Question & AnswerQ&A (Republic Act No. 7716)
Sales and importation of goods subject to excise taxes under Title VI of the Internal Revenue Code, except coal and natural gas in any form or state and certain petroleum products (excluding lubricating oil, processed gas, grease, wax and petroleum), are subject to VAT.
The sale or exchange of all kinds of services performed in the Philippines for others for a fee, remuneration, or consideration including transportation contractors on goods transport, domestic common carriers, franchise grantees of telephone and telegraph, banks, non-life insurance companies, and similar services regardless of the exercise of physical or mental faculties are subject to VAT.
Franchise grantees of radio and/or television broadcasting whose annual gross receipts do not exceed Ten Million Pesos (P10,000,000.00) are not subject to VAT but to a 3% franchise tax. Those exceeding this threshold are subject to VAT and have an option to register as VAT taxpayers.
Zero-rated transactions include services performed in the Philippines by VAT-registered persons for processing, manufacturing or repacking goods for export, services provided to non-resident foreign clients paid in foreign currency, services exempt under international agreements, among others as specified in Section 4.102-2(b).
Exemptions include agricultural and marine food products in their original state, livestock and poultry used as food, breeding stock, coal and natural gas, petroleum products subject to excise taxes (with some exceptions), certain services like medical and educational services, sales by agricultural and electric cooperatives, and sales of real properties used for low-cost and socialized housing, among others.
Any person whose gross sales or receipts exceed Five Hundred Fifty Thousand Pesos (P550,000.00), which is adjusted annually based on the Consumer Price Index, is required to register for VAT.
Yes, persons whose gross sales or receipts do not exceed the VAT threshold may opt to register for VAT, including franchise grantees of radio and television broadcasting under P10,000,000.00 in annual gross receipts. However, once opted in, the registration is irrevocable.
Cancellation may be applied for when a person fails to start business after registration, when VAT-exempt persons registered voluntarily wish to cancel after two years, when a VAT-registered person has gross sales below the VAT threshold for two consecutive years, or when gross sales during the first 12 months do not exceed the threshold.
The government and its agencies shall deduct and withhold 3% VAT on payments for goods and 6% VAT on services by contractors. For government public works contractors, the withholding tax is 8.5%.
Domestic carriers for passengers including cars for hire driven by lessees, transportation contractors, and keepers of garages pay a 3% percentage tax on quarterly gross receipts, with minimum quarterly gross receipts set based on type of vehicle and location.