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03.3 VAT Input Taxes - Lecture notes 3
Accountancy (Central Philippine University)
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TAXATION
FAR EASTERN UNIVERSITY – MANILA
VAT-INPUT TAXES (303)
A. Input Tax Defined
1. Meaning of input tax
Input tax is the value- added tax due from or paid by a VAT registered person in the course of his trade or business on importation of
goods or local purchase of goods, properties or services, including lease or use of properties from a VAT registered person. It shall also
include the transitional input tax and the presumptive input tax
2. Four categories of creditable or deductible input taxes
a. VAT paid on local purchases (passed on by seller) or on importation (passed on VAT)
b. Presumptive input tax
c. Transitional input tax
d. Standard input tax
3. Persons who can avail of input tax credit
The input tax credit on importation of goods or local purchases of goods, properties or services by a VAT registered person shall be
creditable:
a. To the importer upon payment of VAT prior to the release of goods from custom custody
b. To the purchaser of the domestic goods or properties upon consummation of the sale or
c. To the purchaser of services or the lease or licensee upon payment of the compensation, rental or royalty or fee
B. Presumptive Input Tax
1.Persons or firms allowed
presumptive input tax
Persons or firms engaged in processing of:
1. Sardines
2. Mackerel
3. Milk
Persons or firms engaged in manufacturing of:
1. Refined sugar
2. Cooking oil
3. Packed noodle based instant meals
2. Basis of presumptive
input tax
Gross value in money of purchases of primary agricultural products which are used as input to their
production
3. Rate of presumptive input
tax
4%
4. The term processing
means
1. Pasteurization,
2. canning,
3. activities which through physical or chemical process alter the exterior texture or form or inner substance of
a product in such manner as to prepare it for special use to which it could not have been put in its original
form or condition.
C. Transitional Input Tax
1. Situations where transitional input tax may be allowed
a. Taxpayers who became VAT registered persons upon exceeding the minimum turnover of P1,919,500 in any 12 month period
b. Taxpayers who voluntarily register even if their turnover does not exceed P1,919,500 (except franchise grantee of radio and / or
television broadcasting whose threshold is P10,000,000)
2. Basis of transitional input tax
Beginning inventory of goods, materials and supplies (Excluding those that are VAT exempt under Sec. 109)
3. Amount of transitional input tax
2% of the value of the beginning inventory on hand or actual VAT paid on such goods, materials, and supplies whichever is
higher.
The value allowed for income tax purposes on inventories shall be the basis for the computation of the 2% transitional input tax,
excluding goods that are exempt from VAT under sec 109 of the Tax Code.
D. Standard Input Tax
1. Input tax attributable to VAT sales to Government not creditable against output tax on sales to non-government entities
Input taxes that can be directly attributable to VAT taxable sales of goods and services to the Government or any of its political
subdivisions, instrumentalities or agencies including GOCCs shall not be credited against output taxes arising from sales to nongovernment entities.
2. Government required to withhold
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The government or any of its political subdivisions, instrumentalities or agencies, including GOCCs shall deduct and withhold a
final VAT due at the rate of five percent (5%) of the gross payment.
3. Final withholding VAT represents the net VAT payable of the seller
The five percent (5%) final withholding VAT rate shall represent the net VAT payable of the seller
The certificate or statement to be issued is the certificate of final tax withheld at source (BIR Form No. 2306), a copy of which is
to be issued to the payee.
4. Difference between the VAT rate and the withholding VAT rate accounts for the standard input tax
The remaining seven percent (7%) effectively accounts for the standard input VAT for sales of goods or services to government or
any of its political subdivisions, instrumentalities or agencies including GOCC’s in lieu of the actual input VAT directly attributable
or ratably apportioned to such sales.
If the actual input VAT attributable to sale to the government exceeds 7% of the gross payment, the excess may form part of the
seller’s expense or cost
If the actual input VAT attributable to sale to the government is less than 7% of the gross payment, the difference must be closed to
expense or cost.
Standard input tax > Actual input tax; the difference is credit entry expense or cost.
Standard input tax < Actual input tax; the difference is debit entry expense or cost.
E. Determination of Allowable Input Taxes
1. Determination of creditable input tax
Input tax carried over from previous period
Input tax deferred on capital goods exceeding P1,000,000 from previous quarter
Transitional input tax
Presumptive input tax
Others
Total
Input taxes on current transactions
Total available input taxes
Less: Deductions from input taxes
Total Allowable input taxes
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
(xxx)
xxx
.
2. Deductions from input taxes
a. Input tax claimed as tax credit certificate or refund
b. Input tax attributed to VAT-exempt sales
c. Input tax attributed to sales to Government
F. Sources of Creditable Input Taxes (Local Purchases or Importation)
Passed on VAT
1. Input tax evidenced by a VAT invoice or official receipts issued by a VAT registered person
a. Purchases or importation of goods:
1) For sale or
2) For conversion into or intended to form part of a finished product for sale, including packaging materials or
3) For use as supplies in the course of trade or business
4) For use as raw materials supplied in the sale of services.
5) For use in trade or business for which deduction for depreciation or amortization is allowed
b.
c.
d.
e.
f.
g.
Purchase of real properties for which a VAT has actually been paid
Purchase of services in which a VAT has actually been paid
Transaction deemed sales
Presumptive input tax
Transitional input tax
Transitional input tax credits allowed under the transitory and other provisions of RR 16-2005
2. VAT registered person is also engaged in transaction not subject to VAT
A VAT registered person who is also engaged in transactions not subject to VAT shall be allowed to recognize input tax credit on
transactions subject to VAT as follows:
a. Total input taxes that can be directly attributed to transactions subject to VAT may be recognized for input tax credit;
Provided, that input taxes that can be directly attributable to VAT taxable sales of goods and services to the Government or
any of its political subdivisions, instrumentalities or agencies including GOCCs shall not be credited against output taxes
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arising from sales to non-government entities and
b If any input tax cannot be directly attributed to either a VAT taxable or VAT exempt transaction,
the input tax shall be pro-rated to the VAT taxable and VAT exempt transactions and only the ratable portion pertaining to
transactions subject to VAT may be recognized for input tax credited computed as follows:
VAT Sales
Total Sales
x Input taxes
G. Claimed for Input Tax on Depreciable Goods (Under RR 16-2005)
1. Where a VAT registered person purchases or imports capital goods, which are depreciable assets for income tax purposes, the
aggregate acquisition of which (exclusive of VAT) in a calendar months exceeds P1,000,000, regardless of the acquisition cost of
each capital good.
a. If the estimated useful life is 5 years or more - input tax shall be spread evenly over a period of 60 months and the claim for
input tax credit shall commence in the calendar month when the capital good is acquired.
b. If the estimated useful life is less than 5 years - input tax shall be spread evenly on a monthly basis by dividing the input tax by
the actual number of months comprising the estimated useful life. The claim of input tax shall commence in the calendar month
the capital good is acquired. Provided, further, that the amortization of the input VAT shall only be allowed until December
31, 2021 after which taxpayers with unutilized input VAT on capital goods purchased or imported shall be allowed to
apply the same as scheduled until fully utilized. Provided, finally, That in the case of purchase of services, lease or use of
properties, the input tax shall be creditable to the purchaser, lessee or licensee upon payment of the compensation, rental, royalty
or fee.
2. Where the aggregate acquisition cost (excluding of VAT) of the existing of finished depreciable capital goods purchased or imported
during any calendar month does not exceed P1,000,000.
The total amount of input taxes will be allowable as credit against output tax in the month of acquisition.
Rules on recognition of Input VAT for Capital Goods
Aggregate Acquisition for the month >P1,000,000 exclusive of VAT:
Life > 1 year
Input Tax shall be spread evenly over such useful life but not to exceed 60 months
Life < 1 year
Not a capital asset. Input tax is not allocated
Aggregate Acquisition Cost for the month <P1,000,000 exclusive of VAT (regardless of useful life). The related input
VAT is not allocated. Consequently, the total amount of input VAT shall be treated as tax credit against output VAT in the
month of acquisition.
.
3. Meaning of aggregate acquisition cost
The aggregate acquisition cost of a depreciable asset in any calendar month refers to the total price, excluding the VAT, agreed upon
for one or more asset acquired and not on the payments actually made during the calendar month. An asset acquired in installment for
an acquisition cost of more than P1,000,000, excluding the VAT, will be subject to the amortization of input tax despite the fact that
the monthly payments or installment may not exceed P1,000,000.
4. Sale or transfer of depreciable good within a period of 5 years or prior to the exhaustion of the amortizable input tax
If the depreciable capital good is sold or transferred within a period of 5 years or prior to the exhaustion of the amortizable input tax
thereon, the entire unamortized input tax on the capital goods sold or transferred can be claimed as input tax credit during the month
or quarter when sale or transfer was made.
5. Meaning of capital goods or properties.
Capital goods or properties refers to goods or properties with estimated useful life greater than one (1) year and which are treated as
depreciable assets under the Tax Code, used directly or indirectly in the production or sale of taxable goods or services.
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6. Meaning of construction in progress
Construction in progress (CIP) is the cost of construction work which is not yet completed. CIP is not depreciated until the asset is
placed in service. Normally, upon completion, a CIP is reclassified and the reclassified asset is capitalized and depreciated.
Input tax on construction in progress
a) CIP is considered, for purposes of claiming input tax, as a purchase of service, the value of which shall be determined based on
the progress billings.
b) Until such time the construction has been completed, it will not qualify as capital goods as defined, in which case, input tax credit
on such transaction can be recognized in the month the payment was made; provided, that an official receipt of payment has been
issued based on the progress billings.
7 Contract for the sale of service where only the labor will be supplied
In case of contract for the sale of service where only the labor will be supplied by the contractor and materials will be purchased by
the contractee from other suppliers, input tax credit on the labor contracted shall still be recognized on the month the payment was
made based on the progress billings while the input tax on the purchase materials shall be recognized at the time the materials were
purchased.
8. Input tax claimed while the construction is in progress
Once the input tax has already been claimed while the construction is in progress, no additional input tax can be claimed upon
completion of the asset when it has been reclassified as a depreciable capital asset and depreciated.
H. Deductibility of Depreciation Expenses as it Relates to Purchase of Vehicles and Other Expenses
Related Thereto, and Taxes Allowed (RR 12-2012)
1. If the depreciable cost exceed P2,400,000:
a. No input tax
b. No depreciation expense
c. No maintenance expense
The following guidelines shall be observed in determining whether depreciation expense can be claimed or not on account of Vehicles
capitalized by the taxpayer, or in claiming other expenses and input taxes on account of said Vehicle:
No deduction from gross income for depreciation shall be allowed unless the taxpayer substantiates the purchase with sufficient
evidence, such as official receipts or other adequate records which contain the following, among others:
a Specific motor vehicle identification Number, Chassis Number, or other registrable identification numbers of the vehicle.
b. The total price of the specific Vehicle subject to depreciation; and
c. The direct connection or relation of the Vehicle to the development, management operation, and/or conduct of the trade or
business or profession of the taxpayer.
2. Only one vehicle for land transport is allowed for use of an official or employee, the value of which should not exceed Two Million
Four Hundred Thousand Pesos (P2,400,000);
3. No depreciation shall be allowed for yachts, helicopters, airplanes and/or aircrafts, and land vehicles which exceed the above
threshold amount, unless the taxpayer’s main line of business is transport operations or lease of transportation equipment and
vehicles purchased are used in said operations;
4. All maintenance expenses on account of non-depreciable vehicles for taxation purposes are disallowed in its entirely;
5. The input taxes on the purchase of non-depreciable Vehicles and all input taxes on maintenance expenses incurred thereon are
likewise disallowed for taxation purposes.
I. Advance Payment of VAT
1. Transactions requiring advance payment of VAT
1) Sale of refined sugar
2) Sale of flour
3) Transport of Naturally Grown and Planted Timber Products (RR No. 13-2007)
4) Sale of jewelry, gold and other metallic minerals (RR No. 5-2013)
2. Advance payment of VAT allowed as tax credit against output tax
The advance payments made by the seller/owner of refined sugar, importer or miller of wheat/flour and sellers/ owners of naturally
grown and planted timber products shall be allowed as credit against their output tax on the actual gross selling price of refined
sugar/flour/timber products.
3. Advance payments may be available for issuance of tax credit certificate (TCC)
a) Advance payments which remain unutilized at the end of the taxpayer’s taxable year where the advance payment was made, which
is tantamount to excess payment, may, at the option of the owner/seller/taxpayer or importer/miller/taxpayer, be available for the
issuance of TCC upon application duly filed with the BIR by the seller/owner or importer/miller within two (2) years from the date
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of filing of the 4th quarter VAT return of the year such advance payments were made, or if filed out of time, from the last day
prescribed by law for filing the return.
b) Advance VAT payments which have been the subject of an application for the issuance of TCC shall not be allowed as carry-over
nor credited against the output tax of the succeeding quarter/year.
c) Issuance of TCC shall be limited to the unutilized advance VAT payment and shall not include excess input tax.
d) Issuance of TCC for input tax attributable to zero-rated sales shall be covered by a separate
application for TCC following the applicable rules.
J. Withholding VAT
Transactions
Withholding Agent
Withholding VAT Rate
1. Purchase of goods by
Government, political
subdivisions, etc.
Government or any of its political subdivisions,
instrumentalities or agencies, including government
owned or controlled corporations (GOCCs)
5% of gross payment made (final)
2. Purchase of services by
Government, political
subdivisions, etc.
Government or any of its political subdivisions,
instrumentalities or agencies, including government
owned or controlled corporations (GOCCs)
5% of gross payment made (final)
3. Payments for services
rendered in the Philippines
by a non-resident
Government or any of its political subdivisions,
instrumentalities or agencies, including government
owned or controlled corporations (GOCCs)
12% on payments (final)
Private corporations, individuals, estate and trusts,
whether large or non-large taxpayers
4. Purchases of goods or
services in the course of
trade or business (payeeseller has more than one
payor-buyer)
Payor-purchaser in the course of trade of business
5. Purchases of goods or
services in the course of
trade or business (payeeseller has only one payorbuyer for the whole year)
Payor-purchaser in the course of trade of business
12% of payee’s gross sales or receipts
Payee-seller shall execute:
1. Waiver of the privilege to Claim input tax
credit and
2. Notice of availment of the option to pay the
tax through the withholding process
12% of payee’s gross sales or receipts
Payee-seller shall execute waiver and notice of
availment as in above
Withholding of Value-added Tax. – The Government or any of its political subdivisions, instrumentalities or agencies, including government-owned
or -controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods and services which are subject to the valueadded tax imposed in Sections 106 and 108 of this Code, deduct and withhold the value-added tax imposed in Sections 106 and 108 of this Code,
deduct and withhold a final value-added tax at the rate of five percent (5%) of the gross payment thereof: Provided, That beginning January 1,
2021, the VAT witholding system under this Subsection shall shift from final to a creditable system: Provided, further, That the payment for lease or
use of properties or property rights to nonresident owners shall be subject to twelve percent (12%) withholding tax at the time of payment: Provided,
finally, That payments for purchases of goods and services arising from projects funded by Official Development Assistance (ODA) as defined under
Republic Act No. 8182, otherwise known as the ‘Official Development Assistance Act of 1996’, as amended, shall not be subject to the final
withholding tax system as imposed in this Subsection. For purpose.es of this Section, the payor or person in control of the payment shall be
considered as the withholding agent
K. Remittance of withholding VAT
Remittance of withholding VAT
The VAT withheld shall be remitted within 10 days following the end of the month the withholding was made
Notes: The TRAIN Law has changed the filing frequency of FWT and EWT returns from monthly to quarterly basis. The deadline is now on the
last day of the month following the close of the quarter during which the withholding was made. For example, for the first quarter (i.e. January to
March), the filing deadline would fall on the 30th of April.
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L. Refund of Input Tax
a. Input Tax on Zero-Rated Sales of Goods or Property, Etc
A VAT registered person whose sales of goods, properties or services are zero rated or effectively zero rated may apply for the
issuance of a tax credit certificate or refund of input tax attributable to such sales. The input tax that may be subject of the claim shall
exclude the portion of input tax that has been applied against output tax. The application should be made within 2 years after the
close of the taxable quarter when the sales were made.
b. Unused Input Tax of Person Who Retired or Ceased Business
A VAT registered person whose registration has been cancelled due to retirement or cessation of business, or due to change in or
cessation of status may, within 2 years from the date of cancellation, apply for the issuance of a tax credit certificate for any unused
input tax which he may use in payment of his other internal revenue taxes. He shall be entitled to a refund if he has no internal
revenue tax liabilities.
Rule on Refund or Conversion of Tax Credit Certificate
1. Zero-rated Sales – file application with BIR within 2 years from the end of the taxable quarter.
2. Cancellation of VAT registration- files application with BIR within 2 years from date of cancellation.
.
c. Period of Refund or Tax Credit of Input Tax
Refund or tax credit certificate shall be granted within 90 days from the date of submission of complete documents.
In proper cases, the Commissioner shall grant a refund for creditable input taxes within ninety (90) days from the date of submission of
the official receipts or invoices and other documents in support of the application filed in accordance with Subsections (A) and (B)
hereof: Provided, That should the Commissioner find that the grant of refund is not proper, the Commissioner must state in writing
the legal and factual basis for the denial.
“In case of full or partial denial of the claim for tax refund, the taxpayer affected may, within thirty (30) days from the receipt of the
decision denying the claim, appeal the decision with the Court of Tax Appeals: Provided, however, That failure on the part of any
official, agent, or employee of the BIR to act on the application within the ninety (90)-day period shall be punishable under Section
269 of this Code.
d. Manner of Giving Refunds
Refunds shall be made upon warrants drawn by the Commissioner of Internal Revenue or by his authorized representative without the
necessity of being countersigned by the COA chairman.
END
Exercises A (Adapted)
Instruction: Determine whether the input tax on the following acquisitions during a particular month shall be amortized or credited in full
(indicate the amortization period if input tax is amortized.
Jan 9
Purchase of 1 unit of generator for review school business to avoid interruption of classes,
P500,000, VAT exclusive, estimated life 5 years
Credit
Feb 2
Purchase of 2 copying machines at P240,000 per unit , VAT exclusive, estimated life 3 years and
a sorting machine at P448,000 inclusive of VAT.
Credit
Mar 1
Purchase of 20 units of computer equipment at P20,000 and 1 unit of generator at P500,000. All
prices are VAT exclusive. Estimated life of computers, 3 years; estimated life of generator 5 years. Amortize 36 /60mos.
Mar 3
Purchase of 5 units of steel filing cabinets, P30,000 per unit, exclusive of VAT. Estimated life
10years
Amortize 36./60 mos
Apr 1
Purchase of 1 truck for trucking business use, P2,400,000 .
Amortize 60 mos
May 2
1,000 km. maintenance. Expenses on depreciable vehicle for land transport, P33,600 VAT Credit
inclusive
Jun 5
Purchase of car for business use, P1,000,000 exclusive of VAT.
Credit
Jul 6
1,000 km. maintenance. Expenses on depreciable vehicle for land transport, P11,200 VAT
inclusive.
Credit
Aug 11
Purchase of 1 GMC pickup truck for VP operation use in visiting the factories of the business, Not
P4,000,000 exclusive of VAT.
allowed
Sept 1
1,000 km. maintenance. Expenses on depreciable vehicle for land transport, P44,800 VAT Not
inclusive
allowed
Oct 1
Expenses incurred for the maintenance of depreciable yachts used in the main line of business of
transport operator, P112,000 (VAT inclusive).
Credit
Nov 3
Purchase of 2 buses by a bus operator, at P5,000,000 per bus (VAT exclusive). Estimated life 6 Amortize 60 mos
years
Exercises B
Instruction:Place Y if following person/entity is allowed to claim presumptive input tax otherwise place N.
1
Purchase of tomatoes, onions, garlic, pepper and other agricultural products used as
A. Person who processes
ingredients in processing sardines.
sardines
2
Purchase of fresh sardines to be used in the processing of sardines
3
Purchase of cans and labels from a VAT-registered supplier.
4
Purchase of salt
B. Person who process
1
Purchase of fresh olives.
Y
N
N
N
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canned vegetables and
fruits
C. Manufacturer of cooking
oil
2
3
Purchase of pineapple
Purchase of sugar.
N
N
1
2
3
4
Purchase of copra.
Purchase of pet bottles.
Purchase of labels
Purchase of boxes
Y
N
N
N
Exercise C (Adapted)
Instruction:Place Y if following person/entity is allowed to claim transitional input tax otherwise place N.
1 Sale of goods purchased by a merchandising business engaged in VAT-subject transactions and whose annual gross sales do
not exceed P1,000,000.
2 Services performed by a CPA whose gross annual receipts do not exceed P1,000,000 but voluntarily registers under the VAT
system. Before its registration under the VAT system, materials and supplies used in the services were purchased from a VATregistered supplier.
3 Sale of goods purchased by a merchandising business engaged in VAT-subject transactions. Its annual gross sales do not
exceed the P3,000,000 and did not register under the VAT system.
4 Sale of goods purchased by a merchandising business engaged in VAT-subject transactions. It is gross annual sales exceed the
VAT threshold amount during the year and decides to register under the VAT system. Before its registration under the VAT
system, merchandise sold were purchased from a not VAT-registered supplier.
5 Sale of goods purchased by a merchandising business, VAT-registered and engaged in VAT-subject transactions. Its is gross
annual sales does not exceed the VAT threshold amount during the year.
4 Sale of goods purchased by a merchandising business who is engaged in VAT-subject transactions, his gross annual receipts
exceed the VAT threshold amount during the year but refuses to register under the VAT system
5 Sale of goods purchased by a merchandising business Taxpayer is engaged in VAT-subject transactions who starts a business
which he registers under the VAT system
N
Y
N
N
N
N
N
Exercise D: Instruction: Determine the VAT on the following transactions made by a VAT registered taxpayer during the month of April.
April 2
Sale of construction materials, net of VAT, P220,000
5
Receipt of fee from construction contracts , gross of VAT, P112,000
7
Recorded its sales of materials in its sales journal amounting to, P200,000
19 Sale of hollow blocks, Selling price including erroneous VAT, P110,000
23 Sale of construction materials, exclusive of VAT, P200,000
25 Sale of construction materials, inclusive of VAT, P224,000
Exercise E: (Capital Goods) A VAT taxpayer, made the following purchases of capital goods from VAT registered sellers for use in his business
(amounts are net of vat) for the 3rd quarter:
Year 20X1
July 10- Machine 1
Estimated life
2 years
July 16- Machine 2
Aug. 8 - Machine 3
6 years
2 years
Cost
P200,000
900,000
400,000
Aug. 20 - Machine 4
6 years
500,000
Sept. 14 - Machine 5
7 years
2,000,000
Machine 1 was retired on September 30, 20X1.
Required:
1. The input tax in July is___
2. The input tax in August is___
3. The input tax in September is___
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