GROUP C: VAT AND EXCISE TAX

PART 4 - VALUE-ADDED TAX

Title VI, NIRC

I. NATURE AND CHARACTERISTICS OF VAT

A. Tax on Value Added

B. Sales Tax
C. Tax on Consumption (Sec. 4. 105-2)
D. Indirect Tax
1. Impact of Tax
2. Incidence of Tax
Context Corp. vs. Commissioner of Internal Revenue (433
SCRA 376)
E. Tax Credit Method
F. Destination Principle
CIR vs. Toshiba Information Equipment (Phils.) (466 SCRA 211)

II. PERSONS LIABLE TO VAT (Sec. 105, NIRC)

A. Taxable Person
1. Refers to any person liable to VAT whether registered or
registrable according to Sec. 236 of NIRC.
2. Where the amount of gross receipts exceed the threshold fixed
by law (Sec. 109 (BB), NIRC)
B. In the course of trade or business
- Notwithstanding the rule on regularity – Services performed by non-
resident foreign persons in the Philippines are subject to VAT.
- Commissioner of Internal Revenue vs. COMASERCO (329 SCRA
237)
- CIR vs. Magsaysay Lines (497 SCRA 63)

III. VAT ON SALE OF GOODS OR PROPERTIES (Sec. 106, NIRC)

A. Rate and Tax Base
1. Rates 12% or 0%
2. Tax Base – Gross Selling Price
a. Meaning of Gross Selling Price China Banking Corp. vs. Court of
Appeals (403 SCRA 634)
b. Allowable deductions from Gross Selling Price (Sec. 106(D),
NIRC; Sec. 4. 106-9, RR 16-05, as amended)
B. Requisites for Taxability of sale of goods and/or properties: In general
1. Sale, barter or exchange of goods or properties
2. Meaning of term “goods or properties”
3. In the course of trade or business
4. Goods and properties are located within the Philippines and
consumed therein
5. Sale of goods or properties not exempt from VAT under Sec. 109 of
NIRC
 C. Sale of Real Properties
D. Zero-rate Sales of goods or properties (Sec. 106 (A), NIRC)
1. Zero-rated Sales, defined
2. Sales subject to 0% VAT
a. Export Sales (Sec.106 (2)(a))
b. Foreign Currency Denominated Sales (Sec.106 (2)(b))
3. Sales to tax-exempt entities
4. Differentiated from Effectively Zero-rated Sales of goods and
properties (Sec.106 (2)(c))
E. Transaction deemed Sale (Sec. 106 (B), NIRC)
1. Transfer, use or consumption not in the course of business of
goods/properties originally intended for sale or use in the course of
business
2. Distribution or transfer to shareholders, investors or creditors
3. Consignment of goods if actual sale is not made within 60 days from
date of consignment
F. Change or Cessation of Status as VAT-registered person (Sec. 106 (C),
NIRC)
1. Subject to VAT – goods or properties originally intended for sale or
use in business and capital goods existing as of occurrence of the
following:
a. Change of business activity from VAT taxable status to VAT-
exempt status
b. Approval of requests for cancellation of a registration due to
reversion to exempt status
c. Approval of request for cancellation of registration due to desire to
revert to exempt status after lapse of 3 consecutive years.
d. Approval of request for cancellation of registration for failure to
meet threshold amount (for VAT.
2. Not Subject to VAT
a. Change of control of a corporation (Sec. 40 (C) (2))
b. Change in the trade or corporate name
c. Merger or consolidation of corporations (Sec. 40 (C) (2))

IV. VAT ON IMPORTATION (Sec. 107, NIRC)

V. VAT ON SALE OF SERVICES AND USE OR LEASE OF PROPERTIES (Sec.
108, NIRC;)
A. Tax Rate – 12% or 0%
B. Tax Base – Gross Receipts
1. Gross Receipts, Defined (Sec. 108, NIRC)
2. Constructive Receipt
C. Requisites for Taxability of Sale of Services
1. Sale or Exchange of services
(a) Meaning of “Sale or exchange of services”
Commissioner of Internal Revenue vs. COMASERCO (329 SCRA
237)
2. Person selling services liable to VAT
3. Service performed in the Philippines
 4. Service performed in the course of trade or business
5. Seller of service who actually or constructively receives the fee or
remuneration
6. Service is not exempt from VAT
D. Zero-Rate Sale of Services (Sec. 108(B), NIRC)
1. Zero-rated Sales, defined
2. Services subject to 0% VAT
3. Differentiated from Effectively Zero-rated Sales of goods and
properties

VI. VAT EXEMPT TRANSACTIONS (Sec. 109, NIRC)

A. VAT Exempt Transactions, in general
B. Exempt Transactions, Enumerated (Sec. 4. 109-1 (B), RR 16-05, as
amended)

VII. COMPUTATION OF VAT

A. Input Tax & Output Tax, defined (Sec. 110, NIRC)
B. Sources of Input Tax – creditable against output tax (Sec. 110, NIRC)
1. Purchase or importation of goods
a. For sale; or
b. For conversion into or intended to form part of a finished
product for sale, including packaging materials; or
c. For use a supplies in the course of business; or
d. For use as raw materials supplied in the sale of services; or
e. For use in trade or business for which deduction for
depreciation or amortization is allowed under the NIRC.
i. Claim for Input tax on depreciable goods
2. Purchase of real properties for which VAT has actually been paid
3. Purchase of services in which VAT has actually been paid
4. Transactions “deemed sale” under Sec. 106 (B) of the NIRC
5. Transitional Input tax under Sec. 111(a) of the NIRC (Sec. 111 (A),
NIRC)
6. Presumptive input tax under Sec. 111(b) of the NIRC
7. Transitional input tax credits allowed under the transitory and other
provisions of the Regulations.
C. Persons who can avail of the input tax credit
D. Determination of Output/Input Tax; Vat Payable; Excess Input Tax Credits
1. Determination of Output Tax
2. Determination of Input Tax Creditable
3. Allocation of Input Tax on Mixed Transactions
4. Determination of the output Tax and VAT Payable and Computation of
VAT Payable or Excess Tax Credits
E. Substantiation of input tax credits (Sec. 113), NIRC
F. Refund or Tax Credit of Excess Input Tax (Sec. 112, NIRC)
1. Who may claim for refund/apply for issuance of Tax Credit Certificate
(TCC) or Cash Refund
2. Period to file claim for refund/apply for Issuance of TCC/Cash Refund
 3. Manner of giving refund


VIII. Transactions subject to Special Rules

A. Transactions of Foreign Governments
B. Transactions with PEZA/SBMA/CEZA-registered entities
IX. ComplianceRequirements
A. Registration (Sec. 236 (G) - (H), NIRC)
1. Mandatory (Sec. 236 (G), NIRC)
2. Optional (Sec. 236 (H), NIRC)

B. Invoicing and Accounting Requirements (Sec. 113, NIRC)
1. Invoicing Requirements, In General (Sec. 113 (1), NIRC)
2. Invoicing and Recording Deemed Sale Transactions (Sec. 113(2))
3. Consequences of issuing Erroneous VAT Invoice or Vat Official
Receipt (Sec.113 (4))
C. Filing of Return and Payment of VAT (Sec. 114(A))
D. Withholding of creditable VAT (Sec. 114(C), NIRC)
E. Administrative and Penal Sanctions (Sec. 115, NIRC)

Title VI – Excise Taxes on Certain Goods

1. Sec. 129 – Goods Subject to Excise Taxes:

a. Goods subject to excise tax
b. Other tax that may be imposed on goods subject to excise tax
c. Kinds of excise tax
i. Specific tax
ii. Ad Valorem tax
d. Excise taxes, defined; Concept and Nature

2. Sec. 130 – Filing of Return and Payment of Excise Tax on Removal and Payment of
Tax
a. Persons liable to file and pay excise taxes
b. Time for filing of return and payment of the excise tax; General Rule
c. Place for filing of the return and payment of the tax
d. Determination of gross selling price of goods subject to ad valorem tax
e. Manufacturer’s or Producer’s Sworn Statement
f. Credit for excise tax on goods actually exported
g. Exceptions to the General Rule
h. Excise tax may be passed on to end consumer but direct liability for the tax
remains with manufacturer or producer
i. Owner or person having possession of excisable domestic product liable to
the tax due thereon
j. Proper party to claim for the refund/tax credit of excise taxes paid on aviation
fuel; End consumer who paid the excise tax cannot apply for a refund of the
excise tax paid

3. Sec. 131 – Payment of Excise tax on Imported Articles

a. Persons liable to excise tax on imported articles
b. Excise tax on importation of cigars and cigarettes, distilled spirits, fermented
liquors and wines into the Philippines
 c. Rate and basis of the excise tax on imported articles
d. Whether or not Congress can enact a law withdrawing a tax exemption
privilege on importation
e. Whether or not a judge can issue a writ of preliminary injunction to enjoin the
collection of taxes on importation of alcohol and tobacco by SBMA-registered
enterprises

4. Sec 132 – Mode of Computing Contents of Cash or Package

a. Rules on computing contents of cash or package

5. Sec 133 – Removal of Wines and Distilled Spirits for Treatment of Tobacco Leaf
a. Removal of Wines and Distilled Spirits for Treatment of Tobacco Leaf

6. Sec. 134 – Domestic Denatured Alcohol

a. Domestic Denatured Alcohol

7. Sec. 135 – Petroleum Products Sold to International Carriers and exempt Entities or
Agencies
a. Petroleum Products Sold to International Carriers and exempt Entities or
Agencies
b. Objectives of Regulations regarding the grant of outright excise tax exemption
on removal of excisable articles intended for export or sale/delivery to
international carriers or to tax-exempt entities/agencies and prescribing the
provisions for availing claims for product replenishment
c. Imposition of excise tax on removal of excisable articles for export or
sale/delivery to international carriers and other tax-exempt entities/agencies
d. Discovery in the domestic market of tax-paid articles intended for exports
e. Failure to comply with printing requirements, not entitled to tax Credit/Refund
or product replenishment
f. Exemption from the imposition of excise tax upon removal
g. Claim for product replenishment
h. Conditions for product replenishment
i. Time for filing a claim for product replenishment
j. Validity of the product replenishment certificate
k. Disallowances on claims for Tax Credit Certificate / Refund or Product
Replenishment
l. Meaning of the term “exempt from all taxes”
m. Person who has the legal personality to file and administrative claim for
refund of excise taxes alleged to have been erroneously paid to supplier of
aviation fuel in the Philippines
n. Tax treatment of all petroleum and petroleum products imported and its
subsequent exportation or sales to Freeport and Economic Zone Locators or
Other Persons / Entities; Refund of Taxes Paid; Authority to Release
Imported Goods (ATRIG) and Other Administrative Requirements

8. Sec. 136 – Denaturation, Withdrawal and Use of Denatured Alcohol

9. Sec. 137 – Removal of Spirits Under Bond for Rectification

a. Rules on removal of spirits under bond for rectification

10. Sec. 138 – Removal of Fermented Liquors to Bonded Warehouse

a. Rules on removal of fermented liquors to bonded warehouse
11. Sec. 139 – Removal of Damaged Liquors Free of Tax
a. Rules on removal of damaged liquors free of tax

12. Sec. 140 – Removal of Tobacco Products Without Prepayment of Tax

a. Rules on removal of tobacco products without prepayment of tax

13. Sec. 141 – Distilled Spirits;

a. Tax classification of alcohol and tobacco products
b. Revised revalidation period of newly introduced alcohol or tobacco products
c. Submission of sworn statement
d. Understatement of the suggested net retail price

14. Sec. 142 – Wines

a. Locally produced wines derived from fruits and berries are subject to excise
tax

15. Sec. 143 – Fermented Liquors

a. Downward reclassification of fermented liquors

16. Sec. 144 - Tobacco products;

17. Sec. 145 – Cigars and Cigarette
a. Revised provisions for the manner of packaging of cigarettes
b. Raising government revenue is not the sole objective of RA 8240

18. Sec. 146 – Inspection Fee

a. What makes tobacco inspection fee a miscellaneous tax

19. Sec. 147 – Definition of Terms

20. Sec. 148 – Petroleum products;
a. Local government unit cannot impose excise tax on petroleum products
b. Aviation jet fuel is considered as subject to specific tax

21. Sec. 149 – Automobiles;

a. Persons liable for the payment of ad valorem tax on automobiles
b. Tax treatment on subsequent sale, transfer, or exchange of tax-exempt
automobile by a tax-exempt person / entity to a non-exempt person / entity
c. Meaning of the term “manufacturer’s or importer’s selling price
d. When an automobile considered as “brand new”
e. When a motor vehicle deemed personally-owned or for personal use
f. When imported motor vehicle for sale may be released from custom’s custody
g. What is the so-called “special purpose vehicle”

22. Sec. 150 – Non-essential goods

23. Sec. 151 – Mineral products
a. Who is liable to pay the excise tax of small scale miners upon extraction of
the minerals
b. Duties and obligations of the buyers of metallic minerals
c. Owner or person having possession of excisable domestic product liable to
the tax due thereon
d. Mode of collection and payment of taxes
e. Time and manner of filing and payment of taxes withheld

24. Sec. 152 – Extent of Provisions Regulating Business of Persons Dealing in Articles
Subject to Excise Tax
25. Sec 153 – Records to be Kept by Manufacturers; Assessment Based Thereon
26. Sec. 154 – Premise Subject to Approval by Commissioner
27. Sec. 155 – Manufacturers to Provide Themselves with Counting or Metering Devices
to Determine Production
28. Sec. 156 – Labels and Form of Packages
29. Sec. 157 – Removal of Articles After the Payment of Tax
30. Sec. 158 – Storage of Goods in internal Revenue Bonded Warehouse
31. Sec. 159 – Proof of Exportation
32. Sec. 160 – Manufacturers’ and Importers’ Bond
33. Sec. 161 – Records to be Kept by Wholesale Dealers
34. Sec. 162 – Records to be Kept by Dealers in Leaf Tobacco
35. Sec. 163 – Preservation of Invoices and Stamps
36. Sec. 164 – Information to be Given by Manufacturers, Importers, Indentors, and
Wholesalers of any Apparatus or Mechanical Contrivance Specially for Manufacture
of Articles Subject to Excise Tax and Importers, Indentors, Manufacturers or Sellers
of Cigarette Paper in Bobbins, Cigarette Tipping Paper or Cigarette Filler Tips
37. Sec. 165 – Establishment of Distillery Warehouse
38. Sec. 166 – Custody of Distillery of Distillery Warehouse
39. Sec. Limitation on Quantity of Spirits Removed from Warehouse
40. Sec. 168 – Denaturing Within Premises
41. Sec. 169 – Recovery of Alcohol for Use in Arts and Industries
42. Sec. 170 – Requirements Governing Rectification and Compounding of Liquors
43. Sec. 171 – Authority of Internal Revenue Officer in Searching for Taxable Articles
44. Sec. 172 – detention of Package Containing Taxable Articles