Tax Articles

Filing of Tax Returns: Are We Expecting Changes?

By Atty. Fulvio D. Dawilan

Fulvio D. Dawilan Managing Partner   +632 8403 2001 loc.310 This email address is being protected from spambots. You need JavaScript enabled to view it. View Profile

Hopes were high when our legislators started discussing the possible enactment of a law that aims to ease the payment and compliance with tax obligations. This was an opportunity to eliminate the practices that had long been discarded by the passage of time and to take advantage of new opportunities presented by modern business practices.

Different versions emerged while the bill passed through different stages. Then came September - the final version became clear when the bicameral conference committee met to reconcile the disagreeing versions.

While this is not yet a law, many of its provisions will indeed make compliance easier. Let me present a few of the proposed changes – limiting for this issue the changes on the rules on venue for payment, and the cancellation and transfer of tax registration.

Removal of Specific Venue for the Filing of Tax Returns and Payment of Taxes. The provisions of the current tax laws and regulations require taxpayers to file their tax returns and pay their taxes within a specific jurisdiction – generally with authorized agent banks and other collection offices located within the revenue district where the taxpayer is registered or required to register. Likewise, those who are required and who voluntarily register under the Electronic Filing and Payment System (EFPS) are mandated to file and pay their taxes electronically. Non-observance of the venue requirement does not go unpunished. When a taxpayer fails to observe these requirements, one-fourth of the tax due is added automatically as a penalty, notwithstanding the timeliness in payment.

This strict requirement limits the flexibility of taxpayers in complying with their tax obligations and denies them the available alternative modes of filing and payment. It is counterproductive as the benefits made available to taxpayers by technology are not fully utilized.

The EOPT seeks to change this antiquated rule by doing away with specific method of compliance and removing the requirement for filing and payment in specific locations. Consequently, the imposition of penalties for filing in the wrong venues is also removed.

Once this bill becomes law, tax returns can be filed with any authorized agent bank, Revenue District Office through the Revenue Collection Officer, or authorized tax software provider, without limiting the place of filing and payment to specific jurisdictions. Tax returns may also be filed and payments made either electronically or manually, at the taxpayer’s option. Tax returns will be allowed to be filed anywhere in the Philippines where these payment facilities are located. Also, at their option, taxpayers may pay electronically, regardless of where they are, provided they can connect to electronic payment facilities in the Philippines. I suppose this option can be done, even if a taxpayer is not registered under EFPS as required under present rules.

This flexibility in the manner of payment indeed affords ease in the taxpayer’s compliance with tax obligations. Initially, there was a suggestion to retain the current rules for specific types of taxes for proper administration. Fortunately, this didn’t materialize as there is no convincing reason to stick to the old rules.

Cancellation of Registration. A taxpayer who is intending to close its business and/or to cancel its registration has to underdo certain procedures. This is understood because a taxpayer is terminating its compliance obligations. But this supposed simple procedure sometimes results in a complicated and prolonged process. With the complexity of the process – the end-date of a taxpayer’s reportorial requirements sometimes presents some issues. Should the taxpayer continue filing returns and other reports? When should it stop? This is just among the considerations encountered in a cancellation process.

EOPT proposes to minimize these issues by providing that the registration is cancelled by the mere filing by the taxpayer of an application for registration information update. Simply put, a taxpayer is no longer required to comply with the obligations pertinent to a taxpayer once it files an application for cancellation.

Of course, this does not necessarily clear the taxpayer for past transactions and even for future transactions if there are any. In fact, regardless of the cancellation of registration by just mere filing, the tax authority is not precluded from conducting audit to determine tax liability.

Transfer of Registration. Similar to the cancellation of registration, the whole process of transferring registration is sometimes complicated by the different steps required in completing the transfer. Because of this complexity, it is not unusual for disputes to arise between the taxpayer and the tax authority. One of these issues relates to the effective date of the transfer. When does the authority of the old revenue district office end and when does the jurisdiction of the new district office begin?

With the proposed new rule allowing the filing of tax returns anywhere, the answer to this question may have been rendered irrelevant as the transferring taxpayer can file anywhere, regardless of where its district office is. However, other than the filing and payment of taxes, there are still many other transactions between the taxpayer and the tax authority which require the identity of a taxpayer’s district office. Thus, it is still relevant to identify which revenue office has jurisdiction over the taxpayer and which revenue office a taxpayer should be reporting to/transacting business with. Any penalties could be imposed, and transactions may be considered unconsummated if done with the wrong office. Hence, the necessity of fixing the effectivity of the transfer of the district office.

Similar to cancellation of registration, the EOPT also proposes to make the effectivity of the transfer by the mere filing of an application for registration information update. Apparently, that is not clearly written but that is the intention. From that period, the taxpayer should be dealing with its new revenue district office. The exception is when an audit is initiated by the old district office, it shall continue the same until completed

I am not sure if the provisions of the bill could still be changed. If it can, I hope it would be on the other portions of the bill that adds more burden to taxpayers. For the items discussed above, I hope these will remain and will eventually be part of the law.

Merry Christmas to all taxpayers!!!