a. Persons and Transactions Subject to VAT

Concept

Value-Added Tax (VAT) is a consumption tax imposed on the sale, barter, exchange, or lease of goods, properties, and services within the Philippines, as well as on the importation of goods into the country.

While statutory liability for remitting the tax rests upon the seller, the economic burden may be shifted or passed on to the buyer, transferee, or lessee. In the case of importations, the importer is directly liable for the VAT.

Characteristics of a VAT-Taxable Transaction:

• It is imposed on the value added by each taxpayer.
• It operates as a transparent form of sales tax where the tax amount is distinctly segregated and clearly apparent to the taxpayer.
• It is a broad-based consumption tax applicable to goods, properties, or services throughout every stage of manufacture, production, and distribution in the Philippines.
• It is an indirect tax.
• The tax system implements the separate indication of tax method.
• It avoids cascading, ensuring it does not operate as a tax on a tax.

Elements of a VAT-Taxable Domestic Sale, Lease, or Service Transaction (Sec. 105, NIRC)¹:

• The transaction must involve any person;
• There must be a sale (including a transaction deemed a sale), barter, exchange, or lease of goods or properties, or the rendering of services;
• It must be undertaken in the course of trade or business; however, services rendered in the Philippines by nonresident foreign persons are considered rendered in the course of trade or business even if not rendered regularly.
• The transaction must take place in the Philippines; and
• The transaction must not be VAT-exempt. A transaction subject to the zero percent (0%) VAT rate remains a VAT-taxable transaction.

Under Sec. 105, NIRC, any person who imports goods is subject to VAT, regardless of whether the importation is undertaken in the course of trade or business.

Imposition of VAT on Transfer of Goods by Tax Exempt Persons

In the case of tax-free importation of goods into the Philippines by persons, entities or agencies exempt from tax where such goods are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entities:

The purchasers, transferees or recipients shall be considered the importers thereof, who shall be liable for any internal revenue tax on such importation.

The tax due on such importation shall constitute a lien on the goods, superior to all charges/or liens, irrespective of the possessor of said goods. (Rev. Regs. 16-05)²