(Article published in the July issue of WEALTH magazine)
Nothing demonstrates more clearly how officialdom easily forgets the
basics than last month’s cacophony of comments concerning tax credit
certificates (TCC). Lost in
the din of disputation and discourse are the historical whys and practical
wherefores that then gave birth, and up to the present continue to
perpetuate the TCC system.
in mid-May, the broadsheets reported a decision by the 16th
Division of the Court of Appeals on the purely procedural
question of whether Pilipinas Shell, had gone to the Court of Tax
Appeals within the permissible period of 30 days within which an importer
may contest a final ruling of the Bureau of Customs. Pilipinas Shell went to the Court of Tax Appeals to question
the refusal by the Bureau of Customs to consider as paid the
multinational’s Php 220 million tax liability which it settled through
the use of certain TCCs bought, apparently in good faith, from various
corporations. It turned out that the subject TCCs were fraudulently
acquired by the original grantees; hence, the Bureau of Customs insisted
that Pilipinas Shell had not paid its taxes.
The Court of Appeals ruled after counting the days that elapse from
Pilipinas Shell’s receipt of the “final” order to the time it sued
at the Court of Tax Appeals, that Pilipinas Shell’s resort to the Court
of Tax Appeals was made beyond the 30-day period allowed for appeal. End
The Government gloated with its victory and, ravenously eyed the prospect
of being able to collect Php 220 million or so from a taxpayer with deep
pockets. Forgotten is the
shameful fact that it was the lapse in the country’s system of issuing
tax credit certificates that made possible the fraud that enabled its
perpetrators to inflict the misfortune on an innocent victim.
A taxpayer who, in accordance with law and regulations, in good
faith purchased and paid good money for genuine TCCs that were
unfortunately procured by grantees it had no relation to, is being made to
suffer for putting its trust in the system.
Soon thereafter, media reported that the Bureau of Internal Revenue,
headed by my valedictorian classmate Jose Mario “Jojo” Buñag, missed
its target for April by about Php 7.2 billion. Among the reasons offered was taxpayers’ observed “higher
utilization of tax credit certificates for their tax payments.”
I assume, to gain public sympathy, the head of the Large Taxpayers
Service, Merlinda Ordoyo, admitted that, in an effort to register higher
cash collections, “we were personally asking taxpayers to delay the use
of the TCCs, but of course we did not have any legal backup to force them
to do so because claiming tax credits is a right of taxpayers.”
Hon. Joey Salcedo immediately asked for Jojo Buñag’s head for what to
him was poor performance that could only have been due to either
corruption or negligence. Other
legislators, among them House representatives Exequiel Javier and Jesli
Lapus who apparently are more knowledgeable of the tax collection milieu
than the presidential adviser rose to Jojo’s defense.
They maintain, and rightly so, that a month of shortfall does not a
season of poor performance make and that the incumbent Commissioner ought
to be given more time before his ability to collect the right amount of
tax money can be properly assessed.
Apparently, both the Bureau’s detractors and defenders have accepted the
unsaid premise that a taxpayer’s use of TCCs is not as good as cash
forgotten is the fact that, if tax credit certificates are indeed what
they purport to be, then the civil law concept of set-off when put in
operation by the legitimate settlement of tax liabilities through the use
of TCCs ought to argue favorably for Jojo in the matter of assessing his
performance in that thankless job.
My other classmate (who in grades was not close to Jojo’s straight first
honors while we were at the Ateneo), Dept. of Finance Secretary Margarito
Teves added his insult to the tax credit certificate’s injury by
ordering an audit of tax credit certificates issued and still to be used.
Exhibiting the same naivete that made him the debutantes’ darling
when we were in high school, Gary explained that “we need to know the
stock of certificates floating and how this is allocated among taxpapers.
We have to improve our database and monitoring system.”
What? This Government does not know how much it owes its subjects in terms
of monies collected as taxes but which monies were in fact not due?
How come the Hon. Jesli A. Lapus was able to say that as much as
Php 8 billion worth of issued certificates are still out there somewhere
floating and have yet to be used? Indeed,
the picture is so murky that it is not easy to determine whether Gary was
just being transparent about an opaque subject or Cong. Lapus was simply
guessing. Or, what I fear, both.
At any rate, it is not easy to resist the temptation of agreeing with the
wisdom of the Hon. Ralph G. Recto of the Senate, that endangered
institution which (if still President Gloria Macapagal Arroyo’s will is
divine and/or can be divined) is purportedly headed for extinction. He
believes that the present tax credit certificate system has got to go.
Before we throw it way, however, let’s pause to find out what, if any,
went wrong. Perhaps, even at
this stage of public hysterical condemnation, the TCC is worth keeping and
could be fixed.
A TCC as the last “C” says, is first and foremost a certificate.
The root of “certificate” is the Latin “certus”, meaning
“certain”. The TCC
therefore is a document that makes certain, not one that makes dubious or
one that is, like the presidential Garci apology neither this nor that.
That which is made certain by a certification, in the rough
language of the people of Gagalangin, Tondo (where I spent my best years
of my hopeful life) is something that could be considered as written in
stone. Something that is, with the declarant’s assurance of veracity
behind it, akin to the Ten Commandments etched in the tablets of Moses.
“Itaga mo sa bato” as we say in the vernacular.
What is a TCC supposed to be a compelling witness to?
As the “T” and “C” suggest, a tax credit. But then, like
the ambiguity that attends many legal terms couched in English, it is not
clear whether “credit” in “tax credit” refers to the nature of the
payment that gave rise to it (as in overpayment of taxes) or to the nature
of the obligation that it can extinguish (as in TCCs being used to settle
tax liabilities). Correctly, the FAQs section of the website of the
One-Stop Shop Tax Credit and Duty Drawback Center at the Department of
Finance confesses to the absence of an exact legal definition of “tax
What is very clear, though, is that a tax credit refers to an amount, in
pesos and centavos, which the Government considers it owes.
The amount is recognized as owed for many and various reasons.
For one, it might have been collected over and above what was due
from the taxpayer, e.g. under the income tax, the excess amounts withheld
from an employee by his employer as a result of the mindless application
of the withholding tax table on compensation for services.
For another, it could have been collected, rightfully and correctly
at the time of payment, but, due to subsequent processing and disposition
of the product, it in hindsight turns out to an amount that should not
have been collected after all. An
example is, under the Value-Added tax regime, the input tax paid by a
zero-rated taxpayer in purchasing the raw materials for his product.
And a still third reason, it is something promised by the
Government, often to investors, as an incentive and by way of attracting
foreign and domestic capital or involvement in Philippine enterprises.
This is the philosophy behind the myriad of tax perks which revenue
authorities now, in view of perennial budget deficits, frantically want to
But whatever might be the reason, a tax credit is something that is
legally and morally owed by the government.
Why then does the Government not simply return what it does not
rightfully own? The reason,
as admitted by the same FAQs, “the inability of the government to give
cash refund to its tax payers.” In other words, the government had already spent the money.
Thus, a TCC is, no more and no less, the written acknowledgement of that liability. It is an I.O.U. Hence, it differs not much in nature from that other mass of government liability, namely, the Philippine peso. In fact, were it not for the law that makes it legal tender, your peso bill is lower in legal dignity than the TCC. Your peso bill is a direct liability, not of the Government which is the case of a TCC, but of the Bangko Sentral ng Pilipinas only. The Government simply guarantees it. Under Philippine law, generally, a guarantor can be held liable only after the creditor has exhausted the assets of the primary obligor.
Read and weep: “Ang salaping ito ay bayarin ng Bangko Sentral at pinanagutan ng Republika ng Pilipinas.” And weep some more as you see that, in most of the bills now in circulation, the Government’s guarantee is signed by still President Gloria Macapagal-Arroyo.
Since a TCC is an acknowledgement of debt and very much akin to money, it ought not be too outlandish to suggest that its management be transferred, from the Department of Finance, to say, the able managers of Philippine debt, such as Gov. Say Tetangco, who is on top of the money supply, and National Treasurer Omar Cruz, who is in charge of the Treasury. Of the two options, however, the more logical is the National Treasurer since he is the country’s chief borrower.
I am not, of course, suggesting that the people at the Department of
Finance be cut off their bread line.
They have to make their money, I know. And by that I mean, they
ought to be permitted to continue with their task of determining whether
an application for tax credit is meritorious or not. They ought to keep
their jobs and get paid a honest day’s wage for an honest day’s work.
But once a taxpayer is determined to be entitled to a TCC, the processing
of the debt ought to be in the hands of the country’s debt servicers.
If, as a consequence of lack of cash, the payment to the taxpayer has to
be made with a money-like instrument, so be it.
But the issuance of the debt paper, its control and trading in the
sea of commerce, and eventual retirement should be under the control of
the Bureau of Treasury.
After the immediate recognition of a tax credit as a Government debt, we
ought to do away with the morally indefensible restrictions that now
encumber a TCC. At the root
of these restrictions is really the unexcusable failure or unwillingness
of the Government to recognize the tax credit as a true debt.
Indeed, I submit, that the government’s obligation to pay back a
tax credit is more morally compelling than the need to pay back a debt
that the government contracts when, for instance, issuing treasury bills.
In most cases of tax credits, the amounts were initially extracted
from the taxpayer contrary to his will, unlike a voluntarily contracted
debt. Hence, there is no moral justification for limiting the period of
validity or conversion to cash to five years, unless revalidated; for the
need of prior government approval of its transfer, which in any case is
good only for one transfer; prohibiting the use of the TCC for any tax
other than the direct internal revenue tax liability of the transferee,
loss of the right of conversion when the TCC is in the hands of the
transferee, etc. The
government got money forcibly and must return it in money or, at the very
least, in money-like instruments, without any limitation.
Only by giving the TCC the credit that is due it, as a bona fide government debt, will the TCC gain acceptance as fair method of settling the government’s obligation to the taxpayer. Only then will it be seen as something valuable and worthy of respect by both issuer and holder. As it now stands, because the Government does not give the TCC the credit it is due, the TCC remains fair game to forgers and scammers out to take advantage of its ill-repute. In much the same vein that many are tempted to defy an administration that is unable to unequivocably establish the legitimacy of its holding office.