Hear ye, I will ease your burden but when? (2nd of 2 parts)

Refund process

The Ease of Paying Taxes (EoPT) Act touches on one “problematic” process that occurs after the filing of tax returns – the refund process which is generally viewed as time-consuming.

• Refunds of un-utilized input VAT: The EOPT Act continues what the TRAIN Law started to do in 2018 – to simplify the process for refunds of unutilized input VAT credits. The TRAIN Law mandates a 90-day period for the BIR to act on the claim for refunds and provides the taxpayer a 30-day period from receipt of the decision denying the claim to appeal to the Court of Tax Appeals (CTA). Now under the EOPT Act, the taxpayer is allowed to go to the CTA within 30 days from the end of 90-day period in case of the failure on the part of the BIR to act on the claim within the 90-day period.

Further, under the EOPT Act, VAT refund claims shall be classified into low-, medium-, and high-risk claims. The risk classification will be based on the amount of claim, tax compliance history of the applicant, and the frequency of filing VAT refund claims. Medium- and high-risk claims shall be subject to audit or other verification processes.

Hopefully, with the requirement to use VAT invoices for sales/purchase of services, the refund process will be simpler.

• Refunds of erroneously or illegally collected taxes: The EOPT Act requires the BIR to act on such claims within a 180-day period. The taxpayer can appeal the case to the CTA within 30 days from the receipt of the decision denying the claim or from the expiration of the 180-day period in case of failure on the part of the BIR to act on the claim.

Registrations with BIR

Note that the EOPT Act will affect the life of a company from day one up to its expiration:

• Taxpayers are required to register with the BIR. The application for registration with the appropriate Revenue District Officer (RDO) can now be made manually or electronically. The BIR is mandated to ensure the availability of registration facilities to all taxpayers including those who are not residing in the Philippines.

• The books of accounts of the taxpayers are required to be preserved for a period of five years. Business style is no longer among the VAT invoicing and registration requirements.

• Commercial invoices will be issued for each sale of goods or services valued at P500 (no longer P100) or more.

• The annual registration fee requirement of P500 has been removed. A BIR advisory was issued on Jan. 8 regarding the matter.

• Cancellation or transfer of BIR registration can now be made upon mere manual or electronic filing of an application for registration information update. For cancellation of BIR registration, the BIR is not precluded from conducting an audit to determine any tax liability. For transfer of BIR registration, if the transferring taxpayer has a pending audit investigation in the old RDO, such RDO shall continue the same despite the transfer of registration to another RDO.

Now what?

The EOPT Act took effect on Jan. 22. Under the EOPT Act, after due consultation with the BIR and the private sector, the Department of Finance shall promulgate the implementing rules and regulations (IRR) within 90 days from the effectivity of the EOPT Act.

The declared policies of the EOPT Act should guide the DOF and the BIR in coming up with the IRR. The overall objective is simplicity, efficiency, clarity, and promotion of taxpayer’s convenience.

Seeking inputs from the taxpayers is required. The creation in August 2023 by BIR Commissioner Romeo Lumagui Jr. of a partnership with multi-sectoral private organizations for effective consultations between the BIR and the private sector should help address this need.

When?

Considering the far-reaching changes introduced by the EOPT Act, the IRR to be issued might have to be in stages, addressing first the more urgent items.

The changes under the EOPT Act, especially the recognition of the VAT on sales of services or claiming of input VAT on purchases of services, are not that simple to implement. Affected taxpayers engaged in sales of services will no longer record any deferred output VAT. No monitoring is required now for obtaining the VAT official receipts for input VAT credits on purchases of services. Affected taxpayers might need to review their internal processes and conduct trainings for their finance or tax teams handling the preparation of the VAT returns, in order to ensure compliance with the EOPT Act. The VAT changes could have impact as well on large taxpayers finalizing their computerized accounting systems and sales data transmission systems in accordance with the e-invoicing requirements under the TRAIN Law.

It is helpful that under the EOPT Act, taxpayers are given six months from the effectivity of the IRR to comply with the amendments on the specific portions of the NIRC on VAT and percentage taxes.

But the other items of the EOPT Act are not part of the VAT and percentage tax portions of the NIRC. An example is the provision on issuances of sales or commercial invoices. Will sellers of services in the process of getting their Authority to Print now include VAT invoices? Perhaps on these matters immediate guidance is required.

Maria Carmela M. Peralta is the head of tax 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 Maria Carmela M. Peralta 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.