Tax 302 – Business and Transfer Tax

Prepared by: Mark Paul I. Ramos

MODULE 1
Business Taxes – Value-Added Tax

INTRODUCTION
This module introduces the basic principles and foundations of Value-Added Tax. The
main topics that will be covered will include: background of value-added taxes, reforms
introduced by VAT, nature and characteristics of VAT, its scope, ang VAT threshold. This
module also discusses the exemptions from VAT, (e.g. persons or entities, transactions).
Application of VAT to Senior Citizens, and Persons with Disabilities will also be tackled in this
course. Discussions will include the changes applied in effect of the TRAIN and CREATE Law.

INTENDED LEARNING OUTCOMES

ILO 1 – Demonstrate an extensive knowledge on the background, nature, scope, and
characteristics of Value-Added Tax
ILO 2 – Application of the VAT threshold and understand the exemptions relevant to VAT
ILO 3 – Understand VAT related to Senior Citizens and Persons with Disability
ILO 4 – Achieve best skills in resolving problems involving VAT

Introduction: Business Taxes

Business taxes are those imposed upon onerous transfers such as sales, 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.

Unlike an income tax, which is based on the taxpayer’s net taxable income, business
taxes are generally based on gross sales or gross receipts. Hence, irrespective of the results
of business operations (income or loss), taxpayers engaged in trade or business are still liable
to pay for business taxes (either VAT or OPT, plus excise tax, if applicable).

Types of Transfers
1. Gratuitous transfer (transfer without consideration) – not subject to business tax
but subject to transfer taxes (estate tax or donor’s tax)

2. Onerous transfer (transfer with consideration):

a. In the ordinary course of trade or business including incidental transactions
(subject to business tax and income tax)
b. Not in the ordinary course of trade or business (not subject to business tax
but may be subject to income tax)

ILLUSTRATION
Pinas Energy Corp. entered into a Built-Operate-Transfer (BOT) contract with the PNOC for
finance, engineering, supply, installation, testing, commissioning, operation and maintenance

1|Page
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

of a Geothermal Power Plant. During the year, Pinas Energy Corp. sold for P200,000 a fully
depreciated vehicle (Nissan Patrol) used in business.

Question: How much is the business tax, if any?

Answer: VAT = P200,000 × 12% = P24,000

Types of Business Taxes

There are three major business taxes in the Philippines, namely:
1. Value added tax (VAT)
2. Other percentage taxes (OPT) or simply Percentage Tax
3. Excise Tax

As a rule, all sale of goods or services made in the normal course of trade or business
are subject to VAT unless exempt under the law. Nonetheless, if the sale is exempt from vat,
it may be subject to Other Percentage Tax (OPT) under Sections 116 to 127 of the Tax Code.
Consequently, transactions already subjected to VAT should no longer be subject to
Percentage Tax. However, such is not the case with respect to excise taxes. A transaction
subjected to either vat or percentage tax may still be subjected to excise tax as illustrated
below:
VAT OPT Excise Tax
SALE of Goods/Properties or Service may be subject to:
1. VAT, in general a X X
2. Exempt from VAT but subject to OPT E a X
3. Exempt from business taxes E E -

Manufacturing/importation and Sale of Sin-Products, Non-

essential goods/services may be subject to:
1. In general, VAT (plus excise tax, if applicable), OR a X a
2. Percentage tax (plus excise tax, if applicable) X a a

A transaction subjected to value added tax must no longer be subjected to percentage

tax. Nonetheless, a business entity or taxpayer may be engaged in transactions that are
subject to vat, exempt from vat and subject to percentage tax (mixed transactions) at the same
time. Therefore, a taxpayer may be subjected to value added tax and at the same time,
percentage tax including excise tax if applicable.

Value-Added Tax Defined

VAT is a tax on the value added by every seller to the purchase price or cost in the
sale or lease of goods, property or services in the ordinary course of trade or business as well
as on importation of goods into the Philippines, whether for personal or business use. It is a
tax on consumption levied on the sale, barter, exchange or lease of goods or properties and
services in the Philippines (cross border doctrine) and on importation of goods into the
Philippines levied at each stage of production and distribution process (RR 4-2007). "Cross
border doctrine" means that no VAT shall be imposed to form part of the cost of goods destined
for consumption outside the territorial border of the Philippine taxing authority (ATLAS
Consolidated Mining vs. CIR, June 8, 2007).

2|Page
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

Kinds of VAT
1. VAT on sale of goods or properties
2. VAT on importation of goods
3. VAT on sale of services and use or lease of properties

Background of Value-Added Tax

The value-added tax became effective in the Philippines on January 1, 1988, by virtue
of Executive Order No. 273. Its imposition has replaced and eliminated certain traditional
business taxes in the Philippines.

With the approval of Republic Act Nos. 7716, 8241, 8424, 8761, 9010, 9337 and other
tax laws, more traditional business taxes were abolished and replaced by VAT.

The following taxes were abolished by the aforementioned laws:

1. Sales tax on original sakes
2. Subsequent sales tax
3. Contractor’s tax
4. Miller’s Tax
5. Broker’s Tax
6. Tax on cinematographic film owner, lessor, or distributor
7. Advance sales tax
8. Compensating tax
9. Excise taxes on matches, solvents, and video tapes
10. Tax on hotels, motels, etc.
11. Tax on dealers in securities
12. Tax on lending investors
13. Caterer’s tax
14. Tax on insurance premiums of non-life insurance companies (except crop
insurance)
15. Tax on franchises, except radio and television broadcasting companies whose
annual gross receipts of the preceding year do not exceed P10,000,000 and gas
and water utilities

The passage of Republic Act No. 9337 has introduced the following transactions into
the value-added tax world. Thus, the following sales of goods and services are now subject to
VAT:
1. Sale of non-food agricultural, marine, and other forest products in their original
state by the primary producer or owner of the land;
2. Sale of cotton and cotton seeds in their original state;
3. Sale or importation of coal and natural gas, in whatever state or form;
4. Sale or importation of petroleum products, including raw materials for their
production;
5. Sale by the artist of his works of art, literary works, musical compositions and
similar creations, or his services performed for the production of such works;
6. Services rendered by doctors of medicine duly registered with the Professional
Regulation Commission and by lawyers duly registered with Integrated Bar of the
Philippines;

3|Page
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

7. Common carriers by air and sea relative to their transport of passengers from one
place in the Philippines to another place in the Philippines;
8. Toll road operations;
9. Sale of electricity by generation, transmission, and distribution companies; and
10. Sale by electric cooperatives as well as importation of machines and equipments
including spare parts.

Reforms introduced by VAT

The imposition of Value-added tax has affected the following reforms:
1. Simplification of business tax system
2. Improvement of equity, and
3. Enhancement of efficiency in tax administration

Persons Liable
Sale in the Ordinary Course
Sec 4.105-1 of RR 16-2005 provides that any person who, in the course of his trade or
business, sells, barter or exchanges or leases good or properties, or renders services, and
any person who imports goods, shall be liable to VAT imposed in Sections 106 to 108 of the
Tax Code.

Importation
In the case of importation of taxable goods, the importer, whether an individual or a
corporation and whether or not made in the course of his trade or business, shall be liable to
VAT imposed in Section 107 of the Tax Code.

Transfer by a Tax-Exempt Entity to None-Tax Exempt Entity

Section 107(B) of the Tax Code provides that in the case of tax-free importation of
goods into the Philippines by persons, entities, or agencies exempt from tax where such goods
are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or
entities, the purchasers, transferees or recipients shall be considered the importers thereof,
who shall be liable for any internal revenue tax on such importation.

Nature and Characteristics of VAT

The Value-added tax is a tax on consumption levied on the sale, barter, exchange or
lease of goods or properties and services in the Philippines and on importation of goods in the
Philippines. The seller is the one statutorily liable for the payment of tax but the amount of the
tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or
services.

1. It is an indirect tax where tax shifting is always presumed.

The value added tax is an indirect tax and the amount may be shifted or passed on to
the buyer, transferee or lessee of the goods, properties or services (Section 105 Tax Code;
Section 4, RR 16-2005). The seller is the one statutorily liable to pay for the payment of the
tax but the amount of the tax may be shifted or passed on the buyer or transferee or lessee of
the goods, properties or services. This rule shall likewise apply to existing contracts of sale or
lease of goods, properties or services at the time of the effectivity of RA 9337 (VAT Reform
Act). However, in the case of importation, the importer is the liable for the VAT (RR 16-2005).

4|Page
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

The "burden of the tax" is borne by the final consumers although the producers and
suppliers of these goods and services are the ones who have to file their VAT returns to the
Bureau of Internal Revenue (BIR). Hence, what is transferred or shifted to the consumers is
not the "liability to pay the tax" but the tax burden.

2. It is consumption-based.
VAT is a tax on consumption levied on the sale, barter, exchange or lease of goods or
properties and services in the Philippines and on importation of goods into the Philippines (RR
16-2005). It is the end user of consumer goods or services which ultimately shoulders the tax
as a liability therefrom is passed on to the end users by the providers of these goods or
services. The VAT, thus, forms a substantial portion of consumer expenditures.

3. It is imposed on the value added in each stage of production and distribution process.
The VAT system assures fiscal adequacy through the collection of taxes on every level
of consumption. Each business in the supply chain takes part in the process of controlling and
collecting the tax.

ILLUSTRATION

4. It is a credit-invoice method value-added tax.

VAT payable or the amount of vat to be remitted by taxpayers to the Bureau of Internal
Revenue (BIR) is computed by deducting the input VAT from the output VAT. The sellers of
goods or services passed-on to the end users the liability to pay the tax who in turn may credit

5|Page
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

their VAT liability from the VAT payments they received from the final consumer. This is
because VAT is a consumption tax levied on sales to be borne by consumers with sellers
acting simply as tax collectors.

In the Philippines, the "Credit-Invoice Method" or "Tax Credit Approach" is adopted in

computing the VAT Payable. This means that VAT is imposed on the sale first called "Output
VAT" and a tax credit is allowed or claimed on the VAT passed-on to his purchase or cost of
goods or services known as "Input VAT". The excess of output VAT over input VAT is called
"VAT Payable".

Output tax means the VAT due on the sale, lease or exchange of taxable goods or
properties or services by any person registered or required to register under Section 236 of
the Tax Code. Input tax means the VAT due on or paid by a VAT-registered on importation of
goods or local purchase of goods, properties or services, including lease or use of property in
the course of his trade or business.

Sec. 4.110-7 of RR 16-2005 as amended by RR2-2007 provides that "if the input tax
inclusive of input tax carried over from the previous quarter exceeds the output tax, the excess
input tax shall be carried over to the succeeding quarter or quarters, provided, however, that
any input tax attributable to zero-rated sales by a VAT-registered person may at his option be
refunded or applied for a tax credit certificate which may be used in the payment of internal
revenue taxes, subject to the limitations as may be provided for by law, as well as, other
implementing rules.

Scope of VAT
The following transactions entered into by any person are subject to VAT:
1. Any sale, barter, or exchange of goods and properties (including real properties), or
similar transactions, in the course of trade or business
2. Any sale of services, or similar transactions, in the course of trade or business
3. Any lease of goods and properties, or similar transactions, in the course of trade or
business, and
4. Any importation of goods, whether in the course of trade or business or not.

“Persons” refers to any individual, trust, estate, partnership, corporation, joint venture,
cooperative or association.

“Taxable person” refers to any person liable for the payment of value-added tax, whether
or not registered in accordance with the provisions of the National Internal Revenue
Code.

The phrase “in the course of trade or business” means the regular conduct or pursuit of
a commercial or an economic activity, including transactions incidental thereto, by any
person regardless of whether or not the person engaged therein is a non-stock non-profit
private organization (irrespective disposition of its net income and whether or not it sells
exclusively to members or their guests), or government entity.

However, any business or businesses pursued by an individua where the aggregate

gross sales or receipts do not exceed P100,000 during any 12-month period shall be

6|Page
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

considered principally for subsistence or livelihood and not in the course of trade or
business.

Non-resident persons who perform services in the Philippines are deemed to be making
sales in the course of trade or business even if the performance of services is not regular.

Generally, the persons subject to VAT are those whose gross annual sales or receipts
during any year or in any 12-month period exceed P3,000,000 (TRAIN Law) or those
whose sales or receipts do not exceed this amount, but registered under the value-added
tax system.

A person commencing a new business becomes taxable if he expects to realize an

annual gross sales or receipts in excess of P3,000,000 from taxable transactions for the
next 12 months.

Application of the threshold

For purposes of the threshold of P3,000,000, the husband and wife shall be considered
as separate taxpayers.

However, the aggregation rule for each taxpayer shall apply; for instance, if a
professional, aside from the practice of his profession, also derives revenue from other lines
of business which are otherwise subject to VAT, the same shall be combined for purposes of
determining whether the threshold has been exceeded.

Thus, the VAT-exempt sale shall not be included in determining the threshold.

Government and its political subdivisions

The term government consisting the three branches, namely: executive, legislative and
judiciary which undoubtedly are performing essential government function are not subject to
tax because the government should not tax itself.

However, a government entity is taxable if it sells goods or services in the course of

business. Thus, government entities and instrumentalities, including government-owned or
controlled corporations, are subject to VAT.

Exemptions from VAT

Exemptions from VAT may be broadly categorized into:
1. Exempt persons – Persons who are not liable to VAT
2. Exempt transactions – transactions on certain goods, properties or services which
are sold by VAT-registered or non-VAT registered person and regardless of the
annual gross sales or receipts derived therefrom.

Exempt persons or entities

There is no provision in the VAT law which expressly exempts certain persons from
payment of the VAT because indirect taxes such as value-added tax are levied on objects or
transactions.

7|Page
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

Exempt transactions
While some value-added tax transactions are subject to 12% tax and others are zero-
rated, there are also transactions which are not subject to VAT. They are as follows:
A. Sale or importation of agricultural and marine food products in their original state,
livestock, and poultry of a kind generally used as, or yielding or producing, foods
for human consumption; and breeding stock and genetic materials;
a. Products considered in their original state:
i. Products which undergone simple processes of preparation or
preservation for the market (freezing, drying, salting, broiling,
roasting, smoking or stripping)
ii. Polished or husked rice
iii. Corn grits
iv. Raw cane sugar and molasses
v. Ordinary salt
vi. Copra

RR 16-2005 provides that products classified under this exemption (such as meat,
fruits and vegetables) shall be considered in their "original state" even if they have undergone
the simple processes of preparation or preservation for the market, such as freezing, drying,
salting, broiling, roasting, smoking or stripping including those using advanced technological
means of packaging, such as shrink wrapping in plastics, vacuum packing, tetra-pack, and
other similar packaging methods.

Examples of Agricultural and Marine Food Products in their original state

Agricultural Marine Livestock Poultry
Polished/husked rice Fish Cows Fowls
Corn grits Crustaceans such as: Bulls Ducks
Raw cane sugar and • Lobster, shrimps Calves Geese
molasses • Prawns, oysters Pigs Turkey
Copra • Mussels, clams Sheep
• Trout, eels Goats
Rabbits
NOTE: Livestock or poultry does not include fighting cocks, race horses, zoo animals, and other animals
generally considered as pets.

Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt
and copra, as provided in the table above, shall be considered in their original state. For this
purpose, notwithstanding the process/es involved in its production, "raw sugar or raw cane
sugar" means sugar whose content of sucrose by weight, in the dry state, corresponds to a
polarimeter reading of less than 99.5 degrees. [Sec. 109, NIRC].

VAT EXEMPT SUGAR

RAW SUGAR CANE refers to sugar produced by simple process of conversion of
sugar cane without need of any mechanical or similar device. Under the revised regulation,
raw cane sugar refers only to muscovado sugar. Thus, only raw sugar cane is exempt from
VAT under the Tax Code (RR 4-2015). The following other definitions were also provided
under RR 13-08 as amended by RR 12-2013, RR 4-2015 and RR 6-2015:

8|Page
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

Raw Sugar as sugar whose content of sucrose by weight in dry state, corresponds to a
polarimeter reading of less than 99.5°

Refined Sugar as sugar whose content of sucrose by weight in dry state, corresponds to a
polarimeter reading of 99.5° and above.

Sugar Refinery Mill refers to entity, natural or juridical, engaged in the business of milling sugar
cane into raw or in the refining of raw sugar.

Cane Sugar produced from the following shall be presumed, for internal revenue purposes, as
refined sugar:
• Product of a refining process
• Products of a sugar refinery; or
• Product of a production line of a sugar mill accredited by the BIR to be producing and/or
capable of producing sugar with polarimeter reading of 99.5° and above

SALE OF MARINATED FISH (Revised Ruling 348-11 dated Sept 28, 2011)
Sale of marinated fish is not exempt from VAT. Laws granting exemption from tax
are construed strictly against the taxpayer. Exemption from payment of tax must be clearly
stated in the language of the law.

B. Sale or importation of fertilizers, seeds, seedlings and fingerlings, fish, prawn,

livestock and poultry feeds, including ingredients, whether locally produced or
imported, used in the manufacture of finished feeds (except specialty feeds for race
horses, fighting cocks, aquarium fish, zoo animals and other animals generally
considered as pets)

C. Importation of personal and household effects belonging to

a. Residents of the Philippines returning from abroad, and
b. Non-resident citizens coming to resettle from the Philippines
- Provided that such goods are exempt from customs duties under the Tariff and
Customs Code of the Philippines

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

or employment, wearing apparel, domestic animals, and personal and household
effects belonging to persons coming to settle in the Philippines or Filipinos or their
families and descendants who are now residents or citizens of other countries,
such parties hereinafter referred to as overseas Filipinos, in quantities and of the
class suitable to the profession, rank, or position of the persons importing said
items, for their own use and not for barter or sale, accompanying such persons, or
arriving within a reasonable time.
- Provided, that 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;
- Provided further, that vehicles, vessels, aircrafts, 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.

9|Page
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

E. Services subject to percentage taxes under Title V of the Tax Code, as amended
(sections 116-127)

F. Services by agricultural contract growers and milling for others of (1) palay into
rice, (2) corn into grits, and (3) sugar cane into muscovado and raw cane sugar.

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

professionals

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 exempt from vat.
Sales of the drug store to the out-patients are taxable because they are not part of
medical services of the hospital.

Medical practitioners, under the aforementioned regulation, shall likewise include

medical technologists, allied health workers (e.g., occupational therapists, physical
therapists, speech therapists, nurses, etc.) and other medical practitioners who are
not under an employer-employee relationship with the hospital, clinic or HMO and
other similar establishments.

Pursuant to RR 16-2005, services of Professional Practitioners are subject to VAT

if annual gross professional fees exceed P3,000,000. Otherwise, such professional
fees are subject to Percentage Tax under Sec. 116 of the Tax Code, as amended.
Professional Practitioners include, among others, the following:
• Medical practitioners
• CPAs
• Insurance Agents (Life & Non-life)
• Other Professional Practitioners required to pass the government
examination

H. Educational services rendered by private educational institutions duly accredited

by the (1) DepEd, (2) CHED, (3) TESDA and those rendered by (4) government
educational institutions

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

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

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

K. Transactions which are exempt under international agreements to which the

Philippines is a signatory or under special laws except those granted under
Petroleum Exploration Concessionaires under Petroleum Act of 1949

10 | P a g e
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

Examples of special laws:

• PD 1869 – PAGCOR Charter
• RA 9367 – Biofuels Act
• RA 10072 – Philippine Red Cross
• RA 9994 – Expanded Senior Citizens Act of 2010
• RA 10754 – Magna Carta for PWDs
• RA 11861 – Solo Parent Law

L. Sales by agricultural cooperatives duly registered and in good standing with the
CDA to their members, as well as sale of their produce, whether in its original state
or processed form, to non-members; their importation of direct farm inputs,
machineries and equipment, including spare parts thereof, to be used directly and
exclusively in the production and/or processing of their product

Sales by Agricultural Cooperatives To members To non-members

Sale of cooperative’s own produce (processed or at its Exempt Exempt
original state)
Other than cooperative’s own produce (i.e. from Exempt VAT
traders) (but, exempt if referring to
agricultural food product at its
original state)

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

registered and in good standing with the Cooperative Development Authority.
Exemption is not only limited to the gross receipts on loans extended to its
members but also to other persons who are not members.

Gross receipts by Credit or Multi- From members From non-

purpose Cooperative members
From lending activities Exempt Exempt
From non-lending activities VAT VAT

N. Sales by non-agricultural, non-electric and non-credit cooperatives duly registered

with and in good standing with the CDA; provided, that the share capital
contribution to each member does not exceed P15,000 and regardless of the
aggregate capital and net surplus ratably distributed among the members.
Importation by non-agricultural, non-electric, and non-credit cooperatives of
machineries and equipment including spare parts thereof, to be used by them are
subject to VAT.

Gross receipts / Sales by From From non-

members members
Electric cooperatives VAT VAT
Agricultural cooperatives Item L Item L
“Lending activities” by lending and multi-purpose Item M Item M
cooperatives
Non-agricultural, non-electric, non-lending/credit
cooperatives
• Contribution per member P15,000 or less Exempt Exempt
• Contribution per member above P15,000 VAT VAT

11 | P a g e
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

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

By a on T
T exempt
re istered

xport s ales

Table
By a T
( ero rated
re istered
sales)

P. Sales of real properties

The TRAIN Law provides that the VAT exemption on sale of real property beginning
January 1, 2021 shall only apply to the following:

a. Sale of real properties not primarily held for sale to customers or held for
lease in the ordinary course of trade or business;

Sale of real property not primarily held for sale or for lease is, in general,
VAT exempt. However, if such property is used in the trade or business of
the seller, the sale shall be subject to VAT as an incidental transaction to
the seller's main business (RR 4-2007, RR 13-2018). On the other hand,
sale of real properties held primarily for sale to customers or held for lease
in the ordinary course of trade or business of the seller shall be subject to
VAT (RR 16-2005 as amended by RR 13-2012 and RR 13-2018).

b. Sale of real property utilized for socialized housing as defined under RA

No. 7279, as amended;

Socialized Housing refers to housing programs and projects covering

houses and lots or home lots only that are undertaken by the government
or the private sector for the underprivileged and homeless citizens, which
shall include sites and services development, long-term financing,
liberalized terms on interest payments, and as such other benefits in
accordance with the provisions of 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.

c. Sale of House and Lot and Other Residential dwellings with selling price of
not more than P3,199,200.

12 | P a g e
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

RR 8-2021 provides that the adjusted threshold to be used shall be

P3,199,200 as adjusted in 2011 using the 2010 consumer price index (CPI).
Provided further, that every three (3) years thereafter, the amounts stated
herein shall be adjusted to its present value using the Consumer Price
Index, as published by the Philippine Statistics Authority (PSA).

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

• SALE OF PARKING LOT IN THE SALE OF CONDOMINIUM

UNITS (RR 13-2012)

Exemption from VAT does not include the sale of parking lot which
may or may not be included in the sale of condominium units. The
sale of parking lot in a condominium is a separate and distinct
transaction and is not covered by the rules on threshold amount not
being a residential lot, house and lot or a residential dwelling. Thus,
should be subject to VAT regardless of amount of selling price."
(RR-13-2012).

GUIDE:
a. If the sale of real property was NOT made in the ordinary course
of trade or business, the real property is classified as capital
asset, hence, not subject to VAT but to capital gains tax.

b. If the sale was made in the ordinary course of trade or business:

• VAT EXEMPT:
a. Sale of residential house and lot and other residential
dwellings provided the selling price is not more than
P3,199,200 (RR 8-2021 dated June 11, 2021);
b. Sale of real property utilized for socialized housing

• SUBJECT TO VAT:
a. Sale of residential house and lot and other residential
dwellings if the selling price is MORE than P3,199,200
(RR 8-2021 dated June 11, 2021);
b. Sale of residential lot;
c. Sale of commercial lot/units;
d. Other real properties not specifically provided under the
law as VAT-exempt.

Q. Lease of Residential Unit

Lease of residential units with a monthly rental per unit not exceeding P15,000,
regardless of the amount of aggregate rentals received by the lessor during the
year (RR 16-2011; RR 13-2018).

13 | P a g e
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

Lease of residential units where the monthly rental per unit exceeds P15,000 but
the aggregate of such rentals of the lessor during the year do not exceed
P3,000,000 shall be exempt from VAT, however, the same shall be subject to
Percentage Tax under Section 116 of the Tax Code as amended (RR 16-2011; RR
13-2018).

The Percentage Tax rate under Section 116 of the Tax Code as amended by RA
11534 (CREATE Law) shall be as follows:
Prior to July 1, 2021 3%
From July 1, 2021 to June 30, 2023 1%
Beginning July 1, 2023 3%

ease of
esidential
Units Lease of
Commercial units

Monthly ental Monthly ental

is , or is abo e
below ,

Generally
nnual ental of subject to VAT
the lessor is
more than M regardless of
monthly rental.
Subject to OPT
under Sec 116 if
o es
lessor is non-
VAT registered
and annual
gross receipts is
xempt from ubject to ec
T
ubject to T P3M and below.

In cases where a lessor has several residential units for lease, some are leased
out for a monthly rental per unit of not exceeding P15,000 while others are leased
out for more than P15,000 per unit, his tax liability will be as follows:
a. The gross receipts from rentals exceeding P15,000 per month per unit shall
be exempt from VAT regardless of the aggregate annual gross receipts. It
is also exempt from the percentage tax.

b. The gross receipts from rentals exceeding P15,000 per month per unit shall
be subject to VAT if the aggregate annual gross receipts from said units
only exceeds P3,000,000 – not including the gross receipts from units

14 | P a g e
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

leased out for not more than P15,000. Otherwise, the gross receipts will be
subject to percentage tax imposed under Section 116 of the Tax Code (RR
16-2011; RR 13-2018)

In case of mixed transactions, the above-mentioned rule should be observed.

The term “residential units” shall refer to apartments and houses and lots used for
residential purposes, and buildings, or parts or units thereof used solely as dwelling
places (e.g. dormitories, rooms and bed spaces) except motels, motel rooms,
hotels and hotel rooms, lodging houses, inns, and pension houses.

The term “unit” shall mean as apartment unit in the case of apartments; house in
the case of residential houses; per person in the case of dormitories, boarding
houses and bed spaces; and per room in case of rooms for rent.

R. (As amended under CREATE Law): 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).

Under BIR Ruling No. 083-2014, the term "book, newspaper, magazine, review
and bulletin" only covers printed matters in hard copy, and does not apply to
electronic format or versions including but not limited to:
• e-books
• e-journals
• electronic copies
• online library sources
• CDS and software

Furthermore, the activities that exempt from vat under this provision are as follows
(1) sale, (2) Importation, (3) printing, and (4) publication of books, newspapers,
magazines, reviews and bulletins or any such educational reading material covered
by the UNESCO. Thus, a corporation's other transactions (such as the printing of
brochures, bookbinding, engraving, stereotyping, electrotyping, lithographing of
various reference books, trade books, journals and other literary works), are
subject to VAT. The taxpayer is required to register its business as a VAT business
entity and issue a separate VAT invoice/receipt to record such transactions

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

15 | P a g e
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

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

engine, equipment and spare parts thereof for domestic or international transport
operations; provided however, that the exemption from VAT on the importation and
local purchase of passenger and/or cargo vessels shall be subject to the
requirements on restriction on vessel importation and mandatory vessel retirement
program of Maritime Industry Authority (MARINA) (RR 15-2015; RR 13-2018)

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

shipping or air transport operations

Provided, that the fuel, goods and supplies shall be used for international shipping
or air transport operations. Thus, said fuel, goods and supplies shall be exclusively
or shall pertain to the transport of goods and/or passengers from a port of the
Philippines directly to a foreign port, or vice versa, without docking or stopping at
any other port in the Philippines unless the docking or stopping at any other
Philippine port is for the purpose of unloading passengers and/or cargoes that
originated from abroad, or to load passengers and/or cargoes bound for abroad:
provided further, that if any portion of such fuel, goods or supplies is used for
purposes other than that mentioned in this paragraph, such portion of fuel, goods
or supplies shall be subject to 12% VAT

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

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

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

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

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

Z. Sale of gold to the Bangko Sentral ng Pilipinas (before effectivity of TRAIN Law
last January 1, 2018, subject to 0% VAT)

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

diabetes, high cholesterol, and hypertension to beginning January 1, 2020; and
cancer, mental illness, tuberculosis, and kidney diseases beginning January 1,
2021 (CREATE Law; RR 4-2021) as determined by the Department of Health, and

16 | P a g e
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

BB. Sale or importation of the following beginning January 1, 2021 to December

31, 2023:

a. 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. All drugs, vaccines and medical devices specifically prescribed

and directly used for the treatment of COVID-19; and

c. 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 (b), 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 (a) and (c) 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.

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. 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.

17 | P a g e
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

The P3,000,000 gross annual sales shall comprise of the business' total revenues
from sale of its products, which are either goods or services, including
nonrefundable advance deposits/payments for services, net of discounts, sales
returns and allowances, covering the fiscal or calendar year. Sales incidental to the
registered operations of the business shall also be included pursuant to Section
105 of the Tax Code, as amended.

VAT EXEMPTION AND DISCOUNTS TO SENIOR CITIZENS AND PWDs

Exemption of Senior Citizens

The term “senior citi ens” or “elderly” refers to any Filipino citizen who is a resident of
the Philippines and who is 60 years old or above.

It may apply to senior citi ens with “dual citi enship” status pro ided they pro e their
Filipino citizenship and have at least 6 months residency in the Philippines.

The sale of the following goods and services shall be exempt from the value-added tax
and subject to 20% discount.

1. Medicines, including influenza and pneumococcal vaccines, and such other

essential medical supplies, accessories and equipment to be determined by the
Department of Health

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

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

The VAT exemption shall also be granted to the purchase of vitamins and mineral
supplements which are medically prescribed by an attending physician for
prevention and treatment of diseases, illness, or injury whose prescription is in the
name of Senior Citizen.

The VAT exemption shall also apply to the purchase of eyeglasses, hearing aids,
dentures, prosthetics, artificial bone replacements like steel, walkers, clutches,
wheelchairs whether manual or electric-powered, canes/quad canes, geriatric
diapers, and other essential medical supplies, accessories and equipment by or
for senior citizens.

18 | P a g e
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

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

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

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

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

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

a. “Medical ser ices” refers to hospital ser ices, professional ser ices of
physicians and other health care professionals and diagnostic and
laboratory tests that are necessary for the diagnosis or treatment of illness
or injury

b. “Dental ser ices” refers to oral examination, cleanin , permanent and

temporary filling extractions and gum treatments, restoration, replacement
or repositioning of teeth, or alteration of the alveolar or periodontium
process of the maxilla and the mandible that are necessary for the
diagnosis or treatment of an illness or injury

The VAT exemption shall apply to medical and dental services, diagnostic
and laboratory tests such as but not limited to X-rays, computerized
tomography scans, and blood tests that are requested by a physician as
necessary for the diagnosis and/or treatment of an illness or injury.

c. “Home health care ser ices” refers to health or supporti e care pro ided to
the Senior Citizen patient at home by licensed health care professionals to
include but not limited to, physicians, nurses, midwives, physical therapists
and caregivers

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

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

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

restaurants and recreation centers

a. For hotels and similar lodging establishments, the discount shall for room
accommodation and other amenities offered by the establishment, such as,

19 | P a g e
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

but not limited to hotel-based parlors and aromatherapy rooms, workout

gyms, swimming pools, Jacuzzis, KTV bars, internet facilities, food drinks,
and other ser ices offered. The term “hotel” shall include beach and
mountain resorts.

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

c. “ od in establishment” shall refer to a buildin , edifice, structure,

apartment or house including tourist inn, apartelle, motorist hotel and
pension house engaged in catering, leasing or providing facilities to
transients, tourists or travelers. The following are considered as lodging
establishments:
i. Tourist Inn – a lodging establishment catering to transients, which
does not meet the minimum requirement of an economy hotel
ii. Apartelle – a building or edifice containing independent and
furnished or semi-furnished apartments, regularly leased to tourists
and travelers for dwelling on a more or less long-term basis and
offering basic services to its tenants, similar to hotels
iii. Motorist hotel – any structure with several separate units, primary
located along the highway, with individual or common parking
spaces, at which motorists may obtain lodging and, in some
instance,, meals
iv. Pension house – a private, or family-operated tourist boarding
house, tourist guest house or tourist lodging house, regularly
catering to tourist and/or traveler, containing several independent
table rooms, providing common facilities, such as toilets,
bathrooms/showers, living and dining rooms and/or kitchen and
where a combination of board and lodging may be provided

d. The term lodging establishment shall also include lodging houses, which
shall mean such establishments are regularly engaged in the hotel
business, but which nevertheless, are not registered, classified and
licensed as hotels by reason of inadequate essential facilities and services.
Long term arrangement for residential purposes is not covered.

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

For this purpose, the term “restaurant” shall refer to any establishment
offering to the public, regular and special meals or menu, fast food, cooled
food, and short orders. Such eating places may also serve coffee,
beverages and drinks. Food establishments that are not restaurants are not

20 | P a g e
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

covered, therefore not allowed to give the 20% discount and VAT
exemption.

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

8. On admission fees charged by theaters, cinema houses and concert halls,

circuses, carnivals, and other similar places of culture, leisure and amusement,
where the discount shall be on the admission fees charged by the said
establishment

9. On funeral and burial services for the death of Senior Citizens – the beneficiary or
any person who shall shoulder the funeral and burial expenses of the deceased
Senior citizen shall claim the discount upon payment and presentation of his death
certificate. Such expenses shall cover the purchase of casket or urn, embalming,
cremation cost and other related services such as viewing or wake cost, pick-up
from the hospital morgue, transport of the body to intended burial site in the place
of origin, but shall exclude obituary publication and cost of the memorial lot.

The sale to a Senior Citizen must follow the invoicing requirements prescribed under
Revenue Regulations 16-2006. If the seller uses a Point of Sale Machine or a Cash Register
Machine in lieu of the regular sales invoice, the machine tape must properly segregate the
exempt sales from the taxable sales.

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

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

RULE FOR RESTAURANTS (RR 7-2010)

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.

21 | P a g e
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

• “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.

NOTE:
➢ 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 VAT
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 NIRG, 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.

GRANT OF 5% SPECIAL DISCOUNT for Senior Citizens

(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).

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.

Basic Necessities
• Rice; Corn; Bread excluding pastries and cakes
• Fresh, dried and canned fish and other marine products
• Fresh pork, beef and poultry meet

22 | P a g e
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

• Fresh eggs
• Fresh and processed milk
• Fresh vegetables including root crops
• Coffee and coffee creamer
• Sugar; Cooking oil: Salt
• Powdered, liquid, bar laundry and detergent soap
• Firewood; Charcoal; Candles

Prime Commodities
• Fresh fruits, Flour
• Dried, processed and canned pork, beef and poultry meat
• Dairy products not falling under basic necessities
• Canned sardines, tuna
• Noodles; Onions; Garlic
• Geriatric diapers
• Herbicides
• Poultry, swine and cattle feeds
• Veterinary products for poultry, swine and cattle
• Nipa shingle, 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
(unless expressly provided as exempt under the law) such as:
Basic or Prime Subject to
Commodity VAT 5% discount
Sugar, coffee Yes Yes
Fresh fruits No Yes
Rice, corn No Yes
Bread Yes Yes
Electrical supplies Yes Yes

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.

Persons with Disability (PWD)

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

Exemption from VAT of PWD

20% discount and exemption from VAT, if applicable, on the following sale of goods
and services for the executive use and enjoyment or availment of the PWD:

23 | P a g e
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

1. On the purchase of medicines (generic and branded) in all drugstores; medical and
dental services including diagnostic and laboratory fees; professional fees of
attending doctors in all government facilities or all private hospitals and medical
facilities

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

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

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

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

carnivals and other similar places of culture, leisure and amusement

6. On funeral and burial services for the death of the PWD (purchase of casket, urn,
embalming, hospital morgue, transport of the body to intended burial site in the
place of origin, but shall exclude obituary publication and the cost of memorial lot)

All goods and services sold by the foregoing establishments not included in the
enumeration expressly provided by law shall not be considered for the 20% discount privilege
notwithstanding that they are for the exclusive use and enjoyment or availment of the PWD.

The benefit and privileges indicated may only be granted to PWD who are Filipino
citizens, upon presentation of any of the following:
1. An identification card (ID) issued by the Persons with Disability Affairs Office
(PDAO) or the City/Municipality Social Welfare Development Office (C/MSWDO)
of the place where the person with disability resides
2. The passport of the concerned PWD
3. An identification card (ID) issued by the National Council on Disability Affairs

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 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 shall include:

• All kinds and variants of rice
• Corn
• All kinds of bread (pastries and cakes not included)
• Fresh, dried and canned fish and other marine products (including frozen and in various modes of packaging)
• Fresh pork, beef and poultry meat
• All kinds of fresh eggs (excluding quail eggs)

24 | P a g e
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

• Potable water in bottles and containers

• Fresh and processed milk (excluding milk labelled as food supplement)
• Fresh vegetables including root crops
• Fresh fruits
• Locally manufactured instant noodles
• Coffee and coffee creamer
• All kinds of sugar (excluding sweetener)
• All kinds of cooking oil
• Salt
• Powdered liquid, bar laundry and detergent soap
• Firewood
• Charcoal
• All kinds of candles
• Household liquefied petroleum gas, not more than 11kgs, LPG content once every five (5) months bought
from LPG dealers
• Kerosene, not more than 2 liters per month

Prime commodities shall include:

• Flour
• Dried, processed and canned pork, beef and poultry meat
• Dairy products not falling under the definition of basic necessities
• Onions and garlic
• Vinegar, patis and soy sauce
• Toilet/ bath soap
• Fertilizer
• Pesticides
• Herbicides
• Poultry feeds, livestock feeds and fishery feeds
• Veterinary products
• Paper, school supplies
• Nipa Shingle
• Sawali
• Cement, clinker, GI sheets
• Hollow blocks
• Plywood
• Plyboard
• Construction nails
• Batteries (excluding cellphone and automotive batteries)
• Electrical supplies and light bulbs
• Steel wires

Deduction from the Gross Income of the Seller

The seller/establishment may claim the discounts granted (20% and/or 5%) to SCs
and PWDs as deduction from gross income based on the net cost of the goods sold or services
rendered: Provided, however, that the cost of the discount shall 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, shall be included in their
gross sales receipts for tax purposes and shall be subject to proper documentation and to the
provisions of the National Internal Revenue Code (NIRC), as amended.

No Double Discounts to PWD

If a commercial establishment or law offers another discount, whichever is chosen by
the PWD shall apply unless the other discount can also be availed of.

25 | P a g e
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

If the PWD is also a Senior Citizen, he can avail of either discount but not both.

The same benefits and privileges shall be made available to Filipinos who hold foreign
passports but are registered as dual citizens and Filipinos who have reacquired their Filipino
citizenship thru Republic Act No 9225 or the Citizenship Retention and Re-Acquisition Act of
2003.

The 20% and the 5% discounts may not also be claimed if the SC and 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. In the purchase of goods and
services which are on promotional discount, the SC/PWD shall avail of either the promotional
discount or the 20%/5% discount, whichever is higher. However, the discount that must be
given to the SC/PWD shall in no case be less than 20%/5%.

Sample Computation of Discount and Amount Due

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

Sales (inclusive of VAT) 1,120.00

Less: 12% VAT (P1,120 x 12/112) (120.00)
Sales, net of VAT 1,000.00
Less: 20% discount (200.00)
Total amount due 800.00

The amount of gross sales or gross receipts to be reported by the seller shall be the
undiscounted amount of P1,000 (as provided in the illustration above). The discount granted
shall be reported as deduction from the gross income of the seller instead of deducting the
same to the amount of gross sales and/or receipts. The journal entries in the books of the
seller shall be as follows:

Cash 800.00
SC/PWD discount expense 200.00
Sales 1,000.00

If seller is not subject to VAT:

The 20% sales discounts granted by non-VAT sellers (i.e., subject to Percentage Tax
under Sec. 116) shall be computed in accordance with the following formula:

Sales, without VAT 1,000.00

Less: 20% discount (200.00)
Sales, net of discount 800.00

The amount of gross sales or gross receipts to be reported by the seller shall be the
undiscounted amount of P1,000 (as provided in the illustration above). The discount granted

26 | P a g e
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

shall be reported as deduction from the gross income of the seller instead of deducting the
same to the amount of gross sales/receipts.

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

Cash 800.00
SC/PWD discount expense 200.00
Sales 1,000.00

VAT EXEMPTION AND DISCOUNTS TO SOLO PARENTS (RA 11861 and RR 1-2023)

Solo parents that meet all the following conditions under RA 11861, otherwise known
as the Solo Parents Welfare Act, and its implementing rules, RR 1-2023 shall be qualified for
the 10% discount and VAT exemption:

1. Solo Parents has a child/children with the age of six years or under; and
2. Solo Parents is earning less than P250,000 annually.

The discount and T exemption shall apply to a qualified olo arent’s purchase
of the following goods from drugstores, pharmacies, grocery stores, and similar
establishments, and subject to the guidelines that shall be issued by the Department of Health
(DOH), in coordination with the Food and Drug Administration (FDA), Philhealth, and the
Department of Interior and Local Government (DILG):
a. Baby’s milk
b. Food supplements and micronutrient supplements
c. Sanitary diapers
d. Medicines
e. Vaccines, and
f. Other medical supplements.

To avail the 10% discount and VAT exemption, the Solo Parent shall present his/her
Solo Parent Identification Card (SPIC) and Solo Parent Booklet. The SPIC should know that
the Solo Parent is entitled to the 10% discount and VAT exemption by indicating that the Solo
Parent is earning less than P250,000 annually, and the dorsal side of the SPIC indicates the
name/s, birth date/s, and relation to the Solo Parent of the qualified children and/or
dependent/s with the age of six years or under.

Tax Treatment of the Discount Granted to Solo Parents

All establishments supplying any of the goods identified in the Act may claim discounts
ranted to olo arents as “deduction” based on the cost of oods sold. By way of example,
if a VAT-registered grocery store sold Infant Milk at an undiscounted price of P200, the cost
of the discount is computed as follows:

Selling price (exclusive of vat) P200

Less: Discount, 10% x P200.00 (20)
Amount Payable by the Solo Parent P 180

27 | P a g e
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

The selling price to be charged must be exclusive of VAT because it is an exempt-

transaction (sale of Infant/Baby's Milk to a qualified Solo Parent). The discount granted shall
be allowed as a deduction income of the seller (treated as an ordinary and necessary expense
falling under the category of itemized deduction) for the same taxable year that the discount
was granted, provided that, the total amount of the claimed deduction net of VAT, if applicable,
shall be included in the gross sales for tax purposes and shall be subject to proper
documentation in accordance with the provisions of the Tax Code as amended. The entry to
record the transaction in the books of the seller should be as follows:
Cash 180
Solo Parent Discount Expense 20
Sales 200

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

VAT AND DISCOUNT GRANTED TO NATIONAL ATHLETES AND COACHES UNDER RA

10966, AS AMENDED

Under RR 13-2020 dated May 27, 2020, Qualified National Athletes and Coaches shall
be entitled to twenty percent (20%) sales discount, on sales exclusive of VAT, on the following
establishments relative to the sale of goods and services for their actual and exclusive use or
enjoyment:
a. Transportation services such as:
• Domestic air and sea transportation
• National land transportation privilege
b. Hotels, resorts and other similar lodging establishments
c. Restaurants
d. Medicine and drug purchases
e. Recreation centers
f. Sports equipment purchase
g. Admission fees privilege

All other goods and services sold by the foregoing establishments not otherwise
included in the enumeration, as provided by law, shall not be granted with a discount privilege,
notwithstanding that such goods and services are in relation to the sale of goods and services
for the actual and exclusive use or enjoyment of the qualified National Athletes and Coaches.

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

28 | P a g e
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

Establishments granting discounts to qualified National Athletes and Coaches on their

sale of goods and services shall be entitled to deduct the said sales discount from their gross
income, subject to conditions provided under RR 13-2020.

For percentage tax sellers, the amount of sales discounts shall be included for the
purposes of computing the Percentage Tax and shall be included as part of the gross sales
and/or receipts for income taxation purposes. However, the sales discount granted shall be
accounted as deduction from the gross income of the establishment for the same taxable year
that the discount was granted.

The amount of sales discount granted shall be allowed as itemized deduction from
gross income for the same taxable year that the discount was granted provided that the
taxpayer is not availing Optional Standard Deduction (OSD).

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 qualified National Athletes and Coaches.

Only the actual amount of sales discount not exceeding 20% of the gross selling price
or gross receipts can be deducted from the gross income, net of VAT if applicable, and shall
be subject to proper documentation. Provided, however, that if the establishment granting the
discount availed of the OSD or opted to be taxed at 8% income tax rate, if applicable, the sales
discount given cannot be claimed as allowable deduction from the gross income.

Prohibition on the availment of double discounts

The foregoing privileges shall not be claimed if the National Athletes and Coaches
claims a higher promotional discount as may be granted by the commercial establishment
and/or under other existing laws or in combination with other discount program(s).

National Athletes and Coaches who are at the same time a senior citizen. or PWD can
only claim a single 20% discount on a particular sale transaction.

29 | P a g e
 Tax 302 – Business and Transfer Tax
Prepared by: Mark Paul I. Ramos

MODULE EXERCISES

a. For 2023 taxable year, determine the applicable business tax of the following:

Lease of Residential Units

Case Monthly Rental Aggregate annual rental Answer
A P 14,000 P 3,200,000
B P 16,000 P 2,800,000
C P 16,000 P 3,000,000
D P 18,000 P 3,200,000

Lease of Commercial Units

Case Monthly Rental Aggregate annual rental Answer
A P 12,000 P 3,200,000
B P 16,000 P 2,800,000
C P 16,000 P 3,000,000
D P 10,000 P 3,500,000

b. Determine whether or not the transaction described below is subject to T. Write “ ”

in the space pro ided if the transaction is subject to T. Write “X” if the transaction is
VAT exempt or subject to other types of tax.
Case Transaction Answer
A Sale by agricultural cooperatives of their produced to members and
non-members.
B Receipts from lending activities by credit multipurpose cooperatives
duly registered and in good standing with Cooperative Development
Authority.
C Importation by non-agricultural, non-electric, non-credit cooperatives of
machineries and equipment to be used by them.
D Publication of magazines devoted principally to the publication of paid
advertisements
E Sale of parking lots in a condominium (SP is not more that P3,000,000)
F Isolated sale of good or service for a gross selling price of P2,800,000
G Export sale by a vat registered exporter not exceeding the vat threshold
of P3,000,000
H Transport of passengers and cargo by air or sea vessels
I Sale of drugs and medicines
J Services of banks, non-bank financial intermediaries performing quasi-
banking functions, and other nonbank financial intermediaries such as
money changers and pawnshops

Reference:

Ampongan, O. E. G. (2021), Transfer, Business & Local Taxation (with Practice Set) 13/e

Tabag, E.D and Garcia, E. J. (2023), Transfer & Business Taxation

Bureau of Internal Revenue, Value-Added Tax, https://www.bir.gov.ph/index.php/tax-information/value-

added-tax.html

30 | P a g e