Regulations Implementing the VAT Provisions under the TRAIN Law Amending RR No. 16-2005

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The Bureau of Internal Revenue has recently issued Revenue Regulations (RR) 13-2018 dated March 15, 2018 relative to the implementation of the Value-Added Tax (VAT) provisions of Republic Act No. 10963, otherwise known as the “Tax Reform for Acceleration & Inclusion” TRAIN Act.

RR 13-2018 Areas of amendments include:

-Expansion & removal of certain items under zero-rated sale of goods, properties, and services

-Expansion & removal of certain items under VAT-exempt transactions & entities

-Amortization of input VAT on capital goods, administrative provisions on cancellation of VAT registration, filing system & compliance, refund, automatic appropriation, imposition of tax on persons exempt from VAT, transitory provisions to manage the VAT compliance impact of the changes effected by TRAIN Law

The specific tax highlights are summarized below:

  1. On expansion and removal of certain items under zero-rated sale of goods, properties, and services

Zero-rated sale of goods or properties

  • Sale of gold to Bangko Sentral ng Pilipinas is no longer considered as export sale
  • Sale of goods, supplies, equipment & fuel to persons engaged in international shipping or international air transport operations provided that these shall be used exclusively for international shipping or air transport operations
  • Foreign currency denominated sale is no longer included in the zero-rated sale
  • Sale to persons or entities whose exemption under international agreements to which the Philippines is a signatory effectively subjects such sales to zero-rate
  • Sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer’s goods, paid for in acceptable foreign currency, and accounted for in accordance with the rules and regulations of the BSP shall no longer be subject to zero-rated sale and shall be subject to 12% VAT upon successful establishment and implementation of an enhanced VAT refund system
  • Sale of raw materials or packaging materials to an export oriented enterprise whose export sales exceed 70% of total annual production upon successful establishment and implementation of an enhanced VAT refund system

Zero-rated sale of services

  • Sale of electricity by generation, transmission by any entity including the National Grid Corporation of the Philippines (NGCP), and distribution companies including electric cooperatives shall be subject to 12% VAT on their gross receipts
  • Services rendered to persons engaged in international shipping or air transport operations, including leases of property for use thereof provided these services shall be exclusively for international shipping or air transport operations
  • Processing, manufacturing or repacking goods for other persons doing business outside the Philippines, which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP shall no longer be subject to zero-rated and now subject to 12% VAT upon successful establishment and implementation of an enhanced VAT refund system
  • Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed 70% of the total annual production shall no longer be subject to zero-rated and now subject to 12% VAT upon successful establishment and implementation of an enhanced VAT refund system
  1. On expansion & removal of certain items under VAT-exempt transactions & entities
  • Expansion of the coverage of VAT exempt importation of items or effects belonging to persons coming to settle in the Philippines
  • Amendment of the gross annual sales/receipt threshold in the amount of Php 3 Million for the sale or lease of goods or properties or performance of services of non-VAT-registered persons
  • Amendment of the Unit Selling Price (SP) ceiling set for low-cost housing projects from Php 750,000.00 to SP within the SP per unit as set by HUDCC
  • Amendment of the SP per unit set for sale of real properties utilized for socialized housing from Php 225,000.00 to Php 450,000.00
  • Amendment on the adjustment of amounts to its present value using the Consumer Price Index values for purposes of sale of residential lot valued at Php 1.5 Million & below or house & lot and other residential dwellings valued at Php 2.5 Million & below
  • Beginning January 1, 2021, VAT exemption shall only apply to and subject to adjustments every three (3) years using the Consumer Price Index:

-Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade             or business

-Sale of real properties utilized for socialized housing as defined by Republic Act 7279

-Sale of house and lot & other residential dwellings with SP of not more than Php 2 Million

  • Amendment of the monthly rental ceiling per unit set for lease of residential units from Php 12,000.00 to Php 15,000.00
  • Redefinition of the term ‘residential unit’ [excludes in the definition lodging houses, inns and pension houses]
  • Inclusion of transport of passengers by international carriers under VAT exemption
  • Sale, importation or lease of passenger or cargo vessels & aircraft including engine, equipment & spare parts for domestic or international transport operations subject to the requirement of MARINA
  • Sale or lease of goods and services to Senior Citizens & Persons with Disabilities
  • Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension to which shall be effective beginning January 1, 2019
  • Transfer of property, pursuant to Section 40 (C)(2) of the Tax Code, as amended
  • Association dues, membership fees, and other assessments and charges collected on a purely reimbursement basis by homeowners’ associations and condominium corporations
  • Sale or lease of goods or properties or the performance of services other than the transaction mentioned above where annual sales and/or receipts do not exceed the Php 3 Million threshold
  • Self-employed individuals and professionals whom opted for the 8% tax on gross sales and/or receipts and other non-operating income shall also be exempt from paying 12% VAT
  • Cooperatives are both VAT exempt and Percentage Tax Exempt
  1. Amortization of input VAT on capital goods, administrative provisions on cancellation of VAT registration, filing system & compliance, refund, automatic appropriation, imposition of tax on persons exempt from VAT, transitory provisions to manage the VAT compliance impact of the changes effected by TRAIN Law
  • Amortization of the input VAT shall only be allowed until December 31, 2021 after which taxpayers with unutilized input VAT on capital goods purchased or imported shall be allowed to apply the same as scheduled until fully utilized
  • Exempt transactions may be qualified for VAT registration but shall not apply to his sales of goods or properties or services. Once the election is made, it shall be irrevocable for a period of three (3) years counted from the quarter when the election was made
  • VAT-registered taxpayer whose registration has been cancelled may apply for issuance of Tax Credit Certificate for unused input tax within two (2) years from the date of cancellation. The date of cancellation being referred is the date of issuance of tax clearance after full settlement of all tax liabilities and mandatory audit. The BIR is only given 90 days to act on the refund reckoned from the date of submission of official receipt/invoice. Otherwise, the BIR officer may be punished.
  • All claims for refund/tax credit certificate filed prior to January 1, 2018 will be governed by 120-day processing period.
  • Department of Finance shall establish a VAT refund center in the BIR and BOC that will handle the processing and granting of cash refunds of creditable input tax
  • In case of full or partial denial, taxpayer may appeal the decision to the Court of Tax Appeals within 30 days from receipt of the decision
  • 5% of the total VAT collection of the BIR and the BOC from the immediately preceding year shall be automatically appropriated annually and shall be treated as a special account in the general fund. Any unused fund at the end of the year shall be reverted to the general fund
  • BIR and BOC shall submit to the Congressional Oversight Committee on the Comprehensive Tax Reform Program (COCCTRP) quarterly report of all pending claims for refund and any unused fund
  • Beginning January 1, 2023, the filing and payment of VAT return shall be quarterly
  • Taxpayers with less than Php 3 Million gross receipts/sales may continue to be VAT registered and avail of the “Optional Registration” but shall not be entitled to cancel the VAT registration for the next three (3) years
  • VAT taxpayer who opts to become non-VAT as a result of TRAIN shall submit an inventory list of unused invoices and/or receipts as of the date of filing of application for update of registration from VAT to non-VAT indicating the number of booklets and its corresponding serial numbers. They may need to surrender also invoices or receipts for cancellation. A number of unused invoices/receipts, as determined by the taxpayer and with the approval of the BIR, may be allowed for use provided the phrase “Non-VAT registered as of (date of filing an application for update of registration). Not valid for claim of input tax” shall be stamped on the face of each and every copy thereof until new registered non-VAT invoices or receipts have been received by taxpayer.

Read Complete Revenue Regulations Here