Tax Articles

VAT Refund Process

By: Atty. Mabel L. Buted

Mabel L. Buted Partner   +632 8403-2001 loc.160 This email address is being protected from spambots. You need JavaScript enabled to view it. View Profile

In line with its policy to ease the doing of business here in our country, our government continues its on-going efforts in simplifying the process in claiming for refund of the unutilized and excess input taxes incurred by taxpayers.

This started with the enactment of the TRAIN Law (Tax Reform for Acceleration and Inclusion) in 2018 when the period for our tax authority to act and decide on refund applications was shortened from 120 days to 90 days. The BIR also streamlined its procedures in processing VAT refund claims to comply with the 90-day period mandated by TRAIN.

So, sometime in June 2023, the BIR issued Revenue Memorandum Circular (RMC) No. 71-2023 and Revenue Memorandum Order (RMO) No. 23-2023, revising and substantially reducing the documentary requirements in the filing of refund claims. These issuances removed the redundant requirement that taxpayers must submit documents or data which can already be verified from existing BIR records and system. This includes taxpayer’s tax returns on income tax and VAT, and other corporate records. The submission of some schedules and certificates was also dispensed with. Further, under the new rules, only the original hard copies of the source documents to prove sales and substantiate purchases are required to be submitted, and the softcopies of these are no longer needed. The BIR also relaxed its requirement in confirming sales made to non-resident foreign corporations not doing business in the Philippines, by accepting documents other than the articles or certificate of incorporation of the said foreign entities, in case of unavailability.

With the passage of the Ease of Paying Taxes Act (EOPT), we expect the VAT refund process to be made even easier. I particularly commend the new invoicing requirements, as revised, by the new law. It can be recalled that the taxpayer and the BIR would oftentimes dispute on the term and meaning of business style required to be indicated in the documents. Many applications for VAT refund were also denied in the past due to incomplete or non-compliance with the invoicing requirements. The mere fact that the taxpayer’s complete and correct address was not shown in the invoice or receipt was a ground for denial of the input VAT credit. Now, under the EOPT, the business style of the taxpayer is no longer required to be indicated in the invoice to validly support its purchases and input tax credits. In addition, so long as the invoice contains the (a) name and TIN of both the taxpayer and seller, (b) the amount of sales and VAT due, (c) the description of the goods bought or nature of services availed, and (d) the date of the transaction, the taxpayer can validly credit its input VAT and refund any excess of it.

The EOPT also introduced the risk-based approach in verifying VAT refund claims. This means that the extent of the BIR’s tax audit on the claim for refund will depend on the taxpayer’s risk classification. The claims shall be classified into low-, medium-, and high-risk claims, with the classification to be based on the amount of VAT refund claim, tax compliance history, frequency of filing, among others. Under the proposed revenue regulations, only those claims classified as medium-risk and high-risk are subject to verification. Those classified as low-risk are no longer subject to tax audit. In medium-risk claims, the BIR can verify only at least 50% of the amount of the taxpayer’s sales and purchases, as compared in high-risk claims, wherein the BIR will audit the full amount of sales and purchases, and verify all documents submitted. But who will determine what claim will be classified as low, medium, or high risk? I hope the revenue regulations will clearly state the standards that must be followed to avoid any room for corruption.

We appreciate these continuing reforms being implemented on VAT refunds. These are standards and measures which I hope can also be applied in other government actions such as in the refund of taxes other than input tax and in the conduct of regular tax audits.