Input VAT on Business Purchases
Updated June 13, 2026
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Definition
Input VAT is the 12% value-added tax paid by VAT-registered businesses on their purchases of goods and services, which can be credited against their Output VAT liability to reduce their total VAT payment to the BIR.
Input VAT represents the VAT component of business purchases that VAT-registered persons can credit against the VAT they charge. Under NIRC Sec. 110, as amended by RA 11976, input tax evidenced by a VAT invoice is creditable when it is paid on goods bought for sale, for conversion into products for sale, as supplies, or for use in trade or business, and on purchased services. Revenue Regulations No. 16-2005 (the Consolidated VAT Regulations) set the detailed rules. Businesses collect VAT from customers (Output VAT) and credit VAT paid to suppliers (Input VAT); the difference is paid to the BIR on the quarterly VAT return, BIR Form 2550Q, within 25 days after the close of each quarter.
Detailed explanation
What is Input VAT?
Input VAT is the value-added tax at 12% that a VAT-registered business pays to its suppliers when buying goods, materials, services and capital equipment used in its trade or business (NIRC Sec. 110). It is the tax component in the cost of inputs to production or service delivery.
How Input VAT Works in the VAT System
The Philippine VAT system works on a credit mechanism. When a VAT-registered seller charges 12% VAT on sales (output VAT), a VAT-registered buyer can credit the input VAT it paid on those purchases. This keeps VAT from cascading through the supply chain, so it is borne by the final consumer (NIRC Sec. 110(A)).
The net VAT payable to the Bureau of Internal Revenue (BIR) each quarter is output VAT minus input VAT. If input VAT exceeds output VAT, the excess is carried over to later quarters, and input VAT attributable to zero-rated sales can be refunded (NIRC Sec. 110(B) and 112).
Eligible Input VAT
Input VAT is creditable when: (1) the purchase is used in VAT-taxable business activities; (2) the supplier is VAT-registered and issued a VAT invoice showing the tax; (3) the goods or services relate to taxable, not exempt, sales; and (4) the business keeps proper records (NIRC Sec. 110 and 113, as amended by RA 11976).
Common creditable inputs include raw materials, packaging, utilities, professional fees, repairs and maintenance, and capital equipment. Inputs used for VAT-exempt sales are not creditable.
Non-Creditable Input VAT
Input VAT is not creditable for: goods and services used in exempt sales; personal or household expenses; and purchases not supported by a VAT invoice. Purchases from non-VAT-registered suppliers carry no VAT to credit.
Businesses track which inputs are creditable, because claiming non-creditable VAT leads to disallowance, deficiency VAT, surcharge and interest.
Documentation and Compliance
To claim input VAT, a VAT-registered business keeps the supplier's VAT invoice showing the supplier's TIN, the description of the goods or services and the VAT amount. Since RA 11976 (Ease of Paying Taxes Act), the VAT invoice is the basis of the credit for both goods and services. Purchases are recorded in the purchase journal and summarized in the summary list of purchases (RR 16-2005).
Books and records are kept for five years from the day after the return's deadline (NIRC Sec. 235, as amended by RA 11976). In an audit, missing invoices can lead to disallowance of input VAT and assessment of deficiency tax plus surcharge and interest.
Input VAT and Quarterly VAT Returns
Since January 1, 2023, VAT-registered businesses file and pay VAT quarterly on BIR Form 2550Q, within 25 days after the close of each quarter (NIRC Sec. 114, as amended by RA 10963 and RA 11976). The return reports output VAT on sales and input VAT on purchases; the net amount is paid, or carried over if negative.
Why it matters
Input VAT directly reduces the VAT a registered business pays. Knowing which purchases qualify, keeping proper VAT invoices and filing accurate quarterly returns prevents paying more VAT than necessary. Disallowed input VAT is a common BIR audit finding, so documentation matters for cash flow and audit defense.
How it works
Identify Creditable Purchases
A VAT-registered business reviews its purchases to see which are used in VAT-taxable activities and were bought from VAT-registered suppliers. Only these give rise to creditable input VAT. VAT related to exempt sales is not creditable, and purchases from non-VAT suppliers carry no VAT to credit.
Collect Valid VAT Invoices
The business obtains a VAT invoice from each supplier, showing the supplier's name and TIN, a description of the goods or services, and the VAT shown separately. Under RA 11976, the VAT invoice is the document that supports the input tax credit for both goods and services.
Record Purchases and Input VAT
Creditable input VAT is recorded in the purchase journal by date, supplier, invoice number and amount, and summarized in the summary list of purchases. These records support the quarterly VAT return and are checked by the BIR during audits.
Claim on Quarterly VAT Return
The business reports total input VAT on the quarterly VAT return (BIR Form 2550Q) and deducts it from output VAT. The net amount is paid to the BIR within 25 days after the quarter. If input VAT exceeds output VAT, the excess is carried over to the next quarter; a refund is available for input VAT attributable to zero-rated or effectively zero-rated sales (NIRC Sec. 110(B) and 112).
Examples
Manufacturing company with creditable inputs
Juan's textile factory in Laguna buys ₱500,000 of raw cotton from a VAT-registered supplier, paying ₱60,000 in input VAT. He sells finished cloth for ₱800,000, charging ₱96,000 output VAT. His net VAT due is ₱96,000 minus ₱60,000 = ₱36,000 (NIRC Sec. 110).
Service provider with mixed activities
Maria provides accounting services (VAT-taxable) and also leases residential units at rents low enough to be VAT-exempt. She pays ₱24,000 input VAT on supplies for the accounting practice and ₱12,000 on maintenance of the residential units. Only the ₱24,000 is creditable; the ₱12,000 relates to exempt sales and becomes part of her cost (NIRC Sec. 109 and 110).
Excess Input VAT refund claim
Anna's import business paid ₱180,000 input VAT on purchases but generated only ₱120,000 output VAT from sales in Q1. She carries the ₱60,000 excess over to Q2. A refund is available for input VAT attributable to zero-rated or effectively zero-rated sales, such as exports, or after VAT registration is cancelled on cessation of business (NIRC Sec. 112).
Non-VAT supplier purchase
A retailer buys ₱100,000 of goods from a wholesaler that is not VAT-registered. The wholesaler cannot show VAT on its invoice, so there is no input VAT for the retailer to credit; the full ₱100,000 is simply a cost of goods (NIRC Sec. 110).
Common misconceptions
- Myth: All VAT paid on business purchases is automatically creditable.
- Fact: Input VAT is creditable only if the purchase is used in VAT-taxable activities and is supported by a VAT invoice from a VAT-registered supplier. VAT tied to exempt sales is not creditable (NIRC Sec. 110).
- Myth: Input VAT can be claimed even without a VAT invoice.
- Myth: Input VAT on any expense paid by the business is creditable.
- Fact: Input VAT is creditable only for purchases used in the VAT-taxable trade or business (NIRC Sec. 110). Personal expenses and purchases for exempt sales do not qualify, even if the business paid for them.
- Myth: A business can claim Input VAT without being VAT-registered.
- Fact: Only VAT-registered persons credit input VAT. Non-VAT businesses cannot credit VAT paid on purchases; it becomes part of their cost (NIRC Sec. 110).
Questions people ask
Can I claim Input VAT if I buy from a non-VAT-registered supplier?
No. Input VAT is creditable only when it is evidenced by a VAT invoice issued by a VAT-registered supplier showing the VAT (NIRC Sec. 110 and 113, as amended by RA 11976). A non-VAT supplier does not charge VAT, so there is nothing to credit.
What happens if I lose the VAT invoice for a purchase?
The credit depends on the VAT invoice, so a claim without it can be disallowed in an audit. Ask the supplier for a certified copy as soon as you notice the loss, and keep invoices for at least five years from the day after the return's deadline (NIRC Sec. 235, as amended by RA 11976).
Can I claim Input VAT on purchases for both taxable and exempt activities?
Only input VAT on purchases for VAT-taxable sales is creditable. Input VAT directly tied to exempt sales is not creditable. Input VAT on purchases used for both, such as shared utilities, is allocated between taxable and exempt sales in proportion to their sales (RR 16-2005).
What is the difference between Input VAT and Output VAT?
Input VAT is the 12% tax you pay on purchases from suppliers. Output VAT is the 12% tax you charge customers on sales. Your net VAT payable is output VAT minus input VAT. If input exceeds output, you carry the excess over to the next quarter, and a refund is possible for zero-rated sales (NIRC Sec. 110 and 112).
Can I claim Input VAT on entertainment and meal expenses?
Input VAT is creditable when the purchase is used in your VAT-taxable trade or business and is supported by a VAT invoice in the business's name (NIRC Sec. 110). Personal or family expenses do not qualify.
How do I report Input VAT on my quarterly VAT return?
Report total creditable input VAT on BIR Form 2550Q, the quarterly VAT return, and deduct it from output VAT. The return is filed and the tax paid within 25 days after the close of the quarter (NIRC Sec. 114, as amended by RA 11976).
What if my Input VAT exceeds my Output VAT in a quarter?
The excess input VAT is carried over to the next quarter or quarters (NIRC Sec. 110(B)). Input VAT attributable to zero-rated or effectively zero-rated sales, such as exports, can also be refunded on application; the BIR must decide within 90 days from submission of complete documents (NIRC Sec. 112).
Are there penalties for claiming non-creditable Input VAT?
Yes. If the BIR disallows input VAT you claimed, you owe the deficiency VAT plus a 25% surcharge and 12% annual interest (NIRC Sec. 248 and 249), or 10% and 6% for micro and small taxpayers.
In practice
- VAT-registered importers and manufacturers rely on input VAT credits to manage their quarterly VAT; tracking invoices in the purchase journal avoids audit disallowances.
- Businesses with both VAT-taxable and exempt sales separate input VAT by activity, and allocate VAT on shared expenses such as utilities and rent in proportion to sales (RR 16-2005).
- Quarterly VAT returns (BIR Form 2550Q) are filed and paid within 25 days after the close of each quarter; late filing or payment brings a 25% surcharge and 12% annual interest (NIRC Sec. 114, 248 and 249).
- BIR audits often focus on input VAT claims; businesses keep invoices, proof of payment and purchase records for five years from the day after the return's deadline (NIRC Sec. 235, as amended by RA 11976).
- Excess input VAT is carried over to later quarters; refunds cover input VAT on zero-rated or effectively zero-rated sales and unused input VAT after registration is cancelled on cessation of business, and the BIR must decide within 90 days from submission of complete documents (NIRC Sec. 112).
Next steps
Learn more
VAT Calculator
Calculate your Input and Output VAT obligations
BIR Form 2550Q Guide
Quarterly VAT return filing procedures
VAT Registration Requirements
Eligibility and application process
VAT Invoice Template
Proper format for creditable Input VAT
VAT Refund Application
Process for recovering excess Input VAT
Mixed Transaction Guide
Allocating Input VAT between taxable and exempt sales
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Sources & References (1)
Primary sources and the laws, regulations, and official issuances this page relies on. Links open the recorded source documents or references.
- LawPhil Project (Arellano Law Foundation). “NIRC §110 (input VAT credits): full text.” lawphil.net. NIRC of 1997 (RA 8424), Sec. 110. Source checked .