Time is of the essence

(First of two parts)

By its nature, the value-added tax (VAT) is an indirect tax. This means that the amount of tax may be passed on to the buyer, transferee or lessee of the goods, properties or services.

For VAT purposes, the Philippines adopted the tax credit method wherein a taxpayer can credit against or subtract from the VAT which he charged on his sales (outputs) the VAT which he paid on his purchases (inputs).

If at the end of the taxable quarter the output VAT exceeds the input VAT, the excess shall be paid by the taxpayer. Conversely, if the input VAT exceeds the output VAT, the excess shall be carried over to the succeeding quarter or quarters. However, in cases of a zero-rated sale or a cancellation of VAT registration, the excess input VAT may be claimed by the taxpayer as a refund or a credit against other internal revenue taxes.

The taxpayer must comply not only with the substantial, but also with the procedural requirements, more particularly the prescriptive periods, prescribed under the National Internal Revenue Code (NIRC), as amended, in order to claim the input VAT attributable to either a zero-rated sale or a cancellation of VAT registration.

The VAT rate is set at 12 percent. This rate, however, may be reduced to zero percent if the sale of goods or services arises from zero-rated transactions. A zero-rated transaction generally refers to an export sale of goods or services. When a seller enters into a zero-rated transaction, the sale is subject to zero percent VAT, which may result to excess input VAT. Applying the tax credit method, the seller is entitled to claim the VAT which he paid on his purchases through a refund or a credit against other internal revenue taxes. The taxpayer must file an administrative claim for VAT refund with the Commissioner of Internal Revenue (CIR) within two years after the close of the taxable quarter when the sales are made.

Likewise, when a taxpayer ceases to engage in business, there may be unutilized input VAT as of the time of cessation of business. The NIRC provides that a person whose registration has been cancelled due to retirement from or cessation of business, or due to changes in or cessation of status of a VAT-registered person may apply for the issuance of a tax credit certificate (TCC) for any unused input tax which may be used in payment of his other internal revenue taxes. The application for the issuance of a TCC must be filed within two years from the date of cancellation of VAT registration.

In a claim for VAT refund arising from either a zero-rated transaction or a cancellation of VAT registration, the CIR may grant a refund within 120 days from the date of submission of complete documents in support of the claim. However, upon the filing of an administrative claim for VAT refund with the CIR, a tax audit will automatically follow to determine the whether or not the taxpayer has complied with the substantiation requirements as well as the procedural requirements for claiming a VAT refund. This tax audit usually covers three taxable years prior to the filing of the administrative claim for VAT refund.

If the CIR denies the claim, the taxpayer may file a judicial claim through an appeal to the Court of Tax Appeals (CTA) within 30 days from receipt of the decision. If, on the other hand, the CIR does not act on the claim, the taxpayer may appeal to the CTA within 30 days from the lapse of the abovementioned 120 days within which the CIR is mandated to act on the claim. In other words, there are options which the taxpayer may take after the filing of an administrative claim with the CIR. The taxpayer may appeal, without waiting for the lapse of the 120-day period, the adverse decision of the CIR within 30 days from receipt of the decision. In the alternative, the taxpayer may wait for the lapse of the 120-day period then appeal due to the inaction of the CIR within 30 days from the lapse of the said 120 days.

To be concluded

(Maria Ofelia B. Galura is a Supervisor for Tax of Manabat Sanagustin & Co., CPAs, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG in the Philippines. For comments or inquiries, please email mailto:[email protected]or mailto:[email protected])