VAT Ruling No. 053-94

February 9, 1994 VAT RULING NO. 053-94 Section 103 (R)-000-00-053-94 Santiago Q. Tan and Associates Certified Public Accountant 37 Pagasa St. Caloocan, M. M Attention: Mr . Santiago D . Tan Managing Partner Gentlemen : This refers to your letter dated January 27, 1993 requesting for a ruling whether the value-added tax (VAT) paid on accrued for the sale, barter or exchange of goods and services rendered and other similar transactions of a general professional partnership can be deductible from gross income pursuant to Section 29 (c) of the Tax Code as amended by P. D. 1158. In reply, please be informed that the VAT paid by a VAT-registered person on his purchases (or input tax), is an asset account in the Balance Sheet and not to be treated as an expense unless he is exempt from VAT in which case the VAT paid would form part of the cost to acquire what was purchased. Being a general professional partnership which is exempt from VAT pursuant to Section 103(r) of the NIRC, as amended, the input taxes passed on to you shall form part of your cost to acquire the goods or services you purchased. Moreover, with the implementation of R.A. No. 7496 or the Simplified Net Income Tax Scheme, amending among others Section 29 of the Tax Code, the expenses that can be claimed as deduction from gross income of self-employed professionals in computing taxable income subject to tax under Section 21 (f) of the same Code, are the following: a) Raw materials, supplies and direct labor; b) Salaries of employees; c) Telecommunications, electricity, fuel, light and water; d) Business rentals; e) Depreciation; f) Contributions; and g) Interests. Such being the case, a general professional partnership cannot claim the VAT as a deduction from its gross income for lack of legal basis. aisadc Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue