VAT Ruling No. 041-99

April 8, 1999 VAT RULING NO. 041-99 Sec. 110 000-00 041-99 National Food Authority 101 E. Rodriguez Avenue Quezon City Attention: Mr . Joemarie D . Gerochi Administrator Gentlemen : This refers to your letter dated January 26, 1998 seeking the Bureau's clarification on the following issues: (1) Whether a person or entity needs to be VAT-registered before paying VAT; (2) Whether or not NFA is still required to remit any VAT considering that if the 8% transitional input taxes allowed under Section 105 of the Tax Code (now Section 111 of the 1997 Tax Code) is added to its input taxes, the resulting total input taxes would exceed the output tax due from its sale of refined sugar; and (3) Whether NFA is entitled to apply for the issuance of tax credit certificate for the unapplied portion of the 8% transitional input tax and other input taxes incurred. It is represented that pursuant to Executive Order No. 398, NFA was authorized to intervene in the stabilization of the price of sugar; that, in the exercise of such mandate, NFA actually procured raw sugar and subsequently disposes the same in the form of refined sugar; that in the process, NFA contracted the services of some sugar milling companies to process raw sugar into refined sugar from which it has incurred input taxes on the following: (a) services by sugar milling companies; (b) tolling/handling fees; and (c) the advance VAT payment; that, the corresponding output tax collected by NFA from its sale of refined sugar exceeded the amount of input taxes incurred in milling the raw sugar into refined sugar; however, should the 8% transitional input tax provided under Section 111 (A) of the 1997 Tax Code be availed of, this will result to excess input taxes which NFA is interested in applying with the Bureau for the issuance of the corresponding tax credit certificate. In reply, please be informed as follows: 1. A taxpayer need not be a VAT-registered person to be liable to the Output Tax. It is enough that a person is VAT-registerable in order that liability for Output Tax would attach. This is clear from Section 110, NIRC which in pertinent part provides: "The term ' output tax ' means the value-added tax due on the sale or lease of taxable goods or properties or services by any person registered or required to register under Section 236 of this Code" Since the imposition of the VAT necessitates the issuance of a VAT-invoice, a VAT-registerable person who sells taxable goods can not pass on the VAT due on the sale to the buyer of the goods. This means that an unregistered seller who becomes liable to VAT will assume the tax liability. Neither is the unregistered seller entitled to claim input tax credits on purchases of goods and services even if the supplier is VAT-registered, because the term "input tax" as defined under Section 110, NIRC, refers to VAT paid by a VAT-registered person from a VAT-registered person. 2. If NFA is VAT registered, it is allowed to claim the input taxes on the services by milling companies, tolling/handling fees, and the transitional input taxes on its beginning inventories upon registration under the VAT system. Should the total input taxes available exceed the output taxes, NFA is no longer required to remit any VAT to the BIR. The Advance VAT payment required under RR No. 7-89 is not a creditable input tax but a credit against VAT payable which can be utilized in paying the VAT liability should the Output Tax exceed the allowable input tax. On the other hand, if NFA is not a VAT-registered taxpayer but qualifies as a registerable person (Gross sales exceeds Php550,000 for a 12-month period), it is not allowed to claim input tax credits but is liable to the output tax. In fine, its VAT payable would be the total output tax due from its sale of sugar. However, the Advance VAT payment is creditable against the VAT payable. 3. If NFA is VAT-registered as intimated above, it can claim input tax credits against output tax. However, it is not allowed to claim any excess input taxes as Tax Credit Certificate because this option is allowed only in three instances, viz; (1) input tax on zero-rated sales; (2) input tax on capital goods; and (3) unused input taxes as of retirement or cessation from business. It is, thus, clear that whether or not NFA is VAT-registered or VAT-registerable, there is no way by which it can claim for the issuance Tax Credit Certificate in its favor. cdlex This ruling is being issued on the basis of the 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.) BEETHOVEN L. RUALO Commissioner of Internal Revenue