Q&A ON PROCESSING OF VAT CREDIT ON UNCOLLECTED RECEIVABLES UNDER THE EASE OF PAYING TAXES ACT

  • July 1, 2024

As our tax system shifts toward an accrual basis for both the sale of goods and services as a basis for determining Value-Added Tax (VAT) liability, so does the necessity to adopt a measure that will enable a seller-taxpayers to recoup the VAT it has been paid in advance to the government due from uncollected receivables. Below is the relevant information on processing VAT credit on uncollected receivables.

  1. What is the rationale of Section 110(D) of the National Internal Revenue Code?

    2. The Value-Added Tax (VAT) is now to be paid whether the payment has been received or not. This means that sellers on credit have to pay the VAT even if the buyer has not yet made a payment.

  2. Who can claim or deduct output VAT on credit of uncollected receivables?

    3. The seller has the option to deduct from the output VAT of the next quarter after the lapse of the agreed-upon period to pay. The output VAT credit on uncollected receivables shall only apply to sales of goods and/or services on account that transpired after 27 April 2024. Thus, transactions before 27 April 2024, although remain uncollected, cannot be applied as VAT Credit.

  3. How will the seller document the particular sales on account claimed as vat credit?

    4. The seller will stamp the duplicate or triplicate copies of the invoice with the phrase “Claimed Output VAT Credit” and provide the buyer a copy for the purpose of adjusting and deducting the input VAT claimed. Conversely, the buyer can voluntarily reverse the input VAT claimed.

  4. What is the implication of buyer’s failure to adjust or deduct the input VAT from an uncollected receivable?

    5. The buyer is facing the consequences of disallowance of input VAT if the seller makes use of the option, and the buyer fails to adjust the input VAT as required by the Regulation. The buyer shall be liable for deficiency VAT due including penalties.

  5. What is the implication if there is a partial or full collection of the previously uncollected receivable for which the output vat credit has already been made?

    6. In case of partial or full recovery of the uncollected receivable, the output VAT pertaining to that partial collection must be added to the output VAT during the period of recovery.

  6. What are the requisites to credit the VAT paid on uncollected receivables?
    1. The sale or exchange has taken place after the effectivity of RR No. 3-2024 on 27 April 2024.
    2. The sale is on credit or on account;
    3. There is a written agreement on the period to pay the receivable;
    4. The VAT is separately shown on the invoice;
    5. The sale is specifically reported in the Summary List of Sales covering the period when the sale was made and not reported as part of “various” sales;
    6. The seller declared in the BIR Form No. 2550Q or the quarterly VAT Return (QVR) the corresponding output VAT indicated in the invoice within the period prescribed under the existing rules;
    7. The period agreed upon, whether extended or not, has lapsed; and
    8. The VAT Component of the uncollected receivable was not claimed as a deduction from gross income pursuant to Section 34(E) of the Tax Code.

This article is for general information only and does not constitute professional advice. Therefore, the reader holds Morfe, Ceneta & Co., CPAs, including its partners, officers and employees free and harmless from any liability arising from one’s reliance on this article.