7  New VAT Rules under Ease of Paying Taxes Act RA 11976 Philippines

By: Garry Pagaspas, CPA

In an effort to streamline and facilitate tax compliance, Philippine government has been initiating numerous tax reforms. With the end view to ease the burden and make it more comfortable for taxpayers to file and pay their taxes along with related reports, Republic Act No. 11976 otherwise known as Ease of Paying Taxes” in the Philippines has been signed into law last January 5, 2024 and made effective last January 22, 2024 or within 15 days from publication last January 7, 2024.

 Under Republic Act No. 11976 otherwise known as “Ease of Paying Taxes” in the Philippines or “RA 11976 EOPT Ph”, the following are new Philippines Value Added Tax (VAT) rules being implemented by the Bureau of Internal Revenue (BIR) that taxpayers should be aware of:

1. Eased VAT registration and updates under RA 11976 EOPT Ph

Prior to RA 11976 EOPT Ph, taxpayers are required to file and pay PhP500.00 Annual Registration Fee (ARF) every year not later than January of each calendar year. Under RA 11976 EOPT Ph, such PhP500.00 Annual Registration Fee has been discontinued effective January 22, 2024 and so, taxpayers who have not yet paid for 2024 as of January 22, 2024 and for subsequent years are no longer required to file and pay PhP500.00 Annual Registration Fee. Further, under RA 11976 EOPT Ph, filing of registration update could be made either manually or online so it would become easier to effect changes on taxpayers’ registration, but this will not preclude BIR from conducting an audit to determine tax liability. VAT threshold of PhP3,000,000 is likewise bound to be adjusted every three (3) years based on Consumer Price Index of Philippine Statistics Authority so taxpayers could just watch out for such changes and determine impact for them accordingly.

2. Eased filing and payment of VAT under RA 11976 EOPT Ph

Prior to RA 11976 EOPT Ph, taxpayers are required to pay taxes strictly at the BIR Revenue District Office of registration and if registered under electronic filing and payment system (EFPS), the same should be filed and paid electronically. Should the taxpayer fail to do so, a surcharge of 25% of the basic tax shall be imposed as “wrong venue” filing and payment.

Under RA 11976 EOPT Philippines, filing and payment of taxes has been made easier. First, it provides that taxes in Philippines could be filed and paid either manually or electronically with the authorized agent bank (AAB), revenue collection officer (RCO) of the BIR office, or through a tax software provider. Secondly, it provided a “filing and payment anywhere”, not just within the coverage of BIR Revenue District Office of registration, but in any BIR Revenue District Office coverage. Thirdly, the 25% surcharge on the wrong venue has been abolished.

3. Eased VAT Invoicing under RA 11976 EOPT Ph

Prior to RA 11976 EOPT Philippines, sellers of goods are required to issue an Invoice while sellers of service are quired to issue an Official Receipts as basis for 12% VAT, and this becomes confusing at times resulting to disallowances of claims for tax credits on input VAT. To simplify VAT invoicing in Philippines, RA 11976 EOPT Ph came up with a uniform invoicing for both sellers of goods and sellers of services through issuance of a “VAT Invoice” as basis in Philippines for 12% Output VAT of the seller and Input VAT credit of the buyer effective April 27, 2024 upon the effectivity of RR 3-2024. Supplementary documents (e.g. delivery receipt, official receipt, acknowledgment receipt, billing statement, etc.) could also be used to document the transaction but will not become a valid proof of support for 12% Input VAT claim.

On transition, unused manual and loose leaf VAT Official Receipts in Philippines of sellers of services could still be used for 12% VAT transactions until December 31, 2024 but they have to strike “Official Receipts” and stamp as VAT Invoice (see Section 8(2), RR 7-2024), and submit an Inventory of such unused receipts within 30 days from effectivity of RR 7-2024 or until May 27, 2024. Alternatively, they could use such unused manual and loose leaf Official Receipts in Philippines until fully consumed as supplementary document with the phrase stamped on its face – “This document is not valid for claim of Input VAT’.

Certain information shall be contained in the VAT Invoice in Philippines under RA 11976 EOPT Ph and should the seller fail to indicate specific information, the seller could be held liable for such failure while the buyer could still claim the Input VAT from such VAT Invoice, despite being incomplete in details. For transactions of PhP1,000.00 or more, the rules previously require indicating “business style” and this rule has also been removed by RA 11976 EOPT Ph.

4. Simplified 12% VAT base and new input VAT on receivables under RA 11976 EOPT Ph

With the adoption of uniform VAT invoice for VATable sales in Philippines, RA 11976 EOPT Ph effectively adopted accrual basis of accounting for sellers of service making them liable for 12% based on billings for services rendered, instead of previously being liable for 12% VAT based on collections from services. Simply stated, sellers of services will now be liable for 12% VAT based on VAT Invoice in Philippines for services rendered, regardless of whether or not the customer or client pays them during the quarter. Should the customer or client fail to pay the VAT Invoice during the quarter, 12% VAT on such receivable/s from transactions that transpired upon the effectivity of the implementing rules (RR No. 3-2024) or starting April 27, 2024 could be allowed as VAT credit, provided such receivables has not yet been actually written off as worthless accounts for income tax purposes. In the event of recovery of such receivables, VAT portion will be added to the VAT liability on the quarter of recovery.

5. Enhanced VAT refund rules under RA 11976 EOPT Ph

Refund of excess Input VAT from zero-rated transactions will be acted upon by the BIR based on risk-level assessment: low risk requiring no further verification of duly submitted documents; medium risk requiring verification of at least 50% of its purchases and sales documents; and high-risk that would require 100% verification of duly submitted documents. Under RA 11976 EOPT Ph, if post-audit by the Commission on Audit (COA) resulted to disallowances, taxpayer should be made to account for such funds received based on COA rules for disallowances.

Previously, VAT refund process for excess Input VAT from zero-rated transactions should be completed by the BIR Philippines within 120 days from filing the application with complete documents and should the BIR fail to act (approve or deny) within such period, the taxpayer could file an appeal with the Court of Tax Appeals (CTA). This 120-day period was made 90 days in the previous amendment of the Tax Code but the 30-day appeal for inaction was removed. This appeal to CTA for BIR inaction is now restored under RA 11976 EOPT Ph.

For refund of VAT that was erroneously or illegally collected, the previous attempt to impose a processing period for BIR has been vetoed. Under RA 11976 EOPT Ph, it provides that the same should now be processed by the BIR within 180 days from submission of complete documents and inaction of the BIR is appealable to CTA within 30 days from lapse of the 180 days. Should BIR personnel/officer deliberately failed to act on such application, they could be held liable upon conviction under Section 269(J) of the Tax Code, as amended, for a penalty of PhP50,000 to PhP100,000 and/or an imprisonment of 5 to 10 years, among other penalties.

6. Reduces penalties for micro and small taxpayers under RA 11976 EOPT Ph

Under RA 11976 EOPT Philippines, certain concessions were made to micro (up to P3M gross sales) and small taxpayers (up to PhP 20M gross sales) such as the following:

• surcharge of 10% of basic tax instead of 25% surcharge on failure to file and pay in full, unless for willful neglect or filing a false or fraudulent tax returns intent to evade taxes where 50% surcharge applies;
• 6% interest instead of 12% interest on unpaid taxes;
• compromise penalty of PhP 500 for every failure to file and pay information returns, statements, or list, or keep any record, or supply any information as may be required but not to exceed PhP12,500 for all such failure during a calendar year.

While this seems a good thing, the author suggest micro and small taxpayers to focus on ensuring compliance instead of relying on these reduced penalties.

7. Enhanced period for keeping books of accounts

Prior to RA 11976 EOPT Ph, books of accounts and other accounting records are required to be kept within a period of ten (10) years and subsequent BIR issuance allowed keeping hard copies for first five (5) years and online copies for the next five (5) years.

Under RA 11976 EOPT Ph, books of accounts and other accounting records will only be required to be kept for a period of five (5) years reckoned from the day following the deadline in filing a return or from the date of late filing for the taxable year when the last entry was made in the Books of Accounts.  Under the implementing rules (see Section 4, RR 7-2024), they should be kept in hard copies for those under manual books of accounts and manual bound loose leaf books of accounts while those under computerized books of accounts, they could be kept in electronic copies.        

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Garry Pagaspas, CPA is a currently the Managing and Tax Partner of G. Pagaspas Partners & Co. CPAs (independent member firm of Allinial Global, 2^nd largest accounting association worldwide based on International Accounting Bulletin’s 2023 released survey) based in Makati City with Global Outsourcing offices in Kalibo, Aklan. Views in this article is personal to the author, not equivalent to a professional opinion and does not represent that of the organizations he is connected with.