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Are your invoices compliant?

Are your invoices compliant?


The New VAT law, Republic Act No. 9337, which finally took effect last November 1, 2005, introduced a lot of changes. One of the changes which a taxpayer must deal with aside from the increased corporate income tax rates and the broader scope of the VAT, is the new rules on invoicing.

Prior to the effectivity of RA 9337, some taxpayers thought that they have a choice whether to issue a VAT invoice or a VAT official receipt. Under the new law, it is stressed that, for VAT purposes,  a VAT invoice must be issued for any sale or exchange of goods or properties while a VAT official receipt must be issued for sale of services and the lease of goods or properties.

A VAT invoice or the VAT official receipt to be issued for any sale transaction must contain the name, business style and address of the seller, a statement that the seller is a VAT-registered person, followed by his TIN. The date of the transaction, quantity sold, unit cost, the description of the goods or properties or nature of the services, and the purchase price plus VAT must also be included therein. Additionally, if the buyer is VAT-registered or where the amount of sale exceeds P1,000.00, it is necessary to place in the VAT invoice or official receipt  the name of the buyer, its TIN, business style and address.

One major difference in the receipts and invoices to be issued now is the requirement to present the breakdown of the total cost into the price of the goods or services sold and the VAT component thereof. The use of one invoice/OR for various items, whether VAT, non-VAT or VAT exempt is also now allowed, provided that the breakdown of the items into VAT, non-VAT and VAT exempt, as well as the total of each is clearly indicated in the invoice/OR. For transactions involving the sale of a few items, these new rules seem quite simple. However, for sale transactions involving several items, the taxpayer has to plan how to best format his invoice in order for all these information to be captured in the invoice. For sellers of services, complying with these new rules may pose a significant change in its systems considering that the old practice was to simply indicate in the official receipt the amount of payment received from the buyer.
These new invoicing rules should be clearly understood not only by VAT registered taxpayers but also by non-VAT taxpayers who should equally be cautious in the invoices/receipts that they issue. A non-VAT taxpayer who issues a VAT receipt or invoice, whether or not such was made intentionally, shall be liable not only for the percentage tax which he is supposed to pay, but will also be liable to pay the 10% VAT without the benefit of any input tax credit, as well as the 50% surcharge on the VAT payable. As for VAT-registered taxpayers, in case they issue a VAT receipt or invoice for an exempt transaction and they fail to indicate in the invoice/OR that the transaction is a VAT exempt sale, that taxpayer shall be liable to pay the 10% VAT. Thus, for “VAT-exempt sales” and even “zero-rated sales”, it is very important to write or print in the receipts to be issued the phrase “VAT-exempt sale” or “Zero-rated sale”, as the case may be.

The good thing about the new invoicing rules and regulations is that it gives the taxpayers ample time to make the necessary changes in order to adopt and be compliant. Thus, taxpayers who used to be VAT registered but are now no longer subject to VAT may still continue to use and issue their available VAT receipts and invoices until December 31 of this year, as long as the word “Non-VAT registered as of November 1, 2005” is clearly stamped on the invoice/OR. On the other hand, taxpayers who were non-VAT registered but are now subject to VAT may still issue their old invoices until December 31, 2005, provided the phrase “VAT registered as of November 1, 2005” is stamped on these invoices. For those taxpayers who are using invoices or r eceipts generated by CRM/POS and other sales machines, they are given until December 31 of this year to re-configure their machines in order conform to the invoicing rules under the new VAT law.

These changes imposed by the new VAT law on invoicing may be a hassle and difficult to implement but with the time provided for the taxpayers to make the necessary changes, it hoped that compliance by January 1, 2006 will be ensured. These invoicing rules, when correctly implemented, will address previously observed disparity on the VAT payments being declared by VAT-registered sellers and the input tax claimed by VAT-registered buyers. Hopefully, this will plug one of the leakages in the VAT system and help generate the expected collection from this tax.

(The author is a tax manager at Punongbayan & Araullo, member of Grant Thornton International.  For comments and inquiries, please e-mail the author or call 886-5511.)