Special InTAX: April 2021 Issue 1 | Volume 6

InTAX is an official publication of R.G. Manabat & Co.'s Tax Group

InTAX is an official publication of R.G. Manabat & Co.'s Tax Group

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special intax

 

Department of Finance

 

The Department of Finance (DOF) issued the following issuances:

Revenue Regulations (RR) No. 1-2021, 8 April 2021, to prescribe the implementing guidelines for availing the tax incentives and fee privileges for the procurement and deployment and administration of the COVID-19 Vaccines under Section 11 of Republic Act (RA) No. 11525, otherwise known as the "COVID-19 Vaccination Program Act of 2021".

Salient points of RR No. 1-2021 are as follows:

  • Section 2 of the RR provides that the following entities may be entitled to tax incentives with regard to the procurement, importation, donation, storage, transportation, deployment and administration of COVID-19 vaccines under the COVID-19 Vaccination Program:

a.  The National Government, through the Department of Health (DOH) and the National Task Force Against COVID-19 (NTF);

b.  Any of the political subdivisions of the State; and

c.  Private entities and international humanitarian organizations such as the Philippine Red Cross (PRC).

  • The following guidelines and procedures shall be observed by the abovementioned entities:

 

Activity*

Tax Exemptions applicable to entities in Section 2

Procurement of Vaccines

No VAT shall be imposed. VAT shall not be part of the contract price for the procurement of the vaccines.

Importation of Vaccines

No VAT and excise tax shall be imposed.

 

Not subject to the issuance of an Authority to Release Imported Goods (ATRIG) and may be released by the Bureau of Customs without an ATRIG subject to post investigation/audit on the importations released without an ATRIG.

Storage, transport, deployment and administration of Vaccines

No VAT shall be imposed and VAT shall not be part of the contract price for the engagement/procurement of these services.

Donation of Vaccines

No Donor’s tax subject to the ordinary rules of deductibility under Section 34(H) of the Tax Code, as amended and applicable rules

*Tax incentives are only applicable if vaccines are not intended for resale or other commercial use and shall be distributed without any consideration from persons to be vaccinated.

 

  • Requirements to qualify for the exemptions are enumerated in Section 4 of the RR.
  • The VAT, Excise tax and Donor’s tax on all covered and qualified entities/activities that may have been paid from 1 January 2021 until the effectivity of these regulations  (during the period of the state of calamity under Proclamation No. 1021 dated 16 September 2020) shall be refunded pursuant to Section 204(C) of the Tax Code, as amended, for as long as the input tax on these transactions have not been reported or claimed as input tax credit.

(RGM & Co. Note:  The RR was published in the Malaya Business Insight on 12 April 2021)

RR No. 2-2021, 8 April 2021, to further amend certain provisions of RR No. 2-98, as amended, and  implement the new final tax rates on certain passive incomes of individuals and corporations pursuant to RA No. 11534, or the "Corporate Recovery and Tax Incentives for Enterprises Act" (CREATE Law).

Salient points of RR No. 2-2021 are as follows:

  • The following are some of the applicable final withholding tax on income payments of certain passive incomes to non-resident aliens engaged in trade or business (NRAETB):

 

Certain Passive Incomes from all sources within the Philippines

Tax Rates

a

Cash and property dividend from a domestic corporation, etc.

20%

b

Share in distributable net income after tax of a partnership or share in the net income after tax of an association, a joint account, or a joint venture of which he is a member or a co-venturer

20%

c

Interests from any currency bank deposit and yield or any other
monetary benefit from deposit substitutes and from trust funds and similar arrangements

20%

d

Royalties

20% - in general;

10% on books, other literary works and music compositions

e

Prizes amounting to more than Php10,000

20% - more than Php20,000

Exempt – Php10,000 or less

Other winnings

20% -  in general

Exempt – winnings from Philippine Charity Sweepstakes Office games amounting to Php10,000 or less

 

  • The following are some of the applicable final withholding tax on income payments of certain passive incomes to Resident Foreign Corporations (RFCs):

 

Income Payments to RFCs

Tax Rates

a

Tax on Branch Remittances on any profit remitted by the Philippine branch of a foreign corporation to its head office based on the total profits applied or earmarked for remittance without any deduction for the tax component thereof except those registered with the Philippine Economic Zone Authority (PEZA)

15%

b

Interest on any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements and royalties derived from sources within the Philippines

20%

c

Interest income derived from a Depository Bank under the Expanded Foreign Currency Deposit System

15%

d

Capital gains from sale of shares of stock not traded in the stock exchange

15%

 

  • The following are the applicable final withholding tax rates for certain income earned by the Non-resident Foreign Corporations (NRFCs):

 

Income within the Philippines

Tax Rates

a

Income sourced from within the Philippines such as interests, dividends, rents, royalties, etc.

25% starting 1 January 2021 onwards

b

Dividends received from a domestic corporation

25%/15% 

c

Capital gains from sale of shares of stock not traded in the stock exchange

15%

 

  • Government-Owned and Controlled Corporations, National Government Agencies, Local Governments and other government instrumentalities are subject to one percent (1%) withholding tax for the period 1 July 2020 until 30 June 2023 for their purchases from persons/entities subject to percentage tax pursuant to Section 116 of the Tax Code, as amended.
  • Duly authorized withholding agents or other persons/entities, when authorized, may file the claim for refund with the BIR Office having jurisdiction over the withholding agents, for and on behalf of the payees if they already withheld and remitted an amount using a higher rate than what are imposed under RR No. 2-2021.
  • Effective upon the publication in the Official Gazette or in any 2 newspapers of general circulation, whichever comes earlier.

(RGM & Co. Note:  The RR was published in the Philippine Star and Malaya Business Insight on 9 April 2021)

RR No. 3-2021, 8 April 2021, to implement Section 3 of the CREATE Law, particularly on the submission by the Commissioner of Internal Revenue (CIR) of the needed tax-related information to the DOF, in relation to the grant of incentives to a particular entity under Sec. 16 RA No. 11534, amending Title XIII of the Tax Code, as amended.

(RGM & Co. Note:  This RR is effective immediately, but nonetheless published in the Philippine Star on 9 April 2021)

RR No. 4-2021, 8 April 2020, to implement the provisions on Value-Added Tax (VAT) and Percentage Tax under the CREATE Law, which further amended the Tax Code.

Salient points of RR No. 4-2021 are as follows:

  • VAT-Exempt Transactions

a.     Sale of residential lot (Php1.5 Million and below), or house and lot and other residential dwellings (Php2.5 Million and below), as adjusted in 2011 using the 2010 Consumer Price Index (CPI) values, subject to certain conditions.  

Beginning 1 January 2021, the VAT exemption shall only apply to 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 property utilized for social housing as defined by RA No. 7279, as amended; and, sale of house and lot, and other residential dwellings with selling price of not more than Php2 Million, as adjusted in 2011 using 2010 CPI values.

b.     Sale, importation, printing or publication of books and any newspaper, magazine or any such educational reading material covered by the United Nations Educational, Scientific and Cultural Organization (UNESCO) Agreement on the importation of educational, scientific and cultural materials including those in digital or electronic format, subject to certain conditions.

c.     Sale or importation of prescription drugs and medicines as approved by the DOH for diabetes, high cholesterol and hypertension is exempted beginning 1 January 2020. The VAT exemption for drugs and medicines as approved by the DOH for cancer, mental illness, tuberculosis and kidney diseases begins on 1 January 2021. 

d.     Sale or importation of the following are exempt from VAT from 1 January 2021 to 31 December 2023*:

o    Capital equipment, its spare parts, raw materials (not locally available or insufficient in quantity/quality, as certified by the Department of Trade and Industry or DTI) needed for the production of personal protective equipment components for COVID-19 prevention, subject to certain conditions such as the submission of a certified true copy of a license to operate from the DOH-Food and Drug Administration (FDA)

o    All drugs, vaccines and medical devices specifically prescribed and directly used for the treatment of COVID-19; subject to certain conditions

o    Drugs for the treatment of COVID-19 approved by the FDA for use in clinical trials, subject to certain conditions

* The Bureau of Internal Revenue (BIR) or Bureau of Customs (BOC) can conduct post- investigation/audit on this sale or importation.

e.     Sales or lease of goods/properties or the performance of services of entities whose gross annual sales and/or receipts do not exceed Php3 Million are also exempt from VAT. 

  • Persons exempt from VAT under Section 109(1)(CC) of the Tax Code, as amended, and who are not VAT registered shall pay a 3%** tax on their gross quarterly sales/receipts, except cooperatives and self-employed individuals availing of the 8% tax on gross sales/receipts

**Effective 1 July 2020 until 30 June 2021, the rate shall be 1%. Excess percentage tax paid starting 1 July 2020 until the effectivity of the RR may be carried forward to succeeding taxable quarters

  • Transitory provisions are also included in the RR which provide guidance for taxpayers availing of these exemptions and on how to treat excess taxes paid due to the inclusion of some items as VAT exempt/adjustment in percentage tax rates.
  • The taxpayers may recover the excess taxes paid due to the inclusion of the items exempt from VAT or adjustment of percentage tax rates in the following manner:

1.     Unutilized VAT paid on local purchases may be carried over to succeeding taxable quarters or be charged as part of cost

2.     Excess percentage tax payments due to the decrease in rates may be carried forward to the succeeding quarters

  • Excess unutilized input taxes as a result of the change of status from VAT to non-VAT registration may be subject to refund or the issuance of a Tax Credit Certificate, at the option of the taxpayer.
  • RR will take effect 15 days following the publication in the Official Gazette or in a leading newspaper of general circulation, whichever comes first. Exemptions under the CREATE Law shall be effective upon its effectivity unless otherwise stated.

(RGM & Co. Note:  The RR was published in the Philippine Star on 9 April 2021)

 

Attached are the full texts of the issuances.

Revenue Regulations No. 1-2021

Revenue Regulations No. 2- 2021

Revenue Regulations No. 3- 2021

Revenue Regulations No. 4- 2021

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