The IRRs of Ease of Paying Taxes Act

The enactment of the Ease of Paying Taxes (EOPT) Act, or Republic Act No. 11976, has generated optimism among taxpayers, with the promise of simplifying the often-complex tax processes. The Bureau of Internal Revenue (BIR) deserves recognition for its openness to public feedback and continuous efforts to streamline tax-related procedures. With the recent release of the Implementing Rules and Regulations (IRR) for the EOPT Act, effective as of April 27, 2024, there is now greater clarity on its provisions, signaling a significant step forward in improving tax compliance.

In light of these developments, it is crucial for taxpayers in the Philippines to strategically plan for the effective rollout of the Act. Businesses must take a proactive approach to address the various components outlined in the IRR. Key areas of focus should include optimizing opportunities to claim output VAT credits, creating robust systems to track uncollected receivables, ensuring comprehensive documentation to meet evidence requirements, and implementing measures to maintain continuous compliance with regulatory standards. By carefully planning and addressing these aspects, businesses can better navigate the implementation of the EOPT Act.

Taxpayers are now actively engaged in the practical application and enforcement of the IRR provisions of the EOPT Act. Full compliance with these regulations requires a thorough understanding of the requirements and proactive efforts to ensure adherence.

Output VAT Credit on Uncollected Receivables

The recent issuance of Revenue Regulations (RR) No. 3-2024 by the Bureau of Internal Revenue (BIR) brings amendments to specific provisions of the National Internal Revenue Code of 1997, as amended, particularly focusing on Value-Added Tax (VAT) and Percentage Tax. One of the key changes introduced is the provision for the Output VAT Credit on Uncollected Receivables.

According to Section 5 of the new RR, sellers of goods or services are allowed to deduct the output VAT related to uncollected receivables from their output VAT in the following quarter, once the agreed-upon payment period has passed. However, to qualify for this output VAT credit, sellers must meet several conditions. These include ensuring that the sale occurred after the effectivity of the RR, that the sale was on credit or account, that VAT on the transaction was fully paid by the seller to the BIR, and that the VAT portion of the uncollected receivables has not already been claimed as a deduction for bad debts on the Income Tax Return (ITR), among other requirements.

Monitoring the Output VAT Credit

Given the standard practices of businesses in monitoring their receivables and their respective due dates, the implementation of the EOPT Act emphasizes the necessity for taxpayers to maintain a meticulous approach to this aspect of their operations. As businesses are already accustomed to tracking their receivables, the focus now shifts to a more stringent and systematic approach due to the requirements outlined in the Act. One of the primary concerns for taxpayers is effectively monitoring the claim for output VAT credit. Taxpayers must prioritize the monitoring of due dates and recovery dates, ensuring accuracy and timeliness in their records. This heightened level of attention is crucial for complying with the provisions of the Act and optimizing the claim for output VAT credits. 

Additionally, taxpayers should thoroughly evaluate whether to automate the monitoring process, considering factors such as the volume of their accounts receivable (ARs), diverse payment terms, and industries such as manufacturing, construction, and wholesale distribution, which are known for dealing with high volumes of transactions and consequently have substantial ARs to manage. Given the complexities involved, including varying payment terms across different clients and projects, automation offers the potential to streamline the monitoring process. However, the decision to automate should be made with careful consideration of the specific needs and intricacies of the taxpayer's business operations.

Furthermore, there is a provision stipulating that the output VAT related to the recovery of uncollected receivables must be included in the taxpayer's output VAT during the recovery period. This requirement adds another layer of complexity to the monitoring process. Both manual and automated monitoring systems must adapt to incorporate these provisions effectively, ensuring compliance with regulatory requirements and accurate financial reporting.

Lastly, effectively monitoring to ensure claimed output VAT credits are separate from those claimed as bad debt expenses on ITRs is paramount for taxpayers. Establishing mechanisms to accurately report such transactions entails diligent monitoring and reconciliation of figures to uphold compliance with tax regulations.

Supporting Documents

Taxpayers are now urged to clearly specify the terms of credit in their sales invoices to provide solid evidence supporting their claims for the output VAT credit. This involves including the credit term directly on the invoice or in any accompanying documents that outline the agreed payment period for receivables. While maintaining an Accounts Receivable (AR) schedule is essential, additional documentation practices are also required to strengthen claims and reduce the risk of audit challenges. Proving that receivables have been collected may be relatively straightforward, but verifying the authenticity of uncollected receivables presents a unique challenge.

Effect of Ouput VAT Credit ON BIR Audit

During BIR (VAT) audits, the Bureau of Internal Revenue (BIR) commonly uses Third-Party Information (TPI) to cross-check the input and output VAT reported by taxpayers. However, with the introduction of the output VAT credit on uncollected receivables, the matching principle between input and output VAT becomes inconsistent. Sellers can claim an output VAT credit on uncollected receivables, but buyers cannot declare an input VAT credit on unpaid payables, leading to potential discrepancies in VAT declarations. This discrepancy highlights the need for careful consideration and calls for the BIR to develop strategies that ensure their audits remain thorough and effective, addressing these new complexities.

Introduction of the New BIR Form

The provision regarding the output VAT credit highlights the need for the BIR to introduce a new form that can accommodate the inclusion of these new items in VAT returns. The anticipation of such forms introduces an additional layer of complexity for taxpayers. To ensure a smooth transition and facilitate compliance with the updated reporting requirements, timely updates and clear guidance from the tax authorities are essential. This will help taxpayers stay informed and aligned with the new regulations.

Transitory Provisions on Unused Official Receipts, E-receipting Software, and Computerized Systems

With the introduction of an amendatory provision under the EOPT Act concerning source documents, the BIR has issued RR 7-2024 to provide clarity on its implementation. As per the new regulation, invoices will now serve as the primary supporting document for VAT purposes, while official receipts will be considered supplementary and cannot be used to substantiate input tax claims. This shift in documentation requirements marks a significant change in VAT compliance and underscores the need for taxpayers to adjust their record-keeping practices accordingly.

Unused Official Receipts

Taxpayers are allowed to use unissued Official Receipts (ORs) as supplementary documents for VAT purposes until they are fully consumed. However, starting from the regulation's effectivity date, these ORs must be clearly stamped with the note: "THIS DOCUMENT IS NOT VALID FOR CLAIM OF INPUT TAX." This stamp requirement ensures that these receipts cannot be used to support input tax claims, in line with the new provisions under RR 7-2024.

Manual & Loose-leaf OR

Taxpayers using manual or loose-leaf Official Receipts (ORs) have the option to convert them into invoices by striking through the term "Official Receipt" and replacing it with terms such as "Invoice," "Cash Invoice," or similar. This conversion does not require prior approval from the BIR, but taxpayers must submit their unused OR inventory by May 27, 2024. Input VAT can only be claimed for these renamed receipts if they are issued between January 22, 2024, and December 31, 2024. Additionally, taxpayers are required to obtain newly printed invoices with an Authority to Print (ATP) before fully utilizing or consuming the converted ORs or by the end of 2024, to ensure compliance and avoid violations.

E-receipting Machines and Software

The reconfiguration of Cash Register Machines (CRM), Point-of-Sales (POS) Machines, and/or Electronic Invoicing Software will be considered a minor system enhancement under the new regulations. This reconfiguration does not require reaccreditation of the software or system, nor the reissuance of the Permit to Use (PTU). However, the last serial number of the renamed invoice must continue from the series of the previously approved Official Receipt (OR). Additionally, taxpayers must submit a notice to the BIR in duplicate original copies, indicating the starting serial number of the converted invoice.

For taxpayers using duly registered Computerized Accounting Systems (CAS) or Computerized Books of Accounts (CBA), the reconfiguration will be regarded as a major system enhancement, as it will directly impact the financial aspects. This will necessitate an update to the system registration, including the surrender of the previously issued Acknowledgement Certificate (AC) or PTU and the application for a new AC.

To provide sufficient time for these system enhancements, the BIR has set a deadline of June 30, 2024. However, taxpayers may request an extension until October 27, 2024, by securing approval from the relevant Regional Director or Assistant Commissioner of the Large Taxpayers Service.

Flexibility in Tax Filing & Payment

In line with the objectives of the EOPT Act, the BIR has made a significant move towards simplifying tax compliance through the issuance of RR No. 4-2024. This new regulation provides taxpayers with greater flexibility in filing tax returns and making payments. By offering more versatile options, RR No. 4-2024 embodies the core intent of the EOPT Act—making tax processes more convenient and accessible for taxpayers.

Electric or Manual Filing and Payment

With the implementation of the EOPT Act, taxpayers are now required to file their tax returns electronically using available platforms such as eFPS and eBIRForms. However, in situations where these electronic platforms are unavailable, manual filing may be allowed. For example, if eFPS is inaccessible, taxpayers can use eBIRForms instead. If both platforms are down, manual filing is permitted, provided there is proper advisory or convincing evidence of the platforms' unavailability.

Similarly, tax payments must generally be made electronically through platforms like LinkBiz, PesoNet, UPay, MyEG, and others. In cases where electronic payment is not possible, payments can be made manually at any Authorized Agent Banks or through a Revenue Collection Officer.

Monitoring of Filing and Payment

Despite the benefits of this provision, there are still concerns that the BIR needs to address. One significant issue is the consolidation and monitoring of taxpayers' filed tax returns when different platforms are used. A common problem arises when taxpayers receive notices about open cases, even though they have already filed their returns. This discrepancy often occurs when returns are filed through a platform that differs from the intended one, leading to confusion and potential delays in processing.

To resolve this, it is essential for the BIR to implement a robust monitoring and consolidation system that effectively tracks returns filed across various platforms. This would help prevent taxpayers from being mistakenly included in the list of open cases. Introducing a dynamic system for monitoring and providing clear, comprehensive guidelines on how to handle returns filed via different platforms would address this concern and ensure more accurate record-keeping and smoother tax compliance.

Key Takeaways

The implementation of the EOPT Act presents valuable opportunities for taxpayers to optimize their tax planning strategies. By taking a proactive approach and collaborating with tax authorities, businesses can make the most of these opportunities. Through transparency and a commitment to regulatory compliance, we can navigate the complexities of tax requirements with confidence and integrity, ensuring the best possible outcomes for all stakeholders.

Stay informed about these recent tax developments and keep an eye out for webinars and seminars that will provide in-depth discussions on this new act.

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Danhilson O. Vivo, CPA, REB, REA

Dan is the Managing Partner of Vivo & Co., CPAs, the Philippine member firm of DV Consulting International, an association of consultancy and accounting firms. For comments and inquiries, please email admin@dvconsultingph.com