Government to settle tax refunds to Japanese contractors

The government will be able to settle tax refunds owed to Japanese contractors under grant-assisted projects but refund claims under loan-funded projects would have to be through reconciliation.

The government still owes Japanese contractors a total of P810 million in tax refunds broken down into about P75 million in tax refunds grant-assisted projects and about P736 million worth of claims under projects funded under the yen loans from the Japanese government.

Under various grant and loan agreements, Japanese contractors participating in grant and loan-assisted projects in the country are exempted from the value-added tax (VAT).

In 2005, the government paid a total of P300 million, equivalent to about 72 percent of total refund and the remainder was being settled as the Japanese government resumed grant assistance to the Philippines.

The Department of Finance (DOF) disclosed that the arrears under grant-assisted projects would be paid in full this year but other claims would have to be reconciled first.

Finance Undersecretary Robert Tan said line agencies that act as implementing agencies for various Japanese-funded projects already had the budget for the refunds.

Tan said the arrears have been mostly paid and the rest would be paid this year except for advances for a Benguet project amounting to P20 million.

"But that’s just a matter of documentation," Tan said. "Once the papers are completed and have been processed, we can settle that already."

Tan said claims under loan-assisted projects were being reconciled individually by a committee specifically created for the purpose.

"As for those claims, it comes down to a matter of expediting the review of the claims," he said. "The agencies have the budget anyway."

The Japanese government has only recently resumed grant assistance to the Philippines after it was suspended in 2004 due to the accumulation of unpaid VAT refunds.

The suspension affected mostly local health and infrastructure projects that used to enjoy grant assistance from the Japanese government, coming at the time when the Arroyo administration hit serious budget deficit problems and eventually failed to keep up with its tax refund payments to Japanese contractors.

The Japan Bank for International Cooperation (JBIC) has been the country’s biggest source of official development assistance, offering concessional payment terms including low interest rates ranging from 0.4 percent to 1.5 percent and long payment periods extending up to 40 years.