New year, new tax rules

As we welcome 2024, we have a new law, the Ease of Paying Taxes (EoPT) Act or Republic Act No. 11976. This is a welcome development as the new law introduces reforms which aim to modernize tax administration and improve efficiency by providing mechanisms to encourage easy compliance on the part of taxpayers.

The EoPT law will be effective on Jan. 22, 15 days after its publication in the Official Gazette.

Significant highlights of the EoPT law are as follows:

Classification of taxpayers

For purposes of responsive tax administration, the EoPT law classified taxpayers into four groups, depending on their gross sales.

Micro taxpayers are those with gross sales of less than P3 million. Those with gross sales of P3 million to less than P20 million are small taxpayers, while medium taxpayers are those with gross sales of P20 million to less than P1 billion. Taxpayers with gross sales of P1 billion or more are considered large taxpayers.

‘File and pay anywhere’ mechanism

Unlike the existing rule which restricts the filing of returns and payment of taxes with the revenue district office (RDO) where the taxpayer is registered, the EoPT law introduced the “file and pay anywhere” mechanism.

Under this mechanism, tax returns may be filed and tax paid, either electronically or manually, at any authorized agent bank, RDO through the Revenue Collection Officer or authorized software provider.

This development will result in convenient filing of returns and payment of taxes and the elimination of the 25% surcharge on wrong-venue filings.

Simplified rules on tax withholding

Under the current withholding tax rules, the obligation to withhold arises at the time an income payment is paid, becomes payable, or is accrued or recorded as an expense or asset, whichever is applicable in the payor’s books, whichever comes first.

The timing of withholding of tax has been simplified under the EoPT law with the introduction of a new provision under the Tax Code [Section 58 (C)] which states that the obligation to deduct and withhold tax arises at the time the income has become payable.

Another significant change under the EoPT law is the repeal of Section 34(K) of the Tax Code on the requirement to withhold taxes as a requisite to claim deductions from gross income.

Changes in VAT rules and documentation

With the objective of having simplified rules and documentation for Value-Added Tax (VAT) purposes, the EoPT law provided for a uniform tax base (gross sales) and documentation (VAT invoice) for all transactions, whether involving the sale of goods or services, or lease of property.

With these developments, VAT is due upon issuance of the invoice, regardless of the timing of collection.

To remedy the potential cash flow issue, the EoPT law allows taxpayers to deduct the output VAT remitted on uncollected receivables from their output VAT in the next quarter after the lapse of the agreed period to pay, subject to the following conditions: (1) the seller has fully paid the VAT on the transaction; and (2) the VAT component of the uncollected receivables has not been claimed as an allowable deduction.

On the invoicing requirements, the need to specify the business style of the purchaser for sales amounting to P1,000 or more has been removed. Further, an invoice with incomplete information is no longer a bar to claim input VAT provided the lacking information is not one of the essential ones, specifically the sales amount, VAT amount, name and taxpayer identification number (TIN) of buyer and seller and description and date of the transaction.

Classification of VAT refund claims

VAT refund claims are to be classified as low-, medium- and high-risk claims depending on the amount of the refund claim, tax compliance history, frequency of filing of refund claims, among others. Only medium- and high-risk claims are subject to the audit or other verification process of the Bureau of Internal Revenue (BIR).

Refund period for erroneously paid/collected taxes

The prescriptive period to file a claim for a refund is still two years from the date of payment. Note, however, that this prescriptive period will only be applicable to administrative claims for refund, i.e., the filing with the BIR, and will no longer apply to judicial claims.

In addition, refund claims must be acted upon by the BIR within 180 days from the taxpayer’s submission of complete documents. Judicial appeal must be made within 30 days from either (1) the receipt of the full or partial denial of the claim; or (2) from the lapse of the 180-day period for the BIR to act on the refund.

Other changes in the Tax Code brought about by the EoPT law includes the five-year period for preservation of books of account, an adjusted threshold for the mandatory issuance of an invoice from P100 to P500 in sales, the reduction of penalties (surcharge, interest and other penalties for violating the Tax Code) for micro and small taxpayers, and the removal of the business style requirement as well as payment of the annual registration fee in the taxpayer’s registration.

While the implementing rules and regulations are yet to be issued, being due within 90 days from effectivity of the law, I am optimistic that with these tax reforms introduced by the EoPT law, the legislative intent of encouraging tax compliance from the taxpayers will be achieved to improve tax collections.