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Excise tax in our country is collected from goods that are harmful to people’s health, such as alcohol, sweetened beverage, tobacco, non-essential or luxury goods (jewelries and perfumes), and goods that may destroy the environment, or businesses that have concession – such as automobile, oil, mineral, and petroleum. The Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) are two state agencies that carry out the collection of excise tax. Particularly, the BOC  manages the collection of excise tax from imported goods.

One benefit of knowing how your tax return is prepared is knowing the overpaid amount. By the principle of solutio indebiti, meaning, “payment to one that is not due to him”, you may be entitled to a tax refund. Tax refunds are in the nature of tax exemptions and are to be construed against the entity claiming the same. Thus, the burden of proof rests upon the taxpayer to establish by sufficient and competent evidence their entitlement to a claim for a refund.

Relative thereto, a Court of Tax Appeal (CTA) case ruled on the request for refund of excise taxes paid on importation of liquor and/or wine. Petitioner is claiming a refund on said excise taxes on the basis of its exemption under Section 13 of Presidential Decree (P.D.) 1590, which provides for exemption from the payment of all taxes, duties, and other fees and charges of any kind or nature on all importations of commissary and catering supplies, among others, and other articles, supplies, or materials imported by petitioner for the use in its transport and non-transport operations, as well as other activities incidental thereto. On the other hand, respondent Commissioner of Internal Revenue (CIR) argued that paragraph 3 of Section 131 of the Tax Code, as amended by Republic Act (R.A.) 9334, revealed the unmistakable intent of Congress to withdraw petitioner’s exemption under P.D. No. 1590, making it therefore subject to excise tax.

In the discussion of the case, the Court noted that the petitioner failed to exhaust administrative remedies by filing the claim with the CIR mere days before the two year deadline simply to meet such deadline. And even if the petitioner is deemed to have timely filed the administrative and judicial claims, the CTA still ruled on the denial of the request for refund due to failure to comply with the requirements for a tax refund. Although the exemption under Sec. 13 of PD 1590 has not been repealed by Sec. 6 of RA 9334, the petitioner should still comply with the requirements for tax refund. The following are the conditions that must be proven to be exempt from excise taxes due on all importations of commissary and catering supplies as provided in the case:

1. It paid corporate income tax and VAT liabilities covering the period when the subject importations were made (i.e., 2013 and 2014).

2. The imported articles, supplies or materials are intended to be used in its transport and non-transport operations and other activities incidental thereto.

3. The imported articles, supplies or materials are not locally available in reasonable quantity, quality, or price.

In the case at hand, the petitioner failed to comply with the third condition, as it presented its comparison in determining local prices for 2013 and 2014 from the price list of only one supplier. Further, the 2014 price list was not admitted in evidence and the Court only considered the 2013 price list as admitted in evidence. Considering the foregoing, the Court cannot determine if the imported alcohol products are not available locally at a reasonable price, which is necessary as part of the compliance with the third condition to be exempt from excise tax.

Corporate entities must comply with the tax requirements because payment of taxes, such as excise taxes is mandatory. On the other hand, they were also given the benefit to file tax refunds for the overpayments. However, tax refunds or tax credits, just like tax exemptions, are strictly construed against the taxpayers, the latter having the burden to prove compliance with the conditions for the grant of the tax refund or credit. Tax compliance involves being aware of and observing different tax laws and requirements by the taxing authorities, particularly by the BIR. Non-compliance with the requirements and/or conditions set forth will lead to denial or rejection of the request for tax refund.

Jomayca M. Rivas is a tax analyst from the tax group of KPMG R.G. Manabat & Co. (RGM&Co.), the Philippine member firm of KPMG International. The firm has been recognized in 2021 as a Tier 1 in Transfer Pricing Practice and in General Corporate Tax Practice by the International Tax Review.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. The views and opinions expressed herein are those of the author and do not necessarily represent KPMG International or KPMG RGM&Co.

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