Legislators eye easier tax compliance to bolster collection efforts

House Bill 8942 or the “Ease of Paying Taxes Act” was approved by the House of Representatives on its third reading last Sept. 15. The bill aims to introduce administrative reforms to simplify the Philippine tax compliance system, provide for a Bill of Rights for Taxpayers, and establish a Taxpayers’ Advocate Office that will mediate on taxpayers’ issues with the Bureau of Internal Revenue (BIR). The Taxpayers’ Advocate Office will be under the supervision of the Department of Finance (DOF) and will be independent from the BIR.

The bill simplifies BIR registration by dispensing with the P500 annual registration fee and streamlining the business registration and tax compliance requirements of self-employed individuals and/or professionals. For taxpayers not residing in the country, the bill requires the BIR to establish registration facilities. On top of these, the bill also seeks to improve portability of tax filing and payment transactions by removing venue restrictions.

Another notable measure being introduced under the bill is a new classification system for taxpayers. While the current version of the bill does not supply the criteria for classification and apparently leaves it to the prerogative of the Secretary of Finance, taxpayers will be grouped into small, medium, and large taxpayers. Understandably, the bill abandons the old criteria for the identification of large taxpayers. The bill also provides that simplified tax returns and processes will be implemented for taxpayers not classified as medium or large.

Interestingly, the bill also seeks to harmonize the imposition of value-added tax (VAT) on sale of goods and lease of services/properties. Under current legislation, VAT is imposed on the “gross selling price” (i.e. imposed whether the transaction is paid in cash or on account) for every sale of goods and on the “gross receipts” (i.e. imposed only upon collection) for every lease of service/property. The bill will do away with this apparent disconnect in VAT reporting by providing that the “gross selling price” will serve as the tax base for both sale of goods and lease of services/properties. Consequently, the requirement for the issuance of the VAT official receipt (OR) will be abandoned and the VAT invoice will serve as the supporting document for every sale, barter, exchange or lease transaction, regardless of whether they involve goods or services.

Finally, the proposed Title XIII of the House Bill provides for the Taxpayer’s Bill of Rights that among others, secures the following rights of taxpayers: to pay no more than the correct amount of tax; to a fair tax system; to timely and easy to understand information; to the consistent and transparent application of the law; to quality tax education and service; to privacy and confidentiality of information; and to be protected and seek redress against malicious, excessive and wrongful assessments.

Since time immemorial, a criticism of the Philippine tax system is how convoluted, inefficient, costly, and outdated the compliance requirements are. This creates hesitancy, especially among smaller taxpayers, to comply with tax rules and regulations. Taxpayers are also apprehensive since being fully compliant with the BIR means the latter has more visibility on their transactions which provides more grounds to assess with, while the taxpayer does not have full understanding of the tax technicalities.

With the above reforms slated, the tax system may finally be simple enough for more people to understand. Optimistically, the demystification of a system previously seen as complex may result in better compliance and more efficient collections, which are much needed as we deal with the economic impact of the COVID-19 pandemic.

Victor Lorenzo T. Francisco is a Supervisor 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 ranked as Tier 1 in Transfer Pricing Practice and Tier 1 in General Corporate Tax Practice in the Philippines by International Tax Review 2021.

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].