Fewer tax returns to file under TRAIN

Giving gifts on special occasions like Christmas, Valentine’s, birthdays, etc., is a tradition.  Most of us have sent or received lots of Christmas gifts. If you find giving gifts fun, you do an inventory of the names of your nephews, nieces and godsons and goddaughters. You don’t want to miss anyone on the Christmas list. You don’t want someone lonely on Christmas day.

If you missed Christmas, you can still give or have some for New Year’s celebration.

This year, some people will get gifts for the New Year.  If our interpretations are correct, tax compliance officers will be very pleased that under the Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) law, the filing of certain monthly tax returns has been streamlined. Particularly, withholding tax returns listed below are now required to be filed on a quarterly basis, instead of on a monthly basis.

Final Withholding Tax (FWT) and Expanded Withholding Tax (EWT) returns: Under TRAIN, the return for FWT and EWT shall now be filed not later than the last day of the month following the close of the taxable quarter. Under the current regulations, withholding taxes under these returns are being filed not later than the 10^th day, for manual filers, and 11^th to 15^th day, for e-FPS filers of the month following the close of the taxable month.

This means, filing becomes four times a year instead of 12. This doesn’t mean, however, that we can slack off in monitoring whether each income payment to local supplier has been correctly subjected to withholding tax. It is prudent for monitoring and evaluation to be done regularly, if not in real time. Another advantage is that in case there are misstatements in the first two months of the quarter, there is an opportunity to adjust on the third month, in time for filing the quarterly return.

Quarterly filing, instead of monthly filing, is significantly important in some cases for income payments to foreign suppliers. Transactions subject to FWT may sometimes need a longer period for evaluation. I have seen taxpayers who are torn between the option to withhold taxes, apply for tax exemption or lower tax rate, or take the risk not to withhold.  Now, taxpayers have more time to evaluate and assess their best option.

On another note, under the current rules, income payments to domestic or foreign suppliers are subject to withholding tax upon accrual or payment whichever comes first.  In practice, most of the small and medium entities withhold only upon payment. Thus, accrued expenses at the end of the period are not subjected to withholding tax. On the other hand, big entities withhold on their prepayments or accrual, but in most instances, accruals not supported by the invoice/billing, are not. In sum, expenses may only be subjected to withholding tax upon payment or upon receipt of the invoice/billing, depending on the practice of the entity.

Worry less because quarterly withholding tax return now will cover a longer period. This means that the gap between the tax rules and taxpayers’ practices will somehow be narrowed down. The taxpayer with accrued expenses, which are paid within the quarter, can now say that the withholding tax was remitted on time.

Value Added Tax (VAT): Starting 2023, VAT returns shall be filed and paid within 25 days following the close of each taxable quarter, as compared to monthly basis under the current rules.

In practice, there are many instances where there is excess payment in the quarterly VAT returns due to over-payment in the monthly declarations, which is bothersome when it accumulates. One of the reasons for excess payment is the late receipt of documents that will support the zero-rating or input VAT credits, such as the PEZA certificate of zero-rating, creditable withholding VAT certificates from the government, VAT invoices or official receipts from suppliers, and import documents from brokers, among others.

Given that monthly declaration and payment are no longer required, the taxpayer has more time to secure the above documentation, and thus avoid overpayment.

Other percentage taxes (OPT): Under TRAIN, the Commissioner shall no longer have the power to prescribe the time for filing of other percentage tax returns at intervals other than that prescribed under the Tax Code.

Under the current rules, certain OPT tax returns such as Gross receipts tax on interest and commissions of banks are filed on a monthly basis. Given that the return will now be filed quarterly, it will lessen the burden of banks to monitor which gain, income or transaction is realized at the end of the month for GRT purposes.

In addition to the above, TRAIN has now required that individual ITRs be filed on or before May 15 of the following calendar year, instead of April 15 under the current rules. As we are aware, this deadline coincides with the deadline for the annual income tax returns of individuals and corporations. Hence, we expect BIR offices and banks to be less congested.  We also expect less stress as there will only be one ITR due on April 15. Nonetheless, individuals are encouraged to file their ITRs early to have sufficient time to gather information or accomplish required attachments which might be known only upon filing.

The New Year and the effectivity of the TRAIN are fast approaching. As we are not yet familiar with the new rules, we hope the BIR can issue implementing rules in time. Are the e-FPS and e-BIR Forms already designed for quarterly filings?

The BIR may have taken steps to update its systems to the new rules. But if we want to stay as prudent as possible, we may continue to maintain the records compliant with current rules, until such time there are clear guidelines on how to transition to the new rules.

The streamlined filing of the tax returns is truly a wonderful Christmas and New Year gift. Tax officers of companies can have more time to focus on other tax projects to optimize tax compliance in the coming year.

Marie Fe F. Dangiwan is a manager with the Tax Advisory and Compliance division of P&A Grant Thornton.