4/23/2020

1
 4/23/2020

EXPANDING THE VALUE-ADDED TAX (VAT)

BASE
• The Philippines has one of the highest VAT rates but also the highest number of
exemptions in the Southeast Asia region.
• These tax exemptions have created much confusion, complexity, and discretion in our
tax system resulting in leakages and opening doors for negotiation, corruption, and
tax evasion.
• TRAIN aims to clean up the VAT system to make it fairer and simpler and lower the
cost of compliance for both the taxpayers and tax administrators.
• This is achieved by limiting VAT exemptions to necessities such as raw agriculture
food, education, and health. This does not mean that the benefits the poor rightly
deserve will be removed.
• The TRAIN will direct the way to protect the poor and vulnerable compared to the
tax exemptions and blind subsidies that are inefficient and largely beneficial to the
rich since they have higher purchasing power.

EXPANDING THE VALUE-ADDED TAX

(VAT) BASE
• TRAIN repeals 54 out of 61 special laws with non-essential VAT exemptions,
thereby making the system fairer.
• Purchases of senior citizens and persons with disabilities, however, will continue to
be exempt from VAT.
• Housing that cost below P2 million will be exempt from VAT beginning 2021
• Medicines for diabetes, high cholesterol, and hypertension will be exempt
beginning 2019.
• The reform also aims to limit the VAT zero-rating to direct exporters who actually
export goods out of the country. This will be implemented together with an
enhanced VAT refund system that will provide timely cash refunds to exporters.

2
 4/23/2020

EXPANDING THE VALUE-ADDED TAX

(VAT) BASE
• The VAT threshold is increased from P1.9 million to P3 million to protect the poor
and low-income Filipinos and small and micro businesses and for manageable
administration. This effectively exempts the sale of goods and services of marginal
establishments from VAT. Under TRAIN,VAT exempt taxpayers will have the
following options:
● PIT schedule with 40% OSD on gross receipts or gross sales plus 3% percentage tax

● PIT schedule with itemized deductions plus 3% percentage tax, or

● Flat tax of 8% on gross sales or gross revenues in lieu of percentage tax and personal
income tax.

VAT IN THE PHILIPPINES

• The VAT applies, in general, to all persons who sell, barter, exchange or lease goods
or properties, or render services in the course of trade or business whose annual
gross sales or receipts exceed Php3,000,000* and those who import goods,
whether for business or otherwise.

*because of the passage of the TRAIN LAW

3
 4/23/2020

EXEMPT TRANSACTIONS AND

SERVICES
1 Sale or importation of:
– Agricultural and marine food products in their original state, livestock and poultry of a
kind generally used as, or yielding or producing foods for human consumption; and
breeding stock and genetic materials therefor; and

– Fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds,
including ingredients, whether locally produced or imported, used in the manufacture
of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium fish,
zoo animals and other animals generally considered as pets).

EXEMPT TRANSACTIONS AND

SERVICES
2 Importation of:
– Personal and household effects belonging to the residents of the Philippines returning from
abroad and nonresident citizens coming to resettle in the Philippines; Provided, That such
goods are exempt from customs duties under the Tariff and Customs Code of the
Philippines;
– Professional instruments and implements, wearing apparel, domestic animals, and personal
household effects (except any vehicle, vessel, aircraft, machinery, other goods for use in the
manufacture and merchandise of any kind in commercial quantity) belonging to persons
coming to settle in the Philippines, for their own use and not for sale, barter or exchange,
accompanying such persons, or arriving within 90 days before or after their arrival, upon the
production of evidence satisfactory to the Commissioner, that such persons are actually
coming to settle in the Philippines and that the change of residence is bona fide; and

4
 4/23/2020

EXEMPT TRANSACTIONS AND

SERVICES
2 Importation of:
– Fuel, goods and supplies by persons engaged in international shipping or air transport
operations

EXEMPT TRANSACTIONS AND

SERVICES
3 Services rendered by:
– Persons subject to percentage tax under Title V of the NIRC;
– Agricultural contract growers and milling for others of palay into rice, corn into grits
and sugar cane into raw sugar or raw cane sugar;
– Medical, dental, hospital and veterinary services except those rendered by
professionals;
– Educational services rendered by private educational institutions, duly accredited by
the Department of Education (DepEd), the Commission of Higher Education (CHED),
the Technical Education and Skills Development Authority (TESDA) and those
rendered by government educational institutions;

10

5
 4/23/2020

EXEMPT TRANSACTIONS AND

SERVICES
3 Services rendered by:
– Individuals pursuant to an employer-employee relationship
– Regional or area headquarters established in the Philippines by multinational
corporations which act as supervisory, communications and coordinating centers for
their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not earn or
derive income from the Philippines; and
– Banks, non-bank financial intermediaries performing quasibanking functions, and other
non-bank financial Intermediaries.

11

EXEMPT TRANSACTIONS AND

SERVICES
4 Sales by:
– Agricultural cooperatives duly registered with the Cooperative Development
Authority (CDA) to their members, as well as sale of their produce, whether in its
original state or processed form, to nonmembers; their importation of direct farm
inputs, machineries and equipment, including spare parts thereof, to be used directly
and exclusively in the production and/or processing of their produce;
– Non-agricultural, non-electric and non-credit cooperatives duly registered with the
CDA; Provided,That the share capital contribution of each member does not exceed
PhP15,000 and regardless of the aggregate capital and net surplus ratably distributed
among the members; and
– Persons who are not VAT-registered on their export sales.

12

6
 4/23/2020

EXEMPT TRANSACTIONS AND

SERVICES
5 Transactions which are exempt under international agreements to which the
Philippines is a signatory or under special laws, except those granted under
Presidential Decree (PD) No. 529 (Petroleum Exploration Concessionaires
under the Petroleum Act of 1949);

5 Gross receipts from lending activities by credit or multi-purpose cooperatives

duly registered with the CDA;

5 Lease of a residential unit with a monthly rental not exceeding Php15,000

13

EXEMPT TRANSACTIONS AND

SERVICES
8 Sale of real properties not primarily held for sale to customers or held for lease
in the ordinary course of trade or business or real properties utilized for low-
cost and socialized housing181 as defined by RA 7279, otherwise known as the
Urban Development and Housing Act of 1992, and other related laws; residential
lot valued at PhP1,500,000 and below, house and lot, and other residential
dwellings valued at Php2,500,000 and below;
9 Sale, importation, printing or publication of books and any newspaper, magazine,
review, or bulletin which appears at regular intervals with fixed prices for
subscription and sale and which is not devoted principally to the publication of
paid advertisements

14

7
 4/23/2020

EXEMPT TRANSACTIONS AND

SERVICES
10 Transport of passengers by international carriers doing business in the
Philippines;
11 Sale, importation or lease of passenger or cargo vessels and aircraft, including
engine, equipment and spare parts thereof for domestic or international
transport operations subject to certain conditions; and
12 Sale or lease of goods or properties or the performance of services other than
the transactions mentioned in the preceding paragraphs, the gross annual sales
and/or receipts do not exceed the amount of Php3,000,000.

15

VAT EXEMPTION OF EDUCATIONAL

INSTITUTIONS
• Private Educational Institutions are exempted from VAT provided they are
accredited by the DepEd, CHED,TESDA. HOWEVER:VAT Exemption does not
extend to other activities involving sale of goods and services.
• Educational Institutions must register as a Non-VAT Taxpayer to avoid shifting by
VAT-Registered seller or supplier.
• Educational Services rendered by accredited Private Educational Institutions are
exempt from VAT.

16

8
 4/23/2020

VAT EXEMPTION FOR SENIOR

CITIZENS
• The grant of twenty percent (20%) discount and exemption from the value -added tax
(VAT), if applicable, on the sale of the following goods and services from all
establishments, for the exclusive use and enjoyment or availment of the senior citizen
– on the purchase of medicines, including the purchase of influenza and pnuemococcal
vaccines, and such other essential medical supplies, accessories and equipment to be
determined by the Department of Health (DOH).
– on the professional fees of attending physician/s in all private hospitals, medical facilities,
outpatient clinics and home health care services;
– on the professional fees of licensed professional health providing home health care services
as endorsed by private hospitals or employed through home health care employment
agencies;

17

VAT EXEMPTION FOR SENIOR

CITIZENS
• The grant of twenty percent (20%) discount and exemption from the value -added tax
(VAT), if applicable, on the sale of the following goods and services from all
establishments, for the exclusive use and enjoyment or availment of the senior citizen
– on medical and dental services, diagnostic and laboratory fees in all private hospitals,
medical facilities, outpatient clinics, and home health care services, in accordance with the
rules and regulations to be issued by the DOH, in coordination with the Philippine Health
Insurance Corporation (PhilHealth);
– in actual fare for land transportation travel in public utility buses (PUBs), public utility
jeepneys (PUJs), taxis, Asian utility vehicles (AUVs), shuttle services and public railways,
including Light Rail Transit (LRT), Mass Rail Transit (MRT), and Philippine National Railways
(PNR);
– in actual transportation fare for domestic air transport services and sea shipping vessels and
the like, based on the actual fare and advanced booking;

18

9
 4/23/2020

VAT EXEMPTION FOR SENIOR

CITIZENS
• The grant of twenty percent (20%) discount and exemption from the value -added
tax (VAT), if applicable, on the sale of the following goods and services from all
establishments, for the exclusive use and enjoyment or availment of the senior
citizen
– on the utilization of services in hotels and similar lodging establishments, restaurants
and recreation centers;
– on admission fees charged by theaters, cinema houses and concert halls, circuses,
leisure and amusement; and
– on funeral and burial services for the death of senior citizens;

19

VAT EXEMPTION FOR PWDS

• RA No. 10754
– Prescribe the guidelines for the implementation of the tax privileges of persons with
disability and their benefactor; and tax incentives for establishments granting twenty
percent (20%) sales discount and exemption from Value-added Tax (VAT) under
Sections 32 and 33 of R.A. 7277, as amended by R.A. No. 9442, otherwise known as the
“Magna Carta for Persons with Disability” and R.A. No. 10754;

20

10