CHAPTER 8 — VAT | Quick-Scan Review Notes | Tabag & Garcia (2023)

TRANSFER & BUSINESS TAXATION

CHAPTER 8 — VALUE-ADDED TAX

Quick-Scan Review Notes
Tabag & Garcia, Transfer and Business Taxation (2023 Edition)

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 CHAPTER 8 — VAT | Quick-Scan Review Notes | Tabag & Garcia (2023)

I. FOUNDATIONAL CONCEPT
VAT = tax on VALUE ADDED at each stage of distribution. Imposed on sale/barter/exchange/lease of goods,
properties, or services, and on importation — whether for personal or business use.
❗ KEY RULE: VAT and OPT are mutually exclusive (cannot be imposed on the same transaction at the
same time). VAT + excise tax can coexist.
❗ WHO IS LIABLE: The SELLER is the statutory taxpayer. The seller may shift/pass on the VAT to the
buyer. VAT is an indirect tax.
💡 THRESHOLD (EOPT Act, RA 11976, eff. Jan. 22, 2024): VAT applies if aggregate gross sales
EXCEED P3,000,000. 'Gross sales' is now the unified term for goods and services (replaces 'gross
selling price' and 'gross receipts') — recognized on accrual basis.

II. VAT-EXEMPT TRANSACTIONS (Sec. 109, NIRC)

Exempt transactions = ZERO output VAT + input VAT on purchases is NOT creditable (becomes a cost).
Exemptions are exhaustive and strictly construed against the taxpayer.

EXEMPT TRANSACTION KEY RULE / LIMIT

A. Agricultural & marine Includes livestock/poultry for human consumption. 'Original state' includes:
food products in original freezing, drying, salting, broiling, roasting, smoking, stripping, vacuum
state packing, tetra-pack. NOT included: fighting cocks, race horses, zoo
animals, pets.
B. Fertilizers; seeds, Specialty feeds (race horses, fighting cocks, aquarium fish, pets) = VAT-
seedlings, fingerlings; ABLE.
livestock & poultry feeds
C. Personal/household Must be exempt from customs duties under the Tariff & Customs Code.
effects of returning
residents
D. Professional instruments For personal/family use only — not for barter or hire.
& tools of overseas
Filipinos
E. Services subject to OPT Mutual exclusivity principle. If subject to OPT → exempt from VAT.
(Sec. 116–127)
F. Agricultural contract Millers of OTHER products are VAT-able.
growers; milling of
palay/corn/sugarcane
G. Medical, dental, Professional fees of doctors = VAT-able if sales > P3M. Sale of drugs to
hospital, veterinary OUTPATIENTS by hospital pharmacy = VAT-ABLE.
services (institution)
H. Accredited educational DEPED/CHED/TESDA-accredited only.
services (private &
government)
I. Employer-employee Wages/salaries are NOT subject to VAT.
services (compensation
income)
J. Regional HQ of Must not derive income from PH.
multinationals (services to
affiliates)
K. Transactions under Philippines must be a signatory.
international
agreements/treaties
L. Agricultural Sales to non-members = VAT-able if coop is not the producer.
cooperatives — sales to
MEMBERS

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EXEMPT TRANSACTION KEY RULE / LIMIT

M. Lending receipts of Exempt regardless of whether lent to members or non-members.
credit/multi-purpose
cooperatives (CDA-
registered)
N. Non-agricultural, non- Exempt on sales to members and non-members (limited to
electric, non-credit dividends/reserves).
cooperatives
O. Export sales by NON- KEY: Non-VAT registered = EXEMPT (not zero-rated). Input VAT becomes
VAT-REGISTERED persons a COST.
P. Sale of real property Isolated sales of capital assets by ordinary individuals.
NOT held for sale/lease in
ordinary course
Q. Lease of residential > P15K/month but annual ≤ P3M = 3% OPT. > P15K/month and annual >
units ≤ P15,000/month P3M = 12% VAT.
R. Books, newspapers, Magazines devoted primarily to paid ads = VAT-ABLE.
magazines (not devoted to
paid ads)
S. Transport of passengers Subject instead to 3% OPT under Sec. 118.
by international carriers
T. Sale/importation/lease of Covers engines, equipment, spare parts for domestic or international
vessels and aircraft transport.
U. Importation of Must be used exclusively for international transport.
fuel/goods/supplies by
international carriers
V. Services of banks, Already subject to OPT under Sec. 121/122.
NBFIs, money changers,
pawnshops
W. Sales to senior citizens 20% discount + VAT exempt on qualifying items. 5% discount on basic
and PWDs necessities (no VAT exempt).
X. Transfer under Sec. Only from TRAIN Law (Jan. 1, 2018) onwards.
40(C)(2) — tax-free
exchange
Y. Association dues / Only on purely reimbursement basis. From TRAIN Law (Jan. 1, 2018)
membership fees (HOAs & onwards.
condo corps)
Z. Sale of gold to BSP EXEMPT from Jan. 1, 2018 (TRAIN). Was zero-rated (0%) before 2018.
AA. Prescription drugs for Diabetes/high cholesterol/hypertension: from Jan. 1, 2020. Cancer/mental
specific diseases illness/TB/kidney: from Jan. 1, 2021 (CREATE Law). Must be in DOH-
approved list.
BB. COVID-19 PPE, drugs, DTI certification required. Subject to post-audit.
vaccines (Jan. 1, 2021 –
Dec. 31, 2023)
CC. Gross annual Most common exemption. Voluntary VAT registration allowed but
sales/receipts do not irrevocable for 3 years.
exceed P3,000,000

VAT-Exempt Sugar — Quick Rules

Sugar Type Test VAT?
Raw Cane / Muscovado Polarimeter < 99.5° (simple mechanical EXEMPT
process, no refining)
Refined Sugar Polarimeter ≥ 99.5° OR color ≤ 800 ICU VAT-ABLE (12%)

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ILLUSTRATION
Which is VAT-able? Copra / Bonsai / Wood / Barbeque / Tilapia / Roasted chicken /
Canned pineapple / Salted eggs / Smoked fish / Flowers / Raw sugar cane / Muscovado / Refined
sugar

ANSWER
VAT-ABLE: Bonsai, Wood, Canned pineapple, Flowers, Refined sugar
EXEMPT: Copra, Barbeque, Tilapia, Roasted chicken, Salted eggs, Smoked fish, Raw sugar cane,
Muscovado
NOTE: Marinated fish = VAT-ABLE (Rev. Ruling 348-11 — not in original state)

ILLUSTRATION
Which is VAT-able?
1. Hogfeeds 2. Pet feeds 3. Local raw materials for hogfeeds
4. Imported raw materials for hogfeeds 5. Imported raw materials for pet feeds 6.
Fertilizers

ANSWER
VAT-ABLE: #2 (pet feeds) and #5 (imported raw materials for pet feeds)
EXEMPT: #1, #3, #4 (hogfeeds/livestock feeds and their ingredients), #6 (fertilizers)

III. VAT PAYABLE FORMULA (Credit-Invoice Method)

Amount
Output VAT (Gross Sales × 12% or 0%) Pxx
Less: Input VAT (Purchases × 12%) (xx)
VAT Payable / (Excess Input VAT) Pxx / (Pxx)

IV. SOURCES OF OUTPUT VAT

Source Rate
1. Actual Sale (domestic) 12%
2. Transaction Deemed Sale 12%
3. Zero-Rated (Export) Sale 0%

V. ACTUAL SALE — TAX BASE & OUTPUT VAT COMPUTATION

Type Tax Base Rate
Goods Gross selling price (EXCL. VAT; excise tax 12%
INCLUDED in GSP)
Services Gross receipts (actual or constructive) 12%
Securities (dealer) Gross income = SP − Cost 12%
Real Property HIGHER of: Selling Price or FMV (zonal value vs. 12%
assessed value)

Computing Output VAT:

Scenario Formula
Invoice is NET of VAT (exclusive) Output VAT = Amount × 12%
Invoice is INCLUSIVE of VAT Output VAT = Amount × 12/112 (= × 3/28 = ÷ 1.12 ×

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Scenario Formula
12%)

Advance Payments in Lease Contracts

Nature VAT?
Loan to lessor from lessee NO
Option money for the property NO
Security deposit (faithful performance) NO
Prepaid rental YES

ILLUSTRATION
Case A: Gross sales P5,000,000 (exclusive of VAT). Output VAT?
Case B: Gross sales P7,840,000 (inclusive of VAT). Output VAT?

ANSWER
Case A: P5,000,000 × 12% = P600,000
Case B: P7,840,000 × 12/112 = P840,000 (or × 3/28 or ÷ 1.12 × 12%)

VI. TRANSACTIONS DEEMED SALE

Purpose: prevent taxpayers from claiming input VAT without a corresponding output VAT obligation. These
are taxed at 12%.

Deemed Sale Category Tax Base

a. Transfer/use/consumption NOT in ordinary course of FAIR MARKET VALUE at time of
business of goods originally intended for sale/business use occurrence
b. Distribution to shareholders as profit share OR transfer to MARKET VALUE
creditors in payment of debt (dacion en pago)
c. Consignment — no actual sale within 60 DAYS from date of FMV on 60th day
consignment (goods returned within 60 days = NOT deemed
sold)
d. Retirement/cessation of VAT-registered status — all 'goods ACQUISITION COST or MARKET
on hand' (capital goods, stocks, supplies, materials) VALUE, whichever is LOWER

❗ NOT DEEMED SALE (no output VAT): Change of corporate control; change of trade/corporate
name; merger or consolidation. For merger: unused input tax of dissolved corp is ABSORBED by
surviving corp.

ILLUSTRATION
Which is a transaction deemed sale?
1. Beer manufacturer consumed P1M of its own beer during anniversary celebration
2. Same beer sold to customers
3. Water distributor consumed P300K of its merchandise during team-building
4. Water distributor distributed GROCERY goods during charity (not its ordinarily sold
product)

ANSWER
DEEMED SALE: #1 (consumed own products) and #3 (same reason)
NOT deemed sale: #2 (actual sale), #4 (grocery goods not ordinarily held for sale by a water
distributor)

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VII. ZERO-RATED SALES (0% VAT)

Zero-rated = TAXABLE transaction but with ZERO output tax. Input VAT on related purchases is
CREDITABLE / REFUNDABLE. Only available to VAT-REGISTERED sellers.

Zero-Rated Category Key Details

Export sale by VAT-REGISTERED Actual shipment from PH to foreign country; paid in acceptable
person foreign currency; accounted for per BSP rules
Sale of goods/supplies/fuel to Used exclusively for transport PH port → foreign port (no
international shipping/air unauthorized domestic stops)
transport operators
Sales to persons/entities with Where exemption effectively zero-rates the sale (e.g., embassies,
special law or treaty exemptions international organizations)
(direct + indirect taxes)
Sale of goods to Registered Directly & exclusively used in registered project. Based on IPA-
Export Enterprise (REE) issued VAT zero-rating cert. Max 17 years from registration. Local
suppliers need NOT get BIR approval.
Export services (not Consideration paid in acceptable foreign currency per BSP rules
processing/repacking) to non-
resident/foreign entity
Sale of services to REE Max 17 years from registration
(infrastructure, utilities,
maintenance, repair, overhaul)

❗ NOT 'Directly & Exclusively Used' (always 12% VAT even for REE): Janitorial, security,
financial, consultancy, marketing/promotion, HR, legal, and accounting services
💡 REFUND DEADLINE: Application for refund of input VAT on zero-rated sales: within 2 YEARS after
the close of the taxable quarter when zero-rated sales were made.
💡 CROSS-BORDER DOCTRINE: No VAT shall form part of the cost of goods/services destined for
consumption OUTSIDE the territorial border of PH (destination principle).

Comparison ZERO-RATED EXEMPT

Taxable transaction? YES (taxable at 0%) NO (not taxable)
Output VAT P0 P0
Input VAT on related CREDITABLE / REFUNDABLE NOT creditable (becomes a cost)
purchases
Who qualifies? VAT-REGISTERED sellers only Anyone (VAT or non-VAT
registered)
Example Export sale by VAT-registered Export sale by non-VAT registered
exporter exporter

VIII. INPUT VAT — TYPES AND RULES

1. Regular Input VAT on Purchases

Invoice Formula
Net of VAT Input VAT = Purchase × 12%
Inclusive of VAT Input VAT = Purchase × 12/112

2. Input VAT on Importation

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Item Included in Tax Base?

Invoice value (at peso exchange rate on payment date) YES
Customs duties YES
Freight & insurance YES
Wharfage, arrastre, brokerage, stamps, marine cargo YES
insurance, processing fees
Excise tax (if applicable) YES — add to landed cost
Facilitation expenses (BRIBES) NO — excluded (illegitimate)
Freight from BOC to importer's warehouse NO — separate input VAT entry (incurred after
release from BOC)
❗ APPLIES TO ALL: VAT on importation applies regardless of: VAT registration status, whether for
business or personal use — unless specifically exempt.
❗ PERSONAL USE IMPORTS: Input VAT on goods imported for personal use is NOT creditable
against output VAT on sales.

ILLUSTRATION
Nirvana cigar (non-essential) imported. BOC value: $15,000 (at P50/$) = P750,000.
Customs duties: P20,000. Excise tax: P35,000. Other BOC charges: P10,000.
Facilitation expense: P5,000. Freight BOC to warehouse: P25,000.
Selling price: P2,000,000.

Q1: VAT on importation? Q2: VAT payable on sale?

ANSWER
Q1: Tax base = P750,000 + P20,000 + P35,000 + P10,000 = P815,000
VAT on importation = P815,000 × 12% = P97,800
(Facilitation = excluded. Freight to warehouse = separate, not part of importation base.)

Q2: Output VAT = P2,000,000 × 12% = P240,000

Less: Input VAT on importation = (P97,800)
Less: Input VAT on freight = P25,000 × 12% = (P3,000)
VAT Payable = P139,200

3. Presumptive Input Tax — 4%

Entitled Businesses Agricultural Input Rate
Processors of: sardines, mackerel, milk 4% of gross value of primary agricultural inputs
Manufacturers of: refined sugar, cooking oil, 4% of gross value of primary agricultural inputs
packed noodle-based instant meals
❗ KEY RULES: 4% ONLY on primary agricultural product inputs. Non-agricultural inputs (cans, labels,
packaging) = regular 12% input VAT. Processors of fruits, vegetables, etc. = NOT entitled.

ILLUSTRATION
Minola Company (cooking oil manufacturer): Sales P10M. Corn P2M; Tin P250K; Wrapping P200K;
Labels P125K.
Required: VAT payable.

ANSWER
Output VAT: P10M × 12% = P1,200,000
Input — Corn (4% presumptive): P2M × 4% = P80,000
Input — Tin: P250K × 12% = P30,000
Input — Wrapping: P200K × 12% = P24,000
Input — Labels: P125K × 12% = P15,000
Total Input VAT = P149,000
VAT Payable = P1,200,000 − P149,000 = P1,051,000

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ILLUSTRATION
Freshko Sardines: Sales P12M. Fresh fish P3M; Fresh tomatoes P500K; Fresh carrots P500K;
Tomato paste (processed) P1M; Cans P1M; Wrapping P200K; Labels P200K.
Required: VAT payable.

ANSWER
Output VAT: P12M × 12% = P1,440,000
Presumptive (fresh fish P3M × 4%) = P120,000
Presumptive (tomatoes P500K × 4%) = P20,000
Presumptive (carrots P500K × 4%) = P20,000
Tomato paste (processed — not agricultural): P1M × 12% = P120,000
Cans: P1M × 12% = P120,000
Wrapping: P200K × 12% = P24,000
Labels: P200K × 12% = P24,000
Total Input = P448,000
VAT Payable = P1,440,000 − P448,000 = P992,000

4. Transitional Input Tax

For persons becoming VAT-liable for the FIRST TIME (or electing VAT registration).
Formula
Transitional Input Tax = HIGHER of:

(a) 2% × beginning inventory at cost

(b) Actual VAT paid on beginning inventory

5. Input VAT on Capital Goods — Amortization

Condition Rule
Aggregate acquisition cost ≤ P1,000,000 Full input VAT recognized in MONTH OF PURCHASE
in a calendar month
Aggregate cost > P1,000,000 — PRIOR Amortize over SHORTER of: (a) remaining useful life in
to 2022 taxable year months, or (b) 60 months
From 2022 taxable year ONWARDS Amortization ELIMINATED — full input VAT in month of
acquisition regardless of cost
Capital good sold/transferred before full Entire UNAMORTIZED balance claimed in full in the quarter
amortization (pre-2022 rule) of sale

6. Government Sales — 5% Final Withholding VAT

Item Amount
Output VAT (seller's obligation) Contract Price (net) × 12%
5% Withheld by government Contract Price (net) × 5%
Seller remits to BIR Contract Price (net) × 7%

ILLUSTRATION
Omega sold P1,250,000 (net) to City of Manila + P2,800,000 to private entities.
Purchases: P560,000 inclusive (Manila goods) + P1,400,000 net (private goods).
Required: Output VAT / Withholding VAT / VAT Payable / Amount received from Manila.

ANSWER
Output VAT: (P1.25M + P2.8M) × 12% = P486,000
5% Withholding: P1.25M × 5% = P62,500
Input VAT: (P560K × 12/112) + (P1.4M × 12%) = P60,000 + P168,000 = P228,000
VAT Payable: P486,000 − P228,000 − P62,500 = P195,500
Amount from Manila: P1,250,000 + P150,000 − P62,500 = P1,337,500

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7. Carry-Over of Excess Input VAT

If output > input Pay the excess
If input > output (from domestic/non- Carry over to succeeding quarters (CANNOT be refunded)
zero-rated)
If input > output (attributable to ZERO- Carry over, OR refund, OR convert to Tax Credit Certificate
RATED sales) (TCC)

IX. LEASE OF REAL PROPERTY

Scenario Business Tax
Commercial unit — annual gross receipts > 12% VAT (regardless of monthly rental amount)
P3,000,000
Commercial unit — annual gross receipts ≤ 3% OPT
P3,000,000
Residential unit — monthly ≤ P15,000/unit EXEMPT from all business tax
Residential unit — monthly > P15,000/unit, 3% OPT
annual ≤ P3,000,000
Residential unit — monthly > P15,000/unit, 12% VAT
annual > P3,000,000
❗ KEY RULE: For commercial units, ONLY the P3M annual threshold matters (no P15K/month rule).
For residential units, BOTH the P15K/month AND P3M annual rules apply.
💡 ADVANCE PAYMENTS: Prepaid rent = subject to VAT. Loan / option money / security deposit =
NOT subject to VAT.

X. SALE OF REAL PROPERTY

VAT base = HIGHER of: (1) Selling Price in document, or (2) FMV.
FMV = HIGHER of: (a) Zonal Value (per BIR Commissioner), or (b) Assessed Value (per Provincial/City
Assessors).
❗ IF VAT NOT SEPARATELY BILLED: Selling price is deemed INCLUSIVE of VAT — back out using
÷ 1.12 × 12%.

Type Test VAT Recognition

Cash Sale Full payment immediately Full output VAT in MONTH OF SALE
Deferred Payment Initial payments > 25% of Treated as CASH SALE — full VAT in month of sale.
GSP Subsequent collections = P0 additional VAT.
Installment Sale Initial payments ≤ 25% of Output VAT per ACTUAL COLLECTION, incl.
GSP interest and penalties for late payment.

Initial Payments Include

Include Exclude
Down payment Notes/evidence of indebtedness issued by buyer
Collections during year of sale Mortgage assumed (up to seller's cost)
Interest, penalties, other charges

Excess of mortgage over seller's cost (if any)

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Installment Sale VAT Formula (when Zonal/FMV > Contract Price)

Year Formula
Year of Sale (Initial Payments ÷ GSP) × Higher of GSP or FMV × 12%
Subsequent Years (Collections for Year ÷ GSP) × Higher of GSP or FMV × 12%

ILLUSTRATION
Belle Corp. sold land Oct. 1 for P2,000,000. Terms: P200K downpayment + 36 monthly
installments of P50K.
First installment: Oct. 31. Zonal value: P3,000,000.
Q1: Installment or deferred? Q2: Output VAT on Oct. 1 payment?

ANSWER
Q1: Initial payments in year of sale = P200K + P50K (Oct) + P50K (Nov) + P50K (Dec) = P350K
P350K / P2M = 17.5% ≤ 25% → INSTALLMENT SALE

Q2: Output VAT = (P200K / P2M) × P3M × 12% = P36,000

[Zonal value P3M > GSP P2M, so zonal value is used as tax base]

ILLUSTRATION
Cash Sale: Lot area 1,000 sqm. Zonal: P25,000/sqm. SP: P20,000,000. VAT?

ANSWER
Tax base = HIGHER of: SP P20M vs. FMV (P25,000 × 1,000) = P25M → use P25M
Output VAT = P25,000,000 × 12% = P3,000,000

ILLUSTRATION
Deferred Sale: GSP P5M. Initial payments P2M (= 40% > 25%). Zonal P4.5M.
Q1: Output VAT October 2023? Q2: Output VAT January 2024?

ANSWER
Q1: 40% > 25% → DEFERRED PAYMENT = treated as Cash Sale
Tax base = HIGHER of P5M (GSP) vs. P4.5M (zonal) = P5M
Output VAT Oct 2023 = P5,000,000 × 12% = P600,000

Q2: Output VAT Jan 2024 = P0 (fully recognized in October 2023)

ILLUSTRATION
Installment Sale: GSP P5M. Initial P1M (=20% ≤ 25%). Zonal P5M.
Q1: Output VAT October? Q2: January installment P1.2M + P50K interest/penalties?

ANSWER
Q1: 20% ≤ 25% → INSTALLMENT SALE
Output VAT = (P1M / P5M) × P5M × 12% = P120,000

Q2: Output VAT = (P1,200,000 + P50,000) × 12% = P150,000

Liquidating Dividends — Special Rule

Tax Treatment
Income tax (corporation) NOT taxable — no gain or loss on liquidation
VAT (corporation) DEEMED SALE — subject to 12% VAT (retirement/cessation of
business)
DST NOT subject to DST
Income tax (stockholder) Liquidating gain (FMV of property received − adjusted cost basis of
shares) = capital gain subject to REGULAR income tax rates (NOT
CGT)

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XI. VAT ON SALE OF SERVICES

Tax base: GROSS RECEIPTS (actual or constructive). Rate: 12%. Accrues when COLLECTED (regardless of
when service is rendered).

Service Provider VAT Base / Notes

Construction contractors Gross receipts per progress billing/collection. CIP input VAT: claimed in
month of payment — P1M amortization rule does NOT apply to CIP.
Hotels/motels/resorts, All collections including room charges, food, beverages, laundry,
restaurants corkage, handling charges. EXCLUDE: actual cost of calls collected for
PLDT (agent collection), local taxes charged to customers, VAT passed
on.
Dealers in securities GROSS INCOME = Sale Price − Cost of securities. Capital asset shares
= NOT VAT-able.
Franchise grantees — 12% VAT
radio/TV broadcasting >
P10M prior year
Franchise grantees — 3% Franchise Tax (OPT) — NOT VAT
radio/TV broadcasting ≤
P10M prior year
Non-life insurance companies 12% VAT on gross premiums. Reinsurance premiums = VAT-able. Life
insurance = 5% premium tax (OPT).
HMOs 12% VAT on total enrollment fees and other charges
Recreational clubs 12% VAT on membership fees, dues, rentals, service fees (RMC 35-2012)
Millers of VAT-EXEMPT. All other millers = 12% VAT. If paid in cash: VAT on gross
palay/corn/sugarcane receipts. If paid in kind: VAT on FMV of miller's share.

ILLUSTRATION
Hotel: Q1 2024 collections (net of tax): Rooms P1.8M; Food P2.2M; Wine/liquor P950K;
Disco food P1.6M; Disco liquor P1.2M; Rentals/massage/spa P700K.
Required: Output VAT.

ANSWER
All hotel service collections are subject to 12% VAT.
Total gross receipts = P1.8M + P2.2M + P0.95M + P1.6M + P1.2M + P0.7M = P8,450,000
Output VAT = P8,450,000 × 12% = P1,014,000

ILLUSTRATION
Dealer in securities: Sales P4M; Cost of securities P2.5M;
Supplies (net) P300K; Rent (net) P500K. VAT payable?

ANSWER
Tax base = Gross Income = P4M − P2.5M = P1,500,000
Output VAT = P1.5M × 12% = P180,000
Less: Input VAT supplies = P300K × 12% = (P36,000)
Less: Input VAT rent = P500K × 12% = (P60,000)
VAT Payable = P84,000

XII. SPECIAL BENEFICIARY DISCOUNTS

A. Senior Citizens (SCs) and PWDs

Benefit Rate VAT Treatment Seller's Treatment
On qualifying 20% discount VAT-EXEMPT (no VAT Deduction from GROSS
goods/services charged to SC/PWD) INCOME (not deducted from

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Benefit Rate VAT Treatment Seller's Treatment

output VAT)
Basic necessities and 5% discount NOT VAT-exempt (only the Deduction from GROSS
prime commodities discount) INCOME
❗ NO DOUBLE DISCOUNTS: SC who is also a PWD = only 1 discount per transaction. Higher
promotional discount prevails, but amount must never be below 20%/5%.

B. Solo Parents (RA 11861; RR 1-2023)

Qualifications: (1) child/children aged 6 or under AND (2) earning less than P250,000/year. Must present
SPIC and Solo Parent Booklet.
Benefit Rate VAT? Covered Goods
Discount + VAT 10% VAT-EXEMPT Baby's milk, food/micronutrient supplements,
exemption sanitary diapers, medicines, vaccines, other medical
supplements
Seller: discount = deduction from gross income. Input VAT on exempt sale = NOT creditable, close to
cost/expense.

ILLUSTRATION
Infant Milk, selling price: P200.00. Sold to qualified Solo Parent.
Required: Amount payable and journal entry.

ANSWER
SP (excl. VAT, since exempt): P200.00
Less: 10% discount: (P20.00)
Amount payable: P180.00 (NO VAT — exempt transaction)

Journal entry (seller):

Cash P180.00
Solo Parent Discount Expense 20.00
Sales P200.00

C. National Athletes and Coaches (RA 10966; RR 13-2020)

20% discount on transportation, hotels/resorts, restaurants, medicine, recreation centers, sports
equipment, admission fees.
❗ KEY DIFFERENCE FROM SC/PWD: NOT a VAT exemption. VAT is computed on the
UNDISCOUNTED price. Discount = itemized deduction from GROSS INCOME (not a reduction of
output VAT).

ILLUSTRATION
Sale to National Athlete, invoice amount (VAT-inclusive): P1,120.
Required: Total amount due and VAT treatment.

ANSWER
Sale amount incl. VAT: P1,120
Less: VAT = P1,120 × 3/28: (120)
Amount excl. VAT: P1,000
Less: 20% discount: (200)
Net amount: P800
Add: 12% VAT (on undiscounted P1,000): 120
TOTAL DUE FROM ATHLETE: P920

VAT is on UNDISCOUNTED price. Discount = itemized deduction from seller's gross income.

XIII. MIXED TRANSACTIONS (VAT + Non-VAT Business)

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When a taxpayer is engaged in both VAT-able and non-VAT (exempt/OPT) businesses:

Input VAT Treatment Rule
Directly attributable to VAT business FULLY creditable
Directly attributable to non-VAT NOT creditable (close to cost)
business
Common use (both businesses) ALLOCATE based on ratio: VAT Sales ÷ Total Sales
From non-VAT registered suppliers NO input VAT credit (no VAT was charged)
💡 INVOICE RULE: Must issue separate VAT invoice for VAT-able transactions and separate non-VAT
invoice for exempt transactions — OR one invoice showing clear breakdown. Both methods are allowed.

XIV. ADMINISTRATIVE PROVISIONS

Rule Details
Quarterly VAT Return (BIR Form Filed on or before the 25th day following the end of each taxable
2550Q) quarter
VAT Invoice Requirements (1) VAT Registration Number of seller, (2) Total amount payable
with indication it includes VAT
VAT-exempt person issues VAT Becomes liable for VAT WITHOUT benefit of input tax credit
invoice
Mixed transactions on one invoice Must show clear breakdown: taxable / exempt / zero-rated
components, with VAT computed on each. OR issue separate
invoices per component.

XV. MASTER SUMMARY — VAT STATUS AT A GLANCE

Transaction VAT Treatment
Raw cane sugar / muscovado EXEMPT
Refined sugar (≥ 99.5° polarimeter) 12% VAT
Canned goods 12% VAT
Fresh fish, livestock, poultry (original state) EXEMPT
Marinated fish 12% VAT (not original state)
Flowers, bonsai, wood 12% VAT
Medical services — hospital as institution EXEMPT
Doctor's professional fees (sales > P3M) 12% VAT
Drugs sold to outpatients — hospital 12% VAT
pharmacy
Drugs used in hospital OR / delivery room EXEMPT (part of medical service)
Residential lease ≤ P15K/month EXEMPT
Residential lease >P15K/month, annual ≤ 3% OPT
P3M
Residential lease >P15K/month, annual 12% VAT
>P3M
Commercial lease, annual >P3M 12% VAT
Export — VAT-REGISTERED seller ZERO-RATED (0%)
Export — non-VAT-registered seller EXEMPT (input VAT = cost)

Transfer & Business Taxation | Page 13

 CHAPTER 8 — VAT | Quick-Scan Review Notes | Tabag & Garcia (2023)

Transaction VAT Treatment

Sale to government 12% VAT; government withholds 5%
Real property in ordinary course of business 12% VAT (base = higher of SP or FMV)
Parking lot in condominium 12% VAT regardless of amount
Consignment — not sold in 60 days Deemed sold; 12% VAT on 60th day
Sale of gold to BSP (from Jan. 1, 2018) EXEMPT
Prescription drugs for EXEMPT (from 2020/2021)
diabetes/hypertension/etc.
Services of banks, pawnshops, money EXEMPT (subject to OPT)
changers
Sale to SC/PWD — qualifying items EXEMPT (with 20% discount)
Sale to qualified Solo Parent — covered goods EXEMPT (with 10% discount)
Sale to National Athlete — qualifying 12% VAT on undiscounted price; 20% discount =
goods/services deduction from gross income

— End of Chapter 8 Quick-Scan Review Notes —

Transfer & Business Taxation | Page 14