chapter 18 22
TRANSCRIPT
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VAT ONSALE OF SERVICES
AND
USE OR LEASE OF
PROPERTY
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A) Rate and Base of Tax.
There shall be levied, assessed and
collected, a value-added tax equivalent
to twelve percent (12%) of gross receiptsexcluding the value-added tax, derived
from the sale or exchange of services,
including the use or lease of properties.
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The phrase 'sale or exchange ofservices' means the performance of
all kinds or services in the Philippinesfor others for a fee, remuneration or
consideration, including thoseperformed or rendered by:
SALE OR EXCHANGE OF SERVICES
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Construction and service contractors;
Stock, real estate, commercial, customs and immigration
brokers;
Lessors of property, whether personal or real;
Real estate lessor includes any person engaged in business of leasing orsubleasing real property
Non-residential lessor refers to person , natural and juridical an alien or
a citizen who establishes to the satisfaction of the Commissioner of Internal
Revenue the facts of his physical presence abroad with a definite intention
to reside there in
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Persons engaged in warehousing services;
Engage in business of receiving and storing goods of others for
compensation or profit
Receiving goods and merchandise to be stroed in his warehouse
for hire;
Keeping and storing goods for others, as a business and for use
Proprietors, operators or keepers of hotels, motels, rest houses
pension houses, inns, resorts, theatres, and movie houses;
Under Revenue Memorandum Order 16-10, Issued Feb. 5,2010,
determines that hotels,resort and other establishment that do not allow
short time (less than 24) stay in shall not be covered by this RMO.
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Persons engaged in milling, processing, manufacturing or
repacking goods for others;
miler is a person who is engaged in milling for others (except rice,
corn into corn grits and sugarcane into raw sugar) must be subject to
12% VAT on sale of service
Proprietors or operators of restaurants, refreshment
parlors, cafes, and other eating places, including clubs and
caterers;
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Dealers in securities;
Dealer in securities refers to a merchant of stock or securities,whether individual, partnership or corporation, one who as a
merchant buys securities and sell them to customer
Dealers in securities and lending invesotrs shall be subject to
VAT on the basis of gross receipts
Lending investors;
Lending investors includes all person other than banks, nonbank
financial intermediaries, financial companies and other financial
intermediaries not performing quasi-function.
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Transportation contractors on their transport of goods or
cargoes, including persons who transport goods or cargoesfor hire and other domestic common carriers by land relative
to their transport of goods or cargoes;
Common carrier refers to persons, corporation, firms or
associate engaged in the business of carrying or transportingpassengers or goods or both in land or water or air for a
compensation.
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;
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Sales of electricity by generation, transmission, and/or
distribution companies; shall be subject to 12% VAT;
Generation companies refers to person or entities authorized by
the Energy Regulatory Commission to operate facilities used in
the generation of the electricity.
Transmission companies refers to any person or entity that
owns and conveys electricity through a high voltage backbone
system and sub-transmission asset.
Distribution companies refers to a person or entity which
operate distribution system in accordance with the provision of the
EIRPA, it could be s government-owned utility or existing
government unit
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Franchise grantees of electric utilities, telephone and
telegraph, radio and/or television broadcasting and allother franchise grantees, except 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 franchise grantees of
gas and water utilities;
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Non-life insurance companies (except their cropinsurances), including surety, fidelity, indemnity and
bonding companies; and
Similar services regardless of whether or not the
performance thereof calls for the exercise of use of the
physical or mental faculties.
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Health maintenance organization;
Health maintenance organization (HMO) are entities,
organized in accordance with the provision of Corporation Code
of the Philippines and licensed by the appropriate government
agency.
Pre-need companies;
Pre-need companies refers to corporation registered with the
Securities and Exchange Commission and authorized to sell oroffer for sale pre-need plans, whether a single plans or multi-
plan.
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The phrase 'sale or
exchange of services'shall likewise include:
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(1) 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;
(2) The lease of the use of, or the right to use of
any industrial, commercial or scientific equipment;
(3) The supply of scientific, technical, industrial or
commercial knowledge or information;
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(4) 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 subparagraph (2) or any such
knowledge or information as is mentioned in
subparagraph (3);
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(5) The supply of services by a nonresident 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 nonresident person.
(6) 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;
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(7) The lease of motion picture films, films, tapesand discs; and
(8) The lease or the use of or the right to use
radio, television, satellite transmission and cable
television time.
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The term 'gross receipts' means the total amountof money or its equivalent representing thecontract price, compensation, service fee, rental or
royalty, including the amount charged formaterials supplied with the services and depositsand advanced payments actually or constructivelyreceived during the taxable quarter for the services
performed or to be performed for another person,excluding value-added tax.
GROSS RECEIPTS
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Transactions Subject toZero Percent (0%) Rate -The following services
performed in the Philippinesby VAT- registered persons
shall be subject to zeropercent (0%) rate.
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Processing, manufacturing or repacking goods for other
persons doing business outside the Philippines which
goods are subsequently exported, where the services arepaid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP);
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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 Bangko
Sentral ng Pilipinas (BSP); 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;
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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, the same being subject to twelve
percent (12%) VAT under Sec. 108 of the Tax Code startingFeb. 1, 2006;
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Services performed by subcontractors and/or contractors inprocessing, converting, or manufacturing goods for an
enterprise whose export sales exceeds seventy percent
(70%) of total annual production;
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;
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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 be liable to
VAT; and
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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, howeverthat 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 .
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Effectively Zero-Rated Sale of ServicesShall refer to the localservices by a VAT registeredperson to a person or entity whowas granted indirect taxexemption under the special lawsor international agreement
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Vat on
Importation
of Goods
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Subject to 12% VAT based on the total value used
by the Bureau of Custom in determining tariff andcustoms duties, plus custom duties, excise taxes ifany, and other changes.
Subject to VAT, whether for use in business ornot
Same rule applies to technical importation ofgoods sold by a person located in ecozone to acustomer located in a customs territory.
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VAT on imported goods by VAT exempt
persons which are subsequently sold to non-
exempt persons shall be paid by the non-
exempt buyer who is considered as the
importer thereof.
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OUTPUT and
INPUT TAXES
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Output taxmeans the value-added due onthe sale or lease of taxable goods or property orservices by a VAT-registered person.
Input taxmeans the value-added tax due fromor paid by a Vat registered person in the course ofhis trade or business on importation of goods or
service, including lease or use of the property from aVAT-registered person.
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(1) Any input tax evidenced by a VAT invoice orofficial receipt issued in accordance with
Section 113 hereof on the followingtransactions shall be creditable against theoutput tax:
(a) Purchase or importation of goods:(i) For sale; or
(ii) For conversion into or intended to form part
of a finished product for sale including packaging
materials; or(iii) For use as supplies in the course of business;
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(iv) For use as materials supplied in the sale of
service; or
(v) For use in trade or business for which deduction
for depreciation or amortization is allowed underthis Code, except automobiles, aircraft and yachts.
(b) Purchase of services on which a value-added tax has been actually paid.
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(iv) For use as materials supplied in the sale of
service; or
(v) For use in trade or business for which deduction
for depreciation or amortization is allowed underthis Code, except automobiles, aircraft and yachts.
(b) Purchase of services on which a value-added tax has been actually paid.
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(2) Purchase of real properties for which a value
added tax has actually been paid.
(3)Transaction deemed sale
(4) Transaction input tax allowed
(5) Presumptive tax allowed
(6) Transitional input tax credit allowed underthe transitory and other position
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(2) The input tax on domestic purchase ofgoods or properties shall be creditable:
(a) To the purchaser upon consummation of sale
and on importation of goods or properties; and
(b) To the importer upon payment of the value-added tax prior to the release of the goods from
the custody of the Bureau of Customs.
However, in the case of purchase of services, lease
or use of properties, the input tax shall becreditable to the purchaser, lessee or licensee upon
payment of the compensation, rental, royalty or
fee.
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Transitional/
PresumptiveInput Tax Credits.
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TransitionalInput TAX
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SEC. 111. Transitional/Presumptive Input Tax Credits. -
A person who becomes liable to value-added tax when theminimum turnover of P1,919,500(effective Jan 1,2012) in any 12month period has been exceeded or any person who elects to be aVat-registered person shall be subject to filling of inventoryaccording to the rules and regulation prescribed by the Secretaryof FinanceInput tax on his beginning inventory of goods, materials andsupplies equivalent to two percent (2%) of value of such inventoryAmount allowable shall be creditable to Output taxIn real estate developers subject to VAT for the first time areentitled to transitional input tax credit on the value of theirbeginning inventory of real properties
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PresumptiveInput TAX
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SEC. 111. Transitional/Presumptive Input Tax Credits. -
Persons or firms engaged in the processing of sardines,mackerel and milk, and in manufacturing refined sugar andcooking oil, shall be allowed a presumptive input tax,creditable against the output tax.
the term 'processing' shall mean pasteurization, canning and
activities which through physical or chemical process 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.equivalent to four percent (4%) of the gross value inmoney of their purchases of primary agricultural productswhich are used as inputs to their production.
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Input Tax on Depreciable Goods
Capital Goods or properties refers to goods or
properties with estimated useful life greater than
one (1) year and which is treated assets under thetax code used directly or indirectly in the production
or sale of taxable goods and services
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If the aggregate acquisition cost of capital goodsand properties exceeds one million pesos (1,000,000)
shall be claimed as credit against output tax in thefollowing manner:
If the estimated life of the capital goods is five or more- the input taxshall be spread evenly over the period of sixty(60) months and claim forthe input tax credit will commence in the calendar month when the
capital good is acquired.
If the estimated life of the capital good is less than five(5) years- theinput tax shall be spread evenly on a monthly basis by dividing theinput tax by the actual number of months comprising the estimateduseful life of the capital good
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If the aggregate acquisition cost of any capital goods duringany calendar month does not exceed one million pesos
(1,000,000), the total input taxes will be allowable as creditagainst output tax in the month of acquisition.
If the aggregate acquisition cost of depreciable goods refers tothe total price agreed upon for one ore more asset acquired
and not on the payments actually made during calendar month, the asset acquired through instalment will be subject toamortization of input tax despite the fact that the monthlypayments/ instalments may not exceed P1,000,000.
If the goods are sold within the period of five (5) years, theentire unamortized input tax on the capital goods can beclaimed as input tax credit during the month/ quarter of sale.
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Apportionment of Input Tax on Mixed Transaction
A VAT
registered person who is also engaged in transactionnot subject to the value-added tax shall be allowed to recognize
input tax credit on transaction subject to the VAT as follows:
1. All the input tax which can be directly attributed totransaction subject to VAT (except sale of goods andservices to government or government-owned or controlledcorporation)
2. A rateable portion of any input tax which cannot be directly
attributed to either VAT taxable or VAT exempt acivity. Theinput tax shall be prorated on the basis of sales
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Creditable Input Tax
Input Tax, current period xxxAdd: Excess Input Tax, previous period xxx
Less: Claim for refund/ Tax Credit Certificate xxx
Purchase Return and Allowances xxx
Input Tax-Exempt Sales xxx
Input Tax-Sale Government* xxx xxx
Creditable Input Tax xxx
*Subject to final VAT with holding of 5%
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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 exceeds the output tax, the excess shall be carriedover to the succeeding quarter or quarters. any input taxattributable to the purchase of capital goods or to zero-rated salesby a VAT-registered person may at his option be refunded or
credited against other internal revenue taxes.
Output Taxes xxless: Input Taxes xxVAT Payable xx
Value-Added Tax Payable
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EXEMPT
TRANSACTION
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It is a sale of goods, properties or service and the
use or lease of properties which is not subject to outputtax and whereby the buyer is not allowed any tax creditor input tax related to such exempt sale.
What is VAT-exempt sale?
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What are the
VAT-exempttransactions?
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Chap 21
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 therefore;
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, aquariumfish, zoo animals and other animals considered as pets);
Importation of personal and household effects belonging to residents
of the Philippines returning from abroad and non-resident citizens
coming to resettle in the Philippines; Provided, that such goods are
exempt from custom duties under the Tariff and Customs Code of the
Philippines;
I t ti f f i l i t t d i l t i l
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Importation of professional instruments and implements, wearing apparel,
domestic animals, and personal household effects (except any vehicle,
vessel, aircraft, machinery and 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, barteror exchange, accompanying such persons, or arriving within ninety (90) days
before or after their arrival, upon the production of evidence satisfactory to
the Commissioner of Internal Revenue, that such persons are actually
coming to settle in the Philippines and that the change of residence is
bonafide;
Services subject to percentage tax under Title V of the Code, as amended;
Services by agricultural contract growers and milling for others of palay into
rice, corn into grits, and sugar cane into raw sugar;
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Chap 21
Medical, dental, hospital and veterinary services except those rendered
by professionals;
Educational services rendered by private educational institutions dulyaccredited by the Department of Education (DepED), the Commission on
Higher Education (CHED) and the Technical Education and Skills
Development Authority (TESDA) and those rendered by the government
educational institutions;
Services rendered by individuals pursuant to an employer-employee
relationship;
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, subsidiariesor branches in the Asia-Pacific Region and do not earn or derive income
from the Philippines;
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Chap 21
Transactions which are exempt under international agreements
to which the Philippines is a signatory or under special laws except
those granted under P.D. No. 529 - Petroleum Exploration
Concessionaires under the Petroleum Act of 1949;
Sales by agricultural cooperatives duly registered and in good
standing with the Cooperative Development Authority (CDA) to
their members, as well as of their produce, whether in its original
state or processed form, to non-members, their importation of
direct farm inputs, machineries and equipment, including spareparts thereof, to be used directly and exclusively in the production
and/or processing of their produce;
Gross receipts from lending activities by credit or multi-purpose
cooperatives duly registered and in good standing with theCooperative Development Authority;
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Chap 21Gross receipts from lending activities by credit or multi-purpose
cooperatives duly registered and in good standing with the Cooperative
Development Authority;
Sales by non-agricultural, non-electric and non-credit cooperatives duly
registered with and in good standing with CDA; Provided, that the share
capital contribution of each member does not exceed Fifteen ThousandPesos (P15,000.00) and regardless of the aggregate capital and net surplus
rateably distributed among the members;
Export sales by persons who are not VAT-registered;
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Chap 21
The following sales of real properties are exempt from VAT, namely:
1. Sale of real properties not primarily held for sale to customers or
held for lease in the ordinary course of trade or business;
2. Sale of real properties utilized for low-cost housing as defined byRA No. 7279, otherwise known as the "Urban Development and
Housing Act of 1992" and other related laws, such as RA No. 7835
and RA No. 8763;
3. Sale of real properties utilized for specialized housing as defined
under RA No. 7279, and other related laws, such as RA No. 7835and RA No. 8763, wherein price ceiling per unit is P225,000.00 or
as may from time to time be determined by the HUDCC and the
NEDA and other related laws;
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4. Sale of residential lot valued at One Million Nine Hundred Nineteen
Thousand Five Hundred Pesos (P1,919,500.00) and below, or house and
lot and other residential dwellings valued at Three Million One HundredNinety-nine Thousand Two hundred Pesos (3,199,200)and below where
the instrument of sale/ transfer/ disposition was executed on or after
July 1, 2005
Lease of residential units with a monthly rental per unit not
exceeding Twelve Thousand Eight Hundred (12,800), regardless of
the amount of aggregate rentals received by the lessor during the
year
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Chap 21Sale, importation, printing or publication 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;
Sale, importation or lease of passenger or cargo vessels and aircraft,
including engine equipment and spare parts thereof for domestic or
international transport operations;
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Chap 21Importation of life-saving equipment, safety and rescue equipment andcommunication and navigational safety equipment, steel plates and othermetal plates including marine-grade aluminum plates, used for shipping
transport operations; Provided, that the exemption shall be subject to the
provisions of Section 4 of Republic Act No. 9295, otherwise known as "The
Domestic Shipping Development Act of 2004".
Importation of capital equipment, machinery, spare parts, life-saving and
navigational equipment, steel plates and other metal plates including marine-
grade aluminum plates to be used in the construction, repair, renovation or
alteration of any merchant marine vessel operated or to be operated in the
domestic trade. Provided, that the exemption shall be subject to theprovisions of Section 19 of Republic Act No. 9295, otherwise known as the
"The Domestic Shipping Development Act of 2004".
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Chap 21
Importation of fuel, goods and supplies engaged in international shipping
or air transport operations; Provided, that the said fuel, goods and suppliesshall 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 form
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 that the mentioned in the paragraph, such portion of fuel,
goods and supplies shall be subject to 12% VAT;
Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries, such as
money changers and pawnshops, subject to percentage tax under Sections
121 and 122, respectively of the Tax Code; and
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Chap 21Sale or lease of goods or properties or the performance of servicesother than the transactions mentioned in the preceding paragraphs,
the gross annual sales and/or receipts do not exceed the amount of
One Million Nine Hundred Nineteen Thousand Five Hundred Pesos
(P1,919,500.00).
For the purpose of the (1,919,500.00) the husband and the wife shall
be considered separate taxpayers. However the aggregate 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
businesss which are otherwise subject to vat, the same shall becombined for the purpose of determining whether the threshold has
been exceeded.
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TheExpanded
Senior
Citizen Actof 2010
"E d d S i Ci i A f 2010"
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On February 15, 2010, Republic Act No. 9994, or the "Expanded Senior Citizens
Act of 2010", took effect.
It introduced various amendments to Republic Act No. 7432, as amended by
Republic Act No. 9257, otherwise known as the "Expanded Senior Citizens Act of
2003".
The new senior citizens law of the Philippines aims to give flesh to the "social
justice clause" of the 1987 Philippine Constitution. (See Secs. 10-11, Art. III
[state policies]; Sec. 11, Art. XIII [healthcare, social services]; Sec. 4, Art. XV
[family, social security])
A senior citizen or elderly refers to any resident citizen of the Philippines at least
sixty (60) years old or above; may apply
"Expanded Senior Citizens Act of 2010"
What are the previously exempt transactions
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Chap 21
What are the previously exempt transactions
that are now subject to VAT?
Medical services such as dental & veterinary
services rendered by professionals;
Legal services;
Non-food agricultural products;Marine and forest products;
Cotton and cotton seeds;
Coal and natural gas;Petroleum products;
What are the previously exempt transactions
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Chap 21
What are the previously exempt transactions
that are now subject to VAT?
Passenger cargo vessels of more than 5,000 tons;Work of art, literary works, musical composition;
Generation, transmission and distribution of electricity
including that of electric cooperatives;
Sale of residential lot valued at more than P1,500,000.00;Sale of residential house & lot/dwellings valued at more
than P2,500,000.00;
Lease of residential unit with a monthly rental of more than
P10,000;
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ComplianceRequirements
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Who are liable to register as VATtaxpayers?
Any person who, in the course of trade or business, sells, barters orexchanges goods or properties or engages in the sale or exchange ofservices shall be liable to register if:
His gross sales or receipts for the past twelve (12) months, other thanthose that are exempt under Section 109 (A) to (U), have exceeded OneMillion Nine Hundred Nineteen Thousand Five Hundred Pesos(P1,919,500.00): or
There are reasonable grounds to believe that his gross sales or receipts
for the next twelve (12) months, other than those that are exemptunder Section 109 (A) to (U), will exceeded One Million Nine HundredNineteen Thousand Five Hundred Pesos (P1,919,500.00)