Tollway firms told to apply for abatement of VAT liability

Posted on September 12, 2011

TOLLWAY OPERATORS can now apply for abatement of their previous value-added tax (VAT) liabilities, a reprieve before the government finally pushes through with the imposition of the tax next month.

The Bureau of Internal (BIR) released Revenue Memorandum Circular No. 39-2011 on Sept. 5, opening its abatement program to tollway operators who have been assessed VAT liabilities on toll fees starting 2007, when the tax was initially supposed to be levied.

“The companies can now apply for the abatement of their back taxes and other fees,” BIR Commissioner Kim S. Jacinto-Henares said in a phone interview on Friday last week.

The abatement program is estimated to cost the BIR some P6.5 billion in uncollected VAT, condoning not only the tax liabilities of tollway operators, but also surcharge, interest and penalties, Ms. Jacinto-Henares explained.

“We want to move forward already,” she said.

The National Internal Revenue Code and earlier Revenue Regulations grant the BIR Commissioner the authority to cancel liabilities of taxpayers in certain instances, such as when a “taxpayer’s noncompliance with the law” is “due to a difficult interpretation of the said law.”

Imposition of VAT on tolls has been much-contested since BIR sought to implement it in 2007, with opponents saying toll roads should be exempted from the 12% sales tax.

However, the Supreme Court eventually upheld the legality of BIR’s move this year, ruling, “If the legislative intent was to exempt tollway operations from VAT, as petitioners strongly allege, then it would have been well for the law to clearly say so...But as the law is written, no such exemption obtains for tollway operators.”

The sales tax will be charged on toll services starting Oct. 1.

No deadline, but...

While BIR did not set a deadline for the abatement program, Ms. Jacinto-Henares said “the sooner tollway operators apply for abatement, the better for them.”

“If they don’t apply, our assessment of their tax liabilities will stand and they will have to pay for it,” she explained.

In exchange for abatement, however, tollway operators will no longer be able to claim their input VAT credits for the same period of covered liabilities.

“VAT-registered entities can deduct the VAT they pay for their purchases from the VAT they need to pay to the government,” Lina P. Figueroa, a principal at Punongbayan & Araullo, explained on Friday last week.

“Businesses that move from a non-VAT regime to a VAT regime usually have transitory input VAT that the government recognizes as credits against their VAT payable.”

But, under the compromise struck by the BIR and tollway operators, these companies will no longer apply for their input VAT, Ms. Figueroa pointed out.

According to the latest BIR issuance, accumulated input VAT account of tollway operators will have zero balance starting Oct. 1.

No tax credits or refunds will be granted to toll operators for their purchases before that date.

Moreover, input VAT will be credited only for purchases made on or after Oct. 1.

The arrangement is a “good compromise,” since the BIR will just “net out,” according to Ms. Jacinto-Henares.

“The amount of revenues we get from back taxes will almost be equal to the input VAT the tollway operators will claim from us,” she explained.

“At least when they don’t apply for input VAT, that is less work for us to process and audit. We don’t need to go all the way back and study their purchases.”

Tax analyst Ms. Figueroa supported the BIR’s policy, saying any revenue losses would be “insignificant.”

“It is okay to compromise in these cases since the laws weren’t clear before on the VAT treatment of toll roads, even based on the earlier rulings of the BIR,” she said. -- Diane Claire J. Jiao