Ensuring the correct availment of incentives

By: Arnold P. Supilanas
(Published in BusinessWorld on April 10, 2007)

In an attempt to address the concerns being raised on tax leakages arising from incorrect or, sometimes, fraudulent claims for  tax incentives, the Bureau of Internal Revenue (BIR), signed last  March 1, 2007 separate memoranda of agreement (MoA) with the Board of Investments (BoI) and the Philippine Economic Zone Authority (PEZA) aimed at establishing an efficient, effective system of implementing the income tax holiday (ITH) and the 5% gross income tax (GIT).

The MoA requires a BoI- or PEZA-registered enterprise to secure annually and attach to its annual income tax return (ITR) a certificate of entitlement to incentives for  ITH or 5% GIT in the case of PEZA-registered enterprises enjoying the 5% preferential tax rate.

Moreover, registered firms are required to apply for ITH or 5% GIT incentives with BoI or PEZA within six  months (for BoI) or 30 days (for PEZA) from the BIR due date for the annual ITR or the actual date of filing, whichever comes later.

Failure to comply with these requirements may forfeit the tax incentives entitlement and subject the registered firms to immediate BIR investigation.

BoI and PEZA also agreed to furnish  the BIR a masterlist of firms entitled to ITH or GIT, a list of firms that availed of the ITH or GIT, and a list of firms whose ITH incentives have expired.

The MoA likewise directed these agencies to evaluate the ITRs submitted by the registered companies and endorse to the BIR within one and a half year for BOI and within one year for PEZA their findings on the correctness of the availment of incentives.

BIR, on the other hand, will conduct post-audit/review of the evaluation bearing on incentive availment submitted by BoI and PEZA within one year prior to the prescription of the three-year period to assess, and transmit any findings of deficiency taxes to the Revenue District Office concerned for collection. 

Furthermore, the MoA authorizes the tax authority to conduct immediate audit of enterprises that did not comply with the required submissions and enforce collection of taxes arising from invalidated incentives.
As these compliance requirements are not all new, PEZA and BOI will still be required to submit to BIR the ITRs and their evaluation of the compliance of the registered enterprises for taxable years 2004 and 2005.  PEZA and BOI companies are therefore well advised to secure the required certification and submit these, together with their ITRs.  PEZA’s deadline for the 2004 and 2005 returns are July 31, 2007 and May 31, 2008, respectively. 

Non-compliant BoI enterprises are given until this May 31, 2007 to file these requirements for ITH availment.  BOI’s evaluation is due on or before August 31, 2007.

With the signing of the MoA, it is expected that some loopholes in the fiscal incentives structure of PEZA and BoI registered companies will finally be plugged, and consequently, revenue leakages minimized if not eliminated.  With these collaborative effort with the incentive-giving bodies, BIR has once again clearly conveyed  its intent not to leave any stone unturned in its efforts to strengthen tax administration.

It is undoubtedly a valid objective on the part of government to ensure that only the companies legitimately entitled to fiscal incentives would benefit therefrom.  Taxpayers claiming tax exemptions must be able to prove that they are entitled to such exemptions. Statutorily, a claim for tax exemption should be construed against the taxpayer.  This is but fair.

But the government should ensure that it does not “kill the goose that lays the golden egg” by causing compliance or administrative bottlenecks for companies or increasing their cost of doing business in the Philippines.