As the deadline for filing our annual income tax return (ITR) is fast approaching, it is fitting to remind ourselves of the legal requirements, including those changes brought about by the TRAIN law.
The official deadline for the filing of ITRs is the 15th day of the fourth month following the end of the taxpayer’s reporting period. For most of us, this remains to be April 15. This is last day, not the only day, to file ITRs. To avoid the rush, taxpayers may do so much earlier. The good news for individual taxpayers is that the deadline for filing of their first (1st) quarter ITR has been extended to May 15.
As the TRAIN took effect on January 1 this year, its substantive provisions have prospective effect. This means that transactions made in 2017 and prior years remain covered by the old tax regime. Hence, the coverage of the ITR to be filed on or before April 15 must be computed using the old tax rate, not the new TRAIN rate.
While the TRAIN did not change the deadline of filing ITRs, it has altered tax rates and introduced new concepts to enhance tax compliance. One concept is simplicity, not only in the contents of the tax forms but also the frequency in filing them.
The TRAIN limits the contents of the ITR to the most basic information required to ascertain the tax due, specifically: personal profile and information, amount of taxable gross sales or receipts, allowable deductions, taxable income, and tax due and payable. An ITR can no longer exceed four (4) pages. Concerned taxpayers may note that the threshold for the independent CPA audit requirement has been increased to P3 million worth of yearly gross sales or earnings. Those below this threshold are no longer required to attach audited financial statements to their ITRs.
As a rule, the payment of the tax due must be made simultaneously with the filing of the ITR. Otherwise, a 25% penalty on the tax due, together with 12% deficiency interest per year will be imposed. The amount due exceeding P2,000 may be paid in two equal installments, i.e., the first when the ITR is filed, and the second on or before Oct. 15. (Note: there is no interest on the extended payment, unless the second installment is not paid on time. In the latter case, there will be similar penalty and interest. So please do not forget to make the second payment on time.)
Starting this year, because of the TRAIN, non-VAT individual taxpayers (other than compensation earners) may avail of the simplified taxation system. They may pay eight (8) percent tax of their gross sales or receipts, instead of the regular tax on their taxable income and percentage tax. (Reminder: to avail of this new system, they must check this option in the prescribed box when they file their first (1st) quarter ITR. Failure to elect this option means that they have chosen to be subject to the regular regime for the entire year.) Availees of the new system must inform their customers or clients by furnishing them with the prescribed sworn declaration. In this manner, their customers or clients (up to the extent they are mandated to withhold tax) will only withhold the reduced rate of 5%, instead of the 10% default withholding tax rate. Further, availees must deregister as percentage taxpayers on or before the filing of their first (1st) quarterly percentage tax return. Nevertheless, their failure to deregister does not mean they must pay the percentage tax. The only consequence is that they must still file the quarterly percentage tax return, with a notation that they are availing the simplified taxation system.
The TRAIN also increased the VAT threshold to P3 million (which means that some existing VAT taxpayers are no longer subject to VAT). Currently registered VAT taxpayers (with gross sales or receipts beyond the previous threshold of roughly P2 million) who no longer qualify as VAT taxpayers must change their BIR registration on or before March 31. Should they subsequently exceed the threshold, they must immediately re-register as VAT taxpayers. However, those who fail to meet the threshold requirement for the last three (3) years may deregister. They will remain subject to VAT until their deregistration. But current regulations make it easier to register than to deregister!
While the TRAIN does way with monthly withholding tax returns in favor of quarterly returns, the DoF remains steadfast on the monthly remittance of taxes withheld. A remittance form, not a tax return, must accompany the remittance. These are two terminologies to think about.