By: Recovering accumulated excess input value-added tax (VAT) has always put our VAT-registered taxpayers in a quandary on what is the best means to get back the excess tax payment when it amounts to hundreds of millions of pesos.
Now, with recent rulings from the Bureau of Internal Revenue (BIR), the question really is what are the statutory mechanisms of recovering the accumulated excess input VAT? Or what are the means allowed by the BIR for recovering the excess payment?
Our Tax Code provides for mechanisms by which a VAT-registered taxpayer may recover the input VAT arising from its purchases of goods and services including importation. One is by means of crediting the input VAT against the output VAT.
However, the crediting against output VAT is a workable option for recovery if the output VAT is 12 percent. Under the Tax Code, the imposable rate to a VAT-able transaction could either be 12 percent or zero percent.
In transactions taxed at a 12 percent VAT rate, when at the end of any given taxable quarter the output VAT exceeds the input VAT, the excess must be paid to the government; when the input VAT exceeds the output VAT, the excess would be carried over for the succeeding quarter or quarters and applied against output VAT.
A zero-rated sale of goods, properties and/or services (by a VAT-registered person) is a taxable transaction for VAT purposes, but must not result in any output tax. One instance, is the sale of goods or services to an enterprise registered with the Philippine Economic Zone Authority or to a person engaged in business conducted outside the Philippines and the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas are subject to zero percent VAT.
Keep in mind that the VAT-registered taxpayer with zero-rated sales could still incur input VAT on its purchases. But since there is no output VAT against which the input VAT may be applied, our Tax Code has given an option to the VAT-registered taxpayer to recover the input VAT attributable to its zero-rated sales. Under the Tax Code, a VAT-registered taxpayer may at his option apply for the issuance of a tax credit certificate (TCC) or for a refund. But this option requires the application to be filed with the BIR within two years after the close of taxable quarter when the sales were made.
However, filing the application for refund or TCC will subject the taxpayer to administrative routinary investigation/examination, of its books of accounts, by the BIR. This is the main reason why taxpayers are disinclined to take this option.
Interestingly, although this remedy is not in the Tax Code, the BIR in its previous rulings confirmed that taxpayers may
claim as deduction its excess input VAT related to its zero-rated sales against its gross income for income tax purposes. The said deduction may only be availed of after the lapse of the period for which it is entitled to apply for a refund.
In other previous rulings, the BIR relied on Revenue Memorandum Circular (RMC) No. 42-2003, dated July 15, 2003, which provides that the input VAT claimed for refund or tax credit may be charged to appropriate expense account or asset account subject to depreciation, whichever is applicable, in case the application for refund or TCC was denied for failure to comply with the invoicing requirements in its zero-rated sales (e.g., including the TIN of the VAT registered seller-claimant in the VAT invoice or VAT receipt it issued to its customers). Moreover, in other rulings, the BIR allowed the taxpayer to claim the excess input VAT as an outright deduction.
On the contrary, the present dispensation of the BIR in its recent rulings laid emphasis that accumulated and unapplied input VAT attributable to zero-rated sales can only be recovered through the application for refund or TCC. In such rulings, the BIR said that there are NO other modes, under the Tax Code, by which a taxpayer may recover its unapplied input VAT attributable to zero-rated sales, except through the application of tax refund or TCC.
In light of the above interpretation, the BIR denied the request for rulings filed by the respective taxpayers on whether the unapplied input VAT attributable to zero-rated sales could be treated outright as deductible expense.
In these recent rulings, the taxpayer cited RMC No. 42-2003. But the BIR stated that the discussions provided under RMC No. 42-2003 apply only in cases of denied claim for refund or TCC on input VAT attributable to zero-rated and that the case of the taxpayer does not fall within the operation of the above-cited RMC. Thus, it is safe not to assume that the option of claiming the unapplied input VAT attributable to zero-rated sales as a deductible expense is still applicable. Taxpayers should wait for a ruling confirming the applicability of RMC No. 42-2003.
Thus, aside from applying for refund or TCC, the remaining option provided in the Tax Code is for VAT-registered taxpayer to credit its input VAT against its output VAT. If the input VAT exceeds that of the output VAT, such creditable excess input VAT must be carried over to the succeeding months/quarters until the same has been fully utilized. The carrying-over of the excess input VAT is not barred by prescription.
But what if the VAT-registered taxpayer will have only zero-rated sales? Will there be another remedy to recover the input VAT accumulated over the years?
From the cradle to the grave, the Tax Code provides options for VAT-registered taxpayers in recovering its excess input VAT. When it cancels its VAT registration due to retirement from or cessation of business, or due to changes in or cessation of its VAT-registration status, it may apply for the issuance of a TCC for any unused input tax which it may be used in payment of its other internal revenue taxes.
The above options might not be sufficient for taxpayers who are in a quandary on to what to do with their enormous excess input VAT but unless our current statute is amended, these are the only options which the tax community may avail of.
Rey Taduran Llesol is a supervisor from the tax group of Manabat Sanagutin & Co. (MS&Co.), the Philippine member firm of KPMG International.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.
The view and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or MS&Co. For comments or inquiries, please email manila@kpmg.com or rgmanabat@kpmg.com