PAMANTASAN NG LUNGSOD NG VALENZUELA

TRANSFER AND BUSINESS TAXATION TYPES OF CREDITABLE INPUT VAT

Lecture: Input VAT 1. Transitional Input VAT
A person who becomes liable to value-added tax or any person who elects to be a VAT-
NAME: SCORE: SECTION: 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
Requisites of a creditable Input VAT whichever is higher.
1. The input VAT must have been paid or incurred in the course of trade or business.
2. The input VAT is evidenced by a VAT invoice or official receipt. The value allowed for income tax purposes on inventory shall be the basis of the
3. The VAT invoice or receipt must be issued by a VAT-registered person. computation of the 2% transitional input VAT. Goods exempt from VAT shall be
4. Input VAT is incurred in relation to vatable sales and not from exempt sales. excluded in the computation of the transitional input VAT.

Illustration 1 In short, the transitional input VAT is based on vatable beginning inventories in the
Malaybalay Corporation had the following input VAT during the quarter: month of registration as a VAT taxpayer.
Input VAT traceable to regular domestic sales P 400,000
Input VAT traceable to VAT-exempt sales 30,000 Illustration 1
Input VAT traceable to export sales 600,000 Mr. Horace opted to be registered as a VAT taxpayer. He had the following inventory:
VAT-exempt goods P 80,000
How much is the creditable input VAT? Vatable goods (all purchased from a non-VAT suppliers) 40,000
Equipment (purchased from a VAT supplier) 112,000
Total P 232,000
Illustration 2
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 Illustration 2
Goods from VAT suppliers with VAT invoices 224,000 Alexander became liable to VAT after exceeding the VAT threshold in November 2014.
Importation of car for personal use, VAT inclusive 1,120,000 Alexander had the following beginning inventory for December 2014:
Importation of grapes and apples for sale 300,000 VAT-exempt goods P 20,000
Importation of merchandise for sale, VAT inclusive 896,000 Vatable goods:
Services from VAT suppliers, evidenced by ordinary receipts 120,000 - Purchased from non-VAT sellers 60,000
- Purchased from VAT sellers 11,200
How much is the creditable input VAT?
Total P 91,200
How much is the VAT payable?

TAX 2: Lecture jvacpa Page 1 of 1

Illustration 3 2. Regular Input VAT
Ilo-ilo Merchandise, Inc. exceeded the VAT threshold in June 2014. It had the following 3. Amortization of Deferred Input VAT
inventory of goods at the start of July 2014: The regular input VAT is the 12% VAT paid on:
Frozen meat, eggs and dried fish P 40,000 a. Domestic purchase of goods, services or properties
Fruits and vegetables 50,000 b. Importation
Grocery items (all from VAT suppliers) 22,400
Appliances (from non-VAT suppliers) 30,000 Source of Regular Input VAT Timing of credit
1. Purchase of goods or properties In the month of purchase
Total P 142,400
2. Purchase of services In the month paid
3. Importation of goods In the month VAT is paid
4. Purchase of depreciable capital goods or properties
- General treatment In the month of purchase
Illustration 4 - When the monthly aggregate Amortized over useful life in months
Cebu Ventures, a realty development company, started business as a VAT taxpayer with the acquisition cost exceeds P1,000,000 or 60 months, whichever is shorter.
following initial inventory: 5. Purchase of non-depreciable vehicles and Not creditable
Raw land acquired from a non-VAT seller P 10,000,000 on maintenance incurred thereon
Various equipment 8,000,000
Office building 20,000,000 Illustration 1
Land where the office building stands 4,000,000 Isulan Company, a VAT registered taxpayer, purchased the following capital goods in March
2014:
Capital goods Purchase Price Input VAT Useful Life
Equipment P 600,000 P 72,000 4 years
Timing of Credit of Transitional Input VAT
Truck* 700,000 84,000 10 years
The transitional Input VAT shall be claimable in the month of registration as a VAT Total P 1,300,000 P 156,000
taxpayer.
* Acquired on installment, P100,000 downpayment is paid during the month.
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. Illustration 2
Mr. Alabel, a VAT taxpayer, made the following purchases in July 2014:
Accounting entry to record transitional input VAT Purchases Purchase Price Input VAT Useful Life
Transitional Input VAT P XXX Goods for sale P 800,000 P 96,000
Car for personal use 1,000,000 120,000 10
Beginning inventory P XXX Computers for business use 250,000 30,000 3
To record the transitional input VAT Machineries for business use 750,000 90,000 7

TAX 2: Seatwork 08 jvacpa Page 2 of 5

Special Rules on Input Tax Credit 4. Presumptive Input VAT (Sa MaMi Co PaRe)
1. Non-depreciable vehicles Persons or firms engaged in the processing of sardines, mackerel and milk and in the
Rules on deductibility of depreciation on vehicles: manufacturing of refined sugar, cooking oil and packed noodle based instant meals, shall
a. Only one vehicle for land transport is allowed for the use of an official or be allowed a presumptive input tax equivalent to 4% of the gross value in money of their
employee, the value of which should not exceed P2,400,000. purchases of primary agricultural products which are used in their productions.
b. No depreciation shall be allowed to yachts, helicopters, airplanes and/or aircrafts,
and land vehicles which exceed the P2,400,000 threshold, unless the taxpayers The term"processing"shall mean pasteurization, canning, and activities which through
main line of business is transport operations or lease of transport equipment and physical or chemical process alter the exterior texture or form or inner substance of a
the vehicles are used in said operations product in such manner as to prepare it for special use to which it could not have been put
c. The purchase must be substantiated with sufficient evidence such as official in its original form or condition,
receipts or other adequate records. The presumptive input VAT is a tax incentive to these processors of VAT-exempt raw
d. The direct connection or relation of the vehicles to the development , operation materials into processed food products. The apparent reason behind the tax incentive is
and or conduct of the trade or business or profession of the taxpayer must be the absence of adequate claimable input VAT for these entities. Without the incentive,
substantiated. their output VAT is effectively their VAT payable.
Non-conformance to these requisites shall render the vehicle non-depreciable for income
tax purposes. Illustration 1
Biliomko Oil Corporation, a VAT registered cooking oil manufacturer, purchased the
2. Construction in Progress following materials and supplies in the processing of cooking oils during the month:
Construction in progress is not considered as purchase of capital but as purchase of Cost Input VAT
service. Copra P 1,200,000 0
Hexane solvent 50,000 P 6,000
3. Purchase of real property Cans and bottle containers 200,000 24,000
If the seller is subject to VAT on the sale on a deferred payment basis, the input VAT Sodium hydroxide/ carbonate 80,000 9,600
shall be claimable by the buyer at the time of the execution of the instrument of sale, Activated carbon 100,000 12,000
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 Illustration 2
seller recognizes the output VAT. Sardinas Corporation processes hot chili flavored sardines. During the month, Sardinas
purchased the following ingredients for the processing of canned sardines.
4. Purchase of goods or properties deemed sold Cost Input VAT
The claimable input VAT on goods or properties previously deemed sold shall be the Fresh sardines P 800,000 0
portion of the output VAT imposed upon the goods deemed sold which corresponds to Hot chili 50,000 0
the goods purchased by the buyer. Tomatoes 400,000 0
Ordinary salt 20,000 0
Tin can 120,000 14,400
Labels 60,000 7,200

TAX 2: Seatwork 08 jvacpa Page 3 of 5

5. Standard Input VAT Illustration 1
The sale of goods and services to the government or any of its political subdivision, The following data relates to the regular sales of a VAT taxpayer:
instrumentalities or agencies, including government-owned and controlled corporation Output VAT Input VAT
(GOCCs) is subject to a 5% final withholding VAT based on the gross payment Prior Quarter P 350,000 P 390,000
Current Quarter:
The government instrumentalities, agencies or GOCCs shall withhold the final VAT 1st month of current quarter P 120,000 P 100,000
before making the payment and remit the same within 10 days following the end of the 2nd month of the current quarter 150,000 145,000
month the withholding was made. 3rd month of the current quarter 220,000 70,000

The 5% withheld final VAT shall be deemed the actual VAT payable of the seller.
Hence, sellers to the government instrumentalities or agencies including GOCCs can
claim an input VAT equivalent to 7%(12%-5%) of their sales as input VAT. This is
called the standard input VAT. Illustration 2
The following data relates to the regular sales of a VAT taxpayer:
The standard input VAT will more likely differ from the actual input VAT traceable to Output VAT Input VAT
the sale to the government or GOCCs. The difference between the two is closed to costs Prior Quarter P 360,000 P 400,000
or expenses of the seller. In other words, the difference is recognized as an expense or Current Quarter:
gain. 1st month of current quarter P 160,000 P 100,000
2nd month of the current quarter 150,000 160,000
If the seller is a non-VAT registered seller, the government or GOCC shall withhold a 3rd month of the current quarter 170,000 65,000
3% final percentage tax on the sale before payment.

6. 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
a. The input VAT carry-over of the prior quarter is deductible in the first month of
the current quarter.
b. The input VAT carry-over in the first month of the quarter is deductible in the
second month of the quarter.
c. The input VAT carry-over in the second month of a quarter is not deductible to
the third month of the quarter.
d. The input VAT carry-over of the prior quarter is deductible in the third month
quarterly balance of the present quarter.
What are excluded from Input VAT Carry-over?
1. Advanced VAT which have been applied for a tax credit
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 the two-year prescriptive
period.
RULES ON CLAIM OF INPUT VAT DEDUCTION (CREDIT)
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 that cannot be directly and
entirely attributed to any one of the sales transactions shall be allocated proportionately
on the basis of sales

TAX 2: Seatwork 08 jvacpa Page 4 of 5

Illustration 1 Specific Identification Illustration 4
A VAT taxpayer had the following sales with their corresponding directly traceable input A VAT taxpayer had the following data during the month:
VAT during the month: Sales to regular costumers P 4,000,000
Sales amount Input VAT Sales to the government 1,000,000
Sales to private entities P 900,000 P 60,000 Export sales 3,000,000
Export sales 300,000 36,000 Exempt sales 2,000,000
Sales to government 250,000 24,000
Sales of exempt goods 100,000 2,000
Total P 1,550,000 P 122,000 Input VAT
Input VAT carry-over, from prior period P 80,000
Deferred input tax (already amortized for 21/36) 75,000

Current month transactions:

Purchase of goods or services P 7,000,000 P 840,000
Importation of equipment (8 year life) 1,200,000 144,000
Illustration 2 Non-traceable input VAT Purchase of non-depreciable asset 80,000 9,600
A taxpayer engaged in merchandising had the following transactions during the month:
Directly traceable input VAT
Exempt sales P 200,000
Input VAT traceable to exempt sales P 196,800
Export sales 300,000 Amount applied for VAT refunds/TCC on export sales 150,000
Sales to government 100,000 Input VAT traceable to sales to government 90,000
Regular sales 400,000
Total P 1,000,000 The following input VAT can only be traced to entire operations:
Amortization of deferred input VAT on capital goods P 7,400
During the month, the taxpayer had P124,000 total input VAT that cannot be traced to a Input VAT on supplies 28,100
particular transaction. Total non-traceable input VAT P 35,500

Illustration 3
A taxpayer had the following sale during the month:
Sales amount Input VAT
Exempt sales P 200,000 P 12,000
Regular sales 300,000 18,000
Total P 500,000 P 30,000
There is a P24,000 input tax cannot be traced to either type of transaction.

TAX 2: Seatwork 08 jvacpa Page 5 of 5