Proposed Reforms On Value-Added Tax: Executive Order (EO) No. 273

NTRC Tax Research Journal Vol. XXIX.
3 May - June 2017
Proposed Reforms on Value-Added Tax*
I. INTRODUCTION
Package 1 of the Comprehensive Tax Reform Program (CTRP) includes proposed

reforms on the Value-Added Tax (VAT) system such as broadening the VAT base by
limiting the exemptions set forth under Section 109 of the National Internal Revenue Code
(NIRC), as amended, to raw food and other necessities and removing all VAT zero-rated
transactions except on direct exports. It also proposes to remove VAT exemptions under
special laws. These amendments are proposed under Senate Bill (SB) No. 1408 and House
Bill (HB) No. 5636 with few modifications which are now being deliberated upon in the
Senate of the Philippines.
This paper discusses the historical changes in the VAT system since its inception in
1988 to the present, its revenue performance, and the impact of the proposed amendments to
the VAT under the proposed CTRP.
II. BACKGROUND INFORMATION
A. VAT Legislation, 1988 to Present
Executive Order (EO) No. 273 1
The VAT was introduced in the Philippines in 1988 via EO 273 with the
following basic features, viz.:
(a) Simplified the tax structure and administration and imposed a standard VAT
rate of 10% on the sale and importation of goods and services based on gross
sales/receipts and 0% on exports and other foreign currency-denominated sales
and those under special international treaties;
* Prepared by Florida J. Jurado, Senior Tax Specialist, reviewed and approved by Ma. Berlie L. Amurao,
Supervising Tax Specialist and Marlene L. Calubag, Chief Tax Specialist, Indirect Taxes Branch, NTRC.
1
Entitled, “Adopting a Value-Added Tax (VAT), Amending for this Purpose, Certain Provisions of
the NIRC, and for Other Purposes”, approved July 27, 1987 and effective January 1, 1988.
12 Proposed Reforms on VAT

NTRC Tax Research Journal Vol. XXIX.3 May - June 2017
(b) Replaced with a uniform rate the following varied rates, viz.: fixed taxes;
advance sales tax; tax on original sale; subsequent sales tax; compensating tax;
miller’s tax; contractor’s tax; broker’s tax; percentage tax on cinematographic
film lessors and distributors; excise tax on solvents, matches and processed
video- tape cassettes, among others;
(c) Adopted the tax credit method of calculating the tax by subtracting the tax on
input (raw materials, supplies, purchases, and capital expenses) from output
(gross sales/receipts) tax;
(d) Maintained the VAT progressivity by granting VAT exemption to the sale of
basic commodities, agricultural and marine food products in their original
state, fertilizers and other inputs, price-regulated petroleum products, among
others; and
(e) Imposed a 2% gross sales tax on entities exempt from the VAT with annual
gross sales or receipts of less than PhP200,000 2.
RA 7716 3
RA 7716 or the Expanded VAT (EVAT) Law amended EO 273, viz.:
(a) Widened its coverage by:
i. Including certain goods/ services/transactions which were not previously

subject to the VAT nor to other percentage taxes;
ii. Transferring taxability of certain persons subject to percentage taxes to the

VAT; and
iii. Lifting VAT exemption of certain items/persons.
(b) Provided additional goods/ transactions exempt from the VAT;
2
As implemented by RR 05-87 (Effective January 1, 1988)
3
Entitled, “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”, approved May 5, 1994 and effective
January 1, 1996.
It is noted however, that RA 7716 was supposed to be effective 15 days after its complete publication
in the Official Gazette or in at least 2 newspapers of general circulation whichever comes first. It was published
in the Malaya and Journal on May 12, 1994 and in the Official Gazette on August 1, 1994, thus it was supposed
to be effective on May 28, 1994. However, a temporary restraining order (TRO) was issued by the Supreme
Court on the effectivity of RA 7716 on June 30, 1994 and it was only lifted on October 30, 1995. RA 7716
became effective on January 1, 1996 through the issuance of RR 7-95.
Proposed Reforms on VAT 13

(c) Provided for additional goods/ transactions subject to zero rate;
(d) Prescribed for an annual registration and payment of registration fees of

PhP1,000 for each separate establishment and non-VAT taxpayers;
(e) Revised upward the annual gross sales/receipts of persons exempt from the
VAT from PhP200,000 to PhP500,000 4;
(f) Increased the rate of tax payable by non-VAT persons whose gross sales or
receipts in a taxable year is below the threshold, from 2% to 3% effective
January 1, 1996 and 4% two years thereafter or effective January 1, 1998; and
(g) Included certain services to be subject to VAT after two years from the
effectivity of RA 7716, namely, services performed by actors, actresses,
singers, talents, radio/TV broadcasters, etc.; professional athletes; banks and
non-bank financial intermediaries and finance companies; professionals and
registered professional partnerships; and international cargo vessels, airlines
and freight forwarders; among others.
RA 8241 5
RA 8241 or the Improved VAT Law amended the EVAT law by:
(a) Providing additional features on VAT exemptions of cooperatives per type of

cooperatives;
(b) Exempting from the VAT the following: importation of meat; sale or
importation of coal and natural gas in whatever form or state; educational
services rendered by private educational institutions duly accredited by the
Commission on Higher Education (CHED); house and lot and other residential
dwellings valued at PhP1 million and below, lease of residential units with
monthly rental per unit of not more than PhP8,000, among others;
(c) Increasing the amount of exemption threshold from PhP500,000 to

PhP550,000 subject to annual adjustment using the Consumer Price Index
(CPI);
(d) Providing for presumptive input tax credit to: persons or firms engaged in the
processing of sardines, mackerel and milk, and in manufacturing refined sugar
and cooking oil at the rate of 1.5% based on the gross value in money of their
purchase of primary agricultural products which are used as inputs to their
4
Revenue Regulation (RR) No. 7-95 (effective January 1, 1996).
5
Entitled, “An Act Amending Republic Act No, 7716, Otherwise Known as the Expanded Value-
Added Tax Law and Other Pertinent Provisions of the National Internal Revenue Code as Amended”, approved
December 20, 1996 and effective January 1, 1997.

production; and public works contractors based on the contract price with
respect to government contracts only in lieu of actual input taxes therefrom;
(e) Providing for the withholding of a creditable VAT for government public
works at the rate of 8.5%;
(f) Fixing the rate of tax for VAT-exempt and non-VAT taxpayers at 3% of gross
quarterly sales or receipts;
(g) Reverting the taxation of cars for rent or hire driven by the lessee;
transportation contractors and other domestic carriers by land, air or water for
the transport of passengers to the 3% common carriers tax;
(h) Subjecting international air and shipping carriers to a tax of 3%;
(i) Subjecting to a 3% franchise tax all franchises on radio and/or television

broadcasting companies with annual gross receipts not exceeding PhP10
million;
(j) Reducing the annual registration fee for non-VAT taxpayers from PhP1,000 to
PhP500 for every separate or distinct place of establishment; and
(k) Deferring the imposition of the VAT on the following: actors, actresses,
singers, talents, radio/ TV broadcasters, etc.; professional athletes; banks and
non-bank financial intermediaries; finance companies and other financial
intermediaries not performing quasi-banking functions; professionals and
registered professional partnerships.
RA 8424 6
RA 8424 further deferred the imposition of the VAT beginning January 1,

2000 on the services performed by:
(a) Actors, actresses, singers, talents, emcees, radio/TV broadcasters,

choreographers, musical, radio, movie, television and stage directors;
(b) Professional athletes;
(c) Banks and non-bank financial intermediaries and finance companies; and
(d) Professionals and registered professional partnerships.
6
Entitled, “An Act Amending the National Internal Revenue Code, as Amended, and for Other
Purposes”, approved December 11, 1997 and effective January 1, 1998.

RA 8761 7
RA 8761 further deferred the imposition of the VAT beginning January 1,

2001 on the services performed by:

(c) Banks and non-bank financial intermediaries and finance companies;
(d) Professional and registered professional partnerships; and
(e) Services rendered by stock, real estate, commercial, customs and immigration
brokers. The aforesaid brokers were subjected to a 7% tax based on gross
receipts from brokering services beginning January 1, 2000 to December 31,
2000. Beginning January 1, 2001, they were supposed to be subject to the
VAT in lieu of the 7% tax.
RA 9010 8
RA 9010 finally imposed the VAT on the services performed by the

following effective January 1, 2003:

(c) Banks and non-bank financial intermediaries and finance companies;
(d) Professional and registered professional partnerships; and
(e) Services rendered by stock, real estate, commercial, customs and immigration
brokers. The aforesaid brokers continued to be subjected to a 7% tax based on
gross receipts from brokering services beginning January 1, 2001 to December
31, 2002. Beginning January 1, 2003, they were subjected to the VAT in lieu
of the 7% tax.
7
Entitled, “An Act Imposing the Value-Added Tax on Certain Services Beginning January 1, 2001,
Amending for the Purpose Section 5 of Republic Act No. 8424 and for Other Purposes”, approved February 16,
2000 and effective January 1, 2000.
8
Entitled, “An Act to Further Defer the Imposition of the Value-Added Tax on Certain Services,
amending for the Purpose Sec. 5 of Republic Act No. 8424, as Amended by Republic Act No. 8761”, approved
February 27, 2001 and effective January 1, 2001.

RA 9238 9
RA 9238 amended Section 109 of the NIRC, as amended by adding certain

services among the exempt transactions, viz.:
(a) Services rendered by doctors of medicine duly registered with the Professional
Regulation Commission (PRC); and
(b) Services rendered by lawyers duly registered with the Integrated Bar of the
Philippines (IBP).
Also, the law reverted the taxation of banks and non-bank financial
intermediaries to gross receipts tax (GRT) and amended the four-tier rates of 0%,
1%, 3% and 5% to three-tier rates of 0%, 1% and 5%.
RA 9337 10
RA 9337, or the Reformed VAT (RVAT) Law, amended the VAT Law by:
(a) Authorizing the President of the Philippines upon the recommendation of the
Secretary of Finance to raise the VAT rate from 10% to 12% after meeting
certain conditions. RA 9337 was implemented on November 1, 2005 while the
increase of the VAT rate from 10% to 12% took effect only on February 1,
2006 via Bureau of Internal Revenue (BIR) Revenue Memorandum Circular
(RMC) No. 7-2006 11.
(b) Subjecting to the VAT the following previously exempt goods and services, viz.:
i. Domestic transport of passengers by air and sea;
9
Entitled, “An Act Amending Certain Sections of the National Internal Revenue Code of 1997, as
Amended, by Excluding Several Services from the Coverage of the Value-Added Tax and Re-Imposing the
Gross Receipts Tax on Banks and Non-Bank Financial Intermediaries Performing Quasi-Banking Functions
and Other Non-Bank Financial Intermediaries Beginning January 01, 2004”, lapsed into law on February 5,
2004 and effective January 1, 2004.
10
Entitled, “An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116,
117, 119, 121, 148, 151, 236, 237 and 288 of the National Internal Revenue Code of 1997, as Amended, and for
Other Purposes”, approved May 24, 2005 and effective November 1, 2005. It is noted that RA 9337 was
supposed to be effective on July 1, 2005, however, due to a TRO issued by the Supreme Court, the enforcement
of the Law was stopped. It finally took effect on November 1, 2005 when the TRO was finally lifted by the
Supreme Court.
11
Entitled, “Publishing the Full Text of the Memorandum from Executive Secretary Eduardo R. Ermita
dated January 31, 2006 Approving the Recommendation of the Secretary of Finance to Increase the Value
Added Tax Rate from 10% to 12%”, effective February 1, 2006.

ii. Generation, transmission 12 and distribution of electricity;

iii. Coal and natural gas;
iv. Petroleum products and their raw materials;
v. Electric cooperatives 13;
vi. Non-food agricultural products;
vii. Marine and forest products;
viii. Cotton and cotton seeds;
ix. Importation of passenger/cargo vessels more than 5,000 tons;
x. Works of art, literary works, musical compositions and similar creations;
xi. Doctors of medicine duly registered with the PRC; and
xii. Lawyers registered with the IBP.
(c) Subjecting to zero-rate VAT the following goods and services, viz.:
i. Transport of passengers and cargoes by domestic air or sea carriers to a

foreign country;
ii. Services rendered to international air transport operations 14 including lease
of property for use thereof; 15
iii. Sale of goods, supplies, equipment and fuel to aircrafts and vessels
engaged exclusively in international transport; and
iv. Sale of power or fuel generated through renewable sources of energy such
as, but not limited to, biomass, solar, wind, hydropower, geothermal, ocean
energy, and other emerging energy sources using technologies such as fuel
cells and hydrogen cells.
(d) Incorporating other reform measures to plug the leaks in the existing VAT
system and to simplify its VAT administration, viz.:
i. Providing for the 70% cap on input VAT, the spreading of the input VAT
claim on capital goods which exceeds PhP1 million (net of VAT
component) to 5 years;
12
Exempted from the VAT beginning December 20, 2008 under Section 9 of RA 9511, Entitled, “An
Act Granting the National Grid Corporation of the Philippines a Franchise to Engage in the Business of Conveying
or Transmitting Electricity through High Voltage Back-Bone System of Interconnected Transmission Lines,
Substations and Related Facilities, and for Other Purposes, approved on December 1, 2008.
13
Electric Cooperatives that are duly registered with the Cooperative Development Authority are
exempted from VAT under Section 61 (2) (b) of RA 9520, Entitled, “An Act Amending the Cooperative Code
of the Philippines to be Known as the Philippine Cooperative Code of 2008”, approved on February 17, 2009.
14
Under BIR Ruling 099-11, services provided by the hotel in its premises to international air
transport operations pertaining to room accommodations and food and beverages services are not directly
attributable to the transport of goods and passengers from Philippines ports to a foreign port. Hence, not subject
to zero-rating but to 12% VAT.
15
It is noted that prior to the RVAT Law, only services rendered to vessels engaged exclusively in
international shipping are subject to the 0% VAT under Section 108 (B) (4) of RA 8424.

ii.
Deleting the 1.5% presumptive input VAT on public works contractors;
and
iii. Imposing a uniform 5% final withholding VAT on government purchases
of goods, services and public works contracts. 16
(e) Providing certain mitigating measures on the VAT system, as follows:
i. Removal of the franchise tax on power distribution and common carriers

tax on domestic shipping. It also abolished the franchise tax on domestic
airlines, i.e., P.D. 1590 on the franchise tax of Philippine Airlines, Inc.,
RA 7151 on the franchise tax of Cebu Air, Inc., RA 7583 on the franchise
tax of Aboitiz Air Transport Corporation, RA 7909 on the franchise tax of
Pacific Airways Corporation, RA 8339 on the franchise tax of Air
Philippines, or any other franchise agreement or law pertaining to a
domestic airline.
ii. Increase in the presumptive input VAT on agro-processors 17 from 1.5% to
4%; and
iii. Increase in the marginal threshold exemption of VAT from PhP750,000 18
to PhP1.5 million19 per annum, and sale of residential lot for PhP1.5
million and residential house and lot for PhP2.5 million20 respectively.
RA 9361 21
RA 9361 removed the 70% cap on claiming of input tax against the output
tax.
16
The 5% final withholding VAT represents the net payable of the seller. Prior to RA 9337,
withholding VAT on government payments was creditable. The rates were 3%, 6% and 8.5% on gross
payments for the purchase of goods, services rendered, and payments made to government public works
contractors, respectively.
17
Persons or firms engaged in the processing of sardines, mackerel, and milk, and in manufacturing
refined sugar, cooking oil and packed noodle-based instant meals.
18
Adjusted from PhP550,000 to PhP750,000 by Revenue Regulation 1-2005, effective December 28,
2004.
19
Adjusted from PhP750,000 to PhP1,500,000 million by RR 14-2005 and RR 16-2005. Further
adjusted to PhP1,919,500 under RR 16-2011, effective January 1, 2012.
20
Previously set at PhP1,000,000 million by RA 8241 but later adjusted to PhP1,500,000 and
PhP2,500,000 for residential lots and residential house and lot, respectively through RR 14-2005 and RR 16-
2005. It was further adjusted to PhP3,199,200 million under RR 16-2011, effective January 1, 2012.
21
Entitled, “An Act Amending Section 110(B) of the National Internal Revenue Code of 1997, as
Amended, and for Other Purposes”, approved November 21, 2006 and effective December 13, 2006.

B. Special Laws with Provisions on VAT Exemption or Zero-Rating
Since the enactment of RA 9337 in 2005, various legislation were passed

which affected the effectiveness of the VAT in generating much needed revenues
for the government such as but not limited to the following:
RA 9367 22
RA 9367 or the Biofuels Act of 2006 granted VAT exemption on the sale of
raw materials used in the production of biofuels such as, but not limited to, coconut,
jatropha, sugarcane, cassava, corn, and sweet sorghum.
RA 9500 23
RA 9500 or the University of the Philippines Charter of 2008 granted

exemption on all revenues and assets of the University used for educational
purposes from all taxes and duties. However, the University shall pay 0% VAT for
all transactions subject to this tax while all academic awards shall be exempt from
taxes.
RA 9501 24
RA 9501 or the Magna Carta for Micro, Small, and Medium Enterprises
(MSMEs) granted MSMEs availment and easier access to tax credits and other tax
and duty incentives as provided by the Omnibus Investment Code and other laws.
RA 9593 25
RA 9593 or the Tourism Act of 2009 granted an exemption of 100% to

various registered tourism enterprises from all taxes and customs duties on
importations of capital investment and equipment.
22
Entitled, “An Act to Direct the Use of Biofuels, Establishing for this Purpose the Biofuel Program,
Appropriating Funds Therefor, and for Other Purposes”, approved January 12, 2007.
23
Entitled, “An Act to Strengthen the University of the Philippines as the National University”,
approved April 29, 2008.
24
Entitled, “An Act to Promote Entrepreneurship by Strengthening Development and Assistance
Programs to Micro, Small and Medium Scale Enterprises, amending for the Purpose Republic Act No. 6977, as
Amended, Otherwise Known as the “Magna Carta for Small Enterprises” and for Other Purposes”, approved
May 23, 2008.
25
Entitled, “An Act Declaring a National Policy for Tourism as an Engine of Investment,
Employment, Growth and National Development, and Strengthening the Department of Tourism and its
Attached Agencies to Effectively Efficiently Implement that Policy, and Appropriating Funds Therefor”,
approved May 13, 2009.

RA 9511 26
RA 9511 re-imposed the franchise tax on all gross receipts derived by the
National Grid Corporation of the Philippines (NGCP) from its operation under its
franchise in lieu of income tax and any and all taxes, duties, fees, and charges
(i.e. including the VAT).
RA 9513 27
RA 9513 or the Renewable Energy Act of 2008 granted zero VAT on the
sale of fuel or power generated from renewable sources of energy such as, but not
limited to biomass, solar, wind, hydropower, geothermal, ocean energy and other
emerging energy sources using technologies such as fuel cells and hydrogen fuels.
RA 9519 28
RA 9519 provided the same tax privileges under RA 9500 to the Mindanao
University of Science and Technology (MUST).
RA 9520 29
RA 9520 or the Philippine Cooperative Code of 2008 granted exemption

from the VAT on certain transactions of duly registered cooperatives with the
Cooperative Development Authority (CDA), viz.:
(a) Duly registered cooperatives which transact business with members

only;
26
Entitled, “An Act Granting the National Grid Corporation of the Philippines a Franchise to Engage
in the Business of Conveying or Transmitting Electricity through High Voltage Back-Bone System of
Interconnected Transmission Lines, Substations and Related Facilities, and for Other Purposes”, approved
December 1, 2008 and effective December 20, 2008.
27
Entitled, “An Act Promoting the Development, Utilization and Commercialization of Renewable
Energy Resources and for Other Purposes”, approved December 16, 2008.
28
Entitled, “An Act Converting the Mindanao Polytechnic State College in Cagayan De Oro City,
Province of Misamis Oriental into a State University to be known as the Mindanao University of Science and
Technology (Must) and Appropriating Funds Therefor”, approved January 07, 2009.
29
Entitled, “An Act Amending the Cooperative Code of the Philippines to be Known as the Philippine
Cooperative Code of 2008”, approved February 17, 2009.

(b) Electric cooperatives duly registered with the CDA on revenues on

system loss and revenues on distribution, supply, metering and lifeline
subsidy of electricity to their members;
(c) Duly registered cooperatives which transact business with members

and non-members with accumulated reserves and undivided net savings
of not more than PhP10 million;
(d) Business transactions with members of duly registered cooperatives

with accumulated reserves and undivided net savings of more than
PhP10 million;
(e) Business transactions with non-members of cooperatives with

accumulated reserves and undivided net savings of more than PhP10
million under certain conditions.
RA 9576 30
RA 9576 or the Philippine Deposit Insurance (PDIC) Charter provided that

all tax obligations of the Corporation for a period of five (5) years reckoned from
the date of effectivity of the Act shall be chargeable to the Tax Expenditure Fund
(TEF) in the annual General Appropriations Act pursuant to the provisions of EO
93, series of 1986; However, on the 6th year and thereafter, the Corporation shall be
exempt from the VAT and other national taxes (i.e., income tax, final withholding
tax) on assessments collected from member banks including local taxes”.
RA 9647 31
RA 9647 accorded the same exemption under RA 9500 to the Philippine

Normal University.
RA 9679 32
RA 9679 granted PAG-IBIG Fund and all its assets and properties, all
contributions collected and all accruals thereto and income or investment earnings
30
Entitled, “An Act Increasing the Maximum Deposit Insurance Coverage, and in Connection
Therewith, to Strengthen the Regulatory and Administrative Authority, and Financial Capability of the
Philippine Deposit Insurance Corporation (PDIC), Amending for this Purpose Republic Act Numbered Three
Thousand Five Hundred Ninety-One, as Amended, otherwise known as the PDIC Charter, and for Other
Purposes”, approved April 29, 2009.
31
Entitled, “An Act Designating the Philippine Normal University as the Country's National Center
for Teacher Education, Appropriating Funds Therefor, and for Other Purposes”, approved June 30, 2008.
32
Entitled, “An Act Further Strengthening the Home Development Mutual Fund, and for Other
Purposes”, approved July 21, 2009.

therefrom, as well as all supplies, equipment, papers or documents exemption from

any tax, assessment, fee, charge, or customs or import duty; and all benefit
payments made by the PAG-IBIG Fund shall likewise be exempt from all kinds of
taxes, fees or charges, and shall not be liable to attachments, garnishments, levy or
seizure by or under any legal or equitable process whatsoever, either before or after
receipt by the person or persons entitled thereto, except to pay any debt of the
member to the Fund. No tax measure of whatever nature enacted shall apply to the
Fund, unless it expressly revokes the declared policy of the State.
RA 9856 33
RA 9856 or The Real Estate Investment Trust (REIT) Act of 2009 subjected
the gross sales from any disposal of real property or gross receipts from the rental
of such real property to the VAT. However, the sale, exchange or transfer of
securities forming part of its real estate-related assets are exempted from the VAT.
RA 9994 34
RA 9994 or the Expanded Senior Citizens Act of 2010 granted additional

benefits to senior citizens by exempting from the VAT the following transactions,
viz.:
(a) Purchase of medicines, including the purchase of influenza and pneumococcal

vaccines, and such other essential medical supplies, accessories and equipment
to be determined by the Department of Health (DOH);
(b) Professional fees of attending physician/s in all private hospitals, medical

facilities, outpatient clinics and home health care services;
(c) Professional fees of licensed professional health providing home health care
services as endorsed by private hospitals or employed through home health
care employment agencies;
(d) Medical and dental services, diagnostic and laboratory fees in all private
hospitals, medical facilities, outpatient clinics, and home health care services,
in accordance with the rules and regulations to be issued by the DOH, in
coordination with the Philippine Health Insurance Corporation (PhilHealth);
33
Entitled “An Act Providing the Legal Framework for Real Estate Investment Trust and for Other
Purposes”, lapsed into law on December 17, 2009 and effective February 9, 2010.
34
Entitled “An Act Granting Additional Benefits and Privileges to Senior Citizens, Further Amending
Republic Act No. 7432, as Amended, Otherwise Known as "An Act to Maximize the Contribution of Senior
Citizens to Nation Building, Grant Benefits and Special Privileges and for Other Purposes”, approved February
15, 2010 and effective April 22, 2010.

(e) Actual fare for land transportation travel in public utility buses (PUBs), public
utility jeepneys (PUJs), taxis, Asian utility vehicles (AUVs), shuttle services
and public railways, including Light Rail Transit (LRT), Mass Rail Transit
(MRT), and Philippine National Railways (PNR);
(f) Actual transportation fare for domestic air transport services and sea shipping
vessels and the like, based on the actual fare and advanced booking;
(g) Utilization of services in hotels and similar lodging establishments, restaurants

and recreation centers;
(h) Admission fees charged by theaters, cinema houses and concert halls, circuses,
leisure and amusement; and
(i) Funeral and burial services for the death of senior citizens.
RA 10068 35
RA 10068 or the Organic Agriculture Act of 2010 granted zero-rated VAT

on sale/purchase of bio-organic products whether organic inputs or organic
produce.
RA 10072 36
RA 10072 or the Philippine Red Cross Act of 2009 granted the Philippine
Red Cross exemption from indirect taxes including VAT that will emerge from its
operations, i.e., use, lease or sale of its real property and its exclusive importations
and purchases.
RA 10073 37
RA 10073 or the Girl Scouts of the Philippines Charter of 2009 granted

exemption from indirect taxes including VAT derived from its operations and
exclusive importations and purchases.
35
Entitled “An Act Providing for the Development and Promotion of Organic Agriculture in the
Philippines and for Other Purposes”, approved April 6, 2010.
36
Entitled “An Act Recognizing the Philippine National Red Cross as an Independent, Autonomous,
Nongovernmental Organization Auxiliary to the Authorities of the Republic of the Philippines in the
Humanitarian Field, to be Known as the Philippine Red Cross”, approved April 20, 2010.
37
Entitled “An Act Instituting the New Girl Scouts of the Philippines Charter, Penalizing Violations
Thereof and for Other Purposes”, approved April 20, 2010.

RA 10083 38
RA 10083 or the Aurora Pacific Economic Zone and Freeport Act of 2010
imposed on registered enterprises operating within the Zone a five (5%) tax on their
Gross Income Earned (GIE) in lieu of local (except on real property tax on land)
and national taxes.
RA 10349 39
RA 10349 granted sources of funds directly deposited to a special account

in the general fund created specifically for the Revised AFP Modernization and
importation of the same by the AFP are exempt from the value-added tax and
customs duties.
RA 10378 40
RA 10378 exempted from the VAT the transport of passengers by

international carriers.
RA 10659 41
RA 10659 or the Sugarcane Industry Development Act of 2015 granted

zero-rated VAT on refined sugar withdrawn from warehouses for actual physical
export to the world market.
38
Entitled “An Act Amending Republic Act No. 9490, Otherwise Known as the Aurora Economic
Zone Act of 2007”, lapsed into law on April 22, 2010.
39
Entitled, “An Act Amending Republic Act No. 7898, Establishing the revised AFP Modernization
Program and for Other Purposes”, approved December 11, 2012.
40
Entitled “An Act Recognizing the Principle of Reciprocity as Basis for the Grant of Income Tax
Exemptions to International Carriers and Rationalizing Other Taxes Imposed Thereon by Amending Sections
28(A)(3)(a), 109, 118 and 236 of the National Internal Revenue Code (NIRC), as Amended, and for Other
Purposes”, approved March 7, 2013 and effective March 28, 2013.
41
Entitled “An Act Promoting and Supporting the Competitiveness of the Sugar Industry and for Other
Purposes”, approved March 27, 2015.

RA 10744 42
RA 10744 or the Credit Surety Fund (CSF) Cooperatives Act of 2015

granted the same tax privileges enjoyed by cooperatives under RA 9520 to CSF
Cooperatives registered with the CDA.
RA 10747 43
RA 10747 or the Rare Diseases Act of the Philippines mandated that

persons with rare diseases shall be accorded the same rights and privileges as
persons with disabilities (PWDs). The law provided for exemption from all taxes
and customs duties, as applicable whether national or local on the following:
(a) Donations intended for researches on rare diseases, maintenance of the Rare
Disease Registry, or for purchase of orphan drugs or orphan products for use
solely by patients with rare diseases; and
(b) Orphan drugs and orphan products for use solely by patients with rare diseases,
as certified by the FDA.
RA 10754 44
RA 10754 amended Section 32 of RA 7277, otherwise known as the

“Magna Carta for Persons with Disability”, by granting VAT exemption to PWDs
on their transactions subject to 20% discount. The following transactions for the
exclusive use and enjoyment or availment of the PWD are exempt from VAT, viz.:
(a) Fees and charges relative to the utilization of all services in hotels and similar
lodging establishments; restaurants and recreation centers;
(b) Admission fees charged by theaters, cinema houses, concert halls, circuses,
carnivals and other similar places of culture, leisure and amusement;
(c) Purchase of medicines in all drugstores;
42
Entitled “An Act Providing for the Creation and Organization of Credit Surety Fund Cooperatives to
Manage and Administer Credit Surety Funds to Enhance the Accessibility of Micro, Small and Medium
Enterprises, Cooperatives and Non-Government Organizations to the Credit Facility of Banks and for Other
Purposes”, approved February 6, 2016.
43
Entitled “An Act Promulgating a Comprehensive Policy in Addressing the Needs of Persons with
Rare Disease”, approved March 3, 2016.
44
Entitled “An Act Expanding the Benefits and Privileges of Persons with Disability (PWD)”,
approved March 23, 2016.

(d) Medical and dental services including diagnostic and laboratory fees such as,
but not limited to, x-rays, computerized tomography scans and blood tests, and
professional fees of attending doctors in all government facilities, subject to
the guidelines issued by the DOH, in coordination with the PhilHealth;
(e) Medical and dental services including diagnostic and laboratory fees, and
professional fees of attending doctors in all private hospitals and medical
facilities, in accordance with the rules and regulations issued by the DOH, in
coordination with the PhilHealth;
(f) Fare for domestic air and sea travel;
(g) Actual fare on land transportation travel such as, but not limited to,
PUBs/PUJs, taxis, AUVs, shuttle services and public railways, including LRT,
MRT and PNR; and
(h) Funeral and burial services for the death of the PWDs. It includes the purchase
of casket or urn, embalming, hospital morgue, transport of the body to intended
burial sites in the place of origin, but excludes obituary publication and the
cost of the memorial lot.
RA 10771 45
RA 10771 or the Green Jobs Act of 2016 granted tax and duty free
importation of capital equipment actually, directly and exclusively used in the
promotion of green jobs of the business enterprise.
RA 10801 46
RA 10801 granted to the OWWA and all its assets and properties, all
contributions collected and all accruals thereto and income or investment earnings
therefrom as well as all supplies, equipment, papers or documents exemption from
any tax, assessment, fee, charge, or customs or import duty. All benefit payments
made by the OWWA shall likewise be exempt from all kinds of taxes, fees or
charges.
45
Entitled, “An Act Promoting the Creation of Green Jobs, Granting Incentives and Appropriating
Funds Therefor”, approved April 29, 2016.
46
Entitled “An Act Governing the Operations and Administration of the Overseas Workers Welfare
Administration”, approved May 10, 2016.

RA 10816 47
RA 10816 or the Farm Tourism Development Act of 2016 provides that the
TIEZA and the Board of Investments, and other investment promotion agencies,
shall develop and implement programs that shall establish reasonable and
innovative investment incentives to attract more investors and farm tourism
practitioners in the farm tourism industry.
It also provides that farm tourism operates and practitioners may avail of the
incentives under existing laws.
RA 10817 48
RA 10817 or the Philippine Halal Export Development and Promotion Act

of 2016 mandates the BOI, PEZA and other investment promotion agencies to
promote the growth of Halal industries in different economic zones. It grants fiscal
and non-fiscal incentives to attract investments in pioneering and essential
industries to increase exports of Halal products or as raw materials or ingredients in
the production of Halal products.
RA 10864 49
RA 10864 exempted from the VAT raw sugar or raw cane sugar (means
sugar whose content of sucrose by weight, in the dry state, corresponds to a
polarimeter reading of less than 99.5 degrees) regardless of the process/es involved
in its production. It also exempted services by agricultural contract growers which
include milling for others of palay into rice, corn into grits and sugar cane into raw
sugar or raw cane sugar.
Other Laws
There are other laws that granted VAT exemption/zero-rating even before
the enactment of RA 9337. There are more than 80 inventoried special laws as of
this writing which are proposed to be repealed under SB 1408 and HB 5636 with
few exemptions (i.e., exemption of cooperatives is retained)
47
Entitled, “An Act Providing for the Development and Promotion of Farm Tourism in the
Philippines”, approved May 16, 2016.
48
Entitled “An Act Instituting the Philippine Halal Export Development and Promotion Program,
Creating for the Purpose the Philippines Halal Export Development and Promotion Board, and for Other
Purposes”, approved May 16, 2016.
49
Entitled “An Act Defining Raw Sugar or Raw Cane Sugar, Amending Section 109(A) and (F) of the
National Internal Revenue Code of 1997, as Amended, and for Other Purposes’, lapsed into law on June 10,
2016.

C. VAT Revenue Performance 1988-2016
Except for the year 1998 when collection dropped by 10.6%, total VAT
collections of the BIR and Bureau of Customs (BOC) from 1988 to 2004 were
generally on the uptrend which ranged from PhP14.3 billion to PhP139.1 billion.
When RA 9337 was implemented in 2005, which increased the VAT rate from 10%
to 12%, total VAT collections more than tripled from PhP156.7 billion in 2005 to
PhP259.8 billion in 2006. There was a significant increase in the VAT collection of
the BIR (60.4%) and the BOC (72.7%) in 2006, which was attributable to the first
full year implementation of RA 9337 with the VAT rate at 12%. From 2007 to
2016, collection continued to increase from PhP274.04 billion in 2007 to
PhP621.95 billion in 2016. (Table 1)
Table 1. VAT REVENUES AND PERCENT TO GDP: 1988-2016

(Amounts in Billion Pesos)
VAT Revenues
Year % to GDP
BIR BOC Total
1988 7.15 7.19 14.34 1.79%
1989 10.13 10.07 20.20 2.18%
1990 13.08 12.85 25.93 2.41%
1991 15.10 11.68 26.77 2.15%
1992 18.11 13.98 32.09 2.37%
1993 22.75 21.41 44.16 3.00%
1994 25.46 21.29 46.75 2.76%
1995 29.57 28.90 58.48 3.07%
1996 40.93 35.01 75.93 3.50%
1997 47.27 41.72 88.99 3.67%
1998 47.54 31.98 79.52 2.98%
1999 55.15 36.63 91.78 3.08%
2000 53.88 42.26 96.14 2.68%
2001 59.24 47.25 106.49 2.74%
2002 65.93 49.38 115.31 2.75%
2003 82.63 52.66 135.30 2.97%
2004 80.22 58.88 139.10 2.72%
2005 87.86 68.81 156.67 2.76%
2006 140.93 118.87 259.80 4.14%
2007 145.01 129.02 274.04 3.98%
2008 140.32 156.33 296.65 3.84%
2009 168.83 133.90 302.73 3.77%
2010 174.77 157.51 332.28 3.69%
2011 183.78 200.22 384.00 3.96%
2012 230.11 220.99 451.10 4.27%
2013 250.84 239.83 490.67 4.25%
2014 278.10 279.11 557.22 4.41%
2015 295.50 274.70 570.20 4.28%
2016 331.41 290.54 621.95 4.30%
Ave. 106.95 96.31 203.26 3.26%
Sources of basic data: BIR, BOC and NTRC Various Public Finance and Other
Related Statistics, 1988-2016.

From 1.79% ratio of VAT collection to GDP in 1988, the ratio increased
significantly to 4.14% beginning 2006. However, the ratio gradually declined to
3.69% in 2010 but settled at over 4% in the succeeding years. In 2016, the ratio was
pegged at 4.30%.
D. VAT Collections by Industry
Among the industries subject to the VAT, the Manufacturing Industry

contributed the biggest chunk of collection to total VAT collection for the period
2000-2010 except in 2006 when Business Services exceeded the collection of the
Manufacturing Industry. In 2011 onwards, Business Services topped other
industries in terms of their contribution to VAT collections, where the highest
collection of over PhP100 billion was noted in 2014 and 2016. On the other hand,
the lowest VAT collections was contributed by other industries (including fines and
penalties) for almost all the years except from 2003-2004 where the collection
spiked leaving Storage and Warehousing industry at the bottom. (Table 2)
Table 2. BIR VAT COLLECTION BY INDUSTRY: 2000-2016

(Amounts in Billion Pesos)
Wholesale Community, Others
and Storage and Business Personal Withholding (Including
Year Manufacturing Construction Property Total
Retail Warehousing Services and HH on VAT Fines and
Trade Service Penalties)
2000 22.55 1.00 6.87 0.13 14.64 0.50 5.27 2.91 - 53.88
2001 23.94 1.04 7.52 0.33 15.14 0.61 7.56 3.10 - 59.24
2002 26.81 1.17 9.45 0.15 16.01 0.68 8.23 3.43 - 65.93
2003 25.49 1.21 10.43 0.18 22.82 1.82 10.17 3.14 7.39 82.63
2004 30.04 0.85 10.64 0.41 22.38 1.55 8.88 3.26 2.20 80.22
2005 31.05 1.08 12.70 0.27 27.20 2.33 9.81 3.42 0.00 87.85
2006 45.97 1.73 20.19 0.70 52.96 3.42 11.33 4.62 - 140.93
2007 55.95 2.19 16.50 1.08 41.29 2.00 17.66 8.35 - 145.01
2008 50.53 1.79 18.38 1.12 38.65 2.34 18.49 9.02 - 140.32
2009 63.64 3.74 21.03 1.17 44.68 2.63 22.30 9.40 0.25 168.83
2010 55.35 2.93 25.72 1.33 46.74 3.07 27.22 12.16 0.24 174.77
2011 51.08 3.26 28.43 0.37 59.12 3.46 23.57 14.15 0.35 183.78
2012 53.92 4.05 32.23 3.54 87.77 7.78 26.69 13.86 0.25 230.11
2013 63.53 5.83 37.72 0.41 85.62 10.74 28.37 18.26 0.35 250.84
2014 68.82 7.48 40.43 0.67 100.20 10.60 31.64 17.92 0.35 278.10
2015 79.61 7.29 46.47 0.74 92.44 12.50 35.72 20.38 0.38 295.55
2016 86.58 8.53 53.47 0.89 102.36 13.46 44.50 21.43 0.37 331.59

III. VAT-EXEMPT GOODS AND SERVICES IN THE ASEAN-MEMBER

COUNTRIES
Among the ten (10) member-countries of the ASEAN, six are imposing the VAT,
namely, Philippines, Cambodia, Lao PDR, Thailand, Vietnam and Indonesia, while three
countries, namely, Singapore and Malaysia that impose the goods and services tax (GST)
and Myanmar, the commercial tax. Brunei, on the other hand, has no VAT or equivalent
consumption tax.
Of the six countries imposing the VAT, five impose in general a single VAT rate on
sale of goods and services. These are the Philippines, which imposes the highest VAT rate
of 12%, Cambodia, Indonesia and Lao PDR with 10% and Thailand with of 7%. It is noted
that in the case of Indonesia, a special levy termed as luxury goods sales tax (LST) with
rates ranging 10% to 75% is also imposed. On the other hand, Vietnam has two-tiered VAT
rates i.e. a standard rate of 10% and 5% for specific essential goods and services.
Singapore and Malaysia collect a GST at 7% and 6%, respectively while Myanmar
imposes a Commercial tax wat the rates ranging from 5% to 100%.
Common to the ASEAN countries is the imposition of zero-rated VAT on exports

of goods and certain types of specific services to avoid taxing the products/services twice.
International transport services by aircraft or ship are zero-rated in the Philippines,

Thailand, Vietnam, Singapore and Malaysia. It is only the Philippines that subjects the sale
of power or fuel generated through renewable sources of energy to zero-rate. Thailand has
also distinct items in its zero rated transactions that other ASEAN countries do not have,
such as supply of goods and services to government agencies and local authority or state
enterprises under overseas loan program or assistance program.
With regard to exempt transactions, common to most ASEAN countries are the sale
and importation of agricultural and marine food products in their original state. Just like the
Philippines, importation of personal and household effects is specifically listed as exempt
from the VAT in Cambodia, Lao PDR and Thailand. In addition, Philippines, Lao PDR,
Thailand, Vietnam, Malaysia, Indonesia and Myanmar include sale, importation, printing
or publication of books in their list of exempt transactions.
While the Philippine 12% VAT is high by ASEAN standards, where VAT rates
generally range from 7% - 10%, the country’s VAT effort stood only at 4.4% of GDP in
2014, same with Thailand considering its VAT rate of only 7% (Table 3). The low ratio of
VAT to GDP is due to numerous exemptions and zero-rated transactions under the
Philippine VAT system. Thus, under the CTRP, broadening the VAT base, limiting
exemptions and other enhancing measures to improve VAT collection efficiency are being
proposed. It is noted that on 59 lines of VAT exemptions in the Tax Code, Indonesia has
37 lines, Thailand 37 and Vietnam 25 (Annex A). Moreover, under special laws, there are
more than 80 sectors/entities/individual groups are accorded VAT exemption. Some special

laws provide for explicit VAT exemption/zero-rating while others provide for exemption
from all taxes (including VAT) or a certain tax rate in lieu of all taxes (including VAT).
Table 3. VAT/GST RATES AND VAT/GST EFFORT OF ASEAN COUNTRIES

2013-2015
VAT/GST Effort
Country VAT/GST Rate
2013 2014 2015
Philippines 12% 4.3% 4.4% 4.3%
Brunei N/A N/A N/A N/A
Cambodia 10% 4.3% 5.0% 4.8%
Indonesia 10% 3.8% 3.9% 3.7%
Laos 10% 4.0% 4.1% 4.6%
Malaysia 6% 1.0% 1.0% 2.8%
Myanmar 5% No data No data No data
Singapore 7% 2.5% 2.6% 2.6%
Thailand 7% 4.4% 4.4% 4.0%
Vietnam 10% 6.2% No data No data
*Collection on general taxes on goods and services (including VAT, Sales Tax, Turnover and other general
taxes on goods and services) as percent of GDP
Source: IMF Government Finance Statistics (http://data.imf.org), except for Philippines which was obtained
from BIR and BOC data.
IV. PROPOSED REFORMS ON THE VAT
On May 31, 2017, the House of Representatives approved on 3rd Reading Package 1
of the CTRP as HB 5636. Meanwhile, SB 1408 is filed in the Senate of the Philippines. The
salient features of the Bills with regard to the VAT and the corresponding NTRC comments
are discussed below.
(a) Limit the imposition of zero-percent (0%) VAT to direct exporters only
In the Philippines, VAT is imposed at the point of consumption, otherwise

known as the destination principle. Thus, exports are zero-rated which means that
exports leave the country free of any VAT. It is noted that since zero-rating at the
final stage eliminates all revenue from the zero-rated goods or services, most
countries tend to restrict the use of zero-rating beyond exports.
At present, indirect exporters or those that supply materials or services to

direct exporters are subject to zero-rated VAT. This is to remove the burden of
claiming of VAT refund from direct exporters.

It is noted that under the proposal, export sales are still zero-rated but the
burden of claiming the VAT refund would now fall on the direct exporters and not
the indirect exporters. Indirect exporters or local suppliers of export-manufacturing
firms would now pass on the VAT due on the sale of goods or services to the direct
exporters. Such a set-up would prevent any reuse of zero VAT certificates.
However, it is proposed that the removal of the VAT zero-rating of indirect

exporters be done only upon the establishment and implementation of an enhanced
VAT refund system which gives the taxpayer the actual refund or denial of his
application within ninety (90) days from the filing of the VAT refund application.
It is noted that there is a correlation between the VAT compliance burden

and the time delay in receiving a tax refund. How long it takes for a taxpayer to
receive a refund could be seen as a useful test of the efficiency of tax authorities.
This is also important for business in view of the impact on corporate liquidity and
the time value of money on delayed refund processing. 50
Successful tax administrations have found that the most efficient and
effective VAT refund processing systems are those that (1) distinguish between
refund claimants with a history of compliance and those claimants with poor or
unknown compliance histories (this entails maintaining historical profiles for each
refund claimant); (2) use pre-refund audits for high-risk refund claims and post-
refund audits for claims of lesser perceived risk; and (3) apply criteria to determine
the likely extent of revenue risk associated with each refund claim. 51
(b) Inclusion of electric cooperatives in the definition of sale or exchange of

services subject to the VAT under Section 108 (A)
The implementation of RA 9337 removed the exemption from the VAT of

electric cooperatives. However, the enactment of RA 9520, otherwise known as the
Philippine Cooperative Code of 2008, provided for the exemption of electric
cooperatives duly registered with the CDA from the VAT on revenues on systems
loss and VAT on revenues on distribution, supply, metering and lifeline subsidy of
electricity to their members.
As of 2016, there were 13 electric cooperatives registered with the CDA

while 119 electric cooperatives are registered with the National Electrification
Administration (NEA).
50
PricewaterCoopers, “The Impact of VAT Compliance on Business”, p. 12,
https://www.pwc.com/gx/en/tax/pdf/impact-of-vat.pdf, viewed 26 April 2017.
51
Graham Harrison and Russell Krelove, IMF Working Paper, “VAT Refunds: A Review of Country
Experience”, WP/05/218, pp. 35-36. Downloaded from http://www.imf.org/~/media/Websites/ IMF/imported-
full-text-pdf/external/pubs/ft/wp/2005/_wp05218.ashx, 26 April 2017.

It is noted that the proposed inclusion of electric cooperatives to the

definition of sale or exchange of services subject to the VAT would make it fair and
non-discriminatory for electric cooperatives that are not registered with the CDA.
Likewise, it is a well-settled principle that for the VAT to be effective the

number of VAT exemptions should be minimized as this erodes the VAT base,
revenue collection, breaks the VAT chain and induces cascading problems.
Moreover, it may create problems in compliance and administration, particularly
when there are both exempt and taxable transactions.
(c) Subject the sale of power or fuel generated through renewable sources of
energy such as, but not limited to, biomass, solar, wind, hydropower,
geothermal, ocean energy, and other emerging energy sources using
technologies such as fuel cells and hydrogen fuels to VAT exemption instead
of zero-rate
Zero-rated and exempt transactions both have no output VAT. However,

zero-rated transactions are allowed to credit or refund input tax on their purchases
of goods, properties or services. It is noted that zero-rating is for exports only, thus,
it should not be granted to transactions beyond exports.
For the period 2010-2015, total number of large taxpayers from renewable
energy increased from 10 to 21 with total zero-rated sales/receipts ranging from
PhP71.3 billion to PhP88.1 billion. Total VAT refund claimed for the same period
ranged from PhP0.8 billion to PhP2.3 billion (Table 4). In an exempt transaction, in
this case the sale of renewable energy, the seller will no longer be entitled to such
tax refund, in which case the said VAT refunded will become part of the cost of the
renewable energy sold.
Table 4. ZERO-RATED SALES/RECEIPTS AND VAT REFUNDS FROM

RENEWABLE ENERGY, 2010 – 2015
(Amounts in Billion PhP)
No. of Zero-Rated
Year VAT Refund
Taxpayers Sales/Receipts
2010 10 71.27 1.59
2011 10 75.19 1.96
2012 13 85.62 1.89
2013 17 70.77 1.28
2014 21 85.57 2.29
2015 21 88.13 0.83
Average 79.43 1.64
Source of basic data: BIR Large Taxpayers Service

(d) Removal of the VAT exemptions on cooperatives under Section 109 (L), (M),
and (N) of the NIRC, as amended
Under HB 5636, VAT exemption of cooperatives under RA 9520 and

Sections 109 (L), (M), and (N) of the NIRC, as amended, are proposed to be
retained while SB 1408 proposes for its repeal.
It is noted that among the consequences of VAT exemption is the incentive

to self-supply or avoid tax by vertical integration. To elaborate, exempt traders such
as cooperatives, have an incentive to supply taxable items to themselves rather than
purchasing them and incurring irrevocable VAT. This situation distorts the business
structure, as all cooperatives have an incentive to only purchase inputs from other
cooperatives.
According to the International Monetary Fund (IMF), indirect tax incentives

are very prone to abuse, as qualified purchases can easily be diverted to buyers not
intended to receive the incentives.
It is noted that exempting cooperatives from the VAT does not protect its
buyers because cooperatives will be selling their goods with higher prices to
recover the input VAT that they paid when they bought their supplies from a VAT-
registered entity. On the other hand, subjecting them to the VAT would allow them
to credit the VAT they paid on their inputs against their output VAT.
Likewise, the proposed removal of exemption on cooperatives will

minimize leakages especially those cooperatives who are dealing with both
members and non-members.
In this connection, SB 1408 is proposing for the repeal of the VAT

exemption of cooperatives. Only the exemptions given to cooperatives that sell raw
agricultural products and those that fall below the proposed VAT threshold of
PhP3.0 million will be maintained.
However, recognizing the fact that cooperatives are vehicles of social justice
and engines of economic growth by improving the lives of marginalized members
of society, HB 5636 proposes for the retention of the VAT exemption on
cooperatives. It is noted, however, should such retention be pushed through, it
should include a system that will help strengthen audit of cooperatives such as the
automatic audit of cooperatives by the BIR and inclusion of cooperative tax
exemption estimates in the TIMTA to ensure transparency.
Meanwhile, in other countries, the Paraguay Ministry of Finance extended

VAT to cooperatives as part of their economic and structural reforms to broaden the

VAT base and to increase tax collection starting November 1, 2016. 52 Prior to the
VAT imposition, cooperatives were already paying VAT on products and services
offered to third parties, but not to those provided to their members. 53
Likewise, in the United States, cooperatives usually pay all the special
levies on businesses including real and property taxes, sales tax (VAT-like tax),
employment taxes, gasoline and diesel fuel taxes, license fees, motor vehicle
registration fees, and excise taxes on telephone, power, and other utility services. 54
(e) Removal of the VAT exemption on real property utilized for low cost and
socialized housing
Instead of handing over VAT exemptions to big housing developers and

clients who can well afford to pay the VAT, the proposed VAT reform will instead
give the privilege directly to low-income families in the form of cash vouchers that
they can use when buying their own homes.
The proposal would also stop the practice of big-time real estate companies
and condominium buyers to dodge tax payments by chopping up their properties
into smaller units or use transfer pricing schemes so that their properties fall below
the VAT threshold.
Currently, the threshold for residential lot was increased from PhP1.5
million to PhP1,919,500, while the threshold for house and lot and other residential
dwellings was increased from PhP2.5 million to PhP3,199,200 pursuant to Revenue
Regulation (RR) No. 16-2011 55 issued on October 28, 2011 and effective January 1,
2012. On the other hand, the Table below shows the current price ceilings set by the
Housing and Urban Development Coordinating Council (HUDCC), viz.:
52
The World Bank (WB), “Paraguay Overview”, http://www.worldbank.org/en/country/
paraguay/overview, and The International Monetary Fund (IMF), “Paraguay: 2016 Article IV Consultation –
Press Release and Staff Report”, viewed January 27, 2017.
53
International Co-operative Alliance, “Paraguay will apply VAT tax on services co-operatives
provide to their members”, https://ica.coop/en/media/news/paraguay-will-apply-vat-tax-services-co-operatives-
provide-their-members, viewed January 27, 2017.
54
United States Department of Agriculture (USDA), “Understanding Cooperatives: Income Tax
Treatment of Cooperatives”, Cooperative Information Report 45, Section 8,
http://www.uwcc.wisc.edu/pdf/CIR45-8.pdf, viewed January 27, 2017.
55
Subject, “Increasing the Amount of Threshold Amounts for Sale of Residential Lot, Sale of House
and Lot, Lease of Residential Unit and Sale or Lease of Goods or Properties or Performance of Services
covered by Section 109 (P), (Q) and (V) of the Tax Code of 1997, as amended, thereby Amending Certain
Provisions of Revenue Regulations No. 16 -2005, as amended Otherwise Known as Consolidated VAT
Regulations of 2005”, issued October 28, 2011.

Table 5. CURRENT PRICE CEILING SET BY THE HUDCC ON SOCIALIZED

AND LOW-COST HOUSING
Housing Category Price Range Lot Area Floor Area

Socialized Housing 56 PhP450,000 and below 30 - 50 sqm 18 - 30 sqm
Low Cost - Level 1 57 Above PhP450,00 - PhP1.7 million 50 - 100 sqm 35 - 55 sqm
58
Low Cost – Level 2 Above PhP1.7 million - PhP3 million 100 - 150 sqm 80 - 120 sqm
If the VAT is imposed on low-cost and socialized housing, housing prices

will rise by around 4% only, not 12% as input VAT can be credited. Nevertheless,
the significantly lower personal income tax rates under CTRP Package 1 will
enable middle-income buyers to afford purchasing slightly pricier houses.
(f) Removal of the VAT exemption on the lease of a residential unit with a
monthly rental not exceeding PhP10,000. (now PhP12,800)
Based on the Final Technical Report of the Housing Rental Study conducted
by the Philippine Statistical Research and Training Institute 59, about 69% of the
total 21,476,446 families are owners/have owner-like possession of house and lot
and only about 7% or 1.5 million are renting families.
From the 1.5 million families, 97.1% of them pay monthly rentals of below
PhP10,000. The National Capital Region (NCR) comprises 44.0% of total
household renters in the country while 14% are in other highly urbanized cities
(HUC). On the other hand, 8% are low-income families, 58% are middle-income
families and 34% are high-income families.
It is noted that the PhP10,000 monthly thresholds have been raised to

PhP12,800 per unit pursuant to RR 16-2011. The gross receipts from rentals not
exceeding PhP12,800 per month per unit are exempt from VAT regardless of the
aggregate annual gross receipts.
56
These are the lowest priced housing units in the category. Typically, the houses are row type with no
amenities. The roads are narrow, and in many cases, no sidewalks.
57
Houses are usually bare or box type with only one toilet and bath, and the home interiors are left for
the buyer to improve. Sometimes the community would have a few amenities.
58
Houses are finished type with a minimum of 2 bedrooms. The community would usually have a
swimming pool or clubhouse as standard amenities.
59
http://www.hudcc.net/sites/default/files/styles/large/public/document/FINAL%20REPORT%20ON
%20THE %20RENTAL%20STUDY.pdf, viewed February 3, 2017.

On the other hand, the gross receipts from rentals exceeding PhP12,800 per
month per unit are subject to VAT if aggregate annual gross receipts from said unit
exceeds PhP1,919,500. Otherwise, the gross receipts will be subject to the 3%
percentage tax under Section 116 of the Tax Code.
With the proposed repeal of Section 109(Q) of the Tax Code, as amended,
the taxation of lease of residential units will depend on how much is the annual
gross receipts threshold under Section 109(W) under the proposal. If the aggregate
annual gross receipts from rentals does not exceed the threshold it shall be subject
to the 3% percentage tax, otherwise, it should be subject to the 12% VAT.
It is calculated that for a lessor with a single residential unit to be subject to

the VAT under the proposal, the unit must have a monthly rental of PhP250,000.
Using the current VAT threshold on lease of residential unit of PhP12,800, it is
calculated that a lessor should have at least 20 residential units to be subject to VAT
under the proposal.
(g) Removal of the VAT exemption of the NGCP
Among the components of the power industry, the NGCP is the only utility
company that is subject to the franchise tax while other electric utilities are subject
to the VAT. The re-imposition of the VAT on NGCP will make the tax treatment
uniform for electric generation, transmission and distribution. There will be a
minimal impact on revenue as transmission accounts to 5% to 7% of total power
cost. and the impact of the re-imposition
(h) Retention of the VAT exemption of the Senior Citizens and Persons with
Disabilities (PWDs)
The current policy on the VAT is to discourage the grant of exemptions

since it is prone to abuse, as qualified purchases can easily be diverted to buyers not
intended to receive the incentives. For instance, other non-seniors are perceived to
be actually benefiting like riding on the senior citizens’ 20% discount and VAT
exempt privileges on their purchases.
Likewise, it can increase the compliance and administrative cost of

businesses which produce both exempt and non-exempt goods or services. On the
part of the BIR, there would also be an increase in administration cost.
It is noted that in the DOF’s September 2016 submission of the bill to the
House of Representatives, the VAT exemption of senior citizens and PWDs was
proposed to be lifted. However, the proposal was met with strong opposition during
consultations. Hence, in HB 5636 and SB 1408, said exemption was retained.

The implementation of a National Identification (I.D.) System to properly

identify the senior citizens and PWDs who are covered by the VAT exemption is
included in the proposal. This will ensure that the benefits given go to the right
persons. The ID will also be used to ensure that the cash transfers and subsidies to
mitigate the impact of the lifting of the VAT exemption of some items/transactions
will likewise go to the right persons.
(i) Increase in the VAT threshold from PhP1.5 million to PhP3 million which is
to be adjusted to inflation not later than January 31, 2018 and every three (3)
years thereafter.
The proposed increase of the VAT threshold from PhP1.5 million (now
PhP1,919,500) to PhP3 million is more than the inflation-indexed amount. Using
the change in Consumer Price Index (CPI) from 2012, (CPI =130.1) – 2018
(Projected CPI = 153), the threshold would increase from PhP1,919,500 to
PhP2,257,367.
It is noted that the last adjustment of the VAT threshold was under RR 16-
2011, effective January 1, 2012. Since then, the BIR has not made any issuance
regarding VAT threshold which should be adjusted to its present value using the
CPI published by the PSA (formerly NSO).
The following are the annual VAT threshold from EO 273 up to the present,
viz.:
Table 6. ANNUAL GROSS SALES/RECEIPTS VAT THRESHOLD
Legislation / Amount of
BIR Issuance
Issuance Threshold
EO 273 (1988) RR 5-87 PhP200,000
RR 10-94 PhP500,000
RA 7716 (1994) RR 6-95 PhP500,000
RR 7-95 PhP500,000
- PhP550,000
RA 8241 (1997)
RR 1-2005 PhP750,000
RR 14-2005
PhP1,500,000
RA 9337 (2005) RR 16-2005
RR 16-2011 PhP1,919,500
Economists have argued that the current threshold is low by international

standards and should be adjusted to PhP3 million. The proposed threshold of PhP3

million is to ensure that micro businesses would not be registered for VAT. 60 At
present, Barangay Micro Business Enterprises (BMBEs) 61 are exempt from income
tax for income arising from their operations under Section 7 of RA 9178 62.
It is noted that the non-indexation of the current VAT threshold, might

result in the sustained increase in the general price level of goods and services and
the corresponding diminution in the purchasing power of consumers. Basically,
VAT is an indirect tax that is passed on to the consumers of goods and services;
thus, the regular adjustment of the threshold amount on VAT exempt transactions
covered by Sections 109 (1) (W) of the NIRC would increase the purchasing power
of ordinary buyers or consumers.
V. CONCLUSION
The proposals on the VAT under the CTRP are supported. Fiscal prudence dictates
that to compensate for the foregone revenues from the restructuring of the personal income
tax, the broadening of the VAT base by limiting exemptions to raw food, and other
necessities and zero-rated transactions would be an effective revenue mitigating measure.
The Philippines’ low VAT effort of 4.3% recorded in 2015 was attributable to
numerous VAT exemptions and zero-rated transactions. VAT exempt transactions tend to
break the VAT chain, which lead to higher costs and prices, and revenue losses to the
government. Zero rating, on the other hand, is extremely complex as it provides strong
incentives for frauds, creates excessive burden on tax administration, and effectively erodes
the base.
For a VAT regime to be effective it must have a broadened VAT base and minimized
number of exemptions to the extent possible as exemptions tend to erode the VAT base and
reduce revenue collection. It also creates problems in compliance and administration,
particularly when a company produces both exempt and/or vatable items/transactions. VAT
exemptions create numerous efficiency and effectiveness problems.
Lastly, a broad-based VAT, has been proven to be an efficient tool for revenue
collection as this became the key source of government revenue in over 140 countries.
60
Renato E. Reside, Jr. and Lee Burns, Comprehensive Tax Reform in the Philippines: Principles,
History and Recommendations (Draft), Special Study by the International Tax and Investment Center, August
2016.
61
“Barangay Micro Business Enterprise,” hereinafter referred to as BMBE, refers to any business
entity or enterprise engaged in the production, processing or manufacturing of products or commodities,
including agro-processing, trading and services, whose total assets including those arising from loans but
exclusive of the land on which the particular business entity's office, plant and equipment are situated, shall not
be more than Three Million Pesos (P3,000,000.00). [Section 3 (a), RA 9178]
62
Entitled, “An Act to Promote the Establishment of Barangay Micro Business Enterprises (BMBEs),
Providing Incentives and Benefits Therefor, and for Other Purposes”, approved November 13, 2002.

Annex A
Table A.1. SUMMARY OF VAT-EXEMPT GOODS/SERVICES/SECTORS,

PHILIPPINES VS. THAILAND
Item PHL THA Thailand Legal Basis

A. VAT Exempt under Thailand Revenue Code 63
Section 109, NIRC
• Agricultural food products Exempt Exempt • Sale or import of agricultural products
in their original state whether they are trunks, branch, leaf,
bark, offshoot, root, bud, bulb, pod, seed
or other parts of plants and their by-
products in fresh or preserved condition
are exempt from VAT
Sections 81 (1) (a) and 81 (2) (a)
• Marine food products in Exempt Exempt • Sale or import of alive or dead animals,
their original state and in the case of non- alive animal
whether it be flesh, parts of animal, egg,
milk or by-product from animal in fresh
or preserved condition are exempt from
VAT
Sections 81 (1) (b) and 81 (2) (a)
• Livestock and poultry Exempt Exempt -do-
• Breeding stock Exempt Exempt -do-
• Rice Exempt Exempt Sections 81 (1) (a) and 81 (2) (a)
• Corn grits Exempt Exempt • Sale or import of agricultural products
preserved by grinding are exempt from
VAT
Sections 81 (1) (a) and 81 (2) (a)
• Raw cane sugar Exempt Exempt • Sale or import of agricultural products
preserved by other method are exempt
from VAT
Sections 81 (1) (a) and 81 (2) (a)
• Molasses Exempt Exempt -do-
• Ordinary salt Exempt Exempt -do-
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• Copra Exempt Exempt • Sale or import of agricultural products
preserved by drying are exempt from
VAT
Sections 81 (1) (a) and 81 (2) (a)
• Fertilizers Exempt Exempt • Sale or import of fertilizers are exempt
from VAT
Sections 81 (1) (c) and 81 (2) (a)
• Seeds and seedlings Exempt Exempt Sections 81 (1) (a) and 81 (2) (a)
• Fingerlings Exempt Exempt Sections 81 (1) (b) and 81 (2) (a)
• Fish, prawn, livestock and Exempt Exempt • Sale of fish meal, animal feed are exempt
poultry feeds from VAT
Sections 81 (1) (d) and 81 (2) (a)
• Personal and HH effects Exempt Exempt • Goods classified into duty exemption
of returning residents to category under the law on customs tariff
the Philippines and are exempt from VAT
nonresidents coming to
Section 81 (2) (c)
resettle in the Philippines
• Professional instruments Exempt Exempt -do-
and implements, and
personal HH effects of
persons coming to settle in
the Philippines
• Services by agricultural Exempt Vatable
contract growers and
milling for others of palay
into rice, corn into grits
and sugar cane into raw
sugar
• Medical, dental and Exempt Exempt • Services in medical treatment including
hospital services, except those services rendered by professionals
rendered by professionals are exempt from VAT
Sections 81 (1) (i) and (j)
• Veterinary services Exempt Vatable
• Educational services Exempt Exempt • Educational services of public
rendered by public and educational institutions, educational
private educational institutions under the law governing
institutions private universities or private schools
under the law governing private school
are exempt from VAT
Section 81 (1) (g)


• Services rendered by Exempt Exempt • Services under employment contract are
individuals pursuant to an exempt from VAT
employer-employee
Section 81 (1) (m)
relationship
• Services rendered by Exempt Vatable
regional or area HQ of
MNCs
• Agricultural cooperatives Exempt Vatable
duly registered with the
Cooperatives
Development Authority
(CDA)
• Credit or multi-purpose Exempt Exempt VAT and SBT exempt - Section 77/3 and
cooperatives duly Section 91/3 (3)
registered with the CDA
• Non-agricultural, non- Exempt Vatable • Except business of a savings cooperative,
electrical and non-credit only in respect of loans provided to its
cooperatives registered members or to another savings
with the CDA under cooperative
certain conditions
Sections 77/3 and 91/3 (3)
• Export sales by persons Exempt Vatable • Export of goods which is not exempt
who are not VAT- (0%) from VAT are rated 0%
registered
Section 80/1 (1)
• Real property not Exempt Exempt • Taxable under income tax of Thailand
primarily held for sale to
Section 39
customers or held for
lease in the ordinary
course of trade or business
• Real property utilized for Exempt Exempt VAT and SBT exempt – Section 77/3
low-cost and socialized and Section 91/3 (5)
housing as defined in RA
• Beneficiaries of housing development
7279
projects of the National Housing
 Beneficiaries under Authority (NHA) of Thailand are low
RA 7279 are and middle income earners including
underprivileged and junior civil servants and government
homeless citizens employees. Low income earners, junior
within the poverty civil servants and government employees
threshold of NEDA are those with monthly income per
family of not more than 22,000 baht
(PhP30,054.50 64). 65
64
1 Thai Baht = Pphp1.36611, as of September 19, 2016, https://www.oanda.com/currency/converter/

• Residential lot valued at Exempt Exempt • Sale of an immovable property in a
PhP1,919,500 and below commercial or profitable manner,
irrespective of the manner in which such
property is acquired, only in accordance
with the rules, procedures and conditions
prescribed by a royal decree is VAT
exempt but subject to 0.1% SBT. 66
• House and lot and other Exempt Exempt
residential dwellings
valued at PhP3,199,200
and below
• Lease of a residential unit Exempt Exempt • Rental of immovable property are
with a monthly rental not exempt from VAT
exceeding P12,800
Section 81 (1) (r)
• Books and any newspaper, Exempt Exempt • Sale of newspaper, magazine or school
magazine, review or books are exempt from VAT
bulletin
Section 81 (1) (f)
• Transport of passengers Exempt Vatable • Provision of international transport
by international air and (0%) services by aircraft or ship by juristic
sea carriers business person are vatable at 0% rate
Section 80/1 (3)
• Passenger or cargo vessels Exempt Vatable
and aircraft including
engine, equipment and
spare parts thereof for
domestic or international
transport operations
• Importation of fuel, goods Exempt Vatable
and supplies by persons
engaged in international
shipping or air transport
operations
• Banks, non-bank financial Exempt Exempt Sections 77/3; 91/2 (1), (2) and (5); 91/3
intermediaries performing (1) and (2); and 91/5 (1), (2) and (5)
quasi-banking functions,
and other non-bank
financial intermediaries
• Other goods or properties Exempt Exempt • Small business annual turnover is less
or performance of services than 1.8 million baht (PhP2,459,000)
the gross annual sales [formerly 600,000 baht (PhP819,668)] is
65
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and/or receipts of which exempt from VAT
do not exceed
Section 81/1
PhP1,919,500.
B. VAT Exempt but Subject to Percentage Tax
• Persons who are not VAT- Exempt Exempt • Small business annual turnover is less
registered and whose than 1.8 million baht (PhP2,459,000) is
gross sales/receipts do not exempt from VAT
exceed PhP1,919,500
Section 81/1
• Domestic carriers and Exempt Exempt • Provision of domestic transport are
keepers of garages exempt from VAT
Section 81 (1) (p)
• Transport of cargo by Exempt Vatable Section 80/1 (3)
international carriers (0%)
• Franchises Exempt Vatable
• Overseas dispatch, Exempt Vatable
message or conversation
originating from the
Philippines
• Banks and Non-Bank Exempt Exempt • VAT exempt but subject to 3.0% specific
Financial Intermediaries business tax (SBT) except for business of
Performing Quasi- the Bank of Thailand, the Government
Banking Functions Savings Bank, the Government Housing
Bank, and the Bank for Agriculture and
Agricultural Cooperatives, and Industrial
Financial Corporation of Thailand
Sections 91/2 (1), (2) and (5), 91/5 (1),
(2) and (5), 91/6 (3), and 91/3 (1) and (2)
• Non-Bank Financial Exempt Exempt • Pawn broking under the law governing
Intermediaries pawnshops are VAT exempt but subject
to 2.5% SBT
Sections 91/2 (4), 91/5 (4) and (2), and
91/6 (2)
• Life insurance premiums Exempt Exempt • Life insurance under the law governing
life insurance is exempt from VAT but
subject to 2.5% SBT
Sections 91/2 (3), 91/5 (3), and 91/6 (2)
• Agents of foreign Exempt Vatable
insurance companies


• Proprietors, lessees or Exempt Vatable
operators of amusement
places/activities
 Cockpits
 Cabarets, night or day
clubs
 Boxing exhibitions
 Professional basketball
games
 Jai-alai and racetracks
• Winnings in horse races Exempt Vatable
• Sale of shares of stocks Exempt Exempt • Sale of securities in a securities market
listed and traded through under the law governing securities
local stock exchange exchange of Thailand are VAT exempt
but subject to a 0.1% SBT
Sections 91/2 (7), 91/5 (7), and 91/6 (1)
C. VAT Exempt under Special Laws
• Power transmission- Exempt Vatable
NGCP (RA 9511)
• PWDs (RA 10754) Exempt Vatable
• Senior citizens (RA 9994) Exempt Vatable
• Boy Scouts of the Exempt Vatable
Philippines (RA 7285)
• Girl Scouts of the Exempt Vatable
• Biofuels (RA 9367) Exempt Vatable
 Only the sale of raw
material used in the
production of biofuels
such as, but not limited
to, coconut, jatropha,
sugarcane, cassava,
corn, and sweet
sorghum is exempt
from VAT.
• Cooperatives (RA 9520) Exempt Vatable • Except business of a savings cooperative,
only in respect of loans provided to its
members or to another savings
cooperative
Sections 77/3 and 91/3 (3)


• Credit Surety Fund Exempt Exempt VAT and SBT exempt - Section 77/3 and
Cooperative (RA 10744) Section 91/3 (3)
• Philippine Red Cross (RA Exempt Exempt
10072)
• Orphan drugs and Exempt -
products for use solely by
patients with rare diseases
(RA 10747)
• Socialized housing (RA Exempt Exempt • See notes on low-cost housing
7279, as amended by RA
10884)

Table A.2. Summary of VAT-Exempt Goods/Services/Sectors, Philippines vs. Indonesia
Item PHL IND Indonesia Legal Basis

A. VAT Exempt under Section 109, NIRC
• Agricultural food products in Exempt Exempt Section 2(b) Article 4A of the Law of
their original state the Republic of Indonesia Number 42
Year 2009
• Marine food products in their Exempt Exempt -do-
original state
• Breeding stock Exempt Exempt • Import and/or delivery of seeds
and/or seedlings of agricultural
goods, farming, forestry, animal
husbandry, breeding, or fisheries are
exempt from VAT
Sections 1(c) and 2(d) Article 2 of
the Government Regulation of the
Republic of Indonesia No. 31 of 2007
• Rice Exempt Exempt Section 2(b) Article 4A of the Law of
the Republic of Indonesia Number 42
Year 2009
• Corn grits Exempt Exempt -do-
• Raw cane sugar Exempt Exempt -do-
• Molasses Exempt Exempt • Import and/or delivery of agricultural
products are exempt from VAT
Sections 1(f) and 2(c) Article 2 of the
Government Regulation of the
• Ordinary salt Exempt Exempt Section 2(b) Article 4A of the Law of
Year 2009
• Copra Exempt Exempt • Import and/or delivery of agricultural
products are exempt from VAT
Sections 1(f) and 2(c) Article 2 of the
Government Regulation of the
• Fertilizers Exempt Exempt -do-
• Seeds and seedlings Exempt Exempt • Import and/or delivery of seeds
and/or seedlings of agricultural
goods, farming, forestry, animal
husbandry, breeding, or fisheries are


exempt from VAT
Sections 1(c) and 2(d) Article 2 of
• Fingerlings Exempt Exempt -do-
• Fish, prawn, livestock and Exempt Exempt • Import and/or delivery of animal
poultry feeds feed, poultry fee and fish feed are
exempt from VAT
Sections 1(b) and 2(b) Article 2 of
• Personal and HH effects of Exempt Exempt Articles 2(3)(h) and 2(3)(i) of the
returning residents to the Regulation of the Minister of Finance
Philippines and nonresidents of the Republic of Indonesia Number
coming to resettle in the 70/PMK.011/2013 67
Philippines
• Professional instruments and Exempt Exempt -do-
implements, and personal HH
effects of persons coming to
settle in the Philippines
• Services by agricultural Exempt Vatable • Toll manufacturing services are
contract growers and milling (0%) subject to 0% VAT subject to certain
for others of palay into rice, conditions.
corn into grits and sugar cane
Ministry of Finance Regulation No.
into raw sugar
70 issued 30 March 2010 68
• Medical, veterinary, dental Exempt Exempt • Services rendered by professionals
and hospital services, except are also exempted from VAT
rendered by professionals
Section 3(a) Article 4A of the Law of
Year 2009
• Educational services rendered Exempt Exempt Section 3(g) Article 4A of the Law of
by public and private the Republic of Indonesia Number 42
educational institutions Year 2009
• Services rendered by Exempt Exempt Section 3(k) Article 4A of the Law of
67
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(viewed November 9, 2016)
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individuals pursuant to an the Republic of Indonesia Number 42
employer-employee Year 2009
relationship
• Services rendered by regional Exempt - Note: Not listed in exemption list.
or area HQ of MNCs Not listed in vatable list.
• Agricultural cooperatives Exempt Vatable
duly registered with the
Cooperatives Development
Authority (CDA)
• Credit or multi-purpose Exempt Vatable
cooperatives duly registered
with the CDA
• Non-agricultural, non- Exempt Vatable
electrical and non-credit
cooperatives registered with
the CDA under certain
conditions
• Export sales by persons who Exempt Vatable Section 1(f) of Article 4 of the Law
are not VAT-registered of the Republic of Indonesia Number
42 Year 2009
• Real property not primarily Exempt Vatable Minister of Finance Regulation No.
held for sale to customers or 200/PMK.03/201-5 69
held for lease in the ordinary
course of trade or business
• Real property utilized for Exempt Exempt • Affordable housing and low-cost
low-cost and socialized housing is exempt from VAT subject
housing as defined in RA to certain conditions.
7279
Regulation of the Minister of Finance
 Beneficiaries under RA No. 31/PMK.03/2011 70
7279 are underprivileged
and homeless citizens
within the poverty
threshold of NEDA
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9, 2016)


• Residential lot valued at Exempt Vatable • Sale of raw land is exempt from
PhP1,919,500 and below VAT, but the sale of land already
prepared for development is subject
to VAT. 71
• House and lot and other Exempt Exempt • Note: Simple house, very simple
residential dwellings valued house, and simple flats are exempt
at PhP3,199,200 and below from VAT subject to certain
conditions.
Minister of Finance Regulation No.
113/PMK.03/2014 72
• Low cost apartment not exceeding
Rp250,000,000 (<PhP1,000,000) is
exempt from VAT
Minister of Finance Regulation No.
69/PMK.010/2015 73
• Lease of a residential unit Exempt Vatable • VAT on rental payments. 74
with a monthly rental not
exceeding P12,800
• Books and any newspaper, Exempt Exempt/ • Textbooks are exempt from VAT
magazine, review or bulletin Vatable
Primer on Indonesian VAT 75
• Music books are exempt from VAT
while printed books, brochures,
leaflets, dictionaries, encyclopedias,
newspaper, journals, periodicals,
children’s books, calendars, and
commercial catalogue are subject to
VAT
Indonesian Customs 76
71
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sandservicestax (viewed November 9, 2016)
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November 9, 2016)
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(viewed November 9, 2016)
74
http://www.joneslanglasallesites.com/investmentguide/country/indonesia/valueaddedtaxgood
sandservicestax (viewed November 9, 2016)
75
http://www.kpmg.com/ID/en/IssuesAndInsights/ArticlesPublications/Documents/A-Primer-on-
Indonesian-A dded-Value-Tax.pdf (viewed September 23, 2016)


• Transport of passengers by Exempt Exempt Section 3(j) Article 4A of the Law of
international air and sea the Republic of Indonesia Number 42
carriers Year 2009
• Passenger or cargo vessels Exempt Exempt Indonesian government Regulation
and aircraft including engine, Number 69 of 2015 (“GR-69”) 77
equipment and spare parts
thereof for domestic or
international transport
operations
• Importation of fuel, goods Exempt Exempt • Delivery of oil fuel for foreign
and supplies by persons marine transport vessel is exempt
engaged in international from VAT
Article 2 of the Regulation of the
operations
Minister of Finance No.
154/PMK.03/2015 78
• Banks, non-bank financial Exempt Exempt Section 3(d) Article 4A of the Law of
intermediaries performing the Republic of Indonesia Number 42
quasi-banking functions, and Year 2009
other non-bank financial
intermediaries
• Other goods or properties or Exempt Exempt • VAT registration threshold is at
performance of services the IDR4.8 billion (<Ph17.82 million)
gross annual sales and/or starting January 1, 2014 79
receipts of which do not
exceed PhP1,919,500.
• Persons who are not VAT- Exempt Exempt • VAT registration threshold is at
registered and whose gross IDR4.8 billion (<Ph17.82 million)
sales/receipts do not exceed starting January 1, 2014
PhP1,919,500
76
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77
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(viewed September 27, 2016)
78
http://www.kemenkeu.go.id/en/Peraturan/regulation-minister-finance-republic-indonesia-number-
154pmk032 015 (viewed November 9, 2016)
79
http://www.vatlive.com/asia-pacific/indonesia-raises-vat-registration-threshold/ (viewed November
9, 2016)


• Domestic carriers and Exempt Exempt Indonesian government Regulation
keepers of garages Number 69 of 2015 (“GR-69”) 80
• Transport of cargo by Exempt Exempt -do-
international carriers
• Franchises Exempt - Note: Not listed in exemption list.
Not listed in vatable list.
• Overseas dispatch, message Exempt Vatable
or conversation originating
from the Philippines
• Banks and Non-Bank Exempt Exempt Section 3(d) Article 4A of the Law of
Financial Intermediaries the Republic of Indonesia Number 42
Performing Quasi-Banking Year 2009
Functions
• Non-Bank Financial Exempt Exempt -do-
Intermediaries
• Life insurance premiums Exempt Exempt Section 3(e) Article 4A of the Law of
Year 2009
• Agents of foreign insurance Exempt Exempt -do-
companies
• Proprietors, lessees or Exempt Exempt • The following arts and entertainment
operators of amusement services are exempt from VAT:
places/activities
 Film show
 Cockpits  Art performance show, music
 Cabarets, night or day performance show, dance
clubs performance show, and/or
 Boxing exhibitions clothing performance show;
 Professional basketball  Beauty contest show,
games bodybuilding contest show, and
 Jai-alai and racetracks similar contest show;
 Show in the form of an
exhibition;
 Discotheque, karaoke, night
club, and the like;
 Circus performance show,
acrobatic performance show,
and magic performance show;
 Horse racing show, motor
vehicle racing show, and agility
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game; and
 Sport competition show.

Article 2 of the regulation of the
Minister of Finance No.
158/PMK.010/2015 81
• Winnings in horse races Exempt - Note: Not listed in exemption list.
Not listed in vatable list.
• Sale of shares of stocks Exempt - Note: Not listed in exemption list.
listed and traded through Not listed in vatable list.
local stock exchange
• Power transmission- NGCP Exempt Vatable
(RA 9511)
• PWDs (RA 10754) Exempt Vatable • Importation of goods for special
purposes of blind people and other
disabled are exempt from VAT
Article 2(3)(f) of the Regulation of
the Minister of Finance of the
Republic of Indonesia Number
70/PMK.011/2013
• Boy Scouts of the Philippines Exempt Vatable
(RA 7285)
• Girl Scouts of the Philippines Exempt Vatable
(RA 10073)
• Biofuels (RA 9367) Exempt Vatable • VAT on biofuel is borne by the
government 82
such as, but not limited to,
coconut, jatropha,
sugarcane, cassava, corn,
and sweet sorghum is
exempt from VAT.
• Cooperatives (RA 9520) Exempt Vatable
81
http://www.kemenkeu.go.id/en/Peraturan/regulation-minister-finance-republic-indonesia-number-
158pmk010 2015 (viewed November 9, 2016)
82
http://www.kemenkeu.go.id/en/node/16976 (viewed November 9, 2016)


• Credit Surety Fund Exempt Vatable
Cooperative (RA 10744)
10072)
• Orphan drugs and products Exempt - Note: Not listed in exemption list.
for use solely by patients with Not listed in vatable list.
rare diseases (RA 10747)
• Socialized housing (RA 7279, Exempt Exempt Section 3(m) Article 4A of the Law
as amended by RA 10884) of the Republic of Indonesia Number
42 Year 2009

Table A.3. Summary of VAT-Exempt Goods/Services/Sectors, Philippines vs Vietnam
Item PHL VNM Vietnam Legal Basis

A. VAT Exempt under Section 109, NIRC
• Agricultural food products in Exempt Exempt • Cultivation and husbandry products,
their original state and reared and fished aquatic
products which have not yet been
processed into other products or have
been just preliminarily processed and
sold by producing and fishing
organizations and individuals, and
products at the stage of importation
are exempt from VAT.
Chapter I Article 5 (1) of the Law on
Value- Added Tax No.
13/2008/QH12 83
• Marine food products in Exempt Exempt -do-
their original state
• Breeding stock Exempt Exempt • Products which are animal breeds and
plant varieties, including breeding
eggs, breeding animals, seedlings,
seeds, sperms, embryos and genetic
materials are exempt from VAT.
13/2008/QH12
• Rice Exempt Exempt • Cultivation and husbandry products,
and reared and fished aquatic
products which have not yet been
processed into other products or have
been just preliminarily processed and
sold by producing and fishing
organizations and individuals, and
products at the stage of importation
13/2008/QH12
• Corn grits Exempt Exempt -do-
• Raw cane sugar Exempt Exempt -do-
83
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• Molasses Exempt Vatable • Molasses are subject to VAT.
Chapter II Article 8 (2) (h) of the Law
on Value- Added Tax No.
13/2008/QH12
• Ordinary salt Exempt Exempt • Salt products made of seawater,
natural rock salt, refined salt and
iodized salt are exempt from VAT.
13/2008/QH12
• Copra Exempt Exempt • Products which are animal breeds and
13/2008/QH12
• Fertilizers Exempt Vatable • Fertilizers, ores for fertilizer
production, insecticides, pesticides
and plant and animal growth
stimulators are subject to VAT.
Chapter II Article 8 (2) (b) of the Law
13/2008/QH12
• Seeds and seedlings Exempt Exempt • Products which are animal breeds and
13/2008/QH12
• Fingerlings Exempt Exempt -do-
• Fish, prawn, livestock and Exempt Vatable • Feeds for cattle, poultry and other
poultry feeds domestic animals are subject to VAT.
Chapter II Article 8 (2) (c) of the Law
13/2008/QH12


• Personal and HH effects of Exempt Vatable
returning residents to the
Philippines and nonresidents
coming to resettle in the
Philippines
• Professional instruments and Exempt Vatable
implements, and personal
HH effects of persons
coming to settle in the
Philippines
• Services by agricultural Exempt Vatable
contract growers and milling
for others of palay into rice,
corn into grits and sugar cane
into raw sugar
• Medical, dental and hospital Exempt Exempt • Healthcare and animal health
services, except rendered by services, including medical
professionals examination and treatment and
preventive services for humans and
domestic animals are exempt from
VAT.
13/2008/QH12
• Veterinary services Exempt Exempt -do-
• Educational services Exempt Exempt • Teaching and vocational training as
rendered by public and provided for by law are exempt from
private educational VAT.
institutions
13/2008/QH12
individuals pursuant to an
employer-employee
relationship
regional or area HQ of
MNCs
• Agricultural cooperatives Exempt Exempt • Cooperatives that pays VAT using
duly registered with the credit-invoice method and sells
Cooperatives Development unprocessed or preprocessed farming,
Authority (CDA) breeding, aqua-cultural products to
another company or cooperative for
commercial purposes is exempt from


declaring and paying VAT.
Chapter I Article 5(5) of the Vietnam
Circular No. 219/2013/TT-BTC 84
• Credit or multi-purpose Exempt Vatable
cooperatives duly registered -do-
with the CDA
• Non-agricultural, non- Exempt Vatable
electrical and non-credit
cooperatives registered with -do-
the CDA under certain
conditions
• Export sales by persons who Exempt Vatable • Exported goods and services are
are not VAT-registered (0%) subject to 0% VAT.
Chapter II Article 9 (1) of the
Vietnam Circular No. 219/2013/TT-
BTC
• Real property not primarily Exempt Vatable • The sale, lease, and hire purchase of
held for sale to customers or commercial housing, which is
held for lease in the ordinary finished apartments smaller than 70
course of trade or business m2 that are sold at below 15 million
VND/m2 are subject to VAT.
Article 2 (3) on Amendments to the
Law on Value-Added Tax Law No.
31/2013/QH13 85
• Real property utilized for Exempt Vatable • The sale, lease, and hire purchase of
low-cost and socialized social housing are subject to VAT.
housing as defined in
RA 7279
 Beneficiaries under RA 31/2013/QH13
7279 are underprivileged
and homeless citizens
within the poverty
threshold of NEDA
84
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%20Circular% 20219-2013%20-%20Circular%20on%20VAT.pdf
85
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language=en


• Residential lot valued at Exempt Vatable • The sale, lease, and hire purchase of
PhP1,919,500 and below commercial housing, which is
finished apartments smaller than 70
m2 that are sold at below 15 million
VND/m2 are subject to VAT.
31/2013/QH13
• House and lot and other Exempt Vatable
residential dwellings valued -do-
at PhP3,199,200 and below
• Lease of a residential unit Exempt Vatable
with a monthly rental not -do-
exceeding P12,800
• Books and any newspaper, Exempt Exempt • Publication, import and distribution of
magazine, review or bulletin newspapers, journals, specialized
bulletins, political books, textbooks,
teaching materials, law books,
scientific technical books, books
printed in ethnic minority languages
as well as propaganda postcards,
pictures and posters, including those
in the form of audio or visual tapes or
discs or electronic data; money
printing are exempt from VAT.
13/2008/QH12
• Transport of passengers by Exempt Vatable • International transport services
international air and sea (0%) include passenger transport and
carriers freight transport; export of parts and
supplies for repairing, maintaining
vehicles, machinery, and equipment
of foreign entities are rated 0% VAT.
BTC
• Passenger or cargo vessels Exempt Vatable
and aircraft including engine, (0%)
equipment and spare parts
thereof for domestic or
-do-
international transport
operations


• Importation of fuel, goods Exempt Vatable
and supplies by persons (0%)
engaged in international -do-
operations
• Banks, non-bank financial Exempt Exempt • Credit provision services; securities
intermediaries performing trading; capital transfer; derivative
quasi-banking functions, and financial services, including interest-
other non-bank financial rate swap contracts, forward
intermediaries contracts, futures contracts, call or put
options, foreign currency sales, and
other derivative financial services as
prescribed by law are exempt from
VAT.
13/2008/QH12
• Other goods or properties or Exempt Exempt • Goods/Services provided by any
performance of services the business household or person that
gross annual sales and/or earns an annual revenue of at most
receipts of which do not VND 100 million (PhP219,000) are
exceed PhP1,919,500. exempt from VAT.
Chapter I Article 5 (25) of the
BTC
• Persons who are not VAT- Exempt Exempt • Goods/Services provided by any
registered and whose gross business household or person that
sales/receipts do not exceed earns an annual revenue of at most
PhP1,919,500 VND 100 million (PhP219,000) are
exempt from VAT.
BTC
• Domestic carriers and Exempt Vatable
keepers of garages
• Transport of cargo by Exempt Vatable • International transport includes
international carriers (0%) passenger transport and freight
transport are rated 0% VAT.
BTC


• Franchises Exempt Vatable
• Overseas dispatch, message Exempt Exempt • Public post and telecommunications
or conversation originating and universal Internet services under
from the Philippines the Government’s programs are
exempt from VAT.
BTC
• Banks and Non-Bank Exempt Exempt • Credit provision services; securities
Financial Intermediaries trading; capital transfer; derivative
Performing Quasi-Banking financial services, including interest-
Functions rate swap contracts, forward
contracts, futures contracts, call or put
options, foreign currency sales, and
other derivative financial services as
prescribed by law are exempt from
VAT.
13/2008/QH12
• Non-Bank Financial Exempt Exempt
-do-
Intermediaries
• Life insurance premiums Exempt Exempt • Life insurance, student insurance,
insurance on domestic animals,
insurance on plants and reinsurance
13/2008/QH12
• Agents of foreign insurance Exempt Vatable • The revenue from goods and services
companies (0%) of Insurance agents are subject to 0%
VAT.
Chapter I Article 7 (dd) of the
BTC
• Proprietors, lessees or Exempt Vatable
operators of amusement
places/activities
 Cockpits
 Cabarets, night or day
clubs
 Boxing exhibitions
 Professional basketball
games


 Jai-alai and racetracks
• Winnings in horse races Exempt Vatable
• Sale of shares of stocks Exempt Vatable
listed and traded through
local stock exchange
• Power transmission- NGCP Exempt Vatable
(RA 9511)
• PWDs (RA 10754) Exempt Exempt • Crutches, wheelchairs and other tools
used exclusively by the disabled.
13/2008/QH12
• Boy Scouts of the Exempt -
• Girl Scouts of the Exempt -
• Biofuels (RA 9367) Exempt Vatable
such as, but not limited
to, coconut, jatropha,
sugarcane, cassava, corn,
and sweet sorghum is
exempt from VAT.
• Cooperatives (RA 9520) Exempt Exempt • Cooperatives that pays VAT using
credit-invoice method and sells
unprocessed or preprocessed farming,
breeding, aqua-cultural products to
another company or cooperative for
commercial purposes is exempt from
declaring and paying VAT.
Chapter I Article 5(5) of the Vietnam
Circular No. 219/2013/TT-BTC
• Credit Surety Fund Exempt Vatable
Cooperative (RA 10744) -do-


10072)
• Orphan drugs and products Exempt Vatable
for use solely by patients
with rare diseases (RA
10747)
• Socialized housing (RA Exempt Vatable • The sale, lease, and hire purchase of
7279, as amended by RA social housing are subject to VAT.
10884)
31/2013/QH13

Proposed Reforms On Value-Added Tax: Executive Order (EO) No. 273

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Proposed Reforms On Value-Added Tax: Executive Order (EO) No. 273

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NTRC Tax Research Journal Vol. XXIX.

3 May - June 2017

Proposed Reforms on Value-Added Tax*

Package 1 of the Comprehensive Tax Reform Program (CTRP) includes proposed

II. BACKGROUND INFORMATION

A. VAT Legislation, 1988 to Present

Executive Order (EO) No. 273 1

12 Proposed Reforms on VAT

RA 7716 or the Expanded VAT (EVAT) Law amended EO 273, viz.:

(a) Widened its coverage by:

i. Including certain goods/ services/transactions which were not previously

ii. Transferring taxability of certain persons subject to percentage taxes to the

(b) Provided additional goods/ transactions exempt from the VAT;

Proposed Reforms on VAT 13

(c) Provided for additional goods/ transactions subject to zero rate;

(d) Prescribed for an annual registration and payment of registration fees of

(a) Providing additional features on VAT exemptions of cooperatives per type of

(c) Increasing the amount of exemption threshold from PhP500,000 to

14 Proposed Reforms on VAT

(h) Subjecting international air and shipping carriers to a tax of 3%;

(i) Subjecting to a 3% franchise tax all franchises on radio and/or television

RA 8424 further deferred the imposition of the VAT beginning January 1,

(a) Actors, actresses, singers, talents, emcees, radio/TV broadcasters,

(b) Professional athletes;

(d) Professionals and registered professional partnerships.

Proposed Reforms on VAT 15

RA 8761 further deferred the imposition of the VAT beginning January 1,

(a) Actors, actresses, singers, talents, emcees, radio/TV broadcasters,

(b) Professional athletes;

(c) Banks and non-bank financial intermediaries and finance companies;

(d) Professional and registered professional partnerships; and

RA 9010 finally imposed the VAT on the services performed by the

(a) Actors, actresses, singers, talents, emcees, radio/TV broadcasters,

(b) Professional athletes;

(c) Banks and non-bank financial intermediaries and finance companies;

(d) Professional and registered professional partnerships; and

16 Proposed Reforms on VAT

RA 9238 amended Section 109 of the NIRC, as amended by adding certain

i. Domestic transport of passengers by air and sea;

Proposed Reforms on VAT 17

ii. Generation, transmission 12 and distribution of electricity;

i. Transport of passengers and cargoes by domestic air or sea carriers to a

18 Proposed Reforms on VAT

(e) Providing certain mitigating measures on the VAT system, as follows:

i. Removal of the franchise tax on power distribution and common carriers

Proposed Reforms on VAT 19

B. Special Laws with Provisions on VAT Exemption or Zero-Rating

Since the enactment of RA 9337 in 2005, various legislation were passed

RA 9500 or the University of the Philippines Charter of 2008 granted

RA 9593 or the Tourism Act of 2009 granted an exemption of 100% to

20 Proposed Reforms on VAT

RA 9520 or the Philippine Cooperative Code of 2008 granted exemption

(a) Duly registered cooperatives which transact business with members

Proposed Reforms on VAT 21

(b) Electric cooperatives duly registered with the CDA on revenues on

(c) Duly registered cooperatives which transact business with members

(d) Business transactions with members of duly registered cooperatives

(e) Business transactions with non-members of cooperatives with