Clarifications on the revenue regulations implementing the EOPT Act

As featured on PhilStar:  Clarifications on the revenue regulations implementing the EOPT Act

Since the effectivity of Republic Act No. 11976, otherwise known as the Ease of Paying Taxes (EOPT) Act on 22 January 2024, the Bureau of Internal Revenue (BIR) has issued several Revenue Regulations (RR) to implement the said law. However, many questions from taxpayers have emerged following the issuance of the RRs. Thus, the BIR issued Revenue Memorandum Circular (RMC) Nos. 60-2024, 66-2024, and 77-2024 to guide taxpayers on the amendments introduced by the EOPT Act.

One of the changes introduced by the EOPT Act, which was implemented by RR No. 4-2024, is the repeal of Section 34(K) of the Tax Code. Under the repealed provision, certain expenses of the taxpayer where tax is required to be withheld are allowed as deduction only if the tax required to be deducted and withheld has been paid to the BIR. With the repeal of this requirement, expenses where tax is required to be withheld can now be claimed as deduction even if no tax was withheld therefrom.

The repeal of Section 34(K) has a clear impact on the BIR’s tax audit, as many of its assessments include disallowance of expenses due to non-withholding. Taxpayers now ask whether the repeal applies to assessed cases and ongoing audits covering taxable periods prior to the effectivity of the EOPT Act. Under RMC No. 60-2024, the BIR clarified that the repeal only applies to taxable years starting from 1 January 2024 onwards. This means that in all ongoing audits covering taxable periods prior to 1 January 2024, expenses subject to withholding tax shall be allowed as deductions only if the corresponding tax required to be withheld has been paid, whether prior to audit or submission of the audit report to the reviewing office.

If a taxpayer failed to withhold and pay the tax on expenses subject to withholding taxes prior to an audit or submission of the audit report, the revenue officer is mandated to recommend the issuance of assessment notice both on income and withholding tax. Does this mean that the BIR intends to change the rule under RR No. 2-98, as amended by RR No. 14-2002, which allows a taxpayer with withholding tax deficiencies to claim the related expense as income tax deduction as long as the deficiency tax and corresponding penalties are settled during an audit or investigation or reinvestigation or reconsideration? A clarification on this matter will be helpful to taxpayers with ongoing investigations prior to January 2024.    

Another change brought about by the EOPT Act, as clarified by RMC No. 77-2024 is the invoicing requirements provided under RR No. 7-2024, as amended by RR No. 11-2024. It emphasizes that VAT-registered taxpayers are required to issue a duly registered VAT Invoice for every sale transaction regardless of the amount. Non-VAT registered taxpayers, on the other hand, are only required to issue a duly registered Non-VAT Invoice if the value of the sale transaction is PhP500.00 or more; or when the buyer requested for it regardless of the amount; or when the aggregate amount of individual sales transactions during the day, each amounting to less than P500.00, exceeded the P500.00 threshold.

A taxpayer who is not VAT-registered and erroneously issued a VAT Invoice shall be subject to VAT (without the benefit of any input tax credit) and 50% surcharge, in addition to their liability for percentage tax. A VAT registered purchaser, on the other hand, can claim VAT as an input tax credit if the amount of sales, VAT, registered name and TIN, description of goods or nature of services, and date of transaction are indicated in the Invoice.

Furthermore, the BIR clarified that, in addition to the conversion of Official Receipts (ORs) to Invoices, taxpayers may also convert their remaining unused booklets of Billing Statements (BS), Statements of Account (SOA), and Statements of Charges into Billing Invoices until they are fully consumed. It is noteworthy that in RR No. 7-2024, only the OR was mentioned. Upon conversion, taxpayers must ensure that all the required information is shown, including the quantity, unit cost and description of goods sold or nature of service. They can also stamp the missing information on the document if not originally included.

Taxpayers are likewise allowed to use more than one type of Invoice. They may use any descriptive name for their Invoice to reflect their specific sales transactions. Taxpayers who issue an Invoice at the time of sale cannot issue another Invoice upon receipt of payment. Instead, they can issue an OR, Payment Receipt, or Acknowledgement Receipt, as a supplementary document. However, the Invoice itself may contain information acknowledging receipt of payment.

Moreover, the issuance of an OR, Payment Receipt or Collection Receipt, BS, or SOA upon the sale of goods and services cannot be considered as evidence of sales of goods or services and shall be tantamount to the non-issuance of Invoice, which is subject to fine and imprisonment.

While the issuance of the above RMCs seeks to clarify the RRs implementing the EOPT Act and signifies the BIR’s continuing efforts to guide taxpayers through the changes introduced by the law, there are still matters that require clarification, which we hope BIR addresses in future issuances.