Can you imagine an Information Technology (IT) company using manual books of account?
The Philippines is seen as a hub of global services. In recent years, we have seen foreign companies coming to our country to establish their ventures, particularly in the outsourcing industry. The boom in outsourcing has provided a great push for our economy, as it generates jobs and supports other industries such as food, retail, tourism, and real estate.
Globalization is inevitable. The Association of Southeast Asian Nations (ASEAN), for example, is driving towards integration. In the coming years, we expect more cross-border dealings between companies, not to mention among affiliates worldwide. Cross-border integration is made possible today because of the use of IT. IT assets have become so important, as these offer efficiency, accuracy, and speed in the way corporations do business. IT has become ubiquitous and dynamic, without which, a setback in business growth is likely to happen.
A Computerized Accounting System (CAS) is an IT asset that helps companies involved in global trade achieve seamless transactions. Getting rid of human intervention in maintaining books of account makes companies work better and more efficiently. CAS allows real-time reporting and aids corporate management in resolving day-to-day business issues. Corporations today see the CAS as a necessary tool to help them achieve seamless business operations. This is regardless of whether these corporations are not required to use CAS under Philippine tax rules (note that there are those taxpayers “required” to use CAS, under the Philippine tax rules). Thus, adopting a CAS is seen as indispensable.
In the Philippines, the use of CAS must first be registered with the Bureau of Internal Revenue (BIR). There is a two-step process before a corporation may use a CAS. First, the CAS must be accredited and, second, the business entity must secure a Permit to Use (PTU) the accredited CAS. Without the PTU, the use of the CAS is unauthorized, and a corporation could be subject to penalties.
Today, the accreditation of CAS is centralized at the BIR National Office. The accreditation process begins with submitting an application with attached documentary requirements. The CAS will be scheduled for a system demonstration, wherein the company will be asked to show how transactions are entered into the CAS and how the generation of the books of account is done. After the system demonstration, there are points of concern or issues to which the taxpayer must comply. Upon the recommendation of a technical working group (TWG), the CAS accreditation will be approved by the National Accreditation Board (NAB). Finally, the accreditation of the CAS and the PTU will be issued.
The system demonstration is attended by at least three members of the TWG, which is composed of the BIR IT, Client Service Support, and Assessment Division. During the system demonstration, the TWG will report its findings on the CAS and the matters to which the taxpayer must comply. Common findings include adherence to the format prescribed under applicable revenue regulations, the sufficiency of audit trail, nomenclature of books of account, and compliance with invoicing requirements.
Considering that one of the members of the TWG is from the assessment division, the BIR may also look into the business flow of the taxpayer. This includes how the revenue and expenses of the taxpayer are entered into the CAS. Another concern of the BIR is the modification or amendment of data in the CAS. Accordingly, any change, modification, or deletion in the system must be traceable, so that the BIR can follow specific actions made by the taxpayer on the CAS.
The timeline in securing a PTU could be more than one year from the receipt of the application. This is primarily because of the BIR’s review process that may be broken down into 1) waiting for the CAS system demonstration, which may take six months to more than a year; 2) compliance after the system demonstration, which may take some time depending on the gravity of the modifications to be made to the CAS; and 3) review of the NAB and additional compliance requirements which the NAB may see fit.
Currently, the CAS accreditation process is lengthy and rigorous, considering the volume of applications and the additional requirements which may be asked by the TWG and NAB.
The compliance requirements may entail a painstaking reprogramming of the entire CAS. Some taxpayers that try to adopt a global CAS are having a difficult time localizing the CAS of the foreign parent corporation, as it may affect their global financial reporting, not to mention the cost of revising certain parts of the CAS. Accordingly, the regulations on CAS applications in the Philippines could be viewed by others as stringent compared to other jurisdictions.
It is high time that the BIR look into CAS regulations. Needless to say, the CAS application process should not discourage taxpayers from moving towards this direction. As there are still no new regulations involving CAS applications, however, taxpayers who are required to use CAS and those who intend to use a CAS must be aware of the CAS application requirements and the lengthy process that they will undertake in order to be prepared.
Ease of doing business is key to attracting more foreign investors. It would be critical for regulators to prioritize the streamlining of government processes, such as the CAS application process, to help businesses thrive in the fast-evolving IT and business environment.
Eliezer P. Ambatali is a senior associate with the Tax Advisory and Compliance division of P&A Grant Thornton.