BIR tightens rules on excise tax exemptions

The Bureau of Internal Revenue, or BIR, hopes to improve its collection by at least P1 billion by regulating availment of the tax exemption on products sold by exporters to international air carriers and tax-exempt institutions. Revenue Regulation (RR) 3-2008 prescribes a stricter procedure to ensure that such products are neither misdeclared nor diverted back into the domestic market. "In the past, they allege that a product is exported [to tax-exempt institutions], so they do not pay excise tax. Now, they have to pay the tax first before they can claim[tax] refund on the alleged exported articles because we should verify if the products were really exported," BIR Commissioner Lilian B. Hefti said in an interview. Ms. Hefti said the BIR today can still check for misdeclarations of up to two years back, but this involves a "very tedious process" for the tax bureau. Hence, the new regulation aims to preempt attempts to misdeclare such products. "With this RR, up front sila magku-kusa na magpakita ng documents to prove the exports [they will have to present documents to prove these are really exports for this purpose]. We can’t quantify [how grave the problem is] but it will prevent future occurrence," Ms. Hefti added. According to the RR, manufacturers claiming excise tax credits or refund or product replenishment "shall pay the excise tax that is otherwise due on every removal thereof from the place of production that is intended for exportation or sale/delivery to international carriers or to tax-exempt agencies." If the product is not sold in the domestic market, the applicable excise tax shall be based on the value appearing on the manufacturer’s sworn statement, converted to the Philippine peso value. If the product made for export is also sold in the local market, the excise tax rate will be the same as the excise tax rate imposed on the domestically sold items, the RR said. Based on Section 5 of RR 3-2008, exemptions will apply to export products sold to embassies, legates, or international organizations such as the Asian Development Bank, United Nations groups, and the International Rice Research Institute, provided that the manufacturer holds a prior written permit from the BIR Large Taxpayers Assistance Division II. Subsequent permits will neither be issued nor approved without a liquidation report on the articles disposed, to be submitted to the BIR within 30 days from the date of the removal of the tax-exempt article from the place of its production. "We can expect billions from this regulation from this year alone. Some collection come in March and others in April," Ms. Hefti said. The BIR is introducing new regulations to ensure that it collects the right amount of taxes, given its steep revenue goal this year of P854 billion. The tax bureau missed its P765 billion collection target in 2007 as revenues stood only at P712 billion. Proceeds from excise tax stood at P55.04 billion last year. — Anna Barbara L. Lorenzo, BusinessWorld