1.

Definition
2. Nature
2.1. Tax on Consumption – The VAT is ultimately a tax on consumption, even though it is assessed on many levels of
transactions. It is the end user of consumer goods or services which ultimately shoulders the tax, as the liability
therefrom is passed on to the end users by the providers of these goods or services who in turn may credit their own
VAT liability (input VAT) from the VAT payments (output VAT) they received from the final consumer [CIR v. Magsaysay
Lines, 2006].
2.2. Uniform Tax – The VAT is a uniform tax ranging, at present, from 0% to 12% levied on every importation of goods,
whether or not in the course of trade or business, or on each sale, barter, exchange or lease of goods or properties or
on each rendition of services in the course of trade or business.
2.3. Indirect Tax – The VAT is an indirect tax because the amount of tax may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or services [Sec. 105, par. 2 NIRC]. What is transferred in such instance is
not the liability for the tax (impact of taxation), but the tax burden (incidence of taxation) [Contex v. CIR, 2004].

3. Who are Liable?

3.1. In General – Any person who, in the course of trade or business, sells barters, exchanges, leases goods or properties,
renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections
106 to 108 of this Code [Sec. 105, NIRC].

3.1.1. The phrase 'in the course of trade or business' means

(a) the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental
thereto,
(b) by any person regardless of whether or not the person engaged therein is a nonstock, nonprofit 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.

3.1.1.1. Revenue Memorandum Circular 4-98

 Any business where the aggregate gross sales or receipts do not exceed P100,000 during any 12-
month period shall be considered principally for subsistence or livelihood and not in the course of
business, and a taxpayer who qualified under the such definition shall be exempt from

(a) payment of registration fee presecribed under Sec. 236 (B) of the NIRC;
(b) payment of VAT under Title IV, Chapter 1, NIRC; and
(c) payment of percentage taxes under Title V, NIRC.

3.1.1.2. See also Revenue Audit Memorandum Order 1-86 (pp. 32-33, AN).
3.1.1.3. Non-resident persons who performed 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 [RR No. 16-2005]

3.1.2. Rule on Importation – However, in the case of importation of taxable goods, the importer, whether an
individual or corporation and whether or not made in the course of his trade or business, shall be liable to VAT
imposed in Art. 107 of the NIRC.

3.2. Summary: Taxable Person

(a) That he undertakes taxable transaction in goods, properties or services consumed or destined for consumption
within the Philippines;
(b) That such transactions are entered into in the course of his trade or business;
(c) That the amount of his gross sales or receipts is over the threshold fixed by law or regulations; and
(d) That in case of importation, an importer of taxable goods, whether or not made in the course of trade or business,
is a taxable person.
4. VAT System
4.1. Taxability of Transactions (See Table)
(a) Sale of Goods
(b) Sale of Real Properties
(c) Sale of Services
(d) Lease or Use of Properties
(e) Importation

4.2. Important Technical Terms

4.3. Taxable & Exempt Transactions (See Table)
4.4. Tax Base (See Table)
4.5. Tax Credit