Tax Articles

EOPT: On Value Added Taxes

By: Atty. Jomel N. Manaig

Atty. Jomel N. Manaig Partner   +632 8403-2001 loc. 140 This email address is being protected from spambots. You need JavaScript enabled to view it. View Profile

This January 2024, taxpayers in the Philippines were greeted with a significant law seeking to improve tax administration and compliance. This law, of course, is the Ease of Paying Taxes (EOPT) Act. Following the effectivity of the law, draft revenue regulations (RR) have been circulated for comments from the public. For our short analysis, we will focus on some rules being proposed in relation to VAT.

First – The express shift from cash basis to accrual basis finally removes the difference in the treatment of output taxes for sales of goods and sales of services. Finally, a consistent metric is applied. While an argument may be made for opting to use cash basis as the standard basis for VAT, the accrual basis is the natural outcome of choosing the invoice as proof of the sale over the official receipt. Since the BIR is mandated to implement what is in the law, it is bound to acknowledge the consistent application of the accrual basis.

Second – The draft RR provides that the filing of VAT returns and payment of the corresponding VAT shall be made electronically. Manual filing and payment may be made only if the electronic platforms are unavailable. This seems inconsistent with the provisions of the EOPT where the filing of a tax return and the payment of the tax may be done “electronically or manually.” In other words, the EOPT did not provide any preference for electronic modes over manual. There should be a choice on whether to apply one or the other and not to employ one as an alternative only if the other is unavailable.

Third – For sales of services that were already billed but is uncollected at the time of the effectivity of the RR, taxpayers are being required to declare the corresponding output VAT in the immediate taxable quarter following the effectivity of the RR. However, applying this to sale of services that were made prior to the effectivity of the EOPT and still uncollected at the time of effectivity of the RR may come with complications since it may appear as if the law is being applied retroactively.

Fourth – No output tax credit shall be allowed for outstanding receivables from sale of goods on account prior to the effectivity of the RR. This limitation seems unfair. On one hand, the BIR is imposing output VAT on sales even prior to the effectivity of the RR. On the other, it is refusing to allow taxpayers to claim output tax credits on uncollected receivables relating also on sales prior to the effectivity of the RR. No one should have his cake and it eat too.

Fifth – The draft RR provides that in case the COA subsequently disallows a BIR-approved refund, only the taxpayer shall be liable for the disallowed amount. To be fair, this is a reflection of the provision in the EOPT and not something inserted out of the blue by the BIR in the draft RR. Nonetheless, this provision seems to be unfair to taxpayers who take solace in a favorable decision of the BIR. It brings unease and the lack of finality on government dealings. Something that is very much undesirable in business.

These few observations are not exclusive to yours truly. In our recent free webinar wherein we discussed, among others, the EOPT and the draft RRs, some attendees expressed similar concerns and even posed questions highlighting the same issues. Perhaps we can provide more clarity in future webinars should changes be made in the draft RRs.