VALUE
ADDED
TAX
GROUP 3
John Nicole John Patrick
Ramos Larona
GROUP
Marion
MEMB Tranxe Lloyd
Campos ERS Sequenia
Aaron Paul
Abenir
CHAPTER 1:
IMPOSITION
OF TAX
SEC. 105: PERSONS
LIABLE. Who pays VAT?
1. Businesses that sell, barter, exchange, or lease goods or
properties in the course of their regular commercial or
economic activity.
2. Businesses that render services.
3. Individuals or businesses that import goods.
SEC. 105: PERSONS
LIABLE. What is VAT?
1. An indirect tax added to the value of goods and services.
2. Businesses can charge the VAT amount to their customers,
effectively shifting the tax burden.
SEC 106: VALUE ADDED
TAX ON SALE GOODS
OR PROPERTIES.
Rate and Base Tax:
Generally, 12% of the gross selling price, which includes
the total amount paid for the goods (excluding VAT itself)
and any excise tax.
1.Goods and properties include tangible and intangible
objects (real estate, patents, etc.) and services like
movie rentals and radio/TV time.
2.Some specific transactions have a 0% VAT rate,
including exports, sales to certain exempt entities, and
specific raw material/packaging material sales.
• Transactions Deemed Sales:
- Certain transactions are treated as sales for VAT purposes, even if they
are not typical sales. These include transferring goods for personal use,
distributing them to shareholders, or retiring from business with the
remaining inventory.
• Changes in or Cessation of Status of a VAT registered Person:
- If a business's VAT registration status changes, there may be VAT
implications for existing goods.
• Sales Return, Allowances and Sales Discounts:
- If goods are returned or allowances granted, the seller can deduct their
value from gross sales for VAT calculation.
• Authority of the Commissioner to determine the appropriate Tax Base:
- The Commissioner of Internal Revenue can determine the appropriate tax
base in cases where the selling price is unreasonably low or the transaction
is unclear.
SEC. 107: VALUE-
ADDED TAX ON
IMPORTATION OF
(A) In General. — There shall be levied, assessed and collected on every importation
GOODS.
of goods a value-added tax equivalent to twelve percent (12%)58 based on the total
value used by the Bureau of Customs in determining tariff and customs duties, plus
customs duties, excise taxes, if any, and other charges, such tax to be paid by the
importer prior to the release of such goods from customs custody: Provided, That
where the customs duties are determined on the basis of the quantity or volume of the
goods, the value-added tax shall be based on the landed cost plus excise taxes, if any.
(B) Transfer of Goods by Tax-exempt Persons. — In the case of tax-free
importation of goods into the Philippines by persons, entities or agencies
exempt from tax where such goods are subsequently sold, transferred or
exchanged in the Philippines to non-exempt persons or entities, the
purchasers, transferees or recipients shall be considered the importers
thereof, who shall be liable for any internal revenue tax on such
importation. The tax due on such importation shall constitute a lien on the
goods superior to all charges or liens on the goods, irrespective of the
possessor thereof.
SEC. 108: VALUE-ADDED TAX ON
SALE OF SERVICES AND USE OR
LEASE OF PROPERTIES
(A) Rate and Base of Tax. — There shall be levied, assessed and collected,
a value-added tax equivalent to twelve percent (12%)59 of gross receipts
derived from the sale or exchange of services, including the use or lease of
properties.
SEC. 108: VALUE-ADDED TAX ON
SALE OF SERVICES AND USE OR
LEASE OF PROPERTIES
(B) Transactions Subject to Zero Percent (0%) Rate. — The following services performed in the Philippines by
VAT-registered persons shall be subject to zero percent (0%) rate:
1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which
goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding paragraph rendered to a person engaged in business
conducted outside the Philippines or to a nonresident person not engaged in business who is outside the
Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency
and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
SEC. 108: VALUE-ADDED TAX ON
SALE OF SERVICES AND USE OR
LEASE OF PROPERTIES
(3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a
signatory effectively subjects the supply of such services to zero percent (0%) rate;
(4) Services rendered to persons engaged in international shipping or international air transport operations, including leases of property for
use thereof: Provided, That these services shall be exclusive for international shipping or air transport operations
(5) Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprisewhose export
sales exceed seventy percent (70%) of total annual production;
(6) Transport of passengers and cargo by domestic63 air or sea vessels from the Philippines to a foreign country; and
(7) Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower,
geothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels.
SEC. 109: EXEMPT
TRANSACTIONS.
• 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 therefore.
• Sale or importation of 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.
• Importation of personal and household effects belonging to the residents of the
Philippines returning from abroad and nonresident citizens coming to resettle in
the Philippines.
• Importation of professional instruments and implements, tools of trade,
occupation or employment,64 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 hereinafter referred to as overseas Filipinos, in
quantities and of the class suitable to the profession, rank or position of the
persons importing said items.
• Services subject to percentage tax under Title V.
• Services by agricultural contract growers and milling for others of palay into rice,
corn into grits and sugar cane into raw sugar
• Medical, dental, hospital and veterinary services except those rendered by
professionals
• 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;
• Services rendered by individuals pursuant to an employer-employee relationship;
• Services rendered by regional or area headquarters 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;
• Transactions which are exempt under international agreements to which the
Philippines is a signatory or under special laws, except those under Presidential
Decree No. 529;
• Sales by agricultural cooperatives duly registered with the Cooperative
Development Authority to their members as well as sale of their produce, whether
in its original state or processed form, to non- members; their importation of
direct farm inputs, machineries and equipment, including spare parts thereof, to
be used directly and exclusively in the production and/or processing of their
produce.
• Gross receipts from lending activities by credit or multi-purpose cooperatives
duly registered with the Cooperative Development Authority.
• Sales by non-agricultural, non-electric and non-credit cooperatives duly
registered with the Cooperative Development Authority
• Export sales by persons who are not VAT-registered.
• Sale of real properties not primarily held for sale to customers or held for lease in
the ordinary course of trade or business, or real property utilized for low-cost and
socialized housing as defined by Republic Act No. 7279.
• Lease of a residential unit with a monthly rental not exceeding Fifteen thousand
pesos (P15,000)
• Sale, importation, printing or publication of books and any newspaper, magazine,
review or bulletin which appears at regular intervals with fixed prices for
subscription and sale and which is not devoted principally to the publication of
paid advertisements.
• Transport of passengers by international carriers.
• Sale, importation or lease of passenger or cargo vessels and aircraft, including
engine, equipment and spare parts thereof for domestic or international transport
operations
• Importation of fuel, goods and supplies by persons engaged in international
shipping or air transport operations
• Services of bank, non-bank financial intermediaries performing quasi- banking
functions, and other non-bank financial intermediaries
• Sale or lease of goods and services to senior citizens and persons with disability,
as provided under Republic Act No.9994 and 10754
• Transfer of property pursuant to Section 40(C)(2) of the NIRC, as amended;
• Association dues, membership fees, and other assessments and charges collected
by homeowners associations and condominium corporations
• Sale of gold to the Bangko Sentral ng Pilipinas
• Sale or importation of prescription drugs and medicines for: Diabetes, high
cholesterol, and hypertension beginning January 1, 2020; and Cancer, mental
illness, tuberculosis, and kidney diseases beginning January 1, 2023.
• 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 Three million pesos (P3,000,000).
SEC. 110: TAX
Creditable Input Tax CREDITS.
1. Any input tax evidenced by a VAT invoice or official receipt issued in accordance
with Section 113 hereof on the following transactions shall be creditable against
the output tax.
• Purchase or importation of goods
• Purchase of services on which a value-added tax has actually been paid
2. The input tax on domestic purchase or importation of goods or properties by a
VAT-registered person shall be creditable:
• To the purchaser upon consummation of sale and on importation of goods or
properties.
• To the importer upon payment of the value-added tax prior to the release of the
goods from the custody of the Bureau of Customs.
3. A VAT-registered person who is also engaged in transactions not subject to the
value-added tax shall be allowed tax credit as follows:
• Total input tax which can be directly attributed to transactions subject to value-
added tax
• A ratable portion of any input tax which cannot be directly attributed to either
activity
Excess Output or Input Tax
- If at the end of any taxable quarter the output tax exceeds the input tax, the excess
shall be paid by the VAT- registered person. If the input tax exceeds the output tax,
the excess shall be carried over to the succeeding quarter or quarters.
Determination of Creditable Input Tax
- The sum of the excess input tax carried over from the preceding month or quarter
and the input tax creditable to a VAT-registered person during the taxable month or
quarter shall be reduced by the amount of claim for refund or tax credit for value-
added tax and other adjustments, such as purchase returns or allowances and input
tax attributable to exempt sale.
SEC. 111:
TRANSITIONAL/PRESUMPTIV
E INPUT TAX CREDITS. (A) Transitional Input Tax Credits.
Individuals liable for value-added tax (VAT) can claim input tax credits on their
initial inventory of goods, materials, and supplies, set at either two percent of the
inventory’s value or the actual VAT paid on those items, whichever is greater,
which can then be used to offset their output tax liabilities.
(B) Presumptive Input Tax Credits.
Persons or firms engaged in processing sardines, mackerel, milk, refined
sugar, cooking oil, and packed noodle-based instant meals are eligible for a
presumptive input tax credit, equivalent to four percent of the gross value
of their purchases of primary agricultural products used in production,
which can be offset against their output tax liabilities.
SEC. 112: REFUNDS OR TAX
CREDITS OF INPUT TAX.
(A) Zero-Rated or Effectively Zero-Rated Sales
VAT-registered individuals with zero-rated or effectively zero-rated sales can apply
for a tax credit certificate or refund of creditable input tax within two years after the
taxable quarter, provided the Input tax hasn’t been used against output tax; however,
certain conditions apply, including proper accounting of foreign currency exchange
proceeds and proportional allocation of input tax for mixed sales activities.
(B) Cancellation of VAT Registration.
A person whose registration has Been cancelled due to retirement from or cessation of
business, or due to Changes in or cessation of status under Section 106© of this Code
may, Within two (2) years from the date of cancellation, apply for the issuance Of a tax
credit certificate for any unused input tax which may be used in Payment of his other
internal revenue taxes.
(C) Period within which Refund or Tax Credit of Input Taxes shall Be Made.
The Commissioner is obligated to process refund claims for creditable input taxes within
ninety days from the submission of required documents; if a refund is denied, the
Commissioner must provide a written explanation. Taxpayers can appeal any denial
within thirty days to the Court of Tax Appeals, and failure to process the application
within the specified timeframe is punishable under Section 269 of the Tax Code.
(D) Manner of Giving Refund.
Refunds for input taxes can be issued by the Commissioner or their
authorized representative without requiring countersigning by the
Chairman of the Commission on Audit, but such refunds are subject to
post-audit by the Commission on Audit.
SEC. 113: INVOICING AND
ACCOUNTING REQUIREMENTS
FOR VAT-REGISTERED
PERSONS
(A) Invoicing Requirements: VAT-registered persons must issue VAT
invoices for sales, barter, or exchange of goods or properties, and VAT
official receipts for lease of goods or properties, and for sale, barter, or
exchange of services.
(B) Information Contained in the VAT Invoice or VAT Official
Receipt:Specifies details to be included in the invoice or receipt such
as seller's VAT registration statement and TIN, total amount including
VAT, transaction details, and purchaser information.
(C) Accounting Requirements:Requires VAT-registered persons to
maintain subsidiary sales and purchase journals in addition to regular
accounting records.
(D) Consequence of Issuing Erroneous VAT Invoice or VAT Official
Receipt:Outlines penalties for issuing incorrect invoices or receipts,
including additional taxes, surcharges, and liabilities.
(E) Transitional Period:Provides a transitional period allowing taxpayers to
continue using previous administrative practices for issuing VAT invoices
and official receipts until December 31, 2005.
These provisions aim to ensure proper documentation, transparency, and
compliance in VAT-related transactions while allowing for a smooth
transition to updated regulations.
SEC. 114: RETURN AND
PAYMENT OF VALUE-ADDED
TAX
In general, businesses collect value-added tax (VAT) on behalf of the
government from their customers. They then report the collected VAT to the tax
authorities periodically, usually monthly or quarterly, and pay the amount due.
The process involves filing VAT returns, which detail the VAT collected and
paid, along with any VAT owed or eligible for refund. The tax authorities use
this information to reconcile VAT payments and ensure compliance with tax
laws.
Where to File the Return and Pay the Tax?
VAT returns are typically filed electronically through the tax
authority's online portal or system. Payments are often made
electronically via bank transfers, direct debits, or other approved
methods specified by the tax authority. Businesses should refer to their
country's tax regulations and guidance to ensure compliance with
filing and payment procedures.
Withholding of Value-added Tax
Withholding of value-added tax (VAT) occurs when a person or entity
is required to deduct a certain percentage of VAT from payments made
to suppliers or service providers. The withheld amount is then remitted
directly to the tax authority on behalf of the supplier or service
provider. This mechanism is often used to ensure tax compliance and
prevent tax evasion in transactions involving goods or services subject
to VAT.
SEC. 115: POWER OF THE
COMMISSIONER TO SUSPEND
THE BUSINESS OPERATIONS
OF A TAXPAYER
The Commissioner or his authorized representative is hereby
empowered to suspend the business operations and temporarily close the
business establishment of any person for any
of the following violations
In the Case of a VAT-registered Person
(1) Failure to issue receipts or invoices;
(2) Failure to file a value-added tax return as required under Section
114;
(3) Understatement of taxable sales or receipts by thirty percent (30%)
or more of his correct taxable sales or receipts for the taxable quarter.
Failure of any Person to Register as Required under Section 236
The temporary closure of the establishment shall be for the duration of
not less than five (5) days and shall be lifted only upon compliance
with whatever requirements prescribed by the Commissioner in the
closure order.
THANK
YOU
VERY
MUCH!
