Chapterg-lnputVAT

CHAPTER 9
INPUT VAT

Chapter Overview and Obiectives

After this chapter, readers are expected to comprehend:

L. The determination of inputVAT
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 inputVAT
5. The computation and presentation of total allowable in

INPUT TAX
Input tax or input vAT 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.

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:

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 the VAT is not separately indicated?

If the vAT is not billed separately, the selling price stated in the sales document
shall be deemed to be inclusive of VAT (RR16-2005).

Illustration
Assuming that the supplier simply indicated the p560,000 invoice price without
separately indicating the VAT thereon, the VAT shall be computed as:

Invoice price x 12/112

Hence, P560,000 x 12/112 = P60,O1A.

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' The same procedure is employed when the VAT is erroneously billed by the seller.

CREDITABTE INPUTVAT
Not all input VAT paid on purchases is creditable or deductible against
output VAT.

Requisites of a creditable input VAT:

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

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',L20,000
Importation of grapes and apples for sale 300,000
Importation of merchandise for sale, VAT inclusive 896,000
Services from VAT suppliers, evidenced
byordinaryreceipts 120,000

The creditable inputVAT shall be:

Goods from VAT suppliers (P224,000 x12/712) P 24,000

VAT on importation (P896,000 x12/L72) 96.000
Total creditable input VAT P-=-120,000
Note:
7. 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 useJ is non-
creditable against the output VAT.
3. Input VAT evidenced by an ordinary receipt rather than by a VAT invoice or VAT official
receipt is not creditable.

The VAT due of Mrs. Aguilar shall be determined as:

Output VAT P 230,000

Less: Input VAT 120.000
VAT due P 110.000

Illustration 2
Malaybalay Corporation had the following input VAT during the quarter:

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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_iL000*000

TYPES OF INPUTVAT
7. Transitional InputVAT
2. RegularInputVAT
3. Amortization of Defeted InputVAT
4. Presumptive InputVAT
5. StandardInputVAT
6, InputVAT Carry-over
TRANSITIONAL INPUT VAT
A person who becomes liable to value-added tax or any person who elects t
be a VAT-registered person shall be given an initial input tax credi
equivalent to 2o/o of the beginning inventory of goods, materials, or supplie
or the actual VAT paid thereon whichever is higher (See Sec. 111 NIRC a
amended by M 9337).

The value allowed for income tax purposes on inventory shall be the basis o
the computation of the 2o/o transitional input VAT. (5ec.111.1(a), RR1(
2005). Goods exempt from VAT shall be excluded in the computation of th
transitional input VAT (RMC 62-2005).

In short, the transitional input VAT is based on vatable beginnin

inventories in the month of registration as a VAT taxpayer.

Illustration 1
Mr. Horace opted to be registered as a VAT taxpayer. He had the followinl
inventory:

VAT-exempt goods P 80,000

Vatable goods (all purchased from non-VAT suppliers) 40,000
Equipment (purchased from a VAT supplier) 112.000
Total beginning inventory P 232.000

2olo of beginning inventory [20lo x P40,000) P 800

Actual VAT in beginning inventory 0
Transitional input VAT (HIGHER) P 800
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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 to 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
2020. Alexander had the following beginning inventory for December 2020:

VAT-exempt goods P 20,000

Vatable goods:
- purchased from non-VAT sellers 60,000
- purchased from VAT sellers 7L.200
Total December 31, 2020 inventory P__91-21X0

The transitional inputVAT shall be computed from the vatable goods as follows:

Actual VAT paid to VAT suppliers = (P11,200 x12/71.2)1P-L20O

Value ofvatable goods:

- From non-VAT sellers 60,000
- From VAT sellers = (P11,200 -P7,200 VAtlz 10.000
Value of inventory P 70,000
Multiply by: 2o/o
270 of beginning inventory (HIGHER) P t 40I)
The transitional input VAT shall be P1,400.
Note!
1. The purchases from VAT suppliers include aLZo/oYAT passed on by the suppliers. To get
the input VAI the amount shall be multipliedby l2o/o/712o/o.
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 20lo transitional input VAT.

Illustration 3
Ilo-ilo General Merchandise, Inc. exceeded the VAT threshold in |une 2020.|t
had the following inventory of goods at the start of July 2020:

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_142490

Actual VAT = P22,400 xl2/112 P 2.400

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Vatable beginning inventory:

- Grocery 1P22,400 - P2,400) P 20,000
- Appliances 30.000
Total P 50,000
Multiply by: 2o/o
2%o of beginning inventory P L.000

Transitional input VAT IHIGHER] 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 Vl
taxpayer with the following initial inventory:

Raw land acquired from a non-VAT seller P 10,000,000

Various equipment 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 x2o/o = P200,000.

Note:
1. Actual payment of input VAT is immaterial to the claim of transitional input VAT.
2. Goods, as commonly understood in the business sense, refer to the product which t
VAT-registered person offers for sale to the public. With respect to real estate dealers
is the real properties themselves which constitute their "goods" (Fort Bonifar
Development Corporation vs. Cl& G.R No. 15BBB5).

Rationale of the Transitional InputVAT

Non-VAT taxpayers are not allowed to claim input VAT hence the VAT thr
pay on their purchases is part of their costs or expenses. However, thr
sales of pre-VAT registration inventory become instantly vatable after thr
register as VAT taxpayers. As such, the law deemed it equitable for them
be given an incentive for a transitional input VAT.

However, it must be noted that VAT-exempt goods are not subject to outp
VAT when sold. Hence, there would be no basis to claim transitional inp
VAT on them. Thus, RMC 62-2005 clarified that exempt beginning invento
shall be excluded in the basis of the 2o/o transitional input VAT.

Timing of Credit of Transitional InputVAT

The transitional input VAT shall be claimable in the month of registration
a VAT taxpayer.

Requisites for Claim of Transitional InputVAT

L. 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
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\ Accounting entry to record transitional inputVAT

\ iTransitionallnputVAT ''.,.,
PXn{
PxXx
'P)W{
t I Beginninginventory;.
-To , .; " .

recotd the transitionalinputVAT

\ I
I I ..* -r*'*"**"*,
t

REGUU\R INPUT VAT

-'"'-*;**
The regular inputVAT is the 120lo VAT paid on:
a. Domestic purchase of goods, services, or properties, or
b. Importation of goods or service
Timing of Credit of Regular Input VAT

Purchase ofgoods or Proqerties LM

Purchase ofservices In the month pai-d
Imaortatian of ooods In the month VAT is Paid
puiiiise of deprecioble capitnl goods or p-rqper!@s:-
General treatment M
Amortized over
-
useful life in months
When the monthly aggregate
aco uisition cost exceeds P 7,0 0 0,0 0 0 or 60 months, whichever is shofgl
Purchase of non-depreciable vehicles Not creditable [RR12 -2012)
and on maintenance incurred tlrcreon

Purchase ofGoods or ProPerties

Illustration 1: InPutVAT on goods

In March TS,ZOZO,ABC Compiny purchased goods worth P40,000, exclusive of
VAT. ABC Company paid the invoice on April 28,2020'

The P4,800 inputvAT (P40,000 x 120/o) shatl be claimed in March, not in April.

Illustration 2: InputVAT on service

In March 2020, ABC Company retained the services of a professional
practitioner who billed P168,000 inclusive of VAT. ABC Company paid the
invoice in April 2020.
The P78,000 input vAT (P168,000 x 12/112) shall be claimed in April, not in
March.

Illustration 3 - InputVAT on importation

In March 2020, iBC Company imported goods with a total landed cost of
P200,000, ABC Company paid the P24,000 VAT on importation and withdrew
the goods on April 2020.
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The P24,000 inputVAT shall be claimed in

Aprit, not in March.
InputVAT on purchase of Capital Goods orproperties
If the monthly aggregate acquiiition cost
of depr".irui" Lpital goods:
' Does not exceed pr,000,000- The input
vRr is craimabie in the month of
purchase.
- Exceeds p1,000,000 - The input vAT is deferred and amortized over the
usefur life in months or 60 months
[i.e., 5 yearsJ, whichever is shorter.
The input VAT to be amortized is called
the,,Deferred inputVAT.,
Monthty Aggregate Acquisltion Cost
The."monthly aggregate acquisition cosc'of
depreciable capitar goods refers
to the total price, excruding vAT, agreed
upon one or more assets acquired
and not_-the payments or instailmEnts actuaily
.J.ar.i,g ---o the carendar
month. (RR16-2005 as amended by RRa-2002)
The term "depreciabre- capitol goods" refers
to goods or properties with
estimated usefur life of more than one year
whichire treatei as depreciabre
assets for income tax purposes, used
directry or inairecuyl;;" production
or sale of axable goods or services. (/br.dJ

Illustration 1
registered taxpaver, purchased the rollowing
capitar
[1X],:"^[i i|t;01{.!'
goods VAT
Canital

f:;:ilf",, p orice purchase lnput

ood,ooo ffi,g99 -E#(4#onthsr
ltseful life

i;;;i . ;fl8fffi , #ff*fi irzo 10 vears monttrs)

*Acquired on
installment, p100,000 downpayment is paid
during the month

since the monthly aggregate acquisition

cost (i.e., p1.3M) exceeds p1M, the input
vAT on these properties shail be omortized
over a period not exceeding 60 months
or 5 yeors.
Hence,
- The P72,000 input vAT shatt be deferred
and in p1,s00 (p72,000/4s)
monthly credi* starting March 2ti2O undt .crediwd (

- The p84,000 input vA.T shart be deferred

Fetruary ZiZi.-'--"
and in- p1,400 (p84,000/60)
monthly credits starting March 2dZ0 until .creditei
Februory 2025.
Illustration 2
Mr. Alabel, a VAT taxpayer, made the
following purchases inJuly 2020t

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Purchases Price InoutVAT

i Goods forsale P 800,000 P 96,000
1 Car for personaluse 1,000,000 120,000
i Computers for business use 250,000 30,000
i Machineries for business use 750,000 90,000
The useful life of the computers is 3 years while the machineries are expected tr
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_l*Q00CI00
Note:
1. The car for personal use is a capital asset rather than an ordinary asset subject t
depreciation; hence, it is excluded from the monthly aggregate acquisition cost.
2. The goods for sale are not capital goods and are also non-depreciable for.income ta
purposes; hence, likewise excluded from the monthly aggregate acquisition cost.

Hence,
- Since the monthly aggregate acquisition cost does not exceed P1,000,00(
the P30,000 and P90,000 input VAT on the capital goods shall be credirer
against output VAT in July 2020. These will not be credited by amortization
- The P96,000 input VAT on the purchase of goods is creditable in the montl
of purchase; hence, it is also creditable in fuly 2020.
- The P120,000 input VAT on the car is non-creditable as it is not incurred ir
the course ofbusiness.

Sale or transfer of depreciable capital goods within 5 years

If the depreciable property is sold or transferred within 5 years prior to thr
exhaustion of the amortizable input tax thereon, the entire unamortize(
input tax (deferred input tax) on the capital goods sold/transferred can b,
claimed as input tax credit during the calendar month or quarter when thr
sale or transfer was made,

Illustration
The following relates to a depreciable properry (equipment) which was solr
during the month:

Selling price in cash P 3,500,000

Output VAT 420p00

Original cost of property P 3,000,000

Accumulateddepreciationofproperty 1,000,000
Unutilized input VAT on property 200,000
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The seller can deducr the total unamortized deferred input vAT outright in
the
month of sale. Hence, the vAT payable on the sale oi the property may be
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

Accumulate d dep reciati on 1,000,000
Equipment P 3,000,000
Output VAT 420,000
Gain on sale ofasset 1,500,000
To record sale ofosset

OutputVAT p 420,000
Deferred InputVAT p 200,000
VAT Poyable 220,000
To record the VAT payable on the sale

Scheduled phase-out of the amortization treatment

under the TRAIN law, the amortization treatment of deferred input vAT
will
be phased out effective fanuary r, 2022. previously recognized deferred
input vAT will continue to be amortized even after that date-but the deferral
treatment will be stopped. Input vAT on capital goods will be claimed
outright in the month of purchase effective fanuary t, ZOZZ.

Special Rules on Input Tax Credit

7, Non-depreciable vehicles
2. Construction in progress
3. Purchase of real properq/ on installment
4. Purchase of goods or properties deemed sold
Input VAT on Non-depreciable vehicles
Rules in the deductibility of depreciation expense on vehicres:
a. only one vehicle for land transport is aliowed for the use of an official
or
employee, the value of which should not exceed pZ,4O0,OOO.
b. No depreciation shall be allowed to yachts, helicopters, airpranes
and/or aircrafts, and land vehicles which exceed ihu pz,+0o,0oo
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

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c. The purchase must be substantiated with sufficient evidence such as

official receipts or other adequate records.
d. The direct connection or relation of the vehicles to the development,
operation and or conduct of the trade or business or profession of the
taxpayer must be substantiated.

Non-conformance to these requisites shall render the vehicle non-

depreciable for income tax purposes'

The input VAT on the purchase of a non-depreciable vehicles and all input
VAT on maintenanc. s"t incurred thereon are likewise disallowed for
"ip.t
taxation purposes (RRl 2 -2 0 12 ).

InputVAT on Construction in Progress

Construction in progress is the cost of uncompleted construction work of
an asset. This is the iccumulated 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 account is reclassified
to an appropriate asset account.

RR4-2007 does not consider construction in progress as purchase of capital

goods, but as purchase ofservice'

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 |anuary 2020,Tandag Corporation hired the services of Aliling Construction
to build a small sales building at an P11,200,000 fixed price contract price
inclusive of VAT. The construction was subject to L00/o retention which would
be released upon comPletion.

The following quarterly data in 2020 relates to the project:

7't Quarter 2'd Quarter 3rd Quarter 4tn Quatter Total

Quarterlybilling P2,i40,000 P4,480,000 P 3,360,000 P1,120,000 P 10,000,000
laymenis 2,076,000 4,032,000 3,024p00 2,128,fr00 10,000'000

The input tax claimable in each quarter shall be computed from the payments,
not from the progress billing or "construction in progress" account'

Thus,
l.st Quarter Zna Quatter jra Quarter
4th Quatter

Payments P2,016,000 P 4,032,000 P3,024,000 P2,L28,000

Multiply by: 12/7t2 12/112 12/LL2 t2/tL2
Claimable inputVAT p-2L6-000 P--ai2p99. P-L21 000 P-228.000

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Since the inputVAT is claimed while the construction ls still in progress, no

further
additional input vAT can be claimed upon completion of *, isset when it is
reclassified as a deprcciable capitul aset andwhen itis dejreciated.

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 puichase.

InputVAT 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 noton the instullment plan, the lnput VAT shall be claimable
by the buyer at the time of the execution of the initrument 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 recognizes the output vAT (sec 3 Rin-zooz1.

In other words, the output vAT appearing in every billing statement of the
seller at every installment-which the buyer is obliged to pay is the input
vAT
claimable by the buyer. This means the buyer alJo daimjthe inpui vAT in
installmenb.

InputVAT 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. At retirement from
business.

Subsequently, Mr. B bought 500 pieces of the 1,000 pieces of the merchandise
deemed sold from Mr. A for pl2,ooo, inclusive of vAT. 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 p 11,000

VAT previously paid on deemed sale I.ZOO (500/1,000 x p2,400)
Total p_--11"g00

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Mr. B can claim only P7,200 Input VAT on the goods deemed sold, not p72,000 x
12/112. Note that this is not an erroneous billing.

PRESUMPTIVE INPUTVAT

Persons or firms engaged in the processing of sardines, mackerel and milk

and in the manufacturing of refined sugar, cooking oil and packed noodle
based instant meals, shall be alloweda presumptive inpui tax equivalent
to 4o/o of the gross value in money of their purchases of primary agricultural
products which are used.in their productions,

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 processorsr Sa MaMi Co paRe

(Sardines, Mackerel, Millg 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 ofcooking 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 InputVAT
Copra P 1,200,000
Hexane solvent p 6,000 50,000
Cans and bottle containers 200,000 Z4,O0O
Sodium hydroxide/carbonate 80,000 9,600
Activated carbon 100.000 lZ.0A0
Total P_jt630_0ru p_-f,l600
During the month, Bilimo produced 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.

The presumptive input VAT shall be P1,200,00 0 x 4o/oihence, p48,000.

Assuming that there are no otler sources of input vAT, the VAT payable for the
month shall be computed as:
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 Chapter9-lnputVAT

OutputVAT (P2,800,000 xtZo/o) p 336,000

Less: InputVAT
Regular input VAT p 51,600
Presumptive inputVAT 4A.O0O 99.600
VAT payable p__ZlbAgg
Note:
7. There is no actual inputVATon copra, a coconut product, butthe lawimputes orallow
presumptive input VAT on it as 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 mont
Sardinas purchased the following ingredients for the processing of cannt
sardines.

Cost Input VAT

Fresh sardines P 800,000
Hot chili 50,000
Tomatoes 400,000
Ordinary salt 20,000
Tin can 120,000P 74,400
Labels 60,000 7,200

The presumptive input vAT shall be computed from the agricultural purchasr
as follows:
Hot chili p 50,000
Tomatoes 400,000
Ordinary salt 20.000
Total agricultural purchases p 47O,O0O
Multiply by: 4o/o
Presumptive input VAT P-----_'ULS0O
Note:
t, Sardines, including mackerel, are martne products, not agricultural products. Tt
presumptive input vAl a tax credit, shall be construed against the taxpayer.

3. The regular input VAT on the tin cans and labels ire claimable in the month of purchas
separate from the P18,800 presumptive input VAT which shall likewise be claimed in th
month ofpurchase.

Illustration 3: Processor ofrefined sugar for others

Sugarie corporation operates a sugar refinery for clients. During the month, i
processed P10,000,000 worth of sugarcane and produced p40,00-0,000 worth
c
sugar. Sugarie charges 10olo ofthe production as processing charge.

Sugarie corporation cannot claim presumptive inputvAT because it d.oes not ow,
the sugar it processes. sugarie shail be subject to 12o/o vAT on its processing
feet
If sugarie produces raw sugar, iB processing fees shall be exempt
from vAT.
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STANDARD INPUTVAT

The sale of goods and services to the government or any of its political
subdivisions, instrumentalities or agencies, including government-owned
and controlled corporations IGOCCs) 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 570 withheld final VAT shall be deemed the actual VAT payable of the
seller. Due to the final withholding VAT, the sellers to the government,
instrumentalities or agencies including GOCCs can effectively claim only 7o/o
of sales as input VAT. This is called the "standard input VAT."

The actual input VAT on the sale to government would have to be increased
or decreased to conform to the amount of the standard input VAT. The
adjustment is closed to expenses or loss or income or gain.

Illustration 1
A VAT 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
of P10,800 inputVAT.

The government will withhold P5,000 [i.e., 5olo 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,

OutputVAT P 12,000
Less: Standard Input VAT (770) 7.000
VAT Payable [50/o withheld final VAT) P_____5J00

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 famount allowableJ 7.000
Loss or addition to expenses P----3-8O0

fournal Entry Method

This can be conveniently analyzed by accounting entries as follows:

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Chapterg-lnputVAT

Purchase P 90,000
Actual inputVAT 10,800
Accounts payable/cash P 100,800
To record the purchase

Cash/Receivable p 107,000
Final VAT withheld (5% x P100K) 5,000
Sales P 100,000
OutputVAT 12,000
To record the sale to the government

OutputVAT p 12,000
Income & Expense summary (oss) 9,g00
Final VAT withheld 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 p112,000
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 claimedJ p 7,200

Less: Standard input VAT (amount allowable) 7.000
Gain or deduction to expenses p____S€00

fournal Entry Method

This can also be conveniently analyzed by accounting entries as follows:

Purchase P 10,000
Actual inputVAT 1,200
Accounts payable/cash P 11,200
To record the purchase

Cash/Receivable p 102,000
Final VAT withheld (50k x P100K) 5,000
Sales P 100,000
Output VAT 1.2,000
To record the sole to the government

OutputVAT P 12,000
Final vAT withheld P 5,000
Actual InputVAT 1,200
Income &Expense summary @ain) 5,900
To close the VAT accounts
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What if the seller is a non-VAT registered seller?

The government or GOCC shall withhold a 3o/o ftnal percentage tax on the
sale before payment.

Future transition
The final withholding system on the sales to the government and GOCC will
be abandoned effective January L, 202L in favor of the tax creditable
withholding system. This would mean the elimination of the 7%o standard
input VAT in favor of full creditability of input VAT on government or GOCC
sales.

INPUTVAT CARRY-OVER
The input VAT carry-over 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 on InputVAT carry-over
1. The input VAT carry-over of the prior quarter is deductible in the first
month ofthe 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:
OutoutVAT InoutVAT
Prior quarter P_350-000 P_390*0.00
Current quarter:
1.t month of current quarter P 120,000 P 100,000
2nd month of current quarter 150,000 145,000
3.d month of current quarter 220000 70.000
P--490*000 P-315-000

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

' Priorquarter ------------"--Presentquarter---------------'

3rd month l"tt month Zrd month 3rd month
OutputVAT P350,000 P120,000 P150,000 P490,000
Less: Input VAT 390,000 100.000 145.000 315,000
carry-over tP--40-00O) + 40,000 --)---g!,gAO
InputVAT cany over (E:!g,0Ag) + 20.000
Not an inputVAT carry-over (P 15.000)
VAT payable P-1,35-00O

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Chapter9-lnputVAT

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. The
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 ol
the current quarter.
2. The P20,000 input VAT carry-over in the first month ofthe current quarter is creditabl€
in the second month ofthe 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 in the
preceding quarter is credited in the current quarterly balance.

Illustration 2
The following data relates to the regular sales of a VAT taxpayer:

OutputVAT InputVAT
Prior quarter P_360J00 P-rrc0-000
Current quarter:
1st month of current quarter P 160,000 P 100,000
2nd month of current quarter 150,000 160,000
3td month of current quarter 170.000 65.000
Prltl0J0O P*325-000

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

Prior quarter ----------------Present quqrter----------------

3rdmonth l.tt month 2nd month 3rd month
OutputVAT P 360,000 P 160,000 P 150,000 P 480,000
Less: InputVAT 400.000 100,000 160,000 325,000
Carry-over tPrl0-0001
20,000
Not an inputVAT carry-over (P 10,000J
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.
2. 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.
Hence, the P20,000 VAT paid in the first month is deducted in the quafterly VAT payable
computation.

WHATARE EXCLUDED FROM INPUTVAT CARRY-OVER?

7. 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
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Chapterg-lnPutVAT

3. Input VAT attributable to zero-rated sales that expired after the two-
year prescriPtive Period

The rules of advanced VAT will be discussed in the succeeding chapter'

RULES ON CLAIM FOR CREDIT OF INPUT VAT

l. specific identification - input vAT that can be traced to a particular
siles transaction is credited against the output VAT of such sales
2. Pro-ratn allocation - the amount of input tax due or paid that cannot
be directly and entirely attributed to any one oJ the sales transactions
shall be a[ocated proportionately on the basis ofsales

Illustration 1' Specific ldentification

A VAT taxpayer-had the following sales with their corresponding directly
traceable input VAT during the month:
Sales amount Input VAT
Sales to private entities P P
900,000 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_fJ50*000 P---122.0!0

The Creditable Input VAT may be computed directly as:

Input VAT on Private sales P 60'000

InputVAT on exPort sales 36'000
Input VAT on government sales (7o/o x P250,000) 1Z
!qg
Total allowable (creditable) Input VAT P---1-I3J0O

Input vAT deductible against gross income through costs and expenses:

Input VAT on exemPt goods P 2'000

Excess input VAT [government) (P24,000 - P17,500) 6
!99
Total P----B.SOO

Illustration 2 -N on'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*000000
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Chapter9-lnputVAT

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

The non-traceable input VAT shall be allocated as follows:

Sales Allocation Allocated

Amount Factor Input VAT
Exempt sales P 200,000 P200K/P1M xP124,000=P 24,800
Export sales 300,000 P300K/P1M xP724,000 = 37,200
Sales to government L00,000 P100K/P1M x P124,000 = 12,400
Regular sales 400.000 P400K/P1M xP1.24,000 = 49.600
Total sales P-IO00-00O P-------lz[O00

The creditable input VAT shall be:

Input VAT allocable to export sale P 37,200

Standard input VAT (P100,000 x 7%J 7,000
Input VAT allocable to regular sales 49.600
Total P_____93-800

Illustration 3 -With Non-Traceable InputVAT

A taxpayer had the following sales during the month:

Sqles Traceable
Amount InputVAT
Exempt sales P 200,000 P 12,000
Regular sales 300.000 18.000
Total P___50_0-000 P_____30-000

There is aP24,000 input tax that cannot be traced to either type of 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 /P 500,000 x P2 4,0 00) 1.4.400
Total allowable (creditable) input VAT P_____324!!

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Chapter9-lnputVAT

COMPUTATION OF THE ALLOWABLE OR CREDITABLE INPUT VAT IN

THEVAT RETURN
In practice, the allowable [creditable) input VAT is computed and presented
in the VAT return as follows:

Input tax carry-over, from previous period P xxx,xxx

Deferred input tax on capital goods exceeding P1M xxx,xxx
Transitional input tax xxx,xxx
Presumptive input tax xxx,xxx
Regular inputVAT from:
Purchases of capital goods not exceeding P1M xxx,xxx
Purchase of capital goods exceeding P1M xxx,xxx
Domestic purchases ofgoods, other than capital goods xxx,xxx
Importation of goods, other than capital goods xxx,xxx
Domestic purchases of services xxx,xxx
Services rendered by non-residents xxx,xxx
Others xxx,xxx
Total available input tax P xxx,xxx
Less: Deductions from inputtax
Input tax on capital goods, deferred for future periods P xxx,xxx
Input tax on sales to gov't closed to expense xxx,xxx
Input tax allocable to exempt sales xxx,xxx
Input VAT claimed as refunds/TCC xx(,xxx
Others xxx.xxx
Total allowable (creditable) input tax P--xxxxxx

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 PL0*000-000
InputVAT
Input VAT carry-over, from prior period P 80,000
Deferred input tax (already amortized for 2l/36 monthsJ 75,000

Current month transactions :

Purchase ofgoods or services P 7,000,000 P 840,000
Importation of equipment (8-year lifeJ 1,200,000 144,000
Purchase of non-depreciable goods 80,000 9,600

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Chapter9-lnputVAT

Directlv traceable innut VAT:

Input VAT traceable to exempt sales 196,800
Amount applied for VAT refunds/TCC on export sales 150,000
Input VAT traceable to sales to the government 90,000

The following input VAT can only be traced to entire operations:

Amortization of deferred input VAT on capital goods P 7,400
Input VAT on supplies 28.100
Total non-traceable input VAT P____35J00

The creditable input VAT shall be computed in the VAT return as:

InputVAT
Input VAT carry-over, from prior period P 80,000
Deferred input VAT 75,000
Input VAT on purchase of goods or services 840,000
Input VAT on importation of equipment 144.000
Total available input tax P 1,139,000
Less: Deductions from input tax
Deferred input VAT for succeeding periodl P 27L,600
Input VAT on exempt sales2 203,900
Input VAT on export sales applied for
refund or tax credit 150,000
Excess input VAT on sales to government3 23.350 588.850
Total allowable (creditable) input VAT P__5Lt50
Notes to allowable inputVAT computation:
t. Amortization schedule on input tax on capital goods with monthly aggrega
acquisition costs exceeding P1M:
Beginning Allowable Ending
Balance this month Balance
From previous period P 75,000 P 5,000 P 70,000
This period [60 months max.) 144.000 2.400 747.600
Total P 219,000 P 7.400 P 211.600
Note:
1. The deferred input VAT from the prior period shall be amortized over the remainil
15 (i.e., 36-2t) unamortized months. Hence, P75,000 + 15 = P5,000.
2. The P144,000 input VAT on the imported equipment must be amortized over (

months. Hence, P144000 + 60 = P2,400.

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 3 5,500) 7.100
Total input tax attributable to exempt sales P____203.900

310