irst Published in Business World 4/2/2012
With barely two weeks to go before the April 16 tax filing deadline (April 15 being a Sunday), taxpayers and tax practitioners alike are busy finalizing financial statements and preparing annual income tax returns (ITRs) for calendar year 2011. However, this year’s income tax filing season may turn out to be busier than anticipated, with the issuance of Revenue Regulations (RR) No. 19-2011 in December 2011 that prescribes the new format of the annual ITRs for both individual and corporate taxpayers.
RR No. 19-2011 requires the November 2011 ENCS or enhanced version of annual ITRs to be used for income tax filing, covering and starting with calendar year 2011. Taxpayers following fiscal year reporting are likewise required to use the new annual ITR form starting with those covered under fiscal year ending Jan. 31, 2012.
The annual ITR now sports an entirely new “look” and is optical scanner-ready. Furthermore, it also requires information and disclosures that were not needed in the previous annual ITR form.
The annual ITR now sports an entirely new “look” and is optical scanner-ready. Furthermore, it also requires information and disclosures that were not needed in the previous annual ITR form.
Beyond this seemingly more time-consuming ITR form, the new requirements will impact taxpayers availing of tax relief under the Tax Code and/or any prevailing special laws — especially those that have multiple registered activities with the Philippine Economic Zone Authority or Board of Investments.
Under the new BIR Form 1702, the following are now specifically required to be disclosed in the line Item “Are you availing of Tax Relief under Special or International Tax Treaty?”:
• investment promotion agency;
• legal basis;
• registered activity/program (registration number);
• special tax rate;
• effectivity date of tax relief (with inclusive dates).
• legal basis;
• registered activity/program (registration number);
• special tax rate;
• effectivity date of tax relief (with inclusive dates).
There is also a new line item for the Special Allowable Itemized Deductions from gross income in computing taxable income. This is in addition to the regular allowable itemized deduction, as provided under existing regular and special laws, rules and issuances (e.g., Adopt-a-School Program under Republic Act (RA) No. 8525 and Senior Citizen Discount under RA No. 9257).
Moreover, a new section for the Computation of Tax Relief Availment must also be filled out, when applicable. This section particularly shows computation for the amount of the income tax foregone by the government as a result of granting preferential tax rates or tax exemptions and/or special deductions to a particular taxpayer for income tax purposes under special laws.
The old BIR Form 1702 only required three columns to be filled out: the Exempt, Special Rate, and Regular Rate. The “expanded” version now requires taxpayers with multiple activities per income tax regime to accomplish the Supplemental Form. Hence, a taxpayer availing of any tax relief under the Tax Code and/or any prevailing special laws must completely fill out this section, with each column listing the details for each and every registered activity and/or program. For example, in the case of a PEZA-registered company with three registered activities under Income Tax Holiday and another three under 5% Gross Income Tax, six columns need to be filled out in the Supplemental Form — from Taxpayer’s Activity Profile section, Computation of Tax per Activity, and down to Tax Relief Availment section.
Lastly, a significant change is the manner of disclosing the details or the breakdown of revenues, other taxable income, direct costs, and itemized deductions. These will now be presented as part of the taxpayer’s Notes to the Audited Financial Statements (AFS) to be attached to BIR Form 1702. This is not actually mentioned in the RR itself, but in the guidelines and instructions attached to the BIR Form 1702. Accordingly, on top of the audited income statement and breakdown of the audited balances of revenues, costs and expenses disclosed in the AFS of the taxpayers, the Notes to the AFS should disclose another set of schedules and information where the respective total amounts should tie up with the amounts reported in BIR Form 1702, namely:
• sales/receipts/fees;
• cost of sales/services;
• non-operating and taxable other income;
• itemized deductions (if taxpayer did not avail of Optional Standard Deduction);
• taxes and licenses.
• cost of sales/services;
• non-operating and taxable other income;
• itemized deductions (if taxpayer did not avail of Optional Standard Deduction);
• taxes and licenses.
Since the new BIR Form 1702 requires the taxpayer to fill up under each column the details of every registered activity and/or program, then the above schedules to be shown in the Notes to AFS should also show columns for every registered activity and/or program.
In anticipation of the unavailability of the new forms in the Electronic Filing and Payment System (eFPS) in time for the filing deadline on April 16, the BIR recently issued Revenue Memorandum Circular No. 10-2012 to provide transition procedures for all eFPS filers. Pending the availability of the enhanced forms in the eFPS, all eFPS filers are required to use and manually file the revised income tax form with the corresponding income payment to any Authorized Agent Bank within the jurisdiction of the Revenue District Office/Large Taxpayer District Office where they are registered. Once the enhanced forms are available in eFPS, the contents of the return filed manually should be encoded in the eFPS on or before April 16, 2012 (if the enhanced forms are available on or before the deadline) or within 10 days from the date of announcement of the eFPS availability (if the enhanced forms are available after April 16, 2012). As of this writing, the BIR said the eFPS version will not be accessible by April 16.
The new format of BIR Form 1702 aims to increase transparency on details of a taxpayer tax status, tax relief availments, and tax position. This will make it much easier for BIR examiners to conduct their tax audits/investigations. Taxpayers should be prepared to provide basis for their position of subjecting certain revenue/income item to exemption or preferential rate or claiming certain deductions for income tax purposes. Also, in the case of taxpayers with multiple registered activities, allocation or distribution of costs and expenses among the registered activities are now clearly visible. Hence, taxpayers should ensure that these are reasonably allocated and be prepared to prove the same with adequate evidence/supporting documents to justify their allocation method before the BIR examiners.
Saha P. Adlawan-Bulagsak is a senior tax director of SGV & Co.
