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Chapter IIIVALUE ADDED TAX 142A. SCOPEThe VAT applies, in general, to all persons who sell, barter, exchange or lease goods or properties, or render services in the course of trade or business 143 whose annual gross sales or receipts exceed PhP1,919,500, 144 and those who import goods, whether for b...

Description

Chapter III

VALUE ADDED TAX142 A. SCOPE The VAT applies, in general, to all persons who sell, barter, exchange or lease goods or properties, or render services in the course of trade or business143 whose annual gross sales or receipts exceed PhP1,919,500,144 and those who import goods, whether for business or otherwise.145 The following transactions are deemed sale for purposes of VAT: 146 1. Transfer,147 use, or consumption not in the course of business of goods or properties originally intended for sale or for use in the course of business; 142

Title IV, NIRC, as amended by RAs 7716, 8241, 8424, 9238, 9337, 9361, 9511 and 10378 and 10864. 143 The term “in the course of trade or business” means the regular conduct or pursuit of a commercial or economic activity, including transactions incidental thereto, by any persons regardless of whether or not the person engaged therein is a non-stock, non-profit private organization, or government entity. 144 Sec. 109(V), supra. RR 16-2011 increased the amount of the threshold from PhP1,500,000 under RA 9337 to PhP1,919,500 using 2010 CPI effective January 1, 2012. The amount shall be adjusted to its present value using the CPI, as published by the NSO, every three (3) years thereafter and the adjustment shall be published through revenue regulations to be issued not later than March 31 of each year. 145

Sec. 105, supra.

146

Sec. 106(B), supra.

147 Transfer of goods or properties not in the course of business can take place when a VAT registered person withdraws goods from his business for his personal use. [Sec. 4.106-7 (a)(1), RR 16-2005]

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2. Distribution or transfer to shareholders or investors as share in the profits of the VAT-registered persons, or to creditors in payment of debt or obligation; 3. Consignment of goods if actual sale is not made within 60 days following the date such goods were consigned; and 4. Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement or cessation. On these deemed sale transactions, the BIR Commissioner, by the rules and regulations prescribed by the Secretary of Finance, is authorized to determine the base of the tax.148

B. RATE AND BASE OF TAX149 There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to twelve percent (12%) (starting February 1, 2006).150 The taxable base is gross selling price in the case of sale of taxable goods, or gross receipts from the sale of taxable services, except on transactions subject to zero rate (generally export and export-related activities). On imports, the base is the dutiable value, plus customs duties, excise tax, if any, and other charges prior to the release of such goods from customs custody.

148

Sec. 106(A), supra.

149

Sec. 106(E), supra.

150 RMC 7-2006 increased the VAT rate from 10% to 12% effective February 1, 2006 upon the recommendation of the Secretary of Finance and after certain conditions were satisfied as stated under RA 9337.

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C. TRANSACTIONS SUBJECT TO 12% 1. Sale of Goods or Properties151 All goods and properties (except those specifically exempt), including those subject to excise tax, sold, bartered or exchanged are subject to a 12% VAT based on the gross selling price152 or gross value in money.

2. Importation of Goods153 Importation of goods is subject to a 12% VAT based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus excise taxes, if any, and other charges which shall be paid prior to the release of the goods from customs custody: Provided, That where the customs duties are determined on the basis of the quantity or volume of the goods, the VAT shall be based on the landed cost plus excise tax, if any. In case tax-free imports are subsequently sold to non-exempt persons, the purchasers or possessors thereof shall be considered the importers thereof who shall be liable for any internal revenue tax on such importation.

151

Sec. 106(A), supra.

152

The term “gross selling price” means the 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 VAT. The excise tax, if any, on such goods or properties shall form part of the gross selling price. In the case of sale, barter or exchange of real property subject to VAT, gross selling price shall mean the consideration stated in the sales document or the fair market value, whichever is higher. If the VAT is not billed separately in the document of sale, the selling price or the consideration stated therein shall be deemed to be inclusive of VAT. (Sec. 4, RR 4-2007) 153

Sec. 107, supra.

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3. Sale of Services and Use or Lease of Properties154 The ‘sale or exchange of services’155 is subject to a 12% VAT based on the gross receipts156 derived by any person engaged in the sale of such services or lease of properties, including the following: a. Construction and service contractors; b. Stock, real estate, commercial, customs and immigration brokers; c. Lessors of property, whether personal or real; d. Persons engaged in warehousing services; e. Lessors or distributors of cinematographic films; f. Persons engaged in milling, processing, manufacturing or repacking of goods for others; g. Proprietors, operators or keepers of hotels, motels, rest houses, pension houses, inns, resorts, theaters and movie houses; h. Proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers; i. Dealers in securities; 154

Sec. 108, supra.

155 The term “sale or exchange of services” means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. [Sec. 108(A), NIRC.] 156 The term “gross receipts” means the total amount of money or its equivalent representing the 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 advanced payments actually or constructively received during the taxable period for services performed or to be performed for another person, excluding VAT, except those amounts earmarked for payment to unrelated third (3rd ) party or received as reimbursement for advance payment on behalf of another which do not redound to the benefit of the payor. (Sec. 4.108-4, RR 4-2007)

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j. Lending investors; k. Transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes157; l. Common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines158; m. Sales of electricity by generation and distribution companies159; n. Franchise grantees of electric utilities, telephone and telegraph; radio and/or television broadcasting and all other franchise grantees, except franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding year do not exceed PhP10 million, and franchise grantees of gas and water utilities; o. Non-life insurance companies (except their crop insurances) including surety, fidelity, indemnity and bonding companies; p. Similar services regardless of whether or not the performance thereof calls for the exercise of or use of the physical and mental faculties;

157 It is noted that transport network companies, such as but not limited to the likes of UBER, GRAB TAXI, their Partners/suppliers and similar arrangements, who are not holders of a valid and current Certificate of Public Convenience are known as land transportation service contractors subject to the 12% VAT. Otherwise, it is classified as a common carrier subject to the 3% domestic carrier tax under Sec. 117. (RMC 70-2015) 158 RA 9337 removed the VAT exemption of common carriers by air and sea relative to their transport of passengers. 159

RA 9511 imposed a 3% franchise tax on all gross receipts derived by the National Grid Corporation from its transmission operation, in effect, amending the VAT by reverting the taxation of transmission companies to the franchise tax.

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q. The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or right; r. The lease or the use of, or the right to use of any industrial, commercial or scientific equipment; s. The supply of scientific, technical, industrial or commercial knowledge or information; t. The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the application or enjoyment of any such property or right as is mentioned in item (r) above or any such knowledge or information as is mentioned in item (s) above; u. The supply of services by a non-resident person or his employee in connection with the use of property or rights belonging to, or the installation or operation of any brand, machinery, or other apparatus purchased from such non-resident person; v. The supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme; w. The lease of motion picture films, tapes and discs; x. The lease or the use of, or the right to use, radio, television, satellite transmission and cable television time; y. Real estate investment trust, on its disposal of real property and from rental of such real property;160 and 160

A real estate investment trust (REIT) shall be subject to VAT on its gross sales from any disposal of real property, and on its gross receipts from the rental of such real property. A REIT shall not be considered as a dealer in securities and shall not be subject to VAT on its sale, exchange or transfer of securities forming part of its real estate-related assets. (Sec. 15, RA 9856; RR 13-2011)

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z. Tollway operators;161 aa. Recreational clubs;162 and bb. Condominium corporations and homeowners’ association163.

D. TRANSACTIONS SUBJECT TO 0% 1. Sale of Goods164 a. Export sales;165 b. Foreign currency denominated sales;166 and 161 Starting October 1, 2011, the 12% VAT shall be imposed on the gross receipts of toll way operators from all types of vehicles. (RMC 39-2011) 162

Gross receipts of recreational clubs or clubs which are organized and operated exclusively for pleasure, recreation, and other non-profit purposes including but not limited to membership fees, assessment dues, rental income, and service fees are subject to VAT. (RMC 35-2012) 163

In RMCs 65-2012 and 9-2013, association dues, membership fees and other assessments/charges collected by a condominium corporation and homeowners’ association are subject to VAT since they constitute income payment or compensation for the beneficial services it provides to its members, tenants and homeowner-members. However, they may be exempted from VAT subject to the fulfillment of the conditions provided by Section 18 of RA 9904, otherwise known as the “Magna Carta for Homeowners and Homeowners’ Associations”. 164

Sec. 106(A)(2), supra.

165

“Export sales” means the sale and actual shipment of goods from the Philippines to a foreign country; sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local export-oriented enterprise; sale of gold to the BSP; those considered export sales under Executive Order (EO) No. 226 and other special laws; and sale of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations. [Sec. 106(A)(2)(a), supra.] 166 “Foreign currency denominated sale” means the sale to a non-resident of goods, except those mentioned in Sections 149 and 150 of the Tax Code, assembled or manufactured in the Philippines for delivery to a resident in the Philippines, paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. [Sec. 106(A)(2)(b), supra.]

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c. Sales to persons or entities whose exemption under special laws167 or international agreements to which the Philippines is a signatory effectively subjects such sales to zero-rate. 2. Sale of Services168 a. 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 BSP; b. Services other than processing, manufacturing or repacking rendered to a person engaged in business conducted outside the Philippines or to a non-resident 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 BSP; c. 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 0% rate; d. Services rendered to persons engaged in international shipping or air transport operations, including leases of property for use thereof; Provided, however, that the services referred to herein shall not pertain to those made to common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines; e. Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed 70% of total annual production; 167

RA 10068 (Organic Agriculture Act of 2010) and RA 10659 (Sugarcane Industry Development Act of 2015). 168

98

Sec. 108(B), supra.

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f. Transport of passengers and cargo by domestic air or sea carriers from the Philippines to a foreign country; and g. 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 sources using technologies such as fuel cells and hydrogen fuels.169 E. EXEMPT TRANSACTIONS AND SERVICES170 1. Sale or importation of: a. Agricultural and marine food products in their original state,171 livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption; and breeding stock and genetic materials therefor; and b. Fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds, including ingredients172, whether locally 169 Provided, however, that zero-rating shall apply strictly to the sale of power or fuel generated through renewable sources of energy, and shall not extend to the sale of services related to the maintenance or operation of plants generating said power. [Sec. 4.108-5 (b)(7), RR 16-2005] 170

Sec. 109, supra.

171 Products shall be considered in their “original state” even if they have undergone the simple processes of preparation or preservation for the market, such as freezing, drying, salting, broiling, roasting, smoking or stripping. Polished and/or husked rice, corn grits, raw cane sugar and molasses, and ordinary salt, and copra shall be considered in their original state. [Sec. 109(A), supra.]

For this purpose, notwithstanding the process/es involved in its production, “raw sugar or raw cane sugar” means sugar whose content of sucrose by weight, in the dry state, corresponds to a polarimeter reading of less than 99.5 degrees. [Sec. 109(A), supra.] 172 For the sale or importation of certain feed ingredients (whey powder, skimmed milk powder, lactose, buttermilk powder, whole milk powder, palm olein) and such other feed ingredients and additives which may be hereinafter 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 Food and Drug Administration (FDA). [RMC 55-2014 as revised by RMC 66-2014 and RMC 78-2014]

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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). 2. Importation of: a. 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; b. Professional instruments and implements, wearing apparel, domestic animals, and personal household effects (except any vehicle, vessel, 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 90 days before or after their arrival, upon the production of evidence satisfactory to the Commissioner, that such persons are actually coming to settle in the Philippines and that the change of residence is bona fide; and c. Fuel, goods and supplies by persons engaged in international shipping or air transport operations.173 3. Services rendered by: a. Persons subject to percentage tax under Title V of the NIRC; 173 Provided, that the 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 12% VAT. [Sec. 4.109-1 (B)(v), RR 4-2007]

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b. Agricultural contract growers174 and milling for others of palay into rice, corn into grits and sugar cane into raw sugar or raw cane sugar; c. Medical, dental, hospital and veterinary services exc...