BIR urged to check PS-DBM deals with China firm over possible ‘unpaid’ taxes

The Bureau of Internal Revenue main office in Quezon City. (File photo from Philippine Daily Inquirer)

MANILA, Philippines — Several senators on Tuesday called on the Bureau of Internal Revenue (BIR) to look into the government’s transactions with a Chinese firm that supplied medical goods in 2020 to the country over fears that it did not pay a “single peso” of income taxes in the Philippines.

During the Senate blue ribbon committee probe into the government’s pandemic-related purchases, senators raised concerns that the Chinese supplier managed to skip paying income taxes due to the Philippine government.

Xuzhou Construction Machinery Group Import and Export Co., Inc. had two transactions with the Procurement Service-Department of Budget and Management (PS-DBM) with a total amount of around P2 billion.

Senators were told that the first deal amounted to over P446 million while the other contract was worth more than $33 million, which Senator Minority Leader Franklin Drilon calculated to be equivalent to some P1.6 billion.

During the hearing, Xuzhou Construction country manager Robin Han said, through an interpreter, that the company is “state-owned” in China and pays its income taxes there.

But Han also told senators that based on the documents he has, the PS-DBM deducted a 12-percent value-added tax (VAT) before the company received its payment for the supplies it delivered.

Senator Panfilo Lacson wondered why this was the case when the Philippines “has no tax jurisdiction” over the company.

“We should get the documents to know where the 12 percent of the $33 million went,” he said.

“We have no tax jurisdiction over this company…so why would he be taxed by PS-DBM?” Lacson asked.

Drilon, meanwhile, interjected and surmised that the company “did not pay a single peso of income taxes in the Philippines.”

“Notwithstanding the fact that you were awarded a contract worth P1.6 billion…you have not paid a single peso of income taxes,” the minority leader said.

Han, through the interpreter, said: “We were not the ones who accepted the money in the Philippines so we don’t need to pay the income tax.”

Drilon disputed this and stressed that the company is “liable for Philippine taxes for income earned” in the country.

“You sold goods here, you made profits for the commercial transaction, you are liable for income taxes and I now call on the BIR commissioner to take a look at this company, how you can collect the taxes on the P1.6 billion in sales in the country,” Drilon added.

Senate blue ribbon chairman Senator Richard Gordon also said that the company should be subject to a 25-percent income tax.

“[This] is a non-resident foreign corporation operating here,” Gordon said.

Tax expert and certified public accountant Mon Abrea agreed with this: “There should have been 25 percent income tax withheld.”

Gordon then ordered the committee director-general Atty. Rudy Quimbo to prepare a letter to the BIR.

To end the discussion on the matter, Lacson once again expressed confusion as to why it was the PS-DBM that supposedly deducted the 12-percent VAT.

“I share the incredulity and curiosity of Sen. Ping and the minority leader and it makes me wonder kung ano bang nangyayari sa [what happened at the] PS-DBM at that time, inagawan ba nil ng mandate ang [did they take the mandate of the] BIR?” Senator Risa Hontiveros, for her part, said.