Felipe, Emmyrose N.

BSA-3 (Tax 2 MW 8:30-10:00am)

VALUE-ADDED TAX
Value-added tax is a tax on the value added to the purchase price or cost in the sale or lease of
goods, property or services in the course of the trade or business. It is an indirect tax that may be shifted
or passed on to the buyer, transferee, or lessee of the goods, property or services.

Per Republic Act 9337 (also known as the Value-Added Tax Reform Act) every person who, in the
course of trade or business, sells, barters, exchanges, leases goods or property, or renders services is
subject to VAT if the aggregate of his actual or expected gross sales and/or gross receipts exceeds One
Million Nine Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500). Any person who imports
good is likewise subject to value-added tax. The phrase "in the course of trade or business" means the
regular conduct or pursuit of a commercial or an economic activity including transactions incidental
thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-
profit private organization or government entity. Any business or business pursued by an individual
where aggregate gross sale or receipts do not exceed P100,000 during any 12-month period shall be
considered principally for subsistence or livelihood and not in the course of business.

Amendments: Per Republic Act No. 10963 (Tax Reform for Acceleration and Inclusion Law) the VAT
threshold is increased to Three Million Pesos (P3M). The sale or lease of goods and services to senior
citizens and persons with disabilities are now exempted to VAT. Exemption for transfers of property
pursuant to Section 40 (C)(2) of the Tax Cod is now added. Another addition is the exemption for
association dues, membership fees, and other assessments and charges collected by homeowners
associations and condominium corporations. The sale of gold to Bangko Sentral ng Pilipinas (BSP) is now
classified under VAT exempt transactions.

VAT ON SALE OF GOODS OR PROPERTY

Goods or property shall mean all tangible and intangible objects that are capable of pecuniary
estimation and shall include:

1. Real property held primarily for sale to customers or held for lease in the ordinary course of
trade or business;

2. The right or the privilege to use patent, copyright, design or model, plan, secret formula or
processes, goodwill, trademark, trade brand or other like property or right;
 3. The right or the privilege to use in the Philippines of any industrial, commercial or scientific
equipment;

4. The right or the privilege to use motion picture films, tapes, and discs; and

5. Radio, television, satellite transmission and cable television time.

Gross Selling Price

Gross selling price is the total amount of money or its equivalent, which the purchaser pays or is
obligated to pay to the seller in the consideration of the sale, barter or exchange of the goods or
properties excluding the value-added tax. The excise tax, if any, on such goods or property shall form
part of the gross selling price.

Tax Base and Rates

There shall be levied, assessed and collected on every sale, barter or exchange, or transactions
"deemed sale" of taxable goods or property, value-added tax equivalent to 12% of the gross selling price
or gross value in money of the goods or property sold, bartered, or exchanged, or deemed sold in the
Philippines.

The following sales by VAT-registered persons shall be subject to Zero-Rate:

1. Export Sales- The term "export sales" means:

a. 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 Bangko Sentral
ng Pilipinas (BSP);

b. 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 Bangko Sentral ng Pilipinas (BSP);
c. Sale of raw materials or packaging materials to export-oriented enterprise whose export sales
exceed seventy percent (70%) of total annual production;
d. Sale of gold to the Bangko Sentral ng Pilipinas (BSP);
e. Those considered export sales under Executive Order No. 226, otherwise known as the
"Omnibus Investment Code of 1987", and other special laws; and
 f. The sale of goods, supplies, equipment and fuel to persons engaged in international shipping
or international air transport operations.

2. Foreign Currency Denominated Sale. — The phrase 'foreign currency 3denominated sale'
means sale to a nonresident of goods, except those mentioned in Sections 149 and 150, assembled or
manufactured in the Philippines for delivery to a resident in the Philippines, paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP).

3. Sales to persons or entities whose exemption under special laws or international agreements
to which the Philippines is a signatory effectively subjects such sales to zero rate.

Amendments: The TRAIN Law expressly added as “export sales” the sale and delivery of goods to
registered enterprises within a separate customs territory as provided under special laws and within
Tourism Enterprise Zones declared by TIEZA. While the sale of gold to BSP is reclassified from export
sales to exempt transactions. Item 6 will qualify as export sales provided that the goods, supplies,
equipment and fuel shall be used for international shipping and air transport operations. Lastly, items 2,
3, and 5 shall be subject to 12% VAT upon the successful establishment and implementation of an
enhanced VAT refund system that grants refunds of creditable input tax within 90 days from filing of the
VAT refund application with the BIR and all pending VAT refund claims as of 31 December 2017 shall be
fully paid in cash by 31 December 2019. Foreign currency denominated sales are removed from zero-
rated sale of goods.

Sale of Real Properties

Sale of real properties held primarily for sale to customers or held for lease in the ordinary
course of trade or business of the seller shall be subject to VAT. The following sale of properties is subject
to output VAT:

1. Sale of residential lot with gross selling price exceeding P1,919,500.00.

2. Sale of residential house and lot or other residential dwellings with gross selling price
exceeding P3,199,200.00, where the instrument of sale (whether the instrument is nominated as a deed
of absolute sale, deed of conditional sale or otherwise) is executed on or after January 1, 2012 shall be
subject to 12% output VAT.

3. Installment sale of residential house and lot or other residential dwellings with gross selling
price exceeding P1,000,000.

4. A real estate investment trust (REIT) shall be subject to VAT on its gross sales from any
disposal of real property.
Amendments: Under the TRAIN Law, beginning 1st day of January 2021, the VAT exemption with regards
to sale of real property 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 and sale of house and lot and other residential dwellings with threshold reduced to P2,000,000.

VAT ON SALE OF SERVICES AND USE OR LEASE OF PROPERTY

The phrase "sale or exchange of services" means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration, including those performed or rendered
by:

1. Construction and service contractors;

2. Stock, real estate, commercial, customs and immigration brokers;

3. Lessors of property, whether personal or real;

All forms of property for lease, whether real or personal, are liable to VAT except those that are
VAT-exempt.

Real estate lessor includes any person engaged in the business of leasing or subleasing real
property. Lease of property shall be subject to VAT regardless of the place where the contract of lease or
licensing agreement was executed if the property leased or used is located in the Philippines.

Non-resident lessor/owner refers to any person, natural or juridical, an alien, or a citizen who
establishes to the satisfaction of the Commissioner of Internal Revenue (CIR) the fact of his physical
presence abroad with a definite intention to reside therein, and who owns/leases properties, real or
personal, whether tangible or intangible, located in the Philippines.

4. Warehousing services;

Warehousing service means rendering personal services of a warehouseman such as:

a. Engaging in the business of receiving and storing goods of others for compensation or profit;

b. Receiving goods and merchandise to be stored in his warehouse for hire; or

c. Keeping and storing goods for others, as a business and for use.

5. Lessors or distributors of cinematographic films;

6. Persons engaged in milling, processing, manufacturing or repacking goods for others;

A miller, who is a person engaged in milling for others (except palay into rice, corn into corn
grits, and sugarcane into raw sugar), is subject to VAT on sale of services.
7. Proprietors, operators or keepers of hotels, motels, rest houses, pension houses, inns, resorts,
theaters, and movie houses;

8. Proprietors or operators of restaurants, refreshment parlors, cafes and other eating places including
clubs and caterers;

9. Dealers in securities;

Dealers in securities means a merchant of stock securities, whether an individual partnership or

corporation, with an established place of business, regularly engaged in the purchase of securities and
their resale to customers, that is, one who as a merchant buys securities and sells them to customers
with a view to the gains and profits that may be derived therefrom.

Dealers in securities and lending investors shall be subject to VAT on the basis of their gross
receipts.

10. Lending investors;

Lending investors includes all persons other than banks, non-bank financial intermediaries,
finance companies, and other financial intermediaries not performing quasi-banking functions who
make a practice of lending money for themselves or others at interest.

11. Transportation contractors on their transport of goods or cargoes, including persons who transport
goods or cargoes for hire and other domestic common carriers by land, relative to their transport of
goods or cargoes;

Amendments: