Tax and registration in a pandemic: Is it worth the risk?

Halfway through March and in view of the rising number of COVID-19 cases, the Philippine government was compelled to declare an enhanced community quarantine, forcing consumers to stay home in order to minimize the risk of transmitting the virus.

This resulted in a drastic change in consumer behavior as Filipinos realized that they had to source essential items without having to leave their homes.

Our entrepreneurs, of course, saw this opportunity to meet demand and sell online. E-commerce is not a novel concept, but we all saw how the quarantine took it to different heights. Practically everything can now be purchased and settled with just a few swipes – groceries, baked goods, specialty food and even fashion items and personal care products. Likewise, those who became unemployed because of the shutdown of businesses took advantage of the opportunity to make ends meet. Hence, there was a dramatic surge in online transactions

In the middle of all this, the BIR issued Revenue Memorandum Circular (RMC) 60-2020, notifying businesses earning income through electronic and digital platforms to register their businesses and comply with their tax obligations. Under the said issuance, businesses are given until July 31 to register or update their registration status and voluntarily declare, file, and pay the taxes on past transactions. Failure to do so will result to the imposition of penalties provided under the law, rules, and regulations.

The issuance created a stir among Filipinos. Some saw the issuance as ill-timed as it added burden to the public, who are still experiencing the negative effects of the pandemic. There were also questions raised over the necessity of going after small-time online sellers – after all, a number of these individuals are those who were rendered jobless as a result of massive retrenchment and are in it just to have something to spend during these trying times.

With that being said, the law, long-enacted before this pandemic, already mandates that every person subject to any internal revenue tax shall register once with the BIR. The timelines are, in fact, provided in Section 236 of the Tax Code. Relevantly, registration should be made on or before the commencement of business, before payment of any tax due, or upon filing of a required return, statement or obligation. The said section also provides that those who are mandated to register shall register each type of tax for which he is obligated, as well as file a return, pay taxes and update his or her registration for changes.

The reminder to register and pay taxes, therefore, should not come as a surprise. Registration and compliance are embodied in the law, and the obligation is placed not only upon small businesses, but generally on every income earner not otherwise exempt.

If anything, what seems to be a more pressing question is ensuring compliance with the issuance. In the middle of the quarantine, and while we are all still fighting to push the COVID transmission numbers down, the BIR placed a deadline of July 31 for compliance.

The understanding, of course, is that the lockdowns were put in place to minimize the risk of transmission. However, effecting compliance within the prescribed deadline means that our registrants have to go out within the next few weeks and risk exposure to the virus. After all, our registration procedures are still largely manual and registrants have to manually collate and submit forms, personally go to BIR offices, and line up with a number of other new registrants. Apart from BIR offices, registrants also need to secure permits from their respective local government units, and the DTI or the SEC, as applicable. Add to that the government skeleton workforce arrangements and enforcement of social distancing measures, which also limit the number of people who can be entertained, can everyone be timely accommodated and if so, what are the risk for those who also seek to comply with the mandate?

While there should be no question over the necessity of registration and tax payment, there should be some consideration over how we can protect our taxpayers and registrants as they try to comply with their tax obligations. As such, this might be a good time to re-think our registration and compliance processes. The highly manual procedures may have worked pre-COVID, but recent events should make it imperative to accelerate the evolution our tax processes. Enforcing compliance with the law will be more reasonable and effective if there is infrastructure in place to ensure our taxpayers’ safety. It will not be easy to put this in place, of course, but consideration may be put into expediting it. After all, the consumption landscape is quickly changing, and tax enforcement efforts must keep up.

In the end, taxpayers must be reminded that registration of businesses and payment of taxes still everyone’s obligation. It is the tax office’s mandate to ensure that everyone is compliant with their filing and payment obligations- after all, without taxes, the government will not be able to deliver government service. However, the regulations surrounding registration and payment of taxes must be reasonable so that it will not be an added burden for the people during these unprecedented times.

Miguel M. Castillo 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 recognized as a Tier 1 tax practice and Tier 1 transfer pricing practice 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]