With the onset of the busy tax season, we note of the Ease Of Paying Taxes (EOPT), which was made into law last Jan. 5, 2024. President Marcos, however, vetoed one provision on the withholding of taxes by microenterprise, but the rest were approved. As of this writing, we are still waiting for the Department of Finance to release the Implementing Rules and Regulations (IRR). So much had been written about this topic, so I will only delve into some of the highlights.
With the signing of this law - Republic Act No. 1176, we should expect many changes to come to make this “hot” tax season even “hotter”. We hope that the Department of Finance’s IRR can clarify and give further details on the items approved.
One such item is the simplified rules and documentation of the Value Added Tax (VAT) in which
a one uniform basis for VAT on both sale of goods or services and the use or lease of properties will be used. It means, only VAT sales invoice will be used and no official receipts shall be issued anymore (it used to be that for non-goods revenue, official receipts are issued), as basis of the computation of output tax whatever kind of revenue one has.
For those selling goods, there is not much of a problem – but for those selling services and non-goods such as leased revenue, there is a need for clearer definition. With this law, official receipts will no longer be issued but VAT invoice, which will be the basis of the output tax and the basis in claiming input taxes both for goods and services.
With the accrual method of computing VAT, there is no longer a need for tax reconciliation with the revenue reported in the financial reports and the revenue for VAT purposes.
However, the concern is, if it is just a receivable and no collections were made yet, what will happen if the receivable turns uncollectible or bad debts? And there will also be a problem in the cash flow since you will pay an output tax without having collected the corresponding revenue yet.
This is where, I think, most people need more clarification. The EOPT bill provides a solution (although this is to be confirmed in the IRR) to this by allowing a tax credit in the next quarterly VAT return representing the amount of the output of the corresponding receivable, which became overdue for the period. And since one has the option to either report and pay VAT monthly or quarterly, I presume if it lapses for 30 days already from last month’s billing (if your billing requires within 30-day payment), you do not have to wait for the next quarter to claim it as tax credit (but let us wait for IRR on this, too). And once the receivable is recovered or collected in the future, such amount of tax credit shall be part of the output tax again during the period it was collected.
Business style is also no longer needed to be indicated in the VAT invoice and thus, not required to be indicated when claiming input tax credit. The threshold for issuance of invoice was also increased from P100 to P300.
Another highlight is the non-requirement for withholding tax on expenses for such to be deductible although the withholding tax still needs to be withheld upon payment of such expense. There is also the ease of transferring to another Revenue District Office (RDO) even with pending tax investigation in the existing RDO. However, the existing RDO can still continue with such pending audit investigation even when the transfer was already made.
The EOPT will also benefit micro and small enterprises since there will be a classification of taxpayers into micro, small, medium and large taxpayers, the basis of which is the gross sales. The bill has granted certain benefits to these micro and small enterprises such as a reduced rate of ten percent (10%) for civil penalties under Section 248 of the Tax Code and a fifty percent (50%) reduction on the interest rate imposed under Section 249 of the Tax Code, and a reduced fine of five hundred pesos (P500) as a penalty for failure to file certain returns as provided under Sec. 250of the NIRC. The number of pages for the returns were also reduced to two pages for these micro and small enterprises. These are the concessions and benefits given to these enterprises among others.
Taxpayers can also now file and pay their tax returns in any BIR RDO and any accredited payment channels. Preservation of books is now for a period of five years and there is no longer a need to pay the annual registration fee of P500.
These are just some of the highlights of the EOPT and hopefully the IRR will soon be released so we can be provided with more details.
Certainly, the EOPT will make tax payments easier for all taxpayers and will help support the small and medium enterprises and for them to grow their businesses and in turn help spur the growth of the country’s economy.
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Wilma Miranda is a Managing Partner of Inventor, Miranda & Associates, CPAs, Chair of the Ethics Committee of FINEX and member of the Board of Directors of KPS Outsourcing, Inc. The views expressed herein do not necessarily reflect the opinion of these institutions.