The Bureau of Internal Revenue’s (BIR) 2022 Annual Report reflected a total of 47.4 million registered taxpayers in the Philippines from various segments. Of those, 58% are individual taxpayers who paid their taxes through the withholding tax of the compensation system, or through voluntary filing and payment of their tax returns for sole proprietors and individuals engaged in professional practices.
Through the voluntary filing and payment system, corporate and individual taxpayers contributed 98.12% of the BIR’s total tax collection for the year. For 2023, the taxpaying public will further support the Marcos Administration’s P5.268 trillion National Budget, which focuses on further mitigating the effects of the pandemic, improving transportation, and empowering Local Government Units (LGUs). Clearly, responsible taxpayers are the backbone of our country.
This is the seventh article in our series following the 2nd SGV Tax Symposium, which focused on how a sustainable and effective tax ecosystem can advance the sustainability agenda for both the public and private sectors. This article will discuss the Ease of Paying Tax (EoPT) Bill and how it aims to encourage the compliance of taxpayers in tax-related government processes.
In September, the reconciled version of the EoPT Bill was approved by the Senate. This measure will provide practical and meaningful relief to all taxpayers and encourage tax compliance.
FILE AND PAY ANYWHEREThe best feature of the EoPT Bill allows taxpayers to manually or electronically file and pay their taxes anywhere. This will bring about immeasurable taxpayer convenience as it will do away with the need to line up to file and pay taxes at the particular BIR office where the taxpayer is registered. It offers taxpayers greater flexibility while also promoting sustainability. One of the landmark features of the EoPT bill is that it no longer imposes the burdensome 25% surcharge for filing at the wrong venue; taxpayers will be able to file and pay in any Revenue District Office (RDO) near them or any BIR-Accredited Agent Bank (AAB) in their vicinity. EFPS filers in particular need not worry about hefty surcharges and interest penalties for filing at the wrong venue whenever they experience system downtimes during quarterly and annual tax filing.
EXEMPTION FROM OBLIGATION TO WITHHOLDThe EoPT Bill will formally institutionalize taxpayer classification into 1) Micro taxpayers (earning less than P3M annually); 2) Small taxpayers (earning P3M to P20M); 3) Medium taxpayers (earning P20M to P1B); and 4) Large taxpayers (earning P1B and above).
The classification is critical for those classified as micro taxpayers since the EoPT Bill exempts them from withholding taxes on their income payments, saving them critical tax compliance costs. Moreover, micro and small taxpayers will benefit from the reduced surcharge of 10% (instead of 25%) for failure to file a tax return or neglecting to file a correct return, a reduced interest penalty from 12% to 6%, and a 50% reduction in compromise penalty for violations of invoicing requirements and printing of invoices.
The annual business registration fee payment of P500, a significant amount for micro businesses, is also done away with.
SHIFT TO VALUE ADDED TAX (VAT) BASED ON ACCRUAL AND VAT INVOICEOne of the biggest changes from the EoPT Bill affects service occupations like restaurants, hotels and individuals exercising their profession, as the remittance of their output VAT liability will shift from collection (gross receipts) basis to accrual basis. The bill, however, provides leeway to deduct the output tax paid from uncollected accounts come the succeeding quarter’s VAT return filing, should the billed amounts remain unpaid after the due date for their payment. The other condition is that output VAT should not have been claimed as a deduction against the taxpayer’s gross income as an expense for income tax purposes.
This shift will benefit everyone in terms of when to recognize input VAT, as there will now be a uniform rule that input VAT can be recognized upon receipt of the VAT invoice.
Speaking of invoices, the EoPT bill will also do away with the issuance of official receipts. This means that for all transactions, whether for sale of services or sale of goods, taxpayers need only issue BIR-registered invoices, bringing us up to par with international best practices. Invoices are no longer required to indicate business style as well. Common mistakes in complying with some of the invoicing requirements will not necessarily lead to the disallowance of input taxes, provided that the errors do not pertain to amount of sales, amount of VAT, name and TIN of both seller and buyer, date of transaction and description of the goods or services sold.
SIMPLIFYING VAT REFUNDSThe EoPT Bill seeks to implement more improvements in the process of VAT refunds by classifying VAT refund applications as low, medium and high-risk claims. This further streamlines the process and requirements for low-risk claims (akin to the “green lane” of the BoC) to ensure that VAT refunds are granted within 90 days or less, saving costs and litigation for claimants.
Under the EoPT bill, taxpayers will be given the option to elevate their claims to the Court of Tax Appeals (CTA) within 30 days if it takes the BIR more than 90 days to issue a decision on a refund claim.
TAX COMPLIANCE MADE MORE CONVENIENTThe EoPT Bill was endorsed for the President’s signature on Dec. 6, 2023. It will lapse into law after 30 days, unless sooner signed by the President, which means there may still be changes to it. While the EoPT Bill is not a revenue-raising measure, it is instead intended to lower tax compliance costs while enhancing tax compliance efficiency. Through these changes, the bill aims to enhance the trust and confidence of Filipino taxpayers in tax-related government processes.
Through these measures, we can see how the government is taking steps to demonstrate that tax compliance, while still an obligation, does not have to be an onerous one.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co. or EY.
Jules E. Riego is the ASEAN business Tax Services leader of Ernst & Young (EY) and the Private Tax Head of SGV & Co.