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Let's Talk Tax

Are you ready for simplified bookkeeping and e-Invoicing?

The House of Representatives passed on third and final reading what it calls the “Tax Reform for Acceleration and Inclusion” (TRAIN) Act.

Unless the Senate makes amendments, it may be only a matter of time before we finally see the proposed tax reform approved into law. Thus, aside from the initial excitement created by the lower personal income taxes, it may be prudent to check on other provisions of the proposed bill.

Going through the copy of the proposed bill, my interest was caught by certain proposed amendments on the bookkeeping and invoicing requirements.

While the proposed bookkeeping requirements will relax the current rules, the proposed new invoicing requirements made me think of those individuals owning small/medium enterprises including my mother. Will my 55-year-old mother be able to comply with these requirements for her small dry goods store?

So allow me to point out here the possible positive and negative impacts of the proposed amendments on bookkeeping and invoicing requirements.

The simplified set of bookkeeping record is required on those whose sales, earnings, receipts, or output do not exceed P200,000 per year. This threshold shall be increased by TRAIN to P1 million per year.

Interestingly, while the requirement has been touted as helping simplify bookkeeping, Revenue Regulations No. V-1 defined a simplified set of bookkeeping records as consisting of the record of daily sales and cash receipts, the record of daily purchases, expenses and cash disbursements, record of the summary of transactions, and the yearly statements of net worth and operations, which may be in combined form or in separate booklets. Thus, the amount of recordkeeping belies the simplified path of the requirement. The proposed tax reform must clearly establish what should consist as simplified bookkeeping. The same must ensure that compliance with the same can be done even by the businessperson alone without the need of hiring a bookkeeper/accountant.

In addition, for those whose annual sales exceed P600,000, an audit by an independent certified public accountant (CPA) is required. This threshold shall be increased by TRAIN to P3 million. Thus, an audit by an independent CPA shall be required only for those with annual sales exceeding P3 million. Thus, those with annual sales not exceeding P3 million shall no longer be required to hire an independent CPA.

These measures shall significantly ease doing business for small and medium enterprises. We can only hope these amended provisions are retained in the final version of the act.

Issuance of receipts/invoices is required on each sale of merchandise or services rendered valued at P25.00 or more. As an additional requirement, the receipts or invoice shall show the name, TIN, business style, and address of customer issued to cover rentals, compensation or fees, and sale to VAT registered person amounting to at least P1,000.

An authority to print receipts/invoices is required. This may either be: (1) printed receipt/invoices to be manually filled up; (2) loose-leaf receipt/invoices with entries to be printed; and (3) computer-generated receipts/invoices for those with the permit to use complete computerized accounting systems.

Under the proposed bill, the invoicing requirements shall now be as follows:

* Electronic receipts or electronic sales or commercial invoices shall be issued for each sale or transfer of merchandise or for services rendered valued at twenty-five pesos (P25.00) or more;

* In case of sales, receipts, or transfers in the amount of one hundred pesos (P100.00) or more, or regardless of amount where both seller and buyer are liable to pay VAT, the name, business style, and address of purchaser must also be shown in the electronic receipts or invoices; 

* Issuance of electronic receipt or invoice shall be accomplished either electronically or by tendering a printed copy of it to the buyer;

* Every electronic receipt or invoice shall be transmitted directly to the Bureau of Internal Revenue (BIR) at the same time and date of each sale transaction; and

* Digital or printed copies of the electronic receipt or sales/commercial invoice shall be kept by the issuer, purchaser, customer or client in the place of business for a period of three years from the close of the taxable year.

Currently, though, the preservation of accounting records is required for up to 10 years. Thus, this provision needs to be revisited unless it is really the intention of the government to shorten the retention period.

Failure or refusal to issue receipt/invoices shall be subject to an administrative fine of not less than P500,000 but not more than P10,000,000, and imprisonment of not less than six years but not more than 10 years.

Based on the above, all invoices/receipts shall be required to be issued electronically, or by providing printed copy of the electronic ticket. All persons subject to internal revenue tax are covered. Thus, even small enterprises including my mother’s dry goods store may be required to comply with this electronic invoicing requirement.

We expect that at the start, the BIR will again be requiring taxpayers to adopt a new system on invoicing which shall mean substantial costs to the businesses, especially for small and medium enterprises. Also, as the proposed amendment shall require real-time transmittal of the electronic receipts/invoices to the BIR, we foresee that aside from the e-invoicing system, this shall require every business to have Internet connections which shall then again involve significant costs.

With the hefty penalties for non-compliance, businesses including small enterprises just like my mother’s have no choice but to comply. However, with the expected significant costs involved for compliance, will these small businesses have enough funds to comply?

The proposed bill provides that the Commissioner may in meritorious cases exempt certain taxpayers from this requirement. Thus, it would be a relief for small enterprises if specific criteria will be set for this requirement. Small and medium enterprises should not be covered by this requirement.

Otherwise, the resources which the small and medium enterprises will save due to the relaxed requirements for bookkeeping and audit will just go to investment in systems to comply with the electronic invoicing requirement.

On a positive note however, since the BIR will have a full database of all sales/transfer transactions, we expect that this will significantly help in the government’s drive to ensure compliance by taxpayers. However, to fully benefit from the system, we hope that this will also aid the BIR and taxpayers in cases of tax assessment. Thus, copies of supporting invoices/receipts should no longer be requested from the taxpayers in case of tax assessment. 

Ma. Lourdes Politado-Aclan is a senior manager with the Tax Advisory and Compliance division of P&A Grant Thornton.


As published in BusinessWorld, dated on 06 June 2017