FOREIGN governments, embassies, diplomatic
missions and international organizations located in the Philippines are
granted immunity from taxes on their employees’ salaries, regardless of
the workers’ nationality. In other words, such organizations are not
treated as withholding agents of the Philippine government.
Such immunity is based on international
comity as embodied in several international agreements to which the
Philippines is a signatory, such as the Convention on the Privileges and
Immunities of the United Nations and the Convention on the Privileges
and Immunities of Specialized Agencies ( "SA Convention"), among others.
In recognition of this immunity, Section 2.78.1(B)(5) of Revenue
Regulations (RR) No. 2-98 provides exemption from the withholding tax
system of the remunerations paid by foreign governments and
international organizations to their employees who are residents or
nationals of the Philippines.
In the past, there has been a misconception that this exemption from
withholding tax under RR 2-98 equates to the exemption from paying the
tax on such income. Thus, the Bureau of Internal Revenue (BIR) issued
Revenue Memorandum Circular (RMC) No. 31-2013 providing guidelines on
the taxation of individuals employed by foreign governments and
international organizations situated in the Philippines.
RMC 31-2013 clarified that the immunity from withholding taxes on
employee compensation pertains only to the duty to collect tax and
therefore does not carry with it the exemption from paying the income
tax itself.
In recognition that most international agreements also grant exemption
to officials and employees from paying income tax on their salaries and
emoluments, the RMC emphasized that such exemption applies only to those
officials and employees who are expressly and unequivocally identified
in international agreements and laws, and does not cover those that are
not specifically mentioned as tax exempt.
Accordingly, those not specifically granted income tax exemption under
the international agreements or laws are subject to the general tax
rules on their compensation income.
Recently, the BIR issued RMC 73-2013, which amended certain provisions
of RMC 31-2013. It provided the following additional guidelines on the
taxation of compensation income of individuals employed by international
organizations, specifically the United Nations (UN), its specialized
agencies and the International Committee of the Red Cross (ICRC):
(1) Compensation income of officials of the UN and its specialized
agencies, regardless of their nationality or place of residence, shall
be exempt from Philippine income tax, provided their names have been
communicated to the Philippine government (through the Department of
Foreign Affairs).
For the tax exemption under the SA Convention to apply, the Philippine
government should have acceded to the terms of the SA Convention and
indicated the names of the specialized agencies in the instrument of
accession.
The specialized agencies are covered by proper instruments of accession
include the International Labour Organization (ILO); Food and
Agriculture Organization (FAO); UN Educational, Scientific and Cultural
Organization (UNESCO); International Civil Aviation Organization (ICAO);
International Monetary Fund (IMF); International Bank for
Reconstruction and Development (IBRD); World Health Organization (WHO);
Universal Postal Union (UPU); International Telecommunication Union
(ITU) and International Finance Corp. (IFC).
Specialized agencies not included in the instrument of accession may be
covered by the SA Convention upon submission of subsequent written
notification by the Philippine government to the Secretary General of
the UN. Tax exemption of officials of specialized agencies not covered
by proper instrument of accession or written notification will be
evaluated based on the terms of their respective constitutional
instruments.
(2) Compensation income of ICRC Swiss delegates and alien employees,
including their spouses and dependent members of their families, shall
be exempt from Philippine income tax.
The new RMC also provides guidelines on the tax filing obligations of
individuals employed by foreign governments and international
organizations. Philippine nationals and alien individuals who qualify
for tax exemption or immunities are enjoined to file their annual income
tax returns using BIR Form 1700 or BIR Form 1701, as may be applicable,
on or before the 15th day of April of each year.
As an alternative form of systematic filing, they have the option to
submit their annual income tax returns through the duly authorized or
designated personnel of the foreign governments or international
organizations which employ them. Under this option, the International
Tax Affairs Division (ITAD), in coordination with the Department of
Foreign Affairs, must inform the concerned BIR Revenue District Office
(RDO) of the willingness of the foreign/international organization to
file its employees’ income tax returns.
Similarly, individuals who are not covered by tax exemptions under duly
recognized international agreements or laws are required to file their
annual income tax returns on or before April 15 each year.
However, foreign governments or international organizations, in their
capacity as employers, may opt to act as withholding agents for the
Philippine government and file the income tax returns of their
non-exempt employees through substituted filing. Under this filing mode,
the foreign governments or international organizations shall register
with the RDO having jurisdiction over their principal office and shall
follow the prevailing procedures and requirements on withholding of
taxes and substituted filing of income tax returns.
Foreign governments and international organizations situated in the
Philippines and/or their respective employees not covered by RMC Nos.
31-2013 and 73-2013, but who wish to avail of tax immunities under
international agreements or laws, are required to file an application
for confirmation of tax exemption with the ITAD of the BIR.
With the issuance of these RMCs, the confusion on the tax treatment of
salaries and emoluments of individuals employed by foreign governments
and international organizations should have been clarified.
The author is an assistant manager at the tax services department of
Isla Lipana & Co., the Philippine member firm of the PwC network.
Readers may call (02) 845-2728 or e-mail the author at laverne.a.bacaser@ph.pwc.com
for questions or feedback. The views or opinions presented in this
article are solely those of the author and do not necessarily represent
those of Isla Lipana & Co. The firm will not accept any liability
arising from the article.
source: Businessworld
Wednesday, February 26, 2014
Monday, February 24, 2014
Enough talks, catch tax cheats
Enough talks, catch tax cheats
Commissioner Kim Henares appears on the right tract in running after tax evaders and delinquent taxpayers to boost government revenue collection.But the Bureau of Internal Revenue (BIR) commissioner has too many obstacles to hurdle, both legal and administrative. There are laws that need to be repealed or amended for the BIR to dramatically increase its tax collection rate.
In July last year, Budget Secretary Florencio Abad estimated that the government was unable to collect roughly P388 billion in potential revenues due to rampant tax evasion by self-employed individuals, or professionals like doctors, lawyers, accountants, and engineers who dictate their own service fees on their patients or clients.
Abad noted that of the 1.8 million registered taxpayers in 2012, only 402,000 self-employed, business and professionals filed their tax returns. Data show that they paid an average of P33, 441 or a total of P13.4 billion, which accounts for only 0.13 percent of gross domestic product (GDP).
A few days ago, Henares said the government lost at least P61 billion in foregone revenues in 2011 from income tax holidays enjoyed by domestic and international business firms in free ports and economic zones.
The figure could be two to three times bigger because the P61 billion represents only the foregone revenues from 1,318 firms, or just 29 percent of the 4,581 firms registered in economic zones, whose 2011 income tax returns have been reviewed by the BIR.
To further illustrate the serious leakages in the country’s tax system, the Department of Finance and the BIR had made public an info graphic with data showing “ridiculously low tax payments” of self-employed professionals in Makati City in 2012.
The info graphic posted on the government’s Official Gazette showed that one out of two self-employed professionals in Makati paid less tax than a public school teacher. It revealed that 54 percent of 2,031 self-employed accountants, doctors and lawyers in four district offices of the BIR paid less than P35, 000 in taxes in 2012. A public school teacher earning P21, 500 monthly paid more tax of P35, 952 every year.
The same info graphic, which is part of the BIR’s Tax Watch project, showed that one of the 1,179 physicians in the city paid only P10 in taxes while one out of 534 lawyers paid only P200.
Two accountants also paid only P138 and P120 in taxes, amounts that are lower than the minimum wage in Metro Manila.
The discrepancies are too obvious to ignore. Laws prescribing penalties on delinquent taxpayers and tax evaders, be they in government positions, in Congress, in business, or ordinary citizens, ought to be given more teeth.
Simultaneously, measures must be in place to address corruption in the ranks of tax law enforcers like BIR assessors, treasurers, collectors and other tax agents to prevent them from working on compromise agreements with taxpayers and getting a share in the amount paid, which directly goes into their pockets.
Henares needs the cooperation of Congress to get legislative measures passed. But it appears that Congress is the biggest stumbling block to the enactment of bills like waiving the confidentiality rule on tax records once a person enters public office.
Well, there is no such bill pending in Congress right now. There were attempts in the past but none ever prospered even at the committee level.
Just a few days ago, news reports quoted Rep. Magtanggol Gunigundo of Valenzuela City raising a howl over a new BIR directive that required income tax filers to state their passive income, such as interests earned from bank deposits, in filing their income tax returns (ITR).
The congressman said Revenue Regulations 2-2014 (New Income Tax Forms) effectively compels a citizen to allow violation of his rights under the laws on secrecy of bank deposits, anti-money laundering and the tax code.
Gunigundo has a point. The BIR is attempting to secure information that would help compute a taxpayer’s bank deposits, then, match it with his income sources to check if he is paying the correct amount of taxes.
Republic Act No. 1405, enacted in September 1955, grants absolute confidentiality on bank deposits, including investments in government-issued bonds. The intention was to encourage people to save their money in banks and to discourage private hoarding so that the money can be used for productive purposes.
The 59-year-old law penalizes bank officials and employees who would provide bank information, except when the depositor agrees in writing, or in cases of impeachment, or upon court order in cases of bribery, dereliction of duty or when the deposits or investments are subject of litigation.
Henares is probably aware that a repeal of RA 1405 is a long shot. But it is what the country needs.
Remember that in the impeachment cases against former president Joseph Estrada and former Supreme Court chief justice Renato Corona, what brought them down were records of their bank deposits from unexplained sources.
Here is a chance for President Benigno Aquino 3rd and Congress to prove their sincerity and determination to curb corruption and finally adhere to the oft-repeated policy of transparency and openness by enacting a measure that will compel candidates in public office and appointees in government positions to sign a waiver on the confidentiality rule on bank deposits and investment.
They should have nothing to fear if they are entering public service to work for the public interest, as they always claim when campaigning but conveniently forget once they assume office.
Like what I said in my column last week, this is not an impossible dream. Pakistan is showing that it can be done.
A South Asian country that is perceived as more corrupt and with lower tax collection rate than the Philippines, Pakistan has shown the way to improve tax collection: require all electoral candidates to file their certificates of candidacy with their income statements and tax records for the past three years.
Last February 15, Pakistan’s Federal Bureau of Revenues made public in its website a tax directory with the details of the tax records as of June 2013 of the members of its parliamentarians and national and provincial assemblies.
The FBR provides a link to a PDF file that shows how much income tax each member of Pakistan’s parliament paid in 2013. On March 31, tax payments of private citizens will also be available in the website.
“This precedent has set high standards of transparency,” said Senator Mohammad Ishaq Dar, Pakistan’s minister for finance, revenue, economic affairs, statistics and privatization. As of Feb. 15, he said 1, 072 out of Pakistan’s 1, 172 parliamentarians have filed their income tax returns. “For the remaining parliamentarians, due process is being undertaken,” he said.
The Filipino electorate has heard enough promises for good governance from political candidates. The time calls for drastic action now.
source: Manila Times Column by TITA C. VALDERAMA
Tax-treaty Relief: Deutsche Bank wins tax case ‘with finality’ vs BIR
The
Supreme Court (SC) has upheld with finality the tax-treaty relief of
Deutsche Bank AG Manila branch. It was, thus, cleared to collect refund
from the Bureau of Internal Revenue (BIR).
In the Entry of
Judgment dated January 24, 2014, the SC First Division denied “with
finality” a motion for reconsideration filed by the BIR on the High
Court’s decision, dated August 19, 2013, granting tax-treaty relief to
Deutsche Bank.
The SC ordered the
“respondent Commissioner of Internal Revenue to refund or issue a tax
credit certificate in favor of petitioner Deutsche the amount of P22.562
million, representing the erroneously paid BPRT [branch profits
remittance tax ] for 2002 and prior taxable years.”
SC’s decision should
prompt the Philippines to start honoring international agreements and
stop the BIR’s practice of consistently denying tax-treaty relief
applications on the grounds of noncompliance of the 15-day-period
requirement.
The case stemmed from
global financial-services provider Deutsche Bank’s initial noncompliance
with the BIR procedure under Revenue Memorandum Order (RMO) 01-2000,
requiring that an application to claim tax treaty benefits should be
filed at least 15 days prior to a transaction.
The SC nullified the
rule in RMO 072-2010, which contends that failure to file a tax treaty
relief application within the prescribed period will result in its
disqualification.
The High Tribunal
explained that the BIR must not impose additional requirements that
would negate access to relief as provided under international
agreements.
The SC held that the
period of application of tax treaty compliance as outlined in RMO
01-2000 should not operate to divest entitlement to the relief.
It added that to deny
access would constitute a violation of the time-honored international
doctrine of pactasuntservanda (Latin for “agreements must be kept”)
whereby agreeing states or nations comply in good faith with their
treaty obligations.
The obligation to comply with a tax treaty must take precedence over administrative rules and procedural requirements.
Tuesday, February 11, 2014
BIR rejects licensed professionals, artists pretending as marginal income earners
Internal Revenue
Commissioner Kim Jacinto-Henares has issued a memorandum circular
clarifying that marginal income earners, who enjoy certain tax
exemptions, do not include licensed professionals, consultants and the
like.
Henares issued
Memorandum Circular 7-2014 which said that licensed professionals,
consultants, artists, sales agents, brokers and other similarly situated
cannot be registered as a “minimum income earner” as defined by the
laws.
Under Revenue
Regulations No. 7-2012, a marginal income earner is defined as “those
individuals whose business do not realize gross sales or receipts
exceeding P100,000 in any 12-month period.”
The new memorandum
circular provided additional qualifications for an individual taxpayer
to be considered as a marginal income earner.
“The individual
referred to in that section is an individual not deriving compensation
as an employee under an employer-employee relationship but who is
self-employed and deriving gross sales or receipts not exceeding
P100,000 in any 12-month period,” the circular said.
It said that the activities of the marginal income earner should also be principally for subsistence or livelihood.
“The marginal income
earner, as herein defined, shall include but not limited to agricultural
growers/producers [farmers/fishermen] selling directly to ultimate
consumers, small sari-sari stores, small carinderias or turo-turos,
drivers/operators of a single-unit tricycle and such, but shall not
include licensed professionals, consultants, artists, sales agents,
brokers and other similarly situated, including all others whose income
have been subjected to withholding tax,” the circular said.
A marginal income
earner enjoys privileges and minimum registration and tax compliance
requirements, such as, exemption from the Annual Registration Fee of
P500, and exemption from payment of business taxes.
source: Manila Times
Romance with the BIR
IT’S the month of romance! Whatever kind of
relationship you may be in today, it is time to fuel up, celebrate, and
maybe reflect on what makes your relationship work.
A successful relationship rests on a certain amount of give and take. The same goes with our relationship with the government -- it’s a mutually beneficial relationship. However, when the government starts to take every single penny of the taxpayer -- issuing layers and layers of regulations -- the taxpayer starts to drop the honorifics and question the morality of the government’s actions.
One big blow to the taxpayer is the Bureau of Internal Revenue’s (BIR) issuance of Revenue Memorandum Circular (RMC) 08-2014 on Feb. 7, requiring exempt individuals and entities to present tax exemption certificate or ruling before they are to be exempted from withholding tax.
Let us recall that, under the provisions of existing tax laws and administrative issuances, some individuals, entities and transactions are considered exempt from imposition of taxes on income and, consequently, from withholding taxes.
The BIR, in its creative idea, ordered the concerned withholding agents to require all individuals and entities claiming such exemptions to provide a copy of a valid, current and subsisting tax exemption certificate or ruling before payment of the related income. Failure on the part of the taxpayer to present the said tax exemption certificate or ruling shall subject the payment of appropriate withholding taxes due on the transaction. On the other hand, the withholding agent’s failure to withhold without the tax exemption certificate or ruling shall be a case for the imposition of penalties.
Let’s digest slowly what was provided in the said issuance.
COVERAGE
The said RMC covers those exempt entities, individuals and transactions. Philippine Economic Zone Authority (PEZA) and Board of Investment (BoI) enterprises that are covered by the provisions of Republic Act (RA) 7916 and the Omnibus Investments Code of 1987, respectively, are sample entities that are, by law, exempt from direct tax. Income derived by a depository bank under the expanded foreign currency deposit (EFCD) system from foreign currency transactions with non-residents, offshore banking units in the Philippines, and other depository banks under the EFCD system are exempt from all taxes under the Tax Code. Are the exemptions already provided under these laws not sufficient to exempt the said entities or transactions from withholding tax?
FAILURE ON THE PART OF THE TAXPAYER
Once the income payee fails to present the required certification or ruling, the payment is subjected to withholding tax. Accordingly, the taxes withheld are remitted to the BIR by the withholding agent.
On the part of the payee, the remitted taxes are initially recorded as an asset. However, since the income of the payee is exempt from income tax, the creditable taxes withheld remain unutilized until such time that there is income subject to regular tax rate. Until then, this is a receivable from the BIR.
It seems that a taxpayer has two options to recover the said taxes that are already in the hands of the BIR. First, check the refund option in the income tax return and apply the same from BIR within the prescriptive two years. This move should be initially evaluated by the taxpayer considering the cost and the benefit of refunding the same. Second, write it off or expense it out. However, will this be allowed as deductible expense in the income tax return? Note that there should be a due diligent effort to collect the receivable before the taxpayer is allowed to write off receivables. Should the taxpayer then send a collection letter to the BIR?
In the two options, it turns out that the taxpayer has no option but to shoulder the burden of refunding or disallowing the expense.
WITHHOLDING AGENT’S FAILURE TO WITHHOLD
Although it was provided that the withholding agent shall be penalized, there has been no penalty indicated in the said RMC.
We assume that penalties for non-withholding shall be imposed under the Tax Code. That is, expenses not subjected to proper withholding taxes at the times required by law are non-deductible for income tax purposes. For the disallowance of deduction, there shall be deficiency income tax plus 20% interest per year. Likewise, the tax not withheld shall be assessed as a deficiency tax and collected subject to interest of 20% per year. In light of this, will the penalties as mentioned in the RMC prevail in this case?
PERIOD FOR SECURING CERTIFICATE OF EXEMPTION OR RULING
An initial concern of a taxpayer-supplier is his income during the period when the ruling had not yet been issued.
Will the BIR have the capability to process the application and issue a ruling soon enough to cover these payments? Meanwhile, should the withholding agent defer the payment to the supplier pending the approval of the ruling? The supplier may need the collections for working capital purposes, especially if the amount is substantial.
There is also the question of whether a certificate or a ruling, once secured, is perpetually valid or if an annual revalidation is required. Notably, the documentary requirements for securing a ruling are not mentioned anywhere in the RMC.
Obviously, there are issues that have to be clarified even before the requirement is implemented.
Considering the seemingly never-ending regulations that taxpayers have to comply with, the BIR should humbly give taxpayers much needed leeway when abiding by the new regulation. A few months’ or a year’s grace period, taking into consideration the capability of the BIR to process the rulings, should give taxpayers assurance that they will not be disadvantaged if they are truly entitled to the exemption. After all, a successful relationship involves a certain amount of give and take.
The author is a senior with Punongbayan & Araullo’s tax advisory and compliance division. P&A is a member firm within Grant Thornton International Ltd.
source: Businessworld
A successful relationship rests on a certain amount of give and take. The same goes with our relationship with the government -- it’s a mutually beneficial relationship. However, when the government starts to take every single penny of the taxpayer -- issuing layers and layers of regulations -- the taxpayer starts to drop the honorifics and question the morality of the government’s actions.
One big blow to the taxpayer is the Bureau of Internal Revenue’s (BIR) issuance of Revenue Memorandum Circular (RMC) 08-2014 on Feb. 7, requiring exempt individuals and entities to present tax exemption certificate or ruling before they are to be exempted from withholding tax.
Let us recall that, under the provisions of existing tax laws and administrative issuances, some individuals, entities and transactions are considered exempt from imposition of taxes on income and, consequently, from withholding taxes.
The BIR, in its creative idea, ordered the concerned withholding agents to require all individuals and entities claiming such exemptions to provide a copy of a valid, current and subsisting tax exemption certificate or ruling before payment of the related income. Failure on the part of the taxpayer to present the said tax exemption certificate or ruling shall subject the payment of appropriate withholding taxes due on the transaction. On the other hand, the withholding agent’s failure to withhold without the tax exemption certificate or ruling shall be a case for the imposition of penalties.
Let’s digest slowly what was provided in the said issuance.
COVERAGE
The said RMC covers those exempt entities, individuals and transactions. Philippine Economic Zone Authority (PEZA) and Board of Investment (BoI) enterprises that are covered by the provisions of Republic Act (RA) 7916 and the Omnibus Investments Code of 1987, respectively, are sample entities that are, by law, exempt from direct tax. Income derived by a depository bank under the expanded foreign currency deposit (EFCD) system from foreign currency transactions with non-residents, offshore banking units in the Philippines, and other depository banks under the EFCD system are exempt from all taxes under the Tax Code. Are the exemptions already provided under these laws not sufficient to exempt the said entities or transactions from withholding tax?
FAILURE ON THE PART OF THE TAXPAYER
Once the income payee fails to present the required certification or ruling, the payment is subjected to withholding tax. Accordingly, the taxes withheld are remitted to the BIR by the withholding agent.
On the part of the payee, the remitted taxes are initially recorded as an asset. However, since the income of the payee is exempt from income tax, the creditable taxes withheld remain unutilized until such time that there is income subject to regular tax rate. Until then, this is a receivable from the BIR.
It seems that a taxpayer has two options to recover the said taxes that are already in the hands of the BIR. First, check the refund option in the income tax return and apply the same from BIR within the prescriptive two years. This move should be initially evaluated by the taxpayer considering the cost and the benefit of refunding the same. Second, write it off or expense it out. However, will this be allowed as deductible expense in the income tax return? Note that there should be a due diligent effort to collect the receivable before the taxpayer is allowed to write off receivables. Should the taxpayer then send a collection letter to the BIR?
In the two options, it turns out that the taxpayer has no option but to shoulder the burden of refunding or disallowing the expense.
WITHHOLDING AGENT’S FAILURE TO WITHHOLD
Although it was provided that the withholding agent shall be penalized, there has been no penalty indicated in the said RMC.
We assume that penalties for non-withholding shall be imposed under the Tax Code. That is, expenses not subjected to proper withholding taxes at the times required by law are non-deductible for income tax purposes. For the disallowance of deduction, there shall be deficiency income tax plus 20% interest per year. Likewise, the tax not withheld shall be assessed as a deficiency tax and collected subject to interest of 20% per year. In light of this, will the penalties as mentioned in the RMC prevail in this case?
PERIOD FOR SECURING CERTIFICATE OF EXEMPTION OR RULING
An initial concern of a taxpayer-supplier is his income during the period when the ruling had not yet been issued.
Will the BIR have the capability to process the application and issue a ruling soon enough to cover these payments? Meanwhile, should the withholding agent defer the payment to the supplier pending the approval of the ruling? The supplier may need the collections for working capital purposes, especially if the amount is substantial.
There is also the question of whether a certificate or a ruling, once secured, is perpetually valid or if an annual revalidation is required. Notably, the documentary requirements for securing a ruling are not mentioned anywhere in the RMC.
Obviously, there are issues that have to be clarified even before the requirement is implemented.
Considering the seemingly never-ending regulations that taxpayers have to comply with, the BIR should humbly give taxpayers much needed leeway when abiding by the new regulation. A few months’ or a year’s grace period, taking into consideration the capability of the BIR to process the rulings, should give taxpayers assurance that they will not be disadvantaged if they are truly entitled to the exemption. After all, a successful relationship involves a certain amount of give and take.
The author is a senior with Punongbayan & Araullo’s tax advisory and compliance division. P&A is a member firm within Grant Thornton International Ltd.
source: Businessworld
Tax rules should be in plain language
A YOUNG UNIVERSITY student goes to his
father for help on an accounting assignment from school. His father,
after all, is very knowledgeable about accounting as he is a long-time
public accountant and a former senior executive in one of the country’s
biggest accounting and tax firms. The son explains to his father that he
needs help as he couldn’t figure out the assignment.
The father listens carefully as the son reads out loud the details of the assigned case for resolution. The son then explains that despite reading the assignment several times, he cannot figure out the accounting problem that needed resolution. And thus, his difficulty in approaching the problem and deciding on an accounting solution.
The father looks at his son and then declares, "Son, your problem is not accounting. It’s not mathematics, it’s not the numbers. Your problem is English. You cannot understand what you read because either the case is poorly written, or you have poor reading comprehension. You cannot expect to begin solving the problem unless you first fully understand what it is."
This is a true story, by the way, relayed to me by the accountant’s son, who happens to be a friend. I recall the story now in light of recent controversy involving the use of new tax forms, as prescribed by the Bureau of Internal Revenue (BIR). The new forms are to be used by corporate and individual taxpayers starting this April, in filing tax returns for income earned in 2013.
Under BIR’s Revenue Regulation No. 2-14, starting this year, the BIR will use revised income tax forms with bar codes. Changes in entries will also make the forms readable by an optical character reader (OCR), for ease in scanning. In addition, the requirement for entering centavos in tax returns has been eliminated.
That part of the regulation seems to be clear enough. But some controversy arises from the use of these new tax forms with respect to the method of deducting allowable or permissible expenses from gross revenues or income, for the purpose of computing the net revenue or income subject to tax.
Kindly indulge me by taking time to read a copy of RR 2-14. I suggest you read through it carefully, and then ask yourself whether it is clear enough for most taxpayers to correctly understand. This is in light of the argument that tax laws should be plainly and correctly understood by all.
After reading, kindly ask yourself if the RR was clear to you? As a professional or self-employed individual taxpayer, do you fully and correctly understand how RR 2-14 applies to you? Some quarters claim RR 2-14 is illegal as it violates Section 34 of the tax code, which specifically allows professionals and self-employed individuals the option (without limits) to use "Optional Standard Deduction" or OSD in lieu of "Itemized Deduction" in computing taxable income.
I leave it to tax experts, accountants, and lawyers to argue the points for or against RR 2-14. It will most likely go to court. But having read the regulation, I believe confusion arises from the way RR 4-14 was worded. As it is, the RR can be seen as ambiguous and unclear, and whether this was intentional on BIR’s part is uncertain.
I present this case to prompt an argument in favor of the wider use of plain or simple English (which the official language of the law in the Philippines) in courts and in drafting government rules, regulations, policies, and laws, with provisions for translations to major regional dialects. It shouldn’t take a lawyer or an accountant or a judge or a government official to interpret or explain laws and rules to the public.
After all, any rule or law is not addressed to them only or have only them in mind as an audience or stakeholder. Laws, or tax rules in this case, covers every citizen of the Republic. Laws (or tax rules) should thus be written in a way that they can be plainly, correctly, clearly, and concisely understood by every citizen of the Republic -- with little room for misinterpretation. As far as practicable, laws (or tax rules) should not be left open to various interpretations by different "experts."
As a matter of policy, we insist that ignorance of the law is not an excuse. But how can we expect people to understand our laws or rules if these are not written in ways they can clearly comprehend? How can people be held accountable for violating tax rules they don’t even understand? Even farmers, no matter how lowly, with sufficient income must pay taxes.
Bear in mind the 10 commandments. Is there anything unclear or ambiguous about them? Can one ever misinterpret them? Translated into local dialects, even rural folks can make sense of them. And since they had been handed down, there were never any amendments to the "commandments," not unlike constitutions. They withstand the test of time and societal change. Why can’t our laws or tax rules be the same?
Yesterday morning, the traffic on Malugay St. in Makati City was a mess. The BIR compound on that street was packed with cars, and outside -- on Malugay St. -- cars were double-parked on both sides despite the fact that the street was a "no-parking/tow-away zone." The cars parked were presumably owned by people either working at the BIR or had some business to be there that morning.
And this prompted me to ask myself -- Even if the BIR can draft clear and concise tax rules for all of us, how can we expect BIR and taxpayers to read, understand, and follow them strictly when even presumably educated, well-heeled, people who own expensive cars can’t read and follow the simplest "no-parking" signs?
(Send comments to matort@yahoo.com.)
source: Businessworld
The father listens carefully as the son reads out loud the details of the assigned case for resolution. The son then explains that despite reading the assignment several times, he cannot figure out the accounting problem that needed resolution. And thus, his difficulty in approaching the problem and deciding on an accounting solution.
The father looks at his son and then declares, "Son, your problem is not accounting. It’s not mathematics, it’s not the numbers. Your problem is English. You cannot understand what you read because either the case is poorly written, or you have poor reading comprehension. You cannot expect to begin solving the problem unless you first fully understand what it is."
This is a true story, by the way, relayed to me by the accountant’s son, who happens to be a friend. I recall the story now in light of recent controversy involving the use of new tax forms, as prescribed by the Bureau of Internal Revenue (BIR). The new forms are to be used by corporate and individual taxpayers starting this April, in filing tax returns for income earned in 2013.
Under BIR’s Revenue Regulation No. 2-14, starting this year, the BIR will use revised income tax forms with bar codes. Changes in entries will also make the forms readable by an optical character reader (OCR), for ease in scanning. In addition, the requirement for entering centavos in tax returns has been eliminated.
That part of the regulation seems to be clear enough. But some controversy arises from the use of these new tax forms with respect to the method of deducting allowable or permissible expenses from gross revenues or income, for the purpose of computing the net revenue or income subject to tax.
Kindly indulge me by taking time to read a copy of RR 2-14. I suggest you read through it carefully, and then ask yourself whether it is clear enough for most taxpayers to correctly understand. This is in light of the argument that tax laws should be plainly and correctly understood by all.
After reading, kindly ask yourself if the RR was clear to you? As a professional or self-employed individual taxpayer, do you fully and correctly understand how RR 2-14 applies to you? Some quarters claim RR 2-14 is illegal as it violates Section 34 of the tax code, which specifically allows professionals and self-employed individuals the option (without limits) to use "Optional Standard Deduction" or OSD in lieu of "Itemized Deduction" in computing taxable income.
I leave it to tax experts, accountants, and lawyers to argue the points for or against RR 2-14. It will most likely go to court. But having read the regulation, I believe confusion arises from the way RR 4-14 was worded. As it is, the RR can be seen as ambiguous and unclear, and whether this was intentional on BIR’s part is uncertain.
I present this case to prompt an argument in favor of the wider use of plain or simple English (which the official language of the law in the Philippines) in courts and in drafting government rules, regulations, policies, and laws, with provisions for translations to major regional dialects. It shouldn’t take a lawyer or an accountant or a judge or a government official to interpret or explain laws and rules to the public.
After all, any rule or law is not addressed to them only or have only them in mind as an audience or stakeholder. Laws, or tax rules in this case, covers every citizen of the Republic. Laws (or tax rules) should thus be written in a way that they can be plainly, correctly, clearly, and concisely understood by every citizen of the Republic -- with little room for misinterpretation. As far as practicable, laws (or tax rules) should not be left open to various interpretations by different "experts."
As a matter of policy, we insist that ignorance of the law is not an excuse. But how can we expect people to understand our laws or rules if these are not written in ways they can clearly comprehend? How can people be held accountable for violating tax rules they don’t even understand? Even farmers, no matter how lowly, with sufficient income must pay taxes.
Bear in mind the 10 commandments. Is there anything unclear or ambiguous about them? Can one ever misinterpret them? Translated into local dialects, even rural folks can make sense of them. And since they had been handed down, there were never any amendments to the "commandments," not unlike constitutions. They withstand the test of time and societal change. Why can’t our laws or tax rules be the same?
Yesterday morning, the traffic on Malugay St. in Makati City was a mess. The BIR compound on that street was packed with cars, and outside -- on Malugay St. -- cars were double-parked on both sides despite the fact that the street was a "no-parking/tow-away zone." The cars parked were presumably owned by people either working at the BIR or had some business to be there that morning.
And this prompted me to ask myself -- Even if the BIR can draft clear and concise tax rules for all of us, how can we expect BIR and taxpayers to read, understand, and follow them strictly when even presumably educated, well-heeled, people who own expensive cars can’t read and follow the simplest "no-parking" signs?
(Send comments to matort@yahoo.com.)
source: Businessworld
Thursday, February 6, 2014
BIR orders use of new forms for 2013 taxes
NEW FORMS for income tax filings covering last year should now be used, the Bureau of Internal Revenue (BIR) said.
Revenue Regulations (RR) 2-2014, dated Jan. 24 and published yesterday, “prescribe the use of revised income tax forms with bar codes... [and] reflect the changes in information required from said forms.”
“This will also enable the said forms to be read by an optical character reader for ease in scanning,” the issuance notes.
Redesigned were Form 1700, or the annual income tax return (ITR) for individuals earning purely compensation income, and Form 1701, or the ITR for self-employed individuals, estates, and trusts.
The tax bureau likewise prescribed the use of three separate ITRs by corporations, partnerships, and other non-individual taxpayers, depending on their income sources and exemptions.
These entities were previously required to file Form 1702.
Corporations, partnerships and other non-individual taxpayers subject only to the regular income tax rate will now need to use Form 1702-RT.
Those exempt from income taxes under the Tax Code and other special laws, or those with no taxable income, must file their returns using Form 1702-EX.
Lastly, firms with mixed income subject to multiple income tax rates or with income subject to special or preferential rates must use Form 1702-MX.
Also eliminated was the requirement for entering amounts up to the last centavo in ITRs. Instead, taxpayers can now round off these values to the nearest peso.
The issuance also specified the types of individuals or firms required to file itemized deductions such as expenses as ITR attachments,
The following kinds of individuals and corporations, partnerships and other non-individuals cannot avail of the optional standard deduction (OSD) method and are mandated to itemize their deductions:
• Those exempt under the Tax Code and other special laws, with no other taxable income;
• Those with income subject to special/preferential tax rates; and
• Those with income subject to regular income tax rate and to special/preferential tax rates.
“Juridical entities whose taxable base is the gross revenue or receipts (e.g., non-resident foreign national carriers) are not entitled to the itemized deductions nor to the optional standard deduction,” the issuance noted.
Under the law, taxpayers are allowed to either itemize their tax deduction claims, which means having to present invoices and receipts, to show these were indeed used for business purposes, or avail of the OSD.
The OSD rate, under Republic Act 9504, is 40%. For corporations, this is deducted from gross income while for self-employed individuals or professionals, it is subtracted from gross sales or receipts.
Taxpayers who filed using the old forms for their 2013 ITRs (manual and/or electronic) must re-file using the new format, the bureau said.
Individual taxpayers must file their ITRs on or before April 15. Non-individual taxpayers, meanwhile, need to submit the forms on or before the 15th day of the fourth month following the close of their respective taxable years.
The new BIR regulations take effect Feb. 20. -- Bettina Faye V. Roc
source: Businessworld
Revenue Regulations (RR) 2-2014, dated Jan. 24 and published yesterday, “prescribe the use of revised income tax forms with bar codes... [and] reflect the changes in information required from said forms.”
“This will also enable the said forms to be read by an optical character reader for ease in scanning,” the issuance notes.
Redesigned were Form 1700, or the annual income tax return (ITR) for individuals earning purely compensation income, and Form 1701, or the ITR for self-employed individuals, estates, and trusts.
The tax bureau likewise prescribed the use of three separate ITRs by corporations, partnerships, and other non-individual taxpayers, depending on their income sources and exemptions.
These entities were previously required to file Form 1702.
Corporations, partnerships and other non-individual taxpayers subject only to the regular income tax rate will now need to use Form 1702-RT.
Those exempt from income taxes under the Tax Code and other special laws, or those with no taxable income, must file their returns using Form 1702-EX.
Lastly, firms with mixed income subject to multiple income tax rates or with income subject to special or preferential rates must use Form 1702-MX.
Also eliminated was the requirement for entering amounts up to the last centavo in ITRs. Instead, taxpayers can now round off these values to the nearest peso.
The issuance also specified the types of individuals or firms required to file itemized deductions such as expenses as ITR attachments,
The following kinds of individuals and corporations, partnerships and other non-individuals cannot avail of the optional standard deduction (OSD) method and are mandated to itemize their deductions:
• Those exempt under the Tax Code and other special laws, with no other taxable income;
• Those with income subject to special/preferential tax rates; and
• Those with income subject to regular income tax rate and to special/preferential tax rates.
“Juridical entities whose taxable base is the gross revenue or receipts (e.g., non-resident foreign national carriers) are not entitled to the itemized deductions nor to the optional standard deduction,” the issuance noted.
Under the law, taxpayers are allowed to either itemize their tax deduction claims, which means having to present invoices and receipts, to show these were indeed used for business purposes, or avail of the OSD.
The OSD rate, under Republic Act 9504, is 40%. For corporations, this is deducted from gross income while for self-employed individuals or professionals, it is subtracted from gross sales or receipts.
Taxpayers who filed using the old forms for their 2013 ITRs (manual and/or electronic) must re-file using the new format, the bureau said.
Individual taxpayers must file their ITRs on or before April 15. Non-individual taxpayers, meanwhile, need to submit the forms on or before the 15th day of the fourth month following the close of their respective taxable years.
The new BIR regulations take effect Feb. 20. -- Bettina Faye V. Roc
source: Businessworld
Monday, February 3, 2014
Clarification on alphalist submission
CONSIDERING taxpayers’ never-ending
obligation to pay taxes, it behooves them to keep pace with the
different regulations issued by the Office of the Commissioner of
Internal Revenue, and more essentially, to properly understand and fully
recognize the correct interpretation of these regulations.
Early this year, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. (RR) 1-2014 which requires the submission of the applicable alphabetical lists of employees and payees on income payments subject to creditable and final withholding taxes.
With the novel requirements introduced by RR 1-2014 that taxpayers must comply with, a number of issues surfaced. For that reason, the BIR recently issued Revenue Memorandum Circular No. (RMC) 5-2014 in order to clarify the compliance requirements ordered under RR 1-2014.
While RR 1-2014 specifically provided three modes for taxpayers to comply with the filing of the required alphabetical lists of employees and payees on income payments, RMC 5-2014 clarified that taxpayers mandated to use the electronic filing and payment system (eFPS) and the interactive forms system (IAF), including those who voluntarily enrolled therein, may comply with this mandatory filing only through eSubmission. However, RMC 5-2014 further provided that, once the attachment facility of the eFPS is already available, the foregoing eFPS users may submit the alphalists through either eSubmission, via the BIR Web site, or the eFPS attachment facility.
Taxpayers who are neither eFPS users nor IAF-enrolled may file the required alphalist through eSubmission. Nevertheless, the BIR has declared its preference for the eSubmission of alphalists rather than manual filing. RMC 5-2014 provides a step-by-step procedure that would be very helpful for taxpayers who opt to file their alphalists for the first time via eSubmmission.
The BIR further declared that the previously prescribed submission of hard copies, including the use of storage devices such as DVDs and USBs are no longer allowed.
The preference for the use of a data entry and validation module is also espoused by the BIR as the same may also be downloaded from the BIR website. However, taxpayers may still save the information in different file formats such as text file and/or excel formats before saving the file in the prescribed CSV data file format.
Taxpayers having branches that separately withhold and remit their withholding taxes are further required to prepare and file separate alphalists as distinct withholding agents. The head office shall use the head office code of 000 in its Tax Identification Number (TIN), while each of the branches shall use their respective branch office suffix codes (001, 002, etc.).
After the alphalists are appropriately filed and sent to the BIR, a pop-up message confirming the receipt by the BIR of the said alphalists shall appear on the screen. The taxpayer is advised to print the screen displaying such acknowledgement and attach this to the hard copy of the Annual Information Returns to be filed with the concerned Revenue District Office (RDO).
In cases where no message appears, taxpayers are advised to exercise due diligence and ensure that the alphalists have been actually and timely received by the appropriate (RDO). Taxpayers are obliged to coordinate with the RDO and ensure that they have actually received the alphalists filed through e-mail.
Taxpayers shall also receive an e-mail informing them of the successful upload of the submitted alphalists to the BIR data warehouse or of the failed validation process (the reasons for which shall be indicated in the message). The taxpayers concerned are given five days from receipt of the message to address the reasons for the failure of filed documents to be verified, and to resubmit the same through eSubmission or e-mail, as the case may be.
Taxpayers are likewise advised to regularly check their respective e-mails used in filing the alphalists since RMC 5-2014 specifically mandates that once the RDO proves that it has sent the appropriate message to the e-mail address of the taxpayer, the said message is deemed to have been actually received and read by the said taxpayer.
In cases where an alphalist is not successfully uploaded, the same shall be considered as a failure to make/submit/file any return or supply correct information thereby making the taxpayer criminally liable to the penalty of fine amounting to not less than P10,000 and imprisonment of not less than one year but not more than 10 years, or in lieu thereof, pay the corresponding compromise penalty equal to the taxpayer’s gross annual sales.
This compromise penalty may be considered as too excessive considering that it could paralyze or even kill the business of taxpayers especially since there are other documents that may serve as proof of the payment of the correct amount of withholding taxes.
Lastly, taxpayers are advised that the failure to file the alphalist, or in case the filed alphalist failed the validation process and the taxpayer concerned failed to address the issues and re-file the corrected alphalist, will bar them from claiming the corresponding amounts indicated in such alphalist as expenses for income tax purposes.
With the changing times, it is common that additional obligations are given to taxpayers. However, it is emphasized that the obligation of a taxpayer does not end with the actual payment or withholding of taxes. It is still essential for taxpayers to comply with all the reporting requirements of the BIR. On the other hand, the government should make it a point that taxpayers are also their partners in nation-building.
The author is a tax manager with the tax advisory and compliance division of Punongbayan & Araullo. P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.
------------
January 20, 2014
New year, new regulation
AS WE usher in the New Year, some of us have set our new year’s resolutions or certain personal rules that we aim to follow throughout the year. Apparently, the Bureau of Internal Revenue (BIR) had a similar idea when it issued a new regulation to be followed by the taxpayers.
On Jan. 10, the Commissioner of Internal Revenue (CIR) issued Revenue Regulations No. (RR) 1-2014, which amend RR 2-98 and RR 10-2008 regarding the submission of an alphabetical list of employees and/or list of payees of income payments.
Under the new regulation, taxpayers required to withhold are required to submit an alphabetical list of employees and list of payees of income payments subject to creditable and final withholding tax. The list is to be attached as an integral part of the Annual Information Returns (BIR Forms 1604CF/ 1604E) and Monthly Remittance Returns (BIR Form 1601 C, etc.).
Under existing rules, manual submission of the alphabetical list of employees and list of payees of income payments subject to withholding tax is allowed by the BIR. However, under RR 1-2014, manual submission is no longer allowed. The only acceptable modes of submission of the alphabetical list are:
1. as an attachment in the electronic filing and payment system (EFPS; efps.bir.gov.ph),
2. electronic submission via the BIR’s Web site, and
3. e-mail to the dedicated BIR address (esubmission@bir.gov.ph) using CSV file format.
In addition to the foregoing, RR 1-2014 requires all income payments to be specifically enumerated, i.e. each payee must be specifically listed in the alphalist.
This means that income payments and taxes withheld which are lumped into a single amount and listed as a group -- such as various payees, various employees, PCD nominees, and the like -- are no longer allowed.
In short, under the new regulations, withholding agents must strictly comply with the technical (format) and substantial (details) requirements set forth therein; otherwise, the income payments subject of the “incorrect” or “non-compliant” submission of the alphabetical list of employees or income payees shall not be allowed as deductible expense.
A reading of the regulations shows that there are two main requirements that a withholding agent must comply with so that the income payments will be allowed as a deductible expense.
First, the list of employees or income payees must enumerate each recipient of the income payments, and there must be no grouping of payees into one category. Second, the alphabetical list submitted to the BIR must be in the format required, which is CSV file format for e-mail submission.
Failure to comply with any of the two requirements will result in non-deductibility of the income payments and will be considered as failure to file the required alphabetical list. Hence, the non-deductibility of income payment and failure to file will be applied in both instances:
1. the list is substantially compliant (i.e. it has specifically enumerated each income payee), but is not in the format required, or
2. the file format is correct but the list contains income payments that were lumped together.
However, please note that the regulation also mentions the issuance of another regulation in so far as CSV format filing is concerned. Although Revenue Memorandum Circular No. (RMC) 5-2009 circularizes the file format to be used in the submission of alphalist in electronic form, its applicability pending the issuance of the new regulation is not clearly provided under RR 1-2014. One may wonder, why should a taxpayer be penalized for non-compliance if there are still regulations that are yet to be issued, detailing the compliance required in RR 1-2014?
Moreover, an issue arises on whether the submission of monthly alphalist on BIR form 1601-C is now applicable. Currently, alphalist is not required to be submitted with BIR 1601-C, and the current EFPS format does not allow for attachments.
While the submission of the list of employees and income payments has already been implemented long ago, and taxpayers have already been complying with this, the penalty imposed for non-compliance on the proper format required seems too high a price for the taxpayers. Take note that failure to file an information return under Section 250 of the National Internal Revenue Code (NIRC) is subject to payment of a fine of P1,000 for every return that was not filed. It appears that failure to file the information return under Section 250 of the NIRC imposes a lower penalty than that provided under the RR 1-2014 for failing to comply with the technical and/or substantial requirements for filing the alphabetical list. Hence, given the foregoing, the taxpayer is put to a quandary -- to comply or not to comply.
Finally, the regulation was published in the newspaper on Jan. 13 and is thus effective by Jan. 28. Accordingly, compliance must be made for filing of BIR Form 1604CF and 1604E immediately, as the regulation is already effective on the deadline for the filing of the same, i.e. Jan. 31.
The author is a tax associate with the tax advisory and compliance division of Punongbayan & Araullo. P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.
source: Businessworld
Early this year, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. (RR) 1-2014 which requires the submission of the applicable alphabetical lists of employees and payees on income payments subject to creditable and final withholding taxes.
With the novel requirements introduced by RR 1-2014 that taxpayers must comply with, a number of issues surfaced. For that reason, the BIR recently issued Revenue Memorandum Circular No. (RMC) 5-2014 in order to clarify the compliance requirements ordered under RR 1-2014.
While RR 1-2014 specifically provided three modes for taxpayers to comply with the filing of the required alphabetical lists of employees and payees on income payments, RMC 5-2014 clarified that taxpayers mandated to use the electronic filing and payment system (eFPS) and the interactive forms system (IAF), including those who voluntarily enrolled therein, may comply with this mandatory filing only through eSubmission. However, RMC 5-2014 further provided that, once the attachment facility of the eFPS is already available, the foregoing eFPS users may submit the alphalists through either eSubmission, via the BIR Web site, or the eFPS attachment facility.
Taxpayers who are neither eFPS users nor IAF-enrolled may file the required alphalist through eSubmission. Nevertheless, the BIR has declared its preference for the eSubmission of alphalists rather than manual filing. RMC 5-2014 provides a step-by-step procedure that would be very helpful for taxpayers who opt to file their alphalists for the first time via eSubmmission.
The BIR further declared that the previously prescribed submission of hard copies, including the use of storage devices such as DVDs and USBs are no longer allowed.
The preference for the use of a data entry and validation module is also espoused by the BIR as the same may also be downloaded from the BIR website. However, taxpayers may still save the information in different file formats such as text file and/or excel formats before saving the file in the prescribed CSV data file format.
Taxpayers having branches that separately withhold and remit their withholding taxes are further required to prepare and file separate alphalists as distinct withholding agents. The head office shall use the head office code of 000 in its Tax Identification Number (TIN), while each of the branches shall use their respective branch office suffix codes (001, 002, etc.).
After the alphalists are appropriately filed and sent to the BIR, a pop-up message confirming the receipt by the BIR of the said alphalists shall appear on the screen. The taxpayer is advised to print the screen displaying such acknowledgement and attach this to the hard copy of the Annual Information Returns to be filed with the concerned Revenue District Office (RDO).
In cases where no message appears, taxpayers are advised to exercise due diligence and ensure that the alphalists have been actually and timely received by the appropriate (RDO). Taxpayers are obliged to coordinate with the RDO and ensure that they have actually received the alphalists filed through e-mail.
Taxpayers shall also receive an e-mail informing them of the successful upload of the submitted alphalists to the BIR data warehouse or of the failed validation process (the reasons for which shall be indicated in the message). The taxpayers concerned are given five days from receipt of the message to address the reasons for the failure of filed documents to be verified, and to resubmit the same through eSubmission or e-mail, as the case may be.
Taxpayers are likewise advised to regularly check their respective e-mails used in filing the alphalists since RMC 5-2014 specifically mandates that once the RDO proves that it has sent the appropriate message to the e-mail address of the taxpayer, the said message is deemed to have been actually received and read by the said taxpayer.
In cases where an alphalist is not successfully uploaded, the same shall be considered as a failure to make/submit/file any return or supply correct information thereby making the taxpayer criminally liable to the penalty of fine amounting to not less than P10,000 and imprisonment of not less than one year but not more than 10 years, or in lieu thereof, pay the corresponding compromise penalty equal to the taxpayer’s gross annual sales.
This compromise penalty may be considered as too excessive considering that it could paralyze or even kill the business of taxpayers especially since there are other documents that may serve as proof of the payment of the correct amount of withholding taxes.
Lastly, taxpayers are advised that the failure to file the alphalist, or in case the filed alphalist failed the validation process and the taxpayer concerned failed to address the issues and re-file the corrected alphalist, will bar them from claiming the corresponding amounts indicated in such alphalist as expenses for income tax purposes.
With the changing times, it is common that additional obligations are given to taxpayers. However, it is emphasized that the obligation of a taxpayer does not end with the actual payment or withholding of taxes. It is still essential for taxpayers to comply with all the reporting requirements of the BIR. On the other hand, the government should make it a point that taxpayers are also their partners in nation-building.
The author is a tax manager with the tax advisory and compliance division of Punongbayan & Araullo. P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.
------------
January 20, 2014
New year, new regulation
AS WE usher in the New Year, some of us have set our new year’s resolutions or certain personal rules that we aim to follow throughout the year. Apparently, the Bureau of Internal Revenue (BIR) had a similar idea when it issued a new regulation to be followed by the taxpayers.
On Jan. 10, the Commissioner of Internal Revenue (CIR) issued Revenue Regulations No. (RR) 1-2014, which amend RR 2-98 and RR 10-2008 regarding the submission of an alphabetical list of employees and/or list of payees of income payments.
Under the new regulation, taxpayers required to withhold are required to submit an alphabetical list of employees and list of payees of income payments subject to creditable and final withholding tax. The list is to be attached as an integral part of the Annual Information Returns (BIR Forms 1604CF/ 1604E) and Monthly Remittance Returns (BIR Form 1601 C, etc.).
Under existing rules, manual submission of the alphabetical list of employees and list of payees of income payments subject to withholding tax is allowed by the BIR. However, under RR 1-2014, manual submission is no longer allowed. The only acceptable modes of submission of the alphabetical list are:
1. as an attachment in the electronic filing and payment system (EFPS; efps.bir.gov.ph),
2. electronic submission via the BIR’s Web site, and
3. e-mail to the dedicated BIR address (esubmission@bir.gov.ph) using CSV file format.
In addition to the foregoing, RR 1-2014 requires all income payments to be specifically enumerated, i.e. each payee must be specifically listed in the alphalist.
This means that income payments and taxes withheld which are lumped into a single amount and listed as a group -- such as various payees, various employees, PCD nominees, and the like -- are no longer allowed.
In short, under the new regulations, withholding agents must strictly comply with the technical (format) and substantial (details) requirements set forth therein; otherwise, the income payments subject of the “incorrect” or “non-compliant” submission of the alphabetical list of employees or income payees shall not be allowed as deductible expense.
A reading of the regulations shows that there are two main requirements that a withholding agent must comply with so that the income payments will be allowed as a deductible expense.
First, the list of employees or income payees must enumerate each recipient of the income payments, and there must be no grouping of payees into one category. Second, the alphabetical list submitted to the BIR must be in the format required, which is CSV file format for e-mail submission.
Failure to comply with any of the two requirements will result in non-deductibility of the income payments and will be considered as failure to file the required alphabetical list. Hence, the non-deductibility of income payment and failure to file will be applied in both instances:
1. the list is substantially compliant (i.e. it has specifically enumerated each income payee), but is not in the format required, or
2. the file format is correct but the list contains income payments that were lumped together.
However, please note that the regulation also mentions the issuance of another regulation in so far as CSV format filing is concerned. Although Revenue Memorandum Circular No. (RMC) 5-2009 circularizes the file format to be used in the submission of alphalist in electronic form, its applicability pending the issuance of the new regulation is not clearly provided under RR 1-2014. One may wonder, why should a taxpayer be penalized for non-compliance if there are still regulations that are yet to be issued, detailing the compliance required in RR 1-2014?
Moreover, an issue arises on whether the submission of monthly alphalist on BIR form 1601-C is now applicable. Currently, alphalist is not required to be submitted with BIR 1601-C, and the current EFPS format does not allow for attachments.
While the submission of the list of employees and income payments has already been implemented long ago, and taxpayers have already been complying with this, the penalty imposed for non-compliance on the proper format required seems too high a price for the taxpayers. Take note that failure to file an information return under Section 250 of the National Internal Revenue Code (NIRC) is subject to payment of a fine of P1,000 for every return that was not filed. It appears that failure to file the information return under Section 250 of the NIRC imposes a lower penalty than that provided under the RR 1-2014 for failing to comply with the technical and/or substantial requirements for filing the alphabetical list. Hence, given the foregoing, the taxpayer is put to a quandary -- to comply or not to comply.
Finally, the regulation was published in the newspaper on Jan. 13 and is thus effective by Jan. 28. Accordingly, compliance must be made for filing of BIR Form 1604CF and 1604E immediately, as the regulation is already effective on the deadline for the filing of the same, i.e. Jan. 31.
The author is a tax associate with the tax advisory and compliance division of Punongbayan & Araullo. P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.
source: Businessworld
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