NOTEWORTHY PROVISIONS OF THE LAW

The provisions in the EVAT law (RA 9337) are concerned mainly with the following

1. VATable activities

2. Zero-rated sales

3. Exempt sales

4. Input tax

5. Invoicing

6. Corporate Income Tax

Vatable Activities

The law raises the Vat rate from 10% to 12% given the condition where VAT collection exceeds 2 4/5% of GDP of previous year; or, government deficit exceeds 1 ½% of GDP of previous year.

Former activities that weren’t subject to EVAt before are now vatable. These are:

1. Common carriers by air and sea, for the transport of passengers within the Philippines

2. Sale or importation of coal, natural gas, petroleum products, and of raw materials for the manufacture of petroleum products

3. Sale of nonfood agricultural products, marine and forest products, and cotton

4. Sales of electricity by generation companies, transmission, and distribution companies, and electric utilities

5. Services rendered by doctors and lawyers

6. Persons whose gross sales or receipts for the past12 months exceed Php1.5M.

Zero-rated sales

Under this law the following are subject to 0%VAT

1. Activities considered as “export sale”

2. Services to international air transport operators including leases of property

3. Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country

4. Sales of power or fuel generated through renewable sources of energy (biomass, solar, wind, hydropower, geothermal, ocean energy and other emerging energy sources using technologies such as fuel cells and hydrogen fuels)

5. Services to international air transport operators including leases of property for use thereof

6. Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country

The law states that for activities to be zero-rated services must be “rendered to a person engaged in business conducted outside the Philippines or to a nonresident person not engaged in business who is outside the Philippines when the services are performed.”

Exempt sales

The following are exempted under the law:

A. Sale of copra

B. Sales of residential lot valued at Php1.5M and below, and of house and lot valued at Php2.5M and below

C. Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts

D. Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations.

Input tax

According to the law, “the amount of input tax, inclusive of excess input tax carried over from the previous quarter that may be credited in every quarter, shall not exceed 70% of the output VAT. Input tax on purchase or importation of capital goods may no longer be claimed as a refund. Such input tax shall be spread evenly over a period of 60 months beginning on the month of acquisition if the aggregate acquisition cost for such goods, excluding the VAT component thereof, exceeds Php1 Million. If the estimated useful life is less than 5 years, the input VAT shall be spread over such a shorter period.” However, input tax attributable to zero-rated sales may still be refunded.

Invoicing

This law also discusses proper processes as regards invoice and liabilities if not complied with properly. The following are the stated procedures:

1. “The amount of VAT shall be shown as a separate item in the invoice or receipt.

2. If a person who is not VAT-registered issues a VAT invoice or receipt, he shall be liable for VAT on his sales, without the benefit of any input tax credit, and a 50% surcharge based on the amount of VAT due. In turn, the purchaser may laim the VAT as an input tax credit, provided that the requisites for a valid VAT invoice or receipt are present.

3. If the sale is exempt from VAT or is subject to zero percent (0%) VAT, the term “VAT-exempt sale” or “Zero-rated sale”, as the case may be, must be written or printed prominently on the invoice or receipt.

4. If a VAT-registered person issues a VAT invoice or official receipt for a VAT exempt transaction, and fails to display the term “VAT-exempt sale”

E. Prominently on the invoice or receipt, the issuer shall be liable for VAT.”

Corporate income tax

Under this law, regular corporate income tax rate was raised to 35% given that regular taxable income shall go down to 30%. “Foreign corporations will be subject to final withholding tax of 15% on gross dividends derived from Philippine sources, provided that the country in which the non-resident foreign corporation is domiciled, shall allow a credit against the tax due from the non-resident foreign corporation taxes deemed to have been paid equivalent to 20% (previously 17%). Interest paid or incurred within a taxable year on indebtedness in connection with the taxpayer’s profession, trade or business may be claimed as a deduction from gross income, provided that the allowable deduction for interest expense shall be reduced by 42% (previously 38%) of the taxpayer’s interest income which was subjected to final tax.