A look back on changes to the Philippines invidual tax landscape

With vaccines and boosters being continuously administered, borders are slowly re-opening and airports are starting to be filled with travelers again. In many cases, companies now allow their employees to work from home or from wherever they want. With remote working comes changes to the Philippine individual tax landscape as well.

As vigilant taxpayers, we look back at how the regulators responded to the various circumstances of the past three income tax filing seasons, all of which are unique from one another.

Year 2019 (The customary)

This was the year after the implementation of Republic Act (RA) 10963 also known as the Tax Reform for Acceleration and Inclusion (TRAIN) Law.  While we were adjusting to the changes brought about by TRAIN, we were also waiting for the Bureau of Internal Revenue (BIR) to issue implementing guidelines and revised BIR Forms.

TRAIN provided individuals with a restructured personal income tax table. The changes included the option to avail of the eight percent flat income tax rate and the use of the enhanced BIR Firm 1701 or the annual income tax return for mixed income earners, estates and trusts. The BIR was also gradually expanding its digital platforms.  They provided online web and mobile applications as additional channels of payment for internal revenue taxes.

However, one of the highlights during TRAIN implementation was the issuance of Revenue Memorandum Circular 116-2019 which removed the preferential tax rate for alien individuals employed in the Philippines by regional or area headquarters and regional operating headquarters of multinational companies, offshore banking units and petroleum service contractors and subcontractors. The RMC also provided additional requirements such as labeling the Certificate of Compensation Payment / Tax Withheld for Compensation Payment With or Without Tax Withheld (BIR Form 2316) of secondees with “seconded employees.”  The additional administrative work was suggestive of how the BIR looked to increase its efforts in securing taxpayer information through additional disclosures.

Year 2020 (The turning point)

With a promise of a more prosperous new year, 2020 was an upset.  Many struggled with the detrimental impact of COVID-19 on businesses and employment. Republic Act (RA) 11469 also known as the Bayanihan to Heal as One Act (Bayanihan One) was enacted to contain local transmission and mobilize assistance to affected sectors.

Bayanihan One did not forget about the taxpayers.  It addressed the difficulties in filing returns and paying taxes due to lockdowns by issuing RR 11-2020.  The tax filing and payment deadline for 2019 annual income tax returns was extended to 14 June 2020 (initially extended to 15 May 2020) without imposition of penalties to taxpayers.  Early retirees were also given leniency as to the taxability of their retirement benefits subject to conditions.

The BIR also allowed the use of electronic signatures and reiterated the availability of the eAFS Facility as an option in submitting hard copies of electronically filed AITR and its attachments.  The BIR’s technology was helpful to taxpayers, except when systems were down.

RMC 83-2020 attempted to address mobility and cross-border issues, providing guidelines on the application of the relevant treaty provisions and allocation of taxing rights between treaty partners in relation to international tax issues affecting stranded individuals in the country and their foreign employers.  These issues include double taxation and the unintended creation of a permanent establishment. While the RMC provided some answers to address treaty issues, questions on taxation of non-treaty country residents and applicability of domestic tax rules remained.

(To be continued)

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Karen Jane S. Vergara-Manese is a partner from the Global Mobility Services Country Lead and the Immigration Practice head while Vichellene L. Gandecila-Viernesto is a director from the Tax Group of KPMG R.G. Manabat & Co. (RGM&Co.), the Philippine member firm of KPMG International. The firm has been recognized in 2021 as a Tier 1 in Transfer Pricing Practice and in General Corporate Tax Practice by the International Tax Review.

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 KPMG International or KPMG RGM&Co.

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