Taxwise Or Otherwise

By virtue of Proclamation 475, the Boracay barangays Balabag, Manoc-Manoc and Yapak in the Municipality of Malay, Aklan were placed under a State of Calamity and temporarily closed as a tourist destination effective April 26.
As a consequence, the issuance of licenses and permits for the construction and building of new and expanding tourism and other business facilities and enterprises on the island was placed under a moratorium for an extendable period of six months pursuant to Executive Order (EO) 53 series of 2018.
With the suspension of business operations on Boracay Island, establishments that intend to permanently or temporarily close must comply with filing requirements for documentation and regulatory purposes.
Establishments that will close down permanently must cancel their registrations with the Department of Trade and Industry (in case of sole proprietorship) or the Securities and Exchange Commission (for corporations and partnerships), as well as with the Bureau of Internal Revenue (BIR), and the local government of Malay.
To cease the employer’s obligation of remitting the mandatory contributions, notices should also be served on social welfare agencies, such as Social Security System (SSS), Home Development Mutual Fund (Pag-IBIG Fund) and Philippine Health Insurance Corp. (PhilHealth). In the absence of notification, the establishments may still be considered in active status and thus, can be assessed unpaid contributions plus corresponding penalties.
Moreover, in compliance with procedural requirements of due process, an Establishment Termination Report (ETR) should be filed with the Department of Labor and Employment (DoLE) along with written notices served to the affected employees at least 30 days prior to the effective date of closure.
In all cases, the closure would require submission of documentary requirements and settlement of all liabilities due to government agencies, such as unpaid taxes and imposable fees.
For suspension of operations, affected establishments must continue to regularly submit the corresponding tax returns for their registered tax types. In the absence of a BIR directive instructing otherwise, the rule on filing of returns shall continue to be enforced.
Since there are no operations and business income may fall below the taxable limit, “Zero or Nil” returns should instead be filed on or before the respective deadlines; if not, the establishment shall be subject to a penalty of P1,000 per return.
Unfiled returns will be reflected in the BIR’s records as “open cases” which refer to the list of returns that appear to be “unfiled” in the BIR’s database. To settle these “open cases,” the missing returns must be filed and the applicable penalties should be paid.
With regard to payment of the Local Business Tax (LBT), due annually on the 20th of January, it is advisable to notify the local government unit (LGU) of the temporary closure and submit the needed requirements. Since the gross receipts for 2018 (which will serve as basis for the LBT to be paid in 2019) are expected to show a decline, a corresponding reduction in taxes is likewise foreseen.
In the case of temporarily layoffs, employers are still required to submit the ETR to the DoLE. Under Article 286 of the Labor Code, suspension of the employment relationship as a result of a bonafide suspension of a business or undertaking is permissible provided that the suspension is for a period not exceeding six months. After six months, the employee should either be recalled to work or, if this is not feasible, permanently separated and paid the appropriate separation pay.
Moreover, notice of temporary suspension should also be filed with the social welfare agencies to suspend the employer’s obligation of remitting the mandatory contributions without risk of penalties. Once operations resume, however, and employees report back for work, the employers are required to continue their remittances.
To ease the situation of affected workers, (i.e. those whose employment was suspended due to temporary closure of their employer’s business, those who were terminated by reason of permanent cessation of business of their employer, and retained workers who do not receive regular wages due to the temporary closure of Boracay Island), DoLE issued Department Order 191 series of 2018 (DO 191) by way of relief. Under DO 191, affected workers may avail of any or all of the following program assistance:

a. Financial Assistance: Financial support equivalent to 50% of the prevailing minimum wage of Region VI, for a maximum of six months. For retained workers who do not receive regular wages,the financial support is equivalent to 25% of the prevailing minimum wage of Region VI, which shall be non-conditional, to be provided in lump sum covering three months;

b. Employment Facilitation: Access to available job opportunities suitable to their qualifications through job matching, referral, and placement services, either local or overseas employment, employment coaching and labor market information;

c. Training: Appropriate training to enhance their skills and competitiveness, as well as employability, as administered by the TESDA, DTI, DoST, DoT and other government agencies.

To monitor and ensure that the program objectives are met, the concerned DoLE Regional Office is required to report regular progress to the Bureau of Local Employment for subsequent submission to the Secretary of Labor.
Affected employees may also avail of emergency loans from SSS under its Emergency Loan Assistance Program and multi-purpose loans from the Pag-IBIG Fund.
Indubitably, on top of the economic impact, the Boracay closure also has regulatory filing consequences. To avoid compliance issues and incurring penalties, business establishments must be mindful of government reportorial requirements. On the part of employees, it behooves them to be aware of existing programs such as DO 191 to avail and optimize the assistance currently provided by law.
The views or opinions presented 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.
Aimee Rose DG. dela Cruz is a senior manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
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