VAT ON IMPORTATION

IMPORTATION
• Refers to the purchase of goods including services by Philippine
residents from non-resident sellers.
• Is a form of domestic consumption; hence subject to consumption
tax.
TYPES OF CONSUMPTION TAX ON
IMPORTATION
1. VAT on importation – the consumption tax on the import of goods
2. Final withholding VAT – the consumption tax on the purchase of services
from non-residents.
- The VAT on importation is payable to the Bureau of Customs whenever
there is importation of goods.
- The VAT is paid prior to the withdrawal of the goods from the Customs
warehouse.
- The withholding VAT is 12% of the payment for services rendered by non-
residents.
- In both cases, the resident purchaser is the one statutory liable for the
payment of the VAT.
Exempt consumptions
• VAT should not apply to goods, properties or services considered
basic necessities.
• Neither should VAT impede policies nor hinder developments by
being imposed on goods and services considered as priorities.
• Hence, the law exempts certain goods and services from VAT.
 EXEMPT IMPORTATIONS (1/2)
1. Importation of agricultural and
marine food products in their
original state.
2. Importation of fertilizers, seeds,
seedlings and fingerlings, fish,
prawns, livestock and poultry
feeds, including ingredients used
in the manufacture of finished
feeds.
3. Importation of personal and
household effects belonging to
residents of the Philippines
returning from abroad and non-
resident citizens coming to resettle
in the Philippines.
4. Importation of professional
instruments and implements,
wearing apparel, domestic animals,
and personal household effects
belonging to persons coming to
settle in the Philippines, for their
own use and not for sale, barter or
exchange.
 EXEMPT IMPORTATIONS (2/2)
5. Importation of books and any
newspaper, magazine, review, or
bulletin which appear at regular
intervals with fixed prices for
subscription and sale and which is
not devoted principally to the
publication of paid
advertisements.
6. Importation of fuel, goods and
supplies by persons engaged in
international shipping or air
transport operations.
7. Importation of cooperatives 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.
8. Transactions which are exempt
under international agreement to
which the Philippine is a
signatory.
9. Importations exempt under
special laws.
EXEMPT IMPORTATIONS FOR HUMAN
CONSUMPTION
1. Agricultural or marine food products in original state.
2. Livestock and poultry of a kind generally used as, or yielding or
producing foods for human consumption
3. Breeding stock and genetic materials therefore.
Agricultural or marine food products in
original state
• Meaning of “in original state”
- means unprocessed
• However, an agricultural or marine food products is still considered in
its original state and unprocessed even if it has undergone the simple
process of:
a. Preparation for the market
b. Preservation or
c. Packaging including advanced technological means of packaging.
Examples of acts of preparation include the
ff.:
a. Boiling
b. Broiling
c. Husking
d. Roasting
e. Stripping
f. Grinding
Examples of acts of preservation for the
market include:
a. Freezing
b. Drying
c. Salting
d. Smoking
EXAMPLES OF ADVANCED TECHNOLOGICAL
MEANS OF PACKAGING WHICH DO NOT ALTER THE
NATURE OF AGRICULTURAL OR MARINE FOOD
PRODUCTS BEING “IN ORGINAL STATE”
a. Shrink wrapping in plastics
b. Vacuum packing
c. Tetra-packing
d. Other similar packaging methods
Hence, the ff. agricultural or marine food products
are considered in their original state and are
exempt:
a. Husked rice a. Copra Dried fish
b. Corn grits b. Sundried fruits
c. Raw cane sugar c. Ground meat
d. Roasted coffee beans d. Smoked fish
e. Ordinary salt
 The importation of the ff. agricultural or
marine food products is exempt
1. Grapes, apples, oranges and 4. Marine foods such as fish and
other fruits crustaceans
2. Vegetables, tea, ginseng 5. Poultry and livestock
3. Rice, corn, coffee beans and 6. Milk, eggs, and meat for human
other edible farm products consumption

BARNACLE - small sea creature Crustaceans - an arthropod of the

with a shell, that sticks very large, mainly aquatic group Crustacea,
tightly and in large numbers to such as a crab, lobster, shrimp, or
rocks barnacle.
Livestock include cow, • Marine food shall
bulls, calves, pigs, include fish and
sheep, goats and crustaceans such as,
rabbits. but not limited to,
eels, trout, lobster,
shrimps, prawns,
Poultry shall include
oysters, mussels and
fowls, ducks, geese and
clams. (RR16-2005).
turkey.
IMPORTATION OF NON-FOOD AGRICULTURAL OR
MARINE PRODUCTS IS SUBJECT TO VAT ON
IMPORTATION
a. Logs, wood, bamboo, orchid, and similar forest products
b. Rubber hem, abaca, tobacco, topical herbs, cotton and other non-
food crops
c. Shells, corals, and other non-food marine products usually used as
ornaments.
d. Race horses, fighting cocks, aquarium fish, zoo animals, and other
animals generally considered as pets.
RAW SUGAR
• Means the natural sugar extracted from sugarcane through simple
mechanical process by pressing the juice; boiled to crystallize; filtered
using centrifuge to separate these crystals, and dried, resulting to
crystalized brown sugar with sucrose content by weight in dry state
corresponding to a polarimeter reading of less than 99.50 degrees
and or whose color is 800 ICU or less. Raw sugar includes
muscobado.
• The importation of the above-mentioned agricultural or marine food
products in their original state is exempt from VAT.
PROCESSED AGRICULTURAL OR MARINE
FOOD PRODUCTS
• Pertain to those which have undergone changes in their chemical
compositions or have undergone complex processing or treatment.
• Examples of processed agricultural or marine food products:
a. Refined sugar e. Vegetable or coconut oil
b. Wine or vinegar f. Soy
c. Butter
d. Canned sardines or mackerel
The importation of processed products and those considered not in
their original state shall be subject to VAT on importation.
• The importation of frozen meat and wheat is exempt.
• The importation of non-food agricultural products like lumber and the
importation of processed agricultural or marine food products like
canned tuna, sardines and flour are subject to VAT on importation.
• Marine or agricultural inputs intended for the production of marine
or agricultural food products which are ultimately for human
consumption are likewise exempt.
• The importation of fertilizers, seeds, seedlings, fingerlings, fish prawn,
livestock and poultry feeds, including ingredients used in the
manufacture of finished feeds are exempt since they are ultimately
intended for the production of food products for human
consumption. However, the importation of specialty feeds (i.e. pet
feeds) is taxable since pets are not intended for ultimate human
consumptions.
• The fertilizer and seeds are exempt. Note that exemption is limited to
seeds, seedlings and fertilizers.
• Other farming implements such as pesticides and herbicides are
subject to VAT on importation.
• Note also that the exemption covers only those farm and fishery
inputs enumerated by law.
• The importation of farm, fishery, or fishing equipment such as fishing
boats, tractors, plows, threshers and harvesters is subject to VAT on
importation.
Rules on VAT taxation of poultry and feeds
• Livestock Poultry Pets
Importation of X X /
Importation of feeds for X X /
Importation of feed
ingredients for X X /

NOTE: The importation of ingredients for the processing of foods for

human consumption is vatable because processed human foods are
vatable.
IMPORTATION OF PERSONAL AND
HOUSEHOLD EFFECTS
CONDITIONS FOR EXEMPTION:
1. The personal and household effects belong to the Philippine
residents or non-residents intending to resettle in the Philippines.
2. The goods are exempt from Custom duties.

The importation of personal effects, household effects including

professional instruments and implements by residents returning from
abroad is not subject to the VAT because these are past consumption
which have been previously subjected to consumption tax herein.
• The importation of personal or household effects or professional
implements by non-residents intending to resettle in the Philippines is
a foreign consumption not subject to Philippine consumption tax.
• Note that when these were purchased previously, they were already
subjected to consumption taxes. The VAT on importation applies to
importation which represent current consumption of personal,
household or professional effects. It does not apply to their past
consumption.
IMPORTATION OF PROFESSIONAL INSTRUMENTS AND
IMPLEMENTS, WEARING APPAREL, DOMESTIC ANIMAL
AND PERSONAL HOUSEHOLD EFFECTS
• CONDITIONS FOR EXEMPTION:
1. The goods belong to persons who come to settle in the Philippines.
2. The goods must accompany the person upon arrival or within 90 days
before or after his/her arrival.
3. There must be evidence to show that the change of residence is bona
fide.
4. The importation is not a vehicle, machinery or other equipment used in
the manufacture or merchandise of any kind in commercial quantity.
BONA FIDE - authentic, genuine, real, true, actual;
IMPORTATION OF BOOKS, NEWSPAPERS,
MAGAZINE, REVIEW OR BULLETINS
• CONDITIONS FOR EXEMPTION:
1. They must appear at regular intervals with fixed prices for
subscription.
2. The sale must not be devoted principally to the publication of paid
advertisements.
Note that exemption does not extend to other school supplies such as
chalk, board markers, pens, notebook, and paper.
Importation of fuel, goods and supplies by
persons engaged in international shipping or
air transport operations
• Although the fuels, goods and supplies are imported into the
Philippines, these are not intended to be consumed in the Philippines
by these international carriers.
• These are destined for consumption abroad, hence these are exempt
from VAT under the destination principle.
Note that the fuel, goods or supplies will be consumed in the high seas
or in foreign territories outside the country. The importation is not a
domestic consumption but a foreign consumption, hence, it is exempt
from VAT.
Importation of cooperatives of direct farm
inputs, machineries and equipment, including
their spare parts (RA 9337)
CONDITION FOR EXEMPTION:
1. The cooperative must be an agricultural cooperative duly registered
and in good standing with the Cooperative Development Authority
(CDA).
2. The importation involves direct farm inputs, machineries,
equipment and their spare parts to be used directly and exclusively
in the production or processing of their produce.
Note:
1. The importation of machineries and equipment for the processing
or processing needs of the cooperative is exempt; hence, tractors
and threshers are exempt from VAT on importation.
2. The importation of fertilizers and seeds is exempt to any importer.
The importation of herbicides and pesticides which are “direct farm
inputs” is exempt to cooperatives. Note that the importation of
farmers of herbicides and pesticides is vatable.
3. Although plows and water pumps qualify as machineries, they are
not intended for the use of the cooperative, hence, these are also
vatable.
4. The cars are vatable because they are not direct farm inputs,
machineries, or equipment.
 The VAT exemption of the ff. under RA 9295
already lapsed:
1. Importation or lease of passenger or cargo vessels and aircraft, including
engine, equipment and spare parts thereof for domestic or international
transport operation.
2. 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
domestic trade.
3. 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.
Note: The foregoing importations are therefore subject to VAT.
Presumption of vatability
• Importation is generally subject to VAT unless it can be proven as
exempt under any of those conditions discussed herein or under a
provision of a special law or treaty.
• The burden of proof in establishing VAT exemption rest upon the
taxpayer.
 Subsequent sale by exempt persons to non-
exempt persons
• An exempt importer subsequently sells his exempt importation to a non-
exempt person, the non-exempt buyer shall be subject to VAT on
importation.
• The tax due on such importation shall constitute a lien on the goods,
superior to all charges or liens, irrespective of the possessor of said goods.

This rule applies to qualified exempt importation of exempt persons.

LIEN -a right to keep possession of property belonging to another person
until a debt owed by that person is discharged.
Examples of qualified exemption
importations:
a. Importation of direct farm inputs, machineries and equipment by
agriculture cooperatives.
b. Importation of fuel, good, or supplies by a person engaged in
international transport operations.
c. Importation of passenger or cargo vessels and aircrafts by a person
engaged in domestic domestic international operations.
VAT ON IMPORTATION
1. Importer is engaged or not engaged in trade or business.
2. Importer is a VAT or non-VAT business
3. Importation is for business or personal use
4. Non-resident sellers is engaged or not engaged in business.
Basis of VAT on importation
• 12% of the total landed cost of the importation, other than those
listed as exempt importations.
• Landed costs encompass all costs of importation incurred prior to
withdrawal of the goods from the warehouse of the Bureau of
Customs, except unofficial or illegal payments made.
Composition of landed cost:
1. Dutiable value
2. Custom duty
3. Excise Tax, if any
4. Other in-land costs, such as:
a. Bank charge
b. Brokerage fee
c. Arrastre charge
d. Wharfage due
e. Customs documentary stamp tax
f. Import processing fee
 Dutiable value
• Refers to the value used by the Bureau of Customs in determining the
tariff and customs duties, such as the following:
1. Cost of the goods
2. Freight
3. Insurance
4. Other charges and costs
• The dutiable value encompasses all costs incurred in bringing the goods
up to the Philippine port and prior to any other in-land costs of import.

Computation: Dutiable value x Exchange rate x Rate of Duty

Terminologies used

• Wharfage - A charge assessed by a shipping terminal or port when

goods are moved through the location. Wharfage is one of the costs
of transport goods within the distribution system used by a business
to bring its goods to market.
• Arrastre is an Spanish term: Philippines : the operation of receiving,
conveying, and loading or unloading merchandise on piers or wharves
 TECHNICAL IMPORTATION
Custom territory refers to the portion of the Republic of the Philippines
outside of designated special economic zones (Ecozones) (RR2-2005)
“Technical Importation” refers to the purchase of non-Ecozone Philippines
residents from the Philippine Ecozone-registered enterprises.
• By legal fiction, ecozones are considered foreign territories.
• Hence, the purchase from Economic zones such as but not limited to, Subic-
Ecozone, Zambo-Ecozone and Cagayan-Ecozone is subject to the VAT on
importation.
• Sales to Ecozones are subject to zero-rated VAT for VAT taxpayers because
Ecozones are considered foreign territories.
• Likewise, sales by Ecozones are exempt from businesss tax for non-VAT
taxpayers (Sec 109).
 The withholding VAT on import of services
• Purchases of services from non-residents is an importation of services
which is subject to “Withholding VAT.”
• Under RR, the sale by non-residents (i.e. import from the buyer’s
perspective) is always presumed made in the course of business despite
irregularity of sales operation to qualify the sale as a business sale subject
to VAT.
• In the case of sales of services by non-residents, the regulation requires
the resident buyers to “withhold” the VAT which is presumed to have been
passed-on by the non-resident seller.
• The concept of “Withholding VAT” in the regulation is misnomer. The real
object of taxation is the purchase of service by the resident buyer. It is not
the sales of the non-resident seller.
Examples of import services
1. Lease or use of properties or property rights owned by non-
residents
2. Services rendered to a local insurance companies, with respect to
reinsurance premiums payable to non-residents
3. Other services rendered in the Philippines by non-residents
 Payment of the Withholding Tax

• Using BIR Form 1600, the withholding VAT is remitted monthly on or

before the 10th day of the following month after the withholding was
made, except for taxes withheld for December which shall be filed or paid
on or before January 25 of the following year.
Treatment of the VAT on importation and the
Withholding VAT
1. Resident purchaser – VAT-registered – can claim the VAT on
importation or withholding VAT as Input VAT creditable against its
Output VAT.
2. Resident purchaser- non-VAT business, the VAT on importation or
Withholding VAT shall be part of the cost of purchase of services
and shall be treated as asset or expense, whichever is applicable.
3. Purchaser – not engaged in business, the VAT on importation or
withholding VAT is merely added to the costs of importation.
 CHAPTER 2 – TRUE OR FALSE 1
10.
1.
11.
2.
12.
3.
13.
4.
14.
5.
15.
6.
7.
8.