You don’t have to be an accountant in the Philippines to fully grasp the purpose of value added taxes (VAT). At what scenario are we paying for it and why? This time, let’s find the transactions that govern its scope.

1. PRESENTS

2. PRESENTS
TRANSACTIONS
COVERED BY
VAT

3. Remember,
you don’t have to be an accountant in the
Philippines to fully grasp the purpose of taxes.

4. Remember,
you don’t have to be an accountant in the
Philippines to fully grasp the purpose of taxes.
At what scenario are we paying for it
and why?

5. Remember,
you don’t have to be an accountant in the
Philippines to fully grasp the purpose of taxes.
At what scenario are we paying for it
and why?
Let’s find the transactions
that govern its scope.

6. Image courtesy of FreeDigitalPhotos.net

7. Image courtesy of FreeDigitalPhotos.net

8.  Sale of nonfood agricultural products;
marine and forest products in their original
state by primary producer or owner of the
land;
 Sale of cotton and cotton seeds
 Sale or importation of coal and in their original state;
natural gas, in whatever form or
state;
 Sale or importation of
petroleum products, including raw
materials for their production;
Image courtesy of FreeDigitalPhotos.net

10. Sale or exchange of services means
the performance of all kinds of
services in the Philippines for
others for a fee, remuneration or
consideration. It includes those
performed or rendered by the
following:
Image courtesy of FreeDigitalPhotos.net

11.  Construction and service contractors;
 Stock, real estate, commercial, customs and immigration brokers
(subject to VAT under RA 7716);
 Lessors of property, whether personal or real;
 Persons engaged in warehousing services;
 Lessors or distributors of cinematographic films;
 Persons engaged in milling (except palay into rice, corn into corn
grits and sugar cane into raw sugar), processing, manufacturing or
repacking goods for others;
 Proprietors, operators, or keepers of hotels, motels,
resthouses, pension houses, inns, resorts;
 Proprietors or operators of restaurants, refreshment parlors,
cafes, and other eating places, including clubs and caterers;

12.  Dealers in securities;
 Lending investors;
 Transportation contractors on their transport of goods
or cargoes, including persons who transport goods or
cargoes for hire;
 Other domestic common carriers by land, air and
water relative to their transport of goods or cargoes;
 Sales of electricity by generation, transmission, and/or
distribution companies;
 Franchise grantees of electric utilities, telephone and
telegraph, radio and/or television broadcasting companies
whose annual gross receipt of the preceding year exceeds
P10M and all other franchise grantees except those under
Section 119 of the Code;
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13. Non-life insurance companies (except their crop insurances and premiums
on reinsurance), including surety, fidelity, indemnity and bonding companies;
Pre-need companies
Similar services regardless of whether or not the performance thereof calls for
the exercise or use of the physical or mental faculties
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;
The lease or the use of, or the right to use of any industrial, commercial or
scientific equipment;
The supply of scientific, technical, industrial, or commercial knowledge or
information;
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,
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;

14. The supply of technical advice, assistance or services rendered in connection with
technical management or administration of any scientific, industrial or
commercial undertaking, venue, project or scheme;
The lease of motion picture films, films, tapes, discs and;
The lease or the use of or the right to use radio, television, satellite transmission
and cable television time.
Sale by the artist of his works of art, literary works, musical compositions and
similar creations, or his services performed for the production of such works;
Services rendered by doctors of medicine duly registered with the PRC;
Services rendered by lawyers duly registered with IBP;
Common carriers by air and sea relative to their transport of passengers
from one place in the Philippines to another place in the Philippines
Image courtesy of FreeDigitalPhotos.net

15. Toll road operations
PAGCOR and its licensees and franchisees;
Sale of electricity by generation,
transmission and distribution companies
(except sale of power fuel generated through
renewable sources of energy which is 0%);
and
Sale by electric cooperatives as well as
importation of machines and equipments
including spare parts.

16. Zero Rated Transactions
Zero Rated Sale of Goods

18. EXPORT SALES
Sale and actual shipment of goods from
the Philippines to a foreign country, irrespective of
any shipping arrangement that may be agreed upon
which may influence or determine the transfer of
ownership of the goods so exported and paid for in
acceptable foreign currency or its equivalent in goods
or services, and accounted for in accordance with the
rules and regulations of the Bangko Sentral ng
Pilipinas (BSP);

19. 1. 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, packing or repacking in the
Philippines of the said buyer’s goods and paid for in acceptable
foreign currency and accounted for in accordance with the rules and
regulations of the BSP;
2. Sale of raw materials or packaging materials to export-oriented
enterprise whose export sales exceed seventy
percent (70%) of total annual production;
3. Sale of gold to BSP and;
4. Those considered export sales under E.O. 226, otherwise
known as the Omnibus Investment Code of 1987, and other
special laws.
5. Sale of goods, supplies, equipment and fuel to persons
engaged in international shipping or international air
transport operations.
Image courtesy of FreeDigitalPhotos.net

20. Foreign Currency Denominated Sale
Sale to a non-resident of goods except sale or importation of
automobiles and non-essential goods mentioned in Sec. 149
and 150, NIRC, assembled or manufactured in the Philippines
for delivery to a resident in the Philippines paid for in
acceptable foreign currency and accounted with the rules and
regulation of the BSP.
Exemptions under Special Laws or International Agreement
Sales to persons or entities or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively
subjects such sales to zero-rate.
Image courtesy of FreeDigitalPhotos.net

21. Zero Rated Sale of Services
 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;
 Services other than those mentioned in the preceding paragraph, the consideration for
which is paid for in acceptable foreign currency and accounted for in accordance with
the rules and regulations of the BSP;
 Services rendered to persons or entities whose exemption under specials laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services to
zero percent (0%) rate;
 Services rendered to vessels engaged exclusively in international shipping; and
 Services performed by subcontractors and/or contractors in processing, converting, or manufacturing
goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production.
 Transport of passengers and cargo by domestic air or sea carriers from the Philippines
to a foreign country. Gross receipts of international air carriers doing business in the
Philippines and international sea carriers doing business in the Philippines are still
liable to a percentage tax of three percent (3%) based on their gross receipts as provided
for in Sec. 118 of the Tax Code but shall not to be liable to VAT; and
 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 emerging sources
using technologies such as fuel cells and hydrogen fuels.

22. Effectively Zero Rated Transactions

23. Effectively Zero Rated Transactions
Effectively zero rated sale of goods and
properties refer to sale of goods and
properties by a VAT registered person to a
person or entity who was granted indirect
tax exemption under special laws.

24. Effectively Zero Rated Transactions
Effectively zero rated sale of goods and
properties refer to sale of goods and
properties by a VAT registered person to a
person or entity who was granted indirect
tax exemption under special laws.
Effectively zero rated sale of services –
refer to the sale of services by a VAT
registered person to a person or entity who
was granted indirect tax exemption under
special laws or international agreements.

25. Effectively Zero Rated Transactions
Effectively zero rated sale of goods and
properties refer to sale of goods and
properties by a VAT registered person to a
person or entity who was granted indirect
tax exemption under special laws.
Effectively zero rated sale of services –
refer to the sale of services by a VAT
registered person to a person or entity who
was granted indirect tax exemption under
special laws or international agreements.
Example : (IRRI, ADB, Embassy)

26. Effectively Zero Rated Transactions
Effectively zero rated sale of goods and
properties refer to sale of goods and
properties by a VAT registered person to a
person or entity who was granted indirect
tax exemption under special laws.
Effectively zero rated sale of services –
refer to the sale of services by a VAT
registered person to a person or entity who
was granted indirect tax exemption under
special laws or international agreements.
Example : (IRRI, ADB, Embassy)
Cases of zero rated sales of goods and services
shall require prior application with the Revenue
District Office for effective zero-rating. Without
an approved application for effective zero-rating,
the transaction otherwise entitled to zero rating
shall be considered exempt

27. Transactions Deemed Sale
•Transfer, 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
•Distribution or transfer to:
o Shareholders or investors as share in the profits of the VAT – registered persons; or
o Creditors in payment of debt
•Consignment of goods if actual sale is not made
within sixty (60) days following the date said goods
were consigned;
•Retirement from or cessation of business, with
respect to inventories of taxable goods existing as
such retirement or cessation; and
•Change in business registration status (VAT to
Non-VAT)
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28. Reference: www.bir.gov.ph
Disclaimer: New and subsequent BIR rulings, issuances and/or laws may
render the whole or part of the article obsolete or inaccurate. For more
information, please inquire or consult with the BIR.

29. And if you find anything unclear,
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info@jclbpo.com

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