This is a publication about developments in Philippine taxation. The contents usually include latest Republic Acts, Bureau of Internal Revenue issuances, Customs regulations, Court decisions, BSP circulars, SEC circulars, Department of Justice opinions and Executive Orders relevant to Tax practice.
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Japan has continued to grow its workforce despite a shrinking and ageing population
More female and older workers have boosted Japan’s labour market
If Japan’s decline in unemployment rate continues at its average rate of the past eight years, the economy would hit zero unemployment in 2027
Despite a shrinking and ageing population, Japan is continuing to add to its workforce through greater female and older worker employment. PwC’s latest Global Economy Watch explores how Japan is counteracting its challenging demographics and whether this can continue.
Japan’s population is contracting, since its peak at 128 million in 2010, it has declined by 1.3 million people. Additionally, its population is old: 28% are over 65, compared with 18% in the UK and 15% in the US. Yet the number of people working in Japan continues to rise, up by 1.7% in 2018. This growth was not enabled by a reduction in high unemployment; joblessness has been low and falling for years.
Japan’s female employment rate is a key contributor. In 2002, there was a ten percentage point gap between female employment rates in the US and Japan, but Japan has now overtaken the US. A higher proportion of women are also returning to work sooner after having children than they were previously.
Government policy in Japan has aided this, by increasing the number of nursery places and making provision for all 3-5 year olds free by 2021. A law passed in 2015 demands that larger firms set targets for hiring and promoting women. Other legislation caps overtime at 100 hours a month, a move designed to both prevent over-work and generate new roles where demand clearly exists.
The Japanese government is also aiming to push up the retirement age for state workers from 60 to 65 and boost the public pension for those that opt to defer drawing from it. Japan is already leading the world by retaining so many older workers; its rate of around 25% is higher than that in the US (18%) and the UK (10%).
Mike Jakeman, senior economist at PwC, comments:
“Japan’s already strong labour market has found a way to strengthen further despite it’s unfavourable demographics. Former barriers to entry, such as a culture of long office hours, entrenched gender roles and a lack of flexibility have shifted thanks to government intervention. This has enabled parts of the population previously deterred from working, such as women and older people, to participate.
“There’s a reluctance to embrace higher immigration in Japan, but parliament has approved the creation of two new visas, which could see immigration increase.
“But the remarkable performance of Japan’s labour market will require more births and more immigrants to be sustained.”
If Japan’s decline in unemployment rate continues at its average rate of the past eight years, the economy would hit zero unemployment in 2027. It is possible that this date could be deferred if the labour force continued to grow, but the eventual impediment to this will be its shrinking population.
For more information please visit https://www.pwc.com/gx/en/issues/economy/global-economy-watch.html
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Deficiency withholding taxes assessed are still internal revenue taxes
The BIR has the right to assess “internal revenue taxes” within three (3) years after the deadline for filing the return. At the SC level, the BIR argued that the right to assess withholding taxes does not prescribe. This is because they are not “internal revenue taxes” but are, as characterized in an earlier SC decision, mere “penalties” imposed on the withholding agent for failing to remit correct withholding taxes.
The SC did not agree. It explained that the word “penalty” was used in the earlier SC decision to underscore the dynamics in the withholding tax system wherein what is being subjected to the withholding tax is the income of the payee and not the income of the withholding agent. Withholding taxes do not cease being income taxes simply because they are collected and remitted by a withholding agent.
(GR No. 211289, promulgated 14 January 2019)
Refundable input VAT should be attributable to VAT zero-rated sales
A renewable energy (RE) company had no revenues from 2011 to 2013 because it was still in the stage of developing, constructing and installing its power plant.
The first commercial sale was made in 2014. Later, it filed claims for refund of 2013 unutilized input VAT attributable to VAT zero-rated sales.
In order to be entitled to a refund, the CTA ruled that the RE company should prove, among others, that it was engaged in VAT zero-rated sales and that the subject input VAT was attributable to such VAT zero-rated sales. Since the RE company had no VAT zero-rated sales in 2013 to which the input VAT can be attributed to, the CTA dismissed the refund claims.
(CTA Case Nos. 9119, 9201, 9254 and 9336, promulgated 4 March 2019)
VAT on undeclared sales inferred from unaccounted purchases
VAT can be imposed only when it is shown that the taxpayer received an amount of money or its equivalent from its sale of goods, property or services and not when there are under-declared purchases. Accordingly, the CTA cancelled a deficiency VAT assessment that was merely based on the amount derived by multiplying the amount of unaccounted purchases by the gross profit rate.
(CTA Case No. 8959, promulgated 11 March 2019)
Use of a benchmark rate in making an assessment has no legal basis
During a tax investigation, the BIR alleged the existence of undeclared sales. These undeclared sales were computed by using a benchmark rate that supposedly pertained to sales of other companies. On this basis, the BIR assessed deficiency VAT.
The CTA cancelled the assessment. It held that the presumption of correctness of the VAT assessment cannot be made to rest on another presumption that the amount of sales of other companies is the same with the sales of the taxpayer.
(CTA Case No. 8959, promulgated 11 March 2019)
Likely source of undeclared income should be identified
In 2007, an individual purchased a luxury car for PHP26m. However, his ITR for the same year indicated that his business had “no operations” or no income. Under these circumstances, he was charged for tax evasion for undeclared income amounting to PHP26m.
The CTA dismissed the case mainly because the prosecution failed to establish the likely source and nature of alleged undeclared income. In criminal cases, it is essential to identify the likely source of unreported or undeclared income of the accused in order to sustain conviction.
(CTA Crim. Case No. O-212, promulgated 26 February 2019)
When the “in lieu of all taxes” provision does not apply
Under RA No. 9511, the NGCP is subject to the 3% franchise tax which is in lieu of all local or national taxes.
The CTA held that the “in lieu of all taxes” clause covers the exemption of the NGCP from the contractor’s tax, a local tax. However, the operation of such clause comes into play only if the 3% franchise tax was paid.
Since there was nothing on record that NGCP paid the 3% franchise tax, the CTA upheld the assessment for contractor’s tax.
(CTA AC No. 181, promulgated 30 January 2019)
Implementing the excise tax on non-essential services
The CIR issued rules and regulations implementing the imposition of excise taxes on non-essential services introduced by the TRAIN Act. Said rules and regulations feature the following:
Individual practitioners and juridical entities (e.g., clinics and hospitals) performing invasive cosmetic procedures are required to update their COR to include the tax type ‘Excise Tax on Invasive Cosmetic Procedures’.
On the other hand, those who are performing non-invasive cosmetic procedures are required to execute and submit a Sworn Statement to the effect that they are performing only non-invasive cosmetic procedures.
(Revenue Regulations No. 2-2019, published 21 March 2019)
Prescribing the new BIR Form No. 1701
The BIR issued the newly revised BIR Form No. 1701 January 2018 (ENCS) which is generally required to be used by individuals, estates and trusts in filing their ITR and paying their income tax for 2018 due on or before 15 April 2019.
It may be downloaded from www.bir.gov.ph and is included in the Offline eBIRForms Package v7.4.1 (Package v7.4.1). However, it is not yet available in the eFPS. Therefore, eFPS filers shall file through Package v7.4.1.
Individuals with business/professional income only, who are either using the OSD or availing the 8% income tax rate, shall use BIR Form No. 1701A which is also available in Package v7.4.1.
(Revenue Memorandum Circular Nos. 46-2019, issued 12 April 2019; and 37-2019, issued 18 March 2019)
Supplementing the lists of withholding agents for inclusion and deletion
The BIR issued an additional list of:
The above additional lists were published at www.bir.gov.ph on 18 March 2019 and supplement the lists earlier published on 8 October 2018.
(Revenue Memorandum Circular No. 36-2019, issued 18 March 2019)
Clarifying the process of issuing DVCs, or issuing/denying TCs
To attain consistency in the understanding of outstanding tax liabilities or Accounts Receivable/Delinquent Accounts (AR/DAs), all BIR processing offices should be guided as follows:
(Revenue Memorandum Circular No. 35-2019, issued 14 March 2019)
Treatment and reporting of input VAT relative to VAT-exempt medicines
Given that the input VAT attributable to VAT-exempt medicines cannot be passed on to the buyer, the following should be strictly observed:
(Revenue Memorandum Circular No. 34-2019, issued 13 March 2019)
Reminders for candidates, political parties/party list groups and donors
Election candidates, political parties/party list groups and campaign contributors should be mindful of their tax compliance requirements in relation to:
(Revenue Memorandum Circular No. 31-2019, issued 7 March 2019)
‘Deemed gift’ provision on transfers for less than adequate and full consideration
Generally, if property (other than real property classified as capital assets) is transferred for less than adequate and full consideration, the amount by which the FMV of the property exceeded the consideration shall be deemed a gift subject to donor’s tax.
A sale, exchange or other transfer of property made in the ordinary course of business is considered as made for adequate and full consideration, and constitutes a transaction which is bona fide, at arm’s length and free from any donative intent.
In this light, the BIR laid down the following rules:
(Revenue Memorandum Circular No. 30-2019, issued 28 February 2019)
Reminders on bookkeeping requirements
In line with its objective of improving the ease of doing business in the Philippines, taxpayers are reminded of the following bookkeeping rules and requirements:
(Revenue Memorandum Circular No. 29-2019, issued 26 February 2019)
Allowing new businesses to operate while awaiting their official receipts/invoices
In line with its objective of improving the ease of doing business in the Philippines, the BIR is now allowing new businesses to start business operations while awaiting the printing and delivery of their receipts/invoices. Thus:
(Revenue Memorandum Circular No. 28-2019, issued 26 February 2019)
Over-the-counter acceptance of certain tax returns/payments
In light of the intermittent availability, and unavailability of the eFPS, all eFPS taxpayers are instructed to file tax returns manually or use the eBIRForms facility, and to pay their taxes “over-the-counter” with their AABs.
Accordingly, all AABs are advised to accept manually filed and out-of-district returns, and the corresponding tax payments of eFPS taxpayers without penalties if the filing and payment are made on or before the prescribed deadlines.
However, Large Taxpayers under RDOs 116, 125, 126, 121, 123, 124, and 127 are instructed to make “over-the-counter” payments for taxes being paid through the eFPS which deadlines fall from 11 March onwards only with AABs specifically identified in Bank Bulletin No. 2019-06 which may be accessed at www.bir.gov.ph.
(Bank Bulletin Nos. 2019-6 and 2019-5, dated 14 March 2019; and 2019-4, dated 11 March 2019)
