HAVE you ever dreaded the hassle of queuing during filing and payment deadlines? Are you too familiar with the busy crowd in the Bureau of Internal Revenue (BIR) office every 15th of April? Although these have been drastically minimized recently due to the COVID-19 pandemic, the solution to ease the burden of paying taxes, while encouraging higher voluntary engagement for tax compliance among taxpayers is still lacking. In fact, the Philippines has been lagging behind the rest of its ASEAN neighbors since 2005. To date, the Philippines is at 7th place of 10 ASEAN countries, and 95th of 190 countries worldwide, scoring roughly 60 out of 100 on the ease of business metrics, despite the recent implementation of tax reforms.
One of the solutions proposed by the government is the Ease of Paying Taxes (EOPT) Act or House Bill No. 8942, which aims to simplify tax compliance and modernize tax administration by further introducing reforms to the amended National Internal Revenue Code of 1997.
Summarized as follows are the proposed key changes to the Philippine taxation system:
Removal of the annual BIR registration fee
Currently, the annual registration fee, amounting to five hundred pesos (P500), is paid for every separate or distinct establishment or place of business upon registration and every year thereafter on or before the last day of January. Upon approval of this Act, taxpayers are expected to annually save P500 for every registered entity and are no longer required to accomplish BIR Form No. 0605 or the Annual Registration Form.
Removal of the Authority to Print (ATP) requirement for receipts/invoices
According to Revenue Regulation (RR) No. 18-2012, all registered entities engaged in business shall secure from the BIR an Authority to Print before any principal and supplementary receipts and commercial invoices are allowed to be printed by an accredited printer. The removal of this requirement fast tracks the issuance of official receipts and sales invoices, among others, effectively managing the issue on failure to issue or use of temporary official receipts or sales invoice while waiting for the approval of the ATP. Ultimately, this allows business owners to save on corresponding costs.
Removal of business style
The EOPT Act excludes business style as one of the requisites to comply with the proper issuance of official receipts or sales invoices, particularly since the rest of our ASEAN neighbors have not required the compliance thereof. Basic information such as the name of the registered entity, the Taxpayer Identification Number (TIN), and registered address remain.
Removal of the Value-Added Tax (VAT) rule in issuing official receipt for sale of services and invoice for sale of goods
This allows the issuance of a single document for both sales of services and goods, essentially removing the confusion of which appropriate document to issue for a particular transaction. Like the removal of business style, the same is not practiced by other ASEAN countries.
Harmonization of venue rules
Considering directives on full digitalization of the tax system, it is critical to first settle the venue rules on tax filing before allowing complete online filings and payments with the BIR to avoid possible issues on failure to pay taxes due to wrong venue filing. Ultimately, taxpayers can file anywhere.
Implementation of risk-based approach on BIR assessment
The concept of risk-based approach has long been used within the BIR. The EOPT Act proposes to further cement the approach during BIR assessments by removing the automatic audit whenever a registered entity files for dissolution with the BIR. Instead, the registered entity’s BIR registration will be cancelled upon mere filing of an application for registration information update, wherein the decision of whether to conduct the audit will be based on the BIR’s risk evaluation. Should this provision in the EOPT Act push through, this will certainly be a welcome relief, as BIR dissolution processes can be quite tedious.
Introduction of medium taxpayer classification
The Secretary of Finance will provide classifications for large and medium taxpayers and for every class of taxpayers, the BIR may provide for a special unit to cater to their needs. For instance, simplified tax returns and processes shall be implemented for taxpayers classified as small and micro enterprises.
At present, the qualifications for a large taxpayer are as follows:
- a) VAT – Business establishments with VAT paid or payable of at least one hundred thousand pesos (P100,000) for any quarter of the preceding taxable year;
- b) Excise Tax – Business establishments with excise tax paid or payable amounting to at least one million pesos (P1,000,000) for the preceding taxable year;
- c) Corporate Income Tax – Business establishments with annual income tax paid or payable of at least one million pesos (P1,000,000) for the preceding taxable year; and,
- d) Withholding Tax – Business establishments with withholding tax payment or remittance of at least one million pesos (P1,000,000) for the preceding taxable year.
Creation of Taxpayers Advocate Office
The Taxpayers Advocate Office (TAO) is under the direct supervision and control of the Department of Finance and is independent from the BIR. The TAO shall (a) ensure that the rights of the taxpayers are protected and shall aid the taxpayers in relation thereto; (b) identify systemic problems within the BIR which hampers efficient and fair tax administration and propose changes therein to mitigate administrative and legislative problems; (c) report directly to the Commissioner of the Internal Revenue the outputs and outcomes that result from the execution of its responsibilities; and (d) execute other functions provided by law or required by the Secretary of Finance. It aims to be proactive and timely in providing solutions to taxpayer’s problems.
The EOPT Act was passed on third and final reading last September 15, 2021 in the House of Representatives, and will undergo further deliberation by the Senate and the Bicameral Committee before it is submitted to the President for final approval.
The provisions set forth in the EOPT Act are very promising and will surely ease the burden of paying taxes. Following the examples of Singapore and New Zealand, as the top performers on ease of doing business in the ASEAN and in the world, respectively, a simple and friendly approach on tax administration is the ultimate key in fostering an effective and efficient tax system. The Philippines still has a long way to go, but the tax reforms it has introduced since 2018 are slowly showing the fruits of hard labor.
Mr. Ganhinhin is a partner and head of P&A Grant Thornton’s Cebu Office. P&A Grant Thornton is one of the leading audit, tax, advisory, and outsourcing firms in the Philippines with 24 partners and more than 1000 staff members. Email your comments to email@example.com.
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