Taxwise Or Otherwise
Jane R. Alcause-Fabro
The year is almost over but the compliance obligations of taxpayers and businesses continue until May. In addition to the periodic reportorial requirements of government regulators throughout the year, a number of annual requirements await businesses at the end of each year. The obligations extend until the submission of the final annual reportorial requirements to the Bureau of Internal Revenue (BIR), Securities and Exchange Commission (SEC), Investment Promotion Agencies (IPAs) and Local Government Unit (LGU).
In the past months, taxpayers have been monitoring the tax reform package and analyzing its possible impact on their businesses. However, old rules will apply for this taxable year so let us not forget to revisit our notes and be reminded of our annual reporting obligations.
1. Renewal of Registration
All businesses, except those exempted, are required to renew their registrations annually and pay the corresponding fees with the LGU and BIR having jurisdiction over their place of business.
The payment of local taxes and fees to secure the business permit from the LGU can be done annually (on or before Jan. 20) or quarterly (on or before April 20, July 20 and Oct. 20). Failure to renew the business permit within the deadline will trigger a 25% surcharge and 2% monthly penalty, or may result in the closure of the business.
Further, companies shall pay the BIR an annual registration fee of P500 on or before January 31 of each year. The penalty for late payment is a 25% surcharge, plus 20% interest per annum, and a compromise penalty of P1,000.
2. Books of Account
Manual books of account
A new set of manual books of account must be registered when the previously registered books have been exhausted, provided that the portions pertaining to a particular year are properly labeled or marked by the taxpayer. This means that it is not necessary for a taxpayer to register a new set every year when there are remaining pages to write on.
Loose-leaf books of account
Businesses using loose-leaf books of account as approved by the BIR must submit their bound books of account for the taxable year within 15 days from the close of each fiscal year (on or before Jan. 15 for taxpayers operating on a calendar year).
Computerized books of account
Businesses using computerized books as approved by the BIR shall submit their books for the taxable year, in CD-R, DVD-R or other optical media form within 30 days from the close of each fiscal year (on or before Jan. 30 for calendar year taxpayers).
Failure to submit the books of account within the deadline is subject to a penalty not exceeding P25,000.
3. Annual Information Returns
Every taxpayer required to deduct and withhold tax shall file with the BIR the annual information return of income tax withheld on compensation and final withholding taxes with an alphabetical list of employees (BIR Form 1604-CF) on or before Jan. 31 of the succeeding year.
On the other hand, the annual information return of creditable income taxes withheld/income payments exempt from withholding tax (BIR Form 1604-E) with an alphabetical list of payees must be submitted on or before March 31 of the succeeding year.
Failure to file an information return or list is subject to a penalty of P1,000 for each failure but not to exceed P25,000.
4. Withholding Tax Certificate for Employees
The Certificate of Compensation Payment/Tax Withheld (BIR Form 2316) shall be issued to employees on or before Jan. 31 of the succeeding calendar year.
For employees qualified for substituted filing, the employer shall submit the signed BIR Form 2316 to the BIR not later than Feb. 28 of the next year. Failure to file the form with the BIR within the deadline is subject to a penalty of P1,000.
5. Annual Income Tax Return (ITR) and Audited Financial Statements (AFS)
All taxpayers and businesses are required to file their annual ITR with the BIR and pay the related taxes due on or before the 15th day of the fourth month of the following year (i.e., April 15 for calendar year taxpayers).
Considering the thresholds set by the BIR and SEC, every business must assess if there is a need to have its books of account audited by an independent Certified Public Accountant (CPA) accredited by the BIR, SEC and Board of Accountancy (BOA).
A manual filing of the annual ITR, accompanied by the AFS, as applicable, and other required attachments shall be done within 15 days from the deadline for electronic filing of the annual ITR.
The penalty for the late electronic filing and payment of taxes due is equivalent to a 25% surcharge on the tax due, 20% interest per annum and compromise penalty not exceeding P50,000. Penalty for the late manual filing of annual ITR and AFS ranges from P1,000 to P25,000 depending on the amount of gross sales, earnings, or receipts.
For entities operating on a calendar year, the deadline for filing of the AFS with the SEC is based on the last digit of the entity’s registration with the SEC, which usually starts during the third week of April until the middle of May. The late filing of AFS is subject to a penalty ranging from P500 to P5,000 depending on the amount of total assets reported in the most recent AFS.
The BOA also requires all entities with gross receipts/revenues of at least P10 million to submit a Certification/Compilation Report signed by an accredited CPA. However, the BIR and SEC do not require this report. Further, there is yet no penalty imposed by the BOA for non-compliance with this requirement.
6. Annual Tax Incentives Report
Under the Tax Incentives Management and Transparency Act (TIMTA), all businesses registered with any IPA, availing of incentives administered by the IPA, shall file with their respective IPA an Annual Tax Incentives Report within 30 days from the statutory deadline for filing of the annual ITR and payment of tax due, if any. In addition to this, registered business entities (RBEs) are also required to submit a Cost-Benefit Analysis which will be used by the IPAs and the National Economic and Development Authority in determining the impact of tax incentives on the Philippine economy.
Any RBE which fails to comply with the filing and reportorial requirements and/or fails to show proof of filing of tax returns to IPAs shall be meted the following penalties: a) P100,000 for the first violation; b) P500,000 for the second violation; and c) cancellation of the RBE’s registration for the third violation.
7. Inventory List and Other Reporting Requirements
All businesses maintaining inventories shall submit to the BIR an inventory list and schedules of other tangible asset-rich balance sheets, often with at least half of their total assets in working capital assets, e.g. accounts receivable, not later than 30 days following the close of the taxable year. Failure to submit the list/schedule is subject to a penalty of P1,000 for each list/schedule, but not to exceed P25,000 for each year.
8. General Form Financial Statements (GFFS)/Special Forms for Financial Statements (SFFS)
The SEC requires the submission of GFFS or industry-specific SFFS, whichever is applicable, by all SEC-registered domestic corporations with annual gross sales or revenue of at least P5 million, as well as investment companies and publicly-held companies, financing companies and other companies covered by SEC Memorandum Circular No. 6 Series of 2006. The GFFS/SFFS shall be submitted within 30 days from the last day of filing of the annual AFS with the SEC.
The following are the penalties for non-submission, late submission, or inaccurate/incomplete reporting of figures in the GFFS and SFFS: first offense is a reprimand, and every succeeding offense is P1,000 per day plus P100 per day of delay for GFFS or P2,000 per day plus P100 per day of delay for SFFS.
9. General Information Sheet (GIS)
The GIS shall be filed within 30 days from the annual stockholders’ meeting for domestic corporations or on the anniversary of the issuance of the SEC license for foreign corporations. Penalties for the non-submission, late submission, or inaccurate/incomplete reporting of information in the GIS are: reprimand for the first offense; and for succeeding offenses, P1,000 per day plus P100 per day of delay.
The foregoing list of year-end requirements is not all-inclusive. There may be other annual requirements needed to comply with depending on the company’s industry.
Non-compliance with the annual reportorial requirements brings unnecessary additional costs (e.g. penalties), which may be significant to some taxpayers. This could also trigger an early tax audit investigation. To avoid this dilemma, some companies find it more cost-efficient and effective to outsource the function to third party service providers who prepare and file their annual requirements. But, no matter how year-end requirements are processed, taxpayers must prepare ahead to ensure 100% timely compliance and reporting. After all, an orderly and compliant reporting has always been the cornerstone of good business practice. It’s also an effective way to close the year right.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Jane R. Alcause-Fabro is a Director at the Client Accounting Services group of Isla Lipana & Co., the Philippine member firm of the PwC network.
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