New VAT Law

[becu]

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duuuuuhh.......Do we really get VALUE for that ?
It ...uhhh...says....ummm....Value Added.....so uhhh... do I get more value for my cheeseburger ?

[giver_bert]

Surprises in the new VAT law.. tsk tsk..

The new Expanded VAT Law (RA 9337) designed to raise additional revenue for the
government will be effective starting July 1, 2005, but the swift action aimed to raise the
much needed government revenue might carry some surprises as it seems the new law is
not simply about increasing rates which is something not so known to most taxpayers.
Apart from the expanded coverage and the increase in VAT rate from 10% to 12%, and
the increase in corporate income tax rate from 32% to 35%, the new VAT law has also
introduced significant changes affecting the very concept of the (VAT) system.

One notable modification introduced by the new law is the requirement of spreading
input tax credit for VAT paid on capital goods over five years. Under the new law, the
input tax on goods purchased or imported for use in trade or business for which deduction
for depreciation is allowed, shall be spread evenly over 60 months starting from the
month of acquisition, or the useful life of the asset, whichever is shorter. This applies if
the aggregate acquisition cost of such assets (excluding VAT) exceeds PhP1,000,000 in
one month.

This is clearly a deviation from the tax credit system under which the VAT works which
allows the tax paid by one person or entity on its purchases (input tax) to be credited
against the tax on its sales (output tax).

Under Section 112(B) of the existing law (but not for long), a VAT-registered person can
apply for a refund, or the issuance of a Tax Credit Certificate of input taxes paid on
capital goods within two years after the close of the taxable quarter when the purchase
was made. This option was, however, completely deleted in the new law. Starting July 1,
2005, input taxes on capital goods can no longer be refunded, and will now have to be
equally distributed over the prescribed period.

These changes have brought more questions on how the (VAT) system should really
work. Take for instance, how would the input VAT on the purchases of capital goods be
treated or recovered in the case of an enterprise whose sales are purely zero-rated? Given
the nature of an enterprise with zero-rated sales as being in a VAT refundable position at
any given time, how will they be able to recover in the timely and efficient manner, the
costs of capital goods purchased? Can the Bureau of Internal Revenue (BIR) allow a full
refund of the input tax on the premise that the capital goods purchased or imported was
directly attributable to its zero-rated sales?

The right to claim a tax refund or credit is critical to all VAT-registered persons,
particularly those with zero-rated sales, given its refundable VAT position at any point in
time. Whilst other input taxes paid on their (enterprises with zero-rated sales) non-capital
goods are refundable, it can be argued that the input VAT on capital goods, and its
recoverability therefore becomes an issue. The new law thus creates a potential
significant impact on all enterprises’ costs of doing business and cash flow position,
particularly for enterprises with zero-rated sales.

To make matters worse, the draft RR provides that in case the capital good is sold before
the end of the amortization period, the remaining input tax shall continue to be amortized.
Where then will the seller source input taxes to offset the output tax from the sale of the
asset?

Furthermore, how will the no refund rule apply on input taxes on capital goods acquired
prior to July 1, 2005?. Although the law does not provide for its retroactive application,
many taxpayers are apprehensive whether a claim for refund can still be instituted after
the effectivity of the new law.

These are only some of the unfortunate consequences of the amendments of the VAT
law. The changes in the law tinkers with the very nature of the VAT system, and thus, the
VAT system may no longer be operating as it should. It is hoped that the BIR will
streamline its policies and tackle these gray areas in order to minimize the negative
impact the new VAT law will have on all taxpayers.

[LytSlpr]

I'm okay with VAT as long as they already saturated tax collection and has already neutralized tax evaders but now is not yet the time to impose the E-VAT because they have not done EVERYTHING yet.

just my 2 cents...