P11-B tax credit scam at DOF uncovered

The Department of Finance seeks to recover P11.24-billion worth of tax credit certificates (TCCs) issued to unqualified—and some even nonexistent garments and textile companies from 2008 to 2014.

In a press conference yesterday, Finance Secretary Carlos G. Dominguez III said a Commission on Audit special audit report issued on July 6 had revealed that 3,288 questionable TCCs amounting to P11.24 billion were issued to 33 garments companies during the seven-year period. These companies, he said, were not registered with the Board of Investments (BOI), hence not entitled to fiscal and nonfiscal incentives extended to investors such as tax credits.

The BOI is an investment promotion agency tasked to grant incentives to enterprises engaged in businesses prioritized by the government.

Dominguez said that 3,231 worth P8.85 billion of the TCCs issued were “overstated and supported by spurious documents.”

Another P2.34-billion worth “were granted to claimants whose fiscal incentives have already expired,” he added.

These TCCs had been issued by the DOF-attached One-Stop Shop Inter-Agency and Duty Drawback (OSS) Center.

Tax credits are refunds that exporters can claim for the duties they pay for imported raw materials.

Instead of cash refunds, the government issues TCCs, which the companies can use to settle tax obligations.

Finance Undersecretary Antonette C. Tionko said the lapses might have stemmed from an OSS office order issued in 2004 or 2005 that allowed TCC claims even without submitting proof of importation.

Dominguez yesterday issued Department Order No. 39-2018 creating a task force to implement the recommendations of the COA-SAO report, including the filing of claims as well as charges against the erring individuals and firms.

“Expect [the DOF] to pursue the filing of appropriate charges against the public officers and private persons who manipulated and unjustly benefited from the tax credit process with the OSS,” Dominguez said.

The OSS Center withheld issuance of TCCs to garment industry players since mid-2014, leading to a widely publicized attempt by some personnel to remove then officer-in-charge Sheila N. Castaloni from office.

But then Finance Secretary Cesar V. Purisima threw his support behind Castaloni, who initiated the investigation of the scam.

The garments sector had fallen from its glory days in the 1990s, as the removal of textile and clothing quotas by the World Trade Organization had reduced garments exports from the Philippines to $1 billion a year and workers to 200,000—about a third of what it was when the sector was at its peak.

Also, Philippine garments exporters now compete with those from Bangladesh, China and Vietnam—where production cost is cheap—as well as with Central American countries and US territories that enjoy preferential tariffs.

To help textile manufacturers, many of whom were in the red, the BOI had allowed them to sell TCCs to other BOI-registered businesses outside their industry.

For other industries that are faring well, the BOI allows the sale of TCCs only to other BOI-registered companies within the same sector.