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    303 views51 pages

    Chapter 4

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    Niño Mendoza Mabato

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    © All Rights Reserved
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    of 51
    Chapter 4 — Exempt Sales of Goods, Properties and Services CHAPTER 4 EXEMPT SALES OF GOODS, PROPERTIES, & SERVICES Chapter Overview and Objectiv This chapter discusses exempt consumption from domestic sellers (ig exempt sales). After this chapter, readers are expected to: 1. Master or, at least, familiarize themselves with the list of exempt sales ¢ goods, properties, or services, and 2. Master the exemption criteria on each type of exempt sales _ EE EXEMPT SALES Exempt sales are exempt consumption of goods or services from domestic sellers, Exempt sales are not subject to VAT and percentage tax. Hence, 1. VAT taxpayers making exempt sale of goods, properties, or services shall not bill any output VAT to their customers because the sale is not subject to VAT. 2. Anon-VAT person making exempt sales shall not be subject to the 3% percentage tax on the sales or receipt. Exempt Sales of Goods, or Properties 1. Sale of goods to senior citizens and persons with disability This covers sale of essential goods only. 2. Sales of exempt goods a. Agricultural and marine food products in their original state b. Fertilizers, seeds, seedlings and fingerlings, fish, prawn, livestock a%4 poultry feeds, including ingredients used inthe manufacture of finishe feeds c. Books, newspapers or magazines 4, Medicines prescribed for diabetes and hypertension e. Passenger or cargo vessels and aircrafts 3. Sales of goods by cooperatives ith + Sales by agricultural cooperatives duly registered in good standing the Cooperative Development Authority (CDA) to their members * well as sales of their produce, whether in its original state or proces 98 Chapter 4 ~ Exempt Sales of Goods, Properties and Services form, to non-members; their 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 Sales by non-agricultural, non-electric and non-credit cooperatives duly registered and in good standing with the CDA 4. Sales of residential properties 1. Sale of real properties utilized for low-cost housing 2. Sale of real properties utilized for socialized housing 3. Sale of residential lot valued at P1,919,500 and below and other residential dwelling valued at P3,199,200 and below 5. Export sales by non-VAT persons Treaty-exempt sales of goods Sales of goods exempt under international agreement to which the Philippines is a signatory or under special laws 7. Tax-free exchange of property ‘The exchange of properties in pursuant to a plan of merger or consolidation or the transfer of property that resulted in the initial acquisition of corporate control 8. Sale of gold to the Bangko Sentral ng Pilipinas (BSP) The sale of gold to the BSP is now a VAT-exempt transaction which is previously considered a zero-rated sale. (Mnemonic: SECRET Tax-free Gold) Ex t Sales of services 1. Schools Educational services rendered by private educational institution duly accredited by the Department of Education, the Commission on Higher Education and Technical Education and Skills Development Authority and those rendered by government educational institutions 2. Employees Services performed by individuals in pursuant to an employer and employee relationship Agricultural contract growers and millers Services by agricultural contract growers and milli into rice, corn into corn grits, and sugar cane into ra 99 ing for others of palay Ww sugar Chapter 4 - Exempt Sales of Goods, Properties and Services 4 10. 11, 12, Residential leasing Lease of residential unit with monthly rental not exceeding P15,000 Cooperative services Gross receipts from lending activities by credit or multi-purpoy cooperatives duly registered and in good standing with the Cooperate Development Authority Hospitals Medical, dental, hospitals, and veterinary services except those rendered by professionals and sales of drugs by a hospital drug store. Home owner's association or condominium corporations Association dues, membership fees, and other assessments and charges collected by homeowner’s associations and condominium corporations Lease passenger or Cargo yessels and aircrafts, including engine, equipment and spare parts thereof for domestic or international transport operations Treaty-exempt services Transactions which are exempt under international agreement to which the Philippines is a signatory or under special laws Regional area headquarters Services rendered by regional or area headquarters established in the Philippines by multinational corporations which acts as supervisor) communications, and coordinating centers for their affiliates, subsidiaries or branches in the Asia Pacific Region and do not or derive income from the Philippines International carriers ‘Transport of passengers by international carriers (RA 10378) Printers or publishers Sale, printing or publication of book: or bulletin which appears at regular intervals with fixed prices subscription and sale and which is not devoted principally to Publication of paid advertisements ' W ‘s and any newspaper, magazine, revie™ 100 Chapter 4 — Exempt Sales of Goods, Properties and Services 13, Senior citizens and persons with disability Sales of basic essential services to senior citizens and persons with disability by service establishments such as: a. Restaurant b. hotels and lodging establishments c recreation centers, such as theater, cinema houses, concert halls, carnivals and such other places of leisure or amusement (Mnemonic: SEARCH? VA TRIPS) Other exempt sales of goods or services 1. Sales of goods or services taxed by special laws a. Sales of goods or services by Ecozone locators b. Sale of amusement service by theaters and cinemas These are subject to tax by special laws and are not subject to national business taxes such as VAT or percentage tax. 2. Sales by persons not engaged in businesses The sale goods, real properties or services by persons not engaged in business is not subject to business taxes. 3. Sale of assets held for use The sale of assets held for use such as supplies and items of property, plant and equipment such as: land and building, machineries, office furniture and fixture, and office equipment is normally exempt from business tax. For VAT-registered taxpayers, however, the sale of these ordinary assets is considered “incidental transactions” subject to VAT. Note to readers The classification of the business taxpayer must first be determined. 1. Ifhe isa seller of goods or properties, refer to the list of exempt sales of goods or properties to see if he is exempt. If not, he is taxable. 2. Ifheisa seller of service, refer to the list of exempt sales of services to see ifhe is exempt. If not, he is also taxable. ‘Tax exemption is highly qualified and disfavored; hence, deep understanding on the extent and limits of exemption is highly essential. EXEMPT SALES OF GOODS OR PROPERTIES, IN DETAIL (SECRET Tayefe a) SALE OF GOODS TO SENIOR CITIZENS AND PERSONS WITH DISABILITY ae sale of essential goods to senior citizens (SC) and persons with 'sability (PWD) such as the following: 101 Chapter 4 — Exempt Sales of Goods, Properties and Services Sale of goods SC_[ Pup a. Drugs, vaccines and foods for special medical purpose v v b. Vitamins and mineral supplements Ma X c. Accessories and equipment by or for senior citizens, such as eye glasses, hearing aid, dentures, prosthetics, artificial bone replacements, walkers, crutches, wheelchairs, quad canes, geriatric diapers, and other v xX essential medical supplies, accessories and equipment | d, Casket or urn vo v | Aside from VAT exemption on the sales, senior citizens and PWDs are also legally mandated to be given 20% discount on the sales of these goods. Illustration Special Care Store, is a business catering for the need: with disabilities. It had the following sales of goods during the month: n: Vitamin supplements P 300,000 Medical drugs 100,000 Eye glasses and wheelchairs 80,000 Household and kitchen supplies 200,000 Caskets and urns 240,000 Memorial lot 300,000 Only the following sales are VAT-exempt: Vitamin supplements P 300,000 Medical drugs 100,000 Eye glasses and wheelchairs 80,000 Household and kitchen supplies 0 Caskets and urns 240,000 Memorial lot 0 = 720,000 PWDs P 100,000 140,000 120,000 100,000 120,000 200,000 PWDs P 0 140,000 0 0 100,000 wei 240,000 Sad to say, medical accessories or equipment and vitamins or minettl supplements are not specifcaly exempted for PWDs. Note thatthe sale specifically included in the enumeration provided by law shal of all othe? ti not be conside sidered exempt notwithstanding that the same are for the exclusive use enjoyment of SCs or PWDs, 102 is of seniors and persons chapter 4 — Exempt Sales of Goods, Properties and Services SALE OF EXEMPT GOODS agricultural or marine products and inputs food products in their original state, livestock in i” sale of agricultural and marine Sid poultry of a kind generally used as, or yielding or producing foods for jumdn consumption; and breeding stock and genetic materials therefore; b, Sale of fertilizers; seeds, seedlings and fingerlings: fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, reed in the manufacture of finished feeds, except specialty feeds; Sale of Agricultural or Marine Food Products in Original State The sale of agricultural and marine food products in their original state including those that have undergone the simple process of preparation or preservation for the market including advanced technological means of packaging is exempt. The conditions for exemption to the VAT on importation of agricultural or marine food products in Chapter 2 likewise apply to the exemption of sales herein from business tax. Ilustration 1: Fruit and vegetable dealer Mang Pandong owns a meat and fish outlet in the Baguio City public market. He had the following sales during the month: Sale of live hogs P 120,000 Sale of frozen carcass and meat 240,000 Sales of fresh fishes 150,000 Sales of dried and/or smoked fish 80,000 Mang Pandong is not subject to business tax on all of these sales. Mlustration 2: Farmer Agricorp is engaged in the farmin, i i : g and horticulture business. following during a quarter: eae Sale of palay and rice P 1,000,01 Sale of banana mushrooms 100, a Sale of firewood and charcoal 10,000 Sale of orchids, flowers, and bonsai 250,000 Palay, rice, banana, and mushrooms are exempt agricultural food products. The sale of firewood, chi i charcoal, orchids, flowers, and bonsai are non-food agricultural products, are vatable because they Note: aa He must be emphasized Percent : again that the term “vatable” t if the t ; je” means that the sale is subject tage tag taubayer is VAT-registered or a VAT registrable person but to a 3% ifthe taxpayer is non-VAT taxpayer. 103 Chapter 4 - Exempt Sales of Goods, Properties and Services Mlustration 3: Poultry operator The following relates to the sales of Mr. Birdie, a poultry operator: Sales of chicken P. 400,000 Sale of one-day old chicks 120,000 Sales of eggs for “penoy” and “balot” 180,000 Sales of chicken manure 100,000 All of these are exempt from business tax. Obviously, chicken manure is no, intended for human consumption but it is actually a vegetable fertilizer similar to guano; thus, itis also exempt. Mlustration 4: Pet shop : : Raymund, a veterinarian, operates a pet shop. The following were his sales and receipts during the month: Sales of pets P 600,000 Sales of animal vitamins, medicines, and feeds 200,000 Receipts from veterinary services 200,000 All of these are subject to business tax. Feeds for pets are vatable. Note also that services provided by professionals are vatable. The meaning of “in original state” As discussed in Chapter 2, the phrase “in original state” means unprocessed. Agricultural or marine food products are still considered in original state even if they have undergone the simple process of preparation, preservation or packaging for the market including advanced technological means of packaging, ‘The use of heat and the employment of complex processes such as chemical treatment or curing in a solution is normally considered state altering. Interestingly, however, marinating or the process of mixing with ingredients or flavorings is now considered by the BIR as state altering, The BIR considered a marinated, frozen and vacuum-packed boneless milkfish (bangus) as processed. (BIR Ruling No. 348-2011) To back their position, the BIR cited the absence of marinating in the list of simple processes noting that the claim of exemption is construed against the taxpayer. ' ot . The term “in original state” may be a contentious concept in practice. Due t this, i BB this, ae ae

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