Clarification to Revenue Regulations No. 14-2005

January 3, 2006 REVENUE MEMORANDUM CIRCULAR NO. 06-06 SUBJECT : Clarification to Revenue Regulations No. 14-2005, as last amended by Revenue Regulations No. 16-2005, Implementing Republic Act No. 9337 TO : All Internal Revenue Officers and Others Concerned This Revenue Memorandum Circular (RMC) is issued in order to publish and clarify the treatment of input tax accumulated as of October 31, 2005 in relation to the 70% cap effective November 1, 2005. Q-1 What is the treatment of input tax accumulated as of October 31, 2005 in relation to the 70% cap provided in Section 4.110-7 of Revenue Regulations (Rev. Regs.) No. 14-2005, as last amended by Rev. Regs. No. 16-2005? A-1 Input tax accumulated as of October 31, 2005 shall not be subject to the seventy percent (70%) cap and shall be deductible in full from output tax until it is fully utilized. In determining whether the input tax in a month or quarter exceeds the output tax subject to the 70% cap, the accumulated input tax as of October 31, 2005 shall be excluded from the computation and shall be deducted in full from the output VAT. Q-2 ABC Corporation has the following sales/ purchases for the quarter ending December 2005: October 2005 November and December 2005 Sales P5,000 Sales P10,000 Purchases 4,000 Purchases 8,000 How will the Value Added Tax for the quarter ending December 2005 be computed? A-2 The Value Added Tax for the quarter ending December 2005 will be computed as follows: October 2005 Output Tax P 500 Less: Carry over Input tax P600 Input tax 400 1,000 VAT Payable/(Carry over) P(500) * ====== * Note: Amount represents accumulated input tax as of October 31, 2005. SATDEI November and December 2005 Output Tax P1,000 Less: Carry over Input Tax (as of Oct. 2005) 500 Net Output Tax for Nov. and Dec. 2005 500 Less: Input Tax for Nov. and Dec. 2005 P800 Apply: 70% cap (70% of Net Output Tax) 350 350 Net VAT Payable P150 ==== Excess Input Tax (to be carried over P 450 to the next quarter) ===== Q-3 DEF Corporation has the following output tax and input tax for the quarter ending December 2005: Output Tax: For October 2005 P1,000 For November and December 2005 2,000 Input tax: Accumulated as of October 31, 2005 P500 For November and December 2005 1,000 How will the Value Added Tax for the quarter ending December 2005 be computed? A-3 The Value Added Tax for the quarter ending December 2005 will be computed as follows: October 2005 Output Tax P1,000 Less: Input Tax (accumulated as of October 2005) 500 VAT Payable P500 ==== November and December 2005 Output tax P2,000 Less: Input Tax 1,000 VAT Payable 1,000 Total VAT Payable for the Quarter P1,500 Less: Vat Payable and paid for October 500 Net VAT Payable P1,000 ====== Q-4 KLM Corporation has the following output and input tax: Output tax for the quarter ending December 2005 Input tax: P500 Accumulated as of October 31, 2005 For November and December 2005 1,000 Output tax for the quarter ending March, 2006 600 Input tax: P1,000 For January March 2006 Carried over from October 2005 500 Carried over from Nov. and Dec. 2005 500 600 How will the Value Added Tax for the quarters ending December 2005 and March 2006 be computed? A-4 The Value Added Tax for the quarters ending December 2005 and March 2006 will be computed as follows: Quarter ending December 2005 Output Tax P500 Less: October Input Tax 1,000 Unutilized Input Tax (accumulated as of October, for Carry over to Jan, Feb., March) 500 Add: Input Tax for November and December 600 Total Carry over input tax to next quarter P1,100 ===== No tax payment is made for the quarter ending December, 2005. The 70% cap will not apply. Excess input VAT from Oct., Nov. and Dec. will be carried forward to the next quarter. IaEASH Quarter ending March 2006 Output Tax P1,000 Less: Unutilized Input tax (as of October) 500 Net Output Tax 500 Less: Nov. and Dec. input tax 600 Jan., Feb. and March input tax 500 Total Available Input Tax P1,100 Apply 70% cap (70% of Net Output Tax) 350 VAT Payable 150 ==== Carry over to April, May and June P750 ===== Q-5 XYZ Corporation has the following input and output tax: Output tax for the quarter ending December 2005 P1,000 Input tax: Accumulated as of October 31, 2005 1,000 For November and December 2005 500 How will the Value Added Tax for the quarter ending December 2005 be computed? A-5 The Value Added Tax for the quarter of December 2005 will be computed as follows: Output Tax P1,000 Less: October Input Tax 1,000 VAT Payable P 0 ===== No tax payment is made for the quarter ending December 2005. The 70% cap will not apply. Excess input tax from November and December 2005 amounting to P500 will be carried forward to the next quarter. Q-6 What are the requirements for the availment of the provisions under this RMC? A-6 Taxpayers who want to avail of the provisions under this RMC must comply with the following requirements: 1. Attach copies of the immediately preceding VAT quarterly and monthly returns to the quarterly VAT returns that reflects excess input tax as of October 31, 2005 to be filed with the concerned Revenue District Office/Large Taxpayers Service's Offices; 2. Submit a sworn declaration of the correctness of the claimed accumulated input tax as of October 31, 2005; and 3. If after the initial availment of the excess input tax as of October 31, 2005, there remains unutilized input tax, taxpayers who wish to continue availing of the provisions of this RMC, shall also attach to their VAT returns for the relevant period a schedule of running balance of unutilized input tax emanating from the October 31, 2005 accumulated balance. All internal revenue officers and employees are hereby enjoined to give this Revenue Memorandum Circular as wide a publicity as possible. (SGD.) JOSE MARIO C. BUAG Commissioner of Internal Revenue