[Ask the Tax Whiz] How did VAT change during the pandemic?

Is there an additional VAT exemption on the sale and importation of medicines?

Included in the provisions of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) law is the early value-added tax (VAT) exemption on prescription drugs and medicines for cancer, mental illness, tuberculosis, and kidney diseases, which took effect on January 1, 2021. Prior to the adjustment, it was initially intended to be in effect in taxable year 2023.

In addition, the sale and importation of equipment, materials, drugs and medicines, and medical devices specifically and directly used for treatment of COVID-19 are exempted from VAT beginning January 1, 2021 to December 31, 2023 – provided that the taxpayer complies with the requirements and conditions stated in the CREATE law.

What is the current threshold for VAT exemption on the sale of house and lot and residential dwellings?

In accordance with the recently issued Revenue Regulations (RR) No. 8-2021, the ceiling for VAT exemption on the sale of house and lot, and other residential dwellings, has been adjusted to P3,199,200.

While the proposed increase in the VAT threshold to P4,200,000 under CREATE was vetoed by President Rodrigo Duterte, the Tax Reform for Acceleration and Inclusion (TRAIN) law requires automatic adjustment every three years, which is the basis of RR 8-2021.

Note, however, that the exemption shall only apply to the sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of business.

What is the basis for implementing 12% VAT on zero-rated export sales?

Many were surprised by the sudden imposition of 12% VAT on certain export sale transactions. However, it was mandated by the TRAIN law subject to the satisfaction of conditions and requirements.

Based on RR 9-2021, the conditions stated under Sections 106(A)(2)(a) and 108(B) of the Tax Code of 1997, as amended, have been fully satisfied. Thus, the sale of materials (whose export sales exceed 70% of total annual production) to export-oriented enterprises will now be subject to 12% VAT.

For more details, here is a summary of changes in VAT under the CREATE and TRAIN laws during the pandemic:

– Rappler.com

Mon Abrea, CPA, MBA, is the co-chair of the Paying Taxes-EODB Task Force. With the TaxWhizPH mobile app as his brainchild, he was recognized as one of the Outstanding Young Persons of the World, an Asia CEO Young Leader, and one of the Ten Outstanding Young Men of the Philippines because of his tax advocacy and expertise. Currently, he is the chairman and CEO of the Asian Consulting Group and trustee of the Center for Strategic Reforms of the Philippines – the advocacy partner of the Bureau of Internal Revenue, Department of Trade and Industry, and Anti-Red Tape Authority on ease of doing business and tax reform. Visit www.acg.ph for more information or email him at mon@acg.ph and download the TaxWhizPH app for free if you have tax questions.