Zubiri: Nonpayment of VAT refunds to foreign investors a ‘black eye’ to Phl

Senate President Juan Miguel Zubiri emphasized the need for the government to address the issue of the nonpayment of value-tax-added refunds to foreign investors as it would affect the country's business appearance as the government tries to attract more investments for the Philippines.

The report of Nikkei Asia published earlier in October noted that multinationals operating in the Philippines are facing delays in receiving refunds on the value-added tax.

It added that the situation is growing so dire that some companies are considering scaling down their business and withdrawing from the Philippine market.

Under the Corporate Recovery and Tax Incentives for Enterprises law, the government is offering VAT refunds to entice global businesses to set up businesses in the Philippines.

However, the country's complex tax system has made foreign investors applying for the rebates "a costly affair."

Also, companies were reportedly reluctant to push for refunds for fear of facing retaliatory audits by the Bureau of Internal Revenue.

Recalling his meeting with Japanese Prime Minister Fumio Kishida last week, Zubiri raised the concern on tax refund during the Senate plenary session on the 2024 proposed budget of the Department of Finance and its attached agencies on Wednesday.

"I think we all know the issue…It's the issue of the VAT refund. I believe we are going to amend the CREATE law and make it policy move already there, particularly on the issue of the VAT refund," Zubiri narrated.

"I was seated beside the ES of the minister…We have tackled the problem of the VAT refund for a long time, wherein, the previous administration— when the Japanese manufacturers operating in the Philippines buy from local producers certain goods—and these goods are being exported anywhere together with other products, the last administration made it clear that they (companies) will first pay the vat and then it will be refunded after the export," he continued.

Zubiri, who heads the Philippines-Japan Friendship Association, said the problems lie with the Philippine government not paying VAT refunds to the investors.

"We owe them billions of pesos already and there were threats that they might move shops to other countries. These are already locators here. Now perspectively, we should fix this," he added.

Zubiri cited an example the ITOCHU companies that run Dole Philippines, one of Japan's largest trading companies located in his hometown Bukidnon, which has about 42,000 Filipino employees nationwide.

"If ITOCHU pulls out of the country what will happen to these 42,000 employees… Because they cannot get their VAT refund," he said.

Zubiri asked. "What is the policy, your honor? Are we going to refund them? How are we going to refund them? Is it in the budget to refund them?"

Senator Sonny Angara, who sponsored the DoF's proposed budget, responded. "Mr. President I was told they have 90 days to pay, and the Secretary said they will pay, but according to the commissioner of the BIR, there are some cases that are already in the court, but they will wait for the final decision for those [still] in the court… Those that are due and demandable, they have 90 days to pay it."

"They have promised to pay by the end of the year, your honor," he added.

Zubiri shared that vat-refund in other countries.

"I don't know if it is a BIR in this current administration or the past administration, their policy is to bring us to court. Imagine, telling a billion-dollar investor 'Take to court'…So now these poor Japanese companies—hiring thousands of people in our country—are suffering because they have court cases and they would rather settle outside of court," the Senate president said.

Zubiri urged the Court of Tax Appeals can act on the matter quickly so that the issue will be officially settled.

He then clarified if the BIR was already addressing the matter and vowed that the VAT refund would be paid within 90 days.

"Yes, your honor. That is what I was told [to] by Secretary [Benjamin Diokno]," Angara replied.

Zubiri asked for clarification on the BIR's current policy on the issue. "So while we are waiting for the law to be amended, what is the policy now? To have a refund? Or again 'Take us to Court.'"

Angara noted that the BIR is ready to pay as long as the documents are complete.

"But in certain cases, I think there are documents that are not yet complete your honor. That's what the commissioner is telling us," he added.

Zubiri urged the BIR commissioner to immediately address the vat-refund issue, particularly with the country's foreign investors.

"Please work on that, because, really it is a black eye [to us] we are trying to sell the country for the investors but this is a recurring theme that each and every country would discuss because the Japanese Chambers of Commerce—in the foreign chambers—is very influential," the senate president said.