When paying taxes, the simpler the better

By: Rosalie Aiza Llever

I HAVE been in the tax practice for more than a decade now, and everyone will agree that the Philippine tax system is overly complicated. In the last few years, the system has undergone some major changes, starting with the Tax Reform for Acceleration and Inclusion (Train) Act and followed by the Corporate Recovery and Tax Incentives for Enterprises (Create) Act. These reforms put emphasis on revenue generation and less on taxpayer compliance. For some, the changes have made tax rules even more complicated.

Recently, another tax reform bill was ratified by both chambers of Congress that is intended to reduce the administrative burden on taxpayers, especially the small taxpayers. The Ease of Paying Taxes (EOPT) Act aims to simplify the Philippine tax compliance system and pave the way for the digitalization of BIR services to improve tax compliance, boost government revenues, and enhance taxpayer convenience.

Here are some of its salient features:

– There will be a new classification system for taxpayers: micro, small, medium and large, based on the taxpayer's gross sales.

– The withholding tax requirement for micro taxpayers (or those with gross sales of less than P3 million) for purchases of goods and services will be eliminated.

– Penalties for micro and small taxpayers will be reduced. For failure or neglect to file a correct tax return and/or failure to pay the correct taxes, the surcharge will be lowered from 25 percent to 10 percent.

There will be a 50-percent reduction in the interest rate imposed and at least 50 percent reduced compromise penalty rate for violations of the invoicing requirement, issuance, and printing of sales invoices. Also, the penalty for each failure to file certain information returns will be reduced from P1,000 to P500.

– Taxpayers will have the flexibility to file and pay their tax returns at any authorized agent bank, Revenue District Office (RDO) or authorized tax software provider.

– Taxpayers will have the option to, electronically or manually, register with the appropriate RDO without the need to pay the annual registration fee of P500. Registration facilities will also be available to all taxpayers, including those who are not residing in the country. Any update to the registration status may be done by merely filing, either electronically or manually, an application for registration information update.

– There will be simplified, uniform documentation for VAT purposes. VAT invoice will be the only proof of transaction needed for both sale of goods and services. Accordingly, the VAT official receipt requirement, which is unique in the Philippines, will be abandoned. As VAT shall be chargeable at the time of invoice issuance, it will eliminate the disconnect in the sales reporting per VAT and income tax purposes.

For long-term contracts, the invoice will be issued during the month in which the sale or exchange of services, or use of lease of properties, has been rendered or supplied. Further, any output VAT paid on uncollected receivables may be deducted in the next quarter after the lapse of the agreed period to pay but will be added to the output VAT in case of recovery of uncollected receivables.

The enrolled bill also proposes the removal of the business style and increases the threshold for issuance of duly registered sales invoices from P100 to P500. In addition, the P3-million VAT threshold may be adjusted to its present value using the consumer price index, as published by the Philippine Statistics Authority every three years.

– The enrolled bill fixes the processing period to decide the credit or refund for erroneously paid taxes to within 180 days from the date of submission of complete documents and provides an option to appeal to the Court of Tax Appeals within 30 days from the receipt of the full or partial denial of the claim or non-action within the 180-day period.

– The VAT refund claims shall be classified into low-, medium-, and high-risk claims based on the amount of VAT refund, tax compliance history, and frequency of filing VAT refund claims. Only medium- and high-risk claims will be subject to audit or other verification processes.

The EOPT Act will certainly ease the burden of tax compliance on taxpayers, particularly for micro and small enterprises, and promote efficiency in tax administration. Once the bill is signed into law, the tax office will hopefully provide clear guidelines for its effective implementation before next year's tax season begins.

As published in The Manila Times on 23 October 2023. The author is a Senior Manager with the Tax & Corporate Services division of Deloitte Philippines.