Has the income tax refund process become easier?

The Ease of Paying Taxes (EoPT) Law is expected to somehow do away with certain burdensome practices in taxation, including the process of claiming a tax refund. As many of you may be familiar, a taxpayer may claim a tax refund from the Bureau of Internal Revenue (BIR), be it VAT, income tax, or any other national tax that may have been paid in excess or erroneously paid. For my article today, I will focus on the income tax refund or excess income tax credits and the documentary requirements laid down in Revenue Memorandum Circular (RMC) 75-2024.

I often encounter tax clients in a “tax overpayment” position in their annual income tax return, due to excess income tax credits. Their common sentiment is that they are discouraged from filing a refund claim because of the time it takes and the tedious documentation needed to successfully claim the tax refund.

Under the EoPT Law and its implementing regulations, the processing of refunds takes 180 days from the date of submission of complete documents. Deliberate failure on the part of any official, agent, or employee of the BIR to process and decide on the refund application within the prescribed period is punishable by fine, imprisonment and/or disqualification to hold public office, among others.

For taxpayers who want to file a refund claim, always bear in mind the following milestones:

• Two years – The period within which the refund claim should be filed with the BIR, reckoned from the date of filing of the income tax return.
• 180 days – The number of days given to the BIR to process the refund.
• 30 days – The number of days within which the taxpayer may file an appeal to the Court of Tax Appeals, in case of inaction, partial or full denial by the BIR of the refund claim, reckoned from the lapse of 180 days (in case of inaction) or receipt of the decision (in case of denial)

In addition, the success or failure of the refund largely depends on the availability, completeness and propriety of information supporting the claim. A crucial first step in the process is awareness of the “irrevocability rule.” Under this rule, a taxpayer qualified to claim a refund of the excess income taxes paid during the year may opt to carry forward or claim a refund for such excess income tax (as shown in its final annual income tax return). Once the taxpayer opts to carry over its excess income tax payments to the succeeding taxable year or years, the option becomes irrevocable. The taxpayer may no longer change the option and may no longer file a claim for a refund, even if the taxpayer amends the tax return.

Once the option to claim a refund is selected, the need to support such a claim through valid documents becomes the priority. A detailed description of the uniform policies and guidelines in the processing and grant of such claims is provided under RMC 25-2024 and RMC 75-2024, for further reference.

Of more significance is the prescribed documentary requirements to be submitted by the taxpayer as set out in RMC 75-2024.

Remember that only applications with complete documentary requirements can be received and processed by the BIR’s authorized processing office. A checklist of such documentary requirements for taxpayer-claimants has been provided as Annexes in the RMC. The checklist serves as the taxpayer’s guide to ensure the completeness of the documents that will be submitted to the BIR processing office.

Taxpayers need to accomplish and supply certain information in the checklist such as the name, address and TIN of the claimant, its representative, contact details, amount and period of refund claim, among others. The following documents are listed in the checklist as mandatory for “Going Concern Taxpayers”:

• Three original copies of duly accomplished Application for Tax Credit/Refund (BIR Form No. 1914);
• Audited Financial Statements (AFS) complete with Notes to AFS, if AFS was not submitted via the BIR eAFS Facility;
• Original copies of duly accomplished Certificate of Creditable Tax Withheld at Source (BIR Form No. 2307) or Withholding Tax Remittance Return for Onerous Transfer of Real Property Other Than Capital Asset (BIR Form No. 1606), whichever is applicable, issued by the payor (withholding agent) to the payee;
• Hard and soft copies (in MS Excel format) of Summary of Revenue/Income declared per Income Tax Return (ITR) and the corresponding taxes withheld per BIR Form No. 2307/1606 in accordance with the format prescribed under Annex A.3 of the RMC;
• Original copy of the duly notarized Taxpayer’s Attestations in accordance with the prescribed format under Annex A.4 of the RMC;
• Original copy of Notarized Secretary’s Certificate (for corporate claimant or Special Power of Attorney (for ROHQ claimant) stating the authorized representative/s to file, sign document on behalf of the claimant and/or follow-up tax credit/refund claims together with the photocopy of at least one valid government-issued ID with three specimen signatures of the authorized representative; and
• Original copy of Delinquency Verification Certificate (valid for six months) issued by the Collection Division under the respective Revenue Region that has jurisdiction of the taxpayer-claimant or the LT-Collection Enforcement Division under the Large Taxpayers Service, whichever is applicable.

A Comparative Matrix of Tax Withheld shall also be submitted by the taxpayer-claimant, the template of which is provided in RMC 75-2024. The RMC also provides that the books of account and accounting records of the taxpayer-claimant may need to be presented, as may be requested by the assigned BIR Revenue Officer in the course of the review. Failure to present such books of account and accounting records may be grounds for denial of the refund application.

While the checklist of mandatory documents coupled with the prescribed procedures provide a uniform system for the BIR personnel to process income tax refund claims, which was absent before, it seems that the documentary requirements imposed on the taxpayer-claimant were not reduced. Instead, more documentation is needed to support the refund application, including the potential submission of books of account and accounting records, which is quite broad, and is dependent on the judgment of the BIR reviewer.

While many were hoping that EoPT would simplify things and boost the taxpayers’ confidence sufficiently to file a claim, perhaps the lingering question is… does it?