CTT EXAMINATION REVIEWER (NOTES) PAGE A - 30

VALUE-ADDED TAX For purposes of the threshold of P3 million, the

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

Gross sales/receipts by husband and wife

CTT EXAMINATION REVIEWER (NOTES) PAGE A - 31

 Actual VAT paid on such materials, goods and

supplies
Transactions Deemed Sale (Purpose: To recapture
the VAT that was already claimed as Input Tax)
PRESUMPTIVE INPUT TAX on sale of goods or
1. Transfer use or consumption not in the course of properties
business of goods or properties originally intended VAT registered persons or firms engaged in the –
for sale or for use in the course of business.
1. Processing of sardines, mackerel, and milk, and
Transfer of goods or properties not in the course of
2. In manufacturing refined and raw sugar, cooking oil
trade or business can take place when VAT
and packed noodle-based instant meals
registered person withdraws goods from his
business for his personal use.
 4% of the gross value in money of their
purchases of primary agricultural products which
are used as inputs to their production
2. Distribution or transfer to –
a.Shareholders or investors as share in the profits Zero-rated sales of goods
of the VAT registered person.
Property dividends which constitute stocks in 1. Zero-rated transactions vs. Exempt transactions
trade or properties primarily held for sale or a. 0%- subject to VAT only that the rate is 0%.
lease declared out of retained earnings and E - not subject to VAT
distributed by the company to its shareholders
shall be subject to VAT based on the zonal value b. 0%- no output tax but the taxpayer is entitled to
or FMV at the time of distribution, whichever is tax credit or refund of input taxes.
applicable. E - no tax credit or refund for input taxes are
b.Creditors in payment of debt or obligation. allowed.

3. Consignment of goods if actual sale is not 2. Sales by VAT registered persons sub-ject to 0%:
made within 60 days following the date such goods A. Export sales which shall mean:
were consigned. Those returned within the 60-day a. The sale or actual shipment of goods from
period are not deemed sold. Philippines to foreign country and paid for in
acceptable foreign currency or its equivalent
4. Retirement from or cessation of business with in goods or services, and accounted for in
respect to all goods on hand, whether capital goods, accordance with the rules and regulations of
stock in trade, supplies or materials as of the date the BSP;
of such retirement or cessation, whether or not the
business is continued by the new owner or b. The sale of goods, supplies, equipment and
successor, to wit: fuel to persons engaged in international
shipping or international air transport
a. Change of ownership of business. There is operations: Provided, that, the goods,
change of ownership of the business when a supplies, equipment, and fuel shall be used
single proprietorship incorporates; or the exclusively for international shipping or air
proprietor of a single proprietorship sells his transport operations.
entire business.
b. Dissolution of a partnership and creation of a B. Effectively zero-rated sales
new one which takes over the business. Effectively zero-rated sales of goods and properties
shall refer to the local sale (constructive export) by
In cases (1) (2) and (3), the output tax shall be a VAT-registered person to a person or entity who
based on the market value of the goods deemed was granted indirect tax exemptions under special
sold at the time of occurrence of the transaction. laws or international agreement, such as:
In case (4) the tax base shall be whichever is a. Sale to Asian Development Bank (ADB);
lower between: b. Sale to International Rice Research Institute
(IRRI);
Acquisition Cost vs Current Market Price c. Sale to duly registered and accredited enterprises
of the goods or properties with Subic Bay Metropolitan Authority (SBMA);
and
TRANSITIONAL INPUT TAX (on a person who d. Sale to duly registered and accredited enterprises
becomes liable to VAT or those who elect to be VAT with Philippine Economic Zone Authority (PEZA).
registered) as of the effectivity of their VAT
registration. VAT ON SALE OF REAL PROPERTY
Whichever is higher between: 1. The following sales of real property are subject to
VAT:
 2% of the value of the beginning inventory on hand
of goods, materials and supplies, or a. Those held primarily for sale to customers;
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 32

b. Those held for lease in the ordinary course of VAT ON SALE OF SERVICES
trade or business of the seller. Tax Base: Gross receipts - the total amount of
money or its equivalent actually or constructively
2. The following are not subject to VAT: Sale of real
received during the taxable quarter for the services
property which are -
performed or to be performed for another person
a. Not held primarily for sale to custo-mers or held (excluding the VAT):
for lease in the ordinary course of trade or a. On the contract price, compensation, service
business; fee, rental or royalty;
b. Utilized for low-cost housing (P750,000 per unit b. Amount charged for materials supplied with
or less); the services; and
c. Utilized for socialized housing (P450,000 per unit c. Deposits applied as payments for services
or less); rendered and advanced payments.
d. Made by real estate dealers and/or lessors of
Constructive receipt occurs when the money
house and lot and other residential dwellings
consideration or its equivalent is placed at the control
valued at not more than:
of the person who conducted the service without
Residential lot - P1,500,000 restrictions by the payor such as depositing the money
Residential house & lot - P2,500,000 in the bank which are available to the payee without
restriction.
Provided, that beginning January 1, 2021, the VAT
Computation of gross receipts:
exemption shall only apply to the following sales:
Cash received (actually and
1. Sale of real properties
constructively) Pxx
not primarily held for sale to customers or held
Advance payments xx
for lease in the ordinary course of trade or
Materials charged for services xx
business,
Gross receipts xx
2. Sale of real property
utilized for socialized housing (RA 7279), Sale or exchange of services means the
performance of all kinds of services in the Philippines
3. Sale of house and lot, for others for a fee, remuneration or consideration,
and other residential dwellings with selling price including those performed or rendered by the
of not more than P2,000,000. following:
Deferred Payment/Installment Sales 1. Construction and service contractors
of Real Property 2. Warehousing services;
Deferred Payment Basis – not a cash sale of 3. Lessors or distributors of cinematographic films;
4. Persons engaged in milling, processing,
real property but the initial payment in the year of sale manufacturing or repacking goods for others
exceeds 25% of the gross selling price. except:
Installment Basis – sale of real property by a real a.Proprietors Palay into rice
estate dealer in which the initial payment does not b.Corn into corngrits
exceed 25% of the gross selling price. c. Sugar cane into muscovado and raw cane
sugar
Computation of tax base: 5. operators or keepers of hotels, motels, resthouses,
1. Cash sale and Deferred Payment Sale – whichever pension houses, inns, resorts;
is the highest among:
a. Gross selling price 6. Dealers in securities and lending investors
b. Fair market value (assessor’s value)
7. Proprietors or operators of restaurants,
c. Zonal value (BIR)
refreshment parlors, cafes and other eating places,
2. Installment basis – multiply the collection/gross including clubs and caterers.
selling price by the highest among
8. Transportation contractors on their transport of
a. Gross selling
goods or cargoes, including persons who transport
price
goods or cargoes for hire and other domestic
b. Fair market
carriers by land relative to their transport of goods
value
or cargoes;
c. Zonal value
9. Common carriers by air and sea relative to their
transport of passengers, goods or cargoes from one
place in the Philippines to another place in the
Philippines;
10. Sale of electricity by generation, transmission by
any entity including National Grid Corporation of the
Philippines (NGCP), and distribution companies
 CTT EXAMINATION REVIEWER (NOTES) PAGE A - 33

including electric cooperatives shall be subject to biomass, solar, wind, hydropower, geothermal,
12% VAT on their gross receipts. ocean energy, and other emerging energy sources
using technologies such as fuel cells and hydrogen
11. Services of franchise grantees, except –
fuels.
a. electric utilities, telephone and telegraph, radio
Provided, however, that zero-rating shall apply
and/or television broadcasting and all other
strictly to the sale of power or fuel generated
franchise grantees of radio and/or television
through renewable sources of energy, and shall not
broadcasting companies whose annual gross
extend to the sale of services related to the
receipts of the preceding year do not exceed
maintenance or operation of plants generating said
P10,000,000, and
power.
b. franchise grantees of gas and water utilities.
12. Non-life insurance companies, including surety, TRAIN LAW:
fidelity, indemnity and bonding companies; Paragraphs (1) and (5) above shall be subject to the
12% VAT and no longer be subject to 0% VAT rate
13. Services performed in the exercise of profession or upon satisfaction of the following conditions:
calling subject to professional tax, and professional
services performed by registered professional 1. The successful establishment and implementation of
partnerships; actors, actresses, talents, singers, an enhanced VAT refund system that grants refunds
and emcees; radio and television broadcasters, of creditable input tax within 90 days from the filing
choreographers; musical, radio, movie, television of the VAT refund application with the bureau:
and stage directors; and professional athletes;
2. Provided, that, to determine the effectivity of Item
14. Other similar services, regardless of whether or not no. 1, all applications filed from January 1, 2018
the performance thereof calls for the exercise or use shall be processed and must be decided within 90
of the physical or mental faculties. days from the filing of the VAT refund application;
and 2. All pending VAT refund claims as of Dec 31,
Zero-rated sale of services 2017 shall be fully paid in cash by Dec 31, 2019.
The following services performed in the Philippines
shall be subject to 0%.
VAT ON LEASE OF PROPERTIES
1. Processing, manufacturing or repacking goods 1. Transactions subject: Lease of real properties
a. For other persons doing business outside the held primarily for lease to customers in the ordinary
Philippines course of trade or business.
b. The goods are subsequently exported; and
2. Lease of residential units which are VAT
c. The services are paid for in acceptable foreign
exempt
currency and accounted for in accordance with
a. With a
the rules and regulations of the Bangko Sentral
monthly rental per unit not exceeding P15,000.
ng Pilipinas.
b. Where the
2. Services other than (1) above, if the consideration
monthly rental per unit exceeds P15,000, but
is paid in acceptable foreign currency and accounted
the aggregate of such rentals of the lessor
for in accordance with the R & R of the BSP;
during the year do not exceed P3,000,000 shall
3. Services rendered to persons or entities whose be subject to 3% percentage tax.
exemption under special laws or international
agreements to which the Philippines is a signatory Even if the real property is not primarily held for
effectively subjects the supply of such services to sale to customers or held for lease in the ordinary
0%. course of trade or business but is used in the trade
or business of the seller, the sale thereof shall be
4. Services rendered to persons engaged in subject to VAT being a transaction incidental to the
international shipping or air transport operations, taxpayer’s main business.
including leases of property for use thereof:
Provided, that these services shall be exclusively for Residential units - refer to apartments and houses &
international shipping or air transport operations; lots used for residential purposes, and buildings or
parts or units thereof used solely as dwelling places
5. Services performed by subcontractors and/or (e.g., dormitories, rooms and bed spaces) except
contractors in processing, converting, or motels, motel rooms, hotels and hotel rooms,
manufacturing goods of an enterprise whose export lodging houses, inns and pension houses.
sales exceed 70% of total annual production;
Unit - means an apartment unit in the case of
6. Transport of passengers and cargo by domestic air apartments, house in the case of residential houses;
or sea vessels from the Philippines to a foreign per person in the case of dormitories, boarding
country; and houses and bed spaces; and per room in case of
7. Sale of power or fuel generated through renewable rooms for rent.
sources of energy such as, but not limited to
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 34

Allocation of input taxes

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

1. Input tax during the Excess shall be In the case of purchase of services, lease or use of
month carried-over to next properties, the input tax shall be creditable to the
2. Excess input tax – quarter/s purchaser, lessee or licensee upon payment of the
previous quarter compensation, rental, royalty or free.

TRANSACTIONS WHICH ARE EXEMPT FROM VAT

No Output Tax on the sale or lease and no Input Tax
credit on purchases.

a. Sale or importation of agricultural and marine food

products in their original state, livestock and poultry
of a kind generally used as, or yielding or
producing, foods for human consumption; and
breeding stock and genetic materials;
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 35

Products considered in their original state: 5. Services rendered by fire, marine or

miscellaneous insurance agents of foreign
1. products which undergone simple processes of
insurance companies;
preparation or preservation for the market
(freezing, drying, salting, broiling, roasting, 6. Receipts on sale, barter or exchange of shares of
smoking or stripping) stock listed and traded through the local stock
2. polished or husked rice exchange or through initial public offering;
3. corn grits
7. Services rendered by domestic common carriers
4. raw cane sugar and molasses
by land, for the transport of passengers, and
5. ordinary salt
keepers of garages;
6. copra
8. Services rendered by international air or shipping
b. Sale or importation of fertilizers, seeds, seedlings
carriers for the transport of goods or cargo
and fingerlings, fish, prawn, livestock and poultry
originating in the Philippines and going abroad;
feeds, including ingredients, whether locally
and
produced or imported, used in the manufacture of
finished feeds (except specialty feeds for race 9. Services rendered for overseas dispatch,
horses, fighting cocks, aquarium fish, zoo animals message or conversation originating from the
and other animals generally considered as pets); Philippines.
c. Importation of - e. Services by agricultural contract growers and
1. professional instruments and implements, milling for others of (1) palay into rice, (2) corn into
2. tools of trade, occupation or employment, grits, and (3) sugar cane into muscovado and raw
3. wearing apparel, cane sugar;
4. domestic animals, and
5. personal and household effects f. Medical, dental, hospital and veterinary services,
except those rendered by professionals;
belonging to persons coming to settle in the
Philippines or Filipinos or their families and g. Educational services rendered by private
descendants who are now residents or citizens of educational institutions duly accredited by the (1)
other countries, such parties hereinafter referred DepED, (2) CHED, (3) TESDA and those rendered
to as overseas Filipinos, in quantities and of the by (4) government educational institutions;
class suitable to the profession, rank or position h. Services rendered by individuals pursuant to an
of the persons importing said items, for their employer-employee relationship;
own use and not for barter or sale,
accompanying such persons, or arriving within a i. Services rendered by regional or area
reasonable time: headquarters established in the Philippines by
multinational corporations which act as supervisory,
Provided, that vehicles, vessels, aircrafts, communications and coordinating centers for their
machineries and other similar goods for use in affiliates, subsidiaries or branches in the Asia Pacific
manufacture shall be subject to duties, taxes and Region and do not earn or derive income from the
other charges. Philippines;
d. Services subject to percentage tax under Title V of j. Transactions which are exempt under international
the Tax Code, as follows: agreements to which the Philippines is a signatory
1. Sale or lease of goods or properties or the or under special laws except those granted under
performance of services of non-VAT-registered Petroleum Exploration Concessionaires under the
persons, those whose annual gross sales and/or Petroleum Act of 1949;
receipts of which do not exceed the amount of P3 k. Sales by agricultural cooperatives duly registered
Million; and in good standing with the CDA to their
2. Services rendered by franchise grantees of radio members, as well as sale of their produce, whether
and/or television broadcasting whose annual in its original state or processed form, to non-
gross receipts of the preceding year do not members; their importation of direct farm inputs,
exceed P10,000,000, and by franchise grantees machineries and equipment, including spare parts
of gas and water utilities; thereof, to be used directly and exclusively in the
production and/or processing of their produce;
3. Services of proprietors, lessees or operators of
cockpits, cabarets, night or day clubs, boxing l. Gross receipts from lending activities by credit or
exhibitions, professional basketball games, jai- multi-purpose cooperatives duly registered and in
alai and race tracks; good standing with the CDA;

4. Services rendered by any person, company or m. Sales by non-agricultural, non-electric and non-
corporation (except purely cooperative credit cooperatives duly registered with and in good
companies or association) doing life insurance standing with the CDA; provided, that the share
business of any sort in the Philippines; capital contribution of each member does not
exceed P15,000 and regardless of the aggregate
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 36

capital and net surplus ratably distributed among Adjacent residential lots, although covered by
the members; separate titles and/or separate tax declarations,
when sold or disposed of to one and the same
n. Export sales by persons who are not VAT-
buyer, whether covered by one or separate Deed of
registered;
Conveyance, shall be presumed as a sale of one
o. Sales of real properties, as follows: residential lot.
1. Sale of real properties not primarily held for sale This does not include the sale of parking lot which
to customers or held for lease in the ordinary may or may not be included in the sale of
course of trade or business; condominium units. The sale of parking lots in a
condominium is a separate and distinct transaction
However, even if the real property is not and is not covered by the rules on threshold amount
primarily held for sale to customers or held for not being a residential lot, house & lot or a
lease in the ordinary course of trade or business residential dwelling, thus, should be subject to VAT
but the same is used in the trade or business of regardless of amount of selling price.
the seller, the sale thereof shall be subject to
VAT being a transaction incidental to the Effective Jan. 1, 2021: sale of real properties not
taxpayer’s main business. primarily held for sale to customers or held for lease
in the ordinary course of trade or business, sale of
2. Sale of real properties utilized for low-cost real property utilized for socialized housing, sale of
housing wherein the price ceiling per unit is house and lot, and other residential dwellings shall
P750,000; be VAT exempt if selling price is not more than
P2,000,000.

"Low-cost housing" refers to housing projects SUMMARY: Sale is exempt if SP does not exceed
intended for homeless low-income family
Sale of residential From 1/1/18 - Effective
beneficiaries, undertaken by the Government or
12/31/20 1/1/21
private developers, which may either be a
subdivision or a condominium registered and
licensed by the HLURB under BP Blg. 220, PD No. 1. Lot P 1.5 M P 2.0 M
957 or any other similar law, wherein the unit 2. House & lot 2.5 M 2.0 M
selling price is within the selling price per unit as
set by the Housing and Urban Development 3. Socialized H 450,000 2.0 M
Coordinating Council (HUDCC) pursuant to RA
No. 7279 and other laws. p. Lease of residential units with a monthly rental per
unit not exceeding P15,000, regardless of the
3. Sale of real properties utilized for socialized amount of aggregate rentals received by the lessor
housing wherein the price ceiling per unit is during the year;
P450,000; and
Lease of residential units where the monthly rental
"Socialized housing" refers to housing programs per unit exceeds P15,000 but the aggregate of such
and projects covering houses and lots or home rentals of the lessor during the year do not exceed
lots only undertaken by the Government or the P3,000,000 shall be subject to 3% percentage tax.
private sector for the underprivileged and
homeless citizens which shall include sites and q. Transport of passengers by international carriers;
services development, long-term financing, r. Sale, importation, printing or publication of books
liberated terms on interest payments, and such and any newspaper, magazine, journal, or any
other benefits. educational reading material covered by the United
"Socialized housing" shall also refer to projects Nations Educational, Scientific and Cultural
intended for the underprivileged and homeless Organization (UNESCO) agreement on the
wherein the housing package selling price is importation of education, scientific and cultural
within the lowest interest rates under the Unified materials, including the digital or electronic format
Home Lending Program (UHLP) or any equivalent thereof.
housing program of the Government, the private
sector or non- government organizations. s. Sale, importation or lease of passenger or cargo
vessels and aircraft, including engine, equipment
4. Sale of residential lot valued at P1,500,000 and and spare parts thereof for domestic or
below, or house and lot and other residential international transport operations
dwellings valued at P2,500,000 and below.
t. Importation of fuel, goods and supplies by persons
If two or more adjacent residential lots are sold or engaged in international shipping or air transport
disposed in favor of one buyer, for the purpose of operations; Provided, that the fuel, goods and
utilizing the lots as one residential lot “within a 12- supplies shall be used for international shipping or
month period”, the sale shall be exempt from VAT air transport operations.
only if the aggregate value of the lots do not exceed
P1,500,000.
 CTT EXAMINATION REVIEWER (NOTES) PAGE A - 37

u. Importation of life-saving equipment, safety and annual sales and/or receipts do not exceed the
rescue equipment and communication and amount of P3,000,000.
navigational safety equipment, steel plates and
other metal plates including marine-grade
FILING OF RETURN & PAYMENT OF TAX
aluminum plates, used for shipping transport
1. Time for filing and payment (manual filing)
operations; Provided, that the exemption shall be
a. Monthly VAT declaration- Within 20 days after
subject to the provisions of Section 4 of Republic
the end of each month.
Act. No. 9295 (The Domestic Shipping Development
Act of 2004); b. Quarterly Return- Within 25 days after the end
of the quarter.
v. Importation of capital equipment, machinery, spare
parts, lifesaving and navigational equipment, steel c. Withholding VAT Return– on or before the 10 th
plates and other metal plates including marine- day following the end of the month
grade aluminum plates to be used in the
construction, repair, renovation or alteration of any Beginning Jan. 1, 2023, the filing and payment
merchant marine vessel operated or to be operated required under the Tax Code shall be done within
in the domestic trade. 25 days following the close of each taxable quarter.

Provided, that the exemption shall be subject to the 2. Place of filing and payment – Any
provisions of Section 19 of RA 9295; authorized bank where the Revenue District Office
is located.
w. Services of banks, non-bank financial intermediaries
performing quasi-banking functions, and other non- 3. Modes of Payment
bank financial intermediaries subject to percentage a. Over-the-counter cash payment transactions -
tax, such as money changers and pawnshops; and payment of tax liabilities to authorized agent
banks (AAB) in the currencies that are legal
x. Business pursued by an individual where the tender in the Philippines (not exceeding P10,000)
aggregate gross sales and/or receipts do not exceed
P100,000 during any 12-month period (shall be b. Bank debit system – a taxpayer, thru a bank
considered principally for subsistence or livelihood debit memo/advice authorizes withdrawal from
and not in the course of trade or business); his/its existing bank accounts for payment of tax
liabilities.
y. Sale or lease of goods and services to senior
citizens and persons with disabilities Conditions:
1. This mode is allowed only if the taxpayer has
z. Transfer of Property pursuant to Section 40(C)(2) of a bank account with the bank where he/it
the Tax Code, as amended; intends to file and pay his/its tax return/form/
declaration;
aa. Association dues, membership fees, and other
assessments and charges collected by homeowners 2. Said AAB branch is within the jurisdiction of
associations and condominium corporations; the BIR Revenue District Office (RDO)/Large
Taxpayers District Office (LTDO) where the
bb. Sale of gold to the Bangko Sentral ng Pilipinas;
tax payment is due and payable.
cc. Sale of drugs and medicines prescribed for diabetes,
3. This mode is not acceptable as payment for
high cholesterol, and hypertension and sale or
withholding taxes including fringe benefit tax
importation of prescription drugs and medicines for
and for taxes, fees and charges collected
cancer, mental illness, tuberculosis, and kidney
under special schemes/procedures /programs
diseases;
of the government/BIR
dd. Sale or importation of the following goods from
c. Credit facility with a bank, credit company or
January 1, 2021 to December 31, 2023:
similar institution; or
1. Capital equipment, its spare parts and raw d. Personal or company check, cashier’s or
materials, necessary to produce personal manager’s check
protective equipment component;
The following checks are not acceptable for
2. All drugs, vaccines and medical devices payment:
specifically prescribed and directly used for the 1. Accommodation checks – issued or drawn by a
treatment of Covid-19; party other than the one making the payment.
2. Second endorsed checks – issued to the
3. Drugs, including raw materials, for the treatment taxpayer as payee who indorses the same as
of Covid-19 approved by the Foods and Drugs payment for taxes.
Authority for use in clinical trials. 3. Stale checks – dated more than 6 months prior
ee. Sale or lease of goods or properties or the to presentation to the AAB.
performance of services other than the transactions 4. Post-dated checks – dated a day or several
mentioned in the preceding paragraphs, the gross days after the date of presentation to the AAB.
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 38

5. Unsigned checks – no signature of the drawer Any person or entity who, in the course of his trade or
6. Checks with alterations/erasures business, sells, barters, exchanges, leases goods or
properties and renders services subject to VAT shall
ELECTRONIC FILING & PAYMENT SYSTEM register with the appropriate Revenue District Office
1. Definitions (RDO).
a. EFPS - refers to the system developed and
Annual Registration Fee: P500 for every separate and
maintained by the BIR for electronically filing tax
distinct establishment or place of business before the
returns, including attachments, if any, and paying
start of such business and every year thereafter on or
taxes due thereon, specifically thru the internet.
before January 31 (BIR Form 0605).
b. e-Filing – the process of electronically filing
returns including attachments, if any, specifically MANDATORY VAT REGISTRATION
thru the internet. Any person who enters into transactions that are or
maybe subject to VAT, if:
c. e-Payment– the process of electronically paying a
tax liability thru the internet banking facilities of a. The aggregate amount of actual gross sales or
AAB. receipts (other than those that are exempt)
exceed P3 Million for the past 12 months, or
2. Coverage – open to all taxpayers who want to make
use of the system; however, the following are b. There are reasons to believe that the gross sales or
mandated to make use of the system: receipts for the next 12 months will exceed P3
million.
a. Large taxpayers duly notified by the BIR
b. Top 20,000 private corporations identified and c. Radio and/or television broadcasting companies
notified by the CIR whose annual gross receipts of the preceding year
c. Top 5,000 individual taxpayers duly notified by exceeds P10,000,000.
the BIR
Every person who becomes liable to be registered as
d. Taxpayers who wish to enter into contract with
VAT taxpayer but failed to register –
government offices
e. Corporations with paid-up capital of P10 million
a. shall be required to pay the output tax
and above;
as if he were a VAT registered person,
f. PEZA registered entities and those located within
b. but without the benefit of input tax
special economic zones; and
credits for the period in which he was not properly
g. Government offices in so far as remittance of
registered.
withheld VAT and business tax is concerned.
OPTIONAL VAT REGISTRATION
REFUND OF INPUT TAX/CONVERSION TO TAX
1. Any person who is –
CREDIT CERTIFICATE on ZERO RATED SALES
a. VAT-exempt or
File application with the BIR within 2 years after the
b. not required to
close of the taxable quarter when the sales were
register for VAT
made, except transitional input tax.
May elect to be VAT-registered by registering with
In proper cases, the Commissioner of Internal Revenue the RDO that has jurisdiction over the head office of
shall grant refund for creditable input taxes within 90 that person, and pay the annual registration fee of
days from the date of submission of the official P500 for every separate and distinct establishment.
receipts or invoices and other documents in support of
the application filed in accordance with subsections (A) 2. Any person who elects to be registered shall not be
and (B) hereof; Provided, that, should the allowed to cancel his registration for the next three
Commissioner find that the grant of refund is not (3) years.
proper, the Commissioner must state in writing the 3. Any person who is VAT-registered but enters into
legal and factual basis for the denial. transactions which are exempt from VAT (mixed
In case of full or partial denial of the claim for tax transactions) may opt that the VAT apply to his
refund, the taxpayer affected may, within thirty (30) transactions which would have been exempt under
days from the receipt of the decision denying the Section 109(1) of the Tax Code, as amended [Sec.
claim, appeal the decision with the Court of Tax 109(2)].
Appeals: 4. Franchise grantees of radio and/or television
Provided, however, that failure on the part of any broadcasting -
official, agent, or employee of the BIR to act on the a. whose annual gross receipts of the preceding
application within 90-day period shall be punishable year do not exceed P10,000,000 derived from
under Section 269 of this the Tax Code, as amended. the business covered by the law granting the
franchise are subject to franchise tax and not
REGISTRATION OF VAT TAXPAYERS VAT.
b. However, they may opt to be VAT registered
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 39

c. Once this option is exercised, it shall be 3. VAT invoice/official receipt shall be prepared at least
irrevocable (subject to VAT forever). in duplicate, the original to be given to the buyer
and the duplicate to be retained by the seller as
5. The above-stated taxpayers may apply for VAT part of his accounting records.
registration not later than 10 days before the
beginning of the calendar quarter and shall pay the ISSUANCE OF INVOICES
registration fee unless they have already paid at the 1. Single invoice/receipt involving VAT and non-VAT
beginning of the year. transactions.
In any case, the Commissioner of Internal Revenue
A VAT registered taxpayer may issue a single
may, for administrative reason deny any application
invoice/receipt involving VAT and non-VAT
for registration.
transactions provided that:
Once registered as a VAT person, the taxpayer shall The invoice or receipt shall clearly indicate the
be liable to output tax and be entitled to input tax break-down of the sales price between its taxable,
credit beginning on the first day of the month exempt and zero-rated components and the
following registration. calculation of the Value-Added Tax on each portion
of the sale shall be shown on the invoice or receipt.

APPLICATION FOR REGISTRATION 2. Separate invoices/ receipts involving VAT and Non-
The application shall be filed with the RDO where the VAT transactions
principal place of business, branch, storage place or A VAT registered person may issue separate
premises is located, as the case may be, before invoices/receipts for the taxable, exempt, and zero-
commencement of business or production or rated component of its sales provided that:
qualification as a withholding agent. a. If the sales is
exempt from VAT, the term "VAT-EXEMPT SALE" shall
In the case of storage places, the application shall be be written or printed prominently on the invoice or
filed within 30 days from the date the aforesaid receipt, and
premises have been used for storage. b. If the sale is subject to zero percent (0%) VAT , the
term "ZERO-RATED SALE" shall be written or printed
CANCELLATION OF VAT REGISTRATION prominently on the invoice or receipt.
A VAT-registered person may cancel his registration for ISSUING AN ERRONEOUS VAT INVOICE OR VAT
VAT if: OFFICIAL RECEIPT
1. He makes a written application and can 1. If a non-VAT registered person issues an invoice or
demonstrate to the satisfaction of the CIR that his receipt showing his TIN followed by the word VAT,
gross sales or receipts for the following 12 months, the non-VAT person shall be liable to:
other than those that are exempt, will not exceed a. The percentage taxes applicable to his
P3 million; or transactions;
2. He has ceased to carry on his trade or b. The VAT due on the transactions without the
business, and does not expect to recommence any benefit of any tax credit; and
trade or business within the next 12 months. c. A 50% surcharge.

The cancellation for registration will be effective 2. If a VAT registered person issues a VAT invoice or
from the first day of the following month the official receipt for a VAT-exempt transaction but
cancellation was approved. fails to display prominently on the invoice or receipt
the term “VAT EXEMPT SALE”, the issuer shall be
INVOICING REQUIREMENTS liable to VAT.
A VAT registered person shall issue: In both cases, the VAT shall, if other requisite
1. A VAT invoice for every sale, barter or exchange of information required is shown on the invoice or receipt,
goods or properties; and be recognized as an input tax credit to the purchaser.
2. A VAT official receipt for every lease of goods or
properties and for every sale, barter or exchange of CONTENTS OF VAT INVOICE/OFFICIAL RECEIPT
services. A VAT-registered person must issue a VAT invoice for
every taxable transaction. The invoice/official receipt
Rules: must show:
1. Only VAT-registered persons are required to print 1. The name, TIN and address of seller
their TIN followed by the word “VAT” in their invoice 2. Contact address
or official receipts. Said documents shall be 3. Date of transaction
considered as a “VAT Invoice” or “VAT Official 4. Name of payor
Receipt. 5. Address of payor
2. All purchases covered by invoices/ receipts other 6. Business style of payor
than VAT Invoice/VAT Official Receipt shall not give 7. Nature and amount of payment
rise to any input tax. 8. The amount of VAT, gross and net of tax
 CTT EXAMINATION REVIEWER (NOTES) PAGE A - 40

from the Philippines in a continuous and

OTHER PERCENTAGE TAXES uninterrupted flight, irrespective of the place of sale
or issue and the place of payment of the passage
1. TAX ON PERSONS EXEMPT FROM VAT (NON- documents.
VAT under Sec 116)
TRANSACTIONS SUBJECT: Sale, lease of goods or 4. FRANCHISE TAX
properties, or performance of services. Who are subject? Franchise holders of:
1. Radio/television broadcasting compa-nies whose
RATE and BASE: 3% of gross selling price or gross annual gross receipts of the preceding year do
receipts. Effective July 1, 2020 until June 30, 2023, not exceed P10 million - 3%
the rate shall be 1%.
2. Gas and water utilities - 2%
Requisites: All other franchise holders shall pay the VAT. The
1. The gross annual sales/receipts do not radio and television broadcasting companies shall
exceed P 3 million); AND have an option to be registered as a value-added
2. Must not be a VAT registered taxpayer. taxpayer and pay the tax due thereon.

EXEMPTION FROM 3% NON-VAT: Once this option is exercised, it becomes

1. Self-employed individuals and professionals whose irrevocable.
annual gross sales/receipts and other non-
operating income do not exceed P3 million and 5. TAX ON AGENTS OF FOREIGN
who opted for the 8% income tax. INSURANCE COMPANY
2. Cooperatives
2. CARRIERS’ TAX: Domestic Carriers Tax Rate and Tax Base:
What are subject? 1. 4% of the total premium collected shall
1. Cars for rent or hire driven by the lessee; be imposed upon every fire, marine or
2. Transportation contractors on land, including miscellaneous insurance agent authorized
persons who transport passengers for hire; under the Insurance Code to procure policies
3. Other domestic carriers by land for transport of or insurance as he may have previously been
passengers, except owners of bancas and legally authorized to transact on risks located
owners of animal-drawn two-wheeled vehicles; in the Philippines for companies not authorized
and to transact business in the Philippines.
4. Keepers of garages.
RATE AND BASE: 3% of gross receipts
Business tax on Transport Network Vehicle Service (TNVS)
2. 5% on premiums paid shall also be
Status TNVS/Partner imposed on owners of property who obtain
insurance directly with foreign insurance
With CPC (franchise) 3% Franchise Tax companies.
Without CPC 3% non-VAT/12% VAT This tax shall not apply to reinsurance
premiums.
3. COMMON CARRIERS TAX ON INTERNATIONAL
6. TAX ON BANKS AND NON-BANK FINANCIAL
CARRIERS
INTERMEDIARIES PER-FORMING QUASI-
Who are subject? International air carriers and BANKING FUNCTIONS
international shipping carriers doing business in the
Tax Base:Gross Receipts derived from sources
Philippines.
within the Philippines
Rule on international carriers: Tax Rates:
Business Tax Passengers Cargoes a. On interest, commissions and discounts
VAT Exempt Exempt from lending activities as well as income
Taxable on from financial leasing, on the basis of
3% Carriers Tax Exempt remaining maturities of instruments from
outgoing
which such receipts are derived:
Rate and Base: 3% of gross receipts Maturity period:
Gross receipts shall include, but shall not be limited Five (5) years or less 5%
to, the total amount of money or its equivalent More than 5 years 1%
representing the contract, freight/cargo fees, mail
fees, deposits applied as payments, advance b. On dividends and equity shares
payments and other service charges and fees and net income of subsidiaries 0%
actually or constructively received during the c. On royalties, rentals of proper-ty,
taxable quarter from cargo and/or mail, originating
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 41

real or personal, profit from 30% Jai-Alai and race tracks

exchange and all other items
treated as gross income under Sec Boxing exhibitions where World or Oriental
32 of the Code Championships in any division is at stake shall be
7% exempt from amusement tax, if -
d. On net trading gains within the 1. one of the contenders is a citizen of the
taxable year on foreign currency, Philippines; and
debt securities, derivatives and 2. said exhibitions are promoted by
other similar financial instruments a) citizens of the Philippines, or
7%
b) by a corporation or association at least 60%
In case the maturity period is shortened thru of the capital of which is owned by such
pretermination, then the maturity period shall be citizens.
reckoned to end as of the date of pretermination
for purposes of classifying the transaction and the 10. TAX ON WINNINGS
correct rate of tax shall be applied accordingly. Persons subject: Any person who –
1. Wins in horse races.
7. TAX ON OTHER NON-BANK FINANCIAL 2. Owns a winning race horse, based on the
INTERMEDIARIES INCLUDING FINANCE prize.
COMPANIES, MONEY CHANGERS AND
PAWNSHOPS Tax Rate and Tax Base:
a. Winner in horse races . . . . 10%
Tax Base: Gross receipts
Tax Rates: But if from: Double, forecast, quinella and
a. On interests, commissions and discounts trifecta bets - 4%
from lending activities as well as income BASE: Actual amount of winnings or dividends
from financial leasing on the basis of on every ticket after deducting the
remaining maturities of the instruments cost of ticket.
from which such receipts are derived: b.Owner of winning horse -10% of the prize
Maturity period:
Five (5) years or less 5% FILING AND PAYMENT – The operator, manager
More than 5 years 1% or person in charge of horse races shall file and
pay within 20 days from the date the tax was
b. From all other items treated as deducted and withheld.
gross income under Sec. 32 of 5%
the tax code 11. STOCK TRANSACTION TAX
Tax Base: Gross selling price
1. On the sale, barter, exchange or other
8. TAX ON OVERSEAS DISPATCH, MESSAGE OR disposition of shares listed and traded thru a
CONVERSATION ORIGINATING FROM THE local stock exchange, other than by a dealer in
PHIL (OVERSEAS COMMUNICATIONS TAX) securities- 6/10 of 1%
RATE AND BASE: 10% of the amount paid upon Filing and payment: Within 5 banking days
every overseas dispatched, message or from the date of collection.
conversation transmitted from the Philippines
(outgoing) by telephone, telegraph, telewriter 2. IPO TAX - On the sale, barter, exchange or
exchange, wireless and other communications other disposition thru initial public offering of
equipment services. shares of stock in a closely-held corporation, in
accordance with the proportion of the shares
Exemptions– This tax shall not apply to: sold, bartered, exchanged or otherwise
1. Government disposed of to the total outstanding shares of
2. Diplomatic services stock after the listing in the local stock
3. International organizations exchange, as follows:
4. News services
Up to 25% . . . . . . . . . . . 4%
Time for filing – The person rendering services Over 25% but not over 33 1/3 . 2%
shall collect and pay the tax within 20 days after Over 33 1/3 % . . . . . . . . 1%
the end of each quarter.
a. Closely held corporation – a corporation at
9. AMUSEMENT TAX least 50% in value of outstanding capital stock
The following amusement places shall be subject to the or at least 50% of the total combined voting
corresponding tax rates based on gross receipts: power of all classes of stock entitled to vote is
10% Place for boxing exhibitions owned directly or indirectly by or for not more
15% Place for professional basketball games than 20 individuals.
18% Cockpits, cabarets, night or day clubs
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 42

b. Initial public offering –public offering of shares professional basketball games, jai-alai and
of stock made for the first time in the Local racetracks.
Stock Exchange. h. Banks, non-bank financial intermediaries and
finance companies.
c. Primary offering –the original sale made to the i. Life insurance companies; and
investing public by the issuer corporation of its j. Agent of foreign insurance companies.
unissued shares of stock.
2. PLACE OF FILING- At his option, the taxpayer may file:
d. Secondary offering –an offer for sale to the a. a separate return for each branch or
investing public by the existing shareholders of place of business, or
their securities which is conducted during an b. a consolidated return for all branches or
IPO or a follow-on/follow-through offering. places of business.

e. Follow-on/Follow-through offering of shares – 3. SHORT PERIOD RETURN – Person who retires

an offering of shares to the investing public from business or whose registration has been
subsequent to an IPO. cancelled shall file quarterly return and pay the tax
due thereon within 25 days from cessation or
Filing and payment business operations or from the date of cancellation
1. Primary Offering - The corporate issuer shall file the of registration, as the case maybe.
return and pay the corresponding tax to the RDO
which has jurisdiction over said corporate issuer
within thirty (30) days from the date of listing of
the shares of stock in the Local Stock Exchange.
The return shall be accompanied with a copy of the
instrument of sale.

2. Secondary Offering – within five (5) banking days

from the date of collection thereof and to submit on
Mondays of each week to the secretary of the Local
Stock Exchange, of which he is a member, a true
and complete return, which shall contain a
declaration, that he made under the penalties of
perjury, of all the transactions effected through him
during the preceding week and of taxes collected by
him and turned over to the concerned RDO.

The secretary of the LSE shall reconcile the records

of the LSE with the weekly reports of stockbrokers
and in turn transmit to the RDO, on or before the
15th day of the following month, a consolidated
return of all transactions effected during the
preceding month through the LSE.

FILING OF RETURN (BIR FORM NO. 2551Q) AND

PAYMENT OF PERCENTAGE TAXES (except Tax on
Winnings and Stock Transactions Tax and Initial Public
Offerings Tax)
1. TIME FOR FILING AND PAYMENT
Large and non-large taxpayers-within 25 days after
the end of every quarter on the following:
a. VAT-exempt taxpayers with annual gross
sales/receipts not exceeding P3M;
b. Domestic carriers and keepers of garages;
c. International air/shipping carriers;
d. Franchisees of gas or water utilities;
e. Franchisees of radio and/or TV broadcasting
with revenues not exceeding P10M;
f. Franchise grantees sending overseas dispatch,
messages or conversations from the Philippines
g. Proprietors, lessees or operators of cockpits,
cabarets, night or day clubs, boxing exhibitions,