COA disallows P3.4B in spurious tax credits

The Commission on Audit (COA) has so far disallowed a total of P3.4 billion in tax credits given away to unqualified textile firms at the height of a scam from 2008 to 2014, the Department of Finance (DOF) said on Tuesday.

Citing a Nov. 17 report submitted by the COA’s special audits office to Finance Secretary Carlos Dominguez III, the DOF said in a statement that another P390.04 million worth of TCCs (tax credit certificates) were invalidated last month.

The COA disallowed the P214.38 million in TCCs earlier given to Primeknit Manufacturing Corp., plus the P175.66-million worth granted to Tai-Cheng Integrated Resource Inc.

To recall, at least eight unscrupulous textile firms had secured illegal TCCs from the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback (OSS) Center, a unit of the DOF.

TCCs were refunds that exporters claimed as an incentive for the import duties they paid for raw materials sourced abroad.

Instead of cash refunds, the government issued TCCs, which companies can use to pay their other tax obligations.

The DOF had blamed this scam on an OSS Center office order issued over 15 years ago, which had allowed TCC claims without submitting actual proof of importation.

“The practice of these alleged exporters who illegally obtained TCCs was to sell the OSS Center-issued certificates or tax credits to other companies at a discount, who would then use the TCCs to settle their own tax liabilities,” the DOF explained.

“COA found that the OSS had issued TCCs to either ghost exporters or to real companies that were not in the export trade or who were nonetheless not qualified for the tax credits issued to them,” the DOF added.

When this scam was uncovered, OSS Center since 2014 withheld issuance of TCCs to textile and garment firms.

“Several past officials and employees of the DOF, the Board of Investments (BOI), the Bureau of Customs (BOC), and OSS Center who were responsible for processing and approving the illegal TCCs issued over the 2008-2014 period, as well as the recipients and claimants from the six companies, were held liable by COA,” the DOF said.

In 2018, COA uncovered P11.2 billion in questionable TCCs issued to 33 garment companies from 2008 to 2014 even as they were not registered with the BOI, hence not entitled to fiscal and other perks given away to investors such as tax credits.