Ease of Paying Taxes Act: Modernizing Philippine tax administration

Introduction

In 5 January 2024, President Ferdinand Romualdez Marcos Jr. signed into law Republic Act No. 11976, otherwise known as the Ease of Paying Taxes Act (“EOPT”), which took effect on 22 February 2024.

With the enactment of the EOPT, there is a shift from comprehensive tax policy amendments toward fostering a dynamic and efficient system of tax administration. This approach aims to be responsive to the needs of taxpayers and flexible enough to accommodate modernization efforts.

Key Provisions

The EOPT introduced several administrative tax administration reforms, which are discussed in detail below.

1. Classification of Taxpayers

To ensure a responsive tax administration, the EOPT categorizes taxpayers into four groups: Micro, Small, Medium, and Large.

Group	Gross Sales
Micro	Less than Three Million Pesos (Php 3,000,000.00)
Small	Three Million Pesos (Php 3,000,000.00) to less than Twenty Million Pesos (Php 20,000,000.00)
Medium	Twenty Million Pesos (Php 20,000,000.00) to less than One Billion Pesos (Php 1,000,000,000.00)
Large	One Billion Pesos (Php 1,000,000,000.00) and above.

 

2. How Taxpayers Transact with the Bureau of Internal Revenue

Application for registration and cancellation of BIR registration can be done electronically or manually with the appropriate Revenue District Office. Filing and paying internal revenue taxes can be done by taxpayers electronically or manually at any revenue district office of the BIR, authorized agent banks, or authorized tax software providers. These advancements align with the EOPT’s aim to modernize tax administration and improve efficiency and effectiveness.

3. Income Tax Return Filing Exemption

The EOPT Act introduces a new exemption for filing income tax returns, Section 51(2)(e) provides that an individual citizen of the Philippines who is working and deriving income solely from abroad as an “Overseas Contract Worker” as provided under Section 23(c) of this Code, or Overseas Filipino Workers as defined under Section 3(G) of Republic Act No. 11641, otherwise known as “Department of Migrant Workers Act”, shall not be required to file an income tax return.

4. Withholding Taxes

The obligation to deduct and withhold the tax arises at the time the income has become payable. Claims for tax credit or refund will only be given due course when it is shown that the income payment has been declared as part of the gross income and the fact of withholding is established. The claim for tax credit can be creditable in the subsequent calendar year, provided that it was declared in the tax return where the corresponding income is reported.

5. Corporate Income Tax and VAT/Input Tax Refund

If the corporate taxpayer cannot carry over the excess income tax credit due to dissolution or cessation of business, the taxpayer may file for a refund of any unutilized tax credit with the BIR. The same principle of refund applies to individuals who cannot utilize their input tax due to retirement or cessation of business. For this purpose, VAT refund claims are categorized into low, medium and high risk, based on the amount of VAT refund claim, tax compliance history, frequency of filing VAT refund claims, among others. Medium-Risk and High-Risk will be subject to an audit and verification process.

6. Claiming Input Tax Credit

The previously required information on Business Style in the Sales Invoice is no longer needed.

7. VAT imposed on Gross Sales, Exemption

The EOPT Act introduced an amendment to the basis for calculating VAT on the sale of goods and services. Previously, VAT is computed from the “gross selling price”. Upon effectivity of the EOPT Act, VAT shall now be computed based on “gross sales”. The annual sale or lease of goods and performance of services which does not exceed Three Million Pesos (Php 3,000,000.00) is a VAT-exempt transaction.

8. Mandatory Issuance of Duly Registered VAT Invoice

The issuance of an official receipt is no longer a requirement for the sale of goods and services. The EOPT makes it mandatory for VAT-registered taxpayers to issue a VAT Invoice for every sale, barter, exchange, or lease of goods or properties and for every sale, barter, or exchange of services over Five Hundred Pesos (Php 500.00). However, when the buyer requires an Invoice, regardless of the amount of sale, the seller shall issue the Invoice.

9. Exemption from payment and filing the BIR Form No. 0605 and the Removal of the Annual Registration Fee.

Beginning 22 January 2024, business taxpayers who were previously required to file BIR Form No. 0605, for the payment of taxes and fees which do not require a tax return, are no longer required to do so. The annual registration fee of Five Hundred Pesos (Php 500.00) is also waived. Business taxpayers with existing Certificate of Registration “COR” have until 31 December 2024 to surrender their old COR for replacement.

10. Repeal of Section 34(K) of the National Internal Revenue Code of 1997, as amended (“NIRC”).

The EOPT repeals the provision in the NIRC which provides additional requirements for deductibility of certain payments from Gross Income.

11. Special Concessions for Micro and Small Taxpayer Groups

The EOPT introduced several concessions for Micro and Small Taxpayers such as:

• Reduced number of ITR pages from 4 to 2.
• Reduced rate of 10% for civil penalties under Sec 248 of the NIRC
• Reduced rate of 50% on the interest rate imposed under Sec. 249 of the NIRC
• Reduced fine of Five Hundred Pesos (Php 500.00) as a penalty for failure to file certain information returns as provided under Sec. 50 of the NIRC
• Reduced compromise penalty rate of at least 50%

Summary

In summary, the EOPT simplifies tax filings for Micro and Small Enterprises, enables online processing of tax processes, expedites value-added tax (VAT) refunds by shifting to an invoice system, and creates a special dedicated division within the Bureau of Internal Revenue (BIR) for Small and Medium taxpayers.

If you have any questions, or concerns, or require any additional information, please contact Michael Marlowe Uy at mguy@skylaw.com.ph or Kirsten Denise B. Habawel-Vega at khvega@skylaw.com.ph.

Further information:

• Recent revisions in foreign investment laws in the Philippines
• Q&A with Michael Marlowe Uy

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