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Withholding VAT on Government Transactions

The document discusses issues related to implementing the withholding VAT on government transactions according to Republic Act 9337 or the expanded VAT law in the Philippines. It notes that under the new law, the government must deduct and withhold a 5% final VAT before making payments for goods and services subject to the 10% VAT. This 5% represents the seller's net VAT payable, with the remaining 5% becoming allowable input VAT. However, the document outlines complications that can arise for taxpayers when goods are purchased and sold to the government in different quarters, and how to properly account for input taxes. It calls for clearer guidelines from tax authorities on processes like determining the 5% allowable input taxes and reporting sales to government.

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171 views2 pages

Withholding VAT on Government Transactions

The document discusses issues related to implementing the withholding VAT on government transactions according to Republic Act 9337 or the expanded VAT law in the Philippines. It notes that under the new law, the government must deduct and withhold a 5% final VAT before making payments for goods and services subject to the 10% VAT. This 5% represents the seller's net VAT payable, with the remaining 5% becoming allowable input VAT. However, the document outlines complications that can arise for taxpayers when goods are purchased and sold to the government in different quarters, and how to properly account for input taxes. It calls for clearer guidelines from tax authorities on processes like determining the 5% allowable input taxes and reporting sales to government.

Uploaded by

Ckey Ar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Implementing withholding VAT on gov.

transactions
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 Implementing withholding VAT on gov. transactions

Implementing the withholding VAT on government transactions

by: SHIRLEY S. GO

Like the issue on charter change, Republic Act (RA) 9337, more popularly known as the value
added tax (VAT) or the expanded VAT law has continued to stir debate among all sectors of the
business community. One particular area of concern is the provision on the sale of goods and
services to the government.

Under the new VAT law, the government or any of its political subdivisions, instrumentalities or
agencies, including government-owned or controlled corporations (GOCCs) is required to deduct
and withhold a final VAT at the rate of five percent (5%) before making a payment on each
purchase of goods and/or services subject to the 10% VAT.

The 5% final VAT deducted by the government shall represent the net VAT payable of the
seller. Notably, the remaining 5% effectively becomes the allowable input VAT that a taxpayer
can claim against the 10% VAT imposed on its sale to the government. This will cover the input
taxes directly and indirectly attributable to the goods sold to government. Should the actual input
VAT incurred by the seller on its transaction with the government exceed 5% of the gross
payments, the excess is allowed to form part of the seller’s cost. Conversely, in case that actual
input VAT is less than 5% of the gross payments, the difference must be treated as income of the
seller.

The computation of the VAT on these transactions seems easy if the goods sold to government
are purchased in the same quarter that they are purchased. In such case, the taxpayer can easily
ascertain if the input taxes related to the transaction exceed the maximum 5% that he can claim.
However, in circumstances where the goods are purchased in a quarter different from the time
that they are sold to government, the reckoning of the 5% input tax limit may be more
complicated.

In practice, the taxpayer keeps an inventory of goods that he makes available for sale to
interested buyers. At the time of purchase, he has not yet identified the buyer and, as such,
should be able to recognize the full amount of input taxes relating to the goods purchased. The
taxpayer then markets the goods to potential buyers and, in the process, incurs marketing and
other expenses, before he is able to sell them. In undertaking these activities, he incurs additional
expenses, some of which may generate additional input taxes. If the buyer is a government
agency, under the new rules, he must then evaluate the amount of input taxes he has recognized
in relation to the goods sold. Should the taxpayer then trace when these goods (sold to
government) were purchased? In computing for the input taxes not directly attributable to the
goods sold but which can be considered in computing for the 5% input tax limitation, should it
consider all the input taxes recognized from the time the goods were purchased until they are
sold? If the input tax claimed is higher or lower than 5%, will it reflect the adjustment in its
taxable income in the quarter when the goods were sold? Does it have to keep records to
establish the input taxes constituting the 5% allowable input taxes?

The process of determining the 5% allowable input taxes on sales to government could be a
tedious process, but can be done with proper guidelines from the BIR.

Additionally, it is hoped that the BIR will clarify when the sales to government should be
reported - in the period when the sale is made (i.e., invoice date) or the period when payment is
made. The law, as stated, says that the 5% is a final VAT which is applied on payments made by
government, it is not a creditable VAT.

While we await the decision of the Supreme Court on the VAT, it is hoped that the BIR will
review the regulations that it had earlier issued and come up with answers to these practical
questions.

(The author is a tax manager at Punongbayan & Araullo, member firm of Grant Thornton
International. For comments and inquiries, e-mail [email protected] or call 886-8811.)

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