1.What is Republic Act No.11976 and why I sit relevant to tax?
Republic Act (RA) No. 11976, otherwise known as "Ease of Paying Taxes Act," (EOPT Act), is a new law that introduces key administrative tax reforms and amendments to several provisions of the National Internal Revenue Code of 1997, as amended (NIRC) to reduce tax compliance costs while enhancing tax compliance efficiency. It seeks to significantly boost revenue collection through digitalization initiatives to support the administration?s8-Point Socioeconomic Agenda and was signed into law on January 5,2024.
a) The EOPT Act introduced new categories of taxpayers.
What are these categories? The EOPT Act has provided four (4) new categories for taxpayers, namely:
- Micro - with gross sales of less than Php3 million;
- Small - with gross sales of Php3 million to less than Php20 million;
- Medium - with gross sales of Php20 million to less than Php1 billion; and
- Large - with gross sales of P1 billion and above.
b) Are there any advantages for taxpayers who are considered "micro" or "small", or those with gross sales below Php20 million?
Yes. The EOPT Act provides special concessions for micro and small taxpayers such as a simplified income tax return consisting of a maximum of two pages only (reduced from four pages) in paper form or electronic form; a reduced rate of ten percent (10%) for civil penalties as provided under Sec. 248 of the NIRC; a fifty percent (50%) reduction in interest rates imposed under Sec. 249 of the NIRC; a reduced fine of five hundred pesos (Php500) as penalty for failure to file certain information returns as provided under Sec. 250 of the NIRC; and a reduced compromise penalty rate of at least fifty percent (50%) for violations of Sec. 113, 237, and 238 of the NIRC.
c) The EOPT Act seeks to reduce compliance costs and provide for digitalization alternatives. Are taxpayers now allowed to register online with the Bureau of Internal Revenue (BIR), and file and pay taxes electronically?
Yes. To entice foreign investors and facilitate their commercial dealings in the Philippines, the EOPT Act offers registration facilities available to all taxpayers, including non-residents. Taxpayer registration, as well as the transfer and cancellation of tax registration, may be done manually or electronically.
The EOPT Act codifies the definition of the terms "Filing of Return" and "Payment of Tax or Remittance of Tax". The definition expressly states that filing and paying taxes can now be made either manually or electronically to the BIR, or through any authorized agent bank or authorized tax software provider. This provides convenience and removes the burden of paying hefty surcharges and interest for filing tax returns in the wrong venue. However, we need to wait for the implementing regulations to see how this will be implemented.
d) Has the Annual Registration Fee of Php500 been removed?
Yes. The annual registration fee of Php500 for businesses has been eliminated, reducing the administrative burden. Per the BIR Advisory released on January 8, 2024, the BIR will cease collecting the Php500 annual registration fee effective January 22, 2024, which is favorable to taxpayers. However, see item 18 below on the effective date of the EOPT Act.
e) Is there a change as to when taxes are to be withheld?
Yes. The EOPT Act provides that the obligation to deduct and withhold the tax arises at the time the income has become payable. Previously, Sec. 57 of the NIRC provides that the withholding of tax on specified items of income is when an income payment is paid or becomes payable based on the rules and regulations promulgated by the Secretary of Finance. Under Revenue Regulations No. 12-01 which amended Sec. 2.57.4 of Revenue Regulations No. 2-98 (Withholding Tax Regulations), the responsibility to deduct and withhold tax arises at the time when an income payment is paid or becomes payable, or when the income payment is accrued or recorded as an expense or asset, whichever is applicable, in the payor's books, whichever comes first. Hence, the existing "whichever comes first" rule of withholding will no longer apply under the amendment introduced by the EOPT Act.
Under Revenue Regulations No. 12-01, the term "payable" refers to the date the obligation becomes due, demandable, or legally enforceable. Therefore, it appears that the withholding obligation arises when the obligation becomes due, demandable, or legally enforceable regardless of when it is accrued in the books of the payor. However, again, we need to wait for the implementing regulations to see how this will be implemented.
f) May a taxpayer now deduct expenses for purposes of computing its taxable income despite failure to withhold taxes on the expense?
Yes. The EOPT Act repealed Sec. 34 (K) of the NIRC which requires withholding of taxes as an additional requirement for deductibility of expenses from gross income. Previously, an expense will not be allowed as a deduction for income tax purposes if the taxpayer failed to show that the tax required to be deducted has been paid to the BIR in accordance with Secs. 58 and 81 of the NIRC. Please note however that this does not remove the withholding obligation of the payor.
g) Is the income recipient claiming a tax credit or refund of creditable income tax required to show proof that the taxes withheld from it are indeed remitted to the BIR?
No. The EOPT Act provides that claims for tax credit or refund of creditable income taxes which were deducted and withheld from income payments will be given due course provided that it is shown that (i) the income payment has been declared as part of the gross income, and (ii) the fact of withholding is established (i.e., through submission of BIR Form No. 2307 (Certificate of Creditable Tax Withheld at Source)). Accordingly, the income recipient is not required to show proof that the withholding agent remitted the taxes withheld to the BIR for its claim for tax credit or refund of creditable income taxes to be given due course. The above amendment codifies the decisions of the courts on this issue.
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