December 4, 1989

REVENUE REGULATIONS NO. 09-89

SUBJECT : Guidelines in determining refundable/creditable input

taxes attributable to zero-rated transactions.

SECTION 1. Scope. — Pursuant to the provisions of Section 245,

in relation to Section 4, both of the National Internal Revenue Code, these
Regulations are hereby promulgated to prescribe the guidelines in determining the
refundable/creditable input taxes attributable to zero-rated transactions. casia

SECTION 2. Sec. 16 (c) (5) of Revenue Regulations (RR) No.

5-87, as amended by RR 3-88, is hereby further amended to read as
follows:

'Sec. 16 (c) (5). In applicable cases, where the applicant's

zero-rated transactions are regulated by certain government agencies, a
statement therefrom showing the amount and description of sale of goods
and services, name of persons or entities (except in case of exports) to whom
the goods or services were sold, and date of transaction shall also be
submitted.'

SECTION 3. Section 16 of RR No. 5-87, as amended by RR 3-88, is

further amended by adding a new paragraph to be known as Section 16 (c) (6);
to read as follows:

Sec. 16 (C) (6). Determination of attributable input tax. — In

general, the amount of refund or tax credit shall be limited to the amount of
the value added tax (VAT) paid attributable to zero-rated transactions during
the period covered by the application for credit or refund. cda

Purely zero-rated transactions. Where the applicant is exclusively

engaged in zero-rated or effectively zero-rated transactions, he shall be
entitled to the entire amount of the value-added tax paid on purchases of
goods and services, as well as on importations, notwithstanding the
existence of an inventory of goods at the end of the quarter in which the
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 zero-rated transactions were made, subject to the submission of a sworn
statement attesting to the subsequent actual exportation or consumption of
goods in the inventory and supported by appropriate export documents.

"For purposes of this paragraph, a VAT-registered person shall be

considered as exclusively engaged in zero-rated or effectively zero-rated
transactions if there are no taxable or exempt sales not only during the
quarter covered by the claim but also that of the immediately preceding last
three quarters prior to the claim. Incidental sales of obsolete or non-moving
supplies, equipment, "scraps", and by-products of processed, manufactured
or milled goods, etc., which are shown to have been subjected to
value-added tax, shall not be considered for purposes of determining if the
VAT registered person shall be considered as exclusively engaged in
zero-rated of effectively zero-rated transactions.

'ii. Mixed Transactions.

'a) Where the taxpayer is engaged in zero-rated or effectively

zero-rated sale, as well as in taxable domestic and exempt sale of goods and
services, and the amount of the allowable input tax paid cannot be directly
and entirely attributed to any one of the transactions, it shall be allocated
proportionately to each category of transaction.

Example 1:
Zero-rated sales P100,000
Taxable domestic sales 200,000
Exempt sales 100,000
Input tax 32,500
Inventory, end None
Claim for refund/tax credit 3,255
'Step 1 Determine the input tax attributable to taxable domestic,
exempt and zero-rated sales.
'A. Taxable Domestic Sales Allowable Input Tax
————————— x Input tax = attributable
Taxable Domestic + Zero- to taxable
rated + Exempt Sales domestic sales

200,000
———— x 32,500 = P16,250
400,000
'B. Exempt Sales Allowable Input tax
————————— x Input Tax = attributable to
Taxable Domestic exempt sales
+ Zero-rated + Exempt
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 Sales
100,000
———— x 32,500 = P8,125
400,000
'C. Zero-rated Sales Allowable Input tax
————————— x Input Tax = attributable to
Taxable Domestic zero-rated sales
+ Zero-rated + Exempt
sales
100,000
———— x 32,500 = P8,125
400,000
'b) If there are inventories on hand at the end of the quarter
covered by the claim, the allocation of input tax shall also be determined in
accordance with the foregoing paragraph. In addition 60% of the
work-in-process and finished goods inventories shall be presumed to be the
standard raw material content thereof, without prejudice to the
documentation of a different percentage of raw material content.

Example 2:

Assuming the same facts as in Example 1 except that the taxpayer

has the following inventories at the end of the quarter:

Ending inventories:
Raw materials P5,000
Work-in-process 4,000
Finished goods 3,000
Supplies 2,000
The input tax attributable to the ending inventories and the different
categories of transactions shall be determined as follows:

Follow the procedure provided for under Step 1 of Example 1, and

'Step 2 Determine the input tax attributable to ending

inventories.

Input tax on ending inventories:

Raw Materials P5,000
Work-in-process 2,400*
Finished Goods 1,800**
Supplies 2,000
———
Total P11,200

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 Value-Added Tax Rate 10% x
———
Input tax on ending inventory P1,120
======

* Work-in-process x 60% = Raw material content in work in process

** Finished goods x 60% = Raw material content in finished goods

'c) Items included in the ending inventory of raw materials and

supplies which are zero-rated under RR 2-88 or exempt under Sec. 103
of the Tax Code or under other special laws shall be excluded from the
inventory in computing the attributable input tax credit.

'd) The amount of refundable or creditable input tax shall be net of

input tax attributable to taxable domestic and exempt sales. However, when
the output tax on taxable domestic sales is greater than the input tax
attributable to said transactions, the difference thereof shall be deducted
from the refundable or creditable input tax.

Example 3:

Using the same facts in Examples 1 and 2, the excess of output tax
over the input tax attributable to taxable domestic sales shall be computed as
follows:

'Step 3 Determine the VAT payable in domestic sales to be

deducted from the refundable or creditable amount.
Output tax (P200,000 x 10%) P20,000
Input tax (par. ii, Step 2A) 16,250
————
Excess of output tax over input
tax attributable to taxable
domestic sales P3,750
=======
Example 4:

Under the same set of facts as in Examples 1, 2 and 3, the net

refundable or creditable input tax shall be computed as follows:
Input tax per VAT return P32,500
Less: Input tax not attributable to export sales:
Input tax attributable to taxable domestic sale P16,250
Input tax attributable to exempt sales 8,125
Input tax on ending inventory 1,120

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 Excess of output tax over input tax attributable
to taxable domestic sales 3,750 29,245
———— ————
Net amount refundable or creditable P3,255
=======
The following entries shall be made to reflect the foregoing
transactions:

A. Upon filing of VAT return:

Output tax P20,000

Input tax P20,000

To record the amount of output tax on taxable domestic sales

amounting to P200,000 reported for the quarter.

Purchase or Cost of Sales P8,125

Input tax P8,125

To record input tax attributable to exempt sales.

B. Upon filing of application for refund or tax credit:

Receivable (TCC/Refund) P3,255

Input tax P3,255

To record the amount of input taxes claimed for refund or tax credit.
Input tax attributable to zero-rated sales P8,125
Less:
Excess of output tax over input tax
attributable to taxable domestic sales P3,750
Input tax on ending inventory 1,120 4,870
——— ———
Claim for refund/tax credit 3,255
=====
C. Case 1

Upon receipt of the tax credit or refund where there are no

disallowances:
Cash or TCC P3,255
Receivables (TCC/Refund) P3,255
To record the amount of refund or tax credit received.

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 Case 2

Upon receipt of the tax credit or refund where there are disallowed
input taxes of P2,500 upon verification of claim.
Purchases or Cost of Sales P2,500
Receivables (TCC/Refund) P2,500

To close unallowable input tax upon verification of claim.

Cash or TCC P755
Receivables (TCC/Refund) P755
To record the amount of refund or tax credit received.

'iii. Input tax on services. — The input tax paid on services shall be
deemed entirely attributable to the purely zero-rated sales and therefore
creditable refundable in full to the taxpayer. In case of mixed transactions, it
shall be computed in proportion to the amount of each category of sale.'

SECTION 4. These Regulations shall take effect immediately upon

approval.

(SGD.) VICENTE R. JAYME

Secretary of Finance

Recommending Approval:

(SGD.) JOSE U. ONG

Commissioner of Internal Revenue

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