THE Department of Finance (DOF) has issued a new order requiring the special revalidation of all outstanding Tax Credit Certificates (TCCs) from August 1 to December 31, 2006. Starting August 1, 2006 all outstanding TCCs issued by the Bureau of Internal Revenue (BIR), the Bureau of Customs (BOC), and the DOF One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (OSS Center) shall be deemed automatically retired, recalled or cancelled and shall no longer be accepted for payment for any outstanding tax or duty liability of the respective TCC holder.
Department Order No. 20-06 (DOF Order No. 20-06) was issued in June of this year for the purpose of conducting an inventory and for determining the volume and value of all outstanding TCCs issued. The order also seeks to prevent the use of expired, stolen, fake, tampered or recycled TCCs. It will be remembered that a few years back, the government was able to uncover the illegal issuance of TCCs amounting to hundreds of millions of pesos. While criminal cases have accordingly been filed in court, no conviction has yet resulted from such cases.
Issuance of TCCs / Duty Drawback. Under existing laws, TCCs may be issued by the concerned agency on various grounds such as excess or overpayment of taxes or duties or refund of duties paid on re-exported articles. For importers and exporters in particular, the provisions of Section 106(c) of the Tariff and Customs Code of the Philippines (TCCP), as amended provide the basis for allowing drawback on duties paid on imported raw materials upon exportation of products manufactured from such previously imported materials. The requirements under the above-mentioned section are as follows:
- Payment of duties on imported raw materials;
- Actual use of such materials in the production or manufacture of the products exported;
- Exportation made within 1 year after importation of such materials; and
- Application or claim for drawback filed within 6 months from date of exportation.
There are also many other grounds for securing tax or duty refund as provided under the numerous laws providing fiscal incentives (e.g. Omnibus Investment Act) or as a result of a final judicial order requiring the issuance of a refund or drawback.
TCCs for Revalidation. The TCC Revalidation Program provided under DOF Order 20-06 refers to the cancellation and replacement of new TCCs for the following outstanding TCCs issued by the following agencies:
- The BIR under existing revenue laws, special laws, international agreements and final judicial orders;
- The BOC under the TCCP, as amended, and final judicial orders;
- The DOF OSS Center under the Omnibus Investment Act and other existing laws;
- The OSS-Center and the BIR under Section 112 of the National Internal Revenue Code, as amended; and
- The OSS-Center and the BOC under Section 106 of the TCCP, as amended.
New TCC Form. Effective August 1, 2006, all revalidated TCCs will be issued a new and updated TCC form with enhanced security features. The new form will clearly indicate the legal basis of the issuance, the recommending/processing/investigating office and the approving authority of the agency or bureau concerned. The period of evaluation shall only be from August to December 2006, thereafter, all TCCs not validated or submitted for validation will likely be deemed as cancelled.
The concerned agencies (BIR, BOC and OSS Center) are required to prepare separate inventories of all unutilized TCC forms in their possession, custody and control, which shall be disposed of in accordance with the pertinent law and rules. The agencies shall likewise prepare their separate reports on the inventory and disposition of unutilized TCC forms, which shall be submitted to the Secretary of Finance not later than August 31, 2006.
Implementing Guidelines. Under DOF Order No. 20-06, the issuing agency, such as the BOC, shall promulgate specific guidelines necessary or appropriate to expedite the processing of applications for revalidation. The guidelines should also provide for the mechanics for the proper surrender of all unutilized TCC forms and the surrender of outstanding TCCs under the possession or custody of the valid holder. To date, customs has yet to issue its own guidelines on how to process application for revalidation of TCCs. In the meantime and pending approval of the application for revalidation, importers will not be allowed to use their TCCs to pay taxes and duties on their importation.
For those in the trading community, application for the issuance of a TCC is in itself a costly and tedious process. With increased revenue targets, customs has in fact been discouraging the use of TCCs for payment of import taxes and duties. On the occasion that a TCC is cleared for usage by customs, importers are normally required not to fully apply the import taxes and duties on the TCC, with a portion of the obligation paid in cash. In the coming months, we should expect customs to increase their revenue collection while importers are yet revalidating their TCCs. In the meantime, cash-strapped importers will have to secure credit lines from their banks to finance their ongoing imports.