Business

Taxation
Business Taxes – Under the Tax Code, Particularly RA. 8424, also known as internal
revenue code of the Philippines.

- Business Taxes are those imposed upon onerous transfers such as sale, barter,
exchange, and importation.
 I. Onerous Transfer (Sales)

1. (Made) In the ordinary course of trade or business. >> Normal Course of Business

2. Not in the ordinary course of trade or business. >>>> Casual Transfer

1. Normal Course of Business
Ex. Merchandise Company, Manufacturing Company, Sales, or
Service type Company.

2. Casual Transfer
Ex. I sell my old laptop.
I sell our old model car.
(Section 105 NIRC; Section 4.105-3, RR 16-2005)
IN THE COURSE OF TRADE OR BUSINESS – 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 or government entity.

Meaning to say, it is not an Isolated Transaction

Isolated Transaction – not subject to business tax

Example,
1. I have a clothing wear business, then all of the sudden, I sell my
car.
2. Selling my car is an Isolated Transaction therefor it is not
subjected to business tax.
 “Isolated Transactions” are generally not considered in the
ordinary course of trade or business, hence, not subject to
business tax.
However, as provided under RR 16-2005, services
rendered in the Philippines by a non-resident foreign
person shall be considered as being rendered in the course
of trade or business even if the performance is not regular.
Non-resident foreign person – simply a foreigner who
doesn’t live inside our country.
When we talk about Non-resident foreign persons in RR
16-2005, another entity like a corporation is included
(even a partnership).
TYPES OF BUSINESS TAXES
1. Value Added Tax
2. Other Percentage Taxes
3. Excise Taxes
 NIR CODE OF 1997
SEC. 30. Exemptions from Tax on Corporations. - The following organizations shall not be taxed
under this Title in respect to income received by them as such:

(A) Labor, agricultural or horticultural organization not organized principally for profit;

(B) Mutual savings bank not having a capital stock represented by shares, and cooperative bank
without capital stock organized and operated for mutual purposes and without profit;

(C) A beneficiary society, order or association, operating for the exclusive benefit of the members
such as a fraternal organization operating under the lodge system, or mutual aid association or a
nonstock corporation organized by employees providing for the payment of life, sickness,
accident, or other benefits exclusively to the members of such society, order, or association, or
nonstock corporation or their dependents;

(D) Cemetery company owned and operated exclusively for the benefit of its members;
(E) Nonstock corporation or association organized and operated exclusively for religious,
charitable, scientific, athletic, or cultural purposes, or for the rehabilitation of veterans, no part of
its net income or asset shall belong to or inure to the benefit of any member, organizer, officer or
any specific person;

(F) Business league chamber of commerce, or board of trade, not organized for profit and no
part of the net income of which insures to the benefit of any private stock-holder, or individual;

(G) Civic league or organization not organized for profit but operated exclusively for the
promotion of social welfare;
(H) A nonstock and nonprofit educational institution;

(I) Government educational institution;

(J) Farmers' or other mutual typhoon or fire insurance company, mutual ditch or irrigation company, mutual
or cooperative telephone company, or like organization of a purely local character, the income of which
consists solely of assessments, dues, and fees collected from members for the sole purpose of meeting its
expenses; and

(K) Farmers', fruit growers', or like association organized and operated as a sales agent for the purpose of
marketing the products of its members and turning back to them the proceeds of sales, less the necessary
selling expenses on the basis of the quantity of produce finished by them;
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and
character of the foregoing organizations from any of their properties, real or personal, or from
any of their activities conducted for profit regardless of the disposition made of such income,
shall be subject to tax imposed under this Code.
Example: UST
Example:
UST is a non-stock & non-profit educational institution. It is an entity exempt under section 30 of the tax
code. But UST engaged in a business that is not related to education that’s why they are VATABLE. Why?
Inside their campus, there’s a lot of business there even they are not the owners of those businesses, they
still earn from the rent income of the business owners inside their properties.
1. Normal Course
of Business 2. Casual Transfer

VAT or
Capital
Percentage and
Excise Tax
Gain Tax
 VAT or
1. Normal Course
Percentage and
of Business
Excise Tax

VAT or Value Added Tax - VAT-registered individuals or businesses engaged in selling,

exchanging, leasing of goods or properties, and rendering services, if the actual gross sales
or receipts accumulate up to Php 3,000,000.00;
Percentage Tax - may be applicable for:
1. Businesses with gross annual sales and/or receipts not exceeding
P3,000,000; and

2. Business that are not VAT-registered businesses or are VAT-

Exempt.
Who are required to
file? For Percentage Tax
1.Persons engaged in the following industries/transactions:

a. Cars for rent or hire driven by the lessee, transportation contractors, including persons who
transport passengers for hire, and other domestic carriers by land for the transport of passengers
(except owners of bancas and owners of animal-drawn two-wheeled vehicle) and keepers of
garages

b. International air/shipping carriers doing business in the Philippines on their gross receipts
derived from transport of cargo from the Philippines to another country

c. Franchise grantees of – 

i. radio and/or television broadcasting companies whose annual gross receipts for the
preceding year do not exceed Php 10,000,000.00 and did not opt to register as VAT
taxpayers, and
ii. gas and water utilities.
d. Overseas dispatch, message or conversation transmitted from
the Philippines by telephone, telegraph, tele-writer exchange,
wireless and other communication equipment services, except
those transmitted by:
1. The Philippine Government or any of its political subdivisions or instrumentalities;
2. Diplomatic services;
3. Public international organizations or any of their agencies based in the Philippines enjoying privileges, exemptions and
immunities which the Philippine Government is committed to recognize pursuant to international agreement; and
4. News services for messages which deal exclusively with the collection of news items for, or the dissemination of news item
through, public press, radio or television broadcasting or a newsticker service furnishing a general news service similar to
that of the public press.

e. Banks, non-bank financial intermediaries performing quasi-banking functions

f. Other non-bank financial intermediaries (including pawnshops as clarified under Revenue Regulations
[RR] No. 10 – 2004)

g. Person, company or corporation (except purely cooperative companies or associations) doing life
insurance business in the Philippines

h. Fire, marine or miscellaneous agents of foreign insurance companies

i. Proprietor, lessee or operator of cockpits, cabarets, night or day clubs, boxing exhibitions,
professional basketball games, Jai-Alai and racetracks, including videoke bars, karaoke bars,
karaoke televisions, karaoke boxes and music lounges as clarified under Revenue Memorandum
Circular (RMC) No. 18 – 2010

j. Winnings or 'dividends' in horse races

NOTE: 3% is the general base rate of Percentage Tax on gross
sales and receipts for standard non-VAT registered businesses.
MARGINAL INCOME EARNER
RR 7-2012 defined Marginal Income Earners (MIE’s) as those individuals
whose business do not realize a gross sales or receipts exceeding P100,000 in
any twelve-month period.
 
Business Tax Exempt = Annual gross of P100,000 or below
Income Tax Exempt = P250,000 annual income or below
Transfer Taxes – Taxes on Gratuitous Transfer
(transfer without consideration, donation)
 VAT EXEMPT
SEC. 109. Exempt Transactions. –
(1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt
from the value-added tax.
(A) Sale or importation of agricultural and marine food products in their original state, livestock and
poultry of or king generally used as, or yielding or producing foods for human consumption; and
breeding stock and genetic materials therefor.
Products classified under this paragraph 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. Polished and/or husked rice, corn grits, raw
cane sugar and molasses, ordinary salt and copra shall be considered in their original state; 
(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 the residents

of the Philippines returning from abroad and nonresident citizens coming to
resettle in 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 the goods are
brought from their former place of abode, exempt such goods from payment of
duties and taxes: Provided, further, That the 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;
(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 Department of Education(DepED), the Commission on Higher
Education (CHED), the Technical Education and Skills Development Authority
(TESDA) and those rendered by government educational institutions; 
(I) Services rendered by individuals pursuant to an employer-employee
relationship;
(J) Services rendered by regional or area headquarters established in the Philippines by multinational
corporations which act as supervisory, communications and coordinating centers for their affiliates,
subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income from the
Philippines;

(K) Transactions which are exempt under international agreements to which the Philippines is a
signatory or under special laws, except those under Presidential Decree No. 529; 

(L) Sales by agricultural cooperatives duly registered with the Cooperative Development Authority 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;
(M) Gross receipts from lending activities by credit or multi-purpose
cooperatives duly registered with the Cooperative Development Authority;

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

registered with the Cooperative Development Authority: Provided, That the
share capital contribution of each member does not exceed Fifteen thousand
pesos (P15,000) and regardless of the aggregate capital and net surplus
ratably distributed among the members;

(O) Export sales by persons who are not VAT-registered;

(P) Sale of real properties not primarily held for sale to customers or held for lease in the
ordinary course of trade or business or real property utilized for low-cost and socialized housing
as defined by Republic Act No. 7279, otherwise known as the Urban Development and Housing
Act of 1992, and other related laws, residential lot valued at One million pesos (P1,500,000) and
below, house and lot, and other residential dwellings valued at Two million five hundred
thousand pesos (P2,500,000) and below: Provided, That beginning January 1, 2021, the VAT
exemption shall only apply to sale of real properties not primarily held for sale to customers or
held for lease in the ordinary course of trade or business, sale of real property utilized for
socialized housing as defined by Republic Act No. 7279, sale of house and lot, and other
residential dwellings with the selling price of not more than Two million pesos (P2,000,000):
Provided, further, That every three (3) years thereafter, the amount herein stated shall be
adjusted to its present value using the Consumer Price Index, as published by the Philippine
Statistics Authority (PSA); 
(Q) Lease of a residential unit with a monthly rental not exceeding Fifteen
thousand pesos (₱15,000); 

(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, That the materials enumerated
herein are not devoted principally to the publication of paid
advertisements;
(S) Transport of passengers by international carriers;

(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, That 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;

(W) Sale or lease of goods and services to senior citizens and persons
with disability, 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 NIRC, as

amended; 
(Y) Association’s dues, membership fees, and other assessments and
charges collected by homeowners’ associations and condominium
corporations; 

(Z) Sale of gold to the Banko Sentral ng Pilipinas (BSP);

(AA) Sale of or importation of prescription drugs and medicines for: 

(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 Three
million pesos (P3,000,000.00). 
 OTHER PERCENTAGE TAXES

SEC. 116. Tax on Persons Exempt from Value-Added Tax (VAT). Any person
whose sales or receipts are exempt under Section 109(CC) of this Code from
the payment of value-added tax and who is not a VAT-registered person shall
pay a tax equivalent to three percent (3%) of his gross quarterly sales or
receipts: Provided, That cooperatives, [shall be exempt from the three percent
(3%) gross receipts tax herein imposed: Provided, further, That effective July 1,
2020 until June 30, 2023, the rate shall be one percent (1%). 
(NOTE: The amendment introduced by the TRAIN Law was vetoed by the
President. The veto message reads:

C. Exemptions from percentage tax of gross sales/receipts not

exceeding five hundred thousand pesos (P500,000)
I am constrained to veto the provision which provides for the above
under line 12 of Sec. 38 in the enrolled bill, to wit:
TYPE OF BUSINESS TAXES
SALE OF GOOD OR      
SERVICE VAT OPT EXCISE TAX
       
1. In General  -  
2. Exempt from VAT -  -
3. Excise Taxes - - -

-
SALE OF SIN PRODUCTS
AND NON-ESSENTIAL
GOODS
 
OR -  
   
 If your business is VAT registered, even your annual sales fall below 3,000,000
then you’re still liable to pay VAT for that particular year.
 
 Excise Tax – Are taxes on sin products, non-essential goods and non-essential
service (like medical surgery). Basically, it is imposed to manufacturers or
importers.
Example, San Miguel manufactures alcoholic beverages like San Mig light, so
they are subjected to excise tax.
 VAT and Excise Tax is possible to impose on a particular business at the same
time.
 The only liable to pay excise tax from a product which is subjected to excise tax
is the manufacturer/producer/importer of such product.
Example: 7-eleven is selling San Mig light, do 7-eleven
subjected to pay excise tax from such product?
SALE OF SERVICE
 Sale of services means performance of all kind of services in the
Philippines for others for a fee, renumeration or consideration,
whether in kind or in cash. VAT on sale of service is a tax on
payments for services rendered in the excise of profession or calling.
 It is an indirect tax and, thus may be passed on to the client or
customer.
 Such payments may be collected in advance or after the service is
rendered.
SALE OF REAL PROPERTIES
 It refer to real properties held primarily for sale to customers or held for
lease in the ordinary course of trade or business of the seller.

 In the case of sale of real properties on the installment plan, the real
estate dealer shall be subject to VAT on the installment payments,
including interest and penalties, actually and/or constructively received
by the seller.
Kinds of Vat
1. VAT on sales of goods of properties
2. VAT on sale of services and/or lease of properties
3. VAT on importation
Persons Liable to VAT
1. Sellers of goods and/or properties
2. Sellers of services and/or lessors of properties
3. Importers
CHARACTERISTIC OF VAT
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 statutory 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).
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 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
a. 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).
b. 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.
c. 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. To illustrate VAT on each stage of production, refer
to the illustration below:
3. VAT is imposed on the value-added in each stage of production and/or distribution process.
ILLUSTRATION 1: Bobadilla Manufacturing, Incorporated is a manufacturer of bombastic cigarettes (sin product subject to
excise tax). It sells its products to Pearl Shell, the company’s exclusive distributor in the Philippines.
Pearl Shell sells the same to the following:
1. Jamylla Company – exclusive distribution for Luzon
2. Ivy, Incorporated- exclusive distributor for Visayas
3. Joseph – exclusive distributor for Mindanao
Then
Jamylla (1) sells the products to its various customers such as “7/24 supermarket”
VAT is imposed as follows
 Bobadilla is subject to excise tax and value added tax (input vat).
Consequently, Bobadilla will charge vat (output vat) to Pearl Shell.
 Pearl Shell will charge VAT (output VAT) to Jamylla, Ivy and Joseph. In addition, Pearl Shell will deduct the amount of
input VAT it paid to Bobadilla against the vat collected from Jamylla, Ivy and Joseph.
 Jamylla will charge VAT to 7/24. The amount paid by Jamylla to Pearl Shell will be deducted to the amount collected
from 7/24.
 7/24 will charge VAT to their customers/end user. The VAT paid by 7/24 to Jamylla will be charge against the CAT
collected from the customers.
4. It is credit-invoice method value added tax
VAT payable is computed by deducting the input VAT from the output VAT (refer to illustration #1). The
provider of goods or services passed on to the end users the liability to pay the tax who in turn may credit
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 Tax”. The excess of
output VAT over input VAT is called “VAT Payable”.
ILLUSTRATION 2
On January 10, GJ sold product “X” to Mac with a gross selling price of
P1,000,000 plus VAT of P120,000 for a total of P1,120,000. GJ will treat the
P120,000 vat as his output vat. On the other hand, Mac will treat the
P120,000 VAT as his input VAT, On January 15, Mac sold the product to
Clifford for P1,100,000 plus VAT of P132,000. The VAT paid by Clifford to Mac
is an Output Vat of Mac.
The VAT payable of Mac is computed as follows:
Output VAT (collected from Clifford) P132,000
Input VAT (paid to GJ) (less) P120,000
VAT Payable 12,000
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.

It shall also include the transitional input tax determined in accordance

with Section 111 of the Tax Code, presumptive input tax and deferred
input tax from previous period (Refer to Chapter 8 for a more detailed
discussion on the sources of input and output VAT). Input VAT should be
supported with VAT receipts.
 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
(refer to Chapter 8 for 0% sales).
Basis of Value Added Tax
The law that governs the implementation of VAT is RA9337, The VAT Reform
Act, passed by Congress in May 2005 and amended by RA9361. It was implemented
on November 1, 2005. Under this law, a single rate equivalent to 12% (except for 0%
sales) is based on the following:

Nature of
Transaction(s) Tax Based

A. Sale of Goods or Properties Gross selling price

B. Sale of services Gross receipts
C. Importation Total landed cost
D. Dealers in Securities Gross Income
 Sale of Goods
Gross Sales Pxx
Less: Sales discounts xx**
Sales returns xx** xx
Net sales xx
Add: Excise tax, if any xx
Tax Base xx
x Var rate 12%
Output Vat xx
Less: Input VAT (xx)
VAT Payable/(Excess input tax) Pxx
 Sale of Services
Cash received (actually and constructively) *** P500,000
Deposits/Advance payments for future projects P200,000
Materials charged for services P50,000
Gross receipts P750,000
x VAT Rate 12%
Output VAT 90,000
Less: Input VAT 24,000
(VAT Payable (Excess input tax) P66,000
Sale of Goods/Services to Senior Citizens and PWDs (as
amended)

Sale of certain goods or services specified under the law (magna carta for senior
citizens and magna carta for PWDs as amended) shall no be subject to the 12% value
added tax (Refer to Chapter 8 for a detailed discussion on vat exemption and 205
discount granted to Senior Citizens and PWDs.
 True or False

1. For a person to be subjected to any business tax, it is

necessary that he is regularly engaged in the conduct or pursuit
of an economic activity.
 True or False

2. A non-resident foreign person performing isolated

transaction in the Philippines shall be liable to VAT.
 True or False

3. non-stock and non-profit private organizations which sell

exclusively to their members in the regular conduct or pursuit of
commercial or economic activity are exempt from value-added tax.
 True or False

4. Government entities engaged in commercial or economic

activity are generally exempt from value added tax.
 5. Mars Mellow, a NRANET was contracted by PLDT to fix the latter’s
recurring technical issues for P2,000,000. The engagement is expected to
last for not more than 1 month.

Question: How much is the applicable business tax of Mars Mellow if any?

Service Fee: P1,000,000

Add: 12% VAT P120,000
Total: P1,120,000
Less:
Final Vat to be remitted to the BIR by PLDT (P120,000)
FW tax on income of a NRANET (1M x 25%) (P250,000)
Net Payment to Mars Mellow (P750,000)
 NRAETB NRANETB
Non- Non-
Resident Resident
Alien Alien
Engaged in Not
Trade or Engaged in
Business Trade or
Business
is one who stays in the
If individual stays in the Philippines
Philippines for an aggregate
for an aggregate period of 180 days or
period of more than 180 days
less
during any calendar year.

The taxable income of citizens, resident aliens and The taxable income of NRANETBs
NRAETB is defined as gross compensation and net is their gross income.
business income less personal allowances.
6. Pinas Energy Corp. entered into a BOT contract with the PNOC, for
finance, engineering, supply, installation, testing, and maintenance of
48.25 megawatts geothermal powerplant. During the year, PINAS sold
for P200,000 a fully depreciated vehicle used in business.
Question: is there a VAT? How much if any?

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

Note: If the asset sold is an ordinary asset, it is

generally subject to VAT unless exempt by law
 Vat Exempt Sales
(Section 109 NIRC, as amended under RA 10963-TRAIN Law; RR 13-2018)

The Vat exempt transactions provided in the Tax Code are follows:

1.) Agricultural and marine “food products in their original state”

2.) Livestock; and

3.) Poultry of a kind generally used as, or yielding or producing

Foods for human consumption and breeding stock and genetic materials therefore
 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

-Crustaceans such as: Bulls
Corn grits Calves Ducks
• Lobster, Shrimps Pigs
Raw cane sugar & • Prawns, Oysters Sheep Geese
molasses • Mussels, Clams Goats
• Trout, eels Rabbits Turkey
Copra
Illustration 1:
Determine which transaction is subjected to VAT

Transaction Particulars Sales

1 Crops
2 Bonsai
3 Wood
4 Barbeque
5 Tilapia
6 Roasted Chicken
7 Canned pineapple chunks
8 Salted eggs
9 Smoked fish
10 Flowers
11 Raw sugar cane
12 Muscovado
13 Refined sugar
Vat Exempt Not Vat Exempt
B. Sale or importation of:

a.Fertilizers

b.Seeds, seedlings and fingerlings

c. Fish, prawn, livestock and poultry feeds, including

ingredients, whether locally produced or imported,
used in manufacture of finished feeds.
 ILLUSTRATION 2:

Determine which transaction is subject to vat:

Transaction Particulars

1 Sale/importation of V-Mig hogfeeds.

2 Sale/importation of V-Mig feeds for pets
3 Purchase of local raw materials for the formulation of hogfeeds
4 Importation of raw materials for the formulation of hogfeeds
5 Importation of raw materials for the formulation of feeds for
animals generally considered as pets
6 Importation of fertilizers
 Importation of personal and household effects belonging to:

1. The residents of the Philippines returning from abroad; and

2. Nonresident citizens coming to resettle in the Philippines

Kinds of personal and household effects that may be exempt from

payment of customs duties:

1. Returned personal and household effects; and

2. Personal and household effects purchased abroad.
ILLUSTRATION 3:

Lester returned from the United States after watching a game between
the Warriors and Cleveland. He brought with him several personal effects
(souvenirs) he brought from United States.

Question: Are the personal effects brought by Lester subject to vat?

• Answer: No. The personal and household effects brought from abroad by a resident of the
Philippines are exempt from VAT.