Non-recoverable VAT in the Philippines usually means VAT that a buyer paid, or VAT that forms part of a purchase cost, but cannot be used as input VAT credit, VAT refund, or tax credit certificate. In plain terms: you cannot subtract it from your output VAT, and you cannot recover it from the BIR as a VAT refund. For many businesses, this becomes a real cash-flow issue because the 12% VAT paid to suppliers may end up as part of the cost of inventory, fixed assets, services, or expenses instead of being treated as a recoverable tax asset.

Understanding whether VAT is recoverable or non-recoverable matters when you price your goods, file your BIR returns, prepare financial statements, or evaluate whether a transaction is really tax-efficient. This article explains what non-recoverable VAT means under Philippine tax rules, when input VAT becomes non-creditable, how it is treated for income tax and accounting purposes, and what practical steps taxpayers should take to avoid costly VAT mistakes.

What Does Non-Recoverable VAT Mean in the Philippines?

In the Philippine VAT system, a VAT-registered seller charges output VAT on taxable sales. A VAT-registered buyer may generally claim input VAT on VATable purchases used in its trade or business.

The basic idea is:

Output VAT on sales minus creditable input VAT on purchases equals VAT payable to the BIR.

For example:

Item	Amount
VATable sales, net of VAT	₱1,000,000
Output VAT at 12%	₱120,000
VATable purchases, net of VAT	₱400,000
Input VAT at 12%	₱48,000
VAT payable	₱72,000

In this simple case, the ₱48,000 input VAT is recoverable because it reduces the taxpayer’s VAT payable.

VAT becomes non-recoverable when the law, BIR rules, or the taxpayer’s documents do not allow the input VAT to be credited, refunded, or otherwise used against VAT liability.

Common examples include:

VAT paid by a non-VAT registered person
VAT related to VAT-exempt sales
VAT supported only by an official receipt, billing statement, collection receipt, or other document that is not a valid VAT invoice
VAT on purchases not connected with the taxpayer’s trade or business
VAT that was already claimed incorrectly, prescribed, unsupported, or disallowed during BIR audit
Input VAT attributable to zero-rated sales where the taxpayer failed to meet refund requirements

The legal starting point is Section 110 of the National Internal Revenue Code of 1997, as amended, which governs input tax credits. The Ease of Paying Taxes Act, or Republic Act No. 11976, further amended VAT invoicing and tax credit rules, while Republic Act No. 12066, also known as the CREATE MORE Act, added express income tax treatment for input VAT attributable to VAT-exempt sales. (Lawphil)

Legal Basis: Why Some VAT Is Recoverable and Some Is Not

VAT is a tax on consumption, but businesses act as collectors

VAT in the Philippines is imposed on the sale, barter, exchange, or lease of goods or properties, the sale or exchange of services, and importation of goods. The standard VAT rate is 12%.

A VAT-registered business does not normally treat all VAT it pays as a final cost. Instead, it uses the input-output mechanism:

Output VAT — VAT charged by the taxpayer on its taxable sales
Input VAT — VAT paid by the taxpayer on VATable business purchases
VAT payable — output VAT minus allowable input VAT

But this mechanism works only if the input VAT is legally creditable.

Under Section 110 of the Tax Code, input tax generally refers to VAT due from or paid by a VAT-registered person in the course of trade or business on importation or local purchase of goods, services, or lease of property from a VAT-registered person. It must also be supported by a proper VAT invoice issued in accordance with the invoicing rules. (Lawphil)

VAT-exempt transactions are different from zero-rated transactions

Many VAT problems come from confusing VAT-exempt and zero-rated transactions.

Type of transaction	VAT rate on sale	Can seller usually claim related input VAT?	Practical effect
12% VATable sale	12%	Yes, if properly supported	Normal input-output VAT system applies
Zero-rated sale	0%	Yes, subject to strict rules	Input VAT may be credited or refunded
VAT-exempt sale	No VAT	No, input VAT related to exempt sales is generally not creditable	Related input VAT becomes non-recoverable

A zero-rated sale is still a taxable VAT transaction, but the rate is 0%. This is why related input VAT may be creditable or refundable if the requirements are met.

A VAT-exempt sale is outside the VAT credit chain. The seller does not charge output VAT, but it also cannot claim input VAT attributable to that exempt sale. That input VAT is normally treated as part of cost or expense, subject to income tax rules.

When Is VAT Non-Recoverable?

1. VAT paid by a non-VAT registered buyer

If a buyer is not VAT-registered, VAT paid on purchases is generally not recoverable as input VAT.

This commonly affects:

small businesses below the VAT threshold
self-employed professionals registered as non-VAT taxpayers
percentage tax taxpayers
individuals buying goods or services for personal use
foreign individuals or companies not registered for Philippine VAT
condominium corporations, associations, or organizations with exempt or non-business activities

For example, a non-VAT registered consultant buys a laptop for ₱56,000, inclusive of VAT. The VAT component is not something the consultant can claim as input VAT in a VAT return. Instead, the full cost may be treated under ordinary income tax rules, such as through depreciation if it is a capital asset used in business.

The VAT registration threshold remains commonly referred to as ₱3,000,000, but the Ease of Paying Taxes Act provides that the VAT-exempt threshold under Section 109(CC) is subject to adjustment every three years using the Consumer Price Index published by the Philippine Statistics Authority. Taxpayers should check current BIR issuances because threshold adjustments and implementing guidance may affect registration analysis. (Reyes Tacandong & Co.)

2. VAT attributable to VAT-exempt sales

Input VAT directly attributable to VAT-exempt sales is generally not creditable against output VAT.

Examples of VAT-exempt transactions under Section 109 of the Tax Code include certain sales or importations of agricultural and marine food products in their original state, educational services by accredited educational institutions, certain medical services, and sales by persons whose gross annual sales do not exceed the VAT threshold, among others.

A common real-world example:

A clinic has two types of income:

VATable cosmetic procedures
VAT-exempt medical services

If the clinic pays VAT on supplies used only for VAT-exempt medical services, that input VAT is non-recoverable. If it pays VAT on common expenses, such as rent, utilities, and accounting software, the input VAT must be allocated between VATable and exempt activities.

Under RA No. 12066, input tax paid on local purchases attributable to VAT-exempt sales is expressly deductible from gross income. This is important because it confirms that, although the VAT is not recoverable as input VAT, it may still reduce taxable income if it qualifies as a deductible business cost or expense. (Lawphil)

3. VAT supported by the wrong document

This is one of the most common and most painful VAT issues in BIR audits.

After the Ease of Paying Taxes Act and BIR Revenue Regulations No. 7-2024, the invoice is the primary document for both sales of goods and sales of services. The invoice is the basis of the seller’s output VAT and the buyer’s input VAT claim. BIR rules also clarified that certain documents, such as official receipts and billing statements that are not properly converted or treated as invoices, may be considered supplementary documents and may be ineligible for input tax claims. (Bir Cdn)

This means the following documents are risky if used alone to support input VAT:

official receipt not validly converted or stamped as invoice under applicable transition rules
collection receipt
acknowledgment receipt
delivery receipt
billing statement
statement of account
order slip
purchase order
quotation
contract without VAT invoice

The BIR may disallow the input VAT even if the business actually paid the supplier, received the goods or services, and recorded the expense.

What a VAT invoice should generally show

A valid VAT invoice should contain the required information under BIR invoicing rules, including details such as:

seller’s registered name
seller’s TIN and VAT registration status
seller’s registered business address
invoice number or serial number
date of transaction
buyer’s registered name, address, and TIN, especially for business-to-business transactions
description of goods or nature of services
quantity, unit cost, and total amount, when applicable
VAT amount shown separately
required BIR authority, permit, or system details, depending on the type of invoice

The practical rule is simple: do not rely on payment proof alone. Bank transfer slips, checks, receipts, and supplier statements help prove payment, but they do not replace the VAT invoice required for input tax credit.

4. VAT on purchases not used in trade or business

Input VAT must be connected with the taxpayer’s trade or business.

VAT on personal expenses, shareholder expenses, family expenses, or purchases unrelated to registered business activity is not properly creditable.

Examples:

groceries for the owner’s household
personal travel of shareholders
home appliances not used in the business
personal legal fees unrelated to business operations
expenses booked in the company but actually for private benefit

During a BIR audit, examiners often check whether expenses are:

ordinary and necessary for business
supported by valid invoices
properly recorded in books
related to taxable operations
not personal, capitalized incorrectly, or unsupported

If the business cannot prove the connection, the input VAT may become non-recoverable and the related expense may also be questioned for income tax purposes.

5. VAT attributable to exempt activities in mixed transactions

A taxpayer with both VATable and VAT-exempt income must be careful with allocation.

For example, a real estate company may have:

VATable commercial leasing
VAT-exempt residential leasing below applicable thresholds
sale of properties subject to different VAT treatments

A school may have:

VAT-exempt educational services
VATable rental income from commercial space
VATable cafeteria or merchandise operations, depending on structure

A hospital may have:

VAT-exempt medical services
VATable pharmacy sales or other income streams

In mixed operations, input VAT is usually grouped into:

Type of input VAT	Treatment
Directly attributable to VATable sales	Creditable, if properly supported
Directly attributable to zero-rated sales	Creditable or refundable, if requirements are met
Directly attributable to VAT-exempt sales	Non-creditable; generally treated as cost or deductible expense
Common input VAT	Allocated between taxable and exempt activities using a reasonable formula under VAT rules

The key is to maintain a clear audit trail. If the taxpayer simply claims all input VAT without allocation, the BIR may disallow the portion attributable to VAT-exempt sales.

6. VAT denied in a refund claim

Input VAT related to zero-rated sales may be recoverable through a VAT refund or tax credit certificate, but only if the taxpayer strictly complies with the requirements.

Under Section 112 of the Tax Code, VAT-registered taxpayers engaged in zero-rated or effectively zero-rated sales may apply for refund or tax credit of attributable input VAT, subject to conditions such as timely filing, proper documentation, and proof that the input VAT has not been applied against output VAT. The Supreme Court has repeatedly treated VAT refunds as claims that must be strictly proven by the taxpayer. (Supreme Court E-Library)

If the claim is denied because of missing documents, invalid invoices, wrong timing, unsupported attribution, or failure to prove zero-rated sales, the input VAT may become non-recoverable for VAT purposes.

This often happens to exporters, PEZA or other investment promotion agency-registered enterprises, BPOs, and businesses dealing with foreign clients or registered export enterprises.

7. VAT charged by mistake on exempt or zero-rated transactions

Sometimes, a supplier charges 12% VAT even if the transaction should have been VAT-exempt or zero-rated.

This creates practical problems for the buyer.

If the transaction is legally exempt or zero-rated, the buyer may not automatically be allowed to claim the VAT simply because the supplier wrote VAT on the invoice. The correct remedy may involve asking the supplier to issue the proper invoice, cancel or correct the wrong invoice, refund the VAT charged, or adjust the transaction under BIR rules.

BIR regulations under the CREATE MORE Act specifically address VAT treatment for registered business enterprises and zero-rating rules, including situations where VAT treatment changes and invoices may need to be cancelled and replaced. (Bir Cdn)

The practical lesson: the VAT treatment must be legally correct, not merely printed on the invoice.

Tax Treatment of Non-Recoverable VAT

Is non-recoverable VAT deductible?

Usually, yes — if it is connected with the taxpayer’s business and meets ordinary deductibility rules.

For income tax purposes, non-recoverable VAT is commonly treated as:

part of the cost of inventory
part of the acquisition cost of a fixed asset
part of deductible operating expense
part of project cost or construction cost
deductible tax or business cost, depending on the transaction

RA No. 12066 expressly provides that input tax paid on local purchases attributable to VAT-exempt sales shall be deductible from gross income. (Lawphil)

However, deductibility is not automatic in every situation. The taxpayer must still show that the expense is:

ordinary and necessary
paid or incurred during the taxable year
connected with trade, business, or profession
properly substantiated
not a personal, capital, or non-deductible item unless properly capitalized

Accounting treatment: expense or asset?

The treatment depends on what was purchased.

Purchase	Treatment of non-recoverable VAT
Inventory for resale	Added to inventory cost
Office supplies	Added to supplies expense
Professional services	Added to service expense
Fixed asset, such as vehicle or equipment	Added to asset cost and depreciated
Construction materials for a building	Added to construction or building cost
Expense directly related to VAT-exempt sales	Deductible expense, subject to tax rules
Personal or non-business expense	Not creditable and may also be non-deductible

Example: non-recoverable VAT on equipment

A VAT-exempt business buys equipment for ₱112,000, VAT-inclusive.

Item	Amount
Net price	₱100,000
VAT	₱12,000
Total paid	₱112,000

Because the business cannot claim input VAT, the ₱12,000 is not recorded as input VAT credit. Instead, the equipment is recorded at ₱112,000 and depreciated based on the applicable accounting and tax rules.

Example: non-recoverable VAT on rent

A non-VAT taxpayer rents office space and receives a VAT invoice from a VAT-registered landlord.

Item	Amount
Rent, net of VAT	₱50,000
VAT	₱6,000
Total paid	₱56,000

The ₱6,000 VAT is not recoverable as input VAT because the tenant is not VAT-registered. The full ₱56,000 may be treated as rent expense, assuming it is a valid business expense and properly documented.

How to Determine If VAT Is Recoverable or Non-Recoverable

Use this practical checklist before claiming input VAT.

Step 1: Check your own VAT registration

Ask:

Are you VAT-registered with the BIR?
Does your Certificate of Registration show VAT?
Are you filing BIR Form 2550Q?
Are you engaged in VATable or zero-rated transactions?

If you are not VAT-registered, input VAT is generally not recoverable through VAT returns.

Step 2: Check the supplier’s VAT status

Input VAT is generally creditable only if charged by a VAT-registered supplier.

Look for:

“VAT Reg. TIN” on the invoice
12% VAT separately shown
complete supplier details
valid invoice format

If the supplier is non-VAT, there should be no input VAT to claim.

Step 3: Check the nature of your sale or activity

Ask whether the purchase relates to:

12% VATable sales
zero-rated sales
VAT-exempt sales
non-business or personal activity

If the purchase relates to VAT-exempt or personal activity, the VAT is likely non-recoverable.

Step 4: Check the document

A valid VAT invoice is critical.

Do not claim input VAT based only on:

official receipt not valid as invoice
billing statement
statement of account
delivery receipt
collection receipt
contract
bank proof of payment
email confirmation
supplier ledger

After the EOPT changes, businesses should be especially careful because the invoice is now central for both goods and services. (Bir Cdn)

Step 5: Check timing and reporting

Input VAT should be reported in the correct VAT return and reconciled with books, invoices, and schedules.

VAT-registered taxpayers generally file the Quarterly Value-Added Tax Return, BIR Form 2550Q, within 25 days after the end of each taxable quarter. The BIR’s VAT/percentage tax return guidance states that the return is filed and the tax paid within 25 days after the end of each taxable quarter. (Bureau of Internal Revenue)

Step 6: For zero-rated sales, check refund requirements early

For VAT refunds, do not wait until the deadline is near.

The taxpayer generally needs:

proof of VAT registration
proof of zero-rated or effectively zero-rated sales
valid VAT invoices for purchases
valid sales invoices for zero-rated sales
proof of foreign currency inward remittance, when applicable
schedules reconciling claimed input VAT
proof that the input VAT was not used against output VAT
complete documents under current BIR checklist rules

The claim under Section 112(A) must generally be filed within two years after the close of the taxable quarter when the zero-rated sales were made. BIR guidance also states that VAT refund claims are subject to documentary completeness requirements and processing timelines. (Bureau of Internal Revenue)

Practical Documents to Keep

A taxpayer who wants to avoid non-recoverable VAT issues should maintain a VAT file for every quarter.

Document	Why it matters
BIR Certificate of Registration	Proves VAT or non-VAT status
VAT invoices from suppliers	Main support for input VAT
Sales invoices issued to customers	Supports output VAT, zero-rated sales, or exempt sales
Import entry documents and customs payment records	Supports input VAT on importation
Contracts and purchase orders	Help explain the transaction
Proof of payment	Supports actual payment, though not a substitute for invoice
General ledger and subsidiary ledgers	Reconcile accounting records with VAT returns
Summary List of Sales and Purchases, if applicable	Supports VAT reporting
BIR Form 2550Q and payment confirmation	Proves filing and payment
Allocation working papers	Needed for mixed VATable and VAT-exempt activities
BIR rulings, certifications, or IPA documents, if applicable	Important for zero-rating or incentive-based VAT treatment

For businesses with zero-rated sales, keep documents in a refund-ready format. A missing invoice, wrong TIN, wrong buyer name, or failure to mark a transaction correctly may cause the BIR or Court of Tax Appeals to deny the claim.

Common Scenarios

Scenario 1: A freelancer below the VAT threshold pays VAT on subscriptions

A freelance designer registered as non-VAT pays for software subscriptions, coworking space, and equipment from VAT-registered suppliers.

The VAT included in those purchases is not recoverable as input VAT because the freelancer is not VAT-registered. The VAT-inclusive amounts may be treated as business expenses or asset costs, assuming they are properly documented and business-related.

Scenario 2: A VAT-registered company buys from a non-VAT supplier

A VAT-registered company buys services from a small non-VAT supplier.

There is no input VAT to claim because the supplier is not VAT-registered and should not charge VAT. The buyer records the full amount as cost or expense, but not as input VAT.

Scenario 3: A VAT-registered company receives only an official receipt

A VAT-registered company pays a service provider and receives an official receipt, but no valid invoice.

Because current rules treat the invoice as the key VAT document, the buyer may face disallowance if it claims input VAT based only on an official receipt that is not validly converted or recognized as an invoice under BIR rules. The buyer should request a proper VAT invoice as early as possible.

Scenario 4: A business has both VATable and exempt sales

A company sells VATable products and also earns VAT-exempt income.

Input VAT directly related to VATable sales may be creditable. Input VAT directly related to exempt sales is non-recoverable. Common input VAT, such as rent and utilities, must be allocated.

The company should not claim 100% of all input VAT unless all purchases are properly attributable to VATable or zero-rated activities.

Scenario 5: An exporter misses VAT refund documents

An exporter has zero-rated sales and excess input VAT but lacks complete invoices and reconciliation schedules.

Even if the exporter is legally entitled to zero-rating, the refund may be denied if the documents do not prove the claim. In VAT refund cases, the Supreme Court has emphasized strict compliance with invoicing and substantiation requirements. (Lawphil)

Common BIR Audit Issues Involving Non-Recoverable VAT

During a Letter of Authority audit, the BIR often checks whether input VAT was properly claimed. Common findings include:

input VAT claimed from non-VAT suppliers
input VAT claimed using official receipts or billing statements instead of VAT invoices
invoices issued under the wrong company name
invoices missing TIN, address, VAT amount, or other required details
input VAT claimed on expenses unrelated to business
input VAT claimed on purchases attributable to VAT-exempt sales
failure to allocate common input VAT
duplicated input VAT claims
input VAT claimed in the wrong period
input VAT per books not matching VAT returns
supplier invoices not matching alphalists or summary schedules
VAT claimed on transactions that should have been exempt or zero-rated

If disallowed, the taxpayer may face:

deficiency VAT
surcharge
interest
compromise penalties
income tax adjustments if expenses or costs are also questioned
denial of VAT refund or tax credit certificate

The most practical defense is not argument after assessment. It is clean documentation before filing.

How to Record Non-Recoverable VAT in Practice

The accounting entry depends on the taxpayer’s status and the nature of the purchase.

If VAT is recoverable

A VAT-registered taxpayer buying office supplies for VATable operations may record:

Account	Debit	Credit
Office supplies expense	₱10,000
Input VAT	₱1,200
Cash or accounts payable		₱11,200

The ₱1,200 input VAT is claimed in the VAT return.

If VAT is non-recoverable

A non-VAT taxpayer or VAT-exempt business buying the same supplies may record:

Account	Debit	Credit
Office supplies expense	₱11,200
Cash or accounts payable		₱11,200

No input VAT asset is recorded.

If VAT relates to a fixed asset

If a VAT-exempt business buys equipment for ₱112,000 VAT-inclusive:

Account	Debit	Credit
Equipment	₱112,000
Cash or accounts payable		₱112,000

The non-recoverable VAT becomes part of the depreciable cost.

How to Reduce Non-Recoverable VAT Problems

1. Review VAT treatment before signing contracts

For large purchases, leases, construction contracts, software subscriptions, cross-border services, and related-party transactions, confirm VAT treatment before payment.

Check:

Is the supplier VAT-registered?
Should the transaction be 12%, zero-rated, or exempt?
Who bears VAT under the contract?
Does the price include VAT or exclude VAT?
What invoice will be issued?
Are withholding VAT or government VAT rules involved?
Is the buyer entitled to claim input VAT?

A vague “taxes for buyer’s account” clause can create expensive disputes.

2. Train staff to check invoices before payment

Accounts payable teams should not release payment or book input VAT unless the invoice is VAT-compliant.

A simple invoice checklist can prevent recurring errors.

3. Separate VATable, zero-rated, and exempt activities in the chart of accounts

Businesses with mixed activities should use separate accounts or cost centers. This makes allocation easier and reduces audit risk.

For example:

VATable sales
zero-rated sales
exempt sales
input VAT directly attributable to VATable sales
input VAT directly attributable to zero-rated sales
input VAT attributable to exempt sales
common input VAT for allocation

4. Reconcile VAT returns with books every quarter

Before filing BIR Form 2550Q, reconcile:

sales per VAT return vs. general ledger
output VAT per invoice register vs. VAT return
input VAT per purchase register vs. VAT return
import VAT per customs documents
exempt and zero-rated sales schedules
ending input VAT carryover

Small differences become difficult to explain years later during audit.

5. For VAT refunds, prepare documents as if filing a court case

VAT refund claims are document-heavy. Prepare early.

The BIR has streamlined procedures and mandatory requirements for VAT refund claims under Section 112, including BIR Form No. 1914 and checklist-based processing. Current rules generally require action within 90 days from submission of complete supporting documents, with remedies in case of denial or inaction. (Bir Cdn)

Frequently Asked Questions

What is non-recoverable VAT in the Philippines?

Non-recoverable VAT is VAT that cannot be claimed as input VAT credit, refund, or tax credit certificate. It usually becomes part of the taxpayer’s cost, expense, or asset value instead of reducing VAT payable.

Is non-recoverable VAT the same as input VAT?

Not exactly. Input VAT is VAT paid on business purchases by a VAT-registered taxpayer. It becomes non-recoverable when it cannot legally be credited or refunded, such as when it relates to VAT-exempt sales or lacks a valid VAT invoice.

Can a non-VAT business claim input VAT?

Generally, no. A non-VAT registered business does not file VAT returns and cannot use input VAT to reduce VAT payable. VAT paid on purchases is usually treated as part of cost or expense, subject to income tax rules.

Can VAT on expenses for VAT-exempt sales be claimed?

Generally, no. Input VAT directly attributable to VAT-exempt sales is not creditable against output VAT. Under RA No. 12066, input tax paid on local purchases attributable to VAT-exempt sales is deductible from gross income, subject to ordinary income tax requirements. (Lawphil)

Is VAT on a valid VAT invoice always recoverable?

No. A valid VAT invoice is necessary, but it is not enough by itself. The buyer must also be VAT-registered, the purchase must be business-related, the VAT must be properly reported, and the purchase must relate to VATable or zero-rated activities rather than exempt or personal activities.

What happens if my supplier issued an official receipt instead of an invoice?

Under current EOPT invoicing rules, the invoice is the key document for input VAT claims. An official receipt may be treated as a supplementary document unless validly converted or allowed under applicable BIR transition rules. If you need to claim input VAT, request a proper VAT invoice. (Bir Cdn)

Can non-recoverable VAT be deducted for income tax?

Often, yes, if it is related to business and properly substantiated. It may be treated as part of inventory cost, asset cost, or deductible expense. However, personal, unsupported, or non-business expenses may still be disallowed.

Can input VAT from zero-rated sales be refunded?

Yes, but only if the taxpayer meets the requirements under Section 112 of the Tax Code. The claim must generally be filed within two years after the close of the taxable quarter when the zero-rated sales were made, and the taxpayer must submit complete supporting documents. (Bureau of Internal Revenue)

What is the biggest reason input VAT is disallowed?

The most common reasons are defective or missing invoices, claiming VAT from non-VAT suppliers, failure to allocate input VAT between taxable and exempt sales, and claiming input VAT on non-business expenses.

Should VAT be included in the cost of an asset if it is non-recoverable?

Yes. If VAT on a fixed asset is non-recoverable, it is generally included in the asset’s acquisition cost and depreciated together with the asset, subject to applicable tax and accounting rules.

Key Takeaways

Non-recoverable VAT is VAT that cannot be credited, refunded, or used as a tax credit certificate.
A buyer usually needs to be VAT-registered and must hold a valid VAT invoice to claim input VAT.
Input VAT attributable to VAT-exempt sales is generally not creditable, but may be deductible from gross income under RA No. 12066 if it qualifies under income tax rules.
VAT-exempt and zero-rated transactions are not the same. Zero-rated sales may support input VAT refund claims; VAT-exempt sales generally do not.
After the Ease of Paying Taxes Act, the invoice is central to input VAT claims for both goods and services.
Businesses with mixed VATable, zero-rated, and exempt activities should allocate input VAT carefully.
VAT refund claims require strict compliance with Section 112, BIR checklists, invoicing rules, and deadlines.
The best way to avoid non-recoverable VAT problems is to check VAT treatment, invoice validity, and business attribution before filing the quarterly VAT return.