Understanding Value Added Tax (VAT) Exemption in the Philippines

Budgeting guide

What is Value Added Tax (VAT) Exemption? Who and what are included in the list? Let us archive Bureau of Internal Revenue and be guided by the sections of Vat Exemption for goods and services.

What is Value-Added Tax and who are required to file VAT Returns?

According to Bureau of Internal Revenue, “Value-Added Tax (VAT) is a form of sales tax. It is a tax on consumption levied on the sale, barter, exchange or lease of goods or properties and services in the Philippines and on importation of goods into the Philippines. It is an indirect tax, which may be shifted or passed on to the buyer, transferee or lessee of goods, properties or services.”

  • “Any person or entity who, in the course of his trade or business, sells, barters, exchanges, leases goods or properties and renders services subject to VAT, if the aggregate amount of actual gross sales or receipts exceed Three Million Pesos (Php3,000,000.00)
  • A person required to register as VAT taxpayer but failed to register
  • Any person, whether or not made in the course of his trade or business and who imports goods.”

What is VAT exempt sale?

It is a sale of goods, properties or service and the use or lease of properties which is not subject to output tax and whereby the buyer is not allowed any tax credit or input tax related to such exempt sale.

What are the VAT exempt transactions?

To give us a general conceptual guidance the following are the Vat Exempted Transactions Quoting under SEC. 109. Exempt Transactions of Bureau of Internal Revenue. You can check their website at https://www.bir.gov.ph.

  1. The Sale or importation of agricultural and marine food products, livestock and poultry for general use and human consumption and breeding stock and genetic materials.
  2. Fertilizers, seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported.
  3. The Importation of effects belonging from those coming to resettle in Philippines.
  4. Importation of professional instruments and implements, tools of trade, occupation or employment, wearing apparel, domestic animals, and personal and household.
  5. Services subject to percentage tax.
  6. Agricultural Contracts Growers and Milling
  7. Medical, dental, hospital and veterinary services except those rendered by professionals.
  8. Educational services by Educational Institutions accredited by Department of Educational (DepED), the Commission on Higher Education (CHED) and the Technical Education and Skills Development Authority (TESDA) and those rendered by the government educational institutions;
  9. Services rendered by individuals pursuant to an employer-employee relationship;
  10. 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.
  11. International Agreement – Philippines is a signatory under special laws except under P.D. No. 529 – Petroleum Exploration Concessionaires under the Petroleum Act of 1949;
  12. Agricultural cooperatives duly registered and in good standing with the Cooperative Development Authority (CDA).
  13. Lending activities by credit or multi-purpose cooperatives duly registered and in good standing with the Cooperative Development Authority;
  14. Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with and in good standing with CDA
  15. Export sales by persons who are not VAT-registered;
  16. Real Properties utilized for low coat housing RA No. 7279 known as Urban Development Act of 1992”;sale of real properties utilized for specialized housing as defined under RA No. 7279, and other related laws, such as RA No. 7835 and RA No. 8763, wherein price ceiling per unit is Php 450,000.00 or as may from time to time be determined by the HUDCC and the NEDA and other related laws; Sale of residential lot valued at One Million Five Hundred Thousand Pesos (P1,500,000.00) and below, or house and lot and other residential dwellings valued at Two Million Five Hundred Thousand Pesos (P2,500,000.00) and below, as adjusted using latest Consumer Price Index values Million Five Hundred Thousand Pesos (P1,500,000.00). 
  17. Lease of residential units with a monthly rental per unit not exceeding Fifteen Thousand Pesos (P15, 000.00).
  18. Books, Newspaper, Magazine, review or bulletin not devoted principally to the publication of paid advertisements
  19. Transport of passengers by international carriers;
  20. Passenger or cargo vessels and aircraft
  21. Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations.
  22. Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries.
  23. Sale or lease of goods and services to senior citizens and persons with disabilities.
  24. Transfer of property in merger or consolidation (pursuant to Section 40(C)(2) of the Tax Code.
  25. Association dues, membership fees, and other assessments and charges collected on a purely reimbursement basis by homeowners’ associations and condominium.
  26. Sale of gold to the Banko Sentral ng Pilipinasn (BSP).
  27. Medicines prescribed for diabetes, high cholesterol, and hypertension.
  28. Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of Three Million Pesos (Php 3,000,000.00).  Note: Self-employed individuals and professionals availing of the 8% on gross sales and/or receipts and other non-operating income, under Sections 24 (A)(2)(b) and 24 (A)(2)(c)(2) of the NIRC shall also be exempt from the payment of twelve (12%) VAT.

For the List of latest  VAT-Exempt Health Products pursuant to Republic Act No. 11534, otherwise known as the “Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act”  here are the updated list that are also accessible at the Food and Drug Administration (FDA) Verification Portal

  • Medicines for Hypertension
  • Medicines for Cancer
  • Medicines for Mental Illnesses
  • Medicines for Tuberculosis
  • Medicines for Kidney Diseases
  • Medicines for Diabetes
  • Medicines for High Cholesterol
  • Medicines and Medical Devices for COVID-19

Key takeaways:

We all know that Value-added tax is added to a product at every point of the supply chain where value is added to it. It is to help the government generate revenues for government systematic projects. Whereas if we are planning to buy any investment, house and lot, low-cost housing, or condominium we must know what are the taxes that are included under its purchase. We have to know that Value added tax is based on consumption that provides a base of revenue and we should know what the types of businesses are under its law. With regards to the Value added tax exemption, the law in itself creates a neutral flow of business that will not burden our government and society that maintaining a progressive business that will provide a benefit to specific people, businesses, and other specific situations. In the exemption in Value added Tax the government provides us information of policies that encourage civic involvement, economic development and it will enrich our society and country to have a vibrant business development and progressions.

Written by:

Rowena Lansang