Legal Updates

By:  Ma. Corazon D. Eleazar

On 5 January 2024, President Ferdinand R. Marcos Jr. signed Republic Act No. 11976, also known as the Ease of Paying Taxes Act (EOPT Act). The EOPT Act was published in the Official Gazette on 07 January 2024 and took effect on 22 January 2024.

The EOPT Act introduced amendments to the National Internal Revenue Code (NIRC) of 1997, with the aim to protect and safeguard the taxpayer rights and welfare, encourage proper and easy compliance, and modernize tax administration. Some of the amendments introduced by the EOPT Act are summarized below.

Classification of Taxpayers

Taxpayers are now classified into the following categories, depending of their gross sales: micro, small, medium, and large taxpayers. Micro taxpayers are those with gross sales of less than Php3 million. Those with gross sales of Php3 million to less than Php20 million are small taxpayers. Medium taxpayers are those with gross sales of Php20 million to less than Php1 billion. Finally, taxpayers with gross sales of Php1 billion or more are considered large taxpayers.

The EOPT Act granted special concessions micro and small taxpayers, such as:

1. Maximum of two pages for their income tax returns;
2. Reduced rate of 10% (from 20%) for civil penalties under Sec. 248 of the NIRC;
3. 50% reduction on the interest rate imposed under Sec. 249 of the NIRC;
4. Reduced penalty of Php500 for failure to file certain information returns as provided under Sec. 250 of the NIRC; and
5. Reduced compromise penalty rate of at least 50% for violations of Sections 113, 237 and 238 of the NIRC.

Withholding Tax

Withholding of taxes is no longer a requirement for the deductibility of certain income payments. Prior to the EOPT Act, certain income payments are allowed as deduction only if it is shown that the appropriate withholding tax has already been withheld by the income payor.

The EOPT Act also simplified the rules on timing of withholding by providing that the obligation to deduct and withhold tax arises at the time the income has become payable. Prior to this amendment, the obligation to withhold arises at the time an income payment is paid, becomes payable, or is accrued or recorded as an expense or asset, whichever is applicable in the payor’s books, whichever comes first.

Value added Tax (VAT)

The basis for calculating VAT on the sale of services will now be gross sales rather than gross receipts. The official receipt has also been removed as a document for the sale of services, and a sales invoice is now required to be issued for both sale of goods and services.

The EOPT Act also introduced a mechanism for the recovery of output VAT on uncollected receivables.

Percentage Tax

The tax base of percentage taxes imposed under the following sections of NIRC has been amended, as follows:

• 1. Section 116 (persons exempt from VAT) – from “gross receipts” to “gross sales”;
  2. Section 117 (domestic carriers and keepers of garages) – from “gross receipts” to “gross sales”;
  3. Section 118 (international carriers) – from “gross receipts” to “gross sales”;
  4. Section 119 (franchises) – from “gross receipts” to “gross sales”;
  5. Section 120 (overseas dispatch, message or conversation originating from the Philippines) – from “amount paid” to “amount billed”; and
  6. Section 128 (provision on returns and payment of percentage taxes) – from “gross sales, receipts, or earnings” to “gross sales or earnings”.

Amendments on Filing of Returns and Payment of Taxes

To make tax filing and payments more convenient, the EOPT Act provides that tax returns may be filed, and taxes paid, electronically or manually, to the BIR, or through any authorized agent bank (AAB) or authorized tax software provider. Prior to the EOPT Act, returns should be filed with the revenue district office (RDO) where the taxpayer is registered, and taxes paid in AABs within with area of jurisdiction of the RDO where the taxpayer is registered. The amendment effectively eliminates the 25% surcharge on wrong-venue filings.

Compliance Requirements

The EOPT Act revised the period to keep records of books of accounts to five years from the previous requirement of ten years. It also adjusted the threshold amount for mandatory issuance of an invoice from Php100 to Php500.

Registration with the BIR may now be done either electronically of manually with the appropriate RDO. Payment of the Php500 annual registration fee has also been removed.

The EOPT Act simplified the process for cancellation of registration by mandating that a taxpayer’s registration is cancelled upon mere filing, either electronically or manually, of an application for registration information update in the prescribed format with the RDO where the taxpayer is registered. This shall not, however, preclude the BIR from conducting an audit to determine the taxpayer’s liability, if any.

In case a taxpayer decides to transfer its place of business, or head office or any of its branches, it may do so by mere filing, either electronically or manually, of an application for information update. But if the transferring taxpayer is subject of an audit investigation, the RDO which initiated the audit investigation shall continue the investigation.

Remedies

Claims for refund of excess input taxes are now classified into low, medium and high-risk, based on the amount of VAT refund claimed, tax compliance history, and frequency of filing VAT refund claims, among others. Only medium- and high-risk claims are subject to the audit or other verification processes of the BIR. The EOPT Act also provides that in case of failure on the part of the BIR to act on application for refund within ninety (90) days from filing of the application, the taxpayer affected may already appeal the Commissioner’s inaction with the Court of Tax Appeals (CTA).

On the recovery of taxes erroneously or illegally collected, the EOPT Act explicitly stated that claims for refund shall be decided by the Commissioner within 180 days from the date of full submission of documents in support of the application. In case of full or partial denial of the claim for refund, or failure on the part of the Commissioner to act on the application for refund within the one hundred eighty (180)-day period, the affected taxpayer may already appeal the inaction with the CTA, within thirty (30) days from receipt of the full or partial denial of the claim or lapse of the 180-day period for the BIR to act on the refund. With this amendment, the EOPT Act clarified that the a taxpayer can no longer appeal its claim for refund with the CTA without waiting for the full or partial denial of its claim or the expiry of the one hundred eighty (180)-day period for the BIR to act on the claim for refund.

The implementing rules and regulations (IRR) are required to be issued within 90 days from the effectivity of the EOPT Act. In addition, Section 49 of the EOPT Act provides that for the amendments to VAT and other percentage taxes, taxpayers are given a period of six months from effectivity of the implementing rules to comply.

This article is only for informational and educational purposes.  It is not intended as a legal advice or opinion.