The real ‘why’ please stand up

CTALK By Cito Beltran (The Philippine Star)

Sometimes we want something so badly we lose sight of why.

As far as the Tax Reform Program of the Department of Finance and the congressional committee on ways and means are concerned, they have all been using such big words and ideas that I’m now lost as far as what their real “Why” was and now suspect them of having “personal” motives. As far as I can remember, the Duterte camp started with their first “Why” and that was: to lower Income Tax Rates. Obviously the reason “Why” was to get more votes and support from the middle and upper class as well as acceptance from the corporate sector.

But after the elections, Secretary Sonny Dominguez started speaking of another “Why” which was to raise the billions of pesos needed to finance infrastructure projects. To make it more attractive, they started pitching the theme: The Golden Age of Infrastructure” complete with project proposals as attractive as their political promises to fight drugs, corruption and solve traffic woes. So far they are only hitting one out of three and their drug war has come with a cost of 7,000 or 3,000 lives depending on whose talking.

Their theme was short-lived however after pundits started hammering and pummeling the DOTr in particular for many heralded plans that failed to fertilize. That’s when Congressman Joey Salceda started to appear on stage talking about the new “Why”: the need to tax the rich, about social equality, and this week’s “Why”: The 1% Rich must pay their share in Nation Building. After being pestered by reporters and Radio Anchors, one can already notice the perceptible shrill in Congressman Salceda’s voice indicating his frustration or annoyance at being hounded to explain or elaborate on the hidden cost of his tax plan.

Obviously, the public still does not get the true “Why” we need to raise taxes on just about everything. I think that the reason is because Secretary Dominguez and Congressman Salceda have failed to show and tell, prove even, “What’s in it for me.” For a bunch of numbers experts and economists, they have yet to present via a public information campaign what the detailed Tax Reform Program will be and how the lowered income tax rates and increased taxes on just about everything will come together for the actual benefit of each and every Filipino. Much like the Anti-Distracted Driving Act, the proposed Tax Reform Program is only understood by a small group of people, shared with limitations to the media and interest groups but not explained with complete transparency to the public.

Yes we all want less income tax so we can spend or save more. But what do I give up in the exchange, and what do we all gain or lose after new taxes are imposed? The only thing we keep hearing and seeing in the news are the “technocrat presentations” that are full of promises but not the cold hard facts of what personal sacrifices “nation building” will cost each of us.

The public has not bought in or taken ownership of the proposition that the government needs to raise money for their “Golden Age of Infrastructure” because we are surrounded by so many white elephants and mismanaged government projects. The MRT - LRT - PNR - Pasig Ferry - NAIA - Clark International Airport - North Rail - RFID/New Car Plates - National Broadband plan and so many other projects and plans gathering dust or costing Filipino taxpayers billions of pesos annually.  We in media are skeptical of the plan because Cabinet members and government executives have failed to deliver on the most basic of campaign promises.

Last Monday evening, the news featured voice clips of Congressman Salceda talking about how the new taxes will force the rich 1% to pay their share in nation building. Perhaps Congressman Salceda overlooked the fact that the 1% or 10% rich who own, control, or influence our economy and national wealth are also the people who have invested the most and on many occasions have bankrolled and managed many infrastructure projects that previous administrations could not do. Tsinoy, Pinoy or Tisoy, they all invested perhaps gambled on the unpredictability and corruption in doing business with government.

Nonetheless, if Congressman Salceda is earnestly convinced that the rich should give more – then tax them directly – if he can and if he dares! If those who have more should give more, then go and knock on their doors without stabbing the rest of the Filipino people in the back with a tax reform program that will make their cost of living higher and their quality of life poorer.

If Dominguez and Salceda want to wave the flag of patriotism and nation building then I suggest that they follow the principle that “charity begins at home.” Begin by increasing the taxes on mining companies to the same level that Australia has done. Double or triple the various taxes levied on mining companies and put a stop to exporting raw materials and require local processing in order to generate jobs.

The same should go for Congressman Joey Salceda and his associates in Congress and the Senate. Before imposing such heavy taxes on our gasoline, make sure all members give up their gasoline allocations or allowances. Before imposing additional taxes that will raise prices for our consumable products such as soft drinks, milk, and other food products, make sure that members of Congress are willing to give up all their dining privileges, free security protection details, paid personal staff and especially travel allowances to visit the many exotic places beyond their congressional district. 

Eleanor Roosevelt once said “ It is not fair to ask others to do what you are not willing to do yourself.” It is also important to remind yourself of “Why” you are doing something. Is it really for the benefit of everyone or all about what you think is right? Making assumptions in the comfort of your existence and lifestyle, forgetting that others have a far simpler or perhaps financially difficult life would be adding insult to injury. 

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Email: utalk2ctalk@gmail.com

Simpler tax administration that matters to all taxpayers

The tax season is over and almost all taxpayers who were able to file within the deadline yesterday, April 17, are now wondering what’s next in the pipeline of the Bureau of Internal Revenue (BIR) in so far as tax reforms are concerned.

A welcome development has come in the BIR’s pursuit of a simplified tax administration system. On April 5, the BIR issued a memorandum for business taxpayers claiming income tax exemption under the Barangay Micro-Business Enterprise (BMBE) Act of 2002 (Republic Act No. 9178). Under the law, all BMBEs are exempt from income tax for income arising from the operation of the enterprise.’

Under Department Order (DO) No. 17-2004 dated April 20, 2004, a taxpayer availing of the tax incentives under the BMBE Act shall first register the BMBE with the BIR Revenue District Office where the principal office or place of business of the BMBE is located; and the registration should be supported by various documents including but not limited to a Certificate of Authority duly authenticated by the Office of the City or Municipal Treasurer.

Pursuant to the BIR memorandum, returns to be filed by the taxpayers claiming to be covered by the BMBE act shall be accepted whether taxes are paid or not, subject to post audit/verification of their compliance with Section No. 3 of DO No. 17-04.

On one hand, the lowering of tax rates and simplifying of provisions of the current National Internal Revenue Code (the Tax Code) are both important and pertinent aspects of the tax reform. On the other hand, the administrative function of the BIR to collect taxes through voluntary compliance is a different story, especially because we follow the self-assessment method of filing and paying taxes in the Philippines.

The general principles of taxation tell us that “administrative feasibility” is one of the characteristics of a sound tax system, providing that tax laws should be capable of convenient, effective and just administration. Administrative feasibility assures us that the tax system should be as simple as possible, clear, concise and capable of enforcement and convenient as to time and manner of how taxes are assessed, collected and complied with.

Indeed, various international studies show that one of the metrics used in assessing the regulatory environment of a particular country is the administrative work required to prepare a tax return and pay the correct taxes.

A tax return is a sworn statement used by a taxpayer to report his taxable income and allowable deductions to determine the nature and extent of the tax liability using the prescribed format of the government.

In the Philippines, tax returns are currently filed manually or electronically using electronic filing and payment system (e-FPS) facility and electronic BIR forms (e-BIRForms) package under existing BIR issuances. This has been the manner of filing tax returns for the past three years since the introduction of the e-BIRForms platform. The good news is that this year’s filing deadline for the annual income tax return proved to be less complicated as compared to previous years because the current rules were merely reiterated through the issuance of Revenue Memorandum Circular (RMC) No. 28-2017. Nonetheless, taxpayers have to deal with a different set of rules as to who are required to file income tax returns via e-FPS, e-BIRForms, or manually.

Why is there a different set of rules for taxpayers who need to file tax returns via e-FPS, e-BIRForms, or manually? Can BIR make it simpler and also provide incentives to taxpayers filing electronically such as the privilege to file on a later date?

Research shows that the Philippines pales in comparison to its neighbors not only in regard to high individual and corporate income tax rates but also in terms of complicated tax administration. For example, in Singapore and Thailand, a taxpayer who files electronically is given more time to file on a later date. We are already familiar with this practice with respect to other types of tax returns. However, the extended deadline is not applicable to our income tax returns.

Also, in a survey of doing business in the Philippines (2017) conducted by the World Bank (WB) group, it is estimated that a corporate taxpayer needs approximately 39 hours of time or roughly more than 1.5 days to prepare, file, and pay the corporate income taxes. Currently, the Philippines is ranked 115^th out of 190 countries in terms of the length of time in paying taxes. Meanwhile taxpayers in Singapore and Malaysia, for example, require at least 24 and 26 hours, respectively, to prepare, file, and pay corporate income taxes.

What if a taxpayer doing business in the Philippines is not organized as a corporation? An example is an individual practicing his or her profession or one who is engaged in business as a sole proprietor. Certainly, such professionals or small- and medium-sized businesses would have to comply with our complex tax rules on their own or engage the services of an experienced tax accountant to prepare their income tax returns. Some are willing to try despite the high cost of compliance while others are simply indifferent out of sheer frustration. Paying taxes has always been a struggle for these groups of taxpayers. The government should be able to assist them in complying with our changing tax laws, rules and regulations without the additional burden apart from remitting enforced contributions.

If the time required to prepare, file and pay the individual income tax of persons engaged in business is included as a metric in the survey conducted by the World Bank Group, would the Philippines still rank 115th in terms of paying taxes?

Despite all these flaws, the government in its best efforts to keep its promise of reform has started by presenting tax reform proposals to Congress. The proposed reforms include lowering and simplifying personal income tax. For one, individuals engaged in business earning more than the VAT threshold (P3 million) will be taxed like a corporation while those earning less than the VAT threshold will be taxed at a flat rate of 8% on gross revenue.

Reforms to tax administration and compliance are also in place, particularly on the simplified bookkeeping requirements. Simplified bookkeeping will be allowed if the quarterly sales do not exceed P250,000 while the requirement for an external auditor will apply if the quarterly sales exceed P750,000. Can we also include a simplified tax form and filing system to go along with a simplified personal income taxation? These twin requirements of a good tax system should be addressed simultaneously by the government.

It is not so hard to tell that the true challenge of the government is to amplify the level of tax consciousness and the number of taxpayers-believers who will voluntarily surrender their hard-earned money in exchange for a so-called “civilized society.” It is with this hope that we leave the past behind and include a simpler tax administration in the proposed tax reforms that matter to all taxpayers.

Daryl Matthew A. Sales is a manager with the Tax Advisory and Compliance division of Punongbayan & Araullo.

2016 ITR filing: Basic reminders

Have plans for the Holy Week? For individual and corporate taxpayers with an accounting year ending Dec. 31, plans for this upcoming Lenten season should include the preparation of the annual income tax filing. Why? Because this year’s due date falls on April 17^th (since April 15^th falls on Black Saturday which is a holiday). The timing can be a hassle considering that it is right after the holidays.

I have seen some infomercials and print ads reminding the general public to avoid the rush on April 17^th. The Bureau of Internal Revenue (BIR) is also asking Authorized Agent Banks (AAB) to accept returns and payments for internal revenue taxes starting April 1 and also April 8, both Saturdays.

Avoiding the rush will work to the taxpayers’ advantage in at least two ways. First, you will be worry-free during the long holiday, giving you more time to rest and reflect. Lent is a time for spiritual matters anyway. Second, preparing tax returns earlier gives us time to rectify incorrect or unsuccessfully filed returns within the deadline, thus avoiding penalties.

On March 30, the BIR issued the 2017 Annual Income Tax Return (ITR) Filing Guidelines [Revenue Memorandum Circular (RMC) No. 28-2017]. Among the basic reminders contained in the RMC are: 

1. Who are required to use the electronic filing and payment system (eFPS) and electronic BIR Forms (eBIRForms)?

Among those required to use eFPS are as follows:

a) Taxpayer Account Management Program (TAMP) taxpayers;

b) Those required to secure the BIR-Importer’s Clearance Certificate (ICC) and BIR Broker’s Clearance Certificate (BCC);

c) Licensed local contractors;

d) Enterprises enjoying fiscal incentives (PEZA, BoI, etc.);

e) Top 5,000 Individual Taxpayers;

f) Corporations with paid-up capital stock of P10 million and above;

g) Corporations with complete Computerized Accounting System;

h) Government Bidders;

i) Large taxpayers;

j) Top 20,000 private corporations; and

k) Insurance companies and stockbrokers.

On the other hand, those mandated to use eBIRForms include the following:

a. Accredited tax agents/practitioners and all its client-taxpayers;

b. Accredited printers of principal and supplementary receipts/invoices;

c. One-time transaction taxpayers who are classified as real estate dealers/developers; those who are considered habitually engaged in the sale of real property and regular taxpayers already covered by eBIRForms. Taxpayers who are filing BIR Form Nos. 1706, 1707, 1800, 1801 and 2000-OT (for BIR Form No. 1706 only) are excluded;

d. Those filing a “No Payment” return; and

e. Cooperatives registered with the National Electrification Administration and Local Water Utilities Administrations.

For the list of those mandated to use eFPS and eBIRForms, please see Annex A of RMC 28-2017. This is an important reminder, since taxpayers who must file their returns using eFPS or eBIRForms and who fail to do so, shall be penalized for 25% of the tax due to be paid and P1,000 per return. Further, non-compliant taxpayers will be included in the BIR’s priority audit program.

2. Where do you file and pay?

For eFPS filers, the filing and payment are done using the eFPS facilities. For eBIRForms filers with tax payment, the filing is done electronically through the eBIRForms Package, while the payment is made to an Authorized Agent Bank (AAB) located within the jurisdiction of the Revenue District Office (RDO) where the taxpayer is registered. On the other hand, for manual filers, the filing and payment are done to the AAB within the RDO where the taxpayer is registered. 

We should be cautious though of online traffic, to avoid what happened in the past when those who tried to file electronically on the last day, April 15, were not able to complete the process. Remember that to be a day late warrants a penalty of a 25% surcharge and if you are a corporation with a P100 million income tax due, a P25 million surcharge will be the penalty.

3. Are individual taxpayers required to fill out the Supplemental Information?

Supplemental Information pertains to Schedule 12 of BIR Form Nos. 1700 and 1701. This schedule contains disclosure of the individual taxpayer’s interest income, royalties, and dividends, among other forms of income subjected to the final withholding tax. For these disclosures, RMC 28-2017 provides that such are “optional” on the part of the individual taxpayers filing their ITR within the calendar year 2016.

4. Do I still need to attach a Board of Accountancy (BoA)-required compilation report?

Under RMC 28-2017, the list of required attachments to the 2016 ITR was enumerated. In the said enumeration, the BoA-required compilation report was not included in the list. 

In news reports, the BIR specifically dropped the submission of the said compilation report in line with the government’s aim to promote ease of doing business and streamlining bureaucratic requirements.

Nonetheless, I suggest that the taxpayers read the full text of the RMC 28-2017 to be guided on the filing of the 2016 ITR. We must also watch out for supplemental regulations, if any, to be issued by the BIR in the days to come. Remember that the proper and timely filing of tax returns is the key to sparing a taxpayer the penalties provided under the tax rules. 

For many, Lent is a time to reflect; we believe that such a time should not be dedicated to the preparations for the 2016 ITR filing.

Eliezer P. Ambatali is a senior associate with the Tax Advisory and Compliance division of Punongbayan & Araullo. P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.

Napoles daughter still in PH, jobless: lawyer

MANILA - A district revenue officer of the Bureau of Internal Revenue (BIR) on Wednesday testified for the prosecution on the tax evasion case of Jeane Catherine Napoles, daughter of alleged pork barrel scam mastermind Janet Lim-Napoles.

The younger Napoles faces charges before the Court of Tax Appeals (CTA) for allegedly failing to pay P17.46-million in taxes for her ownership of Unit 371 of Ritz Carlton Residences worth $1.2 million when she was 21 years old.

BIR district revenue officer Florante Aninag testified that Napoles was able to secure a Tax Identification Number (TIN) under Executive Order (EO) 98 when she was 18 years old. 

EO 98 allows a person, regardless of age, to secure a TIN for a one-time transaction.

But upon Napoles' lawyer Ian Encarnacion's cross-examination, Aninag confirmed that this "does not mean a person has a regular source of income."

Encarnacion said Napoles was only a student, and had no source of income when she secured a TIN for her driver's license application. 

He also confirmed that the younger Napoles is already in the Philippines, and is still currently unemployed.

source:  ABS-CBN News

The BIR’s 2017 priority programs

For businesses, the start of the new year means setting new goals and targets. Likewise, the Bureau of Internal Revenue (BIR) also has its own new set of plans for 2017.

This year, the BIR is tasked to collect P1.829 trillion which is equivalent to 79% of the National Government’s total projected tax revenue of P2.313 trillion. Although the target amount is lower than the last year’s collection goal which was P2.025 trillion, P1.829 trillion is still undeniably an uphill challenge.

To meet the new target, the BIR has 27 Priority Programs this 2017. These programs are anchored on three principal objectives, namely: (1) attain collection targets; (2) improve taxpayer services; and,(3) protect revenue and recapture public trust. 

Actually, most of the programs are congruent with the continuing priorities of the BIR in its High Level Strategic Plan for 2016-2020. These include strengthening the Run After Tax Evaders (RATE) and Oplan Kandado programs; increasing awareness of the benefits brought by Exchange of Information (EOI) Program in collecting taxes on cross-border transactions; and enhancing the electronic registrations.

Of the BIR’s 27 Priority Programs, I picked out the particular items below which could be interesting. 

1. Broadening of the tax base without increasing tax rates.
The strategy is to cover unregistered taxpayers/businesses as a result of tax compliance verification drives (TCVD) and third-party information (e.g. from other government agencies).

No increase in tax rates is definitely a welcome news for taxpayers. Further, in the eyes of compliant taxpayers, the strategy of running after unregistered taxpayers is certainly better than a strategy of doing annual tax assessments on a registered taxpayer. It has always been the sentiment of many registered taxpayers that the apparent unceasing BIR audits against them are unfounded and have been a significant disruption of their business operations. 

On the other hand, I would also like to caution registered taxpayers to be prudent by avoiding transactions with fly-by night businesses. This involves having strict policies on supplier accreditation, including asking your suppliers for BIR-registered documents when transacting with them. 

2. Simplification of tax forms
This pertains to simplifying the tax forms, including filing frequency, according to taxpayer’s business size (large/medium/small/micro).

I believe that this has been long a battlecry of taxpayers. Our tax laws should not treat every business alike, particularly with respect to tax reporting requirements, as there are requirements that are applicable only to large or medium businesses, but not to small and micro businesses. 

Needless to say, tax forms and the frequency of filing come with basic tax compliance. If these are simplified, it would encourage better compliance by making it easier and less costly for taxpayers.

3. Review of revenue issuances and tax rulings.
Part of the BIR’s program is to review and recall, if warranted, revenue issuances which impose unnecessary burdens on taxpayers, and to review and revoke tax rulings which hinder business transactions.

This strategy deserves applause from taxpayer because a number of revenue issuances require re-evaluation. One concrete example is Revenue Regulations No. 12-2013 which provides that, even if a taxpayer pays for the deficiency withholding taxes at the time of the BIR investigation, the expenses, to which such withholding taxes relate, will still be disallowed by the BIR for income tax purposes. A lot of criticism has emerged on this issuance, with a consensus forming that the rule is unreasonable. Taxpayers are hoping that the BIR can expedite the review of this issuance.

4. Integrity Management Program.
The intent is to install a standard but flexible approach at the Agency and Program levels in ensuring that standard norms of conduct for public officials are consistently applied, through:

• Removal of corrupt and erring revenue personnel (Revenue Integrity Protection Service/Ombudsman/BIR Internal Affairs Service) and to relieve/transfer personnel with unsatisfactory records of collection performance; and

• Strengthening the Internal Affairs Service to swift action of administrative cases filed against BIR personnel.

The issue of corruption and erring revenue personnel has been a perennial concern of the taxpayers. This issue has also discouraged a lot of investors and potential investors from operating in the Philippines.

I believe that the above program is very basic, but it goes to the very heart of our tax assessment process. Without corruption and malfeasance, taxpayers will no longer have the perception of being at the mercy of BIR examiners who come up with haphazard and unfounded tax findings during the investigation process.

Other priority programs can be seen in Revenue Memorandum Circular No. 05-2017.

The BIR has always counted on its priority programs to help the agency attain its collection targets. I think that these priority programs can succeed if the BIR wins the full cooperation and trust of taxpayers. 

Richard R. Ibarra is a manager with the Tax Advisory and Compliance division of Punongbayan & Araullo. P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.

source:  Businessworld

VAT Refunds: Who, what, where, when and how

Taxwise or Otherwise
By Jocelyn T. Tsang, 5 January 2017

“Show me the money!” -- Rod Tidwell, Jerry Maguire.

The catchphrase made famous by actor Cuba Gooding Jr. seems to perfectly capture the constant pressure received by consultants like me who assist taxpayers in the recovery of their excess or unused input taxes remitted to the Philippine tax authority.
To put things in context, let us revisit the basic principles surrounding the Philippine value-added tax (VAT) system. Briefly, except for certain specific transactions or taxpayers that are exempt, any person who sells, leases or exchanges goods or services in the Philippines is subject to VAT at the rate of either 0% or 12%. However, being an indirect tax, the amount of VAT due from the seller is shifted or passed on to the buyer of the goods and/or services sold. The buyer then becomes entitled to claim the VAT paid as input tax credit against his output tax liabilities. As such, a taxpayer shall only pay the difference between the VAT on his own sales (output tax) and the VAT from his purchases (input tax).

In most cases, the amount of output tax will be more than the input tax, resulting in a VAT remittance to the government. However, there are instances when the opposite is true, particularly if the buyer’s own sales transactions are subject to 0% VAT (such as in the case of export sales). In such cases where the input VAT credits of a taxpayer exceed his output VAT liabilities, the Philippine Tax Code allows the taxpayer to carry over such excess to the succeeding quarters, or apply for a refund or issuance of a tax credit certificate (TCC).

For this article, let’s discuss the “who, what, where, when and how” with regard to the refund of excess or unused input taxes attributable to a taxpayer’s sales which are subject to 0% VAT.

Who? Any VAT-registered taxpayer claiming a refund of excess or unutilized input tax credits.

What? An application for the refund or issuance of a TCC representing excess or unutilized input tax credits attributable to zero-rated or effectively zero-rated sales. Export sales are considered zero-rated sales while sales to entities registered with the Philippine Economic Zone Authority (or other free trade zones) or entities registered with the Board of Investments whose sales are 100% exported are effectively zero-rated sales.

Where? Claims/Applications for refund or issuance of a TCC representing excess input taxes attributable to export sales may be filed either with the Revenue District Office (RDO)/Large Taxpayers District Office (LTDO) having jurisdiction over the taxpayer-applicant or with the Bureau of Internal Revenue’s (BIR) VAT Credit Audit Division (VCAD).

On the other hand, claims/applications representing excess input taxes attributable to export-oriented sales (i.e., effectively zero-rated sales) may only be filed with the RDO/LTDO having jurisdiction over the taxpayer-applicant.

When? Refund claims/applications must be filed within two years from the close of the taxable quarter when the sales were made.

Once the claim/application is filed by the taxpayer, the BIR office where the claim was filed is required to act on the refund claim within a mandated 120-day period. Based on a 2014 Supreme Court decision, inaction by the BIR within this period shall be deemed a denial of the claim. For taxpayers who generate their revenues from export sales, experience would show that it is more advisable to file the claim with the VCAD. This is because, unlike the RDO/LTDO which has numerous functions, the sole function of the VCAD is to cater to refund claims filed by direct exporters.

How? Aside from being able to substantiate the claim with compliant supporting documents, it is also important for applicants to know how to calculate the amount to be applied for refund.

For taxpayers whose sales are all considered export or export-oriented, the refundable amount shall be the covered period’s current purchases.

For taxpayers with mixed transactions (i.e., with sales subject to 12% VAT and with sales subject to 0% VAT), only the input taxes attributable to the export or export-oriented sales (zero-rated sales) shall be eligible for refund. Where specific identification is not possible, the input tax is allocated based on sales volume.

After allocating the input tax, please do note that in cases where the current period’s input taxes attributable to domestic sales is greater than current period’s output VAT liabilities, such excess input taxes would be included in the VAT credit balances to be carried forward. As mentioned, only the current period’s input taxes attributable to zero-rated sales would be eligible for refund. On the other hand, in case the current period’s input taxes attributable to domestic sales is less than current period’s output VAT liabilities, the output tax still due for the current period of the claim shall be deducted from the current period’s input taxes attributable to zero-rated sales. Only the balance of current period’s input tax attributable to zero-rated sales, after deducting the “output tax still due,” will be eligible for refund.

Undoubtedly, processing a tax refund is considered a tedious process; nonetheless, succeeding in this endeavor (without Court intervention) is not an impossible feat. In fact, this author believes that by at least knowing the above basics of VAT refunds, taxpayers do have a fighting chance during the 120-day ordeal with the BIR. Knowing the basics also applies to taxpayers who prefer to seek external assistance from consultants as this will make the refund application process go smoothly and increase the chances of full recovery. In turn, this will help relieve the pressure to “show me the money” as it gives life to the other oft-quoted catchphrase -- “help me, help you.”

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from the article.

Jocelyn T. Tsang is a Senior Manager belonging to the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network. 

VAT Refunds: Who, what, where, when and how

“Show me the money!” -- Rod Tidwell, Jerry Maguire.

The catchphrase made famous by actor Cuba Gooding Jr. seems to perfectly capture the constant pressure received by consultants like me who assist taxpayers in the recovery of their excess or unused input taxes remitted to the Philippine tax authority.

To put things in context, let us revisit the basic principles surrounding the Philippine value-added tax (VAT) system. Briefly, except for certain specific transactions or taxpayers that are exempt, any person who sells, leases or exchanges goods or services in the Philippines is subject to VAT at the rate of either 0% or 12%. However, being an indirect tax, the amount of VAT due from the seller is shifted or passed on to the buyer of the goods and/or services sold. The buyer then becomes entitled to claim the VAT paid as input tax credit against his output tax liabilities. As such, a taxpayer shall only pay the difference between the VAT on his own sales (output tax) and the VAT from his purchases (input tax). 

In most cases, the amount of output tax will be more than the input tax, resulting in a VAT remittance to the government. However, there are instances when the opposite is true, particularly if the buyer’s own sales transactions are subject to 0% VAT (such as in the case of export sales). In such cases where the input VAT credits of a taxpayer exceed his output VAT liabilities, the Philippine Tax Code allows the taxpayer to carry over such excess to the succeeding quarters, or apply for a refund or issuance of a tax credit certificate (TCC). 

For this article, let’s discuss the “who, what, where, when and how” with regard to the refund of excess or unused input taxes attributable to a taxpayer’s sales which are subject to 0% VAT.

Who? Any VAT-registered taxpayer claiming a refund of excess or unutilized input tax credits. 

What? An application for the refund or issuance of a TCC representing excess or unutilized input tax credits attributable to zero-rated or effectively zero-rated sales. Export sales are considered zero-rated sales while sales to entities registered with the Philippine Economic Zone Authority (or other free trade zones) or entities registered with the Board of Investments whose sales are 100% exported are effectively zero-rated sales. 

Where? Claims/Applications for refund or issuance of a TCC representing excess input taxes attributable to export sales may be filed either with the Revenue District Office (RDO)/Large Taxpayers District Office (LTDO) having jurisdiction over the taxpayer-applicant or with the Bureau of Internal Revenue’s (BIR) VAT Credit Audit Division (VCAD). 

On the other hand, claims/applications representing excess input taxes attributable to export-oriented sales (i.e., effectively zero-rated sales) may only be filed with the RDO/LTDO having jurisdiction over the taxpayer-applicant.

When? Refund claims/applications must be filed within two years from the close of the taxable quarter when the sales were made.

Once the claim/application is filed by the taxpayer, the BIR office where the claim was filed is required to act on the refund claim within a mandated 120-day period. Based on a 2014 Supreme Court decision, inaction by the BIR within this period shall be deemed a denial of the claim. For taxpayers who generate their revenues from export sales, experience would show that it is more advisable to file the claim with the VCAD. This is because, unlike the RDO/LTDO which has numerous functions, the sole function of the VCAD is to cater to refund claims filed by direct exporters.

How? Aside from being able to substantiate the claim with compliant supporting documents, it is also important for applicants to know how to calculate the amount to be applied for refund. 

For taxpayers whose sales are all considered export or export-oriented, the refundable amount shall be the covered period’s current purchases.

For taxpayers with mixed transactions (i.e., with sales subject to 12% VAT and with sales subject to 0% VAT), only the input taxes attributable to the export or export-oriented sales (zero-rated sales) shall be eligible for refund. Where specific identification is not possible, the input tax is allocated based on sales volume. 

After allocating the input tax, please do note that in cases where the current period’s input taxes attributable to domestic sales is greater than current period’s output VAT liabilities, such excess input taxes would be included in the VAT credit balances to be carried forward. As mentioned, only the current period’s input taxes attributable to zero-rated sales would be eligible for refund. On the other hand, in case the current period’s input taxes attributable to domestic sales is less than current period’s output VAT liabilities, the output tax still due for the current period of the claim shall be deducted from the current period’s input taxes attributable to zero-rated sales. Only the balance of current period’s input tax attributable to zero-rated sales, after deducting the “output tax still due,” will be eligible for refund.

Undoubtedly, processing a tax refund is considered a tedious process; nonetheless, succeeding in this endeavor (without Court intervention) is not an impossible feat. In fact, this author believes that by at least knowing the above basics of VAT refunds, taxpayers do have a fighting chance during the 120-day ordeal with the BIR. Knowing the basics also applies to taxpayers who prefer to seek external assistance from consultants as this will make the refund application process go smoothly and increase the chances of full recovery. In turn, this will help relieve the pressure to “show me the money” as it gives life to the other oft-quoted catchphrase -- “help me, help you.”

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from the article

Jocelyn T. Tsang is a Senior Manager belonging to the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.