The pandemic has highlighted the opportunity to pursue digitalization at all levels. From the point of view of employees working from home, digital transformation is not just relevant but also convenient. Electronic signing of contracts and letters, such as engagement letters, reports, and closure letters, to name a few, are some of the initiatives that P&A Grant Thornton has implemented as it adapts to the new normal in business practices.
Many of the same things are happening in the government. The Bureau of Internal Revenue (BIR) in particular, is also trying to provide taxpayers ways to comply with its rules and regulations electronically. Through its Revenue Memorandum Circular (RMC) No. 29-2021, the BIR has acknowledged that due to the continuing effect of the public health crisis, and to better comply with Republic Act No. 11032 or the Ease of Doing Business and Efficient Government Service Delivery Act of 2018, the BIR now allows the use of Electronic Signatures (e-signatures) on certain BIR Forms/Certificates including:
1. BIR Form No. 2304 – Certificate of Income Payment not Subject to Withholding Tax (Excluding Compensation Income)
2. BIR Form No. 2306 – Certificate of Final Tax Withheld at Source
3. BIR Form No. 2307 – Certificate of Creditable Tax Withheld at Source
4. BIR Form No. 2316 – Certificate of Compensation Payment/Tax Withheld
Under the circular, withholding agents, income payors, or their duly authorized representatives have the option to use e-signatures aside from physical signatures even without prior approval of the BIR. More importantly, the BIR now allows for the electronic signing of these BIR Forms by income payees/income recipients. Previously, the requirement was that these BIR Forms should be signed physically or in wet ink by the income payee to be considered valid and binding.
An e-signature, as defined under RMC No. 29-2021, refers to any distinctive mark, characteristic, and/or sound in electronic form, which represents the identity of a person. It is attached to or logically associated with the form/certificate, or any methodology or procedure employed or adopted by a person and executed or adopted by such person with the intention of authenticating or approving an electronic data message or electronic document. For purposes of the RMC, an e-signature includes digital signature and other methods or electronic signature.
The permission to use e-signatures was further manifested in Annex B of Revenue Memorandum Order (RMO) No. 09-2021, or the “Standard Functional and Technical Requirements on the Use of Computerized Accounting Systems (CAS).” Here, one of the requirements is to specify in the Annex whether BIR Form Nos. 2306, 2307, and 2316 are executed with electronic or digital signatures. This suggests that taxpayers can integrate in their CAS the electronic or the digital signature of the employer or its authorized representative.
The RMC was issued on Feb. 26, 2021, two days before the Feb. 28 deadline to submit BIR Form No. 2316 by employees qualified for substituted filing. Yes, the BIR did not issue the RMC early, but we could not discount the fact that these issuances ensure a more seamless submission of BIR documents in the future. This means that an employer will no longer individually sign BIR Form No. 2316 because he can simply generate the form from his CAS, already bearing an e-signature. Also, employers no longer need to chase employees for their physical signatures. Employees can easily affix their e-signatures and swiftly send the signed form to their employers.
The same holds true with BIR Forms No. 2307, 2306, and 2304. Suppliers can seamlessly secure these Forms, especially BIR Form 2307, from their customers and have them collated in time for the submission of annual or quarterly income tax returns (ITR) with the BIR. Taxpayers claiming tax credits in their ITR without the physically signed BIR Form No. 2307 from their customers can significantly lower their risk of disallowance of tax credit as well, if the forms are gathered before tax auditing.
With regard to the filing of ITRs, the deadline for submission for calendar year 2020 is exactly 30 days from now. Generally, ITRs must be physically signed before they are submitted to the BIR. With the current work-from-home setup, which is likely to extend after the filing season, securing signatures of taxpayers or authorized signatories can be a challenge. Given this situation, the BIR has still limited the use of e-signatures to certain BIR Forms only and not to annual income tax returns.
It is worth mentioning that RA 8792 or the Electronic Commerce Act of 2000 requires all bureaus of the government to transact business using electronic data messages or electronic documents and to adopt and promulgate rules, regulations, or guidelines for, among others, use of electronic signature.
With COVID-19 and the requirements of RA 8792, some questions may come to mind. First, what could be the reason behind the decision of the BIR in allowing e-signatures only for certain certificates and not for other BIR forms? RA 8792 states that an electronic signature on a document is legally recognized to be equivalent to the signature of a person on a written document. Hence, wet ink/physical signatures should not be preferred over electronic signatures. Second, did the BIR consider potential losses that it may incur if it allows all tax returns to be signed electronically? If it pondered on this consideration, the BIR may just as well impose additional safeguards to avoid possible losses instead of not allowing e-signatures.
The risk of fraud is present whether e-signature or wet ink signature is used. Anybody can easily forge physical signatures if they want to commit fraud. The risk is not higher or lower in allowing the use of e-signatures. Besides, should the taxpayer deny having filed tax returns with an e-signature, that would mean that he has failed to file the document and will be subject to penalties for non-filing.
It is surmised that government agencies and businesses should adapt to the new normal as the pandemic stretches on, or at least adopt indefinitely a more viable remote work setup. Everyone, including businesses and government offices, has stepped up to adapt to the digitalization of services. The situation is no different with the BIR. We acknowledge that the BIR’s act of permitting the use of e-signature on certain tax returns is an indication of its commitment to foster ease of doing business. We hope that through the BIR’s initiatives, it can further expand its services, or even consider full digitalization of its services for the general public and in the near future, consider allowing the use of e-signatures for all types of tax returns.
Marie Fe F. Dangiwan is a senior manager of the Tax Advisory and Compliance Division of P&A Grant Thornton.
As published in BusinessWorld, dated 16 March 2021