TAXATION

VALUE ADDED TAX

1. CONCEPT/DEFINITION
VAT is a consumption tax imposed at every stage of distribution process on
(i) the sale, barter, exchange, or lease of goods or properties and
(ii) rendition of services in the course of trade or business, or the
(iii) importation of goods, whether such imported goods are for use in business or non-business purposes. (Sec.
4.105-2, RR 16-2005)

SALES TAX : The taxpayer (seller) determines his tax liability by computing the tax on the gross selling price or
gross receipt (output tax), and subtracting or crediting the earlier VAT on the purchase or importation of goods
or on the purchase of service (input tax) against the tax due on his own sale

VALUE Added – difference between the total sales of the taxpayer and his total purchases for the same subject
period subject to VAT
VAT RATE: 12% (TRAIN)
-Revenue Regulation 5-87
CASE: CIR v PLDT

2. Characteristics of a Vatable Transaction

(1) Privilege/Percentage Tax – imposed by law directly not on the thing or service but on the ACT (sale,
barter, exchange, lease, importation, or perfrormance of service)
(2) Ad Valorem Tax –the amount is based on the gross selling price or gross value in money of the
goods or service, including the use or lease or properties.
(3) Indirect Tax – it may be shifted or passed on to the buyers, transferee, or lessee of the goods,
properties or services as part of the purchase price. (except in importation-importers liablility)
(4) Excise Tax - a tax on the privilege of engaging in the business of selling goods or services, or in the
importation of goods but unlike excise, it is not applied only to a few selected goods
(5) Broad-Based Tax on Consumption – VAT is levied on every sale of goods, properties or services
at all stages of manufacture, production and distribution of goods or services
(6) Regressive Tax - tax is regressive by its very nature

General Features:
(1) VAT uses the Tax Credit Method (an entity can credit against or subtract from the VAT charged
on its sales or outputs the VAT paid on its purchases, inputs and imports.
OUTPUT VAT – INPUT VAT = VAT PAYABLE or EXCESS INPUT TAX.
Note: if INPUT VAT is higher (>) Output VAT = Excess input tax is carried over to the succeeding
taxable quarter as tax credit.
Exception: input tax attributable to zero rated sales may instead be refunded or credited against
other internal revenue taxes.
(2) All goods, properties and services (except exempt) including goods subject to excise taxes, and use
or lease of properties, whether real or presonal, are subject to tax at all levels of distribution.
(3) Although tax is levied at all stages, the total value of the goods is subject to tax only once.
(4) VAT, as a general rule, follow the destination principle (goods and services are taxed only in the
country where they are consumed). Therefore, no VAT shall be imposed to form part of the cost of
goods destined for consumption outside the territorial border of the taxing authority.

EXCEPTIONS:
(a) The service is performed in the Philippines;
(b) The service falls under any of the categories provided in Section 102(b) of the Tax Code; and
(c) It is paid for in acceptable foreign currency that is accounted for in accordance with the regulations of
the Bangko Sentral ng Pilipinas
Elements of a VAT-Taxable Transaction
Transactions Covered and their elements (summary):

(1) Done in the course of trade or business (ICT/B) w/n profit-oriented: rule of regularity + incidental thereto (inc
isolated)
Rule of Regularity/ in the course of trade or business
-regular conduct/pursuit of a commercial/economic activity, including transactions incidental thereto by
any person regardless of w/n engaged in nonstock, non-profit private organization or government entity.
Regularity – habituality/repetitiveness
Exception:
(a) NRC/NRA who perform services in Phil, even if no regularity
(b) Importation of Goods may be for business or non-business use are subject to VAT
(c ) business with gross sales or receipt do not exceed Php100k during the 12-month period shall be
considered principally for subsistence/livelihood and NOT ICT/B (exempt from VAT)
(d) Transactions Deemed Sale (Section 106{B} NIRC)- no sale in actual but circumstances made them
appear or seem to have a sale (ie. Manager of a grocery store appropriated himself goods for personal
consumption)
(2) Gross sales or receipts for the past 12 months or the next 12 months > 1,919,500php
(3) OR there are reasonable grounds to believe that gross sales or receipts for the past 12 months or the next 12
months will exceed 1,919,500 php

Taxable Transactions and Specific Requirements

(1) Sale, Barter, Exchange or Lease (SBEL) of Goods or Properties14 Goods/Personal Properties
(i) Actual/deemed sale for a valuable consideration
(ii) for use or consumption in the Phil (regardless of the payment arrangements)
(iii) not exempt from VAT (NIRC, special law, special agreement)

Real Properties (RP) 15:

(i) Seller (w/n natural) executes contract to SBE of RP (Real property)
(ii) RP is in the Phil
(iii) Seller is engaged in sale or exchange of RP or real estate (dealer, developer, lessor)
(iv) RP is held primarily for sale/lease ICT/B or an ordinary asset used in T/B as an incident to his
vatable activity (NOT a capital asset)
(v) Not exempt from VAT (NIRC, special law, special agreement)

Sale of Services16
(i) for a valuable consideration (actually/constructively received)
(ii) performed ICTB in the Phil.
(iii) not exempt from VAT (NIRC, special law, special agreement)
(iv) person rendering service is VAT-liable
(v) no ee-er relationship

(1) Importation of Goods

The transfer must be made in the Philippines. If the title to the goods were transferred outside the Philippines,
then the same is not subject to VAT.
CASE: Mindanao II Geothermal Partnership vs CIR

3. Impact of Tax
4. Incidence of Tax
Impact of Tax Incidence of Tax
Point on which a tax is originally imposed Where tax burden finally rests/settles down
On the statutory taxpayer, the one from whom the The who bears the burden of taxation
government collects
Seller/Importer – the one who collects the tax and Buyer/Final Consumer
pays to the government
5. Tax Credit Method
A VAT-registered person is entitled to credit input taxes evidenced by VAT invoice or official receipt against the
output tax payable.
The tax credit method
- manner by which the value added tax of a taxpayer is computed. The input taxes shifted by the sellers
to the buyer are credited against the buyer’s output taxes when he sells the taxable goods, properties or
services.
-the tax is computed by determining the difference between the output tax on his sales and the input tax
on the purchases of goods, services, capital goods, supplies, and materials.
-an entity can credit against or subtract from the VAT charged on its sales or outputs the VAT
paid on its purchases, inputs and imports.

Input tax – the VAT due on or paid by a VAT registered person on importation of goods or local purchases of
goods, properties, or services, including lease or use of properties, in the course of his trade or business.
Output tax – the VAT due on the sale or lease of taxable goods or properties or services by any person
registered or required to register under Section 236 of the Code. If at the end of any taxable month or quarter:
(a)The output tax exceeds the input tax, the excess shall be paid by the VAT-registered person
(b) The input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or
quarters
OUTPUT VAT – INPUT VAT = VAT PAYABLE or EXCESS INPUT TAX.
Note: if INPUT VAT is higher (>) Output VAT = Excess input tax is carried over to the succeeding
taxable quarter as tax credit.
Exception: input tax attributable to zero rated sales may instead be refunded or credited against
other internal revenue taxes.

6. Destination Principle/Cross Border Doctrine

-basis for jurisdictional reach of the tax
- destination of goods determines the taxation or exemption from VAT.
- Goods and services are taxed only in the country where they are consumed.
Cross Border Doctrine mandates that no VAT shall be imposed to form part of the cost of the goods destined
for consumption outside the territorial border of the taxing authority.
Exception: Zero-rated Services
CASE: ACMDC v CIR: Hence, actual export of goods and services from the Philippines to a foreign country
must be free of VAT, while those destined for use or consumption within the Philippines shall be imposed with 12

7. Persons Liable
Transactions subject to VAT:
(1) Sale, Barter or Exchage of Goods or Properties
(2) Sale of Services, including Lease or use of Properties
(3) Importation of Goods.
“person” - any individual, trust, estate, partnership, corporation, joint venture, cooperative or association (Sec.
4.105- 1, RR 16-2005).
The following are liable to pay VAT:
(1) Any person who sell, barters, exchange or leases goods or properties or who renders services ICT/B
Exception:
a. a non-VAT registered person whose annual gross sales or receipts do not exceed Php3 million
b. Franchise grantees under Sec 119 NIRC whose annual gross receipts do not exceed Php10million
and who are NOT VAT-registered.
(2) Who imports goods w/n ICT/B. If importer is tax-exempt/VAT-exempt AND goods are subsequently SBE
to nonexempt persons, purchasers/recipients will be deemed the importer If the Philippine branch of an NRFC
“imported”, first local buyer will be deemed the importer
(3) Any person who voluntarily registers his business under the VAT system, regardless of level of sales.
Additional Requirements to be subject to VAT:
(1) As regards person who sells, barters or exchanges goods or properties, or sale of services, is required to
register for VAT when: (i)such act is done in the course of trade or business, and (ii) if his gross sales or receipts
for the past 12 months or the next 12 months exceed P1,919,500;
(2) As regards person who imports, it is not necessary that such importation is made in the course of trade or
business.
(3) Any person who elects to register for VAT (cf Optional VAT Registration)
8. VAT on sale of goods and properties
“Goods or Properties” – all tangible and intangible objects which are capable of pecuniary estimation including
(NOT EXCLUSIVE)
a. Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or
business
b. Right or privilege to use patent formula or process , goodwill, trademark, trade brand, or other like
property or right
c. Right/privilege to use in the Philippines of any industrial, commercial or scientific equipment
d. Right/privilege to use motion picture films, films, tapes and discs
e. Radio, television, satellite transmission and cable television time

Requisites for Taxability of Sale of Goods or Personal properties

a. Actual/Deemed Sale of goods/properties for a valuable consideration
b. Sale is undertaken ICT/B in the Philippines
c. Goods/properties are located in PH and for use and consumption therein
d. Not exempt from VAT under Sec 109 NIRC, special law, or international agreement

Types of Sales of Goods//properties:

1. Vatable Sales –sale, barter, exchange, lease of goods/properties whether in cash or in kind subkect to
VAT under Section 106 (A) NIRC
2. Deemed Sales
3. Zero-rated Sales
i. Export Sales (Actual/constructive ES)
ii. Foreign Currency Denominated Sales
iii. Effectively zero-rated Sales
4. Exempt Sales

Mode of Sale of REAL ESTATE: Effects

a. CASH SALE – entire selling price is taxable in the month of sale
b. INSTALLMENT SALES - initial (down) payments in the year of sale do not exceed 25% of GSP
Effect: VAT is recognized based on collection, including interests, penalties,
actually/constructively received by the seller
C. Sale on a deferred-payment basis
- initial payment of the year of sale exceeds 25% of the GSP
Effect: treated as CASH SALE which make the entire selling price taxable in the month of sale however,
subsequent payments are no longer subject to VAT

Sale of Property NOT subject to VAT

a. RP not primarily held for sale/lease ICT/B
b. RP utilized for low cost or socialized housing
c. residential lot valued at PHP1.5Million and below
d. House and lot and dwellings valued at PHP2.5 Million and below
Note: January 2021, VAT exemption for residential, house and lot do not exceed PHP 2 million
e. Transfer of property to corporation in exchange for share of stocks under a tax free exchange
f. Transmission of property held in trust for trust/beneficiary
Note: if trust/transfer is for the purpose of sale = DEEMED SALE =Vatable

TAX BASE: Gross Selling Price

Basis: GSP or Gross Value in Money of the goods or properties sold, bartered or exchanged excluding
the VAT
GSP In real properties: (a) consideration stated in the sales document or (b) FMV whichever is higher
Includes: Excise tax paid, initial payments, interest, purchase price, delivery, insurance, charges,
commission
Excludes: VAT, sales discount, allowances and returns

Allowable deductions from GSP:

1. Sales return and allowances – proper credit/refund was made during the month or quarter to the buyer for
sales previously recorded as taxable sale
- value of goods/properties sold and subsequently returned / granted as allowances by a VAT registered person
2. Sales discounts – bona fide or regular discounts given to purchasers agreed between buyer and seller at the
time of sale
a. must be determined and granted at the time of sale
 b. expressly indicated in the sales invoice and the amount forming part of the gross sales duly recorded
in the books of account
c. grant is not dependent upon the happening of a future event

9. Zero-rated sales of goods or properties, and effectively zero-rated sales of goods or properties
Rate: 0%
VAT Transactions: Every sale, barter or exchange, or transactions “deemed sale” of taxable goods or properties
(RR 16-2005)
Zero-Rated Sales on Goods or Property (RR 16- 2005)
A zero-rated sale of goods or properties 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 such as:
(1) Export Sales
(2) Foreign Currency Denominated Sales (Amended by TRAIN LAW, subject to 12% VAT)
(3) Sales of Goods or Property to perons or entites who are tax-exempt/Effectively Zero-Rated Sales

A. Export Sales [Sec. 106(A)(2)(a), NIRC] - SBE of goods or properties destined for consumption outside PH.
(Actual/constructive)
(1) The (i) sale and actual shipment of goods from the Philippines to a foreign country AND
(ii) paid for in acceptable foreign currency or its equivalent in goods or services, AND
(iii) accounted for in accordance with the rules and regulations of the BSP
(2) (i) Sale of raw materials or packaging materials to a nonresident buyer
(ii) for delivery to a resident local export-oriented enterprise
(iii) to be used in manufacturing, processing, packing or repacking in the Philippines of the said
buyer's goods AND
(iv) paid for in acceptable foreign currency AND
(v) accounted for in accordance with the rules and regulations of the BSP.
(3) (i) Sale of raw materials or packaging materials
(ii) to export-oriented enterprise (whose export sales exceed 70% of the total annual procuction
of the preceding taxable year)
(iii) whose export sales exceed seventy percent (70%) of total annual production.
(a) Any enterprise whose export sales exceed 70% of the total annual production of the
preceding taxable year shall be considered an exportoriented enterprise upon accreditation
under the rules & regulations of Export Development Act, RA 7844 (RR 7-95)
(4) The sale of goods, supplies, equipment and fuel to persons engaged in international shipping or
international air transport operations (RA 9337) Provided: goods, supplies, equipments and fuel shall be
used for international shipping and air transport operations.
Note: if export made by a non-VAT registered person, the sale is exempt sale.
(5) Sale and delivery of goods to:
a. Registered enterprises within a separate customs territory as provide under special laws and
b. Registered enterprises within tourism enterprises zones as declared by the Tourism
Infrastructure and Enterprise Zone Authority (TIEZA) subject to RA 9539 (Tourism Act of 2009)
6. Those considered export sales under the Omnibus Investment Code of 1987, and other special laws
(ex. Bases Conversion & Development Act of 1992)

Under Omnibus Investment Code (EO 226):

Considered Export Sales

(1) Phil. port FOB value of export products exported directly by a registered export producer; OR (2) Net
selling price of export products sold by a registered export producer to another export producer, or to
an export trader that subsequently exports the same (only when actually exported by the latter)
evidenced by landing certificates.

Constructive Exports (without actual exportation):

(1) Sales to bonded manufacturing warehouses of export-oriented manufacturers;
(2) Sales to export processing zones (RA 7916);
(3) Sales to registered export traders operating bonded trading warehouses supplying raw materials in
the manufacture of export products (RA 7227)
(4) Sales to diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of
locally manufactured, assembled or repacked products, whether paid for in foreign currency or not.
 (5) Sales by a VAT-registered supplier to a manufacturer/producer whose products are 100% exported
are considered export sales. A certification to this effect must be issued by the Board of Investment which shall
be good for 1 year unless subsequently reissued. (RR 16-2005)
Export sales of registered export traders shall include commission income, and that exportation of goods
on consignment shall not be deemed export sales until the export products consigned are in fact sold by the
consignee.

B. FOREIGN CURRENCY DENOMINATED SALES (ALREADY SUBJECT TO 12% VAT by TRAIN LAW)
Definition: (i) Sale to a nonresident of goods (except those mentioned in Sections 149 and 150 i.e.automobiles
and non-essential goods like jewelry, perfume, and yachts), (ii) assembled or manufactured in the Philippines (iii)
for delivery to a resident in the Philippines (iv) paid for in acceptable foreign currency AND (v) accounted for in
accordance with the rules and regulations of the BSP.

(i) Sales of locally manufactured or assembled goods (ii) for household and personal use (iii) to Filipinos abroad
and other non-residents of the Philippines as well as returning Overseas Filipinos under the Internal Export
Program of the government (iv) paid for in convertible foreign currency AND (v) accounted for in accordance with
the rules and regulations of the BSP shall also be considered export sales. (RR 16-2005).

B. EFFECTIVELY ZERO-RATED SALES

(1) Sales to persons or entities whose exemption under special laws or international agreements to which the
Philippines is a signatory effectively subjects such sales to zero rate.
(2) (i) The local sale of goods and properties (ii) by a VAT-registered person (iii) to a person or entity who was
granted indirect tax exemption under special laws or international agreement.

ECOZONES
-shall be managed and operated by the PEZA as separate customs territory. (Sec. 8, RA 7916 “Special
Economic Zone Act of 1995”). Consequently, sales made by a person in the customs territory to a PEZA
registered entity are considered exports to a foreign country and thus, zero-rated. Conversely, sales by a PEZA-
registered entity to a person in the customs territory are deemed imports from a foreign country.
Tax treatment of sales to & by PEZA-registered enterprise within & without the ecozone [rmc 74- 99]:

(1) Any sale of goods, property or services made by a VAT registered supplier from the Customs
Territory** to any registered enterprise operating in the ecozone, REGARDLESS of the class or type of
the latter’s PEZA registration, is actually qualified and thus LEGALLY ENTITLED TO THE 0% VAT.
**“Customs Territory” shall mean the national territory of the Philippines outside of the proclaimed
boundaries of the ECOZONES except those areas specifically declared by other laws and/or presidential
proclamations to have the status of special economic zones and/or free ports. [Sec. 2(g), Rule 1, Part I,
RA 7916-IRR]

(2) By a VAT-Exempt Supplier from the Customs Territory to a PEZA registered enterprise Sale of
goods, property and services by VAT-Exempt supplier from the Customs Territory to a PEZA registered
enterprise shall be treated EXEMPT FROM VAT, regardless of whether or not the PEZA registered
buyer is subject to taxes under the NIRC or enjoying the 5% special tax regime.

(3) By a PEZA Registered Enterprise

(a) Sale of Goods by a PEZA registered enterprise to a buyer from the Customs Territory (ie
domestic sales) -- this case shall be treated as a technical IMPORTATION made by the buyer.
Such buyer shall be treated as an IMPORTER thereof and shall be imposed with the
corresponding VAT.
(b) Sale of Services by a PEZA registered enterprise to a buyer from the Customs Territory –
this is NOT embraced by the 5% special tax regime, hence, such seller shall be SUBJECT TO
12% VAT.
(c) Sale of Goods by a PEZA registered enterprise to Another PEZA registered enterprise (ie
Intra-ECOZONE Sales of Goods) – this shall be EXEMPT from VAT.

(4) Sale of Services by ECOZONE enterprise, to Another ECOZONE enterprise (IntraECOZONE

enterprise Sale of Service)
(a) if PEZA registered seller is subject to 5% special tax regime - EXEMPT from VAT
(b) if PEZA registered seller is subject to taxes under NIRC (ie not subject to 5% special tax
regime) – subject to 0% VAT pursuant to “cross border doctrine”
Change of Zero-rated Sales to 12% Vatable Sales
(1) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident
local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the
Philippines of the said buyer's goods AND paid for in acceptable foreign currency AND accounted for in
accordance with the rules and regulations of the BSP.

(2) Sale of raw materials or packaging materials to export-oriented enterprise (whose export sales
exceed 70% of the total annual procuction of the preceding taxable year) whose export sales exceed
seventy percent (70%) of total annual production.

(3) Those considered export sales under the Omnibus Investment Code of 1987, and other special laws
(ex. Bases Conversion & Development Act of 1992)

The above 3 are already subject to 12% VAT upon satisfaction of the following conditions:
(1) Successful establishment of enhanced VAT refund system that grants refunds of creditable input tax
within 90 days from the filing of VAT refund application with the Bureau: Provided such applications filed
from Jan 1 2018 must be decided within 90 days

(2) All pending Vat refund claims as of Dec 31, 2017 must be fully paid in cash by Dec 21, 2019
DOF: establishes VAT refund center at BIR and BOC.
5% of Total VAT collection of BIR and BOC is appropriated annually as special account in the General
Fund/ as trust receipts for the purpose of funding claims for VAT refund. Unused fund at the end of the
year revert back to General Fund
BIR and BOC quarterly report to Conegressional Oversight Committee of claims and unused fund

ZERO-rated Sales vs Effectively Zero-rated transactions

ZERO-rated Sales Effectively Zero-rated transactions

- export sale of goods and supply of
services. Seller charges no OUTPUT tax
but can claim refund/ tax credit certificate
for VAT previously charged by suppliers
Sale of goods/supply of services to
persons entitites whose exemption under
special laws or international agreements
to which the Philippines is a signatory
effectively subjects a transaction to zero
rate.

ZERO-rated Sales VAT exempt

Taxable transaction but does not Not subject to output tax
result in an output tax

Input VAT attributable to zero-rated
sales may be allowed as tax credits or
refunds
Persons engaged in zero-rated
transactions are required to register
Seller is not entitle to any input tax on his
purchases despite the issuance of VAT
invoice/receipt
Registration is optional for VAT-exempt
persons
Exempt Transaction – goods/services which by nature are expressly exempted by the Tax Code of VAT but the
seller is not allowed any tax refund/credit input taxes

Exempt Party – person/entity granted VAT exemption under the Tax Code , maybe allowed a tax refund or
credit for input taxes paid depending on its registration as a VAT or Non-vat taxpayer

10. Transactions deemed Sale

Rate: 12% VAT
Basis: Market value (OUTPUT tax) of the goods deemed sold as of the time of the occurrence of the transactions
or as the Commissioner shall prescribe. In the case of retirement/cessation of business, the tax base shall be the
acquisition cost or the current market price of the goods or properties, whichever is lower.
sale where the gross selling price is unreasonably lower than the fair market value,
- the actual market value shall be the tax base.
- if it is lower by more than 30% of the actual market value of the same goods of the same quantity and
quality sold in the immediate locality on or nearest the date of sale. (RR 16-2005)
a. Transfer, use or consumption NOT in the course of business of goods/ properties originally intended
for sale or use in the ordinary course of business. (ie. For personal use)
b. Distribution or transfer to shareholders, investors or creditors
(a) Shareholders or investors as share in the profits of the VAT-registered persons;
-property dividends which constitute stocks in trade or properties held for sale or lease declared
out of retained earnings and distributed by the company to tis shareholders shall be subject to
VAT based on the zonal value or FMV at the time of the distribution, whichever is applicable.
(b) Creditors in payment of debt;
-dacion en pago Art 1245 NCC –property (ordinary asset) is alienated to the creditor in
satisfaction of debt in money
c. consignment of goods if:
i. actual sale not made
ii.within 60 days from date of consignment
d. Retirement from cessation of business with respect to inventories on hand (capital goods, stock in-
trade, supplies or materials as of the date of such retirement, whether or not the business is continued
by the new owner or successor ARE CONSIDERED DEEMED SALES
-Examples: a. change of ownership of the business (e.g. when a sole proprietorship
incorporates, or the proprietor sells his entire business) and
b. dissolution of a partnership and creation of a new partnership which takes over the business.
(RR 16-2005)

11. Change or cessation of status as VAT registered person

Rate: 12% VAT
Basis: the acquisition cost or the current market price of the goods or properties, whichever is LOWER.
VAT shall apply to goods disposed of or existing as of a certain date if under the circumstances to be prescribed
in rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the
Commissioner, the status of a person as a VAT-registered person changes or is terminated.
a. Subject to VAT
i.) Change of business activity from VAT  taxable status to VAT exempt status 
Example: A VAT-registered person engaged in a taxable activity like wholesaler or retailer who
decides to discontinue such activity and engages instead in life insurance business or in any
other business not subject to VAT.
ii.) Approval of requests for cancellation of  a registration due to reversion to exempt  status 
iii.) Approval of request for cancellation of  registration due to desire to revert to  exempt status after
lapse of 3  consecutive years 

b.) Not subject to VAT (Output)

i.) Change of control of corporation 
- by the acquisition of the controlling interest of such corporation by another stockholder (individual
or corporate) or group
ii.) Change in the trade or corporate name
iii.) Merger or consolidation of corporations
-The unused input tax of the dissolved corporation, as of the date of merger or consolidation,
shall be absorbed the surviving or new corporation.
Note: The INPUT VAT of the dissolved corporation will be absorbed by the surviving corporation
 12.VAT on importation of goods 
Rate: 12% VAT
Basis: total value used by the Bureau of Customs in determining tariff and customs duties, plus customs
duties, excise taxes, if any, and other charges (such as postage, commission). Where the customs duties are
determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on the
landed cost plus excise taxes, if any.
Landed Cost = invoice amount + customs duties + freight + insurance + other charges + excise tax (if any)
Who Pays: IMPORTER prior to the release of such goods from customs custody (Sec. 107 (A), NIRC)
Importer: any person who brings goods into the Philippines, whether or not made in the course of his trade or
business, including non-exempt persons or entities who acquire tax-free imported goods from exempt persons,
entities or agencies. VAT in importation is paid prior to the release of goods from customs duty(RR 16-2005)

Importation of goods BEGINS when the carrying vessel/aircraft enters the Philippine jurisdiction with
an intention to unload its cargoes. It ENDS when there is already paymentof duties/taxes/other charges
and issuance of permit to withdraw.

Note: Importation of goods to bonded warehouse for processing is not importation. Importation
connotes permanency and gain. Thus, if goods are only for exhibit, such goods are VAT-exempt.

Customs duty – amount of customs duty legally due and paid by the importer. Therefore, if importer is
entitled to 90% customs duty exemption, the 10% duty paid should be the base in computation of the VAT.

Other similar chargers – specific charges which an importer has to pay.

(a) Other taxes (special import tax)
(b) Bank charges
(c) Arrastre charges - amount which the owner, consignee, or agent of either, of merchandise or
baggage has to pay for the handling, receiving and custody of the imported or exported
merchandise or the baggage of the passengers.
(d) Wharfage dues - fee charged by the freight terminal on passage of cargo or merchandise through
it. It does not include charges like sorting, weighing, marking, sampling, inspecting, loading,
unloading, demurrage, or any other charge by a state or central government.
(e) Brokerage fees - fee charged by a broker to execute transactions or provide specialized services
such as purchases, sales, consultations, negotiations, and delivery. For example, when a trading
order is executed for a stock, a buyer charges a transaction fee for the efforts made by the
brokerage firm to complete the sale
(f) All other charges or expenses

Landed Cost – consists the invoice amount including costs of loading, shipping and unloading, customs
duties, freight, insurance, other charges, excise tax (if any)

Expenses incurred after the release of the goods such as those incurred in delivering goods do not
form part of the landed cost.

a.) Transfer of goods by tax-exempt persons

(1) If importer is tax-exempt, the subsequent purchasers, transferees or recipients of such

imported goods shall be considered as importers who shall be liable for the tax on importation.

(2) The tax due on such importation shall constitute a lien on the goods superior to all charges or
liens on the goods, irrespective of the possessor thereof. (as amended by RA 9337)

13.VAT on sale of service and use or lease of  properties 

Rate: 12%
Basis: Gross receipts derived from the sale or exchange of services, including the use or lease of
properties.

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 supplied with
the services and deposits and advanced payments actually or constructively received during the
taxable quarter for the services performed or to be performed for another person, excluding VAT. (Sec.
108 (A), NIRC)
“Constructive receipt” occurs when the money consideration or its equivalent is placed at the control
of the person who rendered the service without restrictions by the payor. (a) Deposit in banks
which are made available to the seller of services without restrictions
(b) Issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof by
the seller as payment for services rendered
(c) Transfer of the amounts retained by the contractee to the account of the contractor. (RR 16-
2005)

a.) Requisites of taxability 

(1) The service must be performed or is to be performed (which may be performed by a
subcontractor) in the course of trade or business in the Philippines;
(2) For a valuable consideration actually or constructively received; and
(3) The service is not exempt under the Tax Code, special law or international agreement
(4) Person selling or rendering service is liable to VAT

Classification
1. Vatable Sale of Services
2. Zero-rated Sale of Services
3. Exempt Sale of Services

Vatable Sale of Services (12% VAT)

- Sale/exchange of goods- performance of all kinds of services in the Philippines for other for a
fee or consideration including:
a. Construction and service contractors
b. Warehousing services
c. Dealers in securities\
“Gross receipts” means gross selling price less cost of the securities sold. RR 7- 95:
d. Stock, real estate, commercial brokers\
e. lessors of property (R/P) – subject to VAT regardless where the contract of lease or
licensing agreement was executed if such property is used/leased in the PH
EXCEPT: Monthly rental of residential units not more than Php15K is exempted from VAT
f. Lending investors: All persons OTHER than banks, non-bank financial intermediaries,
finance companies and other financial intermediaries NOT performing quasibanking
functions who make a practice of lending money
g. Transportation contractors of goods/cargoes
h. Common carriers by air and sea of passengers/goods/cargoes
i. Sales of electricity by generation companies, transmission and distribution companies
EXCEPT sale of power or fuel generated through renewable sources of energy, such as,
but not limited to, biomass, solar, wind hydropower, geothermal, ocean energy, and other
emerging energy sources using technologies such as fuel cells and hydrogen fuels, which
shall be subject to 0% rate of VAT (zero-rated).
j. Franchise grantees of electric utilities, telephone , radio and TV broadcasting except
(a)franchise grantees of radio/ tv broadcastingwith annual grosss receipts of the
preceeding year do not exceed Php10million, and
(b) franchise grantees of gas and water utilitities

k. Persons engaged in milling, processing, manufacturing or repacking goods for others are
subject to VAT,
EXCEPT palay into rice, corn into corn grits, and sugarcane into raw sugar (not subject to
VAT)
l. Non-life insurance companies including surety, fidelity, indemnity and bonding companies;
EXCEPT crop insurance, life and disability insurance, and health and accident insurance
m. Other Similar services
 Sale/exchange of services likewise include the ff:
(1) The lease or the use of or the right or privilege to use any copyright, patent, design or model,
plan secret
(2) formula or process, goodwill, trademark, trade brand or other like property or right
(3) The lease of the use of, or the right to use of any industrial, commercial or scientific equipment
(4) The supply of scientific, technical, industrial or commercial knowledge or information
(5) 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 in #2 or any
such knowledge or information as is mentioned in #3
(6) The supply of services by a nonresident 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 nonresident person (7) 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
(8) The lease of motion picture films, films, tapes and discs
(9) The lease or the use of or the right to use radio, television, satellite transmission and cable
television time

Additional services subject to VAT:

(1) Services performed in the exercise or practice of profession or calling by individuals
subject to professional tax under the LGC, and professional services rendered by general
professional partnerships (GPPs);
GR: exceeded Php3million
(2) Services performed by actors/actresses, talents, singers, emcees, radio/television
broadcasters, choreographers, musical/radio/movie/television/stage directors, and
professional athletes;
(3) Lease/use of sports facilities and equipment by amateur players (RA 6847) The
performance of the services should not be in pursuit of an employer-employee relationship
between the service-provider and the service-recipient.

Cases: 
• CIR v. SM Prime Holdings, Inc. , G.R. No.  183505, February 26, 2010 

SM Prime First Asia

VAT deficiency on cinema ticket sales in the of P35,823,680.93 for VAT deficiency for year
amount of P119,276,047 for 2000 1999.
2000 in the amount of P124,035,874.12.
2000: P35,840,895.78
2002: P32,802,912.21
2003: P28,196,376.46

FACTS: Respondents SM Prime Holdings, Inc. (SM Prime) and First Asia Realty Development Corporation (First
Asia) are domestic corporations duly organized and existing under the laws of the Republic of the Philippines.
Both are engaged in the business of operating cinema houses, among others. SM Prime is a majority
shareholder of First Asia
Both corporations protested the BIR issuance of PAN for VAT deficiencies of both corporation on on cinema
ticket sales which were denied by the BIR resorting to their respective petitions for review before the CTA
Ruling of the CTA First Division

Granted the Petition for Review,

Ruling: the activity of showing cinematographic films is not a service covered by VAT under the National Internal
Revenue Code (NIRC) of 1997, as amended, but an activity subject to amusement tax under RA 7160, otherwise
known as the Local Government Code (LGC) of 1991.

Ruling of the CTA En Banc

Thus, the CIR appealed to the CTA En Banc.[34]  which was denied[36] the Petition for Review and dismissed[37] as
well petitioner's Motion for Reconsideration.

Section 108 of the NIRC actually sets forth an exhaustive enumeration of what services are intended to be
 subject to VAT. And since the showing or exhibition of motion pictures, films or movies by cinema operators or
proprietors is not among the enumerated activities contemplated in the phrase "sale or exchange of services,"
then gross receipts derived by cinema/ theater operators or proprietors from admission tickets in showing motion
pictures, film or movie are not subject to VAT. It reiterated that the exhibition or showing of motion pictures, films,
or movies is instead subject to amusement tax under the LGC of 1991. As regards the validity of RMC No. 28-
2001, the CTA En Banc agreed with its First Division that the same cannot be given force and effect for failure to
comply with RMC No. 20-86.

Petitioner argues that the enumeration of services subject to VAT in Section 108 of the NIRC is not exhaustive
because it covers all sales of services unless exempted by law. Thus, he maintains that the exhibition of movies
by cinema operators or proprietors to the paying public, being a sale of service, is subject to VAT. Further,
with the enactment of RA No. 7160 or the Local Government Code of 1991, thus, eliminating the statutory
prohibition on the national government to impose business tax on gross receipts from admission of
persons to places of amusement, led the way to the valid imposition of the VAT pursuant to Section 102
(now Section 108) of the old Tax Code, as amended by the Expanded VAT Law (RA No. 7716) and which
was implemented beginning January 1, 1996

Respondents, on the other hand, argue that a plain reading of Section 108 of the NIRC of 1997 shows that the
gross receipts of proprietors or operators of cinemas/theaters derived from public admission are not among the
services subject to VAT. Respondents insist that gross receipts from cinema/theater admission tickets were
never intended to be subject to any tax imposed by the national government. According to them, the absence of
gross receipts from cinema/theater admission tickets from the list of services which are subject to the national
amusement tax under Section 125 of the NIRC of 1997 reinforces this legislative intent. Respondents also
highlight the fact that RMC No. 28-2001 on which the deficiency assessments were based is an unpublished
administrative ruling.

ISSUE: whether the gross receipts derived by operators or proprietors of cinema/theater houses from admission
tickets are subject to VAT.

HELD: NO. 

Section 108 of the NIRC of the 1997 reads:

SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. --

(A) Rate and Base of Tax. -- There shall be levied, assessed and collected, a value-added tax equivalent to ten
percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of
properties.

The phrase "sale or exchange of services" means the performance of all kinds of services in the Philippines
for others for a fee, remuneration or consideration.  The phrase "sale or exchange of services" shall likewise
include The lease of motion picture films, films, tapes and discs; and not the same as the showing or
exhibition of motion pictures or films. As pointed out by the CTA  En Banc

Futher, The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of VAT on
the gross receipts of cinema/theater operators or proprietors derived from admission tickets. The removal of the
prohibition under the Local Tax Code did not grant nor restore to the national government the power to impose
amusement tax on cinema/theater operators or proprietors. Neither did it expand the coverage of VAT. Since the
imposition of a tax is a burden on the taxpayer, it cannot be presumed nor can it be extended by implication. A
law will not be construed as imposing a tax unless it does so clearly, expressly, and unambiguously. [59] As it is,
the power to impose amusement tax on cinema/theater operators or proprietors remains with the local
government.
It is the legislative intent not to impose VAT on persons already covered by the amusement tax. This holds true
even in the case of cinema/theater operators taxed under the LGC of 1991 precisely because the VAT law was
intended to replace the percentage tax on certain services. The mere fact that they are taxed by the local
government unit and not by the national government is immaterial. The Local Tax Code, in transferring the power
to tax gross receipts derived by cinema/theater operators or proprietor from admission tickets to the local
government, did not intend to treat cinema/theater houses as a separate class. No distinction must, therefore, be
made between the places of amusement taxed by the national government and those taxed by the local
government.
To hold otherwise would impose an unreasonable burden on cinema/theater houses operators or proprietors, who
would be paying an additional 10% VAT on top of the 30% amusement tax imposed by Section 140 of the LGC
 of 1991, or a total of 40% tax. Such imposition would result in injustice, as persons taxed under the NIRC of
1997 would be in a better position than those taxed under the LGC of 1991. We need not belabor that a literal
application of a law must be rejected if it will operate unjustly or lead to absurd results. Thus, we are convinced
that the legislature never intended to include cinema/theater operators or proprietors in the coverage of VAT.
Revenue Memorandum Circular No. 28-2001 is invalid
Considering that there is no provision of law imposing VAT on the gross receipts of cinema/theater operators or
proprietors derived from admission tickets, RMC No. 28-2001 which imposes VAT on the gross receipts from
admission to cinema houses must be struck down. We cannot overemphasize that RMCs must not override,
supplant, or modify the law, but must remain consistent and in harmony with, the law they seek to apply and
implement.
Rule on tax exemption does not apply
Moreover, contrary to the view of petitioner, respondents need not prove their entitlement to an exemption from the
coverage of VAT. The rule that tax exemptions should be construed strictly against the taxpayer presupposes
that the taxpayer is clearly subject to the tax being levied against him. The reason is obvious: it is both illogical
and impractical to determine who are exempted without first determining who are covered by the provision.
Thus, unless a statute imposes a tax clearly, expressly and unambiguously, what applies is the equally well-
settled rule that the imposition of a tax cannot be presumed. In fact, in case of doubt, tax laws must be
construed strictly against the government and in favor of the taxpayer.

• Diaz and Timbol v. Secretary of Finance,  G.R. No.193007, July 19, 2011 
Facts: Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed a petition for declaratory
relief assailing the validity of the impending imposition of value-added tax (VAT) by the BIR on the
collections of tollway operators. Court treated the case as one of prohibition.
Petitioners claim that, since the VAT would result in increased toll fees, they have an interest as
regular users of tollways in stopping the BIR action. Petitioner’s hold the view that when it enacted
the NIRC, Congress did not intend to include toll fees within the meaning of "sale of services" that
are subject to VAT ; that a toll fee is a "user's tax," not a sale of services; that to impose VAT on
toll fees would amount to a tax on public service; and that, since VAT was never factored into the
formula for computing toll fees. Tollway operators cannot be regarded as franchise grantees under
the NIRC since they do not hold legislative franchises.

Respondent’s Argument: The government avers that the NIRC imposes VAT on all kinds of
services of franchise grantees, including tollway operations; that the Court should seek the
meaning and intent of the law from the words used in the statute; and that the imposition of VAT
on tollway operations has been the subject as early as 2003 of several BIR rulings and circulars.
Finally, the government contends that the non-inclusion of VAT in the parametric formula for
computing toll rates cannot exempt tollway operators from VAT. In any event, it cannot be claimed
that the rights of tollway operators to a reasonable rate of return will be impaired by the VAT since
this is imposed on top of the toll rate. Further, the imposition of VAT on toll fees would have very
minimal effect on motorists using the tollways.
Issue: Whether or not toll fees collected by tollway operators be subjected to VAT.
(Are tollway operations a franchise and/or a service that is subject to VAT)?
Ruling: YES BECAUSE THEY RENDER SERVICES FOR A FEE. THEY ARE JUST LIKE LESSORS,
WAREHOUSE OPERATORS , AND OTHER GROUPS EXPRESSLY MENTIONED IN THE LAW.
It is plain from the law (Section 108 of the NIRC) imposes VAT on "all kinds of services"
rendered in the Philippines for a fee, includingthose specified in the list. The enumeration
of affected services is not exclusive. By qualifying "services" with the words "all
kinds,"Congress has given the  term "services" an all-encompassing meaning. Thus, every
activity that can be imagined as  a form of "service"rendered for a fee  should be deemed
included unless some provision of  law especially excludes it.
Now, do tollway operators render services for a fee? Presidential Decree (P.D.) 1112 or the Toll
Operation Decree establishes the legal basis for the services that tollway operators render. In
consideration for constructing tollways at their expense, the operators are allowed to collect
government-approved fees from motorists using the tollways until such operators could fully
recover their expenses and earn reasonable returns from their investments. It does not help
petitioners’ cause that Section 108 subjects to VAT "all kinds of services" rendered for a fee
"regardless of whether or not the performance thereof calls for the exercise or use of the physical
or mental faculties."
the tollway operator is no different from the service providers under Section 108 who allow others to
use their properties or facilities for a fee. Tollway operators are franchise grantees and they do not
belong to exceptions that Section 119 spares from the payment of VAT. The franchise in this case
is evidenced by a "Toll Operation Certificate." 18
 The word "franchise" broadly covers government grants of a special right to do an act or series of acts
of public concern. Tollway operators are, owing to the nature and object of their business,
"franchise grantees." The construction, operation, and maintenance of toll facilities on public
improvements are activities of public consequence that necessarily require a special grant of
authority from the state. A tax is imposed under the taxing power of the government principally for
the purpose of raising revenues to fund public expenditures. Toll fees, on the other hand, are
collected by private tollway operators as reimbursement for the costs and expenses incurred in the
construction, maintenance and operation of the tollways, as well as to assure them a reasonable
margin of income. Although toll fees are charged for the use of public facilities, therefore, they are
not government exactions that can be properly treated as a tax. Taxes may be imposed only by
the government under its sovereign authority, toll fees may be demanded by either the government
or private individuals or entities, as an attribute of ownership.
(1) VAT is imposed on “all kinds of services” and tollway operators who are engaged in constructing,
maintaining, and operating expressways are no different from lessors of property, transportation
contractors, etc.

(3) Neither are the services part of the enumeration under Section 109 on VAT-exempt
transactions.

(4) The toll fee is not a user’s tax and thus it is permissible to impose a VAT on the said fee. the
Court emphasized that toll fees are not taxes since they are not assessed by the BIR and do not
go the general coffers of the government. Toll fees are collected by private operators as
reimbursement for their costs and expenses with a view to a profit while taxes are imposed by the
government as an attribute of its sovereignty. Even if the toll fees were treated as user’s tax, the
VAT can not be deemed as a ‘tax on tax’ since the VAT is imposed on the tollway operator and the
fact that it might pass-on the same to the tollway user, it will not make the latter directly liable for
VAT since the shifted VAT simply becomes part of the cost to use the tollways.
14. Zero-rated sales of services 
A zero-rated sale 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.
The following services performed in the Philippines by VAT-registered persons are effectively 0% VAT
sales of services:
(1) Processing, manufacturing or repacking goods for other persons doing business outside the PH which
goods are subsequently exported, where the services are paid for in acceptable foreign currency AND
accounted for in accordance with the rules and regulations of the BSP
(2) Services other than those mentioned in the preceding paragraph rendered to a person engaged in
business conducted outside the Philippines or a nonresident person not engaged in business who is
outside the Philippines when the services are performed, the consideration for which is paid for in
acceptable foreign currency AND accounted for in accordance with the rules and regulations of the
BSP
The services referring to ‘processing, manufacturing, repacking’ and ‘services other than those in (1)’
both require
(i) payment in foreign currency;
(ii) inward remittance;
(iii) accounted for by the BSP;
(iv) AND that the service recipient is doing business outside the Philippines.
If this is not the case, taxpayers can circumvent just by stipulating payment in foreign currency.
(CIR v. Burmeister)
This is the exception of destination Principle
(3) Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services to
zero percent (0%) rate (as amended by RA 9337)
(4) Services rendered to persons engaged in international shipping or international air transport
operations, including leases of property for use thereof [as amended by RA 9337]; Provided, however,
that the services referred to herein shall not pertain to those made to common carriers by air and sea
relative to their transport of passengers, goods or cargoes from one place in the Phil.to another place in
the Phil. (the same being subject to 12% VAT under Sec. 108)
(5) Services performed by subcontractors and/or contractors in processing, converting, or manufacturing
goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production.
(6) Transport of passengers and cargo by DOMESTIC air or sea vessels from the Philippines to a
foreign country (as added by RA 9337) (subject to 3% percentage tax)
(7) Sale of power or fuel generated through renewable sources of energy such as, but not limited to,
biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources using
technologies such as fuel cells and hydrogen fuels. (as added by RA 9337) Provided: Zero-rating shall
apply strictly to the sale of power or fuel generated through renewable sources of energy, and shall
not extend to the sale of services related to the maintenance or operation of plants generating said
power.
(1) Processing, manufacturing or repacking goods for other persons doing business outside the
PH which goods are subsequently exported, where the services are paid for in acceptable
foreign currency AND accounted for in accordance with the rules and regulations of the BSP
(5) Services performed by subcontractors and/or contractors in processing, converting, or
manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of
total annual production.
These 2 are already subject to 12% VAT upon satisfaction of the following conditions:
(1) Successful establishment of enhanced VAT refund system that grants refunds of creditable input tax
within 90 days from the filing of VAT refund application with the Bureau: Provided such applications filed
from Jan 1 2018 must be decided within 90 days
(2) All pending Vat refund claims as of Dec 31, 2017 must be fully paid in cash by Dec 21, 2019

• CIR v. Acesite Hotel, G.R. No.147295,  February 16, 2007 

FACTS:
1. Respondent Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel. It leases
6,768.53 square metersof the hotels premises to the Philippine Amusement and Gaming
Corporation for casino operations and catersfood and beverages to PAGCORs casino patrons
through the hotels restaurant outlets.2. For the period January 96 to April 1997, Acesite incurred
VAT amounting to P30,152,892.02 from its rental income and sale of food and beverages to
PAGCOR. Acesite tried to shift the said taxes to PAGCOR by incorporating it in the amount
assessed to PAGCOR but the latter refused to pay the taxes on account of its tax exempt status.

3. PAGCOR paid the amount due to Acesite minus the P30,152,892.02 VAT while the latter paid the
VAT to the CIR
4. CIR but the failed to resolve the same Acesite’s administrative claim, thus filed a petition with the
CTA

CTA Decision: Petitioner is subject to zero percent tax insofar as its gross income from rentals and
salesto PAGCOR, a tax exempt entity by virtue of a special law. And ordered refund of Acesite.
Upon appeal of the CIR, the CA affirmed CTA decision and ruled that PAGCOR also exempt from
indirect taxes like the VAT and consequently, the transactions between respondent Acesite and
PAGCOR were "effectivelyzero-rated" because they involved the rendition of services to an entity
exempt from indirect taxes.

ISSUE/S:
(1) whether PAGCORs tax exemption privilege includes the indirect tax of VAT to entitle Acesite to
zero percent (0%) VAT rate; and

HELD:1. Yes. PAGCOR is exempt from payment of indirect taxes.

P.D. 1869, the charter creating PAGCOR, grants the latter an exemption from the payment of
taxes. Section 13 of P.D. 1869 pertinently provides exemption.
Under the above provision [Section 13 (2) (b) of P.D. 1869], the term "Corporation" or operator
refers to PAGCOR. Although the law does not specifically mention PAGCORs exemption
from indirect taxes, PAGCOR is undoubtedly exempt from such taxes because the law
exempts from taxes persons or entities contracting with PAGCOR in casino operations.
Although, differently worded, the provision clearly exempts PAGCOR from indirect taxes. In
fact, it goes one step further by granting tax exempt status to persons dealing with
PAGCOR in casino operations. The unmistakable conclusion is that PAGCOR is not liable
 for the P30,152,892.02 VAT and neither is Acesite as the latter is effectively subject to zero
percent rate under Sec. 108 B (3). R.A. 8424.

2. The manner of charging VAT does not make PAGCOR liable to said tax. It is true that VAT can
either be incorporated in the value of the goods, properties, or services sold or leased, in which
case it is computed as 1/11 of such value, or charged as an additional 10% to the value. Verily, the
seller or lessor has the option to follow either way in charging its clients and customer. In the
instant case, Acesite followed the latter method, that is, charging an additional 10% of the gross
sales and rentals. Be that as it may, the use of either method, and in particular, the first method,
does not denigrate the fact that PAGCOR is exempt from an indirect tax, like VAT.

(3) it was proper for PAGCOR not to pay the 10% VAT charged by Acesite, the latter is not liable forthe
payment of it as it is exempt in this particular transaction by operation of law to pay the indirect tax.
Such exemption falls within the former Section 102 (b) (3) of the 1977 Tax Code, as amended (now
Sec. 108 [b] [3]of R.A. 8424), which provides: Section 102. Value-added tax on sale of services(a)
Rate and base of tax There shall be levied, assessedand collected, a value-added tax equivalent to
10% of gross receipts derived by any person engaged in the sale of services x x x; Provided, that the
following services performed in the Philippines by VAT-registeredpersons shall be subject to 0%

(4) Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services to
zero (0%)rate (emphasis supplied).

(5) Acesite paid VAT by mistake Considering the foregoing discussion, there are undoubtedly erroneous
payments of the VAT pertaining to the effectively zero-rate transactions between Acesite and
PAGCOR. Verily, Acesite has clearly shown that it paid the subject taxes under a mistake of fact, that
is, when it was not aware that the transactions it had withPAGCOR were zero-rated at the time it made
the payments.

15.VAT exempt transactions 

a.) VAT exempt transactions in general 
(i) Sale of goods or properties and/or services and the use or lease of properties that is NOT
subject to VAT (output tax) and the seller is not allowed any tax credit of VAT (input tax) on
purchases.
(ii) The person making the exempt sale of goods, properties or services shall not bill any output
tax to his customers. (RR 16- 2005)
(iii) But, the VAT-regis
\\
‘

tered person may elect that the exemption not apply to its sale of goods or properties or
services; provided that the election made shall be irrevocable for a period of three (3) years
from the quarter the election was made (Sec. 109(2), NIRC)

b.) Exempt Transaction, enumerated

(1) Sale/import of agricultural, marine food products in their original state; of livestock and
poultry; breeding stock and genetic material therefor

Meat, vegetables, fruitshall be considered under Original state even if they have undergone the
simple processes of preparation or preservation for the market, such as freezing, drying,
salting, broiling, roasting, smoking or stripping. Also includes preservation using advanced
technological means of packaging, such as shrink wrapping in plastics, vacuum packing, tetra-
pack, and other similar packaging methods (RR 16-2005)

Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt, AND
COPRA shall be considered in their original state

EXCEPT: Livestock or poultry do not include fighting cocks, race horses, zoo animals and
other animals generally considered as pets.
Processed products sold by cooperatives
(2) Sale/ import of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and
poultry feeds (including ingredients)
EXCEPT: “Specialty Feeds” – non agricultural feeds or food for racehorses, fighting cocks,
aquarium fishes, zoo animals generally considered as pets.

(3) Import of personal and household effects of Phil resident returning from abroad and
nonresident citizens coming to resettle in the Philippines (exempt from custom duties
under Tariff and Customs Code

(4) Import of professional instruments and implements, wearing apparel, domestic animals,
and personal household effects coming from their former place abode and belonging to
persons coming to settle in the Philippines, for their own use and not for sale, barter or
exchange

Additional (TRAIN):
(i) importation of tools of trade . occupation, employment
(ii) importation by Overseas Filipinos, their families and descendants.

EXCEPT vehicles, vessels, aircrafts, machineries, and other goods for use in manufacturing in
commercial quantities

(5) Services subject to percentage tax (not subject to VAT)

(6) Services by agricultural contract growers and milling for others of palay into rice, corn
into grits and sugar cane into raw sugar (these are in their original estate)
(7) Medical, dental, hospital and veterinary services EXCEPT those rendered by
professionals:
 Laboratory services are exempted. In patient drugs/medicines are exempted EXCEPT
outpatients meds/drugs. [RR 16-2005]

(8) Educational services rendered by private educational institutions, duly accredited by

DEPED, CHED, TESDA, and those rendered by government educational institutions;
EXCEPT: seminars, in-service training, review classes and other similar services rendered by
persons who are not accredited by the DepED, CHED, and/or TESDA. [RR 16-2005]
Sale of Goods

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

Ie. In-house physician employed in a company

(10)Services rendered by regional or area headquarters 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

(11)Transactions which are exempt under international agreements to which the Philippines
is a signatory or under special laws, EXCEPT those under PD No. 529 [Petroleum
Exploration Concessionaires under the Petroleum Act of 1949] (12) Sales by agricultural
cooperatives duly registered with the Cooperative Development Authority (CDA) to their
members as well as sale of their produce to nonmembers.

PROVIDED:
-importation of direct farm inputs, machineries and equipment, including spare parts thereof, to
be used directly and exclusively in the production and/or processing of their produce. 

-Sale by agricultural cooperatives to non-members can only be exempted from VAT if the
producer of the agricultural products sold is the cooperative itself.

EXCEPT: If the cooperative is not the producer (e.g., trader), then only those sales to its
members shall be exempted from VAT. [RR 16-2005]
(13) Gross receipts from lending activities by credit or multi-purpose cooperatives duly
registered and in good standing with the Cooperative Development Authority

(14) Sales by non-agricultural, non- electric and non-credit cooperatives duly registered
with the Cooperative Development Authority are exempt
EXCEPT their importation of machineries and equipment, including spare parts thereof, to be
used by them are SUBJECT to VAT.

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

- not VAT registered cannot claim refund of input tax
- VAT registered can claim refund of input tax

(16) Sale of real properties not primarily held for sale/lease ICT/B, :

(a) Sale of real properties NOT primarily held for sale to customers or held for
lease in the ordinary course of trade or business.
EXCEPPT: RP used in the trade or business of the seller, the sale thereof shall be
subject to VAT being a transaction incidental to the taxpayer’s main business. [RR 4-
2007]

(b) Sale of real properties utilized for lowcost housing as defined by RA No. 7279,
otherwise known as the "Urban Development and Housing Act of 1992" and other
related laws, such as RA No. 7835 and RA No. 8763.

 “Low-cost housing" - housing projects intended for homeless low-income family

beneficiaries, undertaken by the Government or private developers, which may either be
a subdivision or a condominium registered and licensed by the Housing and Land Use
Regulatory Board/Housing (HLURB) under

 BP Blg. 220, PD No. 957 or any other similar law, wherein the unit selling price is
within the selling price ceiling per unit under RA No. 7279, and other laws, such as RA
No. 7835 and RA No. 8763.

(c) Sale of real properties utilized for socialized housing as defined under RA No.
7279, and other related laws, such as RA No. 7835 and RA No. 8763, wherein the price
ceiling per unit is P450,000.00 or as may from time to time be determined by the
HUDCC and the NEDA and other related laws.

 Socialized housing" - housing programs and projects covering houses and lots or
home lots only undertaken by the Government or the private sector for the
underprivileged and homeless citizens which shall include sites and services
development, long-term financing, liberated terms on interest payments, and such other
benefits in accordance with the provisions of RA No. 7279 and RA No. 7835 and RA No.
8763.

- 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.

(d) Sale of residential lot valued at P1.5 Million and below, or house & lot and
other residential dwellings valued at Php2.5 million (2million beginning January
1 ,2021) and below

 two or more adjacent residential lots sold in favor of 1 buyer, for the purpose of
utilizing the lots as 1 residential lot, = exempt from VAT only if the aggregate value of
the lots does not exceed P1.5 Million [RR 13-2012]
  Sale, transfer or disposal within a 12-month period of 2 or more adjacent residential
lots, house and lots or other residential
dwellings to one buyer, whether from the same or from different sellers shall be considered one
single transaction.

Sale/purchase of parking lots shall not be considered a sale of residential lot/dwelling.

Hence, it shall be subject to VAT regardless of its selling price. [RR 13-2012]

(17) Lease of residential units with a monthly rental per unit not exceeding Php15,000,
regardless of the amount of aggregate rentals received by the lessor during the year.
PROVIDED:
a. the aggregate of such rentals of the lessor during the year do not exceed Php3
MILLION shall likewise be exempt from VAT,
b. the same shall be subjected to 3% percentage tax.

c. where a lessor has several residential units for lease, some are leased out for a
monthly rental per unit of not exceeding P15k while others are leased out for more than
P15k per unit, his tax liability will be as follows:

(a) gross receipts from rentals NOT exceeding P15k/month per unit = exempt
from VAT regardless of the aggregate annual gross receipts.

(b) The gross receipts from rentals exceeding P15k/month per unit = subject
to VAT IF the aggregate annual gross receipts from said units only (not
including the gross receipts from units leased for not more than P15K) exceeds
P3MILLION.
= the gross receipts will be subject to the 3% tax imposed under Section 116 of
the Tax Code.

 'residential units' - apartments and houses & lots used for residential purposes, and
buildings or parts or units thereof used solely as dwelling places (e.g., dormitories,
rooms and bed spaces)
except motels, motel rooms, hotels and hotel rooms.

 'unit' - an apartment unit in the case of apartments, house in the case of residential
houses; per person in the case of dormitories, boarding houses and bed spaces; and
per room in case of rooms for rent. [RR 16-2005]

(18)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;
-(these are merely devoted for dissemination of news/info)

(19) Transport of passengers by international carriers (Added by RA 10378)

-Note: Subject to3% percentage tax

(20) Sale, importation or lease of passenger or cargo vessels and aircraft, including
engine, equipment and spare parts thereof for domestic or international transport
operations [added by RA 9337];

 The exemption from VAT on the importation and local purchase of passenger and/or
cargo vessels shall be limited to those of 150 tons and above, including engine and
spare parts of said vessels;

Provided, further, that the vessels to be imported shall comply with the age limit
requirement, at the time of acquisition counted from the date of the vessel's original
commissioning, as follows: o
AGE LIMIT for passenger and/or cargo vessels= 15 years old, o
for tankers = 10 years old, and
high-speed passenger crafts = 5 years old [RR 16- 2005]
 (21) Importation of fuel, goods, and supplies by persons engaged in international
shipping or air transport operations; [added by RA 9337]

-Provided: used exclusively or shall pertain to the transport of goods and/or passenger from
a port in the Philippines directly to a foreign port without stopping at any other port in the
Philippines;

 If any portion of such fuel, goods or supplies is used for purposes other than that mentioned
in this paragraph, such portion of fuel, goods and supplies shall be subject to 12% VAT

(22) Services of banks, non-bank financial intermediaries (links) performing quasi-

banking functions and other non-bank financial intermediaries; and

(23) Sale or lease of goods or properties or the performance of services other than the
transactions mentioned in the preceding paragraphs, the gross annual sales and/or
receipts do not exceed the amount of P3MILLION

 For purposes of the threshold of 3million, the husband and the wife shall be
considered separate taxpayers. However, the aggregation rule for each taxpayer
shall apply???
 For instance, if a professional, aside from the practice of his profession, also derives
revenue from other lines of business which are otherwise subject to VAT, the same shall
be combined for purposes of determining whether the threshold has been exceeded.
 The VAT-exempt sales shall NOT be included in determining the threshold. [RR 16-
2005]

24. Sale of GOLD to BSP

25. Sale and importation of drugs and medicines for :
January 1, 2020
a. diabetes
b. high cholesterol
c. hypertension

January 1, 2023
a. cancer
b. Mental illness
c. TB
d. Kidney diseases

CASE: PAGCOR v. CIR, G.R. No. 172087, March 15,  2011

FACTS: PAGCOR PHILIPPINE AMUSEMENT AND GAMING CORPORATION was created pursuant to
Presidential Decree (P.D.) No. 1067-A2 on January 1, 1977. PAGCOR was exempted from the payment of
any type of tax, except a franchise tax of five percent (5%) of the gross revenue. 4 

With the passage of Republic Act No. (RA) 9337, the Philippine Amusement and Gaming
Corporation(PAGCOR) has been excluded from the list of government-owned and controlled corporations
(GOCCs) that are exempt from tax under Section27(c) of the Tax Code; (included: PCSO, SSS, GSIS,
PHIC)

Thus petitioner filed a Petition for Review on Certiorari and Prohibition seeking the declaration of nullity of
Section 1 of RA 9337 insofar as it amends Section 27(c) of RA 8424, otherwise known as the NIRC by
excluding petitioner from the enumeration of government-owned or controlled corporations (GOCCs)
exempted from liability for corporate income tax.

On March 15, 2011, SC partly granted the petition insofar as it held that the BIR Revenue Regulation No.
16-2005 which subjects PAGCOR to 10% VAT is null and void for being contrary to the NIRC.

It also held that Section 1 of RA 9337 is valid and constitutional.

 BIR issued RMC No. 33-2013 on April 17, 2013 pursuant to the decision which clarifies the “Income Tax
and Franchise Tax Due from PAGCOR, its Contractees and Licensees.” It now subjects the income from
PAGCOR’s operations and licensing of gambling casinos, gaming clubs and other similar recreation or
amusement places, gaming pools, and other related operations, to corporate income tax under the NIRC.

 PAGCOR filed a Motion for Clarification alleging that said RMC is an erroneous interpretation and
application of the aforesaid decision.

ISSUE: 1. Whether PAGCOR’s gaming income is subject to both 5% franchise tax and income tax?

2. Whether PAGCOR’s income from operation of related services is subject to both income tax and 5%
franchise tax.

HELD: 1. Gaming Income: Franchise Tax – YES; Income Tax - NO Under PD 1869, as amended,
petitioner is subject to income tax only with respect to its operations of related services.
Accordingly, the income tax exemption ordained under Section 27(c) of RA 8424 clearly pertains only to
petitioner’s income from operation of related services. Such income tax exemption could not have been
applicable to petitioner’s income from gaming operations as it is already exempt therefrom under PD 1869.
There was no need for Congress to grant tax exemption to petitioner with respect to its income from
gaming operating as the same is already exempted from all taxes of any kind or form, income or otherwise,
whether national or local, under its Charter, save only for the five percent (5%) franchise tax. The
exemption attached to the income from gaming operations exists independently would be downright
ridiculous, if not deleterious, since petitioner would be in a worse position if the exemption was granted
(then withdrawn) then when it was not granted at all in the first place.

2. Income from Operation of related services: Income tax - YES ; Franchise tax - NO

Petitioner’s Charter is not deemed repealed or amended by RA 9337; petitioner’s income derived from
gaming operation is subject only to the five percent (5%) franchise tax, in accordance with PD 1869, as
amended. With respect to petitioner’s income from operation of other related services, the same is subject
to income tax only. The five percent (5%) franchise tax finds no application with respect to petitioner’s
income from other related services, in view of the express provision of Section 14(5) of PD 1869, as
amended. Thus, it would be the height of injustice to impose franchise tax upon petitioner for its income
from other related services without basis therefor. SC granted the petition and ordered the respondent to
cease and desist the implementation of RMC No. 33-2013 insofar as it imposes corporate income tax on
petitioner’s income derived from its gaming operations; and franchise tax on petitioner’s income from other
related services.

ISSUE:Is Republic Act 9337 constitutional insofar as it excluded PAGCOR from the enumeration of
GOCCs exempt from thepayment of corporate income tax?

HELD:YES. The original exemption of PAGCOR from corporate income tax was not made pursuant to a
valid classification based on substantial distinctions so that the law may operate only on some and not on
all. Instead, the same was merelygranted due to the acquiescence of the House Committee on Ways and
Means to the request of PAGCOR.The argument that the withdrawal of the exemption also violates the
non-impairment clause will not hold since anyfranchise is subject to amendment, alteration or repeal by
Congress.However, the Court made it clear that PAGCOR remains exempt from payment of indirect taxes
and as such itspurchases remain not subject to VAT, reiterating the rule laid down in the Acesite case.

PAGCOR vs. BIR:ISSUE : W/N PAGCOR IS EXEMPTED FROM VAT. YES.

v
Facts:

PAGCOR is now subject to corporate income tax.

The Supreme Court (SC) held that the omission of PAGCOR from the list of tax-exempt GOCCs by RA
9337does not violate the right to equal protection of the laws under Section 1, Article III of the
Constitution,because PAGCORs exemption frompayment of corporate income tax was not based on
classification showing substantial distinctions; rather, it was granted upon the corporations own request to
be exempted from corporate income tax. Legislative records likewise reveal that the legislative intention is
to require PAGCOR topay corporate income tax.With regard to the issue that the removal of PAGCOR
from the exempted list violates the non-impairmentclause contained in Section 10, Article III of the
Constitution which provides that no law impairing theobligation of contracts shall be passed the SC
explained that following its previous ruling in the caseof Manila Electric Company v. Province of Laguna
366 Phil. 428(1999), this does not apply.Franchises such as that granted to PAGCOR partake of the nature
of a grant, and is thus beyond the purview ofthe non-impairment clause of the Constitution.As regards the
liability of PAGCOR to VAT, the SC finds Section 4.108-3 of Revenue Regulations No. (RR) 16-2005,
which subjects PAGCOR and its licensees and franchisees to VAT, null and void for being contrary to
theNational Internal Revenue Code (NIRC), as amended by RA 9337. According to the SC, RA 9337 does
notcontain any provision that subjects PAGCOR to VAT. Instead, the SC finds support to the VAT
exemption ofPAGCOR under Section 109(k) of the Tax Code, which provides that transactions exempt
under internationalagreements to which the Philippines is a signatory or under special laws [except
Presidential Decree No. (PD)529] are exempt from VAT. Considering that PAGCORs charter, i.e., PD1869
which grants PAGCORexemption from taxes is a special law, it is exempt from payment of VAT.7/21/2019
Pagcor vs. Bir Digest 2/2Accordingly, the SC held that the BIR exceeded its authority in subjecting
PAGCOR to VAT, and thus declaredRR 16-05 null and void insofar as it subjects PAGCOR to VAT for
being contrary to the NIRC, as amended by RA9337.PAGCOR is subject to income tax but remains
exempt from the imposition of value added tax.With the amendment by R.A. No. 9337 of Section 27 (c) of
the National Internal Revenue Code of 1997by omitting PAGCOR from the list of government corporations
exempt for income tax, the legislative intent isto require PAGCOR to pay corporate income tax. However,
nowhere in R.A. No. 9337 is it provided thatPAGCOR can be subjected to VAT. Thus, the provision of RR
No. 16-2005, which the respondent BIR issuedto implement the VAT law, subjecting PAGCOR to 10% VAT
is invalid for being contrary to R.A. No. 9337.(Philippine Amusement and Gaming Corporation vs. BIR G.R.
No. 172087, March 15, 2011)With the passage of Republic Act No. (RA) 9337, the PhilippineAmusement
and Gaming Corporat ion (PAGCOR) has been exc luded from the l is tof government-owned and
controlled corporations (GOCCs) that are exempt from taxunder Section27(c) of the Tax Code; PAGCOR is
now subject to corporate income tax. TheSupreme Court (SC) held that the omission of PAGCOR from the
list of tax-exempt GOCCs by RA 9337does not violate the right to equal protection of the laws under
Section1, Article III of the Constitution,because PAGCORsexemptionf r om pa y m e n t o f c o r p o r a t e i
n c o m e t a x w a s n o t ba s e d on classificati on showing substantial distinctions; rather, it wasgranted
upon the corporations own request to beexempted from corporate income tax. Legislative records likewise
reveal that thelegislati ve intention is to requ ire PAGCOR to pay corporate income tax.

With regard to the issue that the removal of PAGCOR from the exempted list violates the non-impairment
clause contained in Section 10, Article III of the Constitution which provides that no lawimpairing the
obligation of contracts shall be passed the SC explained that following its previousruling in the case of
Manila Electric Company v. Province of Laguna 366 Phil. 428(1999), this doesnot apply. Franchises such
as that granted to PAGCOR partake of the nature of a grant, and is thusbeyond the purview of the non-
impairment clause of the Constitution. As regards the liability ofPAGCOR to VAT, the SC finds Section4.1
08 -3 o f Re ve nu e Re gu l at io n s No . (R R) 16 -2005 , wh i chsubjects PAGCOR and its licensees and
franchisees to VAT, null and void forbeing contrary to the National Internal Revenue Code (NIRC), as
amended by RA 9337.According to the SC, RA 9337 does not contain any provision that subjects
PAGCOR to VAT. Instead,the SC finds support to the VAT exemption of PAGCOR under Section 109(k) of
the TaxC o d e , w h i c h p r o v i d e s t h a t t r a n s a c t i o n s e x e m p t u n d e r
internationalagreements to which the Philippines is a signatory or under special laws [except Presidential
Decree No. (PD)529] are exempt from VAT. Considering that PAGCORs charter,i.e., PD1869 which grants
PAGCORexemption from taxes is a special law, it is exempt from payment of VAT. Accordingly, theS C h e
l d t h a t t h e B I R e x c e e d e d i t s a u t h o r i t y i n s u b j e c t i n g PAGCOR to VAT, and
thusdeclared RR 16-05 null and void insofar as it subjects PAGCOR to VAT for being contrary to the NIRC,
asamended by RA 9337. [Philippine Amusement andGa mi ng Co rp or at io n (P AG CO R) v. th e Bu re
au of In te rn al Revenue (BIR), et. al., GR 172087,March 15, 2011.

16.Input tax and output tax defined 

Output tax – the VAT due on the sale or lease of taxable goods or properties or services by any person
registered or required to register under Section 236 of the Code. (Sec 110 A)
Input tax – the VAT due on or paid by a VAT-registered person on importation of goods or local purchases
of goods, properties, or services, including lease or use of properties, in the course of his trade or
business.
(1) It includes the transitional input tax and the presumptive input tax as determined in accordance with
Section 111 of the Code.
(2) It includes input taxes which can be directly attributed to transactions subject to the VAT plus a ratable
portion of any input tax which cannot be directly attributed to either the taxable or exempt activity.
(3) Input tax must be evidenced by a VAT invoice or official receipt issued by a VAT-registered person in
accordance with Secs. 113 and 237 of the Code. [RR 16-2005]
 transitional input tax shall be 8% of the value of the inventory or actual VAT paid, whichever is higher,
which amount may be allowed as tax credit against the output tax of the VAT-registered person.
Presumptive input tax provided in Section 105, including Revenue Regulations No. 7-95, indicates that
the input tax is presumed to have been paid on goods or properties which were heretofore not subject
to VAT.

17.Sources of input Tax 

a.) Purchase or importation of goods (evidenced by VAT invoice/receipt)
i. For sale; or
ii. For conversion into or intended to form part of a finished product for sale including
packaging materials; or
iii. For use as supplies in the course of business; or
iv. For use as materials supplied in the sale of service; or
v. For use in trade or business for which deduction for depreciation or amortization is
allowed under the Code.

b.) Purchase of real properties for which a VAT has  actually been paid 
c.) Purchase of service for which a VAT has  actually been paid 
d.) Transactions deemed sale 
e.) Presumptive input VAT (Sec 111, NIRC)
f.) Transitional Input VAT  (Sec 111, NIRC)

Claiming of input Tax on motor vehicles subject to the ff conditions:

(1) Purchase of vehicle must be substantiated with official receipts and other records;
(2) Taxpayer has to prove the direct connection of the motor vehicle to the business;
(3) Only one vehicle for land transport is allowed for the use of an official/employee with value not
exceeding P2.4 million;
(4) No depreciation shall be allowed for yachts, helicopters, airplanes
Transitional Input Tax (Sec 111)
Who may avail:
(i) By a person who becomes VAT-liable for the 1st time, or upon exceeding 3 million in any 12-
month period
(ii) any person who elects to be a VAT-registered person even if their turnover does not exceeds
P3millio

Rate: 2% Input VAT of the value of the beginning inventory on hand or actual VAT paid on such,
goods, materials and supplies, whichever is HIGHER, which amount shall be creditable against the
output tax of VAT-registered person.
Tax base: The value allowed for income tax purposes on inventories shall be the basis for the
computation of the 2% transitional input tax, EXCLUDING goods that are exempt from VAT under
Sec. 109 of the Tax Code. (RR 16-2005)
Note: A real estate dealer is entitled to claim transitional input VAT based on the value of the entire
(including the value of the land and the improvements thereon) real property sold regardless of
whether there was in fact actual payment of VAT on the purchase of the real property. At the time
the purchase was made, there was still no VAT imposed. (Fort Bonifacio Development Corp. v.
CIR)
Presumptive Input Tax (Sec. 111(B))
Who may avail: -Persons or firms engaged in the processing of sardines, mackerel and milk, and in
manufacturing refined sugar and cooking oil and packed noodle based instant meals, shall be
allowed a presumptive input tax, creditable against the output tax, equivalent to FOUR PERCENT
(4%) of the gross value in money of their purchases of primary agricultural products which are used
as inputs to their production.
“Processing” means pasteurization, canning and activities which through physical or chemical
process alter 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.

Case: 
• FBDC v. CIR, G.R. No. 173425; September 4,  2012 
18.Persons who can avail of input tax credit
-any qualified person provided: VAT invoice or OR is issued by a VAT registered person
Input tax on domestic purchase or importation of goods or properties shall be creditable:
(1) To the purchaser upon consummation of sale and on importation of goods or properties; and
(2) To the importer upon payment of the VAT prior to the release of the goods from the custody of the
Bureau of Customs.
(a) The input tax on goods purchased or imported in a calendar month for use in trade or
business for which deduction for depreciation is allowed under the Code, shall be spread evenly
over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate
acquisition cost for such goods, excluding the VAT component thereof, exceeds One million
pesos
(P1,000,000). If the aggregate acquisition cost does not exceed P1,000,000, the total input
taxes will be allowable as credit against output tax in the month of acquisition.25
(b) However, if the estimated useful life of the capital good is less than five (5) years, as used
for depreciation purposes, then the input VAT shall be spread over such a shorter period
(3) To the purchaser of services or the lessee or licensee upon payment of the compensation, rental,
royalty or fee.

19.Determination of output/input tax; VAT Payable  and computation of VAT Payable or excess tax 
credits 
a.) Determination of Output VAT (RR 16-2005)
Output VAT in a sale of goods/properties shall be computed by multiplying the total amount indicated
in the invoice or receipt by 12%.
𝑂𝑈𝑇𝑃𝑈𝑇 𝑉𝐴𝑇= 𝐺𝑟𝑜𝑠𝑠 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 𝑥 𝑅𝑎𝑡𝑒 𝑜𝑓 𝑉𝐴𝑇 (𝑜𝑟 12%)
Output VAT in a sale of services shall be computed by multiplying the total amount indicated in the
invoice or receipt by 12%.
𝑂𝑈𝑇𝑃𝑈𝑇 𝑉𝐴𝑇= 𝐺𝑟𝑜𝑠𝑠 𝑅𝑒𝑐𝑒𝑖𝑝𝑡𝑠 𝑥 𝑅𝑎𝑡𝑒 𝑜𝑓 𝑉𝐴𝑇 (𝑜𝑟 12%)

Erroneously billed: OUTPUT VAT= total invoice amount x 12%

112%

b.) Determination of Input tax creditable 

(1) Add all input tax creditable to a VAT registered person during the taxable month or quarter
and any excess input tax carried over from the preceding month or quarter
(2) The sum of the excess input tax carried over from the preceding month or quarter and the
input tax creditable to a VAT-registered person during the taxable month or quarter shall be
reduced by the amount of claim for refund or tax credit for value-added tax and other
adjustments, such as purchase returns or allowances and input tax attributable to exempt sale.
(3) The claim for tax credit referred to includes not only those filed with the BIR but also those
filed with other government agencies, such as the Board of Investments the Bureau of Customs.
c.) Allocation of input tax on mixed transactions
MIXED TRANSACTIONS26
There are four possible transactions a VAT-registered person may enter into: (i) VAT taxable, (ii) VAT-
exempt, (iii) zero-rated VAT and (iv) sale to governments.
A VAT-registered person 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. 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 GOCCs shall not be credited against output taxes
arising from sales to non-Government entities
(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 (allocated) to the VAT taxable and VAT-exempt
transactions and ONLY the ratable (estimated) portion pertaining to transactions subject to
VAT may be recognized for input tax credit.

d.) Determination of the output tax and VAT  payable and computation of VAT payable or 
excess tax credits 
 If at the end of any taxable month or quarter:
 The output tax exceeds the input tax, the excess shall be paid by the VAT-registered person
 The input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter/s

Illustration:
output VAT of 100
input VAT of 80.

Since output tax exceeds the input tax for such taxable quarter, all of the input tax may be utilized to
offset against the output tax.

Thus, the net VAT payable is 100 minus 80 = 20.

If the input tax inclusive of input tax carried over from the previous quarter exceeds the output tax, the
input tax inclusive of input tax carried over from the previous quarter that may be credited in every
quarter shall not exceed seventy percent (70%) of the output tax;
Provided,
1. the excess input tax shall be carried over to the succeeding quarter or quarters;
2. any input tax attributable to zero-rated sales by a VAT-registered person may at his option be
refunded or applied for a tax credit certificate which may be used in the payment of internal revenue
taxes, subject to the limitations as may be provided for by law, as well as, other implementing rules.

Illustration:
output VAT of 100
input VAT of 110.
Since input tax exceeds the output tax for such taxable quarter, the 70% limitation is imposed to
compute the amount of input tax which may be utilized. The total allowable input tax which may be
utilized is 70 (70% of the output tax).

Thus, the net VAT payable is 100 less 70 = 30. The unutilized input tax amounting to 40 is carried over
to the succeeding month.

In all cases where the basis for computing the output tax is either the gross selling price or the gross receipts,
but the amount of VAT is erroneously billed in the invoice, the total invoice amount shall be presumed to be
comprised of the gross selling price/gross receipts plus the correct amount of VAT.
Hence, the output tax shall be computed by multiplying the total invoice amount by a fraction using the rate of
VAT as numerator and one hundred percent (100%) plus rate of VAT as the denominator. Accordingly, the input
tax that can be claimed by the buyer shall be the corrected amount of VAT computed in accordance with the
formula herein prescribed.
There shall be allowed as a deduction from the output tax the amount of input tax deductible to arrive
at VAT payable on the monthly VAT declaration and the quarterly VAT returns

20.Substantiation of input tax credits 

(1) INPUT TAXES must be substantiated and supported by the following documents, and must be reported
in the information returns required to be submitted to the Bureau:
(a) For the importation of goods = Import entry or other equivalent document showing actual payment
of VAT on the imported goods.
(b) For the domestic purchase of goods and properties = Invoice showing the information required under
Secs. 113 (Invoicing and Accounting Requirements for VAT-Registered Persons) and 237 (Issuance of
Receipts or Sales or Commercial Invoices) of the Tax Code.
(c) For the purchase of real property = public instrument i.e., deed of absolute sale, deed of conditional
sale, contract/agreement to sell, etc., together with VAT invoice issued by the seller.
(d) For the purchase of services = official receipt showing the information required under Secs. 113 and
237 of the Tax Code.
A cash register machine tape issued to a registered buyer shall constitute valid proof of
substantiation of tax credit only if it shows the information required under Secs. 113 and 237 of the
Tax Code.
(2) TRANSITIONAL INPUT TAX shall be supported by an inventory of goods as shown in a
detailed list to be submitted to the BIR.
(3) Input tax on "deemed sale" transactions shall be substantiated with the invoice required.
(4) Input tax from payments made to non-residents (such as for services, rentals and royalties)
shall be supported by a copy of the Monthly Remittance Return of Value Added Tax Withheld
(BIR Form 1600) filed by the resident payor in behalf of the non-resident evidencing
remittance of VAT due which was withheld by the payor.
(5) Advance VAT on sugar shall be supported by the Payment Order showing payment of the
advance VAT.

21.Refund or tax credit of excess input tax 

a.) Who may claim for refund/apply for issuance of tax credit certificate 
(1) Zero-Rated Sales (Sec. 112(A), NIRC)
(a) Any VAT-registered person, whose sales are zero-rated or effectively zero-rated
may apply for the issuance of a tax credit certificate/refund of creditable input tax due or
paid attributable to such sales,
EXCEPT transitional input tax, to the extent that such input tax has not been applied
against output tax, within two (2) years after the close of the taxable quarter when the
sales were made. The input tax that may be subject of the claim shall exclude the portion
of input tax that has been applied against the output tax.

(b) The acceptable foreign currency exchange proceeds must have been duly
accounted for in accordance with the rules and regulations of the BSP in the case
of zero-rated transactions paid for in acceptable foreign currency and requiring that such
be accounted for in accordance with BSP rules & regulations (Secs. 106(A)(2)(a)(1) and
(2), and Sec. 106(A)(2)(b) and Sec. 108(B)(1) and (2), NIRC).

(c) Where the taxpayer is engaged in zero-rated or effectively zero-rated sale and
also in taxable or exempt sale of goods of properties or services, and the amount of
creditable input tax due or paid cannot be directly and entirely attributed to any one of
the transactions, it shall be allocated proportionately on the basis of the volume of
sales.

(d) In the case of a person engaged in the transport of passenger and cargo by air
or sea vessels from the Philippines to a foreign country, the input taxes shall be allocated
ratably between his zero-rated sales and non-zero-rated sales (sales subject to regular
rate, subject to final VAT withholding

Requirements:(Summary)
(i) The claimant should be a VAT-registered person
(ii) There should be an application filed with the BIR or DOF center, as the case may be,
within 2yrs after close of taxable quarter.
(iii) The claimed input tax must not have been applied to any output tax during the period
covered and subsequent periods covered by the claim.
(iv) The claimed input tax must have been deducted from the VAT quarterly return.
(v) The claimed input tax are directly attributable to 0%-rated transactions.
(vi) Acceptable foreign currency exchange proceeds must have been duly accounted for
(vii) Claimed input tax must be duly supported by VAT invoices/receipts.
(viii) VAT returns for the succeeding quarters must have been submitted.

(2) Cancellation of VAT Registration.

(a) A person whose registration has been cancelled due to
 (i) retirement from or cessation of business, or due to changes in or
(ii) cessation of status under Section 106(C) of the Code may, within two (2)
years from the date of cancellation, apply for the issuance of a tax credit
certificate for any unused input tax which may be used in payment of his other
internal revenue taxes.

(b) He shall be entitled to a refund if he has no internal revenue tax liabilities against
which the tax credit certificate may be utilized.

b.) Period to file claim/apply for issuance of tax  credit certificate 

Period to file claim/apply for issuance of tax credit certificate
This period must be distinguished from normal tax refunds for erroneous payments where
an administrative claim and judicial claim may be made together, and the reckoning point
of the 2 years is from the date of the erroneous payment.

(1) Application for issuance of tax credit certificate or refund of creditable input tax
(except transitional input tax)
 w/in 2 years after the close of the taxable quarter when the sale was made.
 If the VAT registration has been cancelled due to retirement or cessation of
business, or change of status, the 2 year period shall be after the date of
cancellation
(2) Administrative Claim
 The CIR shall grant the tax credit/refund within 90 days from the date of submission of
complete documents in support of the application
 “Complete Documents” is determined by taxpayer himself.
 Taxpayer may only resort to a Judicial Claim either after the end of the 120 day period
or after a decision is made by the Commission, whichever comes first.
(3) Judicial Claim
 In case of denial of the application or the expiry of the 120 days, the taxpayer may
appeal to the CTA within 30 days
from the receipt of said denial or inaction.

c.) Manner of giving refund 

Revenue Memorandum Circular no. 57-2013 (August 23, 2013): Unutilized creditable
input taxes attributed to zero-rated sales can only be recovered through the application
for refund or tax credit ONLY. The Memorandum Circular also instructed the
disallowance of unutilized creditable input taxes attributable to VAT zero-rated sales that
is claimed as a deduction for income tax purposes.

Refunds shall be made upon warrants drawn by the Commissioner or by his duly
authorized representative without the necessity of being countersigned by the
Chairman, Commission on Audit, the provisions of the Administrative Code of 1987
notwithstanding: provided that refunds shall be subject to post audit by the Commission
on Audit. (Sec. 112(D), NIRC)
Destination principle or cross-border doctrine

Cases: 
• CIR v. AICHI Forging Company of Asia, G.R.  No. 184823, October 6, 2010 
• CIR v. San Roque Power Corp, G.R. No.  187485, February 12, 2013 
• CIR v. Mindanao II Geothermal Partnership,  G.R. No.191498, January 15, 2014 
• CIR v. Team Sual Corp, G.R. No. 194105,  February 5, 2014 
• CIR v. Burmeister, G.R. No. 153205, January  22, 2007 
CIR v. Toledo Power Company, G.R. No.196415,  December 2, 2015 
 22.Invoicing Requirements 
a.)Invoicing requirements in general 

Invoicing requirements in general

A VAT-registered person shall issue:
(1) A VAT invoice for every sale, barter or exchange of goods or properties; and
(2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or
exchange of services

Only VAT-registered persons are required to print their TIN followed by the word “VAT” in their
invoice or ORs. Said documents shall be considered as a “VAT Invoice” or VAT official receipt. All
purchases covered by invoices/receipts other than VAT Invoice/VAT
OR shall not give rise to any input tax. [RR 16-05]

Note: VAT component of all transactions shall be separately indicated in the VAT invoice or
receipt. (RR 18-2011)

Information Contained in the VAT Invoice or VAT Official Receipt:

(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's identification
number (TIN);

(2) The total amount which the purchaser pays or is obligated to pay to the seller with the
indication that such amount includes the VAT:

(a) The amount of the tax shall be shown as a separate item in the invoice/receipt;

(b) If the sale is exempt from VAT, the term "VAT-exempt sale" shall be written or printed
prominently on the invoice or receipt;

(c) If the sale is subject to zero percent (0%) value-added tax, the term "zero-rated sale"
shall be written or printed prominently on the invoice or receipt;

(d) If the sale involves goods, properties or services some of which are subject to and
some of which are VAT zero-rated or VAT-exempt, the invoice or receipt shall clearly
indicate the breakdown of the sale 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. The seller has the option to issue separate invoices
or receipts for the taxable, exempt, and zero-rated components of the sale.

(3) The date of transaction, quantity, unit cost and description of the goods or properties or nature
of the service; and

(4) In the case of sales in the amount of one thousand pesos (P1,000) or more where the sale or
transfer is made to a VAT-registered person, the name, business style, if any, address and
taxpayer identification number (TIN) of the purchaser, customer or client.

(5) Name of buyer and seller

b.)Invoicing and recording deemed sale  transactions

Transfer, use or consumption not in the course of Memorandum entry in the subsidiary sales
business of goods or properties originally journal to record withdrawal of goods for personal
intended for sale or for use in the course of use
business
Distribution or transfer to shareholders/investors
or creditors
Consignment of goods if actual sale is not made
within 60 days
Retirement from or cessation of business with
respect to all goods on hand
Invoice, at the time of the transaction, which
should include all the info prescribed above; data
in the invoice shall be duly recorded in the
subsidiary sales journal
Invoice, at the time of the transaction, which
should include all the info prescribed above; data
in the invoice shall be duly recorded in the
subsidiary sales journal
An inventory shall be prepared and submitted to
the RDO who has jurisdiction over the taxpayer’s
principal place of business not later than 30 days
after retirement or cessation from business. AND
An invoice shall be prepared for the entire
inventory, which shall be the basis of the entry
into the subsidiary sales journal. The invoice
need not
enumerate the specific items appearing in the
inventory regarding the description of the goods.
If the business is to be continued by the new
owners or successors, the entire amount of
output tax on the amount deemed sold shall be
allowed as input taxes.