Saint Louis University

SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING AND INFORMATION STUDIES

Department of Business Laws and Taxation

BUSTAXa_MODULE_9:

ORDER OF TOPICS/DISCUSSION:

PART 1: Introduction to Business Taxation

PART 2: Exempt Sale of goods, properties, services
PART 3: Percentage Tax
PART 4: Introduction to VAT
PART 5: Output VAT
PART 6: Zero-rated Sales
PART 7: Input VAT
PART 8: VAT Due and other topics

PART 7: INPUT VAT

Kinds of Input VAT:

1. Regular Input VAT and the VAT on importation (12%)
2. Transitional input VAT (2%
3. Presumptive input VAT (4%)
4. Creditable Input VAT on sale to the government or GOCC (5%)

REGULAR INPUT VAT

INPUT VAT (12%)

“Input tax” means the VAT due on or paid by a VAT-registered person on importation of goods or local
purchases of goods, properties, or services, including lease or use of properties, in the course of his trade or
business.

It includes input taxes which can be directly attributed to transactions subject to the VAT plus a ratable
portion of any input tax which cannot be directly attributed to either the taxable or exempt activity.

By: Atty. Rosemarie Pitan-Areno,CPA,MBA

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 Saint Louis University
SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING AND INFORMATION STUDIES
Department of Business Laws and Taxation
Any input tax on the following transactions evidenced by a VAT invoice or official receipt issued by a VAT-
registered person in accordance with Secs. 113 and 237 of the Tax Code shall be creditable against the
output tax:
1. Purchase or importation of goods
a) For sale; or
b) For conversion into or intended to form part of a finished product for sale, including packaging
materials; or
c) For use as supplies in the course of business; or
d) For use as raw materials supplied in the sale of services; or
e) For use in trade or business for which deduction for depreciation or amortization is allowed
under the Tax Code,
2. Purchase of real properties for which a VAT has actually been paid;
3. Purchase of services in which a VAT has actually been paid;
4. Transactions “deemed sale” under Sec. 106 (B) of the Tax Code;
5. Transitional input tax allowed under Sec. 4.111 (a) of these Regulations;
6. Presumptive input tax allowed under Sec. 4.111 (b) of these Regulations;
7. Transitional input tax credits allowed under the transitory and other provisions of these Regulations.

ILLUSTRATION:
Mr. Zamora (businessman) purchased the following:
From a VAT supplier From a non-VAT supplier Description of amount Input VAT
1. P100,000 “exclusive of VAT” P12,000
2. P80,000 No input VAT None
3. 224,000 “invoice amount” 24,000
4. 56,000 “inclusive of VAT” 6,000

Journal Entries January:

1. Purchases P100.000
Input VAT 12,000
Cash P112,000

2. Purchases 80,000
Cash 80,000

3. Purchases 200,000
Input VAT 24,000
Cash 224,000

4. Purchases 50,000
Input VAT 6,000
Cash 56,000

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SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING AND INFORMATION STUDIES
Department of Business Laws and Taxation

FORMULA:
Output VAT P XXX
Less: Input VAT XXX
Net VAT Payable or (Excess Input Tax) PXXX

VAT PAYABLE (EXCESS OUTPUT) OR EXCESS INPUT TAX:

1. If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by
the VAT-registered person.

2. If the input tax inclusive of input tax carried over from the previous quarter exceeds the output tax,
the excess input tax shall be carried over to the succeeding quarter or quarters;

Provided, however, that any input tax attributable to zero-rated sales by a VAT-registered person
may at his option be refunded or applied for a tax credit certificate which may be used in the
payment of internal revenue taxes, subject to the limitations as may be provided for by law, as well
as, other implementing rules.

DETERMINATION OF INPUT TAX CREDITABLE DURING A TAXABLE MONTH OR QUARTER

The amount of input taxes creditable during a month or quarter PLUS any amount of input tax carried-over
from the preceding month or quarter, REDUCED BY the amount of claim for VAT refund or tax credit
certificate (whether filed with the BIR, the Department of Finance, the Board of Investments or the BOC)
and other adjustments, such as purchases returns or allowances, input tax attributable to exempt sales and
input tax attributable to sales subject to final VAT withholding.

Thus:
Creditable input VAT- this month XXX
Add: Input VAT carry over from prior month/quarter XXX
Less: Claim for VAT refund or tax credit XXX
Adjustments for returns/allowances/input VAT
attributable to exempt sales or final VAT XXX
withholding
Total amount of creditable input VAT this month XXX

This is the amount to be deducted from the

output VAT to get the net VAT payable.

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 Saint Louis University
SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING AND INFORMATION STUDIES
Department of Business Laws and Taxation

PERSONS WHO CAN AVAIL OF THE 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:
1. To the importer upon payment of VAT prior to the release of goods from customs custody;
2. To the purchaser of the domestic goods or properties upon consummation of the sale; or
3. To the purchaser of services or the lessee or licensee upon payment of the compensation, rental,
royalty or fee.

ILLUSTRATION:

The following are the transactions of Mr. Dela Cruz, a businessman, VAT-registered:

Purchase Input VAT (12%) Sale Output VAT (12%)

January 150,000 18,000 100,000 12,000
February 100,000 12,000 200,000 24,000
10,000 None
March 180,000 21,600 250,000 30,000
*Amounts are EXCLUSIVE of VAT and in Philippine Peso. Assume all transactions are on cash basis.

Journal Entries January:

1. Purchases 150,000
Input VAT 18,000
Cash 168,000

2. Cash 112,000
Sales 100,000
Output VAT 12,000

VAT Due: BIR Form 2550M:

Output VAT 12,000
Less: Input VAT 18,000
VAT Due (6,000)

*The negative VAT Due is NOT a refund but an Input VAT credit.

By: Atty. Rosemarie Pitan-Areno,CPA,MBA

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 Saint Louis University
SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING AND INFORMATION STUDIES
Department of Business Laws and Taxation

3. Output VAT 12,000

Input VAT 12,000

*Balance of input VAT is 6,000 to be credited next period. There is no VAT due.

Journal Entries February:

1. Purchases 110,000
Input VAT 12,000
Cash 122,000

2. Cash 224,000
Sales 200,000
Output VAT 24,000

VAT Due: BIR Form 2550M:

Output VAT 24,000
Less: Input VAT *18,000
VAT Due 6,000

*12,000 + 6,000 balance from January (this is the input VAT credit)

3. Output VAT 24,000

Input VAT 18,000
VAT Payable 6,000

4. VAT Payable 6,000

Cash 6,000

Journal Entries March:

1. Purchases 180,000
Input VAT 21,600
Cash 201,600

2. Cash 280,000
Sales 250,000
Output VAT 30,000

By: Atty. Rosemarie Pitan-Areno,CPA,MBA

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 Saint Louis University
SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING AND INFORMATION STUDIES
Department of Business Laws and Taxation

3. Output VAT 30,000

Input VAT 21,600
VAT Payable 8,400

4. VAT Payable 8,400

Cash 8,400

VAT Due: BIR Form 2550Q:

Output VAT 66,000
Less: Input VAT 51,600
VAT Due 14,400
Less: Tax Credit
Estimated Monthly VAT payments 6,000
VAT still due 8,400

CLAIMS FOR INPUT TAX ON DEPRECIABLE GOODS

Where a VAT-registered person purchases or imports capital goods, which are depreciable assets for income
tax purposes, the aggregate acquisition cost of which (exclusive of VAT) in a calendar month exceeds One
Million pesos (P1,000,000.00), regardless of the acquisition cost of each capital good, shall be claimed as
credit against output tax in the following manner:
(a) If the estimated useful life of a capital good is five (5) years or more - The input tax shall be spread
evenly over a period of sixty (60) months and the claim for input tax credit will commence in the calendar
month when the capital good is acquired. The total input taxes on purchases or importations of this type of
capital goods shall be divided by 60 and the quotient will be the amount to be claimed monthly.

(b) If the estimated useful life of a capital good is less than five (5) years — The 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 of the capital good. The claim for input tax credit shall commence in the calendar
month that the capital goods were acquired.

Where the aggregate acquisition cost (exclusive of VAT) of the existing or finished depreciable capital goods
purchased or imported during any calendar month does not exceed One million pesos (P 1,000,000.00), the
total input taxes will be allowable as credit against output tax in the month of acquisition.

TAX UPDATE: Starting January 1, 2022, the input VAT paid on shall be fully recognized outright and may
be claimed as input tax credits against output tax. On the other hand, if the purchase was made on or
before Dec. 31, 2021, the taxpayer can still amortize its input VAT until the same is fully utilized.

By: Atty. Rosemarie Pitan-Areno,CPA,MBA

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 Saint Louis University
SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING AND INFORMATION STUDIES
Department of Business Laws and Taxation

“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 Sec. 34(F) of the Tax Code, used directly or
indirectly in the production or sale of taxable goods or services.

The aggregate acquisition cost of depreciable assets in any calendar month refers to the total price,
excluding the VAT, agreed upon for one or more assets acquired and not on the payments actually made
during the calendar month. Thus, an asset acquired on installment for an acquisition cost of more than
P1,000,000.00, excluding the VAT, will be subject to the amortization of input tax despite the fact that the
monthly payments/installments may not exceed P1,000,000.00.

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 item is reclassified and the
reclassified asset is capitalized and depreciated.

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. Until such time the construction has been completed, it will not
qualify as capital goods as herein 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.

In case of contract for the sale of service where only the labor will be supplied by the contractor and the
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 a progress billings while input tax on
the purchase of materials shall be recognized at the time the materials were purchased.

Once the input tax has already been claimed while the construction is still 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.

(c) 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, 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.

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 Saint Louis University
SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING AND INFORMATION STUDIES
Department of Business Laws and Taxation

By: Atty. Rosemarie Pitan-Areno,CPA,MBA

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 Saint Louis University
SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING AND INFORMATION STUDIES
Department of Business Laws and Taxation

TIMING OF CREDIT OF REGULAR INPUT VAT

Source of Input VAT Timing of Credit (When input VAT may be

claimed)
Purchase of goods or properties In the month of purchase
Purchase of services In the month PAID
Importation of goods In the month the VAT on importation is PAID
Purchase of depreciable capital goods or properties BEFORE Jan.1,2022
General rule In the month of purchase
When the monthly aggregate acquisition cost Amortized over useful life in months or 60
exceeds P1,000,000 months, whichever is shorter.
Purchase of depreciable capital goods or properties In the month of purchase, no more amortization.
ON OR AFTER Jan.1,2022
Purchase of non-depreciable vehicles and on Not creditable
maintenance incurred thereon*

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SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING AND INFORMATION STUDIES
Department of Business Laws and Taxation

 The rule is prospective, does not apply to vehicles bought PRIOR the effectivity of the RR (October
17,2012)
 Loss in the sale of “non-depreciable” vehicle shall not be allowed also as deduction from gross
income.
 Expenses on “non-depreciable” vehicles are not allowed as deduction from gross income.
 The input VAT on these expenses are also disallowed as VAT credit.
Source: https://taxacctgcenter.ph/depreciation-expense-of-vehicles-in-the-philippines/

TRANSITIONAL INPUT VAT

This applies to the beginning inventories of a person who was previously non-VAT then becomes liable for
the VAT because he exceeded the VAT threshold in any 12-month period.

The newly VAT-registered taxpayer shall be entitled to a transitional input tax on the inventory on hand as of
the effectivity of his VAT registration, on the following:

(1) goods purchased for resale in their present condition;

(2) materials purchased for further processing, but which have not yet undergone processing;

(3) goods which have been manufactured by the taxpayer;

(4) goods in process for sale; or

(5) goods and supplies for use in the course of the taxpayer’s trade or business as a VAT-registered
person.

The transitional input tax shall be two percent (2%) of the value of the beginning inventory on hand or actual
VAT paid on such, goods, materials and supplies, whichever is higher, which amount shall be creditable
against the output tax of VAT-registered person.

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.

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 Saint Louis University
SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING AND INFORMATION STUDIES
Department of Business Laws and Taxation

ILLUSTRATION:

Taxpayer exceeded VAT threshold in November. He reports the following beginning inventory in December:

VAT-exempt goods 20,000

Vatable goods
Purchased from non-VAT sellers 60,000
Purchased from VAT sellers (invoice amount) 11,200

Compute transitional input VAT/Tax:

a) 2% of beginning inventory
Total beginning inventory is 70,000 excluding VAT-exempt goods
Therefore: 70,000 x 2% = 1,400

b) Actual input VAT

Purchases from sellers = 11,200
(11,200/1.12) x 12% = 1,200

Transitional input VAT is 1,400 (HIGHER)

PRESUMPTIVE INPUT VAT

Persons or firms engaged in the processing of sardines, mackerel, and milk , and in manufacturing
refined sugar, cooking oil and packed noodle-based instant meals, shall be allowed a presumptive
input tax, creditable against the output tax, equivalent to four percent (4%) of the gross value in money of
their purchases of primary agricultural products which are used as inputs to their production.

As used in this paragraph, the term processing shall mean pasteurization, canning and 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.

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 Saint Louis University
SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING AND INFORMATION STUDIES
Department of Business Laws and Taxation

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SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING AND INFORMATION STUDIES
Department of Business Laws and Taxation

INPUT VAT ON SALE TO THE GOVERNMENT

The sale by a VAT seller of goods and services to the government or any of its political subdivisions,
instrumentalities, or agencies, including GOCCs, is subject to a 5% CREDITABLE withholding VAT based on
the gross payment (CREATE update). Hence, there is no more standard input VAT of 7% for sales made to
the government.

The government shall withhold the 5% creditable withholding VAT and remits the same within 10 days
following the end of the month the withholding was made.

Thus, the seller will show, for this transaction only:

Output VAT on the sale XXX
Less: Actual input VAT XXX
Net VAT Payable XXX
Less: VAT withheld on sale to government XXX
Tax still payable XXX

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 Saint Louis University
SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING AND INFORMATION STUDIES
Department of Business Laws and Taxation

If the seller is a non-VAT seller, the government or GOCC shall withhold a 3% (1% on July 1, 2020 up to June
30, 2023) final percentage tax on the sale before payment.

ILLUSTRATION:

Seller, VAT-registered, entered into the following transactions:

Invoice Amount Actual Input VAT Output VAT
Purchase from a VAT supplier P67,200 P7,200
Sale to the government @
P100,000 selling price P112,000 12,000

Therefore:

Output VAT on the sale P12,000.00

Less: Actual input VAT 7,200.00
Net VAT Payable P4,800.00
Less: VAT withheld on sale to government 5,000.00
Tax still payable (Overpayment) (P200.00)

Journal Entries:

1. Purchases 60,000
Input VAT 7,200
Cash/Payable 67,200

2. Cash/Receivable 107,000
Creditable Withholding VAT 5.000
Sales 100,000
Output VAT 12,000

3. Output VAT 12,000

Receivable from the Government 200
Input VAT 7,200
Creditable Withholding VAT 5,000

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 Saint Louis University
SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING AND INFORMATION STUDIES
Department of Business Laws and Taxation

NOTE: The above illustrations are without consideration of the withholding tax on income. Under income
taxation, the sale to the government shall be subject to a creditable withholding tax of 1%
(goods/properties) or 2% (services). Therefore, aside from the creditable withholding VAT of 5%, the
government or GOCC shall also withhold 1% or 2% representing the creditable withholding tax on income.

THUS, Journal Entries with the creditable withholding tax on INCOME using 1% for sale of goods:

1. Purchases 60,000
Input VAT 7,200
Cash/Payable 67,200

2. Cash/Receivable 106,000
Creditable Withholding VAT 5.000
Creditable Withholding Tax on Income 1,000
Sales 100,000
Output VAT 12,000

3. Output VAT 12,000

Receivable from the Government 200
Input VAT 7,200
Creditable Withholding VAT 5,000
To record the settlement of VAT liability

-END OF MODULE_9-

References:
 Laws and Issuances:
The National Internal Revenue Code of the Philippines (R.A. No. 8424 as amended up to
R.A. No. 10963)
VAT Revenue Regulation 16-2005: Consolidated VAT Regulations
VAT Revenue Regulation 04-2007 Amending VAT RR 16-2005
VAT Revenue Regulation 13-2018: Regulations implementing VAT under TRAIN

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 Saint Louis University
SCHOOL OF ACCOUNTANCY, MANAGEMENT, COMPUTING AND INFORMATION STUDIES
Department of Business Laws and Taxation
E.O. No. 226
 Books:
Transfer and Business Taxation (7th ed) by: Valencia and Roxas
Business and Transfer Taxation (2019 ed) by: Rex B. Banggawan

 Internet websites:
https://www.bir.gov.ph
https://www.investopedia.com
https://www.pwc.com
https://www.bworldonline.com/
https://www.lawphil.net/
http://www.ntrc.gov.ph/

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