Taxable transactions

Persons liable

Any person who, in the course of trade or business, sells, barters, exchanges, lenses goods or properties,
renders services, and any person who imports goods shall be subject to the value added tax (VAT)
imposed in Sections 106 to 108 of this code.

Nature of the tax

Value added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer,
transferred or lessee of the goods, propeties or services. This mle shall likewise apply to existing
contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Аст
7716.

In the course of trade or business

This 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 selis exclusively to members or their guests), or government entity.

Service as defined in this Code rendered in the Philippines by non-resident foreign persons shall be
considered as being rendered in the course of tade or business

Sale of Goods or Properties

There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a
value added tax equivalent to ten percent (10%) of the gross selling price or gross value in money of
goods or properties sold, bartered or exchange, such tax to be paid by the seller or transferar Provided,
that the president, upon recommendation of the Secretary of Finance, shall effective January 1, 2006,
raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been
satisfied:

a. Value Added Tus collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (24/5%), or

b. National government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (15%). (As amended by REPUBLIC ACT NO. 9337)

Goods or Properties' Sale or exchange of Services

The terms Goods or properties shall mean all tangible and intangible objects which are capable of
pecuniary estimation and shall include:

Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or
business (subject to the exemption under Section 109(w) & (x)); - (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) or real
property utilized for low-cost housing as defined by Republic Act No. 7279, otherwise known as the
Urban Development and Housing Act of 1992, (3) and other related laws, house and lot and other
residential dwelling valued at One Million pesus (P1,000,000.00) and below: Provided, that not later
than Jamuary 31" of the calendar year subsequent to the effectivity of this Act and shall be adjtested to
its present value using the Consumer Price Index, as published by the National Statistic Office (NSO):
Lease of residential unit with a monthly rental not exceeding Eight Thousand Pesos (18,000.00) provided
that not later than January 31" of the calendar year subsequent to the effectivity of this Act and shall be
adjusted to its present value using the Consumer Price Index, as published by the National Statistic
Office (NSO)

Radio, television, zatellte, wansmission and cable televizion time

The phrase "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

Construction and service contractors;

Stock, real estate, commercial, customs and immigration brokers:

Lessors of property, whether personal or real:

Warehousing services:

Lessors or distributors of cinematographic films,

Persons engaged in milling, processing, manufacturing or repacking goods for others, Proprietors,
operators or keepers of hotels, motels, resthouses, pension houses, inns,

resorts: Proprietors or operators of restaurants, refreshment parlors, cafes and other eating

places, including clubs and caterers

Dealers in securities; Lending investorsc

Transportation contractors on their transport of goods or cargoes, including persons who transport
goods or cargoes for hire and other domestic common carriers by land

relative to their transport of goods or cargoes:

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,

Saks of electncity by generation companies, transmission, and distribution companies Services of

franchise grantees of electric utilities, telephone and telegraph, radio and television broadcasting and all
other franchise grantees except those under Section.

119 of this Code and Non-life insurance companies (except their crop insurance) including surety.

fidelity, indemnity and bonding companies, and similar services regardless of whether or not the
performance thereof calls for the exercise or use of the physical or mental faculties.

The phrase "sale or exchange of services' shall likewise include:

The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan,
secret formula or process, goodwill, trademark, trade brand or other like property or right;

The lease or the use of, or the right to use of any industrial, commercial or scientific

equipment, The supply of scientific, technical, industrial or commercial knowledge ne

information: 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 us is mentioned in
subpamgraph (2) or any such knowledge or information as is mentioned in subparagraph (3);
The supply of services by a nonresident 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 other appamtus purchased from auch nonresident perum; The supply of technical
advice, assistance or services rendered in connection with technical management or administration of
any scientific, industrial or commercial undertaking, venture, project or scheme,

The lease of motion picture films, films, tapes and dises, and The lease or the use of or the right to use
radio, television, satellite transmission and

cable television time.

Lease of properties shall be subject to the tax herein imposed irrespective of the place where the
contract of lease or licensing agreement was executed if the property is leased or used in the Philippines

The term "GROSS RECEIPTS means the total amount of money or its equivalent representing the
contract price, compensation or service fee, rental or royalty, including the amount charged for
materials supplied with the services and deposits or advance payments actually or constructively
received during the taxable quarter for the services performed or to be performed for another person,
excluding Value-added tax

Gross Selling Price (Tax Base)

Means the total amount of money or its equivalent which the purchaser pays or is obligated to pay to
the seller in consideration of the sale, harter or exchange of the goods or properties, excluding the value
added tax. The excise tux, if any, on such goods or properties shall form part of the gross selling price

Invoicing Requirements (Invoicing of sale)

A VAT- Registered person shall, for every sale, issue an invoice or receipt. In addition to the information
required under Section 237, the following information shall be indicated in the invoice or receipt
A statement that the seller is a VAT-registered person, followed by his taxpayer's identification no. (TIN):

The total amount which the purchaser pays or is obligated to pay to the seller with the indication that
such amount includes the value-added tax.

8. Tax Formula

The tax shall be computed by multiplying the total amount indicated in the Official receipt by one-
eleventh (1/11) (This provision which used to be 106 (D) (1) was removed/repeated under REPUBLIC ACT
NO. 9337)

Sales Returns, Allowances and Sales Discounts The value of goods or properties sold and subsequently
returned or for which allowances were granted by a VAT-registered person may be deducted from the
gross sales or receipts for the quarter in which a refund is made or a credit memorandum or refund is
issued. Sale discount granted and indicated in the invoice at the time of sale and the grant of which does
not depend upon the happening of a future event maybe excluded from the gross sales within the same
quarter it was given.

If the taxpayer is not registered and has not been collecting VAT but is required by law to collect VAT the
formula shall be the gross amount indicated in the Official receipt by 10%

9 Input tax formula

Inpat tax is computed by multiplying the gross receipted amount by 1/11 of a purchase made by a
buyer. Input tax is Vat for the buyer and it is prepayment of tax to the buyer.

10. Output tax formula

Output tax is computed by multiplying the gross receipted amount by 1/11 of a sale made by a seller.
Output tax is Vat for the seller and the same is a liability.

11. Zero percent (0%) rate VAT sale

There are two groups of zero rated sales and the same are (a) export sales (b) and Foreign Currency
Denominated sales. Here are the export sales, to wit

The sale and actual shipment of goods from the Philippines to a foreign country, inespective of any
shipping arrangement that may be agreed upon which may influence or determine the transfer of
ownership of the goods se exported and paid for in acceptable foreign currency or its equivalent in
goods or services, and accounted for in accordance with the rules und regulations of the Bangko Sentral
ng Pilipinas

Sale of raw materials or packaging material to a nonresident buyer fuz delivery to a. resident local
export-oriented enterprise to be used in manufacturing, processing, packing.or teparking 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 regulation of the Banko Sentral ng Pilipinas (BSP)

Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed
seventy percent (0%) of total amount production:

Sale of gold to the Central Bank of the Philippines (BSP)

Those considered export sales under Executive Order No. 226, otherwise known as the Omnibus
Investment Code of 1987, and other special laws; and

The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or
international air transport operations. (As amended by REPUBLIC ACT NO. 9337)

Foreign currency denominated sales means sale to a nonresident of goods, except those mentioned in
Sections 149 (automobiles) and 150 (non-essential goods), assembled or manufactured in the
Philippines. for delivery to a resident. in the Philippines, paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the BSP

Transibonal hiput Tax

This exists when a person who becomes liable to value-added tax or any person who elects to be a VAT-
registered person shall, subject to the filing of an inventory according to rules and regulations prescribed
by the Secretary of Finance, upon recommendation of the Commissioner. be allowed input tax on his
beginning inventory of goods, materials and supplies equivalent to eight percent (8 of the value of such
inventory or the actual value added tax paid on such goods, materials and supplies which is higher,
which shall be creditable against the output tax

Presumptive Input Tax

This VAT rule is only applicable to the following persons or firms engaged in the processing of

Sardines

Mackerel

Milk

And those that are engaged in the manufacturing of

Refined Sugar

Cooking oil
Presumptive input tax is equivalent to one and one-half percent (1-1/2%) of the gross value in money of
their purchases of primary agricultural products which are used as inputs to their production.

And those who are public works contractors shall be allowed a presumptive input tax equivalent to one
and one-half percent (1-1/2%) of the contract price with respect to government contracts only in lieu of
actual input taxes therefrom.

14. Processing

Mean pasteurization, canning and activities which through physical or chemical process alter the
exterior texture or form or inner substance of a product in such manner as to prepare it for special use
to which it could not have been put in its original form or condition

15 Primarily agricultural products

AGRICULTURAL PRODUCTS DEFINED "The common parlance of the country, and the

common practice of the country have been to consider all those things as farming products or

agricultural products which and the situs of their production upon the farm, and which were

brought into condition for the uses of society by the labor of those engaged in agricultural

pursuits, as contra-distingushed from manufacturing or other industrial pursuits. (District of

Columbia vs. Oyster [1885], 54 Am Rep., 275.) The term "agricultural products" has been held to
include swine, horaes, meat, cattle, sheep, mamure, cord wood, hay, poultry, vegetables, fruit,

eggs, milk, butter, and lardbut no fish.

ID: ID. Fish are not an agricultural product. (Molina vs. Rafferty GR L-11988 037 Phil 545

Recording of value added taxes in the books of accounts

All persons subject to the value-added tax under Sections 106 and 108 shall, in addition to the

regular accounting records required, maintain a subsidiary sales journal and subsidiary purchase

joumal on which the daily sales and purchases are recorded. The subsidiary joumals shall contain

such information as maybe required by the Secretary of Finance.

Retum and payment

General Rule: Every person liable to pay the value-added tax imposed under this title shall file a
quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following the
close of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT- registered
persons shall pay the value-added tax on a monthly basis.

Any person, whose registration has been cancelled in accordance with Section 236 shall file a return and
pay the tax due thereon within twenty-five (25) days from the date of cancellation of registration:
Provided. That only one consolidated return shall be filed by the taxpayer for his principal place of
business or head office and all branches

Where to file the retum and pay the tax

Except as the Commissioner otherwise permits, the return shall be filed with and the tax paid to an
authorized agent bank. Revenue Collection Officer or duly authorized city or municipal treasuter in the
Philippines located within the revenue district where the taxpayer is registered or requited to register.
Transactions Deemed Sale

The following transactions shall be deemed sale:

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

Distribution or transfer to

Shareholders or investors as share in the profits of the VAT-registered persons Creditors in payment of
debt

Consignment of goods if actual sale is not made within sixty (60) days following the date such goods
were consigned.

Retirement from or cessation of business, with respect to invemories of taxable goods existing as of such
retirement or cessation.

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

Construction and service contractors.

Stock, real estate, commercial, customs and immigration brokers,

Lessors of property, whether personal or real,

Warehousing services;

Lessors or distributors of cinematographic films;

Persons engaged in milling, processing, manufacturing or repacking goods for others: Proprictors,
operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts;

Proprictors or operators of restaurants, refreshment parlors, cafes and other eating places. including
clubs and caterers:

Dealers in securities;

Lending investors

Transportation contractors on their transport of goods or cargoes, including persons who transport
goods or cargoes for hire and other domestic common carriers by land, air and water. relative to their
transport of goods or cargoes;

Services of franchise grantees of telephone and telegraph, tudio and television broadcasting. and all
other franchise grantees except those under Section 119 of this code (those who annul

gross receipts in the preceding year does not exceed P10,000,000.00) Non-life insurance companies
(except cargo insurances)including surety, fidelity, indemnity and bonding companies.
And similar services regardless of whether or not the performance thereof calls for the exercise or use of
the physical or mental faculties.

It shall likewise include

The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan,
secret formula or process, goodwill, trademark, trade brand or other like property or right;

The lease or the use of, or the right to use of any industrial, commercial or scientific

equipment

The supply of scientific, technical, industrial or commercial knowledge or information.

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 is mentioned in subparagraph (2) or any
such knowledge or information as is mentioned in subparagraph (3)

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 other apparatus
purchased form such non-resident person

The supply of technical advice, assistance or services ices rendered in connection with technical
management or administation of any scientific, industrial or commercial undertaking.

project or scheme venture, The lease of motion picture films, films, tapes and disea

The lease or the use of or the right to use radio, television, satellite transmission and cable television
time
Lease of properties

Lease of properties shall be subject to the tax herein imposed irrespective of the place where the
contract of lease or licensing agreement was executed if the property is leased or used in the Philippines

22. Ciross receipts

Is the total amount of money or its equivalent representing the

Contract price

Compensation

Service fee

Rental or royalty

Including the amount charged for

materials supplied with the services

deposits

advanced paymenta
actually or constructively received during the taxable quarter for the services performed or to he
performed for another person excluding value added tax

23. Input tax

Means the value added tax due from or paid by a VAT-registered person in the course of his trade or
business on importation of goods or local purchase of goods or services, including lease or use of
property, from a VAT-registered person

It shall also include the transitional input tax determined in accordance with Section 111 of this Code

24. Output tax

Means the value-added tax due on the sale or lease of taxable goods or properties or services by any
person registered or required to register under Section 236 of this Code

Determination of Creditable inputtas

The sum of the excess input lux carried over from the preceding month of quarter and the input

tax ereditable to a VAT-registered person during the taxable month or quarter shall be reduced by

the amount of claim for refund or tax credit for value added tax and other adjustments, such as

purchase returns or allowances and input tax attributable to exempt sale.

Value Added Tax on Importation of Goods.

Base Amount shall be computed by multiplying 10% to the sum of the following:

Total Value used by the Burcun of Customs in determining tariff and customs duties

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

Provided, further, that the President, upon recommendation of the Secretary of Finance, shall, effective
January 1. 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following
conditions has been satisfied

a. Value Added Tax collection as a percentage of Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (24/5%), or

b. National government deficit as a percentage of GDP of the previous year exceeds one and one-half
percent (1 %). (As amended by REPUBLIC ACT NO. 9337)
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 he 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 thereof

27. Exempt transactions under VAT (Section 109)