In cases where a lessor has several residential units for lease, some are leased out for a

monthly rental per unit of not exceeding P15,000 while others are leased out for more
than P15,000 per unit, his tax liability will be as follows:
1. The gross receipts from rentals not exceeding P15,000 per month per unit shall be
exempt from VAT regardless of the aggregate annual gross receipts. It is also exempt
from the 3% percentage tax.

2. The gross receipts from rentals exceeding P15,000 per month per unit shall be
subject to VAT if the aggregate annual gross receipts from said units only exceeds
P3,000,000. Otherwise, the gross receipts will be subject to the 3% tax imposed
under Section 116 of the Tax Code.
In case of mixed transactions, the abovementioned rule should be observed.
The term ‘residential units’ shall refer to 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, lodging houses, inns and pension houses.
The term ‘unit’ shall mean 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.
r. Sale, importation, printing or publication of books and any newspaper, magazine,
review, or bulletin which -
1. appears at regular intervals
2. with fixed prices for subscription and
3. sale of which is not devoted principally to the publication of paid advertisements.

Illustration 16-15
Sensationalized Company is engaged in printing and sale of daily and weekly
magazines which are sold to the public at P5.00 and P15.00, respectively. Are the
printing and sale of these magazines subject to VAT?
No, provided that said magazines are not devoted principally to publication of
advertisements.

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

t. Sale, importation or lease of passenger or cargo vessels and aircraft, including

engine, equipment and spare parts thereof for domestic or international transport
operations: Provided, however, that the exemption from VAT on the importation and
local purchase of passenger and/or cargo vessels shall be subject to the
requirements on restriction on vessel importation and mandatory vessel retirement
program of Maritime Industry Authority (MARINA);
Illustration 16-16
Kalinisan Corporation imported a 17-year old 5,500 ton vessel from abroad to be
used in the cleaning of Pasig River. Is the importation subject to VAT?
Yes, because the law grants exemption only on importation of passenger and/or
cargo vessel, tankers and high speed passenger crafts. The vessel which is designed for
use in cleaning the Pasig River is not one of those enumerated.
Moreover, exempt sale of vessel pertains only to those whose age is 15 years
old and below.
u. Importation of fuel, goods and supplies by persons engaged in international shipping
or air transport operations: Provided, That the fuel, goods and supplies shall be used
for international shipping or air transport operations. Thus, said fuel, goods and
supplies shall be used exclusively or shall pertain to the transport of goods and/or
passenger from a port in the Philippines directly to a foreign port, or vice versa,
without docking or stopping at any other port in the Philippines unless the docking or
stopping at any other Philippine port is for the purpose of unloading passengers
and/or cargoes that originated from abroad, or to load passengers and/or cargoes
bound for abroad: Provided, further, that 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;

v. Services of banks, non-bank financial intermediaries performing quasi-banking

functions, and other non-bank financial intermediaries such as money changers and
pawnshops, subject to percentage tax under Secs. 121 and 122, respectively, of the
Tax Code;

w. Sale or lease of goods and services to senior citizens and persons with disabilities, as
provided under Republic Act Nos. 9994 (Expanded Senior Citizens Act of 2010) and
10754 (An Act Expanding the Benefits and Privileges of Persons with Disability),
respectively;

x. Transfer of Property pursuant to Section 40(C)(2) of the Tax Code, as amended;

y. Association dues, membership fees, and other assessments and charges collected
on a purely reimbursement basis by homeowners' associations and condominium
corporations established under Republic Act No. 9904 (Magna Carta for Homeowners
and Homeowners’ Association) and Republic Act No. 4726 (The Condominium Act),
respectively;

z. Sale of gold to the Bangko Sentral ng Pilipinas;

aa. Sale of drugs and medicines prescribed for diabetes, high cholesterol, and
hypertension to beginning January 1, 2019 as determined by the Department of
Health; and
bb. 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 Three Million Pesos (P3,000,000).

Exemption of senior citizens

The term senior citizen or elderly refers to any Filipino citizen who is a resident of
the Philippines and who is sixty (60) years old or above.
It may apply to senior citizens with “dual citizenship” status provided they prove
their Filipino citizenship and have at least six (6) months residency in the Philippines.
The sale of the following goods and services shall be exempt from the value-
added tax and subject to twenty percent (20%) discount.
1. Medicines, including influenza and pneumococcal vaccines, and such other essential
medical supplies, accessories and equipment to be determined by the Department of
Health (DOH);

On all drug stores, hospital pharmacies, medical and optical clinics and similar
establishments dispensing medicines, the discount for sales of drugs/medicines shall
be subject to the guidelines to be issued by the Bureau of Food and Drugs,
Department of Health (BFAD-DOH), in coordination with the Philippine Health
Insurance Corporation (Philhealth).

For this purpose, the term “medicines” shall refer to both prescription and
nonprescription medicines, and articles approved by the BFAD-DOH, which are
intended for use in the diagnosis, cure, mitigation, treatment or prevention of disease
in man; but do not include food and devices or their components, parts, or
accessories.

The VAT exemption shall also be granted to the purchase of vitamins and
mineral supplements which are medically prescribed by an attending physician for
prevention and treatment of diseases, illness, or injury whose prescription is in the
name of Senior Citizen.
The VAT exemption shall also apply to the purchase of eyeglasses, hearing aids
dentures, prosthetics, artificial bone replacements like steel, walkers, clutches,
wheelchairs whether manual or electric-powered, canes/quad canes, geriatric diapers,
and other essential medical supplies, accessories and equipment by or for senior
citizens.

Illustration 16-17
Señor Lolo purchased 10 pieces of medicine tablets from Watch Son Drugstore.
Each tablet is for sale at an undiscounted selling price of P20.00, net of VAT.
Q1: How much should be paid by Señor Lolo?

He should pay P160.00, computed as follows:

Selling price, net of VAT (10 x P20) P 200.00
Less: Discount (200 x 20%) 40.00
Amount payable by Señor Lolo 160.00

Q2: What is the entry to record the transaction in the books of the Watch Son
Drugstore?

Cash 160.00
Senior Citizen discount expenses 40.00
Sales 200.00

2. On the professional fees of attending physician/s in all private hospitals, medical

facilities, outpatient clinics and home health care services, where the discount shall
be based on compensation for services charged from the Senior Citizen.

3. On professional fees of licensed professional health workers providing home health

care services as endorsed by private hospitals or employed through home health
care employment agencies, where the discount shall be based on the fees charged
from the Senior Citizen.

4. On medical and dental services, diagnostic and laboratory fees in all private
hospitals, medical facilities, outpatient clinics, and home health care services, in
accordance with the rules and regulations to be issued by the DOH, in coordination
with the Philhealth.

a. “Medical services” refers to hospital services, professional services of physicians

and other health care professionals and diagnostic and laboratory tests that are
necessary for the diagnosis or treatment of illness or injury.

b. “Dental services” refers to oral examination, cleaning, permanent and temporary

filling extractions and gum treatments, restoration, replacement or repositioning
of teeth, or alteration of the alveolar or periodontium process of the maxilla and
the mandible that are necessary for the diagnosis or treatment of an illness or
injury.
The VAT exemption shall apply to medical and dental services, diagnostic
and laboratory tests such as but not limited to X-rays, computerized tomography
scans, and blood tests that are requested by a physician as necessary for the
diagnosis and/or treatment of an illness or injury.
c. “Home health care services” refers to health or supportive care provided to the
Senior Citizen patient at home by licensed health care professionals to include
 but not limited to, physicians, nurses, midwives, physical therapists and
caregivers.

5. In actual fare for land transportation travel in public utility buses (PUBs), public utility
jeepneys (PUJs), taxis, Asian utility vehicles (AUVs), shuttle services and public
railways, including Light Rail Transit (LRT), Mass Rail Transit (MRT), and Philippine
National Railways (PNR).

6. On actual transportation fare for domestic air transport services and sea shipping
vessels and the like, based on the actual fare and advanced booking.

7. On the utilization of services in hotels and similar lodging establishments, restaurants

and recreation centers.

a. For hotels and similar lodging establishments, the discount shall be for room
accommodation and other amenities offered by the establishment, such as, but
not limited to hotel-based parlors and aromatherapy rooms, workout gyms,
swimming pools, Jacuzzis, ktv bars, internet facilities, food drinks, and other
services offered. The term “hotel” shall include beach and mountains resorts.

b. For this purpose, the term "hotel/hostel" shall refer to the building, edifice or
premises of a completely independent part thereof, which is used for the regular
reception, accommodation or lodging of travelers and tourists, and the provision
of services incidental thereto, for a fee.

c. "Lodging establishment" shall refer to building, edifice, structure, apartment or

house including tourist inn, apartelle, motorist hotel and pension house engaged
in catering, leasing or providing facilities to transients, tourists or travelers. The
following are considered as lodging establishments:

Tourist Inn - a lodging establishment catering to transients, which does not meet
the minimum requirement of an economy hotel.

Apartelle - a building or edifice containing independent and furnished or semi-

furnished apartments, regularly leased to tourists and travelers for dwelling on a
more or less long-term basis and offering basic services to its tenants, similar to
hotels.

Motorist Hotel - any structure with several separate units, primarily located along
the highway, with individual or common parking space, at which motorists may
obtain lodging and in some instance, meals.

Pension House - a private, or family operated tourist boarding house, tourist

guest house or tourist lodging house, regularly catering to tourist and/or traveler,
containing several independent table rooms, providing common facilities, such as
toilets, bathrooms/showers, living and dining rooms and/or kitchen and where a
combination of board and lodging may be provided.
 d. The term lodging establishment shall also include lodging houses, which shall
mean such establishments are regularly engaged in the hotel business, but
which, nevertheless, are not registered, classified and licensed as hotels by
reason of inadequate essential facilities and services. Long term arrangement for
residential purposes is not covered.

e. For restaurants, the discount and exemption shall be for the sale of food, drinks,
dessert, and other consumable items served by the establishments, including
value meals and promotional meals offered for the consumption of the general
public.

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

Illustration 16-18
Lolo tendered a lunch for his two grandchildren Karen and Isabel in a popular
fastfood chain in town. Karen ordered spaghetti, drinks and burger with an invoice price
of P85.00, gross of VAT. Isabel ordered chicken with rice and drinks with an invoice
price of P92.00, while Lolo ordered chicken with spaghetti and drinks worth P106.40,
gross of VAT. How much should be paid by Lolo for the foods ordered?

1. On the foods ordered by the grandchildren:

Karen P 85.00
Isabel 92.00 P 177.00

2. On the foods ordered by Lolo:

Net of VAT (106.40 / 112%) 95.00
Less: Discount (95 x 20%) 19.00 76.00
Amount payable by Lolo P 253.00

f. For recreation centers, the discount shall be for the utilization of services in the
form of fees, charges and rental for sports facilities or equipment, including
golfcart rentals and green fees, or revenues, or venues for ballroom dancing,
yoga, badminton courts, bowling lanes, table or lawn tennis, working gyms,
martial arts facilities.

8. On admission fees charged by theatres, cinema houses and concert halls, circuses,
carnivals, and other similar places of culture, leisure and amusement, where the
discount shall be on the admission fees charged by the said establishment.
9. On funeral and burial services for the death of Senior Citizens. The beneficiary or
any person who shall shoulder the funeral and burial expenses of the deceased
Senior citizen shall claim the discount upon payment and presentation of his death
certificate. Such expenses shall cover the purchase of casket or urn, embalming,
cremation cost and other related services such as viewing or wake cost, pick-up from
the hospital morgue, transport of the body to intended burial site in the place of
origin, but shall exclude obituary publication and cost of the memorial lot.
The sale to a Senior Citizen must follow the invoicing requirements prescribed
under Revenue Regulations 16-2006. If the seller uses a Point of Sale Machine or a
Cash Register Machine in lieu of the regular sales invoice, the machine tape must
properly segregate the exempt sales from the taxable sales.

The input tax attributable to the exempt sale shall not be allowed as an input tax
credit and must be closed to cost or expense account by the seller.

The exemption herein granted will not cover other indirect taxes that may be
passed on by the seller to a Senior Citizen buyer, such as percentage tax, excise
tax, etc.

PERSONS WITH DISABILITY (PWD)

PWDs are those who have long-term physical, intellectual, or sensory
impairments which in interaction with various barriers may hinder their full and effective
participation in society on an equal basis with others.

Exemption from VAT of PWD

Twenty percent (20%) discount and exemption from VAT, if applicable, on the
following sale of goods and services for the exclusive use and enjoyment or availment of
the PWD:
1. On the purchase of medicines (generic and branded) in all drugstores; medical and
dental services including diagnostic and laboratory fees; professional fees of
attending doctors in all government facilities or all private hospitals and medical
facilities;

2. On actual fare for land transportation travel such as, but not limited PUBs/PUJs,
taxis, AUVs, shuttle services and public railways, including LRT, MRT and PNR and
Transportation Network Vehicle Services (TNVS) such as Grab, Uber and the like;

3. On fare for domestic air and sea transportation based on actual fare;

4. Hotels and similar lodging establishments, restaurants and recreation centers;

5. On admission fees charged by theaters, cinema houses, concert halls, circuses,

carnivals and other similar places of culture, leisure and amusement;
6. On funeral and burial services for the death of the PWD (purchase of casket, urn,
embalming, hospital morgue, transport of the body to intended burial site in the place
of origin, but shall exclude obituary publication and the cost of the memorial lot);
All goods and services sold by the foregoing establishments not included in the
enumeration expressly provided by law shall not be considered for the 20% discount
privilege notwithstanding that they are for the exclusive use and enjoyment or availment
of the PWD.
The benefits and privileges indicated may only be granted to PWD who are Filipino
citizens, upon presentation of any of the following:
a. An identification card issued by the Persons with Disability Affairs Office (PDAO) or
the City/ Municipal Social Welfare and Development Office (C/MSWDO) of the place
where the person with disability PWD resides.

b. The passport of the concerned PWD.

c. An identification card issued by the National Council on Disability Affairs.

No Double Discounts to PWD

Commercial establishment or law offers another discount - whichever is chosen
by PWD unless the other discount can also be availed of.
If the PWD is also a senior citizen, he can avail of either discount but not both.
The same benefits and privileges shall be made available to Filipinos who hold
fore passports but are registered as dual citizens and Filipinos who have reacquired their
Filipino citizenship thru Republic Act No. 9225 or the Citizenship Retention and Re-
Acquisition Act of 2003.

EXERCISE 16-1. TRUE OR FALSE QUESTIONS

1. A business establishment may be subject to VAT and be exempt at the same time.

2. A VAT business establishment can sell goods which are exempt from value-added
tax.

3. A sale of timber to a lumberyard by an owner of a timberland is subject to value-

added tax.

4. A sale of lumber by a lumberyard to a furniture manufacturer is subject to value-

added tax.

5. A sale by a furniture manufacturer to a furniture dealer is subject to value-added tax.

6. A sale of dressed chicken by SM Supermarket to its customers may be subject to

value-added tax if the supermarket is subject to value-added tax.
7. A sale of smoked fish by its producer is subject to value-added tax if the seller-
producer is earning an annual gross sales of more than P3,000,000.

8. A sale of a goldfish by a petshop is subject to value-added tax, while a sale of fresh

tilapia in the market is exempt.

9. A sale of chicken by an agricultural contact grower to Magnolia Corporation (its

supplier of feeds) is exempt from value-added tax.

10. A sale of fried chicken by a fast food chain to its customers is subject to value added
tax.

11. Both the sale of fresh eggs in the market and the sale of fried egg in a restaurant are
exempt from value-added tax.

12. The sale of palay by the farmer, milling of palay into rice by a miller, sale by a rice
trader, and of cooked rice in a restaurant are exempt from value-added tax.

13. The sale of fresh fish in the market is exempt from value-added tax, while the sale of
cooked fish in a restaurant is taxable.

14. The sale of raw cane sugar is exempt from value-added tax, while the sale of refined
sugar is taxable.

15. The sale of sugar cane is exempt from value-added tax but may result to input tax on
the buyer if it is engaged in the milling of sugar cane into refined sugar.

16. The sale of sugar cane is exempt from value-added tax but may result to input tax on
the buyer if it is engaged in the milling of sugar cane into muscovado.

17. The sale of drugs by a hospital drugstore to in-patients is exempt from value-added
tax.

18. Sales of educational services by an educational institution (whether proprietary, non-

stock, non-profit or government) which are registered either with the DepEd, CHED
or TESDA are exempt from value-added tax.

19. Sale of services by a CPA Review Center such as the ARTS-PRTC CPA Review in
Naga City and the PRTC Review Center in Cebu are exempt from value-added tax
because they are falling under the classification of an educational institution.

20. Export sales are exempt from value-added tax regardless of whether the exporters
are VAT registered or not.

EXERCISE 16-2. MULTIPLE CHOICE QUESTIONS

1. Which one is subject to VAT? Sale of
a. Contract grower c. Furniture
b. Piggery d. Balut
2. Which of the following is not exempt from VAT?
a. Importation in their original state of agricultural and marine food products;
b. Importation of passenger or cargo vessel of more than 1,000 tons to be used by
the importer himself as operator thereof;
c. Importation of personal and household effects belonging to residents of the
Philippines returning from abroad;
d. Importation of non-food agricultural, marine and forest products in their original
state.

3. All of the following except one, are subject to VAT:

a. Importation of radio and television equipment by broadcasting and television
stations;
b. Sale of school textbooks
c. Lease of cold storage rooms in ice plants and cold storage;
d. Sale of painting by middleman.

4. Three of the following are exempt from value-added tax. Which is the exception?
a. Medical, dental and veterinary services;
b. Sales rendered by person subject to percentage tax;
c. Receipts from leasing of real properties;
d. Exports sales by person who are not VAT registered