BIR: Taxes on benefits of gov't workers specified in Internal Revenue Code

Bureau of Internal Revenue chief Kim Henares denies accusations she usurped Congress' power to legislate when she issued Revenue Memorandum Order 23-2014.

Henares explains the order, which taxes thirteenth month pay and other benefits of state employees, merely clarifies provisions that are already in the Internal Revenue Code passed in 1997.

Henares also rejects speculation the controversial order targeted the judiciary's employees in retaliation for the Supreme Court's ruling on the Disbursement Acceleration Program (DAP).

"Kapag binasa niyo 'yung RMO ko, wala naman ako...kinover ko lahat eh: constitutional bodies, legislative, judiciary. Wala naman akong sinabing Supreme Court lang. At saka in-issue 'yang RMO na yan, kailan ho? 'Yung ruling ng Supreme Court na DAP, kailan ho lumabas? Secondly, ano naman pakialam ko sa kanila?" Henares says.

Gov't workers protest taxes on allowances, benefits

On Wednesday, government workers called on the Supreme Court to intervene to stop the BIR order on their taxes. Wearing red and black ribbons, employees of the Supreme Court and the lower courts staged a rally at the high court grounds.

The group laments how government is after ordinary employees like them who are living on meager pay.

They said that instead of increasing taxes, the government should raise the wages of all state workers.

But Henares says she is just implementing the Internal Revenue Code. She also clarified that below-minimum wage earners are expempted from certain taxes.

"My mandate is to implement this law. I'm deaf, mute, blind to all the noise around me. There are exemptions, of course. If you're a minimum wage earner, you're exempted from tax," Henares says.(For more information on how to compute, play this video of the Henares guesting at the 9:37 mark)

Henares warns against raising ceiling of taxable pay

Meanwhile, Henares warns against some law makers' moves to raise the ceiling of taxable income from the current P30,000 to P75,000.

She says doing so would reduce government revenues and its capability to deliver services to the people.

"This is the only position I have. When you try to pass a law, the Bureau of Internal Revenue will only come out and say 'Okay, if you pass this law, this means we will not be able to collect this much. If we will not be able to collect this much, you lower our goal by this much.' Because where will we get it? It's now an impossible goal. Before, it was difficult. It's now impossible. If you lower our goal, that means your expenditure for government will be lower. Then when you lower your expenditure, you have to choose which programs you will not fund. You have to decide who will make the sacrifice. Now, if everyone is clear and all these things are acceptable to everyone, then there's no quarrel," Henares says.

source:  Yahoo!

World Bank: Broaden base, simplify taxes to boost revenues

The multilateral agency also urges the government to rationalize fiscal incentives ahead of the 2015 ASEAN integration
 

MANILA, Philippines – The World Bank said that the implementation of tax policy and administrative reforms can help generate additional revenues needed to support Philippine growth and raise household income in the coming years.

In a briefing on the Philippine Economic Update Thursday, August 7, World Bank Philippines Senior Country Economist Karl Kendrick Chua said there is a scope to raise tax revenues by broadening the base, and making the tax system simpler and more efficient and equitable, while lowering certain tax rates.

In order to raise investment in physical and human capital, higher and more efficient public spending, underpinned by improved revenue mobilization, is needed, Chua added.

"The government has successfully raised tax revenues by 1.2 ppt of Gross Domestic Products (GDP) in the last 3 years through the sin tax reform, improved tax administration, and higher growth," Chua said.

In the region, tax rates on income have actually gone down, Chua pointed out.

"Once ASEAN (Association of Southeast Asian Nations) 2015 kicks in, the Philippines would have to compete on a better footing, and so tentatively we are looking at a 25% corporate income tax rate. We are also looking at a 25% personal income tax rate, down from 30% to 32%," Chua said.

Rationalize fiscal incentives

Chua attributed the country's narrow tax base to government incentives to firms that may not need them.

"The tax system that we have now is characterized by relatively a narrow base and high rates, and what makes the base quite narrow is that we have been giving billions, tens of billions, hundreds of billions of incentives every year to firms that do not need them," Chua said.

However, Chua said that given the low revenue base right now, it is imperative that such be offset.

"One way to do this is to make sure that redundant fiscal incentives are no longer provided. Fiscal incentives going forward will be provided at a very transparent method, based on performance, and are time-bound," Chua said.

The Aquino administration wants fiscal incentives streamlined because these distort the tax structure of the Philippine economy and take away billions of pesos from government that could be used to improve the country’s fiscal position and social services. (READ: Fiscal incentives bill: Is it really priority?)

Investors are normally given corporate income tax holidays for a period of up to 8 years. The Department of Finance (DOF) is looking at discontinuing such tax breaks for sectors like shipbuilding, iron and steel, and vehicle manufacturing. It said it would rather support investments in exporting industries, micro, small and medium enterprises, and research and development.

Two-phased approach

Chua said that a 2-phased approach can be considered for tax policy reforms.

In the first year, reforms can focus on the following policies that increase revenues:

• Rationalizing fiscal incentives and enacting a tax expenditure ceiling
• Reducing the number of value-added tax (VAT) exemptions and instead using the national household targeting system for poverty reduction to protect vulnerable groups
• Centralizing the valuation of real properties and enacting a national surtax if needed
• Increasing excise taxes on petroleum products once prices have fallen below a targeted threshold

In the second year, Chua said reforms can focus on the following:

• Reducing the corporate and personal income tax rates
• Simplifying the tax system for small and micro enterprises
• Consolidating all laws and regulations on tax incentives into one code

"These reforms need to be complemented by stronger tax administration and governance reforms, which would increase public understanding and support for tax policy reforms," Chua said.

He added that the realization of these reforms can help the country become more competitive, "and in the process create more and better jobs, and accelerate poverty reduction." – Rappler.com

 

BIR clarifies taxability of financial lease

ANY DOCUMENT, transaction or arrangement entered into under financial lease is subject to Documentary Stamp Tax (DST).

This is the clarification made by the BIR in Revenue Memorandum Circular (RMC) No. 46-2014
issued on May 30, 2014.

The Bureau pointed out in the Circular that financial leasing, as defined in Revenue Regulations
No. 9-2004, is a “mode of extending credit through a non-cancellable lease contract”, which is “akin to a debt rather than a lease”.

Per Section 179 of the National Internal Revenue Code (NIRC), as amended, all debt instruments are
subject to DST in the amount of One Peso (P 1.00) on each Two Hundred Pesos (P 200.00), or fractional part thereof, of the issue price of every original issue of debt instrument, subject to conditions specified in the said Section of the Tax Code.

Although documents, transactions or arrangements entered into under financial lease are not
specifically mentioned in Section 179 of the NIRC, as amended, the same take the nature of an obligation that is subject to DST. (See full text of RMC 46-2014 at www.bir.gov.ph)

source:  BIR Monitor Volume 16 No. 6

Tax Code Reference :

RA 8424, SEC. 179. Stamp Tax on Bank Checks, Drafts, Certificates of Deposit not Bearing Interest, and Other Instruments. - On each bank check, draft, or certificate of deposit not drawing interest, or order for the payment of any sum of money drawn upon or issued by any bank, trust company, or any person or persons, companies or corporations, at sight or on demand, there shall be collected a documentary stamp tax of One peso and fifty centavos (P1.50).

Additional tax payment channels now available

TAXPAYERS AND ACCREDITED Tax Agents enrolled in the BIR’s Interactive Filing System (IAFS) can now pay their internal revenue taxes through the online tax payment facilities of IAFS Authorized Agent Banks. The additional tax payment channels, which were made available last May 12, 2014, are the Retail Internet Banking System-iAccess of the Land Bank of the Philippines (LBP) and Internet Banking System of the Philippine National Bank (PNB).

Per Revenue Memorandum Circular (RMC) No. 38-2014, taxpayers enrolled under the eBIRForms Online System can also pay their taxes through the said online tax payment facilities, except taxes
due from the annual Income Tax returns filed (BIR Form Nos. 1700, 1701, 1702-RT, 1702-EX and 1702-MX).

Information on how to avail said online tax payment facilities can be inquired directly from the LBP and PNB.

source:  BIR Monitor Volume 16 No. 6

Tax bureau spurns plea from business

THE BUREAU of Internal Revenue (BIR) is sticking to its guns on a move to tighten withholding tax reporting, with the agency’s chief yesterday describing the regulation involved as a mere clarification of an existing requirement.

Asked to comment on business groups’ opposition to Revenue Regulations (RR) No. 1-2014 and related issuances that require detailed reporting of payees’ income payments subject to creditable and final withholding taxes, BIR Commissioner Kim S. Jacinto-Henares said in a text message: “The requirement for an alpha list has been there since 1998; the only difference now is [we] made it clear you have to identify the income recipient with specificity and not defeat the law by lumping it in one account ‘various’.”

“If a person has been paying the right taxes, why should he be afraid?”

In a July 21 letter to Finance Secretary Cesar V. Purisima and Ms. Henares, top officials of nine major business groups pressed for revocation of RR 1-2014, Revenue Memorandum Circular (RMC) 5-2014 and Securities and Exchange Commission (SEC) Memorandum Circular (MC) No. 10 series of 2014 which clarified and provided guidelines, respectively, for the former.

Signatories were Hans B. Sicat, president and chief executive officer of the Philippine Stock Exchange (PSE); Lorenzo V. Tan, president of the Bankers Association of the Philippines; Edgardo G. Lacson, president of Employers Confederation of the Philippines; Miguel B. Varela, chairman of the Philippine Chamber of Commerce and Industry; Alexandra C. Deveras, president of the Fund Managers Association of the Philippines; Ismael G. Cruz, president of the Philippine Association of Securities Brokers and Dealers, Inc.; Robert B. Ramos, president of the Trust Officers Association of the Philippines; Senen L. Matoto, vice-president of the Investment Houses Association of the Philippines; and David O. Chua, vice-president of the Filipino-Chinese Chambers of Commerce & Industry, Inc.

RR 1-2014 requires withholding agents to submit an alphalist of employees and list of payees baring income subject to creditable and final withholding taxes.

It likewise prohibits lumping such amounts into a single total labelled as “various” accounts.

RMC 5-2014, on the other hand, requires withholding agents to indicate taxpayers identification numbers (TINs), complete names, income amounts and tax withheld from payees.

The SEC MC 10-2014, meanwhile, sets guidelines to help issuers of securities comply with RR 1-2014.

The business leaders argued that RR 1-2014 failed to define the term “payees,” a definition they find “significant.”

“Such definition is significant in the context of dividend payments because -- with respect to scripless shares of stock traded in the exchange -- there are three entities which may be considered as payees, namely: the PCD Nominee Corp., the depository participants (i.e. brokers and custodian banks), and the ultimate beneficial owners of the shares,” the letter read further.

It added that “BIR RR 1-2014 was interpreted by some listed companies... to require the disclosure of the names, addresses and TINs of investors.”

“As we have seen in the past months, this new requirement posed a problem because investors are being compelled to divulge private information,” the groups said in their letter, adding that “[i]t also increased the cost of doing business, particularly for non-resident portfolio investors who are now forced to hire accredited tax lawyers or agents to process TIN applications on their behalf.”

“This measure, at best, discourages portfolio inflow and is likely to bring a setback to the Philippine capital market’s growth trajectory.”

The groups also said first-half data have bared a decline in volume of preferred shares traded at PSE, “suggesting the early beginnings of capital flight which we fear will persist if the subject regulations continue to be implemented.”

“In the interest of sustaining the growth of the Philippine capital market, we urge the (Finance) department to revoke RR 1-2014, RMC 5-2014, and MC 10-2014,” the letter concluded.

In an accompanying report, the business leaders said they weren’t given an opportunity to be heard, citing RMC 20-86 that cites lack of public notice as a flaw in enforcement of tax laws and rules.

They also argued that “[b]rokers and custodian banks have a duty of confidentiality to their clients which they are committed to uphold.”

Sought for comment on Ms. Henares’ statement, PSE’s Mr. Sicat cited “a disconnect with how the capital markets work and how BIR thinks -- it’s still the 1960s as to ownership and beneficial ownership ...”

“Because funds own listed companies, the nth level beneficial owners of these local and global funds cannot be known and, hence, cannot be reported,” Mr. Sicat explained via text.

“The BIR put criminal liability on issuers who cannot comply, which is also a disconnect because the information they require is coming from investors who need to do so (disclose) voluntarility,” he noted.

“Because they cannot comply... they (BIR) are creating a situation where CFOs (chief financial officers) or CEOs (chief executive officers) of all listed companies could face jail terms by 2015,” he added.

“This is not right as issuers are law-abiding corporate citizens.”

FMAP President Alexandra C. Deveras said via separate text: “I cannot speak for the other business groups, but for FMAP, we shall continue our efforts for a dialogue with the DoF (Department of Finance) on the matter and we will welcome any other initiatives by the other business groups to address this matter.”

Lina P. Figueroa, a partner in accounting firm Punongbayan & Araullo, said by phone that the arrangement faces challenges, including lack of information on one-off transactions.

“I think the BIR wants too much information. They [sic] want to use that information to pinpoint those with suspicious activities,” she said. “In the process, taxpayers have a more difficult time in complying.” -- Mikhail Franz E. Flores with Daphne J. Magturo
 
source:  Businessworld

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Tax Treatment of Payouts by Employee Pension Plans clarified

THE PORTION OF payouts by employee pension plans representing a return of an employee’s personal contributions to the fund is not taxable.

This was clarified by the BIR under Revenue Memorandum Circular No.39-2014 issued on May 12, 2014.

As a general rule, Section 60(A) of the National Internal Revenue Code (NIRC) subjects the income of any kind of property held in trust to Income Tax. By way of exception, Section 60(B) of the same Code exempts from Income Tax an employee’s trust which forms part of a pension, stock bonus or profit sharing plan of an employer for the benefit of some or all of his employees, subject to certain conditions.

However, as an exception to the said exception, Section 60(B) subjects to Income Tax, in the year in which so distributed, any amount actually distributed to any employee or distributee in excess of the amount he/she contributed in the employees’ trust.

Based on the said NIRC provisions, the entire amount of benefits paid by a pension, stock bonus or profit-sharing plan of an employer for the benefit of employees are taxable on the part of employees in the year so distributed. Said tax treatment, however, does not apply to payouts representing a return of an employee’s personal contributions to the fund and to retirement benefits exempt under Section 32(B)(6)(a) of the NIRC.

Source:  BIR Monitor Volume 16 No. 6 

Tax Code Reference:

RA 8424, CHAPTER X - ESTATES AND TRUSTS,  

SEC. 60. Imposition of Tax. -

(A) Application of Tax. - The tax imposed by this Title upon individuals shall apply to the income of estates or of any kind of property held in trust, including:

(1) Income accumulated in trust for the benefit of unborn or unascertained person or persons with contingent interests, and income accumulated or held for future distribution under the terms of the will or trust;

(2) Income which is to be distributed currently by the fiduciary to the beneficiaries, and income collected by a guardian of an infant which is to be held or distributed as the court may direct;

(3) Income received by estates of deceased persons during the period of administration or settlement of the estate; and

(4) Income which, in the discretion of the fiduciary, may be either distributed to the beneficiaries or accumulated.

(B) Exception. - The tax imposed by this Title shall not apply to employee's trust which forms part of a pension, stock bonus or profit-sharing plan of an employer for the benefit of some or all of his employees (1) if contributions are made to the trust by such employer, or employees, or both for the purpose of distributing to such employees the earnings and principal of the fund accumulated by the trust in accordance with such plan, and (2) if under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees under the trust, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit of his employees: Provided, That any amount actually distributed to any employee or distributee shall be taxable to him in the year in which so distributed to the extent that it exceeds the amount contributed by such employee or distributee.

DOF seeks BIR exclusion from Salary Standardization Law

THE Department of Finance (DOF) is pushing for the exclusion of the Bureau of Internal Revenue (BIR) from the Salary Standardization Law in order to better compensate its employees, as well as to further improve the government’s revenue generation capability.

In his speech before BIR employees during the bureau’s 110th anniversary, Finance Secretary Cesar Purisma said that it is important for the government to invest in human resources so that it can improve its services.

In particular, Purisima said the government is looking at how it can have more fundamental reforms in the tax bureau.

“The economy of the country is becoming more sophisticated; therefore, we need to make sure that the BIR has the skills to actually perform its job. We can start discussion about removing the BIR from the Salary Standardization Law,” he said.

Enacted by both houses of Congress, the Salary Standardization Law III or the Joint Resolution No. 4, states the rates for standardized salaries of Philippine government employees.

“We need to invest in the organization that’s generating resources. We can work together with other parts of the government to see how we can make this happen,” Purisima said.

“We need to see how we can have more incentive compensation to employees who are truly dedicated and give their best in making sure that the bureau is able to deliver its goals. We need to do more fundamental reforms,” he added.
For her part, BIR Commissioner Kim Henares welcomed the Finance chief’s initiative but stressed that collecting taxes is the main focus of the agency at present.

“This has been top of mind but we have been concentrating on collecting taxes first. We can start thinking about it. The thing there is we want to give better salaries to the people. So we get better people and we can demand more from them. It includes some obligation on our part. We will work to get out of salary standardization,” she said.

Henares added that higher salaries include stricter contracts and performance indicators for employees.

“I always believe if your salary is better, you have to be more accountable. Seniority should be the last. If you’re performing well at the same level, then seniority comes in but seniority should not be the gauge,” she said.

source:  Manila Times