Certified Public Accountants

October 21, 2005

tax alert
Revised VAT regulations
Following the final order issued by the Supreme Court last October 18, 2005 for the lifting of the TRO and the full implementation of the revised VAT law (Republic Act No. 9337), the BIR published today a revised VAT regulations (Revenue Regulations No. 16-2005). This supersedes RR 14-2004 issued in June prior to the July 1 effectivity of the law. The following are some of the major changes and clarifications introduced in the new regulations: 1. On the effectivity The regulations shall take effect beginning November 1, 2005. 2. On the 70% cap on input taxes The application of the 70% cap on allowable input taxes was confined to taxable quarters where the input tax inclusive of input tax carried over from previous quarter exceeds the output tax. Hence, if output tax exceeds the input tax, the total input tax can be credited against output tax and the balance shall be paid by the VAT-registered person. 3. On the effective zero-rating of sales to PEZA/SBMA enterprises The additional conditions for effective zero-rating of sales to ecozone enterprises were deleted. Under RR 14-2005, it was further required that the enterprise be registered as an export enterprise/producer and located in the restricted area of the zone. Qualification for effective zero-rating requires prior application with the BIR. 4. Overseas dispatch/message - The imposition of 10% VAT on overseas dispatch/message/conversation originating from the Philippines was repealed since these are already subject to percentage tax. 5. Pre-need companies and HMOs It was reiterated that pre-need companies and health maintenance organizations (HMOs) shall be subject to VAT on their premium

payments received from plan holders (pre-need) and enrollment fees and other charges received from members (HMOs). 6. Threshold for VAT exemption It was clarified that, for purposes of the P1.5 M threshold for VAT exemption, the husband and wife shall be considered separate taxpayers. 7. Input taxes on capital goods If the capital good is sold/transferred prior to the exhaustion of the amortizable input tax, the balance can be claimed as input tax credit during the month/quarter of sale but subject to the 70% cap if applicable. 8. Transferability of TCCs The prohibition on the transferability of Tax Credit Certificates (TCCs) arising from zero-rated transactions was deleted.

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