Atty. Rodel C. Unciano

AS of this writing, the CREATE bill or the Corporate Recovery and Tax Incentives for Enterprises Act is yet to be signed by the President. We have barely a month before the April 15 deadline for filing of Annual Income Tax Return (ITR) for most taxpayers, but affected taxpayers could not as yet finalize their tax calculations as the signing of the CREATE bill into law is certainly a factor that will largely impact on the final determination of their income tax due for the year 2020.

Another piece of legislation crafted in response to the adverse effects of the Covid-19 pandemic is Republic Act (RA) 11523 otherwise known as the Financial Institutions Strategic Transfer (FIST) Act, recently signed by President Duterte into law. This law is set to strengthen the country’s financial sector by addressing the sector’s non-performing asset problems, improve the liquidity of the financial system, and help in the rehabilitation of distressed businesses, among others.

Another tax reform that is set to change the landscape of our tax system is House Bill 7881 otherwise known as “The Ease of Paying Taxes Bill,” which was recently approved by the House Committee on Ways and Means. The bill aims to improve tax compliance by simplifying compliance procedures and enhancing the portability of tax transactions. The bill likewise seeks to strengthen the taxpayer’s bill of rights and create a Taxpayer’s
Advocate Office.

Currently, almost all income payments are subject to withholding taxes where income payors are constituted by law or by regulations as withholding agents of the government. As constituted withholding agents, the income payors will have no choice but to comply with their obligations to withhold a portion of the income payments and remit the same to the government. Failure to do so would result in the non-deductibility of the related expenses.

IN response to Covid-19 pandemic, two significant laws were enacted providing certain tax reliefs on certain activities. One significant tax relief is the extension of the application of the net operating loss carry over (NOLCO) to five years, as provided under Republic Act (RA) 11494 or the “Bayanihan to Recover as One Act” and as implemented by Revenue Regulations (RR) 25-2020. Thus, a business or enterprise that incurred net operating loss for taxable years 2020 and 2021 shall be allowed to carry over the same as a deduction from its gross income for the next five consecutive taxable years immediately following the year of such loss.

IN times of calamity, donations from our kind-hearted countrymen are certainly a big help not only in giving temporary aid to the victims of calamities but in giving them as well a hope to start a new life and a hope for them to see again the light of day. This, too, is a big help to the government that is primarily responsible in seeing to it that the affected citizens are afforded the full assistance they truly deserve.

IT is quite certain that the Covid-19 pandemic has forced a number of employees to prematurely retire from employment. And when we talk of retirement, the question to ask is whether or not the retirement benefits received by the retiring employee are exempt from tax.

The 1987 Philippine Constitution guarantees that no person shall be deprived of life, liberty, or property without due process of law. In line with this constitutional mandate, the 1997 Tax Code guarantees due process rights of taxpayers in tax investigation cases. Thus, the Tax Code requires that when the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings, except only in few instances where a pre-assessment notice is not required.

The implementation of travel restrictions as a safety measure to prevent the spread of the Covid-19 pandemic has raised concerns on the taxability of employment income of cross-border workers and the creation of Permanent Establishment (PE) of foreign enterprises in the Philippines.

The requirement of payment under protest has become almost always an issue in protesting local tax assessments. 

Under our present tax laws, the Local Government Code of 1991 provides timeline for the payment of local taxes, fees and charges as well as timeline for payment of real- property taxes.  In accordance with the provisions of the LGC,
Local Government Units (LGUs) in turn have to enact an ordinance governing local taxation in their respective territorial jurisdictions.

Our tax laws provide instances where taxpayers are granted the right to apply for the refund of taxes. Among these are the unused input taxes related to zero-rated sales and erroneously or illegally paid taxes or penalties. As regards the refunds of unutilized input taxes incurred by taxpayers whose sales are zero-rated or effectively zero-rated, an application for refund has to be made within two years after the close of the taxable quarter when the sales were made.

Had it not been for the Covid-19 pandemic, I could imagine that most taxpayers, by now, would have been so busy doing their last-minute touches on their Annual Income Tax Returns (ITRs) to beat the original April 15 deadline. For those who, by option or some other reason, still have not commenced the preparation, well the pandemic has, ironically, come to your rescue. The deadline has been extended to May 30.

Part two

AS we are again in the season of payment of real-property taxes, I hear several stories and concerns involving the proper valuation of real properties. Many are surprised with the sudden increase in real-property values as basis in the assessment of RPT without a clear legitimate reference as to the market value of the property being assessed.

Pursuant to Section 19 of Republic Act 11213 or the Tax Amnesty Act of 2019, taxpayers who have delinquent accounts for taxable year 2017 and prior years may avail themselves of the tax amnesty on delinquencies (TAD) within one year from the effectivity of the implementing rules and regulations of the Act. As Revenue Regulations (RR) 4-2019, the implementing rules and regulations of the law, became effective on April 24, 2019, the availment thereof would therefore be until April 23, 2020, which is barely over two months from today.

The creditable withholding tax (CWT) system has proven to be an effective tool in tax collections through the cooperation of the payors, who are constituted by law as withholding agents. The income payors act as agent of both the taxpayer and the government. The income payors have no choice but to faithfully comply with their obligations as withholding agents, because failure to do so would mean nondeductibility of their income payments.

With the accrual of annual real-property tax drawing near, I take this opportunity to tackle the question on the imposition of RPT on trees. Is this sanctioned under our laws?

IN tax investigation cases, it is undisputed that our existing tax laws and regulations provide taxpayers some sort of remedies in contesting such assessment cases. Taxpayers may avail themselves of the bundle of rights and remedies primarily provided under the National Internal Revenue Code (NIRC) of 1997, as amended, for internal revenue tax investigation cases; the Customs Modernization and Tariff Act (CMTA) for customs cases; and the Local Government Code of 1991 for real property and local tax cases. Of course, taxpayers may, likewise, invoke the Bill of Rights guaranteed under Article III of the Philippine Constitution.

IN Metro Manila, where real-property values are skyrocketing, it is ironical that we still see undeveloped lots and uninhabited houses that seem to have been abandoned for years. In many parts of the metropolis, we likewise see construction projects left unfinished, serving no purpose other than destruction to the city’s skyline and giving eyesore to the sightline of anyone.

Another good source of revenue among local government units is the real property tax imposed on lands, buildings, machineries and other improvements located within the territorial jurisdiction of an LGU. Under the Local Government Code of 1991 though, there are real properties that are exempt from the imposition of RPT, among which are those real properties owned by duly registered cooperatives, machineries used for pollution control and environmental protection, properties actually, directly, and exclusively used for religious, charitable, or educational purposes, and those properties owned by the government and government instrumentalities, pursuant to Sections 205 and 234 of the LGC.

One of our readers has requested us to tackle on this space the possibility of implementing the withholding tax system in local taxation.

The blistering summer heat we are currently encountering reminds us of the importance of giving our share in protecting our environment as a responsible citizen.

With the kickoff of the campaign period for the national elections in May, it’s high time to revisit the taxability of campaign contributions to candidates, political parties and party-list groups.

IN one of his recent Cabinet meetings, President Duterte reportedly walked out from the meeting in frustration of a report that some project applications have been pending before the National Economic and Development Authority (Neda) for 25 years.

Before the amendment introduced by the Tax Reform for Acceleration and Inclusion (TRAIN) law, the imposition of deficiency and delinquency interest on late payment of tax under the Tax Code had become too burdensome to taxpayers. In interpreting of the Tax Code on interest prior to its amendment, the Court of Tax Appeals issued a number of decisions where the imposition of the deficiency interest at a rate of 20 percent per annum is imposed simultaneously with the imposition of a delinquency interest, also at a rate of 20 percent per annum. So, following previous CTA decisions, the imposition of the 20-percent delinquency interest on top of the 20-percent deficiency interest created a situation where a 40-percent interest per annum was imposed.

With the Filipinos’s penchant for singing, dancing and entertaining, it is no wonder that karaoke bars have sprouted like mushrooms all over the country. And the Bureau of Internal Revenue (BIR) has not lost sight on this, as it started chasing some taxpayers seemingly or likely engaged in these activities for a profit, in light of the provisions of Revenue Memorandum Circular (RMC) 18-2010, in relation to Section 125(b) of the 1997 Tax Code, as amended.

Prior to the amendments introduced by the Tax Reform for Acceleration and Inclusion (TRAIN) law, the 1997 Tax Code was clear that a taxpayer may elevate to the Court of Tax

Among the long list of transactions enumerated as subject to the zero-percent value-added tax (VAT) rate under the Tax Reformation for Acceleration and Inclusion law, there are about five items that may eventually become subject to the 12-percent VAT rate. The law did not state the specific commencement date for the shift. The change in the vatability of the transactions is dependent upon the fulfillment of certain conditions provided under the law.

AS of today, phase 1 of the proposed tax reform is yet to be signed into law.  However, with the approval of the bicameral conference committee on the Tax Reform for Acceleration and Inclusion Act, it is almost certain that, by the start of next year, changes in the tax law will be in place.

Section 108(B)3 of the 1997 Tax Code, as amended, provides for the value-added tax (VAT) zero rating on supply of services performed in the Philippines by VAT-registered persons to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory. Following this provision, the supply of services to entities registered under the Philippine Economic Zone Authority (Peza) law, or Republic Act (RA) 7916, shall be subject to VAT zerorating.

IN 1992 Republic Act (RA) 7279, or the Urban Development and Housing Act of 1992, became a law. Among the salient features of the law are the provisions of incentives for private sector participating in socialized housing, including provisions for tax incentives. Among the tax incentives provided under the said law are the exemption from the payment of project-related corporate or individual income taxes, capital gains tax on sale of raw lands, value-added tax for the project contractor, and donor’s tax for lands donated for socialized housing purposes. These incentives were provided to encourage greater private-sector participation in socialized housing and reduce the cost of housing units for the underprivileged and homeless citizens.

The recent issuance of Revenue Memorandum Circular (RMC) 8-2017 dispensing with the requirement for filing a tax treaty relief application (TTRA) with the Bureau of Internal Revenue (BIR) as a condition for availing preferential tax rates under existing tax treaties is certainly a great relief among taxpayers making dividend, royalty and interest payments to nonresidents.

Section 29 of the National Internal Revenue Code (NIRC) of 1997, as amended, imposes Improperly Accumulated Earnings Tax (IAET) on corporations for each taxable year on the improperly accumulated taxable income of such corporations. It is equal to 10 percent of the improperly accumulated taxable income.