CHAPTER 16- NATURE AND CONCEPT OF BUSINESS
TAXES
 To engage in business means to employ or
involve oneself in employment, occupation,
profession, or commercial activity for gain
or livelihood.
Under the Tax Code, the three major business
internal revenue taxes are:
1. Value-added taxes;
2. Percentage taxes; and
3. Excise taxes
 Business taxes are imposed upon onerous
transfers such as sale, barter or exchange.
But a person may, although not engaged in
business, be subject to a business tax such
as VAT on importation of goods not for
business use.
Value-added tax- a tax on consumption levied on
the sale, barter, exchange or lease of goods or
properties and services in the Philippines and on
importation of goods into the Philippines.
 The seller is the one statutorily liable for the
payment of the tax but the amount of the
tax may be shifted or passed on the buyer,
transferee or lessee of the goods,
properties or services.
 In the case of importation, the importer is
the one liable for the value-added tax.
 The system of tax shifting is an effective tool
in the creation of an audit trail which is vital
for tax administration and enforcement.
 Value-added tax and excise tax may be
imposed simultaneously on the
manufacturer and importation of products.
 Value-added tax and percentage tax cannot
be imposed at the same time. It is either
that the sale is subject to VAT, or subject to
percentage tax, or not subject to any of the
two taxes at all.
CHAPTER 17- VAT ON SALE OF GOODS OR
PROPERTY
VALUE ADDED TAX- tax on the value added to
purchase price or cost in sale or lease of goods,
property or services in the course of trade or
business.
-Imposed on the value on each stage of distribution
-An indirect tax; may be shifted to buyer, transferee
or lessee
RA 9337 – VALUE-ADDED TAX REFORM ACT- every
person who, in the course of trade or business, as
well as importer of goods is subject to vat if
aggregate amount of his actual or expected gross
sales/receipts exceeds P1,919,500.
*”in the course of trade or business”- means the
regular conduct or pursuit of a commercial or an
economic activity , including incidental transactions
thereto, by any person whether or not the person
engage therein is non-stock, non-profit private
organization or gov’t. entity.
*No automatic exemption from VAT registration
requirements of LGUs.
*Any business with gross sales or receipt not
exceeding P100,000 during any 12-month period-
considered principally for livelihood and not in the
course of business.
*Non resident foreign person’s service rendered in
the Philippines- considered rendered in the course
of trade or business even if performance or service
is not regular.
*Services performed outside the Philippines- not
subject to vat.
GOODS OR PROPERTY- all tangible or intangible
objects that are capable of pecuniary estimation &
shall include the ff:
1. Real property held for sale of for lease in the
ordinary course of business;
2. The right or the privilege to use patent,
design, copyright, design, plan, secret
formula, goodwill or other like property or
right;
3. The right or the privilege to use in the
Philippines of any industrial, commercial or
scientific equipment;
4. The right to use motion picture films, tapes
& discs; and
5. Radio, television, satellite transmission and
cable television time.
GROSS SELLING PRICE- total amount of
money or its equivalent which the
purchaser pays or is obligated to pay the
seller in consideration of sale of goods
excluding the vat. Excise tax if any, on such
goods or property shall form part of the
gross selling price.

TAX BASE & RATES

Pre-TRAIN: there shall be levied, assessed
and collected on every sale, barter or
exchange or transactions “deemed sale” of
taxable goods or property, vat equivalent to
12% of the gross selling price or gross value
in money of the goods or property sold,
bartered or exchanged, or deemed sold in
the Philippines.
*TRAIN Law- retains the 12% rate & deletes
the phrases “or transactions “deemed sale”’
and ‘or deemed sold in the Philippines,’ and
adds the phrase ‘such tax to be paid by the
seller or transferor’ towards the end.
 Vat
TRANSACTIONS DEEMED SALE & are
subject to VAT:
1. Transfer, use/ consumption not in
the ordinary course of business of
goods/ property originally intended
for sale/ use in the course of business
2. Distribution/ transfer to: - 106 (2) of the NIRC
shareholders/ investors as share in
the profits of VAT registered
persons.- Creditors in payment of
debt/ obligation.
3. Consignment of goods if actual sale is
not made within 60days following
the date such goods where
consigned; and
4. Retirement from/ cessation of
business, with respect to inventories
of taxable goods existing as of such
retirement/ cessation.
SALE OF REAL PROPERTIES subject to VAT
(Based on New Thresholds)
1. Sale of residential lot with gross selling
price exceeding P1,919,500
2. Sale of residential house & lot or other
residential dwellings with gross selling
price exceeding P3,199,200, where
the instrument of sale is executed on
Vat-Exempt Zero-Rate
Sales by VAT-registered person subject to
ZERO-RATE:
>export sales;
> foreign currency denominated
sale
*TRAIN Law- deletes foreign
currency denominated sale in sec.
> sale of good or property to
persons or entities whose
exemption under special law or
international agreements to which
the Philippines is a signatory.
EXPORT SALE means:
1. Sale and actual shipments of goods from
the Philippines to a foreign country
irrespective of any shipping
arrangement and paid for in acceptable
foreign currency or its equivalent in
goods or services and accounted for in
accordance with the rules & regulations
of BSP
2. Sale of raw materials or packaging
materials to a non-resident buyer for
delivery to a resident local export-
oriented enterprise to be used in
manufacturing, processing or repacking
in the Philippines of the said buyer’s
goods and paid for in acceptable foreign
currency or its equivalent in goods or
services and accounted for in
accordance with the rules & regulations
of BSP
3. Sale of raw materials or packaging
materials to export-oriented enterprise
 or after Jan. 1, 2012 shall be subject to
12% vat.
*Sale executed & notarized on or after
Nov 5, 2005 but prior to Jan. 1, 2012-
appropriate threshold amount is
P1,500,000 & P 2,500,000; excess
thereof shall be subject to 10% vat
starting Feb. 1, 2006, to 12 % vat,
effective 2012.
*includes sale, transfer or disposal
within 12-month period of 2 adjacent
residential lot in favour of 1 buyer.
3. Instalment sale of residential house &
lot or other residential dwellings with
gross selling price exceeding
P1,000,000
4. Real estate investment trust (REIT)
shall be subject to VAT on its gross
sales from any disposal of real
property.
1.
whose export sales exceeds 70% of the
total annual production.
4. Sale of gold to BSP if the seller is a VAT-
registered taxpayer
*TRAIN Law- item no. 4 was reclassified as
among Exempt Transactions under Sec.
109(1)(Z)
5. Those considered export sales under EO
226, (Omnibus Investments Code of
1987 and other special laws; and
*TRAIN Law- subparagraphs 3, 4 & 5 above
shall be subject to 12% vat and no longer be
considered export sales subject to 0% VAT
rate upon satisfaction of conditions:
(1) The successful implementation of an
enhanced VAT refund system- grants
refund of creditable input tax within 90
days from the filing of the VAT refund
application with the bureau. All
applications filed in Jan. 1, 2018 shall be
processed & must be decided within 90
days from filing of vat refund
application.
(2)
(3) All pending VAT refund claims as of Dec.
31, 2017 shall be fully paid cash by Dec.
1, 2019.
Provided, DOF shall establish VAT
refund center in BIR & BOC that will
handle the processing & granting of cash
refunds & creditable input tax
 5% of total VAT collection of BIR & BOC
from immediately preceding year-
automatically appropriated annually;
shall be treated as special account in the
General Fund/ as a trust receipts for the
purpose of funding claims for VAT
refund.

- Any unused fund shall revert to

the General Fund
BIR & BOC shall be required to submit
Congressional Oversight Committee
on the Comprehensive Tax Reform
Program (COCCTRP)- a quarterly
report of all pending claims for
refund & any unused funds.

The ff. services performed in the

Philippines by a VAT-registered person
shall be subject to zero percent (0%) VAT
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 processing,
manufacturing or repacking
rendered to a person engaged in
business conducted outside the
Philippines or to a non-resident
person 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);

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 air transport operations,
including leases of property for use
thereof; Provided, that these
services shall be exclusively for
international shipping or air
transport operations. (Thus, 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, the same being
subject to twelve percent (12%)
VAT under Sec. 108 of the Tax Code,
as amended);

5. Services performed by
subcontractors and/or contractors
in processing, converting, or
manufacturing goods for an
enterprise whose export sales
exceeds seventy percent (70%) of
total annual production;

6. Transport of passengers and cargo

by domestic air or sea carriers from
the Philippines to a foreign country.
(Gross receipts of international air
carriers and international sea
carriers doing business in the
Philippines derived from transport
of passengers and cargo from the
Philippines to another country shall
be exempt from VAT; however they
are still liable to a percentage tax of
three percent (3%) based on their
gross receipts derived from
transport of cargo from the
Philippines to another country as
 provided for in Sec. 118 of the Tax
Code, as amended); and
7. Sale of power or fuel generated
through renewable sources of
energy such as, but not limited to,
biomass, solar, wind, hydropower,
geothermal and steam, ocean
energy, and other shipping sources
using technologies such as fuel cells
and hydrogen fuels; 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.

The ff. are considered CONSTRUCTIVELY
EXPORTED even without actual
exportation:
a. sales to bonded manufacturing
warehouses of export oriented
manufacturers
b. sales to export processing zones
c. sales to enterprises duly registered &
accredited with the Subic Bay
Metropolitan Authority
d. sales to registered export traders
operating bonded trading warehouses
supplying raw materials in the
manufacture of export products
e. sales to diplomatic missions & other
agencies & or instrumentalities granted
tax immunities, of locally manufactured
assembled or repacked products
whether paid for in foreign currency or
not
5. The sale of goods, supplies, equipment
& fuel to persons engaged in
international shipping/ air transport
operations. Provided, that the same is
limited pertaining to the transport of
goods & passengers from a port in the
Philippines directly to a foreign port /
vice versa, without docking at any port
in the Philippines unless to unload/ load
passengers or cargoes.
*TRAIN Law wordings- The sale of
goods, supplies equipment & fuel to
persons engaged in international
shipping / air transport operations.
Provided, that the goods, supplies,
equipment & fuel shall be used for
international shipping/ air transport
operations.
* GROSS SELLING PRICE unreasonably lower than
the actual market value- if it is lower by more than
30% of the actual market value of the same goods
of the same quality & quantity;
-Commissioner of BIR shall determine the
appropriate tax base in such case.
-If the gov’t is one of the parties, the output vat
shall be based on the actual selling price.
-for transaction deemed sale, output tax shall be
based on market value at the time of occurrence of
the transaction.
-in case of retirement or cessation of business, tax
base shall be the lower between acquisition cost or
the current market value.
GROSS SELLING PRICE- basis of vat; it is the
amount higher between selling price stated in the
document or fair market value.
*if VAT is not billed separately, the selling price
stated in the sales document shall be deemed to
be inclusive of VAT
* If gross selling price is based on fair market/
zonal value of the property, the fmv is deemed
exclusive of vat.
Formula for VAT in case of sale of real property
on instalment plan where the zonal/fmv is higher
than the consideration
𝑨𝒄𝒕𝒖𝒂𝒍 𝒄𝒐𝒍𝒍𝒆𝒄𝒕𝒊𝒐𝒏 (𝒆𝒙𝒄𝒍𝒖𝒔𝒊𝒗𝒆 𝒐𝒇 𝒗𝒂𝒕)
𝑨𝒈𝒓𝒆𝒆𝒅 𝒄𝒐𝒏𝒔𝒊𝒅𝒆𝒓𝒂𝒕𝒊𝒐𝒏 (𝒆𝒙𝒄𝒍𝒖𝒔𝒊𝒗𝒆 𝒐𝒇 𝒗𝒂𝒕)
x zonal
valuex12%
Sale on instalment plan- sale of property by
real estate dealer; initial payment of which in
the year of sale do not exceed 25% of gross
selling price
-seller is subject to output vat on the
instalment payment received actually/
constructively; buyer can claim the input tax in
the same period
Sale on deferred payment basis- initial
payment of which in the year of sale exceed
25% of gross selling price.
-transaction price is treated as cash sale;
entire amount is thereby taxable on month of
sale.
Initial Payment- payment received by the
seller before or upon execution of the
instrument of sale
-covers any down payments made & includes
all payments actually or constructively
received during the year of sale, the aggregate
of which determines the limit set by law.
-mortgage is not included unless such
mortgage exceeds the cost/ other basis of the
property to the seller, in which case the excess
is considered part of initial payment.
Liquidating Dividends- a “deemed sale”
transaction for vat purposes
>stockholder’s part- any liquidating gain shall
be treated as capital gain, subject to regular
income tax rate under the tax code, not CGT.
Advance VAT- On Transport of Naturally
Grown & Planted Timber Products
Requirement to Pay Advance VAT- shall be
paid by the owner/seller to the BIR through
the authorized agent banks/ revenue
collection officers/ deputized city or municipal
treasurers before transporting them from one
place of production.
Basis: payment shall be determined by
applying vat rate of 12% on corresponding
value per cubic meter of the different species
of naturally grown & planted products in
accordance with specific schedule.
Advance VAT- On Sale of Flour Milled from
Imported Wheat- Revenue Regulation 29-
2003 aim to level the playing fields among
players in the flour-milling industry, to
encourage proper declaration and payment of
taxes for efficiency in tax administration.
Flour miller- a person engaged in the milling of
imported wheat (directly imported or
purchased from importer) to produce flour as
finished product.
Wheat trader-a person who is engaged in
importing/ buying and selling of imported
wheat.
Requirement to Pay Advance VAT- vat shall be
paid by the flour miller prior to the release
from BOC custody.
-purchases by flour miller from traders shall
also be subject to advance tax & shall be paid
by the flour miller prior to its delivery
.>importation of wheat by any trader shall still
be exempt from vat. However for monitoring
purposes, the importer shall be required to
secure ATRIG (Authority to Release Imported
Goods) from BIR.
BASIS for Determining the Amount of
Advance Payment of VAT
Amount of advance VAT payment shall be
determined by applying 12% rate on the tax
base as follows:
For wheat imported by flour millers-75% of
the sum of:
(a) Invoice value X currency exchange rate on
payment date
(b) Estimated custom duties & other charges
prior to the release of imported wheat
from customs custody, except for the
advance VAT;
(c) 5% of the sum of (a) and (b).
Total (a + b + c )
X 75%
Tax Base
X 12%
Advance Vat
For wheat purchased from traders- 75% of the
sum of:
(a.) Invoice value;
(b.) Estimated freight expenses; and
(c.) 5% mark-up on the sum of (a) and (b)
 Advance VAT- Sale of Jewelry, Gold, &
Other Metallic Minerals to NRA-NETB or
NRFC- Revenue Regulation 5-2013
prescribed the tax treatment of the sale of
jewelry, gold & other metallic minerals to
non-resident alien individual not engaged
in trade or business within the Philippines,
or to non-resident foreign corporation.
Sellers of jewelry, gold & other metallic
minerals- required to pay business tax
(VAT or percentage tax), income & excise
tax if applicable in advance through
Revenue Collection Officer of RDO having
jurisdiction over the place where
transaction occurs, regardless whether
the sellers are duly registered with the
BIR:
a. Advance payment of 12% VAT on
gross selling price, or percentage tax
of 3% of gross sales;
b. Advance payment of income tax at the
rate of 5% on gross payment:
c. Actual payment of 2% excise tax based
on either the actual market value of
the gross output at the time of
removal, in the case of those locally
extracted; or the value used by VOC in
computing tariff & duties, in the case
of importations. Actual market value
shall refer to the actual consideration
paid by the buyer to the seller.
Advance payment shall be credited
against actual business tax & income
tax due from such persons for the
taxable period for which such advance
payments were remitted to the BIR.
CHAPTER 18- VAT on SALE of SERVICES and USE or
LEASE of PROPERTY
SALE or EXCHANGE of SERVICES – performance of
all kinds of services in the Philippines for others for
a fee, remuneration or consideration, including
those performed or rendered by:
1. CONSTRUCTION AND SERVICE CONTRACTORS;
2. STOCK, REAL ESTATE, COMMERCIAL, CUSTOMS
AND IMMIGRATION BROKER;
3. LESSORS OF PROPERTY, WHETHER PERSONAL
OR REAL ;
 All forms of property for lease, whether real or
personal, are liable to VAT except those that are
VAT-exempt.
Real Estate Lessor- any person engaged in the
business of leasing or subleasing real property.
 Lease of property shall be subject to VAT
regardless of the place where the contract of
lease or licensing agreement was executed if
the property leased or used is located in the
Philippines.
 VAT on rental and/or royalties payable to non-
resident foreign corporations or owners for the
sale of services and use or lease of properties in
the Philippines shall be based on the contract
price agreed upon by the licensor and the
licensee.
 The licensee shall be responsible for the
payment of VAT on such rentals and/or royalties
in behalf of the non-resident foreign
corporation or owner in the manner prescribed.
Non-Resident Lessor/Owner – any person,
natural or juridical, an alien, or a citizen who
establishes to the satisfaction of the
Commissioner of Internal Revenue.
 Real estate investment trust (REIT) shall be
subject to VAT on its gross receipts from the
rental of its real property.
4. WAREHOUSING SERVICES;
 Warehousing Service-rendering personal
services of a warehouseman such as:
a. Engaging in the business of receiving and
storing goods of others for compensation or
profit;
b. Receiving goods and merchandise to be
stored in his warehouse for hire; or
c. Keeping and storing goods for others, as a
business and for use.
5. LESSORS OR DISTRIBUTORS OF
CINEMATOGRAPHIC FILMS;
6. PERSONS ENGAGED IN MILLING, PROCESSING,
MANUFACTURING OR REPACKING GOODS FOR
OTHERS;
Miller- a person engaged in milling for others
(except palay into rice, corn into corn grits, and
sugarcane into raw sugar), is subject to VAT on
sale of services.
 If miller is paid in cash for his services, VAT
shall be based on his gross receipts for the
month or quarter.
 If he receives a share of the milled products
instead of cash, VAT shall be based on the
actual market value of his share in the milled
products.
 Sale by the owner or the miller of his share of
the milled product (except rice, corn grits and
raw sugar) shall be subject to VAT.
7. PROPRIETORS, OPERATORS OR KEEPERS OF
HOTELS, MOTELS, REST HOUSES, PENSION
HOUSES, INNS, RESORTS, THEATERS AND
MOVIE HOUSES;
TRAIN LAW
Deletes “ theaters and movie houses”
 Motels and other similar establishments shall
submit to the RDO where they are registered
a Sworn Declaration. The information to be
included in the Sworn Declaration includes
the room type, number of rooms and rate per
room.
 The RDO in preparing the monthly occupancy
turnover analysis report (OTAR) per motel will
consider the following:
a. For peak periods covering the months of
January to February, April to June and
December, the minimum turnover/day of
a particular establishment shall be set at a
constant factor of 2.
b. Foe lean periods covering the other
remaining months of the year, the
minimum turnover/day shall be 1.50.
8. PROPRIETORS OR OPERATORS OF
RESTAURANTS, REFRESHMENT PARLORS,
CAFES AND OTHER EATING PLACES, INCLUDING
CLUBS AND CATERERS;
 The gross receipts of recreational clubs
including but not limited to membership fees,
assessment dues, rental income and service
fees are subject to VAT.
9. DEALERS IN SECURITIES;
Dealer in securities-merchant of stock or
securities, whether an individual partnership or
corporation, with an established place of
business, regularly engaged in the purchase of
securities and sells them to customers with a
view to the gains and profits that may be
derived therefrom.
 Dealers in securities and lending investors
shall be subject to VAT on the basis of their
gross receipts. However, for dealer in
securities, the term “gross receipts” = gross
selling price – cost of securities sold.
 A REIT shall not be considered 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.
10. LENDING INVESTORS;
Lending investor- includes all persons other
than banks, non-bank financial intermediaries,
finance companies and other financial
intermediaries not performing quasi-banking
functions who make a practice of lending
money for themselves or others at interest.
11. 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
CARGOES;
Common Carrier-persons, corporations, firms
or associations engaged in the business of
carrying or transporting passengers or goods or
both, by land, water or air, for compensation,
offering their services to the public and shall
include transportation contractors.
 Common carriers by land shall be subject to
the 3% percentage tax, but shall not be liable
for VAT.
12. DOMESTIC 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.
TRAIN LAW
Deletes the word “domestic”
 Domestic common carriers by air and sea are
subject to 12% VAT on their gross receipts
from their transport of passengers, goods or
cargoes from one place in the Philippines to
another place in the Philippines.
By Land:
Transporting goods or cargoes 12% VAT
Transporting passengers 3% Common
Carrier’s tax
By Air or Sea;
From/To Within the Philippines-
Transporting goods or cargoes 12% VAT
Transporting passengers 12% VAT
From one point in the Philippines to abroad-
Transporting goods or cargoes 0% VAT
Transporting passengers 0% VAT
 Gross receipts of international air and sea
carriers doing business in the Philippines are
liable to a percentage of 3% based on their
gross receipts derived from the transport of
cargo from the Philippines to another
country.
13. SALE OF ELECTRICITY BY GENERATION,
TRANSMISSION AND DISTRIBUTION
COMPANIES;
Rev. Reg. 13-2018
Sale of electricity by generation, transmission
by any entity including the National Grid
Corporation of the Philippines (NCGP), and
distribution companies including electric
cooperatives shall be subject to 12% VAT on
their gross receipts.
 Sale of electricity by generation, transmission
and distribution companies including electric
cooperatives shall be subject to 12% VAT on
their gross receipts.
14. FRANCHISE GRANTEES OF ELECTRIC UTILITIES,
Generation Companies- persons or entities
authorized by the Energy Regulation
Commission (ERC) to operate facilities used in
the generation of electricity.
Transmission Companies- any person or entity
that owns and conveys electricity through the
high voltage backbone system and/or sub-
transmission assets, e.g. NPC or TRANSCO.
 The NGCP, which provides transmission
services, is subject to 3% franchise tax; hence,
the withholding of government money
payments shall be thru percentage tax
withholding.
Distribution Companies – persons or entities
which operate a distribution system in
accordance with the provisions of the EPIRA.
Gross receipts under this subsection shall refer
to the following:
a. Total amount charged by generation
companies for the sale of electricity and
related ancillary services; and/or
b. Total amount charged by transmission
companies for transmission of electricity
and related ancillary services; and/or
c. Total amount charged by distribution
companies and electric cooperatives for
distribution and supply of electricity, and
related electric service.
15. NON-LIFE INSURANCE COMPANIES INCLUDING
 The universal charge passed on and collected
by distribution companies and electric
cooperatives shall be excluded from the
collection of gross receipts.
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 PHP 10,000,000, AND FRANCHISE
GRANTEES OF GAS AND WATER UTILITIES;
TRAIN LAW
“services of franchise grantees of electric
utilities,
telephone and telegraph, radio and television
broadcasting and all other franchise grantees
except those under Section 119 of this code;”
 Franchise grantees of telephone and
telegraph shall be subject to vat on their gross
receipts derived from their telephone,
telegraph, telewriter exchange, wireless and
other communication equipment services.
 Amounts received for overseas dispatch,
message, or conversation originating from the
Philippines are subject to the percentage tax
under Sec. 120 of the tax code and hence
exempt from VAT.
 Franchise grantees of radio and/or television
broadcasting whose annual gross receipts of
the preceding year do not exceed php
10,000,000 shall not be subject to VAT, but to
the 3% franchise tax.
 Franchise grantees of gas and water utilities
shall be subject to 2% franchise tax on their
gross receipts.
SURETY, FIDELITY, INDEMNITY AND BONDING
COMPANIES;
TRAIN LAW
Modifies this item
“non-life insurance companies (except their
crop insurances), including surety, fidelity,
indemnity and bonding companies; and”
Non-life insurance companies- including surety,
fidelity, indemnity and bonding companies,
shall include all individuals, partnerships,
associations, or corporations, including
professional reinsurers defined in Sec. 280 of
P.D. 612,(Insurance code of the Philippines),
mutual benefit associations and government-
owned or controlled corporations, engaging in
the business of property insurance, as
distinguished from insurance on human lives,
health, accident and insurance appertaining
thereto or connected therewith which shall be
subject to percentage tax under Sec. 123 of the
tax code.
 non-life insurance including surety, fidelity,
indemnity and bonding companies are subject
to VAT.
 The gross receipts from non-life insurance
shall mean total premiums collected, whether
paid in money, notes, credits or any substitute
for money.
16. PRE-NEED COMPANIES;
Pre-need companies are corporations
registered with the Securities and Exchange
Commission and authorized/licensed to sell
or offer for sale pre-need plans whether a
single plan or multi-plan.
17. HEALTH MAINTENANCE ORGANIZATIONS;
AND
Health and Maintenance organizations
(HMOs) are entities, organized in
accordance with the provisions of the
Corporation Code of the Philippines and
licensed by the appropriate government
agency, which arranges for coverage or
designated managed care services needed
by plan holders/members for fixed prepaid
membership fees and for a specified period
of time.
TRAIN LAW*
Deletes the foregoing items in 16 and 17 in
Section 108(A) of the NIRC.
18. SIMILAR SERVICES REGARDLESS WHETHER
OR NOT THE PERFORMANCE THEREOF
CALLS FOR THE EXERCISE OR USE OF THE
PHYSICAL OR MENTAL FACULTIES.
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 the services performed or to be
performed for another person, excluding value-
added tax.
Train Law*
-deletes in the definition of “gross receipts” the
phrase “applied as payments for services rendered”
in Section 108 (A) of the NIRC.
Constructive Receipt
-occurs when the money consideration or its
equivalent is placed at the control of the person
who rendered the service without restrictions by
the payor.
Tax Base and Rate
-There shall be levied, assessed and collected, a
value-added tax equivalent to twelve percent (12%)
of the gross receipts excluding the value added tax,
derived from the sale or exchange of services,
including the use or lease of properties.
Train Law*
 -retains the rate and base of value-added tax on
sale of services and use or lease of property and
deletes the phrase “excluding the value-added
tax:”
There shall be levied, assessed and collected, a
value-added tax equivalent to twelve percent (12%)
of the gross receipts derived from the sale or
exchange of services, including the use or lease of
properties.
ZERO-RATED SALE OF SERVICES
-is a taxable transaction for VAT purposes, but
shall not result in any output tax. However, the
input tax on purchases of goods, properties or
services related to such zero-rated sale shall be
available as tax credit or refund in accordance wit
regulations.
Effectively Zero-Rated Sale of Services
-shall refer to the local sale of services by a
VAT-registered person to a person or entity who has
granted indirect tax exemption under special laws
or international agreement. Under these
regulations, effectively zero-rated sale of services
shall be limited to sales to persons or entities that
enjoy exemptions from indirect taxes under nos. 3,4
and 5 of the immediately preceding discussion.
CHAPTER 19- VAT ON IMPORTATION OF GOODS
 Importation of goods is subject to 12% VAT
based on the total volume used by the
Bureau of Customs in determining tariff and
customs duties, plus customs duties, excise
taxes, if any and other charges.
 The importer, prior to the release of such
goods from customs custody, shall pay the
value-added tax.
Importer- refers to any person who brings goods
into the Philippines, whether or not made in the
course of his trade or business. It includes non-
exempt persons or entities who acquire tax-free
imported goods from exempt persons, entities or
agencies.
 Importation into the Philippines to non-
exempt persons shall bring rise to VAT on
such importation. The non-exempt person
shall be considered the importer.
 The Philippine Red Cross shall also be
exempt from direct and indirect taxes,
including VAT, duties, fees, and other
charges on importations and purchases for
its exclusive use.
 Any importations and donations intended
for the operation of the NDRRMC and its
member agencies shall be considered as
importation by and/or donation to the
NDRRMC. The VAT shall be shouldered by
the National Government.
CHAPTER 20- OUTPUT AND INPUT TAXES
Output Tax- the value-added tax due on the sale or
lease of taxable goods or property or services by a
VAT-registered person.
Input Tax- the value-added tax due from or paid by
a VAT-registered person in the course of his trade or
business on importation of goods or local purchase
of goods or services, including lease or use of
property from a VAT-registered person.
Input taxes on the following are creditable against
the output tax:
1. Purchase or importation of goods:
a. For sale;
b. For conversion into or intended to form
part of a finished product for sale
including packaging materials;
c. For use as supplies in the course of
business;
d. For use of as materials supplied in the
sale of service;
 e. For use in trade or business for which
deduction for depreciation or
amortization is allowed under the Tax
Code.
2. Purchase of real properties for which a
value-added tax has actually been paid.
3. Purchase of services in which a value-added
tax has actually been paid.
4. Transactions “deemed sale”.
5. Transitional input tax allowed.
6. Presumptive input tax allowed.
7. Transitional input tax credits allowed under
the transitory and other provisions.
The input tax on domestic purchase of goods,
properties or services or importation of goods by
VAT-registered person shall be creditable to:
a. The purchaser of the domestic goods or
properties upon consummation of the sale;
b. The purchaser of services, or the lessee or
licensee upon payment of the
compensation, rental, royalty or fee; or
c. The importer upon payment of the value-
added tax prior to the release of the goods
from the custody of the Bureau of Customs.
TRANSITIONAL INPUT TAX
 A person liable to VAT effective Jan 1, 2012
shall be allowed input tax on his beginning
inventory of goods, materials and supplies
equivalent to two percent (2%) of the value
of such inventory or the actual VAT paid on
such goods, materials and supplies,
whichever is higher. The amount allowable
shall be creditable against the output tax.
 Real estate developers subject to VAT for
the first time are entitled to transitional
input tax credit based on the value of their
beginning inventory of real properties.
PRESUMPTIVE INPUT TAX
 Persons or firms engaged in the processing
of sardines, mackerel and milk, and in
manufacturing refined sugar, cooking oil
and packed noodle-based instant meals,
shall be allowed a presumptive input tax,
creditable against output tax, equivalent to
four percent (4%) of the gross value in
money of their purchases of primary
agricultural products which are used as
inputs to their production.
Processing- pasteurization, canning and activities
which through physical or chemical processes alter
the exterior texture or form or inner substance of a
product in such manner as to prepare it for special
use to which it could not have been put in its original
form or condition.
INPUT TAX ON DEPRECIABLE GOODS
Capital good or properties- goods or properties
with estimated useful life greater than 1 year and
which are treated as depreciable assets under the
Tax Code, used directly or indirectly in the
production or sale of taxable goods or services.
 Where the aggregate acquisition cost
(exclusive of VAT) of the depreciable goods
purchased or imported in a calendar month
exceeds one million pesos (₱1,000,000),
regardless of the acquisition cost of each
capital good, shall be claimed as credit
against output tax in the following manner:
a. If the estimated useful life of a capital
good is five (5) years or more- The input
tax shall be spread evenly over a period
of sixty (60) months and the claim for
input tax credit will commence in the
calendar month when the capital good
is acquired. The total input taxes on
purchases or importations of this type
of capital goods shall be divided by 60
 and the quotient will be the amount to
be claimed monthly.
b. If the estimated useful life is less than
five (5) years- The input tax shall be
spread evenly on a monthly basis by
dividing the input tax by the actual
number of months comprising the
estimated useful life of the capital good.
The claim for input tax credit shall
commence in the calendar month that
the capital goods were acquired.
c. The amortization of the input VAT shall
only be allowed until Dec. 31, 2021 after
which taxpayers with unutilized input
VAT on capital goods purchased or
imported shall be allowed to apply the
same as scheduled until fully utilized:
provided, that in the case of purchase of
services, lease or use of properties, the
input tax shall be creditable to the
purchaser, lessee or license upon
payment of the compensation, rental,
royalty, or fee.
 Where the aggregate acquisition cost
(exclusive of VAT) of the existing or finished
depreciable capital goods purchased or
imported during any calendar month does
not exceed one million pesos (₱1,000,000),
the total input taxes will be allowable as
credit against output tax in the month of
acquisition.
 The aggregate acquisition cost of a
depreciable asset in any calendar month
refers to the total price (exclusive of VAT)
agreed upon for one or more assets
acquired and not on the payments actually
made during the calendar month.
Construction in progress (CIP) - is the cost of
construction work which is not yet completed. CIP is
not depreciated until the asset is placed in service.
Normally, upon completion, a CIP item is reclassified
and the reclassified asset is capitalized and
depreciated.
If the depreciable capital good is sold/transferred
within a period of 5 years or prior to the exhaustion
of the amortizable input tax thereon, the entire
unamortized input tax on the capital goods
sold/transferred can be claimed as input tax credit
during the month/quarter when the sale or transfer
was made.
APPORTIONMENT OF INPUT TAX ON MIXED
TRANSACTIONS
A VAT-registered person who is also engaged in
transactions not subject to the value-added tax shall
be allowed to recognize input tax credit on
transactions subject to VAT as follows:
1. All the input taxes which can be directly
attributed to transactions subject to
VAT (except sales of goods and services
to government or government-owned
or -controlled corporations); and
2. A ratable portion of any input tax which
cannot be directly attributable to either
VAT taxable or VAT exempt activity. The
input tax shall be prorated on the basis
of sales.
CREDITABLE INPUT TAX
Creditable input tax for the current taxable month
or quarter is determined as follows:
Input Tax, current period
Add: Excess Input Tax, previous period
Less: Claim for Refund/Tax Credit Certificate
Purchases Returns & Allowances
Input Tax-Exempt Sales
Input Tax-Sale to Government*
Creditable Input Tax
*subject to final VAT withholding of 5%
VALUE-ADDED TAX PAYABLE
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 inclusive of input tax carried over directly made by the advertiser to the media
from the previous quarter exceeds the output tax, supplier and to the advertising agency are limited to
the excess input tax shall be carried over to the the cost of the service provided by each entity.
succeeding quarter or quarters. Provided, however,
that any input tax attributable to zero-rated sales by
a VAT-registered person may at his option be
refunded or applied for a tax credit certificate which
may be used in the payment of internal revenue
taxes, subject to the limitations as may be provided
for by law, as well as, other implementing rules.

Value-added tax basic formula:

Output Taxes XXX

Less: Input Taxes XXX
VAT Payable XXX

 The amount of value-added tax should be

shown as a separate item in the invoice or
receipt.

VALUE-ADDED TAX ENTRIES

To record purchases on account:

Purchases xxx
Input tax xxx
Accounts Payable xxx

To record cash sales:

Cash xxx
Sales xxx
Output tax xxx

To recognize VAT payable:

Output tax xxx
Input tax xxx
VAT Payable xxx

To record payment of VAT:

VAT Payable xxx
Cash xxx
MEDIA ADVERTISING PLACEMENTS
Under a split payment arrangement, the advertiser
may engage or contract directly with a media
entity/supplier and an advertising agency for media
advertising placements. The income payments