CTT EXAMINATION REVIEWER (NOTES)
VALUE-ADDED TAX FORMULA IN COMPUTING VAT PAYABLE
Who are liable to VAT?
Any individual, trust, estate, partnership,
corporation, joint venture, cooperative or
association who in the course of his trade or
business:
1. Sells, barters, exchanges goods or
properties
2. Sells or renders services
3. Leases properties
4. Imports goods
To be subject to VAT
1. The annual gross selling price (sale of
goods/ properties) or gross receipts (sale
of services and lease of properties) must
exceed P 3 million.
2. If the taxpayer is VAT-registered, he is
subject to VAT, regardless of the amount
of GSP/GR.
In the course of his trade or business means
the regular conduct or pursuit of a
commercial or an economic activity, including
transactions incidental thereto, by any
person regardless of whether or not the
person engaged therein is a non-stock, non-
profit private organization (irrespective of the
disposition of its net income and whether or
not it sells exclusively to members or their
guests), or government entity.
EXCEPTIONS (these are subject to VAT even
if there is no business)
1. Importation of goods for personal use;
and
2. Services rendered in the
Philippines by non-resident foreign
persons, even if isolated (considered as
being rendered in the course of trade or
business).
The recipient of the service shall withhold
and remit the VAT to the BIR. Such VAT can
be claimed by the recipient as input tax.
Nature and characteristics of VAT
1. VAT is a tax on consumption levied on the
sale, barter, exchange or lease of goods or
properties and services in the Philippines.
2. The Seller is the one statutorily liable for
the payment of the tax but the amount of
the tax may be shifted or passed on to the
buyer, transferee or lessee of the goods,
properties or services.
3. The tax is a business tax imposed on the
privilege of selling or importing goods or
rendering services for a fee, remuneration
or consideration (excise tax).
PAGE A - 30
OUTPUT TAX Px x
Less: INPUT TAX x x
VAT PAYABLE x x
Gross sales/receipts by husband and wife
For purposes of the threshold of P3 million,
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 sale shall not be included in
determining the threshold.
Sources/Kinds of Input Tax (creditable
from the Output Tax)
1. Input tax on local purchases of goods or
properties other than capital goods
2. Input tax on importation of goods or
properties other than capital goods
3. Input tax on local purchases or
importation of capital goods
4. Input tax on local purchases of services
5. Creditable withholding VAT
6. Transitional input tax
7. Presumptive input tax
VAT ON SALE OF GOODS OR PROPERTIES
Rate and Base: 12% of Gross Selling Price
Gross selling price - the total amount of
money or its equivalent which the purchaser
pays or is obligated to pay to the seller in
consideration of the sale, barter or exchange
of the goods or properties, excluding VAT but
including excise tax, if any.
In computing the taxable base during the
month or quarter, the following shall be
allowed as deductions:
Deductions from GSP
1. Sales discounts determined and granted at
the time of sale, expressly indicated in the
invoice the amount thereof forming part of
the gross sales duly recorded in the books
of accounts, the granting of which does
not depend upon the happening of a
future event.
2. Sales returns and allowances for which a
proper credit or refund was made during
the month or quarter to the buyer for
sales previously recorded as taxable sales.
CTT EXAMINATION REVIEWER (NOTES)
Formula:
Gross Sales P xx
Less: Sales discount Pxx
Sales returns & allowances x x x x
Net Sales x x
Add: Excise tax (if any) x x
Gross selling price x x
Transactions Deemed Sale (Purpose: To
recapture the VAT that was already claimed
as Input Tax)
1. Transfer use or consumption not in the
course of business of goods or properties
originally intended for sale or for use in
the course of business. Transfer of goods
or properties not in the course of trade or
business can take place when VAT
registered person withdraws goods from
his business for his personal use.
2. Distribution or transfer to –
a. Shareholders or investors as share in
the profits of the VAT registered person.
Property dividends which constitute
stocks in trade or properties primarily
held for sale or lease declared out of
retained earnings and distributed by the
company to its shareholders shall be
subject to VAT based on the zonal value
or FMV at the time of distribution,
whichever is applicable.
b. Creditors in payment of debt
obligation.
3. Consignment of goods if actual sale is
not made within 60 days following the
date such goods were consigned. Those
returned within the 60-day period are not
deemed sold.
4. Retirement from or cessation of
business with respect to all goods on
hand, whether capital goods, stock in
trade, supplies or materials as of the date
of such retirement or cessation, whether
or not the business is continued by the
new owner or successor, to wit:
a. Change of ownership of business. There
is change of ownership of the business
when a single proprietorship
incorporates; or the proprietor of a
single proprietorship sells his entire
business.
b. Dissolution of a partnership and
creation of a new one which takes over
the business.
In cases (1) (2) and (3), the output tax
shall be based on the market value of the
goods deemed sold at the time of
occurrence of the transaction.
PAGE A - 31
In case (4) the tax base shall be
whichever is lower between:
Acquisition Cost vs Current Market Price
of the goods or properties
TRANSITIONAL INPUT TAX (on a person
who becomes liable to VAT or those who
elect to be VAT registered) as of the
effectivity of their VAT registration.
Whichever is higher between:
 2% of the value of the beginning
inventory on hand of goods, materials
and supplies, or
 Actual VAT paid on such materials, goods
and supplies
PRESUMPTIVE INPUT TAX on sale of goods
or properties
VAT registered persons or firms engaged in
the –
1. Processing of sardines, mackerel, and
milk, and
2. In manufacturing refined and raw sugar,
cooking oil and packed noodle-based
instant meals
 4% of the gross value in money of their
purchases of primary agricultural products
which are used as inputs to their
production
or Zero-rated sales of goods
1. Zero-rated transactions vs. Exempt
transactions
a. 0%- subject to VAT only that the rate is
0%.
E - not subject to VAT
b. 0%- no output tax but the taxpayer is
entitled to tax credit or refund of
input taxes.
E - no tax credit or refund for input
taxes are allowed.
2. Sales by VAT registered persons sub-ject
to 0%:
A. Export sales which shall mean:
a. The sale or actual shipment of goods
from Philippines to foreign country
and paid for in acceptable foreign
currency or its equivalent in goods or
services, and accounted for in
accordance with the rules and
regulations of the BSP;
b. The sale of goods, supplies,
equipment and fuel to persons
engaged in international shipping or
international air transport
operations: Provided, that, the
goods, supplies, equipment, and fuel
shall be used exclusively for
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 32

international shipping or air transport Deferred Payment/Installment Sales

operations. of Real Property
Deferred Payment Basis – not a cash sale of
B. Effectively zero-rated sales
Effectively zero-rated sales of goods and real property but the initial payment in the
properties shall refer to the local sale year of sale exceeds 25% of the gross selling
(constructive export) by a VAT-registered price.
person to a person or entity who was Installment Basis – sale of real property by a
granted indirect tax exemptions under real estate dealer in which the initial
special laws or international agreement, payment does not exceed 25% of the gross
such as: selling price.
a. Sale to Asian Development Bank (ADB); Computation of tax base:
b. Sale to International Rice Research 1. Cash sale and Deferred Payment Sale –
Institute (IRRI); whichever is the highest among:
c. Sale to duly registered and accredited a. Gross selling price
enterprises with Subic Bay Metropolitan b. Fair market value (assessor’s
Authority (SBMA); and value)
d. Sale to duly registered and accredited c. Zonal value (BIR)
enterprises with Philippine Economic
Zone Authority (PEZA). 2. Installment basis – multiply the
collection/gross selling price by the
VAT ON SALE OF REAL PROPERTY highest among
1. The following sales of real property are a. Gross
subject to VAT: selling price
a. Those held primarily for sale to b. Fair
customers; market value
b. Those held for lease in the ordinary c. Zonal
course of trade or business of the value
seller. VAT ON SALE OF SERVICES
2. The following are not subject to VAT: Sale Tax Base: Gross receipts - the total amount
of real property which are - of money or its equivalent actually or
constructively received during the taxable
a. Not held primarily for sale to custo- quarter for the services performed or to be
mers or held for lease in the ordinary performed for another person (excluding the
course of trade or business; VAT):
b. Utilized for low-cost housing (P750,000 a. On the contract price,
per unit or less); compensation, service fee, rental or
c. Utilized for socialized housing royalty;
(P450,000 per unit or less); b. Amount charged for materials
d. Made by real estate dealers and/or supplied with the services; and
lessors of house and lot and other c. Deposits applied as payments for
residential dwellings valued at not more services rendered and advanced
than: payments.
Residential lot - P1,500,000 Constructive receipt occurs when the money
Residential house & lot - P2,500,000 consideration or its equivalent is placed at
Provided, that beginning January 1, 2021, the control of the person who conducted the
the VAT exemption shall only apply to the service without restrictions by the payor such
following sales: as depositing the money in the bank which
are available to the payee without restriction.
1. Sale of real
properties not primarily held for sale to Computation of gross receipts:
customers or held for lease in the Cash received (actually and
ordinary course of trade or business, constructively) Pxx
2. Sale of real Advance payments xx
property utilized for socialized housing Materials charged for services xx
(RA 7279), Gross receipts xx

3. Sale of house Sale or exchange of services means the

and lot, and other residential dwellings performance of all kinds of services in the
with selling price of not more than Philippines for others for a fee, remuneration
P2,000,000. or consideration, including those performed
or rendered by the following:
 CTT EXAMINATION REVIEWER (NOTES) PAGE A - 33

1. Construction and service contractors broadcasters, choreographers; musical,

radio, movie, television and stage
2. Warehousing services;
directors; and professional athletes;
3. Lessors or distributors of cinematographic
14. Other similar services, regardless of
films;
whether or not the performance thereof
4. Persons engaged in milling, processing, calls for the exercise or use of the physical
manufacturing or repacking goods for or mental faculties.
others except: Zero-rated sale of services
The following services performed in the
a. Palay into rice
Philippines shall be subject to 0%.
b. Corn into corngrits
c. Sugar cane into muscovado and raw 1. Processing, manufacturing or repacking
cane sugar goods
a. For other persons doing business
5. Proprietors, operators or keepers of
outside the Philippines
hotels, motels, resthouses, pension
b. The goods are subsequently exported;
houses, inns, resorts;
and
6. Dealers in securities and lending c. The services are paid for in acceptable
investors foreign currency and accounted for in
accordance with the rules and
7. Proprietors or operators of restaurants,
regulations of the Bangko Sentral ng
refreshment parlors, cafes and other
Pilipinas.
eating places, including clubs and
caterers. 2. Services other than (1) above, if the
consideration is paid in acceptable foreign
8. Transportation contractors on their
currency and accounted for in accordance
transport of goods or cargoes, including
with the R & R of the BSP;
persons who transport goods or cargoes
for hire and other domestic carriers by 3. Services rendered to persons or entities
land relative to their transport of goods or whose exemption under special laws or
cargoes; international agreements to which the
Philippines is a signatory effectively
9. Common carriers by air and sea relative
subjects the supply of such services to
to their transport of passengers, goods or
0%.
cargoes from one place in the Philippines
to another place in the Philippines; 4. Services rendered to persons engaged in
international shipping or air transport
10. Sale of electricity by generation,
operations, including leases of property for
transmission by any entity including
use thereof: Provided, that these services
National Grid Corporation of the
shall be exclusively for international
Philippines (NGCP), and distribution
shipping or air transport operations;
companies including electric cooperatives
shall be subject to 12% VAT on their gross 5. Services performed by subcontractors
receipts. and/or contractors in processing,
converting, or manufacturing goods of an
11. Services of franchise grantees, except –
enterprise whose export sales exceed 70%
a. electric utilities, telephone and of total annual production;
telegraph, radio and/or television
6. Transport of passengers and cargo by
broadcasting and all other franchise
domestic air or sea vessels from the
grantees of radio and/or television
Philippines to a foreign country; and
broadcasting companies whose annual
gross receipts of the preceding year do 7. Sale of power or fuel generated through
not exceed P10,000,000, and renewable sources of energy such as, but
b. franchise grantees of gas and water not limited to biomass, solar, wind,
utilities. hydropower, geothermal, ocean energy,
and other emerging energy sources using
12. Non-life insurance companies, including
technologies such as fuel cells and
surety, fidelity, indemnity and bonding
hydrogen fuels.
companies;
Provided, however, that zero-rating shall
13. Services performed in the exercise of
apply strictly to the sale of power or fuel
profession or calling subject to
generated through renewable sources of
professional tax, and professional services
energy, and shall not extend to the sale of
performed by registered professional
services related to the maintenance or
partnerships; actors, actresses, talents,
operation of plants generating said power.
singers, and emcees; radio and television
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 34

Allocation of input taxes

TRAIN LAW: 1. If the taxpayer operates a VAT and a non-
Paragraphs (1) and (5) above shall be VAT business
subject to the 12% VAT and no longer be 2. The Input Taxes paid for the purchases of
subject to 0% VAT rate upon satisfaction of goods and services cannot be directly
the following conditions: attributed to either operation
3. It shall be allocated between the VAT and
non-VAT businesses on the basis of their
1. The successful establishment and respective sales during the taxable month.
implementation of an enhanced VAT
VAT ON IMPORTATION OF GOODS/
refund system that grants refunds of
PROPERTIES
creditable input tax within 90 days from
Subject: Goods and properties whether the
the filing of the VAT refund application
importation is –
with the bureau:
a. For sale, or
2. Provided, that, to determine the effectivity b. For use in business, or
of Item no. 1, all applications filed from c. For personal use
January 1, 2018 shall be processed and
Tax Rate: 12%
must be decided within 90 days from the
filing of the VAT refund application; and 2. Tax Base:
All pending VAT refund claims as of Dec a. Ad valorem (value used by the Bureau of
31, 2017 shall be fully paid in cash by Dec Customs in determining tariff and customs
31, 2019. duties)
VAT ON LEASE OF PROPERTIES Dutiable value xx
1. Transactions subject: Lease of real Add: Customs duties xx
properties held primarily for lease to Excise tax xx
customers in the ordinary course of trade Other charges and legitimate
or business. expenses xx
Base xx
2. Lease of residential units which are
VAT exempt b. Specific - valuation is based on volume or
a. With a quantity of the imported goods, the basis
monthly rental per unit not exceeding shall be the landed cost.
P15,000.
Landed cost means the total of invoice
b. Where cost, freight, insurance, customs duties,
the monthly rental per unit exceeds excise tax, if any, and other charges prior
P15,000, but the aggregate of such to the removal of the goods from customs
rentals of the lessor during the year do custody.
not exceed P3,000,000 shall be subject
to 3% percentage tax. Time of Payment– It shall be paid by the
importer prior to the release of the goods
Even if the real property is not primarily from customs custody.
held for sale to customers or held for lease
in the ordinary course of trade or business If the imported goods by VAT-exempt are
but is used in the trade or business of the subsequently sold, transferred or exchanged
seller, the sale thereof shall be subject to to non-exempt persons or entities - the
VAT being a transaction incidental to the transferee shall be considered the importer
taxpayer’s main business. and shall be liable for VAT due on such
importation.
Residential units - refer to apartments and
houses & lots used for residential Excess Input Tax over Output Tax
purposes, and buildings or parts or units 1. Input tax during Excess shall be
thereof used solely as dwelling places the month carried-over to next
(e.g., dormitories, rooms and bed spaces) 2. Excess input tax – quarter/s
except motels, motel rooms, hotels and previous quarter
hotel rooms, lodging houses, inns and
pension houses.
Unit - means 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.
CTT EXAMINATION REVIEWER (NOTES)
Rules on Withholding of Creditable VAT
The government or any of its political
subdivisions, agencies/instrumentalities,
GOCCs shall before making payment on
account of each purchase of goods and/or
services taxed at 12% deduct and withhold a
creditable withholding VAT due at the rate of
5% of the gross payment thereof.
Spread of INPUT TAX on capital goods
(depreciable properties with a useful life of
more than one (1) year)
Rules:
1.
million in a calendar month- the input tax
shall be spread evenly over a period of 60
months or the life of the asset, whichever
is shorter if -
a. Goods or properties with estimated
useful life greater than one (1) year and
which are treated as depreciable assets,
a. Used directly or indirectly in the
production or sale of taxable goods or
services;
c. If the capital good is sold within 5 years
or prior to exhaustion of input VAT
thereon - the entire unamortized input
tax on the capital goods sold can be
claimed as input tax credit during the
month/quarter when the sale was
made.
3. Aggregate acquisition cost of
the existing or finished capital goods
purchased or imported during any
calendar month does not exceed P 1 M,
- total input taxes will be credited against
output tax in the month of acquisition
Aggregate acquisition cost - total price,
excluding the VAT, agreed upon for one or
more assets acquired and not on the
payments actually made during the
calendar month.
The amortization of the input VAT shall only
be allowed until December 31, 2021 after
which taxpayers with unutilized input VAT on
capital goods purchased or imported shall be
allowed to apply the same as scheduled until
fully utilized;
In the case of purchase of services, lease or
use of properties, the input tax shall be
creditable to the purchaser, lessee or
licensee upon payment of the compensation,
rental, royalty or free.
TRANSACTIONS WHICH ARE EXEMPT
FROM VAT
No Output Tax on the sale or lease and no
Input Tax credit on purchases.
PAGE A - 35
a. Sale or importation of agricultural and
marine food products in their original
state, livestock and poultry of a kind
generally used as, or yielding or
producing, foods for human consumption;
and breeding stock and genetic materials;
Products considered in their original state:
1. products which undergone simple
processes of preparation or
preservation for the market (freezing,
drying, salting, broiling, roasting,
smoking or stripping)
2. polished or husked rice
3. corn grits
4. raw cane sugar and molasses
5. ordinary salt
6. copra
b. Sale or importation of fertilizers, seeds,
seedlings and fingerlings, fish, prawn,
livestock and poultry feeds, including
ingredients, whether locally produced or
imported, used in the manufacture of
finished feeds (except specialty feeds for
race horses, fighting cocks, aquarium fish,
zoo animals and other animals generally
considered as pets);
c. Importation of -
1. professional instruments and
implements,
2. tools of trade, occupation or
employment,
3. wearing apparel,
4. domestic animals, and
5. personal and household effects
belonging to persons coming to settle in
the Philippines or Filipinos or their
families and descendants who are now
residents or citizens of other countries,
such parties hereinafter referred to as
overseas Filipinos, in quantities and of
the class suitable to the profession,
rank or position of the persons
importing said items, for their own use
and not for barter or sale,
accompanying such persons, or arriving
within a reasonable time:
Provided, that vehicles, vessels, aircrafts,
machineries and other similar goods for
use in manufacture shall be subject to
duties, taxes and other charges.
d. Services subject to percentage tax under
Title V of the Tax Code, as follows:
1. Sale or lease of goods or properties or
the performance of services of non-
VAT-registered persons, those whose
annual gross sales and/or receipts of
which do not exceed the amount of P3
Million;
CTT EXAMINATION REVIEWER (NOTES)
2. Services rendered by franchise grantees
of radio and/or television broadcasting
whose annual gross receipts of the
preceding year do not exceed
P10,000,000, and by franchise
grantees of gas and water utilities;
3. Services of proprietors, lessees or
operators of cockpits, cabarets, night or
day clubs, boxing exhibitions,
professional basketball games, jai-alai
and race tracks;
4. Services rendered by any person,
company or corporation (except purely
cooperative companies or association)
doing life insurance business of any sort
in the Philippines;
5. Services rendered by fire, marine or
miscellaneous insurance agents of
foreign insurance companies;
6. Receipts on sale, barter or exchange of
shares of stock listed and traded
through the local stock exchange or
through initial public offering;
7. Services rendered by domestic common
carriers by land, for the transport of
passengers, and keepers of garages;
8. Services rendered by international air
or shipping carriers for the transport of
goods or cargo originating in the
Philippines and going abroad; and
9. Services rendered for overseas
dispatch, message or conversation
originating from the Philippines.
e. Services by agricultural contract growers
and milling for others of (1) palay into
rice, (2) corn into grits, and (3) sugar
cane into muscovado and raw cane sugar;
f. Medical, dental, hospital and veterinary
services, except those rendered by
professionals;
g. Educational services rendered by private
educational institutions duly accredited by
the (1) DepED, (2) CHED, (3) TESDA and
those rendered by (4) government
educational institutions;
h. Services rendered by individuals pursuant
to an employer-employee relationship;
i. 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;
PAGE A - 36
j. Transactions which are exempt under
international agreements to which the
Philippines is a signatory or under special
laws except those granted under
Petroleum Exploration Concessionaires
under the Petroleum Act of 1949;
k. Sales by agricultural cooperatives duly
registered and in good standing with the
CDA to their members, as well as sale of
their produce, whether in its original state
or processed form, to non-members; their
importation of direct farm inputs,
machineries and equipment, including
spare parts thereof, to be used directly
and exclusively in the production and/or
processing of their produce;
l. Gross receipts from lending activities by
credit or multi-purpose cooperatives duly
registered and in good standing with the
CDA;
m. Sales by non-agricultural, non-electric
and non-credit cooperatives duly
registered with and in good standing with
the CDA; provided, that the share capital
contribution of each member does not
exceed P15,000 and regardless of the
aggregate capital and net surplus ratably
distributed among the members;
n. Export sales by persons who are not VAT-
registered;
o. Sales of real properties, as follows:
1. Sale of real properties not primarily
held for sale to customers or held for
lease in the ordinary course of trade or
business;
However, even if the real property is
not primarily held for sale to customers
or held for lease in the ordinary course
of trade or business but the same is
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.
2. Sale of real properties utilized for low-
cost housing wherein the price ceiling
per unit is P750,000;
"Low-cost housing" refers to 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 HLURB
under BP Blg. 220, PD No. 957 or any
other similar law, wherein the unit
selling price is within the selling price
per unit as set by the Housing and
Urban Development Coordinating
CTT EXAMINATION REVIEWER (NOTES)
Council (HUDCC) pursuant to RA No.
7279 and other laws.
3. Sale of real properties utilized for
socialized housing wherein the price
ceiling per unit is P450,000; and
"Socialized housing" refers to 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.
"Socialized housing" shall also refer to
projects intended for the
underprivileged and homeless wherein
the housing package selling price is
within the lowest interest rates under
the Unified Home Lending Program
(UHLP) or any equivalent housing
program of the Government, the private
sector or non- government
organizations.
4. Sale of residential lot valued at
P1,500,000 and below, or house and lot
and other residential dwellings valued
at P2,500,000 and below.
If two or more adjacent residential lots are
sold or disposed in favor of one buyer, for
the purpose of utilizing the lots as one
residential lot “within a 12-month period”,
the sale shall be exempt from VAT only if
the aggregate value of the lots do not
exceed P1,500,000.
Adjacent residential lots, although covered
by separate titles and/or separate tax
declarations, when sold or disposed of to
one and the same buyer, whether covered
by one or separate Deed of Conveyance,
shall be presumed as a sale of one
residential lot.
This does not include the sale of parking
lot which may or may not be included in
the sale of condominium units. The sale of
parking lots in a condominium is a
separate and distinct transaction and is
not covered by the rules on threshold
amount not being a residential lot, house
& lot or a residential dwelling, thus, should
be subject to VAT regardless of amount of
selling price.
Effective Jan. 1, 2021: sale of real
properties not primarily held for sale to
customers or held for lease in the ordinary
course of trade or business, sale of real
property utilized for socialized housing,
sale of house and lot, and other residential
PAGE A - 37
dwellings shall be VAT exempt if selling
price is not more than P2,000,000.
SUMMARY: Sale is exempt if SP does not
exceed
Sale of From 1/1/18 Effective
residential - 12/31/20 1/1/21
1. Lot P 1.5 M P 2.0 M
2. House & lot 2.5 M 2.0 M
3. Socialized H 450,000 2.0 M
p. Lease of residential units with a monthly
rental per unit not exceeding P15,000,
regardless of the amount of aggregate
rentals received by the lessor during the
year;
Lease of residential units where the
monthly rental per unit exceeds P15,000
but the aggregate of such rentals of the
lessor during the year do not exceed
P3,000,000 shall be subject to 3%
percentage tax.
q. Transport of passengers by international
carriers;
r. Sale, importation, printing or publication
of books and any newspaper, magazine,
journal, or any educational reading
material covered by the United Nations
Educational, Scientific and Cultural
Organization (UNESCO) agreement on the
importation of education, scientific and
cultural materials, including the digital or
electronic format thereof.
s. Sale, importation or lease of passenger or
cargo vessels and aircraft, including
engine, equipment and spare parts thereof
for domestic or international transport
operations
t. 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.
u. Importation of life-saving equipment,
safety and rescue equipment and
communication and navigational safety
equipment, steel plates and other metal
plates including marine-grade aluminum
plates, used for shipping transport
operations; Provided, that the exemption
shall be subject to the provisions of
Section 4 of Republic Act. No. 9295 (The
Domestic Shipping Development Act of
2004);
v. Importation of capital equipment,
machinery, spare parts, lifesaving and
CTT EXAMINATION REVIEWER (NOTES)
navigational equipment, steel plates and
other metal plates including marine-grade
aluminum plates to be used in the
construction, repair, renovation or
alteration of any merchant marine vessel
operated or to be operated in the domestic
trade.
Provided, that the exemption shall be
subject to the provisions of Section 19 of
RA 9295;
w. Services of banks, non-bank financial
intermediaries performing quasi-banking
functions, and other non-bank financial
intermediaries subject to percentage tax,
such as money changers and pawnshops;
and
x. Business pursued by an individual where
the aggregate gross sales and/or receipts
do not exceed P100,000 during any 12-
month period (shall be considered
principally for subsistence or livelihood
and not in the course of trade or
business);
y. Sale or lease of goods and services to
senior citizens and persons with
disabilities
z. Transfer of Property pursuant to Section
40(C)(2) of the Tax Code, as amended;
aa. Association dues, membership fees, and
other assessments and charges collected
by homeowners associations and
condominium corporations;
bb. Sale of gold to the Bangko Sentral ng
Pilipinas;
cc. Sale of drugs and medicines prescribed for
diabetes, high cholesterol, and
hypertension and sale or importation of
prescription drugs and medicines for
cancer, mental illness, tuberculosis, and
kidney diseases;
dd. Sale or importation of the following goods
from January 1, 2021 to December 31,
2023:
1. Capital equipment, its spare parts and
raw materials, necessary to produce
personal protective equipment
component;
2. All drugs, vaccines and medical devices
specifically prescribed and directly used
for the treatment of Covid-19;
3. Drugs, including raw materials, for the
treatment of Covid-19 approved by the
Foods and Drugs Authority for use in
clinical trials.
ee. Sale or lease of goods or properties or
the performance of services other than the
transactions mentioned in the preceding
PAGE A - 38
paragraphs, the gross annual sales and/or
receipts do not exceed the amount of
P3,000,000.
FILING OF RETURN & PAYMENT OF TAX
1. Time for filing and payment (manual
filing)
a. Monthly VAT declaration- Within 20
days after the end of each month.
b. Quarterly Return- Within 25 days after
the end of the quarter.
c. Withholding VAT Return– on or before
the 10th day following the end of the
month
Beginning Jan. 1, 2023, the filing and
payment required under the Tax Code
shall be done within 25 days following the
close of each taxable quarter.
2. Place of filing and payment –
Any authorized bank where the Revenue
District Office is located.
3. Modes of Payment
a. Over-the-counter cash payment
transactions - payment of tax liabilities
to authorized agent banks (AAB) in the
currencies that are legal tender in the
Philippines (not exceeding P10,000)
b. Bank debit system – a taxpayer, thru a
bank debit memo/advice authorizes
withdrawal from his/its existing bank
accounts for payment of tax liabilities.
Conditions:
1. This mode is allowed only if the
taxpayer has a bank account with the
bank where he/it intends to file and
pay his/its tax return/form/
declaration;
2. Said AAB branch is within the
jurisdiction of the BIR Revenue
District Office (RDO)/Large
Taxpayers District Office (LTDO)
where the tax payment is due and
payable.
3. This mode is not acceptable as
payment for withholding taxes
including fringe benefit tax and for
taxes, fees and charges collected
under special schemes/procedures
/programs of the government/BIR
c. Credit facility with a bank, credit
company or similar institution; or
d. Personal or company check, cashier’s or
manager’s check
The following checks are not acceptable
for payment:
1. Accommodation checks – issued or
CTT EXAMINATION REVIEWER (NOTES)
drawn by a party other than the one
making the payment.
2. Second endorsed checks – issued to the
taxpayer as payee who indorses the
same as payment for taxes.
3. Stale checks – dated more than 6
months prior to presentation to the
AAB.
4. Post-dated checks – dated a day or
several days after the date of
presentation to the AAB.
5. Unsigned checks – no signature of the
drawer
6. Checks with alterations/erasures
ELECTRONIC FILING & PAYMENT SYSTEM
1. Definitions
a. EFPS - refers to the system developed
and maintained by the BIR for
electronically filing tax returns, including
attachments, if any, and paying taxes
due thereon, specifically thru the
internet.
b. e-Filing – the process of electronically
filing returns including attachments, if
any, specifically thru the internet.
c. e-Payment– the process of electronically
paying a tax liability thru the internet
banking facilities of AAB.
2. Coverage – open to all taxpayers who
want to make use of the system; however,
the following are mandated to make use of
the system:
a. Large taxpayers duly notified by the
BIR
b. Top 20,000 private corporations
identified and notified by the CIR
c. Top 5,000 individual taxpayers duly
notified by the BIR
d. Taxpayers who wish to enter into
contract with government offices
e. Corporations with paid-up capital of P10
million and above;
f. PEZA registered entities and those
located within special economic zones;
and
g. Government offices in so far as
remittance of withheld VAT and
business tax is concerned.
REFUND OF INPUT TAX/CONVERSION TO
TAX CREDIT CERTIFICATE on ZERO RATED
SALES
File application with the BIR within 2 years
after the close of the taxable quarter when
the sales were made, except transitional
input tax.
In proper cases, the Commissioner of
Internal Revenue shall grant refund for
creditable input taxes within 90 days from
the date of submission of the official receipts
PAGE A - 39
or invoices and other documents in support
of the application filed in accordance with
subsections (A) and (B) hereof; Provided,
that, should the Commissioner find that the
grant of refund is not proper, the
Commissioner must state in writing the legal
and factual basis for the denial.
In case of full or partial denial of the claim
for tax refund, the taxpayer affected may,
within thirty (30) days from the receipt of
the decision denying the claim, appeal the
decision with the Court of Tax Appeals:
Provided, however, that failure on the part of
any official, agent, or employee of the BIR to
act on the application within 90-day period
shall be punishable under Section 269 of this
the Tax Code, as amended.
REGISTRATION OF VAT TAXPAYERS
Any person or entity who, in the course of his
trade or business, sells, barters, exchanges,
leases goods or properties and renders
services subject to VAT shall register with the
appropriate Revenue District Office (RDO).
Annual Registration Fee: P500 for every
separate and distinct establishment or place
of business before the start of such business
and every year thereafter on or before
January 31 (BIR Form 0605).
MANDATORY VAT REGISTRATION
Any person who enters into transactions that
are or maybe subject to VAT, if:
a. The aggregate amount of actual gross
sales or receipts (other than those that
are exempt) exceed P3 Million for the
past 12 months, or
b. There are reasons to believe that the
gross sales or receipts for the next 12
months will exceed P3 million.
c. Radio and/or television broadcasting
companies whose annual gross receipts of
the preceding year exceeds P10,000,000.
Every person who becomes liable to be
registered as VAT taxpayer but failed to
register –
a. shall be required to pay the
output tax as if he were a VAT registered
person,
b. but without the benefit of input
tax credits for the period in which he was
not properly registered.
OPTIONAL VAT REGISTRATION
1. Any person who is –
a. VAT-
exempt or
b. not
required to register for VAT
CTT EXAMINATION REVIEWER (NOTES)
May elect to be VAT-registered by
registering with the RDO that has
jurisdiction over the head office of that
person, and pay the annual registration
fee of P500 for every separate and distinct
establishment.
2. Any person who elects to be registered
shall not be allowed to cancel his
registration for the next three (3) years.
3. Any person who is VAT-registered but
enters into transactions which are exempt
from VAT (mixed transactions) may opt
that the VAT apply to his transactions
which would have been exempt under
Section 109(1) of the Tax Code, as
amended [Sec. 109(2)].
4. Franchise grantees of radio and/or
television broadcasting -
a. whose annual gross receipts of the
preceding year do not exceed
P10,000,000 derived from the business
covered by the law granting the
franchise are subject to franchise tax
and not VAT.
b. However, they may opt to be VAT
registered
c. Once this option is exercised, it shall be
irrevocable (subject to VAT forever).
5. The above-stated taxpayers may apply for
VAT registration not later than 10 days
before the beginning of the calendar
quarter and shall pay the registration fee
unless they have already paid at the
beginning of the year.
In any case, the Commissioner of Internal
Revenue may, for administrative reason
deny any application for registration.
Once registered as a VAT person, the
taxpayer shall be liable to output tax and
be entitled to input tax credit beginning on
the first day of the month following
registration.
APPLICATION FOR REGISTRATION
The application shall be filed with the RDO
where the principal place of business,
branch, storage place or premises is located,
as the case may be, before commencement
of business or production or qualification as a
withholding agent.
In the case of storage places, the application
shall be filed within 30 days from the date
the aforesaid premises have been used for
storage.
CANCELLATION OF VAT REGISTRATION
A VAT-registered person may cancel his
registration for VAT if:
1. He makes a written application and
can demonstrate to the satisfaction of the
PAGE A - 40
CIR that his gross sales or receipts for the
following 12 months, other than those that
are exempt, will not exceed P3 million; or
2. He has ceased to carry on his trade or
business, and does not expect to
recommence any trade or business within
the next 12 months.
The cancellation for registration will be
effective from the first day of the following
month the cancellation was approved.
INVOICING REQUIREMENTS
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.
Rules:
1. Only VAT-registered persons are required
to print their TIN followed by the word
“VAT” in their invoice or official receipts.
Said documents shall be considered as a
“VAT Invoice” or “VAT Official Receipt.
2. All purchases covered by invoices/ receipts
other than VAT Invoice/VAT Official
Receipt shall not give rise to any input tax.
3. VAT invoice/official receipt shall be
prepared at least in duplicate, the original
to be given to the buyer and the duplicate
to be retained by the seller as part of his
accounting records.
ISSUANCE OF INVOICES
1. Single invoice/receipt involving VAT and
non-VAT transactions.
A VAT registered taxpayer may issue a
single invoice/receipt involving VAT and
non-VAT transactions provided that:
The invoice or receipt shall clearly indicate
the break-down of the sales price between
its taxable, exempt and zero-rated
components and the calculation of the
Value-Added Tax on each portion of the
sale shall be shown on the invoice or
receipt.
2. Separate invoices/ receipts involving VAT
and Non-VAT transactions
A VAT registered person may issue
separate invoices/receipts for the taxable,
exempt, and zero-rated component of its
sales provided that:
a. If the
sales is exempt from VAT, the term
"VAT-EXEMPT SALE" shall be written or
printed prominently on the invoice or
receipt, and
b. If the sale is subject to zero percent
(0%) VAT, the term "ZERO-RATED
 CTT EXAMINATION REVIEWER (NOTES) PAGE A - 41

SALE" shall be written or printed income do not exceed P3 million and

prominently on the invoice or receipt. who opted for the 8% income tax.
2. Cooperatives
ISSUING AN ERRONEOUS VAT INVOICE OR
VAT OFFICIAL RECEIPT 2. CARRIERS’ TAX: Domestic Carriers
1. If a non-VAT registered person issues an What are subject?
invoice or receipt showing his TIN followed 1. Cars for rent or hire driven by the
by the word VAT, the non-VAT person lessee;
shall be liable to: 2. Transportation contractors on land,
including persons who transport
a. The percentage taxes applicable to his passengers for hire;
transactions; 3. Other domestic carriers by land for
b. The VAT due on the transactions transport of passengers, except
without the benefit of any tax credit; owners of bancas and owners of
and animal-drawn two-wheeled vehicles;
c. A 50% surcharge. and
2. If a VAT registered person issues a VAT 4. Keepers of garages.
invoice or official receipt for a VAT-exempt RATE AND BASE: 3% of gross receipts
transaction but fails to display prominently Business tax on Transport Network Vehicle
on the invoice or receipt the term “VAT Service (TNVS)
EXEMPT SALE”, the issuer shall be liable to
VAT. Status TNVS/Partner

In both cases, the VAT shall, if other
requisite information required is shown on
the invoice or receipt, be recognized as an
input tax credit to the purchaser.
CONTENTS OF VAT INVOICE/OFFICIAL
RECEIPT
A VAT-registered person must issue a VAT
invoice for every taxable transaction. The
invoice/official receipt must show:
1. The name, TIN and address of seller
2. Contact address
3. Date of transaction
4. Name of payor
5. Address of payor
6. Business style of payor
7. Nature and amount of payment
8. The amount of VAT, gross and net of tax
OTHER PERCENTAGE TAXES
1. TAX ON PERSONS EXEMPT FROM VAT
(NON-VAT under Sec 116)
TRANSACTIONS SUBJECT: Sale, lease of
goods or properties, or performance of
services.
RATE and BASE: 3% of gross selling price
or gross receipts. Effective July 1, 2020
until June 30, 2023, the rate shall be 1%.
Requisites:
1. The gross annual sales/receipts do
not exceed P 3 million); AND
2. Must not be a VAT registered
taxpayer.
EXEMPTION FROM 3% NON-VAT:
1. Self-employed individuals and
professionals whose annual gross
sales/receipts and other non-operating
With CPC (franchise) 3% Franchise Tax
Without CPC 3% non-VAT/12% VAT
3. COMMON CARRIERS TAX ON
INTERNATIONAL CARRIERS
Who are subject? International air carriers
and international shipping carriers doing
business in the Philippines.
Rule on international carriers:
Business Tax Passengers Cargoes
VAT Exempt Exempt
Taxable on
3% Carriers Tax Exempt
outgoing
Rate and Base: 3% of gross receipts
Gross receipts shall include, but shall not
be limited to, the total amount of money
or its equivalent representing the contract,
freight/cargo fees, mail fees, deposits
applied as payments, advance payments
and other service charges and fees
actually or constructively received during
the taxable quarter from cargo and/or
mail, originating from the Philippines in a
continuous and uninterrupted flight,
irrespective of the place of sale or issue
and the place of payment of the passage
documents.
4. FRANCHISE TAX
Who are subject? Franchise holders of:
1. Radio/television broadcasting compa-
nies whose annual gross receipts of the
preceding year do not exceed P10
million - 3%
2. Gas and water utilities - 2%
All other franchise holders shall pay the
VAT. The radio and television broadcasting
companies shall have an option to be
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 42

registered as a value-added taxpayer and 6. TAX ON OTHER NON-BANK FINANCIAL

pay the tax due thereon. INTERMEDIARIES INCLUDING FINANCE
COMPANIES, MONEY CHANGERS AND
Once this option is exercised, it becomes PAWNSHOPS
irrevocable.
Tax Base: Gross receipts
5. TAX ON AGENTS OF FOREIGN Tax Rates:
INSURANCE COMPANY a. On interests, commissions and
Tax Rate and Tax Base: discounts from lending activities as
1. 4% of the total premium well as income from financial leasing
collected shall be imposed upon on the basis of remaining maturities of
every fire, marine or miscellaneous the instruments from which such
insurance agent authorized under the receipts are derived:
Insurance Code to procure policies or
insurance as he may have previously Maturity period:
been legally authorized to transact on Five (5) years or less 5%
risks located in the Philippines for More than 5 years 1%
companies not authorized to transact b. From all other items treated
business in the Philippines. as gross income under Sec. 5%
2. 5% on premiums paid shall also 32 of the tax code
be imposed on owners of property
who obtain insurance directly with 8. TAX ON OVERSEAS DISPATCH, MESSAGE
foreign insurance companies. OR CONVERSATION ORIGINATING
FROM THE PHIL (OVERSEAS
This tax shall not apply to COMMUNICATIONS TAX)
reinsurance premiums.
RATE AND BASE: 10% of the amount
5. TAX ON BANKS AND NON-BANK paid upon every overseas dispatched,
FINANCIAL INTERMEDIARIES PER- message or conversation transmitted
FORMING QUASI-BANKING FUNCTIONS from the Philippines (outgoing) by
Tax Base:Gross Receipts derived from telephone, telegraph, telewriter
sources within the Philippines exchange, wireless and other
communications equipment services.
Tax Rates:
a. On interest, commissions and Exemptions– This tax shall not apply to:
discounts from lending activities as 1. Government
well as income from financial leasing, 2. Diplomatic services
on the basis of remaining maturities 3. International organizations
of instruments from which such 4. News services
receipts are derived: Time for filing – The person rendering
Maturity period: services shall collect and pay the tax
Five (5) years or less 5% within 20 days after the end of each
More than 5 years 1% quarter.

b. On dividends and equity shares 9. AMUSEMENT TAX

and net income of subsidiaries
c. On royalties, rentals of proper-
ty, real or personal, profit from
exchange and all other items
treated as gross income under
Sec 32 of the Code
d. On net trading gains within the
taxable year on foreign
currency, debt securities,
derivatives and other similar
financial instruments
In case the maturity period is shortened
thru pretermination, then the maturity
period shall be reckoned to end as of the
date of pretermination for purposes of
classifying the transaction and the correct
rate of tax shall be applied accordingly.
The following amusement places shall be subject to the
0%
corresponding tax rates based on gross receipts:
10% Place for boxing exhibitions
15% Place for professional basketball
games
18% Cockpits, cabarets, night or day
7% clubs
30% Jai-Alai and race tracks
Boxing exhibitions where World or
Oriental Championships in any division is
at stake shall be exempt from
7%
amusement tax, if -
1. one of the contenders is a citizen of
the Philippines; and
2. said exhibitions are promoted by
a) citizens of the Philippines, or
b) by a corporation or association at
least 60% of the capital of which is
owned by such citizens.
CTT EXAMINATION REVIEWER (NOTES)
10. TAX ON WINNINGS
Persons subject: Any person who –
1. Wins in horse races.
2. Owns a winning race horse, based on
the prize.
Tax Rate and Tax Base:
a. Winner in horse races . . . . 10%
But if from: Double, forecast, quinella
and trifecta bets - 4%
BASE: Actual amount of winnings or
dividends on every ticket after
deducting the cost of ticket.
b. Owner of winning horse
10% of the prize
FILING AND PAYMENT – The operator,
manager or person in charge of horse
races shall file and pay within 20 days
from the date the tax was deducted and
withheld.
11. STOCK TRANSACTION TAX
Tax Base: Gross selling price
1. On the sale, barter, exchange or
other disposition of shares listed and
traded thru a local stock exchange,
other than by a dealer in securities-
6/10 of 1%
Filing and payment: Within 5 banking
days from the date of collection.
2. IPO TAX - On the sale, barter,
exchange or other disposition thru
initial public offering of shares of
stock in a closely-held corporation, in
accordance with the proportion of the
shares sold, bartered, exchanged or
otherwise disposed of to the total
outstanding shares of stock after the
listing in the local stock exchange, as
follows:
Up to 25% . . . . . . . . . . . 4%
Over 25% but not over 33 1/3 . 2%
Over 33 1/3 % . . . . . . . . 1%
a. Closely held corporation – a
corporation at least 50% in value of
outstanding capital stock or at least
50% of the total combined voting
power of all classes of stock entitled
to vote is owned directly or indirectly
by or for not more than 20
individuals.
b. Initial public offering –public offering
of shares of stock made for the first
time in the Local Stock Exchange.
c. Primary offering –the original sale
made to the investing public by the
issuer corporation of its unissued
shares of stock.
PAGE A - 43
d. Secondary offering –an offer for sale
to the investing public by the existing
shareholders of their securities which
is conducted during an IPO or a
follow-on/follow-through offering.
e. Follow-on/Follow-through offering of
shares –an offering of shares to the
investing public subsequent to an IPO.
Filing and payment
1. Primary Offering - The corporate issuer
shall file the return and pay the
corresponding tax to the RDO which has
jurisdiction over said corporate issuer
- within thirty (30) days from the date of
listing of the shares of stock in the Local
Stock Exchange. The return shall be
accompanied with a copy of the
instrument of sale.
2. Secondary Offering – within five (5)
banking days from the date of collection
thereof and to submit on Mondays of each
week to the secretary of the Local Stock
Exchange, of which he is a member, a true
and complete return, which shall contain a
declaration, that he made under the
penalties of perjury, of all the transactions
effected through him during the preceding
week and of taxes collected by him and
turned over to the concerned RDO.
The secretary of the LSE shall reconcile
the records of the LSE with the weekly
reports of stockbrokers and in turn
transmit to the RDO, on or before the 15th
day of the following month, a consolidated
return of all transactions effected during
the preceding month through the LSE.
FILING OF RETURN (BIR FORM NO.
2551Q) AND PAYMENT OF PERCENTAGE
TAXES (except Tax on Winnings and Stock
Transactions Tax and Initial Public Offerings
Tax)
1. TIME FOR FILING AND PAYMENT
Large and non-large taxpayers-within 25
days after the end of every quarter on the
following:
a. VAT-exempt taxpayers with annual
gross sales/receipts not exceeding
P3M;
b. Domestic carriers and keepers of
garages;
c. International air/shipping carriers;
d. Franchisees of gas or water utilities;
e. Franchisees of radio and/or TV
broadcasting with revenues not
exceeding P10M;
f. Franchise grantees sending overseas
dispatch, messages or conversations
from the Philippines
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 44

g. Proprietors, lessees or operators of

cockpits, cabarets, night or day clubs,
boxing exhibitions, professional
basketball games, jai-alai and
racetracks.
h. Banks, non-bank financial
intermediaries and finance companies.
i. Life insurance companies; and
j. Agent of foreign insurance companies.
2. PLACE OF FILING- At his option, the
taxpayer may file:
a. a separate return for each branch or
place of business, or
b. a consolidated return for all branches
or places of business.
3. SHORT PERIOD RETURN – Person
who retires from business or whose
registration has been cancelled shall file
quarterly return and pay the tax due
thereon within 25 days from cessation or
business operations or from the date of
cancellation of registration, as the case
maybe.