by: Lesley G. Lato
A Tax Credit Certificate (TCC), according to Revenue Regulations (RR) 5-2000, is a BIR Accountable Form acknowledging that the grantee-taxpayer named therein is legally entitled to a tax credit, the money value of which may be used in payment of any of his internal revenue tax liability or may be converted as a cash refund, or may otherwise be disposed of in accordance with the provisions of existing regulations.
How do taxpayers acquire TCCs? As government is fair, excess taxes or erroneously paid taxes are returned to the taxpayers if they apply for refund. In a lot of cases, taxpayers opt for the issuance of TCCs rather than cash refunds to expedite the approval of the refund applications. Considering that there is no outright disbursement of funds, it was usually easier on the part of the BIR to issue the refund in the form of a TCC. Cash refunds would entail the availability of funds, which requires prior appropriation by Congress. This process would naturally involve a longer period. In the past, however, irregularities in the issuance and transfers of TCCs have caused huge revenue losses to government.
In line with the fiscal consolidation goals of the Aquino Administration, Budget and Management Secretary Florencio Abad announced last August 10,2011 that the government would shift from the use of tax credit certificates (TCCs) to cash refunds. In his Budget Message for 2012, President Aquino explained that TCCs restrict the liquidity of exporters, especially small and medium scale ones. Due to the limitations of TCCs, these small and medium scale exporters sell their TCCs to the big exporters at a discount. He explained that fairness means giving back to taxpayers promptly what are due them. This shift is in recognition of the need for fiscal responsibility as well as to level the playing field.
In the press release, Secretary Abad also highlighted the advantage of cash refunds over the TCCs because “TCCs are susceptible to irregularities in utilization and it is difficult to monitor”. The cash refunds, on the other hand, foster a more transparent and efficient fiscal administration.
Indeed, this change in policy should be lauded!
Businesses nowadays are hard pressed to survive. The government in that way can do its part in encouraging and helping entrepreneurs and investors.
The main advantage of the shift to cash refund is resulting flexibility on the part of the taxpayers. Currently, TCCs can only be used for direct internal revenue tax liabilities (e.g. income tax, VAT, DST, percentage taxes); hence, cannot be applied for withholding taxes, tax amnesties, deposits on withdrawal of excisable articles, compromise penalties and other taxes that are not administered by the BIR. Cash refunds, on the other hand, can be used to pay anything –loans, operating expenses, inventories, in addition to taxes of any kind whether national or local and government fees and charges. It is unfortunate, however that, in its eagerness to implement the policy shift, the first step that government decided to take is to disallow the transfer or assignment of all BIR issued TCCs to any person, as announced in RR 14-2011 issued on July 29, 2011.
A taxpayer who has little taxes to pay or who has little foreseeable tax liabilities in the future will have the TCC sitting as an idle asset it is books. The TCC issued to any taxpayer already forms part of his property. Under the property law, one of the rights of an owner is the right to dispose. Considering that TCCs are valid claims of the taxpayer, wouldn’t the taxpayer be deprived of his right to make use of his assets in the way most beneficial to him? Considering the time value of money, it may be more beneficial in such cases if the taxpayer will opt to sell its TCCs to other taxpayer even at a discount.
How do taxpayers acquire TCCs? As government is fair, excess taxes or erroneously paid taxes are returned to the taxpayers if they apply for refund. In a lot of cases, taxpayers opt for the issuance of TCCs rather than cash refunds to expedite the approval of the refund applications. Considering that there is no outright disbursement of funds, it was usually easier on the part of the BIR to issue the refund in the form of a TCC. Cash refunds would entail the availability of funds, which requires prior appropriation by Congress. This process would naturally involve a longer period. In the past, however, irregularities in the issuance and transfers of TCCs have caused huge revenue losses to government.
In line with the fiscal consolidation goals of the Aquino Administration, Budget and Management Secretary Florencio Abad announced last August 10,2011 that the government would shift from the use of tax credit certificates (TCCs) to cash refunds. In his Budget Message for 2012, President Aquino explained that TCCs restrict the liquidity of exporters, especially small and medium scale ones. Due to the limitations of TCCs, these small and medium scale exporters sell their TCCs to the big exporters at a discount. He explained that fairness means giving back to taxpayers promptly what are due them. This shift is in recognition of the need for fiscal responsibility as well as to level the playing field.
In the press release, Secretary Abad also highlighted the advantage of cash refunds over the TCCs because “TCCs are susceptible to irregularities in utilization and it is difficult to monitor”. The cash refunds, on the other hand, foster a more transparent and efficient fiscal administration.
Indeed, this change in policy should be lauded!
Businesses nowadays are hard pressed to survive. The government in that way can do its part in encouraging and helping entrepreneurs and investors.
The main advantage of the shift to cash refund is resulting flexibility on the part of the taxpayers. Currently, TCCs can only be used for direct internal revenue tax liabilities (e.g. income tax, VAT, DST, percentage taxes); hence, cannot be applied for withholding taxes, tax amnesties, deposits on withdrawal of excisable articles, compromise penalties and other taxes that are not administered by the BIR. Cash refunds, on the other hand, can be used to pay anything –loans, operating expenses, inventories, in addition to taxes of any kind whether national or local and government fees and charges. It is unfortunate, however that, in its eagerness to implement the policy shift, the first step that government decided to take is to disallow the transfer or assignment of all BIR issued TCCs to any person, as announced in RR 14-2011 issued on July 29, 2011.
A taxpayer who has little taxes to pay or who has little foreseeable tax liabilities in the future will have the TCC sitting as an idle asset it is books. The TCC issued to any taxpayer already forms part of his property. Under the property law, one of the rights of an owner is the right to dispose. Considering that TCCs are valid claims of the taxpayer, wouldn’t the taxpayer be deprived of his right to make use of his assets in the way most beneficial to him? Considering the time value of money, it may be more beneficial in such cases if the taxpayer will opt to sell its TCCs to other taxpayer even at a discount.
Does the issuance of the RR therefore violate the constitutional right to proper ty in the sense that it restricts the disposition of the property? Corollary to this, Section 3 of the 1987 Constitution provides: “No person shall be deprived of life, liberty or property without due process of law, nor shall any person be denied the equal protection of the laws.” A transition period to implement the policy should have allowed taxpayers sufficient period to transfer their TCCs to other taxpayers who can immediately utilize the credits. That should easily wipe out all outstanding TCCs in the hands of taxpayers. If a monetization scheme is being considered, this should have been announced simultaneously so that the prohibition will not cause undue apprehensions on the part of the current holders. We should look forward to a regime of immediate cash refunds. However, while the systems are not yet in place, current holders of TCCs should not be disadvantaged.
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