TAX-303 - Lecture notes 11 PDF

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ReSA - THE REVIEW SCHOOL OF ACCOUNTANCYCPA Review Batch 41  May 2021 CPA Licensure Examination  Weeks No. 3-TAXATION A. Tamayo  G. Caiga  C. Lim  K. Manuel  E. BuenPage 1 of 6 0915-2303213  resacpareviewTAX-303: INPUT VAT1. Remittance Returns and Certificates BIR Form No. 1600-VT – Monthly Re...

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ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY CPA Review Batch 41  May 2021 CPA Licensure Examination  Weeks No. 3-4

TAXATION

A. Tamayo  G. Caiga  C. Lim  K. Manuel  E. Buen

TAX-303: INPUT VAT 1. Remittance Returns and Certificates BIR Form No. 1600-VT – Monthly Remittance Return of VAT Withheld BIR Form No. 2306 – Certificate of Final Tax Withheld 2. Input Tax Defined a. Meaning of Input tax is the value-added tax due from or paid by a VAT-registered person in the input tax course of his trade or business on importation of goods or local purchase of goods, properties or services, including lease or use of properties, in the course of his trade or business. It shall also include the transitional input tax and the presumptive input tax. b. Categories of 1) VAT paid on local purchases (passed on by seller) or on importation (passed-on VAT) creditable or 2) Presumptive input tax deductible 3) Transitional input tax input taxes 4) Standard input tax c. Persons who The input tax credit on importation of goods or local purchases of goods, properties or can avail of services by a VAT-registered person shall be creditable: input tax credit 1) to the importer upon payment of VAT prior to the release of goods from customs custody; 2) to the purchaser of the domestic goods or properties upon consummation of the sale; or 3) to the purchaser of services or the lessee or licensee upon payment of the compensation, rental, royalty or fee. d. Exercises: Determine whether or not input tax credit can be availed of (Y/N) 1) Importation of goods for personal use, VAT already paid 2) Importation of goods for business use, VAT not yet paid 3) Purchase on account of domestic goods from VAT-registered supplier evidenced by VAT invoice 4) Purchase for cash of domestic goods from VAT-registered supplier, evidenced by a receipt printed by unaccredited printer 5) Purchase of domestic properties from non-VAT seller, evidenced by VAT official receipt 6) Purchase of services from a VAT-registered service-provider, bills already paid 7) Purchase of services from a VAT-registered service provider, bills not yet paid 8) Purchase on account of goods from a non-VAT seller who issued VAT invoice 3. Determination of Allowable Input Taxes a. Determination Input tax carried over from previous period xxx of creditable Input tax deferred on capital goods exceeding P1,000,000 from previous quarter xxx input tax Transitional input tax xxx Presumptive input tax xxx Others xxx Total xxx Input taxes on current transactions xxx Total available input taxes xxx Less: Deductions from input taxes xxx Total allowable input taxes xxx b. Deductions a. Input tax claimed as tax credit certificate or refund from b. Input tax attributed to VAT-exempt sales input taxes c. Input tax attributed to sales to Government 4. Sources of Creditable Input Taxes (Local Purchases or Importation) a. Passed-on VAT 1) Input tax 1) Purchase or importation of goods: evidenced by a) For sale; or a VAT invoice b) For conversion into or intended to form part of a finished product for sale, including or official packaging materials; or receipts c) For use as supplies in the course of trade or business; issued by a d) For use as raw materials supplied in the sale of services; VATe) For use in trade or business for which deduction for depreciation or amortization is registered allowed. person which 2) Purchase of real properties for which a VAT has actually been paid; shall be valid 3) Purchase of services in which a VAT has actually been paid; for 5 years 4) Transactions “deemed sale”; from the date of permit to use

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0915-2303213  www.resacpareview.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY

TAX-303

Weeks 3-4: INPUT VAT

2) VATregistered person is also engaged in transactions not subject to VAT

A VAT-registered person who is also engaged in transactions not subject to VAT shall be allowed to recognize input tax credit on transactions subject to VAT as follows: a) All the input taxes that can be directly attributed to transactions subject to VAT may be recognized for input tax credit; and

b) If any input tax cannot be directly attributed to either a VAT taxable or VAT-exempt transaction, the input tax shall be pro-rated to the VAT taxable and VAT-exempt transactions and only the ratable portion pertaining to transactions subject to VAT may be recognized for input tax credit computed as follows: VAT sales / Total sales X Input taxes 3) Exercise: A VAT-registered taxpayer is also engaged in VAT-exempt transactions. The following VAT exclusive data are made available: a. Domestic VAT-subject cash sales P1,000,000 b. VAT-exempt sales on account 500,000 c. Export cash sales 300,000 d. Cash purchases of supplies from VAT supplier (used for all transactions) 150,000 e. Purchase on account of merchandise from VAT-registered trader (for VAT sales only) 200,000 REQ: a. Prepare the necessary journal entries assuming the taxpayer will use the input tax on zero-rated sales as input tax credit b. Compute the VAT payable assuming the taxpayer will use the input tax on zero-rated sales as input tax credit 5. Claim for Input Tax on Depreciable Goods (Under RR 16-2005) a) Where a VAT-registered a) Estimated useful life is 5 years or more - Input tax shall be spread person purchases or evenly over of a period of 60 months to commence in the calendar month imports capital goods, when the capital good is acquired. which are depreciable b) Estimated useful life is less than 5 years – Input tax shall be spread assets for income tax evenly on a monthly basis by dividing the input tax by the actual number purposes, the aggregate of months comprising the estimated useful life. The claim for input tax acquisition of which shall commence in the calendar month the capital good is acquired (exclusive of VAT) in a calendar month exceeds P1,000,000, regardless of the acquisition cost of each capital good b) Where the aggregate The total amount of input taxes will be allowable as credit against output tax acquisition cost (exclusive in the month of acquisition. of VAT) of the existing or finished depreciable capital goods purchased or imported during any calendar month does not exceed P1,000,000 c) Amortization allowed The amortization of the input VAT shall only be allowed until December 31, until December 31, 2021 2021 after which taxpayers with unutilized input VAT on capital goods purchased or imported shall be allowed to apply the same as scheduled until fully utilized.

d) Meaning of aggregate acquisition cost

e) Sale or transfer of depreciable good within a period of 5 years or prior to the exhaustion of the amortizable input tax f) Meaning of capital goods or properties

g) Meaning of construction in progress

In the case of purchase of services, lease or use of properties, the input tax shall be creditable to the purchaser, lessee or licensee upon payment of the compensation, rental, royalty or fee. The aggregate acquisition cost of a depreciable asset in any calendar month refers to the total price, excluding the VAT, agreed upon for one or more assets acquired and not on the payments actually made during the calendar month. An asset acquired in installment for an acquisition cost of more than P1,000,000, excluding the VAT, will be subject to the amortization of input tax despite the fact that the monthly payments or installments may not exceed P1,000,000. If the depreciable capital good is sold or transferred within a period of 5 years or prior to the exhaustion of the amortizable input tax thereon, the entire unamortized input tax on the capital goods sold or transferred can be claimed as input tax credit during the month or quarter when sale or transfer was made. Capital goods or properties refers to goods or properties with estimated useful life greater than one (1) year and which are treated as depreciable assets under the Tax Code, used directly or indirectly in the production or sale of taxable goods or services. Construction in progress (CIP) is the cost of construction work which is not yet completed. CIP is not depreciated until the asset is placed in service. Normally, upon completion, a CIP is reclassified and the reclassified asset is capitalized and depreciated.

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY

TAX-303

Weeks 3-4: INPUT VAT

h) Input tax on construction in progress

i) Contract for the sale of service where only the labor will be supplied

j) Input tax claimed while the construction is in progress k) Rules on allowing input tax credit on vehicles, and other expenses incurred (RR No. 122012, Oct. 12, 2012)

a) CIP is considered, for purposes of claiming input tax, as a purchase of service, the value of which shall be determined based on the progress billings. b) Until such time the construction has been completed, it will not qualify as capital goods as defined, in which case, input tax credit on such transaction can be recognized in the month the payment was made; Provided, that an official receipt of payment has been issued based on the progress billings. In case of contract for the sale of service where only the labor will be supplied by the contractor and materials will be purchased by the contractee from other suppliers, input tax credit on the labor contracted shall still be recognized on the month the payment was made based on the progress billings while input tax on the purchase of materials shall be recognized at the time the materials were purchased. Once the input tax has already been claimed while the construction is in progress, no additional input tax can be claimed upon completion of the asset when it has been reclassified as a depreciable capital asset and depreciated. a. Only one vehicle for land transport is allowed for the use of an official or employee, the value of which should not exceed P2,400,000. b. No depreciation shall be allowed for yachts, helicopters, airplanes and/or aircrafts, and land vehicles the value of which exceed the P2,400,000 threshold amount, unless the taxpayer’s main line of business is transport operations or lease of transportation equipment and the vehicles purchased are used in said operations; c. All maintenance expenses on account of non-depreciable vehicles for taxation purposes are disallowed in its entirety; d. The input taxes on the purchase of non-depreciable vehicles and all input taxes on maintenance expenses incurred thereon are likewise disallowed for taxation purposes.

l) Exercises: 1) Lalisa Corp. acquires 3 units of office equipment at P600,000 each on February 2018. The estimated life is 4 years. Question 1 – Can the taxpayer amortize the input tax? 2 – If it can amortize the input tax, how much is the monthly amortization? 3 – Up to what month will the amortization be? 4 – Assuming the taxpayer acquires the office equipment on February 2022, can it amortize the input tax on the acquisition? 2) Sassa Girl imports motor vehicle for land transport on December 2021. Its total landed cost is P2,400,000. The estimated life of the vehicle is 6 years? Question 1 – Can the taxpayer amortize the input tax? 2 – If he can amortize the input tax, how much is the monthly amortization? 3 – Up to what month will the amortization be? 4 – Assuming, he imports the vehicle on December 2022, can he amortize the input tax on the importation? 3) A taxpayer acquires an office furniture on January 2018 for P1,000,000. Its estimated life is 3 years. Question 1 – Can the taxpayer amortize the input tax? 2 – If he can amortize the input tax, how much is the monthly amortization?

b. Presumptive Input Tax 1) Persons allowed presumptive input tax 2) Rate and basis of presumptive input tax

1) Processors of sardines, mackerel and milk 2) Manufacturers of refined sugar and cooking oil 3) Manufacturers of packed noodle-based instant meals 4% (used to be 1 ½%) of gross value in money of purchases of primary agricultural products which are used as inputs to their production

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