As it continues to promote the digitalization of tax agencies, the legislative department is currently making efforts “to modernize the labyrinthine tax administration procedures by simplifying tax compliance, removing redundant and obsolete tax requirements, and lifting restrictions that prevent taxpayers from complying with tax laws remotely”.
With a vote of 250 “yes”, zero “no”, and zero abstention, the 19th Congress, on September 26, 2022, approved on its third and final reading House Bill (HB) 4125, otherwise known as the Ease of Paying Taxes Act (EOPT). The bill seeks to amend the National Internal Revenue Code, as amended (the Tax Code) and introduce administrative reforms that will ultimately lessen the burden in paying taxes and strengthen taxpayers' rights.
The Bill is now pending at the Senate where it will also need to be approved to become a law.
The salient features of the approved House Bill are as follows.
Criteria for taxpayer classification
In the said House Bill, the Secretary of Finance, upon the recommendation of the Commissioner of Internal Revenue, shall establish reasonable criteria for taxpayer classifications. The criteria shall consider the taxpayer’s capacity to comply with tax rules and regulations, amount and type of tax paid, gross sales and/or receipts, inflation, volume of business, wage and employment levels, and similar economic and financial factors.
At present, laws and regulations only provide for the criteria and selection of large taxpayers. All large taxpayers are required to coordinate and report before the Large Taxpayer’s Service (LTS), in the Bureau of Internal Revenue (BIR) National Office. The proposed amendment seeks to introduce a small and medium taxpayer classification and a corresponding BIR special unit for the latter in hope of better service and tax administration. Further, the proposal institutionalizes simplified tax returns and processes for smaller taxpayers for ease of compliance of tax rules and regulations.
The Bill also proposes that withholding of creditable tax at source shall not be required for taxpayers classified as small.
Taxes can be paid anywhere
The EOPT bill also enhances the portability of tax transactions by removing restriction of venue in the filing of returns and payment. This will be applicable to all internal revenue taxes (income tax, value-added tax, estate tax, donor’s tax). The proposal removes the requirement that taxes shall be paid in the BIR offices or banks within the jurisdiction of the taxpayer’s legal residence, principal place of business or principal office, thereby giving taxpayers payment flexibility. These amendments make way for full digitalization of the taxpayer experience.
Simplified VAT rules
The distinction of the documentation between sale of goods and sale of services subject to value-added-tax (VAT) is removed. Current tax laws require that sale of services must be evidenced by an official receipt, and that sale of goods must be documented by a sales invoice. Consequently, current tax laws also state that the time of VAT reporting depends on the type of transaction. For sale of goods, VAT is reported upon consummation of the sale, as reflected in an invoice. On the other hand, VAT on the sale of services is reported upon payment, supported by an official receipt.
The EOPT bill seeks to provide for a uniform and simplified documentation on VAT transactions in which the sales invoice shall be used by taxpayers to substantiate VAT whether for sale of goods of services. Thus, VAT-registered persons will have to issue only one type of document, the VAT invoice, for every sale, barter, exchange, or lease of goods or properties, and for every sale, barter, or exchange of services. Further, taxpayers will be required to monitor only the timing of the consummation of the sale. The proposed amendment likewise provides that VAT shall be chargeable at the time of the issuance of the invoice, regardless of the time that the accrued sale is recorded in the books of accounts. The EOPT bill also increased the amount of sales of goods and services required to be evidenced by sales invoice from one hundred (100) pesos to five hundred (500) pesos.
Additionally, the EOPT bill also proposes to add a provision that the P3-million VAT threshold, which was increased by Republic Act 10963 (TRAIN Law), may be adjusted to its present value not later than January 31, 2023, and every three years after, based on the consumer price index published by the Philippine Statistics Authority. Moreover, taxpayers who are required to pay percentage taxes in lieu of VAT under Section 116 of the Tax Code shall now pay and file their tax returns semi-annually, instead of quarterly.
Easing burden on registration
As to the registration requirements, the EOPT bill proposes to remove the requirement of indicating a business style in the taxpayer’s registration with the BIR. The bill likewise seeks to remove the imposition of the annual registration fee currently imposed under Section 236(B) of the Tax Code. The removal of the need for the annual P500 taxpayer-registration fee alone is expected to be of valuable savings for the smallest of businesses.
The bill also seeks to ensure that registration facilities would be available to taxpayers who are not residing in the country.
Furthermore, the BIR registration of a taxpayer may be cancelled simply by filing the registration information update form, as proposed in the EOPT bill. Any audit that the BIR conducts, where a registration has been cancelled, will be made based only on a risk assessment evaluation.
Lowering of the penalties
The bill also proposes to lower the surcharge for failure to file and pay taxes from the current rate of 25% to 12%. This will substantially ease the burden on taxpayers who were unable to fully comply with their tax obligations.
Taxpayer’s Bill of Rights
Lastly, the EOPT bill legislates a Taxpayer’s Bill of Rights and designates a Taxpayers’ Advocate Office. It proposes the enumeration of additional fundamental rights to further promote fair treatment to taxpayers and puts in place protections against wrongful assessments. Meanwhile, the taxpayers' advocate office is envisioned to ensure that taxpayer rights are protected, and due assistance is provided.
Altogether, the EOPT bill seems to be a great step towards modernized tax administration. Since the bill simplifies tax compliance and limits face-to-face transactions with the BIR, the cost on compliance will be reduced and will be appreciated most especially by small business enterprises and starting professionals.
The approved EOPT bill by Congress was transmitted to the Senate last September 27, 2022. The Senate may still introduce changes to the EOPT bill in which we hope that our lawmakers will further provide easier tax compliance rules.
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 04 October 2022
