Taxation 2 Midterm Notes

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VALUE-ADDED TAX (Sections 105 to 115 of the Tax Code, as amended)

COPRA: Exempt PETROLEUM PRODUCTS: VATable ELECTRICITY: VATable DRIED MANGOES: VATable SUGAR: Only Raw cane Sugar is VAT exempt. Refined sugar is already VATable. There is an entire revenue regulations devoted to the payment of VAT on sugar. It is actually called the Advance Value Added Tax that you pay on every sugar that the sugar miller produces. So it is not totally exempt unless it falls under raw cane sugar or molasses. Cane sugar produced from the following shall be presumed to be refined sugar: 1. Product of a refining process 2. Product of a sugar refinery, or

X. TRANSACTIONS EXEMPT FROM VATDifference between persons exempt from VAT and VAT Exempt Transactions: Persons exempt from VAT is directed on the taxpayer on reason that the seller is exempt while VAT exempt transaction pertain to transaction which are VAT exempt regardless of the seller. A. SECTION 109 OF THE TAX CODE

(A) Sale or importation of agricultural and marine food products in their original state, livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption; and breeding stock and genetic materials therefor. "Products classified under this paragraph shall be considered in their original state even if they have undergone the simple processes of preparation or preservation for the market, such as: a. freezing, b. drying, c. salting, d. broiling, e. roasting, f. smoking or g. stripping Note: Includes vacuum packing/tetra packing Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt, and copra shall be considered in their original state; o Sale or importation of agricultural, marine food products in their original state. EGGS: exempt whether red-egg or salted egg. Salting does not deviate the food product from its original form ROASTED CHICKEN: Exempt COFFEE BEANS: Exempt DRIED FISH: Exempt COTTON or COTTON SEEDS: VATable even in its original state

3. Product of a production line of a sugar mill accredited y the BIR to be producing and/or capable of producing sugar with polarimeter reading of 99.5% and above RICE: It is exempt in whatever form. Either it is palay, rice or cultured rice.

(B) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets); Not all sale or importation of fertilizers and seeds are exempted from VAT. Specialty feeds are VATable. Specialty feeds are those feeds for animals that we do not actually consume ordinarily like pets and zoo animals.

(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; o Includes Returning residents and nonresident citizens coming to resettle in the Phils. To be exempt from VAT, the household effects must be primarily exempt from custom duties. They go hand in hand.


"(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 TAXATION 2 MIDTERMS| maru.mhealler | 404


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; Not necessarily citizens. Includes aliens (as long as actually coming to settle in the Phils and change of residence is bona fide) The goods must be ACCOMPANYING such person or arriving within 90 days BEFORE or AFTER their arrival Goods should not be in commercial quantity (meaning not so much as to indicate it is intended for sale in the Phils)


If you remember a lawyer for his professional services is subject to VAT as a rule. But once his income does not reach Php 1.9195M in total gross receipts for any 12month period, he is exempt from VAT. But is he exempt from other taxes? No. o He will be liable for percentage taxes. The percentage tax generally for professionals is 3%, even for business. If you are a professional with PRC license or IBP, you are subject to VAT as a general rule. Exceptions are when there is an employer-employee relationship and if income does not exceed 1.9195 million in any 12 month period. If you see a supermarket or a grocery store not registered for VAT purposes because its proceeds or receipts does not reach Php1.9195M, it may be subject to another kind of tax (percentage taxes) and not VAT.




o The VAT exemption in this provision does not include Vehicle, Vessel, Aircraft, Machinery, and other goods for use in the manufacture and merchandise of any kind in commercial quantity



If you want to be exempt from VAT on vehicles, aircrafts, machineries, do not rely on the exemption provided under Section 109. Your exemption must be relied upon in another provision on exemptions granted under International agreements or special laws. Consuls, ambassadors or officers of these international organizations that have been granted from exemption from indirect taxes under international agreements, they can still bring in vehicles, machineries that are exempt from VAT. But not under this provision because under this provision what is covered are those which are for personal use not for commercial use such as machineries for commercial use. -

Banks or financial institutions including pawnshops and money changers subject to VAT? No. To what is it subjected to? o Specifically, Section 121, banks are subject to gross receipts tax ranging from 5% down to 0%. That is generally 5%.

Life insurance is subject to percentage tax but property insurance (non-life) is subject to VAT

(F) Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugar cane into raw sugar; (G) Medical, dental, hospital and veterinary services except those rendered by professionals; Among operating room charge, medicines, professional fees, laboratory fees, which is subject to tax? Only Professional fees. Hospital service fees are not subject to VAT including the charges for the drugs and medicine Hospital services should include the sale of drugs to inpatients of the hospitals because the maintenance and operation of a pharmacy or drugstore by a hospital is a necessary and essential service or facility rendered by any hospital for its patients. A person who resorts to the hospital for medical treatment can reasonably expect that the hospital would make available to its patients immediate and prompt access not only to the service of doctors, nurses and allied medical personnel but also to necessary laboratory services as well as medicines, drugs and pharmaceutical items which are dispensable aids in practically any form of medical treatment and care of patients. Sale of drugs or pharmaceutical items to inpatients of the hospital should be exempted from VAT because unlike the sale of retailing of drugs or medicines by drugstores in general, the procurement from hospital drugstore or pharmacy amounts to availment of services rendered or made available by the hospital for its inTAXATION 2 MIDTERMS| maru.mhealler | 404

(E) Services subject to percentage tax under Title V; Generally, if a person is subjected to percentage tax, he would no longer be liable for VAT. They are mutually exclusive because they are both sales taxes. Examples of percentage taxes: Tax on land transportation which is specifically called common carriers tax. Gross receipts tax (on banks) Amusement taxes -


If a certain business or individual is already covered by percentage tax in whatever form it is imposed, he can no longer be covered by VAT because the nature of percentage tax and VAT is the same.


patients and not simply the buying of such goods (CIR v. Professional Services, Inc.) "(H) Educational services rendered by private educational institutions, duly accredited by the Department of Education (DEPED), the Commission on Higher Education (CHED), the Technical Education And Skills Development Authority (TESDA) and those rendered by government educational institutions; Must be educational services rendered by: a. PRIVATE educational institutions (needs accreditation) Government educational institutions (automatic, no need for accreditation)


What is covered under the exemption would not run counter to zero-rated sales. Zero-rated and exempt are not the same. One can actually claim input taxes the other one cannot. So what is covered by the exemption provision is that transactions entered into by such companies (PEZA-registered) will be exempt when it sells or when it purchases/imports


(L) Sales by agricultural cooperatives duly registered with the Cooperative Development Authority to their members as well as sale of their produce, whether in its original state or processed form, to non-members; their importation of direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and exclusively in the production and/or processing of their produce (M) Gross receipts from lending activities b