Input Tax
Input Tax refers to the value-added tax (VAT) a business pays on its purchases of goods, services, or imports. In Filipino MSME terms: ito yung “VAT na binabayaran mo sa binibili mong supplies, ingredients, equipment, o services.”
Input tax can be used to offset Output Tax (VAT collected from customers), reducing the VAT payable to the BIR.
- Term: Input Tax
- Category: Taxation, VAT, BIR Compliance
- Core idea: VAT paid on purchases that can be credited against VAT on sales
- Best for: VAT-registered businesses
- Key use: Reduce VAT payable by claiming allowable input VAT
Why Input Tax Matters
For VAT-registered Filipino businesses, input tax is important because it:
- Reduces VAT payable to the BIR
- Ensures proper tax crediting under VAT rules
- Improves cash flow by lowering tax liabilities
- Supports accurate bookkeeping and compliance
- Prevents penalties due to incorrect VAT reporting
Input tax is a core concept in VAT accounting and monthly/quarterly filings.
Examples of Input Tax
- VAT on raw materials (e.g., flour, meat, packaging)
- VAT on equipment purchases (e.g., ovens, freezers, POS systems)
- VAT on utilities (electricity, water, internet)
- VAT on professional services (accounting, marketing, repairs)
- VAT on imported goods
As long as the supplier issues a valid VAT invoice, the input tax may be claimed.
Input Tax vs. Output Tax
| Input Tax | Output Tax |
|---|---|
| VAT paid on purchases | VAT collected from customers |
| Reduces VAT payable | Increases VAT payable |
| Claimed using VAT invoices | Reported using sales invoices |
VAT Payable = Output Tax − Input Tax
Types of Input Tax
1. Creditable Input Tax
- Can be used to offset output tax
- Must be supported by valid VAT invoices
2. Input Tax on Capital Goods
- For equipment or assets used in business
- May be amortized if above certain thresholds
3. Input Tax on Importation
- VAT paid to the Bureau of Customs
- Claimable upon release of goods
Requirements to Claim Input Tax
- VAT-registered business
- Valid VAT invoice (under EOPT Act: “Invoice” replaces OR)
- Properly recorded in books of accounts
- Purchase must be related to business operations
Missing or invalid invoices may result in disallowed input VAT.
Common Issues with Input Tax
- Supplier issues non-VAT invoice
- Incorrect TIN or business name on invoice
- Expenses not related to business
- Unrecorded or late-recorded purchases
- Claiming VAT on zero-rated or exempt purchases
Proper documentation is essential to avoid BIR disallowances.
Example / Context
Example 1 (Retail Store):
Buys ₱10,000 worth of goods with 12% VAT → Input Tax = ₱1,200.
Example 2 (Carinderia):
Purchases ingredients with VAT invoices → Input tax reduces VAT payable.
Example 3 (Freelancer VAT-registered):
Pays VAT on software subscriptions → Can claim as input tax.
Example 4 (Importer):
Pays VAT to BOC → Claimable as input tax upon release of goods.
Related Terms
FAQs
1. Who can claim input tax?
Only VAT-registered businesses with valid VAT invoices can claim input tax.
2. Can non-VAT businesses claim input tax?
No. Non-VAT taxpayers cannot claim or offset input VAT.
3. What happens if input tax is higher than output tax?
The excess input tax may be carried over to the next period.
4. Is input tax refundable?
Only for zero-rated sales under strict BIR rules; otherwise, it is carried forward.