Comprehensive VAT

TAXATION

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Value-Added Tax (VAT) is a multi-stage sales tax on
consumption levied on the sale, barter or exchange or lease
of goods or properties and services in the Philippines and on
importation of goods into the Philippines. A barter or
exchange, or assignment, conveyance, or transfer or other
mode of transferring ownership, has the same tax
consequence as a sale.

It is generally passed on to the buyer, even if the sale is

made to tax-exempt entities.

VAT is “transparent in the sense that the law requires that

the tax be shown as a separate item in the VAT invoice or
receipt.

2
Value Added Tax (VAT) is a tax on the value
added of a taxpayer arising from taxable
sales of goods, properties or services during
the quarter at the rate of 0% or 12%. “Value
added” is the difference between total sales
of the taxpayer for the taxable quarter subject
to value added tax and his total purchases for
the same period subject also to value added
tax.

3
 Philippine VAT

Original VAT Law : EO 273 - Jan 1, 1988

Expanded VAT Law (E-VAT) : RA 7716 - Jan 1, 1996

Improved VAT Law (I-VAT) : RA 8241 - Jan 1, 1997

Reformed VAT Law : RA 9337 - Nov 1, 2005

TRAIN Law : RA 10963 - Jan 1, 2018

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 Business Taxpayer

VAT Taxpayer Non - VAT Taxpayer

Subject to Zero Rate Exempt Subject to

Percentage
12% Taxpayer Tax

5
 VAT Taxpayer

Subject to 12% Zero Rated

Sale to Sale to Zero Effectively

Government Zero
Private Rating Rating
Persons

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 VAT Rate
On sale of goods - 12%

On sale of services - 12%

Importation of goods - 12%

Importation of services - 12%

On export of goods - 0%

On export of services - 0%

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 Persons Liable to VAT

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 VAT.

In the course of trade or business means the regular

conduct or pursuit of a commercial or an economic activity,
including transactions incidental thereto, by any person
regardless of whether or not the person engaged therein is
a non-stock, non-profit private organization or government
entity.

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 Registration of Business
Before the start of such business should be
with the RDO where the place of business is
located

An annual registration fee of P500 using BIR

Form No. 0605 for every separate or distinct
establishment or place of business (except
warehouse without sales transaction) before the
start of business and thereafter, every Jan 31

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VAT Mandatory Registration

The gross sales or receipts for the

past 12 months, other than those
that are exempt, have exceeded
P3,000,000;

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 Compliance after Registration
For VAT Taxpayers:
1. Pay annual Registration fee of P500 for every place of business
2. Register books of accounts
3. Register VAT sales Invoices and Official Receipts
4. File Monthly VAT Declaration/Quarterly VAT Returns
5. Submit Quarterly Statement List of Sale and Statement List of
Purchase

For Non-VAT Taxpayers

1. Pay Annual RF for every place of business
2. Register books of accounts
3. Register Non-VAT Sales invoices and ORs
4. File Quarterly Percentage Tax Return

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 VAT Invoicing
VAT Sales Invoice – issued for every sale, barter or
exchange of goods or properties

VAT Official Receipts – for every collection received on

sale, barter or exchange of services and lease of goods
or properties

12% VAT – the amount of the tax shall be shown as a

separate item in the invoice or receipt.

0% VAT – the term “zero-rated sale” shall be written or

printed prominently on the invoice
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 Optional Registration
Any person who is VAT-exempt under Section 109 of the NIRC, not
required to register for VAT may, in relation to Sec.109-2, elect to be
VAT-registered by registering with the RDO that has jurisdiction over the
head office of the person, and pay the annual registration fee of P500.00
for every separate and distinct establishment; cannot cancel VAT
registration for the next 3 years

Applying for Optional registration:

1. Apply for VAT registration not later than 10 days before the
beginning of the calendar quarter and pay P500 registration fee,
unless it has already been paid at the beginning of the year
2. Once registered, the taxpayer shall be liable to output tax and be
entitled to input tax credit beginning on the first day of the month
following registration.

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 Cancellation of Registration
Makes written application and can demonstrate to the
CIR’s satisfaction that his gross sales or receipts for the
following 12 months, other than those that are exempt
under Sec. 109 of the Tax Code, will not exceed
P3,000,000; or has ceased to carry on his trade or
business, and does not expect to recommence any trade
or business within the next 12 months.

All applications for cancellation of registration due to

closure/cessation or termination of business shall be
subjected to immediate investigation by the RDO
concerned to determine the taxpayer’s tax liabilities.

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 Cancellation of Registration
Registration may be cancelled when there is:

1. A change of ownership, in the case of a single

proprietorship;
2. Dissolution of a partnership or corporation
3. Merger or consolidation with respect to the dissolved
corporation(s)
4. A person who has registered prior to planned
business commencement, but failed to actually start
his business
5. A person has retired from business

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 Subject to VAT
1. Sale of goods or properties related to business
or trade (actual sales or deemed sales)
The sale of goods or services should be made in the
Philippines to be subject to VAT.
2. Gross receipts related to business or trade
(sale of services or lease of properties in the
Philippines)
3. Importation (purchases of goods or services
outside the Philippines either for personal or
business use)
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The term “output tax” (someimes referred to
as “output VAT”) means the value tax due on
the sale, barter, exchange or lease of taxable
goods, properties or services by any person
registered or required to register.

17
The term “input tax” (sometimes referred to
as “Input VAT”) 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, properties or services, including lease
or use of property, from another VAT-
registered person.

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When the output tax is greater than the input
tax, the difference called “VAT payable”

On the other hand, when the input tax is

greater than the output tax, the difference
called “excess input tax” shall be carried over
to the next taxable period, or it may be
claimed as tax credit or refund if it arises or is
directly attributable from zero-rated or
effectively zero-rated sales.

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 Stages of Value Added Tax

PRODUCTION
DISTRIBUTOR FINAL
MANUFACTURING
CONSUMER
IMPORTATION

PRODUCTION
WHOLESALER RETAILER FINAL
MANUFACTURING
CONSUMER
IMPORTATION

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 Formula of Vat System
Output Vat on sales Pxxx
Less: Input Vat on purchases and services Pxxx
Creditable Vat withheld xxx xxx
Net Vat payable (refundable) Pxxx

The Output Vat computed as follows:

Sales or gross receipts Pxxx

Multiplied by VAT rate 12%
Output VAT Pxxx

The Input VAT is computed as follows:

Purchases and services acquired from VAT person Pxxx

Multiplied by VAT rate 12%
Input VAT Pxxx21
 Example
Amount VAT
Sales 100
Output tax (100 x 12%) 12.0
Purchases 80
Input tax (80 x 12%) 9.6
Value added 20
VAT payable (20 x 12%) 2.4

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When will you be subject to VAT?
1. Upon registration as VAT person
2. Importation of goods
3. Upon reaching P3,000,000 sale of goods
or services

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Accounting Entries for sale of Goods

Accounts Receivable/Cash
Sales – Taxable
Output Taxes

Sales Returns and Allowances

Output Taxes
Accounts Receivable/Cash

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Purchases
Input Taxes
Accounts Payable/Cash

Accounts Payable/Cash
Purchase Returns
Input Taxes

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 Accounting Entries for Sales of
Services
Upon issuance of the billing statement:
Accounts Receivable
Revenue
Deferred Output Tax

Upon collection of receivable:

Cash
Accounts Receivable
Deferred Output Tax
Output Tax 26
 RATES
Output Tax
1. 12% standard rate;
2. 0% (zero rate)
Input Tax
1. 12% standard rate;
2. 0% (zero rate)
3. 2% transitional or 12% actual input tax rate;
4. 4% presumptive input tax rate; and
5. 5% final withholding tax rate (creditable
beginning 1-1-2021).
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 BUSINESS REGISTRATION

VAT - Registered Non-VAT - Registered

1. With gross 1. With gross
sales/receipts of sales/receipts below
more than P3,000,000 P3,000,000
per year
2. With gross 2. Percentage taxes
sales/receipts of (sales tax)
P3,000,000.00 and
below per year and
opted to be
registered as VAT.

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 Bookkeeping Requirements
Books for VAT Purposes

a) Subsidiary sales journal

Sales Deemed
Date Export Zero-rated Taxable Out VAT
Exempt Sales

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 Bookkeeping Requirements
B) Purchases journal.

Raw Capital
Date Good for Sale Supplies Services Non-Vat Input Taxes
Materials Goods

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 Invoicing requirements

– The words “VAT EXEMPT SALE” written or printed

prominently if sale is VAT-exempt
– The words “ZERO-RATED SALE” written of printed
prominently if sale is subject to zero percent
– Option to issue combined or separated
invoices/receipts if sale is a combination of VATable
and VAT-exempt sale. If combined, the invoice or
receipts should indicate the break-down of the sale
price between the taxable and the exempt component
and the calculation of the VAT.

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 Invoicing requirements

– For sales to VAT-registered persons

amounting to P1,000 or more, indicate the
name, business style, address and TIN of the
purchaser

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Invoice/receipt without TIN and address of
buyer not a valid support of input VAT
Case: (Nesic Philippines, Inc. v. CIR, CTA Case
No. 7012, March 13, 2009)

Court disallowed claim of input VAT credits

on the ground that the invoices and official
receipts issued by suppliers do not indicate
the address or TIN.

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 REQUISITEs FOR TAXABILITY OF
SALE OF GOODS OR PROPERTIES
1) There is an actual sale, barter or exchange of
goods or properties for a valuable
consideration;
2) The sale is undertaken in the course of trade
or business or exercise of profession in the
Philippines;
3) The goods or properties are located within the
Philippines and are for use or consumption
therein; and
4) The sale is not exempt from value added tax.
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 With respect to sale or exchange of real property,
the following requirements must be meet:
1. The seller executes a deed of sale, including
dacion en pago, barter or exchange,
assignment, transfer, or conveyance;
2. The real property is located within the
Philippines;
3. The seller or transferor is engaged in real
estate business either as a real estate dealer,
developer, or lessor;
4. The real property is held primarily for sale or
for lease in the ordinary course of his trade or
business; and
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 Types of sale
Actual sale – The seller’s output tax
automatically becomes the VAT-registered
buyer’s input tax, which the latter can credit
against his output tax on his taxable sales of
goods, properties or services during the quarter.
However, the output tax passed on by a VAT-
registered seller becomes part of the cost of
acquisition of an asset or an expense of a non-
VAT-registered (or VAT-exempt) buyer.

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 Types of sale
Deemed sale – The following transactions are
considered as deemed sale:

a) 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;
b) Distribution or transfer to shareholders or
investors as share in the profits of the VAT-
registered persons or to creditors in payment
of debt;
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 Types of sale
c) Consignment of goods, if actual sale is not
made within sixty days following the date
such goods were consigned; and
d) Retirement from or cessation of business,
with respect to inventories of taxable goods
existing as of such retirement or cessation.
Retirement from or cessation of business
with respect to all goods on hand, whether
capital goods, stock-in-trade, supplies or
material as of the date of such retirement or
cessation.
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For transactions deemed sale, the output tax shall
be based on the market value of the goods
deemed sold as of the time of the occurrence of
the transactions enumerated above.

In the case of retirement or cessation of business,

the tax base shall be acquisition cost or the current
market price of the goods or properties, whichever
is lower. In the case of a sale where the gross
selling price is unreasonable lower than the fair
market value, the actual market value shall be the
tax base.

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 Gross Selling Price
Total amount of money or its equivalent, which the
purchaser pays or is obligated to pay to 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 property shall form part of the
gross selling price.

Sales returns and allowances for which a proper credit or

return made, and sales discounts determined and granted
at the time of sale which are expressly indicated in the
invoice, are proper deductions from gross selling price to
arrive at the tax base.
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 Tax Base and Rates
There shall be levied, assessed and
collected on every sale, barter or exchange,
or transactions “deemed sale” of taxable
goods or property, value-added tax
equivalent to 12% of the gross selling price
or gross value in money of the goods or
property sold, bartered or exchanged, or
deemed sold in the Philippines.

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 Meaning of the Term
“Goods or Properties”
•Real properties held primarily for sale to customers or
held for lease in the ordinary course of trade
•The right to use patent, copyright, design or model,
plan, secret formula or process, trademark, trade brand;
•The right to use any industrial commercial or scientific
equipment;
•The right to use motion picture films, films, tapes and
discs; and
•Radio, television, satellite transmission and cable
television time.

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 Allowable Deduction from Gross
Selling Price
•Discounts granted at the time of
sale
•Sales returns and allowances

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 OUTPUT TAX
Rate
Vatable Sales/Receipt-Private 12%
Sales to Government 5%
Zero Rated Sales/Receipts 0%
Exempt Sales/Receipts Exempt
Deemed Sale 12%

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 VAT on Importation of Goods
•In general – VAT is imposed on goods
brought into the Philippines, whether for use
in business or not.
•Applicability and payment – The VAT on
importation shall be paid by the importer
prior to the release of such goods from
customs custody
•Sales, transfer or exchange of imported
goods by tax-exempt persons.
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 Non-VAT Taxpayer
Exempt Taxpayer
1. Agricultural/Marine Products
2. Personal Household effect, returning
abroad
3. Information of Professional
Instrument
4. Service Agricultural Contract grower
5. Medical/Educational Service
6. Cooperative, Economic Zone
7. Lending Activity
8. Senior Citizen
9. Sale of Real Property Not used in
Trade or Business
10. Transport of Passenger and Cargo
by Air or Sea to foreign counrty
Subject to Percentage TAX
1. Sale less than P3,000,000
2. 3% Common Carrier Tax
3. 2-3% Franchise TAX
4. 10% Overseas
5. 5-7% Banks
6. 5% Life Insurance Premium
7. 10% Agent of Foreign Insurance
8. 18% Amusement tax
9. 10% Tax on winning

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Categories of VAT exemptions
1. Exempt persons – the seller or the
buyer is not liable to value added tax; or
2. Exempt transactions – transactions in
certain goods, properties or services,
which are not subject to value added
tax, even if such goods, properties or
services are sold by a VAT registered
person, and regardless of the annual
gross sales or receipts derived
therefrom.
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 VAT-Exempt Transactions
• Sale or importation of agricultural and
marine food products in their original
state, livestock and poultry of a kind
generally used as, or yielding or
producing foods for human
consumption; and breeding stock and
genetic materials.

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 Simple Processes
(VAT Ruling 009-07)
Agricultural food products are considered in their original
state if they have undergone simple processes of
preservation for the market such as

freezing
drying
salting
broiling
roasting
smoking
stripping
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 VAT-Exempt Transactions
• Sales 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); 50
 VAT-Exempt Transactions
• 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;

51
 VAT-Exempt Transactions
• Importation of professional instruments
and implements, wearing apparel,
domestic animals, and personal household
effects (except any vehicle, vessel,
aircraft, machinery and other goods for
use in the manufacture and merchandise
of any kind in commercial quantity)
belonging to persons coming to settle in
the Philippines
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 VAT-Exempt Transactions
• Services subject to percentage tax
– Sales or lease of goods or properties or
the performance of services of non-
VAT-registered persons, the gross
annual sales and/or receipts of which
does not exceed the amount of
P3,000,000

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 VAT-Exempt Transactions
• Services by agricultural contract
growers and milling for others of
palay into rice, corn into grits, and
sugar into raw sugar;
• Medical, dental, hospital and
veterinary services, except those
rendered by professionals.

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 VAT-Exempt Transactions
• Educational services rendered by
private educational institutions duly
accredited by the Department of
Education (DepED), the Commission
on Higher Education (CHED) and the
Technical Education and Skills
Development Authority (TESDA);

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Sale of pharmacy/medicine to in-patients is
exempt from VAT as part of medical services
(CIR vs. Professional Services, Inc. CTA EB 409,
January 8, 2009)

The term “hospital services” under Sec. 109(L)

includes sale of drugs to in-patients because the
maintenance and operation of a pharmacy by a
hospital is a necessary and essential service or
facility rendered by hospital to patients.

56
 VAT-Exempt Transactions
• 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;

57
 VAT-Exempt Transactions
• Gross receipts from lending activities by
credit or multi-purpose cooperatives duly
registered and in good standing with the
Cooperative Development Authority.
• Sales by non-agricultural, non-electric and
non-credit cooperatives duly registered,
provided, that the share capital contribution of
each member does not exceed Fifteen
Thousand Pesos (P15,000.00)

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 Persons exempt from VAT under
Special Laws:
a. CDA-registered cooperatives (RA 6938,
RA 8424)
b. Enterprise registered with Special
Economic Zones or Free Ports in the
Philippines
c. Regional or Area Headquarters
established in the Philippines by
multinational corporations

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 Sale of Medicines to In-Patients

Pharmacy in Hospital

In the case of St. Luke’s Medical Center vs. CTA and the CIR, the
Court of Appeals construed the phrase “hospital service” to include the
sale of pharmaceutical items to in-patients because the maintenance
and operation of a drugstore by a hospital is a necessary and essential
service or facility rendered by any hospital for its patients.

Hence, the sale of medicines, drugs, pharmaceutical items to in-

patients is exempt.
CTA EB Case No. 409 Jan 8, 2009
BIR Ruling DA 005-09

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 St.Luke’s Medical Center vs. CIR
(CTA Case No. 7832 Feb 18, 2014)

As a hospital, St Lukes is exempt from VAT on its medical and

Asian
AsianInstitute
Instituteof
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Taxation
health services, including sale of medicines to in-patients.
However, the following are subject to VAT: sale of
medicines to out-patients, rental income, and proceeds fr.
sale of property and equipment (transactions entered into
in the course of trade or business –(1) regularly
conducted; and (2) undertaken in pursuit of a commercial
or economic activity. Likewise, incidental or isolated
transaction is not necessarily disqualified from being
made incidentally in the course of trade or business.)
 Vat – exempt under treaty
Under the Vienna Convention on
Diplomatic Relations of 1961,
diplomatic agents are exempt from all
dues and taxes, personal or real,
national, regional or municipal.

62
 VAT – Exempt Senior Citizen
A senior citizen or elderly is a Filipino citizens who
is a resident of the Philippines, and sixty (60) years
old or above. It includes senior citizens with “dual
citizenship” status provided they prove their
Filipino citizenship and have at least six (6) months
residency in the Philippines.

Senior citizens are now subject to a 20% discount

and VAT-exempt on purchases of goods and
services as long as the senior citizens himself or
herself can show a valid senior citizens ID card.
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 VAT-Exempt Transactions
• Export sales by persons who are
not VAT-registered;
• Sales of real properties exempt
from VAT:
– Sale of real properties not primarily
held for sale to customers
– Sale of real properties utilized for low-
cost housing (until 12-31-2020)
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 Zero-rated sales
a. Export sales by VAT-registered persons, as follows:
1. Sale and actual shipment of goods from the
Philippines to a foreign country;
2. Sale of raw material or packaging materials to a non-
resident buyer for delivery to a resident local export-
oriented enterprise;
3. Sale of raw materials or packaging materials to export-
oriented enterprise whose export sales exceed 70% of
total annual production;
4. Those that are considered export sales under
(Omnibus Investment Code of 1987) and other special
laws; and
5. Sale of good, supplies, equipment and fuel to persons
engaged in international shipping or international air
transport operations. 65
 Zero-rated sales
b. Foreign currency denominated sale – sale to a non-
resident of goods assembled or manufactured in the
Philippines for delivery to a resident in the Philippines,
paid for in acceptable foreign currency
c. Sales to persons or entities whose exemption under
special laws and international agreements to which the
Philippines is a signatory subjects such sales to zero-
percent (0%) rate, such as entities registered with the
following:
1. Subic Bay Metropolitan Authority and Clark
Development Authority
2. Philippine Economic Zoe Authority or PEZA; and
3. Asian Development Bank or ADB and International
Rice Research Institute or IRRI (under international
agreements). 66
 Zero-rated sales
a. Processing, manufacturing or repacking or
exported goods for persons doing business
outside the Philippines, paid for in acceptable
foreign currency in accordance with BSP rules
and regulations;
b. Services to persons doing business outside the
Philippines or to a non-resident person not
engaged in business who is outside the
Philippines, the consideration of which is paid for
in acceptable foreign currency in accordance with
BSP rules and regulations;
67
 Zero-rated sales
c. Services rendered to persons or entities whose
exemption under special laws or international
agreements to which the Philippines is a signatory
effectively subjects such services to zero-percent
(0%) rate;
d. Services rendered to persons engaged in
international shipping or international air transport
operations, including leases of property for use
thereof;
e. Services performed by subcontractors and/or
contractors in processing, converting, or
manufacturing goods for an enterprise whose
export sales exceed 70% of total annual
production; 68
 Zero-rated sales

f. Transport of passengers and cargo by air or sea

vessels from the Philippines to a foreign country;
and
g. Sale of power of 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.

69
 Effectively Zero-Rated Sale of
Services
Shall refer to the local sale of services
by a VAT-registered person to a person
or entity who was granted indirect tax
exemption under special laws or
international agreement.

70
Zero-Rated Sales of Goods
Foreign Currency Denominated
Sale
 Sales of locally manufactured or
assembled goods for household
and personal use to Filipinos
abroad and other non-residents of
the Philippines as well as returning
Overseas Filipinos
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 VAT on Sales of Services
Sale or exchange of services:

1.Services performed for a valuable consideration

in relation to trade, business or profession, unless
exempted by Code or special law.
2.Lease or use of personal properties (tangible or
intangible) such as rights, privileges, or properties,
or the supply of knowledge or information,
assistance or services.
3.Lease of real properties.
72
 Taxable Base on Services
1. Total amount of money or its equivalent representing
the contract price, compensation services fee, rental or
royalty.
2. Amount charged for materials supplied, with the
services and deposits and advance payments actually
or constructively received during the taxable quarter,
excluding VAT.

Gross receipts on services do not include receivable

73
 Gross Receipts
Means the total amount of money or its
equivalent representing the contract price,
compensation, services and deposits
applied as payments for services rendered
and advanced payments actually or
constructively received during the taxable
period for the services performed or to be
performed for another person, excluding
value-added tax.
74
 Gross Receipts
• Constructive receipt
– Deposit in Banks
– Issuance by the debtor of a notice of
offset any debt or obligation
– Transfer of the amounts retained by the
payor to the account of the contractor

75
 Constructive receipt
Occurs when the money consideration or its
equivalent is placed at the control of the person
who rendered the service without restrictions by
the payor.
1.Deposits in bank which are made available to the
seller of services without restrictions;
2.Issuance by the debtor of a notice to offset any
debt or obligation and acceptance thereof by the
seller as payment for services rendered; and
3.Transfer of the amounts retained by the payor to
the account of the contractor.
76
 Requirements of Service
Transactions Subject to VAT
The requisites of services subject to VAT are the
following:
1.The service must be performed or is to be
performed in the course of business or trade in the
Philippines.
2.The service is rendered for valuable
consideration actually or constructive received.
3.The service rendered is not exempt from VAT
under the Tax Code, other special laws, or
international agreement.
77
4. Warehousing services;
a. Engaging in the business of receiving and
storing goods of others for compensation or
profit;
b. Receiving goods and merchandise to be
stored in his warehouse for hire; or
c. Keeping and storing goods for other, as a
business and for use.
5. Lessors or distributors of cinematographic
films;

78
6. Persons engaged in milling, processing,
manufacturing or repacking goods for
others;
A miller, who is a person engaged in
milling for others (except palay into rice,
corn into corn grits, and sugarcane into
raw sugar), is subject to VAT on sale of
services.

79
7. Proprietors, operators or keepers of
hotels, motels, rest house, pension
houses, inns, resorts, theater and movie
houses;
8. Proprietors or operators of restaurant,
refreshment parlors, cafes and other
eating places, including clubs and
caterers
9. Dealers in securities;

80
10.Lending investors;

Lending investor – includes all persons other

financial intermediaries not performing quasi-
banking functions who make a practice of
lending money for themselves or others at
interest.

Pawnshops are not classified as lending

investors and therefore, they are not subject to
VAT. They are subject to percentage tax as
imposed on Section 122 of NIRC. (Tambunting
Pawnshop, Inc. vs CIR, G.R. No. 179085, Jan.
21, 2010; R.A. 9238; RMC 74-2005)
81
11.Transportation contractor on their transport of
goods or cargoes,

Common carriers by land with respect to their

gross receipts from the transport of passengers
including operators of taxicabs, utility cars for rent
or hire driven by the lessees (rent-a-car
companies), and tourist buses used for the
transport of passengers shall be subject to the 3%
percentage tax, but shall not be liable for VAT.

82
12.Domestic 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;

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.

13. Sale of electricity by generation, transmission and

distribution companies;

83
Transporting Goods or Cargoes 12% VAT
Transporting Passengers 3% Common Carrier’s Tax
By Air or Sea:
From/To Within the Philippines-
Transporting Goods or Cargoes 12% VAT
Transporting Passengers 12% VAT

From One Point in the Philippines to Abroad

Transporting Goods or Cargoes 0% VAT
Transporting Passengers 0% VAT

84
14.Franchise grantees of electric utilities,
telephone and telegraphs, radio and/or
television broadcasting and all other franchise
grantees of radio and/or television broadcasting
whose annual gross receipts of the preceding
year do not exceed Ten Million Pesos
(P10,000,000.00) and franchise grantees of
gas and water utilities;
15.Non-life insurance companies (except crop
insurance), including surety, fidelity, indemnity
and bonding companies; and
16.Similar services regardless of whether or not
performance thereof calls for the exercise or
use of the physical or mental faculties. 85
17.Pre-need companies;

Are corporations registered with the

Securities and Exchange Commission
and authorized/licensed to sell or offer for
sale pre-need plans, whether a single
plan or multi-plan.

18.Health maintenance organizations

(HMOs); and

86
• 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;
• The supply of services by a non-resident person or his employee in
connection with the use of property rights belonging to or the
installation of operation of any brand, machinery, or other apparatus
purchased from such non-resident person;
• The supply of technical advice, assistance or services rendered in
connection with technical management or administration of any
scientific, industrial or commercial undertaking, venue, project or
scheme,
• The lease of motion picture films, tapes, discs;
• The lease or the use of or the right to use radio, television, satellite
transmission and cable television time.

87
• PAGCOR and its licensees and franchisees;
(Not subject per RMC 08-2012)
• Sale of electricity by generation, transmission,
and distribution companies (except sale of fuel
generated through renewable sources of energy
which is 0%); and
• Sale by electric cooperatives as well as
importation of machines and equipments
including spare parts.

88
 Input Tax
“Input Tax” means the VAT due on or
paid by a VAT-registered person on
importation of goods or local purchases
of goods, properties, or services,
including lease or use or properties, in
the course of trade or business. It
include the transitional input tax and
the presumption input tax
89
 Input Tax

Kinds of Input Taxes

1. Transitional input tax
2. Presumptive input tax
3. Actual input tax directly attributable to
transactions subject to the VAT
4. Allocable input tax – ratable portion of
any input tax which cannot be directly
attributed to either the taxable or exempt
activity 90
 Input taxes
Sources of Input Tax

Domestic Purchases – Capital Goods above P 1 million

Domestic Purchases – Capital Goods less than P 1 million
Domestic Purchases – Goods
Domestic Purchases – Services
Importations – Capital Goods above P 1 million
Importations – Capital Goods less than P 1 million
Importations – Goods
Presumptive Input Tax on Goods and Supplies
91
Five (5) categories of input taxes that may be
credited against output tax, namely:

1. Input tax credit on importation of goods and

current local purchases of goods, properties and
services
2. Transitional input credit
3. Presumption input tax credit
4. Final withholding tax credit
5. Excess input tax credit.

92
 Input Tax

Source of Input Taxes

1. VAT on purchase or importation of

goods Asian Institute of Taxation
 sale;
 use as raw materials for manufactured
products including packaging materials;
 use as supplies in the course of business;
 use as raw materials supplied in the sale of
services;
 use in trade or business for which deduction
for depreciation or amortization is allowed,
 Input Tax

Source of Input Tax

2. VAT on purchase of real properties

3. VAT on purchase of services
4. VAT on transactions “deemed sale”
5. Transitional input tax
6. Presumptive input tax credits allowed under the
transitory and other provisions of RR 16-2005

94
 Input Taxes
• Purchase or importation of goods
• Purchase of real properties for which a
VAT has actually been paid
• Purchase of services in which a VAT has
actually been paid
• Transactions “deemed sale”
• Transitional input tax
• Presumptive input tax
• Transitional input tax credits
95
 Persons Who Can Avail of the
Input Tax Credit
• To the importer upon payment of VAT
prior to the release of goods from
customs custody;
• To the purchaser of the domestic goods
or properties upon consummation of the
sale; or
• To the purchaser of services or the
lessee or licensee upon payment of the
compensation, rental, royalty or fee. 96
 Substantation Requirements on
Input Tax

A. IN GENERAL:
1. Proof that input tax was incurred in the
course of trade or business.
2. Supported by VAT invoice or receipt bearing
VAT number of seller.
3. Seller must be vat registered.
4. Purchaser must also be VAT registered.
5. Invoice must be in the name of buyer.
6. Address of buyer is indicated.
7. Business style of buyer. 97
 Substantation Requirements on Input Tax
B. INPUT TAX ON INPORTATION:
1. Import entry or equivalent document
2. Payment of VAT on imported goods (official
receipts)
C. TRANSITIONAL AND/OR PRESUMPTIVE
INPUT TAX:
1. Inventory of unused tax credits duly accounted in
the books and returns
2. Inventory of goods filed with the BIR
D. INPUT TAX ON DEEMED SALE
TRANSACTIONS:
Inventory filed with the BIR
98
 Input Tax on Depreciable Goods

Where a VAT-registered person purchases or imports

capital goods, which are depreciable assets for income tax
purposes, the aggregate acquisition cost of which
(exclusive of VAT) in a calendar month exceeds P1M,
regardless of the acquisition cost of each capital good,
input tax is

If estimated useful life is 5 years or more spread input tax

evenly over a period of 60 months and the claim for input
tax credit will commence in the calendar month when the
capital good is acquired

99
Input Tax on Depreciable Goods
If estimated useful life is less than 5 years-
the input tax shall be spread evenly on a
monthly basis by dividing the input tax by
the actual number of months comprising the
estimated useful life of the capital good. The
claim for input tax credit shall commence in
the calendar month that the capital goods
were acquired

100
Input Tax on Depreciable Goods

Aggregate acquisition cost during any calendar month

does not exceed P1M - the total input taxes will be
Asian Institute of Taxation
allowed as credit against output tax in the month of
acquisition;

Aggregate acquisition cost - refers to the total price

agreed upon for one or more assets acquired and not
on the payments actually made during the calendar
month. Thus, an asset acquired in installment for an
acquisition cost of more than P1M will be subject to the
amortization of input tax despite the fact that the monthly
payments/installments may not exceed P1M.
Input Tax on Depreciable Goods

If the depreciable capital good is

sold/transferred within a period of five (5)
Asian Institute of Taxation
years or prior to the exhaustion of the
amortizable input tax thereon, the entire
unamortized input tax on the capital goods
sold/transferred can be claimed as input tax
credit during the month/quarter when the sale
or transfer was made.
 Input Taxes on Vehicles
(RMC 02-2013)

All input taxes corresponding to disallowed expenses or non-

depreciable vehicles (defined in RR 12-2012) for income tax
purposes purchased October 17, 2012 and thereafter, are not
allowed. RR 12-2012 rules:
1. Only one vehicle is allowed for the use of an official,
the value of which should not exceed P2.4M
2.No depr shall be allowed for yachts, helicopters, airlines
which exceeds the same amount unless in transport
operation;
3.Maintenance expenses on account of non-depreciable
vehicles are likewise disallowed.
 Input taxes

Staggered claim of inputs tax for capital

goods, whose acquisition cost net of VAT
exceeds P1 million, over 60 months or
the useful life, whichever is shorter

 Option to apply for refund/tax credit

certificate has been withdrawn

104
 Input taxes

Presumptive/transitional input tax credits

 Reduces from 8% to 2% the optional transitional
input tax credit allowed on beginning inventory of
persons becoming liable to VAT
 Increases from 1 ½% to 4% the presumptive input
tax credit for manufacturers of sardines, mackerel,
milk, refined sugar, cooking oil and, under the bill

105
 Creditable Input Tax
Any input tax evidenced by a VAT invoice or
official receipt on the following transactions
shall be creditable against the output tax:

a) Purchase or importation of goods:

•For sale; or
•For conversion into or intended to form part
of a finished product for sale; including
packaging materials; or
106
 Creditable Input Tax
•For use as supplies in the course of
business; or
•For use as materials supplied in the sale of
service; or
•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.
• The input tax on domestic purchase of
107
goods or properties shall be creditable.
 Transitional Input Tax Credits

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

108
Presumptive Input Tax Credits
Presumptive Input Tax Credits – Persons or
firms engaged in the processing of sardines,
mackerel and milk, and in manufacturing
refined sugar and cooking oil, and packed
noodle-base instant meals, shall be allowed a
presumptive input tax 4%.

109
 Mixed Business Transactions
Refer to business dealings of a VAT-
registered persons engaged in commercial
activities subject to VAT, Zero-Vat and VAT-
exempt transactions.

A VAT-registered taxpayer with mixed

business transactions is required by law to
issue VAT, zero-rated, or VAT-exempt sales
invoices or receipts to classify the
transactions made from each other during
the taxable period. 110
 Apportionment of Input Tax on
Mixed Transactions
• If any input tax cannot be directly
attributed to either a VAT taxable or
VAT-exempt transaction, the input tax
shall be pro-rated to the VAT taxable
and VAT-exempt transactions

111
 Mixed transactions
Where the taxpayer is engaged in zero-rated
or effectively zero-rated sale as well as in
taxable domestic and exempt sale of goods
and services, and the amount of the
allowable input tax paid cannot be directly
and entirely attributed to any one of the
transactions, it shall be allocated
proportionately to each category of
transactions.

112
 Apportionment of Input Tax on
Mixed Transactions

Taxable sales (0% and 10%)

-------------------------------------- x Amount of input
Total Sales tax not directly
attributable

113
 Final withholding VAT on
government purchases

Unifies to 5% and converts to a final tax the

withholding VAT rate on income payments by
government (previously 3%, 6% and 8.5%)

114
 Refunds or Tax Credits of Input
Tax.
1.Zero-Rated or Effectively Zero-Rated
Sales.
2.Cancellation of VAT Registration.

115
Case: (Fort Bonifacio Development Corporation
vs. CIR, et. al. (GR Nos.158885 and 170680, April
2, 2009)

Petitioner is engaged in development and sale of

real property. It availed of transitional input tax
credit based on the value of its land inventory
which was not subjected to VAT upon purchase.
was disallowed by the BIR.

116
 DEDUCTION FROM INPUT TAX
Input Tax on Purchases of Capital Goods exceeding P1 Million
deferred for the succeeding period
Input Tax on Sale to Government closed to expense
Input Tax allocable to Exempt Sales
VAT Refund/TCC claimed

117
 Substantiation of Input Tax
Credits
• Input taxes for the importation of goods or
the domestic purchase
– For the importation of goods – import entry or
other equivalent document
– For the domestic purchase of goods and
properties – invoice showing the information
– For the purchase of real property – public
instrument i.e., deed of absolute sale, deed of
conditional sale, contract/agreement to sell
– For the purchase of services – official receipt
showing the information
118
 Substantiation of Input Tax
Credits
• Presumptive input tax shall be
supported by an inventory of goods
as shown
• Input tax on “deemed sale”
transactions shall be substantiated
with the invoice

119
 Transitional input tax
There are three situations where a person may
claim transitional input tax on his beginning
inventories of goods, materials, and supplies:
1. When he becomes liable to value added tax for
the first time
2. When he elects to register as a VAT-registered
person, provided he is eligible; and
3. If he is already a VAT-registered person and also
deals in goods or properties, the sale of which is
exempt,

120
 Transitional Input Tax on
Beginning Inventories
• Goods purchased for resale;
• Materials purchased for further
processing;
• Goods which have been
manufactured by the taxpayers;
• Goods in process for sale; or
• Goods and supplies for use of tax
payers 121
 Presumptive Input Tax Credits
Persons of firms engaged in the
processing of sardines, mackerel, and
milk, and in manufacturing refined sugar,
cooking oil and packed noodle-based
instant meals, 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 input to their
production. 122
Presumptive Input Tax (Sec 111B)

Persons/firms engaged in
processing/manufacturing

Asian Institute
1. sardines of Taxation
4. refined sugar
2. mackerel 5. cooking oil
3. milk 6. packed noodle-based
instant

meals

are entitled to 4% of the gross value in money of

their purchases of primary agri products which
are used as inputs to their production.
 Claims for Refund/Tax Credit
Certificate of Input Tax
• Zero-rated and Effectively Zero-rated
Sales of Goods, Properties or
Services
• Cancellation of VAT registration

124
 Vat Refunds
2 issues:

1. Reckoning date for the 2-year period

- filing of tax return? Or close of taxable
quarter?
2. Period of 120 days for the BIR to act on
claims

125
 Not Allowed for Vat Refund or
Tax Credit Certificate
The following are not allowed to apply for VAT
refund or issuance of tax credit certificate:
1.Presumptive input VAT
2.Transitional input VAT
3.Actual input Vat on capital goods, importation, or
purchases of continuing VAT-registered persons to
the extent of their sales not subject to zero-rated,
effectively zero-rated or business cancelling their
VAT registration.

126
Reckoning of prescriptive period for VAT
refund.
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 the output tax x x x

127
For claims of refund of unutilized input VAT
attributable to export sales, there must be
proof of actual exportation or shipment of
goods from the Philippines to a foreign
country.

128
For claims of refund of unutilized input VAT
attributable to zero-rated sales, there must
be proof of valid VAT official
receipts/invoices covering the zero-rated
sales.

129
Once a carry-over option is taken,
actually or constructively, it becomes
irrevocable for that taxable year and no
application for a tax refund or TCC shall
then be allowed.

130
 Claims for Refund/Tax Credit
Certificate of Input Tax
• Period within which refund or tax credit
certificate/refund of input taxes shall be
made
– In proper cases, the Commissioner of Internal
Revenue shall grant a tax credit
certificate/refund for creditable input taxes
within one hundred twenty (120) days from
the date of submission of complete
documents in support of the application

131
Recovery of Tax Erroneously or Illegally
Collected.

In any case, no such suit or proceeding shall

be filed after the expiration of two (2) years
from the date of payment of the tax or penalty
regardless of any supervening cause that may
arise after payment: Provided, however, That the
Commissioner may, even without a written claim
therefor, refund or credit any tax, where on the
face of the return upon which payment was
made, such payment appears clearly to have
been erroneously paid.
132
 Sale of Real Properties
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)

133
 Sale of real property on
installment plan
Means sale of real property by a real estate dealer, the
initial payments of which in the year of sale do not exceed
twenty-five (25%) of the gross selling price.

In case of installment sale, the seller shall be subject to

output VAT on the installment payments received, including
the interest and penalties for late payment, actually and/or
constructively received, subject to the provisions of
Sec.4.106-4 hereof. Correspondingly, the buyer of the
property can claim the input tax in the same period as the
seller recognized the output tax.

Installment payments, including interests and penalties,

actually and/or constructively received starting February 1,
2006 shall be subject to twelve percent (12%) output VAT. 134
 Sale of real property on
installment plan
In the case of sale of real properties on a deferred-payment
basis not on the installment plan, 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 payment” shall no longer be

subject to output VAT, in the case of sale on a deferred
payment basis.
135
 “Gross Selling Price”
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 market 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.
136
 “Gross Selling Price”

Illustration:

ABC Corporation sold a parcel of land to XYZ

Company on July 2, 2006 for P1,000,000.00, plus
the output VAT, with a monthly installment payment
of P10,000.00, plus the output VAT. The zonal
value of the subject property at the time of sale
amounted to P1,500,000.00. Computer for the
output tax due on the installment payment.

137
 “Gross Selling Price”
Formula:

Actual collection (exclusive of the VAT) x Zonal value x 12%

Agreed consideration (exclusive of the VAT)

P10,000.00 x P1,500,000.00 = P15,000.00

P1,000,000.00

P15,000.00 x 12% = P1,800.00

Selling price is the amount of consideration in a contract of sale

between the buyer and seller or the total price of the sale which may
include cash or property and evidence of indebtedness issued by the
buyer, excluding the VAT.
138
 Real estate lessor
Any person engaged in the business of leasing or
subleasing real property.
Leasing of property shall be subject to VAT regardless of
the place where the contract of lease or licensing
agreement was executed if the property leased or used
is located in the Philippines.

139
 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 herein 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.

140
 Construction in progress (CIP)
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 materials were
purchased.

Once the input tax has already been claimed while

the construction is still in progress, no additional
input tax can be claimed upon completion of the
asset when it has been reclassified as depreciable141
capital asset and depreciated.
 Withholding of VAT on Government
Money Payments and Payments to
Non-Residents
The five percent (5%) final VAT withholding rate shall
represent the net VAT payable of the seller. The remaining
seven percent (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
seven percent (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 seven percent (7%) of gross payment, the difference
must be closed to income. 142
Revenue Memorandum Circular
No. 39-2007
Clarifying Income Tax and VAT
Treatment of Agency Fees/Gross
Receipts of Security Agencies
Including the Withholding of Taxes
Due thereon

143
 Vat on Security Agency Fees
In the computation of VAT related to the gross
receipts by a Vat-registered security agency:
1.The contract for security services entered by and
between the security agency and its client must
provide for a breakdown of the amount of security
services into two components:
a. The agency fee
b. The security guards salary

Only the agency fee is subject to 12% VAT if the

service contract stipulates the breakdown. 144
Not subject to output tax.
The VAT shall not apply to goods or properties which are
originally intended for sale or for use the course of
business existing as of the occurrence of the following:
1. Change of control of corporation by acquisition of the
controlling interest of such corporation by another
stockholder (individual or corporate) or group of
stockholders. The goods or properties used in
business (including those held for lease) or those
comprising the stock in trade of the corporation
having a change in corporate control will not be
considered sold, bartered, or exchanged despite the
change in the ownership interest in the said
corporation.
145
However, the exchange of goods or properties including
the real estate properties used in business or held for
sale or for lease by the transferor, for shares of stocks,
whether resulting in corporate control or not, is subject
to VAT.

146
 Vat Sale

Invoice Price Freight Marine Insurance Packaging

147
 REVENUE REGULATIONS
NO. 18-2011
Providing Penalties for Violation of the
Requirement that Output Tax on the Sale of
Good and Services Should be Separately
Indicated in the Sales Invoice or Official
Receipt

148
All VAT-registered taxpayers who are required under
Section 237 of the 1997 Tax Code, as amended to issue
sales or commercial invoices or official receipts should
separately bill the VAT corresponding thereto. The
amount of the tax shall be shown as a separate item in
the invoice receipt.

Failure or refusal to comply with the requirement shall,

upon conviction, for each act or omission, be punished by
a fine of not less than One Thousand Pesos (Php1,000)
but not more than Fifty Thousand Pesos (Php50,000)
and suffer imprisonment of not less than two (2) years
but not more than four (4) years.

149
REVENUE REGULATIONS
NO. 1-2012
Requiring the Mandatory Submission of
Quarterly Summary List of Sales and
Purchases (SLSP) by All VAT Registered
Taxpayer Thereby Amending

150
Persons Required to Submit Summary Lists of
Sales/Purchases
1. Persons Required to Submit Summary Lists
of Sales. All persons liable for VAT such as
manufacturers, wholesalers, service,
providers, among others are quires to submit
Summary List of Sales.
2. Persons Required to Submit Summary Lists
of Purchases. All persons liable for VAT
such as manufacturers, service-providers
among others are required to file Summary
List of Purchases

151
 REVENUE REGULATIONS
NO. 3-2012
Effectivity 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

152
 Section Amount in Pesos (2005) Adjusted threshold
amounts

Section 109 (P) 1,5000,000 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 1,919,500.00

153
 Value Added tax
A non-stock, non-profit organization or
government entity is liable to pay VAT on
the sale of goods or services. This
conclusions was affirmed by the Supreme
Court in Commissioner of Internal Revenue
v. Court of Appeals and Commonwealth
Management and Services Corporations,
G.R. No. 125355, March 30, 2000. In this
case, the Supreme Court held.
 Revenue Regulations
No. 13-2012
VAT treatment on Sale of Adjacent
Residential Lots, House and Lots or Other
Residential Dwellings, thereby Amending
Certain Provisions of Revenue Regulations
No. 16-2005, as amended, Otherwise
Known as Consolidated VAT Regulations of
2005
155
 Sale of Real Properties
This includes sale, transfer or disposal within a 12-month
period of two or more adjacent residential lots, house and
lots or other residential dwellings in favor of one residential
area wherein the aggregate value of the adjacent
properties exceeds P1,919,500.00, for residential lots and
P3,199,200.00 for residential house and lots or other
residential dwellings, Adjacent residential lots, house and
lots or other residential dwellings 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/s of Conveyance, shall be
presumed as a sale of one residential lot, house and lot or
residential dwelling.
156
 Sale of Real Properties
Does not include the sale of parking lot
which may or may not be include in the sale
of condominium units. The sale of parking
lot in a condominium is a separate and
distinct transaction and is not covered by the
rules on threshold amount not being a
residential lot, house & lot or a residential
dwelling, thus, should be subject to VAT
regardless of amount of selling price.”
157
If two or more adjacent residential lots, house and lots or
other residential dwellings are sold or disposed in favor of
one buyer from the same seller, for the purpose of utilizing
the lots, house and lots or other residential dwellings as one
residential area, the sale shall be exempt from VAT only if the
aggregate value of the said properties do not exceed
P1,919,500.00 for residential lots, and P3,199,200.00 for
residential house and lots or other residential dwellings.
Adjacent residential lots, house and lots or other residential
dwelllings 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/s
of Conveyance, shall be presumed as a sale of one
residential lot, house and lot or residential dwelling.
Revenue Memorandum Circular
No. 9-2013

Clarifying the Taxability of Association

Dues, Membership Fees, and Other
Assessments/Charges Collected by
Homeowners’ Associations
 I. Income Tax

-the amounts paid in as dues or fees by

homeowner-members of a homeowners association
form part of the gross income of the latter subject to
income tax. This is because a homeowners’
association furnishes its members with benefits,
advantages, and privileges in return for such
payments. For tax purpose, the association dues
membership fees and other assessments/charges
collected by a homeowners’ association constitute
income payments or compensation for beneficial
services it provides to its members and tenants.
II. Value-Added Tax (VAT) and
Percentage Tax

-Association dues, membership fees, and

other assessments/charges collected by a
homeowners’ association are subject to VAT
since they constitute income payment or
compensation for the beneficial services it
provides to its homeowner-members.
 A non-stock, non-profit organization or
government entity is liable to pay VAT on
the sale of goods or services. This
conclusion was affirmed by the Supreme
Court in Commissioner of Internal Revenue
v. Court of Appeals and Commonwealth
Management and Services Corporation
 It is immaterial whether the primary purpose of a
corporation indicates that it receives payments for
services rendered to its affiliates on a
reimbursement-on-cost basis only, without
realizing profit, for purposes of determining liability
for VAT on services rendered. As long as the entity
provides service for a fee, remuneration or
consideration then the service rendered is subject
to VAT
 Tax on Persons Exempt from Value-Added Tax
(VAT) – any person whose sales or receipts are
exempt under Section 109 (V) of this Code from
the payment of value added tax and who is not a
VAT-registered person shall pay a tax equivalent
to three percent (3%) of his gross quarterly sales
of receipts: Provided, that cooperatives shall be
exempt from the three percent (3%) gross receipts
tax herein imposed.
 Pre-Need Companies
(BIR Ruling DA-027-06)

Pre-need Companies are considered to be engaged in

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business as seller of services providing services to plan
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holders by managing the funds provided by them.
As service providers, the gross receipts of pre-need
companies for VAT purposes should only be the premium or
payment collected from the plan holders excluding the
“funds” provided by the plan holders, which are being
managed by the pre-need companies for them.
The “funds” provided by the plan holders, pertain to such
amount of trust fund contributions as mandated by SEC.
 HMOs
(VAT Ruling 003-08)

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Health Maintenance Office
HMOs by independent health care providers merely
arranges for the provision of health care services to
members when the need arises, which will be
rendered by independent health care providers, in
exchange for prepaid membership fees which is
subject to 12% VAT.
 Motels (RMO 16-2010)

Policies and Guidelines on Output VAT of motels

Motel owners shall submit Sworn Declaration on
no. of rooms, room rates and room type on
or before Jan 31of each year.
RDO prepares Occupancy Turnover Analysis
Report (OTAR) by matching the figures of the actual
monthly sales/VAT return with the prescribed
sales/day, using the suggested minimum turnover
factor for peak and lean periods. RDO provides
the OTAR to the owner. In case of discrepancies,
owner may pursue to amend the VAT returns or be
subjected to surveillance.
Motor Vehicle sale to Australia Emb
(DA ITAD BIR Ruling 069-14)

Purchase by Australian Embassy of motor vehicle is

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covered by Sec 106(A)(2)(c). Exemption is not
covered by the Vienna Convention on Diplomatic
Relation. However, applying the principle of
reciprocity, the AE and/or its personnel appears in
the list submitted by DFA that Australia allows similar
exemption to the Phil Embassy and/or its personnel.
Purchase of motor vehicle by the Australian
Embassy from a VAT-registered taxpayer is subject
to VAT at 0%.
 Motor Vehicle sale to ADB
(DA ITAD BIR Ruling 068-14)

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Purchase by ADB of motor vehicle is covered by Sec
106(A)(2)(c) Sales to persons or entities whose exemption
under special laws or international agreements to which the Phil
is a signatory effectively subjects such sales to zero rate.
Article IX, Section 34(a)of the PH-ADB Agreement: “The
Bank,its property and its operations and transactions shall be
exempt from (A) All taxation and any obligation for the payment,
withholding or collection of any tax or duty.
Purchase of motor vehicle by ABD from a VAT-registered
taxpayer is subject to VAT at 0%.
Money Changers and Pawnshops
RR 25-2015

v. Services of banks, non-bank financial

intermediaries performing quasi-
banking functions, and other non-bank
financial intermediaries such as
moneychangers and pawnshops,
subject to percentage tax under Secs 121
and 122, respectively, of the Tax Code.
VAT Exempted Goods and Services
(Sec 109)

Asian Institute of Taxation

w. Sale or lease of goods or properties or the
performance of services whose gross annual
sales/or receipts do not exceed P3M

Note: Seller of goods and services of P3M.

and below has the option to register as
VAT. Once he elects to register as VAT, he
shall not be entitled to cancel his registration
and transfer to Non-VAT status for the next
three years.
 Aggregation Rule

Asian Institute of Taxation

Aggregation rule: Income derived from one business
or practice of profession is combined with all
other businesses of the taxpayer for the purpose
of
determining the threshold of P3M
(Ex. Prof fees of A CPA +gross receipts from his
restaurant+commissions)
Aggregation rule does not apply to husband and wife
who shall be considered as separate taxpayers.