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BIR Amends VAT Exemption Rule

The VAT exemption threshold for the sale of house and lot packages and other residential dwellings is now at P3,199,200.00, applicable beginning 01 January 2021 per Bureau of Internal Revenue (BIR) RR 08-2021 dated 11 June 2021.

The new regulation amends RR 04-2021 dated 08 April 2021, which pegged the threshold at only P2 Million beginning 01 January 2021, as provided for under RA 10963 or the TRAIN Law.

According to RR 08-2021, the previous threshold prior to January 1, 2021 was already at P3,199,200.00 due to the adjustment made using the 2010 consumer price index (CPI) per RR No. 16-2011 dated October 27, 2011, and the taxpaying public has been enjoying that threshold from January 2012 up to December 2020.

“As such, fairness and equity dictate that the VAT-exempt threshold under RA No. 10963 or the Tax Reform for Acceleration and Inclusion Law (TRAIN Law), of Two Million Pesos (P2,000,000,00) for sale of house and lot and other residential dwellings, should also be adjusted to P3,199,200.00 beginning January 1, 2021,”

However, per the TRAIN Law, effective 01 January 2021, the VAT exemption for residential lots no longer applies.

RR 08-2021 provides, in part:

Section 2. AMENDMENTS. –  (1) …xxx… Provided, that beginning January 1, 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 socialized housing as defined by Republic Act (RA) No. 7279, as amended, and sale of house and lot and other residential dwellings with selling price of not more than Two Million Pesos (P2,000,000.00) as adjusted to P3,199,200.00 in 2011 using the 2010 Consumer Price Index values; Provided, further, That every three years thereafter, the amount stated herein shall be adjusted to it present value using the Consumer Price Index as published by the Philippine Statistics Authority (PSA).

The TRAIN Law was signed into law on 19 December 2017. It was later amended by the CREATE Law (RA 11354), which, as passed by Congress, increased the exemption thresholds to P2.5 Million for residential lots and P4.2 Million for house and lot and other residential dwellings.

This upward adjustment was vetoed by President Rodrigo Duterte when he signed CREATE into law on 26 March 2021. As a consequence, the original provisions of the TRAIN Law with respect to exemptions for real property remained in effect.

In vetoing the provision, President Duterte explained: “This will benefit even those not originally targeted for the VAT-exemption—those who can actually afford proper housing. This results in a tax exemption that is highly distortive and exacts a heavy price on the taxpaying community.”

“The provision is also prone to abuse, as properties can be parceled into lots so that their individual values fall within the VAT-exempt threshold. If not vetoed, the estimated revenue loss from the foregoing is P155.3 billion from 2020 to 2030, which could be used in public goods to benefit the poor directly,” President Duterte added.


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