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New VAT Rules on Service Providers and Lessors: Easy or Not?

By: Atty. Euney Marie J. Mata-Perez on February 2,2024

In my interview with Business Outlook last Thursday, January 24, 2024, I was asked if we are competitive as a country from a taxation point of view.  I mentioned that while there have been efforts, through tax reforms, to make the Philippines competitive, there is still much to be desired.  One of the reasons I cited, which would turn off foreign investors, is changing the tax rules in the middle of the game. (See

We saw the passage of the Ease of Paying Taxes Act (Republic Act No. 11976) (EOPTA) which sought to introduce several reforms like allowing taxpayers to file and pay anywhere, electronically or manually, and classified taxpayers to give way to tailor-fitting tax compliance and value-added tax (VAT) refunds.

While we laud the objectives and the amendments to tax filing to make it easy for taxpayers, the EOPTA introduced a very major amendment (and, thus, a major change in the rules) for taxpayers which render services or lease out properties.

In the effort to “simplify” the VAT regime, EOPTA now requires VAT on sale of services and use or lease of properties to be paid based on “gross sales” instead of gross receipts.  The legislators appear to believe that this move, which applied the existing rule with respect to sale of goods to the sale of services and the lease of properties, makes it “easy” for taxpayers.

For VAT on the sale of services or use or lease of properties, the VAT shall then now be based on “invoice”, and no longer the official receipts.

For this purpose, “gross sales” is defined as the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services for another person, which the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter, or exchange of services that has already been rendered by the seller and the use or lease of properties that have already been supplied by the seller. This amount will exclude VAT and those amounts earmarked for payment to third parties or received as reimbursement for payment on behalf of another. 

The foregoing shows that service providers and lessors of properties are now required to advance the VAT even before they are paid by or able to collect from their customers and even on accounts that may later on be declared as bad debts. 

For small and medium taxpayers, this is a very significant amendment which will affect their cash flows.  The same is true with lessors of properties.  It should be borne in mind that many of the property lessors got hit financially from the pandemic due to their lessees’ difficulties to pay rent, which difficulties may still exist up to today as the country continues to try and recover from the effects of the pandemic.

In an effort to address bad debts, EOPTA provides that a seller of goods or services may deduct the output VAT pertaining to uncollected receivables from its output VAT on the next quarter, after the lapse of the agreed upon period to pay, subject to the following conditions:

  •  The seller has fully paid the VAT on the transaction; and
  •  The VAT component of the uncollected receivables has not been claimed as allowable deduction under Section 34(e) of the Tax Code.

In case of recovery of uncollected receivables, the output VAT pertaining thereto shall be added to the output VAT of the taxpayer during the period of recovery.

The foregoing, however, assumes that a taxpayer has the means and method to record and recognize the “accrual” of their sales transactions, their collections and bad debts.  So if the taxpayer’s accounting is on a cash basis (as most of our small and medium taxpayers are), they are now required to track their sales and services revenues using the accrual method of accounting.  Thus, aside from being a hit on their cash flow, since they will now be advancing VAT on amounts uncollected, these taxpayers are now required to keep a record using the accrual method of accounting.  This will of course add to the operating costs of these taxpayers.

Originally, the proposal under the EOPTA is to base VAT on “gross receipts” for BOTH seller of goods and services.  The rules then were different for the sellers of goods which were (and continues to be) subjected to VAT based on “sales” (as documented by sales invoices), while sellers of services were subjected to VAT based on gross receipts (as documented by official receipts).  However, the Department of Finance opposed the proposal to make all taxpayers subject to VAT based on “gross receipts”, claiming that such an amendment will prejudice the cash flow of the government.  Thus, the proposal was changed to make BOTH seller of goods and services liable for VAT based on “sales” instead, and such proposal was carried under the EOPTA.

However, as discussed above, these new rules or amendments do not make it easy for sellers of services or lessors of properties.  It thus appears that these amendments introduced by the EOPTA make it easy for the government to collect VAT, but definitely, they do not make it easy to for taxpayers in the service and leasing industry, and especially those which are small- and medium-sized taxpayers which use the cash basis method in their accounting and reporting.

Euney Marie J. Mata-Perez is a CPA-Lawyer and the Managing Partner of Mata-Perez, Tamayo & Francisco (MTF Counsel).  She is a corporate, M&A and tax lawyer and has been ranked as one of the top 100 lawyers of the Philippines by Asia Business Law Journal and is the incoming Chair of the Tax Committee of the Management Association of the Philippines. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at or visit MTF website at

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