At a conference recently held by professional accountants where the key features of the House Bill (HB) No. 4774, also known as the Tax Reform for Acceleration and Inclusion (TRAI), were presented, the participants elicited the strongest reaction to the proposed changes in bookkeeping rules. The reaction is understandable, considering that these professional accountants know firsthand the challenges taxpayers face in their businesses, which include, among others, complying with complex tax rules and time-consuming bookkeeping requirements.
Under HB 4774, VAT-registered taxpayers are required to use CRM/POS machines and to comply with the mandatory link, at the taxpayer's expense, of the CRM/POS machines and certain books to the BIR's system. The linkage between the taxpayer and the BIR must be done within one-and-a-half years from the effective date of the law.
The proposed law provides that all taxable persons must issue, for each sale valued P25.00 or more, electronic receipts or invoices. The electronic receipt or invoice must be transmitted to the BIR at the same time and date of each sale transaction.
Under HB 4774, a taxpayer engaging in the VAT-able sale of goods or services is liable to VAT if his gross annual sales or receipts exceed P3 million. Any taxpayer who bridges this threshold will, thus, be required to use a CRM/POS machine, regardless of the number of transactions it has during the year, or the number of customers it serves (e.g. a lessor of a property to only one customer may have total rentals for the year of P3 million, or an online seller of a merchandise may make a sale of P3 million for a single transaction).
A taxpayer that fails to comply with this requirement due to negligence or with intent to defraud the government shall be liable to a penalty of one-half of 1 percent of the annual net income as reflected in the taxpayer's audited financial statement for the second year preceding the current taxable year for each day of violation. Suppressing the creation of electronic records of sale transactions is also made a criminal offense.
While most support the idea that technology should be used to enhance tax collection, the reasonableness of imposing these requirements at this time is likely to be met with strong objections.
Many will argue that the decision to use manual or computerized accounting systems is the discretion of the taxpayer, who will make such choice based on the nature and complexity of his business.
Computerized systems, including the issuance of electronic receipts or sales invoices and the use of CRM/POS machines, and setting up facilities to establish connection with the BIR's system, entail investments in hardware, systems and people. Businesses need adequate time to plan for any such requirements and source funds to finance them.
Moreover, the availability of reliable broadband services is a significant concern, especially in places outside Metro Manila and major cities. At present, both the BIR and taxpayers experience difficulties in the use of the electronic filing and payment systems. It is not unusual to hear that the "system is down" or "transactions could not be processed." In such instances, the burden rests on the taxpayer as he is required to print a copy of the system failure notice and attach this to the tax return in order for BIR to accept manual filing. Doubts on the ability of the BIR to prepare its system and allow linkage to numerous taxpayers' CRM/POS systems are not totally unfounded.
In the same conference, one of the welcome provisions under HB 4774 is the adjustment of the sales threshold that must be reached before a taxpayer is required to have his books of accounts audited and examined yearly by independent certified public accountants—from the current quarterly sales of P150,000 to P750,000. If adopted, this means that only taxpayers with around P3 million annual sales will be required to comply with the audit requirement.
But one still gets to ask how the proposed amount was reached, which interestingly, is the same threshold set for taxpayers engaging in VAT-able activities to be covered by VAT. Does this sales amount represent the sales of micro, small and medium enterprises (MSMEs)—which under Republic Act 9501 or the Magna Carta for Micro, refer to enterprises with an asset size (less land) of up to P100 million, and an employment size under a sector that is defined as comprising establishments with less than 200 employees? If so, our legislators may wish to consider granting the Finance Secretary the authority to regularly review the sales levels of MSMEs and to issue regulations to adjust the sales threshold eliminating the need for legislation to change the sales threshold.
Overall, I believe that these proposed changes are laudable and are, indeed, steps toward the right direction, but it is best to prepare well before they are implemented. Timing is very important—to win the support and cooperation of taxpayers, to determine whether the BIR itself is ready to implement them, and to ensure that our country's broadband facilities can provide the nationwide services to taxpayers at a stable acceptable level. Indeed, it is time to change how we introduce and implement tax policy changes in the country.
As publshed in Manila Times dated February 8, 2017