Value-Added Tax (16 May 2015)

- Imposed only on value added (taxable sales taxable purchases)

- Output tax on the sales less input tax on the purchases
- Seller always subject to VAT (output tax of seller is input tax of buyer)
- Output tax: 12% of 100
- Input tax

Sales 100 100

OT 12.00 12.00
Purchases 80 150
IT (12% x 80) 9.60 18
Value added 20 (6) excess input tax
VAT 2.40

- Sales tax and tax on consumption (impose only when there is only a sale, barter, or exchange)
- Tax on consumption in the Philippines, otherwise not subject to VAT (destination principle;
cross-border doctrine)
o In importation, goods subject to VAT (12%) because intended for sale or consumption
here
o In exportation, goods subject to VAT but rate is 0%
- Zero-rating v. exemption
o Exemption outside scope of VAT
o Zero-rating within scope, but rate is 0

Business taxes

VAT Non-VAT

Goods/Prop Services Sale of service / goods (Title V or, opt)

12% / 0% 12% / 0% VAT or other percentage tax

Excisable goods (Title VI)

VAT + excise tax

Base: GSP GR Exempt from business tax (see Sec. 109)

Basic goods and services
(food, clothing, education, etc)
e.g., fisherman, poultry farmer

Banks other percentage tax; all income subject to other percentage tax, except that there will be
different rates imposed

Farmer, lessor of residential property not more than 12,800 pesos = exempt from both VAT and other
percentage taxes

If services of alien architect are done outside the Philippines not subject to VAT
- Consumption in case of services takes place where such service is done

A Hongkong architect went to the Philippines to conduct a lecture for 2 days. He was paid 2M pesos as
honorarium or professional fee. Is he subject to Philippine income tax? VAT?
 - Subject to income tax because service is done in the Philippines; to be withheld

Sale of capital asset is not subject to VAT because it is not in the usual course of trade or business

Even if no sales (sale of goods), the document that will trigger VAT liability is issuance of VAT sales
invoice
- Charge or credit
o Even if full consideration not collected, pay already VAT (e.g., installment sale)
- Cf. sales of service no service, no VAT (when you receive something, liable to VAT)

Requisites (VAT)
- Sale or service
- Goods in Philippines; Done in pursuance of trade or business in the Philippines
- Not exempt

Farmer of strawberries in Baguio earn 10M. Sold to merchant for 11M to be sold in Muoz market.
Subject to VAT?
- Merchant 1 is not subject to VAT; exempted (see Sec. 109)

Sale of real property. Developer of real property, registered as a VAT person, subdivides lots and sells
them. Gross sales during the year is 100M pesos. Subject to VAT?
- Generally, subject to VAT
- But if you can show that he also sells subdivision lots that are residential, and those residential
lots are sold for an amount not exceeding 1,919,500 pesos, they are exempt
o Or other residential house and lots or dwelling places not exceeding 3,199,200 pesos
o Socialized housing individual units sold for 450,000 pesos (not VATable)
- Real property in Phil, done in Philippines, person engaged in real estate business (property must
be held primarily for sale or lease in the course of trade or business)

Based on existing regulations, if property is held in business (ordinary asset) even if seller not dealer in
property, still subject to VAT

Distribution of property dividends

- Subject to VAT (per Sec. 106, a deemed sale transaction

Sale of service subject to VAT if listed in Sec. 108

- Sale or exchange of service, done in the course of business, and no law exempts from VAT
- E.g., a real estate broker sells his services to real estate developers, and he is paid a commission
o If exceeds 1,919,500 pesos, or
o If a VAT registered person, regardless of whether or not commission exceeds the
threshold amount
- How about an insurance broker who receives 5M pesos from Philam Life?

When do you become liable to VAT?

- Seller of service (upon COLLECTION)

Contractor, a VAT registered person; contractee not.

- 30% initial (upon signing of contract, so no service has yet been rendered); 70% based on
progress billing
- Is he subject to VAT?
 o gross receipts (Sec. 108 [A], last par.) includes services performed or about to be
performed
o No income tax because no service rendered yet

Zero-rated
- Imposed on import of goods
- PEZA and Freeport zones are foreign territories by fiction of law