The new year has officially started, and it would be prudent to start the year right by getting to know the trends that taxpayers may want to look forward to. This year, there are new tax rules that are bound to begin and end, some of which are described below.
OUTRIGHT RECOGNITION OF INPUT VALUE-ADDED TAX (VAT) ON CAPITAL GOODS
The introduction of the Tax Reform for Acceleration and Inclusion (TRAIN) Act in 2018 brought with it an amendment that provides that the “amortization of input VAT” on purchased or imported capital goods will no longer be allowed beginning Jan. 1, 2022. Therefore, the related input VAT on capital goods acquired in 2022 may be fully recognized outright and be claimed as input tax credits against output tax during the month when the capital goods are purchased or imported, regardless of whether the aggregate acquisition cost in a calendar month exceeds P1 million.
Prior to the effectivity of the TRAIN Act, the Tax Code, as amended, provided that the input VAT on capital goods purchased or imported in a calendar month for use in a trade or business be spread evenly over 60 months if the aggregate acquisition cost for such goods, excluding the VAT component thereof, exceeds P1 million; provided, however, that if the estimated useful life of the capital goods is less than five years, the input VAT be spread over such a period.
On the above development, what will happen to the unutilized input VAT as of Dec. 31, 2021?
Under the TRAIN Act, the unutilized input VAT may still be amortized as scheduled until fully utilized. Thus, it is essential for taxpayers to separately monitor the input VAT on the purchases or imports made starting Jan. 1, 2022, and those that were acquired on or before Dec. 31, 2021.
CHANGE IN REGIONAL OPERATING HEADQUARTERS (ROHQ) INCOME TAX RATE
This year’s tax trends will also affect the ROHQs. Beginning Jan. 1, 2022, ROHQs will no longer be considered special corporations subject to the preferential tax rate. They will now be subjected to Regular Corporate Income Tax (RCIT) just like regulars Resident Foreign Corporations (RFC).
Previously, under the TRAIN Act, ROHQs were subject to a preferential tax rate of 10% on their taxable income. However, due to the effectivity of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, and as per Revenue Regulations (RR) No. 5-2021, the tax rate has increased to 25% RCIT. With the change, the Minimum Corporate Income Tax (MCIT) of 1% is also now applicable provided the ROHQ is on its fourth taxable year in 2022. The MCIT rate is effective for ROHQs starting Jan. 1, 2022 to June 30, 2023. The MCIT rate will revert to 2% starting July 1, 2023.
Considering the changes, ROHQs are expected to transition from using BIR Form No. 1702-MX to BIR Form No. 1702-RT in the preparation of their income tax returns.
NEW EXCISE TAX RATES
Further adjustments to the excise tax rates on certain excisable products are also to be expected. The adjustment process started with the implementation of the TRAIN Act, with updates issued under subsequent regulations. These include Republic Act (RA) No. 11346, also known as the Tobacco Law of 2019, which increases the excise tax from P50.00 to P55.00 per pack of cigarettes that are packed by hand or by machine.
On the other hand, RA No. 11467 increased certain excise taxes on alcohol, tobacco products, and e-cigarettes. For fermented liquors, the increase is from P37.00 to P39.00 per liter. For heated tobacco products, the increase is from P27.50 to P30.00 per pack of 20 units or packaging combinations of not more than 20 units. There are other upward adjustments on excise taxes, and the effectivity of such adjustments is Jan. 1, 2022.
REVERSION TO 3 YEARS FOR NET OPERATING LOSS CARRY-OVER (NOLCO)
The period for NOLCO carry-over had been adjusted to provide some relief for the impact of COVID-19 on businesses. Under RR No. 25-2020 (implementing certain provisions of Bayanihan to Recover as One Act), the net operating loss (NOL) for taxable years 2020 and 2021 was to be carried over as a deduction from gross income for the next five consecutive taxable years, immediately following the year of such loss.
For 2022, the NOLCO period will revert to three years. Hence, for taxpayers using calendar years, their NOL for the year ending Dec. 31, 2022 will be allowed to be carried for three consecutive taxable years. On the other hand, for taxpayers using fiscal years, as per Revenue Memorandum Circular (RMC) No. 138-2020, those who have fiscal years ending after June 30, 2022 will revert to the three consecutive taxable years for their NOL incurred in fiscal years ending after June 30, 2022.
Starting the new year right means that taxpayers ought to know the new trends in taxation in aid of compliance and decision-making. It is necessary to know the newest trends, what’s in and what’s out, in order to deal with the changes. Doing so will help ensure that taxpayers have the necessary tools to begin the year right.
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.
Mary Grace G. Lualhati is a senior in charge from the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.