III.

VALUE-ADDED TAX

A. Sections 105-115 of the tax code DESTINATION PRINCIPLE

B. RA No. 10963 (effective January 1, 2018)
C. Relevant VAT regulations: Genaral Rule: VAT system uses the destination principle as a basis for the
RR 13-2018 jurisdictional reach of the tax. Goods and services are taxed in the country where
RR 2-2007 they are consumed or used.

CONCEPT • Exports – Zero-rated

Value-Added Tax (VAT) is a tax on consumption levied on the sale, barter, • Imports – taxed
exchange (including any transaction deemed by law as sale) or lease of goods or
properties and services in the Philippines and on importation of goods into the CROSS-BOARDER DOCTRINE
Philippines.
No VAT shall be imposed to form part of the cost of goods sold destined for
It is an indirect tax and the amount of tax may, by law, be shifted or passed on to consumption outside of the territorial border of the taxing authority.
the buyer, transferee or lessee of the goods, properties or services. (Sec. 105,
ORIGIN PRINCIPLE
NIRC)
Only national taxpayers would be exposed to the tax, without distinguishing
It is a tax on the estimated market value added to a tax product or material at
between transactions “consumed” locally or abroad. (Situs; country of production)
each stage of its manufacture or distribution, ultimately passed on to the consumer

D. NATURE, CHARACTERISTIC AND PURPOSE OF VAT

o The seller is the one statutorily liable for the payment of the tax but the amount of
the tax may be shifter or passed on to the buyer, transferee or lessee of the
goods, properties or services. However, in the case of importation, the importer is
the one liable for the VAT (Sec.4, 105-2 RR 16-2005)
o Value added is the value that a producer adds to his raw materials or purchases
(other than labor) before selling the new or improved product or service.
o VAT is an indirect tax levied on goods and services; not on persons, and ultimately
paid by consumers in the form of higher prices.
o Apply to existing contracts of sale or lease of goods, properties or services at the
time of affectivity of RA No 7716 (9337).
o VAT system assures fiscal adequacy through the collection of taxed on every level
of consumption, yet assuages the manufacturers or provides of goods and
services by enabling them to pass on their respective VAT liabilities to the next
link of the chain until finally the end consumer shoulders the entire tax liability
o It is a method of imposing an ad valorem tax on value added.
o VAT is a multi-stage or multi-point sales tax as it is collected at each stage or point
in the production and distribution process. However, although the tax is levied at
all stages, their total value is subject to tax once and once only, so that the
amount of tax collected would be equal to that of a single, first-stage tax on
original sales, which is said to be more equitable than the former sales tax.

ELEMENTS OF A VAT-TAXABLE TRANSACTION

1. It involves any person;
2. There must be a sale (including deemed sale transaction), barter,
exchange, lease of goods or properties or rendering services;
3. It must be done in the ordinary course of business;
4. The transaction is done in the Philippines;
5. It must neither be VAT-Exempt or VAT Zero-rated
 ID.; ID.; ID.; ON REAL ESTATE TRANSACTIONS; EQUALITY AND
CASE: TOLENTINO V. SEC. OF FINANCE G.R. NO. 115455 (Oct. 20, 1995) UNIFORMITY OF TAXATION; VALIDITY OF VAT. — CREBA claims that real
estate transactions of "the less poor," i.e., the middle class, who are equally
ID.; ID.; ID.; TAXATION AND FREEDOM OF THE PRESS, ELABORATED. — As homeless, should be exempted. There is a difference between the "homeless poor’
a general proposition, the press is not exempt from the taxing power of the State and the "homeless less poor" in the example given by petitioner, because the
and that what the constitutional guarantee of free press prohibits are laws which second group or middle class can afford to rent houses in the meantime that they
single out the press or target a group belonging to the press for special treatment cannot yet buy their own homes. The two social classes are thus differently
or which in any way discriminate against the press on the basis of the content of situated in life. "It is inherent in the power to tax that the State be free to select
the publication, and R.A. No. 7716 is none of these. Since the law granted the the subjects of taxation, and it has been repeatedly held that ‘inequalities which
press a privilege, the law could take back the privilege anytime without offense to result from a singling out of one particular class for taxation, or exemption infringe
the Constitution. The reason is simple: by granting exemptions, the State does not no constitutional limitation." ‘ Equality and uniformity of taxation means that all
forever waive the exercise of its sovereign prerogative. Indeed, in withdrawing the taxable articles or kinds of property of the same class be taxed at the same rate.
exemption, the law merely subjects the press to the same tax burden to which The taxing power has the authority to make reasonable and natural classifications
other businesses have long ago been subject. And VAT is not a license tax. It is not for purposes of taxation. To satisfy this requirement it is enough that the statute or
a tax on the exercisse of a privilege, much less constitutional right. It is imposed ordinance applies equally to all persons, forms and corporations placed in similar
on the sale, barter, lease or exchange of goods or properties or the sale or situation. Indeed, the VAT was already provided in E.O. No. 273 long before R.A.
exchange of services and the lease of properties purely for revenue purposes. To No. 7716 was enacted. R.A. No. 7716 merely expands the base of the tax. The
subject the press to its payment is not to burden the exercise of its right any more validity of the original VAT Law was questioned on grounds similar to those made
than to make the press pay income tax or subject it to general regulation is not to in these cases, namely, that the law was "oppressive, discriminatory, unjust and
violate its freedom under the Constitution. regressive in violation of Art. VI, §28(1) of the Constitution." This Court held: EO
273 satisfies all the requirements of a valid tax. It is uniform . . . . The sales tax
adopted in EO 273 is applied similarly on all goods and services sold to the public,
ID.; ID.; ID.; TAXATION AND FREEDOM OF RELIGION IN CASE AT BAR. —
which are not exempt, at the constant rate of 0% or 10%. The disputed sales tax
The Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds
is also equitable. It is imposed only on sales of goods or services by persons
derived from the sales are used to subsidize the cost of printing copies which are
engaged in business with an aggregate gross annual sales exceeding P200,000.00.
given free to those who cannot afford to pay so that to tax the sales would be to
Small corner sari-sari stores are consequently exempt from its application.
increase the price, while reducing the volume of sale. Granting that to be the case,
Likewise exempt from the tax are sales of farm and marine products, so that the
the resulting burden on the exercise of religious freedom is so incidental as to
costs of basic food and other necessities, spared as they are from the incidence of
make it difficult to differentiate it from any other economic imposition that might
the VAT, are expected to be relatively lower and within the reach of the general
make the right to disseminate religious doctrines costly. The registration fee
public.
imposed by §107 of the NIRC, as amended by 7 of R.A. No. 7716, although fixed in
amount, is really just to pay for the expenses of registration and enforcement of
provisions such as those relating to accounting in §108 of the NIRC. That the PBS
distributes free bibles and therefore is not liable to pay the VAT does not excuse it ID.; ID.; ID.; VAT IS AN INDIRECT AND REGRESSIVE TAX WHICH IS NOT
from the payment of this fee because it also sells some copies. At any rate whether ACTUALLY PROHIBITED BY THE CONSTITUTION. — The Constitution does not
the PB S is liable for the VAT must be decided in concrete cases, in the event it is really prohibit the imposition of indirect taxes which, like the VAT, are regressive.
assessed this tax by the Commissioner of Internal Revenue. What it simply provides is that Congress shall "evolve a progressive system of
taxation." The constitutional provision has been interpreted to mean simply that
"direct taxes are . . . to be preferred [and] as much as possible, indirect taxes
should be minimized." Indeed, the mandate to Congress is not to prescribe, but to
ID.; ID.; ID.; TAXATION AND NON-IMPAIRMENT OF CONTRACTS. — evolve, a progressive tax system. Sales taxes, are form of indirect taxes, and they
"Authorities from numerous sources are cited by the plaintiffs, but none of them are also regressive. Resort to indirect taxes should be minimized but not avoided
show that a lawful tax on a new subject, or an increased tax on an old one, entirely because it is difficult, if not impossible, to avoid them by imposing such
interferes with a contract or impairs its obligation, within the meaning of the taxes according to the taxpayers’ ability to pay. In the case of the VAT, the law
Constitution. Even though such taxation may affect particular contracts, as it may minimizes the regressive effects of this imposition by providing for zero rating of
increase the debt of one person and lessen the security of another, or may inpose certain transactions (R.A. No. 7716, 3, amending §102 (b) of the NIRC), while
additional burdens upon one class and release the burdens of another, still the tax granting exemptions to other transactions. (R.A. No. 7716, §4, amending §103 of
must be paid unless prohibited by the Constitution, nor can it be said that it the NIRC) Transactions involving basic and essential goods and services are
impairs the obligation of any existing contract in its true legal sense." Indeed not exempted from the VAT. On the other hand, the transactions which are subject to
only existing laws but also "the reservation of the essential attributes of the VAT are those which involve goods and services which are used or availed of
sovereignty, is . . . read into contracts as a postulate of the legal order." Contracts mainly by higher income groups.
must be understood as having been made in reference to the possible exercise of
the rightful authority of the government and no obligation of contract can extend
to the defeat of that authority.
CASE: DIAZ V. SEC OF FINANCE, GR NO 193007 (JULY 19, 2011) not fall under the traditional concept of services, the personal or
professional kinds that require the use of human knowledge and skills.
FACTS: Petitioners filed this petition for declaratory relief assailing the validity of
the impending imposition of VAT by the BIR on the collections of tollway operators. And not only do tollway operators come under the broad term "all kinds of
services," they also come under the specific class described in Section 108 as "all
ISSUE: May toll fees collected by tollway operators be subjected to value- added other franchise grantees" who are subject to VAT, "except those under Section 119
tax? YES. of this Code."

HELD: Tollway operators are franchise grantees and they do not belong to
exceptions (the low-income radio and/or television broadcasting companies with
RE VAT/ SALE OR EXCHANGE OF SERVICES gross annual incomes of less than P10 million and gas and water utilities) that
Section 119 spares from the payment of VAT. "FRANCHISE" broadly covers
The third paragraph of Section 108 defines "sale or exchange of services." The law
government grants of a special right to do an act or series of acts of public
imposes VAT on "all kinds of services" rendered in the Philippines for a fee,
concern. Nothing in Section 108 indicates that the "franchise grantees" it speaks of
including those specified in the list. The enumeration of affected services is not
are those who hold legislative franchises. The term "franchise" has been broadly
exclusive. By qualifying "services" with the words "all kinds," Congress has given
construed as referring, not only to authorizations that Congress directly issues in
the term "services" an all-encompassing meaning. The listing of specific services
the form of a special law, but also to those granted by administrative agencies to
are intended to illustrate how pervasive and broad is the VAT's reach rather than
which the power to grant franchises has been delegated by Congress.
establish concrete limits to its application.
Tollway operators are, owing to the nature and object of their business, "franchise
Thus, every activity that can be imagined as a form of "service" rendered
grantees." The construction, operation, and maintenance of toll facilities on public
for a fee should be deemed included unless some provision of law
improvements are activities of public consequence that necessarily require a
especially excludes it.
special grant of authority from the state. Apart from Congress, tollway franchises
RE TOLLWAY OPERATOR/SERVICE may also be granted by the TRB, pursuant to the exercise of its delegated powers
under P.D. 1112. The franchise in this case is evidenced by a "Toll Operation
P.D. 1112 or the Toll Operation Decree establishes the legal basis for the services Certificate."
that tollway operators render. Essentially, tollway operators construct, maintain,
and operate expressways, also called tollways, at the operators' expense. In RE SALE OF SERVICE:
consideration for constructing tollways at their expense, the operators are allowed
In specifically including by way of example electric utilities, telephone, telegraph,
to collect government-approved fees from motorists using the tollways until such
and broadcasting companies in its list of VAT-covered businesses, Section 108
operators could fully recover their expenses and earn reasonable returns from their
opens other companies rendering public service for a fee to the imposition of VAT.
investments.
Businesses of a public nature such as public utilities and the collection of tolls or
When a tollway operator takes a toll fee from a motorist, the fee is in effect for the charges for its use or service is a franchise.
latter's use of the tollway facilities over which the operator enjoys private
RE USER’S TAX
proprietary rights that its contract and the law recognize. In this sense, the tollway
operator is no different from the following service providers under Section 108 who MIAA CASE: The terminal fees MIAA charges to passengers, as well as the landing
allow others to use their properties or facilities for a fee: fees MIAA charges to airlines, constitute the bulk of the income that maintains the
operations of MIAA. The collection of such fees does not change the character of
1. Lessors of property, whether personal or real;
MIAA as an airport for public use. Such fees are often termed user's tax. This
2. Warehousing service operators;
means taxing those among the public who actually use a public facility instead of
3. Lessors or distributors of cinematographic films;
taxing all the public including those who never use the particular public facility. A
4. Proprietors, operators or keepers of hotels, motels, resthouses,
user's tax is more equitable - a principle of taxation mandated in the 1987
pension houses, inns, resorts;
Constitution."
5. Lending investors (for use of money);
6. Transportation contractors on their transport of goods or cargoes, Petitioners assume that "user's tax" must also pertain to tollway fees. The
including persons who transport goods or cargoes for hire and other discussion in the MIAA case on toll roads and toll fees was made, not to establish a
domestic common carriers by land relative to their transport of goods or rule that tollway fees are user's tax, but to make the point that airport lands and
cargoes; and buildings are properties of public dominion and that the collection of terminal fees
7. Common carriers by air and sea relative to their transport of for their use does not make them private properties. Tollway fees are not taxes.
passengers, goods or cargoes from one place in the Philippines to another They are not assessed and collected by the BIR and do not go to the general
place in the Philippines. coffers of the government.

Section 108 subjects to VAT "all kinds of services" rendered for a fee "regardless of It would of course be another matter if Congress enacts a law imposing a user's
whether or not the performance thereof calls for the exercise or use of the physical tax, collectible from motorists, for the construction and maintenance of certain
or mental faculties." This means that "services" to be subject to VAT need roadways. The tax in such a case goes directly to the government for the
replenishment of resources it spends for the roadways. This is not the case here.
What the government seeks to tax here are fees collected from tollways that are
constructed, maintained, and operated by private tollway operators at their own
expense under the build, operate, and transfer scheme that the government has
adopted for expressways. Except for a fraction given to the government, the toll
fees essentially end up as earnings of the tollway operators.

RE VAT ON TOLLWAYS:

VAT on tollway operations cannot be deemed a tax on tax due to the nature of
VAT as an indirect tax. In indirect taxation, a distinction is made between the
liability for the tax and burden of the tax. The seller who is liable for the VAT may
shift or pass on the amount of VAT it paid on goods, properties or services to the
buyer. In such a case, what is transferred is not the seller's liability but merely the
burden of the VAT.

Thus, the seller remains directly and legally liable for payment of the VAT, but the
buyer bears its burden since the amount of VAT paid by the former is added to the
selling price. Once shifted, the

VAT ceases to be a tax and simply becomes part of the cost that the buyer
must pay in order to purchase the good, property or service.

Consequently, VAT on tollway operations is not really a tax on the tollway user, but
on the tollway operator. Under Section 105 of the Code, VAT is imposed on any
person who, in the course of trade or business, sells or renders services for a fee.
In other words, the seller of services, who in this case is the tollway operator, is
the person liable for VAT. The latter merely shifts the burden of VAT to the tollway
user as part of the toll fees.

For this reason, VAT on tollway operations cannot be a tax on tax even if
toll fees were deemed as a "user's tax." VAT is assessed against the
tollway operator's gross receipts and not necessarily on the toll fees.
Although the tollway operator may shift the VAT burden to the tollway
user, it will not make the latter directly liable for the VAT. The shifted VAT
burden simply becomes part of the toll fees that one has to pay in order
to use the tollways.

RE ADMINISTRATIVE FEASIBILITY:

Administrative feasibility is one of the canons of a sound tax system. It

simply means that the tax system should be capable of being effectively
administered and enforced with the least inconvenience to the taxpayer.
Non-observance of the canon, however, will not render a tax
imposition invalid "except to the extent that specific constitutional or
statutory limitations are impaired." Thus, even if the imposition of VAT on
tollway operations may seem burdensome to implement, it is not
necessarily invalid unless some aspect of it is shown to violate any law or
the Constitution.

Here, it remains to be seen how the taxing authority will actually

implement the VAT on tollway operations. Any declaration by the Court
that the manner of its implementation is illegal or unconstitutional would
be premature.

WHEREFORE, the Court DISMISSES the petitioners’ petition for lack of

merit, and SETS ASIDE the Court's TRO
E. PERSONS LIABLE HELD: VAT is a tax on transactions, imposed at every stage of the distribution
process on the sale, barter, exchange of goods or property, and on the
Sec. 105. Persons Liable performance of services, even in the absence of profit attributable thereto. The
A. Any persons who, in the course of trade or business term "in the course of trade or business" requires the regular conduct or pursuit of
i. Sells, barters, or exchanges goods or properties; a commercial or an economic activity regardless of whether or not the entity is
ii. Lease goods or properties profit-oriented.
iii. Renders services
B. Any person, whether or not made in the course trade or business, imports The Commissioner of Internal Revenue issued BIR Ruling No. 010-98 emphasizing
goods; that a domestic corporation that provided technical, research, management and
C. Any non-resident persons who performs services in the Philippines as they technical assistance to its affiliated companies and received payments on a
are deemed to be making sales in the course of trade or business, even if reimbursement-of-cost basis, without any intention of realizing profit, was subject
the performance of their services is not regular; to VAT on services rendered. In fact, even if such corporation was organized
D. Any persons whop issues VAT-registered invoices and/or Official receipts without any intention realizing profit, any income or profit generated by the entity
even if their transaction is not subject to VAT. in the conduct of its activities was subject to income tax.

Note: Persons refers to any individual, trust, estate, partnership, corporation, Hence, it is immaterial whether the primary purpose of a corporation indicates that
joint venture, cooperative or association. Consequently, any sale, barter or it receives payments for services rendered to its affiliates on a reimbursement-on-
exchange of goods or services not in the course of trade or business is NOT cost basis only, without realizing profit, for purposes of determining liability for
subject to VAT. 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.

At any rate, since taxes are the lifeblood of the nation, statutes that allow
CASE: CIR v. CA and COMASERCO GR No. 125355 MARCH 30, 2000 exemptions are construed against the grantee and liberally in favour of the
government. Any exemption from the payment of a tax must be clearly stated in
FACTS: Commonwealth Management and Services Corporation (COMASERCO) is a the language of the law; it cannot be merely implied therefrom. In the case of VAT,
corporation duly organized and existing under the laws of the Philippines. It is an Section 109, Republic Act 8424 clearly enumerates the transactions exempted
affiliate of Philippine American Life Insurance Co. (Philamlife), organized by the from VAT. The services rendered by COMASERCO do not fall within the
letter to perform collection, consultative and other technical services, including exemptions.
functioning as an internal auditor, of Philamlife and its other affiliates.

BIR issued an assessment to COMASERCO for deficiency VAT amounting to

P351,851.01 for taxable year 1988. COMASERCO’s annual corporate income tax
return ending December 31, 1988 indicated a net loss in its operations in the
amount of P6,077.

COMASERCO asserted that the services it rendered to Philamlife and its affiliates,
relating to collections, consultative and other technical assistance, including
functioning as an internal auditor, were on a "no-profit, reimbursement-of-cost-
only" basis. It averred that it was not engaged in the business of providing services
to Philamlife and its affiliates. It was established to ensure operational orderliness
and administrative efficiency of Philamlife and its affiliates, and not in the sale of
services. It was not profit-motivated, thus not engaged in business. In fact, it did
not generate profit but suffered a net loss in taxable year 1988. COMASERCO
averred that since it was not engaged in business, it was not liable to pay VAT.

CIR avers that to "engage in business" and to "engage in the sale of services" are
two different things. Petitioner maintains that the services rendered by
COMASERCO to Philamlife and its affiliates, for a fee or consideration, are subject
to VAT. VAT is a tax on the value added by the performance of the service. It is
immaterial whether profit is derived from rendering the service.

The CTA rules in favour of CIR. The CA reversed.

ISSUE: WON COMASERCO was engaged in the sale of services and must be liable
to pay for VAT.
F. DEFINITION OF Taxable persons refer to any person liable for the payment of VAT, whether
“In the course of trade of business” registered or registrable in accordance with Sec. 236 of the Tax Code.
and “subsistence and livelihood”
VAT-Registered person refers to any person who is registered as a VAT
taxpayer under Sec. 236 of the Tax Code or a person who opted to be registered
1 In the course of trade of business (Rule of Regularity) as VAT taxpayer. His status as a VAT registered person shall continue until the
• The regular conduct or pursuit of a commercial or an economic activity, cancellation of the registration.
including transactions incidental thereto, by any person regardless of
whether or not the person engaged therein is a non-stock, nonprofit PERSONS REQUIRED TO REGISTER FOR VAT – every person who in the course
private organization or government entity. of trade of business, sells, barter or exchanges goods or properties, or engages in
• Non-resident persons who perform services in the Philippines are deemed the sale or exchange of goods, services subkect to VAT if:
to be making sales in the course of trade or business, even if the
performance of services is not regular. 1) The Gross sale or gross receipts have exceeded 1.5 million; or
• The term course of business or doing business connotes regularity of 2) There are reasonable grounds to believe that his gross receipts or gross
activity. Any sale, barter, exchange of goods or services not in the course sales in the next 12 month shall exceed 1.5 million. (Sec. 236[G], NIR
of trade or business in not subject to VAT.
• A transaction will be characterized as having been entered into by a
G. VAT TAX RATES
person in the course of trade or business if it is
1) Regularly conducted; and 2) Undertaken in pursuit of a
Q:How are transactions classified under the VAT system?
commercial or economic activity are considered as entered into in
A: VAT taxable transaction:
the course of trade or business.
 12%
NOTE: “PERSON” refers to any individual, trust, estate, partnership,  Zero-rated
corporation, joint venture, cooperative or association.  Exempt transaction

RULE OF REGULARITY (defining “in the course of trade or business” as used Q:Define taxable transactions under the VAT law.
under the VAT law) A: Taxable transactions are those transactions which are subject to VAT either at
the rate of 12% (effective January 1, 2006, VAT rate was increase from 10-12%)
- It means the regular conduct or pursuit of a commercial or an or 0%, and the seller shall be entitled to tax credit for the VAT paid on purchases
economic activity, including transactions incidental thereto, by any person and leases of goods, properties or services.
regardless of whether or not the person engaged therein is a non-stock, non-profit
private organization (irrespective of the dispositions of its ne income and whether Mr. A, a VAT-exempt retailer sells to Mr. O, a non-VAT exempt purchaser. Is Mr. O
or not it sells exclusively to members or their guests), or government entity. liable to pay VAT on the transaction?
GENERAL RULE: If the disposition of goods or services is not in the course of
trade or business then it is not subject to VAT. EXEMTPION TO THE GR: Yes. The purchaser is subject to VAT because it is merely added as part of the
Importation is subject to VAT regardless of whether or not it is in the course of purchase price and not as a tax because the burden is merely shifted. The seller is
trade or business. still exempt because it could pass on the burden of paying the tax to the
purchaser.
Reason: This is to protect our local or domestic goods or articles and to regulate
the entry or introduction of foreign articles to our local market. Lily’s Fashion Inc is a garment manufacturer located and registered as a Subic Bay
Freeport Enterprise under R.A. 7227 and a non-VAT taxpayer. And as such, it is
Exceptions to the Rule of Regularity exempt from payment of all local and national internal revenue taxes. During its
operations, it purchased various supplies and materials necessary in the conduct of
• Any business where the gross sales or receipt do not exceed P100, 000
its manufacturing business. The supplier of these goods shifted to Lily’s Fashion,
during any 12-month period shall be considered principally for
Inc. the 10% VAT on the purchased items amounting to P500,000. Lily’s Fashion
subsistence or livelihood and not in the course of trade or business.
Inc. filed with the BIR a claim for refund for the input tax shifted to it by the
• Services rendered in the Philippines by non-resident foreign persons shall
suppliers. If you were the CIR will you allow the refund?
be considered as being rendered in the course of trade or business.
No. The exemption of Lily’s Fashion Inc. is only for taxes which it is directly liable,
2 Subsistence and livelihood hence, it cannot claim exemption for tax shifted to it, which is not at all considered
• Any business where the gross sales or receipt do not exceed P100, 000 a tax to the buyer but part of the purchase price. Lily’s Fashion Inc. is not a
during any 12-month period. – an exception to the REGULARITY RULE. taxpayer in so far as the passed-on tax is concerned and therefore, it cannot claim
for a refund of a tax merely, shifted to it. Only taxpayers are allowed to file a claim
Non-resident persons who perform services in the Philippines are deemed to be for refund.
making sales in the course of trade or business, even if the performance of
services is not regular. (Sec. 4. 105-3, RR 16-2005)
 H. VATABLEACTIVITIES
Q: Are all intangible properties subject to VAT?
1.SALE OF GOODS OR PROPERTIES (Sec 106)
A: No, only those capable of pecuniary estimation (Sec 4.106, RR 16-2005)
A. 12% (Sec 106.A.1)

Q: Is the sale of real properties subject to VAT?

REQUISITES OF TAXABILITY OF SALE OF GOODS OR PROPERTIES
A: Sale of real properties primarily for sale to customers or held for lease in the
A. There is an actual or deemed sale, barter or exchange of goods or ordinary course of trade or business of the seller shall be subject to VAT (1 st par,
personal properties for valuable consideration Sec 4.16-3, RR) As such, capital transactions of individuals are not subject to VAT.
B. The sale is in the course of trade or business or exercise of profession in Only real estate dealers are subject to VAT.
the Philippines
C. The goods or properties are located in the Philippines and are for use or Q: What are taxable sales?
consumption therein; and
A: Taxable sales refer to the sale, barter, exchange, and/or lease of goods or
D. The sale is not VAT exempt under Sec 109 NIRC, special laws, or
properties, including transactions deemed sale and the performance of service for
international agreements binding upon the Government of the Philippines
consideration, whether in cash or in kind
NOTE: Absence of any of the above requisites EXEMPTS the transaction
Q: What is gross selling price?
from VAT. However, percentage taxes may apply (Sec 116)
A: It means the total amount of money or its equivalent which the purchaser pays
REQUISITES OF TAXABILITY OF SALE OR EXCHANGE OF REAL PROPERTY
or is obligated to pay to the seller in consideration of the sale, barter or exchange
(a) The seller executes a deed of sale, including dacion en pago, barter or of the goods or properties, excluding the VAT. The excise tax, if any, on such
exchange, assignment, transfer or conveyance, or merely contract to sell goods or properties shall form part of the gross selling price.
involving real property
(a) The real property is located within the Philippines Q: What are the allowable deductions from the selling price?
(b) The seller or transferor is a real estate dealer A:
(c) The real property is an ordinary asset held primarily for sale or for lease (1) Discounts determined and granted at the time of sale
in the ordinary course of business (2) Sales returns and allowances for which proper credit or refund was made
(d) The sale is not exempt from VAT under Sec 109 NIRC, special law, or during the month or quarter to the buyer for sales previously recorded as
international agreement binding upon the government of the Philippines taxable sales
(e) The threshold amount set by law should be met
Q: When is the sale of real property subject to VAT?
NOTE: Absence of any of the above requisites EXEMPTS the transaction A:
from VAT. However, percentage taxes may apply under Sec 116 NIRC (1) Residential lot with gross selling price exceeding P1.5 million;
(2) Residential house and lot or other residential dwellings with gross selling
TAX RATE OF SALE OF GOODS OR PROPERTIES price exceeding P2.5 million.

12% on every sale, barter or exchange of goods or properties added to the gross NOTE: Whether the instrument is denominated as a deed of absolute sale,
selling price or gross value in money of the goods or properties sold, bartered or deed of conditional sale or otherwise.
exchanged, to be paid by the seller or transferor.
Q: What is the gross selling price (in case of sale or exchange) of real property?
GOODS OR PROPERTIES SUBJECT TO VAT A: It is the consideration stated in the sales document or the FMV whichever is
higher. If the VAT is not billed separately in the document of sale, the selling price
A. Real properties held primarily for sale to costumers or held for lease in the or the consideration stated therein shall be deemed to be inclusive of VAT.
ordinary course or business Payment/s which the seller receives before or upon execution of the instrument of
B. The right or privilege to use patent, design or model, plan, secret formula sale and payments which he expects or is scheduled to receive in cash or property
or process, goodwill, trademark, trade brand or other like property or (other than evidence of indebtedness of the purchaser/ during the year when the
right sale or disposition of real property was made.
C. The right or the privilege to use in the Philippines of any industrial,
commercial or scientific equipment
D. The right or privilege to use motion picture films, films, tapes and discs,
Radio, television, satellite transmission and cable television time.
B. 0% (sec 106 A.2) EXPORT SALES

ZERO-RATED SALES OF GOODS OR PROPERTIES, AND EFFECTIVELY ZERO- Q: What is meant by export sales?
RATED SALES OF GOODS OR PROPERTIES A: The term export sales means:
A. The sale and actual shipment of goods from the Philippines to a foreign
Q: What is the meaning of zero-rated transaction? country:
A: The gross selling price of goods or properties is multiplied by the 0% VAT rate. i. Irrespective of any shipping arrangement
The zero-rated sale of goods or properties by a VAT registered person is a taxable ii. Paid for in an acceptable foreign currency or its equivalent in
transaction for VAT purposes but the sale does not result in any output tax. goods or services
However, the input tax on the purchases of goods, properties or services related to iii. Accounted for in accordance with the rules and regulations of
such zero-rated sale shall be available as a tax credit or refund. BSP
B. Sale of raw materials or packaging materials by a VAT registered entity to
Q: What is a VAT exemption transaction? a non-resident buyer:
A: A VAT exempt transaction refers to sale, lease, barter or exchange of goods, i. For delivery to a non-resident local export-oriented enterprise
properties, and/or services that are exempt from VAT under Sec 103 NIRC ii. Used in the manufacturing, processing, packing, repacking in the
Philippines of the said buyer’s goods
Q: What is the difference between “zero-rated” and “VAT-exempt” transactions? iii. Paid for in acceptable foreign currency
A: The difference lies in the input tax. In VAT-exempt transactions, there is no iv. Accounted in accordance with the rules of BSP
input tax credit allowed. In case of zero-rated transaction of a VAT registered C. Sale of raw material or packaging materials to export oriented enterprise
person, the sale of goods or properties is multiplied by 0% thus his output tax is whose export sales exceed 70% of total annual production
P0.00. Since the person is VAT-registered, he can claim input tax for purchases D. Sale of gold to BSP
made from VAT registered entities. (RMC 17-96) E. Those considered as export sales under EO 226 (Omnibus Investment
Code of 1987) – sale to Export Processing Zone (EPZ)
EXAMPLE of ZERO-RATED VAT F. Sale of goods, supplies, equipment and fuel to persons engaged in
Output tax --------------------------------------------- P 0.00 international shipping or international air transport operations (Sec
Less: 106.A.2.a NIRC; RMC 17-96)
Input tax ----------------------------------------- P 5,000
VAT Creditable (Refund) P 5,000 NOTE: Under the Omnibus Investment Code:
a) The Philippine port FOB value determined from invoices, bills of
VAT-EXEMPT AND ZERO-RATED TRANSACTIONS DISTINGUISHED lading, inward letters of credit, landing certificates, and other
commercial documents, of export products exported direct by a
EXEMPT ZERO-RATED registered export producer; or
Nature of transactions Not taxable; removes Transaction is taxable b) The net selling price of export products sold by registered
VAT at the exempt for VAT purposes export producer to another export producer, or to an export
stage although the tax levied trader that subsequently export the same;
is 0% c) Provided, that sales of export products to another producer or
to an export trader shall only be deemed expert sales when
By whom made Need not be a VAT Can claim or enjoy tax
actually exported by the latter, as evidenced by landing
registered person credit/refund (Total
certificates or similar commercial documents
relief)
Tax credit/refund Cannot avail of tax Can claim or enjoy tax
Q: When is export sale exempt and when is it zero-rated?
credit or refund. Thus, credit/refund (Total
A: Export sale is exempt if made by a non-VAT person (Sec 109 NIRC). On
may result in increased relief)
the other hand, it is zero-rated if it is made by a VAT registered person (Sec
prices (Partial relief)
4.106-5, RR 16-2005)
Q: Who shall qualify for zero-rating?
Q: Is the sale of goods to ecozone, such as PEZA, considered as export sale?
A: Any VAT registered person whose sales fall under Sec 100.a.2 and 102.b NIRC
A: Yes. Notably, while an ecozone is geographically within the Philippines, it
(RMC 17-96)
is deemed as a separate customs territory and is regarded in law as foreign soil.
Sales by suppliers from outside the borders of the ecozone to this separate
Q: What are the zero-rated sales of goods by a VAT registered person?
customs territory are deemed as exports and treated as export sales.
A: (a) Export sales – Destination principle
(B) Foreign currency denominated sale – To encourage purchase in the
These sales are zero-rated or subject to a tax rate of 0% (CIR v. Sekisui Jushi Phils
Philippines
Inc, G.R. no 149671, July 21, 2006)
(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 (Sec (Sec 106.A.2.c)
Q: What is an ecozone? ZERO-RATED TRANSACTION AND AUTOMATIC ZERO-RATED
A: An ecozone or a special economic zone has been described as —selected TRANSACTION DISTINGUISHED
areas within highly developed or which have the potential to be developed into
EFFECTIVELY ZERO- AUTOMATIC ZERO-RATED
agro-industrial, industrial, tourist, recreational, commercial, banking, investment
RATED TRANSACTION TRANSACTION
and financial centers whose metes and bound are fixed or delimited by Presidential
Proclamations. An ecozone may contain any or all of the following: industrial Nature Refers to the sale of Refers to taxable
estates (IEs), export processing zones (EPZs), free trade zones and goods, properties or transaction for VAT
tourist/recreational centers. The national territory of the Philippines outside of the services by a VAT- purposes, but shall not
proclaimed borders of the ecozone shall be referred to as Customs Territory (CIR registered person to a result in any output tax.
v. Toshiba Information Equipment Phils Inc, G.R. no 150154, August 9, 2005) person, or entity who was However, the input tax on
granted indirect tax purchases of goods,
Q: What are constructive reports?
exemption under special properties or services
A:
laws or international related to such zero-rated
A. Sales to bonded manufacturing warehouses of export-oriented
manufacturers agreements sale, shall be available as
B. Sales to export processing zones (EPZs) tax credit or refund
C. Sales to enterprises duly registered and accredited with SBMA pursuant to
RA 7227 Need to apply An application for zero- Need not file an
D. Sales to registered export traders operating bonded trading warehouses zero-rating rating must be filed and application form and to
supplying raw materials in the manufacture of export products under BIR approval is necessary secure BIR approval
guidelines to be set by the Board in consultation with BR and Bureau of before the transaction before sale
Customs (BOC) Considered
E. Sales to diplomatic missions and under agencies and/or instrumentalities effectively zero-
granted tax immunities, of locally manufactured, assembled, repacked may be rated
products whether paid for in foreign currency or not

Q: What is the rationale for zero-rating exports sale? For whose Primarily intended to be Intended to benefit the
A: It is because the Philippine VAT system adheres to the cross border
benefit it is enjoyed by the seller who purchaser who, not being
doctrine, according to which, no VAT shall be imposed to form part of ht costs of
goods destined for consumption outside of the territorial border of the taxing intended is directly and legally directly and legally liable
authority. liable for the VAT, making for the payment of the
such seller internationally VAT, ultimately bear the
NOTE: For purposes of zero-rating, export sales of registered export competitive by allowing burden of the tax shifted
traders shall include commission income. the refund or credit of by the suppliers
input taxes that are
Exportation of goods on consignment shall not be deemed export sales attributable to export sales
until the export products consigned are in fact sold to the consignee.
Provided, finally, that the sales of goods, properties, or services made a
by a VAT registered supplier to a BOI registered manufacturer/producer
whose products are 100% exported are considered export sales. Effect Results in no tax chargeable against the purchaser. The
seller can claim a refund or a tax credit certificate for
A certification to this effect must be issued by the BOI which shall be good the VAT previously charged by suppliers
for 1 year unless subsequently reissued by BOI.
NOTE: For zero-rated transactions, whether automatic or effectively zero-rated,
FOREIGN CURRENCY DENOMINATED SALE the word “zero-rated” must be prominently stamped on the face of the VAT invoice
or receipt issued by the seller (failure to comply will make the transaction VAT
The phrase ‘foreign currency denominated sale’ means sale to a non-resident of taxable).
goods, except those mentioned in Sec 149 and 150, assembled or manufactured in
the Philippines for delivery to a resident of the Philippines, paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of
BSP (Sec 106.A.2.b)

NOTE: Sec 149 refers to excise tax on automobiles. Sec 150 refers to excise tax on
non-essential goods.
 C. TRANSACTIONS DEEMED SALE
Q: What is the tax base of transactions deemed sale?
Q: What are the transactions deemed sale and therefore subject to VAT? A: The output tax shall be based on the market value of the goods deemed
A: sold at the time of the occurrence of the transactions enumerated above in
1) Transfer, use or consumption not in the course of business of goods or numbers 1, 2 and 3. However, in case of retirement or cessation of business, the
properties originally intended for sale or for use in the course of business tax base shall be the acquisition cost or the current market price of the goods or
(i.e., when a VAT-registered person withdraws goods from his business properties whichever is lower.
for his personal use)
2) Distribution or transfer to: In the case of a sale where the gross selling price is unreasonably lower than the
A. Shareholders or investors as share in the profits of the VAT- FMV, the actual market value shall be the tax base.
registered persons; or
B. Creditors in payment of debt
REQUISITES: ISOLATED TRANSACTION CRITERIA AND INCIDENTIAL TRANSACTION
i. The VAT registered person distributing or paying is a domestic CRITERIA (BIR RULING 113-98)
corporation
ii. What is being declared or paid is either real property owned by The sale of a microwave backbone transmission network by Liberty Broadcasting
the company or shares of stocks owned in another company; and Network, Inc., a domestic corporation holding a congressional franchise to provide
iii. The domestic corporation is either a real estate dealer (in case of the public with wireless radio communication services and to operate radio
real property) or dealer in securities (in case of shares of stock) communication stations nationwide, to another wireless communications carrier,
being an isolated transaction, is not in the course of its trade or business of selling
NOTE: Only real estate dealers and dealers in securities are liable for communication services. Thus, not subject to VAT. Moreover, the subject sale shall
payment of VAT in case of sale, barter, or exchange of real property or not result in any input tax credit to the buyer.
shares of stocks under Sec 106 and 108, respectively.
ISSUE: WON the said sale are in the ordinary course of trade or business
3. Consignment of goods if actual sale is not made within 60 days following
the date such goods were consigned BIR Ruling: The phrase “in the course of trade or business” under Sec 106 NIRC
means the regular conduct or pursuit of a commercial or an economic activity,
EXCEPTION: If the consigned goods were physically returned by the including transactions incidental thereto.
consignee within the 60-day period
CAB: The sale of microwave backbone transmission network to another wireless
4. Retirement from or cessation of business, with respect to inventories of communications network is not the course of trade or business of selling
taxable goods existing as of such retirement or cessation (Sec 106.B) telecommunications services. Neither is it incidental thereto since the same does
not necessarily follow the primary function of selling telecommunication services.
NOTE: The transactions are “deemed sale” because in reality, there is no sale but According, since the sale of microwave backbone transmission network is an
the law provides that the following transactions are considered as sale and are isolated transaction, the said sale is not subject to VAT. Moreover, the subject shall
thus subject to VAT. not result in any input tax credit to the buyer.

VAT RULING 027-96

Q: What transactions considered retirement or cessation of business
“deemed sale” subject to VAT? ISSUE: In case of sales of private property in favor of the government for road
A: right-of-way purposes, WON the private property owners shall not be subject o
1) Change of ownership of the business. There is change in the ownership of VAT
the business when a single proprietorship incorporates; or the proprietor
of a single proprietorship sells his entire business BIR Ruling: Under Sec 100.a.1.A NIRC, real properties held primarily for sale to
2) Dissolution of a partnership and creation of a new partnership which takes customers are subject VAT. Conversely, the seller who is not engaged in a VAT
over the business. (Sec 4.106-7, RR 16-2005) taxable business; or if engaged in a VAT taxable business, but the stock in trade is
not real property, cannot be subject to VAT.
Q: What is necessary to consider in determining whether a transaction is
“deemed sale”? In other words,. Sale of real property under a negotiated sale for a road right of
A: Before considering whether the transaction is “deemed sale,” it must first way is not subject to VAT if the seller is not selling property in the regular conduct
be determined whether the sale was in the ordinary course of the trade or of his business. However, even if the seller is engaged in the sale of real property
business. Even if ht transaction was “deemed sale” if it was not done in the in the course of business, if the transaction is forced on the seller by virtue of the
ordinary course of trade or business, still the transaction is not subject to VAT (CIR exercise of the government’s power of eminent domain, i.e. negotiated purchase
v. Magsaysay Lines Inc, G.R. no 146984, July 28, 2006) for road right of way, it cannot be said that the sale is conducted in the course of
the taxpayer’s trade or business; hence, pursuant to Sec 99, it is not subject to i. VAT collections as a percentage of Gross Domestic Product(GDP) of
VAT. previous year exceeds 2 4/5%; or
ii. National government deficit as a percentage of GDP of previous year
D. CHANGE OR CESSATION OF STATUS AS VAT-REGISTERED PERSON exceeds 1 1/2 %

Q: When is a change in or cessation of status of a VAT registered person B. Transfers of Goods by Tax-exempt Persons. – In the case of tax-free
subject to VAT? importation of goods into the Philippines by persons, entities or agencies
A: The following are subject to 12% output VAT: exempt from tax where such goods are subsequently sold, transferred or
1. Change of business activity from VAT taxable status to VAT exempt status exchanged in the Philippines to non-exempt persons or entities, the
2. Approval of a request for cancellation of registration due to reversion to purchasers, transferees or recipients shall be considered the importers
exempt status thereof, who shall be liable for any internal revenue tax on such
3. Approval of a request for cancellation of registration due to a desire to importation. The tax due on such importation shall constitute a lien on the
revert to exempt status after the lapse of 3 consecutive years from the goods superior to all charges or liens on the goods, irrespective of the
time of registration by a person who voluntarily registered despite being possessor thereof.
exempt under Sec 109.2 NIRC
4. Approval of a request for cancellation of registration of one who o Importation is subject to VAT, it shall be assessed and collected
commenced business with the expectation of gross sales or receipt upon goods brought into the Philippines whether for use in
exceeding P1.5 million but who failed to exceed this amount during the business or not.
first 12 months of operations
TAX BASE OF IMPORTATION
Q: When is a change in or cessation of status of a VAT registered person not
subject to VAT? General Rule: The tax base shall be based on the total value used by the BOC in
A: The following are not subject to 12% output VAT: determining tariff and customs duties plus customs duties excise taxes, if any, and
other charges to be paid by the importer prior to the release of such goods from
1. Change of control in the corporation as corporation by the acquisition of customs custody. (Sec. 107[A])
controlling interest of the corporation by another stockholder or group of
stockholders TAX BASE = Total value used by BOC in determining tariff and custom duties +
custom duties + excise tax + other charges (postage, commission, and similar
The goods or properties used in the business or those comprising the charges, prior to the release of the goods from customs custody)
stock-in-trade of the corporation will not be considered sold, bartered or
exchanged, despite the change in the ownership interest. However, Exception: Where the customs duties are determined on the basis of quantity or
exchange of property by corporation acquiring control for the shares of volume of the goods, the VAT shall be based on the landed cost plus excise taxes,
stocks of the target corporation is subject to VAT if any.

2. Change in the trade or corporate name of the business LAND COSTS = invoice amount + customs duties + freight
3. Merger or consolidation of corporations. The unused input tax of the
dissolved corporation, as of the date of merger or consolidation, shall be A. insurance + other charges (excise tax shall form part of the tax base)
absorbed by the surviving new corporation.
The importer shall pay the tax prior to the release of the imported goods.
2. IMPORTATION OF GOODS An importer is a person who brings goods into the Philippines, whether or not
Sec 107 NIRC made in the course of trade or business. It includes non-exempt persons or entities
Determination of Tax Base who acquire tax free imported goods from exempt persons, entities or agencies.

Sec. 107. VAT on Importation of Goods - Importation begins when a vessel or aircraft enters the Philippine jurisdiction with
A. In General – there shall be levied, assessed and collected on every the intention to unload goods/cargo. Importation ends upon the payment of duties,
importation of goods a VAT equivalent to 12% based on the total value taxes, and other charges due upon the article, or to be paid at the port of entry
used by the Bureau of Customs in determining tariff and custom duties, and legal permit for withdrawal shall have been granted.
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 Technical Importation – Sale of goods by a PEZA registered enterprise to a buyer
custody: Provided, That where the customs duties are determined on the from the customs territory shall be treated as a technical importation. Such buyer
basis of the quantity or volume of the goods, the value-added tax shall be shall be treated as an importer thereof and shall be imposed with the
based on the landed cost plus excise taxes, if any: Provided, further, That corresponding import taxes
the President, upon the recommendation of the Secretary of Finance,
shall, effective Jan. 1, 2005, raise the r,ate of VAT to 12%, after any of
the following conditions has been satisfied:
 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 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
3. SALE OF SERVICES AND USE OR LEASE OF PROPERTIES (Sec 108) connection with the use of property or rights belonging to, or the
12% (Sec 108.A) installation or operation of any brand, machinery or other apparatus
0% purchased from such nonresident person;
Determination of Tax Base 6) The supply of technical advice, assistance or services rendered in
connection with technical management or administration of any scientific,
12% industrial or commercial undertaking, venture, project or scheme;
Sec. 108. VAT on Sale of Services and Used or Lease of Properties 7) The lease of motion picture films, films, tapes and disc; and
8) The lease or the use of or the right to use radio, television, satellite
A. Rate and Base of Tax. – There shall be levied, assessed and collected, a transmission and cable television time.
VAT equivalent to 12% (RMC 7-2006, [Jan 1, 2006] effective Feb 1, 2006) of gross
receipts derived from the sale or exchange of services, including the use or lease Lease of properties shall be subject to the tax herein imposed irrespective
of properties; Provided, that the President, upon the recommendation of the of the place where the contract of lease or licensing agreement was
Secretary of Finance, shall effective Jan. 1, 2006, raise the rate of VAT to 12%, executed if the property is leased or used in the Philippines.
after any of the following conditions has been satisfied:
The term “gross receipts” means the total amount of money or its
III. VAT collection as a percentage of GDP of previous year exceeds to 2 equivalent representing the contract price, compensation, service fee,
4/5% ; or rental or royalty, including the amount charged for materials supplied with
IV. National government deficit as a percentage of GDP of previous year the services and deposits and advance payments actually or
exceeds 1 ½%. constructively received during the taxable quarter for the services
performed or to be performed for another person, excluding VAT.
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, MEANING OF SALE OR EXCHANGE OF SERVICES SUBJECT TO VAT
including those performed or rendered by construction and service contractors; -It means the performance of all kinds of services in the Philippines for others for a
stock, real estate, commercial, customs and immigration brokers; lessors of fee, remuneration or consideration, whether in cash or in kind.
property whether personal or real; warehousing services; lessors or distributors of
cinematographic films. Persons engaged in milling, processing, manufacturing or -Sale or exchange of service, as well as the use or lease of properties shall be
repacking goods for others; proprietors, operators, or keepers of hotels, motels, subject to 12% VAT
resthouses, pension houses, inns, resorts; proprietors or operators of restaurants,
refreshment parlors, cafes and other eating places, including clubs and caterers;  Sales or Exchange includes:
dealers in securities; lending investors; transportation contractors on their
transport of goods or cargoes, including persons who transport goods or cargoes 1. Construction and service contract
for hire and other domestic common carriers by land relative to their transport of 2. Stock, real estate, commercial customs and immigration brokers
goods or cargoes; common carries by air and sea relative to their transport of 3. Lessors of property, whether personal or real
passengers, goods or cargoes from one place in the Philippines to another place in 4. Persons engaged in warehouse services
the Philippines; sales of electricity by generation companies, transmission, and 5. Lessors or distributors of cinematographic film
distribution companies; services of franchise grantee of electric utilities, telephone 6. Persons engaged in milling processing, manufacturing or repacking goods
and telegraph, radio and television broadcasting and all other franchise grantees for others
except those under Section 119 of this Code; and non-life insurance companies; 7. Proprietors, operators, or keepers of hotels, motels, rest houses, pension
and similar services regardless of whether or not the performance thereof calls for houses, inns, resorts, theaters, and movie house
the exercise or use of the physical or mental faculties. The phrase “sale or
exchange of services” shall likewise include: 8. Proprietors or operators of restaurants, refreshment parlors, cafes, and
other eating places, including clubs and caterers
1) The lease or the use of or the right or privilege to use any copyright, 9. Dealers in securities
patent, design or model plan, secret formula or process, goodwill, 10. Lending investor
trademark, trade brand or other like property or right; 11. Transportation contractors on their transport of goods or cargoes,
2) The lease or the use of, or the right to use of any industrial, commercial including persons who transport goods or cargoes for hire and other domestic
or scientific equipment; common carriers by land relative to their transport of goods or cargoes
3) The supply of scientific, technical, industrial or commercial knowledge or 12. Common carriers by air and sea relative to their transport of passenger,
information; goods, or cargoes from one place in the Philippines to another place in the
Philippines
13. Sales of electricity by generation, transmission, and/or distribution
companies o Non-Resident Lessor/Owner – any person, natural or juridical, an alien, or
14. Franchise grantees of electric utilities, telephone and telegraph, radio a citizen who establishes to the satisfaction of the CIR the fact of the
and/or broadcasting television and all other franchise grantees except franchise physical presence abroad with definite intention to reside therein, and
grantees of radio and/or television broadcasting whose annual gross receipt of the who owns/leases properties, real or personal whether tangible or
preceding year do not exceed P10,000,000 and franchise grantees of gas and intangible, located in the Philippines.
water utilities
15. Non-life insurance companies (except their crop insurances), including
surety, fidelity, indemnity and bonding companies
16. Similar services regardless of whether or not the performance thereof o Advance payments:
calls for the exercise or use of the physical or mental faculties 1. A loan to the lessor from the lessee,
2. An option money for the property, or
3. A security deposit to insure the faithful performance of certain
 Sale or exchange of services shall also include: obligations of the lessee to the lessor, or
4. Pre-paid rental
1. Lease or the use of or the right or privilege to use any copyright, patent,  If the advance paymet is for the faithful performance of certain
design or model, plan, secret formula or process, goodwill, trademark, obligations of the lessee, it is not subject to VAT.
trade brand, or other like property or right  A security deposit that is applied to rental shall be subject to VAT
2. The lease or the use of, or the right to use any industrial, commercial at the time of its application
knowledge or information  If the advance payment constitutes a prepaid rental, then such
3. The supply of scientific, technical, industrial or commercial knowledge or payment is taxable to the lessor in the month when received,
information irrespective of the accounting method employed by the lessor.
4. The supply of any assistance that is ancillary and subsidiary to and
furnished as a means of enabling the application or enjoyment of any o Warehousing service – rendering personal service of a warehouseman
such property or right as is mentioned in subparagraph (b) hereof or any such as:
such knowledge or information as is mentioned in subparagraph (c) i. Engaging in the business of receiving and storing goods for
hereof compensation
5. The supply of services by a non-resident person or his employee in ii. Receiving goods and merchandise to be stored in his warehouse
connection with the use of property or rights belonging to, or the for hire; or
installation or operation of any brand, machinery, or other apparatus iii. Keeping and storing goods for others as a business and for use
purchased from such nonresident person
6. The supply of technical advice, assistance or services rendered in o Miller – a person engaged in milling for others (except palay into rice and
connection with technical management or administration of any scientific, corn into corn grits, and sugarcane into raw sugar) is subject to VAT on
industrial or commercial undertaking, venture, project or scheme sale of services.
7. The lease of motion picture films, film tapes, and discs
8. The lease or use of, or the right to use, radio, television, satellite  Cash: VAT shall be based on his gross receipts for the month or
transmission and cable television time. quarter
 Receives a share of the milled products instead of cash: VAT
o Lessors of Property – All forms of property for lease, whether real shall be based on the actual market value of his share
or personal, are liable to VAT Note: Lease of properties shall be  Sale by the owner or miller of his share of the milled product
subject to the tax herein imposed irrespective of the place where (except rice, corn grits and raw sugar) shall be subject to VAT
the contract of lease or licensing agreement was executed if the
property is leased or used in the Philippines. o Common Carriers – refers to persons, corporations, firms or associations
engaged in the business of carrying or transporting passengers or goods
o Real Estate Lessor – includes any person engaged in the business or both, by land, water or air for compensation, offering services to the
of leasing or subleasing real property public and shall include transportation contractors.

1. Regardless of the place where the contract of lease or o Common Carriers by land with respect to their gross receipts from the
licensing agreements was executed if the property leased or transport of passengers including operators of taxicabs, utility cars for
used is located in the Philippines rent or hire driven by the lessees, and tourist buses used for the transport
2. VAT on rental and/or royalties payable to non-resident of passengers shall be subject to percentage tax.
foreign corporation or owners for the sale of services and o Domestic common carriers by air and sea are subject to 12% VA on their
use or lease of properties in the Philippines shall be based gross receipts from their transport of passengers, goods or cargoes from
upon the contract price agreed upon by the licensor and the one place in the Philippines to another place in the Philippines.
licensee
o Sale of electricity by generation, transmission, and distribution companies o Health maintenance organization (HMO)
shall be subject to 12% VAT on their gross receipts (sale of power or  Gross receipts: total amount of money or its equivalent representing
fuel generated through renewable sources of energy such as biomass, the service fee actually or constructively received during the taxable
solar, wind, hydropower, geothermal, ocean energy, and other period for the services performed or to be performed, excluding
emergingsources using technologies such as fuel cells and hydrogen fuels VAT
shall be subject to 0% VAT)
GROSS RECEIPTS – total amount of money or its equivalent representing the
o Generation companies – refers to persons or entities authorized by the contract price, compensation, service fee, rental or royalty, including the amount
ERC to operate facilities used in the generation of electricity. charged for materials supplied with the services and deposits applied as payments
for services rendered and advance payments actually or constructively received
o Gross Receipts (Sale of electricity): during the taxable period for the services performed or to be performed for
i. Total amount charged by generation companies for the sale of another person, excluding VAT.
electricity and related ancillary services; and/or
ii. Total amount charged by transmission companies for CONSTRUCTIVE RECEIPTS – occurs when the money consideration or its
transmission of electricity and related ancillary services; and/or equivalent is placed at the control of the person who rendered the services without
iii. Total amount charged by distribution companies and electric restrictions by the payor.
cooperatives for distribution and supply of electricity and related  Deposit in banks which are made available to the seller of service
electric services. The universal charged passed on and collected without restrictions
by distribution companies and electric cooperative shall be  Issuance by the debtor of a notice to offset any debt or obligation and
exclude from the computation of the gross receipts. acceptance thereof by the seller as payment of services rendered
 Transfers of amount retained by the payor to the account of the
o Dealers in securities and lending investors: subject to VAT on the basis of contractor
their gross receipts. For dealer in securities, the term gross receipts
means gross selling price less cost of the securities sold. REQUISITES FOR TAXABILITY OF SALE OR EXCHANGE OF SERVICES OR
LEASE OR USE OF PROPERTY:
o Service of franchise grantees of telephone and telegraph, radio and/or
television broadcasting, toll road operations and all other franchise 1. There is a sale or exchange of service or lease or use of property
grantees, except gas and water utilities, shall be subject to VAT. enumerated in the law or other similar services;
2. The service is performed or to be performed in the Philippines
 Radio and/or television broadcasting annual gross receipt of the 3. The service is in the course of trade of taxpayer’s trade or business or
preceding year do not exceed P10,000,000 shall not be subject profession;
to VAT but 3% percentage tax. 4. The service is for a valuable consideration actually or constructively
 Gas and water utilities: subject to 2% franchise tax on their received; and
gross receipts 5. The service is not exempt under the Tax Code, special law or international
 Telephone and telegraph: Subject to VAT on their gross receipts agreement.
derived from their telephone, telegraph, telewriter exchange,
wireless and other communication equipment services Note: Absence of any of the requisites renders the transaction exempt
 Amounts received for overseas dispatch, message, or conversion from VAT but may be subject to other percentage tax under the Title V of
originating frm the Philippines are subject to percentage tax and NIRC.
hence exempt from VAT
 Zero-rated Sales of Service
o Non-Life Insurance Companies: including surety, fidelity, indemnity and The following services performed in the Philippines by a VAT-registered
bonding companies are subject to VAT person shall be subject to 0% VAT rate:
 Not liable to premium tax under Sec. 23 (percentage tax) of 1. Processing, manufacturing, or repacking goods for other persons doing
NIRC business outside the Philippines:
 Gross receipts: total premium collected, whether paid in money, a) Which goods are subsequently exported
notes, credits or any substitution for money b) Where the services are paid for in acceptable foreign currency
 Insurance and reinsurance commissions, whether life or non-life, c) Accounted for in accordance with the rules and regulations of the
are subject to VAT VAT due from the foreign reinsurance BSP
company is to be withheld by the local insurance company and to 2. Services other than processing, manufacturing, or repacking:
be remitted to the BIR a) Rendered to a person engaged in business conducted outside the
Philippines or to a non-resident person not engaged in business who’s
o Pre-need companies: the compensation for their services is the premiums outside the Philippines when the services are performed [CIR v.
Busmeirter, et al. GR No 153205 (2007) require performance of
or payments received from the plan holders
services to nonresident to qualify as zero-rated.]
 b) The consideration of which is paid for in acceptable foreign currency
c) Accounted for in accordance with the rules and regulations of the BSP

3. Services rendered to persons or entities whose exemptions under special

laws or international agreements to which the Philippines is a signatory
effectively subjects the supply of such services to zero percent rate
4. Services rendered to persons engaged in international shipping or air
transport operations, including leases of property for use thereof
 Shall not pertain to those made to common carriers by air and
sea relative to their transport of passengers, goods, or cargoes
from one place in the Philippines to another place in the
Philippines (subject to 12% VAT) I. EXEMPT TRANSACTIONS (Sec 109)
1. Services performed by subcontractors and/or contractors in processing,
converting, or manufacturing goods for an enterprise whose export sales exceed
70% of the total annual production
2. Transport of passengers and cargo by domestic air or sea carriers from Section 109. EXEMPT TRANSACTIONS:
the Philippines to a foreign country
 Gross receipts of international air carriers doing business in the
Philippines and international sea carriers doing business in the A. Sale or importation of agricultural and marine food products in
Philippines are still liable to percentage tax their original state, livestock and poultry of or king generally used
as, or yielding or producing foods for human consumption; and
3. Sale of power or fuel generated through renewable sources of energy breeding stock and genetic materials therefor.
such as, but not limited to, biomass, solar, wind, hydropower, geothermal and
Products classified under this paragraph shall be considered in
stream, ocean energy, and other emerging sources using technologies such as fuel
their original state even if they have undergone the simple
cells and hydrogen fuels.
processes of preparation or preservation for the market, such as
 Zero rating shall apply strictly to the sale of power or fuel
freezing, drying, salting, broiling, roasting, smoking or stripping.
generated through renewable sources of energy, and shall not
Polished and/or husked rice, corn grits, raw cane sugar and
extend to the sale of services related to the maintenance or
molasses, ordinary salt and copra shall be considered in their
operation of plants generating said power
original state;
EFFECTIVELY ZERO-RATED SALE OF SERVICES –refer to the local sale of B. Sale or importation of fertilizers; seeds, seedlings and fingerlings;
services by a VAT-registered person to a person or entity who was granted indirect fish, prawn, livestock and poultry feeds, including ingredients,
tax exemption under special laws or international agreement (limited to 3,4,5) whether locally produced or imported, used in the manufacture of
finished feeds (except specialty feeds for race horses, fighting
 Concerned taxpayer must seek prior approval or prior cocks, aquarium fish, zoo animals and other animals generally
confirmation from appropriate offices to the BIR so that a considered as pets);
transaction is qualified for effectively zero-rating
 Without an approved application for effective zero-rating, the C. Importation of personal and household effects belonging to the
transaction otherwise entitled to zero-rating shall be considered residents of the Philippines returning from abroad and non-
exempt. resident citizens coming to resettle in the Philippines: Provided,
that such goods are exempt from customs duties under the Tariff
 DETERMINATION OF TAX BASE Categories of Services: and Customs Code of the Philippines;
1. Professional/technical consultancy D. Importation of professional instruments and implements, tools of
2. Transfer of technology trade, occupation or employment, wearing apparel, domestic
3. Lease or use of intangible property animals, and personal household effects belonging to persons
4. Lease or use of tangible property coming to settle in the Philippines or Filipinos or their families and
descendants who are now residents or citizen of other countries
Note: Non-life insurance policies are subject to VAT while life insurance such parties hereinafter referred to as overseas filipinos, in
policies are VAT exempt but subject to 5% premium tax under Sec. 123 of quantities and of the class suitable to the profession, rank or
NIRC position of the persons importing said items, for their own use and
not for barter or sale, accompanying such persons, or arriving
within a reasonable time: provided, that the bureau of Customs
may, upon the production of satisfactory evidence that such
person are actually coming to settle in the Philippines and that the
goods are bought from their former places of adobe, exempt such
 goods from payment of duties and taxes: provided, further, that (P1,500,000) and below, house and lot, and other residential
vehicle, vessel, aircraft, machinery and other similar goods for use dwellings valued at two million five hundred thousand
in manufacture, shall not fall within this classification and shall pesos(P2,500,000) and below: provided, that beginning January 1,
therefore be subject to duties, taxes and other charges; 2021, the VAT exemption shall only apply to sale of real properties
not primarily held for sale to customers or held for lease in the
E. Services subject to percentage tax under title V; ordinary course of trade or business, sale of real property utilized
F. Services by agricultural contract growers and milling for others of for socialized housing as defined by Republic Act No. 7279, sale of
palay into rice, corn into grits and sugar cane into raw sugar; house and lot, and other residential dwellings with selling price of
not more than two million pesos (P2,000,000): provided, further,
G. Medical, dental, hospital and veterinary services except those that every three (3) years thereafter, the amount herein stated
rendered by professionals. shall be adjusted to its present value using the Consumer Price
Index, as published by the Philippine Statistics Authority (PSA);
H. Educational services rendered by private educational institutions,
duly accredited by the Department of Education (DepED), the Q. Lease of a residential unit with a monthly rental not exceeding
Commission on Higher Education (CHED), the Technical Education Twelve thousand eight hundred pesos (P15,000);
and Skills Development Authority (TESDA) and those rendered by
government educational institutions; R. Sale, importation, printing or publication of books and any
newspaper, magazine review or bulletin which appears at regular
I. Services rendered by individuals pursuant to an employer- intervals with fixed prices for subscription and sale and which is
employee relationship; not devoted principally to the publication of paid advertisements;
J. Services rendered by regional or area headquarters established in S. Transport of passengers by international carriers;
the Philippines by multinational corporations which act as
supervisory, communications and coordinating centers for their T. Sale, importation or lease of passenger or cargo vessels and
affiliates, subsidiaries or branches in the Asia-Pacific Region and do aircraft, including engine, equipment and spare parts thereof for
not earn or derive income from the Philippines; domestic or international transport operations;

K. Transactions which are exempt under international agreements to U. Importation of fuel, goods and supplies by persons engaged in
which the Philippines is a signatory or under special laws, except international shipping or air transport operations; Provided, that
those under Presidential Decree No. 529; the fuel, goods, and supplies shall be used for international
shipping or air transport operation;
L. Sales by agricultural cooperatives duly registered with the
Cooperative Development Authority to their members as well as V. Services of bank, non-bank financial intermediaries performing
sale of their produce, whether in its original state or processed quasi-banking functions, and other non-bank financial
form, to non-members; their importation of direct farm inputs, intermediaries;
machines and equipment, including spare parts thereof, to be used W. Sale or lease of goods and services to senior citizen and persons
directly and exclusively in the production and/or processing of with disability, as provided under Republic Act Nos.994(expanded
their produce; Senior Citizens Act of 2010) and 10754 (An act expanding the
M. Gross receipts from lending activities by credit or multi-purpose benefits and privileges of persons with disability), respectively;
cooperatives duly registered with the Cooperative Development X. Transfer of property pursuant to section 40(C)(2) of the NIRC, as
Authority; amended;
N. Sales by non-agricultural, non- electric and non-credit Y. Association dues, membership fees, and other assessments and
cooperatives duly registered with the Cooperative Development charges collected by homeowners associations and condominium
Authority: Provided, That the share capital contribution of each corporations;
member does not exceed Fifteen thousand pesos (P15, 000) and
regardless of the aggregate capital and net surplus ratably Z. Sale of gold to Bangko Sentral ng Pilipinas (BSP);
distributed among the members;
AA. Sale of drugs and medicines prescribed for diabetes, high
O. Export sales by persons who are not VAT-registered; cholesterol, and hypertension beginning January 1, 2019; and
P. Sale of real properties not primarily held for sale to customers or BB. Sale or lease of goods or properties or the performance of services
held for lease in the ordinary course of trade or business or real other than the transactions mentioned in the preceding
property utilized for low-cost and socialized housing as defined by paragraphs, the gross annual sales and/or receipts do not exceed
Republic Act No. 7279, otherwise known as the Urban the amount of three million pesos (P3,000,000).
Development and Housing Act of 1992, and other related laws,
residential lot valued at one million five hundred thousand pesos
RA No. 9238 P1,919,500.00, residential house and lot or other residential dwellings with gross
The following are exempt from VAT: selling price exceeding P3,199,200.00, where the instrument of sale (whether the
 (bb) Services Rendered by Doctors of Medicine duly Registered with the instrument is nominated as a deed of absolute sale, deed of conditional sale or
Professional Regulatory Commission (PRC), and otherwise) is executed and notarized on or after January 1, 2012 and shall be
 (cc) Services Rendered by Lawyers Duly Registered with the Integrated subject to twelve percent (12%) output VAT.
Bar of the Philippines (IBP) However, for instruments of sale executed and notarized on or after Nov. 1, 2005
but prior to January 1, 2012, the threshold amounts should appropriately be
RR 7-2004 P1,500,000 and P2,500,000 respectively, and excess thereof shall be subject to
The following are VAT exempted: ten percent (10%) output VAT, and starting Feb. 1, 2006, to twelve percent (12%)
 services rendered by a doctor of medicine duly registered and of good output VAT.
standing with the PRC in the practice of his medical profession, for such
services which may be rendered, under existing law, only by a duly
licensed doctor of medicine in good standing with the PRC,
 legal services rendered by a lawyer duly registered and of good standing
with the IBP in the practice of his legal profession for such services which
may be rendered, under existing law, only by a lawyer duly registered and CASE: MISAMIS ORIENTAL COCO TRADERS vs. SEC. OF FINANCE
in good standing with the IBP. 238 SCRA 63
 medical services rendered by a general professional partnership whose
partners are composed exclusively of doctors of medicine registered with FACTS: Petitioner is a domestic corporation whose members, individually or
the PRC where the general professional partnership was organized solely collectively, are engaged in the buying and selling of copra.
and exclusively for the practice of medical profession, and for such
services which may be rendered, under existing law, only by a duly • The petitioner alleges that prior to the issuance of Revenue
licensed doctor of medicine in good standing with the PRC, or Memorandum Circular 47-91, which implemented VAT Ruling 190-90, copra was
 legal services rendered by a general professional partnership whose classified as agricultural food product. And under Sec. 103(b) of the NIRC, the sale
partners are composed exclusively of lawyers duly registered with the IBP of agricultural food products in their original state is exempt
in the practice of legal profession where the general professional from VAT at all stages of production or distribution.
partnership was organized solely and exclusively for the practice of law,
and for such services which may be rendered, under existing law, only by • Under §103(a) the sale of agricultural non-food products in their original state is
a lawyer duly registered and of good standing with the IBP.” exempt from VAT only if the sale is made by the primary producer or owner of the
land from which the same are produced. The sale made by any other person or
entity, like a trader or dealer, is not exempt from the tax.

NEW SECTIONS: • On the other hand, under §103(b) the sale of agricultural food products in their
SEC 109 (aa) Services of banks, non-bank financial intermediaries performing original state is exempt from VAT at all stages of production or distribution
quasi-banking functions, and other non-bank financial intermediaries; regardless of who the seller is.
S109 (bb) Services Rendered by Doctors of Medicine duly Registered with the
Professional Regulatory Commission (PRC), and • The question is whether copra is an agricultural food or non-food product for
S109 (cc) Services Rendered by Lawyers Duly Registered with the Integrated Bar purposes of this provision of the NIRC. On June 11, 1991, respondent
of the Philippines (IBP) Commissioner of Internal Revenue issued the circular in question, classifying
copra as an agricultural non-food product and declaring it "exempt from VAT only if
REVENUE MEMORANDUM CIRCULAR NO. 07-94 the sale is made by the primary producer pursuant to Section 103(a) of the Tax
Code, as amended."
Water, being a mineral rather than agricultural product may not legally be
classified as agricultural food product within the purview of Section 103(b), NIRC. • The reclassification had the effect of denying to the petitioner the exemption it
Hence, sale of water, whether in the form of bottled mineral previously enjoyed when copra was classified as an agricultural food product under
water or water delivered/supplied to inter-island and ocean-going §103(b) of the NIRC. Petitioner challenges RMC No. 47-91 on various grounds.
vessels by persons engaged in the business of supplying water to
the aforesaid inter-island and ocean-going vessels, shall be ISSUES:
subject to 10% VAT, pursuant to Section 100(a), NIRC. 1. Whether the BIR is the proper competent government agency to
determine the proper classification of food products. YES
REVENUE REGULATION 03-2012 2. Whether Commissioner erred in not considering copra as an "agricultural
food product" within the meaning of § 103(b) of the NIRC. NO.
Sale of Real Properties. — Sale of real properties held primarily for sale to 3. Whether RMC No. 47-91 is discriminatory and violative of the equal
customers or held for lease in the ordinary course of trade or business of the seller protection clause of the Constitution. NO.
shall be subject to VAT. Sale of residential lot with gross selling price exceeding
 4. Whether RMC No. 47-91 is counterproductive because traders and
dealers would be forced to buy copra from coconut farmers who are CASE: ST. LUKE’S MEDICAL CENTER vs. CIR CTA CASE NO. 5068 MARCH
exempt from the VAT and that to the extent that prices are reduced the 17, 1999
government would lose revenues as the 10% tax base is correspondingly
diminished. NO. FACTS: Petitioner is a non-stock, non-profit corporation duly organized and
existing under Philippine laws, and primarily engaged in the hospital business.
 The controversy started when the respondent assessed the petitioner on
HELD: August 2, 1993 deficiency value-added tax (VAT) on its pharmacy sale for
1. The BIR, as the government agency charged with the implementation and the year 1991 in the total amount of P9,866,151.23 to which the
interpretation of the tax laws, is entitled to great respect. petitioner filed a protest and prayed for cancellation.However, petitioner's
protest was denied by the respondent, hence, this petition for review.
In interpreting Section 103 of the NIRC, the CIR correctly gave it a strict  The petitioner advanced the view in its petition that the respondent
construction consistent with the rule that tax exemptions must be strictly exceeded its legal authority when it assessed VAT on its use and
construed against the taxpayer and liberally in favor of the state. consumption of pharmacy items for in-patients, those used by its special
units such as operating and delivery rooms during medical procedures,
The ruling was made by the CIR in the exercise of his power under and pharmaceutical items used by other departments of the hospital,
§ 245 of the NIRC to "make rulings or opinions in connection with the since these items are necessarily included in the term "hospital services"
implementation of the provisions of internal revenue laws, which are exempt from value-added tax under Section 103(1) of the
including rulings on the classification of articles for sales tax and similar purposes.” National Internal Revenue Code.
“SEC. 103. Exempt Transactions - The following shall be exempt from VAT:
2. In the case at bar, we find no reason for holding that respondent Commissioner Xxx xxx xxx
erred in not considering copra as an "agricultural food product" within the meaning (1) Medical, dental, hospital and veterinary services
of § 103(b) of the NIRC. As the Solicitor General contends, "copra per se is not Xxx xxx xxx
food, that is, it is not intended for Revenue regulations no. 5-87, implementing the said code states:
human consumption. Simply stated, nobody eats copra for food." That previous “Sec. 9 . Exemptions.
Commissioners considered it so, is not reason for holding that the present Xxx xxx xxx
interpretation is wrong. The Commissioner of Internal Revenue is not bound by the (12) Medical, Dental, Hospital and Veterinary Services. Laboratory services are
ruling of his predecessors. 7 To the contrary, the overruling of decisions is inherent also exempted. If the hospital or clinic operates a pharmacy or drugstore, the sale
in the interpretation of laws. of drugs and medicine, if it exceeds 200k during a 12 month period is subject to
VAT.
3. Petitioner likewise claims that RMC No. 47-91 is violative of the equal protection
clause because while coconut farmers and copra producers are exempt, traders ISSUE: WON the in-patient pharmacy sale is subject to VAT
and dealers are not, although both sell copra in its original state. HELD: YES
Respondent contends the Sec (9) (b) (12) of Revenue Regulations No. 5-87 is very
Petitioners add that oil millers do not enjoy tax credit out of the VAT payment of clear and unequivocable, that pharmacy sales, if it exceeds P200k during the
traders and dealers. The argument has no merit. There is a material or substantial twelve-month period, is subject to VAT, thus, the question of whether such drugs
difference between coconut farmers and copra producers, on one hand, and copra or pharmaceutical products sold to out-patients or in-patients is immaterial, and
traders and dealers, on the other. The former produce and sell copra, the latter that petitioner failed to present proof that would substantiate its claimed
merely sell copra. deductions.

The Constitution does not forbid the differential treatment of persons so long as Petitioner HAS UTTERLY FAILED to convince the court, that selling of drugs and
there is a reasonable basis for classifying them differently. It is not true that oil other pharmacy items to in-patients form part of its hospital services. Dispensing
millers are exempt from VAT. Pursuant to §102 of the NIRC, they are subject to of drugs is different from selling of drugs.
10% VAT on the sale of services.
Pharmacy services were not included in the exemptions mentioned in Sec 103 of
4. This is not so. The sale of agricultural non-food products is exempt from VAT the tax code, thus it behooves the Court to apply the principle of STRICT
only when made by the primary producer or owner of the land from which the CONSTRUCTION OF TAX EXEMPTION AGAINST THE TAX PAYER.
same is produced, but in the case of agricultural food products their sale in their To be exempted from tax, the taxpayer has the duty to justify the exemption by
original state is exempt at all stages of production or words too plain to be mistaken and too categorical to be misinterpreted. Thus
distribution. At any rate, the argument that the classification of copra as PHARMACY SALES NOT BEING MENTIONED IN SEC. 103 OF THE TAX CODE AS
agricultural non-food product is counterproductive is a question of wisdom or policy EXEMPT FROM VAT, IT SHOULD BE DEEMED SUBJECT TO VAT.
which should be addressed to respondent officials and to
Congress. “Expressio unius est exclusion alterius” and “Ubi lex non distinguit nec nos
distinguere debemos”, where the law does not distinguish, under statutory
construction, applies in the instant case.
 (a) To the purchaser upon consummation of sale and on importation of
goods or properties; and
CASE: TAMBUNTING PAWNSHOP, INC. vs. COMMISSIONER OF INTERNAL (b) To the importer upon payment of the value-added tax prior to the
REVENUE GR No. 179085 January 21. 2010 release of the goods from the custody of the Bureau of Customs.

FACTS: Provided, that the input tax on goods purchased or imported in a calendar month
Petitioner was assessed for deficiency Value Added Tax and Documentary Stamp for use on trade or business for which deduction is allowed under this Code, shall
Tax on the premise that, for the Value Added Tax, it was engaged in the sale of be spread evenly over the month of acquisition and the 59 succeeding months if
services. the aggregate acquisition cost for such goods, excluding the VAT component
thereof, exceeds 1Million pesos: provided, however, that if the estimated useful life
ISSUES: of the capital good is less than 5 years, as used for depreciation purposes, then the
(1) Is Petitioner liable for the Value Added Tax? input VAT shall be spread over such a shorter period: provided, finally that in that
(2) Can the imposition of surcharge and interest be waived on the imposition of case of purchase of services, lease or use of properties, the input tax shall be
deficiency Documentary Stamp Tax? creditable to the purchaser, lessee or license upon payment of the compensation,
rental, royalty or fee.
HELD:
(1) NO. Since Petitioner is considered a non-bank financial intermediary, it is (3) A VAT-registered person who is also engaged in transactions not subject to the
subject to 10% VAT for the tax years 1996 to 2002 but since the collection of value-added tax shall be allowed tax credit as follows:
Value Added Tax from non-bank financial intermediaries was specifically deferred (a) Total input tax which can be directly attributed to transactions subject
by law, Petitioner is not liable for Value Added Tax during these tax years. With the to value-added tax; and
full implementation of the Value Added Tax system on non-bank financial (b) A ratable portion of any input tax which cannot be directly attributed
intermediaries starting January 1, 2003, Petitioner is liable for 10% Value Added to either activity.
Tax for said tax year. And beginning 2004 up to the present, by virtue of R.A. No.
9238, petitioner is no longer liable for VAT but it is subject to percentage tax on The term "input tax" means the value-added tax due from or paid by a VAT-
gross receipts from 0% to 5%, as the case may be. 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-
(2) YES. Petitioner's argument against liability for surcharges and interest — that it registered person.
was in good faith in not paying documentary stamp taxes, it having relied on the
rulings of respondent CIR and the CTA that pawn tickets are not subject to It shall also include the transitional input tax determined in accordance with
documentary stamp taxes — was found to be meritorious. Good faith and honest Section 111 of this Code.
belief that one is not subject to tax on the basis of previous interpretations of
government agencies tasked to implement the tax law are sufficient justification to
delete the imposition of surcharges and interest. 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.

J. TAX CREDIT (Sec 110) (B) Excess Output or Input Tax- If at the end of any taxable quarter the output
SEC. 110. Tax Credits. – 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
(A) Creditable Input Tax. - (1) Any input tax evidenced by a VAT invoice or succeeding quarter or quarters.
official receipt issued in accordance with Section 113 hereof on the following
transactions shall be creditable against the output tax: 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
(a) Purchase or importation of goods: revenue taxes, subject to the provisions of Section 112.
(i) For sale; or
(ii) For conversion into or intended to form part of a finished (C) Determination of Creditable Input Tax- The sum of the excess input tax
product for sale including packaging materials; or carried over from the preceding month or quarter and the input tax creditable to a
(iii) For use as supplies in the course of business; or VAT-registered person during the taxable month or quarter shall be reduced by the
(iv) For use as materials supplied in the sale of service;or amount of claim for refund or tax credit for value-added tax and other
(v) For use in trade or business for which deduction for adjustments, such as purchase returns or allowances and input tax attributable to
depreciation or amortization is allowed under this Code. exempt sale.
(b) Purchase of services on which a value-added tax has been actually
paid. The claim for tax credit referred to in the foregoing paragraph shall include not
only those filed with other government agencies, such as the Board of Investments
(2) The input tax on domestic purchase of goods or properties shall be creditable: and the Bureau of Customs.
 subject to the filing of an inventory according to rules and regulations
Q: Explain the Tax Credit Method (also called “invoice method”) of collecting VAT? prescribed by the Secretary of finance, upon recommendation of the
A: The input tax shifted by the seller to the buyer is credited against the buyer’s Commissioner, be allowed input tax on his beginning inventory of goods,
output taxes when he in turn sells the taxable goods, properties or services. materials and supplies equivalent to 2% of the value of such 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.
1. CREDITS FOR INPUT TAX

• The VAT due on or paid by a VAT-registered person on importation of goods or 3. PRESUMPTIVE INPUT TAX
local purchases of goods, properties, or services, including lease or use of Sec. 111
properties, in the course of trade or business. (B) Presumptive Input Tax Credits. -
• Includes the transaction and the presumptive input tax
• Includes input taxes which can be directly attributed to transactions subject to (1) Persons or firms engaged in the processing of sardines, mackerel and milk, and
the VAT plus a ratable portion of any input taxes which cannot be directly in manufacturing refined sugar and cooking oil, shall be allowed a presumptive
attributed to either the taxable or exempt activity. input tax, creditable against the output tax, equivalent to one and one-half percent
• Evidenced by a VAT invoice or official receipt issued by a VAT-registered person. (1 1/2%) 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
CLAIM FOR INPUT TAX ON DEPRECIABLE GOODS alter the exterior texture or form or inner substance of a product in such manner
A. REQUISITES: as to prepare it for special use to which it could not have been put in its original
• A VAT-registered person purchases or imports capital goods (which are form or condition.
depreciable goods for income tax purposes)
• If aggregate acquisition cost of all capital goods (exclusive of VAT) in a calendar
month exceeds P1million, the input tax cannot be claimed outright but should be (2) Public works contractors shall be allowed a presumptive input tax equivalent to
subject to amortization over a period of 5 years or useful life of the capital goods, one and one-half percent (1 1/2%) of the contract price with respect to
whichever is lower. government contracts only in lieu of actual input taxes therefrom.
• If the aggregate acquisition cost of all capital goods in a calendar month does not
exceed P1 million, the input tax may be claimed outright as credit against output
tax. K.COMPUTATION OF VAT PAYABLE
1. COMPUTATION OF OUTPUT TAX
Aggregate acquisition cost refers to the total price agreed upon for one or more
assets acquired and not the payments actually made during the calendar month. I. Goods or properties: Gross Selling Price x VAT rate

B. MANNER OF CLAIMING INPUT TAX OF MORE THAN 1MILLION Allowable deductions from gross selling price:
PESOS  Discounts determined and granted at the time of sale (expressly indicated
1. Estimated useful life of a capital good is 5 years or more: in the invoice, amount thereof should from part of gross sales duly
 Input tax spread evenly over a period of 60 months recorded in the books, and the granting of the discount does not depend
 Commenced in the calendar month when the capital good is acquired on the happening of the future event);
2. Estimated useful life is less than 5 years:  Sales returns and allowances for which a proper credit or refund was
 Input tax spread evenly on monthly basis by the actual number of months made during the month or quarter to the buyer from sales previously
comprising the estimated useful life of the capital good recorded as taxable sales.
 Commenced in the calendar month when the capital good is acquired. II. Sellers of service: Gross Receipts x VAT rate

If the depreciable capital good is sold/transferred within the period of 5 years or
prior to the exhaustion of the amortizable input tax thereon: entire unamortized 2. DETERMINATION OF INPUT TAX CREDIT
input tax on the capital goods sold, can be claimed as Input tax credit during the Determination of Input Tax Credit during a taxable month or quarter
month or quarter when the sale or transfer was made but subject to limitation.
All creditable input taxes during the month or quarter
+ any amount of input taxes carried-over from precedingmonth/quarter
2. TRANSITIONAL INPUT TAX - (claim for VAT refund or tax credit certificate)
SEC. 111. Transitional/Presumptive Input Tax Credits. - - (other adjustments – purchase returns)
- (input tax attributable to exempt sales)
(A) Transitional Input Tax Credits.- A person who becomes liable to value- - (input tax on capital goods purchased during the month/quarter subject to
added tax or any person who elects to be a VAT-registered person shall, amortization)
+/- (difference between standard input and actual input on government sales)
+ (creditable VAT withheld on payments to non-residents 2. If any input tax cannot be directly attributed to either a VAT taxable or
= INPUT TAX CREDIT VAT-exempt transaction, the input tax shall be pro-rated to the VAT
taxable and VAT-exempt transactions
NOTE: Adjustment to Input Tax  Only the ratable portion pertaining to transactions subject to
VAT may be recognized for input tax credit.

Addition to Creditable Input Tax NOTE:

• Input tax arising from qualified transactions in the current month or quarter • Input tax attributable to VAT-exempt sales shall not be allowed as credit against
• Input tax carried-over from the preceding month or quarter the output tax but should be treated as part of cost of goods sold.
• For persons engaged in both zero-rated sales and non-zero rates sales, the
Reduction in Creditable Input Tax aggregate input taxes shall be allocated ratably between the zero-rated
• Amount of claim for VAT refund or Tax Credit Certificate (whether filed with the sale and non-zero-rated sale.
BIR, the Department of Finance, the Board of Investments or the BOC)
• Other adjustments, such as purchase returns or allowances, input tax
attributable to sales subject to final VAT withholding.

3. EXCESS OUTPUT OVER INPUT / EXCESS INPUT OVER OUTPUT

Determination of the output tax and VAT payable and computation of VAT payable SUBSTANTIATION REQUIREMENTS OF INPUT TAX CREDITS
or excess tax credits
Required Supporting Documents for claiming Input VAT
VAT payable computation: TRANSACTIONS REQUIRED SUPPORT
OUTPUT TAX On domestic purchases of goods orVAT invoice
- INPUT TAX properties made in the course of trade
______________ or business
= VAT PAYABLE On purchase of real propertyPublic instrument (i.e., deed of
Cash/deferred payment basisabsolute sale, deed of conditional sale,
• If at the end of any taxable quarter the output tax exceedsthe input tax, Installment basis contract/agreement to sell, etc)
the excess shall be paid by the VATregistered person. together with the VAT Invoice for the
• If the input tax exceeds the output tax, the excess shall be carried over entire selling price and Non-VAT ORs
to the succeeding quarter or quarters. for the initial and succeeding payments
• Any input tax attributable to zero-rated sales by a VATregistered person Public instrument and VAT OR for
may at his option be refunded or credited against other internal revenue every payment
taxes subject to provisions of Section 112. On domestic purchase of services VAT OR
On importation of goods Import entry or other equivalent
document showing actual payment of
VAT on the imported goods and BOC
ALLOCATION OF INPUT TAX ON MIXED TRANSACTIONS OR
A VAT-registered person who is also engaged in transactions not subject to VAT On transitional input tax Inventory of goods as shown in a
shall be allowed to recognize input tax credit on transactions subject to VAT as detailed list to be submitted to the BIR
follows: On “demand sale” transactions Required invoices
On payments made to non-residents Monthly Remittance Return of VAT
1. All the input taxes that can be directly attributed to transactions subject
withheld (BIR Form 1600) filed by the
to VAT may be recognized for input tax credit resident payor in behalf of the non-
• Input taxes which are directly attributed to VATaxable
resident evidencing remittance of VAT
sales of goods and services from the Government or any due which was withheld by the payor.
of its political subdivisions, instrumentalities or
Advance VAT on sugar Payment order showing payment of
agencies, including GOCCs shall not be credited against
the advance VAT
output taxes arising from sales to non-government
entities
A cash register machine tape issued to a registered buyer shall constitute valid • Refunds shall be made upon warrants drawn by the Commissioner or by
proof of substantiation of tax credit only if it shows the information required under his duly authorized representative without the necessity of being
sec. 113 and 237 of the Tax Code countersigned by the Chairman, Commission on audit.
(invoicing requirements) • Refunds under this paragraph shall be subject to post audit by the
Commission on Audit.

L. REFUNDS (Sec 112)

SEC. 112. Refunds or Tax Credits of Input Tax. - M. COMPLIANCE REQUIREMENTS

(A) Zero-Rated or Effectively Zero-Rated Sales of goods,

properties or services REGISTRATION
• Any VAT-registered person, whose sales are zero-rated or effectively
zero-rated may, within 2 years after the close of the taxable quarter when 1. PERSONS COMMENCING BUSINESS (SEC 236.G)
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 sale. Q: Who are the persons required to register for VAT?
• The creditable input tax allowed to be refunded does not include A: Every person who in the course of business or trade, sells, barters or exchanges
transitional input tax. goods or properties, or engages in the sale or exchange of services shall register
• In case the taxpayer is engaged in zero-rated or effectively zero-rated for VAT if:
sale and also in taxable or exempt sale and the amount of creditable input 1.The gross sale or gross receipts have exceeded P1.5 million for the past
tax due or paid cannot be directly and entirely attributed to any one of the 12 months; or
transactions, it shall be allocated proportionately on the basis of the 2. There are reasonable grounds to believe that his gross sales or receipts
volume of sales. in the next 12 months shall exceed P1.5 million

(B) Cancellation of VAT Registration. – NOTE: Those who are liable to register for VAT under Sec 236.G.1 shall register
• A person whose registration has been cancelled due to retirement from with the RDO which has jurisdiction over the head branch or office of that person
or cessation of business, or due to changes in or cessation of status may, and shall pay the annual registration fee prescribed in Sec B thereof.
within 2 years from the date of cancellation, apply for the issuance of a
tax credit certificate for any unused input tax.
EFFECT OF FAILURE TO REGISTER
If a person fails to register for VAT, he shall be taxed as if he were a VAT-
(C) Period Within Which Refund or Tax Credit of Input Taxes Shall be registered person but without the benefit of input tax credits for the period in
Made. which he was not properly registered.
• the Commissioner shall grant a refund or issue the tax credit certificate
for creditable input taxes within 120 days from the date of submission of
complete documents in support of the application. 2. PERSONS BECOMING LIABLE TO VAT
• Taxpayer may appeal to the CTA within 30 days from receipt of said
denial. Q: Who is a VAT-registered person?
• If no action on the claim for refund has been taken by the CIR after 120- A: Any person who has registered VAT as a tax type in accordance with Sec 236.C
day period from the date of submission of the application with complete shall be referred to as a VAT-registered person who shall be assigned only to one
documents, the taxpayer, may appeal to the CTA within 30 days from the TIN.
lapse of the 120-day period. Q: What is the effect of a franchise grantee of radio and TV
• The CIR has 120 days, from the date of the submission of the complete broadcasting, whose annual gross income receipts for the
documents within which to grant or deny the claim for refund/credit of preceding year do not exceed P10 million, who opts for VAT
input Vat. In case of full or partial denial of the by the CIR, the taxpayer’s registration?
recourse is to file an appeal before the CTA within 30 days from receipt of A: The registration becomes irrevocable.
the decision of the CIR. Otherwise, if after the 120-day period, the CIR
fails to act on the application for tax refund/credit, the remedy of the
taxpayer is to appeal the inaction of the CIR to CTA within 30 days. 4. OPTIONAL REGISTRATION (SEC 236.H)
Hence, if filed with the CTA before the 120-day period expires, CTA will Q: Who may optionally register for VAT?
dismiss for prematurity. If filed with the CTA after the 150-day (120+30 A: Any person who is not required to register for VAT under Sec 236.G may elect
days), CTA will dismiss for being late. This only applies to credit input tax to register for VAT by registering with RDO that has jurisdiction over the head
refunds. office of that person, and paying the annual registration fee in Subsection B. (Sec
236.H).
(D) Manner of Giving Refund. –
NOTE: Under RR 16-05
 (1) Any person who is VAT-exempt under Sec 4.109-1 (VAT exempt mentioned in the stipulation is numbered 36-A-6-002224 effective January 1, 1988
persons) may elect to be VAT registered thereby showing that it had been VAT-registered even prior to the 1st quarter of
(2) Any person who is VAT-registered but enters into a transaction which 1990.
are exempt from VAT (mixed transactions) may opt that the VAT apply to
his transaction which would have been exempt under Sec 109.2 NIRC. This can only mean that the petitioner made a “palpable mistake” either in
Registration is irrevocable for 3 years referring to the wrong BIR record or in attaching the wrong VAT registration
(3) Franchise grantees of radio and TV broadcasting with annual gross certificate. At any rate, the fact remains that petitioner was VAT-registered as of
receipts of the preceding year do not exceed P10 million may opt for VAT January 1, 1988. That petitioner’s explanation of the discrepancy was made only
registration. Registration is irrevocable after the CTA had promulgated its decision is understandable. It was only when
that promulgation was made that petitioner became aware of the clerical error in
Q: What is the effect of optional registration? the joint stipulation of facts. Petitioner’s other registration number 32-0-004622
A: He shall not be entitled to cancel his registration under came about when it moved its principal place of business to a different revenue
Subsection F.2 for the next 3 years, except a franchise grantee, with gross receipts district. Its 2nd registration as a VAT enterprise on August 1990, was made in
of P10 million and below, who opts for VAT registration. compliance with Sec 3 of RMC no 6-88, which required it to re-register after it
moved its principal place of business to another RDO.

5. CANCELLATION OF REGISTRATION (SEC 236.F)

Q: What is required for the cancellation of VAT registration?
A:
1.The VAT-registered person makes written application and demonstrates 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 A to U, will not exceed P1.5 million
CASE: ATLAS CONSOLIDATED MINING V. CIR, G.R. NO 134467 2. He has ceased to carry on his trade or business and does not expect to
(1999) recommence any trade or business within the next 12 months (Sec 236.F)
FACTS: Petitioner Atlas Consolidated Mining is engaged in the business of mining,
production and sale of various mineral products, consisting principally of copper
concentrates and gold and duly licensed with BIR EFFECTIVITY OF CANCELLATION: The cancellation of registration will be effective
1. Respondent BIR approved petitioners’ application for VAT zero-rating on the from the 1st day of the following month.
following sales:
2. In April 1990, petitioner filed a VAT return with BIR for the first quarter of 1990, VAT INVOICING AND ACCOUNTING
declaring its sales to the Central Bank, PASAR and Philphos as zero-rated sales and INVOICING AND ACCOUNTING REQUIREMENTS FOR VATREGISTERED PERSONS
therefore not subject to any output tax (SEC 113)
3. Of the claim P33 million filed by petitioner, BIR only approved/credited P2.5
million. BIR alleged that BIR regulations automatically disallow VAT refund for A. INVOICING REQUIREMENTS
failure to present the required documents although the purchases can be 1. VAT invoice for every sale, barter or exchange of goods or properties
substantiated by other documents 2. VAT receipt for every lease of goods or properties, and every sale, barter
4. Petitioner contends that its sales to Philphos and PASAR should be zero-rated for or exchange of services
the 1st quarter of 1990
5. On the other hand, BIR argues that by virtue of the joint stipulation of facts,
petitioner is bound by its admission that it was registered for VAT only from August
15, 1990, well beyond the 1st quarter for which it was applying for tax credit B. INFORMATION CONTAINED IN VAT RECEIPT
1. Statement that the seller is VAT-registered, followed by his Tax
ISSUE: WON petitioner is a VAT-registered for the 1st quarter of 1990 despite Identification Number (TIN)
clear evidence showing the effectivity of petitioners’ VAT registration to be January 2. Total amount purchaser is obligated to pay seller with indication that such
1, 1988 amount includes VAT
a) The amount of tax shall be shown as a separate item in the
HELD: Yes. As a general rule, a judicial admission is binding on the declarant. invoice
However, such rule does not apply when there is a showing that:(1) the admission b) If the sale is exempt from VAT, the term VATexempt shall be
was made through a “palpable mistake;” and (2) “no such admission was made” in indicated
accordance with Sec 4, Rule 129 ROC. c) If the sale is subject to zero-rating, the term Zerorated sale”
In the present case, it is clear that petitioner had committed a palpable mistake. shall be indicated
Based on the BIR records, the registration certificate is 32-0-004622 effective d) If it is a mixed transaction (partly zero-rated, partly exempt or
August 15, 1990. But the actual VAT registration certificate, which petitioner partly subject to 12% VAT), the invoice shall indicate the
 breakdown of the sale price between its taxable, exempt and PENALTY: Failure or refusal to comply with he requirement shall be punished by a
zero-rated fine of not less than P1000 but not more than P50,000 and imprisonment of not
3. The date of transaction, quantity, unit cost, and description of goods or less than 2 years but not more than 4 years.
nature of service
4. If the sale is worth P1000 or more, or the transfer is made to a VAT- SEC 109 NIRC last par
registered person, the name, TIN of purchaser or customer should be A VAT-registered person may opt that Subsection (1) not apply to its goods or
indicated properties. Such election shall be irrevocable for a period of 3 years from the
quarter the election was made.

ACCOUNTING REQUIREMENTS (Sec 113.C) RMC 61-2003

Notwithstanding Sec 233, all persons subject to VAT shall in addition to regular Pursuant to Sec 109 NIRC, a VAT-registered person whose sales of goods,
accounting records required, maintain a subsidiary sales journal and subsidiary properties or services which are not subject to VAT but nonetheless issues a VAT
purchase journal showing daily sales and purchases. invoice or receipt for such transactions shall have the following consequences:

1. Shall be liable to the payment of output tax due on such sale of exempt
CONSEQUENCES FOR ISSUING ERRONEOUS BAT INVOICE OR goods or services computed at 1/11 of the total amount appearing on
RECEIPT (Sec 113.D) such VAT invoice/receipt
1 If a person who is not VAT-registered issues an invoice or receipt showing it is 2. No input tax credits shall be claimed against output tax due on such
VAT-registered: transactions
a. The issuer shall be liable to, in addition to any liability to other 3. Shall be liable to applicable percentage charge, if any.
percentage taxes:
(1) The tax imposed in Sec 106 or 108 without benefit of any
input tax credit; and RETURN AND PAYMENT OF VAT
(2) 50% surcharge under Sec 248.B BIR Form 2550M
b. The VAT shall be recognized as an input tax credit tothe purchaser BIR Form 2550Q
under Sec 110
WITHHOLDING VAT
2 If a VAT-registered person issued a VAT invoice for a VAT exempt transaction but Q: State the rule regarding the withholding of Final VAT on sales to government
fails to indicate it is a VAT-exempt sale, the issuer shall be liable to account for the A: The Government or any of its political subdivisions, instrumentalities or
tax imposed under Sec 106 108 (despite Sec 109) agencies, including government owned or controlled corporations (GOCCs) shall,
before making payment on account of its purchase of goods and/or services taxed
ISSUANCE OF RECEIPTS OR INVOICES FOR COMMERCIAL SALES at 12% shall deduct and withhold a final VAT of 5% of the gross payment. (Section
(SEC 237) 114(C), NIRC).
Q: When are receipts or sales or commercial invoices issued?
A: All persons subject to an internal revenue tax for each sale or transfer of
merchandise or for services rendered valued at 25 pesos or more, issue duly NOTE:
registered receipts or sales or commercial invoices, prepared at least in duplicate, • The five percent (5%) final VAT withholding rate shall represent the net VAT
showing the date of transaction, quantity, unit cost and description of merchandise payable to the seller
or nature of service. (Sec. 237) • 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
Q: How many years should the issuer and purchaser keep the receipts? subdivisions, instrumentalities or agencies including GOCCs, in lieu of
A: They shall keep the receipts for a period of 3 years from the close of the taxable the actual Input VAT directly attributable or ratably apportioned to such sales.
year in which such invoice or receipt was issued (Sec 237). • Should actual input VAT attributable to sale to government exceed seven percent
(7%) of gross payments, the excess may form part of the seller’s expense or cost
• If actual input VAT attributable to sale to government is less than 7% of gross
RR 08-99 payment, the difference must be closed to expense or cost.
This Revenue Regulation provides penalties for violation of the requirement that
Output tax on the sale of goods and services should not be separately indicated in
the sales invoice or receipt. N.POWER OF THE COMMISSIONER TO SUSPEND
BUSINESS OPERATIONS (Sec 115)
SCOPE: All VAT-registered persons who are required under Sec 237 NIRC to issue CIR or his authorized representative are empowered to suspend the business
receipts or sales or sales or commercial invoices are no longer allowed to operations and temporarily close the business establishment of any persons for
separately bill the VAT. The amount appear in the receipts/invoices should be any of the following violations:
deemed inclusive of VAT.
1. In case of a VAT-registered person:
 a) Failure to issue receipts or invoices
b) Failure to file VAT return as required under Sec 114
c) Understatement of taxable sales or receipts by 30% or more of
his correct taxable sales or receipts for thetaxable quarter.
2. Failure of any person to registered as required under Sec 236 –
Temporary close of the establishment for the duration of not less than 5
days but shall be lifted only upon compliance with the requirements
prescribed by CIR in the closure order.