VAT Ruling No. 020-01

May 11, 2001 VAT RULING NO. 020-01 R.R. 5-87, 9-89, Sec. 110, 112 NIRC VAT Ruling 125-88, 066-89 YTM Component, Inc . Bgy. Makiling, Calamba Laguna Attention: Ms . Nila T . Rafer Finance Director Gentlemen : This refers to your letter dated October 25, 2000 representing that you are a BOI-registered exports producer of automotive low tension wires; that you are a VAT-registered person; that as such, you have more input tax than output tax; that you are faced with a dilemma as to the proper computation of the allowable claim in reference to the accumulated input tax vis-a-vis current input tax; that it is your understanding that the whole amount of input tax for a particular quarter can be claimed without deducting the current output tax provided the firm has accumulated or carried over input tax from the previous quarters to cover the current output tax; that based on the following information lifted from your VAT return for the quarter ended December 31, 1998 Balance (excess input) forwarded from previous quarters P3,415,656.89 Current input tax 402,867.98 Current output tax 165,129.87 Ending balance (of input tax) 3,653,395.00 Sales subject to 10% VAT (P1,816,428.63, VAT included) 1,651,298.70 Zero-rated sales 142,633,167.97, it is your position that the amount allowable for refund or tax credit is P402,867.98. That aside from the foregoing, you also request confirmation of your opinion that you can (1) continue to apply your unused input tax carry-over against current output VAT, and (2) apply for Tax Credit Certificate (TCC) for accumulated gross input VAT for the last two (2) years. In reply, please be informed that with respect to the amount of input tax allowable for refund or tax credit in the case of taxpayers engaged in mixed transactions as in your case, please be guided by Section 16 (6) (ii) (a) of Revenue Regulations No. 5-87, as amended by Revenue Regulations No. 9-89 which provides that "Where the taxpayer is engaged in zero-rated or effectively zero-rated sale, as well as in taxable domestic and exempt sale of goods and services, and the amount of allowable input tax paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately to each category of transaction." Applying this formula to your situation as illustrated above, the refundable or creditable input tax credit for the quarter ended December 31, 1998, assuming all other requirements are met, is P398,257.26, computed as follows: Zero-rated sales Refundable/Creditable = X Allowable input tax Total sales 142,633,167.97 = X 402,867.98 142,633,167.97 + 1,651,298.70 = P398,257.26 With respect to the creditability of the excess input taxes of previous quarter/s, your opinion that you can continue to use your said excess input taxes against current output tax is hereby confirmed (VAT Ruling No. 066-89 dated March 17, 1989). Moreover, Section 110 (B) of the Tax Code of 1997 provides " Excess Output or Input Tax If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by a VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters . Any input tax attributable to the purchase of capital goods or to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112." (Emphasis supplied) Based on the foregoing, it is the opinion of this Office that the current output tax payable may be paid by applying the input taxes carried over from the previous quarters (VAT Ruling No. 125-88 dated May 4, 1988). Finally, you are entitled to the refund or credit of accumulated input taxes attributable to zero-rated sales subject to the two-year prescriptive period counted from the close of the taxable quarter when the sales, entitled to the benefit of the zero percent VAT, were made, pursuant to Section 112 (A) of the Tax Code of 1997. aATEDS This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group