Ease of paying value-added tax?

“Doing business with the BIR and paying taxes has never been easier,” these were the words of Charlito Martin Mendoza, Undersecretary of the Revenue Operations Group of the Department of Finance, as he delivered the keynote message of the Secretary of Finance during the Ease of Paying Taxes (EOPT) Act Roadshow for the NCR cluster.

As the name of the law suggests, the EOPT Act aims to increase the government’s revenue by improving tax administration. In a word, the law can be described as “pro-taxpayer” because it is focused more on refining the current voluntary tax compliance system in the hope of encouraging the taxpaying public’s cooperation.

To bolster the law, six new revenue regulations (RR) were issued by the Bureau of Internal Revenue (BIR), all of which took effect on April 27, 2024. One of these regulations is RR 03-2024 covering value added tax (VAT) and percentage tax.

Pursuant to the RR, the recognition of sales of services shifted from cash basis to accrual basis, as in the case of sales of goods prior to the EOPT Act. Accordingly, the term “gross sales” now applies to both sales of goods and services. Moreover, the term “invoice” is now understood as the primary document evidencing sales of goods or services. While businesses are still allowed to issue other commercial documents such as official receipts, collection receipts or acknowledgment receipts, the latter are now only considered as supplementary documents which may evidence actual payments received but are not valid proof to support the claim of input taxes.

The EOPT Act likewise removed the concepts of ‘deposits applied’ and ‘advance payments’ from the definition of the term ‘gross sales’ as previously provided under RR 16-05, as amended. As such, in recognizing sales, the reckoning point is when the goods have been supplied or when the services have been rendered. This has been clarified by the BIR to mean that there is no obligation on the part of the seller to issue invoices when deposits or advance payments are made prior to the actual supply of the goods or rendering of the services.

The RR also introduced the concept of “output VAT credit on uncollected receivables” which allows sellers of goods or services to deduct the output VAT on uncollected receivables from the output VAT in the next quarter, after the lapse of the agreed period to pay. The following are the requirements to be entitled to output VAT credit:

1. The sale or exchange took place after the effectivity of RR 03-2024, or starting from April 27, 2024;

2. The sale is on credit or on account;

3. There is a written agreement on the period to pay, i.e., credit terms are provided in the invoice or some other document;

4. VAT is separately presented in the invoice;

5. Sale is specifically reported in the Summary List of Sales covering the period when the sale was made and not reported as part of ‘various’ sales;

6. Seller declared the corresponding output VAT in the VAT return for the period when the sale occurred;

7. The agreed period to pay has elapsed; and

8. VAT component of the uncollected receivable was not claimed as bad debt deduction from gross income.

Furthermore, if the uncollected receivable is eventually recovered, the relevant output VAT shall be added back to the VAT to be paid by the seller during the period of recovery.

Additionally, a different regulation, RR 07-2024, provides for updated guidelines on the invoicing requirements.

The RR also amended the provisions on claiming VAT refund or tax credit by providing taxpayers the remedy of appealing to the Court of Tax Appeals (CTA) within 30-days after the lapse of the 90-day reglementary period for the Commissioner of Internal Revenue (CIR) to act on the claim.

In sum, taxpayers now have the following remedies in VAT refund and tax credit claims: 1) in case of full or partial denial of the claim, appeal to the CTA within 30 days from receipt of the decision denying the claim; 2) in case of inaction by the CIR, appeal to the CTA within 30 days after the expiration of the 90 day period; or 3) forego the judicial remedy and wait for the CIR’s decision on the claim.

Further changes to tax refund claims introduced by the EOPT Act are also provided in RR 05-2024.

Finally, to ensure the VAT-exempt threshold as provided under Sec. 109(CC) of the Tax Code, as amended, is up-to-date, the legislature saw it fit to include a provision for regular review and updating of the threshold. To implement this, the RR provides the adjustment of the P3-million VAT-exempt threshold every 3 years in accordance with the Consumer Price Index published by the Philippine Statistics Authority.

It is prudent for taxpayers to understand and implement the changes as laid down above. Considering the significant modifications introduced by the EOPT Act, we look forward to further issuances from the BIR which provide additional guidelines to ensure everyone’s compliance.

Jessica Chua is a Supervisor 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 Jessica T. Chua or Maria Myla S. Maralit through [email protected], social media or visit http://www.home.kpmg/ph