Tax credit mechanisms the VAST will kill

The following is the section in the present law that the proposed VAST will do away with.

These are the main mechanisms and schemes that, in the view of the House and Ways Chair Hermilando Mandanas, VAT-registered companies—in collusion with BIR collectors—manipulate so that in the end they have very little or nothing to remit out of the 12 percent EVAT they have collected from their customers.

Here is Mandanas’ HB 1970’s Section 6 that abolishes all tax credit scheme or mechanism now granted by the VAT law. All the parts enclosed by a [and a] are repealed.

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SECTION 6. Section 110 of the same Code is hereby amended to read as follows:

“SEC. 110. ANY TAX CREDIT MECHANISM OR SCHEME SHALL NOT BE ALLOWED UNDER THE VALUE SIMPLIFIED TAX.

[Sec. 110. Tax Credits. -[(A) Creditable Input Tax. –

[(1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof on the following transactions shall be creditable against the output tax:]

[(a) Purchase or importation of goods:] [(i) For sale; or]

[(ii) For conversion into or intended to form part of a finished product for sale including packaging materials; or]

[(Hi) For use as supplies in the course of business; or]

[(iv) For use as materials supplied in the sale of service; or]

[(v) For use in trade or business for which deduction for depreciation or amortization is allowed under this Code.]

[(b) Purchase of services on which a value-added tax has actually been paid.]

[(2) The input tax on domestic purchase or importation of goods or properties by a VAT-registered person shall be creditable:]

[(a) To the purchaser upon consummation of sale and on importation of goods or properties; and]

[(b) To the importer upon payment of the value-added tax prior to the release of the goods from the custody of the Bureau of Customs. Provided, That the input tax on goods purchased or imported in a calendar month for use in trade or business for which deduction for depreciation is allowed under this Code, shall be spread evenly over the month of acquisition and the fifty-nine (59) succeeding months if the aggregate acquisition cost for such goods, excluding the VAT component thereof, exceeds One million pesos (PI,000,000): Provided, however, That if the estimated useful life of the capital good is less than five (5) years, as used for depreciation purposes, then the input VAT shall be spread over such a shorter period: Provided, finally, that 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.]

[(3) A VAT-registered person who is also engaged in transactions not subject to the value-added tax shall be allowed tax credit as follows:]

[(a) Total input tax which, can be directly attributed to transactions subject to value-add tax; and]

[(b) A ratable portion of any input tax, which cannot be directly attributed to either activity.]

[The term ‘input tax’ means the value-added tax due from or paid by a VAT-registered person in the course of his trade or business on importation of goods or local purchase of goods or services, including lease or use of property, from a VAT-registered person. It shall also include the transitional input tax determined in accordance with Section 111 of this Code.]

[The term ‘output tax’ means the value-added tax due on the sale or lease of taxable goods or properties or services by any person registered or required to register under Section 236 of this Code.]

[(B) Excess Output or Input Tax. – If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters: Provided, That the input tax inclusive of input VAT carried over from the previous quarter that may be credited in every quarter shall not exceed seventy percent (70%) of the output VAT: Provided, however, That any input tax attributable 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.]

[(C) Determination of Creditable Input Tax. – The sum of the excess input tax carried over from the preceding month or quarter and the input tax creditable to a VAT-registered person during the taxable month or quarter shall be reduced by the amount of claim for refund or tax credit for value-added tax and other adjustments, such as purchase returns or allowances and input tax attributable to exempt sale.]

[The claim for tax credit referred to in the foregoing paragraph shall include not only those filed with the Bureau of Internal Revenue but also those filed with other government agencies, such as the Board of Investments and the Bureau of Customs.]

SECTION 7. Sections 111 and 112 of the same Code are hereby repealed. –Manila Times