VAT payments, refunds made easier after 30 years because of TRAIN–DOF

AFTER three decades of hits and misses, value-added tax (VAT) payments and refunds have become easier for businesses as a result of the passage of the Tax Reform for Acceleration and Inclusion (TRAIN) Act, the Department of Finance said.

In a statement on Thursday, Finance Undersecretary Karl Kendrick Chua said under the law, the government introduced four reforms in processing applications for VAT refunds of exporters and other qualified entrepreneurs.

These reforms, Chua said, ensures that all refund claims are completed and paid out within 90 days of submission as required under this law.

“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.

“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,” he added.

Chua said these four reforms include setting up of a special trust account in the General Fund sourced from 5 percent of the total VAT collections of the Bureau of Internal Revenue and the Bureau of Customs from the immediately preceding year—to ensure money is available for VAT refunds—and basing revenue targets set for the next fiscal year on net of VAT refunds.

The reforms also included a plan to conduct a risk-based post audit to do away with the tedious process of auditing claims before giving a refund; and the implementation of an electronic invoicing and receipts system.

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 pre-TRAIN process of claiming VAT refunds involved the submission of a voluminous set of documents and often took years to resolve.

“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,” Chua said in a recent forum in Makati City.