Value Added Tax (VAT)

1. Features and coverage of VAT

2. VAT exempt transactions

What is Value Added Tax (VAT)?

- VAT is a tax on the value added by every seller to the purchase price or cost in the sale or lease
of goods, properties or services in the ordinary course of trade or business as well as on
importation of goods into the Philippines, whether for personal or business use.
Rule: Sale of goods or services made in the normal course of trade or businesses are subject to
VAT unless exempt. If the sale is exempt from VAT, it is may be subject to other percentage
taxes except those transactions exempt from business taxes such as those made for subsistence or
livelihood.

1.Features and coverage of VAT.

Value added tax covers all sales of goods, properties, services or lease of properties
other than:
1. VAT exempt sales
2. Services specifically subject to percentage tax

Provided, however, that the seller must be a VAT- registered person or registrable person.

Registrable person or those who exceeded the VAT threshold are subject to VAT even
if not registered as VAT- taxpayer. On the other hand, a VAT- registered person will be
subject to VAT even if its annual sales do not exceed the VAT threshold.

The VAT Threshold

VAT Threshold Amount Covered taxpayers

General Threshold
Special Threshold
1,919,500.00 Applicable to all tax payers
other than franchise grantees
of radio or television.
10,000,000.00 Applicable only to franchise
grantees of radio or television.

Note: Only value added taxable sales are considered for purposes of the VAT threshold.

2. VAT exempt transactions

VAT exempt sales (Section 109 NIRC, as amended under RA 10963- TRAIN Law; RR 1-
2018)
 a. Sale or importation of agricultural and marine food products in their original state,
and poultry of a kind generally used as, or yielding or producing foods for human
consumption; and breeding stock and genetic materials therefor.

VAT exempt sugar

Raw sugar cane refers to sugar produced by simple process of conversion of sugar cane without
need of any mechanical or similar device. Under the revised regulation, raw cane sugar reefers
only to muscovado sugar. Thus , only raw sugar cane is exempt from VAT.

b. 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 (except specialty foods - non-
agricultural feeds or foods for race horses, fighting cocks, aquarium fish, zoo animals
and other animals generally considered as pets are subject to VAT).
c. 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: Provided, That such goods are exempt from customs duties under the
Tariff and Customs Code of the Philippines.
d. Importation of professional instruments and implements, wearing apparel, domestic
animals, and personal household effects (except any vehicle, vessels, aircraft,
machinery, other goods for use in the manufacture and merchandise of any kind in
commercial quantity) belonging to persons coming to settle in the Philippines, for
their own use and not for sale, barter or exchange, accompanying such persons, or
arriving within ninety (90) days before or after their arrival, upon the production of
evidence satisfactory to the Commissioner of Internal Revenue, that such persons are
actually coming to settle in the Philippines and that the change of residence is bona
fide.
e. Services subject to percentage tax under Title V
f. Services by agricultural contract growers and milling for others of palay into rice,
corn into grits and sugar cane into raw sugar.
g. Medical, dental, hospital and veterinary services except those rendered by
professionals
h. Educational services rendered by private educational institutions, duly accredited by
the Department of Education Culture and Sports, and those rendered by government
educational institutions
i. Services rendered by individual pursuant to an employer-employee relationship.
j. 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.
k. Transactions which are exempt under special laws, except those granted under
Presidential Decree No. 529 ( Petroleum exploration concessionaries under the
Petroleum act of 1949).
l. 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.
m. Gross receipts from lending activities by credit or multi-purpose cooperatives duly
registered with the Cooperative Development Authority.
n. Sales by non- agricultural, non-electric and non-credit cooperatives duly registered
with the Cooperative Development Authority , provided, that the share capital
contribution of each member does not exceed 15,000.00 and regardless of the
aggregate capital and net surplus ratably distributed among the members.
o. Export sales by persons who are not VAT-registered.
p. Sale of: Sale of real properties are 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, otherwise known as the
Urban Development and Housing Act of 1992, and other related laws.

Low- cost housing –housing projects intended for homeless and low-income family
beneficiaries under Government or private developers.
Socialized housing – housing programs and projects covering houses and lots or
home lots only that are undertaken by the government or the private sector for the
underprivileged and homeless citizens.
q. Lease of a residential unit with a monthly rental per unit not exceeding 15,000.00
r. 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
advertisement.
s. Sale of real properties are 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, otherwise known as the
Urban Development and Housing Act of 1992, and other related laws.
t. Importation of fuel goods and supplies by persons engaged in international shipping
or air transport operations. Provided , it shall be used for international shipping or air
transport operations.
u. Sale or lease of goods and services to senior citizens and person with disabilities.
v. Transfer or property pursuant to sec 40
w. Association dues and membership fees and other assessments and charges collected
on a purely reimbursement by homeowners associations and condominium
corporations
x. Sale of gold to the Bangko Sentral ng Pilipinas
y. Sale of drugs and medicines prescribed for diabetes, high cholesterol and
hypertension.
z. 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 3 million as amended(previously 1,919,500.00

References:
1. Transfer & Business Taxation 2019 by Tabag and Garcia
2. Business & Transfer Taxation 2016 by Banggawan
3. http://www.chanrobles.com/republicactno7716.htm#.XWABoegzbIU