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Tax Updates, Taxation

RMC No. 57-2013: Recovery of unutilized creditable input taxes attributable to VAT zero-rated sales

For some reasons, a taxpayer may have excess input VAT at the end of any taxable quarter.  The question is, how are these excess input VAT be treated?

Excess input VAT may arise from the following:

  • VATable sales are less than VATable purchases
  • VATable sales are subject to 0% VAT (just in the case of zero-rated sales)
  • Sales are exempt from VAT
  • Excessive input VAT carried over from period to period and others…

Treatment for the these input VAT varies.  This discussion however will focus on what is the treatment or how can we recover unutilized creditable input taxes attributable to VAT zero-rated sales.

Revenue Memorandum Circular (RMC) No. 57-2013

Revenue Memorandum Circular (RMC) No. 57-2013 was issued by the Bureau of Internal Revenue dated August 23, 2013 entitled, Circularization of BIR Ruling No. 123-2013 dated March 25, 2013 on the Recovery of Unutilized Creditable Input Taxes Attributable to VAT Zero-Rated Sales, which discusses the tax treatment of unutilized creditable input taxes attributable to VAT zero-rated sales.  In summary, RMC No. 57-2013 discusses the following:

  • 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.
  • Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax.

Those are the key messages of the RMC No. 57-2013.  In other words, unutilized creditable input VAT attributable to zero-rated sales:

  • can only be recovered through the application for refund or tax credit
  • no other mode of recovering unapplied input taxes
  • may not be treated outright as deductible expense for income tax purposes after the expiration of the two (2) year prescriptive period

Following are the statements in BIR Ruling No. 123-2013 dated March 25, 2013:

It is noted, based on the above-cited provisions, that unutilized creditable input taxes attributable to zero-rated sales can only be recovered through the application for refund or tax credit. Nowhere in the Tax Code can we find a specific provision expressly providing for another mode of recovering unapplied input taxes, particularly your proposition that unapplied input taxes may be treated outright as deductible expense for income tax purposes. Thus, your proposition, that accumulated and unapplied input value-added tax (VAT) arising from Cekas’ purchase of goods and services after the expiration of the two (2) year prescriptive period may be expensed outright, is hereby denied for lack of legal basis.”

It is a governing principle in taxation that tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favour of the taxing authority. The basic principle in the construction of laws granting tax exemptions has been very stable. He who claims an exemption from his share of the common burden of taxation must justify his claim by showing that the Legislature intended to exempt him by words too plain to be beyond doubt or mistake (City of Iloilo, et.al. vs. Smart Communications, Inc. G.R. No. 167260, dated February 27, 2009). And since a deduction for income tax purposes partakes the nature of a tax exemption, then it must also be strictly construed (CIR vs. Isabela Cultural Corporation, G.R. No. 172231 dated February 12, 2007).”

I think the case referred to above refers to a taxpayer who, after the expiration of the input VAT attributable to zero-rated sales, claimed these as deductible expenses for income tax purposes.

Key Reminders

It is important to note that the BIR Ruling No. 123-2013 dated March 25, 2013 as circularized by RMC No. 57-2013 emphasized that unutilized creditable input VAT attributable to zero-rated sales can only be recovered through the application for refund or tax credit.  As such, to prevent these input VAT from expiring, and eventually loss without any benefits, be reminded to:

  • Apply for tax credit certificate or refund
  • File the application within the time allowable by the law, i.e., within two (2) years after the close of the taxable quarter when the sales were made
  • Ensure that appropriate documents are kept to support the input VAT being claimed for credit or refund
  • Ensure that documents meet the invoicing requirements

In any tax investigation or assessment, nothing bets preparation and sufficient appropriate documentation in addition to proper tax treatment of whatever tax-related items in our financials.  There are really complex tax treatment for some items and we can consult our professional accountants to give us sound advice supported with relevant laws and regulations to keep us covered.  But what we can best do for ourselves is, keep our books clean, prepared and supported.  It’s something that will really help us avoid any tax trouble.

Be tax wise but be transparent! It’s just money, something you cannot bring to the afterlife.

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About leecpa

Orlando Calundan is a Certified Public Accountant. He has exposures in audit of financial statements of entities in various industries such as real estate, food (quick service restaurants), manufacturing, service organizations and BPOs, automotive, holding/investment companies and more. He also has exposure on internal audit engagements. http://calundan.co

Discussion

18 thoughts on “RMC No. 57-2013: Recovery of unutilized creditable input taxes attributable to VAT zero-rated sales

  1. Hi sir. I would like to ask what are the consequences of a non-VAT-registered entity availing creditable input taxes?

    Posted by Rat | October 22, 2013, 2:35 am
    • Hi Rat,

      If it isn’t VAT-registered, where are the input VAT used then? Basically BIR will disallow whatever those sorts of claims are and will assess you penalties if disallowance results to any tax due on the part of the claimant..

      Posted by leecpa | October 22, 2013, 3:40 am
      • The input taxes were used to credit against output VAT payment since they have vatable transactions from which output VAT are sourced.

        Posted by Rat | October 23, 2013, 2:37 am
      • Isn’t that even when you’re non-VAT you can still be subject to output VAT depending on the nature of the transactions and the amount involved ?

        Posted by Rat | October 23, 2013, 2:44 am
  2. sir what if the input vat belongs to the transaction of zero rated sales, can we apply or utilize/deduct
    the input vat to a vatable sales transaction? why?

    Posted by marlon dolanas | November 7, 2013, 10:10 am
    • Hi Marlon,

      You mean apply against output VAT of regular sales, right? Because zero-rated sales have zero % VAT. Unfortunately, no. Input VAT attributable to zero-rated sales can only be recovered through tax credit or refund.

      Posted by leecpa | November 7, 2013, 1:55 pm
  3. 1) So if we cannot treat the expired input vat as a deductible expense how do we treat it? where to book or charge? 2) Similarly for those with output tax on sales to both private and government, input tax is generally pro-rated. After pro-rating, the output tax vs input tax on sale to government must have a zero effect after deducting the 5% wtax. The excess input tax, if any, is to be closed to expense. For clarification, is this a deductible expense?

    Posted by gerry | March 12, 2014, 8:29 am
    • Excess input from as the difference of standard input vs. 12% on sale to government, yes, that is deductibe. However, the expired input VAT from zero rated because company fails to file a claim for refund, you can expense that in your FS but will not be deductible for tax purposes – permanent difference.

      Posted by leecpa | March 20, 2014, 4:14 pm
  4. Sir, does this BIR Ruling 123-2013 (Rev. Memo Circular no. 57-2013) affect transaction made on year 2012? Or this will affect transaction starting 2013? Since this Memo was only issued aug. 23,2013

    Posted by broke | March 20, 2014, 1:50 pm
  5. Sir, what is the treatment of regular 12% transactions from previous years excess input vat over output vat? How many years before it expires to be credited for next years of operations? Thank you.

    Posted by jopet | April 20, 2014, 1:29 am
    • One thing Sir, If the company doesn’t want to carry the excess input for next year/1st Quarter, Okay lang po ba?

      Posted by jopet | April 20, 2014, 2:01 am
      • Why is it that the company doesn’t want to carry over an excess input, that is very unusual. The company paid for it and it will reduce the vat payable in the future. Anyway, my opinion is you can write it off in the books but you can’t claim it as a deduction from income tax. But I don’t see any reason why a company would do that. 🙂

        Posted by leecpa | April 20, 2014, 2:09 am
    • No expiration, as long as those are supported, you can carry them over for the next years.

      Posted by leecpa | April 20, 2014, 2:11 am
  6. Hi! I have excess input tax from 2013. My bookeeper did not carry it over to the present year. I will amend my returns but where do I amend it, on the January or March return? Thanks.

    Posted by Ching | May 19, 2014, 9:54 am
  7. hi sir. what if i have an income tax holiday but still i have a vatable sales (still have vat output). am i going to allocate the input tax i have based on the percentage of vatable/total sales. or all input tax be deducted to the output tax? thanks

    Posted by zapantachristine17@gmail.com | November 5, 2014, 6:47 am
    • Do you have more that one type of sale (e.g. zero-rated, exempt and regular)? The allocation is based on what kind of sale do you have. Also check first whether the input VAT are directly attributable to the regular sale or zero-rate sale or exempt sale.

      Let’s not confuse exemption from income tax with exemption from VAT. I want to know why do you think there’s a need to allocate.

      Posted by leecpa | November 5, 2014, 6:59 am

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