The Aquino administration is introducing a value-added tax (VAT) refund program in exchange for the tax credit certificate (TCC) system, the Department of Budget and Management said Monday.
Government is scrapping the TCC to avoid a repeat of the scam associated to it, which defrauded the national coffers of some P2.5 billion in the mid-1990s, said Budget Secretary Florencio Abad.
A P9-billion allocation for the first year of the VAT refund is being prepared, and the administration intends to allocate money for it, starting this year until 2016, Abad added.
President Aquino signed Executive Order 68 on March 27, which mandates the five-year monetization program for VAT tax credit certificates issued by the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC).
Under EO 68, taxpayers have the option to exchange their outstanding TCCs for cash at a discount ahead of maturity or the full cash value on maturity date.
The BIR and the BOC would no longer issues TCCs for VAT refunds, but would verify outstanding VAT TCCs and issue payment schedules for TCC holders.
A tax credit certificate is proof of taxpayers’ claims for tax credits—given to exporters or those that that have tax refunds. Holders may use these certificates to pay taxes or as duty-free privilege for those qualified.
It is considered fraudulent when a company cashes in TCCs credited to other companies.
The VAT credit scheme would help address the problem of corruption under the TCC system, and encourage businesses to diligently and accurately pay their taxes, said Abad.
“Businesses, especially exporters, have been crying out for government to refund their VAT credits in an expedient manner. The outmoded TCC scheme traps their liquidity for as much as three years and exposes them to certain unscrupulous practices,” he said.
In 1995, businessman Faustino Chingkoe and his wife Gloria and top officials of the Department of Finance supposedly used the Chingkoe group of companies to defraud government of billions of pesos worth of tax credits by obtaining TCCs beyond that should not have been theirs.
The couple are now facing criminal charges for their involvement in the scheme. —VS, GMA News