RMC No. 57-2013: Recovery of unutilized creditable input taxes attributable to VAT zero-rated sales

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For some reasons, a taxpayer may have excess input VAT at the end of any taxable quarter.  The question is, how are these excess input VAT be treated?

Excess input VAT may arise from the following:

  • VATable sales are less than VATable purchases
  • VATable sales are subject to 0% VAT (just in the case of zero-rated sales)
  • Sales are exempt from VAT
  • Excessive input VAT carried over from period to period and others…

Treatment for the these input VAT varies.  This discussion however will focus on what is the treatment or how can we recover unutilized creditable input taxes attributable to VAT zero-rated sales.

Revenue Memorandum Circular (RMC) No. 57-2013

Revenue Memorandum Circular (RMC) No. 57-2013 was issued by the Bureau of Internal Revenue dated August 23, 2013 entitled, Circularization of BIR Ruling No. 123-2013 dated March 25, 2013 on the Recovery of Unutilized Creditable Input Taxes Attributable to VAT Zero-Rated Sales, which discusses the tax treatment of unutilized creditable input taxes attributable to VAT zero-rated sales.  In summary, RMC No. 57-2013 discusses the following:

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  • Any input tax attributable to the purchase of capital goods or to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112.
  • Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax.

Those are the key messages of the RMC No. 57-2013.  In other words, unutilized creditable input VAT attributable to zero-rated sales:

  • can only be recovered through the application for refund or tax credit
  • no other mode of recovering unapplied input taxes
  • may not be treated outright as deductible expense for income tax purposes after the expiration of the two (2) year prescriptive period

Following are the statements in BIR Ruling No. 123-2013 dated March 25, 2013:

It is noted, based on the above-cited provisions, that unutilized creditable input taxes attributable to zero-rated sales can only be recovered through the application for refund or tax credit. Nowhere in the Tax Code can we find a specific provision expressly providing for another mode of recovering unapplied input taxes, particularly your proposition that unapplied input taxes may be treated outright as deductible expense for income tax purposes. Thus, your proposition, that accumulated and unapplied input value-added tax (VAT) arising from Cekas’ purchase of goods and services after the expiration of the two (2) year prescriptive period may be expensed outright, is hereby denied for lack of legal basis.”

It is a governing principle in taxation that tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favour of the taxing authority. The basic principle in the construction of laws granting tax exemptions has been very stable. He who claims an exemption from his share of the common burden of taxation must justify his claim by showing that the Legislature intended to exempt him by words too plain to be beyond doubt or mistake (City of Iloilo, et.al. vs. Smart Communications, Inc. G.R. No. 167260, dated February 27, 2009). And since a deduction for income tax purposes partakes the nature of a tax exemption, then it must also be strictly construed (CIR vs. Isabela Cultural Corporation, G.R. No. 172231 dated February 12, 2007).”

I think the case referred to above refers to a taxpayer who, after the expiration of the input VAT attributable to zero-rated sales, claimed these as deductible expenses for income tax purposes.

Key Reminders

It is important to note that the BIR Ruling No. 123-2013 dated March 25, 2013 as circularized by RMC No. 57-2013 emphasized that unutilized creditable input VAT attributable to zero-rated sales can only be recovered through the application for refund or tax credit.  As such, to prevent these input VAT from expiring, and eventually loss without any benefits, be reminded to:

  • Apply for tax credit certificate or refund
  • File the application within the time allowable by the law, i.e., within two (2) years after the close of the taxable quarter when the sales were made
  • Ensure that appropriate documents are kept to support the input VAT being claimed for credit or refund
  • Ensure that documents meet the invoicing requirements

In any tax investigation or assessment, nothing bets preparation and sufficient appropriate documentation in addition to proper tax treatment of whatever tax-related items in our financials.  There are really complex tax treatment for some items and we can consult our professional accountants to give us sound advice supported with relevant laws and regulations to keep us covered.  But what we can best do for ourselves is, keep our books clean, prepared and supported.  It’s something that will really help us avoid any tax trouble.

Be tax wise but be transparent! It’s just money, something you cannot bring to the afterlife.

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Disclaimer: Opinions expressed in this article are that of the author and information provided are for general conceptual guidance for public information and are not substitute for expert advice. Contact support@philcpa.org for more information and if you want to avail professional services. Find us on Facebook!



Orlando Calundan is a CPA who has exposures in FS audit of entities in various industries such as real estate, food/restaurants, manufacturing, service organizations and BPOs, automotive, holding/investment companies and more. He also has exposure on internal audit engagements.

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