BIR tightening tax exemption rules for schools

MANILA, Philippines - The Bureau of Internal Revenue (BIR) has tightened the rules on tax exemptions for  non-profit schools.

Under Revenue Memorandum Circular (RMC) 24-2016, non-stock, non-profit educational institutions are reminded to prove their income tax-exempt status every time they file their information returns or risk being subjected to audit.

The Constitution exempts all assets and revenues of non-earning schools from final income taxes of 7.5 percent and 20 percent, depending on the type of income.

But the Department of Finance, the BIR’s mother agency, issued Department Order 149-1995 instructing schools to provide BIR documents proving these exemptions during tax filing season.

“It has been observed that there are educational institutions organized and operated as non-stock, non-profit educational institutions that no longer comply with the DOF DO 149-95...,” the BIR circular dated Feb. 24 said.

“Thus, this circular is being issued to reiterate the requirements,” it added.

Under DO 149-95, certifications showing the school’s passive investment income, projects funded by the income and board resolution of future projects must be submitted.

Revenue district offices (RDOs) must ensure all documents are present every tax-filing season.

“The RDOs shall conduct an audit of the annual information return filed to determine compliance with the conditions set forth in the certificate of exemption and the tax liabilities,” the BIR said.

Sought for comment, Anthony Coloma, advocacy officer at the Catholic Educational Association of the Philippines (CEAP), said the group would review the new order.

He recalled CEAP won a court case against BIR over another order in 2013 that required schools to submit additional documents in applying for tax exemptions.

While the Constitution and certain laws provide for tax exemptions, the BIR wants concerned parties to apply for these rights for monitoring purposes.

“We actually won a case against them in the Makati RTC (Regional Trial Court) that said they should respect our exemptions even without these documents,” Coloma said in a phone interview.

“They (BIR) cannot deny us our right,” he added.

The BIR, which accounts for 80 percent of tax revenues, has been issuing a number of clarifications regarding some tax procedures.

For instance, it issued RMC 9-2016 last month to clarify income tax exemptions granted to non-stock savings and loan associations.

Even the Catholic Church was not spared. Lingayen-Dagupan Archbishop Socrates Villegas earlier said the BIR has been sending “feelers” it would soon look into taxing religious stores operations.

BIR Commissioner Kim Henares, however, clarified that under the law, religious entities in profit businesses are already being taxed.

source:  Philippine Star

Kicking off 2016, the BIR Way

Taxation is the lifeblood of the government. For the government to function, it needs its citizens to contribute to this lifeblood. With the mandate to assess and collect national taxes, the BIR is starting off 2016 with two things: a collection goal through Revenue Memorandum Order No. 2-2016 and a number of programs to attain that as summarized in Revenue Memorandum Circular No. 14-2016.

The 2015 collection goal of P1.676 trillion was raised 21% to P2.025 trillion. With this increase in target collections, the BIR came up with programs which will focus on wider tax implementation, information centralization, process automation, and enhancement of tax rules in relation to industries and international tax policies.

First, the BIR arranged for a more extensive application of tax rules and an efficient system for collection. As such, the BIR will strengthen its drive against non-compliant taxpayers by strengthening its Run After Tax Evaders (RATE), Oplan Kandado, and VAT Audit programs.

Moreover, the BIR’s Taxpayer Registration Information Update program is designed to give taxpayers real-time access to their registration records, issue TIN cards and Certificates of Registration that are made of more durable materials. Through this program, the BIR also plans to issue Near Field Communication TIN cards for senior citizens which they will present for VAT exemption.

The BIR is also working to use credit cards, debit cards, and prepaid cards as alternative modes of payment. Currently, tax payments are done electronically through the eFPS and manually through Authorized Agent Banks. In making payment easier, the BIR hopes to increase its collections.

Second, the BIR is working on improving its internal systems by collecting and centralizing taxpayers’ information to make them accessible to all relevant parties, particularly other government agencies.

Some of these programs are a continuation of those launched in previous years such as the Electronic Tax Information System, Geographical Information System, Workflow Management System, Collection Reconciliation System, Asset Information Management Program, Automated Internal Revenue Allotment Computation, and expansion of satellite offices, among others.

Since these are being rolled out nationwide this year, taxpayers can expect that the BIR may ask for additional documents which will be used by the agency in completing the collection of data in its system.

Third, the BIR is also gearing up to automate several processes. These include the enhancement of the Electronic Certificate Authorizing Registration system, the Online Application and Processing of Tax Clearance for Bidding Purposes, the Online System Accreditation of Importers and Custom Brokers, and the Electronic Official Registry Book, among others.

With these programs, the BIR intends to reduce manual processes, with an eye towards higher levels of compliance with the tax rules.

Finally, on the BIR’s drawing board are programs that seek to settle issues within several industries in the Philippines and formulate implementing guidelines on cross-border transactions. These are the Industry Issues Resolution, Exchange of Information, and Transfer Pricing Program.

As part of its continuing Industry Issues Resolution program, the BIR’s LTS Core Group will tackle matters peculiar to several industries, especially on “No Ruling Areas” and resolution on issues from audit investigations.

The Exchange of Information Program aims to automate the exchange of cross-border related information and is done in compliance with the Intergovernmental Agreement in implementing the Foreign Account Tax Compliance Act.

As for the Transfer Pricing Program, which commenced in 2013, developments include new issuances to rationalize the Transfer Pricing Guidelines such as Revenue Regulations on Advance Pricing Arrangement and Revenue Memorandum Orders on Transfer Pricing Documentations and Transfer Pricing Risk Assessment, among others. The regulations are meant to aid the BIR in determining the appropriate revenue and income of parties in controlled transactions, as well as to address gray areas in the Transfer Pricing Guidelines. Hence, taxpayers will be guided by clearer regulations that will help them to fully comply with the BIR’s requirements.

Given all these programs on the BIR’s plate, the year is going to be busy for the BIR and taxpayers alike. Temporary inconveniences are in store in exchange for what could be a long-term easing in the workload involved in fulfilling a taxpayer’s duties. If tax collection becomes more efficient and the economy improves, it will be a worthwhile trade-off, like getting pricked for a blood extraction in order to diagnose a disease.

Cheryl R. Gatdula is a senior of the Tax Advisory and Compliance division of Punongbayan & Araullo.

source:  Businessworld