Value Added

Before RA No. 11796, sellers of services report the VAT on their sales based on collection. Now sellers, of goods and services will report based on gross sales and will be required to issue VAT invoices. These VAT invoices will be the basis for input VAT credits to be claimed by their customers.”

“This change will simplify the preparation of VAT returns. Sellers of services do not need to monitor collections for the purposes of VAT reporting. On the other hand, the purchasers of services do not need to chase the issuance to them of the VAT official receipts for purposes of claiming input VAT credits. However, sellers could have cash flow concerns especially if the amounts involved are significant.”

Based on a number of factors, including the quantity of the VAT refund claim, the tax compliance history, and the frequency of filing the claim, the VAT refunds will be recategorized into low-, medium-, and high-risk claims.

To expedite VAT refunds, an invoicing mechanism will also be put in place. The act also gives the BIR 180 days to handle general refund requests for taxes that were incorrectly or unlawfully collected.

Mr. Quizon said that denials on VAT refund claims are caused mostly by noncompliance with invoicing requirements; and under EOPT, there now will be a uniform system of documenting sales of goods and services, with the invoice becoming the sole basis of output tax liability of sellers, and input tax claim of buyers.

“This will expedite the process of claiming VAT refunds since the same rules and verification process will now apply for both VAT on sale of goods and services with the harmonization of the rules on recognition of input and output VAT on sale of goods and services, and the adoption of invoice as the sole basis for substantiating input tax under EOPT,” he said.

“Moreover, the reform introduced in the EOPT on the invoicing system, such as the removal of ‘business style’ in the invoice, will make it easier for taxpayers to comply with the requirement in substantiating their input tax for VAT purposes.”

TOWARDS A MORE EFFICIENT, MORE ROBUST TAX SYSTEM

Mr. Quizon noted that EOPT provides the necessary legislative mandate to further boost the BIR’s digitalization initiatives, building on the 10-year Digital Transformation Roadmap already developed by the BIR, which identifies four pillars designed to strengthen the tax organization; modernize the digital backbone of the BIR; enhance its policies, governance, and standards; and elevate taxpayer’s experience and innovate BIR services.

“The tax administration of the future will be heavily dependent on information technology. The EOPT ensures that the BIR is positioned to harness technology for the further simplification of tax compliance and the streamlining of processes. We anticipate that the focus for the future will be acquiring and using data to improve efficiency in tax administration and collection,” he said.

There are still concerns, however. Ms. Peralta pointed out that while the EOPT will help make taxation more efficient and much easier for taxpayers, there are still questions that could need answering. One is the manner for classifying taxpayers, as while the law itself provides for the gross sales as the criterion for classifying taxpayers, it does not provide guidance or the requirements for determining the gross sales or for the process of notifying taxpayers of their classification.

“Another one is on the withholding taxes. The law states that the obligation to withhold arises at the time the income has become payable. Without clear guidelines from the BIR, there could be timing differences between the reporting by the seller of the income for income tax purposes and the time of withholding by the buyer and claiming of expenses. Such differences could lead to scrutiny by the BIR,” she said.

“Another area of concern is the VAT refunds. It seems that the law leaves it to the BIR to determine which claims are low-, medium-, or high-risk claims. Given the statutory construction rule that refunds are construed strictly against the taxpayer, the BIR might not have enough flexibility in classifying lowrisk claims and this might not improve the refund process to give the taxpayer convenience.”

Ms. Peralta emphasized that taxpayers should monitor the issuance of the revenue regulations implementing the law to gain a better understanding of such matters.

Mr. Quizon echoed the sentiment: “Taxpayers should review their existing transactions, agreements/contracts and identify areas that will be affected by changes introduced by EOPT. Existing compliance process must be reviewed to ensure that the procedures adopted by taxpayers are aligned with the requirements of the new law.”

“Employees who do compliance work must undergo compliance training to ensure that they understand the requirements of the law and that the company is not at risk for non-compliance. Taxpayers using cash register machine (CRM) or point-of-sale (POS) machine, as well as computerized accounting systems affected by the change in invoicing requirements, must be ready to modify their system to ensure they are compliant and can operate properly upon effectivity of the law.”