Finally, after much debate and months of delay, the Implementing Rules and Regulations (IRR) of Republic Act (RA) No. 10708, otherwise known as the Tax Incentives Management and Transparency Act (TIMTA), have been finalized and jointly issued by the Department of Finance (DoF) and Department of Trade and Industry (DTI) through Joint Administrative Order No. 1-2016. TIMTA aims to monitor and evaluate the fiscal incentives granted by investment promotion agencies (IPAs), such as the Philippine Economic Zone Authority (PEZA), Board of Investments (BoI) and others.
In accordance with the IRR, all registered business entities (RBEs) as registered with IPAs are mandated to file the first annual tax incentives report (ATIR) on or before Sept. 15, 2016 for all taxable years ended in 2015. The ATIR shall contain the complete information on income-based tax incentives, value-added tax (VAT) incentives, duty exemptions, deductions, credits, exclusions from the tax base and other required information. Thereafter, the ATIR will be submitted by RBEs to the respective IPAs within 30 days from the statutory deadline of filing the annual income tax return.
Various government agencies will be involved in the implementation of TIMTA and will perform their respective roles. After receiving the ATIR from RBEs, the IPAs will make a consolidated ATIR and submit this to the Bureau of Internal Revenue (BIR). The DoF will utilize the information submitted by BIR and Bureau of Customs (BoC) in creating and maintaining a single database for monitoring and analysis of tax incentives granted.
Likewise, the National Economic and Development Authority (NEDA) will basically conduct a cost-benefit analysis of the investment incentives to determine the impact of tax incentives on the Philippine economy based on the information provided by the IPAs. To this effect, the government can make an intelligent and strategic decision as regards to revisions of our economic and investment policies in the future based on the information gathered through TIMTA.
On the other hand, non-compliance of this law is very costly. Penalties imposed include P100,000 for the first violation, P500,000 for the second violation and revocation of registration for the third violation.
PEZA has taken the initiative to e-mail PEZA entities a copy of the regulations and soft copy of the worksheets for preparation and submission of the reports. We note that the information being required in the reports are not really new to the RBEs. Such information are generally reported in the Annual Report on Actual Operations submitted to PEZA and the annual income tax return (BIR Form No. 1702-MX). The TIMTA report only entails additional details/specifications of the incentives availed, particularly on the purchases.
TIMTA is definitely favorable to the government in making strategic decisions but, still, an added burden to the RBEs and an added risk for penalties in case of non-compliance. As of the moment, RBEs have no choice but to comply to avoid the costly penalties and to continue to enjoy the tax incentives currently availed.
Sheena Marie D. Daño is a manager at the Cebu branch of Punongbayan & Araullo’s Tax & Outsourcing Division.
As published in Business World, dated 16 August 2016