Transactions Subject to Zero Percent VAT Rate
- Zero percent VAT applies to certain services by VAT-registered persons such as:
- Processing/manufacturing for export paid in foreign currency.
- Services paid in foreign currency.
- Services exempt under international agreements or special laws.
- Services to vessels engaged in international shipping.
- Services by subcontractors/manufacturers tied to exported goods exceeding 70% of production.
- Tax computed by multiplying official receipt amount by 1/11.
Exempt Transactions from VAT
- Exemptions include sales of:
- Nonfood agricultural products, marine and forest products in original state by primary producers.
- Specific original state agricultural products like cotton, copra, agricultural and marine food products, livestock, breeding stock.
- Products retain original state status despite simple processing like freezing, drying, salting.
- Additional exemptions include fertilizers, feeds, coal, petroleum products (with exceptions), raw materials for petroleum manufacture.
- Certain imports like large vessels and personal/household effects of returning residents.
- Medical, dental, hospital, veterinary, and educational services from accredited institutions.
- Sales by registered cooperatives, electric cooperatives, and export sales by non-VAT registrants.
- Real properties and leases below specified thresholds (adjusted annually by consumer price index).
- Books, newspapers, and other regularly published printed matter.
- Small-scale sales below specified gross receipts threshold.
- Penalty for issuing VAT invoices on exempt transactions includes liability to VAT without input credit.
Transitional and Presumptive Input Tax Credits
- New VAT registrants allowed input tax credit on beginning inventory:
- Creditable at 8% of inventory value or actual paid VAT, whichever is higher.
- Specific industries such as sardine, mackerel processing, sugar and cooking oil manufacturing allowed 1.5% presumptive input tax credit on purchases of agricultural inputs.
- Public works contractors get presumptive input tax credit of 1.5% of government contract price.
Registration of VAT Taxpayers
- Mandatory registration for persons subject to VAT with payment of annual registration fee of P1,000 per establishment.
- Registration required prior to commencing business if expected VATable sales exceed threshold.
- Persons exceeding exemption threshold in prior 12 months must register within 30 days post period and liable for VAT from the following month.
- Optional registration available for certain exempt persons with payment of registration fee.
- Cancellation of registration upon cessation of VAT liability.
Withholding of Creditable VAT
- Government entities and GOCCs must withhold VAT:
- 3% on gross payments for goods.
- 6% on gross receipts for services by contractors.
- 8.5% for government public works contractors.
- 10% withholding on lease/use payments to nonresident owners.
- Withheld amounts credited against VAT liability of sellers/contractors.
- Remittance of withholdings due within 10 days after month of withholding.
Tax on Persons Exempt from VAT
- Non-VAT registered persons with exempt sales shall pay 3% tax on gross quarterly sales.
- Credit or multi-purpose cooperatives exempt from this 3% tax.
Percentage Tax on Domestic and International Carriers
- Domestic carriers and garage keepers pay 3% tax on quarterly gross receipts.
- Minimum quarterly gross receipts thresholds set for various public transport types.
- New 3% percentage tax imposed on international air and shipping carriers operating in the Philippines.
Tax on Franchises
- Radio and television broadcasting companies with gross receipts ≤ P10 million taxed at 3%, electric, gas, water utilities at 2%.
- Broadcasting companies may opt for VAT registration, irrevocable once chosen.
- Filing and payment procedures subject to audit by the Bureau of Internal Revenue.
Registration of Name or Style
- Persons not subject to VAT must register business name/style with Revenue District Officer upon business commencement or transfer.
- Annual registration fee of P500 per establishment.
- Registration details include ownership and business location.
- Cooperatives exempt from this registration fee.
Expansion of VAT Coverage Effective January 1, 1998
- Inclusion of professional services subject to local professional tax.
- Inclusion of services by banks, finance companies, and other financial intermediaries.
- Inclusion of lease/use of sports facilities and equipment for amateur players.
- Services maintain pre-VAT tax until effective date.
- Congress may exclude services on grounds of public interest with continued tax application.
Implementation and Administrative Provisions
- Secretary of Finance to promulgate implementing regulations within 60 days upon recommendation of the Commissioner of Internal Revenue.
- IEC campaign required to inform the public on expanded VAT.
Repealing Provisions
- Repeals Cooperative Code provisions authorizing sales or VAT exemptions for cooperatives.
- All inconsistent laws, orders and issuances repealed or modified accordingly.
Effectivity
- The Act took effect on January 1, 1997.