To effectively perform its collection of taxes for nation-building, the Bureau of Internal Revenue (BIR) recommends to the Department of Finance (DOF) the issuances of Revenue Regulations (RR) which specify, prescribe or define rules and regulations for the enforcement of the provisions of the National Internal Revenue Code of 1997, as amended (Tax Code) and related statutes. Not surprisingly, such issuances are usually the subject of negative comments by the public, especially if the regulation to be implemented is perceived to be controversial. Such is the case with RR No. 1-2014.
On Dec. 17, 2013, the DOF issued RR No. 1-2014 which amended the provisions of RR No. 2-98 (commonly referred to as the Consolidated Withholding Tax Regulations). The new regulation requires, among others, that withholding agents submit their alphabetical list (Alphalist) of employees/payees of income payments solely through electronic means. It can be recalled that prior to RR No. 1-2014, taxpayers had the option of submitting their alphalist of payees via e-mail or floppy diskettes/CDs together with the manually prepared alphalist. Under RR No. 1-2014, the alphalists are now required to be submitted under the following modes: a) by attachment in the Electronic Filing and Payment System (eFPS); b) through electronic submission using the BIR’s website (eSubmission); or c) through e-mail at dedicated BIR addresses using a prescribed CSV file format (e-mail). The previous practice of manual submission of alphalist by taxpayers with less than 10 employees or income payees, and the submission of alphalists in storage devices such as CDs, DVDs and USBs are no longer allowed.
Just like any change in procedure, the new regulation was met with some questions and uncertainties from the issue of access to an Internet facility, to the more pressing matter of disallowance of deductible expenses if the prescribed alphalist format would not be followed.
The BIR then issued RMC No. 5-2014 to clarify the provisions of RR No. 1-2014. However, in clarifying the RR, the RMC had in effect, even expanded the instances when the BIR may disallow the expense payments as appearing in the alphalist.
Under RR No. 1-2014, the non-use of the prescribed format of alphalist would result in a disallowance of deductible expense payments as listed in the alphalist. This rule also applies to business establishments with less than 10 employees and other small and micro business operators. Moreover, the submission of alphalist wherein income payments and taxes are lumped into one single amount is not allowed.
Under RMC No. 5-2014, the stiff penalty of disallowance of the income payments as expenses was extended to cases wherein the submitted alphalist contains no erroneous entries but the taxpayer fails to enter some transactions. In such cases, the taxpayer is required to file not only the missing information but should re-submit the complete and corrected alphalist, otherwise, the BIR will disallow the income payments.
It is understandable that the intent of the BIR in issuing these regulations is to provide a more efficient and accurate manner of monitoring and capturing information on all income payments made by employers/payors which will make it more convenient for the BIR to ensure proper payment of income taxes. However, some sectors believe that the disallowance of deductions is not a valid exercise of the BIR’s quasi-judicial powers, since the substantiation required under the Tax Code is that the taxpayer can show that the income tax required to be withheld has actually been withheld paid to the BIR. They further argue that requiring the taxpayer to file the alphalist using a specific format under the pain of a disallowance has no legal basis.
Considering that the format of mandatory electronic submission of the alphalist is just a reportorial requirement which is not required under the Tax Code for purposes of claiming deductions, the disallowance of the deductible expense for non-compliance with the said regulation creates an unnecessary burden on the part of the taxpayers, not to say too oppressive a penalty. Further, to ensure that the BIR receives the prescribed alphalist, the BIR effectively requires that the taxpayer must necessarily have the computer know-how or excellent internet accessibility. The truth is, even possession of these standards is not an assurance of attaining the objective, given certain risks which may be beyond the control of the taxpayers, like “high email traffic”. The burden of proving compliance with the submission requirements is again on the taxpayer, who must coordinate with the Revenue District Office (RDO) concerned to determine if the alphalist was actually and timely received.
Although the efficiency of this new practice brought by RR No. 1-2014 and RMC No. 5-2014 still remains to be seen, more difficult issues may still surface upon their implementation. In the meantime, they still remain the guide for taxpayers in complying with the new rules on alphalist submission. Failure to comply with the regulations exposes the taxpayers to the penalties prescribed in these issuances.
Erwin D. Legaspi is a supervisor from the tax group of R.G. Manabat & Co. (RGM&Co.), the Philippine member firm of KPMG International.
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