Lesson 9

Value-Added Tax
Nature and Characteristics of VAT
 It is a business tax levied on the value-added on certain goods,
properties and services in the domestic market and/or importer of
goods.
 It is imposed not on the goods or services as such but on the
privilege of selling or importing goods or rendering services for a
fee, remuneration or consideration.
 It is an indirect tax and the amount of tax may be shifted or passed
on to the buyer, transferee or lessee of the goods, properties or
services.
 The party directly liable for the payment of the tax is the seller,
importer or the service provider, although the burden of the tax may
be shifted or passed on to the consumer.

Exempt Transactions
 This means the sale of goods, properties or services and the use or
lease of properties are not subject to VAT (Output Tax) and the seller
or lessor is not allowed to any tax credit on VAT (Input Tax) on
purchases.
 The following are VAT exempt transactions under Section 109 of the Tax
Code as amended by the TRAIN Law and CREATE Law:
1. Sale or importation of:
a. agricultural and marine food product in their original state;
b. livestock and poultry used as, or producing foods for human
consumption;
c. breeding stock and genetic materials.
Products that will be considered in their original state:
 products which undergone simple
 processes of preparation or preservation for the market (freezing,
drying, salting, broiling, roasting, smoking or stripping)
 polished or husked rice
 corn grits
 raw cane sugar and molasses
 ordinary salt
 copra
NOTE: Livestock or poultry does not include fighting cocks, race horses,
zoo animals and other animals generally considered as pets.
2. Sale or importation of:
a. Fertilizers
b. Seeds, seedlings and fingerlings
c. Fish, prawn, livestock and poultry feeds
d. Ingredients used in the manufacture of finished feeds (except
specialty feeds for race horses, fighting cocks, aquarium fish, zoo
animals and other animals generally considered as pets).
3. Importation of personal and household effects belonging to the:
a. residents of the Philippines returning from abroad; and
b. Non-resident citizens coming to resettle in the Philippines.
NOTE: Such goods must be exempt from customs duties.
4. Importation of professional instruments and implements, tools of trade,
occupation or employment, wearing apparel, domestic animals, and
personal household effects, provided:
a. It belongs to persons coming to settle in the Philippines, or
Filipinos or their families and descendants who are now residents or
citizens of other countries such parties herein referred to as
overseas Filipinos;

1
Lesson 9
Value-Added Tax
b. In quantities and of the class suitable to the profession, rank or
position of the persons importing said items;
c. For their own use and not for sale, barter or exchange;
d. Accompanying such persons, or arriving within a reasonable time.
Provided, that the Bureau of Customs may, upon the production of
satisfactory evidence that such persons are actually coming to settle in
the Philippines and that the goods are brought from their former place of
abode, exempt such goods from payment of duties and taxes: Provided,
further, vehicles, vessels, aircrafts and machineries and other similar
goods for use in manufacture, shall not fall within this classification
and shall therefore be subject to duties, taxes and other charges.
5. Services subject to percentage tax
6. Services by agricultural contract growers and milling for others of
palay into rice, corn into grits and sugar cane into raw sugar;
7. Medical, dental, hospital and veterinary services except those rendered
by professionals;
NOTE:
 Laboratory services are exempted. If the hospital or clinic operates a
pharmacy or drugstore, the sale of drugs and medicines are subject to
VAT.
 Hospital bills constitute medical services. The sales made by the
drugstore to the in-patients which are included in the hospital bills
are part of medical bills (not subject to VAT).
 The sales of the drug store to the out-patients are taxable because
they are NOT PART of medical services of the hospital.
8. Educational services rendered by:
a. Private educational institutions, duly accredited by:
i. Department of Education (DepEd)
ii. Commission on Higher Education (CHED)
iii. Technical Education and Skills Development Authority (TESDA)
b. Government Educational Institutions
9. Services rendered by individuals pursuant to an employer-employee
relationship
10. Services rendered by regional or area headquarters established in the
Philippines by 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.
11. Transactions which are exempt under international agreements to which
the Philippines is a signatory or under special laws
12. For agricultural cooperatives:
a. Sales to their members
b. Sales to non-members if the cooperative is the producer (if not,
subject to VAT)
c. Importation of:
i. direct farm inputs, machineries and equipment, including spare
parts thereof
ii. to be used directly and exclusively in the production and/or
processing of their produce.
Type of Product Sale to Members Sale to Non-Members
Sale of cooperative’s
Exempt Exempt
own produce
Other than the cooperative’s own
Exempt Subject to VAT
produce (i.e., from Traders)
13. Gross receipts from lending activities by credit or multi-purpose
cooperatives
2
Lesson 9
Value-Added Tax
NOTE: Exemption is not only limited to the gross receipts on loans extended
to its members but also to other persons who are not members.
14. Sales by non-agricultural, non-electric and non-credit cooperatives,
provided, that the share capital contribution of each member does not
exceed P15,000
NOTE: Importation by non-agricultural, non-electric and noncredit
cooperatives of machineries and equipment including spare parts thereof, to
be used by them are subject to VAT.
15. Export sales by persons who are not VAT-registered
16. Beginning January 1, 2021, exemption shall only apply to:
a. 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 trade or business of the seller, the sale thereof
shall be subject to vat being a transaction incidental to the
taxpayer’s main business.
b. Real property utilized for “socialized housing” as defined by
Republic Act No. 7279, and other related laws such as RA No. 7835 and
RA No. 8763, wherein the price ceiling per unit is P450,000 or as may
from time to time be determined by HUDCC and the NEDA and other
related laws.
“Socialized housing” refers to housing programs and projects
covering houses and lots or home lots only that are undertaken by
the government or the private sector for the underprivileged and
homeless citizens, which shall include sites and services
development, long-term financing, liberalized terms on interest
payments, and as such other benefits in accordance with the
provisions of Republic Act 7279, otherwise known as the “Urban
Development and Housing Act of 1992” and RA No. 7835 and RA No.
8763. “Socialized Housing” shall also refer to projects intended
for the underprivileged and homeless wherein the housing package
selling price is within the lowest interest rates under the Unified
Home Lending Program (UHLP) or any equivalent housing program of
the Government, the private sector or non-government organizations.
c. Sale of house and lot, and other residential dwellings with selling
price of not more than P3,199,200.
17. Lease of a residential unit with a monthly rental not exceeding
P15,000, regardless of the amount of aggregated rentals received by the
lessor during the year.
NOTE:
 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 likewise be exempt from VAT,
however, the same shall be subjected to three (3%) percentage tax (RR
16-2011; RR 13-2018).
 In cases where a lessor has Several Residential Units for Lease, some
are leased out for a monthly rental per unit of not exceeding P15,000
while others are leased out for more than P15,000 per unit, his tax
liability will be:
o The gross receipts from rentals not exceeding P15,000 per month
per unit shall be exempt from VAT regardless of the aggregate
annual gross receipts.
o The gross receipts from rentals exceeding P15,000 per month per
unit shall be subject to VAT if the annual gross receipts (from
said units only – not including the gross receipts from units

3
Lesson 9
Value-Added Tax
leased out for not more than P15,000 exceed P3,000,000.
Otherwise, the gross receipts shall be subject to three percent
(3%) percentage tax under section 116 of the tax code (RR 16-
2011; RR 13-2018).
18. Sale, importation, printing or publication of books, and any newspaper,
magazine, journal, review bulletin, or any such educational reading
material covered by the United Nations Educational, Scientific and
Cultural Organization (UNESCO) Agreement on the importation of
educational, scientific and cultural materials, including the digital or
electronic format thereof. Provided, That the materials enumerated
herein are not devoted principally to the publication of paid
advertisements. Provided further, That the materials enumerated herein
are compliant with the requirements set forth by the National Book
Development Board pursuant to R.A. No. 8047(RR 4-2021; CREATE Law).
19. Transport of passengers by international carriers doing business in the
Philippines. The same shall not be subject to Other Percentage Taxes as
amended under RA10378 and Transport of cargo by international carriers
doing business in the Philippines, as the same is subject to 3% common
carrier’s tax (Other Percentage Taxes) as amended under RA 10378.
20. "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, that the exemption from
vat on the importation and local purchase of passenger and/or cargo
vessels shall be subject to the requirements on restriction on vessel
importation and mandatory vessel retirement program of MARINA (RR 15-
2015).
21. "Importation of fuel, goods and supplies by persons engaged in
international shipping or air transport operations; Provided that/the:
a. Fuel, goods and supplies shall be exclusively or shall pertain to the
transport of goods and/or passenger from a port in the Philippines
directly to a foreign port, or vice versa, without docking or
stopping at any other port in the Philippines unless the docking or
stopping at any other Philippine port is for the purpose of unloading
of passengers and/or cargoes that originated from abroad, or to load
passengers and/or cargoes bound for abroad;
b. If fuel, goods or supplies is used for purposes other than that
mentioned in the preceding paragraph, such portion of fuel, goods and
supplies shall be subject to 12% VAT.
22. "Services of banks, non-bank financial intermediaries performing quasi-
banking functions, and other non-bank financial intermediaries such as
money changers and pawnshops, subject to percentage tax under Sections
121 and 122, respectively, of the Tax Code.
23. Sale or lease of goods and services to senior citizens and persons with
disabilities, as provided under RA No. 9994 (Expanded Senior Citizens
Act of 2010) and RA No. 10754 (An Act Expanding the Benefits and
Privileges of Persons with Disability (PWD), respectively.
24. Transfer of property pursuant to Section 40(C)(2) of the Tax Code, as
amended (Upon effectivity of RA 10963-TRAIN Law on January 1, 2018).
25. Association dues, membership fees, and other assessments and charges
collected on a purely reimbursement basis by homeowners’ associations
and condominium corporations established under RA No. 9904 (Magna Carta
for Homeowners’ and Homeowners Association) and RA No. 4726 (Condominium
Act), respectively. This provision shall take effect only beginning
January 1, 2018 or upon the effectivity of RA 10963-TRAIN Law (new
provision).
26. Sale of Gold to the Bangko Sentral ng Pilipinas (BSP) beginning January
1, 2018 or upon the effectivity of RA10963-TRAIN Law.
4
Lesson 9
Value-Added Tax
27. Sale or importation of prescription drugs and medicines for (RR No. 4-
2021):
a. Diabetes, high cholesterol and hypertension beginning January 1,
2020; and
b. Cancer, mental illness, tuberculosis, and kidney diseases beginning
January 1, 2021.
The exemption from VAT under this subsection shall only apply to the
sale or importation by the manufacturers, distributors, wholesalers and
retailer of drugs and medicines included in the “list of approved drugs
and medicines” issued by the Department of Health (DOH) for this
purpose.
28. Sale or importation of the following beginning January 1, 2021 to
December 31, 2023 (RR No. 4-2021):
a. Capital equipment, its spare parts and raw materials, necessary for
the production of personal protective equipment (PPE) components such
as coveralls, gown, surgical cap, surgical mask, n-95 mask, scrub
suits, goggles and face shield, double or surgical gloves, dedicated
shoes, and shoe covers, for COVID-19 prevention;
b. All drugs, vaccines and medical devices specifically prescribed and
directly used for the treatment of COVID-19; and
c. Drugs for the treatment of COVID-19 approved by the Food and Drug
Administration (FDA) for use in clinical trials, including raw
materials directly necessary for the production of such drugs.
 Provided, that the Department of Trade and Industry (DTI) shall certify
that such equipment, spare parts or raw materials for importation are
not locally available or insufficient in quantity, or not in accordance
with the quality or specification required.
 Provided further, that for item (b), within sixty (60) days from the
effectivity of the CREATE, and every three (3) months thereafter, the
Department of Health (DOH) shall issue a list of prescription drugs and
medical devices covered by this provision.
 Provided finally, that for items (a) and (c) above, on the sale or
importation of equipment, spare parts and raw materials for the
production of PPE components as well as the sale or importation of raw
materials directly necessary for the production of drugs for the
treatment of COVID-19, the supplier/s importer shall submit, for the
purpose of availing the exemption, the following:
o Certified true copy of “License to Operate”, issued to the
manufacturer-buyer by the DOHFDA authorizing the manufacture of
medical grade PPE components and drugs for the treatment of COVD19;
and
o “Sworn Declaration” from the manufacturerbuyer that the items shall
be used for the manufacture of the PPE components and drugs for the
treatment of COVID-19.
29. "Sale or lease of goods or properties or the performance of services
other than the transactions mentioned in the preceding paragraphs, the
gross annual sales and/or receipts do not exceed the amount of
P3,000,000, as amended.

RR NO. 1-2021 DATED APRIL 8, 2021

 Beginning January 1, 2021 and during the period of the state of calamity
as declared under Proclamation No. 1021, the (i) procurement, (ii)
importation, (iii) donation, (iv) storage, (v) transport, (vi)
deployment, and (vii) administration of COVID-19 vaccines through the
COVID 19 Vaccination Program by:

5
Lesson 9
Value-Added Tax
a. the National Government, through the Department of Health (DOH) and
the National Task Force Against COVID-19 (NTF);
b. any political subdivisions of the State; and
c. private entities, and international humanitarian organization, such
as the Philippine Red Cross (PRC), shall be exempt from value-added
tax (VAT).
 The following guidelines and procedures shall be followed and observed:
a. No VAT shall be imposed on the procurement of COVID19 Vaccines by the
entities mentioned above.
b. No VAT shall be imposed on the importation of COVID19 Vaccines by the
entities mentioned above.
c. The importation of COVID-19 Vaccines shall not be subject to the
issuance of an Authority to Release Imported Goods (ATRIG) and may be
released by the Bureau of Customs (BOC) without need of an ATRIG.
d. No VAT shall be imposed by the service providers on the services to be
rendered to the entities mentioned above for the storage, transport,
deployment and administration of the COVID-19 Vaccines.

CREATE LAW
 Section 294. Incentives – xxx the following types of tax incentives may
be granted to registered projects or activities: xxx
o (E) VAT exemption on importation
 Section 295. Conditions of Availment – xxx
o (D) The VAT exemption on importation shall only apply to goods
directly and exclusively used in the registered project or activity
by a registered business enterprise.

IRR of TITLE XIII OF RA NO. 8424 AS AMENDED BY CREATE

 SECTION 5 - The direct and exclusive use in the registered project or
activity refers to:
1. raw materials;
2. inventories;
3. supplies;
4. equipment;
5. goods;
6. services; and
7. other expenditures necessary for the registered project or activity
without which the registered project or activity cannot be carried
out.
 SECTION 7 - Crude oil that is intended to be refined at a local
refinery, including volumes that are lost and not converted to petroleum
products when the crude oil actually undergoes the refining process,
shall be exempt from payment of applicable duties and taxes upon
importation.

VAT Registration
1. Mandatory Registration
 The following persons are required to register:
a. Any person or entity who, in the course of his trade or business,
sells, barters, exchanges, leases goods or properties and renders
services subject to VAT, if the aggregate amount of actual gross
sales or receipts exceed P3,000,000 (as amended) in the current
year (other than those that are exempt).
b. Radio and/or television broadcasting companies whose annual gross
receipts of the preceding year exceeds P10,000,000.
QUERY: Penalty for non-registration of those required to register as VAT?
6
Lesson 9
Value-Added Tax
ANSWER: He shall be liable to pay the tax as if he were a VAT-registered
person but he cannot avail the benefits of input tax credit for the period
he was not properly registered.
2. Optional Registration
 Any person who is VAT-exempt or not required to register for VAT,
in relation to B.28 above 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 P500.00 for
every separate and distinct establishment. Any person who elects to
register under optional registration shall not be allowed to cancel
his registration for the next three (3) years.
 Any person who is VAT-registered but enters into transactions which
are exempt from VAT (mixed transactions) may opt that the VAT apply
to his transactions which would have been exempt.
 Franchise grantees of radio and/or television broadcasting whose
annual gross receipts of the preceding year do not exceed ten
million pesos (P10,000,000.00) derived from the business covered by
the law granting the franchise may opt for VAT registration. This
option, once exercised, shall be irrevocable. (Sec. 119, Tax Code).
 The above-stated taxpayers may apply for VAT registration not later
than ten (10) days before the beginning of the calendar quarter and
shall pay the registration fee unless they have already paid at the
beginning of the year. In any case, the Commissioner of Internal
Revenue may, for administrative reason deny any application for
registration. Once registered as a VAT person, the taxpayer shall
be liable to output tax and be entitled to input tax credit
beginning on the first day of the month following registration.

Cancellation of VAT Registration

 Instances when a VAT-registered person may cancel his VAT
registration:
1. If he makes a written application and can demonstrate to the
commissioner's satisfaction that his gross sales or receipts for
the following twelve (12) months, other than those that are exempt,
will not exceed P3,000,000; or
2. If he has ceased to carry on his trade or business, and does not
expect to recommence any trade or business within the next twelve
(12) months.
3. Power of the Commissioner to suspend business operations:
o The Commissioner of the Internal Revenue or his authorized
representative may order suspension or closure of business
establishment for a period of not less than 5 days for any of the
following violations:
a. Failure to issue receipts or invoices
b. Failure to file vat return
c. Understatement of taxable sales or receipts by 30% or more of
the correct taxable sales or receipts for the taxable quarter.
d. Failure of any person to register as required under the law.

VAT for seller of goods, properties and services

 Persons liable - Any person who, in the course of his trade or
business:
1. Sells, barters or exchanges goods or properties (Seller of Goods or
Properties)
2. Leases goods or properties (Lessor)
3. Renders services (Service Provider)
7
Lesson 9
Value-Added Tax
 Meaning of “In the course of trade or business” – the regular conduct
or pursuit of a commercial or economic activity, including
transactions incidental thereto, by any person regardless of whether
or not the person engaged therein is a non-stock, non-profit private
organization (irrespective of the disposition of its net income and
whether or not it sells exclusively to members or their guests), or
government entity.
 The rule of regularity, to the contrary notwithstanding, services
rendered in the Philippines by a non-resident foreign persons shall be
considered as being rendered in the course of trade or business.
 Formula:
Output Tax PXX
Input Tax (XX)
VAT Payable (Excess Input Tax) PXX

Output Tax of seller of goods or properties

 Kinds of sale of goods or properties subject to VAT:
1. Actual Sale
2. Transactions deemed sale:
a. Transfer, use or consumption not in the course of business of
goods or properties originally intended for sale or for use in
the course of business. Transfer of goods or properties not in
the course of business can take place when VAT-registered person
withdraws goods from his business for his personal use;
b. Distribution or transfer to:
i. Shareholders or investors share in the profits of VAT-
registered person;
ii. Creditors in payment of debt;
c. Consignment of goods if actual sale is not made within 60 days
following the date such goods were consigned; and
d. Retirement from or cessation of business with respect to all
goods on hand, whether capital goods, stock-in-trade, supplies
or materials as of the date of such retirement or cessation,
whether or not the business is continued by the new owner or
successor.
 Formula in computing Output Tax
Tax Base PXX
Rate 12%
Output Tax PXX
 Tax Base
Actual Sale
Personal property GSP
Real Property
1. Cash Sale GSP vs. FMV vs. ZV w/c ever is the highest
2. Deferred Payment Basis
3. Installment Plan [(Collection/GSP) x GSP vs. FMV vs. ZV w/c
ever is the highest]
Transaction Deemed Sale
1. (a), (b) and (c) above FMV
2. (d) above AC vs. NRV (w/c ever is lower)

Legend: ZV – Zonal Value

GSP – Gross Selling Price NRV – Net realizable value
FMV – Fair market value AC – Acquisition Cost
 Gross Selling Price – means the total amount of money or its
equivalent which the purchaser pays or is obligated to pay to the
8
Lesson 9
Value-Added Tax
seller in consideration of the sale, barter or exchange of the goods
or properties, excluding VAT. The excise tax, if any, on such goods or
properties shall form part of the gross selling price.
NOTE: The following shall be allowed as deductions from gross selling
price:
a. Sales discount indicated in the invoice at the time of sale, the grant
of which is not dependent upon the happening of a future event; and
b. Sales returns and allowances for which a proper credit or refund was
made for sales previously recorded as taxable sales.
 Definition of Gross Selling Price expressed in a formula:
Gross Sales PXX
Less: Sales discount XX
Sales returns & allowances XX XX
Net Sales PXX
Add: Excise tax XX
Tax Base PXX
 Fair Market Value – means fair market value as shown in the schedule
of values of the Provincial and City Assessors (real property tax
declaration).
 Zonal Value – means fair market value as determined by the BIR
Commissioner.
 Deferred Payment Basis - means sale of real property, the initial
payments of which in the year of sale exceed25% of the gross selling
price.
 Installment Plan – means sale of real property, the initial payment of
which in the year of sale do not exceed 25% of the gross selling
price.
 Components of Initial Payment:
Down payment PXX
Other collections in the year of sale XX
Excess of unpaid mortgage over cost XX
Initial Payments PXX

Zero-rated (0% VAT) Sale of goods

 As a general rule, the rate of value-added tax for the sale of goods
or properties is 12%. However, the following transactions are subject
to 0% VAT (ZERO-RATED SALES) under Section 106(A)(2) and as provided
by RR 21-2021 dated Dec. 3-2021:
a. Export Sales:
1. The sale and actual shipment of goods from the Philippines to a
foreign country, irrespective of any shipping arrangement that
may be agreed upon which may influence or determine the transfer
of ownership of the goods so exported, paid for in acceptable
foreign currency or its equivalent in goods or services, and
accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP);
2. 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 passengers from a
port in the Philippines directly to a foreign port, or vice
9
Lesson 9
Value-Added Tax
versa, without docking or stopping at any other port in the
Philippines unless the docking or stopping at any other
Philippine 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; Provided, further, that if only a
portion of such fuel, goods, supplies or equipment is used for
purposes other than that mentioned in this paragraph, such
portion of fuel, goods, supplies, and equipment shall be subject
to 12% vat.
b. Sales to persons or entities whose exemption from direct or
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 Section 294(E) and 295(D) of RA 11534 (CREATE Act), and
Sec. 5, Rule 2 of its IRR for a maximum period of 17 years from the
date of registration, unless otherwise extended under the SIPP;
Provided; that the term “registered export enterprise” shall refer
to an export enterprise as defined in Sec. 4(W) of the same IRR.
Provided; further, 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.

Output Tax of seller of services and lessor of goods or properties

 Formula in computing Output tax:
Gross Receipts PXX
Rate 12%
Output Tax PXX
 Gross Receipts – refers to the total amount of money or its equivalent
representing the contract price, compensation, service fee, rental or
royalty, including the amount charged for materials supplied with the
services and deposits applied as payments for services rendered and
advance payments actually or constructively received for the services
performed or to be performed for another person, excluding VAT.
 Advance Payments - in a lease contract, advance payment by the lessee
may be:
NOT subject to VAT
1. A loan to the lessor from the lessee.
2. An option money for the property.
3. A security deposit to insure the faithful performance of certain
obligations of the lessee to the lessor.
Subject to VAT
4. Prepaid rental

 Definition of Gross receipts expressed in a formula:

Cash received (actually and constructively) PXX
Advance payments XX
Materials charged for services XX
Gross receipts PXX
NOTE:
1. For Dealer in Securities, the term “gross receipts” means gross selling
price less cost of securities sold.
10
Lesson 9
Value-Added Tax
2. “Constructive receipt” occurs when the money consideration or its
equivalent is placed at the control of the person who rendered the
service without restrictions by the payor. The following are examples of
constructive receipts:
a. Deposits in banks which are made available to the seller of services
without restrictions;
b. Issuance by the debtor of a notice to offset any debt or obligation
and acceptance thereof by the seller as payment for services
rendered; and
c. Transfer of the amounts retained by the payor to the account of the
contractor.

Zero-rated (0% VAT) Sale of services

 As a general rule, the rate of value-added tax for the sale of
services and lease of goods or properties is 12%. However, the
following transactions are subject to 0% VAT (ZERO-RATED SALES) under
Section 108(B) and as provided by RR 21-2021 dated Dec. 3-2021:
a. In general, a zero-rated sale of service (by a VAT-registered
person) is a taxable transaction for VAT purposes, but shall not
result in any output tax. However, the input tax on purchases of
goods, properties or services attributable to such zero-rated sole
shall be available as tax credit or refund in accordance with these
Regulations.
b. Transactions Subject to Zero Percent (0%) VAT Rate. - The following
services performed in the Philippines by a VATregistered person
shall be subject to zero percent (0%) VAT rate:
1. Services other than processing, manufacturing or repacking of
goods, rendered to 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, the consideration for which is paid for in acceptable
foreign currency and accounted for in accordance with the rules
and regulations of the Bangko Sentral ng Pilipinas (BSP);
2. Services to persons or entities whose exemption from direct or
indirect taxes under special laws or international agreements to
which the Philippines is a signatory effectively subjects such
sales to zero rate.
3. Sale of services, including provision of basic infrastructure,
utilities, and maintenance, repair and overhaul of equipment, 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 Section 5, Rule 2
of its IRR for a maximum period of seventeen (17) years from the
date of registration, unless otherwise extended under the SIPP;
Provided, That the term "registered export enterprise" shall
refer to an export enterprise as defined under Section4(M), Rule
1 of the CREATE IRR, that is also a registered business
enterprise as defined in Section 4(W) of the same IRR: Provided
further, 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 exc1usively for
international shipping or air transport operations. Thus, the
services referred to herein shall not pertain to those made to
11
Lesson 9
Value-Added Tax
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, the same being subject to
twelve percent (12%) VAT under Sec. 108 of the Tax Code.
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 a percentage tax of three
percent (3%) based on their gross receipts derived from transport
of cargo from the Philippines to another country as provided for
in Sec. 118 of the Tax Code; and
6. Safe 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 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.
NOTE: RR 15-2021 defers to implementation of RR 9-2021 relative to the
imposition of 12% VAT on transactions covered by Section 106(A)(2)(a)
Subparagraphs (3), (4), and (5) and Section 108(B), Subparagraphs (1) and
(5) of the Tax Code, as amended.

Input Tax
 Requisites:
1. The taxpayer is a VAT-registered person; and
2. The input tax is related to business subject to VAT (12% or 0%).
 Kinds of Input tax
1. Input tax on local purchases of goods or properties
2. Input tax on importation of goods or properties
3. Input tax on local purchases of services;
4. Creditable withholding VAT
5. Transitional input tax
6. Presumptive input tax
 Input tax on local purchases or importation of capital goods
o Capital Goods – refer to depreciable properties in which the
useful life is more than one (1) year.
o PRIOR TO JAN. 1, 2022, Purchases or importation of capital goods,
the aggregate acquisition cost of which (net of VAT) in a
calendar month exceeds P1,000,000, regardless of the acquisition
cost of each capital good, shall be amortized.
o Amount Deductible = Input Tax/Amortization period

NOTES:
1. Amortization period is the shorter period of the following:
a. 60 months
b. Useful life in months
2. If the 1M threshold is not breached, no need for amortization (Input
Tax is 100% deductible).
3. If the CAPITAL GOOD IS SOLD within the five (5) year period or prior
to exhaustion of Input Vat thereon, the ENTIRE UNAMORTIZED INPUT TAX

12
Lesson 9
Value-Added Tax
on the capital goods sold can be claimed as input tax credit during
the month or quarter when the sale is made.
4. Construction in Progress is a purchase of service. Input taxes will be
recognized in the month payment was made on the progress billing. In
the case where labor will be furnished by the contractor and materials
will be purchased by the contractee from other suppliers, input taxes
will be recognized on labor when payment is made on the progress
billings while input taxes will be recognized on materials at the time
the materials are purchased.
o The rule of amortizing the input vat on capital goods shall only be
allowed until December 31, 2021. Consequently, amortization of
input vat on capital goods purchased/imported beginning January 1,
2022 shall no longer be allowed. Consequently, for capital goods
acquired beginning January 1, 2022, the entire related input vat
shall be claimed during the month the capital goods are purchased,
irrespective of acquisition cost.
o Taxpayers with unutilized input vat as of December 31, 2021 shall
be allowed shall be allowed to apply the same as scheduled until
fully utilized.
o Capital Goods – refer to depreciable properties in which the useful
life is more than one (1) year.
 Transitional Input Tax
o Persons Covered: Taxpayers who became VAT-registered persons
(previously non-VAT) shall be entitled to a transitional input
tax.
o Amount Deductible:
Beginning Inventory PXX
Rate 2%
PXX
Actual Input VAT, Inventory beg. XX
Transitional Input Tax (Higher Amount) PXX
NOTE: Beginning inventory will include all inventories related to business
subject to VAT regardless of whether or not it was purchased from VAT or
non-VAT supplier.
 Presumptive Input Tax
o Persons Covered: Persons or firms engaged in:
1. Processing of sardines, mackerel and milk; and
2. Manufacturing refined sugar, cooking oil and packed noodle-
based instant meals.
o Amount Deductible:
Purchases of Primary Agricultural Products PXX
Rate 4%
Presumptive Input Tax PXX
 Creditable Withholding VAT
1. VAT withheld by the government
o The government or any of its political subdivisions,
instrumentalities or agencies, including GOCCs shall, before
making payment on account of each purchase of goods and or
services taxed at 12% VAT, deduct and withhold a CREDITABLE VAT
(beginning January 1, 2021) at the rate of five percent (5%) of
the gross payment.
BEGINNING JANUARY 1, 2021:
 Beginning January 1, 2021, the vat withholding system shall shift from
final to a creditable vat system wherein the payor shall be considered
the withholding agent. Provided, however, that payments for purchase
of goods and services arising from projects funded by Official
13
Lesson 9
Value-Added Tax
Development Assistance (ODA) as defined under Republic Act No. 8182,
Otherwise known as the “Official Development Assistance Act of 1996,”
as amended, shall not be subject to the Final/Creditable Withholding
Taxes.
 The 5% withholding vat shall be remitted within 10 days from the close
of the month the withholding was made.
PROOF OF WITHHOLDING (RMC 36-2021):
 Beginning 2021 – The government agency shall issue Certificate of
Creditable Tax Withheld at Source using BIR Form 2307.
2. Non-Resident Persons
o Non-resident persons who perform services in the Philippines are
deemed to be making sales in the course of trade or business,
even if the performance of services is not regular.
o The recipient of the service is the one required to withhold and
remit the VAT to the BIR. Such VAT can be claimed by the
recipient as input tax

Input VAT on Importation

o Persons liable:
1. Any person who bring goods into the Philippines, whether or not
made in the course or his trade or business.
2. It includes non-exempt persons or entities who acquire tax-free
imported goods from exempt persons, entities or agencies.
NOTE: In case of goods imported into the Philippines by VAT-exempt persons,
entities or agencies which are subsequently sold, transferred or exchanged
in the Philippines to non-exempt persons or entities, the latter shall be
considered the importers thereof and shall be liable for VAT due on such
importation.
o Formula:
a. Customs duties is ad valorem (based on value):
Dutiable Value PXX
Customs duties XX
Excise tax XX
Other charges w/in BOC XX
Tax Base PXX
Rate 12%
VAT on Importation PXX
b. Customs duties is specific (based on quantity or volume):
Invoice amount PXX
Customs duties XX
Freight XX
Insurance XX
Other charges w/in BOC XX
Landed Cost PXX
Excise tax XX
Total or Tax Base PXX
Rate 12%
VAT on Importation PXX
Mixed Business Transactions
 Refer to a situation wherein the taxpayer is engaged in transactions
subject to VAT (12% and/or 0%) as well as not subject to VAT (exempt).
The main concern in such a case is the determination of input tax that
can be claimed for VAT purposes.
 A VAT registered person who is also engaged in transactions not
subject to Vat shall be allowed of input tax credit as follows:

14
Lesson 9
Value-Added Tax
1. Total input tax which can be directly attributed to transactions
subject to vat; and
2. Ratable Portion of any input tax which cannot be directly
attributed to either activity. (Allocation shall be on the basis of
sales volume.)

Excess Input Tax

KINDS OF INPUT TAX TREATMENT
Related to sales subject
Carry-over
to 12% VAT
a. Carry-over
Related to 0% VAT b. Refund
c. Convert into tax credit certificate
a. Convert into tax credit certificate only.
In case of cancellation
b. In case it has no other tax liability,
of VAT registration
refund.
 Rule on Carry-over of excess input tax
1. Excess input tax in the 1st month of the quarter can be carried
over to the 2nd month.
2. Excess input tax in the 2nd month CANNOT be carried over to the 3rd
month (Quarterly VAT).
3. Excess input tax in the 3rd month may be carried over to the:
a. 1st month of the subsequent quarter; and
b. 3rd month of the subsequent quarter
 Rule on refund or conversion to tax credit certificate
1. Zero-Rated Sales - File application with the BIR within 2 years
from the end of the taxable quarter.
2. Cancellation of VAT registration – File application with the BIR
within 2 years from date of cancellation.
NOTE: Refund shall be granted within 90 days from the date of submission of
complete documents.

VAT and Discounts for Senior Citizens

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

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

 The following items sold to a senior citizen are VAT-exempt and will
entitle the latter to a minimum discount of 20%:
a. Medicine and Drug Purchases including influenza and pneumococcal
vaccines and such other essential medical supplies, accessories and
equipment.
b. Professional fees of attending physicians in all private hospitals,
medical facilities, outpatient clinics and home health care
services.

15
Lesson 9
Value-Added Tax
c. Professional fees of licensed health workers providing home health
care services in all private hospitals, medical facilities,
outpatient clinics, and home health care services
d. Medical and dental services, diagnostic and laboratory fees
e. On actual fare for land transportation travel
f. In actual fare for domestic air transport and sea shipping vessels
and the like
g. On the utilization of services in hotels and similar lodging
establishments, restaurants, recreation centers
h. On admission fees charged by theaters, cinema houses and concert
halls, circuses, carnivals and other similar places of culture,
leisure and amusement.
i. On funeral and burial services of senior citizens.
 Rule for Restaurants
o The discount shall be for the sale of food, drinks, dessert and
other consumable items served by the establishments, including
value meals and promotional meals, offered for the consumption of
the general public. Condiments and side products fall within the
ambit of “other consumable items served by the establishments”.
o The 20% discount and vat exemption for restaurants shall apply
to:
 Dine in, take-out, take-home, drive-thru, delivery orders
(excluding bulk orders), called-in or phoned-in orders. Bulk
orders are within the context of pre-contracted or pre-
arranged group meals or packages, and hence, not entitled to
20% discount and VAT exemption.
 Set meals, group meals or group walk-ins including purchase
of a whole cake and pizza orders.
 “Pasalubong” food items which are single-serving/solo meal
for the personal and exclusive consumption of the Senior
Citizen.
o However, other “pasalubong” food items (e.g. box of biscocho,
bottles or jars of ginamos, several packets of mango preserves,
etc.) which are not for the personal and exclusive consumption of
the Senior Citizen are NOT entitled to 20% discount and VAT
exemption. This limitation extends to “novelty items” or non-
consumables sold in restaurants.
 Formulas:
o Discount = (Total Billing Amount – VAT) x 20%
o Amount Due:
Total bill inclusive of VAT Pxx
Less: VAT (xx)
Total bill exclusive of VAT Pxx
Less: 20% discount (xx)**
Total Amount Due Pxx
**Discount = (Total Billing Amount/Number of customers) Less VAT x 20%
**Use the above formula in the following cases:
a. The bill is for a group of individuals involving non-senior citizens
and a senior citizen
b. In case of set meal(s) not limited to a single serving and is shared
with Non-Senior Citizens.
c. For group of diners composed of Senior Citizens who ordered for group
meals or food items for sharing in restaurants and not all the Senior
Citizens have their valid Senior Citizen’s ID cards (including
purchase of whole cake and pizza).

16
Lesson 9
Value-Added Tax
Grant of 5% Special Discount (Section 5, RR 7-2010 as amended by RR 8-
2010 and RMC 38-2012)
 A special discount of five percent (5%) of the regular retail price of
basic necessities and prime commodities as defined under Section 2 of
the joint DTI-DA Administration Order No. 10-02, series of 2010, shall
be granted to Senior Citizens on their purchases thereof, taking into
consideration that said purchases shall be for the personal and
exclusive consumption and/or enjoyment of the Senior Citizen (Section
3, Joint DTI-DA Administrative Order No. 10-02, Series of 2010).
a. Basic Necessities
 Rice
 Corn
 Bread excluding pastries and cakes
 Fresh, dried and canned fish and other marine products
 Fresh pork, beef and poultry meat
 Fresh eggs
 Fresh and processed milk
 Fresh vegetables including root crops
 Coffee and coffee creamer
 Sugar
 Cooking oil
 Salt
 Powdered, liquid, bar laundry and detergent soap
 Firewood
 Charcoal
 Candles
b. Prime Commodities
 Fresh fruits
 Flour
 Dried, processed and canned pork, beef and poultry meat
 Dairy products not falling under basic necessities
 Canned sardines, tuna
 Noodles
 Onions
 Garlic
 Geriatric diapers
 Herbicides
 Poultry, swine and cattle feeds
 Veterinary products for poultry, swine and cattle
 Nipa shingle, plyboard and construction nails
 Batteries
 Electrical supplies and light bulbs
 Steel wire
 Retailers – shall mean any natural or juridical person engaged in the
business of selling consumer products directly to consumers, which
shall include among others, supermarkets, grocery/convenience stores
and shops but excluding stalls in food courts, food carts and sari-
sari stores with a capitalization of less than P100,000, public and
private wet markets, talipapa and cooperative stores.
 Purchase of basic necessities and prime commodities are not exempt
from vat. The total amount of purchases shall not exceed P1,300 per
calendar week without carry-over of unused amount. A purchase booklet
issued by OSCA shall be presented to the retailer upon purchase of
basic necessities and prime commodities.
NOTES:
17
Lesson 9
Value-Added Tax
 The input tax attributable to the exempt sale shall not be allowed as an
input tax credit and must be closed to cost or expense account by the
seller (Sec. 10, RR 7-2010).
 While RA 9994 expressly provides for the VAT exemption of Senior
Citizens on their purchase of certain goods and services, the law does
not include exemption from the payment of Percentage Tax.
 In the purchase of goods and services which are on promotional discount,
the Senior Citizen shall avail of either the promotional discount or the
20%/5% discount, whichever is higher. However, the discount that must be
given to the Senior Citizen shall in no case be less than 20%/5%.
Moreover, the sale of goods and services on promotional discount is
still exempt from VAT (except sale of basic necessities and prime
commodities).
 Meals primarily prepared and intentionally marketed for children and not
for Senior Citizen’s personal consumption are not entitled to 20%
discount. (Rule IV, Article 7, Section 3(d) of the Rules and Regulations
implementing RA No. 9994; Section 6 of RR No. 7-2010).
 Generally, alcoholic beverages are not subject to the 20% discount and
VAT exemption especially if purchased “in bulk”, “in buckets” or “in
cases”. However, if served as a single serving drink, its purchase by a
Senior Citizen is entitled to the 20% discount and VAT exemption.
However, alcoholic beverages purchased in a bar, club or cabaret are
exempt from VAT but subject to amusement tax of 18% under Section 125 of
the NIRC, as amended. A Senior Citizen may still avail of the 20%
discount on the purchase of an alcoholic drink but the discount shall be
limited only to a single serving of an alcoholic beverage.
 Cigarettes/cigars are not the food or essential items entitled to the
20% discount.
 Toll fees are not the same as “fares”. Hence, it is not subject to the
20% Senior Citizen Discount.

Persons with Disability (RA7277-Magna Carta for Persons with Disability

as amended under RA 9442 and RA10754;)
 A person with disability shall refer to an individual suffering from
restriction or different abilities, as a result of mental, physical or
sensory impairment to perform an activity in a manner or within the
range considered normal for human being (RR 1-2009).
 Persons with disability shall be entitled to:
o At least twenty percent (20%) discount and exemption from the
value-added tax (VAT), if applicable, on the following sale of
goods and services for the exclusive use and enjoyment or
availment of the PWD:
 On the fees and charges relative to the utilization of all
services in hotels and similar lodging establishments;
restaurants and recreation centers;
 On admission fees charged by theaters, cinema houses,
concert halls, circuses, carnivals and other similar places
of culture, leisure and amusement;
 On the purchase of medicines in all drugstores;
 On medical and dental services including diagnostic and
laboratory fees such as, but not limited to, x-rays,
computerized tomography scans and blood tests, and
professional fees of attending doctors in all government
facilities, subject to the guidelines to be issued by the
Department of Health (DOH), in coordination with the
Philippine Health Insurance Corporation (PhilHealth);
18
Lesson 9
Value-Added Tax
 On medical and dental services including diagnostic and
laboratory fees, and professional fees of attending doctors
in all private hospitals and medical facilities, in
accordance with the rules and regulations to be issued by
the DOH, in coordination with the PhilHealth;
 On fare for domestic air and sea travel;
 On actual fare for land transportation travel such as, but
not limited to, public utility buses or jeepneys
(PUBs/PUJs), taxis, Asian utility vehicles (AUVs), shuttle
services and public railways, including light Rail Transit
(LRT), Metro Rail Transit (MRT) and Philippine National
Railways (PNR); and
 On funeral and burial services for the death of the PWD:
Provided, That the beneficiary or any person who shall
shoulder the funeral and burial expenses of the deceased PWD
shall claim the discount under this rule for the deceased
PWD upon presentation of the death certificate. Such
expenses shall cover the purchase of casket or urn,
embalming, hospital morgue, transport of the body to
intended burial site in the place of origin, but shall
exclude obituary publication and the cost of the memorial
lot.
o Educational assistance to PWD, for them to pursue primary,
secondary, tertiary, post tertiary, as well as vocational or
technical education, in both public and private schools, through
the provision of scholarships, grants, financial aids, subsidies
and other incentives to qualified PWD, including support for
books, learning materials, and uniform allowance to the extent
feasible:
 Provided, That PWD shall meet the minimum admission
requirements;
o To the extent practicable and feasible, the continuance of the
same benefits and privileges given by the Government Service
Insurance System (GSIS), Social Security System (SSS), and Pag-
IBIG, as the case may be, as are enjoyed by those in actual
service;
o To the extent possible, the government may grant special
discounts in special programs for PWD on purchase of basic
commodities, subject to the guidelines to be issued for the
purpose by the Department of Trade and Industry (DTI) and the
Department of Agriculture (DA); and
o Provision of express lanes for PWD in all commercial and
government establishments; in the absence thereof, priority shall
be given to them.
 The abovementioned privileges are available only to PWD who are
Filipino citizens upon submission of any of the following as proof of
his/her entitlement thereto:
o An identification card issued by the city or municipal mayor or
the barangay captain of the place where the PWD resides;
o The passport of the PWD concerned; or
o Transportation discount fare Identification Card (ID) issued by
the National Council for the Welfare of Disabled Persons (NCWDP).
 The privileges may not be claimed if the PWD claims a higher discount
as may be granted by the commercial establishment and/or under other
existing laws or in combination with other discount program/s.

19
Lesson 9
Value-Added Tax
 “The establishments may claim the discounts granted in subsection (a),
paragraphs (1), (2), (3), (5), (6), (7), and (8) as tax deductions
based on the net cost of the goods sold or services rendered:
Provided, however, That the cost of the discount shall be allowed as
deduction from the gross income for the same taxable year that the
discount is granted: Provided, further, That the total amount of the
claimed tax deduction net of value-addedtax, if applicable, shall be
included in their gross sales receipts for tax purposes and shall be
subject to proper documentation and to the provisions of the National
Internal Revenue Code (NIRC), as amended.

Grant of 5% Special Discount to PWDs (RR 9-2019)

 “Every PWD shall enjoy a special discount of five percent (5%) of the
regular retail price, without exemption from the value-added tax (VAT)
of basic necessities and prime commodities”. The discount is limited
to purchases not exceeding to P1,300 “per calendar week without carry-
over of the unused amount”. Provided that said amount shall be spent
on basic necessities and prime commodities commensurable to his/her
personal exclusive consumption and or enjoyment within the calendar
week. Provided, further that said amount shall be spent on at least
four kinds of items listed as basic necessities and prime commodities.
 Basic necessities refer to goods “vital to the needs of consumers, for
their sustenance and existence” while prime commodities are goods that
are “essential” to them. Necessities include rice, corn, root crops,
bread, fresh, dried or canned fish and other marine products; fresh
pork, beef and poultry meat; fresh eggs, potable water in bottles and
containers; fresh and processed milk; fresh vegetables and fruits;
locally manufactured instant noodles; coffee, coffee creamer; sugar,
cooking oil, salt, laundry soap, detergent, firewood, charcoal,
candles, household liquefied petroleum gas and kerosene.
 Basic necessities shall include:
o All kinds and variants of rice
o Corn
o All kinds of bread (pastries and cakes not included)
o Fresh, dried and canned fish and other marine products (including
frozen and in various modes of packaging)
o Fresh pork, beef and poultry meat
o All kinds of fresh eggs (excluding quail eggs)
o Potable water in bottles and containers
o Fresh and processed milk (excluding milk labelled as food
supplement)
o Fresh vegetables including root crops
o Fresh fruits
o Locally manufactured instant noodles
o Coffee and coffee creamer
o All kinds of sugar (excluding sweetener)
o All kinds of cooking oil
o Salt
o Powdered liquid, bar laundry and detergent soap
o Firewood
o Charcoal
o All kinds of candles
o Household liquefied petroleum gas, not more than 11kgs, LPG
content once every five (5) months bought for LPG dealers
o Kerosene, not more than 2 liters per month

20
Lesson 9
Value-Added Tax
 Prime commodities are goods not considered as basic necessities but
are essential to consumers. Prime commodities shall include flour,
dried, processed or canned pork, beef and poultry meat; dairy products
not falling under basic necessities; onions, garlic, vinegar, patis,
soy sauce, toilet soap, fertilizer, pesticides and herbicides;
poultry, livestock and fishery feeds and veterinary products; paper,
school supplies, nipa shingles, sawali, cement, clinker, GI sheets,
hollow blocks, plywood, plyboard, construction nails, batteries,
electrical supplies, light bulbs and steel wires.
 Prime commodities shall include:
o Flour
o Dried, processed and canned pork, beef and poultry meat
o Dairy products not falling under the definition of basic
necessities
o Onions and garlic
o Vinegar, patis and soy sauce
o Toilet/bath soap
o Fertilizer
o Pesticides
o Herbicides
o Poultry feeds, livestock feeds and fishery feeds
o Veterinary products
o Paper, school supplies
o Nipa Shingle
o Sawali
o Cement, clinker, GI sheets
o Hollow blocks
o Plywood
o Plyboard
o Construction nails
o Batteries (excluding cellphone and automotive batteries)
o Electrical supplies and light bulbs
o Steel wires

Administrative Provisions
1. Invoicing Requirements
a. A VAT registered person shall issue:
 A VAT invoice for every sale, barter or exchange of goods or
properties; and
 A VAT official receipt for every lease of goods or properties and
for every sale, barter or exchange of services.
b. 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.
c. Separate invoices/ receipts involving VAT and Non-VAT transactions
 A VAT registered person may issue separate invoices/receipts for
the taxable, exempt, and zero-rated component of its sales
provided that if the sales is exempt from value-added tax, the
term "VAT-EXEMPT SALE" shall be written or printed prominently on
the invoice or receipt and if the sale is subject to zero percent
(0%) VAT, the term "ZERO-RATED SALE" shall be written or printed
prominently on the invoice or receipt.
21
Lesson 9
Value-Added Tax
d. Sale to Senior Citizens
 The amount of sales that must be reported for tax purposes is the
undiscounted selling price and not the amount of sales net of the
discount. The gross selling price and the sales discount must be
separately indicated in the official receipt or sales invoice
issued by the establishment for the sale of goods or services to
the Senior Citizen. With regard to the VAT exemption, the machine
tape must properly segregate the VAT exempt sales from the
taxable sales (Sections 7 and 10 of RR No. 7-2010).
 The business establishment giving sales discounts to qualified
Senior Citizens is required to keep a separate and accurate
record of sales, which shall include the name of the Senior
Citizen-purchaser, OSCA ID, gross sales/receipts, sales discounts
granted, dates of transactions and invoice/OR number for every
sale transaction to Senior Citizens. The invoicing requirements
in Section 4.113-1 of Revenue Regulations No. 16-2005 must also
be complied with (Sections 7 and 10 of RR No. 7-2010).
e. Consequence of issuing an erroneous invoice or official receipt
 If a person who is not a VAT registered person issues an invoice
or receipt showing his TIN followed by the word VAT, the non-VAT
person shall be liable to:
o The percentage taxes applicable to his transactions.
o The VAT due on the transactions without the benefit of any
tax credit; and
o A 50% surcharge.
 If a VAT registered person issues a VAT invoice or official
receipt for a VAT-exempt transaction but fails to display
prominently on the invoice or receipt the term “VAT EXEMPT SALE”,
the issuer shall be liable to VAT.
NOTE: In both cases, the VAT shall, if other requisite information required
is shown on the invoice or receipt, be recognized as an input tax credit to
the purchaser.
2. Return and Payment of VAT (Manual Filing)
a. Monthly VAT Returns (First 2 months of the Quarter) – on or
before the 20th day following the end of the month.
b. Withholding VAT Return – on or before the 10th day following the
end of the month.
c. Quarterly VAT (Last month of the Quarter) –on or before the 25th
day following the end of the quarter.

Section 114 of the Tax Code, as amended. Return and Payment of Value-Added
Tax
(A) In General. – Every person liable to pay the valueadded 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:
Provided, finally, That beginning January 1, 2023, the filing and payment
required under this Subsection shall be done within twenty-five (25) days
following the close of each taxable quarter.
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.

22