Big data tax measures

(First of 2 parts)

A few years ago, who would have thought that an entire online economy for on-demand suppliers and consumers of transport services would arise in the form of transportation network vehicles? Such line of business is a necessary product of human innovation in this information age. Although the Bureau of Internal Revenue (BIR) may have found a way to tax such electronic transactions, our almost two decade old Tax Code (even with numerous amendments of certain provisions) can be said to be in need of an update to meet and anticipate future needs, which may include – among others – any and all future business transactions facilitated through the use of online applications.

House Bill No. 5636 on the proposed Tax Reform Acceleration and Inclusion (TRAIN) has been approved on third and final reading by the House of Representatives last May 31, while the Senate version in Senate Bill No. 1592 is pending second reading as of writing. Even though certain differing provisions of the two bills have yet to be reconciled in the Bicameral Conference Committee, a cursory look into certain provisions of the two bills point to phase out of paper based receipts and sales or commercial invoices in favor of electronic documents, as well as a nationwide electronic sales reporting system.

A difference between the House bill and the Senate bill is that the House version would prescribes the adoption of the capability to issue electronically such source documents (either solely in electronic form or as a printout) for each sales transaction worth P25 or more, and that electronic records must be “transmitted directly to the BIR at the same time and date of each sale transaction.” The Senate version provides more leeway in the issuance of electronic source documents for sales transaction worth P100 or more, and must be done within a five year period from the effectivity of the new law and upon the establishment of a system capable of successfully storing and processing the required data. Furthermore, the Senate version also requires public hearing and pilot testing to be conducted in relation to the transition. It is worthy to note also that the real time transmission requirement is absent and the BIR commissioner’s power to grant an exception from the requirements are retained in the Senate version.

With regard to the establishment of an electronic sales reporting system, the House and Senate versions are largely identical except for some additional requirements in the Senate version such as pilot testing and additional mandated compliance of sales and purchase data processing with the Cybercrime Prevention Act of 2012, and other laws relating to the confidentiality of information – aside from the Tax Code provision on unlawful divulgence of taxpayer information and the Data Privacy Act as provided for in the House Bill.

Aside from the possible exemption that may be provided by the BIR Commissioner found in the current Senate version, all persons subject to internal revenue taxes must eventually issue duly registered electronic receipts and sales or commercial invoices for transactions exceeding a certain amount as well as to report and transmit such information to the BIR (possibly on a real-time basis, if the House version prevails). Such measures can arguably minimize tax leakage by placing within the BIR’s visibility taxpayer’s sales data on a transactional basis which would theoretically enable the BIR to match a taxpayer’s material sales transaction with another taxpayer’s purchase transactions.

Jurisprudence provides that internal revenue taxes (e.g., income tax and VAT) are self-assessing and no further assessment by the government is required to create the tax liability (Tupaz v. Honorable Ulep and People of the Philippines, 316 SCRA 118 (1999). Hence, as the Court of Tax Appeals has previously noted, under the self-assessment or voluntary compliance system, it is the responsibility of the taxpayer to file correct tax returns since it has on hand all the records for their preparation and filing (Bonifacio Gas Corp. v. Commissioner of Internal Revenue, C.T.A. Case No. 8520 (2015). However, experience has shown that this system of voluntary compliance may have been a touch too optimistic since it can be remembered that the previous BIR administration had to resort to a “shame campaign” to encourage taxpayers to accurately disclose their revenue in order for them to pay the right amount of taxes.

With the proposed data processing by the BIR of sales and purchase data, along with the mandated use of electronic documentation, the BIR would undoubtedly boost its collection since the use of automation and big data may minimize or possibly eliminate the element of “discretion” in reporting revenue – granted such system would truly work as envisioned.

Gil Christopher N. Paredes is an assistant manager from the Tax Group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice, Tier 1 transfer pricing practice, Tier 1 leading tax transactional firm and the 2016 National Transfer Pricing Firm of the Year in the Philippines by the International Tax Review.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email [email protected] or [email protected].