Value Added: A comprehensive look at the changes made by RA 11976 to taxes

EARLY THIS YEAR, President Ferdinand R. Marcos, Jr. signed into law the Ease of Paying Taxes (EOPT) Act, or Republic Act No. (RA) 11976 in a bid to bring the Philippine tax administration up to date in the modern era and further strengthen taxpayer rights.

Previously tagged as a priority for his administration, RA 11976 aims to streamline taxation processes and minimize the burden on taxpayers, encouraging them to comply with the tax system and thus increasing the country’s revenue collection. The boost in government revenues provided by the EOPT Act will support the government’s 8-Point Socioeconomic Agenda to enhance economic and social development.

“After the comprehensive amendments to tax policy introduced by the previous administration, we now focus our sights on tax administration with the passage of the Ease of Paying Taxes Act. Recognizing the importance of how the government collects taxes, this measure solidifies our commitment to our countrymen towards a dynamic and efficient tax administration which is responsive to the needs of our taxpayers, both individuals and those who are doing business, adapts to the changing times, and ultimately supports our recovery and growth objectives,” the President said in a statement.

Senen M. Quizon, Principal of Tax & Corporate Services at Deloitte Philippines, told BusinessWorld that the EOPT Act is “a significant step forward in creating a more taxpayer-friendly tax environment. It eases tax compliance by streamlining existing registration processes and allows taxpayers to file tax returns and make tax payments online or manually, anywhere.”

“The EOPT clearly sets the period for the BIR (Bureau of Internal Revenue) to act on claims for refunds and remedies available to taxpayers, which will facilitate the processing for VAT (value-added tax) refunds and erroneously paid taxes. The EOPT also ensures that the BIR will continue to use technology to further ease tax compliance burden, to streamline processes, and to develop an ease of paying taxes and digitalization road map,” he added.

Maria Carmela M. Peralta, Head of Tax at KPMG in the Philippines (R.G. Manabat & Co.), recognized the potential of the new law in enhancing taxpayer convenience and ensure ease of compliance.

“Ease of compliance could be brought about by a number of ways which include streamlining of tax processes, adoption of simplified tax returns, reduction of documentary requirements, and digitalization of the BIR,” she said.

“Hopefully, the BIR will adopt these measures, which will be most welcome given the number of pages tax returns currently have, the long list of documentary requirements for claiming refunds for example, and the time it takes for example in enrolling in the BIR’s electronic filing and payment system (eFPS) or in correcting errors in the taxpayer’s data in the eFPS.” So, what will the law change?

In order to create a tax system that is responsive and tailored to the needs of each segment, the new law will divide taxpayers into four categories based on their gross sales: micro, small, medium, and large. Internal revenue tax payment and return filing will also be simplified via electronic and manual methods like authorized software providers and agent banks.

Mr. Quizon pointed out that the EOPT did not introduce any significant change in terms of tax compliance obligation among the different categories of taxpayers. “In fact, with the veto of exemption of micro taxpayers from obligation to withhold creditable taxes, the only benefits that are available to micro and small taxpayers are reduced number of income tax return pages from four to two pages, and reduced rate for civil penalties,” he said.

“However, given the mandate under EOPT for the BIR to develop programs and projects to ensure ease of compliance of taxpayers with tax laws and regulations with priority being given to micro and small taxpayers, we expect that the BIR will design and implement programs tailored to address the challenges that taxpayers in different segments face in complying with their tax obligations.”

Such programs would likely be part of the BIR’s plans in developing the Ease of Paying Taxes and Digitalization Roadmap

in order to support and help taxpayers by digitizing its services, lowering the amount of documentation needed, and expediting tax procedures. Changing the income tax return (ITR) to only have two pages instead of four was part of this streamlining process.

“The change in the parameter when classifying large taxpayers from amount of tax paid for income tax, value-added tax, excise, corporate income tax, and withholding tax to gross sales with threshold set at P1 billion means that existing large taxpayers that are unable to meet the new criteria based on gross sales may have to be delisted as large taxpayer,” Mr. Quizon added.

“The reclassification of existing large taxpayers with gross sales of less than P1 billion would have an impact on the tax obligations imposed upon them as large taxpayers, such as the requirement to issue electronic receipts or sales invoices and implement electronic invoicing system mandated under Section 237 of the Tax Code and required to be complied with by large taxpayers, exporters, and those engaged in commerce.”

Additionally, to promote the switch to electronic payment channels, the option to pay internal revenue taxes to the city or municipal treasurer who has jurisdiction over the taxpayer was removed. This move also guarantees that taxpayers who do not reside in the Philippines can still access tax registration facilities.

The law harmonizes the regulations for how sales of goods and services are treated for value-added tax (VAT), necessitating a sales invoice for each. The mandatory issuance of receipts for each sale and transfer of goods and services will be increased from P100 to P500.

“Based on the draft regulations circulated by the BIR for its public consultation in February 2024, taxpayers mandated to file tax returns and pay the tax due electronically will be subject to administrative penalties if they have resorted to manual filing and payment. Nonetheless, they will not be imposed with the 25% surcharge for filing at the wrong venue. RA No. 11976 has removed this surcharge,” Ms. Peralta noted.

“Another change is that filing can be made anywhere. Filings are no longer required to be made only with the proper BIR offices having jurisdiction over the taxpayers or with the authorized agent banks within their jurisdictions. As mentioned above, the law has removed the 25% surcharge for filing at the wrong venue. However, it will be prudent for taxpayers to await the issuance of the revenue regulations.”

Ms. Peralta explained that “the major change in the invoice system is that for VAT purposes, sellers of services will report the VAT based on their gross sales.