VAT Ruling No. 002-93

January 13, 1993 VAT RULING NO. 002-93 Section 105-000-00-002-93 Asahi Optical Philippines Corporation Mactan Export Processing Zone Lapu-Lapu City 6015 Cebu Attention: Ms . Kethyl B . Gelig Assistant Accounting Manager M a d a m : This is with reference to your letter requesting for a refund of the 10% input tax on the construction of a building as a pre-operating activity of the Asahi Optical Philippines Corporation (AOPC). It is represented that the examiner disallowed the refund on the portion of the input tax generated prior to the approval of the VAT registration on February 1, 1991. You are now asking for a clarification on this issue. In reply, please be informed that Section 105 of the Tax Code states that a VAT-registered person upon filing of an inventory as prescribed by regulations, shall be allowed input tax on his beginning inventory of goods, materials and supplies equivalent to 8% of the value of such inventory or the actual value-added tax paid on such goods, materials and supplies, whichever is higher, which shall be creditable against the output tax . Section 17 of Revenue Regulations No. 5-87 defines inventory on hand as the goods purchased for resale in their present condition, materials purchased for further processing, but which have not yet undergone processing, goods which have been manufactured by the taxpayer, goods in process and supplies all of which are for sale (emphasis supplied) or for use in the course of the taxpayer's trade or business as a VAT-registered person. Furthermore, Revenue Audit Memorandum Order (RAMO) No. 1-90 limits the entitlement to presumptive input tax to value of goods ( other than capital goods purchased not for sale ) for use in the business on hand as of the time of registration. It excludes in the list of inventory capital goods, supplies and spare parts whose estimated lives are greater than one year and are treated as depreciable assets. Based on the abovementioned law and regulations, your transitional input taxes on capital asset generated before the VAT registration cannot be claimed as a credit against output tax, and more so as a refund for lack of legal basis. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue