One famous motto says, “Prevention is better than cure.” This saying is applicable to one’s everyday life. It is always better to avoid further damage than to be sorry about it in the future. For students or reviewees, it is best to read and study routinely rather than cramming to cover the whole topic the night before the exam. For car owners, preventive maintenance means having their vehicles inspected regularly, not only to prolong the vehicle’s good condition but, more importantly, to ensure a safe ride for the passenger. Thus, preventive measures can help us avoid problems.
Same with the taxpayers, it is also prudent that preventive measures are done to avoid possible problems or issues in the future, particularly, in relation to the continuous developments of the Philippine tax rules. As we probably know by now, the Ease of Paying Taxes (EOPT) Act has introduced significant amendments, especially on VAT reporting. For VAT purposes, sellers of services shall report the VAT based on gross sales and no longer based on collection. With this, sellers of services shall issue VAT Invoices and not VAT ORs. These VAT Invoices shall now become the basis for input VAT credits to be claimed by their customers. Moreover, in relation to the EOPT Act, Revenue Regulations (RR) 07-2024 contain several crucial dates for taxpayers who use the Computerized Accounting System (CAS).
One of the dates to remember is April 27, 2024. For VAT taxpayers engaged in the sales of services and who have already registered their full CAS (with e-receipting or e-invoicing) prior to April 27, 2024 (“affected taxpayers”), RR 07-2024 mandates them to revisit their system and ensure compliance with the provisions of the EOPT Act (i.e., the affected taxpayers shall report the VAT based on gross sales, and are required to issue VAT invoices). This change would necessarily have a direct effect on the taxpayer’s financials, not only on the simple naming convention of the primary document from “OR” to “Invoice.” Hence, this is considered a major enhancement, which would require a new application with the submission of the relevant templates and samples of the system generated documents and accounting records for the issuance of a new Acknowledgement Certification from the BIR.
Another important date is June 30, 2024. The affected CAS taxpayers are given until June 30, 2024, to do reconfigurations or enhancements in their system to comply with the mandate of the EOPT Act. During this period, the affected taxpayers shall ensure, among others, that different and proper modules are added in the CAS system to generate invoices on their sales based on gross sales. Also, certain adjustments must be made in case there are branches of the taxpayers who will use the same system and generate separate invoices, as well as the need to declare the relevant components or middleware in generating the required invoices.
Under RR 07-2024, during the transition period, or until June 30, 2024, the affected taxpayers may still issue their VAT ORs pursuant to their previously approved permit or Acknowledgment Certificate. However, take note that under RR 07-2024, VAT ORs issued beginning April 27, 2024, shall not be considered valid for claim of input tax by the buyer or purchaser. Consequently, if the CAS taxpayer finds that the needed enhancements cannot be made on or before June 30, 2024, the said taxpayer may request for an extension by seeking approval from the concerned Regional Director or Assistant Commissioner of the Large Taxpayers. However, the approved extension to do the enhancements must be completed on or before October 27, 2024.
Noncompliance by the affected CAS taxpayer with the prescribed issuance of Invoices for the sale of services could lead to violations and penalties. So, after June 30, 2024, if the taxpayer still issues an OR, such issuance shall not be considered evidence of sales of goods or services and thus considered a violation for failure to issue or non-issuance of an invoice, subject to civil and criminal penalties. What if the taxpayer has successfully secured the required approval for an extension between July 1, 2024, and October 27, 2024? Will he still be subject to the same penalty? Taxpayers hope that this query will be categorically addressed by the BIR.
In the meantime, as the violation could result in civil and criminal penalties, prevention and awareness are vital to all affected taxpayers. Although there are still issues and questions that taxpayers wish to be enlightened on, including the transitory timeline to comply with RR 07-2024 in relation to the corresponding provisions in the EOPT Act itself, the affected CAS taxpayers may find it prudent to remember and act early on the important dates as above-mentioned to prevent possible future disputes with the BIR. After all, it is still much easier to prevent the problem from taking place rather than solving it later; hence, prevention is still better than cure.
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 07 May 2024
