INPUT VAT

INPUT VAT

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:
INPUT VAT

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*

Creditable Input VAT

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

Requisites of a creditable input VAT

1. 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.*
Creditable Input VAT
Creditable Input VAT
Types of Input VAT

1. Transitional Input VAT

2. Regular Input VAT
3. Amortization of Deferred Input VAT
4. Presumptive Input VAT
5. Standard Input VAT
6. Input VAT Carry-over

Transitional Input VAT

A person who becomes liable to value-added tax or any person who elects to be a VAT-registered person shall be given an
initial input tax credit equivalent to 2% of the beginning inventory of goods, materials or supplies or the actual VAT paid
thereon whichever is higher.

The value allowed for income tax purposes on inventory shall be the basis of the computation of the 2% transitional input VAT.
Gods exempt from VAT shall be excluded in the computation of the transitional input VAT.

In short, the transitional input VAT is based on vatable beginning inventories in the month of registration as a VAT taxpayer.*
Transitional Input VAT

A person who becomes liable to value-added tax or any person who elects to be a VAT-registered person shall be given an
initial input tax credit equivalent to 2% of the beginning inventory of goods, materials or supplies or the actual VAT paid
thereon whichever is higher.

Whichever is higher;
1) 2% of vatable beginning inventory of goods, materials or supplies
2) Actual VAT paid

The value allowed for income tax purposes on inventory shall be the basis of the computation of the 2% transitional input VAT.
Goods exempt from VAT shall be excluded in the computation of the transitional input VAT.

In short, the transitional input VAT is based on vatable beginning inventories in the month of registration as a VAT taxpayer.*
Transitional Input VAT

Rationale of the Transitional Input VAT

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

However, it must be noted that VAT-exempt goods are not subject to output VAT when sold.
Hence, there would be no basis to claim transitional input VAT on them.

Timing of Credit of Transitional Input VAT

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

Requisites for Claim of Transitional Input VAT

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

The regular Input VAT is the 12% VAT paid on:

a. Domestic purchase of goods, services or properties or
b. Importation of goods or services

Timing of Credit of Regular Input VAT

Regular Input VAT

Purchase of Goods or Properties*

Input VAT on Purchase of Capital Goods or Properties

If the monthly aggregate acquisition cost of depreciable capital goods:

- Does 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, whichever is
shorter.

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.*
Sale or transfer of depreciable capital goods within 5 years
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 tax) on 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.*

Scheduled phase-out of the amortization treatment

Under the TRAIN law, the amortization treatment of deferred input VAT will be phased out effective January 1, 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 January 1, 2022.

Special Rules on Input Tax Credit

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

Input VAT on Non-depreciable Vehicles

Rules on deductibility of depreciation expended on vehicles:
a. Only one vehicle for land transportation is allowed for the use of an official or employee, the value of which should not
exceed P2,400,000
b. No depreciation shall be allowed to yachts, helicopters, airplanes and/or aircrafts, and land vehicles which exceed the
P2,400,000 threshold, unless the taxpayer’s main line of business is transport operations or lease of transport equipment
and the vehicles are used in said operations
c. The purchase must be substantiated with sufficient evidence such as official receipts or 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 maintenance expenses incurred thereon are
likewise disallowed for taxation purposes.

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 account is reclassified to an appropriate asset account.

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.*

Input VAT on purchase of real property on installments

If the seller of real property is subject to the VAT on 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 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.

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 foods purchased by the buyer.*
Presumptive Input VAT
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 allowed presumptive input tax equivalent to 4% 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.

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.

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.

What if the seller is a non-VAT registered seller?

The government or GOCC shall withhold a 3% final 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 1, 2021 in favor of
the tax creditable withholding system. This would mean the elimination of the 7% standard input VAT in favor of full creditability
of input VAT on government or GOCC sales.
Input-VAT carry over
The Input VAT carry over is the excess of 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 Input VAT carry – over

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

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

Rules on Claim for Credit of Input VAT

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