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	P5,000		Sales	P10,000
Purchases	4,000		Purchases	8,000
and Carried over input tax from previous quarter of p600.

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			P500
Less: Carry over Input tax		P600
	Input tax	_400	_1,000
VAT Payable (Carry over)			P(500)	*

*Note: Amount represents accumulated input tax as of October 13, 2005.

                                                                                                                     

	November and December 2005
Output Tax		P1,000
Less : Carry over Input Tax (as of Oct. 2005)		_500
Net Output Tax for Nov. and Dec. 2005		500
Less: Input Tax for Nov. and Dec. 2005	P800
Apply: 70% cap (70% of Net Output Tax)	_350	_350
Net VAT Payable		P150
Excess Input Tax (to be carried over to
the next quarter)	P450

Q-3 DEF Corporation has the following output tax and input tax for the quarter ending December 2005:

                                                                             

Output Tax:
	For October 2005	P1,000
	For November and December 2005	2,000
Input Tax:
	Accumulated as of October 31, 2005	P  500
	For November and December 2005	1,000

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:

                                                                                                                                                 

	October 2005
Output Tax	P1,000
Less: Input Tax (accumulated as of October 2005)	_500
VAT Payable	P500
	November and December 2005
Output tax	P2,000
Less: Input Tax	1,000
VAT Payable		P1,000
Total VAT Payable for the Quarter		P1,500
Less: VAT Payable and paid for October		__500
Net VAT Payable		P1,000

Q4 - KLM Corporation has the following output and input tax:

                                                                                                       

Output tax for the quarter ending December 2005		P500
Input tax:
	Accumulated as of October 31, 2005	1,000
	For November and December 2005	600
Output tax for the quarter ending March, 2006		P1,000
Input tax:
	For January - March 2006	500
	Carried over from October 2005	500
	Carried over from Nov. and Dec. 2005	600

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
Unutilized Input Tax (accumulated as of October,
for Carry over to Jan., Feb., March)	500
Add: Input Tax for November and December	__600
Total Carry over input tax to next quarter	1,100

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			P1,000
Less: Unutilized Input tax (as of October)			__500
Net Output Tax			500
Less: Nov. and Dec. input tax		600
	Jan., Feb., and March Input tax	500
Total Available Input Tax		P1,100
Apply 70% cap (70% of Net Output Tax)			__350
VAT Payable			150
Carry over to April, May and June		P750

Q-5 XYZ Corporation has the following input and output tax:

                                         

Output tax for the quarter ending December 2005		P1,000
Input tax:
	Accumulated as of December 31, 2005	1,000
	For November and December 2005	500

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	P1,000
Less: October Input Tax	_1,000
VAT Payable	P      0

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.

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.

Adopted: 3 Jan. 2006

(SGD.) JOSE MARIO C. BU AG
Commissioner of Internal Revenue