Briefing on RA 10963: Tax Reform

for Acceleration and Inclusion

(TRAIN) – Value Added Tax
 NIRC Provision NIRC
Section 106 (A)(2) The following are entitled to VAT zero-
Zero-rated Sale of rating:
Goods or Properties
1. 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).
TRAIN Briefing – VAT
VER 1.0 – January 2018
TRAIN
The following sales by VAT
registered persons shall be subject
to zero percent 0% rate:
1. The sale and actual shipment of
goods from the Philippines to a
foreign country, irrespective of
any shipping arrangement, 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).
 NIRC Provision NIRC
Section 106 (A)(2)
Zero-rated Sale of
Goods or Properties
TRAIN Briefing – VAT
VER 1.0 – January 2018
TRAIN
2. Sale and delivery of goods to:
 Registered enterprises within a
separate customs territory
 Registered enterprises within tourism
enterprise zones
(The above provision was vetoed by
President Duterte because this go against
the principle of limiting the VAT zero-
rating to direct exporters.)
 NIRC Provision NIRC TRAIN
Section 106 (A)(2) 2. Sale of raw materials or 3. Sale of raw materials or
Zero-rated Sale of packaging materials to a packaging materials to a
Goods or Properties nonresident buyer for nonresident buyer for delivery to
delivery to a resident local a resident local export-oriented
export-oriented enterprise enterprise to be used in
to be used in manufacturing, processing,
manufacturing, processing, packing or repacking and paid
packing or repacking in the for in acceptable foreign currency
Philippines of the said and accounted for in accordance
buyer's goods and paid for with the rules and regulations of
in acceptable foreign the Bangko Sentral ng Pilipinas
currency and accounted for (BSP).
in accordance with the rules
and regulations of the
Bangko Sentral ng Pilipinas
(BSP).
TRAIN Briefing – VAT
VER 1.0 – January 2018
 NIRC Provision NIRC TRAIN
Section 106 (A)(2) 3. Sale of raw materials or 4. Sale of raw materials or
Zero-rated Sale of packaging materials to packaging materials to
Goods or Properties export-oriented enterprise export-oriented enterprise
whose export sales whose export sales exceed
exceed seventy percent seventy percent (70%) of
(70%) of total annual total annual production.
production.

4. Sale of gold to BSP.

TRAIN Briefing – VAT

VER 1.0 – January 2018
 NIRC Provision NIRC TRAIN
Section 106 (A)(2) 5. Those considered export 5. Those considered export sales
Zero-rated Sale of sales under Executive under Executive Order No. 226,
Goods or Properties Order NO. 226, otherwise otherwise known as the
known as the “Omnibus “Omnibus Investment Code of
Investment Code of 1987”, 1987”, and other special laws;
and other special laws. and

6. The sale of goods, 6. The sale of goods, supplies,

supplies, equipment and
fuel to persons engaged in
international shipping or
international air transport
operations.
TRAIN Briefing – VAT
VER 1.0 – January 2018
equipment and fuel to persons
engaged in international shipping
or international air transport;
provided, that the goods,
supplies, equipment and fuel
have been sold and used for
international shipping or air
transport operations.
 NIRC Provision NIRC
Section 106 (A)(2)
Zero-rated Sale of
Goods or Properties
TRAIN Briefing – VAT
VER 1.0 – January 2018
TRAIN
Additional provision:
Items 3, 4, and 5 shall be subject to the 12% VAT
and no longer be considered export sales subject
to 0% VAT upon satisfaction of the following
conditions:
 There is a successful establishment and
implementation of an enhanced VAT refund
system that grants refunds of creditable input
tax within 90 days from the filing of the VAT
refund application with the Bureau.
 All pending VAT refund claims as of
December 31, 2017 shall be fully paid in cash
by December 31, 2019.
 NIRC Provision NIRC
Section 106 (A)(2)
Zero-rated Sale of
Goods or Properties
TRAIN Briefing – VAT
VER 1.0 – January 2018
TRAIN
The Department of Finance shall establish a VAT
Refund Center in the BIR and BOC that will handle
the processing and granting of cash refunds of
creditable input tax.
An amount equivalent to 5% of the total VAT
collection of the BIR and BOC from the immediately
preceding year shall automatically be appropriated
annually and shall be treated as a special account in
the General Fund or as trust receipts for funding VAT
refund claims.
Further, the BIR and BOC shall be required to submit
to the Congressional Oversight Committee on the
CTRP a quarterly report of all pending claims for
refund and any unused fund.
 NIRC Provision NIRC TRAIN
Section 106 (A)(2) Deleted provision:
Zero-rated Sale of
Goods or Properties The following shall no longer be subject to 0%
VAT:

1. Sale of gold to BSP

2. Foreign-currency denominated sales
Section 108 (A) Sale or exchange Sale or exchange of services include “sale of
Definition of Sale or of services include electricity by generation companies,
Exchange of Services “sale of electricity transmission by any entity including the National
by generation Grid Corporations of the Philippines [NGCP],
companies, and distribution companies, including electric
transmission, and Cooperatives”.
distribution
companies”

TRAIN Briefing – VAT

VER 1.0 – January 2018
 NIRC Provision NIRC TRAIN
Section 108 (B) The following are entitled to VAT The following are entitled to VAT
Zero-rated Sale of zero-rating: zero-rating:
Services
1. Processing, manufacturing or 1. Processing, manufacturing or
repacking goods for other repacking goods for other
persons doing business persons doing business outside
outside the Philippines which the Philippines which goods
goods are subsequently are subsequently exported,
exported, where the services where the services are paid for
are paid for in acceptable in acceptable foreign currency
foreign currency and and accounted for in
accounted for in accordance accordance with the rules and
with the rules and regulations regulations of the Bangko
of the Bangko Sentral ng Sentral ng Pilipinas (BSP).
Pilipinas (BSP).

TRAIN Briefing – VAT

VER 1.0 – January 2018
 NIRC NIRC TRAIN
Provision
Section 108 (B) 2. Services other than those 2. Services other than those
Zero-rated Sale mentioned in the preceding mentioned in the preceding
of Services paragraph, rendered to a person paragraph, rendered to a person
engaged in business conducted engaged in business conducted
outside the Philippines or to a outside the Philippines or to a
nonresident person not nonresident person not engaged
engaged in business who is in business who is outside the
outside the Philippines when the Philippines when the services
services are performed, [51] the are performed, the consideration
consideration for which is paid for which is paid for in acceptable
for in acceptable foreign foreign currency and accounted
currency and accounted for in for in accordance with the rules
accordance with the rules and and regulations of the Bangko
regulations of the Bangko Sentral ng Pilipinas (BSP);
Sentral ng Pilipinas (BSP);

TRAIN Briefing – VAT

VER 1.0 – January 2018
 NIRC NIRC TRAIN
Provision
Section 108 (B) 3. Services rendered to persons or 3. Services rendered to persons or
Zero-rated Sale of entities whose exemption under entities whose exemption under
Services special laws or international special laws or international
agreements to which the agreements to which the Philippines
Philippines is a signatory is a signatory effectively subjects
effectively subjects the supply of the supply of such services to zero
such services to zero percent (0%) percent (0%) rate;
rate;
4. Services rendered to persons 4. Services rendered to persons
engaged in international shipping engaged in international shipping or
or international air transport international air transport
operations, including leases of operations, including leases of
property for use thereof; property for use thereof: provided,
that these services shall be
exclusively for international shipping
or air transport operations;
TRAIN Briefing – VAT
VER 1.0 – January 2018
 NIRC NIRC TRAIN
Provision
Section 108 (B) 5. Services performed by 5. Services performed by
Zero-rated Sale subcontractors and/or subcontractors and/or contractors
of Services contractors in processing, in processing, converting, or
converting, or manufacturing manufacturing goods for an
goods for an enterprise whose enterprise whose export sales
export sales exceed seventy exceed seventy percent (70%) of
percent (70%) of total annual total annual production are no
production; longer entitled to VAT zero-rating.

TRAIN Briefing – VAT

VER 1.0 – January 2018
 NIRC NIRC TRAIN
Provision
Section 108 (B) 6. Transport of passengers and 6. Transport of passengers and
Zero-rated Sale cargo by domestic air or sea cargo by domestic air or sea
of Services vessels from the Philippines to a vessels from the Philippines to a
foreign country. foreign country.

7. Sale of power or fuel generated 7. Sale of power or fuel generated

through renewable sourced of through renewable sourced of
energy such as, but not limited energy such as but not limited to
to, biomass, solar, wind, biomass, solar, wind,
hydropower, geothermal, ocean hydropower, geothermal, ocean
energy, and other emerging energy, and other emerging
energy sources using energy sources using
technologies such as fuel cells technologies such as fuel cells
and hydrogen fuels. and hydrogen fuels.

TRAIN Briefing – VAT

VER 1.0 – January 2018
 NIRC NIRC TRAIN
Provision
Section 108 (B) 8. Services rendered to:
Zero-rated Sale
of Services  Registered enterprises within a
separate customs territory

 Registered enterprises within

tourism enterprise

(Above provision was votoed by

President Duterte)

TRAIN Briefing – VAT

VER 1.0 – January 2018
 NIRC NIRC TRAIN
Provision
Section 108 (B) Additional provision:
Zero-rated Sale
of Services Items 1 and 5 shall be subject to the 12% VAT
and no longer be considered export sales
subject to 0% VAT upon satisfaction of the
following conditions:
 There is a successful establishment and
implementation of an enhanced VAT refund
system that grants refunds of creditable input
tax within 90 days from the filing of the VAT
refund application with the Bureau.

 All pending VAT refund claims as of

December 31, 2017 shall be fully paid in cash
by December 31, 2019.

TRAIN Briefing – VAT

VER 1.0 – January 2018
 NIRC Provision NIRC
Section 108 (B)
Zero-rated Sale of
Goods or properties
and zero-rated sale
of services
TRAIN Briefing – VAT
VER 1.0 – January 2018
TRAIN
Additional provision:
The Department of Finance shall establish a VAT
Refund Center in the BIR and BOC that will handle
the processing and granting of cash refunds of
creditable input tax.
To fund claims for VAT refund 5% of the total VAT
collection of the BIR and BOC from the
immediately preceding year shall be:
 Automatically appropriated annually.
 Treated as a special account in the General
Fund or as trust receipts.
 NIRC Provision NIRC
Section 108
Zero-rated Sale of
Goods or Properties
and Zero-rated Sale
of Services
TRAIN Briefing – VAT
VER 1.0 – January 2018
TRAIN
Additional provision:
The BIR and BOC shall submit to the
Congressional Oversight Committee on the
Comprehensive Tax Reform Program a quarterly
report of all pending claims for refund and unused
fund.
 NIRC NIRC
Provision
Section 109 The following transactions, among others,
VAT-exempt are exempt from value-added tax:
Transactions (D) 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,
TRAIN Briefing – VAT
VER 1.0 – January 2018
TRAIN
The following are the changes on
VAT-exempt transactions:
(D) Importation of professional
instruments and implements, tools of
trade, occupation or employment,
wearing apparel, domestic animals,
and 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,
NIRC Provision NIRC
Section 109 upon the production of
VAT-exempt evidence satisfactory to the
transactions Commissioner, that such
persons are actually coming
to settle in the Philippines and
that the change of residence
is bona fide.
TRAIN Briefing – VAT
VER 1.0 – January 2018
TRAIN
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:
NIRC Provision NIRC TRAIN

Section 109 Provided, further, That vehicles, vessels,

VAT-exempt aircrafts, machineries and other similar
Transactions goods for use in manufacture, shall not fall
within this classification and shall therefore
be subject to duties, taxes and other
charges.

TRAIN Briefing – VAT

VER 1.0 – January 2018
 NIRC NIRC TRAIN
Provision
Section 109 Sale of real properties not Sale of real properties not primarily held for sale to
VAT-exempt primarily held for sale to customers or held for lease in the ordinary course
Transactions customers or held for of trade or business or real property utilized for
lease in the ordinary low-cost and socialized housing, residential lot
course of trade or valued at P1,500,000.00 and below; house and lot,
business or real property and other residential dwellings valued at
utilized for low-cost and P2,500,000.00 and below.
socialized housing,
residential lot valued at Beginning January 1, 2021:
P1,919,500.00 and below;  The VAT exemption shall not anymore apply to:
house and lot, and other - Sale of low-cast housing
residential dwellings - Sale of residential lot
valued at P3,199,200.00  The threshold selling price amount for sale of
and below. house and lot, and other residential dwellings
shall be P2,000,000.00
TRAIN Briefing – VAT
VER 1.0 – January 2018
NIRC Provision NIRC TRAIN
Section 109 Every 3 years, the threshold Every 3 years, the threshold amount shall
VAT-exempt amount shall be adjusted to be adjusted to its present value using the
Transactions its present value using the Consumer Price Index, as published by the
Consumer Price Index, as Philippine Statistics Authority (PSA).
published by the National
Statistics Office.
Section 109 (Q) Lease of a residential (Q) Lease of a residential unit with a
VAT-exempt unit with a monthly rental monthly rental not exceeding P15,000.00.
Transactions not exceeding P12,800.00.

(U) Importation of fuel, (U) Additional provision:

goods and supplies by
persons engaged in Xxx Provided, That the fuel, goods, and
international shipping or air supplies shall be used for international
transport operations. shipping or air transport operations.
TRAIN Briefing – VAT
VER 1.0 – January 2018
 NIRC Provision NIRC TRAIN

Section 109 Additional exempt transactions:

VAT-exempt
Transactions (W) Sale or lease of goods and services to
senior citizens and person with
disabilities.

(X) Transfer of property in merger or

consolidation [under Section 40(C)(2) of
the NIRC/tax-free exchange].

(Y) Association dues, membership fees,

and other assessments and charges
collected by homeowners associations
and condominium corporations.

TRAIN Briefing – VAT

VER 1.0 – January 2018
 NIRC Provision NIRC TRAIN

Section 109 (W) Sale or lease of goods (Z) Sale of gold to the BSP.
VAT-exempt or properties or the
Transactions performance of services (AA) Sale of drugs and medicines
other than the transactions prescribed for diabetes, high cholesterol,
specifically mentioned as and hypertension beginning January 1,
VAT-exempt, the gross 2019.
annual sales and/or
receipts do not exceed the Now (BB) Sale or lease of goods or
amount of P1,919,500.00 properties or the performance of services
(as amended). other than the transactions mentioned in the
preceding paragraphs, the gross annual
sales and/or receipts do not exceed the
amount of P3,000,000.

TRAIN Briefing – VAT

VER 1.0 – January 2018
 NIRC Provision NIRC TRAIN

Section 110 The input tax on the Amortization of input VAT shall only
(A)(2)(b) purchase of capital allowed until December 31, 2021.
Amortization of goods with a cost
Input VAT from exceeding After such date, taxpayers with
Purchases of P1,000,000.00 shall be unutilized input VAT on capital goods
Capital Goods amortized based on its purchased or imported shall be
useful life or 60 months, allowed to apply the same as
whichever is shorter. scheduled until fully utilized.

TRAIN Briefing – VAT

VER 1.0 – January 2018
 NIRC Provision NIRC TRAIN

Section 112 The Commissioner shall  The period of granting by the

Refunds or Tax grant a refund or issue a Commissioner of refunds is decreased to
Credit of Input VAT tax credit certificate for 90 days (from 120 days) from the date of
creditable input taxes submission of complete documents in
within 120 days from the support of the application.
date of submission of
complete documents.  The granting of tax credit instead of refund
is removed.

Additional provision:
Should the Commissioner find that the grant of
refund is not proper, the Commissioner must
sate in writing the legal and factual basis for
denial.

TRAIN Briefing – VAT

VER 1.0 – January 2018
 NIRC Provision NIRC TRAIN

Section 112 Failure on the part of the The deemed denial of failure to act on the
Refunds or Tax Commissioner to act on application is removed.
Credit of Input VAT the application within the
period prescribed shall Additional provision:
be deemed a denial of
the application. Failure on the part of any official, agent, or
employee of the BIR to act on the application
within the ninety (90) – day period shall be
punishable under Section 269 of the Tax Code
(administrative fine and imprisonment).

TRAIN Briefing – VAT

VER 1.0 – January 2018
 NIRC Provision NIRC TRAIN

Section 114 (A) VAT taxpayers shall file Beginning January 1, 2023, the filing and
Return and Payment quarterly return within 25 payment shall be done within 25 days
of VAT days following the close following the close of each taxable quarter.
of each taxable quarter,
while payment of the VAT
shall be made on a
monthly basis upon filing
of monthly VAT
declaration.

TRAIN Briefing – VAT

VER 1.0 – January 2018
 NIRC Provision NIRC TRAIN

Section 114 (B) Government or any of its Additional provision:

Withholding of VAT political subdivisions,
instrumentalities or agencies,
including government-owned
or -controlled corporations
(GOCCs) shall, before
making payment on account
of each purchase of goods
and services which are
subject to the value-added tax
shall deduct and withhold a
final value-added tax at the
rate of five percent (5%) of
the gross payment thereof.
Beginning January 1, 2021, the VAT
withholding system shall shift from final
to a creditable system.
Payments for purchases of goods and
services arising from projects funded by
Official Development Assistance (ODA)
shall not be subject to the final
withholding tax system.

TRAIN Briefing – VAT

VER 1.0 – January 2018
 NIRC NIRC TRAIN
Provision
Section 116 Cooperatives are exempt from Additional exemption:
3% gross receipts the 3% gross receipts tax
tax of persons Beginning January 1, 2019, self-
exempt from the employed and professionals with total
VAT annual gross sales and/or gross
receipts not exceeding P500,000 shall
be exempt from the 3% gross receipts

(The above provision was vetoed by

President Duterte because the
proposed exemption will result in
unnecessary erosion of revenues and
would lead to abuse and leakages.)

TRAIN Briefing – VAT

VER 1.0 – January 2018
 NIRC NIRC TRAIN
Provision
Section 127 Sale, barter or exchange of shares The rate of the stock transaction
Stock transaction of stock listed and traded through tax is increased to 6/10 of 1%
tax the local stock exchange shall be
subject to a tax of ½ of 1% of the
gross selling price or gross value in
money of the shares of stock sold,
bartered, exchanged or otherwise
disposed
Section 269 Additional provision:
Violations
committed by “(j) Deliberate failure to act on the
government application for refunds within the
enforcement prescribed period provided under
officers Section 112 of this Act.”

TRAIN Briefing – VAT

VER 1.0 – January 2018