Monday, May 26, 2014
Income tax rate to be slashed by half?
A LOT has been said about tax burden, stifling tax rules, and tight Bureau of Internal Revenue (BIR) assessments.
Many taxpayers believe that there’s already too much to bear in terms of the impact of taxes in the Philippines. In particular, for salaried employees, this is very much felt every payday, when they account for their meager take-home money, after being ripped by huge income tax deductions. For the individual investors alike, the weight of tax is felt when they see their corporations subjected to vast corporate income tax, in addition to the dividends tax that they have to pay when they earn their investment yield. Tie these to some recent confusing tax rules and unpredictably bizarre tax assessments, and we can imagine how a taxpayer in the Philippines would take a selfie of his face reacting to such situations.
If we couple the above scenario with the current heat wave that we are currently experiencing, we don’t know whether a taxpayer will already tell himself that, indeed, the end of the world is very near! Exaggeration? Maybe.
But, if you are a common taxpayer who finds it hard to sustain your daily expenses and the needs of your family; if you are an employee who attends to numerous and unending requirements in a BIR assessment; or if you are a tax officer who is confused about properly applying the tax rules due to conflicting interpretations, you may realize that tax matters in the Philippines are undeniably too burdensome.
That is why, when the news broke out that there are legislators who are pushing for the reduction of income tax rates, somehow, taxpayers suddenly saw a sliver of hope. In certain legislative proposals, the recommendation is to cut the maximum income tax rate of individuals from 32% to 15%. For corporations, the reduction is proposed to be from 30% to 15%. This definitely sounds promising.
Let us try to compare the individual income tax rate in the Philippines with that of the neighboring countries. There were studies that the current maximum rate in Singapore, Myanmar, and Cambodia is 20%; Laos, 24%; Malaysia, 26%; and Indonesia, 30%. The maximum rate in the Philippines, however, is 32%, a relatively higher tax rate.
In addition, it is noticeable that the Philippines’ individual income tax brackets have remained unchanged since 1997, or for around 17 long years, even as the consumer price index has almost doubled already. Consequently, given the individual income tax rates ranging from 5-32%, a significant number of taxpayers falls under the category of the maximum rate of 32%.
On the other hand, for corporate income taxes, in our neighboring countries like Indonesia and Malaysia, the corporate income tax rate is at 25%, while in Singapore, the rate starts at 8.5% with a ceiling of 17%. In comparison, the Philippine corporate income tax rate is high at 30%, which could deter foreign investors.
Now, having mentioned the proposed reduction of income tax rates, opposition is not hard to find. There are some who may say that such proposal is a bit one-sided without looking at the consequential drop in the government’s revenue. They may raise a reminder that taxes are the lifeblood of the government, and that reaching the annual collection target of the BIR will be hampered.
However, supporters of the proposed reduction would explain that lowering the income tax rate would provide individual taxpayers with more take-home money to spend, which, in turn, would stimulate the economy. Also, the spending could be on goods or services subject to value-added tax, which would ultimately be remitted to the government anyway.
Moreover, the lowering of individual and corporate income tax rates would make the Philippines more competitive compared with our fellow members of the Association of Southeast Asian Nations, considering that the ASEAN integration is forthcoming. In the integration, remember that there will be free flow of goods, skilled labor, and investments, among other things, and the Philippines should definitely be not unmindful that tax consequences have an important role in these aspects.
Hence, the effect of the reduction of income tax rates should be looked at in a holistic perspective, as it has a cyclical outcome affecting the lives of the taxpayers, then the stimulation of the economy, and then the benefits of economic growth for the good of the country as a whole.
There are a lot more specifics as to the advantages of lowering the income tax rates in the Philippines if we will try to study the different versions of the proposed legislative bills, and the rationale behind them is not without sound reason.
We just hope that, amidst the tax crises and hardships that are currently bombarding the taxpayers, there will be favorable tax developments in the near future. Slashing the income tax rate by half would definitely help ease the taxpayer’s lives. If it happens now, well, taxpayers may be too ecstatic that we may even forget the discomfort caused by the extremely hot weather.
To slash the income tax rate by half? Perhaps, we have to seek divine intervention and just hope for the best.
The author is a director 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
Monday, May 19, 2014
Hurdling the importer’s and broker’s accreditation requirements
IN AN effort to curb incidents of smuggling
and to root out well-entrenched corruption in the Bureau of Customs
(BoC), the Department of Finance issued Department Order No.12-2014,
dividing the accreditation into two phases: Bureau of Internal Revenue
(BIR) accreditation and BoC accreditation.
Under the BIR accreditation, importers and brokers are faced with stringent requirements to secure BIR Importer Clearance Certificates (BIR-ICCs) and BIR Customs Brokers Clearance Certificates (BIR-BCCs). According to the BIR accreditation criteria, applicants should have no records of any account receivable or delinquent accounts with the BIR. Also, the applicants must have no unresolved issues arising from discrepancies in the declared income or expenses resulting from the matching of third-party information from the BIR’s Reconciliation List for Enforcement System (RELIEF), and Tax Reconciliation System (TRS).
Based on these criteria, it appears that applicants with Letter Notice (LN) from the BIR or those with open assessments are left with no choice but to pay their deficiency taxes immediately to secure their accreditation. Importers and brokers who are in desperate need of accreditation are now forced to pay and settle the LN and tax cases. This is because, until all the discrepancies in the declared income or expenses resulting from matching of third-party information from the RELIEF and TRS are resolved, the accreditations of importers and brokers are put on hold.
In many instances, it cannot be discounted that source data generated by RELIEF and TRS are not complete. Also, third-party information is not at all times reliable, and resolving these discrepancies takes considerable time. The challenge faced by the importers and brokers now is if there are other available remedies to secure accreditation while discrepancies are being reconciled and tax cases are being resolved.
It seems that with the new criterion, many businesses will have to stop operations until the resolution of LN and tax cases. This criterion will not be helpful to our economy as this impedes the productivity and growth of business. It also bears stressing that such criterion impairs the applicant’s right to due process. The BIR, in effect, restricts the remedy afforded to taxpayers in the assessment process by giving applicants no other recourse in the LN and tax assessments but to pay the deficiency taxes. The applicant, instead of resolving the LN case and tax assessments, is now compelled to just pay the tax deficiency to secure the accreditation.
Also, the said criterion limits the remedy of applicants with compromise applications pending with the BIR. Compromise application is availed by taxpayers when the tax assessments are of doubtful validity. In most instances, evaluation and approval of compromise application takes years to be decided.
With this new criterion, applicants are now forced to forego the compromise application and to pay the delinquent taxes which, in the first place, were applied for because of the doubtful validity of tax assessments. Therefore, the new criterion essentially limits the applicants from pursuing the final resolution of their compromise application with the BIR. This again impairs the applicant’s right to due process.
Another criterion set by the BIR requires the applicant-corporation to provide a Certificate of Good Standing issued by the Securities & Exchange Commission (SEC). This is another hurdle faced by applicants in securing BIR accreditation. The SEC Monitoring Division conducts strict checking and verification of applicant’s record to ensure compliance with all the reportorial requirements of the SEC. Any inconsistencies on the information contained in the Articles of Incorporation and By-Laws with the filed financial statements (FS) and General Information Sheet (GIS) constitute violation of SEC reportorial requirements. What would be the option of the importers and brokers if there is a delay in the issuance of Certificate of Good Standing?
If the applicant-corporation is a Philippine Economic Zone Authority (PEZA)-registered or BOI-registered entity, will clearance from these agencies still be required to ensure that applicant-corporation is in good standing? The regulations are not clear with these concerns.
The BIR also requires all applications for accreditation to be filed directly and by personal appearance at the Accounts Receivable Monitoring Division (ARMD). However, for applicant-corporations such as regional operating headquarters (ROHQ) and branches, the board of directors and officers stated in the GIS are all outside the Philippines. Can the requirement of personal appearance before the ARMD be relaxed? In such cases, the application for accreditation may be delegated to any authorized representative through consularized special power of attorney.
While we support the laudable efforts of the government to eradicate if not lessen corruption cases in the bureaucracy, the BIR and the BoC must be cognizant of the anxiety, frustration and dissatisfaction that these stringent regulations bring especially to importers and brokers. Any delay in the accreditation process may adversely affect the business climate of the country. By putting in place requirements that are onerous and burdensome to all importers and brokers coupled with the limited time given to comply with such requirements, the regulation tends to penalize those importers and brokers who are honest and diligent in paying correct taxes. The BIR and the BoC must therefore revisit the existing rules and regulations to ensure that no rights are compromised in the pursuit of good reforms in the government. Also, the BIR must relax the rules and give ample time for affected parties to comply with the requirements since this is the first time that the regulation will be implemented.
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
Under the BIR accreditation, importers and brokers are faced with stringent requirements to secure BIR Importer Clearance Certificates (BIR-ICCs) and BIR Customs Brokers Clearance Certificates (BIR-BCCs). According to the BIR accreditation criteria, applicants should have no records of any account receivable or delinquent accounts with the BIR. Also, the applicants must have no unresolved issues arising from discrepancies in the declared income or expenses resulting from the matching of third-party information from the BIR’s Reconciliation List for Enforcement System (RELIEF), and Tax Reconciliation System (TRS).
Based on these criteria, it appears that applicants with Letter Notice (LN) from the BIR or those with open assessments are left with no choice but to pay their deficiency taxes immediately to secure their accreditation. Importers and brokers who are in desperate need of accreditation are now forced to pay and settle the LN and tax cases. This is because, until all the discrepancies in the declared income or expenses resulting from matching of third-party information from the RELIEF and TRS are resolved, the accreditations of importers and brokers are put on hold.
In many instances, it cannot be discounted that source data generated by RELIEF and TRS are not complete. Also, third-party information is not at all times reliable, and resolving these discrepancies takes considerable time. The challenge faced by the importers and brokers now is if there are other available remedies to secure accreditation while discrepancies are being reconciled and tax cases are being resolved.
It seems that with the new criterion, many businesses will have to stop operations until the resolution of LN and tax cases. This criterion will not be helpful to our economy as this impedes the productivity and growth of business. It also bears stressing that such criterion impairs the applicant’s right to due process. The BIR, in effect, restricts the remedy afforded to taxpayers in the assessment process by giving applicants no other recourse in the LN and tax assessments but to pay the deficiency taxes. The applicant, instead of resolving the LN case and tax assessments, is now compelled to just pay the tax deficiency to secure the accreditation.
Also, the said criterion limits the remedy of applicants with compromise applications pending with the BIR. Compromise application is availed by taxpayers when the tax assessments are of doubtful validity. In most instances, evaluation and approval of compromise application takes years to be decided.
With this new criterion, applicants are now forced to forego the compromise application and to pay the delinquent taxes which, in the first place, were applied for because of the doubtful validity of tax assessments. Therefore, the new criterion essentially limits the applicants from pursuing the final resolution of their compromise application with the BIR. This again impairs the applicant’s right to due process.
Another criterion set by the BIR requires the applicant-corporation to provide a Certificate of Good Standing issued by the Securities & Exchange Commission (SEC). This is another hurdle faced by applicants in securing BIR accreditation. The SEC Monitoring Division conducts strict checking and verification of applicant’s record to ensure compliance with all the reportorial requirements of the SEC. Any inconsistencies on the information contained in the Articles of Incorporation and By-Laws with the filed financial statements (FS) and General Information Sheet (GIS) constitute violation of SEC reportorial requirements. What would be the option of the importers and brokers if there is a delay in the issuance of Certificate of Good Standing?
If the applicant-corporation is a Philippine Economic Zone Authority (PEZA)-registered or BOI-registered entity, will clearance from these agencies still be required to ensure that applicant-corporation is in good standing? The regulations are not clear with these concerns.
The BIR also requires all applications for accreditation to be filed directly and by personal appearance at the Accounts Receivable Monitoring Division (ARMD). However, for applicant-corporations such as regional operating headquarters (ROHQ) and branches, the board of directors and officers stated in the GIS are all outside the Philippines. Can the requirement of personal appearance before the ARMD be relaxed? In such cases, the application for accreditation may be delegated to any authorized representative through consularized special power of attorney.
While we support the laudable efforts of the government to eradicate if not lessen corruption cases in the bureaucracy, the BIR and the BoC must be cognizant of the anxiety, frustration and dissatisfaction that these stringent regulations bring especially to importers and brokers. Any delay in the accreditation process may adversely affect the business climate of the country. By putting in place requirements that are onerous and burdensome to all importers and brokers coupled with the limited time given to comply with such requirements, the regulation tends to penalize those importers and brokers who are honest and diligent in paying correct taxes. The BIR and the BoC must therefore revisit the existing rules and regulations to ensure that no rights are compromised in the pursuit of good reforms in the government. Also, the BIR must relax the rules and give ample time for affected parties to comply with the requirements since this is the first time that the regulation will be implemented.
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
Monday, May 12, 2014
When choosing OSD becomes crucial
FOR CORPORATE income taxpayers adopting the
calendar year, the first-quarter income tax return (ITR) will be due
this May 30. Hence, before filing, taxpayers must revisit the rules on
the preparation of the first-quarter ITR in which methods or options to
be taken become crucial in the subsequent income tax return preparation
and irrevocable for the entire taxable year.
For instance, taxpayers who have incurred excess income tax payments may opt to carry over the excess credit for the next taxable year/quarter, refund the excess amount of taxes paid, or apply for the issuance of tax credit certificate (TCC). As clearly specified in the tax code, once the option to carry over is made, it is irrevocable. Hence, taxpayers should ensure that their act for the first quarter of 2014 is consistent with the option taken for the annual ITR for the year 2013. Accordingly, the choice of any option bars or precludes the other.
Similarly, in claiming a tax deduction for an expense, taxpayers should beforehand be decisive on which option will be more advantageous -- optional standard deduction (OSD), or itemized deductions. Note that the method of deduction adopted in the first-quarter return shall be irrevocable for the taxable year for which the return is made. One of the basic rules in choosing between itemized deduction and OSD is to determine which of the two will allow the taxpayer to claim higher deductions.
Under the tax rules, taxpayers are allowed to select OSD or itemized deduction in preparing ITRs. Standard deduction pertains to an amount not exceeding 40% of the gross income of corporate income taxpayers during the taxable year. Accordingly, taxpayers are required to declare in their first-quarter ITR their election, or intention to choose either the OSD or itemized deductions. Once the option to use OSD is made as signified in the return, it shall be irrevocable for the taxable year for which the return is made.
As early as 2010, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. (RR) 02-2010, which states the irrevocability rule of OSD, to wit:
“The election to claim either the OSD or itemized deduction for the taxable year must be signified by checking the appropriate box in the ITR filed for the first quarter of the taxable year adopted by the taxpayer. Once the election is made, the same type of deduction must be consistently applied in all the succeeding quarterly returns and in the final income tax return for the taxable year.”
On the onset of the first-quarter ITR filing for 2014, taxpayers are once again reminded of the importance of choosing the method of deduction based on the said regulation.
RR 2-2014, which prescribes the use of the new income tax forms, specifically states that taxpayers with mixed income are mandated to use itemized deductions. Thus, the new corporate ITR form -- specifically, BIR Form No. 1702-MX, ENCS June 2013 version -- has removed the OSD option for certain corporate taxpayers. The said new form limits the method of deduction only to itemized deductions. BIR Form No. 1702-MX is applicable to taxpayers with mixed income. Taxpayers with mixed income are those who have income subject to special/preferential tax rate and income subject to the regular income tax rate.
Because of the exclusion of the OSD method in the said ITR form, it would seem that the OSD option was effectively removed for taxpayers with mixed income. The tax code allows a corporation subject to regular tax to adopt the OSD. Considering that taxpayers with mixed income are still subject to regular tax on a portion of their income, one wonders why the right to use OSD on this option has been removed.
The taxpayers are then deprived of their option to choose the method of deduction which they determined to be most appropriate and beneficial to them.
Interestingly, in the quarterly ITR forms, OSD is still an option for taxpayers with mixed income, since there is only one quarterly ITR form being used by all corporate taxpayers. Hence, the vagueness of the said ITR form will create confusion among taxpayers in the preparation of their first quarter 2014 ITR.
Since the first-quarter 2014 ITR filing is fast approaching, careful planning should be made for the choice of deduction by the corporate taxpayer subject to the regular income tax rate as this will affect subsequent actions, and taxpayers might lose the benefits lawfully due them. On the other hand, for mixed-income earners, there appears to be confusion because, if their choice is removed in the annual final tax return, this will put them at a disadvantage.
While there is nothing wrong with updating the ITR forms to provide a clearer disclosure of certain tax information about the taxpayer, as the regulators deem necessary, we hope that the BIR will not deviate from rules and rights granted by the Tax Code to avoid confusion.
The author is a senior 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
For instance, taxpayers who have incurred excess income tax payments may opt to carry over the excess credit for the next taxable year/quarter, refund the excess amount of taxes paid, or apply for the issuance of tax credit certificate (TCC). As clearly specified in the tax code, once the option to carry over is made, it is irrevocable. Hence, taxpayers should ensure that their act for the first quarter of 2014 is consistent with the option taken for the annual ITR for the year 2013. Accordingly, the choice of any option bars or precludes the other.
Similarly, in claiming a tax deduction for an expense, taxpayers should beforehand be decisive on which option will be more advantageous -- optional standard deduction (OSD), or itemized deductions. Note that the method of deduction adopted in the first-quarter return shall be irrevocable for the taxable year for which the return is made. One of the basic rules in choosing between itemized deduction and OSD is to determine which of the two will allow the taxpayer to claim higher deductions.
Under the tax rules, taxpayers are allowed to select OSD or itemized deduction in preparing ITRs. Standard deduction pertains to an amount not exceeding 40% of the gross income of corporate income taxpayers during the taxable year. Accordingly, taxpayers are required to declare in their first-quarter ITR their election, or intention to choose either the OSD or itemized deductions. Once the option to use OSD is made as signified in the return, it shall be irrevocable for the taxable year for which the return is made.
As early as 2010, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. (RR) 02-2010, which states the irrevocability rule of OSD, to wit:
“The election to claim either the OSD or itemized deduction for the taxable year must be signified by checking the appropriate box in the ITR filed for the first quarter of the taxable year adopted by the taxpayer. Once the election is made, the same type of deduction must be consistently applied in all the succeeding quarterly returns and in the final income tax return for the taxable year.”
On the onset of the first-quarter ITR filing for 2014, taxpayers are once again reminded of the importance of choosing the method of deduction based on the said regulation.
RR 2-2014, which prescribes the use of the new income tax forms, specifically states that taxpayers with mixed income are mandated to use itemized deductions. Thus, the new corporate ITR form -- specifically, BIR Form No. 1702-MX, ENCS June 2013 version -- has removed the OSD option for certain corporate taxpayers. The said new form limits the method of deduction only to itemized deductions. BIR Form No. 1702-MX is applicable to taxpayers with mixed income. Taxpayers with mixed income are those who have income subject to special/preferential tax rate and income subject to the regular income tax rate.
Because of the exclusion of the OSD method in the said ITR form, it would seem that the OSD option was effectively removed for taxpayers with mixed income. The tax code allows a corporation subject to regular tax to adopt the OSD. Considering that taxpayers with mixed income are still subject to regular tax on a portion of their income, one wonders why the right to use OSD on this option has been removed.
The taxpayers are then deprived of their option to choose the method of deduction which they determined to be most appropriate and beneficial to them.
Interestingly, in the quarterly ITR forms, OSD is still an option for taxpayers with mixed income, since there is only one quarterly ITR form being used by all corporate taxpayers. Hence, the vagueness of the said ITR form will create confusion among taxpayers in the preparation of their first quarter 2014 ITR.
Since the first-quarter 2014 ITR filing is fast approaching, careful planning should be made for the choice of deduction by the corporate taxpayer subject to the regular income tax rate as this will affect subsequent actions, and taxpayers might lose the benefits lawfully due them. On the other hand, for mixed-income earners, there appears to be confusion because, if their choice is removed in the annual final tax return, this will put them at a disadvantage.
While there is nothing wrong with updating the ITR forms to provide a clearer disclosure of certain tax information about the taxpayer, as the regulators deem necessary, we hope that the BIR will not deviate from rules and rights granted by the Tax Code to avoid confusion.
The author is a senior 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
Monday, May 5, 2014
RMC 38-2014: BIR-IAFS may pay online
Revenue Memorandum Circular No. 38 - 2014 dated 5 May 2014
Tax Alert No. 17 [Revenue Memorandum Circular No. 38 - 2014 dated 5 May 2014]
22 May 2014
The Commissioner of Internal Revenue (“CIR”) has issued Revenue Memorandum Circular (“RMC”) No. 38-2014 dated 5 May 2014 to inform all taxpayers and Accredited Tax Agents (ATAs) who are enrolled in the Bureau of Internal Revenue’s (BIR) Interactive Filing System (BIR-IAFS) and others concerned on the additional channels of payment of the IAFS-Authorized Agent Banks (AABs) which are as follows:
1. Retail Internet Banking System-iAccess of the Land Bank of the Philippines; and
2. Internet Banking System of the Philippine National Bank.
Effective 12 May 2014, taxpayers enrolled under the eBIRForms On-line System can pay their taxes, except those due from annual ITRs, through these payment facilities. To avail of such on-line payment facilities, interested parties can directly inquire from the above-listed AABs.
An official advisory will be released soon to inform taxpayers and others concerned of the updated/additional names of AABs that are already authorized to accept on-line tax payments.
source: Price Waterhouse Coopers
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