Deduction of Input Tax (Value Added Tax) on Importation from Output Tax

July 29, 1994 BIR RULING NO. 119-94 108 000-00 119-94 Law Office of A.M. Sison, Jr. & Associates 14th Floor, Pacific Bank Building 6776 Ayala Avenue, Makati Metro Manila Attention: Atty . Antonio L . Cardino Gentlemen : This refers to your letter dated May 17, 1994 stating that your client, Procter & Gamble Philippines, Inc. is a manufacturer of consumer products such as laundry soaps, beauty soaps, shampoos, napkins, star margarine, vicks vaporub etc.; that it imports raw materials for the manufacture of these products; that it also imports finished products such as cosmetics (max factor), diapers (pampers) for resale and machinery and equipment for use in the manufacture of its products; that it is VAT registered and is religiously paying value-added tax on sales of its products; that it also pays value-added tax on its importation before the release of the goods from the Bureau of Customs; that in computing its monthly/quarterly output tax (value-added tax on sales) it deducts input tax (value-added tax on local purchases and value-added tax on importation); that the value-added tax on importation poses a problem because your client prepares and issues checks payable to the Bureau of Customs when it receives copies of the Import Entry and Internal Revenue Tax Declarations from its Customs Brokers; that these documents have no import entry numbers yet at the time the checks payable to the Collector of Customs are issued; that the company's accounting department debits input tax at the time the checks are issued; that when the Customs Brokers submit the import entry and internal revenue tax declaration to the Bureau of Customs with the checks covering the payment of value-added tax, the Bureau of Customs punches import entry numbers on the documents; that thereafter, the Customs Brokers work for the release of the goods; that your client's recording of input tax in its books is done at the time the checks payable to the Collector of Customs are issued while the import entry numbers are received after all the importation documents are submitted to the Bureau of Customs and after the checks covering the value-added tax are actually received by the Bureau of Customs and the goods are released; and that there is a timing difference between the recording of the input tax and receipt of import entry numbers from the Bureau of Customs. In connection therewith, you are requesting opinion on the following: (1) When can your client deduct from its output tax, input tax (value added tax) on importation? (2) Can your client deduct the input tax in the month or quarter when it actually received all the import entry and internal revenue tax declarations with the import entry numbers punched on them and the corresponding government official receipts regardless of whether the input taxes are reflected in the books in the preceding quarter(s)? In reply thereto, please be informed that pursuant to Section 15 of Revenue Regulations No. 5-87, credits for input tax on importations shall be supported with import entry or other equivalent document showing actual payment of the VAT on imported goods. Thus, your client can deduct the input tax in the month or quarter when it actually received all the import entry and internal revenue tax declarations with the import entry numbers punched on them and the corresponding government official receipts regardless of whether the input taxes are reflected in the books in the preceding quarter. cdt Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue