Will the Ease of Paying Taxes Act Be Easy on Taxpayers?
By: Atty. Euney Marie J. Mata-Perez on January 11,2024
The Philippine tax scene is abuzz again with the passage of Republic Act No. 11976, or the Ease of Paying Taxes (EOPT) Act on January 5, 2024. The main objective of the Act is to provide a healthy environment for the taxpaying public, safeguard taxpayer rights and welfare, and assure fair treatment of all taxpayers. It also aims to modernize tax administration and improve mechanisms that encourage proper and easy compliance with the least cost possible.
The major amendments to the National Internal Revenue Code (“Tax Code”) being introduced by the Act are as follows:
- Classifying taxpayers – The Act classifies taxpayers into micro, small, medium and large taxpayers. For value-added tax (VAT) refunds, taxpayers are also being classified into low, medium, and high-risk claims, with the risk classification based on amount of VAT refund claim, tax compliance history, frequency of filing VAT refund claims. Only medium and high-risk claims shall be subject to the audit or other verification processes by the Bureau of Internal Revenue (BIR).
- Simplifying the place and manner paying tax and filing of tax returns – The Act allows the filing of returns and payment of all internal revenue taxes manually or electronically with any authorized agent bank or Revenue District Office (RDO).
- Providing a uniform basis for VAT and other percentage taxes – The Act makes uniform the basis for VAT, both for sale of goods and services, to be “gross sales”, as distinguished before where VAT on services is based on gross receipts, while the VAT on the sales of goods was based on gross sales. Similar amendments were introduced for various percentage taxes, making the basis for the tax the “sales” of taxpayers, not receipts.
- Clarifying the reckoning of withholding – The Act clarifies that that the obligation to deduct and withhold the tax arises at the time the income has become payable. It also provides claims tax credit of any creditable income tax deducted and withheld in a previous period can still be creditable in the subsequent calendar or fiscal year, provided the same had been declared in the tax return where the corresponding income is reported.
- Liberalizing VAT invoicing – The Act states VAT shall still be allowed to be used as input tax credit on the part of the purchaser pursuant to Section 110 of the Tax Code even if the invoice lacks certain information.
- Facilitating taxpayer registrations, transfers and cancellation of registrations – It provides that the Commissioner shall ensure the availability of registration facilities to all taxpayers including those who are not residing in the country. Also, it provides that transfer and cancellation of registration, as well as application for tax identification numbers, can be done by mere filing, manually or electronically, without prejudice to the BIR’s power to audit the taxpayer. It also removed the requirement of the payment of annual registration fees.
- Providing a period for grant of refunds – For tax refunds of taxes erroneously or illegally assessed or collected under Section 229 of the Tax Code, it mandates that the Commissioner shall process and decide the refund under this provision within one hundred eighty (180) days from the date of submission of complete documents in support of the application filed.
It is apparent that EOPTA attempts to make it easier for taxpayers to pay their taxes since they can now pay before any authorized agent bank or RDO.
It aims to make VAT tax collection easier, by making the basis for the VAT for services and sale of goods the same—gross sales—as distinguished before where services were based on gross receipts. But this amendment seems to make it easier for the government, not for the taxpayers. Service providers are now required to remit the VAT as soon as sales are generated or accrued, and even prior to collection. This new rule will significantly affect the cash flow of service providers. To address bad debt collection, the EOPTA provides that:
- The value of services rendered for which allowances were granted by a VAT-registered person may be deducted from the gross sales for the quarter in which a refund is made or a credit memorandum or refund is issued.
- A seller of goods or services may deduct the output VAT pertaining to uncollected receivables from its output VAT on the next quarter, after the lapse of the agreed upon period to pay, subject to the condition that the seller has fully paid the VAT on the transaction and the VAT component of the uncollected receivables has not been claimed as an income tax deduction under Section 34(E) of the Tax Code.
The Act mandates the BIR to adopt an integrated digitalization strategy by providing automated end-to-end solutions for the benefit of taxpayers and prioritize micro and small taxpayers in terms of streamlining tax procedures and documentary requirements.
As a special concession, the law mandates that income tax returns for micro and small taxpayers shall consist of a maximum of two pages and they shall be subject to reduced penalty and interest rates. Micro taxpayers are those with gross sales of less than three million pesos (PhP3,000,000.00) and small taxpayers are those with gross sales of three million pesos (PhP3,000,000.00) to less than twenty million pesos (PhP20,000,000.00).
However, the President vetoed the proposal to exempt micro taxpayers from withholding tax obligations under Section 57 of the Tax Code.
Given the foregoing changes, it still remains to be seen if the foregoing recent amendments will achieve its objectives.
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Euney Marie J. Mata-Perez is a CPA-Lawyer and the Managing Partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is a corporate, M&A and tax lawyer and has been ranked as one of the top 100 lawyers of the Philippines by Asia Business Law Journal and is the incoming Chair of the Tax Committee of the Management Association of the Philippines. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at email@example.com or visit MTF website at www.mtfcounsel.com.