VAT refund issues hurting PHL competitiveness – business groups

MANILA (Mabuhay) – At least P15 billion in value-added tax (VAT) refund claims remain undisbursed and have been sitting in government coffers for years, a situation that has diminished Philippine competitiveness as a business destination, the Tax Management Association of the Philippines Inc. (TMAP) told reporters in a joint briefing.

The situation has prompted business groups to call for more dialog with the Bureau of Internal Revenue (BIR) on the matter, saying the BIR’s inaction tax refunds could hurt the Philippine goal of attracting more foreign investments.

“At the very least, we estimate it to be P15 billion as what government had provided under its national budget,” TMAP president Rina Lorena Manuel said during a joint press briefing of 20 business groups in Makati City.

“But we believe the figure could be much higher, given it has accumulated if claims have been there for five, ten, over ten years for some,” Manuel noted.

In the same briefing, Australian-New Zealand Chamber of Commerce Philippines (ANZCHAM) president and CEO John Casey said government’s denial in releasing the VAT claims will hurt Philippine competitiveness in the region.

“Taxation is one of the components that attracts investments. That’s only one component. The Philippines has great advantages, but it also has disadvantages and competitors in the ASEAN region are ahead,” he noted.

In the Philippines, corporate income tax is 30 percent, compared with 25 percent for both Indonesia and Malaysia, and 8.5 percent to a 17-percent cap in Singapore.

Implementing the law

The BIR, however, said on Tuesday it was merely implementing the law on VAT refund, which has been in place since the National Internal Revenue Code (NIRC) was implemented on January 1, 1998.

“The NIRC provides that in the event the BIR does not act on the claim within 120 days, the taxpayer has the remedy to elevate the case to the [Court of Tax Appeals]. Revenue Memorandum Circular (RMC) No. 54-2104 merely implements the said provision of law,” the bureau noted in a statement.

In June, the BIR issued RMC No. 54-2014 which is intended to clarify the application for VAT refund.

Under the circular, the BIR commissioner has 120 days from the date a tax payer files for refund claims to decide whether to disburse the refund or issue a Tax Credit Certificate for creditable input taxes instead.

If the VAT refund claim or credit is not acted upon within 120 days, such “inaction shall be deemed a denial” of the application.

The BIR said the new circular merely sought to address various complaints received with respect to the length of time the agency takes to process claims for refund or credit.

“With the said RMC, the BIR commits itself to process all applications in 120 days and provided certainty to the resolution of the claims of taxpayers,” the bureau said.

Another purpose of the circular is to minimize if not eliminate taxpayer interaction with revenue personnel to avoid collusion between them and to prevent corruption, the BIR noted.

But the circular should not be retroactive, TMAP internal vice president Terrence Conrad Bello said, particularly because the unrefunded VAT claims can be confiscated.

European Chamber of Commerce of the Philippines (ECCP) vice president for external affairs Henry Schumacher said it is unfair to make changes in applying for VAT refund retroactively, which should actually be progressive.

“What we want is fair treatment. We have been banking on government in saying that these are incentives in doing business in the Philippines,” he said.

“Old investors are ambassadors for new investors. If we are treated badly, how do you think we are going to discuss with the next investors?” he noted.

An example OF BIR inaction on VAT claims involved a group of banana growers applying for refund after Typhoon Pablo wrought destruction in Mindanao in 2012, Pilipino Banana Growers and Exporters Association (PBGEA) executive director Stephen Antig said.

“After Pablo, we had several meetings with the Department of Finance for the tax refund to be facilitated, that will enable us to rehabilitate lands. But sad to say, four years after, instead of facilitating the release of tax refund, the RMC was issued that practically doused the hope of exporters to be able to get VAT refund,” he said.

Banana is the Philippines’ second largest cash crop export after coconut.

“What we need is assistance. The Philippines is now second biggest exporter of bananas, next to Ecuador. We can only be number one if we get assistance from government,” Antig said.

Encourage more coordination

Now, business groups and stakeholders are urging the BIR to encourage more coordination with the private sector before implementing new rules.

“That is always the issue, they implement without so much consultation,” said Ramon Garcia, former president of Association of Certified Public Accountants in Public Practice (ACPAPP).

“Government should really listen. Consult first before implementing something,” he added.

The BIR has a big role in attracting foreign investment into the country, Philippine Association of Multinational Companies Regional Headquarters (PAMURI) chairman Shameem Qurashi said.

“The government has done so many good things to attract investments. All the chambers of commerce have played part in bringing in investments,” he said.

“There should be a situation where the BIR realizes that they play a very big role in this situation… and they don’t send the wrong signals,” he added.

In July, foreign direct investments recorded a net inflow of $436 million, down 20 percent from $549 million a year earlier. Year-to-date, FDI net inflows reached $4 billion, up 56 percent higher from $2.6 billion.

The Philippines registered $3.86 billion in FDIs in 2013, dwarfed by Southeast Asian peers, according to United Nations Conference on Trade and Development’s (UNCTAD) World Investment Report 2014.

As of end-2013, FDIs in Malaysia reached $12.31 billion, compared with $12.95 billion in Thailand and $18.44 billion in Indonesia. (MNS)