A COMMON misconception for most enterprises registered with the Philippine Economic Zone Authority (PEZA) is that the sale of finished goods, i.e., trading activity, may be considered part of its registered activity entitled to incentives. However, this is not the case.
Strictly speaking, companies engaged in retailing or wholesale trading of finished products cannot apply for registration. Only those engaged in manufacturing, assembling or processing activities for subsequent exportation may be registered with PEZA and qualify for incentives, such as income tax holiday or the 5% special tax on gross income instead of the regular 30% corporate tax. The same eligibility principle applies to Information Technology (IT) Enterprises.
On 29 December 2000, PEZA approved Resolution No. 00-411 providing guidelines on the registration of IT Enterprises and the establishment and operation of IT Parks/Buildings under Republic Act (RA) No. 7916 or otherwise known as the Special Economic Zone Act of 1995 (i.e., the PEZA law). Under the said Resolution, “IT Enterprises” are defined as companies operating/offering IT services while “IT Service Activities” are activities which involve the use of any IT software and/or system for value addition.
IT Service Activities that are eligible for registration with PEZA include:
• Software development and application, including programming and adaptation of system software and middleware, for business, media, e-commerce, education, entertainment, etc.;
• IT-enabled services, encompassing call centers, data encoding, transcribing and processing, directories, etc.;
• Content development for multi-media or internet purposes;
• Knowledge-based and computer-enabled support services, including engineering and architectural design services, consultancies, etc.;
• Business process outsourcing using e-commerce;
• IT research and development; and
• Other IT-related service activities, as may be identified and approved by the PEZA Board.
An IT Enterprise engaging in any of the above-listed IT Service Activities may register with PEZA to avail of incentives granted by law provided it physically locates inside a PEZA-registered IT Park, Building or special economic zone. An IT Park/Building is an area, building or complex capable of providing infrastructures and other support facilities required by IT Enterprises, as well as amenities required by professionals and workers involved in IT Enterprises, or easy access to such amenities.
In addition, a critical requirement to qualify for registration and incentives is that the IT Service Activities must result in a substantial increase in the value of the final product. Under the government’s Investment Priorities Plan, “net value added” refers to the value of the final product less the value of inputs. Inputs, in this case, would refer to the cost of goods (i.e., raw materials or semi-finished goods) and other services (i.e., subcontracted portion of the process flow) to be used in manufacturing/processing/assembling the final product. The proposed activity/project’s net value added should be at least 25% of the cost as determined and approved by the PEZA Board.
Under the rules implementing RA 7916, “manufacturing/processing/manipulation” is the process by which raw or semi-finished materials are converted into a new product through a change in their physical, mechanical or electro-magnetic characteristics and/or chemical properties. On the other hand, “assembly” is the process by which semi-finished parts or materials are put together or combined to form a distinct product without substantially changing its physical or mechanical characteristics or electro-magnetic and/or chemical properties.
Accordingly, the resulting “Export Product” refers to the manufactured, processed and/or assembled product, whether physical or non-physical, belonging to the class of products approved by the PEZA Board to be undertaken by the enterprise.
Given the foregoing, activities that may be registered with PEZA cover only those which involve the manufacture, processing and assembly of raw or semi-finished materials to come up with a finished product for subsequent exportation. The same principle applies to IT Enterprises where processing covers IT-related service activities (i.e., the use of any IT software and/or system for value addition). Without any manufacturing, processing or assembly component, the activity may be construed as a mere trading activity, hence not eligible for registration with PEZA.
Thus, only revenues from IT processing activities shall be entitled to incentives. Those from mere IT trading activities shall not enjoy the incentives granted by PEZA.
PEZA has been encouraging and supporting investments of IT Enterprises as well as the establishment and operation of IT Parks/Buildings to accelerate the growth and development of the Philippine IT sector. IT Enterprises that want to be part of this growth should comply with the rules and regulations set forth by PEZA, most especially the conditions expressed in their Registration Agreement. In addition, it is reasonable for PEZA to expect substantial inputs/activities from registrants in determining the project’s net value added because the incentives granted by law are also considerable.
John Paul M. Vargas is a manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
john.paul.m.vargas@ph.pwc.com
source: Businessworld
Monday, September 15, 2014
Lower tax rates for companies?
COMPANIES may soon pay reduced income taxes for ten years, instead of enjoying income tax holidays (ITH) for four years, Trade Secretary Gregory L. Domingo said on Tuesday.
“Well, we’re looking at the possibility of offering a 10-year 15% tax on net income in lieu of ITH for BOI (Board of Investments)-registered firms,” Mr. Domingo told reporters at the sidelines of an event on Tuesday. Mr. Domingo was prompted to make this remark when he asked if the Trade and Finance Departments have already come up with a compromise on fiscal incentives to be given to firms.
Many companies that avail of the four-year income tax holidays “don’t make much money” before they are subject to the regular income taxes for corporations, Mr. Domingo said.
Corporations, in general, are taxed 32% of their net income under the National Internal Revenue Code of 1997.
“Prolonging the period but assessing them a very reasonable rate seems to be quite an attractive proposition,” Mr. Domingo said.
“Companies actually don’t mind paying taxes here as long as it’s a very reasonable rate,” he added.
The Senate Committee on Ways and Means, which tackles bills on the rationalization of fiscal incentives, have instructed the two departments to reconcile the privileges they prefer and come up with a compromise version.
Mr. Domingo said the consolidated version is already “95% complete”. “Basically, there was already a meeting of the minds but it’s just on the details,” Mr. Domingo said. “We’re still trying to consolidate.
“You agree in the concept but we have differences in its implementation,” he added.
At least three bills are pending before the Senate which seeks to rationalize fiscal incentives: Senator Cynthia A. Villar’s Senate Bill no. 35, Senator Ralph G. Recto’s Senate Bill no. 987 and Sen. Loren B. Legarda’s Senate Bill no. 2048.
Mr. Recto’s Bill seeks to grant either a 15% tax rate for a firm’s net income or 5% tax out of gross income earned (GIE). Ms. Legarda’s proposal, on the other hand, grants either a five-year income tax holiday, 5% GIE, or a 10-year 15% tax rate on net income. Meanwhile, Ms. Villar’s bill seeks to impose a six-year income tax holiday and a 15% income after the period or a 5% GIE tax.
Sought for comment, business groups had mixed views on the fiscal incentive being considered.
American Chamber of Commerce and Industry Adviser John D. Forbes said, “That would be good as an option”.
“Let’s try it for ten years and see how it works. We should not put at risk the success of PEZA (Philippine Economic Zone Authority),” Mr. Forbes said via text message.
European Chamber of Commerce of the Philippines Executive Vice-President Henry Schumacher, for his part, said it should be “seen in the light the income tax has to be reduced to remain competitive as an investment destination”.
“I still believe that tax holidays as being offered now are the better incentive,” he said in a text message.
source: Businessworld
“Well, we’re looking at the possibility of offering a 10-year 15% tax on net income in lieu of ITH for BOI (Board of Investments)-registered firms,” Mr. Domingo told reporters at the sidelines of an event on Tuesday. Mr. Domingo was prompted to make this remark when he asked if the Trade and Finance Departments have already come up with a compromise on fiscal incentives to be given to firms.
Many companies that avail of the four-year income tax holidays “don’t make much money” before they are subject to the regular income taxes for corporations, Mr. Domingo said.
Corporations, in general, are taxed 32% of their net income under the National Internal Revenue Code of 1997.
“Prolonging the period but assessing them a very reasonable rate seems to be quite an attractive proposition,” Mr. Domingo said.
“Companies actually don’t mind paying taxes here as long as it’s a very reasonable rate,” he added.
The Senate Committee on Ways and Means, which tackles bills on the rationalization of fiscal incentives, have instructed the two departments to reconcile the privileges they prefer and come up with a compromise version.
Mr. Domingo said the consolidated version is already “95% complete”. “Basically, there was already a meeting of the minds but it’s just on the details,” Mr. Domingo said. “We’re still trying to consolidate.
“You agree in the concept but we have differences in its implementation,” he added.
At least three bills are pending before the Senate which seeks to rationalize fiscal incentives: Senator Cynthia A. Villar’s Senate Bill no. 35, Senator Ralph G. Recto’s Senate Bill no. 987 and Sen. Loren B. Legarda’s Senate Bill no. 2048.
Mr. Recto’s Bill seeks to grant either a 15% tax rate for a firm’s net income or 5% tax out of gross income earned (GIE). Ms. Legarda’s proposal, on the other hand, grants either a five-year income tax holiday, 5% GIE, or a 10-year 15% tax rate on net income. Meanwhile, Ms. Villar’s bill seeks to impose a six-year income tax holiday and a 15% income after the period or a 5% GIE tax.
Sought for comment, business groups had mixed views on the fiscal incentive being considered.
American Chamber of Commerce and Industry Adviser John D. Forbes said, “That would be good as an option”.
“Let’s try it for ten years and see how it works. We should not put at risk the success of PEZA (Philippine Economic Zone Authority),” Mr. Forbes said via text message.
European Chamber of Commerce of the Philippines Executive Vice-President Henry Schumacher, for his part, said it should be “seen in the light the income tax has to be reduced to remain competitive as an investment destination”.
“I still believe that tax holidays as being offered now are the better incentive,” he said in a text message.
source: Businessworld
Treatment of tax incentives as state expenditures backed
THE DEPARTMENT of Budget and Management (DBM) has backed a proposed measure at the House of Representatives seeking to include tax incentive grants for businesses as automatic appropriations in the government’s annual spending plan.
The move would ensure transparency and accountability in tax expenditures, a DBM official said.
“We welcome this bill because we have noted that reporting and monitoring system of tax incentives is quite fragmented,” DBM Director Mercedes P. Navarro told lawmakers during a briefing with the House committee on ways and means.
Yesterday, the committee held its first deliberations on House Bill (HB) 2492 or the Tax Incentives Management and Transparency Act, sponsored by Camarines Sur Rep. Maria Leonor Gerona-Robredo (3rd district).
Tax incentives are given by the investment promotion agencies (IPAs) under the Trade department to stimulate economic growth, particularly in special economic zones.
Income tax holidays are the most common incentives given to investors.
The measure seeks to create a Tax Expenditure Account (TEA) in the annual General Appropriations Act, from which tax incentives will be accounted for as automatic appropriations.
“Remember that for each incentive that we give, that’s a tax foregone,” committee chairman Rep. Romero S. Quimbo (Marikina, 2nd district) told BusinessWorld at the sidelines of the briefing.
“The status quo has to change -- there has to be better transparency, accurate and timely reporting of the incentives that are being given out so that we have a fair estimation... whether these are working or not.”
Data from the Department of Finance (DoF) show that the Philippines handed out P145 billion in tax incentives in 2011, or at least 1.5% of the country’s gross domestic product.
Mr. Quimbo however noted that the proposed establishment of a TEA, though supported by the Budget and Finance departments, remains to be “ticklish” pending further discussions on the measure.
For her part, the DBM’s Ms. Navarro stood firm that the tax expenditures should be automatically appropriated through the TEA, and not be subject to the budget process anymore -- similar to the government’s debt servicing requirements. She added that there are existing laws providing for incentives to firms.
Though supportive of the transparency measure, representatives from IPAs were apprehensive of the proposal to include tax incentives in the annual budget, saying it might affect the competitiveness of doing business in freeports and ecozones.
“We wonder whether the tracking and monitoring value should really be lodged in the budget, because there are other mechanisms by which we can monitor tax incentives,” said Bases Conversion Development Authority (BCDA) Executive Vice-President Aileen R. Zosa.
HB 2492 is an executive-backed proposal from the Finance department, and has been tagged as a priority measure by the House leadership. The measure tasks the DoF to make a unified database for tax incentives, which shall be maintained in coordination with the Bureau of Internal Revenue and the Bureau of Customs. The bill also proposes the creation of a Joint Congressional Oversight Committee to assess the tax incentives and investment performance given out by agencies in an annual basis. -- Melissa Luz T. Lopez
source: Businessworld
The move would ensure transparency and accountability in tax expenditures, a DBM official said.
“We welcome this bill because we have noted that reporting and monitoring system of tax incentives is quite fragmented,” DBM Director Mercedes P. Navarro told lawmakers during a briefing with the House committee on ways and means.
Yesterday, the committee held its first deliberations on House Bill (HB) 2492 or the Tax Incentives Management and Transparency Act, sponsored by Camarines Sur Rep. Maria Leonor Gerona-Robredo (3rd district).
Tax incentives are given by the investment promotion agencies (IPAs) under the Trade department to stimulate economic growth, particularly in special economic zones.
Income tax holidays are the most common incentives given to investors.
The measure seeks to create a Tax Expenditure Account (TEA) in the annual General Appropriations Act, from which tax incentives will be accounted for as automatic appropriations.
“Remember that for each incentive that we give, that’s a tax foregone,” committee chairman Rep. Romero S. Quimbo (Marikina, 2nd district) told BusinessWorld at the sidelines of the briefing.
“The status quo has to change -- there has to be better transparency, accurate and timely reporting of the incentives that are being given out so that we have a fair estimation... whether these are working or not.”
Data from the Department of Finance (DoF) show that the Philippines handed out P145 billion in tax incentives in 2011, or at least 1.5% of the country’s gross domestic product.
Mr. Quimbo however noted that the proposed establishment of a TEA, though supported by the Budget and Finance departments, remains to be “ticklish” pending further discussions on the measure.
For her part, the DBM’s Ms. Navarro stood firm that the tax expenditures should be automatically appropriated through the TEA, and not be subject to the budget process anymore -- similar to the government’s debt servicing requirements. She added that there are existing laws providing for incentives to firms.
Though supportive of the transparency measure, representatives from IPAs were apprehensive of the proposal to include tax incentives in the annual budget, saying it might affect the competitiveness of doing business in freeports and ecozones.
“We wonder whether the tracking and monitoring value should really be lodged in the budget, because there are other mechanisms by which we can monitor tax incentives,” said Bases Conversion Development Authority (BCDA) Executive Vice-President Aileen R. Zosa.
HB 2492 is an executive-backed proposal from the Finance department, and has been tagged as a priority measure by the House leadership. The measure tasks the DoF to make a unified database for tax incentives, which shall be maintained in coordination with the Bureau of Internal Revenue and the Bureau of Customs. The bill also proposes the creation of a Joint Congressional Oversight Committee to assess the tax incentives and investment performance given out by agencies in an annual basis. -- Melissa Luz T. Lopez
source: Businessworld
Court blocks disclosure rule enforcement
THE SUPREME COURT has indefinitely halted the implementation of a Bureau of Internal Revenue (BIR) regulation -- as well as two related issuances -- imposing stricter withholding tax reporting for companies.
The Court en banc issued a temporary restraining order (TRO), “effective immediately and until further orders,” stopping the BIR, the Finance department, and the Securities and Exchange Commission from further enforcing Revenue Regulations (RR) 1-2014, Revenue Memorandum Circular (RMC) 5-2014, and SEC Memorandum Circular (MC) 10-14, it said in an e-mail to reporters yesterday.
The three regulations essentially require companies to disclose personal information of investors, prohibiting them from lumping payments made in stock trading through the PCD Nominee Corp., designated payee of dividend payments by SEC-listed firms.
The implementation of RR 1-2014 and RMC 5-2014 were halted “where these prohibit the naming of the PCD Nominee (or any other securities intermediary designated and allowed under section 43.1 of the Securities Regulation Code) as the payee for the dividend payments made by listed companies,” the Supreme Court said.
Enforcement of SEC MC 10-14, meanwhile, was halted “in its entirety.”
The full copy of the TRO was not available as of press time.
RR-1 2014, which was issued last Jan. 13 and took effect last Jan. 28, requires withholding agents to submit an alphabetical list (alphalist) of employees and list of payees whose income are subject to creditable and final withholding taxes.
It also prohibits the aggregation of such amounts into and labeled as “various accounts.”
RMC 5-2014, meanwhile, dated Jan. 29, clarifies provisions of RR 1-2014 and mandates withholding agents to declare taxpayers’ identification numbers, complete names, income amounts, and tax withheld from payees.
Lastly, SEC MC 10-2014, which was issued on May 22 and took effect last June 6, sets guidelines to help issuers of securities comply with RR 1-2014. Among others, the SEC circular mandates market participants like brokers and other depository account holders to provide firms with information required by the BIR under RR 1-2014 and RMC 5-2014, as these are not readily available.
The TRO came after six business groups -- The Philippine Stock Exchange, Inc.; Bankers Association of the Philippines; Philippine Association of Securities Brokers and Dealers, Inc.; Fund Managers Association of the Philippines; Trust Officers Association of the Philippines; and Marmon Holdings, Inc. -- lodged a 58-page petition before the Supreme Court on Sept. 4, questioning the validity of said issuances and asking the high court to declare the orders void and unconstitutional.
Named respondents to the case were Finance Secretary Cesar V. Purisima, BIR Commissioner Kim S. Jacinto-Henares, and SEC Chairperson Teresita J. Herbosa.
In their petition, the petitioners argued that listed companies themselves do not have the capability to provide the information required. “The requirement under RR 01-14 and RMC 05-14 for listed companies to disclose the payee of dividend payments and the prohibition of the identification of the PCD Nominee as the payee is unreasonable since listed companies, by themselves, are not capable of accurately providing the required information,” the petition read.
They also raised questions on data privacy, saying the orders require disclosure of sensitive personal information and do not provide safeguards against misuse. To comply with the said issuances would also put firms in danger of violating the Data Privacy Act and the Bank Secrecy Law, the groups said in their petition.
The groups also warned of the orders’ potential impact on the Philippine capital markets, noting that these “[risk] the security of various investors.” They said such an effect would likewise spill over to the broader economy.
Sought for comment, BIR’s Ms. Jacinto-Henares said the TRO won’t stop the bureau from pursuing its mandate, but admitted that the stop order could be a “challenge” to the agency.
“Well, it will make the job of the BIR harder,” she said in a phone interview, adding that while she had not yet received a copy of the TRO, BIR is ready to “counter” the order.
“We will continue running after them (companies). I will ask my people to investigate those people who are complaining and see if they pay the proper amount of taxes,” she said.
It will be recalled that the BIR, in an effort to improve revenue collections, has been clarifying specific provisions of tax laws -- at times in ways that have raised questions from affected parties.
Other recent BIR issuances that were also slapped TROs by the Supreme Court include RR 4-2014, which requires self-employed professionals to execute an affidavit specifying rates, manner of billing and factors they consider in determining their fees upon registration with the BIR every year, as well as similar regulations for lawyers (in April), doctors and accountants (June) and dentists (July). -- R. D. Madrid
source: Businessworld
The Court en banc issued a temporary restraining order (TRO), “effective immediately and until further orders,” stopping the BIR, the Finance department, and the Securities and Exchange Commission from further enforcing Revenue Regulations (RR) 1-2014, Revenue Memorandum Circular (RMC) 5-2014, and SEC Memorandum Circular (MC) 10-14, it said in an e-mail to reporters yesterday.
The three regulations essentially require companies to disclose personal information of investors, prohibiting them from lumping payments made in stock trading through the PCD Nominee Corp., designated payee of dividend payments by SEC-listed firms.
The implementation of RR 1-2014 and RMC 5-2014 were halted “where these prohibit the naming of the PCD Nominee (or any other securities intermediary designated and allowed under section 43.1 of the Securities Regulation Code) as the payee for the dividend payments made by listed companies,” the Supreme Court said.
Enforcement of SEC MC 10-14, meanwhile, was halted “in its entirety.”
The full copy of the TRO was not available as of press time.
RR-1 2014, which was issued last Jan. 13 and took effect last Jan. 28, requires withholding agents to submit an alphabetical list (alphalist) of employees and list of payees whose income are subject to creditable and final withholding taxes.
It also prohibits the aggregation of such amounts into and labeled as “various accounts.”
RMC 5-2014, meanwhile, dated Jan. 29, clarifies provisions of RR 1-2014 and mandates withholding agents to declare taxpayers’ identification numbers, complete names, income amounts, and tax withheld from payees.
Lastly, SEC MC 10-2014, which was issued on May 22 and took effect last June 6, sets guidelines to help issuers of securities comply with RR 1-2014. Among others, the SEC circular mandates market participants like brokers and other depository account holders to provide firms with information required by the BIR under RR 1-2014 and RMC 5-2014, as these are not readily available.
The TRO came after six business groups -- The Philippine Stock Exchange, Inc.; Bankers Association of the Philippines; Philippine Association of Securities Brokers and Dealers, Inc.; Fund Managers Association of the Philippines; Trust Officers Association of the Philippines; and Marmon Holdings, Inc. -- lodged a 58-page petition before the Supreme Court on Sept. 4, questioning the validity of said issuances and asking the high court to declare the orders void and unconstitutional.
Named respondents to the case were Finance Secretary Cesar V. Purisima, BIR Commissioner Kim S. Jacinto-Henares, and SEC Chairperson Teresita J. Herbosa.
In their petition, the petitioners argued that listed companies themselves do not have the capability to provide the information required. “The requirement under RR 01-14 and RMC 05-14 for listed companies to disclose the payee of dividend payments and the prohibition of the identification of the PCD Nominee as the payee is unreasonable since listed companies, by themselves, are not capable of accurately providing the required information,” the petition read.
They also raised questions on data privacy, saying the orders require disclosure of sensitive personal information and do not provide safeguards against misuse. To comply with the said issuances would also put firms in danger of violating the Data Privacy Act and the Bank Secrecy Law, the groups said in their petition.
The groups also warned of the orders’ potential impact on the Philippine capital markets, noting that these “[risk] the security of various investors.” They said such an effect would likewise spill over to the broader economy.
Sought for comment, BIR’s Ms. Jacinto-Henares said the TRO won’t stop the bureau from pursuing its mandate, but admitted that the stop order could be a “challenge” to the agency.
“Well, it will make the job of the BIR harder,” she said in a phone interview, adding that while she had not yet received a copy of the TRO, BIR is ready to “counter” the order.
“We will continue running after them (companies). I will ask my people to investigate those people who are complaining and see if they pay the proper amount of taxes,” she said.
It will be recalled that the BIR, in an effort to improve revenue collections, has been clarifying specific provisions of tax laws -- at times in ways that have raised questions from affected parties.
Other recent BIR issuances that were also slapped TROs by the Supreme Court include RR 4-2014, which requires self-employed professionals to execute an affidavit specifying rates, manner of billing and factors they consider in determining their fees upon registration with the BIR every year, as well as similar regulations for lawyers (in April), doctors and accountants (June) and dentists (July). -- R. D. Madrid
source: Businessworld
Tax structure review must be ‘holistic’ -- DoF
THE DEPARTMENT of Finance (DoF) yesterday reiterated the need to review the country’s entire tax structure instead of amending the system on a “piecemeal” basis in light of Congress’ move to raise the tax exemption cap for bonuses.
“Any measure that will increase the exemptions will reduce the revenue and that is why we are suggesting that the approach be holistic but the power is with Congress so we defer to them but we do give them our views,” Finance Secretary Cesar V. Purisima told reporters at the sidelines of the House of Representatives’ plenary deliberations on the proposed 2015 national budget, which began yesterday.
Tax laws that would decrease government revenues, Mr. Purisima said, should be accompanied by measures that would in turn address their impact on tax collections.
“One example: if you lower the income taxes, that means our revenues will decrease. Then give us more administrative capacity to broaden the tax base or adjust the exemptions,” Mr. Purisima explained.
The Finance chief said the review of the country’s tax structure is ongoing and the International Monetary Fund (IMF) and the World Bank are providing assistance to address “technical issues”.
Asked for a timetable, Mr. Purisima said: “It’s really dependent on the ability to get through technical issues so that we can present to Congress what are the best options in this regard.”
“It’s going to be multi-pronged because we’ll have to look at transaction taxes, income taxes, duties and I think it’s important that we make it easier for our people to comply because our challenge has always been that the tax base is narrow.”
The House of Representatives on Sept. 9 approved on second reading House Bill 4970, which seeks to raise the tax exemption cap for employee bonuses to P70,000 from the present P30,000.
HB 4970 is a consolidation of 12 bills that sought to raise the tax exemption cap for 13th month pay and other benefits, like Christmas bonuses and productivity incentives, in a bid to provide relief to Filipino taxpayers.
This consolidated measure, which amends Republic Act No. 7833 -- a 30-year old law that imposed the P30,000 cap on bonuses -- was approved by the House committee on ways and means last Sept. 3 and was endorsed for plenary debates.
The measure is up for third and final reading this week.
A counterpart measure to this bill at the Senate, meanwhile, is pending at the committee level.
Both chambers of Congress have said that they are moving to fast-track this proposal and other similar measures that seek to give employees some relief in the face of rising prices.
Senate President Franklin M. Drilon said his chamber has already agreed with the House to approve the measure raising the tax exemption cap for bonuses in time for Christmas season.
“We have an agreement with the House of Representatives that we will pass this bill within the year, so that Christmas could be merrier for our workers,” a Sept. 3 statement quoted him as saying.
Mr. Purisima last month said that any review of the tax system should involve the whole structure to ensure benefits to those concerned.
A holistic review, he said then, would ensure a tax system that is “more equitable, more progressive, more competitive, but with an impact of making it more buoyant and positive.”
The Bureau of Internal Revenue, which contributes bulk of the government’s tax revenues, collected P763.148 billion in the seven months to July, up 9.99% from the same period last year but short of an P831.063-billion target for the first seven months.
The bureau is mandated to collect P1.456 trillion in taxes this year. -- M.F.E. Flores
source: Businessworld
“Any measure that will increase the exemptions will reduce the revenue and that is why we are suggesting that the approach be holistic but the power is with Congress so we defer to them but we do give them our views,” Finance Secretary Cesar V. Purisima told reporters at the sidelines of the House of Representatives’ plenary deliberations on the proposed 2015 national budget, which began yesterday.
Tax laws that would decrease government revenues, Mr. Purisima said, should be accompanied by measures that would in turn address their impact on tax collections.
“One example: if you lower the income taxes, that means our revenues will decrease. Then give us more administrative capacity to broaden the tax base or adjust the exemptions,” Mr. Purisima explained.
The Finance chief said the review of the country’s tax structure is ongoing and the International Monetary Fund (IMF) and the World Bank are providing assistance to address “technical issues”.
Asked for a timetable, Mr. Purisima said: “It’s really dependent on the ability to get through technical issues so that we can present to Congress what are the best options in this regard.”
“It’s going to be multi-pronged because we’ll have to look at transaction taxes, income taxes, duties and I think it’s important that we make it easier for our people to comply because our challenge has always been that the tax base is narrow.”
The House of Representatives on Sept. 9 approved on second reading House Bill 4970, which seeks to raise the tax exemption cap for employee bonuses to P70,000 from the present P30,000.
HB 4970 is a consolidation of 12 bills that sought to raise the tax exemption cap for 13th month pay and other benefits, like Christmas bonuses and productivity incentives, in a bid to provide relief to Filipino taxpayers.
This consolidated measure, which amends Republic Act No. 7833 -- a 30-year old law that imposed the P30,000 cap on bonuses -- was approved by the House committee on ways and means last Sept. 3 and was endorsed for plenary debates.
The measure is up for third and final reading this week.
A counterpart measure to this bill at the Senate, meanwhile, is pending at the committee level.
Both chambers of Congress have said that they are moving to fast-track this proposal and other similar measures that seek to give employees some relief in the face of rising prices.
Senate President Franklin M. Drilon said his chamber has already agreed with the House to approve the measure raising the tax exemption cap for bonuses in time for Christmas season.
“We have an agreement with the House of Representatives that we will pass this bill within the year, so that Christmas could be merrier for our workers,” a Sept. 3 statement quoted him as saying.
Mr. Purisima last month said that any review of the tax system should involve the whole structure to ensure benefits to those concerned.
A holistic review, he said then, would ensure a tax system that is “more equitable, more progressive, more competitive, but with an impact of making it more buoyant and positive.”
The Bureau of Internal Revenue, which contributes bulk of the government’s tax revenues, collected P763.148 billion in the seven months to July, up 9.99% from the same period last year but short of an P831.063-billion target for the first seven months.
The bureau is mandated to collect P1.456 trillion in taxes this year. -- M.F.E. Flores
source: Businessworld
Adapting to changes in technology
THE BUREAU of Internal Revenue (BIR) continuously enhances and develops electronic services (e-Services) to provide faster, more reliable and more convenient services for taxpayers, as well as to improve its tax return data capture and storage.
Last Oct. 16, 2012, the BIR authorized the use of the electronic BIR Forms (eBIRForms) through Revenue Memorandum Circular No. (RMC) 061-12. The eBIRForm is a better, more reliable alternative to the manual process of filling tax returns on pre-printed forms because it allows taxpayers to directly encode data, compute taxes, validate information, save progress, and print the tax returns offline.
There are 36 available eBIRForms including: income tax returns, excise tax forms, value-added tax (VAT) forms, withholding tax forms, documentary stamp tax (DST) forms, percentage tax forms, one-time transaction (ONETT) forms and payment form.
To download the eBIRForms Package, taxpayers may either download directly from the BIR Web site (www.bir.gov.ph), or via the BIR e-lounges located at Revenue Region 8 in Makati City and Revenue District Office (RDO) 43B in Pasig City, among others. The BIR e-lounges are manned by BIR personnel to help users, and are open during business days from 8 a.m. to 5 p.m.
With regard to filing tax returns “with payment”, there are two options available:
a. print the forms, submit and pay the corresponding taxes due through Authorized Agent Banks (AABs) within the jurisdiction of their registered RDO
b. file tax returns through the online eBIRForms system and pay through the e-Banking facilities of AABs
Taxpayers who are using eBIRForms may refer to the guidelines set forth in Revenue Memorandum Order No. (RMO) 24-2013.
Last week, the BIR issued Revenue Regulations No. (RR) 06-14, which enumerates the following Non-Electronic Filing and Payment System (Non-eFPS) taxpayers who are mandated to use the eBIRForms in filing all tax returns:
a. accredited tax agents/practitioners and all its client-taxpayers
Accredited tax practitioners are those included in the List of Accredited Tax Practitioners as published in the BIR website, which includes only those accredited as of January 2, 2013, as well as those filing on behalf of their clients.
b. accredited printers of principal and supplementary receipts/invoices
c. ONETT taxpayers
ONETT covers transactions subject to final capital gains tax on sale of real properties considered as capital assets as well as capital gains tax on sale, transfer or assignment of stocks not traded in the Philippine Stock Exchange, expanded withholding tax on sale of real properties considered as ordinary assets, donor’s tax, estate tax and Documentary Stamp Tax.
d. Those who shall file a “no payment” return
“No payment returns” refer to tax returns that do not indicate any tax payable (e.g., breakeven, no transaction, refundable or second installment tax return). Non-EFPS taxpayers who have to file no payment returns have the option to use the pre-printed forms once there is a tax payment for the covered period.
e. Government-owned or -controlled corporations (GOCCs)
f. Local Government Units (LGUs), except barangays
g. Cooperatives registered with the National Electrification Administration (NEA) and the Local Water Utilities Administration (LWUA)
RR 06-14 was only published last Sept. 9, but it will already implemented on Sept. 24, or a mere 15 days after the issuance’s publication in a newspaper of general circulation.
Since most of the big companies in the Philippines are EFPS-registered, RR 06-14 targets small scale businesses and individuals. Considering the vast number of taxpayers concerned, the 15-day notice is not enough time for these taxpayers to prepare for compliance. Since not all taxpayers keep abreast of tax updates posted in the BIR Web site or printed in the newspapers, the dissemination of this development should also be the BIR’s top priority.
Moreover, considering the short notice for compliance, the BIR should also be lenient in case of errors during the first phase of implementation.
Fairly speaking, the BIR should be commended for its continuous effort to improve its services. However, for these changes to be effective, the BIR must provide sufficient guidance for those concerned and assign personnel who will be easily accessible for clarifications and inquiries.
Most people are resistant to change. However, when it comes to technology, we should accept that change is not only inevitable; it’s necessary.
Rochier T. Yao is a manager with the Tax Advisory and Compliance division of Punongbayan & Araullo.
source: Businessworld
#AskTheTaxWhiz: Are online freelancers required to register with BIR?
You're an online freelancer and barely making profit, should you register? Are you subject to VAT?
I am an online freelancer. Am I required to register with the Bureau of Internal Reveue (BIR) even if I am barely making profit? How do I know if I am subject to 12% value-added tax (VAT)?
Yes. Online freelancing, like any business, must be registered with the BIR.
Regardless of the financial outcome, any transaction made more than once to generate income is considered in the course of trade or business.
Except for those classified as marginal income earners, online freelancers are subject to both income and business taxes (i.e. 12% VAT or 3% percentage tax).
Marginal income earners are individuals with no compensation income but generate gross sales or receipts not exceeding P100,000 ($2,310.31*) monthly. These mainly refer to sari-sari stores, small carinderias or turo-turo, drivers/operators of a single unit tricycle. These exclude licensed professionals, consultants, artists, sales agents, and brokers.
If your gross sales or receipts for the past 12 months exceeded P1,919,500.00 ($44,348.57), you are subject to 12% VAT. Otherwise, you are liable to pay 3% percentage tax based on your monthly sales.
Got a question about taxes? #AskTheTaxWhiz! Tweet @rapplerdotcom or email us at business@rappler.com. – Rappler.com
Mon Abrea is a former BIR examiner and an advocate of genuine tax reform. He serves as chief strategy officer of the country’s first social enterprise, the Abrea Consulting Group, which offers strategic finance and tax advisory services to businesses and professionals. Mon's tax handbook, "Got a Question About Taxes? Ask the Tax Whiz!" is now available in all bookstores nationwide. Follow Mon on Twitter: @askthetaxwhiz or visit his group’s Facebook page. You may also email him at consult@acg.ph.
source: Rappler
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