CTT EXAMINATION REVIEWER (NOTES) PAGE A - 30

VALUE-ADDED TAX However, the aggregation rule for each taxpayer

shall apply. For instance, if a professional, aside
Who are liable to VAT? from the practice of his profession, also derives
Any individual, trust, estate, partnership, revenue from other lines of business which are
corporation, joint venture, cooperative or otherwise subject to VAT, the same shall be
association who in the course of his trade or combined for purposes of determining whether the
business: threshold has been exceeded.

1. Sells, barters, exchanges goods or properties The VAT-exempt sale shall not be included in
2. Sells or renders services determining the threshold.
3. Leases properties Sources/Kinds of Input Tax (creditable from the
4. Imports goods Output Tax)
To be subject to VAT 1. Input tax on local purchases of goods or
1. The annual gross selling price (sale of goods/ properties other than capital goods
properties) or gross receipts (sale of services 2. Input tax on importation of goods or properties
and lease of properties) must exceed P 3 million. other than capital goods
3. Input tax on local purchases or importation of
2. If the taxpayer is VAT-registered, he is subject to capital goods
VAT, regardless of the amount of GSP/GR. 4. Input tax on local purchases of services or rent
of properties
In the course of his trade or business means the
5. Creditable withholding VAT
regular conduct or pursuit of a commercial or an
6. Transitional input tax
economic activity, including transactions incidental
7. Presumptive input tax
thereto, by any person regardless of whether or not
the person engaged therein is a non-stock, non- VAT ON SALE OF GOODS OR PROPERTIES
profit private organization (irrespective of the
disposition of its net income and whether or not it Rate and Base: 12% of Gross Selling Price
sells exclusively to members or their guests), or Gross selling price - the total amount of money or
government entity. its equivalent which the purchaser pays or is
EXCEPTIONS (these are subject to VAT even if obligated to pay to the seller in consideration of the
there is no business) sale, barter or exchange of the goods or properties,
excluding VAT but including excise tax, if any.
1. Importation of goods for personal use; and
2. Services rendered in the In computing the taxable base during the month or
Philippines by non-resident foreign persons, quarter, the following shall be allowed as
even if isolated (considered as being rendered in deductions:
the course of trade or business).
Deductions from GSP
The recipient of the service shall withhold and remit 1. Sales discounts determined and granted at the
the VAT to the BIR. Such VAT can be claimed by time of sale, expressly indicated in the invoice
the recipient as input tax. the amount thereof forming part of the gross
sales duly recorded in the books of accounts, the
Nature and characteristics of VAT granting of which does not depend upon the
1. VAT is a tax on consumption levied on the sale, happening of a future event.
barter, exchange or lease of goods or properties
and services in the Philippines. 2. Sales returns and allowances for which a proper
credit or refund was made during the month or
2. The Seller is the one statutorily liable for the quarter to the buyer for sales previously
payment of the tax but the amount of the tax recorded as taxable sales.
may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or Formula:
services.
Gross Sales Pxx
3. The tax is a business tax imposed on the Less: Sales discount Pxx
privilege of selling or importing goods or Sales returns & allowances xx xx
rendering services for a fee, remuneration or Net Sales xx
consideration (excise tax). Add: Excise tax (if any) xx
Gross selling price xx
FORMULA IN COMPUTING VAT PAYABLE
OUTPUT TAX Px x Transactions Deemed Sale (Purpose: To
Less: INPUT TAX x x recapture the VAT that was already claimed as
VAT PAYABLE x x Input Tax)
1. Transfer use or consumption not in the course
Gross sales/receipts by husband and wife
of business of goods or properties originally
For purposes of the threshold of P3 million, the
intended for sale or for use in the course of
husband and the wife shall be considered separate
business. Transfer of goods or properties not in
taxpayers.
the course of trade or business can take place
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 31

when VAT registered person withdraws goods a. 0%- subject to VAT only that the rate is 0%.
from his business for his personal use. E - not subject to VAT
2. Distribution or transfer to – b. 0%- no output tax but the taxpayer is entitled
a. Shareholders or investors as share in the to tax credit or refund of input taxes.
profits of the VAT registered person. E - no tax credit or refund for input taxes are
allowed.
Property dividends which constitute stocks in
trade or properties primarily held for sale or 2. Sales by VAT registered persons subject to 0%:
lease declared out of retained earnings and
distributed by the company to its A. Export sales which shall mean -
shareholders shall be subject to VAT based (a) The sale or actual shipment of goods
on the zonal value or FMV at the time of from Philippines to foreign country,
distribution, whichever is applicable. irrespective of any shipping arrangement
b. Creditors in payment of debt or obligation. that may be agreed upon which may
influence or determine the transfer of
3. Consignment of goods if actual sale is not ownership of the goods so exported, paid
made within 60 days following the date such for in acceptable foreign currency or its
goods were consigned. Those returned within equivalent in goods or services, and
the 60-day period are not deemed sold. accounted for in accordance with the
4. Retirement from or cessation of business rules and regulations of the Bangko
with respect to all goods on hand, whether Sentral ng Pilipinas;
capital goods, stock in trade, supplies or (b) The sale of goods, supplies, equipment
materials as of the date of such retirement or and fuel to persons engaged in
cessation, whether or not the business is international shipping or international air
continued by the new owner or successor, to wit: transport operations: Provided, that, the
a. Change of ownership of business. There is goods, supplies, equipment, and fuel
change of ownership of the business when a shall be used exclusively for international
single proprietorship incorporates; or the shipping or air transport operations.
proprietor of a single proprietorship sells his The sale of goods, supplies,
entire business. equipment and fuel to persons engaged in
b. Dissolution of a partnership and creation of a international shipping or international air
new one which takes over the business. transport operations is limited to goods,
supplies, equipment and fuel that shall be
In cases (1) (2) and (3), the output tax shall be used in the transport of goods and
based on the market value of the goods deemed passenger from a port in the Philippines
sold at the time of occurrence of the transaction. directly to a foreign port, or vice-versa,
In case (4) the tax base shall be whichever is without docking or stopping at any other
lower between: port in the Philippines unless for the
purpose of unloading passengers and/or
Acquisition Cost vs Current Market Price cargoes that originated from abroad.
of the goods or properties Otherwise, the transaction shall be subject
to 12% VAT.
TRANSITIONAL INPUT TAX (on a person who
becomes liable to VAT or those who elect to be B. Sales to persons or entities whose exemption
VAT registered) as of the effectivity of their VAT from direct and indirect taxes under special
registration. laws or international agreements to which the
Philippines is a signatory effectively subjects
Whichever is higher between:
such sales to zero rate;
 2% of the value of the beginning inventory on
C. Sale of raw materials, inventories, supplies,
hand of goods, materials and supplies, or
equipment, packaging materials, and goods, to
 Actual VAT paid on such materials, goods and
a registered export enterprise, to be used
supplies
directly and exclusively in its registered project
or activity pursuant to Sections 294(E) and
PRESUMPTIVE INPUT TAX on sale of goods or
properties
295(D) of CREATE Act, and Sec 5, Rule 2 of
VAT registered persons or firms engaged in the – its Implementing Rules and Regulations for a
maximum period of seventeen (17) years from
1. Processing of sardines, mackerel, and milk, and the date of registration, unless otherwise
2. In manufacturing refined and raw sugar, cooking extended under the Strategic Investment
oil and packed noodle-based instant meals Priority Plan (SIPP);
 4% of the gross value in money of their Provided, That the above-described
purchases of primary agricultural products which sales to existing registered export enterprises
are used as inputs to their production located inside ecozones and Freeport zones
shall also be qualified for VAT zero-rating
Zero-rated sales of goods
1. Zero-rated transactions vs. Exempt transactions
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 32

under this sub-item until the expiration of the c. Deposits applied as payments for
transitory period. services rendered and advanced payments.
The registered export enterprise shall refer Constructive receipt occurs when the money
to an export enterprise that is also a Registered consideration or its equivalent is placed at the
Business Enterprise (RBE). control of the person who conducted the service
without restrictions by the payor such as depositing
VAT ON SALE OF REAL PROPERTY the money in the bank which are available to the
1. The following sales of real property are subject to payee without restriction.
VAT:
Computation of gross receipts:
a. Those held primarily for sale to customers;
b. Those held for lease in the ordinary course of Cash received (actually and constructively) P x x
trade or business of the seller. Advance payments xx
Materials charged for services xx
2. The following are not subject to VAT: Gross receipts xx
Beginning January 1, 2021, the VAT exemption Sale or exchange of services means the
shall only apply to the following sales: performance of all kinds of services in the
1. Sale of real Philippines for others for a fee, remuneration or
properties not primarily held for sale to consideration, including those performed or
customers or held for lease in the ordinary rendered by the following:
course of trade or business, 1. Construction and service contractors
2. Sale of real 2. Warehousing services;
property utilized for socialized housing (RA
7279), 3. Lessors or distributors of cinematographic films;

3. Sale of house and 4. Persons engaged in milling, processing,

lot, and other residential dwellings with selling manufacturing or repacking goods for others
price of not more than P3,199,200. except:

Deferred Payment/Installment Sales a.Palay into rice

of Real Property b.Corn into corngrits
c. Sugar cane into muscovado and raw
Deferred Payment Basis – not a cash sale of real cane sugar
property but the initial payment in the year of sale
exceeds 25% of the gross selling price. 5. Proprietors, operators or keepers of hotels,
motels, resthouses, pension houses, inns,
Installment Basis – sale of real property by a real resorts;
estate dealer in which the initial payment does not
exceed 25% of the gross selling price. 6. Dealers in securities and lending investors

Computation of tax base: 7. Proprietors or operators of restaurants,

1. Cash sale and Deferred Payment Sale –
refreshment parlors, cafes and other eating
whichever is the highest among: places, including clubs and caterers.
a. Gross selling price 8. Transportation contractors on their transport of
b. Fair market value (assessor’s goods or cargoes, including persons who
market value) transport goods or cargoes for hire and other
c. Zonal value (BIR) domestic carriers by land relative to their
2. Installment basis – multiply the collection/gross
transport of goods or cargoes;
selling price by the highest among 9. Common carriers by air and sea relative to their
a. Gross transport of passengers, goods or cargoes from
selling price one place in the Philippines to another place in
b. Fair the Philippines;
market value
c. Zonal 10. Sale of electricity by generation, transmission
value by any entity including National Grid Corporation
of the Philippines (NGCP), and distribution
VAT ON SALE OF SERVICES companies including electric cooperatives shall
Tax Base: Gross receipts - the total amount of be subject to 12% VAT on their gross receipts.
money or its equivalent actually or constructively
received during the taxable quarter for the services 11. Services of franchise grantees, except –
performed or to be performed for another person a. electric utilities, telephone and telegraph,
(excluding the VAT): radio and/or television broadcasting and all
a. On the contract price, compensation, other franchise grantees of radio and/or
service fee, rental or royalty; television broadcasting companies whose
b. Amount charged for materials supplied annual gross receipts of the preceding year
with the services; and do not exceed P10,000,000, and
b. franchise grantees of gas and water utilities.
 CTT EXAMINATION REVIEWER (NOTES) PAGE A - 33

12. Non-life insurance companies, including surety, Provided, that these services shall be
fidelity, indemnity and bonding companies; exclusively for international shipping or air
transport operations.
13. Services performed in the exercise of
profession or calling subject to professional tax, Thus, the services referred to herein shall
and professional services performed by not pertain to those made to common carriers by
registered professional partnerships; actors, air and sea relative to their transport of
actresses, talents, singers, and emcees; radio passenger, goods or cargoes from one place in
and television broadcasters, choreographers; the Philippines to another place in the
musical, radio, movie, television and stage Philippines (subject to 12% VAT).
directors; and professional athletes;
5. Transport of passengers and cargo by domestic
14. Other similar services, regardless of whether or air or sea vessels from the Philippines to a
not the performance thereof calls for the foreign country.
exercise or use of the physical or mental
Gross receipts of international air or
faculties.
shipping carriers doing business in the
Zero-rated sale of services Philippines derived from transport of passengers
The following services performed in the Philippines and cargo from the Philippines to another
shall be subject to 0%. country shall be exempt from VAT.
1. Services other than processing, manufacturing However, they are still liable to the common
or repacking goods rendered to a carriers’ tax based on their gross receipts
derived from transport of cargo from the
(a) person engaged in business conducted
Philippines to another country; and
outside the Philippines or to a non-resident
person not engaged in business who is 6. Sale of power or fuel generated through
outside the Philippines when the services renewable sources of energy such as, but not
are performed, limited to biomass, solar, wind, hydropower,
(b) the consideration for which is paid for in geothermal and steam, ocean energy, and other
acceptable foreign currency and emerging energy sources using technologies
(c) accounted for in accordance with the rules such as fuel cells and hydrogen fuels.
and regulations of the Bangko Sentral ng
Provided, however, that zero-rating shall apply
Pilipinas.
strictly to the sale of power or fuel generated
2. Services rendered to persons or entities whose through renewable sources of energy, and shall
exemption from direct and indirect taxes under not extend to the sale of services related to the
special laws or international agreements to maintenance or operation of plants generating
which the Philippines is a signatory, effectively said power.
subjects the supply of such services to 0%.
VAT ON LEASE OF PROPERTIES
3. Sale of services, including provision of basic 1. Transactions subject: Lease of real properties
infrastructure, utilities, and maintenance, repair held primarily for lease to customers in the
and overhaul of equipment ordinary course of trade or business.
(a) to a registered export enterprise, 2. Lease of residential units which are VAT
(b) to be used directly and exclusively in its exempt
registered project or activity pursuant to a. With a
Sections 294(E) and 295(D) of CREATE Act, monthly rental per unit not exceeding
and Sec 5, Rule 2 of its Implementing Rules P15,000.
and Regulations for a maximum period
seventeen (17) years from the date of b. Where
registration, unless otherwise extended the monthly rental per unit exceeds P15,000,
under the Strategic Investment Priority Plan but the aggregate of such rentals of the
(SIPP); lessor during the year do not exceed
P3,000,000 shall be subject to 3% / 1%
The registered export enterprise shall refer percentage tax.
to an export enterprise that is also a Registered
Business Enterprise (RBE). Even if the real property is not primarily held for
sale to customers or held for lease in the ordinary
Provided, That the above-described sales to
course of trade or business but is used in the trade
existing registered export enterprises located
or business of the seller, the sale thereof shall be
inside ecozones and Freeport zones shall also
subject to VAT being a transaction incidental to the
be qualified for VAT zero-rating under this sub-
taxpayer’s main business.
item until the expiration of the transitory period.
Residential units - refer to apartments and houses &
4. Services rendered to persons engaged in lots used for residential purposes, and buildings or
international shipping or air transport operations, parts or units thereof used solely as dwelling places
including leases of property for use thereof: (e.g., dormitories, rooms and bed spaces) except
motels, motel rooms, hotels and hotel rooms, lodging
houses, inns and pension houses.
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 34

Unit - means an apartment unit in the case of 1. Acquisiti

apartments, house in the case of residential in a calendar month- the input tax shall be
houses; per person in the case of dormitories, spread evenly over a period of 60 months or the
boarding houses and bed spaces; and per room in life of the asset, whichever is shorter if -
case of rooms for rent.
a. Goods or properties with estimated useful life
Allocation of input taxes greater than one (1) year and which are
1. If the taxpayer operates a VAT and a non-VAT treated as depreciable assets,
business
a. Used directly or indirectly in the production or
2. The Input Taxes paid for the purchases of goods
sale of taxable goods or services;
and services cannot be directly attributed to
either operation c. If the capital good is sold within 5 years or
3. It shall be allocated between the VAT and non- prior to exhaustion of input VAT thereon - the
VAT businesses on the basis of their respective entire unamortized input tax on the capital
sales during the taxable month. goods sold can be claimed as input tax credit
during the month/quarter when the sale was
VAT ON IMPORTATION OF GOODS/ PROPERTIES
made.
Subject: Goods and properties whether the
importation is – 3. Aggregate acquisition cost of the
a. For sale, or existing or finished capital goods purchased or
b. For use in business, or imported during any calendar month does not
c. For personal use exceed P1 million
Tax Rate: 12% - total input taxes will be credited against output
tax in the month of acquisition
Tax Base:
a. Ad valorem (value used by the Bureau of Aggregate acquisition cost - total price,
Customs in determining tariff and customs excluding the VAT, agreed upon for one or more
duties) assets acquired and not on the payments
actually made during the calendar month.
Dutiable value xx
Add: Customs duties xx The amortization of the input VAT shall only be
Excise tax xx allowed until December 31, 2021 after which
Other charges & legitimate expenses xx taxpayers with unutilized input VAT on capital
Base xx goods purchased or imported shall be allowed to
apply the same as scheduled until fully utilized;
b. Specific - valuation is based on volume or
quantity of the imported goods, the basis shall In the case of purchase of services, lease or use of
be the landed cost. properties, the input tax shall be creditable to the
purchaser, lessee or licensee upon payment of the
Landed cost means the total of invoice cost,
compensation, rental, royalty or free.
freight, insurance, customs duties, excise tax, if
any, and other charges prior to the removal of TRANSACTIONS WHICH ARE EXEMPT FROM VAT
the goods from customs custody. No Output Tax on the sale or lease and no Input
Tax credit on purchases.
Time of Payment– It shall be paid by the importer
prior to the release of the goods from customs a. Sale or importation of agricultural and marine
custody. food products in their original state, livestock and
poultry of a kind generally used as, or yielding or
If the imported goods by VAT-exempt are producing, foods for human consumption; and
subsequently sold, transferred or exchanged to breeding stock and genetic materials;
non-exempt persons or entities - the transferee
shall be considered the importer and shall be liable Products considered in their original state:
for VAT due on such importation.
1. products which undergone simple processes
Excess Input Tax over Output Tax of preparation or preservation for the market
(freezing, drying, salting, broiling, roasting,
Excess input tax during the previous quarter shall smoking or stripping)
be carried-over to next quarter/s 2. polished or husked rice
Rules on Withholding of Creditable VAT 3. corn grits
The government or any of its political subdivisions, 4. raw cane sugar and molasses
agencies/instrumentalities, GOCCs shall before 5. ordinary salt
making payment on account of each purchase of 6. copra
goods and/or services taxed at 12% deduct and b. Sale or importation of fertilizers, seeds,
withhold a creditable withholding VAT due at the seedlings and fingerlings, fish, prawn, livestock
rate of 5% of the gross payment thereof. and poultry feeds, including ingredients, whether
Spread of INPUT TAX on capital goods locally produced or imported, used in the
(depreciable properties with a useful life of more manufacture of finished feeds (except specialty
than one (1) year) feeds for race horses, fighting cocks, aquarium

Rules:
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 35

fish, zoo animals and other animals generally into grits, and (3) sugar cane into muscovado
considered as pets); and raw cane sugar;
c. Importation of - f. Medical, dental, hospital and veterinary
1. professional instruments and implements, services, except those rendered by
2. tools of trade, occupation or employment, professionals;
3. wearing apparel,
g. Educational services rendered by private
4. domestic animals, and
educational institutions duly accredited by the (1)
5. personal and household effects
DepED, (2) CHED, (3) TESDA and those
belonging to persons coming to settle in the rendered by (4) government educational
Philippines or Filipinos or their families and institutions;
descendants who are now residents or
h. Services rendered by individuals pursuant to an
citizens of other countries, such parties
employer-employee relationship;
hereinafter referred to as overseas Filipinos,
in quantities and of the class suitable to the i. Services rendered by regional or area
profession, rank or position of the persons headquarters established in the Philippines by
importing said items, for their own use and multinational corporations which act as
not for barter or sale, accompanying such supervisory, communications and coordinating
persons, or arriving within a reasonable time: centers for their affiliates, subsidiaries or
branches in the Asia Pacific Region and do not
Provided, that vehicles, vessels, aircrafts,
earn or derive income from the Philippines;
machineries and other similar goods for use in
manufacture shall be subject to duties, taxes and j. Transactions which are exempt under
other charges. international agreements to which the
Philippines is a signatory or under special laws
d. Services subject to other percentage tax as
except those granted under Petroleum
follows:
Exploration Concessionaires under the
1. Sale or lease of goods or properties or the Petroleum Act of 1949;
performance of services of non-VAT-
k. Sales by agricultural cooperatives duly
registered persons, those whose annual
registered and in good standing with the CDA to
gross sales and/or receipts of which do not
their members, as well as sale of their produce,
exceed the amount of P3 Million;
whether in its original state or processed form, to
2. Services rendered by franchise grantees of non-members; their importation of direct farm
radio and/or television broadcasting whose inputs, machineries and equipment, including
annual gross receipts of the preceding year spare parts thereof, to be used directly and
do not exceed P10,000,000, and by franchise exclusively in the production and/or processing
grantees of gas and water utilities; of their produce;
3. Services of proprietors, lessees or operators l. Gross receipts from lending activities by credit
of cockpits, cabarets, night or day clubs, or multi-purpose cooperatives duly registered
boxing exhibitions, professional basketball and in good standing with the CDA;
games, jai-alai and race tracks;
m. Sales by non-agricultural, non-electric and non-
4. Services rendered by any person, company credit cooperatives duly registered with and in
or corporation (except purely cooperative good standing with the CDA; provided, that the
companies or association) doing life share capital contribution of each member does
insurance business of any sort in the not exceed P15,000 and regardless of the
Philippines; aggregate capital and net surplus ratably
distributed among the members;
5. Services rendered by fire, marine or
miscellaneous insurance agents of foreign n. Export sales by persons who are not VAT-
insurance companies; registered;
6. Services rendered by domestic common o. Sales of real properties, as follows:
carriers by land, for the transport of (1) Sale of real properties not primarily held for
passengers, and keepers of garages; sale to customers or held for lease in the
ordinary course of trade or business;
7. Services rendered by international air or
shipping carriers for the transport of goods or However, even if the real property is not
cargo originating in the Philippines and going primarily held for sale to customers or held
abroad; and for lease in the ordinary course of trade or
business but the same is used in the trade
8. Services rendered for overseas dispatch,
or business of the seller, the sale thereof
message or conversation originating from the
shall be subject to VAT being a transaction
Philippines.
incidental to the taxpayer’s main business.
e. Services by agricultural contract growers and
(2) Sale of real properties utilized for socialized
milling for others of (1) palay into rice, (2) corn
housing.
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 36

"Socialized housing" refers to housing s. Sale, importation or lease of passenger or

programs and projects covering houses and cargo vessels and aircraft, including engine,
lots or home lots only undertaken by the equipment and spare parts thereof for domestic
Government or the private sector for the or international transport operations. Provided,
underprivileged and homeless citizens which the exemption from VAT on importation and
shall include sites and services local purchase of passenger and/or cargo
development, long-term financing, liberated vessels shall be subject to the requirements on
terms on interest payments, and such other restriction on vessel importation and mandatory
benefits in accordance with the provision of vessel retirement program of MARINA;
RA 7279, otherwise known as the “Urban
t. Importation of fuel, goods and supplies by
Development and Housing Act of 1992” and
persons engaged in international shipping or air
RA 7835 and RA 8763.
transport operations; Provided, that such fuel,
"Socialized housing" shall also refer to goods and supplies shall be used exclusively or
projects intended for the underprivileged and shall pertain to the transport of goods and/or
homeless wherein the housing package passengers from a port in the Philippines unless
selling price is within the lowest interest the docking or stopping at any other Phil port is
rates under the Unified Home Lending for the purpose of unloading passengers and/or
Program (UHLP) or any equivalent housing cargoes that originated from abroad, or to load
program of the Government, the private passengers and/or cargoes bound for abroad;
sector or non- government organizations. Any portion of such fuel, goods or supplies is
used for purposes other than that mentioned in
(3) Sale of house and lot and other residential
this paragraph shall be subject to 12% VAT;
dwellings valued at an amount not
exceeding P3,199,200. Sale of residential u. Services of banks, non-bank financial
lot only is subject to 12% VAT. intermediaries performing quasi-banking
functions, and other non-bank financial
If two or more adjacent residential dwellings
intermediaries subject to percentage tax, such
are sold or disposed in favor of one buyer,
as money changers and pawnshops; and
for the purpose of utilizing the lots as one
residential dwelling, the sale shall be exempt v. Business pursued by an individual where the
from VAT only if the aggregate value of the aggregate gross sales and/or receipts do not
lots do not exceed the threshold of exceed P100,000 during any 12-month period
P3,199,200. Adjacent residential lots, (shall be considered principally for subsistence
although covered by separate titles and/or or livelihood and not in the course of trade or
separate tax declarations, when sold or business);
disposed to one and the same buyer,
w. Sale or lease of goods and services to senior
whether covered by one or separate Deed of
citizens and persons with disabilities
Conveyance, shall be presumed as a sale of
one residential lot. x. Transfer of Property pursuant to Section 40(C)
(2) of the Tax Code, as amended;
Provided, That every three (3) years
thereafter, the amounts stated herein shall y. Association dues, membership fees, and other
be adjusted to its present value using the assessments and charges collected by
Consumer Price Index, as published by the homeowners associations and condominium
Philippine Statistics Authority (PSA). corporations;
z. Sale of gold to the Bangko Sentral ng Pilipinas;
p. Lease of residential units with a monthly rental
per unit not exceeding P15,000, regardless of aa. Sale of drugs and medicines prescribed for
the amount of aggregate rentals received by the diabetes, high cholesterol, and hypertension and
lessor during the year; sale or importation of prescription drugs and
medicines for cancer, mental illness,
Lease of residential units where the monthly
tuberculosis, and kidney diseases;
rental per unit exceeds P15,000 but the
aggregate of such rentals of the lessor during bb. Sale or importation of the following goods from
the year do not exceed P3,000,000 shall be January 1, 2021 to December 31, 2023:
subject to 3%/1% percentage tax. 1. Capital equipment, its spare parts and raw
q. Transport of passengers by international materials, necessary to produce personal
carriers; protective equipment component;
2. All drugs, vaccines and medical devices
r. Sale, importation, printing or publication of specifically prescribed and directly used for
books and any newspaper, magazine, journal, or the treatment of Covid-19;
any educational reading material covered by the
United Nations Educational, Scientific and 3. Drugs, including raw materials, for the
Cultural Organization (UNESCO) agreement on treatment of Covid-19 approved by the Foods
the importation of education, scientific and and Drugs Authority for use in clinical trials.
cultural materials, including the digital or cc. Sale or lease of goods or properties or the
electronic format thereof. performance of services other than the
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 37

transactions mentioned in the preceding prior to presentation to the AAB.

paragraphs, the gross annual sales and/or 4. Post-dated checks – dated a day or several
receipts do not exceed the amount of days after the date of presentation to the
P3,000,000. AAB.
5. Unsigned checks – no signature of the drawer
FILING OF RETURN & PAYMENT OF TAX
6. Checks with alterations/erasures
1. Time for filing and payment (manual filing)
a. Monthly ELECTRONIC FILING & PAYMENT SYSTEM
VAT declaration- Within 20 days after the end 1. Definitions
of each month. a. EFPS - refers to the system developed and
maintained by the BIR for electronically filing
b. Quarterly Return- Within 25 days
tax returns, including attachments, if any, and
after the end of the quarter.
paying taxes due thereon, specifically thru the
c. Withholding VAT Return– on or internet.
before the 10th day following the end of the
b. e-Filing – the process of electronically filing
month
returns including attachments, if any,
Beginning Jan. 1, 2023, the filing and payment specifically thru the internet.
required under the Tax Code shall be done
c. e-Payment– the process of electronically
within 25 days following the close of each
paying a tax liability thru the internet banking
taxable quarter.
facilities of AAB.
2. Place of filing and payment – Any
2. Coverage – open to all taxpayers who want to
authorized bank where the Revenue District
make use of the system; however, the following
Office is located.
are mandated to make use of the system:
3. Modes of Payment
a. Large taxpayers duly notified by the BIR
a. Over-the-counter cash payment transactions -
b. Top 20,000 private corporations identified and
payment of tax liabilities to authorized agent
notified by the CIR
banks (AAB) in the currencies that are legal
c. Top 5,000 individual taxpayers duly notified
tender in the Philippines (not exceeding
by the BIR
P10,000)
d. Taxpayers who wish to enter into contract
b. Bank debit system – a taxpayer, thru a bank with government offices
debit memo/advice authorizes withdrawal from e. Corporations with paid-up capital of P10
his/its existing bank accounts for payment of million and above;
tax liabilities. f. PEZA registered entities and those located
within special economic zones; and
Conditions:
g. Government offices in so far as remittance of
1. This mode is allowed only if the taxpayer
withheld VAT and business tax is concerned.
has a bank account with the bank where
he/it intends to file and pay his/its tax REGISTRATION OF VAT TAXPAYERS
return/form/ declaration; Any person or entity who, in the course of his trade
or business, sells, barters, exchanges, leases
2. Said AAB branch is within the jurisdiction of
goods or properties and renders services subject to
the BIR Revenue District Office
VAT shall register with the appropriate Revenue
(RDO)/Large Taxpayers District Office
District Office (RDO).
(LTDO) where the tax payment is due and
payable. Annual Registration Fee: P500 for every separate
and distinct establishment or place of business
3. This mode is not acceptable as payment
before the start of such business and every year
for withholding taxes including fringe
thereafter on or before January 31 (BIR Form
benefit tax and for taxes, fees and charges
0605).
collected under special
schemes/procedures /programs of the MANDATORY VAT REGISTRATION
government/BIR Any person who enters into transactions that are or
c. Credit facility with a bank, credit company or maybe subject to VAT, if:
similar institution; or a. The aggregate amount of actual gross sales or
d. Personal or company check, cashier’s or receipts (other than those that are exempt)
manager’s check exceed P3 Million for the past 12 months, or

The following checks are not acceptable for b. There are reasons to believe that the gross sales
payment: or receipts for the next 12 months will exceed P3
1. Accommodation checks – issued or drawn by million.
a party other than the one making the c. Radio and/or television broadcasting companies
payment. whose annual gross receipts of the preceding
2. Second endorsed checks – issued to the year exceeds P10,000,000.
taxpayer as payee who indorses the same as
payment for taxes. Every person who becomes liable to be registered
3. Stale checks – dated more than 6 months as VAT taxpayer but failed to register –
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 38

a. shall be required to pay the output 1. He makes a written application and can
tax as if he were a VAT registered person, demonstrate to the satisfaction of the CIR that
b. but without the benefit of input tax his gross sales or receipts for the following 12
credits for the period in which he was not months, other than those that are exempt, will
properly registered. not exceed P3 million; or
OPTIONAL VAT REGISTRATION 2. He has ceased to carry on his trade or
1. Any person who is – business, and does not expect to recommence
a. VAT- any trade or business within the next 12 months.
exempt or
The cancellation for registration will be effective
b. not required
from the first day of the following month the
to register for VAT
cancellation was approved.
May elect to be VAT-registered by registering
with the RDO that has jurisdiction over the head INVOICING REQUIREMENTS
office of that person, and pay the annual A VAT registered person shall issue:
registration fee of P500 for every separate and 1. A VAT invoice for every sale, barter or exchange
distinct establishment. of goods or properties; and

2. Any person who elects to be registered shall not 2. A VAT official receipt for every lease of goods or
be allowed to cancel his registration for the next properties and for every sale, barter or exchange
three (3) years. of services.
3. Any person who is VAT-registered but enters Rules:
into transactions which are exempt from VAT 1. Only VAT-registered persons are required to print
(mixed transactions) may opt that the VAT apply their TIN followed by the word “VAT” in their
to his transactions which would have been invoice or official receipts. Said documents shall
exempt under Section 109(1) of the Tax Code, be considered as a “VAT Invoice” or “VAT
as amended [Sec. 109(2)]. Official Receipt.
4. Franchise grantees of radio and/or television 2. All purchases covered by invoices/ receipts other
broadcasting - than VAT Invoice/VAT Official Receipt shall not
give rise to any input tax.
a. whose annual gross receipts of the preceding
year do not exceed P10,000,000 derived from 3. VAT invoice/official receipt shall be prepared at
the business covered by the law granting the least in duplicate, the original to be given to the
franchise are subject to franchise tax and not buyer and the duplicate to be retained by the
VAT. seller as part of his accounting records.
d. However, they may opt to be VAT registered ISSUANCE OF INVOICES
c. Once this option is exercised, it shall be 1. Single
irrevocable (subject to VAT forever). invoice/receipt involving VAT and non-VAT
5. The above-stated taxpayers may apply for VAT transactions.
registration not later than 10 days before the A VAT registered taxpayer may issue a single
beginning of the calendar quarter and shall pay invoice/receipt involving VAT and non-VAT
the registration fee unless they have already transactions provided that:
paid at the beginning of the year.
The invoice or receipt shall clearly indicate the
In any case, the Commissioner of Internal break-down of the sales price between its
Revenue may, for administrative reason deny taxable, exempt and zero-rated components and
any application for registration. the calculation of the Value-Added Tax on each
portion of the sale shall be shown on the invoice
Once registered as a VAT person, the taxpayer
or receipt.
shall be liable to output tax and be entitled to
input tax credit beginning on the first day of the 2. Separate invoices/receipts involving VAT and
month following registration. Non-VAT transactions
APPLICATION FOR REGISTRATION A VAT registered person may issue separate
The application shall be filed with the RDO where invoices/receipts for the taxable, exempt, and
the principal place of business, branch, storage zero-rated component of its sales provided that:
place or premises is located, as the case may be,
a. If the sales
before commencement of business or production or
is exempt from VAT, the term "VAT-EXEMPT
qualification as a withholding agent.
SALE" shall be written or printed prominently
In the case of storage places, the application shall on the invoice or receipt, and
be filed within 30 days from the date the aforesaid b. If the sale is subject to zero percent (0%)
premises have been used for storage. VAT, the term "ZERO-RATED SALE" shall be
written or printed prominently on the invoice
CANCELLATION OF VAT REGISTRATION
or receipt.
A VAT-registered person may cancel his
registration for VAT if: ISSUING AN ERRONEOUS VAT INVOICE OR VAT
OFFICIAL RECEIPT
 CTT EXAMINATION REVIEWER (NOTES) PAGE A - 39

1. If a non-VAT registered person issues an invoice Business tax on Transport Network Vehicle Service
or receipt showing his TIN followed by the word (TNVS)
VAT, the non-VAT person shall be liable to:
Status TNVS/Partner
a. The percentage taxes applicable to his
With CPC (franchise) 3% Franchise Tax
transactions;
b. The VAT due on the transactions without the Without CPC 3% non-VAT/12% VAT
benefit of any tax credit; and
c. A 50% surcharge. 3. COMMON CARRIERS TAX ON INTERNATIONAL
CARRIERS
2. If a VAT registered person issues a VAT invoice Who are subject? International air carriers and
or official receipt for a VAT-exempt transaction international shipping carriers doing business in
but fails to display prominently on the invoice or the Philippines.
receipt the term “VAT EXEMPT SALE”, the
Rule on international carriers:
issuer shall be liable to VAT.
In both cases, the VAT shall, if other requisite Business Tax Passengers Cargoes
information required is shown on the invoice or VAT Exempt Exempt
receipt, be recognized as an input tax credit to the Taxable on
purchaser. 3% Carriers Tax Exempt
outgoing
CONTENTS OF VAT INVOICE/OFFICIAL RECEIPT
A VAT-registered person must issue a VAT invoice Rate and Base: 3% of gross receipts
for every taxable transaction. The invoice/official Gross receipts shall include, but shall not be
receipt must show: limited to, the total amount of money or its
1. The name, TIN and address of seller equivalent representing the contract,
2. Contact address freight/cargo fees, mail fees, deposits applied as
3. Date of transaction payments, advance payments and other service
4. Name of payor charges and fees actually or constructively
5. Address of payor received during the taxable quarter from cargo
6. Business style of payor and/or mail, originating from the Philippines in a
7. Nature and amount of payment continuous and uninterrupted flight, irrespective
8. The amount of VAT, gross and net of tax of the place of sale or issue and the place of
payment of the passage documents.
4. FRANCHISE TAX
OTHER PERCENTAGE TAXES Who are subject? Franchise holders of:
1. Radio/television broadcasting companies
1. TAX ON PERSONS EXEMPT FROM VAT (NON- whose annual gross receipts of the preceding
VAT under Sec 116) year do not exceed P10 million - 3%
TRANSACTIONS SUBJECT: Sale, lease of goods 2. Gas and water utilities - 2%
or properties, or performance of services.
All other franchise holders shall pay the VAT.
RATE and BASE: 3% of gross selling price or The radio and television broadcasting
gross receipts. Effective July 1, 2020 until June 30, companies shall have an option to be registered
2023, the rate shall be 1%. as a value-added taxpayer and pay the tax due
Requisites: thereon.
1. The gross annual sales/receipts do not
Once this option is exercised, it becomes
exceed P 3 million); AND
irrevocable.
2. Must not be a VAT registered taxpayer.
5. TAX ON AGENTS OF FOREIGN
EXEMPTION FROM 3% / 1% NON-VAT: INSURANCE COMPANY
1. Self-employed individuals and professionals Tax Rate and Tax Base:
whose annual gross sales/receipts and other 1. 4% of the total premium collected
non-operating income do not exceed P3 million shall be imposed upon every fire, marine or
and who opted for the 8% income tax. miscellaneous insurance agent authorized
2. Cooperatives under the Insurance Code to procure
2. COMMON CARRIERS’ TAX: Domestic Carriers policies or insurance as he may have
What are subject? previously been legally authorized to
1. Cars for rent or hire driven by the lessee; transact on risks located in the Philippines
2. Transportation contractors on land, including for companies not authorized to transact
persons who transport passengers for hire; business in the Philippines.
3. Other domestic carriers by land for transport 2. 5% on premiums paid shall also be
of passengers, except owners of bancas and imposed on owners of property who obtain
owners of animal-drawn two-wheeled insurance directly with foreign insurance
vehicles; and companies.
4. Keepers of garages.
This tax shall not apply to reinsurance
RATE AND BASE: 3% of gross receipts premiums.
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 40

Time for filing – The person rendering services

6. TAX ON BANKS AND NON-BANK FINANCIAL
shall collect and pay the tax within 20 days after
INTERMEDIARIES PER-FORMING QUASI-
the end of each quarter.
BANKING FUNCTIONS
Tax Base: Gross Receipts derived from sources 9. AMUSEMENT TAX
The following amusement places shall be subject to the
within the Philippines corresponding tax rates based on gross receipts:
Tax Rates: 10% Place for boxing exhibitions
a. On interest, commissions and discounts 15% Place for professional basketball games
from lending activities as well as income 18% Cockpits, cabarets, night or day clubs
from financial leasing, on the basis of 30% Jai-Alai and race tracks
remaining maturities of instruments from
which such receipts are derived: Boxing exhibitions where World or Oriental
Championships in any division is at stake shall
Maturity period:
be exempt from amusement tax, if -
Five (5) years or less 5%
More than 5 years 1% 1. one of the contenders is a citizen of the
Philippines; and
b. On dividends and equity shares and
2. said exhibitions are promoted by
net income of subsidiaries 0%
a) citizens of the Philippines, or
c. On royalties, rentals of property, real b) by a corporation or association at least
or personal, profit from exchange 60% of the capital of which is owned by
and all other items treated as gross 7% such citizens.
income under Sec 32 of the Code
d. On net trading gains within the 10. TAX ON WINNINGS
taxable year on foreign currency, Persons subject: Any person who –
debt securities, derivatives and 1. Wins in horse races.
other similar financial instruments 7% 2. Owns a winning race horse, based on the
prize.
In case the maturity period is shortened thru
pretermination, then the maturity period shall be Tax Rate and Tax Base:
reckoned to end as of the date of pretermination a. Winner in horse races . . . . 10%
for purposes of classifying the transaction and the
But if from: Double, forecast, quinella and
correct rate of tax shall be applied accordingly.
trifecta bets - 4%
7. TAX ON OTHER NON-BANK FINANCIAL INTER- BASE: Actual amount of winnings or divi-
MEDIARIES INCLUDING FINANCE COMPANIES, dends on every ticket after deducting
MONEY CHANGERS AND PAWNSHOPS the cost of ticket.
Tax Base: Gross receipts b. Owner of winning horse -10% of the prize
Tax Rates:
FILING AND PAYMENT - The operator,
a. On interests, commissions and discounts
manager or person in charge of horse races
from lending activities as well as income
shall file and pay within 20 days from the date
from financial leasing on the basis of
the tax was deducted and withheld (BIR Form
remaining maturities of the instruments from
1600-WP).
which such receipts are derived:
Maturity period: FILING OF RETURN (BIR FORM NO. 2551Q) AND
Five (5) years or less 5% PAYMENT OF PERCENTAGE TAXES
More than 5 years 1% 1. TIME FOR FILING AND PAYMENT
b. From all other items treated as gross Large and non-large taxpayers-within 25 days
income under Sec. 32 of the tax code 5% after the end of every quarter on the following:
a. VAT-exempt taxpayers with annual gross
8. TAX ON OVERSEAS DISPATCH, MESSAGE OR
sales/receipts not exceeding P3M;
CONVERSATION ORIGINATING FROM THE PHIL
(OVERSEAS COMMUNICATIONS TAX) b. Domestic carriers and keepers of garages;
RATE AND BASE: 10% of the amount paid upon c. International air/shipping carriers;
every overseas dispatched, message or d. Franchisees of gas or water utilities;
conversation transmitted from the Philippines e. Franchisees of radio and/or TV
(outgoing) by telephone, telegraph, telewriter broadcasting with revenues not exceeding
exchange, wireless and other communications P10M;
equipment services. f. Franchise grantees sending overseas
Exemptions– This tax shall not apply to: dispatch, messages or conversations from
1. Government the Philippines
2. Diplomatic services g. Proprietors, lessees or operators of
3. International organizations cockpits, cabarets, night or day clubs, boxing
4. News services exhibitions, professional basketball games,
jai-alai and racetracks.
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 41

h. Banks, non-bank financial intermediaries

and finance companies.
i. Life insurance companies; and
j. Agent of foreign insurance companies.
2. PLACE OF FILING- At his option, the taxpayer
may file:
a. a separate return for each branch or place
of business, or
b. a consolidated return for all branches or
places of business.
3. SHORT PERIOD RETURN – Person who retires
from business or whose registration has been
cancelled shall file quarterly return and pay the
tax due thereon within 25 days from cessation or
business operations or from the date of
cancellation of registration, as the case maybe.