Chapter 9 — Input VAT CHAPTER 9 INPUTVAT. rs are eX| 1. The determination of input VAT : oe 2. The concept of creditable input VAT and its requisites 3. The types of input VAT and their timing of credit 4. The allocation of non-traceable input VAT } 5. The computation and presentation of total allowable input VAT INPUT TAX . Input tax or input VAT refers to the VAT due or paid by a VAT-registereq 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, Determination of Input VAT The VAT on purchase is usually reflected as a separate item in the VAT invoice or VAT official receipt issued by the VAT-registered supplier. Illustration ‘Assume for instance the following VAT invoice issued by a supplier: Selling price P 500,000 Output VAT (12% x P500,000) ‘| Invoice price The input VAT of the buyer is the “Output VAT” on the VAT sales invoice or VAT official receipt issued by the seller or supplier. What if VAT is not separately indicated? If the VAT is not billed separately, the selling price stated in the sales documet! shall be deemed to be inclusive of VAT. (RR16-2005) Illustration Assuming that the supplier simply indicated the P560,000 invoice price withow! separately indicating the VAT thereon, the VAT shall be computed as: Invoice price x 12/112 Hence, P560,000 x 12/112 = P 60,000. 270chapter 9— Input VAT The same procedure is employed when the VAT is erroneously billed by th ed by the seller. CREDITABLE INPUT VAT Not all input VAT paid on purchases is : , wreput VAT. Ses Is creditable (i.e. deductible) against requisites of a creditable input VAT: 4, The input VAT must have b i ; ; Bisinbet een paid or incurred in the course of trade or 2, The at vals evidenced by a VAT invoice or official receipt. 3, The VAT invoice or receipt must be issued by a VAT-registered person : as. VAT is incurred in relation to vatable sales and not from exempt sales. Types of vatable sales: a. Sales to the government b. Export sales c. Regular sales The term “creditable input VAT” is synonymous with “allowable input VAT". Illustration 1 Mrs. Aguilar had a P230,000 output VAT in the month. She also made the following purchases during the month: Goods from non-VAT suppliers P 280,000 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 The creditable input VAT shall be: rR 24,000 Goods from VAT suppliers (P224,000 x 12/112) VAT on importation (P896,000 x 12/112) —— 96,000 Total creditable input VAT P_120,000 Note: 1. The purchases from non-VAT suppliers and purchases of VAT-exempt goods or properties have no Input VAT. ’ : 2. The input VAT on purchases not intended for business (i.e. for personal use) is non- creditable against the Output VAT. 3. Input VAT evidenced by an ordinary receipt rather than by a VAT Invoice ar VAT official receipt is not creditable. 271Chapter 9 — Input VAT The VAT payable of Mrs. Aguilar shall be determined as: Output VAT P 230,000 Less: Input VAT = —120.000 VAT payable R_110,000 Illustration 2 ; Malaybalay Corporation had the following input VAT during the quarter: Input VAT traceable to regular domestic sales P 400,000 Input VAT traceable to VAT-exempt sales 30,000 Input VAT traceable to export sales 600,000 The creditable input VAT shall be: Input VAT traceable to regular domestic sales P 400,000 Input VAT traceable to export sales 600,000 Total creditable input VAT P_1,000,000 Who can avail of input tax credit? a. The importer upon payment of VAT prior to the release of the goods from Customs custody. b. The purchaser of the domestic goods or properties upon consummation of the sale; or c. The purchaser of service or the lessee or licensee upon payment of the compensation, rental, royalty or fee. TYPES OF CLAIMABLE INPUT VAT 1. Transitional Input VAT 2. Regular Input VAT Amortization of Deferred Input VAT Presumptive Input VAT Standard Input VAT Input VAT Carry-Over ANaAw TRANSITIONAL INPUT VAT A person who becomes liable to value-added tax or any person who ee be a VAT-registered person shall be given an initial input tax pls equivalent to 2% of the beginning inventory of goods, materials or supP ‘ or the actual VAT paid thereon whichever is higher. (See Sec. 111 NIR amended by RA 9337) 272Chapter 9 - Input VAT In short, the transitional input an vd VAT inventories in the month of registrat; ‘5 based on vatab ; le beginni ton as a VAT taxpayer. er Illustration 1 Mr. Horace opted to be registered as a VA’ inventory: T taxpayer. He had the following VAT-exempt goods P 80,000 Vatable goods (all purchased from non-VAT suppliers) 40, 800 Equipment (purchased from VAT supplier) 112.000 Total beginning inventory P_232,000 2% of beginning inventory (2% x P40,000) P 800 Actual VAT in beginning inventory 0 Transitional input VAT (HIGHER) Pp 800 Note: 1. The transitional input tax credit 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. (Fort Bonifacio Development Corporation vs. CIR, G.R. No. 158885, October 5, 2009) 2. The transitional input VAT applies only on beginning inventory of goods, materials or supplies, excluding equipment and other capital goods. Illustration 2 Alexander became liable to VAT after exceeding the VAT threshold in November 2014. Alexander had the following beginning inventory for December 2014: VAT-exempt goods P 20,000 Vatable goods: purchased from non-VAT sellers 60,000 purchased from VAT sellers —11,200 Total December 31, 2014 inventory P_91,200 The transitional input VAT shall be computed from the vatable goods as follows: Actual VAT paid to VAT suppliers = (P11,200 x 12/112) P__1,200 Value of vatable goods: From non-VAT sellers 60,000 From VAT sellers = (P11,200 - P1,200 VAT) __ 10,000. Value of inventory P_70,000 273Chapter 9 - Input VAT Value of inventory P 70,000 Multiply by: 2% 2% of beginning inventory (HIGHER) P_1400 The transitional input VAT shall be P1,400. Note: iers ii 12% VAT passed-on by the 1. The purchases from VAT suppliers includes a Suppliers get ns input VAT, the amount shall be multiplied by 12%/1 12%. t 2. Input VAT is not part of the inventory to a VAT taxpayer for income tax purposes, it must be removed from the basis of the 2% transitional input VAT. ence Illustration 3 ; llo-ilo General Merchandise, Inc. exceeded the VAT threshold in June 2014 had the following inventory of goods at the start of July 2014: Frozen meat, eggs and dried fish P 40,000 Fruits and vegetables 50,000 Grocery items (all from VAT suppliers) 22,400 Appliances (from non-VAT suppliers) 30,000 Total beginning inventory P.142,400 Actual VAT = P22,400 x 12/112 P2400 Vatable beginning inventory: - Grocery (P22,400 - P2,400) P 20,000 - Appliances 30,000 Total P 50,000 Multiply by: 2% 2% of beginning inventory Pee 000 Transitional input VAT (HIGHER) P___2,400 Note: Agricultural or marine food products in their original state are exempt from VAT. Illustration 4 Cebu Ventures, a realty development company, started business as a VAT taxpayer with the following initial inventory: Raw land acquired from non-VAT seller P 10,000,000 Various equipments 8,000,000 Office building 20,000,000 Land where the office building stands 4,000,000 The transitional input VAT shall be P10,000,000 x 2% = P200,000. Note: 1, s 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 sale to the public. With respect to real estate dealers, it is the real properties themselves which i i jfacio constitute their "goods." rt Boni Development Corporation vs. CIR, G.R. No. 158885) ir “goo (Fo 274chapter 9—- Input VAT i al Input The transitional input VAT shal] be a VAT I i i The wansiona almable in the month of registration as Requisites for Claim of Transitional Input VAT 1, The taxpayer must submit an inventory list of Boods, 2. The taxpayer must prepare an entry recognizi iti { VAT credit in his accounting rina gnizing the transitional input Accounting entry to record transitional input VAT: P XXX r | Transitional Input VAT | Beginning inventory To record the transitional input VAT P.XXX REGULAR INPUT VAT The regular input VAT is the 12% VAT paid on: a. Domestic purchase of goods, services or properties or b. Importation Timing of Credit of Regular Input VAT Source of Regular input VAT 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: |= General treatment In the month of purchase When the monthly aggregate Amortized over useful life in months acquisition cost exceeds P1,000,000 or 60 months, whichever is shorter Purchase of non-depreciable vehicles Not creditable (RR12-2012) and on maintenance incurred thereon Purchase of Goods or Properties llustration 1; Input VAT on goods i In March si Gai. ABC Company purchased goods worth P40,000, exclusive of VAT. ABC Company paid the invoice on April 28, 2015. The P4,800 input VAT (P40,000 x 12%) shall be claimed in March not in April. 275Chapter 9 — Input VAT i ice Illustration 2: Input VAT on servi ' ; In March 2015, ABC Company retained the services of a Professiong practitioner which billed P168,000, inclusive of VAT. ABC Company paiq te invoice on April 2015. The P18,000 input VAT (P168,000 x 12/112) shall be claimed in Apri not in March. Illustration 3 - Input VAT on importation In March 2015, ABC Company imported goods from abroad with a total landed cost of P200,000. ABC Company paid the P24,000 VAT on importation and withdrew the goods on April 2015. The P24,000 input VAT shall be claimed in April not in March. Input VAT on Purchase of Capital Goods or properties If the monthly aggregate acquisition cost of depreciable capital goods: - do not exceed P1,000,000 - the input VAT is claimable in the month of purchase - exceeds P1,000,000 - the input VAT is deferred and amortized over the useful life in months or 60 months (i.e. 5 years), whichever is shorter The input VAT to be amortized is called the “Deferred input VAT”. Monthly Aggregate Acquisition Cost The “monthly aggregate acquisition cost” of depreciable capital goods refers to the total price, excluding VAT, agreed upon one or more assets acquired and not the payments or installments actually made during calendar month. (RR16-2005 as amended by RR4-2007) The term “depreciable capital goods” refers to goods or properties with estimated useful life of more than one year which are treated as depreciable assets for income tax purposes, used directly or indirectly in the production or sale of taxable goods or services. (Ibid) Illustration 1 Isulan Company, a VAT-registered taxpayer, purchased the following capital goods in March 2014: Capital goods ___ Purchase price Input VAT ___ Useful life __ Equipment P 600,000 P 72,000 4years (48 months) Truck 700,000 _ 84,000 10 years (120 months) Total P 1,300,000 P 156,000 “Acquired on installment, P100,000 down paid during the month 276chapter 9- Input VAT since the monthly aggregate acquisition oe ‘ Cost (ie. P1,, VAT on these properties shall be amortized oa a i [ ee or 5 year’ period not exceeding 60 months Hence, _ The P72,000 input VAT shall be de} it me n thy a sta me March HUM rtne sera OF e P84,000 input VAT shall be deferred in monthly credit starting March poe hi ip Pett iarin Illustration 2 Mr. Alabel, a VAT taxpayer, made the following purchases in July 2014: —Price____Input VAT Goods for sale P 800,000 P 96,000 Car for personal use 1,000,000 120,000 Computers for business use 250,000 30,000 Machineries for business use 750,000 90,000 The useful life of the computers is 3 years while the machineries are expected to last for 7 years. The monthly aggregate acquisition cost shall be: Computers for business use P 250,000 Machineries for business use 750,000 Total P.1,000,000 Note: 1, The car for personal use is not a depreciable asset for income tax purposes. It is a non- excluded in the monthly aggregate acquisition cost. depreciable capital asset; hence, 2. The goods for sale are not capital goods and are also non-depreciable for income tax purposes; hence, likewise excluded in the monthly aggregate acquisition cost. Hence, - Since the monthly aggregate acquisition cost do not exceed P1,000,000, the P30,000 and P90,000 input VAT on the capital goods shall be credited against output VAT in July 2014. These will not be credited by amortization. The P96,000 input VAT on the purchase of goods is creditable in the month of purchase; hence, also creditable in July 2014. : ; - The P120,000 input VAT on the car is non-creditable as it is not incurred in the course of business. Sale or transfer of depreciable capital goods within Syears If the depreciable property is sold or transferred within 5 years prior to the exhaustion of the amortizable input tax thereon, the entire unamortized input tax (deferred input taxon the capital goods sold/transferred can be claimed as input tax credit during the calendar month or quarter when the sale or transfer was made. 277Chapter 9 - Input VAT Illustration a depreciable property (equipment) which was Sold The following relates to during the month: Selling price in cash P eaptioked Output VAT , Original cost of property ’ " P a abd lated depreciation of proper" ,000,| Accumulate Pp! Saat Unutilized input VAT on property duct outright in the month of sale the total unamortizeg The seller can de! the VAT payable on the sale of the property may be deferred input VAT. Hence, computed as: Output VAT P 420,000 Less: Deferred Input VAT ___200,000. VAT payable P__220,000 Accounting entries: Cash (P3,500,000 + P420,000) P 3,920,000 Accumulated depreciation 1,000,000 Equipment P_ 3,000,000 Output VAT 420,000 Gain on sale of asset 1,500,000 To record sale of asset Output VAT P 420,000 Deferred Input VAT P 200,000 VAT Payable 220,000 To record the VAT payable on the sale 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 in the deductibility of depreciation expense on vehicles: a. Pe vehicle for land transport is allowed for the use of an official or by Aig value of which should not exceed P2,400,000. ero: i shall be allowed to yachts, helicopters, airplane and or unless the = RE vehicles which exceeds the P2,400,000 threshold, axpayer’s main line of business is transport operations or 278chapter g— Input VAT lease of transport equipment operations The purchase must be substanti: i i i é ; ated with sufficie official receipts or other adequate records. uci evklene aria“ a. The direct connection or relation of the vehicles to the development, operation and or conduct of the trade or busines: i SO fe taxpayer must be substantiated. aig and the vehicles are used in said Non-conformance to these requisites shall render the vehicle non- depreciable for income tax purposes. The input VAT on the purchase of non-depreciable vehicle and all input VAT on maintenance expenses incurred thereon are likewise disallowed for taxation purposes. (RR12-2012) Input VAT on Construction in Progress Construction in progress is the cost of uncompleted construction work of an asset. This is the accumulated progress billing of the contractor for the extent of completion on an asset under construction. Upon completion of the construction activity, the construction in progress iii is reclassified to an appropriate asset account. RR4-2007 does not consider construction in progress as purchase of capital goods but as purchase of service. Hence, the input tax is creditable upon payment of each progress billings of the contractor and is neither credited upon completion of the construction activity nor amortized over a period not more exceeding 60 months. Illustration In January 2014, Tandag Corporation hired the services of Aliling Construction to build a small sales building at a P11,200,000 fixed price contract price inclusive of VAT. The construction is subject to 10% retention which will be released upon completion. ‘The following quarterly data in 2014 relates to the project: 1" Quarter. 2" Quarter 34 Quarter 4* Quarter Total Quarterly billing P2,240,000 P4,480,000 P 3,360,000 P1,120,000 P 10,000,000 Payments 2,016,000 4,032,000 3,024,000 2,128,000 10,000,000 uarter shall be computed from the payments The input tax claimable in each q : te nstruction in progress” account, hot from the progress billing or “co 279Chapter 9 - Input VAT Thus, 1st Quarter 2" Quarter. 3™ Quarter 4! Quarter Payments P2,016,000 P 4,032,000 P3,024,000 P2,128,000 Multiply by: —12/112 ——la/1d2 TE —12/I 12 P_216,000 P_432,000 P_324,000 P_ 228,000 Claimable input VAT Since the input VAT is claimed while the construction is still in progress, no further additional input VAT can be claimed upon completion of the asset when it js reclassified as a depreciable capital asset and when it is depreciated. If the taxpayer purchases the materials to be used in the construction and the contractor only bills the labor, the input VAT on the Construction in progress shall be claimed upon payment of the billings. The input VAT on the purchases of the materials shall be claimed upon purchase. Input VAT on purchase of real property on installments If the seller of real property is subject to VAT on the sale on a deferred- payment basis not on the installment plan, the input VAT shall be claimable by the buyer at the time of the execution of the instrument of sale, subject to the amortization rule on depreciable properties. However, 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 recognize the output VAT. (Sec. 3 RR4-2007) In other words, the Output VAT appearing on every billing statement of the seller every installment which the buyer is obliged to pay is the input VAT claimable by the buyer. This means the buyer also claims the input VAT in installments. Input VAT on goods or properties deemed sold The claimable input VAT on goods or properties previously deemed sold shall be the portion of the output VAT imposed upon the goods deemed sold which corresponds to the goods purchased by the buyer. Illustration Mr. A had 1,000 pieces of merchandise which were previously deemed sold at a value of P20,000 with an Output VAT of P2,400 upon Mr. A’s retirement from business. Subsequently, Mr. B bought 500 pieces of the 1,000 pieces of the deemed sold merchandise of Mr. A for P12,000, inclusive of VAT. Mr. A indicated the invoice number wherein the output tax on the deemed sale was imposed and billed Mr. Bas follows: 280chapter 9— Input VAT oss selling price P vat previously paid on deemed sale sy van ——1.200 (500/1,000 x P2,400) P__11,800 Mr. Bean claim only P1,200 Input VAT on the 12/112. Note that this is not an erroneous bill oods deemed sold not P12,000 x ling. pRESUMPTIVE INPUT VAT persons or firms engaged in the processin; : 5 g of sardin rn mamtactringt ened sup col eed ae pased instant meals, shall be allowed a presumptive input tax equivalent to 4% of the gross value in money of their purch i f a , products which are used in their predWeBons SE Ee a 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. Code word on qualified processors: Sa MaMi Co PaRe (Sardines, Mackerel, Milk, Cooking Oil, Packed Noodles and Refined Sugar) The presumptive input VAT is a tax incentive to these processors of VAT- exempt raw materials into processed food products. The apparent reason behind the tax incentive is the absence of adequate claimable input VAT for these entities. Without the incentive, their Output VAT is effectively their VAT payable. Illustration 1: Processor of cooking oil Bilimo Oil Corporation, a VAT-registered cooking oil manufacturer, purchased the following materials and supplies in the processing of cooking oils during the month: Cost Input VAT Copra P 1,200,000 - Hexane solvent 50,000 P 6,000 Cans and bottle containers 200,000 24,000 Sodium hydroxide/carbonate 80,000 9,600 Activated carbon 100,000 __12,000 Total P_1,630,000 P_51.600 ced 1,000 cans and 1,500 bottles of cooking oils During the month, Bilimo produ and sold 800 cans and 1,200 bottles to various wholesalers for P2,800,000. The presumptive input VAT shall be P1,200,000 x 4%; hence, P48,000. 281Chapter 9 - Input VAT Assuming that there are no other sources of input VAT, the VAT payable foy month shall be computed as: Output VAT (P2,800,000 x 12%) P 336,000 Less: Input VAT Regular input VAT P 51,600 Presumptive input VAT 48,000 99,600 VAT payable P_236,400 Note: 4. There is no actual input VAT on copra, a coconut product, but the law imputes or allow, . presumptive input VAT on it an incentive. 2. The activated carbon is an industrial processed product, not an agricultural input. Illustration 2: Processor of sardines Sardinas Corporation processes hot chili-flavored sardines. During the month, Sardinas purchased the following ingredients in processing of canned sardines, ——Cost___ Input VAT Fresh sardines P 800,000 3 Hot chili 50,000 . Tomatoes 400,000 - Ordinary salt 20,000 - Tin can 120,000 P 14,400 Wrapper 60,000 7,200 The presumptive input VAT shall be computed from the agricultural purchases as follows: Hot chili P 50,000 Tomatoes 400,000 Ordinary salt 20,000 Total agricultural purchases P 470,000 Multiply by: 4% Presumptive input VAT Note: P__18,800 1. Sardines, including mackerel, are marine products, not agricultural products. The presumptive input VAT, a tax credit, shall be construed against the taxpayer. 2. Ordinary salt is an agricultural food product in original state (RR16-2005) 3. The regular input VAT on the tin can and wrapper 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 3: Processor of refined sugar for others Sugarie Corporation 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. 282chapter 9 -— Input VAT ugarie Corporation nai claim presumptive input VAT because it does not own the sugar it processes, Sugarie shall be subject to 12% VAT on its processing fees, jpsugarie produces raw sugar, its processing fees shall be exempt from VAT, , STANDARD INPUT VAT The sale of goods and Services to the government or any of its political subdivisions, instrumentalities or agencies, including government-owned and controlled corporations (GOCCs) is subject to a 5% final withholding VAT based on the gross payment. The government, instrumentalities, agencies or GOCCs shall withhold the final VAT before making the payment and remit the same within 10 days following the end of the month the withholding was made. The 5% withheld final VAT shall be deemed the actual VAT payable of the seller. Hence, sellers to the government, instrumentalities or agencies including GOCCs can claim an input VAT equivalent to 7% (12% - 5%) of their sales as input VAT. This is called the “standard input VAT”. The standard input VAT will more likely differ with the actual input VAT traceable to the sale to the government or GOCCs. The difference between the two is closed to costs or expenses of the seller. In other words, the difference is recognized as an expense or gain. Illustration 1 AVAT taxpayer made a P100,000 sales to the government invoiced at P112,000 inclusive of output VAT. The taxpayer purchased the same for P90,000 exclusive ofP10,800input VAT. The government will withhold P5,000 (i.e. 5% of P100,000) and release the P107,000 net proceeds of the sale to the taxpayer. The P5,000 withheld is presumed the actual VAT payable of the seller. Hence, Output VAT P 12,000 Less: Standard Input VAT (7%) —_—_—72.000 VAT Payable (5% withheld final VAT) P___5,000 The difference between the actual input VAT and standard input VAT is disposed as follows: Actual Input VAT (amount to be claimed) P 10,800 Less: Standard input VAT (amount allowable) _____7,000 Loss or Addition to costs or expenses P__3,800 283Chapter 9 — Input VAT Alternatively, this can be conveniently analyzed by accounting entries 4, ‘Ss follows: Purchase P 90,000 Actual input VAT 10,800 | Accounts payable/cash P 100,800 To record the purchase Cash/Receivable P 107,000 Standard Input VAT (5% x P100K) 5,000 Sales P 100,000 Output VAT 12,000 To record the sale to the government Output VAT P 12,000 Income & Expense summary (loss) 3,800 Standard Input VAT P_ 5,000 Actual Input VAT 10,800 To close the VAT accounts Illustration 2 A VAT taxpayer purchased goods for P10,000 plus P1,200 input VAT. It sold the goods for P100,000 to a government agency. The sale was invoiced at P112,009 inclusive of P12,000 output VAT. The difference between the actual input VAT and standard input VAT is disposed as follows: Actual Input VAT (amount to be claimed) P 1,200 Less: Standard input VAT (amount allowable) 7,000 Gain or Deduction to costs or expenses PB 5,800 Alternatively, this can be conveniently analyzed by accounting entries as follows: Purchase P 10,000 Actual input VAT 1,200 Accounts payable/cash P 11,200 To record the purchase Cash/Receivable P 107,000 Standard Input VAT (5% x P100K) 5,000 Sales P 100,000 Output VAT 12,000 To record the sale to the government 284chapter 9 - Input VAT tput VAT 1 out Standard Input VAT 2,000 Actual Input VAT P — Income & Expense summa 200 To close the VAT accounts TY (gain) 5,800 What if the seller is a non-VAT seller? The government or GOCC shall withhold a 39 sale before payment. % final percentage tax on the INPUT VAT CARRY-OVER The input VAT carry-over is the excess of the input VAT over the output VAT ina particular month or quarter. It is the VAT overpayment that appears after tax credits and payments are deducted against the net VAT payable. Rules on Input VAT carry-over 4, 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 1 The following data relates to the regular sales of a VAT taxpayer: Qutput VAT —_ Input VAT Prior quarter Pp 350,000 P_390,000 Current quarter: 1 month of current quarter P 120,000 P 100,000 2"4 month of current quarter 150,000 145,000 3" month of current quarter _ 220,000 ___70,000 P_315,000 The credit rules of the input VAT carry-over shall be applied as follows: Priorquarter =o rd Ttmonth = 2 a Output VAT P 350,000 P 120,000 P 150,000 P oo Less: Input VAT _390,000 190,000 ___ Ass.000 40.000 Carry-over (p_40,000) —> __40,000 Input VAT carry over (p_20,000) > Sern Not an input VAT carry-over (P_15,000) ___— VAT payable 2.135,000 285Chapter 9 — Input VAT The taxpayer will not pay VAT in the prior quarter, first month and Second month of the current quarter since there is a negative VAT payable, Th taxpayer shall pay P135,000 VAT in the third month of the current quarter” Note: 1, The P40,000 input VAT carry-over in the prior quarter Is creditable in the first Month of the current quarter, 2. 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. 3. 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 jn the preceding quarter is credited in the current quarterly balance, Illustration 2 The following data relates to the regular sales of a VAT taxpayer: Qutput VAT — Input VAT P.360,000 P_400,000 Prior quarter Current quarter: 1st month of current quarter P 160,000 P 100,000 25d month of current quarter 150,000 160,000 34 month of current quarter 170,000 65,000 P.480,000 P_325,000 The credit rules of the input VAT carry-over shall be applied as follows: Prior quarter 34 month 1st month 24 month 34 month Output VAT P 360,000 P 160,000 P 150,000 P 480,000 Less: Input VAT 400,000 100,000 160,000 325,000 Carry-over (2_40,000) —>__40,000 ----------> 40,000 VAT Payable P_20,000 . 20,000 Notaninput VAT carry-over (P_10,000) _ VAT payable P_95,000 Note: 1, The P40,000 input VAT carry-over in the prior quarter is deductible in the first month of the following quarter. The taxpayer shall pay the P20,000 VAT payable in the first month. The P10,000 excess input VAT in the second month cannot be carried over to the third month. 3. The P40,000 input VAT carry-over in the prior quarter is deductible in the third month of the current quarter. 4. The VAT paid in the first two months of the quarter is deductible in the quarterly balance. asta hay P20,000 VAT paid in the first month is deducted in the quarterly VAT payable computation. WHAT ARE EXCLUDED FROM INPUT VAT CARRY-OVER? 1. Advanced VAT which have 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 286chapter 9 - Input VAT Input VAT attributable to zero-rat : yea prescriptive period ed sales that expired after the two- the rules of advanced VAT will be discussed in the following chapti er. RULES ON CLAIM OF INPUT VAT DEDUCTION (cREDIT) 1. specific identification - input VAT that 2 sales transaction is credited against the ne ee 2 pro-rata allocation - the amount of input tax due or paid that cannot be directly and entirely attributed to any one of the sales transaction: shall be allocated proportionately on the basis of sales ° [lustration 1 - Specific Identification A VAT taxpayer had the following sales and with their ing di traceable input VAT during the month: ve ame! Sales amount _Input VAT_ Sales to private entities P 900,000 P 60,000 Export sales 300,000 36,000 Sales to government 250,000 24,000 Sales of exempt goods 100,000 2,000 Total P_1550,000 P__122,000 The Creditable Input VAT may be computed directly as: Input VAT on private sales P 60,000 Input VAT on export sales 36,000 Input VAT on government sales (7% x P250,000) 17,500 Total allowable (creditable) Input VAT P_113,500 Input VAT deductible against gross income through costs and expenses: Input VAT on exempt goods . 2,000 Excess input VAT (government) (P24,000 - P1 7,500) __ 6,500. Total P__8,500 Illustration 2 -Non-traceable input VAT A taxpayer engaged in merchandising had the following transactions during the month: Exempt sales P 200,000 Export sales 300,000 Sales to government 100,000 Regular sales __400,000 Total P_1,000,000 287th, the taxpayer had P124,000 total input va During the mon y . ‘ular transaction. T tha traced to a partic t “Ang, & The non-traceable input VAT shall be allocated as follows: Sales Allocation _Amount _ __Factor _ Allocateg Exempt sales P 200,000 P200K/P1M xP124,099 - 5 Export sales 300,000 P300K/P1M xP124,009 - 24.895 Sales to government 100,000 P100K/P1M x P124,009 - 37,244 Regular sales ____ 400,000 P400K/P1M x P124,009 - 12,49 Total sales P_1,000,000 Ee 24.09) The creditable input VAT shall be: Input VAT allocable to export sale P 37,200 Standard input VAT (P100,000 x 7%) 7,000 Input VAT allocable to regular sales —__ 49,600 Total P___93,800 Illustration 3 -With Non-Traceable Input VAT A taxpayer had the following sales during the month: Sales Traceable —Amount _ _Input VAT Exempt sales P 200,000 P . 12,000 Regular sales 300,000 18,000 Total P_500,000 P___30,000 There are P24,000 input taxes that cannot be traced to either type transaction. The creditable input VAT shall be: Input VAT directly traceable to vatable sales P 18,000 Allocated input VAT to vatable sales (P300,000/P500,000 x P24,000) 14,400 Total allowable (creditable) input VAT P___32,400 COMPUTATION OF THE ALLOWABLE OR CREDITABLE INPUT VAT WN THE VAT RETURN In practice, the allowable (creditable) input VAT is computed and preset in the VAT return as follows: aeet ut tax carry-over, from previous period Inp : i red input tax on capital goo . P XXxX,xxx perpsitional input tax Bonds exceeding PIM XXX, XXX Pi resumptive input tax XXX,XXX regular input VAT from: XXX) XXX purchases of capital goods not exceeding P1M purchase of capital goods exceeding P1M XXX,XXX Domestic purchases of goods, other than capital XXX,XXX importation of goods, other than capital gicis goods XXX,XXX Domestic purchases of services oe Services rendered by non-residents Se Others XKGKEX Total available input tax BAKKE jess: Deductions from input tax Leptecent Input tax on capital goods, deferred fo i Input tax on sales to gov't closed to empense, ile ee Input tax allocable to exempt sales oak Input VAT claimed as refunds/TCC sc xi Others : lee : Total allowable (creditable) input tax . P_xxx.xxx Illustration AVAT taxpayer had the following data during the month: Sales to regular customers P 4,000,000 Sales to the government 1,000,000 Export sales 3,000,000 Exempt sales 2,000,000 Total sales P10,000,000 In} Input VAT carry-over, from prior period P 80,000 Deferred input tax (already amortized for 21/36 months) 75,000 Purchase of goods or services P 7,000,000 P 840,000 Importation of equipment (8 year life) 1,200,000 144,000 Purchase of non-depreciable goods 80,000 9,600 Input VAT traceable to exempt sales P 196,800 Amount applied for VAT refunds/TCC on export sales 150,000 Input VAT traceable to sales to the government 90,000 e ‘ + ri : Amortization of deferred input VAT on capital goods : ps Input VAT on supplies ee 5,500 Total non-traceable input VAT 289Chapter 9 = Input VAT ‘The creditable input VAT shall be computed in the VAT return as; Input VAT carry-over, from prior period P 80,000 Deferred input VAT 75,000 f goods or services 840,009 Input VAT on purchase 0} Input VAT on importation 0 Total available input tax Less: Deductions from input tax 5 Deferred input VAT for succeeding period' —P 211,600 Input VAT on exempt sales? 203,900 t VAT on export sales ap| se ‘ 150,000 refund or tax credit ales to government? 23,350 ___588,859 f equipment P11 39,000 plied for Excess input VAT on s: Total allowable (creditable) input VAT P__550,150 Notes to allowable input VAT computation: tax on capital goods with monthly aggregate 1, Amortization schedule on input acquisition costs exceeding P1M: Beginning Allowable Ending Balance _thismonth_ _ Balance _ From previous period P 75,000 P 5,000 P 70,000 This period (60 months max.) 144,000 ____2.400 ___141,600 Total p__219,000 P____7,400 P___211,600 Note: eriod shall be amortized over the remaining 15 1. The deferred input VAT from prior p' (ie 36-21) unamortized months. Hence, P75,000 + 15 = P5,000. 2. The P144,000 input VAT on the imported equipment must be amortized over 60 months. Hence, P144,000 + 60 = P2,400. 2. Input tax on exempt sales Total input tax directly attributable to exempt sales P 196,800 Add; Ratable portion of input tax not directly attributable (P2,000,000/10,000,000 x P 35,500) gts 7,100. Total input tax attributable to exempt sales P___203,900 3. Excess input VAT on sales to the government Input tax directly attributable to government sales P. 90,000 Add: Ratable portion of input tax not directly attributable (P1,000,000/10,000,000 x P 35,500) 550 Total input tax attributable to sales to the government P 93,350 Less: Standard input VAT (P1M government sales x 7%) ___ 70,000 Input tax on sales to government closed to expense P___23,350 included in Note: This excess amount can be a negative or positive. The amount is simply i the computation whether positive or negative. 290