Chapter 4 - Exempt Sales of Goods, Properties and Services CHAPTER 4 EXEMPT SALES OF GOODS, PROPERTIES, & SERVICES ee Chapter Overview and Objectives: This chapter j diseiaees exempt consumption from domestic sel fers (ie exempt sales). After this chapter, readers are expected to: 1. Master or, atleast, familiarize themselves with the list of exempt sales of g00ds, properties, or services, and 2. Master the exemption criteria on each type of exempt sales EXEMPT SALES Exempt sales are exempt consumption of goods or services from domesti: sellers, Exempt sales are not subject to VAT and percentage tax. 1. VAT taxpayers making exempt sale of goods, properties, or services shall not bill any output VAT to their customers because the sale is not subject to VAT. 2. Anon-VAT person making exempt sales shall not be subject to the 3 percentage tax on the sales or receipt. Exempt Sales of Goods, or Properties 4. Sale of goods to senior citizens and persons with disability This covers sale of essential goods only. 2 Sales of exempt goods Agricultural and marine food products in their original state b Fertlizes eats Seedlings and fingerlings, fish, prawn, livestock and poe aeetss luding ingredients used in the manufacture of finishe? = ae Medicines prescribed for diabetes and hyperten, Passenger or cargo vessels and aircrafts - Tegistered in good standing wt" whee) to their members. * original state or process“! STU le RE terChapter 4 — Exempt Sales of Goods, Properties and Services 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 + _ Sales by non-agricultural, non-electric and non-credit cooperatives duly registered and in good standing with the CDA 4 Sales of residential properties 1, Sale of real properties utilized for low-cost housing 2. Sale of real properties utilized for socialized housing 3. Sale of residential lot valued at P1,919,500 and below and other residential dwelling valued at P3,199,200 and below 5. Export sales by non-VAT persans \y\~ 2x9 KOLA 6. Treaty-exempt sales of goods Sales of goods exempt under international agreement to which the Philippines is a signatory or under special laws 7. Tax-free exchange of property ‘The exchange of properties in pursuant to a plan of merger or consolidation or the transfer of property that resulted in the initial acquisition of corporate control 8. Sale of gold to the Bangko Sentral ng Pilipinas (BSP) The sale of gold to the BSP is now a VAT-exempt transaction which is previously considered a zero-rated sale. (Mnemonic: SECRET Tax-free Gold) Exempt Sales of services 1. Schools Educational services rendered by private educational institution duly accredited by the Department of Education, the Commission on Higher Education and Technical Education and Skills Development Authority and those rendered by government educational institutions 2. Employees Services performed by individuals in pursuant to an employer and employee relationship shi. boxe 3. Agricultural contract growers and millers Services by agricultural contract growers and milling for others of palay into rice, corn into corn grits, and sugar cane into raw sugar Sere arenasChapter 4 — Exempt Sales of Goods, Properties and Services 4. Residential leasing Lease of residential unit with monthly rental not exceeding P15,000 5. Cooperative services ts from lending activities by credit or multi-purpos, coe ed and in good standing with the Cooperatj, cooperatives duly register Development Authority 6. Hospitals Medical, dental, hospitals, and veterinary serviceS excep} those rendered by professionals and sales of drugs by a hospital drug store. | | 7. Home owner's association or condominium corporations | Association dues, membership fees, and other assessments and charges collected by homeowner's associations and condominium corporations 8 Lease passenger or Cargo yessels and gircrafts, including engine, equipment and spare parts thereof for domestic or internation transport operations , 9. Treaty-exempt services ‘Transactions which are exempt under international agreement to which the » Philippines is a signatory or under special laws 10. Regional area headquarters Services rendered by regional or area headquarters established in tht Philippines by multinational corporations which acts as supervisor communications, and coordinating centers for their affiliates, subsidiars or branches in the Asia Pacific Region and do not or derive income from th Philippines 11. International carriers ‘Transport of passengers by international carriers (RA 10378) 12. Printers or publishers Sale, printing or publication of books and any newspaper, magazine, reve" ; or bulletin which appears at regular invewvale with teed pies © subscription and sale and which is not devoted principally ™ publication of paid advertisements Reems Ess uniedChapter 4 — Exempt Sales of Goods, Properties and Services 13, Senior citizens and persons with disability Sales of basic essential services to senior citizens and persons with disability by service establishments such as: a. Restaurant b. hotels and lodging establishments ¢ recreation centers, such as theater, cinema houses, concert halls, carnivals and such other places of leisure or amusement (Mnemonic: SEARCH? VA TRIPS) Other exempt sales of goods or services 1, Sales of goods or services taxed by special laws a. Sales of goods or services by Ecozone locators b. Sale of amusement service by theaters and cinemas These are subject to tax by special laws and are not subject to national business taxes such as VAT or percentage tax. 2. Sales by persons not engaged in businesses The sale goods, real properties or services by persons not engaged in business is not subject to business taxes. 3. Sale of assets held for use The sale of assets held for use such as supplies and items of property, plant and equipment such as: land and building. machineries, office furniture and fixture, and office equipment is normally exempt from business tax. For VAT-registered taxpayers, however, the sale of these ordinary assets is considered “incidental transactions” subject to VAT. Note to readers The classification of the business taxpayer must first be determined. L. Ifhe isa seller of goods or properties, refer to the list of exempt sales of goods or properties to see ifhe is exempt. Ifnot, he is taxable. 2. Ifhe isa seller of service, refer to the list of exempt sales of services to see ifhe is exempt. If not, he is also taxable Tax exemption is highly qualified and disfavored; hence, deep understanding on the extent and limits of exemption is highly essential. EXEMPT SALES OF GOODS OR PROPERTIES, IN DETAIL (SECRET Tax-free Gold) SALE OF GOODS TO SENIOR CITIZENS AND PERSONS WITH DISABILITY The sale of essential goods to senior citizens (SC) and persons with disability (PWD) such as the following: 101 Serna MET re Ursa ul OF FONT ________ | a. Drugs, vaccines and foods for special medical purpos: ’b, Vitamins and mineral supplements __| _¥ ]~ © Accessories and equipment by or for senior citizens, such as eye glasses, hearing aid, dentures, prosthetics, artificial bone replacements, walkers, crutches, wheelchairs, quad canes, geriatric diapers, and other | ¥ 4 essential medical supplies, accessories and equipment | | | dd. Casket or urn wo Aside from VAT exemption on the sales, senior citizens and PWDs are aie legally mandated to be given 20% discount on the sales of these goods. | Mlustration | Special Care Store, is a business catering for the needs of seniors and persoy | with disabilities. It had the following sales of goods during the month: | Seniorcitizens PWDs Vitamin supplements P 300,000 P 100,000 | Medical drugs 100,000 140,000 Eye glasses and wheelchairs 80,000 120,000 Household and kitchen supplies 200,000 100,000 Caskets and urns 240,000 120,000 Memorial lot 300,000 200,000 \ Only the following sales are VAT-exempt: Senior citizens PWDs Vitamin supplements P. 300,000 ¥ 0 Medical drugs 100,000 140,000 Eye glasses and wheelchairs 80,000 0 Household and kitchen supplies 0 0 Caskets and urns 240,000 100,000 Memorial lot 0 0 “Taal £720,000 2.240,000 Sad to say, medical accessories or equipment and vitamins or mine? supplements are not specifically exempted for PWDs. Note that the sale of all ott goods not specifically included in the enumeration provided by law shall not ™ considered exempt notwithstanding that the same are for the exclusive use %™ | ‘enjoyment of SCs or PWDs. | 102 | Seetee Sa sand —Chapter 4 — Exempt Sales of Goods, Properties and Services SALE OF EXEMPT GOODS Sale 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 therefore; b. Sale 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; Sale of Agricultural or Marine Food Products in Original State The sale of agricultural and marine food products in their original state including those that have undergone the simple process of preparation or preservation for the market including advanced technological means of packaging is exempt. The conditions for exemption to the VAT on importation of agricultural or marine food products in Chapter 2 likewise apply to the exemption of sales herein from business tax Ilustration 1: Fruit and vegetable dealer Mang Pandong owns a meat and fish outlet in the Baguio City public market. He had the following sales during the month: Sale of live hogs P 120,000 Sale of frozen carcass and meat 240,000 Sales of fresh fishes 150,000 Sales of dried and/or smoked fish 80,000 Mang Pandong is not subject to business tax on all of these sales. Mustration 2: Farmer Agricorp is engaged in the farming and horticulture business. It earned the following during a quarter: Sale of palay and rice P 1,000,000 Sale of banana mushrooms 100,000 Sale of firewood and charcoal 150,000 250,000 Sale of orchids, flowers, and bonsai and mushrooms are exempt agricultural food products. The Palay, rice, banana, and bonsai are vatable because they sale of firewood, charcoal, orchids, flowers, are non-food agricultural products. Note: It must be emphasized again that the term “vatable” means that the sale is subject to VAT if the taxpayer is VAT-registered or a VAT registrable person but to a 3% percentage tax if the taxpayer is non-VAT taxpayer. 103 See moss uaeChapter 4 — Exempt Sales of Goods, Properties and Services Illustration 3: Poultry operator The following relates to the sales of Mr. Birdie, a poultry operator: Sales of chicken P 400,000 Sale of one-day old chicks 120,000 Sales of eggs for "penoy” and “balot” 180,000 Sales of chicken manure 100,000 All of these are exempt from business tax, Obviously, chicken manure is ng intended for human consumption but it is actually a vegetable fertilizer similar y guano; thus, itis also exempt. Illustration 4: Pet shop : Raymund, a veterinarian, operates a pet shop. The following were his sales and receipts during the month: Sales of pets P 600,000 Sales of animal vitamins, medicines, and feeds 200,000 Receipts from veterinary services 200,000 All of these are subject to business tax. Feeds for pets are vatable, Note also tht services provided by professionals are vatable. ‘The meaning of "in original state” As discussed in Chapter 2, the phrase “in original state” means unprocessed. Agricultural or marine food products are still considered in original state even if they have undergone the simple process of preparation, preservation or packaging for the market including advanced technological means of packaging. , The use of heat and the employment of complex processes such as chemicil treatment or curing in a solution is normally considered state altering. Interestingly, however, marinating or the process of mixing with ingredien’ | or flavorings is now considered by the BIR as state altering. The BIR considered a marinated, frozen and vacuum-packed boneless ™ (bangus) as processed. (BIR Ruling No. 348-2011) To back their BIR cited the absence of marinating in the list of simple processes not that the claim of exemption is construed against the taxpayer. cS The term “in original state” may be a contentious concept in practic this, itis always suggested to taxpayers to secure a BIR ruling on ’ tax treatment of their agricultural or marine food products, i Readers may consider revisiting the examples of agricultural pr considered in original state in Chapter 2, Ft a 104 eS See RE Sacyi ia" er 4 — Exempt Sales of Goods, Properties and Services Chapt illustration 1 Monte Rey had the following sales in his store: sales of meat cuts P 400,000 Sales of hotdogs 100,000 Cup noodles 10,000 40,000 Canned sardines and beans The sale of meat cuts is exempt. The sales of hotdogs, cup noodles, and canned ‘goods which are processed foods are vatable. IMlustration 2 }0,000 k Juan, a dealer of sugar made P400,000 worth of muscovado sugar and P60! worth of refined sugar. The sale of muscovado sugar which is considered raw cane sugar fs exempe from business tax. Only the sale of refined sugar is subject to business tax. Sale of certain farm or fishery Inputs sd: | Exemption is qualified and limited: 2 tor plants or fruit cultivation fertilizers, seeds and seedlings 2 per Pvimal husbandry ~ livestock, feeds and ingredients for livestock and poultry feeds For fishery operations fingerlings, fish and prawn Mlustration ‘A farm supply dealer sold the following items: a. Tractors and water pumps b. Seeds . Organicand inorganic fertilizers 5d. Pesticides and herbicides The sates of seeds and fertilizers are exempt. The sale of farm or fishery equipment 1 eenas tractors, water pumps and other farming inputs such as pesticides and herbicides are vatable by virtue of the lack of express legal exemption. I | Livestock/poultry feeds or. ingredients in the manufacture of feeds | The sale of livestock or poultry feeds and ingredients used in the manufacture of finished feeds is exempt, sale of ingredients which may also be used for the production man consumption is vatable. Thus, for the sale (including importation) of livestock and poultry feeds or | ingredients used in the manufacture of finished feeds to be exempt from VAT, it must be proven that the same is unfit for human consumption or that 105 iene) | However, th | or processing of food for hui Renee mesaChapter 4 ~ Exempt Sales of Goods, Properties and Services the ingredient cannot be used for the production of food for consumption as certified by the Food and Drug Administration (RMC55-2014, June 17, 2014). Books, newspapers and magazines The sales of books, newspapers and magazines are exempt from yay Remember the criteria for exemption of magazines under VAT-exem, importation. The same criteria apply here. Mlustration Jet Bookstore sold the following goods: Novels P 100,000 Textbooks 300,000 School supplies and notebooks 200,000 Office supplies 180,000 Advertising magazines 20,000 Only the sate of novels and textbooks (Ke. books) are VAT-exempt. The sale of ofce supplies, school supplies other than books and advertising magazines are vatoble Starting January 1, 2019/the TRAIN law provides for the VAT-exemption on the sale of medicines prescribed for diabetes, high cholesterol o hypertension, as determined by the Department of Health (DOH), by manufacturers, distributors, wholesalers and retailers. Examples: 1. Insulins and analogues 2, Blood glucose lowering drugs, such as biguanides, sulfonylurea, alph slucosidase inhibitors, thiazolidinediones, dipeptidyl peptidase # inhibitors, glucagon-like peptide-1 anal es and sodium-glucose cr transporter 2 inhibitors; and others a A Iustration St Joseph Medical Store made the following sales during the quarter: Vitamin & minerals 300,000 P 20,000 —P._ 500 Insulin 200000 100,000 Other medicines - 100,000 140,000 Medical monitoring devices 50,000 20,000 Medical therapy equipment 80,000 10.000 _ Total 2730000 Pz90000 106 Sor ag eM) ok leo-_— ay Chapter 4 — Exempt Sales of Goods, Properties and Services ‘The following are exempt: | Senior citizens PWDs Others Vitamin & minerals P300,000 P. ‘Omeae) 0 Insulin 200,000 100,000 400,000 Other medicines 100,000 140,000 0 Medical monitoring devices 50,000 0 0 Medical therapy equipment 80,000 0. > eo Total 2730,000 p240,000 400,000 Note that the medicines prescribed for diabetes, high cholesterol or hypertension is exempt regardless of the buyer. The exemption on medical accessories or equipment is limited to senior citizens. : es ‘The sale of passenger or cargo vessels and aircrafts including engines, equipment, and spare parts thereof for domestic or international transport operations is exempt from VAT. For ease of discussion, we classify these as exempt goods because, just like other exempt goods, their VAT exemption applies both on their importation and sales, Readers must note, however, that the import of medicine for diabetes, high cholesterol or hypertension has no legal exemption on importation. SALE OF COOPERATIVES With the exception-of-electric cooperatives, cooperatives of any kind are exempt from business tax if ‘hey- transac business only_with members Cooperatives which transact business with non-members are subjec business aro Oa sales to non-members if their accumulated reserves exceed P3.0,000,000. sineecin kanes However, regardless of the type of cooperati Gorelated tivities are subject to business considered-as-busiess. ve, their transactions from s just like other entities not Ilustration 1: Cooperative transacting business only with members ‘A credit cooperative which transacts business only with members reported the following sales during the month: Related Unrelated activities activities Sales from members P 200,000 P-100,000 Sales from non-members —— —20.000 ] Total p200000 —-B.120,000 i 107 Stee ersChapter 4 ~ Exempt Sales of Goods, Properties and Services les from The cooperative shall be exempt from business tax on the sai n rele activities. However, it shall be subject to business tax on the P120,000 sa), unrelated activities. Mlustration 2: Cooperative transacting business with non-members A tacaing, coeetie which transacts business with members ang, members had the following sales during the month: Related Unrelated activities activities Sales from members P 200,000 P 100,000 Sales from non-members —300,000 —20.000 Total P.500,000 B.120,000 If the accumulated reserves of the cooperative do not exceed P10,000,00; total P500,000 sales from related activities is exempt from business tax. by, ) ~ P120,000 sales from unrelated activities is taxable. WW If the accumulated reserves of the cooperative exceeds P10,000,000, on) | 200,000 sales from members from related activities is exempt from bus», | while all the other sales are taxable. | it ‘SALE OF REAL PROPERTIES UNDER CERTAIN CONDITIONS | Categories of exempt transactions on real properties A. Bya person not engaged in the realty business (non-dealer) B. By person engaged in the realty business which complies with statu’ cd price ceilings (dealer) Sale by a non-dealers of realty Sale of real properties not primarily held for sale to customers or held for |) lease in the ordinary course of business is exempt from business tax. The reason is that the seller is not engaged in business of selling properties However, the sale of properties held for use classified as ordinary asset bj j VAT taxpayers is an incidental transaction subject to VAT. y j The VAT exemption applies to: xa a. Real pm erty classified as capital assets of VAT taxpay -b. Any real properties of non-VAT taxpayers 4 _©. Any ‘eal properties of persons not engaged in business Mlustration 1 Dr, Atoei, a VAT-registered doctor, sold his I residence for | © P12,000,000 and his woedieal Se < principal residen : i Digger building for his medical pravtige 1 "8 {°F P50.000,000 to purchase 108. Scanned by TapScannerww Chapter 4- Exempt Sales of Goods, Properties and Services t to VAT even The sale of the principal residence being @ capital asset is not subject ifr. Atoei is a VAT-registered taxpayer. The sale of his medical clinic building is his medical practice. subject to VAT as it isan ordinary asset to: law office IMustration 2 parlor. Mr, Lee Mado, is a non-VAT registered la puilding for P 8,000,000 to pursue his dream o The sale of Mr. Mado of his office building, despite being an ordinary asset, is not ‘eubject to VAT because he is a non-VAT taxpayer: wwyer. He disposed of his establishing a beauty Mlustration 3 Mr. Kannaway, a farmer, sold his rice farm land for 4,000,000 to finance his acquisition ofa fish pond. Mr. Konnaway is not engaged in business. His sale of farm land, a capital asset, iS: not subject to VAT. Readers must note that the taxation of the sale of, held for use is asent in the case of non-VAT taxpayers. In law, the percentage tax is limited apthe sale of goods or services in the course of business to the exclusion cidental transactions. The sale of ordinary assets held for use is not SUBJert to percentage tax. Sale by a realty dealer, developer or lessor ‘The sale by businesses engaged in the real estate business is normally subject to business tax. However, their sales of the residential properties, being essential goods, are exempt if they comply with the statutory or regulatory price ceilings: 1. Sale of real properties utilized for socialized housing units: a. House and lot package - P450,000 b._ Residential lots only - P180,000(RMC35-2014) (Per HUDCC Memorandum Circular No. 1 s.2013, October 16, 2013) 2. Sale of real properties utilized for low-cost housing wherein the price ceiling per unit is P750,000 3. Sale of residential lot valued at P1,919,500/unit and below 4. Sale of residential dwelling valued at P3,199,200/unit and below Socialized housing - a housing program and project covering houses Soca boeing 2 TOON ce ede el set citizens which shall Include sites and. services development, long-term financi liberated terms on interest payments and such other benefits under the ‘Urban Development and Housing Act of 1992, RA735 and RA 8763, y 109 Scanned by TapScannerChapter 4 Exempt Sales of Goods, Pro perties and Services intended for the underprivilege Socialized housing shall also refer to nce price is within the lower inter oe ‘Lending Program (UHLP) or any equivalent housing program g the Goverment the private sector or non-government ‘organizations. vw-cost housing ~ refers to housing projects intended for the homeless low-in family beneficiaries, ous by the Government or private developers. which - either be a subdivision or a condominium registered and licensed by the Housing ang Land Use Regulatory Board/Housing (HLURB) under BP Blg. 220, PD No. 957 or ay other similar law, wherein the selling price is within the selling price per uni q 750,000 under RA 7279 and other laws such as RA 7935 and RA 8763. Sales of residential properties within the price ceilings are considered reasonable human necessity and hence exempt. Those sold above the threshold are not considered necessities due to the high price and are thus vatable. Note to Readers: ‘The TRAIN law appears to have reinstated the old thresholds for residential Jot and residential dwelling at P1,500,000 and P2,500,000, respectively. However, RR 13-2018 clarified that the threshold to be used shall be those thresholds as adjusted in 2011 (Le. P1.919.500 and P3,199,200). Under Sec. 4 of the NIRC, as amended, the power to interpret provisions of | the tax code and other tax laws is under the exclusive and original jurisdiction of the CIR, subject to review by the Secretary of Finance. RR 13- 2018 is the official position of the BIR and the DOF. Hence, it must be followed regardless of any contrary academic or “expert” opinion. Yes, the law is superior to regulations but, based on the | and balance, only the courts can invalidate or ellgpaaesanteeric a cov our own judgment or actuation. The P1,919,500 and P3,199,200 thresholds are the rules to follow in the contemporary time. Illustration 1 red yty ABC Realty Corporation sold a residential lot ata price of P1,800,000, This sale is exempt from business tax since the sale conforms to let |: sales price ceiling on sales of residential lot under the law, **@ P4,919,500 ee eee Mlustrative 2 i S ABC Realty Corporation sold a house and lot ata price of P 3 The sale is subject to business tax (Le, VAT) since the sal price ceiling on the sale of residential dwellings. Note that of sales, realtors are usually registered as VAT taxpayers.chapter 4~ Exempt Sales of Goods, Properties and Services siustration 3 on Pedro,an employee, sold a residential lot for 2,000,000. rhe sale is exempt from business tax even if made above the 1,919,500, reause Don Pedro is not regularly engaged in the realty business be emphasized that 1 to the 6% capital price limit The residential lot is a capital asset exempt from VAT. It must the sale of real property classified as a capital asset is subjec ‘gains tax and will not be subject to the business tax. Mlustration 4 The National Housing Authority, a government agency, sells “low-cost housing units” with a price of P1,000,000 per unit to qualified applicants. shall be subject to tax despite being described as The sale of the housing units fh the price limit set by law. “jow-cost housing units” because it does not comply wit Sale of adjacent lots For the purpose of the ceiling, the sale of adjacent residential lots, house and lots, and other residential dwellings within the 12-month period in favor of one buyer shall be treated as one. (RR13-2012) This rule is intended to counter unwarranted partition of the sale into several deeds to evade the business tax. Mlustration ‘A realty developer was supposed to sell a 100m? lot at a price of P2,000,000. However, the lump sum sale of the lot would make it subject to business tax. ‘The developer proposed to sell the first 50 m? lot for 1,000,000 then later the other 50 m? for another P1,000,000 so that the sale of the lot would be tax free. This tax minimization technique is no longer allowed. The sale of the adjacent lots to the same buyer shall be aggregated for purposes of the threshold. Since the aggregate selling price of the lots exceeds the price ceiling, both sales are subject to business tax (i.e., VAT). The VAT will be recognized on the second sale. ‘This aggregation rule does not apply to sale of parking lots which may or may not be included in the sale of condominium units because parking lots are not residential in nature. The sale of parking lot is vatable. Illustration Cevar Realty sold a residential house and lot for P1,800,000 to; 800, eth adjacent parking lot separately priced for P200,000 to a buyer. ee The P200,000 sales of the parking lot is vatable, The P1. J .8M sal ‘otis exempt. The aggregation rule does not apply. ae eae Ree ae unst eee w jices Chapter 4 - Exempt Sales of Goods, Properties and Servict ERS EXPORT SALES OF NON- VAT TAXPAY! are exempt from percenta, The export sales of non-VAT taxpayers [Percentage Under the law, however, the export sale of VAT taxpayers IS Laxable yy! value added tax but at 0% rate, Mustration 1 te producer of high value .,, Ina Bangunan is a non-VAT regi A © cy ora stereo sales. It had the folio. ‘xport and domestic and agricultural products for © | sales during the quarter: ‘Exportsales. =Total ___ | 40, P 1,200,000 P 1,600,000 ne ee 1,800,000 230,000 | Sales of Kalinga oranges 500,000 ‘uo.000 400,000 ___440.009 Sale of wine and ineBars >—“So.oq9 3,400,000 P4.840009 | The following sales are exempt: Domesticsales Exportsales. Pp 400,000 P 1,200,000 P 1,600,000 500,000 1,800,000 2,300,000 = _ 400,000 ___ 400,000 P_3400,000 P_4,300,009 Sales of banana Sales of Kalinga oranges Sale of wine and vinegars Total Remember that the domestic sales of agricultural products in original sto ‘exempt. The export sales by non-VAT taxpayer is also exempt. The domestic sc of processed agricultural product such as the wine and vinegar ts subject to 3 percentage tax. Mlustration 2 Assume the same information in Illustration 1, except that Ina Bangunan is:| VAT-registered taxpayer but did not opt to subject its exempt sales to VAT. The following sales are exempt: Domesticsales Exportsales ___Total _ Sales of banana P 400,000 P - P 400,000 Sales of Kalinga oranges 500,000 - 500,000 Sale of wine and vinegars = 2 = \ Total P_200,000 p_o_- Pp __900,000 ta 40,000 domestic sales of vinegar is subject to 12% VAT. The P3,4000" total export sales are foreign consumption subject to 0% VAT. Illustration 3 Assume the same informati VAT-registered taxpayer an on in Illustration 1, except that Ina Bangunan 5! id opted to subject his exempt sale to VAT. 112 t 1 aah ae oe Ree hae sce uurin ea Chapter 4 - Exempt Sales of Goods, Properties and Services restic sales would be subject to There is no exempt sales, The P940,000 total dom St 12% VAT while the total P 3,400,000 export sales is subject to 0° SALES EXEMPT UNDER TREATIES, INTERNATIONAL AGREEMENTS OR SPECIAL LAWS ‘There are entities that are granted VAT exemption under special laws or international agreements to which the Philippines is a signatory. Sales to exempt entities are exempt from VAT. (Sec. 109 (K), NIRC as amended) Likewise, they are also exempt from the scope of the 3% percentage tax. (Sec. 109(V), Ibid) Examples of exempt parties under special laws or international agreements: 1. PEZA registered enterprises 2. Asian Development Bank (ADB) 3. International Rice Research Institute (IRRI) 4. Philippine National Red Cross 5, Embassies of foreign governments 6, The Philippine Amusement and Gaming Corporation Under the NIRC as amended, sales to these persons are listed under the VAT-exempt transactions. However, for VAT taxpayers, this VAT exemption is favorably effected by means of a zero-rating treatment. Ilustration 1 Ureshi Company, a non-VAT taxpayer, supplies the Asian Development bank with office supplies. During the quarter, ATB made total deliveries of supplies worth P500,000. Based on the Agreement Between the Asian Development Bank and the Government of the Republic of the Philippines, ADB's property and its operations and transactions shall be exempt from alll taxation and any obligation for the payment, withholding or collection of taxes or duty. Thus, the sale of Ureshi Company to ADB is exempt from percentage tax. The percentage tax under Sec. 109 (BB) or the NIRC, as amended, applies to sales or lease of goods or properties or the performance of services other than those enumerated therein. The enumeration includes “transactions which are exempt under international agreements to which the Philippines is a signatory or under special law". ween, 2 suming the same information in the previous illustration, except isa VAT-registered taxpayer. wih Ure The P500,000 sales to ADB will be subject to zero-rated VAT. 113 Scanned by TapScannerChapter 4 — Exempt Sales of Goods, Properties and Services ‘TAX-FREE EXCHANGE OF PROPERTY ~ , The TRAIN law added tax-free exchange of property to the list of VAT. exempt transactions, thus the following exchange of properties are not vatable: uant to a plan of merger 1. Exchange of properties by a corporation in purs| or consolidation 2. Exchange of properties by a person, D exceeding four, which resulted to the acquisition o! alone or together with others nee f control Mlustration 1 Pursuant to a plan of merger between Zeus Ci taxpayer, and T-Rex Company, Zeus Company shall surrender assets: ompany, a VAT registered the following Cash P 500,000 Receivables 800,000 Inventories 1,800,000 Property, plant and equipment 3,000,000 Patent 1,500,000 Zeus Company shall receive 2,000,000 shares of stocks of T-Rex Company which it plans to distribute to its shareholders after which it shall cease to exist and operate as a legal entity. The transfer of all of Zeus Company's assets including the ordinary assets inventory and property, plant and equipment shall not be subject to VAT. This exchange will not be subject to the rules on “deemed sales” which will be discussed | in later chapters. Assuming Zeus is a non-VAT taxpayer, the same shall not be subject to percentage tax. Non-VAT taxpayers are not subject to percentage tax on the sale as the tat ‘applies only to sales of goods or services in the ordinary course of business. IMlustration 2 Miss Vanessa, a VAT-registered, taxpayer exchange his real estate inventories for the stocks of a start-up corporation. As a result of this exch obtained 51% voting stake in said corporation. Ste Seaaee The transfer of real estate inventory, an ordinary asset, in this to VAT since this is a tax-free exchange of property. eer Assuming Vanessa is a non-VAT registered taxpayer, the transfer of the real estatt inventory shall not be subject to percentage tax since ances ae only to sales of goods or services in the ordinary course of business, ex incidental transactions. 114 Sertich seuu ryeee" _—O 4 Exempt Sales of Goods, Properties and Services chapter OF GOLD TO THE BANGKO SENTRAL NG PILIPINAS | (Bsr) sale of gold to the BSP from zero-rated to s ‘The TRAIN law reclassified the Under RA 11256, the tax applies both to regist tniners and registered gold traders: +, sold to the BSP his gold production gravity of 14.9. e refining charges: non-VAT-registered miner iiustration 1 Mang Joseph. f raw gold nuggets with specific of 2,000 grams of ‘The final BSP assay results in the following pay-out before 3,167,200 | 1,480 grams P 2,140.00 P 19,080 | Gold (74%) Silver (18%) 360 grams 53.00 Trace elements (8%) —_160-grams 7, eee Total —2.000erams P3186.280 silver is subject to 3% The P3,167,2 percentage tax. The BSP shall wit final tax. 100 sale of gold is exempt. The P19,080 sale of. hhold the 3% percentage tax as, Mlustration 2 “Assuming the same information in ilustration 1 except that Mang Joseph is a VAT-registered miner. The P3,167,200 shall still be exempt The P19,080 sale of silver is subject to 12% VAT. The BSP shall withhold final VAT on the selling price of the silver. The final withholding by government agencies and GOCCs on their purchases will be discussed in future chapters. Mustration 3 Boss Edong, Is gold trader. He purchases metal refiners and small-scale miners. He refined the gold and silver from electronic scrap gold and sold them to the following: _Jewelers_ __BSP__ __Total _ Sales of gold P 200,000 P 800,000 P 1,200,000 Sales of silver 100,000 ____40,000 ___140.000 Total P300,000 P__940,000 P_1,340,000 Under RA 11256, the gold sold by traders shall be presumed purchased from “Whether VAT registered or non-VAT registered, Boss Edong shall be exempt Asiana tox on che 7000.00 sale of wold om the BSF The ales 9 pold ae ‘and the sale of silver (s vatable. It is subject to 12% VAT if Boss Edong ‘taxpayer and to a 3% percentage tax if he is a non-VAT taxpayer, 115 Se WLR StUi ices Chapter 4 — Exempt Sales of Goods, Properties and Servi ‘The small scale mining industry ee as RA 11256 is a classic example of the taxation owe eect 3 fr to build, Before RA 11256, sale of gold to nee ran excise tax (now 4%) and a 5% withholding tax, The ese tack: exodus of gold productions from the small scale as Pekgend no 1 Which is effectively untaxed. The government is at the BIR and no gold for the National Treasury: b \e To address this, Congress lifted the income tax, excise tax and busin altogether so that gold will again enter the coffers es rei F E : It is a win-win solution. There is no tax for the BI treasury which help strengthen our Gross International Reserve: EXEMPT SALES OF SERVICES, IN DETAIL EDUCATIONAL SERVICES OF SCHOOLS Educational services rendered by: 1. private educational institution duly accredited by the: a. Department of Education (Dep-Ed) b. Commission on Higher Education (CHED) ¢. Technical Education and Skills Development Authority (TESDA) 2. government educational institutions Considering that education is a necessity, the law exempts school fees {ro business taxes. This exemption covers government and private sciool proprietary or non-profit, so long as they have the required accreditation from the government. ‘The exemption does not cover services rendered by educational institutions that are not accredited by Dep-ED, ‘ sige yy Dep-ED, CHED or TESDA, such as: 2, in-service trainings 3. review classes 4. other similar services Mlustration 1 Hebron College, a private coll 2 lege accredited 00 receipts from tuition fees during the month, Henmarenarted sco a rental income from the building being rented by commercial tenon ™ ints, The tuition fee is exempt. The P100, to education; hence, subject to baie San income from unrelated 116 Scanned by TapScannereae a chapter 4— Exempt Sales of Goods, Properties and Services Ilustration 2 Topnotch Pampanga, an accredited continuing professional education provider, provides professional seminars, professional reviews and certification programs for graduates and professionals. The receipts of Topnotch Pampanga from the foregoing services is subject to business tax. It is subject to VAT if it is a VAT-registered taxpayer and 3% percentage tax ifnon-VAT registered taxpayer. EMPLOYMENT Services performed by individuals in pursuant to an employer and employee relationship The provision of services to an employer under an employer-employee relationship is not a business. Hence, itis exempt from business taxes. Professional practitioners, consultants, talents, TV artists, brokers and agents are not employees; hence, they are subject to business taxes. Illustration 1 Aljon, an audit practitioner and a part-time teacher earned the following: Compensation income P 1,800,000 Receipts from audit clients 1,200,000 The compensation income is exempt from business tax as employment is not business. Only the P1,200,000 receipt from professional fees is subject to business tax because the exercise of a profession is considered business. Mlustration 2 Dr. Almor Ranas arranged with a hospital to accept his clients. He entertains clients in the hospital. The hospital shall bill his professional fees in the name of the hospital. The hospital repays Dr. Ranas his professional fees less hospital accommodation charges. The professional fees are not compensation income and are therefore subject to business tax Furthermore, medical practitioners are not allowed to claim exemption under the cloak of the hospital service exemption. Director's Fees Previously under RMC 34-08, directors who are not employees of a corporation are considered engaged in business and hence, subject to business taxes. BIR made a reversal of the rule in RMC 77-2008. declaring that Aa Reeser nee eet Beer Ee others, that director's fees do not arise from an undertaking that is i ed to be pursued in the course of business. ae 117 eels mc securChapter 4 — Exempt Sales of Goods, Properties and Services According to RMC 77-2008, engagement in business or trade involves th.) Cont basis a. Continuity of activity on a going concern r b Objective to earn unrestricted amounts of pecuniary gains or profs c. Unrestricted offering of the goods or service to any customer or client AGRICULTURAL CONTRACT GROWERS AND MILLERS Services by agricultural contract growers and milling for others y palay into rice, corn into grits, and sugar cane into raw sugar ic ducing for other ricultural contract growers refers to persons pro’ n ia livestock or other agricultural and marine food products in their original state. Mlustration 1 John was contracted by Purepork, a distributor of pork and chicken mex products, to raise hogs and chicken. John shall be paid a fixed contract price fr the undertaking. John is an agricultural contract grower. The contract price received by John fron Purepork is exempt from business tax. The sale of Purepork of its meat productsis | | also exempt from business tax. Mustration 2 Cordilleran Milling Company offers a variety of milling services ranging fron Palay, corn, cane to raw sugar, and gold ores. It had the following receipts during the month: Palay and corn milling fees P 600,000 Sugar milling fees : 200,000 Ore ball milling fees 400,000 Only those receipts from milling services forthe processing of agri for ultimate human consumption are specifically complete : oe from the bail milling of gold ore are taxable. 1 itera It must be noted that the exemption is limited to the or raising for others and milling of agricultural or Agricultural support services, food Services of producint | marine food products are taxable. Processing and food service enterprists Mustration 1 Horacio Company is a general agricultural contractor. It receipts during the month: had the followiné 118 Seen ase———E chapter 4— Exempt Sales of Goods, Properties and Services Rice and corn milling fees Pp 170,000 Construction fees for a poultry building 500,000 Installation fee for a biogas plant 300,000 Installation fee for a solar-power plant 200,000 50,000 Cultivation fees for rice field preparation Installation fee for a submersible pump 80,000 Total foracio Company is not a producer ‘Only the rice and corn milling fees is exempt. Hi ms -ceipts from agricultural support of livestock, poultry or crops for others. Its re services is vatable. Mlustration 2 SA Dressing Company operates a chi farm producers are brought, slaughtere ken dressing plant whereby chicken of d, cut and dressed for supermarket Dressing services on agricultural products even if the original state is not agricultural contract growing or milling; thus, its vatable Mustration 3 You Lechon, Inc. sells charcoal roasted swine, chicken or ducks offered with different menus in its dining outlets. You Lechon is subject to VAT even if the goods sold it sells underwent simple processing. It is a restaurant classified as a seller of service rather than seller of ‘goods. Restaurants is not one of those exempt sellers: TRIPS. ‘of services under SEATCH? VA Mustration 4 Chooks sells roasted swine chicken and ducks alone without the dining space where customers buy and leave. Chooks is not a seller of service but a seller of goods. Since it is selling agricultural product which underwent simple processing, it shall be exempt. RESIDENTIAL LEASING Lease of residential unit with monthly rental not exceeding P15,000 Residential units - refer to apartments and houses and lots used for residential purposes, and building or parts or units thereof used as dwelling places such as, dormitories, rooms and bed spaces, except, motels, motel rooms, hotels, and hotel rooms, lodging houses, inns and pension houses. sales. residual product is in | | | eel meen: | an apartment unit - in the case of apartment 2. house - in the case of residential houses 119 ‘Scanned by TapScannerChapter 4— Exempt Sales of Goods, Properties and Services 3. per person - in the case of dormitories, boarding houses and beds s,..._ 4. perroom in the case of rooms for rent “ tion is to provide tax incentive ;,. a the oe of fone ae Jow considering that housing |, a necessary and natural human consumption. are Cohen Tideed is a real property lessor with the following properties ang receipts: Perunitrental Apartment houses 20,000 P font Residential houses 12,500 % ‘Boarding houses 2,000 —2.400,000 Total annual rent 23,630,000 ‘The following indicates the taxability of these residential dwellings: ; Perunitrental Annualizedrent Tax status Apartment houses 20,000 P 480,000 Taxable Residential houses 12,500 750,000 Exempt Boarding houses 2,000 2.400.000 Exempt Total annual rent, B.3,630,000 | The residential units rented for P15,000/month and below are exempt from Vs or percentage tax regardless ofthe aggregate annual rental receipts, The rentals of the apartment houses is vatable but since the aggregate rentals did __notexceed the P3M VAT threshold, Cohen pay 3% percentage tax on this reccip: Mlustration 2 ‘Alpine Residence isa real property lessor withthe following properties: ‘Perunit rental 10Class A Residence P 20,000 arse 12 Class B Residence 16,000 2:304,000 30 Class C Residence 15000 Total rent ailing. bo, ae oar Voces he Jusiness tx Class and Class B are cb e if A ani (rc ea an en on Class A and Class B receipts. ine Residence si Rete me ceenurasa «4 Chapter 4 — Exempt Sales of Goods, Properties and Services Mlustration 3 Gensan Travel Lodge has 200 rooms with average occu days a month. Gensan Travel Lodge charges P2,000 for eac 320,000 average monthly fees. pancy of twenty-four h day of stay. Itearns 1s hence subject to business tax. rojected annual receipt of threshold, Gensan Travel Hotels, inns, and lodges are not residential dwelling: ‘The exemption limit does not apply to them. Since the p 3,840,000 (P320,000 x 12) exceeds the 3,000,000 VAT Lodge is subject to VAT. SALE OF SERVICES BY COOPERATIVES The gross receipts from sale of services by cooper: marketing or multi-purpose cooperatives is exempt discussed under sales of goods by cooperatives. atives such as lending, similar to the rules HEALTH OR HOSPITAL SERVICES Medical, dental, hospital and veterinary services except those rendered by professionals and sales of drugs by hospital drugstores ‘The sale of the above services is not subject to business tax. This rule applies to all health services whether rendered by a private, non-profit or government hospital. Health services rendered by professionals, and the sale of drugs are vatable. Illustration Betany Hospital, a private hospital, had the following receipts and sales during a month: Patient service revenue P 10,000,000 In-patient sales 1,000,000 Out-patient sales - Anti-diabetes and hypertension medicines 800,000 Other medicines 3,000,000 Check-up fees 200,000 Laboratory services 2,700,000 Rent income on clinic space leased to doctors __500,000 Total P18,200,000 The following receipts and sales are exempt: Patient service revenue P10,000,000 In-patient sales 1,000,000 Out-patient sales: - Anti-diabetes and hypertension 800,000 ~ _ Check-up fees 200,000, Laboratory services Total exempt receipts 121 Resa cucaChapter 4 — Exempt Sales of Goods, Properties and Services Hospital services including laboratory services are exempt. In-patient revenyg refers to the sale of medicines to confined patients. This ts not a sales of goods by ratheran essential part of the hospital medical services, hence exempt On the other hand, out-patient sale of medicine or the sale to non-confined clients is a taxable sale of goods but the sale of medicine prescribed for diabetes ang hypertension is an exempt sale of goods. Check-up or consultation fees charged by the hospital outpatient clients is an exempt sale of hospital service. Note that the leasing of clinic space ts a sale of service that is not part of the listeg exempt sales of services and hence, vatable. HOME OWNER'S ASSOCIATION OR CONDOMINIUM CORPORATION ‘The TRAIN law exempted association dues, membership fees, and other assessments and charges collected by homeowner's associations and condominium corporations on a from business tax. In the absence of profit-seeking motive as proven by the reimbursement-type assessments of its members, the home owner's or condominium associations cannot be said to be businesses. However, if it is being operated as if it sells its services to its members from which it derives a mark-up and profit, then it is taxable business. LEASE OF PASSENGER OR CARGO VESSELS AND AIRCRAFTS, INLCUDING SPARE PARTS AND EQUIPMENTS THEREOF Similar to import and sales, the leasing of vessels and aircrafts including spare parts and equipment thereof are VAT-exempt. Illustration DXY Enterprise imports, sells and leases air and water crafts. During the quarter, it had the following transactions: Import Sales ‘Lease rentals Yacht P 2,000,000 P 3,000,000 Pp 500,000 Tanker 20,000,000 25,000,000 800,000 Roll-on Roll-offboat 4,000,000 6,000,000 600,000 Fishing boat 2,400,000 3,600,000 300,000 Cargo piles 50,000,000 70,000,000 2,500,000 Private jets 40,000,000 50,000,000 4,000,000 The following indicate the taxation of each of the following transactions; Yacht pene Sales Lease rentals 4 vatable vatable Tanker exempt vatable Roll-on Roll-off boat eons ooo exempt Fishing boat vatable ert: eee ae Seen Sugeee: Chapter 4- Exempt Sales of Goods, Properties and Services cargo plane exempt exempt exempt private jets vatable vatable vatal Yatch, fishing boat and private jets are not intended for passenger of carg? | transport and hence taxable. ‘TREATY-EXEMPT SALES OF SERVICES The receipts from services sold to enti international agreements to which the PI exempt. Same rules apply similar to our discussion sales of goods. REGIONAL OR AREA HEADQUARTER OF A MULTINATIONAL COMPANY Services rendered by regional or area headquarters established in the Philippines by multinational corporations which acts as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia Pacific Region and do not or derive income from the Philippines A regional or area headquarters (RAH or RHQ) is an integral part of the multinational corporation. It is not a separate business or a branch, but an é administrative office which does not derive income on its own; hence, it is i not subject to business tax. On the other hand, a regional operating headquarters (ROHQ) is taxable. ities which are exempt under treaties OF hilippine government is.a signatory are n on the topic under exempt | | Milustration 1 | A representative office of Institu Company, a corporation established in the | Netherlands, is based in Baguio City. The office coordinates activities of | branches and subsidiaries of Institu Company across Asia. Institu Company subsidizes the Philippine office by transferring P2,000,000 monthly to cover | | administrative expenses. ‘This representative office is exempt since it is not a business. The monthly subsidy {from Institu Company are mere advances or reimbursements for office expenses. penis) 2 ume the same information in the preceding problem, ext that th Philippine office is a research office. Research output are sold by the Philippine office to its affiliates and subsidiaries of Institu in the Philippines and Asia. In this case, the Philippine office would be subject to a business tax. Sales of % services for Philippine affiliates would be vatable. Sales of services for overseas affiliates would be subject to zero-rated VAT. Sd 123 eee a ecee mo eenschapter 4— Exempt Sales of Goods, Properties and services Mustration 1 Cordillera Courier pul 1g the month, it had the following receipts: lishes a weekly newspaper. Duriny sale of newspapers P 500,000 Fees from advertisements 300,000 50,000 Rent from lessees of vacant spaces only the sale of newspapers is exempt. Advertisement fees and the rent of its vacant space are subject to business tax. Mlustration 2 Baguio Printing Press reported the following receipts from printing services: Books P 300,000 Newspapers 200,000 200,000 Tarpaulins and campaign ads The receipts from printing of tarpaulins and c tax The printing fees from books and newspapers are exempt campaign ads are subject to business Mlustration 3 Jet Bookstore reported the following sales during the month: Sales of book inventories P 400,000 30,000 Commission income from book publishers ‘goods. The service of undertaking to sell The sale of books is an exempt sales of. n is not among those exempt sales of books for others for a fee or commissior services; hence, commission income is vatable. SALES OF SERVICE TO SENIOR CITIZENS AND. PERSONS WITH DISABILITY Senior citizens and PWDs Senior citizens and persons with disability are exempt from VAT on essential services provided by the following covered establishment: 1. Lodging establishment, such as apartel, dormitory, motorist hotel, tourism inn, pension house excluding long-term residency arrangements . Hospital and clinic Sports and recreation centers Restaurants such as eating places offering regular or special menus to the public Land, air and sea travel Medical, dental, diagnostic and laboratory fees and professional medical fees Funeral or burial services for the burial of senior citizens 125 Cem Scouts fen 4 onChapter 4~ Exempt Sales of Goods, Properties and Services Mlustration 1 Amedical doctor had the following clients and BTSs service fees: Patients Senior citizens P 18,000 P 70,000 Persons with disability 12,000 40,000 Minor patients 10,000 28,000 Adult patients 24,000 42,000 The following are exempt: Senior citizens P 18,000 P 70,000 Persons with disability —12.000 —40,000 Total 240,000 £110,000 Mustration 2 ‘TLC Lechon, a non-VAT Tegistered, seller of roasted chicken, decided to add; small space for dine-in service to cater for customer demand. it hag 1, following receipts and sales for the month Patients Dine inreceipts ‘Senior citizens P 8,000 P 40,000 Persons with disability 2,000 12,000 Other customers 14,000 240,000 Patients Dine in receipts ‘Take-out sales Soca _P 8000 P 40,000 Persons with 2,000 12,000 Other customers. . 240,000 The original take-out sales are sales » the good ae tiple ay areca ie Goods not service Since the g The dine-in receipts are Sales of service ‘not sales of goods hence normally taxable but restaurant receipts from senior. citizens and persons With disability are legal! exempted hence non-taxable. The dine-in seceipts from other customers shill & Subject to 3% Percentage tax since TUCLechon isa non-VAT taxpayer Mlustration 3 : A senior citizen presented a senior citizen identification when paying funeral expenses of his deceased grandetara seentionEE ——_ Chapter 4~ Exempt Sales of Goods, Properties and Services The VAT exemption including the senior citizen discount can be claimed for the burial of the senior citizen. The VAT exemption can only be availed by senior ‘citizens or persons with disabilities but not for or by ‘other persons. Mlustration 4 A beautiful young lady is presenting a senior citizen identification card for the purchase of food for herself and her friends. The VAT exemption privilege 1s reserved by law only to senior citizens oF persons with disabilities. The sale is vatable. Is sale to senior citizens and persons with disability subject to percentage tax? Frith the codification of the exemption of sales of essential goods and services to senior citizens and PWDs in the list of exempt transactions under See, 109 of the NIRC, it is now clear that they are excluded on the scoPé of the 3% percentage tax under Sec. 116 thereof. ~~ it must be noted therefore that the sale of essential goods and services to senior citizens and PWDs are no longer subject to VAT and percentage tax. ‘itizens and PWDs Recording of sales to senior ci s and persons with disability Aside from the VAT exemption, senior citizen: (PWD) are entitled to a 20% special discount on their purchases from qualified establishments. This discount including the VAT exemption shall Be applied only for the consumption of the senior citizen or PWD. ‘As discussed in our Income Taxation book, the amount of the discount is reflected by the establishment as a deduction against gross income subject to the regular income tax. The sale to senior citizens and PWDs is recorded as: Cash/Receivable xx Senior citizen/PWD discount cad Sales XXX Mlustration 1 AVAT-registered restaurant sold food and beverages totaling 2,240 toa senior Gitizen who presented a senior citizen identification card. The ‘senior citizen was accompanied by three other non-senior citizens. The amount to be billed shall be computed follows: 127 Bemeomo searSee SE iedwes of Goods, Properties and Services a Chapter 4 - Exempt sales Ecozone locators 5 i Ecozone locators are subject to a special 5% gross income tax, in ae ss faxes national or local. As such, they will not be subject to percentage taX. proprietors of theaters or cinemas The question of whether or not theaters 0} A laid to rest by the honorable Supreme Court in CIR vs ‘SM Prime Holding Col first Asia Realty Development Corporation (GR. No. 183505, February 2010). Local government (provinces and cities) has the exclusive power to impose business tax on gross receipts of cinemas or theaters Theaters OF cinemas are therefore not subject to VAT or percentage tax discs is not the same ject to VAT or cinemas are subject to VAT was lms, tapes and Note that the lease of motion pictures, fi films, This is subj as exhibition of motion pictures or percentage tax. Mlustration $M Entertainment Corporation leases films from producers. It leased the film Martina. It also leased the film “Gangnam’” from “ang Probinsiyana” from Coca Oppa Entertainment Corporation in Korea. SM Entertainment re from the show of the films nationwide. SM Entertainment Corporation, an exhibitor of films, is subject to local ‘amusement tax in the provinces or cities where its cinemas are situated. It is not subject to VAT or percentage tax. Coca Martina is vatable on the lease ofits films to SM Entertainment. The lease of the film from Opa Entertainment in Korea is alized P200M «an import of service subject to the 12% final withholding VAT. Note to readers The details of the rules of the special tax incentives conferred by law to senior citizens, persons with disability and special tax incentives to economic zone locators including local government taxation will be discussed on our third volume entitled “Local & Preferential Taxation with Practical Int ion”. invoices Requirement for Exempt Sales ith respect to VAT-taxpayers, exempt sales of goods or services must be specifically designated as such by indicating or pre-printing the caption EXEMPT" on the invoice or receipt. The failure to comply with this requirement shall make the sale itabli sale will be subject to VAT if the taxpayer is a VAT-registered ipaper ae subject to 3% percentage tax if the person is a non-VAT-registered taxpayer. 129 Sel RA) ersRee mca——x Chapter 4— Exempt Sales of Goods, Properties and Services 26, Smoked or dried fish 27. Canned fish True or False 1 1, The sale of processed agricultural products is vatable. The sale of fruits and vegetables is exempt from business tax. 2. 3. The sale of fertilizers, seeds, and pesticides is exempt from VAT. 4. Exempt sales are exempt from both the VAT and percentage tax. 5. 6 Frozen meat is considered a processed agricultural food product. A fish pond operator is subject to 3% percentage tax. A farmer is subject to business tax on farming occupation. 8. All sales of agricultural or marine food products are subject to business tax. 9. The services provided by agricultural contract growers are vatable. 10. The employment of chemical treatment to agricultural or marine food products is considered state altering. 11. The sale of bread is exempt from business tax. 12. The services of an agricultural contract grower are subject to VAT. 13. Restaurants are exempt from VAT. 14. A fruit vendor is exempt from business tax. 15. A manufacturer of canned sea foods is exempt from VAT. True or False 2 1. The transport services of an international carrier is exempt from VAT. Agricultural cooperatives are exempt from VAT. Electric cooperatives are subject to VAT. The sale of commercial lots where the selling prices do not exceed P1,919,500 a unit is exempt. Bookstores are totally exempt from VAT. Schools are subject to VAT. Hospitals are subject to VAT. The export sales by VAT taxpayers are exempt from VAT. The export sales of non-VAT taxpayers are subject to zero-rated VAT, (0. Consultants are exempt from VAT because their services are akin to employment. 11. The leasing of residential units is exempt from VAT if the annual rentals do not exceed P15,000 per unit. 12. Domestic airliners are exempt from VAT on their transport of passengers. 13. The sale of a residential dwelling by a non-dealer is subject to VAT if the selling price per unit does not exceed P3,199,200. 14. The sale of an adjacent lot to the same buyer shall be treated as one. 15. The sale of adjacent dwellings to different buyers shall be aggregated as one. geexen Rete Mccanneee Re ctuChapter 4 — Exempt Sales of Goods, Properties and Services 11. Which of the following establishments may qualify for ‘exemption from business tax? a Hotel c. Boarding house b, Inn d. Resort 12, Which of the following is least likely subject to VAT? a. Banana cake ©. Chocolate b. Cassava chips d. Corn grits 13, The sale of which of the following is exempt from business tax? a Wine Fish sauce b, Vinegar d. Boiled eggs 14. The sale of this agricultural supply is exempt from business tax a. Fertilizer c. Farm tools b. Farm machineries d. All ofthese 15. Which is subject to VAT when sold? a Seeds c. Feeds b. Fingerlings d. None of these 16. Which is not exempt from business tax? a. Miller of palay into rice b. Miller of corn into corn grits Miller of sugar cane into refined sugar d. Miller of sugar cane into raw sugar 17. Which is exempt from business tax? a. Agricultural contract growers b. Food processor Paper manufacturer d. Allofthese 18. Which of the following transactions is not subject to business tax? a. Sale of game fowl b. Sale of specialty feeds c. Sale of genetic materials for poultry d. Sale of aquarium fish 19. Which of the following animals is not considered as a pet? a. Domestic animal Race horse b. Livestock dd. Aquarium fish 20. Which of the following sales is not exempt from business tax? a Sale of pets b. Sale of unprocessed agricultural food products 133 See mec aisChapter 4— Exempt Sales of Goods, Properties and Services Sale of processed marine foods 4. Sale of unprocessed non-food agricultural products Multiple Choice - Theory: Part 2 1. 8. Which is subject to business tax? a. Aprivate hospital c.A government hospital b. Anon-profit hospital d. None of these Which is not subject to business tax? a. Apurely employed professional b. professional practitioner . Aself-employed individual d. Allofthese . All of these pay business tax, except a. Stock broker Consultant b. Insurance agent d. Employee |. Which of the following pays business tax? a. Regional operating headquarters b. Regional administrative headquarters . BothAandB d. Neither Anor B ;. Which is exempt from business tax? a. Receipts from rental of aircraft b. Receipts from rental of vessels Sale of aircraft or vessels d. None of these Which is an exempt medical service? a. Services of surgical doctors b. Services of dentists Services of pediatricians d. Hospital services ‘The gross receipts or sales of the hospital from whi sources is not exempt from business tax. ich of the following ¢, Dental services d. Veterinary services Which ofthese Is exempt a. Sale ofsircatt tendencies b. Sale of aircraft for c. Both AandB International transport d. Neither AnorB 134 Scanned by TapSeannerchapter 4 — Exempt Sales of Goods, Properties and Services Which of these is subject to business tax? Sale or lease of sea vessels for: ‘domestic transport Sale or lease of sea vessels for international transport Both A and B Neither A nor B aose 10. Which is exempt from business tax? a. Private school ‘c. Government school b. Non-profit school d.All ofthese 11. Which of these receipts by a school is more likely to be subject to business tax? a Tuition fee ¢ Computer fee b. Miscellaneous fee d. Rent income 12. Which of the following items is exempt from business tax? a. Sale of books ¢ Sale of ballpen and notebooks b. Sale ofnewspapers _d. Sale of magazines 13. Which is not an accrediting agency for a school to be exempt from business tax? Department of Education Department of Health Technical Education and Skills Development Authority Commission on Higher Education pose 14, Which of the following activities related to books is exempt from business | tax? a. Printing Publication b. Sale All of these 15. Which of the following statements is correct? a. The sale of real property by any person is subject to business tax. | b. The sale of real property is vatable only when the seller is a real dealer. “4 The sale of property held for sale, leas Thea of Je or use in the course of business ds The The casual Sal of el property ued in busines is subject to business 16. The sale of real property bya person Hiss ey Ae noweneseed oe b, exempt from business tax. © partially subject to business tax. 4. automatically subject to VAT. 135 bore To SAE UeChapter 4 — Exempt Sales of Goods, Properties and Services 17. Which of the following may not be subject to business tax when sold? a. Property held for sale b. Property held for lease ©. Property held for use d, Property held as investment 18, What is the price limit for the exemption of residential lot? a 1,000,000 ¢,P1,919,500 b. 1,500,000 , P3,199,200 19. What is the price limit for the exemption of residential dwellings? a. P1,000,000 . P1,919,500 b, P1,500,000 d. P3,199,200 20. The lease of residential units is exempt from business tax provided y. rent per month per unit is a. more than P12,800. c.not more than P12,800. db. less than P15,000. d.not less than P15,000. Multiple Choice - Theory: Part 3 1. Realty dealers, developers or lessors are usually registered as a. Excise taxpayers: ¢. VAT taxpayers b. Percentage taxpayers. Any of these 2. Which of these is vatable? a. Properties classified as ordinary assets b. Properties classified as capital assets © BothAandB 3. Which is exempt under certain price conditions? ape ube housing unit eer nly d. motels. Scanned by TapScanner= . chapter 4— Exem 10. 11 12, 13, 14, pt sales of Goods, Properties and Services nal carrier is owned by a Anijomestic corporation. ¢ Either A or B d.Neither A nor B b. Foreign corporation. carrier is a fore’ Which of the following activities by any . exempt from Philippine business tax for being rendered outsid ‘An intern ign consumption the to the Philippines Philippines? " ages eee for abroad ‘a. Inbound transport of passengers an‘ t Outbound transport of passengers and baggage °F cargoe: c AandB d. None ofthese ‘The receipts from outgoing transport of domestic carriers is ‘a. subject to zero percent tax. b. subject to zero percent VAT. exempt from business tax. d. subject to excise tax. 1, the receipts from inbound flights is Toan international car subject to percentage tax a b. subject to VAT. ¢._subject to VAT for passenger and percentage tax for cargoes: d. exempt rally subject to VAT. ‘Statement 1: Cooperatives are gene! sentage tax. ‘Statement 2: Cooperatives are generally subject to perc Which is correct? a. Statement 1 b. Statement2 ¢. Both statements d. Neither statement ‘The sale by non-VAT registered persons to entities in the Philippines with indirect tax exemption is considered ‘a. Adomestic consumption subject to VAT. b. Adomestic consumption subject to percentage tax. c._A foreign consumption exempt from business tax. d. A foreign consumption subject to zero-rated VAT. ‘Asarule, all cooperatives are exempt from business tax, except a. agricultural cooperatives. b, electric cooperatives. ©. credit cooperatives. d._ None ofthese Which of these entities do not have indirect tax exempt a. Philippine Amusement and Gaming Corporation TPAGCOR) b. Development Bank of the Philippines (DBP) 137as and services Chapter 4 - Exempt sales of Zi baa International Rice Research Institute d. Embassies 15. The export sales ‘ofnon-VAT taxpayers are a. exempt. b. subject to percentage c subjectto 12% VAT. d._ subject to 0% VAT. Probl Part1 so tails of sales and collection during thy Multiple-Choice ~ had the following de 1. Aseller of goods month: p 200,000 Receivables, beginning Gross sales 400,000 Less: Collection 500,000 Receivables, end p_100,000 What is the amount subject to business tax? a P500,000 . P300,000 ‘p. P400,000 d.P200,000 2. 1m the immediately preceding problem, determine the amount subjec business tax if the taxpayer is a seller of services. 4 500,000 . P300,000 b. P400,000 . P200,000 3, Afarm supply dealer made the following sales during a month Fertilizer P 45,000 Hybrid corn and rice seeds 65,000 a 120,000 fater pumps and hand tractors 240,000 Total P_470,000 Compute the sales subject to busin a P110,000 U PES0.000" b. P 120,000 4 P360,000 4. Mang Andrew is a meat vendor. irchast . He operators butchers the hogs and salt aieatina pubte meee ark In January 2020, Man; , Mang Andrew purchased Mang Manso and sold these to’ oneal eee SIE 180,000 fg 138 Sete Sean isee | 4— Exempt Sales of Goods, Properties and Services ‘Which statement is correct? ‘a Mang Manso shall not pay business tax, but Mang Andrew shall pay business tax. b. Mang Manso shall pay business tax, but Mang Andrew shall not pay business tax. Both Mang Manso and Mang Andrew shall pay business tax. Neither Mang Manso nor Mang Andrew shall pay business tax. 5, Afarmer sold the following goods in March: 20 sacks rice P 45,000 100 sacks corn 90.000 Total P_135,000 Determine the gross selling price subject to business tax. A PO .P-90,000 b. 45,000 .P 135,000 6. A restaurant reported the following revenues and receipt in May 2020: Rice and viands P 120,000 Soft drinks 10,000 ‘Snacks ——30.000 Total P_1.60,000 Compute the exempt sales. a PO c. P150,000 b 120,000 4.P160,000 7. 888 Canning Company produces canned sardines but sells raw excess fish ‘during peak fishing seasons or preserves them by sun-drying and sells them to the local market. ‘The following were the sales in January 2020: Canned sardines P 850,000 Excess fresh sardines 130,000 Dried fish 40,000 Total sales b1020.000 ‘What is the amount of taxable sales? 0 .P820,000 TR Pra0000 4.P850,000 ‘Masipag is a vegetable trader. He buys raw vegetables from farmers ‘them to consumers. Sete RssChapter 4 — Exempt Sales of Goods, Properties and Services Which statement Is correct? a. Rodel shall pay business tax as he is engaged in pugneee . Rodel shall not pay business tax on the sale of vegetables Rodel shall not pay business tax as he is not engaged in the farting business. ead d. Rodel shall pay business tax since he Is @ trader rather than a farmer £ P80,000 on the aver 14 P5,000 from the 9, A small “sari-sari” store has annual receipts 0! had a sales of P3,000 from sales of candies an cigarettes. What is the taxable amount of sales? a PO c P5000 b. P3000 d. P8,000 10. A“sari-sari” store registered as a VAT-taxpayer had the following sales Sales of newspapers P 20,000 Sales of fish and meat 30,000 Sales of fruits and vegetables 10,000 Sales from snacks and soft drinks 15,000 Sales from general merchandise 80,000 eS P_155,000 The total vatable sales is PO ©. P115,000 95,000 4. P155,000 11. Rovin Store made the following sales during the month: Frozen fish Fane 00 Processed foods Za p00 Household appliances and fu 220,000 Total miture — —_250.000 Determine the vatable sles. a PO < b. P220,000 a Pszto00 12. Mr. Kwon imports Korean vegetables and for Korean residents in the Philippines The tthe domestic marks operations during the period: ‘The following data relates to his Total landed cost of Total lest ea P 800,000 1,200,000 Reece mess aucasZT aE Chapter 4 — Exempt Sales of Goods, Properties and Services What is the VAT on importation? a PO © P-96,000 b. P24,000 d.P 144,000 13. In the immediately preceding problem, whats the VAT on sales? a PO . P96,000 b. P24,000 d.P144,000 14. Mr, Louisville, an Australian foreign student, sold his cellphone for P50,000. What is the business tax payable? a. None. b. P1,500 percentage tax c. P6,000 VAT d. Excise tax plus P6,000 VAT 15, A printing press had the following revenues and collections during the month: —Revenue _Collection_ Books P 200,000 P 180,000 Advertising magazines 250,000 150,000 Election campaign materials 700,000 400,000 Tarp 80.000 80,000 Total 21,230,000 P__810,000 Determine the vatable amount. a. P480,000 ¢. P780,000 be P.630,000 4.P1030,000 16. Mr. Panzer is both employed and self-employed. He had the following income receipts during the month: Gross compensation income P 120,000 Director's fees 80,000 Lomgery ae Professional fees ——200,000 Total gross income P_400,000 The total amount subject to business tax is a. P 120,000. c. P280,000. +. 200,000. , P400,000. 17. An insurance agent had the following receipts during the month; Commission income P 90,000 Loan 120.000 Total B_210.000 een ar Soc uures