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Tax Notes

BIR expands VAT audit inquiry coverage

TO increase the audit coverage of Value Added Tax (VAT)-registered taxpayers and facilitate completion and reporting of cases under VAT Audit Program (VAP), the Bureau of Internal Revenue (BIR) recently issued Revenue Memorandum Order (RMO) No. 59-2016 expanding the coverage of VAT audit investigations and introducing issue-based audit under the VAP.

The selection criteria of the cases for issue-based audit includes taxpayers with VAT returns reflecting erroneous input tax carry-over. While priority cases shall include the following:

  1. Taxpayers whose VAT compliance is below the established industry benchmarks;
  2. Taxpayers with zero-rated and/or exempt sales due to availment of tax incentives or exemptions;
  3. Taxpayers engaged in business where 80 percent, more or less, of their transactions are on a cash basis and whose purchases of goods and services do not generate substantial amount of input tax, such as restaurants, remittance/payment centers, etc.;
  4. Taxpayers with VAT-able transactions which were subjected to expanded withholding tax but with no VAT remittance (based on BIR form nos. 2550Q and 1604);
  5. Taxpayers who failed to remit/declare VAT due from purchase of services from non-resident aliens (based on BIR form nos. 2550Q and 1600);
  6. Taxpayers who fail to declare gross sales/receipts subjected to VAT withholding on purchases of goods/services with waiver of privilege to claim input tax credit (based on BIR form nos. 2550Q and 1600);
  7. Taxpayers whose gross sales/receipts per income tax returns are greater than gross sales/receipts declared per VAT returns; and
  8. Taxpayers filing percentage tax returns whose gross sales/receipts exceed the VAT threshold.

Excluded from the coverage are: claims for issuance of Tax Credit Certificates/refunds; and VAT returns selected for audit by the National Investigation Division and Regional Investigation Division of the Revenue Regional Offices.

Under the RMO, only revenue officers from the BIR’s Assessment Division - VAT Audit Section shall be authorized to conduct audit and investigation, whether in principal or assisting capacity.

The RMO further provides the procedures and deadlines to be followed by the revenue officers in conducting the audit/investigation, the reporting requirements as well as the penalties in case of violation.

For more information please refer to the RMO.

As published in Sunstar, dated 26 September 2016