VAT Ruling No. 010-91

February 12, 1991 VAT RULING NO. 010-91 Fernandez, Berris & Company Certified Public Accountants 21st Floor, Metrobank Plaza Sen. Gil J. Puyat Avenue Makati, Metro Manila Attention: Lourdes B . J . Kaimo Senior Audit Manager M a d a m : This refers to your letter dated May 29, 1990. It is represented that your client, whom you did not identify, is a VAT-registered person; that, his sales invoices were printed during the year 1989; that, these printed forms of sales invoices do not contain his pre-printed VAT registration number. Your questions are: What would be the effect of using such invoices both on the seller and the customer? Can the customer refuse to pay the 10% VAT since the VAT number was only typewritten ? (a) Please be informed that a VAT-registered person is required to issue, vis-a-vis his sale of goods/services, VAT-registered sales invoices. VAT-registered sales invoice forms must contain the "pre-printed." VAT registration number of the VAT-registered person. (Sec. 108, NIRC) The printing and registration of receipts, sales or commercial invoices are governed by the following rules, viz., (i) the taxpayer-user, thru his authorized printer, shall apply for authority to print the said forms; (ii) the application shall be filed with the Revenue District Office concerned (RDO); (iii) the RDO shall take note and record the data to be contained in the forms authorized to be printed, particularly the serial numbers thereof; (iv) the RDO issues, to the authorized printer, the authority to print; (v) after printing, the said printer presents the said already printed forms for verification by the RDO. If in order, the RDO "stamps" all the said printed booklets in the manner prescribed by regulations (See Bookkeeping Regs. V-1, Sec. 19(c), as amended by Rev. Regs. No. 2-78) The said "stamping requirement" was stopped by Rev. Memo Cir. 46-86, issued Dec. 10, 1986. However, this stamping requirement has been restored by Rev. Regs. No. 2-90, issued May 25, 1990. Upon effectivity of the VAT law on January 1, 1988 (E.O. 273) VAT-registered persons with still unused registered sales invoices as of December 31, 1987 have been allowed to continue the use thereof subject to following conditions, viz., (i) that their respective inventory thereof shall be registered with the RDO; (ii) that the VAT-registered person's VAT registration number shall be "stamped" on all the said unused forms of sales invoices to be issued as VAT-registered sales invoice. (See par. 1, Revenue Memorandum Order No. 35-87, issued Dec. 7, 1987) This is the only exception to the rule that the VAT-registered person's VAT registration number shall be and must be "pre-printed" before registration of his VAT invoices may be allowed. Whenever a taxpayer has VAT-Taxable sales and VAT-exempt sales, he shall register and use only VAT-registered sales invoice on his VAT-taxable sales and non-VAT sales invoice vis-a-vis VAT-exempt sales. (See Sec. 21, Rev. Regs. 5-87, implementing Sec. 108, NIRC) The distinction between a VAT invoice and a non-VAT invoices is the seller's VAT registration number is printed in the VAT invoice whereas in the non-VAT invoice such information is not so printed. (See Sec. 108, NIRC) (b) Since the said forms for sales invoices were printed during the year 1989, i.e., already during the effectivity of the VAT law, the same can qualify as VAT-registered invoice only if your client's VAT registration number had been indicated in the application for "permit to print" the same and the said identification (i.e., the VAT registration number) is pre-printed therein. Since it is represented that the said identification is not-pre-printed therein, these invoices cannot qualify as VAT-registered sales invoices even if your client typewrites or superimposes his VAT registration number in the sales invoice issued for his VAT-taxable sales. (c) Accordingly, the said sales invoice forms can only be considered non-VAT sales invoices. (See Sec. 21, Rev. Regs. 5-87) (d) However, since your client is a VAT-registered person he remains subject to 10% VAT on his sales notwithstanding that he issued therefor non-VAT sales invoices. (See Sec. 99, NIRC) (e) The 10% VAT is a tax against your client seller. It is not a tax against his customers. But this tax is a creditable input tax in favor of a VAT-registered purchaser, provided, "his purchases are evidenced by VAT-registered sales invoices issued by a VAT-registered seller". (See Sec. 20, Rev. Regs. 5-87) Since the sales invoices being issued by your client is a non-VAT invoice, his customer, VAT-registered person, shall not be entitled to input tax credit which, otherwise, he would be entitled to. For this reason, your client's customer has every right to question the non-VAT invoice being issued to him for his VAT-taxable purchases. In short, there is no legal issue whether your client's customers may refuse paying the 10% VAT vis-a-vis their purchases since, in the first place, it is the seller rather than the buyers who is liable to pay this tax. Would the BIR penalize the taxpayer (i.e., your client) for using such invoices? If so, what are the penalties? (a) On the assumption that the said forms have been printed and registered with the RDO in accordance with the aforementioned rules on the printing and registration of sales invoices, your client shall have violated the requirements of Sec. 108, NIRC, as implemented by Sec. 21, Rev. Regs. 5-87, that VAT-registered sales invoice shall be issued vis-a-vis his VAT-taxable sales. His violation of this statutory requirement is punishable under Sec. 263, NIRC, by a fine of P1,000 to P50,000 or imprisonment of not less than 6 months and 1 day but not more than 2 years, or both, at the discretion of the Court. This penalty applies for each and every violation committed. (b) On the other hand, if these forms have not at all been printed and registered in accordance with the said statutory and regulatory processes (i.e., the same are unregistered, hence, spurious) your client may suffer the following consequences: (i) He may be penalized under Sec. 263, NIRC (ibid) for using and issuing unregistered sales invoices; (ii) His business operations may be suspended or ordered closed, by the Commissioner of Internal Revenue, pursuant to Sec. 111, NIRC. llcd (iii) He may be ordered or caused to be investigated for non-issuance of sales invoices on sales made to determine his taxable sales for VAT purposes and to determine his unreported taxable income, for income tax purposes. The person who printed illegally the said spurious sales invoices may also be penalized under Section 263, NIRC (supra). Very truly yours, JOSE U. ONG Commissioner of Internal Revenue