VALUE ADDED TAX

VALUE ADDED TAX

BUSINESS TAXES
Business taxes are those imposed upon onerous transfers such as sale, barter, exchange and importation.
It is called as such because without a business pursued in the Philippines (except importation) by the
taxpayer, business taxes cannot be applied. Business taxes are in addition to income and other taxes paid,
unless specifically exempted.

TYPES:
1. Value Added Tax
2. Other Percentage Taxes
3. Excise Taxes

NATURE AND CHARACTERISTICS OF VALUE ADDED TAX (VAT)

 It is a business tax levied on the value-added on certain goods, properties and services in the domestic
market and/or importer of goods.
 It is imposed not on the goods or services as such but on the privilege of selling or importing goods or
rendering services for a fee, remuneration or consideration.
 It is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or
lessee of the goods, properties or services.
 The party directly liable for the payment of the tax is the seller, importer or the service provider,
although the burden of the tax may be shifted or passed on to the consumer.

VAT EXEMPT TRANSACTIONS

(Section 109 of the Tax Code, as amended by TRAIN Law and CREATE)

Generally, all sale of goods, properties or services including use or lease of properties are subject to vat,
unless exempt under the law. Vat exempt means the transaction is not subject to VAT (Output Tax) and
the seller or lessor is not allowed to any tax credit on VAT on purchases (Input Tax).

The following Transactions shall be EXEMPT from VAT

Section 109(1)

A. Sale or importation of:

a. agricultural and marine food product in their original state;
b. livestock and poultry used as, or producing foods for human consumption;
c. breeding stock and genetic materials.

Products considered in their original state:

a. products which undergone simple processes of preparation or preservation for the market
(freezing, drying, salting, broiling, roasting, smoking or stripping)
b. polished or husked rice
c. corn grits
d. raw cane sugar and molasses
e. ordinary salt
f. copra
NOTE: Livestock or poultry does not include fighting cocks, race horses, zoo animals and other
animals generally considered as pets.

B. Sale or importation of:

a. Fertilizers
b. Seeds, seedlings and fingerlings
c. Fish, prawn, livestock and poultry feeds
d. Ingredients 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 personal and household effects belonging to the:

a. residents of the Philippines returning from abroad; and

VALUE ADDED TAX 1

 VALUE ADDED TAX

b. Non-resident citizens coming to resettle in the Philippines.

NOTE: Such goods must be exempt from customs duties.

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

wearing apparel, domestic animals, and personal household effects, provided:
a. It belongs 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 herein referred to
as overseas Filipinos;
b. In quantities and of the class suitable to the profession, rank or position of the persons importing
said items;
c. For their own use and not for sale, barter or exchange;
d. Accompanying such persons, or arriving within a reasonable time.

Provided, that the Bureau of Customs may, upon the production of satisfactory evidence that such
persons are actually coming to settle in the Philippines and that the goods are brought from their
former place of abode, exempt such goods from payment of duties and taxes: Provided, further,
vehicles, vessels, aircrafts and machineries and other similar goods for use in manufacture, shall
not fall within this classification and shall therefore be subject to duties, taxes and other charges.

E. Services subject to percentage tax

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

AGRICULTURAL CONTRACT GROWER:

Refer to those persons producing for others' poultry, livestock or other agricultural and marine food
products in their original state such as contract for a package of services of receiving eggs from breeder
farm, sorting, fumigating, setting, hatching, sexing of day-old broilers, sorting and delivering them to
other contract grower.

G. Medical, dental, hospital and veterinary services except those rendered by professionals;

NOTE:
 Laboratory services are exempted. If the hospital or clinic operates a pharmacy or drugstore, the
sale of drugs and medicines are subject to VAT.
 Hospital bills constitute medical services. The sales made by the drugstore to the in-patients which
are included in the hospital bills are part of medical bills (not subject to vat).
 The sales of the drug store to the out-patients are taxable because they are NOT PART of medical
services of the hospital.

H. Educational services rendered by:

a. private educational institutions, duly accredited by:
i. Department of Education (DepEd)
ii. Commission on Higher Education (CHED)
iii. Technical Education and Skills Development Authority (TESDA)
b. Government Educational Institutions

I. Services rendered by individuals pursuant to an employer-employee relationship

J. Services rendered by regional or area headquarters

K. Transactions which are exempt under international agreements to which the Philippines is a signatory
or under special laws

L. For agricultural cooperatives:

a. Sales to their members
b. Sales to non-members if the cooperative is the producer (if not, subject to VAT)

VALUE ADDED TAX 2

 VALUE ADDED TAX

c. 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 TAX
 Sale of cooperative’s own produce to its members Exempt
 Sale of cooperative’s own produce to nonmembers Exempt
 Sale to its members of goods other than the cooperative’s own produce Exempt
 Sale to nonmembers of goods other than the cooperative’s own produce Subject to VAT

M. Gross receipts from lending activities by credit or multi-purpose cooperatives

GROSS RECEIPTS TAX
 TAX Gross Receipts from Lending Activities to its members Exempt
 Gross Receipts from Lending Activities to nonmembers Exempt
 Gross Receipts from Non-Lending Activities to its members and non-members Subject to VAT

N. Sales by non-agricultural, non-electric and non-credit cooperatives, provided, that the share capital
contribution of each member does not exceed P15,000

NOTE: Importation by non-agricultural, non-electric and noncredit cooperatives of machineries and

equipment including spare parts thereof, to be used by them are subject to VAT.

CONTRIBUTION TAX
 Contribution per member ≤ P15,000 Exempt
 Contribution per member > P15,000 Subject to VAT

O. Export sales by persons who are not VAT-registered

EXPORT SALE
By a VAT Registered Exporter By a Non-VAT Registered Exporter
(Subject to 0% VAT) (Exempt from VAT)

FORMULA:
Output VAT (@ 0%) P0 Output VAT None
Input VAT (xx) Input VAT*** N/A
Excess Input VAT** P(xx) VAT Payable None

** MAY BE:
1. Refunded
2. Used as tax Credit against output vat in ***The attributable VAT on purchases may be
relation to sales subjected to 12% vat (local closed to expense or cost
sales)
3. May be converted into a tax credit
certificate for payment of any internal
revenue taxes (BIR taxes)

P. Sale of REAL PROPERTIES:

BEFORE JANUARY 1, 2021

1. 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 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. Real property utilized for low-cost housing as defined under RA No. 7279, (otherwise known as
the "Urban Development and Housing Act of 1992), as amended.
“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

VALUE ADDED TAX 3

 VALUE ADDED TAX

a subdivision or a condominium, registered and licensed by the Housing and Land Use
Regulatory Board/Housing (HLURB) under BP Blg. 220, PD 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 Council (HUDCC) pursuant to RA 7279, otherwise known
as the "Urban Development and Housing Act of 1992” and other laws.

3. Real property utilized for “socialized housing" as defined by Republic Act No. 7279, and other
related laws such as RA No. 7835 and RA No. 8703, wherein the price ceiling per unit is P450,000
or as may from time to time be determined by HUDCC and the NEDA and other related laws.
Socialized housing refers to housing programs and projects covering houses and lots or
home lots only that are undertaken by the government or private sector for the
underprivileged and homeless citizens, which shall include sites and services development,
long-term financing, liberalized terms on interest payments, and as such other benefits in
accordance with the provisions of Republic Act 7279, otherwise known as the “Urban
Development and Housing Act of 1992” and RA No. 7835 and RA No. 8763. “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. Real properties primarily held for sale to customers or held for lease ordinary course of trade or
business of:
i. Residential lot valued at not more than P1,500,000*
ii. House and lot, and other residential dwellings valued at not more than P2,500,000**

NOTE:
 The values above shall be adjusted using the 2010 Consumer Price Index (CPI) as illustrated
in RR 16-2011 as follows:
FORMULA for the Adjusted Value = Amount x CPI 2010/CPI 2005
CPI 2010 = 166.1; CPI 2005 = 129.8

Adjusted Value of P1.5M = P1,500,000 x 166.1/129.8 = P1,919,500*

Adjusted Value of P2.5M = P2,500,000 x 166.1/129.8 = P3,199,200**,

Consequently, the adjusted threshold to be used shall be:

o Residential lot = P1,919,500
o Residential House and Lot and Other Residential Dwellings = P3,199,200.

 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, the sale shall be exempt from vat only
if the aggregate value do not exceed P1,919,500. Adjacent residential lots, although
covered by separate titles and/or separate tax declarations, when sold to one and the
same buyer, whether covered by one separate Deed of Conveyance, shall be presumed as
sale of one residential lot.

BEGINNING JANUARY 1, 2021 (TRAIN LAW)

Beginning January 1, 2021, the vat exemption shall only apply to the following:
1. Sale of real properties not primarily held for sale to customers or held for lease in the ordinary
course of trade or business;
2. Sale of real property utilized for socialized housing as defined under RA No. 7279, as amended;
and
3. Sale of House and Lot and Other Residential dwellings with selling price of not more than two
Million Pesos [P2,000,000 as adjusted in 2011 using the 2010 consumer price index (CPI)]. The
adjusted value for P2M using the 2010 CPI and the formula provided in RR 8-2021 issued on June
11, 2021 is P3,199,200.

VALUE ADDED TAX 4

 VALUE ADDED TAX

NOTE: The provision of the CREATE law, increasing the threshold for vat exemption of sale of
residential house and lot and other residential dwellings to P4,200,000 was VETOED by President
Duterte.

Q. Lease of a residential unit with a monthly rental not exceeding P15,000 regardless of the amount of
aggregated rentals received by the lessor during the year.
NOTE:
 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 likewise be
exempt from VAT, however, the same shall be subjected to Percentage Tax under Section 116 of
the Tax Code, as amended (RR 16-2011; RR 13-2018).
 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 beginning Jan 1, 2018 while others are leased
out for more than P15,000 per unit, his tax liability will be:
- The gross receipts from rentals not exceeding P15,000 per month per unit shall be exempt
from VAT regardless of the aggregate annual gross receipts.
- The gross receipts from rentals exceeding P15,000 per month per unit shall be subject to VAT
if the annual gross receipts (from said units only - not including the gross receipts from units
leased out for not more than P15,000) exceed P3,000,000. Otherwise, the gross receipts shall
be subject to Percentage Tax under Section 116 of the Tax Code, as amended (RR 16-2011; RR
13-2018).

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

AMENDED BY CREATE LAW AS FOLLOWS:

Sale, importation, printing or publication of books, and any newspaper, magazine, journal, review
bulletin, or any such educational reading material covered by the United Nations Educational,
Scientific and Cultural Organization (UNESCO) Agreement on the importation of educational, scientific
and cultural materials, including the digital or electronic format thereof. Provided, That the materials
enumerated herein are not devoted principally to the publication of paid advertisements. Provided
further, That the materials enumerated herein are compliant with the requirements set forth by the
National Book Development Board pursuant to R.A. No. 8047 (RR 4 2021).

S. Transport of passengers by international carriers doing business in the Philippines. The same shall not
be subject to Other Percentage Taxes as amended under RA10378 and Transport of cargo by
international carriers doing business in the Philippines, as the same is subject to 3% common carrier's
tax (Other Percentage Taxes) as amended under RA10378 and (RR 15-2015).

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, 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
MARINA (RR 15-2015).

U. Importation of fuel, goods, and supplies by persons engaged in international shipping or air transport
operations, provided that:
 Fuel, goods, and supplies shall be 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 port in
the Philippines
 Fuel, goods, or supplies is used for the purposes other than that mentioned in the preceding
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 Sections 121 and 122, respectively, of the Tax Code.

VALUE ADDED TAX 5

 VALUE ADDED TAX

W. Sale or lease of goods and services to senior citizens and persons with disabilities, as provided under
RA No. 9994 (Expanded Senior Citizens Act of 2010) and RA No. 10754 (An Act Expanding the Benefits
and Privileges of Persons with Disability (PWD) 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
RA No. 9904 (Magna Carta for Homeowners' and Homeowners Association) and RA No. 4726
(Condominium Act), respectively. This provision shall take effect only beginning January 1, 2018 or
upon the effectivity of RA10963-TRAIN Law (new provision).

Z. Sale of Gold to the Bangko Sentral ng Pilipinas (BSP). This provision shall take effect only beginning
January 1, 2018 or upon the effectivity of RA10963-TRAIN Law (new provision).

AA. (TRAIN Law) Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension
beginning January 1, 2019.

AMENDED BY CREATE LAW AS FOLLOWS:

Sale or importation of prescription drugs and medicines for:
i. Diabetes, high cholesterol, and hypertension beginning January 1, 2020; and
ii. Cancer, mental illness, tuberculosis, and kidney diseases beginning January 1, 2021.

The exemption from VAT under this subsection shall only apply to the sale or importation by the
manufacturers, distributors, wholesalers and retailer of drugs and medicines included in the "list of
approved drugs and medicines" issued by the Department of Health (DOH) for this purpose (RR 4-
2021).

BB. [New provision under the CREATE Law; (Refer also to RR 4-2021)]. Sale or importation of the following
beginning January 1, 2021 to December 31, 2023:
i. Capital equipment, its spare parts and raw materials, necessary for the production of personal
protective equipment (PPE) components such as coveralls, gown, surgical cap, surgical mask, n-95
mask, scrub suits, goggles and face shield, double or surgical gloves, dedicated shoes, and shoe
covers, for COVID-19 prevention;
ii. All drugs, vaccines and medical devices specifically prescribed and directly used for the treatment
of COVID-19, and
iii. Drugs for the treatment of COVID-19 approved by the Food and Drug Administration (FDA) for use
in clinical trials, including raw materials directly necessary for the production of such drugs.

Provided, that the Department of Trade and Industry (DTI) shall certify that such equipment, spare
parts or raw materials for importation are not locally available or insufficient in quantity, or not in
accordance with the quality or specification required.

Provided further, That for item (ii), within sixty (60) days from the effectivity of the CREATE, and
every three (3) months thereafter, the Department of Health (DOH) shall issue a list of prescription
drugs and medical devices covered by this provision

Provided finally, That for items (i) and (iii) hereof, on the sale or importation of equipment, spare
parts and raw materials for the production of PPE components as well as the sale or importation
of raw materials directly necessary for the production of drugs for the treatment of COVID-19, the
supplier/s or importer shall submit, for the purpose of availing the exemption, the following:
1. Certified true copy of "License to Operate", issued to the manufacturer-buyer by the DOH-
FDA authorizing the manufacture of medical grade PPE components and drugs for the
treatment of COVID- 19; and
2. "Sworn Declaration" from the manufacturer-buyer that the items shall be used for the
manufacture of the PPE components and drugs for the treatment of COVID-19.

VALUE ADDED TAX 6

 VALUE ADDED TAX

The exemption claimed under this subsection shall be subject to post audit by the Bureau of
Internal Revenue (BIR) or the Bureau of Customs (BOC), as may be applicable.

CC. (Previously under subparagraph 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 P3,000,000, as amended.

For purposes of these Regulations, the P3,000,000 gross annual sales shall comprise of the business'
total revenues from sales of its products, which are either goods or services, including non-refundable
advance deposits/payments for services, net of discounts, sales returns and allowances, covering the
calendar or fiscal year. Sales incidental to the registered operations of the business shall also be
included pursuant to Section 105 of the Tax Code, as amended (RR 4-2021),

VAT EXEMPT UNDER RA 11494 - BAYANIHAN ACT II

(RR 28-2020)

Section 2(A) of RR 28-2020 provides that the IMPORTATION from June 25, 2020 to December 19, 2020
of the goods enumerated below and identified as critical products, essential goods, equipment or
supplies needed to contain and mitigate COVID-19, subject to the limitations and restrictions
hereunder, SHALL BE EXEMPT FROM VAT, excise tax and other fees:
1. Goods which may include personal protective equipment (PPE) such as gloves, gowns, masks,
goggles, and face shields; surgical equipment and supplies; laboratory equipment and its reagents;
medical equipment and devices, support and maintenance for laboratory and medical equipment,
surgical equipment and supplies; medical supplies, tools, and consumables such as alcohol,
sanitizers, tissue, thermometers, hand soap, detergent, sodium hypochlorite, cleaning materials,
povidone iodine, common medicines (e.g., paracetamol tablet and suspension, mefenamic acid,
vitamins tablet and suspension, hyoscine tablet and suspension, oral rehydration solution, and
cetirizine tablet and suspension; testing kits, and such other supplies or equipment as determined
by the Department of Health (DOH) and Department of Trade and Industry (DTI).

2. Equipment for waste management, including, but not limited to, waste segregation, storage,
collection, sorting, treatment and disposal services as approved by the Department of
Environment and Natural Resources (DENR), DOH or other concerned regulatory agencies.

3. Inputs, raw materials and equipment necessary for the manufacture or production of essential
goods related to the containment or mitigation of covid-19 enumerated in section 2(A)(1) of these
Regulations.

NOTE:
The SALE of finished goods / products under Section 2(A)(1) of RR 28-2020, whether locally
manufactured or imported, is subject to value-added tax. The sale of inputs, raw materials and
equipment referred to in Section 2(F) the same regulation to a non-holder of "License to Operate"
issued by the FDA-DOH is likewise subject to value-added tax.

VAT REGISTRATION

1) MANDATORY REGISTRATION
a. 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, if the aggregate amount of actual gross
sales or receipts exceed P3,000,000 (as amended) for the past 12 months (other than those that
are exempt) OR there are reasons to believe that the gross sales or receipts for the next 12 months
will exceed P3,000,000.
b. Radio and/or television broadcasting companies whose annual gross receipts of the preceding
year exceeds P10,000,000.
c. A person required to register as VAT taxpayer but failed to register.
Penalty for non-registration of those required to register as VAT?
He shall be liable to pay the tax as if he were a VAT-registered person but he cannot avail the
benefits of input lax credit for the period he was not properly registered.

VALUE ADDED TAX 7

 VALUE ADDED TAX

2) OPTIONAL REGISTRATION
Any person who is VAT-exempt or not required to register for VAT may, in relation to number 1
above, 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 P500.00 for every separate and distinct
establishment. Any person who elects to register under optional registration shall not be allowed to
cancel his registration for the next three (3) years.

Franchise grantees of radio and/or television broadcasting whose annual gross receipts of the
preceding year do not exceed ten million pesos (P10,000,000.00) derived from the business covered
by the law granting the franchise may opt for VAT registration. This option, once exercised, shall be
irrevocable. (Sec. 119, Tax Code).

The above-stated taxpayers may apply for VAT registration not later than ten (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.

3) CANCELLATION OF VAT REGISTRATION

Instances when a VAT-registered person may cancel his VAT registration:
1. If he makes a written application and can demonstrate to the commissioner's satisfaction that his
gross sales or receipts for the following twelve (12) months, other than those that are exempt
under Section 109(A) to 109(BB), as amended, will not exceed P3,000,000, as amended; or

2. If he has ceased to carry on his trade or business, and does not expect to recommence any trade
or business within the next twelve (12) months. The cancellation for registration will be effective
from the first day of the following month the cancellation was approved.

3. POWER OF THE COMMISSIONER TO SUSPEND BUSINESS OPERATIONS:

 The Commissioner of the Internal Revenue or his authorized representative may order
suspension or closure of business establishment for a period of not less than 5 days for any
of the following violations:
1. Failure to issue receipts or invoices
2. Failure to file vat return
3. Understatement of taxable sales or receipts by 30% or more of the correct taxable sales
or receipts for the taxable quarter.
4. Failure of any person to register as required under the law.

TRANSITORY PROVISIONS UNDER THE CREATE LAW (RR 4-2021)

1. A VAT-registered taxpayer who opted to register as non-VAT as a result of the additional VAT-exempt
provisions under Sections 109(1)(R), 109(1 )(AA), and 109(1 of the Tax Code, as amended by CREATE
Act and provided that it meet the threshold set under Section 109(1 thereof, shall:
a. Submit an inventory list of unused Invoices and/or receipts as of the date of filing of application
for update of registration from VAT to Non-VAT, indicating the number of booklets and its
corresponding serial number; and
b. Surrender the said invoices and/or receipts for cancellation.

2. The taxpayer shall treat the resulting excess taxes paid due to the inclusion the items exempt from
VAT or adjustment in percentage tax rates, as the case may be, in the following manner:
a. Unutilized VAT paid on local purchases and importation under subsections 4.1091(B)(aa)(ii) and
4.109-1 hereof from their specified effectivity under R.A. No. 11534 on January 1, 2021 until the
effectivity of these Regulations may be carried-over to the succeeding taxable quarter/s or be
charged as part of cost, pursuant to Section 110 of the Tax Code.

VALUE ADDED TAX 8

 VALUE ADDED TAX

Input VAT which are directly attributable to goods now classified as VAT-exempt may be allowed
as part of cost. For input VAT that cannot be attributed to goods now classified as VAT-exempt,
only a ratable portion thereof shall be charged to cost.

b. Excess percentage tax payments as a result of the decrease of tax rate from 3% to 1% starting July
1, 2020 until the effectivity of these Regulations may be carried forward to the succeeding taxable
quarter/s by reflecting the excess percentage tax payment under Line 17 of the Quarterly
Percentage Tax Return (BIR Form No. 255 IQ), "Other Tax Credit/Payment", specifying therein as
"Carry-Over Excess Percentage Taxes Paid from Previous Quarter/s".

3. Excess/Unutilized input taxes as a result of the change of status from VAT to Non-VAT registration,
under Sec. 112(B) of the Tax Code of 1997, as amended, may be subject to refund or the issuance of
Tax Credit Certificate (TCC), at the option of the taxpayer.

VAT FOR SELLER OF GOODS, PROPERTIES AND SERVICES

 PERSONS LIABLE - Any person who, in the course of his trade or business.
1. Sells, barters or exchanges goods or properties (Seller of Goods or Properties)
2. Leases goods or properties (Lessor)
3. Renders services (Service Provider)

 MEANING OF "IN THE COURSE OF TRADE OR BUSINESS" - the regular conduct or pursuit of a
commercial or 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

o FORMULA:
Output Tax (vat on sale) Pxxx
Input Tax (vat on purchases) (xxx)
VAT Payable Pxxx

OUTPUT TAX OF SELLER OF GOODS OR PROPERTIES

KINDS OF SALE OF GOODS OR PROPERTIES SUBJECT TO VAT:

1. Actual Sale
Sales where there are actual exchanges between buyer(s) and a seller(s) in the ordinary course of
trade or business including transactions incidental thereto, by any person, regardless of whether or
not the person engaged therein is a non-stock, non-profit private organization or government entity
(Section 105 of the Tax Code, as amended; Section 4.105-3, RR 16-2005).

FORMULA IN COMPUTING OUTPUT TAX

Tax Base Pxxx
VAT Rate 12%*
Output Tax Pxxx

*0% for vatable export sale

TAX BASE
Sale of goods Gross Selling Price (GSP)
Sale of services Gross Receipts (GR)
Dealer in securities Gross Income
Gross Income = Selling price - cost

Sale of Real Property:

 Cash Sale including Sale on a Deferred GSP vs. FMV**, whichever is higher
Payment Basis

VALUE ADDED TAX 9

 VALUE ADDED TAX

** FMV = The higher amount between Zonal

Value provided by the BIR and FMV or
Assessed value provided by City or Provincial
Assessors

 Installment Sale [(Collections/GSP or GR) x GSP vs. FMV**

whichever is higher]

Gross Selling Price - means 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. The excise tax, if any, on such goods or properties shall form part of
the gross selling price (Sec. 106(A)(1) NIRC).
Gross Receipts - means 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 applied as payments for services rendered and advance
payments actually or constructively received during the taxable period for the services performed
or to be performed for another person, excluding vat.

NOTE: The following shall be allowed as deductions from gross selling price
a) Sales discount indicated in the invoice at the time of sale, the grant of which is not
dependent upon the happening of a future event, and
b) Sales returns and allowances for which a proper credit or refund was made for sales
previously recorded as taxable sales.

DEFINITION OF GROSS SELLING PRICE EXPRESSED IN A FORMULA:

Gross Sales PXX
Less: Sales discount XX
Sales returns & allowances XX XX
Net sales XX
Add: Excise tax, if any XX
Tax base PXX

Deferred Payment Basis - means sale of real property, the initial payments on which in the year of
sale exceed 25% of the gross selling price.

Installment Plan - means sale of real property, the initial payment of which in the year of sale do
not exceed 25% of the gross selling price.

COMPONENTS OF INITIAL PAYMENT:

Down payment PXX
Other collections in the year of sale XX
Excess of unpaid mortgage over cost XX
Initial payments PXX

2. Transactions deemed sale:

Certain transactions which are NOT actually sales because of the absence of actual exchange between
the buyer and the seller, are considered or included in the term "sale” for value added tax purposes.
a) 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 business can take place when VAT-registered person withdraws goods from his business
for his personal use;
b) Distribution or transfer to:
i. Shareholders or investors share in the profits of VAT-registered person.
ii. Creditors in payment of debt;
c) Consignment of goods if actual sale is not made within 60 days following the date such goods were
consigned; and

VALUE ADDED TAX 10

 VALUE ADDED TAX

d) Retirement from or cessation of business with respect to all goods on hand whether capital goods,
stock-in-trade, supplies or materials as of the date of such retirement or cessation, whether or not
the business is continued by the new owner or successor.

3. EXPORT SALE OF GOODS

RATE - As a general rule, the rate of value-added tax for the sale of goods or properties is 12% (Local
Sales). However, the following transactions are subject to 0% (ZERO-RATED SALES):
a) Export Sales:
1) Sale and actual shipment of goods from the Philippines to a foreign country, paid for in
acceptable currency, and accounted for in accordance with the rules and regulations of the
BSP;
2) Sale of goods, supplies, equipment and fuel to persons engaged in international shipping or
international air transport operations.

b) Sales to Persons or Entities Deemed Tax-exempt under Special Law or International Agreement
(also known as Effectively Zero-Rated Sale):
1) Sales of goods or property to persons or entities who are tax-exempt under special laws, such
as:
- Subic Bay Metropolitan Authority (SBMA)
- Philippine Economic Zone Authority (PEZA)
2) Sales of goods or property to persons or entities who are tax-exempt under international
agreements to which the Philippines is a signatory, such as:
- Asian Development Bank (ADB).
- International Rice Research Institute (IRRI)

NOTE: A zero-rated sale of goods or properties is a taxable transaction for VAT purposes, but shall
not result in any output tax. This is because the Philippine vat system adheres to the "Cross Border
Doctrine" (also known as destination principle), according to which, NO VAT shall be imposed to
form part of the cost of the goods destined for consumption outside of the territorial border of
the taxing authority [CIR vs. Toshiba Information Equipment (Phils.), Inc., G.R. No.150154, Aug. 9,
2005].

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.

STATUS QUO ON VAT ZERO-RATING OF SALES TO PEZA ENTITIES

DOF Memorandum Circular No. 2018-003 declared "status quo" on vat-zero rating incentive on
the sale of goods/services to separate customs territories. It further provides that Section 8 of the
PEZA Law, which provides that special economic zones are to be operated and managed as a
separate customs territory, was not amended or repealed by TRAIN Law. Consequently, until a law
or revenue regulation is passed or issued contrary to or incompatible with the pronouncement by
the DOF, the vat zero-rating incentive being enjoyed by PEZA locators or entities shall remain in
full force and effect.

EXPORT SALE OF SERVICES

RATE - As a general rule, the rate of value-added tax for the sale of services and lease of goods or properties
is 12%. However, the following transactions are subject to 0% (ZERO-RATED SALES):
a. Services other than processing, manufacturing or repacking goods for other persons 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;
b. 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 services to zero
percent (0%) rate;
c. Services rendered to persons engaged in international shipping or air transport operations, including
leases of property for use thereof;
d. Transport of passengers and cargo by domestic air or sea carrier from the Philippines to a foreign
country; and

VALUE ADDED TAX 11

 VALUE ADDED TAX

e. Sale of power or fuel generated through renewable sources of energy such as but not limited to:
a) Biomass
b) Solar
c) Wind
d) Hydropower
e) Geothermal and Steam
f) Ocean energy
g) Other emerging sources using technologies such as fuel cells and hydrogen fuels.

OUTPUT TAX OF SELLER OF SERVICES AND LESSOR OF GOODS OR PROPERTIES

 FORMULA IN COMPUTING OUTPUT TAX

Gross receipts PXXX
Rate XX%
Output tax PXXX

 Gross Receipts - refers to 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 applied as payments for services rendered and advance payments actually
or constructively received for the services performed or to be performed for another person, excluding
VAT.

Advance Payments. In a lease contract, advance payment by the lessee may be:
1. A loan to the lessor from the lessee. Not subject to VAT
2. An option money for the property. Not subject to VAT
3. A security deposit to insure the faithful performance Not subject to VAT
of certain obligations of the lessee to the lessor
4. Prepaid rental Subject to VAT

DEFINITION OF GROSS RECEIPTS EXPRESSED IN A FORMULA:

Cash received (actually and constructively) PXX
Advance payments XX
Materials charged for services XX
Gross receipts PXX

NOTE:
“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. The following are example
of constructive receipts:
1) Deposits in banks which are made available to the seller of services without restrictions;
2) Issuance by the debtor of a notice to offset any debt or obligation and acceptance thereof by the
seller as payment for services rendered, and
3) Transfer of the amounts retained by the payor to the account of the contractor

INPUT TAX

REQUISITES:
1. The taxpayer is a VAT registered person, and
2. The input tax is related to business subject to VAT (12% and 0%)

KINDS OF INPUT TAX

1. Input tax on local purchases of goods or properties other than capital goods;
2. Input tax on local purchases of services;
3. Input tax on importation of goods or properties other than capital goods;
4. Input tax on local purchases or importation of capital goods;
5. Transitional input tax
6. Presumptive input tax
7. Standard Input Vat

VALUE ADDED TAX 12

 VALUE ADDED TAX

VAT ON LOCAL PURCHASES AND IMPORTATION OF CAPITAL GOODS

Capital Goods - refer to depreciable properties in which the useful life is more than one (1) year.

When is amortization required?

Purchases or importation of capital goods, the aggregate acquisition cost of which (net of VAT) in a
calendar month exceeds P1,000,000, regardless of the acquisition cost of each capital good, shall be
amortized.

Amount Deductible = Input Tax/Amortization period

NOTE:
1. Amortization period is the shorter period of the following:
a) 60 months
b) Useful life in months

2. If the 1M threshold is not breached, no need for amortization (Input Tax is 100% deductible).

3. If the CAPITAL GOOD IS SOLD within the five (5) year period 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 or quarter when the sale is made.

The rule of amortizing the input vat on capital goods shall only be allowed until December 31, 2021,
Consequently, amortization of input vat on capital goods purchased/imported beginning January 1,
2022 shall no longer be allowed. Consequently, for capital goods acquired beginning January 1, 2022,
the entire related input vat shall be claimed during the month the capital goods are purchased,
irrespective of acquisition cost.

Taxpayers with unutilized input vat as of December 31, 2021 shall be allowed shall be allowed to apply
the same as scheduled until fully utilized

4. Construction in Progress is a purchase of services input taxes will be recognized in the month payment
was made on the progress billing. In the case where labor will be furnished by the contractor and
materials will be purchased by the contractee from other suppliers, input taxes will be recognized on
labor when payment is made on the progress billings while input taxes will be recognized on materials
at the time the materials are purchased.

 CREDITABLE WITHHOLDING VAT

Non-resident persons who perform services in the Philippines are deemed to making sales in the
course of trade or business, even if the performance of services is not regular. The recipient of the
service is the one required to withhold and remit the VAT to the BIR. Such VAT can be claimed by the
recipient as input tax.

 TRANSITIONAL INPUT TAX

Persons Covered: Taxpayers who became VAT-registered persons (previously non-VAT) shall be
entitled to a transitional input tax.

Amount Deductible:
Beginning inventory PXX
Rate 2%
PXX
Actual input VAT on beginning inventory XX
Transitional Input tax (higher amount) PXX

NOTE: Beginning inventory will include all inventories related to business whether purchased from
VAT or non-VAT supplier.

 PRESUMPTIVE INPUT TAX

VALUE ADDED TAX 13

 VALUE ADDED TAX

Persons Covered:
Persons or firms engaged in:
1. Processing of sardines, mackerel and milk; and
2. Manufacturing refined sugar, cooking oil and packed noodle-based instant meals.

AMOUNT DEDUCTIBLE
Purchase of primary Agricultural Products PXX
Rate 4%
Presumptive Input tax PXX

VAT ON IMPORTATION
 PERSONS LIABLE:
1. Any person who bring goods into the Philippines, whether or not made in the course or his trade
or business.
2. It includes non-exempt persons or entities who acquire tax-free imported goods from exempt
persons, entities or agencies.

NOTE: In case of goods imported into the Philippines by VAT-exempt persons, entities or agencies
which are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons
or entities, the latter shall be considered the importers thereof and shall be liable for VAT due on
such importation

FORMULA:
A. Customs duties is ad valorem (based on value)
Dutiable value PXX
Customs duties XX
Excise tax XX
Other charges w/in BOC XX
Tax base PXX
Rate 12%
VAT on importation PXX

B. Customs duties is specific (based on quantity or volume)

Invoice amount PXX
Customs duties XX
Freight XX
Insurance XX
Other charges w/in BOC XX
Landed cost PXX
Excise tax XX
Total PXX
Rate 12%
VAT on Importation PXX

VAT WITHHELD ON SALES TO GOVERNMENT

FINAL WITHHOLDING VAT / CREDITABLE VAT

PRIOR TO 2021
 The government or any of its political subdivisions, instrumentalities or agencies, including GOCCs
shall, before making payment on account of each purchase of goods and or services taxed at 12% VAT,
deduct and withhold a Final VAT due at the rate of five percent (5%) of the gross payment.
 The 5% final VAT shall represent the net VAT payable to the seller. The remaining 7% effectively
accounts for the standard input VAT of the seller, in lieu of the actual input VAT.
 The difference between actual input VAT and standard input VAT must be closed to either expense or
income.

BEGINNING JANUARY 1, 2021

VALUE ADDED TAX 14

 VALUE ADDED TAX

Shift from Final to a Creditable System on the Value Added Tax (VAT)
Beginning January 1, 2021, the vat withholding system shall shift from final to a creditable vat
system wherein the payor shall be considered the withholding agent. Provided, That the payment for lease
or use of properties or property rights to nonresident owners shall be subject to twelve percent (12%)
withholding tax at the time of payment: Provided, however, that payments for purchase of goods and
services arising from projects funded by Official Development Assistance (ODA) as defined under Republic
Act No. 8182, Otherwise known as the "Official Development Assistance Act of 1996," as amended, shall
not be subject to the Final/Creditable Withholding Taxes.
The 5% withholding vat shall be remitted within 10 days from the close the month the withholding
was made.

PROOF OF WITHHOLDING (RMC 36-2021):

 Beginning 2021 - The government agency shall issue Certificate of Creditable Tax Withheld at Source
using BIR Form 2307.
 Prior to 2021 - The government agency shall issue certificate of Final Tax Withheld at Source using BIR
Form 2306.

The BIR Form No. 2307 shall be used as proof by VAT taxpayers in claiming for VAT credit in their
monthly and quarterly VAT declarations. Erroneous use of the same (i.e. reflected as tax credit in the
quarterly and annual Income Tax Return) shall result in disallowance of the withheld amount and
forfeiture of the same in favor of the Government (RMC 36-2021)

RMC 36-2021 - WITHHOLDING OF VALUE ADDED TAX

The Government or any of its political subdivisions, Instrumentalities or agencies, including
government-owned or controlled corporations (GOCCs) shall, before making payment on account of
each purchase of goods and services which are subject to the value-added tax imposed in Sections 106
and 108 of the Tax Code, deduct and withhold the value-added tax imposed in Sections 106 and 108,
deduct and withhold a final value-added tax at the rate of five percent (5%) of the gross payment
thereof; provided, that beginning January 1, 2021, the VAT withholding system shall shift from final to
a creditable system. In this regard, the following changes and guidelines are prescribed effective
January 1, 2021:

o Filing and Payment. - The government or any of its political subdivisions, instrumentalities
of agencies, including GOCCs who are required to withhold creditable VAT shall use the
"Monthly Remittance Return of Value Added Tax Withheld' (BIR Form No. 1600-VT) for
filing and remittance of the amount withheld. However, for those using the eFPS, they
shall still use BIR Form No 1600 due to unavailability of BIR Form No. 1600-VT.

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

GOCCs who are required to withhold creditable VAT shall issue the Certificate of
Creditable Tax Withheld at Source (BIR Form No. 2307) using Alphanumeric Tax Code
(ATC) No. WV010 for purchases of goods or WV020 for purchases of services. Thus, the
Certificate of Final Tax Withheld at Source (BIR Form No. 2306) shall no longer be issued
for this purpose.

The BIR Form No. 2307 shall be used as proof by VAT taxpayers in claiming for VAT credit
in their monthly and quarterly VAT declarations. Erroneous use of the same (i.e.: reflected
as tax credit in the quarterly and annual Income Tax Return) shall result in disallowance
of the withheld amount and forfeiture of the same in favor of the Government.

MIXED BUSINESS TRANSACTIONS

Mixed transaction refers to a situation wherein the taxpayer is engaged in transactions subject to VAT
(12% and/or 0%) as well as not subject to VAT (exempt). The main concern in such a case is the
determination of input tax that can be claimed for VAT purposes.

A Vat registered person who is also engaged in transactions not subject to Vat shall be allowed of Input
tax credit as follows:

VALUE ADDED TAX 15

 VALUE ADDED TAX

1. Total input tax which can be directly attributed to transactions subject to vat (except vat taxable
sales of goods and services to the government or GOCCs): and
2. Ratable Portion of any input tax which cannot be directly attributed to either activity. (allocation
shall be on the basis of sales volume.)

EXCESS INPUT TAX

KINDS OF INPUT TAX TREATMENT

Related to sales subject to 12% VAT Carry-over

Related to 0% VAT a) Carry-over; or

b) Refund; or
c) Convert into tax credit certificate

In case of cancellation of VAT registration a) Convert into tax credit certificate; or

b) In case it has no other tax liability, refund.

VAT and DISCOUNTS FOR SENIOR CITIZENS

Senior citizen or Elderly - refers to any Filipino citizen who is a resident of the Philippines, sixty (60) years
old or above. It may apply to senior citizens with "dual citizenship” status provided they prove their Filipino
citizenship and have at least six (6) months residency in the Philippines RA 9994 otherwise known as
"Expanded Senior Citizens Act of 2010" and its related revenue regulations/ circulars RR7-2010, RR 8-2010,
RMC 38-2012).

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

VAT EXEMPT SALES TO SENIOR CITIZENS (SECTION 4, RR 7-2010)

The following items sold to a senior citizen are vat-exempt and will entitle the latter to a minimum discount
of 20%:
a) Medicine and Drug Purchases including influenza and pneumococcal vaccines and such other
essential medical supplies, accessories and equipment.
b) Professional fees of attending physicians in all private hospitals, medical facilities, outpatient
clinics and home health care services.
c) Professional fees of licensed health workers providing home health care services in all private
hospitals, medical facilities, outpatient clinics, and home health care services
d) Medical and dental services, diagnostic and laboratory fees
e) On actual fare for land transportation travel
f) In actual fare for domestic air transport and sea shipping vessels and the like
g) On the utilization of services in hotels and similar lodging establishments, restaurants, recreation
centers
h) On admission fees charged by theaters, cinema houses and concert halls, circuses, carnivals and
other similar places of culture, leisure and amusement.
i) On funeral and burial services of senior citizens.

RULE FOR RESTAURANTS

The discount shall be for the sale of food, drinks, dessert and other consumable items served by the
establishments, including value meals and promotional meals, offered for the consumption of the
general public. Condiments and side products fall within the ambit of "other consumable items served
by the establishments”.

The 20% discount and vat exemption for restaurants shall apply to:
 Dine in, take-out, take-home, drive-thru, delivery orders (excluding bulk orders), called-in or
phoned-in orders. Bulk orders are within the context of pre-contracted or pre-arranged group
meals or packages, and hence, not entitled to 20% discount and VAT exemption.
 Set meals, group meals or group walk-ins including purchase of a whole cake and pizza orders.

VALUE ADDED TAX 16

 VALUE ADDED TAX

 "Pasalubong" food items which are single-serving/solo meal for the personal and exclusive
consumption of the Senior Citizen. However, other "pasalubong" food items (e.g. box of
biscocho, bottles or jars of ginamos, several packets of mango preserves, etc) which are not
for the personal and exclusive consumption of the Senior Citizen are NOT entitled to 20%
discount and VAT exemption. This limitation extends to "novelty items” or non-consumables
sold in restaurants.

FORMULA:
Discount = (total Billing Amount – VAT) x 20%

Amount Due:
Total bill exclusive of vat PXXXX
Less: vat (XX)XX
Total bill exclusive of vat PXXXX
Less: 20% discount (XX)**
Total amount due PXXXX

**Discount= Total billing amount Less VAT x 20%

No. of customers

**Use the above formula in the following cases.

 The bill is for a group of individuals involving non-senior citizens and a senior citizen
 In case of set meal(s) not limited to a single serving and is shared with Non-Senior
Citizens.
 For group of diners composed of Senior Citizens who ordered for group meals or food
items for sharing in restaurants and not all the Senior Citizens have their valid Senior
Citizen's ID cards (including purchase of whole cake and pizza).

GRANT OF 5% SPECIAL DISCOUNT TO SENIOR CITIZENS

(Section 5, RR 7-2010 as amended by RR 8-2010 and RMC 38-2012).

A special discount of five percent (5%) of the regular retail price of basic necessities and prime
commodities as defined under Section 2 of the joint DTI-DA Administration Order No. 10-02, series of
2010, shall be granted to Senior Citizens on their purchases thereof, taking into consideration that said
purchases shall be for the personal and exclusive consumption and/or enjoyment of the Senior Citizen
(Section 3, Joint DTI-DA Administrative Order No. 10-02 Series of 2010).

a) BASIC NECESSITIES
 Rice
 Corn
 Bread excluding pastries and cakes
 Fresh, dried and canned fish and other marine products
 Fresh pork, beef and poultry meet
 Fresh eggs
 Fresh and processed milk
 Fresh vegetables including root crops
 Coffee and coffee creamer
 Sugar
 Cooking oil
 Salt
 Powdered, liquid, bar laundry and detergent soap
 Firewood
 Charcoal
 Candles

b) PRIME COMMODITIES
 Fresh fruits

VALUE ADDED TAX 17

 VALUE ADDED TAX

 Flour
 Dried, processed and canned pork, beef and poultry meat
 Dairy products not falling under basic necessities
 Canned sardines, tuna
 Noodles
 Onions
 Garlic
 Geriatric diapers
 Herbicides
 Poultry, swine and cattle feeds
 Veterinary products for poultry, swine and cattle
 Nipa shingle, plyboard and construction nails
 Batteries
 Electrical supplies and light bulbs
 Steel wire

Retailers - shall mean any natural or juridical person engaged in the business of selling consumer
products directly to consumers, which shall include among others, supermarkets,
grocery/convenience stores and shops but excluding stalls in food courts, food carts and sari-sari
stores with a capitalization of less than P100,000, public and private wet markets, talipapa and
cooperative stores.

Purchase of basic necessities and prime commodities are not exempt from vat. The total amount
of purchases shall not exceed P1,300 per calendar week without carry-over of unused amount. A
purchase booklet issued by OSCA shall be presented to the retailer upon purchase of basic
necessities and prime commodities.

NOTE:
 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 (Sec. 10, RR 7-2010).
 While RA 9994 expressly provides for the VAT exemption of Senior Citizens on their purchase
of certain goods and services, the law does not include exemption from the payment of
Percentage Tax.
 In the purchase of goods and services which are on promotional discount, the Senior Citizens
shall avail of either the promotional discount or 20%/5% discount, whichever is higher.
However, the discount that must be given to the Senior Citizen shall in no case be less than
20%/5%. Moreover, the sale of goods and services on promotional discount is still exempt
from VAT (except sale of basic necessities and prime commodities).
 Meals primarily prepared and intentionally marketed for children and not for Senior Citizen's
personal consumption are not entitled to 20% discount. (Rule IV, Article 7, Section 3(d) of the
Rules and Regulations implementing RA No. 9994; Section 6 of RR No. 7-2010).
 Generally, alcoholic beverages are not subject to the 20% discount and exemption especially
if purchased "in bulk", "in buckets" or "in cases. However, if served as a single serving drink,
its purchase by a Senior Citizen is entitled to the 20% discount and VAT exemption. However,
alcoholic beverages purchased in a bar, club or cabaret are exempt from VAT but subject to
amusement tax of 18% under Section 125 of the NIRC, as amended. A Senior Citizen may still
avail of the 20% discount on the purchase of an alcoholic drink but the discount shall be limited
only to a single serving of an alcoholic beverage.
 Cigarettes/cigars are not the food or essential items deemed subject to the 20% discount.
 Toll fees are not the same as "fares". Hence, it is not subject to the 20% Senior Citizen
Discount.

PERSONS WITH DISABILITY (RA7277-Magna Carta for Persons with Disability as amended by RA 9442 and
RA10754;)

VALUE ADDED TAX 18

 VALUE ADDED TAX

A person with disability shall refer to an individual suffering from restriction or different abilities, as a
result of mental, physical or sensory impairment to perform an activity in a manner or within the range
considered normal for human being (RR 1-2009).

PERSONS WITH DISABILITY SHALL BE ENTITLED TO:

"(a) At least twenty percent (20%) discount and exemption from the value-added tax (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 fees and charges relative to the utilization of all services in hotels and similar lodging
establishments; restaurants and recreation centers:

"(2) On admission fees charged by theaters, cinema houses, concert halls circuses, carnivals and
other similar places of culture, leisure and amusement:

“(3) On the purchase of medicines in all drugstores;

"(4) On medical and dental services including diagnostic and laboratory fees such as, but not
limited to, X-rays, computerized tomography scans and blood tests, and professional fees of
attending doctors in all government facilities, subject to the guidelines to be issued by the
Department of Health (DOH), in coordination with the Philippine Health Insurance Corporation
(PhilHealth);

"(5) On medical and dental services including diagnostic and laboratory fees, and professional fees
of attending doctors in all private hospitals and medical facilities, in accordance with the rules and
regulations to be issued by the DOH, in coordination with the PhilHealth;

"(6) On fare for domestic air and sea travel;

"(7) On actual fare for land transportation travel such as, but not limited to, public utility buses or
jeepneys (PUBS/PUJs), taxis, asian utility vehicles (AUVs), shuttle services and public railways,
including light Rail Transit (LRT), Metro Rail Transit (MRT) and Philippine National Railways (PNR);
and

"(8) On funeral and burial services for the death of the PWD: Provided, that the beneficiary or any
person who shall shoulder the funeral and burial expenses of the deceased PWD shall claim the
discount under this rule for the deceased PWD upon presentation of the death certificate. Such
expenses shall cover the purchase of casket or 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.

"(b) Educational assistance to PWD, for them to pursue primary, secondary, tertiary, post tertiary, as well
as vocational or technical education, in both public and private schools, through the provision of
scholarships, grants, financial aids, subsidies and other incentives to qualified PWD, including support for
books, learning materials, and uniform allowance to the extent feasible: Provided, That PWD shall meet
the minimum admission requirements;

"(c) To the extent practicable and feasible, the continuance of the same benefits and privileges given by
the Government Service Insurance System (GSIS), Social Security System (SSS), and Pag-IBIG, as the case
may be, as are enjoyed by those in actual service;

"(d). To the extent possible, the government may grant special discounts in special programs for PWD on
purchase of basic commodities, subject to the guidelines to be issued for the purpose by the Department
of Trade and Industry (DTI) and the Department of Agriculture (DA); and

"(e) Provision of express lanes for PWD in all commercial and government establishments; in the absence
thereof, priority shall be given to them.
"The abovementioned privileges are available only to PWD who are Filipino citizens upon submission of
any of the following as proof of his/her entitlement thereto:

VALUE ADDED TAX 19

 VALUE ADDED TAX

"(i) An identification card issued by the city or municipal mayor or the barangay captain of the
place where the PWD resides;
"(ii) The passport of the PWD concerned; or
"(iii) Transportation discount fare Identification Card (ID) issued by the Nation Council for the
Welfare of Disabled Persons (NCWDP).

The privileges may not be claimed if the PWD claims a higher discount as may be granted by the
commercial establishment and/or under other existing laws or in combination with other discount
program/s

The establishments may claim the discounts granted in subsection (a), paragraphs (1), (2), (3), (5), (6), and
(8) as tax deductions based on the net cost of the goods sold or services rendered: Provided, however, that
the cost of the discount sall be allowed as deduction from the gross income for the same taxable year that
the discount is granted: Provided, further, that the total amount of the claimed tax deduction net of value-
added tax, if applicable, shall be included in their gross sales receipts for tax purposes and shall be subject
to proper documentation and to the provision of the National Internal Revenue Code (NIRC), as amended.

Grant of 5% Special Discount to PWDs (RR 9-2019)

"Every PWD shall enjoy a special discount of five percent (5%) of the regular retail price, without
exemption from the value-added tax (VAT) of basic necessities and prime commodities". The discount is
limited to purchases not exceeding to P1,300 per calendar week without carry-over of the unused
amount". Provided that said amount shall be spent on basic necessities and prime commodities
commensurable to his/her personal exclusive consumption and or enjoyment within the calendar week.
Provided, further that said amount shall be spent on at least four kinds of items listed as basic necessities
and prime commodities.

Basic necessities refer to goods "vital to the needs of consumers, for their sustenance and
existence” while prime commodities are goods that are "essential" to them. Necessities include rice, corn,
root crops, bread, fresh, dried or canned fish and other marine products; fresh pork, beef and poultry
meat; fresh eggs, potable water in bottles and containers; fresh and processed milk; fresh vegetables and
fruits; locally manufactured instant noodles; coffee, coffee creamer; sugar, cooking oil, salt, laundry soap,
detergent, firewood, charcoal, candles, household liquefied petroleum gas and kerosene.

BASIC NECESSITIES shall include:

1. All kinds and variants of rice
2. Corn
3. All kinds of bread (pastries and cakes not included)
4. Fresh, dried and canned fish and other marine products (including frozen and in various modes of
packaging)
5. Fresh pork, beef and poultry meat
6. All kinds of fresh eggs (excluding quail eggs)
7. Potable water in bottles and containers
8. Fresh and processed milk (excluding milk labelled as food supplement)
9. Fresh vegetables including root crops
10. Fresh fruits
11. Locally manufactured instant noodles
12. Coffee and coffee creamer
13. All kinds of sugar (excluding sweetener)
14. All kinds of cooking oil
15. Salt
16. Powdered liquid, bar laundry and detergent soap
17. Firewood
18. Charcoal
19. All kinds of candles
20. Household liquefied petroleum gas, not more than 11kgs, LPG content once every five (5) months
bought from LPG dealers
21. Kerosene, not more than 2 liters per month

VALUE ADDED TAX 20

 VALUE ADDED TAX

Prime commodities are goods not considered as basic necessities but are essential to consumers.
Prime commodities shall include flour, dried, processed or canned pork, beef and poultry meat; dairy
products not falling under basic necessities; onions, garlic, vinegar, patis, soy sauce, toilet soap,
fertilizer, pesticides and herbicides; poultry, livestock and fishery feeds and veterinary products;
paper, school supplies, nipa shingles, sawali, cement, clinker, GI sheets, hollow blocks, plywood,
plyboard, construction nails, batteries, electrical supplies, light bulbs and steel wires.

PRIME COMMODITIES shall include:

1. Flour
2. Dried, processed and canned pork, beef and poultry meat
3. Dairy products not falling under the definition of basic necessities
4. Onions and garlic
5. Vinegar, patis and soy sauce
6. Toilet/ bath soap
7. Fertilizer
8. Pesticides
9. Herbicides
10. Poultry feeds, livestock feeds and fishery feeds
11. Veterinary products
12. Paper, school supplies
13. Nipa Shingle
14. Sawali
15. Cement, clinker, GI sheets
16. Hollowblocks
17. Plywood
18. Plyboard
19. Construction nails
20. Batteries (excluding cellphone and automotive batteries)
21. Electrical supplies and light bulbs
22. Steel wires

ADMINISTRATIVE PROVISIONS

1. INVOICING REQUIREMENTS
 A VAT registered person shall issue:
a) A VAT invoice for every sale, barter or exchange of goods or properties
b) VAT official receipt for every lease of goods or properties and for every sale, barter or
exchange of services.

 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.

 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 if the sales is exempt from value-added tax, the term
"VAT-EXEMPT SALE" shall be written or printed prominently on the invoice or receipt and if the
sale is subject to zero percent (0%) VAT, the term "ZERO-RATED SALE" shall be written or printed
prominently on the invoice or receipt.

 SALE TO SENIOR CITIZENS. The amount of sales that must be reported for tax purposes is the
undiscounted selling price and not the amount of sales net of the discount. The gross selling price
and the sales discount must be separately indicated in the official receipt or sales invoice issued
by the establishment for the sale of goods or services to the Senior Citizen. With regard to the VAT
exemption, the machine tape must properly segregate the VAT exempt sales from the taxable
sales (Sections 7 and 10 of RR No. 7 2010).

VALUE ADDED TAX 21

 VALUE ADDED TAX

The business establishment giving sales discounts to qualified Senior Citizens is required to keep
a separate and accurate record of sales, which shall include the name of the Senior Citizen-
purchaser, OSCA ID, gross sales/receipts, sales discounts granted, dates of transactions and
invoice/OR number for every sale transaction to Senior Citizens. The invoicing requirements in
Section 4.113-1 of Revenue Regulations No. 16-2005 must also be complied with (Sections 7 and
10 of RR No. 7-2010).

 CONSEQUENCES of issuing an erroneous invoice or official receipt

a) If a person who is not a VAT registered person issues an invoice or receipt showing his TIN
followed by the word VAT, the non-VAT person shall be liable to:
i. The percentage taxes applicable to his transactions.
ii. The VAT due on the transactions without the benefit of any tax credit; and
iii. A 50% surcharge.

b) If a VAT registered person issues a VAT invoice or official receipt for a VAT-exempt transaction
but fails to display prominently on the invoice or receipt the term "VAT EXEMPT SALE", the
issuer shall be liable to VAT.

NOTE: 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.

******Discussion Questions******

1. VAT is imposed on:

I. Sale of goods or properties not in the course of business
II. Sale of goods or properties in the course of business
III. Importation of goods or properties in the course of business
IV. Importation of goods or properties not in the course of business

a. l and III only.

b. II, III, and IV only.
c. I, II, and III only.
d. I, II, III, and IV.

2. Who is statutorily liable for the payment of VAT?

a. Seller
b. Buyer
c. Seller or buyer, at the option of the government.
d. Seller and buyer

3. Lovely is a student at the Review School of Caring Educators (ReSCARe). She sold her unused iPhone
to her friend for P30,000, and with those amounts she saved P10,000, and spent P20,000 to buy a
cheaper phone. How much is Lovely's VAT payable?
a. 0. Lovely is not engaged in business.
b. 0. Lovely is not VAT-registered.
c. 1,200, computed as 12% of the amount she has saved.
d. 3,600, computed as 12% of the price at which her friend bought the phone

4. Statement 1: Incidental and isolated transactions may be subject to VAT.

Statement 2: A VAT-registered supermarket selling general merchandise sells one of its cash registers.
The sale is subject to VAT.
a. Only Statement 1 is true.
b. Only Statement 2 is true.
c. Both statements are true.
d. Both statements are not true.

VALUE ADDED TAX 22

 VALUE ADDED TAX

5. Statement 1: A sale not in the course of trade or business is generally not subject to VAT.
Statement 2: An importation not in the course of trade or business is generally not subject to VAT.
a. Only Statement 1 is true.
b. Only Statement 2 is true.
c. Both statements are true.
d. Both statements are not true.

6. Which of the following is a characteristic of a value added tax?

a. Indirect tax
b. Property tax
c. Local tax
d. Specific tax

7. Where even if there is no business, vat is imposable on:

I. Importations of goods for personal use
II. Services rendered in the Philippines by nonresident foreign persons, even isolated, shall be
considered as being rendered in the course of trade or business.
a. I only
b. II only
c. I and II
d. None of the above

8. Statement 1: Nonstock and nonprofit private organizations which sell exclusively to their members in
the regular conduct or pursuit of commercial or economic activity are exempt from value-added tax.
Statement 2: Government entities engaged in commercial or economic activity are generally exempt
from value-added tax
a. Both statements are correct.
b. Both statements are incorrect.
c. Only the first statement is correct.
d. Only the second state statement is correct.

9. Which of the following is not a business tax?

a. Excise Tax
b. Value-added tax
c. Other percentage tax
d. Income tax

10. In order to be subject to the requirement of VAT registration, a business must have:
a. Gross sales or receipts exceeding P3,000,000
b. Gross sales or receipts of at least P3,000,000
c. Gross sales or receipts, other than those that are exempt under Section 109, exceeding
P3,000,000
d. Gross sales or receipts, other than those that are exempt under Section 109, of at least P3,000,000

11. Optional registration for VAT is irrevocable for a period of:

a. One (1) year
b. Three (3) years
c. Five (5) years
d. Seven (7) years

12. Which of the following taxpayers is barred from cancelling its optional VAT registration?
a. International common carriers
b. Operators of amusement places
c. Export-oriented enterprises
d. Radio and television franchisees

13. Which is incorrect?

VALUE ADDED TAX 23

 VALUE ADDED TAX

a. A taxpayer whose annual gross receipts or sales exceeds P3,000,000 shall pay vat even if not vat
registered.
b. A taxpayer whose annual receipts or sales do not exceed P3,000,000 but who is vat registered
shall pay vat.
c. A non-resident lessor or foreign licensor who is not vat-registered is subject to vat.
d. None of the above

14. Registration of taxpayers under the vat system may be classified as, except
a. Mandatory vat registration
b. Optional vat registration
c. Mixed vat registration
d. None of the above

15. Zoe is a certified public accountant. He applied for work and was hired by a Firm which is engage in
Business Process Outsourcing, handling accounting work for US entities. He was paid for his services.
How should Zoe treat such payment for business tax purposes?
a. Subject to 12% VAT
b. Subject to Percentage Tax
c. Exempt from VAT and Percentage Tax
d. It is a zero-rated transaction

16. Which of the following products is VAT exempt?

a. Rabbits
b. Dogs
c. Anacondas
d. Fighting cocks

17. Sale of which of the following items is subject to 12% Output VAT?
a. Sale of roasted chicken
b. Sale of corn grits
c. Sale of bagasse
d. Sale of salted egg

18. Importation of which of the following items is subject to 12% Output VAT?
a. Importation of fertilizers
b. Importation of feeds for aquarium fish
c. Importation of seeds, seedlings and fingerlings
d. Importation of poultry feeds

19. The following are exempt from vat, except

a. Sale of 1 sack of rice
b. Sale of lechon manok
c. Sale of pet food
d. Sale of newspaper

20. Which importation by an OFW is subject to 12% VAT?

a. Importation of professional instruments and implements
b. Importation of vehicle
c. Importation of tools of trade, occupation or employment
d. Importation of wearing apparel

21. Which of the following transactions does not entitle the businessman to claim tax credit in Input VAT?
a. Zero-rated VAT-subject transaction
b. 12% VAT-subject transaction
c. Transaction subject to OPT
d. None of the above

22. Which of the following rendition of services is subject to 12% VAT?

VALUE ADDED TAX 24

 VALUE ADDED TAX

a. Laboratory services made by medical clinic to patients

b. Dental services by Dental clinic to patients
c. Check-up services by Pediatrician to patients
d. Accommodation services by hospital to patients

23. Maryan Cooperative is an agricultural cooperative which processes coffee production of its members
for sale to Nescafe Philippines, a coffee processing company selling instant coffee. Maryan imported
a coffee drier from abroad. After five years of active use, Maryan sold the coffee drier to one of its
members, Dong Dong Cruz. Which of the following is subject to vat?
a. Importation of coffee drier.
b. The sale of coffee drier to one of its members, Dong Dong Cruz
c. Sale of coffee to Nescafe Philippines
d. Sale of coffee by members to Maryan Cooperative

24. Which of the following sales of electricity is subject to VAT?

a. Sale of power or fuel generated thru renewable sources of energy
b. Sale of electricity by MERALCO
c. Both A and B
d. Neither A nor B

25. Which of the following is subject to VAT?

a. Export sales by persons who are not VAT-registered
b. Export sales by VAT-registered persons
c. Either A or B
d. Neither A nor B

26. Which of the following sales of real property is subject to VAT?

a. Sale of land by a college professor
b. Sale of real properties for low-cost housing and socialized housing defined by R.A. 7279
c. Sale of commercial lot valued at P1,500,000 and below
d. Sale of residential house and lot valued at P2,500,000 and below

27. Sale of the following real properties beginning January 1, 2021 are subject to vat, except:
a. Residential lot held for sale in the ordinary course of business:
b. Residential house and lot held for sale in the ordinary course of trade, sold for P3,199,200.
c. Sale of real property used in the ordinary course of business.
d. All of the above

28. In 2020, a vat registered real estate dealer sold a residential lot for P1,919,500 to a vendee who
intends to erect his residential house thereon. The sale shall be:
a. Subject to 12% vat
b. Subject to 0% vat
c. Vat exempt
d. None of the foregoing

29. In 2021, a vat registered real estate dealer sold a residential lot for P1,919,500 to a vendee who
intends to erect his residential house thereon. The sale shall be:
a. Subject to 12% vat
b. Subject to 0% vat
c. Vat exemption
d. None of the foregoing

30. Which of the following lease shall be subject to VAT?

a. Lease with monthly rental exceeding P15,000 but the annual aggregate of rentals does not exceed
P3,000,000
b. Lease with monthly rental not exceeding P15,000 but the annual aggregate of rentals exceeds
P3,000,000

VALUE ADDED TAX 25

 VALUE ADDED TAX

c. Lease with monthly rental exceeding P15,000 and the annual aggregate of rentals exceeds
P3,000,000
d. Lease with monthly rental not exceeding P15,000 and the annual aggregate of rentals does not
exceed P3,000,000

31. Determine the business taxes of the following:

I. Lease of residential units with a monthly rental per unit not exceeding P15,000 (regardless of the
amount of aggregate annual gross rentals).
II. Lease of residential units with a monthly rental per unit exceeding P15,000 but the aggregate of
such rentals during the year do not exceed P3,000,000.
III. Lease of commercial units regardless of monthly rental per unit.
A B C D
I None None None VAT
II OPT OPT OPT VAT
III VAT OPT VAT VAT

32. To be subject to vat, the lease of residential units shall have

I. Monthly rental per unit exceeding P15,000
II. Gross annual rental exceeding P3,000,000
a. Both I and II are necessary
b. Both I and II are not necessary
c. Only I is necessary
d. Only Il is necessary

33. To be subject to vat, the lease of commercial units shall have

I. Monthly rental per unit exceeding P15,000
II. Gross annual rental exceeding P3,000,000
a. Both I and II are necessary
b. Both I and II are not necessary
c. Only I is necessary
d. Only II is necessary

34. Which of the following is a VAT-exempt item?

I. Newspapers devoted principally for the publication of local news and not national news.
II. Books in electronic format
a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.

35. Which of the following is a VAT-exempt sale of services?

I. Transport of cargoes by international carriers from Philippines to abroad
II. Transport of passengers by international carriers from Philippines to abroad
III. Transport of cargoes by domestic carriers from Philippines to abroad

a. I only.
b. II only.
c. I and II only.
d. I, II, and III.

36. Which of the following carrier shall be subject to value-added tax?

a. Sea carrier classified as Resident Foreign Corporation, with annual gross receipts of P2,000,000.
b. Air carrier classified as Resident Foreign Corporation, with annual gross receipts of P3,000,000.
c. Sea carrier classified as Domestic Corporation, voyage is from Philippines to Japan, with annual
gross receipts of P5,000,000.
d. None of the choices.

VALUE ADDED TAX 26

 VALUE ADDED TAX

37. Which of the following shall be exempt from vat?

a. Services of banks.
b. Services of money changers and pawnshops.
c. Services of credit cooperatives
d. All of the above

38. The following are exempt from vat, except

a. Sale of marinated fish
b. Sale of gold to the Bangko Sentral ng Pilipinas
c. Association dues, membership fees, and other assessments and charges collected by home
owners associations and condominium corporations.
d. None of the above

39. Which of the following sale of medicine is subject to VAT?

a. Sale of drugs and medicines prescribed for diabetes
b. Sale of drugs and medicines prescribed for flu
c. Sale of drugs and medicines for high cholesterol
d. Sale of drugs and medicines for hypertension

40. Statement 1: The effectivity of vat exemption of sale or importation of prescription drugs and
medicines for the treatment/and or prevention of diabetes, high-cholesterol and hypertension under
the CREATE law is on January 1, 2020.
Statement 2: The effectivity of vat exemption of sale or importation of prescription drugs and
medicines for the treatment and or prevention of cancer, mental illness, tuberculosis and kidney
diseases under the CREATE law is on January 1, 2021.
A. B. C. D.
Statement 1 True True False False
Statement 2 True False True False

41. Which of the following is vat exempt beginning January 1, 2021 to December 31, 2023?
a. Sale or importation of capital equipment, its spare parts and raw materials, necessary for the
production of personal protective equipment (PPE) components such as coveralls, gown, surgical
cap, surgical mask, n-95 mask, scrub suits, goggles and face shield, double or surgical gloves,
dedicated shoes, and shoe covers, for COVID 19 prevention.
b. Sale or importation of all drugs, vaccines and medical devices specifically prescribed and directly
used for the treatment of COVID-19.
c. Sale or importation of drugs for the treatment of COVID-19 approved by the Food and Drug
Administration (FDA) for use in clinical trials, including raw materials directly necessary for the
production of such drugs.
d. All of the above

42. Gross selling price is the appropriate VAT base for:

a. Sale of goods or properties
b. Sale of services
c. Importation
d. Lease of properties

43. Gross receipts is the appropriate VAT base for all of the following, except:
a. Sale of services
b. Lease of properties
c. Sale of securities
d. Importation

44. A sale is a sale on a deferred-payment basis if:

a. The down payment is at least 25% of the gross selling price.
b. The down payment exceeds 25% of the gross selling price.
c. The initial payments are at least 25% of the gross selling price.
d. The initial payments exceed 25% of the gross selling price.

VALUE ADDED TAX 27

 VALUE ADDED TAX

45. Which of the following is not deductible from Gross Selling Price for vat purposes?
a. Discounts determined and granted at the time of sale, which are expressly indicated in the invoice,
the amount thereof forming part of the gross sales duly recorded in the books of accounts.
b. Discount determined and granted after the agreed sales quota is met by the buyer.
c. Sales discount indicated in the invoice at the time of sale, the grant of which is not dependent
upon the happening of a future event, deductible within the same month or quarter given.
d. 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.

46. On January 5, 2021, Daluna Corporation, vat registered, sold on account goods for P112,000 inclusive
of vat. The term was: 2/10, n/30. Payment was made on January 10, 2021. The total amount due is:
a. P110,000
b. P107,800
c. P112,000
d. P109,760

47. In the case of sale of real properties on the installment plan, the real estate dealer shall be subject to
VAT on the:
a. Selling price
b. Selling price or fair market value whichever is lower
c. Selling price of fair market value whichever is higher
d. Installment payments, including interest and penalties, actually or constructively received by the
seller.

48. Inawa Realty Inc, developed a condominium in Manila During the month of January 2021 it had the
following data (VAT included):
Selling Price
Cash sale of a 3 bedroom unit P5,040,000
Sale of parking lot 560,000
Installment sale of 2 bedroom unit (initial payments 3,920,000
exceed 25% of the selling price)

The 3 bedroom unit sold for cash had a zonal value of P5,000,000 and the 2 bedroom unit had a
fair market value per Tax Declaration of P3,000,000. How much is the output tax for the month?
a. P920,000
b. P900,000
c. P1,020,000
d. P1,080,000

Use the following data for the next two (2) questions:
Palits is a real estate dealer. During the month of October 2020, he sold three (3) commercial lots under
the following terms:
Lot 1 Lot 2 Lot 3
Selling Price P250,000 P200,000 P300,000
Cost 150,000 130,000 175,000
Gain/Loss 100,000 70,000 125,000
Terms:
Down, Oct. 5, 2020 25,000 50,000 40,000
Due:
Dec. 5, 2020 25,000 20,000 20,000
Year 2021 200,000 130,000 240,000
Zonal Value 2020 350,000 260,000 250,000

49. How much is the output tax for October 2020?

a. P26,500
b. P34,800
c. P31,800

VALUE ADDED TAX 28

 VALUE ADDED TAX

d. P40,200

Answer: D

50. How much is the output tax for December 2020?

a. P5,400
b. P4,500
c. P6,600
d. none

51. A dealer in securities has the following for the year 2020:
Sales, shares held as inventory P5,000,000
Sales, shares held as investment 1,500,000
Cost of shares, held as inventory 2,000,000
Cost of shares, held as investment 500,000
Supplies expense, net of vat 100,000
Rent expense, net of vat 200,000

How much is the vat payable?

a. P470,000
b. P324,000
c. P270,000
d. vat exempt

52. Which of the following is not a transaction deemed sale?

a. Retirement from or cessation of business
b. Change of ownership of the business
c. Incorporation of a single proprietorship
d. Change of control of a corporation by the acquisition of the controlling interest of such
corporation by another stockholder

53. Consignment of goods are transactions deemed sale:

a. If actual sale is not made within sixty (60) days following the date such goods were consigned
b. If actual sale is not made within ninety (90) days following the date such goods were consigned
c. If actual sale is not made within thirty (30) days following the date such goods were consigned
d. If actual sale is not made within one hundred twenty (120) days following the date such goods
were consigned

54. Which of the following shall be considered transactions deemed sale to be subjected to 12% Output
VAT?
a. Change in the control of a corporation
b. Change in the trade or corporate name of a business
c. Either A or B
d. Neither A nor B

For the next two items, refer to the following situation:

Mahusay Solutions, Inc., sells its computers on a consignment basis. This quarter, it had the following
sales:

Direct sales P 14,000,000

Sales through consignees 38,000,000

P 52,000,000

On the other hand, the ending inventory of Mahusay Solutions consist of the following:

LCNRV Selling price

VALUE ADDED TAX 29

 VALUE ADDED TAX

Located on the factory warehouse P 1,400,000 P 1,960,000

With the possession of consignees,
consigned 30 days ago 800,000 1,120,000
With the possession of consignees,
consigned 50 days ago 770,000 1,078,000
With the possession of consignees,
consigned 70 days ago 480,000 672,000
P 3,450,000 P 4,830,000

All selling prices listed are VAT-exclusive prices.

55. How much is output VAT?

a. 6,297,600
b. 6,320,640
c. 6,450,000
d. 6,584,400

56. What document should Mahusay Solutions, Inc. issue in relation to its P38,000,000 sale through
consignees?
a. Invoice with name of the buyers indicated.
b. Invoice with name of the consignees indicated.
c. Official receipt with name of the buyers indicated.
d. Official receipt with name of the consignees indicated.

57. The following are the data of Macabs International for the last quarter of 2020:
Sales up to Dec. 15 (invoice value) P380,800
Purchases up to Dec. 15 (net) 150,000

Additional information:
On December 16, 2020, the Company retired from its business and the inventory valued at P190,000
remained unsold. There is a deferred input tax from the third quarter of P3,500.

How much is the total value-added taxes payable of Macabs International?

a. P42,100
b. P21,500
c. P22,800
d. P19,300

58. In order to be zero-rated, the sale and actual shipment of goods from the Philippines to a foreign
country:
a. Must be paid for in Philippine pesos.
b. Must be paid for in acceptable foreign currency.
c. Must be FOB Shipping Point.
d. Must be FOB Destination.

59. Mandepak Company is a domestic corporation engaged in the generation and distribution of
electricity from various sources. The following are the sales of Mandepak of electricity with source
indicated:
Source Amount
Coal P 7,440,000
Fossil fuel 4,860,000
Hydroelectric 5,960,000
Wind 6,330,000
Total P 24,590,000

How much is Mandepak's zero-rated sales?

a. 5,960,000
b. 6,330,000

VALUE ADDED TAX 30

 VALUE ADDED TAX

c. 12,290,000
d. 24,590,000

60. In which of the following transactions is a non-VAT registered taxpayer seller not allowed to claim
creditable input VAT?
a. Sales of goods subject to 12%-VAT
b. Sales of goods subject to 0%-VAT
c. Sales of goods exempted from VAT
d. All of the above

61. When does constructive receipt occur?

a. When the money is received by a construction worker
b. When the seller has an unconditional right to receive the payment due from the buyer
c. When the seller has a legally enforceable right to demand the payment due from the buyer such
as when the seller has already rendered the services agreed upon.
d. When the money consideration or its equivalent is placed at the control of the person who
rendered the service without restrictions by the payor.

62. Statement 1: Gross receipts of a PRC-licensed doctor is subject to VAT on professionals.

Statement 2: Gross receipts of a professional athlete is subject to VAT on professionals.
a. Only Statement 1 is true.
b. Only Statement 2 is true.
c. Both statements are true.
d. Both statements are not true.

63. Which of the following fees is subject to value-added tax?

a. Salaries of professor teaching in College of Law
b. Professional fee of CPA reviewer in a Review Center
c. Wages of rank-and-file employee in government agency
d. Fee paid to agricultural contract growers and milling for others of palay into rice, corn into grits,
and sugar cane into raw sugar

64. Which of the following purchase of vehicles may give rise to input tax credit?
I. Purchase of a delivery truck amounting to P1,800,000.
II. Purchase of a car for top management amounting to P2,600,000
III. Purchase of a car by the sole proprietor for his own personal use, P2,000,000

a. I only.
b. II only.
c. I and II only.
d. I, II, and III.

65. Tax credit for input taxes shall be allowed if:

a. Both the seller and the purchaser are VAT-registered
b. Either one of the seller or the purchaser is VAT-registered.
c. Neither one of the seller or the purchaser is VAT-registered as long as VAT invoice is issued.
d. The seller is VAT-registered regardless of whether the purchaser is VAT-registered or not.

66. When is the input tax on purchases of capital assets is amortized over 60 months or useful lives of the
capital assets if shorter than 60 months?
a. If capital assets have been acquired from enterprises registered with and located at the export
processing zones.
b. If the value of the capital asset purchased, excluding vat, exceeds P1,000,000.
c. If the aggregate monthly purchases of capital assets, excluding vat, exceeds P1,000,000.
d. If the vat taxpayer has secured prior approval for him to amortized input tax on purchases of
capital assets.

VALUE ADDED TAX 31

 VALUE ADDED TAX

67. Statement 1: The input vat on purchase of capital goods valued at P1,000,000 shall be spread over 60
months if the life of property is equivalent to 5 years or more.
Statement 2: The input vat on purchase of capital goods valued at P1,000,000 shall be spread over the
life of property if the life of property is less than 5 years.
a. Both statements are correct
b. Only first statement is correct
c. Both statements are incorrect
d. Only first statement incorrect

68. A taxpayer has excess credit in 2020 as a result of input taxes paid on purchases of capital goods. He
may:
a. Have his excess tax credit refunded to a VAT registered person.
b. Make his application for refund in the subsequent period following the period during which the
purchases were made.
c. Carry-over and apply his excess tax credit against output taxes in the subsequent period or
periods.
d. Use it in payment of any internal revenue tax of a vat registered person.

A VAT registered taxpayer made the following acquisition of capital goods from VAT registered
suppliers (net of vat) during 2021:
Purchase Date Acquisition Cost Estimated
Useful Life (yrs)
Jan 1*** P1,000,000 10
15 500,000 2
Mar 2 200,000 6
20 300,000 2
Oct 6 600,000 4
30 800,000 6
Dec. 25 3,000,000 1
***the asset was sold on December 2021

69. How much is the creditable input vat for the month of January?
a. P2,000
b. P2,500
c. P4,500
d. P6,000

70. How much is the creditable input vat for the month of February?
a. P2,000
b. P2,500
c. P4,500
d. P6,000

71. How much is the creditable input vat for the month of March?
a. P4,000
b. P4,500
c. P64,000
d. P64,500

72. How much is the creditable input vat for the month of April?
a. P2,000
b. P2,500
c. P4,500
d. P6,000

73. How much is the creditable input vat for the month of October?
a. P2,500

VALUE ADDED TAX 32

 VALUE ADDED TAX

b. P4,500
c. P7,600
d. P8,000

74. How much is the creditable input vat for the month of November?
a. P2,500
b. P4,500
c. P7,600
d. P8,000

75. How much is the creditable input vat for the month of December?
a. P63,600
b. P268,000
c. P463,600
d. P480,000

76. Jeyong Corporation made the following purchases of capital goods:

 October 1, 2021: Various Equipment for P2,160,000 with useful life of 3 years
 March 30, 2022; Delivery equipment for P3,500,000 with useful life of 10 years
How much is the creditable input vat for the first quarter of 2022?
a. P21,000
b. P21,600
c. P420,000
d. P441,600

77. Which of the following shall be included in the beginning inventory for purposes of determining the
transitional input vat?
a. Goods purchased for resale in the ordinary course of trade or business.
b. Materials purchased for further processing which have not yet undergone processing
c. Goods which have been manufactured by the taxpayer
d. All of the above

78. Transitional input tax can be claimed as deduction from output tax. Which of the following statements
is correct as to when it can be allowed as deduction?
a. It can be claimed by a vat registrable person.
b. It can be claimed by a taxpayer who registered as vat taxpayer from the inception of business.
c. It can be claimed by a taxpayer who is initially subject to vat and subsequently cancelled his vat
registration.
d. It can be claimed by a taxpayer who is initially paying percentage tax and subsequently registered
as vat taxpayer.

79. An owner of warehouse, which used to be vat exempt, because its annual receipts never exceeded
P3,000,000, decided to register under the vat system on January 2, 2021. The following data were
from the quarter ending March 31, 2021
Rental from warehousing services, net of vat P336,000
Purchases of supplies in February, gross of vat 112,000
Inventory of supplies, January 1, 2021 100,000
Vat on inventory of supplies, January 1, 2021 10,000

How much was the vat payable for the quarter ending March 2021?
a. P26,320
b. P18,320
c. P14,000
d. P0

80. Which of the following manufacturers/processors can claim presumptive input VAT?
a. Processor of salt
b. Processor of sardines

VALUE ADDED TAX 33

 VALUE ADDED TAX

c. Processor of rice
d. Processor of eggs

81. Which statement is wrong?

a. There is a transitional input tax on sales of goods or properties.
b. There is a transitional input tax on sales of services.
c. There is a presumptive input tax on sales of goods or properties.
d. There is a presumptive input tax on sales of services.

82. Andang Corp., a VAT-registered Corp., is a producer of cooking oil from coconut and corn. It had the
following data for the month of January 2021:
Sales, gross of VAT P784,000
Corn and Coconut, Dec. 31, 2020 50,000
Purchases of Corn and Coconut on January 2021 330,000
Corn and Coconut, Jan., 31, 2021 20,000
Purchases from VAT suppliers, vat inclusive:
Packaging Materials 56,000
Supplies 16,800

The value-added tax payable for January 2021

a. P56,060
b. P54,900
c. P60,650
d. P63,000

83. The base of computation of presumptive input VAT

a. Gross value of raw materials
b. Gross value of primary agricultural inputs
c. Gross value of agricultural and marine inputs
d. Gross value of raw materials proportionately applied to the registered operations of the taxpayer.

84. Which of the following statements is incorrect?

a. VAT on importation is paid to the Bureau of Customs before the imported goods are released
from its custody.
b. When a person who enjoys tax-exemption on his importation subsequently sells in the Philippines
such imported articles to non-exempts person, the purchaser-non-exempt person shall pay the
VAT on such importation.
c. Expenses incurred after the goods are released from Customs custody are disregarded in
computing VAT on importation.
d. Imported goods which are subject to excise tax are no longer subject to value-added tax.

85. First statement: An importation of goods by a non-profit charitable organization shall not be subject
to the value-added tax.
Second statement: In the case of importation, the importer is not the one liable for the VAT but the
person who shall buy the imported goods.
a. Both statements are correct
b. Only the first statement is correct
c. Both statements are incorrect
d. Only the second statement is correct

86. Which statement is correct? Vat on importation

a. Should be paid by the tax exempt importer, if he subsequently sells the goods to a non-tax exempt
purchaser.
b. Should be paid by the non-tax exempt purchaser to whom the tax exempt importer sells it.
c. is a liability, either of the tax exempt importer or the non-tax exempt purchaser.
d. Should not be paid if the importer is tax exempt but the imported article was subsequently sold
to a non-exempt purchaser because the transaction was exempt at the point of importation.

VALUE ADDED TAX 34

 VALUE ADDED TAX

87. Will imported brand new luxury car from the USA for personal use of Marlie. Total landed costs was
P15,000,000 exclusive of customs duties of P3,000,000, excise tax of P2,000,000, and facilitation cost
of P1,000,000. The VAT payable should be:
a. P240,000
b. P360,000
c. P1,800,000
d. P2,400,000

Use the following data for the next four (4) questions:
Romanuno Corp., imported an article from Japan. The invoice value of the imported articles was $7,000
($1-P50), however, customs officials valued the imported article for P500,000. The following additional
costs were incurred in connection with the importation:
Insurance P15,000
Freight 10,000
Postage 5,000
Wharfage 7,000
Arrastre charges 8,000
Brokerage fee 25,000
Facilitation fee 3,000

The imported article was imposed P50,000 customs duty and P30,000 excise tax. The Company likewise
spent P50,000 for trucking fee from the customs warehouse to its warehouse in Quezon City. The carrier
is a vat-registered entity.

88. The VAT on importation is:

a. P60,000
b. P78,000
c. P60,600
d. P80,000

89. Based on the preceding number, if the imported article was sold for P800,000 (exclusive of vat), the
VAT payable is:
a. P24,000
b. P12,000
c. P36,000
d. P30,000

90. Assume the BOC did not provide the valuation for the imported article, the vat on importation is:
a. P60,000
b. P42,000
c. P60,600
d. P80,000

91. Based on the preceding number, if the imported article was sold for P800,000, vat exclusive, the VAT
payable is:
a. P24,000
b. P12,000
c. P36,000
d. P30,000

92. Standard input VAT applies to:

a. Sale of refined sugar
b. Sale to government
c. Change from non-VAT registered taxpayer to VAT-registered taxpayer
d. Transactions deemed sale

93. Prior to 2021, the allowable input vat on sale to the government including government owned and
controlled corporations (GOCCs) shall be the standard input vat (SIV) computed at or determined as:

VALUE ADDED TAX 35

 VALUE ADDED TAX

a. 12% vat (actual vat) on purchases of goods sold to the government.

b. The 5% withheld by the government is the allowable input vat.
c. 7% of gross payment
d. None of the above

94. Beginning 2021, the allowable input vat on sale to the government including government owned and
controlled corporations (GOCCs) shall be:
a. 12% vat (actual vat) on purchases of goods sold to the government.
b. The 5% withheld by the government is the allowable input vat.
c. Standard input vat computed at 7% of gross payment by the government
d. None of the above

95. The vat withheld is required to be remitted by the government agency within
a. 25 days following the end of month the withholding was made
b. 20 days following the end of month the withholding was made
c. 15 days following the end of month the withholding was made
d. 10 days following the end of month the withholding was made

Use the following data for the next five (5) questions:
A VAT-registered trader has the following transactions during 2020:
Sale of goods to private entities, net of VAT P2,500,000
Purchases of goods sold to private entities, gross of 12% VAT 896,000
Sale to a government owned corporation (GOCC), net of VAT 1,000,000
Purchases of goods sold to GOCC, net of 12% VAT 700,000

96. How much is the output tax?

a. P300,000
b. P120,000
c. P420,000
d. nil

97. How much is the standard input tax?

a. P20,000
b. P70,000
c. P50,000
d. nil

98. How much is the creditable input vat (CIV)?

a. P166,000
b. P96,000
c. P70,000
d. P180,000

99. How much is the input tax closed to income or (expense)?

a. P14,000
b. P34,000
c. (P14,000)
d. (P34,000)

100. How much is the VAT payable to the BIR?

a. P404,000
b. P390,000
c. P204,000
d. nil

Use the following data for the next five (5) questions:
A VAT-registered trader has the following transactions during 2021:
Sale of goods to private entities, net of VAT P2,500,000

VALUE ADDED TAX 36

 VALUE ADDED TAX

Purchases of goods sold to private entities, gross of 12% VAT 896,000

Sale to a government owned corporation (GOCC), net of VAT 1,000,000
Purchases of goods sold to GOCC, net of 12% VAT 700,000

101. How much is the output tax?

a. P300,000
b. P120,000
c. P420,000
d. nil

102. How much is the standard input tax?

a. P20,000
b. P70,000
c. P50,000
d. nil

103. How much is the creditable input vat (CIV)?

a. P166,000
b. P96,000
c. P70,000
d. P180,000

104. How much is the input tax closed to income or (expense)?

a. nil
b. P34,000
c. (P14,000)
d. (P34,000)

105. How much is the VAT payable to the BIR?

a. P190,000
b. P390,000
c. P204,000
d. nil

106. Tax credit for input taxes shall be allowed if:

a. Both the seller and the purchaser are VAT-registered
b. Either one of the seller or the purchaser is VAT-registered.
c. Neither one of the seller or the purchaser is VAT-registered as long as VAT invoice is issued.
d. The seller is VAT-registered regardless of whether the purchaser is VAT-registered or not.

107. Any input tax attributable to zero-rated sales by a vat-registered person may at his option be:
a. Deducted from output tax
b. Refunded
c. Applied for a tax credit certificate (TCC) which may be used in payment of internal revenue taxes.
d. All of the above

108. Lola Loleng, a senior citizen, bought a medicine with a selling price of P9,520 inclusive of
VAT. How much is the net amount to be paid by Lola?
a. P8,500
b. P7,616
c. P6,916
d. P6,800

109. Lolo Abeng, a senior citizen went to Jollibee to treat his 4 grandchildren on account of
his retirement. They consumed foods and beverages with gross amount of P1,120 inclusive of VAT.
How much is amount to be paid by lolo Abeng?
a. P896
b. P920

VALUE ADDED TAX 37

 VALUE ADDED TAX

c. P1,056
d. P1,100

Use the following data for the next three (3) questions:
Bungal Dental Clinic rendered dental services to a PWD. The professional fee amounted to P1,120 inclusive
of vat.

110. How much is the amount to be paid by the PWD?

a. P800
b. P896
c. P1,000
d. P1,120

111. How much is the business tax due of the clinic on its services rendered to the PWD?
a. P26.88
b. P96
c. P120
d. nil

112. Assume the dental clinic is non-vat registered and its annual gross receipts never exceeded the
vat threshold. How much is the amount to be paid by the PWD?
a. P800
b. P896
c. P1,000
d. P1,120

113. Based on the assumption in the immediately preceding number, how much is the business tax
due of the clinic on its services rendered to the PWD?
a. P26.88
b. P96
c. P120
d. Nil

ADMINISTRATIVE PROVISIONS
114. Masbate Foam Inc. paid royalties to Kama Italia Inc., a manufacturer of foam based in Italy for
allowing the former to use the latter's newly developed technology in manufacturing foam. Which of
the following statements is true as to the tax consequence of the said payment?
a. Masbate Foam Inc. will pay the BIR 5% final withholding VAT
b. Kama Italia Inc. will pay the BIR 5% final withholding VAT
c. Masbate Foam Inc. will pay the BIR 12% creditable withholding VAT
d. Kama Italia Inc. will pay the BIR 12% creditable withholding VAT

Answer: C

115. The Commissioner or his authorized representative is empowered to suspend the

business operations and temporarily close the business establishment of any person for
a. Failure to issue receipts or invoices of a VAT-registered entity.
b. Failure to file a VAT-return for VAT-registered person as required by the tax code.
c. Understatement of taxable sales or receipts by thirty percent (30%) or more of his correct taxable
sales or receipts for the taxable quarter.
d. All of the above

Answer: D

116. The term “gross receipts" for hotel and restaurant business operators shall include
I. Service charges billed separately and actually distributed to waiters and employees

VALUE ADDED TAX 38

 VALUE ADDED TAX

II. Actual cost of long distance and overseas telephone calls, fax, cable, telex, and charges of
the telecommunication companies collected by the establishment for the
customers/clients for the concerned telecommunication companies, such as PLDT, which
are earmarked for payment to the latter.
III. Vat passed on to customers
IV. Local taxes
V. Rooms, laundry, valet services and food/beverages consumption VI. Handling charges for
providing telephone, cable or fax services VII.Cake shop sales, lease to concessionaires
and compensation for other services
a. V and VII only
b. II, III and VII only
c. V, VI and VII only
d. All of the above

Answer: C

117. Which statement is correct?

a. The sales invoice that shows a total, with an indication that it includes the value added tax, even
if it does not show the tax separately, is a correctly prepared invoice.
b. The invoice which shows the selling price and the value added tax separately, and with a total
which is a correct amount is a properly prepared invoice.
c. An invoice which shows the selling price and the value added tax separately, but where the value
added tax is wrong, which is paid by the buyer, is a violation of the revenue regulations on issuance
of sales invoices.
d. A sales invoice by a vat taxpayer can be used only on a VAT sale.

Answer: B

118. First statement: The transitional input tax shall be 2% 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 persons.
Second statement: The value allowed for income tax purposes on inventories shall be the basis
for the computation of the 2% transitional input tax, including goods that are exempt for VAT under
Sec. 109 of the Tax Code.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct.

Answer: C

119. First statement: Unused input tax of persons whose registration had been cancelled may be
converted into tax credit certificate which may be used in payment of other NIRC taxes.
Second statement: Refund or tax credit certificate shall be granted within 25 days from the date
of submission of compete documents.
a. Both statements are correct.
b. Both statements are incorrect.
c. Only the first statement is correct.
d. Only the second state statement is correct.

Answer: C

120. If a person who is not VAT-registered issues an invoice or receipt showing his TIN, followed by the
word "VAT", the erroneous issuance shall result to the following, except which one?
a. The non-VAT person shall be liable to the percentage taxes applicable to his transactions.
b. The non-VAT person shall be liable to the VAT due on the transactions.
c. The non-VAT person shall have the benefit of input tax credit.
d. The non-VAT person shall be liable to a 50% surcharge under Sec. 248 (B) of the Tax Code

VALUE ADDED TAX 39

 VALUE ADDED TAX

Answer: C

121. Which of the following statement is not correct?

a. Under Vat, the consumption tax is borne by the consumer.
b. Under Vat, the seller is merely serving as tax collector.
c. Under Vat, the buyer is claiming the input Vat.
d. Under Vat, the final consumer is claiming the input vat as refund.

Answer: D

122. What institution is required to deduct and withhold a final VAT of 5% on the purchase of goods or
services subject to VAT?
a. National government or any political subdivision thereof
b. Government-owned or controlled corporations
c. Both (a) and (b)
d. Neither (a) nor (b)

Answer: C

123. The withholding agent of creditable value added tax is required to remit the amount of value
added tax withheld within
a. 25 days following the end of month the withholding was made
b. 20 days following the end of month the withholding was made
c. 15 days following the end of month the withholding was made
d. 10 days following the end of month the withholding was made

Answer: D

124. A VAT-registered supplier sold goods amounting to P500,000 to a government-

controlled corporation during a particular quarter. Which of the following statements is incorrect in
relation to the sale in relation to the sale of goods?
a. The sale is subject to final withholding VAT.
b. The government-controlled corporation will withhold P25,000 withholding VAT.
c. The government-controlled corporation shall remit the withholding of VAT to the BIR within 10
days following the end of the month the withholding was made.
d. The VAT-registered supplier may refuse the withholding of VAT as long as it is willing to pay the
full 12% VAT.

Answer: D

****END****

VALUE ADDED TAX 40