A Philippine hotel that adds a 10% service charge has a question to settle: does the 12% VAT cover the service charge too? Most of the guidance says yes, which makes it 23.2% rather than 22%.
How it is worked out
- Service charge is 10% of the room rate.
- VAT is 12% of the room rate plus the service charge.
A worked example
| Room rate | PHP 5,000.00 |
|---|---|
| Service charge 10% on 5,000.00 | PHP 500.00 |
| VAT 12% on 5,500.00 | PHP 660.00 |
| Total | PHP 6,160.00 |
What to watch for
- Commentary citing Revenue Regulations 16-2005 and BIR rulings treats the whole service charge as part of the VAT base, even though most of it then goes to staff.
- At least one commentary, citing the older RMC 29-70, leaves a service charge fully paid out to staff outside VAT. Ask your accountant which applies to you, and untick the box in the calculator to see the other result.
- Republic Act 11360 sets how the service charge is shared with staff. Properties that are not VAT-registered don't add VAT.
Doing this in Zitlin
Add a tax under Settings with Service Charge first and VAT second. Tick the box that charges VAT on the price plus the components above if that is how your accountant treats it, and leave it unticked if not.
Frequently asked questions
Is VAT charged on a hotel service charge in the Philippines?
Most guidance says yes. Commentary citing Revenue Regulations 16-2005 and BIR rulings puts it in the VAT base, so PHP 5,000 plus 10% service comes to PHP 6,160. At least one commentary citing the older RMC 29-70 disagrees when the charge is fully paid out to staff, so confirm with your accountant.
Can Zitlin do it either way?
Yes. It is one tick on the tax: on top of the service charge, or on the price alone. Invoicing is on the free plan.
Sources
- Respicio: VAT on hotel service charges
- Respicio: hotel service charge VAT and EWT
- Respicio: computing tax on service charges (the other view)
Checked November 2026. This is a guide rather than tax advice, and rates change. Confirm yours with the Bureau of Internal Revenue or your accountant.