Chapter 2 Value Added Tax

VAT stands for Value Added Tax. VAT is a type of sales tax which is levied
on consumption on the sale of goods, services or properties, as well as
importation, in the Philippines. To simplify, it means that a certain tax
rate (0% to 12%) is added up to the selling price of a goods or services
sold. It is also imposed on imported goods from abroad.

VAT EXEMPT SALES (Sec 109, NIRC)

A. Sale or importation of agricultural, livestock, poultry, and marine food
products in their “original state”, Provided, that the food is generally used for
human consumption.
Examples:
Livestock or poultry does not include fighting cocks, racehorses, zoo animals
and other animals generally considered as pets.
Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary
salt and copra shall be considered as agricultural products in their original state.
Bagasse is not included in the exemption provided for under this section.
Continuation
THE Bureau of Internal Revenue (BIR) has clarified that only “raw
cane sugar,” or muscovado sugar, is exempt from the value-added
tax (VAT) pursuant to Section 109 of the Tax Code.

Sale of Marinated Fish

Sale of marinated fish IS NOT Exempt from VAT. Laws granting
exemption from tax are CONSTRUED strictly against the taxpayer.
Exemption from tax must be clearly stated.

B. Sale or importation of fertilizers, seeds, seedlings and fingerlings, fish,

prawn, livestock and poultry feeds, including ingredients, used in the
manufacture of finished feeds except specialty feeds.
Specialty feeds refers to food for race horses, fighting cocks, aquarium
fish, zoo animals and other animatgls generally considered as pets.
VAT
C. Importation of personal and household effects belonging to residents
of the Philippines returning from abroad and non-resident citizens
coming to resettle in the Philippines.

D. Importation of professional instruments and implements, wearing

apparel, domestic animals, and personal household effects except
machinery and other goods use in the manufacture and merchandise of
any kind in commercial quantity belonging to persons coming to settle in
the Philippines.

Belonging to persons coming to settle in the Philippines for their own

use and not for sale, barter and exchange. When the person before 90
days of their arrival upon the production of evidence satisfactory to the
Commissioner that such person are actually coming to settle in the
Philippines and that change is bane fide
VAT
Exception to VAT
Importation of any vehicle, vessel, aircraft, machinery, other goods for
use in the manufacture and merchandise of any kind in commercial
quantity.

E. Services subject to Percentage Tax under Title V of the Tax Code.

F. Services by agricultural contract growers and milling for others of

palay into corn rice, corn into grits and sugar cane into raw sugar.

“Agricultural contract growers” refers to those persons producing

for other poultry, livestock or other agricultural and marine food
products in their original state.
VAT
G. Medical, Dental, Hospital and Veterinary Services except those
rendered by professional;

Laboratories are exempted. If the hospital or clinic operates a pharmacy,

it is subject to VAT

Subject to VAT – Professionals

1. Medical practitioners
2. CPAs
3. Insurance Agents (Life and Non-Life)
4. Other professionals Practitioners required
VAT
H. Educational services rendered by private educational institutions,
duly accredited by the Department of Education (DepEd), the
Commissions on Higher Education (CHED) the Technical Education and
Skills Development Authority (TESDA) and those rendered by the
government educational institutions;

“Educational services” shall refer to academic, technical or vocational

education provided by private educational institutions duly accredited
by the DepEd, the CHED and TESDA and those rendered by government
educational institutions.
VAT
I. Services rendered by individuals pursuant to an employer-employee
relationship.

J. 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.

K. Transactions which exempt under international agreements to which

the Philippines is a signatory under special laws,
Except those under Presidential Decree No. 529 that grant Petroleum
Exploration Concessionaires exemption from Custom Duty and Tax of
Importation Machinery required for their Exploration Operation.
VAT
L. Importation by agricultural cooperatives 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 To Members To Non Members

Cooperatives
Sale of cooperatives own
Produce (processed or original) Exempt Exempt

Other than produce Exempt VAT

*Exempt if referring to agricultural food products at its original state
VAT
VAT
M. Gross Receipts from lending activities by credit or multi-purpose
cooperatives duly registered with Cooperative Department Authority.

GROSS RECEIPTSTAX
Gross receipt from lending activities to its members Exempt
Gross Receipts from Lending Activities to nonmembers Exempt
From NON-Lending activities subject to VAT (members or Non-members)

N. Sales by non-agricultural, non-electric and non-credit cooperatives.

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.
 VAT
Gross Receipts/sales by From Members From Non Members
Electric cooperatives VAT VAT
Agricultural Cooperatives Table 8-2 Table 8-2
Lending Activities Table 8-3 Table 8-3
Non-agri, non-elec
non-lending
• Contribution per member <- 15K EXEMPT EXEMPT
• Contribution per member >15K VAT VAT

O. Export sales by person who are not VAT-registered;

By A NVP VAT Exempt
Export Sales
By a VAT Reg Vatable Zero rated sales