For years, taxpayers have been wishfully thinking of simple and practical yet comprehensive tax laws and regulations for better compliance. With this, our legislators heeded the call, embraced the convenience brought about by digitalization, and introduced changes adapting to the current taxpayer’s situation.
To ensure that the Philippine tax landscape moves forward, R.A. No. 11967, or the Ease of Paying Taxes Act (EOPT) bill, was passed into law on January 5, 2024, and took effect on January 22, 2024.
With the end goal of easing the payment of taxes and thereby encouraging compliance from taxpayers, the EOPT Law amended the Philippine Tax Code. Among others, the amendatory provisions notably include the following:
- Additional taxpayer classification with special concessions provided to micro and small taxpayers;
- Timing of the withholding of tax at the time when the income becomes payable;
- Use of a uniform document for sellers of goods and services for VAT purposes;
- Timing of the recognition of VAT on sale of services;
- Risk classification for VAT refund claims.
However, said law also provides that the Secretary of Finance (SOF), after consultation with the Bureau of Internal Revenue (BIR) and the private sector, shall promulgate the implementing rules and regulations within ninety (90) calendar days from the EOPT Law’s effectivity. Thereafter, the taxpayers have six (6) months from the effectivity of the implementing revenue regulations to comply with the EOPT Law’s amendments on VAT and other percentage taxes.
Pending the issuance of the aforesaid implementing rules and regulations, below are some of the questions that the taxpayers hope that the regulations will shed light on:
Additional classification of taxpayers
Under the EOPT Law, taxpayers are now classified into Micro, Small, Medium, and Large taxpayers. As micro (gross sales of less than P3 Million) and small taxpayers (gross sales of P3 Million to less than P20 Million) are given special concessions under the law, some taxpayers, particularly those near the borderline of the threshold amounts, are asking whether they need to wait for an official notice or an official publication of a list from the BIR in order to be classified as a micro or a small taxpayer.
Micro and small business sectors comprise 99% of the Philippine business establishments (PSA, 2022 Philippine MSME Statistics). How can unregistered taxpayers be classified as micro or small taxpayers? Will the classification as micro or small be left to the voluntary determination of the taxpayer, subject to the subsequent BIR audit?
Timing of withholding of tax
As the obligation to deduct and withhold the tax arises at the time the income has become payable, there is a need to clarify the definition of the word “payable,” as there is no statutory provision thereto.
For reference, RR No. 02-98 defines “payable” as when the obligation becomes due, demandable, and legally enforceable. Following this definition, apparently, the parties to a contract could expressly agree as to when the collection and payment would be done for the withholding obligation to attach.
Further, to avoid confusion with the other types of withholding taxes, the regulations may also want to clarify if this new rule on the timing of withholding would also apply to withholding taxes on compensation or to withholding VAT on transactions involving nonresidents.
Uniform VAT documentation
For sellers of services, the EOPT Law requires the use of sales invoices for VAT purposes, the same type of document for sellers of goods. In this regard, the regulations should clarify what will happen to the use or possible disposal of unused official receipts from the sellers of services.
Timing of VAT recognition on sale of services
Another major amendment introduced is the recognition of VAT on sales of services at the time they are rendered. On this matter, clarifications on the following may be made, among others:
i. the timing of VAT output recognition for services already rendered prior to the effectivity of the amendment under the EOPT Law, but the collections were received or will be received after the effectivity thereof;
ii. the timing of VAT output recognition for taxpayers using the percentage of completion method for revenue accounting; and
iii. the possible recognition of deferred VAT output on advanced billings wherein the services have not yet been rendered.
Risk classification for VAT refund claims
On the procedure for the claim of a VAT refund, the EOPT Law provides that such claims will be classified into low risk, medium risk, and high risk based on the amount of the claim, tax compliance history, and frequency of filing of claim, among others. Those that will be classified under medium- and high-risk claims shall be subject to audit or other verification processes in accordance with the BIR’s national audit program for the relevant year.
Hence, the taxpayers hope that the specific thresholds to be defined by the regulations will be reasonable for the taxpayer to be able to claim the refund that it is entitled to.
As with new legislation, confusion is part of the so-called birth pains of how the statutory provisions will be implemented. The above are some examples of taxpayers’ concerns that, hopefully, will be considered in crafting the implementing rules and regulations to make the EOPT Law and its implementation less taxing.
Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
As published in BusinessWorld, dated 13 February 2024