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With the Duterte government’s aggressive pursuit of reforms to bring about a simpler, more equitable and more efficient tax system that can encourage investment, job creation and poverty reduction, the Department of Finance (DoF) recently presented its proposed Tax Policy Reform Program as of Sept. 28. The proposed tax policy packages cover several areas of the tax system such as the personal income, consumption, corporate income, property and capital income taxes.

For the past months, the push for tax reform has been increasing, to rationalize our 19-year-old Tax Code in response to our changing economic environment, including the impact of ASEAN integration. Among the issues surfacing in the news are: updating the tax brackets for individual income tax, reducing corporate income tax rates, and simplifying certain tax administration procedures. Not to be left behind is the possible reform of the withholding tax system, particularly on the expanded withholding tax (EWT). This article focuses on EWT.

Guidelines in securing importers and broker's BIR clearances

To increase the audit coverage of Value Added Tax (VAT)-registered taxpayers and facilitate completion and reporting of cases under VAT Audit Program (VAP), the Bureau of Internal Revenue (BIR) recently issued Revenue Memorandum Order (RMO) No. 59-2016 expanding the coverage of VAT audit investigations and introducing issue-based audit under the VAP.

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.