Written by Chace H. Montealegre, 15 February 2007
Everyone seems to look forward to holidays with enthusiasm. Holidays mean having time to rest and unwinf - a welcome break from the rigours and stress of office work.
I can’t imagine how I would feel if suddenly, conditions are imposed on the enjoyment of holidays! An exaggeration, maybe, but just the thought troubles me.
The income tax holiday (ITH) enjoyed by Board of Investment (BOI)-registered firms is not at all different. It is a time off from payment of income taxes – a welcome break indeed from handing over a part of one’s hard earned income to the Philippine government.
Unlike our ordinary holidays, however, ITH is not given as a matter of right, but as a privilege to entities who have, after proper evaluation by the government, have fully complied with the conditions prescribed by law. Thus, entitlement to said incentives are subject to certain restrictions and requirements imposed by the government.
BOI-registered firms are granted ITH, among other incentives, pursuant to Executive Order (EO) 226, otherwise known as the Omnibus Investments Code of 1987.
However, availment of the ITH is not automatic in the sense that the same is still subject to evaluation by the BOI, which is the government agency tasked to implement EO 226. Under Section 7(3), Book 1 of EO 226, the BOI Board is granted the power to “process and approve applications for registrations with the Board, imposing such terms and conditions x x x , including refund of incentives when appropriate, restricting availment of certain incentives”.
In the exercise of this power, the BOI has instituted certain procedural requirements to determine the entity’s compliance with the conditions for availment of the incentive as set forth under the law and the actual amount of ITH entitlement for the year.
Under the current procedure, a BOI-registered firm is allowed to claim ITH upon the filing of its annual income tax return (ITR) with the Bureau of Internal Revenue (BIR), Thereafter, the entity is required to submit an application for ITH with the BOI within 30 days from filing of the ITR. If after evaluation the applicant’s qualification has been properly determined, the BOI will issue an endorsement addressed to the BIR specifying the approved ITH amount for the year. Late filing of the ITH application with the BOI will expose the applicant to certain penalties but will not prejudice its ITH entitlement.
Recently, the BOI and the BIR jointly drafted a Memorandum of Agreement (MOA) designed to monitor the ITH incentive claims of BOI-registered firms. It is a recognition of the fact that huge amounts of taxes are lost as a result of availment of this incentive by registered entities without the required qualification, e.g., either the entity has not been qualified by the BOI or its ITH incentive had been suspended, cancelled or expired or it had not complied with the conditions attached to its ITH entitlement.
Thus, the MOA, through the collective efforts of the BOI and the BIR, aims to curb these tax collection loopholes.
The proposed MOA prescribes more stringent requirements in the availment of the ITH.
Based on its provisions, a registered enterprise availing of the ITH shall secure a certification from the BOI that it is a bona fide BOI-registered enterprise entitled to ITH incentive. The BOI certification shall be secured on a yearly basis before the tax filing deadline and shall be attached to the ITR. The ITR will not be accepted by the BIR without the BOI Certification.
Thereafter, the registered enterprise is required to file an application for ITH availment with the BOI within forty five (45) days from the filing of the ITR with the BIR. The application will be supported by the ITR and the BOI Certification stamped received by the BIR.
Compliance with these procedural requirements is mandatory. Thus, failure to comply with any of such requirement will be a ground for the forfeiture of the ITH entitlement in the particular taxable year. In addition, this will also trigger the BIR to conduct an immediate investigation to enforce collection of deficiency income tax due from the registered enterprise.
However, this does not preclude the registered enterprise from contesting any adverse findings of the BOI and/or BIR taking into consideration the protection clause of Art 79 of Book VI of EO 226 which provides that “ All doubts concerning the benefits and incentives granted enterprises and investors by this Code shall be resolved in favor of investors and registered enterprises”.
Undoubtedly, the draft MOA would address the current tax loopholes in the ITH availment.
However, since the strict procedural requirements imposed under the proposed MOA effectively subject the registered enterprise to additional administrative burden, this might discourage the influx of foreign investments into the country. The BOI should not lose sight of the possible negative effects of imposing too many administrative requirements which can be viewed by foreign investors as too burdensome and bureaucratic.
Thus, it may be worth for the BOI and the BIR to revisit the provisions of the MOA and study its overall implications to the economy before this is finalised.
