Yesterday marked the 125th anniversary of the Philippine Independence after former President Emilio Aguinaldo proclaimed the country’s freedom from Spanish colonial rule in Kawit, Cavite. The observance holds significant importance to Filipinos as it reminds us of the sacrifices made by our ancestors to secure our freedom.
A live-action film that is currently showing in Philippine cinema, Disney’s The Little Mermaid, is relevant to our celebration as it introduces Ariel and her dream to be part of the world beyond the sea, where she can be freed from the limits set by her father King Triton.
Taxpayers also deal with limitations given by the Bureau of Internal Revenue (BIR), but I could say that the first half of 2023 is a compassionate one. The Bureau provided several issuances setting less strict regulations compared to the previous requirements. Here are the various updates on Value-added Tax (VAT) regulations issued by the BIR this year, giving more power to taxpayers and concerned agencies.
FREEDOM TO FILE MONTHLY VAT RETURNS
A sense of relief was felt under Tax Reform for Acceleration and Inclusion Law (TRAIN Law) when it provided that VAT-registered taxpayers are no longer required to file the Monthly Value-Added Tax Declaration (BIR Form No. 2550M) starting January 1, 2023. In this regard, said taxpayers are only required to file the corresponding Quarterly VAT Returns (BIR Form No. 2550Q).
Despite the said implementation, however, there are taxpayers requesting the Bureau to file BIR Form No. 2550M and pay the corresponding VAT monthly to manage their cash flows. With that, Revenue Memorandum Circular (RMC) No. 52-2023 was issued to allow the optional use of the monthly VAT return with no prescribed deadline. The Circular also emphasized that no penalties shall arise when the taxpayer opted to file monthly and then reverted to quarterly filing. What matters is that the quarterly VAT return must be filed, and the corresponding VAT must be paid within twenty-five (25) days following the close of each taxable quarter.
LIBERTY TO VAT ZERO-RATE PURCHASES WITHOUT PRIOR APPROVAL FROM BIR
The implementation of the VAT zero-rating application already started in 2006 but changes were made upon the effectivity of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, where Registered Export Enterprises (REEs) can only avail the VAT zero-rate incentives in their local purchases of goods and services that are “direct and exclusively used” in the registered project or activity.
As clarified by RMC No. 24-2022, prior approval from the BIR must be secured by the local suppliers of goods and services of REEs for their sales to be accorded VAT zero-rating. Hence, the absence of prior approval from the BIR may result in the disallowance of the said incentive. This requirement puts additional burden to taxpayers both on the suppliers and the REEs.
But recently, the said taxpayers got some relief when the BIR issued Revenue Regulations (RR) No. 3-2023. Based on this RR, the approval of VAT zero-rating by the BIR shall no longer be required for the local suppliers of goods and services of REEs. The VAT zero-rating certification issued by the concerned Investment Promotion Agency (IPA) is sufficient to avail the incentive, provided that the IPA shall be guided by the rule that such local purchases of goods and services are “direct and exclusively used” in the registered project or activity of the REEs.
RIGHT TO PROVE THAT THE PURCHASE IS DIRECT AND EXCLUSIVELY USED
The Bureau provided that the following services and their related purchase of goods shall not be considered as “directly and exclusively used” in the registered project or activity of REEs:
Despite the above prohibition, REEs can still prove that the local purchase of goods and services related to the above is directly and exclusively used in the registered project or activity by submitting supporting evidence to the concerned IPA upon application of the VAT zero-rating certification.
GRANT OF DISCOUNTS AND VAT EXEMPTION TO SOLO PARENTS
Under the Solo Parents Welfare Act, qualified solo parents are granted a ten percent (10%) discount and VAT exemption on their purchase of goods covered in the above Act.
With that, RR No. 1-2023 was issued to provide guidelines to VAT-registered establishments giving 10% discounts and applying the VAT exemption on the sales of goods to solo parents. Once complied with the guidelines, the said establishments can claim the granted discounts as a deduction from gross income and the input tax attributable to the exempt sale can be closed to the cost or expense account.
ECOZONE LOGISTICS SERVICE ENTERPRISE (ELSE) AND ITS ENTITLEMENT TO VAT ZERO-RATE INCENTIVES
ELSE is a registered business enterprise (RBE) that exclusively supplies production-related raw materials and equipment to export manufacturing enterprises that are registered with the Philippine Economic Zone Authority (PEZA) or other special economic zones or freeports outside the administration of PEZA.
RMC No. 24-2023 clarifies that ELSEs are considered export enterprises if they render at least 70% of their output/services to another registered export enterprise. ELSEs are entitled to avail of the VAT zero-rate incentive on their purchase of local goods and services that are directly and exclusively used in the registered project or activity. Take note that the approval VAT zero-rating is not required for ELSE to avail of the said incentive based on the above discussion under RR No. 3-2023.
UPDATED LIST OF ARTICLES THAT NO LONGER REQUIRE AUTHORITY TO RELEASE IMPORTED GOODS (ATRIG)
RMC No. 48-2002, as amended by RMC No. 112-2021, provided a list of imported articles that no longer require the issuance of ATRIG from the BIR prior to release from the custody of the Bureau of Customs (BOC).
Importers of goods necessary for the manufacture of fertilizers and finished feeds, which are not covered on the list mentioned above, raised their concerns since the delay in the release of the imported goods due to the issuance of ATRIG incurs losses on their part. The BIR heard their cries and in March, the Bureau issued RMC No. 31-2023 to inform the public that the imported goods necessary for the manufacture of fertilizers and finished feeds will be added to the list of articles that no longer require ATRIG. The certification from the Bureau of Animal Industry (BAI) or from other concerned regulatory government agencies that the imported ingredient is unfit for human consumption or cannot be used for the production of food for human consumption, which is also required to be submitted to the BIR during ATRIG application, is sufficient to be presented to the BOC to effect the release of the imported goods.
WITH GREAT POWER COMES GREAT RESPONSIBILITY
This saying was popularized in Marvel Comics when Uncle Ben gave this advice to the young Peter Parker, who was later known as Spider-Man. It means that privileges cannot only be simply enjoyed but those who receive it shall be responsible for what they choose to do with it. Thus, taxpayers receiving the aforementioned privileges must also be aware of their responsibilities.
Regarding the option to decide whether to file VAT returns monthly, the taxpayers shall consider that doing more than what is required may incur additional expenditures. The same way goes when the VAT zero-rating certification issued by the IPA is sufficient proof to avail the incentive, the concerned IPA shall be responsible to furnish the BIR a list of REEs issued under the said certification within twenty (20) days following the close of each taxable quarter. The taxpayer must also prove that the local purchase of goods and services that availed the VAT zero-rate incentives is indeed directly and exclusively used in the REE’s registered project or activity.
Moreover, solo parents and their purchases must also qualify with the requirements to avail of the discount and exemption, and the VAT-registered establishments selling them goods shall comply with the guidelines for the discounts to be allowed as a deduction to their gross income.
On the issuance of the certification by BAI or other concerned government agencies, it is the agencies’ task to conduct their validation of the declared goods to be released from the BOC and to submit to the BIR the list of importers that secured the said certification for tax audit purposes.
It is indeed a great responsibility when given great power.
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 13 June 2023
