Gov't eyes amending rules on input VAT claims

The government is set to amend the implementing rules and regulations of the reformed value added tax law to ease the impact of the 70 percent cap on input VAT claims on companies’ bottom line. Although the new VAT law is crucial to the Arroyo administration’s fiscal consolidation program, Finance Secretary Margarito Teves said Tuesday that the government is looking at the possibility of allowing businesss to use the 30 percent that they cannot claim as input VAT as deductible expense. “While we need this strong medicine to address our country’s fiscal and infrastructure shortcomings, we are currently working to address the more pressing issue of the 70 percent cap on input VAT," Teves said. The finance secretary said the Department of Finance (DOF) is working with the Bureau of Internal Revenue (BIR) to amend the guidelines of Republic Act 9337, or the Expanded Value Added Tax Act of 2005. Input VAT is the amount of sales tax shouldered by a firm every time it purchases a good or a product that already includes the 12-percent VAT in the price. Output VAT is the gross VAT liability of a firm computed as the 12 percent of its gross sales. Under the new law, the maximum amount of input VAT credits that any business could claim in a given tax period is only equivalent to 70 percent of its output VAT. Under the Revenue Regulation 16-2005 of the BIR, the 70 percent ceiling on input VAT claims would only be imposed if inputs such as raw materials and electricity costs exceed the output VAT claims. The proposal would allow businesses to use unclaimed input VAT credits as deductible expense from their taxable income to result in a lower income tax obligation. “To make this less cumbersome for businesses, we are working with the BIR to amend the IRR so that businesses can treat this as a deductible expense," Teves added. Foreign chambers led by the American Chamber of Commerce of the Philippines as well as local business groups such as the Philippine Chamber of Commerce and Industry (PCCI), Federation of Philippine Industries (FPI), and Makati Business Club (MBC) have strongly opposed the imposition of the 70 percent cap. The ceiling was imposed to avoid abuses wherein taxpayers claim input VAT in excess of their output VAT, forcing the government to refunds the claims made by taxpayers. The imposition of the 70 percent input VAT claim is supposed to rise over P6.5 billion this year. Teves pointed out that the government is also working to reduce the cost of doing business in the Philippines as the new VAT law also jacked up the corporate income tax to 35 percent last November 1 and would be reduced to 30 percent starting 2009. The new VAT law is the centerpiece of the fiscal consolidation program of the Arroyo administration aimed at achieving a balanced budget by 2008 or two years ahead of the original 2010 schedule under the Medium-Term Philippine Development Plan (MTPDP). -GMANews.TV