Last January 5, 2024, President Ferdinand R. Marcos, Jr. signed into law Republic Act No. 11976 or the Ease of Paying Taxes (EOPT) Act. The EOPT Act is one of the priority legislations mentioned by President during his State of the Nation Address last 2022 and 2023. The focus of the amendments introduced by this law is with respect to tax administration. The law aims to provide a healthy environment for the taxpaying public that will ultimately result into improvements in tax compliance.
Among the salient features of the EOPT Act are as follow:
New classification of taxpayers
One of the goals of the current administration is to capture as many taxpayers as possible into the tax net. This was achieved by providing a new set of classification of taxpayers in the EOPT Act. Taxpayers are now classified into micro, small, medium, and large.
GROUP GROSS SALES
1. Micro Less than Three million pesos (P3,000,000)
2. Small Three million pesos (P3,000,000) to less than Twenty million pesos (P20,000,000)
3. Medium Twenty million pesos (P20,000,000) to less than One billion pesos (P1,000,000,000)
4. Large One billion pesos (P1,000,000,000) and above
File-and-pay anywhere mechanism
The filing of return and payment or remittance of tax is now made easier as it can now be done either electronically or manually with the Bureau of Internal Revenue or through ANY authorized agent bank or authorized software provider, as required by the NIRC or as prescribed under existing rules and regulations. A taxpayer has the option to pay in a manner that is most convenient to him or her. In addition to this, the option to pay internal revenue taxes to the city or municipal treasurer has been removed to encourage the shift to electronic payment channels.
Not Required to File Income Tax Return
An individual citizen of the Philippines who is working and deriving income solely from abroad as an “Overseas Contract Worker” is no longer required to file an income tax return.
Timing of withholding taxes
The timing of withholding taxes was even made easier. Under the new law, the obligation to deduct and withhold the tax arises at the time the income has become payable. Before, the obligation of the payor to deduct and withhold the tax arises at the time an income payment is paid or payable, or the income payment is accrued or recorded as an expense or asset, whichever is applicable, in the payor’s books, whichever comes first.
Imposition of Value-Added Tax (VAT) on Services based on Gross Sales
The VAT on sale of services and use or lease of properties will now be based on the gross sales and no longer on the gross receipts. This is now in uniform with the basis for VAT on sale of goods or properties. However, the definition of gross sales is different.
For VAT on sale of goods or properties, “gross sales” is defined as the total amount of money or its equivalent value in money which the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or properties, excluding the VAT. The excise tax, if any, on such goods or properties shall form part of the gross sales.
For VAT on sale of services and use or lease of properties, “gross sales” is defined as the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services during the taxable quarter for the services performed for another person, which the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter, or exchange of services that has already been rendered by the seller and the use or lease of properties that have already been supplied by the seller, excluding VAT and those amounts earmarked for payment to the third (3rd) party or received as reimbursement for payment on behalf of another which do not redound to the benefit of the seller as provided under relevant laws, rules or regulations: Provided, That for long-term contracts for a period of one (1) year or more, the invoice shall be issued on the month in which the service, or use or lease of properties is rendered or supplied.
Invoicing Requirement
Under the new law, the invoicing requirement for every sale, barter, exchange, or lease of goods or properties, and for every sale, barter or exchange of services is now satisfied by showing a VAT invoice. Before the enactment of this law, a VAT official receipt is needed for every lease of goods or properties, and for every sale, barter or exchange of services.
Classification of VAT refund claims
The new law likewise provides that VAT refund claims shall now be classified into low, medium, and high risk claims. The risk classification is based on the amount of VAT refund claim, tax compliance history, frequency of filing VAT refund claims, among others. Furthermore, medium and high risk claims will be subjected to audit or other verification processes in accordance with the BIR’s national audit program for the relevant year.
“Ease” of Paying Taxes – Registration, Digitalization, and Special Concessions
The new law also eased the tax requirements of taxpayers not residing in the country. Registration facilities will be made available for all taxpayers even for those who are not residing in the country. The law states that the BIR shall adopt an integrated digitalization strategy and provide an automated end-to-end solutions for the benefit of taxpayers. It will provide special concessions for micro and small taxpayers specifically: (1) the Income Tax Return required under Section 51 of the NIRC shall consist a maximum of two pages in paper or electronic form; (2) a reduced rate of ten percent for civil penalties as provided under Section 248 of the NIRC; (3) a fifty percent reduction on the interest rate imposed under Section 249 of the NIRC; (4) a reduced fine of five hundred pesos as penalty for failure to file certain information returns as provided under Section 250 of the NIRC; and (5) a reduced compromise penalty rate of at least fifty percent for violations of Sections 113, 237, and 238 of the NIRC. The law was published in the Official Gazette on 07 January 2024 and shall take effect fifteen (15) days after publication.
Should you wish to discuss and understand the EOPT Act in its totality, you may contact us at support@aaqlaw.com.ph. You may also access a copy of the law through this link.
