TMAP seeks simpler process for VAT refunds

Local firms are asking the government to simplify the method for tax refunds and to revoke a circular issued by former Internal Revenue Commissioner Kim Henares that made it cumbersome to appeal a denial by the Bureau of Internal Revenue (BIR) of an application for refunds.

The Tax Management Association of the Philippines (TMAP) said it is lobbying Congress to amend the rules in obtaining value-added tax (VAT) refunds which “is very difficult to obtain at the administrative level due to existing BIR regulations.”

The BIR circular gives businesses almost no recourse in seeking VAT refunds but to litigate, which could take years and which entails additional expenses, the TMAP said.

TMAP President Benedict Tugonon, revealing the TMAP plan during a recent Israel Chamber of Commerce business forum, said the group will ask Congress to include in the tax-reform package the invalidation of BIR Revenue Memorandum Circular 54-2014, which provides that in administrative claims for VAT refunds, the lapse of the 120-day period without a BIR decision shall be deemed a denial of the claim.

The Supreme Court (SC) in a recent decision upheld the validity of the BIR ruling.

TMAP said since that BIR’s inaction on the claim for VAT refunds within the 120-day period is deemed a denial under the circular, it would be necessary for the taxpayer claiming the refund to file a case before the Court of Tax Appeals (CTA) within 30 days from the release of the denial notice to further pursue the refund claim.

Tugonon said TMAP it has been batting for this proposal since President Duterte took office, as applying for VAT refunds through the CTA entails expensive costs for taxpayers.

“If a taxpayer seeks the administrative level for VAT refund, the taxpayer must be given the option to (complete it at) the administrative level because elevating it to the CTA will be costly, with three filing requirements of legal, audit and CTA filings. This is very expensive,” he said.

During the TMAP presentation, the group revealed it had also proposed to Congress measures that would increase tax collection, simplify taxation rules, and enhance the ability of local companies to do business.

Tugonon said that TMAP has been advocating for tax reforms “as early as two years ago” and reported that some of the “midnight” tax rules that were passed in the past administration were revised since last July.

Tugonon said TMAP has also solicited comments in Clark, Pampanga, and Cagayan De Oro regarding measures to reform the tax system.

BIR Deputy Commissioner Jesus Clint Aranas, in response, said that by the second quarter of next year, Congress is expected to pass the tax reform, which may include the TMAP proposal.

Aranas, in a presentation, said the tax-reform package aims to reduce the poverty level from 26 percent last year to 17 percent by 2020, and to transform the nation into a middle-class economy.

“This requires investments in infrastructure, education, health and social protection,” he said.

A well-crafted tax-reform program is under way, with the government determined to reduce the Personal Income Tax (PIT) bracket, he added.

Included in the reform package is the simplification and rationalization of the Corporate Income Tax (CIT), which under the Department of Finance (DoF) proposal would be effectively reduced to 25 percent. This will make the country compete more effectively in the Asean economic bloc.

The CIT is currently at 30 percent, compared to Vietnam and Thailand, which have a 20-percent CIT; Malaysia and Indonesia collect 25 percent while Singapore collects 17 percent.

With a lower CIT rate, compliance is also expected to be enhanced, Tugonon said, citing international studies.

Because of the high tax rates in the country, start-ups and small and medium enterprises (SMEs) are discouraged from filing tax returns, Tugonon said.

He added that the high penalties on late tax payments also burden businesses. The regime of taxation should be compensatory and not penal, he said.

Tugonon said TMAP wants removed the “20-percent-plus-20-percent rule,” which is 20-percent interest on tax deficiency and 20 percent on tax delinquency.

RIZA LOZADA