Simplified or obscured: The new annual income tax return for juridical entities

(First of two parts)

The compliance deadline for filing of the annual income tax return (ITR) by juridical entities or “corporate taxpayers” employing the calendar-year accounting period is fast approaching. On its part, the Bureau of Internal Revenue (BIR) incessantly reminds taxpayers to timely file their ITR, especially in the light of the full implementation of Revenue Regulations (RR) No. 19-2011 issued on Dec. 9, 2011. The said RR mandates the use of the new version (i.e., version November 2011) of the ITR for corporations, partnerships and other non-individual taxpayers (new BIR form no. 1702), among others. 

As further provided in the RR, all juridical entities employing the fiscal year reporting are required to use the new BIR form No. 1702 starting with the fiscal year ended Jan. 31, 2012. On the other hand, BIR bank bulletin No. 2012-01 dated Jan. 6, 2012, addressed to all BIR authorized agent banks, provides that all juridical entities adopting the fiscal year of reporting are required to use the new BIR form No. 1702 starting with ITR covering fiscal year ending Sept. 30, 2011. Thus, during this tax filing season, tax return preparers may want to be familiar on the changes to the BIR form No. 1702, such as the presentation or layout of the form, items relating to the computation of taxes, additional disclosures or supplemental information required, as well as attachments to the form. 

In brief, the following are the salient changes in the new BIR form No. 1702:

1. Presentation and manner of filling out the form

The new BIR form No. 1702 now has a landscape orientation. It has box-type fields for required taxpayer information which shall be filled out using capital letters. It also has circle-type fields for items that require the taxpayer’s election of a choice. Such choice shall be signified by shading the applicable circles, with the exception of the following which shall be marked with an “X”: (a) choice on the type of deduction, whether optional standard deduction (OSD) or itemized deduction; (b) choice on the treatment on any excess of the total tax credits/payments over the actual income tax due computed in the form.

According to the BIR, the new format is aimed to facilitate the direct uploading of information contained in the ITR into the BIR’s database using an optical character reader (OCR). Further, the BIR said that this shall allow their fast retrieval of taxpayer information; prevent common data encoding errors; and make BIR employees concentrate on the performance of their core duties (i.e. collection of taxes, etc.).

2. Details required in the taxpayer’s background information

More details on the taxpayer’s registered address are required such as the unit/room number/floor, building name, etc. In addition, contact number and email address are now required to be indicated. Further, if the taxpayer is availing of tax relief under special or international tax treaty, the following details should be indicated: (a) investment promotion agency (e.g., Philippine Economic Zone Authority (PEZA), Board of Investments (BOI), etc.); (b) legal basis; (c) registered activity/program (registration number); (d) special tax rate; and (e) effectivity date of tax relief.

3. Items relating to the computation and/or presentation of taxable income, tax due, tax credits and payments, and tax payable

• Specification as to the kind of allowable deductions

Deductions have to be specified if they are OSD, regular allowable itemized deductions, special allowable itemized deductions and allowance for net operating loss carry over (NOLCO). In the old form, the allowance for NOLCO is part of the schedule of itemized deduction, which schedule has been deleted in the new form. The BIR has mentioned that only the chosen type of deduction between OSD and regular allowable itemized deduction should be indicated in the ITR.

Note that the special itemized allowable deductions referred to above pertain to allowable deductions from gross income that are in addition to the regular allowable itemized deduction as provided under existing regular and special laws, rules and issuances such as, but not limited to, rooming-in and breast feeding practice under Republic Act (RA) No.7600, Adopt a School Program under RA No. 8525, Senior Citizen Discount under RA No. 9257 and Free Legal Assistance under RA No. 9999.

• Computation of the minimum corporate income tax (MCIT)

While the previous form provides a separate schedule for the MCIT computation, the new BIR form No.1702 computes MCIT based on “total gross income” in field 20C which pertains to the sum of “gross income from operation” and “other taxable Income not subjected to final tax” under the regular/normal rate column.

• Details for the computation of tax credits/payments to aggregate tax payable

Tax credits availed of and payments made for the current year have to be separately shown in the ITR and classified according to the applicable tax regime (i.e., special tax or regular/normal income tax). Note also that the term “other special tax credit” has been defined in the guidelines as referring to tax credit allowed under special laws, rules and issuances such as, but not limited to, 50 percent of training expenses under the PEZA law.

• Changes in terminology/nomenclature of items

Various terms for items relating to the computation of the income tax have been changed. “non-operating and taxable other income” has been changed to “other taxable income not subjected to final tax”; “income tax” in row 25 of the old form has been changed to “income tax due other than MCIT”; “tax due to the BIR on transactions under special rate” in row 28 of the old form has been changed to “net income due to the national government” in row 30 of the new form; “unexpired excess of prior year’s MCIT over normal income tax rate” in field 28B of the old form has been changed to “excess MCIT applied this current taxable year” in field 33D; “tax payable or overpayment” in row 31 of the old form has been changed to “aggregate tax payable/(overpayment)” in row 35 of the new form.

• Inclusion of items under the exempt column

New fields for “other taxable income not subjected to final tax” (field 19A), “applicable income tax rate” (field 27A), and “income tax due other than MCIT” (field 28A) are now provided under the exempt column of the new form.

Dyann O. Castillo is a supervisor of tax of Manabat Sanagustin & Co., CPAs, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG in the Philippines. For comments or inquiries, please email [email protected]or [email protected]