RR No. 4-2007: Amends certain provisions of RR No. 16-2005, as amended, otherwise known as the Consolidated Value-Added Tax Regulations of 2005

Key points

1. VAT rate and real property sales. VAT is 12% starting February 1, 2006 on the gross selling price of taxable goods or properties. Residential lots with a gross selling price above P 1,500,000.00, and residential house and lot or dwellings above P 2,500,000.00, with the instrument of sale executed on or after November 1, 2005, bear 10% output VAT, and 12% starting February 1, 2006. Installment sales of residential house and lot above P 1,000,000.00 with the instrument executed before November 1, 2005 bear 10% output VAT.
2. Installment and deferred-payment sales. On an installment plan, initial payments in the year of sale do not exceed 25% of the gross selling price, and output VAT applies to installment payments received, including interest and penalties. On a deferred-payment basis, initial payments exceed 25%, the sale is treated as a cash sale taxable in the month of sale, and later payments are no longer subject to output VAT. Gross selling price of real property is the stated consideration or the fair market value, whichever is higher.
3. Zero-rated and export sales. Considered export sales under EO No. 226 are defined, and constructive exports include sales to bonded manufacturing warehouses, export processing zones, SBMA-registered enterprises, registered export traders with bonded trading warehouses, and diplomatic missions. Sales of goods, supplies, equipment and fuel for international shipping or air transport are covered, but any portion used for other purposes bears 12% output VAT starting February 1, 2006. Sales to persons tax-exempt under special laws or international agreements, such as ADB and IRRI, are effectively zero-rated.
4. Services, utilities and franchisees. Services and leases are subject to VAT of 12% of gross receipts (excluding VAT) starting February 1, 2006. This includes domestic common carriers by air and sea and electricity sales, but power or fuel from renewable sources bears 0% VAT. Other franchisees, including PAGCOR and its licensees or franchisees, are subject to 12% VAT. Services to international shipping or air transport operations are zero-rated, except services to domestic carriers.
5. VAT-exempt transactions and threshold. Exempt transactions include sales by CDA-registered agricultural cooperatives, sales of real properties not primarily held for sale or lease, certain shipping equipment importations, and bank and non-bank financial intermediary services subject to Percentage Tax. Sales or receipts not exceeding P1,500,000.00 gross annual are also exempt, with the amount adjusted using the Consumer Price Index not later than January 31, 2009 and every three (3) years thereafter. Husband and wife are separate taxpayers for the threshold, and a VAT-registered person may elect not to be exempt, irrevocable for three (3) years.
6. Input tax, withholding and registration. Input tax rules cover capital goods above P1,000,000.00 acquisition cost, construction in progress, and deduction of refund/TCC claims from allowable input tax. Government and GOCCs withhold a final VAT of 5% of gross payment, and 12% VAT is withheld on payments to non-residents for property rental and services. Advance VAT payments of refined sugar and wheat/flour sellers may be applied for a TCC within two (2) years, and radio and TV broadcasters with gross annual receipts not above P10,000,000.00, PEZA and ecozone enterprises, and SBMA and free port enterprises with the 5% preferential rate are added to the taxpayers required to register.

Who is affected

• VAT-registered persons and sellers of goods, real property and services
• Government agencies and GOCCs as withholding agents
• Agricultural cooperatives registered with the CDA
• Refined sugar and wheat/flour sellers, importers and millers

Deadlines and effectivity

• Takes effect after fifteen (15) days following publication in a newspaper of general circulation or the Official Gazette
• 12% VAT rate starting February 1, 2006
• Issued March 20, 2007