VAT Allocation on Mixed Transactions, the MCIT Floor, and a Late Waiver
Bayanihan Manufacturing Corp. (BMC) is a VAT-registered domestic corporation on a calendar-year basis. For 2025 it reported export sales of ₱40,000,000 to Japanese customers, sales of ₱30,000,000 to a PEZA-registered locator, and domestic sales of ₱90,000,000. Input VAT of ₱2,400,000 is directly attributable to the zero-rated sales, ₱6,300,000 to domestic sales, and ₱1,800,000 is common input tax on purchases used for both. BMC's books show net income of ₱12,000,000, which includes ₱1,000,000 of interest income on a bank deposit already subjected to final withholding tax and a ₱2,000,000 donation to a political party. Cost of sales was ₱110,000,000. BMC has a ₱300,000 excess minimum corporate income tax carried over from 2023 that has not yet been credited. BMC filed its 2025 return and paid the tax on 15 April 2026. On 10 March 2030 the Bureau issued a Letter of Authority; BMC's president signed a waiver of the statute of limitations on 20 March 2030 extending the assessment period to 31 December 2030, and the Bureau issued a deficiency assessment on 15 November 2030.
1. Compute the excess input VAT attributable to zero-rated sales and the net VAT payable on domestic sales. Explain the allocation and when a claim for the excess must be filed.
Read the worked answer
Output VAT: 12% × ₱90,000,000 = ₱10,800,000. Exports and sales to a PEZA locator are zero-rated and produce no output tax.
The common input tax must be allocated proportionately because it cannot be directly attributed: zero-rated sales of ₱70,000,000 ÷ total sales of ₱160,000,000 = 43.75%; domestic share 56.25%.
- Common input to zero-rated: 1,800,000 × 43.75% = ₱787,500
- Common input to domestic: 1,800,000 × 56.25% = ₱1,012,500
Domestic input VAT = 6,300,000 + 1,012,500 = ₱7,312,500, against output of ₱10,800,000 → net VAT payable ₱3,487,500.
Zero-rated input VAT = 2,400,000 + 787,500 = ₱3,187,500, which is refundable or creditable against future internal revenue taxes. The taxpayer may instead carry it over, but that election is irrevocable.
The claim must be filed within two years after the close of the taxable quarter in which the zero-rated sales were made - so for fourth-quarter 2025 sales, by 31 December 2027. The common error is to claim the full ₱1,800,000 common input against zero-rated sales, which would overstate the claim by ₱1,012,500 and leave the domestic VAT underpaid.
2. Determine BMC's 2025 income tax due, showing the normal and minimum corporate income tax computations and the treatment of the carryover.
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Taxable net income: 12,000,000 − 1,000,000 (interest already subject to final withholding tax, excluded from taxable income) + 2,000,000 (political donation, not deductible) = ₱13,000,000. Normal income tax at 25% = ₱3,250,000.
Minimum corporate income tax is 2% of gross income, which for this purpose is gross sales less cost of sales, excluding income already subjected to final tax: (160,000,000 − 110,000,000) − 1,000,000 = ₱49,000,000. MCIT = 2% × 49,000,000 = ₱980,000.
The MCIT applies only when it exceeds the normal tax. Here the normal tax is higher, so the normal income tax of ₱3,250,000 is due. The ₱300,000 excess MCIT from 2023 is credited against the normal income tax because it falls within the three immediately succeeding taxable years (2024 to 2026); it expires at the end of 2026.
Tax still due: 3,250,000 − 300,000 = ₱2,950,000. Note that the creditable amount is limited to the normal tax actually due; the carryover is not an addition to, or a deduction from, gross income, and it cannot reduce the tax below the MCIT floor in a year when MCIT applies.
3. Is the waiver valid? Assess the prescription position and the consequences for the assessment issued on 15 November 2030.
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The period to assess runs for three years from the later of the actual filing date and the last day prescribed for filing. BMC filed and paid on 15 April 2026, which is also the due date, so the period expired on 15 April 2029.
A waiver is valid only if, among other things, it is executed by the taxpayer or a duly authorised representative before the prescriptive period expires, specifies a definite period of extension, and is accepted by the Commissioner or the latter's duly authorised representative. A waiver signed on 20 March 2030 is executed after the period had already lapsed. A lapsed period cannot be revived by a subsequent waiver, because the taxpayer's right to have the assessment barred has already vested. The extension to 31 December 2030 therefore has no effect.
The Letter of Authority issued on 10 March 2030 was within the period, but a valid LOA does not by itself assess; the assessment must be issued within the prescriptive period or a validly extended period. The deficiency assessment of 15 November 2030 is therefore void for having been issued beyond the prescriptive period, and the taxpayer may raise prescription.
Two practical checks: the waiver must also state a definite period and the date of acceptance, and an indefinite waiver is void from the start. The Bureau cannot raise prescription belatedly if it failed to plead it, but that is a procedural point that does not rescue an assessment on these facts.