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Republic of the Philippines
Second Regular Session
[ REPUBLIC ACT NO. 7716, May 05, 1994 ]
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM, WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:
Section 1. Section 99 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows:
“Section 99. Persons Liable. 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 liable to the value-added tax (VAT) imposed in Sections 100 to 102 of this Code.
“The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of this Act.
“The phrase ‘in the course of trade or business’ means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity.
“The rule of regularity, to the contrary, notwithstanding, services as defined in this Code rendered in the Philippines by nonresident foreign persons shall be considered as being rendered in the course of trade or business.”
Section 2. Section 100 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows:
“Section 100. Value-added tax on sale of goods or properties. (a) Rate and base of tax. There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to 10% of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor.
“(1) The term ‘goods or properties’ shall mean all tangible and intangible objects which are capable of pecuniary estimation and shall include:
“(A) Real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business;
“(B) The right or the privilege to use patent, copyright, design or model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or right;
“(C) The right or the privilege to use in the Philippines of any industrial, commercial or scientific equipment;
“(D) The right or the privilege to use motion picture films, films, tapes and discs; and
“(E) Radio, television, satellite transmission and cable television time.
“The term ‘gross selling price’ means the total amount of money or its equivalent which the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or properties, excluding the value-added tax. The excise tax, if any, on such goods or properties shall form part of the gross selling price.
“(2) The following sales by VAT-registered persons shall be subject to 0%:
“(A) Export sales. The term ‘export sales’ means:
“(i) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
“(ii) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer’s goods and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
“(iii) Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual production;
“(iv) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and
“(v) Those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws.
“(B) Foreign currency denominated sale. The phrase ‘foreign currency denominated sale’ means sale to a nonresident of goods, except those mentioned in Sections 149 and 150, assembled or manufactured in the Philippines for delivery to a resident in the Philippines, paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).
“(C) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero-rate.
“(b) Transactions deemed sale. The following transactions shall be deemed sale:
“(1) Transfer, use, or consumption not in the course of business of goods or properties originally intended for sale or for use in the course of business.
“(2) Distribution or transfer to:
“(A) Shareholders or investors as share in the profits of the VAT-registered persons; or
“(B) Creditors in payment of debt.
“(3) Consignment of goods if actual sale is not made within 60 days following the date such goods were consigned.
“(4) Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement or cessation.
“(c) Changes in cessation of status of a VAT-registered person. The tax imposed in paragraph (a) of this section shall also apply to goods disposed of or existing as of a certain date if under circumstances to be prescribed in regulations to be promulgated by the Secretary of Finance, the status of a person as a VAT-registered person changes or is terminated.
“(d) Determination of the tax. (1) The tax shall be computed by multiplying the total amount indicated in the invoice by 1/11.
“(2) Sales returns, allowances and sales discounts. The value of goods or properties sold and subsequently returned or for which allowances were granted by a VAT-registered person may be deducted from the gross sales or receipts for the quarter in which a refund is made or a credit memorandum or refund is issued. Sales discount granted and indicated in the invoice at the time of sale and the grant of which does not depend upon the happening of a future event may be excluded from the gross sales within the same quarter it was given.
“(3) Authority of the Commissioner to determine the appropriate tax base. The Commissioner shall, by regulations, determine the appropriate tax base in cases where a transaction is deemed a sale, barter or exchange of goods or properties under paragraph (b) hereof, or where the gross selling price is unreasonably lower than the actual market value.”
Section 3. Section 102 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows:
“Section 102. Value-added tax on sale of services and use or lease of properties. (a) Rate and base of tax. There shall be levied, assessed and collected, a value-added tax equivalent to 10% of gross receipts derived from the sale or exchange of services, including the use or lease of properties.
“The phrase ‘sale or exchange of services’ means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, including those performed or rendered by construction and service contractors; stock, real estate, commercial, customs and immigration brokers; lessors of property, whether personal or real; warehousing services; lessors or distributors of cinematographic films; persons engaged in milling, processing, manufacturing or repacking goods for others; proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts; proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers; dealers in securities; lending investors; operators of taxicabs; utility cars for rent or hire driven by the lessees (rent-a-car companies), tourist buses; and other common carriers by land, air, and sea relative to their transport of goods or cargoes; services of franchise grantees of telephone and telegraph, radio and television broadcasting and all other franchise grantees except those under Section 117 of this Code; services of banks, non-bank financial intermediaries and finance companies; and non-life insurance companies (except their crop insurances) including surety, fidelity, indemnity and bonding companies; and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. The phrase ‘sale or exchange of services’ shall likewise include:
“(1) The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or right;
“(2) The lease or the use of, or the right to use of any industrial, commercial or scientific equipment;
“(3) The supply of scientific, technical, industrial or commercial knowledge or information;
“(4) The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the application or enjoyment of any such property, or right as is mentioned in subparagraph (2) or any such knowledge or information as is mentioned in subparagraph (3); or
“(5) The supply of services by a nonresident person or his employee in connection with the use of property or rights belonging to, or the installation or operation of any brand, machinery, or other apparatus purchased from such nonresident person;
“(6) The supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme;
“(7) The lease of motion picture films, films, tapes and discs; and
“(8) The lease or the use of or the right to use radio, television, satellite transmission and cable television time.
“Lease of properties shall be subject to the tax herein imposed irrespective of the place where the contract of lease or licensing agreement was executed if the property is leased or used in the Philippines.
“The term ‘gross receipts’ means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advanced payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding value-added tax.
“(b) Transactions subject to zero-rate. The following services performed in the Philippines by VAT-registered persons shall be subject to 0%:
“(1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).
“(2) Services other than those mentioned in the preceding sub-paragraph, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).
“(3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero rate.
“(4) Services rendered to vessels engaged exclusively in international shipping; and
“(5) Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production.
“(c) Determination of the tax. The tax shall be computed by multiplying the total amount indicated in the official receipt by 1/11.”
Section 4. Section 103 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows:
“Section 103. Exempt transactions. The following shall be exempt from the value-added tax:
“(a) Sale of nonfood agricultural products; marine and forest products in their original state by the primary producer or the owner of the land where the same are produced;
“(b) Sale of cotton and cotton seeds in their original state; and copra;
“(c) Sale or importation of agricultural and marine food products in their original state, except importation of meat, livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption; and breeding stock and genetic materials therefor.
“Products classified under this paragraph and paragraph (a) shall be considered in their original state even if they have undergone the simple processes of preparation or preservation for the market, such as freezing, drying, salting, smoking or stripping. Polished and/or husked rice, corn grits, locally produced raw cane sugar and ordinary salt shall be considered in their original state;
“(d) 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);
“(e) Sale or importation of petroleum products (except lubricating oil, processed gas, grease, wax, and petrolatum) subject to excise tax imposed under Title VI;
“(f) Sale or importation of raw materials to be used by the buyer or importer himself in the manufacture of petroleum products subject to excise tax, except lubricating oil, processed gas, grease, wax, and petrolatum;
“(g) Importation of passenger and/or cargo vessel of more than five thousand tons, whether coastwise or ocean-going, including engine and spare parts of said vessel to be used by the importer himself as operator thereof;
“(h) 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;
“(i) 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 of Internal Revenue, that such persons are actually coming to settle in the Philippines and that the change of residence is bona fide;
“(j) Services subject to percentage tax under Title V;
“(k) Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugar cane into raw sugar;
“(l) Medical, dental, hospital and veterinary services except those rendered by professionals;
“(m) Educational services rendered by private educational institutions, duly accredited by the Department of Education, Culture and Sports, and those rendered by government educational institutions;
“(n) Sale by the artist himself of his works of art, literary works, musical compositions and similar creations, or his services performed for the production of such works;
“(o) Services rendered by individuals pursuant to an employer-employee relationship;
“(p) 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;
“(q) Transactions which are exempt under special laws, except those granted under Presidential Decree Nos. 66,529,972,1491, and 1590, and non-electric cooperatives under Republic Act No. 6938, or international agreements to which the Philippines is a signatory;
“(r) Export sales by persons who are not VAT-registered;
“(s) 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 Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992, and other related laws;
“(t) 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 prescribed in regulations to be promulgated by the President upon the recommendation by the Secretary of Finance which shall not be less than Four hundred eighty thousand pesos (₱480,000) or more than Seven hundred twenty thousand pesos (₱720,000) subject to tax under Section 112 of this Code.
“The foregoing exemptions to the contrary notwithstanding, any person whose sale of goods or properties or services which are otherwise not subject to VAT, but who issues a VAT invoice or receipt therefor shall, in addition to his liability to other applicable percentage tax, if any, be liable to the tax imposed in Section 100 or 102 without the benefit of input tax credit, and such tax shall not also be recognized as input tax credit to the purchaser under Section 104, all of this Code.”
Section 5. Section 104 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows:
“Section 104. Tax Credits. (a) Creditable input tax. Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 108 hereof on the following transactions shall be creditable against the output tax:
“(1) Purchase or importation of goods:
“(A) For sale; or
“(B) For conversion into or intended to form part of a finished product for sale including packaging materials; or
“(C) For use as supplies in the course of business; or
“(D) For use as materials supplied in the sale of service; or
“(E) For use in trade or business for which deduction for depreciation or amortization is allowed under this Code, except automobiles, aircraft and yachts.
“(2) Purchase of services on which a value-added tax has been actually paid.
“The input tax on domestic purchase of goods or properties shall be creditable:
“(AA) To the purchaser upon consummation of sale and on importation of goods or properties;
“(BB) To the importer upon payment of the value-added tax prior to the release of the goods from the custody of the Bureau of Customs.
“However, in the case of purchase of services, lease or use of properties the input tax shall be creditable to the purchaser, lessee or licensee upon payment of the compensation, rental, royalty or fee.
“A VAT-registered person who is also engaged in transactions not subject to the value-added tax shall be allowed input tax credit as follows:
“(A) Total input tax which can be directly attributed to transactions subject to value-added tax; and
“(B) A ratable portion of any input tax which cannot be directly attributed to either activity.
“The term ‘input tax’ means the value-added tax due from or paid by a VAT-registered person in the course of his trade or business on importation of goods or local purchase of goods or services, including lease or use of property, from a VAT-registered person. It shall also include the transitional input tax determined in accordance with Section 105 of this Code.
“The term ‘output tax’ means the value-added tax due on the sale or lease of taxable goods or properties or services by any person registered or required to register under Section 107 of this Code.
“(b) Excess output or input tax. If at the end of the any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarters. Any input tax attributable to the purchase of capital goods or to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 106.
“(c) Determination of creditable input tax. The sum of the excess input tax carried over from the preceding month or quarter and the input tax creditable to a VAT-registered person during the taxable month or quarter shall be reduced by the amount of claim for refund or tax credit for value-added tax and other adjustments, such as purchase returns or allowances and input tax attributable to exempt sale.
“The claim for tax credit referred to in the foregoing paragraph shall include not only those filed with the Bureau of Internal Revenue (BIR) but also those filed with the other government agencies, such as the Board of Investments (BOI) and the Bureau of Customs (BOC).”
Section 6. Section 106 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows:
“Section 106. Refunds or tax credits of creditable input tax. “(a) Any VAT-registered person, whose sales are zero-rated or effectively zero-rated, may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 100(a)(2)(A)(i), (ii) and (b) and Section 102(b)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the regulations of the Bangko Sentral ng Pilipinas (BSP): Provided further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales.
“(b) Capital goods. A VAT-registered person may apply for the issuance of a tax credit certificate or refund of input taxes paid on capital goods imported or locally purchased, to the extent that such input taxes have not been applied against output taxes. The application may be made only within two (2) years after the close of the taxable quarter when the importation or purchase was made.
“(c) Cancellation of VAT-registration. A person whose registration has been cancelled due to retirement from or cessation of business, or due to changes in or cessation of status under Section 100(c) of this Code may, within two (2) years from the date of cancellation, apply for the issuance of a tax credit certificate for any unused input tax which may be used in payment of his other internal revenue taxes.
“(d) Period within which refund or tax credit of input taxes shall be made. In proper cases, the Commissioner shall grant a refund or issue the tax credit for creditable input taxes within sixty (60) days from the date of submission of complete documents in support of the application filed in accordance with sub-paragraphs (a) and (b) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the sixty-day period, appeal the decision or the unacted claim with the Court of Tax Appeals.
“(e) Manner of giving refund. Refund shall be made upon warrants drawn by the Commissioner or by his duly authorized representative without the necessity of being countersigned by the Chairman, Commission on Audit, the provisions of the Revised Administrative Code to the contrary notwithstanding: Provided, That refunds under this paragraph shall be subject to post audit by the Commission on Audit.”
Section 7. Section 107 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows:
“Section 107. Registration of value-added taxpayers. (a) In general. Any person subject to a valueadded tax under Sections 100 and 102 of this Code shall register with the appropriate Revenue District Officer and pay an annual registration fee in the amount of One thousand pesos (₱1,000) for every separate or distinct establishment or place of business and every year thereafter on or before the last day of January. Any person just commencing a business subject to the value-added tax must pay the fee before engaging therein.
“A person who maintains a head or main office and branches in different places shall register with the Revenue District Office which has jurisdiction over the place wherein the main or head office is located. However, the fee shall be paid to the Revenue District Officer, collection agent, authorized treasurer of the municipality where each place of business or branch is situated.
“(b) Persons commencing business. Any person who expects to realize gross sales or receipts subject to value-added tax in excess of the amount prescribed under Section 103(t) of this Code for the next 12-month period from the commencement of the business shall, within thirty (30) days before the start of the said business, register with the Revenue District Officer who has jurisdiction over his principal place of business and shall pay the annual registration fee prescribed in the preceding paragraph.
“(c) Persons becoming liable to the value-added tax. Any person whose gross sales or receipts in any 12-month period exceeds the amount prescribed under Section 103(t) of this Code for exemption from the value-added tax shall register and pay the annual registration fee prescribed in paragraph (a) of this section within thirty (30) days after the end of the last month of that period, and shall be liable to the value-added tax commencing from the first day of the month following his registration.
“(d) Optional registration of exempt person. Any person whose transactions are exempt from value-added tax under Section 103(t) of this Code, or any person whose transactions are exempt from value-added tax under Section 103(a), (b), (c), and (d) of this Code with respect to his export sales only, may apply for registration as a VAT-registered person not later than ten (10) days before the beginning of the taxable quarter and shall pay the annual registration fee prescribed in sub-paragraph (a) of this section.
“In any case, the Commissioner may, for administrative reason, deny any application for registration.
“For purposes of this Title, any person registered in accordance with the provisions of this section shall be referred to as ‘VAT-registered person.’ Each VAT-registered person shall be assigned only one taxpayer’s identification number.
“(e) Cancellation of Registration. The registration of any person who ceases to be liable to the value-added tax shall be cancelled by the Commissioner upon filing of an application for cancellation of registration. Any person who opted to be registered under paragraph (d) of this section may, under regulation of the Secretary of Finance, apply for cancellation of such registration.”
Section 8. Section 108 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows:
“Section 108. Invoicing and accounting requirements for VAT-registered persons. (a) Invoicing requirements. A VAT-registered person shall, for every sale, issue an invoice or receipt. In addition to the information required under Section 238, the following information shall be indicated in the invoice or receipt:
“(1) A statement that the seller is a VAT-registered person, followed by hi