CHAPTER 9 (PART 1):

INPUT VAT
PREPARED BY: CARL JUSTINE MANIAGO, CPA
INPUT VAT
Refers to the VAT due or paid by a VAT-registered person on imported or local purchases of
goods, properties, or services, including lease or use of properties in the course of his trade or
business.

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.

If not billed separately, the selling price stated in the sales document shall be deemed to be
inclusive of VAT.
CREDITABLE INPUT VAT
Not all input VAT paid on purchases is creditable or deductible against output VAT.

Requisites of a creditable input VAT:

◦ The input VAT must have been paid or incurred in the course of trade or business.
◦ The input VAT is evidenced by a VAT invoice or official receipt.
◦ The VAT invoice or receipt must be issued by a VAT-registered person.
◦ Input VAT is incurred in relation to vatable sales not from exempt sales.
 CREDITABLE INPUT VAT
ILLUSTRATION:
Mrs. Aguilar had a P 230,000 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 receipts 120,000

Compute the creditable input VAT.

CREDITABLE INPUT VAT

ILLUSTRATION:

Goods from VAT supplier (P224K*12/112) P 24,000

VAT on importation (P896K*12/112) 96,000
Total creditable input VAT P 120,000
TYPES OF INPUT VAT
Transitional input VAT
Regular input VAT
Amortized of Deferred input VAT
Presumptive input VAT
Standard input VAT
Input VAT carry-over
TYPES INPUT VAT:
TRANSITIONAL INPUT VAT
A person who becomes liable to VAT or any person who elects to be VAT-registered person shall
be given an initial input tax credit equivalent to 2% of the beginning inventory of goods,
materials, or supplies or actual VAT paid thereon whichever is higher.

Goods exempt from VAT shall be excluded in the computation of the transitional VAT.

Transitional input VAT is based on vatable beginning inventories in the month of registration as
a VAT taxpayer.
 TYPES INPUT VAT:
TRANSITIONAL INPUT VAT
ILLUSTRATION:
Alexander became liable to VAT after exceeding the VAT threshold in November 2020. Alexander had the
following beginning inventory for December 2020:

VAT-exempt goods P 20,000

Vatable goods:
purchased from non-VAT sellers 60,000
purchased from VAT sellers 11,200
Total December 1, 2020 inventory P 91,200

Compute the transitional input VAT.

TYPES INPUT VAT:
TRANSITIONAL INPUT VAT
ILLUSTRATION:
Actual VAT paid to VAT suppliers (P11,200*12/112) P 1,200

Value of vatable goods:

From non-VAT sellers P 60,000
From VAT sellers (P11,200 – P1,200) 10,000
Value of inventory P 70,000
Multiply by: 2% P 1,400

The transitional input VAT shall be P1,400.

TYPES INPUT VAT:
TRANSITIONAL INPUT VAT
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 became 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 tax.
◦ 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.

Timing of Credit of Transitional Input VAT

◦ The transitional input VAT shall be claimable in the month of registration as a VAT taxpayer.
TYPES INPUT VAT:
TRANSITIONAL INPUT VAT

Requisites for Claim of Transitional Input VAT

◦ The taxpayer must submit an inventory list of goods.
◦ The taxpayer must prepare an entry recognizing the transitional input VAT credit in his accounting
books.

Transitional input VAT P xxx

Beginning inventory P xxx
TYPES INPUT VAT:
REGULAR INPUT VAT & AMORTIZED OF DEFERRED INPUT VAT
The regular input VAT is the 12% VAT paid on:
◦ Domestic purchase of goods, services, or properties, or
◦ Importation of goods or 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 cost Amortized over useful life in months or 60
exceeds P1M months, whichever is shorter
Non-depreciable vehicles & its maintenance Not creditable
TYPES INPUT VAT:
REGULAR INPUT VAT & AMORTIZED OF DEFERRED INPUT VAT
Input VAT on purchase of capital goods or properties
◦ If the monthly aggregate acquisition cost of depreciable capital goods:
◦ Does not exceed P1M – The input VAT is claimable in the month of purchase
◦ Exceeds P1M – The input VAT is deferred and amortized over the useful life in months or 60 months,
whichever is shorter

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.
◦ Depreciable capital goods – goods or properties with estimated useful life of more than one 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.
TYPES INPUT VAT:
REGULAR INPUT VAT & AMORTIZED OF 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
Truck 700,000 84,000 10 years
Truck is acquired on installment, P100K downpayment is paid during the month.
Can the input tax on the purchase of these properties be amortized? If yes, how much will the
monthly credit for the input tax on each purchase?

Yes, the P72K input VAT shall be deferred and credited in P1,500 (P72K/48 months) monthly
credits; the P84K input VAT shall be deferred and credited in P1,400 (P84K/60 months) monthly credits.
 TYPES INPUT VAT:
REGULAR INPUT VAT & AMORTIZED OF DEFERRED INPUT VAT
Sale of 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 VAT) on the capital goods
sold/transferred can be claimed as input tax credit during the calendar month/quarter when the sale or
transfer was made.
ILLUSTRATION:
The following relates to a depreciable property (equipment) which was sold during the month. Compute
the VAT payable using the information below and make the journal entries on the sale.
Selling price in cash P 3,500,000
Output VAT 420,000

Original cost of the property P 3,000,000

Accumulated dep’n of property 1,000,000
Unutilized input VAT on property 200,000
TYPES INPUT VAT:
REGULAR INPUT VAT & AMORTIZED OF DEFERRED INPUT VAT
ILLUSTRATION:
Output VAT P 420,000
Less: Deferred input VAT 200,000
VAT Payable P 220,000

Cash (P3.5M+P420K) P 3,920,000

Accumulated depreciation 1,000,000
Equipment P 3,000,000
Output VAT 420,000
Gain on sale of asset 1,500,000
TYPES INPUT VAT:
REGULAR INPUT VAT & AMORTIZED OF DEFERRED INPUT VAT

Scheduled phase-out of the amortization treatment

◦ Under 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.

Special Rules on Input Tax Credit

◦ Non-depreciable vehicles
◦ Construction in progress
◦ Purchase of real property on installment
◦ Purchase of goods or properties deemed sold
TYPES INPUT VAT: REGULAR INPUT VAT & AMORTIZED OF DEFERRED INPUT VAT
SPECIAL RULES ON INPUT TAX CREDITS
INPUT VAT ON NON-DEPRECIABLE VEHICLES
◦ Rules on the deductibility of depreciation expense on vehicle:
◦ Only one vehicle for land transport is allowed for the use on an official or employee, the value of
which should not exceed P2,400,000.
◦ No depreciation shall be allowed to yatchs, helicopters, airplanes and/or aircrafts, and land vehicles
which exceed the P2,400,00 threshold, unless the taxpayer’s main line of business is transport
operations or lease of transport equipment and the vehicles are used in said operations.
◦ The purchase must be substantiated with sufficient evidence such as official receipts or other
adequate records.
◦ The direct connection or relation of the vehicles to the department, operation and or conduct of the
trade or 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 these purchases and on maintenance expenses incurred thereon are likewise
disallowed for taxation purposes.
TYPES INPUT VAT: REGULAR INPUT VAT & AMORTIZED OF DEFERRED INPUT VAT
SPECIAL RULES ON INPUT TAX CREDITS
INPUT VAT ON CONSTRUCTION IN PROGRESS
◦ Construction in progress is the cost of uncompleted construction work of an asset. Upon the
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 more
exceeding 60 months.
◦ If the taxpayer purchases the materials to be used in the construction and the contractor only bills the
labor, the input VAT on the Construction in Progress shall be claimed upon payment of the billings. The
input VAT on the purchases of the materials shall be claimed upon purchase.
 TYPES INPUT VAT: REGULAR INPUT VAT & AMORTIZED OF DEFERRED INPUT VAT
SPECIAL RULES ON INPUT TAX CREDITS
ILLUSTRATION:
In January 2020, Tandag Corporation hired the services of Aliling Construction to build a small
sales building. The following quarterly data in 2020 relates to the product.

1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.

Quarter billing P 2,240,000 P 4,480,000 P 3,360,000 P 1,120,000
Payments 2,016,000 4,032,000 3,024,000 2,128,000

Compute the claimable input VAT in each quarter.

TYPES INPUT VAT: REGULAR INPUT VAT & AMORTIZED OF DEFERRED INPUT VAT
SPECIAL RULES ON INPUT TAX CREDITS

ILLUSTRATION:

1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.

Payments P 2,016,000 P 4,032,000 P 3,024,000 P 2,128,000
Multiply by: 12/112 12/112 12/112 12/112
Claimable input tax P 216,000 P 432,000 P 324,000 P 228,000
TYPES INPUT VAT: REGULAR INPUT VAT & AMORTIZED OF DEFERRED INPUT VAT
SPECIAL RULES ON INPUT TAX CREDITS
INPUT VAT ON PURCHASE OF REAL PROPERTIES ON INSTALLMENT
◦ If the seller of real property is subject to VAT on the sale of deferred payment basis not on 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.
◦ 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.

INPUT VAT ON GOODS OR PROPERTIES DEEMED SOLD

◦ The claimable input VAT on goods or properties previously deemed sold shall be the portion of the
output VAT imposed upon the goods deemed sold which corresponds to the goods purchased by the
buyer.
TYPES INPUT VAT:
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 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 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.
TYPES INPUT VAT:
PRESUMPTIVE INPUT VAT
ILLUSTRATION:
Sardines Corporation processes hot-chili flavored sardines. During the month, Sardines purchased
the following ingredients for the processing of the 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

Compute the (a) presumptive input VAT and (b) total input VAT calimable for the month.
TYPES INPUT VAT:
PRESUMPTIVE INPUT VAT
ILLUSTRATION:
A. Presumptive input VAT
Hot chili P 50,000
Tomatoes 400,000
Ordinary salt 20,000
Total agricultural purchases 470,000
Rate 4%
Presumptive input VAT P 18,800

B. Total input VAT

P 18,800 + P 14,400 + P 7,200 = P 40,400