VAT EXEMPT SALES

BUSINESS AND TRANSFER TAXATION

A. Sale or importation of
1. Agricultural and marine “food products in their original
state”
2. Livestock; and
3. Poultry of a kind generally used as, or yielding or
producing foods for human consumption and breeding
stock and genetic materials therefore.
RR 16-2005 provides that products classified under this
exemption (such as meat, fruits and vegetables) shall be
considered in their “original state” even if they have
undergone the simple processes of preparation or
preservation for the market, such as freezing, drying, salting,
broiling, roasting, smoking or stripping include those using
advanced technological means of packaging, such as shrink
wrapping in plastics, vacuum packing, tetra-pack, and other
similar packaging methods.

Sale of marinated fish is not exempt from VAT.

 EXAMPLES OF AGRICULTURAL AND MARINE FOOD
PRODUCTS IN THEIR ORIGINAL STATE
Agriculture Marine Livestock Poultry
Husked rice Fish Cows Fowls
Corn grits Lobster Bulls Ducks
Raw cane Prawns Pigs Geese
sugar
Copra Mussels Goats Turkey
Eels Sheep
 EXAMPLE
Determine which transaction is subject to VAT:
1. Sale of copra 8. Sale of salted eggs
2. Sale of bonsai 9. Sale of smoked fish
3. Sale of wood 10. Sale of flowers
4. Sale of barbecue 11. Sale of raw sugar cane
5. Sale of tilapia 12. Sale of refined sugar
6. Sale of roasted chicken
7. Sale of canned pineapple chunks
 EXAMPLE
Determine which transaction is subject to VAT:
1. Sale of copra 8. Sale of salted eggs
2. Sale of bonsai 9. Sale of smoked fish
3. Sale of wood 10. Sale of flowers
4. Sale of barbecue 11. Sale of raw sugar cane
5. Sale of tilapia 12. Sale of refined sugar
6. Sale of roasted chicken
7. Sale of canned pineapple chunks
B. Sale or importation of:
1. Fertilizers
2. Seeds, seedlings and fingerlings
3. Fish, prawn, livestock and poultry feeds, including
ingredients whether locally produced or imported,
used in the manufacture of finished feeds.
 EXAMPLE
Determine which transaction is subject to VAT:
1. Sale/importation of V-Mig hogfeeds
2. Sale/importation of V-Mig feeds for pets
3. Purchase of local raw materials for the formulation of hogfeeds.
4. Importation of raw materials for the formulation of hogfeeds.
5. Importation of raw materials for the formulation of feeds for
animals generally considered as pets.
6. Importation of fertilizers.
 EXAMPLE
Determine which transaction is subject to VAT:
1. Sale/importation of V-Mig hogfeeds
2. Sale/importation of V-Mig feeds for pets
3. Purchase of local raw materials for the formulation of hogfeeds.
4. Importation of raw materials for the formulation of hogfeeds.
5. Importation of raw materials for the formulation of feeds for
animals generally considered as pets.
6. Importation of fertilizers.
C. Importation of personal and household effects belonging
to:
 The residents of the Philippines returning from abroad;
 Nonresidents citizens coming to resettle in the
Philippines.
 EXAMPLE
Lester returned from the United States after watching a game
between the Warriors and Cleveland. He brought with him
several personal effects (souvenirs) he bought from the United
States.

Question: Are the personal effects brought by Lester subject to

VAT?
 EXAMPLE
Lester returned from the United States after watching a game
between the Warriors and Cleveland. He brought with him
several personal effects (souvenirs) he bought from the United
States.

Question: Are the personal effects brought by Lester subject to

VAT? NO!
E. Services subject to Percentage Tax under Title V of the Tax
Code (Sections 116-127 of the Tax Code)
 VATABLE OPTs
1. Gross receipts of transportation contracts engaged in the
transport of goods and/or cargoes by land.
2. Gross receipts of domestic carrier engaged in the transport of
passengers by air or sea.
3. Gross receipts of domestic carrier engaged in the transport of
goods and/or cargoes by air or sea.
4. Gross receipts from international flights of domestic carriers.
5. Gross receipts of radio and/or TV broadcasting companies with
annual gross receipts from the preceding year exceeding
P10,000,000.
F. Services by
1. “Agricultural contract growers”
2. Milling for other of:
 Palay into rice
 Corn into grits
 Sugar cane into raw sugar
Agricultural contract growers refer to those persons
producing for others’ poultry, livestock or other agricultural
and marine food products in their original state. Its services
growing of poultry, livestock, or other agricultural and marine
food products into marketable poultry, livestock or other
marine food products.
There are agricultural contract growers which offer toll
processing/toll dressing/toll manufacturing as a packaged
services to its toll growing. “Toll processing/toll dressing/toll
manufacturing” involves procedures such as; weighing,
killing, dressing, scalding, cut-ups, and packaging.
If such an activity is done independently of growing poultry,
livestock or other agricultural and marine food products, the
same can be considered as VATable services not covered by
agricultural contract growing.
G. Medical, dental, hospital and veterinary services except
those rendered by professionals.
Laboratory services are exempted.

If the hospital or clinic operates a pharmacy or drugstore, the

sale of drugs and medicines are subject to VAT.

The sales made by the drugstore to the in-patients which are

included in the hospital bills are part of medical bills exempt
from VAT. However, sales of the drug store to the out-patients
are taxable.
RR 14-2013 provides that hospital and clinics shall not allow
their medical practitioners to receive payment of professional
fees directly form patients who were admitted and confined
to such hospital or clinic and, instead, must included the
professional fees in the total medical bill of the patient which
shall be payable directly to the hospital or clinic.
 EXAMPLE
Aling Dionisia was delighted after watching game 5 of MPBL
finals between San Juan and Davao, a basketball league
founded and organized by his son, Manny Pacquiao. However,
due to high temperature brought about by the weather and
fatigue, she suddenly felt wobbly and symptoms for high
blood were apparent. Taking the advice of her affectionate
partner, she consulted a doctor upon arrival in Manila. For a
better assessment of Aling Dionesia’s condition, she was
advised to undergo some laboratory tests/procedures in a
prominent hospital in Taguig.
 EXAMPLE
The following were incurred by Aling Dionisia:
Doctor’s consultation fee P 200,000
Various laboratory fees in a hospital 500,000
Medicines purchased from the hospital’s
pharmacy 1,000,000

Determine the total amount of VAT paid by Aling Dionisia?

 EXAMPLE
The following were incurred by Aling Dionisia:
Doctor’s consultation fee P 200,000
Various laboratory fees in a hospital 500,000
Medicines purchased from the hospital’s
pharmacy 1,000,000

Determine the total amount of VAT paid by Aling Dionisia?

P144,000
H. Educational services rendered by private educational
institutions, duly accredited by the Department of
Education (DepEd), the Commission on Higher Education
(CHED), the Technical Education and Skills Development
Authority (TESDA) and those rendered by government
educational institutions.
 EXAMPLE
Determine which transaction is subject to VAT:
1. Gross receipts by ABC University, a proprietary education institution registered under
CHED.
2. Gross receipts by Saint Mary’s University, a non-stock non-profit educational institution
registered under CHED.
3. Gross receipts by XYZ primary school accredited by the Department of Education (DepEd)
4. Gross receipts by Employ Me Now Institute, a vocational school registered under TESDA.
5. Gross receipts by a review school offering CPA review course.
6. Gross receipts by a tutorial school offering review courses for college entrance
examination.
 EXAMPLE
Determine which transaction is subject to VAT:
1. Gross receipts by ABC University, a proprietary education institution registered under
CHED.
2. Gross receipts by Saint Mary’s University, a non-stock non-profit educational institution
registered under CHED.
3. Gross receipts by XYZ primary school accredited by the Department of Education (DepEd)
4. Gross receipts by Employ Me Now Institute, a vocational school registered under TESDA.
5. Gross receipts by a review school offering CPA review course.
6. Gross receipts by a tutorial school offering review courses for college entrance
examination.
L. Sales by agricultural cooperatives duly registered with the
Cooperative Development Authority 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.
Sales by Agricultural Cooperatives To Members To Non-Members
Sale of cooperative’s own produce Exempt Exempt
(Processed or at its original state)
Other than the cooperative’s own Exempt VAT*
produce (i.e. from traders)

*Exempt if referring to agricultural food product at its original

state.
 EXAMPLE
Benguet Agri Coop is a duly registered agricultural
cooperative engaged in growing abaca and production of
bags made of abaca. It is also engaged in the sale of other
kitchen kits made of rattan from other cooperatives and
traders. The following data for the year were provided:
To members To non-members
Sale of abaca bags P6,000,000 P4,000,000
Sale of kitchen kits P2,000,000 P3,000,000
How much is the VAT payable of Benguet?
Benguet Agri
EXAMPLE
Coop is a duly registered agricultural
cooperative engaged in growing abaca and production of
bags made of abaca. It is also engaged in the sale of other
kitchen kits made of rattan from other cooperatives and
traders. The following data for the year were provided:
To members To non-members
Sale of abaca bags P6,000,000 P4,000,000
Sale of kitchen kits P2,000,000 P3,000,000
How much is the VAT payable of Benguet? P36,000
M. Gross receipts from “lending activities” by credit or multi-
purpose cooperatives duly recognized with the
Cooperative Development Authority.
Gross receipts by Credit or Multi- From From Non-
purpose cooperatives Members Members
From lending activities Exempt Exempt
From non-lending activities VAT VAT
N. Sales by non-agricultural, non-electric and non-credit
cooperatives duly registered by the Cooperative
Development Authority, provided, that the share capital
contribution of each member does not exceed fifteen
thousand pesos (P15,000) and regardless of the aggregate
capital and net surplus ratably distributed among the
members.
Sales by Non-agricultural, non- From From Non-
electric, non lending/credit Members Members
cooperatives
Contributions per member ≤ Exempt Exempt
P15,000
Contributions per member > VAT VAT
P15,000
Electric cooperatives VAT VAT
 EXAMPLE
Coop Natin is a duly registered cooperative founded and operated
by the employees of Chriska Group of Companies with maximum
contribution of P15,000 each. The cooperative is duly registered
with the CDA. It operates a restaurant that caters mainly to
Chriska’s employees. The following data were provided for the
taxable year (net of applicable taxes):
Sales P3,000,000
Purchases 1,000,000
What is the correct amount of VAT payable, if any?
 EXAMPLE
Coop Natin is a duly registered cooperative founded and operated
by the employees of Chriska Group of Companies with maximum
contribution of P15,000 each. The cooperative is duly registered
with the CDA. It operates a restaurant that caters mainly to
Chriska’s employees. The following data were provided for the
taxable year (net of applicable taxes):
Sales P3,000,000
Purchases 1,000,000
What is the correct amount of VAT payable, if any? VAT EXEMPT
O. Export sales by persons who are not VAT-registered

Export sales by NON-VAT registered = VAT Exempt

Export sales by VAT-registered = VATable @ 0%
 EXAMPLE
James Corporation provided the following data for 2018
taxable year:
Export Sale (net) P3,000,000
Purchases (net) 1,000,000

If James is VAT-registered, how much is the VAT

payable/refundable? ____________
 EXAMPLE
James Corporation provided the following data for 2018
taxable year:
Export Sale (net) P3,000,000
Purchases (net) 1,000,000

If James is VAT-registered, how much is the VAT

payable/refundable? P120,000 VAT Refundable
 Sale not in the ordinary course of*Apply
trade oradjacent
rules on business
lots VAT Exempt
P. SALE OF REAL PROPERTIES **The threshold will be decreased to P2M beginning Jan. 1, 2021.
Sale of Residential Lot
 Selling price ≤ P1.5M* per lot VAT Exempt
 Selling price > P1.5M* per lot VAT
Sale of Residential House & Lot and Other
residential dwellings
 Selling price ≤ P2.5M/P2M** VAT Exempt
 Selling price > P2.5M/P2M** VAT
Sale of real property classified as low cost housing VAT Exempt
Sale of real property classified as socialized housing VAT Exempt
If two or more adjacent residential lots are sold or disposed
in favor of one buyer, for the purpose of utilizing the lot as
one residential lot, the sale shall be exempt from VAT only if
the aggregate value do not exceed P1,500,000.

Exemption from VAT does not include the sale of parking lot
which may or may not be included in the sale of
condominium units.
 EXAMPLE
Which of the following sale in 2018 made by real estate
company is subject to VAT?
1. Sale of a parcel of land held as capital asset.
2. Sale of a parcel of land not ordinarily held for sale to
customers but is used in business operations.
3. Sale of a parcel of “commercial” land ordinarily held for
sale in the course of trade of business. Selling price is
not more than P1,500,000.
 EXAMPLE
4. Sale of a parcel of “residential” land in ordinarily held
for sale in the ordinary course of trade or business.
Selling price is not more than P1,500,000.
5. Sale of a parcel of “residential” land in ordinarily held
for sale in the course of trade or business. Selling price is
P3,000,000.
6. Sale of three (3) adjacent “residential” lots in 2018 to a
single buyer ordinarily held for sale in the course of
trade or business. Selling price is P750,000 per lot.
 EXAMPLE
7. Sale of residential condominium unit valued at
P2,500,000.
8. Sale of parking lot in a condominium unit for P800,000
 EXAMPLE
7. Sale of residential condominium unit valued at
P2,500,000.
8. Sale of parking lot in a condominium unit for P800,000

Answer: 2, 3, 5, 6, 8
Q. Lease of Residential Unit
Monthly rental is ≤ P15,000 EXEMPT FOR VAT
Monthly rental is > P15,000
• Annual receipts of the lessor > P3M VAT
• Annual receipts of the lessor ≤ P3M 3% OPT

Lease of Commercial Units

• Annual receipts of the lessor > P3M VAT
• Annual receipts of the lessor ≤ P3M 3% OPT
 EXAMPLE
Lease of residential units in Makati for P15,000 per units
per month. Gross receipts during the year was P1,200,000.
The developer is a VAT registered entity. Is this transaction
subject to VAT?
 EXAMPLE
Lease of residential units in Makati for P15,000 per units
per month. Gross receipts during the year was P1,200,000.
The developer is a VAT registered entity. Is this transaction
subject to VAT? YES!
 EXAMPLE
Lease of residential units in Makati in 2018 taxable year
for P15,000 per units per month. The aggregate gross
receipts of the lessor during the year was P5,000,000. Is
this transaction subject to VAT?
 EXAMPLE
Lease of residential units in Makati in 2018 taxable year
for P15,000 per units per month. The aggregate gross
receipts of the lessor during the year was P5,000,000. Is
this transaction subject to VAT? Exempt from VAT!
 EXAMPLE
Lease of residential units in Makati for P20,000 per unit
per month. The aggregate gross receipts of the lessor in
was P5,000,000. Is this subject to VAT?
 EXAMPLE
Lease of residential units in Makati for P20,000 per unit
per month. The aggregate gross receipts of the lessor in
was P5,000,000. Is this subject to VAT? Yes!
 EXAMPLE
Lease of several residential units in Makati with the
following details:
Monthly Rent Annual Gross Receipts
P12,000 P3,200,000
P16,000 P2,800,000
Is this subject to VAT?
 EXAMPLE
Lease of several residential units in Makati with the
following details:
Monthly Rent Annual Gross Receipts
P12,000 P3,200,000
P16,000 P2,800,000
Is this subject to VAT?
 EXAMPLE
Lease of several residential units in Makati with the
following details:
Monthly Rent Annual Gross Receipts
P12,000 P3,200,000
P16,000 P2,800,000
Is this subject to VAT? Exempt from VAT!
 EXAMPLE
Lease of several residential units in Makati with the
following details:
Monthly Rent Annual Gross Receipts
P12,000 P3,200,000
P16,000 P3,800,000
Is this subject to VAT?
 EXAMPLE
Lease of several residential units in Makati with the
following details:
Monthly Rent Annual Gross Receipts
P12,000 P3,200,000
P16,000 P3,800,000
Is this subject to VAT?
Exempt from VAT; Subject to VAT
R. Sale, importation, printing or publication of books and
any newspaper, magazine, review or bulletin which
appears at regular intervals with fixed prices for
subscription and sale and which is not devoted principally
to the publication of paid advertisements.
The term “book, newspaper, magazine, review and bulletin” only
covers printed matters in hard copy, and does not apply to electronic
format or versions including but not limited to: e-books, e-journals,
electronic copies, online library sources, CDS and software.

Other corporation transaction (such as the printing of brochures,

bookbinding, engraving, stereotyping, electrotyping, lithographing of
various reference books, trade books, journals and other literary
works), are subject to VAT.
 VAT PAYABLE
Output VAT (Sales or Receipts x 12%) Pxx
Less: Input VAT
(Purchases of Goods or Services x 12%) xx
Advance VAT Payment xx
VAT Payable Pxx
 SOURCES OF OUTPUT VAT
1. Actual Sale (Cash or on account)
2. Transaction Deemed Sales
3. Zero Rated Sales
 ACTUAL SALE
Basis of the 12% output VAT:
 Sale of goods – Gross Selling Price
 Sale of services – Gross Receipts
 Sale by a dealer in securities – Gross Income
 Sale of real properties
The highest amount among selling price, fair value
provided by the city/provincial assessor, and the zonal
value provided by the CIR.
 TRANSACTION DEEMED SALE
Transactions which are NOT actually sales because of other
absence of actual exchange between the buyer and the
seller, are considered or included in the term “sale” for
value added tax purposes.
 TRANSACTION DEEMED SALE
a) Transfer, use or consumption not in the ordinary course
of business of goods or properties ordinarily intended
for sale or use in the course or business. The basis in
computing the applicable VAT shall be fair market value
of the goods consumed.
 EXAMPLE
Determine which of the following is transactions deemed
sale:
1. Super Mig Corporation, manufacture of the best beer in
the world, “Beer Fab”, celebrated its centennial
anniversary a week ago. The company consumed
P1,000,000 worth of “Beer Fab” during the celebration.
2. Assume the same date in the preceding transaction
except that the P1,000,000 worth of beer were sold to
the company’s customers.
 EXAMPLE
3. Pure Water, the leading distributor of distilled and
purified water, consumed some of its merchandise
valued at P300,000 during the company’s team building
activity.
4. Pure Water, the leading distributor distilled and purified
water, distributed grocery goods to the “Yolanda”
survivors
 EXAMPLE
3. Pure Water, the leading distributor of distilled and
purified water, consumed some of its merchandise
valued at P300,000 during the company’s team building
activity.
4. Pure Water, the leading distributor distilled and purified
water, distributed grocery goods to the “Yolanda”
survivors.
Answer: 1 and 3
 TRANSACTION DEEMED SALE
b) Distribution or transfer to:
 Shareholders or investors as share in the profits of a
VAT-registered person; and
 Distribution or transfer to creditors in payment of
debt or obligation

BASIS: Market Value

 TRANSACTION DEEMED SALE
c) Consignment of goods if actual sale is not made within sixty (60)
days following the date such goods were consigned. Goods
returned within the 60-day period are not deemed sold.
d) Retirement from or cessation of status as VAT registered person
with respect to all “goods on hand” (as of the date of retirement
or cessation), whether or not the business is continued by the
new owner or successor. Goods on hand refer to capital goods,
stock in grade and supplies and materials (Basis should be the
acquisition cost or market value, whichever is lower.)
 EXAMPLE
The following are the date of Davao International for the
last quarter of 2018:
Sales up to Dec. 15 (Invoice value) P380,800
Purchases up to Dec. 15 (Net) 150,000
On December 16, 208, the Company retired from its
business and the inventory valued at P190,000 remain
unsold. There is a deferred input tax from the third quarter
of P3,500. How much is the total VAT payable? __________
 EXAMPLE
The following are the date of Davao International for the
last quarter of 2018:
Sales up to Dec. 15 (Invoice value) P380,800
Purchases up to Dec. 15 (Net) 150,000
On December 16, 208, the Company retired from its
business and the inventory valued at P190,000 remain
unsold. There is a deferred input tax from the third quarter
of P3,500. How much is the total VAT payable? 42,100
 EXAMPLE
Genson Distribution Inc., a VAT taxpayer, had the following data in a month:
Cash sales P200,000
Open account sales 500,000
Consignment:
0 to 30 days old (on which there
were remittances from consignees
of P200,000) 600,000
31 to 60 days old 700,000
61 days old and above 900,000
How much is the output tax?
How much is the output tax?
Answer: P216,000