VAT

 There are 3 taxable transactions here, we talk about sales of goods and properties, sales of services,
and importation. What about sales of goods and properties, what about sales of goods and services for
this to be even covered by vatable transactions, this transaction must be made in the course of trade or
business, that is a very important/essential element for the application of VAT, on the receipts from
this transaction. Whereas in importation, the law does not require that the sale be made in the course
of trade or business, it suffice that there is importation of goods then that transaction is right away
VATable according to the tax code. So again a basic question that might appear in your bar exam
could be this issue again and whether or not Vat would apply on a particular transaction, again as I
said, what better way to answer this is to recall the provisions governing exemptions. Well of course,
firstly, VAT will not apply if not made in the course of trade or business. Again, if the transaction is a
sale of good or sale of services, if the transaction was not made in the course of trade or business, you
right away conclude that this transaction is beyond the reach of VAT, but if the sale of goods or
properties or the sale of services are made in the course of trade or business, is it possible for that
transaction to be exempted from VAT? Primarily you would go to section 109 subparagraph 1,
because this would be the provision dealing with exemptions from the VAT under the law but it is a
rather long section/paragraph containing subparagraphs A up to B, of course your bar examiner may
have advised you that this year’s bar there would be no need for a heavy memory work, of course you
will be more comfortable if you were able to memorize all these, if not, just please read this over and
over again. Ok unfortunately it is a very long paragraph, but what you must remember is this sale of
agricultural food products, because there it is the first in the enumeration. So when asked sale of
orchids, you will say ah sale of agricultural products, sige try mo kainin ang orchids. So what will
really be covered by the exemption are agricultural food products. It could be an agricultural product
but if it cannot be eaten, it could not be covered by this exemption. But if that sale of orchid is made
in this flower shop, of course, you already have this element, in the course of trade or business.
Ordinarily this is covered by VAT, unless it would appear that what would apply is subparagraph (V),
meaning the gross receipts for the year will not reach the threshold of 1.5M. A transaction may not be
covered by 109 (1)(A) to (U) but even if the sale of goods or services is taxable ordinarily it could still
be exempted if the gross receipts for the year will not reach this threshold of 1.5M. In other words,
from A to U regardless of the amount of gross receipts, exempt na agad yan. In all other kinds of
transactions, exemptions is possible only when? The receipts will not reach this threshold, 1.5M and
the legal basis here is would be 1.5. However please consider that those transactions covered by 109
(1)(V), exempt from VAT, there is however another tax liability. Also under the tax code, and the basis
here is 116 which is the percentage tax. What is this tax? At the rate of 3%. What about the rate for
VAT? Again, if the transaction is any one of those mentioned in 109(1) (A) to (U), it is exempted from
VAT, it is likewise exempted from the 3% percentage tax. If the transaction is the one covered by
paragraph (V), because the transaction is not otherwise mentioned in (A) to (U), the receipts did not
reach the threshold of 1.5M, it is likewise exempt from VAT but it is likewise liable for 3% tax
mentioned in Section 116. So, therefore if the transaction is covered by (V) meaning, not covered
from (A) to (U) but the gross receipts exceeds or reach the threshold of 1.5M, vatable na sya, pero pag
vatable na sya wala na rin namang percentage tax.
 We go to the rates of VAT. What are the applicable rates for VAT purposes. Of course we have
encountered this rate of 0 and of course 12%. But do not consider these as the only applicable rates. In
Section 114 you will find this rate of 5%. But this would really pertain to the withholding rate where
the purchaser is the government. For those of you who are working in the government normally you
will see this rate of 5%. That would already correspond to the VAT liability. But under the law that is
covered by the withholding, but this time the government. Let me just point out that before RA 9337,
withholding by the government was really in the nature of creditable and by now you already have an
idea as to what is creditable withholding tax. Under the present amendment by RA 9337, this 5%
withholding is in the nature of a final withholding tax. There lies the difference, before it was 6% but
now it was reduced to 5%. With this marked difference, the withholding is now final, no longer
creditable as before but final. However if the purchaser is not the government you still apply here the
VAT but at the rates of 0 or 12%. Why do we apply this rate of 0%. If you look at this provision on
transactions covered by this 0 rate, ok you talk about export sales. We really recognize here the so-
called destination principle or the so-called cost border (?). Recognize that VAT is really a
consumption tax. The principle in relation to the destination principle is this: the tax will be imposed
 on consumptions destined to be made here in the Philippines only. But if the consumption is destined
in abroad then it will not be covered by VAT. But what about export sales? You will consider the
transaction as VATable but anyway the rate is zero resulting in no liability. Still no liability for VAT. Is
this 0% intended to benefit the taxpayer? What is the intention of the law behind here? Is this
primarily catered to the benefit of the taxpayer businessman? Not really, it is really meant to favor the
consender(?). Again, export sales, you talk about a zero rated transaction where the consumer is
perhaps engaged in international shipping. The rate applicable is zero. But the rate is really intended
to benefit this person engaged in international shipping or air transportation service, not really the one
supplying the equipment, the parts, not the businessman.
 You will encounter here the terms input tax and output tax. VAT output tax, input tax. So I am a
businessman, suppose, I am engaged in assembling computer parts, assembling this in order to come
up with a desktop machine. My intention is to have these machines be sold to my consumers, but of
course I will be securing the parts from my supplier, also engaged in the business of selling computer
parts. Now of course, as far as I am concerned, I will be purchasing these parts for the purpose of
assembling this for resale later on, because I am engage in this business, suppose that my gross
receipts will be in excess of 1.5M, I will be a VAT registrable person, my obligation is to register
under the VAT system and so therefore, in all my sales, I will be liable for this so-called output tax.
Normally you will see this in the receipts, if you are in the restaurants, if you go to a gasoline station,
of course there is already a computation as to the VAT component of the cost of the service or
property. but that VAT component is what you call output tax and that is really base on this rate of
12%. I am the one statutorily liable for the payment or remittance of this tax although I can shift the
burden to my consumer, now purchaser. I will simply add that as part of the purchase, the cost. Of
course, I would have purchases which are attributable to my vatable transactions, with respect to my
purchase of computer parts, there is that component of the cost which I paid but which was in fact
also the VAT component which my supplier will be statutorily liable to pay although he is entitled to
shift to its consumer like me. Ok so this 12% output tax as far as my supplier is concerned is my input
tax. So ok under the input tax credit method, I pay 12% but my input tax can be credited as against my
output taxes. Ultimately the liability will only be the difference between this 12% output tax and other
amount that I can accumulate as my input taxes. So that would be ultimately, the only amount I would
be held liable under the VAT system. As far as my supplier is concerned, that VAT component which
is its output tax, passed on to me, my input tax, that could also be the subject of input tax credit kasi
meron din naman syang input taxes from his purchases which is directly attributable to this vatable
transactions. So you see, when you claim input taxes, as credit to output taxes, you are simply limited
only to those input taxes acquired which are really attributable to your vatable transactions. Pag
kumain ka naman sa restaurant, meron kang vat dyan, do not use this and utilize this as input taxes, e
wala namang kinalaman dun sa negosyo mo, ok, sinama mo yung gasoline cost mo and all others,
basta may receipt ka na may vat component, ah input tax yan, that should be of course not included in
the tax credit method, input tax credit method. Now the problem is this: You have certain taxpayers
who are liable for 0%. Now certainly in these 0% rate transaction there will likewise be purchases that
will be directly attributable to 0 rated transactions, because your output tax here will be zero on
account of zero rate and you will have input taxes, the result would be an excess of your input tax
over your output tax and this is now something that can be covered by way of tax credit or tax refund
and so we will talk about tax refund or tax credit pertaining to this unutilized input taxes. So we have
talked about this refund of taxes under 204 (C) and 229. those who choose to claim for refund can be
based on erroneously or illegally collected taxes. And what are the principles involved in judicial
claim for refund subject to certain limitations: (1) there must be a prior claim for refund in the office
of the commissioner; (2) the judicial claim cannot be made outside the 2 year period reckoned from
the date of payment. Now we go to unutilized input taxes. Here you will see an instance where input
taxes really could be in excess of your output taxes. Now what to do with your tax credit/tax refund
application, are we to be covered as well by this 2year period limitation, are we as well covered by
this 30day limitation coinciding with the 2 year limitation for purposes of appeal to the CTA. These
are the principles we have covered earlier when we have discussed tax refund based on erroneous
payment or illegal collection of taxes, consider this instance where there is unutilized input taxes
cannot be in a sense an erroneous payment of taxes. Di ba wala namang erroneous payment of taxes
dun. You are liable for output taxes, kaya lang zero rate, and you also have purchases where you have
acquired input taxes, nasan ang erroneous payment or illegal collection of taxes dun. And that’s why
when you seek refund for your unutilized input taxes, what principle are you going to use? Section
204 (c) and 299? Not really. That’s why in your section 112 there is a specified procedure here. These
would refer only to the unutilized input taxes. What is the rule here. For purposes of this refund or tax
credit application pertaining to unutilized input taxes. Again here is this period of 2 years but this 2
year period is reckoned from the close of taxable quarter, close of the quarter pertaining to the taxable
transactions. This time you do not reckon the 2 year period from the date of payment. This 2-year
period is not reckoned from the date of payment. This time under 112 the reckoning point is really the
close of that quarter where that taxable transaction happened. And we are talking about zero rated
transactions wherein input taxes attributed to such zero rated transactions could have been acquired,
nasaan ang payment na naman pertaining to your acquired input taxes, not really referred to in 112. Its
possible that the taxable transaction is covered by the first quarter of 2005 but the purchases where
you acquired this input taxes, were actually paid sometime in 2006, take note, the law merely says,
input taxes due or paid. Again, the taxable transaction maybe covered by the first quarter of 2005 but
actual payment of those purchases wherein you acquired input taxes which are attributable to such
transactions may have actually paid sometime in 2006. But for purposes of this 2year period, you do
not reckon this from the date of payment. Yung purchases mo where you acquired input taxes,
however you reckon this refund or tax credit from the close of this quarter where your taxable
transactions occurred and what is the close of the taxable quarter here, yung first quarter mo yung
close is March 31, but pertain to the first quarter, regardless of the actual date of payment with respect
to your purchases where you acquired input taxes. So for purposes of this 2year period then, you will
have until, so if this first quarter is the first quarter in 2005, you will have until 2007 only. Kung ang
date of payment mo is sometime in 2006, you still only have until 2007 within which you can seek
refund or tax credit of your unutilized input taxes because you reckon this 2year period from the close
of the quarter when these pertinent transactions took place. Once this claim for refund or application
for tax credit is filed before the Office of the Commissioner, what does the law say here in 112? In
229, when we discussed tax refund we emphasized that there really is no period set by the law within
which the Commissioner has to act on your claim for refund. So that the taxpayer can simply wait
until the last day of this 2year period reckoned from the date of payment before he could consider the
claim as having been unacted upon, meaning to say, inaction for which he will be entitled to bring an
appeal before the CTA. This time tax refund concerning unutilized input taxes we don’t recognize the
same. The law would provide this period of 120 days from the filing of this application for tax refund
or tax credit within which the Commissioner has to act on your tax refund, tax credit, 2 things will
happen then, the Commissioner could act or maybe there will be inaction. In other case, the taxpayer
will be provided with sufficient remedy. Again we talk about appeal before the CTA which has
exclusive appellate jurisdiction on this case. In case of denial you still recognize the 30day rule
reckoned from the date of receipt. In case of inaction, 30 days upon the expiration of this 120day
period. So let’s go back to this example: first quarter of 2005, close is March 31, in other words we
have until March 31, 2007 within which to file an application to claim for refund or tax credit. Would
it be possible that you file the claim on March 31, 2007 and at the same time you already file a
judicial action, an appeal before the CTA? Parang doon sa discussion natin ng erroneously paid tax or
illegally collected tax, hindi ba there is only this period of 2 years reckoned from the date of payment
before you can file your judicial action. It is possible that your claim for refund and your appeal
before the CTA is made on the very last day of this 2year period. Hindi mo na aantaying yung
expiration ng 2year period kasi maglalapse na, prescribe na yung right to claim via judicial action, we
cannot allow that to happen in this particular case where there is erroneous payment or illegal
collection of taxes. But we are talking about unutilized input taxes, hindi naman yan erroneously paid
taxes, and there is a very specific procedure. Are we required to file the claim within this 2 year period
kung last day na yan like March 31, 2007, are we also required to file the appeal before the CTA on
that same day, kasi nga 2years na mahigit yung lumipas, and the answer is no. You file the claim for
refund within this 2year period including the very last day of this 2year period but you need to wait
for the decision or inaction. There now lies the difference, that we are talking about unutilized input
tax credit only. Your claim for refund could be filed within this 2year period but upon filing, you need
to wait for the decision or expiration of 120 day period before you can bring the matter before the
CTA, even though such decision or inaction is already outside of this 2year period, just to compare
with our erroneously or illegally collected taxes. Ang tax refund natin is this judicial action as well as
the claim for refund, your 30day period from decision or denial should coincide with this 2year period
as well. We do not apply that principle here, in case of tax credit or tax refund on unutilized input
taxes. The other matter which I have also emphasized earlier, this is an indirect tax and so therefore
 for the purpose of filing a claim for refund…well anyway, is it possible that there could be recovery
for erroneously paid or illegally collected taxes when the taxpayer involved is VAT? Pwede ba yun?
Since we have just discussed 112, refund or tax credit of unutilized input taxes, there is a specific rule:
2 years period rin but reckon from the close of the taxable quarter and the claim or the appeal could
be outside of this 2year period as long as this is within 30days from decision or from the expiration of
the 120day period. Could there be a recovery of VAT under the procedure found under 229? Of course
yes. This time hindi naman yun yung refund of unutilized input taxes. For instance, the rate is zero
rate or exempt transaction but anyway there is payment of VAT, erroneously paid VAT yun so ang
remedy here is tax refund but now the basis is section 229, and now you must apply the principles
invoked there.

 Deciding the action or the remedy of protest could be made by an authorized representative not
necessarily by the Commissioner only, this is even recognized under the RR 12-99.
 What about PAGCOR, when PAGCOR under 9337 has been removed from its income tax liability
well anyway under the charter of PAGCOR it enjoyed the exemption, wholistic exemption including
indirect taxes but when 9337 came, removed from this exemption is income tax. Previously you have
section 27(C), again there you will see GOCCs as liable except those expressly enumerated there
GSIS, SSS, PHIC and PCSO, included in the list before was PAGCOR, not anymore this time.
 We have here a NR of the Phils sent a gift check to his future Filipino son-in-law on account of the
latter’s marriage to his daughter to take place in 3 months, why is it not subject to Philippine donor’s
tax law? Because the donation took place outside the Philippines, now well you recognize here the
determinants in the taxability of transfer of property. we have indicated here the determinants, not
only the citizenship and residence but also this other determinants, location of the property and this is
the only determinant that we could use with respect to NRA donors, and their liability will only be
limited to donations of property situated here in the Philippines. If there is no indication in the
situation, that the property subject matter of the donation is that situated here in the Phils, then there
cannot be any liability for transfer tax also donor’s tax, yun lang ang determinant natin. So ang basis
ng sasabihin e donation took place outside where more accurately to my mind, there is no absolute
exemption if you don’t satisfy this determinant, location being an important factor, if the property
subject of donation is situated here in the Philippines, like shares of stock in san Miguel Corporation,
a domestic corporation, then even though this donor is elsewhere, donor’s tax will still apply because
anyway, this share in SMC is a property situated here in the Phils is also subject to the protection by
our government, and so any transfer tax here will be subject to donor’s tax.

REPUBLIC OF THE PHILIPPINES

DEPARTMENT OF FINANCE
BUREAU OF INTERNAL REVENUE
October 27, 2011
REVENUE REGULATIONS NO. 16-2011
SUBJECT: Increasing the Amount of Threshold Amounts for Sale of Residential Lot, Sale
of House and Lot, Lease of Residential Unit and Sale or Lease of Goods or
Properties or Performance of Services covered by Section 109 (P), (Q) and (V)
of the Tax Code of 1997, as amended, thereby Amending Certain Provisions
of Revenue Regulations No. 16 -2005, as amended Otherwise Known as
Consolidated VAT Regulations of 2005.
TO : All Internal Revenue Officers, Employees and Others Concerned
--------------------------------------------------------------------------------------------------------------------------
Section 1. BACKGROUND. Sections 109(P), (Q) and (V) of the Tax Code of 1997, as
amended provides that the amounts stated therein shall be adjusted to their present values
using the Consumer Price Index as published by the National Statistics Office (NSO).
Using the following formula / information:
Value (Current Year) = CPI (Current year)
Value Base Year CPI (Base Year)
Value 2010 = CPI 2010
Value 2005 CPI 2005
Where: CPI = Consumer Price Index
CPI 2010 = 166.1
CPI 2005 = 129.8
the adjusted threshold amounts, rounded off to the nearest hundred are as follows:
Section Amount in Pesos
(2005)
Adjusted threshold
amounts
Section 109 (P) 1,500,000 1,919,500.00
Section 109 (P) 2,500,000 3,199,200.00
Section 109 (Q) 10,000 12,800.00
Section 109 (V) 1,500,000 1,919,500.00Section 2. SALE OF REAL PROPERTIES. - Pertinent portions of Section
4.106-3 of
Revenue Regulations No. 16-2005, as amended is hereby further amended to read as
follows:
"Section 4.106-3 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.
Sale of residential lot with gross selling price exceeding P1,919,500.00,
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 Nov. 1, 2005, shall be subject to ten
percent (10%) output VAT, and starting Feb. 1, 2006, to twelve percent (12%)
output VAT .
xxxxxx xxx"
Section 3. VAT EXEMPT TRANSACTIONS. - Sections 4.109.-1 (B)(1) (e)(1), (p)(4), (q)
and (v) of Revenue Regulations No. 16-2005, as amended, is hereby further amended to
read as follows:
"(e) Services subject to percentage tax under Title V of the Tax Code, as
enumerated below:
(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 (U) of Sec. 109(1) of the Tax Code, the
gross annual sales and/or receipts of which does not exceed the
amount of One Million Nine Hundred Nineteen Thousand Five
Hundred Pesos (P1,919,500.00); Provided, 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 National
Statistics Office (NSO) (Sec. 116 of the Tax Code); Provided, further,
that such adjustment shall be published through revenue
regulations to be issued not later than March 31 of each year;
xxxxxx xxx
(p) The following sales of real properties are exempt from VAT, namely:
(4) Sale of residential lot valued at One Million Nine Hundred
Nineteen Thousand Five Hundred Pesos (P1,919,500.00) and below,
or house & lot and other residential dwellings valued at Three Million
One Hundred Ninety-Nine Thousand Two Hundred Pesos
(P3,199,200.00) and below where the instrument of
sale/transfer/disposition was executed on or after July 1, 2005;
Provided, That every three (3) years thereafter, the amounts stated herein shall be adjusted to its present value using the
Consumer
Price Index, as published by the National Statistics Office (NSO);
Provided, further, that such adjustment shall be published through
revenue regulations to be issued not later than March 31 of each
year;
If two or more adjacent residential lots are sold or disposed 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 P1,919,500.00. Adjacent residential lots,
although covered by separate titles and/or separate tax declarations,
when sold or disposed to one and the same buyer, whether covered
by one or separate Deed of Conveyance, shall be presumed as a sale
of one residential lot.
(q) Lease of residential units with a monthly rental per unit not exceeding
Twelve Thousand Eight Hundred Pesos (P12,800.00), regardless of the
amount of aggregate rentals received by the lessor during the year;
Provided, every three (3) years thereafter, the amount shall be adjusted to
its present value using the Consumer Price Index, as published by the NSO;
Provided, further, that such adjustment shall be published through revenue
regulations to be issued not later than March 31 of each year;
The foregoing notwithstanding, lease of residential units where the monthly
rental per unit exceeds Twelve Thousand Eight Hundred Pesos (P12,800.00)
but the aggregate of such rentals of the lessor during the year do not exceed
One Million Nine Hundred Nineteen Thousand Five Hundred Pesos
(P1,919,500.00) shall likewise be exempt from VAT, however, the same shall
be subjected to three percent (3%) percentage tax.
In cases where a lessor has several residential units for lease, some are
leased out for a monthly rental per unit of not exceeding P12,800.00 while
others are leased out for more than P12,800.00 per unit, his tax liability will
be as follows:
1. The gross receipts from rentals not exceeding P12,800.00 per
month per unit shall be exempt from VAT regardless of the aggregate
annual gross receipts.
2. The gross receipts from rentals exceeding P12,800.00 per
month per unit shall be subject to VAT if the aggregate annual gross
receipts from said units only (not including the gross receipts from
units leased for not more than P12,800.00) exceeds P1,919,500.00.
Otherwise, the gross receipts will be subject to the 3% tax imposed
under Section 116 of the Tax Code.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, hotel rooms, lodging houses, inns and pension houses.
The term 'unit' shall mean an apartment unit in the case of apartments,
house in the case of residential houses; per person in the case of dormitories,
boarding houses and bed spaces; and per room in case of rooms for rent.
xxxxxx xxx
(v) 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 One Million
Nine Hundred Nineteen Thousand Five Hundred Pesos (P1,919,500.00);
Provided, every three (3) years thereafter, the amount shall be adjusted to
its present value using the Consumer Price Index, as published by the NSO;
Provided, further, that such adjustment shall be published through revenue
regulations to be issued not later than March 31 of each year;
For purposes of the threshold of P1,919,500.00, the husband and the wife
shall be considered separate taxpayers. However, the aggregation rule for
each taxpayer shall apply. For instance, if a professional, aside from the
practice of his profession, also derives revenue from other lines of business
which are otherwise subject to VAT, the same shall be combined for
purposes of determining whether the threshold has been exceeded. Thus,
the VAT-exempt sales shall not be included in determining the threshold.
xxxxxx xxx"
Section 4. REPEALING CLAUSE. - All existing rules and regulations and other
issuances or parts thereof which are inconsistent with the provisions of these Regulations
are hereby modified, amended or revoked accordingly.
Section 5. EFFECTIVITY. - These Regulations shall take effect starting January 1,
2012.

REVENUE REGULATIONS NO. 4-2007 issued on March 20, 2007 amends certain
provisions of Revenue Regulations (RR) No. 16-2005, as amended, otherwise known as the
Consolidated Value-Added Tax (VAT) Regulations of 2005.
VAT is imposed and collected on every sale, barter or exchange, or transactions
“deemed sale” of taxable goods or properties at the rate of 1 2% (starting February 1, 2006) of
the gross selling price or gross value in money of the goods or properties sold, bartered, or
exchanged, or deemed sold in the Philippines.
Sale of residential lot with gross selling price exceeding P 1,500,000.00, residential
house and lot or other residential dwellings with gross selling price exceeding P
2,500,000.00, 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 November 1,
2005, shall be subject to 10% output VAT and starting February 1, 2006, to 12% output
VAT.
Installment sale of residential house and lot or other residential dwellings with gross
selling price exceeding P 1,000,000.00, where the instrument of sale (whether the instrument
is nominated as a deed of absolute sale, deed of conditional sale or otherwise) was executed
prior to November 1, 2005 shall be subject to 10% output VAT.
In the case of sale of real property on installment plan (means that initial payments in
the year of sale do not exceed 25% of the gross selling price), the seller shall be subject to
output VAT on the installment payments received, including the interests and penalties for
late payment, actually and/or constructively received, subject to the provisions of Sec.4.106-4
of the Regulation. Correspondingly, the buyer of the property can claim the input tax in the
same period as the s e ller recognized the output tax. Installment payments, including interests
and penalties, actually and/or constructively received starting February 1, 2006 shall be
subject to 12% output VAT.
In the case of sale of real properties on a deferred-payment basis (means that initial
payments made in the year of sale of real property exceeded 25% of gross selling price), the
transaction shall be treated as cash sale which makes the entire selling price taxable in the
month of sale. Output tax shall be recognized by the seller and input tax shall accrue to the
buyer at the time of the execution of the instrument of sale. Payments subsequent to “initial
payments” shall no longer be subject to output VAT, in the case of sale on a deferred
payment basis.
In the case of sale, barter or exchange of real property subject to VAT, gross selling
price shall mean the consideration stated in the sales document or the fair market value,
whichever is higher. If the VAT is not billed separately in the document of sale, the selling
price or the consideration stated therein shall be deemed to be inclusive of VAT. The term
‘fair market value’ shall mean whichever is higher of: 1) the fair market value as
determined by the CIR of Internal Revenue (CIR)/zonal value, or 2) the fair market value as
shown in schedule of values of the Provincial and City Assessors (real property tax
declaration). However, in the absence of zonal value/fair market value as determined by the
CIR, gross selling price refers to the market value shown in the latest real property tax
declaration or the consideration, whichever is higher. If the gross selling price is based on the
zonal value or market value of the property, the zonal or market value shall be deemed
exclusive of VAT. Thus, the zonal value/market value, net of the output VAT, should still be
higher than the consideration in the document of sale, exclusive of the VAT.
If the sale of real property is on installment plan where the zonal value/fair market
value is higher than the consideration/selling price, exclusive of the VAT, the VAT shall be
based on the ratio of actual collection of the consideration, exclusive of the VAT, against the
agreed consideration, exclusive of the VAT, appearing in the Contract to Sell/Contract of
Sale applied to the zonal value/fair market value of the property at the time of the execution of the Contract to
Sell/Contract of Sale at the inception of the contract. Thus, since the output
VAT is based on the market value of the property which is higher than the
consideration/selling price in the sales document, exclusive of the VAT, the input VAT
that can be claimed by the buyer shall be the separately-billed output VAT in the sales
document issued by the seller. Therefore, the output VAT which is based on the ma rket value
must be billed separately by the seller in the sales document with specific mention that the
VAT billed separately is based on the market value of the property.
“Considered export sales under Executive Order (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; Provided, That 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; Provided, further, That pursuant to EO
226 and other special laws, even without actual exportation, the following shall be considered
constructively exported:
a. Sales to bonded manufacturing warehouses of exp ort-oriented manufacturers;
b. Sales to export processing zones pursuant to Republic Act (RA) Nos. 7916, as
amended, 7903, 7922 and other similar export processing zones;
c. Sale to enterprises duly registered and accredited with the Subic Bay Metropolitan
Authority pursuant to RA 7227;
d. 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 Bureau of Internal Revenue (BIR) and the
Bureau of Customs (BOC); and
e. 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.
The sale of goods, supplies, equipment and fuel to persons engaged in international
shipping or international air transport operations; Provided, that the same is limited to goods,
supplies, equipment and fuel pertaining to or attributable to the transport of goods and
passengers from a port in the Philippines directly to a foreign port, or vice versa, without
docking or stopping at any other port in the Philippines unless the docking or stopping at any
other Philippine port is for the purpose of unloading passengers and/or cargoes that originated
from abroad, or to load passengers and/or cargoes bound for abroad; Provided, further, that if
any portion of such fuel, goods or supplies is used for purposes other than that mentioned in
this paragraph, such portion of fuel goods and supplies shall be subject to 12% output VAT
starting February 1, 2006.
Sale of goods or property to persons or entities who are tax-exempt under special laws
or international agreements to which the Philippines is a signatory, such as Asian
Development Bank (ADB), International Rice Research Institute (IRRI), etc., shall be
effectively subject to VAT at zero-rate.”
The CIR shall determine the appropriate tax base in cases where a transaction is
deemed a sale, barter or exchange of goods or properties under Sec. 4.106-7 paragraph (a) of
the Regulation, or where the gross selling price is unreasonably lower than the actual market
value. The gross selling price is unreasonably lower than the actual market value if it is
lower by more than 30% of the actual market value of the same goods of the same quantity
and quality sold in the immediate locality on or nearest the date of sale. Nonetheless, if one
of the parties in the transaction is the government as defined and contemplated under the Administrative Code, the
output VAT on the transaction shall be based on the actual selling
price.
The exchange of real estate properties held for sale or for lease, for shares of stocks,
whether resulting to corporate control or not, is subject to VAT, subject to exceptions
provided under Section 4.106-3 of the Regulation. On the other hand, if the transferee of the
transferred real property by a real estate dealer is another real estate dealer, in an exchange
where the transferor gains control of the transferee-corporation, no output VAT is imposable
on the said transfer.
The sale or exchange of services, as well as the use or lease of properties, as defined
in Sec. 108(A) of the Tax Code shall be subject to VAT, equivalent to 12% of the gross
receipts (excluding VAT) starting February 1, 2006.”
Domestic common carriers by air and sea are subject to 12% VAT on their gross
receipts from their transport of passengers, goods or cargoes from one place in the
Philippines to another place in the Philippines starting February 1, 2006.
The sale of electric ity by generation, transmission and distribution companies shall be
subject to 12% VAT on their gross receipts starting February 1, 2006; Provided, that 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 shall be subject to 0% VAT.
The gross receipts of all other franchisees, other than those covered by Sec. 119 of the
Tax Code, regardless of how their franchises may have been granted, shall be subject to the
12% VAT imposed under Sec. 108 of the Tax Code starting Feb ruary 1, 2006. These include,
among others, the Philippine and Amusement Gaming Corporation (PAGCOR) and its
licensees or franchisees.
Non-life insurance premiums are subject to VAT, whereas non-life reinsurance
premiums are not subject to VAT, the latter being already subjected to VAT upon receipt of
the insurance premiums. Insurance and reinsurance commissions, whether life of non-life, are
subject to VAT.
“Gross receipts” refers to the total amount of money or its equivalent representing the
contract price, compensation, service fee, rental or royalty, including the amount charged for
materials supplied with the services and deposits applied as payments for services rendered
and advance payments actually or constructively received during the taxable period for the
services performed or to be performed for another person, excluding the VAT, except those
amounts earmarked for payment to unrelated third party or received as reimbursement for
advance payment on behalf of another which do not redound to the benefit of the payor.
A payment is a payment to a third party if the same is made to settle an obligation of
another person, e.g. customer or client, to the said third party, which obligation is evidenced
by the sales invoice/official receipt issued by said third party to the obligor/debtor (e.g.
customer or client of the payor of the obligation).
An advance payment is an advance payment on behalf of another if the same is paid
to a third party for a present or future obligation of said another party which obligation is
evidenced by a sales invoice/official receipt issued by the obligee/creditor to the
obligor/debtor (i.e. the aforementioned “another party”) for the sale of goods or services by
the former to the latter.
For this purpose, ‘unrelated party’ shall not include taxpayer’s employees, partners,
affiliates (parent, subsidiary and other related companies), relatives by consanguinity or
affinity within the fourth civil degree, and trust fund where the taxpayer is the tr ustor, trustee
or beneficiary, even if covered by an agreement to the contrary.
Services rendered to persons engaged in international shipping or air transport
operations, including leases of property for use thereof, shall be subject to 0% VAT rate; Provided, however, that the
services referred to herein sha ll not pertain to those made to
common carriers by air and sea relative to their transport of passengers, goods or cargoes
from one place in the Philippines to another place in the Philippines, the same being subject
to 12% VAT under Sec. 108 of the Tax Code starting Februa ry 1, 2006.
The following transactions shall be exempt from VAT:
a. Sales by agricultural cooperatives duly registered and in good standing with the
Cooperative Development Authority (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.
Sale by agricultural cooperatives to non-members can only be exempted
from VAT if the producer of the agricultural products sold is the cooperative
itself. If the cooperative is not the producer (e.g. trader), then only those sales to
its members shall be exempted from VAT.
It is to be reiterated however, that sale or importation of agricultural food
products in their original state is exempt from VAT irrespective of the seller and
buyer thereof.
b. 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.
c. Importation of life-saving equipment, safety and rescue equipment and
communication and navigational safety equipment, steel plates and other metal
plates including marine - grade aluminum plates, used for shipping transport
operations; Provided, that the exemption shall be subject to the provisions of
Section 4 of RA No. 9295, otherwise known as ‘The Domestic Shipping
Development Act of 2004.
d. Importation of capital equipment, machinery, spare parts, life-saving and
navigational equipment, steel plates and other metal plates including marine-grade
aluminum plates to be used in the construction, repair, renovation or alteration of
any merchant marine vessel operated or to be operated in the domestic trade;
Provided, that the exemption shall be subject to the provisions of Section 19 of
RA No. 9295.
e. Importation of fuel, goods and supplies by persons engaged in international
shipping or air transport operations; Provided, that the said fuel, goods and
supplies shall be used exclusively or shall pertain to the transport of goods and/or
passenger from a port in the Philippines directly to a foreign port, or vice versa,
without docking or stopping at any other port in the Philippines unless the docking
or stopping at any other Philippine port is for the purpose of unloading passengers
and/or cargoes that originated from abroad, or to load passengers and/or cargoes
bound for abroad; Provided, further, that if any portion of such fuel, goods or
supplies is used for purposes other than that mentioned in this paragraph, such
portion of fuel, goods and supplies shall be subject to 12% VAT starting February
1, 2006.
f. Services of banks, non-bank financial intermediaries performing quasi-banking
functions, and other non-bank financial intermediaries, such as money changers and pawnshops, subject to Percentage
Tax under Secs. 121 and 122 , respectively,
of the Tax Code.
g. 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 P1,500,000.00. Provided, that not later than
January 31, 2009 and every three (3) years thereafter, the amount of
P1,500,000.00 shall be adjusted to its present value using the Consumer Price
Index, as published by the NSO.
For purposes of the threshold of P 1,500,000.00, the husband and the wife
shall be considered separate taxpayers. However, the aggregation rule for each
taxpayer shall apply, for instance, if a professional, aside from the practice of his
profession, also derives revenue from other lines of business which are otherwise
subject to VAT, the same shall be combined for purposes of determining whether
the threshold has been exceeded. Thus, the VAT-exempt sale shall not be included
in determining the threshold.
A VAT-registered person may, in relation to Sec. 9.236-1(c) of the Regulations, elect
that the exemption in Sec. 4.109-1(B) thereof shall not apply to his sales of go ods or
properties or services. Once the election is made, it shall be irrevocable for a period of three
(3) years counted from the quarter when the election was made except for franchise grantees
of radio and TV broadcasting whose annual gross receipts for the preceding year do not
exceed P10,000,000.00 where the option becomes perpetually irrevocable .
Capital goods or properties refers to goods or properties with estimate d useful life
greater than one (1) year and which are treated as depreciable assets under Sec. 34(F) of the
Tax Code, used directly or indirectly in the production or sale of taxable goods or services.
The aggregate acquisition cost of depreciable assets in any calendar month refers to
the total price, e x c luding the VAT, agreed upon for one or more assets acquired and not on
the payments actually made during the calendar month. Thus, an asset acquired on
installment for an acquisition cost of more than P1,000,000.00, excluding the VAT, will be
subject to the amortization of input tax despite the fact that the monthly payments/
installments may not exceed P1,000,000.00.
Construction in progress (CIP) is the cost of construction work which is not yet
completed. CIP is not depreciated until the asset is placed in service. Normally, upon
completion, a CIP item is reclassified and the reclassified asset is capitalized and depreciated.
CIP is considered, for purposes of claiming input tax, as a purchase of service, the
value of which shall be determined based on the progress billings. Until such time the
construction has been completed, it will not qualify as capital goods as defined, in which
case, input tax credit on such transaction can be recognized in the month the payment was
made; Provided, that an official receipt of payment has been issued based on the progress
billings.
In case of contract for the sale of service where only the labor will be supplied by the
contractor and the materials will be purchased by the contractee from other suppliers, input
tax credit on the labor contracted shall still be recognized on the month the payment was
made based on a progress billings while input tax on the purchase of materials shall be
recognized at the time the materials were purchased.
Once the input tax has alread y been claimed while the construction is still in progress,
no additional input tax can be claimed upon comp letion of the asset when it has been
reclassified as a depreciable capital asset and depreciated.
Claims for VAT refund/Tax Credit Certificate (TCC) with the BIR, Board of
Investment (BOI), and One-Stop-Shop and Duty Drawback Center of the Department of Finance (DOF) should be
deducted from the allowable input tax that are attributable to zerorated sales.
In determining the output tax and VAT payab le and computation of VAT payable or
excess tax credits, there shall be allowed as a deduction from the output tax the amount of
input tax deductible as determined under Sec.4.110-1 to 4.110-5 of the Regulations to arrive
at VAT payable on the monthly declaration and the quarterly VAT returns.
The government or any of its political subdivisions, instrumentalities or agencies
including government-owned or controlled corporations (GOCCs) shall, before making
payment on account of each purchase of goods and/or of services taxed at 12% VAT pursuant
to Secs. 106 and 108 of the Tax Code, deduct and withhold a final VAT due at the rate of 5%
of the gross payment thereof.
The 5% final VAT withholding rate shall represent the net VAT payable of the seller.
The remaining 7 % effectively accounts for the standard input VAT for sales of goods or
services to government or any of its political subdivisions, instrumentalities or agencies
including GOCCs in lieu of the actual input VAT directly attributable or ratably apportioned
to such sales. Should actual input VAT attributable to sale to government exceeds 7% of
gross payments, the excess may form part of the sellers’ expense or cost. On the other hand,
if actual input VAT attributable to sale to government is less than 7% of gross payment, the
difference must be closed to expense or cost.
The government or any of its political subdivisions, instrumentalities or agencies
including GOCCs, as well as private corporation, individuals, estates and trusts, whether
large or non-large taxpayers, shall withhold 12% VAT, starting February 1, 2006, with
respect to the following payments:
a. Lease or use of properties or property rights owned by non-residents; and
b. Other services rendered in the Philippines by non-residents.
The advance payments made by the seller/owner of refined sugar and importer/miller
of wheat/flour shall be allowed as credit against their output tax on the actual gross selling
price of refined sugar/flour. However, advance payments which remains unutilized at the end
of taxpayer’s taxable year where the advance payment was made, which is tantamount to
excess payment, may, at the option of the owner/seller/taxpayer or importer/miller/ taxpayer,
be available for the issuance of TCC upon application duly filed with the BIR by the
seller/owner or importer/miller within two (2) years from the date of filing of the 4
th
quarter
VAT return of the year such advance payments were made, or if filed out of time, from the
last day prescribed by law for filing the return.
Advance VAT payments which have been the subject of an application for the
issuance of TCC shall not be allowed as carry-over nor credited against the output tax of the
succeeding quarter/year.
Advanced VAT payments which remained unutilized for more than one (1) year prior
to the effectivity of the Regulations may, at the option of the seller/owner of the refined sugar
or importer/miller of wheat/flour, be the subject of application for TCC to be filed within two
(2) years from the date of filing of the last quarterly VAT return where the unutilized advance
VAT payments appeared, or if filed out of time, from the last day prescribed by law for filing
the return.
Issuance of TCC shall be limited to the unutilized advance VAT payment and shall
not include excess input tax. Issuance of TCC for input tax attributable to zero-rated sales
shall be covered by a separate application for TCC following applicable rules.
The following non-VAT or exempt taxpayers are added in the list of taxpayers
required to register:
a. Radio and TV broadcasting whose gross annual receipts do not exceed
P10,000,000.00 and which do not opt to be VAT registered;b. PEZA and other ecozone registered enterprises enjoying
the preferential tax rate
of 5% in lieu of all taxes; and
c. SBMA and other free port zone-registered enterprises enjoying the preferential tax
rate of 5% in lieu of all taxes.
These Regulations shall take effect after fifteen (15) days following its publication in
any newspaper of general circulation or in the Official Gazette