COLLEGE OF ACCOUNTANCY AND BUSINESS ADMINISTRATION
VALUE ADDED TAX
Value Added Tax (VAT) is an indirect tax
imposed and collected on every (SRIL):
a. Sale, barter, or exchange of goods or
properties (real or personal);
b. Lease of goods or properties (real or
personal);
c. Rendition of services, all in the course of
trade or business, and
d. Importation of goods, whether or not in the
course of trade or business (Sec. 105,
NIRC).
VAT is an indirect tax because it can be shifted
or passed on to the buyer, transferee or lessee of
goods, properties or services.
Distinguish Output tax and input tax (2019 bar
exam)
- Output tax is the value added tax due on the
sale, barter, exchange or lease of taxable goods,
properties or services by any person registered or
required to register under Sec. 236 of the NIRC,
while input tax is the value added tax 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 another
VAT-registered person.
Is the value added tax constitutional as an
indirect tax?
Yes. The provision of the Constitution that the
Congress shall evolve a progressive tax system is
not mandatory but merely permissive. The
constitutional provision has been interpreted to
mean simply that "direct taxes are to be preferred
and as much as possible, indirect taxes should be
minimized.” Hence, VAT being an indirect tax is
not ipso facto unconstitutional.
Who is liable to pay VAT?
- GR: The seller is the one statutorily liable for
the payment of the tax but the amount of the tax
may be shifted and passed on to the buyer,
transferee, or lessee of goods, properties or
services.
XPN: In case of importation, the importer is the
one liable for VAT (Sec. 4.105-2, R.R. 16-2005).
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Classification of tax as to burden:
1. Direct Taxes – taxes wherein the “incidence”
as well as the “impact” or burden of the tax
faces on one person.
Examples: income tax, community tax, donor’s
tax, estate tax
2. Indirect Taxes – taxes wherein the incidence of
or the liability for the payment of the tax falls on
one person, but the burden thereof can be shifted
or passed to another person.
Examples: VAT, percentage taxes, customs duties
excise taxes on certain specific goods
Important Points to Consider regarding Indirect
Taxes:
1. When the consumer or end-user of a
manufacturer product is tax-exempt, such
exemption covers only those taxes for which such
consumer or end-user is directly liable. Indirect
taxes are not included. Hence, the manufacturer
cannot claim exemption from the payment of sales
tax, neither can the consumer or buyer of the
product demand the refund of the tax that the
manufacturer might have passed on to him (Phil.
Acetylene Co. inc. vs Commissioner of Internal
Revenue et. al., L-19707, Aug.17, 1987). In CIR v.
Seagate Technology, February 11, 2005, the SC
held that if a special law merely exempts a party
as a seller from its direct liability for payment of the
VAT, but does not relieve the same party as a
purchaser from its indirect burden of the VAT
shifted to it by its VAT-registered suppliers, the
purchase transaction is not exempt. It is because
VAT is a tax on consumption, the amount of which
may be shifted and passed on by the seller to the
purchaser of the goods or properties or services.
2. When the transaction itself is the one that
is tax-exempt but through error the seller pays
the tax and shifts the same to the buyer, the
seller gets the refund, but must hold it in trust
for buyer. (American Rubber Co. case, L-10963,
April 30, 1963)
3. Where the exemption from indirect tax is
given to the contractee, but the evident intention
is to exempt the contractor so that such contractor
may no longer shift or pass on any tax to the
contractee, the contractor may claim tax
exemption on the transaction (Commissioner of
Internal Revenue vs John Gotamco and Sons,
Inc., et.al., L-31092, Feb. 27, 1987)
4. When the law granting tax exemption
specifically includes indirect taxes or when it is
clearly manifest therein that legislative intention to
exempt embraces indirect taxes, then the buyer
of the product or service sold has a right to be
reimbursed the amount of the taxes that the
sellers passed on to him. (Maceda vs
Macaraig,supra)
5. VAT as Indirect tax - The amount of VAT
payable may be passed on by the seller,
transferor, or lessor to the buyer, transferee or
lessee. When passed on, the amount of VAT due
forms part of the purchase price of goods or
services. As a result, it is the buyer who bears the
burden of tax, although the one liable to pay it is
the seller. The VAT, thus, forms a substantial
portion of consumer expenditures as part of the
cost of goods or services purchased. What is
transferred in such instances is not the liability for
the tax, but the tax burden. In adding or including
the VAT due to the selling price, the seller remains
the person primarily and legally liable for the
payment of the tax. What is shifted only to the
intermediate buyer and ultimately to the final
purchaser is the burden of the tax (Contex Co. v.
CIR GR No. 151135 July 02, 2004)
IMPACT INCIDENCE
The one statutorily liable The one who bears
for the payment of tax, the economic burden
thus, the one who can (payment) of tax
avail of a tax refund. (VAT), the place at
which the tax comes
to rest.
The seller upon whom The tax is shifted to
the tax has been the final consumer or
imposed. He collects the the buyer of the
tax and pays it to the goods, properties, or
government. services as part of the
purchase price.
Characteristics of VAT
1. Indirect tax - Tax shifting is always
presumed. It may be shifted or passed on to
the buyers, transferee, or lessee of the
goods, properties or services as part of the
purchase price. The tax shifting can be
forward or backward. The value added tax is
shifted forward, when the seller of goods,
properties or services used in the production
or distribution process passes the output tax
to his buyer. On the other hand, the value
added tax is shifted backward, when the
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seller assumes to pay the whole amount of
tax or the seller assumes only part of it.
2. Excise tax based on consumption – The
tax burden generally rests with the final
consumer who consumes the goods,
properties or services. Consumption takes
place when the taxpayer does not sell further
the taxable goods, properties or services in
the Philippines either because he is the final
consumer like an employee or household, or
he is not engaged in trade or business
subject to value added tax like the sale by a
person of agricultural food products in their
original state and when the services is
performed and completed, usually resulting
in the performer’s release from any past or
future liability.
3. Follows the destination principle - Under
the Destination Principle, the goods and
services are taxed only in the country
where the same are consumed, and in
connection with the said principle, the Cross
Border Doctrine mandates that NO VAT
shall be imposed to form part of the cost of
the goods destined for consumption
OUTSIDE the territorial border of the taxing
authority. Hence, actual export of goods and
services from the Philippines to a foreign
country must be free of VAT, while those
destined for use or consumption within the
Philippines shall be imposed with 12% VAT
(Atlas Consolidated Mining and
Development Corporation v. CIR, G.R. No.
141104 & 148763, June 8, 2007). In Coral
Bay Nickel Corporation, the SC held that
PEZA-registered enterprises, which would
necessarily be located within ECOZONES,
are VAT exempt entities because Section 9
of RA No. 7916 establishes the fiction that
ECOZONES are foreign territory.
Exception to the destination principle
Our VAT law clearly provides for an exception
to the destination principle; that is, for a zero
percent VAT rate for services that are
performed in the Philippines, "paid for in
acceptable foreign currency and accounted
for in accordance with the rules and
regulations of the BSP following the
principle of situs-of-service which dictates
that consumption takes place where the
service is performed (Commissioner of Internal
Revenue v. American Express International,
Inc., G.R. No. 152609, June 29, 2005).
4. Tax credit or invoice method – It refers to
the manner by which the value added tax of
a taxpayer is computed using the invoice
credit method. The input tax shifted by the
 seller to the buyer is credited against the
buyer’s output taxes when he in turn sells
the taxable goods, properties or services
[Sec. 110(A)(1) of the NIRC]
5. Sales tax – VAT is a tax on the taxable sale,
barter or exchange of goods, properties or
services. A barter or exchange has the
same tax consequence as a sale. A sale
may be an actual or deemed sale, or an
export sale or local sale (Mamalateo,
2014). The buyer is informed that the price
includes VAT and the computation is shown
in the official receipt/sales invoice.
6. VAT does not Cascade or pyramiding -
Tax cascading means that an item is taxed
more than once as it makes its way from
production to final retail sale. VAT is not a
cascading tax because it is merely added as
part of the purchase price and not as a tax
because the burden is merely shifted. Thus,
there can be no tax on the tax itself.
7. Ad valorem tax - The amount is based on
the gross selling price or gross value in
money of the goods or service, including the
use or lease or properties.
8. Regressive tax – By its very nature, VAT is
regressive tax.
Q: Does the Constitution prohibit regressive
taxes?
A: No, what the Constitution simply provides is
that Congress shall evolve a progressive system
of taxation. The constitutional provision has been
interpreted to mean simply that "direct taxes are to
be preferred and as much as possible, indirect
taxes should be minimized.” The mandate of
Congress is not to prescribe but to evolve a
progressive tax system. This is a mere directive
upon Congress, not a justiciable right or a legally
enforceable one. We cannot avoid regressive
taxes but only minimize them (Tolentino et.al. v.
Secretary of Finance, G.R. No. 115455, Oct. 30,
1995).
Q: How is the regressive effect of VAT
minimized?
A: The law minimizes the regressive effects of this
imposition by providing for zero rating of certain
transactions while granting exemptions to other
transactions. The transactions which are subject
to VAT are those which involve goods and
services which are used or availed of mainly by
higher income groups.
Page 3 of 10
Q. Is VAT law violative to the principle of
administrative feasibility
The VAT law is principally aimed to rationalize the
system of taxes on goods and services. Thus,
simplifying tax administration and making the
system more equitable to enable the country to
attain economic recovery (Kapatiran ng Mga
Naglilingkod sa Pamahalaan v. Tan,
G.R.No.81311, June 30, 1988).
Classification of transactions under the VAT
system
1. VAT- taxable transactions:
a. Subject to 12% VAT rate
b. Zero-rated transactions
2. Exempt transactions
1. Vat- taxable transactions
I. Subject to 12% VAT rate
The following elements must be present in order
for a transaction to be subjected to 12% VAT:
a. It must be done in the ordinary course of
trade or business;
b. There must be a sale, barter, exchange,
lease of properties, or rendering of service in
the Philippines; and
c. It is not VAT-exempt or VAT zero-rated.
A. It must be done in the ordinary course of
trade or business
Q: What constitutes transactions done “in the
ordinary course of trade or business” for
purposes of applying VAT? (2019 bar exam)
A: The phrase “in the course of trade or business”
means the regular conduct or pursuit of
commercial or an economic activity, including
transactions incidental thereto, by any person
regardless whether or not the person engaged
therein is a nonstock, 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.
Note: the SC held that sale of a VAT taxpayer
(engaged in catering business) of its delivery van
or vehicle, while an isolated event, is considered
an incidental transaction in the course of trade or
business. In the course of its business, the
company bought and eventually sold its delivery
van. Prior to the sale, the van was part of
company’s property, plant, and equipment.
However, in the case of Power Sector Assets
and Liabilities Management Corporation v. CIR
August 8, 2017, the SC held that PSALM, a
government-owned and controlled corporation,
was created under the EPIRA law to manage the
orderly sale and privatization of NPC assets with
the objective of liquidating all of NPC's financial
obligations in an optimal manner. The sale of the
power plants is not in pursuit of a commercial
or economic activity but a governmental
function mandated by law to privatize NPC
generation assets. Unlike the Mindanao II case,
the power plants in this case were not previously
used in PSALM's business. The power plants,
which were previously owned by NPC were
transferred to PSALM for the specific purpose of
privatizing such assets. The sale of the power
plants cannot be considered as an incidental
transaction made in the course of NPC's or
PSALM's business. Therefore, the sale of the
power plants should not be subject to VAT.
Two conditions of “in the ordinary course of
trade or business” (CR)
There should be:
1. Pursuit of commercial or economic
activity - It implies that a transaction is
conducted for profit; and
2. Regularity or habituality in the action -
Regularity involves more than one isolated
transaction and involves repetition and
continuity of action
Exception to regularity:
1. Non-resident alien 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 (Sec. 4.105-3, RR 16-2005).
2. Importations are subject to VAT whether
in the course of trade or business or not.
3. Any business where the gross sales or
receipts do not exceed P100,000 during
the 12-month period shall be considered
principally for subsistence or livelihood and
not in the course of trade or business.
B. There must be a sale, barter, exchange,
lease of properties, or rendering of service in
the Philippines
Consumption takes place when the taxpayer does
not sell further the taxable goods, properties or
services in the Philippines either because he is the
final consumer like an employee or household, or
he is not engaged in trade or business subject to
value added tax like the sale by a person of
agricultural food products in their original state and
when the services is performed and completed,
usually resulting in the performer’s release from
any past or future liability.
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When there is no sale, barter or exchange of
goods or properties, then no VAT should be
imposed. Thus, when an affiliate provides funds
to a taxpayer who then uses the funds to pay a
third party, the transaction is not subject to VAT,
as there was no sale, barter, or exchange
between the affiliate and the taxpayer. The
money was simply given as a dole-out (CIR v.
Sony Philippines, Inc., G.R. No. 178697,
November 17, 2010).
However, if a taxpayer renders service to an
affiliate for a fee (even if the fee is merely to
reimburse costs), the service is subject to VAT.
The term "in the course of trade or business"
requires the regular conduct or pursuit of a
commercial or an economic activity regardless
of whether or not the entity is profit-oriented.
Hence, VAT is imposed at every stage of the
distribution process on the sale, barter, exchange
of goods or property, and on the performance of
services, even in the absence of profit
attributable thereto. (CIR v. CA and
COMASERCO, G.R. No. 125355, March 30,
2000).
Also, the fees collected by toll operators are
subject to VAT as they are engaged in rendering
service of constructing, maintaining and
operating expressways (Diaz v. Secretary of
Finance, G.R. No. 193007, July 19, 2011).
Q: All the homeowners belonging to ABC Village
Homeowners' Association elected a new set of
members of the Board of Trustees for the
Association effective January 2019. The first thing
that the Board looked into is the need to increase
the prevailing association dues. Mr. X, one of the
trustees, proposed an increase of 100% to
account for the payment of the 12% value-added
tax (VAT) on the association dues which were
being collected for services allegedly rendered "in
the course of trade or business" by ABC Village
Homeowners' Association. Is Mr. X correct in
stating that the association dues are subject to
VAT? Explain (2019 Bar Exam)
A. No. As a general rule, association dues and
rental facilities are exempt from income tax and
VAT or percentage tax. However, when the
homeowners engage in the rendition of services
for fee to non-members in the ordinary course of
trade or business, it will be subjected to VAT.
In as much as the association dues are collected
from or use for the benefit of its members, ABC
Village Homeowner’s Association is exempt from
value added tax.
II. Zero rated transaction
- These are sales by VAT-registered persons
which are subject to 0% rate, meaning the tax
burden is not passed on to the purchaser. A zero-
rated sale by a VAT-registered person, which is a
taxable transaction for VAT purposes, shall not
result in any output tax. However, the input tax on
his purchases of goods, properties or services
related to such zero-rated sale shall be available
as tax credit or refund in accordance with the
existing laws, rules and regulations (Contex Co. vs
CIR).
Purpose: The zero-rated seller becomes
intentionally competitive by allowing the refund or
credit of input taxes that are attributable to export
sales.
2. EXEMPT TRANSACTIONS
An exemption means that the sale of goods or
properties and/or services and the use or lease of
properties is not subject to VAT (output tax) and
the seller is not allowed any tax credit on VAT
(input tax) previously paid. This is a case
wherein the VAT is removed at the exempt
stage (i.e., at the point of the sale, barter or
exchange of the goods or properties). The person
making the exempt sale of goods, properties or
services shall not bill any output tax to his
customers because the said transaction is not
subject to VAT. On the other hand, a VAT-
registered purchaser of VAT- exempt
goods/properties or services which are exempt
from VAT is not entitled to any input tax on such
purchase despite the issuance of a VAT invoice or
receipt.
A. SALE OR IMPORTATION
• Agricultural and marine food products in
"original state".
• Livestock and poultry are used for producing
foods or human consumption and breeding
stock and generic materials.
"Original State" shall mean simple processes of
preparation or preservation for the market.
Includes: Freezing, Drying, Salting, Broiling,
Roasting, Smoking or Stripping, and advanced
technological means of packaging such as shrink
wrapping, vacuum packing, and tetra-pack.
Polished/Husked rice, corn grits, raw cane sugar,
molasses, muscovado, and copra shall be
considered in their Original State.
Livestock or Poultry does not include fighting
cocks, racehorses, zoo animals, and other
animals generally considered as pets.
Page 5 of 10
Only Raw sugar or raw cane sugar are exempt
from VAT. It refers to sugar produced without the
need for any mechanical devices. E.g Muscovado
Sugar.
RAW SUGAR CANE: Undergone simple process
of conversion without need of mechanical
devices. Content of sucrose weighs less than 99.5
degrees.
Marinated fish, Iodized salt, refined sugar is not
exempt from VAT.
B. SALE OR IMPORTATION
• Fertilizers.
• Seeds, seedlings, and fingerlings.
• Fish, prawn, livestock, and poultry seeds.
• Ingredients used in the manufacturing of
finished seeds, whether locally produced or
imported.
Except, those used for specialty feeds for animals
that are considered pets.
Take note, however, that there are ingredients for
finished feeds that can be used to manufacture
food for human consumption. The exemption shall
only pertain to ingredients that are unfit for
human consumption as certified by FDA. The
Bureau of Animal Industry should be the one to
classify the said items for tax purposes.
C. IMPORTATION OF PERSONAL AND
HOUSEHOLD EFFECTS
• Belonging to residents of PH returning from
abroad and non-resident citizens coming to
resettle in PH.
• Provided, that such goods are also exempt
from Custom Duties, such as:
• Returned personal and household effects.
• Personal and household effects purchased
abroad.
D. IMPORTATION
Professional instruments and implement, tools of
the trade, occupation, or employment, wearing
apparel, domestic animals, and personal and
household effects:
• It belongs to a person coming to settle in PH or
Filipinos, or their family or descendants who
are now residents of other countries referred to
as Overseas Filipino.
• For their use, not for sale, barter, or exchange.
• The BOC, upon satisfactory evidence that
such persons coming to settle in PH and
goods, are brought from their former place,
 exempt such goods from payment of duties
and taxes.
Except, those vehicles, vessels, aircraft, and
machinery for use in manufacture shall be subject
to taxes, duties, and other charges.
E. SERVICES SUBJECT TO PERCENTAGE
TAXES (SEC. 116 - 127)
F. SERVICES by
• Agricultural Contract Growers and
• Milling of palay to rice, corn to grits, and sugar
cane to raw sugar.
"Agricultural Contract Growers" are those
persons producing for others' poultry, livestock, or
other agricultural and marine products in their
original state. Its services include growing poultry,
livestock, and other agricultural and marine foods
products into marketable food products.
"Toll Processing/toll dressing/toll manufacturing"
includes weighing, killing, dressing, scalding, cut-
ups and packaging are exempt only if it is
contracted in packaged services. Otherwise, if
performed independently from growing services
shall be subject to VAT.
G. MEDICAL, DENTAL, HOSPITAL AND
VETERINARY SERVICES, except those
rendered by Professionals:
• Laboratory services are vat-exempt. If a
hospital/clinic operates a pharmacy, the sale
of drugs/medicine is subject to VAT. It should
be noted that hospital bills constitute medical
services or professional fees.
• Rules on Sale of Drugs
• To Inpatient, are vat-exempt which is
already included in Hospital Bills, that is
vat-exempt.
• To Outpatient, subject to VAT because they
are not part of Hospital Bills.
• Inpatient is those that are admitted in the
Hospital, while Outpatient those are not
admitted in the Hospital.
• Professional Fees of Medical Practitioner
• Medical practitioners are not allowed to
accept professional fees directly from their
admitted patients.
• Generally, vat-exempt because it is already
included in the Medical Bills of the
inpatient/confined which are VAT exempt.
• Professional Fees rendered to Outpatient,
are generally taxable, hence subject to
VAT.
Page 6 of 10
As per RR 16-2005: If the annual professional fees
of professional practitioners exceed 3,000,000 the
same shall be subjected to 12% VAT. Otherwise,
3% OPT under Sec. 116.
Generally, what the law wants to subject to VAT
are those independently performed by
professionals. Any services of professionals are
performed under an employer-employee
relationship, the professional fee is exempt from
VAT.
PROVIDED, sale/rent of medical equipment in
hospitals, clinics, and patients, which include the
delivery and installation of specialized medical
equipment and devices shall be subject to VAT.
H. EDUCATIONAL SERVICES RENDERED BY:
• Private Educational Institution duly accredited
by DepEd, CHED, and TESDA
• Government Educational Institution
Provided, does not include seminars, in-service
training, review classes, and other services
rendered by persons not accredited by DepEd,
CHED, and TESDA.
The exemption does not extend to other services
such as locker rentals, sale of school supplies,
canteen rentals, etc.
J. SERVICES RENDERED BY INDIVIDUAL
UNDER ER-EE RELATIONSHIP
K. Services rendered by Regional or Area
Headquarters (RHQ)
• Regional Headquarters are those established
in PH by multinational corporations to act as
supervisory, communications, and coordinating
centers for their subsidiaries, affiliates, or
branches in the Asia-Pacific Region and do
not earn/derive income from PH.
• Sale of goods or lease of properties to RHQ
shall be subjected to % VAT. (NOTE: RHQ is
exempt from Income Tax.)
L. TRANSACTIONS THAT ARE EXEMPT
UNDER INTERNATIONAL AGREEMENT TO
WHICH PH IS A SIGNATORY OR UNDER
SPECIAL LAWS, EXCEPT UNDER PD NO. 529
(PETROLEUM EXPLORATION
CONCESSIONAIRES)
M. SALES AND IMPORTATION
AGRICULTURAL COOPERATIVES
• Duly registered with Cooperative Development
Authority.
• Importation of:
• Direct farm inputs, machinery, and
equipment, including spare parts to be
used directly and exclusively in the
production of their own produce.
Sales made by Agricultural Tax
Cooperatives
Sale of cooperative’s own products Exempt
to members and non-members
Sale of cooperative’s products other Exempt
than own produce to members
Sale of cooperative’s products other 12% VAT
than own produce to non-members
It is to be noted that any sales or importation of
"Agricultural Foods" in their original state are
exempt from VAT - irrespective of seller and
buyer. Thus, if the product (own produce or not) of
an agricultural cooperative is referring to
agricultural food in its original state, the same shall
be vat-exempt.
N. GROSS RECEIPTS FROM LENDING
ACTIVITIES BY CREDIT OR MULTIPURPOSE
COOPERATIVE
BY O. SALES OF NON-AGRICULTURAL, NON-
ELECTRIC, AND NON-ELECTRIC
COOPERATIVE
• Provided, duly registered with Cooperative
Development Authority.
• Each member’s share capital contribution does
not exceed 15,000 regardless of aggregate
capital and net surplus ratably distributed to
members.
• Any importation made by a non-agricultural,
non-electric, and non-credit cooperative of
machinery and equipment, including spare
parts to be used exclusively by them are
subject to VAT.
Note that any gross receipts or sales made by
electric cooperative whether to its members or
non-members are subject to VAT.
Non-agricultural, Non-electric & Tax
Non-credit Cooperative
Contribution per member does not Exempt
exceed 15,000
Contribution per member exceeds 12% VAT
15,000
Note: Exemption shall only pertain to the sale of a
registered cooperative to members. However, sale
to non-members is still exempt if the cooperative
has accumulated reserves and undivided net
savings of not more than 10M.

Provided, duly registered with Cooperative

Development Authority.
CREDIT COOPERATIVE
Gross Receipts by Credit
Cooperative
From Lending Activities to either
members or non-members
P. EXPORT SALES BY NON-VAT REGISTERED
PERSON
General Rule, export sales made by any
Tax persons who are non-vat registered are vat-
exempt.
Exempt
Exception, export sales made by any persons
who are vat-registered are subject to % vat rate.

MULTI PURPOSE COOPERATIVE Since a non-vat registered is exempt, there is

no vat payable/refundable at all. As for vat-
Ty Coop Coops transacting with members registered, any input vat is refundable.
pe s and non-members
of trans With ARUNS not With ARUNS of
Ta actin more than more than
x g P10million P10million
with Transa Transa Transa Transa
mem ction ction ction ction
bers with with with with
only Memb Non- Memb Non-
ers Memb ers Memb
ers ers
VA Exe Exemp Exemp Exemp Taxabl
T mpt t t t e

Page 7 of 10
Q. SALE OF THE FOLLOWING:
• Real Property (Capital Asset) is not primarily
held for sale to customers or held for lease in
the ordinary course of business by real estate
dealers.
Sale of Real Property Tax
General Rule, if held primarily for 12% VAT
sale/lease to customers.
Not held primarily for sale or lease to Exempt
customers (Capital Asset).
Not held primarily for sale or lease 12% VAT
but is used in trade/business shall be
treated as an incidental transaction.
• Real Property is utilized for "socialized
housing", wherein the price ceiling per unit is
450,000.
As defined by RA 7279 “Urban Development and
Housing Act of 1992”
"Low-cost Housing" project intended for
homeless low-income family beneficiaries which
may be either subdivision or condominium
registered and licensed by HLURB, wherein the
unit selling price is within the selling price per unit
set by Housing and Urban Development
Coordinating Council (HUDCC).
“Socialized Housing" housing programs and
projects covering houses and lots, or home lots
undertook by the Government intended for
underprivileged and homeless citizens.
• Real Property primarily held for sale to
customers or held for lease in the ordinary
course of business by real estate dealer if :
• Residential Lot and
• House and Lot, and other residential
dwellings
Sale of Real Property Tax
Commercial Lot, regardless of value 12% VAT
Residential Lot:
Selling price ≤ 1,500,000 (previously Exempt
1,919,500)
Selling price > 1,500,000 (previously 12% VAT
1,919,500)
House and Lot, and Other
Residential Dwellings
Selling price ≤ 2,000,000 Exempt
selling price exceeds 2,000,000 12% VAT
Page 8 of 10
Sale of Adjacent Residential Lots
• Presumed to be a sale of one residential
lot if sold to one and the same buyer, for
the purpose of utilizing the lots as one
residential lot and the aggregate selling
price does not exceed 1,500,000.
Otherwise, subject to VAT.
• Although covered by separate title, when
sold to one and the same buyer, whether
covered by separate or same Deed of
Sale, shall be presumed to be a sale of
one residential lot.
Sale of Parking Lot in the Sale of Condominium
Units
• General Rule, the sale of a parking lot in a
Condominium is a distinct and separate
transaction, hence the sale of the parking
lot is subject to VAT - regardless of selling
price.
Foreclosure Sale of Real Property classified as
Ordinary Asset
• General Rule, subject to VAT.
Beginning January 1, 2021 - VAT exemption only
applies to:
● Sale of real property not primarily held for
sale or held for lease in the ordinary
course of business.
● Sale of real property utilized for socialized
housing.
● Sale of house and lot, and other
residential dwellings with a selling price
of not more than 2,000,000.
Beginning January 1, 2021 - VAT shall be
imposed on:
● Sale of real property utilized as low-cost
housing.
● Sale of residential lots primarily held for
sale regardless of selling price.
R. LEASE OF RESIDENTIAL UNIT
Threshold prior TRAIN: 12,800 Monthly Rental
Lease of Residential Unit Tax
Monthly rental ≤ 15,000, regardless Exempt
of annual gross receipts
Monthly rental > 15,000, annual Exempt VAT,
gross receipts ≤ 3,000,000 3% OPT
Monthly rental > 15,000, annual 12% VAT
gross receipts > 3,000,000
• Lessor has several residential units for lease.
(Treated Separately)
• Exempt from VAT those monthly rental
does not exceed 15,000, regardless of
annual gross receipts.
• Subject to VAT when monthly rental
exceeds 15,000 and the annual gross
receipts exceed 3,000,000 (excluding
those units that are vat-exempt).
Otherwise, subject to 3% OPT.
• Lease of Commercial Units
• Subject to VAT regardless of the monthly
rental. Provided that the property subject
to lease is located in PH, regardless of
where the contract of lease was
executed.
• If the lessor is non-vat registered and the
annual gross receipts do not exceed
3,000,000, shall be exempt from VAT but
subject to OPT under Sec. 116
“Residential Unit” shall refer to apartments and
houses and lots used for residential purposes;
units used solely for dwelling including
dormitories, rooms, bed spaces, excluding
motels, motel rooms, hotel, and hotel rooms.
“Unit” shall refer to:
1. Apartment unit for apartment
2. House in case of residential house
3. Per person for dormitories, boarding houses,
bed spaces
4. Per rooms in case of room for rent
S. SALE, IMPORTATION, PRINTING, OR
PUBLICATION of books and any newspaper,
magazine, review, or bulletin provided:
• Appears in regular intervals.
• With fixed prices for subscription and sale
• Not devoted principally to the publication of
paid advertisement.
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• Provided, the exemption only pertains to
printed matters in hard copy and does not
include does in electronic format.
CREATE PROVISION:
• Removed the requirement of “appears in
regular intervals with fixed prices for
subscription and sale” to be exempt.
• The exemption now includes digital or
electronic format.
• Exemption is now expanded into: Books,
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
T. TRANSPORT OF PASSENGERS BY
INTERNATIONAL CARRIERS DOING
BUSINESS IN THE PHILIPPINES (RFC)
• Same shall not be subject to OPT as per RA
10378. Thus, transport of passengers by
International Carries (RFC) are exempt from
Business Taxes.
• Transport of cargoes by International Carries
doing business in PH are subject to 3%
Common Carriers Tax. (Note, only those from
PH to any country abroad.)
U. SALE, IMPORTATION, OR LEASE
Passenger or cargo vessels and aircraft, including
engine, equipment, and spare parts for domestic
or international transport operations. Provided,
the exemption from vat on importation and local
purchase is subject to requirements on restrictions
on vessel importation of MARINA.
V. IMPORTATION OF FUEL, GOOD, AND
SUPPLIES BY PERSONS ENGAGED IN
INTERNATIONAL SHIPPING OR AIR
TRANSPORT OPERATIONS PROVIDED:
• Such fuel, goods, and supplies are exclusively
used for the transport of goods and/or
passenger from PH port directly to a foreign
port without docking or stopping in any port of
the PH unless the docking or stopping is for
the purpose of unloading passengers and/or
cargoes from abroad, or to load passengers
and/or cargoes bound for abroad.
• Any portion of fuel, goods, and supplies used
for purposes other than for transport of
passengers and/or cargoes, the same shall be
subject to VAT.
It shall be noted that only importation of fuel,
goods, and supplies made by international
shipping or air transport operations is exempt from
VAT. Any SALE of fuel, goods, and supplies made
by international shipping or air transport
operations is subject to % VAT (see zero-rate
sales).
W. SERVICES OF BANK, NON-BANK
FINANCIAL INTERMEDIARIES PERFORMING
QUASI-BANKING FUNCTIONS, AND OTHER
NON-BANK FINANCIAL INTERMEDIARIES:
• Subject to OPT under Section 121 and 122
• Includes money changers and pawnshops.
X. SALE OR LEASE OF GOODS AND
SERVICES TO SENIOR CITIZENS AND
PERSONS WITH DISABILITY
Y. TRANSFER OF PROPERTY UNDER SEC. 40
OF TRAIN LAW
CREATE PROVISION: Sale or importation of the
following beginning January 1, 2021 to December
31, 2023, are exempt from VAT:
1. Capital equipment, its spare parts, and raw
materials, necessary for the production of
personal protective equipment components
(i.e., 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;For importation, it shall
be not locally available or if locally available,
there is an insufficient quantity or low
quality to be exempt from VAT.
2. All drugs, vaccines, and medical devices
specifically prescribed and directly, used for
the treatment of COVID-19; and
3. Drugs for the treatment of COVID-19 approved
by the FDA for use in clinical trials, including
raw materials directly necessary for the
production of such drugs.

Z. ASSOCIATION DUES, MEMBERSHIP FEES,

AND OTHER CHARGES COLLECTED ON A
PURELY REIMBURSEMENT BASIS BY THE
HOMEOWNERS ASSOCIATION AND
CONDOMINIUM CORPORATIONS:

• The collection of association dues,

membership dues, and other charges
collected by clubs are not in the form of
selling services to its members, whereas
the members do not buy services when
they pay the dues. The payment is merely
for maintenance of facilities or
organization, there is no economic activity,
to begin with.

AA. SALE OF GOLD TO THE BANGKO

SENTRAL NG PILIPINAS

BB. SALE OF PRESCRIPTION DRUGS AND

MEDICINES FOR:
• Diabetes, high cholesterol, hypertension
(beginning January 1, 2019) and
• Cancer, mental illness, tuberculosis, kidney
diseases (beginning January 1, 2021)

CC. SALE OR LEASE OF PROPERTY OR

PERFORMANCE OF SERVICES OTHER THAN
THOSE MENTIONED TRANSACTION
PROVIDED THE ANNUAL GROSS RECIPES DO
NOT EXCEED 3,000,000

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