The Aquino administration will no longer use tax-credit certificates (TCC) in its dealings with the private sector; it will henceforth use cash refunds, instead.

Budget Secretary Florencio Abad said the proposed 2012 budget appropriates P8.3 billion to cover cash refunds.

“The study of the Japan International Cooperation Agency affirms the findings of the Commission on Audit that TCCs are susceptible to irregularities in utilization and it is difficult to monitor,” Abad said. 

“Cash refunds, on the other hand, are less burdensome in terms of accounting and bookkeeping. Moreover, it promotes transparency that will have a positive impact on the country’s investment climate,” he said.

TCCs are instruments that indicate the amount of tax credit that can be used by the holder to offset tax liabilities—other than withholding tax—or be converted to a cash refund.

Since there is no ruling on how the TCCs should be used, the private sector is trading the certificates among themselves.  

Aside from the annual P8.3 billion for cash refunds until 2015, the government will also monetize TCCs amounting to P709 million for 2012, Abad said. The monetization of the TCCs will total P9.3 billion from 2012 to 2015.

Most of the TCCs for input value-added tax are issued by the Bureau of Internal Revenue (BIR).

Abad noted the measure will have no impact on the government’s budget deficit since it will only be sourced from the revenues of the BIR, which is net of collections from input VAT.

Abad said Finance Secretary Cesar Purisima has already committed the use of cash refund using the risk-based approach.

The Department of Finance is also bent on streamlining the processing of VAT cash refunds, with the evaluation and processing to be done by only one unit, either the BIR or the department’s One-Stop Shop and Duty Drawback Center.