The Bureau of Internal Revenue (BIR) has the authority to audit all taxpayers and render assessments for deficiency taxes.
During audits, the BIR effectively uses a fraction of the
government’s resources against a single taxpayer. Meanwhile, the
taxpayer still has to carry on his or her business operations while the
audit is taking place. The balancing factor, according to the Supreme
Court, is ensuring that all audits are properly authorized.
In G.R. Case No. 222743, Medicard Philippines, Inc. was issued
assessments without being issued a Letter of Authority (LOA) from the
BIR. This lack of adherence to due process effectively voided the
assessments.
The ruling was later reiterated by BIR Revenue Memorandum Circular No. 75-2018.
To avoid being taken advantage of by corrupt revenue officers,
taxpayers need to learn the process of a BIR audit or investigation, and
what validates or invalidates such audit.
The BIR audit begins with the issuance of a LOA.
Prior to that, the taxpayer can be issued a letter notice to notify
the taxpayer of any discrepancy in the reports. Letter notices cannot
replace LOAs, and as such do not authorize further examinations or
assessments.
This applies even if the letter notice already contains the exact
deficiency determined via the BIR’s database. In such cases, letter
notices will need to be converted into letters of authority before
assessments can be issued.
LOAs need to be specific, containing which types of taxes will be
audited and for what taxable year. While sanctioning the audit of all
types of taxes is allowed, LOAs can only cover one taxable year. For
audits of multiple years, separate LOAs need to be issued.
The LOA needs to be served to the taxpayer within 30 calendar days of
its issuance, otherwise it is voided and will need to be revalidated.
Once the LOA has been issued, the actual audit can begin. The LOA
will contain which documents need to be submitted to the BIR. Failure to
provide the requested documents will subject the taxpayer to the
issuance of Subpoena Duces Tecum.
After the audit is finished, the BIR will issue a Notice for Informal
Conference (NIC), containing the taxpayer’s liabilities. The taxpayer
can then contest the assessment through an informal conference within 30
days from the issuance of the notice. If the BIR is not convinced by
the taxpayer’s argument, it will proceed with the issuance of a
Preliminary Assessment Notice (PAN).
The taxpayer will have 15 days to respond to the PAN, and only after
the said period prescribes can the BIR issue the Formal Letter of Demand
(FLD) and the Final Assessment Notice (FAN).
These documents (NIC, FLD, PAN, and FAN) need to be received by an authorized representative of the taxpayer.
In the case of Mannasoft Technology Corp. vs Commissioner of Internal
Revenue (CTA Case No. 8745), the foregoing documents were received by
persons not authorized by the taxpayer. The Court of Tax Appeals (CTA)
ruled that such receipt does not count. As such, the CTA ruled that
since the documents were not received by the proper authorized
representatives, the assessments issued for that audit are deemed void
as well.
Further, the burden of proving that the assessments were in fact
received by the taxpayer lies with the BIR. In the case of Commissioner
of Internal Revenue vs Bank of the Philippine Islands (G.R. Case No.
224327), the BIR failed to prove the receipt of the final assessment.
The SC ruled that, essentially, “no assessment was issued.”
There is also a 120-day period prescribed for the duration of audit,
but this is apparently not part of the due process. Even if the audit
were to exceed the prescribed period, it will not be invalidated.
The government needs to implement this period strictly, and limit the
types of investigation based on the size of the taxpayer’s business.
Microbusinesses, which will not be able to provide much in the way of
assessments anyway, should only be subjected to a tax mapping—with a
one-week prescribed period. Small, medium, and large enterprises will
then be liable to tax mapping, regular audits, and Run Against Tax
Evaders (RATE) cases.
The audit should only last three months for small enterprises, six
months for medium enterprises, and nine months for large enterprises.
RATE cases could be recommended longer periods—six months for small
enterprises, one year for medium enterprises, and one to two years for
large enterprises.
Conducting long audits that continually drain the taxpayer’s finances
hurts only the taxpayers and often used by corrupt revenue examiners.
As such, violation of this period should be grounds for the invalidation
of the audit.
Currently, there are still procedures that are open to exploitation.
There are currently no limits to being audited, and it usually means
businesses are audited yearly. If done correctly, the audit should
already address all violations. The taxpayer should then have ample time
to comply with regulations.
The BIR should only audit a particular business once every three
years. Currently, the BIR throws around guesswork assessments, accusing
the same companies over and over again.
Examiners need to be made accountable for the assessments they make.
If they are not able to collect a certain portion of their imposed
assessment, then they should face strict administrative measures. This
would act as a safeguard against corrupt officers.
Once an audit is finished, even if it was rendered void, the BIR
cannot examine those same parameters (i.e. same tax types and taxable
year). In other words, the BIR has every reason to follow the due
process to ensure that it will be able to collect from its
investigations.
However, this does not mean that taxpayers should rely on such
invalidations all the time. It should only be a last resort against
harassing audits.
In the long run, it is better to learn how to avoid the discrepancies
that warrant an audit in the first place. Creating a comprehensive tax
plan and ensuring tax compliance are key to saving more on taxes.
Without fines and penalties, businesses will be able to earn more.
(This article reflects the personal opinion of the author and
does not reflect the official stand of the Management Association of the
Philippines or MAP. The author is one of the 2017 Outstanding Young
Persons of the World, a Move Awards 2016 Digital Mover, one of the 2015
The Outstanding Young Men of the Philippines (TOYM), an Asia CEO Young
Leader of the Year, and Founding President of the Asian Consulting Group
(ACG) and the Center for Strategic Reforms of the Philippines (CSR
Philippines). Feedback at <map@map.org.ph> and
<consult@acg.ph>. For previous articles, please visit )
source: Philippine Daily Inquirer By: Mon Abrea
Tuesday, October 16, 2018
Sunday, September 9, 2018
When the BIR validates sales activities
As the hackneyed saying goes: “Taxes are the lifeblood of the
nation”. Simply put, without the needed funds it gets from taxes,
government will be paralyzed to perform its basic functions. And to
ensure that taxes constantly run though those government “veins”, so to
speak, the Bureau of Internal Revenue (BIR) has to make sure that the
“supply” of taxes do not run dry.
One of the activities that the BIR undertakes to achieve this purpose is to check and validate that taxpayers engaged in the sale of goods/services declare the proper sales income from their business activities. Just recently, the BIR, through Revenue Memorandum Circular (RMC) No. 72-2018, has provided policies and guidelines for the effective monitoring and validation of taxpayers’ sales declarations generated from the following sources:
Point of Sale (POS)/Cash Register Machines (CRM);
Special Purpose Machines (SPM);
Other Sales Receipting System Software;
Receipting/Invoicing of Computerized Accounting System (CAS), including online sales transactions; and Manual invoices/receipts/supplemental commercial documents.
The following are the salient points of RMC No. 72-2018:
The monitoring and validation of accuracy of sales (also called “Post Evaluation”) by the BIR, may be conducted simultaneously with other BIR enforcement activities, such as the “Tax Compliance Verification Drive” (TCVD), Surveillance, Inventory Stocktaking, and Tax Audit/Investigation.
An inventory of all POS/CRM/SPM and other receipting machines/software shall be taken, matched, and reconciled with the list from the BIR database. Particularly, the BIR will provide a listing of matched and unmatched machines per the BIR’s database as against the machines that are physically in the taxpayer’s place of business. In case of a discrepancy, the BIR shall issue a Letter Notice (LN), requiring the taxpayer to explain and reconcile in writing, within 5 days from receipt of the LN, why such discrepancy exists.
If needed, the service provider of the machines shall assist the taxpayer in extracting the sales data during the scheduled Post Evaluation of the BIR. The taxpayer shall submit to the BIR the extracted sales data not later than the second day of the Post Evaluation.
The BIR shall ensure that sales data is extracted and validated from all available sources, such as:
CRM/POS/Other Sales Receipting System Software/CAS;
Sales book/accounting records and manual invoices/receipts, including unregistered/expired receipts/invoices/records, if any;
All SPMs used for supplementary invoicing/receipting such as collection/acknowledgement receipt or bills
payment without corresponding principal invoice/receipt.
If the taxpayer is unable to provide the sales information/machines during the period required by the BIR to do so, the BIR will issue a Subpoena Duces Tecum (SDT) to compel the submission/presentation of such documents/machines. Note that the failure to abide by the SDT will subject the erring taxpayer to possible criminal charges.
The sales data from all sources as discussed above shall be reconciled and compared by the BIR with the taxpayer’s returns filed with the BIR, such as value-added tax (VAT) returns, income tax returns, eSales reports, and summary list of sales (SLS).
Note that under the “Tax Reform for Acceleration and Inclusion” (TRAIN) Law, any taxpayer required to transmit sales data to the BIR’s electronic sales reporting system, but fails to do so, shall pay for each day of violation, a penalty amounting to 1/10th of 1 percent of the annual net income as reflected in the taxpayer’s audited financial statements, or P10,000, whichever is higher. Should the total number of days in violation exceed 180 days within a taxable year, the BIR shall impose an additional penalty of permanent closure of the taxpayer’s business.
source: Manila Times Column By ATTY. PEACHES ARANAS
One of the activities that the BIR undertakes to achieve this purpose is to check and validate that taxpayers engaged in the sale of goods/services declare the proper sales income from their business activities. Just recently, the BIR, through Revenue Memorandum Circular (RMC) No. 72-2018, has provided policies and guidelines for the effective monitoring and validation of taxpayers’ sales declarations generated from the following sources:
Point of Sale (POS)/Cash Register Machines (CRM);
Special Purpose Machines (SPM);
Other Sales Receipting System Software;
Receipting/Invoicing of Computerized Accounting System (CAS), including online sales transactions; and Manual invoices/receipts/supplemental commercial documents.
The following are the salient points of RMC No. 72-2018:
The monitoring and validation of accuracy of sales (also called “Post Evaluation”) by the BIR, may be conducted simultaneously with other BIR enforcement activities, such as the “Tax Compliance Verification Drive” (TCVD), Surveillance, Inventory Stocktaking, and Tax Audit/Investigation.
An inventory of all POS/CRM/SPM and other receipting machines/software shall be taken, matched, and reconciled with the list from the BIR database. Particularly, the BIR will provide a listing of matched and unmatched machines per the BIR’s database as against the machines that are physically in the taxpayer’s place of business. In case of a discrepancy, the BIR shall issue a Letter Notice (LN), requiring the taxpayer to explain and reconcile in writing, within 5 days from receipt of the LN, why such discrepancy exists.
If needed, the service provider of the machines shall assist the taxpayer in extracting the sales data during the scheduled Post Evaluation of the BIR. The taxpayer shall submit to the BIR the extracted sales data not later than the second day of the Post Evaluation.
The BIR shall ensure that sales data is extracted and validated from all available sources, such as:
CRM/POS/Other Sales Receipting System Software/CAS;
Sales book/accounting records and manual invoices/receipts, including unregistered/expired receipts/invoices/records, if any;
All SPMs used for supplementary invoicing/receipting such as collection/acknowledgement receipt or bills
payment without corresponding principal invoice/receipt.
If the taxpayer is unable to provide the sales information/machines during the period required by the BIR to do so, the BIR will issue a Subpoena Duces Tecum (SDT) to compel the submission/presentation of such documents/machines. Note that the failure to abide by the SDT will subject the erring taxpayer to possible criminal charges.
The sales data from all sources as discussed above shall be reconciled and compared by the BIR with the taxpayer’s returns filed with the BIR, such as value-added tax (VAT) returns, income tax returns, eSales reports, and summary list of sales (SLS).
Note that under the “Tax Reform for Acceleration and Inclusion” (TRAIN) Law, any taxpayer required to transmit sales data to the BIR’s electronic sales reporting system, but fails to do so, shall pay for each day of violation, a penalty amounting to 1/10th of 1 percent of the annual net income as reflected in the taxpayer’s audited financial statements, or P10,000, whichever is higher. Should the total number of days in violation exceed 180 days within a taxable year, the BIR shall impose an additional penalty of permanent closure of the taxpayer’s business.
source: Manila Times Column By ATTY. PEACHES ARANAS
Saturday, August 25, 2018
Casualty loss
JUST recently, we saw a lot of business establishments being flooded
due to intense rains brought about by tropical storm Karding and the
habagat (south-west monsoon). As a result, some taxpayers may have
sustained losses in the form of damage to their equipment, machinery or
merchandise.
Fortunately, our tax laws take cognizance of this predicament by allowing casualty losses to be claimed as deduction for income tax purposes. However, there are specific guidelines on the time and manner by which the taxpayers should claim casualty losses. Non-compliance with these guidelines may result in the disallowance of deduction during BIR’s audit examination.
To avoid the disallowance, it is important to know and comply with the deadline for reporting, the facts to be established and the documentary requirements for claiming casualty losses.
DEFINITION
Casualty loss refers to the complete or partial destruction of property resulting from an identifiable event of sudden, unexpected, or unusual nature, such as those arising from storm, fire, shipwreck, or other casualty, or from theft or robbery (Revenue Regulation 12-77).
REQUISITES FOR DEDUCTIBILITY
Under BIR Revenue Memorandum Order No. 31-2009, the taxpayer claiming casualty losses must comply with the following requisites:
DOCUMENTARY REQUIREMENTS
To establish the requisites, the following documents must be submitted to the BIR:
All documents and other evidence submitted to prove the losses shall be subject to verification by the concerned BIR office, and should be kept by the taxpayer as part of his tax records, and be made available to the duly-authorized Revenue Officer/s, upon audit of his Income Tax Return and the declaration of loss.
Weather advisories, like rainfall alert from NDRRMC, are effective tools to save lives and avoid damage to properties. Yet, loss is sometimes inevitable. For this reason, deduction for casualty loss is allowed in the computation of income tax provided that the taxpayer claiming it strictly complies with the requirements set by law and the BIR.
source: Daily Guardian Column By: Atty. Edward G. Gialogo
Fortunately, our tax laws take cognizance of this predicament by allowing casualty losses to be claimed as deduction for income tax purposes. However, there are specific guidelines on the time and manner by which the taxpayers should claim casualty losses. Non-compliance with these guidelines may result in the disallowance of deduction during BIR’s audit examination.
To avoid the disallowance, it is important to know and comply with the deadline for reporting, the facts to be established and the documentary requirements for claiming casualty losses.
DEFINITION
Casualty loss refers to the complete or partial destruction of property resulting from an identifiable event of sudden, unexpected, or unusual nature, such as those arising from storm, fire, shipwreck, or other casualty, or from theft or robbery (Revenue Regulation 12-77).
REQUISITES FOR DEDUCTIBILITY
Under BIR Revenue Memorandum Order No. 31-2009, the taxpayer claiming casualty losses must comply with the following requisites:
- The losses were incurred for properties actually used in the business of the taxpayer. The loss of assets not used in business and/or are personal in nature shall not be allowed;
- The concerned properties must have been reported as part of the taxpayer’s assets based on accounting records and financial statements in the preceding year;
- The amount of loss compensated by insurance cannot not be claimed as deductible loss; and
- The deduction of assets as capital losses must be properly recorded in the accounting reports (with the adjustment of the applicable accounts).
DOCUMENTARY REQUIREMENTS
To establish the requisites, the following documents must be submitted to the BIR:
- Sworn declaration of loss filed within45 days after the date of the event causing the loss, stating the following:
- Nature of the event that gave rise to such loss and the time of its occurrence;
- Description and location of the damaged properties;
- Items needed to compute the losses (cost or other basis of the properties; depreciation allowed, if any; value of the property before and after the event; and cost of repair);
- Amount of insurance or other compensation received;
- The Financial Statement for the year immediately preceding the event; and
- Proof of the elements of the losses claimed:
- Photographs of the properties before and after the typhoon to show the extent of the damage.
- Documentary evidence for determining the cost or valuation of the damaged properties (cancelled checks, vouchers, receipts, and other evidence of costs);
- Insurance policy, in the event that there is an insurance coverage for the properties; and
- Police report, in cases of robbery/theft during the typhoon and/or as a consequence of looting.
All documents and other evidence submitted to prove the losses shall be subject to verification by the concerned BIR office, and should be kept by the taxpayer as part of his tax records, and be made available to the duly-authorized Revenue Officer/s, upon audit of his Income Tax Return and the declaration of loss.
Weather advisories, like rainfall alert from NDRRMC, are effective tools to save lives and avoid damage to properties. Yet, loss is sometimes inevitable. For this reason, deduction for casualty loss is allowed in the computation of income tax provided that the taxpayer claiming it strictly complies with the requirements set by law and the BIR.
source: Daily Guardian Column By: Atty. Edward G. Gialogo
Thursday, August 2, 2018
Court stops BIR seizure of Pacquiao assets
The Court of Tax Appeals (CTA) has lifted the Bureau of Internal
Revenue seizure orders on the assets of boxing great, Sen. Manny
Pacquiao, as it directed the BIR to stop its efforts to collect P3.29
billion in taxes while the case remains pending.
Pacquiao’s legal battle, however, is not yet over as it is set to proceed to the trial stage. Pretrial conference of the case is scheduled for Aug. 30.
Citing the BIR’s “violations of rules and irregularities,” the CTA First Division ordered the bureau to “cease and desist” from implementing its final decision on disputed assessment (FDDA) dated May 14, 2013.
The FDDA set at P3.29 billion the final amount of the deficiency tax liabilities imposed on Pacquiao and his wife Jinkee for 2008 and 2009.
In a resolution dated July 27, the CTA also withdrew the tax lien annotated on the titles of the Pacquiaos’ General Santos City properties.
A tax lien prevents the couple from disposing of the property and secures it to satisfy the government’s claim for taxes.
No more bond
Moreover, the CTA spared the billionaire from the requirement of posting a bond first as a condition for stopping the BIR’s tax collection efforts.
The BIR “utterly failed to comply with necessary requirements under pertinent laws and issuances” in assessing the couple’s liabilities, read the decision signed by Presiding Justice Roman G. del Rosario and Associate Justices Erlinda P. Uy and Cielito N. Mindaro-Grulla.
Because of the irregularities, the CTA would be “dispensing the required cash deposit or bond provided under Section 11 of the [Republic Act] No. 1125.”
The CTA found “no prima facie evidence of fraud or tax evasion” established by the BIR during its preliminary investigation.
The BIR failed to show that it conducted procedures to verify and determine “the schemes employed and the extent of the fraud” on the Pacquiaos’ part, the court said.
The BIR did not even specify in its May 2, 2012, formal letter of demand (FLD) the “best possible sources” of information it used in computing their tax underpayments.
Newspaper articles
Documentary evidence presented to the CTA showed that the BIR used newspaper and magazine articles to establish that Pacquiao earned income in the United States in the form of guaranteed payouts and his cut of pay-per-view revenues and ticket sales.
The reports were not “corroborated by other more sufficient evidence” and the BIR did not at least confirm the veracity of the articles with the authors, the court said.
The BIR notices were hounded by procedural flaws, too. For one, the FLD was not even addressed to Jinkee despite being held jointly liable with her husband.
The warrants of distraint and/or levy and garnishment—which paved the way for the seizure of the Pacquiaos’ bank accounts—were found to be prematurely issued. These were dated July 1, 2013, though the couple received the FDDA only on July 2, 2013.
On giving the couple due process, the BIR failed to prove that a notice of formal conference was issued or even any record to show that the conference actually took place.
Jayson Fernandez, the Pacquiaos’ lawyer, told the BIR in a Jan. 31, 2012, letter that he only learned of the proceedings by chance and asked for it to be rescheduled, but the BIR did not reply.
It failed to show the court the protest letter where the Pacquiaos supposedly admitted that they attended the conference.
The agency also failed to justify why it included the years 1995 to 2006 in the scope of its electronic letter of authority that authorized the tax audit.
The CTA had to evaluate the validity of the BIR notices after the Supreme Court ruled on April 19, 2016, that when imposing the bond requirement, it should make a preliminary determination of whether the BIR violated the law in its tax collection efforts.
The case reached the Supreme Court because the Pacquiaos questioned the CTA requirement for them to first deposit P3.29 billion in cash or post a P4.948-billion surety bond before the stay order against the garnishment on April 22, 2014, can take effect.
In its April 2016 decision, the high tribunal said the CTA should have conducted a preliminary hearing first before imposing the bond requirement.
The Supreme Court reminded the CTA that in case of doubt, the scale should tip in favor of the taxpayer’s right to due process and equal protection.
source: Philippine Daily Inquirer
Pacquiao’s legal battle, however, is not yet over as it is set to proceed to the trial stage. Pretrial conference of the case is scheduled for Aug. 30.
Citing the BIR’s “violations of rules and irregularities,” the CTA First Division ordered the bureau to “cease and desist” from implementing its final decision on disputed assessment (FDDA) dated May 14, 2013.
The FDDA set at P3.29 billion the final amount of the deficiency tax liabilities imposed on Pacquiao and his wife Jinkee for 2008 and 2009.
In a resolution dated July 27, the CTA also withdrew the tax lien annotated on the titles of the Pacquiaos’ General Santos City properties.
A tax lien prevents the couple from disposing of the property and secures it to satisfy the government’s claim for taxes.
No more bond
Moreover, the CTA spared the billionaire from the requirement of posting a bond first as a condition for stopping the BIR’s tax collection efforts.
The BIR “utterly failed to comply with necessary requirements under pertinent laws and issuances” in assessing the couple’s liabilities, read the decision signed by Presiding Justice Roman G. del Rosario and Associate Justices Erlinda P. Uy and Cielito N. Mindaro-Grulla.
Because of the irregularities, the CTA would be “dispensing the required cash deposit or bond provided under Section 11 of the [Republic Act] No. 1125.”
The CTA found “no prima facie evidence of fraud or tax evasion” established by the BIR during its preliminary investigation.
The BIR failed to show that it conducted procedures to verify and determine “the schemes employed and the extent of the fraud” on the Pacquiaos’ part, the court said.
The BIR did not even specify in its May 2, 2012, formal letter of demand (FLD) the “best possible sources” of information it used in computing their tax underpayments.
Newspaper articles
Documentary evidence presented to the CTA showed that the BIR used newspaper and magazine articles to establish that Pacquiao earned income in the United States in the form of guaranteed payouts and his cut of pay-per-view revenues and ticket sales.
The reports were not “corroborated by other more sufficient evidence” and the BIR did not at least confirm the veracity of the articles with the authors, the court said.
The BIR notices were hounded by procedural flaws, too. For one, the FLD was not even addressed to Jinkee despite being held jointly liable with her husband.
The warrants of distraint and/or levy and garnishment—which paved the way for the seizure of the Pacquiaos’ bank accounts—were found to be prematurely issued. These were dated July 1, 2013, though the couple received the FDDA only on July 2, 2013.
On giving the couple due process, the BIR failed to prove that a notice of formal conference was issued or even any record to show that the conference actually took place.
Jayson Fernandez, the Pacquiaos’ lawyer, told the BIR in a Jan. 31, 2012, letter that he only learned of the proceedings by chance and asked for it to be rescheduled, but the BIR did not reply.
It failed to show the court the protest letter where the Pacquiaos supposedly admitted that they attended the conference.
The agency also failed to justify why it included the years 1995 to 2006 in the scope of its electronic letter of authority that authorized the tax audit.
The CTA had to evaluate the validity of the BIR notices after the Supreme Court ruled on April 19, 2016, that when imposing the bond requirement, it should make a preliminary determination of whether the BIR violated the law in its tax collection efforts.
The case reached the Supreme Court because the Pacquiaos questioned the CTA requirement for them to first deposit P3.29 billion in cash or post a P4.948-billion surety bond before the stay order against the garnishment on April 22, 2014, can take effect.
In its April 2016 decision, the high tribunal said the CTA should have conducted a preliminary hearing first before imposing the bond requirement.
The Supreme Court reminded the CTA that in case of doubt, the scale should tip in favor of the taxpayer’s right to due process and equal protection.
source: Philippine Daily Inquirer
Monday, July 23, 2018
BIR says bank deposits not included in listing of taxpayers’ assets
The Bureau of Internal Revenue (BIR) said today the instruction to
revenue regional directors and other tax enforcement officials to list
down all assets of individuals and businesses did not include bank
deposits
The Bureau of Internal Revenue (BIR) said today the instruction to revenue regional directors and other tax enforcement officials to list down all assets of individuals and businesses did not include bank deposits.
BIR Deputy Commissioner for Operations Arnel Guballa issued the clarification as the agency finally implemented the old Revenue Memorandum Order (RMO) 26-2010 which was questioned by lawyers and accountants as violation of the bank secrecy law.
The RMO signed by then BIR Commissioner Joel Tan-Torres included the listing of the name of the taxpayer’s depository bank, the amount and account number including foreign currency.
Guballa explained the RMO has been modified to exclude bank deposits, stressing the secrecy of bank deposits which was even affirmed when Congress approved the Tax Reform for Acceleration and Inclusion Law.
However, Guballa said they will continue to issue warrant of garnishment on the bank accounts of delinquent taxpayer when the assessment becomes final and executory.
He explained the listing of assets is necessary to speed up the collection of back accounts in instances that a business collapses, or the taxpayer had gone abroad or died.
This way, Guballa said tax collection officers can easily collect tax debts when such information is readily available.
Records showed delinquent accounts have been piling up through the years involving tens of billions of pesos as many delinquent taxpayers can no longer be located.
source: Manila Bulletin By Jun Ramirez
The Bureau of Internal Revenue (BIR) said today the instruction to revenue regional directors and other tax enforcement officials to list down all assets of individuals and businesses did not include bank deposits.
BIR Deputy Commissioner for Operations Arnel Guballa issued the clarification as the agency finally implemented the old Revenue Memorandum Order (RMO) 26-2010 which was questioned by lawyers and accountants as violation of the bank secrecy law.
The RMO signed by then BIR Commissioner Joel Tan-Torres included the listing of the name of the taxpayer’s depository bank, the amount and account number including foreign currency.
Guballa explained the RMO has been modified to exclude bank deposits, stressing the secrecy of bank deposits which was even affirmed when Congress approved the Tax Reform for Acceleration and Inclusion Law.
However, Guballa said they will continue to issue warrant of garnishment on the bank accounts of delinquent taxpayer when the assessment becomes final and executory.
He explained the listing of assets is necessary to speed up the collection of back accounts in instances that a business collapses, or the taxpayer had gone abroad or died.
This way, Guballa said tax collection officers can easily collect tax debts when such information is readily available.
Records showed delinquent accounts have been piling up through the years involving tens of billions of pesos as many delinquent taxpayers can no longer be located.
source: Manila Bulletin By Jun Ramirez
Sunday, July 22, 2018
For BIR's benefit
Every taxpayer wants to have peace of mind, free from unreasonable
examination, investigation, or assessment. As such, we commonly
encounter queries from taxpayers seeking assurance that a particular tax
assessment has been settled, and that local tax authorities will no
longer run after them.
Some mention the Bureau of Internal Revenue’s (BIR) practice of issuing Authority to Cancel Assessment (ATCA) for tax deficiency and/or tax delinquency assessment that are paid. As a result, the question of whether a taxpayer is entitled to the issuance of an ATCA persists.
With its renewed efforts to account for clean, and determine collectivity of its Accounts Receivables/Delinquent Accounts (ARs/DAs) as part of its concerted tax collection activities, the BIR recently issued Revenue Memorandum Order (RMO) No. 33-2018. The RMO aims to implement an improved system for managing BIR’s ARs/Das while simultaneously setting an objective write-off mechanism to purge its database of tax arrears longer collectible.
Under RMO No. 33-2018, the issuance of ATCA as proof of cancellation of the applicable tax assessments pursuant to a Final Assessment Notice/Formal Letter of Demands (FAN/FLD) is mandatory. Accordingly, issuance of ATCA shall be made on the following:
The difference between the amounts of the original tax assessment and the reduced tax assessment after the originally issued FAN/FLD has been modified, amended, or declared null and void pursuant to final administrative decision by the BIR commissioner or his duly authorized representative.
A final approval of the applications for compromise settlement and abatement or cancellation of penalties has been secured.
A court of competent authority has decided to modify, amend, or declare with finality the nullity of a tax assessment, as shown in the entry of judgement.
A court of competent authority has declared that the AR/DA is uncollectible due to the insolvency of the taxpayer.
The taxpayer availed of tax amnesty as indicated by the taxpayer’s inclusion in the List of Tax Amnesty Availers provided by the Office of the BIR commissioner or the BIR deputy commissioner for Operations.
Condonation of the assessment by virtue of law as duly approved by the BIR commissioner or his authorized representative.
When the right of the government to assess/collect the deficiency/delinquent taxes has prescribed and such cancellation due to the aforesaid reason has been approved by the commissioner based on the recommendation of the National Committee on Prescribed Cases.
ARs/DAs recommended for write-off and approved by the BIR Commissioner or his authorized representative on grounds such as but not limited to the following:
• Individual taxpayer is deceased and no distrainable or leviable asset can be found
• Permanent cessation of business
• Dissolution
• Taxpayer is a general partnership and the individual partners are already deceased
• AR/DA cases with a total amount due of P20,000 and below, provided that all collection enforcement summary remedies have been fully exhausted.
Other meritorious cases deemed necessary by the BIR commissioner to be covered by ATCA.
The issuance of an ATCA is not mandatory after the payment of tax deficiency and tax discrepancy assessments. The non-inclusion of payment of tax assessments in the above list bolsters the claim of tax officers that the best evidence for the conclusion of a particular assessment are the payment forms used in the settlement of assessed amounts.
While it may be argued that tax assessment cases can be included in the category “Other meritorious cases”, it seems otherwise. If there was actual intent on the part of the BIR to include paid tax assessments on the list, then it would have specifically provided for it in RMO No. 33-2018, in the same vein that the difference between the original assessment indicated in the FAN/FLD and the assessment indicated in the FDDA is provided in the aforementioned list.
Further, there was no discussion of any participation from the taxpayer in the procedure for issuing an ATCA. While RMO 33-2018 provides that the ATCA shall be prepared in quadruplicates, the taxpayer is not entitled to receive a copy of such since each copy of the ATCA is allotted to the docket of the case and the relevant divisions of the BIR.
Obviously, the ATCA is an internal document of the BIR and serves the purpose of tracking and accounting receivables, collections, delinquent, and uncollectible BIR accounts. In other words, the ATCA is a tool by the BIR to manage its accounts and is not meant to be issued for the convenience or security of taxpayers.
The author is a Senior Manager with the Tax & Corporate Services division of Navarro Amper & Co., the local member firm of Deloitte Southeast Asia Ltd. – a member firm of Deloitte Touche Tohmatsu Limited – comprising Deloitte practices operating in Brunei, Cambodia, Guam, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.
source: Manila Times
Some mention the Bureau of Internal Revenue’s (BIR) practice of issuing Authority to Cancel Assessment (ATCA) for tax deficiency and/or tax delinquency assessment that are paid. As a result, the question of whether a taxpayer is entitled to the issuance of an ATCA persists.
With its renewed efforts to account for clean, and determine collectivity of its Accounts Receivables/Delinquent Accounts (ARs/DAs) as part of its concerted tax collection activities, the BIR recently issued Revenue Memorandum Order (RMO) No. 33-2018. The RMO aims to implement an improved system for managing BIR’s ARs/Das while simultaneously setting an objective write-off mechanism to purge its database of tax arrears longer collectible.
Under RMO No. 33-2018, the issuance of ATCA as proof of cancellation of the applicable tax assessments pursuant to a Final Assessment Notice/Formal Letter of Demands (FAN/FLD) is mandatory. Accordingly, issuance of ATCA shall be made on the following:
The difference between the amounts of the original tax assessment and the reduced tax assessment after the originally issued FAN/FLD has been modified, amended, or declared null and void pursuant to final administrative decision by the BIR commissioner or his duly authorized representative.
A final approval of the applications for compromise settlement and abatement or cancellation of penalties has been secured.
A court of competent authority has decided to modify, amend, or declare with finality the nullity of a tax assessment, as shown in the entry of judgement.
A court of competent authority has declared that the AR/DA is uncollectible due to the insolvency of the taxpayer.
The taxpayer availed of tax amnesty as indicated by the taxpayer’s inclusion in the List of Tax Amnesty Availers provided by the Office of the BIR commissioner or the BIR deputy commissioner for Operations.
Condonation of the assessment by virtue of law as duly approved by the BIR commissioner or his authorized representative.
When the right of the government to assess/collect the deficiency/delinquent taxes has prescribed and such cancellation due to the aforesaid reason has been approved by the commissioner based on the recommendation of the National Committee on Prescribed Cases.
ARs/DAs recommended for write-off and approved by the BIR Commissioner or his authorized representative on grounds such as but not limited to the following:
• Individual taxpayer is deceased and no distrainable or leviable asset can be found
• Permanent cessation of business
• Dissolution
• Taxpayer is a general partnership and the individual partners are already deceased
• AR/DA cases with a total amount due of P20,000 and below, provided that all collection enforcement summary remedies have been fully exhausted.
Other meritorious cases deemed necessary by the BIR commissioner to be covered by ATCA.
The issuance of an ATCA is not mandatory after the payment of tax deficiency and tax discrepancy assessments. The non-inclusion of payment of tax assessments in the above list bolsters the claim of tax officers that the best evidence for the conclusion of a particular assessment are the payment forms used in the settlement of assessed amounts.
While it may be argued that tax assessment cases can be included in the category “Other meritorious cases”, it seems otherwise. If there was actual intent on the part of the BIR to include paid tax assessments on the list, then it would have specifically provided for it in RMO No. 33-2018, in the same vein that the difference between the original assessment indicated in the FAN/FLD and the assessment indicated in the FDDA is provided in the aforementioned list.
Further, there was no discussion of any participation from the taxpayer in the procedure for issuing an ATCA. While RMO 33-2018 provides that the ATCA shall be prepared in quadruplicates, the taxpayer is not entitled to receive a copy of such since each copy of the ATCA is allotted to the docket of the case and the relevant divisions of the BIR.
Obviously, the ATCA is an internal document of the BIR and serves the purpose of tracking and accounting receivables, collections, delinquent, and uncollectible BIR accounts. In other words, the ATCA is a tool by the BIR to manage its accounts and is not meant to be issued for the convenience or security of taxpayers.
The author is a Senior Manager with the Tax & Corporate Services division of Navarro Amper & Co., the local member firm of Deloitte Southeast Asia Ltd. – a member firm of Deloitte Touche Tohmatsu Limited – comprising Deloitte practices operating in Brunei, Cambodia, Guam, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.
source: Manila Times
A look at the BIR’s audit of ‘small’ taxpayers
Small taxpayers, beware; the Bureau of Internal Revenue (BIR) has you
in its sights. The BIR has issued Revenue Memorandum Order (RMO) No.
32-2018, dated July 6, 2018, prescribing the audit/investigation of
individual and non-individual taxpayers by the Assessment Divisions of
the BIR Regional Offices.
But what exactly is a “small” taxpayer? Under RMO No. 32-2018, to be considered a “small” taxpayer would depend largely on a person’s gross sales/receipts, which amount varies depending on the particular BIR Revenue Region a taxpayer belongs to:
–For those belonging to Regions5, 6, 7 and 8 and with gross sales/receipts amounting to P10,000,000 and below;
–For those belonging to Regions 1, 4, 9A, 9B, 11, 12, 13,16 and 19 and with gross sales/receipts amounting to P5,000,000 and below; and
–For those belonging to Regions 2, 3, 10, 14, 15, 17 and 18 and with gross sales/receipts amounting to P2,000,000 and below.
With the identification of small taxpayers, the BIR shall issue electronic Letters of Authority (eLA) to cover the audit/investigation of taxpayers for tax returns for taxable year 2017, which shall include all internal revenue tax liabilities, except when a specific tax type has been previously examined. Note that a Letter of Authority is an official document that contains the mandate of a BIR revenue officer (ROs) to examine a taxpayer’s books of accounts and other accounting records for a particular taxable year.
The audit of cases issued under the RMO shall be conducted by the ROs of the Office Audit Section (OAS) of the Assessment Divisions in the Regional Offices, and shall be performed without the benefit of a “field audit”. Generally, a “field audit” will entail scheduled visits by ROs to a taxpayer’s business address, where the examination of the taxpayer’s books of accounts and other accounting records will be made. By dispensing with the field audit, the BIR will instead retrieve copies of manually filed and electronically submitted tax returns for taxable year 2017from the BIR Document Processing Division and BIR Revenue Data Center. From these tax returns, the BIR shall select the “small” taxpayers who fall under the prescribed thresholds as explained above.
The eLA, together with the “Notice for the Presentation/Submission of Documents/Records” (Notice) may be delivered personally to the taxpayer by:
–The RO assigned to the case.
–Any other BIR employee with a written authorization to deliver the eLA.
–A courier company.
The concerned taxpayer shall be given 10 days from receipt of the Notice to submit to the ROs the required documents and records. If the taxpayer does not comply with the Notice, a reminder letter shall be sent immediately after the lapse of the 10-day period. If the requested documents are not submitted within 5 days from receipt of the reminder letter, a memorandum report shall be prepared recommending the issuance of a Subpoena Duces Tecum (SDT). For this purpose, an SDT is a process directed to a taxpayer requiring him to bring before a competent authority the books, documents, and other records required under the Notice. Failure to abide by the SDT may result in the imposition of stiff penalties and/or possible imprisonment.
With the issuance of the RMO, the BIR hopes for an increase in the voluntary compliance with the timely payment of taxes, as well as to generate additional tax revenues from small taxpayers.
source: Manila Times Column By ATTY. PEACHES ARANAS
But what exactly is a “small” taxpayer? Under RMO No. 32-2018, to be considered a “small” taxpayer would depend largely on a person’s gross sales/receipts, which amount varies depending on the particular BIR Revenue Region a taxpayer belongs to:
–For those belonging to Regions5, 6, 7 and 8 and with gross sales/receipts amounting to P10,000,000 and below;
–For those belonging to Regions 1, 4, 9A, 9B, 11, 12, 13,16 and 19 and with gross sales/receipts amounting to P5,000,000 and below; and
–For those belonging to Regions 2, 3, 10, 14, 15, 17 and 18 and with gross sales/receipts amounting to P2,000,000 and below.
With the identification of small taxpayers, the BIR shall issue electronic Letters of Authority (eLA) to cover the audit/investigation of taxpayers for tax returns for taxable year 2017, which shall include all internal revenue tax liabilities, except when a specific tax type has been previously examined. Note that a Letter of Authority is an official document that contains the mandate of a BIR revenue officer (ROs) to examine a taxpayer’s books of accounts and other accounting records for a particular taxable year.
The audit of cases issued under the RMO shall be conducted by the ROs of the Office Audit Section (OAS) of the Assessment Divisions in the Regional Offices, and shall be performed without the benefit of a “field audit”. Generally, a “field audit” will entail scheduled visits by ROs to a taxpayer’s business address, where the examination of the taxpayer’s books of accounts and other accounting records will be made. By dispensing with the field audit, the BIR will instead retrieve copies of manually filed and electronically submitted tax returns for taxable year 2017from the BIR Document Processing Division and BIR Revenue Data Center. From these tax returns, the BIR shall select the “small” taxpayers who fall under the prescribed thresholds as explained above.
The eLA, together with the “Notice for the Presentation/Submission of Documents/Records” (Notice) may be delivered personally to the taxpayer by:
–The RO assigned to the case.
–Any other BIR employee with a written authorization to deliver the eLA.
–A courier company.
The concerned taxpayer shall be given 10 days from receipt of the Notice to submit to the ROs the required documents and records. If the taxpayer does not comply with the Notice, a reminder letter shall be sent immediately after the lapse of the 10-day period. If the requested documents are not submitted within 5 days from receipt of the reminder letter, a memorandum report shall be prepared recommending the issuance of a Subpoena Duces Tecum (SDT). For this purpose, an SDT is a process directed to a taxpayer requiring him to bring before a competent authority the books, documents, and other records required under the Notice. Failure to abide by the SDT may result in the imposition of stiff penalties and/or possible imprisonment.
With the issuance of the RMO, the BIR hopes for an increase in the voluntary compliance with the timely payment of taxes, as well as to generate additional tax revenues from small taxpayers.
source: Manila Times Column By ATTY. PEACHES ARANAS
A look at the BIR’s audit of ‘small’ taxpayers
Small taxpayers, beware; the Bureau of Internal Revenue (BIR) has you
in its sights. The BIR has issued Revenue Memorandum Order (RMO) No.
32-2018, dated July 6, 2018, prescribing the audit/investigation of
individual and non-individual taxpayers by the Assessment Divisions of
the BIR Regional Offices.
But what exactly is a “small” taxpayer? Under RMO No. 32-2018, to be considered a “small” taxpayer would depend largely on a person’s gross sales/receipts, which amount varies depending on the particular BIR Revenue Region a taxpayer belongs to:
–For those belonging to Regions5, 6, 7 and 8 and with gross sales/receipts amounting to P10,000,000 and below;
–For those belonging to Regions 1, 4, 9A, 9B, 11, 12, 13,16 and 19 and with gross sales/receipts amounting to P5,000,000 and below; and
–For those belonging to Regions 2, 3, 10, 14, 15, 17 and 18 and with gross sales/receipts amounting to P2,000,000 and below.
With the identification of small taxpayers, the BIR shall issue electronic Letters of Authority (eLA) to cover the audit/investigation of taxpayers for tax returns for taxable year 2017, which shall include all internal revenue tax liabilities, except when a specific tax type has been previously examined. Note that a Letter of Authority is an official document that contains the mandate of a BIR revenue officer (ROs) to examine a taxpayer’s books of accounts and other accounting records for a particular taxable year.
The audit of cases issued under the RMO shall be conducted by the ROs of the Office Audit Section (OAS) of the Assessment Divisions in the Regional Offices, and shall be performed without the benefit of a “field audit”. Generally, a “field audit” will entail scheduled visits by ROs to a taxpayer’s business address, where the examination of the taxpayer’s books of accounts and other accounting records will be made. By dispensing with the field audit, the BIR will instead retrieve copies of manually filed and electronically submitted tax returns for taxable year 2017from the BIR Document Processing Division and BIR Revenue Data Center. From these tax returns, the BIR shall select the “small” taxpayers who fall under the prescribed thresholds as explained above.
The eLA, together with the “Notice for the Presentation/Submission of Documents/Records” (Notice) may be delivered personally to the taxpayer by:
–The RO assigned to the case.
–Any other BIR employee with a written authorization to deliver the eLA.
–A courier company.
The concerned taxpayer shall be given 10 days from receipt of the Notice to submit to the ROs the required documents and records. If the taxpayer does not comply with the Notice, a reminder letter shall be sent immediately after the lapse of the 10-day period. If the requested documents are not submitted within 5 days from receipt of the reminder letter, a memorandum report shall be prepared recommending the issuance of a Subpoena Duces Tecum (SDT). For this purpose, an SDT is a process directed to a taxpayer requiring him to bring before a competent authority the books, documents, and other records required under the Notice. Failure to abide by the SDT may result in the imposition of stiff penalties and/or possible imprisonment.
With the issuance of the RMO, the BIR hopes for an increase in the voluntary compliance with the timely payment of taxes, as well as to generate additional tax revenues from small taxpayers.
source: Manila Times Column of Atty. PEACHES ARANAS
But what exactly is a “small” taxpayer? Under RMO No. 32-2018, to be considered a “small” taxpayer would depend largely on a person’s gross sales/receipts, which amount varies depending on the particular BIR Revenue Region a taxpayer belongs to:
–For those belonging to Regions5, 6, 7 and 8 and with gross sales/receipts amounting to P10,000,000 and below;
–For those belonging to Regions 1, 4, 9A, 9B, 11, 12, 13,16 and 19 and with gross sales/receipts amounting to P5,000,000 and below; and
–For those belonging to Regions 2, 3, 10, 14, 15, 17 and 18 and with gross sales/receipts amounting to P2,000,000 and below.
With the identification of small taxpayers, the BIR shall issue electronic Letters of Authority (eLA) to cover the audit/investigation of taxpayers for tax returns for taxable year 2017, which shall include all internal revenue tax liabilities, except when a specific tax type has been previously examined. Note that a Letter of Authority is an official document that contains the mandate of a BIR revenue officer (ROs) to examine a taxpayer’s books of accounts and other accounting records for a particular taxable year.
The audit of cases issued under the RMO shall be conducted by the ROs of the Office Audit Section (OAS) of the Assessment Divisions in the Regional Offices, and shall be performed without the benefit of a “field audit”. Generally, a “field audit” will entail scheduled visits by ROs to a taxpayer’s business address, where the examination of the taxpayer’s books of accounts and other accounting records will be made. By dispensing with the field audit, the BIR will instead retrieve copies of manually filed and electronically submitted tax returns for taxable year 2017from the BIR Document Processing Division and BIR Revenue Data Center. From these tax returns, the BIR shall select the “small” taxpayers who fall under the prescribed thresholds as explained above.
The eLA, together with the “Notice for the Presentation/Submission of Documents/Records” (Notice) may be delivered personally to the taxpayer by:
–The RO assigned to the case.
–Any other BIR employee with a written authorization to deliver the eLA.
–A courier company.
The concerned taxpayer shall be given 10 days from receipt of the Notice to submit to the ROs the required documents and records. If the taxpayer does not comply with the Notice, a reminder letter shall be sent immediately after the lapse of the 10-day period. If the requested documents are not submitted within 5 days from receipt of the reminder letter, a memorandum report shall be prepared recommending the issuance of a Subpoena Duces Tecum (SDT). For this purpose, an SDT is a process directed to a taxpayer requiring him to bring before a competent authority the books, documents, and other records required under the Notice. Failure to abide by the SDT may result in the imposition of stiff penalties and/or possible imprisonment.
With the issuance of the RMO, the BIR hopes for an increase in the voluntary compliance with the timely payment of taxes, as well as to generate additional tax revenues from small taxpayers.
source: Manila Times Column of Atty. PEACHES ARANAS
Tuesday, July 17, 2018
BIR releases rules on deposit of deceased
The Bureau of Internal Revenue (BIR) has issued a circular clarifying
the requirements on the withdrawal of bank deposits of a deceased
without the need of a clearance or the electronic certificate
authorizing registration (eCAR).
Previously, the BIR did not allow such withdrawal without eCAR, regardless of the amount involved.
The Tax Reform for Acceleration and Inclusion (TRAIN) Law, however, waived such requirement on certain conditions.
In signing Revenue Memorandum Order 62-2018, BIR Commissioner Caesar R. Dulay stated that the legal heir or administrator of the decedent maybe allowed to withdraw the decedent’s bank deposits within one year from death provided the bank subject to six percent final withholding tax the amount withdrawn.
For joint account, the final withholding tax shall be based on the share of the decedent in the joint bank deposit.
Prior to withdrawal, the bank shall require the administrator or any of the legal heir to present the Tax Identification Number (TIN) of the estate of the deceased together with the BIR Form 1904 of the estate duly stamped by the concerned revenue district office (RDO).
The bank shall issue the corresponding BIR Form 2306 certifying the withholding of six percent final tax.
The BIR chief said all withdrawal slips shall include a sworn statement by the joint depositor that he is still living at the time of withdrawal.
Deposits already declared for estate tax purposes are no longer subject to the six percent final withholding tax.
source: Manila Bulletin by Jun Ramirez
Previously, the BIR did not allow such withdrawal without eCAR, regardless of the amount involved.
The Tax Reform for Acceleration and Inclusion (TRAIN) Law, however, waived such requirement on certain conditions.
In signing Revenue Memorandum Order 62-2018, BIR Commissioner Caesar R. Dulay stated that the legal heir or administrator of the decedent maybe allowed to withdraw the decedent’s bank deposits within one year from death provided the bank subject to six percent final withholding tax the amount withdrawn.
For joint account, the final withholding tax shall be based on the share of the decedent in the joint bank deposit.
Prior to withdrawal, the bank shall require the administrator or any of the legal heir to present the Tax Identification Number (TIN) of the estate of the deceased together with the BIR Form 1904 of the estate duly stamped by the concerned revenue district office (RDO).
The bank shall issue the corresponding BIR Form 2306 certifying the withholding of six percent final tax.
The BIR chief said all withdrawal slips shall include a sworn statement by the joint depositor that he is still living at the time of withdrawal.
Deposits already declared for estate tax purposes are no longer subject to the six percent final withholding tax.
source: Manila Bulletin by Jun Ramirez
Sunday, July 15, 2018
DoF lines up more tax reforms
THE DEPARTMENT of Finance (DoF) plans to submit to Congress this
month the tax reform packages on property valuation and passive income.
“By the end of the month, we will submit package three and four sabay (simultaneously),” Finance Secretary Carlos G. Dominguez III told reporters late Thursday.
Mr. Dominguez said that the two reform packages are “mostly revenue neutral.”
The third package seeks to provide a harmonized valuation scheme for national and local taxes.
“For the real estate — hindi naman samin mapupunta yung pera (collections will not go to the national government) — we just want to make sure that the appraisal is done in an internationally accepted way and is done regularly,” Mr. Dominguez.
“Now the local government, they will have the right to tax to set the rate. We just want the valuation [standardized] because the valuation now is really crazy.”
Currently, the government has two valuation schemes for real property: zonal values prepared by the Bureau of Internal Revenue to serve as basis for estate and capital gains taxes and fair market values used by local governments to compute annual real property taxes.
The DoF’s Bureau of Local Government Finance has said that the proposed reform should ease pressure on local officials — who are elected every three years — from their constituents to keep real property assessments low, resulting in delayed review of property values despite the requirement to do so every three years.
DoF said that the reform will also supplement the unitary six percent estate and donors tax provided by the Tax Reform for Acceleration and Inclusion law.
“And then the other thing also is the higher tax on real estate, you will remove the speculative aspect of it. Because you know, it’s going to cost you too much to hold undeveloped idle real estate. So you want to force them to develop it,” Mr. Dominguez explained.
The fourth package, meanwhile, seeks to streamline taxes on financial investments.
“In the financial taxes, the goal is to simplify it. We have 80 different types of tax in financial products and instruments. We’re working very hard we were able to reduce it to about 42. Ang dami palang batas diyan,” said Mr. Dominguez.
The DoF earlier said that the package includes reduction of interest income tax earned from peso-denominated deposits to 12% from 20% and at the same time increase capital income tax rate for dollar deposits, investments, dividends, equity and fixed income, among others, to the same rate. This move would take out the arbitrage among financial products.
The DoF has also said that it would make them more inclusive by taking out the interest income tax for deposits with a minimum deposit period of five years.
The department targets Congress to approve all packages this year, including the Package 1B on general and estate tax amnesty; the second package on corporate income tax and fiscal incentives; and the Package 2+ on further hikes in tobacco and alcohol taxes, as well giving the government a bigger share of mining revenues. Packages 1B and 2, and the tobacco part of Package 2+ are now in Congress.
source: Businessworld
“By the end of the month, we will submit package three and four sabay (simultaneously),” Finance Secretary Carlos G. Dominguez III told reporters late Thursday.
Mr. Dominguez said that the two reform packages are “mostly revenue neutral.”
The third package seeks to provide a harmonized valuation scheme for national and local taxes.
“For the real estate — hindi naman samin mapupunta yung pera (collections will not go to the national government) — we just want to make sure that the appraisal is done in an internationally accepted way and is done regularly,” Mr. Dominguez.
“Now the local government, they will have the right to tax to set the rate. We just want the valuation [standardized] because the valuation now is really crazy.”
Currently, the government has two valuation schemes for real property: zonal values prepared by the Bureau of Internal Revenue to serve as basis for estate and capital gains taxes and fair market values used by local governments to compute annual real property taxes.
The DoF’s Bureau of Local Government Finance has said that the proposed reform should ease pressure on local officials — who are elected every three years — from their constituents to keep real property assessments low, resulting in delayed review of property values despite the requirement to do so every three years.
DoF said that the reform will also supplement the unitary six percent estate and donors tax provided by the Tax Reform for Acceleration and Inclusion law.
“And then the other thing also is the higher tax on real estate, you will remove the speculative aspect of it. Because you know, it’s going to cost you too much to hold undeveloped idle real estate. So you want to force them to develop it,” Mr. Dominguez explained.
The fourth package, meanwhile, seeks to streamline taxes on financial investments.
“In the financial taxes, the goal is to simplify it. We have 80 different types of tax in financial products and instruments. We’re working very hard we were able to reduce it to about 42. Ang dami palang batas diyan,” said Mr. Dominguez.
The DoF earlier said that the package includes reduction of interest income tax earned from peso-denominated deposits to 12% from 20% and at the same time increase capital income tax rate for dollar deposits, investments, dividends, equity and fixed income, among others, to the same rate. This move would take out the arbitrage among financial products.
The DoF has also said that it would make them more inclusive by taking out the interest income tax for deposits with a minimum deposit period of five years.
The department targets Congress to approve all packages this year, including the Package 1B on general and estate tax amnesty; the second package on corporate income tax and fiscal incentives; and the Package 2+ on further hikes in tobacco and alcohol taxes, as well giving the government a bigger share of mining revenues. Packages 1B and 2, and the tobacco part of Package 2+ are now in Congress.
source: Businessworld
Tuesday, July 10, 2018
PEZA banking on LGU support for exemptions from TRAIN 2
THE Philippine Economic Zone Authority (PEZA) said it hopes to
attract more new investment this year, citing support from local
government units (LGUs) to exempt the investment-promotion agency from
the effects of the second round of tax reform.
“I am still very optimistic,” PEZA Director-General Charito B. Plaza told reporters on Friday when asked on her outlook for investment this year.
Investment pledges received by PEZA stood at P30.72 billion in the six months to June, down 40.2% year-on-year.
“I am happy that the local authorities, the Union of Local Authorities of the Philippines (ULAP)… passed a resolution, a strongly worded resolution which says they are appealing to the president and congress to exempt PEZA from the TRAIN 2,” Ms. Plaza added, referring to the second round of tax reform, known by the acronym TRAIN for Tax Reform for Inclusion and Acceleration.
“[T]his is the first time that the LGUs have learned about the program of PEZA. That we are giving incentives. They want to have a share of this spreading of jobs so they can also be ready to be federal states,” she added.
TRAIN, which took effect this year, reduced income taxes but imposed new excise taxes on diesel, liquefied petroleum gas, kerosene and bunker fuel for electricity generation.
TRAIN 2 seeks to reduce corporate income tax rate, while rationalizing the fiscal incentives system, creating uncertainty over the status of privileges enjoyed by economic zone locators.
The measure will cut the preferential corporate income tax rate to 15% from 30% but will replace the 5% perpetual gross income earned tax enjoyed by enterprises inside the PEZA ecozones.
Ms. Plaza, however, noted that locators have not shut down due to these uncertainties and have been taking a wait-and-see approach.
source: Businessworld
“I am still very optimistic,” PEZA Director-General Charito B. Plaza told reporters on Friday when asked on her outlook for investment this year.
Investment pledges received by PEZA stood at P30.72 billion in the six months to June, down 40.2% year-on-year.
“I am happy that the local authorities, the Union of Local Authorities of the Philippines (ULAP)… passed a resolution, a strongly worded resolution which says they are appealing to the president and congress to exempt PEZA from the TRAIN 2,” Ms. Plaza added, referring to the second round of tax reform, known by the acronym TRAIN for Tax Reform for Inclusion and Acceleration.
“[T]his is the first time that the LGUs have learned about the program of PEZA. That we are giving incentives. They want to have a share of this spreading of jobs so they can also be ready to be federal states,” she added.
TRAIN, which took effect this year, reduced income taxes but imposed new excise taxes on diesel, liquefied petroleum gas, kerosene and bunker fuel for electricity generation.
TRAIN 2 seeks to reduce corporate income tax rate, while rationalizing the fiscal incentives system, creating uncertainty over the status of privileges enjoyed by economic zone locators.
The measure will cut the preferential corporate income tax rate to 15% from 30% but will replace the 5% perpetual gross income earned tax enjoyed by enterprises inside the PEZA ecozones.
Ms. Plaza, however, noted that locators have not shut down due to these uncertainties and have been taking a wait-and-see approach.
source: Businessworld
Thursday, July 5, 2018
Dominguez unveils details of proposed tax amnesty program
Finance Secretary Carlos G. Dominguez III on Thursday unveiled
details of the planned and much-awaited tax amnesty program aimed at
shoring up revenues to fund the massive infrastructure projects to be
rolled out by the Duterte administration.
“This year, we hope to improve further our revenue collections with a proposed tax amnesty program. The program will help clear the dockets as well as enable the transfer of stranded real properties so that they can be made economically useful,” Dominguez said in a speech before the Rotary Club of Manila.
“In particular, we propose an estate tax amnesty where the government collects only 6 percent of the net undeclared estate tax for those who died prior to January 1, 2018,” Dominguez said.
He noted that estate tax used to be a higher 20 percent.
Also, the Department of Finance was “proposing a general tax amnesty on all unpaid internal revenue taxes excluding internal revenue taxes arising from importation and customs duties,” Dominguez added.
The Finance chief said that they also wanted to offer amnesty on tax delinquencies, at a rate of 50 percent on the basic tax, excluding interest charges and surcharges.
“For those already facing criminal cases in court, we are proposing a rate of 80 percent of the basic tax only,” he added.
Dominguez earlier said that the government was eyeing to implement the much-awaited tax amnesty by April next year to coincide with the deadline of filing income tax returns.
Tax amnesty forms part of tax reform package “1B,” an off-shoot of the Tax Reform for Acceleration and Inclusion (TRAIN) Act signed by President Duterte last December.
Besides general tax amnesty, package 1B also includes estate tax amnesty, higher motor vehicle user’s charge, bank secrecy relaxation and automatic exchange of information.
Tax package 1B was a result of the Senate’s removal of the tax administration measures from the original first tax reform package passed by the Lower House last year under House Bill No. 5636.
Once package 1B is passed, it will add about P40 billion in revenues.
The DOF was optimistic that the tax reform package 1B will be passed by Congress in the third quarter.
Dominguez said that another reform that the DOF proposes was to treat value-added tax (VAT) as “purely a consumption tax.”
“As such, it will be collected at the point of consumption or sale, and it will be refunded when the consumption is done outside the Philippines. VAT exemptions should not be granted as investments incentives,” he said.
In general, “the tax reform program will assure us of sufficient revenues to fund the infrastructure modernization and expand social services,” Dominguez said.
“Thirty percent of incremental revenues generated from the tax reform law will go to pay for social services. There will be larger allotments for improving public health, upgrading our educational system and providing conditional cash assistance for the poorest of the poor. This, after all, is what modern governments are about: looking after the welfare of its people and providing them effective protection. Meanwhile, about 70 percent of the revenues raised from the new law will be directed to infrastructure modernization,” the Finance chief said.
Besides the TRAIN Law, up to five more tax packages, including pending legislation on corporate income taxation reform coupled with the rationalization of fiscal incentives, will be pursued by the Duterte administration.
source: Philippine Daily Inquirer
“This year, we hope to improve further our revenue collections with a proposed tax amnesty program. The program will help clear the dockets as well as enable the transfer of stranded real properties so that they can be made economically useful,” Dominguez said in a speech before the Rotary Club of Manila.
“In particular, we propose an estate tax amnesty where the government collects only 6 percent of the net undeclared estate tax for those who died prior to January 1, 2018,” Dominguez said.
He noted that estate tax used to be a higher 20 percent.
Also, the Department of Finance was “proposing a general tax amnesty on all unpaid internal revenue taxes excluding internal revenue taxes arising from importation and customs duties,” Dominguez added.
The Finance chief said that they also wanted to offer amnesty on tax delinquencies, at a rate of 50 percent on the basic tax, excluding interest charges and surcharges.
“For those already facing criminal cases in court, we are proposing a rate of 80 percent of the basic tax only,” he added.
Dominguez earlier said that the government was eyeing to implement the much-awaited tax amnesty by April next year to coincide with the deadline of filing income tax returns.
Tax amnesty forms part of tax reform package “1B,” an off-shoot of the Tax Reform for Acceleration and Inclusion (TRAIN) Act signed by President Duterte last December.
Besides general tax amnesty, package 1B also includes estate tax amnesty, higher motor vehicle user’s charge, bank secrecy relaxation and automatic exchange of information.
Tax package 1B was a result of the Senate’s removal of the tax administration measures from the original first tax reform package passed by the Lower House last year under House Bill No. 5636.
Once package 1B is passed, it will add about P40 billion in revenues.
The DOF was optimistic that the tax reform package 1B will be passed by Congress in the third quarter.
Dominguez said that another reform that the DOF proposes was to treat value-added tax (VAT) as “purely a consumption tax.”
“As such, it will be collected at the point of consumption or sale, and it will be refunded when the consumption is done outside the Philippines. VAT exemptions should not be granted as investments incentives,” he said.
In general, “the tax reform program will assure us of sufficient revenues to fund the infrastructure modernization and expand social services,” Dominguez said.
“Thirty percent of incremental revenues generated from the tax reform law will go to pay for social services. There will be larger allotments for improving public health, upgrading our educational system and providing conditional cash assistance for the poorest of the poor. This, after all, is what modern governments are about: looking after the welfare of its people and providing them effective protection. Meanwhile, about 70 percent of the revenues raised from the new law will be directed to infrastructure modernization,” the Finance chief said.
Besides the TRAIN Law, up to five more tax packages, including pending legislation on corporate income taxation reform coupled with the rationalization of fiscal incentives, will be pursued by the Duterte administration.
source: Philippine Daily Inquirer
Tuesday, July 3, 2018
Tax amnesty: A losing proposition?
There’s no point having high tax rates when enforcement is the real
problem. That’s why the comprehensive tax reform program of the Duterte
administration is a necessary evil to make our tax system simpler,
fairer and more efficient.
There’s no reform without pain. We cannot change without having to sacrifice our old ways and maybe even our personal budget.
TRAIN package 1 has taught us that.
Based on the 2016 Annual Report of the Bureau of Internal Revenue (BIR), most of the country’s income tax collections from individuals are shouldered by employees whose income taxes are withheld at source. Their contribution amounts to more than P280 billion of the P340 billion in tax revenues from this sector
On the other hand, the collection from self-employed and professionals (SEPs), despite the increase in taxpayer base by 12.31 percent and 6.86 percent, respectively, decreased by 1.18 percent from P16.012 million in 2015 to P15.82 million in 2016.
Policy reforms must be supported by administrative reforms, and the taxpaying public must be properly informed, guided and assisted to encourage voluntary compliance. Tax rates can easily be increased or decreased through legislation, same as adding new taxes. However, broadening the taxpayer base and increasing voluntary compliance require strategy, budget and collaboration. These are critical to making our tax system efficient.
If the BIR were to improve its enforcement, then it needs an increased budget to hire more technocrats and legal experts, and to invest in technology to catch up with e-commerce and prosecute big- time tax evaders.
As much as we need to intensify the audit of taxpayers, we also need to investigate and remove corrupt BIR examiners who continue to leverage on the ignorance of taxpayers and inefficiency of our tax system. How come the same companies are still being audited for three or more consecutive years despite their improving tax compliance? What’s the real reason and why burden the few taxpayers (being audited) with the increasing collection goal of the BIR?
BIR audit imposes 25 percent surcharge, interest and compromise penalty on top of the basic tax due. Businesses end up having to pay more than if they had simply complied. So, does the BIR audit improve compliance of taxpayers being audited?
Not all those who have to pay these fines and penalties for noncompliance did so intentionally.
Business owners don’t need to have malicious intent to forget filing a return, miss a deadline, or report an incorrect taxable income. They might have just thought they had paid the right dues.
With all the provisions, revenue regulations, memorandum circulars, and other legislation, it is often difficult to keep track of which taxes to pay, how to pay them, and when to pay them.
If you have an educational background dealing with taxes, good for you. Otherwise, you’d have to either start learning, or pay others to understand the laws for you.
These businesses, once found noncompliant, are subjected to heavy fines, penalties, and compromises. Their lack of intent does not excuse them, of course. After all, ignorance of the law excuses no one. Even so, something needs to be done to address this issue.
The general tax amnesty currently being reviewed in Congress can help with that problem.
TRAIN’s package 1B will provide not only businesses, but every taxpayer, a fresh start.
It is expected to generate about P40 billion for the government for the year, which only goes to show the expansiveness of the reform.
However, that again poses the problem that the corrupt taxpayers can just start over with their misdeeds.
So, is the tax amnesty a losing proposition? It does not have to be. That’s why requisite to an effective amnesty program is the lifting of the Bank Secrecy Law to force erring taxpayers or violators to do self-assessment and tax planning before filing for tax amnesty.
The amnesty addresses an end result, not a root cause.
Of course, that is not to say it is not a good solution—because it is—just that it should not be seen as the answer to the country’s tax woes.
What the country needs is a system that encourages honesty and integrity for both taxpayers and tax collectors.
With coming tax reforms intended to lower taxes, the government exhibits its trust in the Filipino people. In turn, as citizens, we need to do our part.
Voluntary compliance will be the key to a better system.
At the Asian Consulting Group (ACG), we are committed to helping taxpayers pay the right taxes.
But paying the right taxes does not have to mean paying more taxes.
Unnecessary penalties, interest and compromises are the main cause of a taxpayer’s headache, and if taxpayers choose to be more compliant (and honest), then they can get rid of all these problems.
This is where knowledge and professional help can play a significant part.
Just because a taxpayer wishes to comply with taxes voluntarily does not mean they would be free from the burdens of taxes immediately.
With the right assistance, taxpayers can save millions of pesos while helping the government collect the right taxes without unnecessary penalties and compromises.
Taxpayers who are frequently audited will now have options, either they wait and prepare for the implementation of general tax amnesty or apply their companies to the Seal of Honesty (SOH) Certification Program.
Visit www.sealofhonesty.ph for more information.
If you’re interested, you may want to know about Citizen Tax Planning (CTP) to stop a BIR audit.
CTP is a game-changing strategy to help taxpayers pay the right taxes without the unnecessary penalties and compromises.
E-mail us at consult@acg.ph, for more details. You may also visit www.acg.ph.
source: Inquirer
As we always say, if we want a better Philippines, we need to be good citizens and better taxpayers.
There’s no reform without pain. We cannot change without having to sacrifice our old ways and maybe even our personal budget.
TRAIN package 1 has taught us that.
Based on the 2016 Annual Report of the Bureau of Internal Revenue (BIR), most of the country’s income tax collections from individuals are shouldered by employees whose income taxes are withheld at source. Their contribution amounts to more than P280 billion of the P340 billion in tax revenues from this sector
On the other hand, the collection from self-employed and professionals (SEPs), despite the increase in taxpayer base by 12.31 percent and 6.86 percent, respectively, decreased by 1.18 percent from P16.012 million in 2015 to P15.82 million in 2016.
Policy reforms must be supported by administrative reforms, and the taxpaying public must be properly informed, guided and assisted to encourage voluntary compliance. Tax rates can easily be increased or decreased through legislation, same as adding new taxes. However, broadening the taxpayer base and increasing voluntary compliance require strategy, budget and collaboration. These are critical to making our tax system efficient.
If the BIR were to improve its enforcement, then it needs an increased budget to hire more technocrats and legal experts, and to invest in technology to catch up with e-commerce and prosecute big- time tax evaders.
As much as we need to intensify the audit of taxpayers, we also need to investigate and remove corrupt BIR examiners who continue to leverage on the ignorance of taxpayers and inefficiency of our tax system. How come the same companies are still being audited for three or more consecutive years despite their improving tax compliance? What’s the real reason and why burden the few taxpayers (being audited) with the increasing collection goal of the BIR?
BIR audit imposes 25 percent surcharge, interest and compromise penalty on top of the basic tax due. Businesses end up having to pay more than if they had simply complied. So, does the BIR audit improve compliance of taxpayers being audited?
Not all those who have to pay these fines and penalties for noncompliance did so intentionally.
Business owners don’t need to have malicious intent to forget filing a return, miss a deadline, or report an incorrect taxable income. They might have just thought they had paid the right dues.
With all the provisions, revenue regulations, memorandum circulars, and other legislation, it is often difficult to keep track of which taxes to pay, how to pay them, and when to pay them.
If you have an educational background dealing with taxes, good for you. Otherwise, you’d have to either start learning, or pay others to understand the laws for you.
These businesses, once found noncompliant, are subjected to heavy fines, penalties, and compromises. Their lack of intent does not excuse them, of course. After all, ignorance of the law excuses no one. Even so, something needs to be done to address this issue.
The general tax amnesty currently being reviewed in Congress can help with that problem.
TRAIN’s package 1B will provide not only businesses, but every taxpayer, a fresh start.
It is expected to generate about P40 billion for the government for the year, which only goes to show the expansiveness of the reform.
However, that again poses the problem that the corrupt taxpayers can just start over with their misdeeds.
So, is the tax amnesty a losing proposition? It does not have to be. That’s why requisite to an effective amnesty program is the lifting of the Bank Secrecy Law to force erring taxpayers or violators to do self-assessment and tax planning before filing for tax amnesty.
The amnesty addresses an end result, not a root cause.
Of course, that is not to say it is not a good solution—because it is—just that it should not be seen as the answer to the country’s tax woes.
What the country needs is a system that encourages honesty and integrity for both taxpayers and tax collectors.
With coming tax reforms intended to lower taxes, the government exhibits its trust in the Filipino people. In turn, as citizens, we need to do our part.
Voluntary compliance will be the key to a better system.
At the Asian Consulting Group (ACG), we are committed to helping taxpayers pay the right taxes.
But paying the right taxes does not have to mean paying more taxes.
Unnecessary penalties, interest and compromises are the main cause of a taxpayer’s headache, and if taxpayers choose to be more compliant (and honest), then they can get rid of all these problems.
This is where knowledge and professional help can play a significant part.
Just because a taxpayer wishes to comply with taxes voluntarily does not mean they would be free from the burdens of taxes immediately.
With the right assistance, taxpayers can save millions of pesos while helping the government collect the right taxes without unnecessary penalties and compromises.
Taxpayers who are frequently audited will now have options, either they wait and prepare for the implementation of general tax amnesty or apply their companies to the Seal of Honesty (SOH) Certification Program.
Visit www.sealofhonesty.ph for more information.
If you’re interested, you may want to know about Citizen Tax Planning (CTP) to stop a BIR audit.
CTP is a game-changing strategy to help taxpayers pay the right taxes without the unnecessary penalties and compromises.
E-mail us at consult@acg.ph, for more details. You may also visit www.acg.ph.
source: Inquirer
As we always say, if we want a better Philippines, we need to be good citizens and better taxpayers.
Wednesday, June 27, 2018
Unlocking the BIR’s ‘Oplan Kandado’ program
As the main revenue-collecting agency, the Bureau of Internal Revenue
(BIR) is tasked to collect a total of P2.039 trillion in tax revenue
this year to fund the government’s “Build, Build, Build” program. It was
able to surpass its first-quarter collection target by approximately
17%, collecting P422.587 billion above its target of P361.767 billion.
The implementation of the TRAIN Law may have largely contributed to the increased tax collection, but some credit may also go to the BIR’s intensified collection efforts through its stringent tax compliance programs.
One particular program that the Bureau has been aggressively using these past few years (and arguably the most feared by taxpayers) is “Oplan Kandado.” Introduced in 2009 through a Revenue Memorandum Order (RMO), Oplan Kandado aims not only to maximize the degree of voluntary compliance among taxpayers, but also to deter Tax Code violations.
True to the program’s moniker, it imposes heavy administrative sanctions on offenders, such as suspension and temporary closure of the taxpayer’s business. The RMO even provides that the operations be widely publicized in certain instances through press releases or conferences, and if possible, via televised coverage — a total nightmare for any taxpayer. The intention is for the program to create a lasting impact on the public, particularly erring taxpayers.
In February, a transport network vehicle service (TNVS) paid P41 million in taxes by way of reparations under Oplan Kandado. Just recently, more and more establishments, including a popular lechon restaurant in Quezon City, were shut down by the BIR due to alleged nonpayment of value-added tax (VAT). The clampdown may be due to the integration of the program as part of the BIR officials’ key performance indicators in 2017.
Oplan Kandado’s mandate is anchored on Section 115 of the Tax Code which gives the Commissioner of Internal Revenue (CIR) or his authorized representative the power to suspend business operations due to violations of any of the following essential VAT requirements: (1) Failure to register for VAT as required; (2) Failure to issue receipts or invoices; (3) Failure to file a VAT return and pay the tax due; and (4) Understatement of taxable sales or receipts by 30% or more.
Oplan Kandado starts with the issuance of a Mission Order from the BIR, authorizing revenue officers to conduct surveillance on a taxpayer’s operations, overtly or covertly, within a period of 10 to 30 days (unless extended in writing). In covert surveillance, the BIR officials may issue an Apprehension Slip on the spot if the taxpayer is caught in the act of not issuing official receipts/invoices, or issuing official receipts/invoices that are not registered with the BIR.
If after the conclusion of the surveillance the BIR finds basis for the closure of the business establishment, the taxpayer is sent a notice giving him the opportunity to explain “under oath” within 48 hours why the business should not be closed. If the taxpayer fails to respond within 48 hours or the BIR deems the explanations insufficient or unjustified, a five-day VAT Compliance Notice (VCN) shall be issued.
The taxpayer is given only two days to respond to the VCN. Upon receipt of the taxpayer’s response, the five-day VCN shall be deemed suspended and shall only resume upon receipt of the BIR’s reply/resolution finding the taxpayer liable.
Should the taxpayer refuse or neglect to submit an explanation within the prescribed two-day period, the BIR shall issue a Closure Order as approved by the CIR. To effect the Closure Order, the BIR will padlock the entrance and place a sign that the establishment is closed due to nonpayment of taxes or for other violations of the VAT rules and regulations. The closure of a business establishment shall be for a period of not less than five days and/or until the violation is rectified. In some cases, immediate or partial compliance may be considered sufficient basis to lift the closure.
The closure of an establishment, even if temporary, can result in significant financial and reputational repercussions, more so if the closure is publicized through mass media. Thus, many taxpayers choose to comply with the tax findings contained in the VCN rather than risk negative publicity that could mar their reputation.
Given the drastic measures employed by the program, how can taxpayers defend themselves when faced with Oplan Kandado findings? Consider the following steps:
Even under ideal conditions, both taxpayers and the BIR undeniably
face difficulties with Oplan Kandado. While there are minor issues that
can easily be resolved to prevent the closure of business
establishments, in some cases, there are also complex issues that may
require more than the allotted two-day period for compliance. For
instance, what if the findings involved alleged nonpayment of VAT, while
the taxpayer argues that it is not liable for VAT in the first place?
Worse is if the taxpayer has already been slapped with a Closure Order
while the issue remains the subject of a legal battle.
For many taxpayers, two days is too short a time to properly address tax findings and collate the supporting documents. Regrettably, some opt to just pay the deficiency tax assessments as an easy way out to avoid setbacks and other detrimental repercussions on their business operations. As a tax practitioner and a Filipino, I am pleased when the government meets (and exceeds) its revenue targets. However, I look forward to the day when such targets are achieved through voluntary payments by compliant taxpayers and through programs that are reasonably implemented to support the growing business community in the Philippines.
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 content is for general information purposes only, and should not be used as a substitute for specific advice.
Kathrine Joy Capales is an Assistant Manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
source: Businessworld
The implementation of the TRAIN Law may have largely contributed to the increased tax collection, but some credit may also go to the BIR’s intensified collection efforts through its stringent tax compliance programs.
One particular program that the Bureau has been aggressively using these past few years (and arguably the most feared by taxpayers) is “Oplan Kandado.” Introduced in 2009 through a Revenue Memorandum Order (RMO), Oplan Kandado aims not only to maximize the degree of voluntary compliance among taxpayers, but also to deter Tax Code violations.
True to the program’s moniker, it imposes heavy administrative sanctions on offenders, such as suspension and temporary closure of the taxpayer’s business. The RMO even provides that the operations be widely publicized in certain instances through press releases or conferences, and if possible, via televised coverage — a total nightmare for any taxpayer. The intention is for the program to create a lasting impact on the public, particularly erring taxpayers.
In February, a transport network vehicle service (TNVS) paid P41 million in taxes by way of reparations under Oplan Kandado. Just recently, more and more establishments, including a popular lechon restaurant in Quezon City, were shut down by the BIR due to alleged nonpayment of value-added tax (VAT). The clampdown may be due to the integration of the program as part of the BIR officials’ key performance indicators in 2017.
Oplan Kandado’s mandate is anchored on Section 115 of the Tax Code which gives the Commissioner of Internal Revenue (CIR) or his authorized representative the power to suspend business operations due to violations of any of the following essential VAT requirements: (1) Failure to register for VAT as required; (2) Failure to issue receipts or invoices; (3) Failure to file a VAT return and pay the tax due; and (4) Understatement of taxable sales or receipts by 30% or more.
Oplan Kandado starts with the issuance of a Mission Order from the BIR, authorizing revenue officers to conduct surveillance on a taxpayer’s operations, overtly or covertly, within a period of 10 to 30 days (unless extended in writing). In covert surveillance, the BIR officials may issue an Apprehension Slip on the spot if the taxpayer is caught in the act of not issuing official receipts/invoices, or issuing official receipts/invoices that are not registered with the BIR.
If after the conclusion of the surveillance the BIR finds basis for the closure of the business establishment, the taxpayer is sent a notice giving him the opportunity to explain “under oath” within 48 hours why the business should not be closed. If the taxpayer fails to respond within 48 hours or the BIR deems the explanations insufficient or unjustified, a five-day VAT Compliance Notice (VCN) shall be issued.
The taxpayer is given only two days to respond to the VCN. Upon receipt of the taxpayer’s response, the five-day VCN shall be deemed suspended and shall only resume upon receipt of the BIR’s reply/resolution finding the taxpayer liable.
Should the taxpayer refuse or neglect to submit an explanation within the prescribed two-day period, the BIR shall issue a Closure Order as approved by the CIR. To effect the Closure Order, the BIR will padlock the entrance and place a sign that the establishment is closed due to nonpayment of taxes or for other violations of the VAT rules and regulations. The closure of a business establishment shall be for a period of not less than five days and/or until the violation is rectified. In some cases, immediate or partial compliance may be considered sufficient basis to lift the closure.
The closure of an establishment, even if temporary, can result in significant financial and reputational repercussions, more so if the closure is publicized through mass media. Thus, many taxpayers choose to comply with the tax findings contained in the VCN rather than risk negative publicity that could mar their reputation.
Given the drastic measures employed by the program, how can taxpayers defend themselves when faced with Oplan Kandado findings? Consider the following steps:
1) Make sure that there is a valid Mission Order authorizing the revenue officers to conduct the surveillance.
2) Once a 48-hour notice is issued,
ensure that the written reply is duly notarized and properly addressed
the findings stated in the notice.
3) If a five-day VCN is issued, check if
it contains the details of the findings of the investigating officer and
if it states the particular provision of the Tax Code that was violated
and for which rectification should be done.
4) Respond to the five-day VCN within two
days from receipt, and/or comply with the terms of the VCN showing
blatant violations (e.g. comply with the registration requirements in
case of failure to register as VAT taxpayer).
For many taxpayers, two days is too short a time to properly address tax findings and collate the supporting documents. Regrettably, some opt to just pay the deficiency tax assessments as an easy way out to avoid setbacks and other detrimental repercussions on their business operations. As a tax practitioner and a Filipino, I am pleased when the government meets (and exceeds) its revenue targets. However, I look forward to the day when such targets are achieved through voluntary payments by compliant taxpayers and through programs that are reasonably implemented to support the growing business community in the Philippines.
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 content is for general information purposes only, and should not be used as a substitute for specific advice.
Kathrine Joy Capales is an Assistant Manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
source: Businessworld
Monday, March 12, 2018
DOF seeks Congress nod for other CTRP packages
The Department of Finance (DOF) is
targeting to secure Congress’s approval for the remaining packages of
its Comprehensive Tax Reform Program (CTRP) by the end of the year.
During the Philippine Economic Briefing forum in Davao City last Friday, DOF Assistant Secretary Ma. Teresa S. Habitan bared that the DOF is eyeing for “Package 2 plus” to be ratified in Congress by December along with Package 3 and Package 4 of the CTRP.
“And we count on your support on the succeeding packages to be heard by Congress this year,” Habitan told businessmen during her presentation at the forum.
Package 2 plus includes measures tackling the increase in excise taxes on sin products, namely, tobacco and alcoholic products, mining, coal and casino operations.
The proposal to increase excise tax rates on sin products like tobacco and alcoholic beverages is being targeted for Congress ratification by June 2018, while the the comprehensive mining tax and that of the removal of the value-added tax for coal and casino operations is being eyed for December.
Package 2 of the CTRP, which aims to lower corporate income-tax rates from 30 percent to 25 percent, as well as harmonizing fiscal incentives, was submitted to Congress in January. Package 1B of the first package of the CTRP, which is now the Tax Reform for Acceleration and Inclusion (TRAIN) law, is being eyed for passage by the end of this month.
“The Philippines grants the most generous tax incentives by giving them forever the GIE [gross income earned]. All other countries in the Asean impose a ceiling. This just proves that we have to revisit the way we do our incentives law,” Habitan said.
Under the TRAIN, which was signed into law by President Duterte in December 2017, the lowering of personal income-tax rates was implemented including a number of offsetting measures, such as increasing taxes on fuel, expanding the taxpayer base and limiting VAT exemptions, among others.
Under Package 1A, the increase in coal excise tax, which was originally proposed to be included in the DOF’s fifth package of the CTRP, was raised from the current P10 per metric ton to P50 per MT in the first year of implementation, P100 in the second year and P150 in the succeeding years.
And the increase in tobacco excise tax rates was also included, from the current P30 per pack, it will be raised to P32.5 in the first half of this year and to P35 starting from July 2018 to December 2019.
Finance Secretary Carlos G. Dominguez III earlier bared that Package 1B tackles tax administration measures, as well as tax amnesty provisions and lifting of the bank-secrecy law.
Package 3 of the DOF’s proposed CTRP tackles property taxation, with the goal of lowering the rate of donor’s and estate taxes, as well as the rate of transaction taxes on land. The offsetting measures include the rationalization of valuation of properties, or increasing valuation closer to market prices.
The fourth package covers capital income taxation, which aims to reduce the taxes imposed on interest income earned on peso deposit and investments from 20 percent to 10 percent. Its offsetting measures include the harmonization of capital income-tax rates for dollar deposits and investments, dividends, equity and fixed income rates to 10 percent. It also includes increasing tax on stocks traded in the stock market from 0.5 percent to 1 percent on gross selling price.
DOF Undersecretary Karl Kendrick T. Chua bared last year that the DOF wants all tax-reform packages approved before 2019, which is an election year. Packages 3 and 4 of the CTRP have yet to be submitted to Congress.
source: Business Mirror
During the Philippine Economic Briefing forum in Davao City last Friday, DOF Assistant Secretary Ma. Teresa S. Habitan bared that the DOF is eyeing for “Package 2 plus” to be ratified in Congress by December along with Package 3 and Package 4 of the CTRP.
“And we count on your support on the succeeding packages to be heard by Congress this year,” Habitan told businessmen during her presentation at the forum.
Package 2 plus includes measures tackling the increase in excise taxes on sin products, namely, tobacco and alcoholic products, mining, coal and casino operations.
The proposal to increase excise tax rates on sin products like tobacco and alcoholic beverages is being targeted for Congress ratification by June 2018, while the the comprehensive mining tax and that of the removal of the value-added tax for coal and casino operations is being eyed for December.
Package 2 of the CTRP, which aims to lower corporate income-tax rates from 30 percent to 25 percent, as well as harmonizing fiscal incentives, was submitted to Congress in January. Package 1B of the first package of the CTRP, which is now the Tax Reform for Acceleration and Inclusion (TRAIN) law, is being eyed for passage by the end of this month.
“The Philippines grants the most generous tax incentives by giving them forever the GIE [gross income earned]. All other countries in the Asean impose a ceiling. This just proves that we have to revisit the way we do our incentives law,” Habitan said.
Under the TRAIN, which was signed into law by President Duterte in December 2017, the lowering of personal income-tax rates was implemented including a number of offsetting measures, such as increasing taxes on fuel, expanding the taxpayer base and limiting VAT exemptions, among others.
Under Package 1A, the increase in coal excise tax, which was originally proposed to be included in the DOF’s fifth package of the CTRP, was raised from the current P10 per metric ton to P50 per MT in the first year of implementation, P100 in the second year and P150 in the succeeding years.
And the increase in tobacco excise tax rates was also included, from the current P30 per pack, it will be raised to P32.5 in the first half of this year and to P35 starting from July 2018 to December 2019.
Finance Secretary Carlos G. Dominguez III earlier bared that Package 1B tackles tax administration measures, as well as tax amnesty provisions and lifting of the bank-secrecy law.
Package 3 of the DOF’s proposed CTRP tackles property taxation, with the goal of lowering the rate of donor’s and estate taxes, as well as the rate of transaction taxes on land. The offsetting measures include the rationalization of valuation of properties, or increasing valuation closer to market prices.
The fourth package covers capital income taxation, which aims to reduce the taxes imposed on interest income earned on peso deposit and investments from 20 percent to 10 percent. Its offsetting measures include the harmonization of capital income-tax rates for dollar deposits and investments, dividends, equity and fixed income rates to 10 percent. It also includes increasing tax on stocks traded in the stock market from 0.5 percent to 1 percent on gross selling price.
DOF Undersecretary Karl Kendrick T. Chua bared last year that the DOF wants all tax-reform packages approved before 2019, which is an election year. Packages 3 and 4 of the CTRP have yet to be submitted to Congress.
source: Business Mirror
Monday, January 8, 2018
To new beginnings
A new year and a new tax law for Filipinos to comply with. For those
of who may be planning to start a new business venture this year, here
are some reminders on registering a business with the Bureau of Internal
Revenue (BIR), and how the Tax Reform Act for Acceleration and
Inclusion (TRAIN) law may affect it.
Registration requirements
Revenue Memorandum Circular (RMC) 70-13, as amended by RMC 93-16, provides the necessary documentary requirements for registering corporations or partnerships. The requirements listed below are to be submitted upon registration within 10 days from date of employment, on or before commencement of the business, before payment of any tax due, or upon filing of a return, statement, or declaration:
Corporations or partnerships
Application for Registration for Corporations/Partnerships (BIR Form 1903);
Photocopy of Securities and Exchange Commission (SEC) Certificate of Incorporation or Registration;
Articles of Incorporation/Articles of Partnership;
Photocopy of Mayor’s Permit/Duly received application for Mayor’s Business Permit;
New sets of permanently bound books of accounts;
Proof of payment of annual registration fee of P500;
Application for Authority to Print Receipts and Invoices (BIR Form 1906);
Final and clear sample of principal receipts/invoices; and
Other pertinent documents as may be required.
Branch and facility types – Non-individual
Application for Registration for Corporations/Partnerships (BIR Form 1903);
Photocopy of Mayor’s Permit/Duly received application for Mayor’s Business Permit;
Board Resolution/Secretary Certificate stating the branch establishment, if any;
New sets of permanently bound books of accounts;
Proof of payment of annual registration fee of P500;
Application for Authority to Print Receipts and Invoices (BIR Form 1906); and
Final and clear sample of principal receipts/invoices.
Sole proprietorship or self-employed individuals
Application for Registration for Self-Employed and Mixed Income Individuals, Estates/Trusts (BIR Form 1901)
Any identification issued by an authorized government body showing the name, address, and birthdate of the applicant;
Photocopy of Mayor’s Permit/Duly received application for Mayor’s Business Permit;
Professional Tax Receipt/Occupational Tax Receipt issued by a Local Government Unit or a Department of Trade and Industry Certificate, if any;
New sets of permanently bound books of accounts;
Proof of payment of annual registration fee of P500;
Application for Authority to Print Receipts and Invoices (BIR Form 1906);
Final and clear sample of principal receipts/invoices; and
Other pertinent documents as may be required.
Branch and facility types – Individual
Application for Registration for Self-Employed and Mixed Income Individuals, Estates/Trusts (BIR Form 1901);
Photocopy of Mayor’s Permit/Duly received application for Mayor’s Business Permit;
Professional Tax Receipt/Occupational Tax Receipt issued by an LGU or a DTI Certificate, if any;
New sets of permanently bound books of accounts;
Proof of payment of annual registration fee of P500;
Application for Authority to Print Receipts and Invoices (BIR Form 1906); and
Final and clear sample of principal receipts/invoices.
Registration for VAT
Section 236(G) of the Tax Code, as amended by TRAIN, now requires entities engaged in sale, barter, or exchange of goods, properties, or services with gross receipts exceeding P3 million – from the previous threshold of P1.9 million – to register for value-added tax (VAT). Additionally, entities not meeting the gross receipt threshold of P3 million may still opt to register for VAT. However, it should be noted that TRAIN now prohibits the optional VAT registration of entities electing the 8% tax on gross sales under income taxation.
Issuing commercial papers
Additionally, Section 73 of TRAIN amends Section 237 of the Tax Code, increasing the threshold requirement in the issuance of commercial papers. Commercial papers in this case purport to sales invoices, official receipts, and other related documents. Formerly, any entity liable to internal revenue taxes shall issue commercial papers for transactions amounting to at least P25. With the passage of TRAIN, the P25 threshold has been increased to P100 per transaction.
Electronic sales reporting
In conjunction with the above discussion on commercial papers, TRAIN raises a new system to be established in the next five years. Section 74 of the new law requires taxpayers engaged in export business, taxpayers engaged in e-commerce business and large taxpayers to issue electronic commercial papers, in lieu of manual commercial papers, originals of which are to be issued to customers. Similarly, the abovementioned taxpayers also have to electronically report to the BIR their sales data by use of electronic point of sales systems.
The TRAIN law ushers in a slew of changes that will no doubt affect Filipinos – both income-earners and entrepreneurs. At least in terms of registration, the new law exempts a greater population of taxpayers from VAT. However, with the passage of time, the provisions of TRAIN may not be so easy to comply with, especially with regard to the electronic reporting requirements. Nonetheless, as long as one remains compliant with the new requisites and processes of business registration, there should be no need to fret.
The author is a senior with the Tax & Corporate Services division of Navarro Amper & Co., the local member firm of Deloitte Southeast Asia Ltd. – a member firm of Deloitte Touche Tohmatsu Limited – comprising Deloitte practices operating in Brunei, Cambodia, Guam, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.
source: Manila Times
Registration requirements
Revenue Memorandum Circular (RMC) 70-13, as amended by RMC 93-16, provides the necessary documentary requirements for registering corporations or partnerships. The requirements listed below are to be submitted upon registration within 10 days from date of employment, on or before commencement of the business, before payment of any tax due, or upon filing of a return, statement, or declaration:
Corporations or partnerships
Application for Registration for Corporations/Partnerships (BIR Form 1903);
Photocopy of Securities and Exchange Commission (SEC) Certificate of Incorporation or Registration;
Articles of Incorporation/Articles of Partnership;
Photocopy of Mayor’s Permit/Duly received application for Mayor’s Business Permit;
New sets of permanently bound books of accounts;
Proof of payment of annual registration fee of P500;
Application for Authority to Print Receipts and Invoices (BIR Form 1906);
Final and clear sample of principal receipts/invoices; and
Other pertinent documents as may be required.
Branch and facility types – Non-individual
Application for Registration for Corporations/Partnerships (BIR Form 1903);
Photocopy of Mayor’s Permit/Duly received application for Mayor’s Business Permit;
Board Resolution/Secretary Certificate stating the branch establishment, if any;
New sets of permanently bound books of accounts;
Proof of payment of annual registration fee of P500;
Application for Authority to Print Receipts and Invoices (BIR Form 1906); and
Final and clear sample of principal receipts/invoices.
Sole proprietorship or self-employed individuals
Application for Registration for Self-Employed and Mixed Income Individuals, Estates/Trusts (BIR Form 1901)
Any identification issued by an authorized government body showing the name, address, and birthdate of the applicant;
Photocopy of Mayor’s Permit/Duly received application for Mayor’s Business Permit;
Professional Tax Receipt/Occupational Tax Receipt issued by a Local Government Unit or a Department of Trade and Industry Certificate, if any;
New sets of permanently bound books of accounts;
Proof of payment of annual registration fee of P500;
Application for Authority to Print Receipts and Invoices (BIR Form 1906);
Final and clear sample of principal receipts/invoices; and
Other pertinent documents as may be required.
Branch and facility types – Individual
Application for Registration for Self-Employed and Mixed Income Individuals, Estates/Trusts (BIR Form 1901);
Photocopy of Mayor’s Permit/Duly received application for Mayor’s Business Permit;
Professional Tax Receipt/Occupational Tax Receipt issued by an LGU or a DTI Certificate, if any;
New sets of permanently bound books of accounts;
Proof of payment of annual registration fee of P500;
Application for Authority to Print Receipts and Invoices (BIR Form 1906); and
Final and clear sample of principal receipts/invoices.
Registration for VAT
Section 236(G) of the Tax Code, as amended by TRAIN, now requires entities engaged in sale, barter, or exchange of goods, properties, or services with gross receipts exceeding P3 million – from the previous threshold of P1.9 million – to register for value-added tax (VAT). Additionally, entities not meeting the gross receipt threshold of P3 million may still opt to register for VAT. However, it should be noted that TRAIN now prohibits the optional VAT registration of entities electing the 8% tax on gross sales under income taxation.
Issuing commercial papers
Additionally, Section 73 of TRAIN amends Section 237 of the Tax Code, increasing the threshold requirement in the issuance of commercial papers. Commercial papers in this case purport to sales invoices, official receipts, and other related documents. Formerly, any entity liable to internal revenue taxes shall issue commercial papers for transactions amounting to at least P25. With the passage of TRAIN, the P25 threshold has been increased to P100 per transaction.
Electronic sales reporting
In conjunction with the above discussion on commercial papers, TRAIN raises a new system to be established in the next five years. Section 74 of the new law requires taxpayers engaged in export business, taxpayers engaged in e-commerce business and large taxpayers to issue electronic commercial papers, in lieu of manual commercial papers, originals of which are to be issued to customers. Similarly, the abovementioned taxpayers also have to electronically report to the BIR their sales data by use of electronic point of sales systems.
The TRAIN law ushers in a slew of changes that will no doubt affect Filipinos – both income-earners and entrepreneurs. At least in terms of registration, the new law exempts a greater population of taxpayers from VAT. However, with the passage of time, the provisions of TRAIN may not be so easy to comply with, especially with regard to the electronic reporting requirements. Nonetheless, as long as one remains compliant with the new requisites and processes of business registration, there should be no need to fret.
The author is a senior with the Tax & Corporate Services division of Navarro Amper & Co., the local member firm of Deloitte Southeast Asia Ltd. – a member firm of Deloitte Touche Tohmatsu Limited – comprising Deloitte practices operating in Brunei, Cambodia, Guam, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.
source: Manila Times
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