VAT Ruling No. 102-88

April 15, 1988 VAT RULING NO. 102-88 105-0000-00-102-88 CDSS 6264 Estacion St. Makati, Metro Manila Attention: Ms . Cynthia L . Macaranas S i r s : This has reference to your letter dated February 17, 1988 wherein you stated that the value added tax system will increase your corporate income tax liabilities because the 8% presumptive input tax credit will decrease the cost of sales thus increasing the profits. lljur In reply, please be informed that since the 8% presumptive input tax is an entry to inventory, it will reduce cost of sales thus increasing profit. However the benefit of granting an 8% presumptive tax which is on a peso to peso payment of taxes outweighs the disadvantage arising from an increase in taxable income which is only taxed at 35% corporate income tax. To illustrate, if you have an inventory of P500,000 as of December 31, 1987, the 8% presumptive tax would be P40,000. If, as a result of the reduction of your cost of sales, your profit will increase to the extent of P40,000; that means that you, as a corporation will have to pay P14,000 more in income taxes which is 35% of P40,000. However, it also follows that if you will sell the inventory for P600,000 and that you will not be given any presumptive input tax, you will have to pay a tax of P60,000 on this sale. However, with a presumptive input tax of P40,000 you will only pay P20,000 instead of P60,000. In this case, you are still better off because on a savings of P40,000 and an increased income tax of P14,000 there is still a net savings of P26,000. cdtech Please be guided accordingly. Very truly yours, VICTOR A. DEOFERIO, JR. Deputy Commissioner