RMC No. 06-2006 — Provides basic questions and answers to clarify Revenue Regulations No. 14-2005 relative to the treatment of input tax accumulated as of October 31, 2005 Digest | Full Text

REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE BUREAU OF INTERNAL REVENUE Quezon City January 3, 2006 REVENUE MEMORANDUM CIRCULAR NO. 6-2006 SUBJECT: Clarification to Revenue Regulations No. 14-2005, as last amended by Revenue Regulations No. 16-2005, implementing Republic Act No. 9337 TO : All Internal Revenue Officers and Others Concerned This Revenue Memorandum Circular (RMC) is issued in order to publish and clarify the treatment of input tax accumulated as of October 31, 2005 in relation to the 70% cap effective November 1, 2005. Q-1 What is the treatment of input tax accumulated as of October 31, 2005 in relation to the 70% cap provided in Section 4.110-7 of Revenue Regulations (Rev. Regs. )No. 14-2005, as last amended by Rev. Regs. No. 16-2005? A-1 Input tax accumulated as of October 31, 2005 shall not be subject to the seventy percent (70%) cap and shall be deductible in full from output tax until it is fully utilized. In determining whether the input tax in a month or quarter exceeds the output tax subject to the 70% cap, the accumulated input tax as of October 31, 2005 shall be excluded from the computation and shall be deducted in full from the output VAT. Q-2 ABC Corporation has the following sales/ purchases for the quarter ending December 2005: October 2005 November and December 2005 Sales P 5,000 Sales P 10,000 Purchases 4,000 Purchases 8,000 and Carried over input tax from previous quarter of P 600. 1

How will the Value Added Tax for the quarter ending December 2005 be computed? A-2 The Value Added Tax for the quarter ending December 2005 will be computed as follows: October 2005 Output Tax P 600 P 500 Less: Carry over Input tax 400 1,000 Input tax P (500)* VAT Payable/(Carry over) ==== *Note: Amount represents accumulated input tax as of October 31, 2005. November and December 2005 Output Tax P 800 P 1,000 Less: Carry over Input Tax (as of Oct. 2005) 350 500 Net Output Tax for Nov. and Dec. 2005 500 Less: Input Tax for Nov. and Dec. 2005 Apply: 70% cap (70% of Net Output Tax) 350 Net VAT Payable P 150 === Excess Input Tax (to be carried over P 450 to the next quarter) ===== Q-3 DEF Corporation has the following output tax and input tax for the quarter ending December 2005: Output Tax: P 1,000 For October 2005 2,000 For November and December 2005 Input tax: P 500 Accumulated as of October 31, 2005 1,000 For November and December 2005 How will the Value Added Tax for the quarter ending December 2005 be computed? A-3 The Value Added Tax for the quarter ending December 2005 will be computed as follows: 2

October 2005 Output Tax P 1,000 Less:Input Tax (accumulated as of October 2005) 500 VAT Payable P 500 ===== November and December 2005 Output tax P 2,000 Less: Input Tax 1,000 VAT Payable Total VAT Payable for the Quarter 1,000 Less: Vat Payable and paid for October P 1,500 Net VAT Payable 500 P 1,000 ====== Q-4 KLM Corporation has the following output and input tax: Output tax for the quarter ending December 2005 P 500 Input tax: 1,000 Accumulated as of October 31, 2005 600 For November and December 2005 Output tax for the quarter ending March, 2006 P1,000 Input tax: 500 For January � March 2006 500 Carried over from October 2005 600 Carried over from Nov. and Dec. 2005 How will the Value Added Tax for the quarters ending December 2005 and March 2006 be computed? A-4 The Value Added Tax for the quarters ending December 2005 and March 2006 will be computed as follows: Quarter ending December 2005 Output Tax P 500 Less: October Input Tax 1,000 3

Unutilized Input Tax (accumulated as of October, 500 for Carry over to Jan, Feb., March) 600 P1,100 Add: Input Tax for November and December ===== Total Carry over input tax to next quarter No tax payment is made for the quarter ending December, 2005. The 70% cap will not apply. Excess input VAT from Oct., Nov. and Dec. will be carried forward to the next quarter. Quarter ending March 2006 Output Tax 600 P 1,000 Less: Unutilized Input tax (as of October) 500 500 Net Output Tax P1,100 500 Less: Nov. and Dec. input tax 350 Jan., Feb. and March input tax 150 Total Available Input Tax ==== Apply 70% cap (70% of Net Output Tax) VAT Payable Carry over to April, May and June P 750 ====== Q-5 XYZ Corporation has the following input and output tax: Output tax for the quarter ending December 2005 P 1,000 Input tax: 1,000 Accumulated as of October 31, 2005 500 For November and December 2005 How will the Value Added Tax for the quarter ending December 2005 be computed? A-5 The Value Added Tax for the quarter of December 2005 will be computed as follows: Output Tax P 1,000 Less: October Input Tax 1,000 VAT Payable P0 ===== No tax payment is made for the quarter ending December 2005. The 70% cap will not apply. Excess input tax from November and December 2005 amounting to P500 will be carried forward to the next quarter. 4

Q-6 What are the requirements for the availment of the provisions under this RMC? A-6 Taxpayers who want to avail of the provisions under this RMC must comply with the following requirements: 1. Attach copies of the immediately preceding VAT quarterly and monthly returns to the quarterly VAT returns that reflects excess input tax as of October 31, 2005 to be filed with the concerned Revenue District Office/ Large Taxpayers Service's Offices; 2. Submit a sworn declaration of the correctness of the claimed accumulated input tax as of October 31, 2005; and 3. If after the initial availment of the excess input tax as of October 31, 2005, there remains unutilized input tax, taxpayers who wish to continue availing of the provisions of this RMC, shall also attach to their VAT returns for the relevant period a schedule of running balance of unutilized input tax emanating from the October 31, 2005 accumulated balance. All internal revenue officers and employees are hereby enjoined to give this Revenue Memorandum Circular as wide a publicity as possible. (Original Signed) JOSE MARIO C. BU�AG Commissioner of Internal Revenue 5