Commercial-in-Confidence

INPUT TAXES
1. Input Tax Defined
a. Meaning of Input tax is the value-added tax due from or paid by a VAT-registered person in the
input tax course of his trade or business on importation of goods or local purchase of goods,
properties or services, including lease or use of properties, in the course of his trade
or business. It shall also include the
transitional input tax and the presumptive input tax.
b. Categories of 1) VAT paid on local purchases (passed on by seller) or on importation (passed-on VAT)
creditable or 2) Presumptive input tax
deductible 3) Transitional input tax
input 4) Standard input tax
taxes
c. Persons who The input tax credit on importation of goods or local purchases of goods, properties or
can avail of services by a VAT-registered person shall be creditable:
input tax 1) to the importer upon payment of VAT prior to the release of goods from customs
credit 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.

2. Determination of Allowable Input Taxes

a. Determination Input tax carried over from previous period xxx

of creditable Input tax deferred on capital goods exceeding P1,000,000 from previous quarter xxx
input tax Transitional input tax xxx
Presumptive input tax xxx
Others xxx
Total xxx
Input taxes on current transactions xxx
Total available input taxes xxx
Less: Deductions from input taxes xxx
Total allowable input taxes xxx
b. Deductions a. Input tax claimed as tax credit certificate or refund
from input b. Input tax attributed to VAT-exempt sales
taxes c. Input tax attributed to sales to Government

3. Sources of Creditable Input Taxes (Local Purchases or Importation)

a. Passed-on VAT
1) Input tax 1) Purchase or importation of goods:
evidenced a) For sale; or
by b) For conversion into or intended to form part of a finished product for sale,
a VAT invoice including packaging materials; or
or official c) For use as supplies in the course of trade or business;
receipts d) For use as raw materials supplied in the sale of services;
issued by a e) For use in trade or business for which deduction for depreciation or amortization is
VAT- allowed.
registered 2) Purchase of real properties for which a VAT has actually been paid;
person 3) Purchase of services in which a VAT has actually been paid;
4) Transactions “deemed sale”;
2) VAT- A VAT-registered person who is also engaged in transactions not subject to VAT shall be
registered allowed to recognize input tax credit on transactions subject to VAT as follows:
person is also a) All the input taxes that can be directly attributed to transactions subject to
engaged in VAT may be recognized for input tax credit; and
transactions
b) If any input tax cannot be directly attributed to either a VAT taxable or VAT-exempt
not subject to
transaction, the input tax shall be pro-rated to the VAT taxable and VAT-exempt
VAT
transactions and only the ratable portion pertaining to transactions subject to VAT
may be recognized for input tax credit computed as follows:
(VAT sales / Total sales) x Input Taxes
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4) Claim for Input Tax on Depreciable Goods (Under RR 16-2005)

a) Where a VAT-registered a) Estimated useful life is 5 years or more - Input tax shall be spread
person purchases or evenly over of a period of 60 months to commence in the calendar month
imports capital goods, when the capital good is acquired.
which are depreciable
assets for income tax b) Estimated useful life is less than 5 years – Input tax shall be spread
purposes, the aggregate evenly on a monthly basis by dividing the input tax by the actual number
acquisition of which of months comprising the estimated useful life. The claim for input tax
(exclusive of VAT) in a shall commence in the calendar month the capital good is acquired
calendar month exceeds
P1,000,000, regardless of
the acquisition cost of
each
capital good
b) Where the aggregate The total amount of input taxes will be allowable as credit against output
acquisition cost tax in the month of acquisition.
(exclusive of VAT) of the
existing or finished
depreciable capital goods
purchased or imported
during any calendar
month
does not exceed
P1,000,000
c) Amortization allowed The amortizationof the input VAT shall only be allowed until December
until December 31, 2021 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.
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.
d) Meaning of aggregate The aggregate acquisition cost of a depreciable asset in any calendar month
acquisition cost 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. 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
installments may not exceed P1,000,000.
e) Sale or transfer of If the depreciable capital good is sold or transferred within a period of 5
depreciable good within years or prior to the exhaustion of the amortizable input tax thereon, the
a period of 5 years or entire unamortized input tax on the capital goods sold or transferred can be
prior to the exhaustion of claimed as input tax credit during the month or quarter when sale or transfer
the was made.
amortizable input tax
f) Meaning of capital goods Capital goods or properties refers to goods or properties with estimated
or properties 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.
g) Meaning of construction Construction in progress (CIP) is the cost of construction work which is
in progress 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.
h) Input tax on construction a) CIP is considered, for purposes of claiming input tax, as a purchase of
in progress 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.
i) Contract for the sale of In case of contract for the sale of service where only the labor will be supplied
service where only the by the contractor and materials will be purchased by the contractee from
labor will be supplied 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 input tax on the purchase of
materials shall be recognized at the time the materials were purchased.
j) Input tax claimed while Once the input tax has already been claimed while the construction is in
the construction is in progress, no additional input tax can be claimed upon completion of the
progress asset when it has been
reclassified as a depreciable capital asset and depreciated.
k) Rules on allowing input a. Only one vehicle for land transport is allowed for the use of an official or
tax credit on vehicles, employee, the value of which should not exceed P2,400,000.
and other expenses
incurred (RR
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No. 12-2012, Oct. 12,

2012)
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b. No depreciation shall be allowed for yachts, helicopters, airplanes and/or

aircrafts, and land vehicles the value of which exceed the P2,400,000
threshold amount, unless the taxpayer’s main line of business is transport
operations or lease of transportation equipment and the vehicles
purchased are used in said operations;
c. All maintenance expenses on account of non-depreciable vehicles for
taxation purposes are disallowed in its entirety;
d. 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.

b. Presumptive Input Tax

1) Persons allowed 1) Processors of sardines, mackerel and milk
presumptive input tax 2) Manufacturers of refined sugar and cooking oil
3) Manufacturers of packed noodle-based instant meals
2) Rate and basis of 4% (used to be 1 ½%) of gross value in money of purchases of primary
presumptive input tax agricultural products which are used as inputs to their production

c. Transitional Input Tax

1) Situations where 1) Taxpayers who became VAT-registered persons upon exceeding the minimum
transitional input tax turnover of P3,000,000 (used to be P1,919,500) in any 12-month period;
may be allowed 2) Taxpayers who voluntarily register even if their turnover does not exceed
P3,000,000 (used to be P1,919,500) (except franchise grantee of radio and/or
television broadcasting whose threshold is P10,000,000);
2) Basis of transitional input Beginning inventory of goods, materials and supplies (including those that are
tax VAT-exempt under Sec. 109)
3) Amount of transitional 2% (used to be 8%) of the value of the beginning inventory on hand or actual VAT
input tax 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% (used to be 8%) transitional input tax,
including goods that are
exempt from VAT under Sec. 109 of the Tax Code.
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d. Standard Input Tax

1) Input tax attributable to Input taxes that can be directly attributable to VAT taxable sales of goods and
VAT sales to Government services to the Government or any of its political subdivisions, instrumentalities or
not creditable against agencies including GOCCs shall not be credited against output taxes arising from
output tax on sales to sales to non-Government entities.
non-Government
entities
2) Government required The government or any of its political subdivisions, instrumentalities or agencies,
to withhold including GOCCs shall deduct and withhold a final VAT due at the rate of five
percent (5%) of the gross payment.

Beginning January 1, 2021, the VAT witholding system under this Subsection
shall shift from final to a creditable system.

The payor or person in control of the payment shall be considered as the

withholding agent.

Schedule 4 (Input Tax Attributable to Sale to Government) of BIR Form

No. 2550Q shall no longer be filled-up.

Schedule 8 (Tax Wittheld Clained as Tax Credit) VAT Wittheld on Sale to

Government will be
reflected in this Section. VAT Withhled on Sale to Government no longer
deductible from Input Tax (Line 23B BIR Form No. 2550Q)
3) Final withholding VAT The five percent (5%) final withholding VAT rate shall represent the net VAT
represents the net VAT payable of the seller.
payable of the seller
4) Difference between the The remaining seven percent (7%) effectively accounts for the standard input VAT
VAT rate and the for sales of goods or services to government or any of its political subdivisions,
withholding VAT rate instrumentalities or agencies including GOCCs, in lieu of the actual input VAT
accounts for the standard directly attributable or ratably apportioned to such sales.
input tax
Should actual input VAT attributable to sale to government exceeds seven
percent (7%) of
gross payments, the excess may form part of the seller’s expense or cost. On
the other
hand, if actual input VAT attributable to sale to government is less than seven
percent (7%) of gross payment, the difference must be closed to expense or cost.

e. Withholding VAT
Transactions Withholding Agent Withholdng VAT
Rate
1) Purchase of goods by Government or any of its political subdivisions, 5% (used to be 3%)
Government, political instrumentalities of
subdivisions, etc. or agencies, including government-owned or gross payment
controlled corporations (GOCCs) made (final)
2) Purchase of services by Government or any of its political subdivisions, 5% (used to be 6%) of
Government, political instrumentalities or agencies, including government- gross payments (final)
subdivisions, etc. owned or controlled corporations (GOCCs)
3) Payments for lease or use Government or any of its political subdivisions, 12%
of properties or property instrumentalities
rights to non-resident or agencies, including GOCC’s;
owners
Private corporations, individuals, estate and trusts,
whether large or non-large taxpayers

Payor or person in control of the payment

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4) Purchase of goods or Payor-purchaser in the course of trade of business 12% of payee’s

services in the course of gross
trade or business (payee- Payee-seller shall execute: sales or receipts
seller has more than one 1) “Waiver of the Privilege to Claim Input Tax Credit”, and
payor-buyer) 2) “Notice of Availment of the Option to Pay the Tax
through the
Withholding Process”.
5) Purchase of goods or Payor-purchaser in the course of trade of business 12% of payee’s
services in the course of gross
trade or business (payee- Payee-seller shall execute waiver and notice of availment sales or receipts
seller has as in above.
only one payor-buyer for
the whole year)
6) Payments for None Not subject
purchasesof goods to
andservicesarising withholding tax
fromprojects funded by
Official Development
Assistance (ODA) as
defined under Republic
Act No. 8182, otherwise
knownas
the‘OfficialDevelopment
AssistanceActof 1996’,
as
amended

f. Remittance of withholding VAT

Remittance of The VAT withheld shall be remitted within ten (10) days following the end of the
withholding month the withholding was made.
VAT

g. VAT-registered who opted to register as non-VAT as a result of additonal VAT-exempt provisions

1) Requirements A VAT-registered taxpayer who opted to register as non-VAT as a result of the
additional VAT- exempt provisions under Sections 109(1)(R), 109(1)(AA), and 109(1)
(BB) of the Tax Code, as amended by CREATE Act and provided that it did not meet
the threshold set under Section 109(1)(CC) thereof, shall:
a. Submit an inventory list of unused invoices and/or receipts as of the date
of filing of application for update of registration from VAT to Non-VAT,
indicating the number of booklets and its corresponding serial numbers;
and
b. Surrender the said invoices and/or receipts for cancellation.
2) Unused invoices or A number of unused invoices/receipts, as determined by the taxpayer with the
receipts approval of the appropriate BIR Office, may be allowed for use, provided the phrase
“Non-VAT registered as of (date of filing an application for update of registration)
Not valid for claim of input tax.” shall be stamped on the face of every copy
thereof, until new registered non-VAT invoices or receipts have been received by
the taxpayer or until August 31, 2021.
3) Submission of new Upon receipt of newly-printed registered non-VAT invoices or receipts, the taxpayer
inventory list of
shall submit immediately a new inventory list of, and surrender for cancellation, all
unused previously-
stamped invoices or unused previously-stamped invoices/receipts.
receipts
4) Treatment of the The taxpayer shall treat the resulting excess taxes paid due to the inclusion in the
resulting excess items exempt from VAT or adjustment in Percentage Tax rates, as the case may
taxes paid due to
be, in the following manner:
VAT- exemption
a) Unutilized VAT paid on local purchases and importation under
subsections 4.109
1(B)(aa)(ii) and 4.109-1(B)(bb) hereof from their specified effectivity under RA No.
11534
on January 1, 2021 until the effectivity of these Regulations may be carried over
to the
succeeding taxable quarter/s or be charged as part of cost, pursuant to Section 110
of the
Tax Code.

b) Input VAT, which are directly attributable to goods now classified as VAT-
exempt, may be
allowed as part of cost. For input VAT that cannot be attributed to goods now
classified as
VAT-exempt, only a ratable portion thereof shall be charged to cost.
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4) Exercises:
a) SR Pharmaceutical Corporation is an exclusive distributor of certan brand of prescription drugs for
cancer drugs in the Philippines. For the period January to March 2021, the said company had the
followng:
Inventory of cancer drugs as of December 31, 2020 P200,000,000.00
Sale of cancer medicine (goods from previous inventory) 200,000,000.00
Total sales for the period 500,000,000.00
Percentage of sale of cancer medicines to total sales for the period 40%

All input taxes from the existing inventory of cancer drugs have been utilized as of December 31, 2020.

SR Pharmaceutical Corporation incurred P20,000,000.00 of input tax for the period from purchases of medicine
other than those prescribed for cancer and no additional purchases of prescription drugs for cancer was
purchased during the period.

Compute the VAT payable Answer:

Output tax (300,000,000.00 x 12%) P36,000,000.00

Less: Input tax 20,000,000.00
b) VAT
Usingpayable P16,000,000.00
the same data in letter a) assuming SR Pharmaceutical Corporation incurred P20,000,000.00 of input
tax for the period from purchases of medicines other than those prescribed for cancer and no additional
purchases of prescription drugs for cancer was purchased during the period. There was an unutiized input
tax of P10,000,000.00 coming from the inventory of cancer drugs from previous period that was carried over
to the succeeding quarter and 50% of the inventory of cancer drugs was sold during the period.

Compute the VAT payable Answer:

Output tax (300,000,000.00 x 12%) P36,000,000.00

Less: Input taxes for the period
Carried over from previous period (cancer drugs) 10,000,000.00
From current purchases (non-cancer drugs) 20,000,000.00
Total available input taxes 30,000,000.00
Less: Input tax identifiable to exempt sales (50% of inventory) (5,000,000.00)
*
*Note:Total allowable inputdirectly
The P5,000,000.00 taxes identifiable to exempt sales shall be charged to cost. (25,000,000.00)
VAT payable P11,000,000.00

h. Advance Payment of VAT

Transactions requiring 1) Sale of refined sugar
advance payment of 2) Sale of flour
VAT 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)
Advance payment of The advance payments made by the seller/owner of refined sugar, importer or miller of
VAT wheat/flour
allowed as credit and sellers/ owners of naturally grown and planted timber products shall be allowed as
against output tax credit against their output tax on the actual gross selling price of refined
sugar/flour/timber products.
Advance payments Advance payments which remain unutilized at the end of the taxpayer’s taxable year
may be available for where the advance payment was made, which is tantamount to excess payment, may, at
issuance of tax credit the option of the owner/seller/taxpayer or importer/miller/taxpayer, be available for the
certificate (TCC) issuance of TCC upon application duly filed with the BIR by the seller/owner or
importer/miller within two (2) years from the date of filing of the 4 th 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.
Advance VAT Advance VAT payments which have been the subject of an application for the issuance of
payment TCC shall not be allowed as carry-over nor credited against the output tax of the
claimed as TCC cannot succeeding quarter/year.
be
carried over
Issuance of TCC limited Issuance of TCC shall be limited to the unutilized advance VAT payment and shall not
to include excess input tax.
unutilized advance
VAT payment
Separate Issuance of TCC for input tax attributable to zero-rated sales shall be covered by a
separate application for TCC following the applicable rules.
applications required
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4. Refund of Input Tax

a. Input Tax on Zero- A VAT-registered person whose sales of goods, properties or services are zero-rated
Rated Sales of or effectively zero-rated may apply for the issuance of a tax credit certificate or
Goods or Property, refund of input tax attributable to such sales.The input tax that may be subject of
Etc. the claim shall exclude the portion of input tax that has been applied against the
output tax. The application should be
made within 2 years after the close of the taxable quarter when the sales were
made.
b. Printing of the The Supreme Court has ruled in several cases that the printing of the word “zero-
word rated” is
“zero-rated” required to be placed on the VAT invoices or receipts covering zero-rated sales in
required order to be entitled to claim for tax credit or refund.
c. Other documents In another case, failure of the taxpayer to indicate its zero-rated sales in its VAT
may be used to returns and in its official receipts is not sufficient reason to deny its claim for tax
prove “zero-rated” credit or refund when there are other documents from which the court can
sale determine the veracity of the taxpayer’s claims.
(Southern Philippine Power Corp. vs. CIR, G.R. 179632, Oct. 19, 2011)
d. Excess or Excess/Unutilized input taxes as a result of the change of status from VAT to
unutilized Non- VAT
input taxes as a registration under Sec. 112(B) of the Tax Code of 1997, as amended, may be
subject to
result of change refund or the issuance of Tax Credit Certificate (TCC), at the option of the taxpayer.
of status from
VAT to
Non-VAT

e. Unused Input Tax of A VAT-registered person whose registration has been cancelled due to retirement
Person Who Retired or cessation of business, or due to change in or cessation of status may, within 2
or Ceased Business 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.
f. Period of Refund or Refund or tax credit certificate shall be granted within 90 days starting January
Tax Credit of Input 1, 2018 (within 120 days before TRAIN) from the date of submission of the official
Tax receipts or invoices and other documents in support of the application filed.
However, all claims for refund/tax credit certificate filed prior to January 1, 2018
shall still be governed by the one hundred twenty (120)-day processing period.
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.
g. Appeal of full or “In case of full or partial denial oftheclaim for tax refund, thetaxpayer affected
partial denial may, within thirty (30) days from thereceipt 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.
h. Manner of Giving Refunds shall be made upon warrants drawn by the Commissioner of Internal
Refunds Revenue or by
his authorized representative without the necessity of being countersigned by
the COA Chairman.

5. Caselets
6.
F. Yabut, VAT registered taxpayer, has the following data for the first month of nd quarter of 2022:
the seco Domestic sales, net of 12% VAT P3,000,000
Export sales 5,000,000
VAT-exempt sales 2,000,000
Purchases attributed to domestic sales, excluding 12% VAT 1,500,000
Purchases attributed to export sales, not including 12% VAT 3,500,000
Purchases attributed to exempt sales, net of 12% VAT 1,000,000
Purchases attributed to all sales, net of 12% VAT 800,000
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Question 1 – How much of the total input taxes can be claimed as tax credit certificate or tax refund?
2 – How much of the total input taxes can be claimed as input tax credit against the output tax
on domestic sales?
3 – Assuming the taxpayer decides to apply a portion of the input taxes attributable to zero-rated
sales against the output tax, what is the net amount of input tax that can be claimed as tax
credit certificate or tax refund?
4 – How much of the total input taxes can be charged to cost or expense?

Answers:
Question 1 - How much of the total input taxes can be claimed as tax credit certificate or tax refund?
Purchases attributed to export sales (3,500,000 x 12%) P420,000
Purchases attributed to all sales (5,000,000/10,000,000 x 96,000) 48,000
Total input taxes that can be claimed as tax credit certificate or tax refund P468,000

Question 2 - How much of the total input taxes can claimed as input tax credit against the output tax on domestic
sales?
Purchases attributed to domestic sales (1,500,000 x 12%) P 180,000
Purchases attributed to all sales (3,000,000/10,000,000 x 96,000) 28,800
Total input taxes that can claimed as input tax credit against the output tax on domestic sales P208,800

Question 3 - Assuming the taxpayer decides to apply a portion of the input taxes attributable to zero-rated
sales against the output tax, what is the net amount of input tax that can be claimed as tax credit certificate
or tax refund?
Domestic sales (3,000,000 x 12%) P360,000
Export sales (5,000,000 x 0%) 0
Output tax 360,000
Less: Input taxes
Purchases attributed to domestic sales (1,500,000 x 12%) 180,000
Purchases attributed to all sales (3,000,000/10,000,000 x 96,000) 28,800 (208,800)
VAT payable P151,200
Less: Input tax attributable to zero-rated sale (468,000)
Total input taxes that can be claimed as tax credit certificate or tax refund P 316,800

Question 4 – How much of the total input taxes can be charged to cost or expense?
Passed-on VAT on purchases attributed to VAT exempt sales (1,000,000 x 12%) P
120,00
0
Ratable portion of passed-on VAT on purchases attributed to all sales (2,000,000/10,000,000 x 19,200
96,000)
Total cost/expense P 139,200