A few weeks ago, I attended the first anniversary celebration of the Ease of Doing Business Law (Republic Act No. 11032) at the Philippine International Convention Center. RA No. 11032 was signed on May 28, 2018 and became effective on June 17, 2018. Many stakeholders and government officials were present to witness this milestone, all curious how the law has improved government services since its effectivity. Anniversaries are always nostalgic, as they force us to look back and see what has been accomplished in the past year.
Listening to the speeches of various government officials enumerating the responsibilities and mandate of the Anti-Red Tape Authority, I did hear the sincerity and desire to improve the pace at which government services are delivered. I even met some of the familiar faces from the Bureau of Internal Revenue (BIR) who are tasked to implement the provisions of the Ease of Doing Business Law within the Bureau. Their mission is not easy. Breaking down decades-old practices and mindsets at the BIR is definitely a gargantuan task that needs to be done as soon as possible.
The good news is that the BIR has implemented changes. Various regulations setting strict timelines for processing BIR applications have been issued. A 2019 Citizens Charter is posted on the website. At the last BIR kickoff event held in February this year, the BIR showed a case study proving that an application for business registration can be done within the same day. Some taxpayers during an ease of doing business seminar I attended even acknowledged that they were able to get a Certificate Authorizing Registration (CAR) for transfer of land ownership within the three- to 20-day period specified in Revenue Memorandum Circular No. 048-18. These are indeed noteworthy developments.
I was even optimistic when I joined in May this year a workshop conducted by the Department of Finance (DoF) on what an ideal taxpayer experience should be. It was a forum where I was able to share my expectations every time I have to deal with the BIR. These are signs that indeed the DoF and the BIR are, at the very least, interested to know what taxpayers expect from the BIR. I get all excited when I imagine a future when taxpayers are treated like VIP clients. Perhaps then, timelines will be set and met for every transaction; and businesses will finally be able to achieve a bit of certainty in planning transactions that require BIR approval or action prior to implementation.
However, much needs to be done. Listening to the speeches brought me to reminisce about the old days when I was still starting my tax practice. Retrospection is generally flawed, as it is mostly seen through rose-colored glasses, but I remember that dealing with the BIR then was simpler and easier. When a request for ruling was submitted, I could expect that the ruling would be issued within three to six months. Of course, there were requests that were complicated and would need more time to process, but I know that I would generally be able to get a ruling or approval within a reasonable amount of time.
Unfortunately, the same is no longer true. Most times, a client will ask me how long it would take to process their application for a request for ruling or approval of their computerized accounting system. Unfortunately, I am always reluctant to give a specific timeline, knowing the unpredictability of when an approval or ruling will be issued.
The Ease of Doing Business Law states that all applications or requests must be acted upon within three working days for simple transactions and seven working days for complex transactions. For applications or requests that are highly technical, the processing time shall in no case be longer than 20 working days or as determined by the government agency or instrumentality concerned, whichever is shorter. To ensure that the application is not buried in the quagmire of bureaucratic red tape, the law limits the number of signatories to three officers directly supervising the office or agency concerned.
Failure to act on an application or request within the prescribed processing time shall be deemed approval of the application, provided that all required documents have been submitted and all required fees and charges have been paid.
The timelines set by the law are definitely strict and short. Perhaps 20 days is pushing it and does not consider the limited resources of government agencies such as the BIR. Limiting the signatories to three needs to address the issue of trust and confidence within the BIR. But dura lex sed lex, indeed.
Considering the lack of resources within the BIR, maybe it is time to evaluate the number of transactions that require prior approval or confirmation rulings. If the BIR does not have enough manpower to look at the thousands of pending applications, it is probably time to consider whether removing the prior approval or confirmation ruling requirements for simpler transactions is acceptable. The BIR has started this move, particularly in the tax treaty relief application for dividends, royalties, and interest, where the submission of the required documents is sufficient without need of waiting for a confirmation ruling. Perhaps, taxpayers can even be allowed to rely on prior rulings issued to them, if there has been no change in the facts or circumstances during the intervening period.
In two decisions, the Court of Tax Appeals (CIR vs. Dakudao & Sons, 2015 and CIR vs. Lucio L. Co, et al, 2018) held that a BIR confirmation ruling for a tax-free exchange is not a condition sine qua non for the availing the tax exemption. The Supreme Court (in Deutsche Bank AG Manila Branch, vs. CIR, 2013) also held that the period of application for availing of tax treaty relief as required by Revenue Memorandum Order No. 1-2000, should not operate to divest entitlement to the relief, as it would constitute a violation of the duty required by good faith in complying with a tax treaty. Yet, most revenue district offices (RDOs) still require the BIR confirmation ruling before processing the certificates authorizing registration (CARs) for transferring shares of stock or real properties involved in the transactions. Perhaps the BIR can consider allowing the respective RDOs to process the CAR based on the surrounding facts and circumstances submitted to them. However, the varying interpretations and requirements of the respective RDOs is another problem worth another article.
The BIR’s task of expediting its processing time in compliance with the Ease of Doing Business Law is indeed an enormous task. It requires reengineering procedures. Mindsets have to be pivoted and processes have to be streamlined. The good news is that the BIR has started in this task and improvements can already be seen and felt by taxpayers. We can only hope that, perhaps, same time next year, we will once again celebrate the anniversary of the Ease of Doing Business Law with a triumphant pronouncement that doing business with the BIR has indeed become easy and, at times, even pleasurable.
Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
Eleanor Lucas Roque is the head of the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.