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    Can we compel suppliers not to add Input VAT on all our purchases?

    Sir Vic,

    May I inquire about our status as a private hospital doing VAT-exempt activity (i.e. Medical, dental and other health activities). Can we compel suppliers and contractors not to add Input VAT on all our purchases of goods and services? What document/s do we need to show them? Thank you.

    Edwin Magsino
    UPMC-Iloilo

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    Chief viclogic's Avatar
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    Can we compel suppliers and contractors not to add Input VAT on all our purchases of goods and services?

    I'm afraid you can't. Since they are VAT registered suppliers, they are required to file and pay net VAT due to the government. And since VAT is an indirect form of tax, sellers can pass on the burden of VAT to the consumers whether they are VAT or NonVAT consumers.

    The burden of VAT is actually transferred to the end or final consumers. Consumers who are VAT registered can claim input taxes and further transfer the burden of VAT to final consumer, but those that are nonVAT cannot. In other words, it is actually the end consumers that shoulder VAT: nonVAT registered businesses and ordinary consumers who purchase goods or services from VAT suppliers. For example, children can experience the burden of VAT if they will buy ice-cream from a VAT registered grocery store. Children will have no use for input tax.

    However, for nonVAT registered businesses or taxpayers, if they cannot claim or have a use for input tax from their purchases directly related to their business, at least they can recognize the cost/price with the value added price from VAT as expenses which may be deductible to their taxable income.
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    New Member carranzo18's Avatar
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    Quote Originally Posted by Edwin Magsino View Post
    Sir Vic,

    May I inquire about our status as a private hospital doing VAT-exempt activity (i.e. Medical, dental and other health activities). Can we compel suppliers and contractors not to add Input VAT on all our purchases of goods and services? What document/s do we need to show them? Thank you.

    Edwin Magsino
    UPMC-Iloilo
    Hi Edwin,

    As far as I know, you can compel them not to pass the VAT on your purchase of good as long as you can prove that you are a VAT EXEMPT entity. Your supplier in their tax return will file this in their VAT return as SALES from VAT EXEMPT entity therefore BIR can not compel them to pay VAT on their sales from you.

    What I'm not familiar is the forms that needed for you to prove that you are a VAT EXEMPT entity.
    http://milyonaryo.webs.com/

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    Chief viclogic's Avatar
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    Quote Originally Posted by carranzo18 View Post
    Hi Edwin,

    As far as I know, you can compel them not to pass the VAT on your purchase of good as long as you can prove that you are a VAT EXEMPT entity. Your supplier in their tax return will file this in their VAT return as SALES from VAT EXEMPT entity therefore BIR can not compel them to pay VAT on their sales from you.


    What I'm not familiar is the forms that needed for you to prove that you are a VAT EXEMPT entity.
    Hi Jobel, do you have a BIR ruling that states "VAT exempt entities can compel them not to pass the VAT on your purchase of good as long as you can prove that you are a VAT EXEMPT entity"? Thanks

    Also, in the VAT returns, there is no section/column for "
    SALES TO VAT EXEMPT entity". What is in there is "VAT EXEMPT Sales" or the supplier's sales of goods or services that are not subject to VAT to consumers.

    Since the Private Hospital is a VAT exempt entity, they are considered the ultimate consumer of those goods or services from VAT registered suppliers. Thus, they will be the one who will actually shoulder the burden of VAT. They cannot claim those input taxes as deductible to their output tax since they don't have output tax in the first place as an entity engaged in VAT exempt activity. However, they can still use or recognize those input tax or value added price as cost or expenses which are deductible to their taxable income for purposes of income tax computation.

    Anyway, if there is really a ruling that they can compel not to charge VAT exempt entities with output tax from VAT registered suppliers, I would be glad to know it.
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    Thanks a lot Sir Vic and Jobel!

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    New Member carranzo18's Avatar
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    Quote Originally Posted by viclogic View Post
    Hi Jobel, do you have a BIR ruling that states "VAT exempt entities can compel them not to pass the VAT on your purchase of good as long as you can prove that you are a VAT EXEMPT entity"? Thanks

    Also, in the VAT returns, there is no section/column for "
    SALES TO VAT EXEMPT entity". What is in there is "VAT EXEMPT Sales" or the supplier's sales of goods or services that are not subject to VAT to consumers.

    Since the Private Hospital is a VAT exempt entity, they are considered the ultimate consumer of those goods or services from VAT registered suppliers. Thus, they will be the one who will actually shoulder the burden of VAT. They cannot claim those input taxes as deductible to their output tax since they don't have output tax in the first place as an entity engaged in VAT exempt activity. However, they can still use or recognize those input tax or value added price as cost or expenses which are deductible to their taxable income for purposes of income tax computation.

    Anyway, if there is really a ruling that they can compel not to charge VAT exempt entities with output tax from VAT registered suppliers, I would be glad to know it.

    Thanks for the info Sir Vic, actually I'm not familiar with BIR rulings yet because I'm still a rookie regarding the practice of our profession, all I can share is purely written theories without any experience yet. This is just my idea that I think is reasonable enough.

    What I mean sir on "SALES to VAT EXEMPT entity" is it can be categorized in the VAT return as "VAT Exempt Sales". One example is when a fastfood company sold meals to a senior citizen. The fastfood chain is compelled not to pass the VAT on the person because of certain exemption that the law provides to the person and in turn this company will categorized as VAT Exempt Sales in their VAT Return (My father is senior citizen and I saw it in his receipts when we ate in any fastfood restaurants). If it is applicable to any persons who enjoy tax exemption because of certain law then it can also be applicable to any entities which enjoy tax exemption because of certain laws. One example is cooperative, RA 9520, exempt them in national, city, provincial, municipal or barangay taxes of whatever name and nature.
    Though, I'm not familiar regarding law about Vat Exempt Hospital.

    Anyway, this is just my own theory regarding what I know and I don't know if it is applicable to the actual practice. I don't have any experience yet to back up this but I hope it can help Edwin's concern.
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    Hi Jobel. I'm glad that you are sharing your knowledge and thoughts about this topic. Even I is not already active in the actual accounting and taxation practice since I am already concentrating on writing and online marketing these past few years. Thus, I'm thankful when people share their knowledge - it keeps me updated.


    Anyway, it's true that senior citizens, through R.A. 9994 Expanded Senior Citizens Act of 2010, are eligible for 20% discount and VAT exemption. Hence, they can compel VAT registered establishments to exempt them from paying VAT in accordance with the act. Now, the VAT registered establishments will record these sales as "VAT Exempt Sales" in their books and in the VAT Return. Here, the VAT registered establishments become the ones who will shoulder the VAT. In other words, the transferable VAT will stop on them. Because these VAT registered establishments paid VAT for their purchases from their VAT registered suppliers, they got Input VAT from those purchases. However, they cannot use these input VAT as credits to their VAT Exempt Sales (this is why the transferable VAT will stop on them and they will shoulder the burden of VAT). What they can do to these input VAT is to recognize them as cost or expense which are deductible to their taxable income for income tax computation purposes if they opt for itemized deduction in the ITR.


    What happen to those VAT registered establishments that have VAT Exempt Sales to senior Citizens but incurred INPUT VAT from their purchases from VAT registered Suppliers... this is also what happen to private hospitals that have VAT Exempt Sales but incurred INPUT VAT from their VAT registered suppliers. They both cannot use those INPUT VAT to their VAT exempt sales, but they can recognize them as cost or expense which are deductible to their taxable income in the computation of their income taxes if they opt for itemized deductions.
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