Government sets aside P41.5 billion for VAT cash refund

MANILA, Philippines – The government is setting aside P41.5 billion for the cash refund of value added tax (VAT) which would be paid from this year to 2016 or an average of P8.3 billion a year, data from the Development Budget Coordination Committee (DBCC) showed.

The Aquino administration has decided to shift from the previous Tax Credit Certificates (TCC) system for VAT claims to a cash refund to avoid a repeat of the TCC scam in the mid-1990s.

The yearly allocation was recommended by the Department of Finance (DOF) and which would be included in the annual budgets of the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC).

 “DOF has estimated that average yearly claims amount to P8.3 billion. As such, for 2012, the amount of P10 billion will be included in the BIR and BOC budgets to cover part of the outstanding TCCs, current claims and refund for erroneous VAT collections,” the DBCC said.

It also said that the shift in the VAT refund system is the country’s affirmative response to the business sector’s appeal for an enhanced business environment as well as the country’s recognition of an internationally accepted practice.

A TCC serves as proof of a company’s claim for tax credits, which are granted either to exporting firms that are entitled to duty-free privileges or to those that have tax refunds. Holders may use these certificates in paying taxes. Fraud is committed when companies acquire the certificates illegally.

With the new system, the Aquino administration hopes to prevent a repeat of the controversial TCC scam which occurred in the mid-1990s and defrauded the government some P2.5 billion in revenues.

President Aquino issued earlier EO 68 which mandates the implementation of a five-year monetization program for VAT tax credit certificates issued by the BIR and the BOC.

The program gives taxpayers the option to exchange their outstanding TCCs with cash at a discounted rate when collected in advance or the full cash value upon a particular maturity date.

The BIR and the BOC would verify outstanding VAT TCCs and would issue notices of payment schedule to TCC holders.

With the EO, the two revenue agencies would no longer issue TCCs for VAT refunds.

In a separate Revenue Memorandum Circular dated Aug. 14, the BIR said taxpayers have until Oct. 17 to file refund claims for unexpired and revalidated TCCs issued in 2004 until April 11, 2012.

The 1995 tax credit scam involves businessmen Faustino Chingkoe and his wife Gloria, who are now facing criminal charges for their alleged involvement in the tax scam allegedly in collusion with top officials of the Finance department.

The Chingkoe group of companies, chaired by Faustino, was one of the companies found to have used the tax certificates to cheat the government. Faustino was also found to have conspired with the government to secure the certificates.