On ‘issue-based’ VAT audits: BIR tightens watch on businesses

MANILA, Philippines - Businesses are now under tighter watch by the Bureau of Internal Revenue (BIR), which issued new rules and procedures covering “issue-based” value-added tax (VAT) audits.

“(This is) to increase audit coverage of VAT-registered taxpayers,” Revenue Memorandum Order 59-2016 dated Sept. 19 said. “The order will cover issue-based audit/investigation of VAT liabilities of VAT-registered taxpayers,”  it added.

The new audit system will be  on top of  BIR’s regular VAT audit program.

BIR officials were not responding to request for further comment yesterday.

While the public generally pays VAT through purchases, those required to file returns are businesses, sellers, leasers and importers with aggregate annual gross sales of more than P1.919 million.

Returns are filed with the BIR quarterly, according to the National Internal Revenue Code. 

Under the new order, mandatory coverage of issue-based audit are taxpayers with VAT returns reflecting “erroneous” input tax deductions or those paid upon importation and are subtracted from total liabilities.

“Priority” cases, meanwhile, include businesses falling behind industry benchmarks, taxpayers transacting 80 percent of their business on cash basis and those who availed tax incentives.

Also included are enterprises whose gross sales declared in income tax filing do not match those in VAT, as well as those who pay only percentage taxes but whose gross receipts fall above the VAT threshold.

On the other hand, exempted from the rules are claims for tax credit certificates and refunds as well as those already undergoing audit by another BIR division.

“Based on the audit findings or violations uncovered during the audit, the VAT audit section chief may recommend surveillance, closure or other enforcement activity on the taxpayer,” the BIR said.

On the part of BIR, tax examiners are required to submit monthly reports to the commissioner on assessment notices and letters of authority they issued, cases referred to legal division and those under contention by the taxpayer.

“The (assessment service) will closely monitor the progress of (electronic letters of authority) cases issued under the (program),” the BIR said.

BIR is the government’s main revenue agency tasked to collect around 80 percent of tax earnings. It aims to collect P1.62 trillion this year.

As of the first semester, it already collected P785.97 billion, up 11 percent year-on-year. Of the total, VAT revenues accounted for a little more than a fifth at P163.22 billion.