EXEMPT TRANSACTIONS, ENUMERATED

NON-‐USER

EXEMPT TRANSACTIONS, ENUMERATED

of time; that it then contracts the services of physicians,

medical and dental practitioners, clinics and hospitals to perform such services to its enrolled members; and that it enters into contract with clinics, hospitals, medical professionals and then negotiates with them regarding payment schemes, financing and other procedures in the delivery of health services (CIR v. Philippine Health Care Providers Inc., G.R. No. 168129, Apr. 24, 2007).

EXEMPT TRANSACTIONS, ENUMERATED

VAT exempt transactions

1. Sale Of Goods And Property

a. Sale 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.

NOTE: Meat, fruit, fish, vegetables and other agricultural and marine food products classified under this paragraph shall be considered in their original date 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, including those using advanced technological means of packaging, such as shrink wrapping in plastics, vacuum packing, tetra-‐pack, and other similar packaging methods.

Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt and copra shall be considered as agricultural food products in their original state.

Sugar whose content of sucrose by weight, in the dry state, has a polarimeter reading of 99.5 o and above are presumed to be refined sugar.

Cane sugar produced from the following shall be presumed, for internal revenue purposes, to be refined sugar:

1. Product of a refining process, 2. Products of a sugar refinery, or

3. Product of a production line of a sugar mill accredited by the BIR to be producing and/or capable of producing sugar with polarimeter reading of 99.5 and above, and for which the quedan issued therefor, and verified by the Sugar Regulatory Administration, identifies the same to be of a polarimeter reading of 99.5 and above.

Bagasse is not included in the exemption provided for under this section.

Definition of “raw sugar” for VAT purposes

The Bureau of Internal Revenue (BIR) has redefined the term “raw sugar,” limiting the scope of value-‐added tax (VAT) exemption of raw sugar as an agricultural food product in its original state to “muscovado” sugar.

In the revised definition of raw sugar for VAT purposes, the BIR defined the term “raw sugar” as sugar produced by simple process of conversion of sugar cane without need for any mechanical or similar device. As defined by

the BIR, the term “raw sugar” shall now refer only to muscovado sugar.

In itself, centrifugal process of producing sugar is deemed by the BIR as a complex process. Hence, any type of sugar produced using the centrifugal process shall be subjected to VAT.

(Revenue Regulations No. 13-‐2013, September 20, 2013)

b. Sale 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 (Sec. 109[B], NIRC]);

c. Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under P.D. No. 529 (Sec. 109[K], NIRC]);

NOTE: PD 529 is the Petroleum Exploration Concessionaires under the Petroleum Act of 1949

d. Sales by agricultural cooperatives duly registered with the Cooperative Development Authority (CDA) to their members as well as sale of their produce, whether in its original state or processed form, to non-‐members; (Sec. 109[L], NIRC]);

NOTE: Unlike in paragraph A, the sales made by agricultural cooperatives duly accredited by CDA may be in original state or processed form is exempt from VAT.

e. 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 Fifteen thousand pesos (P15, 000.00) and regardless of the aggregate capital and net surplus ratably distributed among the members (Sec. 109[N], NIRC]);

f. Export sales by persons who are not VAT-‐

registered(Sec. 109[O], NIRC]);

g. Sale of the following real properties:

i. Sale of real properties not primarily held for sale to customers or in the ordinary course of trade or business

ii. Sale of real properties utilized for low-‐cost housing

iii. Sale of real properties utilized for socialized housing

iv. residential lot valued at P1,919,500 and below, or house & lot and other residential dwellings valued at P3,199,200 and below.

NOTE: If two or more adjacent residential lots, house and lot or other residential dwellings are sold or disposed in favor of one buyer from same seller, for the purpose of utilizing the lots, house and lot or other residential dwellings as one residential area, the sale shall be exempt from VAT only if the aggregate value of the said properties do not exceed P1,919,500 for residential lots, and P3,199,200 for residential house and lots or other residential dwellings although covered by separate titles and/or separate tax declarations, when sold or disposed to one and the same buyer, whether covered by one or separate Deed of Conveyance, shall be presumed as a sale of one residential lot, house and lot or residential dwellings.

(Sec. 3 (P)(4) [RR 13-‐2012])

h. Sale 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 (Sec. 109[R], NIRC);

i. Sale of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for domestic or international transport operations and provided that (Sec. 109[S], NIRC);

Vessels to be imported shall comply with the age limit requirements:

Passenger, cargo-‐vessels-‐15 years old Tanker-‐10 years old

High speed passenger craft-‐5 years old (RR. 16-‐2005)

NOTE: Exemption from VAT on the importation and local purchase of passenger and/or cargo vessel shall be limited to those of one hundred fifty tons (150) and above, including engine and spare parts of the said vessels

j. Sale of goods or properties other than the transactions mentioned in the preceding paragraphs, the gross annual sales do not exceed the amount of P1,919,500;

NOTE: For purposes of the threshold of 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 (Sec. 3 (V) [RR 16-‐

2011]).

2. Sale of Services

a. Services subject to percentage tax under Title V(Sec. 109[E], NIRC);

NOTE: Subject to percentage tax under Title V:

i. Sale or lease of goods or properties or the performance of services of non-‐VAT registered persons, other than the transactions mentioned in paragraphs (A) to (U) of Sec. 109(1) of the Tax Code, the gross annual sales and/or receipts of which does not exceed the amount of P1,919,500 (Sec. 116);

ii. Services rendered by domestic common carriers by land, for the transport of passengers and keepers of garages (Sec. 117);

iii. Services rendered by international air/ shipping carriers (Sec. 118);

iv. Services rendered by franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding year do not exceed Ten Million Pesos (P10,000,000.00), and by franchise grantees of gas and water utilities (Sec. 119);

v. Service rendered for overseas dispatch, message or conversation originating from the Philippines (Sec. 120);

vi. Services rendered by any person, company or corporation (except purely cooperative companies or associations) doing life insurance business of any sort in the Philippines (Sec. 123);

vii. Services rendered by fire, marine or miscellaneous insurance agents of foreign insurance companies (Sec. 124);

viii. Services of proprietors, lessees or operators of cockpits, cabarets, night or day clubs, boxing exhibitions, professional basketball games, Jai-‐Alai and race tracks (Sec. 125); and

ix. Receipts on sale, barter or exchange of shares of stock listed and traded through the local stock exchange or through initial public offering (Sec.

127).

b. Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugar cane into raw sugar (Sec. 109[F], NIRC);

“Agricultural contract growers” refers to those persons producing for others poultry, livestock or other agricultural and marine food products in their original state.

c. Medical, dental, hospital and veterinary services except those rendered by professionals(Sec.

109[G], NIRC);

NOTE: Laboratory services are exempted. The sale of medicines by the pharmacy of a hospital or a clinic to its in-‐patients is considered hospital service hence, VAT exempt. If the sale of medicine is made to an out-‐

patient, such sale is subject to VAT (Mamalateo, Value Added Tax, 2007 ed., pp. 163 and 274)

d. Educational services rendered by private educational institutions, duly accredited by the DEPED, CHED, TESDA and those rendered by government educational institutions (Sec. 109[H], NIRC);

NOTE: It does not include seminars, in-‐service training, review classes and other similar services rendered by persons who are not accredited by the DepED, the CHED and/or the TESDA;

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NOTE: In this section for private educational institution to be exempt from VAT they must be duly accredited by DEPED, CHED and TESDA on there other hand, government educational institutions are exempt without the need of the said accreditation requirements.

e. Services rendered by individuals pursuant to an employer-‐employee relationship(Sec. 109[I], NIRC);

f. 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 (Sec.

109[J], NIRC);

g. Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under P.D. No. 529 – Petroleum Exploration Concessionaries under the Petroleum Act of 1949 (Sec. 109[K], NIRC);

h. Gross receipts from lending activities by credit or multi-‐purpose cooperatives duly registered with the Cooperative Development Authority (Sec.

109[M], NIRC);

i. Services of banks, non-‐bank financial intermediaries performing quasi-‐banking functions, and other non-‐bank financial intermediaries (Sec. 109[U], NIRC);

Since petitioner (pawnshop) is a non-‐bank intermediary, it is subject to 10% VAT for the tax years 1996-‐2002; however, with the levy, assessment and collection of VAT from non-‐bank intermediaries being specifically deferred by law, then petitioner is not liable for VAT during these tax years. But with the full implementation of the VAT system on non-‐bank financial intermediaries starting January 1, 2003, petitioner is liable for 10% VAT for the said tax year. And beginning 2004 up to the present, by virtue of R.A. no. 9238, petitioner is no longer liable for VAT but it is subject to percentage tax on gross receipts from 0% to 5% as the case may be.(Tambunting Pawnshop, Inc. vs CIR, G.R. No. 179085, January 21, 2010)

j. The performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual receipts do not exceed the amount of P1,919,500.;

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. (Sec. 3 (V) [RR 16-‐2011])

3. Importation

a. 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(Sec. 109[A], NIRC);.

b. 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 (Sec. 109[B], NIRC]);

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 (Sec. 109[C], NIRC)

NOTE: Requisites under Sec. 105 [5], Tariff and Customs Code:

i. That the personal and household effects shall neither be in commercial quantities nor intended for barter, sale or hire and that the total dutiable value of which shall not exceed Ten Thousand Pesos,

ii. That the returning resident has not previously availed of the privilege under this section within three hundred sixty –five (365) days prior to his arrival,

iii. That a fifty per cent (50%) ad valorem duty across the board shall be levied and collected on the personal and household effects (except luxury items) in excess of Ten Thousand Pesos (10,000.00).

d. Importation of 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 ninety (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 (Sec. 109[D], NIRC);

e. Importation 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 (Sec.

109[R], NIRC);

f. Importation by agricultural cooperatives duly registered with the Cooperative Development Authority (CDA) 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.

(Sec. 109[L], NIRC]);

g. Importation of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for domestic or international transport operations and provided that (Sec.

109[S], NIRC);

Vessels to be imported shall comply with the age limit requirements:

Passenger, cargovessels -‐ 15 years old;

Tanker-‐10 years old;

High speed passenger craft-‐5 years old

h. Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations(Sec. 109[T], NIRC).

4. Lease Of Property

a. Lease of residential units with a monthly rental per unit not exceeding P12,800, regardless of the amount of aggregate rentals received by the lessor during the year;

NOTE: The foregoing notwithstanding, lease of residential units where the monthly rental per unit exceeds P12,800but the aggregate of such rentals of the lessor during the year do not exceed P1,919,500shall likewise be exempt from VAT, however, the same shall be subjected to three percent (3%) percentage tax.

In cases where a lessor has several residential units for lease, some are leased out for a monthly rental per unit of not exceeding P12,800 while others are leased out for more than P12,800 per unit, his tax liability will be as follows:

i. The gross receipts from rentals not exceeding P12,800 per month per unit shall be exempt from VAT regardless of the aggregate annual gross receipts.

ii. The gross receipts from rentals exceeding P12,800 per month per unit shall be subject to VAT if the aggregate annual gross receipts from said units only (not including the gross receipts from units leased for not more than P12,800 exceeds

P1,919,500 Otherwise, the gross receipts will be subject to the 3% tax imposed under Section 116 of the Tax Code.

The term 'residential units' shall refer to apartments and houses & lots used for residential purposes, and buildings or parts or units thereof used solely as dwelling places (e.g., dormitories, rooms and bed spaces) except motels, motel rooms, hotels, hotel rooms, lodging houses, inns and pension houses.

The term 'unit' shall mean an apartment unit in the case of apartments, house in the case of residential houses;

per person in the case of dormitories, boarding houses and bed spaces; and per room in case of rooms for rent.

(Sec. 3 (Q) [RR 16-‐2011]) Summary of rules:

1. Monthly rental P12,800 or less regardless of annual gross sales = VAT exempt and no percentage tax

2. Monthly rental above P12,800 but annual gross sales do not exceed P1,919,500 = VAT-‐exempt under Sec. 109 (V) but shall pay 3% percentage tax under Section 116 of NIRC.

3. Monthly rental above P12,800 and annual gross sales exceed P1,919,500 = there shall be VAT.

b. Lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for domestic or international transport operations (Sec. 109[S], NIRC);

c. Lease of goods or properties other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount P1,919,500;

(Sec. 3 (V) [RR 16-‐2011])

NOTE: The foregoing enumerations are taken from Sec. 109 of theNIRC as amended by RA 9337. There are 22 exemptions under the law but in this enumeration the said exemptions are classified into sale of goods, sale of services, importation and lease of property. Thus, there are some repetitions in the enumeration as they were classified into four categories.

INPUT TAX AND OUTPUT TAX, DEFINED

Input Tax

It means the value-‐added tax due on or paid by a VAT-‐

registered person on importation of goods or local purchase of goods, properties or services, including lease or use of properties, in the course of his trade or business. It shall also include the transitional input tax and the presumptive input tax determined in accordance with Section 111 of the NIRC. (RR 16-‐2005)

Effect of VAT exempt purchases to input tax

VAT exempt transactions cannot be credited for input tax, however a transaction which cannot be directly attributed in either the taxable or exempt activity, a ratable portion of the input tax may be credited.

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AX Q: Is input tax a property right within the Constitutional

purview of the due process clause?

A: No. A VAT-‐registered person’s entitlement to the creditable input tax is a mere statutory privilege which may be limited or removed by law.

Output Tax

It means the value-‐added tax due on the sale or lease of taxable goods or properties or services by any person registered or required to register under Sec. 236 of the NIRC(Sec. 110[A][3], NIRC).

SOURCES OF INPUT TAX

Creditable input taxes

The input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 of the NIRC on the following transactions shall be creditable against the output tax:

1. Purchase or importation of goods:

a. For sale; or

b. For conversion into or intended to form part of a finished product for sale including packaging materials; or

c. For use as supplies in the course of business; or d. For use as materials supplied in the sale of

service; or

e. For use in trade or business for which deduction

In document TAX-UST-Golden-Notes-2014.pdf (Page 193-197)

EXEMPT TRANSACTIONS, ENUMERATED

NON-­‐USER

EXEMPT TRANSACTIONS, ENUMERATED

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