Philippines: Proposed measures relating to income tax, business tax, and VAT

Senate Bill No. 2224 (the Ease of Paying Taxes (EOPT) Act), which is set to be signed into law by the President, would introduce various measures to facilitate tax compliance. In addition, the bill would introduce various measures relating to income tax, business tax, value added tax (VAT), and other percentage tax (OPT), including:

• Withholding of tax as a requirement for deductible payments from gross income would be repealed. However, claims for creditable income tax would only be granted if the tax is included in the gross income and properly deducted and remitted. Furthermore, unused credits could be carried over to the succeeding period, provided they are declared in the return where the income is reported. Also, the obligation to deduct and withhold tax would arise when the income becomes payable.
• For the final adjustment return of corporations, excess income taxes paid during the year could be carried over to taxable quarters of the succeeding years. However, in case of dissolution, an application for a refund must be filed within two years from the cessation of business.
• Gross sales would be the only basis of transactions, shifting from cash to accrual. In accrual, recognition would arise when the income is earned rather than received, and the sale is supplied or rendered rather than paid. Also, the P3 million threshold would be adjusted to its present value every three years.
• For VAT, the word “prominently” as a manner of showing in the invoice whether a transaction is VAT-exempt or zero-rated would be removed, and purchasers would be allowed to claim input tax even if the invoice lacks information as long as it does not pertain to the sales and VAT amount, the name and taxpayer identification number (TIN) of purchaser and seller, the description of the transaction, and the date.
• In addition, sales allowances and discounts granted by VAT-registered individuals could be deducted from gross sales for the quarter. Also, output VAT paid on uncollected receivables may be deducted from the output VAT of the subsequent quarter. However, in case of recovery, it must be added in the period of recovery.
• For VAT refund, claims would be classified as low-, medium-, or high-risk based on the amount of claim, compliance history, and frequency, with medium and high-risk being subject to audit. The tax authority must act on this within 90 days, and in case of denial, the taxpayer may appeal within 30 days from the receipt of the decision or from the expiration of the 90-day period. If disallowed, only the taxpayer would be liable, without prejudice to any employee of the tax authority.
• For OPT, the quarterly threshold for domestic carriers and keepers of garages would be removed.
• Considerations for small and micro entities provide for income tax returns of a maximum of two pages, whether in paper or electronic form; a reduced rate of 10% for civil penalties; a 50% reduction in interest rates; a reduced rate of P500 for information returns; and a reduced compromise penalty rate of at least 50%.

Read a November 2023 report prepared by the KPMG member firm in the Philippines