Lucman, Yasser S.

Tax 1 - Notes
VALUE-ADDED TAX (VAT)

Concept and Elements of VATable Transactions

a: Define Value-added Tax (VAT).

ANS: It is a lax on consumption levied on the sale, barter, exchange. or lease of goods or
properties and services in the Philippines and on. importation of goods it to the Philippines (RR
No. 1605. Sec. 4105-2).

Q: What are the characteristics of VAT?

ANS: The characteristics of VAT are:

1. Indirect tax;

2. is a tax imposed on the value added to goods, properties, or services of a Taxpayer;

3. t is a transparent form of sales tax imposed on the taxable sale, barter, or exchange of goods.
properties or services;

4. tis a broad-based tax on consumption imposed on all stages of taxable sale if the tax burden
rests with the final consumer who consumes the goods, properties, or services;

5.t is Computed through "tax credit method" or "invoice method wherein the input tax shifted by
the sellers to the buyer is credited against the buyer's out taxes when he in lurn sells the taxable
goods. properties, or services NIRC, Sec. 105 and Sec. 110 (A));

6. adopts the tax inclusive method Unless otherwise stated, any price; charged by a VAT-
registered person shall be deemed to include the VAT charged;

7. follows the "destination principle/cross-border doctrine;

8. There is no tax cascading/tax pyramiding (tax on tax)

9. VAT foregone in a prior exempt transaction may be recovered from the succeeding customer
liable to VAT under the catching-up principle or "recoupment principle" (MAMALATEO,
Reviewer, supra at 405): and

10. It is a regressive tax. By its very nature. i is regressive. VAT paid eats the same portion of an
income. whether big or small. The disparity lies in the income earned by a person or profit
margin marked by a business, such that the higher the income or profit margin, the smaller the
portion of the income or profit that is eaten by VAT

Q:Who are persons iable for VAT?

Lucman, Yasser S.
Tax 1 - Notes
ANS: Any person who, in the course of his trade or business, sells, barters, exchanges,
leases goods or properties, renders services and any person who imports goods shall
be subject to VAT (NIRC, S2c. 105).

Q: When isa person characterized as a taxable person for VAT purposes?

ANS:A person is characterized as a taxable person:

1: He undertakes taxable transactions in goods, properties or services consumedor destined for

consumption within he Philippines.

2. Such transections are entered into in the course of his trade or businesS; and

3. The amount of his gross sales or receipts is over the threshold fixed by law or
Regulation.

Note: A taxable person must register for value added tax purposes (NIRC, Sec. 236 (A).
However, his failure to register s a VAT taxable person does not exculpate him from his lability
to pay the value added tax on his taxable sales of goods, properties or services (IRG, Secs. 106,
107 and 108). Any person who is required to register but 1alled to do so, shall be liable to VAT,
as the were a VAT-registered person, but without the benefit of input tax Credits for the period in
which he was not properly registered. (NIRC, Sec. 236 (G) (2)).

Q: What is meant by the phrase "in the course of his trade or business"?

ANS: In the course of his 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 non-stock, non-profit private organization
(irrespective of the disposition of its net income and whether or not it sells exclusively to
monitors or their guests). or government entity (Rule of Regularity).

Q: What is meant by "regular"?

ANS: Regular means more than one isolated transaction. It requires repetition and
continuity of action.

Q: What is meant by "incidental"?

ANS: The term incidental' means something necessary. appertaining to, or depending upon
another, which is termed the principal, something incident lo the main purpose Magsaysay Lines,
inc. v. Commissioner of Internal Revenue, CTA Case No. 4353, April 1992).

Note: The Rule of Regularity does not appl; to the following transactions which means that they
shall be subject to VAT although not made in the course of trade or business:

1.Sevices rendered in the Philippines by non-resident foreign persons (NIRC, Sec. 105);
Lucman, Yasser S.
Tax 1 - Notes
2. Importation of goods (NIRC, Sec. 105). There shall be levied, assessed and collected on every
importation of goods a VAT equivalent to 12%. The importation of goods herein contemplated
refers to importation by any person, who may or may not be engaged in trade or business in the
Philippines.

Note: "Goods or Properties" shall mean al tangible and intangible objects which are
capable of pecuniary estimation.

Q:What is the tax base of VAT on saie of goods or properties?

ANS: The 12% VAT shall be based on the "gross selling price" computed as follows:

1. For real property-the consideration stated in the sales document or the fair market value
(whichever is higher of the zonal value or the fair market value as shown" in the schedule of
values of the provincial and city assessors). whichever is higher (R.A. No. 16-05, Sec. 4.106-4):
and-
2. For sale of goods or properties other than real property, the total amount of money or jts
equivalent which the purchaser pays or is obligated to pay to he seller in consideration of the
sale, barter or exchange of the goods or properties, excluding VAT. The excise tax, f any, on
such goods or properties shall form part of the gross selling price.

Q: What are the allowable deductions from the gross selling price?

ANS: The following shall be allowed as deduction frorn gross selling price:

1. Discounts determined and granted at the time of the sale. which are expressly indicated in the
invoice, the amount thereof forming part of the gross sales duly recorded in the books of
accounts.

Note: The grant of the sales discount must not be independent upon the happening of a future
event in order to be excluded from the gross income from the same month or quarter it was
given.

2. Sales returns and allowances for which proper credit or refund was made during the month or
quarter to the buyer tor sales previously recorded as taxable sales (NIRC. Sec. 106 (D): R.R. No.
16-05. Sec. 4.106-9).

Q: What are the requisites for the taxability of goods or properties?

ANS: The requisites are:

1. For goods or properties other than real property: (SCPN)

a. Inere Is an actual or deemed Sale, barter or exchange of goods or properties lor a valuable
consideration;
Lucman, Yasser S.
Tax 1 - Notes
b. The sale is undertaken in the Course of trade or business or exercise of profession in the
Philippines;
C. The goods or properties are located within the Philippines and are for Use or consumpion
therein; and
d. The sale is Not exempt from VAT under Sec. 109 of the NIRC, special law, or international
agreement binding upon the government of the Philippines (MAMALATEO, Value Added Tax
in the Philippines (2013), P. 74) hereinafter 4AMALATEO, VAT.

2. For real property: (SPR-PN)

a. The seller executes a deed of Sale, including dacion en pago, barter or exchange. assignment,
transfer, or conveyance, or merely contract to sell involving real property;
b. The real property is located within the Philippines;
C. The seller or transferor is engaged in Real estate business either as a
real estate dealer, developer, or lessor;
d. The real property is held Primarily for sale or for lease in the ordinary
course of his trade or business and The sale is Not exempt from VAT under Sec. 109 of the
NIRC, special law, or international agreement binding upon the government of the Philippines
(ld.).

Note: Absence of any of the above requisites exempts the transaction from VAT.
However, percentage taxes may apply.

Q: What is the tax base of importation?

ANS: The 12% VAT is based on:

1. Total value used by the Bureau of Customs (BOC) in determining tariff and customs duties,
plus customs duties, excise taxes. if any, and other charges prior to the release of goods from the
customs; or

2. Landed cost in case the valuation used by the BOC is based on vołume and quantity. Landed
cost consists of the invoice amount, customs duties, freight. insurance and other charges and álso
excise tax, if'any.(NIRC, Sec. 107 (A): R.R. No. 16-05, Sec. 4.107-1).

Q: Who pays for the tax on Imported goods?

ANS: The VAT on importation shall be paid by the imposter prior to the release of such
goods from customs custody (R.R. No. 16-05, Sec. 4. i07.1 (D).

Q: Who is an importer?

ANS: Importer refers to any person who brings g00ds into the Philippines, whether or not made
in the course of trade or business. It includes non-exempt persons or entities who acquire tax-free
imported goods from exempt persons, entities or agencies (NIRC, Sec. 107 (B); RR No. 16-05,
Sec. 4.107.1 (b) and (c).
Lucman, Yasser S.
Tax 1 - Notes

Q: What is meant by sale or exchange of services?

ANS: The term "sale or exchange of services" means the performance of all kinds of services in
the Philippines for a fee, remuneration or consideration, whether in kind or in cash (NIRC. Sec.
108) it shall likewise include:

1. The lease or the use of or the right or privilege to use any;

a. Copyrights.
b. Patent,
C. Design or model plan;
d. Secret formule or process
e. Goodwill,
f. Trademark
g. Trade brand; or
h. Other like property or right

2. The lease or the use of, or the right to use of any:

a. Industrial;
b. Commercial; or
C. Scientific equipment

3. The supply of

a. Scientific,
b. Technical;
C. Industrial; or
d. Commercial knowledge or information.

4. The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of
enabling the application or enjoyment of any such property, or right as mentioned in number (2)
or any such knowledge or information as is mentioned in number.
5. The supply of services by a non-resident person or his employee in connection with the use of
property or rights belonging to, or the installation or operation of any brand, machinery or gather
apparatus purchased from such non-resident person,
6. The supply of technical advice, assistance or service rendered in connection with technical
management.cf-administration of any scientific, industrial or commercial undertaking, venture,
project or scheme;
7. The lease of motion picture films, films; tapes and discs; and
8. The lease or the use of or the right to use radio, television. Satellite transmission and cable
television time {NIRC, Sec. 108).

Q: What is meant by service?

Lucman, Yasser S.
Tax 1 - Notes

ANS: Service has been defined as "he art of doing something useful for a person or company for
a fee or useful labor or work rendered or to be rendered to another for a fee.

Q:When is the lease of properties subject to VAT

ANS The lease of properties shall be subject to VAT irrespective of the place where the contract
of lease or licensing agreement was executed, if the property Is leased or used in the Philippines
(NIRC, Sec. 108).

Q: What is the tax base. of. the VAT, on sales of service and use or lease of properties?

ANS: The 12% VAT is based on the gross receipts derived from the sale or exchange of
Services. including the use or lease of properties (NIRC, Sec. 108).

Note: Absence of profit or margin does not make the performance of taxable services for a fee
exempt from VAT. It is immaterial whether the primary purpose of a corporation indicates that t
receives payments tor services rendered to its affiliates on a reimbursement-of-cost basis only,
without realizing profit, for purposes of determining liability for VAT on services rendered. As
long as the entiiy provides services for a fee, renumeration or consideration. then the service
rendered is subject to VAT (Commissioner of Internal Revenue v. Court of Appeals. G.R. No.
125355, March 30, 2000).

Q: What is meant by gross receipts?

ANS: It refers to the total amount of money or its equivalent representing the contract price,
compensation, service fee, rental or royalty, including the amount charged 1or materials supplied
with the services and deposits applied as payments for services rendered and advance payments
actually or constructively received during the taxable period for the services performed or to be
performed lor another person, excludng VAT (NIRC, Sec. 108; R.R. No. 16-05, Sec. 4.108-4).

Destination Principle Cross Border Doctrine

Q: What is Destination Principle in retation to VAȚ?

ANS: This principle provides that goods and services are taxed only in the country where these
are consumed. (Atlas Consolidated Mining and Development Corp. v. Commissioner of Internal
Revenue, G.R. Nos. 141104 & 148763. June 8. 2007). n is also known as "cross border doctrine
",. wherein destination of the goods determines taxation or exemption from tax. Export sales of
goods are subject to zero percent (0%) rate. Where imports of goods are subject to the 12% VAT
(exports are zero-rated because the consumption of such goods will be made outside the
Philippines; on the other hand. imports of goods are subject to the regular VAT rate because they
are for consumption within the Philippines (MAMALATEO, Reviewer, supra at 402-403).

Note: In the case of services, consumption takes place where the service is performed the
following situs of service principle (MAMALATEO. Reviewer, supra at 403).
Lucman, Yasser S.
Tax 1 - Notes

Imposition of VAT on transfer of goods by tax exempt person.

Q:Who is tax-exempt person?

ANS: An exempt party is a person or entity granted VAT exemption under the NIRC, a Special
law or an international agreement to which the Philippines is a signatory Commissioner of
Internal Revenue v. Seagate Technology, G.R. No. 153866, February 11, 2005).

Q:What is the effect of transfer of goods by tax exempt persons?

ANS: In the case of tax-free importation of goods into the Philippines by persons. entities Cr
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 stall
be considered the importers thereto, what 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 ai
charges or liens on the goods, irrespective of the possessor thereof (NIRC, Sec. 107 (8)).

Transactions Deemed Sale subject to VAT

Q: What is meant by transactions deemed sale?

ANS: Under Section 106 (B) of the Tax Code, certain transactions which are not actually sales
because of the absence of actual exchange between the buyer and seller, are considered or
included in the term sale for value added tax purposes (ABAG & GARCIA, Transfer and
Business Taxation (2016). p. 270).

Note: In a transaction deemed sale, the input vat was already used by the seller as a credit against
the output VAT. However, since there is no actual sale, no output vat is actually charged to
customers.

Q: What are the instances of "Deemed Sale" transaction?

ANS: The specific instances are as follows: (TDCR)

1. Transfer, use, or consumption not in the course of business of goods or properties originally
intended for sale or lor use in the course of business;

2. Distribution or transfer to:

a. Shareholders are investors as share in the profits the of VAT-registered
b. Creditors in payment of debt or obligation.
3. Consignment of g0ods if actual sale is not made within 60 days from the date;
4. Retirement from or cessation of business with respect to inventories on hand: of Such
consignment; and

a. Change of ownership of a business; and

Lucman, Yasser S.
Tax 1 - Notes
b. Dissolution of a partnership and creation of a new partnership which takes over the
business.

Note: Before considering whether the transaction is deemed sale, it must first be determined
whether the sale was in the ordinary course of trade or business. Even if the transaction was
"deemed sale, if it was. not done in the ordinary course of trade o business, still the transaction is
not subject to VAT.

Q: What is the tax base of VAT on transactions deemed sale?

ANS: For transactions deemed sale, the output tax shall be based on the market value of the
goods deemed sold as of the ume of the occurrence of the transactions enumerated. However, in
retirement or cessation of business. the tax base shall be the acquisition cost or the current
market price of the goods of the goods or properties, whichever is lower. In the case of a sale
where the gross seing price is unreasonably lower than the fair market value, the actual market
value shall be the tax base (NIRC, Sec. 106 (B); RR. No. 16-05, Sec. 4.106-7).

Q: When is a change in or cessation of status of a VAT-registered person subject to VAT?

ANS: The goods or properties originally intended for sale or use in business, and capital goods
which are existing as of the occurrence of the following changes are subject to12/% VAT:

1. Change of business activity from VATable status to VAT-exempt status (e.g. when a VAT-
registered person engaged in a VATable activity ti:e a wholesaler or retailer of goods subject to
VAT decides to discontinue such activity and engages instead in a non-VAT business activity).

2. Approval of a request for cancellation of a registration due to reversion to exempt status (e.g.
when a person commenced 174/294 expectation of gross sales or receipts exceeding P3,000,0 but
who failed to exceed this amount during the first 12 months of operation),

3. Approval of request for cancellation of a registration due to desire to revert to exempt status
after lapse of three consecutive years (e.g. when a person who is VAT exempt and not required
to register for VAT opted to register as a VAT taxpayer and after the lapse of three years' desires
to revert to exempt status) (R.R. No. 16-05, Sec. 4.106-8).

Q: When is a change in or cessation of status of a VAT-registered person not Subject to VAT?

ANS: The goods or properties existing as of the occurrence of the following are not subject to
12% VAT:

1. Change or control of a corporation by the acquisition of the controlling interest of such

corporation by another stockholder or group of stockholders the goods or properties used in the
business or those comprising the stock-in-trade of the corporation will not be considered sold
bartered or exchanged despite the change in the ownership interest since the same corporation
still owns them.
Note: The following are subject to VAT:
Lucman, Yasser S.
Tax 1 - Notes
a. Exchange of property by corporation acquiing control for the stares of stocks of the
target corporation is subject to VAT.

b. From the point of view of the person who joins the corporation, who exchanges his
properties held for sale or for lease for shares of stocks, whether resulting to corporate control or
not, said exchange is subject to VAT (R.R. No. 10-11, Sec. 2).

2. Change in the trade or corporate name,

3. Merger or consolidation of corporations (RR. No. 16-05, Sec. 4.106-8).

Zero-rated and Effectively Zero-Rated sales of Goods or Properties

Q: What is the nature of a zero-rated sale of goods or properties?

ANS: A zero-rated sale of goods or properties by aVAT-registered person is a taxable transaction

tor VAT purposes but the sale does not result in any output tax (R.R. No. 16- Cs, Sec. 4.108-5).

Q: Distinguish a zero-rated sale transaction from a VAT-exempt transaction.

ANS: The differences are as follows:

1. Under the zero-rating, the transaction is compłetely free from VAT because the tax rate
applied on the tax base. is zero; while exemption only removes the VAT al the exempt Stage;

2. A VAT payer who is subject to zero-rate of tax on his taxable sales can claim and enjoy a
credit or refund for the excess input tax invoiced to him on hie purchases directly attributable to
the zero-rated sales; such privilege is not given lo exempt taxpayers;

3. Although zero-rated sales are not subject to actual tax charge since the tax levied is at 0%,
they are nevertheless taxable sales 1or the purpose of measuring turnover sales to determine
whether VAT registration is required. In contrast, exempt sales are not taxable sales,

4. In zero-rating. the VAT-registered Taxpayer has the following remedies with respect to
unused input taxes:

a. file a claim lor refund;

b. file a claim lor tax credit; or
c. carry-over of excess input taxes attributable lo zero-fated sales.

VAT-Exempt Transaction

Q: What are VAT exempt transactions?

ANS: It refers to the sale of goods ar properties and/or services and the use or lease of properties
that is not subject to VAT and the person making the exempt sale of goods, Properties or services
(seller) shall not bill or pass on any output tax to his customers.
Lucman, Yasser S.
Tax 1 - Notes
Note: The following are the features of VAT exempt transactions:

1. The seller is NOT allowed to credit the VAT (input tax) passed to him or his purchases
of taxable goods, properties or services, because he has no output tax lo deduct it from;
2. VAT exempt transactions shall not be liable for VAT or the 3% percentage tax; and
3. VAT-exempt transactions shall not be included in determining the general threshold
prescribed by law, the amount of which is P3,000,000 (R.R. No. 13-18).

Q: Distinguish exempt transaction from exempt party.

ANS: An exempt transaction involves goods or services which. by their nature. Are Specifically
listed in and expressly exempted from the VAT under the NIRC, without regard to the tax status
(VAT-exempt or not) of the party to the transaction. Indeed, Such transaction is not subject to the
VAT and thee seller is not allowed any tax refund of or credit lor any input taxes paid. An
exempt party, on the other hand, is a person or entity granted VAT exemption under the NRG, a
special law or an international agreement to which the Philippines is a signatory, and by. virtue
of which ts taxable transactions become exempt from the VAT Such party is also not subject to
the VAT Dut may be allowed a tax refund of or credit for input taxes paid. depending on its
registration as a VAT or non-VAT taxpayer (Commissioner of Internal Revenue v. Seagate
Technology (PHLJ. G.R. No. 153866, February 11, 2005).

Q: What are the transactions exempt from VAT?

ANS: The following transactions shall be exempt from VAT:

1. Sale or Importation: (AFAB)

a. Agricultural and marine food products in their original state; livestock and poultry of a kind
generally used as, or yielding or producing foods or human consumption: and breeding stock and
genetic materials is therefore:

Note: The following are the conditions for exemption from VAT:

i. Considered in their original state-even if they have undergo simple process (not a physical or
chemical process which would alter the exterior or inner substance of a product in such as
manner as to prepare it or special use lo which it could not have been put in is original form or
condition; like the addition of preservatives or anti-oxidants) of preparation or preservation for
the market such as freezing. drying. salting. broiling. roasting. smoking or stripping. Advanced
technological means of packaging such as shrink wrapping in or packing or plastic, in itself does
not make the products liable to VAT. Polished and/or husked rice, copra and sugar and molasses,
ordinary salt and copra shall be considered in their original state by express provision of law.

ii. Not included in the exemption: non-food products, fighting cocks, race horses, zo0 animals,
and other animals generally considered as pets; bagasse.

Note: The sale of Andok's roasted chicken is exempt from VAT.

Lucman, Yasser S.
Tax 1 - Notes
However. should Andok's maintain a facility by which the roasted chicken will be offered as a
menu to customers would dine in will be Subject to the VAT on sale of service which is similarly
imposed on restaurants and other eateries (VAT Ruling No. 009-07, June 21, 2007). The sale of
marinaded boneless milkfish (bangus) by a tuna canning corporation is not considered in its
original state (BIR Ruling No. 348-2011, September 28, 2011).

B. Fertilizers; seeds, seedlings, and fingerlings, fish. prawn, livestock and poultry feeds including
ingredients. whether locally produced or imported used in the manufacture of finished feeds;
Note: Excluded are those specially made feeds for Race horses, Eighting cocks, Aquarium Fish.
Zoo animals and Other animals generally considered as pets (RFAZO)

C. Or lease of passenger or cargo vessels and Aircraft, including engine equipment and spare
parts thereof. for domestic or international transport operations:

Note: The following are the conditions for exemption from VAT:
i. In case of exemption from VAT on importation the vessel, including the engine and spare parts
of said vessels, must weigh at least one hundred fifty (150) tons;

2. The vessels to be imported must comply with the age limit requirement, at the lime of
acquisition counted from the date of the vessel's ongoing commissioning are as Follows

a. Passengers and/or cargo vessels fifteen (15) years old;

b. Tankers - ten (10) years old
C. High-speed passenger crafts five (5) years old and

3. Section 4 of Republic Act No. 9295. The Domestic Shipping Development Act of 2004, must
have been complied with.

ii. In case of exemption from VAT on local purchase- the vessel must weigh, including the
engine and spare parts, at least 150 tons;

d. Printing or publication of Books and any newspaper, magazine, review, or bulletin which
appears at regular intervals with fixed prices or subscription and sale and which is not devoted
principally to the publication of paid advertisements.

Note: The printing and manufacturing of posters. novelty items supplementary educational books
and tutorial items for children. Such as bilingual books. jigsaw puzzles, memory games.
flashcards and telling time posters tall under this exemption (BIR Ruling DA-378-2005, July ,
2004). The terms "b0ok, "newspaper. magazine. Review and "bulletin shall refer to printed
materials in hard copies, and do not include those in digital or electronic format or computerized
versions. including but not limited to the following e-books, e-journals, electronic copies. online
library sources, CDs and software (R.M.C. No. 75-2012, November 22, 2012).

2. Sale

Real properties
Lucman, Yasser S.
Tax 1 - Notes

3. Importation

a. Personal and household effects belonging to residents of the Philippine returning from abroad
and non-resident citizens coming to resettle in the Philippines: PROVIDED. that such goods are
exempt from customs duties under the Tariff and Customs Code of the Philippines.

b. Professional instruments and implements, tools of trade, occupation or employment wearing

apparel domestic animals of personal household effects

c. Fuel. goods and supplies by persons engaged in international shipping or air transport
operations directly to a foreign port without stopping at any other port in the Philippines.
Provided; that the fuel, goods and Supplies shall be used for international, shipping or air
transport operation

4. Services

a. Subject to the Percentage taxes under Secs. 116 to 117 of the NIRC;
b., By Agricultural contract growers and milling for others of palay into rice corn into grisş and
sugar cane into raw sugar,
c. Medical, dental, hospital and veterinary services except those rendered by-professionals.
Laboratory services are exempted because it isa hospital service.

Note: The sale of medicines by the pharmacy of a hospital or clinic to its in-patients is
considered hospital service, hence VAT exempt. If the sale of medicine is made to an out-patient,
such sale is subject to VAT(MAMALATEO, VAT, Ssupra.at 163 and 274).

d. educational services rendered by private educational institutions duly acredited by the DepEd,
CHED and TESDA and those rendered by governed: educational institution,

Note: Educational services do not include seminars, in-service training. review classes and other
similar services rendered by persons not accredited by DepEd, CHED, and/or TESDA (R.R. No.
16-2005, Sec. 4.109-1). The exemption does not extend to the institution's other activities
involving sale of g0ods and services. Thus, gross sales/receipts from the sale of school uniforms
by a proprietary educational institution and from rental of parking areas in the school premises
are subject to VAT (8IR Ruling DA-531-2004, October 19, 2004).

e. Rendered by individuals pursuant to an Employer-employee relationships;

f. Rendered y Regional or area headquarters established in the Philippines by multinational

corporations;
g. Of Banks, non-bank financial intermediaries performing quasi-banking functions, and other
non-bank financial intermediaries such as money changers and pawnshops;

5. Others
Lucman, Yasser S.
Tax 1 - Notes
a. Lease of residential units, if the monthly rent;
b. Gross receipts from Lending activities of credit or multi-purpose cooperatives duly registered
and in good standing with the CDA;
c. transactions which are exempt under international agreements to which the Philippines is a
signatory or under special laws except those under P.D. No. 529;
d. Transport of passengers by international carriers (RA. No. 10378):
e. 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 o P3,000,000 (R.R. No. 13-18).

Note: These are exempt from VAT but subject to 3% percentage tax.

f. Transfer of Property pursuant to merger or consolidation of corporation under Sec. 40(C2) of

NIRC.
g. as sociation dues, membership fees, and other assessments and charges collected on a purely
reimbursement basis by home-owners associations and condominium corporations established
under Republic Act No. 9904;
h. Self-employed individuals and professionals availing of the 8% tax on gross sales and/or
receipts and other non-operating income, under Sections 24AN2X6) and 24(A(2NCN2Na) of the
NIRC.

Input and Output Tax

Output tax defined;

it refers to the VAT due or paid on the taxable sale, barter or exchange of goods, properties or
services by seller or transferor.

Input tax defined:

It refers to the VAT due form or paid by a VAR-registered person on importation of taxable
goods, or on local purchase of taxable goods, properties, or services, including lease or use of
properties, in the course of his trade or business.

How is output tax determined?

1. Multiplying the gross selling price;
2. Where the amount of VAT is erroneously billed in the invoice or receipt, by multiplying
the total invoice amount by a fraction using the rate VAT as numerator and 100% plus
rate of VAT.

How is VAT payable determined?

Ans:
There shall be allowed as a deduction from the output tax amount of input tax deductible to
arrive at VAT payable on the monthly VAT declaration and the quarterly VAT returns:
Lucman, Yasser S.
Tax 1 - Notes
1. 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;
2. If the input tax, inclusive of input tax shall be carried over to the succeeding quarter or
quarters.

Enhanced VAT Refund System

Q: what is the Enhanced VAT Refund System?

Ans: VAT refund system that grants and pays refunds of creditable input tax within ninety days
from the filing of the VAT refund application with the Bureau.

What is the effect of successful establishment and implementation of the Enhanced VAT
Refund System?

Ans: the following sales subject to 0% VAT shall be subject to 12% VAT:
1. Zero rated sale of goods or properties

A. The sale of Raw materials or packaging materials to a non-residen buyer for deliveru to a
resident local export-oriente entrprse to be used in manufacturing, processing, packaging
or repacking in the Philippines of the said buyers goods, paid for in acceptable foreign
currency, and accounted for in accordance with the rules and regulations of the BSP;
B. The sale of Raw materials or packaging materials to an export- oriendted enterprise
whose export sales exceed seventy 70% of total annual production; and
C. Transactions considered export sales under E.0 226, otherwise known as the Omnibus
Investment Code 1987, and other special laws.

2. Zero rated sale of services

Filing of returns and Payment

Q: who are required to file a VAT return?

Ans: every person liable to pay VAT shall be required to file a return.

Q: what are the rules regarding the time for filing a return?

Ans: the rules are as follows:

1. Every person liable to pay VAT shall file a monthly VAT declaration and quarterly vat
return.
2. A VAT registered person shall pay the VAT on a monthly basis. Amounts reflected in the
monthly VAT return for the first 2 months of the quarter shall still be include in the
quarterly VAT return which reflects the cumulative figures for the taxable quarter.
3. Taxable quarter shall mean the quarter that is synchronized to the income tax code shall
be done within twenty-five days following the close of each taxable quarter