Salient Features of the Ease of Paying Taxes (EOPT) Act (R.A. No. 11976)

Background

Republic Act (RA) No. 11976, otherwise known as the “Ease of Paying Taxes (EOPT) Act”, was signed into law on January 5, 2024 by President Ferdinand R. Marcos, Jr., together with his VETO message.

It was published in the Official Gazette on January 7, 2024 and took effect on January 22, 2024 or 15 days from its publication in the Official Gazette.

The law aims to simplify tax filings, particularly for those classified as Micro and Small Taxpayers, by introducing the file-and-pay anywhere system and allowing most of the tax processes to be done online.

It also included the shift to an invoice system to improve the registration process as well as to accelerate the processing of VAT refunds.

The following are the significant amendments to the Tax Code brought about by the EOPT Act:

Classification of Taxpayers:

Special Concessions for Micro and Small Taxpayers

Micro and Small Taxpayers shall enjoy the following concessions under the EOPT Act:

• Simplified Income Tax Return – two (2) pages
• Reduced rate of 10% for civil penalties under Section 248 of the Tax Code, as amended
• Reduced fine of P500 as penalty for failure to file certain information under Section 250 of Tax Code, as amended
• Reduced compromise penalty rate of 50% for violations of Section 113, 237, and 238 of the Tax Code, as amended.

File and Pay Anywhere

The EOPT Act now allows taxpayers to file their tax returns and pay their taxes, either electronically or manually,  with any Authorized Agent Bank, Revenue District Office (through its Revenue Collection Officers), or Authorized Software Provider.

This gives taxpayers the flexibility in filing and paying their taxes anywhere without worries of incurring administrative penalties for filing at the wrong venue.

Ease of Registration

Registration facilities shall be made available to all taxpayers including those not residing in the Philippines.

The Annual Registration Fee of P 500 was also removed under the EOPT Act.

This provides taxpayers engaged in business, especially Micro and Small Taxpayers, with immediate financial relief by reducing their administrative expenses.

Furthermore, the registration of taxpayers shall be cancelled or transferred upon the mere filing of an application for cancellation/transfer with the RDO where the taxpayer is registered.

Deductions from Gross Income

The withholding of taxes as a requirement for deductibility expenses (per Section 34(K) of the Tax Code) has been repealed.

This means that non-withholding of taxes in certain payments will no longer be a ground for the disallowance of claims for deductible expenses.

Simplified Timing of Withholding

Under the EOPT Act, the obligation to deduct and withhold the tax arises at the time the income has become payable.

This eliminates the need for the payor to consider when the obligation becomes due, demandable or legally enforceable.

Instead, it focuses on the more straightforward concept of when the income has become payable.

Invoicing Requirements

Previously, taxpayers’ claim for deductions and VAT credit or refund have been disallowed for non-compliance with invoicing requirements, particularly with the “business style.”

Under the EOPT Act, “business style” has been removed as a mandatory information to be contained in the invoice.

The threshold for mandatory issuance of invoices is increased to P 500, which shall be adjusted to its present value every 3 years based on the Consumer Price Index, as published by the Philippine Statistics Authority (PSA).

In case of failure of the VAT-registered person to provide complete information in the invoice, the issuer shall be liable for noncompliance.

However, the VAT shall still be allowed to be used as input tax credit on the part of the purchaser if the lacking information do not pertain to the following:

1. Amount of sales;
2. Amount of VAT;
3. Name and TIN of both the purchaser and issuer/seller;
4. Description of goods or nature of services; and
5.  Date of the transaction.

Value-Added Tax (VAT)

Under the EOPT Act, the rule on the VAT treatment of sales of goods and services is harmonized, thereby requiring the issuance of sales invoice for both.

The VAT invoice is the sole supporting document required in declaring output taxes and claiming input taxes.

In addition, the “gross sales” shall now be the sole basis for the sale of goods or properties, sale of services, and use or lease of properties.

This will align the accrual basis of accounting for both Income Tax and VAT.

The EOPT Act also mandates that the P 3,000,000 VAT threshold shall be adjusted every 3 years based on the Consumer Price Index, as published by the PSA.

Risk-Based Classification of VAT Refund

VAT refund claims shall be classified into low-, medium-, and high-risk based on the amount of VAT refund claim, tax compliance history, and frequency of filing VAT refund claims, among others.

Medium- and high-risk claims shall be subject to audit and other verification processes. Low-risk claims are not subject to audit and other verification processes, which will result in faster resolution of applications for refund of creditable input taxes.

Output VAT on Uncollected Receivables

Output VAT pertaining to uncollected receivables may be deducted on the next quarter after the lapse of the agreed upon period to pay, provided that the seller has fully paid the VAT on the transaction and the VAT component of the uncollected receivables has not been claimed as an allowable deduction.

In case of recovery of uncollected receivables, the output VAT pertaining thereto shall be added to the output VAT of the taxpayer during the period of recovery.

Tax Refund of Erroneously Paid Taxes

The Tax Code currently does not prescribe a period within which the Commissioner must process and decide on claims for erroneously paid taxes.

The amendment introduced by the EOPT Act fixes the period to decide applications for refund of erroneously paid taxes to within 180 days from the submission of complete documents.

This ensures that taxpayers’ claim for refund of erroneously paid taxes are resolved immediately.

Clarification on Certain Provisions of the Tax Code

The EOPT Act institutionalizes existing policies in the Tax Code by providing clear provisions on the following:

1. Filing of Returns by OFW – Exemption from filing of Income Tax Returns for OFWs and OCWs on income solely derived from abroad.
2. Authority to Print – A clear provision that the issuance of Authority to Print (ATP) shall be free of charge.

Preservation of Books of Accounts

Period for preservation of taxpayer’s books of accounts and other accounting records shall be for 5-years reckoned from the day following the deadline for filing a return, or if filed after the deadline, from the date of the filing of the returns, for the taxable year when the last entry was made in the books of accounts.

Publication of All Tax-Related Provisions

All tax-related information required to be published pursuant to any law, rules, and regulations may be published electronically in the Official Gazette, or the BIR’s official website. Thus, all matters requiring publication relating to taxpayers may now be found at the BIR website (www.bir.gov.ph).

Other Changes in the Tax Code

1. Removal of “wrong venue” penalty in Sec. 248 of the Tax Code
2. Codification of “filing of return” and “payment of tax”
3. Rules on claim for refund due to dissolution of business

Digitalization of BIR Services

To improve the performance and efficiency in the delivery of its services, the BIR is mandated to adopt an integrated digitalization strategy by providing automated end-to end solutions for the benefit of taxpayers.

EOPT and Digitalization Roadmap

The BIR is mandated to develop an EOPT and Digitalization Roadmap to ensure ease of compliance of tax laws, rules and regulations, such as the adoption of simplified tax returns, streamlining of tax processes, reduction of tax or documentary requirements, and digitalization of BIR services.