The tax Reviewer Value Added Tax

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VALUE ADDED
TAX
The tax Reviewer Value Added Tax

Chapter 11
Value Added Tax

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Nature of VAT

The Value-Added Tax (VAT) is a tax on consumption levied on the sale,

barter, exchange or lease of goods or properties and services in the
Philippines and on importation of goods into the Philippines. (Sec. 4.105-2,
Revenue Regulations(RR)No. 16-05, the Consolidated VAT Regulations)

Indirect tax: It is an indirect tax that may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or services. (Commissioner of
Internal Revenue vs. SEAGATE Technology (Philippines); G.R. No. 153866;
February 11, 2005)

Tax on Consumption: VAT is ultimately a tax on consumption,even though

it is assessed on many levels of transactions on the basis of a fixed
percentage. It is the end user of consumer goods or services which
ultimately shoulders the tax, as the liability therefrom is passed on to the end
users by the providers of these goods or services who in turn may credit their
own VAT liability (or input VAT)from the VAT payments they receive from
the final consumer(or output VAT). The final purchase by the end consumer
represents the final link in a production chain that itself involves several
transactions and several acts of consumption. (CIR vs. Magsaysay Lines; GR
No. 146984; July 28, 2006)

Tax Credit Method:If at the end of a taxable quarter the output taxes charged
by a seller are equal to the input taxes passed on by the suppliers, no payment
is required. It is when the output taxes exceed the input taxes that the excess
has to be paid.

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If, however,the input taxes exceed the output taxes, the excess shall be carried December were all PI,000,000 each.
over to the succeeding quarter or quarters. Should the input taxes result from
zero-rated or effectively zero-rated transactions or from the acquisition of In this case, Mr.JMLH exceeded the P3,000,000 threshold during the month
capital goods, any excess over the output taxes shall instead be refunded to of October. Accordingly,
the taxpayer or credited against the output tax. (CIR vs. Seagate Techmlogy 1. He is subject to the 12% VAT beginning November (the next month);
(Phils.); GR No. 153866; Feb. 11, 2005) and
2. He is required to update his registration from Non-VAT to VAT-
Registration Requirement registered on or before November 30.

Optional Registration for VAT

Persons Required to Register for VAT
Any person who,in the course of trade or business, sells, barters or exchanges (a) Any person who is not required to register for value-added tax may elect
goods or properties, or engages in the sale or exchange of services, shall be to register for value-added tax.
liable to register for value-added tax if:
(a) His gross sales or receipts for the past twelve (12) months, other than Any person who elects to register shall not be entitled to cancel his
those that are exempt under Section 109(A)to(BB), have exceeded Three registration for the next three(3) years.
Million pesos (P3,000,000)(Prior to the TRAIN,Pl,919,500); or
(b) There are reasonable grounds to believe that his gross sales or receipts Individual taxpayers availing of the 8% flat rate of income tax are not
for the next twelve (12) months, other than those that are exempt under allowed to avail of the optional VAT registration.
Section 109(A)to (BB), have exceeded Three Million pesos (P3,000,000)
(Prior to the TRAIN,Pl,919,500);(Sec. 236[G]) (b) Radio and television franchisees who are not required to register under
(c) Radio and television franchisees are required to register for VAT if their letter (c)above.Once registration is availed, it can no longer be cancelled.
gross receipts for the preceding calendar year exceeded PI0,000,000.(Sec.
119) Basis of determining mandatory registrabiliUjfor VAT: the basis shall be
comprised only of those sales which are not considered exempt under Sec.
Persons availing of the 8% Flat Rate of Income Tax: Individual taxpayers 109(A) to (BB). Thus, any such sales falling within the exemptions are
availing of the 8% flat rate of income tax are likewise exempt from the excluded from the gross sales for purposes of determining if the taxpayer is
payment of the 12% VAT, and under Sec. 236(H) of the Tax Code, as required to be registered for VAT.
amended, are not allowed to avail of the optional VAT registration.
For example, ABC Company had P2,000,000 sales of fresh fruits and
However, note that under RR No. 13-18, if a taxpayer who initially availed of P2,500,000 sales of fruit jams. The sale of fresh fruits is considered exempt
the 8% flat rate, but whose sales during the year exceeded P3,000,000, he shall under Sec. 109(A). Therefore, the basis of determining mandatory
be liable for the 12% VAT prospectively, starting the next month when his registrability would only be P2,500,000,the amount of sales not exempt under
sales exceeded P3,000,000 and shall be required to update his VAT Sec. 109(A) to (BB). Considering, however, that the amount does not exceed
registration on or before the last day of the said month. P3,000,000, ABC Company is not mandatorily required to register for VAT.

ILLUSTRATION: Mr.JMLH signified his intention to be taxed at 8% in his

Main business of those who will optionally register: Under Sec.109(2), the
main business must be subject to VAT and the transactions which are exempt
1st Quarter Income Tax. For the first three quarters, his sales amounted to
do not constitute his main business. As such, if the main business is exempt,
P2,250,000. However, his sales for the month of October, November and
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then such optional registration is not available considering that Sec. 109(2)
"In the Course of Trade or Business""
speaks of a ''VAT-registered person" who can exercise such option.
"IN THE COURSE OF TRADE OR BUSINESS" means"the regular conduct
or pursuit of a commercial or economic activity, including transactions
Moreover, under KMC No. 46-2008, the BIR clarified that "[i]f the main
incidental thereto, by any person regardless of whether or not the person
business is exempt from VAT, the VAT-exempt person cannot elect that the
engaged therein is a non-stock, non-profit private organization (irrespective
said exempt business/es be placed under the VAT system. The option to be
of the disposition of its net income and whether or not it sells exclusively to
subject to VAT on its exempt transactions is available only to a VAT-
members or their guests), or government entity."
registered person pursuant to Section 109(2)of the Code, as amended by R.A.
9337."
Non-resident persons who perform services in the Philippines are deemed to
Registration not a requisite for VAT liability; hut required to claim input
be making sales in the course of trade or business, even if the performance of
services is not regular.(Sec. 4.105-3, RR No. 16-05)
VAT:the amount of sales is the one determinative of the liability for VAT not
registration. As such, if the amoimt of sales for the past 12 months exceeded
or at any time exceeds P3,000,000, the taxpayer shall be subject to the VAT Transactions Incidental Thereto
even if he did not register for such type of tax.
The term "incidental" means something necessary, appertaining to, or
The registration requirement is actually a pre-requisite to claim input VAT. depending upon another which is termed the principal, something incident
Accordingly, even if a taxpayer becomes liable for VAT for exceeding the to the main purpose. [Davis vs Pine Lumber Co., 273 C.A.ld 218, 77 Cal. Rptr.
threshold amoxmt of P3,000,000 but fails to register, he shall be liable for the 825; hAagsaysay Lines Inc., et.al. vs Commissioner of Internal Revenue(CTA Case
output VAT on such sales, but he shall not be entitled to any input VAT for No. 4353 dated April 27, 1992)].
his failure to register.
One time or isolated transaction can he considered ''incidental" to the main
business if the asset sold was used in business and recorded under Property,
Imposition of VAT Plant and Equipment: It does not follow that an isolated transaction cannot
be an incidental transaction for purposes of VAT liability. Indeed, a reading
Persons Liable to Pay the VAT of Section 105 of the 1997 Tax Code would show that a transaction "in the
1. Any person who,in the course of trade or business, course of trade or business includes transactions incidental thereto." In
a. sells, barters, or exchanges goods or properties (seller or transferor) which case, the sale of a fully depreciated vehicle by a company principally
b. leases goods or properties (lessor) engaged in the conversion of steam to electricity was held to be subject to
c. renders services (service provider) VAT since the vehicle was used in business and recorded under property,
2. Imports goods (importer) - the person who brings goods into the plant and equipment. (Mindanao Geothermal II vs. Commissioner of Internal
Philippines, whether or not made in the course of trade or business. Revenue)

As an indirect tax, VAT-registered sellers may pass on or shift the burden of Main business must be VATable to consider transactions "incidental"
the VAT to the buyers. However, the amount of VAT is still to be remitted to thereto VATable as well: otherwise, if the main line of business is VAT-
the BIR by the seller as he is the one statutorily liable for its payment. exempt, such as sale of copra, then transactions incidental thereto are
considered VAT-exempt as well, e.g., sale of delivery truck by the one who
sells copra.

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However,if the sale is VAT zero-rated,the incidental transactions thereto,not in view of Sony's dire or adverse economic conditions and was only
considered zero-rated, are treated as subject to 12% VAT. This is because a "equivalent to the latter's (Sony's) advertising expenses."
zero-rated sale is actually subject to VAT,although at 0% rate.
Under Sec. 106, "there must be a sale, barter or exchange of goods or
The requirement of'Hn the course oftrade or business^'or "incidental thereto" properties before any VAT may be levied. Certainly, there was no such sale,
is NOT applicable to: barter or exchange in the subsidy given by SIS to Sony. It was but a dole out
a. Importations - in fact, even if the importation is personal and not for by SIS and not in payment for goods or properties sold, bartered or
business purposes,the same will be considered subject to VAT, unless the exchanged by Sony."
importer is an exempt importer (e.g., BOI-registered enterprise or PEZA-
registered entities enjoying exemption from taxes on their importations In the case of CIR v. Court of Appeals(COMASERCO case), the Court had the
under their registration) occasion to rule that services rendered for a fee even on reimbursement-on
b. Sale of service by non-residents in the Philippines-as long as the services cost basis only and without realizing profit are also subject to VAT.The case,
are rendered in the Philippines, the same will be subject to withholding however, is not applicable to the present case. In that case. COMASERCO
VAT. The last paragraph of Sec. 105 provides that they "shall be rendered service to its affiliates and,in turn, the affiliates paid the former
considered as being in the course of trade or business." reimbursement-on-cost which means that it was paid the cost or expense
that it incurred although without profit. This is not true in the present case.
SERVICES RENDERED ON A REIMBURSEMENT-AT-COST BASIS
Sony did not render any service to SIS at all. The services rendered by the
STILL SUBJECT TO VAT EVEN IF NO PROFIT IS REALIZED advertising companies,paid for by Sony using SIS dole-out, were for Sony
THEREFROM: even a non-stock, non-profit, organization or government and not SIS. SIS just gave assistance to Sony in the amount equivalent to
entity is liable to pay VAT on the sale of goods or services. The term "in the the latter's advertising expense but never received any goods, properties or
course of trade or business" requires the regular conduct or pursuit of a service from Sony. (CIR vs. Sony Philippines, Inc., GR No. 178697 dated
commercial or an economic activity regardless of whether or not the entity November 17, 2010)
is profit oriented.

Determination of Tax
Hence, it is immaterial whether the primary purpose of a corporation
1. If the amount provided is exclusive of VAT, that amoimt is simply
indicates that it receives payments for services rendered to its affiliates on a
multiplied by 12% to arrive at the amount of VAT;
reimbursement-on-cost basis only, without realizing profit, for purposes of
determining liability for VAT on services rendered. As long as the entity
2. If the amount provided is inclusive of VAT, that amount is divided by
112% and then multiplied by 12% to arrive at the amount of VAT.
provides service for a fee, remuneration or consideration, then the service
rendered is subject to VAT. (CIR vs. CA and Commonwealth Management
The amount indicated in the official receipt or the invoice amount is
Services(COMASERCO); GR No. 125355; March 30, 2000)
presumably inclusive of VAT. Thus, if the official receipt or invoice price
states PI12,000 as the amount of sales, the VAT amount is 12/112 of PI12,000
SUBSIDIZED EXPENSES WHERE THERE IS NO SALE OF SERVICE IS
NOT SUBJECT TO VAT: In the case of CIR vs. Sony Philippines, Inc., Sony
which is P12,000. On the other hand, if what is provided is "sales" or
Philippines was assessed by the BIR of deficiency VAT for being reimbursed
"purchases" account, these are presumably exclusive of VAT, since for
accounting purposes, these accounts are usually recorded net of VAT, the
by Sony International Singapore (SIS) the amount of advertising expenses it
input VAT and output VAT having their respective accounts.
(Sony PH)incurred. The Supreme Court held that "[t]o begin with, the said
subsidy termed by the CIR as reimbursement was not even exclusively
earmarked for Sony's advertising expense for it was but an assistance or aid
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VAT ON Sale of Goods or Properties and

(2) The grant of which does not depend upon the happening ofafuture event.
The term "goods" or "properties" shall mean all tangible and intangible objects (3) The discount is expressly indicated in the invoice/OR. (Sec. 4.106-9,
RR No. 16-05)
which are capable of pecuniary estimation and shall include:
(a) Real properties held primarily for sale to customers or held for lease in
the ordinary course of trade or business; Accordingly, a cash discount which is based on the prompt payment of the
(b) The right or the privilege to use patent, copyright, design or model, plan, buyer is not allowable as a deduction from gross sales because it is dependent
secret formula or process, goodwill, trademark, trade brand or other like on the timing of payment. Trade discounts, however, which are granted at the
property or right; time of sale and are based, usually, on the bulk of the orders, is allowable since
(c) The right or the privilege to use in the Philippines of any industrial, it is not dependent on afuture event.
commercial or scientific equipment;
(d) The right or the privilege to use motion picture films, tapes and discs; VAT ACCRUES ON THE CONSUMMATION OF THE SALE in a contract
and of sale, the contract is perfected upon the meeting of the minds. However,
(e) Radio, television, satellite transmission and cable television time. ownership is not transferred until delivery is made which is the
consummation of the contract.
Tax BASF
For sale of goods is the '"gross selling prirp"' which is the total amount of Under RR No. 16-05, the input VAT is creditable upon consummation of the
money or its equivalent which the purchaser pays or is obligated to pay to sale, which is upon the delivery of the goods and issuance of the sales invoice.
the seller in consideration of the sale, barter or exchange of the goods or Consequently, the VAT thereon accrues at the same time regardless of
properties, excluding the value-added tax. The excise tax, if any, on such whether payment has already been made,subject to the exception under sale
goods or properties shall form part of the gross selling price."(Sec. 106, NIRC) of real property on installments.

^ short, the gross selling price is the invoice price less any allowable ILLUSTRATION: A sold goods to B on March 28, 2021 when it was
discounts and excluding the VAT. delivered as well. B paid A on April 2, 2021.

In case of barter, sale or exchange of real property subject to VAT, gross Since the transaction is a sale of goods, the VAT shall be recognized in
se mg price shall mean the consideration stated in the sales document or the March when the sale was consummated, regardless of whether the
fair market value whichever is higher. The term "fair market value" shall payment was made on the subsequent month, i.e., April.
mean whichever is higher of:
(1)the fair market value as determined by the Commissioner(zonal value); Sale of Real Property
(2)fair market value as shown in schedule of values of the Provincial or City SALE OF REAL PROPERTY ON INSTALLMENT means sale of real
Assessors(real property tax declaration).(Sec. 4.106-4, RR No. 16-05) property by a real estate dealer, the initial payments of which in the year of
sale do not exceed 25% of the gross selling price/contract price.
Allowable Deductionsfrom Hross Selling Price
a. Sales returns and allowances
In this case, the VAT shall be due on each installment payments only reported
b. Sales discounts, provided:
on each of their respective months/quarters and not the whole VAT due on
the sale.
(1) The sales discount granted is indicated in the invoice at the time ofsale;

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Sale on a Deferred-Payment Basis: if the initial payments exceed 25% of the c. If in the case of (b) above, but the fair market value of the land is
gross selling price/contract price, the transaction shall be considered as a sale P2,000,000- the computation would be the same since the selling price
on a deferred-payment basis and will be treated as a cash sale which makes is higher than the market value.
the entire selling price taxable in the month/quarter of sale.
d. If in (b) above, the fair market value of the land is P4,000,000, then this
Initial payments shall mean the sum of the: amount will be the basis of the VAT computation, which in the case of
1. Down payment real property is based on the FMV or Selling Price whichever is higher.
2. All instalment payments made or is expected to be received during the
year of sale; and The VAT base on each installment will be computed as follows:
3. When the amount of mortgage is more than the cost to the seller, the
excess shall form part of the initial payments (e.g., the mortgage on the Installment Payment
real property is P1,000,000, where the cost to the seller is P800,000 - the X Fair Market Value = VAT base
Total Contract Price
excess of P200,000 is considered part of the initial payments).
In the above example, the VAT base for November and December
The term does not include any notes or other evidence of indebtedness issued would be P150,000, computed as follows:
by the purchaser to the seller or the mortgage when the same is lower than
the cost to the seller.
P150,000
X P4,000,000 = P200,000
P3,000,000
ILLUSTRATION: A land was sold for P3,000,000, exclusive of VAT
payable in 20 monthly instalments of P150,000 each. The VAT due then would be P24,000 (P200,000 VAT base * 12%)for
November and P24,000 for December.
a. If the lot was sold on March 1, 2021, the total monthly installment
pa)anents or the ''initial payments" would be Pl,500,000 (P150,000
Note; the denominator is ALWAYS the selling price/contract price
installments for 10 months).
since this represents 100% of the total payments that wiU be made.The
Since the initial payments is 50% of the selling price, this would be
formula computes for the ratio of the completion of payment and what
percentage that is compared to the fair market value which is the
considered as a sale on "deferred-payment" basis and accordingly,the proper VAT base.
whole P360,000(P3,000,000 12%)VAT on the sale of lot would be due
in the month/quarter of sale, i.e., March;
Transactions Deemed Sale
b. If the lot was sold on Nov. 1, 2021, the total monthly instalment
payments for 2017 would be P300,000 (equivalent to two months), TRANSACTIONS DEEMED SALE: as the term implies, entails no actual
which is 10% of the selling price and thus would qualify as installment sale, but by their nature, are considered as "sales" subject to VAT.
sale.
Rationale: to recoup from the input VAT already claimed on such goods
Accordingly, only 12% of the P300,000 would be the VAT due, i.e., which are not subsequently subjected to output VAT since they are not sold.
P18,000 for November and P18,000 for December, or P36,000 for the
Note that the input VAT on purchase of raw materials can be claimed on the
quarter.
month of purchase with the expectation that the goods will relate to output
VAT upon their sale; if the disposition of the finished goods do not result in
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a VATable transaction, or if not deemed sale, then the taxpayer would have
benefited from the input VAT without any corresponding output VAT 4. Retirement from or cessation of business,with respect to inventories of
liability. taxable goods existing as of such retirement or cessation.(Sec. 106[B])

TAX BASE: The Commissioner of Internal Revenue shall determine the The VAT shall also apply to goods disposed of or existing as of a certain
appropriate tax base in cases where a transaction is deemed a sale, barter or date if under circumstances to be prescribed in rules and regulations to
exchange of goods or properties, or where the gross selling price is be promulgated by the Secretary of Finance, upon recommendation of
unreasonably lower than the actual market value. the Commissioner, the status of a person as a VAT-registered person
changes or is terminated.
The gross selling price is unreasonably lower than the actual market value if
it is lower by more than 30% of the actual market value of the same goods of SUBJECT TO OUTPUT TAX:the VAT shall apply to goods or properties
the same quantity and quality sold in the immediate locality or the nearest originally intended for sale or use in business, and capital goods which
date of sale. In case of such, the actual market value shall be the tax base.(Sec. are existing as of the occurrence of the following:
4.106-7(b), RR No. 16-05) 1. Change of business activity from VAT taxable status to VAT-exempt
status;
THE FOLLOWING TRANSACTIONS SHALL BE DEEMED SALE: 2. Approval of a request for cancellation of registration due to reversion
1. Transfer, use or consumption not in the course of business of goods or to exempt status;
properties originally intended for sale or for use in the course of 3. Approval of request for cancellation or registration due to a desire to
business. revert to exempt status after the lapse of 3consecutive years from the
time of registration by a person who voluntarily registered despite
This can take place when VAT-registered person withdraws goods from being exempt under Sec. 109(2)of the Tax Code;
his business for his personal use.(Sec. 4.106-7[a][l]ofRR No. 16-05) 4. Approval of request for cancellation of registration of one who
2. Distribution or transfer to:
commenced business with the expectation of gross sales or receipts
a. Shareholders or investors as share in the profits of the VAT- exceeding P3,000,000(Pl,919,500 prior to the TRAIN),but who failed
registered persons to exceed this amount during the first 12 months of operation. (Sec.
4.106-8(a), RR No. 16-05)
Property dividends which constitute stocks in trade or properties
primarily held for sale or lease declared out of retained earnings and NOT SUBJECT TO OUTPUT TAX:The VAT shall not apply to goods or
distributed by the company to its shareholders shall be subject to properties existing as of the occurrence of the following:
VAT.(Sec. 4.106-l[a][2][i]o/RR No. 16-05) 1. Change of control of a corporation by the acquisition of the
controlling interest of such corporation by another stockholder or
b. Creditors in payment of debt; group of stockholders. The goods or properties used in business or
3. Consignment of goods if actual sale is not made within sixty (60) days those comprising the stock-in-trade of the corporation, having a
following the date such goods were consigned change in corporate control, will not be considered sold, bartered or
exchanged despite the change in the ownership interest in the said
CONSIGNMENT OF GOODS in itself is not a VAT taxable transaction. corporation.
Only if actual sale is not made within sixty (60) days following the date 2. Change in the trade or corporate name of the business;
such goods were consigned will it be treated as a transaction deemed sale 3. Merger or consolidation of corporations. The unused input tax of the
subject to VAT.
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dissolved corporation, as of the date of the merger or consolidation, IMPORTER: refers to any person who brings goods into the Philippines,
shall be absorbed by the surviving or new corporation. (Sec. 4.106-8 whether or not made in the course of trade or business.(Sec. 4.107-1(h), RR
(b), RR No. 16-05) No. 16-05)

VAT ON Importations VAT ON Sale of Service

IMPORTATION is the act of bringing goods and merchandise into the A. SALE OF SERVICE SUBJECT TO 12% VAT
Philippines from a foreign country.
The phrase "sale or exchange of services" means the performance of all kinds
TAX BASE: the total value used by the Bureau of Customs (BOC) in or services in the Philippines for others for a fee, remuneration or
determming tariff and customs duties, plus customs duties, excise taxes, if consideration, including those performed or rendered by construction and
any, and other charges, such as postage, commission, and similar charges, service contractors; stock, real estate, commercial, customs and immigration
prior to the release of the goods from customs custody. brokers; lessors of property, whether personal or real; warehousing services;
In case the valuation used by the BOC in computing customs duties is based lessors or distributors of cinematographic films; persons engaged in milling
on volume or quantity, the landed cost shall be the basis for computing VAT. processing, manufacturing or repacking goods for others; proprietors,
operators or keepers of hotels, motels, resthouses, pension houses, inns,
Landed cost" consists of the invoice amount, customs duties, freight, resorts; proprietors or operators of restaurants, refreshment parlors, cafes and
insurance and other charges.
other eating places,including clubs and caterers; dealers in securities;lending
If the goods imported are subject to excise tax, the excise tax shall form part investors, transportation contractors on their transport of goods or cargoes,
of the tax base.
including persons who transport goods or cargoes for hire and other domestic
common carriers by land relative to their transport of goods or cargoes;
Note, however,that those amounts paid which are contrary to law, morals or common carriers by air and sea relative to their transport of passengers,
public policy shall not be included in the VAT base and likewise are not goods or cargoes from one place in the Philippines to another place in the
deductible for income tax purposes, such as facilitation fees or bribe. Philippines, sales of electricity by generation companies, transmission, and
distribution companies; services of franchise grantees of electric utilities,
The same rule applies to technical importations,(see zero-rated sales) telephone and telegraph, radio and television broadcasting and all other
franchise grantees except those under Section 119 of this Code and non-life
SALE OF TAX-FREE GOODS TO NON-EXEMPT PERSONS: the insurance companies(except their crop insurances)including surety,fidelity,
importation of goods is exempt from VAT and customs duties if made by an indemnity and bonding companies; and similar services regardless of
whether or not the performance thereof calls for the exercise or use of the
exempt person (like an embassy or an ambassador). However,in the event he
physical or mental faculties.
sells, transfers or otherwise disposes of the goods in favor of a NON-EXEMPT
person, the importation shall be taxable against the purchaser, transferee or
The phrase 'sale or exchange of services' shall likewise include:
recipient who shall be considered as importer thereof.
(1) The lease or the use of or the right or privilege to use any copyright,
patent, design or model, plan secret formula or process, goodwill,
trademark, trade brand or other like property or right;
(2) The lease of the use of, or the right to use of any industrial, commercial
or scientific equipment;
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(3) The supply of scientific, technical, industrial or commercial knowledge

Tax Base
or information;
(4) The supply of any assistance that is ancillary and subsidiary to and is for sale of service is the "gross receipts" which means "the total amount of
furnished as a means of enabling the application or enjoyment of any money or its equivalent representing the contract price, compensation,
such property, or right as is mentioned in subparagraph (2) or any such service fee, rental or royalty, including the amount charged for materials
knowledge or information as is mentioned in subparagraph (3); supplied with the services and deposits and advanced payments actually or
(5) The supply of services by a non-resident person or his employee in constructively received during the taxable quarter for the services performed
connection with the use of property or rights belonging to, or the or to be performed for another person, excluding value-added tax," (Sec. 108,
installation or operation of any brand, machinery or other apparatus NIRC)except those amounts earmarked for payment to unrelated third (3rd)
purchased from such non-resident person. party or received as reimbursement for advance payment on behalf of
(6) The supply of technical advice, assistance or services rendered in another which do not redound to the benefit of the payor. (Sec. 4.108-4, RR
connection with technical management or administration of any No. 16-05, as amended by RR No. 4-07)
scientific, industrial or commercial undertaking, venture, project or
scheme; Pass-through transactions: for the above exceptions to apply, the receipt must
(7) The lease of motion picture films, films, tapes and discs; and be issued for the third person who will ultimately shoulder the expense, in
(8) The lease or the use of or the right to use radio, television, satellite order to be excluded from the gross receipts of the person receiving the
transmission and cable television time. reimbursement or the advances.

Lease of properties shall be subject to the tax herein imposed irrespective of ILLUSTRATION: A paid PI00 to B, P30 of which is reimbursement of the
the place where the contract of lease or licensing agreement was executed if services advanced by B and paid to C.
the property is leased or used in the Philippines.(Sec. 108)
In this case, B should only issue a receipt for P70, and C will issue a receipt
SERVICES MUST BE PERFORMED IN THE PHILIPPINES: such that, if for P30 in the name of A,in order for B to subject only P70 to VAT instead
the services were performed outside the Philippines, the same is not subject of the whole PI00 received from A.
to VAT. Note, however, that even though the services are performed in the
Philippines but for a foreign client/customer, the same may still be treated as Constructive Receipt
zero-rated subject to the BIR's fulfillment of the conditions under the TRAIN 'CONSTRUCTIVE RECEIPT' occurs when the money consideration or its
Law for their removal from the list ofzero-rated sales.(Please see zero-rated sale equivalent is placed at the control of the person who rendered the service
ofservice)
without restrictions by the payor. The following are examples of constructive
receipts:
Accrual 1. Deposits in banks which are made available to the seller of services
VAT ACCRUES AT THE TIME OF PAYMENT:In sale of services, the VAT without restrictions;
accrues at the time of pa)mient independent of whether the services has been 2. Issuance by the debtor of a notice to offset any debt or obligation and
performed or not, or in short,following the cash basis of accounting. acceptance thereof by the seller as payment for services rendered; and
3. Transfer of the amounts retained by the payor to the account of the
As such, even if the services were already performed, but the same remain contractor.(Sec. 4.108-4, RR No. 16-05)
unpaid, no VAT is due yet. On the other hand,if payment is already received
but no services has been performed yet, the VAT is already due. LESSORS OF PROPERTY: unless considered exempt under Sec. 109 of the
Tax Code, Lessors of Property shall be considered liable for VAT on the gross
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Value Added Tax

rentals, regardless of the place where the contract of lease or licensing

agreement was executed if the property leased or used is located in the Expenses incurred from such deposits made by clients, when paid for by the
Philippines. GPP, must be in the name of the GPP in order for the same to be claimed as
an expense for income tax purposes or claim any input VAT credits
VAT on rental and/or royalties payable to non-resident foreign corporations therefrom.
or owners for the sale of service and use or lease of properties in the
Philippines shall be based on the contract price agreed upon by the licensor SALE OF CINEMA TICKETS NOT SUBJECT TO VAT: While the
and licensee. The licensee shall be responsible for the payment of VAT on enumeration of services under Sec. 108 is merely by way of example only and
such rentals and/or royalties on behalf of the non-resident foreign corporation not exclusive, the legislative intent is not to impose VAT on gross receipts of
or owner in the manner prescribed under [withholding VAT on payments to cinema/theater houses on their admission tickets, only to lessors of
non-residents].(Sec. 4.108-3(a), RRNo. 16-05) cinematographic films. Instead, the same is subject to the 10% amusement tax
imder the Local Government Code, as amended. Only lessors or distributors
Advance payment: If the advance payment constitutes prepaid rental, then of cinematographic films are included in the coverage of VAT.(CIR vs. SM
such payment is taxable to the lessor in the month when received,irrespective Prime Holdings, OR No. 183505 dated February 26, 2010)
of the accounting period employed by the lessor.
TOLL FEES SUBJECT TO VAT: VAT on tollway operations cannot be
The following do not constitute advance payment of rentals subject to VAT: deemed a tax on tax due to the nature of VAT as an indirect tax.
1. Loan to the lessor;
2. An option money for the property; or
The seller remains directly and legally liable for payment of the VAT,but the
3. A security deposit for the faithful performance of certain obligations of buyer bears its burden since the amount of VAT paid by the former is added
the lessee, such advance payment is not subject to VAT. However, a to the selling price. Once shifted, the VAT ceases to be a tax and simplv
security deposit applied to rentals shall be subject to VAT at the time of
becomes part of the cost that the buyer must pav in order to purchase the
its application.
good, property or service.
(See discussion under VAT-Exempt Transactions for discussion on lease of
Consequently, VAT on tollway operations is not really a tax on the tollway
residential property)
user, but on the tollway operator. Under Section 105 of the Code, VAT is
imposed on any person who, in the course of trade or business, sells or
PROFESSIONALS: as compared to the Local Government Code which renders services for a fee. In other words, the seller of services, who in this
covers only lawyers and those who are PRC licensed, for VAT purposes, case is the tollway operator, is the person liable for VAT. The latter merely
professionals include Actors, Professional Athletes, Singers, Broadcasters, shifts the burden of VAT to the tollway user as part of the toll fees.
Directors, etc.

For this reason, VAT on tollway operations cannot be a tax on tax even if toll
General Professional Partnerships: deposits received by the GPP should be fees were deemed as a "user's tax." VAT is assessed against the tollway
booked as income at that time and a VAT Official Receipt issued, thus subject operator's gross receipts and not necessarily on the toll fees. Although the
the same to VAT upon receipt, regardless if the GPP will only use the same tollway operator may shift the VAT burden to the tollway user, it will not
for out-of-pocket expense to be paid to third parties.(RMC No. 89-2012) make the latter directly liable for the VAT. The shifted VAT burden simply
becomes part of the toll fees that one has to pay in order to use the tollways.
The same rule applies to other service providers, other than GPPs.(RMC No. (Diaz vs. the SOF and the CIR, GR No. 193007 dated July 19, 2011)
16-2013)
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0% rate.(PAGCOR vs. BIR; OR No. 172087; March 15, 2011)

DEALERS IN SECURITIES mean merchants of stock or securities regularly
engaged in the purchase of securities and their resale. NON-LIFE INSURANCE COMPANIES: are those engaged in the business
of property insurance, as distinguished from insurance on human lives,
Output Tax Base: gross selling price less cost of the securities sold; health, accident and insurance appertaining thereto or connected therewith
which shall be subject to the percentage tax under Sec. 123 of the NIRC.(Sec.
LENDING INVESTORS include all persons other than banks, non-bank
4.108-3(0, RR No. 16-05)
financial intermediaries, finance companies and other financial
intermediaries not performing quasi-banking functions who make a practice
Tax Base: premiums collected, whether paid in money, notes, credits or any
of lending money for themselves or others at interest.
substitute for money.
1. REINSURANCE PREMIUMS: are subject to VAT.
Output Tax Base: gross receipts.(Sec. 4.108-3(g), RR No. 16-05)
2. COMMISSIONS: whether related to life or non-life, insurance or
reinsurance, are subject to VAT.
FRANCHISE GRANTEES:Generally, telephone and telegraph, radio and/or
television broadcasting and all other franchise grantees, except gas and water 3. VAT DUE FROM REINSURANCE COMPANIES:is to be withheld by the
utilities, shall be subject to VAT in lieu of franchise tax. local insurance company and to be remitted to the BIR in accordance with
[the withholding VAT (to be discussed later)].
However, franchise grantees of radio and/or television broadcasting whose
annual gross receipts of the preceding year do not exceed P10,000,000 shall Life Insurance Companies: premiums paid to LIFE insurance companies are
not be subject to VAT but to the 3% franchise tax imposed under Sec. 119 of subject to the 2% premiums tax which is a percentage tax. Accordingly, they
the NIRC. are exempt from the VAT.

Franchise grantees of gas and water utilities shall be subject to the 2% Zero-Rated Sales
franchise tax on their gross receipts and not to VAT.
Gross receipts of other franchise grantees, other than those covered by Sec. Zero-Rated Sale of Goods:
199 of the Tax Code, shall be subject to the VAT, subject to the threshold a. Export Sales. - The term "export sales" means:
requirement and optional registration availment.(Sec. 4.108-3(h), RR No 16- 1. The sale and actual shipment of goods from the Philippines to a
05) foreign country, irrespective of any shipping arrangement that may
be agreed upon which may influence or determine the transfer of
SALE TO PAGCOR IS ZERO-RATED: PAGCOR is exempt from the ownership of the goods so exported and paid for in acceptable
payment of VAT because PAGCOR's charter, P.O. No. 1869, is a special law foreign currency or its equivalent in goods or services, and accounted
that grants petitioner exemption from taxes. Although R.A. No. 9337 for in accordance with the rules and regulations of the Bangko Sentral
(amendment to the Tax Code)introduced amendments to Section 108 of R.A. ng Pilipinas (BSP);
2. Sale of raw materials or packaging materials to a non-resident
No. 8424 by imposing VAT on other services not previously covered, it did
buyer for delivery to a resident local export-oriented enterprise to
not amend the portion of Section 108 (B)(3) that subjects to zero percent rate
be used in manufacturing, processing, packing or repacking in the
services performed by VAT-registered persons to persons or entities whose
Philippines of the said buyer's goods and paid for in acceptable
exemption under special laws or international agreements to which the
foreign currency and accounted for in accordance with the rules and
Philippines is a signatory effectively subjects the supply of such services to
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regulations of the Bangko Sentral ng Pilipinas (BSP);

enhanced VAT refund system that grants refunds of creditable
3. Sale of raw materials or packaging materials to export-oriented
input tax within 90 days from the filing of the VAT refund
enterprise whose export sales exceed seventy percent(70%)of total
application with the Bureau: Provided, That, to determine the
annual production:
effectivity of item no. 1, all applications filed from January 1,
4. Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and
2018 shall be processed and must be decided within 90 days
5. Those considered export sales under Executive Order No. 226.
from the filing of the VAT refund application;
otherwise known as the Omnibus Investment Code of 1987, and
other special laws.
The 90-day period to process and decide, pending the
establishment of the enhanced VAT Refund System shall only be
"EXPORT SALES UNDER E.O. No. 226": Export sales provided
up to the date of approval of the Recommendation Report on such
under Sec. 106(A)(2)(a)(5) of the NIRC "shall mean the Philippine
port F.O.B. value of export products exported directly by a registered
application for VAT refund by the Commissioner or his duly
authorized representative.
export producer, or the net selling price of export products sold by a
registered export producer to another export producer, or to an
export trader that subsequently exports the same including sales to
However, all claims for refund/tax credit certificate filed prior to
export processing zones. (Sec. 4.106-5, RR No. 16-05)
January 1, 2018 shall still be governed by the one hundred twenty
(120)-day processing period.
6. Sale of goods, supplies, equipment and fuel to persons engaged in
international shipping or international air transport operations. b. All pending VAT refund claims as of December 31, 2017 shall
However, under the TRAIN, it is required that they shall be used be fully paid in cash by December 31, 2019.
exclusively for international shipping or air transport operations.
Provided, That the DOF shall establish a VAT refund center in the
The sale of goods, supplies, equipment and fuel to persons engaged BIR and m the BOG that will handle the processing and granting of
in international shipping or international air transport operations is cash refunds of creditable input tax.
limited to goods, supplies, equipment and fuel that shall be used in
the transport of goods and passengers from a port in the Philippines 2. No.(4), on the other hand, is now considered VAT-exempt under
directly to a foreign port, or vice versa, without docking or stopping the TRAIN. Accordingly, any input VAT attributable thereto will
at any other port in the Philippines unless the docking or stopping at no longer be allowed as input tax credits but rather will be closed
any other Philippine port is for the purpose of unloading passengers to expense for income tax purposes.
and/or cargoes that originated from abroad, or to load passengers
and/or cargoes bound for abroad: Provided, further, that if any b. Foreign Currency Denominated Sale. - The phrase "foreign currency
portion of such fuel, goods, supplies or equipment is used for denominated sale means sale to a non-resident of goods, except those
purposes other than that mentioned in this paragraph, such portion mentioned in Sections 149 and 150, assembled or manufactured in the
of fuel, goods, supplies, and equipment shall be subject to 12% VAT. Philippines for delivery to a resident in the Philippines, paid for in
acceptable foreign currency and accounted for in accordance with the
NOTE:
rules and regulations of the Bangko Sentral ng Pilipinas (BSP).
1• (2)(3)and (5)are no longer subject to zero-rating under the TRAIN, NOTE:This provision has been removed under the TRAIN. Accordingly,
upon satisfaction of the following conditions:
they are now subject to VAT.
a. The successful establishment and implementation of an
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Sentral ng Pilipinas (BSP);

c. Sales to persons or entities whose exemption under special laws or c. Services rendered to persons or entities whose exemption under special
international agreements to which the Philippines is a signatory laws or international agreements to which the Philippines is a signatory
effectively subjects such sales to zero rate. effectively subjects the supply of such services to zero percent (0%)
rate;
d. Sale and delivery of goods to: d. Services rendered to persons engaged in international shipping or air
1. Registered enterprises within a separate customs territory; and transport operations, including leases of property for use thereof:
2. Registered enterprises within tourism enterprise zones as declared Provided, that these services shall be exclusively for international
by the Tourism Infrastructure and Enterprise Zone Authority shipping or air transport operations. Thus, the services referred to herein
(TIEZA)subject to the provisions of RA No.9593, or the Tourism shall not pertain to those made to common carriers by air and sea relative
Act of 2009.
to their transport of passengers, goods or cargoes from one place in the
Philippines to another place in the Philippines, the same being subject to
The above(d[l] and [2]) were vetoed by the President and per RR No.13- twelve percent(12%)VAT under Sec. 108 of the Tax Code
18 is not included among those considered zero-rating. In the veto e. ^Services performed by subcontractors and/or contractors in processing,
message of the President, it is opined that these are subject to VAT by converting, of manufacturing goods for an enterprise whose export sales
virtue of the veto. However, it must be noted that our VAT system exceed seventy percent(70%)of total annual production.
follows the cross-border doctrine; and economic zones are managed as f. Transport of passengers and cargo by domestic air or sea vessels from the
separate customs territory under Section 8 of the Special Economic Zone
Philippines to a foreign country. Gross receipts of international air or
Act. Accordingly, sales from domestic suppliers to PEZA-registered shipping carriers doing business in the Philippines derived from
entities inside the economic zone should remain to be considered zero-
transport of passengers and cargo from the Philippines to another
rated despite the removal of the above provisions from the final version
of the TRAIN,as approved.
country shall be exempt from VAT; however, they are still liable to a
percentage tax of three percent(3%)based on their gross receipts derived
It would be noted, still, that Registered Business Enterprises within from transport of cargo from the Philippines to another country as
provided for in Sec. 118 of the Tax Code; and
ecozones are entitled to zero-rating on their purchases under the
g. Sale of power or fuel generated through renewable sources of energy
CREATE Act.
such as,but not limited to, biomass,solar, wind,hydropower,geothermal
and steam, ocean energy, and other emerging sources using technologies
Zero-Rated Sale of Service such as fuel cells and hydrogen fuels: Provided,however,that zero-rating
The following services performed in the Philippines by VAT- registered shall apply strictly to the sale of power or fuel generated through
persons shall be subject to zero percent(0%)rate. renewable sources of energy, and shall not extend to the sale of services
a. *Processing, manufacturing or repacking goods for other persons doing related to the maintenance or operation of plants generating said power.
business outside the Philippines which goods are subsequently
exported, where the services are paid for in acceptable foreign currency *NOTE:(a)and (e) above shall be subject to the 12% VAT and no longer
and accounted for in accordance with the rules and regulations of the subject to zero percent under the same conditions as that of sale of goods
Bangko Sentral ng Pilipinas (BSP); above under (2)(3) and (5).
b. Services other than those mentioned in the preceding paragraph, the
consideration for which is paid for in acceptable foreign currency and ZERO RATED SALE OF GOODS OR PROPERTIES/SERVICES: (by a
accounted for in accordance with the rules and regulations of the Bangko VAT-registered person) is a taxable transaction for VAT purposes but shall
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not result in any output tax. However, the input tax on purchase of goods, persons doing business outside the Philippines" not only refers to the services
properties or services, related to such zero-rated sale, shall be available as: enumerated in the first paragraph of Section 102(b), but also pertains to the
1. A tax credit (input VAT); or general term "services" appearing in the second paragraph of Section 102(b).
2. Refund or for the issuance of a Tax Credit Certificate.(Sec. 4.106-5, RR No. In short, services other than processing, manufacturing, or repacking of
16-05) goods must likewise be performed for persons doing business outside the
Philippines. In this case, the payer-recipient of respondent's services is the
If the VAT is not billed separately in the document of sale, the selling price Consortium which is a joint-venture doing business in the Philippines. While
or the consideration stated therein shall be deemed inclusive of VAT.(Sec. the Consortium's principal members are non-resident foreign corporations,
106-4, RR No. 16-05, as amended by RR No. 4-07) the Consortium itself is doing business in the Philippines.(CIR vs. Burmeister
and Wain; GR No. 153205; Jan. 22, 2007)
FACILITATION OF COLLECTION OF RECEIVABLES FOR FOREIGN
COUNTERPART - ZERO-RATED UNDER SEC. 108(B)(3): services
Cross Border Doctrine
performed by VAT-registered persons in the Philippines (other than the
Under the Destination Principle, goods and services are taxed only in the
processing, manufacturing or repacking of goods for persons doing business
outside the Philippines), when paid in acceptable foreign currency and country where these are consumed.
accoimted for in accordance with the rules and regulations of the BSP, are
zero-rated.The taxpayer in this case is a VAT-registered person that facilitates The Philippine VAT Law adheres to the "cross border doctrine" of the VAT
the collection and payment of receivables belonging to its non-resident system, which basically means that no VAT shall be imposed to form part
foreign client, for which it gets paid in acceptable foreign currency inwardly of the cost of goods destined for consumption outside the territorial border
remitted and accounted for in conformity with BSP rules and regulations. of the Philippine taxing authority. Hence, actual export of goods and
Certainly, the service it renders in the Philippines is not in the same category services from the Philippines to a foreign country must be free of VAT.
as "processing, manufacturing or repacking of goods" and should, therefore, Conversely, those goods destined for use or consumption and services to be
be zero-rated. In reply to a query of respondent, the BIR opined in VAT rendered within the Philippines shall be subject to the 12 % VAT. In
Ruling No. 080-89 that the income respondent earned from its parent explaining the "cross border principle", the Supreme Court ruled that under
company's regional operating centers (ROCs) was automatically zero-rated the cross-border principle of the VAT system being enforced by the BIR, no
effective January 1, 1988 (CIR vs. American Express; GR No. 152609; June 29, VAT shall be imposed to form part of the cost of goods destined for
2005) consumption outside of the territorial border of the taxing authority. If
exports of goods and services from the Philippines to a foreign country are
TO BE CONSIDERED ZERO-RATED UNDER SEC. 108(B)(3), THE free of the VAT, then the same rule holds for such exports from the national
RECIPIENT OF THE SERVICE MUST BE DOING BUSINESS OUTSIDE territory — except specifically declared areas — to an Ecozone,or in this case,
THE PHILIPPINES:The Tax Code not only requires that the services be other a Freeport Zone. (CIR vs. Seagate and CIR vs. Toshiba, cited in RMC No. 50-
2007)
than "processing, manufacturing or repacking of goods" and that payment for
such services be in acceptable foreign currency accounted for in accordance
with BSP rules. Another essential condition for qualification to zero-rating Automatic vs. Effective Zero-Rating
under Section 102(b)(2) is that the recipient of such services is doing An automatically zero-rated sale refers to a sale of goods, properties and services
business outside the Philippines. While this requirement is not expressly to a Freeport Zone-registered enterprise by a VAT-registered seller/supplier
stated in the second paragraph of Section 102(b), this is clearly provided in that is regarded as either an export sale or a foreign currency denominated
the first paragraph of Section 102(b) where the listed services must be "for sale under Section 106 of the Tax Code of 1997.
other persons doing business outside the Philippines." The phrase "for other
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An ejfectively zero-rated sale, on the other hand,refers to the local sale of goods,
properties and services by a VAT-registered person to an entity that was SALE WITHIN THE FREEPORT ZONE:Such sale, exchange, barter or lease
granted indirect tax exemption under special laws or international of goods, properties and services within the Freeport Zones shall be exempt
agreements. Since the buyer is exemptfrom indirect tax, the seller cannot pass from VAT.The following transactions are covered under this exemption:
on the VAT and therefore, the exemption enjoyed by the buyer shall extend
to the seller, making the sale effectively zero-rated.(Q4, RMC No. 50-2007)
a. All transactions between and/or among two registered Freeport Zone
Enterprises or Residents;
However, those considered effectively zero-rated [i.e., zero-rated sale of
b. Consumer goods purchased and consumed within the Freeport Zones;
goods tmder Sec. 106(A)(2)(c) and sale of services under Sec. 108(B)(3)] shall
c. Sale/supply of services, including power or electricity, by a Freeport
require prior application with the appropriate BIR office for effective zero-
Zone-registered enterprise or resident within the Freeport Zone,
rating. Without an approved application for effective zero-rating, the
transaction otherwise entitled to zero-rating shall be considered exempt.(RR
regardless of whether or not the buyer or customer is a registered
No. 16-05) However, still, this paragraph was deleted under RR No.4-07.
Freeport Zone enterprise or Zone Resident, provided that said
power/electricity or services are rendered, used or consumed within the
Freeport Zone; and
However, still, such requirement of prior ruling has been struck down in the
case of CIR vs. Seagate Technology (Philippines), the Court held that a VAT- d. The lease of properties owned by Freeport Zone-registered enterprises or
registered status, as well as compliance with the invoicing requirements, is Residents, provided that such properties are located within the subject
sufficient for the effective zero rating of the transactions of a taxpayer. Hence, Freeport Zones.(Q6, RMC No. 50-2007)
transactions of a VAT-registered taxpayer cannot be exempted by its mere
failure to apply for their effective zero rating. Otherwise, their VAT A freeport zone, or economic zone, is considered as outside the customs
exemption would be determined, not by their nature, but by the taxpayer's territory of the Philippines for VAT purposes, following the destination
^^gligGnce ~ a result not at all contemplated. Administrative convenience principle, transactions within the same are considered exempt from VAT,
cannot thwart legislative mandate. including those made between PEZA-registered entities.

The BIR regulations additionally requiring an approved prior application for TECHNICAL IMPORTATION: A sale by an entity registered and
effective zero rating cannot prevail over the clear VAT nature of a taxpayer's operating within an ecozone to a buyer in the customs territory shall be
transactions. The scope of such regulations is not within the statutory treated as a technical importation made by the buyer in the customs territory.
authority x x x granted by the legislature. The buyer shall be treated as the importer and shall be imposed the
corresponding import taxes and duties prior to release of the goods or
Other than the general registration of a taxpayer the VAT status of which merchandise from Customs custody. Any impaid taxes thereon, aside from
IS
aptly determined, no provision under our VAT law requires an additional being the prime liability of the buyer-importer,shall constitute a lien on such
application to be made for such taxpayers' transactions to be considered goods or merchandise imported from the Freeport Zone.(Q8, RMC No. 50-
effectively zero-rated. An effectively zero-rated transaction does not and 2007)

cannot become exempt simply because an application therefor was not made
or, if made, was denied. To allow the additional requirement is to give
unfettered discretion to those officials or agents who, without fluid
consideration, are bent on denying a valid application. Moreover, the State
can never be estopped by the omissions, mistakes or errors of its officials or
agents.(GR No. 153866; Feb. 11, 2005)
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Vat-Exempt Transactions customs duties under the Tariff and Customs Code of the Philippines.
(Sec. 109[1][C])

A. SALE OR IMPORTATION OF:

Under RA No. 10863, or the Customs Modernization and Tariff Act, the
following are considered conditionally tax- and/or duty-exempt
1. Agricultural and marine food products in their original state, livestock
importations:
and poultry of a kind generally used as, or yielding or producing foods
for human consumption; and breeding stock and genetic materials
a. Personal and household effects of returning residents:
therefor.

FOB or FCA Required years of stay Must have not been

"In their original state" - even if they have undergone the simple
value exempt in a foreign country availed of, prior to
processes of preparation or preservation for the market,such as freezing,
arrival, within
drying, salting, boiling, roasting, smoking or stripping. Polished and/or
P150,000 Less than 5 years 6 months
husked rice, com grits, raw cane sugar and molasses ordinary salt, and
copra shall be considered in their original state.(Sec. 109[1][A]) P250,000 At least 5 years but not 5 years
more than 10 years
"Livestock" shall include cows, bulls and calves, pigs, sheep, goats and P350,000 10 years or more 10 years
rabbits. "Poultry" shall include fowls, ducks, geese and turkey. Either
does not include fighting cocks, race horses, zoo animals and other b. OFWs shall have the privilege to bring in tax- and duty-free home
animals generally considered as pets. appliances and other durables limited to one of every kind once every
calendar year accompanying them on their arrival or arriving within
"Marine food products" shall include fish and crustaceans, such as, but a period not exceeding 60 days after the OFWs returns. (Sec. 800(f),
not limited to eels, trout, lobster, shrimps, prawns, oysters, mussels and Tariffand Customs Code, as amended)
clams.(Sec. 4.109-l(B)(l)(a), RRNo. 16-05)
c. "Balikbayan boxes" containing personal and household effects with
"Raw Sugar"imder RR No. 13-13, amending Sec. 2(b) of RR No. 13-08, is a FCA value not exceeding P150,000 and the items are not in
limited now by the BIR to muscovado. commercial quantities or intended for barter,sale or for hire. This can
be availed up to three times in a calendar year.(Sec. 800(g), Tariffand
Customs Code, as amended)
2. Fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and
poultry feeds, including ingredients, whether locally produced or
imported, used in the manufacture of finished feeds (except specialty d. De minimis Importations: No duties and taxes shall be collected on
feeds for race horses, fighting cocks, aquarium fish, zoo animals and goods with an FOB or FCA value of P10,000 or below.(Sec. 423, Tariff
other animals generally considered as pets). (Sec. 109[1][B]) and Customs Code, as amended)

2. Professional instruments and implements, tools of trade, occupation or

B. IMPORTATION OF:
employment, wearing apparel, domestic animals, and personal and
household effects belonging to persons coming to settle in the Philippines
1 Personal and household effects belonging to the residents of the
Philippines returning from abroad and non-resident citizens coming to or Filipinos or their families and descendants who are now residents or
resettle in the Philippines; Provided, That such goods are exempt from citizens of other countries,such parties hereinafter referred to as overseas
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Filipinos, in quantities and of the class suitable to the profession, rank or carriers by land, for the transport of passengers and keepers of
position of the persons importing said items, for their own use and not garages(Sec. 117);
for barter or sale, accompanying such persons, or arriving within a c. 3% franchise tax - Services rendered by franchise grantees of radio
reasonable time: Provided, That the Bureau of Customs may, upon the and/or television broadcasting whose annual gross receipts of the
production of satisfactory evidence that such persons are actually coming preceding year do not exceed Ten Million Pesos(P10,000,000.00), and
to settle in the Philippines and that the goods are brought from their by franchise grantees of gas and water utilities(Sec. 119);
former place of abode, exempt such goods from payment of duties and d. 10% overseas communications tax - Service rendered for overseas
taxes: Provided, further, that vehicles, vessels, aircrafts, machineries and dispatch, message or conversation originating from the Philippines
other similar goods for use in manufacture, shall not fall within this (Sec. 120);
classification and shall therefore be subject to duties, taxes and other e. 2^ premiums tax - Services rendered by any person, company or
charges.(Sec. 109[1][D]) corporation (except purely cooperative companies or associations)
doing life insurance business of any sort in the Philippines(Sec. 123);
3. Importation of fuel, goods and supplies by persons engaged in f. 4% premiums tax - Services rendered by fire, marine or
international shipping or air transport operations: Provided, That the miscellaneous insurance agents of foreign insurance companies(Sec.
fuel, goods and supplies shall be used for international shipping or air 124),5 /o - if directly secured from the foreign insurance corporation.
transport operations. Thus, said fuel, goods and supplies shall be used g. 10/15/18/30 /o amusement tax - Services of proprietors, lessees or
exclusively or shall pertain to the transport of goods and/or passenger operators of cockpits,cabarets,night or day clubs,boxing exhibitions,
from a port in the Philippines directly to a foreign port, or vice versa, professional basketball games,Jai-Alai and race tracks(Sec. 125); and
without docking or stopping at any other port in the Philippines unless 610 o 1 /o stock transactions tax - Receipts on sale, barter or
the docking or stopping at any other Philippine port is for the purpose of exchange of shares of stock listed and traded through the local stock
unloading passengers and/or cargoes that originated from abroad, or to exchange or through initial public offering (Sec. 127)
load passengers and/or cargoes bound for abroad.
2. Agricultural contract growers and milling for others of palay into rice,
If any portion of such fuel, goods or supplies is used for purposes other corn into grits and sugar cane into raw sugar.(Sec. 109[1][F])
than that mentioned in this paragraph, such portion of fuel, goods and
supplies shall be subject to twelve percent(12%) VAT. Agricultural contract growers refers to those persons producing for
others poultry, livestock or other agricultural and marine food products
C. SERVICES RENDERED BY: in their original state.(See. 4.109-l[fJ ofRR No. 16-05, as amended)

1. Persons subject to percentage tax under Title V of the NIRC. (Sec. 3. Medical, dental, hospital and veterinary services except those rendered
109[1][E]) by professionals.(Sec. 109[1][G])

a. 3% percentage tax(now 1%)- Sale or lease of goods or properties or Laboratory services are exempted.
the performance of services of non-VAT-registered persons whose
gross sales/receipts other than those provided under Section 109(A) Sale of Nledicine: If the hospital or clinic operates a pharmacy or drug
to (BB) do not exceed P3,000,000 (Sec. 116 of the Tax Code) except store, the sale of drugs and medicine is subject to VAT (Sec. 4.109-l(g), RR
individuals availing of the 8% flat rate of income tax and No. 16-05) if made to out-patients.
cooperatives;
b. 3% common carrier's tax - Services rendered by domestic common
524 525
The tax Reviewer Value Added Tax

However,sale of medicine/drugs to m-patients of hospitals are considered "Educational services" shall refer to academic, technical or vocational
part of hospital services, which are exempt from VAT. (BIR Ruling DA education provided by private educational institutions duly accredited
122-05; April 6, 2005) by the DepEd,the CHED and TESDA and those rendered by government
educational institutions, and it does not include seminars, in-service
HEALTH MAINTENANCE ORGANIZATIONS ARE NOT training, review classes and other similar services rendered by persons
CONSIDERED VAT EXEMPT UNDER SEC 198(1)(G) of the NIRC:for who are not accredited by the DepEd,the CHED and/or the TESDA.(Sec.
the following reasons observed by the Court of Tax Appeals and adopted 4.109-1[hi of RR No. 16-05, as amended)
by the Supreme Court in CIR vs. Philippine Healthcare Providers, Inc.(GR
No. 168129; April 24, 2007): Consequently, educational services rendered by "review schools" are not
'a) Respondent Philippine Healthcare Providers "is not actually considered VAT-exempt under this paragraph considering that they are
rendering medical service but merely acting as a conduit between the not accredited by CHED,DepEd or TESDA.
members and their accredited and recognized hospitals and clinics."
b)It merely "provides and arranges for the provision of pre-need health 5. Individuals pursuant to an employer-employee relationship. (Sec.
care services to its members for a fixed prepaid fee for a specified period 109IW])
of time."
c) It then "contracts the services of physicians, medical and dental 6. Regional or area headquarters established in the Philippines by
practitioners, clinics and hospitals to perform such services to its enrolled multinational corporations which act as supervisory, communications
mcnibers; and and coordinating centers for their affiliates, subsidiaries or branches in
d) Respondent "also enters into contract with clinics, hospitals, medical the Asia-Pacific Region and do not eam or derive income from the
professionals and then negotiates with them regarding payment Philippines.(Sec. 109[1I[E1)
schemes, financing and other procedures in the delivery of health
services. 7. Banks, non-bank financial intermediaries performing quasi-banking
functions, and other non-bank financial intermediaries.(Sec. 109[II[VI)
Perforce, as respondent HMO does not actually provide medical and/or
hospital services, as provided under Section 103(now Section 109) on D. COOPERATIVES:
exempt transactions, but merely arranges for the same,its services are not
Y^-p^exempt.(CIR vs. Philippine Healthcare Providers, Inc. GR No. 168129; Agricultural cooperatives duly registered with the Cooperative
April 24,2007) Development Authority(CDA)to their members, as well as sale of their
produce, whether in its original state or processed form,to non-members;^
However, if the HMO actually provides medical services directly to its their importation of direct farm inputs, machineries and equipment,
V nts, it will fall within the exemption provided under Section 109(G). including spare parts thereof, to be used directly and exclusively in the
(^Medicard Philippines, Inc. vs. CIR, GR No. 222743 dated April 5, 2017) production and/or processing of their produce.(Sec. 109[1I[LI)

Fducational services rendered by private educational institutions, duly Sale by agricultural cooperatives to non-members can only be exempted
edited by the Department of Education(DepEd), the Commission of from VAT if the producer of the agricultural products sold is the
h r Education (CHED), the Technical Education and Skills cooperative itself. If the cooperative is not the producer (e.g., trader), then
lopment Authority (TESDA) and those rendered by government only those sales to its members shall be exempted from VAT, except if
finnal institutions.(Sec. lOmilW)
edticati^^ what was sold is an agricultural food product in its original state which

526 527
 The TAX Reviewer Value Added Tax

is exempt not under this paragraph but under Sec. 109(a). (Sec.4.109-l[l] Rentals exceeding P15,000 per month per unit shall be:
ofRR No. 16-05, as amended) a. Subject to VAT if the aggregate annual gross receipts from said
units only (not including the gross receipts from units leased for
Note that the exemption likewise covers importations which is not not more than P15,000) exceeds P3,000,000;
available for other types of cooperatives. b. Subject to the 3% percentage tax imposed under Sec. 116 of the
NIRC if the aggregate annual gross receipts DO NOT EXCEED
2. Gross receipts from lending activities by credit or multi-purpose P3,000,000.(Sec. 4.109-l(q), RRNo. 16-05)
cooperatives duly registered with the CDA.(Sec. 109[1][M])
The term 'residential units' shall refer to apartments and houses & lots
Note that this type of cooperative's gross receipt is exempt from VAT used for residential purposes,and buildings or parts or uruts thereof used
regardless if the customer/client is a member or not. solely as dwelling places (e.g., dormitories, rooms and bed spaces)except
motels, motel rooms, hotels, hotel rooms, lodging houses, iims and
3. Non-agricultural, non-electric and non-credit cooperatives duly pension houses.
registered with the CDA;Provided, That the share capital contribution of
each member does not exceed PI5,000 and regardless of the aggregate The term 'unit' shall mean an apartment unit in the case of apartments,
capital and net surplus ratably distributed among the members. (Sec. house in the case of residential house; per person in the case of
109[1][N]) dormitories, boarding houses and bed spaces; per room in case of rooms
for rent.
E. Export sales of persons who are not VAT-registered.(Sec. 109[1][0])
Commercial units; are not covered by this exemption. Thus, the lease of
F. Transactions which are exempt under international agreements to a commercial unit regardless of monthly rental will be subject to the VAT
which the Philippines is a signatory or under special laws, except those EXCEPT only if the aggregate annual rentals received by the lessor do not
granted under Presidential Decree No. 529 (Petroleum Exploration exceed the VAT threshold, in which case, he shall be liable
Concessionaires under the Petroleum Act of 1949).(Sec. 109[1][K]) percentage tax.

G. Lease of a residential imits with a monthly rental not exceeding P15,000 H. The following sale of real properties are not subject to VAT-
(P12,800 prior to the TRAIN)((Sec. 109[1J[Q]) is exempt from VAT and 1. Sale of real properties NOT primarily held for sale to customers or
the 3% percentage tax. held for lease in the ordmary course of trade or business;
Lease of residential units where the monthly rental per unit exceeds However, even if the real property is not primarily held for sale to
P15,000 but the aggregate of such rentals of the lessor during the year do customers or held for lease in the ordinary course of trade or business
not exceed P3,000,000 shall likewise be exempt from VAT, however, the but the same is used m the trade or business of the seller, the sale
same shall be subject to 3% percentage tax.(Sec. 4.109-l(q), RR No. 16-05) thereof shall be subject to VAT being a transaction incidental to the
taxpayer's main business. (Sec. 4.109-l(p)(l) of RR No. 16-05, as
In cases where a lessor has several residential units for lease, some are amended by RR No. 4-07)
leased out for a monthly rental per unit of not exceeding P15,000 while
others are leased out for more per unit, his tax liability will be as follows: 2. Real property utilized for low-cost and socialized housing as defined
1. Rentals not exceeding P15,000 per month - exempt from VAT by RA No. 7279, otherwise known as the Urban Development Act of
regardless of the aggregate annual gross receipts;
528 529
The tax Reviewer Value Added Tax

1992, and other related laws;

**NOTE: Beginning January 1,2021, the VAT exemption shall only
"Low-cost housing"refers to housing projects intended for homeless apply to:
low-income family beneficiaries, undertaken by the Government or a. Sale of real properties not primarily held for sale to customers or
private developers, which may either be a subdivision or a held for lease in the ordinary course of trade or business,
condominium registered and licensed by the Housing and Land Use b. Sale of real property utilized for socialized housing as defined by
Regulatory Board/Housing(HLURB)under BP Big. 220, PD No. 957 Republic Act No. 7279,
or any other similar law, wherein the unit selling price is within the c. Sale of house and lot, and other residential dwellings with selling
selling price ceiling per unit as set by the Housing and Urban price of not more than Two Million Pesos (P2,000,000.00):
Development Coordinating Council pursuant to RA No. 7279, Provided, further. That every three (3) years thereafter, the
otherwise known as the "Urban Development and Housing Act of amounts stated herein shall be adjusted to its present value using
1992" and other laws, such as RA No. 7835 and RA No. 8763. (Sec. the Consumer Price Index, as published by the Philippine
4.109-l(p)(2l RR No. 16-05) Statistics Authority (PSA).

"Socialized housing" refers to housing programs and projects Accordingly, starting Jan. 1, 2021, sale of residential lots wUl no
covering houses and lots or home lots only undertaken by the longer be VAT-exempt.
Government or the private sector for the underprivileged and
homeless citizens which shall include sites and services
Adjustment under the TRAIN Law; Under the TRAIN Law the
development, long-term financing, liberated terms on interest
payments, and such other benefits in accordance with the provisions
exemption for house and lot will apply if the seUing price thereof is
not more than P2,000,000. The BIR howmroi- • c uu
of RA No. 7279, otherwise known as the "Urban Development and '""^®ver, IS of the position that
the amount should be adjusted usine th«= -5010., • • j
Housing Act of 1992" and RA No. 7835 and RA No. 8763. "Socialized . .. , consumer price mdex
as well as md.cated m RR No. 4-2021, which would mean that the
housing" shall also refer to projects intended for the underprivileged exemphon is P2M0 usmg the formula provided under RR No.
and homeless wherein the housing package selling price is within the
lowest interest rates under the Unified Home Lending Program il Ttrr circular was issued by
(UITLP) or any equivalent housing program of the Government, the
private sector or non-government organizations. (Sec. 4.109-l(p)(3),
Srtrty^
RR No. 16-05) The CREATE Law initially pronnQcari t. ■
(sale
of 1 ofr residential
-A I.- 1 lots
1 4. to
J P2oposed
50n nnnto mcrease
i the VAT threshold
uicv.ri.i u
3, Residential lot valued at Pl,919,500* and below; ., ^ .1 , while the VAT threshold for
residential house and lot was inrrciac..^j -r^ t.

4. Residential house and lot, and other residential dwellings valued at

President vetoed the entire provlsTor
P3,199,200* and below.(Sec. 109[1][P]) Sale ofParking Lot:the above rule on adjacentlands does notinclude the
*Note that under RR No. 13-2018, the amounts mentioned are
sale of parkmg lot w^ch may or may not be included in the sale of
"Pl,500,000" and ''P2,500,000", as adjusted in 2011 using the
condominium units. The sale of parking lots in a condominium is a
Consumer Price Index values. Accordingly, the amounts exempted
separate and distinct transaction and is not covered by the rules on
threshold amount not being a residential lot, house & lot or a residenHal
from VAT remain to be at Pl,919,500 and P3,199,200** which are the dwelling, thus, should be subject to VAT regardless of amount of selling
adjusted prices in 2011.
530 531
 The tax Reviewer
Value Added Tax

price.(Sec. 4.109-l(p)(4), RR No. 16-05, as amended by RR No. 13-2012)

For purposes of the threshold, the husband and wife shall be considered
Sale ofAdjacentlands:If two or more adjacent residential lots, house and
separate taxpayers. However,the aggregation rule for each taxpayer shall
lots or other residential dwellings within a 12-month period in favor of
apply. For instance, if a professional, aside from the practice of his
one buyer from the same seller, for the purpose of utilizing the lots,
profession, also derives revenue from other lines of business which are
house and lots or other residential dwellings as one residential area
wherein the aggregate value of the adjacent properties exceeds
otherwise subject to VAT, the same shall be combined for purposes of
determining whether the threshold has been exceeded. Thus, the VAT-
Pl,919,500 (no longer exempt), for residential lots and P3,199,200
exempt sales shall not be included in determining the threshold. (Sec.
(P2,599,300 according to the BIR) for residential house and lots or other
4.109-1(Y)ofRR No. 16-05)
residential dwellings. Adjacent residential lots, house and lots or other
residential dwellings although covered by separate titles and/or separate
M. The following are additional VAT-exempt transactions under the TRAIN:
tax declarations, when sold or disposed to one and the same buyer,
1. The buyer is a:
whether covered by one or separate Deed of Conveyance, shall be
a. Senior Citizen as provided under RA No.9994(Expanded Senior
presumed as a sale of one residential lot, house and lot or residential
Citizens Act of 2010); or
dwelling(RR No 13-2012)
b. A Person with Disability (PWD) as provided under RA No.
I. Sale, importation, printing or publication of books, and any newspaper, 10754(An Act Expanding the Benefits and Privileges of Persons
with Disability)
magazine, joumal. review bulletin, or any such educational reading
2. Transfer of Property pursuant to Section 40(C)(2) of the Tax Code, as
material covered by the UNESCO agreement on the importation of
amended;
educational, scientific and cultural materials, including the digital or
electronic format thereof. Provided, that the materials enumerated
ILLUSTRATION: A Corporation is a merchandising concern with
herein are not devoted principally to the publication of paid
PIM worth of inventory. X Corporation, a real estate developer,
advertisements.(Sec. 109[R], as amended by the CREATE Law)
exchanged its real properties for the shares of stock of A
Corporation resulting in corporate control.
It would be noted from the amendment that the requirement of appearing
at regular intervals with fixed prices for subscription and sale has been
• This is considered as an exempt transfer under Section
removed from the provision as it is worded now.
40(c)(2) of the Tax Code since the transfer of real property
resulted in corporate control.
T Sale, importation or lease of passenger or cargo vessels and aircraft, • The inventory owned by A Corporation will not be subject to
including engine, equipment and spare parts thereof for domestic or VAT even if the control of such corporation already
international transport operations.(Sec. 109[1][T]) transferred to X Corporation. This is in recognition of the
separate and distinct personality of the corporation from its
Transport of passengers by intemational carriers. (Sec. 109[S]of the Tax stockholders.
Code, CIS amended by RA No. 10378) • Likewise, X Corporation will not be subject to VAT on the
transfer of real property, even if the same is considered as
lease of goods or properties or the performance of services other part of its ordinary assets (inventory).
I.
than ^he transactions mentioned
and/or receipts of in the preceding
which paragraphs,
do not exceed the gross
the amotmt of
Note that prior to the TRAIN,the exchange of goods or properties
^^00
P3
000(Pl,919/500 prior to the TRAIN).(Sec. 109[1][CC])
533
 The tax Reviewer Value Added Tax

including the real estate properties used in business or held for tax while an exempted transaction is not subject to the output tax;
sale or for lease of by the transferor, for shares of stocks whether (b)The input VAT on the purchases of a VAT-registered person with zero-
resulting in corporate control or not, is subject to VAT.(RR No. 10- rated sales may be allowed as tax credits or refunded while the seller in
11) Accordingly, in the above illustration, the real properties an exempt transaction is not entitled to any input tax on his purchases
exchanged by X Corporation for the shares of stock of A despite the issuance of a VAT invoice or receipt.
Corporation is subject to VAT prior to the TRAIN. Under the (c) Persons engaged in transactions which are zero-rated, being subject to
CREATE Law, Sec. 40[C1[2] also specifies the VAT exemption of VAT, are required to register while registration is optional for VAT-
this transaction. exempt persons. (Commissioner of Internal Revenue vs. Cebu Toyo
Corporation; G.R. No. 149073; February 16, 2005])
3. Association dues, membership fees, and other assessments and
charges collected on a purely reimbursement basis by homeowners' VAT-Exempt Party Vs. VAT-Exempt Transaction
associations and condominium corporations established under A VAT-exempt party is person or entity granted VAT exemption imder the
Republic Act No. 9904 (Magna Carta for Homeowners and Tax Code, a special law or an international agreement to which the
Homeowners' Association) and Republic Act No. 4726 (The Philippines is a signatory, and by virtue of which its taxable transactions
Condominium Act), respectively; become exempt from the VAT. Such party is also not subject to the VAT but
4. Sale of gold to the Bangko Sentral ng Pilipinas; may be allowed a tax refund of or credit for input taxes paid, depending on
5. Sale of drugs and medicines prescribed for diabetes, high cholesterol, its registration as a VAT or non-VAT taxpayer.
and hypertension to beginning January 1, 2019 as determined by the
Department of Health; A VAT-exempt transaction involves goods or services which, by their nature,
are specifically listed in and expressly exempted from the VAT under the Tax
N. Additional exemptions under the CREATE Law: Code, without regard to the tax status — VAT-exempt or not — of the party
1. Sale of or importation of prescription drugs and medicines for cancer, to the transaction. Indeed, such transaction is not subject to the VAT,but the
mental illness, tuberculosis, and kidney diseases beginning January seller is not allowed any tax refund of or credit for any input taxes paid.
1, 2021 (effectivity is moved from January 1, 2023).
2. COVID-related sale/importation:
a. The sale and importation of equipment, its spare parts, and raw Input VAT
materials necessary for the production of PPE Components;
b. All drugs, vaccines and medical devices specifically prescribed INPUT VAT or INPUT TAX means the value-added tax due from or paid by
and directly used for the treatment of COVID-19; and a VAT-registered person in the course of his trade or business on importation
c. Drugs for the treatment of COVID-19 approved by the FDA for of goods or local purchase of goods or services, including lease or use of
use in clinical trials, including raw materials directly necessary property,from a VAT-registered person.
for the production of such drugs.
It shall also include:
Zero-rated v. VAT Exempt Sales 1. The transitional input tax;
DIFFERENCE BETWEEN VAT ZERO-RATED VS. VAT-EXEMPT SALES: 2. The presumptive input tax determined in accordance with Sec. 111.
While the zero rating and the exemption are computationally the same, they 3. Input taxes which can be directly attributed to transactions subject to
actually differ in several aspects, to wit: VAT plus a ratable portion of any input tax which cannot be directly
(a) A zero-rated sale is a taxable transaction but does not result in an output
534 535
 Value Added Tax
The tax Reviewer

attributed to either the taxable or exempt activity.(Sec. 4.110-1, RR No. 16- TRANSACTION REQUIRED SUPPORT
05) Deemed sale Invoice required under sec. 4.113-2 of RR No.
16-05

PURCHASE OF GOODS AND SERVICES: To properly claim input tax Purchase of service from BIR Form No. 1600(withheld VAT)
credits, the purchases must be properly supported as required under Sec. non-residents

110(A)and Sec. 113 of the NIRC. Advance VAT on sugar Payment order
5% Final VAT on sale to Withholding certificate
Who Can Avail of the Input Tax Credit government

Sec. 4.110-2 of RR No. 16-05, as amended, provides:

1. Importer upon payment of VAT prior to the release of goods from A cash register machine tape issued to a registered buyer shall constitute
customs custody; valid proof of substantiation of tax credit only if it shows information
required under Sees. 113 and 237 of the NIRC.
2. Purchaser upon of the domestic goods or properties upon consummation
of the sale; or
3. Purchaser of services or the lessee or licensee upon payment of the BIR has consistently held that VAT invoices are for sellers of goods and VAT
compensation, rental royalty or fee. ORs for sellers of services. (VAT Ruling No. 179-88 dated May 24, 1988)
Likewise, the CTA has consistently denied refund of input tax which is not
compliant with the above requirements.
Note that the above likewise provides for the proper period of claiming input
VAT:
Accordingly, input VAT on sale of goods, even if supported by a VAT OR,
1 Importation - upon release of the goods; Statement of Account or other supporting documents cannot be claimed as a
2 purchase of goods- upon consummation of the sale; tax credit without the VAT invoice which is the proper supporting document.
3 purchase of service or lease - upon payment.
rEQUIBEBXAT SUPPORT Required Information in the Vat Support
The following shall be the information required to be presented in a VAT
Sec 4 of RR No. 16-05, as amended, implements Sec. 113(A) of the Invoice or VAT Official Receipt in order to properly claim input tax credits:
NIR^ and provides for the proper substantiation of input tax credits, as a. A statement that the seller is a VAT-registered person, followed by his
follows:
Tax Identification Number(TIN);
transaction REQUIRED SUPPORT b. The total amoimt which the purchaser pays or is obligated to pay to the
of VAT Invoice seller with the indication that such amoimt includes the VAT;
c. VAT must be separately shown.
Import entry declaration and BOC receipt or
Impoi In Northwind Power Development Corporation vs. CIR (CTA Case No.8119
other similar documents proving the payment
of VAT (such as a Statement of Settlement of dated March 12, 2013)the Court disallowed the input VAT on purchases
Duties and Tax [SSDT] and Single of goods and services supported by VAT invoices and official receipts
Administrative Document[SAD]) which did not separately indicate the amount of VAT.
gf rpaTproperty Public instrument together with VAT invoice
of service VAT Official Receipt A statement indicating that the sale is "VAT-exempt"or "zero-rated," if
linputjax Inventory list submitted to the BIR applicable;
XransitiP-
536 537
 The tax Reviewer Value Added Tax

STRICT COMPLIANCE IS REQUIRED: taxpayers claiming for a refund or

THE WORDS ZERO-RATED MUST BE INDICATED IN THE tax credit certificate must comply with the strict and mandatory invoicing
OFFICIAL RECEIPT OR INVOICE: A VAT-registered taxpayer is and accounting requirements provided under the 1997 Tax Code, as
required to comply with all the VAT invoicing requirements to be able to amended, and its implementing rules and regulations. Rules and regulations
file a claim for input taxes on domestic purchases for goods or services with regard to procedures are implemented not to be ignored or to be taken
attributable to zero-rated sales. A VAT invoice is an invoice that meets for granted but are strictly adhered to for they are developed from the law
the requirements of Section 4.108-1 of RR 7-95. RR 7-95 expressly states itself.

that all purchases covered by invoices other than a VAT invoice shall
not give rise to any input tax. A taxpayer's invoice, lacking the word Purchase of Capital Goods
zero-rated, is not a VAT invoice, and thus cannot give rise to any input Where a VAT-registered person:
tax. 1. Purchases or imports capital goods (which are depreciable assets for
income tax purposes);
We have ruled in several cases that the printing of the word zero-rated is 2. The aggregate acquisition cost of which (exclusive of VAT) exceeds One
required to be placed on VAT invoices or receipts covering zero-rated Million pesos (P1,000.000), regardless of the acquisition cost of each
sales in order to be entitled to claim for tax credit or refund. In Panasonic capital good
■o. Commissioner of Internal Revenue, we held that the appearance of the 3. In a calendar month
word zero-rated on the face of invoices covering zero-rated sales prevents
buyers from falsely claiming input VAT from their purchases when no The input tax thereon shall be claimed as credit against output tax in the
VAT is actually paid. Absent such word, the government may be following manner; if the estimated useful life of a capital good is:
refunding taxes it did not collect. (Microsoft Philippines, Inc. vs. CIR, GR 1. Five (5) years or more - the input tax shall be spread evenly over
No. 180173, April 6, 2011) a period of 60 months.
2. Less than 5 years - the input tax shall be spread evenly on a
In the case of sales in the amount of one thousand pesos (PI .000.00) or monthly basis by dividing the input tax by the actual number of
^ more where the sale or transfer is made to a VAT-registered person, the months comprising the estimated useful life of the capital good.
(1) name, (2) business style, if any, (3) address and (4) TIN of the
purchaser, customer or client, shall be indicated in addition to the In both cases, the claim for input tax credit shall commence in the
information required in (1) and (2). calendar month that the capital goods were acquired.

In Philipplries, Inc. vs. CIR (CTA Case No. 7012 dated March 13, 2009) Where the aggregate acquisition cost (exclusive of VAT) purchased or
where the CTA disallowed the input VAT credits claimed where the imported during any calendar month does not exceed P1,000,000, the total
ddress and/or TIN of Nesic were not indicated in the supporting sales input taxes will be allowable as credit against output tax in the month of
invoices and/or official receipts. acquisition.

f
■pYxe transaction, quantity, unit cost and description of the goods
operties or nature of the service.
Aggregate Acquisition Cost of a depreciable asset in any calendar month
refers to the total price, excluding the VAT, agreed upon for one or more
IViE DF the BUYER: the name of the buyer/purchaser must likewise assets acquired and not on the payments actually made during the calendar
g- indicated in the official receipt or invoice in order to identify the month. Thus, an asset acquired in instalment for an acquisition cost of more
^^oper claimant of the input VAT. than P1,000,000, excluding the VAT, will be subject to the amortization of

538
539
 The tax Reviewer Value Added Tax

input tax despite the fact that the monthly payments/instalments may not 1, 2022, the input VAT on the capital goods can be claimed as tax credits in
exceed P1,000,000. full in the month of purchase.

Capital goods or properties refers to goods or properties with the estimated Input VAT on Mixed Transactions
useful life greater than 1 year and which are treated as depreciable assets (VATableA^AT-exemptA'^AT zero-rated)
under Sec. 34(F)of the Tax Code, used directly or indirectly in the production
or sale of taxable goods or services.
The utilization of the input VAT depends to which such purchase relates as
follows:
Construction in progress (CIP) is the cost of construction work which is not
yet completed. CIP is not depreciated until the asset is placed in service.
Related to: Utilization
Normally, upon completion, a CIP item is reclassified to the appropriate asset
12% VATable sales Input tax credit
account and the reclassified asset is depreciated.
0% VATable sales 1. Input tax credit; or
2. Refund or issuance of TCC
CIP is considered,for purposes of claiming input tax, as a purchase ofservice,
VAT-exempt sales Charged to costs/expense
the value of which shall be determined based on the progress billings. Until
such time the construction has been completed, it will not qualify as capital
goods as herein defined, in which case, input tax credit on such transaction It is evident from the foregoing that a VAT-registered taxpayer can only claim
can be recognized in the month the payment was made; Provided, that an input VAT that can be directly attributed to its VAT taxable transactions
official receipt of payment has been issued based on the progress billings. (transactions subject to 12% and 0% VAT)and where one is also engaged in
an activity not subject to VAT,the Company can only claim a ratable portion
Once the input tax has already been claimed while the construction is still in of the common input VAT as tax credit.
progress, no additional input tax can be claimed upon completion of the asset
when it has been reclassified as a depreciable capital asset and depreciated. Thus, purchase of raw materials and services which can be directly
attributable to VATable and VAT zero-rated sale may be creditable against
Disposal ofcapitalgoods prior to the exhaustion of the amortizable input tax any output VAT liability. However, purchases which cannot be directly
thereon -the entire amount of the unamortized input tax on the capital goods attributable to any sale, like payment for rent, or purchase of capital goods,
sold/transferred can be claimed as input tax credit during the month/quarter which are related to bringing about VATable and VAT-exempt sales, must be
when the sale or transfer was made. apportioned ratably.

Accounting requirements: Under Sec. 4.113-3 of RR No. 16-05 provides that a Sec.4.110-4,RR No.16-05, as amended by RR No.4-07, provides the following
subsidiary record in ledger form shall be maintained for the acquisition, formula in determining the creditable portion of input tax not directly
purchase or importation of depreciable assets or capital goods which shall attributable to any activity and the portion of input tax attributable to VAT-
contain, among others, information on the total input tax thereon as well as exempt sales for the month:
the monthly input tax claimed in VAT declaration or return.
A. The input tax attributable to sales to private entities subject to 12%,for the
train AMENDMENT: The amortization of the input VAT shall only be month, shall be computed asfollozvs:
allowed until December 31,2021 after which taxpayers with unutilized input
vat on capital goods purchased or imported shall be allowed to apply the Taxable sales(12%)
Amount of input tax not directly
same as scheduled until fully utilized. If the purchase was made on January Total Sales attributable to any activity
540
541
 Value Added Tax
The tax Reviewer

1- If the actual input VAT (those directly attributable to sale to government

B. The input tax attributable to zero-rated salesfor the month shall be computed as and the amount ratably apportioned thereto [see MIXED
follows: TRANSACTIONS]) EXCEEDS 7% of the gross payments (sales to
government), the excess may form part of the sellers' expense or cost;
Taxable sales(0%) ^ Amount of input tax not directly 2. On the other hand, if the actual input VAT is LESS THAN the 7%, the
Total Sales attributable to any activity difference must be closed to expense or cost, effectively making it an
additional income/revenue.
C The input tax attributable to VAT-exempt salesfor the month shall be computed
asfollows: In all instances, the total input VAT credits that will be claimed by the
Taxable sales(exempt) ^ Amount of input tax not directly taxpayer relative to the sales to government (composed of 5% Final
Total Sales attributable to any activity Withholding VAT and 7% Standard Input VAT,both based on sales amount
[not on purchases]) is equivalent to the output VAT on his sales to
D. The input tax attributable to sales to governmentfor the month shall be computed government.
asfollows:
Taxable sales to government ^ Amount of input tax not directly ILLUSTRATION: X Company had VATable sales amounting to P200,000
Total Sales attributable to any activity and sales to government amounting to P100,000, both exclusive of VAT.
During the month, X Company paid rent amounting to P75,000 and
The above allocated amounts shall be treated as follows:
purchases directly attributable to its regular sales and sales to government
1. The amount of input tax allocated to sales subject to 12% and 0% VAT amounting to P20,000 and P50,000, respectively.
may be creditable against output VAT;However,the amount attributable
to zero-rated sales may be claimed as input tax credit or refund. The amount of input tax credits pertaining to the sales to government will
be as follows:
2. The amount allocated to VAT-exempt sales cannot be claimed as credits
against any output VAT but should be treated as part of cost or expense;
3. The amount allocated to sales to government shall be included with the Input VAT on sales to government: the amount claimed as tax credits
amount directly attributable thereto then compared with the 7% standard amounts to P12,000:

input VAT (SrV)(based on sales). However, beginning January 1, 2021,

there is no longer a need to compute for the difference between the actual 1. Final Withheld VAT: P5,000 (P100,000 * 5%) shall be creditable
input VAT and 7% SIV since the 5% withheld VAT from sales to against output VAT payable in full.
government is now creditable and no longer final,(see input VAT on sales 2. Standard Input VAT:P7,000 (P100,000 * 7%)
to government)
The input VAT from purchases pertaining to sales to government amounts
to P9,000, computed as follows:
Ii^jryxX^T ON Sales to Govfrnment
^der
j-o/ Sec.
final4.114-2(a) of RR No.16-05, as amended,implementing Sec. 114(C),
VAT withholding rate shall represent the net VAT payable of the 1. Input tax directly attributable: P50,000 * 12% = P6,000
2. Input tax allocated from rent (payment related to both VATable and
^ ^ Theggjeremaining
seller.^^^ of goods7% effectively
or services accounts forinthelieuSTANDARD
to government, INPUT
of actual input VAT sales to government): P3,000
ffributable or ratably apportioned to such sales,
directly at"^
542 543
The tax Reviewer Value Added Tax

PIOO.OOO
X P9,000 = P3,000 VAT attributable to 2,000 (20,400)
P300,000 sales to government
VAT Payable 15,600
Since the actual input VAT pertaining to sales to government is P9,000 ^composed of P20,000 purchases directly attributable
(P6,000 + P3,000) and exceeds the standard input VAT of P7,000, the to regular sales and P50,000 purchases directly
difference of P2,000 will be recorded as expense or cost, with the attributable to sales to government
following pro forma entry:
Alternatively, it may be computed as follows:
DR Expense/Cost 2,000
CR Input VAT 2,000 Output VAT 36,000
Creditable Input VAT
Effectively, the taxpayer claimed P12,000 of input VAT (the 5% final VAT Pertaining to VATable sales 8,400
and the P7,000 standard input VAT)equivalent to the output VAT on the Pertaining to Sales to 12,000 (20,400)
sales to government.
Government
VAT Payable 15,600
Input VAT on VATable sales: the amount claimed as tax credits amounts
to P8,400.
Or still, alternatively, since the sales to government would really not result
in any VAT payable amount, it may be computed as follows:
1. Input tax directly attributable to VATable sales: P20,000 * 12% =
P2,400
Output VAT on VATable sales only 24,000
2. Input tax allocated from rent: P6,000 computed as follows:
Creditable input VAT pertaining to (8,400)
VATable sales only
P200,000
X P9,000 = P6,000 VAT Payable 15,600
P300,000

VAT Payable: P15,600, computed as follows If, however, the purchases directly attributable to sales to government
amounts only to P10,000:
Output VAT @12%
VATable sales
The Input VAT that may be claimed as tax credit relating to sales to
200,000 24,000 government is still PI2,000, composed of the P5,000 Final Withheld VAT
Sales to government 100,000 12,000 36,000 and P7,000 standard input VAT.
Creditable Input VAT
The actual input tax from purchases attributable to such sales shall only be
Domestic Purchases of 70,000* (8,400)
P4,200, computed as follows:
Goods
Payment of Rent 75,000 (9,000) 1. Input tax directly attributable: P10,000 * 12% = Pl,200
Final Withheld VAT (5,000) 2. Input tax allocated from rent (payment related to both VATable
Excess of Standard and sales to government): P3,000
Input VAT over Input

544 545
The tax Reviewer Value Added Tax

PIOO.OOO
X P9,000 = P3,000 actually lower), effectively becoming an additional input VAT credit in the
P300,000 computation — this is the same mechanism that can be found in an actual
VAT return.
Since the actual input VAT now is less than the P7,000 standard inp^^ VAT,
the difference of P2,800 is then reported as additional income or a TRAIN AMENDMENT; beginning January 1, 2021, the VAT withholding
reduction in cost/expense, with the following pro forma entry: system under this subsection shall sliift from final to a creditable system.
Under RMC No. 36-2021, the following adjustments will be made in filling-
DR Input VAT 2,800
up the VAT Returns:
CR Expense/Cost or Income 2,800
BIR Form BIR Form Description Remarks
The revenue regulations are vague as to the treatment of the P2,800 2550M Line 2550Q Line
difference. But since the difference is presented in the VAT return as a Item Item
negative deduction (effectively an addition) to allowable input tax credits, '

it may be imputed that the P2,800 will be claimed as additional input VAT 20B 23B Input Tax on Sale Not to be filled

making the total input tax credits related to the sales to government, to Government out/to be
equivalent to the standard input VAT,in this case, P7,000. Closed to Expense deactivated in the
eFPS

VAT payable: is the same even if the Standard Input Tax is higher than the 23C 26D ' VAT Withheld on Where the

actual input VAT attributable to sales to the government. Sales to CREDITABLE VAT ,
, Government withheld will be ,
1

reflected
Output VAT @12%
VATable sales 200,000 24,000
Sales to government By not filling-up the Input Tax on Sale to Government Closed to Expense Line
100,000 12,000 36,000
Item, it would seem that there is no longer a need to compare the standard
Creditable Input VAT input VAT (7% of sales to government) with the amount of input VAT
Domestic Purchases of Goods actually attributable to the sales to government, since any difference will no
30,000"^ (3,600)
Payment of Rent longer be indicated in the VAT return and would thus not affect the VAT
75,000 (9,000)
Final Withheld VAT payable computation.
(5,000)
Excess of Standard Input VAT
over Input VAT attributable to On the other hand, the government entity or any of its political subdivisions,
sales to government instrumentalities or agencies, including GOCCs who are required to
(2,800) (20,400)
VAT Payable withhold creditable VAT shall now issue a BIR Form No. 2307(Certificate of
15,600
composed of P20,000 purchases directly attributable to regular Creditable Tax Withheld at Source) rather than a BIR Form No. 2306
sales and P10,000 purchases directly attributable to sales to (Certificate of Final Tax Withheld at Source).
government
Withholding VAT on Payments to Non-Residents
Note that the excess of standard input VAT over the input VAT attributable Sec. 114-2 of RR No. 16-05, as amended, provides that private corporations,
to sales to government is a negative amount (since standard input VAT is individuals, estates and trusts, shall withhold 12% VAT with respect to the
following payments;
546 547
The tax Reviewer Value Added Tax

1. Lease or use of properties or property rights owned by non-residents; the proposition of the taxpayer who requested for the ruling that unapplied
2. Services rendered to local insurance companies, with respect to input taxes may be treated outright as deductible expense for income tax
reinsurance premiums payable to non-residents; and purposes. Thus, input taxes on purchase of goods and services after the
3. Other services rendered in the Philippines by non-residents. expiration of the 2-year prescriptive period cannot be expensed outright.
(RMC No. 57-2013 dated Aug. 23, 2013, circularizing BIR Ruling No. 123-2013
The above shall be remitted to the BIR using Remittance Return of VAT and dated March 25, 2013)
Other Percentage Taxes Withheld (BIR Form No. 1600) which shall be filed
within 10 days following the end of the month the withholding was made. CONSEQUENCE OF ERRONEOUS ISSUANCE OF VAT INVOICE OR
VAT OFFICIAL RECEIPT:Sec. 113(D)of the NIRC provides:
The VAT withheld and remitted to the BIR: 1. If a person who is not a VAT-registered person issues an invoice or
1. VAT-registered withholding agent - may claim as input tax credit the receipt showing his TIN, followed by the word "VAT",shall be liable
amount remitted to the BIR. The BIR Form No. 1600 shall serve as the for:
proof or documentary substantiation for the claimed input tax or input a. The VAT on said transaction without the benefit of any input tax
VAT. credit; and
2. Non-VAT taxpayer - passed-on VAT evidenced by the duly filed BIR b. 50% surcharge.
Form No. 1600 shall form part of the cost or purchased services, which
may be treated either as an asset" or "expense," whichever is applicable. The VAT on said transaction may be creditable to the VAT-registered
buyer provided it is properly substantiated.
TAX CREDITS:The creditable input tax shall be the sum of all the allowable
input tax as determined in accordance with the foregoing discussions less any 2. If a VAT-registered person issues a VAT invoice or VAT OR for a VAT-
amount claimed as refund plus any excess input tax carried over from the exempt transaction, but fails to display prominently on the invoice or
preceding month or quarter. receipt the term "VAT-exempt sale," the issuer shall be liable to account
for the VAT.
Excess Input/Output Tax
1. Output tax exceeds input tax - the difference shall be the VAT payable, Transitional Input VAT
the amount of which shall be remitted to the BIR Sec. Ill of the NIRC is implemented by Sec. 4.111-1 of RR No. 16-05 provides
2. Output tax is less than the input tax - the difference may be carried over that a person upon exceeding the threshold amounts provided under Sec.
to the succeeding quarter/quarters. The input tax attributable to the 109(CC) of the NIRC or voluntarily elects to be a VAT-registered person
purchase of capital goods or to zero-rated sales may be refunded or (except franchise grantees whose threshold amount is P10,000,000) shall be
credited against other internal revenue taxes, subject to the provisions of entitled to the transitional input tax on the inventory on hand as of the
Sec. 112. effectivity of VAT registration, on the following:
1. Goods purchased for resale in their present condition;
UNUTILIZED INPUT TAX CREDITS ATTRIBUTABLE TO ZERO-RATED 2. Material purchased for further processing, but which have not yet
SALES CANNOT BE CLAIMED AS DEDUCTION FOR INCOME TAX undergone processing;
PURPOSES: unutilized creditable input taxes attributable to zero-rated sales 3. Goods which have been manufactured by the taxpayer;
can only be recovered through the application for refund or tax credit. 4. Goods in process for sale; or
Nowhere in the Tax Code can we find a specific provision expressly 5. Goods and supplies for use in the course of the taxpayer's trade or
providing for another mode of recovering unapplied input taxes, particularly business as a VAT-registered person.
548 549
The tax Reviewer Value Added Tax

"excess" input VAT under Section 110(B) (Tax Credits) and Section 112(A)
AMOUNT OF TRANSITIONAL INPUT TAX: shall be whichever is higher (Refunds or Tax Credits of Input Tax), the input VAT is not "excessively"
between: collected as understood under Section 229. At the time of payment of the
1. 2% of the value of the beginning inventory on hand or input VAT the amount paid is the correct and proper amount. Under the
2. Actual VAT paid on such goods, materials and supplies. VAT System,there is no claim or issue that the input VAT is "excessively"
collected, that is, that the input VAT paid is more than what is legally due.
VALUATION:The value of the goods allowed for income tax purposes shall The person legally liable for the input VAT cannot claim that he overpaid the
be the basis for the computation of the 2% transitional input tax, including input VAT by the mere existence of an "excess" input VAT. The term "excess"
goods that are exempt from VAT under Sec. 109 of the NIRC. input VAT simply means that the input VAT available as credit exceeds the
output VAT,not that the input VAT is excessively collected because it is more
Presumptive Input VAT than what is legally due. Thus, the taxpayer who legally paid the input VAT
It is 4% of the purchases of primary agricultural products (which are cannot claim for refund or credit of the input VAT as "excessively" collected
supposedly VAT-exempt, being agricultural food products in their original under Section 229. (Commissioner of Internal Revenue v. San Roque Power
state) and is available only for taxpayers engaged in the following activities: Corporation, Taganito Mining Corporation v. Commissioner of Internal Revenue,
1. Processing of: and Philex Mining Corporation zi Commissioner of Internal Revenue; G.R. No.
a. Sardines; 187485, 196113, and 197156; February 12, 2013[San Roque case])
b. Mackerel; and
c. Milk. Requisites
2. Manufacturing of: 1. There must be zero-rated or effectively zero-rated sales;
a. Refined sugar; 2. That input taxes were incurred or paid;
b. Cooking oil; 3. That such input VAT payments are directly attributable to zero-rated
c. Packed noodle-based instant meals sales or effectively zero-rated sales;
4. That the input VAT payments were not applied against any output VAT
LIMITED TO AGRICULTURAL PRODUCTS: note that the last part of Sec. liability; and
111(B)(1) provides for purchases of primary agricultural products. Thus, the 5. That the claim for refund was filed within the two-year prescriptive
purchase of sardines and mackerel, being marine products may not be period.
entitled to presumptive input VAT.
Statutory Period for Claiming VAT Refund/TCC
REFUND OR TAX CREDITS OF INPUT TAX a. An administrative claim must be filed with the CIR within two years
after the close of the taxable quarter when the zero-rated or effectively
CLAIM FOR REFUND OF EXCESS INPUT TAXES: may be attributable to: zero-rated sales were made.
1. Excess input tax attributable to zero-rated sales which have not been
applied to any output tax; b. The CIR has 120 days from the date of submission of complete
2. Unused input tax and the taxpayer desires to cancel its/his VAT documents in support of the administrative claim within which to decide
registration. whether to grant a refund or issue a tax credit certificate. The 120-day
period may extend beyond the two-year period from the filing of the
FOR CLAIMS OF VAT REFUND ATTRIBUTABLE TO ZERO-RATED administrative claim if the claim is filed in the later part of the two-year
SALES,SEC.112 APPLIES NOT SEC. 229: In a claim for refund or credit of period. If the 120-day period expires without any decision from the CIR,
550 551
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The tax Reviewer

Value Added Tax

then the administrative claim may be considered to be denied by inaction.

of the month;
2. Quarterly VAT Return (BIR Form No. 2550Q)- 25*^^ day following the
c. A judicial claim must be filed with the CTA within 30 days from the
close of the quarter.
receipt of the CIR's decision denying the administrative claim or from the
expiration of the 120-day period without any action from the CIR- hJote, however, that the above deadline for the monthly return is applicable
Only to manual filing (including those filing using the eBIR Forms). As such,
d. All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the those filing using the electronic filing and payment system (eFPS) may be
time of its issuance on 10 December 2003 up to its reversal by this Court
in Aichi on 6 October 2010, as an exception to the mandatory and accorded 1 to 5 days extension in the filing of their monthly returns.
jurisdictional 120+30 day periods.(Mindnimo 11 Ceothermal Partnership vs.
'^RAIN amendment: beginning January 1, 2023, the filing and payment
Commissioner ofInternal Revenue; G.R. No. 193301; March 23, 2013)
required under the Tax Code shall be done within twenty-five (25) days
TRAIN AMENDMENT:
following the close of each taxable quarter.
1. The period allowed for the BIR to grant or deny applications for refund ^nitimary Lists of Sales and Purchases: RR No. 1-2012 required the
is now 90 days(no longer 120 days).
2. The BIR is now required to provide the factual and legal bases for denial, rnandatory submission of Summary Lists of Sales and Purchases of ALL
if such be the case, as there is nojnpre "deemed denial" in case the said ^AT-registered taxpayers together with the quarterly VAT return.
period expires. It would thus appear that an actual denial shall be
necessary before elevating the case to the CTA
The 90-day period to process and decide, pending the establishment of the
eiAanced VAT Refund System shall only be up to the date of approval of the
Comm application for VAT refund by the
clataTfoTrefo representative: Provided, That all
govTm d b P"°rprocessing
g rned by the one hundred twenty(120)-day to Januaryperiod,
1, 2018 will be
^ffecTed '^'^"ial of the claim for tax refund, the taxpayer
the claii^Yor^^ the receipt of the decision denying
holelTflf r'°" C°"rt of Taxor employee
however that failure on the part of any official, agent Appeals: of
Provided,
the BIR
act on the applmation within the ninety(90)- day period shall be punishable
under Section 269 of the Tax Code,as amended

Compliance Requirements
Deadlines for the filing of the VAT Return shall be-
1. Monthly VAT Return (BIR Form No.2550M)-20"^ day following the close
552 553
The tax Reviewer Value Added Tax

Multiple Choice Questions Statement 1: A privilege store operator is not required to file percentage
tax returns.

1. VAT is imposed on: Statement 2: A privilege store operation is not required to file an income
tax return.
I. Sale of goods or properties not in the course of business
n. Sale of goods or properties in the course of business a. Only Statement 1 is true.
m. Importation of goods or properties in the course of business b. Only Statement 2 is true.
TV. Importation of goods or properties not in the course of business c. Both statements are true.
d. Both statements are not true.

a. I and HI only.
b. I, ni, and IV only. b- In order to be subject to the requirement of VAT registration, a business
c. I, II, and III only. must have:

d. I, II, m,and IV. a. Gross sales or receipts exceeding P3,000,000

b. Gross sales or receipts of at least P3,000,000
2. Who is statutorily liable for the payment of VAT? c. Gross sales or receipts, other than those that are exempt under
a- Seller Section 109, exceeding P3,000,000
b. Buyer d. Gross sales or receipts, other than those that are exempt under
c. Seller or buyer, at the option of the government. Section 109, of at least P3,000,000
d. Seller and buyer
Which among the following taxpayers can avail of the 8% flat rate of
3. Yoona is a student at the Review School of Caring Educators(ReSCARe). income tax?
She sold her unused iPhone to her friend for P30,000, and with those a. A non-VAT registered taxpayer whose annual VAT-subject gross
founts she saved P10,000, and spent P20,000 to buy a cheaper phone. sales or receipts exceed P3,000,000
How much is Yoona's VAT payable? b. A non-VAT registered taxpayer whose annual VAT-subject gross
a. 0- Yoona is not engaged in business. sales or receipts do not exceed P3,000,000
b. 0- Voona is not VAT-registered. c. A VAT registered taxpayer whose annual VAT-subject gross sales or
UOO,computed as 12% of the amount she has saved. receipts exceed P3,000,000
d. 3,600, computed as 12% of the price at which her friend bought the d. A VAT registered taxpayer whose annual VAT-subject gross sales or
phone receipts do not exceed P3,000,000

4. Statement 1: A privilege store is not subject to VAT. 8- Optional registration for VAT is irrevocable for a period of:
Statement 2: If a store engages in any business activity during a feast a. One (1) year
that lasted for one week, it shall be subject to VAT b. Three(3) years
a. Only Statement 1 is true. c. Five (5) years
b. Only Statement 2 is true. d. Seven (7) years
c. Both statements are true.
d. Both statements are not true.

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The tax Reviewer Value Added Tax

Multiple Choice Questions 5. Statement 1: A privilege store operator is not required to file percentage
tax returns.
Statement 2: A privilege store operation is not required to file an income
1. VAT is imposed on:
tax return.
1. Sale of goods or properties not in the course of business
a. Only Statement 1 is true.
n. Sale of goods or properties in the course of business
b. Only Statement 2 is true.
III. Importation of goods or properties in the course of business
c. Both statements are true.
IV. Importation of goods or properties not in the course of business
d. Both statements are not true.

a. I and III only.

b. I, m,and IV only. 6. In order to be subject to the requirement of VAT registration, a business
must have:
c. 1, II, and m only.
d. I, II, m,and IV. a. Gross sales or receipts exceeding P3,000,000
b. Gross sales or receipts of at least P3,000,000
Who is statutorily liable for the payment of VAT? c. Gross sales or receipts, other than those that are exempt under
a. Seller Section 109, exceeding P3,000,000
b. Buyer d. Gross sales or receipts, other than those that are exempt imder
c. Seller or buyer, at the option of the government. Section 109, of at least P3,000,000
d. Seller and buyer
7. Which among the following taxpayers can avail of the 8% flat rate of
Yoona is a student at the Review School of Caring Educators(ReSCARe). income tax?

She sold her unused iPhone to her friend for P30,000, and with those a. A non-VAT registered taxpayer whose annual VAT-subject gross
amounts she saved PI0,000, and spent P20,000 to buy a cheaper phone. sales or receipts exceed P3,000,000
How much is Yoona's VAT payable? b. A non-VAT registered taxpayer whose annual VAT-subject gross
a. 0. Yoona is not engaged in business. sales or receipts do not exceed P3,000,000
b. 0. Yoona is not VAT-registered. c. A VAT registered taxpayer whose annual VAT-subject gross sales or
c. 1,200, computed as 12% of the amount she has saved. receipts exceed P3,000,000
d. 3,600, computed as 12% of the price at which her friend bought the d. A VAT registered taxpayer whose annual VAT-subject gross sales or
phone receipts do not exceed P3,000,000

Statement 1: A privilege store is not subject to VAT. 8. OpHonal registration for VAT is irrevocable for a period of:
Statement 2. If a store engages in any business activity during a feast a. One (1) year
that lasted for one week,it shall be subject to VAT. b. Three (3) years
a. Only Statement 1 is true. c. Five (5) years
b. Only Statement 2 is true. d. Seven(7) years
c. Both statements are true.
d. Both statements are not true.

554 555
The tax Reviewer Value Added Tax

23. Which of the following items is a VAT-subject receipt by a lessor?

19. A sale is a sale on a deferred-payment basis if: a. loan to the lessor
a. The down payment is at least 25% of the gross selling price. b. option money for the property
b. The down payment exceeds 25% of the gross selling price. c. prepaid rentals if the lessor uses the accrual method of accounting
c. The initial payments are at least 25% of the gross selling price. d. security deposit for the faithful performance of certain obligations of
d. The initial payments exceed 25% of the gross selling price. the lessee

20. When does constructive receipt occur? 24. Which of the following is not a transaction deemed sale?
a. When the money is received by a construction worker a. Retirement from or cessation of business
b. When the seller has an unconditional right to receive the pajnnent b. Change of ownership of the business
due from the buyer c. Incorporation of a single proprietorship
c. WTien the seller has a legally enforceable right to demand the d. Change of control of a corporation by the acquisition of the
payment due from the buyer such as when the seller has already controlling interest of such corporation by another stockholder
rendered the services agreed upon.
d. When the money consideration or its equivalent is placed at the 25. Which of the following is a VAT-subject event?
control of the person who rendered the service without restrictions
a. Change in the trade or corporate name of the business
by the payor. b. Approval of a request for cancellation of registration due to a desire
to revert to exempt status after the lapse of three(3)consecutive years
21. Which of the following is an example of constructive receipt? from the time of registration by a person who volimtarily registered
a. Deposit in the bank account of the seller by the buyer which are made
c. Merger of corporations
available to the seller of services without restrictions
d. Consolidation of corporations
Making of a refundable deposit which shall be returned to the buyer
upon satisfactory completion of the services rendered 26. Consignment of goods are transactions deemed sale:
Payment made by the buyer through checks, named under the seller-
c.
a. If actual sale is not made within sixty (60) days following the date
payee,for the billed amount on services rendered
such goods were consigned
d. Payment made by cash in a face-to-face transaction b. If actual sale is not made within ninety (90) days following the date
such goods were consigned
22. The VAT base for non-life insurance companies is the total premiums c. If actual sale is not made within thirty (30) days following the date
collected. This includes:
such goods were consigned
I. Payment in money
Payment in notes or credits
d. If actual sale is not made within one hundred twenty (120) days
II.
following the date such goods were consigned
III. Payment in any substitute for money

a. I only.
b. I and II only.
c. I and III only.
d. I, II, and III.

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The tax Reviewer Value Added Tax

27. Statement 1: Gross receipts of a PRC-licensed doctor is subject to VAT on paid for in acceptable foreign currency and accounted for in
professionals. accordance with the rules and regulations of the Bangko Sentral ng
Statement 2: Gross receipts of a professional athlete is subject to VAT on Pilipinas (BSP).
professionals. b. sale of raw materials or packaging materials to a nonresident buyer
a. Only Statement 1 is true. for delivery to a resident local export-oriented enterprise to be used
b. Only Statement 2 is true. in manufacturing, processing, packing or repacking in the
c. Both statements are true.
Philippines of the said buyer's goods and paid for in acceptable
d. Both statements are not true.
foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP).
28. In order to be zero-rated, the sale and actual shipment of goods from the c. sale of finished goods to a nonresident buyer for delivery to a
Philippines to a foreign country:
resident to be used in manufacturing, processing, packing or
a. Must be paid for in Philippine pesos. repacking in the Philippines of the said buyer's goods and paid for in
b. Nlust be paid for in acceptable foreign currency. acceptable foreign currency and accounted for in accordance with the
c. Must be FOB Shipping Point. rules and regulations of the Bangko Sentral ng Pilipinas (BSP).
d. Must be FOB Destination.
d. sale of finished goods to a nonresident buyer for delivery to a
resident local export-oriented enterprise to be used in
29. Statement 1. ECOZONEs are separate customs territory by fiction of law. manufacturing, processing, packing or repacking in the Philippines
Statement 2: Sale to an entity located in an ECOZONE,even though such of the said buyer's goods and paid for in acceptable foreign currency
entity is not qualified to avail income tax holiday or 5% gross income tax, and accounted for in accordance with the rules and regulations of the
is a zero-rated sale.
Bangko Sentral ng Pilipinas (BSP).
a. Only Statement 1 is true.
b. Only Statement 2 is true.
32. Which of the following is not a zero-rated sale under the Omnibus
c. Both statements are true.
Investments Code?
d. Both statements are not true.
a. Sales to bonded manufacturing warehouses of export-oriented
manufacturers
30. Which of the following is an export-oriented enterprise? b. Sales to the government of the Philippines
a. Demi Corporation. Its export sales exceed 50% of the total annual c. Sales to export processing zones
production of the preceding taxable year.
d. Sales to registered export traders operating bonded trading
b. Ariana Corporation. Its export sales exceed 70% of the total annual warehouses
production of the preceding taxable year.
c. Miley Corporation. Its export sales exceed 50% of the total annual
production of the three preceding taxable year.
d. Selena Corporation. Its export sales exceed 70% of the total annual
production of the three preceding taxable year
31. Which of the following is a zero-rated sale?
a. sale of raw materials or packaging materials to a nonresident buyer
for delivery to a resident to be used in manufacturing, processing,
packing or repacking in the Philippines of the said buyer's goods and
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The tax Reviewer Value Added Tax

33. Lakas Tama Company is a domestic corporation engaged in the Salted chicken meat 4,640,000
generation and distribution of electricity from various sources. The
Chicken nuggets 2,130,000
following are the sales of Lakas Tama of electricity with source indicated:
Chicken cubes 4,970,000
Chicken hotdog 4,500,000
Source Amoimt
Total P 41,000,000
Coal P 7,440,000
Fossil fuel 4,860,000
How much are the VAT-exempt sales?
Hydroelectric 5,960,000
a. 8,720,000
Wind 6,330,000
b. 16,350,000
Total P 24,590,000 c. 29,100,000
d. 29,400,000
How much is Lakas Tama's zero-rated sales?
a. 5,960,000 37. Which of the following is a VAT-exempt item?
b. 6,330,000 I. Newspapers devoted principally for the publication of local
c. 12,290,000 news and not national news.
d. 24,590,000 II. Books in electronic format

34. Sale of which of the following products is not exempt from VAT? a. I only.
a. Shrimp b. II only.
b. Cactus c. Both I and II.
c. Raisins d. Neither I nor II.
d. Bananas

38. Which of the following is a VAT-exempt sale of services?

35. Which of the following products is VAT exempt? I. Transport of cargoes by international carriers from Philippines to
a. Rabbits abroad
b. Dogs II. Transport of passengers by international carriers from
c. Anacondas Philippines to abroad
d. Fighting cocks III. Transport of cargoes by domestic carriers from Philippines to
abroad
36. Lydia Mila is engaged in the sale of chicken in various forms, The
following are Lydia Mila's sales: a. I only.
Live chickens 8,510,000 b. II only.
Fighting cocks 300,000 c. I and II only.
Fresh chicken meat 210,000 d. I, II, and III.
Cut chicken meat 7,700,000
Boiled chicken meat 2,220,000
Roasted chicken meat 510,000
Smoked chicken meat 5,310,000
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39. Input VAT from sale of services may be claimed: 44. In order to claim input VAT from purchases of services, the proper
a. Upon perfection of sale documentation is:
b. Upon consummation of sale a. VAT invoice
c. Upon rendering of services b. VAT official receipt
d. Upon payment c. VAT statement of account
d. VAT delivery receipt
40. Which of the following purchase of vehicles may give rise to input tax
credit?
45. Which of the following is an attachment to the quarterly VAT return?
L Purchase of a delivery truck amounting to Pl,800,000. a. Alphalist of payees
XL Purchase of a car for top management amounting to P2,600,000 b. Summary list of sales
III. Purchase of a car by the sole proprietor for his own personal use, c. Audited financial statements
P2,000,000
d. Certificate of registration

a. I only. 46. For manual filers, the deadline for filing of the monthly VAT declaration
b. II only.
is:
c. I and II only. a. 10"^ day of the following month
d. I, II, and III.
b. IS'h day of the following month
c. 20'*^ day of the following month
41. Which of the following manufacturers/processors can claim presumptive d. 25'h day of the following month
input VAT?
a. Processor of salt 47. Which of the following is not a characteristic of value added tax?
b. Processor of sardines a. It is an excise tax.
c. Processor of rice b. It is a national tax.
d. Processor of eggs c. It is a proportional tax.
d. It is a direct tax.
42. The base of computation of presumptive input VAT
a. Gross value of raw materials
48. Under the TRAIN Law, what is the quantitative threshold in order for
b. Gross value of primary agricultural inputs non-VAT registered seller of goods or services to be subjected to value
c. Gross value of agricultural and marine inputs added tax?
d. Gross value of raw materials proportionately applied to the a. Gross sales or receipts exceeding P3,000,000 during the year or in any
registered operations of the taxpayer.
12-month period
b. Gross sales or receipts exceeding Pl,919,500 during the year or in any
43. Standard input VAT applies to: 12-month period
Sale of refined sugar
c. Gross sales or receipts amounting to at least P3,000,000 during the
Sale to government
year or in any 12-month period
Change from non-VAT registered taxpayer to VAT-registered d. Gross sales or receipts amounting to at least Pl,919,500 during the
taxpayer
year or in any 12-month period
Transactions deemed sale

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49. In which of the following transactions is a non-VAT registered taxpayer- c. Gross sales
seller not allowed to claim creditable input VAT? d. Landed value
a. Sales of goods subject to 12%-VAT
b. Sales of goods subject to 0%-VAT 54. Which of the following sales of real property is subject to VAT?
c. Sales of goods exempted from VAT a. Sale of land by a college professor
d. All of the above b. Sale of real properties for low-cost housing and socialized housing as
defined by R.A. 7279
50. Which of the following sales transactions by a VAT registered taxpayer- c. Sale of commercial lot valued at Pl,500,000 and below
seller is subject to 12%-VAT? d. Sale of residential house and lot valued at P2,500,000 and below
a. Sale of goods in a foreign country and paid for in acceptable foreign
currency
55. Which of the following lease shall be subject to VAT?
b. Sale of goods to Asian Development Bank or International Rice a. Lease with monthly rental exceeding P15,000 but the annual
Research Institute aggregate of rentals does not exceed P3,000,000
c. Sale of goods to cooperative registered with Cooperative b. Lease with monthly rental not exceeding P15,000 but the annual
Development Authority aggregate of rentals exceeds P3,000,000
d. Sale of goods to diplomatic missions and other agencies or c. Lease with monthly rental exceeding P15,000 and the annual
instrumentalities granted tax immunities aggregate of rentals exceeds P3,000,000
d. Lease with monthly rental not exceeding P15,000 and the annual
51. Which of the following fees is subject to value-added tax? aggregate of rentals does not exceed P3,000,000
a. Salaries of professor teaching in College of Law
b. Professional fee of CPA reviewer in a Review Center 56. Which of the following sale of medicine is subject to VAT?
c. Wages of rank-and-file employee in government agency a. Sale of drugs and medicines prescribed for diabetes
d. Fee paid to agricultural contract growers and milling for others of b. Sale of drugs and medicines prescribed for flu
palay into rice, corn into grits, and sugar cane into raw sugar c. Sale of drugs and medicines for high cholesterol
d. Sale of drugs and medicines for h3qpertension
52. Which of the following transactions is not a transaction deemed sale and
therefore it will not be subject to VAT?
57. How many days must lapse from the date of consignment to consignee
a. Distribution of property dividends to stockholders in the form of in order for the consigned goods to be considered transaction deemed
inventories
sale to the consignor?
b. Dacion en pago to creditors in the form of investment property a. If actual sale to final consumer is not made within 30 days following
c. Consumption by the sole proprietor of existing goods of the business the date such goods were consigned.
d. Transfer of assets of corporations to another corporation due to b. If actual sale to final consumer is not made within 40 days following
merger or consolidation
the date such goods were consigned.
c. If actual sale to final consumer is not made within 50 days following
53. What is the tax based for computation of output VAT on rendition of the date such goods were consigned.
services?
d. If actual sale to final consumer is not made within 60 days following
a. Gross receipts
the date such goods were consigned.
b. Gross service revenue

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58, If a person who is a non-VAT-registered issues an invoice or receipt c. Importation of seeds, seedlings and fingerlings
showing his TIN,followed by the word "VAT", what is the extent of his d. Importation of poultry feeds
tax liability to the said transaction?
I. Other applicable percentage taxes 63. Which of the following rendition of services is subject to 12% Output
II. Output VAT due on the transaction without the benefit of input VAT?
tax credit a. Laboratory services made by medical clinic to patients
III. 50% surcharge b. Dental services by Dental clinic to patients
c. Check-up services by Pediatrician to patients
a. I and III only d. Accommodation services by hospital to patients
b. I and II only
c. II and in only 64. Which of the following shall be considered transactions deemed sale to
d. I, II and III be subjected to 12% Output VAT?
a. Change in the control of a corporation
59. In which of the following creditable input VAT is payment of the input b. Change in the trade or corporate name of a business
VAT not necessary for the crediting of input VAT? c. Either A or B
a. Transitional input VAT d. Neither A nor B
b. Presumptive input VAT
c. Either A or B
65. Which importation by an OFW is subject to 12% VAT?
d. Neither A nor B a. Importation of professional instruments and implements
b. Importation of vehicle
60. Which of the following persons is not liable to pay Output VAT? c. Importation of tools of trade, occupation or employment
a Those who are VAT-registered taxpayers. d. Importation of wearing apparel
b. Importers of goods not in the ordinary course of business.
c. Franchise ^antees of radio/and or TV broadcasting whose gross 66. Which of the following sale is subject to 12% VAT?
annual receipts do not exceed P10,000,000 a. Sale, importation, printing, or publication of books and any
d. Those engaged in the selling or leasing of goods, property or services newspaper, magazine, review, or bulletin which appears at regular
whose gross sales or gross receipts during the year or in any 12- intervals with fixed prices for subscription and sale, and which is
month period exceeds P3,000,000
devoted principally to the publication of paid advertisements.
b. Sale of books, newspapers, magazines in electronic format.
61. Sale of which of the following items is subject to 12% Output VAT? c. Either A or B
a. Sale of roasted chicken
d. Neither A nor B
b. Sale of com grits
c. Sale of bagasse
67. Which of the following is subject to VAT?
d. Sale of salted egg
a. Export sales by persons who are not VAT-registered
b. Export sales by VAT-registered persons
62. Importation of which of the following items is subject to 12% Output c. Either A or B
VAT?
d. Neither A nor B
a. Importation of fertilizers
b. Importation of feeds for aquarium fish
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68. Which rendition of services is not subject to VAT?

Transportation services by domestic common carries by air relative 73. What is the period given by law to BIR Commissioner to decide on VAT
a.
Refund under Enhanced VAT Refund system?
to cargoes from one place to in the Philippines to another place in the
a. Within 120 days from the filing of VAT Refund Application
Philippines
Transportation services by domestic common carries by sea relative b. Within 90 days from the filing of VAT Refund Application
c. Within 30 days from the filing of VAT Refund Application
to passengers from one place to in the Philippines to another place in
d. Within 60 days from the filing of VAT Refund Application
the Philippines
Transportation services by domestic common carries by land relative
74. What is the amount of transitional input VAT?
to cargoes from one place to in the Philippines to another place in the
Philippines
a. 8% of beginning inventory of goods, materials and supplies or the
Transportation services by domestic common carries by land relative actual value-added tax paid on such goods, materials and supplies,
whichever is higher
to passengers from one place to in the Philippines to another place in
b. 4% of beginning inventory of goods, materials and supplies or the
the Philippines
actual value-added tax paid on such goods, materials and supplies,
whichever is higher
69. Which of the following sales of electricity is subject to VAT?
2% of beginning inventory of goods, materials and supplies or the
a. Sale of power or fuel generated thru renewable sources of energy
b. Sale of electricity by MERALCO
actual value-added tax paid on such goods, materials and supplies,
whichever is higher
c. Both A and B
6% of beginning inventory of goods, materials and supplies or the
d. Neither A nor B
actual value-added tax paid on such goods, materials and supplies,
whichever is higher
70. Which of the following is subject to VAT?
a. Insurance commissions in a non-life insurance policy
75. Which of the following transactions does not entitle the businessman to
b. Insurance commissions in a life insurance policy claim tax credit in Input VAT?
Both
c. " - A* andJ"
B
a. Zero-rated VAT-subject transaction
d. Neither A nor B
b. 12% VAT-subject transaction
c. Transaction subject to OPT
71. Which of the following is a characteristic of a value added tax?
d. None of the above
a. Indirect tax
b. Property tax
c. Local tax
76. Which of the following sale is exempted from output VAT?
d. Specific tax a. Sale of commercial lot at a price of P1,000,000
b. Sale of industrial lot at a price of P500,000
c. Sale of residential lot at a price Pl,500,000
72. Which of the following products will not allow the manufacturer to claim
presumptive input VAT. d. None of the above

a. Sardines
b. Cooking oil
c. Milk
d. Coffee

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77. What is the quantitative threshold for monthly rental of residential unit
80. Assuming Namjoon is required to be a VAT-registered taxpayer and
to be exempted from output VAT?
remains to be a non-VAT registered taxpayer, which of the following
a. not exceeding P12,000 per month
statements is true?
b. not exceeding P15,000 per month
I. Namjoon is liable the percentage tax under Section 116 (3%,
c. not exceeding P20,000 per month
temporarily 1% under CREATE Act)
d. not exceeding PI0,000 per month
II. Namjoon is liable to pay value-added taxes.
III. Namjoon cannot claim input tax credit from his purchases.
Situational Problem No. 1: For items 78 to 80, refer to the following
information:
a. I and III only.
b. II and III only.
Namjoon is engaged in the manufacture and sale of butter pancakes.
c. I and II only.
Namjoon purchased P2,500,000 worth of raw materials, VAT-exclusive,from
d. I, II, and III.
VAT-registered local suppliers. During the taxable year 2021, it was able to
generate export sales of P2,000,000, and domestic sales of P2,500,000 for its
Situational Problem No.2: For items 81 to 83,refer to the following situation:
pancakes.

Interpretativa Company, a VAT-registered service provider, provides

78. Is Namjoon required to be a VAT-registered taxpayer?
premium translations of documents and manuscripts into any language.Due
a. Yes, because his sales breached the P3,000,000 threshold.
to the presence of online services such as Google Translate, Interpretativa is
b. Yes, because his VAT-subject sales breached the P3,000,000
now suffering from substantial losses. Interpretativa decided to sell its land
threshold.
that it uses in its business located in Cagayan de Oro at a price of P20,000,000.
c. No,because his sales have not breached the P3,000,000 threshold.
d. No,because an exporter need not be a VAT-registered taxpayer.
The schedule of payments is broken down below:
January 1, 2021 4,000,000
79. Assuming Namjoon is not required to be a VAT-registered taxpayer and
June 1, 2021 4,000,000
remains to be a non-VAT registered taxpayer, which of the following
statements is true?
January 1, 2022 4,000,000

I. Namjoon is liable the percentage tax under Section 116 (3%, January 1, 2023 4,000,000
temporarily 1% under CREATE Act) January 1, 2024 4,000,000
II. Namjoon is liable to pay value-added taxes. Total P 20,000,000
III. Namjoon cannot claim input tax credit from his purchases.
81. How much is the output VAT to be recognized on January 1, 2021?
a. 0
a. I and III only.
b. II and III only. b. 480,000
c. 1,200,000
c. I and II only.
d. 2,400,000
d. I, II, and III.

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82. How much is the output VAT to be recognized on January 1, 2022? 85. Which of the following statements is true regarding the distribution of
a. 0
milk to the shareholders of Boar Brand?
b. 480,000
I. Boar Brand Corporation shall withhold a final withholding tax of
c. 1,200,000
10% assuming their shareholders are resident citizens.
d. 2,400,000 II. Boar Brand Corporation shall issue an official receipt in favor of
its shareholders.
83. Assuming Interpretativa Company is a real estate dealer, how much is
the output VAT to be recognized on January 1, 2021? a. Only Statement 1 is true.
a. 0
b. Only Statement 2 is true.
b. 480,000 c. Both statements are true.
c. 960,000 d. Both statements are not true.
d. 2,400,000

Situational Problem No.4: For items 86 to 87,refer to the following situation:

Situational Problem No.3: For items 84 to 85, refer to the following situation:
Intelligent Solutions, Inc., sells its computers on a consignment basis. This
Boar Brand Corporation is a domestic corporation engaged in the quarter, it had the following sales:
manufacturing of milk products. Boar Brand had the following transactions
for the quarter: Direct sales P 14,000,000
Sales through consignees 38,000,000
VAT Exclusive
P 52,000,000
amounts
Sold milk to retailers P 48,000,000
Disposed a milk evaporator machine (Cost is
On the other hand,the ending inventory of Intelligent Solutions consist of the
P50,000,000, proceeds are P60,000,000) 10,000,000
following:
Distributed milk to its shareholders as part of
their property dividends 14,000,000
Transferred a milking machine to a creditor as LCNRV Selling price
payment of debt 8,000,000 Located on the factory warehouse P 1,400,000 P 1,960,000
With the possession of consignees,
84. How much is output VAT for the taxable quarter?
consigned 30 days ago 800,000 1,120,000
a. 5,760,000
With the possession of consignees,
b. 9,600,000
consigned 50 days ago 770,000 1,078,000
c. 14,400,000
With the possession of consignees,
d. 15,600,000
consigned 70 days ago 480,000 672,000
P 3,450,000 P 4,830,000

All selling prices listed are VAT-exclusive prices.

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89. How much is Philippine Airlines' output VAT?

86. How much is output VAT? a. 0
a. 6,297,600 b. 2,898,000
b. 6,320,640 c. 4,280,400
c. 6,450,000 d. 5,553,600
d. 6,584,400
90. How much is Philippine Airlines' common carriers tax?
87. What document should Intelligent Solutions, Inc. issue in relation to its a. 0
P38,000,000 sale through consignees. b. 724,500
a. Invoice with name of the buyers indicated. c. 1,070,100
b. Invoice with name of the consignees indicated. d. 1,388,400
c. Official receipt with name of the buyers indicated.
d. Official receipt with name of the consignees indicated. Situational Problem No. 6: For items 91 to 94, refer to the following
information:
Situational Problem No.5: For items 88 to 90, refer to the following situation:
Farm Solutions, Inc., sold the following items to farmers for the taxable
Philippine Airlines is a domestic corporation engaged in the transport of quarter ending June 30, 2021:
cargo and passengers. The following are the routes that PAL flew and the
corresponding amounts it received for the rendering of such services: Fertilizers 3,040,000
Pesticides 2,260,000
Route Amount
Seeds 3,200,000
Manila to Cebu P 2,300,000 Seedlings 6,050,000
Cebu to Manila 7,460,000 Farm equipment 18,730,000
Manila to Davao 8,490,000 Total 33,280,000
Davao to Manila 5,900,000
Manila to Seoul 6,060,000
91. How much is Farm Solutions, Inc.'s output VAT?
Seoul to Manila 5,870,000
a. 0
Manila to Tokyo 4,550,000 b. 2,247,600
Tokyo to Manila 5,650,000 c. 2,518,800
Total P 46,280,000 d. 3,244,800

88. How much are the zero-rated sales? 92. When should Farm Solutions file its VAT return for the taxable quarter
a. 0 ending June 30, 2021?
b. 10,610,000 a. July 10, 2021
c. 11,520,000 b. July 20, 2021
d. 22,130,000 c. July 25, 2021
d. August 29, 2021

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93. Assuming Farm Solutions is an agricultural cooperative, which of the 95. How much is iTaffs output VAT?
following sales are exempt from VAT? a. 48,000
I. Sale of processed meat products to non-members of the b. 576,000
cooperative. The meat products are produce of the members. c. 1,180,800
II. Sale of processed meat products to members of the cooperative. d. 1,785,600
The meat products are produce of non-members.
96. Assuming iTaft sold the parcel of land where the apartment sits for a
a. I only. consideration of Pl,900,000, how much is output VAT from the
b. II only. transaction?
c. Both I and II. a. 0
d. Neither I nor II. b. 228,000
c. 240,000
94. Assuming Farm Solutions is an agricultural cooperative, and the farmers d. 264,000
are its members, how much is Farm Solutions' output VAT?
a. 0 97. If iTaft is a sole proprietorship owned by Father Faura, and Father Faura
b. 2,247,600 is a Spanish citizen residing in Spain, and assuming that the rentals
c. 2,518,800 exceeded the VAT-exempt threshold, then:
d. 3,244,800 a. The rentals are not subject to VAT because of Father Faura's
citizenship.
Situational Problem No.7: For items 95 to 97, refer to the following situation: b. The rentals are not subject to VAT because of Father Faura's
residence.
iTaft leases out apartment units along Taft Avenue in Manila. The following c. The rentals are subject to VAT to be paid by Father Faura.
are the rental rates for iTaft's rooms: d. The rentals are subject to VAT and paid by way of withholding.

Area Capacity Monthly rental

25 sq. m. 1 P 12,000
35 sq. m. 2-3 14,000
45 sq. m. 3-4 16,000

iTaft leases out 35 units of its 25 square meter rooms,30 units of its 35 square
meter rooms, and 10 units of its 25 square meter rooms.

The apartment building sits on a lot that has a zonal value of P2,000,000, an
assessed value of P2,200,000.

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Situational Problem No.8: For items 98 to 99, refer to the following situation: Situational Problem No. 9: For items 100 to 102, refer to the following
situation:
The Business and Accounting College of Sampaloc (BAGS) is a stock
educational institution duly registered with the Department of Education and The Daily Publisher is a publishing house,and it has several publications. The
Commission on Higher Education. During the quarter, it had the following following are the publications, their description, and their corresponding
receipts: sales for the taxable quarter ending September 30,2018.
Amount
Tuition fees from students p 70,700,000 Name of Publication Description Amount
Lease payments by private concessionaires 7,450,000 Daily newspaper covering
Grants and donations from alumni 5,740,000 The Daily Reader the news for the day P 180,000,000
P 83,890,000 Lifestyle and fashion
magazine which covers
All of the receipts were used by BAGS for educational purposes. It was able the latest trends,
to establish a five-story library building and improve its science and Fashion Weekly published weekly 45,000,000
computer laboratories with the amount it has received. Posts classified
advertisements from
98. Compute for the output VAT of BAGS. various companies,
a. 0 Job Hunt published twice monthly 30,000,000
b. 688,800 Magazine solely devoted for
c. 894,000 marriage ideas,
d. 1,582,800 Wedding Essentials publishea monthly 18,000,000
Scholarly review of
99. If BAGS is a non-stock non-profit educational institution, how much is developments in the
BAGS'output VAT? International Journal legal profession,
a. 0 of Jurisprudence published quarterly 2,500,000
b. 688,800 Total P 275,500,000
c. 894,000
d. 1,582,800 100.How much is output VAT?
a. 0
b. 3,600,000
c. 5,760,000
d. 9,000,000

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101.If Daily Publisher is a non-VAT registered taxpayer, which of the

following statements is true? 104.Which of the following statements is true regarding Ralph's importation
a. Daily Publisher will pay 3% percentage tax. of clothing for personal use?
b. Daily Publisher can claim input VAT on its purchase of paper from a. Ralph is not required to pay any VAT because the clothing is for
VAT-registered suppliers. personal use.
c. Daily Publisher can claim input VAT on the salaries it paid to its b. Assuming Ralph is a non-VAT registered taxpayer, Ralph is not
employee. required to pay the VAT on importation.
d. Daily Publisher is not liable to pay VAT. c. Ralph is required to pay VAT but cannot claim any input tax credit
on the VAT he has paid.
102.Statement 1: If Wedding Essentials is published only quarterly, its sale d. Ralph is required to pay VAT considering that the item imported is
will be subject to VAT. the same item that he regularly sells.
Statement 2: If the International Journal of Jurisprudence is availed by
way of online subscription, the subscription will be subject to VAT. 105.If Ralph is a non-VAT registered taxpayer, how much can be claimed as
a. Only Statement 1 is true. input VAT?
b. Only Statement 2 is true. a. 0
c. Both statements are true. b. 265,800
d. Both statements are not true. c. 414,360
d. 437,040
Situational Problem No. 10: For items 103 to 106, refer to the following
information: 106.1f Ralph availed of the 8% income tax option, how much can be claimed
as input VAT?
Ralph is the sole proprietor of a VAT-registered t-shirt printing business. a. 0
During the taxable month of September 2018, he made the following b. 265,800
transactions: c. 414,360
d. 437,040
Transaction Value
Importation of clothing for personal use P 189,000
Importation of clothing to be resold in business 1,240,000
Importation of printers 975,000
Domestic purchase of t-shirt ink 880,000
Payment for maintenance services rendered for business 358,000
Total P 3,642,000

103.How much is input VAT?

a. 265,800
b. 371,400
c. 414,360
d. 437,040
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Answers to Multiple Choice Questions Solutions and discussions to selected items:

33.
1 B 31 B 61 C 91 C
Hydroelectric 5,960,000
2 A 32 B 62 B 92 C
Wind 6,330,000
3 A 33 C 63 C 93 C Zero-rated sales 12,290,000
4 A 34 B 64 D 94 A

5 A 35 A 65 B 95 B 36.

6 C 36 C 66 A 96 D Live chickens 8,510,000

7 B 37 C 67 B 97 D
Fresh chicken meat 210,000
Cut chicken meat 7,700,000
8 B 38 C 68 D 98 C
Boiled chicken meat 2,220,000
9 D 39 D 69 C 99 A
Roasted chicken meat 510,000
10 D 40 A 70 C 100 B
Smoked chicken meat 5,310,000
11 C 41 B 71 A 101 A Salted chicken meat 4,640,000
12 A 42 B 72 D 102 D Total 29,100,000
13 A 43 B 73 B 103 C

14 D 44 B 74 C 104 C 81 and 82.

15 B 45 B 75 C 105 A For a non-real estate dealer, the rules involving installment sales do not
16 A 46 C 76 C 106 A
apply. Accordingly, the entire output VAT is recognized at the date of sale.
17 C 47 D 77 B
83.
18 D 48 A 78 A The initial payments (4,000,000 + 4,000,000) in 2021 exceed 25% of the gross
19 D 49 C 79 A selling price (20,000,000). Accordingly, this is a sale on a deferred basis in
20 D 50 C 80 D which the entire output VAT is recognized at the date of sale.
21 A 51 B 81 D
84.
22 D 52 D 82 A
Sold milk to retailers 48,000,000
23 D 53 A 83 D Disposed a milk evaporator machine 60,000,000
24 D 54 C 84 D Distributed milk to its shareholders as part of their
14,000,000
25 B 55 c 85 A property dividends
56 B 86 B
Transferred a milking machine to a creditor as
26 A 8,000,000
payment of debt
27 C 57 D 87 A
Total 130,000,000
28 B 58 D 88 B VAT rate 12%
29 C 59 C 89 B Output VAT 15,600,000
30 B 60 C 90 A

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86. VAT rate 12%

Direct sales 14,000,000 Output VAT 576,000
Sales through consignees 38,000,000
In possession of consignees, consigned 70 days ago 672,000 96.
Total 52,672,000 Zonal value 2,000,000
VAT rate 12% Assessed value 2,200,000
Output VAT 6,320,640 FMV (whichever is higher) 2,200,000
Consideration 1,900,000
88. VAT base (whichever is higher) 2,200,000
Manila to Seoul 6,060,000 VAT rate 12%
Manila to Tokyo 4,550,000 Output VAT 264,000
Total 10,610,000
98.
89. Lease payments by private concessionaires 7,450,000
Output VAT VAT rate 12%
Manila to Cebu 2,300,000 12% 276,000 Output VAT 894,000
Cebu to Manila 7,460,000 12% 895,200
Manila to Davao 8,490,000 12% 1,018,800 99. A non-stock non-profit educational institution is exempt on all taxes on
Davao to Manila 5,900,000 12% 708,000 revenues and assets actually, directly, and exclusively used for educational
Manila to Seoul 6,060,000 0% purposes.
Manila to Tokyo 4,550,000 0%
Total 2,898,000 100.
Job Hunt 30,000,000
91. VAT rate 12%
Pesticides 2,260,000 Output VAT 3,600,000
Farm equipment 18,730,000
Total 20,990,000 103.
VAT rate 12% Importation of clothing to be resold in business 1,240,000
Output VAT 2,518,800 Importation of printers 975,000
Domestic purchase of t-shirt ink 880,000

95. Payment for maintenance services rendered for

358,000
Rentals on 45 sq m unit 16,000 business

Number of months 12 Total 3,453,000

Annual rental per unit 192,000 VAT rate 12%

Number of units 25 Input VAT 414,360

VAT-subject gross receipts 4,800,000
586 587