Congress has enacted another piece of legislation meant to boost business in the country. It promotes fairness and modernization of tax administration. Will the Ease of Paying Taxes Act truly ease the burden of paying taxes? Or will it meet the same fate as the Ease of Doing Business Act, whose import depends on its effective implementation? The government’s job has just begun.
First, the Bureau of Internal Revenue (BIR) must immediately formulate its digitalization program mandate. Congress, in turn, must urgently provide the necessary funding. The Act’s full implementation will not only provide convenience but will also enhance government’s compliance monitoring.
Second, the Department of Finance (DoF) in its implementing regulations must sufficiently provide acceptable parameters when service providers may legally demand the payment of their fees. The law now uses “gross sales” as the base of tax on all activities. Service providers are similarly treated as merchandisers. They must issue official invoices instead of official receipts. More importantly, they must now pay VAT or percentage tax (if applicable) upon accrual, and not upon payment of their fees.
The regulations must recognize the nuances faced in the billing practices of the service industry. There are various circumstances when clients may be legally liable to pay for the billed fees. Gross sales need clarification and must be established with a higher level of certainty. It would be premature to require tax payment solely based on a Statement of Account. The credit or deduction mechanism to recoup the tax fully or partially on unpaid fees may not be fair in certain cases. Banks and other financial institutions are not affected. The law still provides “gross receipts” as base of the GRT or gross receipts tax.
Third, the DoF in its regulations must recognize that zero-rated taxpayers must still have an option to seek the issuance of tax credit certificates (TCCs) for unutilized input VAT, as provided in Sec. 112(A) of the Tax Code. They are bound to follow the deemed denial rule under now Sec. 229 and not under Sec. 112(C), which only covers claims for refund. Taxpayers can only pursue judicial claim for TCCs in case of the BIR’s inaction for 180 days and not 90 days. This gives the BIR ample time to act and consider the claim. Taxpayers will not be constrained to file a Court of Tax Appeals petition for the BIR’s inaction during the 90-day period, which as mentioned applies should they instead claim for a refund. Further, there should be meaningful risk classification in (and good faith implementation of) the expedited refund processing system.
The Act promotes equitability in providing special concessions to micro and small taxpayers. They are permitted to file simplified returns and given priority in the tax administration’s digitalization. They have reduced monetary penalties. It is, however, unfortunate that the President has rejected their proposed exemption from withholding obligation. The reduction in tax collection as the President’s veto justification highlights the need for the BIR to improve on its enforcement action. The BIR must focus on pursuing those who improperly report their revenues. The BIR cannot just rely on the withholding system, especially when the income payors do not have sufficient bargaining power to withhold tax on payments to their suppliers.
It is a relief that the Act has removed the double whammy penalty for non-withholding. Now, the BIR may only collect the unwithheld amount from the erring income payor. It cannot additionally collect deficiency income tax arising from such non-withholding of tax. In this regard, the Act incorporates the rule that withholding of tax arises at the time the income has become payable.
The Act has removed annual registration fees. The BIR should be lauded for its immediate implementation. There is no more civil penalty for filing and paying in the wrong venue. OFWs are exempted from filing returns on their exempt overseas income, provided they have no other Philippine sourced income. Husbands and wives are relieved from filing joint returns when it is impracticable for them to do so.
The Act recognizes the non-taxability of earmarked or in trust amounts for third parties. This is a relief for collecting agents (in general) and electric distribution utilities (in particular) whose bills must reflect pass on charges of generation and transmission companies under the Energy Regulatory Commission’s single billing system.
The ball is now in the court of the DoF and the BIR to fully realize the government’s lofty goals of modernizing our country’s tax administration. The implementing regulations, clarificatory issuances, and their overall implementation should promote and actively cultivate a healthy environment for taxpayers ensuring the protection of their interests. It is only then that the Act may become a boon rather than a bane, and lead to the country’s improved and effective tax collection.
This article is for general informational and educational purposes only and not offered as and does not constitute legal advice or legal opinion.
Eric R. Recalde is a Partner and the Head of the Tax Department of the Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW).