The contentious Tax Incentives Management and Transparency Act (Timta) hurdled the House Ways and Means Committee on Wednesday, although a new point of contention surfaced—which agency would validate the incentive claims of registered companies: the Board of Investments (BOI) or the Bureau of Internal Revenue (BIR)?

The mother agencies of the BOI and the BIR—the Deparment of Trade and Industry (DTI) and the Department of Finance (DOF), respectively—appeared to have mended their differences on Timta when they submitted on Tuesday their joint version of the proposed
incentives measure.

The joint DTI-DOF draft bill was adopted by the committee. But the debate—it appears—is not over yet.

House Ways and Means Committee Chairman Rep. Romero  S. Quimbo of Marikina City said he is considering the possibility of removing the power of the BOI to validate incentive claims of its registered companies, leaving the processing of application for incentives entirely in the hands of the BIR.

“We are seriously looking at removing the process of validation from the BOI, in much the same way that the other investment-promotion agencies [IPAs] are not doing it. This is for better business facilitation, and we are inclined to remove it,” Quimbo said.

Under the current draft of the Timta, in order for a BOI-registered business to avail itself of tax incentives, including the coveted income-tax holiday, it must first submit an income-tax return (ITR) electronically to the BIR.  When the company has complied with the mandatory e-filing, the BOI will validate the application for incentives claimed by the company based on the ITR. After the validation, the BOI will submit the documents to the BIR for auditing.

The BOI, based on its chapter, is mandated to validate claims of registered businesses on how much incentives they are entitled to.

This authority is exercised, the BOI said,  to make sure businesses are only given incentives that are related to their registered activity.

The proposal to remove the validation process is seen as a fresh battleground of control between the DTI and the DOF, as the BIR will wield broader control in assessing companies’ application for incentives. Instead of getting an initial validation from the BOI, companies’ application for incentives may be directly given to the BIR.

“Not all revenues that a business claims are entitled to ITH incentive contrary to their statement. We have to check what part of the revenue is connected to their registered activity and deserves to be given incentives,” stressed BOI Governor Lucita P. Reyes, justifying the validation process.

Quimbo, however, sees the current process of the BOI as “redundant,” since the BOI’s role is “recommendatory.”

“It’s an additional imposition and has no purpose anymore. We are inclined to remove it. Validation should focus on the BIR,” Quimbo said.

The proposal to remove the BOI’s authority came amid debates between the DTI and the DOF on several provisions of the Timta during Wednesday’s hearing.

Grace period for e-filing

Timta mandates all registered enterprises  of all IPAs to electronically file their tax returns first, before the BOI can process the companies’ application for incentives.

Given that the BIR’s electronic system for ITR filing has been defective and even bogged down due to problems, an agreement was reached between the DOF and the DTI.

All IPA-registerd companies must still meet the April 15 deadline in filing ITRs, either manually or electronically,  but an additional six months will be given to those who filed manually, to comply with e-filing.

However, another set of debates broke out on the provision that the BOI’s validation will delay the BIR’s assessment. Under the current Timta version, the BIR can only begin its own assessment after the BOI’s application and validation period—which could span 18 months—is over.

The BOI is the only IPA that does validation on the claims of its registered enterprises; by virtue of their mandates, other IPAs only submit to the BIR the companies application of incentives and the certificate of registration.

“Commissioner [Kim] Henares actually wanted a shorter period than the one year and six months given to the BOI so the BIR can start assessing the IPAs,” lawyer Nina Asuncion of the BIR said.

BIR complained that the 18-month application and validation period of the BOI is too long, and that it already encroaches on the three-year auditing period that the BIR is entitled to, prompting the DOF to propose the scrapping of the BOI s power to validate altogether.

“I think it will be a disincentive to BOI companies if we toll, or extend the period to 18 months. They will wait for a total of four years before waiting for the ax to fall; that’s too long,” Quimbo echoed.

Quimbo, likewise, aired the possibility that the yearlong validation of the BOI can give time for unscrupulous companies to resort to corruption to ensure the BOI passes a clean validation report to the BIR.

DTI says no

THE DTI, however, will be putting up a fight on any move to abolish its authority to validate incentive claims and transfer the authority to the BIR.

“Under the law, it can be amended, but we’re not in favor of that. We contest any decision to remove validation because without it, the assessment can be subject to further corruption,” Reyes said.

Reyes explained that the BOI is actually safeguarding the grant of too much incentives by checking the claims for tax perks. The BOI, she said, was able to save the government as much as P 1.7 billion in 2010. The amount is the difference between the incentive claims of companies and what the BOI actually approved.

The House Committee on Ways and Means gave its temporary approval to the BOI’s 18-month period at the close of Wednesday’s panel hearing. But Quimbo said there is plenty of time to insert the removal of the BOI’s power, effectively amending its charter, during future deliberations on the bill. Quimbo is targeting to pass the Timta on second reading on June 11 before the House of Representatives’ sine die adjournment. The Senate’s version of the bill has also hurdled the Committee on Ways and Means, chaired by Sen. Juan Edgardo Angara.

The senator said they will study Quimbo’s views on the BOI’s incentives-validation power. “We’ll tackle when we get there. What’s important is that the measure’s aim for transparency in the giving out of tax incentives is met.”

Catherine N. Pillas & Jovee Marie dela Cruz

Source: http://www.businessmirror.com.ph/new-timta-point-of-contention-rises/