CTT EXAMINATION REVIEWER (NOTES)
VALUE-ADDED TAX FORMULA IN COMPUTING VAT PAYABLE
Who are liable to VAT?
Any individual, trust, estate, partnership, corporation,
joint venture, cooperative or association who in the
course of his trade or business:
1. Sells, barters, exchanges goods or properties
2. Sells or renders services
3. Leases properties
4. Imports goods
To be subject to VAT
1. The annual gross selling price (sale of goods/
properties) or gross receipts (sale of services and
lease of properties) must exceed P 3 million.
2. If the taxpayer is VAT-registered, he is subject to
VAT, regardless of the amount of GSP/GR.
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 members or their guests), or government entity.
EXCEPTIONS (these are subject to VAT even if there
is no business)
1. Importation of goods for personal use; and
2. Services rendered in the Philippines
by non-resident foreign persons, even if isolated
(considered as being rendered in the course of
trade or business).
The recipient of the service shall withhold and remit
the VAT to the BIR. Such VAT can be claimed by the
recipient as input tax.
Nature and characteristics of VAT
1. VAT is a tax on consumption levied on the sale,
barter, exchange or lease of goods or properties
and services in the Philippines.
2. The Seller is the one statutorily liable for the
payment of the tax but the amount of the tax may
be shifted or passed on to the buyer, transferee or
lessee of the goods, properties or services.
3. The tax is a business tax imposed on the privilege
of selling, leasing or importing goods or rendering
services for a fee, remuneration or consideration
(excise tax).
PAGE A - 28
OUTPUT TAX Px x
Less: INPUT TAX x x
VAT PAYABLE x x
Gross sales/receipts by husband and wife
For purposes of the threshold of P3 million, the
husband and the wife shall be considered separate
taxpayers.
However, the aggregation rule for each taxpayer shall
apply. For instance, if a professional, aside from the
practice of his profession, also derives revenue from
other lines of business which are otherwise subject to
VAT, the same shall be combined for purposes of
determining whether the threshold has been
exceeded.
The VAT-exempt sale shall not be included in
determining the threshold.
Sources/Kinds of Input Tax (creditable from the
Output 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 or rent of
properties
5. Creditable withholding VAT
6. Transitional input tax
7. Presumptive input tax
VAT ON SALE OF GOODS OR PROPERTIES
Rate and Base: 12% of Gross Selling Price
Gross selling price - the total amount of money or its
equivalent which the purchaser pays or is obligated to
pay to the seller in consideration of the sale, barter or
exchange of the goods or properties, excluding VAT
but including excise tax, if any.
In computing the taxable base during the month or
quarter, the following shall be allowed as deductions:
Deductions from GSP
1. Sales discounts determined and granted at the
time of sale, expressly indicated in the invoice the
amount thereof forming part of the gross sales duly
recorded in the books of accounts, the granting of
CTT EXAMINATION REVIEWER (NOTES)
which does not depend upon the happening of a
future event.
2. Sales returns and allowances for which a proper
credit or refund was made during the month or
quarter to the buyer for sales previously recorded
as taxable sales.
Formula:
Gross Sales Pxx
Less: Sales discount Pxx
Sales returns & allowances xx xx
Net Sales xx
Add: Excise tax (if any) xx
Gross selling price xx
Transactions Deemed Sale (Purpose: To recapture
the VAT that was already claimed as Input Tax)
1. 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
trade or business can take place when VAT
registered person withdraws goods from his
business for his personal use.
2. Distribution or transfer to –
a. Shareholders or investors as share in the profits
of the VAT registered person.
Property dividends which constitute stocks in
trade or properties primarily held for sale or
lease declared out of retained earnings and
distributed by the company to its shareholders
shall be subject to VAT based on the zonal
value or FMV at the time of distribution,
whichever is applicable.
b. Creditors in payment of debt or obligation.
3. Consignment of goods if actual sale is not
made within 60 days following the date such goods
were consigned. Those returned within the 60-day
period are not deemed sold.
4. 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, to wit:
a. Change of ownership of business. There is
change of ownership of the business when a
PAGE A - 29
single proprietorship incorporates; or the
proprietor of a single proprietorship sells his
entire business.
b. Dissolution of a partnership and creation of a
new one which takes over the business.
In cases (1) (2) and (3), the output tax shall be
based on the market value of the goods deemed sold
at the time of occurrence of the transaction.
In case (4) the tax base shall be whichever is
lower between:
Acquisition Cost vs Current Market Price
of the goods or properties
TRANSITIONAL INPUT TAX (on a person who
becomes liable to VAT or those who elect to be VAT
registered) as of the effectivity of their VAT
registration.
Whichever is higher between:
 2% of the value of the beginning inventory on hand
of goods, materials and supplies, or
 Actual VAT paid on such materials, goods and
supplies
PRESUMPTIVE INPUT TAX on sale of goods or
properties
VAT registered persons or firms engaged in the –
1. Processing of sardines, mackerel, and milk, and
2. In manufacturing refined and raw sugar, cooking
oil and packed noodle-based instant meals
 4% of the gross value in money of their
purchases of primary agricultural products which
are used as inputs to their production
Zero-rated sales of goods
1. Zero-rated transactions vs. Exempt transactions
a. 0%- subject to VAT only that the rate is 0%.
E - not subject to VAT
b. 0%- no output tax but the taxpayer is entitled to
tax credit or refund of input taxes.
E - no tax credit or refund for input taxes are
allowed.
2. Sales by VAT registered persons subject to 0%:
A. Export sales which shall mean -
(a) The sale or actual shipment of goods from
Philippines to foreign country, irrespective
CTT EXAMINATION REVIEWER (NOTES)
of any shipping arrangement that may be
agreed upon which may influence or
determine the transfer of ownership of the
goods so exported, 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;
(b) The sale of goods, supplies, equipment
and fuel to persons engaged in international
shipping or international air transport
operations: Provided, that, the goods,
supplies, equipment, and fuel shall be used
exclusively for international shipping or air
transport operations.
The sale of goods, supplies, equipment
and fuel to persons engaged in international
shipping or international air transport
operations is limited to goods, supplies,
equipment and fuel that shall be used in the
transport of goods and passenger from a
port in the Philippines directly to a foreign
port, or vice-versa, without docking or
stopping at any other port in the Philippines
unless for the purpose of unloading
passengers and/or cargoes that originated
from abroad. Otherwise, the transaction shall
be subject to 12% VAT.
B. Sales to persons or entities whose exemption
from direct and indirect taxes under special laws
or international agreements to which the
Philippines is a signatory effectively subjects
such sales to zero rate;
C. Sale of raw materials, inventories, supplies,
equipment, packaging materials, and goods, to a
registered export enterprise, to be used directly
and exclusively in its registered project or activity
pursuant to Sections 294(E) and 295(D) of
CREATE Act, and Sec 5, Rule 2 of its
Implementing Rules and Regulations for a
maximum period of seventeen (17) years from
the date of registration, unless otherwise
extended under the Strategic Investment Priority
Plan (SIPP);
Provided, That the above-described sales
to existing registered export enterprises located
inside ecozones and Freeport zones shall also
be qualified for VAT zero-rating under this sub-
item until the expiration of the transitory period.
PAGE A - 30
The registered export enterprise shall refer to
an export enterprise that is also a Registered
Business Enterprise (RBE).
VAT ON SALE OF REAL PROPERTY
1. The following sales of real property are subject to
VAT:
a. Those held primarily for sale to customers;
b. Those held for lease in the ordinary course of
trade or business of the seller.
2. The following are not subject to VAT:
Beginning January 1, 2021, the VAT exemption
shall only apply to the following sales:
1. Sale of real
properties not primarily held for sale to
customers or held for lease in the ordinary
course of trade or business,
2. Sale of real property
utilized for socialized housing (RA 7279),
3. Sale of house and
lot, and other residential dwellings with selling
price of not more than P3,199,200.
Deferred Payment/Installment Sales
of Real Property
Deferred Payment Basis – not a cash sale of real
property but the initial payment in the year of sale
exceeds 25% of the gross selling price.
Installment Basis – sale of real property by a real
estate dealer in which the initial payment does not
exceed 25% of the gross selling price.
Computation of tax base:
1. Cash sale and Deferred Payment Sale –
whichever is the highest among:
a. Gross selling price
b. Fair market value (assessor’s market
value)
c. Zonal value (BIR’s market value)
2. Installment basis – multiply the collection/gross
selling price by the highest among
a. Gross selling
price
b. Fair market
value
c. Zonal value
CTT EXAMINATION REVIEWER (NOTES)
VAT ON SALE OF SERVICES
Tax Base: Gross receipts - the total amount of
money or its equivalent actually or constructively
received during the taxable quarter for the services
performed or to be performed for another person
(excluding the VAT):
a. On the contract price, compensation,
service fee, rental or royalty;
b. Amount charged for materials supplied with
the services; and
c. Deposits applied as payments for services
rendered and advanced payments.
Constructive receipt occurs when the money
consideration or its equivalent is placed at the control
of the person who conducted the service without
restrictions by the payor such as depositing the
money in the bank which are available to the payee
without restriction.
Computation of gross receipts:
Cash received (actually and constructively) P x x
Advance payments xx
Materials charged for services xx
Gross receipts xx
Sale or exchange of services means the
performance of all kinds of services in the Philippines
for others for a fee, remuneration or consideration,
including those performed or rendered by the
following:
1. Construction and service contractors
2. Warehousing services;
3. Lessors or distributors of cinematographic films;
4. Persons engaged in milling, processing,
manufacturing or repacking goods for others
except:
a.Palay into rice
b.Corn into corngrits
c. Sugar cane into muscovado and raw cane
sugar
5. Proprietors, operators or keepers of hotels,
motels, resthouses, pension houses, inns, resorts;
6. Dealers in securities and lending investors
7. Proprietors or operators of restaurants,
refreshment parlors, cafes and other eating places,
including clubs and caterers.
8. Transportation contractors on their transport of
goods or cargoes, including persons who transport
goods or cargoes for hire and other domestic
PAGE A - 31
carriers by land relative to their transport of goods
or cargoes;
9. Common carriers by air and sea relative to their
transport of passengers, goods or cargoes from
one place in the Philippines to another place in the
Philippines;
10. Sale of electricity by generation, transmission by
any entity including National Grid Corporation of
the Philippines (NGCP), and distribution
companies including electric cooperatives shall be
subject to 12% VAT on their gross receipts.
11. Services of franchise grantees, except –
a. electric utilities, telephone and telegraph, radio
and/or television broadcasting and all other
franchise grantees of radio and/or television
broadcasting companies whose annual gross
receipts of the preceding year do not exceed
P10,000,000, and
b. franchise grantees of gas and water utilities.
12. Non-life insurance companies, including surety,
fidelity, indemnity and bonding companies;
13. Services performed in the exercise of profession
or calling subject to professional tax, and
professional services performed by registered
professional partnerships; actors, actresses,
talents, singers, and emcees; radio and television
broadcasters, choreographers; musical, radio,
movie, television and stage directors; and
professional athletes;
14. Other similar services, regardless of whether or not
the performance thereof calls for the exercise or
use of the physical or mental faculties.
Zero-rated sale of services
The following services performed in the Philippines
shall be subject to 0%.
1. Services other than processing, manufacturing or
repacking goods rendered to a
(a) person engaged in business conducted
outside the Philippines or to a non-resident
person not engaged in business who is outside
the Philippines when the services are
performed,
(b) the consideration for which is paid for in
acceptable foreign currency and
(c) accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas.
2. Services rendered to persons or entities whose
exemption from direct and indirect taxes under
CTT EXAMINATION REVIEWER (NOTES)
special laws or international agreements to which
the Philippines is a signatory, effectively subjects
the supply of such services to 0%.
3. Sale of services, including provision of basic
infrastructure, utilities, and maintenance, repair
and overhaul of equipment
(a) to a registered export enterprise,
(b) to be used directly and exclusively in its
registered project or activity pursuant to
Sections 294(E) and 295(D) of CREATE Act,
and Sec 5, Rule 2 of its Implementing Rules
and Regulations for a maximum period
seventeen (17) years from the date of
registration, unless otherwise extended under
the Strategic Investment Priority Plan (SIPP);
The registered export enterprise shall refer to
an export enterprise that is also a Registered
Business Enterprise (RBE).
Provided, That the above-described sales to
existing registered export enterprises located
inside ecozones and Freeport zones shall also be
qualified for VAT zero-rating under this sub-item
until the expiration of the transitory period.
4. Services rendered to persons engaged in
international shipping or air transport operations,
including leases of property for use thereof:
Provided, that these services shall be
exclusively for international shipping or air
transport operations.
Thus, the services referred to herein shall not
pertain to those made to common carriers by air
and sea relative to their transport of passenger,
goods or cargoes from one place in the Philippines
to another place in the Philippines (subject to 12%
VAT).
5. Transport of passengers and cargo by domestic air
or sea vessels from the Philippines to a foreign
country.
Gross receipts of international air or shipping
carriers doing business in the Philippines derived
from transport of passengers and cargo from the
Philippines to another country shall be exempt
from VAT.
However, they are still liable to the common
carriers’ tax based on their gross receipts derived
PAGE A - 32
from transport of cargo from the Philippines to
another country; and
6. Sale of power or fuel generated through
renewable sources of energy such as, but not
limited to biomass, solar, wind, hydropower,
geothermal and steam, ocean energy, and other
emerging energy sources using technologies such
as fuel cells and hydrogen fuels.
Provided, however, that zero-rating shall apply
strictly to the sale of power or fuel generated
through renewable sources of energy, and shall
not extend to the sale of services related to the
maintenance or operation of plants generating said
power.
VAT ON LEASE OF PROPERTIES
1. Transactions subject: Lease of real properties
held primarily for lease to customers in the
ordinary course of trade or business.
2. Lease of residential units which are VAT
exempt
a. With a
monthly rental per unit not exceeding P15,000.
b. Where the
monthly rental per unit exceeds P15,000, but
the aggregate of such rentals of the lessor
during the year do not exceed P3,000,000 shall
be subject to 3% percentage tax.
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 is used in the trade or
business of the seller, the sale thereof shall be subject
to VAT being a transaction incidental to the taxpayer’s
main business.
Residential units - refer to apartments and houses &
lots used for residential purposes, and buildings or
parts or units thereof used solely as dwelling places
(e.g., dormitories, rooms and bed spaces) except
motels, motel rooms, hotels and hotel rooms, lodging
houses, inns and pension houses.
Unit - means an apartment unit in the case of
apartments, house in the case of residential houses;
per person in the case of dormitories, boarding
houses and bed spaces; and per room in case of
rooms for rent.
CTT EXAMINATION REVIEWER (NOTES)
Allocation of input taxes
1. If the taxpayer operates a VAT and a non-VAT
business
2. The Input Taxes paid for the purchases of goods
and services cannot be directly attributed to either
operation
3. It shall be allocated between the VAT and non-
VAT businesses on the basis of their respective
sales during the taxable month.
VAT ON IMPORTATION OF GOODS/ PROPERTIES
Subject: Goods and properties whether the
importation is –
a. For sale, or
b. For use in business, or
c. For personal use
Tax Rate: 12%
Tax Base:
a. Ad valorem (value used by the Bureau of Customs
in determining tariff and customs duties)
Dutiable value xx
Add: Customs duties xx
Excise tax xx
Other charges & legitimate expenses xx
Base xx
b. Specific - valuation is based on volume or quantity
of the imported goods, the basis shall be the
landed cost.
Landed cost means the total of invoice cost,
freight, insurance, customs duties, excise tax, if
any, and other charges prior to the removal of the
goods from customs custody.
Time of Payment– To be paid by the importer prior to
the release of the goods from customs custody.
If the imported goods by VAT-exempt are
subsequently sold, transferred or exchanged to non-
exempt persons or entities - the transferee shall be
considered the importer and shall be liable for VAT
due on such importation.
Excess Input Tax over Output Tax
Excess input tax during the previous quarter shall
be carried-over to next quarter/s
PAGE A - 33
Rules on Withholding of Creditable VAT
The government or any of its political subdivisions,
agencies/instrumentalities, GOCCs shall before
making payment on account of each purchase of
goods and/or services taxed at 12% deduct and
withhold a creditable withholding VAT due at the rate
of 5% of the gross payment thereof.
Spread of INPUT TAX on capital goods
(depreciable properties with a useful life of more than
one (1) year)
Rules:
1. Acquisiti
a calendar month- the input tax shall be spread
evenly over a period of 60 months or the life of the
asset, whichever is shorter if -
a. Goods or properties with estimated useful life
greater than one (1) year and which are treated
as depreciable assets,
a. Used directly or indirectly in the production or
sale of taxable goods or services;
c. If the capital good is sold within 5 years 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/quarter when the sale was made.
3. Aggregate acquisition cost of the
existing or finished capital goods purchased or
imported during any calendar month does not
exceed P1 million
- total input taxes will be credited against output
tax in the month of acquisition
Aggregate acquisition cost - total price, excluding
the VAT, agreed upon for one or more assets
acquired and not on the payments actually made
during the calendar month.
The amortization of the input VAT shall only be
allowed until December 31, 2021 after which
taxpayers with unutilized input VAT on capital goods
purchased or imported shall be allowed to apply the
same as scheduled until fully utilized;
In the case of purchase of services, lease or use of
properties, the input tax shall be creditable to the
purchaser, lessee or licensee upon payment of the
compensation, rental, royalty or free.
TRANSACTIONS WHICH ARE EXEMPT FROM VAT
CTT EXAMINATION REVIEWER (NOTES)
No Output Tax on the sale or lease and no Input Tax
credit on purchases.
a. Sale or importation of agricultural and marine food
products in their original state, livestock and
poultry of a kind generally used as, or yielding or
producing, foods for human consumption; and
breeding stock and genetic materials;
Products considered in their original state:
1. products which undergone simple processes of
preparation or preservation for the market
(freezing, drying, salting, broiling, roasting,
smoking or stripping)
2. polished or husked rice
3. corn grits
4. raw cane sugar and molasses
5. ordinary salt
6. copra
b. Sale or importation of fertilizers, seeds, seedlings
and fingerlings, fish, prawn, livestock and poultry
feeds, including ingredients, whether locally
produced or imported, used in the manufacture of
finished feeds (except specialty feeds for race
horses, fighting cocks, aquarium fish, zoo animals
and other animals generally considered as pets);
c. Importation of -
1. professional instruments and implements,
2. tools of trade, occupation or employment,
3. wearing apparel,
4. domestic animals, and
5. personal and household effects
belonging to persons coming to settle in the
Philippines or Filipinos or their families and
descendants who are now residents or citizens
of other countries, such parties hereinafter
referred to as overseas Filipinos, in quantities
and of the class suitable to the profession, rank
or position of the persons importing said items,
for their own use and not for barter or sale,
accompanying such persons, or arriving within
a reasonable time:
Provided, that vehicles, vessels, aircrafts,
machineries and other similar goods for use in
manufacture shall be subject to duties, taxes and
other charges.
d. Services subject to other percentage tax as
follows:
PAGE A - 34
1. Sale or lease of goods or properties or the
performance of services of non-VAT-registered
persons, those whose annual gross sales
and/or receipts of which do not exceed the
amount of P3 Million;
2. Services rendered by franchise grantees of
radio and/or television broadcasting whose
annual gross receipts of the preceding year do
not exceed P10,000,000, and by franchise
grantees of gas and water utilities;
3. Services of proprietors, lessees or operators of
cockpits, cabarets, night or day clubs, boxing
exhibitions, professional basketball games, jai-
alai and race tracks;
4. Services rendered by any person, company or
corporation (except purely cooperative
companies or association) doing life insurance
business of any sort in the Philippines;
5. Services rendered by fire, marine or
miscellaneous insurance agents of foreign
insurance companies;
6. Services rendered by domestic common
carriers by land, for the transport of passengers,
and keepers of garages;
7. Services rendered by international air or
shipping carriers for the transport of goods or
cargo originating in the Philippines and going
abroad; and
8. Services rendered for overseas dispatch,
message or conversation originating from the
Philippines.
e. Services by agricultural contract growers and
milling for others of (1) palay into rice, (2) corn into
grits, and (3) sugar cane into muscovado and raw
cane sugar;
f. Medical, dental, hospital and veterinary services,
except those rendered by professionals;
g. Educational services rendered by private
educational institutions duly accredited by the (1)
DepED, (2) CHED, (3) TESDA and those rendered
by (4) government educational institutions;
h. Services rendered by individuals pursuant to an
employer-employee relationship;
i. Services rendered by regional or area
headquarters established in the Philippines by
CTT EXAMINATION REVIEWER (NOTES)
multinational corporations which act as
supervisory, communications and coordinating
centers for their affiliates, subsidiaries or branches
in the Asia Pacific Region and do not earn or
derive income from the Philippines;
j. Transactions which are exempt under
international agreements to which the Philippines
is a signatory or under special laws except those
granted under Petroleum Exploration
Concessionaires under the Petroleum Act of 1949;
k. Sales by agricultural cooperatives duly registered
and in good standing with the CDA to their
members, as well as sale of their produce, whether
in its original state or processed form, to non-
members; their importation of direct farm inputs,
machineries and equipment, including spare parts
thereof, to be used directly and exclusively in the
production and/or processing of their produce;
l. Gross receipts from lending activities by credit or
multi-purpose cooperatives duly registered and in
good standing with the CDA;
m. Sales by non-agricultural, non-electric and non-
credit cooperatives duly registered with and in
good standing with the CDA; provided, that the
share capital contribution of each member does
not exceed P15,000 and regardless of the
aggregate capital and net surplus ratably
distributed among the members;
n. Export sales by persons who are not VAT-
registered;
o. Sales of real properties, as follows:
(1) Sale of 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 the trade or
business of the seller, the sale thereof shall be
subject to VAT being a transaction incidental
to the taxpayer’s main business.
(2) Sale of real properties utilized for socialized
housing.
"Socialized housing" refers to housing
programs and projects covering houses and
lots or home lots only undertaken by the
Government or the private sector for the
PAGE A - 35
underprivileged and homeless citizens which
shall include sites and services development,
long-term financing, liberated terms on interest
payments, and such other benefits in
accordance with the provision of RA 7279,
otherwise known as the “Urban Development
and Housing Act of 1992” and RA 7835 and
RA 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.
(3) Sale of house and lot and other residential
dwellings valued at an amount not exceeding
P3,199,200. Sale of residential lot only is
subject to 12% VAT.
If two or more adjacent residential dwellings
are sold or disposed in favor of one buyer, for
the purpose of utilizing the lots as one
residential dwelling, the sale shall be exempt
from VAT only if the aggregate value of the
lots do not exceed the threshold of
P3,199,200. Adjacent residential lots, although
covered by separate titles and/or separate tax
declarations, when sold or disposed to one
and the same buyer, whether covered by one
or separate Deed of Conveyance, shall be
presumed as a sale of one residential lot.
Provided, That every three (3) years
thereafter, the amounts stated herein shall be
adjusted to its present value using the
Consumer Price Index, as published by the
Philippine Statistics Authority (PSA).
p. Lease of residential units with a monthly rental
per unit not exceeding P15,000, regardless of the
amount of aggregate rentals received by the lessor
during the year;
Lease of residential units where the monthly rental
per unit exceeds P15,000 but the aggregate of
such rentals of the lessor during the year do not
exceed P3,000,000 shall be subject to 3%
percentage tax.
q. Transport of passengers by international carriers;
CTT EXAMINATION REVIEWER (NOTES)
r. Sale, importation, printing or publication of books
and any newspaper, magazine, journal, or any
educational reading material covered by the United
Nations Educational, Scientific and Cultural
Organization (UNESCO) agreement on the
importation of education, scientific and cultural
materials, including the digital or electronic format
thereof.
s. Sale, importation or lease of passenger or cargo
vessels and aircraft, including engine, equipment
and spare parts thereof for domestic or
international transport operations. Provided, the
exemption from VAT on 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;
t. Importation of fuel, goods and supplies by
persons engaged in international shipping or air
transport operations; Provided, that such fuel,
goods and supplies shall be used exclusively or
shall pertain to the transport of goods and/or
passengers from a port in the Philippines unless
the docking or stopping at any other Phil port is for
the purpose of unloading passengers and/or
cargoes that originated from abroad, or to load
passengers and/or cargoes bound for abroad; Any
portion of such fuel, goods or supplies is used for
purposes other than that mentioned in this
paragraph shall be subject to 12% VAT;
u. Services of banks, non-bank financial
intermediaries performing quasi-banking functions,
and other non-bank financial intermediaries subject
to percentage tax, such as money changers and
pawnshops; and
v. Business pursued by an individual where the
aggregate gross sales and/or receipts do not
exceed P100,000 during any 12-month period
(shall be considered principally for subsistence or
livelihood and not in the course of trade or
business);
w. Sale or lease of goods and services to senior
citizens and persons with disabilities
x. Transfer of Property pursuant to Section 40(C)(2)
of the Tax Code, as amended;
y. Association dues, membership fees, and other
assessments and charges collected by
PAGE A - 36
homeowners associations and condominium
corporations;
z. Sale of gold to the Bangko Sentral ng Pilipinas;
aa. Sale of drugs and medicines prescribed for
diabetes, high cholesterol, and hypertension and
sale or importation of prescription drugs and
medicines for cancer, mental illness, tuberculosis,
and kidney diseases;
bb. Sale or importation of the following goods from
January 1, 2021 to December 31, 2023:
1. Capital equipment, its spare parts and raw
materials, necessary to produce personal
protective equipment component;
2. All drugs, vaccines and medical devices
specifically prescribed and directly used for the
treatment of Covid-19;
3. Drugs, including raw materials, for the
treatment of Covid-19 approved by the Foods
and Drugs Authority for use in clinical trials.
cc. 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.
FILING OF RETURN & PAYMENT OF TAX
1. Time for filing and payment (manual filing)
a. Quarterly Return- Within 25 days
following the close of each taxable quarter.
b. Withholding VAT Return– on or before
the 10th day following the end of the month
2. Place of filing and payment – Any
authorized bank where the Revenue District Office
is located.
3. Modes of Payment
a. Over-the-counter cash payment transactions -
payment of tax liabilities to authorized agent
banks (AAB) in the currencies that are legal
tender in the Philippines (not exceeding
P10,000)
b. Bank debit system – a taxpayer, thru a bank
debit memo/advice authorizes withdrawal from
his/its existing bank accounts for payment of tax
liabilities.
Conditions:
CTT EXAMINATION REVIEWER (NOTES)
1. This mode is allowed only if the taxpayer has
a bank account with the bank where he/it
intends to file and pay his/its tax return/form/
declaration;
2. Said AAB branch is within the jurisdiction of
the BIR Revenue District Office (RDO)/Large
Taxpayers District Office (LTDO) where the
tax payment is due and payable.
3. This mode is not acceptable as payment for
withholding taxes including fringe benefit tax
and for taxes, fees and charges collected
under special schemes / procedures /
programs of the government / BIR
c. Credit facility with a bank, credit company or
similar institution; or
d. Personal or company check, cashier’s or
manager’s check
The following checks are not acceptable for
payment:
1. Accommodation checks – issued or drawn by a
party other than the one making the payment.
2. Second endorsed checks – issued to the
taxpayer as payee who indorses the same as
payment for taxes.
3. Stale checks – dated more than 6 months prior
to presentation to the AAB.
4. Post-dated checks – dated a day or several
days after the date of presentation to the AAB.
5. Unsigned checks – no signature of the drawer
6. Checks with alterations/erasures
ELECTRONIC FILING & PAYMENT SYSTEM
1. Definitions
a. EFPS - refers to the system developed and
maintained by the BIR for electronically filing tax
returns, including attachments, if any, and paying
taxes due thereon, specifically thru the internet.
b. e-Filing – the process of electronically filing
returns including attachments, if any, specifically
thru the internet.
c. e-Payment– the process of electronically paying
a tax liability thru the internet banking facilities of
AAB.
2. Coverage – open to all taxpayers who want to
make use of the system; however, the following
are mandated to make use of the system:
a. Large taxpayers duly notified by the BIR
PAGE A - 37
b. Top 20,000 private corporations identified and
notified by the CIR
c. Top 5,000 individual taxpayers duly notified by
the BIR
d. Taxpayers who wish to enter into contract with
government offices
e. Corporations with paid-up capital of P10 million
and above;
f. PEZA registered entities and those located
within special economic zones; and
g. Government offices in so far as remittance of
withheld VAT and business tax is concerned.
REGISTRATION OF VAT TAXPAYERS
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 shall
register with the appropriate Revenue District Office
(RDO).
Annual Registration Fee: P500 for every separate and
distinct establishment or place of business before the
start of such business and every year thereafter on or
before January 31 (BIR Form 0605).
MANDATORY VAT REGISTRATION
Any person who enters into transactions that are or
maybe subject to VAT, if:
a. The aggregate amount of actual gross sales or
receipts (other than those that are exempt)
exceed P3 Million for the past 12 months, or
b. There are reasons to believe that the gross sales
or receipts for the next 12 months will exceed P3
million.
c. Radio and/or television broadcasting companies
whose annual gross receipts of the preceding year
exceeds P10,000,000.
Every person who becomes liable to be registered as
VAT taxpayer but failed to register –
a. shall be required to pay the output tax
as if he were a VAT registered person,
b. but without the benefit of input tax
credits for the period in which he was not properly
registered.
OPTIONAL VAT REGISTRATION
1. Any person who is –
a. VAT-exempt
or
b. not required
to register for VAT
CTT EXAMINATION REVIEWER (NOTES)
May 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 for every separate and distinct
establishment.
2. Any person who elects to be registered shall not
be allowed to cancel his registration for the next
three (3) years.
3. 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)].
4. Franchise grantees of radio and/or television
broadcasting -
a. whose annual gross receipts of the preceding
year do not exceed P10,000,000 derived from
the business covered by the law granting the
franchise are subject to franchise tax and not
VAT.
c. However, they may opt to be VAT registered
c. Once this option is exercised, it shall be
irrevocable (subject to VAT forever).
5. The above-stated taxpayers may apply for VAT
registration not later than 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.
APPLICATION FOR REGISTRATION
The application shall be filed with the RDO where the
principal place of business, branch, storage place or
premises is located, as the case may be, before
commencement of business or production or
qualification as a withholding agent.
In the case of storage places, the application shall be
filed within 30 days from the date the aforesaid
premises have been used for storage.
CANCELLATION OF VAT REGISTRATION
PAGE A - 38
A VAT-registered person may cancel his registration
for VAT if:
1. He makes a written application and can
demonstrate to the satisfaction of the CIR that his
gross sales or receipts for the following 12 months,
other than those that are exempt, will not exceed
P3 million; or
2. He has ceased to carry on his trade or
business, and does not expect to recommence any
trade or business within the next 12 months.
The cancellation for registration will be effective
from the first day of the following month the
cancellation was approved.
INVOICING REQUIREMENTS
A VAT registered person shall issue:
1. A VAT invoice for every sale, barter or exchange of
goods or properties; and
2. A VAT official receipt for every lease of goods or
properties and for every sale, barter or exchange
of services.
Rules:
1. Only VAT-registered persons are required to print
their TIN followed by the word “VAT” in their
invoice or official receipts. Said documents shall be
considered as a “VAT Invoice” or “VAT Official
Receipt.
2. All purchases covered by invoices/ receipts other
than VAT Invoice/VAT Official Receipt shall not
give rise to any input tax.
3. VAT invoice/official receipt shall be prepared at
least in duplicate, the original to be given to the
buyer and the duplicate to be retained by the seller
as part of his accounting records.
ISSUANCE OF INVOICES
1. 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.
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 39

2. Separate invoices/receipts involving VAT and Non-

VAT transactions 1. TAX ON PERSONS EXEMPT FROM VAT (NON-VAT
under Sec 116)
A VAT registered person may issue separate TRANSACTIONS SUBJECT: Sale, lease of goods or
invoices/receipts for the taxable, exempt, and zero- properties, or performance of services.
rated component of its sales provided that:
RATE and BASE: 3% of gross selling price or gross
a. If the sales is receipts. Effective July 1, 2020 until June 30, 2023,
exempt from VAT, the term "VAT-EXEMPT the rate shall be 1%.
SALE" shall be written or printed prominently on
the invoice or receipt, and Requisites:
b. If the sale is subject to zero percent (0%) VAT, 1. The gross annual sales/receipts do not
the term "ZERO-RATED SALE" shall be written exceed P3 million); AND
or printed prominently on the invoice or receipt. 2. Must not be a VAT registered taxpayer.
EXEMPTION FROM 3% NON-VAT:
ISSUING AN ERRONEOUS VAT INVOICE OR VAT
OFFICIAL RECEIPT 1. Self-employed individuals and professionals
1. If a non-VAT registered person issues an invoice or whose annual gross sales/receipts and other
receipt showing his TIN followed by the word VAT, non-operating income do not exceed P3 million
the non-VAT person shall be liable to: and who opted for the 8% income tax.
2. Cooperatives
a. The percentage taxes applicable to his
transactions; 2. COMMON CARRIERS’ TAX: Domestic Carriers
b. The VAT due on the transactions without the What are subject?
benefit of any tax credit; and 1. Cars for rent or hire driven by the lessee;
c. A 50% surcharge. 2. Transportation contractors on land, including
persons who transport passengers for hire;
2. If a VAT registered person issues a VAT invoice or 3. Other domestic carriers by land for transport of
official receipt for a VAT-exempt transaction but passengers, except owners of bancas and
fails to display prominently on the invoice or receipt owners of animal-drawn two-wheeled vehicles;
the term “VAT EXEMPT SALE”, the issuer shall be and
liable to VAT. 4. Keepers of garages.
In both cases, the VAT shall, if other requisite RATE AND BASE: 3% of gross receipts
information required is shown on the invoice or
receipt, be recognized as an input tax credit to the Business tax on Transport Network Vehicle Service
purchaser. (TNVS)
Status TNVS/Partner
CONTENTS OF VAT INVOICE/OFFICIAL RECEIPT
A VAT-registered person must issue a VAT invoice for With CPC (franchise) 3% Franchise Tax
every taxable transaction. The invoice/official receipt Without CPC 3% non-VAT/12% VAT
must show:
1. The name, TIN and address of seller 3. COMMON CARRIERS TAX ON INTERNATIONAL
2. Contact address CARRIERS
3. Date of transaction Who are subject? International air carriers and
4. Name of payor international shipping carriers doing business in the
5. Address of payor Philippines.
6. Business style of payor Rule on international carriers:
7. Nature and amount of payment
8. The amount of VAT, gross and net of tax Business Tax Passengers Cargoes
VAT Exempt Exempt
Taxable on
3% Carriers Tax Exempt
outgoing
OTHER PERCENTAGE TAXES
CTT EXAMINATION REVIEWER (NOTES)
Rate and Base: 3% of gross receipts
Gross receipts shall include, but shall not be
limited to, the total amount of money or its
equivalent representing the contract, freight/cargo
fees, mail fees, deposits applied as payments,
advance payments and other service charges and
fees actually or constructively received during the
taxable quarter from cargo and/or mail, originating
from the Philippines in a continuous and
uninterrupted flight, irrespective of the place of
sale or issue and the place of payment of the
passage documents.
4. FRANCHISE TAX
Who are subject? Franchise holders of:
1. Radio/television broadcasting companies
whose annual gross receipts of the preceding
year do not exceed P10 million - 3%
2. Gas and water utilities - 2%
All other franchise holders shall pay the VAT. The
radio and television broadcasting companies shall
have an option to be registered as a value-added
taxpayer and pay the tax due thereon.
Once this option is exercised, it becomes
irrevocable.
5. TAX ON AGENTS OF FOREIGN
INSURANCE COMPANY
Tax Rate and Tax Base:
1. 4% of the total premium collected shall
be imposed upon every fire, marine or
miscellaneous insurance agent authorized
under the Insurance Code to procure policies
or insurance as he may have previously been
legally authorized to transact on risks located
in the Philippines for companies not authorized
to transact business in the Philippines.
2. 5% on premiums paid shall also be
imposed on owners of property who obtain
insurance directly with foreign insurance
companies.
This tax shall not apply to reinsurance
premiums.
6. TAX ON BANKS AND NON-BANK FINANCIAL
INTERMEDIARIES PER-FORMING QUASI-
BANKING FUNCTIONS
Tax Base: Gross Receipts derived from sources
within the Philippines
PAGE A - 40
Tax Rates:
a. On interest, commissions and discounts from
lending activities as well as income from
financial leasing, on the basis of remaining
maturities of instruments from which such
receipts are derived:
Maturity period:
Five (5) years or less 5%
More than 5 years 1%
b. On dividends and equity shares and
net income of subsidiaries 0%
c. On royalties, rentals of property, real or
personal, profit from exchange and all
other items treated as gross income 7%
under Sec 32 of the Code
d. On net trading gains within the taxable
year on foreign currency, debt
securities, derivatives and other similar
financial instruments 7%
In case the maturity period is shortened thru
pretermination, then the maturity period shall be
reckoned to end as of the date of pretermination for
purposes of classifying the transaction and the
correct rate of tax shall be applied accordingly.
7. TAX ON OTHER NON-BANK FINANCIAL INTER-
MEDIARIES INCLUDING FINANCE COMPANIES,
MONEY CHANGERS AND PAWNSHOPS
Tax Base: Gross receipts
Tax Rates:
a. On interests, commissions and discounts from
lending activities as well as income from
financial leasing on the basis of remaining
maturities of the instruments from which such
receipts are derived:
Maturity period:
Five (5) years or less 5%
More than 5 years 1%
b. From all other items treated as gross
income under Sec. 32 of the tax code 5%
8. TAX ON OVERSEAS DISPATCH, MESSAGE OR
CONVERSATION ORIGINATING FROM THE PHIL
(OVERSEAS COMMUNICATIONS TAX)
RATE AND BASE: 10% of the amount paid upon
every overseas dispatched, message or
conversation transmitted from the Philippines
(outgoing) by telephone, telegraph, telewriter
CTT EXAMINATION REVIEWER (NOTES)
exchange, wireless and other communications
equipment services.
Exemptions– This tax shall not apply to:
1. Government
2. Diplomatic services
3. International organizations
4. News services
Time for filing – The person rendering services shall
collect and pay the tax within 20 days after the end
of each quarter.
9. AMUSEMENT TAX
The following amusement places shall be subject to the
corresponding tax rates based on gross receipts:
10% Place for boxing exhibitions
15% Place for professional basketball games
18% Cockpits, cabarets, night or day clubs
30% Jai-Alai and race tracks
Boxing exhibitions where World or Oriental
Championships in any division is at stake shall be
exempt from amusement tax, if -
1. one of the contenders is a citizen of the
Philippines; and
2. said exhibitions are promoted by
a) citizens of the Philippines, or
b) by a corporation or association at least 60%
of the capital of which is owned by such
citizens.
10. TAX ON WINNINGS
Persons subject: Any person who –
1. Wins in horse races.
2. Owns a winning race horse, based on the
prize.
Tax Rate and Tax Base:
a. Winner in horse races . . . . 10%
But if from: Double, forecast, quinella and
trifecta bets - 4%
BASE: Actual amount of winnings or divi-dends
on every ticket after deducting the cost
of ticket.
b. Owner of winning horse -10% of the prize
11. STOCK TRANSACTION TAX
On the sale, barter, exchange or other disposition
of shares listed and traded thru a local stock
exchange, other than by a dealer in securities.
Tax Base: Gross selling price/gross value in money
PAGE A - 41
Tax Rate: 6/10 of 1%
Filing and payment – Within 5 banking days from
the date of collection.
FILING AND PAYMENT - The operator, manager or
person in charge of horse races shall file and pay
within 20 days from the date the tax was deducted
and withheld (BIR Form 1600-WP).
FILING OF RETURN (BIR FORM NO. 2551Q) AND
PAYMENT OF PERCENTAGE TAXES
1. TIME FOR FILING AND PAYMENT
Large and non-large taxpayers-within 25 days after
the end of every quarter on the following:
a. VAT-exempt taxpayers with annual gross
sales/receipts not exceeding P3M;
b. Domestic carriers and keepers of garages;
c. International air/shipping carriers;
d. Franchisees of gas or water utilities;
e. Franchisees of radio and/or TV broadcasting
with revenues not exceeding P10M;
f. Franchise grantees sending overseas
dispatch, messages or conversations from the
Philippines
g. Proprietors, lessees or operators of cockpits,
cabarets, night or day clubs, boxing exhibitions,
professional basketball games, jai-alai and
racetracks.
h. Banks, non-bank financial intermediaries and
finance companies.
i. Life insurance companies; and
j. Agent of foreign insurance companies.
2. PLACE OF FILING- At his option, the taxpayer may
file:
a. a separate return for each branch or place
of business, or
b. a consolidated return for all branches or
places of business.
3. SHORT PERIOD RETURN – Person who retires
from business or whose registration has been
cancelled shall file quarterly return and pay the tax
due thereon within 25 days from cessation or
business operations or from the date of
cancellation of registration, as the case maybe.