction and at the same time
collect the VAT billed by the seller. He will also be liable
for surcharges as a form of penalty.
Q: Can a person be subject to VAT and OPT at the
same time?
A: YES. For mixed transactions.
109 (V) tax-exempt
3% on gross sales/receipts.
These persons who are engaged in the sale of
goods/services should NOT be VAT-registered.
 TAXATION II
From the Lectures of Atty. Percy P. Donalvo
Gopo | 2017-2018

Self-employed individuals and/or professionals  The percentage tax refers only to the carriage of
goods
 Optional income tax scheme: 8% on gross  PH to abroad.
sales/receipts and other non-operating income in
excess of 250K/3M

If they choose to be taxed at 8%, they will no

longer be subject to tax and will lose the option INTERNATIONAL CARRIERS
to be registered as a VAT taxpayer. AIR SEA

Passengers PH to PH PH to PH
Mixed-income earners VATable VATable

If the business income does not exceed 3M PH to abroad PH to abroad

Zero-rated Zero-rated
a. their compensation income will always be VAT exempt VAT exempt
subjected to the scheduler income tax.
Goods and PH to PH PH to PH
b. They have the option to be taxed at 8% of Cargoes VATable VATable
their gross sales/receipts. In such a case, the PH to abroad PH to abroad
taxpayer loses the benefit of registering as a 3%OPT 3%OPT
VAT taxpayer; he is exempt from 3% OPT.
Abroad to PH Abroad to PH
VAT exempt VAT exempt
Domestic Carriers and Keepers of Garages

1. Cars for rent or hire driven by the lessee;

RADIO AND TV BROADCASTING COMPANIES
2. Transportation contractors, including persons
who transport passengers for hire;
a. Not VAT-registered – 3% OPT as a franchise
3. Keepers of garages; and
guarantee.
4. Other domestic carriers by land, air or water, for
b. VAT-registered – subjected to VAT regardless of
the transport of passengers EXCEPT owners of
the value of their gross receipts; option once
bancas and animal-drawn two-wheeled vehicle.
made is irrevocable.
 3% based on the quarterly gross receipts.
GAS AND WATER
DOMESTIC CARRIERS
AIR SEA LAND a. 2 % OPT on gross receipts, on all transactions.
b. They have the option to be registered for VAT
Passengers PH to PH PH to PH Always 3% on but they will be subjected to OPT on their gas
VATable VATable Gross and water utilities. (VAT with respect to other
Receipts
PH to abroad PH to abroad income)
Zero-rated Zero-rated

Goods and PH to PH PH to PH VATable if PH

Cargoes VATable VATable to PH

PH to abroad PH to abroad
Zero-rated Zero-rated

VATable means:
1. If VAT-registered – subject to VAT
2. If gross receipts exceed the threshold (1.9.5/3M)
– subject to VAT
3. If neither – not subject to VAT

International Air & Shipping Carriers

 Resident foreign corporation engaged in

business here in the PH, with landing rights in
the PH (online carrier);
11