Cont’ VAT

Transitional Input tax – Beginning

Inventories
• When to claim Transition Input tax:
• - When he becomes liable to VAT upon exceeding
the minimum turn-over of P3M in any 12-mo.
Period
• - When he voluntarily registered even his GRS does
not exceed P3M (except franchise grantees of radio
& television broadcasting – threshold is P10M)
 Con’t –Transitional Input tax (TITx)
• INVENTORIES that are subject to TITx
• a. Goods purchased for resale in their present
condition
• b. Materials purchased for further processing,
but not yet undergone processing
• c. Goods which have been manufactured by the
taxpayer
• d. Goods on Process for sale
• e. Goods & supplies for use in course of business
Con’t – Transitional Input tax

• Amount to be allowed is whichever is higher

between:
- 2% of Beginning inventory
- Actual VAT paid on such goods.
- TITx can only be applied as tax credit against
Output tax, but not as tax refund unless there
is erroneous or excessive payment.
 APPORTIONMENT OF INPUT TAX ON MIXED TRANSACTION

• Formula for apportioning Input taxes of mixed transactions of a

business:
( sales to private person or firm, sale to the government, selling
goods that is VAT exempt )
Taxable sales to Private/Total sales x Input tax = Creditable
Taxable sales to gov’t / Total sales x Input tax = Creditable up to
5%
Exempt sales / Total sales x Input tax = Expense or Cost
 SPREAD OF VAT ON CAPITAL GOODS
• RULES FOR INPUT TAX APPLICATION ON PURCHASED / IMPORTED CAPITAL GOODS :
• 1. Aggregate acquisition cost (net of VAT) exceeds P 1M – spread evenly over 60
months or their useful life, whichever is shorter.
• 2. Aggregate acquisition cost (net of VAT) during any calendar month does not
exceed P1M – the total input taxes will be allowed as credit against output tax in
the month of acquisition
• 3. If Capital good is sold within five (5) years or prior to exhaustion of input VAT
thereon, the entire unamortized input tax can be claimed as credit during the
month/quarter when the sale was made.
• 4. The option to apply for refund/tax credit certificate has been withdrawn.
Con’t – Spread of VAT on CAPITAL GOODS

•The amortization of the input VAT shall only be allowed until

DECEMBER 31, 2021 after which unutilized Input VAT on
Capital goods shall be allowed to apply the same as scheduled
until fully utilized: Provided, that in the case of purchase of
services, lease or use of properties, the input tax shall be
creditable to the purchaser, lessee or licensee upon payment of
the compensation, rental, royalty or fee.
 Con’t – Construction in Progress ( CIP)
•CIP is considered, for purpose of claiming Input tax, as Purchase
of service, the value of which shall be determined based on
progress billing. Input tax credit can be recognized in the month
of the payment made; provided, that an Official Receipt of
payment has been issued based on progress billings.
•Once the input tax has been claimed while the construction is
still in progress, no additional input tax can be claimed upon
completion of the asset when it capitalized.
 VAT-EXEMPT TRANSACTIONS
•1. Sale or importation of agricultural and marine food products in their
original state, livestock and poultry
•2. Sale or importation of fertilizer, seeds, seedlings and fingerlings, fish,
prawn, livestock and poultry feeds, including ingredients, local or
imported, used in manufacture of finished feeds (except specialty feeds for
those considered pets)
•3. Importation of personal and household effects belonging to residents of
the Philippines returning from abroad and non-resident citizens coming to
resettle in the Philippines, provided exempt from Custom duties.
 VAT-EXEMPT TRANSACTIONS
• 4. Importation of professional instruments and implements, wearing apparel,
domestic animals, and personal household effects (except any vehicle, and any kind
in commercial quantity) belonging to persons coming to settle in the Philippines for
their own use, accompanying such persons or arriving within 90 days before or after
their arrival.
• 5. Services by agricultural contract growers and milling for others of palay into rice,
corn into grits, and sugar into raw sugar.
• 6. Medical, dental, hospital and veterinary services, except those rendered by
professionals. Laboratory services are exempted.
Sale of drugs and medicine sold by Pharmacy operated by hospital/clinics is subject
to VAT.
 Con’t - VAT-EXEMPT TRANSACTIONS
•7. Educational services rendered by private educational
institutions duly accredited by DepEd, CHED, TESDA, & other gov’t
educational institutions.
•- does not include seminars, in-service training, review classes &
those rendered by those not accredited by DepEd, CHED, TESDA
•8. Services rendered by individual pursuant to an employee-
employeer relationship
 Con’t - VAT-EXEMPT TRANSACTIONS

9. Services rendered by regional or area headquarters established in the Phil. By

multinational corp. which act as supervisory, communications & coordinating
centers for their affiliates, subsidiaries or branches in the Asia Pacific Region & do
not earn or derive income from the Phil.
10. Transactions which are exempt under International agreements to which the
Phil. is a signatory or under special law except PD 529
11. Sales by agricultural cooperatives duly registered with the CDA to their
members, as well as sale of produce, original state or processed form to non-
members; importation of direct farm inputs, machineries & equipments, to be
used directly & exclusively in the production/processing of their produce.
 Con’t - VAT-EXEMPT TRANSACTIONS
• SALE by agricultural cooperatives to non-members can only be exempted
from VAT if the producer of the agricultural products sold is the cooperative
itself. If it is not producer, then only those sales to its members shall be
exempted from VAT (RRA -2007)
• 12. Gross receipts from lending activities by credit or multi-purpose
cooperatives duly registered and in good standing with the CDA
• 13. Sales by non-agricultural, non-electric and non-credit cooperatives duly
registered with the CDA; provided, that the share capital contribution of
each member does not exceed 15,000 pesos and regardless of the aggregate
capital and net surplus ratably distributed among the members.
 Con’t - VAT-EXEMPT TRANSACTIONS
• 14. Sale of real properties as follows:
• a. sale of real properties not primarily held for sale to customers or held
for lease in the ordinary course of trade or business except those used in
the trade or business of the seller
• b. Sale of real properties utilized for low-cost housing – not more than
750,000 price ceiling.
• c. Sale of real properties utilized for socialized housing – not more than
P450,000 price ceiling
 Con’t - VAT-EXEMPT TRANSACTIONS – real properties
• d. Sale or residential lot – P1.5M and below;
• House & lot – P 2.5M and below
• e. Lease of residential units w/ monthly rental not more than 15,000 per
unit
• those exceeding 15,000 per unit but aggregate rental for the year does
not exceeds P 3,000,000 (subject to 3 % percentage tax)
• “per unit” = apartment, house
• “per person” = dormitories, boarding house and bed spaces
• “per room” = room for rent
 Con’t - VAT-EXEMPT TRANSACTIONS
• 15. Sale, importation, printing or publication of books and any
newspapers, magazines, review, or bulletin which:
• - appear at regular interval
• - with fixed prices for subscriptions
• - sale of which is not devoted principally to the publication of paid
advertisement
• 16. Transport of passenger by international carriers doing business in the
Philippines