TRAIN Law: Revisions to Income Tax Return forms

Controversies continue to surround the Tax Reform for Acceleration and Inclusion (TRAIN) Law. Members from both the public and private sectors blame it for the steady rise in inflation, the now weekly increase in fuel and oil prices, and a record currency depreciation that left the peso at its weakest in over 11 years.

While experts are still debating the alleged negative impact of the

TRAIN law on the economy, proponents of the law are quick to point out its positive aspects. These include the lowering of personal income taxes, the lowering of transfer tax rates (now at 6%), the exemption from Value Added Taxes (VAT) of certain fees, and the exemption from tax on certain types of mergers and acquisitions, as there is a bona fide business purpose.

Perhaps one of the most practical, though hardly talked about, consequences of the TRAIN Law is the change to the filing and submission of income tax returns (ITRs). After the TRAIN Law took effect on Jan. 1, tax authorities were quick to issue multiple implementing rules and regulations and circulars. They also issued revised quarterly ITR forms for individuals, estates, and trusts, all published within the first quarter of the year, but did not yet include new quarterly and annual ITRs for corporations. As a result, even though the TRAIN Law took effect at the start of the New Year, corporate taxpayers found themselves having to file and submit outdated (2013) BIR ITR forms in their annual statutory compliance.

The TRAIN Law is not the first attempt to rectify, or otherwise standardize, ITR forms for both individuals and corporations. Recall that starting taxable year 2013, BIR Revenue Regulations (RR) No. 2-2014 was issued, which mandated that taxpaying entities had to file ITRs as one of five categories:

1. 1700 – For individuals earning purely compensation income;

2. 1701 – For self-employed individuals;

3. 1702 RT – For corporations, partnerships, or other taxable non-individual taxpayers who are subject to the regular tax rate;

4. 1702 MX – For corporations, partnerships, or other taxable non-individual taxpayers subject to multiple income tax rates, or with income subject to the special/preferential rate;

5. 1702 EX – For corporations, partnerships, or other taxable non-individual taxpayers who are exempt from income tax under the Tax Code.

Taxpayers have observed that the 2013 tax return forms were somewhat problematic. Not only were the forms lengthy — each composed of 8 to 13 pages — they also had issues concerning the applicability of certain legal provisions. One such concern was the limitation on applying for optional standard deduction (OSD) for corporations and self-employed individuals who were subject to multiple tax regimes. As one can imagine, this situation caused concern to taxpayers earning mixed income.

In a similar vein, taxpayers experienced difficulty in carrying over the Net Operating Losses (NOLCO) to supplement their businesses. Take for example, a company filing an ITR in 2013, with results that showed a net loss. Under the law, these losses would be claimable as NOLCO in three succeeding years, from the year when the loss was incurred. But if the company filed its 2014 ITR opting for an OSD instead of an itemized deduction, the 2013 NOLCO would not reflect in the most recent 2014 filing. Therefore, there is a risk that the company will be unable to avail of the filed 2013 NOLCO as a valid deduction in the 2015 ITR, despite the fact that it was still within the three-year period — just because the NOLCO was not included in the 2014 ITR.

With the passage of new ITR forms (which are now notably shorter at 4 pages total), taxpayers can have an easier time managing their tax obligations. In addition, the BIR has created a new task force to address taxpayers’ questions, which affords our citizens a dynamic new platform to voice out concerns or questions about the ITR forms, or any other tax return issues.

Concerning the unreleased corporate tax returns, these have supposedly been drafted and are currently being readied in time for the annual filing on April 15, 2019. Many taxpayers are hopeful of positive and progressive changes in the new package of laws, with the most common items on the “wish list” being the further lowering of corporate tax rates and the harmonization of tax incentives to better suit the needs of growing businesses and emerging markets.

Nevertheless, the TRAIN Law remains constantly evolving and proactive. Many continue to hope for more stable, permanent relief from the issues surrounding income tax returns.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co.