VAT vs Non-VAT

VAT or value added tax and Non-VAT or other percentage tax are the most common types of sales tax in the Philippines.

VAT or value-added tax is a form of sales tax levied on the sale, barter, exchange or lease of goods, or properties and services, or on the importation of goods into the Philippines.

It is also an indirect tax, allowing it to be transferred to the buyer, transferee, or lessee of goods, properties, or services.

In the Philippines, the rate of VAT is at 12%, except for export sales and other zero-rated sales which are at 0%.

Non-VAT, also known as other percentage tax is a business tax. It is levied on person entities (companies), or transactions.

It is a direct tax, solely shouldered by businesses and is not allowed to be transferred to customers.

Depending on the nature of the business or transaction, the tax rate varies from the usual 3% up to 30% of the total gross receipts, for instance in the case of Jai-Alai and racetrack operators.

Who are required to pay percentage tax?

  1. Those who:
  • Sell or lease goods, properties or services that are considered “Exempt Transactions” under Section 109 of the National Internal Revenue Code. Details here.
  • Have a annual sales that do not exceed PHP 1,919,500
  • Are not VAT-registered
  1. Those engaged in:
  • Cars for rent or hire, transportation contractors, and other domestic carriers of passengers by land (except owners of the animal-drawn two-wheeled vehicle) and garage keepers. (public utility vehicles/jeeps, buses, tricycles, etc.)

International air/shipping carriers doing business in the Philippines

  • Franchise grantees of:
    • Radio/television broadcasting whose gross annual earnings for the preceding year doesn’t exceed PHP 10,000,000.00 and did not want to register as VAT taxpayers
    • Gas and water utilities
    • Radio and/or television broadcasting whose gross annual earnings for the preceding year do not exceed PHP 10 million and did not opt to register as VAT taxpayers
    • Overseas dispatch, message or conversation transmitted from the Philippines, except those transmitted by the Philippine government, embassy and consular offices of a foreign government, public international organizations enjoying exemptions in accordance with international agreements
    • News messages to a bona fide domestic and international general news service
  1. Banks and non-bank financial intermediaries performing quasi-banking functions. These include borrowing funds, certificates of assignments, among others. More details here.
  2. Other non-bank financial intermediaries, including pawnshops
  3. Person, company, or corporation (except purely cooperative companies or associations) doing life insurance business
  4. Fire, marine, or miscellaneous agents of foreign insurance companies
  5. Proprietor, lessee, or operator of cockpits, night or day clubs, boxing exhibitions, professional basketball games, racetracks, music lounges, and karaoke and videoke bars
  6. Winnings in horse races
  7. Sale, barter, or exchange of shares of stock listed and traded through the local stock exchange or through a company’s first sale of public stock

 

You’ll find more information on percentage tax here.