The passage of the Ease of Paying Taxes (EoPT) Act, or Republic Act No. 11976, sparked hope among taxpayers, who envisioned a smoother journey in navigating tax-related complexities. The Bureau of Internal Revenue (BIR) deserves commendation for its receptiveness to public feedback and ongoing efforts to simplify tax processes. With the recent issuance of the Implementing Rules and Regulations (IRR) for the EoPT Act that took effect on April 27, clarity in its provisions has emerged, marking a positive step towards enhancing tax compliance.
Considering these advancements, it is imperative for taxpayers to strategically plan for the effective implementation of the law. Businesses must proactively address various aspects outlined in the IRR. Key areas for planning include maximizing opportunities for claiming output VAT credits, devising robust systems for monitoring uncollected receivables, establishing comprehensive documentation practices to meet evidence requirements, and implementing measures to ensure ongoing compliance with regulatory mandates. By strategically planning and addressing these factors, businesses can navigate the implementation of the EoPT Act more effectively.
Taxpayers are actively engaging in the practical implementation and enforcement of the provisions outlined in the IRR of the EoPT Act. Full compliance with these regulations demands a comprehensive understanding of the requirements and proactive measures to ensure adherence.
OUTPUT VAT CREDIT ON UNCOLLECTED RECEIVABLES
The recent issuance of Revenue Regulations (RR) No. 3-2024 by the BIR introduced amendments to the pertinent provisions of the National Internal Revenue Code of 1997, as amended, particularly focusing on Value-Added Tax (VAT) and Percentage Tax. Notably, these amendments include, among others, the introduction of the output VAT credit on uncollected receivables.
Under Section 5 of the RR, sellers of goods or services may deduct the output VAT pertaining to uncollected receivables from their output VAT in the subsequent quarter, following the lapse of the agreed-upon payment period. However, to be eligible for output VAT credit, sellers must fulfill various requisites — the sale has to have taken place after the effectivity of the RR; the sale is on credit or account; VAT must have been fully paid on the transaction by the seller to the BIR; and that the VAT component of uncollected receivables has not been claimed as an allowable deduction (bad debts) for Income Tax Return (ITR) purposes, among others.
MONITORING THE OUTPUT VAT CREDIT
Given the standard practices of businesses in monitoring their receivables and their respective due dates, the implementation of the EoPT Act emphasizes the necessity for taxpayers to maintain a meticulous approach to this aspect of their operations. As businesses are accustomed to tracking their receivables, the focus now shifts to a more stringent and systematic approach due to the requirements outlined in the Act. One of the primary concerns for taxpayers is effectively monitoring the claim for output VAT credit. Taxpayers must prioritize the monitoring of due dates and recovery dates, ensuring accuracy and timeliness in their records. This heightened level of attention is crucial for complying with the provisions of the Act and optimizing the claim for output VAT credits.
Additionally, taxpayers should thoroughly evaluate whether to automate the monitoring process, considering factors such as the volume of their accounts receivable (ARs), diverse payment terms, and industries such as manufacturing, construction, and wholesale distribution, which are known for dealing with high volumes of transactions and consequently have substantial ARs to manage. Given the complexities involved, including varying payment terms across many clients and projects, automation offers the potential to streamline the monitoring process. However, the decision to automate should be made with careful consideration of the specific needs and intricacies of the taxpayer’s business operations.
Furthermore, there is a provision stipulating that the output VAT related to the recovery of uncollected receivables must be included in the taxpayer’s output VAT during the recovery period. This requirement adds another layer of complexity to the monitoring process. Both manual and automated monitoring systems must adapt to incorporate these provisions effectively, ensuring compliance with regulatory requirements and accurate financial reporting.
Last, effectively monitoring to ensure claimed output VAT credits are separate from those claimed as bad debt expenses on ITRs is paramount for taxpayers. Establishing mechanisms to accurately report such transactions entails diligent monitoring and reconciliation of figures to uphold compliance with tax regulations.
SUPPORTING DOCUMENTS
Taxpayers are now encouraged to specify the terms in the sales invoice to provide conclusive evidence supporting their claims for output VAT credit. This includes indicating the credit term directly in the invoice or any accompanying document detailing the agreed-upon period for receivable payment. Maintaining an AR schedule is crucial, but additional documentation practices are necessary to substantiate claims and mitigate potential audit risks. Demonstrating proof of collected receivables may indeed be straightforward, but verifying the authenticity of uncollected ones presents a distinct challenge.
EFFECT OF OUTPUT VAT CREDIT ON BIR AUDITS
During VAT audits, the use of Third-Party Information (TPI) to cross-check input and output VAT declared by taxpayers is common practice for the BIR. However, with the introduction of output VAT credit, the matching principle becomes inconsistent. While sellers can claim output VAT credit on uncollected receivables against output VAT, buyers cannot declare an input VAT credit on unpaid payables against input VAT, leading to potential discrepancies in VAT declarations. This concern warrants careful consideration and necessitates that the BIR devise strategies to ensure that their audits remain thorough and effective.
INTRODUCTION OF THE NEW BIR FORM
The provision regarding output VAT credit underscores the need for the BIR to introduce a new BIR form capable of accommodating the inclusion of new items in filing VAT returns. Anticipating the introduction of such forms adds an additional layer of complexity for taxpayers. Timely updates and guidance from tax authorities are crucial to facilitate a seamless transition and ensure compliance with reporting requirements.
TRANSITORY PROVISIONS
With the introduction of an amendatory provision by the EoPT Act regarding source documents, the BIR issued RR 7-2024 to clarify implementation. Upon the effectivity of the regulations, invoices become the primary support document for VAT purposes, while official receipts are now supplementary documents and cannot be used to support input tax claims.
UNUSED OFFICIAL RECEIPTS
Taxpayers are permitted to use unissued Official Receipts (ORs) as supplementary documents until fully consumed. However, these ORs must be stamped with “THIS DOCUMENT IS NOT VALID FOR CLAIM OF INPUT TAX” upon the regulations’ effectivity date.
MANUAL & LOOSE-LEAF OR
Taxpayers using manual or loose-leaf ORs can convert them to invoices by striking through the term “Official Receipt” and replacing it with terms like “Invoice”, “Cash Invoice”, etc. This conversion does not require BIR approval but necessitates the submission of unused OR inventory on or before May 27, 2024. Input VAT can only be claimed for renamed receipts issued between Jan. 22, 2024, and Dec. 31, 2024. Taxpayers are hereby required to obtain newly printed invoices with an Authority to Print (ATP) before fully using or consuming the converted ORs or before the end of 2024 to avoid violation due to non-compliance.
E-RECEIPTING MACHINES AND SOFTWARE
The reconfiguration of Cash Register Machines (CRM), Point-of-Sale (PoS) Machines, and/or Electronic Invoicing Software will be classified as a minor system enhancement. This reconfiguration does not require the reaccreditation of the software or system, or the reissuance of the Permit to Use (PTU). However, it is required that the last serial number of the renamed invoice continue the last series of the previously approved OR. Additionally, taxpayers must submit a notice to the BIR in duplicate original copies, indicating the starting serial number of the converted invoice.
Taxpayers utilizing duly registered a Computerized Accounting System (CAS) or Computerized Books of Account (CBA) with accounting records must revisit their systems to ensure compliance with the provisions of the EoPT Act. The reconfiguration will directly impact the financial aspect and will be deemed a major enhancement, compelling taxpayers to update their system registration. This involves surrendering the previously issued Acknowledgement Certificate (AC) or PTU and applying for a new AC.
To allow taxpayers ample time for the system enhancement, the BIR has set a deadline of June 30, 2024. However, an extension until Oct. 27, 2024, is available upon securing approval from the concerned Regional Director or Assistant Commissioner of the Large Taxpayers Service.
FLEXIBILITY IN TAX FILING AND PAYMENT
In line with the spirit of the EoPT Act, the BIR has taken a significant step towards simplifying tax compliance. With the issuance of RR No. 4-2024, taxpayers now have greater versatility in filing tax returns and making payments. The regulations embody the essence of the EoPT Act by offering taxpayers enhanced flexibility in tax filing and payment processes.
ELECTRONIC OR MANUAL FILING AND PAYMENT
With the implementation of the EoPT Act, taxpayers are now required to file their tax returns electronically through available platforms like eFPS and eBIRForms. However, in cases where these electronic platforms are unavailable, manual filing may be allowed. For instance, if the eFPS is unavailable, they can switch to eBIRForms. If both electronic platforms are inaccessible, manual filing is permitted, provided there is advisory or convincing proof of the platforms’ unavailability.
Tax payments may be made electronically on any of the available electronic platforms, like LinkBiz, PesoNet, UPay, MyEG, etc., or manually to any Authorized Agent Bank and Revenue Collection Officer.
MONITORING OF FILING AND PAYMENT
Even with the benefits of this provision, there are still concerns that the BIR needs to address. One such concern is the consolidation and monitoring of taxpayers’ filed tax returns using various platforms. This has been a common issue where taxpayers receive notice of open cases, despite having filed their returns. This discrepancy frequently arises due to using a platform for filing that differs from the intended one. Effective monitoring and consolidation of taxpayers’ filed returns by the BIR are crucial to avoid unnecessary inclusion in the list of open cases. Implementing a dynamic monitoring system and providing clear guidelines for handling returns filed through various platforms would address this concern and promote accurate record-keeping.
KEY TAKEAWAYS
The implementation of the EoPT Act offers opportunities for taxpayers to enhance their tax planning strategies. Through proactive measures and collaboration between taxpayers and tax authorities, businesses can effectively capitalize on these opportunities. By fostering transparency and adherence to regulations, we can strategically plan and navigate the complexities of tax compliance with confidence and integrity, ensuring optimal outcomes for all parties involved.
Make sure to stay up to date on these recent developments in tax and watch out for webinars/seminars that will discuss this recent act in detail.
Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
Kyle Mikko C. Agustin is a senior in charge from the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.