January, from the Latin “Ianuarius,” was named after Janus, the god of beginnings and transitions in Roman mythology. We have come to know it as the first month of the Gregorian calendar, ushering a brand new year. For accountants, especially those involved in compliance work, January is crunch time. It entails winding up year-end work, kicking off the busy season for completing the compliance requirements of various government agencies.
RENEWAL OF BUSINESS REGISTRATION
In general, all businesses are required to renew their registrations annually and pay the corresponding fees to the Local Government Unit (LGU) and the Bureau of Internal Revenue (BIR). Under the Local Government Code (LGC), LGUs can collect Local Business Tax (LBT), fees for the mayor’s permit, and other fees and charges.
Under Section 143 of the LGC, the LBT is imposed on the gross sales or receipts of an establishment depending on the nature of its business. As the basis for computing LBT, business establishments must submit a declaration or certification of gross sales or receipts for the previous year, the most recent Income Tax Return (ITR), and the Financial Statements for LGUs to validate the certification.
The deadline for the renewal of registration and payment of LBT in all cities and municipalities is on the 20th of January each year. Late payment of LBT is automatically penalized with a 25% surcharge on the base taxes, fees or charges, while an additional 2% monthly interest will be charged on the basic amount and the 25% surcharge.
On the other hand, the BIR collects an Annual Registration Fee (ARF) of P500 for every separate place of business, on or before the 31st of January each year. A compromise penalty of P1,000 plus a 25% surcharge and 12% annual interest will be imposed in case of delay or failure to pay.
REGISTRATION OF BOOKS OF ACCOUNT
There are three formats for books of account that taxpayers can maintain: manual, computerized, and loose leaf. Under Revenue Memorandum Circular (RMC) No. 82-08, manual books of account must be registered within 30 days from business registration, while a new set of books may be registered only after exhausting the leaves of the previously registered manual books.
On the other hand, taxpayers may opt to use a computerized accounting system (CAS) for efficiency. Taxpayers who obtain a permit to use a CAS will be required to submit their accounting records to the BIR in soft copy through CD-R, DVD-R, or other optical media, annually, within 30 days from the close of the taxable year. The books of account together with the required attachments must be submitted to the Revenue District Office (RDO) or to the Large Tax Assistance Division, whichever is applicable.
For loose-leaf books of account, the taxpayer shall maintain encoded details of the accounting records in the computer and shall generate copies in print using the duly approved format of the BIR. These loose-leaf forms must be bound as accounting records and submitted to the BIR within 15 days after the end of the taxable year.
In accordance with Revenue Memorandum Order (RMO) No. 7-15, a compromise penalty not exceeding P50,000 will be imposed in case of failure to keep books of account or records, depending on the level of gross sales, earnings, or receipts. On the other hand, a maximum penalty of P25,000 will be imposed in case of failure to timely submit the books of account for both CAS and loose-leaf books of accounts.
FILING OF ANNUAL INFORMATION RETURNS
Under RMC No. 73-19, there are three annual information returns which taxpayers are required to file: 1) Annual Information Return of Income Taxes Withheld on Compensation (BIR Form No. 1604-C), 2) Annual Information Return of Income Payments Subjected to Final Withholding Taxes (BIR Form No. 1604-F), and 3) Annual Information Return of Creditable Income Taxes Withheld (Expanded)/Income Payments Exempt from Income Tax (BIR Form No. 1604-E).
Details of the compensation paid or accrued in a given year must be declared in BIR Form No. 1604-C to be filed on or before Jan. 31 of the succeeding year. This information return is to be filed together with the alphabetical list of employees/payees from whom taxes were withheld and a separate alphalist schedule for minimum wage earners. On the other hand, BIR Forms 1604-F and 1604-E, together with the corresponding alphabetical list of payees, are due to be filed by Jan. 31 and March 1, respectively, of the year succeeding the calendar year in which expenses subject to final/expanded withholding taxes were paid or accrued.
A compromise penalty is imposed for each failure to file an information return, statement, or list, for neglect to keep any record, or for failure to supply any information required by the Tax Code or by the Commissioner of Internal Revenue on the prescribed date. Under RMO No. 7-15, the penalty is not to exceed P25,000 as an aggregate amount imposed for all counts of failures during a calendar year.
FILING AND SUBMISSION OF ANNUAL INCOME TAX RETURNS AND AUDITED FINANCIAL STATEMENTS
For corporations, the latest versions of the Annual Income Tax Returns (ITR) are as follows: a) BIR Form No. 1702-RT for corporations subject only to regular income tax; b) BIR Form No. 1702-EX for exempt corporations under the Tax Code and special laws, with other taxable income; and c) BIR Form No. 1702-MX for corporations with mixed-income subject to different rates or preferential rates. The deadline for the filing and payment of the annual ITR is the 15th day of the fourth month following the end of the taxable year. Failure to file and pay the corresponding tax due exposes the taxpayer to a 25% surcharge on the tax due, while 12% interest per annum will be imposed from the deadline of the payment until the time of full payment, plus a compromise penalty.
In general, a corporation with a fiscal year-end other than Dec. 31 must file audited financial statements stamped received by the BIR and Statement of Management Responsibility (SMR) to the Securities and Exchange Commission (SEC) within 120 calendar days from the end of its fiscal year. For corporations operating on a calendar year, the filing deadline depends on the last numerical digit of the company’s SEC registration number or license number. A penalty is assessed in case of late filing depending on the amount of the total assets reflected in the audited financial statements.
This compliance list is not comprehensive; hence, it is prudent to check if there are other additional requirements imposed by government agencies that apply to one’s business, especially if you have other special registrations (e.g., for tax incentives). To avoid finding yourself embroiled in a complicated situation at the start of the year, it is advisable to observe diligence in complying with annual regulatory requirements.
As author Vernon McLellan said, “What the new year brings to you will depend a great deal on what you bring to the new year.” So, let’s start 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.
Marvin L. Madrigalejo is a senior manager at the Client Accounting Services group of Isla Lipana & Co., the Philippine member firm of the PwC network.
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