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Preparing for VAT

Preparing for VAT

by: MARIVIC C. ESPAÑO

The wait for the Supreme Court (SC) decision on the validity of Republic Act No. 9337, more popularly known as the new VAT law, is still on and many are expecting the decision to be issued soon. Based on government pronouncements, the law shall immediately be implemented if its validity is affirmed. Should this happen tomorrow, are taxpayers covered by the VAT for the first time prepared to adopt the VAT? (i.e., electric cooperatives and electric franchise grantees; primary producers of non-food agricultural, marine and forest products in their original state; sellers of cotton and cotton seeds in their original state; local suppliers of petroleum products, natural gas and coal; artists, doctors and lawyers) Do they understand the requirements that they need to comply with as VAT taxpayers? Are they aware of the penalties that they may be exposed to in case of non-compliance?

First is the requirement to change registration from non-VAT to VAT. Under Revenue Regulations No. 14-2005 issued by the BIR to implement the new law, a taxpayer engaging in a business newly covered by VAT has to register as a VAT person if its annual gross sales or receipts during the immediately preceding twelve-month period exceeded P1,500,000. Change of registration can be made by simply filing with the appropriate BIR office the Application for Registration Information Update (BIR Form 1905) and surrendering of the old Certificate of Registration (BIR Form 2303). If the taxpayer has previously paid the registration fee as a non-VAT taxpayer, it shall no longer be required to pay the registration fee as VAT taxpayer. This registration update should be done before the deadline that BIR will set. If it fails to register, its sales/receipts dating from the effectivity of the new VAT law shall be subject to 10% output tax, without the benefit of any input tax credit on its purchases of VATable goods and services. Additionally, the percentage tax applicable, if any, shall also be imposed.

Once registered, a taxpayer is required to issue VAT sales invoices/official receipts with the information required under the law. However, in the transition, it is allowed to issue its existing non-VAT sales invoices/official receipts subject to the following conditions:

  1. It submits to the BIR before the deadline, an inventory of unused invoices or receipts indicating the number of booklets and their serial numbers; and
  2. It stamps the phrase “VAT-registered as of ____” on copies of sales invoices/receipts.

The non-VAT invoices/official receipts only can be used until December 31, 2005. After that, all unused invoices/receipts are required to be surrendered to the concerned BIR office for cancellation. If it fails to issue VAT invoices/receipts, it shall nevertheless be subject to 10% output tax. BIR shall also impose penalties for failure to comply with invoicing requirements. Additionally, its VAT-registered customers will be disadvantaged since, although they might have paid 10% VAT on their purchase, they cannot claim any input tax credits on such purchase! It is therefore advisable to arrange for the printing of VAT invoices/official receipts as early as possible.

Finally, the taxpayer should note that it is entitled to credit against its output tax a transitional input tax credit on its inventory of goods, materials and supplies as of June 30, 2005 or other date as may be prescribed later, equivalent to 2% of the value of such inventory or the actual VAT paid thereon, whichever is higher. However, the entitlement for transitional input tax is not automatic. The taxpayer has to file an inventory list as of June 30, 2005 with the concerned BIR office where it is registered within the prescribed deadline. He is also required to make a journal entry in his books of accounts recognizing such credit. If it fails to comply with these requirements, the benefit of such credit is lost.

There are several other requirements that a new VAT taxpayer s hould be aware of. Pending the implementation of the new VAT law, it would be advisable to plan ahead and understand the various requirements that it needs to comply with to avoid the costly consequences of non-compliance.

(The author is a tax partner at Punongbayan & Araullo, member firm of Grant Thornton International. For comments and inquiries, e-mail Marivic.C.Espano@pna.ph or call 886-5511.)