A regional look at VAT/GST refund processes

Republic Act No. 11976, otherwise known as the Ease of Paying Taxes (EoPT) Act, is a landmark legislative measure aimed at simplifying tax compliance procedures and reducing the administrative burdens on taxpayers.

Particularly for the value-added tax (VAT) refund process, the EoPT Act and its implementing regulations introduced a risk-based classification approach where only the medium- and high-risk claims are subject to mandatory verification or audit. In addition, taxpayers are now allowed to elevate the case to the Court of Tax Appeals (CTA) in case of inaction by the BIR within the 90-day period.

Clearly, great strides have been made to improve the VAT refund process. Perhaps, a few more steps can make the journey even more meaningful. In today’s article, I’d like to share some good practices on the VAT/Goods and Services Tax (GST) refund process in countries within the Asia-Pacific (APAC) region.

In the Philippines, eligible taxpayers must manually file the Application for Tax Credit/Refund (BIR Form No. 1914), together with all the requirements laid down in Revenue Memorandum Circular (RMC) 71-2023, within two years from the close of the taxable quarter when the zero-rated or effectively zero-rated sales are made or, in the case of cancellation of VAT registration due to cessation or closure of business, two years from the date of issuance of the tax clearance certificate.

While the procedures for the application may appear to be straightforward on paper, this is not the case in actual practice.

Many taxpayers are encountering difficulties during the actual filing because of the level of scrutiny being applied by the receiving BIR offices. This is because incomplete documents, even those that do not affect the amount of refund due to the taxpayers, or even a slight deviation from the prescribed format, will immediately result in the non-acceptance of the docket. Hence, taxpayers will have no other choice but to adjust the documents (where allowed), before coming back and spending another day in queue just to refile the application.

This level of scrutiny by the BIR is perhaps the Bureau’s way of protecting its own timeline — the 90-day period — to decide on the refund claim, which was reduced from 120 days. But how do other APAC countries effectively decide on the refund cases within their own timeline?

In China, the refund process takes about 5 to 20 working days from the submission of complete documents. In Vietnam, the refund process, including the mandatory audit, takes 40 days for first-time filers. Meanwhile, for subsequent applications that are similar to the previous application, the Vietnam tax authority may grant the refund first then subsequently conduct a post-refund audit within five years from the grant of the refund. In Singapore, the refund process automatically starts upon submission of the GST return showing an overpayment and runs for one to three months from the filing of the return, depending on whether an audit is warranted.

It is also interesting to point out that in Singapore, Vietnam, India, Thailand and Indonesia, in case of delay in deciding on the refund case, taxpayers are compensated by interest on the amount to be refunded to them, subject to certain conditions. This seems fair, considering that the taxpayer effectively loses out on the opportunity to invest the money while waiting for the refund to be granted.

Clearly, a more streamlined and efficient system is the key to a simpler VAT refund process. For instance, China’s rapid processing time of five to twenty working days demonstrates that with the right systems and procedures in place, significant improvements can be made. Similarly, Vietnam’s approach of granting refunds first and conducting an audit later shows a level of flexibility that could be beneficial if adopted in the Philippines.

Furthermore, the compensating mechanisms employed by Singapore, Vietnam, India, Thailand, and Indonesia could serve as models for the Philippines. By imposing interest on delayed refunds, these countries ensure that tax authorities are motivated to process claims promptly, thereby fostering a more taxpayer-friendly environment.

For the Philippines to further enhance its VAT refund process, it may consider adopting similar best practices. This could include:

1. Simplifying documentation requirements: Establishing a more straightforward and less cumbersome list of required documents that would help taxpayers identify the critical documents in determining the amount to be refunded and providing flexibility to, if not completely removing, other non-critical documents.

2. Implementing technology solutions: Leveraging digital platforms for the submission and tracking of refund claims could streamline processes, enhance transparency, and minimize the need for physical queues and repeated visits to BIR offices.

3. Introducing penalties for delayed refunds: Imposing interest on overdue refunds could incentivize quicker processing times and ensure that taxpayers are fairly compensated for undue delays.

4. Conducting post-refund audits: Allowing the initial refund to be processed quickly, with subsequent audits to verify the legitimacy of the claims, can expedite the refund process while maintaining the integrity of the tax system.

The EoPT Act is indeed a commendable step towards improving tax compliance in the Philippines. With the changes such as the use of invoices as the primary support for the sale of both goods and services and the introduction of risk-based methods for VAT refund cases, the government has shown that it is listening to the taxpayers; thus, providing a more efficient process for tax compliance. By continuously evaluating the current processes and learning from the successes and best practices of neighboring countries, the Philippines will be another step closer to a more efficient, transparent, and taxpayer-friendly VAT refund system that benefits both the government and the business community.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.


Adriel Joshua Zaki Sim is an assistant manager at the Tax Compliance group of Isla Lipana & Co., the Philippine member firm of the PricewaterhouseCoopers global network.