NPUT VAT ON MIXED TRANSACTIONS

(VATable/VAT-exempt/VAT zero-rated)

The utilization of the input VAT depends to which such purchase relates as follows:

Related to: Utilization

12% VATable sales Input tax credit

0% VATable sales 1. Input tax credit; or

2. Refund or issuance of TCC

VAT-exempt sales Charged to costs/expense

It is evident from the foregoing that a VAT-registered taxpayer can only claim input VAT that can be
directly attributed to its VAT taxable transactions (transactions subject to 12% and 0% VAT) and where
one is also engaged in an activity not subject to VAT, the Company can only claim a ratable portion of
the common input VAT as tax credit.

Thus, purchase of raw materials and services which can be directly attributable to VATable and VAT
zero-rated sale may be creditable against any output VAT liability. However, purchases which cannot be
directly attributable to any sale, like payment for rent, or purchase of capital goods, which are related to
bringing about VATable and VAT-exempt sales, must be apportioned ratably.

Sec. 4.110-4, RR No. 16-05, as amended by RR No.4-07, provides the following formula in determining
the creditable portion of input tax not directly attributable to any activity and the portion of input tax
attributable to VAT exempt sales for the month:

A. The input tax attributable to sales to private entities subject to 12%, for the month, shall be
computed as follows:

Taxable sales (12%) X Amount of input tax not directly attributable to any activity

Total Sales
 B. The input tax attributable to zero-rated sales for the month shall be computed as follows:

Taxable sales (0%) X Amount of input tax not directly attributable to any activity

Total Sales

C. The input lax attributable to VAT-exempt sales for the month shall be computed as follows

Taxable sales (exempt) X Amount of input tax not directly attributable to any activity

Total Sales

D. The input tax attributable to sales to government for the month shall be computed as follows:

Taxable sales to government X Amount of input tax not directly attributable to any activity

Total Sales

The above allocated amounts shall be treated as follows:

1. The amount of input tax allocated to sales subject to 12% and 0% VAT may be creditable against
output VAT; However, the amount attributable to zero-rated sales may be claimed as input tax
credit or refund.

2. The amount allocated to VAT-exempt sales cannot be claimed as credits against any output VAT
but should be treated as part of cost or expense;

3. The amount allocated to sales to government shall be included with the amount directly
attributable thereto then compared with the 7% standard input VAT (SIV) (based on sales). However,
beginning January 1, 2021, there is no longer a need to compute for the difference between the actual
input VAT and 7% SIV since the 5% withheld VAT from sales to government is now creditable and no
longer final. (see input VAT on sale to government)

INPUT VAT ON SALES TO GOVERNMENT

Under Sec. 4.114-2(a) of RR No. 16-05, as amended, implementing Sec. 114(C), the 5% final VAT
withholding rate shall represent the net VAT payable of the seller. The remaining 7% effectively
accounts for the STANDARD INPUT VAT for sale of goods or services to government, in lieu of actual
input VAT directly attributable or ratably apportioned to such sales.

1. If the actual input VAT (those directly attributable to sale to government amount ratably
apportioned therefo [ser MIXED TRANSACTIONS)) EXCEEDS 7% of the gross payments (sales to
and the government), the excess may form part of the sellers expense or cost;

2. On the other hand, if the actual input VAT is LESS THAN the 7%, the difference must be closed to
expense or cost, effectively making it an additional income/revenue.

In all instances, the total input VAT credits that will be claimed by the taxpayer relative to the sales to
government (composed of 5% Final Withholding VAT and 7% Standard Input VAT, both based on sales
amount Inot on purchases]) is equivalent to the output VAT on his sales to government.

ILLUSTRATION: X Company had VATable sales amounting to P200,000 and sales to government
amounting to P100,000, both exclusive of VAT. During the month, X Company paid rent amounting to
P75,000 and purchases directly attributable to its regular sales and sales to government amounting to
P20,000 and P50,000, respectively.

The amount of input tax credits pertaining to the sales to government will be as follows:

Input VAT on sales to government: the amount claimed as tax credits amounts to P12,000:

1. Final Withheld VAT: P5,000 (P100,000* 5%) shall be creditable against output VAT payable in full. 2.
Standard Input VAT: P7,000 (P100,000*7%)

The input VAT from purchases pertaining to sales to government amounts P9,000, computed as follows:
 1. Input tax directly attributable: P50,000* 12% = P6,000

2. Input tax allocated from rent (payment related to both VATable and sales to government);
P3,000

P100,000 X P9,000 = P3,000

P300,000

Since the actual input VAT pertaining to sales to government is 19.000 (P6,000+ P3,000) and exceeds the
standard input VAT of 17,000, the difference of P2,000 will be recorded as expense or cost, with the
following pro forma entry:

DR Expense/Cost 2,000

CR Input VAT 2,000

Effectively, the taxpayer claimed P12,000 of input VAT (the 5% final VAT and the P7,000 standard input
VAT) equivalent to the output VAT on the sales to government.

Input VAT on VATable sales: the amount claimed as tax credits amounts to P8,400.

1. Input tax directly attributable to VATable sales: P20,000 -12% - P2,400

2. Input tax allocated from rent: P6,000 computed as follows:

P200,000 X P9,000 = P6,000

P300,000

VAT Payable: P15,600, computed as follows:

Output VAT @12%

VATable sales 200,000 24,000

Sales to government 100,000 12,000 36,000

Creditable Input VAT

Domestic Purchases of 70,000* (8,400)

Goods

Payment of Rent 75,000 (9,000)

Final Withheld VAT (5,000)

Excess of Standard

Input VAT over Input

VAT attributable sales to government 2,000 (20,400)

VAT Payable 15,600

"composed of P20,000 purchases directly attributable to regular sales and P50,000 purchases directly
attributable to sales to government.

Alternatively, it may be computed as follows:

Output VAT 36,000

Creditable Input VAT

Pertaining to VATable sales 8,400

Pertaining to Sales to Government 12,000 (20,400)

VAT Payable 15,600

Or still, alternatively, since the sales to government would really not result in any VAT payable amount,
it may be computed as follows:

Output VAT on VATable sales only 24,000

Creditable input VAT pertaining to VATable sales only (8,400)

VATable sales only

VAT Payabl 15,600

If, however, the purchases directly attributable to sales to government amounts only to P10,000:

The Input VAT that may be claimed as tax credit relating to sales to government is still P12,000,
composed of the P5,000 Final Withheld VAT and P7,000 standard input VAT.

The actual input tax from purchases attributable to such sales shall only be P4,200, computed as follows:

1. Input tax directly attributable: P10,000 * 12% = P1,200

2. Input tax allocated from rent (payment related to both VATable and sales to government):
P100,000 X P9,000 = P3,000

P300,000

Since the actual input VAT now is less than the P7,000 standard input VAT the difference of 12,800 is
then reported as additional income or a reduction in cost/expense, with the following pro forma entry:

DR Input VAT 2,800

CR Expense/Cost or Income 2,800

The revenue regulations are vague as to the treatment of the P2,800 difference. But since the difference
is presented in the VAT return as a negative deduction (effectively an addition) to allowable input tax
credits, it may be imputed that the P2,800 will be claimed as additional input VAT making the total input
tax credits related to the sales to government, equivalent to the standard input VAT, in this case, P7,000.

VAT payable: is the same even if the Standard Input Tax is higher than the actual input VAT attributable
to sales to the government.
Output VAT @12%

VATable sales 200,000 24,000

Sales to government 100,000 12,000 36,000

Creditable Input VAT

Domestic Purchases of Goods 30,000* (3,600)

Payment of Rent 75,000 (9,000)

Final Withheld VAT (5,000)

Excess of Standard Input VAT

over Input VAT attributable to sales to government (2,800) (20,400)

VAT Payable 15,600

*composed of P20,000 purchases directly attributable to regular sales and P10,000 purchases directly
attributable to sales to government

Note that the excess of standard input VAT over the input VAT attributable to sales to government is a
negative amount (since standard input VAT is actually lower), effectively becoming an additional input
VAT credit in the computation- this is the same mechanism that can be found in an actual VAT return

TRAIN AMENDMENT: beginning January 1, 2021, the VAT withholding stem under this subsection shall
shift from final to a creditable system tinder RMC No. 36-2021, the following adjustments will be made
in filling up the VAT Returns:

BIR Form BIR Form Description Remarks

2550M Line 2550Q Line
Item Item

20B 23B Input Tax on Sale to Not to be filled out/to Be

Government Closed to deactivated in the eFPS
Expense

23C 26D VAT Withheld on Where Sales Where the CREDITABLE VAT
Government withheld will be reflected
By not filling up the Input Tax on Sale to Government Closed to Expense Line tem, it would seem that
there is no longer a need to compare the standard input VAT (7% of sales to government) with the
amount of input VAT actually attributable to the sales to government, since any difference will no longer
be indicated in the VAT return and would thus not affect the VAT payable computation.

On the other hand, the government entity or any of its political subdivisions, instrumentalities or
agencies, including GOCCs who are required to withhold creditable VAT shall now issue a BIR Form No.
2307 (Certificate of Creditable Tax Withheld at Source) rather than a BIR Form No. 2306 (Certificate of
Final Tax Withheld at Source).

WITHHOLDING VAT ON PAYMENTS TO NON-RESIDENTS

Sec 114-2 of RR No. 16-05, as amended, provides that private corporations. individuals, estates and
trusts, shall withhold 12% VAT with respect to the following payments:

1. Lease or use of properties or property rights owned by non-residents

2. Services rendered to local insurance companies with reinsurance premiums payable to non-
residents and

3. Other services rendered in the Philippines by non-residents

The above shall be remitted to the BIR using Remittance Return of VAT Other Percentage Taxes
Withheld (BIR Form No. 1600) which shall be fe within 10 days following the end of the month the
withholding, was made.

The VAT withheld and remitted to the BIR:

1. VAT-registered withholding agent may claim as input tax credit the amount remitted to the BIR.
The BIR Form No. 1600 shall serve as the proof or documentary substantiation for the claimed
input tax or input VAT.
 2. Non-VAT taxpayer-passed-on VAT evidenced by the duly filed B Form No. 1600 shall form part of
the cost or purchased services, which may be treated either as an "asset" or "expense,"
whichever is applicable.

TAX CREDITS: The creditable input tax shall be the sum of all the allowable input tax as determined in
accordance with the foregoing discussions less any amount claimed as refund plus any excess input tax
carried over from the preceding month or quarter.

EXCESS INPUT/OUTPUT TAX

1. Output tax exceeds input tax- the difference shall be the VAT payablethe amount of which shall
be remitted to the BIR.

2. Output tax is less than the input tax - the difference may be carried ove to the succeeding
quarter/quarters. The input tax attributable to the purchase of capital goods or to zero-rated sales may
be refunded or credited against other internal revenue taxes, subject to the provisions of Sec. 112.

UNUTILIZED INPUT TAX CREDITS ATTRIBUTABLE TO ZERO-RATED SALES CANNOT BE CLAIMED AS

DEDUCTION FOR INCOME TAX PURPOSES: unutilized creditable input taxes attributable to zero-rated
sales can only be recovered through the applicatio for refund or tax credit Nowhere in the Tax Code can
we find a specific provision expressly providing for another mode of recovering unapplied input taxes,
particularly the proposition of the taxpayer who requested for the ruling that unapplied input taxes may
be treated outright as deductible expense for income tax purposes. Thus, input taxes on purchase of
goods and services after the expiration of the 2-year prescriptive period cannot be expensed outright.
(RMC No. 57-2013 dated Aug. 23, 2013, circularizing BIR Ruling No. 123-2013 dated March 25, 2013)

CONSEQUENCE OF ERRONEOUS ISSUANCE OF VAT INVOICE OR OFFICIAL RECEIPT: Sec. 113(D) of VAT
the NIRC provides:

1. If a person who is not a VAT-registered person issues an invoice or receipt showing his TIN,
followed by the word "VAT", shall be liable for:

a. The VAT on said transaction without the benefit of any input tax credit; and

b. 50% surcharge.
The VAT on said transaction may be creditable to the VAT-registered buyer provided it is properly
substantiated.

2. If a VAT-registered person issues a VAT invoice or VAT OR for a VAT exempt transaction, but fails
to display prominently on the invoice or receipt the term "VAT-exempt sale," the issuer shall be liable to
account for the VAT.

TRANSITIONAL INPUT VAT

Sec. 111 of the NIRC is implemented by Sec. 4.111-1 of RR No. 16-05 provides that a person upon
exceeding the threshold amounts provided under Sec. 109(CC) of the NIRC or voluntarily elects to be a
VAT-registered person (except franchise grantees whose threshold amount is P10,000,000) shall be
entitled to the transitional input tax on the inventory on hand as of the effectivity of VAT registration, on
the following:

1. Goods purchased for resale in their present condition;

2. Material purchased for further processing, but which have not yet undergone processing;

3. Goods which have been manufactured by the taxpayer;

4. Goods in process for sale; or

5. Goods and supplies for use in the course of the taxpayer's trade or business as a VAT-registered
person.

AMOUNT OF TRANSITIONAL INPUT TAX: shall be whichever is higher between:

 1. 2% of the value of the beginning inventory on hand or

2. Actual VAT paid on such goods, materials and supplies.

VALUATION: The value of the goods allowed for income tax purposes shall be the basis for the
computation of the 2% transitional input tax, including goods that are exempt from VAT under Sec. 109
of the NIRC.

PRESUMPTIVE INPUT VAT

It is 4% of the purchases of primary agricultural products (which are supposedly VAT-exempt, being
agricultural food products in their original state) and is available only for taxpayers engaged in the
following activities:

1. Processing of

a. Sardines;

b. Mackerel; and

c. Milk.

2. Manufacturing of:

a. Refined sugar;

b. Cooking oil;

c. Packed noodle-based instant meals.

LIMITED TO AGRICULTURAL PRODUCTS: note that the last part of Sec. 111(B)(1) provides for purchases
of primary agricultural products. Thus, the purchase of sardines and mackerel, being marine products
may not be entitled to presumptive input VAT.

REFUND OR TAX CREDITS OF INPUT TAX

CLAIM FOR REFUND OF EXCESS INPUT TAXES: may be attributable to:

1. Excess input tax attributable to zero-rated sales which have not been applied to any output tax;

2. Unused input tax and the taxpayer desires to cancel its/his VAT registration.

FOR CLAIMS OF VAT REFUND ATTRIBUTABLE TO ZERO-RATED SALES, SEC. 112 APPLIES NOT SEC. 229:
In a claim for refund or credit of excess input VAT under Section 110(B) (Tax Credits) and Section 112(A)
Refunds or Tax Credits of Input Tax), the input VAT is not excessively collected as understood under
Section 229, At the time of payment of the input VAT the amount paid is the correct and proper amount.
Under the VAT System, there is no claim or issue that the input VAT is "excessively collected, that is, that
the input VAT paid is more than what is legally due. The person legally liable for the input VAT cannot
claim that he overpaid the input VAT by the mere existence of an "excess" input VAT. The term "excess"
input VAT simply means that the input VAT available as credit exceeds the output VAT, not that the
input VAT is excessively collected because it is more than what is legally due. Thus, the taxpayer who
legally paid the input VAT cannot claim for refund or credit of the input VAT a "excessively collected
under Section 229. (Commissioner of Internal Revenue v. San Roque Power Corporation, Taganito
Mining Corporation v. Commissioner of Internal Revenue, and Philex Mining Corporation v.
Commissioner of Internal Revenue; G.R. No. 187485, 196113, and 197156; February 12, 2013 [San
Roque case])

REQUISITES

1. There must be zero-rated or effectively zero-rated sales;

2. That input taxes were incurred or paid;

3. That such input VAT payments are directly attributable to zero-rated sales or effectively zero-
rated sales;

4. That the input VAT payments were not applied against any output VAT liability; and 5. That the
claim for refund was filed within the two-year prescriptive period.

STATUTORY PERIOD FOR CLAIMING VAT REFUND/TCC

a. An administrative claim must be filed with the CIR within two years after the close of the taxable
quarter when the zero-rated or effectively zero-rated sales were made.

b. The CIR has 120 days from the date of submission of complete documents in support of the
administrative claim within which to decide whether to grant a refund or issue a tax credit
certificate. The 120-day period may extend beyond the two-year period from the filing of the
administrative claim if the claim is filed in the later part of the two-year period. If the 120-day
period expires without any decision from the CIR, then the administrative claim may be
considered to be denied by inaction.

c. A judicial claim must be filed with the CTA within 30 days from the receipt of the CIR's decision
denying the administrative claim or from the expiration of the 120-day period without any
action from the CIR

d. All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10
December 2003 up to its reversal by this Coun in Aichi on 6 October 2010, as an exception to the
mandatory and jurisdictional 120+30 day periods. (Mindanao II Geothermal Partnership vs.
Commissioner of Internal Revenue: G.R. No. 193301; March 11, 2013)

TRAIN AMENDMENT:
 1. The period allowed for the BIR to grant or deny applications for refund is now 90 days (no longer
120 days).

2. The BIR is now required to provide the factual and legal bases for denial, if such be the case, as
there is no more "deemed denial" in case the said period expires. It would thus appear that an actual
denial shall be necessary before elevating the case to the CTA.

The 90-day period to process and decide, pending the establishment of the enhanced VAT Refund
System shall only be up to the date of approval of the Recommendation Report on such application for
VAT refund by the Commissioner or his duly authorized representative: Provided, That all claims for
refund/tax credit certificate filed prior to January 1, 2018 will be governed by the one hundred twenty
(120)-day processing period.

In case of full or partial denial of the claim for tax refund, the taxpayer affected may, within thirty (30)
days from the receipt of the decision denying the claim, appeal the decision with the Court of Tax
Appeals: Provided however, that failure on the part of any official, agent, or employee of the BIR to act
on the application within the ninety (90)-day period shall be punishable under Section 269 of the Tax
Code, as amended.

COMPLIANCE REQUIREMENTS

Deadlines for the filing of the VAT Return shall be:

1. Monthly VAT Return (BIR Form No. 2550M)-20th day following the close of the month;

2. Quarterly VAT Return (BIR Form No. 25500) - 25th day following the close of the quarter.

Note, however, that the above deadline for the monthly return is applicable only to manual filing
(including those filing using the eBIR Forms). As such, those filing using the electronic filing and payment
system (eFPS) may be accorded 1 to 5 days extension in the filing of their monthly returns.
TRAIN amendment: beginning January 1, 2023, the filing and payment required under the Tax Code shall
be done within twenty-five (25) days following the close of each taxable quarter.

Summary Lists of Sales and Purchases: RR No. 1-2012 required the mandatory submission of Summary
Lists of Sales and Purchases of ALL VAT-registered taxpayers together with the quarterly VAT return.