1) The misconception: “Churches are tax-exempt, so they don’t pay VAT”

In the Philippines, churches and religious organizations do enjoy important tax exemptions—but those exemptions do not automatically remove VAT from their purchases. The confusion usually comes from mixing up:

the Constitution’s exemption (primarily property-focused), and
the VAT system (a transaction tax imposed on sales/importations, not a status-based “buyer exemption” unless a law specifically says so).

The practical result: a church’s ordinary purchases are generally subject to VAT whenever the seller’s sale is VAT-taxable.

2) What “church tax exemption” really covers (and what it doesn’t)

A. Constitutional exemption: Article VI, Section 28(3)

The Constitution provides that charitable institutions, churches, and certain related properties (e.g., parsonages or convents appurtenant thereto, mosques, non-profit cemeteries) and all lands, buildings, and improvements actually, directly, and exclusively used for religious/charitable/educational purposes shall be exempt from taxation.

Key points:

This is most strongly applied in practice to property-type taxes, especially real property tax (RPT) imposed by local governments.
The exemption is use-based: “actually, directly, and exclusively used.”
- If a portion is leased to commercial tenants or used for profit-oriented activities, that portion can become taxable under the well-known “use” doctrine applied in property-tax cases.

What it does NOT automatically cover:

VAT on purchases
Income tax on income from activities not within the exempt purpose or otherwise taxable
Donor’s tax (as clarified in jurisprudence involving gifts to religious entities)
Documentary stamp tax (DST) and other excise-type or transactional taxes unless a specific law exempts them

In short: the Constitution’s church-related exemption is powerful, but it is not a blanket exemption from all national and local taxes.

B. Statutory exemptions (National Internal Revenue Code / NIRC): entity vs. activity

Many religious organizations are organized as non-stock, non-profit corporations (or sometimes a corporation sole). Under the NIRC, certain non-stock, non-profit entities organized and operated exclusively for religious/charitable/educational purposes can be income tax-exempt under specific conditions.

But two recurring limitations matter:

Tax exemption is construed strictly.
Income from unrelated activities (e.g., rentals, commercial operations) can become taxable, even if the organization is generally tax-exempt.

This “activity-based” approach is also crucial for VAT.

3) VAT basics (Philippine context): why the buyer’s status usually doesn’t matter

A. What VAT is

VAT is a 12% indirect tax imposed on:

the sale, barter, exchange of goods or properties,
the sale of services and the use/lease of properties, and
importation of goods.

It is generally borne economically by the buyer (because it is passed on in the price), but legally imposed on the seller (and on the importer for import VAT).

B. VAT is transaction-based

VAT liability generally depends on:

the nature of the sale/importation (taxable, exempt, or zero-rated), and
whether the seller is VAT-registered or required to be VAT-registered.

There is no general rule that says: “Sales to churches are VAT-exempt.”

That’s why the central question—Are church purchases exempt from VAT?—is answered by looking at the transaction and the seller, not merely the fact that the buyer is a church.

4) So, are purchases by churches exempt from VAT?

General rule: No

A church’s purchases are not automatically VAT-exempt. If a VAT-registered supplier sells taxable goods/services, the supplier must generally bill VAT, and the church will typically pay VAT as part of the price.

Why: VAT is not the same tax the Constitution targets

The constitutional exemption is most directly associated with taxation of church property used for religious purposes. VAT is a consumption/transaction tax. Courts have historically distinguished between:

taxes on property (where the constitutional church exemption is commonly applied), and
excise/privilege/transaction taxes (where exemptions are not presumed and must be clearly granted).

Exceptions: when a church purchase ends up with no VAT

Even though there’s no blanket “church buyer” VAT exemption, a church may still encounter purchases without VAT in these situations:

The item/service is VAT-exempt by law If the sale is VAT-exempt, it is exempt regardless of who the buyer is. Examples (illustrative, not exhaustive):
- certain basic agricultural food products in original state,
- certain educational services (by qualified institutions),
- certain health/medical services (depending on provider and statutory rules),
- other VAT-exempt transactions listed in the NIRC.
In these cases, the church doesn’t pay VAT—but not because it is a church. It’s because the sale itself is exempt.
The supplier is not VAT-registered (and not required to be) If the seller’s gross sales/receipts are below the VAT threshold (commonly associated with the ₱3,000,000 threshold under the TRAIN-era framework, subject to legislative change), the seller may be a non-VAT taxpayer (often subject to percentage tax unless otherwise exempt). The invoice will not show VAT—again because of the seller’s VAT status, not the buyer’s religious character.
The transaction is zero-rated (rare in typical church procurement) Zero-rating is still VAT, but at 0%, usually tied to exports or specific transactions (and requires strict compliance). Ordinary domestic purchases by churches are generally not zero-rated just because they are churches.
A special law grants an exemption (narrow and fact-specific) A church might benefit from VAT relief only if there is a specific statute or recognized legal mechanism covering a particular importation, donation, or project. These situations are exceptional, compliance-heavy, and not assumed.

5) Common church purchases: what normally happens

A. Construction, repairs, and renovation of church buildings

Contractors and suppliers that are VAT-registered typically charge VAT on construction services and materials (unless a specific VAT exemption applies to the transaction—which is uncommon for ordinary church construction).
The fact that the building will be used for worship does not automatically convert contractor billings into VAT-exempt sales.

B. Office supplies, sound systems, vehicles, fuel, furniture, IT equipment

Usually VATable when bought from VAT-registered sellers.

C. Utilities and services (electricity, internet, security, janitorial, professional fees)

Usually VATable when provided by VAT-registered entities and not otherwise exempt.

D. Importation of goods (e.g., donated equipment from abroad)

Importations are generally subject to import VAT.
Relief may exist only if the importation qualifies under a specific exemption framework or special law and is properly documented and approved through the required government processes.

6) Can a church recover VAT (input tax) or treat it differently?

A. If the church is NOT VAT-registered (common for purely religious operations)

VAT passed on to the church becomes part of cost/expense.
The church generally cannot claim input VAT credits or VAT refunds.

B. If the church IS VAT-registered (because it conducts VATable activities)

A church (or a church-run entity) may register or be required to register for VAT if it is engaged in trade or business with taxable sales above the threshold—examples that can trigger VAT issues:

leasing out commercial spaces,
operating a bookstore or sales outlet,
running events with fees in a business-like manner,
operating facilities that are not purely religious in character.

If VAT-registered:

The entity charges output VAT on VATable sales.
It may claim input VAT on VATable purchases to the extent attributable to taxable activities.
If it has both VATable and VAT-exempt activities, it must apply input VAT allocation/apportionment rules; input VAT attributable to exempt activities is typically not creditable.

C. Important: “tax-exempt” does not mean “VAT-exempt”

Even if a religious organization is recognized as income tax-exempt, that does not automatically exempt it from:

VAT obligations on its own VATable sales, or
VAT passed on by suppliers on its purchases.

VAT and income tax operate on different legal bases.

7) What about asking suppliers to issue a “VAT-exempt” invoice to the church?

This is a high-risk misconception.

If the sale is VATable and the supplier is VAT-registered, the supplier is generally required to bill VAT properly.
A “VAT-exempt” invoice without legal basis can expose the supplier (and sometimes the buyer, depending on facts) to:
- VAT deficiencies,
- surcharges and interest,
- penalties for invoicing/receipt violations.

The correct approach is to determine whether the transaction is VAT-exempt under the NIRC or other applicable law—not whether the buyer is a church.

8) Related taxes that churches still commonly encounter (brief but important)

Even when a church enjoys certain exemptions, it may still face other taxes and compliance duties:

A. Withholding taxes

Churches that pay:

salaries/wages,
professional fees (e.g., lawyers, accountants, speakers),
rentals,
contractor payments, may have withholding tax obligations as payors, even if the church is tax-exempt.

B. Documentary Stamp Tax (DST)

Transactions involving documents (e.g., deeds of sale, leases, loan instruments, donations in certain forms) may trigger DST unless exempted by specific law.

C. Donor’s tax

Donations to religious organizations are not automatically donor’s-tax-exempt solely by constitutional church tax exemption; donor’s tax is a distinct tax on the transfer/donation and depends on statutory exemptions and the nature of the donee and compliance.

D. Local taxes and fees

Even if RPT exemption applies to property used actually, directly, and exclusively for religious purposes, other local fees (permits, regulatory fees) can still arise, and commercial use can change the tax picture.

9) Practical framework: how to answer “Is this church purchase VAT-exempt?”

Use this checklist:

Is the supplier VAT-registered (or required to be)?
- If yes, assume VAT applies unless the sale is specifically exempt/zero-rated.
Is the good/service a VAT-exempt transaction under the NIRC (or a special law)?
- If yes, no VAT—regardless of buyer.
Is there a specific exemption instrument applicable to this exact importation or transaction (rare)?
- If yes, confirm scope and strict documentation requirements.
Is the church itself VAT-registered because it conducts taxable business activities?
- If yes, input VAT may be creditable only to the extent tied to taxable activities.

10) Bottom line

Churches in the Philippines are not generally exempt from VAT on their purchases. VAT is imposed on taxable sales and importations, and the buyer’s status as a church does not by itself remove VAT. A church will avoid VAT on procurement only when the sale/importation is VAT-exempt or the seller is non-VAT, or when a specific and properly applicable legal exemption exists.