TRANSACTIONS EXEMPT FROM VAT:
implements, wearing apparel, domestic animals, and
A. Coverage of Exemption
SEC. 109. Exempt Transactions. - (1) Subject to the provisions of
subsection (2) hereof, the following transactions shall be exempt
from the value-added tax:
"(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.
"Products classified under this paragraph 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, broiling, roasting, smoking or stripping. Polished
and/or husked rice, corn grits, raw cane sugar and molasses,
ordinary salt, and copra shall be considered in their original
state;
"(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 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;
"(D) Importation of professional instruments 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, that such
persons are actually coming to settle in the Philippines and
that the change of residence is bona fide;
"(E) Services subject to percentage tax under Title V;
"(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 the Department of Education
(DEPED), the Commission on Higher Education (CHED),
the 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
agreements to which the Philippines is a signatory or under
special laws, except those under Presidential Decree No.
529;
"(L) Sales by agricultural cooperatives duly registered 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, machineries and equipment, including
spare parts thereof, to be used directly and exclusively in
the production and/or processing of their produce;
"(M) Gross receipts from lending activities by credit or
multi-purpose cooperatives duly registered with the
Cooperative Development Authority;
"(N) Sales by non-agricultural, non-electric and non-credit
cooperatives duly registered with the Cooperative
Development Authority: Provided, That the share capital
contribution of each member does not exceed Fifteen
thousand pesos (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
One million five hundred thousand pesos (P1,500,000) and
below, house and lot, and other residential dwellings valued
at Two million five hundred thousand pesos (P2,500,000)
and below: Provided, That not later than January 31, 2009
and every three (3) years thereafter, the amounts herein
stated shall be adjusted to their present values using the
Consumer Price Index, as published by the National
Statistics Office (NSO);
"(Q) Lease of a residential unit with a monthly rental not
exceeding Ten thousand pesos (P10,000) Provided, That
not later than January 31, 2009 and every three (3) years
thereafter, the amount herein stated shall be adjusted to its
present value using the Consumer Price Index as published
by the National Statistics Office (NSO);
"(R) Sale, importation, printing or publication of books and
any newspaper, magazine, review or bulletin which appears
at regular intervals with fixed prices for subscription and
sale and which is not devoted principally to the publication
of paid advertisements;
"(S) Sale, importation or lease of passenger or cargo vessels
and aircraft, including engine, equipment and spare parts
thereof for domestic or international transport operations;
"(T) Importation of fuel, goods and supplies by persons
engaged in international shipping or air transport
operations;
"(U) Services of banks, non-bank financial intermediaries
performing quasi-banking functions, and other non-bank
financial intermediaries; and
"(V) 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 One million five hundred
thousand pesos (P1,500,000): Provided, That not later than
January 31, 2009 and every three (3) years thereafter, the
amount herein stated shall be adjusted to its present value
using the Consumer Price Index as published by the
National Statistics Office (NSO);
"(2) A VAT-registered person may elect that Subsection (1) not
apply to its sale of goods or properties or services: Provided, That
an election made under this Subsection shall be irrevocable for a
period of three (3) years from the quarter the election was made."
GENERAL RULE;
PHIL ACETYLENE v CIR: HELD:
The tax imposed by section 186 of the National Internal Revenue Codeis
a tax on the manufacturer or producer and not a tax on the purchaser
exceptprobably in a very remote and inconsequential sense. Accordingly
its levy onthe sales made to tax-exempt entities like the NPC is
permissible. The sales tothe VOA are subject to the payment of
percentage taxes under section 186 of the Code. Only sales made "for
exclusive use in the construction, maintenance,operation or defense of
the bases," in a word, only sales to the quartermaster,are exempt under
article V from taxation. Sales of goods to any other partyeven if it be an
agency of the United States, such as the VOA, or even to
thequartermaster but for a different purpose, are not free from the
payment of thetax
First Planters Pawnshop v CIR
On the issue of whether pawnshops are liable to pay VAT, the
Court, in First Planters Pawnshop, Inc. v. Commissioner of Internal
Revenue,21 held:
In fine, prior to the [passage of the] EVAT Law [in 1994],
pawnshops were treated as lending investors subject to lending
investor's tax. Subsequently, with the Court's ruling in Lhuillier,
pawnshops were then treated as VAT-able enterprises under the
general classification of "sale or exchange of services" under
Section 108 (A) of the Tax Code of 1997, as amended. R.A. No.
9238 [which was passed in 2004] finally classified pawnshops as
Other Non-bank Financial Intermediaries.
The Court finds that pawnshops should have been treated as non-
bank financial intermediaries from the very beginning, subject to
the appropriate taxes provided by law, thus -
Under the National Internal Revenue Code of 1977,
pawnshops should have been levied the 5% percentage tax
on gross receipts imposed on bank and non-bank financial
intermediaries under Section 119 (now Section 121 of the
Tax Code of 1997);
With the imposition of the VAT under R.A. No. 7716 or the
EVAT Law, pawnshops should have been subjected to the
10% VAT imposed on banks and non-bank financial
intermediaries and financial institutions under Section 102
of the Tax Code of 1977 (now Section 108 of the Tax Code
of 1997);
This was restated by R.A. No. 8241, 24 which amended
R.A. No. 7716, although the levy, collection and assessment
of the 10% VAT on services rendered by banks, non-bank
financial intermediaries, finance companies, and other
financial intermediaries not performing quasi-banking
functions, were made effective January 1, 1998;
R.A. No. 8424 or the Tax Reform Act of 1997 26 likewise
imposed a 10% VAT under Section 108 but the levy,
collection and assessment thereof were again deferred until
December 31, 1999;
The levy, collection and assessment of the 10% VAT was
further deferred by R.A. No. 8761 until December 31, 2000,
and by R.A. No. 9010, until December 31, 2002;
With no further deferments given by law, the levy,
collection and assessment of the 10% VAT on banks, non-
bank financial intermediaries, finance companies, and other
financial intermediaries not performing quasi-banking
 functions were finally made effective beginning January 1,
2003;
Finally, with the enactment of R.A. No. 9238 in 2004, the
services of banks,In Commissioner of Internalintermediaries,
non-bank financial Revenue v. Michae
finance companies, and other financial intermediaries not
performing quasi-banking functions were specifically
exempted from VAT, 28 and the 0% to 5% percentage tax
on gross receipts on other non-bank financial intermediaries
was reimposed under Section 122 of the Tax Code of 1997.
At the time of the disputed assessment, that is, for the year 2000,
pawnshops were not subject to 10% VAT under the general
provision on "sale or exchange of services" as defined under
Section 108 (A) of the TaxPAGCROR
Code of 1997, which states: "'sale or
exchange of services' means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or
consideration . . . ." Instead, due to the specific nature of its
business, pawnshops were then subject to 10% VAT under the
category of non-bank financial intermediaries[.]
Coming now to the issue at hand - Since petitioner is a non-bank
financial intermediary, it is subject to 10% VAT for the tax years
1996 to 2002; however, with the levy, assessment and collection of
VAT from non-bank financial intermediaries being specifically
deferred by law, then petitioner is not liable for VAT during these
tax years. But with the full implementation of the VAT system on
non-bank financial intermediaries starting January 1, 2003,
petitioner is liable for 10% VAT for said tax year. And beginning
2004 up to the present, by virtue of R.A. No. 9238, petitioner is no
longer liable for VAT but it is subject to percentage tax on gross
receipts from 0% to 5%, as the case may be. (emphasis and
underscoring supplied)
In light of the foregoing ruling, since the imposition of VAT on
pawnshops, which are non-bank financial intermediaries, was
deferred for the tax years 1996 to 2002, petitioner is not liable for
VAT for the tax year 1999.
CIR v MICHAEL LHUILLIER
l J. Lhuillier Pawnshop,[6] we were confronted with a similar issue:
Are pawnshops included in the term lending investors for the
purpose of imposing the 5% percentage tax under then Section 116
of the National Internal Revenue Code of 1977, as amended by
Executive Order No. 273? We answered the question in the
negative, holding that while pawnshops are indeed engaged in the
business of lending money, they cannot be deemed lending
investors for the purpose of imposing the 5% lending investors
tax.
is settled rule that in case of discrepancy between the basic law
and a rule or regulation issued to implement said law, the basic
law prevails, because the said rule or regulation cannot go
beyond the terms and provisions of the basic law.
RR No. 16-2005, therefore, cannot go beyond the provisions of
R.A. No. 9337. Since PAGCOR is exempt from VAT under R.A.
No. 9337, the BIR exceeded its authority in subjecting
PAGCOR to 10% VAT under RR No. 16-2005; hence, the said
regulatory provision is hereby nullified.
EXCEPTIONS:
. Maceda v Macaraig
Facts:
The petition seeks to nullify certain decisions, orders, ruling, and
resolutions of the respondents (Macaraig et. al) for exempting the
National Power Corporation (NPC) from indirect tax and duties.
Commonwealth Act 120 created NPC as a public corporation. RA
6395 revised the charter of NPC and provided in detail the
exemption of NPC from all taxes, duties and other charges by the
government. There were many resolutions and decisions that
followed after RA 6395 which talked about the exemption and non-
exemption from taxes of NPC.
Issue:
Whether or not NPC is really exempt from indirect taxes
Held:
Yes. NPC is a non-profit public corporation created for the general
good and welfare of the people. From the very beginning of its
corporate existence, NPC enjoyed preferential tax treatment to
enable it to pay its debts and obligations. From the changes made in
the NPC charter, the intention to strengthen its preferential tax
treatment is obvious. The tax exemption is intended not only to
insure that the NPC shall continue to generate electricity for the
country but more importantly, to assure cheaper rates to be paid by
consumers.
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Some Notes on Direct and Indirect Taxes:
Direct Taxes those which a taxpayer is directly liable on the
transaction or business it engages in. Examples are: custom duties,
ad valorem taxes paid by oil companies for importation of crude oil
Indirect Taxes paid by persons who can shift the burden upon
someone else.
Examples are: ad valorem taxes that oil companies pay to BIR upon
removal of petroleum products from its refinery can be shifted to its
buyer, like the NPC
Dissenting Opinion of Justice Sarmiento: The fact that NPC has
been tasked with the enormous undertaking to improve the quality
of life, is no reason, to include indirect taxes, within the coverage
of its preferential tax treatment. The deletion of indirect taxes as
stated in one of the assailed orders (PD 938), is significant, because
if said law truly intends to exempt NPC from indirect taxes, it
would have said so specifically.
CIR v GOTAMCO:
Issue: Whether or not the said 3%
contractors tax imposed upon petitioner is
covered by the direct and indirect tax
exemption granted to WHO by the
government.
Held: Yes. The 3% contractors tax imposed
upon petitioner is covered by the direct and
indirect tax exemption granted to WHO.
Hence, petitioner cannot be held liable for
such contractors tax. The Supreme Court
explained that direct taxes are those that are
demanded from the very person who, it is
intended or desired, should pay them; while
indirect taxes are those that are demanded in
the first instance from one person in the
expectation and intention that he can shift
the burden to someone else. While it is true
that the contractor's tax is payable by the
contractor, However in the last analysis it is
the owner of the building that shoulders the
burden of the tax because the same is shifted
by the contractor to the owner as a matter of
self-preservation. Thus, it is an indirect tax
against the WHO because, although it is
payable by the petitioner, the latter can shift
its burden on the WHO.