VAT Exempt

Transactions under
TRAIN Law
RA 10963
What is Value-Added Tax?
VAT is type of sales tax which is levied on
consumption on the sale of goods, services or
properties, as well as importation, in the
Philippines.

To simplify, it means that a certain tax rate

(0% to 12%) is added up to the selling price of a
goods or services sold. It is also imposed on
imported goods from abroad.
The seller must be a VAT-registered person or a
registrable person.
What are the types of VAT and Tax Rate?

1.VATable – 12%
• On sale of goods and properties
• On sale of services and use or lease of
properties
• On importation of goods
2.VAT Zero-Rated – 0%
3.VAT Exempt – 0%
VAT exempt transactions
Under NIRC (old rule)
1. Importation of professional instruments, etc.
belonging to persons coming to settle in the
Philippines, for their personal use, accompanying
such persons or arriving within 90 days before or
after their arrival;
2. Sale of real property utilized for low- cost
housing, sale of residential lot valued at PHP1.5m
(as adjusted by Revenue Regulations (“RR”) No. 16-
2011, PHP1,919,500) and sale of house and lot
and other residential dwellings valued at PHP2.5m
(as adjusted by RR No. 16-2011, PHP3,199,200);
3. Lease of residential unit with monthly rental of
PHP10,000 (as adjusted by RR No. 16-2011,
PHP12,800);
4. Importation of fuel, goods, and supplies by
persons engaged in international shipping of air
transport operations; and
5. Other sale of lease of goods or properties or the
performance of services, the amount of which does
not exceed PHP1.5m (as adjusted by RR No. 16-
Under TRAIN (new rule)
1. Expansion of the importation exemption on
professional instruments to include those
belonging to overseas Filipinos, and their families
and descendants who are now residents or citizens
of other countries.
2. Beginning 1 January 2021, the VAT exemption
shall only apply to sale of real properties not
primarily held for sale to customers or held for
lease in the ordinary course of trade or business,
sale of real property utilized for socialized housing
and sale of house and lot and other residential
dwellings with threshold reduced to PHP2m.
3. For item 3, the lease threshold of PHP10,000
would be increased to PHP15,000 and it will no
longer be adjusted to its present value using the
CPI, as published by Philippine Statistics
Authority.
4. Exemption of the importation of fuel, goods and
supplies shall only apply if such are used for
international shipping or air transport operations.
5. For item 5, the VAT threshold is increased to
PHP3m.
Under NIRC (old rule) Under TRAIN (new rule)
6. Added the exemption of sale or lease of
goods and services to senior citizens and
persons with disabilities.
7. Added the exemption for transfers of
property pursuant to Section 40 (C)(2) of
the Tax Code.
8. Added the exemption for association
dues, membership fees, and other
assessments and charges collected by
homeowners associations and
condominium corporations.
9. Sale of gold to BSP is now classified
under VAT exempt transactions.
10. Beginning 1 January 2019, sale of
drugs and medicines prescribed for
diabetes, high cholesterol and
hypertension would be included as VAT
exempt transactions.
The VAT Threshold
Under NIRC

VAT Threshold Amount Covered taxpayers

General Threshold
Special Threshold
Applicable to all taxpayers other
Php 1,919,500 than franchise grantees of radio or
television
Applicable only to franchise
Php 10,000,000 grantees of radio or television

Under TRAIN law

VAT Threshold Amount

General Threshold Php 3,000,000
Example: Illustration 1: taxpayer with mixed types of sales
A department store had the following sales for the last 12-month
period:
Fertilizers, seeds, poultry and hog feeds Php 2,000,000
Fruits and vegetables 1,000,000
Groceries 900,000
Dress, clothes, shoes and other apparels 750,000
Furniture 500,000

Note that the sales of fertilizers, seeds, poultry, hog feeds, fruits and vegetables are
exempt sales.
The vatable sales are:

Groceries Php 900,000

Dress, clothes, shoes and other apparels 750,000
Furniture 500,000
Total Php 2,150,000

Note that the sales of fertilizers, seeds, poultry, hog feeds, fruits and vegetables are exempt sales.

Since the total of the vatable sales is below the VAT threshold, the
department store is not required as VAT taxpayer. Consequently it may
continue paying the 3% percentage tax on these vatable sales until it
exceeds the threshold.