A glimpse of a new tax reform: What to expect from the Ease of Paying Taxes bill

In recent years, Philippine taxation has undergone reforms through new tax legislations such as the Tax Reform for Acceleration and Inclusion (TRAIN) Law and the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act. Presently, Senate Bill 2224 or the Ease of Paying Taxes (EOPT) Act is set to be signed into law, which can be beneficial to local businesses and foreign investors. The bill aims to amend provisions in the Tax Code and introduce specific regulations, summarized as follows:

Manner of registration, filing and payment – Registration facilities will be made available to all taxpayers, including non-residents. Also, the annual registration fee of P500 and the information about the business style in the registration requirements shall be removed. Registration, transfer and cancellation may be done manually or electronically. In addition, filing and payment may be made manually or electronically with any revenue district office (RDO), authorized agent bank, or authorized tax software provider, which provides convenience and removes the burden of going to the wrong venue when conducting transactions.

Printing and issuance of invoice – Taxpayers can secure the Authority To Print invoices from the Bureau of Internal Revenue (BIR) free of charge. Official receipt, as a document for the sale of services, shall be removed. Thus, an invoice will be the sole document to be issued for both sales of goods and services. Business style shall also be removed as a required information in the invoice. The threshold for mandatory issuance of invoices shall be raised from P100 to P500, which is to be adjusted every three years using the consumer price index (CPI). However, if the buyer requires so, the seller shall issue an invoice, regardless of the amount. Furthermore, the seller can issue a single invoice for multiple transactions, provided that each transaction does not exceed the threshold and the aggregate sales is at least P500. On the other hand, VAT-registered sellers shall issue duly registered invoices, regardless of the amount.

Income taxes – EOPT repealed withholding of tax as a requirement for deductible payments from gross income. On the other hand, claims for creditable income tax should only be granted if the tax is included in the gross income and properly deducted and remitted. Furthermore, unused credits can be carried over to the succeeding period, provided they are declared in the return where the income is reported. Also, the obligation to deduct and withhold tax arises when the income becomes payable.

For the final adjustment return of corporations, excess income taxes paid during the year can be carried over to taxable quarters of the succeeding years. However, in case of dissolution, an application for a refund shall be filed within two years from the cessation of business.

Business taxes – Generally, gross sales will be the only basis of transactions, shifting from cash to accrual. In accrual, recognition arises when the income is earned rather than received, and the sale is supplied or rendered rather than paid. Also, the P3,000,000 threshold will be adjusted to its present value every three years.

For VAT, the word “prominently” as a manner of showing in the invoice whether the transaction is VAT-exempt or zero-rated is removed, and purchasers are allowed to claim input tax even if the invoice lacks information as long as it does not pertain to the sales and VAT amount, the name and TIN of purchaser and seller, the description of the transaction, and the date.

Furthermore, sales allowances and discounts granted by VAT-registered individuals may be deducted from gross sales for the quarter. Also, output VAT paid on uncollected receivables may be deducted from the output VAT of the subsequent quarter. However, in case of recovery, it shall be added in the period of recovery.

For VAT refund, claims will be classified as low, medium, or high risk based on the amount of claim, compliance history, and frequency, with medium and high risk being subject to audit. The commissioner should act on this within 90 days, and in case of denial, the taxpayer may appeal within 30 days from the receipt of the decision or from the expiration of the 90-day period. If disallowed, only the taxpayer shall be liable, without prejudice to any employee of the BIR.

In other percentage tax (OPT), the quarterly threshold for domestic carriers and keepers of garages is removed.

Authority of the commissioner – The commissioner shall decide on a claim for refund of erroneously received taxes within 180 days from the date of submission of complete documents. If the commissioner denies the claim, the legal basis should be stated. Failure of any BIR employee to process the application within the period shall be penalized.

Special concession for small and micro entities – Considerations for small and micro entities provide for income tax returns of a maximum of two pages, whether in paper or electronic form; a reduced rate of 10 percent for civil penalties; a 50 percent reduction in interest rates; a reduced rate of P500 for information returns; and a reduced compromise penalty rate of at least 50 percent.

BIR services digitalization – The bill states that the BIR should adopt an automated system for processing transactions and establish a digitalization roadmap, taking micro and small taxpayers into consideration. It shall submit an annual report on EOPT and the digitalization roadmap to the Congressional Oversight Committee on the Comprehensive Tax Reform Program (COCCTRP).

For purposes of publication of tax rules and regulations, the BIR may use any electronic means of publication in the official gazette or its official website.

SB 2224 has been passed by both houses and awaits the approval of the President.

Taxpayers, whether an individual, small business owner, or large corporation, should always stay informed of the reforms that are underway so they can plan ahead and determine the most convenient way to file their taxes. It is important to always check the BIR’s website and other official platforms so taxpayers can remain compliant and keep their records accurate.

Ferdinand J. Amoyan is an associate from the Tax Group of KPMG in the Philippines (R.G. Manabat & Co.), a Philippine partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. The firm has been recognized as a Tier 1 in Transfer Pricing Practice and in General Corporate Tax Practice by the International Tax Review. For more information, you may reach out to Ferdinand J. Amoyan or Manuel P. Salvador III through [email protected], social media or visit www.home.kpmg/ph.

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 in the Philippines.