Sources of Input Tax

Sources of Input Tax:

Only purchases from Vat suppliers will give rise to input taxes.

 Input taxes may come from the following:

·         Domestic Purchases

·         Importation

·         Presumptive input tax

·         Transitional input tax

·         Standard input tax

1.    Examples of Input Taxes on DOMESTIC or importations include.

Ø  Goods for sale

Ø  Goods for conversion into finish product (including packaging materials).

Ø  Goods for use as supplies

Ø  Goods for use as materials supplied in the sale of services

Ø  Goods for use in trade or business for which depreciation or amortization is allowed.

Ø  Real properties for which Vat has actually been paid

Ø  Services for which Vat has actually been paid

Ø  Transactions deemed sale

Acquisition of CAPITAL GOODS (Depreciable Goods) by a Vat registered person (RR 16-2005)

·         Capital goods or properties

Ø  Refers to goods or properties with estimated useful life of greater than 1 year and which are treated as depreciable assets under the Tax Code, used directly or indirectly in the production or sale of taxable goods or services.

Ø  Depreciated or amortized for income tax purposes.

Ø  Acquired through local purchase or acquisition.

·         Construction in Progress

Ø  It is the cost of construction work which is not yet completed.

Ø  Not depreciated until the asset is placed in service.

Ø  Upon completion, construction in progress is reclassified and the reclassified asset is capitalized and depreciated.

RECOGNITION OF INPUT TAX
AGGREGATE Acquisition cost exceeds P1,000,000 exclusive of vat
	Life ≥5 years	Input tax shall be spread evenly for a period of 60 months to commence in the calendar month when capital good is acquired.
	Life < 5 years	Input Tax shall be spread over such useful life to commence in the calendar month when capital good is acquired.
	Life < 12 months	It is not a capital good subject to depreciation), the spreading of input tax over several months is not done.  The whole acquisition is cost is to be claimed in the month of acquisition.
	Construction in progress	It is a purchase of services.  Input taxes will be recognized in the month payment was made on the progress billing.  In the case where labor will be furnished by the contractor and materials will be purchased by the contractee from other suppliers, input taxes will be recognized on labor when payment is made on the progress billings while input taxes will be recognize on materials at the time the materials are purchased.

NOTE:  If the CAPITAL GOOD IS SOLD within the five (5) year period or prior to exhaustion of Input Vat thereon, the ENTIRE UNAMORTIZED INPUT TAX on the capital goods sold can be claimed as input tax credit during the month or quarter when the sale is made.

AGGREGATE Acquisition cost DOES NOT exceed P1,000,000 exclusive of vat
	Ø  The Total amount of Input Taxes will be allowable as credit against output tax in the month of acquisition

2.    IMPORTATION (for business use or sale locally)

                                      i.         IN GENERAL:

Ø  Based on the total value used by the Bureau of Customs in determining the tariff and customs duties (dutiable value) plus customs duties, excise taxes, if any, and other legitimate charges, prior to removal of goods from the customs custody.

Total value for tariff and customs duties		xxx
Add:
Customs duties	xxx
Excise Tax	xxx
Other charges prior to release**	xxx	xxx
Tax base		xxx
Tax rate		12%
VAT on importation		xxx

                                    ii.        Where the customs duties are determined on the basis of QUANTITY or VOLUME of Goods:

Ø  Based on landed cost which includes invoice cost, freight, insurance, customs duties, excise taxes, if any, and other legitimate charges, prior to removal of goods from the customs custody.

Total landed costs		xxx
Add:
Customs duties	xxx
Excise Tax	xxx
Other charges prior to release**	xxx	xxx
Tax base		xxx
Tax rate		12%
VAT on importation		xxx

Ø  The phrase “other charges prior to release of goods from custom’s custody” refers to legitimate expenses only”.

Ø  The excise tax shall form part of the tax base.

**EXAMPLE OF OTHER CHARGES/FEES PRIOR TO RELEASE

a.	Insurance	g.	Wharfage dues
b.	Freight	h.	Arrastre charges
c.	Postage	i.	Brokerage fees
d.	Commission	j.	Stamps
e.	Interest	k.	Processing fees
f.	Bank charge

                                   iii.        Transfer of goods by TAX EXEMPT persons

Ø  In the case of goods imported into the Philippines by VAT-exempt persons, entities or agencies which are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entities, the latter shall be considered the importers thereof and shall be liable for the VAT due on such importation.

3.    PRESUMPTIVE 4% (On Sale of Goods or Properties)

Applicable to persons or firms engaged in:

Processing of:	Manufacturing  of:
·         Sardines	Ø  REFINED sugar
·         Mackerel	Ø  Cooking oil
·         milk	Ø  Packed noodle based instant meals

Ø  Basis:  Gross value in money of purchases of primary agricultural products used as inputs in processing or manufacturing

Ø  Rate:  4%

4.    TRANSITIONAL INPUT TAX

Newly VAT-registered person shall be allowed input tax on his beginning inventory of goods, materials and supplies equivalent to 2% (two percent) of the value of such inventory (as of October 31, 2005) or the actual VAT paid on such goods, materials and supplies, whichever is higher, which shall be creditable against the output tax.

Ø  Persons who can avail

a)    Person who become liable to vat

b)    Persons who elect to be vat registered

Ø  Basis:

·         Beginning inventory of VAT subject GOODS, MATERIALS, and SUPPLIES excluding those that are vat exempt..

Ø  Transitional Input tax Allowed – the HIGHER between

·         2% of the vat subject beginning inventory value for income tax purposes; and

·         Actual vat paid on such beginning inventory.

Applicable ONLY on Vat PAID inventory.

How can the transitional input tax credit be applied?

Newly VAT-registered person shall be allowed input tax on his beginning inventory of goods, materials and supplies equivalent to 2% (two percent) of the value of such inventory (as of October 31, 2005) or the actual VAT paid on such goods, materials and supplies, whichever is higher, which shall be creditable against the output tax.

5.    STANDARD INPUT TAX (5% Final VAT on GOCCs)

Not to be credited against output taxes arising from sales to Non-Government entities

The government or any of its political subdivisions, instrumentalities or agencies, including government-owned or controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods and/or services taxed at twelve percent (12%) VAT pursuant to Sections 106 and 108 of the Tax Code, deduct and withhold a Final VAT due at the rate of five percent (5%) of the gross payment.

The five percent (5%) final VAT withholding rate shall represent the net VAT payable of the seller.  The remaining seven percent (7%) effectively accounts for the standard input VAT for sales of goods or services to government or any of its political subdivisions, instrumentalities or agencies including GOCCs in lieu of the actual input VAT directly attributable or ratably apportioned to such sales.  Should actual input VAT attributable to sales to government exceeds seven percent (7%) of gross payments, the excess may form part of the sellers' expense or cost.  On the other hand, if actual input VAT attributable to sale to government is less than seven percent (7%) of gross payment, the difference must be closed to expense or cost.

The government or any of its political subdivisions, instrumentalities or agencies including GOCCs, as well as private corporation, individuals, estates and trusts, whether large or non-large taxpayers, shall withhold twelve percent (12%) VAT with respect to the following payments:

1.     Lease or use of properties or property rights owned by non-residents; and

2.     Other services rendered in the Philippines by non-residents.

REFUND OF INPUT TAX      (Vat registered Person)
v  Zero-rated Sales	ü  The input tax that may be subject of the claim shall exclude the portion of the input tax that has been applied against the output tax. ü  The application should be made within two (2) years after the close of the taxable quarter when the sales were made.
v  Unused Input Tax of Person who Retired or Ceased Business	ü  The taxpayer should apply for the issuance of tax credit certificate for any unused input tax which he may use in payment of his other internal revenue taxes.  He shall be entitled to a refund if he has no internal revenue tax liabilities. ü  The application should be made within two (2) years from the date of cancellation.
v  Period of Refund	ü  Shall be granted within 120 days from the date of submission of complete documents.
v  Manner of Giving Refund	ü  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