The New Year brings us lots of hopes. In the area of tax legislation, there are a number of bills pending in the legislative mills that are worthy of consideration and support. These include the previous administration’s unfinished portion of its Comprehensive Tax Reform Program. In addition, the current administration is adding its own reforms.
As we begin the new year, we reflect on the significance of these bills and how they will help reform our tax system. Certainly, most of these bills deserve to be realized into law. But for purposes of this article, let me limit it to the Ease of Paying Taxes Act, as it is the only bill that proposes changes on the compliance and administration aspects of our national tax system, by simplifying tax compliance procedures and modernizing tax administration. The bill, if passed into law, would have the effect of promoting ease and encouraging compliance on the part of the taxpayers and improving efficiency in tax administration.
The proposed law includes changes in at least three areas: classification of taxpayers, simplification of venue and mode for the filing and paying of national internal revenue taxes, and uniformity on the timing for the recognition of value-added Tax (VAT) for both sales of goods and services.
In so far as the classification of taxpayers is concerned, the current system does not provide for differences in the compliance obligations of taxpayers, regardless of how large or how small a taxpayer is. The currently imposed differences—for example, on the obligation of top withholding agent versus a non-top withholding agent and the option to avail of the 8 percent tax versus the usual taxes—are not the classifications that would have impact on the compliance and tax administration.
The House version of the bill seeks to establish reasonable criteria for classifying taxpayers, considering many factors, such as the taxpayer’s capacity to comply with tax rules and regulations, the amount and types of taxes being paid, the gross sales and/or receipts of the taxpayer, inflation, volume of business, wage and employment levels, and similar other economic and financial considerations. The bill allows the Secretary of Finance to classify taxpayers into large and medium taxpayers and introduce additional classifications of taxpayers as may be necessary and reasonable to achieve better service and tax administration and service efficiency.
Certainly, there are differences in the capacities of taxpayers in relation to their compliance. A reasonable classification should distinguish the extent of reporting obligations and regularity of filing and payment by taxpayers. A very simple process may also be separately required for taxpayers outside of the medium and large classifications.
Another important change proposed by the bill is the removal of specific venues for the filing of tax returns and payment of taxes. The current rules require taxpayers to file and pay taxes with authorized agent banks and other collection offices located within specific jurisdictions. Filing or payment outside the prescribed venue results in the imposition of a significant amount of surcharge.
The proposed bill seeks to change this rule by removing the requirement to file and pay within specific jurisdictions. This will allow taxpayers to pay within any area, even outside his residence, place of registration or place of business.
In relation to this, there are some sectors that, while not opposed to the change, are pushing for retaining the venue prescribed under the current rules for specific types of taxes. They argue that the returns and the payment of the corresponding taxes for these types of taxes should be confined in specific areas for proper administration. I personally believe that there is no convincing reason to make a distinction or special rule for those types of taxes. The monitoring of filing and payment and the crediting to the proper district offices of tax payments can be done with ease with the use of technologies. If it can be done for most of the types of taxes, certainly, it can also be done for these specific types of taxes proposed to be excluded from the general rule.
The third significant change is the proposal to change the tax base, and effectively the timing for the recognition of output tax and input tax for the sale of services. The timing for the recognition of output tax and input for sale/purchase of services, which is presently based on receipts/payments, is being harmonized with the timing in the recognition of output tax/input tax on sale/purchase of goods/properties, which is based on gross selling price.
There should indeed be uniformity for the recognition of output tax/input tax for all types of transactions, whether these involve sales/purchases of goods or services. The present rule usually causes confusion, both on the part of the taxpayers and on the part of tax administration. The harmonization of the timing in the recognition of VAT for all types of sales, whether these involve sales of goods or sales of services, would help promote proper compliance.
There are, however, reasons (I will be discussing these in subsequent column) why the current rule for services is different from those applied for the sale of goods. There are peculiarities in the sale of services —the reasons why the present rules should be retained. I believe that in harmonizing the rules, the rules for sale/purchase of goods should follow the current rules for services—recognition of output tax/input tax upon receipt/payment—instead of the other way around.
Overall, this piece of legislation is a great initiative to further enhance compliance of our tax laws and at the same time promote efficiency in the tax administration. This deserves to be passed into law.
Happy New Year!
The author is the Managing Partner of Du-Baladad and Associates Law Offices (BDB Law), a member-firm of WTS Global.
The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at email@example.com or call 8403-2001 loc 310.