The new landscape of income tax returns for individuals and what it asks from you

Revenue Regulations No. 19-2011 prescribes new versions of BIR forms that will be used for income tax filing starting with calendar year (CY) 2011. The new versions for individual taxpayers are BIR form nos. 1700 (for individuals earning purely compensation income) and 1701 (for self-employed individuals, estates and trusts) both version November 2011.

In the new individual income tax returns (ITR), all information must be written in capital letters because the new forms are supposed to be readable by an optical character reader (OCR). As such, taxpayers are advised to follow carefully the guidelines and instructions in filling out the new ITRs. The BIR has mentioned that Revenue District Offices (RDOs) of Revenue Region 7 will undergo pilot implementation for CY 2011 and that these RDOs are now fully equipped with OCRs.

In addition, the taxpayer must indicate his or her email address. Further, choices should be marked by shading the appropriate circles except for BIR form no. 1701 where the choice on the type of deduction, and the treatment of any excess of the total tax credits/payments over the actual income tax due computed in the new form should be marked with an “X”. If not properly marked or left blank, the choices will be presumed to be itemized deductions and carry-over, respectively. Further, there is no more need to place “NIL” or “N/A” on items which are intended to be blank. With respect to how negative amounts shall appear on the returns, the BIR has yet to come up with its rules on the same (e.g., Will negative amounts be enclosed in parentheses?,etc.)

Changes in the BIR form 1700 – annual income tax return for individuals earning purely compensation income

In the old version of BIR form 1700, the computation of taxes starts with “gross taxable compensation”. This amount is net of non-taxable/exempt income such as the exempt portion of the 13th month pay and other benefits not exceeding P30,000, and contributions to SSS, PHIC and Pag-IBIG. With the new ITR form, however, computation of taxes starts with “gross compensation income”, which includes non-taxable/exempt income received. 

Further, personal and additional exemptions granted to individual taxpayers now have separate fields. In the old version of BIR form 1700, both amounts are added and indicated in only one field. 

Another glaring change in the new BIR form 1700 is the addition of “separated” and “widow/er” on the civil status field. Note, however, that the taxpayer’s civil status will not impact the computation of an individual taxpayer’s income tax since all individuals, regardless of civil status, enjoy the same amount of personal exemption of P50,000.  

In page three (3) of the new BIR form 1700, there is a provision for “new address”. This applies to a taxpayer who changes his registered address during the year. The idea is to do away with administrative requirements of updating the registered addresses of individuals earning purely compensation income. As pointed out by the BIR, this is preparation for the intended requirement that all individuals earning purely compensation income shall, if they will file BIR form No. 1700, file with the RDO having jurisdiction over their employers. This field is just before part IV, or the “supplemental information” section where the taxpayer can indicate his income that was subjected to final withholding tax, such as interest on bank deposits, royalties, dividends, prizes and winnings, fringe benefits, sale or exchange of real properties or shares of stock, or income that are exempt from tax, such as proceeds of life insurance policy, return of premium, or retirement benefits. While the declaration of supplemental information is optional for taxable year 2011, it remains to be seen if this will be required for taxable year 2012. 

Changes in the BIR form 1701 – annual income tax return for self-employed individuals, estates and trusts (including those with both business and compensation income)

Most of the changes in BIR form 1700 are also seen in BIR form 1701. Thus, there are fields for the taxpayer’s email address and supplemental information. 

Part II of the new BIR form 1701 starts with the income tax due and there are now separate fields for the tax due under the regular rate, and tax due under the special rate.

The total tax relief and savings that the taxpayer and his spouse were able to avail of must be summarized in part III, and the details thereof must be indicated in part VII. 

Part V contains the “breakdown of income”. Note that in completing part V, the taxpayer’s income that is exempt, or subject to a special rate, must be indicated in the proper column.

Schedules required have also been changed. In the new form, the following schedules are required:

1) Gross compensation income and tax withheld;

2) Computation of net operating loss carry over (NOLCO); and

3) Reconciliation of net income per books against taxable income.

Also, there is a need for the taxpayer to attach the following, if applicable:

1) Proof of other tax payments/credit;

2) Proof of tax payments for the first three quarters;

3) Summary alphalist of withholding agents of income payments subjected to withholding tax at source (SAWT);

4) Statement of management’s responsibility (SMR) for annual income tax return; and

5) Schedules of the following which must be part of the Notes to the Audited Financial Statements:

a) Sales/receipts/fees;

b) Other taxable income;

c) Cost of sales/services;                    

d) Taxes and licenses;

e) Itemized Deductions (if taxpayer did not avail of OSD); and

f) Other information prescribed to be disclosed in the notes to financial statements.

Another new feature in the new form is part VIII where payments to heirs/beneficiaries must be reported. Accordingly, any tax withheld is also reported. 

All these changes in the individual income tax returns will surely baffle the taxpayers. This notwithstanding, the taxpayers are still bound by the oath:

I declare, under the penalties of perjury, that this return has been made in good faith, verified by me, and to the best of my knowledge and belief, is true and correct, pursuant to the provisions of the National Internal Revenue Code, as amended, and the regulations issued under authority thereof.

Now, does this oath cover just the information appearing before the oath, or does it cover all information stated in the return (including the supplemental information stated below the oath)?