ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 44  October 2022 CPA Licensure Examination

TAX-302
TAXATION A. TAMAYO  E. BUEN  G. CAIGA  C. LIM  K. MANUEL

VAT-EXEMPT TRANSACTIONS
1. VAT-Exempt Transaction Defined
“VAT-exempt transactions” refer to sale of goods or services which, by their nature, are specifically listed in and
expressly exempted from VAT, under the Tax Code, without regard to the tax status of the party in the transaction.

Transactions not subject to VAT (output tax) are not entitled to tax credit of VAT (input tax) on purchases. The person
making the exempt sale shall not bill any output tax to his customers because the said transaction is not subject to
VAT.

2. VAT-Exempt Transaction Under Section 109

UNDER TRAIN
(a) Sale or importation 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 therefor;
(b) Sale or importation of:
- fertilizers, seeds, seedlings and fingerlings;
- fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture of
finished feeds
-(except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as
pets);
(c) Importation of personal and household effects
-belonging to residents of the Philippines returning from abroad and
-non-resident citizens coming to resettle in the Philippines;
-Provided, That such goods are exempt from customs duties under the Tariff and Customs Code of the Philippines;
(d) Importation of:
professional instruments and implements,
wearing apparel, domestic animals, and
tools of trade, occupation or employment,
personal and household effects

--belonging to:
persons coming to settle in the Philippines or
Filipinos or their families and descendants who are now residents or citizens of other countries, such parties hereinafter
referred to as overseas Filipinos,
in quantities and of the class suitable to the profession, rank or position of the persons importing said items,

for their own use and not for barter or sale, accompanying such persons, or arriving within a reasonable time:

Provided, That the Bureau of Customs may, upon the production of satisfactory evidence that such persons are actually
coming to settle in the Philippines and that the goods are brought from their former place of abode, exempt such goods
from payment of duties and taxes:

Provided, further, That vehicles, vessels, aircrafts, machineries and other similar goods for use in manufacture, shall not fall
within this classification and shall therefore be subject to duties, taxes and other charges;

(e) Services subject to percentage tax;

(f) Services by agricultural contract growers and
milling for others of palay into rice, corn into grits and sugar cane into raw sugar;
(g) Medical, dental, hospital and veterinary services, except those rendered by professionals;
(h) Educational services rendered by:
- private educational institutions, duly accredited by DepEd, CHED and Technical Education and Skills Development Authority
(TESDA), and
-those rendered by government educational institutions;
(i) Services rendered by individuals pursuant to an employer-employee relationship;
(j) Services rendered by regional or area headquarters established in the Philippines by multinational corporations which act as
supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do
not earn or derive income from the Philippines;
(k) Transactions which are exempt
-under international agreement to which the Philippines is a signatory or
-under special laws except those granted under PD No. 529
(l) Sales by agricultural cooperatives duly registered and in good standing with the Cooperative Development Authority to their
members as well as sale of their produce, whether in its original state or processed form, to non-members; their importation of
direct farm inputs, machinery and equipment, including spare parts thereof, to be used directly and exclusively in the production
and/or processing of their produce;

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
VAT-EXEMPT TRANSACTIONS TAX-302
Sale by agricultural cooperatives to non-members can only be exempted from VAT if the producer of the agricultural products sold
is the cooperative itself. If the cooperative is not the producer (e.g., trader), then only those sales to its members shall be
exempted from VAT; It is to be reiterated, however, that sale or importation of agricultural food products in their original state is
exempt from VAT irrespective of the seller and buyer thereof, pursuant to Subsection (a) hereof;

(m) Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered and in good standing with the
Cooperative Development Authority;
(n) Sales by non-agricultural, non-electric and non-credit cooperatives duly registered and in good standing with the Cooperative
Development Authority; Provided, That the share capital contribution of each member does not exceed P15,000 and regardless of
the aggregate capital and net surplus ratably distributed among the members;
(o) Export sales by persons who are not VAT-registered;
(p) Sale of real properties
not primarily held for sale to customers or held for lease in the ordinary course of trade or business or
real property utilized for low-cost and socialized housing as defined by Republic Act No. 7279, otherwise known as the Urban
Development and Housing Act of 1992, and other related laws,
residential lot valued at Two million five hundred thousand pesos (P2,500,000) and below (P1,500,000 and below under RR 4-
2021),
house and lot, and other residential dwellings valued at Four million two hundred thousand pesos (P4,200,000) and below
(P2,500,000 and below under RR 4-2021):
Provided, That beginning January 1, 2024 and every three (3) years thereafter, the amounts herein shall be adjusted to present
values using the Consumer Price Index, as published by the Philippine Statistics Authority (PSA).

Per RR 4-2021, beginning January 1, 2021, the VAT exemption shall only apply to:
(1) sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or
business,
(2) sale of real property utilized for socialized housing as defined by Republic Act No. 7279,
(3) sale of house and lot, and other residential dwellings with selling price of not more than Two million pesos
(P2,000,000) as adjusted in 2011 using the 2010 Consumer Price Index values.

Note: Sale of parking lot in a condominium is a separate and distinct transaction and is not covered by the rules on threshold
amount not being a residential lot, house and lot or a residential dwelling, thus, should be subject to VAT regardless of the
amount of selling price.
(q) Lease of residential units with a monthly rental not exceeding P15,000;
(r) Sale, importation, printing or publication of books, and any newspaper, magazine, journal, review bulletin, or any such
educational reading material covered by the United Nations Educational, Scientific and Cultural Organization (UNESCO)
Agreement on the importation of educational, scientific and cultural materials, including the digital or electronic format thereof.
Provided, That the materials enumerated herein are not devoted principally to the publication of paid advertisements . Provided
further, That the materials enumerated herein are compliant with the requirements set forth by the National Book
Development Board pursuant to R.A. No. 8047.
(s) The transport of passengers by international carriers;
(t) Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for
domestic or international transport operations; Provided, however, that the exemption from VAT on the importation and local
purchase of passenger and/or cargo vessels shall be subject to the requirements on restriction on vessel importation and
mandatory vessel retirement program of Maritime Industry Authority (MARINA);
(u) Importation of fuel, goods and supplies by persons engaged in international shipping and air transport operations. The fuel,
goods and supplies shall be used for international shipping or air transport operations. Thus, said fuel, goods and supplies shall be
used exclusively or shall pertain to the transport of goods and/or passenger from a port in the Philippines directly to a foreign
port, or vice versa, without docking or stopping at any other port in the Philippines unless the docking or stopping at any other
Philippine port is for the purpose of unloading passengers and/or cargoes that originated from abroad, or to load passengers
and/or cargoes bound for abroad: Provided, further, that if any portion of such fuel, goods or supplies is used for purposes other
than that mentioned in this paragraph, such portion of fuel, goods and supplies shall be subject to twelve percent (12%) VAT
(v) Services of bank, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial
intermediaries; such as money changers and pawnshops, subject to percentage tax under Secs. 121 and 122, respectively, of
the Tax Code
(w) Sale or lease of goods and services to senior citizens and persons with disability, as provided under Republic Act Nos. 9994
(Expanded Senior Citizens Act of 2010) and 10754 (An Act Expanding the Benefits and Privileges of Persons With Disability),
respectively;
(x) Transfer of property pursuant to Section 40 (C) (2) of the NIRC, as amended (merger or consolidation);
(y) Association dues, membership fees, and other assessments and charges collected by home owners asso ciatio ns and
condominium corporations;
(z) Sale of gold to the Bangko Sentral ng Pilipinas (BSP);
(aa) Sale or importation of prescription drugs and medicines for:
(i) Diabetes, high cholesterol, and hypertension beginning January 1, 2020; and
(ii) Cancer, mental illness, tuberculosis, and kidney diseases beginning January 1, 2021.

The exemption from VAT under this subsection shall only apply to the sale or importation by the manufacturers, distributors,
wholesalers and retailer of drugs and medicines included in the “list of approved drugs and medicines” issued by the
Department of Health (DOH) for this purpose.

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
VAT-EXEMPT TRANSACTIONS TAX-302
(bb) Sale or importation of the following beginning January 1, 2021 to December 31, 2023:
(i) Capital equipment, its spare parts and raw materials, necessary for the production of personal protective equipment (PPE)
components such as coveralls, gown, surgical cap, surgical mask, n-95 mask, scrub suits, goggles and face shield, double
or surgical gloves, dedicated shoes, and shoe covers, for COVID-19 prevention;
(ii) All drugs, vaccines and medical devices specifically prescribed and directly used for the treatment of COVID-19; and
(iii) Drugs for the treatment of COVID-19 approved by the Food and Drug Administration (FDA) for use in clinical trials,
including raw materials directly necessary for the production of such drugs
Provided, That the Department of Trade and Industry (DTI) shall certify that such equipment, spare parts or raw materials for
importation are not locally available or insufficient in quantity, or not in accordance with the quality or specification required.

Provided further, That for item (ii), within sixty (60) days from the effectivity of the CREATE, and every three (3) months
thereafter, the Department of Health (DOH) shall issue a list of prescription drugs and medical devices covered by this
provision.
Provided finally, That for items (i) and (iii) hereof, on the sale or importation of equipment, spare parts and raw materials for
the production of PPE components as well as the sale or importation of raw materials directly necessary for the production of
drugs for the treatment of COVID-19, the supplier/s or importer shall submit, for the purpose of availing the exemption,
the following:
(1) Certified true copy of “License to Operate”, issued to the manufacturer-buyer by the DOH-FDA authorizing the
manufacture of medical grade PPE components and drugs for the treatment of COVID-19; and
(2) "Sworn Declaration” from the manufacturer-buyer that the items shall be used for the manufacture of the PPE
components and drugs for the treatment of COVID-19

The exemption claimed under this subsection shall be subject to post audit by the Bureau of Internal Revenue (BIR) or the
Bureau of Customs (BOC), as may be applicable.

(cc) 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 (₱3,000,000.00).

For purposes of these Regulations, the ₱3,000,000.00 gross annual sales shall comprise of the business' total revenues from
sales of its products, which are either goods or services, including non-refundable advance deposits/payments for services,
net of discounts, sales returns and allowances, covering the calendar or fiscal year. Sales incidental to the registered
operations of the business shall also be included pursuant to Section 105 of the Tax Code, as amended.
Self-employed individuals and professionals availing of the 8% tax on gross sales and/or receipts and other non-operating
income, under Sections 24(A)(2)(b) and 24(A)(2)(c)(2)(a) of this Code shall also be exempt from the payment of twelve
percent (12%) VAT.
For the purpose of the threshold of P3,000,000 (used to be P1,919,500), the husband and the wife shall be considered
separate taxpayers. However, the aggregation rule for each taxpayer shall apply. For instance, if a professional, aside from
the practice of his profession, also derives revenue from other lines of business which are otherwise subject to VAT, the same
shall be combined for purposes of determining whether the threshold has been exceeded. Thus, the VAT-exempt sales shall
not be included in determining the threshold.
A VAT-registered person may, in relation to Sec. 236 (H) of the 1997 Tax Code, as amended, elect that the exemption in Sec.
4.109-1(B) hereof shall not apply to his sales of goods or properties or services. Once the election is made, it shall be irrevocable for
a period of three (3) years counted from the quarter when the election was made except for franchise grantees of radio and TV
broadcasting whose annual gross receipts for the preceding year do not exceed ten million pesos (P10,000,000.00) where the
option becomes perpetually irrevocable.

2. Exercises
a. Based on the following current year data, determine the VAT-subject and VAT-exempt amounts:
Case 1 Case 2 Case 3
Selling price, condominium unit P2,000,000 P2,500,000 P4,500,000
Selling price, parking lot 500,000 800,000 900,000
Total P2,500,000 P3,300,000 P5,400,000
VAT-subject
Vat-exempt

b. The following information pertains to lease of property for the current year:
Apartment Commercial
house building
Case 1 – Rent per unit per month P 15,000 P 15,000
Annual gross receipts P2,500,000 P2,500,000
VAT-subject
VAT-exempt

Case 2 – Rent per month P 15,000 P 15,000

Annual gross receipts P3,500,000 P3,500,000
VAT-subject
VAT-exempt

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
VAT-EXEMPT TRANSACTIONS TAX-302
Case 3 – Rent per month P 20,000 P 20,000
Annual gross receipts P3,000,000 P3,000,000
VAT-subject
VAT-exempt
Case 4 – Rent per month P 20,000 P 20,000
Annual gross receipts P3,500,000 P3,500,000
VAT-subject
VAT-exempt
c. Based on the following current year information, determine the VAT-subject and the VAT-exempt amounts:
Husband Wife
Case 1 – Gross receipts, practice of profession P2,500,000 P2,000,000
VAT-subject
VAT-exempt
Case 2 – Gross receipts, practice of profession P1,800,000 P -
Gross receipts, beauty parlor 1,200,000
Gross receipts, trucking business 1,500,000 -
Gross sales, grocery store 1,500,000
Gross sales, agricultural food products (original state) 1,200,000
Gross sales, livestock - 1,300,000
Total P4,500,000 P4,000,000
VAT-subject
VAT-exempt

d. The following data taken from its books are presented to you by Fish Fresh, Canned and Dried, VAT-registered company:
Sale of locally produced canned sardines P1,000,000
Sale of newly hauled fresh sardines 1,500,000
Sale of canned sardines to a Subic Bay Metropolitan Authority accredited enterprise 500,000
Sale of locally produced dried fish 700,000
Importation of fresh fish from Alaska, USA 2,000,000
Importation of canned sardines from Portugal 3,000,000
How much is the total VATable local sales and importation and the output tax?
e. Compute the VAT due on the following importations made by different persons:
Importation of cows and bulls by a VAT-registered company P5,000,000
Importation of fighting cocks by a non-VAT registered person 4,000,000
Importation of turkey by VAT-registered person 3,000,000
Importation of race horses by VAT-registered person 2,000,000
Importation of livestock and poultry feeds by non-VAT registered person 1,000,000
Importation of ingredients to be used in the manufacture of finished fertilizer 500,000
f. Mr. Jose Diesto signified his intention to be taxed at “8% income tax in lieu of the graduated income tax rates and percentage
tax under Section 116” in his 1st Quarter Income Tax. However, his gross sales/receipts during the taxable year have
exceeded the VAT threshold as follows:
First quarter January P 250,000.00
February 250,000.00
March 250,000.00
Second quarter April 250,000.00
May 250,000.00
June 250,000.00
Third quarter July 250,000.00
August 250,000.00
September 250,000.00
Fourth quarter October 1,000,000.00
November 1,000,000.00
December 1,000,000.00
Total P5,250,000.00
Question 1 – How much is the percentage tax?
2 – How much is the Value-Added Tax?
3 – When shall he update his registration from non-VAT to VAT?
g. The Healthy Food Table, VAT registered, issued the following official receipt to a customer who is with his grandfather who is a
senior citizen:
Spring rolls P 390.00
Carrot pumpkin soup 180.00
Boston clam chowder 280,00
Baby back ribs (full) 990.00
Golden milk 190.00
Lemon grass iced tea 110.00
Chicken salad (regular) 480.00
Total good and beverage (VAT inclusive) P2,620.00

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
VAT-EXEMPT TRANSACTIONS TAX-302
Question 1 – How much is the VAT-exempt sale?
Question 2 – How much is the sales discount for senior citizen?
Question 3 – How is the service charge assuming the bill is net of the 10% service charge?
Question 4 – How much is the total amount due?
j. LA Corporation is a VAT-registered entity and a holder of License to Operate issued by FDA to manufacture medical-grade PPE
components such as coveralls, gowns, surgical caps, surgical masks, n-95 masks, scrub suits, goggles and face shields, double
or surgical gloves, dedicated shoes and shoe covers for COVID-19 prevention.
During the period of April to June 2021, the company had the following transactions:
Importation fo raw materials (not locally available) P2,000,000.00
Importation of capital equipment 25,000,000.00
Importation of raw materials (locally available) 1,000,000.00
Sale or transfer of raw materials to an affiliated company which is also a holder of License to Operate
by the FDA 500,000.00
How much of the above transactions shall be exempt from VAT?
k. Identify the following transactions as of Jan. 2018: A) VAT-subject at regular rate B) VAT-subject at zero rate C) VAT-exempt
1) Sale of an apartment house
2) Sale of the right or the privilege to use any industrial, commercial or scientific equipment
3) Services rendered by local construction and service contractors
4) Services rendered by transportation contractors on their transport of goods or cargoes from one domestic
port to another domestic port
5) Sale of electricity by generation, transmission and/or distribution companies
6) Services rendered by a beauty parlor
7) Services rendered by a funeral parlor
8) Transport of passengers and cargoes by a domestic air or sea carriers from the Philippines to a foreign
country
9) Sale of goods, supplies, equipment and fuel to persons engaged in international shipping and air transport
operations
10) Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed 70%
of the total annual production
11) Sale of power or fuel generated through renewable sources of energy
12) Services rendered to persons engaged in international shipping or air transport operations, including lease of
property for use thereof
13) Sale of gold to Bangko Sentral ng Pilipinas
14) Sale to non-resident buyer of goods assembled in the Philippines to be delivered to a resident in the
Philippines, paid for in acceptable foreign currency and accounted per BSP rules and regulations
15) Distribution or transfer of goods to creditor in payment of debt or obligation
16) Sale of goods or services to Asian Development Bank
17) Sale of goods or services to Land Bank of the Philippines
18) Services rendered by review schools for CPA Licensure Examination
19) Educational services rendered by private educational institutions accredited by DEPED, CHED or TESDA
20) Export sales of persons who are VAT-registered
21) Export sales of persons who are not VAT-registered
22) Sale of real property utilized for low-cost or socialized housing
23) Lease of residential units by VAT-registered lessor where the monthly rental per unit does not exceed
P15,000
24) Lease of commercial units by VAT-registered lessor where the monthly rental per unit does not exceed
P15,000 and whose annual gross rentals amount to P3,000,000
25) Sale of agricultural foods products in their original state where the annual gross sales exceed P3,00,000
26) Sale by a person who is VAT-registrable of canned food products where the annual gross sales exceed
P3,000,000
27) Performance of VAT-subject services where the gross annual receipts do not exceed P3,000,000
28) Medical services rendered by professionals
29) Medical services rendered to confined patient by a doctor employed by the hospital
30) Transfer of property through merger or consolidation
31) Association due of homeowners association
32) Sale of residential lot by a VAT-registered real estate dealer the value of which is P1,500,000
33) Sale of medicine to Senior Citizens and Person With Disability
34) Sale of lechong manok (take out)
35) Sale of lechong manok in a restaurant
36) Sale of cut flowers
37) Sale of broom and walis tingting
38) Sale of copra, molasses and ordinary salt
39) Laboratory services rendered by hospitals
40) Sale of medicine to in-patients of the hospital
Be positive even if others are not. Work hard even if others have quit. Continue to dream big even if others have given up on theirs.
– Tamthewise ☺

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