VALUE - ADDED TAX (VAT)

CONCEPT

VAT - tax on consumption, levied on the sale, barter, exchange, or lease of

goods or properties and services in the Philippines and the importation of goods
into the Philippines.

o The seller is the one statutorily liable for the payment of the tax, but
the amount of the tax may be shifted or passed on to the buyer,
transferee or lessee of the goods or properties or services.
o VAT is imposed on any person who:

1. Sells, barters, or exchanges goods or properties in the

course of trade or business; or

2. Sells services in the course of trade or business; or

o If the seller is VAT exempt, no need for payment on VAT on his sales.
He will have to shoulder the burden of the VAT passed to him by his
suppliers for his purchases.
o Is VAT really a tax on the value-added? Yes. Consider this:

A sells to B a piece of wood — a nice, fine, well- sanded piece of

wood.

Price: P100

VAT (12%): P12

Total: P112

B then expertly crafts the wood into a rocking chair and sells it to C

Price: P150

Tax: P18

Total: P168

B has an output tax of P18, and an input tax of P12. She has a
P6 net VAT payable (output minus input). But where do we see the
tax on the "value added" by B?

We see that at the level of the price. By applying her skills and
labor, B made a chair out of the wood that she had bought from A.
From P100, the price increased to P150. There was a P50 increase
because of the value added by B. And applying the VAT on this
P50, it results into the same amount, which is 6. This proves that the
tax is really on the "value added."
 a. Tax on value added

VAT is a tax on the value added of a taxpayer arising from taxable sales
of goods, properties, or services during the quarter at the rate of 0% or 12%.

Value added is the difference between total sales of the taxpayer for the
taxable quarter subject to VAT and his total purchases for the same period
subject also to VAT.

Output tax means the VAT due on the sale or lease of taxable goods, properties
or services by any person registered or required to register.

Input tax means the VAT due from or paid by a VAT-registered person in the
course of his trade or business on importation of goods or local purchase of
goods, properties, or services, including lease or use of property, from a VAT-
registered person.

b. Sales Tax

VAT is a tax on the taxable sale, barter or exchange of goods, properties or

services. A sale may be an actual or deemed sale, or an export or a local sale.

GR: There must be an actual sale in PH in order that VAT may be imposed.

EXC: 1. Importation of goods;

2. Erroneous issuance of VAT invoice or receipt for VAT-exempt sales;

3. Deemed sales of goods or properties.

CIR v. CA and COMASERCO

WON COMASERCO was engaged in the sale of services, and thus liable to pay
VAT thereon.

YES. Sec 105 of the NIRC clarifies that even a non-stock, non-profit, organization or
government entity, is liable to pay VAT on the sale of goods or services.

Section 108 of the NIRC defines the phrase "sale of services" as the "performance
of all kinds of services for others for a fee, remuneration or consideration."

Hence, it is immaterial whether the primary purpose of a corporation indicates that

it receives payments for services rendered to its a2filiates on a reimbursement-on-
cost basis only, without realizing profit, for purposes of determining liability for VAT
on services rendered. As long as the entity provides service for a fee, remuneration
or consideration, then the service rendered is subject to VAT.
 c. Tax on consumption

VAT is broad-based because every sale at the levels of manufacturers or

producers and distributors is subject to VAT. The tax burden rests with the final
consumer who consumes the goods, properties or services.

d. Tax credit method

Cost deduction method — refers to the manner of computing the taxpayer’s

VAT liability by deducting his costs and expenses subject to VAT from his taxable
sales and multiplying the resulting value added by 12%.

Tax credit method or invoice method — the input taxes shi3ted by the sellers to
the buyer are credited against the buyer’s output taxes when he in turn sells the
taxable goods, properties, or services.

Note:

• There is generally forward shifting of tax when there is a seller’s market —

more buyers than sellers, or demand > supply.
• There is backward shifting when there is a buyer’s market like in real estate
and the coconut oil industries.

ELEMENTS OF VATable Transactions

How do we know if the transaction is subject to VAT? What are the elements?

1. It must be done in the ordinary course of trade or business;

2. There must be a sale, barter, exchange, lease of goods or properties or

rendering of service in the Philippines; and

3. It is not VAT-exempt or VAT zero-rated

In dealing with this element, you're dealing with two questions:

o Is this a normal sale?

o If not, is this at least a transaction which are deemed sales by law (Section
106[B])?

DESTINATION PRINCIPLE AND CROSS-BORDER DOCTRINE

Destination Principle, goods and services are taxed only in the country where these are
consumed.

The destination of the goods determines taxation or exemption from

tax. Export sales of goods are zero-rated, while imports of goods are subject to
12% VAT. us, the situs of taxation is where the goods are consumed. As for
services, consumption takes place where the service is performed.

Cross Border Doctrine mandates that no VAT shall be imposed to form part of the cost of
goods destined for consumption outside the territorial border of the taxing authority.
 CIR v. American Express

As a general rule, the VAT system uses the destination principle. However, our VAT law
itself provides for a clear exception, under which the supply service shall be zero-rated when
the following requirements are met:

1) the service is performed in the Philippines;

2) the service falls under any of the categories provided in Section 102(b) of the Tax
Code; and
3) it is paid for in acceptable foreign currency that is accounted for in accordance
with the regulations of the BSP.

Since respondent’s services meet these requirements, they are zero-rated. Petitioner’s
Revenue Regulations that alter or revoke the above requirements are ultra vires and
invalid.

TRANSACTIONS DEEMED SALE SUBJECT TO VAT

1) Transfer, use or consumption not in the course of business of goods or

properties originally intended for sale or use in the course of business;

2) Distribution or transfer to:

a) Shareholders or investors as share in the profits of the VAT-registered
persons; or
b) Creditors in payment of debts;

3) Consignment of goods if actual sale is not made within sixty (60) days
following the date such goods were consigned; and

4) Retirement from or cessation of business, with respect to inventories of

taxable goods existing as of such retirement or cessation.

For example, Ramen at Taek's Room, Inc. sells on a regular basis kimchi
ramen which is just absolutely delicious. It decides to give its tax counsel, Deok
Sun, a box of its best-selling kimchi ramen. That transaction is a transaction
deemed sale.

Here, the seller is also the buyer and no valuable consideration is thus
paid. The rationale is to recapture the VAT that was claimed as input tax at the
time of purchase.

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, nonprofit 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.

The rule of regularity, to the contrary notwithstanding, services rendered in the

Philippines by nonresident foreign persons shall be considered as being
rendered in the course of trade or business.
 ZERO-RATED TRANSACTIONS

- The seller of such transactions charges no output tax, but can claim a
refund of or a tax credit certificates for the Value Added Tax (VAT)
previously charged by supplies
- Purpose: to exempt the transaction completely from VAT previously
collected since input taxes passed to him may be recovered as
refunds or credits

a. Export Sales

1) The sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may
influence or determine the transfer of ownership of the goods so exported and
paid for in acceptable foreign currency or its equivalent in goods or services;
and accounted for in accordance with the rules and regulations of the BSP;

2) Sale of raw materials or packaging materials to a nonresident buyer for delivery

to a resident local export-oriented enterprise to be used in manufacturing,
processing, packing or repacking in the Philippines of the said buyer's goods
and paid for in acceptable foreign currency and accounted for in accordance
with the rules and regulations of the BSP;

3) Sale of raw materials or packaging materials to export-oriented enterprise

whose export sales exceed seventy percent (70%) of total annual production;

4) Those considered export sales under EO No. 226, otherwise known as the
Omnibus Investment Code of 1987, and other special laws; and

“Considered export sales under EO No. 226” shall mean the Philippine port F.O.B.
value determined from invoices, bills of lading, inward letters of credit, landing
certificates, and other commercial documents, of export products exported
directly by a registered export producer, or the net selling price of export products
sold by a registered export producer to another export producer, or to an export
trader that subsequently exports the same:

Sales of export products to another producer or to an export trader shall only be

deemed export sales when actually exported by the latter, as evidenced by
landing certificates or similar commercial documents:

Without actual exportation the following shall be considered constructively

exported for purposes of these provisions:

1. sales to bonded manufacturing warehouses of export-oriented

manufacturers;

2. sales to export processing zones;

3. sales to registered export traders operating bonded trading warehouses

supplying raw materials in the manufacture of export products under
guidelines to be set by the Board in consultation with the BIR and the BOC;
 4. sales to diplomatic missions and other agencies and/or instrumentalities
granted tax immunities, of locally manufactured, assembled or repacked
products whether paid for in foreign currency or not.

5) The sale of goods, supplies, equipment and fuel to persons engaged in

international shipping or international air transport operations: Provided, at
the goods, supplies, equipment and fuel shall be used for international
shipping or air transport operations.

Provided, at subparagraphs (3), (4), and (5) hereof shall be subject to the 12%
VAT and no longer be considered export sales subject to 0% VAT rate upon
satisfaction of the following conditions:

1. The successful establishment and implementation of an enhanced VAT

refund system that grants refunds of creditable input tax within ninety (90)
days from the filing of the VAT refund application with the BIR; and
2. All pending VAT refund claims as of December 31, 2017 shall be fully paid
in cash by December 31, 2019.

xxxx

b. Effectively Zero-Rated Transaction. — Sales to persons or entities whose

exemption under special laws or international agreements to which the
Philippines is a signatory e6ffectively subjects such sales to zero rate.

The seller who charges zero output tax on such transactions can also
claim a refund of or a tax credit certificate for the VAT previously charged
by suppliers

The following services performed in the Philippines by VAT-registered persons

shall be subject to zero percent (0%) rate:

1. Processing, manufacturing or repacking goods for other persons

doing business outside the Philippines which goods are
subsequently exported, where the services are paid for in
acceptable foreign currency and accounted for in accordance
with the rules and regulations of the BSP;

2. Services other than PMR, rendered to a person engaged in business

conducted outside the Philippines or to a nonresident person not
engaged in business who is outside the Philippines when the
services are performed, the consideration for which is paid for in
acceptable foreign currency and accounted for in accordance
with the rules and regulations of the BSP;

3. Services rendered to persons exclusively engaged in international

shipping or international air transport operations, including leases of
property for use thereof;

4. Services rendered to persons exclusively engaged in international

shipping or international air transport operations, including leases of
property for use thereof;
 5. Services performed by subcontractors and/or contractors in
processing, converting, or manufacturing goods for an enterprise
whose export sales exceed seventy percent (70%) of total annual
production;

6. Transport of passengers and cargo by domestic air or sea vessels

from the Philippines to a foreign country; and

★ If international, VAT-exempt if passenger; and subject to other

percentage tax of 3% if cargo.

7. Sale of power or fuel generated through renewable sources of

energy such as, but not limited to, biomass, solar, wind, hydropower,
geothermal, ocean energy, and other emerging energy sources using
technologies such as fuel cells and hydrogen fuels.

o Conditions for Zero-rating of Sales of Services

First, the seller is VAT-registered.

Second, the services are rendered "to a person engaged in business

conducted outside the Philippines or to a nonresident person not
engaged in business who is outside the Philippines when the services are
performed."

Third, the services are "paid for in acceptable foreign currency and
accounted for in accordance with [BSP] rules and regulations."

VAT-EXEMPT TRANSACTIONS

A. Sale or importation of
1. agricultural and marine food products in their original state,
2. livestock and poultry of a kind generally used as, or yielding or
producing foods for human consumption; and
3. breeding stock and genetic materials therefor.
B. Sale or importation of
1. fertilizers;
2. seeds, seedlings and fingerlings;
3. 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 the residents of

the Philippines returning from abroad and nonresident citizens coming to resettle
in the Philippines: Provided, at such goods are exempt from customs duties;

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.
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;

E. Services subject to percentage tax under Title V;

1. Sale or lease of goods or properties or the performance of services of non-
VAT-registered persons, other than the transactions mentioned in paragraphs
(A) to (AA) of Sec. 109(1) of the Tax Code, the gross annual sales and/or
receipts of which does not exceed the amount of Php3M.

2. Services rendered by domestic common carriers by land, for the transport of

passengers and keepers of garages (Sec. 117);

3. Services rendered by international air/shipping carriers (Sec. 118);

4. Services rendered by franchise grantees of radio and/or television

broadcasting whose annual gross receipts of the preceding year do not exceed
Php10M, and by franchise grantees of gas and water utilities (Sec. 119);

5. Service rendered for overseas dispatch, message or conversation originating

from the Philippines (Sec. 120);

6. Services rendered by any person, company or corporation (except purely

cooperative companies or associations) doing life insurance business of any sort
in the Philippines (Sec. 123);

7. Services rendered by fire, marine or miscellaneous insurance agents of

foreign insurance companies (Sec. 124);

8. Services of proprietors, lessees or operators of cockpits, cabarets, night or day

clubs, boxing exhibitions, professional basketball games, Jai-Alai and race tracks
(Sec. 125); and

9. Receipts on sale, barter or exchange of shares of stock listed and traded

through the local stock exchange or through initial public o8ffering (Sec. 127).

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

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

professionals;

H. Educational services rendered by private educational institutions, duly

accredited by the DepEd, CHED, TESDA and those rendered by government
educational institutions;

“Educational services” shall refer to academic, technical or vocational

education.

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

relationship;

J. Services rendered by RAHQ that 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 under PD No. 529;

L. Sales by agricultural cooperatives duly registered with the CDA to their

members as well as sale of their produce, whether in its original state or
processed form, to non-members; their importation of direct farm inputs,
machineries and equipment, including spare parts thereof, to be used directly
and exclusively in the production and/or processing of their produce;

CIR v. United Cadiz Sugar Farmers Association 2016

Although the sale of refined sugar is generally subject to VAT, such transaction
may nevertheless qualify as a VAT-exempt transaction if the sale is made by a
cooperative. Under Section 109(L) of the NIRC, sales by agricultural
cooperatives are exempt from VAT provided the following conditions concur,
viz:

First, the seller must be an agricultural cooperative duly registered with the
CDA. An agricultural cooperative is "duly registered" when it has been issued a
certificate of registration by the CDA. is certificate is conclusive evidence of its
registration.

Second, the cooperative must sell either:

1. exclusively to its members; or

2. to both members and non-members, its produce, whether in its original
state or processed form.

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

duly registered with the CDA;

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

registered with the CDA.

The share capital contribution of each member does not exceed Php15K
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.

O. Export sales by persons who are not VAT-registered; If VAT-registered, zero-

rated.

P. The following sales of real properties are exempt from VAT, namely:

1) Sale of real properties not primarily held for sale to customers or held for
lease in the ordinary course of trade or business. However, even if the real
property is not primarily held for sale to customers or held for lease in the
ordinary course of trade or business but the same is used in the trade or
 business of the seller, the sale thereof shall be subject to VAT being a
transaction incidental to the taxpayer's main business.

2) Sale of real properties utilized for low-cost housing.

3) Sale of real properties utilized for socialized housing wherein the price
ceiling per unit is P450K or as may from time to time be determined by the
HUDCC and the NEDA and other related laws.

4) Sale of residential lots valued at Php1,919,500 and below, or house & lot
and other residential dwellings valued at Php3,199,200 and below.

If two or more adjacent residential lots are sold or disposed of 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 of the lots do not exceed
Php1,919,500M.

Provided, at beginning January 1, 2021, the VAT exemption shall only apply to

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,

3. sale of house and lot, and other residential dwellings with selling price of
not more than Php3,199,200.

Q. Lease of a residential unit with a monthly rental not exceeding P15K;

The foregoing notwithstanding, lease of residential units where the monthly

rental per unit exceeds P15K, but the aggregate of such rentals of the lessor
during the year do not exceed P3M shall likewise be exempt from VAT; however,
the same shall be subject to three percent (3%) percentage tax under Section
116 of the Tax Code.

In cases where a lessor has several residential units for lease, some are leased
out for a monthly rental per unit of not exceeding P15K while others are leased
out for more than P15K per unit, his tax liability will be as follows:

a. The gross receipts from rentals not exceeding P15K per month per unit
shall be exempt from VAT regardless of the aggregate annual gross
receipts. It is also exempt from the 3% percentage tax.

b. The gross receipts from rentals exceeding P15K per month per unit shall
be subject to VAT if the aggregate annual gross receipts from said units
only exceeds P3M. Otherwise, the gross receipts will be subject to the 3%
tax imposed under Section 116 of the Tax Code.

Note: The term 'residential units' shall refer to apartments and houses & lots used
for residential purposes, and buildings or parts or units thereof used solely as
dwelling places (e.g., dormitories, rooms and bed spaces) except motels, motel
rooms, hotels and hotel rooms, lodging houses, inns and pension houses.
R. Sale, importation, printing or publication of books, and any newspaper,
magazine, journal, review bulletin, or any such educational reading material
covered by the UNESCO Agreement on the Importation of Educational,
Scientific and Cultural Materials, including the digital or electronic format
thereof: Provided, at the materials enumerated herein are not devoted
principally to the publication of paid advertisements;

S. Transport of passengers by international carriers; If cargo, 3% OPT.

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;

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

shipping or air transport operations:

Provided, at the fuel, goods, and supplies shall be used for international shipping
or air transport operations;

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

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

W. Sale or lease of goods and services to senior citizens and persons with
disability, as provided under RA Nos. 9994 and 10754, respectively;

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

Tax-free exchange of property in pursuance of a plan of merger or

consolidation.

Y. Association dues, membership fees, and other assessments and charges

collected by homeowners associations and condominium corporations;

Z. Sale of gold to the BSP;

AA. Sale of or importation of prescription drugs and medicine for:

a) Diabetes, high cholesterol, and hypertension beginning January 1,

2020; and

b) Cancer, mental illness, tuberculosis, and kidney diseases beginning

January 1, 2021; and

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

31, 2023: as coveralls, gown, surgical cap, surgical mask,

N-96 mask, scrub suits, goggles and face shield, double or surgical gloves,
dedicated shoes, and shoe covers, for COVID-19 prevention;

2. b) All drugs, vaccines and medical devices specifically prescribed and

directly used for the treatment of COVID-19; and
 3. 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.

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 P3M.

Note:

o Qualified self-employed individuals and professionals availing of the 8%

income tax on gross sales and/or receipts are exempt from 12% VAT. (R.R.
13-2018)
o Are the fees, per diems, honoraria or allowances given to directors of
corporations exempt?

- Yes, exempt since these are derived from an economic or commercial

activity. Said fees are remunerations paid in the exercise of a right of an
owner in the management of the corporation.
- Not even liable for 3% percentage tax. (RMC 77-2008)

ILLUSTRATION: VAT v. ZERO-RATED v. VAT EXEMPT

In normal VAT transactions, the VAT paid to the supplier (A) can be recovered
by selling the product to a purchaser (C).

A sells to B B sells to C B paid A P12 as VAT. But

VAT TAXABLE VAT TAXABLE she recovered the P12
P100 P 150 by selling the product to
+ P12 (VAT) C. In her sale to C, she
+ P18 received P18 which
P112 covered the P12 she
P168 had paid A. So, in
essence, she recovered
the P12 she had paid A
What if the transaction of Bellatrix to Cho is VAT ZERO-RATED

A sells to B B sells to C B paid A P12 as VAT. But,

VAT TAXABLE VAT ZERO- RATED her transaction to C was
P100 P 150 zero-rated. So she did
+ P12 (VAT) not receive anything
+0 from C to offset her VAT
P112 payment to A. She has
P150 an output of zero, and
an input of P12. She can
apply for a refund or a
tax credit of the P12 with
the BIR because the law
allows this.

What if the transaction of B to C is VAT EXEMPT?

A sells to B B sells to C B paid A P12 as VAT. But,

VAT TAXABLE VAT ZERO- RATED her transaction to C was
P100 P 150 VAT- EXEMPT. So she did
+ P12 (VAT) not receive anything
+0 from C to offset her VAT
P112 payment to A. She has
P150 an output of zero, and
an input of P12.

However, unlike a zero-

rated transactions, she
cannot apply for a
refund or a credit of the
P12 with the BIR
because the law does
not allow this.

Clearly, we won't go for exempt, because we won't recover the VAT we

paid to our suppliers

§ But what do you do with the unrecovered VAT in exempt

transactions?

It will be considered cost.

 o What if the VAT-registered taxpayer erroneously imposes VAT on a zero-
rated or a VAT-exempt transaction?

- It can claim a refund on the basis of erroneously paid taxes. (CIR v.

Acesite [Philippines] Hotel Corporation, G.R. No. 147295, February 16,
2007, where Acesite erroneously paid VAT to the BIR on a zero-rated
transaction with PAGCOR.)

INPUT AND OUTPUT VAT

Output tax

Output tax is the value-added tax due ON the sale or lease of taxable
goods/properties/services by any person registered or required to register under
the VAT system.

Output tax is what the taxpayer-seller passes on to the purchaser.

§ Note, what is output tax for the seller is input tax to the purchaser.

Input tax

Input tax is the VAT due from or paid by a VAT-registered person on

importation of goods or local purchases of goods, properties, or services,
including lease or use of properties, from a VAT-registered person, in the course of
his trade or business.

o Categories of Input taxes

1. Input tax credit on importation of goods and current local purchases of goods,
properties, and services (Sec 110);

2. Transitional input tax credit — 2%;

A person who becomes liable to VAT or any person who elects to be a

VAT-registered person shall, subject to the filing of an inventory be allowed
input tax

1. on his beginning inventory of goods, materials and supplies

equivalent to two percent (2%) of the value of such inventory or

2. the actual VAT paid on such goods, materials and supplies,

Whichever is higher, which shall be creditable against the output

tax.

When may one claim transitional input tax

1. He becomes liable to VAT for the first-time either through a new law or
when his taxable transactions exceed the P3M threshold;
2. He elects to register as a VAT-registered person; and
3. He is already VAT-registered and also deals in goods or properties, the sale
of which is exempt, but later becomes a taxable transaction through
legislation.
3. Presumptive input tax credit — 4%;

Persons or firms engaged

1. in the processing of sardines, mackerel and milk,; and

2. in manufacturing refined sugar and cooking oil,

4. Final withholding tax credit; and

5. Excess input tax credit.

o Sources of input tax credits

1. Purchase or importation of goods:

a. For sale; or

b. For conversion into or intended to form part of a finished product for

sale including packaging materials; or

c. For use as supplies in the course of business; or

d. For use as materials supplied in the sale of service; or

e. For use in trade or business for which deduction for depreciation or

amortization is allowed under this Code.

2. Purchase of services on which a VAT has been actually paid;

3. Transactions deemed sale;

4. Transitional Input Tax

When creditable

1. On purchase of goods or properties — upon consummation of sale, or

issue of the sales invoice, although no payment thereof was made by the
buyer.
2. On importation — upon payment of the VAT prior to the release of the
goods from customs custody.
3. On purchase of services — when paid by the buyer and evidenced by
the seller’s official receipt.

VAT REFUND OR CREDIT

1. Any VAT-registered person,

2. whose sales are zero-rated or effectively zero-rated may,
3. within two (2) years after the close of the taxable quarter when the
sales were made,
4. apply for the issuance of a tax credit certificate or refund of creditable
input tax due or paid attributable to such sales, except transitional
input tax, to the extent that such input tax has not been applied
against output tax.
Categories of refunds or credits

1. Zero-rated or effectively zero-rated sales of goods. Petitioner must prove or

comply the following:

1. He is a VAT-registered person;
2. Filed with the BIR or DOF Center within 2 years after the close of taxable
quarter when the sales were made

With the CTA within 30 days from date of receipt of denial from CIR;

3. The claimed input tax payments were not applied against any output tax
during the period covered by the claim and in the succeeding periods,
unless there be a separate claim;

4. Deduct from its quarterly return the input tax being claimed as refund or
credit;
5. Directly attributable to the sale;
6. The acceptable foreign currency exchange proceeds had been duly
accounted for, if applicable;
7. Duly supported by VAT invoices or official receipts;

Imprinting of the word “zero-rated” on the invoices or receipts is required.

8. The VAT return for the succeeding quarters covered by the claim must be
submitted with the CTA.

NOTE:

§ for zero-rated transactions, a taxpayer cannot apply for the

issuance of a refund for transitional input tax.

2. Cancellation of VAT registration due to cessation of business or dissolution of

the corporation.

a. Within two (2) years from the date of cancellation, apply for the issuance
of a tax credit certificate for any unused input tax which may be used in
payment of his other internal revenue taxes.

b. The date of cancellation being referred herein is the date of issuance of

tax clearance by the BIR, after full settlement of all tax liabilities relative to
cessation of business or change of status.

c. The filing of the claim shall be made only after completion of the
mandatory audit of all internal revenue tax liabilities covering the
immediately preceding year and the short period return and the issuance
of the applicable tax clearance/s by the appropriate BIR Office which has
jurisdiction over the taxpayer.
RETURN AND PAYMENT OF VAT

• Every person liable to pay VAT shall file a quarterly return of the amount of
his quarterly gross sales or receipts within 25 days following the close of the
taxable quarter using the latest version of Quarterly VAT Return.
• The VAT-registered persons shall pay the VAT on a monthly basis.
• Starting 2023, the filing and payment of VAT shall be done within 25 days
following the close of each taxable quarter.

EXCISE TAXES

• Excise taxes are another kind of business tax.

Excise taxes in the NIRC are different from the excise or privilege tax
that's also mentioned in old tax cases—those are imposed on the
enjoyment of a privilege or the practice of a profession or business.

It's confusing because they have the same name. *eye roll*

• Excise taxes apply to:

Goods manufactured or produced in the Philippines for domestic

sales or consumption or for another disposition; and

§ Things imported.
Hence, excise taxes are applicable only to:

Manufacturers and Importers

• There are two kinds of excise taxes, namely:

a) Specific tax, and

Specific taxes are those based on weight or volume capacity or

any other physical unit of measurement.

Examples: those applied to alcohol and tobacco products,

petroleum

b) Ad valorem tax

Ad valorem taxes are those based on the selling price or other

specified value of the article.

Examples: automobiles, non-essential goods like jewelry and

perfume

• Excise tax is basically an indirect tax imposed on the consumption of a

specified list of goods or products.
 The tax is directly levied on the manufacturer upon removal of the
taxable goods from the place of production but in reality, the tax is
passed on to the end consumer as part of the selling price of the
goods sold.

§ The main difference with VAT (which is also an indirect tax) is the
ability of the buyer to claim a refund.
§ In VAT, zero-rated buyers have express statutory basis which allows
them to claim refunds for the VAT passed on them by their suppliers.
§ In excise tax, buyers cannot claim refunds because there is no
statutory basis. Hence, it Is only the statutory taxpayer who can
claim a refund.

• Who pays the excise tax? Who's the statutory taxpayer?

o For manufactured goods, the manufacturer or producer.

§ But, if they are removed from the place of production

without paying the tax, the owner or person having
possession thereof shall be liable.

o For imported goods, the importer or the owner.

§ But, for tax-free articles brought or imported by persons

exempt from tax which are subsequently sold in the
Philippines to non-exempt persons, the purchasers shall
be considered the importers and will have to pay the
duty and tax due on such importation.

• When should the excise taxes be paid?

o For locally manufactured goods, pay prior to the removal of the

article from the place of production.
o For imported goods, pay prior to the release of the article from
customs custody.