Rules, Guidelines and Procedures Implementing the Tax Expenditure Subsidy Section under the General Provisions of the Annual General Appropriations Act

September 1, 2008 JOINT DOF-DBM CIRCULAR NO. 03-08 FOR : The Chief Justice and the Judiciary; The Senate President; The Speaker of the House; The Chairman of Constitutional Commissions; All Heads of Departments, Bureaus, Offices and Other Commissions; Heads of All Other National Government Agencies, Including Their Regional Offices; Heads of State Universities and Colleges, Schools, Hospitals and Sanitaria; Heads of Government Owned and/or Controlled Corporations Including Government Financial Institutions; And All Others Concerned SUBJECT : Rules, Guidelines and Procedures Implementing the Tax Expenditure Subsidy Section under the General Provisions of the Annual General Appropriations Act 1. Purpose This Circular is issued to prescribe the rules, guidelines and procedures relative to the implementation of the tax expenditure subsidy Section under the General Provisions of the annual General Appropriations Act (GAA), specifically Section 14 of Republic Act No. 9498 or the 2008 GAA, quoted as follows: "SEC. 14. National Internal Revenue Taxes and Import Duties. The following are deemed automatically appropriated: (a) National internal revenue taxes and import duties payable by national government agencies to the national government arising from foreign donations, grants and loans; (b) Non-cash tax transactions of the following national government agencies (i) the BTr for documentary stamp taxes on foreign and domestic securities issued, including issuances for foreign securities in prior years until December 31, 2007; (ii) the DND and PNP on importations of military hardwares, software, munitions, arms and equipment; (iii) Bureau of Fire Protection on the importation of fire fighting equipment; (iv) Bureau of Fire Protection on the importations of fire fighting equipment, rescue equipment, and personal protective gears; (v) the DOTC for the Metro Rail Transit Line 3 system incurred starting FY 1997 in accordance with the provisions of the Build-Lease Transfer Agreement executed thereon; and (vi) other tax obligations assumed by the national government pursuant to a valid build-operate and transfer agreement or any of its variants; and (c) Tax expenditure subsidies granted by the Fiscal Incentives Review Board to GOCCS, the Armed Forces of the Philippines Commissary and Exchange Service, The Philippine National Police Service Store System, and the Procurement Service Exchange Marts or PX Marts, in accordance with E.O. No. 93, s. 1986, as amended, including those for tax obligations assumed by GOCCs pursuant to a valid agreement; AacCIT The amounts pertaining to such taxes and duties covered by this section shall be considered as revenue and expenditure of the government. Implementation of this section shall be in accordance with guidelines jointly issued by the DOF AND DBM." 2. Definition of Terms For purposes of this Circular, the following terms used herein shall be construed to mean as follows: 2.1 National Government Agencies (NGAs) shall refer to the Judiciary, the Senate and the House of Representatives, Constitutional Commissions, departments, bureaus, offices, other commissions and all other agencies of the national government, including state universities and colleges, schools, hospitals (except Specialty Hospitals as defined in Section 2.3) and sanitaria. 2.2 Government-Owned and/or -Controlled Corporations shall refer to any government agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) per cent of its capital stock: Provided, That government-owned or controlled corporations may be further categorized by the Department of Budget and Management, the Civil Service Commission, and the Commission on Audit for purposes of the exercise and discharge of their respective powers, functions and responsibilities with respect to such corporations. For purposes of this Circular, the term GOCCS shall also refer to specialty hospitals as defined in Section 2.3. 2.3 Specialty Hospitals shall refer to any of the following: the Philippine Heart Center; the National Kidney and Transplant Institute; the Philippine Children's Medical Center; and the Lung Center of the Philippines. 2.4 National Internal Revenue Taxes any form of imposition under the National Internal Revenue Code excluding interests, surcharges and penalties. 2.5 Customs Duties any levy on imported goods under the Tariff and Customs Code excluding interests, surcharges and penalties. 2.6 Importations the bringing into the Philippine territory of goods or commodities in any form acquired from any foreign country by a government entity out of its appropriation or financed by a grant, donation and/or loan. It is understood that the term does not include services performed relative to the grant, donation and/or loan. 2.7 Grants/Donations assistance, in cash or in kind, received from foreign governments, international and local agencies or organizations, private entities or individuals, covered by grant agreements, Memorandum of Understanding, Exchange of Notes/Deed of Donation between the donor-entity and the donee-government unit to finance specific projects or procurement of goods without any obligation on the part of the recipient to pay. CASTDI 2.8 Loan funds whether in cash or in kind received from foreign governments, international and local agencies, private entities or individuals covered by a loan agreement to finance specific projects or procurement of goods and which must be repaid with interest over a prescribed period of time. 2.9 Other Fees and Charges all other forms of fees and charges other than those covered by the National Internal Revenue Code and the Tariff and Customs Code. 2.10 Revenue Collecting Agency (RCA) shall refer to either the Bureau of Internal Revenue (BIR) or the Bureau of Customs (BOC). 2.11 Certificate of Entitlement to Subsidy (CES) refers to a document issued by the FIRB certifying to the amount of subsidy that is granted in favor of qualified GOCCs. 2.12 Payment Compliance Certificate (PCC)/Tax Compliance Certificate (TCC)/Tax Subsidy Availment Certificate (TSAC) refers to the document certifying to the amount of taxes and duties paid to the BIR and/or BOC. 2.13 Statement of Account refers to the document issued by the BIR and/or BOC certifying to the amount of customs duties and taxes due them. 2.14 Tax Obligations Assumed by GOCCs Pursuant to a Valid Agreement refer only to national internal revenue taxes and/or duties payable to the BIR and/or BOC. 3. Coverage 3.1 This Circular covers the application for approval and processing of tax expenditure subsidies on: (a) customs duties and taxes payable by NGAs arising from foreign donations, grants and loans; (b) documentary stamp taxes incurred on foreign and domestic securities issued by the Bureau of the Treasury, including issuances for foreign securities in prior years until December 31, 2007; (c) customs duties and taxes payable by DND and PNP on importations of military hardwares, software, munitions, arms and equipment; (d) customs duties and taxes payable by the bureau of fire protection on the importation of fire fighting equipment, rescue equipment and personal protective gears; (e) taxes and duties payable by the DOTC for the Metro Rail Transit Line 3 System, incurred starting FY 1997 in accordance with the provisions of the Build-Lease-Transfer Agreement executed thereon; and (f) other tax obligations assumed by the national government pursuant to a valid build-operate and transfer agreement or any of its variants. This Circular also covers, with respect to GOCCs, AFPCES, PNPSSS AND PX MARTS, the processing of the tax expenditure subsidy after the FIRB shall have issued a CES in favor thereof. HEcaIC 3.2 For importations explicitly enumerated in Section 3.1, only those which are made in pursuance of functions and programs of concerned government entities, and in the case of regulated importations, only those which are duly authorized by the Bangko Sentral ng Pilipinas, the Department of Trade and Industry and/or other government entities empowered to regulate said importations are covered by this Circular. 4. General Guidelines 4.1 All National Government Agencies shall be liable for all forms of national internal revenue taxes and customs duties arising out of transactions subject to assessment by the BIR and/or BOC, pursuant to the provisions of Joint Circular No. 3-98. 4.2 For National Government Agencies, national internal revenue taxes and customs duties to be settled under this Circular shall include only those imposed on: (a) acquisitions by NGAs arising from foreign grants, donations, and loans; (b) foreign and domestic securities issued by the Bureau of the Treasury, including issuances for foreign securities in prior years until December 31, 2007; (c) importations of military hardwares, softwares, munitions, arms and equipment by the DND and PNP; (d) importations of fire fighting equipment, rescue equipment and personal protective gears by the BFP; (e) those incurred by the DOTC for the Metro Manila Rail Transit Line 3 System starting FY 1997 in accordance with the provisions of the Build-Lease-Transfer Agreement executed thereon; and (f) those assumed by the national government pursuant to a valid build-operate and transfer agreement or any of its variants. 4.3 For GOCCS, AFPCES, PNPSSS AND PX MARTS, national internal revenue taxes and customs duties to be settled under this circular shall include only those granted tax subsidy by the FIRB in accordance with the provisions of Executive Order No. 93, as amended, and those pertaining to tax obligations assumed by GOCCS pursuant to a valid agreement. 4.4 National Government Agencies, including GOCCs that are entitled to tax expenditure subsidy shall not be required to pay in cash or in kind their obligations for internal revenue taxes and customs duties covered by this Circular. All other National Government Agencies, including GOCCs that are not entitled to tax expenditure subsidy shall pay the amount due in cash to the RCA chargeable against their own funds. The imported goods subject to tax shall not be released unless the taxes and customs duties due thereon have been paid. 4.5 The BIR and the BOC shall include in their respective monthly reports of actual income, the internal revenue taxes and customs duties paid out of tax subsidy for recording in the Special Allotment Release Orders (SARO) of the DBM, pursuant to the pertinent provisions of the annual General Appropriations Act. The Cash Operations Report (COR) of the Bureau of Treasury shall henceforth reflect the taxes and duties paid out of the SARO of the DBM under revenues with an equivalent amount recorded under disbursements. EIDTAa 4.6 All importations done thru grants or donations shall be supported by a deed of donation from the donor entity to be coursed thru and authenticated by the Philippine Embassy/Consulate at the donor's country, and a deed of acceptance from the recipient agency. 4.7 Deadline of submission of request for tax subsidy. The submission of agency requests for tax subsidies shall be in accordance with the deadline set in the fund release system guidelines for a calendar year. 5. Specific Procedural Guidelines 5.1 Application for, Approval, and Processing of Tax Expenditure Subsidy for National Government Agencies 5.1.1 For importations of NGAs arising from foreign donations, grants and loans 5.1.1.1 At least ten (10) working days prior to the arrival of the non-commercially imported goods, the importing agency (IA) shall submit to the BOC-Collection Service the original copy of the Certification of Official Importation ( Form 1 ). This shall be supported by the authenticated copy of the Bill of Lading and all other documentations required by the BOC establishing the authority for and the authenticity of the importation. 5.1.1.2 Upon arrival of shipment, the IA shall secure an Authority to Release Imported Goods (ATRIG) for VAT and excise tax purposes from the BIR and upon completion of documents by the IA, the BOC-Collection Service shall cause the release of the imported goods. If the IA has an unsettled obligation with BOC relative to importations made more than two quarters prior to the current importation, the imported goods shall be withheld. 5.1.1.3 The RCA shall issue the Statement of Account/Assessment Notice to the IA, upon release of the goods in four (4) copies to be distributed as follows: Original and Quadruplicate IA Duplicate RCA (Collection Service) Triplicate RCA, file copy with entry TcCDIS 5.1.1.4 Within ten (10) working days after the end of each quarter, the IA shall prepare a Quarterly Report of Taxes and Duties Availments (QRTDA), Form 2 , based on the Statements of Accounts/Assessment Notices issued by RCAs, in three (3) copies to be distributed as follows: Original and Triplicate DBM Budget Operations Bureau Duplicate RCA 5.1.1.5 Upon completion of the QRTDA, the Grantee shall submit to the DBM within fifteen (15) days prior to the lapse of the effectivity date of the CES, the request for the issuance of SARO to enable the DBM to act on the request, supported by the original and triplicate copies of the QRTDA, original copy of CES and the compilation of original copies of Payment Compliance Certificates/Tax Subsidy Availment Certificate/Statement of Accounts/Assessment Notices issued by the BOC/BIR. 5.1.1.6 Within fifteen (15) working days from receipt of the request at the DBM Budget and Management Bureau concerned, the DBM shall issue to the IA the necessary SARO corresponding to the verified amount indicated in the QRTDA. The SARO shall serve as basis for recording both the obligation and liquidation of the expenditure item. The DBM shall accomplish the appropriate portion of the QRTDA indicating the SARO number and date thereof. The IA shall, in turn, forward the same to the BOC or BIR. 5.1.1.7 Upon receipt of the approved SARO from the DBM, the IA shall record the amount as agency expenditure. It shall prepare a Journal Voucher (JV) based on the SARO issued by the DBM to liquidate the obligation, copy furnished the BTr-National Cash Accounting Division (NCAD). 5.1.1.8 Within ten (10) working days upon receipt of a copy of the agency JV, the BTr-NCAD shall issue a JV debiting the account of the IA and crediting the account of the RCA. ISCcAT 5.1.1.9 Upon receipt of the NCAD JV, the RCA Chief Accountant shall record the income in the RCA's books. 5.1.2 For certain importations by the DND, PNP and the BFP 5.1.2.1 In case of importations of military hardwares, softwares, munitions, arms and equipment by the DND and PNP, and in case of importations of fire fighting equipment, rescue equipment and personal protective gears by the BFP, the procedures set forth in Section 5.1.1 of this Circular shall apply. 5.1.3 For issuance of foreign and domestic securities by the Bureau of the Treasury 5.1.3.1 On the liability of the Bureau of Treasury for documentary stamp taxes on foreign and domestic securities issued by it, the procedures set forth in Sections 5.1.1.7 to 5.1.1.9 of this Circular shall be observed, subject to the submission by the BTR of pertinent documents relative thereto as may be required. 5.1.4 For certain transactions of the DOTC 5.1.4.1 On customs duties and taxes payable by the DOTC for the Metro Rail Transit Line 3 System, incurred starting FY 1997 in accordance with the provisions of the Build-Lease-Transfer Agreement executed thereon, the procedures set forth in Section 5.1.1 of this Circular as may be deemed applicable shall be observed. 5.1.5 For Certain Transactions of the National Government 5.1.5.1 On customs duties and taxes assumed by the national government pursuant to a valid build-operate and transfer agreement or any of its variants, the procedures set forth in Section 5.1.1 of this Circular as may be deemed applicable shall be observed. 5.2 Processing of Tax Subsidies for GOCCs, AFPCES, PNPSSS and PX MARTS 5.2.1 Application for tax subsidies by GOCCS, AFPCES, PNPSSS AND PX MARTS shall be filed with the FIRB together with the following documents: (a) letter-request signed by the head of office or any authorized official; (b) endorsement from the department/office to which the applicant is attached; (c) details of tax subsidy requirements, including billings from the concerned revenue agency; (d) certification that items for which tax subsidy is sought shall be used exclusively in the pursuit of mandated functions or a specified project; (e) financial evaluation from the Corporate Affairs Group of the DOF with regard to GOCCS only; and (f) such other documents as may be warranted. (Refer to Annex A for the flow chart). HaTDAE 5.2.2 In case of importation, at least ten (10) working days prior to its arrival, the applicant shall submit to the BOC-Collection Service the original copy of the Certification of Importation (Form 1). This shall be supported by the authenticated copy of the Bill of Lading and all other documentations required by the BOC establishing the authority for and the authenticity of the importation, including an undertaking that the applicant has a pending tax subsidy application with the FIRB and in case of non-approval of its application, that it will be the one to assume payment of taxes and duties due on the importation. Upon arrival of shipment, the importer shall secure an Authority to Release Imported Goods (ATRIG) for VAT and excise tax purposes from the BIR and upon completion of the documents by the importer, The BOC-Collection Service shall cause the release of the imported goods. If the importer has an unsettled obligation with BOC relative to importations made more than two quarters prior to the current importation, the imported goods shall be withheld until after said obligation is settled. 5.2.3 If the application is approved, the applicant receives a FIRB resolution and CES. The CES issued by the FIRB shall be valid and effective until December 15 of the current year and in some special cases as warranted the validity may be extended to December 31 of the current year. If the application is not approved, the applicant will be correspondingly notified in writing by the FIRB. 5.2.4 After a CES is issued by the FIRB, and copies thereof have been distributed, the RCA collection unit on the basis of the CES shall prepare PCC/TSAC/Statement of Accounts for customs duties and taxes payable in four (4) copies to be distributed as follows: Original and Quadruplicate Grantee Duplicate RCA (Collection Service) Triplicate RCA, for transmittal to DOF when completely utilized 5.2.5 Within ten (10) working days after the end of each quarter, the Grantee shall prepare the QRTDA to be distributed as follows: Original and Triplicate DBM Budget Operations Bureau Duplicate Grantee 5.2.6 Upon completion of the QRTDA, the Grantee shall submit to the DBM within fifteen (15) days prior to the lapse of the effectivity date of the CES, the request for the issuance of SARO to enable the DBM to act on the request, supported by the original and triplicate copy of the QRTDA, original copy of CES and the compilation of original copies of Payment Compliance Certificates/Tax Subsidy Availment Certificate/Statement of Accounts/Assessment Notices issued by the BOC/BIR. DCIEac 5.2.7 From the issuance of SARO, the procedures in Sections 5.1.1.6 to 5.1.1.9 of this Circular shall be observed. 6. Accounting Requirements Pertinent accounting entries for transactions relating to above procedures shall be recorded in accordance with the Circular/Guidelines which may be issued by the Commission on Audit for the purpose. 7. Sanctions The head of a national government agency, GOCC, AFPCES, PNPSSS or PX Marts who, by fault or negligence, fraudulently misrepresents any transaction or importations as official, is liable to the appropriate penalties provided by law, either administratively or criminally or both. The concerned tax subsidy applicant shall be responsible for ensuring that all procedural guidelines prescribed in this Circular insofar as these affect their application are strictly adhered to. In case of a transaction or importation made in the name of another national government agency or GOCC, the sanctions referred herein shall apply to the head of the agency or GOCC primarily responsible for the transaction or importation. Whenever applicable, the sanctions referred herein shall likewise apply to any private entity involved in the transaction or importation. 8. Repealing Provisions All pertinent issuances and other existing rules and regulations inconsistent with this Circular are hereby repealed or modified accordingly. 9. Effectivity This Circular shall take effect CY 2008. MARGARITO B. TEVES Secretary Department of Finance ROLANDO G. ANDAYA, JR. Secretary Department of Budget and Management