(Philippine legal context; practical, doctrinal, and compliance-focused discussion)

1) The core idea: “tax-exempt church” ≠ “VAT-exempt buyer”

In Philippine law, a church (or religious organization) may be exempt from certain direct taxes (most commonly income tax) and may enjoy constitutional real property tax protection for property used actually, directly, and exclusively for religious purposes. That status does not automatically make the church’s purchases VAT-exempt.

VAT is designed as an indirect tax: the legal incidence falls on the seller (who remits VAT), while the economic burden is passed to the buyer through the price. Because of this structure, exemption from a direct tax (like income tax) does not usually translate into exemption from VAT passed on by suppliers, unless a specific VAT exemption or zero-rating rule applies.

Practical takeaway: Most of the time, VAT charged on a church’s local purchases is legally proper, even if the church is “tax-exempt” for income tax purposes.

2) Legal foundations that people often mix up

A. Constitutional tax exemption for churches (Art. VI, Sec. 28(3))

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

Key points:

This protection is classically applied to property taxation (e.g., real property tax) and similar exactions on the property itself.
It is usage-based (“actually, directly, exclusively”).
It is not a blanket exemption from all national internal revenue taxes, and it is not automatically a VAT buyer exemption.

B. Statutory income tax exemption (National Internal Revenue Code, Sec. 30)

Many religious organizations qualify as non-stock, non-profit entities under Section 30 (commonly cited: “religious” organizations), which can mean exemption from income tax on certain income, subject to conditions and the “non-profit / no inurement” rules.

Key point:

Income tax exemption is different from VAT. A Section 30 entity can still be involved in transactions that are VATable depending on the activity.

3) How VAT works in a way that matters to churches

A. VAT attaches to the transaction, not to the buyer’s holiness (or tax status)

Under the VAT system:

A VAT-registered seller charges output VAT on VATable sales.
The seller may credit input VAT (VAT on its purchases) against output VAT.
The buyer who is not VAT-registered generally just bears the VAT as part of cost.

So the critical questions are usually:

Is the seller VAT-registered?
Is the sale VATable, VAT-exempt, or zero-rated under the NIRC and regulations?
Is there a special law granting exemption/zero-rating to this transaction?

B. VAT-exempt vs zero-rated (crucial distinction)

VAT-exempt sale: no output VAT is charged; the seller typically cannot credit related input VAT (it becomes part of cost).
Zero-rated sale: output VAT is 0%, but the seller may claim refund/credit of related input VAT, subject to rules.

Churches generally do not get zero-rating simply because they are churches.

4) The default rule for churches’ local purchases: VAT applies

A. Ordinary purchases of goods/services

If a church buys construction materials, office supplies, sound systems, vehicles, aircon units, professional services, hotel/catering, repairs, and similar items from VAT-registered suppliers, VAT is ordinarily due (unless the transaction is VAT-exempt by nature).

Even if the church is income-tax exempt, suppliers typically must charge VAT on VATable sales.

B. Why “we are tax-exempt” letters usually don’t work for VAT

Suppliers are liable for VAT if they incorrectly treat a VATable sale as exempt. Unless the church can point to a specific VAT exemption/zero-rating legal basis applicable to that sale, suppliers usually cannot safely remove VAT.

5) When a church’s purchase may end up with no VAT (legally)

This happens not because the buyer is a church, but because the transaction itself is VAT-exempt or the seller is not required to charge VAT.

Common situations:

A. Buying from a non-VAT seller

If the supplier is not VAT-registered (e.g., below the VAT threshold and not voluntarily registered), they will not charge VAT—though they may be subject to percentage tax or other taxes depending on classification.

B. Buying items/services that are VAT-exempt by law

The NIRC lists VAT-exempt transactions (Section 109 and related rules). If the church buys goods or services that fall under those categories, VAT may not apply—regardless of who the buyer is.

Examples that may be relevant depending on facts:

Certain educational services (if the provider qualifies).
Certain sales of books/newspapers (subject to statutory definitions and updates).
Certain agricultural/food items in original state (depending on the item and statutory treatment).
Certain lease arrangements may be exempt depending on thresholds and classification.

(Exact coverage is technical and frequently amended; treatment depends on the precise item/service and the supplier’s status.)

C. Purchases tied to a special-law exemption

Some entities/transactions enjoy VAT exemption or zero-rating under special laws (commonly seen with certain government projects, PEZA/BOI regimes, international organizations, and treaty-based privileges). A church could benefit only if it is expressly covered by a special law or a project arrangement that lawfully confers VAT treatment.

6) Importations by churches: “duty-free” is not the same as “VAT-free”

Importations are generally subject to VAT on importation (and customs duties), unless exempt.

Churches sometimes assume:

“We are a religious institution” → “our importations should be tax-free.”

In practice:

Customs duty exemptions and VAT exemptions on importation require specific legal authority (e.g., the CMTA provisions, special laws, or specific exemptions granted by law).
Donations of goods for charitable/religious use can have special handling in some contexts, but it is not automatic and is heavily documentation-driven.

If a church is planning significant importations, it usually turns into a customs + VAT classification and exemption exercise requiring:

correct consignee/entity status,
proof of intended use,
and compliance with documentation and permitting requirements.

7) Churches that earn income: when VAT can become the church’s own compliance issue

A church may be tax-exempt as an organization yet still engage in activities that trigger VAT obligations if they rise to the level of “trade or business” and exceed thresholds or otherwise require registration.

Potentially VAT-relevant activities (fact-dependent):

Operating a bookstore/canteen open to the public
Selling goods regularly for consideration
Leasing out property not meeting VAT-exempt lease criteria
Running events/services with fees in a commercial manner

Two distinct questions arise:

Income tax exemption (Section 30) — whether income is exempt, whether any is subject to tax, and whether there is inurement.
VAT exposure — whether the activity constitutes a VATable sale of goods/services/lease and whether the church must register.

If the church becomes VAT-registered, then:

VAT it pays on purchases may become input VAT creditable against output VAT (subject to substantiation and allocation rules),
but it also assumes VAT invoicing, filing, and audit responsibilities.

8) “Can the church get a refund of VAT paid on purchases?”

A. Usually, no direct refund right for the buyer

Under the VAT mechanism, refunds/credits are generally structured around the VAT-registered taxpayer’s (seller’s) input VAT, especially in zero-rated contexts. A non-VAT buyer (like a typical church) usually does not have a statutory VAT refund mechanism just because it paid VAT embedded in the purchase price.

B. What if VAT was charged erroneously?

If a seller charged VAT on a sale that is legally VAT-exempt, the practical remedy is usually:

the seller issues a credit memo/adjustment, and
the seller corrects its VAT reporting (subject to rules).

The church typically needs:

correct invoices/receipts,
proof that the sale should have been VAT-exempt,
and cooperation from the supplier.

9) Documentation and audit realities (what churches should keep)

Even when not VAT-registered, churches benefit from strong substantiation because tax audits and LGU reviews can examine the nature of activities and property use.

Recommended records:

BIR registration documents and proof of non-stock, non-profit character (SEC/other incorporator documents, by-laws, list of trustees, etc.)
Proof that funds are used for religious purposes; policies showing no inurement to individuals
Contracts/invoices/ORs for major purchases and projects (especially construction)
Segregation of activities (religious vs commercial), if any
For property tax exemption claims: evidence of actual, direct, exclusive religious use (occupancy, photos, floor plans, usage schedules, permits)

This matters because disputes often pivot on:

whether the entity is operating partly as a commercial enterprise,
whether property is partly used for profit,
and whether exemptions are properly claimed.

10) Common misconceptions (and the legally safer framing)

Misconception 1: “The Constitution exempts churches from all taxes, including VAT.”

Safer framing: The Constitution strongly protects property used actually, directly, exclusively for religious purposes (often applied to property tax). VAT is a transaction tax governed mainly by statute; church status alone doesn’t usually remove VAT on purchases.

Misconception 2: “Our BIR Certificate of Tax Exemption means suppliers shouldn’t charge VAT.”

Safer framing: That certificate (where applicable) is typically about income tax treatment. Suppliers charge VAT based on whether the sale is VATable and whether the supplier is VAT-registered, unless a specific VAT exemption/zero-rating rule applies to that transaction.

Misconception 3: “If we’re exempt, we can demand VAT refunds.”

Safer framing: VAT refunds are generally tied to VAT-registered taxpayers and zero-rated transactions; a non-VAT buyer usually cannot claim a statutory refund merely for being tax-exempt.

11) Practical compliance guidance (non-advice checklist)

If a church wants to know whether VAT should be charged on a specific purchase, the clean sequence is:

Identify the supplier’s VAT status (VAT-registered or not).
Classify the transaction (goods/services/lease/importation).
Check whether the item/service is VAT-exempt by nature under the NIRC and current regulations.
Check for any special-law exemption that clearly covers the transaction.
If claiming VAT-exempt treatment, document the legal basis and keep it with procurement records.
If VAT was charged but should not have been, coordinate with supplier for proper adjustment documentation.

12) Bottom line

Church tax exemption in the Philippines is real, but compartmentalized.
The strongest, clearest constitutional protection is typically in property taxation for property used actually, directly, and exclusively for religious purposes.
VAT on churches’ purchases is generally payable unless the transaction itself is VAT-exempt/zero-rated under statute or a specific special law applies.
A church usually cannot “use its tax-exempt status” to erase VAT on ordinary local purchases, and it usually cannot claim a VAT refund as a non-VAT buyer.

If you want, I can also provide (1) sample procurement wording churches use with suppliers to avoid incorrect VAT treatment, and (2) a scenario-based matrix (construction, rent, bookstore, donations in kind, importations) mapping the typical VAT outcome per scenario.