Amortized input VAT no more
THE Train Law, which took effect on Jan. 1, 2018, introduced quite a number of changes to the Philippine tax system. It was expected that more money would be in the hands of consumers. The Department of Finance's solution to rising prices was done via a P250,000 tax-exempt threshold and lower income tax rates for individuals in the lower brackets, while tax rates for those in the higher brackets were raised. It was said that this favored middle- to low-income earners while extracting more taxes from those that earn more.
Package 2 of the Train Law, meanwhile, focused more on the corporate side, specifically on improving incentives and tax rates. From 30 percent, this was lowered to 20 to 25 percent and other incentives were offered. To counter the lower rates, excise taxes were increased. One major update was the imposition of excise tax on sweetened beverages such as juice drinks, carbonated beverages, flavored water and energy/sport drinks. The rationale was that Filipinos were getting obese and generally unhealthy from these products.
One of the changes provided by the Train Law involves the amortization of input VAT (valued-added tax) for the purchase or importation of capital goods. Prior to the law's implementation, the Tax Code, in conjunction with Revenue Regulation 16-2005, provided that the input VAT on depreciable assets purchased or imported in a calendar month where the acquisition cost exceeds P1 million (exclusive of VAT) would be amortized evenly over 60 months and that the claim for input tax credit would commence in the calendar month when the capital goods were acquired. If the estimated useful life was less than five years, the input tax could be spread evenly on a monthly basis based on the capital asset's useful life.
Now, under Revenue Regulations 13-2018, it was provided that amortization of input VAT would only be allowed until Dec. 31, 2021. After this, taxpayers with remaining unamortized input VAT on capital goods purchased or imported would be allowed to apply the same as scheduled until fully utilized. In the case of purchase of services, lease or use of properties, however, the input tax will be creditable to the purchaser, lessee or licensee upon payment of the compensation, rental, royalty or fee.
The amortization was no longer applicable starting January 1. Consequently, purchases of capital or depreciable goods are now fully claimable at the month when the purchase was made.
With input VAT fully recognizable at the month the purchase of the capital goods was made, this will result in a more proper matching of the output tax by the seller and the input tax by the purchaser of the capital goods. This will result in lower input tax revenues for the meantime but in the long run will have the same overall impact in terms of VAT payable. This is something that can be viewed as a welcome and positive change since it simplifies the accounting for VAT on depreciable goods. The extra time is very important for accountants since every work improvement and efficiency will yield better results in terms of quality and productivity.
The pandemic impacted all our lives but it also yielded unprecedented changes and improvements. Work from home, online commerce and online marketing are here to stay. Although the improvement on VAT amortization was provided prior to the pandemic, it is surely a positive implementation in an economy where a lot of companies are losing out from failing to adapt. Let us hope that more of these tax reforms are implemented and our economy benefits. In any case, aren't all tax reforms supposedly beneficial?
Carl Angelo Cabusas is the audit and digital transformation director of Paguio, Dumayas and Associates, CPAs (PDAC) – PrimeGlobal Philippines and a member of the Acpapp. The views and opinions in the article are his and do not represent that of PDAC and the Acpapp.