Republic of the Philippines

CAMARINES NORTE STATE COLLEGE

F. Pimentel Avenue, Brgy. 2, Daet, Camarines Norte – 4600, Philippines

TRANSFER AND BUSINESS TAXATION

CHAPTER 8
VALUE ADDED TAX

SUMMARY

(By: Garrido, Jing Jing)

VAT – is a tax on a value added by every seller to the purchase price or cost in the sale
of the property, goods, and services in the ordinary course of business as well as on the
importation of goods into the Philippines whether for personal or business use. As a rule,
sale of goods or services made in the ordinary course of business are subject to VAT,
unless tax exempt. There are sale that is exempt for VAT, but still subject to other
percentage taxes exempt those transactions made for subsistence or livelihood.

(By: Gonzales, Clarisse)

VAT EXEMPT SALES
(Sec. 109 NIRC, as amended under RA 10963- TRAIN Law; RR 13-2018)

The vat exempt transactions provided in the Tax Codes:

A. Sale or importation of agricultural and marine food products in their original state,
livestock and poultry of a kind generally used as, or yielding or producing foods for
human consumption and breeding stock and genetic materials, therefor.

Examples of Agricultural and Marine Food Products in their original state:

 Agricultural (polished/husked rice, corn grits, raw cane sugar & molasses, copra).
 Marine (fish, crustaceans like lobster, shrimps, prawns, oysters, mussels, clams,
trout, and eels).
 Livestock (cows, bulls, pigs, sheep, calves, goats, rabbits).
 Poultry (fowls, ducks, geese, turkey).

Raw sugar cane refers to a sugar produced by simple process of conversion of sugar
cane without the need of any mechanical or similar device. Under the revised regulation,
raw cane sugar refers only to muscovado sugar. Thus, only raw sugar cane is exempt
from vat under the tax code. However, sale of marinated fish is not exempt from vat.

Examples of transactions subject to VAT:

1. Sale of bonsai
2. Sale of wood
3. Sale of canned pineapple chunks
4. Sale of flowers
5. Sale of refined sugar
B. Sale or importation of fertilizers, seeds, seedings and fingerlings, fish, prawn,
livestock, and poultry feeds, including ingredients, whether locally produced or imported,
used in the manufacture of finished feeds, except specialty feeds.

Examples of transactions subject to VAT:

1. Sale/importation of v-mig feeds for pets
2. Importation of raw materials for the formulation of feeds for animals generally
considered as pets.

(By: Gumamela, Chyna)

C. Importation of personal and household effects belonging to the residents of the
Philippines returning from abroad and nonresident citizens coming to resettle in the
Philippines.

Provided that such goods are exempt from customs duties under the Tariff and
Customs Code of the Philippines.

Kinds of personal and household effects that may be exempt from payment of customs
duties:
1. Returned personal and household effects; and
2. Personal and household effects purchased abroad.

D. Importation of professional instruments and implements, tools of trade, occupation,

or employment, wearing apparel, domestic animals, and personal and household effects
(except any vehicles, vessels, aircrafts, machineries, and other similar goods for use in
manufacture).

Provided that they belong to persons coming to settle in the Philippines, for their own
use and not for sale, barter, or exchange, accompanying such persons, or arriving
within ninety (90) days before or after their arrival, upon the production of evidence
satisfactory to the Commissioner, that such persons are actually coming to settle in the
Philippines and that the change of residence is bona fide.

(By: Haye, Maribeth)

E. Services subject to percentage tax under title V of the tax code
 Also refers to “Other Percentage Taxes” in Chapter 9.
 The Other Percentage Taxes are provided in the Tax Code under Sections 116
to 127, as amended.
 A transaction subject to VAT is no longer subject to Other Percentage Tax.
Consequently, if the transaction is subject to Other Percentage Tax, it is no
longer subject to VAT. Nonetheless, Other Percentage Tax as well as Value
Added Tax may be imposed together with Excise Tax.

Percentage tax - a tax imposed on sale, barter, or exchange of goods, or sale of

services based upon gross sales, value in money of receipts derived by the
manufacturer, producer, or seller measured by certain percentage of the gross selling
price or receipts.

F. Services by agricultural contract growers, milling for others of palay into rice, corn
into grits and sugar cane into raw sugar.

Agricultural contract growers - refers to those persons producing for other’s poultry,
livestock, or other agricultural and marine food products in their original state. There
are agricultural contract growers which offer toll processing/toll dressing/toll
manufacturing as a packaged service to its toll growing. It is clarified under RR 97-2010,
that “toll processing services exempt from vat” shall pertain to only services to clients
from which growing of animals were contracted. However, if such an activity is done
independently of growing poultry, livestock, or other agricultural and marine food
products, the same can be considered as vatable services not covered by agricultural
contract growing.

(By: Lontac, Dianne)

G. Medical, dental, hospital and veterinary services except those rendered by
professionals.
 Laboratory services are exempted.
 Sale of drugs and medicines of hospital or clinics operating a pharmacy or
drugstore are subject to VAT.
 Hospital bills constitute medical services.
 Sales of drugstore to the in-patients which are included in the hospital bills are
part of medical bills exempt from VAT.
 Sales of drugstore to the out-patients are taxable because they are not part of
medical services of the hospital.
 Medical practitioners shall include medical technologists, allied health workers
and other medical practitioners who are not under an employee-employee
relationship with the hospital, clinic or HMO and other similar establishments.
Pursuant to RR 16-2005, services of professional practitioners are subject to VAT if
annual gross professional fees exceed P3,000,000 (as amended). Otherwise, such
professional fees are subject to 3% percentage tax under Sec. 116.

Professional practitioners include, among others, the following:

 Medical practitioners
 CPA’s
 Insurance agents (Life and Non-life)
 Other professional practitioners required to pass the government examination.
H. Educational services rendered by private educational institutions, duly DepEd,
CHED, TESDA and those rendered by government educational institutions.

Educational services - shall refer to academic, technical, or vocational education

provided by private educational institutions duly accredited by the DepEd, CHED, and
TESDA and those rendered by government educational institutions and it does not
include seminars, in-service training, review classes and other similar services rendered
by persons who are not accredited by the DepEd, the CHED, and/or TESDA.
(By: Lunas, Charlie)
I. Services rendered by individuals pursuant to an employer-employee relationship.

J. Services rendered by Regional, or Area Headquarters (RHQs) established in the

Philippines by multinational corporations which act as supervisory, communications and
coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific
Region and do not earn or derive income from the Philippines.

(By: Mago, Keisha)

K. Transactions which are exempt under international agreements to which the
Philippines is under the special laws, except for those under the Presidential decree no.
529.

L. Sales by agricultural cooperatives duly registered with the Cooperative Development

Authority to their members and etc. are exempt from VAT. But sale from non-member
are not exempted from paying VAT.

(By: Manamtam, Reinalyn)

M. Gross receipts from “lending activities” by credit or multi-purpose cooperatives duly
registered with the Cooperative Development Authority.
Exemption is not only limited to the gross receipts on loans extended to its members but
also to other persons who are not members.

TABLE 8-3: Gross receipts by From From Non-

Credit or Multi-purpose cooperatives Members Members
From lending activities Exempt Exempt
From non-lending
TABLE activities
8-4: GROSS RECEIPTS / VATFrom VAT
From Non-
N. SALES BY Members Members
Electric cooperatives VAT VAT
Agricultural cooperatives Table 8-2 Table8-2
“Lending activities” by lending and
Table 8-3 Table 8-3
multi-purpose cooperatives
 Non-agricultural, non-electric,
non-lending/credit cooperatives
 Contribution per member ≤
P15,000 Exempt Exempt
 Contribution per member > VAT VAT
P15,000
Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with
the Cooperative Development Authority.
Provided that the share capital contribution of each member does not exceed fifteen
thousand pesos (P15,000) and regardless of the aggregate capital and net surplus
ratably distributed among the members. Importation by non-agricultural, non-electric
and non-credit cooperatives of machineries and equipment including spare parts
thereof, to be used by them are subject to vat.
(By: Marollano, Marienella)
O. Export Sales of Non-VAT Taxpayers

The export sales of non-VAT taxpayers are exempt from percentage tax.\

P. Sale of:
1. Real properties not primarily held for sale to customers or held for lease in the
ordinary course of business.
2. Real properties utilized for low-cost housing and socialized housing defined by
Republic Act. No. 7279, otherwise known as the Urban Development and
Housing Ac of 1992, and other related laws.
(By: Olivo, Joebert)
3. Real property utilized for “socialized housing” as defined by Republic Act No.
7279, and other related laws such as RA No. 7835 and RA No. 8763, wherein
the price ceiling per unit is P450,000 or as may from time to time be determined
by HUDCC and the NEDA and other related laws.
SOCIALIZED HOUSING
It refers to housing programs and projects covering houses and lots or home lots only
that are undertaken by the government or the private sector for the underprivileged and
homeless citizens, which shall include sites and services development, long-term
financing, liberalized terms on interest payments, and as such other benefits in
accordance with the provisions of RA No. 7229, otherwise known as the “Urban
Development and Housing Act of 1992” and RA No. 7835 and RA No. 8763.

It shall also refer to projects intended for the underprivileged and homeless wherein the
housing package selling price is within the lowest interest rates under the Unified Home
Lending Program (UHLP) or any equivalent housing program of the government, the
private sector or non-government organizations.

4. Residential lot valued at P1,500,000 and below beginning January 1, 2018

(previously (P1,919,500) or house and lot, and other residential dwellings valued
at P2,500,000 and below beginning January 1, 2018 (previously P3,199,200).
Provided, that beginning January 1, 2021, the vat exemption shall only apply to:
 Sale of real properties not primarily held for sale to customers or held for lease in
the ordinary course of trade or business;
 Sale of real property utilized for socialized housing as defined under RA No.
7279; and
  Sale of house and lot and other residential dwellings with selling price of not
more than two million pesos; Provided, further, that every three years thereafter;
the amounts state herein shall be adjusted to its present value using the
Consumer Price Index, as published by the Philippine Statistics Authority (PSA)

Q. LEASE OF RESIDENTIAL UNITS

Lease of residential unit with a monthly rental per unit not exceeding p15,000
pesos regardless of the number of aggregated rentals received by the lessor during the
year.
Lease of residential units where the monthly rental per unit exceeds P15,000 but
aggregate of such rentals of the lessor during the year do not exceed P3,000,000 shall
likewise be exempt from VAT, however, the same shall be subjected to 3% tax under
Section 116 of the Tax Code.

In case where a lessor has several residential units for lease, some are leased out for a
monthly rental per unit of not exceeding P115,000 while others are leased out for more
than P15,000 per unit, his tax liability will be:
 The gross receipts from rentals not exceeding P15,000 per month per unit shall
be exempt from VAT regardless of the aggregate annual gross receipts.
 The gross receipts from rentals exceeding P15,000 per month per unit shall be
subject to VAT if the annual gross receipts exceed P3,000,000, as amended,
from said units only – not including the gross receipts from units leased out for
not more than P15,000. Otherwise, the gross receipts shall be subject to three
percentage tax under section 116 of the tax code.

Residential Unit shall refer to:

 Apartments and houses and lots used for residential purposes;
 Buildings or parts or units thereof used solely as dwelling places except motels,
motel rooms, hotel, and hotel rooms.

UNIT shall refer to:

 Apartment unit in case of apartments
 House in case of residential houses
 Per person in case of dormitories, boarding houses and bed spaces: and
 Per room in case of rooms for rent

(By: Orpiada, Dave)

R. Sale, importation, printing or publication of books and any newspaper, magazine,
review or bulletin which appears at regular intervals with fixed prices for subscription
and sale and which is not devoted principally to the publication of paid advertisements.

Under BIR Ruling No. 083-2014, the term “book, newspaper, magazine, review or
bulletin” only covers printed matters in hard copy, and does not apply to electronic
format or versions including but not limited to E-books, E-journals, Electronic Copies,
Online Library Services, CDs, and software.
Thus, a corporation’s other transactions (such as printing of brochures, bookbinding,
engraving, stereotyping, electrotyping, lithographing of various reference books, trade
books, journals and other literary works) are subject to VAT. The taxpayer is required to
register its business as a VAT business entity and issue a separate VAT invoice/receipt
to record such transactions.

S. Transport of passengers by international carriers doing business in the Philippines.

The same shall not be subject to Other Percentage Taxes as amended under RA 10378
and (refer to Chapter 9). Transport of cargo by international carriers doing business in
the Philippines, as the same is subject to 3% common carrier’s tax (Other Percentage
Tax) as amended under RA 10378 and (RR 15-2015, refer also to Chapter 9 – “Other
Percentage Taxes)

(By: Pamanay, Matarintis)

T. Sale, importation or lease of passenger or cargo vessels and aircraft, including
engine, equipment, and spare parts thereof for domestic or international transport
operation.

Provided that such exemption shall be subject to the requirements on restriction on

vessel importation and mandatory vessel retirement program of MARINA.

U. Importation of fuel, goods and supplies by persons engaged in international shipping

or air transport operations.

Provided that it was used for international shipping or air transport operation. Thus, it
shall be used exclusively or shall pertain to the transport of goods and/or passenger
from a port in the Philippines directly to a foreign port, or vice versa, without docking or
stopping at any other port in the Philippines except for the purpose of unloading or
loading passengers/and or cargoes that originated from or bound for abroad. Any
portion of such fuel, goods or supplies that is used for purposes other than that
mentioned shall be subject to 12% VAT.

(By: Paming, Larah)

V. Services of banks, non-bank financial intermediaries performing quasi-banking
functions, and other non-bank financial intermediaries, such as money changers and
pawnshops subject to percentage tax under sections 121 and 122 respectively of the
Tax Code.

W. Sale or lease of goods and services to senior citizens and persons with disabilities,
as provided under R.A. No. 9994 (Expanded Senior Citizens Act of 2010) and R.A. No.
10754 ( An Act Expanding the Benefits and Privileges of Persons with Disabilities)
respectively.

X. Transfer of property pursuant to Section 40 (C)(2) of the Tax Code, as amended

(Upon effectivity of R.A. No. 10963 Train Law only; new provision).
Y. Association dues, membership fees and other assessments and charges collected
on a purely reimbursement basis by homeowner’s association and condominium
corporations established under R.A. No. 9904 (Magna Carta for Homeowners’ and
Homeowners Association ) and R.A. No. 4726 (Condominium Act) respectively. This
provision shall take effect only beginning January 01, 2018 or upon the effectivity of
R.A. No.10963 TRAIN LAW (new provision).

(By: Pinga, Melissa)

Z. Sale of gold to the Bangko Sentral ng Pilipinas (BSP) beginning January 1, 2018
(0% VAT prior to TRAIN law)

AA. Sale or importation of prescription drugs and medicines for:

 diabetes, high cholesterol, and hypertension beginning Jan. 1, 2020; and

 cancer, mental illness, tuberculosis, and kidney diseases beginning Jan. 1, 2023.

Exemptions under this subsection applies only to sale or importation of manufacturers,

distributors, wholesalers, and retailers of drugs included in the list of approved drugs
and medicines issued by the DOH for this purpose.

BB. Sale or lease of goods or properties or performance of services other than the
transactions previously mentioned, the gross annual sales and/or receipts do not
exceed the amount of P3,000,000 as amended (previously P1,919,500).

(By: Policarpio, Jaymark)

BAYANIHAN TO HEAL AS ONE ACT (RA 11469)

The Bayanihan to Heal as One Act, also known as the Bayanihan Act, and officially

designated as Republic Act No. 11469, is a law in the Philippines that was enacted in
March 2020 granting the President additional authority to combat the COVID-19
pandemic in the Philippines. This law is valid for three months unless extended or
withdrawn by the Congress or ended by the Presidential Proclamation.

VAT (transaction deemed sale) shall not be imposed on goods or properties existing as
of the occurrence of the following:

1. Change of control of a corporation by the acquisition of the controlling interest of

such corporation by another stockholder or group of stockholders.
2. Change in the trade or corporate name of the taxpayer.
3. Merger or consolidation of corporations. The unused input tax of the dissolved
corporation, as of the date of merger or consolidation, shall be absorbed by the
new or surviving corporation.
(By: Punsalan, Paulinne Mai Angela)
COMPUTATION OF VAT PAYABLE

Output VAT (Gross Sales or Gross Receipt * ₱xx

12%)
Less: Input VAT (Purchase of Goods or (xx)
Services * 12%)
Advance Payment (xx)
VAT Payable (Excess Input VAT) ₱xx

SOURCES OF OUTPUT VAT

 Actual Sale
 Transaction Deemed Sales
 Zero (0%) Rated Sales
ACTUAL SALE
Sales where there are actual exchanges between buyers and sellers in the ordinary
course of trade or business.

BASIS OF THE 12% OUTPUT VAT

 Sale of Goods
 Sale of Services
 Sale by a dealer in securities
 Sale of Real Properties

GROSS SELLING PRICE VS. GROSS RECEIPTS

GROSS SELLING PRICE - the total amount of money or its equivalent which the buyer
pays to the seller in consideration of sale of goods or property excluding VAT.
GROSS RECEIPTS - the total amount of money or its equivalent representing the
contract price, compensation, service fee, rental, or royalty, including the amount
charged for materials and services and deposits and advance payments actually or
constructively received during the taxable period excluding VAT.

IN CASE OF INCIDENTAL TRANSACTIONS

“In the course of trade or business” means the regular conduct or pursuit of a
commercial or an economic activity, including transactions incidental thereto, by any
person, regardless of whether the person engaged therein is a non-stock, non-profit
private organization, or a government entity.
(By: Quitay, Kathryne Sandra Mae)
TRANSACTIONS DEEMED SALES

Under section 106(B) of the tax code, certain transactions which are not actually sales
are considered or included in the term “sale” for value added tax purposes. Since there
is no actual sale, no output vat is actually charged to customers. However, such
transactions shall be treated as a sale even in the absence of actual sale to avoid a
situation where a vat registered taxpayer avail of input vat credit without being liable for
the corresponding output vat.

(By: Raro, Regine)

THE FOLLOWING TRANSACTIONS ARE CONSIDERED DEEMED SALE:
a. Transfer, use or consumption not in the ordinary course of business of goods or
property originally intended for sale or use in the course of business;
Basis: FMV of the goods consumed
b. Distribution or transfer to:
 Shareholders or investors as share in the profits of a VAT-registered person.
 Creditors in payment of debt or obligation.
Basis: Market value

c. Consignment of goods if actual sale is not made within sixty (60) days following
the date such goods were consigned; and

d. Retirement from or cessation of business with respect to all “goods on hand”,

whether capital goods, stock-in-trade, supplies, or materials as of the date of such
retirement or cessation, whether the business is continued by the new owner or
successor.
Basis: Acquisition cost or market value whichever is lower

RR 16-2005 as amended by RR4-2007 provides that the vat provided above shall apply
to goods or properties originally intended for sale or use in business, and capital goods
which are existing as of the occurrence of the following:
1. Change of business activity from VAT taxable status to VAT exempt status.
2. Approval of a requests for cancellation of registration due to reversion to exempt
status.
3. Approval of a requests for cancellation of registration due to a desire to revert to
exempt status after the lapse of three (3) consecutive years from the time of
registration by a person who voluntarily registered despite being exempt under
Sec. 109 (2) of the Tax Code.
4. Approval of a requests for cancellation of registration of one who commenced
business with the expectation of gross sales or receipts exceeding ₱3,000,000,
 as amended, but who failed to exceed this amount during the first twelve months
of operation.
(By: Sabanal, Aea)
VAT (TRANSACTION DEEMED SALE) SHALL NOT BE IMPOSED ON GOODS OR
PROPERTIES EXISTING AS OF THE OCCURRENCE OF THE FOLLOWING:
1. Change of control of a corporation by the acquisition of the controlling interest of
such corporation by another stockholder or group of stockholders.
2. Change in the trade or corporate name of the taxpayer.
3. Merger or consolidation of corporations. The unused input tax of the dissolved
corporation, as of the date of merger or consolidation, shall be absorbed by the
new or surviving corporation.
ZERO RATED SALES (0% VAT)
EXPORT SALE BY A VAT REGISTERED ENTITY

A zero-rated sale of goods, properties and/or services by a vat registered person is a

taxable transaction for VAT purposes, but shall not result in any output tax. However,
the input tax on purchases of goods, properties, or services, related to such zero-rated
sale, shall be available as tax credit or refund in accordance with existing regulations.

Gross Sales (regardless of shipping arrangements) Pxx

x Vat Rate 0%
OUTPUT VAT P0
INPUT VAT (xx)
VAT PAYABLE (REFUNDABLE) (Pxx)

Purpose of Zero-Rating:

The zero-rated seller becomes internationally competitive by allowing the refund or

credit of input taxes that are attributable to export sales.

Rationale for zero rating of export sales: The Philippine VAT system adheres to the
"Cross Border
The Input Vat attributable to zero rated (0%) sale may be:
a. Refunded; or
b. Claimed as deduction/tax credit against output vat on domestic sales; or
c. Claimed as tax credit (TCC) against any other internal revenue taxes.

Refund of Input Vat on zero rated (0%) sale (Sec. 122 NIRC; RR 13-2018)
A vat registered person whose sales of goods, properties or services are zero-rated or
effectively zero-rated may apply for the issuance of a tax refund of input vat attributable
on such sales. The input vat that may be subject of the claim shall exclude the portion of
the input vat that has been applied against the output vat. The application should be
filed within two (2) years after the close of the taxable quarter when such sales were
made.

(By: Sayno, Abegail)

90-DAY PERIOD TO REFUND

In proper cases, the Commissioner of Internal Revenue shall grant refund for creditable
input vat within ninety (90) days (previously 120 days), as amended under RA No.
10963-TRAIN Law, from the date of submission of the official receipts or invoices and
other documents in support of the application filed. Provided, that should the
Commissioner find that the grant of refund is not proper, the Commissioner must state
in writing the legal and factual basis of the denial.

The ninety (90) day period under the TRAIN Law to process and decide, pending the
establishment of the enhanced VAT Refund System shall only be up to the date of
approval of the Recommendation Report on such application for VAT refund by the
Commissioner or his duly authorized representative; Provided; that all claims for
refund/tax credit certificate filed prior to January 1, 2018 will be governed by the one-
hundred twenty (120)-day processing period.

In case of full or partial denial of the claim for tax refund, the taxpayer affected, may,
within thirty (30) days from receipt of the decision denying the claim, appeal the decision
of the Court of Tax Appeals; Provided, however, that failure on the part of any official,
agent or employee of the BIR to act on the application with the 90-day period shall be
punishable under Section 269 of the Tax Code, as amended.

Refunds shall be made upon warrants drawn by the CIR or by his authorized
representative without the necessity of being countersigned by the Chairman,
Commission on Audit (COA), the provision of the Revised Administrative Code to the
contrary, notwithstanding; Provided, that refunds under these paragraphs shall be
subject to post audit by the COA.

SUSPENSION OF THE 90-DAY PERIOD DURING COVID-19 PANDEMIC

RR 16-2020 dated June 25, 2020:
Pursuant to RA 11469 , otherwise known as the “BAYANIHAN TO HEAL AS ONE
ACT”, declaring the existence of National Emergency, arising from the Corona Virus
Disease 2019 (COVID-19) and in consideration of the plight of the taxpayer-claimants
who are greatly affected by the restrictions imposed by the government, the 90-day
period of processing vat refund claims shall be suspended in areas where Enhanced
Community Quarantine (ECQ) or Modified Enhanced Community Quarantine (MECQ) is
still in forced.

EXPORT SALE BY A NON-VAT REGISTERED ENTITY

Export sale by a non-VAT registered entity is a vat-exempt transaction. Under Section
109 of the Tax Code, a vat exempt sale refers to sale of goods, properties or services or
the use or lease of properties that is not subject to VAT (output tax) and the
seller/supplier is not allowed any tax credit of VAT (input tax) on purchases related to
such exempt transaction.

Gross Sales Pxx

x Vat Rate N/A Vat Exempt
OUTPUT VAT P0
INPUT VAT N/A Not Allowed
VAT PAYABLE -

(By: Vallespin, Jenny)

ZERO RATED SALE OF GOODS
The following sales by vat-registered persons shall be subject to 0% vat under section
106 (A)(2)(a) of the tax code, as amended by RA No. 10963, otherwise known as the
TRAIN law.
EXPORT SALES
A. Actual Export and Deemed Export Sales
Sale and actual shipment of goods from the Philippines to foreign country, regardless
of any shipping agreement that may be agreed upon that may affect or decide the
transfer of ownership of the products so exported and paid for in appropriate foreign
currency or its equivalent in goods or services, and accounted for in compliance with
Bangko Sentral ng Pilipinas rules and regulations (BSP).
B. Effectively Zero Related Sales
Sales to entities exempt under a special law or under international agreements to which
the Philippines is a signatory effectively subjects such sales to zero rates.
It shall refer to local sale of goods and properties by a vat registered person or entity
who was granted indirect tax exemption under special laws or international agreement
STATUS QUO ON VAT ZERO – RATING OF SALES TO PEZA ENTITIES
DOF memorandum circular No. 2018-003 declared “status quo “on vat zero rating
incentives on sale of goods/services to separate customs territories. It further provides
that section 8 of the PEZA law, which provides that especial economic zones are to be
operated and managed as a separate custom territory, was not amended or repealed by
TRAIN law. Consequentially, until a law or revenue regulation is passed or issued
contrary to or incompatible with the pronouncement by the DOF, the vat zero-rating
incentive being enjoyed by PEZA locators or entities shall remain in full force and effect.
(By: Zamudio, Paul Andrei)
EXPORT SALE OF SERVICES

Sale of Services performed in the Philippines subject to 0% VAT:

1.) Processing, manufacturing, and repacking of goods for businesses abroad and
such goods are to be exported. Such services rendered are paid in foreign
currency acceptable and accounted for with regards to the rules and regulations
of the BSP.
2.) Processing, converting, or manufacturing services rendered by subcontractors
and/or contractors for an enterprise with export sales exceeding to 70% of total
annual production.
3.) Services aside from those mentioned in item number 1 which are also rendered
for businesses abroad or to a nonresident person who is also abroad during the
rendering of such services. These services are paid in foreign currency
acceptable and accounted for with regards to the rules and regulations of the
BSP.
4.) Services performed for those entities exempted under special laws or
international agreements to which the Philippines is a signatory effectively
subjects the supply of such services to zero percent rate.
5.) Services performed to those who are into international shipping or international
air transport operations, including leases of property for use thereof.
6.) Transport of passengers and cargo by domestic air or sea vessels from the
Philippines to countries abroad.
7.) Sale of power or fuel that are generated via renewable sources of energy such
as but is not limited to:
 Biomass
 Solar
 Wind
 Hydropower
 Geothermal
 Ocean energy
 Other emerging energy resources using technologies such as fuel cell and
hydrogen cells.
Note: Due to TRAIN Law, export sales falling under the category of either item number
1 or 2 are now subject to 12% VAT, if and only if the following requisites are satisfied:
 Successful establishment and implementation of an enhance refund system that
grants refunds of creditable input tax within 90 days from the filing of the vat
refund application with the BIR; The ninety (90) day period to process and
decide, pending the establishment of the enhanced VAT Refund System shall
only be up to the date of approval of the Recommendation Report on such
application for VAT refund by the Commissioner or his duly authorized
representative; Provided; that all claims for refund/tax credit certificate filed prior
 to January 1, 2018 will be governed by the one-hundred (120)-day processing
period; and
 All pending vat refund claims as of Dec. 31, 2017 shall be fully paid in cash by
Dec. 31, 2019.
(By: Ababa, Chatelyn)
INPUT VAT - means that vat due on or paid by a VAT-registered taxpayer on
importation of good, properties or services, including lease or use of property in the
course of his trade or business. It shall also include the transitional input tax determined
in accordance with Section 111 of the Tax Code, presumptive input tax and deferred
input tax from previous period.
SOURCES OF INPUT VAT

LOCAL PURCHASE of goods or services such as purchase or acquisition of:

a) Goods for Sale
b) Goods for conversion into finish product
c) Goods for use as supplies
d) Goods for use as materials supplied in the sale of services
e) Goods for use in trade or business for which depreciation or amortization.
f) Real properties for which Vat has actually been paid
g) Services for which Vat has actually been paid
INPUT ON CAPITAL GOODS (Depreciable Goods)
 Capital Goods – refer to goods or properties with estimated useful life of greater
than 1 year and which are treated as depreciable assets under the tax code.
 Under RR 16-2005 – input taxes on the purchase of capital goods by a VAT
registered person shall be allowed as a tax credit against output VAT under the
following rules:
a) More Than P1M – Input tax shall be spread or allocated during the
estimated useful life of the depreciable asset but shall not exceed 60
months.
b) Under the TRAIN LAW – The rule of amortizing the input vat on capital
goods shall be allowed until December 31, 2021. Taxpayers with utilized
input VAT as of December 31,2021 shall be allowed to apply the same as
scheduled until fully utilized.
(By: Abejero, Harold)
IMPORTATION - it is not a transaction arising from the ordinary course of trade or
business, it is subject to VAT, whether for personal or business use.
Importer – refers to any person who brings goods into the Philippines, whether or not
made in the course of trade or business.
Importation of Goods by TAX EXEMPT PERSONS
In case of goods imported into the Philippines by VAT-exempt persons which are
subsequently sold, transferred, or exchanged to non-exempt persons, the latter shall be
considered the importers thereof and shall be liable for the VAT due on such
importation.

Computation of VAT ON IMPORTATION

1. General Formula:
Total value for tariff and customs duties Pxxx
(determined by the Bureau of Customs)
ADD:
Customs duties xxx
Excise Tax xxx
Other charges prior to release** xxx xxx
Tax base Pxxx
Tax rate 12%
VAT on Importation Pxxx

Should only refer to legitimate expenses prior to release from BOC such as:
 Insurance, Freight, Postage
 Interest, Commission
 Bank charge, Brokerage
 Wharfage, Arrastre, Stamps
 Processing Fee

2. Where the customs duties are determined on the basis of Quantity or Volume of
Goods, the landed cost should be used as a basis for computing VAT

Formula:
Invoice Amount Pxxx
Add:
Customs duties xxx
Excise Tax xxx
Other charges prior to release** xxx xxx
Landed Cost xxx
Tax rate 12%
VAT on Importation Pxxx

(By: Andrade, Celwyn)

PRESUMPTIVE INPUT TAX OF 4% ON SALE OF GOODS

A presumptive input tax is allowed for persons or firms that are engaged in the
processing of sardines, mackerel, and milk and in manufacturing refined sugar cooking
oil and packed noodle-based instant meals, creditable against the output tax equivalent
to four percent of the value in money of their purchases of primary agricultural products
which are used as inputs to their production.
The term processing shall mean pasteurization, canning and activities which
through physical or chemical process after the exterior texture or form or inner
substance of a product in such manner as to prepare it for special use to which it could
not have been put in its original form or condition.

Entitled to Presumptive vat: Persons or firms engaged in the

Processing of:
 Sardines
 Mackerel
 Milk
Manufacturing of:
 REFINED sugar
 Cooking oil
 Packed noodle based instant meals.

TRANSITIONAL INPUT TAX

Person who become liable to VAT or any person who elects to be VAT-registered
person shall, subject to the filing of an inventory according to rules and regulations
prescribed by the secretary of finance, upon recommendation of the Commissioner, be
allowed input tax on his beginning inventory of goods, materials and supplies equivalent
to two percent (2%) of the value of such inventory or the actual VAT paid on such
goods, materials and supplies, whichever is higher, which shall be creditable against the
output tax.

TAXPAYERS WHO CAN AVAIL TRANSITIONAL INPUT VAT

a) Taxpayers who becomes liable to vat
b) Taxpayers who elects to be vat registered

(By: Anzano, Janine)

STANDARD INPUT TAX

The government or any of its political subdivisions, instrumentalities, or agencies,

including government-owned or controlled corporations (GOCCs) shall, before making
payment on account of each purchase of goods and/or services taxed at 12% vat
pursuant to Section 106 and 108 of the Tax Code, deduct and withhold a Final VAT due
at the rate of 5% of the gross payment.

The 5% final VAT withholding rate shall represent the net VAT payable of the seller.
The remaining 7% effectively accounts for the standard input VAT for sales of goods or
services to government or any of its political subdivisions, instrumentalities or agencies
including GOCCs in lieu of the actual input VAT directly attributable or ratably
apportioned to such sales.
Should actual input VAT attributable to sales to government exceeds 7% of gross
payments, the excess may form part of the seller’s expense or cost.
On the other hand, if actual input VAT attributable to sale to government is less than 7%
of gross payment, the difference must be closed to income.
RR 4-2007 provides that if one of the parties in the transaction is the government, the
vat on the transaction shall be based on the actual selling price.
The government or any of its political subdivisions, instrumentalities or agencies
including GOCCs, as well as private corporation, individuals, estates and trusts,
whether large or non-large taxpayers, shall withhold 12% VAT, starting February 1,
2006, with respect to the following payments:
1) Lease or use of properties or property rights owned by nonresidents.
2) Other services rendered in the Philippines by nonresidents.
The 5% withholding vat shall be remitted within 10 days from the close of the month the
withholding was made.

CREDITABLE WITHHOLDING VAT

Non-resident persons who perform 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. The recipient of the service is the one required to withhold and remit the VAT to
the BIR. Such VAT can be claimed by the recipient as input tax.
The 5% final vat withheld by the government and/or GOCCs is deductible against the
output vat of the seller.
TRAIN LAW:
Beginning 2021, the vat withholding system shall shift from final to a creditable vat
system. The payor shall be considered the withholding agent.
Payments for purchases of goods and services arising from projects funded by Official
Development Assistance (ODA) under RA 8182, shall not be subject to withholding of
vat.

EXCESS INPUT TAX

KINDS OF INPUT TAX TREATMENT
Related to sales subject to 12% VAT a) Carry-over
Related to 0% VAT a) Carry-over
b) Refund
c) Convert into tax credit certificate
In case of cancellation of VAT registration a) Convert into tax credit certificate.
b) In case it has no other tax liability,
refund

(By: Asis, Jhon Jomer)

LEASE AND SALE OF REAL PROPERTY
Generally, the lease of properties, real or personal, in ordinary course of business is
subject to VAT unless the gross annual receipts of the lessor do not exceed P3,000,000
and is non-VAT registered. In the case of lease of commercial units, the gross receipts
of property leased within the Philippines is subject to 12% VAT. Advance payments are
subject to VAT if it is applied to the rental such as in prepaid rent but are excluded if
given as a loan to the lessor, as an option money, or as security deposit. On the other
hand, lease of residential units are exempted if monthly lease rental per unit is less than
or equal to ₱15,000 or even if monthly lease rental per unit is more than or equal to
₱15,000 but the annual lease rentals per unit is less than ₱3,000,000. However, the
second situation is still subject to 3%percentage tax. Meanwhile, sale of real properties
are likewise subject to VAT provided that the sale was in ordinary course of business.
But the sale is exempted from VAT if the property sold was not under the normal course
business operations.

(By: Babagay, Aellana)

INSTALLMENT AND DEFERRED PAYMENT BASIS

Initial Payments – all payments which the seller receives on or before the execution of
the instrument of sale, including cash or property received, other than the purchaser’s
evidence of indebtedness during the taxable year when the real property was sold.
PAYMENT TERMS PAYMENT OF OUTPUT
VAT
CASH SALE If total selling price is paid Output vat shall be reported
immediately by the buyer during the month of sale
DEFERRED IF the buyer only paid: Output vat shall be reported
SALE (1) portion of the selling price, and during the month of sale
(2) INITIAL PAYMENT exceeds 25%
of the selling price
INSTALLMENT IF the buyer only paid: The seller or the real estate
SALE (1) portion of the selling price, and dealer shall be subject to
(2) INITIAL PAYMENT does not vat on instalment payments,
exceed 25% of the selling price inclusive of interest and
penalties
* The amount of mortgage on the real property sold is excluded, except when such
mortgage exceeds the cost or other basis of the property to the seller, in which case the
“excess” shall be considered part of the initial payments.
OUTPUT VAT under Installment Sale:
Year of sale = Initial Payment x Higher b/w GSP or FMV
GSP

Subsequent = Collections x Higher b/w GSP or FMV

Year(s) GSP

* If FMV/Zonal value > consideration or selling price, VAT is applied on the ration of
actual collection of the consideration against the agreed consideration, exclusive of the
VAT applied to the zonal/ FMV of the property at the time of the execution of the
Contract to Sell or Contract of Sale at the inception of the sale.
* Output vat based on FMV must be billed separately specifying that the vat billed
separately is based on the FMV of the property, in order that the input vat be claimed by
the buyer.

(By: Balce, Alliah Nicole)

PRE-SELLING OF REAL EXTATE PROPERTIES
 Pre-selling of real estate properties by real estate dealers shall be subject to
value added tax.
Real Estate Dealer – any person engaged in the business of buying, developing, selling,
exchanging real properties as principal, and holding himself out as a full or part-time
dealer in real estate.

PROPERTY IN-TRUST AND TRANSACTION DEEMED SALE

TRANSACTIONS
Not subject to VAT Subject to VAT
 Transmission of property to a  Transferred for sale
trustee  Transferred for lease or use in the
course of trade or business
 Transfer that constitute

(By: Barde, Donna Mae)

VAT ON SALE OF SERVICES
 A tax on payments for services rendered in the exercise of profession or calling.
 An indirect tax and, thus, may be passed on to the client or customer.
 A tax on service and, as such, it accrues at the time the service fee is collected
(regardless of timing of collection). Such payment may be collected in advance or
after the service is rendered.
  The “sale or exchange of services” is subject to 12% vat based on “gross
receipts” derived by any person engaged in the sale of such services or lease of
properties.

Sale or exchange of services – performance of all kinds of services in the Philippines for
others for a fee, renumeration or consideration (Section 108A of the Tax Code as
amended by TRAIN Law).

It includes services performed by the following:

a. Construction and service constructors
b. Stock, real estate, commercial, customs and immigration brokers
c. Lessors of property, whether personal or real
d. Warehousing services
e. Lessors or distributors or cinematographic films
f. Persons engaged in milling, processing, manufacturing or repacking of goods for
others
g. Proprietors, operators or keepers of hotels, motels, rest houses, pension houses,
inns, resorts
h. Proprietors or operators of restaurants, refreshment parlors, cafes and other
places, including clubs and caterers
i. Dealers in securities
j. Lending investors
k. Transportation contractors on their transport of goods or cargoes, including
person who transport goods or cargoes for hire and other domestic common
carriers by land relative to their transport of goods or cargoes
l. Common carriers by air and sea relative to their transport of passengers, goods
or cargoes from one place in the Philippines to another place in the Philippines
m. Sales of electricity by generation companies, transmission by any entity and
distribution companies, including electric cooperatives
n. Services of franchise grantees of electric utilities, telephone and telegraph, radio
and/or television broadcasting and all other franchise grantees, except those
under Section 109 of the Tax Code and non-life insurance companies (except
their crop insurances) including surety, fidelity, indemnity and bonding companies
and similar services regardless of whether or not the performance thereof calls
for the exercise of use of the physical and mental faculties.

“Sale or exchange of service” shall likewise include the following:

1. The lease or use of or the right or privilege to use any copyright, patent, design
or model, plan, secret formula or process, goodwill, trademark, trade brand or
other like property or right.
2. The lease of or the use of, or the right to use of any industrial, commercial, or
scientific equipment.
3. The supply of scientific, technical, industrial, or commercial knowledge or
information.
 4. The supply of any assistance that is ancillary and subsidiary to and is furnished
as a means of enabling the application or enjoyment of any such property or right
as is mentioned subparagraph (2) or any such knowledge or information as is
mentioned subparagraph (3).
5. The supply of services by a non-resident person or his employee in connection
with the use of property or rights belonging to, or the installation or operation of
any brand, machinery, or other apparatus purchased from such non-resident
person.
6. The supply of technical advice, assistance or services rendered in connection
with technical management or administration of any scientific, industrial or
commercial undertaking, venture, project, or scheme.
7. The lease if motion picture films, tapes and discs; and
8. The lease of or use of, or the right to use radio, television, satellite transmission
and cable television time.

Lease of properties - shall be subject to vat irrespective of the place where the
contract of lease or licensing agreement was executed if the property is leased or used
in the Philippines.

Gross receipts – Total amount of money or its equivalent representing the contract
price, compensation, service fee, rental, or royalty, including the amount charged for
materials supplied with the services and deposits and advanced payments actually and
constructively received during the taxable period for services performed or to be
performed for another person, excluding value added tax.

(By: Biasura, Jhazreel)

NON-LIFE INSURANCE

Only the transactions entered into by persons in the course of non-life insurance
business are subject to value added tax. They include marine, fire and casualty,
insurance, surety, fidelity, indemnity, bonding companies, and mutual benefit
associations.

They are not subject to Premiums Tax under Section 123 of the Tax Code. Nonresident
foreign persons rendering non-life insurance services in the Philippines are also subject
to 12% vat.

Non-life insurance companies' including surety, fidelity, indemnity and bonding

companies, shall include all individuals, partnerships, associations, or corporations
including professional reinsurers defined in Section 280 of PD612, otherwise known as
‘The Insurance Code of the Philippines', mutual-benefit associations and government
owned or controlled corporations, engaging in the business of property insurance, as
distinguished from insurance on human lives, health, accident and insurance
appertaining thereto or connected therewith which shall be subject to Percentage Tax
under Section 123 of the Tax Code (RR 4-2007).

The gross receipts from non-life insurance shall mean total premiums collections
whether paid in money, notes, credits or any substitute for money. Non-life reinsurance
premiums are subject to vat. Insurance and reinsurance commissions, whether life or
non-life, are subject to vat. Vat due from the foreign reinsurance company shall be
withheld by the local insurance company and to be remitted to the BIR by filing the
Monthly Remittance Return of Value Added Tax Withheld (BIR Form1600).

PRE-NEED COMPANIES
Pre-need companies are companies registered with the Securities and Exchange
Commission and authorized/licensed to sell or offer for sale pre-need plans, whether a
single plan or multi-plan. They are engaging in business as a seller of services providing
services to plan holders by managing the funds provided by them and making payments
at the time of need or maturity of the contract. As service providers, the compensation
for their services is the premiums or payments received from the plan holders.

HEALTH MAINTENANCE ORGANIZATIONS (HMOs)

HMOs are entities, organized in accordance with the Corporation Code of the
Philippines and licensed by the appropriate government agency, which arranges for
coverage or designated managed care services needed by plan holders/members for
fixed prepaid membership fees and for a specified period of time.
HMOs' gross receipts shall be the amount of money or its equivalent representing the
service fee actually or constructively received during the taxable period for the services
performed for another person, excluding the vat. The compensation for their services
representing their service fee, is presumed to be the total amount received as
enrollment fee from their members plus other charges received.

FRANCHISE GRANTEEs
The following services of franchise grantees are subject to vat
a) On electric utilities
b) On telephone and telegraph
c) On toll road operations
d) On radio and television broadcasting, except franchise grantees of radio and
television broadcasting companies whose annual gross receipts of the preceding year
do not exceed P10M because they are subject to a Franchise Tax of 3%.
(By: Burac, Denielle)
DEALERS IN SECURITIES AND LENDING INVESTORS
Dealer in securities means a merchant of stocks or securities:
a. With an established place of business.
b. Regularly engaged in the purchase of securities and their resale to customers,
that is, one who as merchant buys securities and sells them to customers.
c. With a view to the gains and profits that may be derived therefrom.

MILLERS
The millers subject to VAT are those engaged in milling for others, except millers of:
 Palay into rice
 Corn into corn grits
 Sugar cane into raw sugar

BASIS:
 If the miller is paid in cash, VAT shall be based on gross receipts for services
during the month or quarter.
 If the miller received a share of milled products instead of cash, the VAT shall be
based on the actual market value of his share in the milled products. Sale by the
owner of the miller of his share in the milled product (except rice, corn grits, and
ra sugar) shall be subject to VAT.

CONSTRUCTION AND SERVICE CONTRACTORS

Input VAT on construction in progress (CIP) shall be recognized and claimed in the
month of purchase for goods or payment for services, if supported by a proper VAT
invoice or official receipt. The P1,000,000 threshold on purchase of capital goods
requiring an amortization of the input taxes shall not apply on CIP.
Construction in Progress shall refer to the cost of construction work which is not yet
completed. It is considered purchase of services.
Input taxes will be recognized in the month payment was made on the progress billing.
In the case where labor will be furnished by the contractor and materials will be
purchased by the contractee form other suppliers, input taxes will be recognized on
labor when payment is made on the progress billings while input taxes will be
recognized on materials at the time the materials are purchased.

RECREATIONAL CLUBS
Gross receipts of recreational clubs or clubs which are organized and operated
exclusively for pleasure, recreation, and other non-profit purposes including but not
limited to membership fees, assessment dues, rental income, and service fees are
subject to VAT.

SERVICES BY CONDOMINIUM CORPORATIONS

Prior to 2018
In RMCs 65-2012 and 9-2013, association dues, membership fees and other charges
collected by a condominium corporation and homeowners’ association are subject to
VAT since they constitute income payment or compensation for the beneficial services it
provides to its members, tenants and homeowners-members. However, they may be
exempted from VAT subject to the fulfillment of conditions provided by Section 18 or RA
9904, otherwise known as “Magna Carta for Homeowners and Homeowners’
Associations”.

Under Train Law

Exempt under Section 109(Y) of the Tax Code as amended by RA 10963

(By: Bustamante, Jilian Kate)

VAT EXEMPTION AND DISCOUNTS TO SENIOR CITIZENS AND PWDS

Under RA 9994, otherwise known as the Expanded Senior Citizens Act of 2010, Senior
Citizens are entitled to the following benefits:
 Vat exemption and 20% discount on certain items; and
 5% special discount on basic necessities and prime commodities

Persons with Disability (PWDS), are likewise entitled to the aforementioned 20% and
5% discounts as provided under RA 7277, otherwise known as the Magna Carta Law
for PWDS, as amended.

DEFINITION OF TERMS:
Senior Citizen or Elderly - refers to any Filipino citizen who is a resident of the
Philippines, sixty (60) years old or above. It may apply to senior citizens with "dual
citizenship" status provided they prove their Filipino citizenship and have at least six (6)
months residency in the Philippines (RA 9994 otherwise known as "Expanded Senior
Citizens Act of 2010" and its related revenue regulations/ circulars RR 7-2010, RR 8-
2010, RMC 38-2012).

Resident Citizen - a Filipino Citizen with permanent legal residence in the Philippines,
and shall include one, who, having migrated to a foreign country, has returned to the
Philippines With a definite intention to reside therein, and whose immigrant visa has
been surrendered to the foreign government.

Persons with Disability shall refer to an individual suffering from restriction or different
abilities, as a result of mental, physical or sensory impairment to perform an activity in a
manner or within the range considered normal for human being (RR 1-2009).
(By: Cereno, Mae Charez)
VAT EXEMPT SALES AND 20% DISCOUNT TO SENIOR CITIZENS AND PWDS
The following items sold to a senior citizen or PWD are vat-exempt and will
entitle the SC/PWD to a minimum discount of 20%:
SENIOR CITIZENS (RR 7-2010)
 Medicine and Drug Purchases
 Professional fees of attending
physicians and licensed health
workers in all private hospitals,
medical facilities, outpatient clinics
and home health care services.
 Medical and dental services,
diagnostic and laboratory fees.
 On actual fare for land transportation
travel, domestic air transport and sea
shipping vessels and the like.
(Note: Toll fees are not the same as
“fares”)
 On the utilization of services in hotels
and similar lodging establishments,
restaurants, recreation centers.
 On admission fees charged by
theaters, cinema houses and concert
halls, circuses, carnivals and other
similar places of culture, leisure and
amusement.
 On funeral and burial services of
senior citizens.
(By: Coprada, Jerrick)
RULE FOR RESTAURANTS
PWDs (RR 5-2017)
 On the utilization of services in hotels
and similar lodging establishments,
restaurants, recreation centers.
 On admission fees charged by
theaters, cinema houses and concert
halls, circuses, carnivals and other
similar places of culture, leisure and
amusement.
 On the purchase of medicines in all
drugstores.
 On medical and dental services
including diagnostic and laboratory
fees in all government facilities,
private hospitals and medical
facilities, subject to the guidelines to
be issued by the DOH in coordination
with the PhilHealth.
 On fare for domestic air and sea
travel.
 On actual fare for land transportation
travel.
 On funeral and burial services for the
death of the PWD: Provided that the
beneficiary or any person who shall
shoulder the funeral and burial
expenses of the deceased PWD shall
claim the discount under this rule for
the deceased PWD upon
presentation of the death certificate.
(Note: It excludes obituary publication
and the cost of memorial lot)
For restaurants, the discount shall be for the sale of food, drinks, dessert and other
consumable items served by the establishments, including value meals and promotional
meals offered for the consumption of the general public.

For this purpose, the term "restaurant" shall refer to any establishment offering to the
public, regular and special meals or menu, fast food, cooked food and short orders.
Such eating places may also serve coffee, beverages and drinks. Food and goods sold
by establishment that are not restaurants are not covered, therefore not allowed to give
the 20% discount.

(By: Dacillo, Aileen)

COMPUTATION OF DISCOUNT AND AMOUNT DUE

VAT on the sale of goods and services with sales discounts granted by business
establishments to senior citizens and PWDs shall be computed in accordance with the
following formula:

Total sales inclusive of Vat ₱ 1,120

Less: 12% vat; (P1,120 x 3/28) ( 120 )
Total sales exclusive of Vat*** ₱ 1,000
Less: 20% discount*** ( 200 )
Total Amount due ₱ 800
The amount of gross sales or gross receipts to be reported by the seller shall be the
undiscounted amount of P1,000. The discount granted shall be reported as deduction
from the gross income of the seller instead of deducting the same to the amount of
gross/sale receipts.

The journal entries in the books of the seller shall be as follows:

Cash ₱800
Senior Citizen/PWD discount expense 200
Sales ₱1,000

SELLER IS NOT SUBJECT TO VAT

The 20% sales discount granted by non-VAT sellers (i.e., subject to 3% percentage tax)
shall be computed in accordance with the following formula:

Total Sales ₱ 1,120

Less: 20% discount ( 224 )
Total sales net of discount ₱ 896

3% Percentage tax (₱1,120 x 3%) ₱ 33.6

The amount of gross sales or gross receipts to be reported by the seller shall be the
undiscounted amount ₱ 1,120. The discount granted shall be reported in the deduction
from the gross income of the seller instead of deducting the same to the amount of
gross sales/receipts.

The journal entries in the books of the seller shall be as follows:

Cash ₱ 896

Senior Citizen/PWD discount expense 224

Sales ₱ 1,120
Percentage Tax due expense ₱ 33.6
Cash/Percentage due payable 33.6

INPUT VAT ATTRIBUTABLE TO SALE SCs and PWDs

The input tax attributable to the vat exempt sale is considered as cost or an expense
account by business establishments and shall not be allowed as input tax credit.

EXEMPTION FROM PERCENTAGE TAX

While the Magna Carta Law for Senior Citizen and PWDs expressly provide for vat
exemption on their purchases of certain goods and services, the law does not include
exemption from the payment of Percentage Tax.

(By: Dames, Christine)

GRANT OF 5% SPECIAL DISCOUNT FOR SENIOR CITIZEN

Under Section 2 of the joint DTI-DA Administration Order No. 10-02, series of
2010:
A special discount of 5% of the regular retail price of basic necessities and prime
commodities shall be granted to Senior Citizens on their purchases thereof, taking into
consideration that said purchases shall be for personal and exclusive consumption
and/or enjoyment of the Senior Citizen.

Basic Necessities - are goods "vital to the needs of consumers, for their sustenance
and existence."
Ex.
• Rice; Corn; Bread excluding pastries and cakes
 • Fresh, dried, and canned fish and other marine products
• Fresh pork, beef, and poultry meat
• Fresh eggs
• Fresh and processed milk
• Fresh vegetables including root crops
• Coffee and coffee creamer
• Sugar; Cooking oil; Salt
• Powdered, liquid, bar laundry and detergent soap
• Firewood; Charcoal; Candles

Prime Commodities - are essential goods to them.

Ex.
• Fresh fruits; Flour
• Dried, processed, and canned pork, beef, and poultry meat
• Dairy products not falling under basic necessities
• Canned sardines, tuna
• Noodles; Onions; Garlic
• Geriatric Diapers
• Herbicides
• Poultry, swine, and cattle feeds
• Veterinary products for poultry, swine, and cattle
• Nipa shingle, playboard and construction nails
• Batteries
• Electrical supplies and light bulbs
• Steel wire

Retailers – any natural or juridical person engaged in the business of selling consumer
products directly to consumers, which shall include among others, supermarkets,
grocery/convenience stores and shops.
Exclusions:
• Stalls in food courts
• Food carts
• Sari-sari stores with a capitalization of < ₱100,000, public, and private wet
markets
Purchase of Basic Necessities and Prime Commodities are not exempt from VAT
(unless expressly provided as exempt under the law)
Basic or Prime Commodity Subject to
VAT 5% disct.
1. Sugar, coffe Yes Yes
2. Fresh fruits No Yes
 3. Rice, corn No Yes
4. Bread Yes Yes
5. Electrical Supplies Yes Yes

The total amount should NOT exceed ₱1,300 per calendar week without carryover of
unused amount. A purchase booklet issued by OSCA shall be presented to the retailer
upon purchase of basic necessities and prime commodities.

(By: Dayto, Riza Kristine)

5% SPECIAL DISCOUNT TO PWDS (RR 9-2019)
 Every PWD shall enjoy a special discount of five percent (5%) of the regular retail
price, without exemption from the VAT of “basic necessities and prime commodities”.
 The discount is limited to purchases not exceeding to P1,300 “per calendar week
without carry-over of unused amount”.
 Note: personal exclusive consumption and or enjoyment within calendar week.
 Note: said amount shall be spent on at least four kinds of items listed as necessities
and prime commodities.

BASIC NECESSITIES SHALL INCLUDE:

1. All kinds and variants of rice
2. Corn
3. All kinds of bread (pastries and cakes not included)
4. Fresh, dried and canned fish and other marine products (including frozen and in
various modes of packaging)
5. Fresh pork, beef and poultry meat
6. All kinds of fresh eggs (excluding quail eggs)
7. Potable water in bottles and containers
8. Fresh and processed milk (excluding milk labelled as food supplement)
9. Fresh vegetables including root crops
10. Fresh fruits
11. Locally manufactured instant noodles
12. Coffee and coffee creamer
13. All kinds of sugar (excluding sweetener)
14. All kinds of cooking oil
15. Salt
16. Powdered liquid, bar laundry and detergent shop
17. Firewood
18. Charcoal
19. All kinds of candles
20. Household liquefied petroleum gas, not more than 11 kgs, LPG content once
every five months bought for LPG dealers
21. Kerosene, not more than 2 liters per month
PRIME COMMODITIES SHALL INCLUDE:
1. Flour
2. Dried, processed and canned pork, beef and poultry meat
3. Dairy products not falling under the definition of basic necessities
4. Onions and garlics
5. Vinegar, patis and soy sauce
6. Toilet/ bath soap
7. Fertilizer
8. Pesticides
9. Herbicides
10. Poultry feeds, livestock feeds and fishery feeds
11. Veterinary products
12. Paper, school supplies
13. Nipa Shingle
14. Sawali
15. Cement, clinker, GI sheets
16. Hollow blocks
17. Plywood
18. Plyboard
19. Construction nails
20. Batteries (excluding cellphone and automotive batteries)
21. Electrical supplies and light bulbs
22. Steel wires
(By: Delmoro, Micah Mae)
DEDUCTION FROM THE GROSS INCOME OF THE SELLER

 The seller/establishment may claim the discounts granted (20% and/or 5%) to
SCS and PWDs as deduction from gross income based on the net cost of the
goods sold or services rendered.

 The cost of the discount shall be allowed as deduction from the gross income for
the same taxable year that the discount is granted.

 The total amount of the claimed tax deduction net of value-added tax, shall be
included in their gross sales receipts for tax purposes and shall be subject to
proper documentation and to the provisions of the National Internal Revenue
Code (NIRC).
Prohibition on the availment of double discounts
A senior citizen who is at the same time a PWD:

 Can only claim a single 20% discount on a particular transaction;

 5% discount on basic necessities and prime commodities.

However, these discounts may not also be claimed if they claim a higher discount as
may be granted by the commercial establishment and/or under other existing laws or in
combination with other discount program/s.
The SC/PWD may avail either the promotional discount allowed in purchasing goods
and services, or the 20%/5% discount, whichever is higher. The discount shall in no
case be less than 20%/5%.
(By: Dingle, Francis)
COMPUTATION OF VAT AND DISCOUNTS – NATIONAL ATHLETES AND
COACHES

Dated 27th of May, 2020 with regards to RR 13-2020, all Qualified National Athletes and
Coaches shall be entitled to 20% sales discount, on sales exclusive of VAT on the ff.
establishments relative to the sale of goods and services for their actual and exclusive
use or enjoyment:
1. Transportation services like:
• Domestic air and sea transportation
• National land transportation privilege
2. Hotels, resorts and other similar lodging establishments
3. Restaurants
4. Medicine and drug purchases
5. Recreation centers
6. Sports equipment purchase
7. Admission fees privilege
For percentage tax sellers:
• the value of sales discounts shall be included in solving the 3% percentage tax
and also it is included as part of the gross sales and receipts for income taxation
purposes.
• However, the sales discounts must be credited from the gross income of the
enterprise for the same taxable year that the discount was granted.
Example:
Sales/Receipts P1120
Less: 20% Discount (224)
Total amount due net of discount 896
Percentage Tax Due (P1,120 x 3%) P33.6
 • If the taxpayer does not claim the Optional Standard Deduction, the value of the
sales discount will still be deducted as an itemized deduction from gross income
for the same taxable year as the discount was provided (OSD).
• In the official receipt or sales invoice issued by the establishment for the sale of
merchandise or services to participating National Athletes and Coaches, the
gross purchase price and the sales discount must be separately indicated.
• Just the real amount of the sales discount, not surpassing 20% of the total
purchase price or gross receipts, can be deducted from gross income and must
be registered, net of vat if applicable. The sales discount granted, however,
cannot be asserted as an eligible deduction from gross income if the
establishment giving the discount took advantage of the OSD or choose to be
taxed at the 8% income tax rate, if applicable.
For those National Athletes who are at the same time a senior citizen or PWD may only
claim a single 20% discount in a single transaction. This is in relation to the prohibition
on the availment of double discounts.
(By: Esperas, Marivic))
MIXED BUSINESS TRANSACTIONS

A VAT Registered person may be engaged in a combination of sales subject to VAT,

zero-rated VAT, and VAT exempt transactions. For VAT purposes, this is known as
MIXED BUSINESS TRANSACTIONS. The main concern in mixed business transaction
is the allocation or apportionment of input VAT.

A VAT registered person who is also engaged in transactions not subject to VAT shall
be allowed of Input tax credit as follows:
 Total input tax which can be directly attributed to transactions subject to VAT
(except VAT taxable sales of goods and services to the government or GOCCs);
and
 Retable Portion of any input tax which cannot be directly attributed to either
activity (allocation shall be on the basis of sales volume)

Apportionment of Input Tax on Mixed Transactions A VAT-registered person who is also

engaged in transactions who is also engaged in transactions not subject to VAT shall be
allowed to recognize input tax credit on transactions subject to VAT as follows:
1. All the input taxes that can be directly attributed to transactions subject to VAT
may be recognized for input tax credit; Provided, that input taxes that can be
directly attributable to VAT taxable sales of goods and services to the
Government or any of its political subdivisions, instrumentalities or agencies,
including government-owned or controlled corporations (GOCCs) shall not be
credited against output taxes arising from sales to nongovernment entities; and
 2. If any input tax cannot be directly attributed to either a VAT taxable or VAT-
exempt transaction, the input tax shall be pro-rated to the VAT taxable and
VAT-exempt transactions and only the ratable portion pertaining to
transactions subject to VAT may be recognized for input tax credit.

(By: Francisco, Josent Marie)

FILING OF VAT RETURNS

 Every person is liable to pay the value added tax impose under the tax code shall
file and pay a monthly and quarterly VAT return (in a triplicate copy for BIR and
one for the taxpayer) base on the amount of his gross sales or receipts.

 Monthly VAT return shall be filled and paid not later than 20th day following the
end of each month while the quarterly VAT return shall be filled and paid not later
than the 25th day following the close of each taxable quarter prescribed for each
taxpayer.

REQUIRED ATTACHMENTS TO THE VAT RETURNS

Duly issued Certificate of Creditable VAT Withheld at source (BIR Form 2307), of
applicable.
 Summary Alphalist of Withholding Agents of Income Payments Subjected to
Withholding Tax at Source (SAWT), if applicable.
 Duly approved Tax Debit Memo, if applicable.
 Duly approved Tax Credit Certificate, if applicable.
 Authorization letter if return is filled by authorized representative.

Place of Filing of VAT returns

 If payment is involved, the returns together with the required attachments, shall
file and pay the VAT due thereon to any Authorized Agent Bank (AAB) located in
the Revenue District Office. In the absence of accredited bank, the returns
together with the required attachments, should file and pay with Revenue
Collection Officer (RCO).
  If no payment is involved, the monthly/quarterly return should be filed with the
RDO/LTDO/Large Taxpayer District Office (LTDO)/ Large Taxpayer Assistance
Division, Collection Agent having jurisdiction over the registered address of the
taxpayer.

(By: Fortunado, Marianne)

INVOICING REQUIREMENTS, CONSEQUENCE OF ISSUING AN ERRONEOUS

INVOICE OR OFFICIAL RECEIPT

A VAT registered person shall issue a VAT invoice for every sale, barter or exchange of
goods or properties and a VAT official receipt for every lease of goods or properties and
for every sale, barter or exchange of services. A single invoice/receipt involving VAT
and non-VAT transactions may be used by a VAT registered person as long as the said
invoice/receipt clearly indicated the break-down of the sales price between its taxable,
exempt, and zero-rated components and the calculation of the value added tax on each
portion of the sale shall be shown on the invoice or receipt. However, a VAT registered
person may issue a separate invoices/receipts for the taxable, exempt, and zero-rated
component of its sales provided that the term "VAT-EXEMPT SALE" is written or printed
prominently on he invoice or receipt if the sale is exempt from value-added tax and if
the sale is subject to zero percent then the term "ZERO-RATED SALE" must ve written
or printed prominently on the invoice or receipt.

A non-VAT person is liable to the percentage taxes applicable to his transactions, to the
VAT due on the transactions without the benefit of any tax credit, and to 50% surcharge
it the said person is not a VAT registered person issui an invoice or receipt showing his
TIN followed by he word VAT. If a VAT registered person issues a VAT invoice or
receipt for a VAT-exempt transaction but fails to display prominently on the invoice or
receipt the term "vat exempt sale" then the issuer will be liable to pay the VAT on he
said transaction.