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From Final to Creditable: Shift of the VAT Withholding System on Sales to the Government
Revenue Memorandum Circular No. 36-2021 issued by the Bureau of Internal Revenue (“BIR”) implemented the amendment brought about by Section 37 of Republic Act No. 10963, or the TRAIN Law. Beginning 01 January 2021, the final withholding value-added tax (“VAT”) system of five percent (5%) on payments of goods and services from the Government or any of its political subdivisions, instrumentalities agencies, including government-controlled corporations (“GOCCs”), shall shift to a creditable system.
As a result of the change, new versions of the BIR Forms 2550M and 2550Q will be developed in the coming months. In the meantime, to accommodate the changes arising from the TRAIN Law, current forms shall be filled up as follows:
BIR Form No. | Line/Schedule Affected | Description | Remarks |
2550M (v. February 2007) | 20B | Input tax on sale to Government closed to expense (Schedule 4) | Not to be filled out |
23C | VAT withheld on Sales to Government (Schedule 8) | Where the creditable VAT withheld will be reflected | |
Schedule 4 | Input Tax Attributable to Sale to Government | Not to be filled out | |
Schedule 8 | VAT withheld on Sales to Government | Where details of the creditable withheld will be reflected | |
2550Q (v. February 2007) | 23B | Input tax on sale to Government closed to expense (Schedule 4) | Not to be filled out |
26D | VAT withheld on Sales to Government (Schedule 8) | Where the creditable VAT withheld will be reflected | |
Schedule 4 | Input Tax Attributable to Sale to Government | Not to be filled out | |
Schedule 8 | VAT withheld on Sales to Government | Where details of the creditable withheld will be reflected |
The government or any of its political subdivisions, instrumentalities, or agencies, including GOCCs required to withhold creditable VAT shall use BIR Form 1600-VT or BIR Form 1600, if using eFPS, for filing and remittance of the amount withhold. Said entities shall issue the Certificate of Creditable Tax Withheld at Source (BIR Form No. 2307) using Alphanumeric Tax Code No. WV010 (for purchase of goods) or WV020 (for purchase of services). BIR Form No. 2306 (Certificate of Final Tax Withheld at Source) shall no longer be issued for this purpose.
The BIR Form 2307 shall be used by the VAT taxpayers as proof of claiming VAT credit in monthly and quarterly VAT declarations. It is noted that the erroneous use of the same (i.e., reflecting as a tax credit) shall result in disallowance of the withheld amount.