Business Tax: Value-Added Tax (Input Taxes) Input Tax
Input tax is the value-added tax due from or paid by
VAT-registered person in the course of his trade or business
on importation of goods or local purchase of goods,
properties or services, including lease or use of properties, in
the course of his trade or business. It shall also include the
transitional input tax and the presumptive input tax.
Categories of Deductible Input Tax
1. Value-Added Tax (VAT) paid on local purchases
(passed on by seller) or on importation (passed-on
VAT)
2. Presumptive Input Tax
3. Transitional Input Tax
4. Standard Input Tax
Persons who can avail of input tax credit from VAT on
Importation
1. To the importer upon payment of VAT prior to the
release of goods from customs territory
2. To the purchaser of the domestic goods or properties
upon consummation of the sale
3. To the purchaser of services or lessee or licensee
upon payment of the compensation, rental, royalty
or fee
Allowable Input Tax Deductions
Deductions from Allowable Input Tax Deductions
1. Input Tax claimed as tax credit certificate or refund
2. Input Tax attributed to VAT-Exempt Sales
3. Input Tax attributed to Sales to Government
Sources of Creditable Input Taxes (Local Purchases or
Importation)
Input tax evidenced by a VAT invoice or official receipts by
a VAT-registered person which shall be valid for 5 years from
the date of permit to use.
a. Purchase or Importation of Goods
1. For Sale
2. For conversion into or intended to form part of a
finished product for sale, including packaging
materials
3. For use as supplies in the course of trade or business
 4. For use as raw materials supplied in the sale of
services
5. For use in trade or business for which deduction for
depreciation or amortization is allowed
b. Purchase of real properties for which a VAT has
actually been paid
c. Purchase of services in which VAT has actually been
paid
d. Transactions deemed sale
VAT-registered person is also engaged in transactions not
subject to VAT
A VAT-registered person who is also engaged in
transactions not subject to VAT shall be allowed to
recognize input tax credit on transactions subject to VAT as
follows:
a. All the input taxes that can be directly attributed to
transactions subject to VAT may be recognized for
input tax credit.
b. If any input tax cannot be directly attributed to either
a VAT taxable or VAT-exempt transaction, the input
tax shall be pro-rated to the VAT taxable and VAT-
exempt transactions and only the ratable portion
pertaining to transactions subject to VAT may be
recognized for input tax credit computed as follows:
(VAT Sales/total sales x input taxes)
Sources of Creditable Input Taxes (Local Purchases on
Capital Goods)
Meaning of capital goods or properties:
Goods or properties with estimated useful life greater
than one (1) year treated as depreciable assets
under Sec. 34(F) of the NIRC; and used directly or
indirectly in the production or sale of taxable goods
or services. [Sec. 16, RR 4-2007]
Where the aggregate acquisition cost (exclusive of
VAT) of depreciable capital goods during any
calendar month does not exceed P1,000,000
In this case:
The total input tax is creditable against output tax in
the month acquired.
a. If the estimated useful life of a capital good is five (5)
years or more – The input tax shall be spread evenly
over a period of sixty (60) months and the claim for
input tax credit will commence in the calendar
month when the capital good is acquired. The total
input taxes on purchases or importations of this type
 of capital goods shall be divided by 60 and the
quotient will be the amount to be claimed monthly.
b. If the estimated useful life of a capital good is less
than five (5) years – The input tax shall be spread
evenly on a monthly basis by dividing the input tax by
the actual number of months comprising the
estimated useful life of the capital good. The claim for
input tax credit shall commence in the calendar
month that the capital goods were acquired.
Sources of Creditable Input Taxes (Local Purchases on
Capital Goods)
Sale or transfer of depreciable good within a period
of 5 years or prior to the exhaustion of the amortizable
input tax.
If the depreciable capital good is sold/transferred
within 5 years or prior to the exhaustion of the
amortizable input tax, the entire unamortized input tax
can be claimed as input tax credit during the
month/quarter when the sale or transfer was made
Meaning of construction in progress (CIP):
CIP is the cost of construction work which is not yet
completed. CIP is not depreciated util the asset is places
in service. Normally, upon completion, a CIP is
reclassified and the reclassified asset is capitalized and
depreciated
Input tax on construction in progress:
a. CIP is considered, for purposes of claiming input tax,
as a purchase of service, the value of which shall be
determined based on the progress billings
b. Until such time the construction has been completed,
it will not qualify as capital goods as define, in which
case, input tax credit on such transaction can be
recognized in the month the payment was made,
provided, that an official receipt of payment has
been issued based on the progress billings
Contract for the sale of service where only the labor will be
supplied
In case of contract for the sale of service where only
the labor will be supplied by the contractor and
materials will be purchased by the contracted from
other suppliers, input tax credit on the labor
contracted shall still be recognized on the month the
payment was made based on the progress billings
while input tax on the purchase of materials shall be
recognized at the time the materials were
purchased.
Input tax claimed while the construction is in progress:
 Once the input tax has already been claimed while
the construction is in progress, no additional input tax
can be claimed upon completion of the asset when
it has been reclassified as a depreciable capital asset
and depreciated
Rules on allowing input tax credit on vehicles, and other
expenses incurred.
a. Purchase of vehicle must be substantiated with
official receipts or other adequate records;
b. Taxpayer has to prove the direct connection of the
motor vehicle to the business;
c. Only one vehicle for land transport is allowed for the
use of an official/employee with value not exceeding
P2.4 million;
d. No depreciation shall be allowed for yachts,
helicopters, airplanes [Sec. 3, RR 12-2012]
Presumptive Input Tax
Persons or firms engaged in the processing of
sardines, mackerel and milk, an in manufacturing
refined sugar, cooking oil and packed noodle-based
instant meals, shall be allowed a presumptive input
tax, creditable against the output tax, equivalent to
4% of the gross value in money of their purchases of
primary agricultural products which are used as
inputs to their production.
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 (RA 9337).
Transitional Input Tax
A person who becomes liable to value-added tax or
any person who elects to be a VAT-registered person
shall, subject to the filing of inventory according to
the rules and regulations prescribed by the Secretary
of Finance, upon recommendation of the
Commissioner, be allowed input tax on his beginning
inventory of goods, materials and supplies equivalent
to 2% of the value of such inventory or the actual
value-added tax paid on such goods, materials and
supplies, whichever is higher, which shall be
creditable against the output tax.
Standard Input Tax
Input tax attributable to VAT sales to Government not
creditable against output tax on sales to non-
Government entities
Input taxes that can be directly attributable to VAT Difference between the VAT rate and the
taxable sales of goods and services to the withholding VAT rate accounts for the standard input
Government or any of its political subdivisions, tax
instrumentalities or agencies including GOCCs shall The remaining seven percent (7%) effectively
not be credited against output taxes arising from accounts for the standard input VAT for sales of
sales to non-Government entities goods or services to government or any of its political
The government or any of its political subdivisions, subdivisions, instrumentalities or agencies including
instrumentalities or agencies, including GOCCs shall GOCCs, in lieu of the actual input VAT directly
deduct and withhold a final VAT due at the rate of attributable or ratably apportioned to such sales
fiver percent (5%) of the gross payment Should actual input VAT attributable to sale to
Beginning January 1, 2021, the VAT withholding government exceeds seven percent (7%) of gross
system under this Subsection shall shift from final to a payments, the excess may form part of the seller’s
creditable system expense or cost. On the other hand, if actual input
The payor or person in control of the payment shall VAT attributable to sale to government is less than
be considered as the withholding agent seven percent (7%) of gross payment, the difference
Final withholding VAT represent the net VAT payable must be closed to expense or cost.
of the seller. Withholding VAT Rate
The five percent (5%) final withholding VAT rate shall TAX
TYPE
DESCRIPTION RATE ATC
Applicable to Government Withholding Agent Only
represent the net VAT payable of the seller. WV VAT withholding on Purchase of Goods 5% WV010
WV VAT Withholding on Purchase of Services 5% WV020

Starting January 1, 2022, the 5% final withholding vat WV

Applicable to Both Government and Private Withholding Agents
VAT Withholding from non-residents (Government Withholding Agents) 12% WV040
WV VAT Withholding from non-residents (Private Withholding Agents) 12% WV050
on sale to government is to be considered as WV
VAT Withholding on Purchases of Goods (with waiver of privilege to claim tax credit)
12% WV012
creditable
VAT Withholding on Purchases of Goods (with waiver of privilege to claim input tax credit)
creditable withholding vat. WV
final
12% WV014
VAT Withholding on Purchases of Services (with waiver of privilege to claim input tax
WV 12% WV022
credit) creditable
VAT Withholding on Purchases of Services (with waiver of privilege to claim input tax
WV 12% WV024
credit) final
Remittance of Withholding VAT
The VAT withheld shall be remitted within ten (10) days
following the end of the month the withholding was
made
Advance Payment Of VAT
Transactions requiring advance payment of VAT:
1. Sale of Refined Sugar
2. Sale of Flour
3. Transport of naturally grown and planted timber
products
4. Sale of Jewelry, gold and other metallic minerals
Advance payment of VAT allowed as credit against output
tax
The advance payments made by the seller/owner of
refined sugar, importer or miller of wheat/flour and
sellers/owners of naturally grown and planted timber
products shall be allowed as credit against their
output tax on the actual gross selling price of refined
sugar/flour/timber products.
Advance payments may be available for issuance of tax
credit certificate
Advance payments which remains unutilized at the end
of taxpayer’s taxable year where the advance payment
was made, which is tantamount to excess payment,
may, at the option of the owner/seller/taxpayer or
importer/miller/taxpayer, be available for the issuance
of TCC upon application duly filed with the BIR by the
seller/owner or importer/miller within two (2) years from
the date of filing of the 4th quarter VAT return of the year
such advance payments were made, or if filed out of
time, from the last day prescribed by law for filing the
return.
Advance VAT payment claimed as TCC cannot be carried
over
Advance VAT payments which have been the subject
of an application for the issuance of TCC shall not be
allowed as carry-over nor credited against the output
tax of the succeeding quarter/year.
Issuance of TCC limited to unutilized advance VAT
payment
Issuance of TCC shall be limited to the unutilized
advance VAT payment and shall not include excess
input tax.
Issuance of TCC for input tax attributable to zero-rated
sales shall be covered by a separate application for TCC
following applicable rules.
Refund of Input Tax
Input tax on zero-rated sales of goods or property:
A VAT-registered person whose sales of goods,
properties or services are zero-rated or effectively zero-
rated may apply for the issuance of a tax credit
certificate/refund of input tax attributable to such sales.
The input tax that may be subject of the claim shall
exclude the portion of input tax that has been applied
against the output tax. The application should be filed
within two (2) years after the close of the taxable quarter
when such sales were made
Printing of the word “zero-rate” required:
The supreme court has ruled in several cases that the
printing of the word “zero-rated” is required to be
placed on the VAT invoices or receipts covering zero-
rated sales in order to be entitled to claim for tax credit
or refund
Other documents may be used to prove “zero-rated sale
In another case, failure of the taxpayer to indicate its
zero-rated sales in its VAT returns and in its official receipts
is not sufficient reason to deny its claim for tax credit or
refund when there are other documents from which the
court can determine the veracity if the taxpayer’s
claims.
Unused input tax of person who retired or ceased business
A VAT-registered person whose registration has been
cancelled due to retirement from or cessation of
business, or due to changes in or cessation of status
under Sec. 106 (C) of the Tax Code may, within two (2)
years from the date of cancellation, apply for the
issuance of a tax credit certificate for any unused input
tax which he may use in payment of his other internal
revenue taxes; Provided, however, that he shall be
entitled to a refund if he has no internal revenue tax
liabilities against which the tax credit certificate may be
utilized.
Period of refund or tax credit of input tax
refund or tax credit certificate/refund of input taxes shall
be made in proper cases, the Commissioner of Internal
Revenue shall grant a tax credit certificate/refund for
creditable input taxes within ninety (90) days from the
date of submission of complete documents in support of
the application.
Appeal of full or partial denial
In case of full or partial denial of the claim for tax credit
certificate/refund as decided by the Commissioner of
Internal Revenue, the taxpayer may appeal to the Court
of Tax Appeals (CTA) within thirty (30) days from the
 receipt of said denial, otherwise the decision shall
become final. However, if no action on the claim for tax
credit certificate/refund has been taken by the
Commissioner of Internal Revenue after the ninety (90)
day shall be punishable under Section 269 of this code.
Manner of giving refunds
Refunds shall be made upon warrants drawn by the
Commissioner of Internal Revenue or by his authorized
representative without the necessity of being
countersigned by the COA Chairman.