TAX-302 - Lecture notes 9 PDF

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ReSA - THE REVIEW SCHOOL OF ACCOUNTANCYCPA Review Batch 41 Ÿ May 2021 CPA Licensure Examination Ÿ Week No. 3TAXATION A. Tamayo Ÿ G. Caiga Ÿ C. Lim Ÿ K. Manuel Ÿ E. BuenPage 1 of 5 0915 -2303213 Ÿ resacpareviewTAX-302: VAT-EXEMPT TRANSACTIONS1. VAT-Exempt Transaction Defined “VAT-exempt transactions”...

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ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY CPA Review Batch 41 ! May 2021 CPA Licensure Examination ! Week No. 3

TAXATION

A. Tamayo ! G. Caiga ! C. Lim ! K. Manuel ! E. Buen

TAX-302: VAT-EXEMPT TRANSACTIONS 1. VAT-Exempt Transaction Defined “VAT-exempt transactions” refer to sale of goods or services which, by their nature, are specifically listed in and expressly exempted from VAT, under the Tax Code, without regard to the tax status of the party in the transaction. Transactions not subject to VAT (output tax) are not entitled to tax credit of VAT (input tax) on purchases. The person making the exempt sale shall not bill any output tax to his customers because the said transaction is not subject to VAT. 2. VAT-Exempt Transaction Under Section 109 UNDER TRAIN (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; (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 feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets); (c) Importation of personal and household effects -belonging to residents of the Philippines returning from abroad and -non-resident 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 tools of trade, occupation or employment, 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, for their own use and not for barter or sale, accompanying such persons, or arriving within a reasonable time: Provided, That the Bureau of Customs may, upon the production of satisfactory evidence that such persons are actually coming to settle in the Philippines and that the goods are brought from their former place of abode, exempt such goods from payment of duties and taxes: Provided, further, That vehicles, vessels, aircrafts, machineries and other similar goods for use in manufacture, shall not fall within this classification and shall therefore be subject to duties, taxes and other charges; (e) Services subject to percentage tax; (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 DepEd, CHED and Technical Education and Skills Development Authority (TESDA), and -those rendered by government educational institutions; (i) Services rendered by individuals 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 international agreement to which the Philippines is a signatory or -under special laws except those granted under PD No. 529

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0915-2303213 ! www.resacpareview.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY

TAX-302

Week No. 3: VALUE-ADDED TAX – VAT-EXEMPT TRANSACTIONS

(l) Sales by agricultural cooperatives duly registered and in good standing 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, machinery and equipment, including spare parts thereof, to be used directly and exclusively in the production and/or processing of their produce; Sale by agricultural cooperatives to non-members can only be exempted from VAT if the producer of the agricultural products sold is the cooperative itself. If the cooperative is not the producer (e.g., trader), then only those sales to its members shall be exempted from VAT; It is to be reiterated, however, that sale or importation of agricultural food products in their original state is exempt from VAT irrespective of the seller and buyer thereof, pursuant to Subsection (a) hereof; (m) Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered and in good standing with the Cooperative Development Authority; (n) Sales by non-agricultural, non-electric and non-credit cooperatives duly registered and in good standing with the Cooperative Development Authority; Provided, That the share capital contribution of each member does not exceed P15,000 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 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, otherwise known as the Urban Development and Housing Act of 1992, and other related laws, residential lot valued at One million five hundred thousand pesos (P1,500,000) and below, house and lot, and other residential dwellings valued at Two million five hundred thousand pesos (P2,500,000) and below: Provided, That beginning January 1, 2021, the VAT exemption shall only apply to sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business, sale of real property utilized for socialized housing as defined by Republic Act No. 7279, sale of house and lot, and other residential dwellings with selling price of not more than Two million pesos (P2,000,000): Provided, further, That every three (3) years thereafter, the amount herein stated shall be adjusted to its present value using the Consumer Price Index, as published by the Philippine Statistics Authority (PSA); Note: Sale of parking lot in a 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, thus, should be subject to VAT regardless of the amount of selling price. (q) Lease of residential units with a monthly rental not exceeding P15,000; (r) Sale or 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) The transport of passengers by international carriers; (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, however, 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 of Maritime Industry Authority (MARINA); (u) Importation of fuel, goods and supplies by persons engaged in international shipping and air transport operations. The fuel, goods and supplies shall be used for international shipping or air transport operations. Thus, said fuel, goods and supplies shall be used exclusively or shall pertain to the transport of goods and/or passenger from a port in the Philippines directly to a foreign port, or vice versa, without docking or stopping at any other port in the Philippines unless the docking or stopping at any other Philippine port is for the purpose of unloading passengers and/or cargoes that originated from abroad, or to load passengers and/or cargoes bound for abroad: Provided, further, that if any portion of such fuel, goods or supplies is used for purposes other than that mentioned in this paragraph, such portion of fuel, goods and supplies shall be subject to twelve percent (12%) VAT (v) Services of bank, non-bank financial intermediaries performing quasi-banking functions, and other nonbank financial intermediaries; such as money changers and pawnshops, subject to percentage tax under Secs. 121 and 122, respectively, of the Tax Code (w) Sale or lease of goods and services to senior citizens and persons with disability, as provided under Republic Act Nos. 9994 (Expanded Senior Citizens Act of 2010) and 10754 (An Act Expanding the Benefits and Privileges of Persons With Disability), respectively; (x) Transfer of property pursuant to Section 40 (C) (2) of the NIRC, as amended (merger or consolidation); (y) Association dues, membership fees, and other assessments and charges collected by homeowners associations and condominium corporations; (z) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); (aa) Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension beginning January 1, 2019; and (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 Three million pesos (P3,000,000).

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TAX-302

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY Week No. 3: VALUE-ADDED TAX – VAT-EXEMPT TRANSACTIONS

Self-employed individuals and professionals availing of the 8% tax on gross sales and/or receipts and other non-operating income, under Sections 24(A)(2)(b) and 24(A)(2)(c)(2)(a) of this Code shall also be exempt from the payment of twelve percent (12%) VAT. For the purpose of the threshold of P3,000,000 (used to be P1,919,500), the husband and the wife shall be considered separate taxpayers. However, the aggregation rule for each taxpayer shall apply. For instance, if a professional, aside from the practice of his profession, also derives revenue from other lines of business which are otherwise subject to VAT, the same shall be combined for purposes of determining whether the threshold has been exceeded. Thus, the VAT-exempt sales shall not be included in determining the threshold. A VAT-registered person may, in relation to Sec. 236 (H) of the 1997 Tax Code, as amended, elect that the exemption in Sec. 4.109-1(B) hereof shall not apply to his sales of goods or properties or services. Once the election is made, it shall be irrevocable for a period of three (3) years counted from the quarter when the election was made except for franchise grantees of radio and TV broadcasting whose annual gross receipts for the preceding year do not exceed ten million pesos (P10,000,000.00) where the option becomes perpetually irrevocable. 2. Exercises a. Based on the following current year data, determine the VAT-subject and VAT-exempt amounts: Case 1 Case 2 Case 3 Selling price, condominium unit P2,000,000 P2,500,000 P4,500,000 Selling price, parking lot 500,000 800,000 900,000 Total P2,500,000 P3,300,000 P5,400,000 VAT-subject Vat-exempt b.The following information pertains to adjacent residential lots sold to different buyers for the current year: Lot 1 Lot 2 Lot 3 Value of the lot P800,000 P900,000 P1,000,000 Sold to Mr. P. Cruz Mr. M. Juan Mr. J. Ramos VAT-subject VAT-exempt c. The following information pertains to adjacent lots sold to one buyer during the current year: Lot 1 Lot 2 Value of the lot P800,000 P900,000 Sold to Mr. A. Juan Mr. A. Juan VAT-subject VAT-exempt d.The following information pertains to lease of property for the current year: Apartment house Case 1 – Rent per unit per month P 15,000 Annual gross receipts P2,500,000 VAT-subject VAT-exempt

Lot 3 P1,000,000 Mr. A. Juan

Commercial building P 15,000 P2,500,000

Case 2 – Rent per month Annual gross receipts VAT-subject VAT-exempt

P 15,000 P3,500,000

P 15,000 P3,500,000

Case 3 – Rent per month Annual gross receipts VAT-subject VAT-exempt

P 20,000 P3,000,000

P 20,000 P3,000,000

Case 4 – Rent per month Annual gross receipts VAT-subject VAT-exempt

P 20,000 P3,500,000

P 20,000 P3,500,000

e.Based on the following current year information, determine the VAT-subject and the VAT-exempt amounts: Husband Wife Case 1 – Gross receipts, practice of profession P2,500,000 P2,000,000 VAT-subject VAT-exempt...