ON January 4, 2019, the Bureau of Internal Revenue issued a revenue memorandum circular (RMC 3-2019) publishing the joint circular issued by six government agencies: The Department of Finance, Department of Budget and Management, Bureau of Treasury, BIR, Bureau of Customs (BOC) and the Commission on Audit. The joint circular provides for the guidelines on the establishment of a fund to answer for the value-added tax refund claims, as provided under Sections 31 and 33 of the Tax Reform for Acceleration and Inclusion (TRAIN) law. The source of this fund will be the 5 percent of the total VAT collection from the immediate preceding year. This fund shall be reverted to the general fund every end of the year and shall be filled in again with the portion of VAT collection for the year in reservation for the claim to be made the next year.
The rule then is that the amount that will cover the claims for VAT refund shall come from the reserved account, which is composed of the 5 percent of the total VAT collection. But in case the refund claims are higher than the allocated fund, what shall be the remedy of the BIR and BOC? Will they simply wait for the next year’s replenishment of the reserved account? The circular is silent on this part. Though this is within the internal procedures needed to be resolved by the tax bureau, the same is a concern to the taxpayer. Regardless, the fixed procedure is that the payment for VAT refund claims will be shouldered by this special account composed of the 5 percent of total VAT collection from the preceding year.
We note that this appropriated special account is intended to attain the new rule on the shortened 90-day processing of refunds. The law provides for this special appropriation to ease the process and to achieve the 90-day period under the TRAIN law. However, can this really be achieved if the readily available funds are only limited to 5 percent of the total collection? This question needs to be answered with the implementation of this special appropriation.
In addition, let’s also take a look at the recently issued Revenue Regulation 26-2018. This new regulation aims to further improve the process of VAT refund claims. Under this regulation, the 90-day period will be counted from the filing of the application up to the release of the payment of the VAT refund. It amends the prior issuance that limits the 90-day period only up to the approval of the recommendation report. With this new rule, taxpayers will be less worried when they are faced with the filing of applications for VAT refund. Aside from shortening the period of the process, the regulation also provides that in case the official, agent or employee of the BIR deliberately causes the delay in the processing of such claim, he shall be subjected to penalties as imposed by the Tax Code. This means that the government is serious with its implementation of the 90-day period.
This move by the government is of great relief to the taxpayers, who are oftentimes skeptical of the process and in doubt of proceeding with the refund process, knowing the many uncertainties associated with the process, such as the time and other resources needed to be spent before a resolution on the claim is made. This, however, will be of great challenge to the government, in ensuring that the 90-day period is properly complied with. The system may not be perfect, but it is a good sign that the responsible agencies are doing their best in improving the system. These issuances are indications that the government is continuing to improve its processes to help citizens.
Last, the taxpayer should know that this special appropriation is applicable only to certain tax claims, particularly for VAT refund solely issued by the BIR or the BOC, pursuant to Section 112 of the Tax Code and on the provisions on Duty Drawback and Refund under the Customs Modernization and Tariff Act.
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The author is a senior associate of Du-Baladad and Associates Law Offices (BDB Law), a member-firm of WTS Global.
The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported, therefore, by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at karalouisse.eramis@bdblaw.com.ph or call 403-2001, local 170.