In January 2024, the eagerly-anticipated Ease of Paying Taxes Act (EOPT Act) was signed into law – initiating a new chapter in tax compliance and administration for Filipino small and medium enterprises (SMEs).
The Ease of Paying Taxes Act in the Philippines aims to revolutionize the way business taxes are administered, making it simpler and more efficient for businesses of all sizes to comply with their tax obligations. This article delves into the nuances of the Ease of Paying Taxes Act, exploring its implications for business taxes in the Philippines and how Filipino business owners must manage their taxes moving forward.
Understanding the Ease of Paying Taxes Act
The Ease of Paying Taxes Act – officially known as Republic Act No. 11976 – builds on the foundation laid by previous Philippine tax reforms, such the Tax Reform for Acceleration and Inclusion (TRAIN) Act and the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.
The Ease of Paying Taxes Act introduces significant amendments to the National Internal Revenue Code (NIRC) of 1997. As of April 2024, a majority of the amendments made involve taxpayer classification, filing of tax returns, tax payments, registration procedures, invoicing requirements, and other matters affecting the declaration of taxable income. The new law also requires the Bureau of Internal Revenue (BIR) to create a digitalisation roadmap in order to ease tax compliance, especially for micro and small taxpayers.
The Ease of Paying Taxes bill aims to protect and safeguard the taxpayer rights and welfare, modernize tax administration, provide mechanisms that encourage proper and easy compliance, update the taxation system and adopt best practices. We expect that additional regulations and provisions for the EOPT Law will further enhance the Philippine tax system for business owners by streamlining tax administration processes.
Key Features of the Ease of Paying Taxes Bill
At the heart of the Ease of Paying Taxes Act (Republic Act No. 11976) are several features to facilitate a more responsive tax administration framework. These include:
Taxpayer Classification: Taxpayers are now categorized into micro, small, medium, and large segments based on their gross sales. This classification informs the tailored tax administrative measures applicable to each category. The following defines the revenue classification for taxpayers:
- Micro: less than ₱3,000,000 in gross sales
- Small: ₱3,000,000 to less than ₱20,000,000 in gross sales
- Medium: ₱20,000,000 to less than ₱1,000,000,000 in gross sales
- Large: ₱1,000,000,000 and above in gross sales
Filing and Payment Flexibility: Registration application, tax returns, and tax dues can now be filed and paid for electronically or manually at any Revenue District Office (RDO), Authorized Agent Banks (AAB), or tax software provider.
Tax registration for non-residents: Non-residents can now register for the tax facilities previously mentioned, in a bid to attract foreign investors and make it easier for them to do business in the Philippines.
Cancellation of BIR registration: Cancellation of BIR registration via manual or electronic filing is now possible at the tax facilities mentioned above.
Removal of Annual Registration Fee: A significant relief for business taxpayers is the removal of the annual registration fee of ₱500, effective January 22, 2024. Business taxpayers, in turn, are no longer required to file BIR Form No. 0605 to pay the aforementioned fee.
Ease of tax payments for OFWs and OCWs: Overseas Contract Workers (OCWs) or Overseas Filipino Workers (OFWs) earning income solely from overseas will no longer be required to file income tax returns.
Implications of Ease of Paying Taxes Act for Business Taxes
The Ease of Paying Taxes Act also introduced the following changes that directly affect how business taxes are calculated, filed, and paid in the Philippines – mostly involving Value Added Tax (VAT):
- VAT refund claims are now categorized into low-risk, medium-risk, and high-risk; medium and high-risk claims will be subject to audit and verification procedures.
- VAT for the sale of services will now be calculated based on gross sales, not gross receipts. Moving forward, a VAT sales invoice must be issued for the sale of goods and services rather than official receipts.
- Business style information is no longer required for claiming input tax credit on sales invoices.
- The threshold for mandatory issuance of duly registered invoice for each sale and transfer of merchandise is raised from ₱100 to ₱500, adjustable every three years using the Consumer Price Index (CPI). However, sellers must still issue invoices when requested by the buyer, regardless of the amount.
- BIR must process tax refund claims for erroneous or illegal collections within 180 days. If appealing the claim decision, an appeal to the Court of Tax Appeals must be made within 30 days from receipt of BIR’s decision or from expiration of the 180-day period.
- Withholding of taxes will only apply once income payments become payable.
Implications of Ease of Paying Taxes Act for Micro and Small Businesses
The Ease of Paying Taxes Act is particularly advantageous for micro and small businesses in the Philippines. With provisions for reduced income tax return pages, lowered civil penalties, and special concessions on interest rates and fines, the act is designed to lighten the tax compliance burden on smaller enterprises. Specifically, the EOPT Law features the following provisions for micro enterprises and small businesses:
- Income tax return forms for micro and small taxpayers are shortened to two pages (from four pages).
- Section 248, which charges taxpayers a penalty for failing to file returns or pay taxes, reduced the penalty from 25% to 10%.
- The interest rate applied to unpaid taxes under Section 249 of the Tax Code has been reduced by 50%. This interest is assessed on tax amounts that are not paid by the due date.
- The penalty for micro and small enterprises who fail to file certain information returns, statements or lists or keep any record under Section 250 (Failure to File Certain Information Returns) is reduced from ₱1,000 to ₱500.
- The compromise penalty rates for violations of Section 113 (Invoicing and Accounting Requirements for VAT-Registered Persons), 237 (Issuance of Sales or Commercial Invoices) and 238 (Printing of Sales or Commercial Invoices) of the Tax Code is also reduced by 50%.
- Micro-scale enterprises are now exempt from withholding creditable income taxes under Section 57(b) (Withholding of Tax at Source).
Conclusion
In conclusion, the Ease of Paying Taxes Act represents a significant stride toward simplifying tax compliance and enhancing the operational environment for businesses in the Philippines. As a business owner, staying abreast of the latest tax policies is crucial for optimizing your tax strategies and ensuring compliance. The recent changes not only provide opportunities for reduced tax burdens but also streamline processes that can save you time and resources.
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