Input Taxes

By : Abigail Ibañez

Input Tax

• 1. VAT Registered Person• 2. In the course of trade or business• 3. Duly substantiated (VAT OR) or (VAT Invoice)

Categories of creditable or deductible input taxes

• 1. VAT paid on local purchases or on importation

• 2. Presumptive input tax• 3. Transitional input tax• 4. Standard input tax

Persons who can avail of the credit

• 1. importer upon payment of VAT, release of goods from customs custody

• 2. purchaser upon consummation of the sale• 3. purchaser of services or the lessee or

licensee upon payment of the compensation

Determination of Allowable Input Taxes

• Deduction from input taxes • A. Input tax claimed as tax credit certificate or

refund• B. Input tax attributed to VAT exempt sales• C. Input tax attributed to sales to government

Sources of Creditable Input Tax

• A. Passed on VAT• 1. Purchase or importation of goods like:• Merchandise, raw materials, packaging

materials, supplies, capital goods and depreciable assets

• 2. Purchase of real properties for which VAT has actually been paid

Sources of Creditable Input Tax

• A. Passed on VAT• 3. Purchase of services in which VAT has

actually been paid• 4. Transactions deemed sale• 5. Presumptive Input tax• 6. Transitional Input tax

Sources of Creditable Input Tax

• A. Passed on VAT• VAT registered person is also engaged in

transactions not subject to VAT. • 1. All the input taxes that can be directly

attributed to transactions subject to VAT may be recognized for input tax credit

• 2. If not : VAT Sales/ Total Sales x Input taxes

Exercise

• A VAT registered taxpayer is also engaged in VAT exempt transactions. The following VAT exclusive data are made available:

• Domestic VAT Subject Sales 1,000,000• VAT Exempt Sales 500,000 Purchases of supplies from 100,000 VAT supplier (VAT subject and VAT exempt) Purchase of merchandise from 200,000 VAT registered trader

Exercise

• REQ: a. Prepare the necessary journal entries b. Compute VAT Payable

Claim for input tax on depreciable goods RR16 2005

• Aggregate acquisition cost – total price, excluding VAT, agreed upon regardless of payments made.

• Sale or transfer of depreciable goods prior to the exhaustion of income tax – the entire unamortized input tax on the capital goods sold or transferred can be claimed as input tax credit

Claim for input tax on depreciable goods RR16 2005

• Meaning of capital goods or properties – estimated useful life greater than one year

• Ex. Office Equipment, Office Air Con• Meaning of construction in progress – cost of

construction work which is not yet completed• Not depreciated until the asset is placed in

service• Reclassified asset is capitalized and depreciated

Construction in Progress

• For the purpose of claiming input tax, it shall be considered a purchase of service, which shall be determined based on the progress billings.

• Contract for the sale of service where only labor will be supplied – Labor Cash Basis–Materials – Accrual Basis

Input tax claimed while construction in progress- no additional input tax can be claimed upon completion of the asset

Presumptive Input Tax

• Persons Allowed : 1.Processors of sardines, mackerel and milk, 2.Manufacturers of refined sugar and cooking oil, 3.Manufacturer of packed noodle based instant meals

• Rate and basis: 4% of gross value in money of purchases of primary agricultural products which are used as inputs to their production

Transitional Input Tax

• Situations Allowed: 1.Taxpayers who become VAT registered persons upon exceeding the minimum turnover of P1,500,000 in any 12 month period. 2. Taxpayers who voluntarily register

• Basis: Beginning Inventory of goods, materials and supplies (excluding those that are VAT exempt)

Transitional Input Tax

• Amount of Transitional Input Tax: 2% of the value of beginning inventory on hand or actual VAT paid on such goods, materials and supplies, whichever is higher.

Standard Input Tax

• Input taxes that can be directly attributable to VAT taxable sales of goods and services to the government or any of its political subdivision, instrumentalities or agencies including GOCCs shall not be credited against output taxes arising from sales to non government entities.

Standard Input Tax

• The government or any of its political subdivision, instrumentalities or agencies including GOCCs shall deduct and withhold a final VAT due at the rate of 5% of the gross payment.

Standard Input Tax

• The remaining 7% effectively accounts for the standard input VAT for the sales of goods or services to the government in lieu of actual input VAT

Exercise -SIT

• A. A VAT registered seller of goods has the following cash transactions for the second quarter of 2009 (VAT exclusive):

• 1. Purchased goods for P500,000• 2. Sold the goods purchased for P500,000 to a

Government Owned Controlled Corporation for P1,000,000

• Prepare the necessary journal entries in the books of the seller

Exercise -SIT

• B. A VAT Registered service provider has the following transactions for the first quarter of 2009:

• 1. Purchased materials for use in contract with the government paying P896,000, gross of VAT

• 2. Collected P1,000,000 out of the P5,000,000 contract price, net of VAT

• Prepare the necessary journal entries in the books of the service provider.

Exercise WVAT

• A. A VAT registered taxpayer has waived his privilege to claim input tax credit and filed a notice of availment of the option to pay the tax through the withholding process, He has the following transactions during the month:

• VAT Sales, net of 12% VAT P1,000,000• Purchases, 12% VAT exclusive 500,000• Prepare the necessary entries in the books of the

seller and the buyer, and compute VAT payable of the seller.

Exercise WVAT

• B. A VAT registered taxpayer has engaged the services of a non resident service provider for P500,000, net of 12% VAT.

• Prepare the necessary entries in the books of the VAT registered taxpayer

Remittance of Withholding VAT

• The VAT withheld shall be remitted within 10 days following the end of month the withholding was made.

Refund on Input tax

• A. Input tax on zero rated sales of goods or property etc. - within 2 years after the close of the taxable quarter when the sales were made.

• B. Unused Input tax of person who retired or ceased business- within 2 years from the date of cancellation

Refund on Input tax

• C. Period of refund or tax credit input tax – Refund or tax credit certificate shall be granted within 120 days from the date of submission of complete documents.

Additional Exercises

• A. Vice Ganda, VAT registered, had the following purchases during the month of January 2009:

• Goods for sale, inclusive of VAT 246,400• Supplies, exclusive of VAT 20,000• Office Air Con, total invoice price (Life = 3 years)

56,000• Home appliance for residence, gross of VAT

17,920

Additional Exercises

• Services for store repair contractor, not VAT registered (total invoice amount) 33,000

• Services for repainting of store, total invoiced amount evidenced by ordinary receipt issued by contractor 4,480

How much was the total allowable input tax for the month?

Additional Exercises

• B. Yanyan, VAT registered taxpayer has the following data for the first month of the second quarter of 2009:

• Domestic Sales, net of 12% VAT 2,000,000• Export Sales 3,000,000• Purchases attributed to domestic sales , net of 12%

VAT 500,000• Purchases attributed to export sales, net of 12% VAT

1,500,000

Additional Exercises

• Purchases attributed to both domestic and export sales, net of 12% VAT 700,000

• How much is the total input taxes which may be claimed as tax credit or refund?

• Assuming the taxpayer decides to apply a portion of the refundable tax against the output tax, how much input tax can be claimed as tax credit or refund?