Intensified radar for self-employed professionals

Through the various campaigns and initiatives of the Bureau of Internal Revenue (BIR), – i.e., Run After Tax Evaders (RATE), “name and shame”, and the controversial print ads of a doctor riding on a teacher’s shoulders to illustrate the unfair burden brought about by improper tax payments – the BIR is clearly making a statement that taxpayers should properly pay their taxes. The path is getting narrower for those who are improperly paying their taxes, be it corporations or individuals, and regardless of whether these persons are registered with the BIR or not.

Without a doubt, operating any income generating activity outside the radar of the BIR is now getting difficult, as it should very well be.

As the BIR aspires to surpass its collection target year after year, a variety of approaches, were or are being adopted to hit collection targets. Recently, the Department of Finance, through the recommendation of the BIR, issued Revenue Regulations (RR) No. 4-2014, dated March 3, 2014 entitled “Guidelines and Policies for the Monitoring of Service Fees of Professionals”.  Said RR has been issued in connection with the BIR’s campaign to promote transparency and to eradicate tax evasion among self-employed professionals to encourage them to comply with the requirements on registration pursuant to Section 236 of the National Internal Revenue Code of 1997 (NIRC), as amended, and issuance of official receipts (ORs) and invoices under Sections 113 and 237 of the NIRC.

RR No. 4-2014 does not define the term self-employed professionals. However, if the BIR will follow the definition in the Tax Guide for Professionals, a “self-employed professional” refers to an individual or a group, practicing his or their profession or calling, with or without license under a regulatory board or body.  The Tax Guide for Professionals is a publication of the BIR through its Taxpayer Assistance Service Section.

Section 2 of RR No. 4-2014 outlines the policies and guidelines in monitoring the service fees of self-employed professionals, as follows:

1. Self-employed professionals shall register and pay the annual registration fee (ARF) with the Revenue District Office/Large Tax District Office having jurisdiction over them. In addition, upon registration and every year thereafter on or before Jan. 31, all self-employed professionals shall submit an affidavit indicating the rates, manner of billings and the factors they consider in determining their service fees.

2. Self-employed professionals are obligated to register the books of accounts and official appointment books of their practice of profession/occupation/calling before using the same. The official appointment books shall contain only the names of the client and the date/time of the meeting. They are likewise obligated to register their sales invoices and official receipts (VAT or non-VAT) before using them in any transactions.

3. In cases when no professional fees are charged by the professional and paid by client, a BIR registered receipt, duly acknowledged by the latter shall be issued showing a discount of 100 percent as substantiation of the “pro-bono” service.

RR No. 4-2014 requires all existing and registered self-employed professionals to submit the required affidavit and register its official appointment books within 30 days from the date of the effectivity of said RR. Accordingly, said RR shall take effect after 15 days following its publication in any newspaper of general circulation. Since the same has been published on March 21, 2014 in Manila Bulletin, said RR is expected to take effect on April 6, 2014.

With the implementation of the RR, non-BIR-registered self-employed professionals are effectively compelled to secure their certificates of registration (COR) with the BIR. This is because one cannot register his books of accounts or appointment books without the COR. Likewise, sales invoices or ORs will not be issued unless upon showing of the COR and proof of payment of the ARF. Further, self-employed professionals should be reminded of the need to file their monthly or quarterly returns (i.e., VAT Returns or Monthly Percentage Tax Returns, whichever is applicable) aside from the income tax returns which they file annually. They should be mindful also of their withholding tax obligations.

With said guidelines and policies in place, self-employed professionals will now be under greater BIR scrutiny especially since that the BIR is coordinating with different government agencies such as the Professional Regulations Commission to help them achieve the ends of said issuance.

The issuance of the above RR is actually a welcome development in enforcing taxes among professionals, not only to compel the proper payment of taxes, but also for purposes of equity among professionals whether employed or self-employed.

Rey Taduran Llesol is a supervisor from the tax group of R.G. Manabat & Co. (RGM&Co.), the Philippine member firm of KPMG International.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or RGM&Co. For comments or inquiries, please email [email protected] or [email protected].

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