Gov’t introduces reforms to ensure VAT refund

MANILA, Philippines — The government has introduced four reforms to ensure the faster processing of value-added tax (VAT) refunds of exporters and other qualified entrepreneurs, according to the Department of Finance (DOF).

Finance Undersecretary Karl Kendrick Chua said the government has established an Enhanced VAT Refund System under the Tax Reform for Acceleration and Inclusion (TRAIN) Law, which guarantees that all VAT refund claims are completed and paid out within 90 days from submission.

Chua said reforms implemented under the new system include the establishment of a special trust account in the so-called General Fund, which is sourced from five percent of the total VAT collections of the Bureau of Internal Revenue and the Bureau of Customs from the preceding year. He said this ensures that money is available for VAT refunds.

The undersecretary said the new system also allows the conduct of a risk-based post-audit instead of auditing claims before giving the refund, and requires the implementation of an electronic invoicing and receipts system.

Furthermore, Chua said economic managers are now also basing the government’s revenue targets for the next fiscal year net of VAT refunds.

“So all of these together will allow the refund process to be better. We changed the incentives so that the refund system can be better given,” said Chua during a recent business forum in Makati City.

Peter Wallace, founder of the Wallace Business Forum, said such reforms are welcome news for enterprises as applying for VAT refunds used to take as long as nine years to claim.

Under the National Internal Revenue Code, qualified businesses are allowed to recover excess input VAT for certain transactions, mostly those involving exports, either through a VAT refund or tax credit certificate.

The DOF said the pre-TRAIN process of claiming VAT refunds involved the submission of many documents, and often takes years to resolve.

 “For 30 years since we started the VAT in 1988, we’ve done the refund so badly because the incentive to give refund is not there. So we reformed it (under TRAIN),” Chua said.

Under TRAIN, the VAT is treated purely as a consumption tax rather than as an incentive for businesses.

 “We think that we should just implement the VAT as it should be:  as a consumption tax. You pay the VAT when you import or you buy a product, and then when you export, you get a refund,” Chua said.

Republic Act 10963 or the TRAIN Law sought to simplify the country’s tax system. Aside from reforms in the VAT refund system, the law also implemented cuts in the personal income tax rates of individual taxpayers.