Question & AnswerQ&A (Republic Act No. 7716)
Republic Act No. 7716 aims to restructure the Value-Added Tax (VAT) system in the Philippines, widen its tax base, enhance its administration, amend and repeal relevant provisions of the National Internal Revenue Code, and provide for other related purposes.
Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods, including non-stock, non-profit organizations and government entities, are liable to pay VAT.
The VAT rate on every sale, barter, or exchange of goods or properties is 10% of the gross selling price or gross value in money of the goods or properties sold, bartered, or exchanged.
Goods or properties include all tangible and intangible objects capable of pecuniary estimation, such as real properties held primarily for sale or lease, rights or privileges to use patents, copyrights, trademarks, industrial, commercial, or scientific equipment, films, tapes, discs, and media time such as radio and television transmission.
Export sales, foreign currency-denominated sales to nonresidents, sales to persons or entities exempt under special laws or international agreements that effectively subject sales to zero-rate, including sales of gold to the Bangko Sentral ng Pilipinas and other specified categories.
Services performed in the Philippines for others for a fee, including construction, brokerage, leasing, warehousing, manufacturing for others, hospitality, financial services, insurance (except crop insurance), technical advice, and leasing of properties including rights or privileges to use copyrights, patents, and broadcasting time, among others, are subject to VAT at 10% of gross receipts.
Exempt transactions include sales of agricultural products in original state, certain marine and forest products, fertilizers, seeds, petroleum products subject to excise tax, imports of personal effects under certain conditions, medical and educational services, employer-employee services, certain exempt transactions under special laws, sales of real properties not held primarily for sale or lease, and sales or leases of goods/services with gross annual sales/receipts below a prescribed threshold.
Input tax is the VAT paid or due from a VAT-registered person on importation or local purchase of goods or services from another VAT-registered person. Output tax is the VAT due on the sale or lease of taxable goods or services by a VAT-registered person.
Tax creditable input tax includes that directly attributable to VAT-taxable transactions and a ratable portion of those not directly attributable. Excess input tax can be carried over to succeeding quarters or refunded, subject to regulations.
The annual registration fee is One Thousand Pesos (P1,000) for every distinct establishment or place of business, payable before commencing business and every year thereafter on or before January 31.
VAT-registered persons must issue an invoice or receipt for every sale indicating the seller’s TIN and that the amount includes VAT. They must maintain subsidiary sales and purchase journals in addition to regular accounting records.
The government withholds 3% of the gross payment for the purchase of goods and 6% for services rendered by contractors, creditable against the VAT liability of the seller or contractor.
VAT on these services applies two years after the effectivity of RA 7716, unless excluded by the President due to public interest.
The Tax Administration Development Fund is created, sourced from 5% of the increase in VAT collections over the previous year for a period of 4 years, retained by the Bureau of Internal Revenue and used exclusively for VAT enforcement and administration, excluding salaries, vehicles, and building construction.