Exempt Importation

• Basic necessities (not subject to VAT)

o Agricultural and marine food products in original state, used for HUMAN
CONSUMPTION
§ Fruits and vegetables
§ Livestock
§ Marine foods
§ Milk, eggs, meat for human consumption
§ Includes those that undergone simple processing
• Boiling
• Broiling
• Husking
• Roasting
• Stripping
• Grinding
• Freezing
• Drying
• Smoking
• Salting
§ Includes those that are packaged using technology
• Shrink wrapping in plastics
• Vacuum packing
• Tetra-packing
• Other similar methods
o Fertilizers, seeds, seedlings and fingerlings, fish, prawn, livestock and poultry
feeds (including ingredients used in the manufacture of finished feeds)
o Books and any newspaper, magazine, review, or bulletin, which 1) appear at
regular intervals with fixed prices for subscription and sale and 2) not devoted
principally to the publication of paid advertisements
o Passengers or cargo vessels and aircraft (including engine, equipment and spare
parts for domestic/international transport ops), but requirements by MARINA on
restriction on vessel importation and mandatory vessel retirement program be
met:
§ Passenger/cargo vessels – 15 yrs.
§ Tankers – 10 yrs.
§ High-speed passenger crafts – 5 yrs.
• Importation by VAT-exempt persons
o International shipping or air transport operators on their import of fuels, goods
and supplies
§ Purpose: international consumption
o Cooperatives of direct farm inputs, machineries and equipment (including spare
parts to be used directly and exclusively in production and processing of
produce) – a.k.a. Agricultural Cooperatives
 o PEZA locators on import of goods/services
• Quasi-importation
o Personal and household effects belonging to residents of PH returning from
abroad and non-resident citizens coming to resettle in PH
o Professional instruments and implements, wearing apparel, domestic animals,
and personal household effects belonging to persons coming to settle in the
Philippines, for their own use and not for sale, barter, or exchange
• Importation exempt under special laws and international agreement
• Import of services
o Services from non-resident, service rendered abroad
o Services from NR, individual purchaser not engaged in business
o Services from NR by VAT-exempt persons (e.g. ecozone locators)

Exempt sales of goods, properties, services

• Sales to senior citizens and PWD
o Drugs, vaccines, foods for special medical purpose, casket or urn (exempt for SC
and PWD)
o Vitamins and mineral supplements, accessories and equipment (only for SC)
• Sales of exempt goods
o Agricultural and marine food products in original state
o Fertilizers, seeds, etc. (see above)
o Farm/fishery inputs
o Livestock/poultry feeds/ingredients in manufacture of feeds
o Books, newspapers, magazines
o Medicines for diabetes, high cholesterol, hypertension
o Passenger or cargo vessels and aircraft (spare parts, equipment, engines
included)
• Sales of goods by cooperatives (except electric coop)
o If transact business only with members
o If accum. Reserves >P10M, sales to non-members subject to business tax (only if
coop transacts with non-members)
o Transactions from unrelated activities are taxable
• Sales of residential properties
o Non-dealer
§ Real property classified as capital asset of VAT taxpayer
§ Real property of non-VAT taxpayer
§ Real property of person not engaged in business
o Dealer
§ Sale of real property utilized for socialized housing unit (non-taxable if
reached price ceiling):
• House and lot package – P450,000
 • Residential lots ONLY – P180,000
§ Sale of real property for low-cost housing – P750,000 price ceiling per
unit
§ Sale of residential lot @ P1,919,500/unit and below
§ Sale of residential dwelling valued at P3,199,200/unit and below
• Export sales by non-VAT persons
• Treaty-exempt sales of goods
• Tax-free exchange of property
• Sale of gold to BSP
• Exempt sale of services
o Educational services of schools, like:
§ Private educational institution duly accredited by:
• DepEd
• CHED
• TESDA
§ Government educational institutions
o Employment
§ Services performed in pursuant to employer-employee relationship
o Agricultural contract growers and millers
• Services by agricultural contract growers and milling for others
o Residential leasing (lease not exceeding P15,000/month)
§ Should be residential units (apartments and houses and lots for
residential purposes) – dormitories, bed spacers, boarding house.
o Sale of services by cooperatives
o Health/hospital services (except rendered by professionals and sales of drugs by
hospital drugstores)
o Home owner’s association or condominium corporation
o Lease of passenger/cargo vessels and aircraft (spare parts and equipment
included)
o Treaty-exempt sales of services
o Regional or area headquarter of a multinational company
o Transport of passengers by international carriers (Philippines to Abroad
operations)
o Services of printers and publishers
o Sales of service to senior citizens and PWD
§ Lodging establishment
§ Hospital and clinic
§ Sports and recreation center
§ Restaurants
§ Land, air, sea travel
§ Medical, dental, diagnostic, lab fees and professional medical fees
§ Funeral or burial service for senior citizens
o Sales of goods or services covered by special laws
 § Sales by ecozone locators
§ Receipts of proprietors of theaters or cinemas

PERCENTAGE TAX

Coverage:
1. Banks and non-bank financial intermediaries
a. Quasi-banking functions
i. Interest income, commissions, discounts from lending activities, income
from financial leasing on basis of remaining maturities of instrument from
which the receipts were derived:
1. Maturity period <=5 yrs. – 5%
2. Maturity period >5 yrs. – 1 %
ii. Dividend and equity shares in net income of subsidiaries – 0%
iii. On royalties, rentals of property (real/personal), profits from exchange,
other items treated as gross income – 7%
iv. On net trading gains within taxable year on foreign currency, debt
securities, derivatives, other similar financial instruments – 7%
b. Non-quasi-banking functions (e.g. Pawnshops, money changers)
i. Interest income, commissions, discounts from lending activities, income
from financial leasing on basis of remaining maturities of instrument from
which the receipts were derived:
1. Maturity period <=5 yrs. – 5%
2. Maturity period >5 yrs. – 1 %
ii. Other items treated as gross income – 5%
2. International carriers on their transport of cargoes, excess baggage and mails only
a. Passengers – exempt
b. Goods, mails, cargoes – 3% OPT on outgoing operations
3. Common carriers on land transport of passengers and keepers of garage (e.g. Jeepney,
PUB, Taxi, rental cars)
a. By land – 3% PT on passengers; 12% VAT on Baggage/Mails/Cargo
b. By water/sea – VATable on passengers ang baggage/mail/cargo
c. By air – same as b.
4. Amusement places
a. Boxing exhibitions – 10%; exempt receipts are:
i. World/Oriental Championship
ii. At least 1 contender is Filipino citizen
iii. Promoter is Filipino citizen or corp. (should be owned by Fil. Citizens by
60%)
b. Professional basketball games – 15%
c. Cockpits, cabarets, night/day clubs – 18%
d. Jai-alai and race tracks – 30%
 5. Brokers in effecting sales of stocks via PSE and corporations or shareholders on IPO
a. Sale barter, exchange (block sale included) of listed stocks via PSE is subject to
tax of 60% of 1% based on gross selling price/gross value in money of shares of
stocks sold
b. Tax on shares of stock sold or exchanged via IPO. Proportion of shares sold,
bartered, exchanged:
i. Up to 25% - 4% tax rate
ii. Over 25% but not over 33 1/3% - 2% tax rate
iii. Over 33 1/3% - 1% tax rate
6. Franchise grantees
a. Radio/television broadcasting companies (annual gross receipts not over P10M)
– 3%
b. Gas and water utilities – 2%
7. Life insurance companies and agents of foreign insurance – 2% on premiums collected,
except:
a. Premiums refunded within 6 months after payment on account of rejection of
risk or returned for other reasons
b. Re-insurance premiums
c. Premiums from life insurance of non-residents received from abroad by
branches of domestic corporation, firm, or association doing business outside PH
d. Excess of premiums on variable contracts in excess of the amounts necessary to
insure the lives of the variable contract owners
8. Telephone companies on overseas communication
a. Origin PH, Destination PH – 12% VAT
b. Origin Abroad, Destination PH – 0% VAT if subject to zero-rating requirements; if
not, exempt
c. Origin PH, Destination Abroad – 10% tax
9. Jai-alai and cockpit operators on winnings
a. In general – 10%
b. Winnings from double, forecast/quinella and trifecta bets – 4%
c. Owners of winning race horses – 10%

VALUE-ADDED TAX
• Covers all vatable sales of goods, properties, services, lease of properties by VAT
Taxpayers
o VAT-Registered persons
o VAT-Registerable persons

VAT Threshold Amount Covered taxpayers

 General P3,000,000 All taxpayers (except
franchise grantees of radio or
television)
Special P10,000,000 Franchise grantees of radio
or television

VAT Model:

Output VAT Pxx

Input VAT (xx)
VAT Due Xx
Tax Credits (xx)
VAT Still Due Xx

Output VAT – VAT on VATable sales or receipts

Input VAT – VAT paid by taxpayer on domestic purchases from VAT suppliers or on
importation of goods/services in course of business

Sales subject to special VAT Rules

• Sales to gov’t. – limited claimable input VAT
o Sales to gov’t. and GOCC – 12% VAT
§ Required: 5% final withholding VAT
• Zero-rated sales – no output VAT, with claimable input VAT
• Exempt sales – no output and input VAT

Classification of sales/receipts for VAT purposes

1. Sales to gov’t
2. Zero-rated sales
3. Exempt sales
4. Regular sales – 12% VAT
a. All sales of goods, properties or services other than
i. Sales to gov’t or GOCC
ii. Zero-rated sales
iii. Exempt sales

Rules on classification
• Sale of goods to non-resident buyer: zero-rated sale
• Sale of vatable goods/services in PH: VATable sale
• Sale made to gov’t or GOCC: Final withholding VAT
• Sale considered an export or zero-rated (e.g. sales to VAT exempt person) – 0% VAT
• Sale of exempt goods and services to gov’t or GOCC – exempt sale
REGULAR OUTPUT VAT

TAXABLE TRANSACTION TAX BASIS

Sale of goods Gross selling price (unless unreasonably
lower)
• If unreasonably lower (lower by >30%
of actual market value), VAT = Fair
value of goods sold
o Selling price/Fair value =
x>30%, basis is FV
o Selling price/Fair value =
x<30%, basis is SP
Sale of services Gross receipts
Sale of properties Gross selling price (defined by BIR), which is
higher of
• Consideration or selling price
(inclusive of vat) or
• Fair value of property (higher of)
[exclusive of vat]:
o Zonal value
o Fair value (per assessor’s
office)
NOTE:
1. Not applicable if sold to gov’t.
2. Interest and penalties actually or
constructively received are subject to
VAT

Transactions deemed sales FV of property deemed sold

• Transfer, use, consumption not in
course of business of
goods/properties originally intended
for sale/use in course of business
• Distribution/transfer:
o Shareholders/investors share
in profits of VAT-reg. persons
o Creditors in payment of debt
o Consignment of goods (actual
sale not made within 60 days
following consignment date)
o Retirement from/cessation of
business with respect to all
goods on hand
 o Cessation of status as VAT-
registered person

OUTPUT VAT – Zero-Rated Sales

• Export sales
o Direct export (should be):
§ Paid in acceptable foreign currency or equivalent in goods/services
§ Accounted in accordance with R&R of BSP
o Sale to economic zones
o Sale to tourism enterprise zones
o Sale of goods, properties, supplies, equipment, fuel to persons engaged in
international shipping/air transport operations
• Effectively Zero-Rated Sales (prior application with appropriate BIR Office required)
o ADB
o IRRI
o UNICEF
o WHO
o USAID and personnel and contractors
o Embassies (subject to reciprocity rule)
§ Should have VE(I)C to be entitled to zero-benefit
o Philippine National Red Cross (PNRC)
o PAGCOR and licensees or contractors
• Sales of Services (Zero-Rated)
o To non-residents (other than processing, manufacturing, repacking)
§ Must be performed in PH
§ Paid for in acceptable foreign currency or equivalent in goods/services
§ Payment accounted for under rules and regulations of BSP
o Effectively zero-rated
§ Local sale of service to person/entity who was granted indirect tax
exemption under special laws/international agreements
o Rendered to persons engaged in international shipping/air transport operations
(lease of properties included)
§ Exclusively for international shipping/air transport operations only!
o Transport of passenger and cargo by domestic air/sea carrier from PH to a
foreign country (a.k.a. outgoing operations)
o Sale of power/fuel generated from renewable sources of energy
§ E.g. of renewable sources are biomass, solar, wind, hydropower
§ Limited to sale of power only
o To ecozones or tourism enterprise zones
INPUT VAT

Creditable Input VAT (requisites):

• Paid or incurred in course of trade/business
• Evidenced by VAT invoice/official receipt
o Such invoice/receipt issued by VAT-registered person
• Incurred in relation to VATable sales

Types of Input VAT

• Transitional
o Higher of 2% of :
§ beginning inventory of goods, materials or suppliers; or
§ actual VAT paid
o Applicable to beginning inventory of goods, materials, supplies ONLY!
• Regular
o Purchase of goods/properties – record on month of purchase
o Purchase of services – record on month paid
o Importation of goods – record on month VAT is paid
o Purchase of depreciable capital goods/properties:
§ GR: Month of purchase
§ EX: Monthly aggregate acquisition cost >P1M should be amortized over
shorter of useful life or 60 months
• Amortization of Deferred Input VAT
• Presumptive (4% of gross value in money of their purchase of primary agricultural
products) – those engaged in processing of, and manufacturing of:
o Sardines
o Mackerel
o Milk
o Refined sugar
o Cooking oil
o Packed noodle based instant meals
• Standard (5% final withholding VAT based on gross payment) – sale of goods and
services to:
o Government; or
o Any political subdivisions, instrumentalities or agencies (GOCCs included)
• Input VAT carry-over
o Input VAT – Output VAT
§ In a particular month/quarter
o Overpayment appearing after tax credits
o Deducted vs net VAT Payable
o Rules:
§ Input VAT C/O of prior quarter deductible in first month of current
quarter
§ Input VAT C/O in 1st month of quarter is deductible in 2nd month of
quarter
§ Input VAT C/O in 2nd month of quarter NOT deductible to 3rd month of
quarter
§ Input VAT C/O of prior quarter deductible in 3rd month quarterly balance
of present quarter