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Tax Exemption; Value Added Tax (VAT); Petitioner is not subject to internal revenue laws and
regulations and is even entitled to tax credits.·From the above-cited laws, it is immediately clear
that petitioner enjoys preferential tax treatment. It is not subject to internal revenue laws and
regulations and is even entitled to tax credits. The VAT on capital goods is an internal revenue
tax from which petitioner as an entity is exempt. Although the transactions involving such tax are
not exempt, petitioner as a VAT-registered person, however, is entitled to their credits.
The VAT is an indirect tax that may be shifted or passed on to the buyer, transferee or lessee of
the goods, properties or services.
As such, it should be understood not in the context of the person or entity that is primarily, directly
and legally liable for its payment, but in terms of its nature as a tax on consumption. In either
case, though, the same conclusion is arrived at.
Zero-rated transactions generally refer to the export sale of goods and supply of services. The
tax rate is set at zero. When applied to the tax base, such rate obviously results in no tax
chargeable against the purchaser. The seller of such transactions charges no output tax,but can
claim a refund of or a tax credit certificate for the VAT previously charged by suppliers.
Respondent as an exempt entity, can neither be directly charged for the VAT on its sales nor
indirectly made to bear as added cost to such sales, the equivalent VAT on its purchases.
Claimants of tax refunds bear the burden of proving the factual basis of their claims; and of
showing, by words too plain to be mistaken, that the legislature intended to exempt them.
Zero-rated transactions generally refer to the export sale of goods and supply of services. The
tax rate is set at zero.
When applied to the tax base, such rate obviously results in no tax chargeable against the
purchaser. The seller of such transactions charges no output tax, but can claim a refund of or a
tax credit certificate for the VAT previously charged by suppliers.
Effectively zero-rated transactions, however, refer to the sale of goods or supply of services to
persons or entities whose exemption under special laws or international agreements to which
the Philippines is a signatory effectively subjects such transactions to a zero rate.
Again, as applied to the tax base, such rate does not yield any tax chargeable against the
purchaser. The seller who charges zero output tax on such transactions can also claim a refund
of or a tax credit certificate for the VAT previously charged by suppliers.
In terms of the VAT computation, zero rating and exemption are the same, but the extent of relief
that results from either one of them is not.
Applying the destination principle to the exportation of goods, automatic zero rating is primarily
intended to be enjoyed by the seller who is directly and legally liable for the VAT, making such
seller internationally competitive by allowing the refund or credit of input taxes that are
attributable to export sales.
Effective zero rating, on the contrary, is intended to benefit the purchaser who, not being directly
and legally liable for the payment of the VAT, will ultimately bear the burden of the tax shifted by
the suppliers.
In both instances of zero rating, there is total relief for the purchaser from the burden of the tax.
But in an exemption there is only partial relief, because the purchaser is not allowed any tax
refund of or credit for input taxes paid.
An exempt transaction, on the one hand, involves goods or services which, by their nature, are
specifically listed in and expressly exempted from the VAT under the Tax Code, without regard
to the tax status·VAT-exempt or not·of the party to the transaction.
Indeed, such transaction is not subject to the VAT, but the seller is not allowed any tax refund of
or credit for any input taxes paid.
An exempt party, on the other hand, is a person or entity granted VAT exemption under the Tax
Code, a special law or an international agreement to which the Philippines is a signatory, and
by virtue of which its taxable transactions become exempt from the VAT.
Such party is also not subject to the VAT, but may be allowed a tax refund of or credit for input
taxes paid, depending on its registration as a VAT or non-VAT taxpayer.
Under the cross-border principle of the VAT system being enforced by the Bureau of Internal
Revenue (BIR), no VAT shall be imposed to form part of the cost of goods destined for
consumption outside of the territorial border of the taxing authority.
Instances when retroactive application will still be allowed even if prejudicial to a taxpayer.·There
is no question, therefore, as to the prohibition against the retroactive application of the
revocation, modification or reversal, as the case maybe, of previously established Bureau on
Internal Revenue (BIR) Rulings when the taxpayerÊs interest would be prejudiced thereby. But
even if prejudicial to a taxpayer, retroactive application is still allowed where: (a) a taxpayer
deliberately misstates or omits material facts from his return or any document required by the
BIR; (b) when subsequent facts gathered by the BIR are materially different from which the ruling
is based; and (c) where the taxpayer acted in bad faith.
Input VAT or input tax represents the actual payments, costs and expenses incurred by a VAT-
registered taxpayer in connection with his purchase of goods and services. Thus, „input tax‰
means the value-added tax paid by a VATregistered person/entity in the course of his/its trade
or business on the importation of goods or local purchases of goods or services from a VAT-
registered person. On the other hand, when that person or entity sells his/its products or
services, the VAT-registered taxpayer generally becomes liable for 10% of the selling price as
output VAT or output tax. Hence, „output tax‰ is the value-added tax on the sale of taxable
goods or services by any person registered or required to register under Section 107 of the (old)
Tax Code.
At this juncture, it must be stressed that the VAT is an indirect tax. As such, the amount of tax
paid on the goods, properties or services bought, transferred, or leased may be shifted or passed
on by the seller, transferor, or lessor to the buyer, transferee or lessee. Unlike a direct tax, such
as the income tax, which primarily taxes an individualÊs ability to pay based on his income or
net wealth, an indirect tax, such as the VAT, is a tax on consumption of goods, services, or
certain transactions involving the same. The VAT, thus, forms a substantial portion of consumer
expenditures.
A seller who is directly and legally liable for payment of an indirect tax, such as the VAT on goods
or services is not necessarily the person who ultimately bears the burden of the same tax; It is
the final purchaser or consumer of such goods or services who although not directly and legally
liable for the payment thereof, ultimately bears the burden of the tax.·The amount of tax paid
may be shifted or passed on by the seller to the buyer. What is transferred in such instances is
not the liability for the tax, but the tax burden. In adding or including the VAT due to the selling
price, the seller remains the person primarily and legally liable for the payment of the tax. What
is shifted only to the intermediate buyer and ultimately to the final purchaser is the burden of the
tax.
PetitionerÊs claim for exemption from VAT for its purchases of supplies and raw materials is
incongruous with its claim that it is VAT-Exempt for only VAT-Registered entities can claim Input
VAT Credit/Refund.
Petitioner is not the proper party to claim such VAT refund.
Value-Added Tax (VAT); Under the fiscal incentives granted to PEZA-registered enterprises
under Sec. 23 of R.A. No. 7916, the taxpayer had two options with respect to its tax burden·it
could avail of an income tax holiday pursuant to provisions of E.O. No. 226, thus exempt it from
income taxes for a number of years but not from other internal revenue taxes such as VAT, or it
could avail of the tax exemptions on all taxes, including VAT under P.D. No. 66 and pay only the
preferential tax rate of 5% under R.A. No. 7916. In fine, it is engaged in taxable rather than
exempt transactions.
Taxable transactions are those transactions which are subject to value-added tax either at the
rate of 10% or 0%, and the seller shall be entitled to tax credit for the value-added tax paid on
purchases and leases of goods, properties or services; An exemption means that the sale of
goods, properties or services and the use or lease of properties is not subject to VAT (out- put
tax) and the seller is not allowed any tax credit on VAT (input tax) previously paid; A VAT-
registered purchaser of goods, properties or services that are VAT-exempt, is not entitled to any
input tax on such purchases despite the issuance of a VAT invoice or receipt.
Under the value-added tax system, a zero-rated sale by a VAT-registered person, which is a
taxable transaction for VAT purposes, shall not result in any output tax, but the input tax on his
purchase of goods, properties or services related to such zerorated sale shall be available as
tax credit or refund
In principle, the purpose of applying a zero percent (0%) rate on a taxable transaction is to
exempt the transaction completely from VAT previously collected on inputs.
While the zero rating and the exemption are computationally the same, they actually differ in
several aspects, to wit: (a) A zero-rated sale is a taxable transaction but does not result in an
output tax while an exempted transaction is not subject to the output tax; (b) The input VAT on
the purchases of a VAT-registered person with zero-rated sales may be allowed as tax credits
or refunded while the seller in an exempt transaction is not entitled to any input tax on his
purchases despite the issuance of a VAT invoice or receipt; (c) Persons engaged in transactions
which are zero-rated, being subject to VAT, are required to register while registration is optional
for VAT-exempt persons.