MODULE 7 (Chapter 9)

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:

Selling price P 500,000

Output VAT (12% x 60,000
P500,000)
Invoice price P 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 of
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.

Illustration
Mrs. Aguilar had a P230,000 output VAT in the month. She also made the following
purchases during the month:
Goods from non-VAT suppliers P
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 ordinary 120,000
receipts

The creditable input VAT shall be:

*Banggawan, Business and Transfer Taxation, 2019 Ed., Pasay: Real Excellence Publishing
 Goods from VAT suppliers (P224,000 x 12/112) P
24,000
VAT on importation (P896,000 x 12/112) 96,0
00
Total creditable input VAT P
120,000
- The purchases from non-VAT suppliers and purchases of VAT-exempt goods or
properties have no input VAT
- The input VAT on purchases not intended for business (i.e., for personal use) is
non-creditable against output VAT
- Input VAT evidenced by an ordinary receipt rather than by a VAT invoice or VAT
official receipt is not creditable

The VAT due of Mrs. Aguilar shall be determined as:

Output VAT P 230,000
Less: Input VAT 120,000
VAT due P 110,000

Illustration
Malaybalay Corporation had the following input VAT during the quarter:
Input VAT traceable to regular domestic sales P
400,000
Input VAT traceable to VAT-exempt sales 30,000
Input VAT traceable to export sales 600,000

The creditable input VAT shall be:

Input VAT traceable to regular domestic sales P
400,000
Input VAT traceable to export sales 600,00
0
Total creditable input VAT P
1,000,000

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

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*Banggawan, Business and Transfer Taxation, 2019 Ed., Pasay: Real Excellence Publishing
beginning inventory of goods, materials, or supplies or the actual VAT paid thereon
whichever is higher (See Sec. 111 NIRC as amended by RA. 9337).

The value allowed for income tax purposes on inventory shall be the basis of the
computation of the 2% transitional input VAT. (Sec.111.1(a), RR16-2005). Goods
exempt from VAT shall be excluded in the computation of the transitional input VAT
(RMC 62-2005).

In short, the transitional input VAT is based on vatable beginning inventories in

the month of registration as a VAT taxpayer.

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. Thus
RMC 62-2005 clarified that exempt beginning inventory shall be excluded in the basis of
the 2% transitional input VAT.

Illustration
Ilo-ilo General Merchandise, Inc. exceeded the VAT threshold in June 2020- it had the
following inventory of goods at the start of July 2020:
Frozen meat, eggs and dried fish P
40,000
Fruits and vegetables 50,000
Grocery items (all from VAT suppliers) 22,400
Appliances (from non-VAT suppliers) 30,000
Total beginning inventory P 142,000

Actual VAT = P22,400 x 12/112 P

2,400

Vatable beginning inventory:

Grocery (P22,400 – P2,400) P 2,000
Appliances 30,000
Total P 50,000
Multiply by: 2
%
2% of beginning inventory P 1,000

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*Banggawan, Business and Transfer Taxation, 2019 Ed., Pasay: Real Excellence Publishing
 Transitional input VAT (HIGHER) P 2,400

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 if VAT
credit in his accounting books.

REGULAR INPUT VAT

The regular input VAT is the 12% paid on:
a. Domestic purchase of goods, services, or properties, or
b. Importation of goods or service

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 Amortized over useful life in months or 60
acquisition cost exceeds months, whichever is shorter
P1,000,000
Purchase of non-depreciable vehicles Not creditable (RR12-2012)
and on maintenance incurred thereon

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 (i.e., 5 years), whichever is shorter.

The input VAT to be amortized is called the “Deferred input VAT.”

Illustration
Isulan Company, a VAT-registered taxpayer, purchased the following capital goods in
March 2020:
Capital goods Purchase price Input VAT Useful life
Equipment P 600,000 P 72,000 4 years (48 months)
Truck 700,000 84,000 10 years (120
months)
Total P 1,300,000 P 156,000

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*Banggawan, Business and Transfer Taxation, 2019 Ed., Pasay: Real Excellence Publishing
Since the monthly aggregate acquisition cost P1.3M) exceeds P1M, the input VAT on
these properties shall be amortized over a period not exceeding 60 months or 5 years.
Hence,
- The P72,000 input VAT shall be deferred and credited in P1,500 (P72,000/48
monthly credits starting March 2020 until February 2024.
- The P84,000 input VAT shall be deferred and credited in P1,400 (P84,000/60)
monthly credits starting March 2020 until February 2025.

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.

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 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 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.

Code word on qualified processors: Sa MaMi Co PaRe (Sardines, Mackerel, Milk,

Cooking Oil, Packed Noodles and Refined Sugar)

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.

Illustration: Processor of cooking oil

Bilimo Oil Corporation, a VAT-registered cooking oil manufacturer, purchased the
following materials and supplies in the processing of cooking oils during the month:
Cost Input VAT

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*Banggawan, Business and Transfer Taxation, 2019 Ed., Pasay: Real Excellence Publishing
 Copra P 1,200,000 -
Hexane solvent 50,000 P 60,000
Cans and bottle containers 200,000 24,000
Sodium hydroxide/carbonate 80,000 9,600
Activated carbon 100,000 12,000
Total P 1,630,000 P 51,600

During the month Bilimo produced 1,000 cans and 1,500 bottles of cooking oils and sold
800 cans and 1,200 bottles to various wholesalers for P2,800,000.

The presumptive input VAT shall be P1,200,000 x 4%; hence, P48,000.

Assuming that there are no other sources of input VAT, the VAT payable for the month
shall be computed as:
Output VAT (P2,800,000 x P 336,000
12%
Less: Input Vat
Regular input VAT P 51,600
Presumptive input 48,000 99,600
VAT
VAT Payable P 236,000

Illustration: Processor of sardines

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

The presumptive input VAT shall be computed from the agricultural purchases as
follows:
Hot chili P 50,000
Tomatoes 400,000
Ordinary salt 20,000
Total agricultural P 470,000
purchases
Multiply by 4%
Presumptive input VAT P 18,800

Sardines, including mackerel are marine products, not agricultural products. The
presumptive input VAT, a tax credit shall be construed against the taxpayer.

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*Banggawan, Business and Transfer Taxation, 2019 Ed., Pasay: Real Excellence Publishing
Illustration: Processor of refines sugar for others
Sugarie Corporation operates a sugar refinery for clients. During the month, it
processed P10,000,000 worth of sugarcane and produced P40,000,000 worth of sugar.
Sugarie charges 10% of the production as processing charge.

Sugarie Corporation cannot claim presumptive Input VAT because it does not own the
sugar it processes. Sugarie shall be subject to 12% VAT on its processing fees. If
Sugarie produces raw sugar, its processing fees shall be exempt from VAT.

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

The government or GOCC shall withheld a 1% final percentage tax on the sale before
payment.

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*Banggawan, Business and Transfer Taxation, 2019 Ed., Pasay: Real Excellence Publishing