Input VAT on Capital Goods: Why the 60-Month Amortization Rule Ended in 2022

Input VAT on capital goods purchased or imported from January 1, 2022 onward can be claimed in full, immediately, against output VAT — the old rule requiring amortization over 60 months (or the asset’s useful life) for purchases exceeding ₱1,000,000 a month no longer applies. This is a sunset built into the TRAIN Law (Republic Act No. 10963) amendment to NIRC Section 110(A)(2), confirmed by Revenue Memorandum Circular (RMC) No. 21-2022, and it changes the cash-flow timing — not the total amount — of input VAT credit on big-ticket equipment and property purchases.

This post assumes you already know the basic input VAT vs. output VAT mechanics covered in Input VAT vs. Output VAT: How BIR VAT Credits Work in the Philippines and the invoice substantiation rules in Input VAT Substantiation: BIR Requirements for Claiming Input Tax Credits. The focus here is narrower: what changed specifically for capital goods, and why the amortization rule that many finance teams still budget around no longer applies to current purchases.

What was the old amortization rule for input VAT on capital goods? #

Before the change took full effect, NIRC Section 110(A)(2) required a business to spread its input VAT credit on certain capital goods over time instead of claiming it all at once. If the aggregate acquisition cost (exclusive of VAT) of capital goods purchased or imported in a single calendar month exceeded ₱1,000,000, the related input VAT had to be amortized evenly over the useful life of the capital good or 60 months (5 years) — whichever period was shorter — starting the month the asset was acquired. A business buying a large machine in that regime didn’t lose the input VAT; it just had to wait years to fully use the credit, which tied up cash that would otherwise have offset output VAT sooner.

When did the amortization rule end, and what replaced it? #

The TRAIN Law (Republic Act No. 10963) built a sunset into the amortization requirement: it only applied to capital goods purchased or imported through December 31, 2021. For capital goods bought or imported starting January 1, 2022, the amortization requirement no longer applies at all — regardless of how large the aggregate monthly acquisition cost is. Input VAT on those capital goods is now creditable in full, outright, in the month or quarter of purchase or importation, the same way input VAT on ordinary purchases is claimed. RMC No. 21-2022 (dated December 9, 2021, circularized February 21, 2022) sets out the BIR’s implementing guidelines confirming this reading of the amended Section 110(A)(2); a later circular, RMC No. 71-2023, provides further clarification in this area as well.

What happens to capital goods bought before 2022 that are still being amortized? #

The end of the amortization requirement is not retroactive — it only affects new purchases from January 1, 2022 onward. A business that bought a capital good in, say, 2020 or 2021 and triggered the old rule must continue amortizing the remaining unutilized input VAT on the original schedule (useful life or 60 months, whichever was shorter, counted from the original acquisition month) until it is fully used up. There is no election to accelerate and claim the remaining balance outright just because the general rule changed for later purchases — the transition rule locks in the original amortization schedule for pre-2022 acquisitions.

What if a capital good with unamortized input VAT is sold early? #

If a depreciable capital good is sold or transferred before its amortization schedule finishes — within the 5-year window, or before the input VAT is fully exhausted — the entire remaining unamortized input VAT can be claimed immediately. Rather than losing the unclaimed balance or continuing to spread it out for a buyer who no longer owns the asset, the seller reports the whole leftover amortizable input VAT as an input tax credit in the VAT return covering the month or quarter of the sale or transfer. This is a practical detail worth flagging to accounting teams disposing of older equipment that still carries an amortization balance from a pre-2022 purchase.

Worked example: same machine, two different acquisition dates #

Buying an identical ₱3,000,000 machine in March 2021 versus March 2022 produces the same total input VAT credit but a dramatically different cash-flow timeline. A manufacturing company buys a ₱3,000,000 (VAT-exclusive) machine with a useful life of 10 years, generating ₱360,000 in input VAT (12% of ₱3,000,000).

Under the March 2021 scenario, the business claims only ₱6,000 of input VAT per month until the balance is exhausted five years later — even though it already paid the full ₱360,000 to its supplier upfront. Under the March 2022 scenario, the same ₱360,000 is available to offset output VAT in the very first quarterly return after the purchase, freeing up cash that would otherwise sit unused as a receivable-like credit for years.

Frequently asked questions #

When did the input VAT amortization rule on capital goods end? #

The input VAT amortization requirement on capital goods ended for purchases and importations made from January 1, 2022 onward. The TRAIN Law, Republic Act No. 10963, amended NIRC Section 110(A)(2) so the amortization rule applied only to capital goods acquired through December 31, 2021.

What was the old 60-month amortization rule for input VAT on capital goods? #

Under the old rule, if a taxpayer’s aggregate acquisition cost of capital goods (exclusive of VAT) in a calendar month exceeded ₱1,000,000, the related input VAT could not be claimed in full immediately. Instead, it had to be spread evenly over the useful life of the capital good or 60 months (5 years), whichever period was shorter, starting the month of acquisition.

Can a business still amortize input VAT on capital goods bought before 2022? #

Yes. The repeal of the amortization rule is not retroactive. Taxpayers with unutilized input VAT on capital goods purchased or imported before January 1, 2022 continue amortizing the remaining balance on the original schedule until it is fully utilized.

What happens to unamortized input VAT if a capital good is sold before the 5-year period ends? #

If a depreciable capital good with unamortized input VAT is sold or transferred within five years, or before the amortizable input VAT is fully exhausted, the entire remaining unamortized input VAT on that capital good can be claimed as an input tax credit in the month or quarter the sale or transfer occurs, rather than continuing the original monthly schedule.

Which BIR issuance implemented the end of input VAT amortization on capital goods? #

Revenue Memorandum Circular (RMC) No. 21-2022 provides the guidelines implementing the amended NIRC Section 110(A)(2) under the TRAIN Law, confirming that input VAT on capital goods purchased or imported starting January 1, 2022 is creditable in full in the month or quarter of purchase, with no amortization required regardless of the acquisition cost.

Summary #

The 60-month input VAT amortization rule for capital goods is gone for anything bought or imported from January 1, 2022 onward — the TRAIN Law’s amendment to NIRC Section 110(A)(2) sunset it after December 31, 2021, and RMC No. 21-2022 confirms full, outright input VAT crediting in the month or quarter of purchase from that date forward, with RMC No. 71-2023 adding further clarification. The catch is that this is not retroactive: capital goods bought before 2022 keep amortizing on their original schedule, unless the asset is sold or transferred early, in which case the remaining unamortized balance is claimed all at once. Before assuming a large equipment purchase needs to be spread over five years, confirm the acquisition date against this rule — and see Input VAT vs. Output VAT, Input VAT Substantiation Requirements, and How to File BIR Form 2550Q for how this credit flows into the quarterly VAT return. For the primary text of NIRC Section 110 and related issuances, consult the BIR website.