VAT and Input tax ‘refunds or credits’

THE Philippine Congress on May 24, 2005, enacted into law the Value Added Tax Reform Act otherwise known as Republic Act No. (RA) 9337, which eventually became effective on Nov. 1, 2005.

The validity of the law was sealed by the Supreme Court on Oct. 18, 2005 in the case of Abakada Guro Party List vs. Ermita, G.R. No. 168056. RA 9337 made substantial amendments in the Tax Code of 1997 including the removal of the right of taxpayers to claim refunds or credits on excess input taxes paid on the importation and local purchase of capital goods.

Prior to the amendment of RA 9337 of the Tax Code of 1997, input taxes in excess of output taxes attributable to the purchase of capital goods may be claimed as tax credit or refund.

“Input Taxes” are value added taxes (VAT) due from or paid by a VAT-registered person in the course of trade or business on importation of goods, or local purchase of goods, properties, or services from a VAT-registered person.

“Output Taxes,” on the other hand, are VAT due on the sale or lease of goods, properties or services by any person registered or required to register under the Tax Code.

RA 9337, as implemented by Revenue Regulations No. (RR) 16-2005 dated Sept. 1, 2005, however, deleted the right of taxpayers to claim tax refunds and credits on excess VAT input taxes paid on the importation and local purchase of capital goods.

Nevertheless, RA 9337 retained the right of taxpayers to claim refunds or credits in their excess and unutilized input VAT on transactions previously covered by the Tax Code of 1997. The law only provides a period of two (2) years from the close of the taxable quarter within which to file a claim for refund or credit.

VAT-registered taxpayers may still claim a tax refund or credit on excess VAT input tax attributable to zero-rated or effectively zero-rated sales.
A zero-rated sale of goods or properties is a taxable transaction for VAT purposes, but shall not result in any output tax. On the other hand, an effectively zero-rated sale of goods and properties refers to the local sale of goods and properties by a VAT-registered person to an entity who has been granted exemption under special laws or international agreements.

Moreover, taxpayers whose VAT registration has been cancelled due to retirement from or cessation of business, or due to changes in or cessation of VAT status, may still claim a tax refund or credit for any unused and excess input tax. The law does not make a distinction whether the excess input tax is attributable to zero-rated sales or capital goods. RR 16-05 furthermore requires taxpayers whose VAT registration was cancelled to be free of any internal revenue tax liabilities against which the tax credit certificate may be utilized, before it can claim a tax refund.
Thus, due to the amendment of RA 9337, taxpayers may no longer claim refunds or credits on excess input taxes paid on the importation and local purchase of capital goods. Taxpayers may now only claim tax refunds or credits on excess input taxes arising from zero-rated sales or effectively zero-rated sales and when a taxpayer’s VAT registration is cancelled.

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