CHAPTER 2: VALUE ADDED TAX
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Tax on the value added by every seller to the
purchase price or cost in the sale of goods,
property, or services in the ordinary course of
the business as well as importation of goods
into the PH, whether for personal or business
use
As a rule, sale of goods or services made in the
normal course of trade or business are subject
to VAT “unless exempt
If the sale is exempt from VAT, it may be
subject to Other Percentage Taxes except those
transactions exempt from business taxes such
as those made for subsistence or livelihood
VAT exempt transactions are as follows:
A. “Sale or importation of agricultural and marine
food products in their original state, livestock and
poultry of a kind generally used as, or yielding or
producing foods for human consumption and
breeding stock and genetic materials therefor.
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Products classified under this exemption such
as meat, fruits and vegetables, shall be
considered in their “original state” even if they
undergone simple processes of preparation or
preservation for the market such as freezing,
drying, salting, broiling, roasting, smoking, or
stripping including those using advance
technological means of packaging such as
shrink wrapping in plastics, vacuum packing,
tetra-pack and other similar packaging methods
Refined Sugar – sugar whose content of sucrose by
weight in dry state corresponds to a polarimeter
reading of 99.5 and above
Sugar Refinery Mill – refers to entity, natural or
juridical, engaged in the business of milling sugar
cane into raw or in the refining of raw sugar
Sale of Marinated Fish
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Not exempt from VAT
Laws granting exemption from tax are
construed strictly against the taxpayer.
Exemption from payment of tax must be clearly
stated in the language of the law
Note: Polished, and/or husked rice, corn grits, raw
cane sugar and molasses, ordinary salt and copra
shall be considered in their original state
B. Sale or importation of:
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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 feeds)
Specialty Feeds – Non-agricultural feeds or food for
race horses, fighting cocks, aquarium fish, zoo
animals and other animals generally considered as
pets are subject to VAT
Raw sugar or raw cane – sugar whose content of
sucrose by weight, in the dry state, corresponds to
a polarimeter reading of less than 99.5 degrees
VAT Exempt Sugar
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Raw sugar cane refers to sugar produced by
simple process of conversion of sugar cane
without need of any mechanical or similar
device
Raw cane sugar refers only to muscovado sugar
Raw Sugar – sugar whose content of sucrose by
weight in dry state corresponds to a polarimeter
reading of less than 99.5
For sale or importation of certain feed
ingredients (whey powder, skimmed milk
powder, lactose, buttermilk powder, whole milk
powder and such other feed ingredients and
additives which may be determined by
competent authority to have possible
utilization for human consumption, there must
be a showing that the same is unfit for human
consumption or that the ingredient cannot be
used for the production of food for human
consumption as certified by the FDA.
C. Importation of personal and household effects
belonging to:
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The residents of the Philippines returning from
abroad; and
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Nonresident citizens coming to resettle in the
Philippines. Provided, that such goods are
exempt from Customs duties under the tariff
and Customs Code in the Philippines
Kinds of Personal and Household Effects that may
be Exempt from Payment of Customs Duties
1. Returned personal and household effects
2. Personal and Household effects purchased
abroad
D. Importation of professional instruments and
implements, tools of trade, occupation or
employment, wearing apparel, domestic animals,
and personal and household effects belonging to
persons coming to settle in the Philippines or
Filipinos or their families and descendants who
are now residents or citizens of other countries,
such parties herein referred to as overseas
Filipino, in quantities and of the class suitable to
the profession, rank or position of the persons
importing said items, for their own use and not for
barter or sale, accompanying such persons, or
arriving within a reasonable time.
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However, if such activity is done independently
of growing poultry, livestock or other
agricultural and marine food products, the
same can be considered as vatable services not
covered by agricultural contract growing
G. Medical, dental, hospital and veterinary
services except those rendered by professionals
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E. Services subject to Percentage Tax under Title V
of the Tax Code, as amendment (Sections 116127).
E. SERVICES BY:
Laboratory services are exempted
If hospital or clinic operates a pharmacy or
drugstore, the sale of drugs and medicine
are subject to VAT
Hospital bills constitute medical services.
Sales made by the drugstore to the inpatients which are included in the hospital
bills exempt from VAT
Sales of the drug store to the out-patients
are taxable because they are not part of
medical services of the hospital
Services of professional practitioners are
subject to VAT if annual gross professional
fees exceed 3M (as amended). Otherwise,
such professional fees are subject to 3%
percentage tax
a) “Agricultural contract growers” and
b) Milling for others of:
 Palay into rice
 Corn into grits; and
 Sugar cane into raw sugar
Purchased inside – Not
Agricultural Contract Growers – Persons producing
for others’ poultry, livestock or other agricultural
and marine food products in their original state
b. CPASs
Its services growing poultry, livestock or other
agricultural and marine food products into
marketable poultry, livestock or other marine food
products. There are agricultural contract growers
which offer toll processing/ toll manufacturing as a
packaged service to its toll growing
Toll Processing/ Toll Dressing/ Toll Manufacturing
- Involves procedures such as weighing, killing,
dressing, scalding, cut-ups and packaging
- Toll processing services exempt from Vat shall
pertain only to services to clients from which
growing of animals were contracted
- Preparing and packaging hogs/chicken ready for
delivery after producing or growing them can
be said to be within the purview of agricultural
contract growing
Purchase outside - VATable
Professional Practitioners include:
a. Medical Practitioner
c. Insurance Agents
d. Other Professional Practitioners required to pass
the government examination
H. Educational services rendered by private
educational institutions, duly accredited by the
Department of Education (DepEd), the
Commission on Higher Education (CHED), the
Technical Education and Skills Development
Authority (TESDA) and those rendered by
government educational institutions
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Educational services shall refer to
academic, technical or vocational
education provided by private educational
institutions duly accredited by the DepEd,
CHED and TESDA and those rendered by
government educational institutions.
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It does not include seminars, in-service
training, review classes and other similar
services rendered by persons who are not
accredited by DepEd, CHED or TESDA
I. Services rendered by individuals pursuant to an
employer-employee relationship
J. Services rendered by RHQs established in the
Philippines by multinational corporations which
act as supervisory, communications and
coordinating centers for their affiliates,
subsidiaries or branches in the Asia-Pacific Region
and do not earn or derive income from the
Philippines
K. Transaction which are exempt under international
agreements to which the Philippines is a signatory or under
special laws, except those under Presidential Decree No.
529.
Gross Receipts/ Sales
by
Electric cooperatives
Non-agricultural, nonelectric, nonlending/credit
cooperative
 Contribution
per member
=< P15,000
 Contribution
per member
> P15,000
Sales by
Agricultural
Cooperatives
Sale of
cooperative’s
own produce
(processed or
original state)
Other than the
cooperative’s
own produce
(i.e., from
“traders”)
To Members
To NonMembers
Exempt
Exempt
Exempt
VAT*
*Exempt if referring to agricultural food product at its original
state
- Sale or importation of agricultural food products in their
original state is exempt from VAT irrespective of the seller
and buyer
M. Gross receipts from “lending activities” by credit or
multipurpose cooperatives duly registered with the
Cooperative Development Authority”
Gross receipts
by Credit or
Multi-purpose
cooperatives
From Lending
activities
From nonlending activities
From
Members
From NonMembers
Exempt
Exempt
VAT
VAT
N. Sales by non-agricultural, non-electric, and noncredit cooperative duly registered with the
Cooperative Development Authority.
From NonMembers
VAT
Exempt
Exempt
VAT
VAT
O. Export sales” by persons who are Not VAT-registered
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Sale by non-VAT reg = Vat Exempt
Sale by a VAT reg = Zero-rated sales
Note: Zero-rates sales and VAT exempt are different from
each other. VAT Exempt are not registered
P. Sale of real property
SALE OF
L. Sales by agricultural cooperatives duly registered with the
Cooperative Development Authority
From
Members
VAT
1. Real property
not held for sale
or lease in the
ordinary course
of trade of
business
2. Real property
utilized for
socialized housing
3. Real property
utilized for lowcost housing
4. Residential lot
with SP of not
more than
P1,919,500
5. Residential
house and lot and
other residential
dwellings with SP
of not more than
P3,199,200
PRIOR TO
2021
Vat
exempt
BEGINNING 2021
Vat
exempt
Vat exempt
Vat
exempt
Removed from the list of
VAT exempt sales.
However, if the selling
price is not more than
P3,199,200 for "residential
house and lot" and "other
residential dwellings", the
sale shall be exempt from
VAT
Subject to vat
Vat
exempt
Vat
exempt
Vat exempt
VAT exempt under RR 82021 issued on June 11,
2021
Sale of Adjacent Lots
- If two or more adjacent residential lots are
sold or disposed in favor of one buyer, for
the purpose of utilizing the lots as one
residential lot, the sale shall be exempt
from VAT only if the aggregate value do not
exceed 1.5M (as amended). Adjacent
residential lots, although covered by
separate titles and/or separate tax
declarations, when sold to one and the
same buyer, whether covered by one
separate Deed of Conveyance, shall be
presumed as sale of one residential lot
which be disregarded beginning Jan 1,
2021
Sale of Parking Lot in the Sale of Condominium
Units
- Exemption from VAT does not include the
sale of parking lot which may or may not be
included in the sale of condominium is a
separate and distinct transaction and is not
covered by the rules on threshold amount
not being a residential lot, house and lot or
a residential dwelling
- Should be subject to VAT regardless of the
amount of selling price
Book, newspaper, magazine, review and bulletin
- Covers printed matters in hard copy, and
does not apply in electronic format or
versions including but not limited to
Q. Lease of Residential Unit
1st Criteria: Lease of a residential unit with a
monthly rental per unit not exceeding PhP15,000
regardless of the amount of aggregated rentals
received by the lessor during the year.
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2nd Criteria: Lease of residential units where the
monthly rental per unit exceeds PhP15,000 but the
aggregate of such rentals of the lessor during the
year do not exceed PhP3,000,000 shall likewise be
exempt from VAT, however, the same shall be
subject to Percentage tax under Section 116 of the
tax code as amended.
Corporation’s other transactions (such as
printing of brochures, bookbinding,
engraving, stereotyping, electrotyping,
lithographing of various reference books,
trade books, journals and other literary
works) are subject to VAT
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Taxpayer is required to register its business
as a VAT business entity and issue a
separate VAT invoice/receipt to record such
transactions
Prior July 1 2021: 3%
From July 1, 2021 to June 30, 2023: 1%
Beginning July 1, 2023: 3%
S. Transport of passengers by international
carriers doing business in the Philippines
International Carriers
Transport of
Passengers, Cargo or
goods
Originating in the
Philippines
Subject to Common
Carrier’s Tax (3%)
Domestic Common Carriers
Transport of
Within the
Philippines
Passengers
By land Common
Carrier’s tax
By air
VAT
or sea
Cargo or goods
VAT
R. Sale, importation, printing or publication of
books, and any newspaper, magazine, journal,
review bulletin, or any such educational reading
material covered by the UNESCO agreement on
the importation of educational, scientific and
cultural materials, including digital or electronic
format thereof. Provided, that the materials
enumerated herein are not devoted principally to
the publication of paid advertisements.
Philippines to
abroad
0% VAT
0% VAT
0% VAT
T. Sale, importation, or lease of passenger or
cargo vessels and aircraft, including engine,
equipment and spare parts thereof for domestic
or international transport operations, provided,
that the exemption from vat on the importation
and local purchase of passenger and/or cargo
vessels shall be subject to the requirements on
restriction on vessel importation and mandatory
vessel retirement program for MARINA
U. Importation of fuel, goods and supplies by
persons engaged in international shipping or air
transport operations
The P3,000,000 gross annual sales shall
comprise of the business’ total revenues
from sale of its products, which are either
goods or services, including nonrefundable
advance deposits/payments for services,
net of discounts, sales returns and
allowances, covering the fiscal and calendar
year.
V. Services of banks, non-bank financial
intermediaries performing quasi-banking
functions, and other non-bank financial
intermediaries, such as money changers and
pawnshops, subject to percentage tax
W. Sale or lease of goods and services to senior
citizens and persons with disabilities
Computation of VAT Payable
X. Transfer of property pursuant to Section 40©(2)
of the tax code, as amended.
Y. Association dues, membership fees, and other
assessments and charges collected on a purely
reimbursement
Z. Sale of Gold to the BSP. This provision shall take
effect only beginning January 1, 2018 or upon the
effectivity of RA10963-TRAIN Law
AA. Sale or importation of prescription drugs and
medicines prescribed for diabetes, high
cholesterol, hypertension beginning January 1,
2020 beginning January 1, 2021
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Must be approved by FDA. If not, VATable
BB. Sale or importation of the following beginning
January 1, 2021 to December 31, 2023:
1. Capital equipment, its spare parts and
raw materials, necessary for the
production of personal protective
equipment (PPE) components such as
coveralls, gown, surgical cap, surgical
mask, n-95 mask, scrub suits, goggles
and face shields, double or surgical
gloves, dedicated shoes, and shoe
covers, for COVID-19 prevention.
2. All drugs, vaccines and medical devices
specifically prescribed and directly used
for the treatment of COVID-19; and
3. Drugs for the treatment of COVID-19
approved by the FDA for use in clinical
trials, including raw materials directly
necessary for the production of such
drugs.
CC. Under pg BB, Sale or lease of goods or
properties or the performance of services other
than the transactions mentioned in the preceding
paragraphs, the gross annual sales and/or receipts
do not exceed the amount of P3,000,000.
Sources of Output VAT
1. Actual Sale
2. Transaction deemed sales
3. Zero (0%) rated sales
1. ACTUAL SALE (CASH OR DISCOUNT)
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Sales where there are actual exchanges
between buyers and sellers in the ordinary
course of the business
Basis of 12% output vat
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Sale of goods – Gross selling price
Sale of services – Gross receipts
Sale by a dealer in securities – Gross Income
Sale of real properties – the highest amount
among selling price, fair value provided by the
city/provincial assessor, and the zonal value
provided by the CIR
Gross Selling Price
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Total amount of money or its equivalent
which the purchaser pays or is obligated to
pay to the seller in consideration of the
sale, barter, or exchange of the goods or
properties, excluding the VAT
Excise tax, if any, on such goods or
properties shall form part of gross selling
price
Gross Receipts
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Toral amount of money or its equivalent
representing the total contract price,
compensation, service fee, rental or
royalty, including the amount charged for
materials supplied with the services and
deposits applied as payments for services
rendered and advance payments actually
or constructively received during the
taxable period for the services performed or
to be performed for another person,
excluding VAT
Incidental Transactions
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Included in the term “In the ordinary
course of trade or business” which means
the regular conduct or pursuit of a
commercial or an economic activity, by any
person regardless whether or not the
person engaged therein is a non-stock,
non-profit private organization or
government entity
d. Retirement from or cessation of status as vat
registered person with respect to all “goods on
hand” (as of the date of retirement or cessation),
whether or not the business is continued by the
new owner or successor. (considered in VAT
computation)
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2. TRANSACTIONS DEEMED SALES
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Certain transactions which are not usually
sale because of the absence of actual
exchange between the buyer and the
seller, are considered or included in the
term sale for value added tax purposes
One of the characteristics of VAT is “it is a
credit-invoice method value-added tax”
which means VAT due/payable is computed
by deducting the input VAT from output
VAT
In transaction deemed sale, the input vat
was already used by the seller as a credit
against the output vat. However, since
there was no actual sale, no output vat is
actually charged to customers
Consequently, the State will be deprived of
its right to collect the output vat
To avoid a situation where a vat registered
taxpayer avail of input vat credit without
being liable for the corresponding output
vat, certain transactions should be
considered sales even if the absence of
actual sales
The ff transactions are considered deemed sale
a. Transfer, use or consumption not in the ordinary
course of business of goods or properties
ordinarily intended for sale or use in the course of
business.
b. Distribution or transfer to:
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Shareholders or investors as share in the profits
of a VAT-registered person; and
Distribution or transfer to creditors in payment
of debt or obligation
c. Consignments of goods if actual sale is not made
within sixty days following the date such goods
were consigned. Goods returned within the 60-day
period are not deemed sold.
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Change of business activity from VAT
taxable status to VAT-exempt status.
Approval of a request for cancellation of
registration due to reversion to exempt
status
Approval of a request for cancellation of
registration due to a desire to revert to
exempt status after the lapse of 3
consecutive years from the time of
registration by a person who voluntarily
registered despite being exempt under
Sec. 109 (2) of the Tax Code.
Approval of a request for cancellation of
registration of one who commenced
business business with the expectation
of gross sales or receipts exceeding
P3,000,000, as amended, but who failed
to exceed this amount during the first
twelve months of operation.
VAT (Transaction deemed sale) shall not be
imposed on goods or properties existing as of the
occurrence of the ff:
1. Change of control of a corporation by the
acquisition of the controlling interest of such
corporation by another stockholder or group
of stockholders. The goods or properties used
in business or those comprising the stock-intrade of the corporation, having a change in
corporate control, will not be considered sold,
bartered or exchanged despite the change in
the ownership interest in the said corporation.
2. Change in the trade or corporate name of the
taxpayer.
3. Merger or consolidation of corporations. The
unused input tax of the dissolved corporation,
as of the date of merger or consolidation, shall
be absorbed by the new or surviving
corporation.
Bayanihan to Heal as One Act (RA 11469)
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Provides that donation of the following
items, when made during the period of
state of national emergency, for sole and
exclusive purpose of combating COVID-19,
shall be exempt from donor’s tax
3. ZERO RATED SALES (O%)
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Zero rated sale of goods, properties, and/or
services by a vat registered person is a
taxable transaction for VAT purposes, but
shall not result in any output tax
However, the input tax on purchases of
goods, properties or services, related to
such zero-rated sale, shall be available as
tax credit or refund in accordance with
existing regulating
Purpose of Zero-Rating
- Zero-rated seller becomes internationally
competitive by allowing the refund or credit
of input taxes that are attributable to
export sales
Rationale for Zero-rating of Export Sales
- PH vat system adheres to the “Cross Border
Doctrine” (or destination principle),
according to which, not VAT shall be
imposed to form part of the cost of the
goods destined for consumption outside of
the territorial border of the taxing authority
The INPUT VAT attributable to zero-rated (0%)
sale may be:
a. Refunded; or
b. Claimed as deduction/tax credit against
output vat on domestic sales; or
c. Claimed as tax credit (TCC) against any
other internal revenue taxes
Note: The refund of input VAT should be filed
within two (2) years after the close of the
taxable quarter when such sales were made