TITLE IV The term "gross selling price" means the total amount of money
or its equivalent which the purchaser pays or is obligated to pay to
VALUE ADDED TAX
(As Last Amended by RA Nos. 8761,9010,9238,9337 & 9361)
CHAPTER I
IMPOSITION OF TAX
SEC. 105. Persons Liable. - Any person who, in the course of
trade or business, sells barters, exchanges, leases goods or
properties, renders services, and any person who imports goods
shall be subject to the value-added tax (VAT) imposed in Sections
106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may
be shifted or passed on to the buyer, 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 Republic Act No. 7716.
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,
nonprofit private organization (irrespective of the disposition of its
net income and whether or not it sells exclusively to members or
their guests), or government entity.
The rule of regularity, to the contrary notwithstanding, services as
defined in this Code rendered in the Philippines by nonresident
foreign persons shall be considered as being rendered in the
course of trade or business.
SEC. 106. Value-Added Tax on Sale of Goods or Properties. -
(A) Rate and Base of Tax. - There shall be levied, assessed and
collected on every sale, barter or exchange of goods or properties,
value-added tax equivalent to ten percent (10%) of the gross
selling price or gross value in money of the goods or properties
sold, bartered or exchanged, such tax to be paid by the seller or
transferor: Provided, That the President, upon the
recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve
percent(12%), after any of the following conditions has been
satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and four-fifth
percent (2 4/5%); or
(ii) National Government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 1/2%).
(1) "Goods or Properties." The term "goods" or "properties" shall
mean all tangible and intangible objects which are capable of
pecuniary estimation and shall include:
(a) Real properties held primarily for sale to customers or held for
lease in the ordinary course of trade or business;
(b) The right or the privilege to use patent, copyright, design or
model, plan, secret formula or process, goodwill, trademark, trade
brand or other like property or right;
(c) The right or the privilege to use in the Philippines of any
industrial, commercial or scientific equipment;
(d) The right or the privilege to use motion picture films, tapes and
discs; and
(e) Radio, television, satellite transmission and cable television
time.
the seller in 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 properties shall form part of the gross
selling price.
(2) The following sales by VAT-registered persons shall be subject
to zero percent (0%) rate:
(a) Export Sales. - The term "export sales" means:
(1) 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);
(2) 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);
(3) Sale of raw materials or packaging materials to export-oriented
enterprise whose export sales exceed seventy percent (70%) of
total annual production;
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and
(5) Those considered export sales under Executive Order NO.
226, otherwise known as the "Omnibus Investment Code of 1987",
and other special laws; and
(6) The sale of goods, supplies, equipment and fuel to persons
engaged in international shipping or international air transport
operations.
(b) Foreign Currency Denominated Sale. - The phrase "foreign
currency denominated 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).
(c) 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.
(B) Transactions Deemed Sale. - The following transactions shall
be deemed sale:
(1) Transfer, use or consumption not in the course of business of
goods or properties originally intended for sale or for use in the
course of business;
(2) Distribution or transfer to:
(a) Shareholders or investors as share in the profits of the VAT-
registered persons; or
(b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is not made within sixty
(60) days following the date such goods were consigned; and
(4) Retirement from or cessation of business, with respect to
inventories of taxable goods existing as of such retirement or
cessation.
Page | 1
(C) Changes in or Cessation of Status of a VAT-registered
Person. - The tax imposed in Subsection (A) of this Section shall
also apply to goods disposed of or existing as of a certain date if
under circumstances to be prescribed in rules and regulations to
be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner, the status of a person as a
VAT-registered person changes or is terminated.
(D) Sales Returns, Allowances and Sales Discounts. - The
value of goods or properties sold and subsequently returned or for
which allowances were granted by a VAT-registered person may
be deducted from the gross sales or receipts for the quarter in
which a refund is made or a credit memorandum or refund is
issued. Sales discount granted and indicated in the invoice at the
time of sale and the grant of which does not depend upon the
happening of a future event may be excluded from the gross sales
within the same quarter it was given.
(E) Authority of the Commissioner to Determine the
Appropriate Tax Base. - The Commissioner shall, by rules and
regulations prescribed by the Secretary of Finance, determine the
appropriate tax base in cases where a transaction is deemed a
sale, barter or exchange of goods or properties under Subsection
(B) hereof, or where the gross selling price is unreasonably lower
than the actual market value.
SEC. 107. Value-Added Tax on Importation of Goods. -
(A) In General. - There shall be levied, assessed and collected on
every importation of goods a value-added tax equivalent to ten
percent (10%) based on the total value used by the Bureau of
Customs in determining tariff and customs duties plus customs
duties, excise taxes, if any, and other charges, such tax to be paid
by the importer prior to the release of such goods from customs
custody: Provided, That where the customs duties are determined
on the basis of the quantity or volume of the goods, the value-
added tax shall be based on the landed cost plus excise taxes, if
any Provided, further, That the President, upon the
recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of the value-added tax to twelve
percent (12%), after any of the following conditions has been
satisfied:
(i) Value-added tax collection as a percentage of Gross
Domestic Product (GDP) of the previous year exceeds two and
four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 ½ %).
(B) Transfer of Goods by Tax-exempt Persons. - In the case of
tax-free importation of goods into the Philippines by persons,
entities or agencies exempt from tax where such goods are
subsequently sold, transferred or exchanged in the Philippines to
non-exempt persons or entities, the purchasers, transferees or
recipients shall be considered the importers thereof, who shall be
liable for any internal revenue tax on such importation. The tax due
on such importation shall constitute a lien on the goods superior to
all charges or liens on the goods, irrespective of the possessor
thereof
SEC. 108. Value-added Tax on Sale of Services and Use or
Lease of Properties. -
(A) Rate and Base of Tax. - There shall be levied, assessed and
collected, a value-added tax equivalent to ten percent (10%) 10 of
gross receipts derived from the sale or exchange of services,
including the use or lease of properties: Provided, That the
President, upon the recommendation of the Secretary of Finance,
shall, effective January 1, 2006,raise the value-added tax to twelve
percent (12%), after any of the following conditions has been
satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic
Product (GDP) of the previous year exceeds two and four-fifth
percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the
previous year exceeds one and one-half percent (1 1/2%).
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 construction and service contractors; stock, real
estate, commercial, customs and immigration brokers; lessors of
property, whether personal or real; warehousing services; lessors
or distributors of cinematographic films; persons engaged in milling
processing, manufacturing or repacking goods for others;
proprietors, operators or keepers of hotels, motels, rest houses,
pension houses, inns, resorts; proprietors or operators of
restaurants, refreshment parlors, cafes and other eating places,
including clubs and caterers; dealers in securities; lending
investors; transportation contractors on their transport of goods or
cargoes, including persons who transport goods or cargoes for
hire another domestic common carriers by land relative to their
transport of goods or cargoes; 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;
sales of electricity by generation companies, transmission, and
distribution companies; services of franchise grantees of electric
utilities, telephone and telegraph, radio and television broadcasting
and all other franchise grantees except those under section 119 of
this Code, and non-life insurance companies (except their crop
insurances), including surety, fidelity, indemnity, and bonding
companies; and similar services regardless of whether or not the
performance thereof calls for the exercise or use of the physical or
mental faculties. The phrase "sale or exchange of services" shall
likewise include:
(1) The lease or the use of or the right or privilege to use any
copyright, patent, design or model, plan secret formula or process,
goodwill, trademark, trade brand or other like property or right;
(2) The lease of the use of, or the right to use of any industrial,
commercial or scientific equipment;
(3) The supply of scientific, technical, industrial or commercial
knowledge or information;
(4) The supply of any assistance that is ancillary and subsidiary to
and is furnished as a means of enabling the application or
enjoyment of any such property, or right as is mentioned in
subparagraph (2) or any such knowledge or information as is
mentioned in subparagraph (3);
(5) The supply of services by a nonresident person or his
employee in connection with the use of property or rights
belonging to, or the installation or operation of any brand,
machinery or other apparatus purchased from such nonresident
person.
(6) The supply of technical advice, assistance or services rendered
in connection with technical management or administration of any
scientific, industrial or commercial undertaking, venture, project or
scheme;
(7) The lease of motion picture films, films, tapes and discs; and
(8) The lease or the use of or the right to use radio, television,
satellite transmission and cable television time.
Lease of properties shall be subject to the tax herein imposed
irrespective of the place where the contract of lease or licensing
Page | 2
agreement was executed if the property is leased or used in the
Philippines.
The term "gross receipts" means 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 and advanced payments
actually or constructively received during the taxable quarter for
the services performed or to be performed for another person,
excluding value-added tax.
(B) Transactions Subject to Zero Percent (0%) Rate - The
following services performed in the Philippines by VAT- registered
persons shall be subject to zero percent (0%) rate.
(1) Processing, manufacturing or repacking goods for other
persons doing business outside the Philippines which goods are
subsequently exported, where the services are paid for in
acceptable foreign currency and accounted for in accordance with
the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding
paragraph, rendered to a person engaged in business conducted
outside the Philippines or to a nonresident person not engaged in
business who is outside the Philippines when the services are
performed, the consideration for which is paid for in acceptable
foreign currency and accounted for in accordance with the rules
and regulations of the Bangko Sentral ng Pilipinas (BSP)
(3) Services rendered to persons or entities whose exemption
under special laws or international agreements to which the
Philippines is a signatory effectively subjects the supply of such
services to zero percent (0%) rate;
(4) Services rendered to persons engaged in international shipping
or international air transport operations, including leases of
property for use thereof.
(5) Services performed by subcontractors and/or contractors in
processing, converting, of manufacturing goods for an enterprise
whose export sales exceed seventy percent (70%) of total annual
production.
(6) Transport of passengers and cargo by air or sea vessels from
the Philippines to a foreign country; and
(7) 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.
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,
wearing apparel, domestic animals, and personal household
effects (except any vehicle, vessel, aircraft, machinery other goods
for use in the manufacture and merchandise of any kind in
commercial quantity) belonging to persons coming to settle in the
Philippines, for their own use and not for sale, barter or exchange,
accompanying such persons, or arriving within ninety (90) days
before or after their arrival, upon the production of evidence
satisfactory to the Commissioner, that such persons are actually
coming to settle in the Philippines and that the change of
residence is bona fide;
(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
Page | 3
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 not later than January 31, 2009 and every
three (3) years thereafter, the amount herein stated shall be
adjusted to their present values using the Consumer Price Index,
as published by the National Statistics Office (NSO);
(Q) Lease of a residential unit with a monthly rental not exceeding
Ten thousand pesos (P10, 000): Provided, That not later than
January 31, 2009 and 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);
(R) Sale, importation, printing or publication of books and any
newspaper, magazine review or bulletin which appears at regular
intervals with fixed prices for subscription and sale and which is
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;
(V) Services of bank, non-bank financial intermediaries performing
quasi-banking functions, and other non-bank financial
intermediaries; an
(W) 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 five hundred thousand pesos
(P1,500,000): Provided, That not later than January 31, 2009 and
every three (3) years thereafter, the amount herein stated shall be
adjusted to its present With footnote in the book value using the
Consumer Price Index, as published by. the National Statistics-
Office (NSO);
(2) A VAT-registered person may elect that Subsection (1) not
apply to its sale of goods or properties or services: Provided, that
an election made under this subsection shall be irrevocable for a
period of three (3) years from the quarter the election was made.
SEC. 110. Tax Credits. -
A. Creditable Input Tax. -
(1) Any input tax evidenced by a VAT invoice or official receipt
issued in accordance with Section 113 hereof on the following
transactions shall be creditable against the output tax:
(a) Purchase or importation of goods:
(i) For sale; or
(ii) For conversion into or intended to form part of a finished
product for sale including packaging materials; or
(iii) For use as supplies in the course of business; or
(iv) For use as materials supplied in the sale of service; or
(v) For use in trade or business for which deduction for
depreciation or amortization is allowed under this Code.
(b) Purchase of services on which a value-added tax has been
actually paid.
(2) The input tax on domestic purchase or importation of goods or
properties by a VAT-registered person shall be creditable:
(a) To the purchaser upon consummation of sale and on
importation of goods or properties; and
(b) To the importer upon payment of the value-added tax prior to
the release of the goods from the custody of the Bureau of
Customs.
Provided, that the input tax on goods purchased or imported in a
calendar month for use in trade or business for which deduction for
depreciation is allowed under this Code shall be spread evenly
over the a month of acquisition and the fifty-nine (59) succeeding
months if the aggregate acquisition cost for such goods, excluding
the VAT component thereof, exceeds One million pesos (P 1, 000,
000): Provided, however, That if the estimated useful life of the
capital goodis less than five (5) years, as used for depreciation
purposes, then the input VAT shall be spread over such a shorter
period: Provided, finally, that in the case of purchase of services,
lease or use of properties, the input tax shall be creditable to the
purchaser, lessee or license upon payment of the compensation,
rental, royalty or free.
(3) A VAT-registered person who is also engaged in transactions
not subject to the value-added tax shall be allowed tax credit as
follows:
(a) Total input tax which can be directly attributed to transactions
subject to value-added tax; and
(b) A ratable portion of any input tax which cannot be directly
attributed to either activity.
The term "input tax" means the value-added tax due from or paid
by a VAT-registered person in the course of his trade or business
on importation of goods or local purchase of goods or services,
including lease or use of property, from a VAT-registered person. It
shall also include the transitional input tax determined in
accordance with Section 111 of this Code.
The term "output tax" means the value-added tax due on the sale
or lease of taxable goods or properties or services by any person
registered or required to register under Section 236 of this Code.
(B) Excess Output or Input Tax. - If at the end of any taxable
quarter the output tax exceeds the input tax, the excess shall be
paid by the Vat-registered person. If the input tax exceeds the
output tax, the excess 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 credited against other internal revenue
taxes, subject to the provisions of Section 112.
(C) Determination of Creditable Input Tax. - The sum of the
excess input tax carried over from the preceding month or quarter
and the input tax creditable to a VAT-registered person during the
taxable month or quarter shall be reduced by the amount of claim
for refund or tax credit for value-added tax and other adjustments,
such as purchase returns or allowances and input tax attributable
to exempt sale.
The claim for tax credit referred to in the foregoing paragraph shall
include not only those filed with the Bureau of Internal Revenue
but also those filed with other government agencies, such as the
Board of Investments and the Bureau of Customs.
SEC. 111. Transitional/Presumptive Input Tax Credits. -
(A) Transitional Input Tax Credits. - A person who becomes
liable to value-added tax or any person who elects to be a VAT-
registered person shall, subject to the filing of an inventory
according to rules and regulations prescribed by the Secretary of
finance, upon recommendation of the Commissioner, be allowed
input tax on his beginning inventory of goods, materials and
supplies equivalent to two percent (2%) of the value of such
Page | 4
inventory or the actual value-added tax paid on such goods,
materials and supplies, whichever is higher, which shall be
creditable against the output tax.
(B) Presumptive Input Tax Credits. - Persons or firms engaged
in the processing of sardines, mackerel and milk, and in
manufacturing refined sugar and cooking oil, shall be allowed a
presumptive input tax, creditable against the output tax, equivalent
to four percent (4%) of the gross value in money of their purchases
of primary agricultural products which are used as inputs to their
production.
As used in this Subsection, the term 'processing' shall mean
pasteurization, canning and activities which through physical or
chemical process alter the exterior texture or form or inner
substance of a product in such manner as to prepare it for special
use to which it could not have been put in its original form or
condition.
SEC. 112. Refunds or Tax Credits of Input Tax. -
(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-
registered person, whose sales are zero-rated or effectively zero-
rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax
credit certificate or refund of creditable input tax due or paid
attributable to such sales, except transitional input tax, to the
extent that such input tax has not been applied against output tax:
Provided, however, That in the case of zero-rated sales under
Section 106(A)(2)(a)(1), (2) and (b) and Section 108 (B)(1) and (2),
the acceptable foreign currency exchange proceeds thereof had
been duly accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP): Provided,
further, That where the taxpayer is engaged in zero-rated or
effectively zero-rated sale and also in taxable or exempt sale of
goods of properties or services, and the amount of creditable input
tax due or paid cannot be directly and entirely attributed to any one
of the transactions, it shall be allocated proportionately on the
basis of the volume of sales. Provided, finally, That for a person
making sales that are zero-rated under Section 108(B) (6), the
input taxes shall be allocated ratably between his zero-rated and
non-zero-rated sales.
(B) Cancellation of VAT Registration. - A person whose
registration has been cancelled due to retirement from or
cessation of business, or due to changes in or cessation of status
under Section 106(C) of this Code may, within two (2) years from
the date of cancellation, apply for the issuance of a tax credit
certificate for any unused input tax which may be used in payment
of his other internal revenue taxes.
(C) Period within which Refund or Tax Credit of Input Taxes
shall be Made. - In proper cases, the Commissioner shall grant a
refund or issue the tax credit certificate for creditable input taxes
within one hundred twenty (120) days from the date of submission
of complete documents in support of the application filed in
accordance with Subsections (A) hereof.
In case of full or partial denial of the claim for tax refund or tax
credit, or the failure on the part of the Commissioner to act on the
application within the period prescribed above, the taxpayer
affected may, within thirty (30) days from the receipt of the
decision denying the claim or after the expiration of the one
hundred twenty day-period, appeal the decision or the unacted
claim with the Court of Tax Appeals.
(D) Manner of Giving Refund. - Refunds shall be made upon
warrants drawn by the Commissioner or by his duly authorized
representative without the necessity of being countersigned by the
Chairman, Commission on audit, the provisions of the
Administrative Code of 1987 to the contrary notwithstanding:
Provided, That refunds under this paragraph shall be subject to
post audit by the Commission on Audit.
CHAPTER II
COMPLIANCE REQUIREMENTS
SEC. 113. Invoicing and Accounting Requirements for VAT-
Registered Persons. -
(A) Invoicing Requirements. - A VAT-registered person shall
issue:
(1) A VAT invoice for every sale, barter or exchange of goods or
properties; and
(2) A VAT official receipt for every lease of goods or properties,
and for every sale, barter or exchange of services.
(B) Information Contained in the VAT Invoice or VAT Official
Receipt. - The following information shall be indicated in the VAT
invoice or VAT official receipt:
(1) A statement that the seller is a VAT-registered person,
followed by his Taxpayer's Identification Number (TIN); and
(2) The total amount which the purchaser pays or is obligated to
pay to the seller with the indication that such amount includes the
value-added tax. Provided, That:
(a) The amount of the tax shall be known as a separate item in
the invoice or receipt;
(b) If the sale is exempt from value-added tax, the term "VAT-
exempt sale: shall be written or printed prominently on the invoice
or receipt;
(c) If the sale is subject to zero percent (0%) value-added tax, the
term "zero-rated sale" shall be written or printed prominently on
the invoice or receipt.
(d) If the sale involved goods, properties or services some of
which are subject to and some of which are VAT zero-rated or Vat
exempt, the invoice or receipt shall clearly indicate the break-down
of the sale price between its taxable, exempt and zero-rated
components, and the calculation of the value-added tax on each
portion of the sale shall be known on the invoice or receipt:
Provided, That the seller may issue separate invoices or receipts
for the taxable, exempt, and zero-rated components of the sale.
(3) The date of transaction, quantity, unit cost and description of
the goods or properties or nature of the service; and
(4) In the case of sales in the amount of One thousand pesos
(P1,000) or more where the sale or transfer is made to a VAT-
registered person, the name, business style, if any, address and
Taxpayer Identification Number (TIN) of the purchaser, customer
or client.
(C) Accounting Requirements. - Notwithstanding the provisions
of Section 233, all persons subject to the value-added tax under
Sections 106 and 108 shall, in addition to the regular accounting
records required, maintain a subsidiary sales journal and
subsidiary purchase journal on which the daily sales and
purchases are recorded. The subsidiary journals shall contain
such information as may be required by the Secretary of Finance.
(D) Consequence of Issuing Erroneous VAT Invoice or VAT
Official Receipt. -
(1) If a person who is not a VAT-registered persons issues an
invoice or receipt showing his Taxpayer Identification Number
(TIN), followed by the word "VAT";
Page | 5
(a) The issuer shall, in addition to any liability to other percentage
taxes, be liable to:
(i) The tax imposed in Section 106 or 108 without the benefit of
any input tax credit; and
(ii) A 50% surcharge under Section 248(B) of this Code;
(b) The VAT shall, if the other requisite information required under
Subsection (B) hereof is shown on the invoice or receipt, be
recognized as an input tax credit to the purchaser under Section
110 of this Code.
(2) If a VAT-registered person issues a VAT invoice or VAT official
receipt for a VAT-exempt transaction, but fails to display
prominently on the invoice or receipt the term 'VAT exempt sale',
the issuer shall be liable to account for the tax imposed in section
106 or 108 as if Section 109 did not apply.
(a) In the case of a VAT-registered Person. -
(1) Failure to issue receipts or invoices;
(2) Failure to file a value-added tax return as required under
Section 114; or
(3) Understatement of taxable sales or receipts by thirty percent
(30%) or more of his correct taxable sales or receipts for the
taxable quarter.
(b) Failure of any Person to Register as Required under Section
236.
The temporary closure of the establishment shall be for the
duration of not less than five (5) days and shall be lifted only upon
compliance with whatever requirements prescribed by the
Commissioner in the closure order.

(E) Transitional Period. - Notwithstanding Subsection (B) hereof,

taxpayers may continue to issue VAT invoices and VAT official TITLE V
receipt for the period July 1, 2005 to December 31, 2005 in
accordance with Bureau of Internal Revenue administrative OTHER PERCENTAGE TAXES
practices that existed as of December 31, 2004. (As Last Amended by RA Nos. 8761, 9010, 9238, 9337 &
10001)
SEC. 114. Return and Payment of Value-Added Tax. -
SEC. 116. Tax on Persons Exempt from Value-Added Tax
(A) In General. - Every person liable to pay the value-added tax (VAT). - Any person whose sales or receipts are exempt under
imposed under this Title shall file a quarterly return of the amount Section 109(V) of this Code from the payment of value-added tax
of his gross sales or receipts within twenty-five (25) days following and who is not a VAT-registered person shall pay a tax equivalent
the close of each taxable quarter prescribed for each taxpayer: to three percent (3%) of his gross quarterly sales or receipts:
Provided, however, That VAT-registered persons shall pay the Provided, That cooperatives shall be exempt from the three
value-added tax on a monthly basis. percent (3%) gross receipts tax herein imposed.
Any person, whose registration has been cancelled in accordance
with Section 236, shall file a return and pay the tax due thereon SEC. 117. Percentage Tax on Domestic Carriers and Keepers
within twenty-five (25) days from the date of cancellation of of Garages. - Cars for rent or hire driven by the lessee,
registration: Provided, That only one consolidated return shall be transportation contractors, including persons who transport
filed by the taxpayer for his principal place of business or head passengers for hire, and other domestic carriers by land, for the
office and all branches. transport of passengers [except owners of bancas] and owners of
(B) Where to File the Return and Pay the Tax. - Except as the animal-drawn two wheeled vehicle), and keepers of garages shall
Commissioner otherwise permits, the return shall be filed with and pay a tax equivalent to three percent (3%) of their quarterly gross
the tax paid to an authorized agent bank, Revenue Collection receipts.
Officer or duly authorized city or municipal Treasurer in the The gross receipts of common carriers derived from their incoming
Philippines located within the revenue district where the taxpayer and outgoing freight shall not be subjected to the local taxes
is registered or required to register. imposed under Republic Act No. 7160, otherwise known as the
(C) Withholding of Value-added Tax. - The Government or any Local Government Code of 1991.
of its political subdivisions, instrumentalities or agencies, including In computing the percentage tax provided in this Section, the
government-owned or -controlled corporations (GOCCs) shall, following shall be considered the minimum quarterly gross receipts
before making payment on account of each purchase of goods in each particular case:
and services which are f are subject to the value-added tax
imposed in Sections 106 and 108 of this Code, deduct and Jeepney for hire -
withhold the value-added tax imposed in Sections 106 and 108 of
1. Manila and other Cities P 2,400
this Code, deduct and withhold a final value-added tax at the rate
2. Provincial 1,200
of five percent (5%) of the gross payment thereof: Provided, That
the payment for lease or use of properties or property rights to Public utility bus -
nonresident owners shall be subject to ten percent
(10%) withholding tax at the time of payment. For purposes of this Not exceeding 30 passengers P 3,600
Section, the payor or person in control of the payment shall be Exceeding 30 but not exceeding 50 passengers 6,000
considered as the withholding agent. Exceeding 50 passengers 7,200

The value-added tax withheld under this Section shall be remitted Taxis -
within ten (10) days following the end of the month the withholding 1. Manila and other Cities P 3,600
was made. 2. Provincial 2,400
SEC. 115. Power of the Commissioner to Suspend the Car for hire (with chauffer) P 3,000
Business Operations of a Taxpayer. - The Commissioner or his
authorized representative is hereby empowered to suspend the Car for hire (without chauffer) 1,800
business operations and temporarily close the business
SEC. 118 Percentage Tax on International Carriers.
establishment of any person for any of the following violations:

Page | 6
(A) International air carriers doing; business in the Philippines on
their gross receipts derived from transport of cargo from the
Philippines to another country shall pay a tax of three percent (3%)
of their quarterly gross receipts.
(B) International shipping carriers doing business in the
Philippines on their gross receipts derived from transport of cargo
from the Philippines to another country shall pay a tax equivalent
to three percent (3%) of their quarterly gross receipts.
SEC. 119. Tax on Franchises. - Any provision of general or
special law to the contrary notwithstanding, there shall be levied,
assessed and collected in respect to all franchises on radio and/or
television broadcasting companies whose annual gross receipts of
the preceding year do not exceed Ten million pesos (P10,000.00),
subject to Section 236 of this Code, a tax of three percent (3%)
and on gas and water utilities, a tax of two percent (2%) on the
gross receipts derived from the business covered by the law
granting the franchise: Provided, however, That radio and
television broadcasting companies referred to in this Section shall
have an option to be registered as a value-added taxpayer and
pay the tax due thereon: Provided, further, That once the option is
exercised, said option shall not be irrevocable.
The grantee shall file the return with, and pay the tax due thereon
to the Commissioner or his duly authorized representative, in
accordance with the provisions of Section 128 of this Code, and
the return shall be subject to audit by the Bureau of Internal
Revenue, any provision of any existing law to the contrary
notwithstanding.
SEC. 120. Tax on Overseas Dispatch, Message or
Conversation Originating from the Philippines. -
(A) Persons Liable. - There shall be collected upon every
overseas dispatch, message or conversation transmitted from the
Philippines by telephone, telegraph, telewriter exchange, wireless
and other communication equipment service, a tax of ten percent
(10%) on the amount paid for such services. The tax imposed in
this Section shall be payable by the person paying for the services
rendered and shall be paid to the person rendering the services
who is required to collect and pay the tax within twenty (20) days
after the end of each quarter.
(B) Exemptions. - The tax imposed by this Section shall not apply
to:
(1) Government. - Amounts paid for messages transmitted by the
Government of the Republic of the Philippines or any of its political
subdivisions or instrumentalities;
(2) Diplomatic Services. - Amounts paid for messages
transmitted by any embassy and consular offices of a foreign
government;
(3) International Organizations. - Amounts paid for messages
transmitted by a public international organization or any of its
agencies based in the Philippines enjoying privileges, exemptions
and immunities which the Government of the Philippines is
committed to recognize pursuant to an international agreement;
and
(4) News Services. - Amounts paid for messages from any
newspaper, press association, radio or television newspaper,
broadcasting agency, or newstickers services, to any other
newspaper, press association, radio or television newspaper
broadcasting agency, or newsticker service or to a bona fide
correspondent, which messages 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.
SEC. 121. Tax on Banks and Non-Bank Financial
Intermediaries Performing Quasi- Banking Functions. - There
shall be collected a tax on a gross receipt derived from sources
within the Philippines by all banks and non-bank financial
intermediaries in accordance with the following schedule:
(a) On interest, commissions and discounts from lending activities as
financial leasing, on the basis of remaining maturities of instruments from
are derived:
Maturity period is five years
Maturity period is more than five years
(b) On dividends and equity shares and net income
(c) On royalties, rentals of property, real or personal, profits, from exc
items treated as gross income under Section 32 of this Code
(d) On net trading gains within the taxable year on foreign curren
derivatives, and other similar financial instruments.
Provided, however, That in case the maturity period referred to in
paragraph (a) is shortened thru pre-termination, then the maturity
period shall be reckoned to end as of the date of pre-termination
for purposes of classifying the transaction and the correct rate of
tax shall be applied accordingly.
Provided, finally, That the generally accepted accounting principles
as may be prescribed by the Bangko Sentral ng Pilipinas for the
bank or non0bank financial intermediary performing quasi-banking
functions shall likewise be the basis for the calculation of gross
receipts.
Nothing in this Code shall preclude the Commissioner from
imposing the same tax herein provided on persons performing
similar banking activities.
SEC. 122. Tax on Other Non-Bank Financial Intermediaries. -
There shall be collected a tax of five percent (5%) on the gross
receipts derived by other non-bank financial intermediaries doing
business in the Philippines, from interests, commissions, discounts
and all other items treated as gross income under this code.:
Provided, That interests, commissions and discounts from lending
activities, as well as income from financial leasing, shall be taxed
on the basis of the remaining maturities of the instruments from
which such receipts are derived, in accordance with the following
schedule:
Maturity period is five years or less 5%
Maturity period is more than five years 1%
Provided, however, That in case the maturity period is shortened
thru pre-termination, then the maturity period shall be reckoned to
end as of the date of pre-termination for purposes of classifying
the transaction and the correct rate of tax shall be applied
accordingly.
Provided, finally, That the generally accepted accounting principles
as may be prescribed by the Securities and Exchange
Commission for other non-bank financial intermediaries shall
likewise be the basis for the calculation of gross receipts.
Nothing in this Code shall preclude the Commissioner from
imposing the same tax herein provided on persons performing
similar financing activities.
SEC. 123. Tax on Life Insurance Premiums. - There shall be
collected from every person, company or corporation (except
purely cooperative companies or associations) doing life insurance
business of any sort in the Philippines a tax of two percent (2%) of
the total premium collected, whether such premiums are paid in
money, notes, credits or any substitute for money; but premiums
Page | 7
refunded within six (6) months after payment on account of
rejection of risk or returned for other reason to a person insured
shall not be included in the taxable receipts; nor shall any tax be
paid upon reinsurance by a company that has already paid the tax;
nor upon doing business outside the Philippines on account of any
life insurance of the insured who is a nonresident, if any tax on
such premium is imposed by the foreign country where the branch
is established nor upon premiums collected or received on account
of any reinsurance , if the insured, in case of personal insurance,
resides outside the Philippines, if any tax on such premiums is
imposed by the foreign country where the original insurance has
been issued or perfected; nor upon that portion of the premiums
collected or received by the insurance companies on variable
contracts (as defined in Section 232(2) of Presidential Decree No.
612), in excess of the amounts necessary to insure the lives of the
variable contract workers.
'Cooperative companies or associations' are such as are
conducted by the members thereof with the money collected from
among themselves and solely for their own protection and not for
profit.
SEC. 124. Tax on Agents of Foreign Insurance Companies. -
Every fire, marine or miscellaneous insurance agent authorized
under the Insurance Code to procure policies of insurance as he
may have previously been legally authorized to transact on risks
located in the Philippines for companies not authorized to transact
business in the Philippines shall pay a tax equal to twice the tax
imposed in Section 123: Provided, That the provision of this
Section shall not apply to reinsurance: Provided, however, That
the provisions of this Section shall not affect the right of an owner
of property to apply for and obtain for himself policies in foreign
companies in cases where said owner does not make use of the
services of any agent, company or corporation residing or doing
business in the Philippines. In all cases where owners of property
obtain insurance directly with foreign companies, it shall be the
duty of said owners to report to the Insurance Commissioner and
to the Commissioner each case where insurance has been so
effected, and shall pay the tax of five percent (5%)on premiums
paid, in the manner required by Section 123.
SEC. 125. Amusement Taxes. - There shall be collected from the
proprietor, lessee or operator of cockpits, cabarets, night or day
clubs, boxing exhibitions, professional basketball games, Jai-Alai
and racetracks, a tax equivalent to:
(a) Eighteen percent (18%) in the case of cockpits;
(b) Eighteen percent (18%) in the case of cabarets, night or day
clubs;
(c) Ten percent (10%) in the case of boxing exhibitions: Provided,
however, That boxing exhibitions wherein World or Oriental
Championships in any division is at stake shall be exempt from
amusement tax: Provided, further, That at least one of the
contenders for World or Oriental Championship is a citizen[s] of
the Philippines and said exhibitions are promoted by a citizen/s of
the Philippines or by a corporation or association at least sixty
percent (60%) of the capital of which is owned by such citizens;
(d) Fifteen percent (15%) in the case of professional basketball
games as envisioned in Presidential Decree No. 871: Provided,
however, That the tax herein shall be in lieu of all other percentage
taxes of whatever nature and description; and
(e) Thirty percent (30%) in the case of Jai-Alai and racetracks - of
their gross receipts, irrespective, of whether or not any amount is
charged for admission.
For the purpose of the amusement tax, the term 'gross receipts'
embraces all the receipts of the proprietor, lessee or operator of
the amusement place. Said gross receipts also include income
from television, radio and motion picture rights, if any. A person or
entity or association conducting any activity subject to the tax
herein imposed shall be similarly liable for said tax with respect to
such portion of the receipts derived by him or it.
The taxes imposed herein shall be payable at the end of each
quarter and it shall be the duty of the proprietor, lessee or operator
concerned, as well as any party liable, within twenty (20) days
after the end of each quarter, to make a true and complete return
of the amount of the gross receipts derived during the preceding
quarter and pay the tax due thereon.
SEC. 126. Tax on Winnings. - Every person who wins in horse
races shall pay a tax equivalent to ten percent (10%) of his
winnings or 'dividends', the tax to be based on the actual amount
paid to him for every winning ticket after deducting the cost of the
ticket: Provided, That in the case of winnings from double,
forecast/quinella and trifecta bets, the tax shall be four percent
(4%). In the case of owners of winning race horses, the tax shall
be ten percent (10%) of the prizes.
The tax herein prescribed shall be deducted from the 'dividends'
corresponding to each winning ticket or the 'prize' of each winning
race horse owner and withheld by the operator, manager or
person in charge of the horse races before paying the dividends or
prizes to the persons entitled thereto.
The operator, manager or person in charge of horse races shall,
within twenty (20) days from the date the tax was deducted and
withheld in accordance with the second paragraph hereof, file a
true and correct return with the Commissioner in the manner or
form to be prescribed by the Secretary of Finance, and pay within
the same period the total amount of tax so deducted and withheld.
SEC. 127. Tax on Sale, Barter or Exchange of Shares of Stock
Listed and Traded through the Local Stock Exchange or
through Initial Public Offering. -
(A) Tax on Sale, Barter or Exchange of Shares of Stock Listed
and Traded through the Local Stock Exchange.- There shall be
levied, assessed and collected on every sale, barter, exchange, or
other disposition of shares of stock listed and traded through the
local stock exchange other than the sale by a dealer in securities,
a tax at the rate of one-half of one percent (1/2 of 1%) of the gross
selling price or gross value in money of the shares of stock sold,
bartered, exchanged or otherwise disposed which shall be paid by
the seller or transferor.
(B) Tax on Shares of Stock Sold or Exchanged Through Initial
Public Offering. - There shall be levied, assessed and collected
on every sale, barter, exchange or other disposition through initial
public offering of shares of stock in closely held corporations, as
defined herein, a tax at the rates provided hereunder based on the
gross selling price or gross value in money of the shares of stock
sold, bartered, exchanged or otherwise disposed in accordance
with the proportion of shares of stock sold, bartered, exchanged or
otherwise disposed to the total outstanding shares of stock after
the listing in the local stock exchange:
Up to twenty-five percent (25%)
4%
Over twenty-five percent (25%) but not over thirty-three
2%
and one third percent (33 1/3%)
1%
Over thirty-three and one third percent (33 1/3%)
The tax herein imposed shall be paid by the issuing corporation in
primary offering or by the seller in secondary offering.
For purposes of this Section, the term 'closely held corporation'
means any corporation at least fifty percent (50%) in value of
outstanding capital stock or at least fifty percent (50%) of the total
combined voting power of all classes of stock entitled to vote is
Page | 8
owned directly or indirectly by or for not more than twenty (20) after the end of each taxable quarter: Provided, That in the case of
individuals. a person whose VAT registration is cancelled and who becomes
liable to the tax imposed in Section 116 of this Code, the tax shall
For purposes of determining whether the corporation is a closely accrue from the date of cancellation and shall be paid in
held corporation, insofar as such determination is based on stock accordance with the provisions of this Section.
ownership, the following rules shall be applied:
(2) Person Retiring from Business. - Any person retiring from a
(1) Stock Not Owned by Individuals. - Stock owned directly or
business subject to percentage tax shall notify the nearest internal
indirectly by or for a corporation, partnership, estate or trust shall revenue officer, file his return and pay the tax due thereon within
be considered as being owned proportionately by its shareholders, twenty (20) days after closing his business.
partners or beneficiaries.
(3) Exceptions. - The Commissioner may, by rules and
(2) Family and Partnership Ownerships. - An individual shall be
regulations, prescribe:
considered as owning the stock owned, directly or indirectly, by or
for his family, or by or for his partner. For purposes of the (a) The time for filing the return at intervals other than the time
paragraph, the 'family of an individual' includes only his brothers prescribed in the preceding paragraphs for a particular class or
and sisters (whether by whole or half-blood), spouse, ancestors classes of taxpayers after considering such factors as volume of
and lineal descendants. sales, financial condition, adequate measures of security, and
such other relevant information required to be submitted under the
(3) Option. - If any person has an option acquire stock, such stock
pertinent provisions of this Code; and
shall be considered as owned by such person. For purposes of
this paragraph, an option to acquire such an option and each one (b) The manner and time of payment of percentage taxes other
of a series of options shall be considered as an option to acquire than as hereinabove prescribed, including a scheme of tax
such stock. prepayment.
(4) Constructive Ownership as Actual Ownership. - Stock (4) Determination of Correct Sales or Receipts. - When it is
constructively owned by reason of the application of paragraph (1) found that a person has failed to issue receipts or invoices, or
or (3) hereof shall, for purposes of applying paragraph (1) or (2), when no return is filed, or when there is reason to believe that the
be treated as actually owned by such person; but stock books of accounts or other records do not correctly reflect the
constructively owned by the individual by reason of the application declarations made or to be made in a return required to be filed
of paragraph (2) hereof shall not be treated as owned by him for under the provisions of this Code, the Commissioner, after taking
purposes of again applying such paragraph in order to make into account the sales, receipts or other taxable base of other
another the constructive owner of such stock. persons engaged in similar businesses under similar situations or
circumstances, or after considering other relevant information may
(C) Return on Capital Gains Realized from Sale of Shares of
prescribe a minimum amount of such gross receipts, sales and
Stocks. -
taxable base and such amount so prescribed shall be prima facie
(1) Return on Capital Gains Realized from Sale of Shares of correct for purposes of determining the internal revenue tax
Stock Listed and Traded in the Local Stock Exchange. - It shall liabilities of such person.
be the duty of every stock broker who effected the sale subject to (B) Where to File. - Except as the Commissioner otherwise
the tax imposed herein to collect the tax and remit the same to the permits, every person liable to the percentage tax under this Title
Bureau of Internal Revenue within five (5) banking days from the may, at his option, file a separate return for each branch or place
date of collection thereof and to submit on Mondays of each week of business, or a consolidated return for all branches or places of
to the secretary of the stock exchange, of which he is a member, a business with the authorized agent bank, Revenue District Officer,
true and complete return which shall contain a declaration of all Collection Agent or duly authorized Treasurer of the city or
the transactions effected through him during the preceding week municipality where said business or principal place of business is
and of taxes collected by him and turned over to the Bureau Of located, as the case may be.
Internal Revenue.
(2) Return on Public Offerings of Shares of Stock. - In case of
primary offering, the corporate issuer shall file the return and pay
the corresponding tax within thirty (30) days from the date of listing
of the shares of stock in the local stock exchange. In the case of
secondary offering, the provision of Subsection (C) (1) of this
Section shall apply as to the time and manner of the payment of
the tax.
(D) Common Provisions. - any gain derived from the sale, barter,
exchange or other disposition of shares of stock under this Section
shall be exempt from the tax imposed in Sections 24(C), 27(D)(2),
28(A)(8)(c), and 28(B)(5)(c) of this Code and from the regular
individual or corporate income tax. Tax paid under this Section
shall not be deductible for income tax purposes.
SEC. 128. Returns and Payment of Percentage Taxes. -
(A) Returns of Gross Sales, Receipts or Earnings and
Payment of Tax. -
(1) Persons Liable to Pay Percentage Taxes. - Every person
subject to the percentage taxes imposed under this Title shall file a
quarterly return of the amount of his gross sales, receipts or
earnings and pay the tax due thereon within twenty-five (25) days
Page | 9