BIR Issues IRR on Amendments Introduced by The Ease of Paying Taxes Law

With the passing of the Ease of Paying Taxes Law, some changes have been in place in the registration procedures, invoicing requirements, taxpayer classification, and the reduction of administrative penalties for small and micro taxpayers. This article will also discuss the changes in VAT and percentage tax of the National Tax Revenue Code of 1997.

The objective of these changes is to streamline the process and to simplify the understanding of how these modifications affect the business or taxpayers.

Modifications on Value Added Tax and Percentage Tax of the National Internal Revenue Code of 1997

Revenue Regulations (RR) No. 3-2024 provides specific amendments to sale or exchange of service covered by Section 108 of the Tax Code. It also offers changes to VAT-Exempt transactions, tax credits, and to Claim for Refund/Tax Credit Certificate of Input tax. The VAT credit on uncollected receivables is also covered by this regulation.

Below are the following sections detailing the amendments affected by Ease of Paying Taxes Law:

Section 2: Amendments

The following words and phrases or actions must be applied to all provisions affected under Revenue Regulations (RR) No. 16-2005 and its following amendments:

1. Gross Sales
2. Invoice
3. Billing for sales of service on account
4. VAT-exempt threshold
5. Filing and Payment

Section 3: Specific Amendments to Sale or Exchange of Service Under Section 108 of the Tax Code

Sections 4.108-1, 4.108-4, and 4.108-6 of RR No. 16-2005 as amended shall now be read as revised as follows:

1. Section 4.108-1. VAT on the Sale of Services and Use or Lease of Properties
2. Section 4.108-1. Definition of Gross Sales
3. Section 4.108-1. Allowable Deductions from Gross Selling Price

Section 4: Specific Amendments to VAT Exempt Transactions

The following are transactions that must be exempted from VAT:

1. Sale or Lease of goods, properties, or the performance of services not covered in the previous sections should have gross annual sales that do not exceed ₱3,000,000.00. It is stipulated, however, that this amount should be adjusted to reflect its current value using the Consumer Price Index (CPI).
2. Self-employed individuals and professionals availing the 88% tax on gross sales and other non-operating income.

Section 5: Specific Amendments to Tax Credits

• Section 4.110-1. Credits for Input Tax
• Section 4.110-9. Output VAT Credit on Uncollected Receivables
  • Uncollected Receivables. Refers to the sales of goods and services on credit that occurred following the implementation of these regulations and have yet to be collected from the buyer, despite the expiration of the agreed payment period.

**Note
To be entitled to the VAT credit, there are requisites that must be present.

Section 6: Specific Amendments to Claims for Refund/Tax Credit Certificate of Input Tax

The whole Section 4.112.1 of RR No, 16-2005 is modified to read as follows:
Section 4.112.1. Claims for Refund /Tax Credit Certificate of Input Tax

• Zero-rated and effectively zero-rated sales of goods, properties or services 
• Cancellation of VAT registration 
• Where to file the claim for refund/credit 
• Period within which refund/credit of input taxes shall be made 
• Risk-based approach in the certification and processing of VAT refund claims 
• Manner of giving refund
• Automatic appropriation 
• Quarterly report

Section 7: Transitory Provisions

• Bill but uncollected sale of services
• Uncollected receivables from the sale of goods as of the effectivity of these regulations.

Section 8: Administrative Provision

A separate RR shall govern the provisions of the EOPT ACT, including Sections 113, 235, 236, 237, 238, 242, and 243 of the Tax Code in accordance with the EOPT Act.

Section 9: Separability Clause

In any case, some of the provisions of these regulations are declared invalid or unconstitutional, the remaining provisions will remain in full force and effect.

Section 10: Repealing Clause

All other issuances and rules that are inconsistent with any of the provisions in this regulation are repealed, amended, and modified accordingly.

Section 11: Effectivity

The regulation will take effect 15 days following its publication in the Official Gazette or the BIR website.

Implementation of Certain Sections of the National Internal Revenue Code (NIRC) of 1997

The Bureau of Internal Revenue (BIR) released Revenue Regulations (RR) No. 4-2024, Last March 22, 2024. The RR implements several sections such as Section 22, 34, 5(A)2(e), 51(B), 51(D), 56(A)(1), 58(A), 58(C), 58(E), 77, 81, 90, 91, 103, 114, 128, 200 and 248 of the National Internal Revenue Code of 1997. The implemented sections hereby order:

1. Tax returns filing and tax payments can be conducted either electronically or manually, irrespective of the venue or the jurisdiction of the Revenue District Office (RDO).
2. Waiving the civil penalty for submitting a return at an incorrect venue;
3. Exemption from filing income tax returns for Overseas Contract Workers (OCW) or Overseas Filipino Workers (OFW);
4. Removal of additional prerequisites for the deductibility of specific payments; and
5. Tax withholding at the source and declaration of the recipient’s income.

In addition to these sections, the BIR also released RR No. 5-2024, last April 11, 2024. This regulation implements Sections 76(C), 112(C), 112(D), 204(C), 229 and 269(J) of the Tax Code of 1997. The Regulations will apply to tax credit/refund claims submitted from July 1, 2024, forward and will enforce the following provisions:

1. Section 112(C) of the Tax Code has been updated to add a risk-based methodology for the evaluation of VAT refund claims;
2. Section 112(D) of the Tax Code has been amended to specify the responsibilities of both the taxpayer-claimant and the BIR in instances where the Commission of Audit (COA) disallows a claim;
3. Section 76(C) of the Tax Code has been revised to permit the request for a refund of unutilized excess income tax credits in events of business dissolution or cessation. Under the Regulations, this entire provision from
4. Section 76(C) will be encompassed to also address the procedures for processing income tax credit/refund requests by taxpayers who opt to apply for a tax credit or refund of the excess income tax reported in their Annual Income Tax Returns (AITR);
5. Section 204(C) of the Tax Code has been revised to establish a one hundred eighty (180)-day timeframe for processing claims for tax refunds, with the exception of VAT Refunds under Section 112 of the Tax Code.
6. Section 229 of the Tax Code has been amended to define the policies concerning judicial claims and has repealed the provision related to the supervening clause.

Amendments On Registration Procedures and Invoicing Requirements

The Bureau of Internal Revenue (BIR) released Revenue Regulations (RR) No. 7-2024 last April 11, 2024. The modifications made are specifically for registration procedures and invoicing requirements. Attaching to Sections 113, 235, 236, 237, 238, 242, 243 of the 1997 Tax Code, as updated. Key changes introduced include the following:

A. Invoicing Requirements

1. Whether sale of goods or services, the same shall be covered with invoice. The Invoice will now serve as the principal document for output tax/input tax claims for transactions subject to VAT.
2. Supplementary documents are ineligible as credible evidence for validating input tax claims by the buyer or purchaser.
   • Official receipts have been reclassified as supplementary documents.
   • Other documents considered supplementary include delivery receipts, order slips, debit/credit memos, purchase orders, acknowledgment receipts, cash and collection receipts, bills of lading, billing statements, statements of account, among other similar records.
3. Regarding the details to be included in the invoice
   • Business style is no longer necessary to include on invoices.
   • Adding the DTI Registered Business Name or Trade Name along with the BIR-registered name is optional.
   • For transactions directly involving the sale of goods or services from a business to end-users [Business-to-Consumer (B2C)], it is not necessary to include the business address and Tax Identification Number (TIN) of the buyer.
   • Taxpayers engaged in transactions exempt from VAT or Percentage Tax must issue a Non-VAT Invoice, clearly marking the word “EXEMPT” on the face of the invoice.
   • Taxpayers dealing with Senior Citizens (SC), Persons with Disability (PWD), Solo Parents, National Athletes and Coaches under Republic Act (R.A.) No. 10699, and Medal of Valor Awardees or their dependents as per R.A. No. 9049 must include specific additional details as outlined in these Regulations on the Invoice.
   • Tickets, including transportation, event, amusement, movie, parking, raffle, gaming/gambling, electronic tickets, and other similar forms, regardless of their name or issuing method (e.g., ticketing machines), will be recognized as an invoice and proof of payment provided they are marked with the word “invoice” and contain all necessary information as specified in the Regulations. If these conditions are not met, they will be treated as supplementary documents, necessitating the issuance of a separate invoice.
   • In instances where an invoice issued lacks required information, the responsibility for non-compliance with invoicing requirements falls on the seller.
   • The buyer is entitled to input tax credits, unless the invoice is missing information related to:
     • Amount of Sales
     • VAT Amount
     • Registered name and TIN
     • Description of Goods or Nature of Services
     • Date of Transaction
4. The term “Invoice” must be prominently displayed on the front of the invoice.
   • Sellers have the option to include checkboxes on invoices labeled “Cash Sales” or “Charge Sales” to indicate the transaction type.
   • If a taxpayer chooses to use separate invoices for Cash Sales or Charge Sales, the word “Invoice” should be printed to specify the type of transactions these invoices represent, such as Cash Invoice, Charge Invoice/Credit Invoice, Billing Invoice, Service Invoice, etc. It is required that the term “Invoice” be printed in a more prominent or larger font than the words describing the transaction.
5. All individuals subject to internal revenue tax must issue invoices.
   • For each sale, regardless of the transaction amount, upon the buyer’s request. Provided, if the sales amount per transaction is below ₱500 but the total sales at the day’s end reach at least ₱500, the seller is required to issue a single invoice for the day’s total sales amount.
   • The threshold amount of ₱500 will be adjusted to reflect its current value every three (3) years, based on the Consumer Price Index published by the Philippine Statistics Authority.

B. Preservation of Books of Accounts

1. If the taxpayer is involved in an ongoing dispute or claim for tax credit/refund, where the relevant books and records are crucial to the case, these documents must be retained until the case is conclusively settled, even if this extends beyond the standard 5-year preservation period, to support their defense.
2. Should a taxpayer have an ongoing protest or request for tax credit/refund, with the pertinent books and records being crucial to the matter, it is mandatory to retain these documents until the case reaches a conclusive resolution, in aid of their defense, surpassing the standard 5-year retention duration if necessary.
3. The external auditor responsible for certifying the financial statements is required to maintain electronic copies of these certified financial statements and the associated audit working papers for a period of five (5) years from the deadline for filing annual tax returns or the actual filing date, whichever is later. This retention period may be extended if necessitated by the Tax Code or other applicable laws.

C. Registration Requirements

1. The Annual Registration Fee of Php 500 has been abolished, effective from January 22, 2024.
   • The current BIR Certificate of Registration (COR) remains valid despite the elimination of the requirement to pay the Annual Registration Fee (ARF).
   • Taxpayers are not obligated to replace their existing COR, even though it includes the ARF.
   • Updating the COR is required only if there are changes in the registration details, with the exclusion of the ARF.
2. A taxpayer’s registration can be cancelled or transferred simply by submitting an application, whether electronically or in paper form.
   • Cancellation or transfer does not exempt the taxpayer from being subject to an audit by the BIR to assess tax liabilities.
   • If an audit by the BIR is triggered by a registration transfer, the initiating Revenue District Office (RDO) is responsible for continuing the audit process.

D. TRANSITORY PROVISIONS

1. Regarding Unused Official Receipts (ORs)
   • Unused ORs may continue to serve as supplementary documents until they are completely utilized, on the condition that the statement “THIS DOCUMENT IS NOT VALID FOR CLAIM OF INPUT TAX” is clearly stamped on the document’s front. Similarly, other equivalent documents like Collection Receipts, Acknowledgement Receipts, and Payment Receipts also function as proof of payment, evidencing that cash has been received, or a payment has been collected/made.
   • Unused ORs may be repurposed as invoices and utilized as primary invoices until December 31, 2024. This is contingent upon taxpayers crossing out the term “Official Receipt” on the document’s face.

**note These documents shall be valid for the claim of input tax by the buyer/purchaser for the period issued from January 22 to December 31, 2024, provided that the invoice bears the stamped “Invoice” and contains the necessary information required in Section 6(B) of the RR 7-2024.

Any ORs, whether stamped with “Invoice” or unstamped, issued after December 31, 2024, will be considered supplementary documents and ineligible for input tax claims.

1. • The process of stamping ORs as invoices doesn’t necessitate approval from the BIR, yet it is imperative to adhere to the reporting obligations specified in these regulations. Compliance must be ensured within 30 days from April 27, 2024, which means the requirements should be met on or before May 27, 2024.
   • An inventory, listing all unused manual and loose-leaf ORs slated for conversion into Invoices, needs to be provided to the BIR by May 27, 2024. The inventory should specify the total number of booklets along with their corresponding serial numbers. When branches are reporting, the Branch RDO that receives the inventory must send the original copy to the Head Office RDO and keep a duplicate copy for their records.
2. Regarding Cash Register Machines (CRM), Point-of-Sale (POS) Systems, and Electronic Receipting or Invoicing Software
   • Taxpayers utilizing CRM/POS systems or E-receipting/E-invoicing software are permitted to alter the designation from “Official Receipt (OR)” to “Invoice,” “Cash Invoice,” “Charge Invoice,” or a similar term as appropriate, without needing to inform the Revenue District Offices (RDOs) overseeing their business location about these changes in their sales systems. This modification is regarded as a minor update to the system, which does not necessitate a new system reaccreditation for the software provider or a reissue of the Permit to Use (PTU) for the taxpayer employing the system. Upon renaming to Invoice, the serial numbering should proceed sequentially from the last number of the previously authorized OR. Taxpayers must then notify the BIR where their machines are registered by submitting a notice, which includes the starting serial number of the newly termed invoice, in two original copies. The Branch RDO receiving this notification is responsible for forwarding one copy to the Head Office RDO.
   • Taxpayers employing a duly registered Computerized Accounting System (CAS) or Computerized Books of Accounts (CBA) along with Accounting Records must review their system due to the significant implications that system reconfigurations will have on the financial reporting. Such substantial modifications to the system require taxpayers to update their system registration through a new application process. The existing Acknowledgement Certificate (AC) or Permit to Use (PTU) must be surrendered to the BIR, following which a new AC will be issued. The necessary reconfiguration and system adjustments need to be completed by June 30, 2024. Should there be a need for an extension due to these enhancements, prior approval from the BIR is required.

Amendments on Taxpayer Classification and Administrative Penalties

In relation to the release of Revenue Regulations (RR) No 6-2024 and Revenue Regulations (RR) No 8-2024 last April 12, 2024, the amendments introduced by the Ease of Paying Taxes Law focuses on taxpayer classification and administrative penalties in conformity with Sections 244 and 245 of the Tax Code.

The following highlights how the Ease of Paying Taxes Law affected these sections:

A. Taxpayer Classification

1. Moving forward, taxpayers will be classified as:
   • Micro Taxpayer with gross sales that are less than Php 3,000,000
   • Small Taxpayer with gross sales from Php 3,000,000 to below Php 20,000,000
   • Medium Taxpayer with gross sales from Php 20,000,000 to below Php 1,000,000,000
   • Large Taxpayer with gross sales from Php 1,000,000,000 and above
2. “Gross sales” refers to the total sales, Value-Added Tax (VAT) net, if applicable, during the taxable year, with no further deductions.
   • This covers business income, specifically income from the conduct of trade, business, or exercise of a profession.
   • It also includes compensation received from employer-employee relationships, other passive incomes covered by Sections 24, 25, 27, and 28 as well as income excluded under Section 32(B) of the Tax Code, as amended.
3. The BIR will notify the taxpayer for classification or reclassification that was based on the prescribed procedure to be covered in a separate revenue issuance.
   • First time registrants will be classified initially based on their declaration in the Registration Forms unless reclassified in accordance with the parameters mentioned above.
   • For those registered in 2022 and prior years without the submitted information will be classified in relation to the gross sales in 2022. However, for VAT-registered taxpayers, they shall be classified as Small Taxpayers and non-VAT registered taxpayers will be labeled as Micro Taxpayers.
   • And for taxpayers that registered in 2023 or 2024 (before April 27, 2024), will be classified as Micro Taxpayers for non-VAT registered and as Small Taxpayers if they are VAT registered.

B. Reduction of Administrative Penalties for Micro and Small Taxpayers

1. Cases below qualify for a 10% reduced surcharged:
   • Failure of filing any return and paying the tax due as required under the provisions of the Tax Code or rules and regulations, on the date prescribed.
   • Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment.
   • Failure to pay the full or part of the amount of tax shown on any return required to be filed under the provisions of the Tax Code or rules and regulations, or the full amount of tax due for which no return is required to be filed, on or before the date prescribed for its payment.
2. Reduced interest by 50% for unpaid amount of tax, unless it’s a willful neglect to file a return within the prescribed period, or a case of false or fraudulent filing of the return.
3. Reduced penalty of Php 500 for each failure to file certain information returns that does not exceed Php 12,500 for all such failures during such calendar year.
4. Reduced compromise penalty rate of 50% in case of a criminal violation for taxpayers covered by Sections 113, 237, and 238 of the NIRC, not involving fraud based on the applicable rate or amount of compromise under Annex “A” of Revenue Memorandum Order (RMO) No. 7-2015 and its subsequent amendments, if applicable.

Know the Recent Updates on Tax Regulations

Staying updated with the latest tax regulations is essential in order for you to be able to apply these changes to properly comply with your tax obligations. Ensuring that you meet deadlines and payments on time will keep you from paying fines and penalties.