CTT EXAMINATION REVIEWER (NOTES) PAGE A - 28

VALUE-ADDED TAX FORMULA IN COMPUTING VAT PAYABLE

OUTPUT TAX Px x
Who are liable to VAT? Less: INPUT TAX x x
Any individual, trust, estate, partnership, corporation, VAT PAYABLE x x
joint venture, cooperative or association who in the
course of his trade or business: Gross sales/receipts by husband and wife
1. Sells, barters, exchanges goods or properties For purposes of the threshold of P3 million, the
2. Sells or renders services husband and the wife shall be considered separate
3. Leases properties taxpayers.
4. Imports goods However, the aggregation rule for each taxpayer shall
To be subject to VAT apply. For instance, if a professional, aside from the
1. The annual gross selling price (sale of goods/ practice of his profession, also derives revenue from
properties) or gross receipts (sale of services and other lines of business which are otherwise subject to
lease of properties) must exceed P 3 million. VAT, the same shall be combined for purposes of
determining whether the threshold has been
2. If the taxpayer is VAT-registered, he is subject to exceeded.
VAT, regardless of the amount of GSP/GR.
The VAT-exempt sale shall not be included in
In the course of his trade or business means the determining the threshold.
regular conduct or pursuit of a commercial or an
economic activity, including transactions incidental Sources/Kinds of Input Tax (creditable from the
thereto, by any person regardless of whether or not Output Tax)
the person engaged therein is a non-stock, non-profit 1. Input tax on local purchases of goods or properties
private organization (irrespective of the disposition of other than capital goods
its net income and whether or not it sells exclusively 2. Input tax on importation of goods or properties
to members or their guests), or government entity. other than capital goods
3. Input tax on local purchases or importation of
EXCEPTIONS (these are subject to VAT even if there capital goods
is no business) 4. Input tax on local purchases of services or rent of
1. Importation of goods for personal use; and properties
2. Services rendered in the Philippines 5. Creditable withholding VAT
by non-resident foreign persons, even if isolated 6. Transitional input tax
(considered as being rendered in the course of 7. Presumptive input tax
trade or business).
VAT ON SALE OF GOODS OR PROPERTIES
The recipient of the service shall withhold and remit
Rate and Base: 12% of Gross Selling Price
the VAT to the BIR. Such VAT can be claimed by the
recipient as input tax. Gross selling price - the total amount of money or its
equivalent which the purchaser pays or is obligated to
Nature and characteristics of VAT
pay to the seller in consideration of the sale, barter or
1. VAT is a tax on consumption levied on the sale,
exchange of the goods or properties, excluding VAT
barter, exchange or lease of goods or properties
but including excise tax, if any.
and services in the Philippines.
In computing the taxable base during the month or
2. The Seller is the one statutorily liable for the
quarter, the following shall be allowed as deductions:
payment of the tax but the amount of the tax may
be shifted or passed on to the buyer, transferee or Deductions from GSP
lessee of the goods, properties or services. 1. Sales discounts determined and granted at the
time of sale, expressly indicated in the invoice the
3. The tax is a business tax imposed on the privilege
amount thereof forming part of the gross sales duly
of selling, leasing or importing goods or rendering
recorded in the books of accounts, the granting of
services for a fee, remuneration or consideration
(excise tax).
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 29

which does not depend upon the happening of a single proprietorship incorporates; or the
future event. proprietor of a single proprietorship sells his
entire business.
2. Sales returns and allowances for which a proper
credit or refund was made during the month or b. Dissolution of a partnership and creation of a
quarter to the buyer for sales previously recorded new one which takes over the business.
as taxable sales.
In cases (1) (2) and (3), the output tax shall be
Formula: based on the market value of the goods deemed sold
at the time of occurrence of the transaction.
Gross Sales Pxx
Less: Sales discount Pxx In case (4) the tax base shall be whichever is
Sales returns & allowances xx xx lower between:
Net Sales xx Acquisition Cost vs Current Market Price
Add: Excise tax (if any) xx of the goods or properties
Gross selling price xx
TRANSITIONAL INPUT TAX (on a person who
Transactions Deemed Sale (Purpose: To recapture
becomes liable to VAT or those who elect to be VAT
the VAT that was already claimed as Input Tax)
registered) as of the effectivity of their VAT
1. Transfer use or consumption not in the course of registration.
business of goods or properties originally intended
Whichever is higher between:
for sale or for use in the course of business.
Transfer of goods or properties not in the course of  2% of the value of the beginning inventory on hand
trade or business can take place when VAT of goods, materials and supplies, or
registered person withdraws goods from his  Actual VAT paid on such materials, goods and
business for his personal use. supplies
2. Distribution or transfer to – PRESUMPTIVE INPUT TAX on sale of goods or
a. Shareholders or investors as share in the profits properties
of the VAT registered person.
VAT registered persons or firms engaged in the –
Property dividends which constitute stocks in 1. Processing of sardines, mackerel, and milk, and
trade or properties primarily held for sale or 2. In manufacturing refined and raw sugar, cooking
lease declared out of retained earnings and oil and packed noodle-based instant meals
distributed by the company to its shareholders
shall be subject to VAT based on the zonal  4% of the gross value in money of their
value or FMV at the time of distribution, purchases of primary agricultural products which
whichever is applicable. are used as inputs to their production
b. Creditors in payment of debt or obligation. Zero-rated sales of goods
1. Zero-rated transactions vs. Exempt transactions
3. Consignment of goods if actual sale is not
made within 60 days following the date such goods a. 0%- subject to VAT only that the rate is 0%.
were consigned. Those returned within the 60-day E - not subject to VAT
period are not deemed sold.
b. 0%- no output tax but the taxpayer is entitled to
4. Retirement from or cessation of business with tax credit or refund of input taxes.
respect to all goods on hand, whether capital E - no tax credit or refund for input taxes are
goods, stock in trade, supplies or materials as of allowed.
the date of such retirement or cessation, whether
or not the business is continued by the new owner 2. Sales by VAT registered persons subject to 0%:
or successor, to wit: A. Export sales which shall mean -
a. Change of ownership of business. There is (a) The sale or actual shipment of goods from
change of ownership of the business when a Philippines to foreign country, irrespective
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 30

of any shipping arrangement that may be The registered export enterprise shall refer to
agreed upon which may influence or an export enterprise that is also a Registered
determine the transfer of ownership of the Business Enterprise (RBE).
goods so exported, paid for in acceptable
foreign currency or its equivalent in goods VAT ON SALE OF REAL PROPERTY
or services, and accounted for in 1. The following sales of real property are subject to
accordance with the rules and regulations VAT:
of the Bangko Sentral ng Pilipinas;
a. Those held primarily for sale to customers;
(b) The sale of goods, supplies, equipment b. Those held for lease in the ordinary course of
and fuel to persons engaged in international trade or business of the seller.
shipping or international air transport
2. The following are not subject to VAT:
operations: Provided, that, the goods,
supplies, equipment, and fuel shall be used Beginning January 1, 2021, the VAT exemption
exclusively for international shipping or air shall only apply to the following sales:
transport operations.
1. Sale of real
The sale of goods, supplies, equipment properties not primarily held for sale to
and fuel to persons engaged in international customers or held for lease in the ordinary
shipping or international air transport course of trade or business,
operations is limited to goods, supplies,
2. Sale of real property
equipment and fuel that shall be used in the
utilized for socialized housing (RA 7279),
transport of goods and passenger from a
port in the Philippines directly to a foreign 3. Sale of house and
port, or vice-versa, without docking or lot, and other residential dwellings with selling
stopping at any other port in the Philippines price of not more than P3,199,200.
unless for the purpose of unloading
passengers and/or cargoes that originated Deferred Payment/Installment Sales
from abroad. Otherwise, the transaction shall of Real Property
be subject to 12% VAT. Deferred Payment Basis – not a cash sale of real
B. Sales to persons or entities whose exemption property but the initial payment in the year of sale
from direct and indirect taxes under special laws exceeds 25% of the gross selling price.
or international agreements to which the Installment Basis – sale of real property by a real
Philippines is a signatory effectively subjects estate dealer in which the initial payment does not
such sales to zero rate; exceed 25% of the gross selling price.
C. Sale of raw materials, inventories, supplies, Computation of tax base:
equipment, packaging materials, and goods, to a 1. Cash sale and Deferred Payment Sale –
registered export enterprise, to be used directly whichever is the highest among:
and exclusively in its registered project or activity a. Gross selling price
pursuant to Sections 294(E) and 295(D) of b. Fair market value (assessor’s market
CREATE Act, and Sec 5, Rule 2 of its value)
Implementing Rules and Regulations for a c. Zonal value (BIR’s market value)
maximum period of seventeen (17) years from
the date of registration, unless otherwise 2. Installment basis – multiply the collection/gross
extended under the Strategic Investment Priority selling price by the highest among
Plan (SIPP); a. Gross selling
price
Provided, That the above-described sales b. Fair market
to existing registered export enterprises located value
inside ecozones and Freeport zones shall also c. Zonal value
be qualified for VAT zero-rating under this sub-
item until the expiration of the transitory period.
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 31

VAT ON SALE OF SERVICES carriers by land relative to their transport of goods

Tax Base: Gross receipts - the total amount of or cargoes;
money or its equivalent actually or constructively 9. Common carriers by air and sea relative to their
received during the taxable quarter for the services transport of passengers, goods or cargoes from
performed or to be performed for another person one place in the Philippines to another place in the
(excluding the VAT): Philippines;
a. On the contract price, compensation, 10. Sale of electricity by generation, transmission by
service fee, rental or royalty; any entity including National Grid Corporation of
b. Amount charged for materials supplied with the Philippines (NGCP), and distribution
the services; and companies including electric cooperatives shall be
c. Deposits applied as payments for services subject to 12% VAT on their gross receipts.
rendered and advanced payments. 11. Services of franchise grantees, except –
Constructive receipt occurs when the money a. electric utilities, telephone and telegraph, radio
consideration or its equivalent is placed at the control and/or television broadcasting and all other
of the person who conducted the service without franchise grantees of radio and/or television
restrictions by the payor such as depositing the broadcasting companies whose annual gross
money in the bank which are available to the payee receipts of the preceding year do not exceed
without restriction. P10,000,000, and
b. franchise grantees of gas and water utilities.
Computation of gross receipts:
12. Non-life insurance companies, including surety,
Cash received (actually and constructively) P x x
fidelity, indemnity and bonding companies;
Advance payments xx
13. Services performed in the exercise of profession
Materials charged for services xx
or calling subject to professional tax, and
Gross receipts xx
professional services performed by registered
Sale or exchange of services means the professional partnerships; actors, actresses,
performance of all kinds of services in the Philippines talents, singers, and emcees; radio and television
for others for a fee, remuneration or consideration, broadcasters, choreographers; musical, radio,
including those performed or rendered by the movie, television and stage directors; and
following: professional athletes;
14. Other similar services, regardless of whether or not
1. Construction and service contractors the performance thereof calls for the exercise or
2. Warehousing services; use of the physical or mental faculties.
3. Lessors or distributors of cinematographic films;
4. Persons engaged in milling, processing, Zero-rated sale of services
manufacturing or repacking goods for others The following services performed in the Philippines
except: shall be subject to 0%.
a.Palay into rice 1. Services other than processing, manufacturing or
b.Corn into corngrits repacking goods rendered to a
c. Sugar cane into muscovado and raw cane
(a) person engaged in business conducted
sugar
outside the Philippines or to a non-resident
5. Proprietors, operators or keepers of hotels, person not engaged in business who is outside
motels, resthouses, pension houses, inns, resorts; the Philippines when the services are
6. Dealers in securities and lending investors performed,
7. Proprietors or operators of restaurants, (b) the consideration for which is paid for in
refreshment parlors, cafes and other eating places, acceptable foreign currency and
including clubs and caterers. (c) accounted for in accordance with the rules and
8. Transportation contractors on their transport of regulations of the Bangko Sentral ng Pilipinas.
goods or cargoes, including persons who transport
2. Services rendered to persons or entities whose
goods or cargoes for hire and other domestic
exemption from direct and indirect taxes under
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 32

special laws or international agreements to which from transport of cargo from the Philippines to
the Philippines is a signatory, effectively subjects another country; and
the supply of such services to 0%.
6. Sale of power or fuel generated through
3. Sale of services, including provision of basic renewable sources of energy such as, but not
infrastructure, utilities, and maintenance, repair limited to biomass, solar, wind, hydropower,
and overhaul of equipment geothermal and steam, ocean energy, and other
emerging energy sources using technologies such
(a) to a registered export enterprise,
as fuel cells and hydrogen fuels.
(b) to be used directly and exclusively in its
registered project or activity pursuant to Provided, however, that zero-rating shall apply
Sections 294(E) and 295(D) of CREATE Act, strictly to the sale of power or fuel generated
and Sec 5, Rule 2 of its Implementing Rules through renewable sources of energy, and shall
and Regulations for a maximum period not extend to the sale of services related to the
seventeen (17) years from the date of maintenance or operation of plants generating said
registration, unless otherwise extended under power.
the Strategic Investment Priority Plan (SIPP);
VAT ON LEASE OF PROPERTIES
The registered export enterprise shall refer to 1. Transactions subject: Lease of real properties
an export enterprise that is also a Registered held primarily for lease to customers in the
Business Enterprise (RBE). ordinary course of trade or business.
Provided, That the above-described sales to 2. Lease of residential units which are VAT
existing registered export enterprises located exempt
inside ecozones and Freeport zones shall also be a. With a
qualified for VAT zero-rating under this sub-item monthly rental per unit not exceeding P15,000.
until the expiration of the transitory period.
b. Where the
4. Services rendered to persons engaged in monthly rental per unit exceeds P15,000, but
international shipping or air transport operations, the aggregate of such rentals of the lessor
including leases of property for use thereof: during the year do not exceed P3,000,000 shall
be subject to 3% percentage tax.
Provided, that these services shall be
exclusively for international shipping or air Even if the real property is not primarily held for
transport operations. sale to customers or held for lease in the ordinary
course of trade or business but is used in the trade or
Thus, the services referred to herein shall not
business of the seller, the sale thereof shall be subject
pertain to those made to common carriers by air
to VAT being a transaction incidental to the taxpayer’s
and sea relative to their transport of passenger,
main business.
goods or cargoes from one place in the Philippines
to another place in the Philippines (subject to 12% Residential units - refer to apartments and houses &
VAT). lots used for residential purposes, and buildings or
parts or units thereof used solely as dwelling places
5. Transport of passengers and cargo by domestic air
(e.g., dormitories, rooms and bed spaces) except
or sea vessels from the Philippines to a foreign
motels, motel rooms, hotels and hotel rooms, lodging
country.
houses, inns and pension houses.
Gross receipts of international air or shipping
Unit - means an apartment unit in the case of
carriers doing business in the Philippines derived
apartments, house in the case of residential houses;
from transport of passengers and cargo from the
per person in the case of dormitories, boarding
Philippines to another country shall be exempt
houses and bed spaces; and per room in case of
from VAT.
rooms for rent.
However, they are still liable to the common
carriers’ tax based on their gross receipts derived
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 33

Allocation of input taxes Rules on Withholding of Creditable VAT

1. If the taxpayer operates a VAT and a non-VAT The government or any of its political subdivisions,
business agencies/instrumentalities, GOCCs shall before
2. The Input Taxes paid for the purchases of goods making payment on account of each purchase of
and services cannot be directly attributed to either goods and/or services taxed at 12% deduct and
operation withhold a creditable withholding VAT due at the rate
3. It shall be allocated between the VAT and non- of 5% of the gross payment thereof.
VAT businesses on the basis of their respective
Spread of INPUT TAX on capital goods
sales during the taxable month.
(depreciable properties with a useful life of more than
VAT ON IMPORTATION OF GOODS/ PROPERTIES one (1) year)
Subject: Goods and properties whether the
Rules:
importation is –
a. For sale, or 1. Acquisiti
b. For use in business, or a calendar month- the input tax shall be spread
c. For personal use evenly over a period of 60 months or the life of the
asset, whichever is shorter if -
Tax Rate: 12%
a. Goods or properties with estimated useful life
Tax Base:
greater than one (1) year and which are treated
a. Ad valorem (value used by the Bureau of Customs
as depreciable assets,
in determining tariff and customs duties)
a. Used directly or indirectly in the production or
Dutiable value xx
sale of taxable goods or services;
Add: Customs duties xx
Excise tax xx c. If the capital good is sold within 5 years or prior
Other charges & legitimate expenses xx to exhaustion of input VAT thereon - the entire
Base xx unamortized input tax on the capital goods sold
can be claimed as input tax credit during the
b. Specific - valuation is based on volume or quantity month/quarter when the sale was made.
of the imported goods, the basis shall be the
landed cost. 3. Aggregate acquisition cost of the
existing or finished capital goods purchased or
Landed cost means the total of invoice cost, imported during any calendar month does not
freight, insurance, customs duties, excise tax, if exceed P1 million
any, and other charges prior to the removal of the
goods from customs custody. - total input taxes will be credited against output
tax in the month of acquisition
Time of Payment– To be paid by the importer prior to
the release of the goods from customs custody. Aggregate acquisition cost - total price, excluding
the VAT, agreed upon for one or more assets
If the imported goods by VAT-exempt are acquired and not on the payments actually made
subsequently sold, transferred or exchanged to non- during the calendar month.
exempt persons or entities - the transferee shall be
considered the importer and shall be liable for VAT The amortization of the input VAT shall only be
due on such importation. allowed until December 31, 2021 after which
taxpayers with unutilized input VAT on capital goods
Excess Input Tax over Output Tax purchased or imported shall be allowed to apply the
Excess input tax during the previous quarter shall same as scheduled until fully utilized;
be carried-over to next quarter/s
In the case of purchase of services, lease or use of
properties, the input tax shall be creditable to the
purchaser, lessee or licensee upon payment of the
compensation, rental, royalty or free.
TRANSACTIONS WHICH ARE EXEMPT FROM VAT
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 34

No Output Tax on the sale or lease and no Input Tax 1. Sale or lease of goods or properties or the
credit on purchases. performance of services of non-VAT-registered
persons, those whose annual gross sales
a. Sale or importation of agricultural and marine food and/or receipts of which do not exceed the
products in their original state, livestock and amount of P3 Million;
poultry of a kind generally used as, or yielding or
producing, foods for human consumption; and 2. Services rendered by franchise grantees of
breeding stock and genetic materials; radio and/or television broadcasting whose
annual gross receipts of the preceding year do
Products considered in their original state: not exceed P10,000,000, and by franchise
1. products which undergone simple processes of grantees of gas and water utilities;
preparation or preservation for the market 3. Services of proprietors, lessees or operators of
(freezing, drying, salting, broiling, roasting, cockpits, cabarets, night or day clubs, boxing
smoking or stripping) exhibitions, professional basketball games, jai-
2. polished or husked rice alai and race tracks;
3. corn grits
4. raw cane sugar and molasses 4. Services rendered by any person, company or
5. ordinary salt corporation (except purely cooperative
6. copra companies or association) doing life insurance
business of any sort in the Philippines;
b. Sale or importation of fertilizers, seeds, seedlings
and fingerlings, fish, prawn, livestock and poultry 5. Services rendered by fire, marine or
feeds, including ingredients, whether locally miscellaneous insurance agents of foreign
produced or imported, used in the manufacture of insurance companies;
finished feeds (except specialty feeds for race
6. Services rendered by domestic common
horses, fighting cocks, aquarium fish, zoo animals
carriers by land, for the transport of passengers,
and other animals generally considered as pets);
and keepers of garages;
c. Importation of -
7. Services rendered by international air or
1. professional instruments and implements,
shipping carriers for the transport of goods or
2. tools of trade, occupation or employment,
cargo originating in the Philippines and going
3. wearing apparel,
abroad; and
4. domestic animals, and
5. personal and household effects 8. Services rendered for overseas dispatch,
message or conversation originating from the
belonging to persons coming to settle in the
Philippines.
Philippines or Filipinos or their families and
descendants who are now residents or citizens e. Services by agricultural contract growers and
of other countries, such parties hereinafter milling for others of (1) palay into rice, (2) corn into
referred to as overseas Filipinos, in quantities grits, and (3) sugar cane into muscovado and raw
and of the class suitable to the profession, rank cane sugar;
or position of the persons importing said items,
f. Medical, dental, hospital and veterinary services,
for their own use and not for barter or sale,
except those rendered by professionals;
accompanying such persons, or arriving within
a reasonable time: g. Educational services rendered by private
educational institutions duly accredited by the (1)
Provided, that vehicles, vessels, aircrafts,
DepED, (2) CHED, (3) TESDA and those rendered
machineries and other similar goods for use in
by (4) government educational institutions;
manufacture shall be subject to duties, taxes and
other charges. h. Services rendered by individuals pursuant to an
employer-employee relationship;
d. Services subject to other percentage tax as
follows: i. Services rendered by regional or area
headquarters established in the Philippines by
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 35

multinational corporations which act as underprivileged and homeless citizens which

supervisory, communications and coordinating shall include sites and services development,
centers for their affiliates, subsidiaries or branches long-term financing, liberated terms on interest
in the Asia Pacific Region and do not earn or payments, and such other benefits in
derive income from the Philippines; accordance with the provision of RA 7279,
otherwise known as the “Urban Development
j. Transactions which are exempt under
and Housing Act of 1992” and RA 7835 and
international agreements to which the Philippines
RA 8763.
is a signatory or under special laws except those
granted under Petroleum Exploration "Socialized housing" shall also refer to projects
Concessionaires under the Petroleum Act of 1949; intended for the underprivileged and homeless
wherein the housing package selling price is
k. Sales by agricultural cooperatives duly registered
within the lowest interest rates under the
and in good standing with the CDA to their
Unified Home Lending Program (UHLP) or any
members, as well as sale of their produce, whether
equivalent housing program of the
in its original state or processed form, to non-
Government, the private sector or non-
members; their importation of direct farm inputs,
government organizations.
machineries and equipment, including spare parts
thereof, to be used directly and exclusively in the (3) Sale of house and lot and other residential
production and/or processing of their produce; dwellings valued at an amount not exceeding
P3,199,200. Sale of residential lot only is
l. Gross receipts from lending activities by credit or
subject to 12% VAT.
multi-purpose cooperatives duly registered and in
good standing with the CDA; If two or more adjacent residential dwellings
are sold or disposed in favor of one buyer, for
m. Sales by non-agricultural, non-electric and non-
the purpose of utilizing the lots as one
credit cooperatives duly registered with and in
residential dwelling, the sale shall be exempt
good standing with the CDA; provided, that the
from VAT only if the aggregate value of the
share capital contribution of each member does
lots do not exceed the threshold of
not exceed P15,000 and regardless of the
P3,199,200. Adjacent residential lots, although
aggregate capital and net surplus ratably
covered by separate titles and/or separate tax
distributed among the members;
declarations, when sold or disposed to one
n. Export sales by persons who are not VAT- and the same buyer, whether covered by one
registered; or separate Deed of Conveyance, shall be
presumed as a sale of one residential lot.
o. Sales of real properties, as follows:
(1) Sale of real properties not primarily held for Provided, That every three (3) years
sale to customers or held for lease in the thereafter, the amounts stated herein shall be
ordinary course of trade or business; adjusted to its present value using the
Consumer Price Index, as published by the
However, even if the real property is not Philippine Statistics Authority (PSA).
primarily held for sale to customers or held for
lease in the ordinary course of trade or p. Lease of residential units with a monthly rental
business but the same is used in the trade or per unit not exceeding P15,000, regardless of the
business of the seller, the sale thereof shall be amount of aggregate rentals received by the lessor
subject to VAT being a transaction incidental during the year;
to the taxpayer’s main business.
Lease of residential units where the monthly rental
(2) Sale of real properties utilized for socialized per unit exceeds P15,000 but the aggregate of
housing. such rentals of the lessor during the year do not
exceed P3,000,000 shall be subject to 3%
"Socialized housing" refers to housing percentage tax.
programs and projects covering houses and
lots or home lots only undertaken by the q. Transport of passengers by international carriers;
Government or the private sector for the
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 36

r. Sale, importation, printing or publication of books homeowners associations and condominium

and any newspaper, magazine, journal, or any corporations;
educational reading material covered by the United
z. Sale of gold to the Bangko Sentral ng Pilipinas;
Nations Educational, Scientific and Cultural
Organization (UNESCO) agreement on the aa. Sale of drugs and medicines prescribed for
importation of education, scientific and cultural diabetes, high cholesterol, and hypertension and
materials, including the digital or electronic format sale or importation of prescription drugs and
thereof. medicines for cancer, mental illness, tuberculosis,
and kidney diseases;
s. Sale, importation or lease of passenger or cargo
vessels and aircraft, including engine, equipment bb. Sale or importation of the following goods from
and spare parts thereof for domestic or January 1, 2021 to December 31, 2023:
international transport operations. Provided, the 1. Capital equipment, its spare parts and raw
exemption from VAT on importation and local materials, necessary to produce personal
purchase of passenger and/or cargo vessels shall protective equipment component;
be subject to the requirements on restriction on 2. All drugs, vaccines and medical devices
vessel importation and mandatory vessel specifically prescribed and directly used for the
retirement program of MARINA; treatment of Covid-19;
t. Importation of fuel, goods and supplies by 3. Drugs, including raw materials, for the
persons engaged in international shipping or air treatment of Covid-19 approved by the Foods
transport operations; Provided, that such fuel, and Drugs Authority for use in clinical trials.
goods and supplies shall be used exclusively or
shall pertain to the transport of goods and/or cc. Sale or lease of goods or properties or the
passengers from a port in the Philippines unless performance of services other than the
the docking or stopping at any other Phil port is for transactions mentioned in the preceding
the purpose of unloading passengers and/or paragraphs, the gross annual sales and/or receipts
cargoes that originated from abroad, or to load do not exceed the amount of P3,000,000.
passengers and/or cargoes bound for abroad; Any FILING OF RETURN & PAYMENT OF TAX
portion of such fuel, goods or supplies is used for 1. Time for filing and payment (manual filing)
purposes other than that mentioned in this a. Quarterly Return- Within 25 days
paragraph shall be subject to 12% VAT; following the close of each taxable quarter.
u. Services of banks, non-bank financial b. Withholding VAT Return– on or before
intermediaries performing quasi-banking functions, the 10th day following the end of the month
and other non-bank financial intermediaries subject
to percentage tax, such as money changers and 2. Place of filing and payment – Any
pawnshops; and authorized bank where the Revenue District Office
is located.
v. Business pursued by an individual where the
aggregate gross sales and/or receipts do not 3. Modes of Payment
exceed P100,000 during any 12-month period a. Over-the-counter cash payment transactions -
(shall be considered principally for subsistence or payment of tax liabilities to authorized agent
livelihood and not in the course of trade or banks (AAB) in the currencies that are legal
business); tender in the Philippines (not exceeding
P10,000)
w. Sale or lease of goods and services to senior
citizens and persons with disabilities b. Bank debit system – a taxpayer, thru a bank
debit memo/advice authorizes withdrawal from
x. Transfer of Property pursuant to Section 40(C)(2) his/its existing bank accounts for payment of tax
of the Tax Code, as amended; liabilities.
y. Association dues, membership fees, and other Conditions:
assessments and charges collected by
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 37

1. This mode is allowed only if the taxpayer has b. Top 20,000 private corporations identified and
a bank account with the bank where he/it notified by the CIR
intends to file and pay his/its tax return/form/ c. Top 5,000 individual taxpayers duly notified by
declaration; the BIR
d. Taxpayers who wish to enter into contract with
2. Said AAB branch is within the jurisdiction of
government offices
the BIR Revenue District Office (RDO)/Large
e. Corporations with paid-up capital of P10 million
Taxpayers District Office (LTDO) where the
and above;
tax payment is due and payable.
f. PEZA registered entities and those located
3. This mode is not acceptable as payment for within special economic zones; and
withholding taxes including fringe benefit tax g. Government offices in so far as remittance of
and for taxes, fees and charges collected withheld VAT and business tax is concerned.
under special schemes / procedures /
REGISTRATION OF VAT TAXPAYERS
programs of the government / BIR
Any person or entity who, in the course of his trade or
c. Credit facility with a bank, credit company or business, sells, barters, exchanges, leases goods or
similar institution; or properties and renders services subject to VAT shall
register with the appropriate Revenue District Office
d. Personal or company check, cashier’s or
(RDO).
manager’s check
Annual Registration Fee: P500 for every separate and
The following checks are not acceptable for
distinct establishment or place of business before the
payment:
start of such business and every year thereafter on or
1. Accommodation checks – issued or drawn by a
before January 31 (BIR Form 0605).
party other than the one making the payment.
2. Second endorsed checks – issued to the MANDATORY VAT REGISTRATION
taxpayer as payee who indorses the same as Any person who enters into transactions that are or
payment for taxes. maybe subject to VAT, if:
3. Stale checks – dated more than 6 months prior
a. The aggregate amount of actual gross sales or
to presentation to the AAB.
receipts (other than those that are exempt)
4. Post-dated checks – dated a day or several
exceed P3 Million for the past 12 months, or
days after the date of presentation to the AAB.
5. Unsigned checks – no signature of the drawer b. There are reasons to believe that the gross sales
6. Checks with alterations/erasures or receipts for the next 12 months will exceed P3
million.
ELECTRONIC FILING & PAYMENT SYSTEM
1. Definitions c. Radio and/or television broadcasting companies
a. EFPS - refers to the system developed and whose annual gross receipts of the preceding year
maintained by the BIR for electronically filing tax exceeds P10,000,000.
returns, including attachments, if any, and paying
taxes due thereon, specifically thru the internet. Every person who becomes liable to be registered as
VAT taxpayer but failed to register –
b. e-Filing – the process of electronically filing
a. shall be required to pay the output tax
returns including attachments, if any, specifically
as if he were a VAT registered person,
thru the internet.
b. but without the benefit of input tax
c. e-Payment– the process of electronically paying credits for the period in which he was not properly
a tax liability thru the internet banking facilities of registered.
AAB.
OPTIONAL VAT REGISTRATION
2. Coverage – open to all taxpayers who want to 1. Any person who is –
make use of the system; however, the following a. VAT-exempt
are mandated to make use of the system: or
b. not required
a. Large taxpayers duly notified by the BIR to register for VAT
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 38

May elect to be VAT-registered by registering with A VAT-registered person may cancel his registration
the RDO that has jurisdiction over the head office for VAT if:
of that person, and pay the annual registration fee 1. He makes a written application and can
of P500 for every separate and distinct demonstrate to the satisfaction of the CIR that his
establishment. gross sales or receipts for the following 12 months,
other than those that are exempt, will not exceed
2. Any person who elects to be registered shall not
P3 million; or
be allowed to cancel his registration for the next
three (3) years. 2. He has ceased to carry on his trade or
business, and does not expect to recommence any
3. Any person who is VAT-registered but enters into
trade or business within the next 12 months.
transactions which are exempt from VAT (mixed
transactions) may opt that the VAT apply to his The cancellation for registration will be effective
transactions which would have been exempt under from the first day of the following month the
Section 109(1) of the Tax Code, as amended [Sec. cancellation was approved.
109(2)].
INVOICING REQUIREMENTS
4. Franchise grantees of radio and/or television A VAT registered person shall issue:
broadcasting - 1. A VAT invoice for every sale, barter or exchange of
a. whose annual gross receipts of the preceding goods or properties; and
year do not exceed P10,000,000 derived from 2. A VAT official receipt for every lease of goods or
the business covered by the law granting the properties and for every sale, barter or exchange
franchise are subject to franchise tax and not of services.
VAT.
c. However, they may opt to be VAT registered Rules:
c. Once this option is exercised, it shall be 1. Only VAT-registered persons are required to print
irrevocable (subject to VAT forever). their TIN followed by the word “VAT” in their
invoice or official receipts. Said documents shall be
5. The above-stated taxpayers may apply for VAT considered as a “VAT Invoice” or “VAT Official
registration not later than 10 days before the Receipt.
beginning of the calendar quarter and shall pay the
registration fee unless they have already paid at 2. All purchases covered by invoices/ receipts other
the beginning of the year. than VAT Invoice/VAT Official Receipt shall not
give rise to any input tax.
In any case, the Commissioner of Internal
Revenue may, for administrative reason deny any 3. VAT invoice/official receipt shall be prepared at
application for registration. least in duplicate, the original to be given to the
buyer and the duplicate to be retained by the seller
Once registered as a VAT person, the taxpayer as part of his accounting records.
shall be liable to output tax and be entitled to input
tax credit beginning on the first day of the month ISSUANCE OF INVOICES
following registration. 1. Single invoice/receipt
involving VAT and non-VAT transactions.
APPLICATION FOR REGISTRATION
The application shall be filed with the RDO where the A VAT registered taxpayer may issue a single
principal place of business, branch, storage place or invoice/receipt involving VAT and non-VAT
premises is located, as the case may be, before transactions provided that:
commencement of business or production or The invoice or receipt shall clearly indicate the
qualification as a withholding agent. break-down of the sales price between its taxable,
In the case of storage places, the application shall be exempt and zero-rated components and the
filed within 30 days from the date the aforesaid calculation of the Value-Added Tax on each
premises have been used for storage. portion of the sale shall be shown on the invoice or
receipt.
CANCELLATION OF VAT REGISTRATION
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 39

2. Separate invoices/receipts involving VAT and Non-

VAT transactions 1. TAX ON PERSONS EXEMPT FROM VAT (NON-VAT
under Sec 116)
A VAT registered person may issue separate TRANSACTIONS SUBJECT: Sale, lease of goods or
invoices/receipts for the taxable, exempt, and zero- properties, or performance of services.
rated component of its sales provided that:
RATE and BASE: 3% of gross selling price or gross
a. If the sales is receipts. Effective July 1, 2020 until June 30, 2023,
exempt from VAT, the term "VAT-EXEMPT the rate shall be 1%.
SALE" shall be written or printed prominently on
the invoice or receipt, and Requisites:
b. If the sale is subject to zero percent (0%) VAT, 1. The gross annual sales/receipts do not
the term "ZERO-RATED SALE" shall be written exceed P3 million); AND
or printed prominently on the invoice or receipt. 2. Must not be a VAT registered taxpayer.
EXEMPTION FROM 3% NON-VAT:
ISSUING AN ERRONEOUS VAT INVOICE OR VAT
OFFICIAL RECEIPT 1. Self-employed individuals and professionals
1. If a non-VAT registered person issues an invoice or whose annual gross sales/receipts and other
receipt showing his TIN followed by the word VAT, non-operating income do not exceed P3 million
the non-VAT person shall be liable to: and who opted for the 8% income tax.
2. Cooperatives
a. The percentage taxes applicable to his
transactions; 2. COMMON CARRIERS’ TAX: Domestic Carriers
b. The VAT due on the transactions without the What are subject?
benefit of any tax credit; and 1. Cars for rent or hire driven by the lessee;
c. A 50% surcharge. 2. Transportation contractors on land, including
persons who transport passengers for hire;
2. If a VAT registered person issues a VAT invoice or 3. Other domestic carriers by land for transport of
official receipt for a VAT-exempt transaction but passengers, except owners of bancas and
fails to display prominently on the invoice or receipt owners of animal-drawn two-wheeled vehicles;
the term “VAT EXEMPT SALE”, the issuer shall be and
liable to VAT. 4. Keepers of garages.
In both cases, the VAT shall, if other requisite RATE AND BASE: 3% of gross receipts
information required is shown on the invoice or
receipt, be recognized as an input tax credit to the Business tax on Transport Network Vehicle Service
purchaser. (TNVS)
Status TNVS/Partner
CONTENTS OF VAT INVOICE/OFFICIAL RECEIPT
A VAT-registered person must issue a VAT invoice for With CPC (franchise) 3% Franchise Tax
every taxable transaction. The invoice/official receipt Without CPC 3% non-VAT/12% VAT
must show:
1. The name, TIN and address of seller 3. COMMON CARRIERS TAX ON INTERNATIONAL
2. Contact address CARRIERS
3. Date of transaction Who are subject? International air carriers and
4. Name of payor international shipping carriers doing business in the
5. Address of payor Philippines.
6. Business style of payor Rule on international carriers:
7. Nature and amount of payment
8. The amount of VAT, gross and net of tax Business Tax Passengers Cargoes
VAT Exempt Exempt
Taxable on
3% Carriers Tax Exempt
outgoing
OTHER PERCENTAGE TAXES
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 40

Rate and Base: 3% of gross receipts Tax Rates:

a. On interest, commissions and discounts from
Gross receipts shall include, but shall not be
lending activities as well as income from
limited to, the total amount of money or its
financial leasing, on the basis of remaining
equivalent representing the contract, freight/cargo
maturities of instruments from which such
fees, mail fees, deposits applied as payments,
receipts are derived:
advance payments and other service charges and
fees actually or constructively received during the Maturity period:
taxable quarter from cargo and/or mail, originating Five (5) years or less 5%
from the Philippines in a continuous and More than 5 years 1%
uninterrupted flight, irrespective of the place of
b. On dividends and equity shares and
sale or issue and the place of payment of the
net income of subsidiaries 0%
passage documents.
c. On royalties, rentals of property, real or
4. FRANCHISE TAX
personal, profit from exchange and all
Who are subject? Franchise holders of:
other items treated as gross income 7%
1. Radio/television broadcasting companies
under Sec 32 of the Code
whose annual gross receipts of the preceding
d. On net trading gains within the taxable
year do not exceed P10 million - 3%
year on foreign currency, debt
2. Gas and water utilities - 2% securities, derivatives and other similar
financial instruments 7%
All other franchise holders shall pay the VAT. The
radio and television broadcasting companies shall In case the maturity period is shortened thru
have an option to be registered as a value-added pretermination, then the maturity period shall be
taxpayer and pay the tax due thereon. reckoned to end as of the date of pretermination for
purposes of classifying the transaction and the
Once this option is exercised, it becomes
correct rate of tax shall be applied accordingly.
irrevocable.
5. TAX ON AGENTS OF FOREIGN 7. TAX ON OTHER NON-BANK FINANCIAL INTER-
INSURANCE COMPANY MEDIARIES INCLUDING FINANCE COMPANIES,
Tax Rate and Tax Base: MONEY CHANGERS AND PAWNSHOPS
1. 4% of the total premium collected shall Tax Base: Gross receipts
be imposed upon every fire, marine or Tax Rates:
miscellaneous insurance agent authorized a. On interests, commissions and discounts from
under the Insurance Code to procure policies lending activities as well as income from
or insurance as he may have previously been financial leasing on the basis of remaining
legally authorized to transact on risks located maturities of the instruments from which such
in the Philippines for companies not authorized receipts are derived:
to transact business in the Philippines.
Maturity period:
2. 5% on premiums paid shall also be Five (5) years or less 5%
imposed on owners of property who obtain More than 5 years 1%
insurance directly with foreign insurance
companies. b. From all other items treated as gross
income under Sec. 32 of the tax code 5%
This tax shall not apply to reinsurance
premiums. 8. TAX ON OVERSEAS DISPATCH, MESSAGE OR
CONVERSATION ORIGINATING FROM THE PHIL
6. TAX ON BANKS AND NON-BANK FINANCIAL
(OVERSEAS COMMUNICATIONS TAX)
INTERMEDIARIES PER-FORMING QUASI-
BANKING FUNCTIONS RATE AND BASE: 10% of the amount paid upon
Tax Base: Gross Receipts derived from sources every overseas dispatched, message or
within the Philippines conversation transmitted from the Philippines
(outgoing) by telephone, telegraph, telewriter
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 41

exchange, wireless and other communications Tax Rate: 6/10 of 1%

equipment services.
Filing and payment – Within 5 banking days from
Exemptions– This tax shall not apply to: the date of collection.
1. Government
2. Diplomatic services FILING AND PAYMENT - The operator, manager or
3. International organizations person in charge of horse races shall file and pay
4. News services within 20 days from the date the tax was deducted
and withheld (BIR Form 1600-WP).
Time for filing – The person rendering services shall
collect and pay the tax within 20 days after the end
FILING OF RETURN (BIR FORM NO. 2551Q) AND
of each quarter. PAYMENT OF PERCENTAGE TAXES
9. AMUSEMENT TAX 1. TIME FOR FILING AND PAYMENT
The following amusement places shall be subject to the
Large and non-large taxpayers-within 25 days after
corresponding tax rates based on gross receipts:
the end of every quarter on the following:
10% Place for boxing exhibitions
15% Place for professional basketball games a. VAT-exempt taxpayers with annual gross
18% Cockpits, cabarets, night or day clubs sales/receipts not exceeding P3M;
30% Jai-Alai and race tracks b. Domestic carriers and keepers of garages;
Boxing exhibitions where World or Oriental c. International air/shipping carriers;
Championships in any division is at stake shall be
exempt from amusement tax, if - d. Franchisees of gas or water utilities;

1. one of the contenders is a citizen of the e. Franchisees of radio and/or TV broadcasting

Philippines; and with revenues not exceeding P10M;
2. said exhibitions are promoted by f. Franchise grantees sending overseas
a) citizens of the Philippines, or dispatch, messages or conversations from the
b) by a corporation or association at least 60% Philippines
of the capital of which is owned by such g. Proprietors, lessees or operators of cockpits,
citizens. cabarets, night or day clubs, boxing exhibitions,
professional basketball games, jai-alai and
10. TAX ON WINNINGS
racetracks.
Persons subject: Any person who –
1. Wins in horse races. h. Banks, non-bank financial intermediaries and
2. Owns a winning race horse, based on the finance companies.
prize.
i. Life insurance companies; and
Tax Rate and Tax Base:
j. Agent of foreign insurance companies.
a. Winner in horse races . . . . 10%
But if from: Double, forecast, quinella and 2. PLACE OF FILING- At his option, the taxpayer may
trifecta bets - 4% file:
BASE: Actual amount of winnings or divi-dends a. a separate return for each branch or place
on every ticket after deducting the cost of business, or
of ticket. b. a consolidated return for all branches or
places of business.
b. Owner of winning horse -10% of the prize
3. SHORT PERIOD RETURN – Person who retires
11. STOCK TRANSACTION TAX from business or whose registration has been
On the sale, barter, exchange or other disposition cancelled shall file quarterly return and pay the tax
of shares listed and traded thru a local stock due thereon within 25 days from cessation or
exchange, other than by a dealer in securities. business operations or from the date of
cancellation of registration, as the case maybe.
Tax Base: Gross selling price/gross value in money