Question & AnswerQ&A (Republic Act No. 8241)
The value-added tax rate is ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties.
It includes the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, including construction and service contractors, brokers, lessors of properties, hotel operators, dealers in securities, banks and financial companies, transportation contractors, franchise grantees of telephone and broadcasting services, insurance companies, and others regardless of whether physical or mental faculties are used.
Lease of properties shall be subject to VAT irrespective of the place where the contract or leasing agreement was executed if the property is leased or used in the Philippines.
Services including processing and manufacturing for export goods paid in foreign currency, services paid in acceptable foreign currency, services exempted under special laws or international agreements, services to vessels engaged in international shipping, and services by subcontractors for enterprises with over 70% export sales.
Exemptions include sale of non-food agricultural products in original state, cotton and copra, agricultural and marine food products, fertilizers and feeds, coal and natural gas, certain imports, medical and educational services, artist's sale of works, services under employer-employee relationships, and sales by cooperatives among others.
Gross receipts mean the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty including materials supplied with services and deposits or advances received during the taxable quarter, excluding VAT.
Any person subject to VAT under Sections 100 and 102 must register with the appropriate Revenue District Officer and pay an annual registration fee of One thousand pesos (P1,000) for each establishment before commencing business or annually by the last day of January.
The government and its agencies must deduct and withhold VAT at 3% on gross payments for goods and 6% on services rendered by contractors (8.5% for government public works contractors) before payment, which is creditable against the VAT liability of the seller or contractor.
Transitional input tax credit allows a person newly registered for VAT input tax credit on beginning inventory at 8% or actual VAT paid, whichever is higher, and presumptive input tax credits are allowable for persons processing sardines, milk, sugar, and public works contractors at 1.5% of purchases or contract price respectively.
These persons shall pay a tax equivalent to three percent (3%) of their gross quarterly sales or receipts, except cooperatives which are exempt from this gross receipts tax.