Chapter 2:

The Value Added Tax on

Importation
 Importation
✘ Importation refers to the purchase of goods including services by Philippine
residents from non-resident sellers. Importation is a form of domestic
consumption, hence, subject to consumption tax..
Types of Consumption Tax on Importation
1. The consumption tax on the import of goods is called VAT on importation.
2. The consumption tax on the purchase of services from non-residents is called
“Withholding VAT”
✘ The VAT on importation is payable to the Bureau of Customs whenever there is
importation of goods. The VAT is paid prior to withdrawal of the goods from the
Customs warehouse. The Withholding VAT is 12% of the payment for services
rendered by non-residents.
✘ In both cases, the resident purchaser is the one statutory liable for the payment of
the VAT
 Exempt consumptions
✘ VAT should not apply to goods, properties or services considered as basic
necessities. Neither should VAT impedes policies nor hinder developments by
being imposed on goods and services considered as priorities. Hence, the law
exempts certain goods and services from VAT.
 Exempt Importations
1. Importation of Agricultural and marine food products in their original state.
2. Importation of fertilizers, seeds, seedlings, and fingerlings, fish, prawn,
livestock, and poultry feeds, including ingredients used in the manufactured of
finished feeds.
3. Importation of personal and household effects belonging to residents of the
Philippines returning from abroad and non-resident citizens coming to resettle to
Philippines.
4. Importation of professional instruments and implement, wearing apparel,
domestic animals, and personal household effects to persons coming to settle in
the Philippines, for their own use and not for sale, barter or exchange.
5. Importation of books and any newspaper, magazine, review, or bulletin which
appear at regular intervals with fixed prices for subscription and sale and which
is not devoted principally to the publication of paid advertisements.
6. Importation or lease of passenger or cargo vessels and aircraft, including engine,
equipment and spare parts thereof for domestic or international transport
operation.
7. Importation if capital equipment, machinery, spare parts, life-saving and
navigational equipment, steel plates and other metal plates including marine-
grade aluminum plates to be used in the construction, repair, renovation or
alteration of any merchant marine vessel operated or to be operated in domestic
trade
8. Importation of life-saving equipment, safety and rescue equipment and
communication and navigational safety equipment, steel plates and other metal
plates, including marine-grade aluminum plates, used for shipping transport
operations
9. Importation of fuel, goods and supplies by persons engaged in international
shipping or air transport operations.
10. Importation of 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.
11. Transactions which are exempt under international agreement to which the
Philippine is a signatory.
12. Importations exempt under special laws.
The following section discusses in detail the aforementioned exempt importations:
Exempt importation for human consumption
 Exempt Importations for Human Consumption - such as
importation of:
1. Agricultural or marine food products in original state.
2. Livestock and poultry of a kind generally used as, or yielding or producing foods
for human consumption
3. Breeding stock and genetic materials therefore.
Agricultural or marine food products in original state
✘ Agricultural or marine food products are natural objects of human consumptions.
Taxing these would tend to limit the normal processes of life. The importation of
these goods is exempted from the VAT on importation.
✘ It must be emphasized that the exemption is limited to agricultural or marine food
products in their original state.
 Meaning of "in original state"
✘ The term "in original state means un processed. However, an agricultural
or marine food product is still considered in its original state and
unprocessed even if it undergone simple process of:
a. preparation for the market
b. Preservation
c. packaging, including advanced technological means of packaging
Importation of personal and household effects
 Conditions for exemption:
1. The personal and household effects belong to Philippine residents or non-
residents intending to resettle in the Philippines.
2. The goods are exempt from Customs duties.
✘ The importation of personal effects, household effects including professional
instruments and implements by residents returning from abroad is not subject to
the VAT because these are past consumptions which are previously subjected to
consumption tax herein.
✘ The importation of personal or household effects or professional implements by
non-residents intending to resettle in the Philippines is foreign consumption not
subject to Philippine consumption tax.
✘ Note that when these were purchased before, they were already subjected to
consumption taxes. The VAT on importation applies to importations which
represents current consumptions of personal, household or professional effects. It
does not apply to their past consumption.
 Illustration 1
Mr. Siman was employed abroad as an OFW. He went abroad bringing with
him personal effects such as clothes, pieces of personal jewelry and gadgets
aggregating P300,000 in value. When his contract ended, he returned to the
Philippines bringing with him the same effects which now have aggregate
value of P280,000

The importation (i.e. return) of the personal effects will not be subject to VAT
since these are past purchases which are previously subjected to consumption
tax when purchased in the Philippines.
Importation of professional instruments and
implements, wearing apparel, domestic
animal and personal household effects
 Conditions for exemption:
1. The goods belong to persons who come to settle in the Philippines.
2. The goods must accompany the person upon arrival or within 90 days
before and after their arrival.
3. There must be evidence to show that the change of residence is bona
fide.
4. The importation is not a vehicle, machinery or other equipment used in
the manufacture or merchandise of any kind in commercial quantity.
 Illustration 1
Mr. Kung Fu, a Chinese martial art master, arrived in the Philippines with an
immigration visa. He brings with him the following which he declared as his
personal effects:
10 pieces of brand new iPhone 6 P 150,000 each
10 pieces of brand new IBM laptops P 80,000 each

desktop computers P 40,000 each

1 piece of used laptop P 30,000
1 piece of used iPhone 4S 20,000
1 piece of used calculator 400
Used clothes, apparels and travelling bag 7,000
✘ The used laptop, iPhone 4S, calculator, clothes and apparels are
apparently personal effects which are past consumptions; hence, exempt
from VAT
✘ The nature and quantity of the iPhone 6, IBM laptops and desktop
computers is clearly inconsistent with the concept of personal effects.
These items are brough in for domestic consumption; hence, subject to
VAT.
Importation of books, newspapers, magazine,
review or bulletins
✘ The exemption of these materials is apparently based upon the necessity
of education and information. The Philippine constitution requires the
state to give priority to education to foster patriotism and nationalism,
accelerate social progress, and promote total human liberation and
development. (See Sec. 17, Article Il Philippine Constitution) The
Philippine Constitution also recognizes the vital role of communication
and information in nation building. (See Sec 24 Ibid.)
Conditions for exemption of newspaper, magazine review or
bulletin:
1. Must appear at regular intervals with fixed prices for subscription
2. The sale must not be devoted principally to the publication of paid
advertisements
Note that exemption does not extend to other school supplies such as chalks,
board markers, pens, notebooks and papers.
 Importation or lease of vessels and aircraft,
including engine, equipment and spare parts
Importation or lease of vessels and aircraft, including engine,
equipment and spare parts thereof
✘ The importation and lease of these items from non-residents whether for
domestic or international transport is exempt from VAT. The apparent
basis is our shortage of these transport vehicles. Difficulties in air or sea
transport could impede national development.
 Conditions for exemption:
1. For passenger or cargo vessels, only those 150 tons and above, including
engine and spare parts, are exempt
2. The vessel to be imported must comply with age limit requirement at the
time of acquisition counted from the date of the vessel's original
commissioning:
- Passenger or cargo vessels 15 years
- Tankers 10 years
- High speed passenger craft 5 years
 illustration 1
Transport Group has land, sea and air transport operations. To be Berations,
the group decided to import the following vehicles:
a. 5 units of Daewoo bus
b. 1 airplane
c. 2 ships
The importation of the airplane and ships are exempt; however, the
importation of the buses for land transport is subject to VAT.
Importation of safety equipment
 Life-saving safety and rescue equipment for shipping transport
operations, and equipment, machinery, spare parts, steel or other
metal plates to be used in any merchant marine vessel for domestic
trade
✘ The importation of these items is exempted under RA 9295 in recognition of
shipping as a necessary infrastructure vital to the economic development of our
country. Considering that the Philippines is studded with islands, strong and
competitive domestic merchant fleets is a real necessity to bridge our islands.
Importations of persons engaged in
international transportation
Importation of fuel, goods and supplies by persons engaged in
International shipping or air transport operations

✘ Although the fuels, goods and supplies are imported into the Philippines, these are
not intended to be consumed in the Philippines by these international carriers.
These are destined for consumption abroad, hence, exempt from VAT under the
destination principle.
 Illustration 1
Malaysian Ferries is an international shipping carrier with shipping routes
from e Philippines and other foreign countries. It imported to the Philippines
fuels and supplies to be used in its shipping operations.

Note that the fuels ends or supplies will be consumed in the high seas foreign
territories outside the country. The importation is not domestic consumption
but a foreign consumption; hence, exempt from VAT.
Importation of Agricultural Cooperatives
Importation of cooperatives of direct farm inputs, machineries and
equipment, including their spare parts (RA 9337)

Conditions for exemption:

1. The cooperative must be an agricultural cooperative duly registered and
good standing with the Cooperative Development Authority (CDA).
2. The importation involves direct farm inputs, machineries, equipment and
their spare parts to be used directly and exclusively in the production
processing of their produce.
 Presumption of vatability
✘ Importation is generally subject to VAT unless it can be proven as exempt
under any of those conditions discussed herein or under a provision of
special law or treaty. The burden of proof and establishing VAT
exemption rests upon the taxpayer.
 SUBSEQUENT SALE BY EXEMPT
PERSONS TO NON-EXEMPT PERSONS
When an exempt importer subsequently sells his exempt importation to non-
exempt person, the non-exempt buyer shall be subject to VAT on importation.
The tax due on such importation shall constitute a lien on the goods, superior
to all charges or liens, irrespective of the possessor of said goods. (Sec 4.107-
1(c), RR16-2005)
This rule applies to qualified exempt importation of exempt
persons:
Examples of qualified exempt importation:
a. Importation of direct farm inputs, machineries and equipment by
agricultural cooperatives
b. Importation of fuel, goods or supplies by a person engaged in
international transport operations
c. Importation of passenger or cargo vessels and aircrafts by a person
engaged in domestic or international transport operations
 Illustration 1
✘ Arado Coop, a farming cooperative, imported 10 tractors with acquisition
cost of P180,000 each. Subsequently, Arado Coop sold four tractors to
Mr. Laco, farmer..
Arado Coop is exempt from VAT on importation of farm equipment. The
trans by Arado Coop of its exempt importation to Mr. Laco, a non-exempt
person, she be subject to VAT. The VAT, however, shall not be imposed upon
the soles of Arach Coop. Mr. Laco shall be treated as the importer of the four
tractors and w therefore pay the required VAT on importation.
DETERMINATION OF THE VAT ON
IMPORTATION
 Vat On Importation
Since the object of taxation is the consumption, the importation of goods is
subject to VAT regardless of whether the:
1. importer is engaged or not engaged in trade or business
2. importer is a VAT or non-VAT business
3. importation is for business or personal use
4. non-resident seller is engaged or not engaged in business
 Tax basis of VAT on importation

✘ The VAT on importation is computed as 12% of the total landed cost of

the importation, other than those listed as exempt importations.
 Composition of landed cost:
1. Dutiable value
2. Custom duty
3. Excise tax, if any
4. Other in-land costs, such as:
a. Bank charge d. Wharfage due
b. Brokerage fee e. Customs documentary stamp tax
c. Arrastre charge f. Import processing fee
✘ Simply stated, landed costs encompass all costs of importation incurred prior to
the withdrawal of the goods from the warehouse of the Bureau of Customs, except
unofficial or illegal payments made.
The dutiable value refers to the total value used by the Bureau of Customs in
determining the tariff and customs duties, such as the following:
1. cost of the goods 3. Insurance
2. freight 4. other charges and costs
The dutiable value encompasses all costs incurred in bringing the goods up to the
Philippine port and prior to any other in-land costs of import
The customs duty is computed as: Dutiable value x Exchange rate x Rate of Duty
TECHNICAL IMPORTATION
✘ The rules of VAT on importation apply to "technical importation" of consumers in
a customs territory from persons located in a Special Economic Zones. (Sec.
4.107-1, RR 16-2005)
✘ Customs territory refers to the portion of the Republic of the Philippines outside
of designated special economic zones (Ecozones). (RR2-2005)
✘ "Technical importation" refers to the purchase of non-Ecozone Philippine
residents from Philippine Ecozone-registered enterprises. By legal fiction,
ecozones are considered foreign territories. Hence, the purchase from Economic
zones such as but not limited to, Subic-Ecozone, Zambo-Ecozone and Cagayan-
Ecozone is subject to the VAT on importation.
✘ Similarly, sales to Ecozones are subject to zero-rated VAT for VAT taxpayers
because Ecozones are considered foreign territories. Likewise, sales to Ecozones
are exempt from business tax for non-VAT taxpayers. (See Sec. 109 (K) and (V),
NIRC as amended)
 Illustration
✘ Winshield Corporation, a PEZA locator, sold scrap metals to Recycle Industries
Corporation, a custom territory buyer (i.e. buyer outside the Ecozone).
Recycle Industries shall pay the VAT on importation directly to the Bureau of
Customs (BOC). Winshield Corporation is not required to impose the VAT on its
sales. However, it must be furnished a copy of the receipt issued by the BOC for the
VAT payment (See BIR Ruling No. DA-031-2007, January 19, 2007)
THE WITHHOLDING VAT ON IMPORT OF
SERVICES
✘ The purchase of services from non-residents is an importation of service which is
subject to "Withholding VAT".
✘ Under revenue regulations, the sale by non-residents to Philippine residents (i.e.
Import in buyer's perspective) is always presumed made in the course of business
despite irregularity of sales operation to qualify the sale as business sale subject to
VAT.
✘ In the case of sales of services by non-residents, the regulation requires the
resident buyers to 'withhold" the VAT which is presumed to have been passed-on
by the non-resident seller.
✘ The concept of "Withholding VAT in the regulation is another misnomer. The real
object of taxation is the purchase of service by the resident buyer. It is not the
sales of the non-resident seller.
 Examples of Import of Services:
1. Lease or use of properties or property rights owned by non-residents.
2. Services rendered to local insurance companies, with respect to
reinsurance premiums payable to non-residents.
3. Other services rendered in the Philippines by non-residents
 Payment of the withholding VAT

✘ The withholding VAT is remitted monthly using BIR Form 1600 on or

before the 10th day of the following month after the withholding was
made, except for taxes withheld for December which shall be filed or paid
on or before January 25 of the following year.
Treatment of the VAT on importation and the Withholding VAT

1. If the resident purchaser is a VAT-registered business, he can claim the VAT on

importation or withholding VAT as Input VAT creditable against his Output VAT.
2. If the resident purchaser is a non-VAT business, the VAT on importation or
Withholding VAT shall be part of the cost of purchase of services and shall be
treated as asset or expense, whichever is applicable.
3. If the purchaser is not engaged in business, the VAT on importation or
withholding VAT is merely added to the costs of the importation.
Thank You!