#AskTheTaxWhiz: What is a tax refund?
My friend who works in a BPO company receives an annual tax refund. What is a tax refund? Are all employees eligible to get a refund?
Tax refund for employees is the excess of tax withheld over the tax due on their annual gross compensation income. The employer as the withholding agent is responsible for computing any tax refund or adjustment to salary.
Yes. All employees may receive a tax refund as the withholding tax on compensation is based on a separate withholding tax table (refer to Withholding Tax Tables - BIR), which is to be reconciled at the end of the year with the tax due based on the individual income tax table. The difference will result in a refund if there is overpayment or adjustment to collect tax deficiency based on the reconciliation.
Should we apply to the Bureau of Internal Revenue (BIR) to avail this?
No. Once a tax refund is computed, the employer is required to give the tax refund not later than January 25 of the following year. Otherwise, the employer who fails or refuses to refund excess withholding tax shall be liable to penalty equal to the amount of refund which was not refunded to employee.
I have been hearing about the Value Added Tax (VAT) refund. What is a VAT refund? As an employee, can I also apply for a VAT refund if I present my VAT receipts from personal purchases?
Under our VAT system, a VAT-registered taxpayer may claim input taxes (VAT on purchases) to reduce its VAT remittance based on output tax (VAT charged on sales).
For example, if you have a P112,000 ($2,492.77) sales inclusive of VAT and P44,800 ($997.10) purchases inclusive of VAT, the VAT on purchases called input tax amounting to P4,800 ($106.83; P44,800/112%) will be deducted from the P12,000 ($267.08; P112,000/112%) output tax charged on sales to lower your VAT remittance from P12,000 (output) to P7,200 ($160.25; output less input).
Any excess input tax may be carried over to the next taxable period or a taxpayer may opt to claim for a VAT refund on the grounds of erroneously or illegally collected/paid tax.
No. Only VAT registered individuals or companies may apply for a VAT refund. However, the burden of proof is upon the taxpayer claiming for a refund. Unfortunately, BIR may deny any appeal for a refund.
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Mon Abrea is a former BIR examiner and an advocate of genuine tax reform. He serves as chief strategy officer of the country’s first social consulting enterprise, the Abrea Consulting Group, which offers strategic finance and tax advisory services to businesses and professionals. Mon's tax handbook, Got a Question About Taxes? Ask the Tax Whiz! is now available in bookstores nationwide. Follow Mon on Twitter: @askthetaxwhiz or visit his group’s Facebook page. You may also email him at firstname.lastname@example.org.
*($1 = P44.93)
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