By: Atty. Chriselle Marie G. Dabao, CPA
The Philippines leaped into the 2024 leap year with the enactment of a much-anticipated piece of legislation – Republic Act No. 11976 or the “Ease of Paying Taxes (EOPT) Act”. The EOPT Act, which took effect on January 22, 2024, aims to modernize and streamline tax administration and strengthen taxpayer’s rights, and thus encourage compliance and enhance collection.
To effectively implement and operationalize the EOPT Act, the Secretary of Finance (SOF) is mandated to issue the corresponding rules and regulations of the said Act within ninety (90) calendar days from its effectivity. The EOPT Act also mandates consultations with the Bureau of Internal Revenue (BIR) and the private sector prior to the promulgation of these rules and regulations. In view of the foregoing, the BIR released the proposed Revenue Regulations (RR), which is available for public scrutiny at the BIR website, and conducted public consultations on February 26 and 27, 2024.
The EOPT Act brings forth the following key reforms:
Classification of taxpayers
The EOPT Act classified taxpayers into four groups, depending on their annual gross sales:
| Taxpayer Classification | Gross Sales |
|
Micro |
less than P3 million |
|
Small |
P3 million to less than P20 million |
|
Medium |
P20 million to less than P1 billion |
|
Large |
P1 billion or more |
Simplified Tax Filing and Payment
The EOPT Act introduces a “file and pay anywhere” mechanism, allowing taxpayers to file returns and pay taxes at any Authorized Agent Banks (AAB), Revenue District Offices (RDO), or through Authorized Tax Software Providers (ATSP), instead of being restricted to their registered RDO. This change not only offers convenience and flexibility in tax compliance, but more importantly, eliminates the 25% surcharge on filings / payments made at the wrong venue.
In line with this, the draft RR directs taxpayers to electronically file returns and pay the corresponding taxes on or before their due dates using the available electronic platforms (eFPS/eBIRForms), and if these are unavailable, to manually file and pay at any AAB, RDO, or ATSP.
Timing of Withholding Taxes
Prior to the EOPT Act, the obligation to withhold arises at the time an income payment is paid, becomes payable, or is accrued or recorded as an expense or asset, whichever is applicable in the payor’s books, whichever comes first. The EOPT Act simplifies this by way of amendment to Section 58(C) of the Tax Code. As amended, the obligation to deduct and withhold tax now arises only at the time the income has become payable.
Another welcome change brought forth by the EOPT Act is the repeal of Section 34(K) of the Tax Code, or the requirement to withhold taxes in order to claim deductions from gross income.
Value Added Tax (VAT) Rules and Documentation
The EOPT Act repeals the distinction between sales of goods and services by providing a unified tax base (gross sales) and documentation (VAT Invoice) for all transactions, regardless of whether a transaction involves the sale of goods or services or the lease of property. With this, VAT is due upon issuance of the invoice, regardless of the timing of collection.
To address the potential cash flow concerns, the EOPT Act allows taxpayers to deduct the output VAT on uncollected receivables in the next quarter after the lapse of the agreed period to pay subject to the following conditions: (1) the seller fully paid the VAT on the transaction; and (2) the VAT component of the uncollected receivable has not been claimed as deductible bad debts from gross income. Note that in case of recovery of uncollected receivables, VAT shall be remitted during the period of recovery.
On invoicing, the EOPT Act states that in case a VAT-registered person issues an incomplete VAT invoice to another VAT-registered person, the issuer will be liable for non-compliance. It additionally provides (in Section 113 [iii]) that the purchaser can still claim the VAT as input tax credit if the missing information does not involve essential details such as sales amount, VAT amount, names and TINs of both parties, goods/services description, and transaction date.
For ease of compliance, the draft RR proposes that taxpayers in the service sector simply modify their manual and loose-leaf printed receipts by replacing “Official Receipt” with “Sales Invoice” until December 31, 2024. Taxpayers using CRM, POS, and computerized books of accounts with e-receipting or electronic invoices can make this change without notifying the BIR. However, adjustments to comply with the revised VAT base for sales of services will be considered major enhancements, necessitating system registration updates with the BIR. These modifications, including reconfiguring machines and adjusting systems, must be completed by June 30, 2024.
VAT Refund
The EOPT Act classifies VAT refund claims as low, medium-and high-risk claims based on the amount of claim, tax compliance history, and frequency of filing of claim, among others. Only medium and high risk VAT refund claims shall be subject to audit or verification process by the BIR.
Moreover, while the TRAIN law initially removed the taxpayer’s right to appeal to the Court of Tax Appeals (CTA) within 30 days from the lapse of the 90-day period for the Commission on Internal Revenue (CIR) to decide on refund claims and imposed an administrative penalty for BIR officials, agents, or employees failing to act on the application, the EOPT Act reinstated the said right. Now, taxpayers can file an appeal to the CTA within 30 days from the expiration of the 90-day period for the CIR to act on the refund claim.
Digitalization of the Bureau of Internal Revenue Services
Sections 43 and 44 of the EOPT Act mandate the BIR to develop an Ease of Paying Taxes and digitalization roadmap that will provide for the programs and projects to be implemented to ensure ease of compliance with tax laws, rules, and regulations. Specifically, the EOPT Act has already provided an electronic application for cancellation of VAT registration and transfer/cancellation of registration.
The BIR is set to eventually adopt an integrated digitalization strategy by providing automated end-to-end solutions for the benefit of taxpayers, including but not limited to the implementation of an integrated, automated system for basic tax services, including registration, TIN issuance, and validation, filing returns, payment of taxes, allowing the use of electronic signatures and the establishment of electronic and online systems for secure data exchange, streamline procedures, and enhance technology capabilities including data centers, repositories, and encryption systems.
Conclusion
The EOPT Act represents a groundbreaking leap in the Philippines’ taxation landscape, aiming to revolutionize the way taxes are filed, paid, and managed. Through comprehensive reforms, the EOPT Act not only simplifies tax processes but also promotes fairness, transparency, and efficiency within the system. However, the true potential of the EOPT Act lies in the issuance of the RR, which will serve as the blueprint for its practical application.
While the EOPT Act awaits the finalization of the RR, its significance cannot be overstated. It signifies a commitment to modernizing tax processes, embracing technology, and enhancing transparency and fairness in the system. The EOPT Act holds the promise of simplifying tax compliance, reducing administrative burdens, and fostering an environment more conducive for inclusive economic growth and development.
The EOPT Act paves the way toward a future where taxation isn’t perceived as a burden but a tool for progress. As the Philippines continues its journey toward economic growth and development, the EOPT Act emerges as a beacon of change, reshaping our notoriously complex tax system for the better. It’s not just about crunching numbers and filling out forms anymore. It’s about creating a system that works smarter, not harder – one that is fairer, easier to navigate, and embraces the power of technology. It’s about making taxes less daunting and more empowering, ultimately benefiting everyone involved in building our nation’s brighter tomorrow.
Chriselle’s practice area includes Corporate, Technology Media & Telecommunications, Real Property and Taxation. She assists companies with their regulatory compliance matters as required by the Philippine Central Bank (Bangko Sentral ng Pilipinas), Securities and Exchange Commission, Bureau of Internal Revenue, Local Government Units, and other administrative bodies. Her work includes corporate structuring, licensing, and corporate dealings such as mergers and acquisitions, commercial transactions, and legal due diligence. Chriselle also handles tax audits, estate settlements, and other tax-related transactions.
