VALUE ADDED TAX

A. BUSINESS TAXES

Business taxes are those imposed upon onerous transfers such as sale, barter, exchange and importation.
It is called as such because without a business pursued in the Philippines (except importation) by the
taxpayer, business taxes cannot be applied. Business taxes are in addition to income and other taxes paid,
unless specifically exempted.

EXCEPTION:
Any business pursued by an individual where the aggregate gross sale or receipts do not exceed P100,000
during the any 12 month period shall be considered principally for subsistence or livelihood and not in the
ordinary course of trade or business. Hence, not subject to business taxes.

TYPES:
1. Value Added Tax
2. Other Percentage Taxes
3. Excise Taxes
4. Documentary Stamp Taxes

B. NATURE AND CHARACTERISTICS OF VAT

 It is a business tax levied on the value-added on certain goods, properties and services in the domestic
market and/or importer of goods.

 It is imposed not on the goods or services as such but on the privilege of selling or importing goods or
rendering services for a fee, remuneration or consideration.

 It is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or
lessee of the goods, properties or services.

 The party directly liable for the payment of the tax is the seller, importer or the service provider,
although the burden of the tax may be shifted or passed on to the consumer.

C. EXEMPT TRANSACTIONS
This means the sale of goods, properties or services and the use or lease of properties are not subject to
VAT (Output Tax) and the seller or lessor is not allowed to any tax credit on VAT (Input Tax) on purchases.

The following are VAT-Exempt transactions (under TRAIN Law):

1) Sale or importation of:
a. Agricultural and marine food product in their original state;
b. Livestock and poultry used as, or producing foods for human consumption;
c. Breeding stock and genetic materials.

Products considered in their original state:

a. Products which undergone simple processes of preparation or preservation for the market
(freezing, drying, salting, broiling, roasting, smoking or stripping)
b. Polished or husked rice
c. Corn grits
d. Raw cane sugar and molasses
e. Ordinary salt
f. Copra
NOTE: Livestock or poultry does not include fighting cocks, race horses, zoo animals and other
animals generally considered as pets.

2) Sale or importation of:

a. Fertilizers
b. Seeds, seedlings and fingerlings
c. Fish, prawn, livestock and poultry feeds
d. Ingredients used in the manufacture of finished feeds (except specialty feeds for race horses,
fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets).
3) Importation of personal and household effects belonging to the:
a. Residents of the Philippines returning from abroad; and
b. Non-resident citizens coming to resettle in the Philippines.
NOTE: Such goods must be exempt from customs duties.

4) Importation of professional instruments and implements, tools of trade, occupation of

employment, wearing apparel, domestic animals, and personal household effects, provided:
a. It belongs to persons coming to settle in the Philippines, or Filipinos or their families and
descendants who are now residents or citizens of other countries such parties herein referred
to as overseas Filipinos;
b. In quantities and of the class suitable to the profession, rank or position of the persons
importing said items;
c. For their own use and not for sale, barter or exchange;
d. Accompanying such persons, or arriving within a reasonable time.
Provided, that the Bureau of Customs may, upon the production of satisfactory evidence that
such persons are actually coming to settle in the Philippines and that the goods are brought
from their former place of abode, exempt such goods from payment of duties and taxes:
Provided, further, vehicles, vessels, aircrafts and machineries and other similar goods for use
in manufacture, shall not fall within this classification and shall therefore be subject to duties,
taxes and other charges.

5) Services subject to percentage tax

6) Services by agricultural contract growers and milling for others of palay into rice, corn into grits
and sugar cane into raw sugar;

AGRICULTURAL CONTRACT GROWER:

Refer to those persons producing for others’ poultry, livestock or other agricultural and marine
food products in their original state such as contract for a package of services of receiving eggs
from breeder farm, sorting, fumigating, setting, hatching, sexing of day-old broilers, sorting and
delivering them to other contract grower.

7) Medical, dental, hospital and veterinary services except those rendered by professionals;

NOTE:
 Laboratory services are exempted. If the hospital or clinic operates a pharmacy or
drugstore, the sale of drugs and medicines are subject to VAT.
 Hospital bills constitute medical services. The sales made by the drugstore to the in-
patients which are included in the hospital bills are part of medical bills (not subject to
vat)
 The sales of the drug store to the out-patients are taxable because they are NOT PART of
medical services of the hospital.

8) Educational services rendered by:

a. Private educational institutions, duly accredited by:
I. Department of Education (DepEd)
II. Commission on Higher Education (CHED)
III. Technical Education and Skills Development Authority (TESDA)
b. Government Educational Institutions

9) Services rendered by individuals pursuant to an employer-employee relationship

10) Services rendered by regional or area headquarters

11) Transactions which are exempt under international agreements to which the Philippines is a
signatory or under special laws

12) For agricultural cooperatives:

a. Sales to their member
b. Sales to non-members if the cooperative is the producer (If not, subject to VAT)
c. 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.

SALE TAX
▪ Sale of cooperative's own produce to its Exempt
members
▪ Sale of cooperative's own produce to its Exempt
nonmembers
▪ Sale to its members of goods other than the Exempt
cooperative's own produce
▪ Sale to non-members of goods other than the Subject to Vat
cooperative's own produce

13) Gross receipts from lending activities by credit or multi-purpose cooperatives

SALE TAX
▪ Gross Receipts from Lending Activities to its Exempt
members
▪ Gross Receipts from Lending Activities to Exempt
nonmembers
▪ Gross Receipts from Non-Lending Activities to Subject to Vat
its members and non-members

14) Sales by non-agricultural, non-electric and non-credit cooperatives, provided, that the shear
capital contribution of each member does not exceed P15,000
NOTE:
Importation by non-agricultural, non-electric and noncredit cooperatives of machineries and
equipment including spare parts thereof, to be used by them are subject to VAT.

CONTRIBUTION TAX
▪ Contribution per member ≤ P15,000 Exempt
▪ Contribution per member > P15,000 Subject ot Vat

15) Export sales by persons who are not VAT-registered

EXPORT SALE
By a Vat Registered Exporter By a Non-Vat Registered Exporter
(Subject to 0% Vat) Expempt from Vat)

FORMULA:
Output Vat (@ 0%) P0 Output Vat None
Input Vat (xx) Input Vat*** N/A
Excess Input Vat** (Pxx) Vat Payable None

**MAY BE: ***may be closed to expense or

1. Refunded cost
2. Used as Tax Credit against
output vat in relation to sales
subjected to 12% vat (local
sales)
3. May be converted into a tax
credit certificate for payment
of any internal revenue taxes
(BIR taxes)