Value Added Tax Exemptions in the Philippines

By: Tax and Accounting Center Philippines

As a rule, 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 shall be subject to the value-added tax. Being an indirect tax that sellers may pass-on, prices would tend to escalate with the application of value added tax in the Philippines with respect to prime commodities, basic needs, and other preferred goods and services.

For this reason, the value added tax rules in the Philippines provide for exemptions from value added tax applications. Under Section 109 of the tax Code, as amended, the following transactions shall be exempt from the value added tax:

(A)   Sale or importation of agricultural and marine food products in their original state, livestock and poultry of or king generally used as, or yielding or producing foods for human consumption; and breeding stock and genetic materials therefor.  Original state even if they have undergone the simple processes of preparation or preservation for the market, such as freezing, drying, salting, broiling, roasting, smoking or stripping. Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt, and copra shall be considered in their original state;

(B)   Sale or importation of 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);

(C)   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;

(D)   Importation of 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 ninety (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;

(E)  Services subject to percentage tax under Title V;

(F)  Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugar cane into raw sugar;

(G)  Medical, dental, hospital and veterinary services except those rendered by professionals;

(H)  Educational services rendered by private educational institutions, duly accredited by the Department of Education (DepEd), the Commission on Higher Education (CHED), the Technical Education and Skills Development Authority (TESDA) and those rendered by government educational institutions;

(I)  Services rendered by individuals pursuant to an employee-employer relationship;

(J)  Services rendered by 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;

(K)  Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under Presidential Decree No. 529;

(L)  Sales by agricultural cooperatives duly registered with the Cooperative Development Authority to their members as well as sale of their produce, whether in its original state or processed form, to non-members; 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;

(M)  Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered with the Cooperative Development Authority;

(N)  Sales by non-agricultural, non- electric and non-credit cooperatives duly registered with the Cooperative Development Authority: Provided, That the share capital contribution of each member does not exceed Fifteen thousand pesos (P15,000) and regardless of the aggregate capital and net surplus ratably distributed among the members;

(O)  Export sales by persons who are not VAT-registered;

(P)  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 property utilized for low-cost and socialized housing as defined by R.A. No. 7279, otherwise known as the Urban Development and Housing Act of 1992, and other related laws, residential lot valued at one million nine hundred nineteen thousand five hundred pesos P1,919,500 and below, house and lot, and other residential dwelling valued at three million one hundred ninety nine thousand two hundred pesos (P3,199,200) and below:;

(Q)  Lease of a residential unit with a monthly rental not exceeding twelve thousand eight hundred pesos (P12,800);

(R)  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;

(S)  Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for domestic or international transport operation;

(T)  Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations;

(U)  Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries; and

(V)  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 one million nine hundred nineteen thousand five hundred pesos P1,919,500

A VAT- registered person may elect that the above exemptions not apply to its sale of goods or properties or services and such shall be irrevocable for a period of three (3) years from the quarter the election was made.

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may please send mail at in**@ta************.org.