Much patience needed to get VAT refund

A decision promulgated by the Supreme Court on March 9, 2010 (G.R. 157594) is a classic example of the lengthy process a taxpayer has to go through before getting a tax refund or credit.

The case involves an enterprise registered with the Philippine Economic Zone Authority (PEZA) seeking to refund its unused input VAT covering the period Jan. 1 to 30 June 1997.

The PEZA enterprise is engaged in the manufacturing and exporting of electric machinery and equipment system. It filed an application for tax credit/refund with the One-Stop Center of the Department of Finance on March 30, 1999. On the following day, the PEZA enterprise filed a Petition for Review with Court of Tax Appeals (CTA) in order to stop the running of the two-year prescriptive period.

On Oct. 16, 2000, the CTA rendered its decision favoring the PEZA enterprise, but the amount to be refunded/credited was reduced to P1,385,292 from its original claim of P3,875,139. The disallowed portion of the claim was due to input taxes not properly supported by value-added tax (VAT) invoices and official receipts.

The PEZA enterprise and the Commissioner of Internal Revenue (CIR) both sought reconsideration of the CTA decision. The PEZA enterprise asserted in its Motion for Reconsideration that it had presented proper substantiation for the substantial portion of input VAT disallowed. On the other hand, the CIR argued that the PEZA enterprise was not entitled to the credit/refund because, as a PEZA-registered Economic Zone export enterprise, it was not subject to VAT.

On Jan. 17, 2001, the CTA issued a resolution denying both Motions for Reconsideration of the PEZA enterprise and the CIR. Thus, the CIR filed a Petition for Review and elevated the case to the Court of Appeals (CA).

In its decision dated Aug. 29, 2002, the CA granted the appeal of the CIR and ruled that the PEZA enterprise was not entitled to the refund of its unused input VAT because it was a tax-exempt entity under Section 24 of RA 7916, liable to the five percent preferential rate on gross income earned, which is in lieu of all other national and local taxes, including VAT.

The PEZA enterprise filed a Petition for Review with the Supreme Court containing the assignment of errors with prayers that the decision and resolution of the CA reversing the decision of the CTA be set aside and that a new one be rendered affirming and upholding the decision of the CTA.

After a while, the Supreme Court ruled that the Petition of the PEZA enterprise is impressed with merit. The Supreme Court ordered the CIR to refund or issue a tax credit certificate to the PEZA enterprise.

It took a total of 11 years before the PEZA enterprise was able obtain the final decision and get the tax refund/credit. It took approximately two years for the CTA to issue its decision, additional two years in the CA, and seven years in the Supreme Court.

I admire the PEZA enterprise for enduring the tedious process just to get a measly P1.3 million in tax refund/credit. Obviously, the enterprise is not only after the recovery the amount being claimed but more so in upholding its right. 

With the simplified nature of our VAT system, taxpayers are expecting the CIR and our Courts for a more speedy process in granting tax refund. We must always remember that in addition to the prayers contained in the Petition for Review filed by the claimant, a silent prayer always goes with it which says: May our rightful claim be granted to us at the soonest possible time!

(Romeo B. Cruz is a Senior Manager of Tax of Manabat Sanagustin & Co., CPAs, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG in the Philippines. For comments or inquiries, please email [email protected] or [email protected])