Businessmen want new VAT refund rule junked

Sixteen local and foreign business and industry groups have asked the government to withdraw a new tax rule which, they claimed, would make it more difficult for investors to get their value-added tax (VAT) refund.

In a Sept. 12 letter to Finance Secretary Cesar V. Purisima, six foreign chambers as well as 10 Filipino industry associations called on the government to void Revenue Memorandum Circular (RMC) No. 54-2014 issued by the Bureau of Internal Revenue (BIR) last June and “uphold the taxpayer’s right to an administrative appeals process.”

“While an RMC is supposed to only publish and amplify pertinent and applicable portions of tax laws and regulations, RMC 54-2014 effectively created new rules and interpretations, which made it even more difficult for zero-rated taxpayers and investors to recover the VAT refunds owed by government,” according to the joint letter signed by officials of the American, Canadian, European, Japanese and South Korean chambers of commerce as well as the Philippine Association of Multinational Companies Regional Headquarters.

Also signatories to the letter were executives belonging to the Association of Certified Public Accountants in Public Practice, Employers’ Confederation of the Philippines, Information Technology and Business Process Association of the Philippines, Management Association of the Philippines, Philippine Banana Growers and Exporters Association, Philippine Chamber of Commerce and Industry, Philippine Coconut Oil Producers Association, Philippine Exporters Confederation, Tax Management Association of the Philippines, and United Coconut Associations of the Philippines.

According to these groups, RMC 54-2014 “removes the fundamental right of a taxpayer to an administrative appeals process.”

The rules state that the BIR said “if the claim for VAT refund or credit is not acted upon by the Commissioner within 120-days as required by law, such inaction shall be deemed a denial of the claim.”

“This effectively encourages the BIR to abdicate its administrative duty to process refund claims by compelling taxpayers to pursue judicial claims with the CTA [Court of Tax Appeals],” they said.

Such an interpretation is “prejudicial to the taxpayer who has the option to appeal immediately the inaction to the courts after the lapse of the 120-day period.” The groups said that, adding such “will be very costly to the taxpayer who has to incur needless expenses in the form of docket fees—which is about 1 percent of the amount of the claim—and legal costs.”

The business groups also claimed that the circular “runs contrary to the Supreme Court’s ruling in San Roque Power Corp. v. Commissioner of Internal Revenue, 690 SCRA 336 (2013), which it purports to circularize.”

The ruling said that, “the BIR does not lose jurisdiction to process the administrative claim for refund simply because the taxpayer elected to appeal the inaction to the CTA. In fact, the Supreme Court said ‘the Commissioner should still evaluate internally the administrative claim for purposes of opposing the taxpayer’s judicial claim, or even for purposes of determining if the BIR should actually concede to the taxpayer’s judicial claim,’” they noted.

Also, “the retroactive application of the strict ‘120+30’ rule to all pending VAT refund applications is confiscatory since it will result in a large scale automatic denial of all pending applications. This is in violation of the non-retroactivity rule, which undermines the fairness of the tax system,” according to the groups.

The business groups noted that investors were allowed to appeal with the Court of Tax Appeals denials of their tax refund or tax credit claims within 30 days upon receipt of the BIR decision.

However, the groups also pointed out that “the BIR usually takes an average of four to six years to process and approve valid input VAT refund claims, much to the frustration of zero-rated sellers and investors.”

“A far greater number of input VAT refund claims, which already run into billions of pesos, remain unacted upon by the BIR or are pending with the Court of Tax Appeals with no definite timeframe on when these claims will be resolved,” they added.

“Instead of streamlining the VAT refund application process, RMC 54-2014 makes compliance more burdensome to taxpayers by imposing impractical and unrealistic requirements that are very difficult to comply with, or by prescribing additional requirements not found under the law,” they said.

According to the 16 business groups, they deem that “RMC 54-2014, coupled with the questionable stand of the BIR that input VAT claims could not be claimed as cost or expense for income tax purposes, effectively nullifies the incentives granted by law to zero-rated taxpayers and/or transactions.”

“The sudden change in the VAT refund process rules under the said RMC shows the lack of transparency, predictability and consistency on the part of government, which greatly affects investor trust and confidence,” they said, adding that “any unrefunded VAT arising from these very restrictive rules, on top of the existing bureaucratic inefficiencies, will result in higher costs of doing business in the Philippines.”