Special InTAX: January 2024 Issue 1 | Volume 3

Office of the President

 

On 5 January 2024, Republic Act (RA) No. 11976, or the Ease of Paying Taxes Act (EOPT Law) was signed into law by the President.

Among the key changes in the National Internal Revenue Code of 1997, as amended (Tax Code) are as follows:

Income Tax

1. Taxpayers shall now be classified as follows [new Section 21(b) of the Tax Code]:

   Group	Gross Sales
   Micro	Less than PHP3 million
   Small	PHP3 million to less than PHP20 million
   Medium	PHP20 million to less than PHP1 billion
   Large	PHP1 billion and above

2. The term ‘filing of return’ and ‘payment of tax’ is now defined under the new Sections 22(KK) and 22(LL) of the Tax Code which refers to the filing and payment electronically or manually to the Bureau of Internal Revenue (BIR), through any authorized agent bank (AAB) or authorized tax software provider.
   
3. The withholding tax requirement for deductibility of expenses under Section 34(K) of the Tax Code is now removed.
   
4. Overseas Contract Worker (OCW) or Overseas Filipino Worker (OFW) are now experessly included in the list of individuals who are exempt from the filing of an Income Tax Return (ITR) [new Section 51(e) of the Tax Code].
   
5. As to the timing of withholding taxes, the new Section 58(C) of the Tax Code provides that the obligation to deduct and withhold the tax arises at the time the income has become payable.
   
6. Claims for tax credit/refund of unutilized excess creditable income tax shall be given due course only when it is shown that the income payment has been declared as part of the gross income, the fact of withholding is established and the same had been declared in the tax return where the corresponding income is reported [new Section 58(E) par. 2 of the Tax Code]. The option for the taxpayer to file an application for refund of any unutilized excess income tax credit in case said taxpayer is unable to carry over excess income tax credit due to dissolution or cessation of business is now expressly included in Section 76 of the Tax Code.
7. The provision granting micro-enterprises exemption from the obligation to withhold taxes was vetoed by the President.

 

Value Added Tax (VAT)

1. VAT on sale of goods or properties under Section 106 of the Tax Code and sale of services or use or lease of properties under Section 108 of the Tax Code shall be based on gross sales.  The term ‘gross selling price’ from which VAT on sale of goods may be imposed is now termed as ‘gross sales’ while VAT on sale of services is now ‘gross sales’ (previously ‘gross receipts’) which has a new definition under Section 108 of the Tax Code (see Section 17 of the EOPT Law).
   
2. The output VAT on uncollected receivables may be deducted from its output VAT on the next quarter, after the lapse of the agreed upon period to pay as lon as the seller has fully paid the VAT on the transaction and that the VAT component of the uncollected receivables has not been claimed as allowable deduction. In case of recovery of uncollected receivables, the output VAT pertaining thereto shall be added to the output VAT of the taxpayer during the period of recovery. [new Section 110(D) of the Tax Code]
   
3. A VAT-registered person shall only be required to issue a VAT invoice for sale of goods and services which shall be sufficient to substantiate input VAT arising from the purchase of both goods and services. (Note: A VAT official receipt was previously required to be issued for sale of services under Section 113 of the Code.)
   
4. VAT refund claims shall be classified into low, medium, and high-risk claims based on amount of VAT refund claim, tax compliance history, frequency of filing VAT refund claims, among others. The medium and high-risk claims shall be subject to audit or other verification processes.
   
5. Business style is no longer an invoicing requirement for VAT-registered persons.
   
6. Input VAT from a VAT invoice with lacking information shall still be allowed to be used as input tax credit on the part of the purchaser if the lacking information do not pertain to the amount of sales, amount of VAT, name and TIN of both the purchaser and issuer/seller, description of goods/nature of services, and the date of transaction.
   

 

Percentage Tax

1. Percentage tax is now based on gross sales or earnings but specific amendments affecting related thereto only pertain to:    

a) The term ‘gross receipts’ in Sections 116, 117, 118 and 119 of the Tax Code (provisions on other percentage taxes) is now termed as ‘gross sales’.

b) The 10% percentage tax imposed on overseas dispatch, message or conversation on originating shall now be based on amount billed (previously amount paid) for such services.

2. The option to file a separate return for each branch or place of business is now removed for purposes of filing percentage tax returns.

 

Others

1. The processing of refund claims under Section 204 of the Tax Code shall be 180 days from the date of submission of complete documents in support of the application filed is now expressly included under said section.
   
2. The 2-year prescriptive period in filing a refund claim under Section 229 of the Tax Code before the court was removed. Section 229 of the Tax Code now provides that no such suit or proceeding shall be filed unless there is a full or partial denial of the claim for refund or credit by the CIR or there is a failure on the part of the CIR to act on the claim within 180 days.
   
3. Section 235 of the Tax Code now expressly provides that the 5-year period for the preservation of books
   
4. Registration of taxpayers, tax types, transfer and cancellation of registration shall be done either electronically or manually.
   
5. The payment of the PHP500 annual registration fee (ARF) for business taxpayers is no longer required.
   
6. The following are the special concessions to micro and small taxpayers:

a) The ITR required under Section 51 of the Tax Code shall consist of a maximum of two (2) pages in paper form or electronic form;

b) Reduced rate of 10% for civil penalties as provided under Section 248 of the Tax Code;

c) 50% reduction on the interest rate imposed under Section 249 of the Tax Code;

d) Reduced fine of PHP500 as penalty for failure to file certain information returns as provided under Section 250 of the Tax Code; and

e) Reduced compromise penalty rate of at least 50% for violations of Sections 113, 237, and 238 of the Tax Code.

 

The implementing rules and regulations (IRR) shall be promulgated within 90 days from the effectivity of the EOPT Law.

Taxpayers are given six (6) months from the effectivity of the IRR to comply with the amendments on VAT and percentage tax.

Here is the full text of RA No. 11976 and the provisions vetoed by the President for your reference.

(RGM&Co. Note:  The RA was published in the Official Gazette on 7 January 2024, which will take effect 15 days after or on 22 January 2024.)