“Only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes the politically inevitable.”
This quote comes from Milton Friedman, arguably the most influential economist of the 20th century. A man of small stature and big ideas, his theories caused a wave of deregulation across governments that simplified or eliminated bureaucratic rules to increase economic activity and innovation with the goal of financial success for all.
But I digress. Let’s talk tax.
Moves to deregulate and simplify have also struck a chord with Filipinos. In recent years, there have been concerted efforts by both Congress and the Executive through the President and the BIR to simplify tax regulation with the goal of inviting businesses (both foreign and local) to enter and thrive in the country as it works to emerge stronger from the pandemic.
BIR STRATEGIC PILLAR: DIGITALIZATION AND SIMPLIFIED PROCESSThe Bureau of Internal Revenue (BIR) under Commissioner Romeo Lumagui’s administration has set four strategic pillars in its 2024 Priority Programs and Projects according to Revenue Memorandum Circular (RMC) 42-2024: Provide excellent service to taxpayers; Develop highly digital processes; Intensify audit and enforce process; and Strengthen integrity and professionalism of the employees and the institution. To that end, the BIR has in recent years digitalized and simplified processes for the convenience of taxpayers. Easier to tax, easier to pay, easier to collect.
In the past, taxpayers needed to go to their Revenue District Office (RDO) for transactions like Tax Identification Number (TIN) inquiry, cancellation and verification, registration, and closure of business. Now, with the BIR’s Online Registration and Update System (ORUS) as outlined in RMC 121-2023 and RMC 12-2023, these transactions may be processed online. RMC 91-2024 also further clarified the procedures of business registration, closure, and transfer.
In RMC 37-2024, as amended by Revenue Memorandum Order (RMO) 20-2024, inquiries regarding a taxpayer’s TIN can now be done from the comfort of home by sending a simple e-mail containing the necessary information to tin.inquiry@bir.gov.ph. Further, RMC 31-2024 states that for TIN Verification purposes, the result displayed by ORUS or BIR’s Chatbot Revie is sufficient proof of the correctness of the TIN, except in certain instances where a TIN Verification Slip is required.
Another instance where compliance was simplified concerns receipts, invoices, and certificates authorizing registration (eCAR). Back then, these documents had validity periods that required taxpayers to apply for new receipts/invoices after the expiry date or revalidate an eCAR if presented beyond the validity period. Now, with the issuance of Revenue Regulations (RR) 6-22 and RR 12-2024, the validity periods of these documents have been removed, reducing the burden on the taxpayers. With this development, the cost and time incurred to secure new receipts, invoices, and eCARs are reduced. It also reduces the workload of BIR personnel, thereby promoting efficiency.
These are just some of the changes made to digitalize and simplify the process, in the hope that more taxpayers voluntarily comply in aid of the BIR’s collection efforts.
CONGRESS AND TAX REFORMCongress has also been pursuing tax reform initiatives that have made compliance simpler and easier with the recent passage of the Ease of Paying Taxes (EoPT) Law. For its part, the BIR has put in significant effort to implement the EoPT law and clarify its provisions. Here are some of the RMCs issued this year to clarify some pertinent provisions of the law.
Thanks to the EoPT Law, the annual registration fee was eliminated, as clarified in RMC 14-2024, and the civil penalties were reduced for small and micro taxpayers per RR 6-2024. Also, the obligation of the taxpayer to preserve and maintain books of account and other accounting records from 10 years to five years was also shortened as per RR 7-2024.
Taxpayers were further classified under RR 8-2024 as Micro, Small, Medium, and Large according to their gross sales. This classification would enable the BIR to enforce less stringent requirements and reduce penalties for smaller businesses, while applying more stringent requirements for larger entities.
Refunding Value-Added Tax (VAT) has also been simplified under RR 3-2024 and clarified under RMO 23-2024 as amended by RMO 42-2024. Now, VAT Taxpayers are classified as Low, Medium, and High Risk, with those classified as Medium Risk now facing reduced verification or audit of their sales and purchases. Low Risk taxpayers now need no verification of their sales and purchases. This in turn makes processing VAT refunds faster and less taxing for the BIR and the taxpayer.
Moreover, in the past, returns and taxes must have been filed and paid in the Authorized Agent Bank (AAB) or with the Revenue Collection Officer (RCO) where the taxpayer is registered. With RR 4-2024 and the recent RMC 87-2024, filing and payment of returns can now be processed through any AAB, Authorized Tax Software Provider, or RCO with the elimination of the “wrong venue” penalty.
These efforts brought relief to many taxpayers with the reduction of the cost of compliance. Certainly, proper implementing rules and guidelines from the BIR help taxpayers to easily understand and follow these tax rules.
WORKS IN PROGRESSThere are still some initiatives of the BIR that are works in progress. Some of these are the full implementation of the Electronic Invoicing/Receipting System (EIS) and the integration of the EIS with the BIR System. Another is the issuance of an Acknowledgement Certificate (AC) within three working days from receipt of complete documents under RMC 5-2021. In practice, this is usually not the case for many taxpayers registering their Computerized Books of Account. The review process is still tedious for some RDOs, as it still takes weeks and even months to complete and issue the AC.
On another note, a significant issue in the tax assessment process is still being experienced by many taxpayers with payments to nonresident foreign corporations regarding the proper taxation of cross-border services as enumerated in RMC 5-2024 and RMC 38-2024. The BIR should issue further clarifications and guidelines when determining the taxability of these cross-border services to leave no room for the BIR case officers to interpret, thereby reducing the likelihood of huge and improper tax assessments.
The right against wrongful assessments is still a top taxpayer concern. The House’s EoPT version had a provision creating a Taxpayer’s Bill of Rights and Obligations and creating a Taxpayer’s Advocate Office. This was not included in the final version of the law. The taxpayers are hopeful that a separate bill will be passed to provide fair treatment to taxpayers and put in place protections against wrongful assessments.
To conclude, the BIR’s efforts to simplify, standardize, and reduce tedious tax procedures and requirements are inspiring and commendable. While there is much more to be done for taxpayers, as our country still ranks 171st out of 190 countries in starting a business and 95th in paying taxes, as can be seen on the website of the World Bank Group’s Ease of Doing Business Index, it is believed that the Philippines is on the right path with the earnest efforts being put in motion by the government. As Teddy Roosevelt, the reforming US President, famously said, “Do what you can, with what you have, where you are.” That’s how things get done, taxation included.
Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
Michael L. Milan is an associate of the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.