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72.BM - Alternative Remedy For Unused Input VAT - mvf.01.01.09
72.BM - Alternative Remedy For Unused Input VAT - mvf.01.01.09
Calendar year 2008 had passed and taxpayers once again find themselves tangled in
the chaotic process of accounting for their finances. This period is considered crucial as
the findings of the accountants, duly reflected in the financial statements, become the
basis for the imposition of taxes. Thus, there is a need for conducting a careful study of
books of accounts to make sure that the correct amount of taxes are paid to the
government when they are due. There are instances, however, when taxpayers pay
more than the amount that is due them. The usual remedy is to file for an administrative
or judicial claim for refund or issuance of a tax credit certificate within the period
provided for by the 1997 Tax Code, as amended.
In the case of Value-Added Tax (VAT), a claim for refund or issuance of a tax credit
certificate is resorted to when the amount of input taxes, attributable to the transactions
subject to VAT incurred by the taxpayer, is greater than the amount of output tax; when
the transaction is considered zero-rated, where no output tax is available against which
the input taxes may be credited; or when a VAT-registered person is facing retirement or
the cessation of his business operations. In the first two instances, the excess input
taxes may likewise be carried over to the succeeding quarter or quarters. Section 110
(B) of the Tax Code, as amended, clearly states:
“If at the end of the taxable quarter…the input tax exceeds the output tax,
the excess shall be carried over to the succeeding quarter or quarters:
Provided, however, That any input tax attributable to zero-rated sales by
a VAT registered person may at his option be refunded or credited
against other internal revenue taxes, subject to the provisions of Section
112.”
Corollarily, Section 112 of the Tax Code provides:
Based on the foregoing, the remedies available to the taxpayer in case of unutilized
input VAT credits are: 1) the carrying over of the excess input tax into the succeeding
quarter or quarters; 2) the claim for refund or issuance of tax credit certificate within two
(2) years after the close of the taxable quarter when the sales were made. It is to be
noted, however, that the two-year prescriptive period has to be complied with for both
the administrative claim with the Bureau of Internal Revenue (BIR) and judicial claim with
the Court of Tax Appeals (CTA).
It appears that the only remedies in the Tax Code that are available to the taxpayer are
limited to the foregoing. Nevertheless, there are BIR issuances that provide for the
remedy of deducting as cost or expense the excess of unutilized input VAT from the
gross income. In Q/A13 of Revenue Memorandum Circular No. 42-03, it is stated that in
case an application for refund is denied, the amount may be claimed as cost or expense.
It must be noted that the application of the unused input VAT presupposes the filing of
an application for refund or issuance of a tax credit certificate and that the same has
been denied.
However, in BIR Ruling No. [DA-636-06] dated October 27, 2006, the deduction of input
taxes for income tax purposes, after the period for refund is prescribed, may still be
allowed, to wit:
“In reply, please be informed that in VAT Ruling No. 059-92 dated April
28, 1992, the BIR elucidated that if the Mining Company have no other
sales transactions subject to 10% VAT against which their input taxes
may be used in payment, then it follows, they are constituted as the final
persons against which the costs of the tax passed on shall legally stop
and rest, hence, in this connection, the said input taxes may already be
legally converted as cost available as deduction for income tax
purposes. (Emphasis supplied.)
Although the BIR issuances recognize the remedy of deducting as cost or expense the
excess unutilized input VAT credits, the Tax Code, as amended, does not provide the
same. A secret remedy, perhaps? Well, secret or no secret, before taxpayers start
treating their unutilized input VAT credits as expenses, caution must be observed. Still,
the most prudent action is to first secure a ruling from the BIR in relation to the
application of the remedy on the basis of facts peculiar to the taxpayer.