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Hoping for the best on VAT refunds under TRAIN

One of the concerns of corporate taxpayers is how to optimize their assets, including input value-added tax (VAT), for day-to-day operations. When the input VAT remains unutilized for a long period, however, it becomes a trapped asset.

Before the passage of the Tax Reform for Acceleration and Inclusion (TRAIN) law, taxpayers observed that most unutilized input VAT refund applications administratively filed with the Bureau of Internal Revenue (BIR) were unsuccessful. Consequently, most of them either sought relief with the Courts or let the input VAT float in the company’s books. These situations are disadvantageous, considering the costs of filing and litigating a case in the Court of Tax Appeals (CTA) and of money while the input VAT remains unused.

Is there something in the TRAIN law that would encourage taxpayers to be more hopeful about their VAT refunds? Under the TRAIN law, there are salient provisions that pertain to input VAT refunds, where the input VAT relates to the taxpayers’ VAT zero-rated sales/receipts.

Comparing the old provisions of the Tax Code and the TRAIN law, the period within which the BIR should decide on a VAT refund application was reduced from 120 days to 90 days. This is a welcome development, as VAT refund applications will now be processed at a faster pace.

In line with the reduced period, the BIR could consider revisiting the long list of documentary requirements for applying for a VAT refund. An evaluation could be made whether there are superfluous documentary requirements that may be removed. This action of reducing requirements will definitely make the VAT refund evaluation faster for the BIR.

The old rule included a “deemed denial” provision. This means that when no decision is issued by the BIR within 120 days, the application is deemed denied, and the taxpayer may seek relief with CTA within 30 days after the BIR’s 120-day period to review the application. In other words, there is no more need to wait for the BIR’s decision if the 120-day has lapsed, in order for the taxpayer to go to court.

This is not the case under the TRAIN law. An appeal to the CTA may only ripen after the taxpayer’s receipt of the BIR’s decision denying the claim for VAT refund. Should the BIR find that granting a refund is not proper, the BIR Commissioner must state in writing the legal and factual basis for such denial. The receipt of the decision has become a necessary requirement before judicial relief may be availed.

Hopefully, the taxpayers will get equitable resolutions from the BIR as fully and categorically explained by the Bureau in the decisions it will make. There will be no more “implied” decision of denying the taxpayer’s application.

An interesting provision in the TRAIN law empowers the taxpayer to file a criminal complaint against a BIR officer who deliberately fails to act on the application for refund within the prescribed period. The imposition of criminal liability is a heavy sanction for an erring BIR officer, in addition to the penalties of perpetual disqualification to hold public office, to vote, and to participate in any public election.

Many are hopeful that this personal accountability of BIR officers will make the review process of VAT refund applications more efficient. Others say that the addition of the above provision may be seen as a wake-up call. Some fear, though, that there might be a risk that, because of the inclusion of criminal liability provisions, the BIR could just render haphazard reviews and decisions on VAT refund application just to get away with the imposition of the said penalty.   

It has been the sentiment of taxpayers that there is a lot to be improved in the VAT refund process. The above changes under the TRAIN law could be a big leap. In the days to come, the implementing rules and regulations of the TRAIN law shall be released. We hope that the rules of VAT refund provide for a more expedient and simple process equitable in every way.

We wish that the VAT refund application procedures are streamlined and the list of requirements is significantly reduced. More important, the BIR must be fair and reasonable in deciding every claim for refund. Taxpayers expect nothing less than good regulations and proper implementation. This will likewise help businesses achieve global competitiveness. By moving a company’s assets from a mere paper asset to an asset which can be reinvested, we are definite that its ultimate effect will trickle down from the growth of businesses to the increase in government revenues.

The amended provisions discussed above are promising developments as intended by legislators. It is not only the duty of the business to grow its enterprise. The government also has a responsibility of making sure that businesses thrive in the domestic and global market. Let’s start by unlocking trapped assets and making them as useful as they were meant to be.

Eliezer P. Ambatali is a senior associate of the Tax Advisory and Compliance of P&A Grant Thornton. P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing services firms in the Philippines.


As published in Business World, dated 23 January 2018