IS THERE ROOM for further simplification of the value-added tax (VAT) invoicing system?
The VAT system has been acclaimed as a superior tax because of, among others, the audit trail that it generates.
The tax credit method for computing the VAT due under the
Philippine VAT system compels VAT taxpayers to demand the sellers to
issue correct VAT receipts and invoices so that they can rightfully
claim the corresponding input VAT from their purchases.
Under this system, VAT-registered sellers are therefore forced
to correctly declare their sales, at least those made to buyers who
demanded official receipts and invoices.
At the same time, the audit trail allows the Bureau of Internal Revenue
(BIR) to cross-check the purchases declared by the buyers against the
sales declared by the sellers. Any difference will trigger further audit
or examination.
Since VAT receipts and invoices are the core documents in the audit trail, the government has exerted efforts to ensure that these documents would be most effective in supporting that trail.
The regulations require a long list of information that should be inputted in the VAT receipt and invoice, both about the seller and the buyer, as follows:
• name of the seller;
• business style of the seller;
• business address of the seller;
• statement that the seller is a VAT-registered person, followed by his tax identification number (TIN);
• name of the buyer;
• business style of the buyer;
• address of the buyer;
• TIN of the buyer, if VAT-registered and amount exceeds P1,000;
• date of transaction;
• quantity;
• unit cost;
• description of the goods or properties or nature of the service;
• purchase price plus the VAT shown as a separate item in the invoice or receipt;
• breakdown of the sale as to VAT-exempt, zero-rated sales, or subject to VAT at 12% and the calculation of the VAT on each portion of the sale;
• authority to print receipt number at the lower left corner of the invoice or receipt.
On the other hand, receipts for reimbursement of expenses advanced by the seller are not allowed to be included in VAT receipts and invoices but are instead required to be covered by non-VAT acknowledgement receipts.
There should be little problem regarding the required information about the seller because these are generally pre-printed in the case of manual invoices and receipts, or are automatically generated in the case of invoices and receipts generated from a computerized accounting system.
The buyer information is, however, inputted by the seller only when issuing the invoice or receipt and because of that, absolute compliance is not always achieved. While VAT taxpayers are always reminded to ensure that the invoices and receipts that are issued to them are correct, many factors contribute to their failure to demand for correct and complete documents. Hence, during examination, many VAT assessments arise because of alleged defects in the supporting receipts and invoices.
Common situations involve incomplete name of a company, and failure to indicate the address and the TIN. In such cases, the invoice or receipt may run the risk of being disallowed as a support for input VAT credit.
Note that these information are intended to ensure that the correct taxpayer is claiming the input VAT. Hence, only the name or the unique TIN should be critical and should be required.
Oftentimes, too, the VAT is not separately indicated in invoices and receipts. Though the seller may be penalized for failure to indicate the VAT, the buyer on the other end unfairly suffers the loss of the input VAT.
Could BIR issue a circular specifically allowing other supporting documents such as service invoice, a billing statement or a contract to isolate the VAT component?
In certain industries where the seller/service provider is obligated to make payments to third parties on behalf of their clients, such as advertising companies, travel agents, brokers and forwarders, the sellers normally commit the mistake of including such receipts for reimbursements in their VAT receipts.
Complying with the issuance of a non-VAT acknowledgement receipt involves additional processes that add up to compliance cost and time, which businesses generally want to avoid.
Unfortunately, huge assessments usually result from such mistakes, though, oftentimes, there is really no revenue loss on the part of government.
It would be simpler if inclusion of non-VAT reimbursements in the VAT official receipt would not be considered a punishable offense provided it is properly indicated as non-VAT receipts.
Or could the BIR prescribe alternative documents if the original invoices and receipts get lost or destroyed? If the alternative documents are specified in the regulations, the taxpayer need not beg while the examiner need not make hard decisions.
Could the VAT invoicing system therefore be further simplified so that technicalities leading to VAT assessments can be avoided?
Simplifications could also facilitate the audit process if the number of requirements that an examiner should audit can be reduced.
Life would be easier for both the taxpayer collecting the tax on behalf of government and overworked BIR examiners.
There are many other ways -- other taxpayers could have other ideas.
The VAT that taxpayers contribute to the tax revenues make up a major chunk. Compliance requirements instituted to ensure that transactions are captured in the VAT net and the correct taxes are paid are burdensome enough. And there are penalties for every non-compliance and erroneous compliance.
I’m sure many taxpayers would appreciate it if government can make room for further simplification of, at least, the VAT invoicing system.
The author is a tax principal with Punongbayan&Araullo’s Tax Advisory & Compliance Division. P&A is a leading audit, tax and advisory services firm and is the Philippine member of Grant Thornton International Ltd.
Readers may send comments and inquiries via e-mail to Lina.Figueroa@ph.gt.com or call 886-5511.
Since VAT receipts and invoices are the core documents in the audit trail, the government has exerted efforts to ensure that these documents would be most effective in supporting that trail.
The regulations require a long list of information that should be inputted in the VAT receipt and invoice, both about the seller and the buyer, as follows:
• name of the seller;
• business style of the seller;
• business address of the seller;
• statement that the seller is a VAT-registered person, followed by his tax identification number (TIN);
• name of the buyer;
• business style of the buyer;
• address of the buyer;
• TIN of the buyer, if VAT-registered and amount exceeds P1,000;
• date of transaction;
• quantity;
• unit cost;
• description of the goods or properties or nature of the service;
• purchase price plus the VAT shown as a separate item in the invoice or receipt;
• breakdown of the sale as to VAT-exempt, zero-rated sales, or subject to VAT at 12% and the calculation of the VAT on each portion of the sale;
• authority to print receipt number at the lower left corner of the invoice or receipt.
On the other hand, receipts for reimbursement of expenses advanced by the seller are not allowed to be included in VAT receipts and invoices but are instead required to be covered by non-VAT acknowledgement receipts.
There should be little problem regarding the required information about the seller because these are generally pre-printed in the case of manual invoices and receipts, or are automatically generated in the case of invoices and receipts generated from a computerized accounting system.
The buyer information is, however, inputted by the seller only when issuing the invoice or receipt and because of that, absolute compliance is not always achieved. While VAT taxpayers are always reminded to ensure that the invoices and receipts that are issued to them are correct, many factors contribute to their failure to demand for correct and complete documents. Hence, during examination, many VAT assessments arise because of alleged defects in the supporting receipts and invoices.
Common situations involve incomplete name of a company, and failure to indicate the address and the TIN. In such cases, the invoice or receipt may run the risk of being disallowed as a support for input VAT credit.
Note that these information are intended to ensure that the correct taxpayer is claiming the input VAT. Hence, only the name or the unique TIN should be critical and should be required.
Oftentimes, too, the VAT is not separately indicated in invoices and receipts. Though the seller may be penalized for failure to indicate the VAT, the buyer on the other end unfairly suffers the loss of the input VAT.
Could BIR issue a circular specifically allowing other supporting documents such as service invoice, a billing statement or a contract to isolate the VAT component?
In certain industries where the seller/service provider is obligated to make payments to third parties on behalf of their clients, such as advertising companies, travel agents, brokers and forwarders, the sellers normally commit the mistake of including such receipts for reimbursements in their VAT receipts.
Complying with the issuance of a non-VAT acknowledgement receipt involves additional processes that add up to compliance cost and time, which businesses generally want to avoid.
Unfortunately, huge assessments usually result from such mistakes, though, oftentimes, there is really no revenue loss on the part of government.
It would be simpler if inclusion of non-VAT reimbursements in the VAT official receipt would not be considered a punishable offense provided it is properly indicated as non-VAT receipts.
Or could the BIR prescribe alternative documents if the original invoices and receipts get lost or destroyed? If the alternative documents are specified in the regulations, the taxpayer need not beg while the examiner need not make hard decisions.
Could the VAT invoicing system therefore be further simplified so that technicalities leading to VAT assessments can be avoided?
Simplifications could also facilitate the audit process if the number of requirements that an examiner should audit can be reduced.
Life would be easier for both the taxpayer collecting the tax on behalf of government and overworked BIR examiners.
There are many other ways -- other taxpayers could have other ideas.
The VAT that taxpayers contribute to the tax revenues make up a major chunk. Compliance requirements instituted to ensure that transactions are captured in the VAT net and the correct taxes are paid are burdensome enough. And there are penalties for every non-compliance and erroneous compliance.
I’m sure many taxpayers would appreciate it if government can make room for further simplification of, at least, the VAT invoicing system.
The author is a tax principal with Punongbayan&Araullo’s Tax Advisory & Compliance Division. P&A is a leading audit, tax and advisory services firm and is the Philippine member of Grant Thornton International Ltd.
Readers may send comments and inquiries via e-mail to Lina.Figueroa@ph.gt.com or call 886-5511.
No comments:
Post a Comment