MODULE 6. Example 6-2.

COMMON VAT RULES ON SALE OF GOODS, PROPERTIES AND

SERVICES - INPUT TAX ON CAPITAL GOODS AND INPUT TAX
Alpah Co. made acquisitions of fixed assets, VAT not
ALLOCATION included, mentioned below, with journal entries below:
Lesson 1 – Input Tax on Capital Goods Asset 1: June 5, 2019 (life of 6 years) ₱300,000
CAPITAL GOODS Asset 2: June 15, 2019 (life of 2 years) 600,000
- goods with estimated useful life of more than 1 year Asset 3: June 25, 2019 (life of 4 years) 480,000
- subject to depreciation (or amortization) under
income tax law,
- used in the production and sale of taxable goods or June 5
services. Fixed asset 300,000
Figure 6-1. Input tax on capital goods. Input taxes 36,000
If the aggregate cost of input tax of each asset will be Cash/Payable 336,000
the capital goods in a allowed in the month of June 15
month does not exceed purchase.
₱1,000,000. Fixed asset 600,000
If the aggregate cost of input tax on each asset will be Input taxes 72,000
the capital goods in a amortized monthly, over its Cash/Payable 672,000
month exceeds life, not exceeding 60 months, June 25
₱1,000,000. or 60 months, whichever is Fixed asset 480,000
shorter.
Input taxes 57,600
Quick Facts:
❖ Consider the aggregate of costs of ALL capital goods
Cash/Payable 537,600
purchased or imported WITHIN THE MONTH: The aggregate costs of all acquisitions during the
 If not exceeding ₱1,000,000, input tax on each, upon month exceeded 1M. Input taxes will be amortized.
purchase.
 If exceeding 1,000,000, amortize the input taxes.
Example 6-1.
A VAT taxpayer made a purchase on June 2, 2019 of Amort. Of input tax 2019-21 2021-23 2023-25
Asset 1 – 6 yrs. P600 P600 P600
machinery for use in his business:
300k x 12%=36k/60
A. Acquisition cost, VAT not included = ₱500,000
Asset 2 – 2yrs. 3,000 Expired Expired
useful life = 10 years
600kx12%=72k/24
Input tax = 500k x 12% = ₱60,000. Asset 3 – 4 yrs. 1,200 1,200 Expired
B. Acquisition cost, VAT not included = ₱3,000,000 480kx12%=57.6k/48
Useful life = 10 years Amort. Per month P4,800 P1,800 P600
Input tax = 3M x 12% = 360k / 60 months = ₱6,000. Input taxes in June 2019 for acquisitions:
C. Acquisition cost, VAT not included = ₱3,600,000 (₱36,000+₱72,000+₱57,600) 165,000
Useful life = 3 years Less: Amortization, June 2019 (4,800)
Input Tax = 3.6M x 12% = 432k / 36 months = ₱12,000. For Amortization after June 2019 160,800

Journal entry:
June 30, 2019
Deferred input tax 160,800
Input taxes 160,800
When asset with unamortized input tax is retired from
business, it must be closed against the output taxes.
if amortized in July 2019:
Output taxes xxx
Input taxes xxx
Deferred input taxes 160,800

CONSTRUCTION IN PROGRESS (CIP)

- cost of construction which is not yet completed.
- considered a purchase of services.
- Its value will be determined based on progress
billings.
- Its input taxes will be recognized in the month
payment was made on the progress billing.
- In case of a contract for sale of service where
only labor will be supplied by the contractor
and materials will be purchased by the
contractee, input tax on labor will be recognized
in month that payment was made based on
progress billings, while input tax on materials
 will be recognized when the materials were VAT business with non-VAT business
purchased.
Example 6-3. Example 6-4.
a. There was a CIP for a depreciable asset for use in
Ceeh Co. has Business No. 1 (subject to VAT), and
business with the following data:
Business No. 2 (not subject to VAT)
- Taxpayer will purchase materials, and the VAT
contractor will furnish labor for a contract price 03/01 Purchases goods from VAT 200,000
of ₱2,000,000, which there would be progress suppliers for VAT business
billings. (VAT not included)
- In a month, taxpayer purchased materials (VAT
03/03 Purchase goods from non-VAT 180,000
not included) of ₱500,000, and paid the
suppliers, for non-VAT business
contractor P400,000 (VAT not included) on the
(VAT not included)
progress billing.
03/15 Purchase supplies from VAT 20,000
On the materials (500k x 12%) 60,000
suppliers, for use of VAT and non-
On the progress billings (400k x 12%) 48,000
VAT business (VAT not included)
Total input taxes 108k
b. Mr. Aopa entered into a contract with a building 03/16 Sales, VAT business, VAT not
contractor. included
- contractor will furnish materials and labor, and 03/25 Sales, non-VAT business, invoice
will pay according to the progress billings of price
contractor. The VAT payable would have been computed as:
- The total contract price was ₱10,000,000.
- For the month of June 2019, Mr. Aopa paid the
contractor ₱2,000,000.
VAT = ₱2,000,000 x 12% = ₱240,000

Quick Fact:
- The rule on CIP will apply even if the total
payments for the month on progress billings
and materials exceeded ₱1,000,000.

Lesson 2 - Input Tax Allocation

IMPORTANT RULE TO REMEMBER: Allocation will be Lesson 3 - 12% rated sales with 0% rated sales
based on sales.

a. When taxpayer with VAT business and non-VAT

business makes a purchase during the month from a
VAT registered person, the input tax will be allocated
between VAT and non-VAT business.
b. When taxpayer with domestic and export sales
makes a purchase during the month from a VAT-
registered person, input tax will be allocated
between the 12% and 0% rated sales. Input tax
allocated to export sales is refundable or creditable
against other internal revenue taxes due.
c. When a VAT-registered person sells goods/
properties /services to the Government, including
GOCCs, (subject to 5% final VAT) the input taxes will
be allocated between sales to public and sales
allocated to Government, etc. The VAT input tax
allocated the latter will be cost or expensed to the
seller.
 Example 6-5. For a previously VAT-exempt person who become a VAT
Diego Lalu Co. (VAT taxpayer) sales, and purchases from taxpayer, he will be allowed transitional input taxes on
his inventory on transition date of:
VAT suppliers, VAT not included, in a month:
a. goods,
Sales, domestic 2,000,000
b. materials
Sales, exports 8,000,000
c. supplies
Purchases of goods for domestic sales 600,000 equivalent to 2% of inventory value, or VAT actually
Purchases of goods for export sales 2,400,000 paid on it, whichever is higher.
Purchases of equipment, for
domestic and export sales 900,000 However, no transitional input tax on:
a. services
INPUT TAX ALLOCATION: b. capital goods
c. goods that are VAT exempt under Section 109
of NIRC.
Example 6-7.

 Mr. Asev began business as trader, non-VAT

taxpayer.
 In first calendar year of operations he was not
subject to VAT.
 He became subject to VAT on 1/1/2019.
 On 12/31/2018, he had an inventory with
valuation in Financial Position from purchases
from VAT suppliers, VAT included, of ₱5,600.
 input tax of ₱374,400 may be refunded separately  In January 2019, his gross sales is ₱120,000, and
of VAT payment of ₱146,400, OR purchases of P40,000 from VAT suppliers, VAT
 credited against the VAT payable on domestic not included.
sales.  VAT payable for January 2019 would have been
VAT payable on domestic sales 146,400 computed thus:
Less: VAT refundable on exports (374,400)
Net VAT refundable (228,000) Output taxes (120k x 12%) 14,400
 VAT refundable of ₱374,400 may also offset Less: Input tax on purchases 4,800
against any other internal revenue tax (i.e. income of January (40k x 12%)
tax due). Transitional input tax on December 31, 2018
inventory —
Statutory provision (5k x 2%) 100
Sales to the public with sales to the Government Actually paid (5,600 x 600
Example 6-6. 12/112)
Sales to public 3,000,000 Whichever is higher 600 (5,400)
VAT payable 9,000
Sales to Government 2,000,000
Total 5,000,000 Quarterly Summary List of Sales and Purchases
Purchases 2,400,000 - All persons liable for VAT (manufacturers,
Input tax on purchases of 2,400,000 wholesalers, service providers), are required to
(2,400,000x12%) ₱ 288,000 submit Quarterly Summary List of Sales and
VAT payable on sales to public: Quarterly Summary List of Purchases.
Output taxes (3,000,000 x 12%) 360,000 - It will be submitted through Compact Disk-
Less: Input taxes on sales to public Recordable (CDR) medium. (Rev. Reg. No. Books
(3,000,000/5,000,000 x 288,000) (172,800) of Accounts 1-1012).
Value-added tax payable ₱ 187,200 Books of Accounts
- must be registered with BIR before they are
used.
Lesson 4 - Transitional Input Tax. The Purchases Book and the Sales Book
Transitional input tax. - Purpose of Purchase Book: to have in one book
- When taxpayer who is not subject to the VAT of accounts, clearly classified, in columns, all
becomes subject to VAT because: purchases on account with VAT, the VAT on
a. Gross sale exceeded ₱3,000,000. them, and purchases without VAT.
b. Taxpayer exempted from VAT and opted to be - total input taxes on purchases on account of
registered under VAT system; taxpayer will be any month is shown under the column Input
allowed an input tax on his inventory on the Taxes.
transition date. - Purpose of a Sales Book: to have in one book of
accounts, unmistakably classified, in columns,
 all account sales subject to VAT, the output
taxes, and sales not subject to tax.
- Total output taxes on sales on account in a
month is shown under the column Output
Taxes.
- Other books of accounts (i.e., cash receipts
book, cash disbursement book, and general
journal) may also have entries involving the
VAT.
Example 6-8.
 Mr. M (VAT taxpayer) had a Purchase Book and a
Sales Book, with entries shown in Figure 6-3 & 4.
 VAT payable from cash purchases and sales will
be recorded in General Journal.
 Purchase Book shows total input taxes of
₱30,000 and Sales Book shows total output taxes
of ₱84,000.
 cash purchases and cash sales in the General
Journal had input taxes of ₱40,000 and output
taxes of ₱100,000.

Output taxes (84k+100k) 184,000

Less: Input taxes (30k + 40k) (70,000)
VAT payable 114,000