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Wednesday, June 08, 2005
Cap on VAT input tax alarms Cebu traders
The Cebu business sector has expressed strong opposition to a new scheme that places a 70 percent cap on the input tax for value-added taxes (VAT).
“With the existing cap of 70 percent of output VAT (or three percent of sales), when a business transaction earns only three percent gross income, the income is wiped out due to the limitation,” said the Cebu Chamber of Commerce and Industry in a statement.
The group, which has 676 members, said the gross profit margin for each business transaction is unique, and the government should not assume that it can be as much as 30 percent for all companies.
The CCCI warned that the cap will squeeze the profits of businessmen, forcing them to increase their prices to avert a drain in their cash flow.
The input tax credit is “clearly inflationary,” the group said.
It explained that the input tax credit may exceed the output tax payable due to the following:
* capital expenditure for starting a new business (spread over five years)
* expansion of business (involving capital expenditure and inventory)
* increase in inventory levels for sale
* business operating at a loss (resorted to for products being introduced in
the market)
* selling at minimum profit, while inventory levels continue to increase
* change in marketing or operating strategies.
The CCCI fears that working capital will increase because funds will be “unnecessarily and unfairly tied up to input tax credits which can only apply for refund/credit at a much later date.”
It lamented that should the Bureau of Internal Revenue (BIR) allow claims for tax credit for any excess, it will become a costly and lengthy exercise for both the government and the business sector to verify the claim.
The chamber bared the scenario of legitimate traders who earn little profit going underground just to survive and “illegitimate traders” continuing to operate underground without declaring their sales to the government.
The CCCI reminded the government that the BIR is already implementing the Reconciliation for Listing and Enforcement (Relief) System, which involves a computerized matching of third-party sales and purchases, to increase VAT collection efficiency.
Under this system, undeclared sales and fictitious inputs are detected; “thus, putting a cap on creditable inputs is unnecessary,” the statement said.
Businessmen should not be denied the input tax credit based on the results of their actual operations, the group said. (CTL)
(June 8, 2005 issue)
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