CTT EXAMINATION REVIEWER (NOTES) PAGE A - 30

VALUE-ADDED TAX subject to VAT, the same shall be combined for

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

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

VAT ON SALE OF REAL PROPERTY Materials charged for services xx

1. The following sales of real property are subject to Gross receipts xx
VAT:
Sale or exchange of services means the
a. Those held primarily for sale to customers; performance of all kinds of services in the Philippines
b. Those held for lease in the ordinary course of for others for a fee, remuneration or consideration,
trade or business of the seller. including those performed or rendered by the
2. The following are not subject to VAT: following:

Beginning January 1, 2021, the VAT exemption 1. Construction and service contractors
shall only apply to the following sales: 2. Warehousing services;
1. Sale of real properties not primarily held for sale 3. Lessors or distributors of cinematographic films;
to customers or held for lease in the ordinary
course of trade or business, 4. Persons engaged in milling, processing,
manufacturing or repacking goods for others
2. Sale of real property utilized for socialized except:
housing (RA 7279),
a. Palay into rice
3. Sale of house and lot, and other residential b. Corn into corngrits
dwellings with selling price of not more than c. Sugar cane into muscovado and raw cane
P3,199,200. sugar
Deferred Payment/Installment Sales 5. Proprietors, operators or keepers of hotels,
of Real Property motels, resthouses, pension houses, inns,
resorts;
Deferred Payment Basis – not a cash sale of real
property but the initial payment in the year of sale 6. Dealers in securities and lending investors
exceeds 25% of the gross selling price.
7. Proprietors or operators of restaurants,
Installment Basis – sale of real property by a real refreshment parlors, cafes and other eating
estate dealer in which the initial payment does not places, including clubs and caterers.
exceed 25% of the gross selling price.
8. Transportation contractors on their transport of
Computation of tax base: goods or cargoes, including persons who
1. Cash sale and Deferred Payment Sale – transport goods or cargoes for hire and other
whichever is the highest among: domestic carriers by land relative to their transport
a. Gross selling price of goods or cargoes;
b. Fair market value (assessor’s market value)
c. Zonal value (BIR) 9. Common carriers by air and sea relative to their
transport of passengers, goods or cargoes from
2. Installment basis – multiply the collection/gross one place in the Philippines to another place in
selling price by the highest among the Philippines;
a. Gross selling price
b. Fair market value 10. Sale of electricity by generation, transmission by
c. Zonal value any entity including National Grid Corporation of
the Philippines (NGCP), and distribution
VAT ON SALE OF SERVICES companies including electric cooperatives shall
Tax Base: Gross receipts - the total amount of be subject to 12% VAT on their gross receipts.
money or its equivalent actually or constructively
11. Services of franchise grantees, except –
received during the taxable quarter for the services
performed or to be performed for another person a. electric utilities, telephone and telegraph, radio
(excluding the VAT): and/or television broadcasting and all other
a. On the contract price, compensation, service fee, franchise grantees of radio and/or television
rental or royalty; broadcasting companies whose annual gross
b. Amount charged for materials supplied with the receipts of the preceding year do not exceed
services; and P10,000,000, and
c. Deposits applied as payments for services b. franchise grantees of gas and water utilities.
rendered and advanced payments.
12. Non-life insurance companies, including surety,
Constructive receipt occurs when the money fidelity, indemnity and bonding companies;
consideration or its equivalent is placed at the control
of the person who conducted the service without 13. Services performed in the exercise of profession
restrictions by the payor such as depositing the or calling subject to professional tax, and
money in the bank which are available to the payee professional services performed by registered
without restriction. professional partnerships; actors, actresses,
talents, singers, and emcees; radio and television
Computation of gross receipts: broadcasters, choreographers; musical, radio,
movie, television and stage directors; and
Cash received (actually and Pxx
professional athletes;
constructively)
Advance payments xx
 CTT EXAMINATION REVIEWER (NOTES) PAGE A - 33

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

VAT ON IMPORTATION OF GOODS/ PROPERTIES 3. Aggregate acquisition cost of the existing or

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

Rules: c. Importation of -
1. professional instruments and implements,
1. Acquisition cost of asset is more than P 1 million 2. tools of trade, occupation or employment,
in a calendar month- the input tax shall be spread 3. wearing apparel,
evenly over a period of 60 months or the life of the 4. domestic animals, and
asset, whichever is shorter if - 5. personal and household effects
a. Goods or properties with estimated useful life belonging to persons coming to settle in the
greater than one (1) year and which are Philippines or Filipinos or their families and
treated as depreciable assets, descendants who are now residents or citizens
a. Used directly or indirectly in the production or of other countries, such parties hereinafter
sale of taxable goods or services; referred to as overseas Filipinos, in quantities
and of the class suitable to the profession,
c. If the capital good is sold within 5 years or prior rank or position of the persons importing said
to exhaustion of input VAT thereon - the entire items, for their own use and not for barter or
unamortized input tax on the capital goods sale, accompanying such persons, or arriving
sold can be claimed as input tax credit during within a reasonable time:
the month/quarter when the sale was made.
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 35

Provided, that vehicles, vessels, aircrafts, j. Transactions which are exempt under
machineries and other similar goods for use in international agreements to which the Philippines
manufacture shall be subject to duties, taxes and is a signatory or under special laws except those
other charges. granted under Petroleum Exploration
Concessionaires under the Petroleum Act of
d. Services subject to other percentage tax as
1949;
follows:
k. Sales by agricultural cooperatives duly registered
1. Sale or lease of goods or properties or the
and in good standing with the CDA to their
performance of services of non-VAT-
members, as well as sale of their produce,
registered persons, those whose annual gross
whether in its original state or processed form, to
sales and/or receipts of which do not exceed
non-members; their importation of direct farm
the amount of P3 Million;
inputs, machineries and equipment, including
2. Services rendered by franchise grantees of spare parts thereof, to be used directly and
radio and/or television broadcasting whose exclusively in the production and/or processing of
annual gross receipts of the preceding year do their produce;
not exceed P10,000,000, and by franchise
l. Gross receipts from lending activities by credit or
grantees of gas and water utilities;
multi-purpose cooperatives duly registered and in
3. Services of proprietors, lessees or operators of good standing with the CDA;
cockpits, cabarets, night or day clubs, boxing
m. Sales by non-agricultural, non-electric and non-
exhibitions, professional basketball games,
credit cooperatives duly registered with and in
jai-alai and race tracks;
good standing with the CDA; provided, that the
4. Services rendered by any person, company or share capital contribution of each member does
corporation (except purely cooperative not exceed P15,000 and regardless of the
companies or association) doing life insurance aggregate capital and net surplus ratably
business of any sort in the Philippines; distributed among the members;
5. Services rendered by fire, marine or n. Export sales by persons who are not VAT-
miscellaneous insurance agents of foreign registered;
insurance companies;
o. Sales of real properties, as follows:
6. Services rendered by domestic common (1) Sale of real properties not primarily held for
carriers by land, for the transport of sale to customers or held for lease in the
passengers, and keepers of garages; ordinary course of trade or business;
7. Services rendered by international air or However, even if the real property is not
shipping carriers for the transport of goods or primarily held for sale to customers or held for
cargo originating in the Philippines and going lease in the ordinary course of trade or
abroad; and business but the same is used in the trade or
business of the seller, the sale thereof shall
8. Services rendered for overseas dispatch, be subject to VAT being a transaction
message or conversation originating from the incidental to the taxpayer’s main business.
Philippines.
(2) Sale of real properties utilized for socialized
e. Services by agricultural contract growers and
housing.
milling for others of (1) palay into rice, (2) corn into
grits, and (3) sugar cane into muscovado and raw "Socialized housing" refers to housing
cane sugar; programs and projects covering houses and
lots or home lots only undertaken by the
f. Medical, dental, hospital and veterinary services,
Government or the private sector for the
except those rendered by professionals;
underprivileged and homeless citizens which
g. Educational services rendered by private shall include sites and services development,
educational institutions duly accredited by the (1) long-term financing, liberated terms on
DepED, (2) CHED, (3) TESDA and those interest payments, and such other benefits in
rendered by (4) government educational accordance with the provision of RA 7279,
institutions; otherwise known as the “Urban Development
and Housing Act of 1992” and RA 7835 and
h. Services rendered by individuals pursuant to an
RA 8763.
employer-employee relationship;
"Socialized housing" shall also refer to
i. Services rendered by regional or area
projects intended for the underprivileged and
headquarters established in the Philippines by
homeless wherein the housing package
multinational corporations which act as
selling price is within the lowest interest rates
supervisory, communications and coordinating
under the Unified Home Lending Program
centers for their affiliates, subsidiaries or
(UHLP) or any equivalent housing program of
branches in the Asia Pacific Region and do not
the Government, the private sector or non-
earn or derive income from the Philippines;
government organizations.
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 36

(3) Sale of house and lot and other residential used for purposes other than that mentioned in
dwellings valued at an amount not exceeding this paragraph shall be subject to 12% VAT;
P3,199,200. Sale of residential lot only is
u. Services of banks, non-bank financial
subject to 12% VAT.
intermediaries performing quasi-banking
If two or more adjacent residential dwellings functions, and other non-bank financial
are sold or disposed in favor of one buyer, for intermediaries subject to percentage tax, such as
the purpose of utilizing the lots as one money changers and pawnshops; and
residential dwelling, the sale shall be exempt
v. Business pursued by an individual where the
from VAT only if the aggregate value of the
aggregate gross sales and/or receipts do not
lots do not exceed the threshold of
exceed P100,000 during any 12-month period
P3,199,200. Adjacent residential lots,
(shall be considered principally for subsistence or
although covered by separate titles and/or
livelihood and not in the course of trade or
separate tax declarations, when sold or
business);
disposed to one and the same buyer, whether
covered by one or separate Deed of w. Sale or lease of goods and services to senior
Conveyance, shall be presumed as a sale of citizens and persons with disabilities
one residential lot.
x. Transfer of Property pursuant to Section 40(C)(2)
Provided, That every three (3) years of the Tax Code, as amended;
thereafter, the amounts stated herein shall be
y. Association dues, membership fees, and other
adjusted to its present value using the
assessments and charges collected by
Consumer Price Index, as published by the
homeowners associations and condominium
Philippine Statistics Authority (PSA).
corporations;
p. Lease of residential units with a monthly rental per z. Sale of gold to the Bangko Sentral ng Pilipinas;
unit not exceeding P15,000, regardless of the
aa. Sale of drugs and medicines prescribed for
amount of aggregate rentals received by the
diabetes, high cholesterol, and hypertension and
lessor during the year;
sale or importation of prescription drugs and
Lease of residential units where the monthly medicines for cancer, mental illness, tuberculosis,
rental per unit exceeds P15,000 but the and kidney diseases;
aggregate of such rentals of the lessor during the bb. Sale or importation of the following goods from
year do not exceed P3,000,000 shall be subject January 1, 2021 to December 31, 2023:
to 3%/1% percentage tax.
1. Capital equipment, its spare parts and raw
q. Transport of passengers by international carriers; materials, necessary to produce personal
r. Sale, importation, printing or publication of books protective equipment component;
and any newspaper, magazine, journal, or any 2. All drugs, vaccines and medical devices
educational reading material covered by the specifically prescribed and directly used for the
United Nations Educational, Scientific and treatment of Covid-19;
Cultural Organization (UNESCO) agreement on 3. Drugs, including raw materials, for the
the importation of education, scientific and treatment of Covid-19 approved by the Foods
cultural materials, including the digital or and Drugs Authority for use in clinical trials.
electronic format thereof.
cc. Sale or lease of goods or properties or the
s. Sale, importation or lease of passenger or cargo performance of services other than the
vessels and aircraft, including engine, equipment transactions mentioned in the preceding
and spare parts thereof for domestic or paragraphs, the gross annual sales and/or
international transport operations. Provided, the receipts do not exceed the amount of P3,000,000.
exemption from VAT on importation and local
FILING OF RETURN & PAYMENT OF TAX
purchase of passenger and/or cargo vessels shall
1. Time for filing and payment (manual filing)
be subject to the requirements on restriction on
a. Monthly VAT declaration- Within 20 days after
vessel importation and mandatory vessel
the end of each month.
retirement program of MARINA;
b. Quarterly Return- Within 25 days after the end
t. Importation of fuel, goods and supplies by
of the quarter.
persons engaged in international shipping or air
transport operations; Provided, that such fuel, c. Withholding VAT Return– on or before the 10th
goods and supplies shall be used exclusively or day following the end of the month
shall pertain to the transport of goods and/or
Beginning Jan. 1, 2023, the filing and payment
passengers from a port in the Philippines unless
required under the Tax Code shall be done within
the docking or stopping at any other Phil port is
25 days following the close of each taxable
for the purpose of unloading passengers and/or
quarter.
cargoes that originated from abroad, or to load
passengers and/or cargoes bound for abroad; 2. Place of filing and payment – Any authorized
Any portion of such fuel, goods or supplies is bank where the Revenue District Office is located.
3. Modes of Payment
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 37

a. Over-the-counter cash payment transactions - a. Large taxpayers duly notified by the BIR
payment of tax liabilities to authorized agent b. Top 20,000 private corporations identified and
banks (AAB) in the currencies that are legal notified by the CIR
tender in the Philippines (not exceeding c. Top 5,000 individual taxpayers duly notified by
P10,000) the BIR
d. Taxpayers who wish to enter into contract with
b. Bank debit system – a taxpayer, thru a bank
government offices
debit memo/advice authorizes withdrawal from
e. Corporations with paid-up capital of P10
his/its existing bank accounts for payment of tax
million and above;
liabilities.
f. PEZA registered entities and those located
Conditions: within special economic zones; and
1. This mode is allowed only if the taxpayer g. Government offices in so far as remittance of
has a bank account with the bank where withheld VAT and business tax is concerned.
he/it intends to file and pay his/its tax
REGISTRATION OF VAT TAXPAYERS
return/form/ declaration;
Any person or entity who, in the course of his trade
2. Said AAB branch is within the jurisdiction of or business, sells, barters, exchanges, leases goods
the BIR Revenue District Office or properties and renders services subject to VAT
(RDO)/Large Taxpayers District Office shall register with the appropriate Revenue District
(LTDO) where the tax payment is due and Office (RDO).
payable.
Annual Registration Fee: P500 for every separate
3. This mode is not acceptable as payment for and distinct establishment or place of business
withholding taxes including fringe benefit before the start of such business and every year
tax and for taxes, fees and charges thereafter on or before January 31 (BIR Form 0605).
collected under special
MANDATORY VAT REGISTRATION
schemes/procedures /programs of the
Any person who enters into transactions that are or
government/BIR
maybe subject to VAT, if:
c. Credit facility with a bank, credit company or
a. The aggregate amount of actual gross sales or
similar institution; or
receipts (other than those that are exempt)
d. Personal or company check, cashier’s or exceed P3 Million for the past 12 months, or
manager’s check
b. There are reasons to believe that the gross sales
The following checks are not acceptable for or receipts for the next 12 months will exceed P3
payment: million.
1. Accommodation checks – issued or drawn
c. Radio and/or television broadcasting companies
by a party other than the one making the
whose annual gross receipts of the preceding
payment.
year exceeds P10,000,000.
2. Second endorsed checks – issued to the
taxpayer as payee who indorses the same Every person who becomes liable to be registered as
as payment for taxes. VAT taxpayer but failed to register –
3. Stale checks – dated more than 6 months
a. shall be required to pay the output tax as if he
prior to presentation to the AAB.
were a VAT registered person,
4. Post-dated checks – dated a day or several
b. but without the benefit of input tax credits for the
days after the date of presentation to the
period in which he was not properly registered.
AAB.
5. Unsigned checks – no signature of the OPTIONAL VAT REGISTRATION
drawer 1. Any person who is –
6. Checks with alterations/erasures a. VAT-exempt or
b. not required to register for VAT
ELECTRONIC FILING & PAYMENT SYSTEM
1. Definitions May elect to be VAT-registered by registering with
a. EFPS - refers to the system developed and the RDO that has jurisdiction over the head office
maintained by the BIR for electronically filing of that person, and pay the annual registration fee
tax returns, including attachments, if any, and of P500 for every separate and distinct
paying taxes due thereon, specifically thru the establishment.
internet.
2. Any person who elects to be registered shall not
b. e-Filing – the process of electronically filing be allowed to cancel his registration for the next
returns including attachments, if any, three (3) years.
specifically thru the internet.
3. Any person who is VAT-registered but enters into
c. e-Payment– the process of electronically transactions which are exempt from VAT (mixed
paying a tax liability thru the internet banking transactions) may opt that the VAT apply to his
facilities of AAB. transactions which would have been exempt
under Section 109(1) of the Tax Code, as
2. Coverage – open to all taxpayers who want to
amended [Sec. 109(2)].
make use of the system; however, the following
are mandated to make use of the system:
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 38

4. Franchise grantees of radio and/or television 2. All purchases covered by invoices/ receipts other
broadcasting - than VAT Invoice/VAT Official Receipt shall not
give rise to any input tax.
a. whose annual gross receipts of the preceding
year do not exceed P10,000,000 derived from 3. VAT invoice/official receipt shall be prepared at
the business covered by the law granting the least in duplicate, the original to be given to the
franchise are subject to franchise tax and not buyer and the duplicate to be retained by the
VAT. seller as part of his accounting records.
d. However, they may opt to be VAT registered
ISSUANCE OF INVOICES
c. Once this option is exercised, it shall be
1. Single invoice/receipt involving VAT and non-VAT
irrevocable (subject to VAT forever).
transactions.
5. The above-stated taxpayers may apply for VAT A VAT registered taxpayer may issue a single
registration not later than 10 days before the invoice/receipt involving VAT and non-VAT
beginning of the calendar quarter and shall pay transactions provided that:
the registration fee unless they have already paid
at the beginning of the year. The invoice or receipt shall clearly indicate the
break-down of the sales price between its
In any case, the Commissioner of Internal taxable, exempt and zero-rated components and
Revenue may, for administrative reason deny any the calculation of the Value-Added Tax on each
application for registration. portion of the sale shall be shown on the invoice
Once registered as a VAT person, the taxpayer or receipt.
shall be liable to output tax and be entitled to input 2. Separate invoices/receipts involving VAT and
tax credit beginning on the first day of the month Non-VAT transactions
following registration.
A VAT registered person may issue separate
APPLICATION FOR REGISTRATION invoices/receipts for the taxable, exempt, and
The application shall be filed with the RDO where the zero-rated component of its sales provided that:
principal place of business, branch, storage place or
premises is located, as the case may be, before a. If the sales is exempt from VAT, the term
commencement of business or production or "VAT-EXEMPT SALE" shall be written or
qualification as a withholding agent. printed prominently on the invoice or receipt,
and
In the case of storage places, the application shall be b. If the sale is subject to zero percent (0%) VAT,
filed within 30 days from the date the aforesaid the term "ZERO-RATED SALE" shall be
premises have been used for storage. written or printed prominently on the invoice or
CANCELLATION OF VAT REGISTRATION receipt.
A VAT-registered person may cancel his registration ISSUING AN ERRONEOUS VAT INVOICE OR VAT
for VAT if: OFFICIAL RECEIPT
1. He makes a written application and can 1. If a non-VAT registered person issues an invoice
demonstrate to the satisfaction of the CIR that his or receipt showing his TIN followed by the word
gross sales or receipts for the following 12 VAT, the non-VAT person shall be liable to:
months, other than those that are exempt, will not
exceed P3 million; or a. The percentage taxes applicable to his
transactions;
2. He has ceased to carry on his trade or business, b. The VAT due on the transactions without the
and does not expect to recommence any trade or benefit of any tax credit; and
business within the next 12 months. c. A 50% surcharge.
The cancellation for registration will be effective 2. If a VAT registered person issues a VAT invoice
from the first day of the following month the or official receipt for a VAT-exempt transaction
cancellation was approved. but fails to display prominently on the invoice or
receipt the term “VAT EXEMPT SALE”, the issuer
INVOICING REQUIREMENTS
shall be liable to VAT.
A VAT registered person shall issue:
1. A VAT invoice for every sale, barter or exchange In both cases, the VAT shall, if other requisite
of goods or properties; and information required is shown on the invoice or
receipt, be recognized as an input tax credit to the
2. A VAT official receipt for every lease of goods or
purchaser.
properties and for every sale, barter or exchange CONTENTS OF VAT INVOICE/OFFICIAL RECEIPT
of services. A VAT-registered person must issue a VAT invoice
Rules: for every taxable transaction. The invoice/official
1. Only VAT-registered persons are required to print receipt must show:
their TIN followed by the word “VAT” in their 1. The name, TIN and address of seller
invoice or official receipts. Said documents shall 2. Contact address
be considered as a “VAT Invoice” or “VAT Official 3. Date of transaction
Receipt. 4. Name of payor
5. Address of payor
6. Business style of payor
 CTT EXAMINATION REVIEWER (NOTES) PAGE A - 39

7. Nature and amount of payment and/or mail, originating from the Philippines in a
8. The amount of VAT, gross and net of tax continuous and uninterrupted flight, irrespective
of the place of sale or issue and the place of
payment of the passage documents.
4. FRANCHISE TAX
OTHER PERCENTAGE TAXES Who are subject? Franchise holders of:
1. Radio/television broadcasting companies
1. TAX ON PERSONS EXEMPT FROM VAT (NON- whose annual gross receipts of the preceding
VAT under Sec 116)
year do not exceed P10 million - 3%
TRANSACTIONS SUBJECT: Sale, lease of goods
or properties, or performance of services. 2. Gas and water utilities - 2%
RATE and BASE: 3% of gross selling price or gross All other franchise holders shall pay the VAT. The
receipts. Effective July 1, 2020 until June 30, 2023, radio and television broadcasting companies
the rate shall be 1%. shall have an option to be registered as a value-
Requisites: added taxpayer and pay the tax due thereon.
1. The gross annual sales/receipts do not exceed Once this option is exercised, it becomes
P 3 million); AND irrevocable.
2. Must not be a VAT registered taxpayer.
5. TAX ON AGENTS OF FOREIGN INSURANCE
EXEMPTION FROM 3% / 1% NON-VAT: COMPANY
1. Self-employed individuals and professionals Tax Rate and Tax Base:
whose annual gross sales/receipts and other 1. 4% of the total premium collected shall be
non-operating income do not exceed P3 million imposed upon every fire, marine or
and who opted for the 8% income tax. miscellaneous insurance agent authorized
2. Cooperatives under the Insurance Code to procure policies
or insurance as he may have previously been
2. COMMON CARRIERS’ TAX: Domestic Carriers
legally authorized to transact on risks located
What are subject?
in the Philippines for companies not
1. Cars for rent or hire driven by the lessee;
authorized to transact business in the
2. Transportation contractors on land, including
Philippines.
persons who transport passengers for hire;
3. Other domestic carriers by land for transport of 2. 5% on premiums paid shall also be imposed
passengers, except owners of bancas and on owners of property who obtain insurance
owners of animal-drawn two-wheeled directly with foreign insurance companies.
vehicles; and
This tax shall not apply to reinsurance
4. Keepers of garages.
premiums.
RATE AND BASE: 3% of gross receipts
6. TAX ON BANKS AND NON-BANK FINANCIAL
Business tax on Transport Network Vehicle INTERMEDIARIES PER-FORMING QUASI-
Service (TNVS) BANKING FUNCTIONS
Status TNVS/Partner Tax Base: Gross Receipts derived from sources
With CPC (franchise) 3% Franchise Tax within the Philippines
Tax Rates:
Without CPC 3% non-VAT/12% VAT
a. On interest, commissions and discounts
3. COMMON CARRIERS TAX ON INTERNATIONAL from lending activities as well as income
CARRIERS from financial leasing, on the basis of
Who are subject? International air carriers and remaining maturities of instruments from
international shipping carriers doing business in which such receipts are derived:
the Philippines.
Maturity period:
Rule on international carriers: Five (5) years or less 5%
More than 5 years 1%
Business Tax Passengers Cargoes
b. On dividends and equity shares and
VAT Exempt Exempt
net income of subsidiaries 0%
Taxable on
3% Carriers Tax Exempt c. On royalties, rentals of property, real
outgoing
or personal, profit from exchange
Rate and Base: 3% of gross receipts and all other items treated as gross 7%
Gross receipts shall include, but shall not be income under Sec 32 of the Code
limited to, the total amount of money or its d. On net trading gains within the
equivalent representing the contract, taxable year on foreign currency,
freight/cargo fees, mail fees, deposits applied as debt securities, derivatives and other
payments, advance payments and other service similar financial instruments 7%
charges and fees actually or constructively
In case the maturity period is shortened thru
received during the taxable quarter from cargo
pretermination, then the maturity period shall be
CTT EXAMINATION REVIEWER (NOTES) PAGE A - 40

reckoned to end as of the date of pretermination Tax Rate and Tax Base:
for purposes of classifying the transaction and the a. Winner in horse races . . . . 10%
correct rate of tax shall be applied accordingly.
But if from: Double, forecast, quinella and
7. TAX ON OTHER NON-BANK FINANCIAL INTER- trifecta bets - 4%
MEDIARIES INCLUDING FINANCE COMPANIES, BASE: Actual amount of winnings or divi-
MONEY CHANGERS AND PAWNSHOPS dends on every ticket after deducting
the cost of ticket.
Tax Base: Gross receipts
Tax Rates: b. Owner of winning horse -10% of the prize
a. On interests, commissions and discounts
FILING AND PAYMENT - The operator,
from lending activities as well as income from
manager or person in charge of horse races shall
financial leasing on the basis of remaining
file and pay within 20 days from the date the tax
maturities of the instruments from which such
was deducted and withheld (BIR Form 1600-
receipts are derived:
WP).
Maturity period:
FILING OF RETURN (BIR FORM NO. 2551Q) AND
Five (5) years or less 5%
PAYMENT OF PERCENTAGE TAXES
More than 5 years 1%
1. TIME FOR FILING AND PAYMENT
b. From all other items treated as gross
Large and non-large taxpayers-within 25 days
income under Sec. 32 of the tax code 5%
after the end of every quarter on the following:
8. TAX ON OVERSEAS DISPATCH, MESSAGE OR a. VAT-exempt taxpayers with annual gross
CONVERSATION ORIGINATING FROM THE PHIL sales/receipts not exceeding P3M;
(OVERSEAS COMMUNICATIONS TAX)
b. Domestic carriers and keepers of garages;
RATE AND BASE: 10% of the amount paid upon c. International air/shipping carriers;
every overseas dispatched, message or
conversation transmitted from the Philippines d. Franchisees of gas or water utilities;
(outgoing) by telephone, telegraph, telewriter e. Franchisees of radio and/or TV broadcasting
exchange, wireless and other communications with revenues not exceeding P10M;
equipment services. f. Franchise grantees sending overseas
dispatch, messages or conversations from the
Exemptions– This tax shall not apply to: Philippines
1. Government g. Proprietors, lessees or operators of cockpits,
2. Diplomatic services cabarets, night or day clubs, boxing
3. International organizations exhibitions, professional basketball games,
4. News services jai-alai and racetracks.
Time for filing – The person rendering services h. Banks, non-bank financial intermediaries and
shall collect and pay the tax within 20 days after finance companies.
the end of each quarter. i. Life insurance companies; and
j. Agent of foreign insurance companies.
9. AMUSEMENT TAX
The following amusement places shall be subject 2. PLACE OF FILING- At his option, the taxpayer
to the corresponding tax rates based on gross may file:
receipts: a. a separate return for each branch or place
10% of business, or
Place for boxing exhibitions
15% b. a consolidated return for all branches or
Place for professional basketball games
18% places of business.
Cockpits, cabarets, night or day clubs
30% Jai-Alai and race tracks 3. SHORT PERIOD RETURN – Person who retires
from business or whose registration has been
Boxing exhibitions where World or Oriental
cancelled shall file quarterly return and pay the
Championships in any division is at stake shall
tax due thereon within 25 days from cessation or
be exempt from amusement tax, if -
business operations or from the date of
1. one of the contenders is a citizen of the cancellation of registration, as the case maybe.
Philippines; and
2. said exhibitions are promoted by
a) citizens of the Philippines, or
b) by a corporation or association at least 60%
of the capital of which is owned by such
citizens.

10. TAX ON WINNINGS

Persons subject: Any person who –
1. Wins in horse races.
2. Owns a winning race horse, based on the
prize.