COA slaps disallowance notices on P377.3-M tax credits of 4 textile firms

July 5, 2020

The Commission on Audit (COA) has issued Notices of Disallowance (NDs) on tax credits worth a combined P377.29 million granted by the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (OSS) to four textile firms covering a four-year period from 2008 to 2012, the Department of Finance (DOF) said.

In a letter to Finance Secretary Carlos Dominguez III, the COA Special Audits Office (COA-SAO) said the disallowed tax credit certificates (TCCs) were granted by the OSS to Capital-Roll Knit Corp. (CRC) amounting to P40.88 million; Uni-Glory’s Knitting Corp. (UKC), which received P15.03 million-worth of tax credits; Primeknit Manufacturing Corp. (PMC), PP15.76 million; and Tai-Cheng International Resource Inc. (TICIRI), P20.01 million.

For CRC, this is in addition to the COA decision last February 21, 2020 disallowing 75 TCCs with a combined value of P285,578,315 that was issued to the firm between 2008 and 2012.

In its letter to Dominguez, COA-SAO Director Pearl Ramos said the   disallowed tax credits of P40.88 million to CRC covered 10 TCCs issued between 2010 to 2011 while those disallowed for UKC covered 5 TCCs issued in 2010.

Both CRC and UKC listed their addresses in Bulacan.

Also covered by the disallowance are five TCCs issued in September to November 2008  to PMC,  which listed its address in Valenzuela City,  and five TCCs issued  in June 2011 to TICIRI, with listed address in Calamba, Laguna,  Ramos said.

Ramos said the NDs were served to the persons liable, as she thanked Dominguez “for the usual support and assistance extended” by the DOF to the COA in conducting its audit of the OSS.

Several officials and employees of the DOF, Board of Investments (BOI), Bureau of Customs (BOC) and OSS who were responsible for processing and approving the illegal TCCs, and their recipients and claimants from the four companies were held liable by COA in various instances when the TCCs were issued.

In disallowing the TCCs granted to these companies, the COA-SAO found out that their alleged importers from which they supposedly purchased textile materials   were not registered and accredited with either the BOI or BOC, and had  no records of importation and payment of the appropriate duties and taxes, or paid only minimal duties and taxes to the customs bureau.

Moreover, the TCCs were issued to the firms even without the required import documents, proof of payment of duties and taxes, and other forms of certification for the grant of tax credits, the COA-SAO said in its report.

The CAO-SAO said that “in effect, none of the requirements for the grant of tax credit was present” or were “disregarded” when the TCCs were issued these firms.

“There were no proof of payment of import taxes and duties by the suppliers; validation of actual exportation by the (OSS); in addition to questionable physical existence (of the companies); and the tax credit granted even exceeded the reported payments by the claimants to the suppliers,” the report added.

In ruling on the disallowances, the COA-SOA pointed out that the firms who were issued TCCs did not use them for their own tax obligations and merely “transferred” their TCCs to other companies.

The COA audit disallowances not appealed within six months from the receipt of those held liable for them “shall become final and executory” as prescribed under the law.

Created under Administrative Order No. 266 issued in 1992 to process TCCs and duty drawback applications, the OSS is a composite body managed by the Department of Finance (DOF), Bureau of Internal Revenue (BIR), BOC and the BOI.

Tax credits were offered as incentives under the Omnibus Investments Code (Executive Order or EO 226) to exporters and manufacturers of BOI-registered products for export that have actually paid duties and taxes on the raw materials and supplies they used.

Approved applications meant refunds on their duties and taxes that were used to pay other tax liabilities due the government.

In July 2018, the DOF reported that the COA uncovered a bigger scam, in which the OSS granted TCCs worth P11.18 billion to 33 ineligible or even non-existent textile companies from 2008 to 2014.

Of this amount, P8.85 billion-worth of tax credits were granted to 29 claimants despite the absence of proof of payment of duties and taxes and the export of finished products, and of importation records with BOC.

The other four claimants got TCCs worth P2.34 billion, even as their entitlement to the fiscal incentive had already expired.

Upon the receipt of the report on the P11.18-billion tax credit scam, Dominguez had signed Department Order No. 039-2018 forming a task force to investigate and run after those involved in the illegal transactions.