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The Department of Finance submitted to Congress last week the first package of proposed tax reforms. The proposals include the restructuring of the personal income tax (PIT) system; expanding the value-added tax (VAT) base by reducing the coverage of its exemptions; adjusting excise taxes imposed on petroleum products; and, restructuring the excise tax on automobiles except for buses, trucks, cargo vans, jeeps, jeepney substitutes and special purpose vehicles. These proposed tax reforms, however, received varying reactions from stakeholders. For purposes of this article, I will be focusing on certain proposed amendments on value-added tax (VAT). The good news is that the proposed tax reforms do not include an increase in the VAT rate. However, the coverage of VAT-exemption and VAT zero-rating will be limited. Even the crediting of input VAT (i.e., VAT on purchases) against output VAT (i.e., VAT on sales) will be limited to the current year. Under the proposed tax reforms, any excess input VAT over output VAT for the quarter may be carried forward to the next quarter of the same year. Any input VAT at the end of the last quarter of the year shall not be carried over to the succeeding taxable year, but the excess input VAT may be refunded. This proposed amendment will put the burden on the taxpayer to file a claim for refund in order to recover the excess input VAT, on which we all know is a very long and tedious (and sometimes painful) process. Another proposed amendment is limiting the definition of export sales subject to 0% VAT to (1) direct exports; (2) sales to international shipping and air transport operations; and, (3) sales of export products to another producer or export trader. Item no. (3), however, will be deemed to be export sales subject to VAT zero-percent only when actually exported by the buyer-exporter. If this provision is passed into law, the question is how it will be implemented. Will the seller be required to issue a bond which will be subjected to liquidation upon proof of actual exportation by the buyer-exporter? Or will the sale first be subject to VAT, with a claim for refund filed upon actual exportation? On the other hand, under the proposed amendment, the following sale of goods and services that currently enjoy VAT zero-rating (i.e., subject to 0% VAT) will be subject to 12% VAT: • sale of raw materials to a nonresident buyer for delivery to a resident local export-oriented enterprise • sale of raw materials to export-oriented enterprises • those considered export sales under EO 226 • sales to entities exempt by virtue of special laws • services to entities exempt under special laws • services to entities engaged in international shipping or air transport • services to export-oriented enterprises Accordingly, purchases of PEZA-registered entities and Board of Investment registered enterprises that export 100% of their products, among others, will be subject to 12% VAT. These entities, however, still have the option to claim refunds on their unutilized input VAT related to their zero-rated sales. I do not know any taxpayer who takes pleasure in filing a refund claim with the Bureau of Internal Revenue (BIR), due to the additional time and cost to be shouldered by the taxpayer-claimant. As we all know, a significant number of taxpayers who filed claim for refund resorted to filing cases with the Court of Tax Appeals (CTA) due to BIR’s inaction on their claims. Although the Tax Code provides for a specific period in which the BIR should process the refund (i.e., 120 days), unfortunately, if such period has lapsed, the refund is deemed denied. Hence, any inaction of the BIR is detrimental to the taxpayer-claimant. If our government pursues the proposed amendments, it should ensure first that we have an effective and efficient refund process. To achieve this, there might be a need to amend Section 112 of the Tax Code (refund provisions of the Tax Code). Among the amendments it may introduce is a “deemed approved” provision in case of inaction by the BIR. Such provision is being implemented in other countries to ensure that the tax authority performs its duty within a reasonable period of time to ease the burden of a taxpayer. Another provision that may be considered is imposing interest on refunds in case they are not be processed or approved within the prescribed period. This would allow the taxpayer-claimant to recover the cost of money in case of significant delay beyond his control in processing his refund. Otherwise, if the foregoing proposed amendments are implemented without improving the refund process, our ease of doing business rankings my further drop. In the World Bank Group’s Doing Business 2016 report released last year, the Philippines’ ranking dropped six notches to 103rd in 2015, across 189 economies. According to the report, among the Association of Southeast Asian Nations (ASEAN), it would be easier doing business in Singapore, Malaysia, Thailand, Brunei Darussalam, and Vietnam than in the Philippines. Moreover, in the World Economic Forum’s (WEF) Global Competitiveness Report 2016-2017, the Philippines fell 10 notches to 57th out of the 138 economies assessed. Among the most problematic factors in doing business in the Philippines cited by WEF are inefficient government bureaucracy and taxation. Hence, if our government desires to improve our competitiveness ranking, significant reforms in business registration and taxation, among others, are necessary. Reforms that would alleviate the already cumbersome compliance requirements in doing business in our country. Reforms that would facilitate voluntary compliance to the maximum extent possible. Reforms that would give the next generation a better future. Edward L. Roguel is a partner of the Tax Advisory and Compliance Division of Punongbayan & Araullo.

Assessment and collection of taxes -- these are the two chief functions of the Bureau of Internal Revenue (BIR), which is tasked to interpret and implement the provisions of the National Internal Revenue Code of 1997, as amended. To meet the objective, the Tax Code grants broad powers to the Commissioner of Internal Revenue which includes the power to authorize the examination of any taxpayer and the assessment of the correct amount of tax through the examination of any book, paper, record, or other data which may be relevant or material to such inquiry -- commonly known as tax audits.

The legal landscape for mergers and acquisitions in the Philippines has been developing at an unprecedented pace over the last few years. In July 2015, Congress passed RA 10667 or the Philippine Competition Act, and in June 2016, the Philippine Competition Commission promulgated the Implementing Rules and Regulations of the said law. While it is inaccurate to say that antitrust laws never existed in the Philippines prior to 2015, RA 10667 is the first comprehensive competition legislation in the country. It is also the first time the Philippines created a specialized antitrust body to enforce antitrust laws and prevent anti-competitive agreements.

It is said that taxation should not restrict trade. For when it does, the flow of a progressive economy is likewise hampered. Importers have a reason to smile this time because last Aug. 31, 2016, the Commissioner of Bureau of Internal Revenue (BIR) issued Revenue Memorandum Order (RMO) No. 56-2016. This amends the guidelines for securing importers clearance certificate (BIR-ICC) and customs brokers clearance certificate (BIR-BCC).

The first of September 2016 marks the resumption of the previously-suspended tax audits being handled by the Bureau of Internal Revenue (BIR). This was by virtue of Revenue Memorandum Circular (RMC) No. 91-2016. The said RMC mentioned that the lifting of the suspension was done since “the conferred authority under the laws to the BIR for the collection of taxes, to be more effectively administered and implemented, requires some form of enforcement activities to ensure the collection of correct taxes at the times prescribed by the law.” RMC No. 91-2016 lifted the suspension of all field audit and operations of the BIR in relation to the examination and verification of the taxpayers’ books of accounts, records, and other transactions. Prior to this RMC, the BIR issued RMC No. 70-2016 which suspended the field audit of the BIR examiners (except in certain cases, like those cases already prescribing and those cases involving taxpayers retiring from business), as well as the issuance of written orders to audit or investigate the internal revenue tax liabilities of taxpayers. According to news reports, this previous suspension of BIR audits took place when the new BIR Commissioner was made aware of certain tax investigations that took years to be processed and were saddled with delays, some for causes that cannot be explained. Now, as the suspension of the BIR audits is lifted, the BIR is definitely back to the grind. But, what can the taxpayers expect? It could be expected that starting this month of September, several notices of tax audits will be issued to the taxpayers, and that the BIR examiners will be in full throttle again in their investigations. However, many taxpayers are anxious that there might still be cases of assessment harassment, wherein: BIR examiners may harass taxpayers by producing unsupported huge amounts of initial tax findings against the taxpayers, like what happened in the past. This situation is feared by many to be a possible source of corruption. Although based on recent news, while the audits are suspended for two months, the BIR is showing that it is serious in disciplining its examiners by releasing reports that there were investigations that are being made for allegedly erring examiners. Some have been suspended while others were already dismissed out of service. How this disciplinary approach will be sustained by the BIR is something that remains to be seen. Nonetheless, the taxpayers should be prepared for any BIR audit knowing that the BIR’s findings could be on factual issues and sometimes on a legal matters. Thus, taxpayers should be knowledgeable and updated on the developments about topics affecting their business operations. Also, they should always have a review mechanism to check whether the tax practices of their companies are in accordance with the tax rules. The taxpayers may also consider looking back to check whether there were errors committed in the past (for open years that could still be subjected to BIR audits), and determine whether amendments to the tax returns have to be made. Note that once the taxpayer receives a notice of audit from the BIR, the taxpayer can no longer amend its tax returns. As commonly observed, the usual findings of the BIR in assessments include unsupported expenses due to documentation deficiencies, unsupported creditable withholding taxes and input value-added taxes, withholding tax deficiencies, and differences from comparisons of amounts of identified accounts per books as against the corresponding amounts in the tax returns, among others. Hence, the taxpayers, in reviewing their practices and documentations, should not forget to verify these items. Note that simple hits and misses with regard to the tax impact of the companies’ practices could mean millions, billions even, of wasted funds for tax exposures. Thus, the taxpayers should be cautious about this. On another note, in case there are instances of harassment during assessments, the taxpayers should have to be firm in their values. Resorting to bribery would just encourage the practice of some erring examiners to continue, and will promote the system of corruption that we all abhor. Needless to say, bribery is a criminal offense punishable by imprisonment. The two-month suspension of BIR audits has already passed. It remains to be seen on how the BIR examiners will approach their resumed examinations, considering that the target revenue of the BIR for the taxable year 2016 is about P2 trillion. Will they be strict? Will they be reasonable? At any rate, nothing beats an honest and prepared taxpayer. Cheryl R. Gatdula is a senior of the Tax Advisory and Compliance division of Punongbayan & Araullo. P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.

Our era is characterized by ever-changing technological advancement. Technology has touched our human existence including the way we educate ourselves, the way we deal and communicate, and the way we travel from one place to another. It has affected our interactions with one another such as shopping and socializing. From a business perspective, technology continues to play a vital role on how entities conduct their operation and maintain their competitive advantage.

This should be a good year for Goodyear Philippines as it has finally secured the confirmation of the Supreme Court (SC) on its 6-year-old refund case involving erroneously remitted tax on dividends amounting to about P14 million. The SC ruled that gains from the redemption of preferred shares are exempt from Philippine income tax if the provisions of the tax treaty between the Philippines and the US are complied with. The tax treaty with the US provides that gains derived by a US resident from the sale of shares in a Philippine company shall only be taxable in the US if the Philippine company’s assets do not consist principally of real property. The gains should not be treated as dividends.

Finally, after much debate and months of delay, the Implementing Rules and Regulations (IRR) of Republic Act (RA) No. 10708, otherwise known as the Tax Incentives Management and Transparency Act (TIMTA), have been finalized and jointly issued by the Department of Finance (DoF) and Department of Trade and Industry (DTI) through Joint Administrative Order No. 1-2016. TIMTA aims to monitor and evaluate the fiscal incentives granted by investment promotion agencies (IPAs), such as the Philippine Economic Zone Authority (PEZA), Board of Investments (BoI) and others.