INPUT VAT

Input VAT/TAX
 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.
 If VAT is not billed separately, the selling price stated in the sales document shall be deemed
to be inclusive of VAT.
Determination of Input VAT
 The VAT on purchase is usually reflected as a separate Item in the VAT invoice or VAT-
registered supplier.
Illustration
Selling Price 500,000
Output VAT 60,000
Invoice Price 560,000

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.
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 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
Mrs. Ackerman had a 230,000 output VAT in the month. She also made the following purchases during the
month:
Goods from non-VAT suppliers 280,000
Goods from VAT suppliers with VAT invoices 224,000
Importation of car for personal use, VAT inclusive 1,120,000
Importation of grapes and apples for sale 300,000
Importation of merchandise for sale, VAT inclusive 896,000
Services from VAT suppliers, evidenced by 120,000
ordinary receipts

The creditable input VAT shall be:

Goods from VAT suppliers (224,000x12/112) 24,000
VAT on importation (896,000x12/112) 96,000
Total creditable input VAT 120,000

Note:
1. 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 use) 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

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

TRANSITONAL 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 basis of the computation of the 2%
transitional 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
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 xxx

Beginning Inventory xxx

Illustration
Mr. Kazuma opted to be registered as a VAT taxpayer. He had the following inventory:

VAT-exempt goods 80,000

Vatable goods (all purchased from non-VAT 40,000
suppliers)
Equipment (purchased from VAT supplier) 112,000
Total beginning Inventory 232,000

2% of beginning inventory (2% x 40,000) 800

Actual VAT in beginning inventory 0
Transitional Input VAT (HIGHER) 800

Note:
1. 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.
2. The transitional input VAT applies only to beginning inventory of goods, materials, or supplies, excluding equipment and other
capital goods.

Timing of Credit of Transitional Input VAT

 Transitional input VAT shall be claimable in the month of registration as a VAT taxpayer.

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 and services

Timing of credit of Regular Input VAT

Source of Regular Input VAT Timing of Credit
Purchase of goods or properties In the month of purchase
Purchase of services In the month paid
Importation of goods In the month VAT is paid
Purchase of depreciable capital goods or properties:
- General treatment In the month of purchase
- When the monthly aggregate acquisition Amortized over useful life in months or 60 months,
cost exceeds 1,000,000 whichever is shorter
Purchase of non-depreciable vehicles and on Not creditable (RR12-2012)
maintenance incurred thereon

Purchase of goods or properties

Illustration 1: Input VAT on goods

In March 15, 2020, Eren company purchased goods worth 40,000, exclusive of VAT, Eren Company paid the
invoice on April 28, 2020

The 4,800 input VAT (40,000*12%) shall be claimed in March, not in April.

Illustration 2: Input VAT on service

In March 2020, Yukihira Company retained the services of a professional practitioner who billed 168,000
inclusive of VAT. Yukihira Company paid the invoice in April 2020.

The 18,000 VAT (168,000*12/112) shall be claimed in April, not in March.

Illustration 3- Input VAT on importation

In March 2020, Hinata Boke Company imported goods with a total landed cost of 200,000, the company paid
24,000 VAT on importation and withdrew the goods in April 2020.

The 24,000 VAT shall be claimed in April, not in March.

Input VAT on purchase of capital goods or properties

If the monthly aggregate acquisition cost of depreciable capital goods:
- Does not exceed 1M- The input VAT is claimable in the month of purchase
- Exceeds 1M- Input VAT is amortized over the useful life in months or 60 months, whichever is shorter.
Input VAT to be amortized is called the “Deferred input VAT”

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 will be claimed outright in the month of purchase effective January
1, 2022.

Depreciable capital goods

- Goods or properties with estimated useful life of more than 1 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.

Monthly Aggregate Acquisition Cost

- Refers to the total price, excluding VAT, agreed upon one or more assets acquired and not the
payments or installments actually made during the calendar month.
Illustration 4:
Mami Company, a VAT-registered taxpayer, purchased the following capital goods in March 2020.

Capital Goods Purchase price Input VAT Useful life

Equipment 600,000 72,000 4 years (48 months)
Truck* 700,000 84,000 10 years (120 months)
Total 1,300,000 156,000
*Acquired on installment, 100,000 down payment is paid during the month

Monthly aggregate acquisition cost exceeds 1M, thus input VAT shall be amortized over a period not exceeding
60 months.

- Input VAT on the equipment shall be deferred and credited 1,500 monthly starting March 2020
(72,000/48) until February 2024.
- Input VAT on the truck shall be deferred and credited 1,400 monthly starting March 2020 (84,000/60)
until February 2025.

Sale of depreciable capital goods within 5 years

 If the depreciable property is sold or transferred within 5 years or 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.

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

Selling price in cash 3,500,000

Output VAT 420,000

Original cost of property 3,000,000

Accumulated depreciation of property 1,000,000
Unutilized input VAT on property 200,000

The seller can deduct the total unamortized deferred input VAT outright in the month of sale. Hence, the VAT
payable on the sale of the property may be computed as:

Output VAT 420,000

Less: Deferred Input VAT 200,000
VAT payable 220,000

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 in the deductibility of depreciation expense on vehicles:

a. Only one vehicle for land transport is allowed for the use of an official or employee, the value of which
should not exceed 2,400,000.
 b. No depreciation shall be allowed to yachts, helicopters, airplanes and/or aircrafts, and land
vehicles which exceed 2,400,000 threshold, unless the taxpayers 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 other adequate
records
d. The direct connection or relation of the vehicles to the development, operation and or conduct of the
trade of 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 extent of completion on 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.

RR4-2007 does not consider construction in progress as purchase of capital goods, but as purchase of service.

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 exceeding 60 months.

Illustration
In January 2020, Pedro Corporation hired the services of Aleng Construction to build a small sales building at an
P11,200,000 fixed price contract price inclusive of VAT. The construction was subject to 10% retention which
would be released upon completion.

The following quarterly data in 2020 related to the project:

1stQ 2nd Q 3rd Q 4th Q Total
Quarterly billing 2,240,000 4,480,000 3,360,000 1,120,000 11,200,000
Payments 2,016,000 4,032,000 3,024,000 2,128,000 11,200,000

The input tax claimable in each quarter shall be computed from the payments, not from the progress billings or
construction in progress account.

1stQ 2nd Q 3rd Q 4th Q

Payments 2,016,000 4,032,000 3,024,000 2,128,000

Multiply by: 12/112 12/112 12/112 12/112

Claimable input VAT 216,000 432,000 324,000 228,000

Input VAT 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 not on the installment plan,
the input VAT shall be claimable by the buyer at the time of the execution of the instrument 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
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 also claims the Input VAT
in installments.

Input VAT on goods or properties deemed sold

The claimable input VAT on goods or properties previously deemed sold shall be 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. A’s retirement from business.

Subsequently, Mr. B bought 500 pieces of the 1,000 pieces of the merchandise deemed sold from Mr. A for
P12,000, 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 10,800

VAT previously paid on deemed sale 1,200 (500/1,000 x 2,400)
Total 12,000

PRESUMPTIVE INPUT VAT

Persons or firms engaged in the processing of sardines, mackerel, milk and in the manufacturing of refined
sugar, cooking oil and packed noodle based instant meals, shall be allowed a presumptive input tax
equivalent to 4% of the gross value in money of their purchases of primary agricultural products which are
used in their production.

The presumptive input VAT is a tax incentive to these VAT-exempt raw materials into processed food products
because of the absence of adequate claimable input VAT for these entities.

Illustration
Kaguya Corporation processes hot chili-flavored sardines. During the month Kaguya purchased the following
ingredients for the processing of canned sardines.
Cost Input VAT
Fresh sardines 800,000
Hot chili 50,000
Tomatoes 400,000
Ordinary salt 20,000
Tin can 120,000 14,400
Labels 60,000 7,200

The presumptive input VAT shall be computed from the agricultural purchases as follows:

Hot chili 50,000

Tomatoes 400,000
Ordinary salt 20,000
Total agricultural purchases 470,000
Multiply by: 4%
Presumptive input VAT 18,800
Note:
- Sardines are marine products , not agricultural products.
- Ordinary salt is an agricultural product in original state
- The input VAT on the tin cans and labels are claimable in the month of purchase separate from the
presumptive input VAT which both be claimed in the month of purchase.

STANDARD INPUT VAT

The sale of goods and services to the services to the government or any of its political subdivisions,
instrumentalities, or agencies, including government-owned and control corporations (GOCCs) 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 5% withheld final VAT shall be deemed the actual VAT payable to the government, instrumentalities or
agencies, including GOCCs can effectively claim only 7% of sales as input VAT. This is called the “standard input
VAT”.

Note:
If the seller is a non-VAT registered seller the government or GOCC shall withhold 3% final percentage tax on
the sale before payment

Illustration

A VAT taxpayer made a 100,000 sales to the government invoiced at 112,000 inclusive of output VAT. The
taxpayer purchased the same for 90,000 exclusive of 10,800 input VAT.

The government will withhold 5,000 (100,000*5%) and release the 107,000 net proceeds of the sale to the
taxpayer. The 5,000 withheld is presumed the actual VAT payable of the seller.

Output VAT 12,000

Less: Standard Input VAT 7,000
VAT Payable (5% withheld final VAT) 5,000

Actual Input VAT (amount to be claimed) 10,800

Less: Standard Input VAT 7,000
Loss or addition to expense 3,800

Future Transition
The final withholding system on the sales to the government or 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 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 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 of the first month is deductible in the second month of the current quarter
 3. The input VAT carry-over of the second month of a quarter is not deductible in the third month of the
current quarter
4. The input VAT carry-over of the prior quarter is deductible in the third month quarterly balance of the
present quarter

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

Output VAT Input VAT

Prior quarter 350,000 390,000
Current quarter:
1st month of the current quarter 120,000 100,000
2nd month of the current quarter 150,000 145,000
3rd month of the current quarter 220,000 70,000
490,000 315,000

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

Prior quarter Present Quarter

3rdmonth 1st month 2nd month 3rd month
Output VAT 350,000 120,000 150,000 490,000
Less: Input VAT 390,000 100,000 145,000 315,000
Carry-over (40,000) 40,000 40,000
Input VAT Carry- over (20,000) 20,000
Not an input VAT (15,000)
carry-over
VAT payable 135,000

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 135,000 VAT in the third month of the current quarter.

EXCLUSIONS 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 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 cannot be directly and entirely attributed to
any one of the sales transactions shall be allocated proportionately on the basis of sales

Illustration 1
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 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 1,550,000 122,000

The creditable input VAT may be computed directly as:

Input VAT on private sales 60,000

Input VAT on export sales 36,000
Input VAT on government sales (7%*250,00) 17,500
Total allowable Input VAT 113,500

Input VAT deductible against gross income through cost and expenses:

Input VAT on exempt goods 2,000

Excess input VAT (government) (24,000-17,500) 6,500
Total 8,500

Illustration 2
A taxpayer engaged in merchandising had the following transactions during the month:

Exempt sales 200,000

Export sales 300,000
Sales to government 100,000
Regular sales 400,000
Total 1,000,000

During the month, the taxpayer had 124,000 total input VAT that cannot be traced to a particular transaction.

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

Sales amount Allocation Factor Allocated input VAT

Exempt sales 200,000 200K/1M*124,000 24,800
Export sales 300,000 300K/1M*124,000 37,200
Sales to government 100,000 100K/1M*124,000 12,400
Regular sales 400,000 400K/1M*124,000 49,600
Total sales 1,000,000 124,000

The creditable input VAT shall be:

Input VAT allocable to export sale 37,200

Standard Input VAT 7,000
Input VAT allocable to regular sales 49,600
Total 93,800

Illustration 3
A taxpayer had the following sales during the month:
Sales Amount Traceable Input VAT
Exempt sales 200,000 12,000
Regular sales 300,000 18,000
Total 500,000 30,000
There is a P24,000 input tax that cannot be traced to either type of transaction.
The creditable input VAT shall be:
Input VAT directly traceable to vatable sales 18,000
Allocated input VAT to vatable sales (300/500 x 24k) 14,400
Total allowable (creditable) input VAT 32,400