Test-verification of Inventory and Presumptive Input Tax (PIT) of taxpayers newly covered by EVAT (RA 7716)

March 1, 1996 REVENUE MEMORANDUM ORDER NO. 06-96 SUBJECT : Test-verification of Inventory and Presumptive Input Tax (PIT) of taxpayers newly covered by EVAT (RA7716) TO : All Revenue Officers and Others Concerned I. OBJECTIVE In view of the anticipated decrease in collection from Value Added Tax due to substantial amount of Presumptive Input Tax (PIT) credits claimed by taxpayers newly covered by EVAT pursuant to Section 4.112-2(a) of Revenue Regulations 7-95, there is a necessity to come up with a uniform guidelines and procedures in the investigation of Presumptive Input Tax (PIT) by the District Offices to ensure the validity and correctness of claims for PIT. For this purpose, and to attain the aforecited objectives, a group shall be created under the direct supervision of the Chairman, Implementation Group of the VAT Steering Committee to conduct a test-verification of Presumptive Input Tax (PIT) of selected taxpayers newly covered by EVAT (RA 7716). II. GUIDELINES 1. This order covers only inventories of goods, materials, supplies, stocks-in-trade, properties and improvements as of December 31, 1995 on which PIT was recognized pursuant to Section 4.112-(a) of Revenue Regulations No. 7-95. 2. Revenue District Offices (RDO) are not authorized to conduct any investigation on PIT until the issuance of a Revenue Audit Memorandum Order (RAMO) detailing the uniform procedures in the verification of PIT based upon the recommendation of the group that will be created as authorized under this Order. 3. The aforementioned group shall be composed of members from the VAT Steering Committee under RSO Nos. 8-96, 15-95, 31-96 and 32-96 with the Coordinator for Implementation Group as the Chairman and the Head of the VAT Monitoring Sub-Committee as the Vice-Chairman. 4. The number of taxpayers selected for test-verification shall in no case be less than five (5) nor more than fifteen (15) for each of the sector newly covered by VAT, as follows: 4.1 Real estate lessor/dealer; 4.2 Taxicabs, tourist bus, rent-a-car, and other common carriers; 4.3 Hotels, motels and restaurants; 4.4 Dealers in Securities and Lending Investors; 4.5 Non-life insurance; 4.6 Media; 4.7 Franchise Grantees. 5. All reports from PIT test-verification shall be completed and submitted to the Chairman, Implementation Group not later than June 1, 1996 and the recommendation for the RAMO detailing the audit procedures shall be submitted to the Commissioner not later than June 15, 1996. III. PROCEDURES 1. Revenue District Officers (RDO) shall submit to the Office of the Deputy Commissioner for Operations not later than March 31, 1996 a complete List of Taxpayers Newly Covered by Expanded VAT by business sector following the classification mentioned in II(4) above, together with the copy of the following: 1.1 Inventory List as of December 31, 1995 filed by the above taxpayers; and 1.2 January 1996 Monthly VAT Declaration. 2. From the list of taxpayers forwarded by RDO, the Chairman, Implementation Group, shall select the taxpayers subject to test-verification which shall, in no case, be less than five (5) nor more than fifteen (15) for each sector. If, however, there are other taxpayers not in the list but which, based on other information, should be subjected to test-verification, then the Chairman of Implementations Group can include them and can require the submission of the List of Inventory and Monthly VAT Declaration filed with the RDO. 3. Selected taxpayers will be assigned for investigation to the members of the group (sub-divided into sectors) to determine the validity and correctness of the PIT claimed and to identify the necessary procedures which must be prescribed in the audit of PIT of a particular sector. Test-verification procedures should include determination of the following: a. method of valuation/costing of inventory; b. accuracy of inventory filed; c. correctness of PIT; d. compliance with RR 7-95 and related Revenue Circulars. 4. The verification of PIT shall be covered by a Letter to the taxpayer (Annex A) and a Mission Order (Annex B) signed by the Chairman, Implementation Group, which shall serve as the authority of the revenue officer to conduct test-verification. 5. Each member of the group assigned to undertake test-verification shall submit a progress report on the status of the verification every fifteen (15) days to the Chairman of Implementation Group, until the investigation is completed. 6. Upon completion of verification, a preliminary report shall be submitted to the Chairman, which shall be the basis for the issuance of a Conference Letter to the taxpayer (Annex C) to inform him of the nature of the findings as part of administrative due process. 7. A final Memorandum Report and a Presumptive Input Tax Verification Report (Annex D) shall then be submitted by the Revenue Officer for review by the Head of the Monitoring Sub-Committee and the Coordinator for Implementation of the VAT Steering Committee. 8. After review, the docket shall be forwarded to the Chairman, Implementation for approval and for the issuance of Certificate of Allowable Presumptive Input Tax (CAPIT), as attached on Annex E, indicating therein the correct amount of PIT. 9. A final report of project completion shall be submitted by the Chairman, Implementation Group, to the Commissioner indicating therein the total amount of PIT disallowed and/or allowed together with the recommended audit procedures for each sector. 10. The final report required in No. 9 shall be the basis for the issuance of a Revenue Audit Memorandum Order (RAMO) detailing the uniform guidelines and procedures in the investigation of PIT for each of the sector newly covered by VAT. IV. EFFECTIVITY This order shall take effect immediately. LIWAYWAY VINZONS-CHATO Commissioner