EIS: Are you read-e?

The COVID-19 crisis has been a game changer – showing us that digital transformation is not just hype, it is a necessity. This pandemic has proven to be a wake up call for all businesses, whether startups, SMEs or large entities, as digital activities and online transactions continue to rise in the country.

For years, paper-based or manual invoice processing continues to be the leading cause of process bottlenecks as it’s long, tedious, and multi-point nature leaves the door open to myriad problems such as human errors, omissions, fraud, and non-compliance.

As the business world has realized by now, the solution to the said problems lies in the digitalization of the invoicing process. Thus, recently, the Bureau of Internal Revenue (BIR) issued Revenue Regulations (RR) 8-2022 to prescribe the policies and guidelines for the implementation of Section 237 and Section 237(A) of the National Internal Revenue Code (NIRC), as amended by Republic Act (RA) 10963 or the TRAIN Law, through the use of Electronic Invoicing/Receipting System (EIS).

The regulations basically mandate all taxpayers engaged in the export of goods and services and in electronic commerce (e-commerce), and those under the Large Taxpayers Service (LTS), to issue electronic receipts or sales/commercial invoices, as well as to report their sales data to the BIR at the point of sale, within five years from the effectivity of the TRAIN Law (i.e., on or before Jan. 1, 2023), except for taxpayers engaged in e-commerce.

Under the RR, taxpayers who are mandated to adhere to the regulations must comply with the following:

1.     Issue e-receipts/invoices, transmit data electronically, and develop a sales data transmission system based on the standard Application Programming Interface (API) guidelines, which must be certified by BIR through EIS.

2.     Enroll prior to the actual transmission of sales data to EIS for security purposes.

3.     Submit an application for the EIS certification (EIS CERT) subject to online verification if compliant with the BIR requirements and application for the issuance of a Permit to Transmit (PTT) in order to allow the transmission of sales data to the EIS, regardless of the role of or arrangement with the software provider. Sales reporting shall be done immediately for transactions on the day following the issuance of the PTT.

4.     Transmit encrypted sales data in Java Script Object Notation (JSON) file format in real time or near real time, provided that it should be done within three calendar days from the date of the transaction. Failure to transmit sales data at the time required will result in a corresponding penalty.

5.     Submit a Summary List of Purchases and Importations (SLP and SLI). Taxpayers using the EIS shall no longer be required to submit a Summary List of Sales (SLS).

On the other hand, taxpayers who are not covered by the mandate may also opt to issue e-receipts/invoices in lieu of manual receipts or invoices and may comply with the provisions of the RR.

The regulations also reiterated the other policies on the issuance of receipts or invoices in relation to the implementation of Section 237 and 237(A) of the NIRC of 1997, as amended.

In line with the BIR’s digital transformation program, the Department of Finance (DOF) has taken the first step through a pilot project in July 2022 and has tapped the country’s top 100 large-scale taxpayers to launch EIS. This was made possible with the help of the South Korean government through the Korean International Cooperation Agency (KOICA), which commissioned the services of Douzone Consortium for the undertaking. In South Korea, mandatory e-invoicing for all corporations and certain individuals has been up-and-running successfully since 2011. Thus, it is considered the leader in e-invoicing in Asia, and it continues to inspire the country, as well as other countries such as Indonesia, Malaysia, and Brunei. In fact, EIS in the country is said to be relatively similar to South Korea’s Electronic Tax Invoice System (i.e., e-Tax).

The concept of EIS is not novel in the country; however, it remains under utilized not only by local entities, but also by multinationals, which have long adopted e-invoicing in their business operations in foreign countries. Moreso, worldwide adoption level remains relatively low in spite of the undeniable advantages of implementing EIS for both the government and the taxpayers.

In today’s world, as digital literacy becomes the norm, the shift to mandatory implementation of the EIS demonstrates the government’s commitment to adapt and embrace the fast changing technology and digital transformation in the Philippine tax system. But the said transformation is not a walk in the park – in fact, it will entail hefty investments in time and money to ensure its effective implementation and operation. Regardless of anticipated challenges, taxpayers should work hand-in-hand with the government, as the proper and careful implementation of EIS will ease taxpayers’ reporting and compliance, and reduce the cost of taxpayer transactions.

Moreover, it will address issues on business transaction transparency and strengthen the government’s audit capabilities for more tax collections – something that we need in the continuing response to and recovery from the adverse effects of the COVID-19 pandemic, which ironically was an eye opener and a game changer.

Nathaline Thea C. De Veyra is an associate 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 2022 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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