In the last four years, two major tax reform measures — the TRAIN Act and the CREATE Act — have been signed into law. TRAIN entered the statute books in December 2017 and CREATE in March 2021. The reforms reduced income tax rates for individuals and corporations.
How ready are we to implement the reforms as soon as they take effect?
One of the significant reforms under the CREATE Act is the retroactive reduction in the corporate income tax rate from 30% to either 25% or 20%, depending on the company’s net taxable income and total assets for the taxable year. Taxpayers needed guidance on how the mid-year retroactive reduction was to be implemented, considering that the CREATE Act was passed near the filing deadline of the 2020 Annual Income Tax Return (AITR) of calendar year taxpayers. Also, for the new tax rates to be applied, the income tax returns must be updated by the Bureau of Internal Revenue (BIR).
OUTDATED RETURNS IN THE eFPS
On April 8, 2021, with a few days left before the April 15 filing deadline, the BIR issued Revenue Memorandum Circular (RMC) 50-2021, laying down the guidelines for the filing and payment of the AITR by non-individual or corporate taxpayers for the taxable year ending July 31, 2020 to June 30, 2021, which were affected by the passing of the CREATE Act. The RMC confirmed the lower/transitory income tax rates that would apply. In addition, the BIR did a good job in making the returns more concise. Unfortunately, the returns were not made available on the eFPS facility. Thus, non-individual taxpayers (whether or not enrolled in the BIR’s Electronic Filing and Payment System) were instructed to use the Offline eBIRForms Package version 7.9 or eBIRForms in filing their AITR. The eBIRForms package includes the updated BIR Forms 1702RT, 1702MX, and 1702EX, with an editing feature on applicable rates according to the transitory tax rates applicable to the taxpayer.
For eFPS filers, the payment process was slightly different. After submitting the returns using the eBIRForms, they were to fill out BIR Form 0605 in the eFPS then proceed to e-payment. In a regular filing and payment scenario, eFPS filers click the “Proceed to Payment” button after the online filing of returns. Convenient, right? Unfortunately, as of this writing, the updated AITRs are still not available in the eFPS. In fact, aside from the AITRs, the latest versions of the revised withholding tax returns, percentage tax, and documentary stamp tax are still not available in the eFPS: 1602Q, 1603Q, 1604-C, 1604-F, 1604-E, 2000, and 2551Q. This is rather disappointing considering that these became available in eBIRForms as early as 2018 and 2019 as part of the implementation of the TRAIN Law.
It begs the question — what is causing the delay in updating the returns in the eFPS? Specifically, for the AITR, can we expect the BIR to update them in the eFPS for taxpayers reporting for fiscal year July 30, 2021 and beyond, or will the BIR issue another RMC, instructing taxpayers to also use eBIRForms?
Going back to the TRAIN Law implementation, the BIR also issued RMC 36-2021, prescribing the guidelines for the filing of Value-Added Tax (VAT) declarations/returns (BIR Forms 2550M and 2550Q) in relation to the shift from final to a creditable system on the VAT withheld on sales to the government beginning Jan. 1, 2021. As a result of the change, new versions of the VAT declarations/returns need to be developed. However, the BIR has yet to release them in both eFPS and eBIRForms platforms.
In addition, the update on the VAT declarations/returns should also consider the expiration of the amortization requirement for input VAT on capital goods exceeding P1 million. Beginning Jan. 1, 2022, any unamortized input VAT is to be fully recognized outright and may be claimed as an input tax credit against output tax. I expect that the BIR may want to have a separate line item to reflect this change to facilitate verification during tax audits.
PAYMENT OPTIONS FOR eFPS FILERS
One of the reasons why some taxpayers voluntarily opt to enroll in the eFPS is for the convenience and speed of paying with a simple click after filing the return, eliminating the need to physically pay at an Authorized Agent Bank (AAB) or use other payment modes outside the eFPS that require separate fund accounts.
Considering that the BIR is still playing catch-up in terms of updating the returns, it should, at least, consider allowing the same payment process for the other returns that it allowed under RMC 50-2021, i.e., to pay in the eFPS using BIR Form 0605 after filing the relevant return through eBIRForms.
Currently, the various payment options provided under an earlier issuance (RMC 4-2021) does not include the eFPS payment option under RMC 50-2021. According to RMC 4-2021, in case of newly-created tax returns that are not available in the eFPS facility but already accessible in the eBIRForms, the taxpayer must file such returns using the eBIRForms program. Payment should be through any of these channels: 1) over-the-counter payment to AABs; 2) Revenue Collection Officers (RCOs) in areas where there are no AABs; 3) electronic payment to selected banks, which will require the taxpayer to open an account; or 4) mobile payment channels like GCash or PayMaya.
The tax reform programs aim to make the tax system simpler, fairer, and more efficient. While the policy changes introduced by the new legislation achieve this objective, the delay in the eFPS updates, for me, take something away from the full realization of the benefits of these reforms. I hope the government stops playing catch-up soon enough.
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.
Christian Grimaldo is a manager with the Tax Services Group of Isla Lipana & Co., the Philippine member firm of the PwC network.
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