INPUT TAXES

This refers to the VAT due or paid by a VAT-registered person on importation or local purchases of goods, properties or
services, including lease or use of properties in the course of his trade or business.

As to determination:
The VAT on purchase is usually reflected as a separate item in the VAT invoice or VAT official receipt issued by the VAT-
registered business.

What if the VAT is not separately indicated?

If not billed separately, the selling price stated in the sales document be deemed to be inclusive of VAT.

CREDITABLE INPUT VAT

Requisites:
1. It must have been paid or incurred in the course of trade or business.
2. It is evidenced by a VAT invoice or official receipt.
3. It must be issued by a VAT-registered person.
4. It is incurred in relation to vatable sales not from exempt sales.

ILLUSTRATION 1
Ms. X had a P230,000 output VAT in the month. She also made the following purchases during the month.
Goods from non-VAT suppliers P280,000
Goods from VAT suppliers with VAT invoices 224,000
Importation of car for personal use, VAT inclusive 1,120,000
Importation of grapes and apples for sale 300,000
Importation of merchandise for sale, VAT inclusive 896,000
Services from VAT suppliers, evidenced by ordinary receipts 120,000

1. Compute the creditable input VAT:

Solution:
Goods from VAT suppliers with VAT invoices (224,000 x 12/112) 24,000
Importation of merchandise for sale, VAT inclusive (896,000 x 12/112) 96,000
Total creditable input VAT 120,000

Goods from non-VAT suppliers P280,000 No input VAT

Goods from VAT suppliers with VAT invoices 224,000 Creditable
Importation of car for personal use, VAT inclusive 1,120,000 Not creditable
Importation of grapes and apples for sale 300,000 No input VAT
Importation of merchandise for sale, VAT inclusive 896,000 Creditable
Services from VAT suppliers, evidenced by ordinary receipts 120,000 Not creditable

2. Compute the VAT due:

Solution:
Output VAT 230,000
Input VAT (120,000)
VAT due 110,000

ILLUSTRATION 2
Kibawe Corporation had the following input VAT during the quarter:
Input VAT traceable to regular domestic sales P400,000
Input VAT traceable to VAT exempt sales 30,000
Input VAT traceable to export sales 600,000
Compute the creditable input VAT:

Solution:
Input VAT traceable to regular domestic sales P400,000
Input VAT traceable to export sales 600,000
Total P1,000,000

TYPES OF INPUT VAT:

1. Transitional input VAT
2. Regular input VAT
 3. Presumptive input VAT
4. Input VAT carry-over

TRANSITIONAL INPUT VAT

 Persons who become liable to VAT
 Operates to benefit newly VAT-registered persons, whether or not they previously paid taxes in the acquisition of
their beginning inventory of goods, materials, and supplies only.
 Persons who elect to be a VAT-registered
 2% of beginning inventory of goods, materials, or supplies OR actual VAT paid thereon whichever is HIGHER.
 Basis of 2% transitional input VAT: Vatable beginning inventory in the month of registration as VAT.
 Exempt goods is not subject for the transitional input VAT

ILLUSTRATION 3
A taxpayer opted to be registered as VAT. He had the following inventory:
VAT exempt goods P80,000
Vatable goods (from non-VAT) 40,000
Equipment purchased from a supplier 112,000

Compute the transitional input VAT:

Solution:
2% of beginning inventory (2% x P40,000) P800
Actual input VAT in beginning inventory 0
Transitional input VAT (HIGHER) P800

ILLUSTRATION 4
A taxpayer became liable to VAT after exceeding the VAT threshold in November 2024. He had the following beginning
inventory for December 2024:
VAT exempt goods P20,000
Vatable goods:
Purchased from non-VAT sellers 60,000
Purchased from VAT sellers 11,200
Compute the transitional input VAT:
Solution:
Actual VAT paid to VAT suppliers = (11,200 x 12/112)1 P1,200
Value of vatable goods:
From non-VAT sellers 60,000
From VAT sellers = (P11,200 – P1,200 VAT)2 10,000
Value of inventory 70,000
Multiply by: 2%
2% of beginning inventory (HIGHER) P1,400

Note:
1. The purchases from VAT suppliers include 12% VAT passed on by the suppliers. To get the input VAT, the amount
shall be multiplied by 12%/112%.
2. Input VAT is not part of the inventory to a VAT taxpayer for income tax purposes. Hence, it must be removed from the
basis of the 2% transitional input VAT.

ILLUSTRATION 5
Maragusan Merchandise exceeded the VAT threshold in June 2024. It had the following inventory of goods at the start of
July 2024:
Frozen meat, eggs and dried fish P40,000
Fruits and vegetables 50,000
Grocery items from VAT suppliers 22,400
Appliances from non-VAT suppliers 30,000
Compute the transitional input VAT:

Solution:
Actual VAT = 22,400 x 12/112 2,400
Value of beginning inventory:
Grocery (22,400 – 2,400) 20,000
Appliances 30,000
Total 50,000
Multiply by: 2%
2% of beginning inventory 1,000

Transitional input VAT (HIGHER) 2,400

ILLUSTRATION 6
IloIlo Ventures started business as a VAT taxpayer with the following initial inventory:
Raw land acquired from a non-VAT seller P10,000,000
Various equipment 8,000,000
Office building 20,000,000
Land where the office building stands 4,000,000
Compute the transitional input VAT.

Solution:
10,000,000 x 2% = 200,000

Note:
 Actual payment of input VAT is immaterial to the claim of transitional input VAT.
 Goods, as commonly understood in the business sense, refer to the product which the VAT registered person
offers for the sale to the public. With respect to real estate dealers, the real properties themselves which
constitute their “goods”.

Timing of credit of transitional input VAT:

In the month of registration as a VAT taxpayer.

Requisites to claim transitional input VAT:

1. The taxpayer must submit an inventory list of goods.
2. The taxpayer must prepare an entry recognizing the transitional input VAT credit in his accounting books.

Accounting entry to record transitional input VAT is?

Transitional input VAT xxx
Beginning inventory xxx

REGULAR INPUT VAT

It is the 12% VAT paid on:
1. Domestic purchase of goods, service or properties, or
2. Importation of goods or services

Timing of credit of Regular Input VAT

Source Timing of credit
Purchase of goods or properties In the month of purchase
Purchase of services In the month paid
Importation of goods In the month VAT is paid
Purchase of depreciable capital goods or properties In the month of purchase
Purchase of non-depreciable vehicles and on maintenance incurred thereon Not creditable

NOTE:
This Tax Alert is issued to inform all concerned on the workaround procedures in claiming of input VAT on purchases or
importations of capital goods in the Monthly VAT declaration (BIR Form 2550M) and Quarterly VAT declaration (BIR Form
2550Q) pursuant to the provisions of Tax Reform for Acceleration Law (TRAIN Law) or Republic Act No. 10963.

Under the TRAIN Law, starting January 1, 2022, all input tax on purchases of capital goods shall already be
allowed to be claimed outright upon purchase/payment and shall no longer be subject to amortization.
However, under eFPS and eBIR Forms, the balance of input tax to be carried to succeeding period for purchase of capital
goods exceeding P1 Million is computed automatically by these systems. To address this concern, the taxpayer shall
indicate "1" as the estimated and recognized useful life of the capital goods exceeding P1 Million and encode the total
input taxes claimed from purchase/s of capital goods exceeding P1 Million under Column “G” in Schedule 3(A) of BIR
Forms 2550M/Q in order to show a nil amount of "Balance of Input Tax to be Carried to Next Period".

Taxpayers with unutilized input VAT on capital goods purchased or imported prior to January 1, 2022, shall be allowed to
amortize the same as scheduled until fully utilized. Hence, Schedule 3(B) of BIR Forms 2550M/Q shall still be filled out.
However, if the depreciable capital good is sold/transferred within the period of live (5) years or prior to the exhaustion of
the amortizable input tax thereon, the entire unamortized input tax on the capital goods sold/transferred can be claimed as
input tax credit during the month/quarter when the sale or transfer was made.

Purchase of goods or properties

ILLUSTRATION 7: Input VAT on goods

In March 15, 2024, TVU Corp purchased goods worth P40,000, VAT exclusive. It paid the invoice on April 28, 2023.
Compute the input VAT.
Solution: 40,000 x 12% = 4,800.

ILLUSTRATION 8: Input VAT on services

In March 2024, HYU Inc. retained the services of a professional practitioner who billed P168,000 VAT inclusive. It paid the
invoice on April 2024. Compute the input VAT.
Solution: 168,000 x 12/112 = 18,000

ILLUSTRATION 9: Input VAT on importation

In March 2024, LPO Inc. imported goods with total landed cost of P200,000. It paid the P24,000 VAT on importation and
withdrew the goods on April 2024. Compute the input VAT.
Solution: 24,000

Special rules on Input Tax Credit

1. Non-depreciable vehicles
2. Construction in progress
3. Purchase of real property on installment
4. Purchase of goods or properties deemed sold

Input VAT on Non-depreciable vehicles

Rules on deductibility of depreciation expense:
1. Only one vehicle for land transport is allowed for the use of an official or employee, the value of which should not
exceed P2,400,000.
2. The following are not allowed to deduct depreciation to yachts, helicopters, airplanes and/or aircrafts and land
vehicles which exceed the P2,400,000 threshold, unless the taxpayer’s main line of business is transport
operations or lease of transport equipment, and the vehicles are used in said operations.
3. The purchase must be substantiated with sufficient evidence such as official receipts or other adequate records.
4. The following should be substantiated: direct connection or relation of the vehicles to the development, operation
and or conduct of the trade or business or profession of the taxpayer.

Input VAT on Construction In Progress

It is a purchase of service. Creditable upon payment of each progress billings of the contractor.

ILLUSTRATION 10
In January 2024, Trading Corp. hired the services of Aliling Construction Inc. to build a small sales building at an
P11,200,000 fixed price contract price VAT inclusive. The following quarterly data in 2024 relates to the project:
1st quarter 2nd quarter 3rd quarter 4th quarter Total
Quarterly billing P2,240,000 P4,480,000 P3,360,000 P1,120,000 P10,000,000
Payments 2,016,000 4,032,000 3,024,000 2,128,000 10,000,000

Compute the input tax claimable in each quarter:

Solution:
 1st quarter 2nd quarter 3rd quarter 4th quarter
Payments 2,016,000 4,032,000 3,024,000 2,128,000
Multiply by: 12/112 12/112 12/112 12/112
Claimable input VAT 216,000 432,000 324,000 228,000

Must be computed from the payments, NOT from the billings.

Input VAT on purchases of real property on installments

This shall be claimable by the buyer at the time of the execution of the instrument of sale. If the purchase is by installment
and the seller is allowed to bill the output VAT in installment, the buyer can also claim the input VAT in the same period as
the seller recognizes the output VAT.

Input VAT on goods or properties deemed sold

Portion of the output VAT imposed upon the goods deemed sold which corresponds to the goods purchased by the buyer.

ILLUSTRATION 11
Mr. A had 1,000 pieces of merchandise which were previously deemed sold at a value of P20,000 with an output VAT
P2,400 upon Mr. A’s retirement from business. Subsequently, Mr. B bought 500 pieces of the 1,000 of the merchandise
deemed sold from Mr. for P12,000, VAT inclusive. Mr. A indicated the invoice number wherein the output tax on the
deemed sale was imposed and billed Mr. B as follows:

Gross selling price P11,000

VAT previously paid on deemed sale (500/1,000 x P2,400) 1,200

Compute the claimable input VAT of Mr. B:

Solution: He can only claim P1,200 input VAT on the goods deemed sold.

PRESUMPTIVE INPUT VAT

 4% of the gross value of money of their purchases of primary agricultural products which are used in their
productions.

Who are allowed to claim?

Processors of: Manufacturers of:
Sardines Cooking oil
Mackerel Packed noodles based on instant meals
Milk Refined sugar

A manufacturer typically takes raw materials or components and transforms them into finished products, often on a large
scale. On the other hand, a producer can refer to anyone involved in the creation of goods or services, including those
involved in the design, development, and final assembly of a product.

Manufacturing refers to only physical products, whereas production results in both physical products and services.

ILLUSTRATION 12: Processor of cooking oil

Cateel Oil Company, a VAT registered cooking oil manufacturer, purchased the following materials and suppliers in the
processing of cooking oils during the month:
Cost Input VAT
Copra P1,200,000
Hexane solvent 50,000
Cans and bottle containers 200,000
Sodium hydroxide 80,000
Activated carbon 100,000

During the month, it purchased 1,000 cans and 1,500 bottles of cooking oils and sold 800 cans and 1,200 bottles to
various wholesalers for P2,800,000.

1. Compute the presumptive input VAT:

Solution: 1,200,000 x 4% = 48,000
 2. Assuming that there are no other sources of input VAT, compute the VAT payable:

Solution:
Output VAT (2,800,000 x 12%) 336,000
Input VAT:
Regular input VAT (51,600)
Presumptive input VAT (48,000)
VAT payable 236,400

ILLUSTRATION 13: Processor of sardines

Dujali Company processes hot chili flavored sardines. During the month, it purchased the following:
Cost Input VAT
Fresh sardines P800,000
Hot chili 50,000
Tomatoes 400,000
Ordinary salt 20,000
Tin can 120,000 P14,400
Labels 60,000 7,200
Compute the presumptive input VAT:

Solution:
The presumptive input VAT shall be computed from the agricultural purchases as follows:
Hot chili 50,000
Tomatoes 400,000
Ordinary salt 20,000
Total agricultural purchases 470,000
Multiply by: 4%
Presumptive input VAT 18,800

Note:
 Sardines, including mackerel are marine food products, not agricultural products. The presumptive input VAT, a
tax credit, shall be construed against the taxpayer.
 Ordinary salt is an agricultural food product in original state.
 The regular input VAT on the tin cans and labels are claimable in the month of purchase separate from the
P18,800 presumptive input VAT which shall likewise be claimed in the month of purchase.

ILLUSTRATION 14: Processor of refined sugar for others

Sugarie Company operates a sugar refinery for clients. During the month, it processed P10,000,000 worth of sugarcane
and produced P40,000,000 worth of sugar. Sugarie charges 10% of the production as processing charge.

It cannot claim presumptive input VAT because it doesn’t own the sugar it processes. It shall be subject to 12% VAT on its
processing fees. If it produces raw sugar, its processing fees shall be exempt from VAT.

INPUT VAT CARRY-OVER

It is the excess of the input VAT over the output VAT in a particular month or quarter. It is the VAT overpayment that
appears after tax credits and payments are deducted against the net VAT payable.

Rules:
1. The input VAT carry-over of the prior quarter is deductible in the first month of the current quarter.
2. The input VAT carry-over in the first month of the quarter is deductible in the second month of the quarter.
3. The input VAT carry-over in the second month of a quarter is not deductible to the third month of the quarter.
4. The input VAT carry-over of the prior quarter is deductible in the third month quarterly balance of the present
quarter.

ILLUSTRATION 15
The following data relates to the regular sales of a VAT taxpayer:
Output VAT Input VAT
Prior quarter P350,000 P390,000
Current quarter:
1st month of the current quarter P120,000 P100,000
2nd month of the current quarter 150,000 145,000
3rd month of the current quarter 220,000 70,000

The credit rules of the input VAT carry-over shall be applied as follows:

Solution:
Prior quarter Present quarter
3rd month 1st month 2nd month 3rd month
Output VAT 350,000 120,000 150,000 490,000
Input VAT (390,000) (100,000) (145,000) (315,000)
Carry-over (40,000) 20,000 5,000
Input VAT Carry-over (40,000) (20,000) (40,000) Input VAT carry-over from last quarter
Balance (20,000) (15,000)
VAT payable 0 0 0 135,000

Note:
 The P40,000 input VAT carry-over in the prior quarter is creditable in the first month of the current quarter.
 The P20,000 input VAT carry-over in the first month of the current quarter is creditable in the second month of the
current quarter.
 The P15,000 excess input VAT in the second month cannot be carried over to the third month quarterly balance.
Instead, the P40,000 deferred input VAT carry-over in the preceding quarter is credited in the current quarterly
balance.

ILLUSTRATION 16
The following data relates to the regular sales of a VAT taxpayer:
Output VAT Input VAT
Prior quarter P360,000 P400,000
Current quarter:
1st month of the current quarter P160,000 P100,000
2nd month of the current quarter 150,000 160,000
3rd month of the current quarter 170,000 65,000

The credit rules of the input VAT carry-over shall be applied as follows:

Solution:
Prior quarter Present quarter
3rd month 1st month 2nd month 3rd month
Output VAT 360,000 160,000 150,000 480,000
Input VAT (400,000) (100,000) (160,000) (325,000)
Carry-over (40,000) 60,000 (10,000) 155,000
Input VAT Carry-over (40,000) (40,000) Input VAT carry-over from last quarter
Balance (10,000)
Net VAT payable 0 20,000 0 115,000
VAT paid 1st Q (20,000)
VAT payable 95,000

What are excluded from input VAT carry-over?

1. Advanced VAT which has been applied for a tax credit certificate.
2. Input VAT attributable to zero-rated claim which have been applied for a tax refund or tax credit certificate.
3. Input VAT attributable to zero-rated sales that expired after the two-year prescriptive period.

RULES ON CLAIM FOR CREDIT OF INPUT VAT

1. Specific identification – input VAT that can be traced to a particular sales transaction is credited against the output
VAT of such sales.
2. Pro-rata allocation - the amount of input VAT due or paid that cannot be directly and entirely attributed to any one
of the sales transactions shall be allocated proportionately on the basis of sales.

ILLUSTRATION 17 Specific identification

A VAT taxpayer had the following sales with their corresponding directly traceable input VAT during the month:

Sales Input VAT

Sales to private entities P900,000 P60,000
Export sales 300,000 36,000
Sales to government 250,000 24,000
Sales to exempt goods 100,000 2,000

1. Compute the creditable input VAT.

Solution:
Sales to private entities 60,000
Export sales 36,000
Sales to government 24,000
Total 120,000

2. Compute the input VAT deductible against gross income through cost and expenses:

Solution: Only the input VAT on exempt goods P2,000.

3. Compute the VAT payable.

Solution:
Output VAT [(900,000 + 250,000) x 12%] 138,000
Creditable input VAT (120,000)
Creditable withholding tax (250,000 x 5%) (12,500)
VAT payable 5,500

ILLUSTRATION 18 Non-traceable input VAT

A taxpayer engaged in merchandising had the following transactions during the month:
Exempt sales P200,000
Export sales 300,000
Sales to government 100,000
Regular sales 400,000

During the month, the taxpayer had P124,000 total input VAT that cannot be traced to a particular transaction.
1. Compute the creditable input VAT.

Solution:
Sales amount
Exempt sales 200,000 200/1,000 x 124 24,800
Export sales 300,000 300/1,000 x 124 37,200
Sales to government 100,000 100/1,000 x 124 12,400
Regular sales 400,000 400/1,000 x 124 49,600
Total 1,000,000 124,000

Export sales 37,200

Sales to government 12,400
Regular sales 49,600
Total 99,200

2. Compute the VAT payable.

Solution:
Output VAT [(100,000 + 400,000) x 12%] 60,000
Creditable input VAT (99,200)
Creditable withholding tax (100,000 x 5%) (5,000)
VAT payable 0
Input VAT carry-over (44,200)
ILLUSTRATION 19 With non-traceable input VAT
A taxpayer had the following sales during the month:
Sales Traceable input VAT
Exempt sales P200,000 P12,000
Regular sales 300,000 18,000

There is a P24,000 input tax that cannot be traced to other type of transaction.
1. Compute the creditable input VAT.

Solution:
Input VAT directly traceable to vatable sales 18,000
Allocated input VAT to vatable sales (300/500 x 24) 14,400
Total 32,400

2. Compute the VAT payable.

Solution:
Output VAT [300,000 x 12%] 36,000
Creditable input VAT (32,400)
VAT payable 3,600

Composition of creditable input VAT

1. Input VAT traceable to regular sales
2. Input VAT traceable to export sales that are not applied for tax refund or tax credit

ILLUSTRATION 20
Agustin Co. had the following data during the quarter:
Sales, net of VAT Input VAT
Sales to private entities 1,350,000 60,000
Export sales 300,000 36,000
Sales to government 250,000 24,000
Sales of exempt goods 100,000 2,000

It had P12,000 input VAT carry-over from the last quarter. It paid a total P28,000 VAT in the first two months of the
quarter. It also made a voluntary advanced payment of P20,000 to the BIR in anticipation of its quarterly VAT payable.
Compute the following:
1. Output VAT
Solution:
Sales to private entities (1,350,000 x 12%) 162,000
Export sales (300,000 x 0%) 0
Sales to government (250,000 x 12%) 30,000
Output VAT 192,000

2. Creditable input VAT

Solution:
Input VAT carry-over 12,000
Input VAT on sales to private entities 60,000
Input VAT on export sales 36,000
Input VAT on sales to government 24,000
Input VAT 132,000

3. Tax still due or (overpayment)

Solution:
Output VAT 192,000
Total creditable input VAT (132,000)
Net VAT payable 60,000
Tax credit/payments:
VAT paid in previous monthly returns 28,000
Advanced payments to the BIR 20,000
Creditable withholding VAT (250,000 x 5%) 12,500 (60,500)
Tax still due or (overpayment) (500)

REFERENCE:
BUSINESS AND TRANSFER TAXES BY PROF. REX B. BANGGAWAN CPA MBA